```

[Senate Hearing 113-663]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 113-663
 
                  A NEW, OPEN MARKETPLACE: THE EFFECT OF 
                  GUARANTEED ISSUE AND NEW RATING RULES

=======================================================================

                                HEARING

                                 OF THE

                    COMMITTEE ON HEALTH, EDUCATION,
                          LABOR, AND PENSIONS

                          UNITED STATES SENATE

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                                   ON

  EXAMINING AN OPEN MARKETPLACE, FOCUSING ON THE EFFECT OF GUARANTEED 
                       ISSUE AND NEW RATING RULES

                               __________

                             APRIL 11, 2013

                               __________

 Printed for the use of the Committee on Health, Education, Labor, and 
                                Pensions
                                
                                
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          COMMITTEE ON HEALTH, EDUCATION, LABOR, AND PENSIONS

                       TOM HARKIN, Iowa, Chairman
BARBARA A. MIKULSKI, Maryland
PATTY MURRAY, Washington
BERNARD SANDERS (I), Vermont
ROBERT P. CASEY, JR., Pennsylvania
KAY R. HAGAN, North Carolina
AL FRANKEN, Minnesota
MICHAEL F. BENNET, Colorado
SHELDON WHITEHOUSE, Rhode Island
TAMMY BALDWIN, Wisconsin
CHRISTOPHER S. MURPHY, Connecticut
ELIZABETH WARREN, Massachusetts

                                     LAMAR ALEXANDER, Tennessee
                                     MICHAEL B. ENZI, Wyoming
                                     RICHARD BURR, North Carolina
                                     JOHNNY ISAKSON, Georgia
                                     RAND PAUL, Kentucky
                                     ORRIN G. HATCH, Utah
                                     PAT ROBERTS, Kansas
                                     LISA MURKOWSKI, Alaska
                                     MARK KIRK, Illinois
                                     TIM SCOTT, South Carolina
                                       
                    Pamela J. Smith, Staff Director
        Lauren McFerran, Deputy Staff Director and Chief Counsel
               David P. Cleary, Republican Staff Director

                                  (ii)

  

                                CONTENTS

                              ----------                              

                               STATEMENTS

                        THURSDAY, APRIL 11, 2013

                                                                   Page

                           Committee Members

Harkin, Hon. Tom, Chairman, Committee on Health, Education, 
  Labor, and Pensions, opening statement.........................     1
Alexander, Hon. Lamar, a U.S. Senator from the State of 
  Tennessee, opening statement...................................     2
Baldwin, Hon. Tammy, a U.S. Senator from the State of Wisconsin..    15
Scott, Hon. Tim, a U.S. Senator from the State of South Carolina.    17
Franken, Hon. Al, a U.S. Senator from the State of Minnesota.....    19
Roberts, Hon. Pat, a U.S. Senator from the State of Kansas.......    21
Murphy, Hon. Christopher, a U.S. Senator from the State of 
  Connecticut....................................................    49

                            Witness--Panel I

Cohen, Gary, J.D., Director, Center for Consumer Information and 
  Insurance Oversight, Centers for Medicare and Medicaid 
  Services, Washington, DC.......................................     4
    Prepared statement...........................................     6

                          Witnesses--Panel II

Counihan, Kevin, CEO of the Connecticut Health Insurance 
  Marketplace, West Hartford, CT.................................    26
    Prepared statement...........................................    28
Corlette, Sabrina, Research Professor and Project Director, 
  Georgetown Health Policy Institute, Center on Health Insurance 
  Reform, Washington, DC.........................................    31
    Prepared statement...........................................    33
Cook, Stacy, Carroll, IA.........................................    38
    Prepared Statement...........................................    40
Carlson, Chris, Principal and Consulting Actuary, Oliver Wyman 
  Consulting, Milwaukee, WI......................................    41
    Prepared Statement...........................................    43

                          ADDITIONAL MATERIAL

Statements, articles, publications, letters, etc.:
    Response by Gary Cohen to questions of:
        Senator Harkin...........................................    64
        Senator Alexander........................................    64
        Senator Sanders..........................................    66
        Senator Whitehouse.......................................    67
        Senator Baldwin..........................................    69
        Senator Enzi.............................................    72
    Response by Kevin Counihan to questions of:
        Senator Alexander........................................    73
        Senator Franken..........................................    74

                                 (iii)
  
    Response by Sabrina Corlette to questions of:
        Senator Alexander........................................    74
        Senator Whitehouse.......................................    75
    Response by Chris Carlson to questions of:
        Senator Alexander........................................    76
        Senator Enzi.............................................    76

  

A NEW, OPEN MARKETPLACE: THE EFFECT OF GUARANTEED ISSUE AND NEW RATING 
                                 RULES

                        THURSDAY, APRIL 11, 2013

                                       U.S. Senate,
       Committee on Health, Education, Labor, and Pensions,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10:07 a.m. in 
room SD-430, Dirksen Senate Office Building, Hon. Tom Harkin, 
chairman of the committee, presiding.
    Present: Senators Harkin, Alexander, Franken, Whitehouse, 
Baldwin, Murphy, Roberts, and Scott.

                  Opening Statement of Senator Harkin

    The Chairman. The Senate Committee on Health, Education, 
Labor, and Pensions will come to order.
    We meet today for the eighth in a series of hearings in 
this committee on the Affordable Care Act.
    We have been through a trying political season since we 
last met about this law. As everyone here is keenly aware, the 
law was a major topic of discussion during the Presidential 
campaign, as well as the campaigns of many House and Senate 
colleagues. But, hopefully, that political season is over. Our 
priority now must be implementing the law as smoothly and 
quickly as possible so that all Americans can share in its 
benefits.
    For the last 3 years, millions of Americans have been 
protected, for the first time, against some of the most 
notorious and abusive practices of the insurance industry. 
Thanks to the health reform, Americans now have the same 
protections that every Senator on this dais has had for years.
    Before the Affordable Care Act, millions of Americans had 
health insurance policies with lifetime limits. The health 
reform law permanently eliminated these limits for 105 million 
Americans. It phases out annual limits by 2014.
    The law requires every insurance plan to cover evidence-
based preventative services that will head-off many illnesses. 
Over 105 million Americans have already taken advantage of 
these protections.
    These preventative services are of particular importance to 
women, who can now receive well-woman visits, contraceptive 
services, and gestational diabetes screenings without co-pay. 
The law guarantees 27 million women access to these vital 
services at no charge.
    Before the Affordable Care Act, millions of young adults 
went without health insurance because their jobs did not offer 
it, or because they were ineligible for coverage on their 
parents' policy. Now, health reform allows young people--more 
than 3.1 million so far--to stay on their parents' policy 
through age 26.
    This is a record, I think, to be proud of. It is a record 
to build on. Even with all of this progress, the best is yet to 
come. Starting in 2014, the Act's most fundamental and 
significant reforms will become effective.
    These reforms will finally deliver on a long overdue 
promise to all Americans. The promise that if you work hard, 
play by the rules, and pay your fair share, you will never have 
to stay awake at night worried that you cannot pay your 
family's medical bills.
    The primary mechanism for these changes is a new Health 
Insurance Marketplace in every State, open for business on 
October 1st of this year. Most importantly, the almost 130 
million Americans who have a pre-existing condition will, at 
long last, have peace of mind. Their health status will never 
again be a factor when they apply for insurance.
    In addition, the new rules prohibit insurers from denying 
coverage or charging more based on gender. No longer will women 
be charged more than men simply because they are women. And the 
law limits insurers' ability to charge more based purely on 
age, making coverage accessible and affordable for folks closer 
to my age, but who are not lucky enough to have the same 
coverage that I do.
    These protections are vital for Carol from Ankeny, IA, who 
wrote me this. She said,

          ``My daughter is 19 years old and was diagnosed with 
        Type I diabetes 9 years ago. Now I don't have to worry 
        about her pre-existing condition, and she can stay on 
        my health care after she graduates from college, giving 
        her a bridge to finding a job with benefits. In 
        addition, the lifetime cap won't be an issue.''

    I should add, that her daughter will never be charged more 
just because of her condition and her gender.
    For millions of people across our country, these reforms 
are transformational. They are making profound, practical 
differences in the lives of ordinary people, and I look forward 
to hearing the witnesses' perspectives on them.
    I want to thank our Ranking Member, Senator Alexander, for 
being here today. I will turn to him for an opening statement.
    But I want to request that the record remain open for 10 
days from today for statements to be submitted to the record.
    With that, I recognize Senator Alexander.

                 Opening Statement of Senator Alexander

    Senator Alexander. Thanks, Mr. Chairman. Thanks for the 
hearing.
    I look forward to the witnesses. I thank Mr. Cohen. Thank 
you for coming, and for the other witnesses.
    I welcome this oversight hearing on the new health care 
law. It is timely because on January 1st, rhetoric turns into 
reality and we will see just exactly what we have.
    Here is what we know we have: with few exemptions, 
individuals must purchase insurance or pay a tax of $95 to 
nearly $700 over time. Unless the business has 50 employees or 
fewer, employers must provide a certain type of insurance or 
pay a penalty of $2,000 per employee. There are $1 trillion new 
taxes as a result of the new health care law; that is according 
to the Congressional Budget Office and the Joint Tax Committee.
    We are hearing today about new rules for allocating costs, 
which means that I may pay less and a young person may pay 
more.
    More people are covered, as Senator Harkin has correctly 
pointed out, and some people will get subsidies to help pay for 
their insurance. All of that will become reality after January 
1, 2014.
    Now, there are some results from this other than the 
expanded coverage, and the results include individual costs; 
premiums for individual insurance are going up. Costs for 
younger Americans are going up, especially to buy insurance. 
Costs to employers of providing health care insurance are going 
up. Many who are self-
employed, and those who have employer insurance--that is about 
half of us, half of Americans--will find they are not able to 
keep their current policy. In many cases, they will be thrown 
into the marketplace to buy a more expensive policy than they 
now have or they will go into Medicaid.
    And as employers struggle, there will be more part-time 
jobs. We are already hearing many, many stories of employers 
who are going to hire people for 30 hours or less, so they are 
not subject to the penalty requirements of the health care law, 
and there will be fewer jobs.
    I have said here in hearings before, the restaurant 
companies who have talked to me and said while before the 
health care law, their goal was to run their store with 90 
employees, now their goal is to run it with 70 because of the 
costs of the law.
    And then as a former Governor, I am especially sensitive to 
States who are struggling with Medicaid. We do not see it from 
this end as well, but you certainly see it if you are a 
Governor. That is why I said that any Senator who voted for the 
health care law ought to be sentenced to serve as Governor for 
8 years and actually try to administer it. Medicaid soaks up 26 
percent of the Tennessee State budget; that is up from 7 
percent at the time I was Governor. And it is soaking up money 
that ought to be used to help the University of Tennessee, and 
other community colleges, and public institutions in the State.
    And then there is one other result, and I have it with me 
here today. There are a lot of new regulations. This is a stack 
of the regulations that have been issued under the new health 
care law to date and it is 7 feet, 3 inches tall and still 
rising. And for a big or small business to think about how to 
deal with that number of regulations, that kind of complexity, 
has to be daunting.
    We have many things we agree on in this committee, and I 
compliment the chairman for the way we work together, but this 
law is not one of them. We have a difference of opinion about 
it.
    In my view, the law was an historic mistake. The reason was 
it focused on the wrong goal. Instead of expanding a health 
care delivery system that already costs too much, we should 
have worked to have as an overall goal reducing the total cost 
of health care and expanding the consumers' role in going step 
by step in that direction.
    I look forward to the testimony, and I will have some 
questions and I look forward to answers. I look forward to this 
coming period of time when America finds the rhetoric of the 
health care law turns into reality, I think there is going to 
be a number of shocked Americans, and it is going to start with 
what we call rate shock as the cost of individual insurance 
premiums go up.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Alexander. We have a vote 
coming up at 11 o'clock. We will do it the best we can.
    We have two panels, and we will start first with panel one 
and Mr. Gary Cohen, director of the Center for Consumer 
Information and Insurance Oversight at the Centers for Medicare 
and Medicaid Services.
    Mr. Cohen is responsible for implementing many provisions 
of the Affordable Care Act including the consumer protections 
reforms already in effect, and those that will start in 2014. 
His office also works with States to set up Health Insurance 
Marketplaces in the States.
    Mr. Cohen comes with a distinguished insurance background. 
He has led the Center's Division of Insurance Oversight. He 
also returned to his home State of California to serve as 
general counsel for its Health Insurance Marketplace.
    Mr. Cohen served as chief of staff to Congressman John 
Garamendi, both here in Congress and when Mr. Garamendi was 
Insurance Commissioner of the State of California.
    Thank you for joining us this morning sharing your 
experience and expertise with the committee. Your statement 
will be made a part of the record in its entirety. If you could 
sum it up in 5 minutes or so, I would sure appreciate it.
    Welcome, Mr. Cohen.

 STATEMENT OF GARY COHEN, J.D., DIRECTOR, CENTER FOR CONSUMER 
 INFORMATION AND INSURANCE OVERSIGHT, CENTERS FOR MEDICARE AND 
               MEDICAID SERVICES, WASHINGTON, DC

    Mr. Cohen. Thank you, Chairman Harkin, Ranking Member 
Alexander, members of the committee.
    CCIIO is working to transform the Health Insurance Market 
to protect consumers, provide new coverage options for them, 
and give them the tools and resources they need to make 
informed choices about their health insurance.
    Most Americans receive health insurance in connection with 
their jobs, and for many of those Americans, particularly those 
who work for larger employers, this system has worked well. But 
for the approximately 10 percent of Americans who do not have 
employer-sponsored coverage or do not have coverage through a 
Government program such as Medicare, Medicaid, or the 
Children's Health Insurance Program, the system has been 
broken.
    I would like to describe for you a few of the ways the 
Affordable Care Act has already made it better and some others 
that will transform it beginning in 2014.
    First, before the ACA, millions of Americans could not get 
health insurance in the individual market at all. If you became 
sick or if you had been sick some time in the past, insurers 
either would not give you a policy or they would charge so much 
that you could not afford it. Today, children cannot be 
excluded because of pre-existing conditions, and beginning in 
2014, no one can.
    In the past, health insurers could place annual or lifetime 
limits on the amount of medical care they would pay for. Some 
of these limits were so low that if you became seriously ill, 
you would soon find you had no insurance at all. Now, most 
insurers are prohibited from placing annual or lifetime limits 
on coverage for essential benefits such as doctor's visits, 
prescription drugs, or hospital stays.
    In the past, insurers could drop young adults over the age 
of 19 from their parents' insurance plans. Now, most health 
plans that have covered children must make coverage available 
up to age 26. Today, more than 3.1 million additional young 
adults are covered under their parents' plans.
    In the past, often because of cost, Americans used 
preventive services at about half the recommended rate. We know 
that chronic diseases such as heart disease, cancer, and 
diabetes often are either preventable or, with early detection, 
treatable. Now, most plans must cover certain preventive 
services without applying any deductible co-insurance or co-
pay, and nearly 71 million Americans have expanded access to 
preventive services at no charge through their private 
insurance plans, and 47 million women now have guaranteed 
access to additional preventive services without cost sharing.
    In the past, when consumers shopped for health insurance, 
they had to read a patchwork of confusing disclosures, making 
it hard to compare plans and make informed choices. Now, health 
insurers and group health plans are required to provide a clear 
summary of benefits and coverage in a uniform format and in 
plain language.
    Americans have been used to seeing their premiums rise 
faster than their wages, but for the past 2 years, premiums 
have gone up by the lowest amount in decades. Two provisions of 
the ACA have contributed to this.
    The law requires that insurance companies must justify rate 
increases of 10 percent or more, shedding light on arbitrary or 
unnecessary costs. The percentage of rate increases above 10 
percent has dropped significantly, and Americans saved an 
estimated $1 billion in 2011 on their health insurance thanks 
to Rate Review.
    Rate Review works in conjunction with the 80/20 rule or the 
Medical Loss Ratio rule which requires insurance companies to 
spend at least 80 percent of premiums on health care and no 
more than 20 percent on administrative costs and profits. If 
they fail to do so, they must provide rebates to their 
consumers. Thanks to this provision of the Affordable Care Act, 
15 million Americans received $1.1 billion in rebates from 
insurers in 2012.
    For some Americans, the cost of health insurance is even 
higher than for others. Today, women could be charged more for 
individual health insurance policies simply because they are 
women. A 22-year-old woman can be charged 50 percent more than 
a 22-year-old man, and older Americans can be charged as much 
as 5 times the rate for younger Americans.
    Beginning in 2014, health insurance companies will no 
longer be able to charge women more than men, and they will be 
limited in how much more they can charge older Americans than 
younger Americans.
    The Affordable Care Act will also guarantee that people get 
good value from the insurance they buy. Beginning in 2014, most 
health plans in the individual and small group markets must 
meet a certain actuarial value, which means the percentage that 
will be paid by the health plan of the estimated average total 
cost of health care. Plans will be assigned a tier-based level 
based on their actuarial value. What this means is that you can 
choose a plan based on what you expect your health care costs 
to be. If you are relatively healthy, you can buy what we call 
``The Bronze Plan,'' which will pay a lower amount of your 
total costs, but will be less expensive. If you are older and 
you expect to have more health costs, you can buy a Silver or a 
Gold Plan, which will cost a little bit more, but will cover 
more of your expected costs of care. And you will still have 
the security, in any case, of knowing that if you become 
seriously ill that coverage will be there to pay for the cost 
of your care.
    Starting October 1, Americans will begin shopping for and 
enrolling in a wide variety of high quality health insurance 
plans for coverage in 2014. They will be able to use a single, 
streamlined application to determine whether they are eligible 
for Medicaid, or CHIP, or qualify for premium tax credits and 
reduced cost sharing for a qualified health plan purchased on 
the Marketplace.
    We have been working hard over the past 3 years to improve 
the Health Insurance Market for all Americans. We are very 
proud of what we have accomplished so far, and we are excited 
about the new consumer protections that will be in place 
beginning in 2014.
    Thank you.
    [The prepared statement of Mr. Cohen follows:]
                 Prepared Statement of Gary Cohen, J.D.
                                summary
    In March 2010, President Obama signed the Affordable Care Act into 
law. Over the past 3 years, Americans have benefited from insurance 
reforms that have already gone into effect. Today, more than 3.1 
million additional young adults under the age of 26 are covered under 
their parents' plans. Nearly 71 million Americans now have expanded 
access to preventive services at no additional cost through their 
private insurance plans, and 27 million women now have guaranteed 
access to additional preventive services without cost sharing.
    Now, health insurers and group health plans provide a clear summary 
of benefits and coverage in a uniform format and in plain language that 
is designed to be easily compared across health plans by the millions 
of Americans shopping for private health insurance coverage.
    Now, insurers must provide clear information so consumers can 
understand the insurer's reasons for significant rate increases. Since 
the rule on rate increases was implemented, the number of requests for 
insurance premium increases of 10 percent or more plummeted from 75 
percent to an estimated 14 percent.
    Today, in most States, adult consumers with pre-existing conditions 
can be denied individual health insurance coverage, can be charged 
significantly higher rates based on their conditions, or can have 
benefits for pre-existing medical conditions excluded by insurance 
companies. In 2014, Americans will no longer need to worry about this. 
Non-grandfathered health insurers in the individual and small group 
markets will no longer be able to use health status to determine 
eligibility, benefits, or premiums.
    Before the Affordable Care Act, women could be charged more for 
individual insurance policies simply because of their gender. Before 
the Affordable Care Act, premium rates charged to older Americans could 
be more than five times the rate for younger Americans. In 2014, new 
rules will help make health insurance more affordable for more 
Americans.
    At the same time that insurance prices become more fair, many 
individuals will also have new help paying for their health care 
coverage through premium tax credits and cost sharing reductions. When 
coverage through the Health Insurance Marketplace starts as soon as 
January 1, 2014, many middle and low-income Americans will be eligible 
for a new kind of tax credit that can be used right away to lower 
monthly health plan premiums.
    CMS has been working with States and private insurance companies to 
ensure the establishment of Health Insurance Marketplaces. When 
consumers start to visit the new Marketplaces on October 1, 2013, they 
will experience a new way to shop for health coverage. The Marketplaces 
will also make it easier than ever before to compare available 
qualified health plans based on price, benefits and services, and 
quality.
                                 ______
                                 
    Good morning, Chairman Harkin, Ranking Member Alexander, and 
members of the committee. Thank you for the opportunity to speak about 
our work implementing the Affordable Care Act to put in place strong 
consumer protections, provide new coverage options, and give Americans 
the additional tools to make informed choices about their health 
insurance. Thanks to the consumer protections and insurance market 
reforms in the Affordable Care Act, in 2014, millions of people without 
insurance will be able to obtain coverage, and millions more will have 
the peace of mind that the coverage they have cannot easily be taken 
away.
    In March 2010, President Obama signed the Affordable Care Act into 
law, putting in place comprehensive reforms to improve access to 
affordable health insurance for all Americans and protect consumers 
from abusive insurance company practices. Over the past 3 years, 
Americans have benefited from insurance reforms that have already gone 
into effect, such as allowing adult children up to age 26 to stay on 
their parents' insurance, eliminating lifetime dollar limits on 
essential health benefits, and prohibiting rescissions of insurance 
because someone gets sick.
    In 2014, these protections will be greatly expanded. Discrimination 
by insurance companies against individuals with pre-existing conditions 
will generally be banned for Americans of all ages, and consumers will 
have better access to comprehensive, affordable coverage. Beginning on 
October 1, 2013, Americans may begin shopping for and enrolling in a 
wide variety of high-quality health insurance plans for coverage in 
2014 through the Health Insurance Marketplaces (also known as 
Affordable Insurance Exchanges). Regardless of whether they plan to 
purchase their insurance through a Health Insurance Marketplace or are 
covered by insurance through their work, in 2014, more Americans will 
have access to more affordable health insurance.
 what we have already achieved: better access to high quality coverage
    The Center for Consumer Information and Insurance Oversight (CCIIO) 
at the Centers for Medicare & Medicaid Services (CMS) has implemented 
strong consumer protections that hold insurance companies more 
accountable, give consumers more coverage options, and improve the 
value of that coverage. Today, more than 3.1 million additional young 
adults under the age of 26 are covered under their parents' plans. 
Nearly 71 million Americans now have expanded access to preventive 
services at no additional cost through their private insurance plans, 
and 27 million women now have guaranteed access to additional 
preventive services without cost sharing.\1\
---------------------------------------------------------------------------
    \1\ http://aspe.hhs.gov/health/reports/2013/PreventiveServices/
ib_prevention.cfm.
---------------------------------------------------------------------------
    The Affordable Care Act has also helped provide consumers with more 
rights and protections. In the past, health insurers could refuse to 
accept anyone because of a pre-existing health condition, or they could 
limit benefits for that condition, but the Affordable Care Act will 
provide consumers with the security that their coverage will be there 
for them when they need it.
    Now, non-grandfathered individual health insurance plans and group 
health plans and group health insurance plans are prohibited from 
denying children coverage based on their pre-existing conditions, 
protecting 17.6 million children with pre-
existing conditions from coverage denials. Additionally, insurance 
companies cannot drop or rescind people's coverage because they made an 
unintentional mistake on their application \2\ and cannot place 
lifetime limits on the dollar value of essential health benefits. Group 
health plans, group health insurance plans, and non-grandfathered 
individual health insurance policies also are restricted in the annual 
dollar limits they can place on essential health benefits, depending on 
the plan year. We further protected consumers by establishing a set of 
uniform standards for external review of individual health plan 
decisions restricting an enrollee's access to benefits. Now, consumers 
enrolled in non-grandfathered group health plans and group health 
insurance coverage and individual health insurance policies can ask for 
an independent third party to review decisions made by their plans and 
insurance companies to deny preauthorization or payment for a service.
---------------------------------------------------------------------------
    \2\ For an example see: http://www.healthcare.gov/law/features/
rights/cancellations/index.html.
---------------------------------------------------------------------------
    In the past, often because of cost, Americans used preventive 
services at about half the recommended rate. Yet chronic diseases, such 
as heart disease, cancer, and diabetes--which are responsible for 70 
percent of deaths among Americans each year and account for 75 percent 
of the nation's health spending \3\--often are either preventable or, 
with early detection, treatable. Now, all non-grandfathered plans cover 
certain preventive services without any cost-sharing for the enrollee 
when delivered by in-network providers. This protection will help 
Americans gain easier access to services such as blood pressure, 
diabetes, and cholesterol tests; many cancer screenings; routine 
vaccinations; pre-natal care; and regular wellness visits for infants 
and children.
---------------------------------------------------------------------------
    \3\ CDC Report: Chronic Diseases: The Power to Prevent, the Call to 
Control http://www.cdc.gov/chronicdisease/resources/publications/aag/
pdf/chronic.pdf.
---------------------------------------------------------------------------
    In the past, when consumers shopped for health insurance, they had 
to read a patchwork of non-uniform and intricate disclosures about 
matters important to consumers, such as what benefits are covered under 
what conditions and the cost sharing associated with those benefits. 
That structure made the process inefficient, difficult, and time-
consuming. Because of the difficulty in obtaining comparable 
information across and within health insurance markets, consumers had 
trouble finding and choosing the coverage that best met their health 
and financial needs, as well as the needs of their families or their 
employees.
    Now, health insurers and group health plans provide a clear summary 
of benefits and coverage in a uniform format and in plain language that 
is designed to be easily compared across health plans by the millions 
of Americans shopping for private health insurance coverage. If people 
are looking to buy private health insurance, they can compare plans at 
www.HealthCare.gov, which provides information about what public and 
private health insurance coverage is available to consumers based on 
where they live. Starting in October 2013, consumers will also be able 
to use www.HealthCare.gov to shop for coverage beginning in 2014 under 
qualified health plans and to determine whether they are eligible for 
premium tax credits and reduced cost sharing, through the Health 
Insurance Marketplace.
    Before the Affordable Care Act, Americans watched their premiums 
double over the previous decade, oftentimes without explanation or 
review. In an effort to slow health care spending growth and give all 
Americans more value for their health care dollars, the Affordable Care 
Act has brought an unprecedented level of scrutiny and transparency to 
health insurance rate increases by requiring an insurance company to 
justify a rate increase of 10 percent or more, shedding light on 
arbitrary or unnecessary costs.
    Now, insurers must provide clear information so consumers can 
understand the insurer's reasons for significant rate increases. Since 
the rule on rate increases was implemented,\4\ the number of requests 
for insurance premium increases of 10 percent or more plummeted from 75 
percent to an estimated 14 percent. The average premium increase for 
all rates in 2012 was 30 percent below what it was in 2010. Available 
data suggests that this slowdown in rate increases is continuing into 
2013.\5\ Americans have saved an estimated $1 billion on their health 
insurance premiums thanks to rate review. Even when an insurer decides 
to increase rates, consumers are seeing lower rate increases than what 
the insurers initially requested. More than half of the requests for 
rate increases of 10 percent or more ultimately resulted in issuers 
imposing a lower rate increase than requested or no rate increase at 
all.
---------------------------------------------------------------------------
    \4\ Health Insurance Rate Review--Final Rule on Rate Increase 
Disclosure and Review: http://www.gpo.gov/fdsys/pkg/FR-2011-05-23/pdf/
2011-12631.pdf.
    \5\ ASPE Research Brief: Health Insurance Premium Increases in the 
Individual Market Since the Passage of the Affordable Care Act http://
aspe.hhs.gov/health/reports/2013/rateIncrease
IndvMkt/rb.cfm.
---------------------------------------------------------------------------
    Furthermore, the rate review program works in conjunction with the 
80/20 rule (or the Medical Loss Ratio rule),\6\ which requires 
insurance companies to spend at least 80 percent (85 percent in the 
large group market) of premiums on health care, and no more than 20 
percent (15 percent in the large group market) on administrative costs 
(such as executive salaries and marketing) and profits. if they fail to 
do so, they must provide rebates to their customers. Insurers that did 
not meet the 80/20 rule in 2011 have provided $1.1 billion in rebates 
that benefited about 13 million Americans, at an average of $137 per 
family.\7\
---------------------------------------------------------------------------
    \6\ MLR Final Rule: https:www.federalregister.gov/articles/2012/05/
16/2012-11753/medical-loss-ratio-requirements-under-the-patient-
protection-and-affordable-care-act.
    \7\ 45 CFR Part 158: http://www.ecfr.gov/cgi-bin/text-
idx?c=ecfr&SID=5872c7e9a4bcec4584dd
3255841e647a&rgn=div5&view=text&node=45:1.0.1.2.74&idno=45.
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                        looking forward to 2014
    We are proud of the accomplishments of the last 3 years, and we 
look forward to the most promising reforms of the Affordable Care Act 
that are set to start in 2014. Soon, a variety of consumer protections 
will take effect and will end many insurance practices that make health 
care coverage too expensive or unavailable for many consumers.
    end to pre-existing condition discrimination and limits on care
    Today, in most States, adult consumers with pre-existing conditions 
can be denied individual health insurance coverage, can be charged 
significantly higher rates based on their conditions, or can have 
benefits for pre-existing medical conditions excluded by insurance 
companies.
    Beginning in 2014, new protections will help Americans of all ages 
maintain health insurance coverage, regardless of their health status.
    As many as 129 million non-elderly Americans have some type of pre-
existing health condition, and up to 25 million of those individuals do 
not have health insurance.\8\ Pre-existing health conditions range from 
life-threatening illnesses such as cancer, to chronic conditions such 
as diabetes, asthma, or heart disease. Because of pre-existing 
condition discrimination by health insurers, many individuals with pre-
existing conditions today have limited choices. For example, 
individuals may not be able to change jobs, start their own businesses, 
or retire because of fear of losing health insurance coverage. People 
with pre-existing conditions could also lose coverage if they get 
divorced, move, or age out of dependent coverage.
---------------------------------------------------------------------------
    \8\ ASPE Report: At Risk: Pre-Existing Conditions Could Affect 1 in 
2 Americans http://aspe.hhs.gov/health/reports/2012/pre-existing/
index.shtml.
---------------------------------------------------------------------------
    In 2014, Americans will no longer need to worry about this. Non-
grandfathered health insurers in the individual and small group markets 
will no longer be able to use health status to determine eligibility, 
benefits, or premiums. With limited exceptions, all non-grandfathered 
plans and policies in the individual and group markets will be required 
to enroll individuals, regardless of health status, age, gender, or 
other factors and will be prohibited from refusing to renew coverage 
because an individual or employee becomes sick.
    In addition, some people with cancer or other chronic illnesses 
today run out of insurance coverage when their health care expenses 
reach a dollar limit imposed by their insurance company or group health 
plan. Beginning on January 1, 2014, group health plans, group health 
insurance plans, and non-grandfathered individual health insurance 
policies will be prohibited from imposing annual dollar limits on 
essential health benefits. This change will help ensure that Americans 
will no longer worry about hitting a prohibitive dollar amount, which 
could force a consumer to either pay out-of-pocket for health care 
costs above the dollar limit or forgo necessary care.
            guaranteed core benefits and comparison shopping
    All non-grandfathered plans in the individual and small group 
markets will cover essential health benefits,\9\ which include items 
and services in 10 statutory benefit categories, such as ambulatory 
patient services (including doctors' visits), hospitalization, 
prescription drugs, and maternity and newborn care. These benefits must 
be equal in scope to a typical employer health plan. To this end, the 
essential health benefits will be defined in each State by reference to 
a benchmark plan. Soon, consumers will be able to select an insurance 
plan with confidence that it will cover key health care services when 
they need them.
---------------------------------------------------------------------------
    \9\ Essential Health Benefits: http://www.gpo.gov/fdsys/pkg/FR-
2012-11-26/html/2012-28362.htm.
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    Beginning in 2014, non-grandfathered health plans in the individual 
and small group markets also must meet certain actuarial values: 60 
percent for a bronze plan, 70 percent for a silver plan, 80 percent for 
a gold plan, and 90 percent for a platinum plan. Actuarial value means 
the percentage paid by a health plan of the total allowed costs of 
benefits. For example, if a plan has an actuarial value of 70 percent, 
the average consumer would be responsible for 30 percent of the costs 
of the essential health benefits the plan covers. These tiers will 
allow consumers to compare plans with similar levels of coverage, 
which, along with comparing premiums, provider participation, and other 
factors, will help consumers make more informed decisions.
                        more affordable coverage
    Before the Affordable Care Act, health insurance premiums had risen 
rapidly, straining the pocketbooks of Americans for more than a decade. 
Between 1999 and 2010, the cost of coverage for a family of four rose 
138 percent.\10\ These increases have forced families and employers to 
spend more money, often for less coverage. Before the Affordable Care 
Act, women could be charged more for individual insurance policies 
simply because of their gender. A 22-year-old woman could be charged 50 
percent more than a 22-year-old man. Many young people and people with 
low-incomes often could not afford health insurance, leaving millions 
of Americans without coverage. Before the Affordable Care Act, premium 
rates charged to older Americans could be more than five times the rate 
for younger Americans.
---------------------------------------------------------------------------
    \10\ Kaiser Family Foundation. Employer Health Benefits 2010 Annual 
Survey http://ehbs.kff
.org/pdf/2010/8085.pdf.
---------------------------------------------------------------------------
    In 2014, new rules will help make health insurance more affordable 
for more Americans.\11\ Most health insurance companies will be 
prohibited from charging higher premiums to certain enrollees because 
of their current or past health problems. Most insurance companies will 
no longer be able to charge women more than men based solely on their 
gender. Most insurers will be limited in how much more they can charge 
older Americans than young Americans, so that insurance becomes more 
affordable for most Americans.
---------------------------------------------------------------------------
    \11\ Health Insurance Market Rules: http://www.gpo.gov/fdsys/pkg/
FR-2013-02-27/pdf/2013-04335.pdf.
---------------------------------------------------------------------------
    At the same time that insurance prices become more fair, many 
individuals will also have new help paying for their health care 
coverage through premium tax credits and cost sharing reductions. When 
coverage through the Health Insurance Marketplace starts as soon as 
January 1, 2014, many middle and low-income Americans will be eligible 
for a new kind of tax credit that can be used right away to lower 
monthly health plan premiums. The tax credit is sent directly to the 
insurance company and applied to the premiums, so consumers pay less 
out of their own pockets. The amount of the tax credit for which an 
eligible individual qualifies depends on the individual's household 
income. Individuals are eligible for premium tax credits if, among 
other things, they:

     Are not eligible for affordable health insurance coverage 
designated as ``minimum essential coverage'' (e.g., government-
sponsored coverage and employer-sponsored coverage);
     Meet the requirements to enroll in a qualified health plan 
through the Health Insurance Marketplace \12\;
---------------------------------------------------------------------------
    \12\ These include additional eligibility requirements, e.g., 
applicant is not incarcerated (45 CFR 155.305(a)(2)).
---------------------------------------------------------------------------
     Are citizens of or lawfully present in the United States; 
and
     Have modified adjusted gross household incomes between 100 
percent and 400 percent of the Federal poverty level (e.g., $23,550 to 
$94,200 for a family of four in 2013).

    Many people will find that they can now buy more comprehensive 
coverage at the same, or often even lower, out-of-pocket cost than they 
previously paid. Additionally, young adults and certain other people 
for whom coverage would otherwise be unaffordable may enroll in 
catastrophic plans, which have lower premiums, protect against high 
out-of-pocket costs, and cover recommended preventive services without 
cost sharing--providing affordable individual coverage options for 
young adults and people for whom coverage would otherwise be 
unaffordable.
    Additionally, CMS recently finalized a temporary reinsurance 
program designed to provide market stability and premium stability for 
enrollees in the individual market by reducing the impact of high-cost 
enrollees on plans. The temporary risk corridor program will provide 
issuers additional protection against inaccurate rate setting. The 
permanent risk adjustment program will provide increased payments to 
health insurance issuers that attract higher-risk populations. Taken 
together, these premium stabilization programs will make coverage more 
affordable.
              shopping in the health insurance marketplace
    CMS has been working with States and private insurance companies to 
ensure the establishment of Health Insurance Marketplaces through which 
millions of Americans will purchase affordable health care coverage. In 
order to build robust and competitive Health Insurance Marketplaces, 
CMS is working closely with issuers as they prepare qualified health 
plans that will be available to consumers within the Marketplaces. When 
consumers start to visit the new Marketplaces on October 1, 2013, they 
will experience a new way to shop for health coverage. The Marketplaces 
will make it possible for eligible consumers to use a streamlined 
application that can be completed online to apply for coverage through 
a qualified health plan, to qualify for premium tax credits and reduced 
cost sharing, or to apply for coverage through Medicaid or the 
Children's Health Insurance Program (CHIP).\13\
---------------------------------------------------------------------------
    \13\ Application Elements: http://www.cms.gov/Regulations-and-
Guidance/Legislation/Paper
workReductionActof1995/PRA-Listing-Items/CMS-10440.html.
---------------------------------------------------------------------------
    The Marketplaces will also make it easier than ever before to 
compare available qualified health plans based on price, benefits and 
services, and quality. By pooling consumers together, reducing 
transaction costs, and increasing transparency and competition, the 
Health Insurance Marketplaces for individuals and small groups should 
be more efficient and competitive than the consumers' current health 
insurance choices.
    CMS is working to ensure streamlined and secure access to a variety 
of information sources that will provide essential support to consumers 
as they fill out the streamlined application. Through these streamlined 
processes, consumers will be able to fill out the application, receive 
information about whether they are eligible for premium tax credits or 
cost-sharing reductions or Medicaid coverage, and begin shopping for 
qualified health plans, all in real time, in one sitting. Consumers 
will then be able to research and compare the available qualified 
health plan options in the Marketplace so they can make informed 
choices about their coverage. Consumers also can use either the 
Marketplace Web site or a toll-free call center to choose health 
coverage that best fits their needs. Marketplace Navigators and other 
consumer assistance programs will provide information to consumers in a 
fair, accurate, and impartial manner. Additionally, where permitted by 
the State,\14\ licensed agents and brokers, as well as online brokers, 
may help consumers and employers enroll in a qualified health plan 
through the Marketplace.
---------------------------------------------------------------------------
    \14\ Per 45 CFR 155.220.
---------------------------------------------------------------------------
    CMS and our State partners are working hard to ensure that people 
are aware of the new tools that will soon be available to them. On 
www.HealthCare.gov, people can learn about the Affordable Care Act, 
review health insurance basics, such as understanding what their 
coverage costs, and access an interactive checklist to help prepare 
them to shop for coverage in the new Marketplaces. CMS also expects 
that other Federal agency partners and members of the private sector 
will be involved in efforts to reach, engage, and assist potential 
enrollees.
                               conclusion
    CMS has worked hard over the past 3 years to improve the health 
insurance market for all Americans. We are very proud of what we have 
already accomplished and are excited about the new consumer protections 
that will help Americans in 2014. More work remains to ensure Americans 
have access to high quality, affordable health coverage. We look 
forward to continuing our efforts to strengthen health coverage options 
with the help of our partners in Congress, State leaders, consumers, 
and other stakeholders across the country. Thank you for the 
opportunity to discuss the work that CMS has been doing to implement 
the Affordable Care Act.

    The Chairman. Thank you very much, Mr. Cohen.
    We will now start a round of 5 minute questions. I want to 
first say thank you for your leadership at CMS on this and for 
really moving aggressively to make sure that we can have this 
up and going by October the 1st of this year.
    Mr. Cohen, I just want to get right to the nub of something 
here. I would like to start right off. Discuss the status of 
your department's work to reach out to currently uninsured 
populations--I am talking about the young and the healthy; and 
encourage them to enroll in coverage. We keep hearing about, 
well premiums are going up. People say, ``Well, there's going 
to be a lot of young, healthy people that might have to pay 
more.''
    How is this campaign, how are these efforts you are doing 
being implemented in States where the federally facilitated 
marketplace is operating? What about States like my State of 
Iowa where the State and Federal Government are working 
together on a partnership-type marketplace?
    So focus a little bit of your comments on that, on the 
young and the healthy, those that are currently uninsured.
    Mr. Cohen. Thank you, Senator. I appreciate the opportunity 
to address that.
    I think it begins, first, with some pretty extensive market 
research we have done to identify the different types of people 
that we need to reach and what are the best ways of reaching 
them.
    Then what you will see, as we move closer to the time when 
people actually will be able to take action and sign up to get 
coverage beginning this summer, you will see a number of 
different types of activities happening ranging from a 
traditional media campaign to a social media campaign, again, 
geared at the specific types of target groups that we need to 
reach.
    In addition to that, we just announced the other day a 
grant program for the Navigator Program. There will be 
community organizations in every State. It will be church 
groups. It will be advocacy groups. It will be all kinds of 
community-based organizations who already have ties to their 
community, and connections with their community, and have been 
serving their community. And we really think that is the best 
way to find the people and get them informed about what this 
law can offer them.
    In addition to that, we are working very closely with the 
agent and broker community across the country to make sure that 
they understand the opportunity that this presents for them to 
bring millions of new people into coverage, and to make it 
possible for them to do that in a way that will be as simple 
and easy as possible.
    It is really a multifaceted approach that we are taking. 
But specifically, as you point out, Senator, to target the 
groups that we need to reach and come up with the messages that 
are going to be most resonant with them.
    The Chairman. Mr. Cohen, you mentioned this notice that 
came out the other day. I read it. I looked at it about grants 
to States to set up the Navigators. It is all well and good. 
Maybe I wish you hadn't mentioned that because of how you are 
paying for that.
    This is above your pay grade, but I am sending a message to 
those above you through you. Robbing Peter to pay Paul, robbing 
the money from the Prevention Fund, the very thing that will 
really help to bend the cost curve in the future to keep people 
healthy, you mentioned that. To take money out of that to set 
up the Navigator system, to me, is illogical; totally illogical 
and self-defeating.
    So I don't understand why those who implemented this, like 
I say, I am not talking at you. I just want to send a message 
that we are not going to accept that.
    I believe the Navigators need to be funded. I believe that 
that needs to be done to help people get into the system, 
especially the young and the healthy that we are talking about; 
but to rob it from the Prevention Fund? That doesn't go and it 
is not going to go.
    I just wanted to make that very clear. I agree on the 
goals, but not robbing that money from the Prevention Fund.
    I think we do have to be clear that young people who are 
healthy who say, ``Oh, my gosh. Now I've got to buy 
insurance.'' They have to understand that they are part of 
society too. They may have an accident. They may be riding a 
motorcycle without a helmet someday. They may get an illness. 
Who knows when cancer is going to strike or something like 
that?
    So these so-called free riders that we have had in the past 
need to understand that they are part of the health care system 
too, and they are going to get older some day, and they are 
going to need to have other people in the pool.
    As a former insurance salesman myself, a long time ago, 
there was one clear principle of insurance: people are better 
off the more people in the pool. The more you have in the pool, 
the better it is for everyone, whether it is car insurance, or 
life insurance, or health insurance. And young people need to 
understand that, that they are part of this system too.
    With that, I thank you very much, Mr. Cohen. I have used up 
all my time.
    I recognize Senator Alexander.
    Senator Alexander. Thanks, Mr. Chairman.
    Mr. Cohen, welcome. I want to use most of my time to talk 
with you about the idea of churning. How do we stabilize those 
people who may be moving in and out of Exchanges in Medicaid?
    But you mentioned benefits; somebody has to pay for those 
benefits. I mentioned to the President at our Health Care 
Summit in 2010 that the plan would, his plan, would increase 
individual insurance rates. He said it wouldn't. But the CBO 
said it would, and that has turned out to be right. BlueCross 
BlueShield of Tennessee says rates for individual policies are 
going up 30 percent, may be in excess of 100 percent.
    The American Action Forum says premiums may triple if rates 
for older people like me are going to be stabilized, then 
younger people--my children or grandchildren--are going to be 
paying for it. If they are lower for women, they are going to 
be higher for men. Somebody has to be paying for it.
    The Society of Actuaries has said that we are going to 
experience rate shock because costs are allocated differently 
because coverage is expanded because policies are richer. So 
there are more benefits, but there are more costs.
    Now, let me turn to this subject of churning. I know that 
the Administration has had discussions, and been concerned, 
about people who might move in and out of the Exchanges and 
Medicaid. These would be the people who--maybe two groups of 
people, people who make 138 percent of poverty up to 150. These 
would be, what you might call, the working poor, lower income 
working people, but their income might go down and suddenly 
they will go into Medicaid, or they might go back from 
Medicaid; so back and forth.
    The idea would be: is there some way to stabilize that to 
make it easier for those individuals to move back and forth, 
especially in those States that choose to expand Medicaid?
    I notice that Arkansas has made an interesting proposal to 
the Secretary, which she seems to have approved in concept. Do 
you think that shows promise?
    Mr. Cohen. I think, Senator, that one of the things that 
has been very encouraging throughout this process is that we do 
see very interesting approaches being taken by different States 
to try to solve some of these problems.
    We have tried, throughout the implementation of the 
Affordable Care Act, to be as flexible as possible and to give 
States the ability to try different approaches as long as, 
obviously, they are consistent with the law.
    I know we have had a lot of discussions with Arkansas about 
their proposal for premium assistance. There are some other 
States that are interested in that, and I think those 
discussions are ongoing. And I know there is an interest in 
seeing whether we can reach something that will make sense for 
Arkansas and for the other States.
    Senator Alexander. If other requirements of the law could 
be met, one of the benefits of such a plan could be more 
stability for this lower income American who moves from 
Medicaid back to outside Medicaid.
    Is that not correct?
    Mr. Cohen. That is right, as long as, I mean, obviously the 
cost equivalency is a significant----
    Senator Alexander. And that is part of the waiver decision 
that you have----
    Mr. Cohen. Correct.
    Senator Alexander [continuing]. That the department has to 
make. But if that could be met, that would be an objective that 
is not inconsistent with the Administration's own objectives, 
it seems to me.
    Mr. Cohen. That is true.
    Senator Alexander. And I know that Governor Haslam of 
Tennessee has recently made a proposal, and has been in some 
discussions with the department for a similar kind of proposal, 
that would affect 175,000 Tennesseans, many of whom might be in 
that churning group, who move in and out of Medicaid to the 
Exchanges.
    Can you give me any status report on how well that proposal 
is being received by the department?
    Mr. Cohen. I don't have a specific status report, but we 
certainly can look into that and get back to you. But I know 
there have been quite a number of conversations with Governor 
Haslam and the department.
    Senator Alexander. Well, it is not so much that you get 
back to me as that----
    Mr. Cohen. Get back to him.
    Senator Alexander [continuing]. Get back to him. I think 
that is a good faith proposal by a Governor who, with his 
legislature, is trying to come up with a way to make sure these 
175,000 Tennesseans, who otherwise would not receive Medicaid 
expansion, do so in a way that, first, meets cost 
effectiveness. And, second, would meet the admirable goal, I 
think, of reducing the amount of churning.
    I have heard some estimates that the number of Americans 
who might find themselves going back and forth between 
Exchanges in Medicaid might be as high as 40 percent.
    Does that sound reasonable to you?
    Mr. Cohen. I am always hesitant to pass judgment on 
estimates, particularly when they are being made by actuaries, 
since I am not an actuary. But obviously, we have seen a range 
of estimates on a number of subjects and everyone is giving 
their best guess and their best prediction. But I would 
hesitate to endorse any particular one.
    Senator Alexander. But it is a significant number.
    Mr. Cohen. It is an issue.
    Senator Alexander. It is an issue. And financial literacy 
or literacy about how to purchase health care is always a 
problem for any of us of any station, but may be especially for 
some lower income people. And so, if they had a stable and 
secure insurance policy as they move back and forth from one 
part of the Government program to another, that might make 
their lives simpler, easier, and maybe even less expensive for 
the Government.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Alexander.
    Now I have Senator Baldwin, and then Senator Scott, Senator 
Franken, Senator Roberts.
    Senator Baldwin.

                      Statement of Senator Baldwin

    Senator Baldwin. Thank you, Mr. Chairman. I appreciate you 
and Ranking Member Alexander for convening this hearing.
    In order for our country to thrive, we need a vibrant and 
growing middle class. We need an economy that is built to last. 
And we need laws that reflect the common belief that if you 
work hard and you play by the rules, you should be able to get 
ahead.
    I was proud to work on and help pass the Affordable Care 
Act into law during my time serving in the House of 
Representatives because I believe it moves our country forward 
in these very regards.
    The Affordable Care Act strengthens the economic security 
of families and businesses in Wisconsin, and all across the 
country by ensuring that quality health insurance coverage will 
be there for them.
    And prior to passage of the health reform law, I heard from 
countless Wisconsin families and businesses about their 
struggles under the prior law. Far too many were squeezed 
literally out of the middle class because of health insurance 
prices that were too high or the inability to get comprehensive 
health insurance coverage.
    I think about the many families that have seen their 
economic security shattered because no insurance company would 
insure their child. I think about how many people have been 
trapped in a job where they could not look at other 
opportunities or advance because of the insurance situation.
    How many potential entrepreneurs were dissuaded from 
starting a business of their own because they were afraid they 
would not be able to find coverage? The Affordable Care Act is 
changing all of that.
    And with many consumer protections already in place, and 
with the new guaranteed issue rule set to go into effect in 
just over 8 months, our families and businesses will be more 
secure knowing that quality, affordable insurance will be there 
regardless of a pre-existing medical condition, or sudden 
illness, or accident.
    The law also unrigs our health insurance system to provide 
everyone with a fair chance and a fair shake. It will no longer 
allow health insurance companies to write their own rules about 
who is covered and who isn't, or who can be charged 
discriminatory premiums. I think about the fact that we now 
have 20 women serving in the U.S. Senate, and it is only fair 
that myself and our Chairman should be charged similar 
premiums. Being a woman is no longer going to be considered a 
pre-existing medical condition and it should not be treated as 
one.
    But as much as I supported the passage of the Affordable 
Care Act, it is just as important that we make sure that this 
law is fully and faithfully implemented.
    Mr. Cohen, I want to thank you for your work in enacting 
the laws, consumer protections, and overseeing the creation of 
Health Insurance Marketplaces. I have to imagine that your work 
has been greatly affected and, perhaps, frustrated by those 
States that have taken political, ideological stances against 
implementation of the law.
    I think about my own State of Wisconsin where there is 
participation in the lawsuit, and then turned back early 
adopter grants, and then opted out of a State Exchange or a 
partnership Exchange, decided not to expand Medicaid.
    Can you tell me how your work has been affected by the 
various States that have taken these other tracks?
    Mr. Cohen. Thank you, Senator. I would be happy to.
    I would say, first of all, that our approach to this all 
along has been to meet the States where they are, and provide 
them with the opportunity to do as much as they are willing and 
able to do. And I am heartened, actually.
    Recently, I attended a meeting that we held with State 
insurance department officials from the States that will have 
the Federally Facilitated Marketplace. And when you get down to 
that level, they understand two things. They understand, first, 
this is the law of the land and the time for debating it is 
over. And second, that they want to make this work for the 
citizens in their States. So we are working very closely with 
insurance departments, departments of health around the country 
to help get this law implemented.
    We have also begun a significant stakeholder outreach 
effort, which is separate and apart from anything that the 
State Government might be doing. We started with a national 
call that we had a couple of weeks ago with over 3,000 people 
on the phone, and we will be doing regional and State-by-State 
calls leveraging our presence at the 10 regional offices that 
CMS has around the country.
    So I am not going to sit here and tell you that it wouldn't 
have been easier if everyone had fully embraced this from the 
beginning, but I think we have made great progress. We are 
seeing now more of both a recognition that this is actually 
happening and a desire for it to succeed.
    Senator Baldwin. I particularly appreciate the outreach to 
stakeholders because, I think, some of that communication has 
been frustrated, again, by those who are politically opposing 
the implementation.
    I guess I would ask you as a last question: what sort of 
differences in the Affordable Care Act benefits will be 
experienced or seen between States that are forging ahead with 
State Exchanges and those who will have to rely on the Federal 
Exchanges?
    Mr. Cohen. Senator, I really think that it is going to be 
of little to no consequence to the average consumer which type 
of Exchange they are seeing. The set of benefits does not vary. 
I mean, it varies State-by-State, but not depending on who is 
operating the Exchange.
    And when a consumer goes to a Web site and goes through the 
process of filling out the application, finding out if they are 
eligible for subsidies, and then choosing a plan, their 
experience will really be very much the same regardless of who 
is operating the Exchange.
    So I am hopeful that while the political rhetoric and 
debate may be going on, over here on the ground, people will 
really have the opportunity to receive the benefits of this law 
everywhere across the country.
    Senator Baldwin. Thank you.
    The Chairman. Thanks, Senator Baldwin.
    Senator Scott.

                       Statement of Senator Scott

    Senator Scott. Thanks, Senator Harkin. I didn't realize you 
were an insurance agent as well at one point in your career.
    The Chairman. Long time ago.
    Senator Scott. Long time ago? Like 5 years? Yes, sir.
    The Chairman. You are going to be a big member of this 
committee.
    [Laughter.]
    Senator Scott. Yes, sir, Mr. Chairman. I appreciate that, 
sir. Thank you, sir. Thanks, sir.
    Mr. Cohen, thank you for being here with us today. I know 
that we see ourselves sometimes from a partisan perspective, 
and I do not see the ACA from a partisan perspective. I see it 
as a perspective of an average person in our country having to 
absorb the additional costs that are going to be associated 
with the ACA.
    What we hear a lot about is the price tag is going down for 
the purchase of individual insurance. I am not quite sure that 
is accurate because, at some point, the price will be impacted 
by the actual cost. And when we look at the actual costs of the 
health care bill, it is actually going to have a major impact 
on every single taxpaying American in the country; every single 
taxpaying American in the country.
    There is $800 billion of new taxes and fees in the ACA. It 
includes a $123 billion excise tax, 3.8 percent, on high 
earners. That is on top of the tax reform that was just 
completed at the beginning of the year. We are talking about an 
additional $29 billion on medical device taxes. We are talking 
about where does the $1.5 billion come for the Federal 
Government to help 33 States--33 States, more than half of our 
country--will need assistance in setting up these health 
Exchanges.
    The cost of it will include not actually pricing-in pre-
existing conditions from an actuarial perspective. The cost 
will include eliminating agents. There is a cost when you have 
the Medical Loss Ratio at 85 percent, or you said 20 percent 
for Navigators. The fact of the matter is when you eliminate 
the professional that assists people in making their health 
care decisions on an individual basis, there is an unintended 
consequence and a higher cost of that to the country.
    There is an interesting concept that we are taking 10 years 
of premium and having 6 years of full benefits. There is an 
actual cost of a second decade for the actual expense of the 
health care mandate.
    The $700 individual penalty, there is a cost associated 
with that. Not just simply paying the $700, but what we will 
see is what we call, in the insurance business, ``adverse risk 
selection.'' Those folks who will pay the $700 penalty, the 
fine for not doing something in this country will actually not 
buy the insurance because it is cheaper to pay the penalty 
whether it is from the $95 or up to the $700. On an individual 
basis young, healthy Americans will say, ``I'll wait until I 
need the coverage.'' It is just like jumping out of the plane 
and needing a parachute, and knowing that you can get it on the 
way down. There is a cost associated with a delayed purchase of 
health insurance for all Americans.
    The $2,000 penalty for employers, there is a cost 
associated. Because what it does for employers--having owned a 
small business, not for very long, for about 14 or 15 years and 
having paid for the health insurance for my employees--there is 
a cost associated with the $2,000 penalty which is heading 
toward a single payer system, which will add another burden on 
to all Americans. In my State, the cost is over 61 percent, as 
an average increase, is the estimate for buying health 
insurance.
    We are going to have fewer people in the pool, not more 
people because of adverse risk selection. The NFIB says that we 
will lose up to 262,000 employees by 2022. There is a cost 
associated with high unemployment.
    The lower reimbursement rates, we will have fewer doctors 
and fewer providers of health care because of the cost of the 
plan. In South Carolina, the Exchange, while the first 3 years 
or 100 percent subsidized, it would have cost our State over $5 
billion from the year 4 to the year 10.
    The Oliver Wyman study shows that in the 10-year period 
beginning in 2014, we will see the cost of the average family 
for health insurance coverage go up by $6,800. Companies like 
Michelin are changing the way that they provide health 
insurance, from providing disincentives as well as incentives. 
There is a cost associated with this health care plan.
    So my question, sir, is how do we factor in not simply the 
price that is dropping for the average person who is buying 
health insurance according to your statistics? Mine say that 
the price is actually going up. Mine also says that because of 
adverse selection, we will see the price go up even higher in 
the second decade. We are still writing the regulation, so no 
one really understands what it is that are in those pages 7 
feet, 3 inches tall.
    So my question is: how do we factor in not simply the 
price, but the cost?
    Mr. Cohen. Thank you, Senator.
    I would make a couple of points. We are paying that cost 
now in uncompensated care. We are paying. Every small business 
in America today is paying that cost. They are paying more for 
their insurance because there are people who do not have 
insurance, and they are showing up at the emergency room, and 
they are getting care, but it is not compensated, and the 
hospital has to absorb that and pass that along to all of us.
    Second, we are paying more than we should be because people 
are not getting the kind of care that they should be getting. 
If they cannot afford to go to a doctor or to the hospital 
until they are really sick, it means they are not getting the 
preventive care that they will be getting and are getting now 
under the Affordable Care Act. They are not getting treatment. 
They are not getting managed care. And so, all of that is more 
expensive and we are paying that cost every single day.
    So I think that when you look at the system as a whole, it 
makes a lot more sense to make sure that people have access to 
coverage, can get preventive care, and can get the treatment 
that they need because that is going to bring the cost down for 
all of us.
    Senator Scott. I will just wrap it up with this, Senator 
Harkin. Having served on a couple of hospital boards, I have 
realized that the reimbursement rates are going down because of 
the ACA, not up.
    The Chairman. Thanks, Senator Scott.
    OK. I am trying to get everyone in before the 11 o'clock 
vote.
    Senator Franken.

                      Statement of Senator Franken

    Senator Franken. Director Cohen, thank you for your 
testimony.
    As you discussed, the State Health Insurance Marketplaces 
will offer millions of families and small businesses 
affordable, comprehensive health insurance for the first time. 
That is an extraordinary promise, but we also know that we have 
to implement the Marketplaces carefully to avoid unintended 
consequences such as punishing States that are ahead of the 
game.
    And as you know, I have worked closely with your agency to 
make sure that States like Minnesota would have an opportunity 
to offer a basic health program as we defined it in the health 
care law.
    Over the past several months, I have spoken with senior 
members of HHS and the White House. I have talked to the 
President about the importance of helping Minnesota maintain 
Minnesota Care, which is the name of our public insurance 
program for low-income families, from the very families that 
the Ranking Member mentioned from 138 percent of poverty to 200 
percent of poverty. We cover them in Minnesota. I have been 
talking to you, and to the President, and the Administration 
about Minnesota being supported so we can implement the basic 
health plan.
    After much uncertainty over whether, and when, your agency 
would release regulations on the basic health program, I was 
very pleased when your agency committed to getting the 
regulations out in time for the program to be up and running by 
2015, and to working with Minnesota to protect Minnesota Care 
as the Marketplace takes shape. And I just want to thank you, 
all of you, for your work on this.
    Mr. Cohen. Thank you.
    Senator Franken. Minnesota has led the country in providing 
health insurance to people with pre-existing conditions as 
well. Minnesota's State High Risk Pool, called the Minnesota 
Comprehensive Health Association, is both the oldest and the 
largest in the country with about 25,000 enrollees. The State 
has planned to carefully transition this group onto the 
Marketplace over 3 years in order to avoid driving up premiums 
or disrupting care for those in the high risk pool who are 
undergoing treatment.
    I was disappointed when HHS in its final rule on the 
reinsurance program chose to exclude State high risk pools from 
the program. It is essential that Minnesota gets the support it 
needs to carefully transition our high risk pool onto the 
Marketplace.
    How are you planning to support the Minnesota Comprehensive 
Health Association to prevent disruptions in care and help its 
enrollees transition smoothly to the marketplace?
    Mr. Cohen. Thank you, Senator.
    We certainly share your interest in making sure that that 
happens. And we have a plan set up to make sure that people who 
are in State high-risk pools become aware of the opportunities 
that will be available to them through the Marketplaces, 
obviously, to get coverage without pre-existing conditions. I 
would be happy to work with you with respect, specifically, to 
the Minnesota situation and see what solutions we can come up 
with.
    Senator Franken. Thank you. Thank you.
    Many have expressed concerns that the health care law's 
requirements to strengthen insurance coverage such as no longer 
allowing insurance companies to deny coverage for people with 
pre-existing conditions will increase premiums in the State 
Marketplaces. However, the health care law also includes 
requirements that will keep premiums down.
    For example, my Medical Loss Ratio provision, which you 
referred to in your testimony, requires that insurance 
companies spend 80 percent in the small group plans and 
individual plans, and 85 percent in large group plans of 
premium dollars be spent on actual health care. Not 
administrative costs, not profit, not marketing.
    Mr. Cohen. Right.
    Senator Franken. Not on CEO salaries, but on actual health 
care.
    We have seen nearly 13 million Americans, 12.8 million 
Americans, benefit from rebates because the insurance companies 
have to rebate when they don't get there. We have heard that 
insurance premiums cost more. Well, if they cost $1 more, they 
cost more. But the fact of the matter is that they are costing 
less over the last 3 years than they otherwise would have.
    Bending the cost curve does not mean that the President 
promised to bring premiums down. It means he said he was going 
to bring them down relative to what they otherwise would have 
been. And is it not true that over the last 3 years, we have 
seen premiums for health insurance go down relative to the way 
they have been in the last several decades?
    Mr. Cohen. That is true.
    Senator Franken. Here are some of the statistics. The 
average premium increase for all rates in 2012 was 30 percent 
below what it was in 2010.
    We really have to remember what we are talking about here. 
We are talking about bending the cost curve. Nobody was saying, 
nobody was saying that the cost of health care per person was 
going to go down. What the President was saying is that it will 
go down relative to what it otherwise would have been.
    Do you have any comment on that?
    Mr. Cohen. No, I think that is absolutely right, and I 
think that we have seen a real shift in the rate of increase of 
premiums as a result of a number of the provisions of the 
Affordable Care Act.
    Senator Franken. Thank you.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Franken.
    Senator Roberts.

                      Statement of Senator Roberts

    Senator Roberts. Sorry, Mr. Chairman. I was trying to fill 
out my form here.
    The Chairman. Was that for your Government health 
insurance?
    [Laughter.]
    Senator Roberts. That is to join the Marine Corps, sir. I 
have been drafted.
    [Laughter.]
    I want to thank you for coming back, Mr. Cohen. Thank you 
for your previous answers on sub-regulatory guidance, and how 
we are to find out much more on how we are to comply with the 
Wilt Chamberlain-sized regulations here.
    I appreciate your effort to get back to us, more especially 
with regard to the comment period that we would like to now 
turn to. The CMS Administrator, the new administrator, Marilyn 
Tavenner, who we really appreciate in terms of her partnership, 
just told me that from now on we are going to try to do the 60-
day comment periods and not go to the sub-regulatory guidance 
because it is almost impossible to let the rural health care 
delivery system or, for that matter, any health care delivery 
system know what is going on.
    Immediately after that, she issued an interim final rule, 
which we contacted her about, but we hope we can get to the 
committed 60-days. And I know you are going to make an effort 
to do that.
    You mentioned throughout your testimony that the health 
reform law will allow for clear information--clear 
information--for consumers and make it easier for them when 
they purchase a plan. But we also know about the application 
that CMS has drafted for folks to apply for coverage. I have it 
right here. It is 21 pages.
    I have to tell you, I went to a land grant college. I think 
I can usually fill out forms. This is equally as challenging, 
or more so, than your tax return. And I know that you are going 
to have people trying to help the 7 billion people you are 
trying to get health insurance for and I think they are going 
to be called navigators.
    Is that correct?
    Mr. Cohen. Yes.
    Senator Roberts. OK. And I asked the Secretary, who is a 
personal friend, ``How are you going to do this? Are you going 
to hire 30,000 more people for IRS?'' She said, ``No, we are 
going to have navigators.'' ``What do you mean by navigators?'' 
``Well, some community organizations could be of help.''
    Well, this is, to start off here, it is 21 pages. This is 
just to apply. And if you apply, then you fill out 61 
additional pages. And I defy anybody on this committee--and 
including yourself, any witness--to go through this and do it 
with any degree of efficacy, or efficiency, or knowledge that 
they have done the right thing.
    Why do we ask for so much information? You say,

          ``Well, we ask about income and other information to 
        make sure you and your family will get the most 
        benefits possible. We will keep all the information you 
        provide private, as required by law.''

    And then you go in and say, it is sort of like a friendly 
person who is tapping you on the shoulder, ``Tell us about 
yourself.'' There are about six or seven things down here. And 
then, ``Tell us about your family.'' And then, ``Tell us about 
the people who are in your family. Tell us about your spouse, 
partner, and children. Tell us about your job and your income. 
Tell us where you live for demographic purposes. Tell us if you 
come from Alaska or you are a Native American. Tell us,'' and I 
could go on, and on, and on.
    Then there is a specific, if you get through this and you 
have a navigator, and I still don't know where those navigators 
are going to come from for a small community. Say it is Dodge 
City, KS. That is where I am from. I don't know which community 
organizations are going to help people with this, or if you 
have a navigator that has been trained to help people go 
through this, but I doubt it at this particular time.
    But you can go online and by going online, it is supposed 
to be very simple. Here is the individual questionnaire and the 
outline. Where do I get to what you dial? It is 1-800-XXX, 
because it is a draft. I understand that. But I know that when 
people, and I am talking about health care providers, try to 
access the Web page of the Department of Health and Human 
Services, they get into a lot of difficulty.
    At any rate, but there is one little item here that I am 
trying to find again that I was reading when the Chairman told 
me my time was now, and I am almost up on time here.
    Basically it says if a person says they do not want to 
apply for financial assistance in any of the questions, in 
other words they say, ``No, no, no, no thank you.'' The concept 
is to fill this out anyway, send it in, and they are going to 
capture a couple of responses to assess whether or not it may 
be worth their time to apply anyway.
    So if a person says, ``I don't want to apply,'' they have 
to apply to tell people why they do not want to apply. That 
does not seem to me to be very helpful either.
    I mention all this because I think we are really getting 
into a bramble bush here of regulations that I do not know how 
we are going to work through. I think the real answer is to 
provide a long enough comment period so people can really grasp 
what you are trying to do here, and have a transparent comment 
period, then have you folks pay attention to those comments, 
and then fix the things that you can.
    I know you are under a time line, and you told me last time 
that you thought that it was more important for the consumer to 
get information as opposed to meet time lines or have an 
extended comment period.
    Well, if they even get the information, I want to tell you 
one thing, they want to comment because with these two things 
I've mentioned, I do not know how we implement them; I really 
don't. I know that you have a difficult task ahead of you. I am 
not trying to be overly critical. I am just worried about all 
of this. These two things, probably, what are they, 1-inch 
however tall that is.
    So there, that is my rant, and I apologize for it, but I 
can tell you that out there the providers--you said in 
reference to the distinguished Senator from South Carolina that 
there is a cost that is now being paid.
    The problem is that there is not going to be enough doctors 
and nurses to do this. We do not have enough doctors and nurses 
to handle this. And right now, there are a lot of doctors that 
are not serving Medicare patients because of this. I mean, you 
can have the best health care plan in the world, but if you do 
not have access to doctors and nurses and health care 
providers, I do not know what we do.
    The Chairman. Thank you, Senator.
    Senator Roberts. I would like for him----
    The Chairman. Senator Whitehouse.
    Senator Roberts [continuing]. To at least have the 
opportunity to respond to all of my----
    The Chairman. Well, I don't know. Senator, we have to move 
on. I have another Senator. We have a vote coming up here. You 
took 1 minute and 50 seconds over the 5 minutes.
    Senator Roberts. I understand that. I just feel bad that he 
cannot respond and that I have already picked on him.
    The Chairman. Senator Whitehouse.
    Senator Roberts. Sorry.
    The Chairman. I have to try to get through this.
    Senator Whitehouse.
    Senator Whitehouse. Thank you, Mr. Chairman.
    Welcome, Mr. Cohen.
    Mr. Cohen. Thank you.
    Senator Whitehouse. I represent Rhode Island. Rhode Island, 
as I am sure you are aware is a real leader State in trying to 
get the insurance Exchange up. We were the first State through 
to Level II funding. The Lieutenant Governor, Elizabeth 
Roberts, is doing a terrific job of leading this effort and of 
bringing our entire community along with it through a very 
open, inclusive, and transparent process.
    For those of you who remember Senator Chafee's days in the 
Senate, his old health care staffer, Christy Ferguson, is now 
leading the Insurance Exchange effort appointed by John 
Chafee's son, Lincoln Chafee, who is now our Governor. And it 
is a very ambitious program.
    We don't just want to set up a market. We also want to 
enable negotiations so that that market power can be brought 
through to the benefit of the consumers. We also want to set 
the conditions so that the critical outcomes information, the 
critical data that is so necessary as we try to squeeze the 
waste and inefficiency out of our colossally wasteful and 
inefficient health care system can be accomplished through 
this.
    My worry is that there is an institutional bias, and an 
understandable one, to put all the attention where the bulk of 
the States are, and where there are not a lot of States to not 
pay as much attention to them.
    What I would urge to you as a matter of policy is that you 
should put as much attention and resources as you can into the 
leadership States, because it is a lot easier to follow when 
somebody has forged the path.
    This is a problem we saw in Rhode Island with our 
information Exchange. I think we are probably the leading State 
in the country on a statewide information Exchange that 
automatically loads data from different providers, from 
laboratories, from MRI facilities, from specialists, all of 
that. And the attention is all to the people who are sort of 
back in the middle, way behind us, slugging through. I think 
stuff goes viral once it is really made to work.
    I would urge you when it comes to your organization--I know 
you are focusing on the insurance Exchange, so let's focus on 
that--I would urge you to put disproportionate effort behind 
the folks who are out front because that will pay huge 
dividends across the board. Otherwise, you are left fighting a 
lot of stuff on your own. It is expensive to fight through a 
lot of the administrative issues that come up, and if you are 
not really heavily supported, then what you are doing is you 
are slowing down the lead dogs. When you slow down the lead 
dogs, you slow down the pack. You can pay a lot of attention to 
the rest of the pack and they are going to feel good about it, 
but the whole operation does not move forward as fast.
    So I would ask you to comment on that view of the world, 
and hope that my question has some influence on it.
    Mr. Cohen. Thank you, Senator, and I appreciate your 
comments.
    I agree with you completely that it is extremely important 
that the States that have chosen to move forward and operate 
their own Marketplaces be successful. And if they are, other 
States will follow, and they will learn from the experience of 
the States that have been out in front, as you say, and they 
will see the benefits of taking on this responsibility at the 
State level. We have said all along, we believe that is what 
provides the best opportunity for the Marketplace that will 
serve a State the best.
    We do work very closely with each State ranging from Rhode 
Island to California and New York who are moving forward to 
have the State-based Marketplace. We have teams that work very 
closely with the States that are doing that. Obviously, as you 
know, we provide the grant funding.
    I very much take to heart your advice that we not lose 
sight of that. While we, obviously, take on the responsibility 
of making sure that there is a Marketplace in every State, 
which is our responsibility.
    Senator Whitehouse. I am making an even more specific point 
and that is that within the group of States that have elected 
to go forward and build their own Exchanges, there is a bulge. 
There are a few in the lead, there is a bulge in the middle, 
and there are a few at the tail.
    I get the impression that just because there are more of 
them and they make more noise, the bulge soaks up the bulk of 
the effort and of the support.
    My point to you is: put the support at the front. As I 
said, let the lead dogs run faster and the whole pack will move 
faster. If you are spending all your effort in the middle, you 
are not going to move a lot faster than the lead dog. So 
please, think of it in those terms if you would.
    Mr. Cohen. Thank you. I will.
    Senator Whitehouse. Thank you very much.
    The Chairman. I just want to echo that. I think Senator 
Whitehouse made a very salient, very good point and that is 
where, I think, the emphasis ought to be put on those few that 
are really out there in front.
    There is a 15-minute vote. We are going to recess for about 
20 minutes and we will come back for the second panel.
    Again, Mr. Cohen, thank you very much both for your 
knowledge, for your shepherding this, and for your great 
leadership on getting these Exchanges up and the navigators 
going. And I just want you to know that as the chair, I really 
appreciate what you are doing.
    Mr. Cohen. Thank you. I appreciate your support.
    The Chairman. Thank you. And you can stay, if you want, but 
you don't have to. We will go to the second panel when we come 
back.
    Mr. Cohen. Thank you.
    [Recess.]
    The Chairman. The Committee on Health, Education, Labor and 
Pensions will resume as sitting.
    We are now moving to panel two. On the second panel, our 
first witness will be Kevin Counihan, chief executive officer 
of Access Health Connecticut, which we just heard about from 
Senator Whitehouse. No, it was not Senator Whitehouse; Senator 
Murphy who was supposed to be here but he is in another 
committee right now.
    Mr. Counihan was appointed to his position in July 2012 by 
Governor Malloy. He comes to the job with a wealth of 
experience. He previously was president of Choice 
Administrators in California, and before that, served as the 
chief marketing officer for the Massachusetts Health Insurance 
Connector. He has also served as senior vice president for 
Tufts Health Plan and VP for Cigna. Thank you very much for 
being here, Mr. Counihan.
    Next is Professor Sabrina Corlette, a research professor 
and project director at Georgetown's Health Policy Institute. 
At the Institute, Professor Corlette directs research on health 
insurance reform issues including regulation of private health 
insurance and the building of insurance Marketplaces.
    Prior to joining Georgetown, she directed health policy 
programs at the National Partnership for Women and Families, 
and right before that, I am happy to note, she worked for this 
committee. Welcome back to the HELP Committee on that side of 
the table.
    Stacy Cook--I want to extend a personal welcome--from 
Carroll, IA is here to tell her very moving and important 
personal story. I will not steal her thunder by summarizing it. 
Stacy is also a volunteer with the American Cancer Society's 
Cancer Action Network. Thank you very much, Stacy, for taking 
your time off and being here from Iowa.
    Mr. Chris Carlson, a principal in the firm of Oliver Wyman 
Actuarial Consulting. Mr. Carlson has 18 years of experience in 
the health care actuarial field providing consulting services 
to health insurers, health care providers, employer, and State 
regulators. Before joining Oliver Wyman, Mr. Carlson worked as 
an actuary at Blue Cross Blue Shield. Thank you very much, Mr. 
Carlson, for being here today.
    All of your statements will be made a part of the record in 
their entirety. I will start with Mr. Counihan and go down. If 
you could just sum up in 5 minutes or so, we would certainly 
appreciate it.
    Mr. Counihan, welcome. Please proceed.

  STATEMENT OF KEVIN COUNIHAN, CEO OF THE CONNECTICUT HEALTH 
            INSURANCE MARKETPLACE, WEST HARTFORD, CT

    Mr. Counihan. Thank you and good morning, Chairman Harkin, 
Ranking Member Alexander, and members of the committee. Thank 
you for the opportunity to speak about the issues related to 
the new market reforms and rating rules under the Affordable 
Care Act.
    As one of 17 States implementing a State-based Exchange, 
these issues are of particular relevance to us. In Connecticut, 
our Marketplace is named Access Health CT and we have been 
particularly fortunate to have had broad-based support for our 
efforts to implement the ACA.
    This support has come from issuers, brokers, the advocacy 
community, our board of directors, State agencies, the 
legislature, our congressional delegation, and others. Further, 
we have received outstanding support from CCIIO and CMS, in 
particular from Amanda Cowly, Dawn Horner, Sue Sloop, and their 
teams. We are also very appreciative of the support of 
Commissioner Rod Bremby, from the Connecticut Department of 
Social Services and our board chair, Lieutenant Governor Nancy 
Wyman.
    We view these new marketplaces as free market, pro-
competition means for individuals and small businesses to 
access health insurance in a simpler, more transparent way. We 
believe the market is the best way to assure price competition 
and high value for consumers. I have seen this work effectively 
in an earlier role at the Health Connector in Massachusetts.
    Access Health CT is committed to serving the needs of 
individuals and small businesses in Connecticut by facilitating 
access to qualified private health plans and to assist those 
eligible with access to premium subsidies and cost sharing 
reductions.
    Access Health CT is guided by the following objectives: 
first, create a user-friendly shopping and enrollment 
experience. Two, reduce the level of the uninsured. Three, 
reduce racial and ethnic disparities in access to health care. 
Four, promote innovation and competition. And five, facilitate 
a discussion to create more affordable health insurance 
coverage. These are longer term objectives of the Connecticut 
Marketplace and reflect the vision of our Board to improve 
access to care and to establish more affordable and predictable 
costs of health care.
    Access Health CT continues to make strong progress in 
implementing our Marketplace. We are one of the leading States 
in implementation and are in the midst of label and testing 
with the Federal Data Services Hub, which verifies consumer 
information with Social Security, Homeland Security, IRS, and 
other information sources.
    Our Board of Directors has made key policy decisions. We 
have completed our strategy to outsource all key operational 
functions to private sector firms such as for our call center 
and for the administration of our Small Business Health Options 
Program or SHOP.
    We are in the process of implementing our broker training 
and oversight program. We believe brokers represent one of the 
most effective ways to distribute our products, and educate the 
marketplace about the benefits and opportunities of health 
reform.
    Our Navigator and in-person assister programs are being 
built at present, and in conjunction with community-based 
nonprofit and philanthropic organizations, and which will 
enhance our direct marketing and outreach strategies.
    Finally, we have posted our qualified health plans 
solicitation for participation by issuers. Our strategy from 
the outset has been to work collaboratively with issuers and 
all major stakeholders to make participation in our Exchange as 
easy and minimally disruptive as possible. While we have much 
work to do, we are pleased with our results to date.
    The ACA introduces a number of significant reforms to the 
health insurance market. These are meaningful consumer 
protections to the residents and small businesses in 
Connecticut and include: No. 1, no underwriting for health 
status. No. 2, no pre-existing condition limitations. No. 3, 
title limits for age adjustment. No. 4, no underwriting 
adjustment for gender. No. 5, guaranteed renewals for 
individuals and small group markets. No. 6, a minimum 80 to 85 
percent Medical Loss Ratios. And finally, inclusion of 10 
categories of essential health benefits.
    Each of these reforms benefits the residents and employees 
of small businesses in Connecticut. These reforms also come at 
a cost. Fortunately, there are a number of protections in the 
ACA which help to ameliorate the impact of these market 
adjustments.
    These protections include: No. 1, a risk adjustment program 
which transfers payments from issuers with lower risk 
enrollment to those issuers with higher risk enrollees to 
adjust for risk selection. No. 2, a risk quarter program, which 
limits issuer underwriting gains or losses. And No. 3, a 
reinsurance program which reimburses issuers for higher than 
expected utilization.
    As a result, much of the uncertainty over the unknown 
morbidity of the uninsured and the potential migration of 
certain employee segments from employer-sponsored insurance to 
the individual market will be dampened. It is critical that 
issuers, consumers, small businesses, brokers and others 
understand the important roles these programs play.
    The implementation of the ACA is complex and makes special 
demands on States, issuers, and others. Like other States, 
Connecticut has benefited from an exceptionally dedicated staff 
who work hard to realize the dignity of health insurance 
coverage for all eligible State residents.
    The market reforms of the ACA represent important 
corrections to enhance access to more affordable coverage. The 
rate pressure from the removal of prior underwriting controls 
should be mitigated, in part, by new premium stabilization 
programs.
    The hallmark of health reform has been the concept of 
shared responsibility, the sense of shared ownership of a 
common value that our Nation benefits from more citizens 
realizing the peace of mind of health insurance coverage. 
Increasingly, shared responsibility must be accompanied by 
shared patience. We must have the patience to recognize that 
the implementation of the ACA will take time to be fully 
realized. The premium rate adjustments will stabilize, that 
enrollment and health plan choices will be enhanced, and that 
outreach and communication activities will be more effective.
    At Access Health CT, we believe health insurance is a right 
of citizenship and not just a privilege of employment. The ACA 
represents the best opportunity we have at present to expand 
access to health insurance since the introduction of Medicare 
in 1965.
    We are proud to be a leading State in the implementation of 
the ACA, and to provide a more affordable health insurance to 
our residents.
    Thank you.
    [The prepared statement of Mr. Counihan follows:]
                  Prepared Statement of Kevin Counihan
                                summary
    We view these new marketplaces as free market, pro-competition 
means for individuals and small businesses to access health insurance 
in a simpler, more transparent way. We believe the market is the best 
way to assure price competition and high value for consumers, and I 
have seen this work effectively in an earlier role at the Health 
Connector in Massachusetts. Access Health Connecticut is committed to 
serving the needs of individuals and small businesses in Connecticut by 
facilitating access to qualified private health plans and to assist 
those eligible with access to premium subsidies and cost sharing 
reductions.
    Access Health Connecticut is guided by the following objectives:

     Create a User-Friendly Shopping and Enrollment Experience
     Reduce Level of Uninsured
     Reduce Racial and Ethnic Disparities in Access to Health 
Care
     Promote Innovation and Competition
     Facilitate Discussion to Create More Affordable Health 
Insurance Coverage

    Our Board of Directors has made almost all core policy decisions; 
we have completed our strategy to outsource all key operational 
functions to private sector firms such as our Call Center and the 
administration of our Small Business Health Options Program (SHOP). We 
are in the process of implementing our Broker training and oversight 
program. Our Navigator and In-Person Assistor programs are being built 
in conjunction with community-based non-profit and philanthropic 
organizations and which enhance our direct marketing and outreach 
strategies. Finally, we have posted our Qualified Health Plan 
solicitation for participation by issuers.
    The ACA introduces a number of significant reforms to the health 
insurance market. These are meaningful consumer protections to the 
residents and small businesses in Connecticut. The market reforms of 
the ACA represent important corrections to enhance access to more 
affordable health insurance and health care. The rate pressure from the 
removal of prior underwriting controls should be mitigated in part by 
new premium stabilization programs.
    The hallmark of health reform has been the concept of shared 
responsibility, the sense of shared ownership of a common value that 
our Nation benefits from more citizens realizing the peace of mind of 
health insurance coverage. Increasingly, shared responsibility must be 
accompanied by shared patience. We must have the patience to recognize 
the implementation of the ACA will take time to be fully realized, that 
premium rate adjustments will stabilize, that enrollment and health 
plan choices will be enhanced, and that outreach and communication 
activities will continue to be more effective.
                                 ______
                                 
    Good morning, Chairman Harkin, Ranking Member Alexander, and 
members of the Senate Health, Education, Labor, and Pensions Committee. 
Thank you for the opportunity to speak about the issues related to the 
new market reforms and rating rules under the Affordable Care Act. As 1 
of 17 States implementing a State-based exchange, this issue is of 
particular relevance to us.
    In Connecticut, our marketplace is named Access Health CT, and we 
have been particularly fortunate to have had broad-based support for 
our efforts to implement the ACA. This support has come from issuers, 
brokers, the advocacy community, our board of directors, Connecticut 
State agencies, the legislature, our congressional delegation, and 
others. Further, we have received outstanding support from CCIIO and 
CMS, in particular from Amanda Cowley, Dawn Horner, Sue Sloop, and 
their teams. We are also very appreciative for the support of 
Commissioner Rod Bremby of the Connecticut Department of Social 
Services, and our board chair, Lieutenant Governor, Nancy Wyman.
    We view these new marketplaces as free market, pro-competition 
means for individuals and small businesses to access health insurance 
in a simpler, more transparent way. We believe the market is the best 
way to assure price competition and high value for consumers, and I 
have seen this work effectively in an earlier role at the Health 
Connector in Massachusetts. Access Health CT is committed to serving 
the needs of individuals and small businesses in Connecticut by 
facilitating access to qualified private health plans and to assist 
those eligible with access to premium subsidies and cost-sharing 
reductions.
                           guiding objectives
    Access Health CT is guided by the following objectives:

     Create a User-Friendly Shopping and Enrollment Experience
     Reduce Level of Uninsured
     Reduce Racial and Ethnic Disparities in Access to Health 
Care
     Promote Innovation and Competition
     Facilitate Discussion to Create More Affordable Health 
Insurance Coverage

    These are longer term objectives of the Connecticut marketplace and 
reflect the vision of our board to improve access to care and to 
establish more affordable and predictable cost of health care.
                    implementation--progress-to-date
    Access Health CT continues to make strong progress in implementing 
our marketplace. We are one of the leading States in implementation and 
are in the midst of Wave 1 testing with the Federal Data Services Hub, 
which verifies consumer information through connection to the Social 
Security Administration, Department of Homeland Security, the IRS and 
other information sources.
    Our board of directors has made almost all core policy decisions; 
we have completed our strategy to outsource all key operational 
functions to private sector firms such as our Call Center and the 
administration of our Small Business Health Options Program (SHOP). We 
are in the process of implementing our Broker training and oversight 
program. We believe brokers represent one of the most effective ways to 
distribute our products and educate the marketplace about the benefits 
and opportunities of health reform to individuals and small businesses. 
Our Navigator and In-Person Assistor programs are being built in 
conjunction with community-based non-profit and philanthropic 
organizations and which enhance our direct marketing and outreach 
strategies.
    Finally, we have posted our Qualified Health Plan solicitation for 
participation by issuers. Our strategy from the outset has been to work 
collaboratively with issuers and all major stakeholders to make 
participation in our marketplace as easy and minimally disruptive as 
possible. While we have much work to do, we are pleased with our 
results to date.
                     market reforms and cost impact
    The ACA introduces a number of significant reforms to the health 
insurance market. These are meaningful consumer protections to the 
residents and small businesses in Connecticut and include:

     No Underwriting for Health Status
     No Pre-Existing Condition Limitations
     Tighter Limits for Age Adjustment
     No Underwriting Adjustment for Gender
     Guaranteed Renewals for Individual and Small Group Market
     Minimum 80-85 percent Medical Loss Ratios
     Inclusion of 10 categories of essential health benefits

    Each of these reforms benefits the residents and employees of small 
businesses in Connecticut. These reforms also come at a cost. 
Fortunately, there are a number of protections in the ACA which help to 
ameliorate the impact of these market adjustments. These protections 
include:

     Risk Adjustment Program which transfers payments from 
issuers with lower-risk enrollment to those issuers with higher-risk 
enrollees to adjust for risk selection.
     Risk Corridor Program which limits issuer underwriting 
gains or losses.
     Reinsurance Program which reimburses issuers for higher 
than expected utilization.

    As a result, much of the uncertainty over the unknown morbidity of 
the uninsured and the potential migration of certain employee segments 
from employer-sponsored insurance to the individual market will be 
dampened as a result of these programs. It is critical that issuers, 
consumers, small businesses, brokers, policymakers, and other 
stakeholders understand the roles these programs play to mitigate 
excessive rate increases.
                               conclusion
    The implementation of the ACA is complex and makes special demands 
on States, issuers, and others. Like other States, Connecticut has 
benefited from an exceptionally dedicated staff who works hard to 
realize the dignity of health insurance coverage for all eligible State 
residents.
    The market reforms of the ACA represent important corrections to 
enhance access to more affordable health insurance and health care. The 
rate pressure from the removal of prior underwriting controls should be 
mitigated in part by new premium stabilization programs.
    The hallmark of health reform has been the concept of shared 
responsibility, the sense of shared ownership of a common value that 
our Nation benefits from more citizens realizing the peace of mind of 
health insurance coverage. Increasingly, shared responsibility must be 
accompanied by shared patience. We must have the patience to recognize 
the implementation of the ACA will take time to be fully realized, that 
premium rate adjustments will stabilize, that enrollment and health 
plan choices will be enhanced, and that outreach and communication 
activities will continue to be more effective.
    At Access Health CT, we believe health insurance is a right of 
citizenship and not just a privilege of employment. The ACA represents 
the best opportunity we have at present to expand access to health 
insurance since the introduction of Medicare in 1965. We are proud to 
be a leading State in the implementation of the ACA and to providing 
more affordable health insurance to our residents.

    The Chairman. Thank you very much, Mr. Counihan.
    I think that last part of your statement, and I underlined 
it when I read it last evening, is really something that we 
have to always keep in mind, this shared responsibility 
especially when talking about young people and these young free 
riders getting them on these policies.
    Professor Corlette, please proceed.

 STATEMENT OF SABRINA CORLETTE, RESEARCH PROFESSOR AND PROJECT 
DIRECTOR, GEORGETOWN HEALTH POLICY INSTITUTE, CENTER ON HEALTH 
                INSURANCE REFORM, WASHINGTON, DC

    Ms. Corlette. Thank you.
    Mr. Chairman, Ranking Member Alexander, and members of the 
committee, I want to thank you for the leadership of this 
committee in drafting key provisions of the ACA, and for the 
ongoing oversight that you are conducting. This hearing today 
is a timely one as we are now less than 6 months away from 
enrollment into health plans that will meet sweeping new 
standards for access, affordability, and adequacy.
    In my testimony, I am going to focus on how the individual 
health insurance market works today for consumers, and how it 
will change under the ACA's market reforms.
    The ACA has a particular focus on the individual market 
because of its well-documented systemic problems which include 
a lack of access to coverage, inadequate coverage, unaffordable 
coverage, and a lack of transparency and accountability.
    Today, 48 million Americans are uninsured and 19 million 
have individual health insurance coverage. Those who buy 
insurance on their own are self-employed entrepreneurs, 
farmers, ranchers, early retirees, part-time workers, and young 
people aging off their parents' plans.
    What does the Health Insurance Marketplace look like today 
for these folks, particularly for someone who might not be in 
perfect health?
    In today's marketplace, one of the ways that health 
insurers manage costs is to make use of aggressive underwriting 
to deny coverage to individuals with pre-existing conditions. 
People with even minor health issues, such as hay fever, may be 
turned down for coverage. And recent studies have found that 
these types of underwriting practices are only growing more 
aggressive.
    Under the ACA's guaranteed issue and renewal provisions 
with limited exceptions, health insurers must accept all 
applicants regardless of their health condition, health 
history, or that of a family member. For many individuals, even 
if they are offered a policy, premium surcharges based on their 
health can cause them to forgo coverage completely.
    Beginning next year, insurers will no longer be able to 
charge somebody more because of their health status, the work 
that they do, or their gender. And they will be limited in the 
amount that they can differentially charge based on age or use 
of tobacco products. And through the new health Insurance 
Exchanges, low and moderate income individuals will be eligible 
for premium tax credits that will help make coverage more 
affordable.
    As for the adequacy of coverage in this market, in many 
States insurers are permitted to permanently exclude from 
coverage any health problems that a consumer discloses when 
they apply for a policy. Under the ACA, these pre-existing 
condition exclusions were prohibited for children in 2010, and 
will be for all individuals beginning in January. This means 
that people will be able to access the care they need from 
their very first day of coverage.
    In addition, in today's marketplace, insurers selling 
individual insurance often sell stripped down policies that do 
not cover benefits such as maternity, prescription drugs, or 
mental health. And individual policies often come with high 
deductibles, $10,000 or more is not uncommon. In fact, 
deductibles in these polices can be as much as three times what 
they are in an employer-based plan, and that these policies 
have fewer covered services and they cover a smaller share of 
the cost. It is not surprising, then, that 57 million Americans 
live in families struggling with medical debt and 75 percent of 
these families have health insurance.
    For the first time, the ACA sets new standards for benefits 
and out-of-pocket spending to ensure that insurance coverage 
does what it should: provide real financial protection to 
individuals and families.
    The individual market also suffers from a lack of 
transparency. Prior to the ACA, individuals attempting to buy 
coverage faced confusing choices with little information about 
pricing or what their policy would actually cover and what it 
would not.
    The ACA ushers in a number of critical changes to improve 
consumers' ability to shop for and compare plans, and purchase 
one that meets their needs.
    Mr. Chairman and members of this committee, the evidence is 
pretty clear. This current market does not work for the people 
who need it the most. Anyone with just about any health issue 
could face difficulty obtaining coverage. What we have today is 
a system of haves and have-nots. And remember, even if you 
happen to be a ``have,'' like the young and healthy people who 
can access this coverage, you still cannot have peace of mind.
    It is an unfortunate fact of life that all of us get older, 
and most of us will have some sort of health problem at some 
point in our lives, yet today's market cannot even provide 
people with the most basic obligation of insurance, which is to 
help people access health care and protect them financially.
    Congress, led by this committee, recognized the fundamental 
injustice in our current Health Insurance Marketplace. It 
enacted sweeping reforms that will improve access to adequate 
and affordable coverage. These changes will involve some 
disruption, undoubtedly, particularly for those in the health 
insurance industry that have benefited from the inequities of 
the current system.
    The reform is the right thing to do and I thank this 
committee for taking it on.
    Thank you.
    [The prepared statement of Ms. Corlette follows:]
                 Prepared Statement of Sabrina Corlette
                                summary
    Access Issues: In today's marketplace, one of the ways health 
insurers manage costs is to make use of aggressive underwriting 
practices to deny coverage to individuals with pre-existing conditions. 
Under the ACA, these denials will no longer be permitted. Under the 
ACA's guaranteed issue and renewal provisions, with limited exceptions 
health insurers must accept applicants, and continue to renew their 
policies, regardless of their health condition, health history, or that 
of a family member.
    Affordability Issues: Health insurance is an expensive product, and 
it is particularly expensive for people trying to buy it on the 
individual market. For those in less than perfect health, those 
premiums can cause them to forego coverage completely. Beginning 
January 1, 2014, insurers will no longer be able to charge someone more 
because of their health status, the work they do, or their gender. And 
they will be limited in the amount they can differentially charge 
because of someone's age or use of tobacco products. Through the new 
health insurance exchanges, low- and moderate-income individuals will 
be eligible for premium tax credits that will help make coverage more 
affordable.
    Adequacy Issues: Pre-existing condition exclusions or riders. In 
many States, insurers are permitted to permanently exclude from 
coverage any health problems that a consumer discloses on their 
application for a nongroup policy. Under the ACA, these pre-existing 
condition exclusions were prohibited for individuals under the age of 
19 in 2010, and will be prohibited for all individuals beginning in 
January 2014. This means people will be able to access the care they 
need from their first day of coverage.
    Lifetime and Annual limits. Prior to enactment of the ACA, it's 
estimated that about 102 million people were in plans with a lifetime 
limit on benefits and about 20,000 people hit those limits every year. 
And 18 million people are in plans with annual limits on their 
benefits. Thankfully, the ACA brought in a ban on lifetime limits, and 
put immediate restrictions on annual dollar limits (banning them 
completely in 2014).
    High Out-of-Pocket Costs. Nongroup policies often come with high 
deductibles and high cost-sharing. In fact, deductibles can be about 
three times what they are in employer-based plans. One study in 
California found that nongroup policies pay for just 55 percent of the 
expenses for covered services, compared to 83 percent for small group 
health plans. For the first time, the ACA sets new standards to ensure 
that insurance coverage does what it should: provide real financial 
protection to individuals and families.
    Transparency and Accountability Issues: Prior to the ACA, 
individuals attempting to buy coverage in the nongroup market-faced 
confusing choices, with little transparency regarding pricing or what 
their policy would actually cover--and what it would not.
    The ACA ushers in a number of critical changes to improve 
consumers' ability to shop for and compare plans in a manner that 
allows them to make informed choices and select a plan that best meets 
their needs.
                                 ______
                                 
    Good morning, Mr. Chairman, Ranking Member Alexander, members of 
the committee. I am Sabrina Corlette, a research professor and project 
director at Georgetown University's Center on Health Insurance Reforms. 
I am responsible for directing research and analysis on health 
insurance, health insurance markets, and implementation of the Patient 
Protection and Affordable Care Act (ACA).
    I thank you for the opportunity to testify before you today, for 
the leadership of this committee in drafting key provisions of the 
Patient Protection and Affordable Care Act (ACA), and for the ongoing 
oversight you have conducted to assess its implementation. This hearing 
today is a timely one, as we are now slightly less than 6 months away 
from open enrollment into health plans that will meet sweeping new 
standards for access, affordability, and adequacy.
    In my testimony, I will focus on how the nongroup health insurance 
market works today for consumers, and how it will change upon 
implementation of the ACA's market reforms, some of the most 
significant of which go into effect on January 1, 2014. The ACA has a 
particular focus on the nongroup market because of its well-documented 
systemic problems, which include:

    1. Lack of access to coverage because of health status 
discrimination.
    2. Inadequate coverage.
    3. Unaffordable coverage.
    4. Lack of transparency and accountability.

    Today, approximately 48 million non-elderly Americans are 
uninsured, and approximately 19 million non-elderly Americans have 
insurance coverage in the nongroup market, meaning they do not have 
coverage through their employer or public programs such as Medicare and 
Medicaid.\1\ Anyone can find themselves at any time in the position of 
being uninsured, or in the nongroup market. Those who buy insurance on 
their own can be self-employed entrepreneurs, farmers and ranchers, 
early retirees, part-time workers, widows, and young people ``aging 
off'' their parents' plans. This market tends to be the option people 
turn to as a last resort when they do not have an employer offer or 
insurance and are ineligible for public coverage.
---------------------------------------------------------------------------
    \1\ U.S. Census Bureau, ``Income, Poverty, and Health Insurance 
Coverage in the United States: 2011,'' September 2012.
---------------------------------------------------------------------------
    What does the health insurance marketplace today look like for 
these individuals and families, particularly those who might be in less 
than perfect health?
                             access issues
    In today's marketplace, one of the ways health insurers manage 
costs is to make use of aggressive underwriting practices to deny 
coverage to individuals with pre-existing conditions.\2\ A seminal 
Georgetown study from 2001 found that even people with minor health 
conditions, such as hay fever, may be turned down for coverage, and 
more recent studies have found that these practices have only increased 
over time.\3\ \4\ Health insurers maintain underwriting guidelines that 
can list as many as 400 medical conditions as reasons to trigger a 
permanent denial of coverage.\5\ At Georgetown, we hear stories every 
day of people struggling to access coverage in the nongroup market. For 
example, we were recently contacted by a young man who was turned down 
for coverage not because of his own health status--he is a healthy 30-
year-old running his own successful consulting business. Rather, he was 
turned down because his wife is expecting a baby. Even though her 
prenatal care is covered through her own, student health plan, the 
insurer turned him down because of the risk that they might have to pay 
for care for the newborn.
---------------------------------------------------------------------------
    \2\ U.S. House of Representatives, Committee on Energy and 
Commerce, ``Memorandum: Coverage Denials for Pre-Existing Conditions in 
the Individual Market,'' October 12, 2010.
    \3\ Karen Pollitz, ``How Accessible is Individual Health Insurance 
for Consumers in Less-than-Perfect Health?'' Kaiser Family Foundation, 
June 2001.
    \4\ Supra, n. 2.
    \5\ Id.
---------------------------------------------------------------------------
    There's also the story of John Craig, a 46-year-old software 
consultant in Orem, UT, who plays racquetball twice a week, doesn't 
smoke or drink and isn't overweight. When he tried to buy an individual 
insurance policy, however, he was denied. The insurance company cited 
sinus infections and depression, even though he hadn't experienced 
symptoms of either condition for years.\6\
---------------------------------------------------------------------------
    \6\ Sarah Lueck, ``Seeking Insurance, Individuals Face Many 
Obstacles,'' Wall Street Journal, May 31, 2005.
---------------------------------------------------------------------------
    According to a GAO study, average denial rates in the individual 
market are 19 percent, but they can vary dramatically market-to-market 
and insurer-to-insurer.\7\ For example, GAO found that across six major 
health insurers in one State, denial rates ranged from 6 to 40 percent.
---------------------------------------------------------------------------
    \7\ General Accounting Office, ``Private Health Insurance: Data on 
Application and Coverage Denials,'' March 2011.
---------------------------------------------------------------------------
    Unfortunately, access is probably even more difficult for people 
with health conditions than these data suggest, because of a common 
industry practice known as ``street'' underwriting, in which an 
insurance company agent asks a consumer questions about their health 
history and steers them away from the plan before they fill out or 
submit an application.
    Under the ACA, these denials will no longer be permitted. Under the 
ACA's guaranteed issue and renewal provisions, with limited exceptions 
health insurers must accept applicants, and continue to renew their 
policies, regardless of their health condition, health history, or that 
of a family member.
    The ACA also prohibits the practice of rescissions. Prior to the 
enactment of this provision, which went into effect in September 2010, 
insurers in many States would investigate individual policyholders who 
make claims in their first year of coverage. If the company found 
evidence that their health condition was a pre-existing one, and not 
fully disclosed during the initial medical underwriting process, the 
company could deny the relevant claims, and in some cases cancel or 
rescind the coverage.\8\ Thanks in large part to this committee's 
leadership, this practice is now illegal, except in a clear case of 
fraud by the policyholder. And since this provision was made effective 
in 2010, Georgetown research has found that insurers have generally 
come into compliance without much incident.\9\
---------------------------------------------------------------------------
    \8\ Girion, L., ``Health insurer tied bonuses to dropping sick 
policyholders,'' Los Angeles Times, November 9, 2007.
    \9\ Katie Keith, Kevin W. Lucia, and Sabrina Corlette, 
``Implementing the Affordable Care Act: State Action on Early Market 
Reforms,'' The Commonwealth Fund, March 2012; Kevin W. Lucia, Sabrina 
Corlette and Katie Keith, ``Monitoring Implementation of the Affordable 
Care Act in 10 States: Early Market Reforms,''The Urban Institute, 
September 2012.
---------------------------------------------------------------------------
                          affordability issues
    Health insurance is an expensive product, and it is particularly 
expensive for people trying to buy it on the individual market. Unlike 
those with employer-sponsored coverage or in public programs like 
Medicare or Medicaid, people with individual insurance must pay their 
full premium.
    For those in less than perfect health, those premiums can cause 
them to forego coverage completely. One national survey found that 61 
percent of people seeking individual coverage but failing to ultimately 
buy a policy cited the high cost of premiums as the reason.\10\ Health 
insurers manage costs by segmenting their enrollees into different 
groups and charging them different prices based on their health status 
or other risk factors.\11\ In practice, this means that people can be 
charged more because of a pre-existing condition (and even if, like 
John Craig, they've been symptom-free for years), because of their age, 
gender, family size, geographic location, the work they do, and even 
their lifestyle. A Georgetown study of rating practices in unregulated 
markets found rate variation of more than ninefold for the same policy 
based on age and health status. \12\ People in their early sixties can 
be charged as much as six times the premium of people in their early 
twenties, based on age alone. I had one gentleman call my office last 
year, in his early sixties. He told me he couldn't find a policy for 
less than $1,300 per month. Unfortunately, at the time all that I could 
tell him was that things would get better in 2014.
---------------------------------------------------------------------------
    \10\ Michelle M. Doty, Sara R. Collins, Jennifer L. Nicholson, and 
Sheila D. Rustgi, ``Failure to Protect: Why the Individual Insurance 
Market is not a Viable Option for Most U.S. Families,'' The 
Commonwealth Fund, July 2009.
    \11\ Melinda B. Buntin, M. Susan Marquis, and Jill M. Yegian, ``The 
Role of the Individual Insurance Market and Prospects for Change,'' 
Health Affairs, November 2004.
    \12\  Supra, n. 3.
---------------------------------------------------------------------------
    They will get better. Beginning January 1, 2014, insurers will no 
longer be able to charge someone more because of their health status, 
the work they do, or their gender. And they will be limited in the 
amount they can differentially charge because of someone's age or use 
of tobacco products.
    Of course, through the new health insurance exchanges, low- and 
moderate-income individuals will be eligible for premium tax credits 
that will help make coverage more affordable. An Urban Institute 
analysis estimates that over 8 million people will take advantage of 
the tax credit, with an average per-recipient tax credit of $4,553.\13\
---------------------------------------------------------------------------
    \13\ Fredric Blavin, Matthew Buettgens, and Jeremy Roth, ``State 
Progress Toward Health Reform Implementation: Slower Moving States Have 
Much to Gain,'' the Urban Institute, January 2012.
---------------------------------------------------------------------------
                            adequacy issues
    Currently, the insurance coverage available to individuals buying 
on their own falls considerably short of the comprehensive health 
coverage that you, as Members of Congress, and I, as a Georgetown 
professor, have come to expect. In addition to paying more in premiums, 
people buying individual policies face much higher deductibles and 
other forms of cost-sharing, limited benefits, and spend a much larger 
share of their income on health insurance and health care than those of 
us with employer-sponsored coverage.\14\ A recent Commonwealth Fund 
survey found that 60 percent of people with health problems found it 
very difficult or impossible to find a plan with the coverage they 
needed, compared to about \1/3\ of respondents without a health 
problem.\15\
---------------------------------------------------------------------------
    \14\ Michelle M. Doty, Sara R. Collins, Jennifer L. Nicholson, and 
Sheila D. Rustgi, ``Failure to Protect: Why the Individual Insurance 
Market is not a Viable Option for Most U.S. Families,'' The 
Commonwealth Fund, July 2009.
    \15\ Supra n. 10.
---------------------------------------------------------------------------
    Indeed, the number of ``underinsured'' individuals has risen 
dramatically over the last decade, to an estimated 29 million adults in 
2010.\16\ These are people with health insurance, but with high out-of-
pocket health expenses relative to their income. Underinsurance is 
particularly prevalent in the nongroup market. In fact, a recent 
University of Chicago study found that over half of all nongroup plans 
currently in the market do not meet the minimum standards for coverage 
set by the ACA.\17\ Coverage in the nongroup market today can be 
woefully inadequate for many reasons, including:
---------------------------------------------------------------------------
    \16\ Cathy Schoen, Michelle M. Doty, Ruth H. Robertson, and Sara R. 
Collins, ``Affordable Care Act Reforms Could Reduce the Number of 
Underinsured U.S. Adults by 70 percent,'' Health Affairs, September 
2011.
    \17\ Jon R. Gabel, Ryan Lore, Roland D. McDevitt, Jeremy D. 
Pickreign, Heidi Whitmore, Michael Slover, and Ethan Levy-Forsythe, 
``More than Half of Individual Health Plans Offer Coverage that Falls 
Short of What Can Be Sold Through Exchanges as of 2014,'' Health 
Affairs, June 2012.

    Pre-existing condition exclusions or riders. In many States, 
insurers are permitted to permanently exclude from coverage any health 
problems that a consumer discloses on their application for a nongroup 
policy. This is an amendment to the policy contract called an 
``elimination rider.'' In addition, once coverage begins, if a consumer 
makes claims under the policy, he or she can be investigated to see 
whether the health problem was pre-existing. In many States, it's not 
necessary for a health condition to have been diagnosed before the 
consumer bought the policy for it to be considered ``pre-existing.'' 
And insurers can look back for up to 5 years into a person's health 
care history to determine whether the current condition was pre-
existing. This is sometimes called ``post-claims underwriting.'' For 
example, in Alabama, a consumer applying for nongroup coverage might 
have a known pre-existing condition permanently excluded from his 
policy. In addition, if he makes a claim for health care services 
during the first 2 years of his coverage, the health insurer can look 
back at his medical history dating back 5 years to look for evidence 
that the current health problem existed before he bought the policy. If 
such evidence is found, the insurer can refuse to pay for care 
associated with the condition.
    Under the ACA, these pre-existing condition exclusions were 
prohibited for individuals under the age of 19 in 2010, and will be 
prohibited for all individuals beginning in January 2014. This means 
people will be able to access the care they need from their first day 
of coverage.
    Limited Benefits. Insurers selling health insurance in the nongroup 
market often sell ``stripped down'' policies that do not cover benefits 
such as maternity care, prescription drugs, mental health, and 
substance abuse treatment services. For example, 20 percent of adults 
with individually purchased insurance lack coverage for prescription 
medicines, but only 5 percent of those with employer coverage do.\18\
---------------------------------------------------------------------------
    \18\ Supra, n. 10.
---------------------------------------------------------------------------
    To improve the value of coverage, the ACA sets minimum standards 
that insurers must cover. This ``essential health benefits'' package 
requirement is designed to ensure that consumers have comprehensive 
coverage that meets their health needs and protects them from financial 
hardship. The essential health benefits are expected to be included in 
the coverage of up to 68 million Americans by 2016 and will include--at 
a minimum--10 categories of benefits: ambulatory patient services; 
emergency services, hospitalization; maternity and newborn care; mental 
health and substance abuse disorder services, including behavioral 
health treatment; prescription drugs; rehabilitative and habilitative 
services and devices; laboratory services; preventive and wellness 
services and chronic disease management; and pediatric services, 
including oral and vision care.\19\
---------------------------------------------------------------------------
    \19\ Sabrina Corlette, Kevin W. Lucia, and Max Levin, 
``Implementing the Affordable Care Act: Choosing an Essential Health 
Benefits Plan,'' The Commonwealth Fund, March 2013.
---------------------------------------------------------------------------
    Lifetime and Annual limits. Prior to enactment of the ACA, it's 
estimated that about 102 million people were in plans with a lifetime 
limit on benefits and about 20,000 people hit those limits every year. 
And 18 million people are in plans with annual limits on their 
benefits. These limits can be a matter of life and death. For example, 
Georgetown faculty recently documented the story of Martin Addie, a 
gentleman with severe hemophilia.\20\ His body produces less than 1 
percent of the clotting factor he needs, so he must administer clotting 
factor every other day to prevent bleeding. This costs approximately 
$60,000 per month. Prior to the ACA, he had blown through lifetime 
limits with three different health plans, causing incredible stress and 
worry--and putting his health at significant risk. Thankfully, the ACA 
brought in a ban on lifetime limits, and put immediate restrictions on 
annual dollar limits (banning them completely in 2014).
---------------------------------------------------------------------------
    \20\ JoAnn Volk, ``Martin Addie: ACA Ban on Lifetime Limits has 
Ended his Coverage Circus,'' CHIRblog, November 14, 2012.
---------------------------------------------------------------------------
    High Out-of-Pocket Costs. Nongroup policies often come with high 
deductibles--$10,000 or more is not uncommon--and high cost-sharing. In 
fact, deductibles can be about three times what they are in employer-
based plans.\21\ As a result, many have very low actuarial values, 
below the minimum standard in the ACA of 60 percent for a ``Bronze'' 
level plan.\22\ One study in California found that nongroup policies 
pay for just 55 percent of the expenses for covered services, compared 
to 83 percent for small group health plans.\23\ Thus, these policies 
have fewer covered services AND cover a smaller share of the costs 
associated with the services they do cover. It is not surprising that 
approximately 57 million Americans live in families struggling with 
medical debt and 75 percent of those families had health insurance.\24\
---------------------------------------------------------------------------
    \21\ Roland McDevitt, Jon Gabel, Ryan Lore, et al., ``Group 
Insurance: A Better Deal for Most People than Individual Plans,'' 
Health Affairs, January 2010.
    \22\ Supra, n. 17.
    \23\ Jon Gabel, Jeremy Pickreign, Roland McDevitt, et al., ``Trends 
in the Golden State: Small-group Premiums Rise Sharply While Actuarial 
Values for Individual Coverage Plummet,'' Health Affairs Web Exclusive, 
July/August 2007.
    \24\ Peter J. Cunningham, ``Tradeoffs Getting Tougher: Problems 
Paying Medical Bills Increase for U.S. Families, 2003-2007,'' Center 
for Studying Health System Change, Tracking Report No. 21, September 
2008.
---------------------------------------------------------------------------
    For the first time, the ACA sets new standards to ensure that 
insurance coverage does what it should: provide real financial 
protection to individuals and families. The law sets coverage tiers, 
with Platinum plans being the most generous (enrollees will pay, on 
average, 10 percent of the out-of-pocket costs) and Bronze plans being 
the least generous, with enrollees paying, on average, 40 percent of 
the out-of-pocket costs. In addition, the ACA sets new limits on the 
total amount of out-of-pocket spending consumers must incur, based on 
their income.
    And, for individuals earning up to 250 percent of the Federal 
poverty level, the ACA provides cost-sharing subsidies that will reduce 
the cost-sharing amounts and annual out-of-pocket limits. These 
subsidies have the effect of increasing the overall actuarial value of 
coverage, on a sliding scale basis, so that people between 100-150 
percent of poverty will be responsible for only 6 percent of their out-
of-pocket costs, rising to 22 percent for people at 250 percent of 
poverty.
                 transparency and accountability issues
    Last, transparency and accountability are critical to a well-
functioning insurance marketplace. Shopping for health insurance is a 
complex and confusing task for consumers, most of whom do not 
understand important components of the products being sold to them or 
how it works. As one study noted, most consumers rate reading their 
health insurance policy as a less appealing activity than preparing 
their income taxes or going to the gym.\25\
---------------------------------------------------------------------------
    \25\ ehealth, Inc., ``New Survey Shows Americans Lack Understanding 
of Their Health Coverage and Basic Health Insurance Terminology,'' 
January 3, 2008.
---------------------------------------------------------------------------
    Prior to the ACA, individuals attempting to buy coverage in the 
nongroup market-faced confusing choices, with little transparency 
regarding pricing or what their policy would actually cover--and what 
it would not. For example, one woman contacted a colleague of mine when 
she was attempting to switch to a higher deductible plan last December. 
The insurer told her that they could not quote her a monthly premium 
until she actually enrolled in the plan. And when questions arise about 
these confusing choices and the lack of transparency, consumers have 
few places to go to get unbiased, impartial advice on the plan that 
would best suit them and their family.
    The ACA ushers in a number of critical changes to improve 
consumers' ability to shop for and compare plans in a manner that 
allows them to make informed choices and select a plan that best meets 
their needs.
    One of the most talked about are the State-based health insurance 
exchanges (now called ``marketplaces'') that will help consumers make 
apples-to-apples comparisons among health plan options, and allow them 
to shop with confidence, knowing that all of the participating plans 
have met minimum quality standards.
    Less talked about, but in polling one of the most popular 
provisions of the ACA, are the new ``Summaries of Benefits and 
Coverage,'' (SBC) which insurers are now required to provide to 
individuals and employees seeking coverage. These standardized, easy to 
read summaries of the benefits, cost-sharing, limitations and 
exclusions in a plan can help consumers understand their coverage and 
make better choices. Recent consumer testing by Consumer Reports has 
found that consumers rated the SBC as more helpful than other sources 
of plan information, such as employer guides and health insurers' 
brochures.\26\
---------------------------------------------------------------------------
    \26\ Lynn Quincy, ``Early Experience With a New Consumer Benefit: 
The Summary of Benefits and Coverage,'' Consumers Union, February 27, 
2013.
---------------------------------------------------------------------------
    The ACA also includes new expectations for accountability for 
insurers. The law improves State rate review practices, and authorizes 
the Federal Government to review unreasonable rate increases if a State 
is unwilling or unable to do so. Insurers proposing new premium rate 
increases must provide detailed and public justification for those 
increases. Insurers must also comply with new medical loss ratio (MLR) 
standards, meaning they must spend at least 80 percent of nongroup 
premiums on health care and improving heath care quality. If insurers' 
MLRs go below 80 percent, they must issue rebate checks to enrollees. 
The MLR was in effect for 2011, and in 2012 nearly 12.8 million 
Americans received rebates totaling more than $1.1 billion.\27\
---------------------------------------------------------------------------
    \27\ Healthcare.gov, ``The 80/20 Rule: Providing Value and Rebates 
to Millions of Consumers,'' June 21, 2012.
---------------------------------------------------------------------------
                               conclusion
    The evidence is clear and unequivocal: the current nongroup market 
does not work for the people who need it most. Anyone with just about 
any health condition could face difficulty obtaining coverage in the 
individual market. What we have today is a system of ``haves'' and 
``have nots.'' And remember--even if you happen to be a ``have,'' such 
as those young and healthy individuals who can access this market--you 
cannot have peace of mind. Just because you are young and healthy today 
does not mean you will remain so. It is an unfortunate fact of life 
that all of us will get older and most of us will have some health 
problems at some point in our lives. Yet today's nongroup market can't 
even provide people with the most basic obligation of insurance, which 
is to protect people from bad, unexpected events. And remember those of 
us who are happy with our employer-based coverage cannot be guaranteed 
it will last forever. A bad economy--a bad election--and any one of us 
could be subject to the nongroup market and all of the risks that come 
with that.
    Congress, led by this committee, recognized the fundamental 
injustice of the current health insurance marketplace. In the ACA it 
enacted sweeping reforms that will improve Americans' access to 
adequate, more affordable health insurance coverage that allows them to 
get the care they need and protect them financially. This kind of 
change will be transformative and disruptive, particularly for those 
who have benefited from the inequities of the current system. But it is 
the right thing to do.
    Thank you, Mr. Chairman, Ranking Member Alexander, and members of 
the committee, for the opportunity to speak before you today. I look 
forward to your questions.

    The Chairman. Thank you very much, Professor Corlette and 
welcome back, as I said.
    And now, we will turn to Stacy Cook from Carroll, IA. 
Stacy, welcome. Please proceed.

              STATEMENT OF STACY COOK, CARROLL, IA

    Ms. Cook. Chairman Harkin, Ranking Member Alexander, and 
members of the committee.
    Thank you for inviting me to share my story about the 
positive impact, I believe, that health insurance reforms that 
were included in the Affordable Care Act will have on me.
    I am a volunteer for the American Cancer Society Cancer 
Action Network, which advocates on behalf of millions of cancer 
patients nationwide. It is both an honor and a privilege to 
have the opportunity to address the Health, Education, Labor, 
and Pensions Committee and have my voice heard.
    My name is Stacy Cook and I live in Carroll, IA. I am 36 
years old and in December 2004, I was 28 and diagnosed with 
breast cancer in my right breast. I was fortunate. At that 
time, I had adequate health insurance through my job, so I was 
able to receive the care that I needed.
    In November 2009, I moved from Iowa to Arizona and in March 
2012, I found another lump in my breast. I immediately made an 
appointment to get it looked at. I got the call about a week 
later that confirmed it was cancer again, except this time, it 
was in my other breast.
    The Chairman. That's all right. Take your time. It's no 
problem. These are not easy.
    [Pause.]
    Ms. Cook. And I was scheduled to see an oncologist on April 
3d, and I went to see the oncologist and he confirmed that I 
would need to have chemotherapy. He also told me that I would 
need to see a surgeon.
    As I was checking out of the oncologist's office, my 
oncologist came and told me that the surgeon wanted to see me 
right away. I thought to myself, ``Wow, this is happening 
fast.'' My aunt was with me, so we went straight over to the 
surgeon's office and within a few minutes of examining me, he 
told me he was going to do a mastectomy the next morning.
    I was overwhelmed. Everything was happening so fast. And I 
had my mastectomy the next day. In the midst of all of this, I 
was informed that my insurance would not cover any procedures 
such as the mastectomies and hysterectomy I would need, would 
not cover the chemotherapy treatment I would need, and would 
only pay for five doctor visits a year. So not only did I have 
all these emotions from being diagnosed and having a 
mastectomy, now I had to worry about how I was going to get the 
treatment that I needed.
    I applied for the Arizona State Health Insurance and was 
denied. I searched and searched for any other insurance that 
would help me, and I tried the pre-existing condition insurance 
plans, but found out that I would have to be without health 
insurance coverage for 6 months to be able to qualify, which 
would have been after my treatment had been completed.
    I was told that in order to be able to have my chemotherapy 
treatments, I would need to pay for them up front before they 
would administer them. Because of the kindness of friends and 
family, I was able to pay for three out of six chemotherapy 
treatments that were recommended by my oncologist.
    I was only working 28 hours a week and was not able to take 
any more hours on because of the effects of my treatment. I got 
to where I could not afford my rent or pretty much anything 
else, so I made the decision to move back to Iowa.
    At 36, I was moving back in with my parents and I felt like 
a failure, but I had no other option. After I had moved back to 
Iowa, I continued my search to try and identify health 
insurance coverage that would allow me access to lifesaving 
cancer treatments I needed.
    I looked into the Iowa State Health Insurance Plan and 
found that because of my breast cancer, I would have qualified 
for the program if I had been diagnosed in Iowa. Since I was 
diagnosed in Arizona, I was denied health insurance coverage 
again. But thanks to the hospital and the town where I live, I 
was able to get the rest of the chemotherapy treatments I 
needed without having to worry about paying for them up front. 
The hospital has a policy of treating patients first and then 
worrying about how they will get paid after.
    Currently, I am seeing my oncologist every 3 months for 
followup visits, and I am also paying out-of-pocket for my 
prescription cancer drug Tamoxifen. However, I am now so far in 
debt because of my medical bills that I feel I will likely need 
to file bankruptcy in 2013. My medical debt is most likely near 
$40,000. I now have the peace of mind knowing that in 2014, I 
will no longer be denied coverage because of my pre-existing 
condition, cancer, and having access to affordable insurance 
coverage and quality medical care will give me a better peace 
of mind for the future.
    My future is much brighter today than before the enactment 
of the Affordable Care Act, and for that I am very grateful.
    Thank you very much for your time. I will be happy to 
answer any questions.
    [The prepared statement of Ms. Cook follows:]
                    Prepared Statement of Stacy Cook
                                summary
    In December 2004, I was 28 and was diagnosed with breast cancer in 
my right breast. I was fortunate that, at the time, I had adequate 
health insurance through my job, so I was able to receive the care that 
I needed.
    In November 2009, I moved from Iowa to Arizona. In March 2012, I 
found another lump in my breast. I immediately made an appointment to 
get it looked at. I got the call about a week later that confirmed it 
was cancer again; I had my mastectomy the next day.
    In the midst of all of this, I was informed that my insurance 
wouldn't cover any procedures such as the mastectomies and hysterectomy 
I would need, would not cover the chemotherapy treatment I would need, 
and would only pay for five doctor visits a year.
    I applied for the Arizona State Health Insurance Program and was 
denied. I looked into the Preexisting Condition Insurance Plan but, by 
the time I would have been eligible for the program, I would have 
completed my treatment.
    I was told by the hospital where I was receiving my care that in 
order to be able to have my chemotherapy treatments, I would need to 
pay for them up front before they would administer them. Because of the 
kindness of friends and family, I was able to pay for three of the six 
chemotherapy treatments that were recommended by my oncologist.
    After I moved back to Iowa, I continued my search to try and 
identify health insurance coverage. I looked into the Iowa State Health 
Insurance Plan but, since I was diagnosed in Arizona, I was denied 
health insurance coverage again.
    I am seeing my oncologist every 3 months for followup visits. I am 
also paying out-of-pocket for my prescription cancer drug. 
Unfortunately, I am now $40,000 in debt because of my medical bills, 
and I feel that I will likely need to file bankruptcy 2013.
    I now have peace of mind knowing that, in 2014, I will no longer be 
denied coverage because of my pre-existing condition--cancer. Having 
access to affordable insurance coverage and quality medical care will 
give me a better peace of mind for the future. My future is much 
brighter today than before the enactment of the Affordable Care Act, 
and for that I am very grateful.
                                 ______
                                 
    Chairman Harkin, Ranking Member Alexander, and members of the 
committee, thank you for inviting me to share my story about the 
positive impact I believe the health insurance reforms that were 
included in the Affordable Care Act will have on me. I am a volunteer 
with the American Cancer Society Cancer Action Network (ACS CAN) which 
advocates on behalf of millions of cancer patients nationwide. It is 
both an honor and a privilege to have the opportunity to address the 
Health, Education, Labor, and Pensions Committee, and have my voice 
heard.
    My name is Stacy Cook, and I live in Carroll, IA. I am 36 years 
old. In December 2004, I was 28 and was diagnosed with breast cancer in 
my right breast. I was fortunate that, at the time, I had adequate 
health insurance through my job, so I was able to receive the care that 
I needed.
    In November 2009, I moved from Iowa to Arizona. In March 2012, I 
found another lump in my breast. I immediately made an appointment to 
get it looked at. I got the call about a week later that confirmed it 
was cancer again; except this time, it was in my other breast. I was 
scheduled to see an oncologist on April 3d. I went to see the 
oncologist and he confirmed that I would need to have chemotherapy. He 
also told me that I would need to see a surgeon. As I was checking out 
of the oncologist's office, my oncologist came and told me that the 
surgeon wanted to see me right away. I thought to myself, wow this is 
happening fast! My aunt was with me so we went straight over to the 
surgeon's office. Within a few minutes of examining me, he told me that 
he recommended that I have a mastectomy the next morning. I was 
overwhelmed--everything was happening so fast. I had my mastectomy the 
next day.
    In the midst of all of this, I was informed that my insurance 
wouldn't cover any procedures such as the mastectomies and hysterectomy 
I would need, would not cover the chemotherapy treatment I would need, 
and would only pay for five doctor visits a year. So not only did I 
have all of these emotions from being diagnosed and having to have a 
mastectomy, now I had to worry about how I was going to get the 
treatment that I needed. I applied for the Arizona State Health 
Insurance Program and was denied. I searched and searched for any other 
insurance that would help me. I looked into the Preexisting Condition 
Insurance Plan but found out that I had to be without health insurance 
coverage for 6 months to be able to qualify. By the time I would have 
been eligible for the program, I would have completed my treatment.
    I was told by the hospital where I was receiving my care that in 
order to be able to have my chemotherapy treatments, I would need to 
pay for them up front before they would administer them. Because of the 
kindness of friends and family, I was able to pay for three of the six 
chemotherapy treatments that were recommended by my oncologist. I was 
only working 28 hours a week and was not able to take on any more hours 
because of the side effects from my treatments. It got to where I could 
not afford my rent or pretty much anything else, so I made the decision 
to move back to Iowa. At 36, I was moving back in with my parents. I 
felt like a failure, but had no other option.
    After I moved back to Iowa, I continued my search to try and 
identify health insurance coverage that would allow me to access the 
lifesaving cancer treatments I needed. I looked into the Iowa State 
Health Insurance Plan and found that because of my breast cancer, I 
would have qualified for the program if I had been diagnosed in Iowa. 
However, since I was diagnosed in Arizona, I was denied health 
insurance coverage again. Thanks to the hospital in the town where I am 
living, I was able to receive the rest of the chemotherapy treatments I 
needed without having to worry about paying for them up front. The 
hospital has a policy of treating patients first, and then worrying 
about how they will get paid. Currently, I am seeing my oncologist 
every 3 months for followup visits. I am also paying out-of-pocket for 
my prescription cancer drug, Tamoxifen.
    Unfortunately, I am now so far in debt because of my medical bills, 
I feel that I will likely need to file bankruptcy in 2013. My medical 
debt to date is near $40,000.
    I now have peace of mind knowing that, in 2014, I will no longer be 
denied coverage because of my pre-existing condition--cancer. Having 
access to affordable insurance coverage and quality medical care will 
give me a better peace of mind for the future. My future is much 
brighter today than before the enactment of the Affordable Care Act, 
and for that I am very grateful.
    Thank you very much for your time. I will be happy to answer any 
questions.

    The Chairman. Thank you very much, Miss Cook for your very 
poignant, moving statement. I think that just pretty much sums 
it all up.
    Mr. Carlson, welcome. Please, please proceed.

 STATEMENT OF CHRIS CARLSON, PRINCIPAL AND CONSULTING ACTUARY, 
             OLIVER WYMAN CONSULTING, MILWAUKEE, WI

    Mr. Carlson. Thank you. Mr. Chairman and members of the 
committee, thank you for this opportunity to testify on the 
impact of guarantee issue and new rating rules.
    My testimony will focus on the studies that I and other 
actuaries have prepared to assess the impact of changes in non-
group premium rates resulting from the ACA. There are three 
issues I will address specifically.
    First, the analysis that we and others performed to measure 
the impact of the 3 to 1 age rating limitation on non-group 
policies. Second, the estimates we have developed on the 
increase in premiums that will be required to fund the health 
insurer taxes beginning in 2014. Third, the report sponsored by 
the Society of Actuaries that measures the impact of newly 
insured on claim costs in the non-group market. In addition, I 
will touch on other issues that will both increase and decrease 
premiums.
    First, Kurt Geisa and I co-authored an article published in 
the American Academy of Actuaries magazine. The purpose of the 
article was to assess the impact of age-rated limitations 
required by the ACA. Currently in most States, health insurance 
premium rates are allowed to vary by a ratio of at least 5 to 1 
based on age, however, actual costs may vary by as much as 6 or 
7 to 1. Thus, insurers must compress the rates at the high and 
low ends to maintain the required ratio of premium rates by 
age.
    Our work was intended to measure the impact of age rating 
compression, but also includes an assumption for the impact of 
all other provisions of the ACA. For this, we relied upon the 
CBO's letter to Senator Bayh in 2009 where the CBO estimated 
that non-group premiums would increase by 10 to 13 percent 
relative to current law. This amount represents changes due to 
factors such as the increase in benefits, competitive factors, 
and guaranteed issue.
    In our analysis, we assumed that the overall change due to 
these other factors would be at the low end of this range or a 
10 percent increase. Importantly, I note that our article 
illustrates the impact on premiums for those individuals that 
are not eligible for the subsidies.
    We showed that for individuals in the lowest age bracket, 
ages 21 to 29, premiums would increase by 42 percent in total, 
of which 29 percent is due to the age rating compression. 
Further, individuals at ages 30 to 39 would see an increase of 
31 percent in total or 19 percent due to the age rating 
compression.
    The Urban Institute recently published a report that also 
researched the impact of age rating. They concluded that the 
premiums for individuals between the ages of 21 to 27 would 
increase by 21 percent due to age rating, consistent with our 
results. We also agree with their conclusion that this would 
not affect most young adults due to premium subsidies available 
through the Exchanges. However, there will be certain 
individuals who are not eligible for subsidies whose premiums 
will increase substantially due to the age rating limitations.
    Regarding the second topic, Oliver Wyman researched the 
impact of health insurer taxes. We, and others, including the 
CBO, believe that these fees will be passed through directly to 
policyholders in the form of higher premiums. Overall, we 
anticipate that these increases will affect premiums by roughly 
2 percent in 2014, and as much as 3.7 percent by 2018.
    Third, the Society of Actuaries sponsored a report prepared 
by Optum that estimated the change in claim cost due to newly 
insured individuals in the non-group market. It is expected 
that in most States which currently do not require a guaranteed 
issue, new entrants to the non-group market will have higher 
morbidity than those currently insured. Therefore, it is 
expected that the premiums in the non-group market will need to 
be increased in 2014 due to the inclusion of a less-healthy 
population.
    On average, Optum estimated that the non-group claim costs 
would increase by 32 percent after inclusion of the new 
entrants into the market. The results, however, vary widely by 
State from a reduction of 13.9 percent in New York, which 
currently has guaranteed issue and community rating, to an 
increase of 80.9 percent in Ohio. Generally, the States that 
have more restrictive market rules prior to the ACA will see 
lower claim costs relative to current costs.
    Finally, I will briefly discuss other components expected 
to affect premiums in the non-group market.
    First, premiums will increase due to requirements to 
provide essential benefits and minimum actual values. For 
example, the CBO estimated that increases in premiums due to 
the amount of insurance coverage would be 27 to 30 percent.
    Second, the open marketplace created as a result of the 
Insurance Exchanges will put pressure on health plans to keep 
premium rates down in order to be one of the lowest cost 
options and to attract those that are eligible for subsidies.
    If a health insurers' premium rate is greater than the 
second lowest Silver Plan, enrollees would have to pay more 
out-of-pocket in premium, which would not be reimbursed by the 
premium subsidies.
    Third, additional fees and taxes, including the exchange 
fees of 3.5 percent for the Federally Facilitated Exchanges and 
the medical device tax, will also likely pass through to 
premiums.
    Fourth, and finally, the Temporary Reinsurance Program will 
reduce non-group premium rates by reimbursing health insurers 
for individual claims that exceed a threshold. The State of 
Vermont recently published post-ACA rate filings, one of which 
estimated that the reduction in costs for the non-group market, 
due to the Temporary Reinsurance Program, would be 9.6 percent 
in 2014.
    Mr. Chairman, again, I thank you for the opportunity to 
speak, and look forward to answering any questions.
    [The prepared statement of Mr. Carlson follows:]
                  Prepared Statement of Chris Carlson
                            i. introduction
    Chairman Harkin, Ranking Member Alexander, and members of the 
committee, I am Chris Carlson, principal and consulting actuary at 
Oliver Wyman. I have nearly 20 years of experience as a health care 
actuary and have been actively involved the last few years in helping 
stakeholders, including clients, regulators and actuarial colleagues 
understand and implement the changes required by the Affordable Care 
Act (ACA). I am delighted to have this opportunity to testify on the 
effect of guarantee issue and the new ratings rules on the nongroup 
health insurance marketplace.
    My testimony will focus on topics that I and my firm of Oliver 
Wyman and other health actuaries have studied in preparation of 
implementing the new marketplace rules required by the ACA. These 
topics include:

     The analysis that we and others performed to measure the 
impact of the 3 to 1 age rating limitation of the ACA on nongroup 
policies.
     The estimates we have developed on the increase in 
premiums that will be required to fund the health insurer taxes 
beginning in 2014.
     The report sponsored by the Society of Actuaries that 
describes the cost of newly insured individuals in the marketplace 
relative to the current nongroup marketplace participants.
     Other factors that will impact the level of health 
insurance premiums in the nongroup marketplace after implementation of 
the ACA.

    Overall, we note that the age-rating limitations by themselves 
result in no change in the average premium. However, since current age-
rating laws in most States allow for a 5 to 1 ratio or more in the 
highest to lowest rate, the change in the premium required for certain 
policyholders to compress to a 3 to 1 ratio is significant. Our study 
indicates that the impact of the age rating compression will increase 
the average premium for policyholders between ages 21 and 29 by 29 
percent. The Urban Institute published a report \1\ that assessed the 
impact of age rating compression but using a different methodology. 
Although the magnitude of their results is different, the results are 
consistent as they estimated that premiums for single adults between 
ages 21 to 27 would increase 21.3 percent due to the age rating 
compression. In both cases, this increase would only apply to 
individuals that are not eligible for any premium subsidies and have 
incomes above 400 percent of the Federal Poverty Level.
---------------------------------------------------------------------------
    \1\ Blumberg, Linda J. and Buettgens, Matthew, ``Why the ACA's 
Limits On Age-Rating Will Not Cause `Rate Shock': Distributional 
Implications of Limited Age Bands in Nongroup Health Insurance'', The 
Urban Institute, March 2013.
---------------------------------------------------------------------------
    Beginning in 2014, health insurers will be assessed additional 
premium taxes required by the ACA. The amount to be collected in 2014 
is $8 billion, increasing to $14.3 billion in 2018 and with trend 
thereafter. We estimate that the impact of these taxes will be to 
increase premium rates by 1.9 percent to 2.3 percent in 2014, and by 
2.8 percent and 3.7 percent in years 2018 and later.
    The Society of Actuaries sponsored a study \2\ of the newly insured 
individuals that will be enrolled in the nongroup market as a result of 
the ACA's provisions related to guarantee issue. This report estimated 
that the nongroup cost per member per month across all ages would 
increase by 32 percent after the ACA compared to pre-ACA. This would be 
in addition to the increases for the younger individuals aged 21 to 29, 
described above.
---------------------------------------------------------------------------
    \2\ ``Cost of the Future Newly Insured Under the Affordable Care 
Act (ACA)'', Society of Actuaries, March 2013.
---------------------------------------------------------------------------
    There are other factors that will drive changes, both increases and 
decreases, in the nongroup premium rates after implementation of the 
ACA. These include:

     Increases:

         Benefits required for essential benefits and actuarial 
        value.
          Additional fees and taxes including the Exchange fees 
        of 3.5 percent and the medical device tax which will likely be 
        passed through to premiums.
     Decreases:
         Competition created by the Exchange marketplace.
          The temporary reinsurance program will reduce 
        nongroup premium rates in the first 3 years post-ACA.
                      ii. age-rating under the aca
    The ACA reforms the market rules that all health insurance 
providers must follow in the pricing of health premiums beginning on 
January 1, 2014. In general, premium rates are only allowed to vary by 
four criteria: geography, age, tobacco usage and actuarial value. Of 
these, there is a further restriction that the premiums may not vary by 
age by more than 3 to 1 from the highest age tier to the lowest age 
tier. In fact, the regulations that were promulgated by the Department 
of Health and Human Services mandated specific factors by age to be 
used, unless otherwise developed by an individual State.
    Kurt Giesa and I, actuaries at Oliver Wyman, co-wrote an article 
for Contingencies magazine, which is published by the American Academy 
of Actuaries, which estimated the impact of the age rating compression 
on different age cohorts in States that currently allow age rating 
beyond 3 to 1. The importance of this work is to help move beyond 
looking at premium changes based on broad averages, especially in a 
case where an average would mask substantial differences. We believe it 
is especially important to look at the age cohort from 21 to 29, since 
even after accounting for ACA's provision requiring that adult children 
be allowed to remain on their parents' coverage until age 26 this age 
group has an uninsured rate that is roughly twice the uninsured rate 
for the nonelderly population.
    To create our study, we used three primary data sources. The first 
was the 2011 Current Population Survey (CPS) conducted by the U.S. 
Census Bureau (use of the 2011 CPS data takes into account the impact 
of the ACA's adult child coverage provision, which became effective for 
plan years beginning on or after Sept. 23, 2010). For premium-level 
assumptions, we relied on Congressional Budget Office (CBO) estimates 
regarding selection and impact of increased benefit levels tied to 
actuarial values. We excluded the effects of medical cost trend because 
it's assumed to occur regardless of the ACA. (CBO estimates of premium 
increases include growth in the underlying cost of coverage related to 
an increase in benefits over what is purchased today, positive 
selection due to an assumed improvement in risk pool mix, and lower 
prices due to greater market efficiencies.) Our estimates of the level 
of premium assistance are generous, as we based them on average 
premiums. Had we based them on estimates of premiums for the second 
lowest-cost silver plan (as will be the case under the ACA), the 
assumed levels of premium assistance would have been lower and consumer 
out-of-pocket costs for health insurance and the premium rate changes 
in 2014 would have been higher.
    To construct premiums by age in 2013, we relied on a set of 
proprietary rating factors maintained by Oliver Wyman. These rating 
factors are based on costs and are consistent with factors used in the 
industry. For 2014, we used the standard age curve that CMS put forward 
in its proposed Health Insurance Market Rules. We also collected data 
from two large health insurance issuers to verify our estimates derived 
from CPS data on demographic distributions and found similar results 
when looking at these carriers' actual market data.
    While a range of ACA provisions will be implemented in 2014, 
perhaps the most important for young adult insurance premiums are the 
provisions for age band compression and the provisions related to 
advanced premium assistance tax credits and cost-sharing reduction 
assistance. The essence of age band compression is that younger people 
pay more for their coverage so that older people can pay less. As with 
many other issues that affect pricing, this is effectively a matter of 
the amount of cross-subsidization that will flow among different 
enrollees with respect to their health insurance premiums. We need to 
distinguish the cross-subsidies that are the result of age band 
compression from the general pooling of risk that underlies all 
insurance. While insurance generally provides a retroactive cross-
subsidy among insured individuals to protect against unknown risks, age 
band compression is a prospective cross-subsidy from the young to the 
old.
    Our analysis shows that under the ACA, premiums for people aged 21 
to 29 with single coverage who are not eligible for premium assistance 
would increase by 42 percent over premiums absent the ACA. People aged 
30 to 39 with single coverage who are not eligible for premium 
assistance would see an average increase in premiums of 31 percent. 
Those with single coverage aged 60 to 64 who are not eligible for 
premium assistance would see about a 1 percent average increase in 
premiums. Our estimates of these effects are shown in Chart 1 and 
reflect the assumptions described above. These estimates assume a 
starting age band of about 5 to 1, reflecting States where coverage 
currently is underwritten.
    Our core finding is that young, single adults aged 21 to 29 and 
with incomes beginning at about 225 percent of the FPL, or roughly 
$25,000, can expect to see higher premiums than would be the case 
absent the ACA, even after accounting for the presence of the premium 
assistance. Similarly, single adults up to age 44 with incomes 
beginning above approximately 300 percent of FPL can expect to see 
higher premiums, even after accounting for premium assistance. This is 
because in today's market, younger enrollees can buy coverage that more 
closely reflects their expected actuarial costs based on their age, and 
this coverage is pooled with other similar risk classes in accordance 
with standard actuarial principles. In addition, the ACA requires that 
all nongroup coverage meet essential health benefit requirements, both 
with respect to the type of services covered and with respect to the 
actuarial value of the coverage.
    Consider, for example, a 25-year-old person with income at 300 
percent of FPL, or $33,510. This person currently could purchase 
coverage for about $2,400 per year, or 7.2 percent of his or her 
income. Age band compression and the other changes to the ACA would 
result in premiums (before premium assistance) increasing by 42 percent 
to $3,408. As shown in Chart 2, this person at 300 percent FPL will be 
required to pay 9.5 percent of his or her income, or $3,183, toward the 
cost of coverage. The cost of his or her actual premium would increase 
by $783, even with the $225 in premium assistance. (The impact of cost-
sharing reduction assistance at these income levels is not relevant 
because the assistance completely phases out at household incomes above 
250 percent of FPL.)
    While our analysis focused primarily on the impact of age band 
compression, the interaction of age band compression and the 
elimination of premium variation related to health status also deserves 
attention. Analysis of representative carrier data suggests that 
eliminating health status as a rating factor itself may increase 
premiums by roughly 17 percent to 20 percent for those who have 
preferred rates because of lower-than-average health risks. Young 
adults often qualify for these preferred rates. These increases would 
be in addition to any premium rate change due to age compression, 
required increases to benefits, or other factors discussed above. On 
the flip side, older individuals often cannot get coverage in the 
nongroup market or afford coverage if it is offered. The ACA addresses 
many of these concerns for older persons separate from the issue of age 
band compression. It mandates that nongroup coverage be offered on a 
guaranteed-issue basis. The ACA's prohibition on varying premiums based 
on health status will lower rates for older people. And the same 
arguments that apply with respect to premium assistance for younger 
individuals apply to those who are older--for anyone with household 
income up to 400 percent of FPL, the ACA makes premium assistance 
available that caps spending on coverage at 9.5 percent of income, or a 
lower amount for incomes less than 300 percent of FPL. The difference 
between young and old at similar income levels is that younger 
individuals at a given income level are much less likely to find it 
economically rational to purchase coverage if it takes up 9.5 percent 
of their income, while older individuals have a greater expectation of 
health care cost spending as a percentage of income.
    In light of these tradeoffs, it is important to consider ways of 
mitigating the effect on rates for younger people while leaving 
benefits of the ACA in place for older people in the pre-65 age cohort.
Breadth of Impact
    Looking at the uninsured by FPL and age in 2011 shows that 11.2 
million people (or almost 25 percent of the uninsured in 2011) were 
between the ages of 21 and 29, and roughly 1.4 million of these 
individuals will not be eligible for premium subsidies because their 
household income exceeds 400 percent of FPL. At the same time, close to 
another 2.6 million uninsured individuals are estimated to have incomes 
above 225 percent of FPL, the crossover point above which those 
purchasing single coverage can expect to pay more out-of-pocket for 
coverage than they otherwise would, even after accounting for premium 
assistance. In total, this means that close to 4 million uninsured 
individuals aged 21 to 29--or roughly 36 percent of those currently 
uninsured within this age cohort (4 million/11.2 million)--can expect 
to pay more out-of-pocket for single coverage than they otherwise 
would, even given the availability of premium assistance.
    Roughly 7.6 million people, or 40 percent of those covered in the 
nongroup market in 2011, had incomes above 400 percent of the FPL and 
would be ineligible for premium assistance. Taking into account both 
the 400 percent FPL phase-out level and the 225 percent FPL crossover 
point, we estimate that almost 80 percent of those ages 21 to 29 with 
incomes greater than 138 percent of FPL who are enrolled in nongroup 
single coverage can expect to pay more out-of-pocket for coverage than 
they pay today--even after accounting for premium assistance. With a 
crossover point of about 300 percent of FPL for those aged 30 to 44, we 
estimate that about one-third of those older than age 29 with incomes 
greater than 138 percent FPL who currently are insured with individual 
contracts will see higher premiums even after accounting for premium 
assistance.
    Also of potential importance to the cost of coverage for young 
adults are two ACA provisions: the creation of a catastrophic plan 
option and coverage of adult children to age 26 through their parents' 
group coverage. The ACA provides that beginning in 2014 issuers can 
offer a catastrophic plan option to those under age 30 and to others 
for whom the cost of coverage is deemed unaffordable. The ACA's 
provisions on cost-sharing applicable to ``metallic level'' coverage 
and the actuarial value requirements do not apply to these plans. If 
they are substantially more affordable than other coverage, 
catastrophic plans may prove an important option for young adults to 
keep premiums affordable (though premium assistance will not be 
available to those purchasing the catastrophic coverage, regardless of 
income). The ACA also includes provisions allowing parents to keep 
adult children on their employer-sponsored group coverage up to age 26. 
This provision is already in effect, and early indications are that it 
has helped to cover more young adults. Because this coverage is by 
definition group coverage, however, increasing dependent coverage for 
young adults in this way does not improve the quality of the risk pools 
in the nongroup market. In fact, comparing the 2011 CPS data against 
earlier periods suggests that one effect of the adult child coverage 
provision on the nongroup market has been to increase the proportion of 
older enrollees in relation to younger enrollees.
    From a policy perspective, the issue of age band compression and 
whether its effect on the cost of coverage for young people is 
outweighed by the value of premium assistance matters for at least two 
reasons:

     Equity--While judging fairness and the tradeoffs implicit 
in age band compression raises subjective questions, technical analysis 
can help objectively unmask distributional differences relevant to this 
question.
     Market Efficiency--If people aged 21 to 29 are asked to 
pay substantially more for their coverage than they otherwise would, 
will they choose to obtain or maintain coverage at all?

    This question has clear implications for insurance markets, which 
rely on the presence of balanced risk pools in order to provide 
affordable coverage. Younger people tend to be healthier and have 
expected health care costs that are lower than those of older people. 
An adult near retirement age, for example, is generally expected to 
have health care costs that are roughly six to seven times or more than 
those of the average male aged 21 to 29. If healthy young people choose 
to leave the risk pool or join in proportionately fewer numbers 
relative to those with immediate health care needs, the effect would be 
to create an unbalanced risk pool and higher prices for those seeking 
coverage.
    Our analysis raises questions as to whether younger individuals 
will perceive coverage as cost effective. In our analysis, we blended 
young males with young females to look at age 21 to 29 cohorts as a 
whole. Had we broken the analysis out by gender, it would show a 
greater impact on young males (meaning premium increases would be 
higher and the crossover point would occur at a lower FPL level) and 
less of an impact on young females. The CBO's 2009 analysis of premiums 
under the ACA suggests that more young people would obtain coverage 
under the ACA than under current market conditions, leading presumably 
to the conclusion that risk pools for nongroup coverage in 2016 would 
be younger and healthier than today's markets. More recent estimates at 
the State level by various parties have reached different results. 
These analyses have focused on factors such as the impact of guaranteed 
issue and the elimination of underwriting. Important to all these 
analyses are assumptions regarding the effectiveness of the individual 
coverage mandate, which could encourage young people to obtain and 
retain coverage even if it is not otherwise in their perceived economic 
interest to do so. In this regard, the ACA requires that every 
individual maintain coverage or pay a tax penalty that is equal in 2014 
to the greater of $95 or 1 percent of modified adjusted gross income, 
with the penalties for not maintaining coverage gradually increasing 
over time--phasing up to the greater of $325 or 2 percent for 2015 and 
ultimately the greater of $695 or 2.5 percent of income after 2016. The 
relatively low penalties associated with the individual mandate make 
the effectiveness of the mandate uncertain, particularly in the first 
few years of reform when stability is essential and the penalty can be 
expected to fall well below the annual cost of the minimum standard of 
coverage required under the ACA. This situation was given clarity in 
the June 2012 ruling from the U.S. Supreme Court--the law does not 
require maintenance of coverage, only maintenance of coverage or 
payment of the tax penalty.
    Given the significance of these issues, policymakers should assess 
how various ACA provisions affect the underlying affordability and cost 
of coverage for younger individuals, in order to better understand 
issues that may affect their decisions to obtain and/or maintain 
coverage. Understanding these issues requires analyses that go beyond 
consideration of broadly stated averages, which can mask the effects on 
important subpopulations. There are several options for mitigating the 
potential impact of age band compression. One approach, provided the 
ACA allows for this, would be to phase in the age band requirements 
over a period of years, thus allowing the market to stabilize with 
respect to other changes before full implementation of age band 
compression requirements. This might also bring about higher enrollment 
levels among young adults, which could lead to a healthier risk pool 
overall and help hold down premium rates for everyone--young and old.
    Another complementary possibility would be to ensure that the 
pricing rules for catastrophic coverage provide adequate flexibility to 
increase the likelihood that these policies will be affordable. This 
appears to be the approach that CMS had taken in its recently released 
``Notice of Benefit and Payment Parameters for 2014.'' Affordability is 
especially important for young adults who have incomes that make them 
ineligible for premium assistance or are above the 225 percent FPL 
crossover point. For these individuals, an affordable catastrophic 
coverage plan could mean the difference between obtaining and going 
without coverage. Because these plans are not eligible for premium 
assistance and are limited to those age 30 and younger (and those for 
whom coverage is ``unaffordable''), there would be a natural limiting 
point with respect to the number of people who would be expected to 
enroll. As a result, the potential impact on coverage costs for older 
people because of the reduced level of cross-subsidy from those 
enrolled in catastrophic coverage would be limited.
    The Urban Institute prepared a similar study using their simulation 
model to assess the impact of the age rating compression. In general, 
the results of their model are consistent with our results for the 
youngest ages. The Urban Institute estimated that the increase in 
premium rates due to the age rating compression would be 21.3 percent 
for the ages 21 to 27, compared to our estimate of 29 percent. Further, 
we agree with the Urban Institute's conclusion that ``most young adults 
currently covered by nongroup insurance will be shielded from the full 
effects of the narrower age-rating bands.'' However, we believe that 
some young individuals will be affected by the age-rating and will see 
substantial increases beginning in 2014.
                           iii. insurer taxes
    The ACA, establishes an annual fee on the health insurance sector--
effective in 2014. The new fee applies with some exceptions to any 
covered entity engaged in the business of providing health insurance 
(including private plans that participate in public programs), but does 
not include self-insured employer-provided health plans. The amount of 
the fee will be $8 billion in 2014, increasing to $14.3 billion in 
2018, and increased based on premium trend thereafter. The fees are 
non-deductible for Federal tax purposes. As we explain later, this 
feature implies that for each dollar assessed and paid in fees, more 
than a dollar in additional premium amounts must be collected (e.g., 
$1.54 for every $1.00 in fees, assuming a 35 percent Federal corporate 
income tax rate). In total, on a statutory basis, between 2014 when the 
fees are first imposed and 2019, the total amount assessed (and 
actually collected from health insurers) will be at least $73 billion. 
Net revenues to the Federal Government, however, will increase by a 
lesser amount as reflected in revenue effect estimates by the Joint 
Committee on Taxation (``JCT'') which show Federal revenues increasing 
by $60.1 billion over 10 years (2010-19). As highlighted below, both 
the JCT and CBO conclude that the new fee on health insurance plans 
would increase premiums.
    The CBO prepared an estimate of the impact of the market reforms 
required by the ACA in a letter to Senator Evan Bayh on November 30, 
2009. However, in this document, the CBO made no explicit calculation 
of the impact of the insurer fees on average premiums in the market. 
Instead, they stated ``these fees would largely be passed through to 
consumers in the form of higher premiums for private coverage.''
    In a June 2011 letter to Senator Jon Kyl, the JCT explained that 
the fee on health insurance providers is similar to an excise tax based 
on the sales price of health insurance contracts. They estimated that 
repealing the health insurance industry fee would reduce the premium 
prices of plans by 2.0 to 2.5 percent, and that eliminating this fee 
could decrease the average family premium in 2016 by $350 to $400.
    Our analysis quantified the impact of the fees imposed on health 
insurers under the ACA on the cost of health insurance coverage in both 
the commercial and public sectors. Our analysis estimates that the 
insurer fees will increase the costs of fully insured coverage by an 
average of 1.9 percent to 2.3 percent in 2014, further increasing over 
time such that by 2023, the fees will ultimately increase costs on 
average by 2.8 percent to 3.7 percent. This implies a material increase 
the average dollar cost of fully insured coverage, raising the average 
cost of such coverage by several thousand dollars over a 10-year period 
beginning in 2014.
                       iv. cost of newly insured
    The Society of Actuaries (SOA) sponsored a report that was prepared 
by Optum that estimated the impact on claim costs due to the expansion 
of the nongroup market. It is expected that in most States, which 
currently do not require guarantee issue, new entrants to the nongroup 
market will have higher morbidity than those currently insured. 
Therefore, it is expected that the premiums in the nongroup market will 
need to be increased in 2014 due to the inclusion of a less healthy 
population. On average, Optum estimated that the nongroup claim costs 
per member per month would increase by 32 percent after inclusion of 
new entrants in the market. The results vary widely by State from a 
reduction of 13.9 percent in New York (which currently has guarantee 
issue and community rating) to an increase of 80.9 percent in Ohio. 
Generally, the States that have more restrictive market rules prior to 
the ACA will see lower claim costs relative to current costs. The full 
report can be found at http://cdn-files.soa.org/web/research-cost-aca-
report.pdf.
                            v. other factors
    I briefly discuss other components expected to affect premiums in 
the nongroup market:

     Increase in benefits required for essential benefits and 
actuarial value: The CBO estimated that the increase in premiums due to 
the amount of insurance coverage would be 27 percent to 30 percent.\3\
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    \3\ http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/107xx/
doc10781/11-30-premiums
.pdf.
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     Competition created by the Exchange marketplace: It is 
expected that the open marketplace created as a result of the insurance 
exchanges will put pressure on health plans to keep premium rates down 
in order to be one of the lowest cost options and to attract those that 
are eligible for subsidies. If a health insurer's premium rate is 
greater than the second lowest silver plan, enrollees would have to pay 
more out-of-pocket in premium that would not be reimbursed by the 
premium subsidies.
     Additional fees and taxes including the Exchange fees of 
3.5 percent in federally facilitated exchanges and the medical device 
tax which will likely be passed through to premiums.
     The temporary reinsurance program will reduce nongroup 
premium rates in the first 3 years after January 1, 2014: Health 
insurers will receive reimbursement for individual claims that exceed a 
threshold. These reimbursements will decrease the insurers' claims 
costs during 2014 to 2016, when this program in operational. The State 
of Vermont recently published post-ACA rate filings, one of which 
estimated that the reduction in cost for the nongroup market due to the 
temporary reinsurance program would be 9.6 percent in 2014.\4\
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    \4\ http://www.dfr.vermont.gov/sites/default/files/MVPH-
128956063.pdf.

    The Chairman. Thank you very much, Mr. Carlson, and thank 
you all for your testimony.
    I knew that Senator Murphy was delayed in getting here 
because of prior commitments, and I want to recognize Senator 
Murphy, who wanted to make some statements.

                      Statement of Senator Murphy

    Senator Murphy. Thank you very much, Mr. Chairman. I merely 
wanted to welcome Mr. Counihan to the panel; so glad that the 
committee selected him to join us.
    I am going to have to leave again, but we are very lucky to 
have him in Connecticut overseeing our Exchange. Despite the 
tough timelines, we are doing very well and he brings to this 
panel a wonderful combination of experience in the public 
sector having worked a similar job in the Massachusetts 
Connector, as well as in the private sector. He has been very 
articulate talking about the provisions of the health care bill 
that will help to ease some of the rate shock concerns that 
have been expressed by these panels today.
    And I wanted to thank the Chairman for having him be part 
of this panel and thank him for being here and for his great 
work in Connecticut.
    The Chairman. Thank you, Senator Murphy.
    We will now begin a round of 5-minute questions. Ms. Cook, 
Stacy, when you said you are now $40,000 in debt and may have 
to file bankruptcy this year.
    I think I saw someplace, and maybe staff or someone down 
there can help me, that one of the single largest causes of 
personal bankruptcies in America was health care debt. Am I 
saying it correctly? Professor Corlette.
    Ms. Corlette. I believe that is correct, Senator.
    The Chairman. I also saw that one of the reasons, the 
highest reason for bankruptcy and also for losing homes, not 
being able to pay mortgages, is because of high medical debt.
    I think your story really does illustrate so much of what 
is going on in America. Unfortunately, there are hundreds of 
thousands of people in your same situation. It may not be 
cancer, but it may be something else.
    Ms. Cook. I agree.
    The Chairman. They just simply cannot get insurance 
coverage. I mean, I was struck by the fact that you moved back 
to Iowa and the Iowa State Health Insurance Plan would not help 
because you were diagnosed in Arizona. I just find that 
alarming: that because of moving from one State to the next, I 
mean, you were diagnosed in one State, but you cannot get the 
coverage in another State. That just is mindboggling.
    So now, you are doing your followup. But again, now you are 
pre-existing, this won't happen until, what, October 1st of 
this year, is that right? When the no pre-existing condition 
clauses start, is that right?
    Ms. Corlette. Miss Cook will be able to enroll in a plan 
starting October 1st, but the coverage does not actually start 
until January 1st.
    The Chairman. She can enroll, but the coverage starts in 
January.
    Ms. Corlette. The open enrollment period begins in October.
    The Chairman. Oh, that is right. There is an open 
enrollment period. So, at least you have the peace of mind of 
knowing that----
    Ms. Cook. Yes.
    The Chairman [continuing]. You will be able to get coverage 
that you can afford beginning next January. And you can seek 
the health care that you need.
    Ms. Cook. Yes.
    The Chairman. I just wish you didn't have to go through 
that. I wish hundreds of thousands of Americans did not have to 
go through that.
    And then when I hear about young people now, free riders as 
we have called them in the past, that now they are going to 
have to sign up. They are going to have to pay more. Mr. 
Carlson pointed that out. It has been pointed out before. These 
young people have got to pay more. But I bet you when you were 
in your early 20's, you were diagnosed at what age, 28?
    Ms. Cook. Yes.
    The Chairman. I bet before that, you probably thought you 
were just going to sail right through.
    Ms. Cook. I actually turned down cancer insurance not 2 
months before I was diagnosed. I never thought that I----
    The Chairman. Because you are young and you are healthy.
    Ms. Cook. Yes.
    The Chairman. Yes, you are invulnerable. I remember. I was 
like that once. Young, you're invulnerable.
    I think what Mr. Counihan said, really brings it home that, 
how did you say that, again? I am going to remember that, Mr. 
Counihan. I just thought it was very profound. You said that,

          ``The hallmark of health reform has been the concept 
        of shared responsibility, the sense of shared 
        ownership, of a common value that our Nation benefits 
        more from more citizens realizing the peace of mind of 
        health insurance coverage.''

    I think that is really it. I think that's really it, that 
this is a shared sense of responsibility.
    As I said to the earlier panel that we all know, any of us 
who have been involved in insurance know that the best 
insurance coverage, the cheapest is when you have more people 
in the pool. Get more people in the pool. When you start 
dividing it up, there are going to be some winners, and there 
are going to be some losers. And therefore, then you put the 
responsibility, then you shift, you shift to those who are the 
least able to maintain health, or those who have been hit with 
a double whammy like Miss Cook. So I just see it in those terms 
of a shared value in this country.
    And as others have pointed out that we are paying for it 
one way or the other. We pay for it through uncompensated care. 
Sadly enough, we also pay for it through the suffering of 
people who cannot get insurance coverage. Is that not also 
something we care about, too, in our society? People should not 
have to. I mean, it is enough to be hit with a chronic illness 
or disease, cancer, other things, it is enough. But then to be 
double hit with the fact that you cannot even get health care. 
You cannot pay for it. You have to go into debt up to your 
eyeballs, have to file for bankruptcy. Is that what we are 
about as Americans? Is this the right system? Is that the right 
kind of system?
    I think, as I said, Miss Cook, I think you just brought it 
all home with your story about what this is all about. I will 
have some more questions maybe, but I just wanted to get that 
out.
    Senator Alexander.
    Senator Alexander. Thanks, Mr. Chairman.
    I want to thank the witnesses for coming. Sorry, I was a 
little late getting back because of the vote. Miss Cook, thank 
you especially for coming. That cannot be easy to do.
    Mr. Carlson, I would like to ask you a couple questions. 
You mentioned the Congressional Budget Office report in 2009. 
It estimated, I think you said, that the President's proposed 
health care plan would increase individual premiums by 10 to 13 
percent. Is that what you said?
    Mr. Carlson. That is correct.
    Senator Alexander. Some of those people would then have 
subsidies, right, which would reduce the cost?
    Mr. Carlson. Yes.
    Senator Alexander. But not all of them, right?
    Mr. Carlson. Not all.
    Senator Alexander. Do you know what the percent was?
    Mr. Carlson. I do not know those numbers offhand.
    Senator Alexander. I think it was about half.
    Mr. Carlson. But it was in our article, we do show the 
numbers there.
    Senator Alexander. Right. That was a discussion that I 
happened to have with the President. I know that in 2008, he 
went around the country, and we have it in ``The New York 
Times'' saying that he would lower the country's health care 
cost of premiums by $2,500 for a typical family.
    I was asked to speak at the Health Care Summit the 
President invited me to in 2010, which I did, and we had a 
difference of opinion when he said that individual premiums 
would go down 14 to 20 percent. I cited that CBO report saying 
they would go up, net, 10 to 13 percent. He said I was wrong. I 
think I was right. The CBO was talking about an actual increase 
in premiums. Is that correct?
    Mr. Carlson. That is correct, yes.
    Senator Alexander. And in your study, the Society of 
Actuaries, one of the Obama administration officials said that 
was an insurance company report. Is that correct?
    Mr. Carlson. The Society of Actuaries is an independent 
organization and they sponsored the report. It was written by 
Optum which may be owned by an insurance company, but from my 
perspective it is an independent report.
    Senator Alexander. Your conclusion was that individual 
premiums would rise, how much?
    Mr. Carlson. The SOA report expected that they would go up 
32 percent due to the new----
    Senator Alexander. This would be when the law takes effect, 
is that right, in 2014 through----
    Mr. Carlson. That is correct.
    Senator Alexander [continuing]. 2017?
    Mr. Carlson. Well, I think it is----
    Senator Alexander. Over what period of time?
    Mr. Carlson. I do not know that they quantified the timing 
of that increase.
    Senator Alexander. Yes. And do you recall what the reasons 
for the increase in the prices, the expected jump in rates 
were? What the principle, driving forces were?
    Mr. Carlson. That was principally going to be driven by the 
individuals who are going to be entering the market who had 
pre-
existing conditions and needed the insurance for getting 
medical care.
    Senator Alexander. Would another one be that the 
requirement that somebody my age would pay less and somebody my 
son's age would pay more?
    Mr. Carlson. That is actually not included in that 32 
percent.
    Senator Alexander. That is a cost in addition.
    Mr. Carlson. For a young individual, that would be a cost 
in addition.
    Senator Alexander. Do you have any idea how much individual 
premiums for young men may go up over the next several years. 
Have you done any estimate of that?
    Mr. Carlson. We have not necessarily put the pieces 
together, but it is possible you can do that and kind of look 
at all the different components, and see how they add up, and 
it would be quite----
    Senator Alexander. But wouldn't common sense say that 
unless coverage was reduced, which it has not been so far as I 
know, that if you reduce prices, costs for someone my age, they 
go up for someone my son's age. That is the whole point of the 
rating, is it not?
    Mr. Carlson. That is correct, yes.
    Senator Alexander. Equalize that. In the equalization, it 
tends to keep this one down and raise this one up. Would 
another reason that the individual rates might be going up be 
that the requirements that the policies have more benefits to 
them, that they are richer policies?
    Mr. Carlson. That is correct.
    Senator Alexander. What did the report say about that?
    Mr. Carlson. The CBO report said it was 27 to 30 percent. I 
think it depends greatly on what State you are in. Some of the 
States have already significant mandates for providing 
benefits, so their increases may be significantly less than 
that.
    Senator Alexander. Have you done any work to determine 
whether people who are self-employed, the policies they 
typically have, would be consistent with the requirements of 
the new law?
    Mr. Carlson. I am sorry. I do not think I understand the 
question.
    Senator Alexander. The people who are self-employed and 
have their own individual insurance plan, will then have to 
have a new plan that meets the requirements of the law.
    Mr. Carlson. Absolutely. Yes.
    Senator Alexander. Have you done any work to determine 
whether the new requirements are consistent with what most 
people already have?
    Mr. Carlson. No, I mean, I think all of these, the factors 
that we are discussing will affect those individuals as well.
    Senator Alexander. Mr. Chairman, there is no doubt that the 
law expanded coverage, but I think the point we are finding is 
that someone is going to be paying the cost. Individual rates 
are going up.
    The President said they would not. He said that at a 
meeting with Members of Congress, he was talking about actual 
increases in rates. He was, unfortunately, incorrect about that 
based upon all of the projections that I have seen from the 
Society of Actuaries, from BlueCross BlueShield in Tennessee, 
and others. But we will know for sure when the implementation 
of the law takes place fully beginning next year.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator.
    Senator Franken.
    Senator Franken. As I said in the first panel, the record 
is that, for over the last 3 years, we know that part of ACA 
has gone into effect. And now, if you have pre-existing 
conditions as a child, you have to be offered coverage. And we 
know that the growth in the cost of care has actually slowed 
down relative to what it has been in the last 50 years.
    The President never said it would go down as an absolute. 
It was----
    Senator Alexander. I have it here. I was at the meeting, 
Senator Franken. He was speaking to me and I have the text here 
if you would like to read it afterwards.
    Senator Franken. I never heard him say it publicly. What he 
said publicly was that relative to what they would otherwise 
be, costs would go down. That is what I heard publicly.
    Senator Alexander. I do not mean to interrupt your time.
    Senator Franken. That is quite all right. That is in 
response to a private conversation you had with the President 
or a conversation you had with the President. What I heard 
publicly is that the price, we were bending the cost curve. I 
do not know how often we heard that. I would like to take that 
time, though.
    The Chairman. I do not see a statement.
    Senator Franken. I would like to take that time.
    Professor Corlette, as you discuss in your written 
testimony, the health care law includes new requirements for 
insurance companies that will help prevent premium increases, 
and I think they already have.
    For example, my Medical Loss Ratio provision--a provision 
that I based on a Minnesota State law that has been on the 
books since 1993--requires insurance companies to spend 80 to 
85 percent of your premium dollars on actual health care. And 
only 15 percent for large group policy, 20 percent for a small 
group policy, for an individual policy, on administrative 
costs, on profit, on marketing, CEO salaries, et cetera. If 
your insurance company goes over this ratio, you get a check 
back or your employer gets a check back. Over 13 million 
Americans benefited from that.
    In your analysis, how will these features of the health 
care law pressure insurance companies to keep premiums from 
going up? Do you think the Federal Government is doing a good 
job implementing this provision and is there room for 
improvement?
    Ms. Corlette. Thank you, Senator, for that question.
    As you know, last year, about 12.8 million Americans got 
over $1 billion in rebates because of your MLR provision. So we 
thank you for that.
    I do think the Federal Government is implementing it well. 
I am sure there may be some tweaks that people might be 
advocating for, but in general, I believe it is being 
implemented well.
    I also think this provision of the law coupled with the 
rate review provisions will take on added importance as we go 
into 2014 and the insurance market changes. Because it will be 
really important to have State insurance departments and the 
Feds examining the proposed rate increases that are coming in 
from the insurance companies, and looking at the assumptions 
they are making and the projections they are making to ensure 
that they truly are justified. And if they are not justified, 
thanks to the MLR provision, consumers will get that money back 
at the end of the year.
    So both of those provisions combined are critical. Thank 
you.
    Senator Franken. Thank you. Miss Cook, thank you for your 
testimony.
    Ms. Cook. You're welcome.
    Senator Franken. This is why I ran. There is a woman in 
Fergus Falls, MN who has diabetes. When I was running in 2007-
8, her son, 24 years old, had diabetes, pre-existing condition. 
He could not get insurance. So she shared her insulin with him. 
This is why we are doing this.
    What does it mean to you that you know that with a pre-
existing condition, you will now be able to get coverage?
    Ms. Cook. It means a lot to me, because after having it 
twice, there is a good chance that possibly I could get cancer 
again. So at least I will be able to have insurance if it does 
happen again.
    Senator Franken. I know I am out of time. I would love to 
have a second round.
    The Chairman. Senator.
    Senator Franken. I said I am out of time, but I would love 
to have a second round.
    The Chairman. I will try. We will have a second round.
    Senator Franken. Thank you.
    The Chairman. Professor Corlette, I want to get to the 
essence of this. Mr. Carlson's analysis, and I read it last 
evening--I looked at it again here--compares premiums for 
coverage now with projections for premiums for coverage after 
2014. But again as Senator Alexander and I were just having a 
little conference here privately, that is not really comparing 
apples to apples, is it, because the benefits that are going to 
be provided will be a lot different than what they have right 
now.
    You described in your testimony some of the gaps and holes 
in the benefits in the current market. Could you elaborate on 
that, the kind of ``Swiss cheese'' coverage--that is my own 
term--that we have now that they would have to pay for out-of-
pocket. But now, that is going to be a covered benefit.
    Could you elaborate on that?
    Ms. Corlette. Sure. Thank you, Senator.
    I think your analysis is dead-on and that premiums actually 
only tell you one part of the picture. People in today's market 
frequently have to pay out-of-pocket when care is not covered 
under their plan. And it is the reason why 57 million Americans 
live in families struggling with medical debt and 75 percent of 
those Americans have health insurance.
    We are moving to a system that doesn't just address the 
premiums that people pay, but the actual overall out-of-pockets 
that they pay. So when you look at the financial picture for an 
individual or a family, you have to be looking at both.
    The Chairman. OK. A followup then, this analysis Mr. 
Carlson compares premiums that would have been paid by 
uninsured adults before versus after ACA reforms are in effect. 
But doesn't that miss the fact that many uninsured people in 
the market now have been turned down for coverage altogether, 
and then that they have to pay for medical costs out-of-pocket, 
Miss Cook being a primary example of that? I mean, isn't that a 
fact that many of them have already been turned down?
    Ms. Corlette. Yes, Senator. And I think that those kinds of 
out-of-pocket spending should----
    The Chairman. So I asked Mr. Carlson, how can you compare, 
have an analysis that compares premiums that would have been 
paid by uninsured adults before versus after in-effect? Since a 
lot of the people that you are looking at there--I don't know, 
maybe you can correct me--you did not separate out those that 
had been turned down for insurance. Did you?
    Are they not lumped in that same group?
    Mr. Carlson. They are, yes, and I don't disagree with what 
you are saying. I think as an actuary, our responsibility is 
simply to educate people on what the cost of this is going to 
be. That really is the purpose of the reports.
    The Chairman. There is no cost to Ms. Cook. She cannot pay 
anything. She gets turned down. So it is not a cost before 
versus a cost after. It is the cost after for full coverage 
because she has already been turned down.
    We are not talking about someone who is paying in for 
insurance now and what they are going to pay afterward. We are 
talking about someone now who cannot even get insurance, who 
has medical bills, racking up debt compared to what is going to 
be afterwards.
    But your analysis does not take, the actuarial analysis, 
does not take that into account.
    Mr. Carlson. Right. And you are correct. We are looking at 
people who are currently insured and what their expectations 
are going to be.
    The Chairman. Perfect. Thank you for your honesty. I 
appreciate that very much. We are not really looking at apples 
versus apples on this thing.
    Now, I must, of course I will be able to with my friend on 
this here, but we were looking at the statements by President 
Obama--he used to be a Senator--in regards to this going back 
and forth. And in my reading of it, I thought it was very clear 
that he pointed out this difference in his statement there.
    Do you mind if I read that?
    Senator Alexander. No, but you have to read the whole 
thing.
    The Chairman. I can't read the whole thing.
    Senator Alexander. I don't mind at all if you read it.
    Senator Franken. I would love to hear the context.
    The Chairman. Well, no. That is not it. That was another 
one.
    Senator Alexander. Well, here is the part.
    The Chairman. Of course, look, we are all--in this business 
sometimes we do say things that maybe we did not give full 
thought to or something like that, so I always excuse those.
    If someone in our position has said something that is not 
quite square, you have got to go back and say, ``Is that what 
they really meant or did they mean something else?'' People do 
get a lot--and this is a confusing topic sometimes, even for 
those of us that have been in it for years and years. 
Sometimes, I know I have said things I have to go back and say, 
``Did I say that? If I did, that is not what I really meant. I 
was thinking of something else, but it came out wrong.''
    Senator Alexander. That is what he said to me.
    The Chairman. Yes, well, this just struck me that, I guess 
this is a transcript.
    Senator Alexander. Right.
    The Chairman. He said, this is the President,

          ``So Lamar, when you mentioned earlier that you said 
        premiums go up, that's just not the case according to 
        the Congressional Budget Office.''

    Senator Alexander came back and said, ``CBO report says the 
premiums will rise in the individual market as a result of the 
senate bill.'' The President says, ``No, no, no, no. Let me, 
and this is an example of where we have got to get our facts 
straight.'' Senator Alexander, ``That's my point.'' This is a 
good reading.
    [Laughter.]
    And the President says,

          ``Well, exactly. So let me respond to what you just 
        said, Lamar, because it's not factually accurate. 
        Here's what the Congressional Budget Office says, `The 
        cost for families for the same type of coverage as 
        they're currently receiving would go down 14 to 20 
        percent.' What the Congressional Budget Office says is 
        that because now they've got a better deal because 
        policies are cheaper, they may choose to buy better 
        coverage than they have right now, and that might be 10 
        to 13 percent more expensive than the bad insurance 
        that they had previously,''--what I call the `Swiss 
        cheese' coverage--``But they didn't say that the actual 
        premiums would be going up. What they said was that 
        they'd be going down by 14 to 20 percent.''--That is 
        that apples-to-apples--``I promise you, I've gone 
        through this carefully with the Congressional Budget 
        Office. I'd be happy to present this to the press, 
        whoever is listening, because this is an important 
        issue.''

    Well, anyway, it goes on and on, and on and on, and on and 
on. But I thought what the President was trying to do was to 
make the case that I was trying to just make is that, yes, 
premiums are going to go up because you've got better coverage. 
You've got more complete coverage. Before, if you were lucky 
enough to be able to buy it, you had ``Swiss cheese'' coverage 
or you are like Miss Cook, you don't even have ``Swiss cheese'' 
coverage; you don't have any coverage at all. I guess that is 
just the point I was trying to make, and I have used up way too 
much of my time.
    Senator Alexander.
    Senator Alexander. So thanks, Mr. Chairman. And I won't use 
up much of my time. And on one point, I do not disagree with 
you, on one of the main reasons that premiums are going to go 
up is because of expanded coverage. I don't disagree with that. 
In fact, that is what the Society of Actuaries found.
    Is that right, Mr. Carlson?
    Mr. Carlson. Yes, that is correct.
    Senator Alexander. And you have found that the medical 
claims will go up by about one-third.
    Is that correct?
    Mr. Carlson. Yes.
    Senator Alexander. And as a result, the cost of the 
premiums would go up significantly.
    Mr. Carlson. You can make that assumption, yes.
    Senator Alexander. And then there were two other reasons 
that costs were going up. One is the costs are allocated 
differently.
    Is that correct?
    Mr. Carlson. Well, the cost allocation would impact the 
younger individuals, but obviously----
    Senator Alexander. So for a younger individual it might go 
up more.
    Mr. Carlson. Yes.
    Senator Alexander. And then the third reason was what 
Senator Harkin said was that the policies are richer. I mean, 
if you've got more of a Buick or even a Cadillac, than a 
Chevrolet or a Ford, and so you are paying more for it.
    Mr. Carlson. Right.
    Senator Alexander. So those are all correct reasons, but 
the point is the costs are going up.
    The discussion the President and I had, and without plowing 
it too much, I had said that the congressional--just what Mr. 
Carlson said. That under the President's plan, the CBO said in 
2009 that the premiums would actually go up 10 to 13 percent in 
the individual market. That is what it said. It did not say it 
would go up relative to anything other than what they were 
today, they would be that much higher. They also said that some 
people would get subsidies; that was about half the people, I 
think.
    And then the President interrupted me and said that I was 
wrong about that, and he pointed out that for a comparable 
policy, costs would go down. Correct. But we are not talking 
about a comparable policy. We are talking about policies that 
are richer, that cover more people, and that have different 
rating systems.
    The fact of the matter is, according to the Society of 
Actuaries, when this law is fully implemented--and most of it 
happens next year--costs are going up in the individual market. 
And BlueCross BlueShield of Tennessee says they are going to go 
up at the rate of about 32 or 33 percent. And for younger 
people, it may be 2 or 3 times that. For them, that is rate 
shock.
    Now, that does not mean it is a bad idea to expand 
coverage, that a better policy is not better than a worse 
policy. It may mean that giving me more benefit than my son is 
something that we ought to talk about.
    We just need to be honest about the fact that when this 
hits, it is going to be a shock to a lot of people. It is going 
to be a rate shock, and we can take credit for the expanded 
coverage and the better policy. But somebody has got to pay the 
bill. That is what I am saying and that was the difference of 
opinion that the President and I had.
    Having said that, the President served a nice meal last 
night at the White House to a group of Senators, and I was 
privileged to be one of them, and I appreciated that very much. 
But I thought that was an instructive discussion.
    Thank you, Mr. Chairman.
    The Chairman. Thanks, Senator Alexander.
    Senator Franken.
    Senator Franken. My point is the President kept saying, and 
said over and over again, he is going to bend the health care 
cost curve. Any discussion of whether--you said that discussion 
wasn't relative to what it would otherwise be. Well, of course.
    So then it is meaningless because if the insurance premiums 
were going to go up anyway by more than that, then relative to 
what they were going to go up to, it was going to bend the cost 
curve and go down relative. And that is important because we 
know that in the past 3 years, relative to what insurance 
premiums were going to go up to, they have bent the cost curve.
    In Connecticut, Aetna, because of the Medical Loss Ratio 
cut premiums, did it not? Mr. Counihan.
    Mr. Counihan. I do not know the details of that, Senator, 
but I know what you are saying.
    Senator Franken. It is because the Medical Loss Ratio 
includes administrative costs. You have to hit 80 or 85 
percent, depending on whether you are an individual policy or a 
large group policy.
    Let me ask you this: in your actuarial study, the 3.5 
percent, you said, is going to get passed to the consumer?
    Mr. Carlson. Correct.
    Senator Franken. Does that count as administrative cost? 
How is that used?
    Mr. Carlson. I do not know the exact----
    Senator Franken. Well, you are the expert on the study, how 
was that 3.5 percent figured in, in the Medical Loss Ratio?
    Mr. Carlson. It may not be a part of what is considered 
administrative costs.
    Senator Franken. May not? What is it? I want to know.
    Mr. Carlson. There are certain fees and taxes that are 
excluded from the calculation of the administrative expenses 
and they may qualify as one of them.
    Senator Franken. I would like to know the context. Do you 
know, Professor?
    Ms. Corlette. I am afraid I do not offhand.
    Senator Franken. OK. I think that is important.
    Here is the other point. Yes, Ms. Cook's policy is cheaper 
than a policy that she might have now, but the policy did her 
no good. Doesn't that mean something? Does it mean something to 
you, Ms. Cook?
    Ms. Cook. Yes.
    Senator Franken. It means everything to you, doesn't it? So 
yes, policies might increase. The cost of an average policy 
might go up because it includes basic coverage.
    I think that is the whole point. Half of the bankruptcies 
in this country have been because of medical costs; half. Do 
you know what the bankruptcies are in Germany and they don't 
have a single payer? They have insurance. The bankruptcies 
because of medical costs are zero.
    That is the whole point of this thing is so that Ms. Cook 
can get treated for cancer when she is 28 years old. I cannot 
believe we are losing sight of that. So that the mother in 
Fergus Falls does not have to share her insulin with her 24-
year-old son. That is the whole point of this. And yet, we have 
put things in place, like the Medical Loss Ratio that have 
actually bent the cost curve on the cost of insurance thus far.
    Isn't that right, Professor Corlette?
    Ms. Corlette. It certainly has given insurers an incentive 
to price their products more accurately.
    Senator Franken. OK. So this study was done by, you said 
they are owned by an insurance company? What insurance company 
are they owned by?
    Mr. Carlson. I believe their parent company is United.
    Senator Franken. OK. And most actuaries in this country, 
what percentage are employed by insurance companies?
    Mr. Carlson. I don't know that number offhand.
    Senator Franken. OK. What you are talking about is mainly 
about what it costs for people. What age group did you mainly 
focus on?
    Mr. Carlson. We looked at all age groups, but obviously the 
main bullet point is to look at the ages 21 to 39, basically, 
to see what the impact on their premiums would be.
    Senator Franken. And what percentage of those, say, 21 to 
29 would be eligible for subsidies?
    Mr. Carlson. I don't have the number offhand, but it is a 
majority.
    Senator Franken. Professor?
    Ms. Corlette. I do not have that number offhand either, but 
I would also point out that they may be eligible for Medicaid. 
And they can also buy Bronze level or catastrophic plans, which 
would be cheaper than the Silver level plans.
    Senator Franken. OK. My time is up. I would like to thank 
all the witnesses, and I would like to thank the Chairman and 
the Ranking Member for this hearing.
    I just want to say one more time, the President, when he 
talked about this time, and time, and time, and time, and time 
again talked about bending the curve, bending the cost curve. 
That is what he was talking about.
    Senator Alexander. Mr. Chairman, if I am going to be 
contradicted, in ``The New York Times,'' July 23, 2008, Barack 
Obama said, ``I will lower the health care costs of this 
country enough to ``bring down premiums by $2,500 for the 
typical family.''
    Senator Franken. Yes, and may I say that you can quote 
someone, and then the next sentence could be, of course, that 
means relative to----
    Senator Alexander. Let me read the whole speech by him, Mr. 
Chairman. ``In speech after speech, Senator Barack Obama has 
vowed that he will lower the country's health care costs enough 
to, ``Bring down premiums by $2,500 for the typical family.'' 
Moreover, Mr. Obama, the presumptive democratic nominee has 
promised his health care plan will be, ``In place by the end of 
my first term.''
    I would not bring this up except for the fact that I was in 
the President's Health Care Summit. I said, I repeated what the 
Congressional Budget Office said, which was that individual 
premiums would go up as a result of this law. The President 
said I was wrong. I was right about that. Now, there are 
reasons for that.
    Senator Franken. No, he explained, though, that what they 
said was for if it was the same policy, it would go down.
    The Chairman. He did say that.
    Senator Franken. We are both acknowledging that----
    Senator Alexander. Senator Franken, I was there and you 
were not, and I have the transcript and you don't.
    Senator Franken. I know, but you read the transcript.
    Senator Alexander. I read the transcript and what I said 
was, ``Mr. President, the CBO says that the new health care law 
will raise individual premiums 10 to 13 percent,'' and that is 
precisely what it said.
    He then explained that if there were comparable costs, 
well, we weren't talking about comparable costs. We were 
talking about a new health care law that we were considering, 
and which is now the law, and which will have the effect of 
raising individual premiums by more than 10 to 13 percent.
    Now, I do not think we need to argue about that. That is 
just a fact. And there are reasons for it. We have discussed 
the reasons. The reasons are that expanded coverage, richer 
benefits, those two are the principle reasons; more medical 
claims according to the Society of Actuaries.
    But he did say that and it is nothing to be ashamed of, he 
just said it.
    Senator Franken. Well, look, I would note that he said this 
at a time when he also said it would be in place before the end 
of his first term. So it sounds like pretty early in the 
process.
    And what I have heard him say is, so many times, is that we 
would bend the cost curve, and that means relative to what 
health care costs would have gone up anyway. And I am saying 
that in the last 3 years since we have passed the Affordable 
Care Act, we have had the lowest increase in insurance premiums 
than we have had in about 50 years.
    So that tells me that we are bending the cost curve, and I 
am very proud of the Medical Loss Ratio provision I put in 
because that has helped bend the cost curve.
    Senator Alexander. The only last word I would say, Mr. 
Chairman, is that the President's Health Care Summit was in 
February 2010. He was the President. This is when we were 
passing the law, and bending the cost curve is all of our 
objectives.
    But the fact was CBO said individual premiums will go up as 
a result of this law 10 to 13 percent. The law has not yet gone 
into effect in most parts, and when it does, it looks like it 
will cost, the premiums will cost more.
    The Chairman. Thank you, I guess, as chair, I do get the 
last word.
    The record will remain open for 10 days for other 
statements to be submitted to the record.
    I am listening to this and I am thinking we can go back and 
say, he said-she said, they were right-they were wrong. We can 
go back and look at all that stuff.
    I think where we are now, we just have to ask the question: 
will the general public, will the American citizens, writ 
large, be better off under this system than they were under the 
other system?
    Will we close some of these tragic, tragic cases like Miss 
Cook and others around that have been so tragically portrayed 
today and in other forums? Will we move beyond that?
    Will we recognize--I keep coming back to what Mr. Counihan 
said--will we recognize that what we are talking about is a 
sense of shared ownership of a common value? Shared ownership 
of a common value, that value is that our Nation benefits if we 
have more citizens covered by some form of health insurance 
that have that peace of mind,
    I think we are a better country for it. I don't know, 
everybody keeps talking about bending this cost curve and stuff 
like that. I have said many times, the best way to bend that 
cost curve is keep people healthy in the first place.
    We keep forgetting about that, prevention, getting to 
people early, preventative health care services, wellness 
programs that we know work demonstrably. We have data on this 
from the Trust for America's Health and other independent 
groups.
    It seems to be going forward since this is the law. As I 
stated in my opening statement, we have had a lot of political 
back and forth on this in campaigns all over the country. I 
won't be engaging in that any longer.
    But it seems that we have settled this. We have a law. The 
question is: how do we make it work best? Yes, how do we make 
it cost-effective? What is the best cost-effective way of 
having this shared value of having everyone covered? Not having 
people that have pre-existing conditions, of having that peace 
of mind that you won't go bankrupt.
    What is the best way? We have the law. If there are 
suggestions on how to improve it, make it more cost effective 
without damaging Miss Cook, or damaging somebody else, or 
separating out this group from another group and saying,

          ``Well, you are young and healthy. You don't need to 
        pay anything. You can grab that parachute when you jump 
        out of the plane,'' so to speak. ``When you get sick, 
        you can run down and get coverage, but you don't have 
        to pay for anything now. You're not part of our 
        society.'' I don't think that is the way we want to go.

    From the very beginning of this, the priority in my mind is 
to put everybody in this pool, this insurance pool. Put 
everybody in this pool. Give everybody at least some basic 
coverage which they can rely on, cannot be excluded from no 
matter their age, or condition of health, their sex, their 
gender. I don't care.
    We can go back and say, ``Well, you said this.'' I bet I 
have, over the last several years of working on this bill both 
as chairman and working on the health care bill, I bet there 
are a lot of things I have said that have been wrong.
    Maybe I just did not understand it at the time, or I was 
thinking of something else. Yes, we make mistakes and say 
things. OK, fine. We can go back.
    Right now, going forward, how do we make this work? What is 
the best way? If you have some ideas on making it more cost 
effective, I would like to know it.
    That is what I hope these hearings are going to show is 
that we are trying to move ahead to change the health care 
system and make it work for more people in this country. And to 
bring us all into this pool of shared values, of keeping 
everyone covered by health insurance.
    So I thank all the witnesses for being here. I thank my 
good friend, Senator Alexander, and he is a good friend. He 
knows that and I respect him highly.
    And I will say this publicly. Senator Alexander is always 
looking to see just what is the best way forward. What is the 
best way? Not going backward, he is going forward and I 
appreciate that. It is right to raise these questions. If there 
are things that need to be fixed and adjusted, OK, let's figure 
out how we do that.
    I hope that moving forward, that is the spirit in which we 
can go forward, both on this committee and other committees, 
too, that have a part of this, like the Finance Committee and 
others.
    But it is going to happen. I mean, it is set in law. 
Nothing is changing it, but fine tuning it. I said before, if 
fine tuning needs to be done, then let's figure out how to fine 
tune it and make it even better than what it is. I do not think 
that what we have is the end-all and be-all of health care 
coverage in America. I think it is a heck of a lot better than 
what we have had.
    But I hope we go forward in that kind of spirit.
    With that, thank you all very much. The committee will 
stand adjourned.
    [Additional material follows.]

                          ADDITIONAL MATERIAL

    Response by Gary Cohen to Questions of Senator Harkin, Senator 
 Alexander, Senator Sanders, Senator Whitehouse, Senator Baldwin, and 
                              Senator Enzi
                             senator harkin
    Question. One of the most important of the set of consumer 
protections that will become effective in 2014 is the requirement that 
private insurance plans cover a comprehensive set of essential health 
benefits. Congress required pediatric dental services to be covered as 
part of this package, recognizing how important oral health is for 
children--as the Medicaid program has for years. I'm interested in your 
Office's work on this issue. For children and families who currently 
have coverage, what is being done to ensure a smooth transition to 
2014, without disruption of coverage? Could you describe the Federal 
Exchange's outreach and enrollment efforts directed at families with 
children without dental coverage?
    Answer. CMS has been following a multi-step plan for outreach to 
individuals, families, and small businesses in preparation for open 
enrollment. This plan is aimed at identifying both individuals who are 
without coverage and individuals who have coverage who may transition 
to the Marketplace. Children and families who currently have pediatric 
dental coverage will be able to keep the coverage they have if they 
choose to do so. CMS is in contact with State Medicaid and CHIP 
programs to coordinate outreach and eligibility activities, and will 
incorporate information into our call center and consumer materials to 
direct individuals to this information.
                           senator alexander
    Question 1a. Under the health care law, Medicaid eligibility will 
be based, as it is now, on monthly income at the time of application, 
while eligibility for premium tax credits in the exchanges will be 
based on yearly income.
    How is your office coordinating with Federally Facilitated and 
State-based Exchanges to ensure that taxpayer-funded subsidies are not 
over or under paid to enrollees?
    Answer 1a. The Affordable Care Act set up a system of coordinated, 
streamlined processes to determine eligibility for enrollment in a 
qualified health plan, advance payments of the premium tax credit, 
Medicaid, or CHIP. This system is designed to ensure that individuals 
and families are enrolled in the right coverage the first time. 
Marketplaces will be able to check authoritative data sources such as 
IRS income data for tax credit eligibility. On the application, 
individuals will be asked to attest to projected annual household 
income, as well as current income. If the attestation to projected 
annual household income is inconsistent with information that the 
Marketplace receives from the IRS and SSA, the Marketplace will take 
additional steps to verify the attestation, including requesting 
additional documentation from individuals in certain circumstances. 
This process is detailed in 45 CFR 155.315(f) and 155.320(c). In 
addition, when presenting individuals with an eligibility determination 
for tax credits, Marketplaces will make individuals aware of the 
potential for reconciliation of advance payments of the premium tax 
credit, should their circumstances change. Marketplaces have 
flexibility to establish reasonable thresholds for the requirement to 
report changes in income. Finally, if an individual, receiving advance 
payments of the premium tax credit experiences a reduction in income 
over the year, they may be able to claim the difference on their tax 
return.

    Question 1b. Governor Haslam of Tennessee recently proposed 
expanding access to the new exchange in our State to individuals who 
would otherwise be eligible for Medicaid. His proposal would affect 
175,000 Tennesseans and is similar to the plan put forward by Governor 
Beebe of Arkansas. Please provide a status report on how well Governor 
Haslam's proposal is being received by the Department.
    Answer 1b. HHS remains committed to working with States as they 
consider the expansion of Medicaid. As we have outlined, we are 
interested in providing States with the flexibility within the law that 
they identify as helpful to the coverage of the new adult group made 
eligible by the Affordable Care Act. We are pleased that States have 
come to us with innovative ideas and we continue to work with each of 
them. Like other States, we are working directly with Tennessee on the 
ideas they have outlined and look forward to continuing those 
discussions.

    Question 1c. Have you considered that if CMS does not work with 
Tennessee to approve this request, lower-income Tennesseans could be 
denied access to health insurance?
    Answer 1c. We believe the Affordable Care Act provides the 
opportunity and avenues to ensure health insurance for millions of 
Americans who currently lack it. Both through the availability of 
Medicaid coverage and coverage through the new Marketplaces, we want to 
make sure that currently uninsured Americans have an avenue to achieve 
coverage. As you are aware, the Supreme Court's ruling left the 
decision to provide Medicaid coverage to the new adult group made 
eligible by the Affordable Care Act to the States. With that in mind, 
we are working hard with each interested State to identify how these 
coverage opportunities will work best in their State, to provide 
opportunities for coverage for currently uninsured Americans.

    Question 2. Have you done any analysis to determine the cumulative 
impact upon premiums of all the new mandates, taxes, and fees being 
imposed upon health plans operating in the new health insurance 
exchanges? If so, please provide the total cost. If not, please explain 
why.
    Answer 2. We do not have an aggregate estimate of the impact on 
premiums at this time because we do not know the rates or the numbers 
of enrollees. It will be up to the issuers to determine how to set 
their premiums. We expect that the Marketplace will be a competitive 
one, and we will evaluate premium information once we receive the 
qualified health plan certification packages from issuers.

    Question 3. Please detail your agency's legal authority to use 
Prevention and Public Health funds to pay for implementation of the new 
health law, including the new navigator grant program and 
implementation of the health insurance exchanges.
    Answer 3. The purpose of the Prevention and Public Health Fund is 
to provide for expanded and sustained national investment in prevention 
and public health programs to improve health and help restrain the rate 
of growth in private and public sector health care costs. In fiscal 
year 2013, CMS will invest Prevention Fund resources to assist 
Americans in gaining affordable health care coverage which aligns with 
the purposes of Prevention Fund to be used for prevention, wellness, 
and public health activities. The Affordable Care Act-related 
activities funded with the Prevention Fund will include consumer 
engagement and education, eligibility support including support for 
appeals, assistance with enrollment, and the Navigator program to help 
individuals understand options available and enroll in health 
insurance. Implementing the Health Insurance Marketplace is the 
Administration's top public health activity and will likely 
significantly improve prevention in the next year by enabling 
individuals to enroll in coverage through private health insurance. 
Increasing access to care, in particular to preventive services, is a 
component of our national efforts to restrain the cost of health care 
and ensure more Americans can lead healthy lives, which is also a key 
goal of the Prevention Fund.

    Question 4. In your agency's recent budget, the outlays for the 
Federal Pre-existing Condition Insurance Program are projected to be 
greater than the amount of money left in the fund. Please detail how 
your agency will fill this shortfall so that those enrolled do not lose 
access to insurance before 2014.
    Answer 4. CMS is working to ensure that the limited amount of 
funding appropriated to the program is available to continue providing 
covered services to enrollees until 2014, when people will no longer be 
denied health coverage because of their health status. The fiscal year 
2014 congressional Justification does not project that outlays in 
fiscal year 2014 will exceed the $5 billion provided in the Affordable 
Care Act for this program. CMS is aggressively managing costs in the 
Federal PCIP program to ensure that the remaining funds are sufficient 
to cover current enrollees, and will use all available cost-containment 
strategies to ensure that coverage continues through 2013 for current 
enrollees.
    For example, CMS has been monitoring PCIP enrollment and spending 
regularly and has made necessary adjustments to the program to ensure 
responsible management of the one-time $5 billion appropriation. We 
maintain low administrative costs and work to maximize the 
appropriation for patient medical care.
    Starting in 2014, health insurance issuers will no longer be able 
to discriminate against Americans with pre-existing conditions. All 
Americans--regardless of their health status or pre-existing 
conditions--will finally have access to quality, affordable coverage. 
On October 1, 2013, Americans with pre-existing conditions will be able 
to apply for affordable health insurance coverage through the new 
Health Insurance Marketplace.

    Question 5. We understand that insurers are in the middle of the 
submission process for plan submissions to the Federally Facilitated 
Exchange (FFE). Many are stating that the applications are quite 
complex. What are you doing to ensure a data-submission process that 
has no bumps in the road?
    Answer 5. The submission process for the Federally Facilitated 
Marketplace began on April 1, 2013. The early response has been very 
encouraging and we expect to see robust competition for the business of 
millions of Americans who will be shopping for health insurance in the 
Marketplace. States that are operating their own Marketplaces have also 
begun accepting submissions from issuers as well.
    We have been committed to supporting the submission process for 
insurers. We've gotten feedback from States and issuers as they've 
accessed the system and we've addressed whatever issues have come up. 
CMS made available a draft letter to issuers about offering Qualified 
Health Plans in the Federally Facilitated Marketplace for comment. CMS 
made changes to the draft letter based on the comments received from a 
variety of stakeholders, including issuers, health and patient advocacy 
organizations, agents and brokers, and consumer groups. We have a Help 
Desk that responds by e-mail to anyone with questions about how to 
submit information to us, we hold regular phone calls and we regularly 
publish answers to frequently asked questions. I am extremely proud of 
the work the team is doing to make sure that we will have products on 
the shelves on October 1.

    Question 6. You've said time and time again that States will 
continue to regulate insurance markets. If that is the case, why are 
you requesting so much data be submitted to HHS, including data that 
duplicates what insurers have to submit already to the States? For 
example, any rate increase. Won't this increase administrative costs? 
And what do you plan to do with all this data?
    Answer 6. Title XXVII of the Public Health Service Act (PHSA) 
assumes that States will exercise primary enforcement authority over 
health insurance issuers in the group and individual markets to ensure 
compliance with health insurance market reforms. CMS has confirmed that 
almost all States--including States where a Federally Facilitated 
Marketplace is operating--will enforce the market reforms of the 
Affordable Care Act. Where a State is enforcing these market reforms, 
CMS will not duplicate the State's work, and will instead rely upon the 
State to ensure that issuers are in compliance. This includes the 
State's review of whether individual and small group market health 
plans, and potential qualified health plans, cover essential health 
benefits and comply with actuarial value standards.
    To address your specific question about rate increases, section 
2794(b)(2)(A) of the PHSA requires the Secretary of Health and Human 
Services to monitor premium increases of health insurance coverage 
offered both inside and outside the Marketplace beginning in plan year 
2014. On February 27, 2013, CMS finalized a rule (78 FR 13406) 
requiring that issuers offering health insurance coverage in the small 
group or individual markets report information about all rate 
increases. We have worked to minimize the administrative burden on 
issuers by simplifying the reporting template and coordinating with 
State processes.
    Standardizing the reporting process will reduce administrative 
burden and duplication over time, and enable both States and CMS to 
evaluate information about the single risk pool, actuarial value, 
essential health benefits, and other market reforms beginning in 2014. 
This reporting will also assist States and CMS in monitoring the health 
insurance market inside and outside the Marketplace for adverse 
selection.
                            senator sanders
    Question. I would also like to ask about the guidance recently 
issued by CCIIO establishing criteria for Qualified Health Plans to 
contract with Essential Community Providers. When we are talking about 
safety net providers, and especially primary care safety-net providers, 
we need to consider access to care in addition to access to insurance. 
An insurance card is not worth very much if you cannot see your doctor. 
I am concerned that the guidance reduces the strength of congressional 
intent and that insurers in Vermont and across the country will not 
contract with all Essential Community Providers. If a Qualified Health 
Plan does not contract with an Essential Community Provider, such as a 
community health center, I want to be sure that low-income patients are 
not charged higher cost-sharing out of network for visiting their 
health center. Can you please explain how you plan to update this 
guidance and implement stronger standards in the future to protect low-
income beneficiaries who are seeking the cost-effective, high quality 
care they deserve? If you do not currently have any such plans, could 
you please tell me about actions you will be taking to address this 
concern?
    Answer. The Exchange Establishment final rule at 45 CFR 155.1050 
and 45 CFR 156.230 sets forth network adequacy requirements for all 
Marketplaces. A QHP issuer must maintain a network that is sufficient 
in number and types of providers, to assure that all services will be 
accessible without unreasonable delay. Provider directories must be 
made available online (and in hard copy by request) and list providers 
who are not accepting new patients. The State or CMS will use the QHP 
certification process to ensure network adequacy. Ongoing monitoring is 
typically handled by State insurance departments. In general, States 
enforce network adequacy as all issuers, both inside and outside the 
Marketplace, must meet the standards set forth in State law. Nothing 
prohibits States from applying more stringent standards or protections 
across their markets.
    In addition, 45 CFR 156.235 requires that a QHP issuer have a 
sufficient number and geographic distribution of essential community 
providers, where available, to ensure reasonable and timely access to a 
broad range of ECP providers for low-
income and medically underserved individuals in the QHP's service area. 
Because the number and types of ECPs available varies significantly by 
location, CMS will evaluate QHP applications for sufficient inclusion 
of ECPs for the 2014 coverage year based on the Safe Harbor Standard 
articulated in the annual letter to issuers, released on April 5, 2013. 
Issuers that meet or exceed the standard will be presumed to meet the 
standard without additional documentation. Nothing prohibits States 
from applying more stringent standards or protections across their 
markets. Issuers that fail to meet the Safe Harbor Standard will be 
required to submit a narrative justification detailing how the issuer 
will provide access for low-income and medically underserved enrollees 
and how the issuer plans to increase ECP participation in the issuer's 
provider network(s).
    This policy balances the need to include ECPs in issuer networks 
and affordability of coverage. CMS will continue to assess QHP provider 
networks, including ECPs, and may revise its approach to reviewing for 
compliance with network adequacy and ECPs in later years.
                           senator whitehouse
    Question 1. I would like to ask about the guidance recently issued 
by CCIIO on March 1 and finalized on April 5 that establishes criteria 
for Qualified Health Plans (QHPs) to contract with Essential Community 
Providers (ECPs). I have heard from advocates in my State who are 
concerned that, under the guidance released by CCIIO, there may not be 
a sufficient number of ECPs included in QHP provider networks to ensure 
access to care for underserved populations. Please discuss how CCIIO 
arrived at the safe harbor requirement that a QHP that demonstrates 
that at least 20 percent of ECPs in the plan's service area are 
included in the plan's provider network will meet the regulatory 
standard in 45 CFR 156.235(a). Does CCIIO anticipate raising the safe 
harbor and minimum expectation thresholds in future guidance?
    Answer 1. The Exchange Establishment final rule at 45 CFR 155.1050 
and 45 CFR 156.230 sets forth network adequacy requirements for all 
Marketplaces. A QHP issuer must maintain a network that is sufficient 
in number and types of providers, to assure that all services will be 
accessible without unreasonable delay. The State or CMS will use the 
QHP certification process to ensure network adequacy. Ongoing 
monitoring is typically handled by State insurance departments. In 
general, States enforce network adequacy, as all issuers, market wide 
(inside and outside Marketplaces), must meet the standards set forth in 
State law. Nothing prohibits States from applying more stringent 
standards or protections across their markets.
    In addition, 45 CFR 156.235 requires that a QHP issuer have a 
sufficient number and geographic distribution of essential community 
providers, where available, to ensure reasonable and timely access to a 
broad range of ECP providers for low-
income and medically underserved individuals in the QHP's service area. 
Because the number and types of ECPs available varies significantly by 
location, CMS will evaluate QHP applications for sufficient inclusion 
of ECPs for the 2014 coverage year based on the Safe Harbor Standard 
articulated in the Letter to Issuers, released on April 5, 2013. 
Issuers that meet or exceed the standard will be presumed to meet the 
standard without additional documentation; however, nothing prohibits 
States from applying more stringent standards or protections across 
their markets. Issuers that fail to meet the Safe Harbor Standard will 
be required to submit a narrative justification detailing how the 
issuer will provide access for low-income and medically underserved 
enrollees and how the issuer plans to increase ECP participation in the 
issuer's provider network(s).
    We believe that this policy balances the need to include ECPs in 
issuer networks and affordability of coverage. CMS will continue to 
assess QHP provider networks, including ECPs, and may revise its 
approach to reviewing for compliance with network adequacy and ECPs in 
later years.

    Question 2. I'm proud that Rhode Island has been proactive in 
planning and implementing its exchange. Rhode Island was the first 
State in the Nation to receive a Level II Exchange Establishment Grant 
to help with implementation. I'm also pleased to report that I've heard 
from folks in my State that CCIIO has been a great partner in working 
with Rhode Island to set up its exchange. However, I'm concerned that 
there hasn't been sufficient focus on how to best set-up the exchanges 
so that they will be able to help drive delivery system reform and 
improve health and productivity outcomes. Rhode Island is committed to 
implementing an active purchaser exchange that will help drive delivery 
system reforms. But if we do not build the exchanges from the start in 
a way that gives them the tools to contribute to better delivery and 
outcomes, I think there are going to be very legitimate questions about 
the value of the investments we are making. What specifically is CCIIO 
doing to support and encourage States like Rhode Island that want to 
ensure they effectively use Federal support to build exchanges capable 
of supporting more systemic reforms in the future?
    Answer 2. CMS encourages States, such as Rhode Island, to develop 
and implement Marketplaces in a manner that best suits the needs of 
their residents. Through rulemaking, guidance and grant funding 
authorized by section 1311 of the Affordable Care Act, CMS has defined 
minimum Marketplace requirements that provide States with the maximum 
flexibility possible. Within the design of their Marketplaces, States 
have the flexibility and funding to design systematic health reforms. 
For example, State-based Marketplaces have the option to design QHP 
certification as an active purchaser or a passive facilitator of plan 
choices. We anticipate that States will continue to be on the vanguard 
in using the Marketplace to drive delivery system reform in the private 
insurance market.
    CMS has also worked to foster collaborative efforts that enable 
States to share knowledge and efficiencies that can contribute to 
improved delivery systems. Rhode Island is a member of the multi-State 
consortia led by the University of Massachusetts Medical School that 
received Early Innovator Grant funds. This grant benefited individuals 
and small businesses in Connecticut, Maine, Massachusetts, Rhode 
Island, and Vermont by creating and building a flexible Marketplace 
information technology framework in Massachusetts and sharing those 
products with other New England States.

    Question 3. What support has CCIIO offered States to help measure 
carrier and provider health and outcomes as well as the effects of 
coverage on the population?
    Answer 3. The Affordable Care Act includes a wide variety of 
provisions designed to expand coverage, provide more health care 
choices, enhance the quality of health care for all Americans, hold 
insurance companies more accountable, and lower health care costs. CMS 
is working across all programs and with States to improve population 
health outcomes.
    Section 1311 of the Affordable Care Act authorizes grant to States 
to implement Marketplaces. These Marketplaces will help consumers and 
small businesses buy health insurance in a way that permits easy 
comparison of available plan options based on price, benefits, and 
quality. CMS has supported States to design, test, and implement 
innovative designs to measure and improve enrollee health, compare 
quality of plans, and leverage the new marketplaces to improve the 
health care delivery system. Furthermore, as a requirement of their 
Applications and Blueprints, State Marketplaces are expected to have in 
place programs for monitoring the impact they are having in their 
markets.
    One of the first steps to improve health outcomes is to assure that 
all Americans get the care they need. Nearly 71 million Americans now 
have expanded access to preventive services with no additional cost 
sharing through their private insurance plans, and 27 million women now 
have guaranteed access to additional preventive services without cost 
sharing.\1\ In 2014, insurance companies will no longer be able to 
discriminate against those with pre-existing conditions. For the first 
time, all Americans will have access to high-quality, affordable 
coverage in the new marketplaces and if eligible, get financial 
assistance to help pay for the coverage. Coverage in 2014 will be 
comparable by different actuarial values, must cover the 10 categories 
of essential health benefits, and must not discriminate against those 
with high medical needs.
---------------------------------------------------------------------------
    \1\ http://aspe.hhs.gov/health/reports/2013/PreventiveServices/
ib_prevention.cfm.
---------------------------------------------------------------------------
    Based on current estimates of the size of the individual market and 
the percent of enrollees in currently marketed plans without coverage 
for certain services, coverage of benefits in the individual market may 
expand as follows:

     8.7 million Americans will gain maternity coverage.
     4.8 million Americans will gain substance abuse coverage 
subject to requirements regarding parity with medical and surgical 
benefits.
     2.3 million Americans will gain mental health coverage 
subject to requirements regarding parity with medical and surgical 
benefits.
     1.3 million Americans will gain prescription drug 
coverage.

    CMS will continue to work with our State partners to improve the 
health care system by combining support for State innovation, 
guaranteed access to insurance, financial assistance, and improved 
benefit designs that facilitate improved comparison on quality and 
price.
                            senator baldwin
    Question 1. Some Wisconsin insurance companies have experienced 
trouble receiving timely answers to questions submitted on the CMS 
Enterprise portal. These companies would like assurances that the data 
they submit to the portal will be accepted as timely and accurate. What 
is CMS doing to address technical difficulties being faced by issuers 
in a way that will ensure robust plan participation in Wisconsin's 
Health Insurance Marketplace?
    Answer 1. We have had a very encouraging response from issuers in 
the QHP application process so far, and we expect to see robust 
competition between issuers within the Marketplace. We have continued 
to improve our process since the portal opened on April 1. We have 
gotten feedback from States and issuers as they have accessed the 
system and we have addressed whatever issues have come up. We have a 
Help Desk that responds by e-mail to anyone with questions about how to 
submit information to us, and we hold regular phone calls and publish 
documents to answer frequently asked questions or address technical 
difficulties.

    Question 2. What protections are CMS enacting to prevent adverse 
selection within the Marketplace?
    Answer 2. The Affordable Care Act created and CMS recently 
finalized the rules establishing risk adjustment, reinsurance and risk 
corridors programs (referred to as the premium stabilization programs), 
the cost-sharing reductions program, and Marketplace affordability 
programs such as advance payments of the premium tax credit. These 
programs are designed to provide consumers with affordable health 
insurance coverage, to reduce incentives for health insurance issuers 
to avoid enrolling sicker people, and to stabilize premiums in the 
individual and small group health insurance markets inside and outside 
the Marketplaces.
    The permanent risk adjustment program makes it possible for issuers 
to price competitively without worrying that they will end up with more 
costly enrollees. Therefore, issuers will be able to provide coverage 
to individuals with higher health care costs and will help ensure that 
those who are sick have access to the coverage they need. The 
transitional reinsurance program is a 3-year program designed to reduce 
premiums and ensure market stability for issuers and for enrollees in 
the individual market with the implementation of new consumer 
protections in 2014. The temporary risk corridors program protects 
qualified health plans from uncertainty in rate setting from 2014 to 
2016 by having the Federal Government share risk in losses and gains. 
Finally, the tax credits and cost-sharing reductions available to 
consumers will encourage young, healthy individuals to purchase 
insurance and, in doing so, balance risk in the market.

    Question 3. In States with Federally Facilitated Marketplaces, what 
more can be done to create collaborative structures to disseminate 
information, and to collect constructive feedback? Can formal or 
informal advisory committees be set up that include providers, medical 
professionals, health advocates, and other key opinion leaders?
    Answer 3. CMS has conducted robust outreach with stakeholders 
across the Nation regardless of whether their State is operating its 
own Marketplace, is partnering with CMS to operate its Marketplace, or 
whether they have the Federally Facilitated Marketplace. CMS recently 
held and I participated in a meeting of State Insurance Department 
officials from the States that will have the Federally Facilitated 
marketplace. We will continue to meet and work very closely with 
insurance departments and the departments of health around the country 
to help get this law implemented.
    We've also begun a significant stakeholder outreach effort, 
including a national call in March with over 3,000 participants, 
including State officials, issuers, and consumers. We also plan to hold 
regional and State-by-State calls, leveraging our presence with 10 CMS 
regional offices around the country.
    We are happy to work with your office to ensure that we are getting 
as broad participation in these outreach efforts in Wisconsin as 
possible as we move closer to the opening of the Marketplace there.

    Question 4. Many individuals seem to misunderstand the decision 
about consumer choice, and believe small employers will not have access 
to exchanges. Is there a plan for enhanced public education for small 
businesses? In Wisconsin, the percentage of small employers offering 
coverage has dropped from 58 percent to 32 percent since 2000.
    Answer 4. CMS is conducting extensive outreach and education to 
raise awareness among consumers and small businesses about new options 
to access quality, affordable health care later this year when open 
enrollment in the Health Insurance Marketplace and its Small Business 
Health Options Program begins. This includes conducting consumer and 
small employer research and building infrastructure for customer 
service channels like the call center and Web site.
    We have begun offering educational sessions to staff and 
stakeholders to understand the SHOP program in particular and will have 
additional resources and materials available over the summer. A call 
center for employers will be available in August, specifically aimed at 
helping small employers take advantage of the new program.
    To specifically help educate small businesses, we are working with 
our regional offices to provide updates on recent rollouts and to 
conduct business outreach. We held meetings in March--in Dallas, TX and 
Atlanta, GA--and look forward to working with other regional offices to 
provide more specific information on the impact of the Affordable Care 
Act on businesses. Additionally, we are working with the Small Business 
Administration (SBA) to make resources available that provide key 
information about how the Affordable Care Act affects businesses so 
each can make the right decisions for its own particular circumstances. 
For example, the SBA recently launched a weekly webinar series for the 
small business community in collaboration with Small Business Majority, 
and CMS is serving as a partner on those webinars as well. Through 
these ``Affordable Care Act 101'' webinars, small business owners can 
learn the basics of the law and what it means for their company and 
employees, including insurance reforms, the small business health care 
tax credit, the Health Insurance Marketplace, and Employer Shared 
Responsibility. These webinars are held every Thursday from now through 
the opening of the Marketplace in October and are open to all small 
business owners.

    Question 5. For Essential Health Benefits benchmark plans in the 
exchange that do not include coverage for habilitative services, HHS 
has issued a rule that allows insurance companies to define the 
coverage it will provide for habilitative services and report that to 
HHS. For these types of plans, will HHS review the individual insurers' 
submissions to make sure they do not discriminate on the basis of 
disability?
    Answer 5. As articulated in the Essential Health Benefits final 
rule at 45 CFR 156.125, an issuer does not provide EHB if its benefit 
design, or the implementation of its benefit design, discriminates 
based on an individual's age, expected length of life, present or 
predicted disability, degree of medical dependency, quality of life, or 
other health conditions. Subsequent to the release of that rule, CMS 
released a letter to issuers in Federally Facilitated and State 
Partnership Marketplaces on April 5, 2013 that provided additional 
guidance and operational guidance to issuers to help them participate 
in Marketplaces.
    In that guidance, CMS stated that to ensure non-discrimination in 
benefit design it will identify outliers with respect to QHP cost 
sharing (e.g., co-payments and coinsurance) as part of its QHP 
certification reviews. Identification as an outlier does not 
necessarily indicate that a QHP benefit design is discriminatory; 
rather, CMS will use the outlier identification to target QHPs for more 
in-depth reviews. In addition, pursuant to 45 CFR 156.200(e) issuers 
will be required to attest that their QHPs will not discriminate 
against individuals on the basis of health status, race, color, 
national origin, disability, age, sex, gender identity or sexual 
orientation.

    Question 6. Will there be a process where individuals with 
disabilities or groups that represent individuals with disabilities can 
file a complaint with HHS if they believe an insurer's plan 
discriminates on the basis of disability?
    Answer 6. Because States are primarily responsible for enforcement 
of EHB requirements for issuers in the individual and small group 
markets, individuals or groups who have complaints or concerns about a 
plan's compliance with EHB requirements should contact their State 
Department of Insurance.

    Question 7. What advantages do you foresee for rural communities 
and providers within the new Marketplaces?
    Answer 7. Marketplaces will make purchasing private health 
insurance easier for all Americans, including those living in rural 
communities, by providing eligible individuals and small businesses 
with one-stop shopping where they can choose qualified health plans 
that best fit their needs. New premium tax credits and cost-sharing 
reductions will help ensure that eligible individuals and families can 
afford to pay for the cost of a private qualified health plan purchased 
through the Marketplaces.
    As more individuals and families get access to quality health 
insurance through the new Marketplaces, rural providers will have a 
broader and consistent pool of insured patients to care for, connecting 
them with more patients and helping to reduce the burden of 
uncompensated care on providers.

    Question 8. Are there any barriers to farmers giving up their 
expensive high deductible plans and entering into the Marketplaces?
    Answer 8. No, and we encourage farmers self-employed individuals 
and other small businesses to take advantage of the qualified health 
plans that will be available in the Marketplaces. Today, small 
employers and self-employed individuals like farmers have a tough time 
finding and affording coverage that meets their needs, and, because of 
the rising cost of health care, are forced to enter into plans that 
don't meet their needs. Additionally, research has shown that the 
occupational hazards of farming make them an at-risk group so that 
farmers may face higher premiums and lower coverage than other 
individuals.
    Starting in 2014, farmers and other small businesses will have more 
consumer protections. Non-grandfathered health insurance issuers in the 
individual and small-group markets will be prohibited from charging 
higher premiums to enrollees because of their current or past health 
problems, gender, occupation, and small employer size or industry. All 
non-grandfathered health plans in the individual and small group 
markets must cover essential health benefits, which include 10 
statutory benefit categories, such as ambulatory patient services 
(including doctors' visits), hospitalization, prescription drugs, and 
maternity and newborn care. Non-grandfathered health plans in the 
individual and small group markets also must meet certain actuarial 
values. The required actuarial value levels are 60 percent for a bronze 
plan, 70 percent for a silver plan, 80 percent for a gold plan, and 90 
percent for a platinum plan. Actuarial value means the percentage paid 
by a health plan on average of the total allowed costs of benefits. For 
example, if a plan has an actuarial value of 70 percent, the average 
consumer generally would be responsible for about 30 percent of the 
costs of the essential health benefits the plan covers. These tiers 
will allow consumers to compare plans with similar levels of coverage, 
which, along with comparing premiums and other factors, will help 
consumers make more informed health insurance coverage decisions.
    Small businesses will also have more choice and control over their 
health insurance through the Small Business Health Options Program 
(SHOP), a new program designed to simplify the process of finding 
health insurance for a small business. Because of the lack of 
competition and transparency in the current small group market, some 
small businesses have been locked into insurance plans that continually 
provide worse benefits at higher premiums. With the availability of the 
SHOP Marketplaces, small businesses will be able to choose among plans 
and make side-by-side comparisons of important features, such as 
benefits, premiums, and quality. Thus SHOPs will expand options, 
increase competition, and reduce administrative hassle for small 
businesses across the country. Currently, if farmers provide insurance 
for themselves and their workers, they could have access to the Small 
Business Healthcare Tax Credit, worth up to 35 percent of their premium 
costs for eligible employers that have low- to moderate-wage workers. 
Beginning in 2014, for those farmers who choose to provide insurance 
through the SHOP, this tax credit is worth as much as 50 percent of an 
employer's contribution toward employee premium costs for eligible 
employers who have low- to moderate-wage workers. Businesses with up to 
100 employees will be eligible for SHOP, although States can limit 
participation to businesses with up to 50 employees until 2016. About 4 
million small businesses across the country may be eligible for these 
tax credits.
    Additionally, the Affordable Care Act creates a new type of non-
profit health insurer, called a Consumer Operated and Oriented Plan 
(CO-OP). CO-OPs are run by their customers. CO-OPs are meant to offer 
consumer-friendly, affordable health insurance options to individuals 
and small businesses. Ten CO-OPs, including the Common Ground 
Healthcare Cooperative in Wisconsin, have received approval from their 
State insurance regulators to operate in 11 different State markets. 
These CO-OPs will be able to offer coverage both inside and outside the 
Marketplaces, starting October 1. We are confident that these CO-OPs 
will be able to offer consumers in their areas an additional choice in 
affordable high quality insurance option.

                              senator enzi
    Question 1. 1. States are expected to have fully operational Health 
Exchanges for consumers by January 1, 2014. Many States are expected to 
struggle with developing entirely new and comprehensive health 
information technology infrastructures. Many of the consumers that may 
need to navigate these Exchanges will be new and old Medicaid patients. 
However, a 2011 Health Affairs study estimates that 50 percent of all 
adults with family incomes below 200 percent of the Federal poverty 
level will experience a shift in eligibility from Medicaid to an 
insurance exchange, or the reverse, in just the first year of the 
Exchanges. What is being done to address potential coverage issues for 
the most poor and vulnerable populations that cross eligibility 
thresholds during all of these major health system changes?
    Answer 1. The Affordable Care Act and its implementing regulations 
set up a system of coordinated, streamlined processes to determine 
eligibility for enrollment in a qualified health plan, advance payments 
of the premium tax credit and cost-sharing reductions, Medicaid, or 
CHIP. This system is designed to ensure that individuals and families 
are enrolled in the right coverage the first time. We have established 
the beginnings of a streamlined system of coverage that will be 
supported by modernized eligibility and enrollment systems and a new, 
data-based eligibility verification system that relies on existing data 
sources to confirm eligibility rather than requiring applicants to 
produce paper documentation. All of these changes are fundamentally 
designed to minimize disruptions in coverage and to ensure smooth 
transitions between insurance affordability programs where appropriate. 
As you note, however, sometimes individuals experience changes in 
circumstances that will affect their eligibility. The Exchange 
Establishment final rule at 45 CFR 155.330(b)(1) states that 
Marketplaces must require individuals to report changes in 
circumstances that would affect their eligibility within 30 days. 
Marketplaces have flexibility to establish reasonable thresholds for 
the requirement to report changes in income. Individuals enrolling in 
qualified health plans with advance payments of the premium tax credit 
will be advised at the time of enrollment about the requirements to 
report changes in factors that affect eligibility. Marketplaces must 
also periodically check the records of Medicaid and CHIP, if 
applicable, to see if individuals have been determined eligible for 
those programs. And States can take a variety of approaches across the 
Marketplace, Medicaid, and CHIP to smooth transitions, including 
working together to coordinate the availability of plans across all 
programs and providing information to consumers regarding plans that 
serve the Marketplace, Medicaid, and CHIP.
    Eligibility rules published on March 27, 2012 (77 FR 18310) create 
a strong alignment between Medicaid, CHIP, and the Marketplace. States 
and the Federal Government have already made great strides in 
identifying and enrolling eligible children in Medicaid and CHIP 
coverage and many of those successful strategies are being carried 
forward to apply to the other insurance affordability programs. For 
example, 12 months of continuous eligibility is a strategy that many 
States have already adopted for children and pregnant women in Medicaid 
and CHIP that could easily be carried over to the new expansion 
population of low-income adults in Medicaid through waiver authority. 
We are also entertaining States' proposals and strategies for allowing 
individuals to remain in the same source of coverage, regardless of 
changes in circumstances. This approach is intended to promote 
continuity of coverage between Medicaid or CHIP and the Marketplace. 
More information about this policy is available in the December 20, 
2012 frequently asked questions (#14) http://www.cms.gov/CCIIO/
Resources/Files/Downloads/exchanges-faqs-12-10-2012.pdf.
    Additionally, CMS issued a letter to State health officials and 
State Medicaid directors on May 17, 2013 (http://www.Medicaid.gov/
Federal-Policy-Guidance/down
loads/SHO-13-003.pdf) describing five strategies to increase 
enrollment. Those five strategies are:

    1. Implementing the early adoption of Modified Adjusted Gross 
Income (MAGI)-based rules;
    2. Extending the Medicaid renewal period so that renewals that 
would otherwise occur during the first quarter of calendar year (CY) 
2014 (January 1, 2014-March 31, 2014) occur later;
    3. Enrolling individuals into Medicaid based on Supplemental 
Nutrition Assistance Program (SNAP) eligibility;
    4. Enrolling parents into Medicaid based on children's income 
eligibility; and
    5. Adopting 12-month continuous eligibility for parents and other 
adults.

    Question 2. Mr. Cohen, States like Wyoming that have opted to have 
the Federal Government run their Exchange need to know that coverage 
won't be disrupted for thousands of their citizens on January 1st. When 
will the Administration issue a proposed rule on the federally funded 
Exchange? How much does the Administration estimate the Federal 
Exchange will cost? What type of outreach has CMS or HHS done to date 
with the Federal Exchange States to ensure that there won't be 
disruptions in coverage?
    Answer 2. The Exchange Establishment final rule published on March 
27, 2012 (FR 182309) fully details the standards for a Marketplace, 
whether it is run by the Federal Government, a State, or through a 
partnership between the two. We have also provided technical 
information and specific details about the Marketplaces through various 
guidance such as the General Guidance of Federally Facilitated 
Exchanges published on May 16, 2012, Exchanges, Market Reforms and 
Medicaid Frequently Asked Questions released on December 10, 2012, and 
the Guidance on State Partnership Exchanges published on January 3, 
2013. As implementation continues, we have worked closely with States 
and other stakeholders to ensure all questions are answered and 
guidance is available when needed.
    We will continue the close contact with States to ensure that 
everyone has the information they need so that they can be ready for 
enrollment to begin on October 1, and to ensure that there are no 
disruptions in coverage. Keep in mind, if a person receives their 
insurance through their large employer, like most people, their 
insurance will not be affected. If a person works for a small business, 
then that small business may be able to choose from plans in a side-by-
side comparison through the SHOP Marketplace. This expanded Marketplace 
will increase competition and lower individual costs. Small businesses 
may also be eligible for tax credits to make offering insurance more 
affordable, so people whose employers do not offer insurance now could 
possibly enroll in employer-sponsored insurance in the future. If a 
person does not currently have insurance, then the Affordable Care Act 
and the Marketplaces make it easier than ever before to find and afford 
insurance. Starting October 1, people are going to be able to buy 
comprehensive insurance without discrimination based on gender or pre-
existing conditions.
    Many of these people will qualify for premium tax credits to help 
lower their monthly insurance premiums, and will benefit from increased 
transparency and competition in the Marketplace. The Marketplaces will 
not disrupt coverage, instead they will make insurance coverage more 
available and affordable for everyone.
    As for the cost of the Federally Facilitated Marketplace, the 
President's fiscal year 2014 budget requests $1.5 billion for costs 
related to Marketplaces, including operations of a Federally 
Facilitated Marketplace in each State that will not have its own 
Marketplace by January 1, 2014, oversight of State-based and 
Partnership Marketplaces, and to carry out the Secretary's duties on 
behalf of all Marketplaces, such as operation of a data services hub. 
These functions will be operational in fiscal year 2014 beginning with 
open enrollment in October 2013. In addition, CMS will collect user 
fees from all issuers offering qualified health plans in the Federally 
Facilitated Marketplaces starting in January 2014. CMS anticipates 
collecting $450 million in user fees in 2014. The cost of 
implementation of Wyoming's Federally Facilitated Marketplace for 
fiscal year 2014 is included in this budget request. For Wyoming, the 
Federally Facilitated Marketplace will be completely funded out of 
Federal funds and user fees, at no cost to the State for fiscal year 
2014.
     Response by Kevin Counihan to Questions of Senator Alexander 
                          and Senator Franken
                           senator alexander
    Question 1. I recognize that many of the rating rules imposed by 
the new health care law were already in existence in your State, but 
one we discussed during the hearing--age rating bands--could have a 
significant impact for younger individuals. Are you concerned at all 
about adverse selection leading to an unbalanced risk pool in your 
State? Have you done any actuarial analysis about how premiums will be 
affected in your State, particularly for young people?
    Answer 1. At present, CT has an age rating band of essentially 6:1. 
We are cognizant of the impact on both younger and older individuals of 
reducing the age rating band to 3:1. We have developed a comprehensive 
marketing and outreach plan to raise awareness of the ACA and of Access 
Health CT among individuals and small businesses in our State, and we 
have elements of this plan which focus in particular on the 18-35 age 
band segment.

    Question 2. The media has quoted you as saying you need more time 
to implement the law. Why? And if Congress were to grant you another 
year to get Connecticut's exchange up and running, what benefits do you 
believe that would provide consumers?
    Answer 2. Implementation of a State-based marketplace is complex 
and largely unprecedented. Like all States, we are focused on providing 
the best customer experience possible for CT consumers. Our 
implementation plan includes contingencies in case we have service 
interruptions at either the State or Federal service levels. Obviously, 
the more time any State has to implement and communicate the benefits 
and obligations of the ACA would be helpful, but we are prepared to 
begin open enrollment on October 1.

    Question 3. Even with open enrollment periods, there is concern 
that young, healthy individuals will wait until they have a serious 
medical need to purchase insurance. To mitigate this issue, have you 
given thought to limiting individuals to bronze level plans if they 
wait to buy insurance?
    Answer 3. We have not given consideration to that option as CT 
wishes to give consumers as much choice in plan design and carrier 
options as possible. Further, the risk of adverse selection is 
ameliorated largely through the limits of an annual enrollment period.
                            senator franken
    Question. The medical loss ratio provision, which I authored and 
which was included in the health care law, requires that insurers spend 
80 to 85 percent of the premium dollars they receive on actual health 
care services, and only 15 to 20 percent on administrative costs. In 
your role as the CEO of Access Health CT, can you tell us how the 
medical loss ratio has changed the insurance market? How has the 
provision benefited consumers?
    Answer. The medical loss ratio provision provides significant 
benefits to consumers through the dedication of a specific percentage 
of premium to the payment of medical services. While most carriers in 
CT are consistently pricing their plans to meet these rations, we have 
examples of consumers receiving rebates from carriers who did not meet 
the MLR requirements.
    Response by Sabrina Corlette to Questions of Senator Alexander 
                         and Senator Whitehouse
                           senator alexander
    Question 1. In Medicare Parts B and D, CMS pairs an open enrollment 
period with a late enrollment fee to incentivize seniors to enroll when 
they are first eligible. This encourages younger, healthier people to 
enroll earlier and makes the overall risk pool stronger. For States 
that are worried about their risk pools in 2014, would a similar system 
be beneficial for exchange-based plans?
    Answer 1. The Affordable Care Act includes several mechanisms to 
ensure a balanced risk pool and mitigate market disruptions. These 
include:

     Premium tax credits and cost-sharing reductions to make 
coverage more affordable for individuals between 100-400 percent of the 
Federal poverty level.
     A requirement that individuals maintain a minimum standard 
of coverage or face a penalty (often called the ``individual 
mandate'').
     A reinsurance program.
     A risk corridor program.
     A risk adjustment program.

    The Affordable Care Act also requires exchanges to create a 
navigator program. Navigators are charged with conducting outreach and 
enrollment activities, and providing consumers with assistance 
enrolling in Marketplace coverage. Many of these outreach and education 
activities are targeting young adults and encouraging them to enroll.

    Question 2. On page 7 of your written testimony, you state,

          ``And, for individuals earning up to 250 percent of the 
        Federal poverty level, the ACA provides cost-sharing subsidies 
        that will reduce the cost-sharing amounts and annual out-of-
        pocket limits.''

    Is it your belief that individuals with incomes between 250 and 400 
percent of the Federal poverty level will end up paying more out-of-
pocket than they would have without the law?
    Answer 2. Under the Affordable Care Act, individuals between 250-
400 percent of the Federal poverty level are eligible for premium tax 
credits but are not eligible for cost-sharing reductions. However, the 
law requires insurers to limit annual out-of-pocket costs for 
consumers, including copayments, coinsurance, and deductibles, to the 
level established for high-deductible health plans that qualify for 
health savings accounts ($6,350 for an individual, $12,700 for a family 
in 2014). For individuals with high health care needs, this provision 
provides critically important financial protections that were not 
widely available in the individual market, prior to enactment of the 
law.
                           senator whitehouse
    Question 1. Experts have said that, over the long-term, the 
exchanges could play an important role in coordinating payment 
incentives with other State payers to encourage more comprehensive 
delivery system reforms. What are some specific examples of steps 
exchanges could take to help encourage system-wide reforms and what 
lessons can they learn from States that have gone forward with multi-
payer delivery system reform initiatives?
    Answer 1. Currently, only a small number of States have decided to 
authorize their exchanges to selectively contract with insurers in 
order to provide greater value to consumers. But those that have chosen 
a selective contracting or ``active purchaser'' approach have been 
working to encourage insurers to work with their provider networks to 
improve health care quality and efficiency in the delivery of care. For 
example, Massachusetts is requiring insurers to transition from 
traditional fee-for-service payments to providers to alternative 
payment models such as global or bundled payments. California is 
requiring participating insurers to participate in the eValu8 survey, a 
data collection tool used by large employers to assess health plans' 
efforts to drive quality and efficiency improvements. Plans are also 
judged based on their use of mid-level providers and physician 
extenders to drive cost efficiency and expand access to care, their use 
of delivery system models of care such as Accountable Care 
Organizations (ACOs) and Patient-Centered Medical Homes (PCMH), and 
their support of shared decisionmaking. In Vermont, insurers, including 
qualified health plans, are required to participate in the State's 
existing ``Blueprint for Health'' as condition of doing business in VT. 
Specifically, they must provide reimbursement to all recognized 
Blueprint Medical Homes and designated Community Health Teams.

    Question 2. As States work toward finalizing their exchanges, what 
lessons can they learn from the Medicare Part D program, including how 
to apply Part D best practices to the exchanges and how to avoid some 
of Part D's early mistakes?
    Answer 2. In implementing the ACA, State and Federal officials and 
other stakeholders can draw on the Federal Government's successful 
launch of Medicare Part D, a major national health coverage program 
that became law in December 2003 and started enrollment just 2 years 
later. The program, which now includes 35 million beneficiaries, 
represented the first Medicare coverage of outpatient prescription 
drugs to be implemented and the first Medicare benefit delivered 
exclusively through private plans.
    Like the exchanges, Part D required extensive outreach and 
education in a short timeframe. And, like the exchanges, Part D also 
required ongoing coordination among Federal and State agencies and 
private plan sponsors.
    Although the officials implementing Part D encountered significant 
technical, educational, and coordination difficulties at first, 8 years 
later, many of the initial difficulties have been forgotten. The public 
generally views the program as a success.
    There are numerous areas in which current policymakers can learn 
from the Part D experience. One key area is eligibility and enrollment. 
Beneficiaries had two initial decisions before acquiring drug coverage 
in Medicare Part D: whether to enroll and which plan to select. Many 
had a third choice as well: whether to apply for the LIS. Individuals 
and families eyeing exchanges must make a more complicated set of 
assessments about their financial and health situations and the 
benefits and costs of making a change, due in part to new tax 
implications of certain decisions under the ACA.
    It was initially hard for potential Part D enrollees to understand 
the value of the new benefit. Many factors, including an unpopular 
late-enrollment penalty, provided a reason for beneficiaries to enroll. 
As a result, many initially uncertain about enrollment, including those 
taking few drugs, did sign up. The ACA also includes incentives for 
people to enroll in coverage, such as significant premium tax credits 
and cost-sharing subsidies for those with low and moderate incomes. 
More controversially, the law requires that individuals who do not 
maintain coverage pay a tax penalty. It remains unclear whether these 
incentives will be sufficient to encourage people, particularly healthy 
people, to enroll.
    Another issue Medicare beneficiaries faced was confusion about plan 
choices. For many, selecting a plan among a set of alternatives was a 
new experience. The considerable array of choices made it challenging 
to compare plans effectively, and many chose plans that were not 
optimal for their personal circumstances. There is early evidence in 
the new Marketplaces that, at least in some markets, consumers are 
facing challenges comparing plan premiums, benefits, networks, and 
cost-sharing arrangements.
      Response by Chris Carlson to Questions of Senator Alexander 
                            and Senator Enzi
                           senator alexander
    Question 1. In your testimony, you provide evidence that many 
individuals participating in the exchange will pay more out-of-pocket 
to purchase health insurance than they otherwise would if the law had 
not passed. Is it your belief that this problem will only grow larger 
as more employers shift employees to the exchanges?
    Answer 1. At this time, the impact of employers shifting their 
employees to the exchanges is unclear. On one hand, if the individuals 
that are shifted to the exchanges are from groups that have a higher 
concentration of younger employees, those employees may find themselves 
purchasing policies that are more costly than they otherwise would have 
paid in the group plan. However, individuals that are fully employed 
tend to have lower morbidity and thus could actually provide 
improvement in the individual risk pool.

    Question 2. An Obama administration spokesperson recently dismissed 
the Society of Actuaries study, claiming it was done by an insurance 
company. Would you comment on that assertion?
    Answer 2. The Society of Actuaries is an independent organization 
that maintains high professional standards for its members. As 
credentialed actuaries, we are required to comply with the Code of 
Professional Conduct in all areas of our work. Specifically, Precept 7 
addresses conflicts of interest and states that, ``An Actuary shall not 
knowingly perform Actuarial Services involving an actual or potential 
conflict of interest unless the Actuary's ability to act fairly is 
unimpaired.''

    Question 3. You note in your testimony that the age 21-29 group has 
an uninsured rate that is roughly twice the uninsured rate for the 
nonelderly population. Would giving States some flexibility to 
establish age bands in a way that wouldn't negatively impact risk pools 
help alleviate some of the pressure facing young adults? Are there 
other viable options? Why is it so important to get this right?
    Answer 3. Giving flexibility to the States to establish age bands 
would certainly help to alleviate potential rate shocks to young 
adults. However, it is important to recognize that any flexibility that 
still requires States to maintain the 3 to 1 ratio on age bands will 
have a very limited effect. One potential option would be to allow 
States to phase in the age rating over several years. While this would 
not change the ultimate outcome, that young adults will subsidize older 
adults, the impact of the rate shock would not be evident immediately 
and it could produce greater participation in the non-group market. As 
Senator Harkin discussed in the hearing, this issue is important 
because the non-group market needs to have the risk spread to as many 
consumers as possible. Any limitation in the participation in the 
market, especially by those at younger ages that are likely to be of 
better health, will spread the cost across a smaller population thus 
increasing the rates for everyone.

    Question 4. Your testimony touches on another important subject--an 
excise tax on health insurers. Can you tell me what benefit the 
consumer gains from these taxes on health plans?
    Answer 4. It is my understanding that the tax's purpose is to 
offset the costs of the Affordable Care Act, which mostly is 
represented by the premium subsidies that will be available to 
individuals below 400 percent of the Federal poverty limit who purchase 
non-group coverage on the health insurance exchanges. Otherwise, there 
is no discernible benefit to the consumer for paying the taxes.
                              senator enzi
    Question. Mr. Carlson, you have talked about a number of actuarial 
studies related to the impact of the health care law. For example, the 
Society of Actuaries estimates that health insurance premiums in the 
individual market will increase by 32 percent on average nationally and 
in Wyoming specifically. The National Association of Insurance 
Commissioners, in a paper released last week, concluded that States 
``should begin evaluating these and other strategies immediately in 
order to mitigate rate increases when the major market reforms take 
effect in 2014.'' What should the Administration be doing to better 
address the risks identified by these and other reports? What can 
Congress do to better monitor this risk?
    Answer. Although there are provisions of the ACA that will reduce 
premiums, since the focus of this question is rate increases, I will 
limit my response to that side of the equation. Specifically the issues 
that I will discuss that may increase premiums are guaranteed-issue, 
expansion of benefits, and limits on rating.
    Guaranteed-issue will increase rates because individuals that can 
currently not obtain insurance because of underwriting restrictions 
will now be able to obtain coverage with no restrictions. These 
individuals will be more expensive than those currently insured. The 
ACA's reinsurance provision attempts to mitigate the increase in cost 
for these individuals, and carriers' rate filings indicate that rates 
in the non-group market may be as much as 10 percent lower as a result 
of the temporary reinsurance program. An extension and expansion of the 
reinsurance program could potentially limit the rate increases as a 
result of guaranteed-issue.
    The other concern with guaranteed-issue is that individuals will 
forgo health insurance until they become sick, at which point they will 
purchase coverage. The individual mandate and the premium subsidies 
attempt to lessen this risk as individuals will be compelled to 
purchase insurance because of the mandate, and the premium subsidies 
will make the actual premiums paid by individuals below 400 percent of 
poverty more affordable. However, the premium subsidies are not 
available to everyone, and further, the individual mandate may not be 
sufficient to compel healthy and younger individuals to enroll in 
coverage.
    In response to these issues, the American Academy of Actuaries 
suggested in their May 2013 issue brief \1\ on premium changes under 
the ACA:
---------------------------------------------------------------------------
    \1\ http://www.actuary.org/files/
Premium_Change_ACA_IB_FINAL_050813.pdf.

          Strengthening the individual mandate would help mitigate 
        premium increases due to a less healthy enrollee population. 
        Approaches could include less frequent open enrollment periods, 
        penalties for late enrollment, more generous premium subsidies, 
---------------------------------------------------------------------------
        and enhanced public outreach and consumer education.

    I would concur with these suggestions.
    The expansion of benefits has a significant impact on premiums 
because many non-group policies have high deductibles and cost-sharing 
and also limit or exclude the coverage of certain benefits, such as 
prescription drugs and maternity. From an out-of-pocket perspective, 
the addition of these benefits generally does not increase total costs 
(premiums plus cost-sharing) since individuals will not pay less when 
they do require services. However, the premium rates that individuals 
will see in the market will be higher as a result, and consumers may 
not be knowledgeable enough to understand the tradeoff. Instead 
consumers may be turned off by higher premiums. Without the obvious 
solution of relaxing the essential benefits requirements, consumers 
will need to be better educated about the premium increases due to 
essential benefits will be offset by higher levels of benefits.
    Finally, limits on rating, such as requiring age-rating to be 3 to 
1, increases the premiums for one group while decreasing the premiums 
for another group. Assuming that the limitations on rating do not 
affect the composite premiums, the only way to mitigate the rate 
increases for certain policyholders would be to remove or relax the 
limitations on the rating. For example, moving from a 3 to 1 age-rating 
limits to 4 to 1 limits would negate almost all of the impact of the 
age-rating compression and resulting rate shock.

    [Whereupon, at 12:41 p.m., the hearing was adjourned.]

                                  [all]
```