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S. HRG. 111–344 

CONSUMER CHOICES AND TRANSPARENCY 

IN THE HEALTH INSURANCE INDUSTRY 

HEARING 

BEFORE THE

COMMITTEE ON COMMERCE, 

SCIENCE, AND TRANSPORTATION 

UNITED STATES SENATE 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

JUNE 24, 2009 

Printed for the use of the Committee on Commerce, Science, and Transportation 

( 

(II) 

SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

JOHN D. ROCKEFELLER IV, West Virginia, Chairman 

DANIEL K. INOUYE, Hawaii 

JOHN F. KERRY, Massachusetts 

BYRON L. DORGAN, North Dakota 

BARBARA BOXER, California 

BILL NELSON, Florida 

MARIA CANTWELL, Washington 

FRANK R. LAUTENBERG, New Jersey 

MARK PRYOR, Arkansas 

CLAIRE MCCASKILL, Missouri 

AMY KLOBUCHAR, Minnesota 

TOM UDALL, New Mexico 

MARK WARNER, Virginia 

MARK BEGICH, Alaska 

KAY BAILEY HUTCHISON, Texas, Ranking 

OLYMPIA J. SNOWE, Maine 

JOHN ENSIGN, Nevada 

JIM DEMINT, South Carolina 

JOHN THUNE, South Dakota 

ROGER F. WICKER, Mississippi 

JOHNNY ISAKSON, Georgia 

DAVID VITTER, Louisiana 

SAM BROWNBACK, Kansas 

MEL MARTINEZ, Florida 

MIKE JOHANNS, Nebraska 

ELLEN L. DONESKI, Chief of Staff 

JAMES REID, Deputy Chief of Staff 

BRUCE H. ANDREWS, General Counsel 

CHRISTINE D. KURTH, Republican Staff Director and General Counsel 

BRIAN M. HENDRICKS, Republican Chief Counsel 

(III) 

C O N T E N T S 

Page 

Hearing held on June 24, 2009 ............................................................................... 1 

Statement of Senator Rockefeller ........................................................................... 1 

Statement of Senator Johanns ............................................................................... 4 

Statement of Senator Klobuchar ............................................................................ 38 

Statement of Senator Udall .................................................................................... 40 

WITNESSES

Wendell Potter, Former Health Insurance Executive, Philadelphia, PA ............ 5 

Prepared statement .......................................................................................... 7 

Nancy Metcalf, Senior Program Editor, Consumer Reports ................................. 10 

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

Karen Pollitz, Research Professor, Georgetown University Health Policy 

Institute ................................................................................................................ 26 

Prepared statement .......................................................................................... 28 

APPENDIX

Response to written questions submitted by Hon. Tom Udall to Karen Pollitz . 49 

(1) 

CONSUMER CHOICES AND TRANSPARENCY 

IN THE HEALTH INSURANCE INDUSTRY 

WEDNESDAY, JUNE 24, 2009 

U.S. SENATE, 

COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION, 

Washington, DC. 

The Committee met, pursuant to notice at 2:31 p.m. in room SR– 

253, Russell Senate Office Building, Hon. John D. Rockefeller IV, 

Chairman of the Committee, presiding. 

OPENING STATEMENT OF HON. JOHN D. ROCKEFELLER IV, 

U.S. SENATOR FROM WEST VIRGINIA 

The CHAIRMAN. This hearing will come to order. Members will 

soon be joining us. Today’s hearing is about protecting consumers. 

So I want to start by talking about the consumer. Her name is 

Jill Faddis. Back in 2001 she had problems with her health insurance company. She and her husband were living in Seattle, Washington at the time. 

And the insurance company was the Aetna insurance company. 

Their Aetna policy covered visits to doctors who were not part of 

Aetna’s network. Now understand when you say not part of her 

network, you’re talking up to about 100 million people in the country. So don’t think they’re an exclusive little group. It’s a huge, 

huge, group. 

The policy promised the Faddis’ that if they went to see out-ofnetwork doctors Aetna would reimburse them at the ‘‘usual and 

customary rate’’ for the Seattle area. So relying on Aetna’s promise, 

Jill Faddis and her husband went to visit a local periodontist. A 

periodontist is a dentist who specializes in gum work. And it’s sort 

of a hard thing to do. The periodontist charged Mrs. Faddis $140 for the visit. The 

charge was sent to Aetna which processed the claim and reimbursed the Faddis’ only $65 for the visit for which they had been 

promised more. Aetna told Mrs. Faddis that the $65 was the usual 

and customary charge for this service. And that she and her husband would have to pay the $75 balance themselves to make up the 

difference. 

Mrs. Faddis did not take Aetna at their word. She’s a classic 

American. She took out her Yellow Pages and she called every single periodontist in her area, Seattle and beyond. 

There were about 11 or 12 folks that she reached. And I’d like 

to pass out at this point a chart showing what she found. She 

found that the actual usual and customary fee periodontists in her 

2 

area were charging for that service was somewhere between $110 

and $163 for that service. 

[The information referred to follows:] 

So then she shared her research with Aetna. She told them they 

had made a mistake. Aetna told her that no, she was wrong. She 

had made a mistake. Aetna told her that their calculation of the 

reasonable and customary charge for the service was $65, period. 

Now this story does not have a happy ending. Mr. and Mrs. 

Faddis paid the $75 out of their own pocket, I mean they had to 

get well. She had to get well. And rather than going on to fight a 

big insurance company where they would lose and figured it out. 

So this to me is a very disheartening story. And the thing that’s 

most disturbing about it is that it gets repeated millions and millions of times a year, over and over again. I repeat there are a hundred million Americans outside of network systems. 

Because some must turn to their health care insurance for help 

and clarity. And they don’t get it. They think they pay for protection against the risk of high health care expenses. But the insurance company has figured out a way to wiggle out of providing the 

protection that they deserve. That’s what they are in it for. 

So the Faddis’ paid the $75 and moved on. But think about the 

concern over the $100,000 in medical bills for breast cancer treatment protocol or about the heart attack victim whose bills total 

$80,000 or more, probably much more. When insurance companies 

fail to meet their obligation to these people and literally therefore, 

not invectively, but it literally becomes a matter of life and death, 

financially or otherwise. 

Consumers cannot make real choices because the insurance company doesn’t use standard language or definitions, I would say, on 

purpose. That’s what the panel knows better than I do, if they 

agree. 


624JDR1.eps
3 

Consumers can’t challenge insurance companies’ decisions. They 

just lose. People know that. Because the companies don’t explain 

the terms of coverage in clear language, I would say, deliberately. 

To me this is entirely unacceptable. People don’t know what they 

are buying, what they’re getting, why they’re getting underpaid, 

while they’re being forced to pay more of the difference. So with 

this said, I’m very happy that we have two health care experts 

today who can help us understand why consumers get such a raw 

deal from their insurance companies. 

And I’m hoping that they can give us some ideas about how we 

can level the playing field between what we tend to value in America. And that is a patient who is pain and needs care, and an insurance company which is part of our free market system. 

I’m also equally pleased to welcome Mr. Wendell Potter to the 

Committee today. He’s a former insurance executive, who is going 

to tell us about some of the tactics insurance companies use to keep 

insurance in the dark. I have a special respect for him simply because he’s doing something I think is very courageous and very 

brave. 

I want to really, sincerely thank you, Mr. Potter, for coming forward at this very important juncture, not just in the question of 

insurance companies. But because of that, the whole question of 

what’s going to happen in the health care debate. And how are we 

going to divide up the responsibility of what insurance companies 

do. 

Can we depend upon their word? Should we side with consumers? Make sure they get charged only what they should be 

charged? And you spent most of your career in this. So I just greatly admire you for doing this. 

Before I close my remarks, I want to add a very important point. 

A few months ago this Committee started looking at the many 

problems consumers have with the health insurance industry. And 

I think you know that. We’ve been working at this very, very hard. 

In March we had two hearings about the deceptive Ingenix database hearings. That was a—that’s a bad product which is now on 

its way out. Not by their own will, but because they were discovered to be defrauding consumers who were ill in the State of New 

York, but not beyond that. 

The New York Attorney General took action. They paid $350 million. And said well, they were happy to start something, you know, 

they warmed up nicely. But we had them cold. 

So we have pursued this matter. The Committee staff has been 

continuing to investigate the issue. And recently sent me a written 

report on what they have found so far. 

I circulated this staff report to Members this morning. And I now 

ask and give unanimous consent to insert this report and its exhibits into the record of this hearing. And I have it in front of me, but 

I can’t throw that all over the room. But please be sure to follow 

it. 

[The information referred to is retained in Committee files.] 

The CHAIRMAN. So I look forward to our discussion today. And 

to what we may learn about the parts of our health care system 

that are so desperately in need of reform. I mean, we are at the 

very precipice of doing something or doing nothing or doing someVerDate Nov 24 2008 14:05 Apr 06, 2010 Jkt 053061 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 S:\WPSHR\GPO\DOCS\53061.TXT SCOM1 PsN: JACKIE
4 

thing poor or doing something really good in the national debate 

on health care reform. We have to do it right. 

I happen to be one of those people who favors a public plan. I 

wish I had more people joining me in that. I think they will join 

me in that as the debate goes along and as the groups get smaller. 

But I just have to tell you that when I hear about these things 

this morning that I’ve talked about, this afternoon, about the power 

of insurance company to withhold information. And I have many 

more questions about that, to keep the consumer, the patient, uninformed and unpaid. I’m very unhappy about that. 

So that concludes my opening remarks. My dear Governor, if you 

wish to be Ranking Member and say something, I’d welcome your 

comments. 

STATEMENT OF HON. MIKE JOHANNS, 

U.S. SENATOR FROM NEBRASKA 

Senator JOHANNS. You know what, Mr. Chairman? It’s amazing 

how quickly you become the Ranking Member here. 

[Laughter.] 

Senator JOHANNS. I appreciate the Chairman putting this hearing together because it’s an enormously important topic. And I’m 

not going to talk long because for one thing the clock is running. 

For another thing I’m so anxious to hear from the witnesses. 

First thing I would say is that the Chairman’s comments are on 

the mark in so many ways. And the Chairman rightfully points out 

that there is a national debate going on now about health care reform. And there are so many difficult issues in that and complex 

policy issues. One of them being the public plan verses private plan 

and how that might work or not work. 

But in order to make sure we don’t lose sight of what we’re really 

about here today at the hearing, I do want to indicate that even 

if there were no debate going on about national health care or public plans, even if there were no debate whatsoever, this would warrant a hearing. This would warrant us looking into this and 

digging deep to see what’s going on. 

My sense is that there are a number of very distinct issues at 

work. And I’m going to ask the witnesses if they would, to try to 

help educate us on these distinct issues. 

First, we do have Ingenix practices. The Chairman has now 

made the report a part of the record, certainly replete with a lot 

of errors, if not serious legal problems there. This practice appears 

to have forced consumers to pay more. 

And that’s not right. It just simply is not. And the unfortunate 

thing for consumers is this is such an enormously complicated area 

for them that unless they’re devoting full time to understanding it, 

they never would have understood it or stumbled onto what was 

going on here. 

And then, if you factor into it some who might be out there who 

might be doing something that is intentionally deceptive, then the 

problems even get more acute. They get worse. 

Second, we have an issue that I think relates to the whole issue 

of transparency. Our policyholders, given the opportunity to be 

aware of the features of the very policy that they think they are 

buying to protect themselves investing their hard-earned money. 

5 

Or are we simply in a situation now where literally this whole 

arena has become so impossibly complicated, so difficult, that it’s 

going to be nearly impossible. 

Again, unless you spend full time to understand your rights 

under your policy, do these policies get explained to the consumer? 

What’s going on there? 

And then we have finally, and most importantly—and that’s why 

I applaud the Chairman for holding this hearing—irrespective of 

anything going on in the health care industry these days, we have 

the whole issue of consumer’s rights. 

Health insurance is an item that we purchase in our lives thinking that by investing our hard-earned money into it. And like I 

said, it is not inexpensive. And by doing that, we believe that an 

umbrella of protection now extends around us. And that we can 

trust and rely upon that umbrella of protection that is there. 

And if in fact what we find out in today’s hearing is that in some 

respects that umbrella is not as thorough as we thought it was or 

as protective as we thought it was, then I think it’s the obligation 

of this Committee to act. And to try to figure out how we can solve 

that problem and be able at the end of the day to assure our constituents, the consumers of the plan, that in fact, their expectation 

is being met. That there are laws in place to make sure that they 

will be protected and their rights will be protected as will the 

rights of their family. 

So, Mr. Chairman, again, thank you. And to the witnesses, I look 

forward to your testimony. And I look forward to the opportunity 

for some robust questioning of you. Thank you. 

The CHAIRMAN. Thank you very much, Senator Johanns. And his 

robust questioning will be exactly that. So be prepared. 

I’d like to introduce our witnesses now. 

And I’d like to start with Wendell Potter. As I mentioned, he 

spent almost 20 years working in the health care industry. I didn’t 

mention that he was most recently the Vice President for Corporate 

Communications and Chief Corporate Spokesperson for the CIGNA 

insurance company. I call upon you, sir. 

STATEMENT OF WENDELL POTTER, FORMER HEALTH 

INSURANCE EXECUTIVE, PHILADELPHIA, PA 

Mr. POTTER. Mr. Chairman, thank you for the opportunity to be 

here this afternoon. My name is Wendell Potter and for 20 years 

I worked as a senior executive at health insurance companies. And 

I saw how they confused their customers and dumped the sick all 

so they can satisfy their Wall Street investors. 

I know from personal experience that Members of Congress and 

the public have good reason to question the honesty and trustworthiness of insurance companies. When I left my job as Head of 

Corporate Communications for one of the country’s largest insurers, I did not intend to go public as a former insider. But recently 

it became abundantly clear to me that the industry’s charm offensive which is the most visible part of a duplicitous and well-financed PR and lobbying campaign may well shape reform in a way 

that benefits Wall Street far more than average Americans. 

A few months after I joined CIGNA in 1993 during the last reform debate, the President of CIGNA’s health insurance division 

6 

came here to assure Members of Congress that he and other industry leaders would help lawmakers pass meaningful reform. They 

enthusiastically supported covering all Americans, eliminating underwriting practices that excluded pre-existing conditions and that 

cherry-picked, healthy customers the use of community rating and 

the creation of the standard benefit plan. Today we are hearing industry executives saying the same things and making the same assurances. 

This time though, the industry is bigger, richer and stronger. 

And it has a much tighter grip on our health care system than 

ever. Average families don’t understand how Wall Street dictates 

whether they will be offered coverage or that they can keep it and 

how much they’ll be charged for it. But in fact, Wall Street plays 

a powerful role. 

Remember the top priority of for-profit companies is to drive up 

the value of their stock. To win the favor of influential analysts forprofit insurers must prove that they made more money during the 

previous quarter than a year earlier. And that a portion of premiums going to medical costs is falling. 

Even very profitable companies will see sharp declines in stock 

prices moments after admitting they failed to trim medical costs. 

I have seen an insurer’s stock price fall 20 percent or more in a 

single day after executives disclosed that the company’s medical 

loss ratio went up. Insurers routinely dump policyholders who are 

less profitable or when they get sick. 

Insurers have several ways to cull the sick. They look carefully 

to see if a sick policyholder might not have disclosed a pre-existing 

condition when applying for coverage. And then they use that as 

justification to cancel the policy even if the enrollee has always 

paid his or her premiums. 

They also dump small businesses whose employees’ medical 

claims exceed what insurance underwriters expected. All it takes 

is one illness or accident among employees at a small business to 

prompt an insurance company to hike the next year’s premiums so 

high that the employer has to cut benefits, shop for another carrier 

or stop offering coverage all together. This practice is known in the 

industry as ‘‘purging.’’ 

The purging of less profitable accounts by hiking rates helps explain why the number of small businesses offering coverage to their 

employees has fallen from 61 percent to 38 percent since 1993. 

Once an insurer purges a business there are often no other viable 

choices in the current health insurance market because of rampant 

industry consolidation. Purging happens all the time. 

For instance, between 1996 and 1999, Aetna initiated a series of 

company acquisitions and became the Nation’s largest insurer with 

21 million members. Armed with a new computer system, new 

management and a shift in strategy in 2000 Aetna began sharply 

raising premiums on less profitable accounts. Because of this and 

other factors Aetna shed eight million members. 

Insurers also protect their profits by being intentionally vague or 

even purposely misleading them. An estimated 25 million Americans are now underinsured for two main reasons. 

First, the high deductible plans many of them have been forced 

to accept—like the one I was forced to accept at my previous comVerDate Nov 24 2008 14:05 Apr 06, 2010 Jkt 053061 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 S:\WPSHR\GPO\DOCS\53061.TXT SCOM1 PsN: JACKIE
7 

pany—require them to pay more out of their own pockets for medical care whether they can afford it or not. 

Second, the number of underinsured people has increased as 

more have fallen victim to deceptive marketing practices and 

bought what essentially is fake insurance. 

The big insurers have spent millions acquiring companies that 

specialize in ‘‘limited benefit plans.’’ In one policy not only are the 

benefits minimal, but the underwriting criteria established by the 

insurer essentially guarantees big profits. Pre-existing conditions 

are not covered during the first 6 months and an employer must 

have an annual employee turnover rate of 70 percent or more. So 

most of the workers don’t even stay on the payroll long enough to 

use their benefits. 

Thank you, Mr. Chairman for beginning this conversation on 

transparency and for making this such a priority. The industry and 

its backers are using fear tactics as they did in 1994 to tar a transparent and accountable, publicly accountable health care option as 

‘‘government run health care.’’ But what we have today, Mr. Chairman, is Wall Street-run health care that has proven itself an 

untrustworthy partner to its customers, to the doctors and hospitals who deliver care and to the state and Federal Governments 

that attempt to regulate it. 

Thank you. 

[The prepared statement of Mr. Potter follows:] 

PREPARED STATEMENT OF WENDELL POTTER, 

FORMER HEALTH INSURANCE EXECUTIVE, PHILADELPHIA, PA 

Mr. Chairman, thank you for the opportunity to be here this afternoon. 

My name is Wendell Potter and for 20 years, I worked as a senior executive at 

health insurance companies, and I saw how they confuse their customers and dump 

the sick—all so they can satisfy their Wall Street investors. 

I know from personal experience that Members of Congress and the public have 

good reason to question the honesty and trustworthiness of the insurance industry. 

Insurers make promises they have no intention of keeping, they flout regulations 

designed to protect consumers, and they make it nearly impossible to understand— 

or even to obtain—information we need. As you hold hearings and discuss legislative 

proposals over the coming weeks, I encourage you to look very closely at the role 

for-profit insurance companies play in making our health care system both the most 

expensive and one of the most dysfunctional in the world. I hope you get a real 

sense of what life would be like for most of us if the kind of so-called reform the 

insurers are lobbying for is enacted. 

When I left my job as head of corporate communications for one of the country’s 

largest insurers, I did not intend to go public as a former insider. However, it recently became abundantly clear to me that the industry’s charm offensive—which 

is the most visible part of duplicitous and well-financed PR and lobbying campaigns—may well shape reform in a way that benefits Wall Street far more than 

average Americans. 

A few months after I joined the health insurer CIGNA Corp. in 1993, just as the 

last national health care reform debate was underway, the President of CIGNA’s 

health care division was one of three industry executives who came here to assure 

Members of Congress that they would help lawmakers pass meaningful reform. 

While they expressed concerns about some of President Clinton’s proposals, they 

said they enthusiastically supported several specific goals. 

Those goals included covering all Americans; eliminating underwriting practices 

like pre-existing condition exclusions and cherry-picking; the use of community rating; and the creation of a standard benefit plan. Had the industry followed through 

on its commitment to those goals, I wouldn’t be here today. 

Today we are hearing industry executives saying the same things and making the 

same assurances. This time, though, the industry is bigger, richer and stronger, and 

it has a much tighter grip on our health care system than ever before. In the 15 

8 

1Samuel Zuvekas and Joel Cohen, ‘‘Prescription Drugs And The Changing Concentration Of 

Health Care Expenditures,’’ Health Affairs, 26 (1) (January/February 2007): 249–257. 2 ‘‘Behind Aetna’s Turnaround: Small Steps to Pare Cost of Care,’’ Wall Street Journal, August 

13, 2004. 

years since insurance companies killed the Clinton plan, the industry has consolidated to the point that it is now dominated by a cartel of large for-profit insurers. 

The average family doesn’t understand how Wall Street’s dictates determine 

whether they will be offered coverage, whether they can keep it, and how much 

they’ll be charged for it. But, in fact, Wall Street plays a powerful role. The top priority of for-profit companies is to drive up the value of their stock. Stocks fluctuate 

based on companies’ quarterly reports, which are discussed every 3 months in conference calls with investors and analysts. On these calls, Wall Street looks investors 

and analysts look for two key figures: earnings per share and the medical-loss ratio, 

or medical ‘‘benefit’’ ratio, as the industry now terms it. That is the ratio between 

what the company actually pays out in claims and what it has left over to cover 

sales, marketing, underwriting and other administrative expenses and, of course, 

profits. 

To win the favor of powerful analysts, for-profit insurers must prove that they 

made more money during the previous quarter than a year earlier and that the portion of the premium going to medical costs is falling. Even very profitable companies 

can see sharp declines in stock prices moments after admitting they’ve failed to trim 

medical costs. I have seen an insurer’s stock price fall 20 percent or more in a single 

day after executives disclosed that the company had to spend a slightly higher percentage of premiums on medical claims during the quarter than it did during a previous period. The smoking gun was the company’s first-quarter medical loss ratio, 

which had increased from 77.9 percent to 79.4 percent a year later. 

To help meet Wall Street’s relentless profit expectations, insurers routinely dump 

policyholders who are less profitable or who get sick. Insurers have several ways 

to cull the sick from their rolls. One is policy rescission. They look carefully to see 

if a sick policyholder may have omitted a minor illness, a pre-existing condition, 

when applying for coverage, and then they use that as justification to cancel the policy, even if the enrollee has never missed a premium payment. Asked directly about 

this practice just last week in the House Energy and Commerce Committee, executives of three of the Nation’s largest health insurers refused to end the practice of 

canceling policies for sick enrollees. Why? Because dumping a small number of enrollees can have a big effect on the bottom line. Ten percent of the population accounts for two-thirds of all health care spending.1 The Energy and Commerce Committee’s investigation into three insurers found that they canceled the coverage of 

roughly 20,000 people in a five-year period, allowing the companies to avoid paying 

$300 million in claims. 

They also dump small businesses whose employees’ medical claims exceed what 

insurance underwriters expected. All it takes is one illness or accident among employees at a small business to prompt an insurance company to hike the next year’s 

premiums so high that the employer has to cut benefits, shop for another carrier, 

or stop offering coverage altogether—leaving workers uninsured. The practice is 

known in the industry as ‘‘purging.’’ The purging of less profitable accounts through 

intentionally unrealistic rate increases helps explain why the number of small businesses offering coverage to their employees has fallen from 61 percent to 38 percent 

since 1993, according to the National Small Business Association. Once an insurer 

purges a business, there are often no other viable choices in the health insurance 

market because of rampant industry consolidation. 

An account purge so eye-popping that it caught the attention of reporters occurred 

in October 2006 when CIGNA notified the Entertainment Industry Group Insurance 

Trust that many of the Trust’s members in California and New Jersey would have 

to pay more than some of them earned in a year if they wanted to continue their 

coverage. The rate increase CIGNA planned to implement, according to USA Today, 

would have meant that some family-plan premiums would exceed $44,000 a year. 

CIGNA gave the enrollees less than 3 months to pay the new premiums or go elsewhere. 

Purging through pricing games is not limited to letting go of an isolated number 

of unprofitable accounts. It is endemic in the industry. For instance, between 1996 

and 1999, Aetna initiated a series of company acquisitions and became the Nation’s 

largest health insurer with 21 million members. The company spent more than $20 

million that it received in fees and premiums from customers to revamp its computer systems, enabling the company to ‘‘identify and dump unprofitable corporate 

accounts,’’ as the Wall Street Journal reported in 2004.2 Armed with a stockpile of 

new information on policyholders, new management and a shift in strategy, in 2000, 

9 

Aetna sharply raised premiums on less profitable accounts. Within a few years, 

Aetna lost 8 million covered lives due to strategic and other factors. 

While strategically initiating these cost hikes, insurers have professed to be the 

victims of rising health costs while taking no responsibility for their share of America’s health care affordability crisis. Yet, all the while, health-plan operating margins have increased as sick people are forced to scramble for insurance. 

Unless required by state law, insurers often refuse to tell customers how much 

of their premiums are actually being paid out in claims. A Houston employer could 

not get that information until the Texas legislature passed a law a few years ago 

requiring insurers to disclose it. That Houston employer discovered that its insurer 

was demanding a 22 percent rate increase in 2006 even though it had paid out only 

9 percent of the employer’s premium dollars for care the year before. 

It’s little wonder that insurers try to hide information like that from its customers. Many people fall victim to these industry tactics, but the Houston employer 

might have known better—it was the Harris County Medical Society, the county 

doctors’ association. 

A study conducted last year by PricewaterhouseCoopers revealed just how successful the insurers’ expense management and purging actions have been over the 

last decade in meeting Wall Street’s expectations. The accounting firm found that 

the collective medical-loss ratios of the seven largest for-profit insurers fell from an 

average of 85.3 percent in 1998 to 81.6 percent in 2008. That translates into a difference of several billion dollars in favor of insurance company shareholders and executives and at the expense of health care providers and their patients. 

There are many ways insurers keep their customers in the dark and purposely 

mislead them—especially now that insurers have started to aggressively market 

health plans that charge relatively low premiums for a new brand of policies that 

often offer only the illusion of comprehensive coverage. 

An estimated 25 million Americans are now underinsured for two principle reasons. First, the high deductible plans many of them have been forced to accept— 

like I was forced to accept at CIGNA—require them to pay more out of their own 

pockets for medical care, whether they can afford it or not. The trend toward these 

high-deductible plans alarms many health care experts and state insurance commissioners. As California Lieutenant Governor John Garamendi told the Associated 

Press in 2005 when he was serving as the state’s insurance commissioner, the movement toward consumer-driven coverage will eventually result in a ‘‘death spiral’’ for 

managed care plans. This will happen, he said, as consumer-driven plans ‘‘cherrypick’’ the youngest, healthiest and richest customers while forcing managed care 

plans to charge more to cover the sickest patients. The result, he predicted, will be 

more uninsured people. 

In selling consumer-driven plans, insurers often try to persuade employers to go 

‘‘full replacement,’’ which means forcing all of their employees out of their current 

plans and into a consumer-driven plan. At least two of the biggest insurers have 

done just that, to the dismay of many employees who would have preferred to stay 

in their HMOs and PPOs. Those options were abruptly taken away from them. 

Second, the number of uninsured people has increased as more have fallen victim 

to deceptive marketing practices and bought what essentially is fake insurance. The 

industry is insistent on being able to retain so-called ‘‘benefit design flexibility’’ so 

they can continue to market these kinds of often worthless policies. The big insurers 

have spent millions acquiring companies that specialize in what they call ‘‘limitedbenefit’’ plans. An example of such a plan is marketed by one of the big insurers 

under the name of Starbridge Select. Not only are the benefits extremely limited 

but the underwriting criteria established by the insurer essentially guarantee big 

profits. Pre-existing conditions are not covered during the first 6 months, and the 

employer must have an annual employee turnover rate of 70 percent or more, so 

most of the workers don’t even stay on the payroll long enough to use their benefits. 

The average age of employees must not be higher than 40, and no more than 65 

percent of the workforce can be female. Employers don’t pay any of the premiums— 

the employees pay for everything. As Consumer Reports noted in May, many people 

who buy limited-benefit policies, which often provide little or no hospitalization, are 

misled by marketing materials and think they are buying more comprehensive care. 

In many cases it is not until they actually try to use the policies that they find out 

they will get little help from the insurer in paying the bills. 

The lack of candor and transparency is not limited to sales and marketing. Notices that insurers are required to send to policyholders—those explanation-of-benefit documents that are supposed to explain how the insurance company calculated 

its payments to providers and how much is left for the policyholder to pay—are notoriously incomprehensible. Insurers know that policyholders are so baffled by those 

notices they usually just ignore them or throw them away. And that’s exactly the 

10 

point. If they were more understandable, more consumers might realize that they 

are being ripped off. 

Thank you, Mr. Chairman, for beginning this conversation on transparency and 

for making this such a priority. S. 1050, your legislation to require insurance companies to be more honest and transparent in how they communicate with consumers, 

is essential. So, too, is S. 1278, the Consumers Choice Health Plan, which would 

create a strong public health insurance option as a benchmark in transparency and 

quality. Americans need and overwhelmingly support the option of obtaining coverage from a public plan. The industry and its backers are using fear tactics, as they 

did in 1994, to tar a transparent, publicly-accountable health care option as a ‘‘government-run system.’’ But what we have today, Mr. Chairman, is a Wall Street-run 

system that has proven itself an untrustworthy partner to its customers, to the doctors and hospitals who deliver care, and to the state and Federal Governments that 

attempt to regulate it. 

The CHAIRMAN. Thank you, Mr. Potter, very much. And we will 

come back to you with questions. 

Nancy Metcalf is our next witness, is the Senior Program Editor 

for Consumer Reports. She has written a series of articles on junk 

insurance for Consumer Reports. And we look forward to your comments. 

STATEMENT OF NANCY METCALF, 

SENIOR PROGRAM EDITOR, CONSUMER REPORTS 

Ms. METCALF. Thank you, Mr. Chairman. 

The CHAIRMAN. Pull that mic up nice and close. 

Ms. METCALF. Thank you for inviting me to testify on this important topic. 

As a health writer for Consumer Reports, I have talked to a lot 

of consumers over the years who have bought insurance on their 

own. And I can tell you they all bought the same, pretty uncomplicated thing, a health plan that they can afford that will not leave 

them destitute if they get really sick. They do their best to buy 

this. But way too often what they end up with is something completely inadequate. 

Take Susan Kelly, a realtor from Houston. She told me I just 

wanted something to cover me if something catastrophic happened. 

Something catastrophic did. 

She got breast cancer. And found out that her Mega Life policy 

didn’t cover her outpatient chemotherapy or radiation therapy. She 

ended up $100,000 in debt. 

Another Susan, Susan Braig, from California also wanted catastrophic coverage. And she also got breast cancer. She had a Blue 

Cross policy that said it covered outpatient treatment. But buried 

deep in the tiniest print inside a very long policy was an escape 

clause that they used to get out of paying it. She’s $40,000 in debt. 

Some of the reform proposals on the table include subsidies that 

will open the individual market to many millions of new consumers 

through health insurance exchanges. These must include strong 

consumer protection and transparency provisions to protect consumers from buying inadequate junk polices like these. Right now 

it’s not a level playing field, not even close. 

Consumers have no idea how health insurance works. And insurance companies know this and take advantage of it in how they design and market their plans. Sadly state regulators have not been 

much help. The only thing they seem to care about is that a plan 

is actuarially sound. 

11 

Every trick and gotcha that I’m going to talk about today is part 

of a legally approved and marketed plan. Here’s how it plays out. 

Consumers don’t understand how health insurance works. 

A couple of years ago we ran some focus groups of people who 

had bought their own insurance. We asked if their policies had an 

annual out-of-pocket limit. They had absolutely no idea what we 

were talking about even though buying a policy without one is like 

buying a car without brakes. 

They don’t know the difference between co-pays and co-insurance. They don’t know that a limited benefit indemnity plan might 

as well come with a warning label that says this plan will leave 

you broke if you ever get cancer. They don’t understand that premiums are low for a reason. 

As consumers we’re trained to look for a bargain. People think 

insurance works the same way. They have no idea that if they’re 

55-years-old and have diabetes and heart disease, that no insurer 

could possibly stay in business selling them a policy for $150 a 

month. And if they do find a plan at that price, it’s going to be junk 

insurance. 

They really can’t find the booby traps in their policies. I’ve seen 

a UnitedHealthcare policy that doesn’t cover the first day of hospitalization which is the most expensive day, of course. I see many 

policies that only cover diagnostic tests if they are done in a hospital. Aetna’s standard individual health plan only covers $5,000 worth of prescription drugs a year. Somebody who needs a $2,000-amonth drug for rheumatoid arthritis would run that benefit out by 

St. Patrick’s Day. 

And consumers don’t realize how catastrophic a health catastrophe can be. One of the most poignant cases I covered was a middle-aged couple who bought a UnitedHealthcare policy knowing 

that it had a $50,000-a-year maximum payout. It seemed like a 

huge sum to them until the husband got colon cancer. And his 

treatment cost more than $200,000. A lot of people knowingly buy 

hospitalization-only policies because they don’t realize that some of 

the most expensive treatments are done on an outpatient basis. 

Consumers Union believes that policies that exclude or limit 

major categories of care such as outpatient treatments or prescription drugs should not be sold at all. We think that all health insurance should be comprehensive and come in a few standard flavors. 

Differentiated mainly by the degree of cost sharing and presented 

in a format that makes it easy for customers to stop—consumers 

to shop by price. 

This is not rocket science. We already sell Medigap policies this 

way. And it works just fine. 

But absent these reforms at least insurers should be forced to be 

honest about what they are selling, as you, Mr. Chairman, have 

recognized by introducing the Informed Consumer Choices in 

Health Care Act. In clear, standardized, user-tested formats insurers should have to disclose what a policy covers and even more important what it doesn’t cover. If a policy excludes or has low dollar 

limits on hospital or doctor or drug coverage, it should say so. 

Consumers need to be told in big letters what their policy’s outof-pocket limit is, including if there are any expenses that don’t 

12 

1 Consumer Reports is published by Consumers Union, an expert, independent nonprofit organization whose mission is to work for a fair, just, and safe marketplace for all consumers and 

to empower consumers to protect themselves. To achieve this mission, we test, inform, and protect. To maintain our independence and impartiality, Consumers Union accepts no outside advertising, no free test samples, and has no agenda other than the interests of consumers. Consumers Union supports itself through the sale of our information products and services, individual contributions, and a few noncommercial grants. 

count toward that. They need, in other words, a fighting chance not 

to be ripped off by junk insurance. Thank you. 

[The prepared statement of Ms. Metcalf follows:] 

PREPARED STATEMENT OF NANCY METCALF, 

SENIOR PROGRAM EDITOR, CONSUMER REPORTS

Mr. Chairman and Members of the Committee: 

Thank you for inviting me to testify on this important topic. 

As a health writer for Consumer Reports,1 I’ve talked to many consumers over the 

years who have bought insurance on their own. And I can tell you they all want 

the same, uncomplicated thing: a health plan they can afford that won’t leave them 

destitute if they get really sick. 

They do their best to buy decent insurance, but way too often, they end up with 

something completely inadequate. 

Take Susan Kelly, a realtor from Houston. She said, ‘‘I just wanted something to 

cover me if something catastrophic happened.’’ It did. She got breast cancer, and 

found out her Mega Life policy didn’t cover outpatient chemo or radiation therapy. 

She ended up $100,000 in debt. 

Another Susan, Susan Braig from Altadena, California, said ‘‘I thought, at least 

I’ll be covered if I have, God forbid, a catastrophic illness.’’ The SHE got breast cancer. Her Blue Cross policy said it covered outpatient chemo or radiation therapy, 

but it had a tricky clause in it that enabled the company to deny coverage in her 

case. She’s $40,000 in debt now. 

Some of the reform proposals on the table include subsidies that will open the individual market to many millions of new customers through health insurance exchanges. These must include strong consumer protection and transparency provisions to protect consumers from buying inadequate junk policies. 

Right now, it’s not a level playing field, not even close. Consumers have no idea 

how health insurance works. Insurance companies know this and take advantage 

of it in how they design and market their plans. Meanwhile, state regulators have 

been—with a few exceptions such as New York and Massachusetts—asleep at the 

switch. The only thing they seem to care about is that the plan is actuarially sound. 

That’s important, but insufficient to protect consumers. Every trick and gotcha that 

I’m talking about today was part of a legally approved and marketed plan. 

Here is how it plays out. 

1. Consumers don’t understand the working parts of health insurance. If people 

bought cars the way they buy health insurance, they wouldn’t be aware that 

a car has to have a transmission or a battery. A couple of years ago, we ran 

some focus groups of people who had bought their own health insurance. We 

asked if their policies had an annual out-of-pocket limit, and they had no idea 

what we were talking about, even though—if I may stretch the automotive metaphor a bit—buying a policy without one is like buying a car without brakes. 

They don’t know the difference between co-pays and coinsurance. They don’t 

know that a ‘‘limited benefit indemnity plan’’ might as well come with a warning label that says: ‘‘this plan will leave you broke if you ever get cancer.’’ 

2. They don’t understand that low premiums are low for a reason. As consumers, 

we are trained to look for a bargain. People think insurance works the same 

way. They have no idea that if they are 55 years old, and have diabetes and 

heart disease, that no insurer could possibly stay in business selling them a policy for $150-a-month—and that if they do find a plan at that price, it’s going 

to be junk insurance. 

3. They can’t identify the booby traps. I’ve seen a United Healthcare policy that 

doesn’t cover the first day of hospitalization, which is commonly the most expensive day because of ER or surgery bills. I’ve seen many policies that only cover 

diagnostic tests in connection with hospitalization. Aetna’s standard individual 

health plan only covers $5,000 of prescription drugs a year. Sounds like plenty, 

13 

2 ‘‘Hazardous Health Plans,’’ Consumer Reports, May, 2009, pp. 24–29. 

but someone who needs a $2,000-a-month drug for rheumatoid arthritis would 

exhaust that benefit by St. Patrick’s Day. 

4. They don’t realize how catastrophic a health catastrophe can be. One of the 

most poignant cases I ever covered was a middle-aged couple who bought a 

United Healthcare policy knowing it had a $50,000-a-year maximum payout, 

which seemed like a huge sum to them. Then the husband got colon cancer, and 

his treatment cost more than $200,000.2 A lot of people knowingly buy hospitalization-only policies because they don’t realize that some of the most expensive treatments are done on an outpatient basis. 

What Consumers Need 

Consumers Union believes that policies that exclude or limit major categories of 

care, such as outpatient treatments or prescription drugs, should not be sold at all. 

We think that all health insurance should be comprehensive and come in a few 

standard flavors, differentiated mainly by the degree of cost-sharing, and presented 

in a format that makes it easy for consumers to shop by price. This is not rocket 

science. We already sell Medigap policies this way. 

But absent those reforms, at least insurers should be forced to be honest about 

what they’re selling, as you, Mr. Chairman, have recognized by introducing the Informed Consumer Choices in Health Care Act of 2009. In clear, standardized, usertested formats, insurers should have to disclose what a policy covers—and even 

more important, what it doesn’t. If the policy excludes or has low dollar limits on 

hospital or doctor or drug coverage, it needs to say so, clearly and understandably. 

Consumers need to be told, in big letters, what their policy’s out-of-pocket limit 

is, including if there are any expenses that don’t count toward that. They need to 

know approximately what their out-of-pocket costs will be for expensive treatments 

such as cancer chemotherapy or heart surgery. 

They need, in other words, a fighting chance not to be ripped off by junk insurance. 

Thank you again for opportunity to testify. 

For the record, I am submitting a recent article from Consumer Reports on this 

subject entitled ‘‘Hazardous Health Plans,’’ as well as a Consumers Union Health 

Policy Brief explaining our recommendations in greater detail. 

ATTACHMENT

Consumer Reports—May 2009 

Hazardous Health Plans 

Coverage Gaps Can Leave You In Big Trouble 

Many people who believe they have adequate health insurance actually have coverage so riddled with loopholes, limits, exclusions, and gotchas that it won’t come 

close to covering their expenses if they fall seriously ill, a Consumer Reports investigation has found. 

At issue are so-called individual plans that consumers get on their own when, say, 

they’ve been laid off from a job but are too young for Medicare or too ‘‘affluent’’ for 

Medicaid. An estimated 14,000 Americans a day lose their job-based coverage, and 

many might be considering individual insurance for the first time in their lives. 

But increasingly, individual insurance is a nightmare for consumers: more costly 

than the equivalent job-based coverage, and for those in less-than-perfect health, 

unaffordable at best and unavailable at worst. Moreover, the lack of effective consumer protections in most states allows insurers to sell plans with ‘‘affordable’’ premiums whose skimpy coverage can leave people who get very sick with the added 

burden of ruinous medical debt. 

Just ask Janice and Gary Clausen of Audubon, Iowa. They told us they purchased 

a United Healthcare limited benefit plan sold through AARP that cost about $500 

a month after Janice lost her accountant job and her work-based coverage when the 

auto dealership that employed her closed in 2004. 

‘‘I didn’t think it sounded bad,’’ Janice said. ‘‘I knew it would only cover $50,000- 

a-year, but I didn’t realize how much everything would cost.’’ The plan proved hopelessly inadequate after Gary received a diagnosis of colon cancer. His 14-month 

treatment, including surgery and chemotherapy, cost well over $200,000. Janice, 64, 

and Gary, 65, expect to be paying off medical debt for the rest of their lives. 

14 

For our investigation, we hired a national expert to help us evaluate a range of 

real policies from many states and interviewed Americans who bought those policies. We talked to insurance experts and regulators to learn more. Here is what we 

found: 

• Health insurance policies with gaping holes are offered by insurers ranging 

from small companies to brand-name carriers such as Aetna and United 

Healthcare. And in most states, regulators are not tasked with evaluating overall coverage. 

• Disclosure requirements about coverage gaps are weak or nonexistent. So it’s 

difficult for consumers to figure out in advance what a policy does or doesn’t 

cover, compare plans, or estimate their out-of-pocket liability for a medical catastrophe. It doesn’t help that many people who have never been seriously ill 

might have no idea how expensive medical care can be. 

• People of modest means in many states might have no good options for individual coverage. Plans with affordable premiums can leave them with crushing 

medical debt if they fall seriously ill, and plans with adequate coverage may 

have huge premiums. 

• There are some clues to a bad policy that consumers can spot. We tell you what 

they are, and how to avoid them if possible. 

• Even as policymakers debate a major overhaul of the health-care system, government officials can take steps now to improve the current market. 

Good Plans vs. Bad Plans 

We think a good health-care plan should pay for necessary care without leaving 

you with lots of debt or high out-of-pocket costs. That includes hospital, ambulance, 

emergency-room, and physician fees; prescription drugs; outpatient treatments; diagnostic and imaging tests; chemotherapy, radiation, rehabilitation and physical 

therapy; mental-health treatment; and durable medical equipment, such as wheelchairs. Remember, health insurance is supposed to protect you in case of a catastrophically expensive illness, not simply cover your routine costs as a generally 

healthy person. And many individual plans do nowhere near the job. 

For decades, individual insurance has been what economists call a ‘‘residual’’ market—something to buy only when you have run out of other options. The problem, 

according to insurance experts we consulted, is that the high cost of treatment in 

the U.S., which has the world’s most expensive health-care system, puts truly affordable, comprehensive coverage out of the reach of people who don’t have either 

deep pockets or a generous employer. Insurers tend to provide this choice: comprehensive coverage with a high monthly premium or skimpy coverage at a low 

monthly premium within the reach of middle- and low-income consumers. 

More consumers are having to choose the latter as they become unemployed or 

their workplace drops coverage. (COBRA, the Federal program that allows former 

employees to continue with the insurance from their old job by paying the full 

monthly premium, often costs $1,000 or more each month for family coverage. The 

Federal Government is temporarily subsidizing 65 percent of those premiums for 

some, but only for a maximum of 9 months.) Consumer Reports and others label as 

‘‘junk insurance’’ those so-called affordable individual plans with huge coverage 

gaps. Many such plans are sold throughout the Nation, including policies from wellknown companies. 

15 

7 Signs a Health Plan Might Be Junk 

Do everything in your power to 

avoid plans with the following features: 

Limited benefits. Never buy a product that is labeled ‘‘limited benefit’’ 

or ‘‘not major medical’’ insurance. 

In most states those phrases might 

be your only clue to an inadequate 

policy. 

Low overall coverage limits. Health 

care is more costly than you might 

imagine if you’ve never experienced 

a serious illness. The cost of cancer 

or a heart attack can easily hit six 

figures. Policies with coverage limits of $25,000 or even $100,000 are 

not adequate. 

‘‘Affordable’’ premiums. There’s no 

free lunch when it comes to insurance. To lower premiums, insurers 

trim benefits and do what they can 

to avoid insuring less healthy people. So if your insurance was a bargain, chances are good it doesn’t 

cover very much. To check how 

much a comprehensive plan would 

cost you, go to 

ehealthinsurance.com, enter your 

location, gender, and age as 

prompted, and look for the most 

costly of the plans that pop up. It is 

probably the most comprehensive. 

No coverage for important things. 

If you don’t see a medical service 

specifically mentioned in the policy, assume it’s not covered. We 

reviewed policies that didn’t cover 

prescription drugs or outpatient 

chemotherapy but didn’t say so 

anywhere in the policy document—not even in the section labeled ‘‘What is not covered.’’ 

Ceilings on categories of care. A 

$900-a-day maximum benefit for 

hospital expenses will hardly 

make a dent in a $45,000 bill for 

heart bypass surgery. If you have 

to accept limits on some services, 

be sure your plan covers hospital 

and outpatient medical treatment, 

doctor visits, drugs, and diagnostic 

and imaging tests without a dollar 

limit. Limits on mental-health 

costs, rehabilitation, and durable 

medical equipment should be the 

most generous you can afford. 

Limitless out-of-pocket costs. Avoid 

policies that fail to specify a maximum amount that you’ll have to 

pay before the insurer will begin 

covering 100 percent of expenses. 

And be alert for loopholes. Some 

policies, for instance, don’t count 

co-payments for doctor visits or 

prescription drugs toward the 

maximum. That can be a catastrophe for seriously ill people who 

rack up dozens of doctor’s appointments and prescriptions a year. 

Random gotchas. The AARP policy 

that the Clausens bought began 

covering hospital care on the second day. That seems benign 

enough, except that the first day 

is almost always the most expensive, because it usually includes 

charges for surgery and emergency-room diagnostic tests and 

treatments. 

Aetna’s Affordable Health Choices plans, for example, offer limited benefits to 

part-time and hourly workers. We found one such policy that covered only $1,000 

of hospital costs and $2,000 of outpatient expenses annually. 

The Clausens’ AARP plan, underwritten by insurance giant United Health Group, 

the parent company of United Healthcare, was advertised as ‘‘the essential benefits 

you deserve. Now in one affordable plan.’’ AARP spokesman Adam Sohn said, 

‘‘AARP has been fighting for affordable, quality health care for nearly a half-century, and while a fixed-benefit indemnity plan is not perfect, it offers our members 

an option to help cover some portion of their medical expenses without paying a 

high premium.’’ 

Nevertheless, AARP suspended sales of such policies last year after Sen. Charles 

Grassley, R–Iowa, questioned the marketing practices. Some 53,400 AARP members 

still have policies similar to the Clausens’ that were sold under the names Medical 

Advantage Plan, Essential Health Insurance Plan, and Essential Plus Health Insurance Plan. In addition, at least 1 million members are enrolled in the AARP Hospital Indemnity Insurance Plan, Sohn said, an even more bare-bones policy. Members who have questions should first call 800–523–5800; for more help, call 888– 

687–2277. (Consumers Union, the nonprofit publisher of Consumer Reports, is working with AARP on a variety of health-care reforms.) 

United American Insurance Co. promotes its supplemental health insurance as 

‘‘an affordable solution to America’s health-care crisis!’’ When Jeffrey E. Miller, 56, 

of Sarasota, Fla., received a diagnosis of prostate cancer a few months after buying 

one of the company’s limited-benefit plans, he learned that it would not cover tens 

of thousands of dollars’ worth of drug and radiation treatments he needed. As this 

article went to press, 5 months after his diagnosis, Miller had just begun treatment 

after qualifying for Florida Medicaid. A representative of United American declined 

to comment on its products. 

Even governments are getting into the act. In 2008, Florida created the Cover 

Florida Health Care Access Program, which Gov. Charlie Crist said would make ‘‘affordable health coverage available to 3.8 million uninsured Floridians.’’ But many 

of the basic ‘‘preventive’’ policies do not cover inpatient hospital treatments, emergency-room care, or physical therapy, and they severely limit coverage of everything 

else. 

16 

Want better coverage? Try running for Congress 

President Barack Obama says Americans should have access to the kind of health benefits Congress gets. We 

detail them below. Members of Congress and other U.S. Government employees can receive care through the 

Federal Employees Health Benefits Program. Employees choose from hundreds of plans, but the most popular 

is a national Blue Cross and Blue Shield Preferred Provider Organization plan. Employee contributions for 

that plan are $152 per person, or $357 per family, per month. 

Plan features Covered services 

• No annual or lifetime limits for 

major services 

• Deductible of $300 per person 

and $600 per family 

• Out-of-pocket limit of $5,000 per 

year with preferred providers, 

which includes most deductibles, 

co-insurance, and co-payments 

• Inpatient and outpatient hospital care 

• Inpatient and outpatient doctor 

visits 

• Prescription drugs 

• Diagnostic tests 

• Preventive care, including routine immunizations 

• Chemotherapy and radiation 

therapy 

• Maternity care 

• Family planning 

• Durable medical equipment, orthopedic devices, and artificial 

limbs 

• Organ and tissue transplants 

• Inpatient and outpatient surgery 

• Physical, occupational, and 

speech therapy 

• Outpatient and inpatient mental-health care 

The Wild West of Insurance 

Compounding the problem of limited policies is the fact that policyholders are 

often unaware of those limits—until it’s too late. 

‘‘I think people don’t understand insurance, period,’’ said Stephen Finan, associate 

director of policy at the American Cancer Society Cancer Action Network. ‘‘They 

know they need it. They look at the price, and that’s it. They don’t understand the 

language, and insurance companies go to great lengths to make it incomprehensible. 

Even lawyers don’t always understand what it means.’’ 

Case in point: Jim Stacey of Fayetteville, N.C. In 2000, Stacey and his wife, 

Imelda, were pleased to buy a plan at what they considered an ‘‘incredible’’ price 

from the Mid-West National Life Insurance Co. of Tennessee. The policy’s list of 

benefits included a lifetime maximum payout of up to $1 million per person. But 

after Stacey learned he had prostate cancer in 2005, the policy paid only $1,480 of 

the $17,453 it cost for the implanted radioactive pellets he chose to treat the disease. 

‘‘To this day, I don’t know what went wrong,’’ Stacey said about the bill. 

We sent the policy, along with the accompanying Explanation of Benefit forms detailing what it did and didn’t pay, to Karen Pollitz, research professor at the 

Georgetown University Health Policy Institute. We asked Pollitz, an expert on individual health insurance, to see whether she could figure out why the policy covered 

so little. 

‘‘The short answer is, ‘Beats the heck out of me,’ ’’ she e-mailed back to us. The 

Explanation of Benefit forms were missing information that she would expect to see, 

such as specific billing codes that explain what treatments were given. And there 

didn’t seem to be any connection between the benefits listed in the policy and the 

actual amounts paid. 

Contacted for comment, a spokeswoman for HealthMarkets, the parent company 

of Mid-West National, referred us to the company website. It stated that the company ‘‘pays claims according to the insurance contract issued to each customer’’ and 

that its policies ‘‘satisfy a need in the marketplace for a product that balances the 

cost with the available benefit options.’’ The spokeswoman declined to answer specific questions about Stacey’s case, citing patient privacy laws. 

One reason confusion abounds, Pollitz said, is that health insurance is regulated 

by the states, not by the Federal Government, and most states (Massachusetts and 

New York are prominent exceptions) do not have a standard definition of what constitutes health insurance. 

‘‘Rice is rice and gasoline is gasoline. When you buy it, you know what it is,’’ 

Pollitz said. ‘‘Health insurance—who knows what it is? It is some product that’s sold 

by an insurance company. It could be a little bit or a lot of protection. You don’t 

know what is and isn’t covered. Nothing can be taken for granted.’’ 

17 

The real cost of illness can be staggering . . . 

Few Americans realize how much care costs. Coverage gaps can leave you in debt. 

Condition Treatment Total Cost 

Late-stage colon 

cancer 

124 weeks of treatment, including two surgeries, three types of chemotherapy, imaging, prescription drugs, hospice care. $285,946 

Heart attack 56 weeks of treatment, including ambulance, ER work-up, angioplasty 

with stent, bypass surgery, cardiac rehabilitation, counseling for depression, prescription drugs. 

$110,405 

Breast cancer 87 weeks of treatment, including lumpectomy, drugs, lab and imaging 

tests, chemotherapy and radiation therapy, mental-health counseling, and 

prosthesis. 

$104,535 

Type 2 diabetes One year of maintenance care, including insulin and other prescription 

drugs, glucose test strips, syringes and other supplies, quarterly physician 

visits and lab, annual eye exam. 

$5,949 

. . . and out-of-pocket expenses can vary widely 

Massachusetts Plan California Plan 

With its lower premium and 

deductible, the California plan at 

right would seem the better deal. 

But because California, unlike 

Massachusetts, allows the sale of 

plans with large coverage gaps, a 

patient there will pay far more 

than a Massachusetts patient for 

the same breast cancer treatments, 

as the breakdown below shows. 

Monthly premium for any 

55-year-old: $399 

Annual deductible: $2,200 

Co-pays: $25 office visit, $250 outpatient surgery after deductible, 

$10 for generic drugs, $25 for nonpreferred generic and brand name, 

$45 for nonpreferred brand name 

Co-insurance: 20% for some 

services 

Out-of-pocket maximum: $5,000, 

includes deductible, co-insurance, 

and all co-payments 

Exclusions and limits: Cap of 24 

mental-health visits, $3,000 cap on 

equipment 

Lifetime benefits: Unlimited 

Monthly premium for a healthy 

55-year-old: $246 

Annual deductible: $1,000 

Co-pays: $25 preventive care office 

visits 

Co-insurance: 20% for most covered services 

Out-of-pocket maximum: $2,500, 

includes hospital and surgical coinsurance only 

Exclusions and limits: Prescription 

drugs, most mental-health care, 

and wigs for chemotherapy patients not covered. Outpatient care 

not covered until out-of-pocket 

maximum satisfied from hospital/ 

surgical co-insurance 

Lifetime benefits: $5 million 

Service and Total Cost Patient Pays Patient Pays 

Hospital $0 $705 

Surgery $981 $1,136 

Office visits and procedures $1,833 $2,010 

Prescription drugs $1,108 $5,985 

Laboratory and imaging tests $808 $3,772 

Chemotherapy and radiation 

therapy $1,987 $21,113 

Mental-health care $950 $2,700 

Prosthesis $0 $350 

TOTAL $104,535 $7,668 $37,767 

Source: Karen Pollitz, Georgetown University Health Policy Institute, using real claims data and policies. Columns of figures do not add up exactly because all numbers are rounded. 

How to Protect Yourself 

Seek out comprehensive coverage. A good plan will cover your legitimate health 

care without burdening you with over-sized debt. 

‘‘The idea of ‘Cadillac’ coverage vs. basic coverage isn’t an appropriate way to 

think about health insurance,’’ said Mila Kofman, Maine’s superintendent of insurance. ‘‘It has to give you the care you need, when you need it, and some financial 

security so you don’t end up out on the street.’’ What you want is a plan that has 

no caps on specific coverages. But if you have to choose, pick a plan offering unlimited coverage for hospital and outpatient treatment, doctor visits, drugs, and diagVerDate Nov 24 2008 14:05 Apr 06, 2010 Jkt 053061 PO 00000 Frm 00021 Fmt 6633 Sfmt 6621 S:\WPSHR\GPO\DOCS\53061.TXT SCOM1 PsN: JACKIE
18 

nostic and imaging tests. When it comes to life-time coverage maximums, unlimited 

is best and $2 million should be the minimum. Ideally, there should be a single deductible for everything or, at most, one deductible for drugs and one for everything 

else. And the policy should pay for 100 percent of all expenses once your out-of-pocket payments hit a certain amount, such as $5,000 or $10,000. 

If you are healthy now, do not buy a plan based on the assumption that you will 

stay that way. Don’t think you can safely go without drug coverage, for example, 

because you don’t take any prescriptions regularly today. ‘‘You can’t know in advance if you’re going to be among the . 01 percent of people who needs the $20,000- 

a-month biologic drug,’’ said Gary Claxton, a vice president of the nonprofit Kaiser 

Family Foundation, a health-policy research organization. ‘‘What’s important is if 

you get really sick, are you going to lose everything?’’ 

Consider trade-offs carefully. If you have to make a trade-off to lower your premium, Claxton and Pollitz suggest opting for a higher deductible and a higher outof-pocket limit rather than fixed dollar limits on services. Better to use up part of 

your retirement savings paying $10,000 up front than to lose your whole nest egg 

paying a $90,000 medical bill after your policy’s limits are exhausted. 

With such a high deductible, in years when you are relatively healthy you might 

never collect anything from your health insurance. To economize on routine care, 

take advantage of free community health screenings, low-cost or free community 

health clinics, immediate-care clinics offered in some drugstores, and low-priced generic prescriptions sold at Target, Walmart, and elsewhere. 

If your financial situation is such that you can afford neither the higher premiums 

of a more comprehensive policy nor high deductibles, you really have no good 

choices, Pollitz said, adding, ‘‘It’s why we need to fix our health-care system.’’ 

Check out the policy and company. You can, at least, take some steps to choose 

the best plan you can afford. First, see ‘‘7 Signs a Health Plan Might Be Junk,’’ on 

page 25, to learn to spot the most dangerous pitfalls and the preferred alternatives. 

Use the Web to research insurers you’re considering. The National Association of 

Insurance Commissioners posts complaint information online at www.naic.org. 

Entering the name of the company and policy in a search engine can’t hurt either. 

Consumers who did that recently would have discovered that Mid-West National 

was a subsidiary of HealthMarkets, whose disclosure and claims handling drew 

many customers’ ire. Last year, HealthMarkets was fined $20 million after a 

multistate investigation of its sales practices and claims handling. 

Don’t rely on the salesperson’s word. Jeffrey E. Miller, the Florida man whose policy failed to cover much of his cancer treatment, recalls being bombarded with email and calls when he began shopping for insurance. ‘‘The salesman for the policy 

I bought told me it was great, and I was going to be covered, and it paid up to 

$100,000 for a hospital stay,’’ he said. ‘‘But the insurance has turned out to pay very 

little.’’ 

Pollitz advises anyone with questions about their policy to ask the agent and get 

answers in writing. ‘‘Then if it turns out not to be true,’’ she said, ‘‘you can complain.’’ 

What Lawmakers Need to Do Next 

Consumers Union, the nonprofit publisher of Consumer Reports, has long supported national health-care reform that makes affordable health coverage available 

to all Americans. The coverage should include a basic set of required, comprehensive 

health-care benefits, like those in the Federal plan that Members of Congress enjoy. 

Insurers should compete for customers based on price and the quality of their services, not by limiting their risk through confusing options, incomplete information, 

or greatly restricted benefits. 

As reform is developed and debated, Consumers Union supports these changes in 

the way health insurance is presented and sold: 

Clear terms. All key terms in policies, such as ‘‘out-of-pocket’’ and ‘‘annual deductible,’’ should be defined by law and insurers should be required to use them that 

way in their policies. 

Standard benefits. Ideally, all plans should have a uniform set of benefits covering 

all medically necessary care, but consumers should be able to opt for varying levels 

of cost-sharing. Failing that, states should establish a menu of standardized plans, 

as Medicare does for Medigap plans. Consumers would then have a basis for comparing costs of plans. 

Transparency. Policies that insurers currently sell should be posted in full online 

or available by mail upon request for anyone who wants to examine them. They 

should be the full, legally binding policy documents, not just a summary or marketing brochure. In many states now, consumers can’t see the policy document until 

after they have joined the plan. At that point, they’re legally entitled to a ‘‘free look’’ 

19 

1Karen Pollitz, Eliza Bangit, Jennifer Libster, Stephanie Lewis, and Nicole Johnston. Coverage When It Counts. How much protection does health insurance offer and how can consumers 

know?, Center for American Progress Action Fund, May 8, 2009. 2 Rhode Island Office of the Health Insurance Commissioner. Notice Of Adoption Of Office Of 

The Health Insurance Commissioner Regulation 5, ‘‘Standards For Readability Of Health Insurance Forms,’’ http://Www.Ohic.Ri.Gov/Documents/Insurers/Regulations/Regulation%205% 

20Readability/1lNotice%20of%20proposed%20adoption%20of%20Regulation%205.PDF 

(accessed: 5/4/09). 3 Colleen Medill, Richard Wiener, Brian Bornstein, and E. McGorty, ‘‘How Readable Are Summary Plan Descriptions for Health Care Plans,’’ EBRI Notes, Vol. 27, No. 10, October 2006. 

period in which to examine the policy and ask for a refund if they don’t like what 

they see. But if they turn the policy back in, they face the prospect of being uninsured until they can find another plan. 

Disclosure of costs. Every plan must provide a standard ‘‘Plan Coverage’’ summary 

that clearly displays what is—and more important, is not—covered. The summary 

should include independently verified estimates of total out-of-pocket costs for a 

standard range of serious problems, such as breast cancer treatment or heart bypass 

surgery. 

Moreover, reliable information should be available to consumers about the costs 

in their area of treating various medical conditions, so that they have a better understanding of the bills they could face without adequate health coverage. 

Consumers Union Health Policy Brief—June 2009 

SIMPLIFYING HEALTH INSURANCE CHOICES

Written by Lynn Quincy and Steve Findlay 

Summary 

Today, consumers face a bewildering health insurance marketplace, especially if 

they buy insurance on their own. Americans find it all but impossible to compare 

health insurance policies on an ‘‘apples-to-apples’’ basis because the policies are 

written in legalese and the terms of coverage are so varied. As lawmakers consider 

comprehensive health care reform, they have an opportunity to fix the way we shop 

for health insurance. This brief recommends new, consumer-friendly rules for the 

health insurance marketplace. These rules require clear and consistent definitions 

of insurance terms, standardized health plan provisions, new health plan disclosure 

forms, unbiased enrollment assistance and rigorous enforcement at the state and 

national levels. 

Today’s Health Insurance Marketplace: Overwhelming Complexity 

Health insurance is one of the most important purchases Americans make, yet 

many consumers feel helpless when it comes to shopping for coverage. 

For one thing, unlike most things we buy, it’s difficult to know the full cost of 

our health coverage option. While most people understand the amount of their 

monthly premium, it’s far harder to compare potential out-of-pocket costs for medical services. In fact, it is almost impossible for them to assess the expenses they 

would face if they get sick and need extensive care.1

There are important underlying reasons for this confusion. To start with, policies 

are written in legalese or impenetrable ‘‘health insurance speak.’’ Take, for example, 

this policy provision from a Rhode Island insurer: 2

Benefits are payable for Covered Medical Expenses (see ‘‘Definitions’’) less any 

Deductible incurred by or for a Covered Person for loss due to Injury or Sickness subject to: (a) the Maximum Benefit for all services; (b) the maximum 

amount for specific services; both as set forth in the Schedule of Benefits; and 

(c) any coinsurance amount set forth in the Schedule of Benefits or any endorsement hereto. The total payable for all Covered Medical Expenses shall never exceed the Maximum Benefit stated in the Schedule of Benefits. Read the ‘‘Definitions’’ section and the ‘‘Exclusions and Limitations’’ section carefully. 

Very few consumers can make sense of the above paragraph. The average U.S. 

adult reads comfortably—especially about subjects they do not understand well—at 

an 8th grade level. Yet the typical health plan document is written at a first-year 

college reading level.3 As one insurance official stated ‘‘it will be difficult for many 

20 

4The Regence Group. ‘‘Regence Study Shows Steep Health Plan Learning Curve,’’ http:// 

www.regence.com/docs/pressReleases/2008/092208-regence-survey-shows-steep-health-planlearning-curve-press-release.pdf (accessed: 5/4/09). 5Mark Kutner, Elizabeth Greenberg, Ying Jin, and Christine Paulsen. The Health Literacy 

of America’s Adults: Results from the 2003 National Assessment of Adult Literacy, U.S. Department of Education, National Center for Education Statistics, September 6, 2006. 6 ‘‘Hazardous Health Plans,’’ Consumer Reports, May 2009. 7Pollitz et al., op cit. 8The Regence Group, op cit. 9 2008 Survey sponsored by eHealth Inc., parent company of ehealthinsurance. http:// 

phx.corporate-ir.net/phoenix.zhtml?c=201232&p=irol-newsArticle&ID=1090963&highlight 

=(accessed: 6/1/09). 

10 ‘‘Hazardous Health Plans,’’ op cit. 11The few standards that do exist are not rigorously enforced. See, for example, Medill et al., 

op cit. 12 Jonathan Gruber. Choosing a Medicare Part D Plan: Are Medicare Beneficiaries Choosing 

Low-Cost Plans?, Henry J. Kaiser Foundation, March 2009. 13Dale Shaller. Consumers in Health Care: The Burden of Choice, California HealthCare 

Foundation, October 2004. 14Personal communication from TNS Media Intelligence, May 20, 2009. 

health system reform ideas to get traction when people literally don’t know what 

we are talking about.’’ 4

Navigating the health insurance marketplace takes more than just reading skills. 

Health literacy is a broader concept that includes the ability to process numbers 

(numeracy) and at least a basic understanding of how to access care or coverage. 

Unfortunately, just 12 percent of adults are characterized as fully ‘‘proficient’’ in 

health literacy, according to one analysis.5

Lack of standardization adds greatly to the confusion. Terms like ‘‘deductible’’ or 

‘‘hospitalization’’ can vary from plan to plan. A recent Consumer Reports article, for 

example, described a health insurance policy in which hospitalization coverage excluded the first day of hospitalization (in the fine print)—usually the most expensive 

day when lab and surgical suite costs are incurred.6 Similarly, a detailed comparative study of health plans in Massachusetts and California found that plans with 

seemingly similar provisions would have left policyholders with out-of-pocket obligations that differed by thousands of dollars.7 For example, a typical course of breast 

cancer treatment would cost the patient nearly $4,000 in one plan but $38,000 in 

the other plan—despite the fact the plans contained similar deductibles, co-pays and 

out-of-pocket limits. In the case of the second plan, the policy’s out-of-pocket limit 

included many ‘‘exceptions’’ that increased costs for the consumer. 

The bottom line is that consumers end up with coverage they don’t understand. 

One study sponsored by the insurance industry asked adults to define insurance 

terms and calculate their bill. Most respondents were able to answer the questions 

correctly just half the time.8 Another industry-sponsored survey found that less 

than a quarter of respondents understood the terminology used in their health policy.9 Unfortunately, when consumers don’t understand their coverage, they may end 

up with unexpected costs if they need a lot of medical care.10

Surprisingly, consumers have little in the way of national standards that help 

them buy health insurance.11 This near absence of consumer protections means that 

consumers often purchase coverage that doesn’t suit their needs, that costs them too 

much, and ultimately drives up our Nation’s health care bill. 

How Consumers Choose 

Consumers value ‘‘choice’’ when purchasing almost anything. In health care, the 

choice they value most is a choice of doctors and places to get care. However, at 

least one study indicates that consumers would actually prefer fewer choices of insurance policies in exchange for meaningful distinctions between plans and lower 

prices.12

Indeed, a large body of research concludes that too many choices often paralyze 

consumer decision-making.13 When choices are overwhelming, decision-making becomes stressful for consumers. To reduce this stress, people take ‘‘cognitive shortcuts.’’ One common short-cut is ‘‘sticking with what we know.’’ In the world of 

health insurance, this often translates to sticking with the plan or policy you have, 

even if doesn’t cover needed care or more attractive health plans are available. 

Another ‘‘short cut’’ is to enroll in a highly advertised plan or one with a familiar 

brand name, rather than researching the best and most cost-effective plan. Consumers’ distaste for evaluating large amounts of information, or complex information, is one reason companies put so much effort into branding. In 2008 health insurance companies spent over $645 million on advertising.14

21 

15 Judith Hibbard and Jacquelyn Jewett. ‘‘Will Quality Report Cards Help Consumers?,’’ 

Health Affairs, 1997. 16Michael Wroblewski. ‘‘Uniform Health Insurance Information Can Help Consumers Make 

Informed Purchase Decisions,’’ Journal of Insurance Regulation, 26(2):21–37, 2007. 17Gruber, op. cit. The author was careful to note that plan selection based on current use of 

health care services is not necessarily predictive of the protection offered against future health 

care needs. 18 U.S. Government Accountability Office. ‘‘Medicare Part D: Opportunities Exist for Improving Information Sent to Enrollees and Scheduling the Annual Election Period,’’ GAO–09–4, December 2008. 19Gruber, op cit. 20Washington Consumers’ Checkbook. 2009 Guide to Health Plans for Federal Employees, 

published 2008. 21 U.S. Government Accountability Office, Federal Employees’ Health Plans: Premium Growth 

and OPM’s Role in Negotiating Benefits, Report to the Subcommittee on International Security, 

Proliferation, and Federal Services, Committee on Governmental Affairs, U.S. Senate, GAO–03– 

236, December 2002. 

Consumers are also prone to dismiss information they don’t understand.15 As a 

result, people often don’t use the information provided by insurance companies, instead turning to family, colleagues and friends for help navigating the health plan 

selection process.16

The experience of seniors purchasing Medicare Part D (prescription drug benefit) 

plans illustrates the ‘‘choice’’ problem. On average, Medicare beneficiaries have a 

choice of 48 Part D plans—and some have a choice of around 70. One study found 

that, based on individuals’ previous year drug use, only 6 percent of enrollees picked 

the plan that would save them the most money. Most enrollees were spending $360 

to $520 more per year than the optimal plan for them.17 Yet, relatively few enrollees 

switch into other, more cost-effective plans. Of 17 million Medicare Part D enrollees 

in 2008, only 1 million switched plans.18 Surveys show that seniors are aware of 

the problem. Nearly three-quarters felt that their Part D choices were too complicated. And a majority of seniors agreed with this statement: ‘‘Medicare should select a handful of plans that meet certain standards so seniors have an easier time 

choosing.’’ 19

This ‘‘paradox of choice’’ is not restricted to seniors. The ‘‘Consumers’ Checkbook 

Guide’’ to health plans for Federal employees reports that ‘‘hundreds of thousands 

of employees and annuitants are still enrolled in plans that are much more expensive than average, and that give them no needed extra benefits.’’ 20 Federal employees, who face a lot of health plan choices, also like to ‘‘stick with what they know.’’ 

In one recent two-year period, fewer than 5 percent of enrollees switched health 

plans.21

Checklist for a Better Health Insurance Marketplace 

• A manageable number of meaningful health plan choices. 

• Standardized health plan benefits allowing ‘‘apples-to-apples’’ comparisons. 

• Health plan materials written in ‘‘plain English,’’ using clear, consistently defined terms, and highlighting the information of most interest to consumers 

(such as whether their doctor participates in the plan and likely out-of-pocket 

costs). 

• ‘‘Plan chooser’’ decision aids, including a user-friendly Web-based decision tool, 

access to local one-on-one counseling services, and a 24-hour toll-free phone 

number. Proactive outreach to low-income and minority populations should be 

required. 

• A strong oversight body that conducts consumer education, aggregates and reports on customer complaints, monitors and enforces plan quality reporting, and 

monitors compliance with new insurer regulations. 

A Better Health Insurance Marketplace 

There is a better way. We need a health insurance marketplace which has consumer protections commensurate with the importance of the purchase; new rules for 

insurance plan disclosure that take into account real consumer decision-making behavior; and less variation in health plan design so that consumers can easily compare benefits and costs. 

To create this new marketplace, Consumers Union proposes five specific changes. 

1. A Manageable Number of Plan Choices 

Consumers should have a manageable number of ‘‘good’’ health plan options. 

Building on current state rules for insurer financial solvency, all health plans 

22 

22Marsha Gold. ‘‘Medicare’s Private Plans: A Report Card on Medicare Advantage,’’ Health 

Affairs 28, No. 1, w41–w54 (published online November 24, 2008). 23 CMS Office of Public Affairs, CMS Issues Guidance For Medicare Advantage And Prescription Drug Plans For 2010 (press release), March 30, 2009. 24 Requiring that health plans meet a standard of actuarial equivalence—that is pay the same 

percent of charges on average—but be allowed to vary the benefit design is not a workable substitute. Such a policy would leave consumers unable to meaningfully compare health plans. See 

Pollitz, op cit. 25 Jim Hahn. Standardized Choices: Medigap Lessons for Medicare Part D, CRS Report for 

Congress, March 8, 2006. 26This approach is similar to the one used in Massachusetts for plans offered through the 

Connector. Connector plans differ from this proposal in that the cost-sharing design must adhere to prescribed levels of ‘‘actuarial value’’ rather than set benefit designs (as is done in 

Medigap). In addition, these plans must conform to the state’s standard for minimum credible 

coverage. 27Pollitz (op cit.) describes real health plans whose provisions lead to costs for covered services 

that vastly exceed the plan’s stated out-of-pocket maximum. 

should also be required to meet national, minimum standards for coverage, network 

adequacy, and claims payment and appeal procedures. 

If these national standards, in combination with the reforms below, produce an 

excessive number of coverage plans, then health plans should be required to bid to 

participate in the market in order to reduce the number of health plan options to 

a manageable level. This approach would promote competition on price, improved 

patient satisfaction and quality of care. It would also avoid the problems of an excessive number of confusing, look-alike plans, such as now confronts Medicare beneficiaries in their choice of Part D and managed care (Medicare Advantage) plans. 

In addition to an excessive number of Part D choices, beneficiaries face 44 Medicare 

Advantage plans on average and some beneficiaries have 87 choices.22 Many plans 

feature only minor differences from each other. Moreover, in 2008 approximately 27 

percent of these plans had fewer than 10 enrollees.23 Listing such options leads 

enormously to the ‘‘clutter’’ in the market and provides little benefit to the consumer. 

2. Standardized Benefit Designs 

What a health plan covers and how cost is shared between the plan and the patient is referred to as the ‘‘benefit design.’’ To engage consumers and facilitate informed choice, benefit designs should be standardized and vary around only a few 

features.24 In other words, health plan choices should feature clear, meaningful differences. 

Excess benefit variation was the reason that Congress ordered Medigap policies 

standardized into 10 standard designs in 1992. Studies have found these reforms 

reduced beneficiary confusion, marketing abuses, and consumer complaints, and 

have improved benefits.25

To facilitate consumers’ ability to compare health plans, we recommend that all 

health plans cover exactly the same comprehensive set of medical services, and vary 

only by their cost-sharing features and networks of doctors, hospitals, and other providers.26

Cost-sharing variation should be limited. To start, we recommend that annual 

benefit limits and life-time benefit limits be eliminated. Cost-sharing terms like ‘‘deductible’’ should be defined using standard, industry wide definitions. Furthermore, 

the plan’s out-of-pocket limit should be a ‘‘hard’’ out-of-pocket. In other words, it 

must not feature exceptions that can drive the policyholder’s cost beyond the stated 

limit.27 If remaining cost-sharing variation is limited to a small number of designs, 

consumers can more reliably gauge their out-of-pocket cost exposure and better compare plans. 

Exhibit 1 is an illustration of how this might work. In the example, four levels 

of cost-sharing are permitted (designated as ‘‘basic,’’ ‘‘bronze,’’ ‘‘silver’’ and ‘‘gold’’). 

Within these cost-sharing ‘‘tiers,’’ there is additional variation reflecting the comprehensiveness of the plan’s provider network—that is, the number of local hospitals 

and doctors participating as in-network providers. Taking both dimensions into account, a total of 10 variations is permitted. 

In the context of a broader health reform effort, the ‘‘basic’’ cost-sharing level 

might be the minimum (least generous) coverage allowed. On the other hand, the 

most generous tier might be set at cost-sharing levels that lower-income Americans 

can afford. Since lower levels of cost-sharing are associated with higher premiums 

(all other things being equal), premium subsidies would be available to help lowerincome families purchase coverage that contains adequate financial protection. 

23 

28 Alison Rein. Consumer Choice in the Health Insurance and Provider Markets: A Look at the 

Evidence Thus Far, Robert Wood Johnson Foundation, October 25, 2007. 29 A. Monroe. ‘‘Consumer Involvement—A Vital Piece of the Quality Quilt: the California 

HealthCare Foundation’s Strategy for Engaging California Consumers’’, Quality and Safety in 

Health Care, Vol. 11, No. 2 (2002). 30Dale Shaller, Shoshanna Sofaer, Steven D. Findlay, Judith H. Hibbard, David Lansky and 

Suzanne Delbanco. ‘‘Consumers And Quality-Driven Health Care: A Call To Action,’’ Health Affairs, 22, No. 2 (2003). 

Exhibit 1—Illustration of Health Plan Designs That Vary Around Few Features*

Plan 

Tier 

Standard 

Plans 

Premium 

Level 

Provider Network COST SHARING (Illustrative only) 

Deductible 

(one person) 

Office copay; 

Coinsurance (for 

other services) 

Maximum Outof-Pocket expense 

(one person) 

Basic AA Lowest May be limited $1,150 $35; 20% $3,500 

Bronze BB Low May be limited $750 $30; 20% $2,500 

CC Low Fairly Comprehensive 

DD Low Comprehensive 

Silver EE Medium May be limited $300 $25; 10% $1,500 

FF Medium Fairly Comprehensive 

GG Medium Comprehensive 

Gold HH High May be limited $0 $15; 5% $500 

II High Fairly Comprehensive 

JJ High Comprehensive 

*This table is for illustrative purposes only and does not constitute a recommendation for cost-sharing levels. All plans, AA to JJ, 

cover the same comprehensive set of services and vary only by their cost-sharing provisions and provider networks. Within a plan 

‘‘tier’’ cost-sharing is identical. 

3. Standardized, Consumer-friendly Health Plan Materials 

Making it easier for consumers to choose a health insurance plan means making 

the information about those health plans understandable, relevant, and 

‘‘evaluable’’—a fancy word meaning you can readily rank your choices from best to 

worst. 

To ensure that the materials are understandable, insurers should be required to 

describe their plans in simple, straightforward language, and use consistent, industry-wide definitions for common policy terms like ‘‘deductible,’’ ‘‘out-of- pocket limit,’’ 

and ‘‘hospitalization.’’ 

Health plan materials should also emphasize the information of most interest to 

consumers, such as out-of-pocket costs and access to doctors and specialists.28 For 

example, surveys show that most people’s primary interest when switching health 

plans is whether their current doctor is ‘‘in the plan.’’ Further, they like to know 

if they have the right to see doctors outside the plan’s network, and at what cost. 

While health plans today make this information available, it is often difficult and 

time consuming for consumers to compare provider networks and access rules for 

dozens of plans. 

If consumers are to choose from among health plan options, they must be able 

to rank them. Information that makes this task easier is said to be ‘‘evaluable.’’ 

Evaluable information is presented so that it is easy to find the ‘‘best’’ option(s). 

Evaluable displays of information anticipate the difficulty of weighing two dissimilar 

pieces of information (like health plan cost and quality), and provide short-cuts for 

the consumer—similar to the ‘‘Best Buy’’ designations in Consumer Reports ratings 

of cars or TVs. 

Consumers also deserve to know how well a plan serves its enrollees. Currently, 

formal measures of plan quality are rarely consulted, in part because people distrust 

information they think comes from the insurers themselves.29 Consumers have expressed a preference for an independent entity that rates health insurers—similar 

to the easy-to-use financial ratings that are readily available when purchasing life 

insurance.30

To help consumers choose, government should require insurers to use a standard, 

consumer-friendly disclosure format to describe their health plan. Standard disclosure forms reduce consumer confusion and increase the likelihood that consumers 

24 

31Wroblewski, op cit. 32 EHealth Inc. 2008 survey, op cit. 33For an example, see the ‘‘Coverage Facts’’ prototype included in: Katherine B. Wilson. Check 

the Label: Helping Consumers Shop for Individual Health Coverage, California Health Care 

Foundation, June 2008. 34Lynn Quincy, Patricia Collins, Kristin Andrews and Christal Stone. Designing Subsidized 

Health Coverage Programs to Attract Enrollment: A Review of the Literature and a Synthesis 

of Stakeholder Views, Mathematica Policy Research, December 31, 2008. 

will choose a plan that meets their needs.31 While more detailed information should 

be available, at a minimum this form would: (1) identify whether or not a given provider participates in the plan, (2) disclose potential out-of-pocket costs under several 

common medical scenarios and (3) provide premium cost. 

Consumers also need information that compares health plans ‘‘side-by-side.’’ 32 Exhibit 2 presents an example of how comparative health plan information could be 

displayed in ways that help consumers. The example assumes that some basic information about the applicant and their plan preferences has been provided (top of the 

table). 

Consumers Union recommends that actual health insurance disclosure requirements be developed in consultation with consumers, insurers, literacy experts and 

educators, and tested on representative populations, with special attention to hardto-reach populations and minorities.33

4. ‘‘Plan Chooser’’ Decision Aids 

Even with the simplification of insurance choices envisioned above, many consumers may still be confused by the choices confronting them. A variety of decision 

aids should be available to consumers accommodating their language preferences, 

health literacy levels, Internet-access levels and cultural backgrounds. 

Studies show that one-on-one assistance can be critical for getting people enrolled 

in health plans.34 Consumers Union recommends new Federal support for a nationwide network of locally-based, non-profit health insurance counseling services, including in-person counseling and phone support. The counselors should be tasked 

with employing creative, targeted efforts to inform and assist our Nation’s most vulnerable populations with their health insurance options. 

Exhibit 2—Illustration of a Standard Plan Comparison Form 

You Asked for Health Plans For: 

• a healthy, 45 year old woman, 

• living in the 20016 ZIP Code (Washington, D.C.), 

• listing Dr. Smith (202–555–1212) as an in-network provider, 

• and featuring the least expensive premiums. 

Here Are the Choices for the 2009 Plan Year (Jan 1–Dec 31): 

Plan 

Tier 

Health 

Plans 

Provider 

Network 

Monthly 

Premium 

Cost 

ANNUAL COSTS 

How did 

last year’s 

enrollees 

rate this 

plan? 

Expected costs 

for medical 

services for 

people like you 

Expected Total 

Cost (premiums 

plus expected 

cost of services) 

The most you will 

pay (for covered 

services using innetwork providers 

plus premiums) 

Bronze Downtown Limited $125 $280 $1,780 $4,000 ★ ★ ★ ★ 

HMO 

Uptown Limited $200 $280 $2,680 $4,900 ★ ★ ★ 

HMO 

Premier Fairly $225 $280 $2,980 $5,200 ★ ★ ★ ★ 

Insurance Comprehensive 

Health Fairly $235 $280 $3,100 $5,320 ★ ★ 

Plans R Us Comprehensive 

Humongous Comprehensive $245 $280 $3,220 $5,440 ★ ★ ★ ★ 

Insurance 

Best Comprehensive $275 $280 $3,580 $5,800 ★ ★ ★ 

Practice 

IPA 

Note: This list excludes plans that a) may be cheaper but don’t include your doctor in their network or b) have 

higher premiums (but may feature less expensive cost-sharing for medical services). 

25 

What ‘‘Bronze’’ Plans Pay For: 

The Bronze Plans all feature the same cost-sharing provisions. Subject to these cost-sharing provisions, 

Bronze plans cover most medical services such as inpatient and outpatient hospitals services, prescription 

drugs, lab, X-ray, maternity, and physician office visits. These plans do not cover cosmetic surgery, dental or 

vision care. 

EXAMPLE: Based on the experience of prior enrollees, a healthy, 45-year-old woman might use these services 

during the year and expect to pay: 

Service Cost of Service Your 

share 

Explanation 

Annual Physical, including GYN $500 $35 Plan copay for an office visit (not subject to deductible) 

Mammogram $200 $200 Subject to the plan’s $800 deductible 

Doctor visit for Illness $120 $35 Plan copay for an office visit 

Generic Antibiotic $10 $10 Plan copay for generic drug 

TOTAL $280 

Your experience may be different. However, even if you need a lot of medical care, your share of the cost for 

covered services using in-network providers will not exceed $2,500. 

For help with your enrollment decision, call 1–800–PLN–HELP or visit www.planhelp.org. 

The Part D Drug Finder Tool—Not Easy or Efficient 

A recent article in an AARP Bulletin billed itself as the ‘‘Quick Route Through 

the Medicare Drug Plan Finder 2009.’’ These instructions contained 15 steps and 

2,500 words. Four instructions were to ignore or overcome a feature of the plan 

chooser tool in order to complete the process. 

These counselors must also provide ongoing feedback to regulators and policymakers with respect to consumers’ experiences—providing a key pathway for improved services over time. 

Web-based tools can also facilitate health plan comparisons. However, such tools 

must not introduce their own level of complexity (see side bar on the Medicare Part 

D tool). Web-based plan chooser tools must have at least one default set of steps 

that is simple to complete based on the most common consumer preferences. As 

noted above, consumers have a strong preference for information on which doctors 

participate in the plan. The web-based tools should allow consumers to enter the 

name or phone number of their desired doctor(s) and hospital(s) and view only those 

plans that have the indicated providers in their network. 

5. A Strong Federal Oversight Body 

Given the complexity of the health insurance marketplace and the fact that state 

regulatory offices are often understaffed, Consumers Union recommends a new level 

of Federal/state cooperation in the enforcement of insurer regulations and consumer 

protections. We recommend that a new Federal entity, in cooperation with states, 

perform the following functions: 

• Monitor insurer compliance with new Federal standards. Work with state insurance departments, U.S. Department of Labor (for employer plans), and other entities as needed to ensure that Federal health insurance standards are implemented and enforced. Agency should provide for regular collection and analysis 

of data from insurers to monitor compliance/effectiveness of Federal reforms. 

• Monitor state enforcement and provide Federal fallback enforcement if needed. 

If states fail to enforce Federal standards for health insurance consumer protection, Federal fallback enforcement is appropriate. Agency should also conduct 

some independent audits and/or market conduct exams to verify compliance directly. 

• Collect, audit and publish health plan quality information. We recommend a 

Federal/state partnership be charged with collecting and verifying quality information and aggregating it into measures that consumers can understand. The 

underlying detail should also be available to interested consumers, enrollment 

counselors and outside watchdog groups. The measures should use a five startype system, graded on a curve to ensure distinctions between plans. An insurance plan that fails to provide the necessary quality data on time would not be 

included among plan choices. Among other things, these quality measures 

should include enrollee satisfaction, provider satisfaction, claims resolution 

records and a history of premium increases. 

26 

35 New York Office of the Attorney General, ‘‘Health Care Report: The Consumer Reimbursement System is Code Blue,’’ January 13, 2009. 36M. Marquis, M. Buntin, J. Escarce, K. Kapur, T. Louis, and J. Yegian. ‘‘Consumer Decision 

Making in the Individual Health Insurance Market,’’ Health Affairs, May 2006. 

• Consumer education. The new agency should educate consumers on their rights 

to register complaints about health plan service, coverage denials, balance-billing and co-pay problems. It should also serve as the first stop (in lieu of courts) 

for appeals of coverage denials. The grievance and appeals processes should be 

standardized and simplified so that it is easy for consumers to get what they 

are paying for. 

• Maintain a complaint hotline, and compile Federal and state data on insurance 

complaints and report this data publicly. 

• Ensure consumer co-payments for out-of-network care are based on honest, audited data. Consumers Union supports the recommendation of the New York 

Attorney General, who has called for an independent, verifiable system of determining usual and customary charges so that consumers and doctors are not 

cheated out of millions of dollars a year in insurance payments for out-of-network care.35

In Conclusion 

The impact of a simplified, consumer-friendly, health insurance marketplace 

should not be underestimated. One study, for example, found that making it easier 

to get information about insurance products, and simplifying the application process, could increase purchase rates as much as modest premium subsidies would.36

The current health reform debate provides policymakers with a unique opportunity to establish new rules that require clear and consistent definitions of insurance terms, standardize health plan provisions, and provide for rigorous enforcement at the state and national levels. We caution, however, that these new consumer protections, by themselves, will not accomplish our Nation’s larger goals of 

lowering health care cost trends, expanding coverage and removing poor quality care 

from the system. 

The CHAIRMAN. Thank you very, very much, Ms. Metcalf. And 

now we have Ms. Karen Pollitz, who I have had the honor of knowing for a long time. And she’s a Research Professor at the Georgetown University Health Policy Institute. I thought you ran the 

place. You don’t. 

Ms. POLLITZ. Nobody runs the place. 

The CHAIRMAN. I’ll wait another year. 

[Laughter.] 

The CHAIRMAN. She studies regulation of private health insurance in her spare time and her professional time. Karen Pollitz? 

STATEMENT OF KAREN POLLITZ, RESEARCH PROFESSOR, 

GEORGETOWN UNIVERSITY HEALTH POLICY INSTITUTE 

Ms. POLLITZ. Thank you, Mr. Chairman. It is a honor to be here. 

I usually—I’m used to sitting at your elbow. So it’s very nice to see 

you face to face at a hearing. 

I don’t need to tell you, of all people, that health insurance is all 

about spreading risk. But that’s a very difficult thing to do. A small 

proportion of the population accounts for the vast majority of 

health care spending, about 1 percent, the sickest 1 percent of us 

account for a quarter of all medical care spending. 

And so there’s a powerful, powerful financial incentive, as you’ve 

heard from Mr. Potter, for insurers to try to avoid the sickest people or to avoid paying their claims. And that incentive isn’t going 

to go away after health care reform. It will be important certainly 

to make rules, to say to insurers that they can’t turn people down 

anymore, charge them more, offer poorer benefits. But in order for 

27 

coverage to be secure you are going to need greater transparency 

and accountability in private health insurance than you have 

today. 

Transparency in health insurance is going to involve three key 

elements. 

The first is reporting of data by health insurers to regulators 

about what they sell, what they—who they enroll, who they dis-enroll. You’re going to need to be able to really get into the operations 

of health insurance companies, make them tell you how they work. 

And not just in general and not just on average, but in very specific 

ways so that you can track what’s happening to people when they 

are sick. That small number of people is who you need to be able 

to keep an eye on throughout the health insurance system. And insurers need to be able to—or need to be required to report that 

data to regulators on an ongoing basis. 

Disclosure to consumers is the second element. As Nancy has 

said, consumers don’t understand their health insurance. Industry 

studies show that overwhelmingly people don’t understand their 

health insurance. 

They find it confusing. They don’t know the terms. The majority 

of people asked said that they would prefer to work on their income 

taxes than try to read their insurance policy. 

It’s a very, very complicated document. So disclosure to consumers means telling them in meaningful ways what it is that 

their coverage does. And how it will work for them and what it will 

pay and what it won’t pay. 

We recently completed a study of health insurance policies sold 

in the State of California looking at the one that Nancy mentioned 

that covered Ms. Braig. And also even in the State of Massachusetts which is now highly regulated and has a lot of rules. And 

what we found is that there is still a lot of moving parts in health 

insurance policies, a lot of different ways in which they can move. 

And as Nancy mentioned, the terms of health insurance don’t 

mean the same. So even in Massachusetts policies that had an outof-pocket limit, mostly didn’t cover all of your out-of-pocket costs. 

They just covered some of your out-of-pocket costs. But other policies did cover all of your out-of-pocket costs, but they used the 

same term. They all said there’s an out-of-pocket limit. 

So we found that under one—two bronze policies in Massachusetts. These are supposed to be actuarial equivalent policies. A 

breast cancer patient might pay about $7,600 of her total treatment costs, out-of-pocket. And under another bronze policy actuarial equivalent, same out-of-pocket limit, she would pay $13,000, 

out-of-pocket. So we need more standardization in terms of these 

terms. 

And we also need to show people what it is that their coverage 

would do for them. We have recommended the development of 

something called Coverage Facts labels modeled on the Nutrition 

Facts labels that you see on your cereal box that would lay out a 

set of standardized claim scenarios for some recognizable conditions: breast cancer, pregnancy, heart attack. And then ask insurers to take those standardized claim scenarios and process them 

under the policies that they sell. 

28 

And then show people in a very detailed way, here’s what the 

policy would cover. Here’s what the policy wouldn’t cover and you 

would have to pay and give them a bottom line. So that when they 

are shopping and comparing the price of policies they can actually 

see what it would cover. 

Transparency is going to be important. But accountability is also 

going to be very, very important because again of the strong financial incentives we just can’t run the health insurance system on the 

honor system. There’s going to need to be strong oversight and 

strong enforcement of the rules that are there to protect consumers. 

In particular it’s going to be very important for there to be resources to monitor the health insurance industry and to enforce the 

rules, resources that are sadly lacking today. At a hearing last 

summer, over on the House side, the Committee on Oversight and 

Government Reform, a Representative of the Administration testified that at HHS there were four part-time people whose job it was 

to monitor all of the HIPAA protections for private health insurance in Federal law. Four, part-time people, that’s it. 

And despite, this was a hearing on rescissions, despite press reports about abusive rescission practices, no one at HHS had looked 

into it. No one had asked any questions. No one had even checked 

to see if the state laws were up to speed and were protecting people 

in these ways. 

Over at the Department of Labor which has oversight over employer sponsored health plans, where most of us get our coverage, 

testimony has been given that there are resources for that department to review each employer sponsored health plan under its jurisdiction once every 300 years. 

And at the state level, regulatory resources are also very limited. 

I think the states are trying very hard. But state insurance departments have to oversee all lines of insurance, not just health insurance. They have seen staffing cuts, significant staffing cuts in recent years. 

And most of them also oversee other things, banking, insurance, 

commerce, real estate. In four states the Insurance Commissioner 

is also the Fire Marshall. And they do not have the resources to 

have, in most states, a dedicated team that just keeps an eye on 

health insurance all the time doing regular monitoring, regular audits, to make sure that consumers are protected. They have to operate in response to complaints. 

So in conclusion, Mr. Chairman, I want to congratulate you for 

introducing the Informed Consumer Choices in Health Care Act. 

That bill would provide for the transparency and accountability 

that we need and the resources to make that happen. I hope that 

will be part of health reform. And I’m very happy to take your 

questions. 

[The prepared statement of Ms. Pollitz follows:] 

PREPARED STATEMENT OF KAREN POLLITZ, RESEARCH PROFESSOR, GEORGETOWN UNIVERSITY HEALTH POLICY INSTITUTE

Good afternoon, Mr. Chairman and Members of the Committee. 

My name is Karen Pollitz. I am a Research Professor at the Georgetown University Health Policy Institute where I study the regulation of private health insurance. 

29 

Thank you for holding this hearing today on transparency and accountability in 

health insurance. These characteristics are lacking in private health insurance 

today and must be strengthened as part of health care reform. 

The Paradox of Risk Spreading 

It has long been true that a small proportion of the population accounts for the 

majority of medical care spending. (See Figure 1) Most of us are healthy most of 

the time, but when serious or chronic illness or injury strikes, our medical care 

needs quickly become extensive and expensive. 

Figure 1. Concentration of Health Spending in the U.S. Population 

Source: Agency for Healthcare Research and Quality, Medical Expenditure Panel Survey, 

2003. Population includes those without any health care spending. Health spending defined as 

total payments, or the sum of spending by all payer sources. 

Because of this distribution, we buy health insurance to spread risks and protect 

our access to health care in case we get sick. However, the same distribution creates 

a powerful financial incentive for insurers to avoid risk. In a competitive market, 

if an insurer can manage to avoid enrolling or paying claims for even a small share 

of the sickest patients, it can offer coverage at lower premiums and earn higher 

profits. 

Today, insurance companies employ many methods to discriminate against consumers when they are sick. Medical underwriting may be the best known—a process 

used to assess the risk of applicants. People who have health problems may be denied health insurance when they apply. Or they may be offered a policy with a surcharged premium and/or limits on covered benefits including pre-existing condition 

exclusions. 

However, underwriting is not confined just to the application process. New policyholders (both individuals and small groups) who make large claims during the first 

year or two of coverage will likely be subject to post-claims underwriting. During 

this process insurers will re-investigate the applicant’s health status and history 

prior to the coverage effective date. Any discrepancy or omission, even if unintentional and unrelated to the current claim, can result in coverage being rescinded or 

canceled. At a hearing of the House Energy and Commerce Committee last week, 

patients testified about having their health insurance policies rescinded soon after 

making claims for serious health conditions. One woman who is currently battling 

breast cancer testified that her coverage was revoked for failure to disclose a visit 

to a dermatologist for acne. At this hearing, when asked whether they would cease 


624POLL1.eps
30 

1Lisa Girion, ‘‘Health insurers refuse to limit rescission of coverage,’’ Los Angeles Times, June 

17, 2009. 

the practice of rescission except in cases of fraud, executives of leading private 

health insurance companies testified that they would not.1

Health care reform legislation will likely include rules to prohibit these practices—guaranteed issue, modified community rating, and prohibition on rescissions 

and preexisting condition exclusions. These rules are important, but alone, will not 

put an end to competition based on risk selection. The incentive to compete based 

on risk selection will not go away. 

Insurers can use other formal and informal methods to discriminate based on 

health status. For example, they can make strategic decisions about where and to 

whom to market coverage, avoiding areas and populations associated with higher 

costs and risk. So-called ‘‘street underwriting’’ can be used to size up the health status of applicants before deciding whether to continue with the sales pitch. Insurers 

can also design covered benefits and provider networks to effectively attract healthy 

consumers and deter sicker patients from enrolling or remaining enrolled. Claims 

payment practices and care authorization protocols can also create hassles for patients that discourage coverage retention. Fine print in policy contracts may limit 

coverage or reimbursement for covered services, leaving consumers to pay out-ofpocket for medical bills they thought would be covered. 

Therefore, rules will not be enough. To ensure health coverage is meaningful and 

secure, greater transparency and accountability must also be required of private 

health insurance. 

Transparency in Health Insurance 

Transparency in health insurance will involve three key elements: 

• reporting to regulators of data on health insurance company products and practices; 

• greater disclosure to consumers of how their coverage works and what it will 

pay; and 

• standardization of health insurance terms, definitions, and practices so that 

consumers can have a choice of good coverage options without having to worry 

about falling into traps. 

Data—Insurers should report information to health insurance regulators on an 

ongoing basis about their marketing practices. Data on the number of applications 

received and new enrollments, as well as data on enrollment retention, renewals, 

non-renewals, cancellations, and rescissions will be needed. In addition, data must 

be reported on health insurance rating practices at issue and at renewal. Regulators 

should know what policies are being sold, what they cover, and who is covered by 

them. Measures of coverage effectiveness will also be needed to track what medical 

bills insured consumers are left to pay on their own. Tracking of provider participation, fees, and insurer reimbursement levels is essential. Health insurance policy 

loss ratios (the share of premium that pays claims, vs. administrative costs) must 

be monitored. So must be insurer practices regarding claims payment and utilization review. If regulators have access to this kind of information, patterns of problems that affect the sickest consumers won’t be easy to hide. 

Disclosure—Consumers need much more information about their coverage and 

health plan choices. Adequate disclosure to consumers begins by ensuring that complete information about how coverage works is readily available. Policy contract language should be posted on insurance company websites so that it can always be inspected by consumers and their advocates. Current provider network directories and 

prescription drug formularies should also be open to public inspection at all times. 

In addition, for each policy marketed, insurers should be required to provide ‘‘Coverage facts labels that illustrate how the policy will work to cover standard illustrative patient care scenarios. Recently we issued two reports on the adequacy and 

transparency of coverage sold in Massachusetts and California. Our reports found 

substantial differences in coverage protection provided by policies that might otherwise appear similar to consumers. Even in Massachusetts, with its extensive health 

care reforms and market regulation, significant variation in policy features persists 

and could leave patients to pay medical bills they did not expect and cannot afford. 

For example, under two so-called ‘‘bronze’’ policies that have the same actuarial 

value and cover the same benefits, we found a breast cancer patient might pay 

31 

2Karen Pollitz, et. al., ‘‘Coverage When It Counts: What Does Health Insurance in Massachusetts Cover and How Can Consumers Know?’’ May 2009. Available at http://www.rwjf.org/pr/ 

product.jsp?id=42248. 

$7,600 out-of-pocket for her treatment under one policy, but $13,000 out-of-pocket 

for the same treatment under the other policy.2

To make coverage differences more obvious to consumers, a series of ‘‘Coverage 

Facts’’ labels could be developed that simulate the medical care claims patients 

might have under several expensive conditions, such as breast cancer, heart attack, 

diabetes, or pregnancy. Insurers would be required to take these standardized scenarios, ‘‘process’’ the simulated claims under policies they sell, and then, for each 

policy, present a detailed summary of what would be covered and would be left for 

patients to pay. The format for these labels could be patterned after the Nutrition 

Facts label that help consumers understand the ingredients and nutritional value 

of packaged foods. See Figure 2. 

Figure 2. Sample ‘‘Coverage Facts’’ Label for Health Insurance 


624POLL2.eps
32 

3 A discussion of plans that include these kinds of features is available in ‘‘Hazardous health 

plans: Coverage gaps can leave you in big trouble,’’ Consumer Reports, May 2009. 4See http://www.benicompadvantage.com/products/faqlemployers.htm. 5Testimony of Abby Block, Hearing on Business Practices in the Individual Health Insurance 

Market: Termination of Coverage, Committee on Oversight and Government Reform, U.S. House 

of Representatives, July 17, 2008. 6Testimony of Olena Berg, Assistant Secretary of Labor, Pension and Welfare Benefits Administration, Senate Labor and Human Resources Committee, October 1, 1997. 

Consumers will need to know other information about how health insurers operate, including rates of prompt payment of claims and claims denials, loss ratios, and 

the number and nature of complaints and enforcement actions taken against an insurer. Health plan report cards should be developed to provide this information. As 

people shop for coverage, they must be able to compare differences in efficiency and 

the level of customer service that insurers provide. 

Standardization—People clearly value choice in health coverage, but so many dimensions of coverage vary in so many ways that choices can become overwhelming 

and even sometimes hide features that will later limit or prevent coverage for needed care. An important goal of health care reform must be to adopt a minimum benefit standard so consumers can be confident that all health plan choices will deliver 

at least a basic level of protection. Key health insurance terms and definitions must 

also be standardized. For example, the ‘‘out-of-pocket limit’’ on cost sharing should 

be defined to limit all patient cost sharing, not just some of it. If a plan says it covers hospital care, that should mean the entire hospitalization is covered, not all but 

the first day.3 Further, when consumer choice of plans includes low-, medium- and 

high-option plans, standardized tiers should be developed so people can be confident 

they are comparing like policies. 

Accountability in Health Insurance 

Finally, Mr. Chairman, accountability in health insurance requires strong rules 

and the capacity to monitor and enforce compliance. 

Strong rules must be clear, with few exceptions, so they are harder to evade. 

Weaker rules and exceptions create opportunities for current problems to persist. 

For example, health care reform legislation pending in the Senate will prohibit discrimination based on health status in premium rates, covered benefits, and eligibility. At the same time, however, Senate Committees are considering an exception 

to this rule that would allow premiums to vary based on health status in the context 

of so-called wellness programs. Some employers today offer wellness programs with 

pointed financial incentives for employees to not only participate, but actually 

change their health status. Under one popular program, all employee costs are increased by $2,000 at the outset. Workers then have the opportunity to reduce costs 

by $2,000, but only if they enroll in the incentive program and pass four health status tests, including normal readings for blood pressure, blood cholesterol, body mass 

index, and tobacco use. On the website for this wellness program, under ‘‘Frequently 

Asked Questions for Employers’’ it is acknowledged that employer savings are 

achieved when some employees ‘‘choose other health care options.’’ 4

Because this program discourages some sicker employees from taking coverage, it 

operates very similarly to other insurer practices of charging higher premiums to 

people with high blood pressure or high cholesterol in order to deter their enrollment. If discrimination like this is prohibited in one context but allowed in another, 

holding private health insurance to a nondiscrimination standard will be a challenge. 

Regulatory resources—Finally, accountability in health insurance requires resources. Private health insurance regulatory resources at the Federal level are particularly lacking and must be increased. At a hearing last summer of the House 

Committee on Oversight and Government Reform, a representative of the Bush Administration testified that the Centers for Medicare and Medicaid Services (CMS), 

which is responsible for oversight of HIPAA private health insurance protections, 

then dedicated only four part-time staff to HIPAA health insurance issues. Further, 

despite press reports alleging abusive rescission practices, the agency did not investigate or even make inquiries as to whether Federal law guaranteed renewability 

protections were being adequately enforced.5

Additional resources will also be needed at the U.S. Department of Labor (DOL). 

After the enactment of HIPAA, a witness for DOL testified the Department had resources to review each employer-sponsored health plan under its jurisdiction once 

every 300 years.6

At the state level, limited regulatory resources are also an issue. In addition to 

health coverage, state commissioners oversee all other lines of insurance. In several 

states the Insurance Commissioner also regulates banking, commerce, securities, or 

33 

7 National Association of Insurance Commissioners, 2007 Insurance Department Resources Report, 2008. 

real estate. In four states, the Insurance Commissioner is also the fire marshal. 

State insurance departments collectively experienced an 11 percent staffing reduction in 2007 while the premium volume they oversaw increased 12 percent.7 State 

regulators necessarily focus primarily on licensing and solvency. Dedicated staff to 

oversee health insurance—and in particular, insurer compliance with HIPAA 

rules—are limited. 

Informed Consumer Choices in Health Care Act of 2009 

Mr. Chairman, I want to congratulate you for introducing S. 1050, The Informed 

Consumer Choices in Health Care Act of 2009. And I commend Congresswoman 

Rosa DeLauro for authoring companion legislation in the House of Representatives, 

H.R. 2427. This bill would create a framework to assure greater transparency and 

accountability in health insurance. It would establish a new Federal agency within 

HHS tasked specifically with private health insurance oversight. This agency would 

develop new consumer information and disclosure tools, including a Coverage Facts 

label for health insurance. It would require regular reporting by insurers on industry products and practices. The bill provides resources for HHS to hire expert staff 

to carry out these functions and coordinate with state regulators. And it creates a 

grant program for state insurance departments so they, too, can have resources to 

better enforce market rules and protect consumers. This legislation and it deserves 

to be included in health care reform. 

In conclusion, starting with the financial industry bailout this year and continuing with the economic stimulus package, transparency and accountability have 

become the watchwords of this Congress, as taxpayers demand to know how their 

money is spent and whether stated goals have been achieved. As Congress prepares 

to make another significant and critically important investment, this time in our 

health care system, transparency and accountability must also guide your way. 

The CHAIRMAN. Thank you very much, Karen Pollitz. I will lead 

with the questions, will be followed by Senator Johanns and then 

Senator Klobuchar. 

The focus of today’s hearing and there are several focuses. But 

why is it so hard for consumers to get clear, reliable information? 

I don’t always think so much in terms of insurance policies. 

But if I get a prescription for something if I’m not well and then 

you take that little thing out of the bottom of the bag, and I have 

to get out magnifying glasses and things that Galileo invented in 

order to find out, you know, what’s actually written there. And 

there’s a reason for that, that I won’t read it, which of course, I 

never do. Therefore whatever they want to have happen, can happen. 

I’d like to start this discussion on this document which I’m holding up and which will be to some degree passed out, called Examples of Benefits Documents. And it’s not very pretty either in appearance or in substance. It’s called an Explanation of Benefits or 

Explanation of Benefits statement. 

Every time a consumer goes to see a doctor or receives medical 

service he or she receives one of these Explanation of Benefits 

statements. And the health insurance companies send tens of millions of these statements to their policyholders every year. Now the 

Explanation of Benefits is supposed to ‘‘explain to the consumer 

how much the doctor charged for the service and how much the insurance company pays as a reimbursement for the service.’’ And it 

sounds pretty simple, pretty straight forward, I would guess. 

But it’s not, when you start trying to read these statements. 

Each insurance company has its own specific terminology. And I 

want to emphasize that each one has its own specific terminology. 

34 

So if you are dealing at various levels or inter family this or 

cousins or aunts, uncles, mothers, fathers, whatever, who knows 

what you’ve got trying to figure out. Each insurance company uses 

its own coding statement. I’m not, as Chairman of the Committee, 

quite sure myself of what a coding statement is as I speak. 

And I’m embarrassed by that. But that is the fact. And therefore, 

I think it reflects something, if only about me. And each insurance 

company has its own set of indecipherable instructions. 

Now, Mr. Potter, you worked as an executive for the CIGNA insurance company for many years. Do you think the average CIGNA 

policyholder could understand the Explanation of Benefits statements that CIGNA sent them? 

Mr. POTTER. Mr. Chairman, I couldn’t understand them when I 

got them. And I’d been in the industry for many years, as you 

noted. Absolutely not. 

And it has become more problematic as the insurance industry 

has begun focusing more on what it refers to as consumer driven 

care. But these are the high deductible plans that are becoming so 

prevalent now. The EOB or Explanations of Benefit statements 

that are sent to people who have enrolled in these plans are far 

more complex than people used to get when they were in HMOs 

and PPOs. 

The insurers don’t have significant incentive to make them clearer or more understandable. I was serving as Co-Chair of the industry’s Task Force on Health Literacy when I left. And we had a 

meeting in Chicago. And I had—— 

The CHAIRMAN. So you were central to trying to make it work? 

Mr. POTTER. That’s correct. And we were—I suggested and some 

of the other members of the Committee agreed that something to 

tackle, that would be good for the industry to tackle would be the 

EOBs. 

The CHAIRMAN. What happened? 

Mr. POTTER. I was told that it wasn’t a priority. That they would 

take the idea to the leadership, but not to expect that this would 

be something that the industry would want to focus on. And maybe 

they have. 

But there has been no evidence of it because the EOBs I’ve been 

getting are no more clear than they ever have been. In fact, they’re 

getting worse. 

The CHAIRMAN. Alright. Do you think that CIGNA and other 

health insurance companies are sending out these benefits because 

it’s in their interest to keep as much information as possible from 

the policyholders? 

Mr. POTTER. I think that’s the—I think they know that that’s the 

case. These companies make more than a billion dollars a year. The 

for-profit companies do. 

So they certainly could have the resources to devote something 

to make them clearer. But it’s not a priority. And I think they realize that most people are baffled by these EOBs. And don’t know 

how—what to do with them. 

The CHAIRMAN. Explanation of benefits. 

Mr. POTTER. Yes, explanation of benefits. And I also think that, 

you know, they realize that people will just simply give up. And not 

pursue it. 

35 

The CHAIRMAN. And that’s the secret, isn’t it, knowing that people are going to give up? 

Mr. POTTER. I think so, sir. 

The CHAIRMAN. You win every time that way. 

Mr. POTTER. Senator, I think you’re exactly right. 

The CHAIRMAN. Now one of the things that Ms. Pollitz and other 

health care experts have proposed is standardizing all of the language. Now that to me doesn’t sound like a very radical idea and 

in fact like a very sensible idea. And I’d love to see you do that, 

Karen. 

So that all companies use all terms that are equal and mean the 

same thing to anybody who ever receives them for any reason. And 

that would be in their written materials and whatever else. That 

would give consumers at least a fighting chance at understanding 

what kind of deal they’re going to get for their health care dollars. 

Mr. Potter, again, during your time and I apologize for extending 

a little bit here. During your working experience in the insurance 

industry, did anyone ever discuss standardizing the language of 

these Explanation of Benefits statements? 

Mr. POTTER. Not that I’m aware of, Mr. Chairman. And I think 

there’s also an awareness that most people don’t even understand 

the simple terms that are in there. I read a story recently based 

on a survey of the American population. More than half of the people in this country don’t even understand what the word co-payment is or co-insurance is. 

The CHAIRMAN. That’s important to say. That’s important to say. 

I thank you, sir, very much. 

And I now call upon all of you, but I call upon—when I said earlier, my dear Governor. And now it’s Senator Johanns. 

Senator JOHANNS. Thank you very much. Just because you’re on 

this side, Mr. Potter, I’ll start my questioning with you. And I do 

want to thank you for being here. I appreciate that immensely. 

Mr. Potter, you’ve had an opportunity in your life, I suspect, to 

buy a number of pieces of real estate. 

Mr. POTTER. I have. 

Senator JOHANNS. You sit through the closing and you’ve got 

your closing agent there. Sometimes you have your own lawyer 

there. 

It’s complicated, isn’t it? 

Mr. POTTER. Very complicated. 

Senator JOHANNS. And you peel document after document. And 

you’re signing document after document. And did you ever stop the 

closing and say, well, whoa, wait a second. I want to read every one 

of these documents. 

Mr. POTTER. I did once, but not after that. It’s overwhelming. 

Senator JOHANNS. It is overwhelming. Most of those documents, 

if you noticed, are required by Federal law. 

Mr. POTTER. Yes. 

Senator JOHANNS. In our effort to try to simplify this, I think 

we’ve made it hopelessly complicated. Have you ever bought an 

automobile and financed that automobile? 

Mr. POTTER. I have, sir, yes. 

Senator JOHANNS. Same sort of situation, isn’t it? 

Mr. POTTER. It is. 

36 

Senator JOHANNS. Now when you were sitting there with your 

real estate transaction and your car transaction and spending very 

substantial amounts of money—typically the house is the biggest 

investment most people make in their life—did it occur to you or 

did you think to yourself, you know, I bet that closing agent is 

doing something fraudulent to me? 

Mr. POTTER. Senator, that really didn’t occur to me as much as 

I have faith that I’m going to be treated fairly. 

Senator JOHANNS. Yes. 

Mr. POTTER. And that’s my experience and how I felt. Maybe, I 

think the best of people and think that. That that’s been what I’ve 

hoped for. 

Senator JOHANNS. Normally, I have that assumption too. I usually assume people are going to treat me fairly. Now zeroing in on 

what you’ve talked about—I’ve been here long enough to know— 

that on the spectrum of the downright fraudulent and criminal and 

people stealing, and that I’ve seen. 

I sat through a hearing involving Bernie Madoff where he made 

off with $60 billion. Then I’ve seen the other end of the spectrum 

where quite honestly we just didn’t regulate very well. I sat 

through a hearing on derivatives recently. Talk about complicated. 

Where are we at on the spectrum in terms of your testimony and 

your claim about the insurance companies? Is it criminal or are we 

just not regulating very well, or some point in between? 

Mr. POTTER. I—it’s probably somewhere in between. I think that 

regulation is not adequate. I think that insurance companies realize, as Ms. Pollitz has mentioned, that regulatory agencies are not 

adequately resourced and certainly not at the Federal level, but not 

even at the state level. 

Senator JOHANNS. The Chairman knows me well enough to know 

that I was a Governor once in my life. And Governors have the responsibility of balancing state budgets. In fact, I come from a state 

where we had a little bit different twist to it. 

We not only had to balance it, we also had to make sure we 

never borrowed any money. The State of Nebraska doesn’t owe 

anybody any money. I think that’s kind of unique these days. 

But what I’m getting to here is there has been discussion, and 

there’s kind of a raging debate about a government plan or public 

option or whatever terminology you want to put to it. The label 

doesn’t really matter to me; it’s something else. 

Let me ask you, you know if you look at Medicare. That’s not a 

balanced budget situation. Every thoughtful analysis of Medicare 

tells us that pretty quickly here, 7, 8 years out, it’s insolvent. If it 

were a private company, it would be broke. You wouldn’t be buying 

that stock today. 

You’re familiar with that? 

Mr. POTTER. I am. 

Senator JOHANNS. Now that’s not very good either is it? 

Mr. POTTER. In health care reform I think a lot of things need 

to be addressed. And I think that is one element. 

Senator JOHANNS. We should pay for the health care we have already, right? 

Mr. POTTER. We should. I think, Senator, as the Members of 

Congress approach this, we need to look at this certainly as a cost 

37 

to taxpayers, but also as an investment in our country and our people. Yes, it will be expensive. There’s no doubt. 

But what does it say about us when 50 million of us that don’t 

have insurance? 

Senator JOHANNS. OK. Let’s talk about this 50 million. My understanding is that about 10 million aren’t here as American citizens. Is that something we should do in health care reform? 

Mr. POTTER. Senator, that’s interesting. One of the things I did 

when I was at CIGNA. I was helping to craft some documents that 

tried to segment who was uninsured and what, you know, the components of the uninsured. 

I think that as lawmakers look at reform that probably and possibly should be crafted so that people who are here illegally should 

not be covered. If you were to travel to England or Canada, I think 

possibly if you had an accident or were taken ill, you more than 

likely would be cared for there and you wouldn’t be a legal citizen 

of those countries. 

Senator JOHANNS. Well, the reality here in this country too, as 

you know, if you end up at an emergency ward, they treat you. 

Mr. POTTER. They do. Well, usually they do. 

Senator JOHANNS. Yes. They’re going to deal with the emergency. 

We could go all through that number. 

But I don’t want to get us off track here. Because as you know, 

there’s also about 20 percent of that number that do qualify for a 

plan, Medicaid or whatever. And they just, for whatever reason, we 

haven’t gotten them signed up. 

Mr. POTTER. That’s right. 

Senator JOHANNS. But anyway, let me get to what we’re trying 

to do here. You’ve got 50 states that regulate in this area. You’ve 

got a Federal Government that regulates in this area. Big debate 

about what’s going on. 

In a very succinct answer, if you were to really address the issue 

of consumers buying the policy and not knowing what they’re getting, how best would you address that? So that when that consumer walked out of that agent’s office or wherever, policy in hand 

and you said, Madam Consumer or Mister Consumer, tell me what 

you have in there? You could assure me as a legislator that they 

could answer that question thoughtfully and carefully and intelligently. 

How do I get there? 

Mr. POTTER. I think the work of this Committee is possibly helping the country to get there. I think there should be standardized 

language. I think that there should be clear and understandable information provided to people about the insurance policies that is 

available to them so that they understand what the limits are or 

the limitations are and what’s covered and what’s not. 

I think that more information is vital. And that should be something that’s addressed as part of reform. 

Senator JOHANNS. Thank you for your answer. Mr. Chairman, 

you’re always patient with me. I’m hoping there will be another 

round of questions. I don’t know if there will, but thank you. 

The CHAIRMAN. I will be here as long as the good Senator is here. 

[Laughter.] 

The CHAIRMAN. Senator Klobuchar? 

38 

STATEMENT OF HON. AMY KLOBUCHAR, 

U.S. SENATOR FROM MINNESOTA 

Senator KLOBUCHAR. Thank you very much, Mr. Chairman. And 

thank you for holding this important hearing. Thank you to our 

distinguished panelists. 

You know what’s happening with the cost of health care. Families are going under. They can’t bear the cost anymore. 

My own home State of Minnesota has some of the highest quality, lowest cost care in the country. And part of that, I believe, is 

because we have been focused for a long time on transparency, and 

a number of other things, as well as a more organized health care 

system and a team approach and some of the work that Mayo Clinic is doing. 

But in terms of transparency we have been doing a lot. And 

there’s a law in Minnesota that requires health plans and providers 

to, upon request, to provide consumers with information on the cost 

of a specific procedure. And to provide information as to what their 

out-of-pocket cost will be based on their contract. 

Would this be a useful model, do you believe, Ms. Pollitz? Maybe 

you want to go in terms of allowing people to understand or do you 

think it’s still going to be too complicated? 

Ms. POLLITZ. No, I think the more information that you can require to be made available to people, the better. It is very helpful 

to know. It’s one thing to be told right before you need to get the 

procedure if your doctor has already said you need this. At that 

point the cost is a little bit less important because your doctor has 

already said you need it. 

So—and, but if you step back and try to anticipate what your 

health care needs might be that’s also difficult because we don’t 

really always know what will happen to us tomorrow or next year. 

So our notion of a coverage facts label was to try to anticipate some 

common scenarios where people would need health care. And to 

provide information about all of the care they would need, all of the 

charges that would be involved. 

In part to educate them about how much protection they really 

are buying or how much they’re trying to protect against. But also 

to let them see in advance, you know, when they are calm and 

aren’t, sort of, in a medical crisis, how well a policy might cover 

and might pay for the services that they might need down the road. 

Senator KLOBUCHAR. Ucare.com is a website in Minnesota that 

allows consumers to compare prices and offerings of health providers in the Twin cities. And it actually allows them to book services kind of like Expedia or Travelocity.com. So they can see how 

much it costs and then book services. 

Do you think this is another model that could be helpful as we 

go forward, as we’re trying to figure out how to bring costs down 

and get that transparency out there? 

Ms. POLLITZ. I don’t know anything about that. It sounds fascinating. I’m—it’s really quite innovative. 

Senator KLOBUCHAR. The women are strong and the men are 

good looking. 

Ms. POLLITZ. Good looking. I remember, yes. 

[Laughter.] 

Senator KLOBUCHAR. And all the recounts are above average. 

39 

Ms. POLLITZ. Yes. 

[Laughter.] 

Senator KLOBUCHAR. OK. So now the—you, I know that Senator 

Rockefeller has been doing some ground breaking work here with 

this idea of a coverage facts label. And your research studied conditions like breast cancer or heart attack and this information. Do 

you think we could do this with other conditions as well to try to 

show on the label how much this would cost? 

Ms. POLLITZ. Oh, you absolutely could. We did a study that preceded this one looking at maternity care. If I can figure it out with 

my limited medical knowledge, I’m quite sure that other conditions 

could be developed and spec’ed out that way. 

Senator KLOBUCHAR. You know, as we look at this issue of transparency and trying to show how much things cost, and maybe this 

is for you, Ms. Metcalf, Mr. Potter, the issue is also quality. 

And one of the things we’re trying to do with health care reform 

based on some of the work done in Minnesota is put a quality index 

in there. So we’re not just measuring costs that we’re also looking 

at quality. And how would that be integrated with this label? 

Ms. METCALF. You’re talking about quality of care? 

Senator KLOBUCHAR. That’s right. 

Ms. METCALF. By health plans? 

Senator KLOBUCHAR. Well, that’s right. 

Ms. METCALF. There is, of course, some of that today with Hedis 

measures and the NCQA. There are a number of agencies that already make quality information available to health plans. But to 

me that’s health insurance 300. And we’re still on health insurance 

100 which is if you can’t buy proper health insurance it could be— 

the health system around you could be the highest possible quality. 

But you can’t access it because you can’t afford to pay for it. 

But I do think it would be wonderful. And coming from a magazine that is in business to give little blobs, as we call them, to rate 

things, I think it would be great to be able to rate health insurance 

plans on all dimensions including quality and service and—— 

Senator KLOBUCHAR. And one of the things that I was surprised 

by was, I think in your testimony, where you talked about how 

sometimes people don’t even find out what’s excluded. I have here 

a list of exclusions. They don’t even find out what’s excluded from 

their policies, from their insurance policies until they actually buy 

it. How can that happen? 

Ms. METCALF. Because in most states you can’t see your insurance policy until you’ve bought it. 

Senator KLOBUCHAR. You mean the states don’t even allow you? 

There’s no—— 

Ms. METCALF. No, what you see before you buy is a promotional 

material of some kind. And some states are stricter about that than 

others. But you’ll see a list or a description of some kind talking 

about the health plan that’s often extremely unclear. 

An example that comes up a lot is you’ll see a plan that says, 

we have a $1,500 deductible. But it won’t say what goes into that 

deductible or not. We have a $5,000 out-of-pocket limit. You can’t 

tell from the promotional material what goes into that out-of-pocket 

limit or not. 

40 

They’ll often have a thick line. And then below that they’ll have 

the drug benefit. And they won’t explain that the drug benefit is 

a completely separate thing that has no limit on out-of-pocket payments. 

There are all kinds of things that you don’t know when you’re 

shopping for a health insurance plan that you only find out after 

you get a document that’s half-an-inch thick and is densely written. 

Senator KLOBUCHAR. And also, I think you notice sometimes they 

have exclusions but they don’t include all the exclusions. 

Ms. METCALF. They don’t include all the exclusions. They’ll often 

not say this policy doesn’t cover drugs, even though it doesn’t. 

They’ll tell you it doesn’t cover a nose job. 

But I don’t think that most people expect a health insurance policy to cover a nose job. That’s not a helpful exclusion to tell people 

about. 

Senator KLOBUCHAR. Very good. On the nose job, I will end. 

[Laughter.] 

Senator KLOBUCHAR. But thank you very much. This has been 

incredibly helpful. And I think it shows the reasons to have some 

kind of a label or some way for people to better understand what 

these policies are about. Thank you. 

The CHAIRMAN. Senator Udall? 

STATEMENT OF HON. TOM UDALL, 

U.S. SENATOR FROM NEW MEXICO 

Senator UDALL. Thank you very much, Chairman Rockefeller. 

Good to be here with you. From the just short exchange I heard 

since I arrived here, it’s clear that greater transparency in health 

insurance policies is needed for consumers to better understand 

what’s available and to compare policies. 

And in your report you recommend developing standardized 

health care comparison tools for health insurance similar to the 

USDA nutrition labels, Ms. Pollitz. And that could help consumers 

understand what and how much is covered across different health 

insurance policies. What would you suggest specifically be included 

in such a tool or chart? 

Ms. POLLITZ. I think actually there should be a series of charts. 

What we found in studying health insurance policies is that within 

a single policy there are different levels of coverage. Inpatient care 

may be covered at one level, outpatient services at another, mental 

health care at yet another, prescription at yet another, rehab services at yet another. 

So I think coverage facts labels should demonstrate the care that 

people might need under different scenarios that in some cases rely 

heavily on inpatient care. 

The heart attack scenario that we developed, 75 percent of the 

medical costs incurred there were in the hospital. 

But in our breast cancer patient over 90 percent of her costs 

were incurred outside of the hospital in outpatient settings. 

And then we did a third scenario with diabetes where overwhelmingly the costs were spent at CVS on pharmaceutical supplies and insulin and other drugs to manage the diabetes. 

So I think you would want a series of labels that would demonstrate for people and test out all of the different types of covVerDate Nov 24 2008 14:05 Apr 06, 2010 Jkt 053061 PO 00000 Frm 00044 Fmt 6633 Sfmt 6601 S:\WPSHR\GPO\DOCS\53061.TXT SCOM1 PsN: JACKIE
41 

erage that they might need from their policy. And then let them 

see how the policy would work. And if they were standardized scenarios you could then compare two different policies and see them 

compared on the same situation so that you would get a fairer idea 

of what the differences might be. 

Senator UDALL. But even with that kind of comparison it’s still 

a very difficult choice in many situations, isn’t it because you’re 

looking down? If you don’t have an immediate situation as you describe, you don’t have cancer, breast cancer or diabetes or whatever 

it is, then you don’t know really what to choose to protect yourself 

in the future? 

Ms. POLLITZ. Exactly. 

Senator UDALL. And with all these exclusions and the way the 

policies are put together. They are in many cases trying to make 

sure that they don’t have to get into those situations, is what I assume is happening here. 

Ms. POLLITZ. Right. But in the labels that we developed, the exclusions became apparent. Because the scenario was laid out if you 

had breast cancer you’d need this surgery and these many chemos 

and these many drugs and a wig. 

And then you could look across and see how much would the policy cover of each of those things. And any time there’s a zero, 

chances are that was an exclusion. 

Senator UDALL. Do you, Ms. Metcalf or Mr. Potter, have any 

comment on that? 

Ms. METCALF. Well, I was interested in what you said, Senator, 

about people not knowing—not being able to choose based on their 

anticipation of a health condition. And it’s the reason that we think 

at Consumer’s Union that policies should cover all medical treatment that people need because you can’t foresee. It’s a mistake that 

we have found a lot of people make when they buy insurance. 

I’ll give you a classic example as many companies market special 

policies to young adults. They are very inexpensive. And one of the 

reasons—well, they’re inexpensive for one thing because young 

adults are cheap to insure cause they are pretty healthy. 

Another one is that they often don’t cover prescription drugs. 

And the young person who doesn’t take a prescription drug says, 

I don’t need drug coverage. I don’t take any pills. 

So they don’t have that coverage. They don’t realize what can 

happen. And what can happen is next year they can get multiple 

sclerosis. And suddenly they need a drug that costs $10,000 a 

month. And they’re shocked when their insurance company won’t 

cover it. 

So it’s partly a matter, I think, of—I think that one of the good 

points of one of these coverage facts plan is that it brings home to 

people the different possibilities of financial disaster if you don’t 

buy a comprehensive plan. 

Senator UDALL. And isn’t the issue you just brought up of where 

you have MS for example. And it’s diagnosed. And they won’t cover 

it. 

Doesn’t that also bring up the precondition issue of that? For 

them, they then have an outstanding condition. And then if they 

try to go get insurance for it. Many times it’s rejected or they just 

say we’re not going to allow you to do that. 

42 

Ms. METCALF. Exactly. If they’re in the individual market and 

they develop a condition and discover that their insurance isn’t 

adequate to pay for it, they’re really stuck because they can’t 

change to another policy at that point. 

Senator UDALL. Yes, yes. 

Mr. POTTER. Senator, I agree with Ms. Metcalf. I think it’s especially important as insurers start pushing more of these high deductible plans. And there’s a term in the industry that executives 

and financial analysts use. It’s called benefit bygones. And we’re 

seeing more and more of that. 

And what that means is that increasingly as policies come up for 

renewal employers will look, well how can I either shift more cost 

to my employees or what benefits can I cut to be able to continue 

to offer coverage at all? So you’re seeing that all the time. And all 

the time you hear it, you’re on an analyst call. You’ll hear about 

benefit bygones. And as what is happening in the marketplace. 

The other point about the pre-existing conditions is let’s just step 

back a minute. Where is the logic and the humanity of having preexisting conditions not covered in our society? I mean, my children 

have asthma. They didn’t—it wasn’t anything that they had any 

control over. 

But their policies won’t cover any pulmonary problems they 

might have had. Where is the logic in that? 

Senator UDALL. Yes. I couldn’t agree more. Thank you, Chairman 

Rockefeller, for your courtesies. I went a little over here I think on 

the time. 

The CHAIRMAN. You are welcome to do that because you always 

have sensible things to say. 

You know, I’m still—I want to go back to this business of how 

confusing all of this is to the consumer. Because I think it’s—you 

know what we’re really talking about here is we’ve got just so 

many people to—people say we’ve got 45 uninsured Americans. 

Well, we have 25 million—45 million uninsured Americans. 

We have 25 underinsured Americans. And we have people who 

have insurance for 6 months and then they lose it so they lose it 

for much longer. And then you have people who are too rural or 

too poor in some ways. So that people come and collect them and 

whisk them off to getting insurance coverage. 

But what comes through to me in this whole argument so strongly is that you have so many vulnerable, now here we’re talking 

about out of network. And people say, oh, well that must be a couple thousand people. Yes, it’s a hundred million people. It’s a hundred million people. 

And they’re vulnerable. And therefore they deserve to be treated 

with respect and with care and with a system that works. But 

what you’re looking at is a whole lot of for-profit insurance companies that are not only not giving them coverage through duplicitous 

methods which have now been, you know, done in in New York 

State and soon will be. 

Ingenix, which I mentioned, is going to cease to exist in about 

5 or 6 months. Somebody will take its place, I’m sure. But we’ll 

find them too. 

They’re making so much money. They’re making so much money. 

But they’re spending so much of their time having so much money, 

43 

trying to find ways to get rid of people through purging and other 

things which we can talk about, through getting people who are 

risks who they think are too poor or not likely to pay them, to get 

them off their lists all together. So they don’t have to fool with 

them. 

I mean, this is not like two equally powerful groups facing each 

other. This is this mammothly powerful group and this very small, 

fragile group in need, in pain, sick. And it’s an unequal fight. 

And the insurance company enjoys that because they know they 

can take advantage of it. And they know they can win every single 

time. And that is entirely wrong. 

And that’s what a lot of this whole health care debate is about 

which is why I have an argument with some of my friends, who 

are my dear friends, who say that a public option which would simply put, you know, Medicare dollars in competition with very, very 

wealthy insurance companies is unfair, somehow. It’s un-American. 

It’s against the free enterprise system. 

It is the free enterprise system. It is the free enterprise system. 

It just happens that sometimes you have to trigger the free enterprise system to see how good they really are. 

Now I’ve already used more than half my time. You know, people 

I’ve got a little pamphlet here which we’ll pass out. I keep saying 

that. I don’t know if we do. Called, ‘‘How Aetna pays claims for outof-network benefits.’’ 

[The information referred to follows:] 

It’s not very glossy. I think that’s deliberate. It’s the kind of 

thing that you sort of don’t want to read because it looks kind of 

boring. 


624CHART1.eps
44 

And so you probably don’t read it. And maybe that’s the purpose 

of it. But they don’t disclose what they’re doing. 

They do it in language that consumers cannot possibly understand. And let me give you some of their language because I care 

about this language. It says in there at one place, ‘‘you,’’ that is the 

consumer. ‘‘You pay the co-insurance percentage of the prevailing 

allowance (usual and customary at the 75th percentile) for covered 

services. You will be responsible for the difference between the plan 

payment and the amount billed by the dentist.’’ 

Well, how many consumers know what a co-insurance percentage 

is? How many know what a prevailing allowance is? How many of 

them, I mean, how many of them know what usual and customary 

is? 

I mean we know that in the health care industry. But they don’t. 

How are they going to look it up? In a dictionary? It’s three words. 

I mean, they’re going to know the word. But everything else is 

just a fog to them. And that’s wrong. 

And they’ve been doing this for years and years and years. And 

they’ve been getting away with it. Then they get hit with some lawsuits. 

So maybe they’re going to back off from it a little bit. Maybe 

they’re not because they’re very clever and they’ve got lots of people, lots of floors, lots of tall buildings to figure out how to get 

around these things. And big corporations can usually do that. 

So anyway, Aetna sent out that little group of words. And Mr. 

Potter, can you explain please, to me why you have to sue, not you 

personally, but the American has to sue or has to subpoena or investigate the insurance industry before they’ll tell consumers how 

their policies work in plain, comprehensible English? 

We’ve been talking about this a bit. But I want to drive it home. 

Why can’t we do that? Why aren’t we forcing our industries to do 

that? 

Mr. POTTER. I do not know why we’re not forcing the industries 

to do that. We should. Again it’s not a priority in the industry to 

do that. 

It’s not in their best interest to make it clearer. I was part of the 

Legal and Public Affairs department at CIGNA. My boss was one 

of the top lawyers. 

I mention that just because these kinds of materials are reviewed. They’re a combination of medical, legal, marketing jargon 

usually. And buzz words and terms that the industry uses that 

have little meaning to the rest of the American public. 

I would have a hard time understanding a lot of what’s being 

written here. Much of it is written to satisfy a lawyer’s expectation 

that it be explicit from the lawyer’s point of view, but not from a, 

you know, regular person’s point of view. 

The CHAIRMAN. Let me just end this part by saying that it’s sad 

to me because Americans are trusting people. And I’m always very 

happy about that. That’s why I’m glad that I married a young lady 

from Chicago. 

I mean, the Midwest is trusting. The Northeast and the Southwest is a little less trusting. I don’t know. But they’re good people. 

And when you say Aetna or CIGNA or you know, one of these 

big insurance companies people tend to trust them just because 

45 

they’re a large institution with large amounts of money with a 

clearly public interest purpose. That is to pay health insurance for 

people who are sick. And they have the money to do it and people 

know that. So people tend to trust them. 

And then they turn around and spend their money on figuring 

out how to get rid of people. So they can make more money. And 

don’t have to—I mean, why would they care so much about that 

more money? 

Why would they be proud about dropping eight million people because they, you know, they were too big a health risk or probably 

weren’t going to be able to pay. What is insurance for? What is 

public policy for? What is America for? What do we stand for when 

it comes to the care of our people? 

We had a Metro accident obviously and it’s tragic in Washington. 

And the first thing to hit you when you read the news and heard 

the news was how people were just clawing through hot steel and 

cutting themselves to try and rescue their neighbors, to get comfort 

to their neighbors, or give last rites to their neighbors in this 

wreckage. I mean, we are people that try to protect each other and 

do the right thing by each other. 

And yet here we have insurance companies, as a matter of practice, we don’t question them partly because we do trust them. And 

now we’re paying this terrible consequence. A lot of people are just, 

you know, breast cancer, whatever, just left out in the cold. 

And it makes me very, very angry. And I now turn to my more 

reasonable and sensible Governor, former Governor of the State of 

Nebraska. 

Senator JOHANNS. Well, thank you. I’ve lived my whole life in the 

Midwest. I grew up in northern Iowa and spent my adult life in 

Nebraska. 

I would just offer this. We also have, I think, a healthy suspicion 

about those who claim that government will solve all problems. 

And I look at the Medicare financial situation and it’s easy to reach 

that conclusion. I, as Governor, dealt with state budgets. And did 

everything I could to sign up every single child to our Kids Connection program. 

I believed in it. I knew my costs were going to go up in the state 

budget. And I would have to defend that with conservative friends. 

But I really believed in it. 

And you know what? We could only get to 90 percent. You know 

why? Because there were 10 percent that did not want their kids 

in the program and that was their right. 

When you started your discussion today I got the impression that 

each witness was—— 

The CHAIRMAN. Would the Senator yield? 

Senator JOHANNS. Yes. 

The CHAIRMAN. Then I take this out of my next round. 

Senator JOHANNS. I will be happy to yield. 

The CHAIRMAN. Well, I’m going to be here as long as you’re going 

to be here. 

[Laughter.] 

The CHAIRMAN. But West Virginia is in fact more of a Midwestern state than it is an Eastern state or a Northern state or it’s 

more of a Southern state than. But Midwestern basically in its valVerDate Nov 24 2008 14:05 Apr 06, 2010 Jkt 053061 PO 00000 Frm 00049 Fmt 6633 Sfmt 6601 S:\WPSHR\GPO\DOCS\53061.TXT SCOM1 PsN: JACKIE
46 

ues and that’s what counts. You talked about the 10 percent that 

don’t take advantage of that. 

I started out as a VISTA volunteer in West Virginia in a little 

town with the closest hospital or rural health clinic was so far 

away that if you had a car and if your car could possibly make it. 

And if you could afford the gasoline because you didn’t have a job, 

you didn’t have an education. You didn’t know where the hospital 

had been. 

Some of the people from the community that I worked in for 2 

years had never crossed a street with a red light or had been up 

a building in an elevator. Because that’s rural life and you know 

that from Nebraska. So sometimes, it’s like sometimes people 

would hold their children back from going to school. It was made 

easier by the fact that the county refused to send us a school bus 

to pick up our children because they thought we were irrelevant 

and too far away and not important. 

But I mean, sometimes it’s not so the government or people being 

irresponsible. Personal responsibility is a very, very valid concept. 

I strongly believe in it. But I think that one has to define it fairly. 

And I apologize for interrupting you. 

Senator JOHANNS. Well, you never have to apologize, Mr. Chairman. 

Let me, if I might, focus in. I think we kind of got off to a start 

here. And Mr. Potter, you were obviously, continuing to be quite 

critical of your former employer. 

But I get the impression what you’re really asking me to do, as 

a member of this Committee and somebody who will try to figure 

out the legislation, you’re really trying to get me to focus in on how 

can we better explain what people are getting. Right? 

Mr. POTTER. Yes, sir. 

Senator JOHANNS. OK. And then you mention the pre-existing 

conditions and I don’t disagree with you there. I think you make 

a compelling point. But I don’t hear a lot of disagreement here either as we talk about health care issues. 

I’m going to leave you alone now. Thank you for being here. 

Ms. Metcalf, if I might ask a question of you. Again, as I hear 

your testimony and whether you favor a public plan government 

option, whatever it’s called, I think, too, what you’re trying to get 

me to focus on is look, Mike, if you just sat down and read this 

stuff you won’t understand it. 

And if you’re not understanding it and you’re a member of the 

U.S. Senate, how can you possibly expect a young family to ever 

figure this stuff out until the insurance company reads it or doesn’t 

read it, sends them a letter, and says, you’re not covered. The 

young family then finally reads it and goes, oh my lord. They’ve 

made the point. 

What we need, I think, is some really good concrete ideas on how 

to make that better. Because what it comes down to is this. It’s like 

the questioning with Mr. Potter. You’ve owned real estate. We’ve 

passed tons of laws to make real estate transactions more understandable and it’s just page after page of federal-ese. 

And it just goes on and on. And if there’s one thing we’ve found 

about this financial crisis, many people had no idea what they were 

47 

signing when they signed their mortgage. Now all of a sudden 

they’ve got their letter that their mortgage was going to reset. 

And they asked themselves, reset? What does that mean? And 

they realized they were out of luck. So we need some advice on how 

best to do that. 

Same way with you, Ms. Pollitz, is that how you pronounce it? 

Ms. POLLITZ. Pollitz. 

Senator JOHANNS. Pollitz. I think you’ve made some excellent 

points here. But I would hate to get at the end of this and find out 

that we’ve only made it more complicated, not less complicated. 

Ms. POLLITZ. Senator, there’s no question that health insurance 

is an inherently complicated thing and medical care is an inherently complicated thing. And I think there have been many efforts 

to try to, you know, drive all of this down to a fifth grade reading 

level. And that’s just always going to be a very difficult thing to 

do and a very imperfect outcome. 

Having said that, we switched from steadying the policies that 

were for sale in the private market in other states and for the last 

few months we’ve been reading polices that are for sale to you, 

through the Federal Employees Health Benefits program. And 

there are requirements. And all of the companies meet them. 

And I have to say reading through your health plan is such a relief to me after having read through some of these other ones. So, 

I mean, there are rules about that things have to be explained. 

They have to be explained in a way that the average participant 

could begin to understand. 

There have to be examples to illustrate, you know, this is what’s 

covered. This is what’s not. This is what we mean by that. Here’s 

an example. 

The terms have to be standardized. There’s a common order to 

the brochures. So you always sort of, begin with what’s covered and 

then how it’s covered and then in certain orders. 

And it does make it easier. It’s still hard. But it’s a whole lot 

easier than some of the other policies that I looked at. So I think 

you can make progress on this without necessarily tackling the 

whole thing in one try. 

Senator JOHANNS. Just off the cuff, not seeing a piece of legislation in front of me, to me, that’s a no-brainer. If that’s what this 

is about today that you’re saying to us, Mike, if you could just 

make this as readable as what you got when you signed up for your 

Blue Cross policy here with the Federal Government, as did every 

other Federal employee. Man, I’m there. 

If that’s what we’re getting to here today then this hearing has 

been well worth the effort and well worth your time, I hope, because that makes sense to me. Absolutely. Thank you. 

Mr. POLLITZ. Great. 

Senator JOHANNS. All of you, I appreciate it. 

The CHAIRMAN. Can I just close this hearing unless any of you 

have statements that you would like to make at the end? By hardly 

agreeing with what you’ve said, Senator Johanns. It is, listening to 

the conversation, you go for this most complicated list of things, 

but horrifically written and all different. And then we said, we’ll 

just make it right across the board so that everybody understands 

it. 

48 

And all of a sudden you say, now wait a second. That’s not going 

to work. That’s not possible. 

And the answer is that it probably is possible, but that’s it’s 

going to be very hard to do. And that the companies that are involved are going to have to communicate with their people saying 

they are in the process of doing this. 

And they’re going to do it. And maybe you can’t get it, maybe you 

can get it done in 2 weeks, maybe in 2 months, maybe in 2 years. 

I don’t know. 

But it does have to happen. People have to know what they’re 

buying. And what they’re going to get. And what they’re not going 

to get. And that is axiomatic. That is not something that one can 

argue against. 

So I would agree with you, Senator. That’s—it’s a no-brainer. If 

this hearing accomplishes nothing else and I hope it did accomplish 

something else. And we were able to do that. 

It is worth it. It is worth it. And I think all of you would be right 

on the front lines with your number two pencils ready to go. 

Do any of you have any closing comments? 

Mr. POTTER. Senator, I would just like to make one comment. I— 

and need to address your point. I hope that I’m not coming across 

as someone who is just critical of my former employer. 

I had a good career at CIGNA and was well compensated. And 

I was there for 15 years and lasted 15 years. My comments are directed toward an industry that is really going in the wrong direction and taking this country in the wrong direction. 

The CHAIRMAN. I don’t know why you should be worried about 

that. I mean, it is nice of you to say. But if we were doing Normandy Beach and we had all of our ships headed away from the 

beach, I would assume somebody would say this is not good. We 

ought to change this. And that’s really what we’ve said here. 

And I really honor you. I mean, I really respect you. 

Mr. POTTER. Thank you, sir. 

The CHAIRMAN. I was going to say that you’re better than Russell 

Crowe on The Insider. But actually, I mean, they had to—he really 

would, you just sort of came out and did it because you cared about 

the insurance industry because you worked with it for a long time. 

And you want to see it work. 

Mr. POTTER. Yes, sir. 

The CHAIRMAN. And I honor you for that. And I thank you all 

for your presence. And this hearing is adjourned. 

[Whereupon, at 3:53 p.m. the hearing was adjourned.] 

(49) 

A P P E N D I X 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. TOM UDALL TO

KAREN POLLITZ

Question 1. The minimum creditable coverage standards in Massachusetts for 

2009 include inpatient and outpatient hospital and physician care, emergency services, mental health and substance abuse treatment, and prescription drug coverage. 

In addition, there are maximums for annual deductibles and out-of-pocket spending 

for an individual. How would you say that this compares with most health insurance policies available for individuals and groups today? 

Answer. The policies in Massachusetts are far more comprehensive than coverage 

offered in the individual market in most other states. All policies in Massachusetts 

must provide ‘‘minimum creditable coverage,’’ which includes key services such as 

prescription drugs, maternity care, mental health care, and rehab—services often 

excluded or limited in other state individual health insurance policies. 

In Massachusetts, all health insurance is subject to greater consumer protections 

than apply in most other state individual health insurance markets. No individuals 

in Massachusetts can be turned down or charged more based on health status. Preexisting conditions are not excluded. 

Compared to employer-sponsored group policies—the Silver and Gold level plans 

offered through the Commonwealth Connector generally provide cost sharing levels 

that are comparable to typical employer sponsored group plans. 

Question 2. Do you know what the Massachusetts experience has been in medical 

bankruptcy compared with other states where health insurance coverage is not as 

expansive? Is there less? 

Answer. I am not aware of any data that would answer this question. 

Æ