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AMERICA’S NEED FOR HEALTH REFORM 

HEARING 

BEFORE THE

SUBCOMMITTEE ON HEALTH 

OF THE

COMMITTEE ON ENERGY AND 

COMMERCE 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TENTH CONGRESS 

SECOND SESSION 

SEPTEMBER 18, 2008 

Serial No. 110–150 

( 

Printed for the use of the Committee on Energy and Commerce 

energycommerce.house.gov 

COMMITTEE ON ENERGY AND COMMERCE 

JOHN D. DINGELL, Michigan, Chairman 

HENRY A. WAXMAN, California 

EDWARD J. MARKEY, Massachusetts 

RICK BOUCHER, Virginia 

EDOLPHUS TOWNS, New York 

FRANK PALLONE, JR., New Jersey 

BART GORDON, Tennessee 

BOBBY L. RUSH, Illinois 

ANNA G. ESHOO, California 

BART STUPAK, Michigan 

ELIOT L. ENGEL, New York 

GENE GREEN, Texas 

DIANA DEGETTE, Colorado 

Vice Chairman 

LOIS CAPPS, California 

MIKE DOYLE, Pennsylvania 

JANE HARMAN, California 

TOM ALLEN, Maine 

JAN SCHAKOWSKY, Illinois 

HILDA L. SOLIS, California 

CHARLES A. GONZALEZ, Texas 

JAY INSLEE, Washington 

TAMMY BALDWIN, Wisconsin 

MIKE ROSS, Arkansas 

DARLENE HOOLEY, Oregon 

ANTHONY D. WEINER, New York 

JIM MATHESON, Utah 

G.K. BUTTERFIELD, North Carolina 

CHARLIE MELANCON, Louisiana 

JOHN BARROW, Georgia 

DORIS O. MATSUI, California 

JOE BARTON, Texas 

Ranking Member 

RALPH M. HALL, Texas 

FRED UPTON, Michigan 

CLIFF STEARNS, Florida 

NATHAN DEAL, Georgia 

ED WHITFIELD, Kentucky 

BARBARA CUBIN, Wyoming 

JOHN SHIMKUS, Illinois 

HEATHER WILSON, New Mexico 

JOHN SHADEGG, Arizona 

CHARLES W. ‘‘CHIP’’ PICKERING, 

Mississippi 

VITO FOSSELLA, New York 

ROY BLUNT, Missouri 

STEVE BUYER, Indiana 

GEORGE RADANOVICH, California 

JOSEPH R. PITTS, Pennsylvania 

MARY BONO MACK, California 

GREG WALDEN, Oregon 

LEE TERRY, Nebraska 

MIKE FERGUSON, New Jersey 

MIKE ROGERS, Michigan 

SUE WILKINS MYRICK, North Carolina 

JOHN SULLIVAN, Oklahoma 

TIM MURPHY, Pennsylvania 

MICHAEL C. BURGESS, Texas 

MARSHA BLACKBURN, Tennessee 

PROFESSIONAL STAFF

DENNIS B. FITZGIBBONS, Chief of Staff 

GREGG A. ROTHSCHILD, Chief Counsel 

SHARON E. DAVIS, Chief Clerk 

DAVID CAVICKE, Minority Staff Director 

(II)

(III) 

SUBCOMMITTEE ON HEALTH

FRANK PALLONE, JR., New Jersey, Chairman 

HENRY A. WAXMAN, California 

EDOLPHUS TOWNS, New York 

BART GORDON, Tennessee 

ANNA G. ESHOO, California 

GENE GREEN, Texas 

DIANA DEGETTE, Colorado 

LOIS CAPPS, California 

Vice Chair 

TOM ALLEN, Maine 

TAMMY BALDWIN, Wisconsin 

ELIOT L. ENGEL, New York 

JAN SCHAKOWSKY, Illinois 

HILDA L. SOLIS, California 

MIKE ROSS, Arkansas 

DARLENE HOOLEY, Oregon 

ANTHONY D. WEINER, New York 

JIM MATHESON, Utah 

JOHN D. DINGELL, Michigan (ex officio) 

NATHAN DEAL, Georgia, 

Ranking Member 

RALPH M. HALL, Texas 

BARBARA CUBIN, Wyoming 

HEATHER WILSON, New Mexico 

JOHN B. SHADEGG, Arizona 

STEVE BUYER, Indiana 

JOSEPH R. PITTS, Pennsylvania 

MIKE FERGUSON, New Jersey 

MIKE ROGERS, Michigan 

SUE WILKINS MYRICK, North Carolina 

JOHN SULLIVAN, Oklahoma 

TIM MURPHY, Pennsylvania 

MICHAEL C. BURGESS, Texas 

MARSHA BLACKBURN, Tennessee 

JOE BARTON, Texas (ex officio) 

(V) 

C O N T E N T S 

Page 

Hon. Frank Pallone, Jr., a Representative in Congress from the State of 

New Jersey, opening statement .......................................................................... 1 

Hon. Tim Murphy, a Representative in Congress from the Commonwealth 

of Pennsylvania, opening statement ................................................................... 3 

Hon. John D. Dingell, a Representative in Congress from the State of Texas, 

prepared statement .............................................................................................. 4 

Hon. Edolphus Towns, a Representative in Congress from the State of New 

York, opening statement ...................................................................................... 6 

Hon. Michael C. Burgess, a Representative in Congress from the State of 

Texas, opening statement .................................................................................... 7 

Hon. Lois Capps, a Representative in Congress from the State of California, 

opening statement ................................................................................................ 8 

Hon. Jan Schakowsky, a Representative in Congress from the State of Illinois, opening statement ....................................................................................... 9 

Hon. John B. Shadegg, a Representative in Congress from the State of Arizona, opening statement ...................................................................................... 9 

Hon. Hilda L. Solis, a Representative in Congress from the State of California, opening statement ....................................................................................

1 

Hon. Gene Green, a Representative in Congress from the State of Texas, 

opening statement ................................................................................................ 12 

Hon. Diana DeGette, a Representative in Congress from the State of Colorado, prepared statement .................................................................................... 13 

Hon. Darlene Hooley, a Representative in Congress from the State of Oregon, 

opening statement ................................................................................................ 14 

Hon. Tammy Baldwin, a Representative in Congress from the State of Wisconsin, opening statement ................................................................................... 15 

WITNESSES

Jon S. Corzine, Governor, State of New Jersey .................................................... 17 

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

Elizabeth Edwards, Senior Fellow, Center for American Progress ..................... 22 

Prepared statement .......................................................................................... 27 

Stephen T. Parente, Ph.D., Director, Medical Industry Leadership Institute 

and Associate Professor of Finance, Carlson School of Management .............. 34 

Prepared statement .......................................................................................... 36 

E.J. Holland, Jr., Senior Vice President, Human Resources and Communication, Embarq ......................................................................................................... 69 

Prepared statement .......................................................................................... 72 

Patricia Owen, President and Founder, FACES DaySpa, The Village at Wexford ........................................................................................................................ 93

Prepared statement .......................................................................................... 95 

Karen Pollitz, M.P.P., Project Director, Research Professor, Georgetown University, Health Policy Institute ........................................................................... 102 

Prepared statement .......................................................................................... 105 

Karen Davis, Ph.D., The Commonwealth Fund .................................................... 119 

Prepared statement .......................................................................................... 121 

William J. Fox, F.S.A., M.A.A.A., Principal and Consulting Actuary, Milliman 176 

Prepared statement .......................................................................................... 178 

Ronald E. Bachman, F.S.A., M.A.A.A., Senior Fellow, Center for Health 

Transformation ..................................................................................................... 218 

Prepared statement .......................................................................................... 220 

(1) 

AMERICA’S NEED FOR HEALTH REFORM 

THURSDAY, SEPTEMBER 18, 2008 

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON HEALTH, COMMITTEE ON ENERGY AND COMMERCE, Washington, DC. 

The subcommittee met, pursuant to call, at 9:45 a.m., in room 

2123 of the Rayburn House Office Building, Hon. Frank Pallone, 

Jr. (chairman) presiding. 

Members present: Representatives Pallone, Towns, Green, 

DeGette, Capps, Baldwin, Schakowsky, Solis, Hooley, Matheson, 

Dingell (ex officio), Deal, Shadegg, Murphy, and Burgess. 

Staff present: Bridgett Taylor, Purvee Kempf, Tim Gronniger, 

Hasan Sarsour, Jodi Seth, Brin Frazier, Lauren Bloomberg, Bobby 

Clark, Ryan Long, Clay Alspach, Brandon Clark, and Chad Grant. 

OPENING STATEMENT OF HON. FRANK PALLONE, JR., A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEW JERSEY 

Mr. PALLONE. The meeting of the subcommittee is called to 

order, and today we are having a hearing on ‘‘America’s Need for 

Health Reform.’’ I recognize myself initially for an opening statement. 

When it comes to our Nation’s healthcare system, I think there 

is at least one thing that we can all agree on, that our healthcare 

system is in crisis and is getting worse every day. The trends we 

are seeing today are truly frightening. Healthcare costs are climbing, access is eroding, and the quality of care is unpredictable. The 

United States spends approximately $2.1 trillion on healthcare annually, approximately 16 percent of our entire economy, and this 

is about twice what we spent 10 years ago. We outspend any other 

country when it comes to healthcare, but what has all this money 

brought us? 

More and more Americans join the ranks of the uninsured every 

day. Today there are roughly 45 million Americans who do not 

have health insurance, and as I said, approximately 16 percent of 

the U.S. population. This is a problem that is only going to get 

worse. As the economy continues to weaken, more and more working Americans and their families are falling into the same trap. 

Nearly half the increase in the uninsured population between 2005 

and 2006 occurred among middle-income families. 

Part of the problem has been that healthcare costs continue to 

skyrocket at alarming rates. The average cost of a family employerbased insurance policy in 2007 was $12,106, or nearly the full-year, 

2 

full-time earning of a minimum wage job. The cost of a similar policy in the individual market would be prohibitively more expensive, 

out of reach for far too many working American families. And contrary to some opinions, the problems that people face when it 

comes to healthcare are not their own. It is nice to talk about taking ownership over your healthcare and having some skin in the 

game, but the truth of the matter is, we are all in this together. 

Rising costs and increasing numbers of uninsured Americans seriously impact our economy and society as well as further distress 

our weakening healthcare system. 

As healthcare costs increase, it strains businesses and employers 

and puts them at a competitive disadvantage globally. Employersponsored health insurance premiums rose by almost 100 percent 

between 2000 and 2007, making it increasingly difficult for employers to continue to offer health insurance to their workers. Instead, 

more and more businesses are shifting the costs of health insurance to their employees at a time when healthcare costs are rising 

substantially faster than wage growth. 

The impact of the uninsured on our communities is tremendous. 

We have 45 million Americans who cannot call a doctor to get an 

appointment, who do not have access to preventative care and who 

are forced to use the local emergency room as their primary source 

of care. Not only are these people sicker because they put off getting treatment and therefore more expensive to treat but they also 

are seeking care in a setting that costs our healthcare system more 

money. 

Hospitals in my home State of New Jersey are grappling with 

providing rising amounts of charity care that increases their bad 

debt. Many hospitals cannot afford this growing financial burden 

and the State of New Jersey is having increasing difficulty in reimbursing hospitals for the charity care they provide. I will note that 

my governor, Jon Corzine, is with us today and can talk about 

many of the challenges our State faces because of our crumbling 

healthcare system. Governor Corzine will also be able to talk about 

what States are doing to answer the call to reform our Nation’s 

healthcare system. New Jersey, Massachusetts, New York, and 

many other States are experimenting with new and innovative 

ways to expand their health insurance for their residents but they 

can’t do it alone. The Federal Government will need to take a leading role in reforming our healthcare system. 

All of these problems are interconnected, whether it is cost, access or quality. We need a healthcare reform plan that looks at the 

inadequacies of our healthcare system in its entirety and begins to 

address its failings. Fortunately, many people are talking about 

healthcare reform right now. Healthcare has become a critical part 

of the national debate, which reflects the growing anxiety many 

Americans share about the current state of our healthcare system. 

In the end, we need to recognize that when it comes to 

healthcare, having it shouldn’t be a luxury reserved just for those 

lucky enough to afford it. It is a basic human right, and we as a 

country, as a society have to ask ourselves, is it OK for Members 

of Congress to have the best healthcare in America but not 45 million other Americans? Is it OK to let our families, friends and 

neighbors continue to fall through the cracks of our broken 

3 

healthcare system or are we going to finally resolve ourselves to 

providing affordable, accessible, and high-quality healthcare to 

every American citizen, and I think the answer is clear. 

I want to thank our witnesses. We have a great panel today, a 

pretty large panel, but I do appreciate your all being here. We are 

eager to hear your testimony. 

Mr. PALLONE. I now recognize our ranking member for today, 

Mr. Murphy. 

OPENING STATEMENT OF HON. TIM MURPHY, A REPRESENTATIVE IN CONGRESS FROM THE COMMONWEALTH OF PENNSYLVANIA 

Mr. MURPHY. Thank you, Mr. Chairman. Thank you so much for 

holding this important hearing on healthcare reform, and I also 

would like to welcome the distinguished panel of folks, experts 

from around the country who are here to give us their input. 

As we are talking about healthcare reform, you alluded to a 

number of things, Mr. Chairman, and I appreciate that in terms of 

the uninsured and their access to care. I want to make sure, however, when we talk about healthcare reform, the emphasis is on reform, because healthcare reform is not just about who is paying but 

what we are paying for, and so often when we look at healthcare 

issues, we talk about such things as saying healthcare is expensive, 

let us have the government take it over, or healthcare is expensive, 

let us offer tax credits for people. In either case, the government 

is footing a lot of the bill but I am not sure it gets down to the 

fundamentals of our forum, and I think as we look at this, as you 

have heard me say many times on this committee, there are a couple of things where I think we can save massive amounts of money 

but we have to make sure we are tackling these. 

One, of course, is an area I frequently talk about, and that is the area of hospital-acquired infections. If you have $50 billion a year 

wasted on preventable infections, that is money we could be saving 

the healthcare system. As of today, 62,000 people have died in this 

country just since January 1 from healthcare-acquired infections 

out of 1.1 million cases and that amounts to $31,000,500,000 wasted this year on preventable infections. 

But there is another area too when it comes to providing 

healthcare for the uninsured, and that is an issue that this committee tackled before in Mr. Green’s bill regarding community 

health centers. An amendment we put into that bill would have allowed physicians to volunteer at community health centers. This is 

intuitively obvious. After all, if you have community health centers, 

the 6,000 physicians that provide care at these centers around the 

country, there are not enough to help the 1,100 community health 

centers and the 16 million people who use these things. Wouldn’t 

it be nice if we allowed physicians to volunteer, and indeed, in Mr. 

Green’s bill, we allowed that, saying they would be covered under 

the Federal Torts Claim Act. The Senate, we understand, pulled 

that part of the bill and it is important that the House works very 

hard to get that reinstated. When we find that community health 

centers save about 30 percent in annual spending on Medicaid patients due to reduced special care referrals and fewer hospital admissions, that is a massive savings. As a matter of fact, the CBO 

4 

also said that if we allowed physicians to volunteer, then the impact on the federal budget would be zero. We don’t have a lot of 

situations like that, but to be able to provide healthcare for folks 

with physicians who want to be Good Samaritans and give some 

of their care, you would think that would be a healthcare reform 

that we understand that we really could afford. 

A couple years ago we found out that the actual numbers of physicians where there is need for primary care, nurse practitioners, 

physician assistants, midwives, dentists, et cetera, the vacancies 

were huge, also with OB/GYNs, family physicians, pediatricians, 

and the vacancy rates are particularly high among rural and inner 

city health centers, which range from 19 percent to 29 percent of 

their workforce. What I think is so hugely important that as the 

conference committees are meeting on the bill involving community 

health centers, is that the House continue to push very hard for 

some of these real reforms. We can make sure that while the Federal Government is looking at a $200 billion combined bailout of 

Fannie Mae and Freddie Mac and $85 billion for AIG and other billions sent out to J.P. Morgan, Chase and Bear Sterns, and all those 

other things, we surely can find a way to work zero in the equation 

and allow physicians to volunteer. It is just wrong, it is unconscionable. And I hope as we discuss the issues of healthcare reform, we 

look at these things too, and Mr. Chairman, I am going to give you 

a copy of something that I wrote a while ago. It is called ‘‘Critical 

Condition: The State of the Union’s Healthcare,’’ and it is light 

reading. It is only about 60 pages long. But you know me, I obsess 

on details. But this also outlines a lot of the things that I think 

we could be doing to reduce healthcare costs and I hope we can include this in part of our conversation in the future. 

With that, I thank you so much for doing this hearing and I look 

forward to continuing to work with you. 

Mr. PALLONE. Thank you so much, and let me say, it is not that 

often that a member actually gives me a document so important 

that they wrote themselves. That is great. Thank you. 

Next for an opening statement, the chairman of our full committee, who has been working on healthcare reform for so many 

years so successfully, Mr. Dingell. 

OPENING STATEMENT OF HON. JOHN D. DINGELL, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN 

Mr. DINGELL. Mr. Chairman, thank you, and I commend you for 

this hearing today, and I welcome a very distinguished panel of 

witnesses for their joining us. I thank them for their kindness to 

us, and I know that they will make this a valuable hearing in our 

effort to see to it we address the problems of healthcare to our people. 

I want to express my particular pleasure at seeing Elizabeth Edwards here. She is a great friend of the lovely Debra and I and I 

want her to feel welcome today. We are honored you are with us. 

And I particularly want to welcome Governor Jon Corzine. Governor, welcome. We had the privilege of working with you when 

you were in the Senate. It was always a great pleasure, and your 

leadership in healthcare and other important matters is very much 

5 

appreciated. Thank you again to our other panelists. Thank you 

also. 

This is an important hearing, and it is necessary not only to review the status of our healthcare system but also to begin to prepare for what we are going to do to see to it that we finally make 

it something which works in the interest of all of our people. Today 

we are going to work particularly on the role of employer-sponsored 

coverage, the individual insurance market, the role of public programs such as Medicare, Medicaid, and the State Children’s Health 

Insurance Program, States’ perspective on healthcare coverage, and 

the growing number of uninsured Americans. Perhaps most importantly, we will lay the foundation for future discussions on 

healthcare reform, something desperately needed. Next year will 

bring us, we hope, great opportunities to repair and to strengthen 

our healthcare system and our witnesses today I again thank because they are going to provide valuable insights to help us as we 

focus our efforts ahead to 2009. 

It is a curious anomaly we confront in this country. Our 

healthcare system is the best in the world. It is regrettably also the 

worst because we have 47 million Americans who have no access. 

People live in terror of loss of their policies of health insurance, 

and worse, large numbers of people are either uninsured, underinsured, or suffer from severe problems in terms of being able to 

achieve healthcare in a fashion that is needed. We rank with the 

Third World with regard to infant mortality and we have the unfortunate fact that many of our people are dying before they should 

and that our life expectancy does not match that of other developed 

nations. Forty-seven million Americans, until recently, were without health coverage. We have changed that a little bit better by 

seeing to it that we have increased the number of people who are 

under government-sponsored programs, but 9 million of our people 

who are not covered are children, and they could have had coverage 

had it not been for a veto of the President of the SCHIP program, 

which was a valuable, useful, and forward-looking step that this 

committee took to see to it that we addressed the needs of one of 

our most vulnerable groups in this society. 

The last time we launched a serious health reform program, our 

healthcare spending was 14 percent of GDP. Today it is 17 percent. 

And we find that General Motors spends more on healthcare than 

it does on steel and we find also that Starbucks spends more on 

healthcare than it does on coffee—an entirely unacceptable consequence. Our healthcare system is not just morally indefensible, 

it is economically untenable. It is destroying the largest corporations and small businesses alike, and our companies simply cannot 

compete with their foreign competition because of the excessive 

costs of healthcare that they bear and the consequences of that are 

of course that every person who receives healthcare in this country 

is endangered. 

I am pleased to note that it is 60 years since President Truman 

issued the first call for a national healthcare plan. Regrettably, the 

Nation has not heard it and opposition from special interests has 

prevented that from coming to be. In 1942, my father, John Dingell, Sr., tried to answer that call by introducing the first national 

health insurance act, and I have carried on my dear old dad’s work 

6 

opening each session by introducing a bill to provide Americans 

with adequate health coverage. 

We think that we are going to move forward next year, and I certainly hope that the issues of adequate healthcare for our people 

will be addressed as the campaign goes forward because the American people want something done about this problem and your leadership, Mr. Chairman, on this matter holding this hearing and the 

assistance of our very, very valuable panel is going, I hope, to help 

prepare us for this to give us an understanding of what needs to 

be done and to establish a clear recognition of a great public need 

unanswered. 

Thank you, Mr. Chairman. 

Mr. PALLONE. Thank you, Chairman Dingell. 

I next recognize our ranking member, Mr. Deal from Georgia. 

Mr. DEAL. Thank you, Mr. Chairman, and we have a very distinguished panel here today who represent a very wide spectrum of 

positions and opinions on the delivery of healthcare and the future 

of healthcare in this country, and in deference to the time that will 

be required to hear your testimony, I am going to reserve any other 

time and not use it at this point and just simply welcome all of you 

here today. We are pleased to have all of you. Thank you. 

Mr. PALLONE. Thank you. 

Next is our newly victorious member from New York, Mr. Towns. 

OPENING STATEMENT OF HON. EDOLPHUS TOWNS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEW 

YORK 

Mr. TOWNS. Thank you very much, Mr. Chairman. Let me thank 

you for holding this hearing. Let me begin by welcoming the very 

distinguished panel members. It is good to see all of you and really 

appreciate you coming to share with us because this is a very serious situation that we really must deal with. I welcome the opportunity to explore the reasons why a nationalized approach to reforming healthcare is needed. 

Mr. Chairman, I am a firm believer that we in this country need 

universal healthcare now. Last year, I recall giving a speech on the 

House floor in support of House efforts to expand SCHIP. As I was 

bearing witness, in comes a staffer to inform me to stop my speech 

because the Administration just vetoed the SCHIP bill and what I 

was saying was no longer relevant. It is still beyond me how anyone could deny coverage to our Nation’s most needy. When we 

passed the SCHIP expansion legislation, there were 2.6 million uninsured New Yorkers, 400,000 of whom were children. Now that we 

are experiencing a difficult economic downturn, we know more people regretfully will be out of work and in dire need of healthcare. 

I am anxious to examine the role of employer-sponsored coverage, the individual insurance market, the role of public programs 

such as Medicare, Medicaid, and the State Children’s Health Program, States’ perspectives of healthcare coverage, the uninsured, 

the underinsured. Given that our healthcare system is obviously 

broken, we have the chance to fix it. I intend to be on the side of 

the angels in that effort. 

With that, I appreciate the witnesses today in shedding light on 

the problem, but let me say that, let us take the word ‘‘reform’’ 

7 

very seriously. Around here I found over the years that reform does 

not mean what really reform should mean. Reform around here 

means cut the budget. I think that we should look very seriously 

at ways and methods that we can improve our healthcare system 

and that we should reform it in a very positive way, not just loosely 

use the word ‘‘reform.’’ 

Thank you very much for the opportunity. I yield back. 

Mr. PALLONE. Thank you, Mr. Towns. 

The gentleman from Texas, Mr. Burgess, is recognized for an 

opening statement. 

OPENING STATEMENT OF HON. MICHAEL C. BURGESS, A 

REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS 

Mr. BURGESS. Thank you, Mr. Chairman, and thank you for convening this hearing. It is an important topic. We have certainly 

have a significant panel of witnesses here today, experts to challenge some of our thinking and preconceived notions, and I appreciate the opportunity as always on this committee to participate in 

this type of discussion. 

Certainly in this country we are at a crossroads when it comes 

to healthcare. For somebody who has spent a lifetime in 

healthcare, I will just tell you, it is significant for me that both of 

the major parties’ nominees for President are talking about 

healthcare. It is probably one, two, or three on each of their lists, 

depending what else is in the headlines that day, and I think that 

is a good thing. We basically have two directions in which we 

might go because there are significant differences envisioned from 

both of the candidates, and as a consequence, we will have a referendum in November, and as a consequence of the referendum, we 

will have a mandate as we start into next year, and we will make 

that decision. Do we believe that the individual should retain some 

ability to determine what is involved in their healthcare or do we 

yield to the supremacy of the State, and it will be an interesting 

outcome this November. 

Now, what about models for reform? We are going to hear something about that this morning. Oftentimes I am asked, what is the 

biggest single-payer healthcare system in the world? I think it is 

us. I think with our Medicare, Medicaid, VA system, federal prison 

system, all of the parts that are paid for by the Federal Government, I think it is us. Is this a model for reform? Well, certainly 

the world in which I live right now, I spend the bulk of my time 

dealing with problems that are caused for people from our Medicare, Medicaid, and VA system, whether it is the patient who can’t 

get what they need or the provider who feels that their services 

have once again been devalued, so it is a major consumer of my 

time. 

Now, Alan Greenspan, talking to a group of us right before he 

left Capitol Hill said someone asked him if we could continue to 

pay for Medicare in the future. He thought for a minute and said 

I think we will be able to because Congress will make the right decisions. That actually was a little chilling itself. But then he 

stopped and said, what concerns me more is, will there be anyone 

there to deliver the services when you require them? And that is 

something that I think this committee needs to really focus on. We 

8 

passed a very small bill yesterday in some of our public health bills 

to deal with physician workforce issues at the residency level. We 

have other opportunities. We haven’t really faced the biggest problem of all, which is a sustainable growth rate formula. Sure, we delayed it once again in July but we have a huge cliff we are going 

to fall off in a little over a year’s time and no one right now is talking about what we do to prevent that train wreck when it happens 

and we are not really addressing any visionary changes in the 

health proficient scholarship loan program. It has been a long time 

but really does need to be transformed for the 21st century. 

So I think even Dr. Zerhouni, who came and talked to us last 

week or 2 weeks ago from the NIH, and showed us that wonderful 

chart of a couple of years he had one or two little places on the genome he could point to for type 1 diabetes and then he went 

through the changes that have gone on the first quarter of 2008. 

Virtually the whole slide was filled up with little colorful things on 

the human genome. We are going to have an era of medicine where 

the ability to predict a predictive profile is going to be significantly 

different from what it was in the years that I practiced medicine. 

We need to preserve the ability to have that type of personalized 

medicine that high touch as well as high tech and to preserve the 

type of healthcare system that will nurture that and encourage 

that and not drive it in a direction which it should not go. 

But anyway, I welcome our witnesses and I am looking forward 

to your testimony. I will yield back the balance of my time and look 

forward to a lively question-and-answer session. I yield back. 

Mr. PALLONE. Thank you. 

Next is our vice chair, who is a champion of healthcare professionals, the gentlewoman from California, Ms. Capps. 

OPENING STATEMENT OF HON. LOIS CAPPS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA 

Ms. CAPPS. Thank you, Chairman Pallone, for convening this 

hearing. Thank you to all of our expert witnesses for being with us 

today, and a particular welcome to Governor Corzine and our 

friend, Elizabeth Edwards. This topic, so important in consideration of comprehensive health reform, will help us to set the stage 

for enactment next year. 

I believe we can agree that our next President will be tasked 

with finally achieving an overhaul of our broken healthcare system. 

Quite frankly, this current Administration has had little interest in 

taking any approach other than one that favors the healthy and 

the wealthy. This approach has had grave consequences as we have 

seen outcomes in the United States slip further behind outcomes 

in other western countries. We watch the number of uninsured 

Americans grow to now 47 million. We have seen health disparities 

grow between different ethnic and socioeconomic groups. And when 

we talk about health reform, our emphasis needs to be on how we 

can best serve the needs of all Americans, one that recognizes the 

specific health needs of women and of children, one that emphasizes the importance of primary and preventive healthcare and one 

that guarantees every American access to high-quality care. Quite 

frankly, this will never be achieved if we only look at healthcare 

through the tax code or as a commodity. Healthcare shouldn’t be 

9 

a luxury; it is a right. I don’t think we can accomplish anything by 

making comparisons to shopping around for other luxuries. I might 

shop around for the best price on a car or a television but if I don’t 

find one that I can afford, I am not going to die. The same cannot 

be said for healthcare. So our goal here is to examine what has and 

what hasn’t worked. 

I look forward to hearing from our witnesses today on their 

thoughts on this matter and what they envision the ideal 

healthcare to look like, and I yield back. 

Mr. PALLONE. Thank you. 

The gentlewoman from Illinois, Ms. Schakowsky. 

OPENING STATEMENT OF HON. JAN SCHAKOWSKY, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ILLINOIS 

Ms. SCHAKOWSKY. Thank you, Mr. Chairman. I am going to put 

my statement in the record because I really am anxious to hear all 

of our witnesses. I do want to give a special welcome to Governor 

Corzine and acknowledge the work that he has done to continue to 

expand health insurance in his State. Our Governor Blagojevich 

has made healthcare a priority as well but it is such a difficult 

challenge, and I want to also thank Elizabeth Edwards and the 

Center for American Progress Action Fund and for her incredible 

aspiration and leadership. 

And finally, I am thankful to all of the witnesses but I wanted 

to thank the Commonwealth Fund for its work in pointing out that 

this is not just about the uninsured anymore, that millions and 

millions of families are struggling now to have the adequate insurance that they need and that it is time to have as every other industrialized country does, we make healthcare a right and provide 

it to all Americans, and I yield back. Thank you. 

Mr. PALLONE. Thank you. 

The gentleman from Arizona, Mr. Shadegg, is recognized for an 

opening. 

OPENING STATEMENT OF HON. JOHN B. SHADEGG, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ARIZONA 

Mr. SHADEGG. Thank you, Mr. Chairman, and I will put my formal statement in the record. I do want to compliment you for holding this hearing and I want to thank all of our witnesses. 

Throughout my career in Congress, from my election in 1994 forward, I have worked on healthcare reform. I believe that there are 

many great things to say about healthcare in America but there 

are many things that we can do much better than we do now. I 

began my career fighting for patients’ rights because I believe the 

HMO industry was in fact shortchanging patients or people in 

America who needed healthcare for not the best of reasons, for 

money reasons. But I think we face a huge issue in how we reform 

healthcare in America. I think we can in fact make it dramatically 

better. 

I would argue that it was the law of unintended consequences 

that has led us where we are, and that is, the Federal Government, 

the United States Congress a number of years ago basically said 

healthcare provided by your employer is tax subsidized, it comes 

with pre-tax dollars. Healthcare you go buy yourself has to be paid 

10 

for with post-tax dollars. That slaps down rather, I think, outrageously the poorest of Americans who can’t get healthcare 

through their employer. We say to them, well, you ought to be insured, you shouldn’t show up at a hospital emergency room without 

healthcare, but oh, by the way, you have to buy it with post-tax 

dollars, meaning it is at least a third more expensive. That is outrageous and it is wrong and I have been fighting to change it since 

I got here. 

We also have said in America under ERISA that if a healthcare 

plan, not a doctor but if a healthcare plan makes a negligent decision, they are immune. Indeed, I can cite you lawsuits where the 

government specifically says in a decision decided by the U.S. Supreme Court that if a plan denies you care and it results in death 

or injury, that plan is immune from damages, but if a doctor makes 

the same mistake, well, you can scare the bejebees out of him. 

I think we are at a pivotal moment. Right now, healthcare in 

America, I believe, is controlled by third parties. Your employer 

picks your plan because the government says it is tax subsidized 

if that is how it happens, and then the plan picks your doctor. You, 

the individual patient, can’t hold that plan accountable, you can’t 

demand better service, you cannot demand lower price. You are 

just at the mercy of the plan your employer picked and you are left 

out of the process. Now, we have a choice. Do we go to more thirdparty control by creating what my colleagues on the other side 

want, a universally run government-run program where you are a 

cog and you fit into the program and instead of having your employer make your healthcare decisions for you, some government 

bureaucrat does, or do we say you know what, we should empower 

people, we should let people make choices, we should give people 

the money that the employer has right now and let them make a 

decision. They should take the money from their employer or, I 

would prefer a tax credit from the government and buy either their 

employer’s plan or some other plan they choose. Put them in 

charge. And for poor Americans, my legislation says we give them 

a refundable tax credit and even the poorest in America can go buy 

a plan that responds to their demands and their needs and their 

interest and we give them choice to go buy the plan they want. 

Then they can demand that that plan provide them quality services 

at a low price or they will fire them and go buy another one. If you 

turn on the TV tonight, you will see 20 commercials for auto insurance. You will not see a single commercial for health insurance because health insurance companies don’t have to market to people. 

Now, how do we take care of those with preexisting conditions? 

I have introduced and this Congress thankfully has passed State 

high-risk pools. Sadly, the States have not taken advantage of 

those, but we can write high-risk-pool legislation that says to insurance companies, you are going to help fund the high-risk pool in 

your State, you are not going to put people in there that shouldn’t 

be in there because you will be required to pay the cost of it but 

we are not going to let anyone in America go without healthcare. 

I have dropped a bill that will do that. We can ensure that every 

American has healthcare but every American has healthcare they 

choose, not healthcare—— 

Mr. PALLONE. The gentleman is over by 1 minute. 

11 

Mr. SHADEGG. I am almost finished. Not healthcare picked by a 

bureaucrat and controlled by a bureaucrat. 

Thank you, Mr. Chairman, for your indulgence. 

Mr. PALLONE. Thank you. 

I now recognize the gentlewoman from California, Ms. Solis. 

OPENING STATEMENT OF HON. HILDA L. SOLIS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA 

Ms. SOLIS. Thank you, Mr. Chairman. I also want to thank our 

panelists for being here. I welcome you, Governor Corzine, and also 

the honorable Elizabeth Edwards for being so courageous and a 

healthcare advocate for so many, many people across this country. 

I want to focus my attention on the disparities that exist in 

healthcare, particularly among the Latino community. We find that 

there are currently about 15 million Latinos that don’t have insurance but many of these families are working families, and believe 

it or not, many of them are U.S. citizens, but they have not been 

able to access some of the fine programs that we have currently in 

place like Medicare, Medicaid, and also the SCHIP program. In my 

State of California, we continue to fall behind in terms of outreach 

to these communities, particularly because we have problems with 

barriers in English, cultural, linguistic barriers, and the fact that 

the governor in our State has cut back and has not, in my opinion, 

utilized funding appropriately to reach out to these communities. 

We do have a healthcare crisis, not just with the Latino community 

but with African-Americans and also Asians. These are the groups 

that will soon represent in a few years 50 percent of this country, 

and what are we doing to help provide them with better healthcare 

outcomes? That is a big question. 

I don’t want to lecture anybody and I don’t want to be lectured 

at but I can tell you that I am looking forward to a Democratic 

leadership in the coming year and I am hopeful that we will see 

an expansion of these programs, the SCHIP program, and that we 

make an investment, a human resource investment, in communities of color. Not just providing them better access to services 

through public health care clinics and what have you but also investing in their education so that we can have professionals that 

will serve in our communities and want to stay there and to have 

an incentive so that they can have some type of loan repayment to 

be able to work that off in communities of color and rural America 

and in the urban cities. 

So I am hopeful that we can work together with you. I am very 

excited about the possibilities of the change for so many Americans, 

47 million people who are waiting to see that they have some form 

of healthcare coverage. 

So with that, I will yield back and would like to just submit my 

comments for the record. Thank you. 

Mr. PALLONE. The gentlelady’s comments will be submitted. 

Without objection, so ordered. 

And next we have the gentleman from Texas, Mr. Green. 

12 

OPENING STATEMENT OF HON. GENE GREEN, A 

REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS 

Mr. GREEN. Thank you, Mr. Chairman. I am pleased we are holding the hearing today on this crucial subject of reforming America’s 

healthcare. 

No American should be living in this country without health insurance. Yet, nationwide, 47 million Americans are uninsured. 

Texas, unfortunately, has the distinction of having the highest rate 

of uninsured in the Nation. Nearly 25 percent of the population in 

Texas is without health insurance coverage. Our system was designed so that every American should be covered, either through an 

employer-based plan or individual plan or a public plan, but as 

medical and insurance costs continue to rise, more and more Americans are falling through the cracks. The largest rise in uninsured 

and underinsured are middle-class families that make too much to 

qualify for public programs but who don’t make enough for the 

costly premiums under private plans. With the economy in shambles and insurance costs rising faster than people’s wages, we can 

expect the number to grow. 

Most Americans get insurance through employer-based plans. 

The problem here is that the average amount employers have to 

pay for insurance has risen by two-thirds over the past 8 years. 

This means that not only are companies forced to offer fewer benefits but also that employers pay higher premiums. American do 

have another option besides buying into the employer-based plan. 

They can buy their own individual plan. But many people are 

averse to this because costs of individual plans are considerably 

higher than employer based and unfortunately many companies 

will screen their applicants so they come across as a higher risk. 

They either raise the cost or they deny it altogether. You can’t 

truly reform the system without creating safety nets to ensure that 

every American no matter how sick they are has access to quality, 

affordable care. Many States have taken initiatives to create insurance pools for high-risk applicants. Costs are still comparably higher. The key to reform is providing affordable care to these people. 

Another problem we face is getting people who are eligible for 

public programs enrolled. Again, in Texas, enrollment barriers 

have kept many people off who are eligible for Medicaid and 

SCHIP off the rolls. Texas HHS estimates that between 200,000 

and 300,000 children are eligible for SCHIP but not enrolled. As 

the economy worsens, unemployment rises, States are going to continue to shoulder more of the burden. We need to find ways to support them in reforming private and public plans and support in 

finding innovative ways to use technology and quality care in insurance practices. 

Unfortunately, the large number of uninsured creates a vicious 

cycle by driving up healthcare costs. The uninsured often miss preventative care and don’t even seek help until problems are dire. Research by the Kaiser Family Foundation shows that nearly 40 percent of uninsured skip recommended tests or treatment. Twenty 

percent say they have needed but not received care for a serious 

problem in the past year. The cost burden on hospitals facing this 

problem could be avoided if American had some type of healthcare 

coverage and access to that care. This would lower the amount hosVerDate Nov 24 2008 14:05 Dec 29, 2010 Jkt 037690 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 P:\MY DOCS\HEARINGS\110-150 CHRIS
13 

pitals pay for treating serious conditions while uninsured patients 

would eventually lower insurance costs for everyone. We have to 

reverse the risk cycle. We have to start somewhere and that is why 

it is so important we begin discussion of reform. 

I thank our witnesses. We have a great panel today; both the 

governor and Ms. Edwards and a lot of folks we have worked with 

and I hope the next Congress will build on what we hear today and 

create that safety net for all Americans to have some type of health 

coverage. Thank you. 

Mr. PALLONE. Thank you, Mr. Green. 

I next recognize the gentlewoman from Colorado, Ms. DeGette. 

OPENING STATEMENT OF HON. DIANA DEGETTE, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF COLORADO 

Ms. DEGETTE. Thank you very much, Mr. Chairman. I was really 

heartened to hear Chairman Dingell talk about how he intends to 

work on comprehensive healthcare reform in the next Congress, because as we have heard from my colleagues, it is so urgently needed, and when we do look at comprehensive healthcare reform, we 

need to look at universality so we can cover everybody in some 

way. We need to look at portability so people can take it from employer to employer, State to State, and we need to look at affordability so that we can make this whole system that is groaning 

under its own weight more affordable both for the patients and for 

the system. 

Having said that, Mr. Chairman, I just want to talk about two 

things that I think about constantly. The first one was a lady who 

came in and testified in front of this committee last year on the 

SCHIP bill. She is my constituent, and she is a janitor, she is a 

single mom. She was abused and she left and she has two little 

kids, and she is trying to go to school and she is trying to work 

and do what she is supposed to do, and she got a raise in her job 

as a janitor so then she was thrown off the SCHIP program but 

her employer doesn’t offer health insurance so she didn’t have 

health insurance so now she doesn’t have insurance and she just 

went for some cancer screening and found out that she had some 

abnormal cells. And equally bad, she has to take her kids to the 

emergency room every time they get an ear infection. What kind 

of country is it that has that kind of healthcare for people who are 

trying to work and do the right thing? 

The second thing I have been thinking a lot about lately is a 

friend of mine, he was my next-door neighbor when I was growing 

up and I have known him since I was 6 years old, and he called 

me up a couple of months ago. He is an actor and supports himself 

part-time by renovating houses so he is self-insured and he did the 

right thing, he bought insurance, and about a year ago he was diagnosed with prostate cancer. So he went in and he was treated for 

it, and then after the treatment, which he thought was successful, 

his insurance company called and said—and he was self-insured. 

They said we are going to increase your insurance to $1,000 a 

month and oh, by the way, we are excluding any future prostate 

cancer from your coverage. So he said, well, that is ridiculous, I 

can’t afford it and it wouldn’t cover prostate cancer anyway. Well, 

14 

you know the end of this story. About 3 months later, it turned out 

the cancer had spread throughout his body and he had no health 

insurance. So he went back to his old doctor and his old doctor said 

well, you don’t have insurance, we are not going to treat you, and 

he had to apply for SSI, which my office was able to expedite for 

him, and now he’s in the wonderful hands of the Denver Health 

System. But I just have to ask again, what kind of a country is it 

that treats our citizens that way? 

So this is why we need healthcare reform, this is why it needs 

to be comprehensive, and I am committed to working with every 

single person on both sides of the aisle on this committee to make 

that happen. 

Mr. PALLONE. Thank you. 

Next is the gentlewoman from Oregon, Ms. Hooley, recognized 

for an opening statement. 

OPENING STATEMENT OF HON. DARLENE HOOLEY, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF OREGON 

Ms. HOOLEY. Thank you, Mr. Chair, and I want to thank all of 

the panelists for spending your time with us today. You are an inspiration to us. 

And I just want to share with my colleagues our continued support for healthcare reform in this country. I think we have reached 

that tipping point where people now say yes, in fact, we need a 

healthcare system. We are bleeding, literally, as our ERs are filled 

with people seeking emergency care because they don’t have health 

insurance. In fact, I happened to be at a conference where a woman 

passed out. There was a doctor there. He said we need to get you 

to the emergency room, we are going to call an ambulance. She 

said you can’t do that, I don’t have any insurance. That was just 

one incident. And again, I am going to repeat what my colleague 

said, what kind of a country is that? 

We are bleeding financially and 45 million Americans are still 

without health insurance because they can’t afford it or they don’t 

have jobs that provide it. We are bleeding confidence because no 

one sees our healthcare system getting any better in its current 

form. Colleagues, we are bleeding to death. The band-aids that 

have been thrown at our healthcare system over the last 20, 30 

years are failing. It is time to stop the bleeding once and for all 

and overhaul the way healthcare and insurance is provided in this 

country. It is time for healthcare reform. 

There have been many ideas that have been presented on this 

issue. I think some of the best ideas come in the form of the 

Healthy Americans Act. The Healthy Americans Act provides private healthcare coverage to all Americans and makes that coverage 

portable and incentivizes prevention. It will also save us nearly 

$1.5 trillion over the next 10 years. As millions of Americans struggle in this difficult economic time, small increases in healthcare 

premiums, copays, and prescriptions are causing more and more 

stress. Under the Healthy Americans Act, lower and middle income 

Americans will actually save money to receive the same or better 

care than they currently have. Individuals could keep their coverage as they move from job to job or if they become unemployed, 

ill, or disabled, and the bill would prohibit insurance companies 

15 

from denying coverage to those with preexisting conditions or risky 

family histories. The writing is on the wall. Our system is broken 

and is sending individuals, families, and our country on a financial 

freefall at a very fragile economic time, but more than that, people’s health is being jeopardized and there is nothing more important than our health. 

I look forward to the upcoming debate on smart healthcare reform, and my hope is that we will start with the Healthy Americans Act. Thank you, Mr. Chair, for your time. 

Mr. PALLONE. Thank you, Ms. Hooley. 

The gentlewoman from Wisconsin, Ms. Baldwin. 

OPENING STATEMENT OF HON. TAMMY BALDWIN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF WISCONSIN 

Ms. BALDWIN. Thank you, Mr. Chairman, and thank you to all 

of our witnesses for joining us today. We are really honored to have 

you here, and you are here to address what I believe is the most 

pressing crisis facing this committee, this Congress, and our Nation, and that is the need for healthcare reform. 

When I first came to Congress, I came with a very clear goal of 

wanting to reform our healthcare system to make it accessible and 

available to all Americans, and to make it comprehensive for all 

Americans, and I am sorry to say that over the time that I have 

been here, the crisis has only gotten worse. Today, however, I think 

we stand at a critical point in our Nation’s history. I don’t think 

I have seen as much momentum for change as I feel around me 

right now in this Nation and I do believe that we can get the job 

done. 

The most glaring aspect of this crisis of course is the uninsured. 

There are roughly 46 million Americans who do not have access to 

health insurance, and as we know, there is a face and a story and 

a family behind every single one of those Americans. They are 

mothers, fathers, sons, daughters, workers, and above all, Americans, and I believe that healthcare ought to be a right and not just 

a privilege for some. 

But I also understand that our crisis is a financial one as well. 

We need to rein in healthcare spending if we are to build a sustainable system for the country’s rapidly engaging population. As we 

have come so far with treatments for a wide variety of diseases, our 

problem is now one of chronic disease, which strains the finances 

of our healthcare system as well as the health of our citizens. 

I have long been a supporter of States as innovators in the 

healthcare system and in healthcare reform and we have seen, and 

I am sure our witnesses can attest, that many States have successfully taken up the issue. Vermont, Massachusetts, California, my 

home State of Wisconsin, are only a few of the states that are exploring new avenues for healthcare reform. The Federal Government should be a partner with the States in these efforts and not 

hamper their innovation, and while I recognize the very great need 

for national healthcare reform as we move forward in the conversation about healthcare reform, I encourage my colleagues to continue to provide incentives for innovations at the State level. 

16 

It is hard to think of a more difficult challenge than taking on 

America’s healthcare system. Literally every single citizen has a 

stake in the way we approach this. But I know that we need to tap 

into the minds of experts in the field such as the witnesses that 

we have before our committee today, as well as listening to the 

Americans that all of us represent in our districts. Only then will 

we be able to achieve our goal of access to healthcare for everyone. 

That day has been far too long in coming but we have a tremendous opportunity to change that in the very near future. 

Thank you, Mr. Chairman, again, for holding this hearing and 

thank you to our witnesses. 

Mr. PALLONE. I want to thank the gentlewoman. 

I would ask unanimous consent to enter into the record a statement from Congressman Jim Langevin of Rhode Island. I think 

many of you know that he has made healthcare reform a major priority in this district. Without objection, so ordered. 

[The prepared statement of Mr. Langevin was unavailable at the 

time of printing.] 

Mr. PALLONE. That concludes the opening statements by members of the subcommittee, so we will now turn to our witnesses, 

and we do have one panel today, a very large panel, and I want 

to welcome all of you. 

I am going to basically introduce each of you starting from my 

left with my governor, who I am so happy to have with us today, 

the Hon. Jon S. Corzine. Governor Corzine has done a tremendous 

job on so many levels, primarily on dealing with the budget, which 

is always so difficult in the State of New Jersey, but he has repeatedly said that he wants to expand healthcare for all residents in 

New Jersey to the point where every resident of New Jersey does 

have health insurance and has already begun the process of instituting that, particularly with children and low-income people, and 

so I do want to welcome him today. Thank you for being here. Next 

is Ms. Edwards, who many of you know has been a champion on 

healthcare reform for many years. She now is a Senior Fellow with 

the Center for American Progress Action Fund here in D.C., and 

thank you for taking the time to be with us here today. We then 

have Dr. Stephen Parente, who is Director of the Medical Industry 

Leadership Institute and Associate Professor for Finance at Carlson School of Management at the University of Minnesota. And 

next is Mr. E.J. ‘‘Ned’’ Holland, Jr., who is Senior Vice President 

for Human Resources and Communications with Embarq based in 

Overland Park, Kansas. Thank you for being here. Patricia Owen, 

who is President and founder of FACES DaySpa from the Village 

at Wexford at Hilton Head Island, South Carolina. And then Ms. 

Karen Pollitz, who has certainly been here many times. Thank you 

for being here again today, Karen. She is Project Director and Research Professor at Georgetown University Health Policy Institute. 

And after that we have Karen Davis, who is President of the Commonwealth Fund in the city of New York, and we have William J. 

Fox, who is Principal and Consulting Actuary for Milliman in Seattle, Washington, and last is Mr. Ronald Bachman, who is Senior 

Fellow for the Center for Health Transformation, who is from Atlanta, Georgia. Thank you, and thank you all for being here today. 

17 

I think you know that we operate with 5-minute opening statements. They become part of the record. Each witness may in the 

discretion of the subcommittee submit additional statements in 

writing for inclusion in the record, and I now recognize my governor, Jon Corzine. 

STATEMENT OF JON S. CORZINE, GOVERNOR, STATE OF NEW 

JERSEY 

Mr. CORZINE. It is a pleasure to be back in Washington to offer 

my perspective as the governor of the great State of New Jersey 

about the essential need for healthcare reform. I first want to say 

thank you to Chairman Pallone for all his great work not only here 

in Washington but the State of New Jersey in pushing, championing healthcare programs at large, and I also want to commend 

the committee, both sides of the aisle for your leadership in enacting some of the moratoriums in what I believe were decidedly 

harmful Medicaid regulations that were about to be imposed and 

issued over the last year. Those regulations threatened critical 

funding for hospitals and healthcare providers and severely would 

have impacted the vulnerable, many of which were talked about 

earlier. I would hope that you would work on a moratorium on the 

remaining regulation limiting outpatient hospital payments. 

Looking forward, I am thrilled about the healthcare reform debate that is going on in the presidential and congressional campaigns. I commend the members and today’s other witnesses for 

addressing this important national issue. Unfortunately, in the 

past few days in our financial markets and with respect to the national recession, whatever problems we have, they are only going 

to get a little worse, maybe a lot worse, quite an exacerbation of 

those issues and should motivate us to move even faster. 

Growing economic troubles are a severe problem for our State 

economies and that impacts our ability to work in healthcare. You 

know the litany: falling home prices, rising unemployment, declining tax receipts, higher energy costs, escalating Medicaid spending, 

and on and on. It is clear more employers in this environment will 

be dropping healthcare or creating costs for the employee that are 

hard to bear going forward. 

The Kaiser Foundation says for every 1 percent increase in unemployment, 1.1 million more people go onto the Medicaid rolls. We 

have gone from 4.9 percent to 6.1 percent just this year. So the 

problem that we have in financing this is going to grow in the context of the current environment. 

As somebody who has had a little bit of firsthand experience with 

the healthcare system due to some of my own failings a year-anda-half ago, I am one to say that we have much that is good in the 

system. It is not something that has failed in every aspect, but I 

think all of us have to realize that there are very large disparities 

in how it works for our population and it is not with equal standard that healthcare is administered to a vast number of people. I 

am not going to go through the 46 million, whether it is 45 or 47. 

It is growing. It was 40 million in 2000. There is enormous pressure. The single largest cause for bankruptcy in America comes as 

an outgrowth of major medical emergencies and financial crises 

that happen. We are spending 16 percent of the GDP on 

18 

healthcare. It is time that we get control of the costs. And if it were 

only the costs that were at stake, then we would have one set of 

problems, but the fact is that the healthcare performance outcomes 

is not where it should be in America, 37th, according to the World 

Health Organization. We have got the rankings reversed. We are 

paying the most and getting something less than what we should 

and I appreciate Chairman Dingell and Mr. Murphy’s comments on 

some of the flaws that are in the system. We need to address those. 

The question is, how do we better align our system, particularly 

in a patchwork of systems that really don’t all fit together? The answer in brief I believe is twofold. First, we need a strong and committed Federal-State partnership willing to build on and strengthen practices of successful programs that exist along with our employer-based coverage. And second, we need federal leadership to 

put in place a system that provides universal access for all Americans, and this is particularly true since the Federal Government 

and ERISA programs are about 50 percent of all of those insured 

today. So we can’t just deal with these programs at a State level. 

As you know, I am an old washed-up businessman but I think 

I understand that the first lesson that you learned in medical 

school if you were a doctor is do no harm. In today’s context when 

we talk about the short term, I hope we do no harm with the State 

programs that we already have in place. That means asking for reauthorization of SCHIP, a program that has benefited millions of 

children, about 260,000 in New Jersey, and for a decade this has 

been one of the most important building blocks at providing access 

to healthcare. We have 430,000 adults and with Medicaid and 

SCHIP, 570,000 children in our State program, FamilyCare, and 

this is essential for the health of our public but it is also essential 

that we get this reauthorization for the health of our finances in 

a State like New Jersey but I would say that is the case with the 

vast majority of the States. 

Along these same lines, do no harm means increasing the federal 

Medicaid match, or FMAP, and this countercyclical environment, 

reimbursement mechanism that is absolutely essential for the kind 

of meltdown we are having in our finances and fall-off in tax receipts, which with very few discretionary means of adjusting budgets at State levels where we have constitutional responsibility to 

balance budget, we need this FMAP help and we need it now. The 

revenues, I think, in most States are falling off very dramatically. 

And we also know that as the ranks of the uninsured grow, so 

does hospital emergency room utilization and charity care, and we 

have a crisis in the ER rooms across this country. We actually have 

universal healthcare in this country. Unfortunately, it is delivered 

at the wrong spot, in our emergency rooms. It is the most expensive spot. It is not the place for a medical home. ER activity adversely affects obviously the financial operations and we have a crisis in our hospitals. We had eight out of the 81 hospitals we have 

in New Jersey close in the last 18 months and we have a long list 

of others that are under enormous pressure. So we need to make 

sure that we move in these areas. I think the FMAP is one of those 

places that can help immediately. 

We need to make sure we do no harm in how we fund and allocate the opportunity to have federally qualified health centers. It 

19 

is a great backstop. We have 80 sites in New Jersey. They are effective partners in providing preventive care and help in chronic 

care. I encourage you not to miss any opportunity to press forward 

in this area. 

And then finally, do no harm means please don’t stand in the 

way of Massachusetts or New Jersey, who are taking big steps in 

expanding access and have the use of flexibility in enacting insurance reforms to reduce costs to the system. Just this last spring, 

I signed a law that will expand our FamilyCare, which I spoke 

about earlier, for the 250,000 uninsured kids that we have in New 

Jersey. In fact, we are mandating that so we are taking an intermediate step to universal access and we put also in place insurance 

reforms that will help both small business and the individual market, modified community ratings, medical loss ratios, a whole series 

of steps that are actually trying to work in the market. We need 

to have that flexibility for the States to do it. We have been laboratories of change. We can be in the future but we need national help 

with regard to this universal healthcare coverage reality. 

We need the Federal Government to provide some kind of roadmap for the ultimate guidelines and design of our program. We 

need to improve outcomes but we also need to promote the movement and management of chronic care and access to preventive 

care to get into a more cost-effective system. We need the Federal 

Government’s leadership and investments in electronic medical 

record systems, setting standards, requiring best practices, establishing deadlines for implementation. It isn’t going to happen if we 

do it piecemeal, and by the way, someone gets sick and they happen to be in another State at the same time, what have we accomplished? We need to move together as a Nation on this and we need 

the cooperation between the States and the Federal Government. 

Just this year, we asked Professor Uwe Reinhardt of Princeton 

to look at our healthcare system and how we rationalize them in 

the State of New Jersey, and there are just so many places where 

we overlap between the two. One of the most important recommendations made by that commission, which I hope this committee will examine, I know the chairman is looking at it, and that 

is to put a cap on hospital charges for the uninsured and no more 

than some percentage of Medicare. We used 115 percent. We are 

actually ripping off the uninsured often to try to make up for the 

failure of the uninsured in other areas. 

There are lots of flaws in the system. I could go on. Prenatal 

care, if we had it, we would have healthier women in pregnancy, 

better birth outcomes, all kinds of great things, and I encourage 

you to move on this universal healthcare. Across the board on 

every aspect, there is no question that if we provide access, we will 

improve the cost structure, we will improve the outcomes. This is 

not only a cost-benefit analysis, it is a moral responsibility. I think 

it is very encouraging that both Senators Obama and McCain are 

talking about moving in the right direction with regard to universal access. They have premises and objectives that are generally 

common. Both candidates want access to care to contain healthcare 

costs, to build healthcare IT infrastructure and encourage preventive care. We need to take these themes and use these as a basis 

to drive to universal access and make sure that we are leveraging 

20 

those things that are working—SCHIP, FQHCs, employer-sponsored coverage, et cetera. 

We can reform this system but we have to have the will and the 

commitment to make sure it is done and it should be done with a 

Federal-State partnership. I know we are willing in New Jersey to 

build on that, I know the governors are, and I look forward to 

working with this committee in the days and weeks ahead, months 

ahead to come up with a system that breaks the back of a broken 

system. 

[The prepared statement of Mr. Corzine follows:] 

STATEMENT OF JON S. CORZINE

Good morning Chairman Pallone and Distinguished members of the Subcommittee on Health. 

It is a pleasure to be back in Washington to offer my perspective as the Governor 

of New Jersey about the essential need for health care reform across this nation. 

Before I start, I want to commend Chairman Pallone, who has been a champion 

of critical health programs for both the State of New Jersey and the country—I 

thank you for your leadership. 

I also would like to commend the Committee and the many members of on both 

sides of the aisle for your leadership and hard work in enacting a moratorium on 

many of the harmful Medicaid regulations the Administration issued over the past 

year. Those regulations threatened critical funding for hospitals and other health 

care providers and would have impacted severely the care provided to our most vulnerable. I would encourage, however, you to seek a moratorium on the remaining 

regulations limiting outpatient hospital payments. 

Looking forward, I am pleased that health care reform is at the forefront of the 

national debate in the ongoing Presidential and congressional campaigns. I commend the members-and today’s other witnesses-for their commitment to addressing 

what is one of the most challenging and severe problems we face: the broken health 

care system. 

The events of the past few days in our financial markets and the national recession will likely exacerbate the stresses present in the healthcare system and will 

further motivate our need to work together for reform. 

Our growing national economic troubles are already having serious consequences 

for most state economies and our finances—you know the litany—falling home 

prices, rising unemployment, higher energy costs, escalating Medicaid spending, and 

more families in need of health care services. In this economic climate, it is clear 

more employers will be forced to reduce or eliminate health coverage for their employees, aggravating the negative trend in employer-provided health insurance. 

In fact, according to the Kaiser Family Foundation, nationally every 1 percent increase in unemployment results in 1.1 million more uninsured and an additional 1 

million people—400,000 of them children-enrolling in Medicaid. And, since Medicaid 

eligibility lags 6 months behind unemployment figures, the full impact of increasing 

demand for Medicaid services cannot be known for some time. 

As some of you know, I had first hand experience with the health care system 

when I was in a car accident about a year-and-a-half ago. I am extremely grateful 

for the outstanding care that I received. It was truly extraordinary. In truth, while 

the U.S. health system has millions of dedicated professionals providing great care 

and treatment, our health-care system in many respects does not match the high 

standards we have come to expect. 

There are now about 46 million uninsured Americans—up from 40 million in 

2000. We can all agree that’s 46 million too many, and the number is rising every 

day. Far too many Americans live with the fear that a major medical emergency 

could mean financial ruin. In fact, health care costs are the leading cause of personal bankruptcy. 

But the crisis in our health care system is much more than the number of uninsured. We rank 37th in health-system performance, according to the World Health 

Organization, but 1st in expenditures. Quite simply, we are paying more but getting 

less. 

The question is: how can we better align our system—really a patchwork of systems—to begin to reverse those rankings? 

The answer, I believe, is two-fold. First, we need a strong and committed federalstate partnership, willing to build on and strengthen best practices of successful proVerDate Nov 24 2008 14:05 Dec 29, 2010 Jkt 037690 PO 00000 Frm 00026 Fmt 6633 Sfmt 6633 P:\MY DOCS\HEARINGS\110-150 CHRIS
21 

grams and existing elements such as employer-based coverage. Second, we need federal leadership to put in place a system that provides universal access for all Americans. I may be a washed-up businessman, but my understanding is that when you first 

enter medical school, the first lesson learned is: ‘‘Do No Harm.’’ In today’s context, 

during a recession that is hurting everyone, ‘‘Do no harm’’ means supporting State 

programs rather than undermining them. 

Following the principle ‘‘Do no harm’’ means reauthorizing SCHIP, a program 

that has benefited millions of American children by letting states tailor their plans 

flexibly to adjust for wide variation in the cost of living and availability of providers. 

SCHIP has been a highly successful building block across the country for a decade, 

and should actually be expanded, particularly during a recession. New Jersey covers 

430,000 adults and 570,000 children through our Medicaid and SCHIP programs, 

known as FamilyCare. I urge you to do everything that you can to move ahead on 

reauthorization of this crucial program. 

Along those lines, ‘‘Do no harm’’ means increasing the federal Medicaid match, or 

FMAP, in what’s called a ‘‘countercyclical’’ reimbursement mechanism, so that during a national downturn like our current one, States receive more money to cover 

the growing numbers of people losing insurance and are able to hold off harmful 

cuts in safety net programs. Without that support, coverage is one of the few discretionary items that states have in their financial tool box. You all must remember 

that states are constitutionally mandated to balance our budgets. 

We all know that as the ranks of the uninsured grow, so too does hospital emergency room utilization. We really have a crisis of ER use in this Nation—it’s a costly 

replacement for a family care physician or a medical ‘‘home’’, ER activity adversely 

affects hospital financial operations, and it is not conducive to providing the kind 

of preventive and chronic care that will reduce costs in the system. I can tell you 

we have a true crisis in financing Charity Care among our hospitals in New Jersey. 

So ‘‘do no harm’’ does mean helping states get more people insured so they’re not 

overusing the ER, but it also means expanding the Federally Qualified Health Centers (FQHC). In New Jersey, we have found our FQHC’s—we have over 80 sites— 

to be highly effective partners in our efforts to expand access to essential health 

care services—particularly preventative and chronic care. 

Finally, ‘‘do no harm’’ means support the innovators—a state like Massachusetts 

that has enacted comprehensive reform, and states like New Jersey that are taking 

big steps by expanding access and enacting insurance reforms to reduce costs to the 

system. This summer, I signed into law an expansion of our bipartisan FamilyCare 

program to cover more working-class families while mandating health coverage for 

all children—250,000 of whom are currently uninsured. We also enacted insurance 

market reforms to make health insurance more affordable to individuals and small 

businesses in the State. 

I think I can speak for my fellow Governors on both sides of the aisle when I say 

that most states, for so long the laboratories of change, need immediate help to get 

through this recession if we’re to remain the reliable source for health care we have 

always been. And going forward, we will need a strong federal-state partnership to 

make our vision of universal health care a reality. 

I believe states have been creative in devising strategies to cover more people 

while holding down costs. But federal support is absolutely necessary if we are going 

to achieve truly universal care. It may come down the road, and it may have to happen in steps, but that ultimate goal should guide the design of our reform. We all 

know those with insurance receive better care, and that higher levels of coverage 

translate into lower health care costs as people manage chronic diseases and access 

preventative care. The federal government can coordinate this effort in a way that 

reaches the most people and is the most cost-effective. 

Federal support means investments in a national Electronic Medical Record system—setting standards requiring best practices and establishing deadlines for implementation. This is a perfect example of where the Federal Government can coordinate a cost-saving mechanism that would mean better quality care for all Americans and billions in reduced health care costs. 

In New Jersey, we have taken significant steps to reform our health care system. 

I recruited internationally recognized health care economist, Princeton University 

Professor Dr. Uwe Reinhardt, to lead an in-depth analysis of the complex problems 

that have led to a series of hospital closings. The findings of the Commission on 

Rationalizing Health Care Resources have resulted in a series of laws that have 

strengthened our hospital system, increased protections for the uninsured and put 

New Jersey in the forefront of health care reform. 

We recently completed a study in New Jersey that showed the No. 1 barrier to 

women getting prenatal care is lack of health insurance. We know that prenatal 

22 

care helps women have healthier pregnancies, better birth outcomes, and gives children a better chance at a healthy life. Is there a better reason for us to fight for 

universal health care? 

Across the board, on every aspect of care, there’s no question that providing access 

to affordable health insurance is not only the direction that we should take-it is our 

moral responsibility. 

On the principles, I believe most of us agree. If you review the Obama and 

McCain health care plans from the standpoint of premises and objectives, the level 

of agreement is remarkable. 

Both candidates want to expand access to care, to contain health-care costs, to 

build health-care IT infrastructure, and to encourage preventative care. Those 

themes represent major common ground from which to work toward national health 

reform. 

We ought to leverage that consensus, but we ought not to undermine what already works: S-CHIP, FQHCs, employer-sponsored coverage, and finally, state 

customization-whether it’s with Medicaid and SCHIP or the state regulation of insurance markets, which is critical for consumer protection. 

We can reform this patchwork system, but it requires a strong and committed federal-state partnership premised on a willingness to build upon what’s working and 

a commitment to the attainability of that ultimate goal, universal care. 

Thank you. 

Mr. PALLONE. Thank you, Governor, and thanks for what you do 

in our State, but I also want to mention, because you reminded me 

at the end there, of all your work as the Democratic chair of the 

health subcommittee for the National Governors Association. You 

worked on a bipartisan basis when we were trying to move on 

SCHIP and a lot of the initiatives and you helped us a lot with 

that, so thank you. 

Next is Ms. Edwards. Let me just say again that the fact that 

you have been so high profile on this issue I think has been so important, not only to this committee and its efforts but nationally. 

I know that when you are in the spotlight there are a lot of different things you can talk about or work on and we appreciate the 

fact that you have taken so much time to profile the need for 

healthcare reform. Thank you. 

STATEMENT OF ELIZABETH EDWARDS, SENIOR FELLOW, 

CENTER FOR AMERICAN PROGRESS 

Ms. EDWARDS. Thank you, Chairman Pallone and Ranking Member Deal and members of the committee. I really do thank you for 

the opportunity to be here, not just because I think healthcare reform is such an important issue but because I know it is from my 

travels around the country. One of the reasons it is impossible for 

me not to do this work is because of how many voices I have heard. 

I want to mention one as I start. In March of 2007, I was in 

Cleveland when a working woman whispered in my ear, I am really afraid for myself and for my children because I have a lump in 

my breast, but I cannot get treatment, I cannot see a doctor, I have 

no insurance. It is a very sad story because if she doesn’t get treatment, the likelihood is that, Sheila is her name, that she would die 

as a result of this untreated condition. But as sad as it is, it is also 

inspiring because she took the time to whisper in someone’s ear, 

because in America we are hopeful that we can solve these problems. She believed if she whispered in the right person’s ear, that 

things could change. I am also hopeful that things can change. 

For the first time in 15 years, we are talking about healthcare 

now on a national level and here in this committee. Both the ReVerDate Nov 24 2008 14:05 Dec 29, 2010 Jkt 037690 PO 00000 Frm 00028 Fmt 6633 Sfmt 6633 P:\MY DOCS\HEARINGS\110-150 CHRIS
23 

publican and the Democratic nominees are engaged in a discussion 

about healthcare. If you looked at it from altitude, you would assume we were standing at the edge of healthcare heaven. I hope 

that is the case. 

Given the limited time and the impressiveness of the panel sitting here, I want to just limit my comments to a couple of things. 

One is an analysis of the conservative approach to healthcare reform, which has been talked about by a number of people on the 

committee and I am certain will be talked about by a number of 

the witnesses before you, and to use Senator McCain’s proposals as 

the springboard for that discussion. 

Any healthcare effort that we have has to focus on achieving coverage for all and has to focus on getting costs controlled as an essential feature of healthcare. They have to happen at the same 

time. In fact, they are both different sides of the same Rubik’s 

cube. We can’t solve the problems on one side without also solving 

the problems on the other. It is a false dichotomy that pits one of 

these against the other. I do think that Senator McCain’s policy 

does focus excessively on providing a lower cost policy without at 

the same time guaranteeing a basic level of coverage in that policy 

or addressing the scope of inclusion for all Americans. Any insurance operates more efficiently—any insurance, fire insurance, 

health insurance, car insurance operates more efficiently—the larger the number of people included in the pool so the more of us that 

are included, the more efficient and the lower cost the healthcare 

system is going to be. 

It also works best for us individually when it is continuous and 

coordinated. By allowing people to slip in and out of the system, 

we reduce their healthcare status and we in fact raise the cost. As 

a Brookings Institute economist has noted recently, broadly expanded coverage is a precondition for effective measures to limit 

overall healthcare spending. Karen Davis, who is on the panel 

today, has also been a powerful voice on the link and I expect you 

will hear a lot more from her about a link between universal coverage and cost containment in talking about the importance of offering continuous coverage to contain costs and to not interrupt the 

access of patients and the ill to care. 

If we as a country can ever agree on the need for coverage for 

all, then the next question is, what kind of coverage is it that we 

want. The larger the pool, the more efficient the system. The group 

market is more efficient than the individual market. I know it was 

mentioned by members of the committee that individual choice is 

really important. The truth is, we have tested that. We are testing 

it today. We have people in the individual market today and what 

we find is that their care is more expensive, that their cost-sharing 

obligations are higher and that there are in fact more exclusions. 

We also find that insurance companies cherry pick, that for the insurance companies it is more expensive because they are cherry 

picking among us. So we have already tested this idea. The idea 

that everyone can pay a little over time and across populations in 

return for medical care and financial security when things go 

wrong is the way in which we need to proceed. 

So again, let us consider Senator McCain’s approach as the ideal 

in the conservative approach to healthcare. The individual market 

24 

makes it more difficult to get insurance. Even Americans seeking 

coverage on the individual market with minor preexisting conditions, let alone chronic conditions, will pay higher premiums. I 

have said and gotten tremendous coverage for saying that Senator 

McCain and I have something in common, and that is, neither one 

of us would be insured under his healthcare plan, because the 

problem is, if you have a serious chronic condition, you are not likely to be offered, as was found in Denver by the young man with 

prostate cancer, if you are provided coverage at all. The individual 

market is notorious in its poor provision of coverage. Senator McCain promises $2,500 for an individual, $5,000 for a 

family tax credit to help us pay for health insurance on our own. 

For some, that is for young healthy families and small families, the 

tax credit may be enough as long as you stay young and healthy, 

and I would like to know the prescription for that, you are likely 

to be able to continue to afford a policy. If you are 55 and healthy, 

it will cost you as much as three times that to buy an insurance 

policy. If you are 55 with hypertension or, as Senator McCain and 

I, with cancer, good luck to you. 

Even if a family in an individual market is offered insurance, 

there is no guarantee that they can keep it. One California 

healthcare plan recently agreed with State regulators to reinstate 

950 people who had their coverage canceled once they needed it. 

Chairman Waxman has held a hearing on this recently, which was 

very edifying. 

Senator McCain’s approach to deregulation on benefits would 

allow insurance to be sold nationally, thereby eliminating State 

protection of mandated benefits. So what difference does it make 

to me which State offers my health insurance policy? Actually it 

makes a lot of difference. Most people don’t know what protections 

are currently required by their State regulations. They only know 

what their own policy says. But what difference does it make to me 

in which State it is written? Well, actually it matters a lot. It is 

far too easy for people to fall between the threadbare patchwork of 

protections offered by some States and the federal HIPAA law, especially where individuals are concerned. In only 44 States do state 

regulations require your health insurance policy to cover emergency room visits, only 44; six do not. Forty-five States require 

mental health care to be covered; five do not. Twenty-seven require 

coverage for diabetes treatment. When insurance companies are deciding from which State they are going to offer insurance policies, 

do you think they are going to be offering it from one of those 27 

that require diabetes coverage or from one of the ones that do not? 

I think we probably know the answer, and our experience with the 

credit card industry is edifying in this respect. It is not too farfetched to suggest the insurance companies are going to write their 

policies from the most industry-favorable States, just as banks and 

credit card companies do. 

Also, in Senator McCain’s plan, marketing and underwriting 

costs in the individual market will be driven up. One of the complaints about for-profit health insurance companies are the administrative costs associated with each policy, that is, the part of your 

premium that goes into the insurance company offices in salaries 

and underwriting and marketing and therefore doesn’t go into your 

25 

healthcare. In individual policies, the administrative costs are close 

to three times what it is for employer-based policies. Recent analysis shows this will likely mean $20 billion in additional administrative costs, which means an ever-larger chunk of healthcare dollars that are not going into healthcare. This is exactly the opposite 

direction that we want to go. Some of that is just the hassle of a 

large entirely diverse group but most of it has to do with underwriting and marketing, that is, determining how much risk you are 

and trying to find customers who don’t represent much of a risk, 

that is, cherry picking our population, also something we want to 

discourage as opposed to encourage. The insurers have the incentive at the present time to play a game of musical chairs where 

they can hope that some other insurers get the bill for the sickest 

patients. This is an immoral gamble that we know is going on, that 

we know exists and that we allow to continue. The costs are paid 

by people like 17-year-old Natalie Sarkeesian from California, 

whose insurer her denied her a liver transplant that was recommended by her doctors. She died waiting to contest that decision. 

Also in Senator McCain’s plan, the marketing and underwriting 

costs in the individual market driving up, we also find that we are 

going to see additional cost-sharing ramifications by moving to the 

individual market, cost-sharing being your deductibles and your copayments. The cost sharing in the individual market is often considerably higher than it is in the employer provider groups. Consumer-driven care with its high deductibles creates a problem 

where very often the patient is required to pay the first dollar of 

any care. What this does is create a disincentive for people to get 

the care that they need. You don’t get that continuity of care, conditions worsen and the cost to the overall system is increased in 

the long run. 

Much of the disagreement between the role of the individual 

market and the group market rests with the belief of free-market 

economists that buying healthcare is akin to buying any consumer 

goods. I thought that the reference to the television set, I don’t die 

if I can’t afford the television set I want, was incredibly apt and 

I expect to be using it in the future as I talk about this. Yet deciding between the costs and benefits of various cancer treatments 

like chemotherapy or radiation or surgery will simply never be the 

same as deciding between a Dodge or a Buick or a Ford. 

We have extreme market failures in healthcare that require government intervention such as the incentives for insurance companies to cherry pick, as I mentioned before, or later drop from coverage those who are sick as we heard earlier, the moral hazard 

faced by individuals who choose not to get coverage for themselves 

or their children. Simply put, it is a dangerous mistake to overstate 

the role that consumers can play in healthcare. It is not the same 

market as any other consumer goods. We are not selling toilet 

paper here. We are not selling televisions. We are selling an essential part of people’s lives and it needs to be considered in an entirely different way. 

The use of tax credits is one of the mechanisms that cuts across 

the political spectrum. Progressives and conservatives have both 

talked about their use. From the progressive point of view, tax 

26 

credits are used in conjunction with strengthening both public and 

private health insurance through the expansion of Medicaid and 

the SCHIP program. The Center for American Progress is one of 

the first think tanks to release a major paper on Senator McCain’s 

plan but now there is growing consensus about what that plans 

means. The tax credit that he offers simply will not cover the cost 

of insurance except for the very smallest group that I talked about, 

the young and the healthy smallest families. The family premiums 

for employers that employers pay for insurance are roughly about 

$13,000 a year. A $5,000 tax credit falls well short of that amount, 

in addition to which Health Affairs magazine suggested that individuals moving from the employer-based policy to an individual 

policy of the same caliber will find that their healthcare costs have 

gone up about $2,000, so we would then be talking about an even 

greater shortfall. The tax credit is not indexed to premium increases. It is indexed to inflation. It is expected to be about 2 percent a year while premiums go up 7 percent a year. So even though 

there is a very small sliver of people who are tax winners in that 

first year, those evaporate quickly after the first year as their savings are eaten up by the increase in premiums. 

Also, the tax credit is not large enough for families. Five thousand dollars for a family may do it for a very small family but will 

not do it for a larger family, and there is no distinction made between large families and small families. 

Mr. PALLONE. Ms. Edwards, you are about 8 minutes over. 

Ms. EDWARDS. I apologize for that. I will stop and answer any 

questions at a later point. I do think that this is an enormous opportunity and I would hate for us to miss the opportunity again to 

get the kind of healthcare that is going to make a difference for 

people like Sheila. She whispered in my ear. She is now whispering 

in yours. 

[The prepared statement of Ms. Edwards follows:] 

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Mr. PALLONE. Thank you so much. I appreciate it, and sorry to 

interrupt you. 

Ms. EDWARDS. No, it is all right. I apologize. As I was looking 

at this, I was not looking at the time. 

Mr. PALLONE. I understand, and we do really appreciate your 

being here today. Thanks so much really. 

And next I am going to go to Dr. Parente. 

STATEMENT OF STEPHEN T. PARENTE, PH.D., DIRECTOR, MEDICAL INDUSTRY LEADERSHIP INSTITUTE, AND ASSOCIATE 

PROFESSOR OF FINANCE, CARLSON SCHOOL OF MANAGEMENT 

Mr. PARENTE. Thank you, Chairman Pallone and Ranking Member Deal. I am honored to be part of this panel. 

Let me give you some information that I found from doing research in the field. I want to start by saying that there is a tremendous opportunity in front of us if we are faced with changing the 

healthcare system and we have basically zero resources to do it, 

and what I am going to be focusing on and one thing that has been 

mentioned by Elizabeth Edwards and others is the purchase of insurance across State lines. 

It is well known that small businesses are a critical economic engine of the United States. Even more than before these businesses 

can be virtual enterprises operating in multiple States and countries where human capital and expertise is tied together by e-mail, 

Web meetings, air traffic, and billed to order service support and 

manufacturing. One visit to a w=Web site today can equip an entire multi-State startup with vital technology, banking services, or 

travel arrangements. But with health insurance, the situation is 

quite different. 

In the United States today, a small company or individual can 

only buy insurance offered in the State where they live. This policy 

stretches back to the Supreme Court ruling in 1944 finding insurance was not commerce under the law and that the Court would 

follow the lead of Congress. As a result, on March 9, 1945, the 

McCarran-Ferguson Act was passed by Congress. It allows State 

law to regulate the business of insurance, any insurance, without 

federal interference. As a result, each State’s insurance commissioner or like official would be responsible for oversight of insurance company practices including fair and timely payment as well 

as premiums. This policy makes sense in the context of consumer 

protection, many of the issues that Elizabeth Edwards mentioned. 

To enforce such protections requires oversight and clear lines of 

communication. In 1945, these activities were best considered local. 

However, life in America has changed a lot since the mid-20th century. 

So for this, I bring out my illustration. I did not write this book. 

This was given to me as a gift. It is from my alma mater, Johns 

Hopkins University Press, where Karen and I spent some time together, ‘‘Night Trains: The Pullman System and the Golden Years 

of American Rail Travel.’’ So if I were to come to you in 1952, there 

is a section in the back that says where every single train is on 

the track on midnight, March 1, 1952, and there are literally thousands of them. It is a review of a world that just simply doesn’t 

35 

exist anymore. To get to you today, I would have taken a train 

from Minneapolis to Chicago on the Sioux Line, gotten in yesterday 

morning, and then left on a train on the Pennsylvania Railroad to 

come in to see you this morning at 7:30 on a Pullman service. Just 

one example of how things have changed. The first consumer-initiated long-distance telephone call was completed in 1951. Blackberry back then was a jam. And about the time McCarran-Ferguson was passed, tuberculosis was one of the largest causes of 

death in the United States, surpassing cancer. 

Another change is the case of health insurance. Today just over 

55 percent, or more than half of all Americans, with private insurance get it through large employer-funded plans, as we know 

through ERISA. This came from 1978 legislation. They exempt 

them from McCarran-Ferguson. That means that all State-specific 

insurance mandates are not enforceable to the majority of Americans. For those in political science, the median voter does not apply 

to the majority of Americans because of ERISA. 

Economists like to measure the value of goods and services as an 

opportunity cost, that is, the cost of foregoing alternatives. A moderate estimate of the opportunity cost of not being able to buy insurance across States lines completed in a study by myself and colleagues at the University of Minnesota—Roger Feldman, Jean 

Abraham and Yi Xu—estimates that between 10 to 15 million people could buy insurance if they were to purchase insurance across 

State lines under different policy assumptions. The one that we focused on was a moderate estimate, where people can focus on four 

regions where States most likely to be chosen would be Alabama, 

Arizona, Nebraska, and New Hampshire. Even if you were to basically concentrate the enforcement mechanisms of the five largest 

States in the union, you would be looking at 7 million people that 

would now have health insurance. 

Buying health insurance across States lines is not a new policy. 

Members of Congress have brought this proposal forward. With the 

use of the Internet, it is easy to see intuitively why this policy 

makes some sense. On ehealthinsurance.com, a family of four of exactly the same age and gender profile in eastern Pennsylvania, say 

New Hope, Pennsylvania, in Bucks County, will have a premium 

half of what an identical policy would cost just across the Delaware 

River in Lambertville, New Jersey, and I applaud what you are 

doing, Governor Corzine, to change that situation but it is true 

today, just if we look today, where those premiums are. I look forward to those changes. 

Purchasing insurance across States lines could be the first pragmatic step toward making the health insurance market work for all 

Americans. It has interesting appeal. It could be immediately acted 

upon with budget neutrality. The policy change is also more consistent with the United States preference for gradual improvements in insurance access. 

There are many serious issues as well. Actually, I want to come 

back to that. People like us are sitting here and have sat here for 

90 years. This is a recurring story. And every time the dial turns, 

another 10 or 15 million or 10 or 15 percent get something. Hopefully we will get more than this time but it is a recurring story. 

36 

It could also be said that the opportunity cost of the legacies of 

1940s legislation may be leading millions uninsured with an emphasis on the word ‘‘insurance,’’ that is, to cover high risk, very, 

very expensive cases such as cancer, not what we see today as 

health plans, which have a very gray distinction between what is 

necessary and unnecessary. Care for catastrophic stuff should be 

covered under insurance. Going beyond that is the moral hazard 

problem that if you actually as I have looked at the data and see 

why our costs grow so much, it is not because of cancer. It is because of our own greed thinking that we can live forever—a personal statement. 

As we look for cures to our health policy concerns and consider 

our national financial resources, particularly in the last few days, 

the research of my colleagues and myself at least offer an opportunity that I think should get some discussion. Thank you. 

[The prepared statement of Mr. Parente follows:] 

STATEMENT OF STEPHEN T. PARENTE

It is well known that small businesses are a critical economic engine of the United 

States. Even more than before, these businesses can be virtual enterprises operating 

in multiple states where human capital expertise is tied together by email, web 

meetings, air travel and build to order service support and manufacturing. One visit 

to a web site today can equip an entire multi-state start-up with vital technology, 

banking services or travel arrangements. But with health insurance, the situation 

is quite different. 

Currently, a small company or individual can only buy insurance offered in the 

state where they live. This policy stretches back to a Supreme Court ruling in 1944 

(United States vs. South-Eastern Underwriters Association (322 U. S. 533)) finding 

insurance was not commerce under the law rested with Congress, and that the 

Court would follow the lead of Congress. As a result, on March 9, 1945, The 

McCarran-Ferguson Act was passed by Congress. It allows state law to regulate the 

business of insurance without federal government interference. As a result each 

state’s insurance commissioner, or like official, would be responsible for oversight 

of insurance company practices, including fair and timely payment as well as premiums. This affects the provision of all insurance, not just health insurance. 

The policy makes sense in the context of consumer protection, but life has changes 

a lot since tuberculosis was one of the largest causes of death in the United States 

and the majority of interstate travel occurred on overnight trains. How much 

change? In the case of health insurance, just over 55% or more than half of all 

Americans with private insurance get it through large employer funded plans that 

have been exempt from McCarran Ferguson since the 1978 Employee Retirement 

Income and Security Act. That means all those state-specific insurance mandates 

like ‘no drive-by deliveries’ are not enforceable to the majority of Americans. 

Economists like to measure value of a good, service as opportunity costs, the cost 

of forgone alternatives. A moderate estimate of the opportunity cost of not being 

able to buy insurance across state lines is 10.5 million uninsured per year. These 

estimates are based on a study recently completed by myself and colleagues Roger 

Feldman, Jean Abraham and Yi Xu at the University of Minnesota (see: http:// 

www.ehealthplan.org). The estimate assumes people will buy insurance in one of 

four regions where one state has the lowest regulatory burden in terms of coverage 

mandates, guaranteed issue of insurance and community rating of premiums. Those 

four states are Alabama (South), Arizona (West), Nebraska (Midwest) and New 

Hampshire (Northeast). Other models assume only the five largest states are available for interstate insurance offers and find a moderate estimate of 7 million newly 

insured. 

Buying health insurance across state lines is not a new policy proposal. U.S. 

House of Representatives and Senate members have advocated this policy in repeated legislative sections. With the use of the Internet, it very easy to see intuitively why this policy would make sense. On ehealthinsurance.com, a family of four 

with exactly the same age and gender profile in eastern Pennsylvania will have a 

premium half of what an identical policy would cost just across the Delaware in 

Washington Crossing, NJ. 

37 

Purchasing insurance across state lines could be the first pragmatic step toward 

making the health insurance market work for all Americans. It has interesting appeal. It could be immediately acted upon with budget neutrality. The policy change 

is also more consistent with the Unites States preference for gradual improvements 

the health insurance access. There are many serious issues as well such who would 

be ultimately accountable for consumer protection. At best it would be two states, 

but coordination could be onerous. It is understandable why state specific preferences have played such a major role. But it can also be said that the opportunity 

cost from the legacy of 1940s era legislation are millions of uninsured left to live 

(and perhaps die) from personal distress and devastation. As we look for cures, and 

consider our national financial resources—this policy option needs more serious consideration. 

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Mr. PALLONE. Thank you. 

Mr. Holland. 

STATEMENT OF E.J. HOLLAND, JR., SENIOR VICE PRESIDENT, 

HUMAN RESOURCES AND COMMUNICATION, EMBARQ 

Mr. HOLLAND. Thank you, Mr. Chairman, Ranking Member Deal. 

My name is E.J. Holland, Jr., although most people call me Ned. 

I am senior vice president of human resources and communications 

at Embarq in Overland Park, Kansas. We are the fourth largest 

telecommunications company in this country, I think AT&T, 

Verizon, Qwest, and then Embarq. We are fourth. We are usually 

before the members of this committee on other issues. We are 

pleased to be here today with respect to healthcare issues, about 

which we feel strongly and about which I personally have a strong 

interest. 

I want to thank the chairman particularly and the members of 

his able staff for the personal courtesy they have shown me as I 

have come here today. I couldn’t have felt more welcome and I appreciate it. 

I have been working on these issues, Mr. Chairman, for the better part of 40 years. That may mean I should get out of it and perhaps they could be solved. I am not sure I have had that much impact. I particularly appreciate today that you have included an employer on the panel. All too often in these kinds of events, I see 

academics and healthcare people and theorists and not people who 

actually write some 60 percent of the checks that are written to 

pay for this system in the country. But while I am an employer, 

I also want to observe that I have spent better than 30 years on 

the board and served as chairman of the public hospital system in 

Kansas City, Missouri, Truman Medical Center, so I come with a 

view towards covering the indigent and the uninsured, and I currently serve on the board of the Kansas Health Policy Authority, 

where we are responsible for all healthcare purchasing in the State 

of Kansas, all Medicaid and all state employee healthcare purchasing, an innovative approach that Kansas has taken out in the 

plains. 

I have a fairly diverse background, therefore, and I come at this 

issue with my conflicts in my mind but I am persuaded that reform 

of the healthcare system is of critical importance to my shareholders, my employees, my company, and indeed to the United 

States. It has become a burden on a number of industries. It causes 

chaos in industries. I think of steel and I think of the auto companies. It is well on its way to causing chaos in the telecommunications industry. 

From my perspective as an employer, I can tell you that the current system harms American business as it struggles to stay competitive with the rest of the world and it harms those of us who 

do the right thing already as we struggle to remain competitive 

with people who don’t do the right thing even here in the United 

States. So on two counts, we are behind the eight ball, if you will. 

The problem is far larger and more complex than we can solve at 

Embarq or that employers and employer groups I belong to can 

solve. We need the help of several States. I would join Governor 

Corzine’s suggestion that the States can be creative in laboratories. 

70 

I agree with that. I would observe that and urge you not to 

villainize employers. It is we who provide a great deal of the 

healthcare in the country. We are there as an accident of history. 

Wage and price controls in the 1940s and World War II are what 

caused employers to be where we are today, but we are where we 

are and we try to deal with it on a daily basis. 

I will tell you that we have every bell and whistle you can think 

of in our healthcare plans. We do all the right things with respect 

to wellness and preventive care and the like and still I am facing 

a $20 million deficit this year. That may seem like much in the federal budget but it is a lot in my budget and I am responsible for 

trying to cure it. 

We believe that cost is critical. Keeping the employers in the system and assuming that we can just pick up cost increases year 

after year just won’t work. No other part of my budget went up this 

year. No other part of my budget will go up next year. That is true 

of my colleagues. And we hear the stories that Chairman Dingell, 

I believe, talked about, how much healthcare the auto companies 

pay as compared to how much steel they buy or how much coffee 

Starbucks buys as compared to how much healthcare it buys. Well, 

we are well on our way in my company. My CFO observed to me 

the other day that if I don’t stop—he looks to me to do it—the escalation of healthcare costs, we will be spending more on healthcare 

than we do on information technology, and as you know in our industry, information technology is the core of what we do. It can’t 

be that way. 

I have listed in my prepared testimony that has been submitted 

already, Mr. Chairman, four areas in which I would urge the committee to pay some attention. One, we need to invest in information 

technology for healthcare. We need to arrest the growth in other 

parts of the system and we do invest in things that are productive 

of better diagnostics and better record keeping. The notion of individual electronic medical record is long since overdue. If we did 

technology at Embarq like the healthcare system is doing, then I 

am afraid, I don’t mean to be disrespectful, but we would be giving 

you tin cans strung together with twine to do your communications. We just can’t continue to function in this fashion. 

Second, we really believe we need national quality standards, 

and I have heard several people talk about that, and I won’t repeat 

that. It is a crime that we have different standards in northern 

Maine and southern California, different standards for minorities 

and majorities, different standards for men and women. That can’t 

continue. 

We believe we should create better physician reimbursement systems. I won’t burden you with that. It is in my written testimony. 

And finally, we do think overall what is critical is to expand the 

participation pool. Everyone must be in the system. That is the 

way ultimately to level the costs and to share the costs of the social 

contract, the fabric of that social contract in the country. And to 

do that will take standards at the federal level. We would like to 

be able to experiment in Kansas along with Massachusetts and 

New Jersey. 

Mr. PALLONE. I have to tell you, you are a minute over. 

71 

Mr. HOLLAND. And I will stop, Mr. Chairman. Thank you for 

your courtesy. We appreciate your attention to this issue. It is critical for us and you know it is critical for the country. 

[The prepared statement of Mr. Holland follows:] 

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Mr. PALLONE. Thank you so much. I really appreciate your input 

on the employer’s situation particularly. 

Ms. Owen. 

STATEMENT OF PATRICIA OWEN, PRESIDENT AND 

FOUNDATION, FACES DAYSPA, THE VILLAGE AT WEXFORD 

Ms. OWEN. Thank you, Chairman Pallone and Ranking Member 

Deal, members of the committee. My name is Patricia Owen. I am 

the owner of FACES DaySpa, a 23-employee small business specializing in professional spa services located in Hilton Head Island, 

South Carolina. I am also here on behalf of the U.S. Chamber of 

Commerce and serve as a member of its council on small business. 

I commend the committee for its interest in having this hearing. 

As owner of FACES DaySpa since its inception of 1983, I have 

guided my company from a small boutique to its current status as 

a nationally renowned, award-winning business. Back when my 

husband and I decided to move to Hilton Head Island, we used our 

hard-earned savings to open FACES boutique. What began as a 

small mom-and-pop business has now become one of the most extensive day spas in the Southeast. As owner of FACES, one of my 

most important duties is to attract and keep highly qualified employees. I find healthcare coverage is the most sought-after benefit 

that an employer can offer. Even so, in this salon and spa industry, 

it is rare that employers offer any form of healthcare options. 

So almost 5 years ago, I took the plunge with a traditional PPO 

healthcare coverage plan that I made available to full-time employees working 40 hours a week. My company picked up $200 a month 

of the cost of the premium and my employees were responsible for 

the balance. However, this first plan was not well received by the 

employees. Premiums of older workers were more expensive than 

those of the younger ones, causing them not to participate, and the 

younger workers felt they had little incentive to participate in the 

plan. As a result, out of my 23 employees, only six took advantage 

of the benefit. Also, like most small business owners, I was faced 

with the challenge of soaring annual increases along with the challenge of seeking ways to contain spiraling costs. 

Almost a year ago, I was told of some new alternatives that were 

being made available to small businesses in my area. I decided to 

review new strategies concerning coverage with my employees to 

determine if there was a plan that was more suitable to their 

needs. Since ultimately I wanted my employees happy with the end 

result, I made sure all of them were involved in the process and 

the final decision. What we decided on was a high-deductible 

health savings account, HSA, plan. The plan offers a $3,000 individual deductible and a $6,000 combined family deductible. I 

agreed to pay 50 percent of the premium, which amounts to $163 

per month for each of my employees. I also agreed to reduce the 

requirement for participation to a minimum 30-hour workweek. 

Then participation soared. Even though the cost I paid per employee has gone down, my total cost has increased substantially because of increased staff participation but having an HSA high-deductible option is a win-win for both me and my employees. I am 

able to offer an affordable option, my employees have a comprehenVerDate Nov 24 2008 14:05 Dec 29, 2010 Jkt 037690 PO 00000 Frm 00099 Fmt 6633 Sfmt 6633 P:\MY DOCS\HEARINGS\110-150 CHRIS
94 

sive health insurance policy and I am able to pay 50 percent of 

their premiums. 

I am not alone as a small business owner struggling to provide 

health insurance. Every small business owner I know wants to 

offer affordable, dependable health insurance to their employees 

and the type of flexibility that will keep them competitive in their 

respective marketplaces. To ensure this, we call upon Congress to 

help. 

For years the Chamber and businesses like mine have pushed for 

legislation that would provide relief by letting small businesses 

pool together across State lines to provide cost-effective and accessible insurance through trade and professional associations. By 

being part of a larger group, small businesses would have greater 

negotiating power and would also reduce costs by having uniform 

standards from State to State. Small businesses need the freedom 

to purchase plans that meet their employees’ needs which means 

fewer mandates, less bureaucracy and more flexibility. 

Congress should also consider proposals that would give tax credits to small businesses to help them provide insurance which would 

create a level playing field for individuals and the self-employed by 

giving them deductibility of health insurance premiums. 

While I have mentioned several proposals that will help provide 

some assistance for small business, I also need to discuss the other 

legislative proposals that would drive down costs and lead to improvements through our healthcare system including the need to 

promote the widespread adoption of health information technology 

and to reform our medical liability system. 

In conclusion, I encourage Congress to take note of the success 

that many employers and employees are experiencing by changing 

our focus from sick care to true health care. Proposals that would 

offer tax credits to employers who provide comprehensive wellness 

programs for their employees would be a great help in promoting 

these efforts. 

Thank you for the opportunity to testify today. 

[The prepared statement of Ms. Owen follows:] 

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Mr. PALLONE. Thank you, Ms. Owen. I particularly appreciate 

your explaining just how it works, you know, what the direct impact is on the employees. 

Ms. Pollitz. 

STATEMENT OF KAREN POLLITZ, M.P.P., PROJECT DIRECTOR, 

RESEARCH PROFESSOR, GEORGETOWN UNIVERSITY 

HEALTH POLICY INSTITUTE 

Ms. POLLITZ. Thank you, Mr. Chairman, Congressman Deal. 

Good morning, members of the subcommittee. I am Karen Pollitz 

and I direct research on private health insurance at Georgetown 

University’s Health Policy Institute and I will focus my remarks 

this morning on private health insurance and the role it might play 

in any health reform proposal. 

Mr. Chairman, we buy health insurance in case we get sick. 

Therefore, how private health insurance works for us when we are 

sick is of the utmost concern. In order for insurance protection to 

be meaningful, it has to satisfy four tests. It must be available, 

adequate, and affordable always, and too often today private health 

insurance fails one or more of these tests. We have to do better. 

First, coverage must be available. That means we have to be eligible to enroll. Today the vast majority of uninsured people work 

but are ineligible for either job-based coverage or Medicaid or other 

public programs so their option is individual health insurance. 

However, this coverage is medically underwritten in most States 

and so you are not eligible if you are not in perfect health. Cancer, 

diabetes, heart disease, pregnancy, and many other conditions will 

render you uninsurable, and even minor health conditions like hay 

fever or acne can get you into trouble. If we want health insurance 

to be available to people when they are sick, we need regulation 

to require that all policies be sold all the time on a guaranteed 

issue basis. 

Second, health coverage must be adequate. The measure of adequacy is the out-of-pocket costs for medical care that people must 

pay after their insurance has contributed. Too often today, health 

insurance is inadequate. Medical debt and medical bankruptcy are 

primarily problems of the insured. A recent Commonwealth Fund 

study found that the number of underinsured Americans has grown 

60 percent since 2003. Numerous health plan features can leave 

people inadequately covered, especially in the individual health insurance market. In particular, preexisting condition exclusion periods will carve out the very coverage that people need most. Barebones policies that don’t cover doctor visits, chemotherapy, mental 

health care, maternity care, or prescription drugs are also problematic. Very often, cost sharing for covered services is what gets people into trouble. High deductibles are one obvious cost burden but 

so can be even most copays. Don’t forget that the majority of 

healthcare spending is due to chronic conditions, and for these patients, cost sharing can be relentless. So, for example, over the 

course of 18 months of active treatment, a breast cancer patient 

might have as many as 180 doctor visits and outpatient therapies 

and need as many as 40 prescriptions and refills. A $25 copay for 

each of these would total more than $5,000. 

103 

Adequacy of health insurance can be addressed through regulation. We have to rethink our definition of private health insurance. 

Under federal law, the definition of health insurance is pretty 

much anything a health insurance company sells. We need a better 

outcomes-based definition. A policy that leaves you bankrupt or in 

debt if you have a baby or cancer or heart attack should not be allowed to be called health insurance. 

Third, insurance premiums have to be affordable. Plenty of policies in the individual market today sell for less than $100 a month 

but only because coverage is skimpy and sick people aren’t allowed 

to buy them. If we want insurance to cover people and the care 

they need, it won’t be inexpensive and many people will need subsidies, significant subsidies in order for their coverage to be affordable. In addition to subsidies, regulation is needed to prevent insurers from varying premiums based on health status, age, gender, 

and other factors. The experience of the tax credit we have today 

for health insurance, the health coverage tax credits, is instructive. 

Under that law, coverage can be made available to people and eligible for the credit that isn’t subject to any rating rules. In the State 

of North Carolina, one insurer charged more than $3,900 per 

month for an HCTC-eligible policy for a 55-year-old in poor health. 

Even with a 65 percent subsidy, few could afford to pay the rest. 

Finally, health insurance must be available, affordable, and adequate all of the time, and here again, rules will be needed so that 

people can not only get coverage but keep it. Especially in the individual health insurance market, it can be very hard to remain covered once you get sick. If cherry picking describes the practices the 

insurers use to select only good risks at the outside, then lemon 

dropping might be used to describe practices to shed risks once 

they are enrolled. Premiums can take off at renewal when companies use durational rating or when they close a product to new policyholders, stranding the in-force enrollees in a dwindling pool 

whose premiums just climb. Recent press accounts have also 

taught us about the practice of post-claims underwriting under 

which policyholders who make claims may be re-investigated to determine whether the insurer can avoid paying the claim. These investigations are defended as necessary to defer fraud but abuse of 

insurer practices has also been documented including accounts of 

one carrier that paid bonuses to staff based on how many individual policyholders were dropped and how much money was 

saved. 

Mr. Chairman, I acknowledge that regulation isn’t always very 

popular and I just have ticked off a pretty good list of rules, but 

believe me, these are necessary, and in fact, I should probably add 

a fifth A to my list, accountability. If we want to expend health insurance coverage and retain a role for private insurance companies, 

particularly in the individual market, you will need much tighter 

regulation that you have today. Even under health reform with 

mandate for everyone to have coverage and generous subsidies, the 

incentive to cherry pick and lemon drop will continue. 

Make no mistake, there will always be an incentive for insurers 

to avoid that small minority of us who account for most healthcare 

spending and at some point all of us will spend some time in that 

104 

minority. Strong national federal standards for health insurance 

will be critical to ensure that all Americans—— 

Mr. PALLONE. Ms. Pollitz, you are a minute over. 

Ms. POLLITZ. And I am winding up. We will also need the expertise and capacity of state regulators to help enforce and monitor 

strong national protections. It is time for this Nation to move 

ahead on a program of healthcare to ensure that coverage is always 

available, afford and adequate for all of us. Thank you. 

[The prepared statement of Ms. Pollitz follows:] 

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Mr. PALLONE. Thank you, and I know you have been here on 

other occasions and we always like to hear from you, believe me. 

Thank you. 

Dr. Davis. 

STATEMENT OF KAREN DAVIS, PH.D., PRESIDENT, THE 

COMMONWEALTH FUND 

Ms. DAVIS. As members have stressed today, it is important to 

lay the foundation for health reform, and in doing that, I think it 

is instructive to look at the 40-year history of Medicare and Medicaid and our 10 years of experience with SCHIP, the State Children’s Health Insurance Program. These programs cover America’s 

sickest and poorest individuals, people who do not fare well in the 

private insurance market. Currently more than one in four Americans are covered under public programs. 

As the Nation moves to cover the uninsured, preserving a mixed 

private-public system of coverage has many advantages. First of 

all, it minimizes disruption in current sources of coverage, but most 

importantly, it can build on both the strengths of public programs 

and private coverage, and it requires only minimal new administrative structures. 

To turn to public programs, they are especially valuable components of health reform. First and foremost, they have low administrative costs. They have a track record of providing access to needed healthcare services for those who are most difficult to serve. 

Medicare in particular is an ideal coverage source for older and disabled adults in the two-year waiting period for Medicare because 

these individuals will soon be eligible for Medicare and they typically cannot find coverage in the individual insurance market since 

insurers have a strong financial incentive to restrict enrollment or 

limit benefits of those with health problems. Opening up Medicare 

to older adults and the disabled in the 2-year waiting period has 

many advantages. It helps them get affordable coverage but it also 

helps prevent health conditions from deteriorating and resulting in 

even higher costs to Medicare once they do become eligible, and 

work that we have funded at the Commonwealth Fund and published in leading medical journals has documented that. Medicare 

beneficiaries report high satisfaction with their coverage and their 

ability to access healthcare services. 

Medicaid and SCHIP are also ideal sources of coverage for lowincome adults and children. They often serve as a source of coverage for many of the Nation’s most seriously disabled, children 

with developmental disability, HIV/AIDS, frail elders, and others. 

States have been successful in reducing the rate of uninsured children since the SCHIP program was enacted in 1997. States’ ability 

to do this, however, depends on how the economy is doing and may 

be subject to retrenchment in economic downturn, and as Governor 

Corzine pointed out, it is very important that the federal matching 

rate for Medicaid and SCHIP increase and be adjusted automatically with rates of unemployment. 

Private employer coverage is also very important to the American health insurance systems. It covers 160 million working Americans and their families. Employers tend to pick up 75 to 80 percent of the premium. However, it is the small business sector 

120 

where coverage is eroding and in part that is because small firms 

cannot get the same premiums that are available to large firms for 

the same benefits. 

For those individuals whose only recourse is the individual insurance market, as Karen Pollitz has pointed out, availability and affordability depend on State regulation. Our studies show that nine 

out of ten people who look for individual health insurance don’t buy 

it. They don’t buy it because it is not available to them, they can’t 

afford it, or it doesn’t meet their needs. So we do need a set of national rules and a national insurance connector that assures affordability for coverage. 

Congress can take steps now to lay the foundation for broader 

health reform. These include leverage Medicare’s position as the 

largest payer for healthcare, to improve healthcare quality, and address the rise in healthcare costs that have been mentioned by a 

number of our panelists. It can also strengthen Medicaid and 

SCHIP as the basis for coverage for all low-income children, and 

I would say adults, reforming individual markets and making affordable insurance options including a public insurance option modeled on Medicare available to small businesses and individual 

through an insurance connector. 

A mixed private-public system of universal coverage featuring 

seamless coordination across sources of coverage could transform 

both the financing and delivery of healthcare services. Such a system would build on the best that both private insurance and public 

programs have to offer while achieving needed savings and ensuring access to care for all. 

Thank you. 

[The prepared statement of Ms. Davis follows:] 

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Mr. PALLONE. Thank you, Dr. Davis. 

Mr. Fox. 

STATEMENT OF WILLIAM J. FOX, F.S.A., M.A.A.A., PRINCIPAL 

AND CONSULTING ACTUARY, MILLIMAN 

Mr. FOX. Hello. I was invited here to talk about the cost shift 

from Medicare and Medicaid and the impact that has on private insurance premiums. I am from Milliman. We are the largest actuarial employer in the country. We are very focused on our independence and not advocating advice. I will just give you some numbers and not with a specific slant on them. 

We have completed cost-shifting studies for Arizona, California, 

New York, and Washington. We are currently working on a study 

in Oregon and a nationwide study. So I have a PowerPoint I was 

told that might come up but I don’t know that it will, but anyway, 

you guys probably have handouts. My presentation is going to 

cover four main points: what is the cost shift; how large is the cost 

shift; what is the impact of private insurance premiums and what 

are the trends; where is this going. 

So what is cost shifting? In most areas of the country for the 

same service, private health insurers pay a lot more than Medicare, which pays more than Medicaid. So in other words, if Medicare and Medicaid paid higher rates, the private payer rates could 

come down and private insurance premiums, so we should be on 

the fourth slide now. If Medicare and Medicaid could pay more, the 

private is that correct payers could pay less and private insurance 

premiums would be lower with the providers, the hospitals and 

physicians, still making the same income. So some consider this to 

be a cost shift to a hidden tax, that effectively employer groups and 

privately insured people are subsidizing Medicare and Medicaid. 

So how large is the cost shift? So to quantify that, I will warn 

you, this is a sample based on the four States for hospital and 

three States for physician so the variability from State to State is 

tremendous and can be very significant. But these are generally 

pretty indicative of what is happening. On the hospital side, what 

we are showing here that if a hospital has an average cost of let 

us say an X-ray, it is $100, then the commercial or private insurance payers are paying about $115.90, and for that same average 

$100 cost, Medicare is paying about $90 and Medicaid is paying 

about $86.50, so 131⁄2 percent less there in your chart. On the physician side, there is no fixed cost, but if we take the average reimbursement that physicians get, they are getting about $100 on average let us say for an office visit and they are going to get about 

$110 from the private payers, about $90 for Medicare and only $76 

from Medicaid. 

Going on to the next one, so how does that cost shift impact the 

private insurance premiums? Well, using California as an illustration, we have a total annual premium of $13,800. That is an annual premium for a family, employee, spouse, and children. The 

cost shift is about 12.2 percent of that, or $1,690. You can see the 

breakdown in the graph there. The employers pay most that, as 

Karen just said, 75, 80 percent, $1,234 is paid for by the employer. 

This is just the portion that is due to the cost shift so this amount 

would be reduced if there was no cost shift from Medicare/MedVerDate Nov 24 2008 14:05 Dec 29, 2010 Jkt 037690 PO 00000 Frm 00182 Fmt 6633 Sfmt 6633 P:\MY DOCS\HEARINGS\110-150 CHRIS
177 

icaid. And $456 is paid for by the employee. But on top of that, the 

employee’s coinsurance and deductibles, other things are also increased, so $298 comes from the cost sharing for that employee. 

So how is the cost shift changing over time? This is a really powerful graph that if you can see it is reducing—what happened in 

the 1990s with managed care, the cost shift reduced and things 

came together and now it has been spreading apart. And what happened there in the 1990s was not that Medicare and Medicaid increased their payments, it was that the commercial private payers 

reduced their payments. There was a lot of competition and the 

hospitals and physicians managed to lower their costs or lower 

their reimbursement so that then they made more on Medicaid and 

Medicare. Now, what has happened since then is either the cost 

pressures or other things which were not—I am not getting into 

the solutions just quantifying the numbers, you can understand 

them, is that since then the costs have been higher than the Medicare and Medicaid increase and its leverage effect to increase that 

cost shift. This is well illustrated on the next slide, which shows 

that if you have a 5 percent cost so the hospitals, let us say they 

have a 5 percent increase in their cost, and Medicare only pays 

them 3 percent, an increase, and Medicare pays them a 2 percent 

increase, then the commercial private insurance payers, they have 

to pay 7.3 percent for that hospital to get the 5 percent. And that 

is really how the hospitals negotiate. I do a lot of hospital contracting work. They are out there saying here is our bottom line, 

here is what we are getting, you guys have to pay us the rest, and 

that is what contributing to the high increase in commercial health 

insurance and part of the cost there. 

And the last slide I have is just to illustrate some of the variance. This is the hospital margins by State. Again, we are mixing 

different States, different years. We are putting out a national 

study in the next couple of weeks sponsored by a few large groups 

but it is important to know that this is very different from market 

to market, even with a State. I have done some work in Pennsylvania where some parts of Pennsylvania they make money on 

Medicare, the hospitals do, and some parts they lose a lot of money 

and so the cost shift and commercial insurance premiums are a lot 

higher. 

Thank you. 

[The prepared statement of Mr. Fox follows:] 

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Mr. PALLONE. Thank you, Mr. Fox. 

Mr. Bachman. 

STATEMENT OF RONALD E. BACHMAN, F.S.A., M.A.A.A., SENIOR 

FELLOW, CENTER FOR HEALTH TRANSFORMATION 

Mr. BACHMAN. Thank you. My name is Ron Bachman. I am an 

Actuary and a Senior Fellow at the Center for Health Transformation. Americans know that a solution is needed to the 47 million people who are uninsured. Any solution must include the sickest among us. No one can be left behind. Any system that works 

only for the young, healthy, and wealthy is a system destined to 

failure. 

According to the Institute of Medicine, 18,000 people die every 

year because they are uninsured. Uninsured adults have a 25 percent greater rate of dying than adults with insurance. Simply put, 

insuring all Americans is a moral imperative. Addressing the uninsured is also an economic development opportunity. Uninsured 

adults have more absences from work, more unscheduled sick days 

and greater rates of disability. Eight out of 10 uninsureds are in 

working families. The great job creation machine in this country is 

small business yet 65 percent with fewer than 10 employees do not 

even offer health insurance. Many more Americans are only a pink 

slip away from losing their jobs and their health insurance. 

The uninsureds are a symptom of a dysfunctional system. Focusing on the uninsured rather than arguing over general market reforms, I believe, will lead us to new solutions. We have an outdated 

legal and regulatory environment with unintended consequences 

that makes little sense to the average citizen. For example, it is illegal for small groups to provide financial rewards to a diabetic following doctor’s orders or incent individuals with financial rewards 

for healthy behaviors such as wellness, prevention, and early intervention. States add a sales tax to every policy sold, amounting to 

2 or 3 percent or more of the premiums. These added taxes only 

make insurance more unaffordable and increase the number of 

uninsureds. In 24 States, it is illegal for small employers to contribute to the purchase of individual policies through the use of tax 

advantaged Health Reimbursement Arrangements. 

It is generally illegal under federal law for an unemployed worker to use accumulated HSA savings to pay for health insurance 

premiums. It is illegal under federal law to provide separate prescription drug benefits under high-deductible health plans. It is illegal under federal law for personally contributed but unused 

Flexible Spending Account funds to accumulate over time. These 

are multiple account designs with confusing rules and requirements that make no sense to the average citizen. 

A collaboration of key stakeholders worked last year to develop 

recommendations to lower the uninsured in Georgia by one-third, 

about 500,000 in our State. The collaboration efforts succeeded. On 

May 7, 2008, Georgia’s Governor Sonny Perdue signed into law 

health insurance reform legislation that allows insurers to develop 

significantly more affordable products for small companies and individuals. The new laws focus on the uninsured working poor as a 

first step. This legislation is estimated to bring an annual increase 

to economic value to Georgia of $1.9 billion. 

219 

The key to success was moving beyond the first generation HSAeligible plans to a new generation of consumer-oriented products. 

Critics have concerns regarding coverage under HSA-eligible plans. 

The required upfront deductibles have been a problem for many. 

With new generation plans, these concerns are substantially moderated and potentially eliminated. The new Georgia law is a market-based individually centered package of reforms that eliminates 

outdated insurance laws that unintentionally limited the offering of 

affordable insurance. The new law allows financial dividends to be 

placed into Health Savings Accounts for engaging in wellness, prevention, and treatment compliance. Rewards and incentives paid 

into the HSA by insurers can reduce or eliminate the entire deductible otherwise payable by the patient. Affordability is no longer the 

dollars you take out of your pocket to pay for an insurance premium. Affordability is also achieved through healthy choices and 

behavior changes. 

Georgia eliminated all State and local sales tax on HSA-eligible 

plans. As an incentive to offer insurance, companies with fewer 

than 50 employees are granted a $250 tax credit for each employee 

enrolled in an HSA-eligible plan. For individual insurance buyers, 

there is a special Georgia income tax deduction for premiums associated with the purchase of an HSA-eligible plan. The new Georgia 

law makes it legally clear that there is an option for small employers to contribute tax advantaged HRA dollars to employees for the 

purpose of buying individual portable health insurance and/or paying for health expenses. Soon Georgians will see products at a fraction of their current cost. The old complaint that HSA-eligible 

plans are simply high-deductible coverage only for the young, 

healthy, and wealthy is addressed with these new generation products that are allowed under Georgia law. 

Georgia is reflective of a much broader change afoot in this country that is unleashing the creative spirit, the entrepreneurial spirit 

of Americans to solve the uninsured problem. The process has 

started. The foundation blocks are bipartisan collaboration, support 

at the federal law, reform at the state level, creative product development, and citizen involvement in their own health and 

healthcare and empowered financially with information and 

choices. 

The mission is clear: insure all Americans by 2012 in a 21st century intelligent health system. The questions are: who will help, 

who will hinder, and who will be willing to give power to consumers over their most precious asset, their health. Thank you. 

[The prepared statement of Mr. Bachman follows:] 

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Mr. PALLONE. Thank you, Mr. Bachman, and I want to thank all 

the panel for being here today. Now we are going to questions and 

I will start with myself, and I wanted to ask my governor, one of 

my colleagues up here mentioned your being unique because you 

were a Senator for a number of years and now you are the governor of the State, and I know you talked about, we all know about 

your efforts to try to expand, to do health reform, to expand coverage on the State level. But you have often talked to me about 

how difficult that is or the challenges that exist if there isn’t federal help. So my question really is, what are those challenges? I 

mean, how difficult will it be for New Jersey to expand coverage 

and maybe even ultimately get to have everyone covered without 

the help of the Federal Government and how can the Federal Government help? 

Mr. CORZINE. Well, I think the panel discussion that you have 

heard here tells you one of the reasons why the Federal Government I believe needs to be involved. You need some kind of baseline standards with regard to a whole set of issues. I don’t look forward to having preemption of the States of higher standards that 

might be set in any State but you need to be able to be assured 

that the quality of coverage from one place in Lambertville versus 

Bucks County is actually not going to end up having cost shifts 

onto emergency room care. Without some kind of baseline standards with regard to electronic medical record, we are not going to 

be able to build a national system that makes any sense. Preventative care and all of the other issues I think are going to need some 

common baseline activity. 

Now, the initiatives of the Federal Government if you are a believer that they are good things, like Medicaid, Medicare, SCHIP, 

are going to require that there be a continuation of real federal financial support to be able to actually execute what is said. Otherwise what has happened in New Jersey in two different downturns 

already over an economic cycle, we end up rationing against what 

our capacity to be able to pay is and so you get an on-again, offagain implementation of SCHIP in its activities or a change in 

Medicaid copayments, which ends up rationing in a back-door way. 

We need some consistency in the financial flow from the Federal 

Government if we are going to be able to do it and particularly 

with respect to building the universal plans that we are trying to 

put together in the States. There is great flexibility shown by HHS 

with Massachusetts in shifting around how federal dollars that 

came to the State would be used and applied for purposes of it. 

Without that kind of flexibility for the different terms and conditions that we all face in different States—we have a high cost of 

living. I know there will be people that will complain that we go 

up to 350 percent of poverty but the cost of living in New Jersey 

is entirely different. Fifty thousand dollars of income for a family 

of four gets you way over spending a third of your dollars on housing in almost any situation, and it is incredibly important to maintain those flexibilities. 

So, it is a longwinded answer saying we need baseline levels of 

requirements from the Federal Government. We need a real partner in finance and we need stability in how that is going to work. 

FMAP ought to be something that is an automatic stabilizer in my 

225 

view because you get every State backed into a corner that they 

end up having to cut healthcare expenditures at the very worst 

time. 

Mr. PALLONE. Thank you, Governor. Yesterday we had a markup 

in the full committee and Mr. Deal talked about performance transparency, and I mentioned to him afterwards that there are various 

ways of dealing with hospital costs and particularly for the individual, and I mentioned that you recently signed into law a series 

of bills that reformed the way hospitals operate and one of those 

restricted the ability of hospitals to overcharge uninsured patients, 

which apparently was a common practice in New Jersey. Can you 

just talk about how uninsured patients were being disadvantaged 

and what steps, how that bill is trying to rectify that problem? 

Mr. CORZINE. Well, Mr. Fox talked about this. This is cost shifting. If you aren’t making enough money in one place and you have 

to survive, you end up placing it into the individual market, and 

what is even worse, you shift to the uninsured in a most exceptional way, hoping or expecting that you are going to get reimbursed on charity care or indigent funding, and it happens. People 

who manage the hospital systems understand this and it ends up 

being incentivized by how we are working. That is why we thought 

it would be very important reform that no one who is uninsured 

could be charged more than 115 percent of the Medicare charges 

for a particular function because you were seeing dramatically different charges for people who were insured often at that $100 that 

Mr. Fox talked about as he tried to describe the system. It needs 

to be done. There have to be all kinds of other transparency issues. 

You need Sarbanes-Oxley. I happen to be in favor of those kinds 

of things in how we actually manage the affairs of hospitals and 

we have a whole series of steps that we have taken there with regard to reform as well but I think that what we actually want to 

do is get everybody insured so that the shifting around to various 

uninsured segments or lesser insured segments doesn’t end up 

being the person left without a chair at the party. 

Mr. PALLONE. Thank you. 

Mr. Deal. 

Mr. DEAL. Thank you, and thank you, Governor Corzine, for 

leading the effort on transparency. I believe it is truly one of those 

missing elements in the discussions that we have. It is unfortunate 

when the uninsured or the individual who has a Health Savings 

Account or simply wishes to reach in their own pocket and pay for 

healthcare services is the person who pays the very highest price 

or at least is quoted the very highest price if in fact they can get 

a quote. We had the example yesterday, we talked about a young 

man who worked for a Congressman here who had to go in for an 

appendectomy. They thought he was uninsured and he got a bill 

for $19,000 for a one-night stay. When it was finally determined 

that he actually did have insurance, the insurance paid a little over 

$2,100. There is something wrong with that kind of system, and I 

applaud your efforts for leading efforts in transparency. 

Mr. CORZINE. If I may, Mr. Deal, I would also say that is true 

on quality standards. We need transparency with regard to that. 

Mr. DEAL. Here is the champion on that issue right here. 

226 

Mr. CORZINE. I think this is one of those areas though that I 

think there is a baseline, there is a lot of consensus on a number 

of areas where we have to move. Clearly how money flows in this 

system is obviously a debating point but there are a number of reforms that I think Congress can be extraordinarily helpful on if we 

moved in these areas on transparency and reporting. 

Mr. DEAL. One of the big issues of course, and you mentioned it 

in terms of a bump in the FMAP that governors are asking for. My 

understanding is that the State of Rhode Island has now applied 

for a waiver from CMS that would give them greater flexibility as 

to how they administer their program with, I presume, the underlying assumption that if we could just get rid of some of these federal mandates in the Medicaid program, we could take the same 

amount of money and do more effective things like more preventive 

care, things that are tailored better to the needs of our constituents 

in our State. What is your reaction to that kind of an approach? 

Mr. CORZINE. Well, most States would argue for flexibility and 

they ask for waivers for different purposes. We don’t look at some 

of those requirements as so onerous. We look at them more as requirements so we might have a difference of view with how Rhode 

Island did it but we do believe that the States through the administration of this program and these cost-sharing elements that we 

have ought to have the flexibility to try to maximize. Now, whether 

Rhode Island is right and we are right on which ones, which elements of Medicaid ought to be attended to, you know, I will leave 

that to healthcare experts to tell me what is responsible. But flexibility is something that I think all of us are very much in favor of, 

‘‘all of us’’ being governors, and I would support that concept. That 

is actually how the process with respect to Massachusetts mandate 

program has come into place, flexibility on how the money is used 

flowing to the State, and frankly, we have benefited in New Jersey 

because we have had under both Republican and Democratic administrations waivers that have allowed us to structure our program in the context of the needs of our community. 

Mr. DEAL. One of the troubling things when we move from the 

public healthcare arena, whether it be Medicare or Medicaid, into 

talking about private insurance is the issue of mandates and mandates in coverage, and Dr. Parente, you have done extensive looks 

at that and your testimony alludes to it, some of your other documents even elaborate further. One of the illustrations, as I recall, 

and I have it here, is the difference between what somebody who 

is in Washington crossing New Jersey would pay as opposed to 

being across the Delaware River in Pennsylvania and I believe you 

indicated maybe it is twice as much in a private health insurance 

premium. Why is that and what can be done to deal with that? 

Mr. PARENTE. Well, the result was actually driven by two things. 

One is the mandates themselves. Each mandate has an incremental cost to insurance in terms of underwriting. That is just a 

fact in terms of how these policies are sort of written out in terms 

of cost, and if you want to see it, any one of you can just go to 

ehealthinsurance.com, plug in the zip codes, put in your family profiles, that is why I did to sort of personify this or friends of families, and see what things look like. It is remarkable the premium 

differences for identical premium structures, identical meaning the 

227 

same coinsurance level, the same deductible, and even in some 

cases the same plan, United Health or Sigma, offering basically the 

same plan in either State but they have obviously State-specific offices but they are clearly trying to get some economies of scale. It 

is something that actually honestly surprised me how big the difference would be, and to see it actually on the one hand show up 

in theory but also backed up right by the price quotes you are seeing off e-health insurance is validated. Most of the research I do 

doesn’t get validated that easily. 

Mr. DEAL. Thank you. My time is expired. I yield back. 

Mr. PALLONE. Let me just mention to the panel and to the members, we have a vote on the floor and about 12 minutes left. We 

have two votes. We are going to try to do one or two more members 

for questions and then we are going to have to break. I know that 

some of you can’t stay. For those that can, we would ask you come 

back after the votes and continue. 

Next is the gentlewoman from Illinois, Ms. Schakowsky. 

Ms. SCHAKOWSKY. Thank you, Mr. Chairman. 

I wanted to ask you, Ms. Owen, or respond to some of the remarks that you made. I am looking at your employees now that 

you say is a win-win situation and they pay $1,956 a year in premiums, $163 a month, and then a $6,000 combined family deductible. So if someone in the family is sick and they have chosen the 

family plan, before any insurance kicks in, we are talking about 

$8,000, and I completely understand the challenges that small 

businesses have in providing their employees with healthcare and 

I think that is absolutely something that we need to address. But 

to call that a win-win situation, I can’t understand how anybody 

could say having to pay $8,000 before you get any healthcare policy 

that that really works. Have you lost employees as a result if there 

is a health problem? 

Ms. OWEN. No, actually as I said, my employees are the ones 

that listened to all the options that were available. We called in 

our insurance agent and we had a general meeting, and he presented all the different options that are available, and this is one 

they chose. We actually have had hardly any turnover where we 

used to have a lot of turnover so there is much more stability in 

my staffing. Obviously, the hope is that they would fund their savings portion of the HSA, maybe not this first year but as time goes 

on, and in the future as we grow that we could even help them 

fund that. But in general they are very happy with—I guess they 

are very pleased that they have insurance at all, because as I said, 

most—— 

Ms. SCHAKOWSKY. Let me just ask Ms. Edwards, the woman who 

whispered in your ear, would this kind of policy have met her 

needs? 

Ms. EDWARDS. No. I mean, I think that if she had $6,000 to 

spend, she would have been able to get some sort of policy somewhat better than the policy that—$6,000 might have gotten her a 

policy. It certainly would have gotten her a screening at some level. 

But she didn’t have that money to spend. I mean, the point is that 

we have a working mother doing everything basically right but she 

doesn’t have the benefit of having even Ms. Owen as her employer 

so she has no health coverage whatsoever and so her options are 

228 

really closed. I want to say, there is a disincentive too for her to 

get checked because if she gets checked and finds out that in fact 

it is cancer, it makes her almost uninsurable. So there is a disincentive for her to find out even. So she doesn’t have the money 

to spend to buy the insurance. She has a disincentive because of 

the way the system operates to get checked and it puts her on a 

very bad healthcare path. 

Ms. SCHAKOWSKY. I am concerned—you wanted to say something? 

Ms. OWEN. I just wanted to say, I think the benefit for my employees as they saw it was the fact that their wellness visits were 

covered whereas before they had the copay. They really never used 

their insurance and they liked the fact that their wellness visits 

are 100 percent covered, and once they meet their deductible, everything is 100 percent covered. So once they get to that point, sure 

there is a $6,000, $8,000 gap. 

Ms. SCHAKOWSKY. Almost $8,000. 

Ms. OWEN. But then they know that if there is a catastrophic illness, that they are covered, and I think that gives them a level of 

security. 

Ms. SCHAKOWSKY. I am concerned often, and anyone can answer 

this, that we talk about, we divide the world between insured and 

uninsured too much and maybe this is for you, Dr. Davis, because 

as you pointed out, the problem of the millions of people who have 

inadequate health insurance, I think is too often overlooked. I wondered if you wanted to comment on some of the Commonwealth 

findings. 

Ms. DAVIS. Well, absolutely, I think you are right to focus on the 

combination, the deductible, and the premium. Let us face it, the 

premium could be very low if it covered absolutely nothing so the 

real issue is what is the impact on the family. What the Commonwealth Fund survey showed in 2007, first of all, that we have had 

this major jump in people who are underinsured of 60 percent over 

2003 but the underinsured have the same problems as the uninsured, both in terms of having access to care and in terms of medical bills or medical debt that they can’t pay. Sixty-one percent of 

people who are underinsured report difficulties paying medical bills 

or they have accumulated medical debt. Sixty-one percent of the 

uninsured report bills or medical debts. Of those have insurance all 

year long and are adequately insured, 26 percent of those still have 

bills and medical debts. So you are exactly right that being underinsured is no advantage over being uninsured. You can still be 

wiped out financially. People are talking about having these debts 

on their credit cards. They are talking about having added to home 

equity line of credit as a result of these debts. So we need to look 

at the totality, the adequacy of the coverage, as Karen Pollitz has 

said, and the affordability of the premium together and not pat 

ourselves on the back that we have got the premium low but not 

covering anything. That is not the solution. 

Mr. PALLONE. The gentlewoman’s time is expired. 

Ms. SCHAKOWSKY. Thank you. 

Mr. PALLONE. As I said, we are going to recess now. I know that 

not everyone—well, there are only 5 minutes left. I know that not 

everyone can stay but we do want those of you who can to come 

229 

back. We have two votes, so that is about 15, 20 minutes. But the 

committee will stand in recess until the votes are completed. 

[Recess.] 

Mr. PALLONE. The subcommittee is back in session, and we left 

off with Mr. Murphy of Pennsylvania being next for questions. The 

gentleman is recognized. 

Mr. MURPHY. Thank you, Mr. Chairman. I thank the panel for 

returning here. I heard a lot about universal healthcare but heard 

nobody talk about the cost. So I would like to have someone tell 

me how much universal healthcare would cost in this country. Yes? 

Mr. PARENTE. It depends what you are talking about, but—— 

Mr. MURPHY. Just give me a number. 

Mr. PARENTE. Roughly from here on out, probably $700 billion 

per year. 

Mr. MURPHY. Does anybody else have a number on that? 

Ms. EDWARDS. That is if you eliminate the employer-provided insurance. Is that correct? 

Mr. PARENTE. No. That is just—if you really want to cover 45 

million or 47 million people with reasonable medium-sized PPO 

coverage, slightly less than the Blues plan and FEHBP, that is 

about the price tag you are going to run. 

Mr. MURPHY. Ms. Edwards, do you have a different number on 

that? 

Ms. EDWARDS. I think we are talking about $120 billion. 

Mr. MURPHY. Does anybody else have a number on that? 

Ms. DAVIS. We have had Lewen do an estimate of something called building blocks. It is $82 billion a year without system reform, $31 billion federal budget costs a year with system reform. 

Mr. MURPHY. And that means we still have the two-tiered system 

and the private insurance remains in place? 

Ms. DAVIS. That particular proposal brings Medicaid up to Medicare rates and then starts equalizing private insurance and Medicare rates. 

Mr. HOLLAND. Congressman, let me throw, if I may, a slight 

curve to you. We did some work at the Kansas Health Policy Authority, a couple of major foundations funded some work, and we 

did a series of alternative funding methodologies, and I asked them 

to look at what would it mean if we self-insured the entire State 

of Kansas. 

Mr. MURPHY. OK. 

Mr. HOLLAND. And we actually could cut the cost of healthcare 

in Kansas from $8.3 billion by about $800 million. I can provide 

you the detail. I would be happy to send it to you. 

Mr. MURPHY. Well, now, when we look at the 47 million uninsured, one of the constant criticisms about that is those are people 

who also think they are uninsured but they are really on Medicaid, 

people who have options for insurance but they don’t take it, people 

who are between jobs so they temporarily for 30 or 60 days do not 

have insurance. So that 47 million is not an accurate number, and 

I am trying to really figure this out. So when people talk about the 

cost of healthcare in this country as $2.1 trillion, how do we get 

to $700 billion, $120 billion, or $82 billion? I don’t understand that. 

I mean, if we are going to say, OK, we are going to have people 

insured, and this is the thing about this and we talk about MediVerDate Nov 24 2008 14:05 Dec 29, 2010 Jkt 037690 PO 00000 Frm 00235 Fmt 6633 Sfmt 6633 P:\MY DOCS\HEARINGS\110-150 CHRIS
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care overhead is only 3 percent but we find that is a false number 

because doctors are always complaining they are not getting paid 

enough and so they have to find other ways to subsidize this so 

that number isn’t—I don’t know what the real number is. I look at 

the difference here, $700 billion, $120 billion, is a pretty big difference. I mean, I have trouble with CBO scoring things but this 

would be a nightmare. What is the cost of universal healthcare? 

Mr. PARENTE. I could tell you one reason why the 700, why I sort 

of stand behind that number. That assumes basically that an average health plan that everyone has. It doesn’t assume an SCHIP expansion. An SCHIP expansion is going to be far less. It is going to 

come closer to essentially coming up with that cost but keep in 

mind, SCHIP expansion for 47 million people, you will reduce costs 

and you will reduce costs but one of the concerns you are going to 

have is whether the providers will see them on 20-cents-on-the-dollar payment. 

Mr. MURPHY. Well, so you can reduce costs by just saying we are 

not going to pay you? 

Mr. PARENTE. Correct. 

Mr. MURPHY. OK. I mean, I am concerned that one of the things 

I referred to earlier with the problems with safety and quality, 

there is about $400 billion of waste in the system. I know Governor 

Corzine alluded to some of those things and I think it is a massive 

savings we all ought to go after. I am just not comfortable that government could do it. For the last few years I have been fighting to 

have just hospitals report their infection rates. We can’t get it past 

the lobbyists to say that hospitals ought to report how many people 

get infections and get killed. We can’t get it past the Senate to say 

that doctors should be allowed to volunteer. I mean, we can’t get 

through things that say we ought to be able to do disease management, which saves lots of money. We can’t get it through Congress 

to show how we can be doing electronic medical records to save 

$162 billion directly, another $150 million in indirect. So my concern is, when we come up with these numbers, that assumes that 

everything works right, and this is where I struggle with this. But 

let me add a couple more points here. How do we pay for this? 

Mr. PARENTE. The thing that I mentioned to you about covering 

just 10 million people would effectively be free. Now, there could 

be argument about whether or not—— 

Mr. MURPHY. How is it free? 

Mr. PARENTE. You buy insurance across State lines. 

Mr. MURPHY. But what about if the government ran universal 

healthcare? Who would pay for that? 

Ms. EDWARDS. The way we have suggested is that by rolling back 

the tax cut for the people who make over $200,000, one proposal 

$250,000, another not to renew that tax cut would provide a revenue stream with which you could pay for it. 

Mr. MURPHY. How much would that stream be? Do we know? 

Ms. EDWARDS. Is it $180 billion? I would like to be able to modify 

that number when I find out exactly what it is. 

Mr. MURPHY. Well, people in the top 5 percent of income earners 

pay about 60 percent of all taxes in American and the bottom 50 

percent don’t pay—— 

231 

Ms. EDWARDS. That is an ideological argument with respect to it, 

but where the money comes from, that is where the money can 

come from. If I could make one other point, you had said earlier 

Medicare has 3 percent overhead. 

Mr. MURPHY. No, that was what Dr. Davis said. 

Ms. EDWARDS. But you said that is a false number because doctors aren’t reimbursed. Well, the overhead would be the same if the 

doctors were reimbursed more. 

Mr. MURPHY. It also doesn’t include insurance companies subcontracting with Medicare and then the doctor’s office has to do their 

own management of those things too so that is a lot of other overhead that is not included, but I do understand the issue too of insurance company overhead versus government overhead. 

Ms. EDWARDS. But the doctors have to do that as well, don’t 

they? The doctors also have to do that for insurance companies. 

Mr. MURPHY. They get paid more. They get paid to have the staff 

to do that. 

Ms. EDWARDS. But that doesn’t affect the overhead number, 

which that is a separate number—— 

Mr. MURPHY. Sure, we say we are paying you less but you are 

going to have to eat the cost of overhead. I am just trying to figure 

out how this would work, and I know I am out of time here. Yes, 

Doctor? 

Ms. DAVIS. I think we have to focus on two things, taking waste 

out of the system that benefits everybody and then the federal 

budget cost. Taking waste out of the system, we funded—— 

Mr. MURPHY. Waste being what? 

Ms. DAVIS [continuing]. A study of doctors’ administrative costs 

and the single biggest cost including the doctors’ time are drug 

formularies that are different for every patient. So standardizing 

that would take that administrative burden off of doctors. System 

reform— 

Mr. MURPHY. Standardizing formularies so that government 

chooses which drugs you get? That is what a formulary is. That is 

what the VA has. It says which drugs you can get and which ones 

you don’t. I get a lot of calls in my office from people saying I can’t 

get the drugs my doctor prescribed. So you are saying we will 

standardize this so the government—— 

Ms. DAVIS. Either standardize it or electronic prescribing mechanisms so the doctor knows when he writes the prescription, is this 

covered, rather than writing a prescription, the pharmacy calling 

them back—— 

Mr. MURPHY. The government decides what is covered and what 

is not and that is how we get savings. It comes down to this. We 

ration, we restrict or refuse care. That is what has happened in a 

lot of other governments and I hope—I mean, clearly, we have to 

wrestle with this. And please understand, I am trying to find some 

answers here but I want to make sure we—we are always asking 

the tough questions and I just hope this is the kind of hearings and 

discussions we continue to have because we have to get to the bottom of this and stop the political rhetoric but just say how does this 

work, what happens with taxes, what is the impact to the economy, 

who pays for it, what is all this, and we are a long way from there. 

232 

Mr. Chairman, thank you so much for indulging me a couple 

extra minutes. I appreciate the time. 

Mr. PALLONE. Sure. The gentlewoman from California, Ms. 

Capps. 

Ms. CAPPS. Thank you. 

One aspect of the healthcare system that is costly, in line with 

the previous questions but also very frustrating to all Americans, 

is its mind-numbing complexity. Getting coverage, trying to figure 

out what a plans covers and navigating the paperwork confounds 

patients and providers alike. Ms. Edwards, you are a person who 

has had considerable dealings with the health system, yourself, and 

for your family members. Do you think this kind of mess would be 

improved or would be worsened by several of the different approaches toward coverage that have been discussed today? 

Ms. EDWARDS. I think that if we had uniformity just in paperwork, we would see not only a great amount of savings in the system but we would also see a lot less frustration with the system. 

I know in my own treatment, you would receive a denial of coverage and you would have no idea, is this actually not covered 

under my policy or did somebody not check the right box at the 

doctor’s office. There would be no way for you to discern from the 

document you received what exactly the problem was. Could you 

just submit some additional information and get it covered or was 

it never going to be covered? And this is my response, this is after 

I have been involved in talking about healthcare for a long time 

and spent 17 years as a lawyer, and I still couldn’t make heads or 

tails of what I was receiving. An indication of how outrageous the 

system is and how irregular the responses are that you get, the 

lack of uniformity, I have an 8-year-old and a 10-year-old. They 

both had tonsillectomies this past year. We tried because we 

thought it would be a good idea to schedule them on the same day 

so they are going to go through the process together. This wasn’t 

necessarily a good idea, I will tell you. But they were scheduled for 

the same day, the same doctor, the same anesthesiologist, the same 

operating room. Everything went smoothly. Later we started getting mail from the insurance company. Some things were covered 

for one child that were not covered for the other, exactly the same 

insurance company but that is the kind of irregularities you see 

when the system doesn’t operate in a way that is clear to all the 

participants. I assume that the doctors all filled out the same forms 

but I don’t know whether the person on the other end who was 

processing was the same person and we got a different result, and 

that is very frustrating and expensive. It means that I am going 

to communicate with the insurance company, which is going to cost 

them money to try to figure it out, and we are burdening the system unnecessarily. There are easy ways for us to fix some of these 

problems. Uniform electronic transmission of records is obviously 

one. Single kinds of forms that we use that are written in plain 

English would be another way in which we could alleviate some of 

the burden of the system both economically and emotionally for the 

participants. 

Ms. CAPPS. Thank you very much. 

I want to turn to you, Karen Pollitz, with a California kind of 

orientation, if you don’t mind. I represent a district there. You tesVerDate Nov 24 2008 14:05 Dec 29, 2010 Jkt 037690 PO 00000 Frm 00238 Fmt 6633 Sfmt 6633 P:\MY DOCS\HEARINGS\110-150 CHRIS
233 

tified that health insurance must be available, affordable, and adequate all of the time but that in the individual health insurance 

market some insurers have been pulling the plug on their policyholders, leaving them uninsured and uninsurable. Specifically, you 

mentioned the practice of rescinding policies—that is the part that 

we have had some high-profile cases on in California—retroactively 

canceling policies after expensive claims start to come in, refusing 

to pay the claims and returning the premiums. Unfortunately, this 

is not just fly-by-night companies either that engage in this practice in California. The State Department of Managed Healthcare 

recently fined five large nationally known insurers a total of $14 

million for unlawful rescissions and cancellations. Why do you believe it is the case that these insurers rescind or cancel so many 

policies when there was no fraud against them by the policyholder? 

Is this just the way business is done today and what should we be 

doing about it? 

Ms. POLLITZ. This is actually not just a California problem, it 

happens everywhere, and it is not a new problem. It is recently reported on by the L.A. Times but it has been going on for a long 

time, and practices do vary across insurance companies. A lot of it 

has to do with having an underwritten market in the first place 

but this is competition based on risk selection. This is what happens when the market competes to the bottom without any rules, 

and insurers are different. Some I think are more meticulous and 

careful with their underwriting to try to screen people out at the 

beginning and not issue them coverage but there are companies 

that have kind of adopted the philosophy that I don’t need to spend 

as much time and energy underwriting at the front end because I 

will catch it on the back end if I need to. The rules vary that govern this. It is not only rescissions that can be the result. Postclaims investigations can also result in a preexisting condition exclusion or a rider being imposed retroactively on a policy, a premium surcharge imposed retroactive, and it is not just an individual market problem. Post-claims investigations also occur in 

small group coverage. So unless there are very strict and standard 

rules of the road that govern these practices, they will continue. 

Ms. CAPPS. I know my time is up, but yesterday our ranking 

member had a very poignant story when we were discussing breast 

cancer on this very topic, and just a quick question with a quick 

answer if you don’t mind. Is there a role then we should be playing 

here in setting these guidelines or in making some kind of standard here? 

Ms. POLLITZ. Absolutely. I mean, the easiest rule is to just say 

there isn’t any underwriting, people get coverage and once they 

have got it, it sticks, and short of that in an underwritten market, 

you can have much more standardized rules about how questions 

are asked so there aren’t these kind of gotcha questions where you 

can make a mistake. I mean, you already have a federal standard 

that says except in the case of fraud you can’t cancel a policy. I 

think in many States the insurance industry is operating below 

that standard and you can enforce what you have in current law. 

Ms. CAPPS. Thank you very much. 

Mr. PALLONE. Thank you. This concludes our questions, but as 

Mr. Murphy suggested, we could obviously go on all day and sevVerDate Nov 24 2008 14:05 Dec 29, 2010 Jkt 037690 PO 00000 Frm 00239 Fmt 6633 Sfmt 6633 P:\MY DOCS\HEARINGS\110-150 CHRIS
234 

eral days and several weeks, and I appreciate the fact that you are 

willing to come here today, and we did have, I think, a very good 

discussion about the need for healthcare reform. My intention is 

that beginning next year, because this is probably the last hearing 

the subcommittee will have before we adjourn next week, that we 

will start the year and have many more opportunities like this to 

talk about what needs to be done. I mean, obviously there is going 

to be a change in the White House regardless of who is elected, and 

we want to sort of get the ball rolling, if you will, on different options, because the problems with cost, the problems with the uninsured, the problems with access I think are only getting worse and 

I do appreciate the fact that all of you spent the time today and 

were able to answer our questions very effectively. 

Let me mention that we may get members that send you some 

written questions to follow up, and those are submitted to the committee clerk within the next 10 days, so you may get some questions to answer in writing within the next 10 days or so, and we 

will certainly appreciate your response. 

Thank you again, and without objection, this meeting of the subcommittee is adjourned. 

[Whereupon, at 1:00 p.m., the subcommittee was adjourned.] 

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