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STRENGTHENING EMPLOYER– 

PROVIDED HEALTH CARE 

HEARING 

BEFORE THE

SUBCOMMITTEE ON HEALTH, 

EMPLOYMENT, LABOR AND PENSIONS 

COMMITTEE ON 

EDUCATION AND LABOR 

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

HEARING HELD IN WASHINGTON, DC, MARCH 10, 2009 

Serial No. 111–6 

Printed for the use of the Committee on Education and Labor 

( 

Available on the Internet: 

http://www.gpoaccess.gov/congress/house/education/index.html 
(II) 

COMMITTEE ON EDUCATION AND LABOR 

GEORGE MILLER, California, Chairman 

Dale E. Kildee, Michigan, Vice Chairman 

Donald M. Payne, New Jersey 

Robert E. Andrews, New Jersey 

Robert C. ‘‘Bobby’’ Scott, Virginia 

Lynn C. Woolsey, California 

Rube ́n Hinojosa, Texas 

Carolyn McCarthy, New York 

John F. Tierney, Massachusetts 

Dennis J. Kucinich, Ohio 

David Wu, Oregon 

Rush D. Holt, New Jersey 

Susan A. Davis, California 

Rau ́l M. Grijalva, Arizona 

Timothy H. Bishop, New York 

Joe Sestak, Pennsylvania 

David Loebsack, Iowa 

Mazie Hirono, Hawaii 

Jason Altmire, Pennsylvania 

Phil Hare, Illinois 

Yvette D. Clarke, New York 

Joe Courtney, Connecticut 

Carol Shea-Porter, New Hampshire 

Marcia L. Fudge, Ohio 

Jared Polis, Colorado 

Paul Tonko, New York 

Pedro R. Pierluisi, Puerto Rico 

Gregorio Sablan, Northern Mariana Islands 

Dina Titus, Nevada 

[Vacant] 

Howard P. ‘‘Buck’’ McKeon, California, 

Senior Republican Member 

Thomas E. Petri, Wisconsin 

Peter Hoekstra, Michigan 

Michael N. Castle, Delaware 

Mark E. Souder, Indiana 

Vernon J. Ehlers, Michigan 

Judy Biggert, Illinois 

Todd Russell Platts, Pennsylvania 

Joe Wilson, South Carolina 

John Kline, Minnesota 

Cathy McMorris Rodgers, Washington 

Tom Price, Georgia 

Rob Bishop, Utah 

Brett Guthrie, Kentucky 

Bill Cassidy, Louisiana 

Tom McClintock, California 

Duncan Hunter, California 

David P. Roe, Tennessee 

Glenn Thompson, Pennsylvania 

Mark Zuckerman, Staff Director 

Sally Stroup, Republican Staff Director 

SUBCOMMITTEE ON HEALTH, EMPLOYMENT, LABOR AND PENSIONS 

ROBERT E. ANDREWS, New Jersey, Chairman 

David Wu, Oregon 

Phil Hare, Illinois 

John F. Tierney, Massachusetts 

Dennis J. Kucinich, Ohio 

Marcia L. Fudge, Ohio 

Dale E. Kildee, Michigan 

Carolyn McCarthy, New York 

Rush D. Holt, New Jersey 

Joe Sestak, Pennsylvania 

David Loebsack, Iowa 

Yvette D. Clarke, New York 

Joe Courtney, Connecticut 

John Kline, Minnesota, 

Ranking Minority Member 

Joe Wilson, South Carolina 

Cathy McMorris Rodgers, Washington 

Tom Price, Georgia 

Brett Guthrie, Kentucky 

Tom McClintock, California 

Duncan Hunter, California 

David P. Roe, Tennessee 
(III) 

C O N T E N T S 

Page 

Hearing held on March 10, 2009 ............................................................................ 1 

Statement of Members: 

Andrews, Hon. Robert E., Chairman, Subcommittee on Health, Employment, Labor and Pensions ............................................................................ 1 

Prepared statement of ............................................................................... 4 

Statement of the American Benefits Council .......................................... 58 

Kline, Hon. John, Senior Republican Member, Subcommittee on Health, 

Employment, Labor and Pensions ............................................................... 4 

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

Kucinich, Hon. Dennis J., a Representative in Congress from the State 

of Ohio, prepared statement of 57 

Statement of Witnesses: 

Derbyshire, Mark, owner, Park Moving and Storage .................................... 9 

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

Pyenson, Bruce, FSA, MAAA, principal & consulting actuary, Milliman, 

Inc. ................................................................................................................. 11 

Prepared statement of ............................................................................... 12 

Sheridan, John, CEO, Cooper University Hospital ....................................... 14 

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

Thorpe, Kenneth E., Ph.D., chair, Department of Health Policy and Management, Rollins School of Public Health; executive director, Center 

for Entitlement Reform, Emory University ................................................ 40 

Prepared statement of ............................................................................... 41 

Trautwein, E. Neil, vice president and employee benefits policy counsel, 

National Retail Federation (NRF) ............................................................... 33 

Prepared statement of ............................................................................... 35 

Winkler, Jim, health management practice leader, Hewitt Associates ....... 22 

Prepared statement of ............................................................................... 25 

(1) 

STRENGTHENING EMPLOYER–PROVIDED 

HEALTH CARE 

Tuesday, March 10, 2009 

U.S. House of Representatives 

Subcommittee on Health, Employment, Labor and Pensions 

Committee on Education and Labor 

Washington, DC 

The subcommittee met, pursuant to call, at 10:32 a.m., in Room 

2175, Rayburn House Office Building, Hon. Robert Andrews [chairman of the subcommittee] presiding. 

Present: Representatives Andrews, Hare, Tierney, Kucinich, 

Fudge, Kildee, McCarthy, Holt, Sestak, Loebsack, Courtney, Kline, 

Wilson, McMorris Rodgers, Price, Guthrie, and Roe. 

Staff present: Tylease Alli, Hearing Clerk; Jody Calemine, Labor 

Policy Deputy Director; Carlos Fenwick, Policy Advisor, Subcommittee on Health, Employment, Labor and Pensions; David 

Hartzler, Systems Administrator; Jessica Kahanek, Press Assistant; Therese Leung, Labor Policy Advisor; Sara Lonardo, Junior 

Legislative Associate, Labor; Joe Novotny, Chief Clerk; Megan 

O’Reilly, Labor Counsel; Michele Varnhagen, Labor Policy Director; 

Robert Borden, Minority General Counsel; Cameron Coursen, Minority Assistant Communications Director; Ed Gilroy, Minority Director of Workforce Policy; Rob Gregg, Minority Senior Legislative 

Assistant; Jim Paretti, Minority Workforce Policy Counsel; Molly 

McLaughlin Salmi, Minority Deputy Director of Workforce Policy; 

Ken Serafin, Minority Professional Staff Member; and Linda Stevens, Minority Chief Clerk/Assistant to the General Counsel. 

Chairman ANDREWS [presiding]. Good morning. The subcommittee will come to order. We thank you for your participation 

today. It is a pleasure for you to join us for—to us to have you join 

us as we embark in what promises to be a challenging and, I would 

hope, historic consideration of how best to reform the healthcare 

system of our country. 

We are very fortunate to have a range of talent on this subcommittee on both sides of the aisle, and it is my intention, along 

with my friend, Mr. Kline, to try to draw upon each of those talents 

of the members of the subcommittee in the best way we can to 

produce ideas and a work product that meets the president’s mandate, the president’s challenge to try to enact legislation in 2009 

that reforms our healthcare system. 

I want to say from the outset how pleased I am to be able to 

share this responsibility with Mr. Kline for the second consecutive 
2 

Congress. He is a person who is well versed on the issues, is very 

easy to communicate with, believes deeply in his views and is a 

strong advocate for them, but is also a fair and balanced person. 

And it is a pleasure to work with him. I feel privileged to have this 

opportunity once again. 

I am honored to be joined today by my science and technology advisor, my 16-year-old daughter, Jacqueline, who was bitterly disappointed that she didn’t get to go to the Usher hearing. This is 

her consolation prize. Small consolation, indeed. 

And also pleased I am able to be joined by my cousin and her 

husband, Laurel Schull and Walt Schull. They are very important 

people in my life, and they give me a way to understand these 

issues. They are both retired educators. They worked very hard for 

their health insurance over the years, and it is very important to 

them as they continue in their lives. And they, among many other 

people, give me a prism through which I can understand these 

issues. So I am delighted that you are here today. 

On Thursday at the White House, President Obama challenged 

the Congress and the country to enact healthcare reform legislation 

in 2009. This will be this subcommittee’s first effort to meet that 

challenge and rise to the occasion. The president, I think, very well 

articulated what most Americans want. I think he articulated the 

consensus of what Americans want when it comes to change in 

health insurance. 

First of all, I think most Americans want to choose their own 

doctor or healthcare provider. We feel very passionately that we 

want to be connected to the person we have chosen to be the pediatrician for our children or the OB/GYN for our wives or daughters, 

or our own dentist, our own psychiatrist, whatever it is that we 

want to deal with. Americans feel very strongly about the sanctity 

of the doctor/patient relationship, and I believe we should do whatever we can to preserve and enhance that relationship. 

The second thing that I think most Americans believe about 

healthcare is it is costing them too much out of their take-home 

pay. Healthcare out-of-pocket costs for Americans have risen about 

five times as quickly as wages have risen in the last decade or so. 

That means, for a lot of Americans who are fortunate enough to 

have health insurance, to have a job, and who have received a pay 

increase in that job, that they very often find they took a pay cut 

anyway because their out-of-pocket contribution in healthcare went 

up by more than their paycheck did if they are among that increasingly dwindling group that has a job and gets a pay raise. 

So I think most Americans understand that they want healthcare 

costs to eat up a smaller portion of their paycheck or their family 

wealth. That certainly goes for small businesses, as well. Small 

businesses—all business, particularly small businesses, are struggling to cover the people who work for them and their families, and 

finding it increasingly difficult to do so. 

One hundred and sixty-nine million Americans derive their 

health insurance through an employer/employee relationship. And 

it is for that reason that this subcommittee and the full committee 

will be actively engaged in the process of writing and debating, and 

eventually legislating, bills on this subject. 
3 

There are different views about whether the employer/employee 

system should continue to be a basis for the provision of 

healthcare. I believe it should be, but I understand there are different views. What I do assure all members of the subcommittee 

and the full committee is that we will have our full and robust opportunity to weigh in on that debate legislatively as the year goes 

on because the employee/employer system is such an important 

part of the care that is presently provided. 

This morning, we are going to begin our examination of these 

issues with a focus on the question of how much it is costing employers who choose to insure, to help carry the burden of employees 

and dependents of those who do not insure. 

Now, notice the formulation I use for this. Employers who choose 

to insure in recognition of the fact that, in virtually all cases in our 

country, the law today is that whether or not to insure one’s employees is a matter of choice. We are very fortunate that many, 

many American employers make that choice, and they cover collectively 169 million people. 

Other employers do not do so, some by choice and some by necessity. This committee fully understands that there are millions of 

American entrepreneurs who are struggling to stay alive, and it 

is—they are not providing health insurance not because they are 

indifferent to their employees or because they do not understand 

the value of health insurance, but because providing health insurance would wipe out any net profit they have in their businesses. 

It is simply not a viable option for a lot of businesses in the country. 

There are other employers, however, who are not insuring their 

employees as a matter of choice and not of necessity. It is within 

their business purview, under present law, to make that choice. 

There are a variety of reasons for making that choice. Some are 

presumptively legitimate. Some are probably illegitimate. 

The purpose of today’s hearing is to quantify and understand the 

cost of that choice that has been made. In other words, for employers who are in a position to provide health insurance but choose 

not to, what happens to the people who are not insured, and who 

pays for their care? 

This morning, I am certain, as we meet, there are at least hundreds of thousands, probably millions of Americans, receiving care 

in doctors’ offices, hospitals, clinics and other settings, and they are 

not able to pay their bill. When they are not able to pay their bill, 

someone else pays for it. 

We have a system in this country, and I am thankful that we do, 

that people are not turned away, at least they are not supposed to 

be turned away, when they approach an emergency room or another healthcare provider and don’t have an insurance card. I don’t 

want to live in a country where people are turned away under 

those circumstances. 

But when they are accepted in that emergency room or accepted 

in that medical practice, someone pays for the care that they receive. In some cases, that someone is a healthcare institution or 

provider who simply eats the cost and provides free or reducedprice care. In other cases, that cost is passed along to other people 

who pay premiums in the healthcare system, in which case the cost 
4 

is passed along to each of us who pays healthcare premiums in 

some way. 

In other respects, that cost is passed along to taxpayers when 

uninsured people are covered by public programs whether at the 

state or federal level. So our focus this morning is going to be to 

focus in on the question of how much is it costing for the employees 

who are not insured when they access healthcare, and who is paying for it. I think that is an important question, as we go forward, 

to frame this discussion. 

Again, I am very grateful to have a chance to work with the colleagues that we have on this subcommittee. We are very grateful 

for this morning’s panel. 

And at this time, I would like to turn to my friend and the ranking member of the subcommittee, Mr. Kline, for his opening statement. 

[The statement of Mr. Andrews follows:] 

Prepared Statement of Hon. Robert E. Andrews, Chairman, Subcommittee 

on Health, Employment, Labor and Pensions 

Good morning and welcome to Health, Employment, Labor, Pensions (HELP) Subcommittee’s first hearing of the 111th Congress on ‘‘Strengthening Employer-Sponsored Health Care.’’ The purpose today’s hearing is to initiate a series of hearings 

on health care reform. This morning, the Subcommittee will focus its attention on 

the problem many US employers offering health benefits to their employees are facing today; the cost shifting of covering health care for the uninsured. Furthermore, 

we will examine the reasons as to why this cost shifting is occurring and whether 

‘‘shared responsibility’’ amongst all is employers is essential to reforming our health 

care system in the least disruptive way. 

In the United States today, over 169 million working Americans receive their 

health insurance through their employer. Moreover, these same employers contribute $386 billion to partially cover the cost of the $2.4 trillion we spend as a nation on health care annually. 

The success of employer-sponsored health care is due in large part to the purchasing pooling power of these noteworthy employers. However, as the cost of health 

care continues to precipitously increase, due in large part to the artificial inflation 

of pricing, many small to large employers have been forced to drop coverage to their 

employees. As the number of employers offering health coverage decreases, the 

number of uninsured increases, as well as the burden imposed onto insured employers and their employees to cover the cost of the uninsured. This cost shifting is reflected in their increased premium rates, co-pays, and deductibles and sometimes 

in the retraction of benefits. 

Coverage continues to grow increasingly unaffordable to employers, which has 

contributed to the precipitous decline in employer-sponsored health coverage over 

the past decade. In particular, small employers with low to middle-income workers 

have struggled to meet these rising costs. Furthermore, while over five million 

Americans have lost coverage during the past decade, it is expected that in the next 

four years, premiums will rise by another 20 percent, which will result in an additional 3.5 million Americans unemployed and without benefits. In the absence of 

health care reform in the United States, experts estimate an additional 53 million 

Americans will be uninsured by 2011. 

I believe that an all employer participation component is an essential element to 

health care reform. Such an approach is seen as the less disruptive method to reforming our health care system. Furthermore, it is estimated that an all employer 

participation component would increase the number of insured Americans by 83 percent, as well as drive down the overall cost of the system, prevent further erosion 

of health benefits for workers, as well as protect their right to choose their own doctor and maintain their existing level of benefits. 

Mr. KLINE. Thank you, Mr. Chairman, for your kind words about 

me and your other colleagues. I too am looking forward to working 

with you and our colleagues on this committee. I am delighted to 
5 

see that you have a very, very special guest here this morning. It 

is a pleasure to meet her. 

I don’t have a special guest here this morning, but I would like 

to yield for just a moment to Mr. Wilson, who does. 

Mr. WILSON. Thank you, Ranking Member Kline. 

It is an honor that I have with me today shadowing the Honorable Tiperu Nasura. Member of Parliament Nasura is a member of 

the East African Legislative Assembly. She is a Parliamentarian 

representing Uganda. 

Chairman ANDREWS. Please stand, Ms. Nasura, so we can recognize you. Thank you for coming. Welcome. It is great to have you 

with us. 

Thank you, Mr. Wilson. 

Mr. KLINE. Thank you, Mr. Wilson. 

Again, thank you, Mr. Chairman. I want to thank the witnesses 

for being with us today as we take up this morning’s work. 

As the chairman said, we began this in the 110th Congress, addressing many of the issues confronting our nation’s healthcare 

system, including efforts to improve healthcare quality, access and 

affordability. And clearly, we are going to be doing it again in this 

Congress, not only in this committee, but across the board. 

An important lesson we learned during the last Congress was 

that, though imperfect, the employer-based healthcare system has 

been successful in many ways. As we try to address weaknesses in 

the current system, we must be careful not to undermine a voluntary approach that provides the most common form of healthcare 

coverage for individuals and workers below retirement age. 

The current employer-based voluntary system delivers high quality coverage for over 160 million Americans. American businesses 

are true innovators when it comes to improving the healthcare system. Private sector employers are leading efforts to help people improve their health through wellness and disease management programs, improving the quality of healthcare, and helping people 

learn the true costs of medical services. 

The driver behind the successes of the employment-based system 

is the federal ERISA law. The existence of ERISA and its preemption of state insurance laws means that American businesses 

can provide uniform, high-quality benefits to all their employees 

across state lines, and that means companies don’t have to worry 

about following 50 different sets of rules in order to offer insurance, 

which prevents headaches and saves money. 

Notwithstanding the success of ERISA, employers, employees 

and their families are very concerned about rising healthcare costs. 

While we explore solutions, I want to caution against proposals 

that would undermine ERISA by pulling one string at a time. However well intentioned, doing so would be an invitation to add benefit mandates and increases taxes on employers, which would likely 

stifle job creation and seriously undermine employers’ ability to 

provide efficient, affordable healthcare coverage. 

At the same time, I would be remiss to not recognize the fact 

that ERISA stands at the crossroads of healthcare reform, which 

makes it all the more important that we do not unravel the system, 

but rather initiate comprehensive reform. 
6 

Finally, attempting to define good actors and bad actors in the 

employer-sponsored system is fraught with danger. When we explore the issue of the uninsured, we must be mindful of the dangers of assigning a one-size-fits-all solution which may be difficult 

because of the different characteristics within a given population. 

For example, millions of people who already qualify for government programs have failed to take advantage of that coverage for 

a wide variety of reasons. Creating costly new programs to ensure 

such people, which would come on top of existing federal and state 

subsidies for uncompensated care, may not be necessary or wise. 

In addition, we must not forget that this committee has taken 

the lead in efforts to improve the current system, including efforts 

to help small businesses obtain affordable health coverage comparable to that provided by large companies. Private voluntary efforts to control healthcare cost growth and improve quality can be 

accomplished more quickly than using government programs, and 

should be encouraged. 

I am hopeful we can continue to work together to reach consensus on measures to provide more affordable and efficient ways 

of providing healthcare benefits. I look forward to this morning’s 

hearing and, again, thank our witnesses for being with us today. 

I yield back. 

[The statement of Mr. Kline follows:] 

Prepared Statement of Hon. John Kline, Ranking Republican Member, 

Subcommittee on Health, Employment, Labor and Pensions 

Good morning. I would like to thank my colleagues and the witnesses who have 

joined us today. 

This morning’s hearing continues our work—which we began in the 110th Congress—in addressing many of the issues confronting our nation’s health care system, 

including efforts to improve health care quality, access, and affordability. 

An important lesson we learned during the last Congress was that, though imperfect, the employer-based health care system has been successful in many ways. As 

we try to address weaknesses in the current system, we must be careful not to undermine a voluntary approach that provides the most common form of health care 

coverage for individuals and workers below retirement age. 

The current employer-based system delivers high quality coverage for approximately 160 million Americans. American businesses are true innovators when it 

comes to improving the health care system. Private sector employers are leading efforts to help people improve their health through wellness and disease management 

programs, improving the quality of health care, and helping people learn the true 

costs of medical services. 

The driver behind the successes of the employment-based system is the federal 

ERISA law. The existence of ERISA, and its preemption of state insurance laws, 

means that American businesses can provide uniform, high quality benefits to all 

their employees across state lines. And that means companies don’t have to worry 

about following 50 different sets of rules in order to offer insurance, which prevents 

headaches and saves money. 

Notwithstanding the successes of ERISA, employers, employees, and their families 

are very concerned about rising health care costs. While we explore solutions, I want 

to caution against proposals that would undermine ERISA by pulling one string at 

a time. However well-intentioned, doing so would be an invitation to add benefit 

mandates and increase taxes on employers, which would likely stifle job creation 

and seriously undermine employers’ ability to provide efficient, affordable health 

care coverage. At the same time, I would be remiss to not recognize the fact that 

ERISA stands at the crossroads of health care reform, which makes it all the more 

important that we do not unravel the system, but rather initiate comprehensive reform. Finally, attempting to define ‘‘good’’ actors and ‘‘bad’’ actors in the employersponsored system is fraught with danger. 

When we explore the issue of the uninsured, we must be mindful of the dangers 

of assigning a one-size fits all solution may be difficult because of the different char-
7 

acteristics within a given population. For example, millions of people who already 

qualify for government programs have failed to take advantage of that coverage for 

a wide variety of reasons. Creating costly new programs to insure such people— 

which would come on top of existing federal and state subsidies for uncompensated 

care, may not be necessary or wise. 

In addition, we must not forget that this Committee has taken the lead in efforts 

to improve the current system—including efforts to help small businesses obtain affordable health coverage comparable to that provided by larger companies. Private, 

voluntary efforts to control health care cost growth and improve quality can be accomplished more quickly than using government programs, and should be encouraged. I am hopeful we can continue to work together to reach consensus on measures to provide more affordable and efficient ways of providing health care benefits. 

With that, I’d like to welcome our six distinguished witnesses today. I look forward to everyone’s testimony. 

Chairman ANDREWS. Thank you, Mr. Kline. 

Well, welcome, ladies and gentlemen. Here is the procedure we 

are going to follow. 

We have received your written statements, the witnesses, and 

they will be entered into the record without objection. Also without 

objection, the opening statement of any member of the subcommittee who wishes to submit an opening statement will be submitted to the record. 

We will ask you, ladies and gentlemen witnesses, to give us a 5- 

minute synopsis of your written testimony this morning. Again, we 

have had access to your written testimony, had a chance to review 

it. 

You will notice in front of you a light box. The green light means 

you can start talking. The yellow light means you are within a 

minute of your 5 minutes being up. The red light means we would 

ask you graciously to stop. 

When we started this process a couple years ago, I mistakenly 

told people that there was a trapdoor underneath your seat and, 

if you talked beyond the 5 minutes, it would open. The trapdoor did 

not exist at that time, I will confess, but I am not telling you 

whether it does this morning or not. 

So we ask you—the reason we ask you to adhere to the 5-minute 

rule is that, as you see, a number of members are here. It gives 

the members a chance to interact with you and ask you questions 

and learn from you. 

We are going to now read the biographies of the witnesses, and 

I will start with Mark Derbyshire. Mr. Derbyshire, welcome. 

He is the owner of Park Moving and Storage in Aberdeen, Maryland. Mr. Derbyshire is a small business owner who is going to tell 

us about his current struggles with the high cost of healthcare for 

his employees. Welcome, Mr. Derbyshire. 

Bruce Pyenson is a principal and consulting actuary in the New 

York office of Milliman Incorporated. He has been with the firm 

since 1987, and works with employers, providers, HMOs and 

healthcare businesses. Mr. Pyenson has authored several reports 

on healthcare reform, among other topics. Welcome, Mr. Pyenson. 

Glad to have you with us. 

John Sheridan is the president and CEO of the Cooper Health 

System in Camden, New Jersey, the hospital at which I was born. 

The hospital overcame that setback and has thrived since then. 
8 

Mr. Sheridan is responsible for the operations of Cooper University Hospital and more than 50 satellite offices. Mr. Sheridan has 

been with Cooper since July of 2005. Prior to that, he was a senior 

partner and co-chairman of the law firm of Riker, Danzig, Scherer, 

Hyland & Perretti. Mr. Sheridan graduated from St. Peters College 

and received his law degree from Rutgers Law School. John, welcome. Nice to have you with us this morning. 

Now, Mr. Courtney is going to introduce our next witness because he hails from Connecticut. 

Mr. COURTNEY. Thank you, Mr. Andrews, and thank you for 

holding this hearing today. We could not have a hearing on insurance without a witness from Connecticut because, as everyone from 

Woody Allen on down has observed that Connecticut and insurance 

are synonymous. 

And Jim Winkler from Hewitt & Associates in Norwalk, Connecticut, is here to testify this morning. Hewitt & Associates is a 

firm that consults with employers all over the world, and certainly 

all over the country. He is intimately familiar with, again, a lot of 

the pricing issues, quality issues, which are critical to us coming 

out with good ideas in this committee. And he is a graduate of University of Notre Dame and has an MBA from the University of 

Hartford. 

And I would yield back. 

Chairman ANDREWS. Welcome, Mr. Winkler. We are glad to have 

you. 

Neil Trautwein is returning to the committee. He joined the National Retail Federation in 2006 and has served as its vice president and employee benefits policy counsel since that time. 

Mr. Trautwein previously was an assistant vice president on 

union resources policy at the National Association of Manufacturers. He holds a bachelor’s degree from the University of Louisville 

and a law degree from the George Washington University. Welcome 

back, Mr. Trautwein. Glad to have you with us. 

And then our final witness, Dr. Thorpe, hails from Dr. Price’s 

district, so I would yield to him so that he can do that introduction. 

Dr. PRICE. Thank you, Mr. Chairman. I appreciate that. 

I am privileged to introduce Dr. Ken Thorpe, who is a Robert 

Woodruff Professor and Chair of the Health Policy and Management Department of the Public Health School at Emory University, 

where I did my residency training. 

He currently teaches public health and health resource allocations in health policy. From a public health perspective, he has always been knowledgeable and productive in his work. I have had 

the privilege of working with him as both a physician and as a 

state Senator, and we welcome him here today. 

He received his BA from the University of Michigan, my alma 

mater as well, his master’s from Duke, and a Ph.D from the Rand 

Graduate Institute. So he is a huge Wolverine fan, so Go Blue, and 

welcome, Dr. Thorpe. 

Chairman ANDREWS. You guys didn’t do very well last year, did 

you? That is all right. We have a lot of Michigan people associated 

with the committee, too, so that is okay. That is okay. 

All right. We are going to start with our first witness, Mr. 

Derbyshire. Welcome. We are going to proceed with the witness 
9 

testimony, then begin with questions from the members. So welcome, Mr. Derbyshire. Happy to have you with us. 

STATEMENT OF MARK DERBYSHIRE, OWNER, PARK MOVING 

AND STORAGE 

Mr. DERBYSHIRE. Okay. Thank you for having me. 

Again, my name is Mark Derbyshire. I am the owner of Park 

Moving and Storage in Aberdeen, Maryland. My parents started 

the business in 1956 as a small company, and Aberdeen is outside 

of Baltimore. It is just a small town. 

And in the area, there are many small businesses that we have 

to compete for employees from my industry and from other industries. I currently have about 30 full-time employees, and I invest 

a lot of time into them because I want to attract people who are 

interested in staying with the company for a long time. 

One of the benefits I am most proud of is, of course, providing 

health insurance. Times are tough. Good workers are looking for 

the best opportunities. It is important to me to limit turnover so 

I can try to make sure that the people I invest in, invest my time 

and energy, are committed to the company. I do not want to train 

people that might leave as soon as something better comes along. 

I have learned that higher compensation, the higher the motivation, and that is one of the reasons I provide health insurance. 

Also, I know my workers want to give 100 percent to their jobs. 

But if they have health problems that are left untreated, they 

can’t. That hurts them, and it hurts my bottom line. 

It is not easy to provide health insurance to all the employees. 

Every year, the premiums go up, and every year I have got to go 

back to the employees and ask them for a little bit more. Right 

now, I am paying 85 percent of their premiums, individual rates, 

and 75 for the family rates. I can’t continue to pay more. Year after 

year, the premiums are going at double-digits. 

Often, we small business owners are attacked for not providing 

health insurance. What people fail to realize is that high cost of administration coverage for each employee in addition to the rising 

cost of premiums. For a small business to increase costs for fuel 

and raw material, along with the decreased revenue, can be a lethal combination. 

Many of my fellow business owners have been struggling with 

the idea of ending employee’s health insurance to reduce overhead. 

All around me, companies fold under the pressure of rising health 

costs, and they stop offering the benefit altogether. That choice I 

hope will not be one I have to make. I worry about what would 

happen to our employees if they do not have health insurance, and 

I cannot afford to have productivity decline because people are sick. 

Businesses like mine that do not provide health insurance end 

up bearing the brunt of the cost for the uninsured workers of other 

companies. That hardly seems fair, especially for small businesses 

like mine that—tight profit margin. It is difficult to provide insurance for my own workers. 

I cannot afford to have premiums go up every year to help pay 

for the care of uninsured workers of other businesses or my competitors. When those uninsured workers end up in the emergency 

room, the cost of that care shows up in the hospital bills for my 
10 

workers. My insurance companies, in turn, pass these higher costs 

to me in higher premiums. Those of us who do the right thing by 

providing health insurance now have to bear the unfair burden 

placed on my businesses that do not do their fair share in paying 

for healthcare costs. 

It is a vicious cycle. When premiums go up, businesses drop coverage, resulting in more uninsured workers. Those of us who continue to do the right thing by providing insurance get left holding 

the bag. Every year, that bag gets heavier. This year, I do not 

know if I am able to continue paying for coverage for families. 

I try not to think about what would happen if I get rid of this 

benefit, what would happen to my employees, their kids, worried 

that some people would look for other jobs and that I might have 

a tough time finding the same caliber of hard-working, high quality 

employees. If all businesses were required to offer health insurance, the burden would be lightened for all of us that are providing 

health insurance, and all businesses. 

Businesses like mine need the federal government to help us 

level the playing field. All businesses should pay their fair cost of 

health coverage so that none of us have to take the extra burden. 

Thank you. 

[The statement of Mr. Derbyshire follows:] 

Prepared Statement of Mark Derbyshire, Owner, Park Moving and Storage 

My name is Mark Derbyshire. I’m the owner of Park Moving and Storage in Aberdeen MD. My father started the small packing and moving business in 1956. Aberdeen is a small town near Baltimore. In the area there are many small businesses 

and we often find ourselves competing to attract good employees. Park Moving and 

Storage employs about 30 full time employees and I invest a lot in them. I want 

to attract people who are interested in staying with the company for a long time. 

One of the benefits that I am most proud to offer our employees is health insurance. Times are tough and good workers are looking for the best job opportunities. 

It is important to me to limit turnover so I try to make sure that the people I invest 

my time and energy in are committed to the company. I do not want to train people 

that might leave as soon as something better comes along. I have learned that the 

higher the compensation, the higher the motivation and that is one of the reasons 

why I provide health insurance. Also, I know my workers want to give 100 percent 

to their jobs, but if they have health problems that are left untreated, they can’t. 

That hurts them and hurts my bottom line. 

It is not easy to provide insurance to all of our employees. Every year, the premiums go up, and every year I have to go back to our employees to ask them to 

give a little more. Right now we pay for 85% of the premiums for individual coverage and about 75% for family coverage. I can’t continue to pay more, year after 

year as premiums go up by double digit percentages 

Often, we small business owners are attacked for not offering health benefits. 

What people fail to realize is the high cost of administering coverage for each employee, in addition to the rising cost of the premiums. For a small business the increased costs for fuel and raw materials, along with decreased revenue can be a lethal combination. Many of my fellow business owners have been struggling with the 

idea of ending employee health coverage to reduce overhead. All around me companies fold under the pressure of rising health care costs and stop offering benefits 

altogether. That’s a choice I hope I will not have to make. I worry about what will 

happen to our employees if they do not have health insurance. And I cannot afford 

to have productivity decline because people are sick. 

Businesses like mine that do provide health insurance end up bearing the brunt 

of the costs for the uninsured workers of other companies. That hardly seems fair— 

especially for small businesses like mine with tight profit margins. It difficult 

enough to provide insurance for my own workers. I cannot afford to have my premiums go up every year to help pay for the care of the uninsured workers of other 

businesses or my competitors. When those uninsured workers end up at the emergency room, the cost of that care shows up on the hospital bills for my workers. My 

insurance company passes on those higher costs to me in higher premiums. Those 
11 

of us who do the right thing by providing health insurance now have to bear the 

unfair burden placed on us by businesses that do not do their fair share in paying 

for health care costs. 

It is a vicious cycle. When premiums go up, businesses drop coverage, resulting 

in more uninsured workers. Those of us who continue to do the right thing by providing insurance get left holding the bag. Every year the bag gets heavier. This 

year, I do not know if I will be able to continue offering family coverage. I try not 

to think about what would happen if I got rid of this benefit. What would happen 

to my employees’ kids? I worry that some people will look for other jobs and that 

I might have a tough time finding the same caliber of hard working, high quality 

employees. 

If all businesses were required to offer health insurance, the burden would be 

lightened for those of us who already provide insurance. Businesses like mine need 

the Federal Government to help us by leveling the playing field. All business should 

pay their fair share of the cost of health care coverage so that none of us have to 

take on an extra burden. 

Chairman ANDREWS. Thank you, Mr. Derbyshire, very much for 

your testimony. 

Mr. Pyenson, welcome. I think you need to push the ‘‘On’’ button 

on your microphone there. 

Mr. PYENSON. There we go. 

Chairman ANDREWS. And if we don’t like what you say, push it 

and we will turn it off, okay? 

STATEMENT OF BRUCE PYENSON, PRINCIPAL AND 

CONSULTING ACTUARY, MILLIMAN, INC. 

Mr. PYENSON. Well, good morning, Chairman Andrews and members of the subcommittee. It is really my honor and privilege to be 

speaking to you today. 

I am Bruce Pyenson. I am an actuary with Milliman. It is a consulting firm, and we consult to a broad spectrum of the healthcare 

industry on actuarial issues and healthcare management expertise. 

We have seen, even before this economic crisis, that the cost of 

healthcare has made it more and more difficult for employers and 

others to buy health insurance, and that of course has only gotten 

worse with the recent crisis. In my view, the most important, and 

the single-most important issue, is the high cost of healthcare. It 

should be the number one issue in the healthcare debate, and I 

was gratified to see that mentioned very prominently in the recent 

summit. 

Two weeks ago, a few of my colleagues and I published a report 

entitled, ‘‘Imagining 16 to 12,’’ which refers to the current spending 

of the United States on healthcare, at 16 percent of GDP, and the 

fact that the enormous amount of waste in the system accounts for 

at least 25 percent of that. In fact, we say that we can reduce our 

spending by becoming more efficient, from 16 percent to 12 percent, 

and still cover the uninsured. 

Much of the spending in the healthcare system today goes to 

services or administration that could be done more efficiently or do 

not bring value to patients, and even where some of that spending 

goes to services that harm the patient or fix mistakes that should 

not have been made. 

Fortunately, the magnitude—that huge magnitude of waste is illuminated by points of excellence in our healthcare system that exists in locales around the country and can actually apply those examples of excellence to the national averages and come up with 
12 

numbers like what we came up with in our report, that we could 

dramatically reduce healthcare spending. 

Now, to get to 12 percent, we developed actuarial models that 

composite the best practices from those locales, and we applied 

those models to the entire US. So while our models show that we 

can reduce healthcare spending by 25 percent, we could actually reduce it by more than that and use the savings to cover the uninsured. That is not unique to our study. There have been a number 

of others that have come out with studies that show that considerably more than 25 percent of healthcare spending is waste or inefficiency. 

We consider that 12 percent as a target, not as a budget, but it 

is a foundation for consensus on healthcare. In short, we think that 

rationalizing care, efficient use of resources, is far superior to rationing it. 

Now, as with any economic change, there are winners and losers. 

In my view, the biggest winners in a more efficient healthcare system will be the consumers and the patients and the uninsured. 

Other winners will be those that can adapt to a system that has 

incentives for efficiency. And of course, the losers will be organizations that can’t adapt to a quality and efficiency-based system. 

Our report includes recommendations for system and reimbursement change. I believe those can win consensus. In short, it means 

shifting payment and care towards evidence-based practices to reduce hospitalizations, avoid unneeded diagnostics, shift long-term 

care from nursing home to the home and provide quality care at 

the end of life. And again, patients will be the big winners. 

However, I think a focus on reducing cost is actually much harder than arguing about which of the tactics to adopt. Chairman Andrews, at the White House summit last week, you raised important 

issues, that employers who offer health benefits indirectly pay for 

cost-shifting from those who don’t. 

I think many issues go into the calculation of premium rates for 

insurance. I would point out that employers also pay for cost-shifting from inefficiency, and not just within their own programs. Driving down the cost of healthcare makes all of that much more practical. 

I would like to note, in closing, that Milliman itself does not endorse any specific legislation, and I am presenting views that are 

found in the report. 

[The statement of Mr. Pyenson follows:] 

Prepared Statement of Bruce Pyenson, FSA, MAAA, Principal & Consulting 

Actuary, Milliman, Inc. 

Good morning, Chairman Andrews and members of the Subcommittee on Health, 

Employment, Labor and Pensions. It is my pleasure and honor to testify before you 

today on ‘‘Strengthening Employer-Based Health Care.’’ My name is Bruce Pyenson. 

I am a Fellow of the Society of Actuaries and a Member of the American Academy 

of Actuaries. I am a Principal with Milliman, a leading actuarial firm. Milliman’s 

clients span healthcare—we provide actuarial and care management expertise to insurers, hospitals, employers, Medicaid programs, advocacy groups and many others. 

I have been with Milliman for 22 years and have specialized in healthcare costs, 

benefits, and the value of treatment. Today, I present on the need for and possibility 

of reducing healthcare costs. 

Even before the current economic crisis, we observed that high healthcare costs 

were pushing many employers to reduce or drop health insurance, and the affordability crisis has only accelerated in recent months. In my view, the single most im-
13 

portant problem in healthcare is that it costs too much, and cost should be the number one issue in the healthcare debate. 

Two weeks ago, several colleagues and I published a report entitled, ‘‘Imagining 

16% to 12%.’’ The title refers to the fact that we are spending over 16% of our GDP 

on healthcare, but if we got rid of the waste, we could spend under 12%. In fact, 

there is so much waste in the system that, at 12%, we could also cover the uninsured. My comments today are based on that report, and I ask that the entire report 

be included in the hearing record. 

Much spending in our healthcare system goes to services or administration that 

could be done more efficiently or that do not bring value to patients. Even worse, 

some spending also goes to services that harm the patient or to fix mistakes that 

should not have been made. Fortunately, the huge magnitude of waste is illuminated by comparing national averages to the bright spots of healthcare excellence. 

To get to 12%, we developed actuarial models that composite best practices from 

locales across the US—and we applied those models to the entire US. Our models 

show that we could reduce healthcare spending by 25% after covering the uninsured, while improving the quality of care. Other researchers have come to similar 

conclusions using different approaches. We consider 12% a target for what is possible, and a foundation for consensus on healthcare reform, not a budget. We believe 

rationalizing care—in other words, efficient use of resources—is far superior to rationing it. 

As with any economic change, there will be winners and losers under our vision. 

The biggest winners would be the uninsured, consumers and patients, who would 

see improved quality and coverage. Other winners will include those who adapt to 

an efficiency and quality-driven delivery model. Losers include those who can’t 

adapt. 

Our report includes recommendations for system and reimbursement changes, 

which, I believe, can win consensus. In short, these changes include shifting payment and care toward evidence-based practices to reduce hospitalizations, avoid 

unneeded diagnostics, shift long term care from nursing home to the home, and provide better quality care at the end of life. Patients will be the big winners. However, 

keeping the focus on reducing waste and cost is much harder than arguing about 

which tactics to adopt. 

Reducing U.S. healthcare spending by 25%—from 16% of GDP to 12%—would be 

less of a reduction than many prominent estimates of healthcare waste. Even at 

12%, we would still spend far more than any other country. Speaking here in 2009, 

I am not suggesting to further shrink the GDP. Rather, healthcare payers (governments, employers, and individuals) could reallocate more than half a trillion dollars 

realized each year, using the money for increased wages, infrastructure investments, deficit reduction, reduced taxes or prices. 

Chairman Andrews, at the White House summit last week you raised the important issue that employers who offer health benefits indirectly pay for cost-shifting 

from the uninsured. Many factors and complex calculations can go into insurance 

premiums or costs that employers pay. I would add that employers also pay for inefficiency—and not just inefficiency in their own programs. In my opinion, driving 

down costs through efficiency is the key to solving cost-shifting or, at least, making 

cost-shifting tolerable. 

I would like to note that there was no external funding for ‘‘16 to 12.’’ Our report 

reflects the findings of the Milliman co-authors, of which I was one. The report does 

contain important details about our findings, sources and methodology. Please note 

that Milliman does not endorse specific legislation. 

Thank you for the opportunity to present to you today. 

ATTACHMENT: ‘‘16 to 12’’ 

[The referenced attachment may be accessed at the following Internet address:] 

http://www.milliman.com/expertise/healthcare/publications/rr/pdfs/imagining-16-12-RR02-01-09.pdf 

Chairman ANDREWS. Thank you very much, Mr. Pyenson. We appreciate that. 

Mr. Sheridan, welcome to the committee. 
14 

STATEMENT OF JOHN SHERIDAN, CEO, COOPER UNIVERSITY 

HOSPITAL 

Mr. SHERIDAN. Good morning. Mr. Chairman, thank you for the 

opportunity, and also to your fellow members of the committee for 

the opportunity to address you this morning. 

I am the president and CEO of Cooper University Hospital, 

which is based in Camden, New Jersey. It is a major teaching hospital and a regional tertiary care center serving southern New Jersey. It is also a level one trauma center, and we are the clinical 

campus for the Robert Wood Johnson Medical School in Camden. 

Camden City is one of the poorest cities in the United States, 

with approximately 40 percent of its households living below the 

federal poverty level, and Cooper is the city’s main healthcare provider. While the national recession has impacted Cooper’s finances, 

the Camden environment and its poor economy has presented financial challenges to us for decades. 

We have managed to grow over the past 8 years by recruiting 

some of the top doctors in the country and developing clinical centers of excellence, and this has enabled Cooper to attract New Jersey residents who at one time relied on the major medical academic 

centers in Philadelphia for their healthcare. 

Our strategy is to attract suburban insured patients to help us 

carry out our mission for the people of Camden. Cooper’s payor mix 

represents a microcosm of the financial care—I am sorry, of the 

healthcare financial dynamics at work in New Jersey. Those without healthcare insurance and patients qualifying for charity care 

and Medicaid totaled over 38 percent of Cooper’s patient base in 

2006, and this number has grown over the past 3 years to nearly 

41 percent. 

Cooper receives state funding for its charity care services, but 

they cover only about 50 percent of the costs. Medicaid funding 

typically in New Jersey covers 60 to 70 percent of costs. Thus, for 

Cooper, this uninsured and under-insured population combined 

represents approximately 30 percent of our costs over the past 3 

years but only about 15 percent of our revenue. 

The reason why 38 percent of Cooper’s patients account for only 

30 percent of revenue is explained by the fact that the uninsured 

typically use hospitals for less acute primary care type services, 

thus their hospital costs per person is lower than average. However, this represents a huge misallocation of resources in our 

healthcare economy in that expensive hospital resources are being 

utilized to provide that which could be done very well at the primary care physician level. 

What are the economic consequences of this pattern? Hospitals 

such as Cooper must shift expenses to those with health insurance. 

Patients with employer-sponsored health insurance constitute just 

over 30 percent of our patient base and approximately 30 percent 

of our costs. However, this segment of our business over the past 

3 years represents about 40 percent of our revenue. 

Unfortunately, these underlying dynamics of our healthcare economy are not sustainable. As costs are shifted to the paying patients, premiums rise and individuals and businesses aren’t able to 

pay for health insurance coverage. This increases the number of 

uninsured and under-insured, which leads to further cost shifting. 
15 

The picture I have drawn of Cooper and the healthcare economy 

in Camden can be found throughout New Jersey, albeit to somewhat lesser extent in the state as a whole. Over the last 6 years, 

the percentage of uninsured, charity care and Medicaid hospital 

cases have grown from 14.8 percent to 18.5 percent. Insured cases 

have declined from 47.6 percent to 41.9 percent. 

During the same period, provision of hospital charity care service 

priced at Medicaid rates grew from 624 million to 945 million annually. This represents an annual growth rate of 8.6 percent per 

year. 

These trends regarding the decline of healthcare coverage and increase in uninsured and under-insured in New Jersey are taking 

a serious toll on the hospital industry. More than half of New Jersey’s hospitals are operating in the red, and eight hospital have 

closed their doors since 2002. 

In conclusion, it would seem clear that employer-sponsored 

healthcare insurance has been, and will continue to be, crucial to 

the financial health of hospitals such as Cooper and New Jersey’s 

healthcare economy. However, businesses have a right to be seriously concerned about the increasing cost of healthcare. The trends 

are not sustainable. The cornerstone of healthcare reform is the expansion of insurance coverage to all Americans, and employer-sponsored plans will play a key role. 

It will also be important for there to be stability in health insurance premiums so that businesses and individuals are able to adequately plan to meet their obligations. This in turn will require a 

decline in the rate of healthcare cost inflation. We stand ready to 

do our part to better manage care and reduce unnecessary hospitalizations and improve the quality and cost efficiency of 

healthcare services. 

Thank you. 

[The statement of Mr. Sheridan follows:] 

Prepared Statement of John Sheridan, CEO, Cooper University Hospital 

‘‘How significant is uncompensated care due to free rider employers in the health 

care system in the rising cost of health care; particularly, insurance premiums, 

deductibles, co-pays and other cost-sharing arrangements?’’ 

Good morning. Thank you, Chairman Andrews, for your introduction. I would like 

to thank the Chairman and his fellow esteemed members of this Committee for the 

opportunity to address you on this important topic. 

Cooper University Hospital, based in Camden, New Jersey, is a major teaching 

hospital and regional tertiary-level referral center serving the southern New Jersey 

region. Cooper University Hospital is the flagship of The Cooper Health System. It 

is the premier university hospital serving South Jersey and the Delaware Valley. 

As the core clinical campus for the Robert Wood Johnson Medical School in Camden, 

Cooper is a national leader in medical education and research. With its comprehensive services and cutting-edge technology, the hospital is renowned for its prestigious Centers of Excellence in cardiology, cancer, critical care, trauma, orthopedics 

and neurology. Cooper has embarked on a $500 million expansion of its Camden 

Health Care Campus including the new $220 million patient Pavilion which opened 

in December 2008. Cooper and its community partners earned a 2008 Smart Growth 

Award from New Jersey Future for the vision of the Health Sciences Campus in 

Camden. 

As many of you are aware, Camden city is one of the poorest cities in the United 

State, with approximately 40% of its households living below the federal poverty 

level. Cooper is the city’s main health care provider, serving as its community hospital and provider of primary and sub-specialty medical care. As a consequence, Cooper is the largest provider of charity care services in South Jersey and is recognized 
16 

as a ‘‘safety-net’’ hospital—one of the largest providers of charity care services in 

New Jersey. 

While the national recession has taken a serious toll on Cooper’s finances in the 

course of the past year, the Camden environment and its poor economy has presented difficult financial challenges for Cooper for decades. We have managed to 

grow over the past eight years by recruiting some of the top doctors in the country 

and developing clinical centers of excellence with national reputation. This has enabled Cooper to increase its patient utilization and attract New Jersey residents 

who in the past have depended on the major academic medical centers in Philadelphia. 

Cooper’s payer mix presents a microcosm of the healthcare finance dynamics at 

work in New Jersey and the country at large. Fundamentally, healthcare providers 

such as Cooper with a great volume of patients that are uninsured or under-insured, 

must shift their costs to their paying patients. Those without healthcare insurance, 

and patients qualifying for charity care and Medicaid, totaled over 38% of Cooper’s 

patient base in 2006, and this number has grown over the past three years to nearly 

41% in 2008. While Cooper receives State funding for its charity care services, it 

only covers approximately 50% of the costs of these services; Medicaid funding typically covers only 60-70% of costs. Thus, for Cooper, this uninsured and underinsured 

population combined represents approximately 30% of our costs over the past three 

years, but only 15% of our revenue. 

The reason why 40% of Cooper’s patients only account for 30% of Cooper’s costs 

is explained by the fact that the uninsured typically use hospitals for less acute, primary-care related services. Thus, their hospital cost-per-person is lower than the average. However, this represents a misallocation of resources in our health care economy in that expensive hospital resources are being utilized in place of less expensive 

physician-based primary care. 

So Cooper is a safety-net health care provider, and we are there for our patients 

without regard for the patients’ ability to pay for care—a mission Cooper has maintained for 120 years. But what are the economic consequences of this pattern of hospital utilization? Hospitals such as Cooper must shift expenses to those with health 

insurance. 

Patients covered under Medicare insurance represent 30% of our patient base and 

Medicare rates pay close to actual cost of care, though in recent years, Medicare has 

not kept up with the increased cost of providing care. 

Patients with employer-sponsored health insurance constitute just over 30% of our 

patient base over the past three years, and approximately 30% of our cost structure. 

However, this segment of our business over the past three years represents approximately 40% of our revenue. One might say that this premium of ten percent over 

the cost of care for this segment of business represents part of the price of the social 

contract to care for those unable to pay for themselves. 

Unfortunately, the underlying dynamics of our healthcare economy are not sustainable. As costs are shifted to the paying patients, premiums rise, and individuals 

and business are unable (or unwilling) to pay for health insurance coverage. This 

increases the number of uninsured and underinsured, which leads to further cost 

shifting, and the precarious healthcare economy we all face today. 

Increasing health care insurance coverage will help to stabilize the inflation of 

health care expenses. While this is a necessary component of health care reform, 

it will be insufficient to reduce health care costs, unless greater resources are allocated to primary care and the proper clinical management of chronic diseases. There 

are numerous primary care initiatives and interventions being tested around the 

county, and at Cooper as well, which demonstrate that we can substantially reduce 

health care expenses by ‘‘case management’’ and patient education which facilitates 

better disease management and reduction in the use of expensive emergency departments and hospitalization. 

The picture I have drawn of Cooper and the healthcare economy in Camden can 

be replicated for the State of New Jersey. Over the last six years, the percentage 

of uninsured, Charity Care, and Medicaid hospital cases have grown from 14.8% to 

18.5%, while non-governmental health insurance payers including commercial, 

HMO, and point of service health insurance coverage has declined from 47.6% in 

2002 to 41.9%. Approximately 90% of this category is employer-sponsored, according 

to O’Conco Healthcare, a prominent health care consultancy. 

During the same time period, provision of hospital charity care services—priced 

at Medicaid rates, which are approximately 60%-70% of actual costs—grew from 

$624MM to $945MM—a 51% increase over six years. This represents an annual 

growth of demand for charity care services in New Jersey of 8.6% per year. New 

Jersey State payments for hospital charity care services have grown from $381MM 

in 2002—covering 60% of hospitals’ charity care services priced at Medicaid rates— 
17 

to $715MM in 2008—covering 75% of charity care at Medicaid rates. The cumulative 

impact on the hospital industry of the shortfall in hospital payments for New Jersey 

charity care represents $2.32 billion over the past six years! 

These trends regarding the decline in health care coverage and increase in the 

uninsured and underinsured in New Jersey, along with the continued deficit in hospital charity care funding, have take a serious toll on the hospital industry. More 

than half of New Jersey hospitals are operating in the red and eight hospitals have 

closed their doors since 2002. 

It is useful to put these trends in perspective of the business community in New 

Jersey, and the pressure it faces in response to the continued increase in health care 

costs and the cost of health insurance coverage. 

In 2008 the New Jersey Business and Industry Association’s annual ‘‘Health Benefits Survey’’ found that health insurance costs rose by an average of 9.4 percent 

in 2007. Employers spent an average of $7,139 per employee. More startling, it 

found that costs have doubled in the past six years, given the effects of 

compounding. In spite of this, the vast majority of employers in New Jersey are continuing to provide health insurance coverage for their employees (98% of companies 

with 51+ employees and 95% of companies with 20-50 employees), though the beneficiaries have faced increased out-of-pocket expenses. Very small companies, however, seem to be reaching the breaking point. Some 75% of companies with 2-19 employees provided coverage last year, but 92% provided coverage just four years ago. 

Many small employers continued to provide coverage by cutting costs in other areas. 

Sixteen percent of small employers limited salary increases and another 10 percent 

scaled back hiring. 

The latest New Jersey Business & Industry Association’s Health Benefits Survey 

was conducted in January 2008, and included over 1,000 New Jersey businesses, 88 

percent of whom were small companies with 2-50 employees, representing all major 

industry sectors and all 21 New Jersey counties. Among their findings: • The average cost of $7,139 per covered employee in 2007 included coverage of 

both full-time employees with no covered dependents and full-time employees with 

covered spouses and/or dependents. This was the amount paid by the employer. It 

did not include the share of premium costs paid by employees. • The average increase of 9.4 percent for all companies in 2007 followed increases 

of 11.3 percent in 2006, 12 percent increase in 2005, and 11.2 percent in 2004. Factoring in increases of 13.2 percent and 15 percent recorded by the NJBIA survey 

in 2002 and 2003, and given the effects of compounding, employers paying these average cost increases would have seen their costs double over the past six years. • The cost of health insurance, as a percentage of wages and salaries, also rose for many companies last year. The average cost of $7,139 per employee represented 

15 percent of reported average wages of $47,414. This is up from 2006, when employer health insurance costs represented 13.5 percent of average wages. 

• As a group, employers do not expect their health plan costs to moderate anytime soon. Survey participants anticipate that their costs will increase by an average of 9.7 percent in 2008. 

• The proportion of the smallest companies, those with 2-19 employees, sponsoring coverage has fallen as costs have risen. Seventy-five percent of this group reported providing coverage in the current survey, down from 92 percent four years 

ago. The average size company in this group has six employees. 

• When companies that no longer provide coverage were asked why, 76 percent 

said they could no longer afford it. Another 10 percent said they were unable to satisfy the State’s requirement that at least 75 percent of their workforce participate 

in the plan. 

Nationally, the American Hospital Association is a useful source for data on uncompensated care nationwide. Among its findings: 

• In the aggregate, both Medicare and Medicaid payments fall below costs and 

the shortfall has been growing. 

• Combined underpayments rose from $3.8 billion in 2000 to nearly $32 billion 

in 2007 

• For Medicare, hospitals received payment of only 91 cents for every dollar spent 

by hospitals caring for Medicare patients in 2007 

• For Medicaid, hospitals received payment of only 88 cents for every dollar spent 

by hospitals caring for Medicaid patients in 2007 

• In 2007, 58 percent of hospitals received Medicare payments less than cost, 

while 67 percent of hospitals received Medicaid payments less than cost 

I have attached some relevant data on these trends provided by the AHA below 

in Table #x. 

The AHA’s policy position on the uninsured echo’s the Institute of Medicine’s report which focuses on the ‘‘cost of health care, particularly the cost and access to 
18 

health care insurance, as well as the decline in employer sponsored health care as 

the key contributing factors to the recent rise in the uninsured. Solving the problems of health care coverage will be a critical step in solving the burden of hospital 

uncompensated care.’’ 

In conclusion, it would seem clear that employer-sponsored healthcare insurance 

has been and will continue to be crucial to the financial health of hospitals such 

as Cooper and New Jersey’s healthcare economy. However, employer-sponsored 

healthcare insurance is endangered. Businesses have a right to be seriously concerned about the cost of their coverage and the increasing cost of health care. The 

trends are not sustainable. The cornerstone of health care reform will be to expand 

insurance coverage to all Americans, and employer-sponsored plans will necessarily 

play a key role. It is likely that business will need substantial incentives to increase 

their participation, particularly small businesses that are unable to afford coverage 

for their employees. Secondly, it will be important for there to be stability in health 

insurance premiums so that businesses and individuals are able to adequately plan 

for meeting their obligations. This, in turn, will require a decline in the rate of 

healthcare cost inflation. Health care providers stand ready to do their part to better manage care and reduce unnecessary hospitalizations, and improve the quality 

and cost-efficiency of health care services. 

I would be pleased to take any questions that members of the committee may 

have. 

REFERENCES AND SOURCES OF DATA

1. O’Conco Healthcare Consultants, Hospital Utilization by Payer Mix, 2002-2008. NJ MIDS 

Data. 

2. New Jersey Hospital Association, Trends in Charity Care Funding in NJ, 2009. 

3. New Jersey Business and Industry, Changes in Employer-Sponsored Health Insurance Coverage.2008.http://www.njbia.org/news—newsr—080429.asp;http://www.njbia.org/hbs08.ppt. 

4. American Hospital Association, Underpayment by Medicare And Medicaid: Fact Sheet, November 2008 

5. American Hospital Association, Uncompensated Hospital Care Cost Fact Sheet, November 

2008 
19 
20 
21 
22 

Chairman ANDREWS. Mr. Sheridan, thank you very much for 

your testimony. 

Mr. Winkler, welcome to the subcommittee. 

STATEMENT OF JIM WINKLER, HEALTH MANAGEMENT 

PRACTICE LEADER, HEWITT ASSOCIATES 

Mr. WINKLER. Mr. Chairman and members of the subcommittee, 

thank you for the opportunity to testify at this important hearing. 

My name is Jim Winkler, and I am the health management consulting practice leader at Hewitt Associates. At Hewitt, we consult 

with large employers, helping them improve employee health and 

reduce absence through better program design. In addition, we are 

the leading provider of benefits outsourcing services, administering 

health and welfare benefit programs for 195 employers representing nearly eight million participants. 

I am pleased to focus my remarks today, as requested, on the experience of large employers, the majority of whom do provide 

healthcare coverage today. While large employers are not a homogenous group, I do want to be clear in saying that employers and 

Hewitt support the concept of healthcare reform and believe that 

all efforts to cover working Americans should build upon and fur-
23 

ther strengthen the employer-based system which provides coverage to more than 160 million participants today. 

Employers have a vested interest in the health and productivity 

of their workforce, and the employer-based system has helped foster that interest. However, despite the positive actions of employers, there are many problems to solve in the current US healthcare 

system. 

As we all know, healthcare is too costly. Average annual 

healthcare costs for a typical large employer will exceed $13,000 

per employee by 2014, a 50 percent increase over current costs. 

Both employers and employees will find it difficult to afford such 

an increase. 

We also believe that systemic changes are needed to reverse current cost acceleration. The federal government, employers and 

health plans must work together to change the payment system to 

better focus physicians and hospitals on wellness, primary and preventative care, with strong incentives for evidence-based medical 

treatment. 

Finally, we spend too much on chronic conditions without measurable quality. We must attack the root causes of smoking, poor 

nutrition, obesity and physical inactivity by providing financial incentives for healthy behaviors. 

This will not only lower healthcare costs, but will also reduce absence. This is critical, as lost workforce productivity is a very real 

cost to the US economy. 

The cost of healthcare for large employers and their employees 

is higher because of gaps in coverage and differences in reimbursement rates between public and private healthcare programs. Large 

employers pay somewhat higher premiums to cover provider costs 

for uncompensated care. 

Further, employers fund higher cost for medical treatments because Medicare and Medicaid payment rates are comparatively 

lower than rates for employer-sponsored group health plans. Large 

employers are concerned that cost shifting could increase further if 

rising healthcare costs encourage small and medium size businesses to drop health coverage in order to remain competitive, particularly in these difficult economic times. 

So how do we address these issues? In our written testimony, we 

identified five imperatives for healthcare reform, and I would like 

to highlight three of them today. 

First is we need to preserve and promote the employer-based 

healthcare system that generally works, while imperfect, for 160 

million people today. 

Second, we must protect and strengthen federal ERISA preemption of state laws to promote uniformity in coverage and reduce 

administrative costs. The vast majority of large employers operate 

across multiple states, and they must be able to continue to offer 

administratively efficient uniform benefit packages to their employees. 

And third, we must allow employers flexibility in how they meet 

any new standards for health coverage. For example, they should 

be able to demonstrate that their plans are equivalent in value to 

any standard benefit requirements, similar to the rules in place for 

the retiree drug subsidy under Medicare Part D today. 
24 

As I noted at the outset, large employers support healthcare reform that will lead to sustained affordability for themselves and 

their employees. How large employers react to specific reform proposals will depend in large part on the many critical details in any 

proposed reform and whether or not large employers view that specific reform as likely to increase versus mitigate their healthcare 

costs. 

The earlier that Congress can make details available for discussion and analysis, the better that employers can react. Congress 

has the challenge of sorting through the details of how reform will 

be accomplished, with competing approaches and viewpoints. Hewitt would be pleased to offer its data analysis and its experience in 

helping the subcommittee evaluate the impact of detailed reform 

plans on coverage provided by large employers today and in the future. 

Thank you. 

[The statement of Mr. Winkler follows:] 
25 
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29 
30 
31 
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33 

Chairman ANDREWS. Thank you, Mr. Winkler, and I am sure 

that we will call upon you and your expertise for that assistance. 

Thank you. 

Mr. Trautwein, welcome. 

STATEMENT OF E. NEIL TRAUTWEIN, VICE PRESIDENT AND 

EMPLOYEE BENEFITS COUNSEL, NATIONAL RETAIL FEDERATION 

Mr. TRAUTWEIN. Thank you, Mr. Chairman, Ranking Member 

Kline and members of the subcommittee. 

By way of introduction, the NRF is the world’s largest retail 

trade association. We represent all retail formats and channels to 
34 

distribution. We represent an industry with more than 1.6 million 

retail establishments everywhere from Main Street to commercial 

streets. We represent 24 million employees, about one in every five 

American workers today. 

We had 2008 sales of about $4.6 trillion, though obviously, in the 

current economy, that is a goal we won’t reach in the coming year. 

We, too, strongly support the voluntary employer-sponsored 

healthcare system, even though times are tough, and even though 

we have a tough population to cover. Even in the best of times, we 

endure wafer-thin profit margins, and it is really tough, particularly as you go down in size, for many retailers to survive. We really have no choice, in the current environment, but to manage the 

cost of labor very, very carefully in as cost-effective a way as possible. 

Maintaining that balance between healthy workers and the running of the business is not always easy. In fact, it can be borderline 

impossible, even in the best of times. 

I have attached the NRF’s comprehensive healthcare reform proposal to the end of my written testimony. I would be happy to answer any specific questions on this. 

But we share the concern among the panel on lowering 

healthcare costs. That really, to us, is the key to making healthcare 

reform work. Lower the cost of coverage, the more people who can 

obtain the coverage. 

I would like to focus on our shared goal of strengthening the employer-based system. As I noted, retailers, by and large, are still 

committed to this voluntary system even in these tough times. This 

mix of compensation, both wages and benefits, are part of how employers have distinguished themselves in attracting employees 

through the years. In a minute, I will talk about an alternative to 

an employer mandate that we think makes better sense in terms 

of leveling the playing field. 

We share the concern of larger employers. In fact, we have many 

large retailers that the rising cost of care will threaten our ability 

to maintain the benefit. We also agree with President Obama, that 

the current cost trajectory is unsustainable. We have to bring 

healthcare costs back down to earth. 

We also need to be able to find the quality in healthcare, something that has been sorely lacking. An NRF small independent retailer recently testified before another committee of this House that 

his customers know more about the pet products on his shelf than 

they do the doctor down the street, and that is something that we 

all can work to improve. People should be able to select the best 

quality care, just as they choose between different retailers on a 

daily basis. 

I would like to focus on three particular reform elements, some 

of which have already been discussed, that some might have you 

consider. First, a mandate on employers to provide coverage or pay 

into a public fund we feel would have the perverse effect of lowering wages and lowering the number of jobs in the local community. In the current environment, we can’t afford new government 

mandates or minimums on the coverage we offer, and I would ask 

who will be available to pay doctor bills if there are no jobs in hand 

to help pay for the coverage. 
35 

We would urge consideration, instead, of an individual mandate 

to obtain basic health insurance coverage, and thus leverage voluntary employer contributions, keeping employers in the mix in 

supplement of the basic benefit, and to help employees accept the 

coverage we offer. We have a number of employees who don’t accept the coverage we offer today. 

Second, we would strongly urge you not to disrupt the federal 

ERISA law, which we agree with many of our panelists is the backbone of the employer-based system. Without ERISA, multi-state 

employers—and retailers are also multi-state employers—we 

couldn’t offer common benefit packages across state lines. 

We don’t agree with the proposition that ERISA pre-emption 

should only be brought to plans that meet federal minimums on 

the composition of benefits or on the size of employer contributions 

to plans. Unraveling ERISA will take employer dollars off the table 

and greatly complicate the task of achieving healthcare reform and 

universal coverage. 

Finally, we would urge you to reject efforts to limit or eliminate 

the tax-favored treatment of employer-provided health insurance. 

Efforts to cap or eliminate the employee income tax exclusion could 

create a backlash against healthcare reforms as employees face 

higher taxes for benefits over the cap or lower benefits to stay 

under the cap. Enacting healthcare reform is going to be tough 

enough without creating big constituencies against it. 

Finally, in conclusion—I see my light is up—we want to be able 

to play a supportive, positive and nonpartisan role in furthering 

healthcare reform. We really feel like the talking phase has gone 

long enough, and we hope to get to enactment of the right kinds 

of healthcare reform . 

Thank you, Mr. Chairman. 

[The statement of Mr. Trautwein follows:] 

Prepared Statement of E. Neil Trautwein, Vice President and Employee 

Benefits Policy Counsel, National Retail Federation (NRF) 

Mr. Chairman, Ranking Member Kline and honored members of the Health, Employment, Labor and Pensions Subcommittee, I thank you for the opportunity to appear before you today and to share our views regarding the employer-based health 

care system. My name is Neil Trautwein and I am Vice President and Employee 

Benefits Policy Counsel of the National Retail Federation (NRF). 

The National Retail Federation is the world’s largest retail trade association, with 

membership that comprises all retail formats and channels of distribution including 

department, specialty, discount, catalog, Internet, independent stores, chain restaurants, drug stores and grocery stores as well as the industry’s key trading partners of retail goods and services. NRF represents an industry with more than 1.6 

million U.S. retail establishments, more than 24 million employees—about one in 

five American workers—and 2008 sales of $4.6 trillion. As the industry umbrella 

group, NRF also represents more than 100 state, national and international retail 

associations. www.nrf.com. 

The retail industry is one of the biggest supporters of the employer-based health 

insurance system—despite not having an easy workforce population to cover. We 

have a fairly young workforce (though increasingly with a significant senior cohort) 

coupled with a high turnover rate. We employ half of all teenagers in the workforce 

and a third of all workers under 24 years old. More than a third (35 percent) of 

our workforce is part-time. Two-thirds of our part-time employees are women. Often 

retail industry employees are second wage earners, mainstays of family economies. 

Frequently, qualified retail workers opt-out of the coverage we offer because they 

already have alternative coverage through a family member or another job. Smaller 

retailers often experience problems making health insurance plan participation requirements because too many employees opt out. 
36 

As a labor-intensive industry, retailers are strong advocates of quality and affordable health coverage in order to help keep our employees healthy and productive. 

As an industry that frequently endures wafer-thin profit margins or worse, we are 

also well acquainted with the need to manage the collective cost of labor in as costeffective a manner as is possible. Maintaining balance between these two imperatives is not always easy—it is borderline impossible, even in the best of times * * * 

and these are far from being the best of times. 

We hope to work with you and other members of the U.S. House and Senate to 

bring about enactment this year of real health care reform including meaningful relief from rising health care costs—that is the key, in our view, to reaching universal 

access to health coverage. Recognizing that health care would be a key priority regardless of the outcome of the November 2008 elections, NRF proposed a comprehensive solution to increasing access to more affordable health coverage in our 

‘‘Vision for Health Care Reform.’’ We believe our reform vision can lead to a sustainable path to preserve the voluntary employer-based health care system. Please allow 

me to first focus on our shared goal of strengthening employer-based health coverage, particularly three key issues that could bear on the future of employer-based 

health coverage. 

Strengthening Employer-Based Health Care 

Most everyone loves employer-based health coverage, though the degree of their 

affection for it varies greatly. Retailers by and large are still committed to this voluntary system, even in tough times like these. We still have an interest in keeping 

our employees healthy and at work. This mix of compensation—wages and benefits—is a key element in how one employer distinguishes itself from another in attracting employees. 

Employer commitment to voluntary coverage is strained by the high cost of care 

and coverage and the wildly uneven quality of medical care today. We agree with 

President Obama and OMB Director Orszag that the current cost trajectory is 

unsustainable. For the reform to succeed and for the sake of our collective financial 

future, we must bring health care costs back down to earth. 

It can be as hard to find quality in health care today as it is to follow the shells 

in a confidence game. We simply must work together both to demystify health care 

as well as to make it more accessible and user-friendly. The commitment to health 

information technology (HIT) already enacted this year will make that task easier, 

but we will all be challenged by resistance to comparisons on cost and quality. 

Threats to Employer-Based Health Care 

We strongly urge policymakers to be wary of three reform elements that some 

would have you consider. A mandate on employers to provide coverage or pay into 

a public fund would have the perverse effect of reducing jobs or depressing wages. 

Retailers are struggling particularly in the current environment to keep our doors 

open. We do not need and cannot afford any new government mandates or minimums on the coverage we offer. Surely maintaining and expanding employment 

while lowering health care costs should be our collective goal. 

We would urge, however, consideration of an individual mandate to obtain basic 

coverage and leverage voluntary employer contributions with government subsidies 

to help employees to accept available coverage or purchase other coverage. That is 

clearly a better and more sustainable path towards universal coverage. 

We would also strongly urge you not to disrupt the federal ERISA law that is the 

crucial backbone of employer-based health coverage. Without ERISA, multistate employers could not offer common benefit plans across state boundaries. We also reject 

the idea that ERISA preemption should only be granted to plans that meet federal 

minimums on the composition of benefits or the size of employer contributions to 

plans. Reducing the number of plans that enjoy ERISA preemption will take most 

of those employer dollars off the table, further complicating and increasing the cost 

of our task of reaching universal coverage. 

Finally, we urge you to reject efforts to limit or eliminate the tax-favored treatment of employer-provided health insurance—the single largest federal health care 

expenditure. Efforts to cap or eliminate the employee income tax exclusion could 

create a backlash against health care reform as employees face higher taxes for benefits over the cap or lesser benefits to fit under the cap. 

I would argue that the task of enacting and implementing health care reform will 

be difficult and controversial enough without exciting large scale employee opposition to it. Taxing or reducing health care coverage for some to fund coverage expansion for others is too high a price to pay. 
37 

1 A copy of the complete NRF health care reform proposal is attached at the end of this testimony. 2Dave Ratner (Dave’s Soda and Pet City) on behalf of NRF, House Small Business Committee, 

February 4, 2009 

NRF Vision for Health Care Reform 

The National Retail Federation’s Vision for Health Care Reform1 was approved 

in final form by the NRF Board of Directors in January 2008. We are proud of this 

document, but are also flexible enough to look beyond its corners for other good 

ideas. We are aggressive proponents for enacting the right kinds of health care reform as soon as is possible. We hope to be a nonpartisan ally in this crucial effort. 

Elements of our Vision document were recommended by a special Health Care 

Taskforce and associated Health Care Taskforce Workgroup formed by the NRF 

Board in 2006. Both groups contained both small and large retailers, chain restaurants and representatives of member state associations. Individual subworkgroups (Retail Industry and Health Care; Innovation in Health Care; Innovations in Plan Design; and Ongoing Policy Debates) were formed to study the health 

care crisis in depth before developing these recommendations for the NRF Board. 

Our Vision document is the product of that intensive review process. 

Four Pillars for Reform 

The four key elements of the NRF Vision are to: improve health care quality; 

lower health care costs; increase access to coverage; and reform state health insurance markets. Stated differently, our proposal seeks to increase access to a valueoriented health care and coverage system. 

We believe that until we can create better value in health care and coverage, we 

will never be able to spend enough collectively to expand quality and affordable 

health coverage to all Americans—a goal we retailers share. The challenge, clearly, 

will be getting there. Retailers who don’t offer consistent value to their customers 

don’t survive; amazingly the same is not true for our health care system. 

Improving Health Care Quality 

We spend more than any other nation on health care but get only middling to 

poor returns on life expectancy, disease states and other health care quality indices. 

Connecting the myriad disorganized elements of our health care system through 

health information technology (HIT) will help, as will development of consumer 

friendly interoperable electronic personal health records. 

One of the biggest changes will be the development of consumer-friendly comparative cost and quality information. An NRF small independent retailer recently testified before another House committee2 that: ‘‘[his] customers know more about the 

pet products on [his] shelf than they do about the doctor down the street, and that 

is not right.’’ People should be able to select the best quality care just as they choose 

between retail competitors on a daily basis. Competition encourages lower prices 

and better quality. More and better competition could do wonders for health care. 

Lower Health Care Costs 

We believe that the key to making health coverage more accessible lies in reducing its cost. This should be the central goal in all health care reform efforts. 

We have identified a number of proposals in this area including: better engaging 

consumers in self-management and value-conscious shopping for care; promoting 

wellness and better managing chronic conditions; and preserving the federal ERISA 

law to help more employers sponsor uniform benefits across state boundaries. 

Increase Access to Coverage 

As I have noted previously, reducing the cost of health coverage will help many 

more businesses and individuals gain access to that coverage. Increasing access will 

help better spread insurance risk and help reduce overall costs. 

We believe that we can reach universal coverage (a goal we retailers share) without mandating that employers provide coverage. We would urge the Congress to 

consider requiring all individuals to obtain a basic level of health coverage and 

make it as easy as possible for employers to voluntarily offer employees access to 

coverage. 

As noted previously, the problem with employer mandates—either to provide coverage or provide specific coverages—is that they directly increase the cost of coverage and hence the cost of labor. Higher labor costs mean fewer employees to enjoy 

less coverage: the opposite effect that pro-mandate policymakers seek. 

As rational businesspeople, our members want to employ as many people as they 

can afford to employ and their business can support. Employer mandated health insurance will distort that balance and leave everyone—including the employer—un-
38 

happy. I would surmise that someone would gain from an employer mandate, but 

who will pay the doctor bills if people don’t have jobs? It is a classic lose-lose proposition. 

We also continue to support various pooling mechanisms to facilitate purchasing 

of coverage, particularly for small businesses. We urge policymakers to be wary 

about trying to transplant the bulky and bureaucratic Massachusetts exchange to 

other states: there was a particular set of circumstances that helped make the Massachusetts Connector possible. Policymakers might have done just as well (or better) 

by implementing an electronic portal-type exchange (like the commercial 

‘‘Travelocity’’ website, but for health insurance) at lower cost and better choice. 

State Insurance Market Reform 

In order to help encourage more affordable access to state-based and regulated insurance coverage, we urge steps to help reduce the complexity and expense of state 

markets. Weeding out or applying sunset dates to coverage mandates, encouraging 

more flexible plan designs (especially for part-time workers) and shoring up access 

to high risk pools or carriers of last resort for the medically uninsurable will all 

help. We would also encourage the states to enact less restrictive rating reforms to 

help encourage lower-paid employees to obtain coverage and thus reduce costs for 

older workers in the process. 

Building Consensus for Reform 

As proud as we are of our Vision for Health Care Reform, we are under no illusion 

that Congress or the Obama Administration will turn to us and say ‘‘oh, there’s the 

final answer.’’ I would venture that there is no industry in America—and practically 

no American—without big ideas for health care reform. There are quite a few ideas 

that have appeared in Congress and during the recent Presidential campaign as 

well. 

But, we do hope that our Vision will help add to the growing consensus around 

reform. I would be glad to discuss any of the elements of our proposal that interest 

you in greater depth. 

Our members want, need and expect to see real relief from rising health care 

costs enacted and are determined to play a positive role in the reform cause. Success 

will also depend in part on whether a strong pro-reform coalition can be built among 

the myriad, diverse and frequently contrary interests outside the political process. 

It’s relatively easy to build a coalition of the disaffected to oppose reform. We hope 

to work with you to help build a stronger coalition of the eager and willing supporters of reform. The talking phase has gone on for long enough, at least in our 

view. 

Conclusion 

Again, NRF greatly appreciates the opportunity to appear before you today. In 

sum, we urge you to work to create a value-oriented health care system that promotes lower cost and higher quality care and coverage for employers of all sizes and 

individuals from all walks of life. We urge you to carefully consider the downstream 

implications of specific proposals on the cost and quality of care and coverage and 

particularly how different proposals interact. We look forward to working with you 

to help promote the enactment of positive health care reform. 

NRF Vision for Health Care Reform 

The retail industry employs one out every five workers in today’s economy and 

is an important source of health coverage for our associates and their dependents. 

The industry is eager to assist in efforts to improve the quality, cost and access to 

health coverage. Americans deserve better value for our collective health care dollar. 

The National Retail Federation supports the following principles to help reform our 

nation’s health care system: 

Improve Health Care Quality—we need better value (defined as the quality and 

cost of care) from our health care system. We spend more than any other country 

but lag behind other countries in leading health care indicators. 

• Promote the implementation of health information technology as quickly as possible to transform health care administration from paper to interoperable electronic 

records. This will allow health care professionals to better coordinate care and also 

make timely clinical information available to health care professionals to help reduce medical errors and avoid duplicative or unnecessary procedures. 

• Promote the development of an interoperable, electronic Personal Health Record 

that can be used by licensed health care professionals in any setting and can be 

used by patients to transfer their medical history as they move from plan to plan. 

• Encourage the use of evidence-based medical standards wherever possible. 
39 

• Encourage the availability of comparative health cost and quality information 

(e.g. transparency). Encourage the availability of this information in easy-to-understand consumer guides. 

• Encourage a team-based approach to medicine with the patient as an active 

participant in managing his or her health. (Electronic medical records can help). 

• Encourage quality-based payment programs (a.k.a. value-based purchasing) and 

other payment reforms to encourage the highest quality integrated care. 

• Facilitate the reporting of information through financial incentives for providers. 

• Lower Health Care Costs—the key to making health coverage more accessible 

is in reducing its cost. The NRF believes effective measures to improve health care 

service delivery and reduce costs must be a first and central focus of health care 

reform at any level. 

• Support initiatives that serve to engage consumers in managing their health 

and shopping for high quality and lower cost health care services when needed. 

• Promote initiatives to promote wellness within the workforce and better manage and prevent chronic illness conditions. 

• Preserve the federal ERISA law to help employers sponsor uniform benefits 

across state boundaries. 

• Permit the medical management of covered benefits (including mental health 

benefits) to help provide necessary and equitable coverage. 

• Enact medical liability reforms to reduce the downstream costs of medical litigation. Reforms should clearly differentiate process failure, human error, negligence 

and malpractice, including errors caused by obsolete processes and practices. 

• Continually work to eliminate waste and inefficiencies in the health care system. 

• Establish a ‘‘no tolerance’’ position on fraud and abuse by health care service 

providers and consumers alike. 

• Encourage participation in local and regional reform coalitions that align themselves with broader national initiatives that are consistent with this vision. 

Increase Access to Coverage—reducing the cost of health coverage will help many 

more businesses and individuals gain access. Increasing access will spread insurance risk and help reduce overall costs. In addition, the NRF recommends the following steps: 

• Consider requiring individuals to obtain health insurance coverage. Encourage 

but do not require businesses to offer employees access to coverage. 

• Consider voluntary coverage options for part-time workers that emphasize 

wellness and prevention coverage and help protect against catastrophic health expenses. 

• Consider group purchasing or other risk-pooling programs to increase access to 

coverage for small businesses and individuals. Encourage access to state, regional 

or national high risk pools or carriers of last resort for the medically uninsurable. 

• Consider tax credits for individuals or small businesses to help make coverage 

more affordable. 

• Consider creating personal health savings accounts to accumulate personal savings and voluntary contributions from one or more employers, along with public subsidies or credits and individual funds to help pay for health insurance premiums. 

• Add additional flexibility to Health Savings Accounts (HSAs) to make them 

more attractive to businesses and individuals. Allow Health Reimbursement Arrangements (HRAs) and Flexible Spending Accounts (FSAs) to more effectively coordinate with HSAs. Allow FSA funds to roll over from year to year. 

State Insurance Market Reform—in order to encourage more affordable access to 

state-regulated insurance coverage, the NRF recommends the following principles: 

• Help reduce the complexity and cost of coverage by encouraging lawmakers to 

refrain from passing benefit coverage mandates, employer mandates or mandatory 

employer contributions. 

• Consider setting a sunset date for existing coverage mandates or allowing the 

coexistence of lower-cost benefit coverage alternatives. 

• Consider more flexible plan designs (especially for part-time workers) that emphasize wellness and prevention coverage and help protect against catastrophic 

health expenses. 

• Encourage states to maintain access to high risk pools or carriers of last resort 

for the medically uninsurable. 

• Consider less restrictive rating reforms to encourage younger employees to obtain coverage and thus promote more equitable generational cross-subsidization. 
40 

Chairman ANDREWS. Thank you, Mr. Trautwein, for both the 

spirit and substance of your testimony. Thank you. 

Dr. Thorpe, you are our clean-up hitter. 

STATEMENT OF KENNETH THORPE, CHAIR OF THE HEALTH 

POLICY AND MANAGEMENT DEPARTMENT, EMORY UNIVERSITY 

Mr. THORPE. I appreciate that. Thank you, Chairman Andrews, 

Representative Kline, members of the subcommittee, Dr. Price for 

that kind introduction and for his thoughtful leadership on this 

issue as well. 

We all know the statistics, but I am going to give them to you 

anyways because they are grim. Since 1999, the cost of a family 

private insurance policy has gone up 119 percent. A typical family, 

either through lower wages or directly in premiums, pays about 

$12,600 a year on healthcare. 

So in healthcare reform, we have got to find a way to get to the 

root cause of why healthcare spending is rising. We can come back 

to that, but it really deals with the absolute explosion in chronic 

disease prevalence that is fueled by a doubling of obesity in this 

country, and secondly, the fact that three-quarters of our total 

healthcare bill is linked to chronically ill patients that, particularly 

in the Medicare program, we do a very poor job of managing, so 

we will have to come back and deal with that. 

There are certain costs, as we talked about, associated with employer-based health insurance that are less apparent than we see 

in the frequent tallies of spending. I am going to focus on two of 

them. First are the costs associated with uncompensated care that 

is not directly paid for through federal or state sources. And second 

of the costs that employers bear who offer insurance for providing 

coverage to workers they don’t employ—the spouses of their employees. 

In 2008, the last year we had data, for the 47 million people who 

don’t have coverage, they incurred expenditures of over $57 billion. 

So we are paying, through different sources and different arrangements, for the healthcare bills of the uninsured today. This is a 

very fragmented, very unorganized, and a very uncoordinated way. 

When they can, hospitals and physicians shift the cost of these 

dollars that aren’t explicitly paid for onto the cost of private insurers. Now, this differential pricing is seen as a rational market response to the ability and willingness of some payors to pay more 

than others, similar to what you find in the airline and hotel industries. Regardless of what we call it, it is clear that private insurers 

pay more for healthcare, and that these higher payments are used 

by providers to defray the costs of care for other patients, particularly the uninsured. 

On its most recent report to Congress, MedPac reported that the 

average Medicare/Medicaid margins are projected to fall. The shortfall is made up for what MedPac characterizes as unusually high 

hospital margins on private payer patients; that is, a private insurance plan, on average, pays about 20 percent more than the cost 

of care in order to offset the losses that hospitals and healthcare 

providers face from underpayments in Medicaid and from nonpayments from the uninsured. 
41 

There is a second significant cost shift to employers in providing 

health insurance, however, that is even more opaque than the cost 

of uncompensated care, and that is the cost of providing health insurance to spouses. 

Nationally, 51 percent of people under the age of 65 with private 

health insurance are covered through their own employer. Another 

10 percent directly purchase private insurance, and the remaining 

39 percent of individuals with private health insurance get coverage through their spouse and their spouse’s employer. It is this 

last category I want to focus on. 

In 2006, there were 31 million families in which both adults 

worked. An analysis I conducted at Emory showed that more than 

half of those families, 55 percent, received health insurance coverage through one, but not the other, employer. 

Nationally, the costs of workers receiving health insurance 

through their spouses amounted to an increase of $46 billion in 

payments from employers that do offer health insurance. Employers who don’t offer health insurance, for a variety of reasons that 

we can all understand, are called by some ‘‘free riders’’ because at 

least some of their workers get coverage by a spouse’s employer. 

As we have heard, many small employers would love to have 

health insurance. It is oftentimes just very expensive and not affordable to do so. And so we need to find ways to make healthcare 

less expensive. 

Well, what are the costs of these free riders to businesses that 

offer insurance today? I already mentioned the one figure of $46 

billion. Another way to think about it is that the incremental cost 

of employers that offer insurance of covering employees that are in 

firms that largely don’t offer coverage is about $2,800 a year. 

So if you think about it, the rise in the number of dual working 

families combined with the decline in the share of employers offering health insurance, is placing continued financial pressure on 

employers that continue to want to stay in the game. 

So we really have three problems, in closing. 

One, we have got to get to the fundamentals and find ways to 

make health insurance less expensive for everybody. 

And two, we have got to deal with the fact that we are doubling 

and tripling up on employers that offer health insurance both 

through cost shifting from the uninsured, underpayments on the 

Medicaid side, and by the fact that employers who do offer insurance are paying for the costs of those workers that don’t offer insurance. 

In closing, thank you for inviting me to testify. 

[The statement of Mr. Thorpe follows:] 

Prepared Statement of Kenneth E. Thorpe, PhD Chair, Department of 

Health Policy and Management, Rollins School of Public Health; Executive Director, Center for Entitlement Reform, Emory University 

Chairman Andrews and Representative Kline, as well as all the Subcommittee 

Members, thank you for inviting me here today to address important issues related 

to employer-based health insurance. 

Employers in the United States face significant constraints on profitability due to 

rising health insurance costs. Many of these costs are well known: 

• National health expenditures reached a record high last year: $2.4 trillion, 

about $7,900 per person.1
42 

• A quarter of our nation’s health spending is supported by businesses. The largest share of that spending—77 percent—is employer contributions to health insurance plans for their employees. In 2007, businesses spent a total of $518 billion dollars on health services: $398 billion in employer contributions to private health insurance premiums, $82 billion in contributions to the Medicare Hospital Insurance 

Trust Fund, and $38 billion to workers’ compensation, temporary disability, and 

worksite health services. Health spending by private businesses grew 3.9 percent in 

2006 and accelerated 5.6 percent in 2007.2

• Employer-sponsored health insurance (or ESI) covers 160 million individuals, 

about 62 percent of the nonelderly population. Overall, 63 percent of American businesses offer health insurance to their workers.3

• In 2008, the average employerbased health insurance premium for family cov- erage was $12,608, a rise of 5 percent from the previous year. Of that, employers 

paid $9,325 (74 percent) and workers paid $3,354 (26 percent). In contrast, the average cost for a single worker’s health insurance was roughly half: $4,704. Of that, 

employers paid $3,983 (85 percent) and workers paid $721 (15 percent).4

• Since 1999, average family coverage premiums have risen 119 percent.5 Premiums for employersponsored health insurance in the United States have been rising four times faster on average than workers’ earnings since 2000,6 and health insurance costs are on track to overtake profits in this decade.7

However, certain costs associated with employerbased health insurance are less 

apparent in the frequent tallies of spending. Today I will focus on two: First, the 

costs associated with uncompensated care that are shifted onto America’s employers. 

And, second, the costs employers bear for providing coverage to workers they do not 

employ, the spouses (and, increasingly, domestic partners) of their employees. 

Shifting costs of uncompensated care to the private sector 

In 2008, uncompensated care for America’s 47 million uninsured ran to an estimated $57.4 billion. Overall, uncompensated care has been roughly 6 percent of hospital costs for many years, despite a steady increase in the percentage of people uninsured.8

When they can, hospitals (and physicians) shift rising uncompensated costs from 

the uninsured as well as the underinsured to private payers. Providers also subsidize belowcost reimbursements from Medicare, Medicaid, and CHIP through 

costshifting. The extent of this costshifting is uncertain, in part because some economists do not define charging private payers higher rates as ‘‘cost shifting.’’ Differential pricing is instead seen as a rational market response to the ability and willingness of some payers to pay more than others, analogous to the airline and hotel industries.9 In my view, however, regardless of what we call it, it is clear that private 

payers pay more and that these higher payments are used by providers to defray 

the costs of care for other patients. 

Several potentially countervailing factors affect costshifting to private payers, 

such as: 

• Patient mix: Uninsured and underinsured patients, along with Medicaid and 

CHIP beneficiaries, are disproportionately cared for in safety net facilities, which do 

not serve large numbers of privately insured patients, limiting private payer 

crosssubsidization. Of course, because these costs are supported by tax dollars, including corporate taxes, employers are bearing some of the burden, along with individual taxpayers. Estimates of the costs of uncompensated care vary, depending on 

what is counted, as do assessments of who pays. The Institute of Medicine puts public support from federal, state, and local governments at 7585 percent of the total 

value of all uncompensated care estimated to be provided to uninsured people each 

year.10 An analysis I conducted of the costs of care for uninsured patients alone puts 

governments’ contributions for this population at 33 percent, with the remainder 

covered by patients with private insurance.11 Medicare patients, in contrast, are 

largely cared for in private hospitals, which can shift costs to privately insured patients. Medicare’s recent decision to no longer reimburse hospitals for eight ‘‘never 

events,’’ which several private insurance plans followed, may result in additional 

costshifting, as institutions seek to recover the costs of these rare but costly events, 

including wrongsite surgery, mismatched blood transfusions, and major medication 

errors. 

• Hospital type: There is evidence that forprofit hospitals provide less uncompensated care but also costshift more than nonprofit institutions do. On the other hand, 

however, research by former CMS director Mark McClellan indicates that areas 

with forprofits have lower labor and capital costs, and, overall, about 2.4 percent 

lower levels of hospital expenditures per patient as do areas without forprofit hospitals. The net effect of lower costs overall on any costshifting has not been determined.12
43 

• The level of uninsurance in the community: There are significant differences in 

communitylevel uninsurance rates across the nation, as well as within states and 

even counties. For example, in 2007, uninsurance rates ranged from 6 percent in 

Massachusetts to almost 28 percent in Texas. Within Los Angeles county, 

uninsurance rates for people under age 65 ranged from 6 percent to 45 percent in 

2005. In addition to costshifting, research suggests that when communitylevel rates 

of uninsurance are relatively high, insured adults have difficulty obtaining needed 

health care and to be less satisfied with the care they receive.13 Clearly, job loss 

is associated with health insurance loss. The current economic downturn has already resulted in larger numbers of uninsured individuals as well as increases in 

the numbers of Medicaid and CHIP beneficiaries, which may, in turn, result in additional cost shifting to private payers. • Hospital negotiating power: Some hospitals, particularly large urban teaching 

hospitals, have sufficient market power to negotiate higher payment rates from employers and private insurers. So do some large physician groups. But research has 

not been definitive on the frequency and amount of shifting. 

In sum, the costs of health care for uninsured, underinsured, and publicly insured 

individuals are, to an unknown extent, supported by higher payments from privately 

insured individuals and employers. In its most recent report to Congress, the Medicare Payment Advisory Commission, MedPAC, reported that average Medicare margins are projected to fall to 6.9 percent this year, a shortfall made up for by what 

MedPAC characterized as ‘‘unusually high hospital margins on privatepayer patients.’’ 14 Rising premiums, along with higher copays and deductibles, result, in 

part, from this crosssubsidization. Because the majority of uncompensated care is 

paid for by governments through tax revenues, uncompensated care thus amounts 

to a double levy: once in the form of taxes and twice in the form costs hidden in 

escalating payments for employersponsored health insurance. 

Shifting the costs of spouses to covered workers’ employers 

There is a second significant cost to employers in providing health insurance, even 

more opaque than the costs of uncompensated care: The cost of providing health insurance to spouses and domestic partners. 

Nationwide, 51 percent of people under age 65 with private health insurance are 

covered through their own employer; another 10 percent directly purchase private 

health insurance. The remaining 39 percent of individuals with private health insurance receive coverage through their spouse or partner.15 It is this last category of 

worker I will address. 

In 2006, there were 31 million families (62 million adults) in which both adults 

were employed all or part of the year. An analysis I conducted with colleagues at 

Emory University showed that more than half of dualincome families (55 percent) 

received health insurance through one but not the other employer; a quarter of families elect separate coverage under both employers.16 Nationally, the cost of workers 

receiving health insurance through their spouses amounted to $46 billion in 2006. 

Employer contributions to health insurance premiums average 77 percent, as I 

noted earlier. However, there are notable locality differences in average contributions. For example, in the District of Columbia, the typical employer contribution 

to employeeplusone coverage is 81 percent, or about $6,265 per employee. In Louisiana, the average is just 68 percent for the same coverage.17

Employers who do not offer insurance—37 percent in 2008—have been called ‘‘free 

riders,’’ because at least some of their workers receive coverage via a spouse’s employer. There are significant differences in insurance offerings by firm size: Just 

under half (49%) of firms with 3 to 9 workers offer coverage, compared to 78 percent 

of firms with 10 to 24 workers, 90 percent of firms with 25 to 49 workers, and over 

95 percent of firms with 50 or more workers.18 Thus, larger firms are subsidizing 

health insurance in smaller firms. It is important to note that many smaller employers say they would like to offer health insurance, but cannot afford to do so. Because 

smaller employers have fewer employees to spread risk among, insurers consider 

their risk profile less predictable and more vulnerable to highcost claims.19 As a result, premiums are considerably higher, often beyond the reach of employer and employee alike. 

There are also disparities across business sectors. Industries that benefit the most 

from being freeriders include retail, agricultural, fishing, and forestry. Among U.S. 

dualincome families who receive ESI coverage and work in the retail or other services industry, 45 percent of workers receive insurance through their spouses’ employers. In agriculture, fishing, and forestry, the percentage is slightly less at 42 

percent. These aggregate figures mask noteworthy differences, however. Among the 

73 percent of people working in the retail or other services industry covered under 

one policy, 45 percent are freeriders and 28 percent are the actual policyholders; 
44 

and, among the 74 percent of persons working in the agriculture, fishing, and forestry industry who are covered under one policy, 42 percent are freeriders and 32 

percent are the actual policyholders. Populations of freeriders in other industries in 

the U.S. range from 21 to 34 percent. Freeriders are least prevalent in the mining 

and manufacturing industries, comprising only 21 percent of these industries’ insured workers. 

There are two ways to examine the costs of freeriders. The first is in terms of 

incremental cost savings to the freeriding employer—that is, how much the 

freeriding employer would have contributed to its employee’s health insurance had 

that employee not been covered by her or his spouse. For each employee covered 

by a spouse’s policy, the freeriding U.S. employer would have spent $2,886 in 2006 

had that business provided health insurance to its own worker. Another way to examine the cost of freeriders is to calculate the cost to the employers who cover the 

working spouse of an employee. In 2006, the incremental cost to employers covering 

a worker from a freeriding firm was $2,713 per employee. Either way the costs are 

totaled, they are substantial: $46 billion versus $49 billion, respectively. 

Conclusions 

The rise in the number of dualincome families combined with a decline in the 

share of employers offering insurance is placing continued financial pressure on 

those employers that continue to offer insurance. The ‘‘doubling up’’ of both workers 

on a single policy results in added costs to those employers covering both workers. 

These issues raise important questions regarding equity in the distribution of 

spending among businesses in the United States. 

Additional equity concerns are raised by costshifting from uninsured, underinsured, and publicly insured individuals to privately insured individuals and employers. This care is largely funded by governments through tax receipts from corporate and individual taxes. Rising premiums affect both employer and employee; 

in addition, employees face higher out of pocket costs in the form of increasing 

copays and deductibles. Uncompensated care thus amounts to a double levy: once 

in the form of taxes and twice in the form of costs hidden in escalating payments 

for employersponsored health insurance. 

REFERENCES

1 Andrea Sisko, Christopher Truffer, Sheila Smith, Sean Keehan, Jonathan Cylus, John A. 

Poisal, M. Kent Clemens, and Joseph Lizonitz, ‘‘Health Spending Projections Through 2018: Recession Effects Add Uncertainty To The Outlook,’’ Health Affairs Web Exclusive, February 24, 

2009, http://content.healthaffairs.org/cgi/reprint/hlthaff.28.2.w346v1?maxtoshow=&HITS=1 

0&hits=10&RESULTFORMAT=&fulltext=NHE&andorexactfulltext=and&searchid=1&F 

IRSTINDEX=0&sortspec=date&resourcetype=HWCIT (accessed March 4, 2009). 2 Centers for Medicare and Medicaid Services, Sponsors of Health Care Costs: Businesses, 

Households, and Governments, 1987—2007, http://www.cms.hhs.gov/ 

NationalHealthExpendData/downloads/bhg07.pdf (accessed March 5, 2009). 3Kaiser Family Foundation and Health Research and Educational Trust, Employer Health 

Benefits, 2008, http://ehbs.kff.org/pdf/7790.pdf (accessed March 4, 2009). 4 Ibid. 

5 Ibid. 

6 Henry J. Kaiser Family Foundation. Employee Health Benefits: 2007 Annual Survey. 11 September 2006. http://www.kff.org/insurance/7672/index.cfm. 7McKinsey and Company, ‘‘Will Health Benefit Costs Eclipse Profits?’’ The McKinsey Quarterly Chart Focus Newsletter, September 2004, http://www.mckinseyquarterly.com/newsletters/ 

chartfocus/2004—09.htm (accessed March 4, 2009). 8 Jack Hadley, John Holahan, Teresa Coughlin, and Dawn Miller, ‘‘Covering The Uninsured 

In 2008: Current Costs, Sources Of Payment, And Incremental Costs,’’ Health Affairs, September/October 2008; 27(5): w399w415, http://content.healthaffairs.org/cgi/reprint/27/5/w399 

(accessed March 4, 2009). 9Michael A. Morrisey, ‘‘Cost Shifting: New Myths, Old Confusion, and Enduring Reality,’’ 

Health Affairs 22 (2003): w489—w491, http://content.healthaffairs.org/cgi/reprint/ 

hlthaff.w3.489v1?maxtoshow=&HITS=10& 

hits=10&RESULTFORMAT=&fulltext=cost+shifting&andorexactfulltext=and&searchid 

=1&FIRSTINDEX=0&resourcetype=HWCIT (accessed March 4, 2009). 10 Institute of Medicine, Hidden Costs, Values Lost Uninsurance in America, Washington, 

D.C.: The National Academies Press, 2003. 11Families USA, Paying a Premium: The Added Cost of Care for the Uninsured, June 2005, 

http://www.familiesusa.org/assets/pdfs/Paying—a—Premium—rev—July—13731e.pdf 

(accessed March 6, 2009). 12Mark B. McClellan, Administrator, Centers for Medicare and Medicaid Services Department 

of Health and Human Services, ‘‘Tax Exemption for Hospitals and Federal Payment for Uncompensated Care,’’ Testimony before the House of Representatives Committee on Ways and Means, 

May 26, 2005, http://www.hhs.gov/asl/testify/t050526c.html (accessed March 4, 2009). 13 Institute of Medicine, ‘‘America’s Uninsured Crisis: Consequences for Health and Health 

Care,’’ February 2009, http://www.iom.edu/Object.File/Master/63/122/ 

America’s%20Uninsured%206%20pa ger%20FINAL%20for%20web.pdf (accessed March 4, 2009). 
45 

14Medicare Payment Advisory Commission (MedPAC), Report to the Congress: Medicare Payment Policy, page xiv, March 2009, http://www.medpac.gov/documents/Mar09— 

EntireReport.pdf (accessed March 6, 2009). 15 U.S. Census Bureau, Current Population Survey, Annual Social and Economic (ASEC) Supplement, Table HI05: Health Insurance Coverage Status and Type of Coverage by State and Age 

for All People: 2007, http://pubdb3.census.gov/macro/032008/health/h05—000.htm (accessed 

March 6, 2009). 16Kenneth E. Thorpe, Jennifer Flome, and Katya Galactionova, Health Insurance Coverage 

of DualIncome Families: The FreeRider Effect and the Cost to Employers, Missouri Foundation 

for Health, December 2006. 17Kaiser Family Foundation, Kaiser State Health Facts: Average EmployeePlusOne Premium 

per Enrolled Employee for EmployerBased Health Insurance, 2006, http:// 

www.statehealthfacts.org/comparetable.jsp?ind=272&cat=5 (accessed March 5, 2009). 18Kaiser Family Foundation and Health Research and Educational Trust, Employer Health 

Benefits, 2008. 19 National Health Policy Forum, NHPF Background Paper: Health Insurance Coverage for 

Small Employers, April 19, 2005, http://www.allhealth.org/BriefingMaterials/ 

healthinsurancecoverageforsmallemployers297.pdf (accessed March 4, 2009). 

Chairman ANDREWS. Well, thank you, Dr. Thorpe, and thank you 

to each of our witnesses for doing a very, very good job this morning and giving the committee a lot to think about. 

We are now going to begin the question phase of the hearing, 

and I will begin. 

There are 30 million people who live in a family that is headed 

by someone—the 30 million uninsured people living in a family 

headed by someone who is working but uninsured, 30 million out 

of the 47 million. We have heard Dr. Thorpe testify that the cost 

of uncompensated care nationwide is about $57 billion a year. we 

heard Mr. Winkler testify that, in premiums alone, a conservative 

estimate is that premiums are 2 to 3 percent higher for insuring 

employers than they would be but for this uninsurance problem. 

And I thought it was striking to hear Mr. Sheridan talk about 

the fact that, at Cooper Hospital in New Jersey, 30 percent of their 

patients are people insured, but they pay 40 percent of the bills in 

the hospital. I think I got that right. So there is a significant cost 

shift there. 

I also think that we have heard a consensus, and I think this is 

very true, that improvements in quality and ways to address chronic disease problems is absolutely a major component of controlling 

costs. I don’t think there is any doubt about that. But in addition 

to that, there is the problem of shifting the costs of uninsured people onto insured people. 

Mr. Trautwein, I just want to focus on a person who might be 

in Mr. Sheridan’s hospital this morning who makes 27, $28,000 a 

year, maybe working for one of your members, or a similar employer, and is not insured. Her children are now insured because 

of SCHIP, but she is not. And she goes into Mr. Sheridan’s hospital 

because she has a severe problem and requires hospitalization. 

If I understand correctly, your proposal that you want to have us 

help deal with this is that we pass a law requiring her to get 

health insurance coverage, an individual mandate on her. In my 

state, that would cost her, at a minimum, just for herself at a minimum, between 2,500 and $3,000 a year at a minimum. How is she 

going to pay for that? 

Mr. TRAUTWEIN. Well, in our view, a better way to level the playing field and make sure that everybody gets basic coverage, beside 

the—for the young woman in the hospital, she would have had preventative care, would have identified the condition. 
46 

Chairman ANDREWS. But she doesn’t. She is uninsured. 

Mr. TRAUTWEIN. Exactly. I think everybody should have health 

coverage, basic health coverage, and we should find a way for employers to stay in the game by supplementing that coverage with 

additional benefits. States could also supplement that coverage. 

But it is a dilemma for hospitals to pay for that treatment. It is 

a problem under current law. 

Chairman ANDREWS. But if I may, I think it is a dilemma for her 

because your proposal is to pass a law saying she has to buy health 

coverage the way she has to buy auto insurance. How is she going 

to pay for it? Where is the money going to come from? 

Mr. TRAUTWEIN. Well, I think we need to ease access in the marketplace. I think insurance is more expensive in New Jersey than 

perhaps it should be. 

Chairman ANDREWS. What if we achieved a 35 percent reduction 

in health insurance premiums, though I doubt very much we could, 

and it would cost her $2,000 instead of $2,500? How is she going 

to pay for it? 

Mr. TRAUTWEIN. Well, I think the federal government should 

subsidize access to income on an income-graduated basis, to 

that—— 

Chairman ANDREWS. Well, now President Obama has talked 

about that as well, and he has proposed paying for that by repealing the tax cuts for the top 5 percent and by getting rid of the 

Medicare Advantage program. That is how he would pay for it. 

How would you pay for it? 

Mr. TRAUTWEIN. I am certainly not a budget expert. The politician in me, or the student of politics that is in me, would say it 

would be difficult to support a proposal that concentrates on such 

a narrow slice of the tax scale and—— 

Chairman ANDREWS. So you would want to tax everybody, not 

just the top 5 percent? 

Mr. TRAUTWEIN. Well, after all, access to health coverage has 

been a shared goal from many different constituencies for a very, 

very long time. And figuring out how we build on the employer dollars that are currently in the system, how we cover that cap for 

people who don’t have access to employer-based coverage while 

maintaining jobs and building the economy is a tough job. 

Chairman ANDREWS. It is a very tough job. 

Mr. TRAUTWEIN. And we would do well to work with you and others to get to that end. 

Chairman ANDREWS. We welcome your participation. And obviously, I am pointing out what I think is where the rubber will meet 

the road. 

We sat in the White House last Thursday and heard a lot of very 

good-willed people talk about improving quality and productivity. I 

think we all agreed with that. Talked about the proposition that 

covering everyone will help reduce costs for everyone, which I think 

just about everybody agreed with. 

But the reality here I think is that short-term productivity improvements will never pay for the subsidies necessary to cover 47 

million people, and that the job that is in front of us, this figuring 

out how to pay for that—and by the way, I commend you for making a proposal in your testimony. 
47 

I am not sure that I embrace an individual mandate. I certainly 

don’t embrace it without a very sufficient subsidy to pay for it. But 

I think the Federation deserves a lot of credit for not ducking that 

question and raising the point that you did. 

We are now going to turn to Mr. Kline for 5 minutes. 

Mr. KLINE. Thank you, Mr. Chairman. And again, thanks to all 

the witnesses for really terrific testimony on a very, very tough 

subject and one which, as I said in my opening comments, we are 

going to be dealing with as a Congress and as a nation as we try 

to work through what the new paradigm is going to be in providing 

health insurance. 

I don’t think any of us sitting here today know exactly what that 

is. As Mr. Winkler said, the large employers, as I am paraphrasing 

here, are sort of waiting to see what the critical details are. Well, 

as are we all, as we work towards what those critical details are 

going to be, because it is very, very important. 

The idea of everyone owning their own health insurance is one 

that appeals to many of us. Again, the devil, as they say, is in 

those details, or how you are going to pay for it. What is the federal 

government’s role? What is the state government’s role? How would 

you do that? 

And again, as I said in my opening statement, as we go through 

this, and I think that Mr. Winkler and Mr. Trautwein and others 

probably all agree, we cannot afford to pull the string on the sweater, if you will, of ERISA and look around and find that we don’t 

have 47 million uninsured, but over 200 million uninsured. 

With that, let me turn to Mr. Pyenson, if I could. You know, really an interesting study, and I think probably very helpful as we 

look at—start to look underneath at how this is going to work. 

You commented that waste and inefficiency in the healthcare 

system exists, and everybody in this room would agree with that. 

There is no question, is there, in big, big numbers. 

And you pointed out that healthcare management experts know 

thousands of ways—I think that is in your testimony—to improve 

the system. Why hasn’t this been done already? 

Mr. PYENSON. Well, that is a great question, Mr. Kline, and 

thank you. 

The challenge of changing the healthcare system to make it more 

efficient is, in my view, largely one of the incentives that are in 

place in the current healthcare system. We are addressing the 

issue here this morning of federal pre-emption on the employer’s 

space compared to the state regulation. 

I would point out that there is a bigger issue with the federal 

and state counterpart, which is between Medicare and Medicaid. 

And the largest insurance company in the world is the federal 

Medicare program, and the interaction between Medicare and Medicaid has, in my opinion, been a destructive one for patients and 

for efficiency. We see that most profoundly in the interaction of patients in nursing homes on Medicaid, which is a huge issue, as we 

all know, for state Medicaid budgets. 

And unfortunately, with poor quality care, those patients often 

end up in the hospital where Medicare pays for their hospitalization. So the lack of coordination of getting better care to the nurs-
48 

ing home patients, which the states can’t afford to do, is a challenge. 

If they had better care, the benefit would accrue to Medicare. So 

fixing that interaction between the federal and state programs I 

think is one of the keys to creating incentives in place. The other 

piece of that, of course, is that no single insurer or employer has 

anything close to the clout that the Medicare program has. 

Mr. KLINE. I am not sure that answers the question of why we 

haven’t improved the system. I mean, I would certainly agree, and 

I think most people in this room would agree, although I never presume to talk for the chairman. 

But it is clear that, with Medicare and Medicaid, to follow up on 

your point, we hear complaints all the time about enormous waste 

there, but also about underpayment. We know stories of doctors 

and facilities, healthcare facilities, who are saying they won’t take 

Medicare patients, for example, because the reimbursement rate is 

so low. So we have this huge insurer, if you will, in the federal government, a huge program that is not paying, or is reimbursing at 

such low rates that people are turning it down. 

It does seem to me, and I know it is frustrating to all of us, that 

we all know of waste and abuse and inefficiencies. You have pointed them out. And yet, we can’t seem to get at those and to make 

the improvements. It looks like that employers and employees and 

providers would be clamoring for those efficiencies. 

Well, magically, my time has run out here, so thanks very much. 

I yield back. 

Chairman ANDREWS. You noticed it? 

The chair recognizes the gentleman from Illinois, Mr. Hare, for 

5 minutes. 

Mr. HARE. Thank you, Mr. Chairman. Thank you for having the 

hearing. It is a very important issue. 

Mr. Derbyshire, just a couple questions to you. What would you 

like to see the federal government do to help spread the burden of 

covering the uninsured? And then the second part of that question 

was how can we as a government make it easier for small businesses like you to continue to provide healthcare coverage for employees? 

Mr. DERBYSHIRE. What I would like to see, and—is that—and I 

said in my testimony, I would like to see more employers, all across 

the board, be able to—there be a mandate that all employees pay 

sort of a tax to offset the premiums that I am paying for now by 

insuring the uninsured so that that would level the playing field 

and reduce my premiums and balance the cost of insurance among 

all employers and all my competitors. 

Mr. HARE. Thank you. 

Dr. Thorpe, in your opinion, how can we guarantee coverage for 

these 47 million Americans that—including 9 million kids who are 

uninsured? Do you know of any systems at the state level that 

have been successful, or do we need to just start from scratch, from 

your opinion, completely overhaul this healthcare system? 

Mr. THORPE. Well, on the coverage side, I think that, as Mr. 

Trautwein talked about, I think you have to look at a requirement 

for individuals to purchase coverage, but with the caveat that, if 

you are going to do that, to the chairman’s point, that we have to 
49 

make sure that the healthcare is affordable. So, we just can’t require it, but we have got to make sure that what people pay for 

health insurance is reasonable, and that will be part of the discussion that we have about healthcare reform. 

So Massachusetts did this a year ago. They went from a very— 

10 percent of the population uninsured. Now they are down to 3 

percent of the population uninsured in a very short period of time. 

They could have done more on the cost side. They could have 

probably done more on the affordability side, but I think that is 

certainly—if we are going to get to universal coverage, we have to 

go the direction of requiring people, I think, to purchase it, and 

make it affordable. 

On the cost side, that is where I think we do need more sweeping 

reforms. To the point that Mr. Kline was raising, why don’t we do 

this, I think the problem is is that to really get at the underlying 

cost drivers really means that we are going to have to do three 

things, and they are major things. 

One, we are going to have to change the way that we pay for 

healthcare, I think led by the Medicare program, to look more towards bundled payments, episode-based payments. 

Two, we are going to have to redesign our healthcare delivery 

system. If all the money in healthcare is linked to chronically ill 

patients, and if we have a delivery model that has very little to do 

with managing those patients to keep them out of the hospital and 

keeping them from being re-admitted to the hospital, then we need 

to really look very hard at redesigning our delivery model. 

And the third thing, which is a fairly sweeping reform, is that 

we need to do a better job of preventing disease in the first place. 

There are great models out there, great case studies that are 

school-based, community-based, workplace models that have lowered cost and improved productivity that we need to understand 

how they are designed. We need to replicate them and scale them. 

So those are all going to be fairly major changes on the cost side. 

Mr. HARE. Thank you. 

Then, my last question would be to Mr. Winkler. You talked 

about several reasons why healthcare costs are so high. How much 

of these costs are administrative or caused by antiquated health information technology or record-keeping? In other words, of this 

high cost, how much of this is just administrative and duplicative 

stuff that we are spending so much on? I have heard it is up to 

a third of what we are spending. 

Mr. WINKLER. Really sort of two parts to that. One is the administrative cost that large employers have for coverage overall, which 

for larger employers, generally, runs 10 to 12 percent, a little different than for smaller employers. 

But to the point specific to healthcare information technology, we 

have seen estimates. We don’t, at Hewitt, have a specific number, 

but I have seen estimates ranging anywhere from probably 20 percent on the low side to 30 percent on the high side, I think similar 

to what the gentleman from Milliman alluded to before. 

I think the challenge in capitalizing on that is figuring out not 

only how you broadly adopt technology, but what incentives you 

can build into the system for the medical community to use that, 
50 

for patients to avail themselves of it, and then, ultimately, for the 

payment model to track along with that. 

Mr. HARE. Thank you, Mr. Chairman. 

Chairman ANDREWS. Thank you, Mr. Hare. 

Gentleman, Dr. Roe, is recognized for 5 minutes. 

Dr. ROE. Thank you, Mr. Chairman, and thank you all for being 

here. It made my head swim to hear all this again. 

And I practiced in a facility like yours, Mr. Sheridan, and just 

left one not long ago. 

Mr. Chairman, in Tennessee, we had a program called TennCare, 

which virtually bankrupted the state. The governor backed off from 

that and started a new program where the employer pays $50 a 

month, the employee pays $50, and the state pays $50. So there is 

a shared responsibility. Now, it is not a Cadillac plan, but it is a 

basic health plan. 

And Mr. Winkler, what you said a moment ago is absolutely correct. Taking care of chronic disease is one of the biggest challenges 

I had in the practice of medicine for over 30 years is to convince 

people to do that. And I think you have to change incentives. I 

think we are going to have to change incentives. 

Right now, I am incentivized to take care of sick people. That is 

how I get compensated. And we have got to change that scheme 

where physicians and providers are compensated for wellness. 

Now, we had a program in Johnson City, where I was—in Tennessee, where I was mayor before I came here—and the city employees, where we did a chronic disease management, diabetes, hypertension and cholesterol management. And right now, we are 

seeing our healthcare costs not go up at nearly the level of—of the 

national level. So those disease management programs do work. 

One of the things that I have become incredibly frustrated with, 

though, and I—actually, Mr. Pyenson, I want you to kind of look 

at this. Back in the 1980s and 1990s, remember, managed care was 

going to be the—that was how we were going to control costs. 

And all we did was manage to shift that money around, but we 

didn’t control the costs. And right now, I hear information technology, and our practice just moved, 70 of us—it was one of the 

most painful things I have ever done in my life, is to change from 

a paper record to an electronic medical record. We have 70 providers and 350 employees in our practice. And that has been about 

a 2-year process to get there. 

Do you really think that a 25 percent reduction is possible, and 

are you—with this information technology, or is this just another 

wishful thing that we are going about, another exercise I have seen 

once before? 

Mr. PYENSON. Thank you very much, Mr. Roe. 

I think information technology is certainly going to be very good 

for the information technology companies. If you examine the organizations that are extremely efficient and the locales that are extremely efficient, it is interesting that there is—it is hard to attribute that efficiency to information technology. 

But of course, information technology has to be a boon to everything, just as it has to the retail sector and every other sector, and 

I am certainly not opposed to it. 
51 

In the ‘‘Imagining 16 to 12,’’ we emphasized that we want people 

to imagine the possible. It is possible because we see those sorts 

of efficiencies in locales, typically with integrated physician/hospital—physician practices, where the incentives are for the sorts of 

things that Dr. Thorpe and others this morning have addressed. 

And we believe those sorts of programs are using existing knowledge optimally, so I truly think it is possible, and it is really creating the environment where the talents and the skills of medical 

professionals can really be used. 

Dr. ROE. Mr. Chairman, one of the things that you mentioned a 

minute ago I have spent a lot of time thinking about, is where we 

have 47—45, 47 million people in this country that are uninsured. 

And obviously, the payments of Medicaid and Medicare don’t cover 

the costs in many situations. And so that is an issue that hospital 

systems and physicians and providers have to deal with. 

Well, you have got half of the people who are uninsured are in 

families who work, who are offered insurance at their current business, but they can’t afford it. It looks to me like some sort of tax 

credit or subsidy would help immediately take a lot of those people 

off the rolls. 

Any comment from any of you about that? 

Mr. TRAUTWEIN. Certainly it is a problem for retailers with a lot 

of part-time workers. A third of our workforce is part-time. And 

getting those eligible for coverage to accept is a real problem. 

So we share your belief that subsidies can help get people into 

coverage. Tax credits can be a little bit cumbersome to administer, 

and it may be that a subsidy is a cleaner way to approach that. 

But we strongly support it. 

Dr. ROE. Thank you, Mr. Chairman. 

Chairman ANDREWS. Thank you, Dr. Roe, for bringing your experience and perspective to the committee. We are glad to have you 

with us, very much so. 

Now, a different experience and perspective, one of the, I guess, 

two nurses in the House? Three nurses in the House—our friend 

from Long Island, Mrs. McCarthy, who practiced nursing before 

joining us here in the House, is recognized for 5 minutes. 

Mrs. MCCARTHY. Thank you, and I thank you for the hearing. 

And obviously, I am going to go to the nursing issue because it was 

mentioned on home care, end-of-life care. This is something that I 

certainly experienced, because I did a lot of private duty during my 

nursing career. 

But with that being said, we are seeing a lot of the care, especially coming out of the hospital, going to healthcare aides. And the 

charges that a healthcare aide gets, her salary is probably—her or 

his salary is probably between seven and $8. The company that she 

works for probably picks up the $13 or $14, or if not more, on that, 

and that is something I think we need to look at. 

But you can’t just bring people home, even for end-of-life, unless 

you have the experience of someone being able to take care of 

somebody there, and that is where high-tech does come in. A number of programs that we have seen in my hospitals out on Long Island, where there is a camera there to work with the aide and to 

work with the patient so that an RN or a doctor every morning, 

or if there is a problem, can get immediately—does that patient 
52 

need to go to the hospital, or is it just something that can be taken 

care at home? 

So I do believe that there is a lot to do, but the end-of-life care 

is a discussion that this country needs to have. And it is a serious 

conversation, because there are many patients that are in ICU that 

will never have a chance of surviving. And the cost to those patients, and to the hospital, is extremely high. 

While we were talking, I was just looking, and I was doing a little bit of math for my healthcare. We have government healthcare, 

obviously, and I pay $159 a month. Then, we add up my co-payment for my insurance. 

By the way, I have got good insurance, Blue Cross/Blue Shield. 

I have got everything in there, bells, whistles and everything else 

like that. It comes out, on my share, $2,258, which I feel is reasonable for a year for a single person. 

So I think one of the things that I was interested in, Mr. 

Derbyshire, on your testimony, that you are paying 85 percent of 

premiums for individual coverage. Do the workers actually know 

how much you are paying out for that care? How transparent are 

the insurance companies about their costs, both to the employees 

and to the employer? These are things that need to be worked out 

and to be looked at. 

I know that we were trying to have a bill come through on the 

federal level, anyhow, where a business like yours could connect 

with many other businesses. And I think the National Association 

of Manufacturers Retail would like to see that so they can bring 

it up to the larger employee companies that have lower costs. And 

I would just like your opinion on that. 

Mr. DERBYSHIRE. Yes, thank you. 

Yes, they do know the cost. I do pass it on. I had a critical junction of whether I could continue to pay family, because that is just 

a phenomenal cost. I cap it at $50 a week that comes out of their 

paycheck, and it has been that way for years. I just cannot pass 

anything more onto them, because my employees are lower middle 

class. 

A pooling system, yes, anything to reduce costs would be very attractive. I know in Maryland, the state that I am from, of course, 

they regulate pricing—the state regulates pricing through the insurance company of groups of 50 employees or under. So my rates 

are somewhat controlled in the state, and I don’t know what the 

impact that is compared to other plans. 

Did I answer your question? 

Mrs. MCCARTHY. It does. 

Mr. DERBYSHIRE. Okay. 

Mrs. MCCARTHY. Thank you. 

Mr. DERBYSHIRE. You are welcome. 

Mrs. MCCARTHY. Now, I will throw this out to anybody. To what 

extent do you believe that healthcare costs are contributing to our 

current economical crisis? And I will throw that out to anybody out 

there. 

Mr. THORPE. I will take a shot. 

Well, I think that if you look at it on two dimensions, certainly 

if you look at it from the business perspective, rising healthcare 
53 

costs are one of the less controllable aspects of the overall level of 

compensation, and it has done two things. 

One is that it leads to lower wage increases for individual workers. And two, for some companies that can’t fully shift it back, they 

are finding that it, (A) cuts into profits, (B) cuts into their ability 

to make capital investments and improvements in their operations, 

and (C) puts them at a competitive disadvantage in a global economy. 

So from the business perspective, I think it is clear. If you look 

at state and local governments, it is a major source of uncontrollable growth in those budgets, which means that it is either going 

to crowd out other state and local functions, or you are going to 

have to look at tax increases to pay for it. 

We have seen the budget numbers at the federal level. You 

know, Medicare is the big issue in terms of entitlement reform, in 

terms of driving the budget deficit, and we need to have a coherent 

strategy that really deals with the core issues around why Medicare spending is rising and really take that issue on. 

And just finally, from an individual standpoint, we know the 

tradeoffs that families have to make in terms of do they keep 

health insurance or not. We know the numbers, and we can debate 

them on how prevalent of a role that plays in individual bankruptcy cases, but is a big deal in terms of people losing their homes 

when they can’t afford to pay their bills. 

So I think it is a major component and contributor that has to 

be to the economy. It is 16 percent of our overall GDP, so it really 

is a key issue that, at the same time we are dealing with trying 

to find ways to fix the economy, we really need to get to the core 

of this issue of healthcare costs as well. 

Chairman ANDREWS. Gentlelady’s time has expired. 

Mrs. MCCARTHY. Thank you. 

Chairman ANDREWS. Thank you very much. 

Turn to a gentleman from Connecticut who has made a significant contribution already in the area of pre-existing conditions, Mr. 

Courtney for 5 minutes. 

Mr. COURTNEY. Thank you, Mr. Chairman. 

And I would actually like to follow up on that issue a little bit 

with Mr. Thorpe, because, I mean, your description of the free riders, the spouses who kind of gravitate towards lowest cost, I mean, 

really that is not the only issue for families. 

I mean, to take a hypothetical in Connecticut, if somebody works 

at Pratt & Whitney where the large group plan and the spouse is 

a realtor, and if you are expecting the self-employed realtor to pull 

her or his burden, I mean, the fact of the matter is there is obviously a huge pricing difference in terms of the small group/self employed market versus the group. 

But frankly, there are also other issues in terms of the fact that 

pre-existing condition exclusions, high deductibles, I mean, which 

really undercuts the ability of wellness and prevention programs. 

I mean, really, it is not—it is a totally rational decision for that 

spouse. And to sort of characterize it as, a ‘‘free rider’’ I think is 

a little pejorative, in my opinion. 

And frankly, it kind of—again, I think there are other structural 

issues in the market that need to be fixed to help families not sort 
54 

of go in the direction that maybe is more burdensome for the large 

group plans. I was just wondering if you could comment on that. 

Mr. THORPE. Well, I completely agree with you, and that is why, 

when I said it, I characterized that very carefully as, ‘‘Some call 

them free riders.’’ And they are—this was just a description of the 

facts, the underlying reasons why it happens. I completely agree 

with you on that. So there is a good reason for why—and rational 

reasons for why a spouse would choose to go to a more generous 

policy at lower cost. 

I think the solution to it is some of what we have been talking 

about here. One is to get more comprehensive coverage to everybody through the workplace, and that obviously—if you think about 

it from the employer that is offering the coverage, they really have 

a triple-whammy. 

Healthcare costs a lot anyways. They have built into the cost of 

their premium 2 to 9 percent, so we can debate what the number 

is, due to uncompensated care from the uninsured, and they are 

covering the cost of spouses that are working for companies that 

don’t offer. 

So a way to deal with that is to expand coverage to get the uninsured piece out, broaden the employment based system so that employers that don’t offer coverage, or individuals that don’t get coverage through employers can now afford to do it by requiring them 

to acquire coverage, but making it affordable. Provide the requisite 

government funding to make sure that they can afford it, and that 

way it spreads the burden out more evenly. 

Mr. COURTNEY. But it is more than a funding issue, which it 

clearly is, and I think all the witnesses are pretty much agreed on 

that. But it is also—I mean, we have to do something structurally 

to the market for the small firm and to the system. 

And the president has talked about this, that we have got to create some kind of pooling mechanisms that allow the risk to be 

spread out and the harshness of some of the underwriting rules to 

be relaxed more. Because, I mean, there is just no question that, 

if you are somebody who has got any kind of chronic illness and 

you are out there in a small group area, I mean, you have got a 

major problem in terms of trying to find a plan. And all the mandates in the world and all the subsidies in the world are really, not 

by themselves, enough to sort of fix that problem. 

And I don’t know if, Mr. Winkler, you wanted to focus on that 

in terms of whether we have got to create structures for the smaller—and I realize you do group as a general rule, but—— 

Mr. WINKLER. Well, I think—and Mr. Derbyshire underscored 

the challenges, that the employers who really are squeezed are 

those sort of in the middle of that under-50 group, which in most 

states are already pooled in some capacity, as he described in the 

state of Maryland. 

But if the employer is just above that, on up to the large insurers 

that organizations like Hewitt work with, who find themselves, I 

think struggling with some of the purchasing dynamics that you 

have described, that does logically make it such that a married couple would look and say, ‘‘My coverage from XYZ Large Employer 

is more attractive for us as a family than the coverage underneath.’’ And there may be sort of group cooperative or pooling 
55 

mechanisms that could work in that smaller above-50 lives market 

that could help. 

Mr. COURTNEY. And Mr. Derbyshire, I mean, you must talk to a 

lot of your colleagues from the business community, I mean, where 

these pricing differences and pre-existing condition rule differences 

are much harsher than families and individuals who are—and companies that have large groups to spread out the risk. 

Mr. DERBYSHIRE. Well, I don’t know. I think in Maryland, they 

do regulate it, that the—in the Maryland system, with the health 

maintenance plan, that you have to accept everyone into the plan. 

So there aren’t preconditions that would leave you out of the plan. 

But—am I answering your question? 

Mr. COURTNEY. It is, and that is by law and by government intervention. That is the case. 

Mr. DERBYSHIRE. Right—exactly. 

Mr. COURTNEY. And that is helpful for us to know that in terms 

of dealing with that problem. 

Chairman ANDREWS. I think it is one of the reasons why the gentleman introduced his legislation in the last Congress. I know that 

he has, once again, taken a step forward on that. And I think the 

president has expressed his interest in the same concept the gentleman from Connecticut is interested in, so I think we will move 

forward. 

The gentleman from Michigan, Mr. Kildee, is recognized for 5 

minutes. 

Mr. KILDEE. Thank you, Mr. Chairman. Thank you for assembling this panel. You all, collectively and individually, have been 

very helpful. I appreciate it very much. 

I will address my question to the—friend that is down there, end 

of the table. In Flint, Michigan, employers for years would seek to 

hire those whose spouse worked at General Motors. General Motors 

basically is self-insured using Blue Cross/Blue Shield as their fiscal 

agency. That, along with their own direct employees being insured, 

adds about well over $1,000, sometimes $2,000 to the price of a car. 

Now, General Motors right now is in the midst of trying to qualify for additional funds under the Troubled Assets Recovery Program. One of the things they are required to do is to change their— 

they have switched over their health program now to the Union, 

and it is called the Voluntary Employer Beneficiary Association. 

But the federal government now is asking them to give half the 

money for that in General Motors stock rather than dollars. General Motors’ stock is not that great a shape right now. This is an 

enormous company, a large company, that—I talked to Rick Wagoner yesterday. He is spending so much of his time trying to settle 

this healthcare program. 

What we can we do, first of all, to relieve a company like that 

that is really, really in difficulty and let them get back to the business while keeping up their responsibility of producing cars? Do 

you have any suggestions of what we might do? 

Mr. THORPE. I appreciate the question. 

I would sort of point to five things, and this kind of relates to 

the dialogue I just had with Mr. Courtney on this issue. And the 

five things that I would focus on would be: 
56 

One is to move towards an individual requirement that people 

have health insurance. 

That, two, that you put in appropriate funding, federal funding 

to make sure that it is affordable for families to buy insurance 

through another employer if they choose, or through a health insurance exchange if they want to go that direction. That then 

spreads the cost out in a much broader way. 

So at a place like, as I mentioned in my statistics, if you have 

got half of the family sort of doubling up—and my mom got coverage through GM exactly for that reason, because it was a great 

policy—that is two things to do. 

I think the other three is that you have got to make sure, if you 

go in this direction, that you have got to require guaranteed issue, 

that you have got to make sure that people, when they apply, they 

get a guarantee issue to it. The health insurance industry is certainly on board with that. 

We have got to reform how we do rates in terms of how premiums ratings are established. And you have got to find new pooling mechanisms to deal with issues around a lot of the inefficiencies around individual and small group coverage. The president has 

put on the table one approach through these health insurance exchanges. There are others that we could look at, as well, but those 

would be five things that I would do. 

And then, one last thing, and it goes back to the healthcare cost 

issue, those unions are now in a position of managing a pot of dollars. And unless they find a way to change the growth trajectory 

of per capita spending in that union mix, those dollars are going 

to run out much faster than they think. 

Mr. KILDEE. Thank you very much, Dr. Thorpe. I like your concise answer, and I just, again, think this has been a very, very 

helpful hearing. 

Thank you, Mr. Chairman. 

Chairman ANDREWS. Thank you, Mr. Kildee, for your participation. 

I would like now to call on the ranking member for any concluding comments he may have. 

Mr. KLINE. Thank you, Mr. Chairman. 

And again, thank you to the witnesses today. It has been a great 

panel, a lot of discussion. 

I think that there is a universal recognition that we have a problem. There is not a universal recognition on what those critical details might be, and that is part of what we are about. So I thank 

you very much for your thoughtful presentation and your terrific 

answers to the question. 

And I thank you for the hearing, Mr. Chairman. I yield back. 

Chairman ANDREWS. Thank you. 

I would also like to add my words of appreciation for the way the 

witnesses have helped us on our project, our journey to try to learn 

more about how to fix this problem. 

I think everyone’s comments were offered in the spirit of instruction and cooperation, which emanated from the White House summit last Thursday. We appreciate you picking up on that spirit. 

It occurs to me that our job is a huge one, and it is to convert 

a dysfunctional relationship between cost and coverage into a func-
57 

tional and positive one. If you don’t control costs, more people become uncovered. They don’t have health insurance. As more people 

become without health insurance, costs go up, for that and a number of other factors. 

So we really embark upon an effort to try to figure out ways that 

we can reduce cost pressures on American families and businesses. 

We have explored several of them today. 

One of them is trying to find a way to get everyone insured, 

which I think is the top priority on the list. We have looked at increasing productivity in dealing with a medical technology, which 

is very important. Each of the witnesses, one way or another, has 

talked about dealing with the chronic diseases that absorb a huge 

percentage of healthcare outlays, and I think we can find common 

ground on that. 

Again, I am very pleased that each of the witnesses, in his own 

way, was able to start to tackle the issue that policymakers have 

failed to tackle for 40 years, which is acknowledging the fact that 

there is a significant cost to getting everyone insured—how do you 

pay for it? And I do think that the president set an excellent example by giving his answer to that question. I think you gentlemen 

have followed that example by giving your own in various ways, in 

various positions, and it is now up to us to do the same thing. 

If we are able to have a mature and intelligent process, it will 

lead to an answer, and I believe it will lead to the president signing a health reform bill in 2009 that will very much benefit the 

country. If we shy away from that issue, if we tiptoe around it, we 

will be right back where we have been for four decades, which is 

describing the problem, but not solving it. 

I think you have given us a very strong start to go about the 

business of solving the problem. We thank you for that participation. 

As previously ordered, members will have 14 days to submit additional materials for the hearing record. Any member who wishes 

to submit follow-up questions in writing for the witnesses should 

coordinate with the Majority staff within 14 days. 

[The statement of Mr. Kucinich follows:] 

Prepared Statement of Hon. Dennis J. Kucinich, a Representative in 

Congress From the State of Ohio 

Thank you Mr. Chairman for holding this hearing on what I believe to be possibly 

the most critical economic and moral issue we face today. Our haphazard, complex, 

regressive, inefficient method of delivering health care has been in desperate need 

of an overhaul for decades. 

I am glad to see that Congress and this Administration is serious about bringing 

the American people health care reform. As we begin to navigate the options for reform, we should be asking difficult questions. Will costs be contained? If so, how? 

Will there be anyone left uninsured? Will the 50 million underinsured increase in 

ranks? Will we continue to have the best health care for those lucky enough to afford it and poor quality care for those who cannot? 

I believe the root of our health care problems is simple: It is the health insurance 

companies. They make money by denying care and in so doing, they drive up health 

care costs. Their success is partially evidenced by the growth they have caused. The 

growth in professionals who actually deliver health care since the 1970s is under 

300%. But the increase in administrators—those who do not deliver care—is upwards of 2400%. Increases in complexity of health care demand more bureaucracy 

to handle it. 

Unfortunately, employer based health care relies on health insurance companies. 

But we will not solve our health care problems with the insurance industry still 
58 

thriving. Because American businesses provide health insurance for over 60% of the 

country, American employers are bearing the burden of this inefficient system. It 

is making them less competitive than their international counterparts whose health 

care systems are far less expensive, not to mention more efficient, equitable, and 

comprehensive. 

Employer based health care also means that people who get sick enough to lose 

their job, will also lose their insurance when they need it the most. It means there 

will continue to be a substantial number of uninsured. It means that health care 

will continue to be the number one source of contention between labor and management. And because insurance companies make money when they are successful at 

denying care, they will continue to sell products that leave people financially vulnerable. 

Millions of Americans are under the false assumption that having insurance necessarily means they are insured. Only after they get sick do they realize that their 

plan leaves them extremely financially vulnerable. One of the most important statistics in the health care field summarizes this problem. About half of all bankruptcies 

in the US are tied to medical bills. Of all those medical bankruptcies, three-quarters 

of those had insurance before they got sick. They had insurance and they still went 

bankrupt. Doesn’t that defeat the purpose of insurance? Imagine what would happen to our economy if we could get rid of those medical bankruptcies by fully insuring everyone. That is what HR 676 does. 

HR 676 builds on a model with proven success in the US and abroad. It eliminates hundreds of billions of dollars in administrative waste and uses that money 

to cover everyone in the US for all medically necessary services with no copayment, 

no premium and no deductible. Everyone in the U.S. would get a card that would 

allow access to any doctor at virtually any hospital. 

The support for HR 676 is undeniable. HR 676 had 93 cosponsors in the previous 

Congress and is up to 64 in this Congress so far. More than a third of the Members 

of this Subcommittee are now cosponsors or were cosponsors in the previous Congress. A 2008 poll published in the Annals of Internal Medicine showed that 59% 

of all doctors and over 70% of pediatric subspecialties support a plan like H.R. 676, 

which dispenses with the myth that doctors don’t want it. It is supported by the 

American College of Physicians, deans of major medical schools, former editors of 

the New England Journal of Medicine, and former Surgeons General. They are 

joined by groups like the Presbyterian Church USA, the US Conference of Mayors, 

and State legislatures in Kentucky and New Hampshire who have endorsed H.R. 

676. Single payer bills have twice been passed by the California legislature in the 

last three years and are currently making their way through other state legislatures 

like Minnesota. HR 676 has been endorsed by 484 union organizations in 49 states 

including 39 state AFL-CIOs. 

Finally, thousands of advocates all over the country represent the American people whose support for a plan like H.R. 676 is consistently greater than 50%. A February New York Times/CBS News poll found that, ‘‘59% [of Americans] say the government should provide national health insurance, including 49% who say such insurance should cover all medical problems.’’ The poll found that only 32% think that 

insurance should be left to private enterprise. Many members on this Subcommittee 

know how strong the grassroots movement behind this bill is because they are getting the calls about it. 

As we evaluate a path forward on health care, I urge my colleagues to stand up 

to the health insurance companies and demand a proven model that guarantees 

comprehensive health care for everyone, controls costs, and provides high-quality 

care. 

[The statement of the American Benefits Council, submitted by 

Messrs. Andrews and Kline, follows:] 

Prepared Statement of James A. Klein, President, the American Benefits 

Council 

Dear Chairman Andrews and Ranking Member Kline: I am writing to respectfully 

request that the summary of our views and attached report of the policy recommendations of the American Benefits Council’s (the ‘‘Council’’) on health care reform be included in the record for subcommittee’s March 10, 2009 hearing on 

‘‘Strengthening Employer-based Health Care’’. The Council is a trade association 

representing principally Fortune 500 companies and other organizations that assist 

employers of all sizes in providing benefits to employees. Collectively, the Council’s 
59 

members either sponsor directly or provide services to retirement and health plans 

covering more than 100 million Americans. 

Summary of Views of the Council on Health Care Reform 

The American Benefits Council believes we can, and must, achieve a more affordable, inclusive and higher quality health care system. Our vision for health care reform was drawn from the diverse expertise and experience of our members, particularly our Board of Directors, which shaped a set of 10 practical prescriptions to improve our health care system. Each of these prescriptions is aimed at achieving a 

stronger, more sustainable health care system to serve the needs of all Americans. 

These are times of extraordinary economic turmoil and some have suggested that 

health reform may need to wait until we address other more urgent economic recovery priorities. We take the opposite view. Addressing the nation’s health policy challenges is an integral element of—rather than an obstacle to—economic recovery and 

personal financial security. We agree with President Obama, OMB Director Orszag 

and a growing number of members of Congress, economists and business leaders 

that the current rate of spending for health care is not sustainable for individuals, 

employers, state or federal government or the American economy. Health reform is 

an urgent national priority and requires our best, collective efforts to see that it is 

achieved as swiftly as possible. 

We believe that the employer-based health care system that now serves as the 

primary source of health coverage for more than 160 million Americans provides a 

solid foundation for health care reform. We need to build on that foundation by moving toward more affordable, higher quality health care services. Indeed, without 

such measures, it will not be possible to reach the widely shared goal of providing 

health coverage to all Americans. 

We believe that a vitally important component of maintaining a strong employerbased health system starts with protecting the federal regulatory framework established by the Employee Retirement Income Security Act (ERISA) which allow employers to offer valuable benefits to their employees under a single set of rules, rather than being subjected to conflicting and costly state or local regulations. While employers that operate in multiple states or on a national basis consider ERISA’s 

framework essential to their ability to offer and administer employee benefits consistently and efficiently, this regulatory approach also translates into better benefits 

and lower costs for employees. In addition, holding employer-sponsored benefits accountable under a single set of rules, interpreted by a single regulatory authority, 

is also fundamentally fair to all employees covered under the same plan regardless 

of where they may live. 

In addition to strengthening employer-based health coverage, we believe that public health insurance programs such as Medicaid, Medicare and the Children’s 

Health Insurance Program (CHIP) must be improved, particularly by moving toward 

payment systems that reward health care providers who consistently meet evidencebased performance standards and away from payments based simply on the quantity of services delivered. Our recommendations for health care reform also call for 

the establishment of a federal eligibility floor for coverage for adults under Medicaid 

and more effective outreach and incentives for states to reach the more than 10 million individuals who are estimated to be eligible for health coverage under statebased health programs, but are not yet enrolled. 

Health care reform will also require measures to ensure that those outside of employment-based health coverage are able to obtain meaningful, affordable coverage 

through the individual health insurance market. Our proposals include recommendations that would ensure that any person without health coverage through 

an employer and who is not otherwise eligible for coverage under a state or federal 

health insurance program could obtain at least one individual market insurance 

plan in any state that meets minimum federal requirements. These products would 

also be exempt from additional state benefit mandates, but for all other purposes— 

such as consumer protections, solvency requirements, rating rules and other requirements—state standards would continue to apply. 

We also believe that reformed state-based high risk pools that meet minimum federal standards for coverage and rating can play a significant role in helping to keep 

the individual insurance market more affordable and competitive. In order to keep 

coverage affordable for those enrolled in high-risk pools, we propose that premiums 

paid by enrollees in these state-based programs be limited and claims expenses that 

exceed the funding from enrollee premiums be shared by state and federal governments. 

The Council and its members believe that all Americans need and deserve health 

care coverage. A key condition for closing the coverage gap would be the establishment of a federally-prescribed individual obligation for all Americans to obtain at 
60 

least a basic level of coverage in a reformed health care system. We also recognize, 

and support, the need for federal premium subsidies to make coverage affordable 

for lower-income individuals who do not qualify under an income-based public program such as Medicaid or CHIP. Individuals could meet their health coverage obligation by electing coverage offered through an employer, by enrolling in a plan in 

a reformed individual insurance market, or through a state or federal health insurance program such as Medicaid, Medicare, CHIP or a state high-risk pool. 

The Council’s recommendations call for ten ‘‘prescriptions’’ for achieving health 

care reform and our ‘‘Condition Critical’’ report includes over 40 specific and practical policy recommendations for achieving them: 

PRESCRIPTION #1: BUILD ON WHAT WORKS

Building on—and not undermining—our voluntary, employer-based health coverage system is the best foundation for health care reform. We believe that the best 

reform options are those that strengthen, not impede, the voluntary employer-based 

system. 

PRESCRIPTION #2: MAINTAIN A FEDERAL FRAMEWORK

A single set of federal rules, rather than a state-by-state approach, for health care 

reform is essential, particularly for employers with a national or multi-state workforce. In particular, health care reform should maintain the fundamental concepts 

and provisions of the Employee Retirement Income Security Act (ERISA). 

This framework makes it possible for employers to maintain and administer a 

uniform set of benefits for their employees and allows for innovative benefit practices to be applied consistently for all plan participants, regardless of where they 

live. 

PRESCRIPTION #3: IMPROVE THE QUALITY AND EFFICIENCY OF HEALTH CARE

Urgent action is needed to make our health care system more efficient and ensure 

more consistent delivery of high quality care. 

In particular, a nationwide interoperable health information network should be 

adopted by a specified date to permit the exchange of vital health records and patient information much more efficiently and to provide a backbone for a wide range 

of emerging quality improvement initiatives. 

PRESCRIPTION #4: PROVIDE CLEAR, RELIABLE INFORMATION TO MAKE BETTER HEALTH

CARE DECISIONS

A transformed health care system is one that makes price and performance information easily accessible so consumers can quickly determine where to find those 

providers who have a proven record of delivering high quality care. 

A more transparent health care system will also give health care providers the 

tools they need to compare their performance with other professionals in their field 

in order to support and encourage continuous quality improvement. 

PRESCRIPTION #5: MAKE HEALTH COVERAGE AN INDIVIDUAL OBLIGATION FOR ALL

AMERICANS

All Americans need to be part of a health coverage solution and we each have an 

obligation to obtain at least a basic level of coverage in a reformed health care system. An obligation to obtain coverage must also be accompanied by income-based 

premium subsidies to make health coverage affordable for lower-income individuals. 

To encourage employer-sponsored coverage whenever possible, these subsidies 

should be applied to assist qualified individuals with their share of the premium 

whenever such coverage is available 

PRESCRIPTION #6: ESTABLISH A MINIMUM STANDARD FOR QUALITY, AFFORDABLE

HEALTH COVERAGE

A federal minimum standard for a basic and affordable level of coverage should 

be developed as a benchmark for whether individuals have met their health coverage obligation. Key components of this basic benefit standard would be established 

by a broad multi-stakeholder advisory panel. The standard should also permit individuals to meet their coverage obligation by enrolling in a plan that is at least actuarially equivalent to the basic benefit standards. 
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PRESCRIPTION #7: REFORM THE INDIVIDUAL INSURANCE MARKETPLACE FOR THOSE WHO

DO NOT HAVE ACCESS TO EMPLOYER-BASED COVERAGE

All those without access to employer-based coverage should be able to enroll in 

a basic benefit plan in the individual insurance market that meets federal minimum 

coverage requirements or in an enhanced and affordable state high risk pool that 

provides comparable coverage. 

PRESCRIPTION #8: STRENGTHEN STATE SAFETY-NET HEALTH INSURANCE PROGRAMS

Sensible improvements are needed in public programs providing health coverage, 

including establishing a federal eligibility floor for coverage of adults under Medicaid. Stronger incentives are also needed for states to reach the more than 10 million individuals estimated to be eligible for coverage under state-based health programs, but are not yet enrolled. Premium subsidy programs should also be expanded for individuals eligible for coverage under both an employer-sponsored plan 

and Medicaid or the Children’s Health Insurance Program (CHIP). 

PRESCRIPTION #9: IMPROVE TAX POLICY TO MAKE HEALTH COVERAGE MORE

AFFORDABLE AND ACCESSIBLE

Current tax rules must continue to permit employers to deduct their expenses for 

the cost of health benefits they provide to employees. 

In addition, rather than subjecting employees to income and payroll taxes on the 

cost of employer-sponsored health care coverage, we believe that favorable tax treatment should be extended to individuals who do not have access to health coverage 

under an employer plan and who obtain coverage in the individual insurance market. 

PRESCRIPTION #10: ENABLE EMPLOYERS AND EMPLOYEES TO DEVELOP RETIREE HEALTH

CARE SOLUTIONS

An above-the-line tax deduction should be permitted for retiree health insurance 

premiums. Employers and employees should also have a wider range of options to 

fund retiree health care needs, starting by improving existing benefit vehicles. 

Finally, the most important prescription for health reform may well be the willingness of all major stakeholder groups to engage in a collaborative effort to develop 

health reform solutions. As an organization whose members either directly sponsor 

or administer employee benefits covering more than 100 million Americans, we are 

committed to working with all those who believe, as we do, that health reform is 

both urgently needed and can only succeed if it is developed through an open, consensus-based process. If we take this path and are guided by a set of pragmatic prescriptions, we can succeed in achieving fundamental and urgently needed health 

care reform. 

We look forward to working with this Committee, the Obama Administration, and 

other major stakeholders in our health care system in developing sensible solutions 

to deliver on the promise of making quality, affordable health care a reality for all 

Americans. 

ATTACHMENT: ‘‘Condition Critical: Ten Prescriptions for Reforming Health Care 

Quality, Cost and Coverage’’ 

[The referenced attachment may be accessed at the following Internet address:] 

http://www.americanbenefitscouncil.com/documents/condition—critical2009.pdf 

And without objection, the hearing is adjourned. 

[Whereupon, at 12:04 p.m., the subcommittee was adjourned.] 

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