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PRESCRIPTIONS FOR HEALTH CARE: SOLUTIONS

TO THE PROBLEM

HEARING

BEFORE THE

COMMITTEE ON SMALL BUSINESS 

HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

WASHINGTON, DC, MARCH 2, 2005

Serial No. 109–3

Printed for the use of the Committee on Small Business

(

Available via the World Wide Web: http://www.access.gpo.gov/congress/house

COMMITTEE ON SMALL BUSINESS 

DONALD A. MANZULLO, Illinois, Chairman 

ROSCOE BARTLETT, Maryland, Vice 

Chairman 

SUE KELLY, New York 

STEVE CHABOT, Ohio 

SAM GRAVES, Missouri 

TODD AKIN, Missouri 

BILL SHUSTER, Pennsylvania 

MARILYN MUSGRAVE, Colorado 

JEB BRADLEY, New Hampshire 

STEVE KING, Iowa 

THADDEUS MCCOTTER, Michigan 

RIC KELLER, Florida 

TED POE, Texas 

MICHAEL SODREL, Indiana 

JEFF FORTENBERRY, Nebraska 

MICHAEL FITZPATRICK, Pennsylvania 

LYNN WESTMORELAND, Georgia 

LOUIE GOHMERT, Texas 

NYDIA VELA ́ ZQUEZ, New York 

JUANITA MILLENDER-MCDONALD, 

California 

TOM UDALL, New Mexico 

DANIEL LIPINSKI, Illinois 

ENI FALEOMAVAEGA, American Samoa 

DONNA CHRISTENSEN, Virgin Islands 

DANNY DAVIS, Illinois 

ED CASE, Hawaii 

MADELEINE BORDALLO, Guam 

RAU ́ L GRIJALVA, Arizona 

MICHAEL MICHAUD, Maine 

LINDA SA ́ NCHEZ, California 

JOHN BARROW, Georgia 

MELISSA BEAN, Illinois 

GWEN MOORE, Wisconsin 

J. MATTHEW SZYMANSKI, Chief of Staff 

PHIL ESKELAND, Deputy Chief of Staff/Policy Director 

MICHAEL DAY, Minority Staff Director

(II) 

C O N T E N T S 

WITNESSES

Page 

King, Hon. Steve (IA-05), Congressman, U.S. House of Representatives ........... 3

O’Grady, Hon. Mike, Assistant Secretary for Planning and Evaluation, U.S. 

Department of Health and Human Services ...................................................... 6

Haynes, Mr. W. Thomas, Executive Director, The Coca-Cola Bottlers’ Association ........................................................................................................................ 11

Roberts, Ms. Holly Stephen, HSA Coalition .......................................................... 13

Hughes, Mr. Robert, President, National Association of the Self-Employed, 

Hall & Hughes, LLC ............................................................................................ 14

Kerrigan, Ms. Karen, Chairwoman, Small Business Entrepreneurship Council ........................................................................................................................... 15

Shalek, Mr. Scott, Shalek Financial Services ....................................................... 17

APPENDIX

Opening statements: 

Manzullo, Hon. Donald A. ................................................................................ 36

Velazquez, Hon. Nydia ..................................................................................... 38

Lipinski, Hon. Daniel ....................................................................................... 40

Prepared statements: 

King, Hon. Steve (IA-05), Congressman, U.S. House of Representatives .... 42

O’Grady, Hon. Mike, Assistant Secretary for Planning and Evaluation, 

U.S. Department of Health and Human Services ...................................... 45

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

Association ..................................................................................................... 58

Roberts, Ms. Holly Stephen, HSA Coalition ................................................... 63

Hughes, Mr. Robert, President, National Association of the Self-Employed, Hall & Hughes, LLC ........................................................................ 65

Kerrigan, Ms. Karen, Chairwoman, Small Business Entrepreneurship 

Council ........................................................................................................... 70

Shalek, Mr. Scott, Shalek Financial Services ................................................ 77

Additional material: 

Welch, Ms. Maria, Respira Medical, Inc. ........................................................ 87

(III) 

(1)

PRESCRIPTIONS FOR HEALTH CARE: 

SOLUTIONS TO THE PROBLEM 

WEDNESDAY, MARCH 2, 2005

HOUSE OF REPRESENTATIVES

COMMITTEE ON SMALL BUSINESS

Washington, DC 

The Committee met, pursuant to call, at 2:10 p.m. in Room 311, 

Cannon House Office Building, Hon. Donald Manzullo [Chairman 

of the Committee] presiding. 

Present: Representatives Manzullo, Musgrave, King, Fitzpatrick, 

Westmoreland, Gohmert, Velazquez, Lipinski, Christensen, 

Bordallo, Barrow, Bean and Moore.

Chairman MANZULLO. Good afternoon. It is my pleasure to welcome everyone to today’s Small Business Committee hearing on the 

critical issue of small business access and alternatives to health 

care. 

The hearing will serve as a forum to discuss and promote innovative solutions to help small businesses meet their health care 

needs. Exorbitant health care costs are one of the biggest expenses 

small businesses and the self-employed incur as they struggle to 

provide coverage for employees. 

We have assembled here today a panel of what I like to look at 

as innovators, as people that have specific plans. People in the field 

like Scott Shalek, who on a day-to-day basis are challenged, people 

in positions of public policy that have to come up with very difficult 

decisions and people representing various groups around the country who are expressing their tremendous concern over the cost of 

health care. 

Self-employed workers pay their full 15.3 percent payroll tax for 

social security and Medicare on top of individual income tax. In recent years, Congress passed legislation allowing them to deduct 

their health care expenses from their individual income taxes. 

However, they do not receive a deduction from their payroll tax. 

Last year, along with Congresswoman Velazquez, we introduced 

the Self-Employed Health Care Affordability Act that would allow 

those small business owners to deduct their health insurance costs 

from their payroll taxes. There are other tax credits and additional 

ideas we will hear more about. 

In terms of the order of proceeding, Congresswoman Velazquez 

will have her opening statement, and then I am going to recognize 

Congressman King and Congressman Lipinski for an unusual 

round of opening statements, but each of them has introduced very 

specific legislation dealing with this. Then we will proceed immeVerDate 0ct 09 2002 18:11 Oct 28, 2005 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 G:\HEARINGS\21251.TXT MIKE
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diately to Assistant Secretary Michael O’Grady. We are anticipating votes at 2:45. 

[Chairman Manzullo’s opening statement may be found in the 

appendix.] 

Congresswoman Velazquez?

Ms. VELAZQUEZ. Thank you, Mr. Chairman. 

The number one challenge facing our nation’s small businesses 

today is their ability to access affordable health care. All one needs 

to do is look at the numbers to see the effect that rising health care 

costs are having on small businesses. These costs have consistently 

worsened by double digits—11 percent in 2002, 13 percent in 2003 

and 12 percent in 2004, adding up to an increase of 60 percent over 

the past five years. 

Clearly we have a health care crisis that needs to be addressed. 

There is no question that there is a growing insurance gap between 

corporate America and small business. Large businesses have a 

coverage rate approaching a healthy 90 percent for employer based 

health insurance, while small firms have a coverage rate of only 50 

percent. 

In addition, small firms can expect to pay up to 30 percent more 

for similar policies offered for their larger counterparts. The truth 

is that six out of every 10 uninsured Americans are in families 

headed by self-employed workers or small business employees. This 

is simply unacceptable. 

While it seems that when you recognize the problem and acknowledge that small businesses need access to health care, they 

have been long on talk and short on action when it comes to providing the solutions to affordable health care. 

Since 2001, President Bush repeatedly talks about allowing small 

businesses to band together to purchase health care for association 

health plans. This is a common sense solution that has been 

around long before President Bush took office. In fact, association 

health plans passed three times in the past four years—three 

times—with overwhelming bipartisan support. 

My question is will AHPs actually pass into law in the 109th 

Congress, or will this be another Congress that goes down promising a lot and delivering little? 

Despite the constant touting of the importance of AHPs, no efforts have been made to move it forward or to offer any pressure. 

We have seen in the past when President Bush really wants to 

move something forward he can, as he showed us two years ago 

with his prescription drug plan. 

The reality is that the Republican party controls the White 

House and both the Senate and the House, and if they want to get 

this done it can get done. The logical first step will be for the President to pick up the telephone and call Senator Frist to get a commitment from the Majority Leader that this legislation will be 

brought to the Floor no later than midsummer. That is the least 

that can be done. 

Second, the health care reforms that have passed have fallen 

vastly short of closing the national gap on insurance. The most significant change has been the health savings accounts, which claim 

3

to help small firms. However, with health care costs on the rise 

HSAs have not addressed this crisis. 

A recent study by the Kaiser Foundation found that only five 

percent of small firms are seriously looking into offering HSAs next 

year versus 30 percent of large firms. Despite the fact that HSAs 

are friendlier options for large businesses, they are being sold as 

a solution for small firms. The reality is that small businesses see 

little benefit from HSAs. 

Protecting small businesses and the self-employed should be a 

top priority, but unfortunately health care costs are only continuing 

to skyrocket. Promises have been made on how they plan to attack 

this crisis, but at some point this talk needs to stop and some action needs to be taken. 

This question has been going on for too long now. We need to end 

the back and forth and start taking steps forward to implement a 

solution that will actually help small business owners. As the economic engines of this country, small businesses deserve to be confident in their ability to provide health care for themselves and 

their families. 

Thank you, Mr. Chairman. 

[Ranking Member Velazquez’s opening statement may be found 

in the appendix.]

Chairman MANZULLO. Thank you. 

Congressman King, you are recognized for five minutes.

Mr. KING. Thank you, Mr. Chairman, for the opportunity to testify before the Small Business Committee regarding the worsening 

health care crisis that faces our country. 

The small business community is among the hardest hit, and I 

commend you, Mr. Chairman and Ranking Member, for your outstanding leadership in holding these hearings for the opportunity 

to discuss the worsening access to health care for small businesses, 

midsize businesses and their employees. 

Mr. Chairman, health care costs are escalating, and there are 

few options for small business owners to choose from when selecting insurance coverage for their employees. In order to keep and 

attract talented workers, sourcing affordable quality health insurance is a top concern. 

As an owner/operator of a small construction business for over 28 

years, I am well aware that the largest challenges here are access 

and cost. Even though small business is the backbone of our American economy, over 60 percent of the estimated 43 million people 

without health insurance are small business owners, employees 

and—

Chairman MANZULLO. Would the gentleman yield? Could you get 

right to the legislation that you have proposed? We have a tight 

clock here, Steve.

Mr. KING. I will be happy to do that, Mr. Chairman. If I could 

also ask unanimous consent to introduce this testimony into the 

record.

4

Chairman MANZULLO. Without objection.

Mr. KING. Thank you, Mr. Chairman. 

My legislation is H.R. 37, and what it does is it provides for a 

full deductibility for employees to purchase a health care plan if it 

is a high deductible plan—$1,000 deductible for individuals, $2,000 

deductibles for couples and families—if it is in conjunction with a 

health savings account. 

It arises from frustration that I have had as an employer for 28 

years, and that is not being able to in those years deduct my own 

health insurance premiums and allow for my own individual employees. 

This is a way that we can supplement the current HSAs and 

help out individual employees, waitresses and ditch diggers. People 

that are working on the lower end of this economy have the largest 

obstacles. As the Chairman said, they are paying 15.4 percent of 

their wages in payroll taxes, and on top of that when they purchase 

health insurance they are having to do that with taxable income 

instead of the after tax dollars like the corporations that hire their 

competitors. 

That is the key and the core to H.R. 37, and I have always believed that anything that was deductible for a corporation for 

health care or health insurance should also be deductible for individuals in this country. 

That would conclude my testimony, Mr. Chairman. 

[Congressman King’s statement may be found in the appendix.]

Chairman MANZULLO. Thank you, Congressman King. 

Congressman Lipinski has some legislation. Go ahead.

Mr. LIPINSKI. Thank you, Mr. Chairman. In 2003, 45 million 

Americans had no health insurance, an increase of 1.4 million over 

2002. Of these 45 million, more than 80 percent hold jobs and work 

year-round, mostly in small businesses. The problem is they are 

not poor enough to qualify for Medicaid, but too poor to buy health 

insurance on their own if their employer does not provide it. 

Congressman Mark Kennedy and I have introduced H.R. 756, the 

Fair Care for the Uninsured Act, which would provide greater equity, access, portability and choice for those who are left behind by 

today’s system. It will also create a marketplace where individuals 

and families can choose a plan that best fits their need. It is not 

limited to the type of plan that would apply to. 

The Fair Care for the Uninsured Act of 2005 would create a new 

tax credit for the purchase of private health insurance specifically 

for uninsured workers who do not have access to an employerbased health plan. This way insurance will become more affordable, 

more people will become insured, and consumers will have more 

control. The tax credit would be $1,000 for an individual and up 

to $3,000 for a family of four. 

Giving more individuals an opportunity to purchase health insurance will not only benefit them, but it will help insured Americans 

as well. Families who cannot afford health insurance often have no 

other health care option than to go to the emergency room. The 

cost of an emergency room visit is three to four times more expenVerDate 0ct 09 2002 18:11 Oct 28, 2005 Jkt 000000 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 G:\HEARINGS\21251.TXT MIKE
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sive than the cost of a regular office visit, and when the uninsured 

turn up in the emergency room they usually cannot pay for the cost 

that they incur. 

As a diabetic, I know how important it is to utilize preventive 

services and get proper treatment for even minor problems. Unfortunately, most uninsured people do not have the opportunity to do 

this. In fact, uninsured diabetics are 11 times more likely to end 

up in the emergency room than diabetics who do have insurance. 

Ultimately these costs are paid by taxpayers in the form of higher taxes and paid by the insured in the form of higher premiums. 

By making health care more affordable for uninsured Americans 

we are making it more affordable for everybody. 

Additionally, a lack of access to affordable health care/health insurance disproportionately affects America’s large and growing Hispanic community. According to the U.S. Census Bureau, over onethird of Hispanics are uninsured compared to 12 percent of nonHispanic whites. Only 38 percent of Hispanics working in small to 

medium sized companies have health insurance compared to 63 

percent for white, non-Hispanic workers. 

This is because most Hispanic workers are heavily concentrated 

in the service industry and in small businesses, working for firms 

that do not or cannot afford them health insurance coverage. 

Therefore, they are disproportionately found outside the normal 

channels of health insurance in this country. For these hardworking Americans, Fair Care will make insurance more affordable 

and help alleviate their fears of a medical crisis. 

Some might argue that this legislation interferes with employerbased health care, but under Fair Care only persons who do not 

have access to workplace health coverage qualify for the tax credits. 

H.R. 765 also recognizes the importance of health insurance safety nets that exist in 32 states for those who are not otherwise insurable, and it builds upon the success of these programs and helps 

expand these safety nets to all 50 states. 

I thank you very much, Mr. Chairman, for the opportunity to 

speak on this legislation, and I look forward to hearing the testimony by witnesses regarding their ideas for addressing the health 

care crisis. 

[Congressman Lipinski’s statement may be found in the appendix.]

Chairman MANZULLO. Put me on your bill, Steve, put me on your 

bill.

Ms. VELAZQUEZ. Yes, Mr. Chairman. I would like to take this opportunity to welcome our newest addition to the Small Business 

Committee from the Democratic side, Gwendolyn Moore from Wisconsin. Welcome.

Ms. MOORE. Well, thank you so much, Ranking Member Velazquez, and thank you, Mr. Chairman. I am so pleased to be here. 

I am so excited to be able to talk about health care because it is 

certainly the most burgeoning problem that has an impact on businesses to be able to operate. 

6

I am very curious. I am in a listening mode today. I am very curious as to how some of these plans will serve my constituents. 

Again, I am from Milwaukee, Wisconsin, and we in Milwaukee, 

Wisconsin, have the largest gap in growing businesses that offer 

health care insurance.

Chairman MANZULLO. I am going to have to cut you off here so 

we can get started.

Ms. MOORE. I am sorry.

Chairman MANZULLO. You will get an opportunity. You and I 

talked. I am a Marquette Law School graduate.

Ms. MOORE. Yes.

Chairman MANZULLO. You will notice the definite Jesuit influence in my life.

Ms. MOORE. Okay.

Chairman MANZULLO. Our first guest this afternoon is Dr. Michael J. O’Grady, whose claim to fame is that he is a former Senate 

staffer on the Joint Economic Committee. I was on that Committee, 

but I think it was before your tenure. 

What I want to do is let you go first, and then I am going to do 

something a little extraordinary, which is to give Mrs. Velazquez 

five minutes to ask you questions. I will do that because I would 

like to at least conclude your testimony. 

The other Members of the panel may not have an opportunity to 

ask you questions before the bells go off, if that is okay with you. 

If you could stick around as long as possible, I would appreciate it, 

okay? 

We look forward to your testimony. 

STATEMENT OF MICHAEL J. O’GRADY, U.S. DEPARTMENT OF 

HEALTH AND HUMAN SERVICES

Mr. O’GRADY. Thank you very much. Good afternoon, Mr. Chairman, Members of the Committee. I am Michael O’Grady, and I am 

the Assistant Secretary for Planning and Evaluation at HHS. I am 

honored to be here today to discuss the President’s proposals for 

making health care more affordable and to highlight how small 

business and their employees can benefit from these proposals. 

As you know, small business is the engine that drives our nation’s economy. Small firms with fewer than 500 workers employ 

50 percent of all private sector employees and generate 60 to 80 

percent of the new jobs over the last decade. Unfortunately, the 

strength of small business is being hindered by escalating health 

care costs. Small business and their employees need help. 

Health care insurance premiums continue to increase faster than 

both inflation and wages and are higher and more volatile for small 

firms compared to larger firms. Last year, premiums increased 11.2 

7

percent for all firms, but 13.6 percent for firms between three and 

24 workers. 

The President is committed to driving down the cost of health insurance for small business owners and their employees. The Congress and the President have already taken a first step in making 

coverage more affordable by creating health savings accounts. 

Health savings accounts were created under the Medicare Prescription Drug Improvement and Modernization Act or MMA. They 

are used in conjunction with high deductible health plans, and contributions and withdrawals used to pay for eligible medical expenses are tax advantaged. 

Since individuals own their own HSAs, the accounts are portable 

from one employer to another, and unused funds can be carried 

over from one year to another to help pay for future medical expenses. HSAs provide individuals with more choice, greater individual control, individual ownership and lower health insurance 

premiums. 

The President’s 2006 budget includes a comprehensive set of 

measures to make coverage more affordable and available for small 

business and the uninsured. It invests $125.7 billion over 10 years 

to expand insurance coverage to millions of Americans through tax 

credits, state purchasing pools, tax deductions and rebates to small 

employers who contribute to the health savings accounts owned by 

their employees. 

In addition, the President’s plan includes association health 

plans, medical liability reform and the Cover the Kids campaign. 

In total we estimate that eight to 10 million people will gain health 

insurance coverage under the President’s comprehensive plan. This 

is significant for small businesses since nearly half of the uninsured are either small business employees or their dependents. To give you more specifics, the President’s budget provides $19.2 

billion over 10 years in credits to small business owners who offer 

HSAs and contribute to their employees’ accounts. This proposal 

targets small business and relies on private market forces making 

consumer choice more available, more cost conscious and spending 

in a more prudent way. 

In addition, the President’s budget includes $28.5 billion in tax 

incentives over 10 years to make high deductible health plans that 

are used in conjunction with the HSAs more affordable. Currently 

individuals who purchase their own health insurance do not receive 

the same tax favored treatment as to health insurance premiums 

as do employees who receive insurance through their employer. 

To level the playing field and encourage the purchase of high deductible plans, the President proposes that both the contributions 

made to an HSA and the premiums paid to purchase the high deductible health plan be fully deductible. 

The President’s plan also includes a refundable tax credit for the 

purchase of health insurance targeted to low income individuals 

and families, many of whom work for small businesses. Over half 

of the uninsured have incomes below 200 percent of poverty, and 

many of these people are not eligible for either employer coverage 

or for public insurance programs. 

The President proposes to invest $74 billion over the next 10 

years in tax credits to help these individuals purchase health inVerDate 0ct 09 2002 18:11 Oct 28, 2005 Jkt 000000 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 G:\HEARINGS\21251.TXT MIKE
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surance. The tax credit would pay for 90 percent of the cost of 

standard coverage. The credit would be up to $1,000 per adult and 

$500 per child, up to two children, so eligible families with two or 

more children could receive up to a maximum of $3,000. Eligible 

individuals could receive up to $1,000. 

To facilitate the use of tax credits, the President proposes $4 billion over the next 10 years in grants to encourage states to create 

insurance pools. To insure that low income Americans get the most 

out of the tax credits, states could provide a powerful group purchasing mechanism through these state sponsored purchasing 

pools, allowing individuals to directly reduce their monthly premium payments. 

In addition to different tax credit proposals, the President also 

supports association health plans. Association health plans enable 

small employers to provide better and more affordable health care 

coverage options to their employees like those offered by larger employers. 

Other proposals in the President’s budget call for expanding community health centers to provide quality, compassionate care to patients who need help the most regardless of their ability to pay and 

the Cover the Kids campaign, which combines an outreach effort 

from the federal government, states and community organizations 

to enroll more SCHIP and Medicaid eligible children. 

Also, the creation of a national marketplace for individual insurance products allowing individuals to get the best buy they can find 

anywhere in the country that best meets their individual needs for 

health insurance coverage and to reform the medical liability system to limit frivolous lawsuits and excessive jury awards and make 

health care more affordable and accessible to all Americans. 

As I have just outlined, the President has an ambitious agenda 

to drive down health care costs and make insurance coverage more 

affordable for small businesses and their employees. As a member 

of the Administration, I look forward to working with you to 

achieve these goals, and I am happy to answer any questions. 

Thank you. 

[The Honorable Mike O’Grady’s statement may be found in the 

appendix.]

Chairman MANZULLO. Thank you, Dr. O’Grady. 

Mrs. Velazquez, you are recognized for five minutes.

Ms. VELAZQUEZ. Thank you, Mr. O’Grady. In your testimony you 

discuss health care reforms proposed by the Administration. I noticed that the last proposal included in your prepared remarks was 

association health plans. 

It seems that the $100 billion expansion of health savings accounts has become the centerpiece of the Presidents’ small business 

health care agenda. We know that these HSAs conform to the 

President’s ownership society agenda just like his social security 

private accounts, but these HSAs provide little actual benefit to 

small businesses. 

How much of an impact has the fact that association health 

plans do not correlate with the President’s ownership society agenVerDate 0ct 09 2002 18:11 Oct 28, 2005 Jkt 000000 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 G:\HEARINGS\21251.TXT MIKE
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da link to the drop of association health plans as one of the Administration’s top priorities?

Mr. O’GRADY. I do not think you should assume that somehow 

there has been a change in priority here. This is an area that in 

terms of the proposal, it is mostly with the Department of Labor 

rather than my department, but it certainly is part of the President’s agenda.

Ms. VELAZQUEZ. But it is about health insurance.

Mr. O’GRADY. It is certainly about health insurance, and when 

you think about the advantages of association health plans and the 

way they would interact with some of these other proposals we only 

view those as sort of dovetailing in terms of being able to both—

both sets of proposals, a number of these different proposals, are 

all pushing in the same direction. 

Certainly the Administration is strongly behind association 

health plans. I heard your concerns, and I certainly will take those 

back.

Ms. VELAZQUEZ. I am impressed by association health plans 

being one of the top priorities of the Administration given the fact 

that in your prepared remarks the association health plans discussion comes on page 8, almost at the end of your testimony. 

Why is it that President Bush has not used his political capital 

to get the Senate to move the association health plans? After all, 

when he was campaigning he was talking about association health 

plans and how much he supports it. 

How can we get Senator Frist to bring it to the Floor for a vote?

Mr. O’GRADY. I certainly hear what you are saying. I certainly 

understand. In terms of the notion of Senator Frist, he does not 

work for the President, and those dialogues are ongoing. 

Certainly in term of the notion of you should not take anything 

about a position that this holds in the written or oral testimony as 

indicating somehow this is a rank ordering of the priorities of the 

Administration. These are all in the budget. These are all things 

that are being moved forward simultaneously. 

One of the things that we hit with the uninsured, and that is a 

little different than the last Administration, is an idea of just 

thinking that there are these really key subpopulations and how 

we get the right policy tool to that population. AHPs are on that 

list. There is no doubt about it.

Ms. VELAZQUEZ. I can see that. We have voted three times for it, 

and year after year we promise small businesses in this country 

that we are going to get it done. 

Do you know what? With the prescription drug plan the President wanted that bill passed. A lot of the Members here, conservative members, did not support it. He called Hastert and Tom 

DeLay and everybody else. He can do the same with this. 

As Ranking Member of the Small Business Committee, I know 

firsthand how the President’s latest budget hits small businesses 

10

hard in its attempt to get a handle on the $427 billion deficit. The 

Administration’s slashed or cut 50 small business programs in the 

fiscal year 2006 budget because it said it has to keep the deficit in 

check. 

If we need to cut these programs to save money, why is the Administration proposing spending over $100 billion to expand the 

health savings accounts? It seems it is completely cynical to talk 

about the deficit and then spend billions on programs that have little success to reducing health care costs for entrepreneurs.

Mr. O’GRADY. Certainly what you are seeing here is a balance between an attempt to control the deficit, reduce the deficit and how 

to help as many people as you possibly can with the funds that you 

have available. 

In terms of the way these proposals are going forward, there are 

two policy goals that are being simultaneously dealt with here; affordability question, no doubt about it, but also how do we go about 

reducing the number of uninsured.

Ms. VELAZQUEZ. Mr. O’Grady, the Kaiser Foundation did a study 

that demonstrates that only five percent of small businesses will 

say that they will use the health savings accounts. 

So we are going to spend all this money. We are going to cut by 

42 percent the budget for the Small Business Administration, and 

yet we are doing something that will provide little benefit to small 

businesses when it comes to health care.

Mr. O’GRADY. I do not think you should assume it is little benefit. What we see in any tax credit proposal that have come forward, whether it is the way 401(k)s were first introduced, IRAs, 

any of those things where you are talking about getting people to 

set up accounts that can roll over, that will take a little bit of time 

for that information to get out. 

I know that the people at Treasury are trying and through the 

IRS to make it quite clear to small business, as well as to all businesses, what is available. 

In your opening statement when you were talking about that notion of larger businesses, I would assume that that is sort of what 

we have seen in pensions and other areas. They move first. That 

is because they are already offering three or four, so to add an HSA 

as a fourth option to employees is an easier link for them than a 

smaller employer who might only have one option and they have 

to think about it. 

Part of this idea is how you get that information out there. How 

do you make this doable? That is the logic behind the health purchasing pool, the $4 billion to help the states to be able to set up 

a pool so they can facilitate. 

You could have great insurance premiums, very low, and due to 

a number of different things. If people do not know about it, it is 

sort of like having the lowest prices around and you have no real 

parking lot in front of your store. You can do a great deal on these 

things, but we have to help people to be able to get in there and 

get access to this insurance, and that is part of the idea. 

11

When you see what is going on with different proposals where 

there is a tax credit maybe for the parent, for the child, how you 

do that sort of stuff? These state purchasing pools are part of building that infrastructure to make this work.

Chairman MANZULLO. Thank you, Mrs. Velazquez. 

I think the fact that Senator Frist needs 60 votes to get AHPs 

through has a little bit to do with the fact that it did not pass this 

past year. 

We will continue with our testimony with Mr. Haynes. 

Dr. O’Grady, if you could stick with us as long as you can we 

would appreciate it.

Mr. O’GRADY. Certainly.

Chairman MANZULLO. Thank you so much. 

Our next witness is Tom Haynes, Executive Director of The 

Coca-Cola Bottlers’ Association. 

Dan, you better hide that can of pop that you have in front of 

you there.

Mr. HAYNES. I saw that.

Chairman MANZULLO. Speaking on behalf of the Association of 

Healthcare Coalition, and make sure you bring the mike close to 

you, Mr. Haynes. You are recognized for five minutes. Thank you. 

STATEMENT OF W. THOMAS HAYNES, THE COCA-COLA 

BOTTLERS’ ASSOCIATION

Mr. HAYNES. Thank you, Chairman Manzullo, for inviting me 

here today. It is an honor and a privilege. I also want to thank you 

and Congresswoman Velazquez for your leadership not only on 

these issues, but more specifically on the issue I am here to talk 

about, which is the Small Business Health Fairness Act, the AHP 

legislation. 

I am here on behalf of The Coca-Cola Bottlers’ Association and 

the Association Healthcare Coalition, which I serve as president, to 

urge the Committee and the Congress to move promptly in 2005 to 

pass AHP legislation. 

I have to say that, Congresswoman Velazquez, your remarks hit 

very close to home because we believe that this, along with a lot 

of other tools that we are talking about, but primarily in our situation, this legislation is the key to solving some of the health care 

issues that the small businesses that are part of my membership—

Chairman MANZULLO. Could you get directly into your testimony 

as to the AHP that your organization runs?

Mr. HAYNES. Sure. Sure.

Chairman MANZULLO. Thank you.

Mr. HAYNES. I would love to, Chairman Manzullo. 

12

We have had a health care program for a number of years. Our 

association has existed for 90 years. We include every Coca-Cola 

bottler in America, large and small. Approximately 60 of our 77 

members would probably qualify as small businesses. There are 

100 or so or fewer employees, the majority by number but certainly 

not the majority by employment or population. 

Our job is to make it possible for those small businesses to remain competitive, to remain economically viable and, to the extent 

I can, to make them comparable to the big businesses that run 

Coca-Cola Bottlers all over the country in terms of their ability to 

survive and thrive. 

We had an AHP that covered both large and small bottlers that 

we had to disband in 2000. We had our smaller bottlers in a pool. 

That program worked very well. The ultimate cost to our smaller 

members was very comparable to the cost for our larger members. 

Because of state regulations, state mandates, the complexity associated with dealing with all those state requirements, the insurer 

that we were working with on that program disbanded it and essentially said that they simply cannot put together a program that 

covers bottlers with fewer than 100 employees. 

Essentially we have had to cut off the small businesses that we 

were supporting and focus our AHP program on the larger businesses. We have maintained that program for the larger businesses. It has been very successful. We have members that have 

150 to 250 employees who we believe have health care costs comparable to our largest bottler, which has about 70,000 employees. 

We believe that for a bottler with 200 employees, they have a very 

comparable cost as to the largest bottlers. 

I came from the Coca-Cola Company. The programs that we offer 

to bottlers are very comparable in benefits to the program I had 

as an employee of the Coca-Cola Company, so in the real world our 

association can close this gap that the small members that I serve 

are facing. 

We cannot do it without AHP legislation. I have tried very, very 

hard to find every solution I can come up with to provide the same 

kind of programs for our smaller bottlers as we do for our larger 

bottlers. I simply have not been able to do it, and we spent a couple 

years trying. 

There are huge numbers of benefits that we could bring not only 

to those smaller bottlers, but even to some of the people that are 

sort of in between, the bottlers that are 200 to 500 employees. We 

could put together a pool program that involves them, and some of 

our larger bottlers in that size were in our smaller bottler pool before we had to disband it in 2000. 

I have looked at the arguments against AHP legislation. I think 

our association is an example of how they simply do not apply to 

most association programs. There are a number of other associations that are a part of our coalition. I think that their situations, 

their stories, would be very similar to ours. 

I would simply say, Congresswoman Velazquez, this is a very 

straightforward, very simple, but very powerful tool to begin to 

solve and to make a significant dent in the health care issues that 

are being faced by small employers. 

[Mr. Haynes’ statement may be found in the appendix.]

13

Chairman MANZULLO. Thank you. 

Our next witness is Holly Stephen Roberts, an independent insurance agent from Madison, Indiana. Is that correct?

Mr. ROBERTS. Yes, sir.

Chairman MANZULLO. Did you play basketball in Madison, Indiana?

Mr. ROBERTS. That would not be pretty, sir.

Chairman MANZULLO. All right. 

STATEMENT OF HOLLY STEPHEN ROBERTS, HSA COALITION

Mr. ROBERTS. Thank you, Mr. Chairman, for allowing me to 

share with this Committee. 

When our family moved to Indiana just about a year and a half 

ago, I did decide to become self-employed as an insurance agent, 

and I went to work for a local insurance agency, the Madison Insurance Agency, primarily as their life and health agent. 

In doing so, I researched and learned about HSAs and how they 

can benefit people. I knew that high deductible health plans, along 

with an HSA, was right for my wife and me, so the first one that 

I wrote was on us. 

We chose it because the premiums are lower and we had already decided that we would basically self-insure ourselves for $5,000 

from our own savings should we need to and use the actual health 

insurance coverage for something major or catastrophic. 

Actually, we were willing to do this even before knowing about 

HSAs. Once we discovered HSAs, it was an extra blessing. This 

plan became even better because now we get a tax break on something that we were planning to do anyway. 

Three months ago, I became a permanent full-time employee at 

U.S. Filter in Madison, Indiana, and I was given the opportunity 

to participate in their group health insurance plan. The annual 

premium for just my wife and me is $7,604. The premium is the 

same for each employee regardless of their age, their sex and their 

lifestyle. 

The company does pay a large portion for us and for each employee in the amount of $5,666, but that leaves us paying our share 

of $1,938 a year. Even though this amount is basically the same 

as the premium on our personal high deductible health plan, we 

have decided to keep our personal plan and take advantage of our 

HSA. 

This decision is for three reasons. First, we like to be self-sufficient and in control of our finances and decisions concerning things 

like insurance, et cetera. If I become unemployed or laid off, I 

would then have to pay the full $7,600 plus two percent under 

COBRA. 

Second, our contribution to the HSA helps lower the amount of 

our income, thus lowering our taxes and increasing our savings. 

Third, it benefits U.S. Filter in that they do not have to pay $5,666 

towards my insurance. 

14

As you know, the biggest problem with group health insurance 

is that everyone is accepted, the unhealthy as well as the healthy. 

That is why the premiums are so high. This can lead to adverse 

selection because the younger, healthier people bail out, leaving the 

older or the less healthy people to make up the group. This naturally leads to more claim activity and payouts, which leads to higher premiums, and the cycle just continues. Eventually employers 

and employees alike are not going to be able to afford it. 

I am still a self-employed independent contractor working for the 

insurance agency, but only on a part-time basis now. However, I 

have been able to talk to quite a few people about high deductible 

health plans and HSAs. It seems that the self-employed are especially interested since they get a double tax break. They get to 

write off the actual insurance premiums they pay, as well as their 

HSA contribution. 

I realize that the U.S. Government seems to be and should be encouraging its citizens to be more self-sufficient and take more control over their lives by taking advantage of IRAs, both traditional 

and Roth, college savings plans, et cetera. We are just thankful 

that HSAs are another tool that has been given to us to do just 

that. 

Thank you, Mr. Chairman. 

[Mr. Roberts’ statement may be found in the appendix.]

Chairman MANZULLO. Thank you. 

Our next witness is Robert Hughes, president of the National Association of the Self-Employed. We look forward to your testimony. 

STATEMENT OF ROBERT HUGHES, NATIONAL ASSOCIATION 

OF THE SELF-EMPLOYED

Mr. HUGHES. Thank you, Mr. Chairman. On behalf of the 

NASE’s 250,000 members nationwide representing about 600,000 

people, we thank you for the opportunity to talk today with the 

Small Business Committee. 

Our typical member is a very small business. We refer to them 

as micro business. They employ fewer than 10 employees. There is 

no doubt that the single largest issue for micro business is the cost 

of health care and related health care coverage. 

NASE member Marcos Spizanti, owner of Silicon Construction in 

St. Charles, Missouri, had to give up his health insurance because 

of the high cost of premiums. ‘‘I could no longer afford to pay the 

premium, and therefore my wife, child and myself are not insured. 

I feel it is wrong, and I am angry about it,’’ says Marcos. ‘‘If people 

cannot afford insurance, what makes anyone thing they can afford 

taxes on top of that? Big business gets too many breaks. How about 

us little guys?’’ 

Marcos, of course, is referring to the fact that he and 16 million 

other sole proprietors and partnerships with earned income have to 

pay the equivalent of payroll taxes on their health insurance premiums. 

This huge tax inequity lies in the fact that health insurance premiums are a business deduction for all businesses except sole proprietors and partnerships. Therefore, the sole proprietor pays an 

15

extra tax on health insurance premiums amounting to 15.3 percent 

of those premiums. 

According to the most recent Kaiser Family Foundation study, the self-employed pay on average $9,950 in insurance premiums for 

family health coverage. Because they cannot deduct these premiums as ordinary business expenses like other businesses, they 

are required to pay $1,522 in additional taxes that no other business entity must pay. 

This is money that our members tell us they would use to reinvest in their business, hire part-time assistance or utilize the offset 

to reduce premium costs they face every year. 

The NASE would like to thank Chairman Manzullo and Representative Velazquez, who, in the 108th Congress, introduced the 

Self-Employed Health Care Affordability Act, which would have removed this inequity in the Tax Code faced by our nation’s self-employed. 

We believe the enactment of legislation such as this is about fairness for all business owners, not just corporations. We believe enactment will reduce the ranks of the uninsured. We believe the enactment would reduce the net cost of health insurance for the micro 

business owner. 

The NASE strongly supports legislative proposals such as association health plans and health care tax credits. We applaud the 

implementation of health savings accounts, yet let me restate with 

emphasis the self-employed are the only segment of the business 

population that have to pay this extra tax on health insurance premiums. This inequity needs to be corrected. 

The NASE and our members appreciate the current efforts of 

Congress to mitigate the cost burden and access difficulties with 

health coverages. However, the NASE believes that current legislative solutions are band-aids from larger wounds in the delivery of 

health care in this country. 

We applaud the legislation we hear from Mr. King and Mr. Lipinski in terms of reducing health care costs, health care insurance 

costs and creating greater access to those health insurance premiums. 

Thank you, Mr. Chairman, for the opportunity to talk today. 

[Mr. Hughes’ statement may be found in the appendix.]

Chairman MANZULLO. It was the result I believe of you testifying 

last year that we introduced that bill.

Mr. HUGHES. Yes, I think that is correct.

Chairman MANZULLO. Thank you. 

Our next witness is Karen Kerrigan of the Small Business & Entrepreneurship Council. We look forward to your testimony. 

STATEMENT OF KAREN KERRIGAN, SMALL BUSINESS & 

ENTREPRENEURSHIP COUNCIL

Ms. KERRIGAN. Thank you. Thank you, Chairman Manzullo, for 

inviting the SBE Council to be a part of this hearing today. We certainly appreciate your leadership on this most critical issue that 

16

continues to truly torment small business owners, their workforce 

and, of course, the millions of Americans who lack insurance. 

Thank you, Congresswoman Velazquez, for your leadership with 

respect to your effective advocacy on the issue, as well as your 

sponsorship and leadership on key legislation like association 

health plans and the FICA deduction, which would make a meaningful difference for small employers and the self-employed. 

Affordability, access and rising premium costs do remain a persistent challenge for the small business sector. While some significant progress has been made through the enactment of HSAs, certainly more needs to be done to promote more affordable access, increase choices and equity in the system. 

HSAs have been the breakthrough for small firms and individuals. They are saving significant dollars on healthcare costs 

through this product, and most significantly, the previously uninsured and small business owners not previously offering health insurance are responding to HSAs. 

A recent survey by America’s Health Insurance Plan shows that 

most of the HSA products being purchased are by individuals and 

small firms, where approximately 30 percent of these buyers were 

previously uninsured and 16 percent of the new small business 

purchasers previously did not offer health insurance. 

Certainly giving small business owners a tax credit on HSA con- tributions for the first $500 per employee with family coverage, on 

the first $200 per worker with individual coverage, as has been 

proposed in the Congress, will help to further promote the accounts 

and insure more Americans. 

However, no matter what is done on the policy and legislative 

front to help stabilize premium cost and help small employers access more affordable coverage for themselves and their employees, 

there will still remain a fairly large segment of the working population that for one reason or another will not be able to access 

health insurance through his or her employer. 

That is where the need for individual tax credits come into play. 

There is growing recognition that treating individuals equitably on 

the tax front with respect to health coverage costs not only makes 

sense from a fairness issue, but is a more appropriate solution 

given the high mobility and nature of today’s workforce. 

The Fair Care for the Uninsured Act introduced in the 109th 

Congress by Congressman Mark Kennedy and Dan Lipinski is one 

approach that is supported by our organization that will provide 

this desirable tax fairness for individuals. 

This advanceable and refundable tax credit, $1,000 for individuals, $2,000 for couples, $500 for dependents and up to $3,000 for 

a family, can be used to buy health insurance in the private market 

and give individuals the freedom to choose their own benefits and 

cost sharing features. 

A complementary proposal supported by the SBE Council that 

will provide individuals with more choice and access to affordable 

coverage would allow individuals to buy insurance from any state 

in the union. This nationwide marketplace is especially important 

for individuals and states where excessive mandates and regulation 

have driven up the cost of insurance and depleted the number of 

carriers in the state, thereby limiting choices. 

17

Giving individuals tax equity with employers with respect to the 

purchasing of coverage and allowing individuals to shop nationwide 

for the plan that best meets their personal and financial needs 

would give consumers more power and choice in the marketplace. 

Let me add that the SBE Council is fully supportive of association health plans and the FICA deduction for the self-employed, as 

well as Mr. King’s proposal. These proposals, along with tax credits, bring fairness to the system and will drive competition, which 

in the long run will make health coverage more affordable for all. 

Thank you again, Chairman Manzullo, and I look forward to our 

dialogue and your questions. 

[Ms. Kerrigan’s statement may be found in the appendix.]

Chairman MANZULLO. Thank you for your leadership. 

Our last witness is Scott Shalek, a near constituent of mine right 

over the border. Scott has become a good friend. We have called 

him on numerous occasions when we get stuck on how these plans 

work. 

In fact, we had a hearing in Rockford, Illinois, about three or 

four years ago, and Scott was sitting in the audience. Phil Burke 

from Woodstock was talking about the almost nearly 100 percent 

increase he had in premiums. With a little counsel from you, he 

ended up with two insurance policies, one for the main and one for 

the deductible. 

Scott, we look forward to your testimony. I know you have a lot 

to say, but if you could tell us the impact that you have had on 

being creative, especially with the HSAs? We look forward to all of 

your testimony. 

STATEMENT OF SCOTT SHALEK, SHALEK FINANCIAL 

SERVICES

Mr. SHALEK. Chairman Manzullo, Ranking Member Velazquez 

and distinguished Members of Congress, I thank you for the invitation and the opportunity to testify before this Committee today. 

My name is Scott Shalek, and I am a former board member of 

the National Association of Health Underwriters and own an independent insurance agency in Ringwood, Illinois, which specializes 

in benefits consulting and retirement planning for individuals and 

businesses ranging in size from one to 500 employees solving many 

complex problems and diversified situations. 

NAHU is an association of insurance professionals involved in 

the sale and service of health insurance, long-term care insurance 

and related products serving the insurance needs of over 100 million Americans. We have over 20,000 members around the country. 

We have been an active participant in solutions for rising costs and 

the uninsured, and we are pleased to have this opportunity to talk 

about possible solutions with the Members of the Committee today. 

Increasing health care costs across the nation have caused health 

insurance premiums to rise significantly. This increase has been 

due to a variety of factors, including technological advances, pharmaceuticals, overutilization, medical liability expenses and aging 

population. These cost drivers are often magnified by state regulation that decreases competition or stifles creativity and innovation. 

18

If this trend continues, employer based coverage and the financial participation of employers will be eroded. We believe that there 

is no one magical answer to the problem of the uninsured or for 

making health insurance more affordable. A multifaceted approach 

will be required since no one solution will fit the needs of all our 

citizens. 

Any attempt to provide Americans with universal access to 

health coverage should preserve—

Chairman MANZULLO. Scott, before time runs out I really would 

like you to get into the AHPs.

Mr. SHALEK. Okay.

Chairman MANZULLO. That is a great story, I mean, with all respect, you know.

Mr. SHALEK. All right.

Chairman MANZULLO. Tell us your story. That is why you are 

here. Tell us your story.

Mr. SHALEK. Well, with the advent of the Medical Prescription 

Drug Act—

Chairman MANZULLO. I am sorry. HSAs.

Mr. SHALEK. Yes.

Chairman MANZULLO. I am sorry. Go ahead.

Mr. SHALEK. Well, with the Medical Prescription Drug Improvement Modernization Act of 2003, it created health savings accounts 

effective January 1, 2004, which basically replaced MSA accounts 

and fixed many of the flaws contained in the old MSA legislation. 

These plans, along with health reimbursement arrangements, 

have already made a huge impact on health insurance markets of 

all sizes. The biggest impact has been in the individual market and 

among small employers. In the first nine months, over 400,000 people enrolled in the HSAs, and current statistics show that about 

3,000,000 people now have consumer driven health plans. 

On Monday of this week, I worked with a small furniture business with 14 employees that received two rate increases over the 

last year totaling 24 percent. After reviewing their claim history, 

we increased their deductible from $750 to $2,000 and reduced 

their premium cost by 15 percent, a savings to the company of over 

$1,000 per month. 

In addition, with the new plan design their co-insurance improved by 10 percent, and the single employee maximum out-ofpocket cost decreased by $250 per year. With the savings, the company is starting an HRA this year and planning to contribute to 

HSA accounts for the employees next year. 

In my own situation, my stepson, who is a single parent with two 

children, could not afford dependent coverage through his emVerDate 0ct 09 2002 18:11 Oct 28, 2005 Jkt 000000 PO 00000 Frm 00022 Fmt 6633 Sfmt 6633 G:\HEARINGS\21251.TXT MIKE
19

ployer. His cost through his employer to cover his children was 

over $600 per month. We moved him to a $2,000 deductible HSA 

plan, and the cost for both children dropped to $136 a month. 

A few important trends that are occurring with the use of HSAs. 

Premiums are remaining unchanged or only showing slight increases. Consumers are becoming better educated when they are 

spending their own money and utilization is decreasing. More people are switching to generic drugs. There is a substantial decrease 

in consumers running to emergency rooms unless it is a true emergency. 

Consumers are asking their physicians more questions about 

conditions, tests and cost. There is an increase in the purchase of 

long-term care insurance and other benefits such as vision and 

dental. Employers are now able to do more long-range planning 

with regards to their benefits program, and they are soliciting 

input from their employees. 

With the current increasing number of employers converting to 

consumer driven, high deductible health plans, several insurance 

carriers are now offering supplemental gap plans to cover out-ofpocket expenses. These low-cost plans help fill the gap based on the 

employer’s current medical plan. 

Benefits under these plans vary widely between carriers. Some 

just have a daily hospital cash benefit while others cover hospital 

expense, outpatient benefits and physician visits. Most have caps 

on their maximum benefits, but these limits can be up to $5,000 

or more. 

Premiums can be paid by the employer, the employee on a voluntary basis, through HSAs under certain criteria or both. Gap 

plans are an excellent way to help reduce health care costs for 

many small businesses. 

For the people that work in small businesses who are not able 

to offer health insurance coverage, it is important that their premiums for HSA compatible health insurance are deductible. Many 

small employers will be looking at these options in the near future, 

and a tax credit for part of the contribution to employee HSAs 

would be a great incentive for them to offer coverage.

Chairman MANZULLO. Scott, you are over by a minute and 12 

seconds.

Mr. SHALEK. Sorry. Okay. 

[Mr. Shalek’s statement may be found in the appendix.]

Chairman MANZULLO. Thank you.

Mr. SHALEK. Thank you.

Chairman MANZULLO. We are still trying to figure out when 

these votes are coming. They are not coming until 3:15? Is that it? 

All right. 

Dr. O’Grady, Mr. Shalek has talked about the fact that I think 

there were 400,000 people with HSAs—

Mr. SHALEK. Within the first nine months.

20

Chairman MANZULLO. —within the first nine months. Do you 

have any idea on the figure and how that is growing?

Mr. O’GRADY. The figure is, we are hearing different things from 

different sources. That is sort of the ballpark we are hearing. 

We are hearing different things from industry sources. We are 

hearing different things from sort of the large consulting firms that 

go out and interview different—you know, do surveys of employers, 

the sort of stuff that was being referred to before, those sorts of 

things. 

The bottom line is we really will not know for sure until the IRS 

tells us who actually, you know, was filing and was going forward 

with the HSA, but, like I said, in terms of this what we have seen 

before and other things that are using the Tax Code through either 

credit or deductibility, you do not want to judge too quickly. There 

is a learning curve there. There is a start up time. 

As to the discussion of IRAs and Roth IRAs, those sorts of things 

can really take off, but I am going to bet that both those you did 

not see much in the first year.

Chairman MANZULLO. That is my second question. As I stated 

when I introduced Mr. Shalek, we pass the laws, and then I call 

him to ask what the laws mean and how they are working. 

There appears to be a lot of confusion as to what options are 

open for what individuals, especially with the HSAs. I would like 

some discussion as to how we can overcome that, what is the best 

way to do that. 

Mr. Shalek?

Mr. SHALEK. Well, one of the things is a lot of the banks, especially where I live, there is not a bank in the area that is offering 

HSA accounts right now. My own bank that I own stock in, I am 

meeting with them next week to explain what an HSA is and how 

they can participate. 

There are some great programs, but people are not getting the 

word out. It is a big problem. People do not understand them yet. 

It is new. It is going to take a little time.

Chairman MANZULLO. Ms. Kerrigan, do you have a comment 

here?

Ms. KERRIGAN. I agree. I mean, there is lag time on this issue. 

The legislation was only signed into law last year. You know, the 

regulatory agencies and the IRS had to develop their regulations, 

which took another few months. Certainly there is this lag time. 

You see the early adopters right now who are out there who are 

getting this product. Then of course you have enrollment periods 

and all those other things. Certainly you are going to have the 

larger companies that may respond more affirmatively in terms of 

looking at this because they have HR departments whose job it is 

to go look for this type of stuff where small business owners do not. 

I find in talking with my members and doing interviews there is 

tremendous interest on this issue. I also run the HSA Coalition. 

Our website is hsainsider.com. I know we have had to upgrade our 

21

server and our technology several times because we are getting 

close to 5,000,000 to 8,000,000 visits per month on that website. 

There is a lot of interest out there. You know, as I said, I just 

think it takes time for this to penetrate into the marketplace, you 

know, whether it is the people selling them, the insurance companies developing products, the banks, et cetera, all the players. The 

structure is still coming together.

Chairman MANZULLO. Mr. Shalek, you had mentioned it. Are 

most of your small business people now are in HSAs?

Mr. SHALEK. Some of them are looking at it for the first time. 

A lot of them have gone to health reimbursement accounts, and I 

am planning in the future to switch over to HSAs because they did 

not understand it, and at that time there was not enough institutions offering an HSA account.

Chairman MANZULLO. Okay.

Mr. SHALEK. They are going to high deductible plans and doing 

a health reimbursement right now, but I would say in the next 

year or two I would say probably 70 to 80 percent of our businesses 

will be switching over to HSAs.

Chairman MANZULLO. Are any people in HSAs now who before 

that could not afford insurance?

Mr. SHALEK. Yes, quite a few. Well, my own son. He could not 

afford the insurance for his kids.

Chairman MANZULLO. Your testimony. Okay.

Ms. KERRIGAN. Yes. Chairman Manzullo, as I mentioned in my 

testimony, 30 percent of the buyers are the previously uninsured, 

and 16 percent of the new small business purchasers are those who 

previously did not offer insurance. 

I think clearly this is having an impact on the target group who 

we want to hit, which is uninsured people.

Chairman MANZULLO. Okay. Thank you. 

Mrs. Velazquez?

Ms. VELAZQUEZ. Thank you. Mr. Chairman, I would allow the 

other Members to make questions now. When they finish, I will 

come back and make more.

Chairman MANZULLO. Congressman Lipinski, do you have any 

questions?

Mr. LIPINSKI. Thank you, Mr. Chairman. I have a couple different questions. 

I want to be in favor of HSAs. My concern is this. I mentioned 

before I am a diabetic. I know that I am going to have health care 

costs. There is no question about that. 

22

Mr. Roberts had talked about there being an adverse selection 

problem right now in that only those people who do have problems 

or know they are going to have problems are purchasing health insurance. 

It seems to me that what HSAs are doing is making it even 

worse in terms of being an adverse selection problem. I see that if 

HSAs—you know, it is a great idea if it is going to help those who 

do not have any insurance. It is better than having no insurance, 

but I am looking at say HSAs becoming very popular 10 or 20 

years down the line. 

I know that I need to have regular health insurance. An HSA is 

not going to help me a whole lot. I am going to be left with an insurance pool talking about regular insurance, insurance we normally think of today. I am going to be in that pool with other people who are just like me who have some kind of chronic condition 

that they know they are going to need this coverage for. My insurance premiums are just going to be incredibly high because those 

are the people in that pool. 

Now, I am just wondering what any of you would argue or put 

forward to allay that concern, or is that just where this is going 

to go?

Mr. O’GRADY. In the spirit of full disclosure, I am a diabetic too. 

To allay your fears, I would point to research, not a theory. 

What we have seen, the precursor to this, was what we referred 

to a little before, what I kind of think of as consumer directed 

health care. So it was, but the difference here is now the individual 

holds the account, and he can roll it over from employer to employer. 

It used to be there were a number of employers who did it in a 

situation where the employer held the account. If you left, you 

could not take it with you. Now, what they found, and there are 

a number of them that are in the Midwest. A number of them have 

tried this, some of the larger employers, but it was in Minnesota. 

Part of what they found there is there is a couple things they 

did. They in effect carved out certain preventive benefits just like 

you are talking about. You need your testing. You need these sorts 

of things. These are things that made good health care sense and 

also make bottom line sense. 

You do not want your diabetes getting out of control. They will 

cost you 10 times as much as if you keep them in tight control. 

There is no doubt about that. That evidence is in. 

They would carve out certain benefits so that you did not face 

the full deductible for preventive benefits. We certainly are pushing 

very heavily at HHS on smoking and any number of different 

things to try and get preventive benefits out there to make sure 

people do it. 

Now, the other thing, in terms of the data that they found. First 

year data coming in showed very much the pattern you were talking about. Who are the folks who signed up? There were folks who 

did not expect much health care that their premiums were the vast 

majority of the health care spending in any particular year, and it 

went that way. 

23

In year two and three what they found, and to stay on this coincidence, it happened to be the diabetics, is that folks who knew 

that they were going to have even under very comprehensive care 

going to have a fair amount of out-of-pocket expenses—they were 

going to be paying deductibles, they were going to be paying co-insurance—they could use the account, in this case because it was 

Minnesota, to go to the Mayo Clinic. 

So you started to see the mix of people who were interested in 

this new design move away from sort of what I think everybody’s 

least concern was, that it would be dividing up the current pool 

and that all of a sudden you are talking about, you know, when you 

talk about what would people really like to do with their insurance 

and how would they like to mix this somewhat more traditional 

coverage with the availability of an account. What you found is 

people with chronic illness started to see some real advantages to 

this. 

Now, did that mean that the premiums in the group that chose 

the kind of pre-HSA version, did it go up some? Yes, because those 

folks had higher average spending than, you know, the 22-year-olds 

who never cleared their deductible. 

In terms of when you think about these things and when you 

think about the options, I do not think we can assume a kind of 

default assumption that this is going to just bifurcate in terms of 

sick high cost people versus low cost people.

Mr. LIPINSKI.I would like to get a hold of what you are talking 

about and take a look at that. 

One quick question for Ms. Kerrigan. Do you have any concern 

if we allow people to buy health plans in any state that essentially 

it is a race to the bottom of the state with the lowest regulations 

is going to be where everyone then is going to go to? Any concerns 

about that?

Ms. KERRIGAN. Well, I do not. I think right now when you look 

at various states there already is a race to the bottom, unfortunately. I mean, you do have probably the individuals in most need 

and those in the middle to low income bracket who cannot afford 

insurance. 

I think the states will respond in terms of, from a competitive 

perspective in terms of looking at, you know, the types of mandates 

that they are requiring and seeing if what they are doing in terms 

of driving up the cost of insurance and whether those are really 

needed. 

People need different types of insurance coverage, and I think 

the market will respond in that way as well, so I really do not have 

a concern that it will be a race to the bottom. 

I look at it more as the opportunity of people who do not have 

insurance in some states, who cannot afford it, you know, to actually escape and go to another state and buy something that best 

meets their personal and their financial needs.

Chairman MANZULLO. Thank you. 

Mr. King?

24

Mr. LIPINSKI. Thank you.

Mr. KING. Thank you, Mr. Chairman. 

First I would like to thank Mr. Roberts for bringing this home 

to a family perspective. That helps everything else make sense here 

in the testimony. 

I would then direct my question to Mr. O’Grady. The thought occurs to me that if we could pass Mr. Lipinski’s bill and my bill we 

would end up with a deductible situation for employees purchasing 

their own health care plans. 

Under those circumstances we still, by my estimation of this federal policy, do not allow necessarily for a small employer who has 

two or three or a small number of employees with a tiny, little 

budget struggling against big corporations to enter into an agreement with an employee to purchase an individual health care policy, as opposed to a group. 

Is that correct? If so, do you have a recommendation by which 

we might address that situation? I happen to know that small employers searching to purchase group plans on the market are at a 

real disadvantage regardless of association health care plans.

Mr. O’GRADY. I think there still is a rub there—there is no doubt 

about it—in terms of because it would be treated as income to the 

employee. 

You know, it would not be an in-kind benefit and therefore deductible. It would be treated as a cash benefit and therefore taxable. It would still be deductible to the employer, but not to the employee. It would be an after tax sort of a situation. 

Now, part of what in terms of the Administration’s thinking in 

terms of how we do this and how do we make these different parts 

fit together, that is to return to this notion to allow states who 

want to be able to set up state pooling arrangements. 

Could you have something where you have various funds? We 

have these different disparate programs. We have some kids being 

covered by Medicaid. We have some kids covered by SCHIP. We 

have parents who have certain tax advantages either through their 

employer or on their own. 

Some of the things that our experience has been over the last few 

years with allowing states to be fairly innovative in the waivers 

that they have had for these different programs, is there some way 

you can basically take and pool that money coming from employers, 

coming from the state through either SCHIP or Medicaid or whatever and be able to fairly significantly subsidize the purchase of 

family coverage, and so you also do not have this sort of ridiculous 

situation where we have four members of a family and this kid is 

covered by one program and this kid is covered by another and 

mom is uninsured and dad gets it as a single coverage through his 

employer maybe. 

You know, we have all this sort of hodgepodge, and so part of the 

thought there is how do you stay flexible enough that you can pool 

this money and really have something that is going to be able to 

offset 50, 60, 70 percent of the price of a premium? 

Now, that at this point is the best I can think of to start to dovetail with your concerns. Could you set up a structure so that the 

25

employer could make some sort of a contribution, but it would be 

viewed in the traditional way that employers are currently contributing towards the purchase of health care.

Mr. KING. And that might be a way to address the rub because, 

as I understand it currently, if an employer seeks to purchase 

health insurance for an individual employee they must seek that 

same level of policy for all employees whatsoever. Is that correct?

Mr. O’GRADY. I believe so, but I would like to double check. If 

I find out it is not, I will get back to you.

Mr. KING. Mr. Shalek?

Mr. SHALEK. A lot of groups now are offering multiple plans 

within the group or the employer. A lot of groups now are offering 

multiple plans within the employer’s group lease for the employees. 

They have a choice of buying up to a higher benefit plan or 

spending less money for a higher deductible, but they are all group 

plans. Yes.

Mr. KING. Thank you. 

Thank you, Mr. Chairman.

Chairman MANZULLO. Thank you. 

Congresswoman Moore?

Ms. MOORE. Thank you so much, Mr. Chairman. 

If I ask a question that has already been addressed, please forgive me. I had another meeting out in the hall. 

I guess my questions are directed to the panel, but most particularly the Honorable Michael O’Grady. Just really listening to your 

testimony, there were a couple of things that caught my interest 

and I am hoping that you will be able to respond. 

First as it relates to the association health plans, I was really 

very, very happy to see that this Administration has gone on to address a lot of the concerns and complaints that have been made 

about the coverage to take out some of the biases and some of the 

concerns that we had to address solvency issues, state regulation, 

consumer protections, national oversight, because I do think that 

there could be a tremendous benefit from the association health 

plans. 

However, what I am concerned about is this not meeting state 

mandates. As a person with a background from the state legislature, I can tell you that I have had to fight insurers about including in their plans things like mammograms, contraception, tubal 

ligations. 

I guess what I am thinking is that the economy of scale—say, for 

example, restaurant workers, many of whom would be women. The 

economies of scale would enable us to insure this association of employees, so what really could be the harm in meeting the state 

standards? 

As Mr. Lipinski suggested, you know, what you guys see, it 

would be fitting to have some sort of standard as opposed to a race 

26

to the bottom. You know, women need mammograms. It is amazing 

that we had to fight to get that in. 

You know, we had to fight for that as a covered benefit, and that 

is the one reservation and concern that I have about those health 

plans.

Mr. O’GRADY. I think that in terms of when we look at the kind 

of situation we have with both the uninsured, the underinsured 

and how different generosity of different plans go, certainly what 

we have seen in different states, and different states have handled 

mandated benefits in different ways. You certainly can see there 

are some examples that have gone to an extreme in terms of various things that they have asked to go on there. 

To a certain degree, when you think about where you mandate 

are you right that in terms of if you take some benefit and you 

spread it over 100,000 people or whatever you are going to bring 

down the unit cost of that. There is no doubt about it. 

Will you get it at 60 percent of what it would cost you if you tried 

to purchase it for one individual? Sure. All those different benefits 

are definitely adding up and so it has in effect a zero sum gain that 

there is a certain amount there. 

Some of the states have. Some of the states have done it, and 

certainly we have seen it with some of the larger employers who 

are self-insured. Would you rather offer something not as generous, 

but offer it to more people? 

That is certainly a kind of state for the most part that is decided 

certainly in terms of Medicaid and SCHIP waivers and some of 

that.

Ms. MOORE. Can I ask another question because my time is expiring?

Mr. O’GRADY. Sure.

Ms. MOORE. I am very concerned. I saw that you had a refund- able tax credit for individuals up to $3,000. Is that just for their 

premiums, or is that for their health care? 

I am having a hard time understanding how very, very low in- come people with incomes under $25,000 are going to benefit from 

tax credits even with the refundable proposal.

Mr. O’GRADY. Well, it certainly is in terms of—they are going to 

get the credit even if they pay no taxes whatsoever, so it will be 

like the earned income tax credit in that sense.

Ms. MOORE. Right.

Mr. O’GRADY. The fact that they may be a $10,000 a year worker 

or something like that; they will still get the credit. 

Let me double check on that in terms of premium versus because 

there are other options there that have to do with could you put 

part of it in. Certainly we have that part of this could go into your 

health savings account. Would you be able to cash it out directly? 

I do not believe so if you had just straight out-of-pocket. 

27

Could you do it through a health savings account so some of your 

money is going towards the premium and the rest of it can go towards the account so you can use that to pay deductibles and cosharing? Yes, but there are some limits there.

Chairman MANZULLO. We are going to have to recess here. 

You two ladies wanted to have questions?

Ms. BORDALLO. Real quick questions.

Chairman MANZULLO. That is right. You do not have to vote. 

They took away your vote.

Ms. BORDALLO. That is right.

Chairman MANZULLO. All right. Both of you do not have to vote 

here.

Ms. BORDALLO. Mr. Chairman, I just want a clarification very 

quickly if I could.

Chairman MANZULLO. If you want, we can come back. How are 

you on time? 

Dr. O’Grady, you could be excused because of your schedule. 

Absolutely I am willing to come back. I just want to know because you are a physician, and you have lots of questions.

Ms. BORDALLO. I do not have a lot of questions.

Chairman MANZULLO. We will be back in about 25 minutes. Is 

that okay with the rest of the panelists? Okay. All right. We will 

recess until then. Is that okay?

Ms. BORDALLO. How long will that be? When should we be back?

Chairman MANZULLO. About 25 minutes. Thank you.

Ms. BORDALLO. Very good. 

[Whereupon, a short recess was taken.]

Chairman MANZULLO. Okay. We will resume. 

Mr. Haynes, you had a response to Congresswoman Moore’s 

question on mammograms and state mandates, I believe.

Mr. HAYNES. Yes, I did. I am sorry Congresswoman Moore is not 

here.

Chairman MANZULLO. That is okay.

Mr. HAYNES. The question she asked is one that I have asked, 

because as I understood her question it was essentially once you 

facilitate association health plans why can association health plans 

not go ahead and comply with the state mandates? 

28

I have a plan, and I am trying to get it expanded to cover the 

smaller bottlers. The carriers are saying the mandates are the obstacle. I think the problem is, you know, I have about 10,000 employees, somewhere between 5,000 and 10,000 employees that I 

think could benefit from me restoring a small group plan. I may 

have 25 employees in Illinois and 400 in Iowa and 200 in Minnesota and 15 in New York. I mean, among those I am probably 

in about 40 some odd states. 

The carriers have said in essence, you know, if you had 5,000 

employees in each state it would make sense, but to do it for 30 

or 40 or 20 or some small number of people in 40 different states, 

the complexity and the administration is just too much for us to 

be interested in doing. 

I keep testing that answer, but that is the answer I keep getting.

Chairman MANZULLO. Congresswoman Bordallo?

Ms. BORDALLO. Thank you very much, Mr. Chairman, and I want 

to thank the principals who testified here. Thank you very much 

for your time. 

I also want to commend the Chairman, Mr. Manzullo, and our 

Ranking Member Velazquez for their leadership in reaching across 

the aisle to look for bipartisan solutions to these concerns. 

Mr. Chairman, Assistant Secretary O’Grady left. Is that correct? 

I do not know if anybody can answer this question, but I want to 

go on record to ask it. 

There has been a great deal of discussion this afternoon about 

the state high risk pools, and I think it is a move in the right direction. However, the original state high risk authorization did not include my district of Guam, nor did it include any other territories, 

and seated right next to me is the congresswoman from the Virgin 

Islands. 

In putting political capital behind us, can I assume that the Administration would support authorizing grant funding to the U.S. 

territories? It is very important, and it has been mentioned several 

times here this afternoon, just mentions of states, never territories. 

Now, the Senate—I understand in the 107th, Mr. Chairman, this 

was authorized, but we were not included.

Chairman MANZULLO. If you would like to reduce that question 

to writing, we will attach a cover letter to it, Congresswoman 

Velazquez and I—

Ms. BORDALLO. All right.

Chairman MANZULLO. —and get that over to the Department of 

Health and Human Services. 

Is that okay with you, Congresswoman Velazquez, to certify her 

question?

Ms. VELAZQUEZ. Yes.

29

Ms. BORDALLO. I would also like to ask the two of you. I think 

the Senate, it has gone through their reauthorization. I do not 

know whether we are included in that.

Chairman MANZULLO. Okay.

Ms. BORDALLO. That will be another question I will place in the 

letter.

Chairman MANZULLO. Okay. We would be glad to do that.

Ms. BORDALLO. All right. That is my big question. I am just very 

concerned because many times the territories are forgotten. Thank 

you very much.

Chairman MANZULLO. Dr. Christensen?

Ms. CHRISTENSEN. Thank you, and I thank you, Mr. Chairman 

and Ranking Member, for allowing the hearing to continue. It is a 

very important hearing, and I always welcome the opportunity because this is sometimes the only opportunity I have to talk about 

healthcare issues. 

I come from the perspective of the chair of the Health Braintrust 

of the Congressional Black Caucus, that is interested in insuring 

that everyone has access to health care and access to health care 

coverage, so I just want to set that as a background. 

One of the main reasons and perhaps the only reason that AHPs 

have not passed in three tries is the fact that all of the proposals 

eliminate state regulation. If the main aim is to cover small business employees without undermining benefits and coverage or even 

risk doing so, why can we not look at other ways? Why does it have 

to be association health plans? 

We have tried on three occasions. It has passed the House, but 

I do not think it is going to pass even in this Congress with the 

majority that we have. Why do we not instead look at the states, 

pooling with the state insurance coverage or other ways of pooling 

so we accomplish the same thing and probably accomplish more because it does not appear that the association health plans are going 

to be successful in passing through Congress. 

You seem puzzled, so let me just go to the quote from one of the 

agencies, the Center for Studying Health Care System Change. The 

option of allowing small firms to join existing state employee pools 

may offer the best choice because it offers stability, simplicity and 

affordability, and I am quoting across. I am not quoting the entire 

statement. It offers a choice of plans, competitive low load rates 

that are rarely possible for small firms, and it allows them to stay 

under state regulations. 

Now, what is wrong with doing it by allowing the small businesses to join existing state employee pools instead of fighting the 

AHP battle year after year, Congress after Congress?

Chairman MANZULLO. Anybody want to? Scott?

30

Mr. SHALEK. One of the things I have seen in Illinois is that, and 

we have bills proposed to do that, but the problem in Illinois is the 

state cannot manage its own health insurance program adequately 

enough to save small businesses money. 

I think the only advantage to an AHP is the exemption from the 

state mandates, which will then erode the private market sector on 

health insurance. About the only thing that could be done to make 

everything on an even playing field is for Congress to preempt employers from state mandates.

Ms. CHRISTENSEN. Well, what if we were able to provide some assistance? Some on the opponent side of AHPs say labor really is not 

able to regulate either, but if some assistance could be provided 

from the federal level to the states, because this is such an important issue, to better manage their state employee pools we would 

get over a hurdle that seems to be impeding passage of anything 

to help small businesses.

Ms. KERRIGAN. If I could just address this? I could think about 

it a little further and maybe provide a more thoughtful response 

in writing, but I do know if you are talking about AHPs from a national perspective what you are bringing to the table is a larger 

pool of employees that you would be able to better leverage in negotiating more affordable health care costs. 

I think the power of numbers in terms of being able to negotiate 

these costs through the national model where you have organizations that have national memberships is, you know, one of the driving forces; that you have larger numbers of people that you can 

then use in the marketplace and negotiate for better plans and 

more affordable health insurance options for your members. 

I mean, that is just something that comes to my mind. I know 

there are pooling arrangements at the state level. Some have 

worked. Some have not for reasons described by my fellow witness, 

but the power of numbers do help in this regard.

Mr. HAYNES. Could I respond a little bit further too? On the 

mandate issue, I think it is important, and I know the Committee 

realizes this, but this is not a question of whether to preempt mandates or not because that has already been done with respect to 

large employers and unions. The question is whether you should 

put small business on the same footing through bona fide associations as large employers. 

I think the second thing that is important is just to reiterate her 

point. The administrative cost piece of this; really the size and 

scale, makes a very significant difference. Our program that we 

have, which is not as big as we want it to be because we would 

like to include the small bottlers, already has administrative costs 

in the six to seven percent range. 

It is my understanding that on a nationwide basis small groups 

that rely on commercial markets pay administrative costs that run 

between 17 and 30 percent. That additional cost, that administrative cost, to me is one of the real key leverage points of AHP legislation. 

31

I think in our situation there is dramatic evidence that it does 

work. I know there are a number of other AHPs that have shown 

that they likewise can drive those administrative costs down, which 

drives down the cost not only to the employers, but the employees, 

and frankly help solve in many cases an uninsured problem. In our 

case, as our bottlers dropped out of the small group, in many cases 

the ultimate result has been uninsured; not just higher costs, but 

a significant increase in the number of people who were uninsured.

Chairman MANZULLO. I have a question. Mr. Haynes, when you 

said that the smaller guys had to drop out of the AHPs, my understanding is that with the pending legislation which passed the 

House, I think three times that if you had 1,000 people in one shop 

and two in the other shop that you would end up with a group rating so that everybody is considered to be essentially working for 

the same employer. 

Is that a correct assessment of it?

Mr. HAYNES. Yes. That is my understanding of how it works, and 

that is how our program worked before.

Chairman MANZULLO. But what happened with the little guys? 

How could they be rated individually and still be part of an AHP?

Mr. HAYNES. Well, in our small group program we had them 

rated as a pool, okay, and when they dropped out they ended up 

having to go out to the commercial market and buy based upon 

whatever rating was—

Chairman MANZULLO. So the pool was not big enough?

Mr. HAYNES. Correct.

Chairman MANZULLO. Okay. Okay. 

Congresswoman Velazquez?

Ms. VELAZQUEZ. Thank you. 

Mr. Haynes, we keep hearing that if association health plans are 

passed, businesses will drop benefits, and it will be a race to the 

bottom with only bare-bones plans. 

What would you say to those people who claim that you only 

want association health plans so that you can cut benefits?

Mr. HAYNES. Well, the plan we have involves, you know, a set 

of benefits that I would stack up against any large employer plan. 

The reality is that anything we do with our bottlers has to be 

competitive. Our bottlers themselves have to be competitive in the 

marketplace, and to some extent they have to be competitive with 

big bottlers because there is a market where they compete for employees, and they also compete to continue to exist because a lot 

of the larger bottlers have bought out the smaller bottlers. If they 

cannot operate as efficiently, their best option is to sell out. 

I think a bare-bones plan, A, if we offered it would not be competitive, and, B, if it was the option that our members chose it likeVerDate 0ct 09 2002 18:11 Oct 28, 2005 Jkt 000000 PO 00000 Frm 00035 Fmt 6633 Sfmt 6633 G:\HEARINGS\21251.TXT MIKE
32

wise would not be competitive. What has happened is they have 

gone into the commercial market and the costs have gone up. They 

have resorted to more bare-bones plans to manage those costs. 

The reality is that as we explored what some of these people who 

dropped out of our plan have done, many of them have increased 

deductibles, cut coverages and made the program sufficiently unattractive to the employees, particularly younger employees that a 

large percentage of them are now going uninsured.

Ms. VELAZQUEZ. If it is good for big business, it should be good 

for small businesses, or if it is good for unions, it should be good 

for small businesses. 

Mr. Haynes, I know that you talk about how through your association health plans that you were able to keep health care costs 

down for your businesses, reducing the administrative cost and increasing your bargaining power. 

I would also like to know, what do you think about association 

health plans? What would be the effect of the association health 

plan in terms of insurance markets in the states?

Mr. HAYNES. It is simply more competition. Frankly, I think that 

is a good thing for everybody.

Ms. VELAZQUEZ. Do you think it will force insurance companies, 

many of them states where they have a monopoly on the market, 

to start negotiating rates with small businesses?

Mr. HAYNES. Absolutely. We have real world experience with 

that in other insurance markets where we write commercial liability insurance. As we have gotten into additional lines, it has created a lot of additional competition for commercial insurance. It 

has driven those costs down very quickly and very dramatically. 

There is every reason to believe that is exactly what would happen in AHPs, both in our case and with other AHPs.

Ms. VELAZQUEZ. What would you say to the fact that a month before the Presidential election, the White House announced that 

they wanted to add more groups into the association health plan 

legislation, but not small businesses? 

Do you think adding civic groups and other groups into the association health plans will help, or how difficult would it make it to 

pass?

Mr. HAYNES. That is maybe not a question I am most qualified 

to answer because it deals with Washington, and that is not what 

I do day-to-day.

Ms. VELAZQUEZ. But have you been consulted as a person who 

is an advocate for association health plans?

Mr. HAYNES. Not personally, but it could well be that other members of our coalition have been part of that discussion. I certainly 

will follow up on it myself.

33

Ms. VELAZQUEZ. But do you see the logic? The association health 

plan’s main focus is to help small businesses, so I do not know 

what kind of benefit small businesses will have by adding civic 

groups and other groups into the association health plans.

Mr. HAYNES. It is not entirely clear to me either, but I would 

have to say I cannot offer an opinion on that without studying it 

a little bit further.

Ms. VELAZQUEZ. Thank you, Mr. Chairman.

Chairman MANZULLO. Did you have a concluding question, Dr. 

Christensen?

Ms. CHRISTENSEN. A concluding question? Oh, my goodness. 

Okay. 

I just wanted to point out before I asked the question that several respected research organizations, nonpartisan ones—Urban Institute, Mercer Consulting, Lewin Group—and the Congressional 

Budget Office have concluded that AHPs will cause premiums to 

increase for most small firms while doing nothing to help the uninsured. As a matter of fact, our own Congressional Budget Office 

found that 75 percent of small employers would see their premiums 

increase under AHPs. 

I have a couple of questions. Let me see which one I want to ask. 

Let me ask a question about the HSAs. As I read about HSAs, to 

me they give just a semblance of coverage. I do not see where they 

really improve coverage because the process sets aside funding because of the high deductibles. People would naturally reduce utilization of health services because of the high deductible and what 

they have to pay. 

What appears that would happen under health savings accounts 

is that people would reduce the utilization of needed services and 

end up having to go to services sicker, thus continuing to increase 

the cost of health care. 

As I look at what has been developing, if I am reading this correctly, with HSAs, now realizing that those high deductibles make 

it very difficult for persons to access health care, and I hope, Mr. 

Shalek, that your son and children stay healthy. I do not know 

what their deductible is, but the high deductibles are unaffordable 

to many people and so now there are gap coverages that cover the 

deductible. 

HSAs were so great that the premiums were lowered, but now 

we have to come up with a second insurance to cover the high 

deductibles; the gap coverage. Does that not just put us back in the 

same place?

Mr. SHALEK. Not necessarily. What we are finding is consumers 

are becoming more educated in the actual cost and benefits of 

health care. People that have run to the doctors because they saw 

ads on TV for these prescription drugs that cost $150 are now, if 

they need it, looking at alternatives such as generics that might 

only cost them $10. 

34

They are becoming more informed and educated on their own 

health care. They are asking questions of doctors. Why do I need 

this MRI? Would an x-ray not cover it? So it is educating the public 

right now, number one, and if you compute the cost of a traditional 

health care plan to the cost of an HSA and put the money away 

into a savings account, even if you had claims, your cost comes out 

less.

Ms. CHRISTENSEN. Beyond that the way it is set up. Older, poorer, sicker individuals who either do not make enough to benefit 

from the tax incentives or cannot afford the high out-of-pocket costs 

will remain in a traditional low deductible insurance plans, and 

both AHPs and HSAs as I see it will appear to me to be proposals 

that drive up the cost of health care. 

For those sicker people, the people that, I as Chair of the Health 

Braintrust, advocate on behalf of, in the final analysis, unless everyone has access to quality health care, the solutions that may 

seem like quick solutions that are before us today will probably 

just make the situation worse in the long run for everyone.

Chairman MANZULLO. Will the gentlelady yield for a question?

Ms. CHRISTENSEN. Sure.

Chairman MANZULLO. Dr. Christensen, is it your concern that 

when people set up the HSAs if their income is modest that they 

will not have enough money to put into the plan in the first place 

and to use those dollars to take them up to the deductible?

Ms. CHRISTENSEN. Some. You know, the fact is you have low premiums, but if you get sick some will find themselves unable to 

meet the deductible. Others, because it is their health savings account, they will try to save money by not going to the doctor. 

To me that is just human behavior. They will get to the doctor. 

Some will not be able to benefit from the tax deductibles either.

Chairman MANZULLO. Okay. Were you done with your questions?

Ms. CHRISTENSEN. Pretty much, I guess.

Chairman MANZULLO. Go ahead.

Ms. CHRISTENSEN. Well, I have one other question about the barriers that the states put up, and I guess I would go to Mr. Haynes?

Mr. HAYNES. Yes.

Ms. CHRISTENSEN. Yes, but anyone could answer. Several of the 

testimonies, and I know I was not here for most of them, but I really tried to read them last night and this morning. State protections 

impede the ability to offer coverage to the members. 

What are some of the state protections that you think are problematic besides the benefit mandates? I do not think we should 

lower the quality of services that people are eligible for. 

35

Do you support allowing AHPs to be exempt from state rating 

laws that limit how much insurers can raise rates when an employee gets sick or that they be exempt from state external review 

laws? What are some of the areas where you feel that the state 

protections impede the ability to offer coverage to members?

Mr. HAYNES. If I could respond to that, I do not know if it is specific forms of state regulations. It is the complexity associated with 

all the variations that I think are the core of the problem. One 

state wants you to do it one way. Another state wants you to do 

it another way. It is the complexity that it has caused. 

I think what the AHP legislation tries to do is let us have a uniform set of regulations administered by the Department of Labor 

that deals with some of the issues that you mentioned, Dr. 

Christensen, but does it in a way that makes it administratively 

feasible and possible for an AHP to exist across a number of different states. 

As I see it, that is what the legislation is seeking to do, not specifically to, you know, eliminate specific regulations that might 

exist at the state or specific mandates. 

The point that I would make relative to mandates is, as I said, 

the complexity of dealing with all the different state mandates is 

what I am told is the barrier to us doing a multi-state pool program the way we used to. I think there are some state regulations 

that eliminate the possibilities of doing self-funded programs, selfinsured programs, which I think are a very important asset that 

association plans need in order to create more competition. 

The reality is that what is happening, as I said, is some of these 

small bottlers and their employees simply have no coverage, so as 

opposed to the system that we are proposing where there would be 

more people with coverage, that there might be some specific coverage mandates that would not be applicable and some specific coverages, we at least have people insured who are not currently insured. I think that is a benefit. 

Beyond that, our particular program that we have with the larger employers does comply with all mandates, so everybody in our 

existing program, you know, all those mandates are being complied 

with.

Chairman MANZULLO. We appreciate your coming here. I want to 

go out and get a can of Coke. There you are. 

Thank you so much for your patience and coming back after our 

vote and continuing to research, continuing to try to find a way, as 

Congresswoman Velazquez says, to get both houses to agree on 

some major reforms. Thank you for your participation. 

The hearing is adjourned. 

[Whereupon, at 4:33 p.m. the Committee was adjourned.]

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