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79–638 2002

SMALL BUSINESS ACCESS TO HEALTH CARE

FIELD HEARING

BEFORE THE

COMMITTEE ON SMALL BUSINESS 

HOUSE OF REPRESENTATIVES

ONE HUNDRED SEVENTH CONGRESS

SECOND SESSION

ROCKFORD, IL, APRIL 4, 2002

Serial No. 107–51

Printed for the use of the Committee on Small Business

(

(II)

COMMITTEE ON SMALL BUSINESS 

DONALD MANZULLO, Illinois, Chairman 

LARRY COMBEST, Texas 

JOEL HEFLEY, Colorado 

ROSCOE G. BARTLETT, Maryland 

FRANK A. LOBIONDO, New Jersey 

SUE W. KELLY, New York 

STEVE CHABOT, Ohio 

PATRICK J. TOOMEY, Pennsylvania 

JIM DEMINT, South Carolina 

JOHN R. THUNE, South Dakota 

MICHAEL PENCE, Indiana 

MIKE FERGUSON, New Jersey 

DARRELL E. ISSA, California 

SAM GRAVES, Missouri 

EDWARD L. SCHROCK, Virginia 

FELIX J. GRUCCI, JR., New York 

TODD W. AKIN, Missouri 

SHELLEY MOORE CAPITO, West Virginia 

BILL SHUSTER, Pennsylvania 

NYDIA M. VELAZQUEZ, New York 

JUANITA MILLENDER-MCDONALD, 

California 

DANNY K. DAVIS, Illinois 

BILL PASCRELL, JR., New Jersey 

DONNA M. CHRISTENSEN, Virgin Islands 

ROBERT A. BRADY, Pennsylvania 

TOM UDALL, New Mexico 

STEPHANIE TUBBS JONES, Ohio 

CHARLES A. GONZALEZ, Texas 

DAVID D. PHELPS, Illinois 

GRACE F. NAPOLITANO, California 

BRIAN BAIRD, Washington 

MARK UDALL, Colorado 

JAMES R. LANGEVIN, Rhode Island 

MIKE ROSS, Arkansas 

BRAD CARSON, Oklahoma 

ANIBAL ACEVEDO-VILA, Puerto Rico 

DOUG THOMAS, Staff Director 

PHIL ESKELAND, Deputy Staff Director 

MICHAEL DAY, Minority Staff Director 

(III)

C O N T E N T S 

Page 

Hearing held on April 4, 2002 ................................................................................ 1

WITNESSES 

Holoka, Mike, Attorney at Law, Rockford, Illinois ............................................... 5

Kobler, Bill, OSF Medical Group, Rockford, Illinois ............................................. 7

Bartmann, Phillip, Owner & President, Radicom, Inc., McHenry, Illinois ......... 9

Brauns, Ryan, Senior V.P. of Consulting, Rockford Consulting and Brokerage 10

McCarty, Mick, Blue Cross/Blue Shield of Illinois ................................................ 13

Levin, Ryan, V.P. of Product Development & Risk Management, Destiny 

Health Insurance ................................................................................................. 25

Jensen, Amy, Director, Federal Public Policy, National Federation of Independent Businesses .............................................................................................. 28

Reljic, Boro, Vice President of Government Affairs, Illinois Manufacturers’

Association ............................................................................................................ 30

Woodbury, Vondie, Director, Muskegon Community Health Project .................. 31

Lund, Johanna, Chairwoman, Rockford Health Council ...................................... 34

APPENDIX 

Opening statements: 

Manzullo, Hon. Donald .................................................................................... 46

Prepared statements: 

Holoka, Mike ..................................................................................................... 47

Kobler, Bill ........................................................................................................ 48

Bartmann, Phillip ............................................................................................. 50

Brauns, Ryan .................................................................................................... 56

McCarty, Mick .................................................................................................. 64

Levin, Ryan ....................................................................................................... 67

Jensen, Amy ...................................................................................................... 78

Reljic, Boro ........................................................................................................ 86

Woodbury, Vondie ............................................................................................. 89

Lund, Johanna .................................................................................................. 92

Additional Information: 

Submission by Joesph Hagenbruch, DMD ..................................................... 96

(1)

FIELD HEARING ON SMALL BUSINESS 

ACCESS TO HEALTH CARE 

THURSDAY, APRIL 4, 2002 

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

The committee met, pursuant to call, at 10:00 a.m., at Rock Valley College, Technology Center, Room 117, 3301 N. Mulford Road, 

Rockford, Illinois, Donald A. Manzullo, presiding. 

Chairman MANZULLO. I am going to call this Small Business 

Committee to order. 

As people find their way into the room here, let me just give the 

order of procedure on it. We do not have the lights here, but we 

would like you to limit your testimony to five minutes, and if you 

see me going like this, you have got about 30 seconds, and if you 

go over too much, then you will hear that. [Laughter.] 

We are having two panels of witnesses. We have got four members of Congress here. I have got to be in Chicago later this afternoon. Everybody has to run, including the witnesses. 

We will be joined shortly by Congressman Kirk, who is on his 

way from the Northfield area. 

Exorbitant health care costs are one of the greatest expenses 

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

provide coverage for their employees. As Congress continues to examine our nation’s health care problems, we need to remember 

that 60 percent of the estimated 43 million uninsured are small 

business owners, their employees and families. 

Small business owners are unable to absorb the spiraling health 

care costs and find themselves priced out of the health insurance 

market. Many owners are faced with the choice of staying in business or providing their employees with insurance. I personally know of a small business owner who pays over $700 a month for himself and his wife and has a $5,000 deductible to 

insure both of them. Both of them are seriously considering selling 

their business, going to work in another business just for the opportunity to receive health care benefits. 

Our current health care system does not provide equal access to 

affordable, quality health insurance for small businesses. One of 

the reasons small businesses cannot afford health coverage for employees is that they are unable to achieve the economies of scale 

and purchasing power of larger corporations and unions. 

Small businesses suffer from unequal treatment. What they want 

most is a level playing field when it comes to the delivery of health 

care. 

2

Large corporations use their purchasing power of thousands of 

employees to offer affordable health insurance to their workers. 

Small business owners, on the other hand, have to find their insurance on an individual basis. It makes it extremely difficult and expensive to find affordable health coverage. 

I cannot help but wonder why insurance companies cannot offer 

affordable health care to small businesses. Why must insurance 

companies charge the most to those least able to pay these inflated 

prices? 

I am heartened to see President Bush issue a plan for helping 

small businesses prosper in our country. The President is aware of 

the health care access and affordability problems facing small businesses, and his plan includes concrete steps to increase health security for employees of small businesses. 

His agenda calls for an association of health plans to be available 

for associations that want to provide health coverage for their 

members, similar to what labor unions are doing. It calls for a permanent extension of medical savings accounts, including a significant reduction of the required deductible for these health accounts. 

Congress needs to insure that there are many different health insurance options for small business owners to utilize. We need to 

help our businesses attract and keep employees, and nothing helps 

more than the ability to provide health insurance. 

I look forward to the testimony of the witnesses here this morning, and I want to particularly thank those that have traveled long 

distances to be with us here today. 

I will then yield to Congressman Jerry Weller, who came up last 

night to be with us this morning. Congressman Weller, do you have 

any opening remarks? 

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

Mr. WELLER. Well, thank you, Mr. Chairman. I have just brief 

remarks. 

First, I want to commend you for conducting this hearing on an 

issue of great importance. You know, 99.7 percent of all employers 

are what we classify as small business, and small business provides over one half the jobs provided for in America. 

So when you look at who has health insurance, who does not 

have health insurance, the vast majority of the 43 million Americans today who do not have health insurance are either the entrepreneurs themselves or the employees and their families of those 

who are involved or work for small business. 

So clearly health care is a major concern for small business. 

That’s why I believe your hearing by your committee today is so 

important. I commend you for your leadership. 

But I also, Mr. Chairman, want to commend Chairman Manzullo 

for your leadership on efforts to expand medical savings accounts, 

efforts to give 100 percent deductibility for the self-employed for 

health insurance cost, to expand the opportunities for nursing 

home or long-term care insurance with full 100 percent deductibility for that, and also commend you for your leadership on establishing an association of health care plans, AHPs, as well as the 

refundable tax credit proposal we’re currently debating in the Congress. 

3

You have been a leader on this effort, and I welcome the opportunity to be part of your hearing today. 

Chairman MANZULLO. Thank you, Congressman Weller. 

Both Congressmen Weller and Ryan are members of the Ways 

and Means Committee, which is the committee that has jurisdiction over about 95 percent of health care issues. Members of the 

Commerce Committee might have said I misquoted on that, but the 

guys that write the checks are the ones that write the law. [Laughter.] 

I would now yield to Congressman Ryan from the State of Wisconsin. 

Mr. RYAN. Wisconsin. 

Chairman MANZULLO. Did I say Mississippi? 

Mr. RYAN. It is a little hilly up there.

First of all, Chairman Manzullo, I would like to thank you for 

inviting me to come down here. For those of you who do not know, 

my name is Paul Ryan. I represent the First Congressional District 

in Wisconsin, which is everything basically above here. 

I have Green County, Rock County, Walworth County, Kenosha 

County and Racine County. That is the area that borders much of 

the Illinois state line, and so this is only about a half hour drive 

from my home town of Janesville. So I really appreciate the invitation. 

Like most of us here, I believe that the current employer-based 

health care system has done a relatively good job of meeting the 

needs of workers and businesses alike. However, this system and 

workers’ and businesses’ budgets have experienced increasing 

strain due to the rising cost of health care coverage. 

And I cannot tell you how many times I have traveled throughout the First Congressional District in Wisconsin where I hear comments from small business owners and local government entities 

who say, ‘‘We wish we could hire more people, but we cannot because the cost of health care is just too great.’’ So at a time when we are trying to get people back to work, now 

that we are presumably coming off of a recession, the cost of health 

insurance is becoming an even greater issue in terms of the issue 

of employment. 

In Southeastern Wisconsin, like in Illinois, we have seen our 

manufacturing base erode, leaving behind many unemployed workers, and what has been the godsend have been small businesses. 

The engine of economic growth in Wisconsin and, I think, much of 

Illinois and throughout the country has been small businesses, and 

that’s why I’ve watched your work at the Small Business Committee. 

I simply want to add my comments to those of Congressman 

Weller in commending you, Chairman Manzullo, for really doing 

the yeoman’s work in growing the advocacy of small businesses in 

Congress. You have really been very out front on small business 

issues, such as deductibility for health insurance, the 100 percent 

deductibility. 

You have really done a lot of great work in that area, but one 

thing that I just wanted to bring to your attention is that the federal government from my perspective can play two crucial roles in 

encouraging the establishment and growth of small businesses and 

4

ensuring that business owners are able to offer their new employees health care benefits. 

First, the federal government can make it easier for entrepreneurs to start new businesses in the first place—and that is the 

work of the Small Business Committee that you have championed—by lowering taxes and reducing the cost of regulation on 

businesses so that entrepreneurs have the resources and the capital they need to sell their ideas and products and build productive 

businesses. 

But the second way the federal government can actually help 

businesses is to lower the cost of health care so that employersponsored insurance is affordable and available. 

In the Ways and Means Committee, where Congressman Weller 

and I work, we have heard a lot of testimony, and we have a lot 

of hearings on this issue. One of the recent testimonies we have received that I thought was fairly interesting was from Dr. Stuart 

Butler, a Ph.D. economist from the Heritage Foundation who recently made some interesting, eye-opening observations. 

The first observation he made was about the high rate of 

uninsurance among employees of small businesses. The Kaiser 

Foundation estimates that only 55 percent of firms with ten or 

fewer employees offered health care insurance. This is compared to 

99 percent of large businesses that offer insurance. He cited Congressional Budget Office data that found overhead costs of providing health insurance for businesses with fewer than ten employees can be over 30 percent of the premium cost, as opposed to just 

12 percent for companies with more than 500 employees. 

He also pointed out that while jobs these days seem to be transferable, health care is not transferable. This is because the tax code 

helps employers pay for insurance, but does little to help individuals who, for one reason or another, are forced to purchase their 

own insurance. 

Basically if you lose your job, you lose your health insurance. 

And that is essentially how it works today. So we often hear this 

in Wisconsin, as I am sure you do here in Illinois, and it is no wonder that, according to the National Federation of Independent Business, 23 percent of small business owners in Wisconsin have experienced a 26 to 50 percent increase in their health care premiums 

in 2001 alone, 26 to 50 percent increase in their health care premiums for small businesses in Wisconsin last year alone. 

So this is an issue that is in dire need of reform. I think you 

have identified some great productive ideas, like association health 

plans which help produce buying pools so small businesses can 

team together to get bulk purchasing rates through ERISA plans. 

I think we have a range of witnesses who probably have different 

perspectives on this issue, but also the President has really taken 

a leadership role in this. He came to Congress and presented a 

budget with a health care refundable tax credit for individuals to 

buy health insurance, to expand the Association Health Plans. 

And so now the time is right for action. Congress is engaged; 

your committee is engaged. And I think we have a President who 

is taking this issue very seriously. So I am very interested in hearing the witnesses today, and I appreciate you having us down here 

for this. 

5

Thank you. 

Chairman MANZULLO. I appreciate your opening statement. 

The Small Business Committee is having a hearing in Washington next week that deals with the Health Care Finance Administration, HCFA. It is Chapter 4 of what we call HCFA horror days. 

HCFA is the organization that enters into agreements with over 

50 medical providers and spends its time torturing medical providers, making absolutely incredible mistakes and actually driving 

up the cost of health care. We will be getting into that later on. 

I get excited about these issues, especially when we can look at 

a government agency that can streamline and make things a lot 

cheaper. 

Our first witness is Mike Holoka. Mike is an attorney in town, 

and we look forward to your testimony. 

STATEMENT OF MIKE HOLOKA, ESQ., ROCKFORD, IL 

Mr. HOLOKA. Thank you, Congressman Manzullo, Congressmen. 

My name is Mike Holoka. I am an attorney in Rockford, as Congressman Manzullo has already stated. I am married to a physician. I have a 12 year old daughter. 

We had a traditional medical plan for many, many years. 

Chairman MANZULLO. Hang on just a second. 

Congressman Kirk, why don’t you come up here? Did you have 

an opening statement? 

Mr. KIRK. I did not. 

Chairman MANZULLO. Okay. Well, then why don’t you have a 

seat, and, Mike, continue. 

Mr. HOLOKA. Sure. 

Chairman MANZULLO. We will start the clock all over again.

Why don’t you just introduce yourself? 

Mr. KIRK. It is Mark Kirk from the 10th Congressional District 

of Illinois, representing the suburbs along Lake Michigan. 

Chairman MANZULLO. Okay. Can you tell us what are your committees? 

Mr. KIRK. And we are on the Budget, Armed Services, and 

Transportation Committees. 

Chairman MANZULLO. A busy guy. We just introduced our first 

witness, Mike Holoka. 

Mike, start all over again. 

Mr. HOLOKA. Okay. 

Chairman MANZULLO. We know what your name is. 

Mr. KIRK. And I am working on traffic tie-up problems on I–90. 

[Laughter.] 

Chairman MANZULLO. He is on the right committee, a transportation issue. 

Then what are you doing here, Congressman? [Laughter.] 

Mr. HOLOKA. That is a problem that will never be solved maybe, 

but good luck. 

I am Mike Holoka. I am an attorney here in Rockford. I am married to a physician. I have a 12 year old daughter. 

We had a traditional medical plan for many, many years with 

Guardian Insurance, and we ran the plan through my practice because I am a sole practitioner. I have one employee. It was a lot 

more effective to run it through my practice instead of my wife’s. 

6

When we first started with the Guardian, we were probably at 

a premium of $4,000 to $5,000 a year. In about 1996, our premium 

had jumped up to somewhere near $8,200, and by the year 2000, 

our premium was $21,000 a year for Guardian traditional insurance. 

Chairman MANZULLO. For how many? 

Mr. HOLOKA. Just for the family, just for the family. No employees. Okay? 

And we had no claims. So there was no reason to see this kind 

of rise. 

Okay. Realizing that we could not afford to continue with this 

kind of a program, we started considering picking up a catastrophic 

insurance policy and self-insuring for like $25,000 or $50,000. The 

premium on that probably would have been somewhere in the area 

of $7,500 a year. 

And we could not understand why the insurance companies were 

continuing to raise premiums at the rate they were because I knew 

physicians were being paid less. So I could not figure out what the 

problem was, why this cost was increasing. 

But to solve our problem, one day my wife received a fax in her 

office, and it said something about an MSA. I had never heard of 

an MSA, medical savings account program. And I read over the 

plan, and I said this is impossible. This is too good to be true. They 

really cannot have this kind of program. It makes too much sense. 

And some of the main features of the plan were we could pick 

up a deductible between $3,100 and $4,800 a year, which included 

all of us, not an individual deductible, with the opportunity to save 

up to about 75 percent of our deductible in something called the 

medical savings account. So we were able to put that money away 

which would grow or be invested in basically a favored tax status, 

you know, deferred taxation on that account. 

So with the deductible we chose, $3,100, we could put about 

$2,300 a year into this account, and this, of course, could always 

be used for our deductible, pay our deductible or however we wanted to use it, or we did not have to use it at all. Okay? 

The best part of the plan though was that you did not have this 

large premium, this $21,000 and going up into space. Who knows 

where it was going to end? 

Our premium ended up being about $3,600 a year, and that was 

only because my wife was still on the maternity program. If we 

would not have had maternity, it probably would have gone down 

to almost half of that. 

So it was amazing to me that we heard so little about an MSA 

insurance program like this, particularly in view of this insurance 

crisis and the way it was affecting small business, you know, on 

top of the way it was affecting the country. 

So when I attended a small businessman’s breakfast with Congressman Manzullo, I had the opportunity to explain how an MSA 

program worked to all of the people at that breakfast meeting, and 

to my amazement, it seemed that nobody had really heard about 

an MSA program, and going around the table, they were all like 

me and said, you know, ‘‘What is this? I don’t believe this exists. 

You know, how do we do this? How do we get this thing put toVerDate May 23 2002 16:12 Jun 06, 2002 Jkt 079638 PO 00000 Frm 00010 Fmt 6633 Sfmt 6602 E:\HR\OC\A638.003 pfrm12 PsN: A638
7

gether?’’ And there were probably, I guess, 25 businesses represented at that breakfast meeting. 

So it is my understanding there are any number of variables the 

way an MSA program works as far as the premium goes. You 

choose your deductible so that you can, in effect, choose how much 

of a premium you are going to pay. 

One quote I received last year was for a $4,500 deductible. It was 

less than the $2,500 premium for my family, and that included 

dental if we wanted it for less than $1,000 a year. 

It is not difficult to see how vital an MSA program is for small 

business when you consider the cost of what a traditional plan is. 

Chairman MANZULLO. You are at five minutes, Mike. 

Mr. HOLOKA. Okay. Let me just wrap up real quickly then. 

So we are extremely pleased with this plan. We cannot believe 

all of the benefits we have. We are very happy with it. We think 

it should not only be extended to small business, but to everybody 

in the country. 

And one of the features of an MSA is you can also continue it 

past 65, which means you do not impact Medicare, and if you started, say, at age 20 saving a couple thousand dollars a year in an 

MSA account, you could have a couple hundred thousand dollars or 

better by the time you reached age 65, all of which would also help 

the government in terms of managing health care as well. 

Thank you. 

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

Chairman MANZULLO. Thank you, Mike. 

Mr. HOLOKA. You are welcome. 

Chairman MANZULLO. Our next witness is Dr. Bill Kobler who is 

with the OSF Medical Group in Rockford. 

We look forward to your testimony, Dr. Kobler. 

STATEMENT OF BILL KOBLER, M.D., OSF MEDICAL GROUP, 

ROCKFORD, IL 

Dr. KOBLER. Thank you, Chairman Manzullo and Congressmen. 

I am pleased to be here to be able to present a little bit of the 

medical perspective on the rising cost of health care, which is obviously a logical contributor among many other factors to the rising 

cost of health care insurance. I can’t really talk about what the cost 

of health care insurance is for me, although I do remember when 

I was last self-employed, and that is nine years ago now, I was 

spending $500 a month for family coverage at that time, and I cannot imagine what it would be now under different circumstances. 

The problem is obviously very complex, multi-faceted, but I hope 

I can at least give some insight into the problems we face as health 

care providers and perhaps give you some of the reasons why I 

think that health care costs are going up with this insight maybe 

there are some ideas as to what we can do to help control those 

costs. 

A recent article in the New York Times in January stated that 

the government reports that in 2000, national health spending shot 

up 6.9 percent to $1.3 trillion, the largest one year increase since 

1993. And they said that hospital and drug costs were the main 

factors in the last increase. 

8

Growth in health care spending has outpaced the 6.5 percent 

growth of the economy as a whole. Health care accounts now for 

13.2 percent of the nation’s total output, up from 13.1 percent in 

1999 and 12 percent in 1990. 

As a physician, I could argue that that is not a high enough percentage, but I think I will leave that alone for the time being. 

What are some of the factors leading to these cost increases? An 

old problem that at least we as physicians, in deference to my associate sitting next to me, that is again rearing its ugly head in professional liability suites In the 1970s there was a crisis for physicians when all of the major professional liability insurers in Illinois 

pulled out of the market. We have now seen that again happen in 

this state, with St. Paul no longer writing coverage, and I am not 

sure that is not even nationally, and CNA has pulled out of that 

market as well. 

Ken O’Bramowitz of the Carlysle Group states the rising cost of 

malpractice coverage is becoming the most important factors driving inflation for physician services. Many hospitals’ insurers are 

not only increasing premiums, but are also reducing amounts of 

coverage and raising deductibles. A Chicago Hospital in 2000 paid the St. Paul Companies $1 mil- lion for $40 million in coverage, with a deductible of $15 million. 

In 2001, for that same policy, the premium was raised to $1.8 million and cut the coverage to $10 million and doubled the deductible. So they are almost paying more than what they are getting 

back. 

Insurers say that the increases are due to large awards by juries 

and large settlements. Some research suggests that the average 

jury award rose to almost $3.5 million in 1999, up from just under 

$2 million in 1993. And according to the Liability Monitor in Chicago, professional liability premiums are rising at an average annual rate of 30 percent. 

The costs of this are obviously one factor, but there is another 

factor. Because of the increased risk of liability and the cost of insurance, physicians are practicing medicine more defensively. That 

means we are doing more tests. We are doing more procedures and 

things that we see would limit our risks. 

Another item is the explosion in the availability of very good but 

very expensive prescription drugs. This is a serious problem for all 

recipients of health care. 

The proposal to provide these drugs under the Medicare program 

is a wonderful concept, but frightening when one pauses to consider the source of the funds for this population who consume a 

very large percentage of pharmaceuticals. 

Medicare, managed care and other private insurance plans have 

cut drug benefits in the last few years. They state that the average 

senior spends about $500 annually for medication, plus hundreds 

or even thousands more for private insurance policies to cover some 

of the cost of these prescriptions. 

I saw a patient just the other day who in the year 2000 paid 

$7,000 for her medications. 

There are a number of other factors I would like to briefly list 

which also I feel are driving up health care costs. The people of this 

country have an insatiable appetite for health care services. They 

9

are bombarded with story after story of medical miracles, advertising of prescription pharmaceuticals, promises of unlimited access 

to health care made by the managed care companies. Yet there’s 

very little incentive for them to utilize these services wisely. 

There’s an overwhelming burden of government regulation which 

is choking the medical profession in its attempts to provide care. 

Many of you know the alphabet soup as well as I, but the provisions of COBRA, CLIA, HEQIA, EMTALA, HCFA, now affectionately known as CMS, are burying us in needless paper work and 

documentation. 

We attempt to follow the regulations at the risk of prosecution, 

fines, and imprisonment under a system so complex that it is impossible to meet all of its requirements. And now we will soon face 

the absolutely terror provoking HIPAA statutes within the next 

year. 

We are facing a serious shortage of well trained nurses. Medical 

school costs are becoming so large as to discourage our best and 

brightest from applying to medical school, knowing that they will 

face declining incomes and loss of respect for the time they spend 

and dedication they demonstrate in their career choice as physicians. 

As a doctor, my job is to investigate problems and try to solve 

them. It would be easy to become discouraged, but medicine is still 

the most rewarding of professions, one worthy of fighting for and 

defending. I am pleased to see this forum attempting to understand 

the problems of medicine and its availability to small businesses. 

After all, physician practices have traditionally been counted 

among the ranks of small business over the years. 

If we can work together keeping the patient as the center of our 

focus, I am confident we will find a solution to our problems. 

Thank you for listening to my testimony. 

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

Chairman MANZULLO. Thank you for your testimony, Dr. Kobler. 

Our next witness is Phil Bartmann. Phil is the owner and President of Radicom, Incorporated in McHenry, Illinois, coming over to 

see us this morning. 

Mr. BARTMANN. Thank you for inviting me. 

Chairman MANZULLO. We look forward to your testimony. 

STATEMENT OF PHILLIP BARTMANN, PRESIDENT, RADICOM, 

INC., McHENRY, IL 

Mr. BARTMANN. Thank you very much for inviting me. 

As the Chairman said, I own Radicom, Incorporated in McHenry, 

Illinois, about 60 miles east of here. We have been in business 

since 1963. 

We presently do employ 28 employees in three locations, two in 

the McHenry area and one in Appleton, Wisconsin. We are in the 

telecommunications business. Our employees range in age from 20 

to their mid-60s and earn wages from 15,000 to $60,000 or more. 

Some of my employees have been with me for over 20 years. 

We have always provided medical insurance for our employees, 

and the cost has always been covered by the company. We have a 

$250 deductible plan, and the company covers that deductible. 

10

We recently—as a matter of fact, March 1st was the anniversary 

date of our health insurance. Our monthly cost for the same number of people went from $8,000 a month to $15,000 a month. Our 

health care for the coming 12 months will be $171,000. In 1997, we 

were paying $36,500.

The increase has been dramatic. Our per employee cost in 1997 for an individual was $2,433. This year it will be $6,128. 

We are not contemplating asking our employees to help. Right now we charge them a token $10 a week so that those who may 

not need the insurance or are covered by their spouse will opt to 

not because you can see for a few dollars we can save a lot of dollars. And we have a few people, mostly spouses who do not take 

our insurance. 

I am the chairman of the board of the McHenry County Economic Development Corporation, and we get to share horror stories. One that I heard just the other day, one of our very active 

members, she owns a custom woodworking company called Phoenix 

Woodworking, Woodstock. She had nine employees at the beginning of the week and now she has ten. She called me yesterday. 

She has been getting six month increases. She just started providing insurance two years ago. She just received a 24 percent increase in health costs and six months ago she got a 19 percent increase. 

It is totally out of control. We are fighting with this. This came 

as such a shock, this dramatic increase. We are fighting with ways 

to try and solve it. It goes right to the bottom line. We are a very 

competitive business. We cannot ask our customers to absorb it all, 

although they are the only ones to do it, them or the employees. 

We are fighting very hard to see that we can protect both contingencies, that both will not suffer. 

The proposal that Mr. Manzullo’s committee has on the table to 

us, not being experts, but it seems like it would be a very viable 

option whereby a number of small businesses or any size business 

could join together and hopefully save money on health care costs. 

That is what I have for my testimony. Thank you very much for 

listening. 

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

Chairman MANZULLO. Thank you, Phil. I appreciate it very 

much. 

Our next witness is Ryan Brauns. Ryan is the Senior Vice President of Rockford Consulting and Brokerage. 

Ryan, I look forward to your testimony. 

STATEMENT OF RYAN BRAUNS, SENIOR VICE PRESIDENT OF 

CONSULTING, ROCKFORD CONSULTING AND BROKERAGE 

Mr. BRAUNS. Thank you. 

Good morning, Chairman Manzullo and Congressman Weller, 

Congressman Kirk, Congressman Ryan. 

Rockford Consulting and Brokerage is a firm specializing in employee benefits. 

Chairman MANZULLO. Ryan, would you keep your voice up? I do 

not think they are hearing all of it. 

Mr. BRAUNS. Sure. The firm I represent specializes in employee 

benefits, specifically strategic plan design, fund analysis, employee 

11

communications, and regulatory compliance. Members of the firm 

have collectively worked with hundreds of employer groups ranging 

in side from two wives to 60,000 employees, solving many complex 

cases, and we appreciate the opportunity to present our comments 

this morning regarding the health insurance industry, the vital role 

of the insurance broker, and the powerful engine of consumerism. 

To begin, the words of Dickens actually came to mind when I 

was writing this testimony. ‘‘It was the best of times. It was the 

worst of times. It was the Age of Wisdom, and it was the Age of 

Foolishness.’’

Although no one is speaking French today, we are definitely 

fighting a battle. With the finest health care system man has yet 

devised, thousands of people from all over the world traveling to 

our system every year, other countries desperately trying to copy 

what we have, we threaten our own wondrous creation. 

So where are we today? There are several possible points of insertion into a discussion about the status quo, the state of managed 

care, the outstanding quality of modern medicine, or the need for 

structural change that will yield behavioral change. I’d like to take 

a look today at, frankly, government regulation. 

Business is the conduit to health insurance for Americans. Depending on whose study you see, the breakdown is usually something close to the table we have in the written testimony which 

shows about 64 percent, maybe 70 percent of Americans have 

health insurance through their employer. Yet business has been 

awash in a sea of government regulation. 

One of the other witnesses enumerated a few: COBRA, OBRA, 

ADEA, ADA, ERISA, the Public Health Act, HEFRA, DEFRA, Tax 

Reform Act of 1984, not the least of which is the Internal Revenue 

Code, including Sections 162, 264, 79, 101, 61, 83. I could go on, 

just to identify a few. 

I offer that not to be ridiculous, but to make the point that business is not just a wash. We are actually drowning in this regulation, and to be sure, much of these rules involve needed reforms 

and have done quite a bit of good. However, many have unintended 

consequences. 

In fact, some foisted some severe unintended consequences on 

the system. One such law mentioned here a moment ago was 

HIPAA, formerly known as Kennedy-Kassebaum or the Health Insurance Portability and Accountability Act. It was created with the 

best of spirit in mind, to provide greater access to insurance. Yet 

it really had the opposite overall effect. 

You see, it was not created in a vacuum. The law was applied 

to an already complex and difficult legal structure. There was little 

room for the private sector health care market to absorb this new 

burden. The market becomes more efficient, cannot clear, moves 

farther away from the equilibrium we want. In turn, costs are 

going up and social good is going down. 

HIPAA passed in 1996. It really took effect the next year, beginning to propagate throughout the market. I don’t think it’s a coincidence that following the passage of HIPAA we had a concomitant 

rise in premiums, as well as a several million person increase into 

the ranks of the uninsured. 

12

The guarantee issue portion of the law moves us closer to national health care and single payer model, and it actually created 

more uninsured persons. I give you the example of the State of 

Kentucky or Washington and New Jersey, where they actually put 

into effect guarantee issue. 

Once that went into effect in Kentucky, many of the private 

health insurers who were writing individual health policies pulled 

out. Premiums went up by 60 percent, and we had more uninsured. 

HIPAA stifles innovation and is foreclosing on solutions. Because 

the law makes bright line delineation between employee sponsored 

plans and individual plans, there is little chance to develop hybrid 

plans involving employer and employee contributions, particularly 

in the mode of defined contribution, which we heard so much 

about. 

The greater the role of government in this market, the greater 

the chance for harmful rent seeking and sub optimal behavior as 

the players devote resources to look for loopholes. They stop profit 

seeking. The market becomes inefficient. It leads to more dissatisfaction.

What HIPAA has shown us, even though it had fine intentions, 

and some of the law is certainly very good, it did have unintended 

consequences, and it gives us a positive correlation between regulation and increases in uninsured. 

The insurance market is not easy to shop in for the small employer. The cost of information is high, and onerous regulations 

providing friction. 

Chairman MANZULLO. Ryan, you are at your five minutes. Conclude shortly. 

Mr. BRAUNS. Excellent. [Laughter.] 

The last thing I would like to tell you about is consumerism. 

Consumerism is a very powerful engine, and I want to give you just 

a few statistics. In 1991, the drug industry spent $55 million on direct to consumer advertising. Now they are spending over $2 billion 

on direct to consumer advertising. It is a very powerful engine. 

Lastly, I urge you to let Adam Smith’s invisible hand guide this 

market. If we reduce the cost of information, eliminate the friction 

cost by onerous regulation, the markets will clear. We will have 

economies of scale. Equilibria will be achieved, and satisfaction will 

be high. 

So when you go back to Washington, when you are in the well 

and you are addressing your fellow members on behalf of the nation, I hope your clarion call will be choice. It will be competition, 

and it will be consumerism. 

Thank you very much for the opportunity, and I look forward to 

your questions. 

[Mr. Brauns’ statement may be found in appendix.] 

Chairman MANZULLO. Thank you, Ryan, for your testimony. 

Our next witness is Mick McCarty, and Mick is with Blue Cross/

Blue Shield of Illinois. 

I look forward to your testimony. 

13

STATEMENT OF MICK McCARTY, BLUE CROSS/BLUE SHIELD 

OF ILLINOIS 

Mr. MCCARTY. Good morning. Thank you, Chairman Manzullo 

and distinguished members of Congress. 

Let me first of all start off by just explaining a little bit how Blue 

Cross/Blue Shield approaches the small group market. Today what 

we do is instead of having each small group stand alone, we pool 

all of these small groups into aggregates so that we have hundreds 

of thousands of employees in a pool, and that allows us to spread 

the risk out among these hundreds of thousands, spread the costs 

out among these hundreds of thousands. 

We are able to provide the same level of discounts to a group of 

two that we are able to give to our largest customers. 

We also offer benefit flexibility to the smallest of groups so that 

an employee could choose whether he wants to participate in a 

PPO, whether he wants to participate in an HMO, or whether he 

would like to participate in one of our MSA compatible type of programs. 

So that is the approach we are taking now. Now, we have actually devised programs specifically for small businesses in rural 

areas. We recently lost another program to offer to groups in the 

50 employee to 150 employee segments that is another small group 

type of product again. 

So we are very focused on that small group segment, but there 

is only so much we can do in the face of rising costs and other factors, and I would like to spend a few minutes talking about those. 

We all know that medical costs are going up. Some of it is inevitable. It is kind of a fact of life, but there are cost pressures that 

government can access. Congress and the general assembly must 

carefully examine any new mandated balancing the benefits of 

those mandates with the costs that are associated with them. 

These costs fall hardest on the small employer groups. Back in 

1965, there were eight health care mandates that we had to follow 

nationally. Today there’s over 1,000, and they all did good things 

for many people, but they carried a cost. Small employers bear the 

burden of that cost significantly. 

Another suggestion that should be considered is the use of subsidies to help small employers, whether they come from federal or 

local, statewide combination. These subsidies add dollars to the 

equation, and that is a good thing. But the subsidies need to be significant enough to encourage the employers to participate. Otherwise we have seen that the employers do not necessarily participate without significant subsidies. 

I know that there is a lot of talk, and Congress is considering association health plans. These merit talk and discussion and perusal, but there are some issues that need to be discussed and understood about them. 

First of all, the proposed legislation would actually undermine 

many of the state reforms that have already been put in place to 

protect small employer groups. A Congressional Budget Office analysis actually came out and said that with the implementation of association health plans, we could see prices rise, particularly for 

small employer groups, in four out of five cases. 

The GAO also came out with a study that supported that. 

14

There is a long history of concern about the associations that 

exist today similar to the association of health plans called 

MEWAs, and so there is a concern a little bit about making sure 

that if the association health plans are in the offing, that they are 

done right with the appropriate regulation. 

Finally, the CBO would estimate that with the implementation 

of association health plans, you would only expect to see about a 

1.3 percent increase in coverage. So while the thought is good and 

the appropriate structure might be good, we need to make sure 

that it is going to be successful and bring more people into the 

equation. 

Another concern is the so-called patient rights legislation. Again, 

what that does is add costs, particularly the small employer 

groups. In Springfield, the Illinois State Medical Association is 

pushing legislation that would severely limit health plans by Blue 

Cross and Blue Shield’s ability to catch and to fix abuse, particularly claims abuse. 

At the same time, this legislation is going to add billions to the 

administrative cost, again, with no benefit to the patient. Again, 

this cost is passed on to employer groups, particularly small ones. 

But enough of the negative approach or the things that I wanted 

to talk about there. There are some good things that can be done. 

First of all, Governor Ryan and HHS and Secretary Thompson 

have worked together closely on several initiatives. One will allow 

the states to expand Kid Care to the families of eligible children. 

We heartily support this. We think this is extremely successful, 

and the results so far have been very favorable. 

While I mentioned earlier the subsidies can be good, but the level 

of subsidy needs to be significant to really draw employers in, I do 

want to encourage tax credits for small employers for their low income workers. I also encourage you to press for acceleration of that 

full tax deductibility for the self-employed. I know that it is staggered out a number of years, and I know you worked hard and diligently to try to accelerate that. I continue to encourage that.

Expansion of medical savings account. I think it is a worthy experiment. Right now it is capped, and it is limited to a certain 

amount of people in the segment in the market, but I would certainly suggest expanding that. 

A number of bills in the House, McCain-Schumer and its companion in the House, Brown-Emerson. That would have a favorable 

impact on the entry of generic drugs in the marketplace. 

One thing that I found extremely interesting is that a focus 

group study found out that small employer groups do not understand insurance. They do not know all of the time that it is tax deductible and that there are implications to them by providing it to 

their employees. 

I would encourage a broad based approach to informing and educating small employers about what their options are in a community and what type of tax implications they can enjoy by offering 

their employees employee benefits. 

Chairman MANZULLO. Five minutes, Mick. 

Mr. MCCARTY. I will wrap it up. 

Defined contribution approaches, I think they also merit some review. We have not seen a lot of employers pushing towards that 

15

right now. They still think it is something that could bring consumerism back into the equation, and at the federal level, Congress 

is struggling with several key issues affecting the small group market 

And all I want to do is encourage whatever legislation and mandates are created, that they encourage people to get into the pool, 

encouraging high risk, low risk, everybody into the pool, and that 

will help us stabilize premiums going forward. 

These are difficult times. I commend the committee for your effort to focus attention on the impact on health care costs to small 

businesses, and as we have for more than six decades in Illinois, 

Blue Cross and Blue Shield stand ready to help in any way. 

Thank you. 

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

Chairman MANZULLO. Thank you for your testimony. 

Members of Congress will also be limited to five minutes. As the 

committee chairman, let me exercise my prerogative and go first. 

I would ask you, Mr. McCarty, in your opening statement, you 

say essentially that Blue Cross/Blue Shield is already community 

writing for business pools? 

Mr. MCCARTY. Yes. What we do is we have established these 

pools, and there are a number of factors that go into the rating on 

this particular group, but for the most part, what we are trying to 

do is take the lowest and the highest risks, squeeze them down into 

a narrow focus so that rates are somewhat stabilized. 

The problem with doing that, Congressman, is that the better 

risks, as we try to squeeze everything in that community to a narrow focus, the better risks will look for rates elsewhere, where 

someone is not necessarily community or pool rating like we do. 

Chairman MANZULLO. So does that mean that if you insure a corporation of 1,000 employees, that will be the same rate as insuring 

Mr. Bartmann’s 23 employees? 

Mr. MCCARTY. Actually, no. The pool is going to generate a rate 

based upon the experience of hundreds of thousands of people. And 

that will set a rate. 

And some of this is already legislated in what we can do by the 

State of Illinois. 

A group of 1,000, their rates are going to be determined strictly 

on their own experience. So it could be higher than this other pool 

with hundreds of thousands of people. 

Chairman MANZULLO. Let’s face it. Do you know of any large corporation that has higher rates than an employer with 23 employees 

with the same plan, the same coverage? 

Mr. MCCARTY. I do not know of any. I am not saying that it does 

not exist. I would have to actually review that. 

Chairman MANZULLO. Well, I would submit to you that the larger the pool, the bigger the corporation, the cheaper the rates are. 

As a member of Congress, I have Blue Cross/Blue Shield, and I 

think all of us here, you know, we have the same plan that Phil 

does with Blue Cross/Blue Shield. 

But when you say that you are doing these business pools, is this 

lowering the rates of the people in those pools? 

Mr. MCCARTY. It is keeping the rates lower than if we did not 

create the pools. 

16

Chairman MANZULLO. But when you go to an individual employer or—I am sorry—when you go to a corporation, you insure 

that whole group, but you are not asking for any increased premiums based upon preexisting illnesses; is that correct? 

Mr. MCCARTY. When we insure a large group. 

Chairman MANZULLO. That is correct. 

Mr. MCCARTY. The risks are evaluated, and preexisting conditions are considered in their experience, absolutely. 

Chairman MANZULLO. They are considered, but the potential insureds are not asked for any previous medical conditions; isn’t that 

correct? 

Mr. MCCARTY. That is correct. 

Chairman MANZULLO. But if you went to Phil Bartmann, you 

would have to ask those questions of those 23. 

Mr. MCCARTY. That is correct. 

Chairman MANZULLO. So then it is really not a pool. 

Mr. MCCARTY. It is a pool in the sense that we are trying to 

drive everybody into a narrower focus. Not everybody is going to 

have the same rate, exactly correct, Congressman. 

Chairman MANZULLO. Perhaps I do not understand the narrow 

focus on it, but to me a small business pool would be to take every 

small business person and say we are going to take all of their 

rates and treat you the same as ABC Corporation. We are not 

going to look at any preexisting maladies. We are not going to increase your rates based upon the fact that somebody, that one employee out of 23 had a heart attack this past year or a bout with 

cancer. 

That would be a true pool. 

Mr. MCCARTY. That is where our origins actually started, Congressman. That is where we began as Blue Cross and Blue Shield. 

As other insurance companies got into the marketplace, particularly the for-profits, they began trying to sap out the better risks. 

So today where we are at is we are trying to maintain a community rating as closely as we can, but what happens is the better 

risks are lured away by other entities, other health plans that have 

a different approach to this marketplace. 

Chairman MANZULLO. Such as? 

Mr. MCCARTY. Other types of insurance companies? 

Chairman MANZULLO. Yes. 

Mr. MCCARTY. I do not want to be indicting here, but any type 

of for-profit company is going to be looking to maximize profits as 

opposed to something else. 

Chairman MANZULLO. I understand. 

Phil, did you look at Blue Cross/Blue Shield? 

Mr. BARTMANN. They are one of them we looked at last year. 

Chairman MANZULLO. What type of rates were you quoted for 23 

employees? Do you remember?

Mr. BARTMANN. I do not remember, but they were not in the 

final three, two or three. 

Chairman MANZULLO. Okay. 

Mr. BARTMANN. We had United Health Care and Nipon were the 

two finalists, I know, last year, and we ended up with Nipon. 

17

Chairman MANZULLO. Okay. Mike, on the medical savings accounts, you went ahead and developed your own form. Is that what 

you did because nobody offered that product? 

Mr. HOLOKA. Well, the product was actually offered by a couple 

of insurance companies. Fortis is one. Unicare is another one, and 

I cannot tell you all of the carriers who would provide it. 

And there is a company that essentially gives us the information 

and the quote rates and everything, and then we go through them. 

They are like a brokerage firm. 

Chairman MANZULLO. Okay. 

Mr. HOLOKA. And that is how we discovered this and were quite 

pleased with it and quite surprised. 

Chairman MANZULLO. So a person could just call up one of those 

insurance companies, and they would have a package to set up the 

MSA. 

Mr. HOLOKA. That should, but you might have to go through a 

broker to get that. You may have to go through an insurance 

broker, you know, who writes the insurance and charges, you 

know, a small premium for that as well. 

Chairman MANZULLO. Okay. 

Mr. HOLOKA. I do not know whether you could write directly to 

the company or not and get that information. 

Chairman MANZULLO. But you had to draw up your own plan because you were the first, one of the first? 

Mr. HOLOKA. No, the plan, as I understand it, by statute is limited to 750,000 businesses. 

Chairman MANZULLO. Right. 

Mr. HOLOKA. Okay, and I do not know how many had already 

taken advantage of it. Maybe 25,000 or so. There were not a great 

number of companies that had taken advantage of it. And, in fact, 

I had to go through, I think, four or five brokerage houses to figure 

out who actually would set up these MSA accounts, and Merrill 

Lynch in this area turned out to be the brokerage firm that 

was——

Chairman MANZULLO. Financial house. 

Mr. HOLOKA. Yes, financial house where you could actually set 

up an MSA account. Some of the other brokerage firms like A.G. 

Edwards, for example, they did not have the ability to even set up 

an MSA account. So there was no way you could deposit money. 

Chairman MANZULLO. Ryan, does your company offer access to 

an MSA account? 

Mr. BRAUNS. We do. And I would like to echo something Mick 

said, which is that many small employers do not understand the 

options that are available to them. There are things like MSA accounts that are out there, either qualified MSAs or even nonqualified MSAs, which gets into the consumerism idea. 

What we like to see is people who are very interested in accruing 

personal health accounts, like the President spoke about, on a use 

it or keep it model so that they are financially engaged and they 

take more responsibility when it comes to the decision making 

process. 

But if I could answer a question you asked of Mick, we have 

many clients, all ranges of employee size, numbers of employees. 

We have routinely had 25 and 30 life employer groups that have 

18

had much lower premiums per single, per family than a 100 or 200 

or 300 life case. Now, by and large you would think the larger case 

is going to be a little bit less expensive, and oftentimes it is, but 

that does not mean that there is not a 25 life group that may have 

a $150 single rate and only a $310 family rate, and you might have 

a four or 500 life group that could be double that. 

So that 25 life group with the good rate is not going to be interested in joining a pool. They want to keep their good rate. 

That is our concern about pools as I represent clients. They are 

afraid that they are going to get pushed into a pool with a lot of 

risk that is worse than theirs. 

Chairman MANZULLO. But you would agree that the larger pool, 

the larger numbers of potentially insured, the lower the premiums 

are going to be. 

Mr. BRAUNS. Possibly and usually. The question I have though 

is how do you keep the groups, and this is what we are waiting to 

see in the industry; how do you keep those employer groups in the 

plan? What happens when you get the pool going and one of these 

employer groups says, ‘‘You know, we are all very healthy. We can 

get a cheaper rate outside. We want to exit‘‘? 

So what is left is by and large a sicker group, and over time it 

could start to spiral. We have had several association plans here 

in Illinois collapse in the last few years. A large school association 

just collapsed this last year, 250 school districts, for that very reason. The good risk exits, and the bad risk stays. 

Chairman MANZULLO. Congressman Weller. 

Mr. WELLER. Well, thank you, Mr. Chairman. 

And let me first commend your panel. This has been a very informative presentation. I know we have a second panel. So I look 

forward to hearing that as well. 

But let me, since we are limited on time, direct my questions. 

First I want to direct my questions to the two business owners on 

the panel, and the experiment with the medical savings accounts, 

Mr. Holoka, one of the arguments for medical savings accounts, 

and Dr. Kobler brought up this issue, is they help control over utilization. People, you know, take advantage of health care benefits 

maybe more than they really need to, and of course, that drives up 

cost. 

And I was wondering from your experiment with medical savings 

accounts how medical savings accounts, the incentives involved in 

medical savings accounts will affect over utilization. 

Mr. HOLOKA. Well, I agree that there is utilization when you are 

not having to pay anything for medical care. When you have a deductible, of course, you are paying the first dollars out of that deductible. So, for example, we had a $3,100 deductible for the first 

year we were in the MSA program. We probably spent about 

$2,800 of that. 

Now, I did not sit there though and calculate whether or not we 

should go to the doctor, you know, or whether or not we should 

have a physical or something of that nature based on how much 

of that deductible was left, nor did I say, ‘‘Let’s go ahead and spend 

some more money so we pass the deductible and then the insurance company can pick up the rest.’’

19

So I really think that is more of an individual situation. Obviously, I guess you could plan it in such a way that if you needed 

surgery, you could use up the deductible and then go and have 

your surgery that year and make sure the surgery was picked up. 

I guess we can all be calculating or even very good stewards of our 

money in that way. 

But I do not think that is much of a risk. You see, the thing 

about small business people is that they are survivors. And really, 

you know, with all respect to Congress and everyone else, if we approach these problems like a business where it was actually our 

money on the line, and I think Congressman Manzullo does that 

very well; if the entire Congress would do that, then I think we 

would solve these problems, but we do not tend to do that. 

We tend to see this unlimited amount of money, this unlimited 

amount of corporations out here that just can afford to spend 

money willy-nilly, and that is why we are driving up health care 

costs. 

I am sure the doctors here would testify that the paper work that 

they have to go through is just unduly burdensome. At this point 

it is almost impossible to keep up with. And on top of that, the 

paper work actually can cause you to become a criminal in this 

country. 

Why if you make a mistake on a HCFA form, why is a doctor 

going to jail and losing his business? Because that has happened 

to a number of doctors in this country. 

Mr. WELLER. And I would like to direct a follow-up question to 

Dr. Kobler. 

I would note, based on Mr. Holoka’s comments, that the Ways 

and Means Committee, after we return after this break that we are 

currently on, we plan to take up Medicare modernization, legislation that Nancy Johns, the Chairman of the Health Care Subcommittee of Ways and Means is moving and which she has taken 

the lead on, which is designed hopefully to provide for some real 

regulatory relief, address the reimbursement issues, as well as provide prescription drug coverage as a component of Medicare. 

That is her goal, and of course, she will be leading that charge 

when we resume later this month. 

Sticking with the subject of MSAs, Doctor, what has been your 

experience with patients who participate who have MSA coverage? 

Dr. KOBLER. Well, I am not sure that I have had enough patients 

in town that actually are insured by MSA, at least not that I am 

aware of when I look at the route slip as they come in. Most of 

them have the traditional managed care companies that we have 

here locally, as well as the national firms. 

State medical society, the AMA are all on record as saying that 

MSAs are probably a very good thing and probably should be expanded. 

We have a physician in Illinois down south who eats, drinks, and 

sleeps MSAs. I get E-mails from him all the time about it, and I 

really think that, you know, the points that Mr. Holoka made as 

well. I think it does make you look a little bit more at how you are 

spending your health care dollars. 

I guess the potential concern that I have as a physician, especially in primary care where we practice a lot of prevention is to 

20

be sure that people are not going to try to save that money and 

not do some of the things that they should do preventatively, and 

we would hope that they would be good stewards of those dollars 

that way as well. 

I think that is one of the potential weaknesses of that, but I am 

not sure. I have not seen the statistics to suggest that that is a 

problem at this point in time. 

Mr. WELLER. Okay. I assume I have a little bit of time left, Mr. 

Chairman. Am I about out of time. 

Chairman MANZULLO. You are about out of time. Two more minutes. 

Mr. WELLER. Two more minutes. Okay. 

Let me direct my last question to Mr. Brauns. You are an advocate of choice and opportunity and consumerism, I believe, from the 

comments that you made, and you are an advocate of the refundable tax credit proposal, which Chairman Bill Thomas has been an 

advocate of in the Ways and Means Committee and others. 

Included in the earlier versions of the Economic Security and 

Stimulus Package that we passed out at the House of Representatives, the refundable tax credit that helped laid off workers covering up to 60 percent of their premiums as a way to help insure 

they had continued health care coverage while they were unemployed until they went back to the work place where they had 

health coverage. 

From your perspective in marketing insurance coverage, health 

care products to your customers, how would your business market 

to this refundable tax credit approach? If I am a worker and I have 

this refundable tax credit, it is a new thing for me. I do not really 

know what to do with it. How would you market it and explain it 

to them and show them how it would work? 

Mr. BRAUNS. I think, number one, it would be very well received. 

I know there is tremendous pressure that is building up in this system, and we all know that. A lot of it would depend, I think, on 

what the actual structure of that is. 

Would it be a voucher that they could take? It is going to come 

every month or is it going to be handled through the payroll deduction system that goes against their FICA and whatnot? Are the employers taking care of that? Are they going to get this voucher and 

then be able to go out to the individual health insurance market 

and then go to that insurance company and say, ‘‘I have got this 

voucher now and I can afford to pay these premiums’’? 

Some of it depends upon how that is actually going to be structured, but we would be very excited to be able to market a product 

like that, and I think it would be very well received. 

You know, by and large, most employers are very paternalistic. 

Most employers want to take care of their people, and they are 

looking for any way they can to increase benefit and find ways that 

they could give more money to employees to help them buy more 

insurance. 

Employers, I do have to tell you though, there is so much pressure in the system. They would like to get out of being an insurance company. If there was some way that they could do that 

paternalistically, if they knew this product is a defined contribution, and it has not taken off yet because defined contribution has 

21

created this huge individual health insurance market, and particularly in the State of Illinois, you cannot go to, say, Blue Cross and 

get a guarantee issue health insurance policy for one person. 

If you could, the rates would obviously be expensive, but you may 

have a lot of employers saying, ‘‘Take your voucher and go do that.’’

And then the employer would be able to provide 401(k) matches, 

more life insurance, more disability, more vacation days, other 

things that the employer would like to do for the employee. 

Chairman MANZULLO. Congressman Ryan. 

Mr. RYAN. Thank you, Chairman Manzullo. 

I would like to talk to Mr. McCarty and Mr. Brauns about the 

AHPs and about pooling, and I would like to nail down a definition 

of pools. 

I understand that it is in the best interest or in the self-interest 

of a state Blue Cross/Blue Shield to oppose association health plans 

because those are ERISA plans that move beyond state borders. 

But I’d like to nail down this definition of a pool because we are 

throwing this word around so much. 

When you say you are pooling your small business individual 

rates in the State of Illinois in Blue Cross/Blue Shield, you are 

pooling that after you saw the coverage within your own insurance 

structure; is that correct? 

Mr. MCCARTY. Yes. 

Mr. RYAN. So it is not a pool you are going out into the marketplace saying, ‘‘Here, Mr. Bartmann. We have a pool for you.’’ You 

are just marketing it as a Blue Cross plan for his business, correct?

Mr. MCCARTY. When we market to a small group, we are marketing individually to him. The rates are set up on his demographics. Some risk factors do go into that. 

Mr. RYAN. And you see if there is a heart attack in his business 

or if there are preexisting conditions in his firm, something like 

that, correct? 

Mr. MCCARTY. Yes. 

Mr. RYAN. Okay. So the pool of the association health plan that 

we are talking about is a little bit different than that kind of pool 

concept. So I just want to make sure that we are not saying that 

these are the same things. 

The association health plan pool is a national pool, an ERISA 

plan which goes through state borders much like any Fortune 500 

company will have for their employees. 

You know, General Motors, which has a plant up in Janesville, 

has a huge ERISA plan for all of their hundreds of thousands of 

employees, and that crosses state borders. They do not have preexisting conditions. They do not have demographic questionnaire 

studies, and they benefit from very good insurance packages, very 

low rates, and rates much, much lower than rates for a small business. 

So the goal of pools, as echoed by the President in Wisconsin in 

February and which we talked about in the Ways and Means Committee, is to give small businesses access to those same kinds of 

economies of scale, for those same kinds of benefits that an ERISA 

pool provides, just like the Fortune 500 company gets. 

Would you like to comment on that? 

22

Mr. MCCARTY. Just to clarify our position is not to oppose association health plans. Our position is that they need to be structured 

appropriately so that, number one, they do not undermine existing 

legislation to existing states. That is number one. 

And number two, that they are regulated appropriately enough 

so that the mistakes that have happened with prior association 

type plans do not happen again. 

And, number three, that as we venture into this, it is also structured correctly to bring more people into the pool, into—— Mr. RYAN. Adverse selection. 

Mr. MCCARTY. Yes, because otherwise you get a modest enrollment, it does not catch on, and it winds up having selection issues 

which causes, again, a burden for particularly small employers. 

Mr. RYAN. That is a compelling point. I think the adverse selection point that, Ryan, you mentioned is a very compelling point, 

but if you compare that to the status quo, we have a 60 percent 

uninsured rate for small businesses right now. That is not acceptable, and that is under a state-by-state regulated environment. 

So the status quo obviously is why we are having this hearing, 

because that is unacceptable. 

Mr. MCCARTY. Sure. 

Mr. RYAN. But I think if you look at the adverse selection studies 

that when you apply adverse selection studies to ERISA pools, you 

do not have adverse selection nearly to the extent that has been 

suggested with state insurance pools because adverse selection goes 

away with association health plans because they are able to evolve 

with the marketplace. They are able to change. 

And so if a businessman like Mr. Bartmann is looking to join an 

AHP or stick with what he has, he will make that decision in the 

beginning. He will make that decision. He will adverse select, as 

you put it, right away. 

If he joins the AHP, he can always get out, but the idea that the 

sick will only be left in the AHPs is an idea that has been pretty 

well defeated intellectually and through many studies, including 

the CBO and CMS that show you risk will be well spread. Adverse 

selection on the national level does not really occur because if it 

would, it would occur with other ERISA plans, and that is just simply not the case these days. 

So there is a great story to be told on pooling with ERISA plans 

across the state boundary lines. That shakes up the system. That 

abandons in many cases a state-regulated system, but the state 

regulated system we have today under which Blue Cross operates 

is giving us this huge rate of uninsured and these unacceptable 

rates of increase of health insurance premiums for small businesses. 

So I think there is a broader story to be told with respect to pooling. I hate to give more of a speech, but——

Chairman MANZULLO. Your five minutes is up. So——

[Laughter.] 

Mr. RYAN. We deal with this a lot in our committee. 

Chairman MANZULLO. Congressman Kirk. 

Mr. KIRK. Thank you, Mr. Chairman. 

We met when you held a hearing on a similar topic in my congressional district. We met with Sammy Davis, Jr., the real Sammy 

23

Davis, Jr., who operates Handyman, Incorporated in Mundelein, 

and Handyman has gone the way that, Phil, you might be looking 

at. Handyman employees are now completely uncovered because of 

the rates and the increases. 

Chairman MANZULLO. You said that was going to happen. 

Mr. KIRK. And it has happened, yes. So Handyman, with 13 employees; is on their own. 

Now, Sammy belongs to a number of associations, and I wanted 

to just ask you. Are you a member of the McHenry Chamber of 

Commerce? 

Mr. BARTMANN. I am the Chairman of the McHenry County Economic Development Corporation. 

Mr. KIRK. Are there any other associations that you are already 

a member of? 

Mr. BARTMANN. NFIB. 

Mr. KIRK. At the NFIB? 

Mr. BARTMANN. Almost from the beginning, yes. 

Mr. KIRK. Right. And it would seem to me that NFIB would be 

an ideal place for a national association health plan. 

Mr. BARTMANN. That is right. 

Mr. KIRK. Very broad membership, and you do not have that option right now? 

Mr. BARTMANN. No. 

Mr. KIRK. That is, I think, something that is very important for 

us to have a Medical Savings Accounts for the truly small entrepreneur, but to allow you to join through NFIB or, I think, ideally 

the county Chamber of Commerce or even the town Chamber of 

Commerce in the case of my people. 

One of the reasons why costs are going up so much is because 

of enormous jury awards against doctors and hospitals, where you 

get into the unlimited amounts of money that could be awarded 

through ‘‘pain and suffering’’ awards. 

I just throw it out to the panel here. What would be the impact, 

in general, of medical malpractice reform? 

Specifically, the House included this as part of the Patients’ Bill 

of Rights. It gives us the ability to expand health care coverage and 

lower cost. 

Mr. MCCARTY. I do not have any specific information on the impact. 

Mr. KIRK. Well, let me just throw out one number. I just talked 

to some OB–GYNs in my district. The up front cost, the first thing 

they have to pay before they see Patient One was $90,000 for medical malpractice coverage, and so that is built into their fee schedule right away. 

Mr. MCCARTY. Right. So, yes, there would be a favorable impact 

on premiums for small employer groups, for large employer groups, 

for everybody, for individuals, if education were enacted to protect 

providers from unusually large or outrageously large settlements. 

Mr. KIRK. And it is important that we are not talking about limiting someone’s economic damage. It is the treble, quadruple damages when a jury in a rural county in Illinois says, ‘‘Let’s give them 

a $2 billion award.’’ That has a ripple effect throughout the system. 

Go ahead. 

24

Mr. HOLOKA. Yes, in answer to your question, how it impacts on 

a particular doctor’s practice and their premium, of course, it puts 

a lot of pressure on the doctor to see enough patients to come up 

with, you know, the premium. But, of course, there are a couple of 

reasons for that. 

One is when you have PPOs, HMOs, and you have the government through Medicare and other legislation limiting the amount 

a doctor actually receives, you’re really slashing the doctor’s wrist 

at the point. 

The second thing is as far as impacting the general cost of medical care, health care throughout an entire state, for example, we 

can go back to Indiana in 1980. In 1980, Indiana enacted caps on 

the amount of recovery you could make in a medical malpractice, 

economic or otherwise. So it was enacted, and that cap was 

$100,000 at one level and then $500,000 at the next level. Okay? 

And that was only for catastrophic that you could go between the 

$100,000 and $500,000 recovery. 

Okay. When Indiana first started this, they were 28 in the country in health care costs. Okay? In 1990, ten years of experience, Indiana was still 28th in the country in health care costs. So I really 

think that medical malpractice per se has really no effect or just 

so small as to be negligible on the actual cost of health care. 

Now, how it impacts doctors’ offices, I mean, that is another 

thing. If a doctor cannot generate enough income, then, of course, 

they are going to have to close their office, but to the malpractice 

carriers, they have to base this on what their experience is. 

The second thing is that there is no such thing as treble damages 

and all of these other things in medical malpractice. We have done 

away with punitive damages in Illinois. We have had reform to 

that degree. 

We have cut attorney’s fees in medical malpractice cases. There 

is no other area in Illinois that we have cut attorney’s fees in, other 

than through the work comp. statute to attorneys that are handling cases on behalf of the injured people. 

Mr. KIRK. And yet in the Congress we hear, especially from 

places that include rural areas like this one, that there are whole 

regions where you cannot get obstetric care. 

Mr. HOLOKA. Well, I will tell you what. I know of no place in this 

area where you cannot get obstetric care. 

Chairman MANZULLO. I mean, you have to understand, too, that 

a lot of things are rural because they saw some cows. [Laughter.] 

We are at five minutes. 

Mr. KIRK. Okay. Mr. Chairman, I would just point out that our 

colleagues from other states, Iowa, et cetera, will give you a long 

list of driving distances that you will have to get to to find obstetric 

care, and that is due to the enormous malpractice costs that only 

a suburban/urban area could handle the cost structure of that. 

And so we have got real access to care issues erupting in the 

country now because of the enormous liability cost of being in this 

field. 

Mr. HOLOKA. Can I just make one comment to that? I know a 

general surgeon in town who went out of business, and it was not 

because of her health care premium. I am sorry. It was not because 

of her medical malpractice premium. It was because of the way her 

25

fees continued to get chopped down to the point that she could not 

stay in business. 

And when you are charging $80 for an office visit, and you are 

getting $8 and $10 and $12, you cannot even cover the cost of a 

nurse, let alone make any kind of profit. You are killing yourself 

in overhead. 

So I think the problem is multi-faceted, and it cannot just be directed to medical negligence cases. And again, I would say the 

proof is in the pudding. Medical negligence cases are such a small 

amount of the actual cost of health care as to be negligible. 

Chairman MANZULLO. Okay. We want to thank the panel for 

coming and testifying. You are welcome to sit through the rest of 

the testimony this afternoon. 

And we are going to take about a ten minute break. During that 

period the second panel can go up there. 

All of the complete written statements will be made a part of the 

record. 

[Recess.] 

Chairman MANZULLO. The Committee will come to order. 

Our first witness on the second panel is Ryan Levin. He is V.P. 

of Product Development and Risk Management at the Destiny 

Health Insurance. 

I look forward to your testimony. 

STATEMENT OF RYAN LEVIN, VICE PRESIDENT OF PRODUCT 

DEVELOPMENT AND RISK MANAGEMENT, DESTINY HEALTH 

CARE 

Mr. LEVIN. Thank you. 

Good morning, Mr. Chairman, Congressman Kirk and Ryan. 

Thank you for the opportunity to speak before you this morning. 

I think from our perspective we have a very similar perspective 

to yours: trying to understand the——

Chairman MANZULLO. Ryan, would you keep your voice up? You 

have got a very soft voice. 

Mr. LEVIN. Our perspective is very similar to that of your committee: trying to understand the reasons for high health care costs 

and more specifically, the uninsured and the increasing number of 

uninsured. 

We believe that there are two interrelated reasons for the number of employed uninsured. The first is cost, and that is one that 

has been discussed in quite some depth this morning. The higher 

the cost of health insurance, the greater the likelihood that someone is going to opt out, some people because they cannot afford it, 

and I think that is plain for everyone to see. 

The second reason for employed uninsured, I think, is a little less 

apparent, but interrelated with the first, and that is that there are 

a number of employed uninsured who actually can afford health insurance, but choose not to. The reason for that is that health insurance provides them with no value because they are healthy, or at 

least no perceived value. 

Now, the problem with that is that if healthy people choose to 

opt out, the risk pool on average gets sicker and costs continue to 

increase. So in many respects, you get into a vicious circle where 

26

the higher the health care costs go, the fewer people participate 

and the higher the health care costs go. 

So we looked at the situation and said, well, we need to understand the underlying reasons for these high health care costs, and 

there have been a lot of reasons spoken about this morning. There 

is one that has not been thought about much and has not been discussed much, and that is the role of the consumer in health care 

costs. 

We believe this is actually a very key component to rising health 

care costs, consumer demand, because consumers really are driving 

health care costs in many respects. I will give you a couple of examples. 

First, drug costs. We all know that drug costs are a big driver 

of health care costs overall. One of the reasons for that is technology. Technological advances have increased drug costs and increased the number of prescriptions and probably saved other 

health care costs. 

But there is one more reason, and that is consumer demand for 

drugs. We all watch TV and read magazines, newspapers, see the 

increasing number of direct to consumer drug advertisements. Because the drug companies understand that advertising directly to 

the consumer will drive demand for their products. 

One study performed by Prevention Magazine found that 87 percent of people who asked their physician for a particular drug are 

prescribed that drug. Now, the problem is that while the providers 

of these health services understand that consumers are driving demand and driving utilization of these services, health insurance 

does not understand that because health insurance plans typically 

dissociate the member or the consumer from the cost of the health 

care that they are consuming. They are essentially spending someone else’s money because all they are paying is a very small portion 

of the total cost of health care. 

Another area where consumers are driving health care costs is 

in their response to managed care. Managed care is a tool, a mechanism that has been used by many health insurance carriers and 

specifically HMOs to reduce health care costs. They have used 

things like networks, gatekeeper models where you cannot get care 

other than through a gatekeeper to control health care costs. 

Consumers understandably are rebelling against these controls 

because it restricts their freedom of choice. By doing that and because the insurers and HMOs have been forced to react to that, 

there has been less ability for them to control health care costs, 

and that, too, is one of the reasons that health care costs have been 

increasing. 

So we believe that health care costs are a big driver of the uninsured, and the fact that there is little value for the healthy is another big driver of the uninsured. These two are interrelated. 

So the solution we feel has two components. First is to control 

the costs of health care by creating the right incentives within the 

health insurance infrastructure, and the second is to introduce 

value for the healthy, to encourage them to participate and thus reduce the average cost per participant in the health insurance system. 

27

There are many consumer driven solutions that are being touted 

today, and this is a relatively new movement. The model I am 

going to describe is based on one that is currently being successfully used by our sister company, a company called Discovery 

Health. They have over 1.2 million members using this model and 

have demonstrated substantial success in controlling health care 

costs. 

In fact, this model was based on the medical savings account concept that we spoke about earlier but is in a substantially higher 

evolved state. The model relies on one fundamental principle, and 

that is that different types of health care costs need to be dealt 

with differently. 

There are those types of health care costs that are substantially 

within the member’s control or discretion and others that are less 

within their control. Those within the member’s control include 

things like the more routine, day-to-day health care costs, doctor office visits, acute prescription drugs. 

Those less within the patient’s control are hospitalization and 

surgery, those high cost, high severity things that happen less frequently. 

Chairman MANZULLO. How are you doing on time, Ryan? 

Mr. LEVIN. I think I have another minute or two. [Laughter.] 

Chairman MANZULLO. I will give you another minute. Go ahead. 

Mr. LEVIN. What our model does is it uses a personal fund that 

belongs to the member to pay for those more routine costs. The key 

is whatever they do not use they keep, and that fundamentally 

changes the way they behave about health care specifically in those 

areas where they have discretion and control. 

And the results of studies performed by our sister company show 

dramatic reductions in spending on those discretionary health care 

costs. 

On the other side, we use insurance, risk pooling, to protect people against the high severity and high cost events like hospitalization and surgery, where they have very little control. 

Wrapped around this are incentives for people to take the preventive measures they should be taking, keep healthy, keep fit, 

wellness incentives, and very healthy rewards for using those incentives. 

The results of this structure are lower costs because the incentives are structured correctly, and very importantly, value for the 

healthy because suddenly and for the first time healthy people get 

value out of their health plan designed in this way. 

Chairman MANZULLO. Okay. Thank you very much. 

Mr. LEVIN. And thank you for your time. 

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

Chairman MANZULLO. The next witness is Amy Jensen. Amy is 

the Director of Federal Public Policy at the National Federation of 

Independent Businesses. 

Amy, we are looking forward to your testimony. 

I am going to excuse myself about two minutes. Mark, would you 

take over as Chairman. I will be right back. 

Mr. KIRK [presiding]. Yes, Mr. Chairman. 

28

STATEMENT OF AMY JENSEN, DIRECTOR, FEDERAL PUBLIC 

POLICY, NATIONAL FEDERATION OF INDEPENDENT BUSINESSES 

Ms. JENSEN. Thank you, Mr. Chairman and members of the committee. 

I specifically want to thank Chairman Manzullo for all of your 

hard work to help solve this very important problem for small business and also to these strong members who have done tremendous 

things to help small business better afford health insurance. 

I am also glad to have this hearing in Rockford since my family 

lives in Wheaton. So I could take the opportunity to be back home.

My name is Amy Jensen, and I am Director of Federal Public 

Policy for the National Federation of Independent Business. NFIB 

is the nation’s largest small business advocacy organization representing more than 600,000 small business owners in all 50 states 

and also in the District of Columbia. 

Nothing is more important to NFIB than solving the health care 

problems of small business. We firmly believe that association 

health plans in removing the restrictions of medical savings accounts are necessary steps to create more affordable health care options for small businesses across the nation. 

According to the most recent information from the Census Bureau, nearly 39 million Americans did not have health care coverage in 2000. That is nearly one out of every seven Americans. 

Since that time a slow economy, higher unemployment, and rising health care costs likely mean that more Americans became uninsured, and two million Americans became uninsured due to job 

loss in 2001. 

Over 60 percent of our uninsured population consists of small 

business owners, workers, and their family members. The high rate 

of uninsured in the small business community is largely due to the 

lack of available options for small business and also an increasingly 

shrinking small group insurance market. 

We know that the smaller the business, the less likely it is to 

provide health insurance. Sixty percent of businesses that have 

three to nine employees offer health care benefits, while most large 

firms are able to offer coverage. 

Even in the best of times, the small business health care plan 

only covers about 57 percent of the employees, many choosing to 

go without coverage due to the high costs. For the smallest of the 

small offering health coverage is a constant battle. 

At NFIB can substantiate that the high cost of health care is the 

number one problem of small business owners today. NFIB surveys 

show that for the past decade small business owners have ranked 

the cost of health insurance as their number one problem, higher 

than taxes, regulations, and every other problem. 

Our members also have told us that they believe providing 

health insurance is the right thing to do, right for their employees 

and right for their business. However, the high cost of health insurance often prevents them from doing this. 

As you know, Mr. Chairman, NFIB has provided several witnesses who testified before your committee, as well as Representative Thune’s subcommittee, and all of them have experienced double digit health care premium increases. Elaine Smith from GranVerDate May 23 2002 16:12 Jun 06, 2002 Jkt 079638 PO 00000 Frm 00032 Fmt 6633 Sfmt 6602 E:\HR\OC\A638.012 pfrm12 PsN: A638
29

ite City, Illinois experienced a 26 percent increase this year. Ron 

Hatch of Yankton, South Dakota experienced a 50 percent increase. 

And Phil Bartmann, who testified previously and one of the Chairman’s constituents, experienced nearly a 100 percent increase. 

On average, a worker in a firm with less than ten employees 

pays 17 percent more for health insurance than a worker in a firm 

with 200 or more employees. 

Small businesses need more bargaining power so that they can 

have access to affordable coverage for their employees. In today’s 

society when it comes to purchasing health care, the rules of the 

game are stacked against small business. The small business with 

the least income actually pays the most, while Fortune 500 companies are able to offer exceptional benefits, have more modest annual cost increases, and have more choices for their employees. 

These companies have benefited from the economies of scale that 

come from being able to purchase health care in a large group 

across state lines. Unfortunately under today’s law, it is impossible 

for small business to purchase health care in the same manner as 

their big business counterparts. 

Association health plan legislation like H.R. 1774, the Small 

Business Health Fairness Act, introduced by Fletcher and Dooley, 

levels the playing field by enabling small businesses to purchase 

their health care like big businesses and union plans, through 

AHPs under what’s called ERISA. 

HPs are a private market solution. It builds upon what has been 

proven to work, and if small business could purchase health care 

in the same manner and under the same rules as big business, premiums would go down and coverage would increase. 

Allowing small businesses to purchase health care through association health plans will allow them to save on administrative costs 

and bring to the market the amount of bargaining power in sufficient numbers to absorb risk without substantially increasing premiums. 

As you have heard, insurance companies are not fond of AHPs. 

AHPs, it is true, would compete with current insurance options, 

but NFIB believes that that competition is long overdue. 

MSAs also offer an alternative solution. Eliminating the regulatory burden on MSAs would benefit small business. MSAs without the current restrictions would provide positive benefits to employees by giving them control over their own health care dollars. 

And making MSAs more workable by easing the regulatory burden on them would provide yet another affordable health care option to small business. 

Tax credits for individuals would also be anther welcome option. 

One of the most frequent complaints of small business purchasing health insurance today are drastic high rates that force 

them to drop or completely restructure their employer sponsored 

health care coverage. Allowing small business to purchase health 

insurance through AHPs will minimize this problem. 

Chairman MANZULLO. How are you doing on time, Amy? 

Ms. JENSEN. Just wrapping up——

Chairman MANZULLO. All right. 

Ms. JENSEN [continuing]. To say we thank you for your strong 

work on AHPs and MSAs, and I look forward to your questions. 

30

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

Chairman MANZULLO. Thank you very much. 

I am sorry I had to leave. We have got several members of our 

staff up from Washington taking four different cars in as many different directions and trying to coordinate that out there. 

Our next witness comes from the Illinois Manufacturers’ Association. He is Vice President of Government Affairs, Boro Reljic. 

Mr. RELJIC. Reljic, yes. 

Chairman MANZULLO. Boro Reljic, and the reason I asked Boro 

to come here is that there has been a bill that had been passed out 

of the Health Committee of the State House of Representatives 

here in Illinois that would allow employees of employers with less 

than 25 employees to join the State of Illinois employees’ health 

risk pool, which I guess would be the ultimate associated health 

plans. 

We found out about it, and Amy has a copy of all of the work 

that has been done on it, and you have come here to testify in behalf of that. 

STATEMENT OF BORO RELJIC, VICE PRESIDENT OF GOVERNMENT AFFAIRS, ILLINOIS MANUFACTURERS’ ASSOCIATION

Mr. RELJIC. Well, I was trying to figure out. I know that that is 

the scope of what you wanted to talk about, and I could just go 

right through my testimony, but there will be some mention of 

that. 

Chairman MANZULLO. That will be fine. 

Mr. RELJIC. Thank you. 

Again, my name is Boro Reljic. I am Vice President of Government Affairs for the Illinois Manufacturers Association. The IMA 

is the oldest and largest state industrial association of its kind in 

the United States. We formed in 1893 to collectively address the 

problem from the railroads that they presented to us. So we have 

been around a while. 

And health care is really one of the most significant problems 

that are facing our members now. You have heard the stores of the 

significant increases that our companies have seen. 

The association itself is not just small employers, but large employers as well. We represent companies like Caterpillar Tractor 

and John Deere, as well as companies like Zenith Cotter and Rockford Spring Company here in this area. So we are a mix of both 

large and small employers or members of the Illinois Manufacturers Association. 

Some of the numbers that have been tossed out particularly 

about health care costs are significant. According to the National 

Association of Manufacturers, health care costs have increased by 

more than 300 percent between 1980 and 1990, or $73 billion to 

$223.6 billion. 

Health care costs in 1999 were 470 percent more expensive than 

1980, again, $73 billion to $343 billion. And as long as we continue 

to see the cost of health insurance premiums increasing in the double digit manner in which it is, we are going to continue to find 

a vicious cycle of more uninsured. 

And we were concerned about that, and so the Illinois Manufacturers Association has a couple of viewpoints at least on the state 

31

level where we work most often to try and address some of those 

problems as we see them. 

One, which was mentioned by the representative from Blue Cross 

and Blue Shield is Illinois’ insurance code mandates. Collectively 

the various insurance code mandates account for 20 percent of premiums right now in Illinois. So you need to keep in mind that the 

various insurance code mandates that are placed on group health, 

which only impacts the small employers because larger employers 

that have the ability to self-insure, these mandates do not cover. 

Another reason that we see in the recent increase in health care 

costs is the erosion of managed care. Providers are not happy with 

some of the things that are happening in the marketplace, and we 

need to make sure, you know, the cost savings that we saw ten 

years ago or the controlled cost increases that we saw ten years ago 

as a result of managed care, that was not a legislative fiat. It was 

the ability of people to negotiate terms and conditions of payment, 

and we need to make sure that we keep those safeguards in place. 

Another innovative approach and the one that Chairman Manzullo is so interested in is the pooling concept, and there is a bill 

in the Illinois House, House Bill 5963, which is sponsored by Karen 

May from Highland Park, which would allow employers with 25 or 

fewer employees to opt to participate in the state health insurance 

pool. 

Illinois has 66,000 state employees that are covered by the state 

health insurance plan, and it is our thought that to give those 

small employers the purchasing power they need, they should be 

able to opt into that program. They should pay the premiums. They 

should pay the increased administrative cost that would be associated for running it, but that would allow them some of the purchasing power that larger companies enjoy. 

Under the provisions of the bill a company that opted to participate would not be able to select only certain employees. Every employee of the company would have to participate, and we just find 

that as one of the innovative approaches to try and solve this problem. 

We believe in a private sector solution to this issue. We do not 

think that a government mandate is going to answer or solve this 

particular problem, but we need to find ways in which we can 

incent, if you will, employers to go ahead and offer health insurance to their employees, which is going to benefit all of society. 

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

Chairman MANZULLO. You finished early. Great. 

Mr. RELJIC. Time is always of the essence. 

Chairman MANZULLO. Okay, great. Our next witness is Vondie 

Woodbury, Director of Muskegon, Michigan Community Health 

Project and Vondie came all of the way down here just to be with 

us today. 

STATEMENT OF VONDIE WOODBURY, DIRECTOR, MUSKEGON 

COMMUNITY HEALTH PROJECT 

Ms. WOODBURY. Yes. Thank you. 

Chairman MANZULLO. Thank you very much. I look forward to 

your testimony. 

32

Ms. WOODBURY. And, again, I want to thank you for the opportunity to present testimony on the work we have been doing in 

Muskegon County to address health care issues for our small business community. 

My name is Vondie Woodbury. I am Director of the Muskegon 

Community Health Project. We are located almost directly across 

the big lake from Milwaukee, Wisconsin. So we are right there on 

the shore. 

I am going to be speaking today about a program that community volunteers in our project developed called Access Health. Access Health is not an HMO, nor is it an insurance product. Access 

Health is a community owned health coverage plan that is sold to 

eligible small businesses in Muskegon County to provide health 

care coverage to the working uninsured and to their dependents. It 

was intentionally designed to fill the gap between public insurance 

programs, like Medicaid, and commercially available products. 

Access Health was developed following extensive quantitative 

and qualitative research within our community. Some of the numbers have been touched upon by other speakers. I do not think we 

reflect any differently than other parts of the country. 

What we did find is a group that has tended to be very small 

businesses who were insured, less than four employees for the most 

part. They tended to have very low profit margins. They were not 

members of our Chamber of Commerce. 

When we asked them why they did not participate in commercial 

coverage, 69 percent of them told us it was too expensive. They had 

high rates of employee turnover, which for us became the carrot because it was very clear to us as we got into this market that they 

needed something to stop the hemorrhaging that was going on, the 

churning in their employees. 

As we looked at the market, 95 percent of these employers told 

us they could afford to pay something, but it had to be less than 

$50 per employee per month. The people who worked for the business sector, the same type of a profile, but we found that the majority of them tended to be women under 40 with children. We 

found a good number of people who had moved from welfare programs into small business. 

Sixty-four percent indicated that they valued health care. They 

wanted coverage. Most made between $6 and $10 an hour, and 65 

percent of us or 65 percent of them told us again that they could 

afford to pay something, but it had to be less than $50 a month. 

It is important to underscore when you look at this part of the 

month that the popular press keeps referring to them as the working poor. These are not people that self-identify as working poor. 

They are working. They are helping pay taxes. They are helping to 

support government programs like Medicaid and Medicare. 

No one that we went to asked for a handout. They were all willing to pay something, and I think that is one of the most important 

things that need to be said about this market. 

To insure that our Access Health Program only served that portion of our population who were unable to pay for commercial products, we took special steps to limit the type of business we serve. 

Eligible businesses must be located in Muskegon County. They cannot have offered commercial insurance for the previous 12 months. 

33

They must have a median wage of $10 an hour or less to participate, and we wanted to make sure that these were businesses that 

were not in the commercial coverage market. 

Any business that is found falsifying information and dumping 

existing coverage is dropped from Access Health for life. We have 

targeted 500 businesses, and we hope over time that we will grow 

the pool to 3,000 full or part time individuals. At present we have 

300 businesses who are enrolled, and we have served nearly 1,500 

people. 

We work very closely with our Chamber of Commerce who sells 

the Blue Cross/Blue Shield program in Michigan to small businesses. We work with local insurance agents. We wanted to make 

sure that our part of the market was exactly that, a niche. We 

weren’t going to pull from either. 

So we have actually gotten to a point where Access Health is sold 

by insurance brokers for no commission, and they go back after a 

year and try to trade people up to commercial coverage, and so we 

have worked out a very good relationship with our commercial 

group. 

Access Health is only offered in Muskegon County. Members who 

have medical incidents or seek treatment outside of Muskegon 

must pay the full cost of this out-of-pocket care. By limiting our 

coverage area to our own county, we insure that our product does 

not compete, again, with commercial products. It is not intended to 

do that. 

Within the restrictions, we are able to provide a substantial benefit. We enter into contracts with all of the providers in our community. When I say ‘‘all,’’ it is 97 percent, both of our hospitals, almost every primary care physician. 

We pay them on a fee for service basis. They donate ten percent 

of those fees back to help administer the program. I have included 

a brochure that is on the table that describes the medical benefit 

package. We cover everything that is available in Muskegon County, which means if you have cancer, you will get care. If you have 

heart disease, you will get care. 

To make it affordable, Access Health funding comes from three 

sources: employer contributions, employee contributions, community contributions. This type of structuring is commonly referred to 

as a three share model. 

Three share models are different from traditional entitlement 

programs in which the public assumes the full 100 percent of the 

cost. In public policy terms, what it means in our program are that 

taxpayers are liable for 60 percent less of the cost than a traditional entitlement program. 

In Muskegon county today an eligible business can buy Access 

Health for an employee for $42 a month. The employee will pay 

$42 a month, and the remaining part of our cost, $55, is paid for 

by our community. The community accesses federal dollars that 

were already in the system called disproportionate share hospital 

dollars. 

A state may redistribute these dollars to states or to hospitals 

who serve a disproportionate share of indigent people. We directly 

draw down those dollars and use it for the third share of our program. 

34

So, again, what we have managed to do is to keep it budget neutral. We have not created new funds to finance our program. 

Access Health provides Muskegon County with shared wins for 

all the participants. The community reduces its level of uninsured 

as much as one third by the time we get our program up to 3,000 

people. 

Those covered get improved health care access, and our providers 

reduce the level of uncompensated care they must otherwise cost 

shift to insure appropriate patients. 

Finally, businesses benefit by reduced employee turnover and absenteeism and enhanced competition to provide benefits to workers. 

Chairman MANZULLO. How are you doing on time, Vondie? 

Ms. WOODBURY. I am just about there. 

Chairman MANZULLO. Okay. 

Ms. WOODBURY. We think our approach is pretty common sense. 

Rockford has been looking at it, and I am delighted to announce 

that Huntington, West Virginia just got legislation through their 

state legislature, and they are about to kick off. 

We have also been to States like Utah, Idaho, Delaware, and 

Beaumont, Texas before the end of this month. 

So with that, sir, I thank you very much. 

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

Chairman MANZULLO. Thank you very much. We appreciate it. 

Our next and last witness is Johanna Lund. She is the Chairwoman of the Rockford Health Council, and Johanna’s mother and 

my father went to grade school together. So we go back a few 

years, don’t we Johanna? 

STATEMENT OF JOHANNA LUND, PH.D., CHAIRWOMAN, 

ROCKFORD HEALTH COUNCIL 

Dr. LUND. We certainly do, and it is really a privilege to be a 

part of this. 

Thank you, Chairman Manzullo. 

Chairman MANZULLO. Thank you, Johanna. 

Dr. LUND. And your entire committee, Congressman Kirk and 

Ryan and Congressman Weller, whom we met earlier in the day. 

Thank you so much for coming to Rockford. 

I am actually here in a dual capacity as Chairperson of the Rockford Health Council and a small business owner. 

Rockford, like other parts of the country, is facing a crisis in the 

ability of small business owners to obtain and keep affordable 

health insurance. This fact was documented three years ago by a 

study in 1999, the Rockford Healthy Community Study, which 

identified 16 issues, major health care issues, and certainly affordable health insurance care was one of the major issues. 

The Rockford Health Council is a community based health policy 

and advocacy group of 54 organizations representing health care, 

business, education, social services, and government in Boone, Ogle 

and Winnebago Counties, our immediate area.

Since the release of the health of community study, we have been 

working collaboratively to address this issue of access to medical 

care. For most of our residents currently, access to care is through 

employer based insurance or Medicare or Medicaid. 

35

But for a sizable number of residents, access to timely and appropriate health care is impaired due to lack of insurance. We have 

estimated that as much as 44,200 residents, or 16 and a half percent, of our Winnebago County population is uninsured and another 11,000 uninsured in neighboring Boone and Ogle Counties. 

We estimated that a large portion of the uninsured are currently 

employed in the private sector. Among minority populations, the 

estimates are that 23 percent of African Americans and 33.5 percent of Hispanics are currently uninsured. 

Our efforts began with at least two premises. One, we want to 

assure access to health care to those who do not currently have access, and it is not our intention to compete with the commercial insurance market. 

Our desired result is improved health access and outcomes, and 

we also do not want to do it on the backs of doctors and hospitals. 

In September of 2000, we sent a team to Muskegon, Michigan, 

to examine their innovative program developed for their small business community, and it is one we feel worthy of replication, but we 

do not intend to exclude any other workable model. 

We were granted a federal community access program grant last 

September and have been working diligently to develop a workable 

model of coverage for small business owners and their employees. 

We believe that small businesses are having difficulty obtaining affordable coverage from the private market, in part, due to the high 

cost of mandated benefits and, in part, due to adverse selection 

based on group size. 

The federal CAP grant has provided funding for a concentrated 

effort to develop new options for our small business community. 

Through a comprehensive study of 4,700 small business owners 

with fewer than 25 employees in Winnebago County, which was 

completed in December by Health Systems Research, what we 

found were the following: 

The average small business in Winnebago County employs just 

under nine persons. Forty-seven and a half percent of the respondents do not offer health insurance. Even when companies offer coverage, only 69.2 percent take the coverage, with 10.7 percent not 

eligible at the time of the survey. 

For those individuals who do not take the health insurance offered, 59 percent are thought to be using their spouse’s plan. Twenty, point, four percent say that such employees cannot afford their 

portion of the premium. 

Small employers in Rockford reported rapidly accelerating health 

plan premiums, an average increase of 26 percent last year. Ninety 

percent of the respondents not offering coverage cited high cost as 

the reason. 

We have retained Health Management Associates of Chicago as 

our principal consultant in the development of a plan appropriate 

to our needs and the laws and regulations of Illinois. We have met 

with area legislators, hospital CEOs and interest groups to inform 

them and to seek their support. We have engaged the Illinois Department of Insurance in high level discussions about how to create 

a new model of affordable coverage for the 4,000 employees we estimate could benefit from an initial plan. 

36

I commend the State Department of Insurance. They are working 

to help us facilitate our plan. Two weeks ago, we had a small 

group, focus group, of nine employers, asking their input in helping 

design a coverage product and further meetings are planned. 

We are currently working through the details of a plan that 

would offer basic medical, pharmaceutical and limited hospital coverage for working adults employed by businesses of two to 25 workers with a median wage of $12 per hour who have not offered coverage for the past year. 

We hope to develop a model of community coverage like the third 

share arrangement with employers, employees, and the community 

sharing the costs. Our actuary is currently pricing this model, 

which we expect to be able to offer to eligible small businesses at 

no more than $75 per month or less per employee share. The $75 

was arrived at because that seemed to be the participation break 

point documented in our survey. 

Our goal is to develop a marketable product to bring to small 

business owners before the end of this year. If we are successful, 

this approach could be a model for other Illinois communities. 

We appreciate the recognition that this Committee is providing 

for locally developed solutions to the need for affordable coverage 

that have potential applicability on a community-by-community 

basis. 

Again, I thank you and look forward to your comments and questions. 

[Dr. Lund’s statement may be found in appendix.] 

Chairman MANZULLO. Thank you, Johanna. 

Mr. KIRK. Mr. Chairman, I have got to meet with our first responders in Riverwoods. 

Chairman MANZULLO. Okay. 

Mr. KIRK. So I have got to take off. 

Chairman MANZULLO. Well, thank you for coming. 

Mr. KIRK. There is not a day goes by that this subject does not 

come up. So you are right on target. 

Chairman MANZULLO. We held a hearing in your district what, 

last year? 

Mr. KIRK. That is right, and I just want to applaud your leadership. 

Chairman MANZULLO. Thank you. 

Mr. KIRK. Your committee is right on target here. 

Chairman MANZULLO. Thank you for coming. 

Mr. KIRK. Thank you. 

Chairman MANZULLO. Mr. Ryan, did you want to ask some questions? 

Mr. RYAN. Sure. Did you want to go first, Mr. Chairman? 

Chairman MANZULLO. No, go ahead. 

Mr. RYAN. Okay. Well, thank you. 

This has been really enlightening. Ryan, I wanted to ask you a 

couple of questions. I notice you have a lot of Ryans in Illinois. 

[Laughter.] 

Mr. LEVIN. You would think we were in Ireland. 

Mr. RYAN. I am intrigued with your actuarial background academically, and your model that you prescribed is one, and correct 

me if I am wrong, that is individual based where you make sure 

37

that you have informed consumers making decisions. And would 

you agree that in the current system you do not have informed consumers and that is a source of the big problem with the cost increase that we have? 

It is really not a competitive environment. Would most of the 

panel agree with that? 

Mr. RELJIC. Absolutely. 

Mr. RYAN. What do you think, and, Dr. Lund, you said something 

that I thought was very interesting, which is we are not trying to 

preclude other workable models. It seems like what you have heard 

with these two panels are different ideas on how to achieve the 

goal of getting access to affordable health insurance so that there 

are different workable models. 

What is your, and I would like to ask the panel, all of the panel, 

what is your impression of basically what the President outlined on 

February 11th in Wisconsin when he gave his big health care 

speech? What the President outlined was basically this: A refundable health insurance tax credit, $1,000 for individuals, 

up to $3,000 for families to purchase health insurance, association 

health plans so that small businesses and individuals can get access to pools, and then unlimited medical savings accounts, which 

for those who do not know what medical savings accounts are, are 

like an IRA for health care. 

Right now, as Ms. Jensen said, it is deeply regulated. It is 

capped to the amount of people that can participate in it. In the 

Ways and Means Committee we are advancing legislation to 

unlimit the amount of MSAs that can be used in this country and 

reduce some of the regulatory barriers. 

What do you panelists think of that model, tax credit with pooling plans across the country and with unlimited MSAs? Do you believe that each of the models that you are calling for, that you are 

developing could thrive in this environment? 

And then at the end of the day, would we or would we not be 

able to have a healthy competition of ideas and models at work for 

the people in this country to try and achieve better health care savings? 

And then would that not provide us with not just putting our 

bank on one good idea, but releasing a bunch of good ideas to get 

at the goal of affordable health insurance? 

And I will start with you, Ryan. 

Mr. LEVIN. I think you are right on in that there is no one solution. There are clearly a number of solutions and some are more 

applicable in some circumstances than others. The proposals that 

the President put forward, I think, have a lot of merit. Specifically, 

the tax breaks, that will certainly increase affordability. 

Increasing the ability to use medical savings accounts I strongly 

support. My view is that that should not be restricted to opening 

them up to larger employer groups and more participants, but 

should also include moves to increase the flexibility of the product 

designs within that structure. 

Regarding association health plans, I have some strong reservations, and in a nutshell, my view is that unless they’re implemented very, very carefully, they are a recipe for disaster because 

of the selection issue. As soon as you offer an opportunity to a 

38

number of individual decision makers to participate or not to participate, they will make their decision as to whether they should 

participate based on the benefit it provides them personally or 

their organization. 

What that means is that you tend to find those who cannot get 

a better deal elsewhere participating, and you get into that risk 

spiral where the cost for those in the group continues to increase 

because those who can get better deals elsewhere go elsewhere. 

Mr. RYAN. Now, that is the topic of adverse selection that we debate constantly in our committee, and it is important to note that 

association health plans do not necessarily mean that they are 

going to offer one health insurance package to participants in the 

plan. 

They could function like, I assume, your state health insurance 

plan does, Wisconsin’s state health insurance plan or the federal 

employee health benefit plan, which is a laundry list of access to 

different products you can use. 

I chose the Blue Cross PPO, but I think you mentioned you are, 

Don. 

Chairman MANZULLO. Most members have because it covers the 

family both in Washington and——

Mr. RYAN. Yes, and we have many choices. So it seems that, if 

the AHP is structured correctly with the right solvency standards 

and those kinds of things and with the wide variety of choices, that 

the adverse selection can be dealt with. 

But it is an important thing. Does your model that you articulate 

in your testimony with Discovery fit with what we just discussed 

as being the President’s plan? Can that be furthered? 

Mr. LEVIN. Absolutely, absolutely, yes. 

Mr. RYAN. Ms. Jensen. 

Ms. JENSEN. We were thrilled with the President’s package, and 

as you so eloquently put it, I think it is essential to have different 

interchangeable parts that work together. 

The three things that our members tend to look for, and we ask 

our members before we get involved in any issue, is they do not 

like the government telling them what to do. They do not like mandates, and they like competition because that is the kind of environment that they work in as a small business owner. 

So those three components of the President’s package are essential, and our only concern about tax credits is if you do them alone, 

they are great because they provide you with money and resources, 

but they do not provide the competition that brings premiums 

down. 

So we think it is important that all three work together. 

Mr. RELJIC. I would agree. I would also add that the issue of this 

adverse selection is one that is debated not only in Congress, but 

in state legislatures around the country as well. 

But I think we need to take a look at, and I certainly do not 

know the answers to this, but we really need to take a look at what 

is occurring right now because an insurance company really has a 

motivation to find the healthiest people possible, and so it becomes 

an actuarial game that whoever has the best actuaries to determine what those losses are going to be is to be the most profitable. 

39

We really should take a look at what is being done to share the 

cost overall as opposed to having a motivation or an incentive to 

find the most healthiest group or the most healthiest customer. I 

think that is where we really—the President’s package certainly 

goes a long way at helping get more affordable coverage, but I 

think we also need to take a look at that aspect because as you 

look at it right now, it is completely an incentive to have the best. 

The company with the best actuary is the most profitable insurance company as opposed to one that is managing the care better 

and sharing those risks. 

Ms. WOODBURY. If I look at my community and I think about tax 

credits, I think about the people down the block at the Chamber 

of Commerce because our Blue Cross/Blue Shield product has been 

skyrocketing, and every time it goes up they lose members. 

And I think tax credits probably have a bigger impact on their 

part of our local market because it stops businesses then from sort 

of getting themselves out of the market altogether and just dumping coverage. I think a tax credit really helps businesses that are 

already there. 

It does not help very much with that part of the market that we 

work with, which is a fairly low income group. If ten percent of the 

businesses that we currently have in our program are child care 

businesses, the average child care worker makes $15,000 a year. 

There is not the expendable income up front to wait for a tax credit 

at the tail end. 

Mr. RYAN. Well, If I could jump in, the President’s proposal is an 

advanced refundable tax credit. 

Ms. WOODBURY. Okay. 

Mr. RYAN. So you do not wait until the end of the tax year. You 

get it every month when it comes through. 

Ms. WOODBURY. Okay. That would be critical because these folks 

just do not have the money.

Mr. RYAN. No, it is a good observation. 

Ms. WOODBURY. I would like to point out though I would like to 

see an insert there in terms of community innovation because I 

think that while we debate these issues and we have debated them 

for a long time now in terms of what we are going to do about an 

insured in the country, that some of the best innovations are coming out of communities. It is not just mine, but communities across 

the country have just sat down, like Rockford, and said, ‘‘Let’s get 

our own arms around it. This is affecting our own hospitals, our 

own doctors.’’

We have always talked about all politics being local, and so is 

health care. And I think there comes a point where it would be 

good maybe. We have innovation types of programs for all sorts of 

things, certainly in research. Why not some innovation money to 

allow communities to also explore options? 

Because we always tend to think we have invested everything 

that is inventable, and that is not true. 

Mr. RYAN. Well, and that is what the market does. 

Ms. WOODBURY. Yes, it does. 

Mr. RYAN. One thing I wanted to add is that there is a big debate right now in Washington and Congress about whether or not 

the tax credit goes to people with employer-sponsored health care 

40

or not. So there is a concern that if you offer just the individual 

market a health care tax credit, you will peel away from employersponsored health care. 

Some of the proposals have a smaller credit available for those 

enrolled in employer-sponsored plans. So it would cover out-ofpocket costs and then a higher credit for those outside of it so that 

you do not carve out or shift away from one of the two models and 

so that you truly do present a level playing field so that ideas can 

compete, the market can work, and that incentive structures, as 

you said, Ryan, can be firmly put into place. Then let’s see the good 

ideas flow and see what works the best way. 

And that is hopefully what we will end up doing at the end of 

the day. 

Dr. LUND. I certainly cannot add a great deal to what the rest 

of the panel has said. I like the idea of the advanced refundable, 

provided that that is not used for other expenses. 

Mr. RYAN. It would not, no. 

Dr. LUND. It would have to be limited. I understand that is 

where the President wants it to go. I am concerned that as it goes 

through its normal processes, that that might be changed. So that 

would be a concern. 

The other thing is we can be as innovative as we want in communities, but if we do not have some sort of equality among the 

states, for instance, we cannot do in Illinois what Muskegon has 

done because of our legislative process, because of our legislation 

currently in place. 

So I would like to see some equity, and then we can change and 

perhaps fund not only innovation, but forms whereby we can exchange this information. Right now we pretty much have to seek 

that out for ourselves. 

But I think the President’s plan was a very good one. I was very 

happy to see it. 

Mr. RYAN. And I think the concern you mentioned about whether 

the tax credit goes to health care or something else is very well 

founded. One of the ideas that we are kicking around to prevent 

that from happening, prevent it from being spent on something 

else, is to do it through the employer model. Do it through withholding so that the HR person at the company, if you’re at a business that doesn’t offer health insurance or does offer health insurance, sends it right to the insurance company. 

You could do it through other reimbursement ways, through the 

government, through a FICA tax withholding where it goes 

straight to the insurance company without having to have the individual deal with it, and then have the chance for fraud like we 

have had in the earned income tax credit and things like that. 

So it is just food for thought. 

Dr. LUND. Right. 

Mr. RYAN. I can tell I have gone way over my five minutes. 

Dr. LUND. Just one quick comment. On the MSAs, we are taking 

a look as a possible alternative. I said we are not excluding any 

model. It is something we are calling MSA-lite. That would be one 

opportunity for us to perhaps be able to get up and moving more 

quickly than having to wait for legislation. 

Mr. RYAN. I appreciate that. 

41

I just want to mention I want to thank the Chairman. I have to 

head back up to Janesville as well. 

Chairman MANZULLO. Thanks for coming. 

Mr. RYAN. So thank you very much for this hearing. I appreciate 

it. 

Chairman MANZULLO. I appreciate your input. 

Oftentimes I like to find out what associations people belong to 

to see if they could somehow, say, within an association health 

plan—do we have any people from the Farm Bureau here? 

What about the Association of Building Contractors? Okay. 

Any other NSIB? All right, okay. 

Any medical professional groups, AMA, ADA? 

So these are aiming my question. I ask that for your benefit. 

Who is fighting AHPs and why? 

Ms. JENSEN. Well, we have got a variety of opponents, largely 

state regulatory folks, state insurance commissioners, and insurance companies. Those tend to be the largest opponents, and our 

bottom line concern, for insurance companies we cannot understand why they oppose it because we think that largely they would 

be a partner in an AHP, that they would help offer the product. 

So the only reason we can assume they oppose it is a purely competitive one, and for State Insurance Commissioners we have gone 

a long way to address any of their concerns about adverse selection, 

cherry picking, as they call it, and we feel that we have got a very 

substantial product that is very safe. 

And, frankly, you know, we have got an uninsured population, 

small business, that is 60 percent. So it is not that they are going 

to be cherry picked out of another health plan. They do not have 

anything right now. So we do not understand the opposition, frankly. 

Chairman MANZULLO. What I—— Mr. LEVIN. Can I? 

Chairman MANZULLO. Go ahead, please, Ryan. 

Mr. LEVIN. Perhaps I can answer that at least my own personal 

perspective. I do not oppose association health plans from a business or competitive standpoint. I simply believe that they will not 

work. 

And if as an insurance company I would be forced to participate 

from a risk perspective, then I believe that would be loss making 

to my company, and that clearly would not be in our best interest. 

But the existence of association health plans as you clearly point 

out would not harm our business unless we were forced to participate in a way that we believed was not sustainable. 

And, therefore, my personal reservations are based on my belief 

that it is not a sustainable solution to the problems that we are 

facing. 

Chairman MANZULLO. But won’t you agree that the larger the 

pool of prospective insureds, the greater the sharing of the risk, the 

spreading of the risk, and the lower the premium? 

Mr. LEVIN. Not exactly, no. 

Chairman MANZULLO. Let me ask it another way. If a Ma and 

Pa company with five employees tried to get insurance, isn’t their 

insurance a lot more than a company with 1,000 employees or 

5,000 employees? 

42

Mr. LEVIN. The answer to that depends on their health status. 

If that Mom and Pop company of five employees has a healthy 

group of employees, they may well be able to get health insurance 

for less cost than a larger group. 

Chairman MANZULLO. So that is called cherry picking; isn’t that 

correct? 

Mr. LEVIN. It’s called risk assessment. [Laughter.] 

And appropriate pricing. 

Chairman MANZULLO. But in the large corporations you do not 

require a profile as to every employee’s medical condition; isn’t that 

correct? 

Mr. LEVIN. And the reason for that is because you have a captive 

participation audience. 

Chairman MANZULLO. Right. 

Mr. LEVIN. I agree with your statement that the larger group in 

general should have lower costs than a smaller group because of 

administrative efficiencies, et cetera. 

From a health risk perspective though, the two do not go hand 

in hand. From a health risk perspective, it depends on the choice 

to participate or not participate in the pool. 

If that choice exists, then you get into the adverse selection 

issues, and if the choice is made by employers—— Chairman MANZULLO. But you have adverse selection now with 

Blue Cross/Blue Shield who will say, ‘‘I want five healthy employees.’’ But with the 1,000 people over here where they do not get the 

health background, no health check, and give a lower premium, 

there is no cherry picking going on. 

Mr. LEVIN. Well, with the 1,000 employees, the risk—— Chairman MANZULLO. The universe is complete. 

Mr. LEVIN. Yes. 

Chairman MANZULLO. All right. So if you took these five employees for this one company and let them just figuratively be part of 

1,000 employees, just treat everybody the same as they come into 

this so-called pool, which I still do not understand what you are 

doing that Blue Cross/Blue Shield was trying to establish, I mean, 

then can’t you treat those people in multiples of fives and say, well, 

you can treat 1,000 people? 

Mr. LEVIN. Here is the issue. If you have a population of 1,000 

people and you have mandated participation of those 1,000 people 

in the risk pool, then you have a sustainable solution. 

As soon as you say we have got this population of 1,000 that are 

all being treated the same way, each of those people can decide to 

opt in or opt out. Then you have a greater likelihood of the 

unhealthy opting in, and the healthy opting out. 

Chairman MANZULLO. My brother-in-law is IBEW. He is a lineman. You could not pay me enough dollars per hour to do what 

Brad does. His insurance is carried by the union regardless of who 

his employer is. He gets great coverage. He has lots of choices, and 

he is an electrician. 

Mr. LEVIN. But there you have mandated participation because 

all members of the union are required to participate in that. 

Chairman MANZULLO. Does anybody want to touch that? 

Dr. LUND. Don, just from a personal experience, Mr. Chairman——

43

[Laughter.] 

Chairman MANZULLO. Yes, Dr. Lund. Does that make it easier 

for us? 

Dr. LUND. When we sold our company, we had 31 employees. So 

that got us just over the 23 employees. Our premium for my husband and myself was about $240, $250 a month. 

The day that we changed from that, we were the same two people, the same risk factors, the very next day our premium went to 

almost $700 a month because now we were only two. 

Chairman MANZULLO. And AHPs would love that, too, be part of 

2,000 or 20,000. 

Ms. JENSEN. Can I make one quick point, Mr. Chairman? 

Chairman MANZULLO. Sure. 

Ms. JENSEN. All we are asking for is essentially to be allowed to 

participate in what is, as you mentioned, already going on with 

large employers and unions every single day right now. I mean, it 

is working very effectively for those plans. 

If you look at the Caterpillar model or the John Deere plan, they 

provide a high level of health care, and it is much cheaper. As far 

as cherry picking goes, unfortunately our members are cherry 

picked every day. Depending on the laws of the state, whether the 

insurance company chooses to underwrite them is a big question. 

So the insurance company essentially has the power to say, ‘‘Yes, 

you will participate,’’ or, ‘‘no, you will not,’’ and under AHPs, the 

association does not have that ability. They say, ‘‘We must offer to 

every single person who participates in an FIB.’’ Chairman MANZULLO. Okay. Maybe I am missing something 

here, but I started off with the premise, and I still believe, that the 

larger the group, the more you spread the risk. It brings down cost 

shifting in the end, which makes insurance premiums cheaper for 

people who already have insurance. 

And yet we find this continued opposition from Blue Cross/Blue 

Shield on a flawed CBO report that has been discredited by I do 

not know how many economists and coming from the labor unions. 

I mean, AHP’s are nothing more than the model for the labor 

unions, they have been out front on this issue for 50 years. Because 

my dad belonged to 792, the local carpenters union, and Dad floated from place to place to place before he went into the restaurant 

business. Our family always had insurance because the insurance 

was not employer based. It was based upon the pool that existed, 

and he paid so much into the pool and with the labor union dues, 

et cetera. 

And that has been one of the most seamless plans. You could go 

from an IBEW probably to another craft and transfer your insurance. If you decided to go, you know, from electrical work to plumbing work, you would probably have a transition period, but the 

family is continuously covered there. 

But I see something so simple as the AHP getting hammered. 

Congresswoman Vela ́zquez, who is the ranking minority member of 

our Small Business Committee, has a lot of labor support, and she 

is a co-sponsor of a bill for AHPs, and members of Congress are 

standing out. 

But if I am wrong, that the larger the pool, the lower the insurance rate, then the AHP is for naught. Is that correct? 

44

Well, let me ask you one last question. The bill to which you 

made reference in the house, do you know what the status of that 

is? 

Mr. RELJIC. It is going to pass today. Who knows? I mean the 

house and senate are in session right now. It passed out of the 

House Health Care Committee with a substantial number of votes 

in a bipartisan manner. 

Chairman MANZULLO. So it has bipartisan support? 

Mr. RELJIC. Yes. In sessions past it has passed the house and 

stalled in the senate. 

Chairman MANZULLO. Who is opposed to the bill? Do you know? 

Any groups? 

Mr. RELJIC. Mostly insurance groups and agents as well. 

Chairman MANZULLO. Okay. 

Mr. LEVIN. Can I just make one point? 

Chairman MANZULLO. Yes. 

Mr. LEVIN. That my reservations are with no vested interests. It 

is a professional opinion and a professional recommendation I am 

making that risk pooling only works or community rating only 

works with mandated participation. That is why it works for large 

employer groups and unions. 

As soon as participation is not mandated, the model falls over. 

Chairman MANZULLO. Do you disagree, Amy? 

Ms. JENSEN. I do not believe that union members are mandated 

to participate in the union plan, but we would have to discuss that 

separately. 

Chairman MANZULLO. Does anybody know the answer to that 

question? Yes. 

AUDIENCE MEMBER. Maybe I am older. Association health plans 

have existed for generations, and what everybody seems to be missing is why would they all fall apart. Why don’t we have them anymore? 

And the reason we do not have them is exactly what Ryan is saying, because the choice factor drives the healthy out as soon as premiums start going up. 

So what happens is you get the awful spiral where you are stuck 

with the sick and the healthy go elsewhere because they can go 

elsewhere for coverage. And then union model does not work because basically when you join the union, that is your health plan. 

Now, you can obviously, I suppose—I am not even sure you can 

do this—but I suppose a union member can opt out of the union 

plan if he so chooses to buy individual coverage. 

Chairman MANZULLO. But what if his spouse or her spouse is 

covered elsewhere? 

AUDIENCE MEMBER. Well, then he would have a choice. 

But the point is though that you are not going to get the adverse 

selection in a union plan. You are not going to get the adverse selection in a General Motors plan. 

Chairman MANZULLO. Because they are all healthy working people. 

AUDIENCE MEMBER. No, because it is a preexisting pool that is 

large enough to sustain the illness of the participants. Whereas 

when you are talking about a small business or your group, the deVerDate May 23 2002 16:12 Jun 06, 2002 Jkt 079638 PO 00000 Frm 00048 Fmt 6633 Sfmt 6602 E:\HR\OC\A638.019 pfrm12 PsN: A638
45

cision making mechanism is totally different. It is driven almost 

uniquely by cost. 

So as soon as that small employer finds himself in a plan that 

becomes expensive and he can find coverage elsewhere more cheaply, he opts out immediately. 

You do not have the same phenomenon. If I end up a General 

Motors employee, that is not the same model. If I am a union member, it is not the same model. 

Now, you are absolutely right when you say, you know, the larger the numbers, the better the risk and the lower. You are absolutely dead right. The problem is that you cannot fit small employers into that larger pool unless you mandate it, and that is the 

problem. 

We are not making this up. This is historical. 

Chairman MANZULLO. No, I understand. There is another issue 

here. There is a First Amendment issue of right of association. I 

mean, I have a big problem with laws that say small business people cannot band together and buy insurance in groups. There is a 

constitutional issue that no one is even talking about. 

You know, I have an appointment at two o’clock. So what I am 

going to have to do is to, Ryan, give you the last word on it. 

Mr. LEVIN. Can I just make the point? 

Chairman MANZULLO. Go ahead. 

Mr. LEVIN. In states like Illinois, there actually are rules designed specifically to protect small employers from an insurance 

perspective. Those laws have restrictions on how insurance carriers 

can write a small employer group based on their health status. 

In states where these laws are more restrictive, what happens is 

the number of uninsured has increased because the model is 

unsustainable. So the more restrictive these small group models become, and what you are talking about with association plans where 

there is community rating within the plan is essentially a very restrictive small group law. 

The tighter those laws, the lower participation becomes and the 

higher health care costs become, and that has been proven time 

and again. 

Chairman MANZULLO. I want to thank the panel for coming. 

The basic problem is this. Small businesses cannot afford 20, 25, 

27, 30, 35 percent increase in insurance premiums every year. 

Mr. LEVIN. Absolutely. 

Chairman MANZULLO. And so we are trying to do something innovative. Every time the small business people try to do something 

innovative, somebody comes in and says, ‘‘Your model does not 

work.’’

Well, my comment is the present model is not working. We have 

got small business people that are closing up their doors and going 

to work for larger employers. It is destroying the spirit of entrepreneurship. 

And the cost of increase of insurance premiums on a small business is much greater than it is on the cost of a bigger business. We 

had a hearing in Washington about three weeks ago. I could not 

get Blue Cross/Blue Shield to admit that. 

If premiums go up, usually premiums for the small business person are doubled than they are for the larger corporation. But we 

46

are at the point now here where the system is broken. The system 

is broken. I mean, no one wants to come in with any type of socialistic scheme or anything like that, but we are looking for some solutions. 

And the only thing I see out there besides the tax credit that 

goes even to people that do not pay taxes, which is called the refundable tax credit, is to somehow allow all of these small groups 

of people out there the ability to form an association to be able to 

come together to try to buy insurance for themselves. 

That is an AHP. You know, let’s think past and try it. If it 

breaks, it breaks. Because the present system is broken now, and 

at this point we do not have much to lose. 

Well, listen. I want to thank you all for coming. It has been tremendous testimony. The purpose of these hearings for the person 

doing the recording is to gather all of this information, and I have 

heard of some innovative plans. 

Ryan, you know, that South African plan, that is a great model. 

And the quality of the different plans, I have never heard this type 

of diversity before in all of my years on Capitol Hill when it comes 

to different approaches to helping to insure small business people. 

Somewhere along the line each of the things that you have testified to may find its way into some type of legislation. The insurance industry has raised, in my opinion, some red flags that are 

cautionary signs that should be used in setting up these AHPs, and 

that has been extremely valuable because they have seen not only 

their experience rating, but worked with other AHPs, that there 

are giant holes in the way these things work. 

And I will trust somewhere along the line the insurance companies, the labor unions, and the small business people can sit down 

and come up with a workable program that will address each of 

these deficiencies, and that is the reason why we have hearings 

like this. 

This meeting is adjourned. 

[Whereupon, at 12:40 p.m., the Committee was adjourned.]

OPENING STATEMENT OF CHAIRMAN DONALD A. MANZULLO

Good Morning. It is my pleasure to welcome everyone to today’s Small Business 

Committee field hearing on the crucial issue of small business access to health care. 

Exorbitant health care costs are one of the biggest expenses small businesses and 

the self-employed incur as they struggle to provide coverage for their employees. As 

Congress continues to examine our nation’s health care problems, we need to remember that sixty percent of the estimated 43 million uninsured are small businesses owners, their employees and families. 

Small business owners are unable to absorb spiraling health care costs and find 

themselves priced out of the health insurance market. Many owners are faced with 

the choice of staying in business or providing their employees with insurance. I personally know of a small business owner who pays $700 a month and has a $5,000 deductible to insure both himself and his wife. He and his wife are considering selling their business and taking jobs that would pay considerably less in 

order to receive health care benefits. 

Our current health care system does not provide equal access to affordable and 

quality healthcare for small businesses. 

One of the reasons small businesses cannot afford health coverage for their employees is that they are unable to achieve the economies of scale and purchasing 

power of larger corporations and unions. Small businesses suffer from unequal 

treatment—what they want most is a level playing field when it comes to health 

care. 

Large corporations use the purchasing power of thousands of employees to offer 

affordable health insurance to their workers. Small business owners, on the other 

47

hand, have to find their insurance on an individual basis, making it very difficult 

and expensive to find affordable health coverage. 

I can’t help but wonder why insurance companies cannot offer affordable 

healthcare to small business? Why must insurance companies charge the most to 

those least able to pay these inflated prices? 

I was very heartened to see President Bush issue his plan for helping small businesses prosper in our economy. The President is aware of the health care access and 

affordability problems facing small business, and his plan includes concrete steps to 

increase health security for employees of small businesses. His agenda calls for Association Health Plans to be available for associations that want to provide health 

coverage for their members, and it calls for a permanent extension of Medical Savings Accounts, including a significant reduction in the required deductible for these 

health accounts. 

Congress needs to ensure that there are many different health insurance options 

for small business owners to utilize. We need to help our businesses attract and 

keep employees, and nothing helps more than the ability to provide health insurance. 

I look forward to the testimony of all the witnesses here this morning and I want 

to particularly thank those who have traveled a long distance to be with us here 

today. 

PREPARED STATEMENT OF MICHAEL HOLOKA

My name is Michael Holoka. I am an attorney in Rockford, Illinois. I am married 

to a physician and have a twelve year old daughter. We had a traditional medical 

plan through my practice which covered my family. Since I am a sole practitioner 

with only one employee, this was the most economical way for my family to go. We 

have had our traditional insurance plan with Guardian Insurance since 1995 with 

no additional claim experience. I was paying about $5,000.00 per year. By the year 

2000, we were contemplating going without any insurance because of the cost of the 

premiums being $21,000.00 per year for our traditional program still with Guardian 

Insurance. This was based on the fact that we had no claim loss, that is we had 

not made any claim against Guardian for medical insurance purposes since 1995. 

Realizing that we could not afford to continue an insurance program which was 

going to continue to rise, at a minimum, twenty percent each year. We considered 

picking up a catastrophic insurance policy and basically self-insuring. While health 

care services had diminished and physicians were being paid less for their services, 

health insurance premiums continued to rise. One day my wife received a facsimile 

concerning something called an MSA insurance plan. I was not aware of nor had 

I heard of such a plan. However, the plan turned out to be a blessing. In fact, it 

had sounded too good to be true. 

Some of the main features of the plan were that we could pick our own family 

deductible between $3,100.00 and $4,800.00. We also had the opportunity to save 

up to 75% of the deductible each year, which meant we could put into an MSA account an amount just over $2,300,00. If we chose not to use those funds for the deductible, they would just continue to build in the account which we have with Merrill Lynch. The best part of the plan however was the premium. While looking at 

a premium of over $21,000.00 per year with Guardian Insurance for a traditional 

medical plan, the medical plan we chose with Fortis Insurance was approximately 

$3,600.00 per year. This included maternity for my wife. If we chose to not include 

maternity coverage, the premium would have been considerably less. 

It was amazing to me that we had heard very little about MSA insurance, particularly in view of the insurance crisis. When I attended a small business breakfast 

with Congressman Manzullo, I explained how this plan worked. It was amazing to 

me that none of the small business owners in attendance had heard of this plan 

and there had to be over 25 businesses represented at the meeting. 

It is my understanding that there are any number of variables that go into the 

premium. Obviously the higher the deductible you choose, the less your premium 

will be. One quote I received for a $4,500.00 deductible was less than $2,500.00 per 

year. If we chose dental, the coverage would have added less than $1,000.00 to our 

plan. 

It is not difficult to see how vital the MSA program is for small businesses so that 

they can provide the proper benefits for themselves and their employees for an extremely reasonable cost. There is even a term life insurance feature available up to 

$50,000.00 under certain MSA programs. 

The MSA account itself is a tax favored account set up to pay for medical care 

and to allow for a build up of savings to pay for future medical expenses. The MSA 

48

itself is a high deductible plan with extremely low premiums compared to traditional insurance. The premiums are of course deductible for the business and the 

amounts contributed to the medical savings account also have special tax treatment. 

When you use the providers participating doctors and hospitals, one hundred percent of the eligible charges are picked up after deductible. Plans vary as to what 

percentage is picked up if you use out of network care. The bottom line is that the 

MSA plan certainly will allow small businesses to affordably provide medical coverage to the owners as well as to their employees. 

We are extremely pleased with this plan. Without it, we would probably not have 

any insurance coverage, would be self-insured for health coverage and would probably be maintaining a catastrophic insurance policy which, premium wise per year, 

would probably equal or exceed the amount we are paying for the MSA program. 

It is my hope that the MSA program will continue and be of great benefit to small 

business and allow many small businesses to remain soluble in the current economic 

market. 

PREPARED STATEMENT OF DR. BILL KOBLER

I am pleased to be here to present a medical perspective on the rising cost of 

health care, which is a logical contributor, among other factors, to the rising cost 

of health care insurance. This is a very complex and multi-faceted problem, and I 

surely will not be able to present a complete picture today, but I hope I can provide 

some insight into the problems we face as health care providers. First, a little background. 

An article in the New York Times in January states the government reported that 

in 2000, national health spending shot up 6.9 percent to $1.3 trillion in 2000. This 

was the largest one-year percentage increase since 1993. Hospital and drug costs 

were the main factors in the latest increase. (NYT 1/8/02) 

Growth in health spending outpaced the 6.5 percent growth of the economy as a 

whole in 2000. Health care now accounts for 13.2 percent of the nation’s total output, up from 13.1 percent in 1999 and 12 percent in 1990. As a physician, I could 

argue that this is not enough, but I’ll leave that alone for now! 

What are some of the factors leading to these cost increases? There is an old problem which is again rearing its ugly head. In the 1970’s, there was a crisis for physicians when all the major professional liability insurers in Illinois pulled out of the 

market. St. Paul and CNA again stop providing coverage. 

Kenneth S. Abramowitz, of the Carlyl Group states ‘‘The rising cost of malpractice 

coverage is becoming one of the most important factors driving inflation for physicians’ services.’’

In many hospitals, insurers are not only increasing premiums but are also sharply 

reducing amounts of coverage and raising deductibles. A Chicago hospital paid the 

St. Paul Companies $1 million for $40 million in coverage in 2000 with a deductible 

of $15 million. In 2001, St. Paul raised the premium for the hospital, to $1.8 million, 

but cut the coverage to $10 million and more than doubled the deductible (NYT, 9/

10/01). Insurers say the increases are due to large awards by juries and large settlements. 

Some research suggests that the average jury award rose to $3.49 million in 1999, 

up from $1.95 million in 1993. (Jury Verdict Research, Horsham, PA) 

According to the Liability Monitor in Chicago, professional liability premiums are 

rising at an annual average of 30%. 

Because of the rising medical malpractice premiums, medical costs are rising in 

another way: Physicians are practicing more defensive medicine—ordering extra 

tests and choosing procedures that limit their risks. 

Another item is the explosion in the availability of very good, but very expensive 

prescription drugs. This is a serious problem for all recipients of health care. The 

proposal to provide these drugs under the Medicare program is a wonderful concept, 

but frightening when one pauses to consider the source of the funds for this population who consume a very large percentage of pharmaceuticals. 

Medicare managed care and other private insurance plans have cut drug benefits 

in the last few years. The average senior spends about $500 annually for medications, plus hundreds and even thousands more for private insurance policies to cover 

some of the cost of prescriptions. I saw a patient just the other day with a $7,000 

tab for medication in the year 2000!

There are a number of other factors I would like to briefly list, which also drive 

up health care costs. The people of this country have an insatiable appetite for 

health care services. They are bombarded with story after story of medical miracles, 

advertising of prescription pharmaceuticals, promises of unlimited access to health 

49

care made by their managed care company. Yet there is very little incentive for 

them to utilize these services wisely. 

There is an overwhelming burden of government regulation, which is choking the 

medical profession in its attempts to provide care. Many of you know the alphabet 

soup as well as I, but the provisions of COBRA, CLIA, HCQIA, EMTALA, HCFA, 

now affectionately known as CMS, are burying us in needless paperwork and documentation. We attempt to follow the regulations, at the risk of prosecution, fines 

and imprisonment under a system so complex, that it is impossible to meet all of 

its requirements. And now we will soon face the absolutely terror provoking HIPAA 

statutes! 

We are facing a serious shortage in well-trained nurses. Medical school costs are 

becoming so large as to discourage our best and brightest from applying to medical 

school, knowing they will face huge debt, declining incomes and loss of respect for 

the time they spend and dedication they demonstrate in their career choice as physicians. 

As a doctor, my job is to investigate problems and solve them. It would be easy 

to become discouraged, but medicine is still the most rewarding of professions, one 

worthy of fighting for and defending. I am pleased to see this forum, attempting to 

understand the problems of medicine and its availability to small businesses. After 

all, physician practices have traditionally been counted among the ranks of small 

business. If we work together, keeping the patient as the center of our focus, I am 

confident we will find a solution to our problems. 

Thank you for your time and attention.

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