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78–672 2012

HEARING ON THE INDIVIDUAL AND EMPLOYER 

MANDATES IN THE DEMOCRATS’ HEALTH CARE LAW 

HEARING 

BEFORE THE

SUBCOMMITTEE ON HEALTH 

OF THE

COMMITTEE ON WAYS AND MEANS 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

MARCH 29, 2012

Serial 112–HL09 

Printed for the use of the Committee on Ways and Means 

( 


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COMMITTEE ON WAYS AND MEANS 

DAVE CAMP, Michigan, Chairman 

WALLY HERGER, California 

SAM JOHNSON, Texas 

KEVIN BRADY, Texas 

PAUL RYAN, Wisconsin 

DEVIN NUNES, California 

PATRICK J. TIBERI, Ohio 

GEOFF DAVIS, Kentucky 

DAVID G. REICHERT, Washington 

CHARLES W. BOUSTANY, JR., Louisiana 

PETER J. ROSKAM, Illinois 

JIM GERLACH, Pennsylvania 

TOM PRICE, Georgia 

VERN BUCHANAN, Florida 

ADRIAN SMITH, Nebraska 

AARON SCHOCK, Illinois 

LYNN JENKINS, Kansas 

ERIK PAULSEN, Minnesota 

KENNY MARCHANT, Texas 

RICK BERG, North Dakota 

DIANE BLACK, Tennessee 

TOM REED, New York 

SANDER M. LEVIN, Michigan 

CHARLES B. RANGEL, New York 

FORTNEY PETE STARK, California 

JIM MCDERMOTT, Washington 

JOHN LEWIS, Georgia 

RICHARD E. NEAL, Massachusetts 

XAVIER BECERRA, California 

LLOYD DOGGETT, Texas 

MIKE THOMPSON, California 

JOHN B. LARSON, Connecticut 

EARL BLUMENAUER, Oregon 

RON KIND, Wisconsin 

BILL PASCRELL, JR., New Jersey 

SHELLEY BERKLEY, Nevada 

JOSEPH CROWLEY, New York 

Jennifer Safavian, Staff Director 

Janice Mays, Minority Chief Counsel 

SUBCOMMITTEE ON HEALTH 

WALLY HERGER, California, Chairman 

SAM JOHNSON, Texas 

PAUL RYAN, Wisconsin 

DEVIN NUNES, California 

DAVID G. REICHERT, Washington 

PETER J. ROSKAM, Illinois 

JIM GERLACH, Pennsylvania 

TOM PRICE, Georgia 

VERN BUCHANAN, Florida 

FORTNEY PETE STARK, California 

MIKE THOMPSON, California 

RON KIND, Wisconsin 

EARL BLUMENAUER, Oregon 

BILL PASCRELL, JR., New Jersey 


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C O N T E N T S 

Page 

Advisory of March 29, 2012 announcing the hearing ........................................... 2 

WITNESSES 

PANEL 1: 

Carrie Severino Chief Counsel, Policy Director, Judicial Crisis Network .......... 8 

Testimony .......................................................................................................... 11 

Steven G. Bradbury Partner, Dechert LLP ....................................................... 18 

Testimony .......................................................................................................... 21 

Joseph D. Henchman Vice President, Legal Projects, Tax Foundation .............. 30 

Testimony .......................................................................................................... 33 

Neil S. Siegel Professor of Law and Political Science, Duke University School 

of Law .................................................................................................................... 41 

Testimony .......................................................................................................... 43 

PANEL 2: 

Diana Furchtgott-Roth Senior Fellow, Manhattan Institute for Policy Research .................................................................................................................... 84 

Testimony .......................................................................................................... 86 

Sylvester J. Schieber Consultant, Council for Affordable Health Coverage ....... 93 

Testimony .......................................................................................................... 95 

Thomas J. Shaw President, Barton Mutual Insurance Company ....................... 115 

Testimony .......................................................................................................... 118 

Stephen LaMontagne President and CEO, Georgetown Cupcake, Inc. .............. 120 

Testimony .......................................................................................................... 123 

MEMBER SUBMISSIONS FOR THE RECORD 

The Honorable Bill Pascrell .................................................................................... 139 

The Honorable Jim McDermott .............................................................................. 154 

PUBLIC SUBMISSIONS FOR THE RECORD 

American Farm Bureau Federation, Statement ................................................... 158 

Center for Fiscal Equity, Statement ...................................................................... 160 

Chamber of Commerce, Statement ......................................................................... 165 

NFIB and Small Business Coalition for Affordable Healthcare, Statement ....... 168 


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wwoods2 on DSK499XVN1PROD with WAYS & MEANS
(1) 

HEARING ON THE INDIVIDUAL AND 

EMPLOYER MANDATES IN THE DEMOCRATS’ 

HEALTH CARE LAW 

THURSDAY, MARCH 29, 2012 

U.S. HOUSE OF REPRESENTATIVES, COMMITTEE ON WAYS AND MEANS, SUBCOMMITTEE ON HEALTH, Washington, DC. 

The subcommittee met, pursuant to call, at 9:05 a.m., in Room 

1100, Longworth House Office Building, the Honorable Wally Herger [chairman of the subcommittee] presiding. 

[The advisory of the hearing follows:] 


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HEARING ADVISORY 

FROM THE COMMITTEE ON WAYS AND MEANS 

Chairman Herger Announces Hearing on the 

Individual and Employer Mandates in the 

Democrats’ Health Care Law 

March 29, 2012 

House Ways and Means Health Subcommittee Chairman Wally Herger (R–CA) 

today announced that the Subcommittee on Health will hold a hearing to explore 

the constitutional concerns raised by the individual mandate and economic problems 

caused by the employer mandate which were created in the Democrats’ health care 

law. The hearing will take place on Thursday, March 29, 2012, in 1100 Longworth House Office Building, beginning at 9:00 A.M. 

In view of the limited time available to hear from witnesses, oral testimony at 

this hearing will be from invited witnesses only. However, any individual or organization not scheduled for an oral appearance may submit a written statement for 

consideration by the Committee and for inclusion in the printed record of the hearing. A list of witnesses will follow. 

BACKGROUND: 

The ‘‘Affordable Care Act’’ (P.L. 111–148 and 111–152) imposes two highly coercive federal mandates on both individuals and employers. Beginning in 2014, the 

Federal Government will mandate that nearly every American purchase government-approved health insurance or pay a penalty. The United States Supreme 

Court will soon hear arguments in the days before the hearing about whether such 

a requirement is constitutional. Also, beginning in 2014, the Federal Government 

will mandate that many employers provide government-prescribed health insurance 

or pay a fine. Economists and employer groups have expressed concerns that the 

added costs associated with the employer mandate will impede their ability to hire 

and retain workers and result in lower wages. In announcing the hearing, Chairman 

Herger stated, ‘‘The majority of Americans remain opposed to the Democrats’ 

health care law, and an even larger number of Americans believe the individual mandate is a violation of their constitutional rights. The public remains concerned about the impact the law will have on their lives and with 

good reason. At its core, the Democrats’ risky experiment relies on a federal mandate, forcing Americans to purchase a product—even if they can’t 

afford it—or pay a fine. Furthermore, the law’s new mandates and regulations are standing in the way of job creation at a time when unemployment 

remains high and our economy desperately needs more jobs. Although the 

courts are actively engaged, this hearing will allow for an open and candid 

discussion in Congress, where the law was passed, but where it did not receive the debate and dialogue that these issues deserve.’’ 

FOCUS OF THE HEARING: 

The hearing will focus on the constitutional questions surrounding the individual 

mandate and the economic impact of the employer mandate. 

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS: 

Please Note: Any person(s) and/or organization(s) wishing to submit for the hearing record must follow the appropriate link on the hearing page of the Committee 

website and complete the informational forms. From the Committee homepage, 

http://waysandmeans.house.gov, select ‘‘Hearings.’’ Select the hearing for which you 


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would like to submit, and click on the link entitled, ‘‘Click here to provide a submission for the record.’’ Once you have followed the online instructions, submit all requested information. ATTACH your submission as a Word document, in compliance 

with the formatting requirements listed below, by the close of business on 

Thursday, April 12, 2012. Finally, please note that due to the change in House 

mail policy, the U.S. Capitol Police will refuse sealed-package deliveries to all House 

Office Buildings. For questions, or if you encounter technical problems, please call 

(202) 225–1721 or (202) 225–3625. 

FORMATTING REQUIREMENTS: 

The Committee relies on electronic submissions for printing the official hearing 

record. As always, submissions will be included in the record according to the discretion of the Committee. The Committee will not alter the content of your submission, 

but we reserve the right to format it according to our guidelines. Any submission 

provided to the Committee by a witness, any supplementary materials submitted for 

the printed record, and any written comments in response to a request for written 

comments must conform to the guidelines listed below. Any submission or supplementary item not in compliance with these guidelines will not be printed, but will 

be maintained in the Committee files for review and use by the Committee. 

1. All submissions and supplementary materials must be provided in Word format and MUST 

NOT exceed a total of 10 pages, including attachments. Witnesses and submitters are advised 

that the Committee relies on electronic submissions for printing the official hearing record. 

2. Copies of whole documents submitted as exhibit material will not be accepted for printing. 

Instead, exhibit material should be referenced and quoted or paraphrased. All exhibit material 

not meeting these specifications will be maintained in the Committee files for review and use 

by the Committee. 

3. All submissions must include a list of all clients, persons and/or organizations on whose 

behalf the witness appears. A supplemental sheet must accompany each submission listing the 

name, company, address, telephone, and fax numbers of each witness. 

Note: All Committee advisories and news releases are available on the World 

Wide Web at http://www.waysandmeans.house.gov/. 

The Committee seeks to make its facilities accessible to persons with disabilities. 

If you are in need of special accommodations, please call 202–225–1721 or 202–226– 

3411 TTD/TTY in advance of the event (four business days notice is requested). 

Questions with regard to special accommodation needs in general (including availability of Committee materials in alternative formats) may be directed to the Committee as noted above. 

f 

Chairman HERGER. The subcommittee will come to order. I 

want to apologize for Ranking Member Stark, who has been caught 

in traffic so we will move ahead. Without objection, his opening 

statement will be made part of the record. 

[The prepared statement of The Honorable Pete Stark follows:] 


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f 

Chairman HERGER. We are here today at the actual end of an 

extraordinary week in the history of the Democrats’ health care 

overhaul. Last Friday marked the 2-year anniversary of the law 

and for 3 days this week the Supreme Court considered its constitutionality. Today, the subcommittee will examine two mandates 

at the center of the law. 

Beginning in 2014, the individual mandate will require Americans to buy government approved health insurance even if they 

can’t afford it, or else pay a penalty. This mandate fundamentally 

changes the relationship between the individual and the Federal 

Government, and for the first time in history requires individuals 

to purchase a private product and enter into a private contract. Not 

surprisingly, the individual mandate is the subject of one of the 

most important and closely watched Supreme Court cases in modern times. The individual mandate is also deeply unpopular with 

the American people. A constitutionally suspect mandate that is 

opposed by the public is not a very stable cornerstone of a health 

reform plan, and yet, and yet, the administration claims it is essential. 


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The individual mandate is unprecedented, unlimited, unnecessary, and dangerous. Never before has Congress required individuals to purchase a private product. If Congress has the power to 

compel commerce, then its power becomes virtually unlimited. Indeed, the Obama administration has not put forward any limiting 

principle. 

Finally, the individual mandate creates a Federal policy of police 

power, a power reserved in the Constitution for the States. This is 

dangerous because our dual system of sovereignty is essential to 

protecting individual liberty. 

Our first panel will examine the constitutionality of the individual mandate. Not everyone was able to secure a seat to hear 

oral arguments at the Supreme Court this week, but it is important that the public as well as Members of Congress understand 

the constitutional questions raised by this coercive mandate. We 

have a distinguished panel of attorneys, each of whom have authored or coauthored influential amicus briefs in this historic case. 

The second panel will discuss the economic problems created by 

the employer mandate. I can sum up those problems in one word. 

Jobs. The employer mandate places additional cost burdens on employers, which is the last thing job creators need during these 

tough economic times, and it would discourage the hiring of additional workers. In a recent U.S. Chamber of Commerce survey, over 

1,300 small business executives found that 74 percent say the recent health care law makes it harder for their business to hire 

more employees. Given how long we have suffered with high unemployment, the employer mandate makes absolutely no sense. 

In addition, the employer mandate will force employers to scale 

back their existing workforce, particularly workers at the lower end 

of the wage scale. Equally troubling, the mandate encourages employers to eliminate the health insurance they offer to their employees because the penalty associated with not offering coverage 

is far cheaper than the costs associated with offering and maintaining health insurance coverage. 

In summary, the cornerstones of the Democrats’ health care law 

are crumbling under the weight of scrutiny. The entire law needs 

to be repealed and replaced with real constitutional reforms that 

reduce the price of health insurance. 

Before I recognize the minority for the purpose of an opening 

statement, I ask unanimous consent that all members’ written 

statements be included in the record. Without objection, so ordered. 

I now recognize the gentleman from New Jersey for opening 

statements. 

Mr. PASCRELL. Just very briefly, Mr. Chairman. Let’s make it 

clear before we start today that we are already paying, for the 

members of this committee who are here and who are not here, we 

are already paying for those folks who do not have insurance. Let’s 

make the record clear on it. Let’s not have confusion on that issue. 

And I think we do a disservice to the subject as well as to the 

American people to in any way infer or conclude that if we sustain 

the system that we are trying to move away from, that this will 

keep money in our pockets. We are going to continue to pay for 

those people who do not have insurance. There is no other way to 

pay the bills. And so I think that needs to be made very clear. 


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And I would like to know, you know, you talk about frivolous 

lawsuits, let’s talk about what will be accomplished from this hearing. I am trying to think about that, think into the future. What 

is going to be accomplished in this hearing as we await the June 

decision from the Supreme Court? 

And thirdly, when we say we need more constitutional reforms 

for health care, and if as many of the folks on your side of the aisle, 

in all due respect, reject the health care act, then what are you 

suggesting in its place? I would like to hear that before the end of 

the day. What are the constitutional reforms that you think are 

necessary in order to bring about a change to a system which both 

of us admit is not sustainable, which exists now? Then what do you 

suggest? And I would like those to be codified and sent to all the 

members, and then maybe we can have a debate on what you folks 

have been talking about. And I frankly don’t know what you have 

been talking about, because I don’t know that any of those constitutional reforms that you recommend have been put on the record. 

Many of the people on your side, Mr. Chairman, have picked out 

certain parts of the health care act and said that these aren’t so 

bad. We certainly wouldn’t vote against this. We wouldn’t vote 

against that. But I don’t know what you stand for yourself. And I 

think we need to know that before we get into this discussion, or 

perhaps the members of the panel would suggest that we should 

continue to sustain the old system that we are trying to get away 

from. I don’t know what they think. And I know one thing, that we 

are paying for those people who are uninsured. 

Now, first, we have got to find out how many people are uninsured. Then we have to find out how much we have been paying, 

and we can calculate that. Right, Dr. Price, we can calculate that. 

How much the folks—— 

Mr. PRICE. Will the gentleman yield? 

Mr. PASCRELL. Sure. 

Mr. PRICE. The fact of the matter is, many of us have put forward positive solutions. H.R. 3000 is the comprehensive one, Empowering Patients First Act, that we put forward. And I would just 

like to correct the gentleman, that the gentleman says we are already paying for those that aren’t covered. In fact, what happens 

is that the people providing the care eat the cost for it. So the doctors and the hospitals are eating the cost. There is no more cost 

shifting, and so the gentleman is inaccurate. 

Mr. PASCRELL. Can I take back my time? That is off the wall, 

and you know it, Dr. Price. You know, you know who is paying 

these bills. It is no different than when Walmart, which part-timed 

its whole workforce, who paid—the question is, who paid for those 

folks that had to go and seek medical attention, be in the hospital, 

go to a doctor? The answer: You. You paid, and I paid. That is the 

only answer. When you say well, the insurance company. 

Mr. PRICE. Will the gentleman yield—— 

Mr. PASCRELL. Which insurance? They don’t have insurance. 

Sure. 

Mr. PRICE. Let me just ask you, please. When you are home 

over the next 2 weeks, please go visit a physician’s office who sees 

patients. 

Mr. PASCRELL. I do it all the time. 


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Mr. PRICE. Ask them how much bad debt they are unable to collect and that they are not being compensated for that care. Just 

ask them, that is all I ask you. 

Mr. PASCRELL. Reclaiming my time, I am very aware of the 

physicians in this country, and you being one yourself, I would appreciate that fact that you are trying to protect your profession in 

a professional way. I have no problems with what you just said. 

But we know why the debt is accumulated, when people aren’t paying their bills. And why aren’t people paying their bills, Dr. Price? 

Mr. PRICE. You want me to respond? 

Mr. PASCRELL. Sure. 

Mr. PRICE. I am happy to respond. I think it is because of the 

taxation of this society, the regulation, the regulatory burden and 

oppression that this administration puts on them so that we can’t 

have a dynamic economy, and the lawsuit abuse that exists out 

there is astounding, astounding. 

Mr. PASCRELL. Reclaiming my time. I know you have accused 

this administration of everything but thunderstorms, and you will 

get to that some day, I am sure. 

Chairman HERGER. The gentleman’s time is expired. 

Mr. PASCRELL. May I just finish my sentence? Thank you. 

Thank you, Mr. Chairman. But we are paying, my grandfather, 

may he rest in peace, said we pay. The average person pays, and 

they don’t even know it. 

Chairman HERGER. The gentleman’s time is expired. We will 

hear from four witnesses on our first panel. Carrie Severino, General Counsel, Judicial Crisis Network; Steven Bradbury, Attorney 

with Dechert LLP; Joseph Henchman, Vice President of Legal 

Projects, Tax Foundation; and Neil S. Siegel, Professor of Law and 

Political Science, Duke University School of Law. 

You will each have 5 minutes to present your oral testimony. 

Your entire written statement will be made part of the record. Ms. 

Severino, you are now recognized for 5 minutes. 

STATEMENT OF CARRIE SEVERINO, CHIEF COUNSEL, POLICY 

DIRECTOR, JUDICIAL CRISIS NETWORK 

Ms. SEVERINO. Thank you, Mr. Chairman, Members of the 

committee. If men were angels no government would be necessary. 

We have all heard the famous quote from James Madison in Federalist 51, but rarely do we hear the rest of the quote even though 

it is absolutely crucial. ‘‘If men were angels, no government would 

be necessary. If angels were to govern men, neither external nor 

internal controls on government would be necessary. In framing a 

government which is to be administered by men over men, the 

great difficulty lies in this: You must first enable the government 

to control the governed; and in the next place oblige it to control 

itself.’’ 

I submit that the Patient Protection Affordable Care Act embodies precisely the type of uncontrolled government power that 

Madison and the founders recognized as a fundamental threat to 

our liberties. Having just fought in and won a revolution against 

a despotic central government, the framers of our Constitution 

were not about to tolerate the least slide back to tyranny. So they 

divided government power among three branches and were careful 


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to limit Congress’ legislative authority to a specific list of powers 

and no more. 

Congress explicitly invoked its power under the Commerce 

Clause as its authority for the health care law and its individual 

mandate in particular. It was wrong for three reasons: 

First, the individual mandate goes against 200 years of history 

and precedent. In every Supreme Court affirmation of Federal 

power under the Commerce Clause, from regulating home-grown 

wheat to home-grown marijuana, you can always avoid government 

impositions by simply not participating in the regulated activity in 

the first place. But with the health care law, you are automatically 

subject to regulations simply, as Justice Breyer noted, by virtue of 

being born. 

Now, if the Federal Government has always had such a direct 

and unavoidable power over its citizens, it would have surely exercised it long ago and for emergencies far more pressing than health 

reform, such as during the Great Depression or World War II, but 

it did not. And that lack of historical support is strike one for the 

individual mandate. 

Strike two for the mandate is the fact that compelling individuals to buy a product is a far different thing from regulating an 

existing market. This is why the administration struggles mightily 

to blur this distinction by, for example, complaining that people 

who choose not to buy health insurance now can nevertheless be 

regulated now because they are likely to consume health care services sometime in the future. 

But there is a constitutional difference between actual and potential participation because after all we are potential participants in 

every single market that we consciously choose to avoid, where still 

bystanders forced into the health insurance market now will have 

only one legal exit, and that is moving to another country. 

The third problem with the administration’s argument is that it 

lacks any limiting principle. The Supreme Court has repeatedly 

said that the Federal Government’s power must have a stopping 

point because the structural limits on our government are central 

guarantees of individual liberty. The learning principle relied on by 

the administration really just boils down to a claim that health 

care is different. But the market for health insurance, or even 

health care is not unique. There are many other products in life 

like food, clothing, and shelter that every American must purchase 

now or some day and are just as, if not more, necessary to human 

happiness than health care. As Justice Kennedy noted Tuesday, 

the government is calling this unique today, but it will just call 

something else unique tomorrow. And if the Federal Government 

can force Americans to purchase insurance to lower National 

health care costs, there is nothing stopping it from issuing the 

broccoli mandates or compelled gym memberships in the name of 

lowering health care costs. 

But let’s presume the administration is right and health care is 

somehow unique. That still isn’t a limiting principle, but an invitation for government to label any grand scheme it wants to impose 

on Americans as unique, simply because it is grand. At that point 

the theoretical limit on the power of government will be the power 

of one’s imagination. 


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I think the administration recognizes these weaknesses in its argument, and it has hedged its bets by emphasizing the Necessary 

and Proper Clause in its most recent Supreme Court brief. But the 

Necessary and Proper Clause is not a freestanding grant of power. 

It merely gives Congress the authority for carrying into execution 

its other enumerated powers. The administration argues that the 

individual mandate necessarily flows from the need to cover the 

massive costs that will be imposed on insurers by other parts of the 

health care law. But that is simply not carrying into execution 

those provisions. It is avoiding the negative consequences of the 

same provisions. Otherwise, it would mean that the greater the 

harm caused by a piece of legislation, the more power Congress 

could claim as necessary to fix the self-created harms. This is the 

epitome of bootstrapping. 

As Members of Congress, you bear an independent responsibility 

to ensure that the Legislative Branch stays within its constitutionally enumerated powers. To once again summon Madison: Because government is not made up of angels, limits on governmental 

power are absolutely crucial. Because the individual mandate shatters these limits, it should be deemed unconstitutional by you and 

the Supreme Court. 

Thank you. 

[The prepared statement of Ms. Severino follows:] 


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f 

Chairman HERGER. Thank you. Mr. Bradbury, you are recognized for 5 minutes. 

STATEMENT OF STEVEN G. BRADBURY, PARTNER, 

DECHERT LLP 

Mr. BRADBURY. Chairman Herger, Ranking Member Stark, 

and distinguished Members of the Subcommittee, it is an honor to 

appear before you today. I would like to focus on the economic realities behind the individual mandate as laid out in an amicus brief 

we filed in the Supreme Court on behalf of 215 leading economists. 

Justice Alito alluded to our brief when he made the following 

points to the Solicitor General at oral argument this past Tuesday. 

Justice Alito noted that the Congressional Budget Office estimates that the average premium for a single health insurance policy in 2016 will be around $5,800 per year. He then observed, 


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based on calculations presented in our amicus brief, which were derived from public HHS survey data, that the typical young, healthy 

individual who is the real target of the individual insurance mandate, incurs on average only $854 in annual health care costs. That 

is less than one-seventh of the medical costs incurred by the average American per year, a number frequently cited by those defending the mandate. 

Indeed, just focusing on emergency room costs the average annual emergency room costs for the young and healthy are only $56. 

Highlighting this dramatic difference between the insurance premium a young, healthy individual can be expected to pay in complying with the mandate and the relatively modest health care 

costs that that same individual can be expected to incur, Justice 

Alito pointed out the obvious: ‘‘What this mandate is really doing 

is not requiring the people who are subject to it to pay for the services that they are going to consume. It is requiring them to subsidize services that will be received by somebody else.’’ 

The very same point was driven home by the Washington Post 

in its editorial earlier this week supporting the mandate. The Post 

was very candid when it wrote, ‘‘Insurance companies would be unable to offer affordable coverage to those with preexisting conditions unless they also were guaranteed enrollment of the young 

and healthy customers who are less likely to consume health care 

services.’’ 

These economic realities show that the individual mandate has 

almost nothing to do with cost shifting in health care markets, 

since the people primarily targeted by the mandate, those who can 

afford health insurance but who voluntarily choose not to purchase 

it because they reasonably expect the cost of insurance to outweigh 

their foreseeable medical costs, account for only a small fraction of 

the $43 billion of uncompensated costs identified by the Solicitor 

General. 

Instead, the mandate was actually enacted not to stop cost shifting, but to compel millions of Americans to pay more for health insurance than they receive in benefits as a means to subsidize the 

insurance companies, and thereby to mitigate the steep rise in insurance premiums that would otherwise be caused by the guaranteed issue and community rating requirements created by the Affordable Care Act itself. 

The Act prevents health insurers from making the basic actuarial decisions made in every other insurance market. Insurers 

may no longer withhold health insurance from those with preexisting conditions or price insurance premiums to match customer’s known actuarial risks. By requiring health insurers to 

cover the sick and set premiums based on average costs, these Federal requirements would dramatically increase health care premiums for all insured Americans unless Congress at the same time 

forces the young and healthy with relatively little need for comprehensive health insurance to enter the market on terms that are 

economically disadvantageous. 

Whether or not these regulatory requirements are good policy, 

what is clear as a constitutional matter is that Congress is not regulating how health care consumption is financed, as the Solicitor 

General has put it, but rather is compelling the voluntarily uninVerDate Mar 15 2010 08:11 Mar 19, 2013 Jkt 078762 PO 00000 Frm 00023 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\78672.XXX 78672

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sured to purchase insurance at disadvantageous prices as a quid 

pro quo to compensate for the enormous costs imposed by the law’s 

regulatory burden. The economic data proved the point and they 

belie any claim that the mandate is constitutional on the ground 

that it regulates economic conduct with a substantial effect on 

interstate commerce. 

The mandate is not a regulation of commerce. It is a forced subsidy meant to ameliorate the costs of Congress’ own regulatory policies. 

Thank you, Mr. Chairman. 

[The prepared statement of Mr. Bradbury follows:] 


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Chairman HERGER. Thank you very much, Mr. Bradbury. Mr. 

Henchman is recognized for 5 minutes. 

STATEMENT OF JOSEPH D. HENCHMAN, VICE PRESIDENT, 

LEGAL PROJECTS, TAX FOUNDATION 

Mr. HENCHMAN. Mr. Chairman, Ranking Member, Members of 

the subcommittee. Thank you for the opportunity to speak to you 

today about the Tax Foundation’s perspective on whether the 

health care law’s individual mandate is within Congress’ power to 

levy and collect—lay and collect taxes granted by Article 1, Section 

8 of the Constitution. Since our founding as an organization in 


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1937, we have advanced the ideas of simpler, more sensible tax policy with reliable research and principled analysis of tax issues at 

all levels of government. The government’s primary argument, in 

this case to sustain the individual mandate, is that under the Commerce Clause it has the power to regulate interstate commerce, and 

that is a subject of much of the discussion in the briefs and of the 

court. 

But the government secondarily argues that the mandate is an 

exercise of Congress’ power to levy taxes because it is projected to 

raise revenue. We authored our brief in the case because we are 

very concerned by this argument and by the reasoning associated 

with it. One of the primary goals of our legal program at the Tax 

Foundation is to keep vibrant an understanding of the differences 

between taxes, fees, and penalties. Taxes are exactions imposed for 

the primary purpose of raising revenue for general spending. Penalties are exactions imposed for the primary purpose of punishing 

for an unlawful or undesirable act. 

Now, we argue in our brief that the evidence shows that this is 

a penalty here. Everyone says that the primary purpose of the individual mandate is not for the revenue it is going to generate, but 

to discourage behavior. The statute calls it a penalty 12 times. It 

calls it a tax zero times. JCT calls it a penalty 24 times, and they 

include it under their regulatory provisions, not under their revenue provisions. The IRS cannot use liens and levies to enforce the 

mandate the way they can with taxes. The President told all of us 

when the bill was being considered that he absolutely rejects the 

notion that it is a tax. And the Justices this week seem very critical of the government’s attempts to persuade them otherwise. 

Now, you may ask why this matters. I assure you, it is not just 

some obsession of the Tax Foundation but has a real impact in the 

real world. There is three reasons why it is very important to keep 

a distinction between taxes and penalties. First, there are countless 

laws at the Federal level and in every State that treat taxes with 

some level of heightened scrutiny that is not given to other laws, 

including fees and penalties. Some examples: The Federal law that 

says you can’t challenge a tax until it is collected, so the governments can have the revenue they need to operate; tax uniformity 

requirements, which exist in every State; tax super majority requirements, which exist in 16 States; voter approval thresholds; 

multiple reading requirements, and so on. If these provisions are 

to do what they are meant to do, you have to be able to tell the 

difference between taxes and non-taxes. 

Second, the definition I outlined is not something we conjured up 

at the Tax Foundation. It is widely used and relied upon by courts 

across this country. Our brief lists five pages of cases from nearly 

every court in the land that has adopted this definition. And in 

fact, we have identified only four States that have departed from 

it. If the administration in this case were successful in getting the 

Supreme Court to adopt a completely new definition based on 

whether a revenue is raised, then that jeopardizes all of those taxpayer protections I mentioned and jeopardizes the ability of State 

and local governments to collect fees and fines they depend on. 

Third, it goes to the very heart of the conception of how we pay 

for government. Taxes are the things we pay so that there will be 


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services for everybody. As Professor Randy Barnett put it this 

week, they are your duty in return for what government does to 

protect you and everyone else, and to equate that to a requirement 

to do business with a private company is to say that those are the 

same thing. That is very disturbing. 

Now I am a good lawyer so this is the part where I say, if you 

disagree with me on everything I have said so far, try this: If it 

is a tax, it is not one that is permissible. Article 1, Section 8 of the 

Constitution says that direct taxes must be apportioned by State 

population. Now, although the founders disagreed on precisely 

what a direct tax was in a case about tax on carriages, they did 

agree that a tax directly levied on an individual is a direct tax. 

Alexander Hamilton, not one usually suspicious of big government, 

called this provision that prohibits direct taxes unapportioned by 

population, the thing that would ensure that the government could 

not tax in an abusive way. 

So for all of these reasons, we think it is important that a meaningful distinction between tax and penalty is vital to give operation 

to all of those Federal and State provisions relating to tax policy, 

and we are hoping that the Supreme Court will agree with us. 

Thank you. 

[The prepared statement of Mr. Henchman follows:] 


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Chairman HERGER. Thank you. Mr. Siegel is recognized. 


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STATEMENT OF NEIL S. SIEGEL, PROFESSOR OF LAW AND 

POLITICAL SCIENCE, DUKE UNIVERSITY SCHOOL OF LAW 

Mr. SIEGEL. Chairman Herger, Ranking Member Stark, and 

Members of the Committee. Good morning. I am honored to be 

here. For three independently sufficient reasons, the minimum coverage provision is within the scope of Congress’ enumerated powers 

in Article 1, Section 8 of U.S. Constitution. 

First, the Necessary and Proper Clause gives Congress the power 

to pass laws that are necessary and proper to carry into execution 

Congress’ other enumerated powers. All sides in the Affordable 

Care Act litigation agree that the Commerce Clause gives Congress 

broad authority to guarantee access to health insurance by requiring insurance companies to offer coverage to Americans with preexisting conditions. 

Under well-established law, the minimum coverage provision is 

necessary and proper to carrying into execution this undeniably 

valid regulation of insurers. The question in the Supreme Court’s 

words is simply whether the means chosen are reasonably adapted 

to the attainment of a legitimate end under the commerce power, 

guaranteeing access to health insurance is a legitimate end for constitutional purposes, and the minimum coverage provision is reasonably adapted to the attainment of that end. Without the provision there would be a perverse incentive for people to wait until 

they are sick to obtain health insurance. This adverse selection 

problem would substantially undermine and indeed threaten to unravel insurance markets. 

Second, the minimum coverage provision is justified by the Commerce Clause standing alone. A Federal law is valid under the commerce power if it regulates economic conduct that substantially affects interstate commerce. The minimum coverage provision passes 

this test because it regulates how people pay for or do not pay for 

the health care they unavoidably consume and cannot be denied at 

a time they cannot predict, at a cost potentially so high that others 

may have to bear it. Cost shifting is undeniably an economic problem and its aggregate effects on interstate commerce are substantial. 

Third, the minimum coverage provision is also justified by Congress’ tax power. Although Congress called the ACA’s required payment for noninsurance a penalty, labels do not determine whether 

an exaction is a tax for constitutional purposes. As the Supreme 

Court has held since the 1930s, what matters constitutionally is 

whether a required payment to the IRS is ‘‘productive of revenue’’ 

and ‘‘operates as a tax.’’ The Congressional Budget Office estimates 

that 4 million Americans each year will choose to make the shared 

responsibility payment instead of obtaining coverage. The CBO further predicts that the required payment provision in the Act will 

produce $54 billion in Federal revenue from 2015 to 2022. Because 

the ACA’s required payment for noninsurance will operate as a tax, 

it is a tax for purposes of the tax power. 

Opponents of the minimum coverage provision insist that if the 

provision is upheld, then Federal power is limitless. That charge is 

incorrect. The minimum coverage provision respects five significant 

limits on Federal power. 


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First, the provision addresses genuinely economic problems, not 

merely social problems that do not involve markets. 

Second, these problems are interstate in scope. Collective action 

failures at the State level, interstate externalities impede the ability of the State to guarantee access to health insurance by acting 

on their own. 

Third, the provision does not violate any individual constitutional 

right, including the right to bodily integrity, which would clearly be 

violated by mandates to consume certain vegetables or to exercise 

a certain amount each week. 

Fourth, unlike other purchase mandates, such as for food, clothing, and shelter, the provision combats the unraveling of a market 

that Congress has clear authority to regulate. In light of the adverse selection problem that I just mentioned, upholding the provision does not mean Congress can issue whatever purchase mandates it wants. Rather, a decision upholding the provision could 

hold narrowly that Congress may issue a purchase mandate when, 

but only when, such a mandate is needed to prevent the unraveling 

of a market that Congress is already regulating in undeniably constitutional ways. 

Fifth, the provision respects limits on the tax power. The difference between a constitutional tax and an unconstitutional penalty is the difference between the minimum coverage provision and 

a required payment of $10,000 that increases with each month that 

an individual remains uninsured. Unlike the minimum coverage 

provision, that exaction would raise little or no revenue because it 

would be highly coercive. 

For these reasons, Congress should conclude that the minimum 

coverage provision is within the scope of Congress’ enumerated 

powers, and the Supreme Court should decline the invitation to 

issue what would without exaggeration be the most consequential 

invalidation of a Federal law on federalism grounds since the constitutional crisis of the Great Depression and the New Deal. 

Thank you. 

[The prepared statement of Mr. Siegel follows:] 


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Chairman HERGER. Thank you. 

Mr. Bradbury, in his ruling, the 11th Circuit Court decisions 

wrote that, quote: ‘‘Not only have prior congressional actions not 

asserted the power now claimed, they contain some indication of 

precisely the opposite assumption. Instead of requiring action, Congress has sought to encourage it.’’ 


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Can you give some examples of how Congress has encouraged action, but not required it? 

Mr. BRADBURY. Yes, Mr. Chairman. There are many, many examples through history. The case of the wheat case, Wickard v. 

Filburn, that was a restriction on supply in order to prop up or promote the price of wheat to protect the farming communities. It 

would have been much more potent and direct if Congress believed 

it had the power to require every family in America to buy two 

loaves of bread a week. Increasing demand in the market would 

have been a more direct way to prop up the price. 

More recently, the Cash for Clunkers program. That is an incentive to try to get people to turn in older, polluting cars in order to 

buy newer, more energy-efficient vehicles. Rather than a direct 

mandate that people do it, it was a cash incentive. 

So there are many, many examples like that throughout history. 

Chairman HERGER. Thank you. 

Ms. Severino, I want to read a quote from the 11th Circuit Court 

decision ruling the individual mandate unconstitutional and get 

your reaction to it. ‘‘The government’s position amounts to an argument that the mere fact of an individual’s existence substantially 

affects interstate commerce, and therefore Congress may regulate 

them at every point of their life. This theory affords no limiting 

principles in which to confine Congress’ enumerated power.’’ 

As troubling as the individual mandate is, it seems the court is 

saying even worse things could happen in the future. What does 

the court mean by no limiting principles to confine Congress’ 

power? 

Ms. SEVERINO. What the court is looking for is some way to say 

where the Commerce Clause ends, because if it doesn’t have a limit 

then none of the constitutional limits on Congress are effective because the Congress could effectively regulate anything via the Commerce Clause power. 

To address some of the arguments against a limiting principle 

that was just brought up, this is clearly a regulation that violates 

all of these limits. If this is regulating something that is economic 

and not just social, he would say, but any social activity you engage 

in also has an effect on the economy, and I would say additionally 

on the interstate economy in a world that is not just nationalized 

but globalized. There is also the claims there are no individual 

rights violated doesn’t answer the question about the Commerce 

Clause. We need limits not just from the Bill of Rights, but also 

on the Commerce Clause itself. And to allow Congress to regulate 

to any degree a market that is already regulating, well, I would 

submit that there are very few markets left that Congress doesn’t 

have some degree of regulation on, so that also is not a limiting 

principle. 

I think the Supreme Court, even more so than the courts of appeals recognizes that they are the final backstop to ensure these 

limits on the constitutional powers of Congress, and so they are 

going to be very concerned as they consider this case to make sure 

that their argument, their final analysis affords such a limit. 

Chairman HERGER. Thank you. 

Mr. Henchman, throughout this debate over the health care law, 

we have seen the President and his Cabinet offer very inconsistent 


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answers to the fairly straightforward question of whether the unpopular coercive penalty imposed on people who do not comply with 

the individual mandate is a tax. President Obama has denied that 

it is a tax. Secretary Sebelius told this committee that it ‘‘operates 

as a tax, but is not a tax, per se.’’ They argue in one part of the 

case it is not a tax, and in the individual mandate part they argue 

it is a tax. 

Is this just politics, or does it matter whether the individual 

mandate is considered a tax versus a penalty? 

Mr. HENCHMAN. Excellent question, Mr. Chairman, and it 

shows that we have more work to do at the Tax Foundation in explaining what a tax is to the American people. But ultimately, I 

think it is driven by legal strategy. The government feels that they 

might have a better case under the taxing power if they can’t make 

the Interstate Commerce Clause argument, and that is why they 

have heavily relied on it. 

And indeed this came up on Monday. Justice Alito asked the Solicitor General, today you are arguing that the penalty of the tax 

for purposes of the Anti-Injunction Act and tomorrow you are going 

to be back and argue that it is a tax for purposes of the Constitution. And he asked whether the court has ever held that something 

is a tax for purposes of the taxing power and is not a tax for the 

Anti-Injunction Act, and they haven’t. That has never happened. It 

is unprecedented. 

You know, speaking as a person who works at the Tax Foundation, I have to say that a tax is the same thing. If it is a tax under 

the Anti-Injunction Act, it is a tax under the Constitution, and it 

is a tax in the popular conception. It is splitting hairs to try to define differences between those things. We are very reliant on the 

view held, not only by us, but also by nearly every court in the land 

that a tax is not just something that generates revenue, but has 

the purpose of generating revenue. 

Professor Siegel’s point that anything that generates revenue is 

a tax, the Oregon Supreme Court agrees with him, but that is 

about it. Everybody else disagrees with him, so that view is outside 

the mainstream. 

Chairman HERGER. Thank you. Mr. Stark is now recognized for 

5 minutes. 

Mr. STARK. Thank you, Mr. Chairman. Thank the witnesses for 

their efforts today. Ms. Severino, I just wanted to correct some of 

your testimony. You say that the only recourse to avoid the mandate would be to leave the country. First, you could pay the penalty 

and remain uninsured. And secondly, I am not sure there is any 

country in the world which does not have uninsured coverage and 

requiring the citizens to pay for it. So it would be interesting to 

know what country you might have in mind. 

Professor Siegel, you highlight the severe limitations that would 

be put on the Federal Government if the Supreme Court were to 

decide that the individual mandate in the health reform law was 

unconstitutional. 

Could you expand on that concern and list some of the actions 

by the Federal Government that you think might be impinged, and 

what that might mean to us? 


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Mr. SIEGEL. Yes, I would be happy to. I think this is a case 

about limits. It is not just a case about limits for the Federal Government. It is a case about limits for those who want to undermine 

the powers of this Congress. What are the limits on the limits that 

the opponents of the Affordable Care Act want to impose on the 

Congress of the United States as an institution? 

So, for example, the argument is that Congress may not regulate 

so-called inactivity under the Commerce Clause. Think about the 

potential implications of this limit. Imagine a very real possibility, 

a public health emergency, a flu pandemic spreading around the 

country like wildfire. There is no doubt in my mind that this Congress would have the power under those very limited circumstances 

to quarantine, pursuant to the Federal Quarantine Authority, to 

impose mandatory vaccination to prevent widespread deaths. If 

Congress doesn’t have the power then every American is at the 

mercy of a single State that doesn’t mandate vaccinations. 

Do we really want to decide for now for all time that no matter 

how grave the circumstances, Congress can’t mandate certain action under the commerce power. Think about the Necessary and 

Proper Clause, and take seriously the bootstrapping objection. The 

objection is that Congress under the Necessary and Proper Clause 

can’t take action to help alleviate a problem that is partially of its 

own creation. That rewrites the Necessary and Proper Clause out 

of the Constitution. The Necessary and Proper Clause is explicit 

textural authority for bootstrapping. It gives Congress the power to 

take actions that would otherwise be outside of the scope of its 

other enumerated powers. If you take it seriously, it means that 

Congress may not criminalize terrorist attacks on military bases 

because the problem wouldn’t exist if Congress hadn’t first created 

the bases and created the targets. It means Congress can’t prohibit 

mail robbery because there would be no mail to rob if Congress 

hadn’t established a post office. And one could go on and on. 

Just like in medicine, sometimes in law, interventions have both 

socially beneficial consequences and unavoidable side effects. And 

the Constitution gives this institution the power to address both. 

Mr. STARK. Yield back. 

Chairman HERGER. Thank you. Mr. Johnson is recognized. 

Mr. JOHNSON. Thank you, Mr. Chairman. This is an interesting conversation, you know. You talk about post offices, but we 

don’t need them. Fed Ex can do a better job and has admitted they 

can. The post office is way in debt. You know, I listened to the Solicitor General Tuesday. You sound just like him. The only difference is you are not drinking water about every two sentences. 

And I couldn’t believe what he was saying; neither can I believe 

what you are saying. 

Ms. Severino, the 11th Circuit stated: ‘‘Few powers if any could 

be more attractive to the Congress in compelling the purchase of 

certain products. Yet, if we focus on the modern era when congressional power under the Commerce Clause has been at its height, 

still Congress has not asserted its authority. Even in the face of a 

Great Depression, a world war, Cold War, recessions, oil shocks, inflation and unemployment, Congress never sought to require the 

purchase of wheat or war bonds, force a higher savings rate or 


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greater consumption of American goods, or require every American 

to purchase a more fuel-efficient vehicle.’’ 

Is the 11th Circuit correct? Is the individual mandate unprecedented, and are there any other examples that Congress requires 

the purchase of a commercial product, even in times of crisis? 

Ms. SEVERINO. No, you are correct, Mr. Congressman. There is 

no other example of this, and this is something that the Congressional Research Service and the Congressional Budget Office, both 

nonpartisan organizations, have found, that this is the first time 

the government has claimed this type of expansive power. So to say 

that this is just like everything else is, I think, more a matter of 

legal spin than actual effect. The fact of the matter is the government hasn’t taken this step before. 

Now, some will claim that there is a very broad commerce power, 

and therefore it should be stretched one step further to encompass 

this, this authority. But the fact of the matter is that is not something that has ever been upheld under the Commerce Clause power 

before because it simply hasn’t been tried before. 

Mr. JOHNSON. Just an obstruction of freedom to America, isn’t 

it? 

Ms. SEVERINO. Yes, sir. 

Mr. JOHNSON. Ms. Severino, the 11th Court decision ruling also 

stated: ‘‘Americans have historically been subject only to a limited 

set of personal mandates, serving on juries, registering for the 

draft, filing tax returns, and responding to the census. These mandates are in the nature of duties owed to the government attendant 

to citizenship and contain clear foundations in the constitutional 

text.’’ 

What is the difference between these kind of mandates and the 

Obamacare individual mandate? 

Ms. SEVERINO. Well, those mandates are found on other provisions in the Article 1 powers to the legislature. So for example, the 

draft being related directly to the power to raise an army. This is 

very different from the Commerce Clause power which allows the 

power to regulate something. Regulate does not mean to mandate 

it into existence. You can raise an army by mandating that people 

join the Army. You cannot regulate commerce by mandating that 

people enter into commerce. So there is a fundamental difference 

in the way these powers are conceived by the government. And I 

think that is why, as I said before, this has never been claimed as 

a power before. 

And finally, I think this goes back as well to the limiting principle. Because commerce is so broad and basically can cover every 

aspect of our life, you could say that brushing our teeth or not in 

the morning affects Congress because it is going to affect your market for dental care, et cetera. Everything Americans do can affect 

commerce down the line in some way. We can’t claim that every 

aspect of American life is just going to be governed by any of these 

other powers. So there is no limiting principle because of the 

breadth of commerce itself. 

Mr. JOHNSON. Yeah, we can’t hide behind that clause. The Constitution needs to mean something to all of us. Of the people, by 

the people, for the people. 

Thank you, Mr. Chairman. 


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Ms. SEVERINO. Thank you, Congressman. 

Chairman HERGER. Thank you. 

Mr. Pascrell is recognized. 

Mr. PASCRELL. Mr. Chairman, the key purpose of individual responsibility requirement within the Affordable Care Act—by the 

way, Ms. Severino, before I continue, would you answer this question, please, if you can, yes or no? Does government have any specific responsibility to the indigent as far as health care is concerned? Yes or no. 

Ms. SEVERINO. Do you mean Federal Government or State? 

Mr. PASCRELL. The Federal Government. I am sorry. 

Ms. SEVERINO. I don’t believe the Federal Government has a 

specific responsibility in that matter, but the State government 

does. 

Mr. PASCRELL. And if it did, where would that responsibility be 

edified, within the Constitution? 

Ms. SEVERINO. If the Federal Government had such a responsibility? 

Mr. PASCRELL. Yes. 

Ms. SEVERINO. I believe it would be embodied in the Constitution. 

Mr. PASCRELL. Thank you. I think that its presence keeps a lot 

of free riders who can afford to purchase health insurance from 

forcing everyone else to ultimately pay for their health care expenses. You need the mandate in order for things like a ban on preexisting conditions to work. And the mandate we will see whether 

it is constitutional or not. There is no such thing as inaction in the 

health care market. You are going to use the system eventually 

whether you like it or not. And we provide care for you even if you 

don’t have insurance. There is precedent for this, and I believe it 

should be upheld. 

I think it is important to remember that the individual mandate 

was a bipartisan idea. That doesn’t make it right. That doesn’t 

make it constitutional, but it was bipartisan. 

It is interesting that only when the Democrats enacting comprehensive health reform that all of a sudden the other side became opposed to the idea of individual responsibility. I mean, you 

can chronologically check this out. You may differ with that chronology. 

In 1991 Mark Pauly, are you familiar, the panel, with Mark 

Pauly? Any of you? 

He is a scholar at the American Enterprise Institute. He developed an individual mandate for then President George H.W. Bush. 

I have a copy of one of his articles here. And I ask for a unanimous 

consent to submit into the record a Health Affairs article authored 

by Mr. Mark Pauly on the individual mandate. Mr. Chairman? 

Chairman HERGER. Without objection. 

[The article follows, The Honorable Bill Pascrell:] 


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Mr. PASCRELL. Thank you. I agree with Mr. Pauly: ‘‘Making 

sure everyone pays their fair share is essential to controlling health 

costs. The CBO estimates that if individual responsibility is repealed, premiums in the individual market will see an increase of 

15 to 20 percent as compared to current law.’’ That is what CBO 

said. That is not what the Democrats said; that is not what the Republicans said; that is not what the President said; that is what 

CBO said. 

Affordable Care Act is about keeping down costs and reducing 

the number of uninsured Americans. When it comes to health care, 

we are all in this together. I like to say that. I like to say that. 


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Dr. Siegel, Professor Siegel, on Tuesday Justice Kennedy noted 

the unique nature of the health insurance market. He said, and I 

quote, ‘‘but I think it is true that if most questions in life are matters of degree in the insurance and health care world, both markets,’’ two markets we are talking about, ‘‘the young person who 

was uninsured is uniquely approximately very close to affecting the 

rates of insurance in the course of providing medical care in a way 

that is not true in other industries.’’ That is my concern in this 

case. 

He comments to the lack of inaction of the health care market. 

Professor Siegel, can you please discuss the idea of inaction in the 

health care act in the market? 

Chairman HERGER. Regrettably, the gentleman’s time has expired, but if you could respond in writing we would appreciate it. 

Mr. PASCRELL. Seriously? 

Mr. SIEGEL. I think you are identifying a key part of—— 

Chairman HERGER. Again, the time is expired. If you could respond in writing, please. 

Mr. SIEGEL. Oh, I am sorry, sir. I didn’t hear you. 

Mr. PASCRELL. Can he give a response? Come on, Mr. Chairman. 

Chairman HERGER. Well, 5 minutes is what each of us is allowed. Mr. Reichert is recognized. 

Mr. REICHERT. Thank you, Mr. Chairman. A quick question, 

Mr. Bradbury. In your testimony you say Mr. Siegel argues that if 

the individual mandate is unconstitutional, then the Federal Government could not respond to a flu epidemic by mandating vaccinations. How would you respond to that? 

Mr. BRADBURY. I actually don’t accept that. I don’t agree with 

that. In the hypothetical, the mandating of flu vaccinations would 

not be mandating commercial transactions. Yes, he is positing a 

very extreme situation, where there is a national or a multi-state 

regional pandemic that is a major threat to health and the economy, that falls within the definition of a national security problem. 

The Federal Government may respond to national security problems. We have biosecurity planning for pandemics. 

Actually, the way it would usually happen, of course, is the 

States would mandate vaccinations. The Federal role under existing statutes would be to support the States by ensuring the supply 

of vaccine, by assisting in maintaining quarantines, by assisting 

States in closing borders. But in the most extreme hypothetical 

case where the State’s ability to respond is completely broken 

down, it becomes almost like an insurrection situation. The Federal 

Government certainly has authority to respond to protect national 

security in a situation like that. 

I think it is very different. 

Mr. REICHERT. Thank you. Mr. Henchman, I want to go back 

to your discussion about taxes and the question the chairman had 

posed a little bit earlier in the discussion. So the individual mandate must maintain a minimum essential coverage, but there are 

some exceptions to those. I am a former sheriff, and of course one 

of the exceptions is individuals who are in prison. And I am going 

to get right back to that. The penalties here for individuals, they 

begin at $95, and they go to $325, and then it goes to $695, and 


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then it is indexed to CPI. There is also some penalties attached to 

the employer mandate. Is that not correct? 

Mr. HENCHMAN. Right. I believe the next panel is talking 

about that aspect, but yes. 

Mr. REICHERT. But just along the line of taxes, it is $2,000, I 

think, if they don’t supply enough insurance. It is $3,000 if it is 

unaffordable insurance, and my question is, this is all about freedom, really. I mean, the burden on businesses and then the individual mandates, and I know this might be outside of your scope 

a little bit, but I think it is good for those out there who might be 

watching us today to think about what happens if the individual 

can’t pay the penalty? Do you know? 

Mr. HENCHMAN. Right. Well, it is certainly not about revenue, 

and for this I will agree with Congressman Pascrell who started 

and talked about why we have this mandate. And he gave a very 

good reason. The reason he did not give is revenue. And that is not 

the reason why this mandate was adopted. It was adopted for some 

other purpose, some other primary purpose than to generate a 

bunch of revenue. 

Mr. REICHERT. Well, I know in my previous profession again 

that I spent 33 years at, if somebody has a fine that they haven’t 

paid—— 

Mr. HENCHMAN. Right. 

Mr. REICHERT [continuing]. The next step is jail. So, is that in 

the plan? Do you know? Does anyone on the panel know? 

Mr. HENCHMAN. Well, how it is structured, as you laid out is, 

let’s take 2016 for instance. The mandate is kind of fully phased 

in at that point. People have a choice of either paying $695, or 2.5 

percent of their income. That is whichever is higher above the filing threshold—— 

Mr. REICHERT. Right. 

Mr. HENCHMAN [continuing]. Or getting insurance. The IRS is 

not permitted to use levies and garnishment the way they can with 

other tax obligations. 

Mr. REICHERT. Right. 

Mr. HENCHMAN. But it remains to be seen precisely how this 

will be enforced. 

Mr. REICHERT. Right, so let me just, because my yellow light 

has gone on here. So we play this out. The fines are added up. 

They get greater and greater. The person doesn’t buy their insurance. And according to one of the exceptions here, if you go to jail 

you have health care. I know that because when we had the Kane 

County Jail in Seattle, if you got arrested we supplied health care. 

So I guess if you don’t pay your fine and you go to jail, you can 

get health care. 

Mr. HENCHMAN. It remains to be seen how the IRS is going 

to enforce it. If they put it on the tax form, I should note the tax 

form has a perjury statement. If you say I have insurance and I 

don’t owe this, you would be committing perjury. 

Chairman HERGER. Mr. Kind is recognized. 

Mr. KIND. Thank you, Mr. Chairman. 

Mr. Chairman, no fault of the witnesses who are here today trying to do a good job testifying, and out of respect for you, too, but 


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I view this hearing as just a colossal waste of time for this committee. 

First of all, the Judiciary Committee, not the Health Subcommittee of the Ways and Means, has jurisdiction over constitutional law issues. And, secondly, unless you have been living under 

a rock this week, the United States Supreme Court is taking this 

very issue up to make a determination later this summer. So if you 

wanted to have a constructive hearing today, Mr. Chairman, we 

should have panel after panel of experts talking about how are we 

going to explain to the 39,000 children in western Wisconsin with 

a preexisting condition that your effort to overturn or repeal the 

Affordable Care Act will leave them without adequate health insurance in their lives. Or the fact that 15,000 small business owners 

in western Wisconsin who qualify today for a tax credit for the 

health care that they are providing their employees today won’t 

have that tax credit any longer. Or 9,000 seniors who are falling 

into the donut hole this year, receiving a 50 percent price discount, 

why they are going to have to pay all of that out of pocket again 

because of the repeal or overturning of the Affordable Care Act. Or 

how are we going to explain to citizens throughout the Nation that 

their insurance companies can once again drop them from coverage 

when they do get sick or injured, a policy of rescission which now 

is prohibited under the Affordable Care Act. Or reinstate lifetime 

limits on health insurance policies. 

So if you want to do something constructive in the Health Subcommittee of Ways and Means, we should be having panel after 

panel talking about what plan B is, what the alternative is to the 

Affordable Care Act, and the explanation we can give our citizens 

if the Affordable Care Act is overturned or if you are successful in 

repealing it. 

Or how are we going to address the 50 million Americans who 

are uninsured today because of the health care system? 

That is what we should be doing today, is talking about alternatives and plan B’s. And my good friend, Mr. Price, said they do 

have some ideas. Let’s get that out. Let us have a discussion about 

it. This Member of Congress is interested in one thing: making 

sure that every American in the country has access to affordable 

and quality health care. There may be other ways of doing it, but 

just by repealing this law sets us back to the status quo. And having this hearing on the constitutional law issues that the Supreme 

Court is determining themselves, doing their job this week, is in 

my view a colossal waste of time. 

But I will play along here with what time I have remaining. 

Mr. Henchman, I think it is astounding that time after time you 

are saying that whether you call this a penalty or tax, the purpose 

behind the penalty wasn’t for us to raise revenue to help pay for 

the Affordable Care Act. As a member of the Ways and Means 

Committee, that is exactly what we were trying to do under the 

penalty, is to raise revenue, because one of the prerequisites to 

passing this bill that President Obama was demanding, and all of 

us agreed, by the way, who supported it, was that this bill had to 

be paid for. And in fact, it was. And under the Congressional Budget Office’s analysis, not only was it paid for, but it will reduce the 

budget deficit by $1.2 trillion over the next 20 years. 


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So again, if you decide to repeal this and go back to the status 

quo, that blows another hole in our budget because this legislation 

would reduce it by $1.2 trillion based on the nonpartisan budget 

watchdog called the Congressional Budget Office. So, yes, this was 

the purpose behind it, as a member of the Ways and Means Committee, was to raise revenue. 

Mr. Siegel, let me ask you because I found it interesting listening 

to the Supreme Court questioning on Tuesday, Justice Kennedy 

asking the Solicitor General, and maybe I missed something, but 

it sounded like he was creating a whole new standard of Supreme 

Court review under the Affordable Care Act. 

Justice Kennedy to the Solicitor General: Assume for a moment, 

you may disagree, but assume for a moment that this is unprecedented. This is a step beyond what our cases have allowed, the affirmative duty to act to go into commerce. If that is so, do you not 

have a heavy burden of justification? 

And he went on in that line of questioning and again said to the 

Solicitor General: Do you not have a heavy burden of justification 

to show authorization under the Constitution? 

I thought it was a reasonable basis standard of the court. Am I 

missing something here? Is Justice Kennedy trying to establish a 

much higher burden of proof? 

Mr. SIEGEL. And if I had been arguing the case, I would answer 

it in the alternative. I would say: Justice Kennedy, you yourself 

just said in that colloquy there is a presumption of constitutionality. Congress gets a presumption of constitutionality as a coordinate branch of government, and that is what Madison is talking about in Federalist 51. He is not talking about judicial review, 

let alone aggressive judicial review. The presumption of constitutionality is how the law has always been. So if you impose a special 

justification now, you are moving the goalpost. 

Mr. KIND. Professor, really the crux of the individual mandate, 

why requiring it, is because those who choose not to participate in 

the health insurance market is driving up the cost for everyone 

else who is; isn’t that the reason, the basis, under the Commerce 

Clause, for the individual mandate? 

Mr. SIEGEL. I think that is the basis under the Commerce 

Clause. And I think there is also the adverse selection problem 

under the Necessary and Proper Clause. All of the people in Wisconsin you just talked about, they fall into the nongroup market. 

And if they don’t qualify for Medicaid or Medicare, and if they don’t 

have employer-based insurance, then if they get sick and they don’t 

have a job they and their families are in serious trouble. 

Guaranteed issue combats that problem, and the minimum coverage provision combats the adverse selection problem that a company is guaranteed issue in the absence of a mandate. 

Mr. KIND. Thank you. 

Mr. JOHNSON. [Presiding.] The gentleman’s time has expired. 

Dr. Price, you are recognized. 

Mr. PRICE. Thank you, Mr. Chairman. I want to agree with Mr. 

Kind on one thing: the status quo is unacceptable. There is no 

doubt about it. We would simply suggest that the bill that has been 

adopted, the law that has been adopted moves us in absolutely the 


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wrong direction, not for doctors but for patients. And it is patients 

that we ought to be concerned about. 

Mr. Siegel, you mentioned that you didn’t know where the limits 

of Congress were. Well, I would suggest to you that the limits of 

Congress are well defined in the Constitution and the Bill of 

Rights, and the 10th Amendment that you are very familiar with, 

but it is important to remind ourselves, says that the powers not 

delegated to the United States by the Constitution nor prohibited 

by it to the States are reserved for the States respectively, or to 

the people. It is pretty clear what Congress’ limits are. It is our 

contention that this bill/law has gone beyond the limitations of the 

constitutional provisions. 

I want to talk about the consequences of the individual mandate. 

Mr. Kind was concerned that we are talking more about the law 

here in the Health Subcommittee of the Ways and Means Committee, and I want to talk about, as a physician, to kind of parse 

out exactly what the consequences of the individual mandate are. 

Mr. Siegel, you know that there are 10 categories of essential 

benefits that are defined in the law. One of those, for example, is 

the ambulatory patient services. What are the minimum benefits 

required in this law for ambulatory patient services? 

Mr. SIEGEL. I don’t know the answer to that question. 

Mr. PRICE. Who decides? 

Mr. SIEGEL. I think the Congress of the United States in the 

first instance decides, or as delegated to a relevant agency pursuant to Congress’ authority to delegate. 

Mr. PRICE. And the law has delegated that to the Secretary of 

Health and Human Services? 

Mr. SIEGEL. Right. Under a doctrine that has existed for 70–80 

years. 

Mr. PRICE. So the Secretary of Health and Human Services is 

going to decide what is allowed to be ambulatory patient services, 

outpatient services for the country. 

Another category is maternity care. Is it correct that the Secretary of Health and Human Services is going to decide what is allowed for maternity care in this country; correct? 

Mr. SIEGEL. I would be happy to answer questions about whether that is constitutionally problematic. 

Mr. PRICE. Do you believe that it is constitutional for the Secretary of Health and Human Services to decide what the maternity 

services are covered under this bill? 

Mr. SIEGEL. The only possible objection I can see is a nondelegation doctrine law. This objection has not existed in constitutional 

law. 

Mr. PRICE. Accept my premise that the law provides that that 

definition is ceded to the Secretary of Health and Human Services. 

What if the Secretary of Health and Human Services said that 

midwifery weren’t allowed in the minimum benefits package, would 

that be constitutional? 

Mr. SIEGEL. Tell me what the constitutional objection would be? 

Mr. PRICE. My question to you is would that be constitutional? 

In your opinion, would the Secretary of Health and Human Services under the current law as adopted by this Congress and signed 


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by the President be allowed to define that midwifery is not included under maternity services? 

Mr. SIEGEL. I would need to know a lot more about what the 

basis for the decision was, and whether there was a basis and reason under the nondelegation doctrine. 

Mr. PRICE. The fact of the matter is that the Secretary of 

Health and Human Services, through the power that the legislative 

branch has given the executive branch, is now allowed to decide 

what is included in all of those services, which is our concern. And 

that is that patients are no longer the ones that are going to be 

allowed to decide what kind of health coverage that they are able 

to select; it is the Federal Government. That is our concern. That 

is the fundamental basis of the concern. 

Ms. Severino, I noticed that you were coming out of your bootstraps, no pun intended, when Mr. Siegel commented on your argument about bootstrapping. And I wish you would expand on what 

that means to real people and why it is such an important issue 

in this area. 

Ms. SEVERINO. Yes. I think it is kind of shocking that the Necessary and Proper Clause is the constitutional textual basis for 

bootstrapping because it is also part of limited powers. Our framers 

assumed the government was given limited powers, not unlimited 

powers. They weren’t worried that we don’t have not limits on the 

limits that we are going to impede on government power, they were 

worried about keeping government small and tethering it to its appropriate jobs. 

The Necessary and Proper Clause is supposed to carry into execution other powers. So to build a military base, it is clearly carrying into execution being able to raise an army or maintain a 

navy. Building post offices and criminalizing attacks on post offices 

and robbers is clearly carrying into execution the ability to have an 

efficient and effective mail service. 

Nothing about the individual mandate carries into execution the 

other provisions of the law. It doesn’t carry into execution allowing 

guaranteed issue. You can have guaranteed issue without the individual mandate. Many States do. It doesn’t carry into execution 

community rating. Again, other States have done this, and you can 

do it without the individual mandate. 

Now, what Congress found was when you do those without the 

individual mandate, they have negative consequences. But that is 

not the same thing as carrying into execution something. Having 

negative consequences, we are creating a law. Or even that we 

have created a law that says emergency rooms have to provide coverage for certain individuals under certain circumstances. That, 

while individual emergency rooms may want to do such a thing out 

of moral obligations, creating that requirement also creates a problem of cost shifting. Creating a problem does not then open wide 

the constitutional door for any solution Congress wants to create. 

Mr. JOHNSON. The time of the gentleman has expired. 

Doctor, you are recognized. 

Mr. MCDERMOTT. Thank you, Mr. Chairman. 

Dr. Siegel, there is a tale of two States, Washington State and 

Massachusetts. Washington State in 1993 passed a comprehensive 

health care bill which had mandates in it and guaranteed issue, 


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and all of the things that are in the Massachusetts law, essentially. 

Different format but basically the same. 

They then, in Washington State, in court lost the mandate. The 

mandate was taken out, but they were left with the basic guaranteed issue. In 1995, a woman coming in said I want insurance. She 

bought insurance. She had the baby, she canceled it; 1996 she 

came in, bought insurance, had the baby, and canceled it. They 

spent $1,000 on premiums and Primera, Blue Cross/Blue Shield 

spent $8,000. Primera lost $120 million in Washington State until 

they pulled out their individual coverage and we had no individual 

coverage in the State of Washington for a period of time until the 

State legislature repealed the guaranteed issue. 

Now, what I want to ask you: What other way can you control 

costs? Because clearly, you have to have both guaranteed issue. If 

you have guaranteed issue, that is preexisting conditions are out 

of the way, you must have universal coverage so you have a big 

enough pool to spread the cost. Otherwise the sick come in, do exactly what this woman did. 

I would like to enter into the record and ask unanimous consent, 

an article from the Seattle Times dated March 28. 

Chairman HERGER. Without objection. 

[The article follows, The Honorable Jim McDermott:] 


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f 

Mr. MCDERMOTT. Give me the other ways that you can control 

costs? If the Supreme Court is thinking if we don’t go this private 

sector route through the health insurance industry, what other way 

will we have in this committee to do it? 

Mr. SIEGEL. I think the most prominent alternative that would 

both be effective in controlling costs, would also be substantially 

more coercive. I think everyone in the ACA litigation agrees that 

Medicare for all, a single payer, a government takeover, would be 

constitutional. It would be within the scope of the tax power. You 

would have to undo a lot of preexisting law in order for that to be 

unconstitutional. 

I think the Affordable Care Act alternative of guaranteed issue 

and a minimum coverage provision, the intent there is to respect 


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concerns about liberty and choice to a greater extent than the single payer would by giving people options, alternatives about the insurance that they want, not just having the government provide it. 

So I think that would be an effective, clearly constitutional way 

to do it. The Affordable Care Act alternative is a way to preserve 

private markets. 

Mr. MCDERMOTT. So it is really preserving the private sector 

in the health care issue? 

Mr. SIEGEL. And that is why I think during the 1990s the minimum coverage provision was very prominent in conservative economic and political thought. It was an alternative to the single 

payer. It was an alternative to the employer mandate. People 

agreed or disagreed as a policy matter. No one made a Federal constitutional case out of it. And I think this speaks directly to the 

question of why is it that Congress hasn’t done this before. 

So one theory that has been put on the table is that we all knew 

from the founding that this was unconstitutional, and then something happened. There was some kind of collective amnesia, where 

the Affordable Care Act was being debated and now something that 

had always been known to be unconstitutional was suddenly 

thought constitutional by one of the two major parties. In fact, I 

don’t think that is a likely explanation. I think the likely explanation is no one thought of this being a real constitutional problem 

before this debate. In fact, more conservative thinkers thought it 

might even be advisable as a policy matter. But even if they didn’t, 

they didn’t think it was unconstitutional. 

Mr. MCDERMOTT. Do you think the individual mandate came 

from the Heritage Institute? 

Mr. SIEGEL. It was Heritage. It was AEI. It was conservative 

economists. It was Republicans in the Senate. At one point it was 

Newt Gingrich. At another point it was Mitt Romney. I believe Bob 

Dole for a while. Again, there was a robust debate about the policy 

merits; just like there could be a robust debate about whether we 

ought to have a post office. 

Mr. MCDERMOTT. I want to get one other thing on the record. 

Dr. Price suggested that Secretary Sebelius sits down there and 

picks and chooses whatever she wants. As I understand the law, 

there is a committee at the Institute of Medicine that makes recommendations to her, so she is not without recommendations when 

she makes her decisions; is that correct? 

Mr. SIEGEL. In truth, I do not know. 

Mr. MCDERMOTT. Okay. Well, that is the way that I read the 

law and the fact is that Congress can come in and change. So the 

idea that she is the czar is really kind of a myth, really. 

Mr. SIEGEL. I think it is another issue about which we can have 

a policy disagreement. 

Chairman HERGER. [Presiding.] The time of the gentleman has 

expired. 

Dr. Boustany is recognized. 

Mr. BOUSTANY. Thank you, Mr. Chairman. 

Mr. Bradbury, your testimony and the briefs you have written in 

this case have done an excellent job of explaining the purpose of 

the individual mandate. The Democrats’ health care law has many 

provisions that make it more expensive, in effect, for insurance 


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companies to offer health care. The law increases taxes on insurance. There are numerous other taxes, mandate benefit packages 

full of bells and whistles, and there are many new regulations on 

insurance companies. So to compensate the insurance companies, 

Congress creates millions of new customers by forcing individuals 

to buy their product, a very restricted product given all of the regulations that have come through. So the individual mandate is really 

in effect about making insurance companies whole. 

What is the difference between that and Congress forcing car 

companies to make electric cars and compensating them by mandating that Americans buy electric cars? 

Mr. BRADBURY. I really think fundamentally as a matter of economics there is not a difference. There has been a lot of talk about 

insurance is different or unique or health insurance is unique. But 

insurance is just a way, an overt mechanism, for spreading risk 

across a larger base of participating individuals. Well, that is true 

in any industry. The more people buy electric cars, the lower the 

price of each unit produced. If Congress imposes very strict and onerous requirements on car companies, saying they can only produce 

electric cars or super-efficient vehicles and the cost of those vehicles per unit is much, much higher than the average American is 

interested in paying, then under this theory Congress could turn 

around and require that every American family that can afford it 

must buy an electric vehicle and that would drive the unit cost 

down because supply would increase and production costs would go 

down on a unit basis. It is really no different, as a matter of economics, from what is being argued here. 

Mr. BOUSTANY. It really struck me, and I was at the Supreme 

Court on Tuesday and listened to the 2 hours of argument. There 

was a discussion about insurance as a financing mechanism for 

health care. But yet in listening to much of the discussion, it was 

a very narrow type of discussion because it was almost as if there 

was only one way to do this. For instance, in health care law, we 

know there are significant restrictions on health savings accounts 

which I as a physician believe health savings accounts are a good 

way to help individuals finance their health care needs. It promotes 

personal responsibility. It promotes a more informed consumer of 

health services. And knowing that health care, I don’t call it a right 

or a privilege, I think it is a personal responsibility, and so things 

that we can do to promote that type of ownership of your own 

health care destiny are really important. So in this narrow view 

that I alluded to just a moment ago, it is interesting that you have 

government creating a very restricted, very regulated, even more so 

than now, marketplace, with the minimum benefits package, restrictions across the board, in effect narrowing choices for families, 

for individuals, for businesses, narrowing it down and recognizing, 

in doing so, you are forcing everybody like through a funnel into 

a one-size-fits-all process, a more expensive process even by the 

Congressional Budget Office’s own estimates. And so what happens, the individual mandate. I think you have highlighted that 

fairly well. 

Would anyone like to comment? 

Mr. BRADBURY. I would say obviously one alternative economically would be to open up the options for Congress to free the marVerDate Mar 15 2010 08:11 Mar 19, 2013 Jkt 078762 PO 00000 Frm 00087 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\78672.XXX 78672

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kets on an interstate basis from restrictions on what kinds of insurance can be offered. For example, from one State to another. To 

actually increase or make it almost unlimited what kinds of policies could be offered, and then there would be many, many choices 

from bare bones policies to Cadillac policies and people could pick 

and choose. I am not saying that would cover everybody in every 

instance. Preexisting conditions may always be a tough issue because that is not insurance when you are actually buying a policy 

that covers something you already have. 

Mr. BOUSTANY. It is sick care. 

Mr. BRADBURY. It is like an annuity. It is not an insurance policy, it is an entitlement. So there will be those costs. But over time 

as there are more options in the markets, then more people will 

have mix-and-match policies they can choose that are economically 

advantageous for them and get the coverage that they need, and 

government can take care, State governments can take care of the 

residual folks who can’t get the coverage. 

Mr. BOUSTANY. So create a real market for all of us. And for 

those who have defined needs with very definable and problematic 

health considerations, it is not an insurance issue because insurance is bought to deal with risk. Once you are sick, you are sick. 

Now there needs to be a way to finance that separately. 

Thank you. I yield back. 

Chairman HERGER. Again, I want to thank our witnesses for 

your testimony, and at this time I would like to invite our second 

panel to step forward. While they do, I will introduce them in the 

interest of time. 

To better understand the impacts of the employer mandate, we 

will hear from Diane Furchtgott-Roth, Senior Fellow, Manhattan 

Institute of Policy Research; Sylvester Schieber, Independent Consultant; Tom Shaw, President, Barton Mutual Insurance Company; 

and Stephen LaMontagne, President and CEO Georgetown Cupcake. 

Ms. Furchtgott-Roth, you are recognized for 5 minutes. 

STATEMENT OF DIANE FURCHTGOTT-ROTH, SENIOR FELLOW, 

MANHATTAN INSTITUTE FOR POLICY RESEARCH 

Ms. FURCHTGOTT-ROTH. Thank you very much, Mr. Chairman, for inviting me to speak here today on this very important 

subject of how the Affordable Health Care Act affects employment. 

It was interesting listening to the preceding discussion. The views 

seem to be from some members that because health care was essential and because everyone might need it at some time, it was 

the role of the government to mandate it and employers to provide 

it. 

Well, there are many essential services—food, clothing, housing—but we don’t ask employers to provide them. If we feel that 

low-income people need these services, food for example, we give 

them foot stamps. Housing, we give them housing vouchers. We 

don’t ask employers to have a minimum provision of food. We don’t 

require them to provide breakfast or lunch or snacks to their employees. 

And it is the same with health insurance. We don’t ask employers to provide life insurance, auto insurance, other kinds of insurVerDate Mar 15 2010 08:30 Mar 21, 2013 Jkt 078672 PO 00000 Frm 00088 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\78672.XXX 78672

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ance. I agree that people should have access to health insurance. 

I don’t agree that employers have to be the ones who provide it. 

Why? It creates a great disincentive for hiring. 

One reason we have such a high unemployment rate, over 8 percent for more than 3 years in a row, well after the end of the recession, is because there is a big cliff moving from 49 to 50 workers. 

If a employer moves from 49 to 50 workers, he has to pay $40,000 

a year in penalties. That is because the first 30 workers are exempt. But moving from 49 to 50, you take off 30, you multiply it 

by $2,000, you get $40,000 a year, and that is a big disincentive 

to hiring. It especially hurts low-skilled workers. $2,000 is 12 percent of the average earnings in the food and beverage industry, 

which is an industry where people often get their first jobs. I myself had my first job scooping ice cream in Baskin-Robbins. This 

also hurts franchise businesses, and I think this was probably not 

the intention of Congress. If you have four Dunkin’ Donuts or four 

Baskin-Robbins and they each have 15 workers, they are subject to 

the penalty because in all, the franchise would have 60 workers in 

all. This means that these franchise businesses are competing 

against smaller, nonfranchise businesses. So if there is a BaskinRobbins that is part of a franchise and it is across the street from 

a Joe’s Diner, for example, the Baskin-Robbins would have to pay 

the $2,000 per worker per year in penalty. Joe’s Diner wouldn’t, 

and this would be very hard on the franchise businesses. 

There are many franchise establishments. They are responsible 

for about $468 billion of GDP. They create 9 million jobs. They employ many low wage, entry-level workers, as well as higher paid 

workers. And our unemployment rate for low skilled workers is 

about 14 percent right now. Our teenage unemployment rate is 25 

percent. Our African American teen unemployment rate is even 

higher. This is not something that we want employers to have to 

do because it reduces employment and it slows GDP growth. 

In the previous panel, there was a discussion of what to do about 

the health care problem. We need to take it away from the employer. Any premium should be tax deductible so that private markets develop. You never hear anyone saying I am losing my job. I 

am going to lose my auto insurance. I won’t be able to drive. 

There are many bills that suggest how to go. One of the best is 

Congressman Price’s Empowering Patients First Act, which would 

mean that a worker would have portable health insurance. His employer could pay part of it and then if he moves jobs, changes jobs, 

his next employer could pay part of the same kind of insurance, 

just like an IRA or a 401(k) plan. If that individual wanted, he 

could buy health insurance outside of his employer also, and that 

is what we need to move to. We know how insurance markets 

work. We have made them work with auto insurance, life insurance, and home insurance, and we should make them work also for 

health insurance. We can do this. We know how to do it without 

penalizing employment, without penalizing workers, and especially 

without penalizing low skilled workers, the most vulnerable among 

us who need a job. 

Thank you very much. 

[The prepared statement of Ms. Furchtgott-Roth follows:] 


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Chairman HERGER. Thank you very much. 

Mr. Schieber, you are recognized for 5 minutes. 


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STATEMENT OF SYLVESTER J. SCHIEBER, CONSULTANT, 

COUNCIL FOR AFFORDABLE HEALTH COVERAGE 

Mr. SCHIEBER. Thank you, Mr. Chairman and members of the 

Committee. I appreciate the opportunity to testify today regarding 

some research that I have been working on recently. My prepared 

remarks summarize that work. The research that I have been 

doing with Dr. Steven Nyce shows that many workers have failed 

to get ahead in recent years, largely due to growing health care 

costs. 

Health reform has the potential to increase the demand for 

health care services and could exacerbate an already bad situation 

with adverse consequences for workers’ economic prospects. 

Under ACA, many employers will be required to provide workers 

with health insurance or pay a penalty for not doing so. This will 

impose a significant fixed cost component into compensation. If employers cannot make offsetting adjustments to other compensation 

components, some workers will be unable to maintain their jobs. 

The most vulnerable workers, as we just heard, are those at the 

bottom end of the earning spectrum. 

Table 3 of my remarks shows the average share of increasing 

compensation required to finance health benefits over each of the 

past 3 decades for full-time, full-year workers at 10 different earnings levels. Averages include those who did not receive health benefits from their own employers. Declining coverage, concentrated 

among lower waged workers, has mitigated some of the crowding 

out effect shown in the table. But workers who lost employer provided health insurance had to spend more out of pocket for their 

health care needs, a classic example of damned if you do or damned 

if you don’t. 

Table 4 shows how benefit costs have risen relative to wages between 1980 and 2009 for workers actually enrolled in their employer health benefit plans. These costs have grown faster for the 

lowest paid workers than in Table 3. For example, benefit costs relative to wages for the second decile, these are people at the 20th 

percentile, were twice those for workers in the ninth decile in 1980, 

and three times more than in 2009. The lowest earners are most 

damaged by high health inflation. 

Peter Orszag and Ezekiel Emanuel, two of the architects of the 

Affordable Care Act, have estimated that health reform will have 

little affect on national health expenditures between now and 2030. 

Richard Foster, the Chief Actuary at CMS, suggests that health reform will provide little relief to the cost trajectory of employersponsored health benefit plans in coming years. That means that 

current inflation rates are going to persist. 

A full-time worker in the second earnings decile in 2009 earned 

somewhere around $25,000 in total compensation. If his or her productivity goes up at the rate of growth that the Social Security actuaries estimate, by 2019 this worker will be earning around 

$36,600 in total compensation. But if current health inflation persists, nearly 75 percent of that gain will have been consumed by 

rising health benefit costs. If the worker has family coverage, the 

cost of health benefits will grow to consume more than his or her 

added productivity improvement. 


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In 1980, employer contributions for health benefit plans were 

only 3.8 percent of total compensation paid to workers. By 2010, 

they had risen to 9 percent. Excessive health inflation now applies 

to a much larger base than it did 20 or 30 years ago. For workers 

and plans, the cost issues are much worse than the average for all 

workers. For those in the second earnings decile taking coverage, 

the cost of health benefits rose from just under 10 percent of their 

pay in 1980 to 31 percent of their pay in 2009, so nearly a third 

of pay is being paid out of their compensation for health benefits. 

This ugly arithmetic suggests that employers cannot offer many 

workers both health benefits and growing wages and hope to remain competitive in a global economy. The mandate to provide 

health insurance coverage may be an admirable goal, but has a potential to limit employability of lower wage workers. 

Some analysts believe that most employers will stay in the game 

of offering health benefits even under these circumstances. Our 

analysis, however, suggests that many employers may eliminate 

their plans and let workers fend for themselves in the new exchanges because the economics of employing them simply doesn’t 

work at current cost and inflation rate. 

At the margin, shifting an ever-larger share of low earners into 

publicly subsidized health insurance programs might seem desirable, but we cannot avoid the reality of a national health care marketplace and the costs with it. Shifting health costs from employer 

compensation packages to a mix of public subsidies and worker 

contributions will not reduce health care expenditures unless we 

bring medical inflation under control. If health reform is not expected to bend this cost curve, then I have to ask: Who is going to 

pay this bill? 

Thank you very much. 

[The prepared statement of Mr. Schieber follows:] 


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Chairman HERGER. Thank you. 

Mr. Shaw is recognized for 5 minutes. 

STATEMENT OF THOMAS J. SHAW, PRESIDENT, BARTON 

MUTUAL INSURANCE COMPANY 

Mr. SHAW. Good morning, and thank you, Chairman Herger and 

Ranking Member Stark, and members of the Ways and Means SubVerDate Mar 15 2010 08:11 Mar 19, 2013 Jkt 078762 PO 00000 Frm 00119 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\78672.XXX 78672

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committee on Health, for the opportunity to testify today on the important topic of the employer mandate and the impact it will have 

on our business. 

Barton Mutual Insurance Company, located in Liberal, Missouri, 

is a single-state property casualty insurer. Our company was 

founded in 1894 to provide fire insurance to farmers in our county. 

We now provide insurance products for a wide variety of risks, including commercial risks. We employ 58 people full time and have 

furnished health insurance for decades. I have been employed as 

the CEO since 1986. 

As health insurance costs rose, we adjusted accordingly and explored different options. First we raised deductibles. We examined 

self-insurance and purchasing reinsurance but determined that 

was unfeasible. When high deductible health plans were created, 

we jumped at the opportunity to place our employees in control of 

directing their medical care consumption. The practice of putting 

money in their HSAs, the health savings accounts, led them to seek 

out more affordable prescriptions and carefully plan and manage 

their doctors’ visits. Within 60 days, the anecdotal evidence of savings buzzed around our office. Our employees enjoy the coverage 

and responsibility and believe it makes them better consumers of 

health care. 

Our annual costs today are about $7,394 per employee. We do 

not have a very healthy group. Last year, our costs increased by 

7.3 percent. If we continue to incur the same increase, 7.3 percent 

a year, when mandated coverage takes effect in 2014, our costs will 

be approximately $8,513 per employee. Costs and premiums continue to rise since the passage of the law with no relief in sight. 

In addition to the mandated coverage, there is the essential health 

benefits package and a tax on fully insured health plans that will 

increase the cost of insurance. Further, the lengthy regulatory 

process makes planning and forecasting costs even more difficult. 

The Patient Protection and Affordable Care Act promised lower 

costs and expanded coverage for all. We were told we could keep 

our current plan. Instead, the employer mandate forces employers 

with 50 or more full-time employees to provide expensive government-prescribed health insurance or pay a fine. We have witnessed 

higher costs and it is nearly a given we will drop our group HDHD 

plan and pay the $2,000 penalty per employee. The incentives are 

lined up in a manner that makes it nearly impossible to maintain 

coverage. 

This law does not fix any problems for small businesses of our 

size, those employers above the 50 full-time employee threshold, 

and the law makes it extremely unattractive for a smaller business 

to grow above the threshold. Although the savings from dropping 

would allow us to increase payroll to some extent, cost pressures 

on all fronts will lead us to hold those savings to tamp down overhead in what is a mature, competitive industry. The full savings 

will not go completely into taxable wages. We strive to meet market rates for salaries today, and savings garnered in any area of 

operations will go toward maintaining a viable business. We need 

to look for savings wherever we can find them. 

The new law is not helping my business. We worked for decades 

to provide good coverage for our employees and continue to work 


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on doing so. However, there is little incentive to continue to provide 

coverage. For employers, there will be fewer choices of insurance 

products and self insurance underwriting will essentially be eliminated. Consumers will have fewer choices to make, which means 

decisions will be made from the top down. This is exactly the opposite of increasing choices and flexibility that could help small businesses continue to provide affordable coverage. 

Thank you, Mr. Chairman. 

[The prepared statement of Mr. Shaw follows:] 


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Chairman HERGER. Thank you. 

Mr. LaMontagne, you are recognized. 

STATEMENT OF STEPHEN LAMONTAGNE, PRESIDENT AND 

CEO, GEORGETOWN CUPCAKE, INC. 

Mr. LAMONTAGNE. Mr. Chairman, Ranking Member Stark, 

and Members of the Committee, thank you for the invitation to appear before you today to discuss the implications of the Affordable 

Care Act on small and large employers. 

My remarks represent the views of Georgetown Cupcake and its 

owners. They are not necessarily representative of the views of the 

small business community as a whole. We are not economists. We 

are not constitutional scholars. We are business people, and my 

hope is that we can provide some insight into how some businesses 


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think about health benefits as a component of employee compensation. 

Georgetown Cupcake was founded in 2008 by my wife Sophie and 

her sister Katherine and over the course of the past 4 years, in a 

challenging economic climate, we have grown from one location to 

now three locations, in Washington, D.C., Bethesda, Maryland, and 

most recently New York City. We have launched a national shipping operation, and have two other planned locations coming online 

this year in Boston and Los Angeles. 

Also during this time, we have grown from a staff of two to a 

staff of well over 350 employees, including about 100 full-time employees. So all this to say in a very short time we have experienced 

every stage in the maturation process of a business, from being a 

start-up to a small business to now a growing business that is continuing to evolve and innovate. 

As business owners, we strive to be a world class employer. And 

in a highly competitive environment, we believe it is necessary to 

offer a well rounded compensation package that includes competitive wages and salaries, paid vacation and sick leave, opportunities 

for growth within the company, a positive organizational culture, 

and affordable health insurance coverage. We believe that health 

insurance coverage is a necessary component of a well rounded 

compensation package not only because it enables us to attract and 

retain the very best employees, not only because it helps us to remain competitive, but also because we believe it is the right thing 

to do. 

We offer our staff, our full-time employees, a menu of coverage 

options through a major national insurance provider and pay 75 

percent of the monthly premium. Nearly all of our full-time employees have enrolled in Georgetown Cupcake’s plan or are covered 

by the plans of their spouses or parents. Of the employees who 

have enrolled in our plan, nearly all have chosen coverage that features in network services, a zero deductible, free well childcare, 

free physical examinations, mammograms, cancer screenings and 

other procedures, low copays for doctor’s visits, free emergency 

room care and inpatient hospital services with no maximum lifetime benefit. We are proud to be able to extend this comprehensive 

coverage to our employees. And as a result, many of our full-time 

employees have been with the company since inception. 

Under certain provisions of the Affordable Care Act that come 

into effect in 2014, large employers, defined as those with over 50 

full-time employees, or full-time equivalents, we are counted in 

that group, face potential penalties if they fail to provide affordable 

health insurance coverage to their full-time staff. Some studies 

have asserted that large employers will elect to drop health insurance coverage altogether because in certain cases the cost of the 

penalties may be less than the cost of providing coverage. I believe 

that these studies make oversimplified assumptions about the decision making processes of small and large businesses. In our case, 

we will continue to provide an option for our employees to obtain 

access to affordable, high-quality care even if it results in modest 

additional cost to us. 

Time will tell what the true impact of the Affordable Care Act 

will be on total enrollment in employer-sponsored health insurance 


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plans. We certainly applaud the intent of the legislation to reduce 

the overall number of uninsured Americans and to lower the cost 

of health care without sacrificing quality of care, and we believe 

that all of the options on the table are worth considering, including 

health insurance exchanges designed to give consumers more educated choices about their own coverage. Yet it is difficult to predict 

how quickly these exchanges will be created, how effectively they 

will be administered, how transparent they will be to consumers, 

and how quickly consumers might transition to them. In theory, if 

they can alleviate upward pressure on the cost of insurance premiums while ensuring the same access to care and quality of care, 

and if employers are allowed to participate, then I think they could 

be a win/win for all involved. However, we will have to wait and 

see how this and other aspects of the legislation are implemented 

before being able to fully assess the costs and benefits relative to 

existing options for employer-sponsored coverage. 

In summary, we believe that being a world class employer means 

providing an option for affordable health insurance coverage for 

your staff. We support the goal of reducing the number of uninsured Americans, and we believe that employer-sponsored coverage 

has been and will continue to be one important component of a 

multi-pronged strategy to address what is a multi-dimensional 

challenge of expanding coverage while controlling costs. Above all 

we believe that most employers, including and especially Georgetown Cupcake, want to do the right thing and want to be part of 

the solution, whatever that may be. 

Thank you. 

[The prepared statement of Mr. LaMontagne follows:] 


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Chairman HERGER. Thank you. 

Ms. Furchtgott-Roth, the Democrats’ health care law mandates 

that if you are an employer with at least 50 full-time equivalent 

employees, you must pay for government prescribed health care or 

pay a $2,000 per employee fine. Can you give some reasons why 

some employers today might not believe they can afford to offer 

health care to their employees? 

Ms. FURCHTGOTT-ROTH. Health care is going to be more expensive because of the qualified benefit plan. Plans such as catastrophic health care where you can have a health savings account 

to pay for routine expenditures, and then have health care to cover 

major expenditures such as getting cancer or falling off your bicycle 

in traffic, those won’t be allowed anymore because they don’t meet 

with the qualified benefit plan. 

So employers of low-wage workers are going to find that it adds 

a lot to compensation. They are going to substitute with other 

kinds of capital. We already see this happening in CVS with selfscanning checkout counters, and other supermarkets. We see many 

food trucks, for example, around the streets. This saves them the 

cost of wages for services because people line up to purchase the 

food. I have seen several cupcake trucks. I don’t know if it is 


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Georgetown Cupcake. There are many of these cupcake trucks, 

also. 

So the incentive will be not to provide health care for low-wage 

workers, to, in fact, drop these low-wage workers altogether because of the penalty. For higher wage workers, the employer can 

take it out of the salary and so we would expect to see a lower 

take-home wage and paying the penalty. But the burden is going 

to fall on low wage, low skilled workers. 

Chairman HERGER. Thank you. Republicans on this committee 

have long warned that the employer mandate will encourage employers to drop the current health insurance plan people have and 

like, is simple math. If an employer is currently paying more for 

health care coverage for its employees than it would pay in mandate penalties, it has an incentive to drop coverage to both save 

money and remain competitive. In fact, the nonpartisan Congressional Budget Office predicts that 3 to 5 million Americans will lose 

their current employer-sponsored health insurance. 

Mr. Shaw, I read in your testimony that you have already made 

these calculations. How much do you expect your company to save 

by dropping health insurance coverage in 2014? 

Mr. SHAW. That is difficult to say since we don’t know what the 

mandated cost for the group insurance is going to be. But if our situation is any indication, where we are not a very healthy group, 

we are paying $8,500 per employee now, it is going to be a lot 

cheaper to pay the $2,000 penalty plus the lower wage penalty that 

comes along with it. The math is so simple, why would we continue 

the group health. We know our employees can be taken care of because the government says they have to buy it at this point. They 

are going to find a way through the exchanges to get health insurance. The employer does not need to be in the middle of all of that 

and, with the extra expense, pay the penalty. 

Chairman HERGER. So does the difference between the $2,000 

and the $8,500 you are paying per employee, multiplying that out, 

would be the difference, particularly in a competitive market? 

Mr. SHAW. Approximately $300,000, I think. That wouldn’t all 

be savings because I am sure we would do adjustments to payroll 

or somehow to make up some difference for the employee to go out 

and get their own health insurance. We would try to make those 

adjustments. But not fully, I don’t anticipate. 

Chairman HERGER. So the ObamaCare actually encourages employers to drop health insurance? 

Mr. SHAW. It looks that way to me. 

Chairman HERGER. Mr. Schieber, you make the point that as 

a practical matter, employers cannot hire or retain workers whose 

total compensation rises faster than their productivity. You estimated that if workers enrolled in mandated employer health plans, 

the rise in employer premiums would absorb more than 100 percent of the productivity gained for the bottom quarter of wage earners between now and 2030. You add ‘‘the likely result will be fewer 

jobs or lower pay.’’ Who is likely to be the most impacted by this 

loss of jobs, management or entry level workers? 

Mr. SCHIEBER.Well, it is going to be the entry level workers. 

If you think about somebody who is earning $20,000 or $25,000 a 

year, and their productivity is going up a little over 1 percent a 


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year, that is what the Social Security actuaries estimate is the average in the economy, next year their added contribution to companies is around $250. If they have family coverage, if they are covered under this plan we just heard about, $8,000, $9,000, and the 

cost of that is going up about 5 percent a year because of this excessive health inflation, well, the cost of providing them health insurance then is going up at $500 a year, but they are only bringing 

in an added $250 to the table to pay for that. So the problem is 

that we live in a market-based economy. These companies have to 

cover the cost of their workers or they go out of business. And so, 

you know, sometimes they call economics the dismal science, and 

probably for a reason, but it does try to pay attention to the laws 

of arithmetic, not just the laws that Congress introduces. 

Chairman HERGER. Thank you. Mr. Stark is recognized. 

Mr. STARK. Thank you, Mr. Chairman. I thank the panel. 

Mr. LaMontagne, the critics of the Affordable Care Act have suggested that the increased cost of compensation by providing health 

care would impose a financial burden to employers and force them 

to cut staff and wages and stop giving pay raises. I presume that 

if you are in the franchise business, it doesn’t make any difference. 

If you have got a Burger King here and you have one two blocks 

away and the minimum wage goes up, neither Burger King store 

has an advantage, right? They each raise the price of a hamburger 

to cover it or swallow it if they choose. But competitively when you 

are making a standard product it doesn’t make a lot of difference. 

You may not like it, but it doesn’t. 

Would employers have to cut staff and wages if there was an increase in compensation costs? What would be your first reaction? 

Stop putting frosting on your doughnuts? 

Mr. LAMONTAGNE. I can only speak for our business. 

Mr. STARK. You are the only person running a business, so I 

have to take your word for it. 

Mr. LAMONTAGNE. If there were an increase in compensation, 

either directly through an increase in the Federal or State minimum wage, or indirectly through an increase in the cost of total 

compensation to an employee, including health insurance coverage, 

in our case we would not reduce staffing levels because we staff 

based on the level of people that we need to run our operation 

smoothly. If we had to take people out, the cost to us in terms of 

inefficiency and loss of operational smoothness, if you will, would 

be greater than the savings that you would realize just by cutting 

one or two or three staff. 

Mr. STARK. Would your tendency be for small increases or decreases in your, ‘‘production’’ to either cut back hours for everybody 

a few hours or go to overtime if you had to go the other way rather 

than hire and train new workers every time there was a minor 

change in your production? 

Mr. LAMONTAGNE. I think Mr. Shaw made a great point, 

which is businesses face cost creep from all sides, not just labor 

costs, not just health insurance costs, but from every direction. We 

look at our budgets as a whole, and we have to make decisions on 

how to streamline looking at them as a whole. 

Again, in our case, we would not cut hours or shift to more of 

a part-time labor force because we are a growing business and we 


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are investing in our employees because we want to promote people 

from within so that they can grow with the company. And you don’t 

send a message to your staff that you want them to grow with you 

by transitioning to an all part-time work force. 

Mr. STARK. Thank you. Thank you very much. Thank you, Mr. 

Chairman. 

Chairman HERGER. Thank you. Mr. Reichert is recognized. 

Mr. REICHERT. Thank you, Mr. Chairman. And thank you for 

your testimony today. In almost every health care hearing and 

Ways and Means hearing on health care, I have mentioned a list 

of things that have sort of been coming to light as we discuss this 

health care law further. And one of the things that the previous 

Speaker, Nancy Pelosi, said is we have got to pass this bill first to 

find out what is in it. And of course, that is what we are doing 

right now. We are finding out what is in it. And some of these 

things are very harmful to small businesses. 

We discovered that the 1099 requirement was very harmful to 

small businesses. The Democrats and Republicans together finally 

agreed with that, and it was repealed. The CLASS Act has been 

repealed. We discovered that we don’t have the money to implement that plan. And Mr. Shaw, you mentioned in your testimony 

that you were frustrated because the promise was you could keep 

your health care if you liked to keep your health care, but I am not 

sure if you knew that the President himself said at an event that 

I happened to be at that when he was asked the question about 

whether or not this promise was really included in the law, he said, 

well, there might have been some language snuck into the health 

care law that runs contrary to that premise. So I wonder what else 

runs contrary to a promise, promises that were made about this 

bill, and we are finding out more and more and more what is running contrary. 

So I am interested in a couple of things here. So Mr. Schieber, 

with the employer mandate, would revenues of a business increase 

with the employer mandate? 

Mr. SCHIEBER. The revenues of some health care providers 

might increase because there could be substantially increased demand for health care services. I don’t know why Walmart’s revenues would increase or IBM’s revenues would increase. 

Mr. REICHERT. Will the employer mandate improve a business’ 

profit margin? 

Mr. SCHIEBER. Well, it depends a little bit. We just heard here, 

there might be a situation arise, and I actually believe there might 

be a lot of them, where companies go through a calculation where 

they can put some of their cost to the government. And so they 

could conceivably become more efficient, but that means that the 

government is going to face a higher cost than maybe are being anticipated for this bill. 

Mr. REICHERT. Where will businesses then find the money, 

though, to provide this health care coverage if there is additional 

cost, and they have this threat of $2,000 penalty and there is a 

$3,000 penalty if the health care offered is unaffordable. 

Mr. SCHIEBER. Well, the fact of the matter is that employers 

do evaluate whether or not workers are covering the cost that it 

takes to hire them. And if you paid attention to what has been 


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going on in our economy in recent years, if you go to a grocery store 

today or you go to almost any kind of retail outlet today, they have 

now got these automated checkout lines where you scan your own 

stuff. What they are trying to do is they are trying to save money 

on labor costs, because those workers are no longer bringing in additional revenue that is recovering their costs. They are trying to 

get more efficient because we are operating in an extremely competitive world. If you go into any office building in almost any city 

this year that is being cleaned in the evening, it used to be that 

part of the staff of the company that operated that office cleaned 

that building. That is no longer the case. That has all been subbed 

out because those people are getting much lower pay. They are getting much lower benefits than the people that actually work in the 

office. There is a variety of ways that this takes effect. And I believe that the high unemployment rate that is concentrated in people without skills, people just coming out of school, people without 

training, people at very low wages is partly because some of these 

overburdened costs, or actually underburdened, you can’t see them. 

Most people don’t see them, but they are there and when you are 

doing your budget you have to cover them. 

Mr. REICHERT. Right. 

Mr. SCHIEBER. And I think that is why we have got a lot of 

the persistent unemployment rate at the lower end today that we 

do. 

Mr. REICHERT. I appreciate your answer, and thank you for 

your time, and I yield back. 

Chairman HERGER. Thank you. The gentleman from Washington is recognized. 

Mr. MCDERMOTT. Thank you, Mr. Chairman. Mr. LaMontagne, 

it may be just my experience, but we also have a cupcake company 

in Washington in Seattle, Cupcake Royale. The woman who runs 

it has been back here and testified, and testified before committees 

in Congress. We also have a woman named Molly Moon. She runs 

a little ice cream operation. They give health care benefits to all 

of their people, just like the women who started your company give 

health care benefits to their people. Now, I think that must be because they think that there is some inherent value in it, that it is 

the right thing to do. And what I find difficult is to listen to the 

CEO of an insurance company say, well, if I could pay a penalty 

and pay less, I would throw my employees off the plan and put 

them into the exchange. And I would like to hear your own thinking about whether you would go to your employees in the cupcake 

company and say, it is cheaper for us, so we are not going to cover 

you anymore. Go down to the exchange and buy your insurance, 

and we will pay the penalty. 

Now, tell me how you think about that. Because I think this is 

a straw man that is put up here. We can’t keep our coverage. What 

it means is that the management of companies will take it away 

from their employees by saying we are not going to pay any more, 

and it is not that there is anything in the law that says it can’t 

be done. So I would like to hear you talk about how you think 

about your employees and whether you would rather involve yourself in their coverage or send them down the street to the exchange. 


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Mr. LAMONTAGNE. As I mentioned previously, we believe that 

in the system that we have now health insurance coverage is a necessary component of a well-rounded compensation package. And it 

is something that as we grew from a small startup into a company 

that approached 30, 40, 50, full-time workers, our full-time staff 

asked us for it because it mattered to them. It is something that 

they wanted. And we thought that in order to make sure that we 

could keep them on board, again we are a growing company, we are 

making an investment in our staff. We want them to internalize 

our processes and procedures, and make a greater contribution in 

the future. We felt that it was necessary and certainly the right 

thing to do to add that to our total compensation package. 

Mr. MCDERMOTT. Was there anything besides staff morale involved in that decision? I mean, did you make any other kind of— 

was there any other level of decision-making that went into that? 

Mr. LAMONTAGNE. Certainly, staff morale and responsiveness 

was one element that went into the calculation. I think in a competitive environment, where other employers are offering health insurance as a part of their compensation packages, in order for us 

to remain competitive it is necessary to add that option as well. 

And also we personally believed that once we got to that stage in 

our growth, that it was the right thing to do to add coverage, 

and—— 

Mr. MCDERMOTT. Do you think you would have lost any of 

them if you did not respond to that request? 

Mr. LAMONTAGNE. Yes, I think we would have. 

Mr. MCDERMOTT. The best people. 

Mr. LAMONTAGNE. And we would have lost some very good 

people. 

Mr. MCDERMOTT. That is the experience of a lot of small businesses. My son did a startup in the high-tech industry, and he said, 

Dad, we had to give benefits or we couldn’t recruit anybody to our 

company, because if we didn’t have a benefit package people 

wouldn’t come. So it seems to me if you want the best people you 

have to have a benefit package, right? 

Mr. LAMONTAGNE. In the system that we have today, I believe 

that it is necessary, yes. 

Mr. MCDERMOTT. Are you familiar with anything in Hawaii? 

I mean, Hawaii has the system where every employer who has a 

full-time employee has to give benefits, right? Do you know about 

that? 

Mr. LAMONTAGNE. I am not familiar with the Hawaii—— 

Mr. MCDERMOTT. It is true. And the question I have is, for 

anybody on the panel is, why does it work in Hawaii and it doesn’t 

work here? Why would it not work in the United States on the continent when it works out in the island? How do they do that? I 

mean, is Hawaii so depressed or they have no business, or what is 

going on? 

Ms. FURCHTGOTT-ROTH. Well, I would be glad to answer that. 

Mr. MCDERMOTT. Sure. I would like to hear you. 

Ms. FURCHTGOTT-ROTH. So they take it out of the total well, 

it is part of the total compensation package. So the cost of health 

insurance comes at the expense of more take-home wages. So an 


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employer provides the compensation package. It consists of health 

insurance, vacation, sick leave, and also a cash wage. 

Mr. MCDERMOTT. But no businesses are failing because of this, 

right? 

Ms. FURCHTGOTT-ROTH. What they are doing is providing—— 

Mr. MCDERMOTT. Are businesses failing in Hawaii because 

they have to give health care? 

Ms. FURCHTGOTT-ROTH. I do not know the answer to that, 

but I know they are providing a lower cash wage than they would 

have otherwise if they did not have to provide the health insurance. 

Chairman HERGER. The gentleman’s time is expired. Dr. Price 

is recognized. 

Mr. PRICE. Thank you so much, and I want to thank the panel. 

This has been very interesting because I think that the unintended, or maybe intended consequences of this law, are significant, especially in the employer/employee relationship. Mr. 

LaMontagne, I want to applaud you for providing health coverage 

for our employees. We did in my practice when I was in the private 

sector. My understanding is you have three different options available for your employees, is that right? 

Mr. LAMONTAGNE. Yes, that is correct. 

Mr. PRICE. And what are those? 

Mr. LAMONTAGNE. One is the option that I described in my 

statement which is the one that nearly all of our staff had enrolled 

in, which is a very comprehensive level of coverage for in-network 

services, and then, you know, small copays for out-of-network services. And then the second option is a slightly higher expense for 

out-of-network services, but generally the same level of coverage for 

in-network services. 

Mr. PRICE. Right. 

Mr. LAMONTAGNE. And then the third option that we had was 

one that involved health savings account option, which as it turns 

out was not one of the options that any of our staff selected. They 

opted for the most comprehensive coverage available. 

Mr. PRICE. So the choices that you put in place for your employees, however, were the ones that you selected, not that somebody 

else selected? 

Mr. LAMONTAGNE. I mean, these are choices that we met with 

a broker for the national insurance provider. We had a dialogue 

with our staff about what they were looking for, and—— 

Mr. PRICE. But you selected it. 

Mr. LAMONTAGNE. Yes. 

Mr. PRICE. And in 2014, the bill will stipulate that you have got 

to pick. You don’t get to pick. In fact, you have got to comply with 

what Washington tells you to comply with. Do you think that is 

fair? What if it is not what you want? 

Mr. LAMONTAGNE. I mean, in looking at the options that we 

have and how the legislation defines minimum essential coverage 

and affordable care, I think what we have available would satisfy 

those criteria. 

Mr. PRICE. What if it doesn’t? What if they dictate something 

else to you? Is that fair? 


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Mr. LAMONTAGNE. As long as we can provide coverage to our 

staff, and if employer-sponsored coverage is part of the system that 

will eventually, I think, lead to the outcomes that everyone hopes 

that we get, you know, we will look at all of the options that are 

available. 

Mr. PRICE. Do you think it is fair that the Federal Government 

can say that a health savings account is not something that ought 

to be available to folks even though your employees didn’t choose 

to select it? Do you think that is fair? 

Mr. LAMONTAGNE. I think any action to limit options is one 

that I would not find—not find favor. I think—— 

Mr. PRICE. I think that is very wise. Ms. Roth, you mentioned 

that a catastrophic plan that I just talked about, sense, wouldn’t 

be available. Why is that? 

Ms. FURCHTGOTT-ROTH. Well, it wouldn’t be allowed under 

the exchange. For this plan under the exchange you have to have 

a qualified benefit plan. That means no copayments for routine 

care, mandatory mental health, drug abuse. We found out last 

week free contraceptives, recently, all unlimited lifetime payments. 

Mr. PRICE. So any high deductible catastrophic plan wouldn’t 

qualify? 

Ms. FURCHTGOTT-ROTH. Correct, because it doesn’t have zero 

copayment for routine care. 

Mr. PRICE. So if an American wanted a high deductible catastrophic plan, but was forced into an exchange they wouldn’t be 

able to select the kind of coverage plan that they wanted, is that 

correct? 

Ms. FURCHTGOTT-ROTH. That is correct and these health savings accounts with catastrophic health insurance have saved 

money. They have saved 11 percent to the State of Indiana, for example. 

Mr. PRICE. Absolutely. I want to revisit Burger King. We talked 

a fair amount about Burger King, and I think it was Mr. Stark 

that said that one Burger King had to comply with the law and another Burger King had to comply. What about Joe’s Burger Shop 

across from the Burger King that doesn’t have 50 employees? What 

are the requirements? What are the competitive requirements on 

the Burger King because of Joe’s Burger Shop and what are the 

consequences of that for the employees? 

Ms. FURCHTGOTT-ROTH. Joe’s Burger Shop would not have to 

pay the penalty that had 49 or fewer employees, and by the way 

the Burger Kings, if they laid off all of their full-time workers and 

replaced them with part-time workers they wouldn’t have to pay 

the penalty either. So the incentive would be to lay off full-time 

workers, replace them with part-time workers. Or if you had a 

Burger King across the street from the Wendy’s, if they shared 

workforces and the workforce was at half-time at Wendy’s, halftime at Burger King, then the Burger King and Wendy’s would be 

competitive with Joe’s Burger. Otherwise Joe’s Burger would always be able to undercut the Burger King and the Wendy’s, and 

the incentive should not be like that. 

Mr. PRICE. Exactly. So the perverse incentives in this bill actually harm the lower wage worker in this country. 


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Ms. FURCHTGOTT-ROTH. Yes, precisely. And there is another 

incentive that also harms the low wage worker. Firms only have 

to provide affordable coverage for a single worker. They don’t have 

to provide affordable coverage for a family. But if the worker gets 

affordable coverage from his employer as a single, the rest of the 

family is not allowed to get subsidized health insurance on the exchange. They are in limbo. They are uncovered. They can purchase 

full-priced insurance on the exchange, but many of them would not 

be able to afford to do so. 

Mr. PRICE. Thank you very much. Thank you, Mr. Chairman. 

Chairman HERGER. Thank you. Dr. Boustany is recognized. 

Mr. BOUSTANY. Thank you, Mr. Chairman. I think Dr. Price 

raised a bunch of very important points that illustrate how disruptive this is all going to be. Mr. Schieber, your testimony highlighted 

a number of critical points and I think it is fairly well-established 

in your testimony, and in general terms, that the increasing cost 

of health care is hurting both businesses and workers. I think that 

is fairly well-established. And secondly, the problem of rising 

health care costs started before the passage of this health care law, 

yet those cost increases are continuing and we potentially will see 

some price shocks in the insurance market. That is what I am 

hearing from businesses, large and small, in my district and 

around the country. 

So I guess the remaining question then becomes, does the Democrats’ health care law make this fundamental problem better or 

worse? So I have a series of questions for you. Does imposing the 

employer mandate raise or lower the cost of health care for employers? 

Mr. SCHIEBER.Well, it would raise the cost for any employer 

who is now required to cover a worker who is not covered. I mean, 

there has been some intimation here, I wouldn’t want anybody to 

go away thinking that there is not an economic—there is not a relationship between what people are paid and whether or not they 

are now getting health insurance. 

At the second decile in 2009, about 22 percent of full-time, fullyear workers were actually receiving health insurance from their 

employer. At the fifth decile it was about 60 percent. At the eighth 

decile over 76 percent. There is an extremely strong economic relationship between payment. So at the bottom we are going to raise 

the pay of quite a lot of—the compensation costs of employing quite 

a lot of workers. 

Mr. BOUSTANY. All right. So also does the taxing health insurance plans—there is a tax in this new law taxing health insurance 

plans, does that raise or lower the cost of providing health insurance? 

Mr. SCHIEBER. It would raise the cost of providing health insurance. 

Mr. BOUSTANY. Right. What about mandating an essential 

health benefits package? Would that raise or lower the cost? 

Mr. SCHIEBER. If the package was richer than the package— 

even if you had been offering a package, if the new package is richer than the package you have been offering, it has got to cost more. 


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Mr. BOUSTANY. It will cost more. What about mandating employers to pay 60 percent of the actuarial value of the plan? Does 

that raise the cost? 

Mr. SCHIEBER. Again, it depends a little bit on what they have 

been doing. But if they have been paying less than 60 percent, if 

it is a 50/50 plan, I pay half, you pay half, it would raise the cost 

of the plan. 

Mr. BOUSTANY. Okay. So now we have talked about a number 

of provisions in the health law which, as you have stated, will raise 

costs for employers. And I think you eloquently stated earlier that 

a business faced with a fixed cost, paying a penalty, or the variable 

cost, which we already know is higher than the penalty, and rising, 

and perhaps going to rise by you know, 5, 6, 7 percent or more. We 

don’t know, but we know it is rising. It is a pretty simple business 

decision, it seems to me, and it is one of the things I am hearing 

from a number of business owners around my district; fixed cost, 

lower; variable cost and rising. What do you do? 

Mr. SCHIEBER. Well, I would assume this fixed cost will probably rise a bit over time. But it is not clear which one would rise 

faster, but if you—if your variable, what you characterize as the 

variable cost is higher than the fixed cost you are going to have to 

pay, you would probably pay the fixed cost. 

Business people are rational economic beings. They try to make 

decisions based on the arithmetic of running their business, and 

they look at differential cost rates, and they make decisions based 

on that in terms of how they run their business. 

Mr. BOUSTANY. And that same business person is going to 

want choices that would promote a competitive marketplace rather 

than simply a one-size-fits-all, this is it, take it or leave it, and accept the cost? 

Mr. SCHIEBER. Well, if you look in the retail industry, for example, you would typically find a much different benefit package 

than you would find in a computer engineering firm where you are 

going to have extremely high-skill versus low-skill relatively mobile 

workers. You find significant difference. I worked in the benefits 

industry most of my career. I have worked with a lot of employers. 

There are definite differences, and when you look at those differences, you can understand them when you look at the economics 

of the business. These things vary by the economics of the businesses. 

Mr. BOUSTANY. And so a business looking at this fixed cost 

versus variable cost, will likely say, I am sorry, we are not going 

to provide this benefit. We know you will get it in the exchange, 

and yet we are seeing multiple problems with the establishment of 

exchanges, which seem to be falling behind. So again, it gets back 

to the point of the major disruptions in coverage, on top of the fact 

that, I know we didn’t discuss this in this hearing today, but we 

have significant shortages of physicians and nurses and specialists, 

which will further lead to disruptions in health care as we know 

it, and disruptions for the worse, not for the better. 

Mr. SCHIEBER. You know, I don’t think we can begin to anticipate all of the changes we might face. There is a section in my testimony about the implementation of Medicare in the mid-1960s. We 

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mand would be relatively stable. With the introduction of Medicare, 

prices started rising very rapidly. Demand exceeded considerably 

what was originally anticipated. There were significant spillover effects to the employer market. 

During the 1970s, when Medicare was really taking its full effect 

in the U.S. economy, employee-sponsored health benefit costs were 

going up 6.8 percent a year faster than compensation. So it can 

have spillover effect. So we can be introducing a whole variety of 

inflationary effects we haven’t even begun to think of. And the people who have been costing this out have assumed, at best, that 

costs are going to be about the same as they were under the prior 

regime. So I think we have got some tremendous hidden risks here 

that we are really not talking about. 

Mr. BOUSTANY. Thank you. I see my time is expired. Thank 

you, Mr. Chairman. I yield back. 

Chairman HERGER. Thank you. Mr. Kind is recognized. 

Mr. KIND. I appreciate the additional information, Mr. Chairman. I appreciate it. 

Chairman HERGER. Well, with that, I would like to thank our 

witnesses and our panel for participating. I would like to respond 

to a comment that was made by my friend from Washington about 

Hawaii. 

I am looking at an Associated Press article that indicates that 

since its passage 35 years ago the cost-conscious business owners, 

and it is talking about Hawaii, have found an easy way to avoid 

the law by hiring more part-time workers who aren’t required to 

be covered. It goes on to say if it weren’t for that law the medical 

benefits are one area we could look to cut because this is a recession. It hurts the business. You can’t pass it on to customers in this 

economy. 

And again, I would like to thank each of our witnesses. 

Mr. LaMontagne, I am one of the few small business people on 

this committee. My heart really goes out to you and gratitude goes 

out to you for obviously the hard work that you have put into, and 

your family, to running your business. But as a small business person, and as I talk to people in my northern California district, 

there is a big difference between those businesses that might be 

blessed to have a large margin and those who are much more competitive, that the difference between $2,000 and $8,000 can make 

a difference whether they are in business or not. 

But I want to thank you for running your business in such a way 

that you have that margin, and also for being generous enough and 

doing the right thing to continue with your employees. My concern 

is that you are more the exception than the rule. 

It is apparent to me in this hearing from the testimony presented 

today that the Democrats’ health care law is unconstitutional and 

will rob Americans of their current health plan and further hinder 

economic growth. That is why I will continue to call for a full repeal. The goal of health care reform should be to make health care 

coverage more affordable for all Americans, not to reengineer the 

contract between private citizens and their government. 

As a reminder, any member wishing to submit a question for the 

record will have 14 days to do so. If any questions are submitted, 

I ask that the witnesses respond in a timely manner. 


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With that, the Subcommittee is adjourned. 

[Whereupon, at 11:25 a.m., the Subcommittee was adjourned.] 

[Member Opening Statement follows:] 


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The Honorable Pete Stark 


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The Honorable Bill Pascrell 


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The Honorable Jim McDermott 


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[Public Submissions for the Record follows:] 


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American Farm Bureau Federation, Statement 


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Center for Fiscal Equity, Statement 


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Chamber of Commerce, Statement 


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NFIB and Small Business Coalition for Affordable Healthcare, Statement 


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Æ 


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