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S. HRG. 111–1137 

PROTECTION FROM UNJUSTIFIED PREMIUMS 

HEARING 

OF THE

COMMITTEE ON HEALTH, EDUCATION, 

LABOR, AND PENSIONS 

UNITED STATES SENATE 

ONE HUNDRED ELEVENTH CONGRESS 

SECOND SESSION 

ON

EXAMINING PROTECTION FROM CERTAIN PREMIUMS 

APRIL 20, 2010 

Printed for the use of the Committee on Health, Education, Labor, and Pensions 

( 

Available via the World Wide Web: http://www.gpo.gov/fdsys/ 
COMMITTEE ON HEALTH, EDUCATION, LABOR, AND PENSIONS 

TOM HARKIN, Iowa, Chairman 

CHRISTOPHER J. DODD, Connecticut 

BARBARA A. MIKULSKI, Maryland 

JEFF BINGAMAN, New Mexico 

PATTY MURRAY, Washington 

JACK REED, Rhode Island 

BERNARD SANDERS (I), Vermont 

SHERROD BROWN, Ohio 

ROBERT P. CASEY, JR., Pennsylvania 

KAY R. HAGAN, North Carolina 

JEFF MERKLEY, Oregon 

AL FRANKEN, Minnesota 

MICHAEL F. BENNET, Colorado 

MICHAEL B. ENZI, Wyoming 

JUDD GREGG, New Hampshire 

LAMAR ALEXANDER, Tennessee 

RICHARD BURR, North Carolina 

JOHNNY ISAKSON, Georgia 

JOHN MCCAIN, Arizona 

ORRIN G. HATCH, Utah 

LISA MURKOWSKI, Alaska 

TOM COBURN, M.D., Oklahoma 

PAT ROBERTS, Kansas 

DANIEL SMITH, Staff Director 

PAMELA SMITH, Deputy Staff Director 

FRANK MACCHIAROLA, Republican Staff Director and Chief Counsel 

(II) 
C O N T E N T S 

STATEMENTS 

TUESDAY, APRIL 20, 2010 

Page 

Harkin, Hon. Tom, Chairman, Committee on Health, Education, Labor, and 

Pensions, opening statement ............................................................................... 1 

Alexander, Hon. Lamar, a U.S. Senator from the State of Tennessee ................ 2 

Feinstein, Hon. Dianne, a U.S. Senator from the State of California ................. 4 

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

Menke, Phyllis J., City Clerk, City of Fonda, IA .................................................. 9 

Prepared statement .......................................................................................... 10 

McRaith, Michael T., Director, Illinois Department of Insurance, Springfield, 

IL ........................................................................................................................... 13 

Prepared statement .......................................................................................... 15 

Ignagni, Karen, President and CEO, America’s Health Insurance Plans, 

Washington, DC ................................................................................................... 20 

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

Turner, Grace-Marie, President, Galen Institute, Alexander, VA ....................... 35 

Prepared statement .......................................................................................... 37 

Casey, Hon. Robert P., Jr., a U.S. Senator from the State of Pennsylvania ...... 52 

Coburn, Hon. Tom, a U.S. Senator from the State of Oklahoma ........................ 54 

Franken, Hon. Al, a U.S. Senator from the State of Minnesota .......................... 59 

Hagan, Hon. Kay R., a U.S. Senator from the State of North Carolina ............. 61 

Reed, Hon. Jack, a U.S. Senator from the State of Rhode Island ....................... 65 

Murray, Hon. Patty, a U.S. Senator from the State of Washington ................... 68 

ADDITIONAL MATERIAL 

Statements, articles, publications, letters, etc.: 

Senator Enzi ..................................................................................................... 77 

Galen Institute, letter ...................................................................................... 78 

(III) 

(1) 

PROTECTION FROM UNJUSTIFIED PREMIUMS 

TUESDAY, APRIL 20, 2010 

U.S. SENATE, COMMITTEE ON HEALTH, EDUCATION, LABOR, AND PENSIONS, Washington, DC. 

The committee met, pursuant to notice, at 9:34 a.m. in room SD– 

430, Dirksen Senate Office Building, Hon. Tom Harkin, chairman 

of the committee, presiding. 

Present: Senators Harkin, Murray, Reed, Casey, Hagan, 

Franken, Alexander, and Coburn. 

Also Present: Senator Feinstein. 

OPENING STATEMENT OF SENATOR HARKIN

The CHAIRMAN. The Committee on Health, Education, Labor, and 

Pensions will come to order. 

We’re holding our first hearing on health care since President 

Obama signed into law the historic Patient Protection and Affordable Care Act. This committee will be an active participant in implementation and oversight of that law. As we all know, health reform is not complete with the signing of a bill, and we are fully 

committed to ensuring a smooth and successful implementation. 

A major goal of health reform is to bring down the cost of health 

care and to reduce health insurance premiums. According to the 

independent Congressional Budget Office, reform will lower premiums by 14 to 20 percent for Americans buying insurance on their 

own. Now, those significant premium savings are the result of 

bringing everyone into the insurance pool, as well as administrative savings from larger purchasing pools and prohibiting medical 

underwriting for health status and preexisting conditions. And, of 

course, the Affordable Care Act includes an array of reforms to reward quality and value, which will reduce health care costs over 

the long-term. 

But, today our focus is not on health reform and its impact on 

premiums. Today, our focus is on current market conditions and 

ensuring that premiums are justified, that working families’ hardearned dollars are going toward premiums that truly reflect the 

cost of health care. What we’re talking about is protecting consumers from insurance companies jacking up premiums simply because they can. Protections must be in place to ensure that insurance companies do not take advantage of current market conditions 

before health reform fundamentally changes the way they do business in 2014. 

The Affordable Care Act includes a requirement, effective in 

2011, that insurance companies spend at least 80 percent of pre-
2 

mium revenue on actual health care. This reform will provide an 

important check on unjustified premiums, and the CBO has said 

that it will, in fact, lower premiums. 

In addition, the act establishes a process for the annual review 

of premium increases prior to their use and for public disclosure of 

how premium rates are determined. 

While all of this will benefit consumers tremendously, and very 

soon, we can and should do more. Currently, about 22 States in the 

individual market and 27 States in the small-group market do not 

require a review of premiums before they go into effect. This is a 

gaping hole in our regulatory system; it’s unacceptable. All consumers and small businesses are entitled to a rigorous and objective review of premiums to ensure that they are reasonable. And 

if that review determines that premiums are unjustified, that insurance companies are just trying to run up profits, corrective action must be taken. 

Rate review authority is not a panacea for reducing health care 

costs. We all know that premiums are rising because health care 

costs are rising. That is why the reforms in the Affordable Care Act 

aimed at containing costs are so important. But, according to the 

National Association for Insurance Commissioners, and I quote, 

‘‘Rate review can help keep insurers focused on constraining the 

growth of these costs.’’ The NAIC has also stated that, ‘‘Rate review 

authority is an important tool for regulators, and can help keep insurance companies honest.’’ That is why, just this past Sunday, on 

the front page of the New York Times, there was an article about 

how New York’s insurance companies are vigorously fighting the 

Governor’s proposal to reinstate prior approval of premiums. 

I want to commend Senator Feinstein for her extraordinary leadership on this issue. Her proposal became an important provision 

in President Obama’s health reform plan. Unfortunately, because 

of procedural rules, it could not be included in the final health reform package. But, make no mistake, we are redoubling our efforts, 

and we are committed to ensuring that unjustified premiums are 

corrected in every State. 

I recognize Senator Alexander for an opening statement. 

STATEMENT OF SENATOR ALEXANDER

Senator ALEXANDER. Thanks, Mr. Chairman. 

Senator Feinstein, it’s good to see you. 

The difference of opinion in the health care debate was about, 

What is the best way to reduce premiums so more Americans can 

afford it? Fundamentally, the mistake in the health care law was 

a decision by the majority, who passed the law, to expand health 

care coverage rather than to focus on reducing health care costs so 

that more people could afford to buy insurance. In other words, we 

are aiming at the wrong target. 

I’m afraid this proposal by Senator Feinstein does the same 

thing. In Tennessee, we’d say it’s barking up the wrong tree. 

Health insurance companies’ profits—and half of them are nonprofit—equal about 2 days of the cost of health care spending in 

the United States. So, even if we were to take away all the profits 

of the so-called ‘‘greedy insurance companies,’’ that would still 

leave 363 days a year when our health care delivery system costs 
3 

are expanding at a rate that our country cannot afford. So, again, 

we’re focusing on a tiny part of the problem—health care insurance 

company profits—and ignoring the health care delivery system 

which is breaking the backs of American families, American businesses, and the American government. 

It’s worse than that. The new health care law actually increases 

premiums. I had a little discussion with the President about that 

in, I hope, a respectful way at our health care summit. I read the 

Congressional Budget Office report a little differently than the 

Chairman does. It says that—in the letter that was issued at the 

end of November—that the new law will increase premiums for individual Americans, people who buy insurance on their own, by 10 

to 13 percent, on average. And it, naturally, would do that, because 

the new law has something in it called the ‘‘minimum credible coverage,’’ which says that if you buy an insurance premium in the individual market—if you buy on your own, which up to 32 percent 

of Americans will be doing under the new law—you have to have 

a certain kind of coverage. Senator Collins, who’s a former insurance commissioner in Maine, says that, in her State, that means 

that 87 percent of the policies will cost more under the new law 

than they do today. Now, it is true that about half, or maybe 60 

percent, of those people would get subsidies paid for by taxpayers 

to reduce the cost. But, even the remaining 40 percent or 50 percent will pay more. So, the minimum credible coverage provision of 

the law raises premiums. So does shifting the cost of 16 or 18 million new people into the Medicaid plans raise premiums, because 

doctors can’t afford to see them at the costs they’re reimbursed, 

and those costs are shifted onto those with private insurance. The 

new taxes will tend to raise premiums. Also, the new rating system 

will keep my premium lower at my age, but raise it for my sons 

and my daughters. 

Basically, we passed a new health care law which raises premiums. And now we’re considering another law which seeks to say 

to health insurance companies—half of them nonprofit—‘‘We’re 

going to take a look at your profits and that will solve the problem.’’ The real problem is the health care delivery system. And the 

real way to reduce premiums is to focus on reducing costs. 

I look forward to hearing from Senator Feinstein, my colleague 

on the Appropriations Committee, who I greatly respect and work 

with. Just because I have such great respect for her doesn’t mean 

I have to like every single bill that she offers up. And so, I’ll have 

some questions about it. And I will be looking to see whether this 

proposal, instead, will lead us toward more shortages, more price 

controls, and eventually toward a system where only the government offers Americans insurance. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator Alexander. 

Dianne Feinstein was elected to the U.S. Senate by the State of 

California in 1992. Among her many accomplishments in the 111th 

Congress, Senator Feinstein assumed the chairmanship of the Senate Select Committee on Intelligence, where she oversees the Nation’s 16 intelligence agencies. A member of the Senate Judiciary 

Committee and, as Senator Alexander said, on the Senate Appropriations Committee, where we all serve, she chairs the Sub-
4 

committee on Interior Environment and Related Agencies on Appropriations. Senator Feinstein also serves on the Senate Rules 

and Administration Committee, which she chaired during the 

110th Congress. 

Senator Feinstein, along with Senators Boxer, WhiteHouse, Reid, 

and Sanders, introduced S. 3078 to provide for the establishment of 

a health insurance rate authority to establish limits on premium 

rating and other purposes. 

So, I welcome Senator Feinstein to the committee. I look forward 

to hearing from you about your bill. And, Senator Feinstein, again, 

welcome. And please proceed as you so desire. 

STATEMENT OF SENATOR FEINSTEIN

Senator FEINSTEIN. Well, thank you very much, Mr. Chairman. 

I thank you for your comments. I happen to be strongly in agreement with them. I very much appreciate your having this hearing. 

Senator Alexander, I’ve enjoyed working with you on Interior Appropriations. It won’t surprise you that I, respectfully, disagree. 

I don’t know any large country that has tried to cover people, 

across the spectrum, that’s been able to do it with such a heavy 

preponderance of for-profit medical insurance. Some countries do 

have a for-profit system, but not to the extent that we have. And 

as I began to look into this, I found that, early on, the companies 

were able to get a bill passed which enabled them to merge and 

acquire, through an antitrust exemption. Now, the only other entity that has an antitrust exemption, to the best of my knowledge, 

is major league baseball. 

And so, with this antitrust exemption, these companies began to 

merge and acquire companies. This is very true in my State, California. In the city of Los Angeles, two companies control 51 percent 

of the premiums. Well, as they control the market share, obviously, 

they are able to raise premiums. 

You are correct, Mr. Chairman, President Obama did put this 

bill in the reconciliation bill. A point of order would rest against 

it, according to the parliamentarian, because it was more policy 

than budget reduction. And so, this is the only recourse that remains. 

Here’s what I have found: This industry is extraordinarily large 

in profit-taking for the kind of industry it is. The five largest forprofit companies saw profits go up some 56 percent from 2008 to 

2009. That’s from 7.7 billion to 12.1 billion. During this period of 

time, premiums are going up for people. WellPoint, the corporate 

parent of Anthem Blue Cross, earned a $4.7-billion profit in 2009. 

The CEO received a $3.1-million salary in total compensation in 

2009. That was a 51 percent increase. 

Well, these increases came; it may have been from a different 

profit center, but what then happened is, WellPoint indicated, and 

has indicated, that, beginning on May 1, insurance premiums for 

800,000 Californians—single policies—will go up to 39 percent, 

which, with the average, as I understand it, being a 25 percent increase. 

At a time when California has 12.7 percent unemployment—almost 2.5 million people out of work—over the last 2 years, 2 million people have left the insured and become uninsured. So, these 
5 

premiums drive people out of insurance, and we have received a 

tremendous number of complaints, with human stories that I won’t 

go into here. But, ‘‘How can I afford it?’’ You know, ‘‘I have three 

children. How can I afford a 39-percent increase on my premium?’’ 

I think this is completely backwards. I think, if you make money 

from one profit center—the point of health insurance is to help people. It shouldn’t be to become JPMorgan. And therefore, you ought 

to offset a profit from one center with the other, and have some 

sensitivity as to how you raise premiums, the timelines with which 

you raise premiums, and the size with which you raise premiums. 

Now, they’re not the only one. Blue Cross/Blue Shield of Michigan requested a 56 percent increase in individual market plans in 

2009. Regency Blue Cross/Blue Shield of Oregon requested a 20- 

percent premium increase. Three plans in Rhode Island requested 

increases ranging from 13 to 16 percent. And Anthem requested a 

24 percent increase for plans in the individual market in Connecticut. 

Regulators, however, approved only a 16.5 percent increase. So, 

there was an increase—there was an indication of where there was 

a State regulator that was able to review it and say, ‘‘No, we don’t 

find that justified. We do find a 16.5 percent increase justified.’’ 

But, again, this is during a period of enormous profit-taking. 

Now, as you said, insurance commissioners in some States have 

this authority already, and they would keep it. Commissioners 

have the authority for some insurance markets and not others. In 

about 20 States, including California, companies are not required 

to receive approval for rate increases before they take effect. This 

legislation simply creates a Federal fallback, allowing the Secretary 

to conduct reviews of potentially unreasonable rates in States 

where the insurance commissioner does not already have the authority or capability to do so. The Secretary would review potentially unreasonable premium increases and take corrective action. 

This could include blocking an increase or providing rebates to consumers. Under this proposal, the Secretary will work with the National Association of Insurance Commissioners to implement the 

rate review process and identify States that have the authority and 

capability to review rates. 

States already doing this work should continue. This legislation 

would not interrupt them. However, consumers in States like California and Illinois deserve protections from unfair rate hikes. 

The proposal would also create a rate authority, a seven-member 

advisory board, to assist the Secretary with these responsibilities. 

A wide range of interests would be represented, including consumers, the insurance industry, medical practitioners, and other 

experts. 

I think the proposal strikes the right balance, because there is 

an enormous loophole prior to the opening of the exchanges in 

2014. And I suspect, once we get past May 1, you are going to see 

other companies raise rates with dispatch. 

There is no need for Federal involvement in States with insurance commissioners that are protecting consumers. So, the legislation I’ve introduced simply provides Federal protection for consumers who are currently at the mercy of large for-profit health in-
6 

surance companies whose top priority, candidly, is their bottom 

line. 

You know, in California, we have a Public Utilities Commission. 

And the reason we have it is because electricity is found to be necessary for life. And therefore, the utilities are regulated. Pacific 

Gas & Electric, Southern California Edison, Semper—big utilities 

go before the Commission when they want a rate increase. They 

may get it. They may get some of it. They may not get it. Most of 

the time, they either get it, or get a part of it. But, there is a process to review these rates. 

I think, at a time when the economy is what it is in our country, 

and we want to encourage people to have private insurance, that 

insurance has to be affordable. And premiums have to go up on a 

rate that people can endure and pay. To have rates of 40 percent 

or 50 percent or 30 percent in a given time, and then tell the individual, ‘‘In the middle of next year, we may have to raise your rate 

again,’’ that is a major discouraging factor to a family gaining 

health insurance. 

So, I’m not going to go on and on, but I believe this issue passionately. If I had my druthers, I truly believe medical insurance 

should be nonprofit. But, it is for-profit. And there is a very large 

part of the premium dollar that goes for administrative expenses 

rather than medical care. The health care reform bill reduces that 

to 15 percent, and I think that’s good news. 

To have an industry that really doesn’t have the moral compass 

to understand what people are going through, when they’re making 

enormous profits at the same time, I find extraordinarily difficult 

to endure. 

Thank you very much, Mr. Chairman. 

[The prepared statement of Senator Feinstein follows:] 

PREPARED STATEMENT OF SENATOR FEINSTEIN

I would like to thank Chairman Harkin, Ranking Member Enzi 

and members of the committee for inviting me here today to address what I believe to be a missing piece of health care reform: 

the ability to block unreasonable premium increases. 

Without further legislative action, I am concerned that health insurance companies will continue to do what they have done for far 

too long: put their profits ahead of people. 

Premium increases are forcing Americans to choose between 

keeping health care coverage and making their mortgage payments, all while big national insurance companies enjoy increasing 

profits. 

ANTHEM/BLUE CROSS

Everyone by now is familiar with the increases that Anthem/Blue 

Cross of California is seeking to impose on 800,000 Californians. 

Rates will go up, on average, 25 percent and as much as 39 percent 

for some consumers. 

I find this unbelievable. Imagine the typical family, or individual, 

trying to find the money to pay another 39 percent for health care 

coverage—especially during these difficult economic times, with so 

much uncertainty. 
7 

Meanwhile, the health insurance company is doing better than 

ever. 

• WellPoint, the corporate parent of Anthem/Blue Cross, earned 

a $4.7 billion profit in 2009. 

• The CEO of Wellpoint received $13.1 million in total compensation in 2009, which was a 51 percent increase. 

This is completely backwards. A CEO is rewarded for business 

decisions that result in huge increases for customers. This is completely wrong. It is unacceptable, and it must not continue. 

The actions of Anthem in California have received a great deal 

of attention, but in reality, they are not all that unique. According 

to a report compiled by the U.S. Department of Health and Human 

Services: 

• Blue Cross/Blue Shield of Michigan requested a 56 percent increase in individual market plans in 2009. 

• Regency Blue Cross Blue Shield of Oregon requested a 20 percent premium increase. 

• Three plans in Rhode Island requested increases ranging from 

13 percent to 16 percent. 

• Anthem requested a 24 percent increase for plans in the individual market in Connecticut. Regulators approved only a 16.5 percent increase. 

Like Wellpoint, these companies are also enjoying financial 

growth. Even last year—a time of enormous economic distress for 

average Americans—was a good year for the health insurance industry. According to Health Care for America Now!, the five largest 

health insurers (WellPoint, UnitedHealth, Humana, Cigna, Aetna) 

saw profits increase 56 percent from 2008 to 2009, from $7.7 billion 

to $12.1 billion. Only Aetna saw their profits decrease. 

Yet we see these continued premium increases. We can expect 

this trend to continue, especially until 2014, when newly created 

exchanges will give customers new tools to compare plans, and 

force companies to be more competitive. 

SUMMARY OF LEGISLATION

The solution, I believe, is legislation to give the Secretary of 

Health and Human Services the authority to block premium or 

other rate increases that are unreasonable. 

In many States, insurance commissioners already have this authority. In some States, commissioners have this authority for some 

insurance markets and not others. And in about 20 States, including California, companies are not required to receive approval for 

rate increases before they take effect. 

My legislation simply creates a Federal fallback, allowing the 

Secretary to conduct reviews of potentially unreasonable rates in 

States where the Insurance Commissioner does not already have 

the authority or capability to do so. 

The Secretary would review potentially unreasonable premium 

increases and take corrective action. This could include blocking an 

increase, or providing rebates to consumers. 

Under this proposal, the Secretary will work with the National 

Association of Insurance Commissioners to implement the rate re-
8 

view process, and identify States that have the authority and capability to review rates. 

States already doing this work should continue—this legislation 

would not interrupt them. However, consumers in States like California and Illinois deserve protections from unfair rate hikes. 

The proposal would also create a Rate Authority, a 7-member advisory body to assist the Secretary with these responsibilities. A 

wide range of interests would be represented, including consumers, 

the insurance industry, medical practitioners, and other experts. 

This proposal strikes the right balance. There is no need for Federal involvement in States with insurance commissioners that are 

protecting consumers. The legislation I have introduced simply provides Federal protection for consumers who are currently at the 

mercy of large health insurance companies whose top priority is 

their bottom line. 

UTILITY MODEL

Health insurance should be no different than utilities. Water and 

power are essential for life. So they are heavily regulated and rate 

increases must be approved. 

Health insurance is also vital for life. It too should be strictly 

regulated so that people can afford this basic need. 

CONCLUSION

I would like to thank the committee for holding this hearing. I 

urge you to consider and approve this legislation as quickly as possible. 

It is a reasonable, measured proposal that will give all consumers, not just those in certain States, protection from unfair 

health insurance rate increases. 

The CHAIRMAN. Well, thank you very much, Senator, for your eloquent statement and for your leadership on this issue. 

We have a panel coming up here afterward that I’m sure we’re 

going to get into a lot of these issues with. I know you have your 

own committee that—— 

Senator FEINSTEIN. I do. 

The CHAIRMAN [continuing]. You have to go to, so. And I thank 

you very, very much—— 

Senator FEINSTEIN. Thank you. 

The CHAIRMAN [continuing]. For being here, and for your leadership on this. And we’ll see how this committee reacts and what 

we’re going to do on this bill. 

Senator FEINSTEIN. Thank you very much. 

The CHAIRMAN. Thank you very much, Senator Feinstein. Thank 

you. Thank you. 

Now I’d like to call up our panel. Phyllis Menke, city clerk, city 

of Fonda, IA; Michael McRaith, director of the Illinois Department 

of Insurance; Karen Ignagni, president and CEO of America’s 

Health Insurance Plans; and Grace-Marie Turner, president of the 

Galen Institute, of Alexandria, VA. 

We’ll go in that order. 

Again, all of your statements will be made a part of the record 

in their entirety. I will ask you if you could kind of sum it up in 
9 

5 minutes—5, 10, 15, 20—if you could sum it up in 5 minutes, or 

6. When it gets around 7, I might get a little nervous. But, around 

5 minutes, I’d sure appreciate. And then, we can get into questions 

and answers. 

We’ll start in the order in which I recognized people. First of all, 

Phyllis Menke is the city clerk and chief financial officer for the 

city of Fonda, has been for 25 years, also serves on the board of 

directors for Pocahontas County Economic Development Commission and the Pocahontas County Tourism Commission. Phyllis 

Menke—again, the city of Fonda is a small community of 648 people in northwest Iowa. And she contacted our office, and I thought 

that her points were something that needed to be brought out, in 

terms of what happens to small towns and communities that don’t 

have a large pool. 

So, we’ll start off with you, Phyllis. And again, thank you for 

being here. Thanks for getting in touch with our office. And, as I 

said, your statement will be made a part of the record. If you could 

sum it up in 5 or 6 minutes or so, I’d sure appreciate it. 

STATEMENT OF PHYLLIS J. MENKE, CITY CLERK, 

CITY OF FONDA, IA 

Ms. MENKE. Thank you, Senator Harkin and the other members 

of the committee. This is truly an honor, for me to be here. 

As Senator Harkin said, Fonda is a small community of about 

648 people. We’re located in northwest Iowa. 

We have three employees that get insurance that’s paid by the 

city. And we’ve had a policy for about 20 years. The first policy that 

the city had was a $250 deductible. I don’t have the records; I can’t 

tell you what that cost back then. But, if we fast-forward to 2005, 

the city purchased a Wellmark Blue Cross/Blue Shield policy. Our 

deductible is now $1,500, and it’s a cost-split of 90/20, and each of 

the employees have a $6,000 out-of-pocket maximum. And this is 

still a pretty good policy. It’s not as good as the $250 deductible we 

had, but it’s a pretty good policy. Our cost was $705 per month. 

In 2006, Blue Cross/Blue Shield notified us that our premiums 

were increasing 32.18 percent. The city went out for bids. The bids 

came back very high. So, we increased our deductible to $2,000. We 

increased the cost-split from a 90/10 to an 80/20. 

In 2007, our premiums increased by 18.4 percent, our deductible went to a $3,000 deductible. 

In 2008, our premiums were 13.33 percent increased. We made 

no change. 

In 2009, our premiums increased 10.35 percent. Again, we made 

no change. 

In September 2009, the city was notified by Blue Cross/Blue 

Shield that our premiums were increasing by 29.47 percent. The 

cost of our policy would go $1,265 per person per month. 

So, for the months of October, November, and December, I struggled, trying to find health insurance for the three full-time employees. I learned more about HSAs, HRAs, and group health insurance 

policies than I ever wanted to know. We went out for bids. They 

came back as high, or higher, than Blue Cross/Blue Shield. The city 

is no longer able to afford to offer its employees group health insurance. 
10 

So, the city council, after much discussion and research, decided 

that the employees should get their own individual policies. The 

city council or the city would reimburse the employees. 

We’ve been with Blue Cross/Blue Shield for many years. We filed 

individual applications with them. I’ll use myself as an example. 

But, my policy came back, that was going to have two preexistingcondition riders on it; and my husband, and I quote, ‘‘At this time, 

we regret to inform you that, due to multiple medical conditions, 

we are unable to accept John Menke for coverage, based on our review of your application information.’’ But, they did appreciate my 

interest. 

I don’t know if any of you can relate to how I felt at receiving 

this letter that I’d been—you know, from the company that I’d been 

insured with for years, but it didn’t feel good. 

The only option left was that the city employees applied for what 

was called a ‘‘Blue Transition policy.’’ It’s a higher premium cost, 

but there’s no preexisting conditions to it. We have a $2,500 deductible. A family is required to meet three deductibles where, before, we only had to meet two. The cost for myself was $751, which 

was quite a savings from the group health policy that the city had 

before, which would have been $1,265. So, the city officially canceled our group health policy with Blue Cross/Blue Shield, effective 

December 31. 

Now, if the city of Fonda had the same insurance policy that we had back in 2005, the cost for that would be $1,631 a month. That’s 

a 131 percent increase in 5 years, which is a 26 percent average 

per-year increase. 

Going back to the Blue Transition policy that we got. We received notification from Blue Cross/Blue Shield that our policy 

rates were going up 25 percent, effective April 1. The Governor of 

the State of Iowa stepped in and demanded an independent review 

of those increases, even though Iowa is one of the States that has 

an insurance division that regulates our insurance rates. Anyway, 

that independent review, nothing changed in that. 

Iowa also has what’s called an ‘‘Iowa Governmental Healthcare 

Plan,’’ and it is for governmental agencies to pool their employees 

together. I think this is a great idea, except for that you have to 

bring 50 employees to that pool. So, it doesn’t help any of the small 

towns in the State of Iowa. And there are a lot of them in Iowa. 

I believe that Blue Cross/Blue Shield monopolizes the insurance 

in Iowa, Illinois, Nebraska, and pretty much across the country. 

They are building a new $250-million office in Des Moines. So, I 

know that they are not broke. 

And I agree with Senator Alexander, it’s not just the insurance 

companies; it’s the cost of health care, too. So, I think it’s a twopronged sword there. But, something needs to be done. And 

progress is being made. I thank the Congress for that. 

I want to thank you for having me here today. 

[The prepared statement of Ms. Menke follows:] 

PREPARED STATEMENT OF PHYLLIS J. MENKE

Dear Honorable Sirs and Madams: This testimony is in regards to Health Care 

Insurance. 

The city of Fonda is a small community of 648, located in northwest Iowa. The 

city has provided its 3 full-time employees with group health insurance for many 
11 

years. The premiums kept increasing, year after year, sometimes at an increase of 

30 percent. In an effort to contain costs the city has had to change insurance companies, raise the deductible four different times, they went from a 90/10 percent to 

an 80/20 percent cost split, they began to self-insure a portion of the deductible and 

they have discontinued offering dental insurance. The city has been with Wellmark 

BCBS of Iowa for many years. 

• Twenty-two years ago the city began offering the employees Group Health In- surance. It was a Wellmark Blue Cross Blue Shield policy. The deductible was $250. 

The city of Fonda paid 100 percent of the premium and continues to do so, only differently. 

Fast forward to 2005 . . . 

• 2005 we had a Wellmark BCBS policy. Our deductible is $1,500, the cost split is 90/10, we have a $6,000 out-of-pocket maximum ad our co-pay is $15. This is still 

a pretty good policy. The cost for family coverage was $705.07 per month per employee. • 2006 we are notified our premiums are increasing by 32.18 percent. The city went out for bids. We stayed with BCBS but increased our deductible to $2,000, 

went to a 80/20 cost split, increased our co-pay to $20 and our out-of-pocket maximum went to $8,000. • 2007 we are notified our premiums are increasing by 18.40 percent. The city increases our deductible to $3,000, our co-pay goes to $25 and our out-of-pocket 

maximum in now $12,000. • 2008 we are notified our premiums are increasing by 13.33 percent. The city 

makes no changes to our coverage. • 2009 we are notified our premiums are increasing by 10.35 percent. For the second year, the city makes no changes to our coverage. • 2010 in September 2009, we received our notice of renewal rates for 2010, our premiums are increasing by 29.47 percent. The cost would be $1,265.76 per month 

per employee. So for the months of October, November and December I struggled 

with trying to find reasonably priced, decent insurance coverage for the city’s employees. The city went out for bids, and the bids that came back were as high as 

or higher than the Wellmark BCBS rates. The city could no longer afford to offer 

its employees a decent group health insurance policy; in order to keep costs down 

we would have to raise the deductible again and that was determined to be unacceptable. The city will be canceling our group health insurance policy effective 12– 

31–2009. • If the city of Fonda had the same insurance today that we had in 2005 it would cost $1,631.44 per month per employee. That accounts for a 131 percent increase 

in premiums over the last 5 years and averages 26.2 percent per year. $58,732 a 

year for the city to provide health insurance for three employees for this policy. 

After much research and discussion, the result was that the employees would 

need to provide their own insurance coverage and the city would reimburse them. 

The employees went through the process of completing applications for coverage. 

I will use myself as an example, but this was also true for the other two employees. I applied for health insurance coverage with Wellmark. Based on my medical 

history, they issued an amendment(s)/rider that exclude certain conditions from my 

health benefit coverage. Wellmark would not cover nor provide benefits in connection with any medical treatment, or medications for and I quote: 

0205: Non-cancerous tumors or growths, including any treatment, operation, or 

complications thereof. This includes International Classification of Disease (IDC–9) 

codes 210.00–229.99 

1006: Structural conditions of the female reproductive system, including treatment, operation, or complications thereof. This includes International Classification 

of Disease (IDC–9) codes 617.00–629.99 

In addition to the riders they were placing on me, they notified me and I quote: 

‘‘At this time, we regret to inform you that due to multiple medical conditions, 

we are unable to accept John M Menke for coverage based on our review of your 

application information.’’ 

They went on to say that ‘‘they appreciated my interest in Wellmark BCBS of 

Iowa.’’ 

I don’t know if any of you can relate to how I felt at receiving this letter from 

the company that the city had insured with for years. 

Iowa has a group called the Iowa Governmental Health Care Plan. I.G.H.C.P. is 

a Benefits Trust for Shared Risk Pooling among Public Employers in the State of 

Iowa. It allows entities to enter into the trust based on claims experience, plan design and demographics. The entities are then pooled at renewal, using total claims 
12 

experience to develop renewal percentages. This is a GREAT idea! However, an entity must have a minimum of 50 employees to bring into this group plan. It does not 

help the small cities in the State of Iowa, only the larger cities and they already 

have a large employee base that offsets their experience rating. I.G.H.C.P. should 

be available to all Iowa government agencies, regardless of their size. 

The only option left, and I repeat the ONLY option, was for the employees to 

apply and accept a Blue Transitions policy. It has a $2,500 deductible, a family is 

required to meet three deductibles, and it is an 80/20 percent split. The policies 

went into effect on 01–01–2010. The cost for myself and my husband (age 54 and 

59) was $751.85 per month. We received notice from Wellmark BCBS on February 

20 that effective 04–01–2010 our premium is going up 25 percent to $937.55. So 

were the other employee’s insurance costs. Could someone please explain this to me? 

Our policies haven’t even been in effect for 2 months when we receive these types 

of increases. 

I sent a letter to the Iowa Insurance Division Commissioner asking them this 

question and have attached a copy of their response. (Attachment A.) In summary 

BCBS initially asked for a 31 percent increase for Blue Transition policies. The Iowa 

Insurance Division was able to negotiate it down to 25 percent. Governor Chet Culver stepped in and asked for an independent study of the BCBS rate increases. The 

study has been completed and the increases were determined to be justified. The 

new rates go into effect May 1. 

Wellmark BCBS monopolizes the insurance in Iowa, Illinois, Nebraska, etc. BCBS 

is building a new $30-million office building in Des Moines so they are not broke. 

Every hospital in a 120-mile radius of Fonda has recently constructed major additions to their building; Des Moines just finished building a brand new hospital. The 

hospitals are not broke. Health care costs have skyrocketed. U.S. citizens can purchase their prescriptions cheaper from pharmacies in Canada, Mexico and India. 

I am one of the lucky ones, I have insurance, my employer covers the cost and 

I am for the most part pretty healthy. Fonda’s former Mayor does not have health 

insurance and hasn’t for 32 years. His employer’s did not provide it and he has 

health issues that prevent him from getting any standard insurance policy. He 

would have to get a ‘‘High Risk’’ policy and he is not able to afford it. 

This testimony is long, too long, but I hope that you can feel my frustration and 

the frustration of small cities and businesses in Iowa and around the country that 

are trying to do the right thing and provide insurance for their employees. I hope 

you understand the frustration of working class people trying to provide their families affordable insurance. 

Something needs to be done; progress is being made and I thank you for that. 

ATTACHMENT A 

From: Jeshani, Yasmin [IID] <Yasmin.Jeshani@iid.iowa.gov> 

Subject: RE: Small group rate increase—TEXT 

To: ‘‘phyllismenke@yahoo.com’’ <phyllismenke@yahoo.com> 

Date: Tuesday, March 2, 2010, 3:33 PM 

Dear MS. MENKE: 

1. Small group rates are not regulated like the individual market, however, carriers have to maintain compliance with the rating bands in chapter 513C of the 

Iowa Code. Small group law limits the variability of rates between groups which essentially forces the groups with the best experience to provide a little subsidization 

to the groups with the worst experience. You may view chapter 513C of the Iowa 

Code at the Iowa legislature’s Web site at www.legis.state.ia.us. 

2. The Blue Transitions policy is an individual policy and is subject to the individual rating laws of Iowa. Most of Wellmark’s individual major medical policies are 

anniversary rated on April 1 of each year. Since major medical policies are normally 

adjusted annually to account for changes in utilization and underlying costs, 

Wellmark annually files for increases in December of each year for all of their individual policies. The company’s proposal for Blue Transitions was nearly 31 percent, 

however, we negotiated that proposal down to 25 percent by getting them to agree 

to a high loss ratio target for that business. The loss ratios on Blue Transitions was 

significantly higher than what the law calls for so the company was clearly in compliance with the proposal. Your rate for Blue Transitions should be good until April 

1, 2011. Basically anybody that purchased Blue Transitions in Dec./Jan. would be 

getting a notice in February that their rates are going up; just the luck of timing. 

The rates did not go up just because you purchased the policy. 
13 

We regret that medical costs are continuing to steadily increase. This is a result 

of increasing claims (more office visits, prescriptions and surgeries) and the increasing costs for these services. Rate increases are not based on your particular use of 

services, but on the services used by all members of a pool or group of policies. One 

individual may have only physicals and vaccinations, but others in the same pool 

may have had heart attacks, strokes, or other major surgery. It is the total claims 

of the entire pool of insureds that will determine whether the rate increase for the 

entire pool is approved. Medical claims presented to insurance companies are surpassing inflation, cost-of-living, or wage rates. 

Wellmark has documented loss ratios of over 90 percent for calendar years 2008 

and 2009. This means over 90 cents of every dollar of premium paid has gone to 

pay claims. In some pools, Wellmark has paid out more in claims than it received 

in premiums. When costs for rent, salaries, commissions, taxes, legal, accounting, 

etc. are included Wellmark is losing money on these policies. Ultimately, any business will fail if it operates at a loss. A rate increase was essential for Wellmark to 

continue to stay open and pay future claims. 

We want you to know that the Division thoroughly reviewed Wellmark’s individual proposals and that it was our belief that the company was in compliance with 

the applicable individual rating laws. We fully understand the health care and insurance crisis in this country. We also fully sympathize with Iowa’s citizens in dealing with these hardships. 

YASMIN JESHANI, 

Market Regulation Bureau, 

Iowa Insurance Division. 

The CHAIRMAN. Thank you very much, Phyllis. 

And I might just add a parenthetical note, myself. Wellmark 

Blue Cross/Blue Shield and United Healthcare have 80 percent of 

the market in Iowa—— 

Ms. MENKE. Yes. 

The CHAIRMAN [continuing]. Between the two of them. Eighty 

percent. 

Now we’ll turn to Mr. McRaith—Mike McRaith—director of the 

Illinois Department of Insurance. Before that, he worked 15 years 

in private practice as an attorney in Chicago. Director McRaith 

represented national and regional financial institutions, including 

insurers in finance-related litigation. He serves as president of the 

board of directors for the Illinois Comprehensive Health Insurance 

Plan, a high-risk health insurance pool. He supervises the State 

senior health insurance program and has actively participated in 

developing, drafting, and advocating for statewide and national 

health insurance modernization. Mr. McRaith serves on the executive committee of the board of directors for the AIDS Foundation 

of Chicago and board of directors for the American Foundation for 

Suicide Prevention, Chicago Chapter. So, very active in many, 

many areas of health care. 

Mr. McRaith, welcome, again. Your statement will be made part 

of the record. If you could sum it up in 5 minutes or so, I’d appreciate it. 

STATEMENT OF MICHAEL T. McRAITH, DIRECTOR, ILLINOIS 

DEPARTMENT OF INSURANCE, SPRINGFIELD, IL 

Mr. MCRAITH. Chairman Harkin, Senator Alexander, Senator 

Franken, thank you for the invitation to join you this morning. 

I’m Michael McRaith, director of insurance in Illinois, and, in 

that capacity, I speak today. 

Thank you for your attention to unjustified health insurance premium increases in the Feinstein-Schakowsky bill. 
14 

To be sure, Illinois families will see landmark improvements in 

health insurance performance, accountability, and transparency, 

due to the Patient Protection and Affordable Care Act. Illinois families are now denied health insurance for any reason other than 

race, color, religion, or national origin. One woman was denied 

health insurance for herself and three children—all healthy—because she attended grief counseling after her husband died of a 

heart attack. For that widowed mother, even grief was a preexisting condition. An NAIC survey revealed that Illinois has more 

rescissions than any other State, almost 50 percent more than California. One insurer rescinded coverage for a teenaged girl whose 

parents failed to disclose, on the family application, that she had 

a congenital deformity; she had braces. Women are charged as 

much as 57 percent more than a man, independent of maternity 

benefits. An individual renewing a policy pays a penalty, moving 

the healthy into cheaper policies, sending the sick into the premium death spiral. Small businesses, hoping to retain skilled employees, cannot offer health insurance, because of premium volatility. The talented, entrepreneurial, and ambitious forego dreams 

of self-employment in order to retain health care for themselves or 

a dependent. 

January 2014 will not come soon enough for families and businesses in our State. With much mythology and reports of healthinsurer profits, the justification for rate increases merely substantiated the impetus for reform. 

In Illinois, health insurers are not required to provide actuarial 

justification for rate changes. We receive percentage rate changes 

for the individual market. Exhibit B to my written testimony is the 

department report of base-rate increases from 2005 to the present. 

The report illustrates that dramatic rate increases in Illinois began 

long before 2009. For our small business market—2 to 50 employees—this is the entirety of a rate filing. We know neither the dollar 

amounts charged to small groups nor the percent increase annually. For large groups, we do not receive any information at all. 

Twenty-seven States have rate approval authority for the individual market. Twenty-two States have that authority for the 

small-group market. With an entirely for-profit health insurance 

industry, Illinois has zero authority to deny any rate, except if a 

company’s pricing is too low. For property and casualty insurance, 

in the absence of hurricanes and major earthquakes, Illinois neither has nor needs rate approval authority. 

But, health insurance differs. Our dysfunctional health insurance 

market stifles economic growth and life quality. Small employers 

face rate increases of 30 to more than 50 percent if only one or two 

employees are sick or injured, while employers who grow beyond 50 

employees lose the guaranteed offer and protection of the smallgroup laws. 

With reforms like loss-ratio standards, elimination of lifetime 

caps, and coverage for children with preexisting conditions, our department needs additional tools. We are concerned that families 

may be priced up and out by less responsible insurers, in anticipation of 2014. We welcome Feinstein-Schakowsky and its deference 

to the States. 
15 

To be clear, Illinois unequivocally supports State-based insurance 

regulation. The bill would not preempt those States with existing 

rate approval authority, but may incentivize States like Illinois to 

adopt rate approval suitable for that State. Feinstein-Schakowsky 

would enhance Illinois’ market efficiency. Illinois families and businesses would know that hard-earned premium dollars are used for 

health care. 

Health insurance rate regulation ought not be viewed in an ideological or academic vacuum. We are not talking about the regulation of an investment product. For Illinois, rate review will promote 

access to care, financial security for our families, our brothers and 

sisters, spouses fighting cancer, our partners with bipolar disorder, 

our children diagnosed with autism. 

Thank you for your attention. I look forward to your questions. 

[The prepared statement of Mr. McRaith follows:] 

PREPARED STATEMENT OF MICHAEL T. MCRAITH

SUMMARY

I am the Director of the Illinois Department of Insurance (the ‘‘Department’’), and 

I speak today in that capacity. Consumer protection has been, is and will remain 

priority one for State insurance officials. 

Insurance regulators regulate and control for a health insurer’s capital to assure 

solvency but do not restrict the accumulation of capital, thereby rendering standard 

notions of insurer ‘‘profitability’’ as unreliable. 

The Department’s only authority to regulate health insurance premiums is to assure the rates charged by a health insurer are not inadequate. 

The Illinois health insurance marketplace is dysfunctional. 

In Illinois, health insurance premium increases are not required to be actuarially 

justified. 

In Illinois, ‘‘base rates,’’ while illustrative, are not comprehensive. Other factors 

greatly increase a premium beyond a base rate. 

Beginning in 2005, individual market base rate increases routinely exceed 30 percent. The Department does not even receive information regarding rate increases for 

non-HMO groups. 

Health insurance rate regulation will improve the performance, transparency and 

accountability of the health insurance market for employers and families in Illinois. 

The State of Illinois, Governor Quinn, and the Department, strongly support 

State-based insurance regulation. 

Feinstein-Schakowsky (S. 3078/H.R. 4757) warrants the support of the Department. 

INTRODUCTION

Chairman Harkin, Ranking Member Enzi, and distinguished members of the committee, thank you for the invitation to talk with you about the need for regulatory 

approval of health insurance premium changes. My name is Michael McRaith. I am 

the Director of the Illinois Department of Insurance, and I speak today in that capacity. 

As regulators of the insurance sector, State insurance officials have a demonstrable record of successful consumer protection and industry oversight. Consumer 

protection has been, is and will remain priority one for State insurance officials. 

Each day our responsibilities focus on ensuring the insurance safety net remains 

available when individuals, families and businesses are in need. We advocate for insurance consumers and objectively regulate the U.S. insurance market, relying upon 

the strength of local, accountable oversight and national collaboration. 

With continually modernized financial solvency regulation, State insurance regulators supervise the world’s most competitive insurance markets. Twenty-eight (28) 

of the world’s fifty (50) largest insurance markets are individual States within our 

Nation. By gross premium volume, Illinois is the 16th largest jurisdiction in the 

world. As a whole, the U.S. insurance market surpasses the combined size of the 

second, third and fourth next largest markets. The insurance markets in California, 
16 

1 Risk-based capital levels are confidential and not available to the public. To calculate an 

RBC, regulators compare an insurer’s Total Adjusted Capital (the actual amount of capital and 

surplus) to its Authorized Control Level Risk-Based Capital (the minimum levels of capital for 

an insurer with the subject insurer’s characteristics). 2See Abigaile Lebron, a minor, et al., v. Gottlieb Memorial Hospital, et al., Nos. 105741, 

105745 (Ill. Feb 4, 2010). 3 As a percentage of the total insurance premiums, the residual market for auto was 1.10 percent and for home .26 percent. 4 Exhibit A may be found at http://insurance.illinois.gov/hiric/rescissionDataCall.pdf. 

New York and Florida are each larger than the markets in India, Ireland or South 

Africa. 

Insurance regulators monitor, examine and verify the financial status of insurance companies. For example, insurance regulators not only restrict the types of assets in which an insurer can invest but, also, restrict how much an insurer can invest in any one type of asset. With respect to capital sufficiency, regulators measure 

insurers based on the nationally uniform standard of ‘‘risk-based capital’’ (or 

‘‘RBC’’).1

RBC measures an insurer’s financial strength by testing actual capital levels and 

includes an analysis of the line of insurance, size of insurer, the insurer’s appetite 

for risk, and other factors. For health insurers, regulatory intervention occurs, as 

a matter of law, if the risk-based capital level is 200 percent or less. Since regulators do not limit or control how much capital a health insurer can accumulate, 

standard notions of health insurer ‘‘profitability’’ are unreliable. 

To the extent that the Department currently has authority to regulate health insurance rates, that authority is limited to assuring the solvency of the insurer or, 

rather, to assuring that rates charged by the health insurer are not too low. 

THE ‘‘ILLINOIS MODEL’’ OF RATE REGULATION

Illinois proudly, and appropriately, embraces the ‘‘Illinois model’’ for rate regulation in the life and property and casualty lines of insurance. Where many States 

require prior approval by the insurance regulator before an insurer’s use of a proposed rate, Illinois allows competition and a dynamic marketplace to generate prices 

for commonly required insurance—like auto and homeowner. 

The ‘‘Illinois model,’’ as often cited by proponents for deregulation of insurance 

markets, does not repose rate approval authority in the Department, or any other 

State agency, for any line of insurance other than Medicare Supplement, long-term 

care, the auto and home residual markets, and the worker compensation assigned 

risk pool. Until recently, Illinois law required prior approval on medical malpractice 

liability insurance rates if a proposed increase exceeded six percent (6 percent).2

For property and casualty insurance, Illinois has an exceptionally competitive 

market. More companies offer auto, homeowner and worker compensation insurance 

in Illinois than in any other State. Despite exceptional demographic and geographic 

diversity, Illinois has rates average among all States, and insurer profitability for 

personal lines is typically in the middle third of all States. Participation in the auto 

and homeowner insurance residual markets is nominal.3

For property and casualty insurance, the ‘‘Illinois model,’’ while not entirely beyond reproach, performs well for Illinois families, businesses and insurers. In contrast, the absence of prior approval rate regulation for health insurance exacerbates 

the dysfunction in a health insurance marketplace that fails to perform efficiently 

or effectively for Illinois’ businesses and families. 

In Illinois, individuals and families can be denied insurance for any reason other 

than ‘‘race, color, religion or national origin.’’ 215 ILCS 5/424. In at least one instance, one applicant was denied insurance for herself and her three healthy children because she attended grief counseling after her young husband died. 

A recent survey by the National Association of Insurance Commissioners (NAIC) 

revealed that Illinois has more rescissions by volume than any State in the entire 

country—almost 50 percent more than California. See Exhibit A.4 In at least one 

instance, an insurer attempted to rescind a teenager’s coverage on her family policy 

because her parents failed to disclose her congenital deformity—she wore braces. 

Illinois law does not limit the rate variance between genders, the price impact of 

health status, the price impact of age, or the impact of any one rating factor on renewal. If a woman and man are of the same age, live in the same house, have the 

same health status, and see doctors in the same hospital, the woman can be charged 

as much as 57 percent more than the man—independent of maternity benefits. 

Unlike the property and casualty insurance market—in which every willing buyer 

receives an offer—Illinois families are denied offers of coverage, or denied coverage 
17 

5 In 2009, the Utah general revenue fund contributed $9.3m and the Louisiana general revenue fund contributed $2m. In Illinois, taxpayers contributed $28.9m to support the high-risk 

pool. 

at an affordable price. Illinois’ dysfunctional health insurance market serves too few 

families because willing buyers do not even receive an offer. 

Small employers offering health insurance to employees nearly always experience 

explosive rate volatility because, even though rates are subject to ‘‘bands,’’ or variance limits, at the time of issuance, the Illinois small group rate bands are among 

the Nation’s broadest. For this reason, small employers in Illinois, even with only 

one injured or ailing employee, can experience rate increases in excess of 50 percent 

on renewal. 

Exclusive of Medicare and long-term care, health insurers in Illinois collect more 

than $15b in premiums. Illinois is one of three States (with Utah and Louisiana) 

that fund the payment of high-risk pool health care claims with direct general revenue fund, or taxpayer support.5 For the right to reject people who are or might 

become sick, the Illinois health insurance industry pays only an assessment to fund 

the HIPAA-compliant high-risk pool which, in 2009, totaled $43,371,000. 

ILLINOIS—CURRENT OVERSIGHT OF HEALTH INSURANCE PREMIUMS

Illinois law does not require that either individual or group plan rate increases 

must be actuarially justified. 

INDIVIDUAL MAJOR MEDICAL

As provided in Illinois law, individual market premiums are effective when the 

insurer submits a ‘‘classification of risks and the premium rates pertaining thereto 

have been filed with the Director.’’ 215 ILCS 5/355. Consequently, the Department 

receives an individual major medical rate increase filing, notifies the insurer that 

the filing has been received, and the insurer may then rely upon and use that rate 

change. 

HEALTH MAINTENANCE ORGANIZATIONS

Health Maintenance Organizations (HMO) comprise a small and shrinking percentage of Illinois’ commercially insured, with some estimates as low as 15 percent 

of all covered lives. HMO’s must file with the Department ‘‘schedules of base rates 

to be used,’’ 50 Ill. Admin.Code 5421.60, and submit to the ‘‘Director, prior to use, 

a notice of any change in rate methodology[.]’’ 215 ILCS 125/4–12. As with individual major medical insurance, even though HMOs submit rate-related information, the Department does not have authority to approve or deny any HMO rate 

change. 

SMALL EMPLOYER GROUPS (2-50)

For non-HMO small group plans—by far the largest share of the Illinois small 

group market—insurers are not required to file with the Department the amount 

of a base rate or the percentage change of a base rate from year-to-year. In fact, 

insurers are only required to file annually ‘‘an actuarial certification certifying that 

the carrier is in compliance’’ with the Illinois Small Employer Health Insurance Rating Act, or ‘‘SEHIRA.’’ 215 ILCS 93/30. 

The broad rate bands in SEHIRA provide health insurers with expansive latitude 

to price a small employer. While small employers enrolled in the first year pay premiums dependent upon health status of employees, the renewal years bring profound rate volatility due not only to employee health status (up to 15 percent) but 

also a lack of limitation on the base rate increases. 215 ILCS 93/25(3)(A) and (B). 

In Illinois, a small group ‘‘base rate’’ is the lowest rate charged to a small employer. 

Small employer premiums can also increase, without limitation, due to ‘‘case characteristics,’’ otherwise known as age, gender and geography. 215 ILCS 93/25(C). 

LARGE EMPLOYER GROUPS (50+)

Illinois law is silent on rate oversight for employers with more than 50 employees. 

In fact, unlike employer groups of 50 or fewer, health insurers can—and do—deny 

applications from employers with more than 50 employees. 

‘‘BASE RATES’’—ONLY ONE INDICATOR

Base rate information can be illustrative but is far from conclusive. For example, 

Illinois policyholders can be charged more than the base rate due to health status, 
18 

6 Exhibit B may be found at http://insurance.gov/Reports/speciallreports/IMMHPRFRG 

.pdf. 

geography, gender and age. For individual major medical policies, the Department 

does not receive information regarding the percentage of covered lives who pay more 

than the base rate versus those who pay less than the base rate, or how much those 

covered lives pay. 

RENEWAL PENALTY

In addition, some health insurers in Illinois offering individual health coverage 

impose a renewal penalty of 3–5 percent. Since individual policies are ‘‘guaranteed 

renewable,’’ only those who have filed claims in the preceding year will renew because, of course, failure to renew will result in outright denial of that person’s coverage, or an exclusion rider. The renewal penalty, therefore, incentivizes the healthy 

insured to move to a less expensive block of the insurer’s business, promoting risk 

segregation that leads to the proverbial ‘‘death spiral.’’ Illinois law does not limit 

rate increases for any individual major medical health insurance block of business. 

ILLINOIS INDIVIDUAL MAJOR MEDICAL HEALTH POLICY RATE FILING REPORT

With the public discussion leading to the March 21, 2010, U.S. House of Representatives vote on the Patient Protection and Affordable Care Act (the ‘‘PPACA’’), 

the Department posted on its Web site (Insurance.Illinois.gov) a report of individual 

market health insurance premium increases, the ‘‘Individual Major Medical Health 

Policy Rate Filing Report’’ (the ‘‘Report’’). Since the initial Report, the Department 

has expanded the retrospective to include all individual market filings since January 2005. See Exhibit B.6

The Report illustrates that Illinois families and individuals covered or seeking 

coverage in the major medical marketplace have experienced dramatic base rate increases into 2010 and beginning at least in 2005. Base rate increases have frequently exceeded 30 percent since at least January 2005. 

HEALTH INSURANCE RATE REGULATION—A NECESSARY STEP FORWARD

Rate approval authority, vested with the Department, would improve the performance, transparency and accountability of the health insurance market for employers 

and families. With an entirely for-profit health insurance industry, Illinois is 

uniquely well-positioned to benefit from an additional regulatory tool such as rate 

regulation for health insurers and HMOs. 

Rate regulation need not be a punitive or contentious exercise. Consistent with 

the priorities of Illinois Governor Pat Quinn, the Department pursues the regulatory 

mission in a professional, direct and collaborative manner, an approach that will 

continue through all phases of PPACA implementation. 

Consistent with the Department’s core mission to protect the solvency of the insurance industry, rate regulation complements the insurance reforms of PPACA. For 

example, effective September 23, 2010, insurers will be required to report medical 

loss ratios, and minimum medical loss ratios are required for plan years beginning 

January 1, 2011. See PPACA section 1001. 

Even now, the U.S. Department of Health and Human Services and the States 

are working to establish a process for the annual review of unreasonable premium 

increases. See PPACA section 1003. In that same section, insurers are required to 

post on company Web sites ‘‘a justification for an unreasonable premium increase 

prior to implementation of the increase.’’ 

With other reforms effective September 23, 2010, including the removal of lifetime 

limits and coverage for children with pre-existing conditions, the Department has 

heightened concerns about health insurer solvency. With heightened concern, the 

Department also needs sharper tools and more opportunities to learn about the ratemaking strategies of health insurers. 

In addition, less responsible insurers may opt to increase premiums dramatically, 

and unnecessarily, in anticipation of the comprehensive reforms effective January 

1, 2014. Health insurer rate regulation, therefore, is essential to prevent both inadequate and excessive premiums. 

Even without the improvements from PPACA, health insurance consumers in Illinois would benefit from health insurance rate regulation. Most Illinois families 

scrape and save to pay premiums with hard-earned dollars. Small businesses, trying 

to retain skilled employees to facilitate growth, spend income earned through 

dreams, sweat and dedication just to offer meaningful health insurance to those employees. Illinois families and businesses, trying to obtain financial security with the 
19 

purchase of health insurance, are entitled to know that those premiums are reasonable, fair, and not an insurer’s exploitation of an overly passive or archaic regulatory ideology. 

FEINSTEIN–SCHAKOWSKY (S. 3078/H.R. 4757)

To be clear, the Department, reflecting the priorities of Governor Quinn, supports 

State-based insurance regulation. Insurance regulation at a State level affords consumers access to direct, prompt, meaningful interaction with regulators who understand the communities in which we live, the markets in which we buy, the insurers 

from whom we buy, and the producers who aid in our purchase of insurance. This 

reality is apparent in every line of insurance, but especially visible with health insurance. 

State regulators approve health insurance policies sold in each State, the provider 

networks offered by insurers, the provider communities in areas as diverse as Chicago and down-state Marion, and the relative impact of one change versus an ‘‘unintended consequence.’’ For that reason, the Feinstein-Schakowsky bill, which would 

establish the ‘‘Health Insurance Rate Authority,’’ warrants the support of the Department. 

Congress, in passing Feinstein-Schakowsky, would provide a Federal ‘‘tools’’ approach to health insurance rate oversight. In effect, a Federal ‘‘tools’’ law imposes 

on the States an obligation to act. Failure to act would result in Federal preemption. 

This approach has been previously used for insurance purposes, including for Medicare Supplement guidelines, the Health Insurance Portability and Accountability 

Act, and Gramm-Leach-Bliley. In addition to differing regulations for rate approval, 

States have different health insurance markets: some are predominantly non-profit, 

some almost evenly split between for- and non-profit, some more for-profit, some 

have medical loss ratio standards and some do not. 

For those States that have rate oversight authority—27 currently have some form 

of health-related rate approval authority—Feinstein-Schakowsky would be supplementary and not a new or lower level of authority. For those States that do not have 

health insurance rate regulation—of which Illinois is one—Feinstein-Schakowsky 

would provide an impetus. 

In short, Feinstein-Schakowsky vests the States with discretion about whether 

and how to regulate rates. For those States that do not opt to supervise proposed 

rates, the families and businesses of those States will have the opportunity for Federal oversight. 

The funding available to States to support the enhanced rate regulatory authority, 

or some portion of $250 million, would bolster the Department’s efforts to afford Illinois families and businesses better health insurance performance and accountability. At a minimum, rate regulation will assure Illinois’ families and businesses 

that hard-earned premium dollars are used primarily for health care. 

CONCLUSION

Not every State seeks health insurance rate approval authority. For Illinois, with 

our dysfunctional health insurance market and with the enactment of PPACA, rate 

approval authority will enhance the performance, transparency and accountability 

of the health insurance our families and businesses strive to purchase. While regulation for the sake of regulation does not comprise an end worth pursuing, increased 

efficiency of health insurance products will improve the quality of life for Illinois’ 

families and the prospects for growth of Illinois’ small businesses. 

We welcome the interest of Congress and this committee in this important question of consumer protection. As the entire country moves forward with implementation of health insurance reform, we pledge to share our experience and expertise 

with Congress and to work with the members and staff of this committee. 

Regulation of all financial sectors must allow for evolution to facilitate but monitor innovation and efficiency. Here, as we work toward affordable and accessible 

health insurance coverage for all families and businesses, the Department seeks additional rate approval tools with which to limit, if not eliminate, the potential 

abuses of inadequate or excessive rate changes. 

After all, health insurance differs from other personal lines of insurance: we can 

choose the car we drive and we can choose our home. We do not choose breast or 

prostate cancer. We do not choose a heart attack. We do not choose autism. 

Thank you for the opportunity to testify. I look forward to your questions. 

The CHAIRMAN. Great. Thank you very much for an eloquent 

statement. 
20 

Now we turn to Karen Ignagni, president and CEO of America’s 

Health Insurance Plans. No stranger to this committee, Karen’s 

been here many times in the past and worked with us on all the 

health care bill for the last couple of years. So, a very distinguished 

background. 

And, Karen, again, your statement will be made a part of the 

record, please proceed. 

STATEMENT OF KAREN IGNAGNI, PRESIDENT AND CEO, 

AMERICA’S HEALTH INSURANCE PLANS, WASHINGTON, DC 

Ms. IGNAGNI. Thank you, Mr. Chairman. Thank you for the opportunity—Senator Alexander, Senator Franken—thank you, on 

behalf of all of our members. 

I think the first thing that’s important to say is to let all of you 

know that our members are working very, very hard to implement 

the current program. And I think, as evidenced by the announcements that have been made over the last couple of days, we’re 

working to find opportunities where we can help to maintain continuity of care. In particular, over the recent days, the announcements related to folks on parents’ coverage who would otherwise 

transition off before September. And you’ll hear more from our 

members about that. 

Second, I think it’s very important, in listening to Mrs. Menke’s 

testimony, that I convey, on behalf of our members—they are fully 

cognizant of the burden of rising health care premiums on families 

and on small businesses and large businesses. And, in fact, that’s 

what our advocacy in health care reform had been all about. We 

were very, very concerned, as we saw costs exploding. And there’s 

been, now, tremendous evidence of that being documented in the 

press and in research studies, that we were very concerned that 

not enough was being done in that area. 

Health plan premiums are a symptom, not a cause, of the problem. And according to government data, just to level-set, we’re 4 

percent of national health care expenditures —the profits of our industry, according to Fortune magazine, that does a very deep dive 

of profits in all the sectors, in 2008 were roughly 2 percent; in 2009 

were about 3.2. That’s where we are, relative to other stakeholders 

in the health care sectors that have three and four times those levels, just to level-set. 

Our health plan profits in the legislation have been capped. Administrative costs are capped. And all parts of our businesses and 

operations have been regulated. We provided a chart to illustrate 

that in our testimony so you could see the full gamut of the regulation. 

But, I think the concerning issue that’s relevant today is that 

Federal and State data have shown that premium increases are 

being driven by the growth in the underlying costs of health care 

services and the utilization of these services. And new spending 

projections by CMS has found that health care as a percentage of 

gross domestic product had the largest 1-year increase on record. 

The only way premiums will be brought under control is for the 

country to more directly take on these challenges. 

We think Massachusetts is a cautionary tale. Notwithstanding 

an in depth report by Attorney General Martha Coakley that docu-
21 

mented why costs were rising because of the increases in the cost 

of care, the strategy being pursued there is to arbitrarily cap premiums without any linkage to the factors that are driving them. 

We’re very concerned that that will create insolvency, volatility for 

consumers, unpredictability. Indeed, in New York, that had previously had prior approval, they had to rescind that, and they 

changed that legislation, because the market was in a State where 

the businesses were becoming insolvent. 

We believe there are new provisions in the legislation that will 

increase costs and oversight, and they’re important to take into account today. The new legislation creates an annual review of unreasonable premium increases. It requires justification of rates and 

provides financial support through grants for States to help carry 

out these functions. Those are important changes, which we believe 

will help create more consistency across the country. 

So, we’re delighted to be here. We look forward to participating 

in the discussion. And, Mr. Chairman, we hope that this will begin 

a process of enlarging the conversation. We want to do our share. 

We’re here to participate. We want to come with solutions, and 

we’re committed to that. 

Thank you very much. 

[The prepared statement of Ms. Ignagni follows:] 

PREPARED STATEMENT OF KAREN IGNAGNI

I. INTRODUCTION

Chairman Harkin, Ranking Member Enzi, and members of the committee, I am 

Karen Ignagni, CEO of America’s Health Insurance Plans (AHIP), which is the national association representing approximately 1,300 health insurance plans that provide coverage to more than 200 million Americans. Our members offer a broad 

range of health insurance products in the commercial marketplace and also have 

demonstrated a strong commitment to participation in public programs. 

We appreciate this opportunity to testify on issues affecting the affordability of 

health insurance coverage. Our written testimony addresses the following issues: 

• What our community is doing to create a bridge to a more modernized health 

care system; 

• How premiums relate to costs; 

• How premiums are evaluated at the State level; 

• What is changed by the new law; 

• Principles for a workable system; and 

• Unmet challenges. 

We hope this information will be helpful to the committee and we look forward 

to working with you to address the factors that are causing premiums to increase. 

II. WHAT OUR COMMUNITY IS DOING TO CREATE A BRIDGE TO A MORE MODERNIZED

HEALTH CARE SYSTEM

Our community is strongly committed to the successful implementation of the 

‘‘Patient Protection and Affordable Care Act’’ (PPACA), and we already have begun 

taking important steps to lay the foundation of a health care system that rewards 

value, not volume. Health plans are pioneering new initiatives for improving patient 

care, enhancing quality, and helping enrollees receive the highest possible value for 

their health care dollars. 

Administration Simplification 

Health insurance plans have recognized the importance of working with clinicians 

and hospitals to reduce the complexities of administrative transactions and improve 

patient care. Our primary goal for administrative simplification has been to improve 

the ease with which health care providers electronically connect with health insurance plans to exchange administrative and clinical information, and simplify the 

system for consumers. 
22 

Through a partnership with the Council for Affordable Quality Healthcare 

(CAQH), our members are participating in an initiative, known as CORE, that is 

focused on developing a single set of operating rules to expand and enhance the 

standards for administrative transactions in the health care industry. The goal of 

these rules is to streamline and automate the claims payment cycle by encouraging 

interoperability between health plans and providers. This goal is being achieved 

through a phased approach that results in a reduction in administrative costs and 

time. 

The CORE collaboration started in 2005 and approximately 115 entities are now 

participating. Participants include health insurance plans, providers and provider 

groups, health IT companies, standard setting organizations, Federal and State 

agencies, and other health industry trade associations. 

Once the CORE initiative is fully implemented, the operating rules will enable all 

administrative transactions to be performed electronically. All parties will be able 

to exchange information in a consistent, predictable manner—ensuring that clinicians have the information they need on any patient, covered by any insurance, 

when they need it. This is comparable to the standards work that was done to allow 

banks to offer ATMs to consumers. This initiative also lays the groundwork that will 

enable the administrative simplification provisions of the new law to work. 

Physician Portals 

Building on the development of common standards, AHIP and the Blue Cross and 

Blue Shield Association (BCBSA) are working with our members in New Jersey and 

Ohio where State-based initiatives have been launched to simplify the flow of information between health plans and physicians’ offices. These initiatives allow physicians to use a single web portal to conduct electronic transactions with all of the 

health insurance plans that insure their patients, helping them to streamline and 

fully automate key office tasks. The lessons learned from these initiatives, including 

feedback from physicians, will be applied to future administrative simplification efforts as health insurance plans work to help physicians improve customer service 

for their patients and reduce personnel and billing costs for medical practices. Savings potentially could reach hundreds of billions of dollars as the entire health care 

system achieves efficiencies through similar moves to automation and consistent 

business practices. For consumers, the operating rules and the physician portal will 

enable the seamless exchange of health information without the hassles of clipboards and repetitive requests for information. 

Payment Reforms 

Health insurance plans also have implemented innovative payment models to reward quality and promote evidence-based health care using clinical guidelines that 

are equivalent in some respects to aviation protocols. When properly applied, evidence-based clinical guidelines allow doctors to do what they were trained to do 

while reducing the chance of under-treatment, over-treatment, and mistreatment. A 

2006 New England Journal of Medicine article reported that at least half of the Nation’s health insurance plans, representing 80 percent of all enrollees, included some 

pay-for-performance incentives in their provider contracts. For patients, this 

progress means greater safety and improved outcomes. For providers, it means 

being recognized and rewarded for practicing to the highest professional standards. 

Health insurance plans are committed to engaging physicians, hospitals, and 

other health care professionals in the design and implementation of payment reforms. Our members also are working with various stakeholders to make performance measurement more consistent. We urge the committee and policymakers to assess these efforts and consider building upon the PPACA initiatives to ensure a system-wide approach to delivery reform. 

Reducing Preventable Hospital Admissions, Re-admissions, and Emergency Room 

Visits 

Reducing preventable hospital admissions, overall re-admissions, and emergency 

room visits has become an important national priority for both quality improvement 

and cost control. Health plans are advancing this goal through a variety of initiatives that transform patient experiences with care. These include: 

• Information and support programs for patients transitioning from hospital to 

home; 

• Medical home innovations that expand patients’ access to primary care and support primary care physicians with multidisciplinary teams of medical, behavioral 

health, and social service professionals; 

• Case management to help patients at high risk of hospitalization access all of 

the medical, behavioral health, and social services they need; 

• Home medical visits for patients who have difficulty reaching the doctor’s office; 
23 

1 AHIP Center for Policy and Research, Working Paper: Comparisons of Utilization in Two 

Large Multi-State Medicare Advantage HMOs and Medicare Fee-for-Service in the Same Service 

Areas, December 2009. 2 AHIP Center for Policy and Research, A Preliminary Comparison of Utilization Measures 

Among Diabetes and Heart Disease Patients in Eight Regional Medicare Advantage Plans and 

Medicare Fee-for-Service in the Same Service Areas (revised September 2009). See also, AHIP 

Center for Policy and Research, Reductions in Hospital Days, Re-Admissions, and Potentially 

Avoidable Admissions Among Medicare Advantage Enrollees in California and Nevada, (revised 

October 2009). 

• Programs to help frequent emergency room users connect with quality care on 

an ongoing basis; and 

• Initiatives to align end-of-life treatment plans with patients’ preferences. 

While implementing these initiatives, our members have demonstrated that effective care is about personal connections. Personal phone calls from nurses, social 

workers, or case managers to check on patients’ needs following hospitalization help 

patients overcome barriers to following care plans, avoid medication errors, and significantly reduce potentially avoidable hospital admissions, re-admissions, and 

emergency room visits. In addition, patients face tremendous challenges in taking 

medications correctly, and these challenges have created an important new analytical and teaching role for pharmacists in the health care system. 

Research findings demonstrate that these innovative strategies are working to 

help keep patients out of the hospital and avoid potentially harmful complications. 

In December 2009, AHIP released the second in a series of working papers,1 comparing patterns of care among patients enrolled in two large, multi-state Medicare 

Advantage HMO plans and in Medicare’s traditional fee-for-service (FFS) program. 

The preliminary results from this study are consistent with the results gathered in 

an earlier eight-company AHIP study 2 of smaller and regional Medicare Advantage 

plans. Based on the simple average of all 18 areas studied in all 10 companies, the 

risk-adjusted comparisons indicate that these plans improved health care for their 

enrollees by: 

• reducing emergency room visits by 24 percent; 

• reducing hospital re-admissions by 39 percent; 

• reducing certain potentially avoidable hospital admissions by 10 percent; and 

• reducing inpatient hospital days by 20 percent. 

By reducing the need for avoidable hospitalizations and emergency room care, 

health insurance plans are not only improving the health and well-being of their enrollees—but also achieving greater efficiencies and cost savings. 

Recognizing that these preliminary findings demonstrate dramatic improvements 

relative to FFS coverage, we are seeking verification of these results through additional research using different data sources and risk adjustment mechanisms. We 

also should note that our research found that outpatient visits were roughly the 

same for Medicare Advantage and FFS enrollees and that physician visits for Medicare Advantage enrollees were substantially higher. 

III. HOW PREMIUMS RELATE TO COSTS

As the committee conducts its review of why premium costs are increasing, the 

chart below illustrates how Americans are covered today. The major focus of the 

health reform debate has been the individual health insurance market, which accounts for 7 percent of the insured population in the United States (or 18 million 

people). 
24 

The individual market has unique challenges, including the fact that participation 

will continue to be voluntary until the individual coverage requirement takes effect 

in 2014. As a result, the risk of adverse selection is much higher in the individual 

market than in other markets. Indeed, with the recession, a number of individuals 

purchasing coverage in the individual market have dropped coverage. 

In the small group market, a different type of adverse selection has occurred, with 

layoffs generally affecting individuals most recently hired, small groups have become older and sicker which has been a factor in premium increases for this market 

segment. Rising costs, along with other factors explained below, are driving premiums in all markets. 

When the cost of health care services increases, the cost of providing health benefits also rises. The Federal Government’s data on national health expenditures (see 

chart below) indicate that over the past 20 years (1989–2009) health benefit costs 

have increased by an average of 7.2 percent annually and premium increases likewise have averaged 7.1 percent annually. This trend clearly demonstrates the importance of addressing underlying medical costs through measures that achieve system-wide cost containment. 
25 

Furthermore, the chart below shows that the administrative costs of health plans 

increased much less than spending on prescription drugs, physician services, hospitals, and other health expenditures from 2000–9. In fact, last year, the percentage 

of premiums that went toward administrative costs and profits declined for the sixth 

consecutive year—from 13.67 percent in 2003 to 11.15 percent in 2009. 
26 

3 Health Affairs, Health Spending Growth at Historic Low in 2008, Hartman. 4 Health Affairs, Unchecked Provider Clout In California Foreshadows Challenges To Health 

Reform, by Robert Berenson, Paul Ginsburg, and Nicole Kemper, February 2010. 

Additionally, as we examine issues surrounding health insurance premiums and 

medical costs, it is important to look at recent history, particularly the decade of 

the 1990s when premium growth was well below historical trend and stable for several years, contributing toward economic growth and growth in coverage. We know 

from this experience that health plans can hold down premiums when they are able 

to use care management tools to reward the delivery of high quality, appropriate 

and efficient care. 

In today’s health care system, we face new challenges—most notably, rapid increases in the unit price of medical services—that are contributing to higher health 

care costs. In fact, according to the 2008 National Health Expenditures (NHE) report issued in January 2010, price increases constituted two-thirds of the year-overyear increase in health spending. Specifically, of the 4.6 percent annual increase in 

personal health expenditures reported in 2008, price accounted for 3.1 percentage 

points, while 1.5 percentage points was driven by non-price factors. The NHE report 

also indicated that for 2008, health insurance premiums increased at 3.1 percent, 

approximately one-third below the increase in total health spending.3

Further evidence of the changing impact of price increases on premium rates can 

be found in a February 2010 article 4 published on-line by Health Affairs. In this 

article, authors Paul Ginsburg and Robert Berenson (both with the Center for 

Studying Health System Change) noted that ‘‘providers’ growing market power to 

negotiate higher payment rates from private insurers is the ‘elephant in the room’ 

that is rarely mentioned.’’ To that end, the authors note that in some cases payment 

rates to hospitals and physician groups approach or exceed 200 percent of the 

amount paid by Medicare. This concern is reinforced by the following examples of 

unsustainable cost increases we have uncovered through AHIP research and discussions with our members: 

• One AHIP member operating in a large State reported facing hospital rate increases ranging between 7 percent and 90 percent, with the average request at 29 

percent. 
27 

5 Based on data from Anthem Care Comparison Tool. 

6 AHIP, The Value of Provider Networks and the Role of Out-of-Network Charges in Rising 

Health Care Costs: A Survey of Charges Billed by Out-of-Network Physicians, August 2009. 

• Another AHIP member reported that a ‘‘must have’’ hospital was demanding a 

40 percent increase in payment and insisting on contractual terms that would prohibit the plan from sharing the facility’s quality information with consumers. 

• Another AHIP member reported that a hospital in suburban New Jersey—the 

only hospital in its community—is demanding that health plans pay an extra 15– 

16 percent to compensate for Medicaid and Medicare payments that are rising by 

4–5 percent less than the hospital’s costs. 

• A hospital in the Northeast charges health insurance plans 50 percent more 

than it charges the plan owned by its own hospital system. 

• Charges for a colonoscopy vary widely among three hospitals in a 20-mile radius 

in California—with no apparent linkage to quality—with the minimum typical price 

ranging between $2,192 and $3,786 and the maximum typical price ranging between 

$2,590 and $4,185.5

• An August 2009 AHIP survey 6 of out-of-network fees found that a patient in 

Arizona was charged $72,000 for lower back spinal fusion when Medicare’s fee was 

only $1,683; and for total hip replacement surgery, a patient was charged $45,601 

when Medicare’s fee was only $1,431. A patient in California was charged $15,870 

for cataract surgery when Medicare only pays $638. 

In the face of these exploding costs, our members are deploying the next generation of medical management tools to promote a high-value health care system, including: 

• Targeting disease management services to enrollees who stand to benefit the 

most from pro-active interventions; 

• Working with primary care physicians to expand patient-centered medical 

homes that promote care coordination and accountability for clinical outcomes; 

• Providing incentives to promote the use of decision-support tools and health information technology; 

• Providing quality improvement reports for physicians to monitor their progress 

in managing disease; 

• Offering personalized risk assessments and wellness programs; 

• Encouraging electronic prescribing and consumer safety alerts; 

• Providing peer-to-peer comparisons to demonstrate the appropriate use of 

health care services across specialists and manage the use of high-cost imaging services. 

Many of the quality programs and innovative initiatives being implemented in 

various markets across the country by the private sector would improve the delivery 

of care and patient outcomes in a more timely and efficient manner if public programs were part of the local initiatives. Expanding these programs to encompass 

the full health care system—both public and private payers—is an important step 

toward identifying gaps in care, pursuing opportunities for improvement, and evaluating innovations so adoption can occur more broadly. 

While our members are taking aggressive steps to address the cost crisis, a discussion of premiums needs to look at all components of expenditures. The chart 

shown below, based on annual national health expenditure data published by the 

Centers for Medicare & Medicaid Services (CMS), indicates that the costs associated 

with health insurance—including plan profits and administrative costs—account for 

only 4 percent of all national health expenditures. The other 96 percent of costs can 

be attributed to hospitals, physicians, pharmaceuticals, home health care, and other 

components of health care spending. 
28 

How Are Premiums Built? 

Health care costs are impacted by a number of direct cost drivers including: 

Factors Affecting Premiums 

• Price per service. 

• Utilization of services. 

• Adverse selection. 

• New medical technology. 

• Cost-shifting. 

• State insurance taxes and fees. 

• Assessments for high-risk pools. 

• Regulatory compliance. 

• Aging of the population. 

• Unhealthy lifestyles. 

• The price per service (as discussed in detail above) is the cost charged by 

medical providers, such as doctors, hospital and pharmacies, for a particular service. 

The amount providers charge varies greatly, according to the provider’s location, 

how the group is structured and organized, and how many other providers are located nearby. Lack of competition and shortages of health care providers are significant factors in a number of markets where consolidation among hospitals and other 

providers is increasing costs and health plans are facing higher rate increases from 

hospitals and medical groups with dominant positions. 

• The utilization of services refers to the amount of medical services that are 

used. Increased utilization drives costs higher. 

• Adverse selection is what occurs when less healthy individuals stay in the 

market while healthy individuals and families drop coverage. Moreover, at a time 

when many small businesses are financially strained because of the weak economy, 

our members are observing that some companies with young, healthy workforces 

have stopped offering coverage. Another related trend is that as it becomes more 

difficult for employers to continue offering coverage, some are forced to reduce the 

portion of the premium they cover and increase employee cost-sharing. In response 
29 

7Milliman, Hospital & Physician Cost Shift: Payment Level Comparison of Medicare, Medicaid 

and Commercial Payers, December 2008. 8Families USA, Hidden Health Tax: Americans Pay A Premium, May 2009. 9Letter from NAIC CEO Dr. Terri M. Vaughan to Chairman John Dingell, February 23, 2010. 

to these decisions, more employees—usually those with below average health costs— 

are declining to participate. The net impact of these developments is that some employers may find it less viable to offer coverage or costs may rise as the remaining 

risk pool is more heavily weighted with older, less healthy persons, resulting in 

higher average costs per enrollee for those who maintain coverage. 

• Cost shifting occurs, from public programs to private payers, as a result of reimbursement rates that Medicare and Medicaid pay to hospitals and physicians, 

which often fail to cover the cost of providing health services. According to a December 2008 Milliman study,7 an average family of four already pays a hidden tax of 

more than $1,700 annually on their premiums because Medicare and Medicaid significantly underpay hospitals and physicians, compared to their actual costs of delivering medical care. To offset these inadequate payments, providers pass on higher 

costs to individuals, families and employers in the private sector. Additional costshifting results from uncompensated care provided to the uninsured. According to 

a May 2009 Families USA study,8 the cost-shift associated with uncompensated care 

adds more than $1,000 annually to family premiums. 

• State fees and taxes, assessments for high-risk pool programs, and the 

costs of complying with regulatory requirements also contribute to the cost of 

health insurance coverage. As we discuss below, the ‘‘Patient Protection and Affordable Care Act’’ includes a number of provisions that regardless of their public policy 

merit will ultimately increase the cost of coverage. 

IV. HOW ARE PREMIUMS EVALUATED AT THE STATE LEVEL

States generally have the authority to examine and regulate rates, either through 

a specific grant of authority or through their authority to regulate unfair practices. 

This authority meets States’ obligation to assure that not only are consumers 

charged fair premiums, but also that insurers remain solvent and are able to pay 

future claims. 

Rates must be adequate to cover the costs of medical care utilized by insured 

members, and administration of health insurance services (enrollment, customer 

service, claims processing, care management and quality review, etc.). Additionally, 

rates must be adequate to assure that health plans remain solvent to meet the 

promises of paying claims, and meeting customers’ expectations by having adequate 

reserves on hand to meet those obligations. 

Insurance regulators want premiums to be: 

• Financially sound—able to pay claims and costs, and allow insurers to remain 

solvent; 

• Fair and reasonable—in relation to the benefits offered, thus ensuring value for 

consumers; and 

• In compliance with the rules—incorporate States’ consumer protections embodied in States’ rating rules and standards. 

Before offering any product to consumers, virtually every State requires the policy 

form and the related rate structure to be filed prior to sale. These requirements 

apply to both individual and small group health insurance policies. The vast majority of States regulate small group rates by way of requiring an actuarial certification 

that the insurer is in compliance with the rate band requirements that are the law 

in most States. And every insurance department has the authority to conduct market conduct exams to assure compliance. 

Health insurance premiums tend to be more actively monitored than other lines 

of insurance. The majority of States have some form of ‘‘file and use’’ standards for 

health insurance premiums for rate changes. What this means is that insurers must 

file rates prior to use, with approval deemed after the expiration of the review timeframe (generally 30 to 60 days), to allow the regulators time to discuss questions 

or concerns they have about the filing—which includes actuarial and trend data 

supporting the requested rate change—with the plan. 

Prior approval States are challenged to meet timeframes of review, often taking 

significantly more time than the timeframes for ‘‘file and use’’ rates—sometimes taking more than a year to finalize review of rates. This is exacerbated by the States’ 

own financial challenges—budget cuts throughout the Nation have reduced State 

government budgets and staff. The National Association of Insurance Commissioners has noted 9 that prior approval ‘‘can be a very labor intensive and expensive 
30 

process’’ because it adds costs and delays to the system, which creates unintended 

consequences for consumers. We also have seen an increasingly political approach 

taken in these reviews with efforts to cap rate increases, without taking into account all of the factors that premium rates reflect. 

Capping rates only delays the increase needed and compounds the subsequent increases. Regulators who establish artificial caps on premium rates that do not reflect the underlying components place health plans in jeopardy of weakened financial conditions, creating larger fluctuations in premiums and needless volatility for 

consumers. 

V. WHAT CHANGES UNDER THE NEW LAW

The debate leading up to passage of health care reform ultimately became framed 

as a need for insurance market reform and greater regulation of health plans, creating legislation disproportionately focused on health plans, which make up only 4 

percent of national health expenditures, and doing little to address the underlying 

drivers of health care costs, which have a substantial affect on premium increases. 

The extent of this new regulation is illustrated in the chart on the following page. 

As the illustration demonstrates, the new legislation affects every part of health 

plan operations, will add new layers of regulation on top of the regulatory framework that already exists at the Federal and State levels. A second chart appended 

to our statement illustrates the full impact of this point. What is necessary now is 

not further legislation aimed at only 4 percent of the health care system, but broader consideration of the other 96 percent. 

The point of these charts is to illustrate how the new law has capped health plan 

administrative costs and profits and regulated every part of health plan operations. 

In addition, the medical loss ratio (MLR) provision called for in the new law already 

serves as a direct form of rate regulation. While great care is required in implementing this provision in order to avoid significant disruptions in coverage and instability, particularly in the individual market, during the period prior to the creation of the exchanges, the MLR provision needs to be viewed in tandem with the 

new premium review provisions also in the law. 
31 

The new law requires the HHS Secretary and the States to work together to establish a process for the annual review of ‘‘unreasonable increases’’ in premiums and 

requires public justification and disclosure prior to the implementation of the increase. In addition, the legislation establishes a grant program that will provide the 

States the assistance they need to implement these requirements. 

Implementation will require that these terms be defined, with the opportunity to 

do so in a way that ensures a consistent standard of review throughout the country, 

takes into consideration all of the factors that drive premiums and must be considered in order for rates to be considered actuarially sound, and provides transparency 

on all of these factors to improve public confidence in the process. Advancing the 

principle of transparency should also entail steps to focus similar attention to the 

rates in other health care sectors. As noted above, virtually all States have the authority to examine rate increases to ensure that they are actuarially justified, and 

implementation of the grant program along with the requirement that all States 

conduct an annual review in conjunction with the Secretary will work to ensure that 

there is a rate review process across the country. 
32 

10 California HealthCare Foundation, Should California Regulate Health Insurance Premiums?, March 2004. 11Milliman, The Difficulty of Legislating Premium Rate Increases, by Jonathon Shreve, February 2010. 

The net effect of these provisions is that health plan spending as it relates to administrative costs and profits is capped, and that ‘‘unreasonable increases in premiums’’ will be reviewed annually, with the important caveat that the term ‘‘unreasonable increase’’ needs to be clearly defined in relation to actuarial soundness lest 

this standard encourage an arbitrary process of review that diverts attention from 

the real issues driving health care costs. 

Looking further down the road, the new premium tax and the high-value health 

plan tax will further increase the cost of coverage in future years. 

Cautionary Tales From Massachusetts and California 

Massachusetts and California provide high profile examples of a public discussion 

about insurance rates entirely delinked from an examination of the factors driving 

these rates. 

In the case of Massachusetts, a comprehensive and in-depth report from Attorney 

General Martha Coakley recently reported two findings: that the market leverage 

of providers was leading to higher prices, without any noticeable difference in quality; and that increases in the price of health care services had caused most of the 

increase in health care costs—not utilization. 

Nonetheless, State regulators have placed arbitrary caps on premium increases 

without taking these factors into account. By focusing just on regulating premiums, 

the policymakers in Massachusetts are missing an opportunity to bring increases in 

underlying medical costs under control. Thus, even if policymakers force premiums 

down through legislative action, individuals, families and employers, as the Boston 

Globe correctly notes, will still ‘‘confront ballooning levels of reimbursements for providers.’’ 

The situation of provider consolidation leading to higher premiums is not unique 

to Massachusetts. In fact, the Health Affairs article we mentioned earlier, authored 

by Robert Berenson and Paul Ginsburg, analyzes the affect of providers’ growing 

market power and using this power to negotiate higher payment rates from private 

insurers in California. Berenson and Ginsburg cautioned that ‘‘provider dominance 

could offset some or all of the potential of reforms to lower premiums through increased efficiency in delivery.’’ While there has been considerable discussion of specific premium increases proposed in California, there has been little national discussion about the implications of the findings in the Health Affairs article and how 

these factors might be a root cause of the reported increases. 

Capping premium increases without looking at the underlying components is similar to capping the prices automakers can charge consumers, while allowing the 

steel, rubber, and technology manufacturers to charge the automakers whatever 

they want. This will lead to financial instability throughout the system. What has 

occurred in Massachusetts is a politicization of processes related to premium review 

and approval, creating benchmarks for review that do not reflect the underlying cost 

drivers. Setting arbitrary caps on premiums does nothing to cure the root causes 

of health care price increases, according to a 2004 study 10 done for the California 

HealthCare Foundation. Similarly, a February 2010 Milliman report 11 makes the 

point that ‘‘simplistically limiting premium rate increases to some predetermined inflation index fails to recognize the fundamental elements involved in setting health 

insurance rates, and would likely have severe consequences within a short period 

of time.’’ These serious consequences involve significant long term risks for health 

plan solvency, competition in the market, and the availability of coverage choices. 

VI. PRINCIPLES FOR A WORKABLE SYSTEM

States Are the Appropriate Venue for Review: The expertise and resources for considering rates lies at the State level and State standards and processes are at the 

core of the country’s regulatory system for safeguarding solvency as explained 

above. As such, the new health care reform law recognizes that States properly 

serve as the primary regulators for health plan activities, subject to new and consistent Federal standards impacting a wide range of activities, including annual 

rate review. 

States are responsible for establishing solvency requirements for health plans to 

operate across the country and have long developed and maintained an underlying 

system and structure of regulation that has helped to protect the public—even in 

the face of extremely challenging economic times—from significant incidences of 

health plan insolvency. Indeed, one of the most important protections States provide 
33 

consumers is to ensure that health plans maintain financial stability to ensure that 

beneficiaries can receive benefits. Health plan solvency also is important to providers, who rely on insurers having the financial wherewithal to pay claims. 

Separating financial solvency from rate review, as would occur if rate review occurred principally at the Federal level, would create a significant risk of financial 

instability. At the same time, Federal rate review would do nothing to address the 

underlying factors driving health care costs. 

Actuarial Soundness: It is essential to maintain and protect the critical link between the creation of premiums and ‘‘actuarial soundness,’’ that is, the development 

of rates that are reasonable in relation to the benefits provided and that ensure solvency, taking into account factors such as the underlying medical costs and trends 

facing a particular health plan, adverse selection, benefit plan changes, and demographic changes in the population covered. We are committed to working with the 

NAIC to ensure that actuarial certifications that accompany rate filings are required 

to be prepared in accordance with generally accepted actuarial principles, that the 

components of rate increases are clearly presented, and that States undertake a review of underlying cost trends and provider consolidation. 

Transparency: To increase public confidence, information should be disclosed 

about rates and their composition, without undermining competition, and we are 

taking the steps described below to support this objective. Parallel requirements 

should be imposed on other health care sectors with respect to their rates and associated underlying components that highlight both the utilization and unit costrelated elements of those charges. 

The new law adds to an existing regulatory structure that places primary enforcement authority with the States, but that gives the Federal Government the authority to step in if a State is not substantially enforcing Federal standards. How these 

new provisions are implemented will be an important determinant of whether new 

regulations and requirements improve confidence with respect to the operation of 

health plans without increasing costs, reducing choices, or creating solvency issues 

throughout the system. The real question, therefore, is not whether additional legislation is needed to further address the operation of 4 percent of the health care sector as a percentage of total spending, but whether policymakers will now broaden 

their focus to address sectors accounting for the remaining 96 percent of our health 

care system. 

Allowing Implementation to Proceed: There are significant provisions in the ‘‘Patient Protection and Affordable Care Act’’ that should be given time to be implemented and evaluated. 

ADDITIONAL STEPS HEALTH PLANS ARE TAKING

Following a meeting between Secretary Sebelius, the President, NAIC leadership, 

and the CEOs of five health plans, the Secretary on March 8 addressed a letter to 

the company representatives asking them to make information on rates and rate increases transparent. She requested that these companies publicly display information regarding, among other things: 

• the drivers of rate increases; • the number of individuals impacted by rate increases; • the estimates on medical costs and utilization increases and the assumptions 

behind them; • explanations of what the companies are doing to control premium increases; and • medical loss ratio information for each premium increase. 

The companies all agreed to accept the challenge to make information regarding 

premiums, cost drivers and premium increases transparent in a way that would be 

meaningful and understandable both to health plan enrollees and to policymakers, 

and to work with the NAIC as they do so. A detailed template is under development 

for explaining the factors that go into premiums, the factors that go into premium 

increases, and the steps companies are taking to control costs and increase quality. 

To ensure that this information is complete and informative, we are working with 

company actuaries from a broad array of health plans of all sizes and models as 

well as the insurance commissioners. 

VII. UNMET CHALLENGES

To succeed on a long-term basis, health reform ultimately must include bolder 

steps to achieve system-wide cost containment. We believe this can be achieved with 

a more comprehensive effort to reduce the rate of increase in costs, better alignment 

of public and private sector payment reform efforts, and broader medical malpractice reform. Perhaps most important, we believe that efforts to reduce costs are 

complementary to our Nation’s effort to improve quality as policymakers attempt to 
34 

drive greater value in the delivery of care. Focusing only on premiums and not the 

components that are driving premiums makes little sense. 

In California, a similar effort was made to cap prices charged by energy distributors and ignore supplier costs, leading to ‘‘brownouts’’ and reduced service for consumers. Health plan enrollees may face a similar outcome if Congress attempts to 

reduce the soaring costs of medical care by regulating premiums. The current situation in Massachusetts offers important lessons about the significant disruption that 

can occur if a premium review process disregards the linkage between the components driving premiums and the premiums themselves. 

VIII. CONCLUSION

Thank you for this opportunity to testify. Our members remain strongly committed to working with the committee to ensure the successful implementation of 

the new health reform law, while also working to slow the growth of underlying 

medical costs to make health insurance more affordable. 

The CHAIRMAN. Thank you very much, Karen. And thanks for 

being here, and for your testimony. We’ll certainly get into a discussion. 

And last, we have Grace-Marie Turner, president of the Galen 

Institute, a public-policy research organization that she founded in 

1995 to promote an informed debate over free-market ideas for 

health reform. Grace-Marie is a founder and facilitator of the 

Health Policy Consensus Group, and serves as a forum for analysis 

for market-oriented think-tanks around the country to analyze and 

develop policy recommendations. She served as executive director 

of the National Commission on Economic Growth and Tax Reform 

in the mid-1990s; for 12 years, president of Arnett & Co., a healthpolicy analysis and communications firm. 

So, Ms. Turner, welcome again. Your statement will be made a 

part of the record. Please proceed. 
35 

STATEMENT OF GRACE-MARIE TURNER, PRESIDENT, 

GALEN INSTITUTE, ALEXANDRIA, VA 

Ms. TURNER. Chairman Harkin, thank you very much. Senator 

Alexander, Senator Franken. 

I do bring my entrepreneurial spirit to my policy work, as well, 

thank you very much. 

Grace-Marie Turner, president of the Galen Institute. We are 

based in Alexandria and are a think-tank devoted to free-market 

ideas in health reform. 

In my testimony today, I will talk about the proposal under consideration to give the Federal Government authority to review 

health insurance premiums and use the example of Massachusetts 

as evidence that I’m concerned that this proposal is not going to 

work. 

In addition, I will highlight some of the progress that’s being 

made through innovation and care delivery, to show that a truly 

competitive free market can indeed work to bring prices down. I 

think that part of the reason we don’t have lower health insurance 

premiums is because there is so little competition in States like 

yours and others. I was just in Alabama. One carrier controls 87 

percent of the market. So, it’s very difficult to have true competition. 

States have decades of experience in regulating health insurance 

markets. And I’m very concerned about proposals that would give 

the Federal Government authority, because it has very little experience in this field. 

The National Association of Health Insurance—of Insurance 

Commissioners concluded that Federal control over rate authority 

could be ineffective and could actually cause harm. It said, in a letter to Congress, that, 

‘‘Providing the Federal Government with authority to override State regulatory determinations on rates, while insolvency 

regulation remains at the State level, risks uncoordinated financial regulation that would greatly increase the risk of insurer insolvency without providing additional protection to consumers.’’ 

Further, they said, ‘‘This Federal rate review authority can do 

nothing to reduce claims expenses, which are the biggest component of the premium dollar.’’ 

I’m concerned that this proposal would be like trying to tighten 

the lid on a pressure-cooker while the heat’s being turned up. The 

Congressional Budget Office has said that, in the individual health 

insurance market, there will be a steady increase in health insurance premiums, and that they will go up by $2,100 by the year 

2016, over and above the rate that they would have otherwise increased. So, that means that families would be paying $15,200 for 

insurance in 2016 with this new legislation, and $13,100 otherwise. 

Several provisions in the health reform law that take effect this 

year are sure to increase health insurance premiums in the short 

term, including the removal of lifetime and annual health insurance caps, expanded dependent coverage, and 100 percent coverage 

for preventive care. Not that these are not all helpful to some con-
36 

sumers, but I think it’s important to recognize they are going to increase costs. 

In addition, coming forward, there are $20 billion in taxes on 

medical devices, $60 billion in taxes on health plans, $27 billion in 

taxes on drug companies, more expensive federally mandated benefit packages, and higher premiums for young people, in order to 

try to lower premiums for older people. So, it’s not just overall rate 

increases, it’s what individual people are going to be experiencing. 

Massachusetts’ experience shows that reforms similar to those 

enacted by the Congress, and, in fact, signed into law 4 weeks ago 

today, show that costs will continue to be a problem in the future. 

I believe Massachusetts really is a harbinger for the future. 

For example, the State’s individual mandate is having the effect 

of increasing health insurance premiums in the individual and 

small-group market. The Boston Globe reported that some people 

are taking advantage of the guaranteed-issue provisions in the law. 

It said that thousands of the consumers are gaming Massachusetts’ 

2006 health insurance law by buying insurance when they need it 

to cover pricey medical care and then dropping it after they have 

had their treatment. The typical monthly premium for these shortterm members was $400, but their average claims exceeded $2,200. 

In a complaint filed against the State last week, the major health 

insurers in Massachusetts say they could, collectively, lose more 

than $100 million this year. And these are all nonprofit companies. 

They say these losses will deplete their individual revenues, weaken their financial stability, and, in some instances, threaten nearterm solvency. So, the impact of these premium caps in Massachusetts could, in fact, have the result of forcing many companies out 

of the market, which is the exact opposite of what we need, to induce more competition. 

Many of the problems, I believe, facing this country involving 

health costs could be addressed by encouraging more competition 

and empowering consumers to have greater control and authority 

over their health insurance decisions, including long-term care of 

health—long-term ownership, to get away from the problems of 

moving in and out of markets and preexisting conditions. 

I have a chart—and I will conclude with this—on page 9 of my 

testimony that I think shows that employers are really having 

quite a good deal of success in lowering their health insurance 

costs. The total health-benefit cost increases per employee over the 

last, now, 5 years have been between 5 and 6 percent. And it shows 

what employers can do in this relatively lightly regulated ERISA 

market, where they can have control over the kind of benefits that 

their employees receive, coordinated-care efforts, being able to induce their employees to be partners in managing health care costs. 

I’m concerned that the legislation that puts more Federal control, 

takes more control away from consumers, moves in the wrong direction. 

Thank you very much. 

[The prepared statement of Ms. Turner follows:] 
37 

PREPARED STATEMENT OF GRACE-MARIE TURNER

EXECUTIVE SUMMARY

The proposal under consideration today to give the Federal Government authority 

to review health insurance premiums and to impose penalties if they are deemed 

‘‘unreasonable’’ is unlikely to succeed in lowering health insurance costs. 

The National Association of Insurance Commissioners concludes this policy would 

be ineffective and could actually cause harm, saying in a letter to Congress: ‘‘Providing the Federal Government with authority to override State regulatory determinations on rates while solvency regulation remains at the State level risks uncoordinated financial regulation that would greatly increase the risk of insurer insolvency without providing additional protection for consumers.’’ Further, this Federal 

rate review ‘‘can do nothing to reduce claims expenses, which are the biggest component of the premium dollar.’’ 

The Congressional Budget Office says health insurance premiums will continue 

their steady upward climb and that they will accelerate faster in the individual 

market as a result of the Patient Protection and Affordable Care Act of 2010. It 

found that families purchasing insurance in this market would see a premium increase of an additional $2,100 in the year 2016. That means those families would 

be paying $15,200 in 2016 for health insurance as a result of passage of health reform, and $13,100 otherwise. 

Several provisions in the health reform law that take effect this year are sure to 

increase health insurance premiums in the short term, including removal of lifetime 

and annual limits on health insurance, expanded dependent coverage, and 100 percent coverage of preventive care. 

Massachusetts’ experience with reforms similar to those enacted at the Federal 

level shows that costs will continue to be a problem in the future. For example, the 

State’s individual mandate is having the effect of increasing health insurance prices 

in the individual and small group market. The Boston Globe reports that some people are taking advantage of the guaranteed issue provisions: 

‘‘Thousands of consumers are gaming Massachusetts’ 2006 health insurance 

law by buying insurance when they need to cover pricey medical care, such as 

fertility treatments and knee surgery, and then swiftly dropping coverage, a 

practice that insurance executives say is driving up costs for other people and 

small businesses. The typical monthly premium for these short-term members 

was $400, but their average claims exceeded $2,200 per month.’’ 

Many of the problems the country is facing involving health costs could be addressed by encouraging much more competition and empowering consumers to have 

greater control over decisions involving their care and coverage. In a truly competitive market for insurance where consumers have more power over spending decisions, price transparency and a larger choice of options would drive out insurers 

who price their products exorbitantly. 

Thank you, Chairman Harkin, Ranking Member Enzi, Sen. Alexander, and members of the committee for the opportunity to testify today on the issue of health insurance rate authority and premium costs. My name is Grace-Marie Turner, and I 

am president and founder of the Galen Institute, a non-profit research organization 

based in Alexandria, VA, devoted to advancing an informed debate over marketbased health reform ideas. 

In my testimony, I will discuss the proposal under consideration today to give the 

Federal Government authority to review health insurance premiums and to impose 

penalties if they are deemed ‘‘unreasonable.’’ I will use the example of Massachusetts’ health reform initiative as evidence that this approach is unlikely to succeed. 

In addition, I will highlight some of the progress that is being made through innovations in care delivery, in creative benefit offerings, and in lowering the cost of insurance and medical care to show that the competitive market can respond to the 

demands of consumers for better quality coverage and care at more affordable 

prices. 

CHANGE IS INDEED NEEDED

American consumers and businesses have been saying for years that the cost of 

health insurance and health care is a top concern. However, I do not believe that 

the approach taken in the Patient Protection and Affordable Care Act of 2010 

(PPACA) will contain health costs, and evidence shows it likely will exacerbate 

them. In addition, I believe PPACA will be hugely disruptive to the individual and 
38 

1Therese M. Vaughan, CEO, National Association of Insurance Commissioners, letter to The 

Honorable John Dingell, February 23, 2010. 2 Congressional Budget Office, ‘‘An Analysis of Health Insurance Premiums Under the Patient 

Protection and Affordable Care Act,’’ Letter to the Honorable Evan Bayh, November 30, 2009, 

at http://www.cbo.gov/ftpdocs/107xx/doc10781/11-30-Premiums.pdf. 

small and large group health insurance markets as well as to the overall economy 

and the Federal budget. 

The fact that this hearing has been called today, I think, supports the concern 

that the legislation fails to address the central issue of rising health costs. 

Just in the few weeks since its enactment, we already are seeing evidence of the 

flaws in this legislation regarding the lack of clarity involving coverage for younger 

people with pre-existing conditions and the ambiguity over coverage for members of 

Congress and staff, for example. These are likely only harbingers of the many, many 

problems we are likely to see as a result of enactment of this seeping legislation 

that centralizes control over our huge and extraordinarily complex health sector. 

I am not an authority on the entire law and believe that very few people are at 

this point, but I would like to address today the legislation you are considering to 

give the Federal Government authority to establish limits on health insurance premium increases. I believe that this proposed legislation would take the wrong approach by imposing more top-down, government regulatory power. It also would give 

the Federal Government power to regulate a sector of the economy in which it has 

little or no experience or capability. 

DANGERS OF DUAL REGULATORY AUTHORITY

In 47 States and the District of Columbia, insurers are required to file individual 

market premiums with State regulators. Twenty-eight of them require prior approval before carriers can increase their rates. States have decades of experience in 

regulating these markets and are able to consider the many forces in their individual States that may impact premium costs. Federal regulators would have much 

less ability to recognize these differences among States and would therefore be much 

more likely to inflict damage on health insurance markets. 

Health insurers must collect premiums sufficient to pay claims as well as to maintain capital reserves to meet solvency requirements so the company will be able to 

continue to pay claims. Rate reviews must consider these and other factors when 

reviewing overall premium prices. 

Capping premiums without recognizing the forces that are driving up costs would 

be like tightening the lid on a pressure cooker while the heat is being turned up. 

The National Association of Insurance Commissioners 1 (NAIC) writes that ‘‘the single most significant contributor to rising health insurance premiums has clearly 

been the continued growth of health care spending in the United States.’’ The NAIC 

cites advances in medical technology, multiple treatments available to treat diseases, and the growing reliance on subspecialists, as well as obesity and smoking 

that lead to health conditions requiring expensive and long-term treatment. In addition, the individual market is subject to much higher risk of adverse selection because people are more likely to seek insurance if they anticipate needing expensive 

medical care. 

The NAIC concludes: 

‘‘Providing the Federal Government with authority to override State regulatory determinations on rates while solvency regulation remains at the State 

level risks uncoordinated financial regulation that would greatly increase the 

risk of insurer insolvency without providing additional protection for consumers.’’ 

Further, this Federal rate review ‘‘can do nothing to reduce claims expenses, 

which are the biggest component of the premium dollar.’’ 

HEALTH COSTS WILL CONTINUE TO RISE

The Congressional Budget Office says health insurance premiums will continue 

their steady upward climb in its analysis of the Senate legislation.2 Families purchasing insurance in the individual market would see an increase of an additional 

$2,100 in the year 2016, over and above increases they already will be facing as 

health insurance premiums continue to rise faster than the rate of general inflation. That means these families will be paying $15,200 in 2016 for health insurance under the new law, and $13,100 otherwise. Families who get health insurance 

through small businesses will be paying $19,200 in 6 years, and those working for 

large firms, $20,100. PricewaterhouseCoopers released a study, commissioned by 

America’s Health Insurance Plans, which showed the cost of a family plan in 2019 
39 

3PricewaterhouseCoopers, ‘‘Potential Impact of Health Reform on the Cost of Private Health 

Insurance Coverage,’’ October 2009, at http://www.politico.com/static/PPM116lpwc2.html. 4 James Capretta of the Ethics and Public Policy Center writes in Kaiser Health News, April 

8, 2010: 

‘‘The risk of cost overruns is even higher at the Federal level than in Massachusetts. The Congressional Budget Office projects just 17 million people will be getting subsidized insurance 

through the State-based exchanges in 2016. But the population with incomes between 100 and 

400 percent of the Federal poverty line—roughly the group targeted for subsidized coverage— 

is more like 130 million people. CBO assumes the vast majority of low- and moderate-wage families will stay in job-based plans with no additional Federal help. But what if they are wrong? 

Employers are already looking for ways to shed as much of their health care bill as they possibly 

can onto taxpayers. If 30 or even 50 million Americans end up in the exchanges, Federal costs 

will soar.’’ 5Steve Davis, ‘‘Four key health reform provisions that will affect health insurers this year,’’ 

April 5, 2010. AIS’s Health Business Daily. 

would be $4,000 a year higher under the reform law than otherwise.3 While the insurance coverage will be more generous, citizens will have many fewer options to 

select more modest coverage that they may prefer and that likely would be more 

affordable. 

The Patient Protection and Affordable Care Act of 2010 provides subsidies that 

will help to make this coverage more affordable for some. But the Congressional 

Budget Office estimates that only 17 million people will be getting subsidized insurance through the State-based exchanges in 2016. However, there are as many as 

130 million people in the income categories eligible for this subsidized coverage— 

between 133 and 400 percent of the Federal poverty line.4

As a result, the great majority of Americans will be subject to the mandate to purchase generous and expensive health insurance but only a relative few will qualify 

for Federal subsidies through the exchanges to help them afford the premiums. If 

tens of millions more do get coverage through the exchange, generally because they 

have lost their employer coverage or their employers do not provide health insurance, the cost of providing subsidies would soar, driving the Federal budget deficits 

even higher. 

IMPACT OF PPACA ON THE COST OF HEALTH INSURANCE

Whether the premiums are paid directly by individuals or by taxpayers in the 

form of subsidies, rising health costs affect us all. 

Numerous provisions in PPACA will put upward pressure on health insurance 

premiums, such as the new taxes on drug companies, device makers, and insurers. 

When they take effect, these and many other new fees and taxes will be passed 

along to consumers in the form of higher premiums or reduced services or access 

to care. 

Four health reform provisions that take effect this year are sure to increase 

health insurance premiums in the short term.5

1. Removal of lifetime and annual limits on health insurance: Beginning with plan 

years after Sept. 23, health plans no longer will be allowed to place lifetime limits 

on new or existing group health plans or individual products. They also will be prohibited from setting annual dollar limits on coverage for ‘‘essential benefits’’ as defined by the Secretary of Health and Human Services. The added cost of these 

added claims will have to be built into premiums for all policyholders, but it will 

have secondary effects of causing some employees to lose coverage if their employers 

cannot afford the higher premiums associated with the no-limit coverage. Self-funded plans will need to purchase additional reinsurance coverage. 

2. Dependent coverage: Health insurers will be required to allow members to extend coverage to their adult children up to age 26. While this could bring more 

young and healthy people into the insurance pool, it also has a potential for adverse 

selection. Privately-purchased health insurance for young people is generally inexpensive; those who have trouble buying coverage in the individual or small group 

market and who are more likely to take advantage of this new mandate are likely 

to have higher health risks and therefore higher health costs. Insurers and employers also will be barred from rejecting children under 19 with pre-existing conditions. 

Insurers are working to determine the actuarial cost and will be adjusting premiums accordingly. 

3. Preventive care: Newly-written policies will be required to cover not-yet-determined preventive services at no cost to the policyholder. This simply means that copayments and other cost-sharing will now be built into premium costs, causing them 

to go up. 
40 

6 Congressional Budget Office, ‘‘The Budgetary Treatment of Proposals to Change the Nation’s 

Health Insurance System,’’ May 2009. 7 Robert J. Blendon, Tami Buhr, Tara Sussman, and John M. Benson, ‘‘Massachusetts Health 

Reform: A Public Perspective From Debate Through Implementation,’’ Health Affairs 27, no. 6, 

October 28, 2008, at http://content.healthaffairs.org/cgi/content/abstract/27/6/w556. 8Kay Lazar, ‘‘Short-term customers boosting health costs,’’ Boston Globe, April 4, 2010. 

http://www.boston.com/news/local/massachusetts/articles/2010/04/04/shortlterml 

customerslboostinglhealthlcosts/. 

4. Medical loss ratios: Beginning on January 1, 2011, health insurers will be required to report on the proportion of their premium dollars spent on direct medical 

care versus administrative costs. If Federal regulators decide that wellness, care coordination, and consumer education programs are considered administrative costs 

rather than actual care delivery, for example, insurers could be forced to drop programs that actually help reduce costs, as I explain on page 8 of my testimony. 

It should be noted that the government is on shaky ground in excessively tight 

regulation of private health insurance by tightening these loss ratios. The CBO has 

concluded 6 that excessive regulation of insurance would mean that premiums paid 

for private health insurance would have to be reflected in the Federal budget. 

Other cost drivers are yet to come. For example, under PPACA, the Secretary of 

the Department of Health and Human Services will have authority to determine 

what benefits must be covered in the generous health insurance policies mandated 

by the Federal Government. Massachusetts’ experience shows that mandating generous benefits will increase the costs of health insurance and that political attempts 

to force premiums down will likely fail. 

LESSONS FROM MASSACHUSETTS

One of the promises of Massachusetts’ 2006 health reform law was that getting 

everyone covered would force costs down, but that is far from being realized. One 

third of State residents polled by Harvard researchers in a study published in 

‘‘Health Affairs’’ in 2008 said that their health costs had gone up as a result of the 

2006 reforms. A typical family of four today faces total annual health costs of nearly 

$13,788, the highest in the country. Per capita spending is 27 percent higher than 

the national average.7

The State’s stubbornly high health costs are partly the result of government regulations that stifle competition in the insurance market and mandate what services 

health insurance must cover. A 2008 study by the Massachusetts Division of Health 

Care Finance and Policy found that the State’s most expensive insurance mandates 

cost patients more than $1 billion between July 2004 and July 2005. The Massachusetts health reform law left all of them in place. 

Further, insurance companies in Massachusetts are required to sell policies to 

people, even if they wait until they are sick to buy coverage. The current structure 

and fines associated with the individual mandate in PPACA are likely to lead to 

this same consequence. 

In addition, there is growing evidence that many people in the Bay State are 

taking advantage of the guaranteed issue provisions in the law. They are purchasing health insurance when they need surgery or other expensive medical care, 

then drop it a few months later. 

The Boston Globe reported this month,8 ‘‘Thousands of consumers are gaming 

Massachusetts’ 2006 health insurance law by buying insurance when they need to 

cover pricey medical care, such as fertility treatments and knee surgery, and then 

swiftly dropping coverage, a practice that insurance executives say is driving up 

costs for other people and small businesses. ‘‘The typical monthly premium for these short-term members was $400, but their average claims exceeded $2,200 per month. The previous year, the company’s data 

show it had even more high-spending, short-term members. Over those 2 years, the 

figures suggest the price tag ran into the millions. 

‘‘Other insurers could not produce such detailed information for short-term customers but said they have witnessed a similar pattern. And, they said, the phenomenon is likely to be repeated on a grander scale when the new national health 

care law begins requiring most people to have insurance in 2014, unless Federal 

regulators craft regulations to avoid the pitfall. 

‘‘ ‘These consumers come in and get their service, and then they leave because current regulations allow them to do it,’ said Todd Bailey, vice president of underwriting at Fallon Community Health Plan, the State’s fourth-largest insurer. 

‘‘The problem is, it is less expensive for consumers—especially young and healthy 

people—to pay the monthly penalty of as much as $93 imposed under the State law 

for not having insurance, than to buy the coverage year-round. This is also the case 
41 

9 Victoria Colliver, ‘‘Preventive health plan may prevent cost increases,’’ San Francisco Chronicle, February 11, 2007, at http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2007/02/11/ 

BUG02O20R81.DTL&type=printable. 

Scott Shreeve, ‘‘Safeway uses incentives and transparency to improve employee health,’’ The 

Health Care Blog, October 29, 2008, at http://www.thehealthcareblog.com/thelhealthl carelblog/2008/10/safeway-uses-in.html. 

under the Federal health care overhaul legislation signed by the president, insurers 

say,’’ The Globe reported. 

The individual mandate in PPACA likely will lead to the same gaming of the 

health insurance market that we see in Massachusetts, with people signing up for 

health insurance when they need it and paying the much-less-expensive fine otherwise. This creates adverse selection and will lead to higher and higher premiums 

for those who remain in the pool. 

In Massachusetts, faced with soaring medical expenses, Gov. Deval Patrick wants 

to cap insurance rate increases for those in the individual and small group market 

at 4.8 percent, not the 8 percent to 32 percent increases the companies have requested for the coming premium year. 

Last week, two of the State’s biggest health insurers were threatened with fines 

of as much as $5,000 a day, plus another $1,000 for each consumer who was unable 

to buy insurance at approved rates from the insurer, if they did not comply with 

the governor’s directive. 

How long will these non-profit insurers be able to stay in business if the government forces them to continue to pay benefits that exceed the premiums they are allowed to collect? Three of the four major health insurers in Massachusetts showed 

operating losses for 2009. If their rates are capped, they say they’ll be forced to cut 

payments to health providers, putting further pressure on doctors and fragile hospitals. 

In their complaint filed against the State last week, the major health insurers in 

Massachusetts say they could collectively lose more than $100 million—‘‘losses that 

will deplete their individual reserves, weaken their financial stability, and in some 

instances threaten their near-term solvency.’’ 

And the law’s distortions don’t extend just to health insurance: Some Massachusetts safety-net hospitals that treat a disproportionate number of lower-income and 

uninsured patients are threatening bankruptcy. They still are treating a large number of people without health insurance, but the payments they receive for uncompensated care have been cut under the reform deal. 

PRIVATE SECTOR INNOVATION

Many of the problems the country is facing involving health costs could be addressed by encouraging much more competition and empowering consumers to have 

greater control over decisions involving their care and coverage. In a truly competitive market for insurance where consumers had more power over spending decisions, price transparency and a larger choice of options would drive out insurers 

who price their products exorbitantly. 

Unfortunately, the lack of competition in health insurance in many States limits 

the options for coverage, over-regulation drives up costs, and our structure of financing health insurance gives consumers little power to make choices. 

While health care is different than other sectors of our economy and requires special consideration, there are many areas where consumers can and want to have 

more control over their health care choices. The evidence I will describe below shows 

that competition could work if we were truly to engage consumers as partners in 

getting better value for their health care dollars. The private sector has demonstrated that it can get health costs under control, particularly where companies 

have provided new structures to allow consumers to become engaged. 

Employer Innovations 

Many leading employers are working to get better value for spending on health 

care and health insurance for their employees in order to shape their health insurance offerings to fit their resources and workforces. A few examples: 

• Safeway chief executive Steve Burd has become an evangelist for wellness incentives in the company’s health insurance arrangements. In the first year after 

these plans were introduced, the company’s health costs went down 11 percent. ‘‘If 

you design a health care plan that rewards good behavior, you will drive costs 

down,’’ he said.9 The company shared its cost savings with employees, cutting their 

costs by 25 percent or more. Safeway introduced a program called Healthy Measures 

that encourages employees to get health assessments and provides support and in-
42 

10 Ibid. 11 ‘‘Target Offers Employees Health Savings, Reimbursement Accounts, Plans to Eliminate 

Traditional Health Plans, USA,’’ Medical News Today, May 18, 2006, at http:// 

www.medicalnewstoday.com/articles/43453.php. 12 ‘‘Thought Leaders: John Mulligan, Vice President, Pay & Benefits, Target Corporation,’’ hub 

Magazine, Summer 2008, at http://www.hubmagazine.net/printer.php?ID=180. 13 ‘‘Wal-Mart Announces Improvements to 2008 Health Benefits Package,’’ Wal-Mart Stores, 

Inc., September 18, 2007, at http://walmartstores.com/PrintContent.aspx?id=6731. 14 John Stossel, ‘‘Control Your Own Health Care,’’ RealClearPolitics, October 3, 2007, at 

http://www.realclearpolitics.com/articles/2007/10/controllyourlownlhealthlcare.html. 

‘‘Whole Foods Market Benefits,’’ Whole Foods Market, at http://www.wholefoodsmarket.com/ 

careers/benefitslus.php. 

centives for responsible health behaviors. Safeway also covers the full cost of recommended preventive care.10

• Target offers its employees a range of health insurance choices. One Health 

Savings Account option costs them as little as $20 a month, and Target contributes 

$400 a year to health spending accounts for individuals and $800 for families.11

‘‘We’ve seen, and national research supports, that team members make more costconscious decisions when they participate in a consumer-based plan,’’ according to 

John Mulligan, Target’s vice president for pay and benefits. ‘‘These plans engage our 

team members in a decisionmaking process that gives them greater ownership and 

control of their health care dollars.’’ The company offers its 360,000 employees Decision Guides to help them compare price and quality and estimate their costs, plus 

access to wellness programs, a nurse hotline, and other support tools.12

• Wal-Mart offers dozens of health plan options to its employees, one with premiums as low as $5 a month. For this, employees receive a $100 health care credit, 

more than 2,400 generic drugs available for $4 a month, and major medical coverage 

with no lifetime maximum that starts at $2,000—basically the moment they step 

into a hospital. Employees can choose to pay higher premiums for lower deductibles 

and more comprehensive coverage.13 For $62 a month, employees can choose a $500 

deductible policy with a $100 health care credit and no lifetime maximum on their 

insurance coverage. 

• Whole Foods’ CEO John Mackey toured the country talking to employees about 

health benefits options. Afterward, employees voted to switch to new account-based 

health plans with higher-deductible insurance coverage. Whole Foods deposits up to 

$1,800 a year into a spending account for each employee, with Mackey pointing out 

that this is not charity but part of the employee’s compensation package. If they 

don’t spend the money on medical care, it rolls over and the company adds more 

the next year. Some workers have as much as $8,000 in their accounts.14 Whole 

Foods saves money and still covers 100 percent of its employees’ health insurance 

premiums. 

These companies and many others have worked extraordinarily hard to find the 

delicate balance between getting health costs under control and continuing to provide coverage that satisfies their workers. There simply is no way that a benefit or 

cost structure dictated by Washington could achieve these same results. Maintaining ERISA protection is crucial to allowing companies to continue to innovate. 
43 

15 ‘‘In a tough year, employers hold the line on health benefit cost increases,’’ Mercer LLC, 

November 18, 2009, at http://www.mercer.com/summary.htm?idContent=1364345. 16 ‘‘January 2009 Census Shows 8 Million People Covered by HSA/High-Deductible Health 

Plans,’’ America’s Health Insurance Plans, May 2009, at http://www.ahipresearch.org/pdfs/ 

2009hsacensus.pdf. 

As this chart shows, employers held cost growth to 5.5 percent in 2009, the lowest 

increase in a decade. The use of wellness and health management programs increased as large employers found these tools to be very helpful in holding health 

costs down.15 It is crucially important that implementation of the new health reform 

legislation provide incentives for employers and health plans to continue these innovative approaches to controlling health costs. 

New Health Care Financing Options 

Several new private sector health coverage options are available to companies and 

individuals such as Health Savings Accounts (HSAs) and Health Reimbursement 

Arrangements (HRAs). 

HSAs permit individuals to combine health insurance with a tax-free health 

spending and savings account. The account is used to pay for routine health care 

expenses, such as doctor’s visits, for services not covered by insurance, and to create 

a cushion to pay premiums in lean economic times. The high-deductible insurance 

policy covers larger medical expenses such as hospitalization and surgeries. Federal 

law also allows the insurance contract to cover preventive care, such as cancer 

screenings. 

Eight million Americans had health insurance that qualifies holders to open HSAs 

as of January 2009.16

The older sisters of HSAs, Health Reimbursement Arrangements, were created 

via a regulatory interpretation in 2002 to give employers more flexibility in structuring health coverage for their workers. HRAs operate much like HSAs, but can 

be offered only through the workplace. They are generally account-based plans accompanied by health insurance. While the money in HSAs is truly portable to the 

employee or individual holder, access to HRA funds is generally restricted after an 

employee leaves a company. But HRAs give employers more flexibility in shaping 

their benefit packages, including providing incentives for prevention and wellness 

activities. 

Both products are helping to make health insurance more affordable and are helping companies lower their health costs. Health insurance premiums generally are 

lower than average because deductibles are higher, and the savings on premiums 

can help fund the HSA or HRA that people can use to pay for routine health expenses. 

Companies that have introduced health plans with new incentives for consumers 

to be engaged as partners in managing health costs generally have seen lower-thanaverage health cost increases. Annual premium increases for employment-based coverage averaged about 6 percent for the last 3 years, down from double digits earlier 
44 

17Total U.S. health benefit cost rose by 6.1 percent in 2007. ‘‘Mercer National Survey of Employer-Sponsored Health Plans,’’ Mercer LLC, November 19, 2007, at http://www.mercer.com/ 

summary.jhtml?idContent=1287790. 18 American Association of Preferred Provider Organizations (AAPPO), ‘‘2010 Survey of Consumer-Directed Health Plans,’’ April 14, 2010, at http://www.aappo.org/fncDownload 

.cfm?newsID=140. 19 ‘‘Reducing Corporate Health Care Costs: 2006 Survey,’’ Human Capital Practice of Deloitte 

Consulting LLP and the Deloitte Center for Health Solutions, 2006, at http://www.deloitte.com/ 

dtt/cda/doc/content/uslchslredlcorlhealcostsl0106.pdf. 20Meredith Baratz and Todd Berkley, ‘‘Consumerism in Health: A Conversation with Galen 

Institute and the Consensus Group,’’ UnitedHealthcare, January 7, 2009. 21 ‘‘Mercer National Survey of Employer-Sponsored Health Plans,’’ Mercer LLC, November 19, 

2008, at http://www.mercer.com/summary.htm?idContent=1328445. 

in the decade.17 The most impressive results have come from consumer-directed 

plans such as HSAs and HRAs. 

Enrollment in consumer-directed health plans (CDHP) grew to an estimated 23 

million people in 2009, up from 18 million people in 2008—a 27 percent increase. 

This finding was reported by the American Association of Preferred Provider Organizations and was based upon research from Mercer’s 2009 National Survey of Employer Sponsored Health Plans. Small employers led CDHP adoption in 2009, accounting for most of the growth among all employers.18

Deloitte’s Center for Health Solutions found that cost of consumer-directed health 

plans (CDHPs) increased by only 2.6 percent in 2006 among the 152 major companies it surveyed. This is about a third the rate of increase for traditional plans.19

Lower Costs of Insurance Coverage 

Consumer-directed health products have helped to moderate health cost increases 

overall. 

• UnitedHealthcare found that employer health benefit costs were more than 15 

percent lower in 2007 for its HRAs than for traditional PPO plans. Importantly, 85 

percent of the cost savings were attributable to lower utilization costs, such as 

avoiding hospitalizations and greater use of generic drugs—and not from cost shifting to employees.20

• A Mercer study found that consumer-directed health plans delivered substantially lower costs per employee than either PPOs or HMOs in 2008. CDHP medical 

plans averaged $6,207 per employee, compared to $7,768 for HMOs and $7,815 for 

PPOs.21

• In addition, health insurance that people purchase in the individual market is 

often more affordable than employment-based coverage. eHealthInsurance, the largest online broker for individually-purchased and small-group health insurance, 
45 

22 ‘‘Costs 2010 Spring Cost Report for Individual and Family Policy Holders,’’ eHealth, Inc., 

March 30, 2010, at http://news.ehealthinsurance.com/pr/ehi/document/Springl2010lCost lUpdate.pdf. 23 ‘‘Quick Facts: Health Savings Accounts,’’ Assurant Health, at http:// 

www.assuranthealth.com/corp/ah/AboutAssurantHealth/HSAFactSheet.htm. Maureen E. Sullivan, ‘‘Health Plan Initiatives, Trends and Research in Consumer-Driven 

Care,’’ BlueCross BlueShield Association, October 20, 2008, at http://www.bcbs.com/news/ 

bluetvradio/consumerdriven2008/. 24Meredith Baratz and Todd Berkley, ‘‘Consumerism in Health: A Conversation with Galen 

Institute and the Consensus Group,’’ UnitedHealthcare, January 7, 2009. 25 ‘‘Aetna and Healthline Networks Announce First Ever Personalized Health and Health Benefits Search Engine—Aetna SmartSource,’’ Aetna Inc., March 12, 2008, at http:// 

www.aetna.com/news/newsReleases/2008/0312.html. 26 ‘‘Aetna Research Identifies Four Keys to Success for Consumer-Directed Health Plans,’’ 

Aetna Inc., January 31, 2008, at http://www.aetna.com/news/2008/0131.htm. 27 Ibid. 28 U.S. Preventive Medicine, http://www.uspreventivemedicine.com/. 

found that the average yearly health insurance premium in 2009 was $1,968 for individuals and $4,656 for a family.22

Other Benefits 

In addition to moderating cost increases, HSAs also are providing new options for 

the uninsured. Up to 43 percent of those enrolling in HSA-qualifying health insurance were previously uninsured, showing that uninsured Americans in particular 

have been looking for an affordable alternative to traditional health insurance, according to Assurant Health.23 Assurant Health’s most recent data show that they 

have broad appeal: 

• 66 percent of HSA purchasers are families with children • 63 percent of HSA purchasers are over age 40 • 52 percent of all HSA purchasers have high school or technical school training 

as their highest level of education • 30 percent of HSA purchasers have family incomes of less than $50,000 

UnitedHealthcare found, based upon a survey of 300,000 HSA owners, that the average account holder had household incomes of $55,500, and 25 percent of those 

with an HSA had incomes of less than $39,000.24 Changes in Federal law in 2006 

allowing employers to make larger deposits for lower-income workers also are apparently succeeding, since UnitedHealthcare found that they were more likely to 

have employer contributions in their HSAs than higher-income HSA holders. 

Other Private Insurance Options 

Many other employers are offering innovative programs to help their employees 

get and stay healthier and spend health care dollars wisely. They are offering incentive programs to encourage employees to get health assessments to detect problems 

early and health coaching to help those with chronic illnesses better manage their 

care. These companies generally work in partnership with health plans to design 

the consumer-based products, manage the finances, educate employees about using 

them, and provide wellness programs and support for employees with chronic conditions. Price transparency is an important element in their success. 

For example, in 2005, Aetna launched a program that offers a range of consumersupport tools to help patients find physicians, compare costs and quality, and get 

personalized information about medical conditions and treatment. Its personalized 

search engine provides health information tailored to patients’ individual needs.25

The results show this patient engagement works. Aetna is following health care 

claims and utilization of 1.6 million members of its Aetna HealthFund consumerdirected plans. Four years of evidence show sustained savings, more patient engagement in managing health, and greater utilization of preventive services. Employers 

who offered an Aetna HealthFund plan lowered their health care spending trend 

and saved money through all 4 years with the plan, across all Aetna products they 

offered.26

Aetna studied its members to identify the keys to successful implementation and 

found the keys were greater spending on preventive care, including wellness programs, focusing on employee communication and education, and carefully structuring benefits packages with appropriate levels of employee responsibility.27

Many companies are offering turnkey solutions to health plans and employers. 

U.S. Preventive Medicine, for example, offers employers packages of services they 

can tailor to fit the needs of their workforces for preventive care services.28

In addition, a galaxy of Web sites has evolved to offer everything from treatment 

information to diet advice. EverydayHealth has just surpassed WebMD as the mostvisited site for medical information, and new sites appear every day to help patients 
46 

29Micah Hartman, Anne Martin, Olivia Nuccio, Aaron Catlin, ‘‘Health Spending Growth At 

A Historic Low in 2008,’’ Health Affairs Web Exclusive, January 5, 2010, at http://content.healthaffairs.org/cgi/reprint/29/1/147. 30Grace-Marie Turner, ‘‘Gold Standard,’’ Health Policy Matters Newsletter, Galen Institute, 

March 14, 2008, at http://www.galen.org/component,8/action,showlcontent/id,14/bloglid, 

1030/categorylid,0/type,33/. Carole W. Cranor, Barry A. Bunting, and Dale B. Christensen, ‘‘The Asheville Project: LongTerm Clinical and Economic Outcomes of a Community Pharmacy Diabetes Care Program,’’ 

Journal of the American Pharmaceutical Association, Volt. 43, No. 2, March/April 2003, at 

http://www.aphafoundation.org/searchablelfiles/filemanager/JAPhAlLong%20term.pdf. Toni Fera, Benjamin M. Bluml, William M. Ellis, Cynthia W. Schaller, and Daniel G. Garrett, 

‘‘The Diabetes Ten City Challenge: Interim Clinical and Humanistic Outcomes of a Multisite 

Community Pharmacy Diabetes Care Program,’’ Journal of the American Pharmaceutical Association, Volt. 28, No. 2, March/April 2008, at http://www.diabetestencitychallenge.com/pdf/ 

DTCCInterimReport.pdf. 31TelaDoc, http://www.teladoc.com. 32 ‘‘The Retail Clinic Market in 2009,’’ Merchant Medicine, at http://www.merchant 

medicine.com/News.cfm?view=74. 

find the best doctors, the lowest cost medicines, and the most cost-effective 

diagnostics. 

Lower Drug Costs 

Competition, primarily from greater use of generic drugs, helped to moderate prescription drug spending. Drug prices increased 2.5 percent in 2008, compared to 1.4 

percent in 2007. This is slower than the 4.1 percent average annual rate of growth 

between 1997 and 2007 and less than the overall rate of medical inflation.29 Part 

of the reason is increased use of lower-cost generic drugs, but private competition 

over drug pricing in the Medicare Part D program also contributed. And retail establishments also have engaged in private price wars. In 2006, Wal-Mart began offering 30-day supplies of several hundred generic drugs for just $4. Competitors 

quickly followed suit, with some even offering to fill prescriptions for antibiotics for 

free. 

There also has been active engagement by pharmaceutical companies in creating 

programs for low-income and uninsured people to obtain their products at little or 

no cost. Pharmaceutical companies have made significant investments to develop, 

expand, and promote patient assistance programs like Together Rx Access, Pfizer 

Helpful Answers, Partnership for Prescription Assistance, and many others. New 

private partnerships, like the Asheville Project and the Ten Cities Challenge, also 

have been created to help patients with chronic illnesses, including diabetes, get the 

medicines and counseling they need to manage their diseases.30

Care Delivery 

Private health care firms have responded to consumer demand for more convenient, accessible medical care. For example: 

• TelaDoc offers its customers telephone consultations with physicians from wherever they are, anytime of day, 365 days a year. The average patient gets a call returned by a doctor in less than 40 minutes, and the cost per call is just $35—a fraction of the cost of an emergency room visit. TelaDoc physicians also use electronic 

prescribing to minimize errors and keep a record of patients’ medications.31

• There also has been an increase in the number of low-cost walk-in medical clinics like RediClinic, Take Care, and MinuteClinic. There are now more than 1,180 

retail clinics nationwide.32 They are usually located in malls or chain stores and are 

typically staffed by nurse practitioners working in conjunction with local doctors and 

hospitals to diagnose and treat common illnesses. They are open 7 days a week, before and after work, and prices are a fraction of emergency room charges. 

These clinics use Mayo Clinic and Cleveland Clinic protocols to diagnose and treat 

a range of routine health problems, from allergies and bronchitis to poison ivy, ear 

and bladder infections, and strep throat, usually for a fraction of the cost of hospital 

emergency rooms. Wal-Mart found that about half of the people visiting its in-store 

clinics were uninsured and did not have other sources of care. Wal-Mart partners 

with local hospitals and doctors’ groups to create the clinics in many areas, but it 

insists that all of them create electronic health records for every patient that are 

accessible at any other clinic in the chain. 

• Specialty hospitals owned by physicians are showing the value of focused care 

in delivering high-quality, efficient care with greater patient satisfaction and better 

health outcomes. 

• Physician practices also are innovating to become more consumer-friendly. 

Some are freeing up an hour or more a day for same-day appointments. Others are 
47 

33 ‘‘ER Care, Stat!,’’ Sandra G. Boodman, The Washington Post, September 16, 2008. 34Society for Innovative Medical Practice Design at http://www.simpd.org/. 35David Albenberg, MD, ‘‘Concierge Medicine: The Pitfalls and the Pendulum,’’ Fall 2008, at 

http://pri-med.com/DigitalAssets/Shared%20Files/Syllabus%20FileslFall08/C&E/Mid-Atlantic/Practice%20Solutions/Session11-Concierge%20Medicine%20Part%201FNL.pdf. 36Mike Stobbe, ‘‘Booming Business Helps Patients Navigate Medicine,’’ Associated Press, July 

25, 2008. 

working with employers to staff on-site clinics so employees can see a doctor without 

taking time off work. 

• Hospitals are experimenting with new ways to ease crowding in their emergency rooms, visited by an estimated 119 million patients in 2006. There are more 

than 8,000 walk-in urgent care facilities nationwide staffed by practicing physicians. 

Inova Health System and Shady Grove Adventist in the Washington, DC, area and 

dozens of other hospitals nationwide are opening free-standing emergency facilities 

to treat everything from lacerations to heart attacks and gunshot wounds. Patients 

are seen faster, and if they need to be admitted, they are transported by ambulance 

to nearby hospitals.33

• A growing number of physicians are experimenting with innovative medical 

practice design,34 including direct medical practices. Physicians, generally internists 

or family practitioners, contract directly with their patients to offer a medical home, 

providing medical care, consultation, and coordination with specialists for a fixed 

fee. The fees range from $60 to $15,000 in some practices, but generally cost about 

$1,500 a year.35 Other physicians are bypassing insurance and simply posting prices 

for medical services. They find they can charge patients much less because they 

save on the administrative overhead of insurance billing. 

• Health Advocate, a Pennsylvania-based company, helps consumers find the 

right doctor for their ailments, work with insurance companies on coverage, and 

manage other administrative headaches. This service helps consumers, via call centers, who are being given more responsibility to navigate the world of health care 

and health coverage.36

UNFINISHED AGENDAS

I commend you and the many other members of Congress for working toward the 

goal of expanding access to health coverage for the uninsured, modernizing our 

health care delivery system, and trying to provide relief for private and public payers to rising health costs. 

The challenges are enormous. Millions of Baby Boomers are aging into Medicare, 

putting new pressures on the system. The costs of public programs threaten to 

squeeze out other public services provided by Federal and State governments. Millions of people continue to lose their health insurance when they lose or change jobs 

(and I believe the coverage of many workers is actually threatened by PPACA.) But 

the cost of health care and insurance coverage continue to be at the center of the 

health reform debate. I think the evidence shows that private sector initiatives and 

genuine competition offer the best hope of helping consumers and taxpayers with 

health costs. 

The Path Forward 

Addressing the needs of 300 million Americans for better quality care at more affordable prices requires modernizing our health sector to become more efficient and 

innovative. It is not possible to expect that one piece of legislation could be written 

carefully enough to accommodate these needs and also continue to provide a platform for future innovation to enhance the quality of medical care in the future. 

The medical profession is moving toward patient-centered medicine, with microtargeting of treatments tailored to the individual genetic code of individual patients. 

Advances in medical science demand that progress must continue without being 

blocked by regulatory obstacles and restrictive payment systems. This continued innovation is vital to progress in health care. 

While we face major problems with cost and access to coverage, the evidence 

shows that careful reform which respects the diverse needs of our population is crucial. As the examples I have offered here show, competition can work in public and 

private programs and force the system to be more responsive to consumers. By properly structuring incentives and creating a climate friendly to this innovation, Congress could put us on a path to uniquely American health care solutions. As I believe the evidence shows, competition works, even in health care, and offers the best 

solution for the future. 

The CHAIRMAN. Thank you very much, Ms. Turner. 
48 

Thank you all very much for being here and for your testimonies. 

We’ll start a round of 5-minute questions. 

First, Ms. Menke, thank you for telling us your story. I do feel 

your frustration. I just listened to Ms. Turner talk about employers, how they’re keeping their rates down. That might be OK, but 

that doesn’t answer your problem, and the problem of so many 

small towns in my State, our State, that don’t have 50 or 100 or 

more employees. 

The State insurance commissioner in Iowa, as you said, modified 

your premium increase from 31 percent to 25 percent. We have 

that authority under State law. I assume you agree, that’s probably 

a pretty good thing to have, considering your testimony. 

Ms. MENKE. Yes, I absolutely do think it’s a good thing to have. 

I’m glad that Iowa had that. And I would support other States having an insurance commission or insurance division that would regulate insurance premiums. 

The CHAIRMAN. I just want to point out one thing. You mentioned they were found to be justified, after an independent review. 

So, I started looking into that; had my staff look into it. And the 

independent review was done by INS. I’m not certain where INS 

is from. But, I was reading here, from a press statement here—INS 

Consultants, a Philadelphia actuary. They found the insurance division’s rate review process acceptable and reasonable using INS’s 

methodology. But, as was pointed out in a newspaper article, it 

said that, while INS is technically independent, there’s no way the 

firm would contradict and embarrass the agency which hired the 

firm. If INS were to contradict the insurance division, it would likely not be hired in the future by the Iowa insurance division or any 

other insurance regulator. So, you wonder about that independence. And I wonder about that, myself, in terms of these rate reviews. 

You know, with your story, I’ve heard so much across the State 

of Iowa. And, as I pointed out, two companies have 80 percent market share. So, when you went out for bids to find another company, 

you said they all came in considerably higher. 

Ms. MENKE. Right. 

The CHAIRMAN. And I’d point out that your insurance rates went 

up 131 percent in 5 years. Medical inflation over that same time 

would have been about 50 percent, maybe, something like that, if 

you figure about 10 percent per year. So, again, that’s what raises 

the questions about just how much is being taken out by profits 

and other things in these companies. And as was pointed out by 

Senator Feinstein, a lot of these companies have bought other companies, and now we’re in these huge, huge for-profit companies— 

insurance companies in the country that, basically, in many 

States—Illinois, Mr. McRaith—they really don’t have that kind of 

rate review. 

In 2014, we’ll have a big change in that. Anticipating that 

change, would you think there’s a potential for insurance companies to charge unjustified premium increases before then, Mr. 

McRaith? 

Ms. MENKE. Well, I believe that Blue Cross/Blue Shield did 

hedge their bets by going for these increases now. 

The CHAIRMAN. Yes. 
49 

Ms. MENKE. And I read that same article that you did, about the 

independent reviewer, so yes. 

The CHAIRMAN. Mr. McRaith, what do you think? Do you think 

there’s a possibility that insurance companies, anticipating that 

2014, would be out there trying to game the system? 

Mr. MCRAITH. Well, Mr. Chairman, first of all, let me assure you 

that the insurance commissioner in Iowa, Susan Voss, is an exceptionally talented regulator. I’m sure that conflict of interest is not 

one she would ever reconcile against the consumer. 

In terms of the companies and potential for abuse between now 

and 2014, I do think there’s a distinct possibility that less responsible companies are going to attempt to price out people who might 

be sick or injured, or might become sick or injured between now 

and 2014. We have seen some evidence that in Illinois already. Although we had dramatic, explosive rate increases over the last couple years, small groups, with just one or two sick employees, have 

seen rate increases of 50 percent or more. Those are unprecedented 

levels for us. 

The CHAIRMAN. Ms. Ignagni, before my time runs out, as Commissioner McRaith said, he has no idea what premium rates are 

for small businesses in his State. I was kind of shocked when I 

heard that. I understand the health plans that you represent have 

agreed to provide more transparency—— 

Ms. IGNAGNI. Yes, sir. 

The CHAIRMAN [continuing]. For premium rates. As you know, 

the Affordable Care Act provides for public disclosure of how premium rates are determined. But, this requirement only applies to 

new health plans, not existing ones. So, in the interest of transparency, do the health plans you represent support a legislative 

change to ensure that this requirement for public disclosure applies 

to existing health plans, as well? 

Ms. IGNAGNI. We are working with the NAIC and individual insurance commissioners, and are in the process, now, of reaching 

out to consumers, to undergo a very comprehensive—as we said in 

our testimony, you’re quite right—transparency effort. And that 

means information on Web sites. And we’re working with the 

NAIC, in terms of how the actuarial justifications can be done in 

consistent ways across the country. We believe it’s important for 

consumers and businesses to have a line of sight into what is going 

on, and we think that that will spark, in fact, a broader discussion 

about how we deal with this issue and the underlying costs that 

are fueling the premiums. 

The CHAIRMAN. So, you’re not prepared, right now, to say whether or not this should apply to existing plans. 

Ms. IGNAGNI. I think, that, Senator, we have—every page of the 

legislation, as you know—virtually every page—affects our members in a variety of ways. And we submitted a chart which shows 

the full breadth of that. I think the first thing to do is to let the 

department, which is now moving very quickly to develop the 

standards that will be required in all States. We think that that’s 

an important change, and we think that it will provide the kind of 

transparency that’s necessary so that folks can get their hands 

around what’s going on. We think that will draw them to the un-
50 

derlying factors that are—that is, in fact, fueling the growth in premium. 

The CHAIRMAN. I’ve gone over my time. 

Senator Alexander. 

Senator ALEXANDER. Thanks, Mr. Chairman. 

And thanks, to all the witnesses, for coming. 

Ms. Menke, the story of those increases is really terrifying, I’m 

sure, for many, many Americans who’ve suffered the same thing. 

Let me suggest a couple of solutions that have been talked about 

here in the Congress. One, you alluded to. There’s the idea of a 

small business health insurance plan, which generally would say 

that small businesses, including a small town—you might join up 

with other smaller entities, and, by creating a larger pool, you 

might be able to offer insurance to your employees at a more reasonable or lower cost. Would that be helpful in your case, do you 

think? 

Ms. MENKE. Yes, it would be. 

Senator ALEXANDER. Another idea was to broaden the ability of 

individuals in Iowa or Tennessee to shop across State lines for insurance, so they might compare prices and maybe have more 

choices. Do you think that might be helpful in your case? 

Ms. MENKE. I don’t know the answer to that, but the more competition that’s out there, I think, the more competitive the prices 

would be. 

Senator ALEXANDER. Thank you very much. 

Both of those ideas were offered and rejected by Republican Senators in the health care debate. And, in fact, the health care bill 

makes it—law makes it more difficult for people to shop across 

State lines. 

Ms. Ignagni. 

Ms. IGNAGNI. Yes, sir. 

Senator ALEXANDER. I’m told by staff that they called Iowa Blue 

Cross/Blue Shield, who said that the Blue Cross Transition policy, 

that had such high rates, that Ms. Menke talked about, pays $1.81 

in claims for every dollar they collect in premiums. How can an insurance company afford to do that? 

Ms. IGNAGNI. Well, you can’t maintain your operations if that 

continues. 

Senator ALEXANDER. So, what do you do? 

Ms. IGNAGNI. Well, you have to increase rates. 

Senator ALEXANDER. Or? 

Ms. IGNAGNI. Or you go out of business. And then consumers lose 

choices. And it’s a tremendously disruptive situation. 

Senator ALEXANDER. I’m a little confused, too, by some of the 

talk. What percent of Americans are covered by insurance companies that are not for-profit? 

Ms. IGNAGNI. About 50 percent, sir. 

Senator ALEXANDER. About half. 

Well, so, those companies don’t have profits? 

Ms. IGNAGNI. No, you can’t—if—you have to be in black to be in 

business—— 

Senator ALEXANDER. Yes. 

Ms. IGNAGNI [continuing]. Versus the red. 

Senator ALEXANDER. Well, what if you’re—— 
51 

Ms. IGNAGNI. Any for-profit—— 

Senator ALEXANDER. What happens to the money that puts you 

into the black? Where does that go? Does that go to some greedy 

person? 

Ms. IGNAGNI. No. Well—— 

Senator ALEXANDER. Well, I mean, that’s the insinuation. 

Ms. IGNAGNI. As level-setting, we have, on average now, last 

year, 3.2 percent average profits. 

Senator ALEXANDER. But, what happens to the black? I mean, 

where does the money go? It goes to salaries, right? 

Ms. IGNAGNI. It goes to salaries and administrative operations. 

Senator ALEXANDER. Could it go to reserves? 

Ms. IGNAGNI. It goes to reserves. 

Quite a lot of those administrative operations are designed to improve health care. Disease management, for example. 

Senator ALEXANDER. Can it be used to reduce premiums or otherwise for the benefit of the members? 

Ms. IGNAGNI. Yes. 

Senator ALEXANDER. All right. So, when Senator Feinstein says 

that, in Michigan, Blue Cross/Blue Shield raised prices at a heavy 

rate—Blue Cross/Blue Shield is not for-profit. Is that not right? 

Ms. IGNAGNI. Yes, it is. And, in fact, I know about that situation. 

They paid out a $1.50 for every dollar they took in, roughly, in 

their individual product. 

Senator ALEXANDER. OK. And in Iowa, the Blue Cross/Blue 

Shield, is that not-for-profit? 

Ms. IGNAGNI. It’s a not-for-profit plan, yes, sir. 

Senator ALEXANDER. So, what we’re talking about is pretending 

that we’re going to control the rising cost of premiums by taking 

away profits from companies, half of which don’t make profits, because they’re not-for-profit. 

Ms. IGNAGNI. Well, I think there’s been tremendous amount of 

misinformation in the debate. And I think this is an important opportunity to really shine a spotlight on the real data. 

Senator ALEXANDER. What happens, then, under the Feinstein 

bill, with insolvency? If I remember from my days as Governor, the 

State’s responsible, is it not, for determining whether an insurance 

company might go broke? And if it goes broke, then, if I have its 

insurance, I don’t get paid. 

Ms. IGNAGNI. Yes. 

Senator ALEXANDER. But, under this bill, the Federal Government might decide what the premium might be. So, the Federal 

Government might put an insurance company out of business. That 

would be all right, I suppose. But, it wouldn’t be all right for all 

the people who had premiums with that insurance company, because they might not get paid. 

Ms. IGNAGNI. I think Commissioner McRaith said this very well. 

I think it’s dangerous to separate review of rates from solvency. 

You have to keep them together, and we think the State is the best 

place to do that. They’re closer to the ground, and the insurance 

commissioners do a very good job. 

Senator ALEXANDER. Commissioner McRaith, this is my last 

question; my time is up—but, what should we do, on this legislation, with the solvency question—should the solvency issue be sep-
52 

arated from the decision about what the premium rates should be? 

I can foresee, under the bill, the possibility that you might decide 

that a rate is reasonable, but the Federal Secretary might overrule 

you and decide it’s unreasonable, putting an Illinois company— 

making it insolvent and perhaps having customers lose their insurance. Do you see any concern there? 

Mr. MCRAITH. Senator, solvency is the first priority for insurance 

regulators in every State. The Massachusetts example, I think, is 

extremely misleading. All of those companies, even with the decline 

of those proposed rates, would remain financially strong. 

We do share the concern about the solvency priority and that 

protection for consumers. There’s nothing in the bill, as I read it, 

that says the Secretary can overrule a decision by a State insurance regulator, regarding a rate approval or denial. 

Senator ALEXANDER. But, doesn’t it say, if the rate increase is 

unreasonable, the Secretary may review it, and your decision might 

be unreasonable, in the Secretary’s opinion. 

Mr. MCRAITH. What it says is that the Secretary shall defer to 

those States that have rate approval or denial authority. In many 

cases, as you know, States have that authority. 

Tennessee is a great example, where you have the—among the 

lowest rates for small groups and in the individual market, as well; 

some would argue, because of that rate approval authority. So, the 

concern about solvency is important. Secretary Sebelius, of course, 

as a former insurance commissioner, understands that. We’re confident we can work, as States, independently, to protect consumers 

from the possibility of an insolvency. 

Senator ALEXANDER. Thank you, Mr. Chairman. 

Mr. MCRAITH. Thank you. 

The CHAIRMAN. Senator Casey. 

STATEMENT OF SENATOR CASEY

Senator CASEY. Mr. Chairman, thank you very much. And I 

know that I missed some of the testimony. I wanted to review a 

couple of questions, which may plow through some ground you’ve 

already covered, but I wanted to make sure that we explored some 

aspects of the issue itself, but also the legislation that Senator 

Feinstein has introduced. 

I guess I wanted to begin with Ms. Ignagni. With regard to the 

bill itself, that she spoke about today, and that I know you and others have provided commentary and testimony. I guess, I’m not sure 

I understand. Let me just get—for the record, you don’t support the 

Feinstein—— 

Ms. IGNAGNI. No, sir. 

Senator CASEY [continuing]. Legislation. OK. 

And I know it’s a, I guess, about a 12-page bill. It is not all that 

complicated, but having a health insurance rate authority in place, 

I think, makes a good bit of sense. 

But, I wanted to ask you, in particular with regard to the corrective action section of the bill, where the Secretary or the relevant 

State insurance commissioner would review a proposed increase 

and then review the justifications for a rate increase and then 

make a determination about the reasonableness of that. Why don’t 

you support that part of the bill? 
53 

Ms. IGNAGNI. A number of States, as you know, Senator, have 

the ability to do that—the overwhelming majority, No. 1. No. 2, in 

the legislation already—not the Feinstein legislation, but the existing legislation that was just passed—there are three changes, four 

actually, that we think are very important, and it explains why we 

believe what we do. 

First, in the legislation for the first time, profits and administrative costs are capped through MLR provisions. Two, there—— 

Senator CASEY. Medical loss—— 

Ms. IGNAGNI [continuing]. Medical loss ratio—I’m sorry. 

Also, No. 2, there’s a new process where there will be guidelines, 

developed by the Secretary, that the States will implement, to assess the reasonableness of rates. 

Senator CASEY. Right. 

Ms. IGNAGNI. No. 3, there will be requirements about actuarial 

justification. And, No. 4, there will be requirements that the States 

receive resources to help with the person power necessary to support all that. 

We think it’s important to, one, let all of this proceed. It’s going 

to proceed very, very quickly. We think it will provide the kind of 

public discussion that is important that will really shed light on 

the overall issues of rising health care costs. So, we’ve been very 

concerned about the prospect of new legislation in a context where, 

just a month ago, legislation was passed, number one, and where, 

in Massachusetts—I want to go back to that—we’re very concerned 

about what’s going on there. 

Commissioner McRaith made the point that no plan would be 

close to insolvency. That, in fact, isn’t correct in Massachusetts. 

There are a couple plans there that are very concerned about the 

impact of the arbitrary cap that’s now been imposed. It has nothing 

to do with underlying costs. 

Senator CASEY. OK. I just want to make sure I understand your 

position on this part of the bill. Let me ask you, hypothetically: Absent these changes that we just passed a couple weeks ago—would 

you be opposed to this policy, absent those changes? 

Ms. IGNAGNI. I think, absent those changes, we’d really have to 

assess—thoughtfully assess your question. But, with the changes, 

I think it’s a different environment. 

Senator CASEY. So, you—— 

Ms. IGNAGNI. And we think the changes should be allowed to 

work, to see where we are. And we hope that there will be more 

of a discussion in States—— 

Senator CASEY. So, you—— 

Ms. IGNAGNI [continuing]. About the underlying—— 

Senator CASEY [continuing]. Agree with the policy behind this 

section of the bill, you just don’t think it’s necessary. You think the 

changes in place now will be sufficient. 

Ms. IGNAGNI. We think the changes that are in place, coupled 

with what is already going on at the State level across the country, 

will allow the kind of discussion that you’re looking for. 

Senator CASEY. But, here’s the problem for a lot of Americans. 

They feel as if they have no control, or no ability to impact the control, of rising costs. And, second, it seems like every time they pick 

up the paper, there’s a health care executive who’s making a lot of 
54 

money—millions and millions, if not tens of millions. And they 

scratch their head and say, ‘‘My rates went up, and this person’s 

making a lot of money.’’ I mean, do you understand that basic problem that people have? 

Ms. IGNAGNI. Yes, most definitely. And I understand, also, that 

people are frustrated about the symptom, which is premiums. 

That’s what they see. They see a bill. But, that’s a reflection of the 

underlying—it’s not just cost, it’s utilization, as you know. It’s adverse selection. 

Senator CASEY. Yes. 

Ms. IGNAGNI. It’s a range of other factors. 

Senator CASEY. What I can’t understand is, Why has your industry, for years, so aggressively—spending lots of money doing it, not 

just using your voice, but using your dollars—to oppose efforts to 

do just what you and I have just had a discussion about? I mean, 

why did we need legislation to say that you can only spend a certain percentage of your overall dollar on administration? Why did 

we need to even put these in place? Why couldn’t you do it on your 

own? Why couldn’t you be more transparent about profits and 

about pay—about what these executives have been paid? Why did 

we have to legislate at all, and why do we even have to have a discussion about additional legislative remedies? 

Ms. IGNAGNI. Senator, I think this is a very fair question, and 

let me give you a very frank answer, in the spirit of your question. 

What I think is important for the country, as we talk about health 

care costs, is assessment of profits all the way down the line. Fortune magazine says, on average, we have 3.2 percent—on average. 

In the pharmaceutical industry, it’s 25 percent. In the device industry, it’s 11 percent. And we can go on and on about different stakeholder groups. This is not to castigate those groups, but just to say 

that, unfortunately, we’ve had an entire debate about health care 

insurance reform about the insurance industry, which is 4 percent 

of health care expenditures, and not enough about the other 96, 

which is, in fact, driving the premiums where they are. 

The recent articles today in the Wall Street Journal, Sacramento 

Bee over the weekend, article after article, talking about rising 

health care costs. Politically, it’s difficult to take that on. I understand that. But, in terms of getting our hands around where we’re 

going as a country, we need to take the next step. So, we’re happy 

to be very—we want to participate. We’ve offered a number of remedies. Our industry stood in the front of the line, saying that we 

have to have insurance market reforms. We strongly supported 

that. Administrative simplification requirements, we strongly supported that. But, the next step is important to get our hands 

around rising health care costs. 

Senator CASEY. I know I’m way over time. I’ll stop. But, it’s my 

sense you’ve been pretty reluctant to join these reforms. But, 

maybe we’ve made some progress. 

Thank you. 

The CHAIRMAN. Senator Coburn. 

STATEMENT OF SENATOR COBURN

Senator COBURN. Thank you, Mr. Chairman. 
55 

I’d like to put into the record the article from the Sacramento 

Bee, because I think it raises an issue which the health care bill 

missed. 

[The information referred to follows:] 

[The Sacramento Bee, April 18, 2010] 

CALIFORNIA’S HIGHER HOSPITAL COSTS ADD TO HEALTH INSURANCE HIKES

(bcalvan@sacbee.com) 

This report is part of an ongoing series examining the factors driving up the cost 

of health care. 

Behind every public uproar are some hidden facts. Here’s one about rising health 

insurance rates in California: Sharp jumps in hospital costs are a big part of the 

story. 

A Bee analysis of financial data from 300 hospitals statewide shows they collected $25 billion from insurance companies between September 2008 and October 2009— 

an increase of more than a third since 2005. 

Hospitals are charging insurance companies, and by extension their customers, 

billions of dollars for expenses not directly related to care. These include new hospital wings, new technology and services for the uninsured. 

Some providers, including Sutter Health in Sacramento, have negotiated reimbursement rates with ‘‘markups’’ more than double what it costs them to provide 

services. 

‘‘It’s become en vogue to crucify the insurance companies. . . . It’s the hospitals 

that hold insurance companies hostage,’’ said Will Fox, a principal and consulting 

actuary for Milliman, a Seattle-based firm that has extensive experience studying 

hospital finances in California. Fox has done work for insurance companies, government agencies and business groups. 

Hospitals say their charges to insurers are justified and necessary. But their byzantine pricing policies make it difficult to understand why costs are rising so quickly. 

Under State law, hospitals have to report the total amount of money they spend 

to provide services to insured patients each year, how much they bill insurance companies and how much they wind up collecting. 

Based on those numbers, The Bee found that California hospitals charged insurers 

an average of 53 percent more than what they told the State it cost them to provide 

services. In 2005, the gap was 40 percent. 

For this story, The Bee obtained data submitted to the Office of Statewide Health 

Planning and Development by hospitals across California between October 2008 and 

September 2009, the latest available period. 

INSURED CARRY HEAVY BURDEN

Rising hospital costs reflect billions of dollars in spending on items that don’t directly relate to caring for individual patients with insurance, but are nonetheless 

charged to their insurance companies. These costs get passed along in the form of 

higher premiums. 

For example, hospitals charge insurance companies to recoup lost profits from 

meager Medi-Cal reimbursements and to provide care to the poor and uninsured. 

The cost of caring for the uninsured and covering unpaid debts has risen substantially in recent years as the economic downturn leaves more people without income 

or coverage. California hospitals are also facing costs of at least $110 billion for construction 

to comply with State earthquake safety codes. 

No one doubts the economic strains hospitals are under, said David Hopkins, director of quality measurement at the Pacific Business Group on Health. The group 

is a coalition of some of the State’s largest employers, including the University of 

California, Wells Fargo and Chevron. 

Still, Hopkins is not entirely sympathetic. 

‘‘They’re collecting and making all this money for other reasons—and because 

they can,’’ he said. 

Hospitals in the Sacramento area, for example, have expanded considerably in recent years. New wings, investment in medical technology and expansion of services 

may give hospitals a competitive edge on their rivals, but also add to their costs. 

Rising salaries for nurses, pharmacists, imaging professionals, as well as compensation for administrators and staff, are some of the variables that go into a hospital’s cost equation. 
56 

The prices insurance companies pay to hospitals result from intense negotiations, 

with providers pushing for the highest prices for their services and health plans 

pushing for deep discounts. 

In northern California, most hospitals now belong to large chains with the market 

power to largely dictate prices, according to researchers hired by the California 

HealthCare Foundation. 

According to The Bee’s analysis, Sutter hospitals have obtained better reimbursement rates from insurance companies than any other provider in the region. 

As one of the region’s largest systems, Sutter Health is a ‘‘must have’’ provider 

in an insurer’s network because of its reputation among consumers, said William 

Sandberg, executive director of the Sierra Sacramento Valley Medical Society. Sutter Health leverages that power during negotiations, he said. 

HOSPITALS’ PRICE-COST GAP VARIES

Sutter Medical Center, for instance, received about $420 million in payments for 

medical services from insurers between October 2008 and September 2009—127 percent more than it spent to provide those services, The Bee found. 

At the other end of the spectrum is Kindred Hospital in Folsom, a small 39-bed 

facility that belongs to a national chain. It charged insurance companies 35 percent 

over cost. 

Catholic Healthcare West, which operates the chain of Mercy hospitals in the Sacramento area, charged insurance companies anywhere from 40 percent to 80 percent 

above cost at its various capital hospitals, according to The Bee’s analysis. 

The UC Davis Medical Center received payments from insurers that were 57 percent above the hospital’s costs. As with many other teaching hospitals, UCD’s operating costs are significantly higher than those of Sutter or Mercy. 

Sutter Health has faced scrutiny for its pricing practices before. Five years ago, 

CalPERS, the State’s largest buyer of health services, forced one of its key insurers 

to drop 13 Sutter Health hospitals from its stable of providers because CalPERS 

deemed the Sutter facilities too expensive. 

Sutter officials did not offer a direct rebuttal to Bee’s findings about its pricing 

rates, but said the nonprofit health system, based in Sacramento, should not be 

judged on price alone. 

Patrick Fry, the health system’s chief executive officer, said the CalPERS action 

proves Sutter doesn’t have the kind of market-controlling clout some of its critics 

describe. 

Consumers, he said, should also consider value. 

‘‘When you go to a clothing store, do you know how much it cost to make? We 

buy things because we think the price is fair,’’ Fry said. 

Bill Gleason, a spokesman for Sutter Health, said the hospital system has kept 

price increases for insurance companies in the ‘‘single-digits’’ in recent years, but declined to elaborate. 

‘‘That’s hugely important because of certain allegations by health plans who are 

pointing their fingers at health care providers,’’ Gleason said. 

He contrasted the ‘‘single-digit’’ rise in Sutter prices to the 39 percent increase 

in premiums announced earlier this year by Anthem Blue Cross on thousands of 

Californians with individual policies. The Blue Cross rate hike ignited a national 

debate over the rising cost of health care. 

Gleason said the high quality of services provided at Sutter Health facilities saves 

on costs in the long run by reducing expensive follow-up care. 

‘‘We still have work to do to make our services even more affordable to patients, 

and we think we’re making good progress,’’ Gleason said. 

RISING COSTS ‘‘A MYSTERY’’ TO EXPERTS

Researchers for the California HealthCare Foundation call rising hospital costs 

‘‘something of a mystery.’’ 

Writing in the February issue of Health Affairs, a policy journal, researchers for 

the foundation said expenses for hospital care rose an average of 10.6 percent a year 

from 1999 to 2005, far outpacing inflation. 

Insurers and hospitals negotiate discounted rates, and hospitals have different 

price structures for each insurance network they decide to join. 

In some cases, hospitals have blocked efforts to shed more light on their pricing 

policies. Revealing the information, they say, could reduce competition in the industry. 

Jan Emerson, a spokeswoman for the California Hospital Association, said hospitals are up front with their costs, as required by law. She noted that hospitals 
57 

must provide a price quote to anyone who asks, and file menus of procedures and 

prices with the State. 

‘‘The health plans are trying to shift the blame because they are under attack,’’ 

Emerson said. ‘‘It’s outrageous that they are trying to shift blame. They should be 

looking at themselves.’’ 

Still, the State’s accountability requirements for hospitals have been criticized as 

weak by some business groups, consumer advocates and others. The prices filed 

with the State, for instance, rarely reflect what consumers actually pay. 

While existing law doesn’t prohibit insurers from disclosing cost information, some 

hospitals explicitly prevent insurers from releasing it. 

Sutter Health, for example, does not allow Aetna to publicize its negotiated prices 

with Sutter hospitals on the insurer’s Web site. Aetna said the information would 

allow subscribers to comparison shop. 

Cedars-Sinai hospital in Los Angeles, considered one of the State’s priciest because of its popularity with the rich and famous, was the only other California hospital to prohibit use of its pricing data on Aetna’s Web site, the insurer said. 

Last year, the California Medical Association and the California Hospital Association helped defeat Senate bill 196, which was aimed at giving consumers access to 

more information. The bill would have barred hospitals and doctors from refusing 

to allow insurers to reveal their pricing information to subscribers. 

The legislation was supported by consumer groups and the insurance industry. 

They resurrected the issue last month in a new bill, Assembly bill 2389. The Assembly Health Committee plans to hear it in May. 

Senator COBURN. The reason why we need another bill is because 

we don’t have competition in the health care industry, and we’re 

still not going to have it, after the reform bill that we’ve just 

passed. And this report shows that the average California hospital 

charges 53 percent more than it costs to care for the patients that 

they care for. So, when you talk about costs—the insurance industry—there’s no question, there’s been abuses and that they’re not 

my friend when I’m practicing medicine, because they’re not any 

different than the government bureaucrat that’s getting ready to 

get in between me and my patient, as well. 

But, we continue to treat the symptoms, and not the disease. The 

disease is cost. We did nothing in the new health law about $250 

billion worth of medical tests that nobody needs, but we were going 

to continue to order them in this country, because the trial lawyers 

are so strong. We did nothing about the fraud and waste, essentially coming to $150 billion a year, of which all is paid for through 

insurance premiums. 

If we don’t attack the real problem, and if we refuse to use competitive markets—in the State of Oklahoma, we have an insurance 

commissioner, and she does a great job for our State, but she can’t 

lower the costs. All she can do is control the rate premiums to 

where there is a viable insurance product being offered in our 

State. 

I believe there are 30 States that have rate review. Is that correct? 

Mr. MCRAITH. That’s right. In the individual market, it’s—depending on how you interpret it—27 to 30 States. 

Senator COBURN. Thirty States. What would keep the other 

States from having individual rate review in their States? 

Mr. MCRAITH. It’s a function of State law. 

Senator COBURN. Right. So, we’re going to say—a State has chosen not to do that, so we’re going to say that they’re going to have 

to do that, and then—if they don’t do it well enough, then we, in 

Washington, are going to sit down and say, ‘‘We don’t agree with 

what you’ve done.’’ 
58 

Mr. MCRAITH. Well, I think the concerns about solvency that 

were raised here today are—illustrate exactly why the States will 

take action. States do not want to segregate or separate solvency 

concerns from rate review. And for that reason, if this bill were to 

pass—and it would be an improvement for the State of Illinois— 

it’s my expectation that States would pass rate approval authority 

to retain the connection between solvency and rate review. 

Senator COBURN. But, they can do that already. They can 

pass—— 

Mr. MCRAITH. That’s right. 

Senator COBURN. They can do that already. And they have chosen not to do that. Yet, we’re going to sit and tell them, ‘‘You have 

to.’’ I mean, you know, it’s pretty arrogant on our part, to say, to 

Illinois, ‘‘You’re not doing it right, and here—you’re going to have 

to do it. And if you don’t do it, we’re going to do it for you.’’ I mean, 

that’s, in essence, what we’re saying. And we’re fixing the symptom. 

There’s no question there’s abuse in the insurance industry. 

There’s no question there’s excess salaries in the insurance industry. But, that’s not fixing the problem. That is a symptom of the 

problem. The problem, as Ms. Menke finds, is that the costs aren’t 

controlled, and therefore, experience and ratings come about to 

cover that loss ratio. 

And so, with the adverse selection that’s getting ready to come, 

in the next few years with the bill that the President has signed, 

those problems are going to get worse if we don’t attack costs. So, 

why wouldn’t we want to attack costs, rather than attack regulation of insurance firms? 

Mr. MCRAITH. Senator, if that is true, the rate review process 

will only substantiate that as true. The rate review process, in fact, 

will be an opportunity to learn to gather information. What we 

know is, in fact, health insurer profits are significantly greater 

than 3.2 percent. 

We do know, also, on that same list prepared by Forbes, public 

utilities were ranked 12th. Public utilities are the most highly regulated industry in the country. So, it’s not rate regulation that has 

an effect on viability or profitability. We’re confident that the rate 

review process will further inform the public discussion and policymakers like you. 

Senator COBURN. And the total profits in the insurance industry 

last year were? 

Mr. MCRAITH. I think it depends on who you ask, and—— 

Senator COBURN. Well—— 

Mr. MCRAITH. That’s the reason why the—— 

Senator COBURN [continuing]. Give me the range. Give me the 

range. 

Mr. MCRAITH. It’s in the billions of dollars, to give you an answer. 

Senator COBURN. OK. And the total—— 

Mr. MCRAITH. Because the definition of ‘‘profit’’—— 

Senator COBURN [continuing]. Waste—the cost of health care—— 

Mr. MCRAITH. Is unclear. 

Senator COBURN. According to Thompson Reuters, the total wasted dollars in health care is $700 billion. We’re working on the 
59 

wrong problem. The problem is costs. And we’re looking out here 

at this little symptom of the costs, and we’re saying, ‘‘That’s excessive.’’ And I don’t know whether it is or not; I don’t know the inside 

workings of insurance companies. But, what I know is, we can do 

all we want out here; until we go fix the costs, we’re not going to 

address the problem. 

Ms. Turner, what’s an alternative to what’s been offered today 

that we have before in the Feinstein bill? What’s another way of 

getting at the same problem? 

Ms. TURNER. Well, it’s a really different view of the world. And 

I think an opportunity has been missed to really engage an army 

of consumers in evaluating the best value for the health care dollar. If you had transparency of where those costs go, consumers 

could—and consumers had power to make decisions, which they 

don’t now—we do not have a properly functioning market in the 

health sector—then you could have flexibility of offerings, you could 

have competition, and you could have transparency of price, leading consumers to find those companies that say, ‘‘You know, this 

one is really giving me the best value for the dollar. They’re not 

paying their CEO an exorbitant amount. They do a good job of 

making sure fraud and abuse are monitored. They’re giving me 

good value for my dollar.’’ But, consumers don’t have that authority. And I, frankly, think that’s one of their great frustrations. And 

I’m concerned that this is going to perpetuate that— 

Senator COBURN. And there’s no connection with the purchase of 

health care and the payment. 

Ms. TURNER. Exactly. 

Senator COBURN. So, we don’t—— 

Ms. TURNER. That’s right. 

Senator COBURN. I’m over time, Mr. Chairman. Thank you. Pardon me for going over. 

The CHAIRMAN. I know Senator Franken has a committee he’s 

got to get to, and he’s been here a long time, so I recognize Senator 

Franken. 

STATEMENT OF SENATOR FRANKEN

Senator FRANKEN. Well, thank you, Mr. Chairman. 

I’m proud that over 90 percent of insured Minnesotans get their 

coverage from a nonprofit health insurer. The average medical loss 

ratio of those companies in Minnesota is about 91 percent. 

I’m also pleased to have worked successfully with Senator Rockefeller to author the medical loss ratio provisions that are included 

in the health reform law and are inspired by Minnesota law. And 

I think that, along with these rate reviews that Senator Feinstein 

is proposing, minimum loss ratio is an important element in holding health insurance companies accountable. 

From 2000 to 2007, American families saw their premiums almost double. During that time, we saw more than 6 million Americans become uninsured. And during that time, insurance company 

profits rose 428 percent. That’s not good for consumers. 

Ms. Turner, I read your testimony last night, and I appreciate 

your description of Safeway, which does a good job, their policy to 

provide wellness incentives and preventive care for their employ-
60 

ees. You mentioned that this brings down costs. So, how does that 

do that? 

Ms. TURNER. Companies have found, in a number of ways, that 

they can engage employees with incentives to get health assessments so they can find out in advance if they’re pre-diabetic or if 

they may have—be at risk of heart disease. And then, in use— 

Senator FRANKEN. That’s like preventive care, then. 

Ms. TURNER. Preventive care. And also, it allows coordinated 

care for people who are diabetic, so that they can have more tools 

to help manage their disease. 

They also provide incentives for people to get preventive care— 

screening tests. And those kinds of incentives—— 

Senator FRANKEN. You write in it that they’re provided free. 

Ms. TURNER. They find that there’s value for the dollar to provide those, free. But, of course, they’re built in. I mean, it’s part 

of the compensation. 

Senator FRANKEN. But, that’s what I find interesting. Because, in 

your testimony, you write that that’s a great cost-saver—providing 

preventive medicine, free. But, also in your testimony, you say 

that—in the health reform law, you list coverage of preventive care 

as a factor that will result in increased premiums. So, this is actually kind of puzzling to me, because it seems to me that what you 

describe when a private corporation provides preventive care, free, 

it’s an innovation—a cost-saving innovation, but that when we 

write that into the bill, that suddenly it’s a burden. So, the same 

thing, providing—I mean, to me, I had to laugh. I am sorry, because it seemed like a bias, almost. A bias against the Federal Government doing something. The Federal Government does something, it’s bad, and it’s good if private innovation does it. 

Ms. Ignagni, I wanted to talk to you. You wrote in here—you 

have a thing that says that, in California, a similar effort was 

made to cap prices charged by energy distributors and ignore supplier costs, leading to brownouts and reduced service for consumers. What year was that? 

Ms. IGNAGNI. That was back in the 1990s, sir. I’ll have to go back 

and check. 

Senator FRANKEN. Are you aware that there was manipulation 

during that period. 

Ms. IGNAGNI. Yes, sir. 

Senator FRANKEN. And that the cause of these brownouts and 

the extra charges to the State of California was not caused by regulation, but was caused by companies like Enron ripping Granny 

off? 

Ms. IGNAGNI. I am well aware of the Enron situation, sir. I’m 

also well aware of discussions that have been going on in California 

about lessons, with respect to arbitrary caps, and not taking into 

account, in the true sense of the word, supplier costs. It would be 

sort of—what we’re seeing in Massachusetts, for example, is that 

there has been an arbitrary standard chosen. This is what’s of significant concern. That relates to the medical—— 

Senator FRANKEN. Well, but the example you cited, actually, was 

a case—not of over-regulation—but a case of exploitation, deliberately cutting off supply of electricity to drive up the price. So, ac-
61 

tually, your example is almost a perfect example of why we need 

regulation, not why we were suffering from too much regulation. 

I’m sorry, and I apologize, because I only have so much time. 

In a recent report from the Senate Commerce Committee, we see 

that the medical loss ratio for Anthem, of Maine, is 95 percent in 

the individual market, while just across the border, in Anthem, in 

New Hampshire, the loss ratio is 63 percent for the same product. 

Now, this amazes me, that you could literally step across the border and the efficiency of your health plan would decrease by 32 

percent. Do you think that’s fair and that something else may be 

going on there? 

Ms. IGNAGNI. Yes, I do, sir, in fact. I think that a year-to-year 

analysis of loss ratios actually indicates that there are significant 

costs that go into the first-, second-, and third-year transaction 

costs in the individual market. First, broker compensation: it’s the 

highest, as you know, in the first year. Second, all of the costs that 

go into assessing an individual—— 

Senator FRANKEN. And what year—— 

Ms. IGNAGNI [continuing]. This will all go—— 

Senator FRANKEN [continuing]. What year is Massachusetts—— 

Ms. IGNAGNI [continuing]. In 2014. 

Senator FRANKEN [continuing]. Is New Hampshire in? 

Ms. IGNAGNI. Pardon? 

Senator FRANKEN. What year was New Hampshire in? 

Ms. IGNAGNI. I have to go back and look at Senator Rockefeller’s 

report, but I’ll be happy to do that. But, usually, when you see 

those very low costs, they are reflective of first, second, and third 

year of—— 

Senator FRANKEN. Low costs or low ratio? 

Ms. IGNAGNI. Low ratios. I’m sorry. I mis-spoke. 

Senator FRANKEN. OK. 

Ms. IGNAGNI. Low ratios. They’re reflective of the earlier years of 

an individual, which is why the NAIC proposals, and why the 

NAIC practices, is to look at the entire life of a policy, as opposed 

to those first several years. I do think the individual loss ratio is 

an important issue, that I know we’re talking to the committee 

about. Small companies, in particular in the individual market, 

very reliant on brokers, are going to find very, very difficult—not 

in 2014, but between now and 2014, because they have no other 

distribution mechanism to actually meet those 80-percent requirements. And so, it’s—we think it’s a serious concern that is quite legitimate, because there’s no other distribution now. In 2014, 

there’ll be the exchanges, and that will be a very different marketplace than it is now. But, if we want to preserve competition, we 

think, respectfully, that that should be looked at very carefully. 

Senator FRANKEN. OK. Thank you. 

Ms. IGNAGNI. Thank you, sir. 

Senator FRANKEN. I am certainly out of time. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Senator Hagan. 

STATEMENT OF SENATOR HAGAN

Senator HAGAN. Thank you, Mr. Chairman. Thank you for holding this hearing today. 
62 

I wanted to talk a little bit more about transparency, and I know 

Senator Coburn had mentioned it in some of the discussion—where 

we were talking about the actual health care costs and the transparency or nontransparency of it. With health insurers arguing 

that the rising health care costs and increased utilization is driving 

up premiums, and patient advocacy groups saying that the health 

insurers’ profits are too large, it’s clear that the only way to get at 

the truth here is, I think, to increase the transparency, particularly 

the transparency of health care costs and the transparency of what 

health insurers and customers are paying for health care services. 

I’ve been advocating for increased transparency throughout this 

debate on health care reform, and I’m pleased that our final bill 

contains some language to improve our understanding of health 

care cost and help better inform customers about their out-of-network cost. But, I think more needs to be done. And I think consumers and businesses need to know what they are getting, and for 

what price. 

I know—in California—I think, Ms. Ignagni, you talked about 

this in your written testimony, too—that there’s been studies—I believe Safeway did a study—— 

Ms. IGNAGNI. Yes. 

Senator HAGAN [continuing]. Of colonoscopies in the San Francisco Bay area, and they found variation in ranges from 800-andsome-odd dollars to over $8,000 for that procedure, and then gallbladder surgeries in that same region ranging from about $4,200 

all the way up to $21,000. And the problem is, as a consumer, nobody knows what it is that they’re paying for. 

So, I’d be interested to hear what you have to say—any of you— 

on this issue and any thoughts that you might have for actually 

improving price and health care transparency. 

Ms. IGNAGNI. Senator, I think, actually—and we’ve worked very 

closely with the insurance commissioners, and I’m sure Commissioner McRaith wants to say something about this—it’s become evident, in their activities, that there needs to be the kind of transparency that you’re talking about. 

We’re very supportive of this. We’ve done a very large survey 

about out-of-network charges. And it’s shocking to see the wide variation in charges across the country. I’d be delighted to provide 

that for the record. 

Ms. IGNAGNI. We think that there’s important necessity for capturing more data. There is a provision in the legislation, where 

States will be collecting these kinds of data. And we think that’s 

very, very important for both the legislature, as well as advocates 

and all entities within a State, because you have to take a Stateby-State look, as you know, at what is going on, and we think 

that’s an important provision. It’s been a little-noticed provision, 

but I think it’s an important part of the legislation, to provide that 

kind of consumer sense that they have a better tracking system 

than they do now on what providers are actually charging. 

Ms. TURNER. Can I say, also—I think that, in order for the transparency to be effective, that consumers really need to have an incentive and the ability to make decisions based upon the information they have. If they feel that, ‘‘Well, it’ll be interesting to know 

what that test is.’’ But, as long as somebody else is paying for it— 
63 

to Senator Coburn’s point—then there’s no incentive for them to 

change their behavior and to seek that $4,500 treatment, rather 

than the $21,000. So, I think that getting to the point of consumer 

incentives and giving them the power and the ability to seek out 

that more affordable care is really a crucial part of reform. 

Senator HAGAN. But, Mr. McRaith, some States are saying that 

this is proprietary information—not States—some insurance companies are saying that’s proprietary information. Can you shed 

light on that issue? And with—Ms. Ignagni, would the insurance 

companies be willing to work together to make this more transparent? 

Mr. MCRAITH. Senator, first of all, one of the great realities and 

incessant conflicts in many States around the country and in Illinois is the conflict between providers and payers. And it’s interesting to hear the payers talk about the increase in cost, and we’re 

not dealing with increased costs. Provider reimbursement rates, if 

you talk to the providers, have declined. Obstetricians used to be 

paid $3,000 per birth. They’re now paid less than $2,000 per birth. 

So, the question is, Where is that savings being passed on to consumers? Our discussion today about rate approval and denial—rate 

review authority enhances that information, enhances the transparency. One of the kind of perverse realities of transparency, 

though, is: I’m not sure any of us would choose the cheapest doctor. 

I’m not sure, if we had a child who needed surgery, we want to 

send that child to the doctor who charges the least. So, that’s going 

to be an interesting point—data point for us to track as we move 

forward. 

I did want to emphasize, again, rate review is not necessarily a 

punitive tool. It is an informative tool, at a minimum, to help policymakers like you understand where our health care dollar is 

being spent. 

Senator HAGAN. Actually, I had a neurosurgeon from North 

Carolina tell me that he needed a hip replacement. And, as a physician, he was looking for, obviously, quality care, but wanted to 

know what it would cost and contacted numerous physicians and 

couldn’t get a good feel. So, it’s not so much, you know, the cheapest. I think we obviously want quality, but I think people would go 

to the cheapest, knowing, too, that there was quality product— 

Mr. MCRAITH. That’s right. I agree with that, completely, yes. 

Senator HAGAN. Ms. Ignagni, what about cooperation within the 

industry? And the proprietary point. 

Ms. IGNAGNI. Two points. No. 1, the Secretary asked our industry 

to work together to undertake a very comprehensive transparency 

initiative, which we are well on the way with in—we’ve been conferring with the NAIC, and we’re going to be, actually, very close 

to wrapping up that project. So, I think people will find that not 

only responsible, but a useful exercise, for health plans to be posting on their Web sites the kind of detailed information that’s important for consumers to know. 

No. 2, we’ve been talking, with a range of health care provider 

groups across the country, about how to do transparency in a better 

way, so that consumers can get the kind of information that you’re 

talking about. We think the data systems that were added to the 

legislation—the data centers—that that’s a very good start. We 
64 

think we can add to that, and rather than give you a specific ‘‘how’’ 

right now, I will tell you, we are conferring with a range of health 

care clinician groups, and we’ll have something to say—more to say 

about this in the future. But, I think there’s a lot we can all do 

together to be responsible and provide that kind of look that you’re 

inviting us to comment on. You’re right about it. 

Senator HAGAN. Thank you. 

Looks like my time has run out. Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you. I’ve just got this in—9:02 a.m., 

‘‘United Health First Quarter Profit Climbs.’’ I’m interested in that, 

since they’re one of the two in Iowa that control most of the market. 

‘‘United health insurer, United Health Group, Incorporated, 

raised its 2010 profit outlook, Tuesday, and reported betterthan-expected first-quarter earnings. The Minnetonka, Minnesota, insurer said it now anticipates a 2010 profit of 3.15 to 

3.35 per share, up from the 2.90 to 3.10 share it projected earlier this year. The largest publicly traded health insurer, based 

on revenues, said it earned $1.19 billion, or $1.03 per share, 

for the 3 months that ended March 31. That’s better than the 

$984 million, or 81 cents per share, reported a year ago. Revenue climbed 5 percent, to $23.19 billion, from $22 billion.’’ 

Well, again, that just came in. 

Ms. IGNAGNI. And sir, I’d be happy to submit for the record, the 

question that Dr. Coburn asked about aggregate profits in the industry. It’s about $12 to $15 billion, and we’re spending $2.5 trillion. So, if you took all of the profits away—I believe it was Senator 

Alexander that made the point earlier—it’s about 2 days of health 

care expenditures. We’ll be happy to submit all of that, plus the 

other industries, for the record. 

Ms. IGNAGNI. I, of course, hadn’t seen the United announcement, 

because we were here. 

Mr. MCRAITH. Mr. Chairman, I’ve heard the discussion about 

health insurer profits, and I think there’s some clarity that should 

be added to this discussion. We regulate insurance companies at 

the low end of their capital levels. We do not regulate what is too 

much capital or surplus. A company can decide that, ‘‘surplus is not 

profit.’’ So, when a company tells you that it makes 2.2 percent 

profit, what it’s telling you is a discretionary decision that’s been 

made about how to report that number. It is not a reflection of capital received or the financial strength of that individual company, 

necessarily. 

Ms. MENKE. I have a question. 

The CHAIRMAN. I’m trying to get to Senator Reed, but go ahead, 

Ms. Menke, I’m sorry. 

Ms. MENKE. I have a friend that does not have insurance, but 

the provider that he went to reduced his cost by 40 percent, versus 

someone that did have insurance. And I know Blue Cross/Blue 

Shield, if you’re a provider, you have to sign a contract, or you have 

to enter in a contract with Blue Cross/Blue Shield, right? And then 

you accept the rates that they will pay you—— 

Ms. IGNAGNI. Yes. 

Ms. MENKE [continuing]. As a provider. So, for a person that 

doesn’t have insurance—goes to that same provider—my insurance 
65 

company is billed $100 and he was billed $60. I don’t understand 

that. 

Ms. IGNAGNI. Senator, do you want me to say—I think that a 

number of physicians are just very aware of the hardship, now, in 

our country, with the recession, and I think they’re trying to do 

their part. And that is probably what explains that. A physician, 

knowing that an individual doesn’t have any coverage, is trying to 

do his or her part to help out. I think that’s a very noble thing, 

and I admire that. 

The CHAIRMAN. But, isn’t that also part of the cost-shifting that’s 

going on, too? 

Ms. IGNAGNI. Yes, sir, it is. It is part of the cost-shifting. There 

are two kinds of cost-shifting. One is uncompensated care. But, not 

to say that that physician wouldn’t necessarily do that. I mean, we 

just don’t know, until we see, at the end of the year—we can see 

trends. The other is the underfunding that a physician or hospital 

will receive from Medicare or Medicaid, because they’re not paying 

100 percent of the cost. So, you’re quite right about that. 

The CHAIRMAN. Thank you. 

Senator Reed. I know Senator Reed has to go. 

STATEMENT OF SENATOR REED

Senator REED. Thank you very much, Mr. Chairman. 

Mr. McRaith, you have the opportunity to view the filings of 

those insurance companies. In terms of the calculation of what they 

spend on medical care, that they submit to you as a regulator, and 

consequently profit in reserves, is that the same thing they show 

Wall Street, in your view? 

Mr. MCRAITH. I think that the financial statements we receive 

are different, often, from—and contain different information from 

the—I think it’s a 10(k) that gets filed, quarterly, with the SEC. 

Senator REED. So, at least it is possible that they could come in 

to you, or to HHS, with the claim that they’re committing 80-plus 

percent to medical care, and then turn around and go to the investment community and say that their profits are 30 percent; i.e., 

they’ve got two books. 

Mr. MCRAITH. In fact, we’ve seen, historically, that publicly traded insurers will say, to stock analysts, they intend to continue to 

deliver value to shareholders by holding the line on claims payment and increasing premiums above medical inflation. Publicly 

traded companies, as you well know, Senator, have fiduciary duties 

to their shareholders. 

Senator REED. No, I agree with that point. But, I think, going 

forward, we have to be careful not only about reviewing the ratings, but we also have to be very careful about having a consistent 

set of reports between regulators and financial statements, because 

otherwise they’re going to be making, you know, 30 percent profit, 

yet they’re spending 90 percent on health care cost. 

Mr. MCRAITH. Well, I think again, what’s important—not to repeat myself—is that the rate review process is not necessarily some 

punitive contentious exercise. 

Senator REED. Right. 

Mr. MCRAITH. I think you’re absolutely right; it can be an informative tool for policymakers, like yourself and State legisla-
66 

tures, to understand what is happening in the health insurance 

marketplace. Does it need to be refined? 

Senator REED. Ms. Ignagni, when you talk about aggregate profits of the health care industry, do you measure that across the 

board, or just for-profit health providers? 

Ms. IGNAGNI. Actually, Fortune magazine, Senator, measures it. 

We don’t do it ourselves. 

Senator REED. Well, what’s the base? 

Ms. IGNAGNI. It’s the for-profits, which is why I said to the Chairman that the base for the for-profits is 12, and that’s why I told 

the Senator that it was 12 to 15. With the not-for-profits put in, 

it’s roughly 15 in the industry total. 

Senator REED. All right. 

Mr. McRaith, do you have a calculation of what the return on equity would be—or which profits, as you point out, could be a little 

disingenuous, because you can have as—Blue Cross of Rhode Island has $400 million in reserves, and yet, they don’t make a profit. But, they keep piling up the reserves. 

Mr. MCRAITH. And that is a concern. I know of one Blue Cross 

plan in another State—major State—where it was technically a 

nonprofit but had accumulated so much excess surplus that the insurance commissioner entered an order requiring it to either lower 

premiums or return money to policyholders. The required capital 

levels—surplus levels for an insurance company—a health insurance company—are somewhere above 200 percent. Insolvency, 

though, doesn’t arrive until 70 percent. These companies are often 

above 600 percent of risk-based capital, which, for us, is the sign 

of a strong company, but it also is a sign that profitability, maybe, 

is more than the 2.2 percent some would lead you to believe. 

Ms. IGNAGNI. Senator, may I just add, for the record—I’d be delighted to give you a longer answer; I know there’s no time right 

now—but, I would note that with the discussion, in the middle of 

health reform, about insurance company profits, that once the data 

were provided and articles were written about how low they were, 

relative to the rest of the sectors, that some groups actually started 

talking about return on equity, because the data was very clear, 

the profits were low compared to pharmaceuticals, compared to device, etc, etc. I think that is, as you know, a reflection of, How you 

do on the investing of your reserves, which you have to keep capital—make sure that you’re able to pay claims if something that 

you can’t foresee today—H1N1, etc.—happens. But, I did note that 

there was a shifting of focus from the issue of profits, once the data 

were reported, and they were found to be very, very low, relative 

to the other sectors, to this issue of return on equity. 

But, I’d be delighted to provide that information. 

Senator REED. Fine. Profit is one measure, but return on equity 

is another measure. You can compare them to as—not only device 

makers and other parts, but you can—you know, if you compare 

them to manufacturing sector, insurance is doing pretty good, I 

think. So, it’s all the point at which you’re comparing. 

Ms. IGNAGNI. And, Senator, this is our whole—the focus of our 

testimony is to send a strong message that we want to not only 

participate in the conversation, we want to help the committee assess what’s really going on and how to address the issues—it’s very 
67 

difficult, politically, to take on—which is the rising cost of health 

care. There hasn’t been a real appetite to take that on in a significant way that would— 

Senator REED. How has the industry taken on the rising costs? 

Ms. IGNAGNI. Actually, there’s a number of things that we’ve 

been doing. First, we made a strong commitment, in the context of 

health reform, to do administrative simplification. We have developed the language and the standards to allow that to proceed. That 

will allow doctors and hospitals to spend more time with patients. 

Millions of dollars have been invested to accomplish that, just the 

big banks, with ATM technology. And now we’re bringing out portals, in New Jersey and Ohio, to test how to deliver the administrative simplification to physicians in a very simple way, so every physician can contact every health plan in one very simple Internet 

connection. That’s one set of things. 

A whole range of other things that we’re doing about hospital readmissions. We have data now, government data, that shows that 

we are doing a much better job than the traditional Medicare program, for example, on hospital re-admissions, which people are 

very concerned about. That’s about coordinating—— 

Senator REED My time has expired, but how do you respond to 

Mr. McRaith’s point, that publicly-traded health care companies essentially described to Wall Street their strategies, denying claims 

and raising premiums above the cost of inflation? That doesn’t 

seem to be a cost-saving strategy. 

Ms. IGNAGNI. Sir, I don’t—our members are organized to provide 

the highest quality care for the lowest price, to consumers and to 

business purchasers. Our members are very, very clear, both about 

their fiduciary responsibilities, their issues, with respect to maintaining solvency and maintaining responsibility for consumers. I 

don’t know—— 

Senator REED. So, they have no responsibility to their shareholders? 

Ms. IGNAGNI. I said that they have fiduciary responsibility. They 

have responsibilities, with respect to solvency, because we don’t 

want hundreds of AIGs around the country that would be—that 

would increase significant volatility and create a situation that 

would be untenable. We found that situation—— 

Senator REED. But, what’s their primary responsibility? Their fiduciary responsibility is to their shareholders. 

Ms. IGNAGNI. Their primary responsibility is to—in a going concern is, whether you’re for-profit or not-for-profit—to do the job 

that you have been asked to do by people who purchase your product. The people who purchase our products are consumers and 

businesses, and they expect that you’re going to offer coverage to 

them. That’s job one, to actually provide that. A part of that, also, 

is maintaining a going concern, whether you’re for-profit or not-forprofit. So, all of these issues are very important, and we take them 

very seriously. 

Senator REED. So, there’s no distinction between a for-profit insurance company and a not-for-profit insurance company in the 

way they operate. 

Ms. IGNAGNI. Both types of insurance companies have to have a 

profit, to be able to maintain operations, as you know. And I think 
68 

that, unfortunately, we’re having a discussion about profits that 

are—— 

Senator REED. Well, frankly—— 

Ms. IGNAGNI [continuing]. Relatively small—— 

Senator REED [continuing]. We’re having a discussion about 

firms that go to the Street and say, ‘‘Our strategy is, we’re going 

to deny claims and raise premiums above medical inflation. 

Ms. IGNAGNI. Sir, I thought I had said this, and I apologize if I 

didn’t say it, but I don’t know of any company that has gone to 

Wall Street that says that it is in business to deny claims. 

Senator REED. Mr. McRaith, do you have any—— 

Mr. MCRAITH. I’d be happy to—well, let me, first of all, be 

clear—— 

Senator REED. Sure. 

Mr. MCRAITH. In no way—going forward—— 

Senator REED. You’re not, in any way, insinuating the operations 

of these companies—— 

Mr. MCRAITH. No. No, but, to be clear, there are companies, operating in States around the country, that have loss ratios of 50 

percent; in some cases, less. All I would submit is that, if what Ms. 

Ignagni is saying is true—and I have no reason to doubt her, of 

course—then rate review will only enhance that and support that 

position. 

I do want to clarify, AIG was not an insurance company problem. 

By the way, I know, Senator Reed, you’re familiar with that discussion. 

Senator REED. Yes. 

Mr. MCRAITH. But, on the health insurance side, there are companies that have submitted, to stock analysts and others, exactly 

that statement. They will deliver value by holding the line on 

claims and increasing premiums above the medical inflation. 

Senator REED. Well, I’ve got to yield my time. But, it seems to 

me that—— 

The CHAIRMAN. Move on. 

Senator REED. I’ll move on. But, everything I hear from doctors, 

hospitals, and everything else is, insurance companies deny claims 

and raise premiums. 

So, thank you. 

The CHAIRMAN. Thanks, Senator. 

Senator Murray, thank you for your patience. 

STATEMENT OF SENATOR MURRAY

Senator MURRAY. Sure. Thank you very much, Mr. Chairman, for 

having this hearing. 

You know, when we were debating health care reform, thousands 

and thousands of my constituents wrote to me about their health 

care stories. And I remember one in particular, a guy by the name 

of Mark Peters. He owned a small technology company in Port 

Townsend, WA, my home State. And he told me that he offered 

health insurance to cover his employees. He was doing the right 

thing. He wanted to keep doing that, but he’d just received a letter 

from his insurance company raising his rates by 25 percent, and 

he just said that, ‘‘My business cannot sustain increases like that. 

No business can.’’ 
69 

And the gall that rubs everybody is, at the same time as working 

families and people like Mark are struggling with these rising 

health care costs in this recession, the five largest health insurance 

companies took in a combined profit of 12.2 billion, which was up 

50 percent—56 percent—over 2008. 

In your testimony, Mr. McRaith, you talk about how the Illinois 

Department of Insurance can regulate health insurance premiums 

if the rates that are charged by health insurance are not adequate 

for what they’re paying out. But, in this time when Americans are 

finding it so hard to pay for coverage, there seems to be no one determining if premiums being charged will result in extreme profit 

for the insurer, at the cost of those who desperately need coverage. 

So, I think that’s really where the rub is, and it’s kind of where 

the conversation has been going, whether or not we can regulate 

that. And I think it’s a really important debate to be having. 

We’ve gone over that, but, Mr. McRaith, I do want to ask you a 

question, because you also talk about how State insurance regulators and insurance commissioners have been regulating insurance companies for years, and a lot of people believe that States 

have better knowledge on their individual situations and are wellequipped to handle the rate regulation at the State level. But, having said that, there really is a large spectrum of premium increases 

requested to be approved throughout the country—some 13 percent 

increase, some 56 percent in another. And I wanted to ask you if 

you believe there’s a role for the Federal Government to standardize base regulations across States. 

Mr. MCRAITH. I think that the State regulators, working with industry, working with HHS and others, can and will develop appropriate standards for all of the issues—loss ratio, expectations, premium rate reviews, the definition of an ‘‘unreasonable rate increase.’’ 

I do want to clarify: Some of this conversation implies outright 

hostility between the industry and the regulators. And the truth is 

that we, I think, are very much in partnership in trying to implement the reform in a responsible and professional way, as you 

would like us to do. 

But, I don’t think that we need the Federal Government to set 

a standard. I believe the States can develop and implement the 

standard. 

Senator MURRAY. OK. I want to come back to a question Senator 

Franken asked, and that is, on this committee, we have heard, over 

and over again, that prevention is not only good health policy, it’s 

good economic policy. Private companies, like Safeway—Ms. Turner, you were talking about—have driven down health care costs by 

encouraging employees to focus on preventive care. And we know 

it’s important. We know that if we want to lower the cost of health 

care—and Senator Harkin’s been a champion on this—we have to 

focus people on getting insurance coverage for preventive services. 

And, really, the impetus behind requiring coverage of preventive 

services was to encourage people to see their physician before they 

got so sick that their problems were very grave and very expensive, 

resulting in more expensive care. 
70 

I’m going to ask you, Ms. Turner, If we want to make sure all 

Americans can access preventive services, why shouldn’t we require 

coverage of those services? 

Ms. TURNER. Thank you, Senator Murray, very much for your 

question. 

Preventive services aren’t free. Obviously, somebody is going to 

pay for them. 

Senator MURRAY. Right. 

Ms. TURNER. So, employers have made the decision—and many 

employers have—to build those into the cost of their benefit programs. It is a longer-term investment, in most cases. Very seldom 

do you get a short-term return from preventive care services, especially chronic care management. The problem with having the government get involved in this is that the benefits are often longer 

term, but the costs are more visible in the short term. And that’s 

where, I think, intrusion into rate authority—you know, whether 

or not these are built into the costs—absolutely, they’re valuable— 

but, I want people to make those decisions themselves about the 

value of the preventive care. Do they want to pay out-of-pocket? Do 

they want to have that built into the cost of their premium? You 

find, actually, with consumer-directed plans, when consumers have 

more visibility of the costs of their overall health plan, as well as 

the costs of those preventive services, that they actually increase 

the use of preventive services. So, consumers do this on their own, 

when given the authority to do that. 

Senator MURRAY. I would say that a lot of the testimony that 

we’ve had, and a lot of the discussion we’ve had, is exactly the opposite, that people don’t get preventive coverage. If it’s an out-ofpocket expense, they wait too long, and they end up being a lot 

more expensive, which costs everybody, in the long run. There is 

some long-term preventive—diabetes coverage, that you mentioned. 

But, there’s some short-term preventive care that saves dollars in 

the short term, as well. And having insurance companies cover that 

preventive care, it seems to me that the insurance companies will 

save money. Certainly, our hospitals and doctors, and certainly all 

of us who are paying premiums, will have lower costs by covering 

preventive care. 

Ms. TURNER. Well, I will send you the studies by McKinsey and 

others that have shown that engaging consumers as active partners 

really does incentivize them to get preventive care, assuming that 

you arrange the finances in a way that makes this work for them. 

And that is possible, and that’s why many companies have succeeded with these programs. 

But, I think that simply adding the cost of a mammogram—the 

full cost—to a health insurance policy, where, before, the person 

was going to pay some part of that copayment, that cost then simply gets built into the cost of the insurance premium. And those aggregate costs then, over time, will increase the cost of health insurance, with everything else and all the other mandates that are included. 

Also, employers now are making their own decisions about what 

they want to be included in that preventive package. And when 

those decisions are being made on a political basis, many more 

things actually wind up getting included. 
71 

Senator MURRAY. I’ll let Senator Harkin debate with you, too. 

But, I’m for people having personal responsibility. I think that’s 

an extremely important part of health care coverage. But, I also 

think a lot of families today make decisions based on whether or 

not they have coverage. And if it’s a matter of going to see a doctor, 

or not, because it’s not covered, they’ll choose not to, because money’s too tight right now. So, having that insurance cover that allows 

them to make a cheaper choice for all of us, in the long run. And 

that’s just how I see it. 

Senator Harkin. 

The CHAIRMAN. Just a couple things, then I’ll turn to Senator Alexander for any last things that he has. 

Senator Alexander, on your point, earlier, about going across 

States lines. I’ve never had a problem with going across State lines. 

In fact, we built into the health care plan—the bill that we have— 

the ability for regional compacts for States to act together. The only 

difference is that if somebody wants to come into Iowa to sell a 

health insurance product, I want them to clear it with the Iowa 

State Insurance Commissioner, to meet the standards of the State, 

so there’s not this kind of race-to-the-bottom. So, I don’t mind going 

across State lines, as long as there are some standards that the 

States agree upon. And that’s what we put in the health care bill, 

that, as long as the States agree upon it, fine. I don’t have any 

problem with that. 

Second—and I said this to Senator Coburn when he left. I think, 

to a large extent, he’s right about the fact. I think Ms. Ignagni said 

that, too. We’re going after some of the symptoms, here. But, sometimes, I said to him, if a patient came to you, and said, ‘‘I’ve got 

a lot of problems,’’ the doctor might say, ‘‘Well, what’s your symptoms?’’ And if you said, ‘‘Well, I don’t know. Guess,’’ you’d say, 

‘‘Well, how can I treat you if don’t know your symptoms?’’ 

That’s getting to what Mr. McRaith is saying, that all we’re trying to do here is to get transparency and to take a look at this. Yes, 

maybe it’s the symptoms, but what does this mean? Perhaps the 

better we understand and know how the insurance companies are 

adjusting their rates, and how much is going to profits and how 

much is going to actual medical loss ratio, we’ll get a better handle 

on the underlying problems. 

Sorry that you have to be on the firing line, Ms. Ignagni, but 

that’s where—you know, the rubber hits the road, is when people 

buy their health insurance policies. And when businesses and 

when—Ms. Menke, when it comes to her small town, I mean, that’s 

what they see. They don’t have any contact with the device manufacturer or what’s happening to the pharmaceutical companies and 

things like that, but they do with the insurance companies. 

So, I think it’s very important for us to have this openness and 

to have that kind of review so that we can better understand it. 

That’s all we’re talking about, here, is to better understand it. And 

that way to maybe better understand the whole system. 

Third, it was mentioned that the Iowa program, Wellmark, is a 

nonprofit. It’s actually a for-profit company. It’s an interesting forprofit company; it’s a for-profit mutual company. And that’s how 

they classify themselves. 
72 

Ms. IGNAGNI. Actually, sir, they’re a not-for-profit Blue plan, but 

they pay taxes, as all Blue Cross/Blue Shield plans pay taxes. They 

aren’t mutual—— 

The CHAIRMAN. Well, I just asked my staff to check with them, 

and they said—they, themselves, said that they were a for-profit 

company. They’re listed as a for-profit mutual company. Not a 

stockholding company. But, they are a for-profit that returns the 

profits to their shareholders—well, what’s the— 

Ms. IGNAGNI. No, they don’t have—— 

The CHAIRMAN [continuing]. Policyholders. 

Ms. IGNAGNI [continuing]. Shareholders, actually, sir. 

The CHAIRMAN. Policyholders. 

Ms. IGNAGNI. Yes. It is organized as a mutual. They do pay 

taxes. All the Blue Cross/Blue Shield plans pay taxes. But, it’s different than an investor-owned company, there’s no doubt, which 

has shareholders, etc. So, that’s very different structure, financially. 

The CHAIRMAN. Well, it is a different structure, I can guarantee 

you, but they just list themselves as a for-profit. 

On prevention, I have to take issue with Ms. Turner. We have 

a plethora of information that’s come in to us, studies done, that 

the payback is not that long. The Trust for America’s Health did 

quite an extensive survey on this, and found that certain investments—I don’t have the data in front of me—pay back as early as 

12 months—in the next year—in terms of certain intervention and 

prevention programs. So, there are short-term benefits. I think 

Steve Burg would also tell you that from Safeway and also—what’s 

the other one—Pitney Bowes, they found that they had immediate 

savings within the next year or 2, right after that. So, it’s not necessarily a long-term payback thing. 

The other thing that I’d just say, is that on this prevention—is 

that, like a lot of things, we have studies that show that for mammograms, if you have a copay or deductible, even as low as $10, 

it decreases the number of women over age 40, by 8 to 10 percent, 

who seek a mammogram. It’s just one of those things, you know, 

‘‘Well, if I’m feeling good and I’ve got a lot of bills to pay and times 

are tough—I feel OK, I don’t need that.’’ 

Ms. TURNER. Well, the companies that have actually had the best 

success with getting utilization of preventive services are the ones 

that have created account-based consumer-directed plans, where 

they have insurance coverage, but for a higher deductible. And 

then they put those premium savings into an account that the employee then has control over. And so, it encourages them not only 

to seek better value for their care, but there’s, really, a wonderful 

quote in this McKinsey study asking people, ‘‘Why do you use this 

preventive service?’’ And they said, ‘‘You know, I figured out that 

if I take better care of myself, I will save money in the long run.’’ 

But, they provide the resources for people to do that by basically 

rearranging the premium dollars. 

The CHAIRMAN. Well, I’d like to see that study, because I have 

other studies that show that health savings accounts are just the 

opposite. People bill the money—put the money in the health savings accounts. They don’t want to spend it when they feel good. 

They say, I’ve got to save that in case—when I really get sick. And 
73 

so, they don’t go in for early types of diagnosis and prevention, because they don’t want to spend that money, because they feel good. 

Ms. TURNER. Well, I’ll be happy to send you these studies. But, 

it’s really important, in the structuring of the plan, to build those 

incentives in for people to both have the resources, the information, 

and the ability to make the decisions to take care of themselves. 

The CHAIRMAN. Well, in our health reform bill, we built that in 

by doing away with co-pays and deductibles for certain preventative measures. That’s a kind of incentive—I hope, anyway. 

Mr. MCRAITH. Mr. Chairman, just to illustrate your point, many 

of—if not all—Ms. Ignagni’s members or AHIPs members agreed to 

waive the administration cost for the H1N1 immunization, a great 

public service. We think, in Illinois at least, that’s one reason why 

the infection rate was more contained and compressed than many 

people had predicted. It was the lack of a copay or charge for patients to receive that vaccine—or that immunization. 

Ms. IGNAGNI. And, Senator, Mr. McRaith is right about that. We 

worked with the Department on that. We thought it was an important intervention. We also are very supportive of this concept of 

‘‘essential benefits,’’ including prevention. You and your staff 

worked very hard on that and we think that makes a great deal 

of sense, because—— 

The CHAIRMAN. And I want to thank you for working with us on 

that. 

Ms. IGNAGNI [continuing]. And, for the reasons Commissioner 

McRaith said, that the data show, as Grace-Marie indicated, that 

we see very significant results, from a positive perspective—both 

the cost reduction, as well as quality improvement—when people 

do get into the system as early as possible. That’s the reason that 

we’re seeing, in the Medicare Advantage arena, for example, reductions in re-admissions, because of this full-bore health care coordination. One part of it is early intervention. 

The CHAIRMAN. Senator Alexander. 

Senator ALEXANDER. Thanks, Mr. Chairman. And thanks for 

having the hearing. 

I think the witnesses have been very helpful, and I thank each 

of you for coming and being so forthright with your positions. And 

I know I’ve learned a lot from you, and I thank you for that. 

Mr. Chairman, Senator Enzi and other members would like to 

submit statements and questions for the record, if we could do that 

after the hearing is over. 

Senator ALEXANDER. Thank you. Thank you very much. 

And just to summarize some of what my concerns are, I was 

thinking, as I was listening, this reminds me of the earmark debate. Senator Harkin and I are both on the Appropriations Committee, and every now and then somebody shows up and says, ‘‘OK, 

we’re going to solve the Federal budget problem by getting rid of 

earmarks,’’ which are specific appropriations that Members of Congress request, and then have to be approved through Congress. 

And some people say, ‘‘Well, there have been some abuses, and this 

is the problem.’’ 

The problem we will say, is that among other things, it’s only 

about 1 percent of the spending, and it won’t really do anything 

about the deficit. 
74 

That’s the problem with this debate, and really with the new 

health care law. The new health care law, its fundamental mistake 

is to expand the health care delivery system that’s already too expensive, and not focus on reducing cost. And what this hearing, as 

well-intentioned as it does, and Senator Feinstein’s bill, is, it focuses on just a tiny piece of the health care issue, and doesn’t really do anything about reducing health care costs. I mean, we’ve 

heard testimony today that the profits of insurance companies 

amount to about 2 days of the health care spending of the United 

States. Well, what are we going to do about the health care spending for the other 363 days? That’s why we have big increases in 

premiums. And if we want smaller increases in premiums, or lower 

increases in premiums, or lower premiums, then we need to work 

together to try to find ways to reduce costs. 

Senator Harkin and I have both talked about buying insurance 

across State lines, and I think our comments reflect different points 

of view we have. He said that he would be for that, but only if you 

met certain standards. Well, if I’m telling you what the right standard is, then the policy is not likely to be any cheaper. It might be 

more expensive, such as in the health care law, which has the minimum credible coverage provision, which, in effect, raises the cost 

of individual policies by 10 to 13 percent more than they otherwise 

would raise, according to the Congressional Budget Office. 

Now, it is true that a number of people have subsidies to help 

them pay for that, but that’s only 50 or 60 percent of the people. 

That’s paid for by tax dollars. And the others have higher policies. 

So, I would hope that, at some point, we could get to the rest of 

the issue; as Paul Harvey would say, ‘‘the rest of the story.’’ Whatever insurance companies are doing right or wrong, that’s 1 or 2 

percent of the problem, in terms of their profits. What if we took 

it all away? We’d still have 98 percent of the problem, which is the 

health care delivery system. 

And then, second, as a former Governor, I resist the idea of 

Washington telling Illinois or Tennessee what to do about this. I 

mean, Tennessee has decided it wants to regulate insurance premium increases. Fine. Illinois has decided it doesn’t. I don’t think 

we should be telling Illinois it should or shouldn’t. So, to me, this 

is another Washington takeover of responsibility, and it’s a focus 

on the wrong problem. It’s barking up the wrong tree. 

But, I think it’s been very helpful to have the hearing, and I appreciate the chance to attend and participate. 

The CHAIRMAN. Senator Alexander, thank you very much. 

Anybody have any closing comments they wanted to say, before 

we leave here? 

Ms. IGNAGNI. Senator, I would say that if the committee is interested in a specific set of proposals that could help bring costs under 

control, we’d be delighted to provide some ideas about that. 

The CHAIRMAN. Well, we’re always open for that. 

Ms. IGNAGNI. Because that is what’s driving premiums, in addition to all the issues now in the economy with adverse selection, 

which affects both the individual market, as well as small employers, as you know. 

The CHAIRMAN. I still want to know the answer to the question 

I asked you earlier about bringing that transparency stuff to exist-
75 

ing plans, rather than just new plans, and I don’t know if I got a 

clear answer on that. 

Ms. IGNAGNI. And we’ll provide a very detailed response for the 

record, if that would be of use. 

The CHAIRMAN. That would be fine. 

Ms. IGNAGNI. Thank you, sir. 

The CHAIRMAN. Fine. 

Mr. MCRAITH. Mr. Chairman, first of all, thank you for the opportunity to appear before the committee. 

I did want to emphasize that we, in Illinois and through the 

NAIC, intend to implement national health reform in a professional 

and responsible, collaborative manner. We’ll work with AHIP and 

other groups, consumer advocacy groups, and we’ll get it done. We 

have an obligation to the country and to our individual States to 

do that. 

Ms. IGNAGNI. And sir, my commitment to that, we are working 

with the NAIC and the insurance commissioners. We will continue 

that work. I think you’ll be pleased in seeing the direction of that 

work. 

The CHAIRMAN. Thank you, Ms. Ignagni. 

Ms. MENKE. I also want to thank you for having us here. 

The CHAIRMAN. Yes. 

Ms. MENKE. Earlier today, I thought I heard that, in Iowa, Blue Cross/Blue Shield recorded $1.15 for every dollar of premium. In 

the letter that I have from the Insurance Commissioner, it said 90 

cents from every dollar went out. So, I wanted to make that correction. 

Ms. IGNAGNI. I think that was the broad loss ratio. We would be 

happy to provide, for the record, some very detailed—on the specific product, I think it was $1.80 paid out for every dollar taken 

in. But, we would be delighted to provide that information for the 

record. 

The CHAIRMAN. Thank you. 

Ms. TURNER. Senator, thank you, again, for this hearing. I really 

appreciate your engagement in this important issue. I think that, 

going forward, it will be important—looking at the symptoms rather than causes issue—to continue to track the tax increases that 

were built into health costs, and how those do impact premiums 

over the long-term, not only in the short term, with some of the 

changes that go into effect this year; but many of the taxes on the 

industry itself, as a driver of health insurance premiums. I think 

it’s just really going to be important to watch that, because consumers will be impacted greatly. 

The CHAIRMAN. Thank—— 

Mr. MCRAITH. I’m very sorry, Mr. Chairman, but it occurs to me 

one thing I’d recommend or suggest to include in the record is some 

of the Massachusetts materials. There’s been a lot of discussion 

about that today. There are actuaries that I think support the position I express, which is, these are not threatening the solvency of 

the companies. It’s been a point of contention. I’d like to suggest 

that be included in the record. 

The CHAIRMAN. I appreciate that. We have looked at it very 

closely, and we’re very much aware of the different viewpoints and 

contentions that have been made about the Massachusetts system. 
76 

I request unanimous consent to keep the record open for 10 days 

so Senators can submit statements and questions for the record. 

Again, thank you all very much for being here. I thought it was 

a very enlightening session. Thank you. 

Ms. IGNAGNI. Thank you. 

Mr. MCRAITH. Thank you. 

Ms. TURNER. Thank you. 

The CHAIRMAN. The committee will stand adjourned. 

[Additional material follows.] 
77 

ADDITIONAL MATERIAL 

PREPARED STATEMENT OF SENATOR ENZI

Mr. Chairman, today’s hearing is supposed to explore how to provide ‘‘protection from unjustified premiums.’’ 

Unfortunately, just weeks ago, Congress passed and the President signed a massive new law that will impose unjustified premium increases on millions of Americans. We know the new law 

will actually drive up premiums—according to the Congressional 

Budget Office estimates, average premiums for families will go up 

by $2,100 because of the new law. This represents a 10 to 13 percent increase in premiums, because of the new law. 

No one should be able to claim that this is any surprise. The 

Joint Committee on Taxation has repeatedly told us that the taxes 

in the new law will be passed on to consumers in the form of higher premiums. This means the $60 billion new tax on health plans, the $20 billion new tax on medical devices (including hearing aids, crutches, 

pacemakers, insulin pumps for kids, etc.) and the $27 billion new 

tax on prescription drugs will all ultimately be passed on to consumers. All of these new taxes will drive up the cost of health care 

in this country and result in higher insurance premiums. 

Yet, we are here today examining how to protect consumers 

against unjustified premiums. This seems to be another classic congressional effort to close that barn door, long after the horse has 

already bolted. 

If protecting consumers from unjustified premium increases is 

such a high priority, why was it not addressed anywhere in the 

2,800 pages of new health insurance reform law? Senator Feinstein 

introduced the bill which is the subject of today’s hearing on March 

4, 2010, and the President advocated for creation of a health insurance rate authority as part of the proposal he published on February 22, 2010—a full month before the health care reform bill was 

signed into law. Why then was this proposal not included among 

the 2,800 pages of new law? 

Unfortunately, the new law was never about lowering health insurance premiums—despite comments to the contrary from its supporters. A dozen studies and reports, published months ago, confirmed that the ultimate effect of this bill would be to increase 

health care costs and premiums. I suspect this will likely be the 

first of many hearings in which Members of Congress express their 

outrage over events that anyone with even a basic understanding 

of simple economics could have predicted. 

I regret that we have ended up where we are today. I wanted to 

pass a bill that focused on decreasing the overall cost of health 

care—because you can’t decrease the cost of premiums without decreasing the cost of health care. We know American families can’t 

afford to pay ever increasing health insurance premiums. Small 

businesses can’t afford premiums that increase twice as fast as inflation. 

Three years ago, I proposed a bill that would have actually driven down health care costs for the Federal Government and small 

businesses. In 2006 I tried to pass a bill that CBO said would slash 

premiums for small businesses by 3 to 6 percent. The bill would 
78 

1Douglas W. Elmendorf, ‘‘The Budgetary Effects of Expanding Governmental Support for Preventive Care and Wellness Services,’’ Letter to the Honorable Nathan Deal, August 7, 2009, at 

http://www.cbo.gov/ftpdocs/104xx/doc10492/08-07-Prevention.pdf. 

have allowed small businesses to pool their purchasing power and 

cross State lines to buy less expensive coverage. 

Unfortunately, the bill was filibustered and as a result, we were 

not able to give America’s small businesses the cost relief they desperately needed. 

President Obama said premiums for American families would de- crease by $2,500 if we enacted health care reform. He said the status quo is unacceptable. Yet CBO has said the new law will INCREASE premiums for families buying coverage by $2,100 a year. 

History will show that he and the supporters of the new law spent 

$2.5 trillion to enact legislation that will actually drive up health 

insurance premiums for many Americans. 

We can and should do better. I intend to focus on ways to eliminate the provisions in this new law that will increase costs and in 

their place enact reforms that will actually make insurance more 

affordable, both for consumers and the Federal taxpayer. 

GALEN INSTITUTE, 

ALEXANDRIA, VA 22320, 

April 30, 2010. 

Hon. TOM HARKIN, Chairman, 

Committee on Health, Education, Labor, & Pensions, 

428 Dirksen Senate Office Building, 

Washington, DC 20510. 

DEAR MR. CHAIRMAN: Thank you again for the opportunity to testify before your 

committee last week during your hearing on ‘‘Protection from Unjustified Premiums.’’ I very much appreciated being able to discuss our concerns about Senator 

Feinstein’s proposal to give the Federal Government authority to review health insurance premiums and impose penalties if they are deemed ‘‘unreasonable.’’ I also 

was pleased to have a chance to talk about the many successful innovations in the 

private sector that are demonstrating success in holding down health costs and insurance premiums. 

In this letter, I want to follow up on our discussion concerning preventive care. 

I don’t think there is any question that preventive care, wellness programs, and 

early diagnosis and treatment are valuable and that our system needs to move 

much more in this direction than in continuing to pay more and more to treat people 

after they become acutely ill. 

But preventive care costs money, too. If health plans provide coverage for 100 percent of the costs of colonoscopies and mammograms, for example, the added expense 

will be built into the cost of the premium. This increase in costs will be passed along 

to the consumer or the employer in the form of higher premiums. 

I want to emphasize that I believe that investments in preventive care are valuable and humane. They save lives and can enhance productivity by treating patients 

early so they can get back to their jobs and families. But even the Congressional 

Budget Office questions whether preventive care will lead to savings for our health 

sector. 

In an August 7, 2009, letter 1 CBO Director Douglas Elmendorf said: 

Although different types of preventive care have different effects on spending, 

the evidence suggests that for most preventive services, expanded utilization 

leads to higher, not lower, medical spending overall. 

That result may seem counterintuitive. For example, many observers point to 

cases in which a simple medical test, if given early enough, can reveal a condition that is treatable at a fraction of the cost of treating that same illness after 

it has progressed. In such cases, an ounce of prevention improves health and 

reduces spending—for that individual. But when analyzing the effects of preventive care on total spending for health care, it is important to recognize that 

doctors do not know beforehand which patients are going to develop costly illnesses. To avert one case of acute illness, it is usually necessary to provide pre-
79 

2 ‘‘Aetna HealthFund Consistently Delivering Meaningful Savings and Engaged Members,’’ 

Aetna Inc., April 1, 2010, at http://www.aetna.com/news/AHFlstudy.pdf. 3 Victoria Colliver, ‘‘Preventive health plan may prevent cost increases,’’ San Francisco Chronicle, February 11, 2007, at http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2007/02/11/ 

BUG02O20R81.DTL&type=printable. 4 ‘‘Consumer-Directed Health Plan Report—Early Evidence is Promising,’’ McKinsey & Company, June 2005, at http://mckinsey.com/clientservice/payorprovider/HealthlPlanlReport 

.asp. 

ventive care to many patients, most of whom would not have suffered that illness anyway. 

He continues: 

Researchers who have examined the effects of preventive care generally find 

that the added costs of widespread use of preventive services tend to exceed the 

savings from averted illness. An article published last year in the New England 

Journal of Medicine provides a good summary of the available evidence on how 

preventive care affects costs. After reviewing hundreds of previous studies of 

preventive care, the authors report that slightly fewer than 20 percent of the 

services that were examined save money, while the rest add to costs. 

According to a recent column by Dr. Charles Krauthammer, ‘‘A study in the journal Circulation found that for cardiovascular diseases and diabetes, ‘if all the recommended prevention activities were applied with 100 percent success,’ the prevention would cost almost 10 times as much as the savings, increasing the country’s 

total medical bill by 162 percent.’’ 

Preventive care is most likely to be successful when it is integrated into coordinated care programs that engage patients as partners in their health spending and 

health care. 

Several studies from health plans that provide these coordinated care settings 

have demonstrated positive results. 

Aetna does an annual study 2 of members in its HealthFund consumer-directed 

plans. The study of 2 million members shows that members with a Health Savings 

Account (HSA) had more than 15 percent lower primary care physician use for nonroutine visits and more than 10 percent lower overall medical costs than members 

in a preferred provider plan. 

The HealthFund plans employ a number of tools to allow patients to become more 

active partners in managing their health care and health costs, including HSAs and 

Health Reimbursement Arrangements (HRAs). They also have an incentive to get 

the best value for their health care dollars and to seek out information on quality 

and price. The Aetna study found that: 

• HSA members are more involved in their health care: They are two and a half 

times more likely to use online tools and three times more likely to take a health 

assessment than their PPO counterparts. 

• For full replacement HRA and HSA plans, employers saved $118 million per 

10,000 members over 5 years. 

• Members in Aetna HealthFund plans spent more on preventive care and 

accessed higher levels of screenings for breast and cervical cancer as compared to 

members in traditional PPO plans; visited the emergency room less than their PPO 

counterparts; used the prescription drugs necessary to treat chronic conditions such 

as diabetes and heart failure at rates similar to PPO members; and used generic 

drugs at higher rates than members in a PPO plan. 

These savings came from an integrated health plan that doesn’t simply tack on 

preventive care to traditional health policies but rather provides a battery of tools 

for consumers to become engaged in managing their health, including joining smoking cessation programs, exercise and weight loss plans, and other preventive and 

wellness measures. 

Safeway’s Steve Burd is, as I wrote in my testimony, an evangelist for wellness 

programs, saying ‘‘If you design a health care plan that rewards good behavior, you 

will drive costs down.’’ 3 Safeway covers the cost of recommended preventive care 

under its Healthy Measures program and then goes on to provide support programs 

and incentives for healthy behaviors. The operable issue is that the preventive care 

is part of an integrated system of care that includes incentives for healthy behavior. 

I mentioned during the hearing a study by McKinsey 4 analyzing the early impact 

of consumer-directed health plans. McKinsey surveyed more than 2,500 adult Americans with widely varying types of commercial health coverage. The study included 

more than 1,000 consumers with employer-based, full-replacement CDHPs, as well 
80 

as a control group of traditionally insured consumers in 2005 and found that in 

CDHC plans: 

• Consumers were more attentive to wellness and prevention: They were 25 percent more likely to engage in healthy behaviors and 30 percent more likely to get 

an annual physical. Why? Fifty-one percent of CDHC consumers agreed ‘‘If I catch 

an issue early, I will save money in the long run.’’ 

• Consumers are more attentive to cost control and to behavior changes that 

could result in better health outcomes and cost savings over the long term. CDHC 

consumers were more likely to perform independent research to identify treatment 

options, for example, even when insurance was paying, and they were 20 percent 

more likely to comply with treatment regimens for chronic conditions. 

• CDHC consumers were more value-conscious: They were 50 percent more likely 

to ask about costs and three times more likely to have chosen a less extensive, less 

expensive treatment option. They also were much more likely to visit an urgent care 

center than a hospital emergency room. 

Prevention can be valuable and can produce savings, but to save money, it must 

be part of an integrated health program. Smoking cessation medications are most 

successful if integrated into educational and support programs. Some companies 

provide diabetics with supplies and medications at no cost if they make monthly visits to care coordinators who can detect early signs of the progression of their illness. 

Treatment must go beyond providing the medicines to include treatment for secondary issues such as pain and cardiovascular disease in a system of care. Cholesterol-lowering drugs are most likely to be effective when they are combined with a 

program of diet and exercise. Many private employers and health plans provide incentives for this integrated, coordinated care. 

My concern with the Patient Protection and Affordable Care Act is that many of 

these programs will be lost as employers focus more on following the rules set by 

Washington than in continuing to develop and enhance programs with demonstrated 

success in coordinated and integrated care, including prevention. Just tacking 

screening tests onto an insurance policy will not get us to the goal of a more efficient health sector that engages patients as partners in managing their health care. 

You indicated that the hearing record would be kept open for 10 days, and I hope 

that these comments could be included in the record. 

I would very much welcome the opportunity to continue this discussion with you, 

and thank you again for the opportunity to testify. 

Sincerely, 

GRACE-MARIE TURNER. 

[Whereupon, at 11:40 a.m., the hearing was adjourned.] 

Æ