U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001

82–196 2013

HEALTH INSURANCE PREMIUMS UNDER THE 

PATIENT PROTECTION AND AFFORDABLE CARE 

ACT 

HEARING 

BEFORE THE

SUBCOMMITTEE ON OVERSIGHT AND 

INVESTIGATIONS 

OF THE

COMMITTEE ON ENERGY AND 

COMMERCE 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

MAY 20, 2013 

Serial No. 113–44 

( 

Printed for the use of the Committee on Energy and Commerce 

energycommerce.house.gov 

(II) 

COMMITTEE ON ENERGY AND COMMERCE 

FRED UPTON, Michigan 

Chairman 

RALPH M. HALL, Texas 

JOE BARTON, Texas 

Chairman Emeritus 

ED WHITFIELD, Kentucky 

JOHN SHIMKUS, Illinois 

JOSEPH R. PITTS, Pennsylvania 

GREG WALDEN, Oregon 

LEE TERRY, Nebraska 

MIKE ROGERS, Michigan 

TIM MURPHY, Pennsylvania 

MICHAEL C. BURGESS, Texas 

MARSHA BLACKBURN, Tennessee 

Vice Chairman 

PHIL GINGREY, Georgia 

STEVE SCALISE, Louisiana 

ROBERT E. LATTA, Ohio 

CATHY MCMORRIS RODGERS, Washington 

GREGG HARPER, Mississippi 

LEONARD LANCE, New Jersey 

BILL CASSIDY, Louisiana 

BRETT GUTHRIE, Kentucky 

PETE OLSON, Texas 

DAVID B. MCKINLEY, West Virginia 

CORY GARDNER, Colorado 

MIKE POMPEO, Kansas 

ADAM KINZINGER, Illinois 

H. MORGAN GRIFFITH, Virginia 

GUS M. BILIRAKIS, Florida 

BILL JOHNSON, Missouri 

BILLY LONG, Missouri 

RENEE L. ELLMERS, North Carolina 

HENRY A. WAXMAN, California 

Ranking Member 

JOHN D. DINGELL, Michigan 

Chairman Emeritus 

EDWARD J. MARKEY, Massachusetts 

FRANK PALLONE, JR., New Jersey 

BOBBY L. RUSH, Illinois 

ANNA G. ESHOO, California 

ELIOT L. ENGEL, New York 

GENE GREEN, Texas 

DIANA DEGETTE, Colorado 

LOIS CAPPS, California 

MICHAEL F. DOYLE, Pennsylvania 

JANICE D. SCHAKOWSKY, Illinois 

JIM MATHESON, Utah 

G.K. BUTTERFIELD, North Carolina 

JOHN BARROW, Georgia 

DORIS O. MATSUI, California 

DONNA M. CHRISTENSEN, Virgin Islands 

KATHY CASTOR, Florida 

JOHN P. SARBANES, Maryland 

JERRY MCNERNEY, California 

BRUCE L. BRALEY, Iowa 

PETER WELCH, Vermont 

BEN RAY LUJAN, New Mexico 

PAUL TONKO, New York 

(III) 

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

TIM MURPHY, Pennsylvania 

Chairman 

MICHAEL C. BURGESS, Texas 

Vice Chairman 

MARSHA BLACKBURN, Tennessee 

PHIL GINGREY, Georgia 

STEVE SCALISE, Louisiana 

GREGG HARPER, Mississippi 

PETE OLSON, Texas 

CORY GARDNER, Colorado 

H. MORGAN GRIFFITH, Virginia 

BILL JOHNSON, Ohio 

BILLY LONG, Missouri 

RENEE L. ELLMERS, North Carolina 

JOE BARTON, Texas 

FRED UPTON, Michigan (ex officio) 

DIANA DEGETTE, Colorado 

Ranking Member 

BRUCE L. BRALEY, Iowa 

BEN RAY LUJAN, New Mexico 

EDWARD J. MARKEY, Massachusetts 

JANICE D. SCHAKOWSKY, Illinois 

G.K. BUTTERFIELD, North Carolina 

KATHY CASTOR, Florida 

PETER WELCH, Vermont 

PAUL TONKO, New York 

GENE GREEN, Texas 

JOHN D. DINGELL, Michigan 

HENRY A. WAXMAN, California (ex officio) 

(V) 

C O N T E N T S 

Page 

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

of Pennsylvania, opening statement ................................................................... 1 

Prepared statement .......................................................................................... 3 

Hon. Diana DeGette, a Representative in Congress from the state of Colorado, 

opening statement ................................................................................................ 4 

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

Texas, opening statement .................................................................................... 6 

Hon. Henry A. Waxman, a Representative in Congress from the State of 

California, opening statement ............................................................................. 7 

Prepared statement ..........................................................................................

WITNESSES

Cori E. Uccello, Senior Health Fellow, American Academy of Actuaries ........... 10 

Prepared statement .......................................................................................... 13 

Answers to submitted questions ...................................................................... 113 

Chris Carlson, Actuarial Principal, Oliver Wyman Group ................................... 25 

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

Answers to submitted questions ...................................................................... 117 

Daniel T. Durham, Executive Vice President, Policy and Regulatory Affairs, 

Americas Health Insurance Plans ...................................................................... 33 

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

Topher Spiro, Vice President, Health Policy, Center for American Progress ..... 57 

Prepared statement .......................................................................................... 59 

Answers to submitted questions ...................................................................... 119 

SUBMITTED MATERIAL

Report from majority staff dated March 14, 2013 ................................................ 93 

Minority memoranda dated May 13 and May 18, 2013 ....................................... 96 

Letter of May 20, 2013, from Families USA to the subcommittee ...................... 108 

Letter of May 20, 2013, from AARP to the subcommittee ................................... 110 

(1) 

HEALTH INSURANCE PREMIUMS UNDER THE 

PATIENT PROTECTION AND AFFORDABLE 

CARE ACT 

MONDAY, MAY 20, 2013 

HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS, 

COMMITTEE ON ENERGY AND COMMERCE, 

Washington, DC. 

The subcommittee met, pursuant to call, at 4:02 p.m., in room 

2123, Rayburn House Office Building, Hon. Tim Murphy (chairman 

of the subcommittee) presiding. 

Present: Representatives Murphy, Burgess, Scalise, Harper, 

Olson, Griffith, Johnson, Long, Ellmers, Barton, DeGette, 

Schakowsky, Butterfield, Castor, Green, and Waxman (ex officio). 

Staff Present: Sean Bonyun, Communications Director; Matt 

Bravo, Professional Staff Member; Karen Christian, Chief Counsel, 

Oversight; Andy Duberstein, Deputy Press Secretary; Paul Edattel, 

Professional Staff Member, Health; Julie Goon, Health Policy Advisor; Brad Grantz, Policy Coordinator, O&I; Debbee Hancock, Press 

Secretary; Sydne Harwick, Staff Assistant; Brittany Havens, Staff 

Assistant; Sean Hayes, Counsel, O&I; Andrew Powaleny, Deputy 

Press Secretary; Tom Wilbur, Digital Media Advisor; Phil Barnett, 

Minority Staff Director; Stacia Cardille, Minority Deputy Chief 

Counsel; Elizabeth Letter, Minority Assistant Press Secretary; Stephen Salsbury, Minority Special Assistant; Roger Sherman, Minority Chief Counsel; and Matt Siegler, Minority Counsel. 

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

Mr. MURPHY. Good afternoon. I convene this hearing of the Subcommittee on Oversight and Investigation to examine the impact 

the Patient Protection and Affordable Care Act will have on the 

premiums of every American. 

Today we are joined by several witnesses. Cori Uccello. Did I say 

it correctly? 

Ms. UCCELLO. Uccello. 

Mr. MURPHY. Uccello? I see. Uccello like—yes, we are good—is a 

senior health fellow at the American Academy of Actuaries. Chris 

Carlson—I think I got that right—is an actuarial principal with the 

Oliver Wyman Group. Daniel Durham is executive vice president 

for Policy and Regulatory Affairs with America’s Health Insurance 

Plans. And Topher Spiro is the vice president for Health Policy at 

2 

the Center for American Progress. I thank the witnesses for joining 

us today. 

Today’s hearing will focus on a question that many Americans 

are concerned about: Will the Affordable Healthcare Act increase 

the cost of my health insurance? Based on information provided by 

some of the Nation’s largest insurance companies and by outside 

analysts, the answer to that question is yes. 

Two months ago the Subcommittee on Oversight and Investigation sent a letter to 17 insurance companies, including 15 of the 

Nation’s largest insurers. We asked them for very basic information. What do you expect the Affordable Care Act will do to the premiums of Americans? Will they, in fact, be more affordable? We 

didn’t ask them to create new material and we did not ask them 

to exclude or to focus on certain information or certain States. Instead, we simply asked them for the material they already had created to estimate the impact of the health care law on their consumers. 

Nearly all the material the insurers submitted showed that 

Americans can expect massive premium increases. As one insurer 

told the committee, consumers in 90 percent of all States would 

likely face significant premium increases. Another wrote to the 

committee, ‘‘The bottom line is that the PPACA does not contain 

many provisions that will reduce costs and improve affordability, 

especially in the short term.’’ 

Now, to be clear, some individuals in a few States may see premium decreases. As identified by the insurers, these States are 

typically the ones that are already highly regulated, such as New 

York, Massachusetts, Maine, Vermont and others, but some of the 

materials submitted by the insurance industry show that even individuals in those States may still get a premium increase. And this 

still only represents five States. The other 45 can expect, as the insurers told us, significant premium increases. Forty-five States get 

premium increases and five may see a slight decrease. 

On the day this law was signed, the President said it would, 

‘‘lower costs for families and businesses.’’ It seems remarkable that 

a law that was passed on the basis of affordability will instead 

bring Boston prices to a small town of Pennsylvania that otherwise 

would have been successful. 

So why are costs going up? According to the materials provided 

by the companies, the Affordable Care Act mandates insurers provide a number of services regardless of consumer want or need, and 

then limits the ability for insurers to charge more or less depending on the likelihood of an individual using that insurance. We can 

easily predict those individuals who will be the hardest hit by these 

coming premium increases: young and healthy adults and some 

other age groups as well. 

Furthermore, based on the materials provided by the insurers, 

the provisions in the Affordable Care Act that were supposed to 

mitigate the premium price increases are not going to be enough. 

For example, we have heard that those who can afford it the least 

will get subsidies if they earn less than 400 percent of the Federal 

poverty line, which is nearly $46,000 for an individual. Yet one insurer told this committee that the subsidies would cover only 40 

3 

percent of the premiums. So after doubling your premiums, the Affordable Care Act pays for less than half of it. 

And what if you aren’t eligible for a subsidy? If you are an indi- vidual making more than $46,000 or a family of four making more 

than $94,000, you won’t be getting any help from the Federal Government. This health care plan was passed on the promise of lowering costs for everybody. 

Supporters of the law often point out that women can no longer 

be charged a different amount because of their gender, but this 

benefit actually stops as women get closer to retirement. Several 

insurers told the committee these women will actually face higher 

premium increases than older men because of the end of gender 

rating. So as women get older and will inherently need more health 

care coverage, this health care bill makes it even more expensive. 

We have also heard about the free services people get under the 

law, but these services are not free. Many insurers provided us 

with material showing that these free services were simply added 

to the premiums. So instead of paying for these services as they actually use them, everyone gets to pay for this in their premium regardless of whether you benefit from it. 

Now, our investigation has heard from the insurers, so today we 

hope to hear from those before us. We will hopefully be able to get 

the perspective of the actuaries before us as well as the industry 

representatives. Thank you again for joining us today. 

[The prepared statement of Mr. Murphy follows:] 

PREPARED STATEMENT OF HON. TIM MURPHY

I convene this hearing of the Subcommittee on Oversight and Investigations to examine the impact the Patient Protection and Affordable Care Act will have on the 

premiums of every America. Today we are joined by several witnesses: Cori Uccello 

is a Senior Health Fellow at the American Academy of Actuaries, Chris Carlson is 

an Actuarial Principal with the Oliver Wyman Group, Daniel Durham is the Executive Vice President for Policy and Regulatory Affairs with America’s Health Insurance Plans, and Topher Spiro is the Vice President for Health Policy at the Center 

for American Progress. 

I thank the witnesses for joining us today. 

Today’s hearing will focus on a question that many Americans are concerned 

about: will Obamacare increase the cost of my health insurance? 

Based on information provided by some of the nation’s largest insurance companies and by outside analysts, the answer to that question is yes. 

Two months ago, the Subcommittee on Oversight and Investigations sent letters 

to 15 of the nation’s largest insurers. We asked them for very basic information: 

what do you expect the Affordable Care Act will do the premiums of Americans? 

Will they in fact be more affordable? We didn’t ask them to create new material and 

we didn’t ask them to exclude or focus on certain information. Instead, we simply 

asked them for the materials they had already created to estimate the impact of 

the health care law on their consumers. 

Nearly all of the material the insurers submitted showed that Americans can expect massive premium increases. As one insurer told the committee, consumers in 

90 percent of all states would likely face significant premium increases. Another 

wrote to the committee: ‘‘The bottom line is that the PPACA does not contain many 

provisions that will reduce costs and improve affordability, especially in the short 

term.’’ 

To be fair, some individuals in a few states may see premium decreases. As identified by the insurers, these states are typically the ones that are already highly regulated: New York, Massachusetts, Maine, Vermont. But some of the materials submitted by the insurance industry show that even individuals in those states may 

still get a premium increase. And this still only represents five states. The other 

45 can expect, as the insurers told us, significant premium increases. 45 states get 

premium increases, five may see a slight decrease. On the day this law was signed, 

4 

the president said it would ‘‘lower costs for families and businesses.’’ It seems remarkable that a law that was passed on the basis of affordability will instead bring 

Boston prices to small town Pennsylvania, it would have been successful. 

Why are costs going to go up? According to the materials provided by the companies, the Affordable Care Act mandates insurers provide a number of services regardless of consumer want or need, and then limits the ability for insurers to charge 

more or less depending on the likelihood of an individual utilizing that insurance. 

We can easily predict those individuals who will be the hardest hit by these coming 

premium increases: young and healthy adults. 

Furthermore, based on the materials provided by the insurers, the provisions in 

the Affordable Care Act that were supposed to mitigate the premium price increases 

are not going to be enough. For example: 

We have heard that those who can afford it the least will get subsidies if they 

earn less than 400 percent of the federal poverty line, which is nearly $46,000 for 

an individual. Yet, one insurer told this committee that the subsidies would only 

cover 40 percent of the premium. So, after doubling your premiums, Obamacare 

pays for less than half of it. 

And what if you aren’t eligible for a subsidy? If you’re an individual making more 

than $46,000, or a family of four making more than $94,000-you won’t be getting 

any help from the federal government. Obamacare was passed on the promise of 

lowering costs for everybody. 

Supporters of the law often point out that women can no longer be charged a different amount because of their gender-but this ‘‘benefit’’ actually stops as women 

get closer to retirement. Several insurers told the committee these women will face 

higher premium increases than older men because of the end of gender rating-so 

as women get older and will inherently need more health care coverage, Obamacare 

makes it more expensive. 

We have also heard about the ‘‘free’’ services people get under the law- but these 

services are not free. Many insurers provided us with materials showing that these 

free services were simply added to premiums—so instead of paying for these services as they actually use them, everyone gets to pay for this in their premium, regardless of whether you benefit from it. 

Our investigation has heard from the insurers, so today we hope to hear from 

those before us. We will hopefully be able to get the perspective of the actuaries before us, as well as the industry representatives. 

Thanks again for joining us today. 

# # # 

Mr. MURPHY. I now recognize Ranking Member DeGette for her 

opening statement. 

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

Ms. DEGETTE. Thank you so much, Mr. Chairman. Mr. Chairman, last week for the 37th time the House voted to repeal the Affordable Care Act. And I suppose someone—I think you told me 

that we are all going to get little diamonds on our member pins 

when we hit 40 votes to repeal, but I am really mystified at the 

zeal to repeal the law, because I think we have made a lot of 

progress in the last 3 years, and as the law continues to be implemented, I think we will make a lot more progress. 

Some of the worst abuses of the insurance industry, like rescissions of coverage for those who became ill, and the refusal to provide care for children with pre-existing conditions are no longer allowed. Tens of millions of Americans are already receiving better 

health insurance coverage, benefiting from free preventative care, 

and the elimination of lifetime coverage limits. States are taking 

advantage of new rate review tools, helping to slow the outlandish 

rates at which insurance premiums were increasing before the AfVerDate Nov 24 2008 14:21 Dec 13, 2013 Jkt 037690 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 F:\MY DOCS\HEARINGS 113\113-44 CHRIS
5 

fordable Care Act. And I would point out those who are complaining that insurance rates are still rising in some areas need to 

look at how much they have been rising in the last 10 or 15 years 

in this country. 

Other things in the Affordable Care Act that are helping, over 3 

million young adults under the age of 26 have been able to retain 

health insurance coverage on their parents’ plan. Medicare coverage has gotten even better. Over 6 million seniors are benefiting 

from the Affordable Care Act closure of the part D doughnut hole. 

They have saved over $6 billion in prescription drug costs. Tens of 

millions of seniors have received free preventative care under the 

Affordable Care Act. 

And, Mr. Chairman, the early results seem to indicate that the 

Affordable Care Act’s provisions design to reduce overall health 

care costs, which is what this hearing is about, are encouraging 

more coordinated care, moving away from payment systems that 

discourage unnecessary care, and paying more for quality than for 

quantity are working. 

The National Health Expenditure Survey released in January 

found that health expenditures are increasing at their slowest rate 

in 50 years. The Congressional Budget Office reported what one 

analyst called ‘‘a sharp and surprisingly persistent downward 

slow’’—let me try that again—‘‘a sharp and surprisingly persistent 

slowdown in health care costs’’ since passage of the Affordable Care 

Act. 

And last week, largely because of these changes, CBO reported 

a drop in deficit productions of hundreds of billions of dollars. And 

I think, Mr. Chairman, that these success stories are only the beginning. 

In January 2014, the ACA will be fully in effect. When that happens, all Americans will, for the first time, have access to affordable health coverage regardless of age, gender or whether they 

have a pre-existing health condition. Millions of low income Americans will be able to sign up for Medicaid. Others, who do not receive coverage from their employer, will be able to shop for insurance on the competitive and transparent environment of health 

care exchanges, and most will qualify for tax credits to help pay for 

this coverage. According to the CBO, 86 percent of individuals who 

receive coverage through the ACA exchanges will receive tax credits, with the average credit reducing costs by over $5,000 a year. 

So, Mr. Chairman, I think the ACA represents a real and enduring improvement in quality of life. We have a lot of work to do, and 

that’s why I am really glad that we are having this second hearing 

on implementation of the ACA. And I would urge the entire Energy 

and Commerce Committee to spend less time fighting about whether we should have this important legislation and more time talking 

about how we can make it work better. 

We have heard people complaining that there are going to be 

massive premium increases, but the Affordable Care Act’s tools to 

help cut costs, from rate review, to tax credits, to the availability 

of lower cost catastrophic plans for young people will ensure that 

health insurance is affordable. 

Now, later this week, we are going to learn about the ACA premiums in my State in Colorado, but we already had more insurers 

6 

than we expected, 19 of them, line up for enrollment in the exchange, so we think this should only benefit competition in Colorado. In States like Rhode Island, Washington State, and Vermont, 

they show no evidence that the worst-case scenario of rate increases, the rate shock that we hear so much about, will happen. 

And so I hope that we can really take it—take time in this hearing and as we go forward in this subcommittee, look at the good 

things the law is doing for the American people and figuring out 

how we can make health care even more available for all Americans and more cost-effective. 

With that, Mr. Chairman, I yield back. 

Mr. MURPHY. Thank the gentlelady. 

Now turn to Dr. Burgess for his opening statement, 5 minutes. 

OPENING STATEMENT OF HON. MICHAEL C. BURGESS, A 

REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS 

Mr. BURGESS. Well, thank you, Mr. Chairman. And I appreciate 

the fact that we are having this hearing today. It’s important, and 

I think we need to have this discussion. 

You know, the summer of 2009 is a time that I will never forget. 

The town halls that summer, my little town of Denton, Texas, 

which normally if I could get 2 dozen people to show up, I thought 

I was doing a good job, we had 2,000 people show up for the town 

hall. And why? Because they were concerned about what they saw 

just over the horizon with the President’s effort to take over the administration of health care in the entire country. 

They weren’t asking us to do that. They were saying, be careful. 

Do not disrupt the system that is arguably working well for 60 to 

65 percent of the people in this country, but if you are going to do 

anything at all, could you please help us with costs? 

Now, I think January 1st of 2014, we will begin to see how disruptive this law has been to the system in the country. We will— 

we will have to wait on that day and see if I am right on that 

premise, but we do know today about the effects on cost, and they 

have not been good. 

The President, in the heady days leading up to the passage and 

the signing of the Affordable Care Act, said 2,500 bucks is what 

you are going to save once this law comes into effect and online. 

Today, nobody’s talking about saving $2,500. In fact, most people 

are worried that they are going to spend that amount more. Now, 

it’s all well and good to say that, hey, that costs would have gone 

up even more without the Affordable Care Act, but that’s a pretty 

difficult premise to prove, but what people are—do know, that they 

see when they open their cost of their insurance for the coming 

year is that it’s going up significantly. 

I had a youngster in my district over the weekend, mid 30s, single, he teaches school, his premiums have doubled this year. And, 

like many young men, he is questioning whether or not he even 

should continue the insurance, because after all, there is no real 

penalty, and if he gets sick, don’t they have to take care of him 

anyway? That is a problem that is on the horizon that really has 

been poorly addressed, but this committee, in doing its work, sent 

out a number of letters to 17 of the Nation’s largest health insurance companies requesting analysis of the effect of the Affordable 

7 

Care Act’s policies, the mandates, the taxes and fees on health insurance premiums. 

The results demonstrate exactly what some of us have felt all 

along, that the Affordable Care Act fails to lower costs, and instead 

exacerbates the very problems it was sent to correct. 

The greatest effects of the increase in costs from the Affordable 

Care Act will be felt by the very individuals that the President 

claimed it would help the most, that is, people in the small group 

market, people in the individual market, and people who lack 

health insurance. 

Insurers in our survey reported that not only would premiums 

increase across almost all 50 States, but they also reported that 

these premiums will increase between 1 and 400 percent. Even 

more troubling is that the premium increases are not just contained to the individual market, but will also be felt by consumers 

in the small group market and the large group market. Small businesses purchasing these plans can expect premiums to go up by 50 

percent on average. 

Many employers in the large group markets choose to self-insure, 

and even these plans reported that the taxes and fees embedded 

in the Affordable Care Act could increase premiums from 15 to 20 

percent on average. 

Now, there has always been this notion that we will tax an insurance policy and that money will somehow come out of the salaries of the executives in the insurance company. Well, I tell you, 

that’s a fantasy. Those charges do not come out the salaries of the 

executives. They are passed on to the rate payer, they are passed 

on to the premium payer of those insurance policies, and that effect 

is going to be felt in a very profound way beginning next year. 

The central promise of the Affordable Care Act is the component 

of the law that was supposed to hold costs down is in fact going 

to be very detrimental to consumers, to job creators, and to health 

care providers. 

One of the most offensive things that I hear people—when I hear 

people talk about the Affordable Care Act is things are going to be 

free. Let me just tell you, practicing medicine for 25 years, there 

is nothing free that happens in a doctor’s office or a hospital. You 

are either stealing something, even if it’s just the intellectual property of the doctor or nurse who provides that care, it’s paid for 

somewhere by someone. Unfortunately, those people aren’t represented today. 

I will yield back the balance of the time. 

Mr. MURPHY. The gentleman yields back. I now recognize the 

ranking member of the full committee, Mr. Waxman, for an opening statement. 

OPENING STATEMENT OF HON. HENRY A. WAXMAN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA 

Mr. WAXMAN. Thank you, Mr. Chairman. Our hearing today is 

supposed to discuss insurance coverage and insurance premiums 

under the Affordable Care Act. This is a—not a new topic. When 

the Democrats, and I chaired this committee, adopted this legislation, we looked at that issue very, very carefully. We did numerous 

8 

investigations of the health insurance market, and we found that 

premiums were rising very fast and in an incomprehensible way. 

Millions of Americans who had pre-existing conditions either 

couldn’t get insurance at all or they were charged a very high extraordinary price for insurance coverage. And we also found out 

that even conditions where a woman might get pregnant or was the 

victim of domestic abuse wouldn’t qualify for insurance or would 

have to pay more for her insurance. 

Americans were paying for inadequate insurance. People were 

buying insurance that didn’t really cover their health care needs, 

but it wasn’t very expensive, so they thought they were covered. 

We learned Americans were paying very high amounts for 

deductibles and they had stringent annual and lifetime limits on 

the coverage. People didn’t realize this, but a lot of the policies the 

insurance companies were selling were very, very limited. 

So what we learned was that the market was broken. A lot of 

people who needed insurance badly couldn’t afford it or couldn’t 

even get it. If people had insurance, they lived with a great deal 

of insecurity about whether they would be able to continue to afford it. 

And the Act, the Affordable Care Act, requires insurers to provide quality, secure coverage that is there for people when they 

need it. That’s why the law contains numerous tools to make coverage affordable. So I was surprised last week when the Republicans on this committee ignored these provisions when they released an analysis warning of high premiums under the Affordable 

Care Act. This is what they are warning about. I think this is what 

they are hoping for, but they are going to be wrong. 

The Republicans’ report presented large premium increases as a 

certainty, but it only reached this faulty conclusion by cherry-picking data, ignoring the cost saving programs in the Affordable Care 

Act, ignoring the value of improved coverage available under the 

law. 

The report, Mr. Chairman, ignored the fact that under 

Obamacare, the 85 percent of Americans with employer or public 

coverage will see little change in premiums or coverage because of 

this law. They will be able to keep that coverage. The report also 

ignored the impact of the Affordable Care Act’s tax credits to help 

cover the cost of insurance premiums. And according to the CBO, 

86 percent of the people that go to the marketplace for these individual policies will be getting tax credits, reducing the cost by an 

average of $5,000 per year. These tax credits will help make insurance coverage affordable for millions. 

The report, of course, ignored the impact of the small business 

tax credits that can cut the cost of insurance by 50 percent. It ignored the impact of competition, because when you go into that 

marketplace, you will have a number of insurance policies competing for your business. When there is competition, it will lower 

the cost, and CBO says in this case, by as much as 10 percent. 

The Republican report ignored the fact that because of this Act, 

many women, older Americans and those with pre-existing conditions are likely to see their premium costs fall, because if they have 

insurance coverage and they are paying for it, they are paying a 

lot more for that coverage and they are no longer going to be reVerDate Nov 24 2008 14:21 Dec 13, 2013 Jkt 037690 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 F:\MY DOCS\HEARINGS 113\113-44 CHRIS
9 

quired to pay more for that coverage in the future, starting in January. 

The report the Republicans put out ignored the fact that many 

Americans pay higher premiums, but they will also be paying higher premiums because they are going to actually get better coverage. 

In recent weeks, we have received some actual premium data 

that we can use to protest the Republicans’ prediction of doom, and 

today my staff released an analysis of the States where insurers 

have submitted their premiums for 2014, five States, Vermont, Oregon, Washington, Rhode Island and Maryland, and there is little 

evidence in those States of a rate shock that Republicans have been 

predicting. In many cases, Americans will actually pay less for 

comparable coverage. 

I would like to ask that this staff memo and a memo released 

last week be made part of the record, Mr. Chairman. 

Mr. MURPHY. Without objection. 

[The information appears at the conclusion of the hearing.] 

Mr. WAXMAN. This is going to be the true story of premiums 

under the ACA: Better coverage, affordable rates, and protection 

from insurance company abuse. We need to begin to focus on the 

facts so we can stop misleading the American people. Thank you, 

Mr. Chairman. 

Mr. MURPHY. The gentleman’s time has expired and now we will 

be continuing on with our other comments here. Now, we are going 

to talk about our witnesses here. Let me introduce each one. Our 

first witness is Ms. Cori Uccello. Got it right this time. She is a 

senior health fellow at the American Academy of Actuaries. She is 

the actuarial profession’s chief policy liaison on health care issues. 

Ms. Uccello has prepared testimony and has authored, co-authored 

and contributed to several academy publications on various healthrelated issues. She was appointed to the Medicare Payment Advisory Commission, otherwise known as MedPAC, in May of 2010. 

Our second witness is Chris Carlson. He is an actuary in the 

health care field working at Oliver Wyman. He provides consulting 

services to help insurers, health providers employers and State regulators. Previously, Chris worked in the industry as a pricing actuary at a Blue Cross/Blue Shield. Lately, Mr. Carlson has been assisting health care plans in developing premium rates in preparation of the market changes in 2014. He has written several reports 

that quantify the impact of the health insurance fees that have 

been widely accepted by the actuarial profession, and recently published an article describing the effect of age ratings compression in 

the American Academy of Actuaries magazine. 

Our third witness, again, is Daniel Durham. He is currently the 

executive vice president for Policy and Regulatory Affairs for America’s Health Insurance Plans, where he leads health care reform 

implementation efforts and policy activities. He has served in high 

level policy positions in the private sector as well as in the Federal 

Government at the U.S. Department of Health and Human Services, the Social Security Administration and the Office of Management and Budget. 

And our final witness is Topher Spiro. He is the vice president 

for Health Policy at American Progress. Prior to joining American 

Progress, Spiro worked on health care reform at both the Federal 

10 

and State levels. He served as deputy staff director for health policy for the U.S. Senate Committee on Health, Education, Labor and 

Pensions under Senator Edward M. Kennedy and Senator Tom 

Harkin. 

I will now swear in the witnesses. 

You are aware that the committee is holding an investigative 

hearing, and when doing so has a practice of taking testimony 

under oath. Do any of you have any objections to giving testimony 

under oath? All the witnesses responded no. 

So the chair then advises you that under the rules of the House 

and the rules of the committee, you are entitled to be advised by 

counsel. Do you desire to be advised by counsel during your testimony today? And all the witnesses have said no. 

In that case, if you would please rise and raise your right hand, 

I will swear you in. 

[Witnesses sworn.] 

Mr. MURPHY. You are now under oath and subject to the penalties set forth in Title 18, Section 1001 of the United States Code. 

Each of you may now give a 5-minute opening statement. 

Ms. Uccello, you are first. 

STATEMENTS OF CORI E. UCCELLO, SENIOR HEALTH FELLOW, 

AMERICAN ACADEMY OF ACTUARIES; CHRIS CARLSON, ACTUARIAL PRINCIPAL, OLIVER WYMAN GROUP; DANIEL T. 

DURHAM, EXECUTIVE VICE PRESIDENT, POLICY AND REGULATORY AFFAIRS, AMERICAS HEALTH INSURANCE PLANS; 

AND TOPHER SPIRO, VICE PRESIDENT, HEALTH POLICY, 

CENTER FOR AMERICAN PROGRESS 

STATEMENT OF CORI E. UCCELLO 

Ms. UCCELLO. Good afternoon, Chairman Murphy, Ranking 

Member DeGette and members of the subcommittee. I am Cori 

Uccello, senior health fellow at the American Academy of Actuaries, which is the nonpartisan association for actuaries in the U.S. 

We provide objective information as policymakers and regulators 

work to formulate public policy. Thank you for inviting me to speak 

today. 

New health insurance rules that apply to the individual and 

small group markets will go into effect in 2014. The new rules will 

affect average premiums, but premium changes will differ across 

States and individuals. The academy has not done a projection of 

premiums in 2014, either on a national basis or for any subgroups 

of the population; rather, my goal today is to provide a framework 

for understanding premium changes by discussing the factors that 

will affect premiums. I will focus most of my remarks on changes 

in the individual market. 

First I will discuss the factors that affect average premiums. As 

a reminder, premiums are set to cover the medical claims and administrative costs of the pool of individuals with insurance. In 

other words, premiums reflect the underlying demographics and 

health status of the insured population. The underlying composition of the insured population could change in 2014, due to several 

factors. One is the guaranteed issue provision that will prohibit insurers from denying coverage based on pre-existing conditions. InVerDate Nov 24 2008 14:21 Dec 13, 2013 Jkt 037690 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 F:\MY DOCS\HEARINGS 113\113-44 CHRIS
11 

creasing the ability of high cost people to purchase coverage could 

put upward pressure on premiums. The individual mandate and 

premium subsidies will mitigate this effect by providing incentives 

for younger and healthier people to obtain coverage. 

It’s also important to consider whether individuals will shift between different types of coverage. If employers drop coverage and 

workers shift to the individual market, the impact on individual 

market premiums will depend on the demographics and health status of those shifting. 

Individuals moving out of high risk pools and into the individual 

market will put upward pressure on premiums. Offsetting this effect in the near term will be the temporary re-insurance program. 

Premiums also reflect a plan’s benefit design, with more generous plans coming with higher premiums. New essential health 

benefit and actuarial value requirements could mean that plans 

will be more generous. While this could put upward pressure on 

premiums, it will also lower out-of-pocket cost sharing. 

Premium changes will vary across individuals based on age, gender and health status. In most States, the compression of premiums due to the new age rating restrictions will increase the relative premiums for younger adults and reduce them for older 

adults. Prohibiting different premiums by gender will shift costs 

between men and women depending on age, and prohibiting health 

status rating will increase the relative premiums for healthy individuals and reduce them for those in poor health. 

Although young adults not eligible for premium subsidies may be 

most at risk for premium increases, they will have access to catastrophic plans. The premiums for these plans can be set lower to 

reflect a younger enrollee population. 

Premium changes will also vary by State. In States that already 

limit the extent to which premiums can vary across individuals, especially among those with guaranteed issue requirements, average 

premiums could decline as lower-cost individuals obtain coverage 

due to the individual mandate and the premium subsidies. In 

States with no or few rate restrictions, premiums are more likely 

to go up to reflect an influx of higher-cost individuals. 

My remarks have focused primarily on the individual market. 

There will be premium changes in the small group market as well, 

but likely to a lesser extent. Insurers are already prohibited from 

denying coverage to small groups and small group plans are already more likely to meet most of the plan generosity requirements. 

Most States, however, currently allow insurers to vary premiums 

across groups. The new rate restrictions will cause different premium changes across—across groups. In general, the groups with 

the greatest increases will be the low cost groups, while those with 

the greatest decreases will be the high cost groups. And premium 

changes across groups will vary by State. 

In closing, I want to, again, highlight that when examining how 

premiums will change beginning in 2014, it’s important to understand the various factors underlying these changes. These include 

the effectiveness of the individual mandate and premium subsidies, 

the new benefit requirements, employer decisions to offer coverage, 

12 

each State’s current market rules, and each individual’s characteristics. 

Thank you, and I look forward to your questions. 

Mr. MURPHY. Thank you. 

[The prepared statement of Ms. Uccello follows:] 

13 


82196.001

AMERICAN ACADEMY of ACTUARIES 

Committee on Energy and Commerce 

Subcommittee on Oversight and Investigations 

U.S. House of Representatives 

Hearing on 

Health Insurance Premiums Under the Patient Protection 

and Affordable Care Act 

May 20, 2013 

Statement of 

Cori E. Uccello, MAAA, FSA, MPP 

Senior Health Fellow 

American Academy of Actuaries 

The American Academy of Actuaries is a 17,OOO-member professional association whose mission is to serve the 

public and the U.S. actuarial profession. The Academy assists public policymakers on all levels by providing 

leadership, objective expertise, and actuarial advice on risk and financial security issues. The Academy also sets 

qualifications, practice, and professionalism standards for actuaries in the United States. 

1850M StreetNW Suite 300 Washington. DC 20036 Telephone2022238196 Facsimile 202 8721948 www.actuary.org 
14 


82196.002

Executive Summary 

This testimony is submitted on behalf of the American Academy of Actuaries, which is the nonpartisan professional association representing all actuaries in the United States. Our mission is to 

serve the public by providing independent and objective actuarial information, analysis, and 

education to help in the formation of sound public policy. 

On Jan. 1,2014, the Affordable Care Act's (ACA) health insurance issue and rating rules that 

apply to the individual and small group markets will go into effect. These rules will affect not 

only overall average premiums, but also the specific premiums that people will face. Premium 

changes due to the ACA health insurance market reform rules will vary across states and among 

individuals and will reflect many factors, including: 

• The effectiveness of the individual mandate and premium subsidies at attracting low-cost 

enrollees, 

• New benefit requirements which may increase plan generosity but reduce out-of-pocket 

costs, 

• Employer decisions to offer coverage and the demographics and health status of any 

employees shifting to coverage in the individual market, 

• How each state's current issue and rating rules compare to those beginning in 2014, and 

• Each individual's demographic characteristics and health status (and income when 

determining premiums net of subsidies). 

***** 

2 
15 


82196.003

Testimony 

Chairman Murphy, Ranking Member DeGette, and distinguished members of the 

subcommittee--thank you for the opportunity to appear before you today to address how certain 

provisions in the Affordable Care Act (ACA) could affect health insurance premiums in 2014 

and beyond. 

My name is Cori UccelJo, and I am the Senior Health Fellow at the American Academy of 

Actuaries. I am providing this testimony on behalf of the Academy, which is the non-partisan 

professional association representing all actuaries in the United States. Our mission is to serve 

the public by providing independent and objective actuarial information, analysis, and education 

to help in the formation of sound public policy. 

On Jan. 1,2014, the ACA health insurance issue and rating rules that apply to the individual and 

small group markets will go into effect. These rules will affect not only overall average 

premiums, but also the specific premiums that individuals will face. It is important, however, to 

highlight that premium changes will differ across states and among individuals. 

Much uncertainty still remains regarding how premiums will change. My testimony, which 

focuses primarily on the individual health insurance market, is intended to examine the various 

factors that can affect premiums. In doing so, it can help Congress and the public better 

understand the drivers of any premium changes in 2014. Although this testimony focuses on 

gross premiums-before any premium subsidies are taken into account-I will note the impact 

3 
16 


82196.004

of premium subsidies on individual decisions to purchase coverage and the resulting effects of 

those decisions on gross premiums. 

I will begin with an overview ofthe basic concepts underlying premium calculations, and then 

highlight various ACA-related provisions and how premiums may change as a result. 

Premiums reflect many factors 

Premiums are set to cover the medical claims and administrative costs of the pool of individuals 

or groups with insurance. 

Who is covered-the composition ofthe risk pool. Pooling risks allows the costs ofthe less 

healthy to be subsidized by the healthy. In general, the larger the risk pool, the more predictable 

and stable premiums can be. But the composition of the risk pool is also important. If a risk pool 

disproportionately attracts those with higher expected claims, premiums will be higher. If a risk 

pool disproportionately avoids those with higher expected claims, premiums will be lower. 

Projected medical costs. The majority of premium dollars goes to medical claims. 

Other premium components. Premiums must cover administrative costs, including those related 

to product development, enrollment, claims adjudication, and regulatory compliance. They also 

must cover taxes, assessments, and fees, as well as profit. 

4 
17 


82196.005

Laws and regulations. Laws and regulations can affect risk pools, projected medical spending, 

and other premium components. 

Factors driving medical claims 

The total costs of medical claims reflect unit costs, utilization, the mix and intensity of services, 

and plan design. These categories can overlap because the underlying drivers of health spending 

can affect more than one of these categories. The interaction between categories is also 

important. 

Unit cost drivers. Prices for medical goods and services reflect inflation, the relative negotiating 

power between insurers and health care providers, and the costs of new medical technology. 

Utilization drivers. Utilization trends depend on the underlying demographics and health status 

of the population. On the provider side, they also will reflect incentives in the payment system. 

For instance, the fee-for-service system encourages greater utilization. On the consumer side, 

they also will reflect plan generosity-plans covering a wider array of services with lower costsharing requirements likely will incur greater utilization. 

Intensity drivers. The introduction of new technology and more widespread use of existing 

technology can lead to the use of more intense and costly medical services. An example of 

technology-induced intensity increases is the shift from X-rays to more advanced imaging such 

as CT scans and MRls. Greater disease severity also can increase treatment intensity. 

5 
18 


82196.006

ACA rules affecting premiums 

Premiums will change under the ACA due to provisions beginning in 2014 that affect the 

composition of the risk pool, benefit coverage rules, administrative cost rules, and limits on 

premium variations. 

Rules affecting the risk pool. Guaranteed-issue requirements will prohibit insurers from denying 

insurance coverage to those with high-expected health costs, which will tend to increase 

premiums in states that formerly allowed medical underwriting. On the other hand, the individual 

mandate and premium subsidies will provide incentives for individuals in good health to obtain 

coverage, mitigating premium increases due to guaranteed issue. 

Benefit coverage rules. Plan generosity may increase due to essential health benefit and actuarial 

value requirements, thus increasing premiums, but lowering out-of-pocket costs. 

Administrative cost rules. Medical loss ratio (MLR) requirements, already in effect beginning in 

2011, limit the share of premiums that can be used for expenses other than medical claims and 

quality improvement activities. 

Limits on premium variations. Premiums charged to older adults are limited to three times those 

charged to younger adults. Aside from age, premiums will be allowed to vary only by family 

size, tobacco status, geographic area, and metal tier. Premiums will not be allowed to vary by 

health status or gender. 

6 
19 


82196.007

Single risk pool. Insurers must use a single risk pool for each of the individual and small group 

markets when developing insurance premiums. This means insurers cannot separate their insured 

populations into different pools, with higher premiums charged to one segment and lower 

premiums charged to another. 

Potential premium changes in 2014 and beyond 

When projecting and examining premium changes, it is important to distinguish between 

changes in average premiums and the drivers of those changes from changes in premiums faced 

by particular individuals and the drivers of those changes. Notably, premium changes will vary 

by state depending on how each state's pre-ACA rules compare to those under the ACA. 

Changes in average premiums. Changes in overall premium averages will depend on changes in 

the composition ofthe risk pool, which is the underlying demographics and health status of the 

insured population. This in turn will reflect the effectiveness of the individual mandate and 

premium subsidies designed to increase coverage among young and healthy individuals, 

combined with the increased ability of high-cost individuals to purchase coverage due to the 

guaranteed-issue requirement. In addition, average premiums could increase due to plan 

generosity requirements. Note that while increases in plan generosity can increase average 

premiums, they also can reduce consumer out-of-pocket costs. 

In addition to previously uninsured individuals obtaining coverage, an important consideration is 

whether and how individuals will shift between different types of coverage. Such shifts can 

affect the' composition of the risk pool. For instance, if employers drop coverage and the workers 

7 
20 


82196.008

instead obtain coverage in the individual market, the impact on premiums in the individual 

market depends on the demographics and health status of those shifting coverage. If those 

shifting coverage are young and healthy, the result would be downward pressure on average 

premiums in the individual market. If those shifting coverage are older and less healthy, the 

result would be upward pressure on average premiums. 

Individuals moving out of high-risk pools and into the individual market also will impact 

premiums. Presumably, these individuals will have high costs and put upward pressure on 

premiums. Offsetting this effect, at least in the near term, will be the temporary reinsurance 

program in effect from 2014 to 2016. This reinsurance program will provide payments to plans 

with individuals who incur high medical costs. These payments have the effect of subsidizing 

premiums in the individual market. Although the payments will phase down between 2014 and 

2016, the individual mandate penalties will increase during this period, which may increase the 

mandate's effectiveness at encouraging low-cost individuals to obtain coverage. 

Changes in premiums faced bv individuals. Different individuals will face different premium 

changes based on their age, gender, health status, and, as discussed below, state. In most states, 

the compression of premiums due to the age rating restrictions will increase the relative rates for 

younger adults and reduce them for older adults. The prohibition on the ability to charge 

different premiums by gender will shift costs between men and women, depending on age. In 

states that currently allow premiums to vary by gender, premiums typically are higher for 

younger women than younger men and for older men than younger women. Premiums will shift 

between men and women accordingly so that these gender-related differences will be eliminated. 

8 
21 


82196.009

The prohibition of health status rating will increase the relative premiums for healthy individuals 

and reduce them for those in poorer health. 

The distribution of individuals by health costs is skewed, with more low-cost individuals than 

high-cost individuals. If the low-cost individuals, who are vulnerable to the largest gross 

premium increases, elect to leave (or not join) the individual market after the ACA 2014 rules 

take effect, upward pressure on premiums will result. The premium subsidies and individual 

mandate could reduce this effect. 

Premium changes will vary by state. How premiums change, on average and among individuals, 

will vary by state based on how each state's pre-ACA rules compare to those under the ACA. In 

states that already limit the extent to which premiums can vary among individuals, especially 

those with guaranteed-issue requirements, average premiums potentially could decline as lowercost individuals obtain coverage due to the individual mandate and premium subsidies. In states 

with no or few rate restrictions, premiums are more likely to go up, to reflect an influx of highercost individuals. In addition, premium changes will vary depending on each state's distribution 

of the population by income and insurance status (including access to employer coverage) and 

regional differences in utilization rates and provider prices. Among individuals, the largest 

premium increases for younger adults, and the largest reductions for older adults, will occur in 

states that don't currently restrict premium variations by age. 

Factors mitigating rate shock/adverse selection. Premium subsidies will directly lower the net 

premium costs for individuals with incomes less than 400 percent of the federal poverty level. As 

9 
22 


82196.010

a result of these lower premiums, more individuals will obtain coverage, regardless of health 

status. The individual mandate also provides an incentive to obtain coverage, regardless of health 

status. Taken together, these provisions will help mitigate premium increases caused by the 

guaranteed-issue provision. Although young adults not eligible for premium subsidies are most 

at risk for premium increases, they will have access to catastrophic plans. The premiums for 

these plans can be adjusted for expected enrollee spending, meaning premiums could be lower to 

reflect a younger enrollee population. 

Options to further address rate shock/adverse selection. Although the ACA includes provisions 

aimed to mitigate premium increases and rate shock, more can be done. Strengthening the 

individual mandate would help mitigate premium increases due to a less healthy enrollee 

population. Approaches could include less frequent open enrollment periods, penalties for late 

enrollment, more generous premium subsidies, and enhanced public outreach and consumer 

education. Another option would be to extend andlor increase the reinsurance program subsidies. 

Premium changes in the small-group market 

Much of the focus on premium changes has been in the individual market. In the small-group 

market, however, premiums are likely to change as a result of the ACA as well. And, as in the 

individual market, the premium changes will vary across states and across groups. 

10 
23 


82196.011

Currently, insurers in all states are required to offer guaranteed issue for small groups, meaning 

that they cannot be denied coverage.1 Nevertheless, in most states, insurers are allowed to vary 

rates across groups, depending on the group's demographics, health status, group size, and 

industry. Beginning in 2014, small-group insurers will be required to use the same limited set of 

premium-rating factors as used in the individual market-age (limited to a 3:1 variation), family 

size, tobacco status, geographic area, and metal tier. Premiums will not be allowed to vary by 

health status, gender, or other small-group characteristics. As a result, premiums could go up in 

small groups with a disproportionately higher share of young andlor healthy workers and down 

in small groups with a disproportionately higher share of old andlor unhealthy workers. The 

smallest groups, which are currently often charged higher premiums than larger groups, could 

see premium reductions, while larger groups could see premium increases. Again, however, the 

degree to which small-group premiums will change due to ACA premium-rating restrictions will 

vary according to a state's current rating rules. The changes will be largest in those states that 

currently allow the greatest flexibility in rating and much lower in those states with existing 

rating rules similar to those required by the ACA. 

In general, the small groups that will experience the greatest increases will be the lower-cost 

groups, while the groups experiencing the greatest decreases will be the higher-cost groups. Just 

as the distribution of individuals by health costs is skewed, the distribution of groups by health 

care costs is skewed, with more low-cost groups than high-cost groups. If the low-cost groups, 

I The Health Insurance Portability and Accountability Act (HIPAA) prohibits insurers from denying coverage to 

small employers based upon health conditions ofthe employees. However, HIPAA does allow insurers to enforce 

minimum participation and employer contribution requirements. Under the ACA, insurers will continue to be able to 

enforce minimum participation and employer contribution requirements, but only for small groups enrolling outside 

of the designated month-long annual open enrollment period. The prohibition on minimum participation and 

employer contribution requirements within the one month open enrollment period could result in some upward 

pressure on premiums. 

11 
24 


82196.012

which are vulnerable to the largest premium increases, elect to leave the small-group market 

after the ACA 2014 rules take effect, upward pressure on small-group premiums would result. 

The ACA's essential health benefit and actuarial value requirements also could impact premiums 

in the small-group market, but likely to a much lesser extent than in the individual market. 

Small-group plans are more likely than individual market plans to already cover most, but 

perhaps not all, of the required essential health benefits. In addition, the level of plan generosity 

(i.e., actuarial value) of small-group plans typically is above that of plans in the individual 

market. As a result, the increases in small-group premiums due to essential health benefit and 

actuarial value requirements will likely not be as substantial as those in the individual market. 

Conclusion 

ACA market reform provisions beginning in 2014 will affect premiums. Examining only average 

premium changes, however, will mask the underlying reasons for the changes and how 

premiums will change across individuals and groups. How premiums will change depends on 

many factors, including the effectiveness of the individual mandate and premium subsidies at 

attracting low-cost enrollees into the insurance market, the new benefit requirements that may 

lead to higher premiums but lower out-of-pocket costs, employer decisions regarding whether to 

continue offering insurance and the health status of those whose coverage is dropped, how each 

state's current issue and rating rules compare to those beginning in 2014, and each individual's 

demographic characteristics and health status (and income when determining premiums net of 

subsidies). 

12 
25 

Mr. MURPHY. Mr. Carlson, you are recognized for 5 minutes. 

STATEMENT OF CHRIS CARLSON 

Mr. CARLSON. Thank you. Mr. Chairman and members of the 

subcommittee, thank you for this opportunity to testify on premium 

rates under the ACA. My testimony will focus on factors that are 

affecting premium rates that have been filed for 2014, and have 

been made available for public review. I will also discuss the professional responsibility of actuaries that are involved in preparing 

and certifying these rates. 

There are three specific actuarial factors of the rate filings that 

I would like to address, which are, the impact of changes in the 

population on morbidity, changes in the value of benefits, and the 

impact of the transitional re-insurance program. 

Recall that the CBO estimated the change in premium rates in 

their November 2009 letter to Senator Evan Bayh. Overall, the 

CBO expected premium rates to increase between 10 and 13 percent. Now that filings are available, we can discuss what is actually happening to premium rates. 

I reviewed the 2014 rate filings in three States: Oregon, Maryland and Vermont. In each State, I identified the top health insurers and pulled from their filings the factors described above. 

First, in Oregon, we reviewed the filings for the top three health 

insurers. We found that the expected change in morbidity due to 

new enrollees in the non-group market is between 27 percent and 

46 percent. Although we note that the Oregon market also includes 

a merger with the high risk pool, which constitutes a very costly 

population. We also found the change in premiums due to average 

value of benefits ranged from an increase of 2 percent to a decrease 

of 17 percent. 

Finally, the re-insurance program is expected to decrease rates 

by 10 to 12 percent. Overall, the average premium rate in these filings represents an increase of 36 to 53 percent over current premium rates. 

The publication of these rates and the transparency of the process have had an immediate effect. One carrier has already expressed interest in revision to their rate filings due to concern 

about their rates relative to their competition and has produced reducing their rates by 15 percent. 

The second State we reviewed is Maryland. We looked at the rate 

filings for two companies in the State and found the results to be 

quite divergent. One company has proposed rates that include 25 

percent increase for morbidity for new enrollees, a 2 percent increase for benefits and a 4 percent reduction for re-insurance. 

Overall, they proposed a rate increase of 25 percent relative to current rates. The second company proposed an increase of 65 percent 

due to morbidity, a 6 percent increase for benefits and an 8 percent 

decrease for re-insurance. Overall, they proposed rates that are 120 

percent higher than the current rates. 

The final State we reviewed is Vermont, where there are only 

two health insurers that filed rates. Overall, the rates are expected 

to be consistent with the current premium rates in the market; 

however, it is worth noting that Vermont is already a communityVerDate Nov 24 2008 14:21 Dec 13, 2013 Jkt 037690 PO 00000 Frm 00031 Fmt 6633 Sfmt 6633 F:\MY DOCS\HEARINGS 113\113-44 CHRIS
26 

rated State with guarantee issue, thus we would not have expected 

an increase, and in fact, some may have expected lower premiums 

in the State. 

The factors I discuss in each of these filings do not include the 

impact of age rating, therefore, for younger individuals that are affected by the age rating compression, the increases would be higher. 

It is important to understand that these rates are before any consideration of the premium subsidies available in the exchanges. For 

the individuals that are expected to be eligible to receive premium 

subsidies, the amount they pay will be less, and sometimes substantially less. 

Finally, I would like to add a few comments about the actuaries 

that have developed the rates described herein. The actuarial profession has a strong reputation of professionalism and independence. While many actuaries work and consult with insurance companies, we also work with regulators and consumer advocacy 

groups, and our high standards of professionalism always come 

first. This is illustrated in our code of professional conduct which, 

among other things, requires actuaries to act honestly, with integrity and competence, not be influenced by conflicts of interest, and 

only perform work where we are properly qualified. 

The rates that actuaries are proposing require certification, 

which has components that are relevant in this discussion. The 

rates must be reasonable in relation to the benefits to be provided 

and must be neither excessive nor unfairly discriminatory. These 

provisions, in addition to minimum loss ratio requirements, protect 

consumers to ensure that they are receiving fair value and benefits 

for the premiums they pay. 

The purpose in mentioning these issues is to help the public understand that the rate proposals that have been prepared in support of premium rates beginning in 2014 are done with the utmost 

of care. As actuaries, we do not take lightly the responsibility that 

has given us, and strive to maintain a high level of integrity and 

professionalism. 

Mr. Chairman, again, I thank you for the opportunity to speak 

and look forward to answering any questions. 

Mr. MURPHY. Thank you. 

[The prepared statement of Mr. Carlson follows:] 

27 


82196.013

Health Insurance Premiums under the Patient Protection and 

Affordable Care Act 

by 

Christopher Carlson 

Principal and Consulting Actuary 

Oliver Wyman 

for the 

House Energy and Commerce Committee 

Subcommittee on Oversight and Investigations 

May 20, 2013 
28 


82196.014

Mister Chairman and members of the subcommittee, thank you for this opportunity 

to testifY on premiums rates under the ACA. 

My testimony will focus on factors that are affecting premium rates that have been 

filed for 2014 and have been made available for public review. I will also discuss 

the professional responsibility of actuaries that are involved in preparing and 

certifYing these rate filings. 

There are three specific actuarial factors of the rate filings that I would like to 

address which are: 

- The impact of changes in the population on morbidity or claims costs 

- Changes in the value of coverage due to the requirement to provide essential 

health benefits, and 

- The impact of the transitional reinsurance program 

Recall that the CBO estimated the change in premium rates in their November 

2009 letter to Senator Evan Bayh. Their projection was based on three factors. 

First, they estimated that the changes in the population being covered in the 

nongroup market would reduce premium rates by seven to ten percent. As we will 

see, it is unlikely that this expectation will be realized as the new emollees are 

expected to have higher than average morbidity. Second, the CBO estimated that 

2 
29 


82196.015

the amount of insurance would increase by 27 to 30 percent. Finally, they 

estimated that the price would be reduced by seven to ten percent for other factors, 

primarily changes in the rules governing the nongroup market. We could say that 

this last factor can be considered competition and efficiency, although I did not try 

to quantifY this factor in reviewing the publically available rate filings. Overall the 

CBO expected premium rates to increase between 10 percent and 13 percent. 

Now that actual filings are available, we can move beyond talking about what may 

happen with premium rates, and discuss what is happening. I reviewed the 2014 

rate filings in three states, Oregon, Maryland and Vermont. In each state, I 

identified the top two or three health insurers and pulled from their filings the 

factors described above. 

First, in Oregon we reviewed the filings for the top three health insurers. We 

found that the expected change in morbidity due to the new enrollment in the 

nongroup market is between 27 percent and 46 percent. Although we note that the 

Oregon market also includes merger with the high risk pool which constitutes a 

very costly population. We also found that the change in premiums due to the 

average value of benefits ranged from an increase of two percent to a decrease of 

17 percent. Finally, the transitional reinsurance program is expected to decrease 

3 
30 


82196.016

rates by 10 to 12 percent. Overall, the average premium rate in these files 

represents an increase of 36 to 53 percent over current premium rates. 

The publication of these rate filings and the transparency of the process have had 

an immediate effect due to competition. One carrier has already expressed interest 

in a revision to their initial filings due to concern about their rates relative to their 

competition and has proposed reducing their rates by 15 percent. 

The second state we reviewed is Maryland. We looked at the rate filings for two 

companies in the state and found the results to be quite divergent. One company 

has proposed rates that include a 25 percent increase for morbidity of the 

population, a two percent increase for benefits and a four percent reduction for the 

transitional reinsurance. Overall, they proposed a rate increase of 25 percent 

relative to current rates. The second company proposed an increase of 65 percent 

due to morbidity of the population, a 6 percent increase for benefits, and an 8 

percent decrease for reinsurance. Overall, they propose rates that are 120 percent 

higher than the current rates in the market. 

The final state we reviewed is Vermont, where there are only two health insurers 

that filed rates. Both carriers assumed no change in the morbidity due to the 

population to be covered and only small changes in benefits. Finally, they assumed 

a reduction in premiums of between eight percent and ten percent for the 

4 
31 


82196.017

transitional reinsurance. Overall, the rates are expected to be consistent with the 

current premium rates in the market. However, it is worth noting that Vermont is 

already a community rated state with guarantee issue, thus we would not have 

expected an increase due to new, less healthy enrollees and in fact, some would 

have expected lower premiums in the state. 

The factors I discussed in each of these filings do not include the impact of age 

rating. Therefore, for younger individuals that are affected by the age rating 

compression, the increases would be higher. It is important to understand that these 

rates are before any consideration of the premium subsidies available on the 

exchange. Therefore, for the individuals that are expected to be eligible to receive 

premium subsidies in the exchanges, the amount they actually pay may be less, and 

sometimes substantially less. 

Finally, I would like to add a few comments about the actuaries that have 

developed the rates described herein. The actuarial profession has a strong 

reputation of professionalism and independence. While many actuaries work and 

consult with health insurance companies, we also work with regulators and 

consumer advocacy groups, and our professions high standards of professionalism 

always come first. This is illustrated in our code of professional conduct which, 

among other things, requires actuaries to act honestly, with integrity and 

5 
32 


82196.018

competence, not be influenced by conflicts of interest, and only perform work 

where we are properly qualified. 

The rates that actuaries are proposing require certification, which has components 

that are relevant in this discussion. The rates must be "reasonable in relation to the 

benefits to be provided" and must be "neither excessive nor unfairly 

discriminatory." These provisions, in addition to minimum loss ratio requirements, 

protect consumers to ensure that they are receiving fair value in benefits for the 

premiums that they pay. 

The purpose of mentioning these issues is to help the public understand that the 

rate proposals that have been prepared in support of premium rates beginning in 

2014 are done with the utmost of care. As actuaries, we do not take lightly the 

responsibility that is given us and strive to maintain a high level of integrity and 

professionalism. 

Mister Chairman, again I thank you for the opportunity to speak and look forward 

to answering any questions of the committee. 

6 
33 

Mr. MURPHY. Now to Mr. Durham. You are recognized for 5 minutes. 

STATEMENT OF DANIEL T. DURHAM 

Mr. DURHAM. Good afternoon, Chairman Murphy, Ranking Member DeGette and members of this committee. I am Dan Durham, 

executive vice president for Policy and Regulatory Affairs at AHIP. 

I appreciate this opportunity to testify regarding the Affordable 

Care Act’s impact on health insurance premiums. 

Our members are focused on implementing all the new changes 

required by the ACA in 2014 in a manner that will be least disruptive and least costly to consumers and employers, and we have 

been working closely with Federal regulators and State regulators 

to identify challenges and offer constructive solutions. Health plans 

are committed to ensuring implementation as smooth and possible, 

and are doing their part to be ready to go when open enrollment 

begins. 

Our written testimony focuses on factors that are driving health 

insurance premiums, including specific provisions in the ACA, and 

strategies that we support for bringing down health care costs. A 

broad range of studies, including several commissioned by AHIP, 

provide insights into the likely impact the ACA will have on premiums beginning in 2014. 

An April of 2013 report by Milliman provides a comprehensive 

overview of ACA provisions that will impact individual market premiums next year. This report explains that covering pre-existing 

conditions, requiring a broader benefit package, and covering more 

uninsured Americans who have gone without medical costs, will 

benefit millions of people while increasing the cost of coverage. It 

further emphasizes that the new health insurance tax and other 

fees will also increase premiums. 

At the same time, Milliman indicates that other ACA provisions 

will make coverage more affordable, including premium and costsharing subsidies and the transitional re-insurance program, which 

will help offset the impact of high cost enrollees in the individual 

market. 

Premiums for specific individuals will vary significantly depending on their age, gender, location, health status, income level, and 

what coverage they have today. 

Additional studies estimate the impact on several specific ACA 

provisions. The new health insurance tax, the age rating restrictions, and the minimum benefit requirements that will directly impact premiums. 

The ACA insurance tax begins in 2014 and will exceed $100 billion over 10 years. While the tax is assessed on health plans, it will 

increase costs for individuals and small businesses, Medicare Advantage beneficiaries, and State Medicaid programs. CBO has stated that this tax will largely be passed through to consumers in the 

form of higher premiums. An Oliver Wyman analysis estimates 

that the tax will increase the cost of family coverage in the individual market by $270 in 2014, and by an average of $5,080 over 

10 years. 

34 

We strongly support bipartisan legislation to repeal this tax introduced by Congressmen Boustany and Matheson. 

Regarding the age band compression, beginning in 2014, the 

ACA will allow health insurance rates to vary based on an enrollee’s age by a ratio of no more than three-to-one. This is a dramatic 

change from the age bands of five-to-one or more currently effective 

in 42 States. We are deeply concerned that the ACA’s restrictive 

age band will cause premiums to increase dramatically for younger 

people. 

An Oliver Wyman study concludes that young single adults age 

21 to 29 with incomes beginning at about 225 percent of the Federal poverty level can expect to see higher premiums than would 

be the case absent the ACA, even after accounting for the presence 

of premium assistance. We thank Congressmen Gingrey and 

Matheson for introducing bipartisan legislation to address this concern. 

Beginning in 2014, the ACA will require health plans to offer essential health benefits package covering a broad range of mandated 

benefits, some of which typically are not included in current individual and small group policies. This will require consumers to buy 

up coverage beyond what they have today. A variety of studies 

commissioned by State departments of insurance and State exchange boards have found that the EHB requirements will result 

in higher premiums. 

In conclusion, additional challenges are raised by the underlying 

cost of medical care. Recognizing the need to reduce costs, our 

members have been very proactive in advocating solutions to this 

problem. AHIP’s board of directors recently approved a series of 

strategies to bring down costs and to make coverage more affordable by tackling barriers to transparency, facilitating benefit modernization, and advancing bold structural reforms. 

Thank you again for this opportunity to testify. 

Mr. MURPHY. Thank you, Mr. Durham. 

[The prepared statement of Mr. Durham follows:] 

35 


82196.019

....J." 

AHIP 

Health Insurance Premiums Under the Affordable Care Act 

by 

Daniel T. Durham 

Executive Vice President, Policy and Regulatory Affairs 

America's Health Insurance Plans 

for the 

House Energy and Commerce Committee 

Subcommittee on Oversight and Investigations 

May 20, 2013 
36 


82196.020

I. Introduction 

Chairman Murphy, Ranking Member DeGette, and members of the subcommittee, I am Dan 

Durham, Executive Vice President for Policy and Regulatory Affairs at America's Health 

Insurance Plans (AHIP), which is the national trade association representing health insurance 

plans. AHIP's members provide health and supplemental benefits to more than 200 million 

Americans through employer-sponsored coverage, the individual insurance market, and public 

programs such as Medicare and Medicaid. AHIP advocates for public policies that expand 

access to affordable health care coverage to all Americans through a competitive marketplace 

that fosters choice, quality, and innovation. 

We appreciate this opportunity to testifY on the impact the Affordable Care Act (ACA) will have 

on health insurance premiums in 2014. Our members are strongly committed to competing in 

the new Exchanges and offering high quality, affordable coverage options under the framework 

established by the new health reform law. At this stage of the ACA implementation process, 

many of our members already have submitted applications for qualified health plans (QHPs) they 

will be offering in the federally-facilitated health insurance Exchanges in 2014. Others have or 

are preparing to offer coverage in the state-based Exchanges, state partnership Exchanges, and in 

the outside market. All across the nation, our members are working hard to provide value to 

individuals and families, employers, and beneficiaries in government programs. 

Our members are focused on implementing all of the new changes required by the ACA in 2014 

in a manner that will be least disruptive and least costly for consumers and employers, and we 

have been working closely with federal and state regulators to identifY challenges and offer 

constructive solutions. Health plans are committed to ensuring implementation is as smooth as 

2 
37 


82196.021

possible and are doing their part to be ready to go when open enrollment begins. Companies 

have dedicated teams working around the clock to implement all of the changes, and we will 

continue to work constructively with federal and state regulators. 

OUf testimony today will focus on two broad areas: 

• Factors that are driving health insurance premiums, including specific provisions of the ACA 

and underlying medical costs; and 

• Strategies we support for bringing down health care costs and our participation in a diverse 

stakeholder group that has developed recommendations for decelerating health care costs and 

improving quality. 

II. Factors Driving Health Insurance Premiums 

A broad range of studies, including several commissioned by AHIP, provide insights into the 

likely impact the ACA will have on health insurance premiums beginning in 2014. Additional 

studies examine the role that underlying medical costs play in increasing the cost of coverage. 

Comprehensive Analysis of ACA by Milliman 

In late April, AHIP released a report! from Milliman that provides a comprehensive overview of 

ACA provisions that will impact individual market health insurance premiums in 2014. This 

1 Milliman, Comprehensive Assessment of ACA Factors That Will Affect Individual Market Premiums in 2014, 

April 25, 2013 

3 
38 


82196.022

study highlights how some provisions will increase premiums while others will make coverage 

more affordable. 

The Milliman report explains that covering pre-existing conditions, requiring a broader benefit 

package, and covering uninsured Americans who have gone without medical care will benefit 

millions of people while increasing the cost of health care coverage. It further emphasizes that 

the new health insurance tax and other fees will also increase premiums. At the same time, 

Milliman indicates that other ACA provisions will make coverage more affordable, including 

premium and cost-sharing subsidies and the transitional reinsurance program, which provides 

funds to help offset the impact of high-cost enrollees. 

The impact on specific individuals will vary significantly depending on their age, gender, 

location, health status, income level, and what coverage they have today. The Milliman report 

found that "young, healthy males could see substantial increases due to the combination of the 

overall rate change and the age/gender rating requirements" while "older, less healthy 

individuals could see rate reductions." 

Individuals and families with household incomes up to 400 percent ofthe federal poverty level 

(FPL), or approximately $94,200 for a family of four or $45,960 for an individual, will be 

eligible for financial assistance to help lower total out-of-pocket insurance costs. The Milliman 

report estimates that those eligible for subsidies will receive financial assistance in 2014 to 

cover, on average, 40 percent of the premium for the "Silver" plan, and as much as 94 percent 

for those with the lowest incomes. "Bronze" plan premiums after the subsidy could be as low as 

$0 for certain low-income individuals. 

4 
39 


82196.023

The report also notes that millions of people will not be eligible for subsidies and that the amount 

of the subsidy declines significantly as incomes rise. The Congressional Budget Office (CBO) 

estimates that persons with incomes between 250-300 percent of the FPL will receive subsidies 

sufficient to cover 42 percent of their premium and those with incomes between 350-400 percent 

of the FPL will receive assistance to coverage 13 percent of the premium. 

Milliman explains that new innovative benefit designs developed by health plans will lead to 

more affordable coverage options than would otherwise be available. These include wellness 

programs that encourage healthy living, prescription drug formularies that incentivize patients to 

choose lower-cost generic drugs when they are available, and the availability of "high-value 

networks" that are limited to providers with a track record of providing the highest quality care at 

the lowest cost. 

The report also highlights the importance of bringing younger and healthier people into the 

system to help keep coverage as affordable as possible. Milliman states: "When faced with high 

premiums, younger and healthier individuals may choose to forgo purchasing health insurance 

until they need it, which will only serve to increase costs for all other individuals in the 

healthcare system ... For the individual insurance market risk pool to remain stable in 2014 and 

beyond, it is vital that young and healthy individuals enter and remain in the insurance market in 

addition to individuals with an immediate need for healthcare services." 

Focusing on numerous aspects of ACA implementation that will impact premiums, the Milliman 

report includes the following estimates: 

5 
40 


82196.024

• Health Insurance Tax: The ACA's new health insurance tax is estimated to increase 

premiums in 2014 by about 2 percent on average. 

• Exchange User Fees: The user fee that applies to insurers participating in the federaJlyfacilitated Exchanges is estimated to increase premiums by an average of 1.4 percent. 

Although the user fee is set at 3.5 percent, the estimate by Milliman is based on insurers 

selling coverage both inside and outside of the Exchanges. 

• Transitional Reinsurance Assessment: The fee to support the ACA's transitional 

reinsurance program is estimated to increase premiums for all consumers by an average of! 

to 2 percent. However, the subsidy the transitional reinsurance provides in the individual 

market for high cost claims is estimated to reduce premiums for consumers in the individual 

market by 6 to 12 percent. 

• Benefit Buy-Up: Beginning in 2014, the ACA will require health plans to provide coverage 

for an essential health benefits (EHB) package covering a broad range of mandated benefits, 

some of which typically are not included in current individual and small group policies. As 

noted in the Milliman report, individuals will receive more comprehensive benefits which 

could reduce out-of-pocket costs, but at a higher pre-subsidy premium level. Milliman 

estimates that the EHB requirements will increase premiums in the range of3 to 17 percent. 

Additional studies, requested by various state departments of insurance and state Exchange 

boards, also have found that the EHB requirements will result in higher premiums. 

• Minimum Actuarial Value Requirement: The ACA requires that coverage sold through 

the new Exchanges must be at one off our actuarial value levels: 60% (Bronze); 70% 

6 
41 


82196.025

(Silver); 80% (Gold); and 90% (Platinum). Most people will be required to buy coverage 

with a minimum actuarial value requirement of at least 60 percent (i.e., the "Bronze" plan). 

Milliman notes that a study2 recently published in Health Affairs estimates that this 

requirement will increase premiums by an average of8.5 percent. 

• Age Rating Restrictions: Beginning in 2014, the ACA will allow heath insurance rates to 

vary, based on an enrollee's age, by a ratio of no more than 3 to 1 (3:1). This is a dramatic 

change from the "age bands" of5 to I (5:1) or more that are currently effective in 42 states 

where state policies recognize that utilization of health care services is correlated with age 

and that health insurance only works if younger and healthier consumers are part ofthe risk 

pool. These states, relying on decades of expertise in setting rules that balance the needs of 

different age groups, provide protection to older consumers without making coverage 

unaffordable for younger consumers. We are deeply concerned that the ACA's restrictive 

age band, by overriding these state policies, will cause premiums to increase dramatically for 

younger people. Milliman estimates that the new age rating restrictions will increase 

premiums for people under the age of 35 by 19 to 35 percent, while reducing premiums for 

people age 55 and older by 4 to 9 percent. Similarly, a study conducted by Oliver Wyman 

found that young, single adults aged 21 to 29 and with incomes beginning at about 225 

percent ofthe federal poverty level, or roughly $25,000, can expect to see higher premiums 

than would be the case absent the ACA - even after accounting for premium subsidies. 3 As a 

result, this issue may have implications for the broader popUlation of health care consumers. 

Ifhigher premiums cause younger and healthier people to delay purchasing coverage until 

2 Gabel, 1. et at. (2012). More Than HalfOflndividual Health Plans Offer Coverage That Falls Short Of What Can 

Be Sold Through Exchanges As Of2014, Health Affairs 31 No.6 

3 Kurt Giesa and Chris Carlson. "Age Band Compression under Health Care Reform." Contingencies; lanlFeb 

2013. 

7 
42 


82196.026

after they are sick or injured, the overall pool of people purchasing health insurance will be 

weighted more heavily with older and less healthy people - thereby driving up premiums for 

everyone and destabilizing the market. Reps. Phil Gingrey (R-GA) and Jim Matheson (DUT) have introduced bipartisan legislation, H.R. 544, which addresses this concern by 

allowing states to set their own age rating rules and by establishing a 5: I age rating band in 

states that do not take action. 

• Changes in Risk Pool Composition I Adverse Selection: Milliman notes that the ACA will 

result in many people entering the individual health insurance market, including those who 

previously were uninsured and who were enrolled in state high-risk pool programs or the 

Federal Preexisting Condition Insurance Plan (PCIP) program. The entrance of these new 

enrollees into the market will impact premiums because their average health status differs 

from that of current enrollees in the individual market. Milliman also discusses several 

additional factors - including the ability of consumers to choose plans based on their 

expected health needs, and the elimination of underwriting and preexisting condition 

exclusions - that will lead to adverse selection. Overall, Milliman estimates that changes in 

the composition of the risk pool and adverse selection will cause premiums to increase by 20 

to 45 percent. 

• Pent-Up Demand: Milliman estimates that as the uninsured gain health coverage in 2014, 

there will be a temporary surge in the utilization of health care services by people seeking 

preventive care or treatment for minor health issues for which they otherwise would not seek 

medical care. Milliman estimates that this will cause premiums to increase by up to 5 

percent. 

8 
43 


82196.027

• Market Competition: Milliman estimates that market competition in the new Exchanges 

will reduce premiums by 0 to 5 percent. 

• Innovation in Benefit Design: New innovative benefit designs developed by health plans 

will lead to more affordable coverage options than otherwise would be available. These 

include wellness programs that encourage healthy living; prescription drug formularies that 

incentivize patients to choose lower-cost generic drugs; and the availability of high-value 

networks. Milliman estimates that these innovative strategies could reduce premiums by up 

to 10 percent. 

• Premium Assistance Tax Credits: Milliman estimates that the ACA's premium assistance 

tax credits will cover, on average, about 40 percent of the "Silver" plan premium in 2014 in 

the individual market. As we noted earlier, Milliman estimates that premium subsidies for 

those eligible would cover about 40 percent of the cost of "Silver" plan coverage - a 

substantial benefit that will make coverage more affordable. At the same time, according to 

the Congressional Budget Office, more than 40 percent of individuals purchasing individual 

market coverage are not eligible for subsidies and the generosity of the subsidies scales back 

significantly for moderate-income families. 

• Catastrophic Plans: The ACA allows for the availability of "catastrophic plans" to 

individuals under the age of 30 and anyone who is exempt from the individual mandate due 

to lack of affordable coverage options. Catastrophic plans are intended to provide lower 

premiums and more affordable coverage options - particularly for price-sensitive, younger 

adults. Milliman estimates that premiums for catastrophic plans will be lower than those 

available for "Bronze" plans. 

9 
44 


82196.028

The findings of the MilIiman report are reinforced by studies conducted by other research 

organizations, including the American Academy of Actuaries and the Society of Actuaries. 

A May 2013 issue briet by the American Academy of Actuaries identifies several factors that 

will determine premium levels in 2014: the effectiveness of the individual mandate and 

premium subsidies at attracting low-cost enrollees into the insurance market; new benefit 

requirements that may lead to higher premiums but lower out-of-pocket costs; decisions by 

employers about whether to cqntinue offering coverage and the health status of employees whose 

coverage is dropped; how each state's current market rules compare to the ACA reforms that 

take effect in 2014; and the demographic characteristics and health status of consumers 

purchasing coverage through the new Exchanges. 

A March 2013 reportS by the Society of Actuaries concludes that changes driven by the ACA 

could increase underlying claims costs in the individual market by an average of32 percent 

nationally by 2017. This report also predicts wide variation across the states, with as many as 43 

states experiencing a double-digit increase in claims costs. 

The New ACA Health Insurance Tax 

The health insurance tax established by the ACA - which we mentioned above in our review of 

the Milliman report - is scheduled to begin in 2014 and will exceed $100 billion over the next 

ten years. The tax is set at $8 billion in 2014, $11.3 billion in 2015 and 2016, $13.9 billion in 

4 American Academy of Actuaries, How Will Premiums Change Under the ACA?, May 2013 

5 Society of Actuaries, Cost of the Future Newly Insured under the ACA, March 2013 

10 
45 


82196.029

2017, and $14.3 billion in 2018. In subsequent years, the tax will increase annually based on 

premium growth. 

The health insurance tax will be imposed broadly on health insurance providers, based on their 

market share, and will impact the following: (1) businesses and public employers that purchase 

health insurance on a fully insured basis, including small businesses that provide coverage; 

(2) all individuals and families who purchase coverage in the individual market or through an 

Exchange; (3) Medicare beneficiaries who enroll in Medicare Advantage health plans or 

Medicare Part D prescription drug plans; and (4) state Medicaid programs that contract with 

managed care organizations. 

While the ACA health insurance tax is assessed on health plans, experts agree that it will impact 

consumers and employers that purchase coverage directly from health insurance plans in the 

individual and group markets as well as beneficiaries in public programs. The Congressional 

Budget Office (CBO) has stated that this tax will be "largely passed through to consumers in the 

form of higher premiums.,,6 

The magnitude of the expected premium increase is addressed by a pair of actuarial studies that 

have been conducted by the Oliver Wyman firm and commissioned by AHIP. The first study' 

exam ined the impact the premium tax will have - from a nationwide perspective - on individual 

6 CBO letter to Sen. Even Bayh. "An Analysis of Health Insurance Premiums Under the Patient Protection and 

Affordable Care Act." 30 November 2009. 

7 Carlson, Chris. "Estimated Premium Impacts of Annual Fees Assessed on Health Insurance Plans." Oliver Wyman. 

October 20 II. 

11 
46 


82196.030

market consumers, employers, Medicare Advantage enrollees, and state Medicaid programs. A 

second studl provides state-by-state data on the impact of the tax in all 50 states. 

The Oliver Wyman analysis concluded that the health insurance tax alone will increase the cost 

of family coverage in the individual market by $270 in 2014 and by an average $5,080 over the 

ten-year period of2014-2023. The study also estimated that the health insurance tax will 

increase the cost of family coverage in the small group market by $360 in 2014 and by an 

average of $6,830 over the same ten-year period. These findings are reinforced by Congress' 

Joint Committee on Taxation (JCT)9, which has estimated that repealing the health insurance tax 

could decrease the average family premium in 2016 by $350 to $400. 

The health insurance tax is particularly burdensome not only because of its size, but also because 

it is not deductible for income tax purposes. This means that health plans must pay the tax and 

then also pay federal, state, and local taxes on the taxed amount. The Oliver Wyman study notes 

that because the ACA health insurance tax is not deductible, the potential impact of the tax on 

premiums will be $1.54 for each $1.00 paid toward the tax by insurers. 

Focusing specifically on the Medicare Advantage (MA) program, the Oliver Wyman study found 

that the health insurance tax will increase costs for MA enrollees by $16 to $20 per month in 

2014 and by $32 to $42 per month by 2023. The average expected increase in the cost ofMA 

coverage over ten years is $3,590. This number represents a direct reduction in the resources 

that will be available to support the health care benefits of 14 million seniors and persons with 

disabilities who value the improved quality of care, additional benefits, and innovative services 

S Carlson, Chris. "Annual Tax on Insurers Allocated by State." Oliver Wyman. November 2012. 

9 See JCT Letter to Senator Jon Kyl. 12 May 2011. 

12 
47 


82196.031

their MA plans provide. Additional costs will be imposed on Medicare Part D plans, for which 

the health insurance tax will increase premiums by an estimated $9 in 2014 and $20 in 2023 for a 

total increase of $161 over 10 years. 

We also are deeply concerned by estimates in the Oliver Wyman study that the health insurance 

tax will put greater pressure on state Medicaid budgets by increasing the average cost of 

Medicaid coverage by an estimated $1,530 per enrollee between 2014-2023. In several states 

(see chart on next page), the impact on the cost of Medicaid coverage will exceed $2,200 per 

enrollee over ten years. Taking such a significant level of resources away from Medicaid at a 

time when many states are implementing major expansions in Medicaid eligibility is a 

shortsighted move that may compromise access to health care services for millions of vulnerable 

people. 

Oliver Wyman's state-by-state findings provide additional information showing which states will 

be most severely impacted by the ACA health insurance tax. The charts below highlight the top 

20 states with the highest per-person cost impact in each market segment. These charts show, for 

example, that families purchasing coverage in the individual market will be hit the hardest in 

New York while those getting coverage from a small employer will be most impacted in West 

Virginia. With respect to public programs, Medicare Advantage enrollees in New Jersey and the 

Medicaid managed care program in Washington, DC will be hardest hit by the new tax. 

13 
48 


82196.032

14 
49 


82196.033

To avoid the increased costs that would result from the ACA health insurance tax, we strongly 

support legislation, H.R. 763, which would repeal the tax. This bipartisan bill, the "Jobs and 

Premium Protection Act," was introduced in February 2013 by Reps. Charles Boustany (R-LA) 

and Jim Matheson (D-UT). To date, 182 House members have cosponsored this bill, including 

27 members of the House Energy and Commerce Committee. 

Underlying Medical Costs 

Additional challenges are raised by the underlying costs of medical care, which are driving up 

the cost of coverage, taking up a greater share of federal and state budgets, and threatening the 

long-term solvency of our nation's public safety net programs. 

A September 2012 study!Q by the Health Care Cost Institute found that "higher prices were the 

primary driver of per capita health spending in 2011." This study found that unit prices 

increased by 9.7 percent for outpatient surgery, 9.1 percent for emergency room visits, 7.4 

percent for mental health and substance abuse admissions, 6.5 percent for surgical admissions, 

and 6 percent for deliveries and newborns. 

Another study!!, published by the American Journal of Managed Care, provides new data on 

trends in hospital prices across the country. This study, conducted by researchers at AHIP, found 

that from 2008 to 20 10 inpatient hospital prices increased 8.2 percent annually, while also 

highlighting common medical procedures that experienced the highest growth in prices during 

the period studied. Overall, the price for a spinal fusion increased the most (15.2 percent 

annually) between 2008 to 2010. The next highest price increases were for bronchitis and 

10 Health Care Cost Institute, Health Care Cost and Utilization Report: 2011, September 2012 

II AJMC.com, Trends in Inpatient Hospital Prices, 2008 to 2010, March 6, 2013 

15 
50 


82196.034

asthma treatment (10.3 percent annually) and uterine laparoscopic procedure for non-malignancy 

(9.8 percent annually). 

Our study also found wide variation in hospital prices across states and localities. Among the 

states examined by this study, New York experienced the largest increase in hospital prices from 

2008 to 2010 (10.5 percent annual growth). Texas (9.3 percent annual growth) and Tennessee 

(8.8 percent annual growth) also saw higher-than-average increases in hospital prices. Hospital 

prices also varied significantly among metropolitan areas within a state. 

Another AHIP studyl2 highlights the exorbitant fees that some out-of-network physicians are 

charging for services. This study found that some physicians who choose not to participate in 

health insurance networks are charging patients fees that are 10 times and in some cases, close 

to 100 times - Medicare reimbursement for the same service in the same geographic area. The 

following are just a few examples of the unreasonable charges consumers sometimes face when 

receiving care from out-of-network providers: 

• $19,000 for a colonoscopy and biopsy - 33 times more than Medicare pays; 

• $29,998 for an upper GI endoscopy biopsy - 73 times more than Medicare pays; and 

• $12,000 for a tissue exam by a pathologist - 93 times more than Medicare pays. 

In addition to showing how much patients who seek out-of-network care are being charged by 

some physicians, these findings also illustrate the value of the physician networks that are 

12 AHIP, Survey of Charges Billed by Out-of-Network Providers: A Hidden Threat to Affordability, January 2013 

16 
51 


82196.035

established by health plans to ensure that patients have affordable access to a wide choice of high 

quality health care providers, and that consumers receive savings when they visit contracted 

providers who have agreed to lower rates. 

Similar concerns are raised by data 13 on hospital prices recently released by the Centers for 

Medicare & Medicaid Services (CMS). These data show significant variation across the nation 

and within communities in the amount hospitals charge for common inpatient services. For 

example, among all hospitals nationwide, CMS reported that the average hospital inpatient 

charges for services provided in connection with a joint replacement range from a low of $5,300 

to a high of $223,000. Additionally, the CMS data show that average hospital inpatient charges 

for services provided in connection with treating heart failure range from a low of$21,000 to a 

high of $46,000 in Denver, Colorado and from a low of$9,000 to a high of$51,000 in Jackson, 

Mississippi. 

Provider consolidation is a significant factor contributing to growth in underlying medical costs. 

A recent study14 from the Robert Wood Johnson Foundation reports that hospital consolidation 

generally results in higher prices, stating: "When hospitals merge in already concentrated 

markets, the price increase can be dramatic, often exceeding 20 percent." The study further 

cautions that "physician-hospital consolidation has not led to either improved quality or reduced 

costs" and, additionally, points out that consolidation "is often motivated by a desire to enhance 

bargaining power by reducing competition." 

13 CMS Press Release, Administration Offers Consumers An Unprecedented Look At Hospital Charges, May 8, 

2013 

14 Robert Wood Johnson Foundation, The impact of hospital consolidation - Update, June 2012 

17 
52 


82196.036

In an effort to help inform the public about the impact of rising medical costs, AHlP has 

developed a new iPad applS that consolidates fifty years offederal health care spending data into 

a series of easy-to-use, interactive charts. Users of this app can view historical and projected 

health care spending data at the national level, state-by-state, on a per capita basis, or as a percent 

of GDP. The app also provides a detailed breakdown of how much the nation is spending on 

different aspects of the health care system, such as hospital care, physician services, prescription 

drugs, and health plan administrative costs, and how each of these components contributes to 

health care cost growth. 

III. Bringing Down Health Care Costs 

Our members are very pro-active in advocating solutions to rein in the costs of health care. 

AHlP's Board of Directors recently approved a statement recommending a series of strategies to 

bring down costs and make health care coverage more affordable. These strategies complement 

the innovative delivery system and payment reform initiatives health plans are spearheading all 

across the country. 

Our Board has recommended three strategies for reducing health care costs: 

1. Tackling Barriers to Transparency: We call for the elimination of barriers that prevent 

stakeholders from understanding how markets are (or are not) working. Increased 

transparency - with a concurrent focus on quality - will give consumers and purchasers a 

15 http://ahip.orgllssues/US-HC-SpendinglOl-App.aspx 

18 
53 


82196.037

clearer perspective on the drivers that are contributing to higher health care costs in their 

community, as well as an understanding of how dynamics such as provider consolidation 

affect the costs they pay. 

2. Facilitating Benefit Modernization: Recognizing that a range of legal, regulatory, or 

operational barriers often prevent health plan innovations from being adopted in local 

communities, we believe that cost containment strategies must modernize these "rules of the 

road" to ensure that innovative plan designs - aimed at decreasing costs while ensuring safe, 

high quality care - can thrive. This includes re-evaluating scope of practice requirements, 

accelerating the use of health information technology, promoting preventive care and 

wellness programs, promoting laws or regulations that support innovative delivery structures, 

and eliminating excessive network requirements that prevent plans from forming lower cost, 

high quality networks. 

3. Advancing Bold, Structural Reforms: Strategies to address rising health care costs need to 

include fundamental, structural changes in the health care system. Further, action needs to be 

grounded where health care is delivered today - at the state and local levels. A state-federal 

shared savings, or "gain-sharing," initiative could be implemented that would allow states to 

keep a portion of any health care cost savings they generate. This would direct hundreds of 

billions in needed incentives to cash-strapped states, while at the same time bending the total 

cost curve and having a productive impact on the economy as a whole, as well as family, 

corporate, and government budgets. 

19 
54 


82196.038

Building upon the strategies in our Board statement, we have proposed a policy agenda, recently 

publishedl6 by the American Journal of Managed Care (AJMC), outlining policies that would 

support and encourage delivery system reform. This agenda includes proposals in the following 

areas: providing greater transparency on what providers are charging for services; aligning public 

and private quality measures; promoting administrative simplification and meaningful data 

exchange; investing in research on what works; promoting scope of practice laws to allow 

doctors and other clinicians to practice to the "top of their license"; and encouraging states to 

playa greater role in expanding private-public efforts to bring costs under control. 

On another front, AHIP recently joined a diverse stakeholder group, the Partnership for 

Sustainable Health Care, in releasing a reportl7 that outlines recommendations for decelerating 

health care costs and improving quality. This partnership includes organizations that playa 

prominent role in the hospital, physician, business, and consumer sectors. We were supported in 

our work by a grant from the Robert Wood Johnson Foundation. 

Our report proposes a set of integrated, system-wide approaches involving both the public and 

private sectors that will significantly curb the growth in health care spending and enhance the 

delivery of care. Specifically, we outline a seven-part vision for a transformed health care 

system: (1) health care that is affordable and financially sustainable for consumers, purchasers, 

and taxpayers; (2) patients who are informed, empowered, and engaged in their care; (3) patient 

care that is evidence-based and safe; (4) a delivery system that is accountable for health 

outcomes and resource use; (5) an environment that fosters a culture of continuous improvement 

and learning; (6) innovations that are evaluated for effectiveness before being widely and rapidly 

16 AJMC.com, Health Plan Innovations in Delivery System Reforms, April 16, 2013 

17 Partnership for Sustainable Health Care, Strengthening Affordability and Quality in America's Health Care 

System, April 2013 

20 
55 


82196.039

adopted; and (7) reliable infonnation that can be used to monitor quality, cost, and population 

health. 

The Partnership for Sustainable Health Care report includes recommendations in five key areas: 

• Transforming the current payment paradigm. We encourage the accelerated adoption of 

payment approaches that demonstrate their effectiveness in improving both quality and cost. 

These value-based payment approaches include a range of models that include incentives for 

patient safety, bundled payments, accountable care organizations, and global payments. 

• Paying for care that is proven to work. We recommend that public programs and the 

private sector reduce payments for services that prove to be less effective or oflesser value 

than alternative therapies. 

• Incentives for greater consnmer engagement in care. We encourage the use of high-value 

services and providers through tiered cost-sharing and related financial incentives. The goal 

of such tiered cost-sharing is to create financial incentives for consumers to make better use 

of their discretionary care choices, leading to savings from improved adherence to preventive 

measures and evidence-based care, lower utilization of unnecessary services, and the use of 

more efficient, higher-quality providers. 

• Improving health care infrastructure. We call for refonns aimed at strengthening the 

foundational infrastructure of America's health care system so that cost- and quality-related 

innovations can be implemented more effectively. Specific initiatives include: 

21 
56 


82196.040

o Accelerating research on treatment effectiveness to give patients and providers more 

information on which to base health care decisions; 

o Speeding the adoption and the use of electronic health records and health information 

exchanges to improve care for patients; 

o Ensuring that there is an adequate and diverse health care workforce; 

o Reducing and resolving medical malpractice disputes; 

o Promoting greater transparency in health care costs; and 

o Encouraging competitive markets. 

• Incentives for states to partner with pnblic and private stakeholders to transform the 

health care system. We propose a gain-sharing system that would enable states to receive 

fiscal rewards for successfully meeting cost- and quality-related goals. States would have 

flexibility to use different combinations of strategies that fit their specific cultures and 

political environments, ranging from working with private and public payers to 

collaboratively implement major payment reforms, to modifying scope of practice 

restrictions, to providing incentives for improvements in care coordination to promote quality 

and patient safety. 

IV. Conclusion 

Thank you again for considering our perspectives on these important issues. Our members 

remain strongly committed to working with Congress, the Administration, and other stakeholders 

to expand access to high quality, affordable coverage options. 

22 
57 

Mr. MURPHY. Mr. Spiro, you are recognized for 5 minutes for 

your opening statement. 

STATEMENT OF TOPHER SPIRO 

Mr. SPIRO. Mr. Chairman, Ranking Member DeGette, thank you 

for the opportunity to testify today about the premium impact of 

the Affordable Care Act. 

When thinking about this issue, it is important to be clear about 

who will be affected by reforms and how. Nearly 90 percent of insured Americans are covered by employer plans, Medicare, Medicaid or other government programs. These Americans will not be 

affected by reforms to non-employer coverage under the ACA. 

Now consider the remaining 10 percent of the population. Concern is focused on the premium impact for young adults with higher incomes who will not be eligible for full subsidies, but the fraction of the population that now has non-employer coverage is between the ages of 19 and 29 and has income above 250 percent of 

the Federal poverty level is 0.5 percent. 

By contrast, the Affordable Care Act will benefit tens of millions 

of Americans, who have been offered Swiss cheese insurance, who 

were priced out of the market or who were denied insurance all together. All Americans will benefit from the security and peace of 

mind of knowing that if misfortune strikes, they will not suffer financial catastrophe. 

Studies on this topic always omit key factors that greatly influence the costs people would pay out of pocket. While some of the 

studies take into account some of the factors, none of them take 

into account all, or even most of the following factors. 

First, of course, most important, premium tax credits. According 

to the Urban Institute, 70 percent of young adults who now have 

non-employer coverage will be eligible for Medicaid or exchange 

subsidies; the availability of parents’ coverage for young adults up 

to age 26; the availability of catastrophic plans for young adults up 

to age 30; insurance for insurers that incur high costs, known as 

re-insurance. For example, in California, re-insurance is projected 

to lower premiums by 9 percent. Administrative savings. For example, in California, administrative savings are projected to lower 

premiums by 4.5 percent. Finally, the medical cost trend that 

would occur anyway in the absence of the Affordable Care Act. For 

example, in California, the projected premium increase in the absence of the ACA is 9 percent. 

Because these studies are not reliable, it is instructive to compare some of them with actual rate filings and analyses by independent experts. A recent report by the Lewin Group and Optum 

projects that the pool of insured people will become less healthy 

overall, increasing average costs by 32 percent, but the independent Congressional Budget Office came to a different conclusion 

on this point, finding that the influx of new enrollees will actually 

lower premiums by 7 to 10 percent on average. This huge discrepancy seems to be driven by the Lewin report’s assumption that 

there will be an influx of unhealthy people from large employers. 

To illustrate how the Lewin report is speculative and incomplete, 

consider actual rate filings in Washington. The Lewin report proVerDate Nov 24 2008 14:21 Dec 13, 2013 Jkt 037690 PO 00000 Frm 00063 Fmt 6633 Sfmt 6633 F:\MY DOCS\HEARINGS 113\113-44 CHRIS
58 

jected an average cost increase of 14 percent, but we now know 

that many Washingtonians will actually see lower premium rates. 

The average proposed premium increase is 7 percent, less than the 

projected medical cost trend that would occur anyway in many 

States. 

The experience in Washington is noteworthy, because just last 

year the executive vice-president of the Blue Cross insurer warned 

that premiums would increase by 50 to 70 percent. In other words, 

the hysteria did not match up with the reality. 

One recent development that is encouraging is that competition 

is already lowering premiums, because consumers can more easily 

shop for and compare plans. In Oregon, when premium proposals 

were posted publicly online, two insurers immediately lowered 

their proposed rates by 15 percent and more to remain competitive. 

Clearly these insurers had been inflating their projected costs. One 

insurer said its actuarial projections had been too pessimistic. 

Finally, it is important not to lose sight of the benefits of insurance market protections and improved coverage. Exchanges will 

offer brand-new, modernized products. Comparing their prices to 

the prices of old, Swiss cheese insurance products is like comparing 

the price of an iPhone to the price of a Sony Walkman. It is not 

a meaningful comparison. 

Nor should we focus exclusively on premiums, which are not consumers’ only costs. While providing more coverage increases premiums, it lowers out-of-pocket costs. A narrow focus on premiums 

also ignores the millions of Americans who have been shut out of 

a dysfunctional market. 

Furthermore, premiums reflect a snapshot in time. Just because 

you are young and healthy now does not mean you will always be. 

In the current dysfunctional market, premiums can spike for 

both individuals and small businesses—— 

Mr. MURPHY. The gentleman’s time has expired. Can you just 

summarize the rest of your—— 

Mr. SPIRO. I am almost done. 

Mr. MURPHY. OK. 

Mr. SPIRO [continuing]. As a result of many factors that are totally beyond their control. In the modernized market when people 

get sick or are diagnosed with a medical condition or just grow 

older, they will not experience rate shock. 

Mr. Chairman, this concludes my testimony. I am happy to answer questions. 

[The prepared statement of Mr. Spiro follows:] 

59 


82196.041

U.S. HOUSE OF REPRESENTATIVES COMMITTEE ON ENERGY & COMMERCE 

SUBCOMMITTEE ON OVERSIGHT & INVESTIGATIONS 

"HEALTH INSURANCE PREMH}MS UNDER THE PATIENT PROTECTION AND 

AFFORDABLE CARE ACr' 

MAY 20, 2013 

STATEMENT OF 

CHRISTOPHER J. SPIRO, J.D. 

VICE PRESIDENT FOR HEALTH POLICY 

THE CENTER FOR AMERICAN PROGRESS 
60 


82196.042

Mr. Chainnan, Ranking Member, and members of the Committee--thank you for the 

opportunity to testify today about the premium impact of the Affordable Care Act. My testimony 

will make five key points: 

1.) Concern has focused on the premium impact for young adults. But young adults who now 

have non-emp loyer coverage and higher incomes are a small fraction of the population. 

2.) Recent studies by health insurance companies and actuaries affiliated with the insurance 

industry lack transparency, are self-serving, and omit key factors. 

3.) These studies do not measure up when compared with actual rate filings and analyses by 

independent experts. 

4.) Emerging evidence indicates that the Exchanges are working as intended-competition 

among plans and providers is already lowering premiums. 

5.) Premiums should not be the exclusive focus of investigation. In the new, modernized 

market, consumers will get a lot more for their money. 

Young adults who now have non-employer coverage and higher incomes are a small 

fraction of the population 

First, it is important to be clear about who will be affected by refonns and how. Among 

Americans with health insurance coverage, nearly 90 percent are covered by employer plans, 
61 


82196.043

Medicare, Medicaid, or other government programs. I These Americans will not be affected by 

refonns to non-employer coverage under the Affordable Care Act. 

Now consider the remaining 10 percent of the population. Concern has focused on the premium 

impact for young adults with higher incomes, who will not be eligible for full subsidies. But the 

fraction of the population that now has non-employer coverage, is between the ages of 19 to 29, 

and has income above 250 percent of the federal poverty level is 0.5 percent.2 

That fraction is even smaller after excluding women, who will see premium savings from the 

elimination of gender rating. And the fraction is smaller still after excluding young adults who 

will be eligible for their parents' coverage: Among young adults who will not be eligible for 

subsidies, two-thirds will be eligible for their parents' coverage.3 Finally, the fraction is even 

smaller after excluding young adults who now have non-employer coverage that is 

"grandfathered"-in other words, that is exempt from refonns. For example, in Maryland, 60 

percent of Care First's enrollees in non-employer coverage are grandfathered.4 

By contrast, the Affordable Care Act will benefit millions of Americans who have been offered 

Swiss cheese insurance, who were priced out of the market, or who were denied insurance 

altogether. Tens of millions of Americans will gain health insurance coverage. All Americans 

1 Author's calculation based on data from the U.S. Census Bureau. 

2 Maura Calsyn and Lindsay Rosenthal, "How the Affordable Care Act Helps Young Adults," The Center for 

American Progress. May 2013. 

J Linda J. Blumberg and Matthew Buettgens, "Why the ACA's Limits on Age Rating Will Not Cause 'Rate Shock': 

Distributional Implications of Limited Age Bands in Nongroup Health Insurance," The Urban Institute, March 2013 

4 Jay Hancock, "Maryland Offers Glimpse at Obamacare Insurance Math," Kaiser Health News, Apri124, 2013. 

2 
62 


82196.044

will at long last benefit from the security and peace of mind of knowing that, if misfortune 

strikes, they will not suffer financial catastrophe. 

Studies lack transparency, are self-serving, and omit key factors 

Second, these types of studies are not new, but they have always suffered from a lack of 

transparency. Health insurance companies are happy to disclose their conclusions, but refuse to 

disclose their assumptions and underlying data. It is unclear why members of Congress would 

want to take insurance companies at their word, or rely exclusively on actuaries who are 

affiliated with the insurance industry. It should go without saying that insurance companies have 

every incentive to pad their premium proposals. 

These studies always omit key factors that greatly influence the costs people would payout of 

pocket. In fact, one of the insurer submissions to this Committee acknowledged these omissions: 

"The analyses are not a comprehensive summary of all PPACA-related premium impacts.,,5 

While some of the studies take into account some of these factors, none of them take into 

account all (or even most) of the following factors: 

Premium tax credits. For example, in California, people who make less than 400 percent 

of the federal poverty level will get tax credits that reduce their average premium costs by 

S U.S. House of Represenlatives Committee on Energy and Commerce Majority Staff, "The Looming Premium Rate 

Shock," May 13,2013. 

3 
63 


82196.045

more than 65 percent.6 According to the Urban Institute, 70 percent of young adults who 

now have non-employer coverage will be eligible for Medicaid or Exchange subsidies.7 

The availability of parents' coverage for young adults up to age 26. 

The availability of catastrophic plans for young adults up to age 30. Because premiums 

for these plans can reflect the expected costs of younger enrollees, they will be lower than 

premiums for Bronze plans. 

Insurance for insurers that incur high costs, known as "reinsurance." For example, in 

California, reinsurance is projected to lower premimns by 9 percent. 8 

Administrative savings. The independent Congressional Budget Office projected that 

administrative savings will lower premiums for non-employer coverage by 7 to 10 

percent.9 Some administrative tasks currently performed by insurers can be performed by 

Exchanges, taking advantage of economies of scale. Some tasks, like medical 

underwriting, can be eliminated. In California, administrative savings are projected to 

lower premiums by 4.5 percent.to 

The medical cost trend that would occur anyway. For example, in California, the 

projected premium increase in the absence of the Affordable Care Act is 9 percent. I I 

The extent to which individuals are enrolled in "grandfathered" plans that are exempt 

from reforms. 

Savings from competition among plans and providers, as explained more fully below. 

6 Milliman, "Factors Affecting Individual Premium Rates in 2014 for California," March 28, 2013. 

7 Linda J. Blumberg and Matthew Buettgens, "Why the ACA's Limits on Age Rating Will Not Cause 'Rate Shock': 

Distributional Implications of Limited Age Bands in Nongroup Health Insurance," The Urban Institute, March 2013. 

8 Milliman, "Factors Affecting Individual Premium Rates in 2014 for California," March 28, 2013. 

9 The Congressional Budget Office, Letter to the Honorable Evan Bayh, November 30,2009. 

10 Milliman, "Factors Affecting Individual Premium Rates in 2014 for California," March 28, 2013. 

II Milliman, "Factors Affecting Individual Premium Rates in 2014 for California," March 28, 20l3. 

4 
64 


82196.046

Studies do not measure up when compared with actual rate filings and independent 

analyses 

Because these studies are not reliable, it is instructive to compare some of them with actual rate 

filings and analyses by independent experts. 

A recent report by the Lewin Group and Optum projects a 32 percent average cost increase for 

non-employer coverage nationwide. 12 Under this analysis, because the Affordable Care Act 

guarantees all sick people access to insurance, the pool of insured people could become less 

healthy overall, increasing expected costs. 

But the independent Congressional Budget Office came to a different conclusion on this point, 

finding that the influx of new enrollees will actually lower premiums by 7 to 10 percent, on 

average. 13 This huge difference seems to be driven by the Lewin/Optum report's assumption that 

there will be an influx of unhealthy people from large employers. Note that the CBO did not see 

fit to change its analysis in its most recent estimates. 

To illustrate how the Lewin/Optum report is speculative and incomplete, consider actual rate 

filings in Washington. The Lewin/Optum report projected an average cost increase of 14 

percent. 14 But we now know that many Washingtonians will actually see lower rates. For 

example, a 2 I-year old could buy a similar Blue Cross plan-except with a lower deductible12 Randy Haught and John Ahrens, "Cost of the Future Newly Insured under the Affordable Care Act," March 2013. 

13 The Congressional Budget Office, Letter to the Honorable Evan Bayh, November 30,2009. 

14 Randy Haught and John Ahrens, "Cost of the Future Newly Insured under the Affordable Care Act," March 2013. 

5 
65 


82196.047

for 15 percent less next year. IS The average proposed premium increase is 7 percent-less than 

the projected medical cost trend that would occur anyway in many states.16 

The experience in Washington is noteworthy because just last year, the executive vice president 

of the Blue Cross insurer warned that premiums would increase by 50 to 70 percent.17 The 

hysteria did not match up with the reality. 

Finally, consider California. According to the majority staff report, one insurer projected a 

premium increase of 23 to 66 percent. I 8 But an independent analysis projected that the 

Affordable Care Act will lower total health care costs by more than 40 percent, on average, for 

most people who now have non-employer coverage. 19 

Competition among pians and providers is already lowering premiums 

When the independent Congressional Budget Office projected premiums under the Affordable 

Care Act, it theorized that competition in Exchanges would lower premiums.20 Consumers would 

be able to more easily shop for and compare plans. Now that theory is becoming reality. 

15 Mike Baker, "Some may see lower rates under Obama health law." The Associated Press, May 14,2013. 

16 Washington State Office of the Insurance Commissioner. 

17 Mike Baker, "Some may see lower rates under Obama health law," The Associated Press, May 14, 2013. 

18 U.S. House of Representatives Committee on Energy and Commerce Majority Staff, "The Looming Premium 

Rate Shock," May 13,2013. 

19 Milliman, "Factors Affecting Individual Premium Rates in 2014 for California," March 28, 2013. 

20 "The exchanges would enhance competition among insurers in the nongroup market by providing a centralized 

marketplace in which consumers could compare the premiums of relatively standardized insurance products. The 

additional competition would slightly reduce average premiums in the exchanges by encouraging consumers to 

enroll in lower-cost plans and by encouraging plans to keep their premiums low in order to attract enrollees." The 

Congressional Budget Office, Letter to the Honorable Evan Bayh, November 30, 2009. 

6 
66 


82196.048

In Oregon, when premium proposals were posted publicly online, two insurers immediately 

lowered their proposed rates to remain competitive.21 One insurer lowered its proposed rate by 

15 percent and another lowered its proposed rate by even more. Clearly, these insurers had been 

inflating their projected costs; one insurer said its actuarial projections had been too pessimistic. 

Competition is also lowering the prices that hospitals charge. Some insurers are demanding and 

receiving price discounts of 10 percent or more from hospitals in exchange for a larger volume of 

new patients.22 In California, provider price discounts are projected to lower premiums by 6 

percent. 23 The potential premium savings from provider price discounts are particularly 

significant in Exchanges that will offer Medicaid managed care plans. 

Consumers will get a lot more fOf their money 

When comparing premiums before and after the Affordable Care Act, it is important not to lose 

sight of the benefits of insurance market protections and improved coverage. The law's market 

protections guarantee access to insurance to people who are ill or who have pre-existing 

conditions, and they prohibit insurers from charging them higher rates. They also limit how 

much more insurers can charge older people versus younger people. Other reforms require 

coverage of prescription drugs, mental health care, maternity care, and other essential benefits. 

21 Nick Budnick, "Two Oregon insurers rethink 2014 premiums as state posts first-ever rate comparison," The 

Oregonian, May 9, 2013. 

22 Anna Wilde Mathews and Jon Kamp, "Another Big Step in Reshaping Health Care," The Wall Street Journal, 

February 28, 2013; Milliman, "Factors Affecting Individual Premium Rates in 2014 for California," March 28, 

2013. 

23 Milliman, "Factors Affecting Individual Premium Rates in 2014 for California," March 28,2013. 

7 
67 


82196.049

Exchanges will therefore offer brand new, modernized products. Comparing their prices to the 

prices of old Swiss cheese insurance products is like comparing the price of an iPhone to the 

price of a Sony Walkman. It is not a meaningful comparison. 

Nor should we focus exclusively on premiums. Premiums are not consumers' only costs; they 

also pay deductibles, co-insurance, and co-payments. While providing more coverage increases 

premiums, it lowers out-of-pocket costs. A narrow focus on premiums also ignores the millions 

of Americans who have been shut out of a dysfunctional market. 

Furthermore, premiums reflect a snapshot in time. Just because you are young and healthy now 

does not mean you will always be. In the current dysfunctional market, premiums can spike 

uncontrollably for both individuals and small businesses, as a result of many factors that are 

totally beyond their control. In the modernized market, when people get sick or are diagnosed 

with a medical condition, or just grow older, their premiums will remain stable. 

Finally, it is important to keep in mind the reforms that are at issue here, and their purpose. 

Repealing these reforms would increase premiums for women, older people, sick people, and 

people with pre-existing conditions. These premium impacts must be part of the discussion. 

Mr. Chairman, this concludes my testimony, and I am happy to answer any questions members 

of the Committee may have. 

8 
68 

Mr. MURPHY. I appreciate all of—the testimony from all of the 

witnesses today. We will go on to some questions here, and I will 

start off with 5 minutes for myself here. Although I am reminded 

sometimes, like when we have economists in front of us, they all 

talk about you don’t see a one-handed economist because they always say, ‘‘On the other hand.’’ So this will be important to get 

some information from you all. 

Mr. Carlson, today Mr. Waxman released a staff memo we had 

put in the record saying that the customers in Rhode Island, 

Vermont, Maryland, Oregon and Washington can expect large rate 

decreases. In your testimony, however, you note that you reviewed 

the actual rate filings in some of these States, Oregon, Maryland 

and Vermont. Am I correct? 

Mr. CARLSON. Yes, that’s correct. 

Mr. MURPHY. And your testimony States an average premium 

rate in these files represents an increase of 36 to 53 percent over 

current premium rates. Can you elaborate on this? 

Mr. CARLSON. Well, that information was from the—several—I 

believe that was the Oregon rate filings that I was mentioning 

there. And based on all the factors that they have in their filing, 

including trend rates, all of the assumptions due to the changes in 

the market, market rules, all those factors combined resulted in 

rates for a similar benefit package of 36 to 53 percent increases. 

So having not—— 

Mr. MURPHY. That’s for Oregon? That’s for Oregon, you are saying? 

Mr. CARLSON. I believe that was Oregon, yes. 

Mr. MURPHY. OK. 

Mr. CARLSON. Having not seen the report that was put out today, 

I can’t comment how those numbers relate. 

Mr. MURPHY. I see. But I just want to make sure I understand. 

In Oregon, you said there’s probably going to be a premium increase? 

Mr. CARLSON. Yes. That’s correct. 

Mr. MURPHY. Right. Now, in Maryland you note that one insurance proposed an overall rate increase of 25 percent. Am I correct? 

Mr. CARLSON. That’s correct, yes. 

Mr. MURPHY. And another insurance proposed rates that are 120 

percent higher than the current rates in the market? 

Mr. CARLSON. Yes. 

Mr. MURPHY. Correct, too? Can you elaborate on these findings? 

Basically you said Maryland’s going to see a premium increase, but 

can you elaborate on—— 

Mr. CARLSON. Well, I think the important point to take from 

there is that the rate increases are going to differ substantially 

based on what State you are in, what kind of market you are in, 

the level of benefits that you currently have, and, you know, other 

factors as far as, you know, the insurer that is showing a very high 

rate increase, they may have been able to enroll a much healthier 

population in the past, therefore, when they get a normal mix of 

membership, they end up with a much higher rate increase than 

if they had started with an average population. 

So, no individual is going to get the same rate increase. It’s going 

to differ greatly from one individual to the next. 

69 

Mr. MURPHY. I see. All right. Mr. Durham, last week the committee released its findings on the investigation we conducted in 

the internal analysis of how premiums will be impacted by the Affordable Care Act, and after reviewing the internal analysis of the 

nation’s largest insurers, we saw that massive premium increases 

are likely. Can you provide your view on the likelihood of this? 

Mr. DURHAM. Well, I read the report from the committee and 

looked at the great degree of variability in premiums depending on 

the individual’s age, their location, their health status, and it’s 

similar to what we find in our Milliman report that I described in 

my testimony. Again, a great degree of variability here in terms of 

how plans are building their premiums in 2014. There are certain 

things that are sure to include increases in premium costs, and 

those include the health insurance premium tax, other fees and assessments, the benefit buy-up, since many, particularly in the individual market, have coverage that is less generous than coverage 

that’s required under the ACA, and also the age band compression, 

where younger individuals are likely to face much higher—— 

Mr. MURPHY. So it’s safe to say in States that already have a 

number of these restrictions, they—they will not see a lot of movement, in the States that do not have those, they will see a lot of 

upward movement—— 

Mr. DURHAM. That’s correct. 

Mr. MURPHY [continuing]. In general? Thank you. 

Mr. DURHAM. And on the other side of the coin, the Milliman report also goes into detail about the premium tax subsidies that will 

help lower income individuals, which—which are very important, 

and also other things that will lower premium costs, such as competition in the marketplace that was mentioned earlier. 

Mr. MURPHY. Sure. Competition helped lower things in the Medicare Part D plan, which is often bashed, which—by 41 percent 

below, I think it is. 

But let me ask this real quickly, Ms. Uccello and Mr. Durham, 

because you both stated in your testimony—you talked about the 

individual mandate effect on this, Ms. Uccello, and Mr. Durham, 

you made a reference to people between 21 and 29. 

Are a lot of these estimates based upon the assumption that all 

those people will sign up or do they also take into account if people 

see rates go very high for themselves, regardless of subsidies, they 

may not show up, may not sign up, and then that will affect rates 

as well? 

Ms. Uccello, can you comment on that? 

Ms. UCCELLO. I can’t comment directly on the different projections, but I assume that each of those projections makes assumptions regarding participation in the market. And as you were alluding to, key to the viability of this program is attracting the lower 

cost people into the pool to help offset the higher costs of the—of 

those other people. 

Mr. MURPHY. Thank you. I am out of time, but if I could ask, Ms. 

Uccello, if you could provide a little more information to this committee on what means, and Mr. Durham, elaborate on those two 

points, that’s very important to us, in terms of the assumptions 

with regard to people signing up by the mandate. 

I now recognize—I am out of time—Ms. DeGette for 5 minutes. 

70 

Ms. DEGETTE. Thank you very much, Mr. Chairman. 

Ms. Uccello, just like Mr. Carlson, you are also an actuary. Is 

that correct? 

Ms. UCCELLO. That is correct. 

Ms. DEGETTE. And you—you testify—it sounds to me like the 

gist of your testimony is we are going to have sort of a rebalancing 

of rates, because in the exchanges at least and in these plans, we 

are going to be covering everybody. Is that right? 

Ms. UCCELLO. Yes. 

Ms. DEGETTE. So right now what happens is if an individual 

with a pre-existing condition, or a woman, or somebody who’s older, 

people like that, if they choose to get insurance, their insurance 

will be more expensive, because the pool is smaller. Is that right? 

So cheaper people aren’t in those pools right now. I think you said 

that, too, Mr. Durham, as a matter of fact. 

Mr. DURHAM. I think the concern is—— 

Ms. DEGETTE. For some people, for some people, insurance is 

much more expensive now because health care costs more for them, 

right? 

Ms. UCCELLO. There are some people—depending on what State 

and the rules that apply in that State, some people with pre-existing conditions may not have access to coverage at all—— 

Ms. DEGETTE. Right. But what I am saying is—— 

Ms. UCCELLO [continuing]. They may be paying more. 

Ms. DEGETTE. What I am saying is so when you put everybody 

into the pool, some people will pay higher insurance rates, some 

people—like young people. 

Ms. UCCELLO. Yes. 

Ms. DEGETTE [continuing]. And some people will pay lower insurance rates. Is that right? 

Ms. UCCELLO. Yes. 

Ms. DEGETTE. And that’s because the pool is bigger, right? 

Ms. UCCELLO. It’s more about the distribution of who’s in the—— 

Ms. DEGETTE. OK. Right. And so there are going to be a lot of 

people who are paying lower insurance rates under the Affordable 

Care Act, correct? 

Ms. UCCELLO. Depending on the certain—the particular circumstance, premiums go down for some people—— 

Ms. DEGETTE. For some people. 

Ms. UCCELLO [continuing]. And for others go up. 

Ms. DEGETTE. And in addition, other people, in fact, the majority 

of people who will now be going into these exchanges will be subsidized, will be eligible for the tax credits, correct? 

Ms. UCCELLO. I don’t know the specific share, but the people who 

are eligible will indeed see downward pressure on their net premium. 

Ms. DEGETTE. Spoken like a true actuary. 

Mr. Durham, I wanted to ask you, because I think you would 

agree, since you have been looking at these issues, health insurance premiums have increased about 10 percent a year on average 

for the last 10 years from 1999 to 2009, correct? 

Mr. DURHAM. Yes. Premiums reflect the average cost of care, and 

so if—— 

71 

Ms. DEGETTE. Right. They have been going up on an average of 

about 10 percent per year for the last 10 years or so. Is that right? 

Mr. DURHAM. Right. 

Ms. DEGETTE. Correct? 

Mr. DURHAM. Reflecting the average cost—— 

Ms. DEGETTE. Yes or no. 

Mr. DURHAM. Yes. 

Ms. DEGETTE. Thank you. And so you wouldn’t expect to see a 

dramatic reversal of this trend right now, would you? 

Mr. DURHAM. Oh, we have seen some reversal because of reduced 

utilization due to the downturn in the economy. 

Ms. DEGETTE. Oh, OK. OK. So that’s because people aren’t buying insurance, right? 

Mr. DURHAM. Or they are not using insurance as much. But we 

have seen—— 

Ms. DEGETTE. Yes. So they are—they are not—so for once, and 

don’t hold me to this, I actually agree with Mr. Burgess, which is, 

nothing is ever totally free, so if somebody doesn’t get insurance 

and they get sick, somebody is still paying for their care. Is that 

correct? 

Mr. DURHAM. There is some payment through uncompensated 

care, yes. 

Ms. DEGETTE. Yes. Yes. Someone’s still paying for it. And that’s 

often the taxpayers, right? 

Mr. DURHAM. Right. And it often gets shifted to private plans as 

well, which increases premium costs. 

Ms. DEGETTE. So if it gets shifted to private plans, that increases 

the premium costs for those people, right? 

Mr. DURHAM. Correct. 

Ms. DEGETTE. Yes. So I wanted to ask you a question, Mr. Spiro. 

Have you looked at—have you looked at the memo that the Democratic staff released this morning about the results from Oregon, 

Washington, Maryland, Vermont, and Rhode Island? 

Mr. SPIRO. I have not, but I am broadly familiar with the rate 

filings in those States. 

Ms. DEGETTE. So what they found out was in Oregon, rates for 

people who stay in comparable plans offered by their current insurance are expected to fall by about 7 percent, and in Washington, 

consumers will see average reductions by 25 percent, and in 

Vermont, a similar result. What is your reaction to this kind of a 

finding? 

Mr. SPIRO. I think, number one, it shows that some of the concerns have been inflated, in that in some of these States, the insurance executives, as I mentioned, were projecting increases of 50 to 

70 percent, and it turned out not to be the case, so their concerns 

were overblown. 

Second, I think it shows that there is—despite actuaries making 

it seem like a science, there is a lot of flexibility and fudge room 

in what they do, and that projected costs based on very minor 

changes in assumptions can vary wildly. 

Ms. DEGETTE. Just one last question. You would expect competition to give a more apt competitive insurance price, right? 

Mr. SPIRO. Yes. I think the interesting thing in Oregon, as I 

mentioned is, immediately after the rates were posted online, and 

72 

not every State is as transparent as Oregon but that is something 

to be encouraged, but once the competitors saw those rates being 

posted, they immediately requested to the insurance commissioner 

that they be able to propose lower rates. 

Ms. DEGETTE. Thank you. 

Mr. SPIRO. And those are just the proposed rates, so they haven’t 

even been reviewed by the insurance commissioner yet. 

Mr. MURPHY. Thank you. Time has expired. 

Now recognize Dr. Burgess for 5 minutes. 

Mr. BURGESS. Thank you, Mr. Chairman. Mr. Durham, I wasn’t 

going to go here, but since I was provoked by the ranking member, 

let’s go here for just a moment. Cost of people who show up with 

no insurance does cost those who have insurance something, 

doesn’t it? 

Mr. DURHAM. Yes, sir. 

Mr. BURGESS. But the greater amount of cross-subsidization that 

occurs is between the public plans, Medicare, Medicaid, and what 

they don’t pay in covering the cost of the care rendered. Is that a 

fair statement? 

Mr. DURHAM. Correct. And that is often again passed through to 

practice. 

Mr. BURGESS. And what is the larger group? People who show up 

in the emergency room without an insurance policy or Medicare 

and Medicaid that show up in the emergency room of the hospital? 

Mr. DURHAM. Medicare and Medicaid. 

Mr. BURGESS. Yes, absolutely. That is the 9 percent cross-subsidization. We like to push that off onto the uninsured, but in fact, 

it is the Federal Government not paying their fair share of the 

note; is that not correct? 

Mr. DURHAM. Correct. 

Mr. BURGESS. Well, look, Mr. Spiro, let me just ask you, I have 

got your biography, I guess, in front of me. You are not a physician; 

is that correct? 

Mr. SPIRO. That is correct. 

Mr. BURGESS. But you did serve some time in the Senate Health, 

Education, Labor, and Pensions Committee? 

Mr. SPIRO. Correct. 

Mr. BURGESS. Was that time that you served there while a law 

that is now known as Affordable Care Act was under consideration? 

Mr. SPIRO. Yes. 

Mr. BURGESS. This is a good day for me because you may recall 

that the House had hearings and marked up a bill called H.R. 

3200, and do you recall what happened to H.R. 3200? 

Mr. SPIRO. I was a staffer on the Senate side. 

Mr. BURGESS. Well, the correct answer is it vaporized. It went off 

into the ether. No one has seen it since November of 2009 because 

the law that we are talking about, the Affordable Care Act, was actually a Senate bill; is that not correct? 

Mr. SPIRO. It was a Senate bill, but it was very much informed 

by—— 

Mr. BURGESS. OK. Yes or no. It was a Senate bill. 

Mr. SPIRO. But to finish my answer, there was—— 

Mr. BURGESS. The point I—I control the time. 

73 

Mr. SPIRO. May I finish? 

Mr. BURGESS. The point I need to make here is that there are 

some things that many of us have wondered about over here on the 

House side. Now, we have just been told that the House has voted 

to repeal all or a part of the Affordable Care Act some 37 times, 

but there was one part of the Affordable Care Act that everybody 

agreed with, the 1099 provision. Do you remember the 1099 provision, the business-to-business transaction greater than $600 that 

was going to generate the issuance of a 1099 form? 

Mr. SPIRO. Yes. 

Mr. BURGESS. Was that part of the work you did in your Senate 

committee? 

Mr. SPIRO. No. Part the work I personally did, I was not a tax 

counsel, but I am familiar with the provision. 

Mr. BURGESS. So that is a portion of the Affordable Care Act that 

again there was broad bipartisan agreement that this was an onerous burden on—as a paperwork requirement on the businesses of 

this country, correct? And the President signed it into law. The 

President agreed with the Congress when that repeal portion came 

through 

Now, there is another bill that was voted on January 1st of this 

year called the—we called it a fiscal cliff bill. I actually voted 

against it, but one of the parts of it that I actually liked was the 

repeal of something known as the Class Act. 

Now, that was one of Senator Kennedy’s projects. Did you work 

on the Class Act when you were on the Committee of the Health, 

Education, Labor and Pensions? 

Mr. SPIRO. I did not, but I am familiar with it. 

Mr. BURGESS. Well, the Class Act was again one of those aspects 

of the Affordable Care Act where there was broad agreement between Republicans and Democrats that this was something that 

would be better off repealed. And again, I guess the President 

agreed because the President signed that, did he not? 

Mr. SPIRO. I think there was an acknowledgment that as structured, the Class Act, because it did not have an individual mandate, that it would spiral out of control, so—— 

Mr. BURGESS. Well, I think the language that the chief actuary 

used, because we heard him here in this very committee, that it 

was the classic insurance death spiral that the Class Act was fixing 

to inaugurate. 

Well, we have talked a lot today about pre-existing conditions. 

Were you part of the committee that worked on the pre-existing 

conditions—— 

Mr. SPIRO. Yes. 

Mr. BURGESS [continuing]. Program? Well, do you know what has 

happened to the Federal pre-existing conditions program since January or February of this year? 

Mr. SPIRO. A lot of things have happened with—— 

Mr. BURGESS. Well, they are out of money, and so people who 

were hoping to age into that system, and we have heard from them 

in this—already in the health subcommittee, they are now frozen 

out. There is no—they cannot be taken into that system, so they 

are basically on their own between February 1st and January 1st 

of 2014. Were you aware of that? 

74 

Mr. SPIRO. Do you want to provide more appropriations for that 

program? 

Mr. BURGESS. Well, I was hoping to move all of the money from 

the prevention fund into the pre-existing plan, but I haven’t quite 

been able to do that, and therein is the problem. You knew, when 

this part of the law was drafted in committee, you knew that it was 

woefully underfunded. There is no one in the world who thought 

$5 billion was going to be enough to do what you said it was going 

to do. 

Mr. MURPHY. Gentleman’s time has expired. 

Mr. BURGESS. Do you have a thought on that? 

Mr. SPIRO. The bill was designed in such a way so that it would 

reduce the deficit, and it met that test. Now, could it have provided 

more funding for the PCIP program? Yes. Would you have supported the program and the bill if it had done so? 

Mr. BURGESS. Sir, with all due respect—— 

Mr. MURPHY. Time has expired. 

Mr. BURGESS. I didn’t support a single part of this, but I will 

save my followup questions for a second round. 

Mr. MURPHY. Time has expired. 

Mr. Waxman is recognized for 5 minutes. 

Mr. WAXMAN. Thank you, Mr. Chairman. 

It is interesting that my colleague talked about the things for 

there was a bipartisan consensus like to take away the burden on 

businesses to file 1099s, but where was the bipartisan consensus 

to protect people from being charged more money or denied insurance because of pre-existing conditions? 

Mr. BURGESS. Waiting on you—— 

Mr. WAXMAN. Mr. Chairman, it is my time. There was no bipartisan consensus for that. All they wanted was to protect the industry, the businesses. Fine. We all agreed to do that, and we are 

going to make other changes in this law. 

Mr. Carlson, I want to ask you about your testimony. We looked 

it over, and I think that you got this to us very late. We just got 

it today. The rules require you to put it in earlier, but—so we are 

at somewhat of a disadvantage, but your testimony contains a review of premiums in three States recently released filings of proposed premiums, and you state that the average premium rates of 

the top three insurers in Oregon represent an increase of 36 to 53 

percent over current premium rates. I would like to ask you a few 

questions about that. 

Did you separate out the bronze, silver, and other levels of plans 

from your calculations of the average premium and changes in premiums? 

Mr. CARLSON. What I looked at was kind of the base rate. So 

as—— 

Mr. WAXMAN. In other words, you didn’t. You looked at a base 

rate, but there are several different kinds of plans under the Affordable Care Act. Did you do any comparison of the currents rates 

of plan with comparable actuarial value to silver and bronze plans 

to the proposed rates of silver and bronze plans that will be available in the marketplace? 

Mr. CARLSON. I relied upon what was in the filings. 

75 

Mr. WAXMAN. But the law requires that there be several plans, 

a silver and a gold plan and a bronze plan, and they all have to 

provide basic services but they relate to how much are the out-ofpocket costs. Did you look at those different plans in a different 

way or you treat them all the same? 

Mr. CARLSON. Well, I looked at the average plan, so, obviously, 

each of those plans are—— 

Mr. WAXMAN. You didn’t look at an analysis then if people 

switched to the lowest cost silver and bronze plans offered in the 

marketplace; is that right? 

Mr. CARLSON. Well, if they were to do so, they would also, their 

benefits would be reduced as well as their premium. 

Mr. WAXMAN. Yes, but you didn’t look at that. Some people 

would choose to do that. They want a lower premium, so they are 

willing to take a lower plan. That is a reasonable thing to do, isn’t 

it, have a choice? 

Did you make any attempt to calculate the savings individuals 

might see because their improved coverage would lead to a reduction in out-of-pocket spending? 

Mr. CARLSON. No, I didn’t consider the out-of-pocket spending. 

Mr. WAXMAN. Did you estimate the impact of premium tax credits available in the marketplace on effective premiums in Oregon? 

Mr. CARLSON. Well, I mean, I am just looking at what the premium rate the insurance company is going to charge, not what the 

consumer is going to actually pay. 

Mr. WAXMAN. Well, I think what this hearing is supposed to be 

all about is what consumers might expect. So you didn’t look at 

what a lot of consumers will appreciate, which is a lower cost to 

them because of the premium tax credit. 

Your testimony also differs in many important ways from the 

supplemental report that we put out. I know you haven’t had a 

chance to do it, but our memo found that the average consumer 

currently enrolled in a bronze comparable plan would see a rate decrease of 11 percent and save $470 annually if they stay with the 

same insurer. If they switch to a lower cost bronze plan, consumers 

would save an average of 32 percent or over $1,300 annually. I 

want to just bring this to your attention because there is a more 

complete analysis. 

Mr. Durham, you represent the insurance industry. Does the insurance industry support the full repeal of healthcare reform that 

the Republicans have voted on 37 times? 

Mr. DURHAM. We are focused like a laser on implementation. 

This is the law of the land, and our plans are working around the 

clock to—— 

Mr. WAXMAN. Does your industry support repeal of the law? 

Mr. DURHAM. We haven’t taken a position on repeal. We are focused on implementation. 

Mr. WAXMAN. What you don’t like is the tax on insurance companies. 

Mr. DURHAM. We would like to see—— 

Mr. WAXMAN. You would like to see that changed. 

Mr. DURHAM. Yes, because—— 

Mr. WAXMAN. You don’t want the whole law thrown out. 

76 

Mr. DURHAM [continuing]. Adds to the cost of premiums and 

makes premiums less affordable. 

Mr. WAXMAN. I think your position shows how out of the mainstream my Republican colleagues are with their continuing push 

for full repeal of healthcare reform. I don’t understand why Republicans would continue to vote for healthcare repeal that would cost 

25 million Americans to lose health insurance coverage, increase 

the cost for millions of Medicare beneficiaries and increase the Federal deficit. My time is expired. I yield back. 

Mr. MURPHY. Gentleman’s time is expired. 

Now recognize Mr. Harper for 5 minutes. 

Mr. HARPER. Thank you, Mr. Chairman. 

And thank each of you for taking your time to be here. This is 

something we are dealing with in every State, in every district. 

And for me, the calls began even before Obamacare was passed 

back in 2010 because people were worried about what was going 

to happen with their premiums, how they were going to be able to 

pay either the fine or provide health insurance when some of their 

businesses were on a very marginal rate. 

And Mr. Spiro, listening to some of the information brings back 

a lot of memories, but when we were calculating the price on this, 

the plan did not include SGR, did it? That was the cost to fix the 

doc fix, that was not a part of the plan, was it? That was not included in the calculation for the price. 

Mr. SPIRO. The SGR is still part of current law. 

Mr. HARPER. OK. My point is we didn’t solve that because it 

would have driven up the cost, the price tag. I mean, it wasn’t included in the law that came out, was it? 

Mr. SPIRO. No, it was not. 

Mr. HARPER. OK. You know, when you talked and you said something about additional money to fund preexisting, how do you feel 

about doing away with the preventive care slush fund that Sebelius 

has and using that money to help with preexisting? 

Mr. SPIRO. How do I feel about that? 

Mr. HARPER. Yes. I mean, you are sitting there talking about it. 

Do you support doing away with the preventive care fund and moving that money over to help those that need it most in preexisting? 

Mr. SPIRO. As you may know, I worked for Chairman Harkin, so 

I support the prevention public health fund. 

Mr. HARPER. OK. Even though that is being used for things that 

truly are not for preventive care. You have seen some of that already. 

Mr. SPIRO. Being used for evidence-based practices to lower the 

cost of healthcare and improve—— 

Mr. HARPER. OK. 

Mr. SPIRO [continuing]. Quality of healthcare. 

Mr. HARPER. So the money used for lobbying for soda tax that 

came out of preventive care fund or that that was used for pet 

neutering programs, those are not—you consider that part of importance for preventive care? 

Mr. SPIRO. I don’t know what you are referring to. 

Mr. HARPER. OK. Well, it is there. 

And if I may, Mr. Chairman, I am going to yield to Dr. Burgess. 

Mr. BURGESS. I thank the gentleman for yielding. 

77 

Mr. Durham, let me ask you a question on preexisting conditions. 

Because we were told in the run up to pass the Affordable Care Act 

that there were 8 to 12, 15 million people who had preexisting conditions and as a consequence could not get insurance. As of January 1st or January 30th when the program closed to new folks, do 

you know how many people were receiving insurance through the 

preexisting pool? 

Mr. DURHAM. I believe it was around 135,000. 

Mr. BURGESS. So how do you explain the discrepancy between 8 

to 12 to 15 million people who we were told in the run up to this 

law, and 100,000, 150,000 that were actually in the pool when the 

doors closed? 

Mr. DURHAM. I don’t have an explanation for that? 

Mr. BURGESS. Well, wouldn’t part of the explanation be in the 

large group market, under ERISA regulations, there are periods 

called open enrollment periods, where people who are hired onto 

say a large telecommunications company, they are hired on, they 

get on the insurance, if they have a preexisting condition, are they 

what, are they fired, are they turned down or what, what happens 

to them? They get insurance, don’t they? 

Mr. DURHAM. Yes, through their employer. 

Mr. BURGESS. And that is one of the issues. All of the debate 

leading up to the passage of the Affordable Care Act conveniently 

ignored that, yes, here is a group of people who have a problem, 

people in the individual market. They have a preexisting condition, 

they get frozen out of market, but people in the large group market, because of some existing Federal regulations, some of which I 

have a problem with, to be perfectly honest, but nevertheless, they 

get coverage when they get hired onto one of the multi-State corporations; is that not correct? 

Mr. DURHAM. That is correct. 

Mr. BURGESS. So, the problem with preexisting conditions was 

actually one that perhaps was quite manageable, I would submit. 

It never required a new Federal agency to be stood up, and that 

is where most of the dollars in the PCIP program were wasted setting up a new Federal agency. It would have been far better served 

to help those States that already had risk pools of reinsurance or 

some other novel approach to help someone in the individual market who didn’t have coverage, but for whatever reason, we decided 

that we needed a new Federal agency because I guess we didn’t 

have enough already; is that right? 

Mr. DURHAM. I can’t comment on the specific administrative side 

of the PCIP program. 

Mr. BURGESS. Well, Mr. Spiro may have some recollection about 

that from his time on the committee, but we have already visited 

about that, so I will yield back. I did want to make that point, 

though. There is—the folks who have preexisting conditions are 

rarely in the large group market. They tend to be in the small 

group market and the individual market, and that was a fixable 

problem—— 

Mr. MURPHY. Time expired. 

Mr. BURGESS [continuing]. Had the Congress had the will to do 

that. 

Mr. MURPHY. OK. Gentleman’s time expired. 

78 

I recognize Mr. Butterfield for 5 minutes. 

Mr. BUTTERFIELD. Thank you very much, Mr. Chairman. 

Thank all of you for your testimony today. We have heard a lot 

today about premiums under ACA may actually increase, and a lot 

of these claims aren’t accurate, in my opinion, because they don’t 

take into account factors like the tax credits that will be available 

to many enrollees to reduce the cost of coverage. But some of this 

discussion simply misses the point. 

Under ACA, millions of Americans will have access to much better coverage, so even if they pay higher premiums, they will get a 

lot more for their money. Let me start off with Mr. Durham, if I 

can. 

Your testimony puts this in what I call clinical terms. It refers 

to the Affordable Care Act’s minimal actuarial value requirements. 

In plain English, what does this mean? 

Mr. DURHAM. That is the percent of total healthcare cost that is 

paid by the plan versus the insured, so a minimum of 60 percent 

actuarial value means the plan picks up 60 percent of the total 

cost. The beneficiary pays the other 40 percent. 

Mr. BUTTERFIELD. Has your industry projected with any certainty about how many more people will have insurance as a result 

of the Affordable Care Act? 

Mr. DURHAM. We have seen CBO projections in terms of—— 

Mr. BUTTERFIELD. Do you accept that projection as valid for planning purposes within your industry? 

Mr. DURHAM. Generally, yes. 

Mr. BUTTERFIELD. And how many people do you project will get 

insurance? 

Mr. DURHAM. Well, let me see. I have got the latest CBO projections here with me. They estimate that—it looks like, in 2014, 

there will be 9 million additional Medicaid and SCHIP; 2 million 

will lose nongroup coverage; 7 million will gain coverage through 

the exchange. 

Mr. BUTTERFIELD. But the industry is preparing for a large influx of new enrollees in the—in the exchange. 

Mr. DURHAM. Well, that is our hope. And our main concern is 

that if premiums are not affordable, then those younger and 

healthier will opt not to purchase coverage, stay out, and that will 

deteriorate the risk pool. 

Mr. BUTTERFIELD. And that is why you focused on implementation. You want this thing to work, don’t you? 

Mr. DURHAM. Yes. Our plans are competing in this new marketplace and have been working on implementation round the clock to 

get ready for the October 1 open enrollment. 

Mr. BUTTERFIELD. And the tax credits that you will be getting to 

assist with these premiums, that is money. That is real money that 

your companies will spend and use to—for your overhead and for 

other things that you do. 

Mr. DURHAM. Those tax credits will not reduce the premium cost, 

but they will help lower-income individuals pay for premiums, that 

is correct. But they do—they do phase out rapidly, so by the time 

you get up to around, according to CBO, about 250, 300 percent of 

Federal poverty level, those premium tax cuts are only paying for 

40 percent of the premium, and so that is worth to note as well. 

79 

Mr. BUTTERFIELD. Do you have any idea what the average premium will be, let’s say for a 35-year-old single healthy adult in the 

average State? 

Mr. DURHAM. The average premium, I don’t have that in front 

of me. I think for CBO’s estimate, it is $5,200. 

Mr. BUTTERFIELD. And Ms. Ucello, do you have any projection on 

the average premium cost for a single adult? 

Ms. UCCELLO. No, and I would argue that there is no such thing 

as average. 

Mr. BUTTERFIELD. I think Kaiser comes out with like $330 a 

month, which is $4,000 a year or something. You are saying—— 

Ms. UCCELLO. We have not done any projections. 

Mr. BUTTERFIELD. Because of the variations between the States 

and the different—— 

Ms. UCCELLO. Across individuals and States, exactly. 

Mr. BUTTERFIELD. All right. So back to you, Mr. Durham. So, 

under the Affordable Care Act, plans on the exchange must offer 

policies that cover at least 60 percent of healthcare costs; is that 

correct? 

Mr. DURHAM. That is correct. That is the minimum actuarial 

value. 

Mr. BUTTERFIELD. But it can go up from there to 90 percent of 

the cost. 

Mr. DURHAM. That is correct. 

Mr. BUTTERFIELD. We have heard a lot of furor from my friends 

on the other side in this hearing and in previous hearings about 

potential large increases in premiums, but Mr. Spiro, your testimony walks through why some of these concerns seem to be overblown. For starters, people who currently have employer coverage, 

like Medicare and Medicare and other public coverage, are unlikely 

to be affected by premium changes; is that correct? 

Mr. SPIRO. That is correct. It is almost 90 percent of the American population. 

Mr. BUTTERFIELD. And much of the remaining population, 

women and older people and people with preexisting conditions are 

likely to see lower premiums and not higher premiums. Would that 

be correct? 

Mr. SPIRO. Correct. It depends, as Cori has mentioned, it depends on a lot of different factors. The group of concern would be 

young adults with higher incomes who don’t qualify for full subsidies, and in my testimony, I said that the estimated fraction of 

the population that that is 0.5 percent. 

Mr. BUTTERFIELD. Mr. Spiro, if this act was completely repealed, 

what would happen to the number of uninsured people in our country? 

Mr. SPIRO. Relative to the act being in place, I believe CBO’s latest estimate, if I can borrow this—— 

Mr. DURHAM. Sure. 

Mr. SPIRO. Is that, you know, within 10 years, the Affordable 

Care Act will reduce the number of uninsured by 25 million. Now, 

it would be much higher if all States expanded their Medicaid programs, so—— 

Mr. BUTTERFIELD. That was going to be my final question. 

80 

Mr. SPIRO. And I expect that to be the case. Over time, States 

will realize what a good deal it is, how good it is for their economies, so I expect every State will eventually take up the expansion. 

And when the CBO estimated on that basis, the reduction in the 

number of uninsured was over 30 million. 

Mr. BUTTERFIELD. When you served on the Senate committee 

that helped put the finishing touches on this thing, did you ever 

imagine that States would decline to expand their Medicaid program to cover poor people within their States? 

Mr. SPIRO. Well, first, I never imagined that the Supreme Court 

would make that expansion a voluntary option. Now, I don’t think 

it is wise for States not to expand. One reason, since we are talking 

about premium impact, is that actually, in States that do not expand their Medicaid programs, premiums will rise in the exchanges. 

Now, why is that connected? It is because on average people who 

are lower income are sicker, it is a less healthy population, so if 

they are being covered under the exchanges, rather than under 

Medicaid, premiums are going to rise slightly in the exchanges, so 

I think it is an unwise policy—— 

Mr. MURPHY. Gentleman’s times has expired. 

Mr. SPIRO [continuing]. Not to extend Medicaid program. 

Mr. MURPHY. Mr. Long is recognized for 5 minutes. 

Mr. LONG. Thank you, Mr. Chairman. 

Mr. Spiro, you worked on the Hill up here and were a staffer. 

If you were a staffer today and wanted to get information on what 

your healthcare was going to cost you January 1st of next year, 

were would you suggest I go? 

Mr. SPIRO. I am sorry, can you repeat the question? 

Mr. LONG. My 5 minutes will be up. If you were working on the 

Hill today and you go to the Member of Congress—you worked for 

Senator Kennedy; is that right? 

Mr. SPIRO. Right. 

Mr. LONG. And you go to Senator Kennedy and you say, what is 

my health insurance? They have got this new Affordable Care Act 

coming in and Members of Congress and their staff are going to be 

under the exchanges, how much is my healthcare? 

Mr. SPIRO. Yes. 

Mr. LONG. Where would you go to get that information? Where 

can I—because these are the questions my staff has asked for. 

Mr. SPIRO. Yes. 

Mr. LONG. We are talking about the increased healthcare cost, so 

where can I get that information? I have been trying since January 

and I haven’t been able to get it from anybody. Where would you 

suggest I go with your experience up here? 

Mr. SPIRO. This is the beauty, Congressman, of the exchanges. 

Each State is going to have its own exchange, whether it chooses 

to establish its own exchange. If it doesn’t—— 

Mr. LONG. Missouri is not going to—I mean, Missouri is not 

going—— 

Mr. SPIRO. If it does not, then the Federal Government will facilitate an exchange in that state and consumers can go online. 

Mr. LONG. Today? 

Mr. SPIRO. When the exchanges are functioning. 

81 

Mr. LONG. May 20th? 

Mr. SPIRO. October 1st. 

Mr. LONG. They go—OK, October 1st. 

Mr. SPIRO. Yes. They can go online and see the rates and compare them, apples-to-apples comparison, makes it much easier to 

shop for and compare plans and that you will be able to see what 

your premium tax credit would be. 

So, we won’t be talking about all these studies that don’t take 

into account your premium tax credits. Consumers will actually be 

able to see how much they will actually have to pay out of pocket. 

Mr. LONG. So that is October 1. So if you are a young—how old 

are you? 

Mr. SPIRO. I am 38. 

Mr. LONG. 38. OK. You look younger than that. If you—but if you 

are a young staffer up here living three and four deep in an apartment, as you know they do, trying to make a living and staffers 

back home that have one or two children, young family starting 

out, they are going to need to wait till October the 1st before they 

can then find out what their insurance is going to cost January 1st, 

so they are going to have October, November, December to make 

a decision on whether they want to stay employed here in public 

service or whether they need to find another job where they will 

have better coverage, correct? About three months. 

Mr. SPIRO. The open enrollment period is 6 months, and it starts 

on October 1st, so it is a long period of time for people to enroll. 

Mr. LONG. When you were talking to Mr. Butterfield there about 

the—repeat that about the 90 percent; 90 percent of the people will 

not see premium increases? Was that a category or something, or 

did I—surely that is not 90 percent of the public. 

Mr. SPIRO. What Mr. Butterfield was pointing out was that the 

vast majority of Americans who have health insurance today, they 

either have it through their employers or through Medicare or 

Medicaid or the Veterans Health Administration, other government 

programs, and when you add up all those people, that’s 90 percent. 

Mr. LONG. And you are saying that their premiums are not going 

to rise. 

Mr. SPIRO. I am saying that because we are focussing today on 

the impact of reforms to the non-employer market, the nongroup 

market, we are not talking about that 90 percent of the population. 

Mr. LONG. I thought we were talking about the health insurance 

premiums under the Patient Protection and Affordable Care Act. 

Mr. SPIRO. Correct. And the reform—— 

Mr. LONG. OK. Let me move on to another question. I had a CEO 

come to me, and he said, I am coming to you, I am coming to Senator McCaskill, Senator Blunt because I want you to realize how 

devastating this Affordable Care Act is to our company. We provided great healthcare. 

This is a local company in my town. 

Mr. SPIRO. Yes. 

Mr. LONG. They have 53,000 employees. To quote him, he said, 

we had great health insurance for our people. They loved it. It was 

affordable for us. 

Mr. SPIRO. Yes. 

82 

Mr. LONG. If we comply with Affordable Care Act, it is not affordable. We cannot do it. The only thing we can rationalize is cut everybody back to under 29 hours a week, which that is not feasible. 

So what would you suggest to someone like that? 

I am talking to you and not them. What do you suggest to somebody like that? What do I tell a CEO that comes to me, 53,000 employees, started out with one store in Springfield, Missouri, now, 

obviously, they have stores around the country, has built this company up and they are not able to keep the insurance they were 

promised, that they were promised, what do you tell somebody like 

that? 

Mr. SPIRO. The first point I would make is that it was an option 

to grandfather their plan, so it was an option for them to keep 

their—— 

Mr. LONG. Are they past that deadline now? 

Mr. SPIRO. Now, the second thing is that a lot of—— 

Mr. LONG. They don’t think they can keep their plan, sir. If they 

can, I need the information out so I can get to them quick. 

Mr. SPIRO. They had the option to keep their plan. 

Mr. LONG. They can keep what they had exactly. 

Mr. SPIRO. When the Affordable Care Act was enacted, they had 

the option to keep their plan, and they would be grandfathered or 

exempt from these reforms. 

Now, a lot of employers were finding, are talking about cost increases and blaming the Affordable Care Act. Well, as we discussed 

earlier, there has been a trend for 10 years of premiums increasing. 

Mr. MURPHY. Gentleman’s time has expired. 

Mr. LONG. Is that clock not working or what? 

Mr. MURPHY. Well, we gave you extra time on that. 

Mr. LONG. Very well. Yield back. 

Mr. SPIRO. Their policies not necessarily—— 

Mr. MURPHY. Mr. Spiro, we are going into the next—I would appreciate it if you could try to keep your comments under time. 

Mr. Green recognized for 5 minutes. 

Mr. GREEN. Thank you. Thank you, Mr. Chairman, and I guess 

I have had a whole line of questions, but in an earlier life, I actually managed a business and part of our employees were under a 

union bargaining agreement and part of the office personnel were 

not, but—and one of my jobs was to negotiate for a small firm for 

their insurance premiums. In the years that I did that, I never had 

my insurance company come in and say, we are not going to increase your premiums 10 percent, sometimes even 25 and 30 percent. 

So, for us to say that we cannot guaranty insurance premium increases, didn’t happen in the real world for the last 30 years because I know they went up. I know they went up on my business. 

I know they went up on even large businesses. And so that is what 

boggles my mind because, frankly, we have this huge pool of people 

who are not paying into anything right now. And so my hospitals 

have to cover them by Federal law, and we are not going to change 

that. Why shouldn’t we have some type of mandate to go in there? 

And frankly, I am familiar with my colleague from Missouri’s 

company because I am a customer of that company, and it is a retail operation, and I think they would qualify. But in all honesty, 

83 

I want to compliment you, Mr. Spiro, my colleague from Missouri 

has never told me I look younger than I am. 

But let me talk about some of things, though, that were in the 

bill that, for example, the preexisting conditions. My colleague from 

Texas, Dr. Burgess talked about it, that it is mainly in the smaller 

groups, and it is right. Under ERISA, you have certain rules that 

once you are an employee—and mostly yours only covers very large 

employers, you got that coverage. But I can tell you in the smaller 

group, in State government policies, which were individual and 

smaller group, they weren’t coming under multi-State requirements. They did not have that, and so they could actually write 

people out for preexisting, and I will give you my example. 

When I was negotiating with a company, for an insurance company for our 13 employees, they came to me after 3 years and said, 

we can lower the increase in your premiums if you would exclude 

this person in there and later go to the individual market because 

she just happened to have a double mastectomy, and it was only 

my job to negotiate. I wasn’t the owner of the company. And I said, 

well, I appreciate that, but that lady had a double mastectomy, she 

works here and she is the wife of the owner. I will share that information with them because that is what happens in the real world 

and that is why the preexisting condition is so important in the Affordable Care Act. 

And by the way, that is not the only thing. A lot of my colleagues—I know I didn’t like the Senate bill. I am a House Member. I know what the Senate did. They took our House number and 

amended it. In our House bill, we fixed the SGR. In our House bill, 

we did not have an iPad in there. In our House bill, we did not include Senator Kennedy’s long-term care because we couldn’t afford 

it but we did include preexisting conditions. And yet, to a person 

on the Republican side, they all voted against those things even 

though they were in the House bill, and they were added in the 

Senate bill, and they didn’t vote for it either then. 

So, to sit here and say we didn’t fix SGR, we did, and I still cannot imagine why the United States Senate didn’t fix that because 

I don’t think we can find any one of the Senators over there to support the SGR any more than we can found a House Member to do 

it. 

But Mr. Spiro, I appreciate your—and I know my colleague 

talked about the 90 percent of the Americans—insured Americans 

have employer covered insurance, and I regret the Supreme Court’s 

decision on Medicaid. I also served as a State legislator, and in 

Texas, State legislators are not full-time. You get $600 a month, 

whether you earn it or not. So all of us had other income, and that 

was part of my management of that printing company that I 

learned about insurance from a buyer’s point of view in small 

group insurance. But, and again, coming from Texas, we have a 

huge number of people who are uninsured. 

I have one of the largest districts in the country with people who 

work and yet their employer doesn’t provide insurance for them. 

So, the Affordable Care Act, one of the benefits was Medicaid—we 

have a lot of working poor because you have to be pretty destitute 

and poor to get Medicaid in Texas to begin with, but if you are a 

working poor, you still don’t get it now under the Affordable Care 

84 

Act. So, and I know that has been discussed, and a lot of legislators 

all over the country, and I wish we would change that because that 

was one of the goals is to make sure these folks, if you are making 

$15 an hour and have three or four children, there is no way you 

can afford insurance premiums and still be—and still pay for rent 

and everything else. 

Mr. Chairman, I know a lot of the questions have been asked 

that I already have, but I appreciate my colleagues, and I appreciate your patience today. 

Mr. MURPHY. Thank you. Now we will recognize Mr. Olson for 

5 minutes. 

Mr. OLSON. I thank the Chair, and welcome to our witnesses. 

I am the congressman for Texas 22, which is a suburban district 

right outside of Houston. I go home every week and try to go out 

to eat a meal with my family at a restaurant one day when I am 

home because there is no better place in Texas, none, to get the 

feel of Texans when you are at a restaurant. 

They are scared of Obamacare and what it is going to do to the 

healthcare of their family. Every time I go to eat at a restaurant, 

whether it is breakfast, lunch or dinner, they tell me stories about 

the broken promises that have been made by Obamacare. If they 

provide their own health insurance, it is going to go up somewhere 

between 5 and 43 percent. That is from a study this committee determined, 5 to 43 percent. That is a broken promise. If their employer provides insurance, it is going up to 23 percent increase of 

their cost, or they lose it. That is a broken promise. 

These people have been hurt by this weak economy. They don’t 

have more money to spend on healthcare. They are tapped out. 

They are not just afraid of Obamacare. They are terrified of it. 

I represent the most diverse district in America, and they express these same fears regardless of ethnicity, religion, gender, or 

age. It happens all the time back home. At Bob’s Taco Station in 

Rosenberg or barbecue lunch at The Swinging Door in Richmond, 

Texas, or a steak dinner at Killen’s in Pearland, Texas. These good 

scared Texans agree with Senator Baucus, Obamacare is a train 

wreck coming down the tracks. 

I want to focus on one of these broken promises, is that young 

American will purchase their healthcare. They won’t. They will get 

it when they need it, as they are driving to the hospital to get their 

healthcare. I am a former naval aviator. There is a thing in aviation called a death spiral and that is a situation where the aircraft, 

it starts out benignly enough, but then it starts spinning, spinning 

spinning and eventually you can’t regain control and you can’t eject 

out of the airplane, hence the term death spiral. My questions to 

you, Mr. Durham, if young Americans don’t purchase healthcare, 

they forego that, does that put Obamacare into a death spiral? 

Mr. DURHAM. It could if young Americans, young healthy individuals do not purchase coverage, that could increase cost for everyone 

who remains in the risk pool and that could have an adverse effect. 

That compounds over time, so depending on how many younger 

and healthier individuals opt out and pay the penalty, it could certainly compromise the risk pool, which could lead to that type of 

situation down the road. 

85 

Mr. OLSON. So another broken promise. And we have got some 

actuarials here. I mean, Ms. Ucello, Mr. Carlson, how about the 

death spiral? If young people do not get involved in this healthcare 

bill, like I think is going to happen, is that going to start a death 

spiral with Obamacare getting more and more people coming into 

the exchanges because their employers got rid of healthcare insurance, all these things are happening on January 1st. I mean, that 

sounds to me like a death spiral. 

Ms. UCCELLO. As I mentioned earlier, the viability of the market 

does rely on bringing in lower-cost people to offset the cost of the 

higher-cost people, and the guaranteed issue provision will provide 

more incentives to bring in the high-cost people. But the individual 

mandate and the premium subsidies will help to mitigate that effect by providing incentives to bring in lower-cost people. So it depends on how effective those provisions are at mitigating the other 

upward pressures on premiums. 

Mr. OLSON. Mr. Carlson, you care to elaborate, sir? 

Mr. CARLSON. Well, I think I agree with what Ms. Ucello said, 

and you know, because of the premium tax credits there, there is 

kind of a floor, but it doesn’t minimize the importance of bringing 

young healthy individuals into the pool. 

Mr. OLSON. OK. It is about time. 

I yield back the rest of my time, sir. Thank you all. 

Mr. MURPHY. Gentleman yields back. 

I now recognize Ms. Schakowsky for 5 minutes. 

Ms. SCHAKOWSKY. Thank you, Mr. Chairman. 

Mr. Carlson, in reading your testimony, you said, for the individuals that are expected to be eligible to receive premium subsidies 

in the exchanges, the amount they actually pay may be less and 

sometimes substantially less. So, your analysis did not take into account the out-of-pocket cost that people are going to pay, given the 

premium subsidies, right? 

Mr. CARLSON. Correct. My report looked at what the insurance 

company would charge in premium rate. 

Ms. SCHAKOWSKY. And following up on the—oh, did Mr. Olson 

leave? He was talking about young people and getting them in the 

plans. 

Mr. Spiro, isn’t it true that when young people have been surveyed, the main reason that they don’t get health insurance, my 

understanding is, is the cost of health insurance, that they would, 

and isn’t it also true that young Americans tend to have lower incomes and could be some of the biggest beneficiaries of the premium subsidies. I wondered if you would reflect on younger people 

getting in the plan. 

Mr. SPIRO. Right. So, as I said, 70 percent of young adults with 

non-employer coverage would be eligible for Medicaid or the exchange subsidies, and in many cases, those subsidies would be very 

generous and lower the costs that they see. 

I do want to mention that there are three things that this committee could do constructively to mitigate any premium increases. 

One is, don’t scare away young Americans by talking about rate 

shock all the time. Second is encourage Medicaid expansion, because as I mentioned before, in States that don’t expand their Medicaid programs, premiums will be slightly higher in exchanges as 

86 

a result. And third, fund consumer assistance and education. The 

exchanges are there to lower barriers to young Americans, to make 

it easier to shop for and compare plans. But one thing that you can 

really do, if you are concerned about rate shock, is to provide more 

funding for consumer outreach and assistance. 

Ms. SCHAKOWSKY. The other thing I was interested in. 

Mr. Olson was talking about how fearful people were because of 

the rate increases that they are experiencing, but only five States 

have said what the rates are going to be. 

Mr. Durham, does anybody know right now what kind of increases—I mean, we know that they have been going up every year 

as Mr. Green pointed out, but when they talk about, oh, my rates 

are going to go up this, my rates are going to go up that, do we 

really know that already? 

Mr. DURHAM. We don’t yet. We won’t know for sure until the 

rates are actually approved and individuals can start shopping on 

the exchange Web sites and the like come October 1st, so there is 

still a long way between now and then. A number of States are 

still—— 

Ms. SCHAKOWSKY. So blaming Obamacare for increases in rates 

at this point is not really accurate, is it? 

Mr. DURHAM. Well, I think what we are conveying through the 

studies that have been talked about this morning is a number of 

actuarial firms have indicated that there are provisions in the Affordable Care Act that put upward pressure on premiums. It is 

variable, depending on the age, health status, location and the current coverage the individual has, and so it is more shaping the environment than the—— 

Ms. SCHAKOWSKY. Well, let me ask—anybody can answer this. 

But seems to me, for example, that competition is not really taken 

into account. In Maryland, Blue Cross, the largest carrier in Maryland, and we do have it, proposed a 25 percent average increase for 

its 2014 individual market. Other plans saw smaller increases, in 

some cases, below annual trends in years prior to health reform. 

For example, Kaiser Permanente’s average rate increased only by 

4.3 percent. 

So, wouldn’t it make sense, Mr. Spiro, that in a marketplace, 

that if you could compare rates and go online and find that, that 

you would take a Kaiser Permanente over a Blue Cross/Blue Shield 

then? 

Mr. SPIRO. Yes. I think the exchanges are working as intended, 

and there is intense competition among insurers because the premium subsidies are linked to the second lowest cost plan, so they 

want to be close to that plan. 

In Maryland, as it turns out, the original proposal from 

CareFirst was for a 50 percent increase, and then they lowered it 

to 25 percent, and that is proposed. So, after the Maryland insurance commissioner reviews that rate, it is probably going to come 

down even more. And as you said, there are other plans available 

that will be cheaper and consumers can vote with their feet, with 

their pocketbooks and choose those plans. 

Ms. SCHAKOWSKY. Thank you. 

Thank you, Mr. Chairman. 

Mr. MURPHY. Thank the gentlelady whose time has expired. 

87 

Now recognize the gentlelady from North Carolina, Ms. Ellmers 

for 5 minutes. 

Mrs. ELLMERS. Thank you, Mr. Chairman. 

Thank you to our panel for being here today. Ms. Ucello, there 

has been discussion today about decreases in premium costs, and 

one of those discussions focuses around reinsurance. Can you very 

quickly give a description of what reinsurance is? 

Ms. UCCELLO. Sure. Reinsurance is that plans who have a highcost person who spends, you know, has a catastrophic accident or 

something, that plan is going to be reimbursed for the spending on 

that person, and so by reimbursing that spending, their costs are, 

in effect, subsidized so they can lower their premium. 

Mrs. ELLMERS. And who pays that subsidy or that reimbursement? 

Ms. UCCELLO. So, in this particular reinsurance program, it is for 

the individual market and it is funded by assessments on all plans. 

Mrs. ELLMERS. So all plans will pay an increased cost. 

Ms. UCCELLO. It is a—— 

Mrs. ELLMERS. To pay for the subsidy? 

Ms. UCCELLO. Yes, but it’s a—Chris, I don’t know if you know. 

It is like it is $5. 

Mr. CARLSON. $5.25. 

Ms. UCCELLO. $5.25 per member. 

Mr. CARLSON. And it includes self-insured plans have to pay it, 

too. 

Mrs. ELLMERS. And I am sorry, $5.25. What—can you—— 

Mr. CARLSON. Per individual per month. So every member that’s 

enrolled in the plan, whether it is insured or self-insured, they’re 

responsible for paying $5.25 per month for that individual. 

Mrs. ELLMERS. $525? 

Mr. CARLSON. No, $5.25. 

Mrs. ELLMERS. $5.25. Kind of—OK. So it is kind of an insurance 

on the insurance. 

Ms. UCCELLO. Exactly. 

Mrs. ELLMERS. And the individual pays that for that premium, 

the individual pays that. 

Ms. UCCELLO. It is incorporated into that—— 

Mrs. ELLMERS. The cost. 

Ms. UCELLO [continuing]. Premium for—— 

Mrs. ELLMERS. OK. 

Mr. Carlson, the subsidies. As far as—I keep hearing about the, 

you know, the tax subsidies and subsidies. Who pays the subsidies 

and who benefits from that? What group? Is it income-based, I am 

assuming. 

Mr. CARLSON. It is income based. You know, where those funds 

come from is the general Treasury basically. 

Mrs. ELLMERS. So basically the hardworking taxpayers of America are paying for that. 

Mr. CARLSON. Yes. 

Mrs. ELLMERS. But we don’t really know what that cost is. I 

mean, overall, do we know what that cost is, how we are going—— 

Mr. CARLSON. No, I think CBO has made assumptions. I don’t 

know them offhand. 

88 

Mrs. ELLMERS. And who would benefit? I mean, is there—when 

I say income-based, I mean, which individuals will be able to benefit from these subsidies? 

Mr. CARLSON. Well, it is everybody up to 400 percent of the fed- eral poverty line, which I believe was $40,000-some for an individual and $80,000, $88,000, I think, for a family of four. 

Mrs. ELLMERS. OK. Mr. Durham, part of the discussion today is 

based on the numbers as they are today and implementation, and 

you identified that your organization that you are with is headed 

with this being fully implemented; is that correct? 

Mr. DURHAM. That is correct. 

Mrs. ELLMERS. OK. Now, has that been—the thought that there 

are employers who currently cover their employees with healthcare 

plans, is that being taken into consideration, because many have 

said that they will not be able to afford this and will have to drop 

the coverage that they now have on their employees. Has that been 

taken into consideration? 

Mr. DURHAM. In terms of the implementation work that our 

plans are doing, it is focused on applying to be a qualified health 

plan through the federally facilitated exchange. So that window 

just closed and CMS is now reviewing those plans. We are also applying—— 

Mrs. ELLMERS. But the point is, is that you really haven’t projected, yes or no, you have not projected how many plans—how 

many healthcare plans will be dropped and forced onto exchanges 

or—— 

Mr. DURHAM. CBO has projected that. I believe their projections 

are 6 million in 2016, and that goes up to 7 million in later years. 

Mrs. ELLMERS. OK. Mr. Spiro, I have one question for you. You 

had cited CBO saying that there will be a decrease of 25 million 

with implementation of Obamacare, that 25 million people who are 

now uninsured will be insured. Well, I also have a CBO number, 

and I am wondering if you can explain this to me. May 13th, the 

CBO came out and said that by 2023, with implementation of 

Obamacare, there will still be 30 million people left uninsured. Can 

you describe or explain that discrepancy in about 10 seconds? 

Mr. SPIRO. Well, for some people, the cost of insurance will still 

be too high. For some people, some people are undocumented immigrants. 

Mrs. ELLMERS. So this is in accordance with undocumented immigrants; is that how you describe it? 

Mr. SPIRO. Undocumented immigrants make up a big chunk of 

the remaining uninsured, yes. 

Mrs. ELLMERS. All right. Thank you, sir. I see my time has expired. 

Mr. MURPHY. Thank you. 

I recognize the gentlelady from Florida, Ms. Castor 5 minutes. 

Ms. CASTOR. Thanks, Mr. Chairman, and thank you for calling 

this hearing because it is—I appreciate the panel because it is important for all of us to try to cut through some of the political rhetoric right now. I know that is difficult here in the Congress, but 

you know, when you—when you cut through some of that, that 

rhetoric, there are some very important reforms and opportunities 

for small businesses across America and individuals, and you just 

89 

have to look at my State of Florida, where about 20 percent—it is 

actually a little more than that—of individuals in the State of Florida do not have access to health insurance. Over time, it has just 

been—it has been warped because we kind of kept sick people out, 

took care of people who were healthy. The large group plans are 

functioning fairly well, except for these big premium increases over 

time, but part of the problem is this huge chunk of the uninsured. 

So, what the Affordable Care Act does is it gives these folks some 

important insurance market reforms. It gives them an opportunity 

to take personal responsibility and come into the market. In Florida, you know, many people in the tourism industry, in retail, the 

mom and pop restaurant down the street that just didn’t have the 

wherewithal to go out into the individual or small business market 

and afford insurance. So the Affordable Care Act improves the insurance market in two important ways for these folks. 

One, it requires that insurers offer high quality coverage to all 

without discriminating against people who have preexisting conditions, like cancer, diabetes or asthma. And another way of saying 

that is that people cannot be denied any longer just because they 

were sick or had a preexisting condition. 

Second, the Affordable Care Act provides some very important 

tools to make it affordable for small businesses and individuals. 

Specifically, for small businesses, one of the great secrets that this 

committee could really to help to spread word on is the fact that 

we have very substantial tax credits available for our small business owners now. Over 360,000 small businesses across America 

have already taken advantage of them, and there are millions and 

millions more small businesses that will be available—that can 

take advantage of the tax credits. 

We also help small businesses by creating this new online marketplace, because what we—what we do, we empower those small 

businesses now, give them the same negotiating power that the 

larger employers had in the marketplace by pooling everyone together. So, for small business owners, this is going to be a very 

positive sea change where they will be able to have that kind of 

health security and economic security for the owners and their employees. 

Now, for individuals, the Affordable Care Act provides very substantial tax credits to families, up to about 400 percent of the poverty level, and people just don’t know, that is a good middle class 

family all the way up to maybe $80,000, $90,000, folks can get 

some type of tax credit. The medium income in my hardworking 

district in the Tampa Bay area is about $35,000 per year. A great 

majority of these folks are going to be able to tap these very robust 

tax credits. 

What I would suggest for people that want to cut through the political rhetoric is they go to the independent Web site of the Kaiser 

Family Foundation. They set up a calculator to estimate the value 

of these tax credits for families. It shows that a family of four making the medium national household income of $50,000 will receive 

tax credits worth up to $6,500. 

Mr. Spiro, I wondered, talk to us about how these tax credits will 

help families afford health insurance coverage. What has been happening in the market prior to this time as these reforms roll in? 

90 

Mr. SPIRO. I think one important thing to note about the tax 

credits is they are advanceable. You can get them right away. You 

don’t have to wait till you file your taxes at the end of the tax year. 

So it really is an immediate reduction in the costs you would pay 

out of pocket. You can see it online when you go to the exchanges, 

what costs you would have to pay. The exchange will automatically 

determine how much you are eligible for. 

And so, for young Americans, this is going to be very important 

because they disproportionately have lower incomes, and they are 

the key population, as Cori and others, really the whole panel, I 

think, agrees, they are the key population that we want to enroll 

because they are young and healthy and they will keep average 

premiums low for the whole exchange population. 

Ms. CASTOR of Florida. Thank you. 

Mr. MURPHY. Gentlelady’s time has expired. 

Now recognize the gentleman from Ohio, Mr. Johnson, for 5 minutes. 

Mr. JOHNSON. Thank you, Mr. Chairman. 

I appreciate the witnesses being here today, by the way. Thank 

you for taking the time. 

For Ms. Ucello and Mr. Carlson, could you identify, please, the 

aspects of the law that may lead to premium decreases? 

Ms. UCCELLO. Did you say decreases? 

Mr. JOHNSON. Yes. 

Ms. UCCELLO. So the factors that will put downward pressure on 

premiums, again, include the individual mandate and the premium 

subsidies, which will help bring in the young and healthy into the 

insurance market and put, like I said, downward pressure on premiums. In addition, the premium subsidies themselves will directly 

lower net premiums. 

There is also the reinsurance program, which by, again, reimbursing plans for their high-cost enrollees will act as a subsidy to 

the plan, so that will lower premiums. 

There is also the availability of the catastrophic plans for the 

adults up to age 30 and to those exempt from the mandate, those 

plans are going to be able to have adjustments to their premiums 

to reflect the lower expected costs of that population. So those are 

some of the things that will help put downward pressure on premiums. 

Mr. JOHNSON. Any addition to that, Mr. Carlson? 

Mr. CARLSON. Well, there were two things I would mention. One, 

certainly, I would agree that the open competition on the exchanges will, you know, force plans to be careful about their pricing 

and make sure they have competitive rates. However, on the other 

hand, you know, they still have a financial responsibility to make 

sure that they have a premium that is sufficient to cover the claim. 

So, I think that competition will help there, but on the other hand, 

you still have to fund the benefits. 

And I think the other item that has been discussed is the question of uncompensated care, and the more young individuals and 

the more enrollment you can get into the program and minimize 

the uninsured population as much as you can, that will allow plans 

to get rid of that cost shifting from the uninsured to the commercial market. 

91 

The problem is that that will take time for those things to work 

out and in the system, so that is kind of a longer term goal. 

Mr. JOHNSON. Well, these things that decrease a premium, and 

obviously you’ve identified some things that would or could, do 

these items that lower premiums outweigh the items that will increase premiums under the law? 

Mr. CARLSON. Certainly not in the short term. I mean, 

they’re—— 

Ms. UCCELLO. And I think it also depends on for whom you’re 

talking. In certain States, it’s possible that there could be premium 

decreases if they already have market rules that are similar to 

those that will go into effect in 2014. 

Mr. JOHNSON. OK. Mr. Durham, as you are aware, the IRS will 

be responsible for implementing a great deal of the health care law, 

mainly enforcement. Have you or your association had any discussions with the IRS about what that role will be, and what the industry can expect from the IRS? 

Mr. DURHAM. I have not personally had discussions with the IRS, 

but other members of my team have had discussions with the IRS. 

They play a very significant role in implementation, clearly, with 

regard to the advanced premium tax credits and the system build 

to ensure that the right information is available to help plans for 

enrollment. 

Mr. JOHNSON. OK. You know, as costs continue to rise, the 

health care law defenders now say that even though they promised 

lower costs, that it really doesn’t matter if premiums go up, because as Ms. Uccello just pointed out, the subsidies will help. Well, 

these subsidies phase out after 400 percent of Federal poverty 

level, which is about $44,000 for an individual, $94,000 for a family 

of four. 

Have you conducted any analysis that has analyzed the impact 

of the subsidies nationwide, how many individuals will receive 

them and at what level? 

Mr. DURHAM. We have not, but I could look into that for you. 

Mr. JOHNSON. OK. My time is almost ready to expire, and I just 

wanted to end with this comment, Mr. Chairman. You know, the 

President promised a lot of things in the Affordable Care Act, two 

very striking things. He said costs will go down, and he said if you 

want to keep your current health coverage, that you can do so. 

I have heard it repeated by my colleagues on the other side several times today that in order to get your premium to go down, 

you’re going to have to take less benefits. That doesn’t sound like 

the promise that the President made to the American people, in my 

view. And with that, I yield back. 

Mr. MURPHY. The gentleman yields back. 

I ask unanimous consent for the majority report of March 14th 

be included in the record. And so ruled. 

[The information appears at the conclusion of the hearing.] 

Mr. MURPHY. Ms. DeGette, you have—— 

Ms. DEGETTE. Yes. 

I ask unanimous consent for the May 13th Democratic memo, the 

May 20th Democratic memo, a letter to this committee dated May 

20th from Families USA, and a letter dated May 20th to this committee from AARP. And you have all of those, Mr. Chairman. 

92 

Mr. MURPHY. Yes. Without objection, they’ll also be included in 

the record. 

[The information appears at the conclusion of the hearing.]] 

Mr. MURPHY. In conclusion, I’d like to thank our witnesses. 

Thank you very much. You’ve given us a lot to think about today 

and we deeply appreciate your candor and your data. Other questions will be following up. 

And I remind members they have 10 business days to submit 

further questions for the record. And I ask all the witnesses please 

respond promptly to the questions, because we do appreciate your 

information on that. 

With that, this subcommittee is adjourned. 

[Whereupon, at 6:01 p.m., the subcommittee was adjourned.] 

[Material submitted for inclusion in the record follows:] 

93 


82196.062
94 


82196.063

_'_""'V$_d_~" __ ~"'_"Wl"") __ 

--""'''''_.'''' "'--""~--"'''----''''''''''''''''''-'''''''--­ .... '''' 
95 


82196.064

EJremples of actmU premium increases projected in the individual and small group mad,ets 
96 


82196.050

May 13,2013 

MEMORANDUM 

To: Committee on Energy and Commerce Democratic Members and Staff 

Fr: Committee on Energy and Commerce Democratic Staff 

Rc: Investigation on the Impact on Cost of Coverage uftbe Affordable Care Act 

Today. the Republican staffofthe Committee on Energy and Commerce issued a report 

on the impact of the Affordable Care Act on the cost in the individual health 

insurance market. The Republican The l11'lior methodological error 

is that the report ignores the provisions Care Act that will reduce costs in the 

individual market, such as tax credits for individuals and small businesses. The result is a onesided report ltlll of misleading conclusions that conflict with the findings of independent experts. 

Committee Republicans requested information from 17 health insurers on the impact of 

certain of the Affordable Care Act that could raise premiums in the individual market. 

such as requirement of guaranteed issue, community and age rating, the inclusion of essential 

health benefits, and new taxes on health insurers.' The Republicans did not request infonnation 

the oflhe Affordable Care Act that would reduce costs in this market. such 

as tax credits provided in the Affordable Care Act Exchanges and the tax credits 

for small businesses. The Republicans also did not request information on key cost containment 

measures, such as the availability of lower-cost catastrophic coverage for young adults. 

Because of these data limitations, the Republican report is inhercntly biased. The 

majority of Americans receive their coverage as part of a large-employer plan or through 

, See e.g., Letter fi'01n Chairman Fred Upton et aL. to Mark T. Benolini, President and 

Chief Executive Officer, Aetna (Mar. 14,2013). Recipients include Aetna. Blue Cross Blue 

Shield of Florida, Blue Cross Blue Shield of Michigan, Blue Cross Blue Shield of New Jersey, 

Blue Shield of Cali fomi a, Cigna Health, Corp .. HCSC. Health Net of Cali fornia , 

Highmark, Humana. Independence Blue Cross. Pennanente, Regence, Unitedhealth, 

University of Pittsburgh Medical Center, and We II point 
97 


82196.051

government health insurance programs like Medicare or Medicaid, and they are not affected by 

changes in the individual market. But some individuals do receive coverage in the individual 

market. To assess the impact of the Affordable Care Act on the out-of-pocket costs of these 

individuals, both the provisions that raise rates and well as those that reduce costs need to be 

taken into account. The Republican report fails this basic test of objectivity. 

The Failure to Consider the Impact of Tax Credits and Other Cost Reduction Measures 

A review ofthe documents produced to the Committee show that many insurance 

companies did not produce analyses that incorporated data on Affordable Care Act programs that 

were designed to drive down premium costs. This is not surprising as the Republican request to 

insurers did not seek information on tax credits and other cost containment tools. As a result, 

many analyses provided to the Committee and released in the Republican report failed to include 

these factors in the cost of coverage. 

It is impossible to determine the impact of the Affordable Care Act in the individual 

insurance market absent information on the effect of these credits and other cost control 

measures. According to the Congressional Budget Office, 86% of individuals who receive 

coverage through the new Affordable Care Act Exchanges will receive tax credits, with the 

average credit reducing costs by over $5,000 per year.2 A study of the impact of these tax credits 

in California estimated that they will reduce premiums by an average of 89% for individuals with 

an income below 250% of the federal poverty leve!.3 Similarly, tax credits available for small 

businesses will reduce the cost of coverage by as much as 50%.4 

Some insurers who provided information to the Committee did acknowledge the 

significant impact of these tax credits. One described the "huge impact" of the subsidies, noting 

that they are "expected to result in a significant growth in coverage through Individual 

2 Congressional Budget Office, CBO's February 2013 Estimate of the Effects of the 

Affordable Care Act on Health Insurance Coverage (Feb. 2013) (online at 

http://cbo.gov/sites/default/fiIes/cbofiles/attachments/4 3 900_ A CAInsuranceCoverageEffects.pdf 

). 

3 Milliman, Factors Affecting Individual Premium Rates in 2014 for California (Mar. 28, 

2013) (online at 

http://www.healthexchange.ca.govlDocumentslFactors%20Affecting%20Individual%20Premiu 

ms%20FINAL%203-28-2013.pdf). 

4 U.S. Internal Revenue Service, Small Business Health Care Tax Credit for Small 

Employers (2013) (online at http://www.irs.gov/uac/Small-Business-Health-Care-Tax-Credit-forSmall-Employers). 

2 
98 


82196.052

Exchange."s Another identified "Advanced Premium Tax Credits (Le. Premium Subsidies)" and 

"Reinsurance Payments" as "Lower cost drivers.,,6 

Similarly, many analyses provided to the Committee for the small group market did not 

take into account tax credits. For instance, one insurer wrote to the Committee that the "small 

group premium analysis ... does not reflect the effect of any tax credits that may be available for 

select small employers purchasing through the Small Business Health Options ("SHOP") market 

place to help cover the cost of coverage.,,7 

In addition to the tax credits, the Affordable Care Act established other programs to 

mitigate any potential premium increases. An Affordable Care Act reinsurance fund will provide 

funding to insurers to cover costs resulting from the high claims totals of the people they cover. 8 

Affordable Care Act risk adjustment provisions protect insurance companies whose plans 

contain a large number of high-cost enrollees. And Affordable Care Act risk corridors limit 

insurer losses and gains, reducing incentives for insurers to overestimate beneficiary costs either 

to protect against losses or to increase profits.9 While some of the insurance companies took 

these cost-containment provisions into account, others did not. One insurer that did take these 

provisions into account provided documents revealing that these three cost containment tools 

could reduce premiums by 26% in the individual market in one state and by 15% to 19% in other 

states. 1O Another insurer noted that the reinsurance program alone could decrease projected 

premium increase by 10% to 13%. II A third noted that "Reinsurance is consistently and 

significantly favorable" in terms of reducing premiums.I2 

Two other key factors not highlighted in the Republican report that must be taken into 

account when analyzing premiums in the post-reform individual market are transparency and 

competition. The Congressional Budget Office has estimated that competition and transparency 

in the new health insurance marketplaces will drive down costs by between 7% and 10%.13 In 

S[Redacted], The Commercial Market: Public Exchange and other ACA provisions 

impacting the Small Group and Individual Markets (Oct. 26, 2012). 

6 [Redacted], A CA Drivers and Changes in Individual Insurance - Costs for [Redacted] 

in Our Context (undated). 

1 Letter from Counsel to Chairman Fred Upton, House Committee on Energy and 

Commerce (Apr. 1,2013). 

8 [Redacted], Pricing Evolution in the context of Health Care Reform (Dec. 2012). 

9Id 

10 [Redacted], 2014 pricing methodology and results: [Redacted] Pre-Read (Mar. 19, 

2013). 

It [Redacted], 2014 HCR Impact Items (undated). 

12 [Redacted], [Redacted] Exchange Pricingfor 2014 (undated). 

13 Letter from Congressional Budget Office Director Douglas Elmendorf to Senator Evan 

Bayh (Nov. 30, 2009) (online at 

http://www.cbo.gov/sites/default/fileslcbofiles/ftpdocs/l 07xx1doc I 0781/11-30-premiums.pdf). 

3 
99 


82196.053

some states, insurers have indicated that they will significantly lower their proposed rates after 

seeing the rates proposed by their competitors. 14 In every marketplace, consumers will be able 

to compare plans with comparable benefits side-by-side and will have the opportunity to select 

the plan that is right for them. 

The Republican report places great emphasis on the rate increases that will be 

experienced by young, healthy males. But even in this area, the Republican report is one-sided. 

The report ignores that under the Affordable Care Act, individuals under 30 can purchase lowcost catastrophic coverage. These plans will have higher deductibles and greater cost-sharing 

than other plans, which will result in lower premiums. 15 

Failure to Account for Improved Benefits 

To the extent premiums are increasing, one key factor accounting for this increase is the 

fact that the health insurance coverage received by millions of people under the Affordable Care 

Act will be significantly better than the coverage they have now. For example, under the 

Affordable Care Act, individuals are guaranteed that their plan will pay for between 60% and 

90% of the cost of their health care; that their plan will cover a set of essential health benefits 

such as prescription drugs, maternity care, and mental health care; and that their overall out of 

pocket costs will be capped. Consumers are eligible for preventive care benefits without copays, 

co-insurance, or a deductible, and their insurance cannot impose lifetime or annual coverage 

limits. These benefits will limit out-of-pocket costs and give consumers the security of knowing 

that their coverage is there for them when they need it. 

These increased benefits mean savings for individuals when they need coverage. A fair 

analysis of the impact of the law on health care affordability would factor these savings into 

account. The Republican report does not do so. 

Premium Rate Decreases in the Individual and Small Group Markets 

The documents provided to the Committee reveal that while some consumers in the 

individual market may see premium rate increases, others will see premium decreases. As one 

insurer explained in correspondence with the Committee: "the impact of the PPACA is not 

uniform across all Americans, and ... the impact is likely to vary based on the unique attributes 

of each state's health care system and market, as well as various demographic factors, such as 

age.,,16 

14 Two Oregon insurers rethink 2014 premiums as state posts first-ever rate comparison, 

The Oregonian (May 9,2013) (online at 

(www.oregonlive.comihealth/index.ssfl2013/05!two_oregon_insurersJeconsider.html). 

15 Department of Health and Human Services, Patient Protection and Affordable Care 

Act; Health Insurance Market Rules; Rate Review, 78 Fed. Reg. 39 (Feb. 27, 2013). 

16 Letter from Counsel to Chairman Fred Upton, House Committee on Energy and 

Commerce (Apr. 1,2013). 

4 
100 


82196.054

For example, one insurance company document on "HCR Impact" revealed "winners" 

under the Affordable Care Act: individuals who are "older and/or unhealthy with richer 

benefits" under their current policies could see a 43% decrease in their premium costs due to the 

requirements of the lawY Another insurer's internal analysis confirms that "[o]lder, sicker 

populations will have access to coverage and experience some rate relie[ f]." 18 

The documents reveal that women in particular are likely to experience reductions in 

insurance premiums on the individual market. One insurer's internal analysis indicated that as a 

result of the Affordable Care Act's reforms to gender and age rating, young women in one state 

would see their premiums decrease by as much as 74%.19 

The documents provided to the Committee show that many small businesses will also 

experience rate decreases. One insurance company anticipated premiums to decrease for over 

35% of their membership in the small group market in one state and 45% of their small group 

membership in a different state.20 Another insurer anticipated premium decreases of as much as 

50% for some of their customers.21 

When analyzing potential premium increases, it is important to note that in the pre-reform 

individual market, premiums were held down for some policy holders because millions of 

Americans were either excluded from coverage all together or given an offer of coverage with 

such unaffordable premiums and cost sharing that they were priced out of the market. When 

these previously uninsured individuals are allowed into the market, their premiums will be 

dramatically lower than they would have been if insurers offered them coverage prior to 

reform. 22 

Most Americans Have Employer Sponsored Coverage or Public Coverage 

The majority of Americans receive coverage through their employer or through public 

programs like Medicare and Medicaid.23 As the Republican report notes, "most of the insurers 

17 [Redacted], HCR Impacts - Front End (Jan. 31, 2013). 

18 [Redacted], The Commercial Market: Public Exchange and other ACA provisions 

impacting the Small Group and Individual Markets (Oct. 26, 2012). 

19 [Redacted], Attachment A - Revised April 5, 2013 (Apr. 5, 2013). 

20 Jd. 

21 [Redacted], Health Care Reform and Exchanges Transform Employer Markets (Mar. 

2013). 

22 The Henry J. Kaiser Family Foundation, Why Premiums Will Change for People Who 

Now Have Nongroup Insurance (Feb. 6, 2013) (online at 

http://policyinsights.kff.org/en/2013/february/why-premiums-will-change-for-people-who-nowhave-nongroup-insurance.aspx). 

23 The Henry J. Kaiser Family Foundati~n, Health Coverage and Uninsured (online at 

http://k[f.org/state-categorylhealth-coverage-uninsured!). 

5 
101 


82196.055

contacted by the committee had not conducted an analysis on the PPACA's effects on the large 

group market." No serious analysis has found that large employers will see significantly higher 

health insurance costs because of the Affordable Care Act. Similarly, public programs are not 

expected to increase costs to beneficiaries as a result of the Act. Unfortunately, the Republican 

report glosses over this important limitation on its purported findings. 

6 
102 


82196.056

FRED UPTON, MICHIGAN 

CHAIRMAN 

ONE HUNDRED THIRTEENTH CONGRESS 

€ongr~~ of tbe Wniteb &tate~ 

~OUSt of ltepttstutatibtS 

COMMITTEE ON ENERGY AND COMMERCE 

2125 RAYBURN HOUSE OFFICE BUILDING 

WASHINGTON, DC 20515-6115 

MajOrity (202) 225·2927 

Minority (202) 225-3641 

MEMORANDUM 

May 18,2013 

HENRY A. WAXMAN, CALIFORNIA 

RANKING MEMBER 

To: Subcommittee on Oversight and Investigations Democratic Members and Staff 

Fr: Committee on Energy and Commerce Democratic Staff 

Re: Hearing on "Health Insurance Premiums Under the Patient Protection and 

Affordable Care Act." 

On Monday, May 20.2013. at 4:00 p.m. in room 2123 of the Rayburn House Office 

Building, the Subcommittee on Oversight and Investigation will hold a hearing titled, "Health 

Insurance Premiums Under tbe Patient Protection and Affordable Care Act." 

I. THE HEALTH INSURANCE MARKET PRIOR TO THE AFFORDABLE CARE 

ACT 

Prior to the passage of the Affordable Care Act (ACA), the health insurance market 

suffered from adverse selection, high administrative costs, and rising premiums. In the decade 

prior to enactment ofthe ACA, the percentage of workers receiving health care coverage from 

their employers declined,! premiums increased by 125%, and out-of-pocket health care spending 

increased by 74%.2 The number of uninsured was rising rapidly, and many individuals and 

families with coverage had insurance policies that provided low value and little security if they 

had a serious accident or ilIness.3 

! Kaiser Family Foundation, Employer Health Benefits Survey 2010 Annual Survey 

(online at ehbs.kff.orglpdfl2010/8085.pdf); and Kaiser Family Foundation, Employer Health 

Benefits Survey 2011 Annual Survey (online at ehbs.kff.orglpdfl2012/8345.pdf). 

2 Health Affairs, A Decade Of Health Care Cost Growth Has Wiped Out Real Income 

Gains For An Average US Family (Sept. 2011) (online at 

content.healthaffairs.orgl contentl30/9/1630 .abstract). 

3 Department of Health and Human Services, Health Insurance Premiums: Past High 

Costs Will Become the Present and Future Without Health Reform (Jan. 28, 2011) (online at 

www.healthcare.gov/newsireportsipremiumsOI28201Ia.pdf) and l.R. Gabel et al. Trends in 
103 


82196.057

In many states, insurers were permitted to charge individuals dramatically different premiums 

based on their age, gender, medical history, and other factors. Insurers routinely refused to cover 

individuals with pre-existing medical conditions and devoted significant resources to the process 

of medical underwriting - conducting detailed examinations of an applicant's medical history to 

determine the price at which they could profitably offer coverage to that individual, if at all. In 

the three years before the passage of health reform the four largest for-profit health insurance 

companies denied over 600,000 individuals coverage due to pre-existing conditions, with 

coverage denials increasing significantly each year.4 As many as 129 million Americans with 

pre-existing conditions may have been denied coverage prior to reform.5 

IL AFFORDABLE CARE ACT PROTECTIONS 

The ACA established new insurance market consumer protections pertaining to the 

individual and small group health insurance markets. These provisions only allow premiums to 

vary based on age, tobacco use, family size, and geography. Beginning in January 2014, 

insurance companies will no longer be allowed to raise premiums based on any other factors 

including pre-existing conditions, gender, and health status. The provisions require a minimum 

level of coverage and prohibit insurance company abuses like rescissions of benefits when 

someone gets sick.6 

In addition to these consumer protections, the ACA creates transparent and competitive 

marketplaces for high quality insurance to be offered called Exchanges. An Exchange is a 

mechanism for organizing the health insurance marketplace to help consumers and small 

businesses shop for coverage in a way that permits easy comparison of available plan options 

based on price, benefits and services, and quality. By pooling people together, reducing 

transaction costs, and increasing transparency, Exchanges create more efficient and competitive 

markets for individuals and small employers. Beginning in 2014, individuals who do not have 

access to employer-based coverage, Medicare, or Medicaid can purchase health insurance on 

Underinsurance and the Affordability of Employer Coverage, 2004-2007, Health Affairs (June 2, 

2009) (online at content.healthaffairs.org/contentl28/4/w595.full.html). 

4 Memorandum from Chairmen Henry A. Waxman and Bart Stupak to Members of the 

Committee on Energy and Commerce, Coverage Denialsfor Pre-Existing Conditions in the 

Individual Health Insurance Market, I 11th Congo (Oct. 12,2010) (online at 

democrats.energycommerce.house.gov !Press _11112010 I 0 12IMemo.Preexisting.Condition.Denials.IndividuaI.Market.20 1 0.1 0.12.pdf). 

5 U.S. Department of Health and Human Services, Office of the Assistant Secretary for 

Planning and Evaluation, At Risk: Pre-Existing Conditions Could Affect 1 in 2 Americans: 

129 Million People Could Be Denied Affordable Coverage Without Health Reform (Nov. 

2011 ) (online at aspe.hhs.govlhealthireports/20 12/pre-existing/index.shtml). 

6 Department of Health and Human Services, Patient Protection and Affordable Care 

Act; Health Insurance Market Rules; Rate Review, 77 Fed. Reg. 227 (Nov. 26, 2012) (proposed 

rule). 

2 
104 


82196.058

either a state-based or, for those who live in states that are not creating their own, a federal 

Exchange. 

The ACA contains an extensive set of tax credits to help small businesses and individuals and 

families with incomes up to 400% of the poverty level pay for coverage. According to the 

Congressional Budget Office, 86% of individuals who receive coverage through the new 

Exchanges will receive tax credits, with the average credit reducing costs by over $5,000 per 

year.? A study of the impact of these tax credits in California estimated that they will reduce 

premiums by an average of 89% for individuals with an income below 250% of the federal 

poverty level.8 Similarly, tax credits available for small businesses will reduce their cost of 

coverage by as much as 50%.9 

III. IMP ACTS OF HEALTH REFORM ON PREMIUMS 

A. Recent Premium Trends 

The impact of the ACA on premiums and overall health care costs has been a 

controversial subject. Although the law has not gone into effect fully, early results appear to 

indicate that it has been successful at mitigating increases in premiums and increases in overall 

health insurance costs. The ACA requires insurers to document, submit for review, and publicly 

justifY rate increases of 10% or more. Since this provision of the law went into effect, average 

health insurance premium increases have declined by more than 30%.10 The Congressional 

Budget Office (CBO) has also reported what one analyst called "a sharp and surprisingly 

persistent slowdown in health care costs" 11 since passage of the ACA, resulting in a significant 

? Congressional Budget Office, CBO's Febrnary 2013 Estimate of the Effects of the 

Affordable Care Act on Health Insurance Coverage (Feb. 2013) (online at 

cbo. gov /sites/ default/files/ cbofiles/attachments/4 3 900 _A CAlnsuranceCoverageEffects. pdf). 

8 Milliman, Factors Affecting Individual Premium Rates in 2014 for California (Mar. 28, 

2013) (online at 

www.healthexchange.ca.gov/Documents/Factors%20Affecting%20Individual%20Premiums%20 

FINAL%203·28-20 13.pdf). 

9 U.S. Internal Revenue Service, Small Business Health Care Tax Credit for Small 

Employers (2013) (online at www.irs.gov/uac/Small-Business-Health-Care-Tax-Credit-forSmall-Employers). 

10 U.S. Department of Health and Human Services, Office of the Assistant Secretary for 

Planning and Evaluation, Health Insurance Premium Increases in the Individual Market Since 

the Passage of the Affordable Care Act (Feb. 22, 2013) (online at 

aspe.hhs. gov /health/reports/20 13/ratelncreaselndv Mkt/rb. pdf). 

11 Slower Growth of Health Costs Eases Budget Deficit, New York Times (Feb. II, 2013) 

(online at www.nytimes.com/20 13/02/12/us/politics/sharp-slowdown-in-us-health-carecosts.html? _r=0). 

3 
105 


82196.059

drop in deficit projections in CBO's most recent budget update. 12 Similarly, the Health and 

Human Services Actuary reported earlier this year that health expenditures were growing at their 

lowest rates in over 50 years. 13 

When the ACA's full set of consumer protections and market reforms go into effect in 

2014, the majority of the health insurance marketplace is expected to see limited change in 

premiums. 14 Plans in the large group insurance market already follow many of the same rules 

that will be required of the individual and small group markets in 2014, and premiums in that 

market are expected to be stable. Seniors on Medicare and low income individuals participating 

in Medicaid will face no changes in premiums. However, questions have been raised regarding 

what will happen to premiums in the individual and small group market in 2014. 

B. Republican Staff Report on 2014 Premiums and Democratic Response 

On March 13,2013, Republican Committee staff issued a report on the impact of the 

ACA on the cost of coverage in the individual health insurance market. 1 5 The report, which was 

based on information provided to the Committee by 17 health insurers, found that "PPACA will 

increase premiums significantly for most Americans," concluding that the results "definitively 

contradict the promises that the law will lower costS.,,16 Republican staff reported that 

"consumers purchasing health insurance on the individual market may face premium increases of 

nearly 100% on average, with potential highs eclipsing 400%."17 

The Democratic staff produced a memo responding to this report. It found that "[t]he 

Republican staff report is deeply flawed. The major methodological error is that the report 

ignores the provisions of the Affordable Care Act that will reduce costs in the individual market, 

such as tax credits for individuals and small businesses. The result is a one-sided report full of 

misleading conclusions that conflict with the findings of independent experts." 

12 Congressional Budget Office, Updated Budget Projections: Fiscal Years 2013 to 2023 

(May 2013) (online at www.cbo.gov/sites/defaultlfiles/cbofileslattachmentsl44172-

Baseline2.pdt). 

13 U.S. Department of Health and Human Services, Centers for Medicare and Medicaid 

Services, National Health Expenditures, Historical Data (Jan. 2013) (online at 

www.cms.govlResearch-Statistics-Data-and-Systems/Statistics-Trends-andReportslNationalHealthExpendDatalNationalHealthAccountsHistorical.html). 

14 L.1. Blumberg et aI, Implications o/the Affordable Care Act/or American Businesses, 

Urban Institute (Oct. 2012) (online at www.urban.orglUploadedPDF/412675-lmplications-ofthe-Affordable-Care-Act-for-American-Business.pdt). 

15 Committee on Energy and Commerce, Majority Staff, The Looming Premium Rate 

Shock (Mar. 13,2013). 

16Id 

17Id. 

4 
106 


82196.060

Key flaws in the Republican report that were identified in the Democratic response 

include: 

• The failure to acknowledge that the majority of Americans receive their coverage as part 

of a large-employer plan or through government health insurance programs like Medicare 

or Medicaid, and they are not affected by changes in the individual health insurance 

market. 

• The failure to account for the impact of tax credits and other cost reduction measures, 

described by one insurer as having a "huge impact" in reducing premium costs. 

According to the Congressional Budget Office, 86% of individuals who receive coverage 

through the new ACA Exchanges will receive tax credits, with the average credit 

reducing costs by over $5,000 per year. IS Tax credits available for small businesses will 

reduce the cost of coverage by as much as 50%.19 

• The failure to account for the impact of improved benefits. Under the ACA, individuals 

are guaranteed that their plan will pay for between 60% and 90% of the cost of their 

health care; that their plan will cover a set of essential health benefits such as prescription 

drugs, maternity care, and mental health care; and that their overall out-of-pocket costs 

will be capped. Consumers are eligible for preventive care benefits without copays, coinsurance, or a deductible, and their insurance cannot impose lifetime or annual coverage 

limits. These benefits will limit out-of-pocket costs and give consumers the security of 

knowing that their coverage is there for them when they need it. These increased benefits 

mean savings for individuals when they need coverage. 

• The failure to account for the impact of transparency and competition. The 

Congressional Budget Office has estimated that competition and transparency in the new 

health insurance marketplaces will drive down costs by between 7% and 10%.20 In some 

states, insurers have indicated that they will significantly lower their proposed rates after 

seeing the rates proposed by their competitors.21 

18 Congressional Budget Office, CBO's February 2013 Estimate of the Effects of the 

Affordable Care Act on Health Insurance Coverage (Feb. 2013) (online at 

cbo .gov / sites/ default/files/ cbofiles/ attachments/43 900_ ACAlnsuranceCoverageEffects. pdf). 

19 U.S. Internal Revenue Service, Small Business Health Care Tax Credit for Small 

Employers (2013) (online at www.irs.gov/uac/Small-Business-Health-Care-Tax-Credit-forSmall-Employers). 

20 Letter from Congressional Budget Office Director Douglas Elmendorf to Senator Evan 

Bayh (Nov. 30, 2009) (online at 

www.cbo.gov/sites/defaultlfiles/cbofileslftpdocsII07xx/doc 1 07811I1-30-premiums.pdf). 

21 Two Oregon insurers rethink 2014 premiums as state posts first-ever rate comparison, 

The Oregonian (May 9, 2013) (online at 

(www.oregonlive.com/health/index.ssfI2013/0S/two_oregonJnsurers_reconsider.html). 

S 
107 


82196.061

• The failure to acknowledge the impact of ACA provisions to mitigate premium increases, 

such as the reinsurance fund to cover costs resulting from the high claims beneficiaries, 

risk adjustment provisions to protect insurance companies whose plans contain a large 

number of high-cost enrollees, risk corridors that limit insurer losses and gains and 

reducing incentives for insurers to overestimate beneficiary costs, and the availability of 

lower-cost catastrophic plans for individuals under 30. 

• The failure to acknowledge premium reductions for many purchasers of health insurance. 

The documents provided to the Committee reveal that while some consumers in the 

individual market may see premium rate increases, others will see premium decreases. 

One insurance company document on "HCR Impact" revealed "winners" under the ACA: 

individuals who are "older and/or unhealthy with richer benefits" under their current 

policies could see a 43% decrease in their premium costs due to the requirements of the 

law.22 Another insurer's internal analysis confirms that "[o]lder, sicker populations will 

have access to coverage and experience some rate relie[f]."23 Women in particular are 

likely to experience reductions in insurance premiums on the individual market. One 

insurer's internal analysis indicated that as a result ofthe ACA's reforms to gender and 

age rating, young women in one state would see their premiums decrease by as much as 

74%.24 

IV. WITNESSES 

The following witnesses have been invited to testifY: 

Dan Durham 

Executive Vice President, Policy and Regulatory Affairs 

American's Health Insurance Plans 

Cori Uccello 

Senior Health Fellow, American Academy of Actuaries 

Chris Carlson 

Actuarial Principal, Oliver Wyman 

Topher Spiro 

Vice President, Health Policy, Center for American Progress 

22 [Redacted], HCR Impacts- Front End (Jan. 31, 2013). 

23 [Redacted], The Commercial Market: Public Exchange and other A CA provisions 

impacting the Small Group and Individual Markets (Oct. 26, 2012). 

24 [Redacted], Attachment A - Revised April 5, 2013 (Apr. 5, 2013). 

6 
108 


82196.065

May 20, 2013 

The Honorable Tim Murphy The Honorable Diana DeGette 

Chairman Ranking Member 

House Energy and Commerce Committee House Energy and Commerce Committee 

Subcommittee on Oversight and Investigations Subcommittee on Oversight and Investigations 

United States House of Representatives United States House of Representatives 

2125 Rayburn House Office Building 2125 Rayburn House Office Building 

Washington, DC 20515 Washington, DC 20515 

Dear Chairman Murphy and Ranking Member DeGette: 

I write to you on behalf of Families USA, a national nonprofit, non-partisan organization dedicated to the 

achievement of high-quality, affordable health care for all Americans. 

Starting in January 2014, the Affordable Care Act will extend health coverage to millions of Americans. 

Middle- and low-income Americans will receive premium tax credits to help offset the cost of private 

health insurance. These tax credits will enable many previously uninsured individuals and families to 

purchase quality health care coverage through the health insurance marketplaces. 

Premium Tax Credits Help Millions of Americans Access Affordable Health Insurance 

Families USA commissioned The Lewin Group to use its widely respected Health Benefits Stimulation 

Model to estimate how many people across the country could benefit from the new premium tax credits in 

2014. We found that an estimated 25.7 million people will be eligible for tax credits in 2014. In 

Pennsylvania, 896,000 people will be eligible for the tax credits in 2014. More than 466,000 Coloradans 

will be eligible for the tax credits in 2014. 

Many ofthe people who will be eligible for the tax credits will be in working families (about 88 percent) 

and will have incomes between two and four times poverty, or between $47,100 and $94,200 for a family 

of four based on 2013 poverty guidelines. However, because the size of the tax credits will be determined 

on a sliding scale based on income, those with the lowest incomes will receive the largest tax credits, 

ensuring that the assistance is targeted to the people who need it most. Young adults are the likeliest age 

group to be eligible for the credits. 

How the Premium Tax Credits Work 

The premium tax credits will act like subsidies in that individuals and families will receive help as they buy 

insurance, rather than having to wait until they file taxes to receive reimbursement through a tax refund. 
109 


82196.066

And the help is available to individuals and families even if they do not owe any taxes. The size of the tax 

credit is calculated based on one plan offered in the new state marketplaces-the so-called "silver reference 

plan." However, once the size of the credit is determined, it can be used towards the purchase of any 

private plan in the marketplace that the individual or family chooses to purchase. 

Here is an example of how the tax credit size is calculated: 

The Johnsons, a family offour (two adults, two children under age 18), with an annual income of$35,300 

(about 150 percent of poverty): If the annual premium for the silver reference plan for family coverage in 

the state marketplace in the Johnsons' zip code is $12,500, the family's out-of- pocket contribution for 

premiums for a silver reference plan would be about $1,410 (about $118 a month). The remainder of the 

family's premium for the silver reference plan would be covered in the form ofa tax credit of$II,090. 

(That amount could also be credited toward premiums for a more or less expensive plan ofthe family's 

choice). 

National, State and County-Level Premium Tax Credit Data is Available 

Premium tax credits will help more than 25 million Americans afford their health insurance premiums and 

88 percent ofthese people are in working families. As we draw closer to the start of the open enrollment 

period in October, it is essential that states across the country work to inform their residents of this 

opportunity for assistance. Come January 2014, comprehensive, affordable health coverage will finally 

become a reality for millions of Americans. 

If you would like more information on national, state, or county-level estimates of the number of people 

eligible for the new premium tax credits, I invite you to read Families USA's "Help is At Hand Report." 

http://www .fam il iesusa.org/resources/newsroom/press-releases/20 13-press-releases/national-tax-crediteligiblility.html. And, here is a link to the state reports http://www.familiesusa.orglhelp-is-at-hand/statereports.htm!. 

Sincerely, 

Ron Pollack 

Executive Director 
110 


82196.067

May 20,2013 

Chairman Tim Murphy 

House Energy & Commerce 

Subcommittee on Oversight & Investigations 

2125 Rayburn House Office Building 

Washington, DC 20515 

Ranking Member Diana DeGette 

House Energy & Commerce 

Subcommittee on Oversight & Investigations 

2322A Rayburn House Office Building 

Washington, DC 20515 

Dear Chairman Murphy and Ranking Member DeGette: 

Between 1999 and 2009, health insurance premiums rose 131 percent while inflation 

over that same period was just 28 percent. Such increases have taken a significant toll 

on Americans and their ability to pay for basic needs or save for retirement. At the same 

time, the coverage for which people pay has gotten less comprehensive, The Affordable 

Care Act (ACA) begins to address these challenges, Under the ACA, the coverage 

offered to all Americans will be better than previously available and critical subsidies 

and tax credits will be provided to help offset barriers posed byaffordability, 

We have begun to see evidence in the states of the effect of a transparent marketplace 

on prices, Last week, Washington State reported that Premera Blue Cross will offer a 

plan for 21-year-old non-smokers that previously cost $325 per month but will now be 

available on the exchange for $276, a reduction of 15 percent And while a plan aimed 

at Washington's 40 year old non-smokers offered by another carrier will show a small 

increase of $32 per month, it will provide more benefits because of the ACA and also 

offer critical prescription drug coverage, In Oregon, we have now seen plans reduce 

theif proposed rates after viewing theif competition's prices in the exchanges, with one 

Oregon carrier requesting their initial proposal be reduced by 15 percent 

Under the ACA, Americans will no longer face coverage that comes with lifetime caps, 

and no one can be denied coverage due to a pre-existing condition, Coverage will be 

improved through an essential health benefits package, a limit on out-of-pocket 

expenses, and a requirement that an insurer spend 80 cents of every dollar on health 

1 Kaiser Family Foundation And Health Research and Family Trust Annual SUNey 2009, "Employer 

Health Benefits," page 2: hltp:llkaiserfamilyfoundalion,files.wordpress,comI2013104/7936,pdf 
111 


82196.068

coverage rather than administrative costs. In short, Americans will obtain better 

coverage for their premium dollar. 

Nearly 60 percent of Americans get their health insurance coverage through their 

employer. About seven percent of non-elderly Americans currently purchase health 

insurance on the individual market. Older Americans not yet eligible for Medicare are 

among the fastest growing group of uninsured. These older Americans - as well as 

other uninsured Americans, will now be eligible for coverage via the competitive 

insurance marketplaces being established across the nation. For Americans who are 

uninsured and/or make less than 400 percent of the federal poverty level, tax credits 

and subsidies will be available to assist in purchasing coverage. Many young Americanl 

have already received coverage by staying on their parents' coverage. A recent 

analysis also found, "Over 90 percent of young adults age 21-27 purchasing single non 

group coverage in the exchanges [will) receive significant subsidies that limit their costs 

as a share of their income."2 

AARP also supports efforts to encourage employment, including the elimination of 

barriers to self-employment. One of those barriers, particularly for older Americans, is 

often the need for health insurance. We are hopeful that those older entrepreneurial 

Americans, freed from the need to stay with an employer in order to continue health 

coverage - a concept known as "entrepreneurship lock" - will be more able to begin 

their own businesses. In fact, a Kauffman-RAND Institute for Entrepreneurship Public 

Policy study said the elimination of job lock could increase the number of new U.S. 

businesses by as much as 33 percent over several years as prospective entrepreneurs 

feel less constrained to stay in a job simply to keep their health coverage. 3 This is 

especially important for our members age 50-64, many of whom have considerable 

professional experience, yet continue to face trouble securing full time employment as 

well as still need health insurance. The ACA's market reforms and new purchasing 

options will assist older Americans in protecting their health while, at the same time, 

allowing them greater freedom to start their own businesses. We see this as a win-win. 

Throughout the development of the ACA, AARP was especially concerned about the 

long-term health prospects of our members age 50-64 who, prior to passage, were oftel 

either denied coverage outright due to pre-existing conditions or asked to pay 

prohibitively more in premiums than younger people. We supported limiting age rating il 

order to protect older Americans from an individual market which often made health 

insurance either unaffordable or unobtainable. The Urban Institute study found, "use of 

the 3: 1 band ... results in age-based premiums that more accurately match age-related 

costs among likely purchasers than would a looser rate band. The now-common 5:1 

2 Urban Institute, "Why the ACA's Limits on Age-Rating Will Not Cause "Rate Shock"; Distributional 

Implications of Limited Age Rating Bands in Nongroup Health Insurance, Quick Takes, March 2013 

3 Maltby, Emily. "Will Health-Care Law Beget Entrepreneurs?" The Wall Street JournalS May 2013, 

www.wsLcom. 
112 


82196.069

age rating tends to undercharge young adults relative to their actual health care 

expenses and to overcharge older adults relative to theirs ... " 4 

As the ACA continues to be implemented, AARP and its members welcome the market 

reforms contained within the law compelling health insurance companies to offer 

products protecting policy holders from the financial ravages of unforeseen medical 

challenges. We applaud the significant payment reforms the ACA brings in terms of 

affordability and assistance to cover as many Americans as possible. We believe the 

marketplace improvements will have long-term benefits, both from a healthier citizenry 

and for the long-term economic outlook of the United States. 

Our 38 million members all across the nation find many of the provisions of the ACA to 

be beneficial for not just older Americans - but also for the entire healthcare system. 

While much progress has been made, there is still more to be done to tackle high and 

wasteful health care spending. AARP remains committed to continuing to make our 

members' voices heard to promote critical health insurance protections, market reforms 

and affordability programs that help all Americans access the care they need at a price 

they can afford. 

If you have any questions, please feel free to contact me or have your staff contact 

Ariel Gonzalez of our Government Affairs staff at 202-434-3770 or 

agonzalez@aarp.org. 

Sincerely, 

~A~ 

Joyce Rogers 

Senior VP, Government Affairs 

4 Urban Institute, "Implications of Limited Age Rating Bands Under the Affordable Care Act," Timely 

Analysis of Immediate Health Policy Issues, March 2013. 
113 


82196.070

\.fs. Cori 

Senior He-filth Felkm<-

Jun!:! 6. 

the Subcommlu\.'c on 

and Commerct:, the hcarinl! rcc()rd remains 

questions for the record, \\ hich are 

~hOll!J be U~ fol!o\\s: (I) the name ofth~ 

complete text of the question you in 

tl.:xL 

Thank )\lU ng-nin for your time and effort prtparing and deli\"eTing tt.'stimony bdDre the 

SUDC()HlllliHl'{;>, 

rim Murphy 

Chairman 

Subcommittee- 011 Oversight Investigations 

(:c; Diana DeG~!lc, Ranking Mcrnber, SuhcQH1mi\tc-c l)fl Ovc:r<;iglit and Inycstigallons 

i\ttachm(,llt 
114 


82196.071

AMERICAN ACADEMY of ACTUARIES 

June 18,2013 

The Honorable Tim Murphy 

Chairman, Subcommittee on Oversight and Investigations 

Committee on Energy and Commerce 

U.S. House of Representatives 

2125 Rayburn House Office Building 

Washington, DC 20515 

Chairman Murphy: 

I appreciate the opportunity to respond to follow-up questions from the subcommittee's May 20 

hearing, Health Insurance Premiums Under the Patient Protection and Affordable Care Act 

(ACA), at which I testified on behalf of the American Academy of Actuaries.' My responses to 

the specific questions from you and Representative Butterfield are below. 

Chairman Tim Murphy 

1. Are premium estimates calculated assuming that all people will sign up for coverage or 

that some will not obtain coverage?2 

Premium estimates are typically calculated assuming that not all individuals will obtain health 

insurance coverage. The 2014 premiums that health insurers currently are submitting for review 

and consideration are being calculated using assumptions regarding how extensive participation 

will be and the demographic and health status characteristics of those obtaining coverage. These 

calculations will consider participation not only from the currently uninsured population but also 

among those currently with coverage who may shift from one type of coverage to another or 

drop coverage altogether. These assumptions will reflect many factors including the anticipated 

effectiveness of the individual mandate and how an individual's anticipation of health care needs 

(plus any financial penalty for going without coverage) compares with the insurance premium 

charged (net of any subsidies). 

For health insurance markets to be viable, they must attract a broad cross-section of risks. In 

other words, they must not enroll only higher-risk individuals; they must enroll people who are 

lower risks as well. If an insurance plan attracts only those with higher than average expected 

health care spending, otherwise known as adverse selection, then premiums will be higher than 

I The American Academy of Actuaries is a 17,OOO-member professional association whose mission is to serve the 

public and the U.S. actuarial profession. The Academy assists public policymakers on all levels by providing 

leadership, objective expertise, and actuarial advice on risk and financial security issues. The Academy also sets 

qualifications, practice, and profeSSionalism standards for actuaries in the United States. 

2 As requested by Chairman Murphy, this response elaborates on my response given during the hearing. 
115 


82196.072

average to reflect this higher risk. Attracting healthier individuals ultimately will help keep 

premiums more affordable and stable. 

To ensure that people in poor health have access to health insurance, the ACA prohibits insurers 

from denying coverage or charging higher premiums to those with higher expected costs due to 

their health status. These prohibitions generally will result in an increase in average health 

insurance premiums, unless a broad cross-section of people participate in the private health 

insurance market-the young as well as the old, and the healthy as well as the sick. 

The Honorable G.K. Butterfield 

1. Will consumers in eastern North Carolina get better value from their insurance 

premiums under the Affordable Care Act? 

This response focuses on the ACA provisions that apply to non-grandfathered plans in the 

individual market. How the value consumers receive from their insurance premiums under the 

ACA will compare to that before the ACA depends on several factors, including individual 

characteristics (e.g., age, gender, health status) and how a state's current issue and rating rules 

compare to those under the ACA provisions that will commence in 2014. In general, the ACA 

will impose more restrictive issue and rating rules in states like North Carolina that currently 

allow insurers to underwrite and vary premiums by health status and other factors. The 

compression of premiums due to the new age rating restrictions will increase the relative 

premiums for younger adults and reduce them for older adults. Prohibiting different premiums by 

gender will shift costs between men and women, depending on age. And prohibiting health status 

rating will increase the relative premiums for healthy individuals and reduce them for those in 

poor health. Premium subsidies may lower net premiums for low- and moderate-income 

individuals and families. 

Although young adults not eligible for premium subsidies may be most at risk for premium 

increases, they will have access to catastrophic plans. The premiums for these plans will be 

allowed to be set lower to reflect a younger enrollee population. 

These new features need to be considered in conjunction with other provisions that will affect the 

underlying composition of the insured population, and therefore, premiums. ACA's guaranteed 

issue provision will prohibit insurers from denying coverage based on pre-existing conditions. 

This increased ability of high-cost people to purchase coverage could put upward pressure on 

premiums. The individual mandate and the premium subsidies will mitigate this effect by 

providing incentives for younger and healthier people to obtain coverage. Whether individuals 

shift between different types of coverage also can affect the risk pool. If employers drop 

coverage and workers shift to the individual market, the impact on individual market premiums 

will depend on the demographics and health status of those shifting. Individuals moving out of 

high-risk pools and into the individual market will put upward pressure on premiums. Offsetting 

this effect in the near term will be the temporary reinsurance program. 

Premiums will reflect a plan's benefit design, with more generous plans coming with higher 

premiums. New essential health benefit and actuarial value requirements could mean that plans 

2 
116 


82196.073

will be more generous. While this could put upward pressure on premiums, it also will lower outof-pocket costs. 

2. Can you describe some of the additional benefits insurance plans may offer to my 

constituents due to consumer protections under the Affordable Care Act? 

Several ACA provisions offer consumer protections for non-grandfathered plans purchased in 

the individual and small group markets. Implementation of the ACA guaranteed issue provision 

means that individuals with pre-existing health conditions cannot be denied health insurance 

coverage. The prohibition on varying premiums by health status means that individuals with preexisting health conditions cannot be charged higher premiums than other individuals. 

The ACA essential health benefit provision requires plans to offer a comprehensive set of 

benefits and lists a set of 10 health care service categories that plans must cover. The ACA 

actuarial value provision requires that, except for catastrophic plans, plans must meet certain 

thresholds regarding the share of allowed health spending that is paid for by the plan, on average. 

Other consumer protections include: 

• Standardized information regarding plan benefits and coverage, 

• Coverage of certain preventive health services with no cost sharing requirements, 

• The prohibition of annual and lifetime benefit limits/ and 

• The right to appeal health insurance plan decisions. 

***** 

If you have additional questions or would like more information regarding my responses, I 

would welcome the opportunity to speak with you further. Please feel free to contact me at 

202.223.8196 or Uccello@actuary.org. 

Sincerely, 

Cori E. Uccello, MAAA, FSA, FCA, MPP 

Senior Health Fellow 

American Academy of Actuaries 

cc: The Honorable Diana DeGette, Ranking Member 

The Honorable G. K. Butterfield 

3 The prohibition on lifetime benefit limits also applies to grandfathered plans. The prohibition on annual benefit 

limits also applies to grandfuthered plans in the small group market but not the individual market. 

3 
117 


82196.074

June 6. ::013 

1\e\v Y nrk. ~y ! 0036 

D~ar \1r. Carlsun: 

the hearing record rcn1ains 

"pen for ten business 

attached. ftmn-o:r 

addressing lfl 

you again f()r your tim..: and effort preparing and delivcring testimony the 

Suhcnn1.mincc, 

Sincerely, 

Subcommittee nn Oversight and lnn:stigatlons 

Diana Dl;.,Gc-tb':-, Ranking !\'kmher, SubcQmmlltc..:: on Oversight and !i1\C"mallOIlS 
118 


82196.075

U.S. SENATE 

COMMITTEE ON HEALTH, EDUCATION, LABOR AND PENSIONS 

"A NEW, OPEN MARKETPLACE: THE EFFECT OF GUARANTEED ISSUE 

AND NEW RATING RULES" 

THURSDAY, APRIL 11,2013 

QUESTIONS FOR THE RECORD 

Questions from The Honorable Henry A. Waxman: 

Mr. Christopher Carlson 

1. Your testimony discusses 2014 insurance premiums in Oregon, stating that, "the average 

premium rate in these files represents an increase of36 to 53 percent over current 

premium rates." This conclusion stands in contrast to the fmdings other experts who have 

reviewed the rates. To help understand the differences, we ask that you provide the 

Committee with a detailed description ofthe analysis conducted for your testimony, 

including descriptions of which carriers and plans you included in the analysis, and 

spreadsheets or other materials showing all comparisons that were made in your analysis. 

Chris Carlson: My analysis was based on the rate filings published by the Oregon 

Insurance Division at http://www.oregonhealthrates.org/. The three filings 1 based my 

review on were the Individual (Major Medical) filings prepared by Kaiser Foundation 

Health Plan ofthe Northwest (Kaiser). Providence Health Plans and Regence BlueCross 

BlueShield of Oregon. These three insurers represent three of the largest health insurers 

in the state of Oregon. 

The Providence filing explicitly states on the first page (labeled as Exhibit 2, Page 47) 

that the proposed rate increase is 53.2 percent, on average. 

For the Kaiser filing, 1 relied upon the exhibit labeled "Development of Rate Change or 

Base Rate" on page 51 of the PDF document. The calculation of the presumed rate 

increase is based on "Row (29) 2014 Premium Requirement" divided by "Row (27) 

2013 Premiums (Current):' This calculation is $296.93 divided by $217.63 minus 1, or 

36.4%. 

For the Regence filing, we also relied upon the exhibit labeled "Development of Rate 

Change or Base Rate" on page 9 of the PDF document. The calculation of the presumed 

rate increase is based on "Row (AH) - Required Revenue" divided by "Row (AD) 

Earned Premium in the Experience Period:' This calculation is $302.91 divided by 

$21 I .05 minus 1. or 43.5%. However.l note that this calculation is comparing the rates 

for calendar year 2012, which represents the experience period. Ifmore recent premiums 

are considered. the calculation would reflect rate changes since the experience period and 

the increase would be revised to 32.3% (Row (AH) divided by Row (AF). 
119 


82196.076

Washin1:!ton, [),C :0005 

June 20 l3 

the hearing record ft::'mains 

questions for the n':'col'd. which are 

should be as follmvs: (1) name i)fthc 

complete te>.! of the question you an.:' addressing in 

Thank you Cl,gUlll for Y(IUr lime <lnd effDrt preparing and dc!hccring tcstimol1) herc'!"c the 

Snbcotnrnittt'(", 

Tim Murph) 

Chainnan 

SubcofllmiU(X' t'"1!l Oversight and !nvc~ligntions 

Diana Dl'Gcttc, Ranking ?V1emher, Subcomrniuc0 on Oversight and hwcs.tigmiof1s 

Attachment 
120 


82196.077

The Honorable Tim Murphy 

Chairman 

June 18,2013 

Subcommittee on and Investigations 

Committee on Energy Commerce 

2125 Rayburn House Omce Building 

Washington. DC 20515-6115 

Dear Chainl1an Murphy: 

Thank you tor inviting me to testify at the hearing entitled "Health Insurance Premiums 

Under the Patient Protection and Atfordable Care Act." After the hearing. Members of the 

Subcommittee submitted additional questions for the record: my responses to these questions are 

attached. 

Please do not hesitate to contact me should you or other Members have additional 

questions on this topic or other health care topics. 

Sincerely. 

Topher Spiro 

Vice President tor Health Policy 

Attachment 
121 


82196.078

The Honorable Marsha Blackburn 

1. I am told that a recently published ACA market reform rule will significantly impact 

the ability of a farmer cooperative program to remain in its own separate risk pool, and 

will require these farmers to be included as part of a statewide individual or small 

group pool. Today, over 40,000 farmers, their family members, and employees across 

37 states are able to purchase coverage through a farmer-owner program that pools the 

risks of just its own members. Premium costs for coverage within this farmer 

cooperative program have been very stable over the past several years and are 

commonly below the cost of coverage for similar or lesser coverages available in local 

individual or small group markets. This insurance program is farmer owned and 

driven to provide for their special health insurance needs. My concern is that ifthese 

farmers are no longer able to maintain their own separate risk pool, isn't it very 

possible that their premiums will increase due to the possibility that the statewide risk 

pool could prove less stable, and more risky, than their well established, present-day 

farmer coop pool? 

The farmer cooperative program is likely an "association health plan." If this coverage is selfinsured, the ACA market reform rule would not apply. If however this coverage is sold by an 

issuer, the ACA market reform rule could apply. In most cases, the size of the individual 

employers (farmers in this case) would determine whether the coverage is offered in the small or 

large group markets. In rare cases, the association of employers could sponsor a group health 

plan subject to ERISA, the association itself would be considered the employer, and its size 

would determine whether the coverage is offered in the small or large group markets. Ifthe 

farmer cooperative program is one of these rare cases, the coverage would be offered in the large 

group market, and the ACA market reform rule would not apply. To determine whether this is 

the case, you should contact the Department of Labor's Employee Benefits Security 

Administration. Finally, if the coverage is grandfathered, the program could maintain its own 

separate risk pool. 

Note that in general, there is a good reason for applying the ACA market reform rule to 

association coverage. If the rule did not apply, these plans could continue to "cherry pick" 

healthy people, driving up premium rates for everyone else enrolled in non-association coverage. 

The Honorable G.K. Butterfield 

1. Will consumers in eastern North Carolina get better value from their insurance 

premiums under the Affordable Care Act? 

Yes. In the current dysfunctional market, many insurance products do not provide real 

insurance; they are riddled with loopholes and significant coverage gaps. The Affordable Care 

Act ensures coverage of essential health benefits, guarantees access to coverage, and prevents 

rate shock when people age or get sick-security that provides real value to everyone. In 

addition, the "medical loss ratio" ensures more value for your premium dollar by requiring 

insurers to use at least 80% of your premium for actual health care, not administrative costs. 
122 

Æ 


82196.079

Finally, the Exchanges will allow consumers to more easily shop for and compare plans, which 

will have to compete based on value rather than their ability to screen out unhealthy people. 

2. Can you describe how tax credits cau help a young and healthy male from Warrenton, 

North Carolina reduce the amount he pays for health insurauce? 

Suppose that the young and healthy male from Warrenton, NC is age 25 and earns an annual 

income of $25,000. Further suppose that the annual premium for a plan offered in the nonemployer market is $3,030 (CBO's estimate of the national average). This individual would be 

eligible for a tax credit of$I,301, covering 43% of the premium for a Silver plan and 52% of the 

premium for a Bronze plan. Keep in mind that this individual could also be eligible for his 

parents' coverage or could buy a less expensive catastrophic plan. You can calculate these credit 

amounts for different ages and incomes by using the Kaiser Family Foundation's online subsidy 

calculator at http://kff.org/interactive!subsidy-calculator!. 

3. Can you provide additional examples of insurers lowering preminms through increased 

competition in the Individual Exchanges? 

In California, competition has already resulted in a choice of plans that provide top value. 

Thirty-three plans competed to offer coverage through the Exchange, called Covered California. 

As the Washington Post pointed out, "health plans know that they're competing against others 

for the chance to access millions of customers with tax subsidies"-which put downward 

pressure on their premium bids. Covered California selected thirteen plans that offered the best 

value, providing consumers a choice of three to six plans even in rural areas. Four of these plans 

are new entrants to the market. As a result of this competition, premiums will be lower than 

actuaries had projected.