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FULL COMMITTEE HEARING ON

STATE STRATEGIES TO EXPAND

HEALTH INSURANCE FOR SMALL

BUSINESSES

COMMITTEE ON SMALL BUSINESS 

UNITED STATES HOUSE OF 

REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

SECOND SESSION

FEBRUARY 26, 2008

Serial Number 110-72

Printed for the use of the Committee on Small Business

(

Available via the World Wide Web: http://www.access.gpo.gov/congress/house 

HOUSE COMMITTEE ON SMALL BUSINESS 

NYDIA M. VELA ́ ZQUEZ, New York, Chairwoman 

HEATH SHULER, North Carolina 

CHARLIE GONZA ́ LEZ, Texas 

RICK LARSEN, Washington 

RAUL GRIJALVA, Arizona 

MICHAEL MICHAUD, Maine 

MELISSA BEAN, Illinois 

HENRY CUELLAR, Texas 

DAN LIPINSKI, Illinois 

GWEN MOORE, Wisconsin 

JASON ALTMIRE, Pennsylvania 

BRUCE BRALEY, Iowa 

YVETTE CLARKE, New York 

BRAD ELLSWORTH, Indiana 

HANK JOHNSON, Georgia 

JOE SESTAK, Pennsylvania 

BRIAN HIGGINS, New York 

MAZIE HIRONO, Hawaii 

STEVE CHABOT, Ohio, Ranking Member 

ROSCOE BARTLETT, Maryland 

SAM GRAVES, Missouri 

TODD AKIN, Missouri 

BILL SHUSTER, Pennsylvania 

MARILYN MUSGRAVE, Colorado 

STEVE KING, Iowa 

JEFF FORTENBERRY, Nebraska 

LYNN WESTMORELAND, Georgia 

LOUIE GOHMERT, Texas 

DEAN HELLER, Nevada 

DAVID DAVIS, Tennessee 

MARY FALLIN, Oklahoma 

VERN BUCHANAN, Florida 

JIM JORDAN, Ohio

MICHAEL DAY, Majority Staff Director 

ADAM MINEHARDT, Deputy Staff Director 

TIM SLATTERY, Chief Counsel 

KEVIN FITZPATRICK, Minority Staff Director

STANDING SUBCOMMITTEES 

Subcommittee on Finance and Tax

MELISSA BEAN, Illinois, Chairwoman 

RAUL GRIJALVA, Arizona 

MICHAEL MICHAUD, Maine 

BRAD ELLSWORTH, Indiana 

HANK JOHNSON, Georgia 

JOE SESTAK, Pennsylvania 

DEAN HELLER, Nevada, Ranking 

BILL SHUSTER, Pennsylvania 

STEVE KING, Iowa 

VERN BUCHANAN, Florida 

JIM JORDAN, Ohio

Subcommittee on Contracting and Technology

BRUCE BRALEY, IOWA, Chairman 

HENRY CUELLAR, Texas 

GWEN MOORE, Wisconsin 

YVETTE CLARKE, New York 

JOE SESTAK, Pennsylvania 

DAVID DAVIS, Tennessee, Ranking 

ROSCOE BARTLETT, Maryland 

SAM GRAVES, Missouri 

TODD AKIN, Missouri 

MARY FALLIN, Oklahoma

(II) 

Subcommittee on Regulations, Health Care and Trade

CHARLES GONZA ́ LEZ, Texas, Chairman 

RICK LARSEN, Washington 

DAN LIPINSKI, Illinois 

MELISSA BEAN, Illinois 

GWEN MOORE, Wisconsin 

JASON ALTMIRE, Pennsylvania 

JOE SESTAK, Pennsylvania 

LYNN WESTMORELAND, Georgia, Ranking 

BILL SHUSTER, Pennsylvania 

STEVE KING, Iowa 

MARILYN MUSGRAVE, Colorado 

MARY FALLIN, Oklahoma 

VERN BUCHANAN, Florida 

JIM JORDAN, Ohio

Subcommittee on Urban and Rural Entrepreneurship

HEATH SHULER, North Carolina, Chairman 

RICK LARSEN, Washington 

MICHAEL MICHAUD, Maine 

GWEN MOORE, Wisconsin 

YVETTE CLARKE, New York 

BRAD ELLSWORTH, Indiana 

HANK JOHNSON, Georgia 

JEFF FORTENBERRY, Nebraska, Ranking 

ROSCOE BARTLETT, Maryland 

MARILYN MUSGRAVE, Colorado 

DEAN HELLER, Nevada 

DAVID DAVIS, Tennessee

Subcommittee on Investigations and Oversight

JASON ALTMIRE, PENNSYLVANIA, Chairman 

CHARLIE GONZA ́ LEZ, Texas 

RAUL GRIJALVA, Arizona 

VACANT, Ranking 

LYNN WESTMORELAND, Georgia

(III) 

C O N T E N T S 

OPENING STATEMENTS 

Page

Vela ́zquez, Hon. Nydia M. ....................................................................................... 1

Chabot, Hon. Steve .................................................................................................. 2

WITNESSES

PANEL I: 

Pawlenty, Honorable Tim, Governor of Minnesota, St. Paul, MN ....................... 4

Rendell, Honorable Edward G., Governor of Pennsylvania, Harrisburg, PA ..... 18

APPENDIX 

Prepared Statements: 

Vela ́zquez, Hon. Nydia M. ....................................................................................... 35

Chabot, Hon. Steve .................................................................................................. 37

Pawlenty, Honorable Tim, Governor of Minnesota, St. Paul, MN ....................... 38

Rendell, Honorable Edward G., Governor of Pennsylvania, Harrisburg, PA ..... 45

(V) 

(1)

FULL COMMITTEE HEARING ON STATE 

STRATEGIES TO EXPAND HEALTH 

INSURANCE COVERAGE FOR SMALL 

BUSINESSES 

Tuesday, February 26, 2008

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON SMALL BUSINESS, 

Washington, DC. 

The Committee met, pursuant to call, at 10:00 a.m., in Room 

2360 Rayburn House Office Building, Hon. Nydia Vela ́zquez [chairwoman of the Committee] presiding. 

Present: Representatives Vela ́zquez, Shuler, Gonza ́lez, Altmire, 

Clarke, Ellsworth, Sestak, Chabot, Bartlett, Akin, Fortenberry, 

Westmoreland, Davis, Fallin, and Buchanan. 

OPENING STATEMENT OF CHAIRWOMAN VELA ́ ZQUEZ 

Chairwoman VELA ́ ZQUEZ. This hearing on state strategies to expand health insurance coverage for small businesses is now called 

to order. 

The Committee is honored to have before us today Governor Tim 

Pawlenty of Minnesota and Governor Edward Rendell of Pennsylvania. These leaders have been at the forefront of the health care 

debate that has implications for the entire nation. While I understand their approaches to reform may be very different, we hope 

to gain insight on how their proposals can improve health coverage 

for the citizens of their states. 

This is the fifth hearing that the Small Business Committee has 

held on the issue of access to health insurance for small businesses. 

It is a problem that threatens to undermine our entire health care 

system. It is for that reason we are continuing to work with the 

small business community and stakeholders to identify ways that 

Congress can address this crisis. While major change may be a 

year away, the Committee is attempting to identify consensus reforms that can either be enacted this year or as part of any health 

care reforms made in the future. 

The Governors here today are fully away of the obstacles that 

meaningful health care reform presents. With any efforts to increase coverage that impacts our nation’s health system, it will invariably create some form of opposition. Governor Pawlenty and 

Governor Rendell are responding to the harsh reality of rising 

health care costs and declining coverage in their states. 

2

This Committee is particularly interested in the steps that Minnesota and Pennsylvania are considering to ensure small firms 

have access to affordable health insurance coverage. 

More than a year ago, Governor Pawlenty laid out his Health 

Connections platform that has set the stage for reforming his 

State. Governor Rendell is also in the midst of a major debate on 

comprehensive changes to the health care system in Pennsylvania. 

He is now working with the legislature to advance his prescription 

for a Pennsylvania plan. 

Both of these plans make small businesses a critical component 

of expanding coverage. I believe it is becoming increasingly clear 

that addressing the problem of the uninsured requires a focus on 

encouraging small businesses to offer health insurance coverage. 

Today’s discussion will hopefully allow the Committee to gain 

new perspective on approaches to improving health care choices for 

small businesses. In the past year, this Committee has examined 

how competition among insurers and risk are cost drivers for small 

businesses seeking health insurance. These are problems that I believe can and must be addressed by changes at both the State and 

federal level. 

While demographics and localized issues may shape the solutions 

that you are proposing, it is clear that you both agree that the current system needs to change. The matter of affordable coverage for 

small businesses is something that every state is facing across this 

nation. Given the challenges, it comes as no surprise that 6 out of 

10 uninsured Americans, including more than 10 million children, 

are in households headed by self-employed workers or small business employers. 

I look forward to today’s testimony, and again thank you for 

being here to discuss this important issue. I will now yield to the 

Ranking Member, Mr. Chabot, for his opening statement. 

OPENING STATEMENT OF MR. CHABOT 

Mr. CHABOT. Thank you, Madam Chairwoman, and good morning. Thank you for holding this hearing on state initiatives to expand health insurance. And special thanks to our distinguished 

witnesses who are taking time from their National Governors Association winter meeting here in Washington to be with us today. 

Governors Pawlenty and Rendell, we really do appreciate your 

participation here this morning. We will stop talking shortly, so we 

can get to you. 

Forty-seven million Americans are uninsured, and for those who 

are uninsured, and for those who are insured, costs continue to 

skyrocket. For small businesses, health care is continually ranked 

as one of the top concerns. And as we have heard expressed by witnesses throughout this Committee’s 10 health hearings so far this 

Congress, it continues to be a problem in this country. 

With premiums escalating, small companies face limited choices 

of health insurance providers. Many operate within margins so thin 

that they cannot provide health insurance for themselves or their 

employees. According to the Government Accountability Office, 

health care spending is a chief culprit of our national debt. The 

structural debt, at the current rate of growth and spending in federal entitlements, is $53 trillion—$53 trillion with a T—assuming 

3

future promise and funded benefits of Medicare, Social Security, 

veterans health care, and other programs are kept. 

These figures are nothing short of astonishing, not to mention 

disturbing. The cost of health care has outstripped inflation by two 

percentage points per year each year for the past 40 years, and 

costs are expected to continue to rise. Health care costs for individuals and small businesses must be addressed at present, and they 

must be curtailed for our children and grandchildren. 

These are tough problems with many facets and no easy answers. 

Clearly, entitlement spending must be addressed, and I believe 

there are important steps Congress can take to bring down the cost 

of health care and make it more accessible. For example, I introduced the Health Insurance Affordability Act, which would allow 

every American to deduct 100 percent of the cost of their health insurance premiums when calculating their federal income tax. 

It is also important to eliminate frivolous lawsuits, which drive 

up health care costs. To that end, many of us support The Health 

Act, which would cap non-economic damages and ensure that only 

those with legitimate claims can proceed to a lawsuit. And many 

of us also support legislation that would allow small businesses to 

join together with national associations to purchase health insurance for their employees. 

The increased purchasing power and lower premium costs would 

encourage small companies to offer health insurance to their employees if they don’t already. The House has passed this legislation 

many times in previous Congresses only to be stalled in the Senate. 

Because Congress has not addressed these issues, many states 

have become incubators of health care reform proposals. Some have 

proposed innovative programs to expand health insurance coverage. 

The Governors who are with us today have been at the forefront 

in offering imaginative health insurance solutions in their states. 

We are eager to hear your ideas for reform. 

Madam Chairwoman, thank you again for holding this important 

hearing, and I think we all look forward to both Governors’ testimony here this morning. 

And thank you for being here, Governors. 

Chairwoman VELA ́ ZQUEZ. Thank you. 

It gives me great pleasure to welcome Governor Tim Pawlenty, 

who was elected to his first term as Governor in 2002, and was reelected in 2006. He is the 39th Governor of Minnesota, and currently serves as Chair of the National Governors Association. The 

State of Minnesota has one of the lowest uninsured rates in the 

country. 

In 2005, Governor Pawlenty signed into law a health care reform 

bill that creates small employer flexible benefit plans which are designed to assist small entrepreneurs purchase health insurance. He 

is continuing to work on health care reforms to improve access to 

coverage. 

Governor, we always allow for a five-minute presentation. We 

will give you more latitude, but we would love to be able to ask 

some questions. 

4

STATEMENT OF THE HONORABLE TIM PAWLENTY, GOVERNOR 

OF MINNESOTA, ST. PAUL, MINNESOTA 

Governor PAWLENTY. Madam Chair and members, thank you so 

much for the opportunity to be here. We sincerely apologize. We 

were expecting only a brief meeting with the Speaker and the leader, and they were very generous with their time. So we are sorry 

for our lateness in arriving here today. 

We recognize—Governor Rendell and all Governors—the importance of small businesses. It is the main engine of our economy in 

Minnesota and across the nation. Seventy percent or so of all of the 

new jobs created in the country are created by these small and 

early stage companies. It is vital to our future economic picture and 

health in this country to make sure our small business sector is 

healthy, and a key variable, as you well know, Madam Chair and 

members, is the ability to contain health care costs for small businesses, not only as a way to help them provide health insurance 

coverage to their employees, but to allow them to even remain viable. 

I am the Governor of one of the I think best states from a health 

standpoint in the country. We had the healthiest State in the nation seven years in a row. Vermont just beat us out this last year, 

so we are second this year. But we are going to get them back next 

year, Madam Chair. But for seven years in a row, the healthiest 

State in the nation by a number of wide measurements on health. 

And we have the second longest rate of living or longevity in the 

country, second only to Hawaii. I think they have us beat out on 

tropical fruit digestion and eating there, but that helps them. 

We have one of the lowest health care costs in the country. And 

as you mentioned, we have the lowest rate of uninsured in the 

country at about 7 percent. It fluctuates up and down a little bit. 

Many states define full insurance—in fact, Massachusetts I think 

is defining universal coverage at 95 percent. We are already at 93 

percent, and we still have a ways to go with respect to our reforms. 

The reason I share all of that with you is not to brag about Minnesota, but to tell you that even with all of that nation-leading status, home of the Mayo Clinic, home of the University of Minnesota, 

even with all of that, we can’t make the current system work and 

have it be affordable and accessible and high quality, the way it 

is currently configured. And so that is how high the bar has become for our citizens and for our small business leaders and job 

providers across the country. 

The costs of this health care system are killing us economically. 

The current system is not sustainable for individuals, for families, 

for small businesses, for local units of governments, for school districts, for counties, for state governments, for the Federal Government. It is the thing that is driving us further towards insolvency, 

financially and economically, and we hope that you will join us—

and I know you will—in trying to find ways to make it more affordable and available. 

We have seen in Minnesota, as the nation has seen, an erosion 

of employer-sponsored/employer-provided health care coverage that 

is very concerning. As that displacement occurs, those individuals 

either are on their own or they fall through the cracks or look inVerDate 0ct 09 2002 13:35 Mar 24, 2008 Jkt 033615 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 G:\CLERK SB-LD\HEARINGS\TRANSCRIPTS\40362.TXT LEANN
5

creasingly to government programs. And that has its own limitations and concerns associated with it as well. 

As to my comments that the current system is flawed and what 

we could do about it, Madam Chair, right now we have a system 

where what we pay for is not aligned with the outcomes that we 

desire. And we have a system where we pay for procedures, volumes of procedures, and as largely disassociated with whether 

those procedures are leading in an efficient and impactful manner 

to better health, or whether the health care being provided is of a 

high quality. And the pricing around that is quite mysterious to 

most consumers, and even to some third-party payers of those bills. 

In short, and in oversimplified terms, we have a health care system where all of us get to go to a health care provider as consumers, consume goods and services, being largely ignorant of price 

or quality, and then we send the bill to a third-party payer, namely 

an insurance company, an HMO, or a government, and they pay 

the bill. 

There is no system that I am aware of where that is going to 

work. It defies what we know about human nature. It defies what 

we know about markets, and all of the flaws and warts of that are 

now being visited upon us in terms of what we see and the deficiencies in this system. 

Madam Chair and members, if we invited you to go purchase a 

television—and I hope you would purchase it at one of our great 

Minnesota companies like Target or Best Buy that are 

headquartered in Minnesota—and we said, ‘‘No consideration about 

price or quality, just go pick out a television,’’ I doubt that many 

members or citizens would go pick out a, you know, 12-inch television. I think probably most of the people would go get the big flat 

screen. 

And so we need to connect consumers and payers and providers 

as it relates to how we pay for the desired outcomes that we have. 

With that in mind, we note that even in Minnesota, with all of our 

nation-leading health care quality and delivery systems, until recently only 1 in 10 people were getting optimal care in diabetes. 

We know what optimal care in diabetes is. We can define it at 

Mayo Clinic levels. We can define it at world-class leading levels. 

And 1 in 10 people were getting that kind of care. And if you don’t 

get optimal care in diabetes, it leads to very expensive, worsening, 

problematic, chronic conditions that get even more expensive. 

So paying for providers, as one example of many, to move their 

patient loads towards optimal care, and putting benchmarks 

around that and pain premiums, pain incentives for that, seems to 

me like it makes a lot of sense. And you know most of the money 

goes into the five big chronic conditions. It is diabetes, obesity, 

heart disease, cardiac care, end of life issues. 

And, you know, setting best of class expectations on quality and 

pain for that, rather than paying for volumes of procedures, seems 

like a movement that we need to take with respect to our payment 

systems. 

I also think there is a lot of back room costs that can be taken 

out, and we are requiring in Minnesota in our public health programs, if you want to be paid by the State government and be a 

participating provider in our State programs, you have got to e-preVerDate 0ct 09 2002 13:35 Mar 24, 2008 Jkt 033615 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 G:\CLERK SB-LD\HEARINGS\TRANSCRIPTS\40362.TXT LEANN
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scribe. Now, there is some legacy problems with that in terms of 

small providers and rural providers who can’t make the pivot. We 

are going to try to give them some financial help. 

But at a time certain in the next couple of years, if you want to 

be part of a provider in our State program, you have got to e-prescribe. We have a non-profit that has been assembled of our health 

care providers in Minnesota that will share medical records electronically. That is not a government central storage of data. It is 

the ability for providers to mutually go into databases with proper 

security in place and pull out medical records. So if you are in Duluth, you can get the record from Minneapolis that you may need, 

even though you had two different providers. 

From an employer standpoint, Madam Chair and members, 125 

plans are low-hanging fruit, you know, and they are not costly to 

set up for employers. It is a relatively modest and easy thing to do. 

But if they do that, whether the employer actually pays for the insurance, or an individual comes to the marketplace and can declare 

the benefits of a 125 plan, it is a significant savings either for the 

employer and/or the employee. So I would encourage that type of 

approach as well. 

But if I—and there are many, many other things, but if I were 

to leave you with one thought that I think is just critical, is we 

have to reform the payment system. Some would argue that the 

way to do that is to move to a single payer system. For me, I don’t 

think that is the correct approach. I don’t think it is realistic. I 

don’t think it will work. 

For me, I think the idea is to get transparency around quality 

and price, and be very aggressive about that. And the new reform 

that we have in Minnesota is to try to put to the side the thirdparty payers, the insurers, the health plans, and have them become 

vendors of the providers, but have the providers come forward and 

be the bidders of the price. 

They can name whatever price they want. But once they name 

it, it is good for a certain period of time, and it has to be available 

to the whole market, whether it is an individual, whether it is a 

small business, whether it is the government. 

When we go to Minute Clinic, which was started in Minnesota, 

there is no mystery about what stuff costs. You know, go to the 

CVS up on the wall when you walk in. If you want the flu shot, 

there is the price. You know, if you want the strep test, there is 

the price. It is simple. So we need to have price transparency and 

ways that average Americans, average Minnesotans, average citizens of Governor Rendell’s State, can see in a user-friendly, simple 

format, and then I think we also have to align payments, whether 

they are coming from individuals or third-party payers, to quality, 

and not defined just by the volumes of the procedures. 

If you pay providers by how many procedures they perform, you 

are going to get more procedures. If you pay people to keep people 

healthy, and define what that means, either in terms of initially 

optimal care, but ultimately outcomes, I think that is a better use 

of our money and a brighter future. 

So that is the direction we are headed in Minnesota. I would say 

it is mission critical for our country. This issue, as one measure—

and you know this—the rate that these programs are growing at 

7

the state level, and, candidly, at the federal level, this will usurp 

the vast majority of our State’s budget within 20 years, probably 

within 15 years. 

It has enormous implications for our ability to do almost everything else—K-12, higher ed, roads and bridges. It is the big vacuum in the room. And if we don’t find a way to deal with this, it 

is not only going to be a very severe challenge to small businesses, 

but the rest of what we are trying to do as well. 

Thank you for listening. I would be happy to answer your questions after Governor Rendell. 

Madam Chair, I have—Governor Rendell is being very kind and 

is offering me to take questions now, because I am going to try to 

catch a plane, and then he is willing to suspend his comments, if 

that is okay with you, Madam Chair. 

[The prepared statement of Governor Pawlenty may be found in 

the Appendix on page 38.]

Chairwoman VELA ́ ZQUEZ. Thank you. Sure. All right. Without objection. 

Okay. Let me address my first question, of course, to you, Governor. And I would like maybe—if Governor Rendell wants to comment on this—

Governor RENDELL. Sure. 

Chairwoman VELA ́ ZQUEZ. —very first question. We all know that 

small businesses across the country are struggling with the rising 

costs of health care. And one of the main problems in many states 

if the lack of competition in the health insurance market. 

This was reiterated yesterday by the Nevada merger between 

United Health and Sierra that was approved by the Department of 

Justice. Governor Pawlenty, while I appreciate that Minnesotabased United Health employs many citizens of your State, I was 

hoping that you can talk about whether this increase in consolidation concerns or presents any concerns about competition. 

Governor PAWLENTY. Well, I will give you one other—Madam 

Chair, thank you, and members. United Health is a large company 

located in Minnesota, but oddly it is not allowed to do business in 

Minnesota. We have an old law in Minnesota that prohibits forprofit health companies from providing health services in our State. 

I think we are the only State in the nation that does that. So what 

we have is three non-profit providers, three health plans that control 85 percent of the market. 

In the early ’90s, we did a reform where we were going to try 

to—we were the first in, and heaviest in, in the HMO. I wasn’t 

there then, but that is what we tried to do. And what happened 

is initially there was some progress as to cost containment. They 

took the low-hanging fruit. But I would suggest to you that in Minnesota our market is not robust from a competitive standpoint. We 

have three non-profits that compete. 

What they do from year to year is cannibalize each other’s market share, so when one comes in as the low-cost provider one year 

for these big employee groups, they get selected. The losers come 

back and underbid them next year. And so they just trade relative 

market share from year to year. 

8

The quality of services and offerings don’t vary significantly, 

other than on marketing labels. And we could stand for much more 

robust competition in my State. I think the semi-monopolization of 

our health care market in Minnesota, and the vertical integration 

of it, has not served us well. Now, that is not a comment about 

what is going on in other states or United. It is a comment about 

the fact that we have allowed, and encouraged in some ways 

through public policy, the vertical integration of the health care delivery system in Minnesota. And it has not served us well. 

Chairwoman VELA ́ ZQUEZ. Okay. Thank you. 

And let me go—Governor? 

Governor RENDELL. I want to add very quickly on that. Ironically, we are trying to get United to come into Pennsylvania to 

spread competition. 

[Laughter.] 

But there are things you can do. The reason that there is no competition is when you have two or three or one dominant carrier in 

an area, they are allowed to negotiate with hospitals and doctors 

clauses that make it impossible for competition to come in. 

And I would recommend that Congress take a look at those type 

of clauses, sort of the most favored nation clauses, and outlaw 

them—plain and simply outlaw them, make it impossible for them 

to negotiate those, because providers—a hospital—if you are 80 

percent of the market, you are the HMO, and you want that type 

of clause, the hospital is in deep trouble if they don’t do that. So 

they are forced to take an abusive regulation that stifles competition. 

That is something I would urge you to take a look at, and something I think you could legislate. 

Chairwoman VELA ́ ZQUEZ. Thank you. 

Governor Pawlenty, we have been here in this Committee, and 

throughout the Congress, trying to enact legislation that will allow 

for small businesses to be able to purchase health coverage. And 

one of the bills that we passed was the creation of the association 

health plans. 

I supported that legislation, which would allow for small firms to 

pool together for purchasing health insurance. And despite passage 

of the bill in the House numerous times, wide support from the 

small business community, and the backing of Minority Leader 

Boehner, and the President, the proposal was unable to get 

through the Senate. 

And during the debate some states expressed concerns about allowing firms to buy coverage across the state line, and the National 

Governors Association actively oppose AHPs. As a Governor, do you 

have reservations about allowing small businesses to band together, if the plans were regulated by the Federal Government, as 

opposed to the state? 

Governor PAWLENTY. Madam Chair and members, I would even 

take it one step further, and say, first and foremost, we need to 

make sure that consumer protections are in place. These policies 

and rules and regulations are complex, and to have typical consumers try to sort through that without some guardrails and protections in place is something that we need to be very careful 

about. 

9

Assuming that those are in place at a state level or a federal 

level, in the world of the internet, in the world of the iPod, in the 

world of global markets, in a world where regional and state 

boundaries are, you know, melding, why is it that in Minnesota I 

can’t buy a California insurance plan? Or why is it that I can’t bind 

together with similarly-situated people? 

I am speaking for myself now, not NGA, but it seems outdated 

and parochial to limit these offerings to the state that you happen 

to live in when this is largely a transaction involving the exchange 

of data and the exchange of information. So my personal view, not 

the NGA’s view, is that association health plans—and assuming 

consumer protection is robust, consumer protections are in place, 

people should be able to buy insurance wherever they want, and 

in whatever form they want. It is a free country, and you shouldn’t 

be bound by your own state’s boundaries in that regard. 

Chairwoman VELA ́ ZQUEZ. Thank you. 

Governor RENDELL. I would differ just slightly. I certainly agree 

with the sentiments Governor Pawlenty offered. But one of the 

things I am fighting for—and in my testimony I will mention it—

is for the State Insurance Commissioner to get the right to regulate 

health insurance rates. He regulates car insurance, homeowners insurance, but doesn’t regulate health insurance. 

And if we get that right—and I think it is very important consumer protection, so no one can be denied coverage because they 

have a prior existing condition, which is a yeast infection, for example, we need the Insurance Commissioner to have that right. How 

does our Insurance Commissioner regulate a product that is being 

offered in California? 

But if you go to—and I believe Congress should—some form of 

national health insurance, maybe a form that relies on a working 

arrangement with the states, but if you go to that, then I think it 

makes sense. 

Chairwoman VELA ́ ZQUEZ. I now recognize Mr. Chabot. And I will 

ask the members to please address the question to Governor 

Pawlenty, because—given the time constraint, and then we will 

have Governor Rendell make his presentation, and we will have an 

opportunity to ask questions to the Governor. 

Mr. CHABOT. Thank you very much, Madam Chair. 

And, Governor Pawlenty, you proposed a path to universal coverage rather than universal coverage. Could you elaborate on why, 

in your State, you decided a more incremental approach? 

Governor PAWLENTY. Yes. You know, we are pretty far along the 

continuum, as I mentioned already, at 7 percent uninsured, 93 percent insured. And so as we looked at the various models that have 

been proposed, either academically or on the ground around the 

country, we think we can make very substantial progress, beyond 

even 95 percent, with the types of payment reforms that I have 

suggested in my earlier comments. And then, we are going to harvest part of the savings from those payment reforms and plow it 

back into an existing or style of program that we have in Minnesota, provide more access to the uninsured. 

We hope that most of the savings—in my view, about two-thirds 

of it—will go into holding down premiums, and then more for access. In my opinion, and you have got to be careful about a manVerDate 0ct 09 2002 13:35 Mar 24, 2008 Jkt 033615 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 G:\CLERK SB-LD\HEARINGS\TRANSCRIPTS\40362.TXT LEANN
10

date where you say everybody has to be insured—and then, if 

you—the health care that you have available in your marketplace 

isn’t affordable, you end up criminalizing poor people, or penalizing 

poor people. 

So I think a better approach—and we think we can get there 

without such a mandate—would be due to the payment reform and 

provide the ability for individuals to go into the marketplace and 

purchase it themselves, or through their employer or association. 

Mr. CHABOT. Thank you. And in your written testimony, you had 

emphasized that states should continue to have the flexibility to try 

new approaches. Could you discuss why that is so important? 

Governor PAWLENTY. Well, we celebrate this year the 100th anniversary of the National Governors Association. And one of the roles 

that we think we can play is to be laboratories of democracy, that 

we can go out, try new things. We are a little smaller. We are little 

more nimble. We can do things a little quicker. The good news is, 

if we can show that it works, you could perhaps take some comfort 

as a Congress before you took it national, without having to take 

on all the risk. 

On the other hand, if we do things that don’t work, and they 

turn out to be stupid, then you could prevent that from being visited upon the whole country before we road test it a little bit in 

the states. So having flexibility, first of all, respects federalism, respects state rights, and that is the tradition of our country. 

But second of all, it preserves this role as a laboratory of democracy where we can be experimenters and hopefully deliver results 

that might be appealing to you. 

Mr. CHABOT. Thank you. And, finally, in your written testimony 

also you referred to making consumers meaningful partners in 

their health care. Could you discuss why that is so important? 

Governor PAWLENTY. Well, it has been my experience, sir—and 

I am sure it has been yours—where when people have some skin 

in the game—I don’t mean that medically, I mean that financially—

[Laughter.] 

—the tend to behave differently. And, you know, if we—I go out 

in the hallway here and have a cardiac arrest, I don’t have the 

time to look up, you know, who the best local provider is in terms 

of a quality web site and look up price transparency. But for those 

things that are schedulable, predictable, preventable, and repetitive, it seems to me having consumers’ interests financially aligned 

with best price/best quality is a good thing to do. 

And the good news there is, in our research, in most instances 

the highest quality providers in many cases are also lower cost providers. Not in all cases, but in many cases. And so this investment 

of consumers changes their behaviors in ways that I think will 

serve the financial systems well, but, more importantly, will also 

drive them to better health care. 

Mr. CHABOT. Thank you very much, Governor. 

I yield back the balance of my time, Madam Chair. 

Chairwoman VELA ́ ZQUEZ. Sure. Mr. Gonza ́lez. 

Mr. GONZA ́LEZ. Thank you very much, Madam Chairwoman, and, 

of course, welcome. 

11

The first and most burning question—and I apologize if someone 

asked it. I was outside actually meeting with a bunch of physicians 

from the State of Texas in the city. I mentioned Governor Rendell’s 

suggestion on the most favored nation type provisions, and actually 

the Texas legislature is going to be looking into that. I asked 

them—they ought to come in here, if there was some room. 

But the most pressing question, and I don’t think anyone has 

asked it yet, but I know it is on everybody’s minds, given where 

we are in the primaries. I would ask both Governors: if nominated, 

would you accept? If elected, would you serve? 

[Laughter.] 

You can answer that some other time, instead of putting you in 

the hot seat. 

Governor Pawlenty, I really wanted—there are a couple of 

things—the most interesting things we have been discussing about 

pay-for-performance and such. But, first, just protocols. And you 

were talking about the optimum care and such. How do you establish those benchmarks? I think you made reference to diabetes 

treatment, and you said that is easily identifiable, what you should 

do, what are the basics, what is the proper care, best practices, and 

such. 

But if you are talking about treatment across the board, whether 

it is a particular disease or regular treatment or whatever for 

other—or just checkups or whatever, how do you ever get to that 

bottom line, first of all, as to what would be the minimum of best 

care, best practices? How do you establish that? 

And then, secondly, I guess it is, how do you establish pay-forperformance criteria? Because we have asked Governor Leavitt, 

Secretary, HHS, and he hasn’t been able to give us an answer to 

that, at least the last few hearings that I have attended. So those 

are the two questions. 

Governor PAWLENTY. Thank you, Congressman Gonza ́lez. I can 

tell you in Minnesota that we envision this in two steps. We are 

not ready yet, nor are the databases ready yet, nor is the delivery 

system ready yet, to pay purely for health care outcomes. The systems aren’t robust enough. The culture—medical culture is not yet 

advanced enough. 

But conceptually, we see that, and there is acceptance of it. In 

the meantime, as a proxy for outcomes, we want to pay for adherence to world-class standards, which gets to your point. Again, this 

is not the destination, but it is the pathway to the destination. 

We have a hometown advantage in Minnesota, because we have 

the Mayo Clinic. And so we have the Mayo Clinic and others who 

have sponsored something called ICSE standards. I forget what it 

stands for, but it is ICSE, and it is basically a depiction of worldclass standards in many courses of treatment. And so when doctors 

come and say—did say, ‘‘You know, why do I want to practice medicine by a cookbook? You know, I have got my own standards,’’ and, 

like, you really want to take issue with the Mayo Clinic as being, 

you know, low quality? 

And so we are not saying you have to do that, but we are saying 

we will pay you more if you do do it. So in the case of diabetes, 

we have this program called Bridges to Excellence, where we say, 

all right, we have got about 6 or 8 percent of our current diabetics 

12

in Minnesota on these optimal care treatment regimes, we want to 

get that to 80 percent over the next 10 years. So we are saying to 

our providers, ‘‘We will pay you more if you can get your patient 

load to 10 percent next year, and then, after that 15 percent, and 

after that,’’ so it is a bonus system based on these ICSE standards. 

But I will acknowledge to you that is not the endpoint. Those 

treatment protocols or standards are proxy for better health, better 

health care outcomes. They are not the outcomes themselves. 

So we had some resistance in Minnesota, and still do to some extent, but the medical community has come around these ICSE 

standards mostly. There is still some dissent, but they have mostly 

come around it, and most because of the credibility of the Mayo 

Clinic and the people who stand behind the standards. 

Mr. GONZA ́LEZ. Thanks very much, Governor. 

Governor RENDELL. Congressman—

Mr. GONZA ́LEZ. Government Rendell? 

Governor RENDELL. —I will take a quick shot at that. Number 

one, obviously, standards are always debatable. But we know that 

there are certain things that we shouldn’t pay for, and our Medicaid program has informed providers that we are not going to pay 

for medical errors anymore. We are not going to pay for obvious 

medical—preventable medical errors. 

You know, right now in the current system, you go in for the amputation of your right arm, the hospital by mistake amputates your 

left arm, your provider pays for that. Then, for the remediation of 

the left arm, including the placing of a prosthesis, your provider 

pays for that. And then, they get around to amputating the correct 

arm, and your provider pays for that—a third time. No one business, no other field of endeavor in the United States of America, 

would business people put up with that, paying for that type of performance. 

And we are not in our Medicaid program anymore. We have notified them. We have worked on it with our hospitals, and our hospitals have agreed that this is a fair system. We are not going to 

pay for obvious preventable medical errors. That is a standard that 

should be applied across the board. 

Secondly, we do know—the industry, the science of health care, 

knows what works and what doesn’t work. There are 10 states—

and I think Minnesota is one of them—that allow for the—what is 

called the Taylor model, named after the doctor who formulated it, 

for treating chronic care diseases like diabetes. 

Right now, in Pennsylvania, if you have diabetes, the only thing 

we will pay for is the time you spend with your primary care physician. Most primary care physicians are swamped. They tell you you 

have diabetes, they will give you a pamphlet on diet, they will give 

you a quick run-through of how you test yourself, you are out of 

the office. And the next time they see you may be when you are 

going into the hospital for amputation. 

The Taylor model—the health care system pays for a nutritionist 

who works almost on a weekly or every two week basis with that 

patient, saying, ‘‘How are you doing? Is your diet too restrictive? 

If it is, I can make substitutions.’’ The Taylor model pays for a physician’s assistant who will tell that person how to test themselves, 

or, if it is too painful, will suggest an alternate method, and make 

13

sure that the patient is living up to those procedures on a weekly 

basis. 

The Taylor model pays for the pharmacist’s time as well. You 

manage the disease. You don’t just treat it; you manage it. We can 

show you, in the 10 states that have the Taylor model, the hospitalization rate for diabetes compared to Pennsylvania. And we estimate we will save $2.1 billion if we can get down to the hospitalization rate of the 10 states who manage chronic care diseases. 

So it is doable. 

Mr. GONZA ́LEZ. Thank you very much. 

Chairwoman VELA ́ ZQUEZ. Time is expired. 

Mr. GONZA ́LEZ. I yield back. 

Chairwoman VELA ́ ZQUEZ. Governor, at what time do you need to 

leave the room? 

Governor PAWLENTY. Madam Chair, just in a few moments. 

Chairwoman VELA ́ ZQUEZ. Okay. So I now recognize Mr. 

Fortenberry. Is he here? No. Who is next here? Mr. Westmoreland. 

No? Mr. Akin, okay. 

Mr. AKIN. Thank you, Madam Chair. 

I have just a real quick question. Are you assuming—and in your 

State is the health insurance policies, are they portable, or is that 

not the case? 

Governor PAWLENTY. Generally, no. 

Mr. AKIN. And do you support that idea, or have you looked at 

that? Or what is your position on that? 

Governor PAWLENTY. Yes. 

Governor RENDELL. Same answer. 

Mr. AKIN. That is all I had. Thank you, Madam Chair. 

Chairwoman VELA ́ ZQUEZ. Mr. Altmire. 

Mr. ALTMIRE. Governor Pawlenty, thank you for being so generous with your time with your flight on the other end. I spent my 

professional career before being elected in health care policies. This 

is something I have thought about and worked a lot. And I talk 

about pay-for-performance all the time, and I want to commend you 

for your testimony—and I will commend Governor Rendell after his 

testimony—but for what you have done to take a leading role in 

pushing that. 

And I agree with everything you said about the incentives that 

exist, and it is almost as though the incentive of the provider is for 

the patient to get sick. They make more money the more often they 

come to see them, and you have taken steps to address that. 

So, quickly, my question is: given the impact that pay-for-performance will have on health care providers, and particularly solo 

and small group providers, practitioners, what steps have you 

taken in your state to make sure that they are fairly considered 

with their interests? 

Governor PAWLENTY. Thank you, Congressman Altmire. It is a 

great question. And I also want to say in the interest of full disclosure, what we have done in Minnesota is early stage. I think I 

would be misleading this Committee if anybody said we have got 

a full-blown pay-for-performance program, it is embedded in the 

culture, deeply embedded in the payment system. We are at the 

very beginnings of paying at the margins for diabetes, obesity, and 

14

a few other things. So it is a start. We think we know where we 

need to end up, but it is just beginning. 

As to your question about rural or smaller providers, in Minnesota we are trying to address that, and one way is through 

health information technology. That if you are in an area of greater 

Minnesota, and you need access to this type of information on 

standards, practice protocols, or the like, that you have the capabilities to access that. And we also don’t make the system mandatory. 

You know, in the end, if we are going to pay for outcomes, we 

should be agnostic as to how they get there, you know, making 

sure there is consumer protection and it is legal and ethical and 

appropriate. But we have got this intermediate step where we are 

paying for procedures now, and now we are going to go to best 

practices, and hopefully to outcomes. 

But we could say to small and rural providers, ‘‘Here is the outcomes we expect. How you get there, you know, is part of the art 

of medicine. And we will see you on the results side of this.’’ But 

we are not there yet with the system we have. But to answer your 

question, we are trying to provide some support to transition them, 

to make sure they have access through technology to the same information everybody else has got. 

Mr. CHABOT. Would the gentleman yield? I thank the gentleman 

for yielding. 

Madam Chair, if I could make a suggestion. Since the Governor 

has to leave literally very soon, in moments, perhaps, because a lot 

of members have been here, if each member could maybe ask one 

question so we get to as many as possible. 

Chairwoman VELA ́ ZQUEZ. Without objection, yes. 

Mr. CHABOT. Thank you. 

Chairwoman VELA ́ ZQUEZ. Mr. Westmoreland. And we will come 

back a second round. 

Mr. WESTMORELAND. Thank you, Madam Chair. 

And, Governor, thank you for being here, too. I wanted to ask 

you about the flexible benefits program that you allowed small 

business—or I guess insurers to offer small business. It says that—

I was just reading a statement—that the plan must be offered on 

a guaranteed basis to all small firms. 

So are you saying that there is—that each small business cannot 

come up with their own menu of plans that they would want based 

on the employees getting together and saying, ‘‘We need this, we 

don’t need this,’’ but they would all have to be offered the same 

plan? 

Governor PAWLENTY. Within a range of—Congressman Westmoreland, within a range of benefit options they can design. But 

once the plan is offered, it has to be available in the market broadly. 

I will also tell you this program has not been particularly successful. Not because I don’t think it is well designed and well intentioned, but it has been woefully under-marketed. And in my view, 

the health plans do not have a large incentive to sell this particular 

product. It is a low-profit, low-margin, high administration product, 

and I would say to you the impact of this in Minnesota so far has 

been very modest. 

15

And so I would not bring this up yet as a success, and I think 

more flexibility perhaps would be—but the heart of the matter is 

the health plans have very little incentive to aggressively market 

that plan. And they are marketing, frankly, more revenue-robust 

plans. 

Mr. WESTMORELAND. Do you think it would be better if they were 

able to offer different plans to different businesses? 

Chairwoman VELA ́ ZQUEZ. Remember, one question. 

Governor PAWLENTY. Yes. Congressman Westmoreland, yes, but 

within a base of consumer protection. You know, again, this is an 

area where consumers can get really exploited if we are not careful. 

These plans and policies are very complex. 

I used to be a lawyer. I try to read this stuff. I can’t understand 

my benefits and rights, and so you have got to—within a range, 

you have got to protect the consumers. 

Chairwoman VELA ́ ZQUEZ. Mr. Sestak. 

Mr. SESTAK. Thank you. Governor, you made a response to a 

question earlier—I think the response had something to do with, 

you know, an individual having skin in the game, you know, 

changes the behavior because they have to pay a part of it. Why 

can’t you extend that skin in the game analogy that you want to 

change behavior by having a mandate, so that people are involved 

in it? And isn’t that the same philosophy that, therefore, their behavior might change if they are involved in a particular sense? If 

they are not, you then have to wait until they go to the emergency 

room. Isn’t it the same analogy? 

Governor PAWLENTY. Madam Chair—I am sorry, Congressman, I 

can’t see your name plate there, but—Sestak—you are speaking to 

an individual mandate for coverage. We have an individual mandate for automobile insurance in Minnesota with the threat of a 

criminal penalty, and the non-compliance rate is well north of 10 

percent. And the reason for that is, in part, some people just aren’t 

responsible, but a large part of it is people can’t afford the insurance. And so there is a reality there that lies underneath that. 

The other thing is, at least in Minnesota, we are so close to what 

many would define as, you know, reasonable universal coverage 

that we don’t think it is necessary. We are already at 93 percent, 

you know, and we think we can get to the Massachusetts standard 

without that. 

And the other thing I would be careful about, the Massachusetts 

approach is a work in progress. And I would suggest to you that 

there are some unique circumstances there that may not be—that 

you can’t replicate. Specifically, they cut a deal with the Federal 

Government where they have got a big bunch of transition money 

that is available for a couple of years and then it sunsets. And that 

was part of a deal they cut on some Medicaid negotiation issues 

that sunsets. 

Number two, they promised affordability, and it—the jury is still 

out yet on whether over time that is going to be an affordable plan. 

You know, originally, they had hoped to do it under $200 a month. 

I think it is north of $300, and maybe in many people’s minds, if 

the legislature keeps putting stuff in there, it could be a $400 or 

$500 a month plan. 

16

Now, they have added some people to the rolls. No question 

about that. But I don’t think that mandating something through 

government is the best way to go, particularly when the main barrier is you have got people who can’t afford it. And so I think a 

smarter way to go is to try to make it affordable and help them 

through the marketplace, if need be give them some financial assistance. But saying, ‘‘Poor people, you know, get this or you are 

going to be a criminal,’’ seems to me not the wisest path. 

Chairwoman VELA ́ ZQUEZ. Mr. Fortenberry. 

Mr. FORTENBERRY. Thank you, Governors, for joining us today. I 

am in your neighborhood. I am from Nebraska. And I really appreciated your opening comment. I think the major challenge before us 

all is: how do we improve outcomes and reduce costs? And to that 

end, I think you identified three absolute critical factors, one being 

both transparency in terms of quality of care as well as price, and 

in addition to that the use of health information technology to increase efficiency, but also encouraging/incenting healthy behaviors. 

In that regard, I want a clearer understanding, though, as to 

what level of subsidy the State is providing to the various components of the health care plans that you have talked about, and 

whether or not health savings accounts are an important component of that, because the health savings account, in my view, particularly when you can—again, allowing someone to use the price 

mechanism for their own care, in partnership with their health 

care provider to improve an outcome, but also save a little money, 

is a very important way in which we can, again, achieve, again, a 

better outcome and reduce costs. 

So I am curious as to the level of State subsidy and whether 

health savings accounts are an important part of that. 

Governor PAWLENTY. Well, thank you. And if I could just jump 

back to the other Congressman’s question. The other aspect of a 

mandate is if you mandate it, and people can’t afford it, then you 

have just either made them criminals or you have sent the government the bill. And you guys are broke, we are going broke, so it 

is—where does that lead? 

As to your question, Congressman Fortenberry, HSAs philosophically for me, are a right direction, a right option to present. I will 

say their impact in the market so far has been modest. A cousin 

of HSAs, as it relates to consumer empowerment, consumer responsibility, is what you do with financial alignment of—you can go 

wherever you want—my attitude is, go wherever you want, but if 

you pick a high-cost, low-quality place, we are not going to pay as 

much of that as we would if you went to a high-quality efficient 

place. 

And, you know, that is oversimplified, but within the deductibles, 

co-pays, those types of mechanisms, I think you want to align those 

mechanisms to high-quality efficient places. And those are powerful 

incentives. 

I will tell you one quick, true story. A guy’s daughter got injured 

in Michigan. He is a Minnesotan, a Minnesota health plan, so he 

is out of network with a Michigan provider. She has a knee injury. 

It is not life-threatening, and they wanted something like $1,600 

or $1,800 for the MRI in Michigan. 

17

He gets a friend to drive her home. In the meantime, he is in 

an HSA, so he gets on the phone to Minnesota MRI providers. He 

gets quoted a $1,200 price, a $900 price, an $800 price. Finally, he 

finds a place that, if he pays cash up front, cash discount, he got 

it done for like $600. 

So now not everybody is going to jump on the phone and do that, 

but he was a motivated, involved, engaged consumer, and got the 

price of that procedure down from $1,600 to $600. That is the 

power of having people say, ‘‘Hmm, if I have got to pay something, 

maybe I had better think about what the price is and what the 

quality is.’’ I am sorry? 

Mr. FORTENBERRY. The mechanism by which the State sets it up. 

Governor PAWLENTY. Oh, yes. We have endless numbers of State 

programs in health care, and we are going broke over them. But 

one of our flagship programs is called Minnesota Care. You know 

that if you are—oversimplify it, if you are a senior citizen or older, 

you get Medicare, which is a good program. If you are disabled or 

poor, you get Medicaid, which is a good program. If your employerbased coverage, you get your coverage from your employer, the people who are falling through the cracks of course are the working 

poor who don’t make enough to, you know, buy their own, or don’t 

get their insurance from their employer, but make too much to 

qualify for the public program. 

So the in-betweeners in Minnesota might qualify for something 

called Minnesota Care. It is a sliding scale subsidy program for you 

to go out and buy insurance, or we buy it for you, in the private 

market. And that is the way we deal with the in-betweeners, the 

working poor that fall through the cracks. And it is a big program, 

and the amount of subsidy varies depending on income level, and 

then it falls off completely. And it is a good program, but it is an 

expensive program. 

Chairwoman VELA ́ ZQUEZ. Ms. Clarke. 

Governor PAWLENTY. Madam Chair, I am afraid I am going to 

have to go. But if I could thank you for your understanding, and 

I also want to particularly thank Governor Rendell for his patience. 

And I owe him one now. 

[Laughter.] 

And owing Governor Rendell is not a good thing. 

[Laughter.] 

Chairwoman VELA ́ ZQUEZ. Thank you, Governor. Thank you so 

very much, Governor. 

Okay. Well, I now recognize Mr. Sestak for the purpose of introducing our next witness properly. 

Mr. SESTAK. Thanks, Chairwoman Vela ́zquez and Ranking Member Chabot. 

I am very pleased to introduce Governor Rendell. When I got out 

of the Navy two years ago this month and entered politics, and I 

asked somebody what to do, he said, ‘‘Do what Ed does.’’ Everybody, you know, calls him Ed. You can go to every train station in 

the morning at 6:00, every hoagie shop during the day, and every 

restaurant early evening, and every bar late at night. 

[Laughter.] 

And then, finally, they said, ‘‘Make sure you do what he did as—

make sure Wawa names a sandwich after you,’’ because we have 

18

up there the Rendelli Wrap, which is chicken strips with buffalo 

blue cheese. I haven’t gotten the last one, but I followed everything 

else and I am here. 

He certainly is a man of the people. After he took over in 2003, 

even though I watched from a distant way at sea, he basically took 

very strategic investments and revitalized communities of people, 

enhanced their education, an really began to expand health care, 

starting with those who were disenfranchised at the time, the 

young children, all the way to mental health and drug addiction. 

I am really pleased that we are addressing this today with him, 

because it is a real brain-drain on small businesses at times. They 

do create 70 percent of all jobs, but they don’t—aren’t as able to 

provide health care, so, therefore, those kids, those entrepreneurs, 

those startup types, are being potentially more attracted to large 

businesses rather than small. 

And so what we will hear from him is a prescription for Pennsylvania that has several components to it—cover all children, cover 

all Pennsylvanians, but also to address costs by—what I am most 

taken by is the impact that we are going to address this issue of 

health-caused infections, all the way down to chronic disease management. 

In short, his approach is exactly who he is. It is everybody contributes, everybody benefits in a common-sense, comprehensive approach to health care. And at the end, just before I introduce him, 

on a personal note, as every new politician does early in their career, they get into trouble. 

[Laughter.] 

They make some decision to speak somewhere potentially, as in 

my case, and where segments of a certain community were either 

blogging me to death, or whatever, and I decided to stay the course. 

There was one politician who decided to show up that evening 

uninvited to stand beside me at a pretty trying time, and so I very 

much thank you, Governor. You really are not just a great politician, but, without question, a selfless individual who is truly, in my 

opinion, a profile of courage. 

Thank you. 

STATEMENT OF THE HONORABLE EDWARD G. RENDELL, 

GOVERNOR OF PENNSYLVANIA, HARRISBURG, PENNSYLVANIA 

Governor RENDELL. Thank you, Congressman. 

Chairwoman VELA ́ ZQUEZ. Welcome, Governor. 

Governor RENDELL. Thank you, Madam Chair. 

Let me just give you, first, a quick look at a thumbnail sketch 

of where we stand in Pennsylvania, our situation, not quite as rosy 

as Minnesota. 

In the last seven years, from 2000 through 2006, health care inflation has risen in Pennsylvania by 75 percent. Regular inflation—

health care premiums have risen by 75 percent. Regular inflation, 

17 percent; median income has grown by 14 percent. So you can 

see just how far, how fast, small business or all business employers 

have fallen behind the health care premium rate of growth, and 

how the employees who contribute have fallen behind. Their buying 

power is much, much less than it was seven years ago. 

19

I would submit to you that if we fast-forwarded to 2013, the next 

seven years, and those statistics continue, health care as we know 

it in Pennsylvania, and my guess is in almost all of the states represented by this panel, will be over. There will be no employerbased health care in the United States of America. I think that is 

unsatisfactory and wouldn’t be a good result for us. 

In Pennsylvania, we have—the good news is we have about 92 

percent of our people covered. The bad news is it is 800,000 adults 

without coverage—a little less than 150,000 children. Of those who 

are uncovered, 74 percent of them work, and the vast majority of 

them work for small businesses. And I am using the federal definition of small businesses—50 employees or less. 

Twenty-seven percent of them have been uninsured for at least 

five years. Premiums for employer-based health care rose in 2005 

by 9.2 percent. It was the fifth straight year that premiums increased by at least 9 percent. 

In less than 10 years, the average cost for premiums for family 

coverage in Pennsylvania through employer-sponsored health care 

has gone from $4,800 in 1996 to $11,400 in 2005. During that same 

period, if you were just trying to insure your employee, coverage 

went from $2,000 to $4,600. Stunning increases. 

And the most stunning fact of all—Pennsylvania is second only 

to California in the number of citizens who, between 2000 and 

2007, have lost employer-based health care; 491,000, effectively 

one-half million Pennsylvanians, have lost employer-based health 

care in the last seven years, second only to California, as I said. 

Now, what can we do about it? I think what we have to do is 

take strong and decisive action, do it quickly, do it smartly, and I 

believe the answer is a combined federal and state program. 

But let me tell you a little bit about what we have tried to do 

in Pennsylvania. You have heard Congressman Sestak said, and 

the Chairwoman said, we have a plan called Prescription Pennsylvania. It has three components, all equally important. The first 

component is to contain and drive down costs. If we don’t do that, 

nothing else we are designing here will matter, because—Governor 

Pawlenty used the vacuum analogy—because everything will be 

swept away unless we can contain and reduce certain costs. We believe we can do that. 

The second component of our plan is to cover all Pennsylvanians. 

But if you did that, the average premium for a small business or 

a large business would drop by 6.2 percent. If we covered all Pennsylvanians, it would save the health care delivery system $1.2 billion in Pennsylvania—a 6.2 percent reduction in that small businesses’ premiums. And I want you to keep those percentages in 

mind. 

The second thing we want to attack is medical errors, and we are 

attacking them in a number of ways. As I said, in our Medicare 

and Medicaid program, we are stopping paying for obvious and preventable medical errors. We want big businesses to join us in doing 

that. Preventable medical errors cost $2.1 billion, about 10 percent 

reduction in premiums if you get rid of all them, and I know you 

can’t. 

Hospital-acquired infections—I think Congressman Sestak made 

reference to that. We require our hospitals to report the level of 

20

both medical errors and hospital-acquired infections. Last year, 

there were $4 billion of hospital-acquired infections. You know 

what that is. I come in for an appendectomy, I am otherwise perfectly healthy, but I get infected by something that occurred inside 

the hospital. It is stunning. The average cost of hospitalization in Pennsylvania is $32,000. If you get a hospital-acquired infection, the average cost is $180,000. 

Are hospital-acquired infections—and you have all now heard 

about MRSA—are they preventable? Yes, they are. And Scandinavian countries have pretty much zeroed them out. They are preventable. 

Some good work is being done here. The Pittsburgh VA, Congressman Altmire, is the leading Veterans Administration hospital 

in controlling hospital-acquired infections. They have an interesting 

protocol, which I don’t have time to tell you about, but over the 

course of the average stay that protocol costs $377. It is masks and 

gowns and hats for everyone who comes within a certain amount 

of the patient. It costs $377, so you pay me now $377 per patient, 

or you pay me later $150,000 per patient. 

We passed in Pennsylvania the first comprehensive hospital-acquired infection bill in the State. We make hospitals file an HAI 

control plan. We make them adhere to best practices. We reward 

them, give them monetary rewards, for incremental reductions in 

hospital-acquired infections, and we punish them. 

I have said, and my Health Commissioner stands ready, if a rate 

of hospital-acquired infection does not come down or grows over a 

certain period, we will take away the license of that hospital. And 

I don’t care if it is the most blue chip hospital in Pennsylvania, if 

they are not going to take it seriously, we will take away their accreditation. 

The next thing we do is to free up our non-medical providers to 

do more in the health care delivery system. We passed comprehensive legislation to do that. And as a result, nurse-run clinics are 

cropping up all over Pennsylvania—in big box drug stores, in food 

stores, in supermarkets—and they give treatment in off-hours. 

So we have stopped the flow of people going to emergency rooms 

for non-emergency treatment, because they can go to these nurserun clinics. It increases accessibility, particularly in rural areas, in 

hard-served urban areas, and at the same time it cut costs, because 

instead of a primary care physician, you are getting a certified 

nurse practitioner delivering the same treatment. Instead of a dentist, you are getting a dental hygienist, delivering the same treatment at significantly less cost. 

Chronic care I alluded to, and so did Governor Pawlenty. We believe we can cut out most of those $2 billion of unnecessary hospitalizations that come from an improper method of treating chronic care diseases. Just take hospital-acquired infections—if we could 

eliminate half of the $4 billion that is being spent now by the 

health care delivery system, that would be another 12 percent reduction in the cost of premiums. 

So can we constrain health care costs? Is it useless? Of course 

not. Of course not. 

In our State Employee Benefit Program, it employs 58,000 employees. Rather than all of those increases that I have told you, in 

21

the last three years we have had zero increases. Why? Because we 

went to generic prescription drugs for everyone. You can’t get a 

name brand. You cannot get a name brand. 

We have wellness programs where we give employees financial 

incentives for meeting wellness standards, and those things have 

caused us to be able to hold down our plan. So anyone who tells 

you that we can’t constrain costs in the health care delivery system 

is not telling you the truth. 

The second part of our plan is cover all Pennsylvanians. That 

doesn’t relate directly to small business. 

The third part of our plan is how we attack insurance reform, 

and insurance reform is very, very important. Small businesses in 

many states get killed by the rating system. If you have got 10 employees, and two of your employees—let us say they are 28-year old 

men—leave, and you hired or replaced them with two 25-year old 

women, your rates, unless they are controlled, will spike through 

the roof. Why? Because they are child-bearing years, and there are 

potential risks. 

Many states still allow—and Pennsylvania is one of them—still 

allow that type of demographic rating. We want to change that. We 

want to go to only age, location, and geography, as things that can 

cause differential in prices. We want to make sure the highest price 

that an insurance company can charge per employee is only twice 

the level of the lowest price that they charge. That is crucially important to small businesses. 

We want to pass a law that says 85 percent of the premium dollar goes to providing health care, not to advertising, not to salaries, 

not to overhead, but to health care—a crucially important aspect 

of this. And as I said, we want to give the Insurance Commissioner 

the right to set rates and to adjust some things that are clearly unfair practices. 

Cover all Pennsylvanians—we offer a good—stripped down but 

good basic health care product—hospitalization, prevention, unlimited doctors’ visits, generic prescription drug coverage, mental 

health and substance abuse coverage. We subsidize it using some 

federal funds, 33 percent federal funds, about 30 percent State 

funds. We subsidize it by asking the employer to pay $130 a 

month. The employee pays either $40 or $60 in contribution per 

month, depending on their overall family income. 

It is a good, stripped down, affordable plan, and we believe it will 

cover virtually everyone who works for small businesses. This is 

only available to small businesses, 50 employees or under. And it 

is only available to low wage businesses. Low wage businesses are 

defined as businesses that have a median income—their average 

payroll is less than the median income, which in Pennsylvania is 

$42,000 times, let us say, 10 employees. If their payroll is lower 

than that, they qualify for the product. But we are requiring all insurers in Pennsylvania to offer this product without the subsidy. 

We also offer it to people who are self-employed. We offer it to 

people who don’t have coverage in any other way. We even offer it 

to people who make more than 300 percent of poverty, but they 

come in and buy it at our cost. Our cost is $240 a month that we 

pay to subsidize. So it is a good, workable plan. It will cover most 

of the people in small businesses. 

22

And at the same time, insurance reform is crucial, it is absolutely crucial—small businesses get hit more by insurance company 

practices than anything else—and containing costs. Those are the 

things that I believe can give us a workable, affordable, accessible 

health care system in both Pennsylvania and across the country. 

[The prepared statement of Governor Rendell may be found in 

the Appendix on page 45.]

Chairwoman VELA ́ ZQUEZ. Thank you, Governor. 

And I am going to ask unanimous consent that the Chair and the 

Ranking and all the members will have an opportunity to ask just 

one question. Without objection. 

Governor, if I may, I would like to talk to you about the funding 

vehicles for the CAP program. And I know that has been the center 

of the debate in the Pennsylvania legislature. And under your 

original proposal, the fair share assessment would have required 

businesses pay into a fund if they do not offer health coverage. 

And this plan was similar to the Massachusetts reform, but I understand that it was opposed by some lawmakers. Can you talk to 

us about the original plan and why you believe there was some resistance to it, and how are you funding this initiative now? 

Governor RENDELL. Well, real quickly, we had three sources of 

funding—one, to increase our cigarette tax by 10 cents a pack, still 

keep us far lower than New York and New Jersey; two, to tax 

smokeless tobacco products. Unbelievably, Pennsylvania is the only 

State in the union that doesn’t tax cigars and smokeless tobacco 

products. When I came in, I said that can’t be right. North Carolina, Kentucky, Virginia—no, we are the only ones. So those were 

the two sources. 

And the third source was the fair share assessment that got at 

the free riders. And I believe, conceptually and in every way, that 

there shouldn’t be free riders. Whether you are a small business or 

whether you are a 1,000-employee business, if you don’t provide 

health care, you are driving up the cost of everybody else. 

If you have got 1,000 employees and you don’t provide health 

care, everybody’s premium—every small business in the State who 

does provide health care is paying over 6 percent additional to their 

premium because of you. So we proposed a 3 percent payroll assessment, payroll tax, whatever you want to call it. 

Because it would have impacted on small businesses, it got very 

little support in the legislature, including by my own Democrats. 

Even though we phased it in for five years for small businesses, we 

had a lot of small business protections, but it still became—you 

know, eventually you get the message you are not going to get it 

through. 

I still think it is the best way to go. There should not be free riders in the system. Why should one machine shop with 10 employees offer health insurance to its employees and the other, who is 

competing with it—you know, two miles down the road—get away 

without offering health insurance, and those 10 employees get 

picked up in ways that we all eventually pay for—ratepayers and 

the State and eventually pays for. 

So as a substitute, it is really too complicated and not worth 

spending the time. But we have an abatement fund for our doctors 

23

from their medical malpractice insurance liability that they pay to 

the State in Pennsylvania—you pay private premiums, and you pay 

to the State for the catastrophic fund. We abated that fund; especially for specialists, we abated it when we were in the middle of 

the medical malpractice crisis. 

We have kept that abatement on, and it has worked very successfully to stabilize the practice of medicine in Pennsylvania. but 

it is racking up big surpluses, so we are tapping into the surplus 

to pay for—to cover all Pennsylvanians. 

Chairwoman VELA ́ ZQUEZ. Thank you, Governor. 

Mr. Chabot. 

Mr. CHABOT. Thank you. First of all, I represent Cincinnati, 

Ohio, Governor, and I would appreciate it if your Steelers would 

quit beating up on my Bengals. So—

Governor RENDELL. Next year. 

Mr. CHABOT. All right. We will see. Hopefully, we will do better 

next year. 

But my question is that there are some uninsured individuals, 

especially young people, who could afford health insurance who just 

choose not to be covered. What would you do, what do you do, 

about individuals in that situation? 

Governor RENDELL. Well, interestingly, I favor mandating so 

those people aren’t free riders either. I favor mandating. But, 

again, it was one that I knew—we have, as Representative Altmire 

and Representative Sestak will tell you, a little bit of a conservative legislature. And I have dragged them kicking and screaming 

into the 21st century. 

But there were certain things that I knew I couldn’t accomplish, 

and what we said in Pennsylvania—we will try it without the mandate for five years, and then see if the free riders are hurting the 

system. Do you know who wants those 28-year olds in the system? 

The HMOs, and with good reason—because if we are going to force 

them to cover—and in Pennsylvania we intend to force them to 

cover cancer patients, everybody—they should have the right to 

have the healthy 28-year olds in the system. 

In fact, they are called by the health care profession ‘‘the 

invincibles.’’ They are 28-year old males, they never think they are 

going to get old, they have never seen a doctor, they don’t think 

they have any need for a doctor. In fact, I was an invincible once. 

I was playing basketball and I took a pass on one of my fingers. 

And I didn’t go to the doctor for three days because I thought I 

could heal it myself. As a result, I have a crooked finger for the 

rest of my life. 

The invincibles are the ones that everybody wants. In Pennsylvania, we have designed a bizarre system. If you have cancer, and 

you are not covered, you can’t get health care coverage. If you are 

a 28-year old, and you are perfectly healthy, everybody wants to 

cover you. It is you-know-what backwards. It makes no sense at all. 

[Laughter.] 

You know, it makes no sense at all. And to make the system 

work, to be fair, if we are going to keep the system of insurance 

companies delivering the basic product—and I think we should—

I think you need to get the invincibles into the system for the benefit of the insurance companies. 

24

Mr. CHABOT. Thank you, Governor. I yield back. 

Chairwoman VELA ́ ZQUEZ. Mr. Ellsworth. 

Mr. ELLSWORTH. Thank you, Madam Chair. 

Governor, thanks for being here. Governor Pawlenty talked a lot 

about the performance pay or time payment to quality. Could you 

tell—in your studies, you have obviously studied this a lot. Can you 

tell me your views on that and some of the pitfalls you see and/

or the challenges? I know you said it was in the infancy stage, but 

just what your experience has been or how you view that. 

Governor RENDELL. You know, we have a wonderful medical profession in this country, wonderful hospitals, wonderful doctors, the 

best in the world. And Pennsylvania really, in teaching hospitals, 

leads the way. But you have got to motivate the system to change. Think about it for a second. Why are there $4 billion worth of 

hospital-acquired infections? Why are there? Don’t the hospitals 

care about the quality of care that they deliver? Aren’t they worried about what happens? By the way, that $4 billion, also 2,500 

deaths a year; 22,000 cases of hospital-acquired infection, 2,500 

deaths. 

And the interesting thing, all the cost containment stuff I talked 

about, better way of handling chronic care, hospital-acquired infections, medical errors, all of those things improve the quality of the 

system. Normally, when we save money—I know when you try to 

save money in Washington people say, ‘‘Oh, you are hurting people.’’ Here, we are saving money and helping the quality of the delivery of the system. 

So preventable medical errors are step 1, and we are doing it in 

the Medicaid program. We intend to do it for everyone in our system, for our seniors, for our employees. I mean, we are the 800-

pound gorilla. The State of Pennsylvania actually insures 24 percent of the people who get health insurance in the Commonwealth 

of Pennsylvania. So we intend to do it, and I am talking to employer groups about doing it. 

Why? Because it will motivate cost-saving and quality-inducing 

changes that we can’t seem to motivate anyway. When I visited the 

Pittsburgh Veterans Administration Hospital—and if you all have 

time, go there and see what they have done—the protocol is neat 

and it makes sense, but the thing that is so important is everybody 

has bought in—the doctors, the nurses, the janitors, the maintenance men. We had a janitor who showed us, with great pride, his 

storage room, and he said, ‘‘Governor, I don’t leave work until I 

make sure there are enough caps and gowns and masks in here so 

nobody can use as an excuse that they didn’t have available caps 

and masks and gowns.’’ Everybody has bought in. 

And right now, the medical profession isn’t thinking about cost 

savings. A some of our great teaching hospitals, I have had people 

tell me that surgeons look at hospital-acquired infections as a cost 

of doing business. Well, we have got to motivate them to start 

thinking about quality of care and about cost reductions. 

Mr. ELLSWORTH. Thank you. I would yield back. 

Chairwoman VELA ́ ZQUEZ. Ms. Fallin. 

Ms. FALLIN. Thank you, Governor, for coming today. I was just 

slipping out to another meeting, but they told me I was next to ask 

a question, so I am going to stay for just a second. 

25

Governor RENDELL. Well, thanks for staying. 

Ms. FALLIN. I was interested in your comment about the two men 

and the two women, and the two men left and the two women were 

hired, and the insurance premiums went up for the small business, 

if I remember the story right. And you were talking about how the 

women were of child-bearing age, and so the rates went up because 

they were rated differently, and how are we going to resolve the 

difference on ratings in various stages. 

And, you know, as I was sitting here thinking about that, Mr. 

Chairman, I was thinking about how women are kind of discriminated against with the ratings on health care and health care costs 

for insurance, and how, you know, I could see where employers 

might rather hire a man than a woman if their insurance premiums are going to go up because a woman is of child-bearing age. 

So I just thought that comment was kind of interesting. I hadn’t 

really thought about that in the past. 

Governor RENDELL. It is devastating. The smaller number of employees you have, the smaller your pool is. Demographic rating allows them to rate just your pool of employees. Community rating 

is you rate all of the people in that HMO in the entire state or in 

the entire nation. We should basically have community rating with 

a few nods—obviously, age would be one, the geography would be 

one, because in certain part of the country—in Philadelphia it is 

more expensive to have health care than it is in Tioga County in 

the northern tier of Pennsylvania. 

So some limited number of factors in which they can spike rates. 

But, again, we want to reduce the spike to no more than two to 

one. Right now, some rates spike seven, eight, to one. Heaven forbid you have got five employees, and you just—you want to hire 

this brilliant woman who has got a brilliant resume, she is 29—

sorry, she is 39 years of age and in her mid-30s she successfully 

fought breast cancer. Wait until you see—in states that have demographic rating, wait until you see what happens to that small business’ overall premium because they have hired somebody, even 

though the breast cancer is in remission, who has had breast cancer. 

So, yes, I think there is a lot of discrimination in the system, as 

long as you allow demographic rating. 

Ms. FALLIN. I appreciate your comments. Thank you. 

Chairwoman VELA ́ ZQUEZ. Ms. Clarke. 

Ms. CLARKE. Thank you, Madam Chair. 

And thank you, Governor. Why do you think that only certain 

small businesses get access to the subsidized health plans under 

the CAP program? And why not all small businesses? 

Governor RENDELL. Well, because let us say you are a hedge 

fund, and you have 20 employees, and the non-administrative employees—let us say the 12 professional employees are making—oh, 

on an average, the hedge fund these days—$3 million each. We 

don’t think the state should be subsidizing them. 

But we do say—we do offer—by regulation, we would make the 

HMOs offer the same plan to them at cost—you know, at cost. It 

wouldn’t be subsidized, but they could get it if they wanted it, for 

$240 a month per employee. They probably wouldn’t want it, because they would probably want a few things like, for example, 

26

only dental emergencies or cover all Pennsylvanians. Now, a hedge 

fund is not going to want that plan, obviously, but that is why we 

did it—just to make sure that those firms who really can’t afford 

to do a non-subsidized plan take it. 

Chairwoman VELA ́ ZQUEZ. Mr. Buchanan. 

Mr. BUCHANAN. Thank you, Governor, for coming in. I am in 

Florida, Sarasota, Florida. I want to thank you for your leadership. 

One of the things I would just say, with all of this discussion about 

national health care programs, I am glad that governors like you 

are leading in this, because I am scared to death to let the Federal 

Government deal with this. If we can find the best practices within 

a given state, and then take that, because as you mentioned it 

could break the country. I mean, we are already tight on federal 

dollars. I know you are tight on dollars in Pennsylvania. So that 

is just a statement. 

I have been in business for 30 years myself, and I have seen this 

cost go up. You know, we had, two or three years ago, 1,200 employees, so we have dealt with this. We use a lot of different insurance companies. And you mentioned a lot of different things. 

One thing you didn’t mention that does come up a lot—and I 

would just get your opinion, and I know this is a little bit political, 

but I think there is a lot of blame to go around for a lot of things—

hospitals, doctors, and, of course, insurance companies. But one of 

the things I do hear a lot of our doctors—and we don’t have a lot 

of doctors coming to Florida, and I am concerned about that—is 

this whole concept of defensive medicine. What is that costing us? 

You know, it is not about the trial lawyers. It is about you looking—putting everything on the table. But when you look at defensive medicine, you look at a lot of the doctors 20, 30 years in practice, specialties, that deal with surgery, have put all of their assets 

into asset protection, their wife’s name. Then, you have the cost of 

MedMal; many times that gets passed through. Or, in our State, 

I have got to tell you, a lot of doctors don’t even take it, can’t afford 

it. texas has come up with their cap where it is $250,000, and that 

seems to lower premiums. 

But I will tell you last week I was with a neurosurgeon. We had 

our week in the District, and he said to me, he said, ‘‘Vern,’’ he 

said, ‘‘I give out 10 times more in CAT scans than I used to. I 

shouldn’t, but I do because a guy comes in or a gal comes in, has 

a headache. I have got to have them run down all these tests because of that chance—1 in 10,000—that it is more than what I 

think it is. I have got to run all of these tests. They are expensive 

tests, and, you know, that just—that gets passed on to, you know, 

Medicare in our case.’’

And so I don’t—what is your whole thought on that aspect? And, 

again, I just want to make it clear, I am not just pointing out one 

area, because—

Governor RENDELL. No, no, no. 

Mr. BUCHANAN. —there is a lot of blame to go around, and I 

am—I share—

Governor RENDELL. And you are absolutely right. And when I 

came in, we did things to, first, stabilize the medical malpractice 

crisis, because we were right up there with Florida in the level of 

our premiums. And premiums were increasing 50, 80 percent. I am 

27

glad to tell you that, because of the things we did, we have had 

three years where—two years where premiums stayed zero, and 

this year the two major companies dropped them by 7 and 11 percent. 

There are too many junk cases in the system, too many outrageous verdicts. There are ways you can do reasonable tort reform 

that don’t throw the baby out with the bath water. The case I gave 

you about the never event, the amputation of the wrong arm, is 

there anybody here who would not want some compensation for 

somebody who goes into a hospital and loses an arm that there was 

never anything wrong with? Of course not. You are not suggesting 

that either. There has to be some reasonable compensation. 

I think the long-range plan that we have adopted in Pennsylvania by rule of criminal—of civil procedure, excuse me—we have 

adopted a mediation program. The one that Chicago, Rush Hospital, it is a very famous program—the mediation program, within 

a month, if there is a claim, the claimant comes in—they can bring 

a lawyer—the hospital and the doctor are there. There is a mediator. They hear both sides. The mediator makes a suggestion. 

He says, ‘‘Mrs. Rose, you know, this is a very close case. I am 

not sure there was error here. I am not sure you would convince 

a jury. But, you know, you do have some injuries. It wasn’t your 

fault. We are going to give you $80,000, I recommend.’’ She can 

take it, or then reject it and go on to court. She is not waiving any 

rights. 

It is amazing—in Russia, I think it is 73 percent of the cases are 

settled within one month in the mediation program. And what that 

does is knocks out most of the legal costs. Most of—it is not—the 

big verdicts are the ones that get the attention. But if you talk to 

an insurance company, what it really is is the junk lawsuits that 

are thrown in where someone is hoping that they will settle for 

$35- or $50,000. It eliminates most of those junk lawsuits. 

And it eliminates the insurance company, the hospital’s legal 

bills, because if it is a junk lawsuit, even if they win it, often they 

run up $100,000 in depositions and pre-trial stuff and all of that. 

So, yes, I think we should have reasonable tort reform. I don’t 

agree with a $250,000 cap, because I could sit here and give you 

examples, and I don’t think any one of you would think that 

$250,000 were compensation. Someone goes in for—a 25-year old 

sheet metal worker goes in for a herniated disc operation. Through 

undisputed malpractice, he gets—he comes out of that operation a 

quadraparaplegic—never hold his child, never have relations his 

wife, never walk again, never bathe himself again. $250,000 above 

medical costs for—he will probably live another 50, 60 years? I 

don’t think that is fair. 

But having said that, we can certainly do something—and you 

are right, we should do something—because there is too much defensive medicine being practiced, and we have got to get a hold on 

rates, and we have got to have a balanced approach. 

I would love it if the Congress could get together with the next 

administration and do something reasonable on tort reform that 

doesn’t take away rights in the most extreme and brutal cases, but 

at the same time doesn’t make the medical system do all of these 

things. 

28

Remember, $2.1 billion of avoidable medical errors, and that is 

the assessment of the Patient Safety Authority in Pennsylvania 

that is made up of mostly either former doctors or practicing doctors or academicians, not the assessment of trial lawyers. So we 

want to reduce those, too, because it is patient safety. 

We focus on the monetary aspect of the tort system, but it is also 

patient safety, too. A physician told me about hospital-acquired infections—he said, ‘‘If my wife had to go in for surgery, let us say 

on her elbow,’’ he said, ‘‘I would have someone do it in my office 

before I would put her in the hospital.’’

Chairwoman VELA ́ ZQUEZ. Okay. Time is expired. 

Mr. Altmire. 

Mr. ALTMIRE. Governor, Congressman Heath Shuler sits next to 

me here in the Committee, and he wanted me to pass on to you 

that, in preparation for you coming in, he went back and reviewed 

your comments from the Philadelphia Eagles game where you used 

to do—

[Laughter.] 

—against the Redskins, the media and television worker. 

Governor RENDELL. Absolutely. 

Mr. ALTMIRE. He was very much looking forward to cross examining you. 

Governor RENDELL. Sorry I missed it. 

[Laughter.] 

Mr. ALTMIRE. But he did want to pass on his regrets that he was 

unable to be here. 

The purpose of this Committee is to study national policy as it 

relates to small businesses that are struggling with affording 

health care. And you have done great work in Pennsylvania, and 

you have made small businesses the staple of your reform policy. 

So I was wondering if you could explain, to the degree you could 

extrapolate, how we might look at this from a national perspective, 

what you have done in Pennsylvania. 

Governor RENDELL. Yes, that is a good question. And can I say 

to the Committee, when you talk about state plans, when Massachusetts pounds its chest and says, ‘‘We have a State plan,’’ and 

California and Pennsylvania are going down that road, it is a statefederal plan. Your plan—under my plan, the Federal Government 

would pay 33 percent of the cost. So it is not fair to say it is a state 

plan. It is somewhat similar to how we deal with Medicaid; we 

share the costs. 

And, again, no disrespect to Senator Obama, Senator Clinton, or 

Senator McCain, but I think one thing you should possibly examine 

is, do we promote states going down this road? And do we reserve 

for the Federal Government a couple of key things that the Federal 

Government can do that nobody else can do? 

Governor Pawlenty talked about bringing technology into the 

system, and we desperately need it, and it will save tens and tens 

and tens of billions of dollars a year across the nation. Well, right 

now, we are going down that road a little bit, but I don’t believe 

we will ever have a truly interoperable health care technology system without the Federal Government stepping up and at least putting matching dollars into the fray. 

29

And when I say ‘‘matching dollars,’’ not necessarily for the 

states—maybe—but also for the institutions, because they will benefit by it. We should have a card that you can take out of your wallet like a credit card, and that card should be—it should be the 

type of card that if I am visiting friends in Seattle, and for some 

reason I fall unconscious, while they are bringing me into the 

emergency room, somebody should take that card, stick it into a 

computer, it should give you my entire medical history, my blood 

type, what I am allergic to, etcetera, etcetera, and at the same time 

read out tests. 

I may have had an EKG just a week before in my doctor’s office 

in Philadelphia. That will save us so much money, and, again, improve the delivery of health care services. How many episodes—

they are called ADEs—when someone gets the wrong prescription, 

and they get grievously sick because they get the wrong prescription. If you had that card that went from provider to provider, 

pharmacy to pharmacy, and you could stick it in the computer, we 

would eliminate all ADEs. 

And so I think the Federal Government is the only vehicle who 

can up-front that money. But it is a particularly important role. 

Stop loss-if you had three corporate executives here—big business, medium business, small business—they would tell you that 

what kills them the most and drives up their premiums is the one 

or two percent of their employees who have significant illnesses, 

chronic care, heart disease, cancer, brain tumor, etcetera. 

Well, stop loss—I thought it was the best idea that came out of 

Senator Kerry’s campaign. The Federal Government pays 75 percent of the costs above the first $50,000. They pay 75 percent of 

the cost. If the Federal Government did those two things, maybe 

we have a system where the state government provides the coverage, federal money matches it, maybe we have a system that 

works there without, you know, doing a massive program, just two 

basic things. 

Now, there is a cost involved for this. You all know—and I know 

you are all smart enough to know this, and you have been here—

that we are not going to get a program that will improve health 

care, constrain costs, give everybody access to health care, without 

some upfront cost. 

But the option of doing nothing is the most costly of all. If we 

do nothing, those 75 percent increases in premiums in the last 

seven years in Pennsylvania will continue. And I would submit to 

everyone that that is not an option. Right now, doing nothing is not 

an option for our health care system delivery problems. 

Chairwoman VELA ́ ZQUEZ. Mr. Davis. 

Mr. DAVIS. Thank you, Madam Chair. 

Thank you, Governor, for being here today. I come from the State 

of Tennessee, and you have probably followed TenCare down 

through the years. 

Governor RENDELL. Sure. 

Mr. DAVIS. TenCare was such a good program that it went broke, 

and the current Governor had to pretty much dismantle TenCare. 

How does your State’s program parallel TenCare? 

Governor RENDELL. Well, it is different, because we have a sliding scale of subsidies, number one. We make the employer and the 

30

employee contribute. That is crucially important. It is crucially important. And we believe we have done the actuarials and all of 

those things well enough that we have got revenue streams that 

will control the—it is always easy to do the first year of these programs. It is easy to do the first three or four years. 

What you should judge these programs by is: what is the funding 

going to be? Are you going to be okay 10 to 15 years down the 

road? And I think we have worked very, very hard with actuaries 

and everybody else to try to make sure that adequate funding exists for the program down the road. It does no good to design a 

health care program and then have it go bust seven, eight years 

later. It just increases people’s frustration. 

So I think it is very important that what we do we do—we study 

it, we do it well, and we do it practically. And it is not worth doing 

if we are going to try to do it on the cheap. And, again, in the long 

run, I believe we will save a tremendous amount of money, but it 

is not worth doing if we do it on the cheap. 

And putting technology into the medical system is a good example. There is going to be significant upfront costs—significant—and 

maybe it is the Federal Government, the state, and the providers 

that share the burden. But there will be tremendous cost savings 

down the road—tremendous cost savings down the road. 

So, but you are right—I mean, we have tried to plan—I gave the 

people who are working on Prescription for Pennsylvania—I said I 

want to know where we are going to be 15 years from now. And 

I think that is the crucial part of it. 

Mr. DAVIS. And if you look at health care now, I think health 

care needs to be patient-centered. Patients need to—really, not 

even government, not business owners. We need to have patientcentered health care. 

Governor RENDELL. No question. 

Mr. DAVIS. And I think that is where we get off base sometimes 

when we are looking at health care, and if we could get it back 

down to the patient—actually, I had a health care conference last 

week in my district, and I brought in U.S. Chamber of Commerce, 

I brought in National Federation of Independent Business, I 

brought in American College of Physicians, I brought in hospitals, 

I brought in large insurance companies, I brought in consumers. 

And I think it is vitally important that we have the stakeholders 

sit together and talk about the issues that are important and what 

we can afford, what we can’t afford, what we need to do. One of 

the things that came out of the hearings last week in my district 

is we need more primary care physicians. There are so many physicians that are actually being trained, and then they can’t afford to 

pay their loans off by being a primary care physician, they have to 

be a brain surgeon or a cardiac surgeon or—

Governor RENDELL. That is an incredibly relevant point. To address that in Pennsylvania, we have actually increased our Medicaid reimbursements to primary care physicians as part of this. 

But interestingly—my staff always tells me I am not allowed to 

give the exact percentage—but there is a New England Journal of 

Medicine study that says certified nurse practitioners can do X percentage—and it is pretty high—of what a primary care physician 

can do for 40, 45 percent of the cost. 

31

We need to unleash nurse practitioners and RNs. We need to unleash them to do the things that they are trained to do. Most of 

those nurse practitioners, many of them have Ph.D.s, and so you 

can set in rural parts of Tennessee and rural parts of Pennsylvania—you can have those nurse practitioner-driven clinics that do 

an awful lot of good in providing basic health care to citizens. You 

don’t need to go to a doctor for a flu shot, right? I mean, there is 

no reason to go to a doctor for a flu shot. 

One of the cost-saving devices we have—and this is—this question reminds me of it—we are requiring every hospital in Pennsylvania that has an emergency room to have a 24/7 non-emergent 

care facility staffed by nurse practitioners and physician assistants, 

because we designed a health care system in this country that is 

open from 8:00 in the morning until 5:00 at night, Monday through 

Friday. Heaven forbid you get sick on the weekends or you get sick 

at night. You have to go to the emergency room for non-emergent 

care. 

Your dog bites you, just you are rolling around having fun with 

your dog, he gets too playful and bites you at 9:00 at night, where 

do you go? You go to an emergency room. You go to the emergency 

room, the attending physician gives you a gauze pad, says, ‘‘Put 

pressure on it,’’ and then he utters the most dreaded words known 

to mankind, ‘‘We will get to you as soon as we can.’’ Four and a 

half hours later, they bring you into a room, the doctor looks at it, 

gives you—wipes it with an antibiotic, and gives you two stitches. 

What we want is, when that admitting physician looks at you, 

says, ‘‘No, go down to Room 101. You don’t have to be here.’’ You 

go into Room 101, a nurse practitioner or physician’s assistant 

looks at it, puts the antibiotic on, stitches you up, you are out in 

a half hour, 45 percent of the cost to the system. Forty-five percent 

of the cost to the system. 

But you couldn’t be more right; patient-centered is crucial, and 

we have got to find a way to do these things. And communication 

is important. You know, I asked the hospital execs, I said, ‘‘Why 

don’t you do something about hospital-acquired infections?’’ If it 

was impossible to do something about it, I could understand. Then, 

it would be a cost of doing business. But Scandinavia has done it, 

and certain hospitals in the U.S. have done it. And they said, 

‘‘Well, it is hard to get the doctors to buy into it.’’

Chairwoman VELA ́ ZQUEZ. Time has expired. 

Governor RENDELL. You are not a good administrator if you can’t 

get the doctors to buy into it. 

Chairwoman VELA ́ ZQUEZ. Mr. Sestak. 

Mr. DAVIS. Thank you. 

Mr. SESTAK. Thanks, Madam Chair. 

Governor, I wanted to follow up with a question I had asked Governor Pawlenty, but I didn’t get a chance to kind of follow up with 

him. The reason I am—I am curious about this mandate question, 

because the theory—and I understand how Massachusetts is 

unique and all. I don’t think anyone was asking to criminalize anyone. 

Governor RENDELL. No. 

Mr. SESTAK. Criminalize with—

Governor RENDELL. Not at all. 

32

Mr. SESTAK. —insurance. But my question stems from so many 

kind of comments that were made here—if you have managed care, 

if you can prevent the diabetes from getting worse, the cost of 

going to the emergency room when it is acute for those who don’t 

have insurance, the fact that millions of the 47 million uninsured 

can afford insurance, the youth that are living on Wall Street and 

doing well. 

So the concept has been that the mandate has the healthy as 

well as the unhealthy in the pools, and then you theoretically have 

the premiums go down, because the healthy are mandated to be in 

it. The benefit also is less go to the emergency room. 

Governor RENDELL. Absolutely. 

Mr. SESTAK. Because you have managed that care. So my question is: I know you have touched upon this, I think in your plans 

thinking of the 300 percent and above, because you would have 

subsidies, obviously, who—those can’t afford it, you know, so that 

you could do it. So could you give me your opinion on this concept 

of mandate? 

Governor RENDELL. Well, I will—you know, this business, and 

then, you know, this issue has reared its head in the political campaign. It is ludicrous to suggest that the poor are going to be 

criminalized or in any way punished or be in violation, because 

they won’t be able to afford it. For example, on Cover All Pennsylvanians, if you are 150 percent below the poverty level, if your 

family is, you get into the CAP program without paying a dime, 

without paying a dime. 

And as you go above 150 percent, the premiums—monthly premiums rise for you. But if you are 150 percent and below, you get 

in without paying a dime. It is as plain and simple as that. And 

Massachusetts was much like that, etcetera, etcetera, etcetera. 

Nobody is going to keep a poor person out because they can’t pay. 

What the mandate was designed for is—ironically, is to help everyone and to help the insurance companies, because every one of 

those 28-year olds—and there are plenty of them, there are plenty 

of them—if I was a—I was an assistant DA working for the city 

of Philadelphia, but if I had—when I went to private practice, I 

had my own little practice, I didn’t have health care. I was 29 

years old. 

But if something happened to me, I would be treated in an emergency room. And that cost gets paid—passed back to the taxpayer 

and to the ratepayer. ‘‘No free riders’’ ought to be the rule. It is absolutely basic. And, you know, as I said, we do it—and Governor 

Pawlenty is right, there are a lot of people who avoid insurance. 

But most of them don’t avoid it because—some of them avoid it because they can’t pay, but in this case no one is going to have to 

worry about not being able to pay for it. So I think it is a fair system. 

And if you had an insurance company—the Congressman made 

a good suggestion to have not just political people at one time, get 

a panel of one person representing everything. The insurance company guy would be waving his hand frantically and saying, ‘‘Well, 

if you are going to make us take someone with a pre-existing cancer, then you have got to give us the 28-year old.’’ And that is right. 

33

Unless we want to go to single payer, and, you know, there are 

pluses and minuses to single payer—unless we want to go single 

payer, we have to do something that is fair and balanced for the 

insurance companies as well. 

Mr. SESTAK. Governor, one other question that I am intrigued by 

in watching Massachusetts. And sometimes it is not just the theory; it is how they executive it. So the quasi-government connector 

that is permitted to take all of these small businesses and pool 

them together to where to some degree you can Wal-Mart it, then, 

through competition, having mandated that the healthy are in as 

well as the unhealthy, again, the question was asked here, and I 

understood his answer is—I think what his answer was, ‘‘I 

wouldn’t prescribe anything.’’ But yet, do you see value in pursuing 

that? 

Governor RENDELL. Sure. Absolutely. And by the way, I know the 

Congressman asked a question about the health savings account. 

It isn’t here. If you are a small business, and you offer health savings accounts to your employees, that counts. You don’t have to go 

into Cover All Pennsylvanians. That counts, even though I think 

when you get to lower income working people health savings accounts are not very realistic—not very realistic, but, still, we allow 

that to count. 

And certainly, allowing—I mean, there are a lot of ways to skin 

the cat here, and allowing small businesses to group together are 

important, except the insurance company guy who is not here, he 

would be howling. He would be howling, because he would by—

and, by the way, one of the things—and I think this is important 

for both Democrats and Republicans in the Congress-we are not 

going to get this, a good system of affordable, accessible health 

care, without stepping on the toes of the insurance companies. 

They are going to be forced to take some things they don’t like—

they don’t like. But they should understand that this plan, what 

you are looking at, will step on their toes. Single payer is the death 

penalty for them, and they ought to accept the fact that everybody 

is going to have sacrifice a little to make this work. 

I don’t know if any of you saw this, and maybe it was just in—

I thought I saw it on Washington TV, so maybe you did see it—

but it is this woman who works for one of the insurance companies 

that has gotten a series of bonuses because she has been tremendously successful in denying claims. She has been their single most 

successful person in denying claims. Again, sometimes you should 

deny claims—I am not saying that—but the system is all out of 

whack. 

You know, you can’t do that, any more than—what would you as 

a Congress say to Mary Smith, 35 years old, self-employed, she had 

a little health plan, she got cancer, the health plan coverage period 

ran out, she can’t get coverage now. She was clearing $26,000 a 

year in her small business. She has no way of fighting for her life. 

I mean, what do we say to her? The richest country in the world, 

the only country that doesn’t have some form of—the only developed nation that doesn’t have some form of guaranteed health insurance. What do we say to that lady? Sorry, you are out of luck? 

It would be too tough for the insurance companies to pick it up? 

There is no catastrophic fund? 

34

The little State of Delaware has an interesting plan. They will—

and this is impractical for the big states—they will cover 100 percent of the expenses in fighting cancer for any Delawarean citizen 

who gets cancer and doesn’t have health coverage and can’t afford 

health coverage. I asked Governor Minner how many it was, and 

it was like 732 people. You know, would that we could do that in 

Pennsylvania. You know, I would do it tomorrow. 

I mean, how do we explain that to people? You know, you have 

great coverage. I have great coverage, you know. How do we explain it? I just don’t think we can. 

So I would, again, urge the Congress—and I appreciate Madam 

Chair and everyone on this Committee taking this issue seriously. 

It is—I think it is the seminal issue of the next 10, 15 years in 

America. And you have got to solve it, and we will work with you 

in every way we can. I don’t think we want to just absolve ourself 

of any fiscal responsibility for the delivery of health care. We will 

work with you on any reasonable system that is set up, but let us 

get this done. 

Chairwoman VELA ́ ZQUEZ. Thank you so very much, Governor, for 

your generous time that you spent with us, and also for all of the 

efforts that you are putting together in Pennsylvania to expand 

health coverage for the uninsured. 

And particularly, for this Committee, it is the Small Business 

Committee, there is no way that we address the lack of health coverage in our country without addressing the issue of the lack of 

coverage for small businesses. And in today’s Wall Street Journal, 

they report on the federal—a new federal study that says that federal spending on health care will reach $2 trillion by the year 2017. 

So this is our biggest challenge, and we cannot wait, and this is 

why for us to have you here has been not only a great honor but 

a great service to the work that we do in this Committee in trying 

to reach consensus to see what kind of legislation we can move forward, and not to wait until the next administration is in place in 

the White House. Too many people are suffering in this country, 

and these are working people. 

Governor RENDELL. And remember, we can contain costs. It is an 

achievable goal. I know that from our own experience, but I believe 

it with all my heart. We just need the will to do it. 

Chairwoman VELA ́ ZQUEZ. Thank you. I ask unanimous consent 

that members will have five days to submit a statement and supporting materials for the record. Without objection, so ordered. 

This hearing is now adjourned. Thank you. 

[Whereupon, at 12:32 p.m., the Committee was adjourned.]

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