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S. HRG. 110–653 

SCRAMBLING FOR HEALTH INSURANCE 

COVERAGE: HEALTH SECURITY FOR PEOPLE IN 

LATE MIDDLE AGE 

HEARING 

BEFORE THE

SPECIAL COMMITTEE ON AGING 

UNITED STATES SENATE 

ONE HUNDRED TENTH CONGRESS 

SECOND SESSION 

WASHINGTON, DC 

APRIL 3, 2008 

Serial No. 110–25 

Printed for the use of the Special Committee on Aging 

( 

Available via the World Wide Web: http://www.gpoaccess.gov/congress/index.html 

SPECIAL COMMITTEE ON AGING 

HERB KOHL, Wisconsin, Chairman 

RON WYDEN, Oregon 

BLANCHE L. LINCOLN, Arkansas 

EVAN BAYH, Indiana 

THOMAS R. CARPER, Delaware 

BILL NELSON, Florida 

HILLARY RODHAM CLINTON, New York 

KEN SALAZAR, Colorado 

ROBERT P. CASEY, Jr., Pennsylvania 

CLAIRE McCASKILL, Missouri 

SHELDON WHITEHOUSE, Rhode Island 

GORDON H. SMITH, Oregon 

RICHARD SHELBY, Alabama 

SUSAN COLLINS, Maine 

MEL MARTINEZ, Florida 

LARRY E. CRAIG, Idaho 

ELIZABETH DOLE, North Carolina 

NORM COLEMAN, Minnesota 

DAVID VITTER, Louisiana 

BOB CORKER, Tennessee 

ARLEN SPECTER, Pennsylvania 

DEBRA WHITMAN, Majority Staff Director 

CATHERINE FINLEY, Ranking Member Staff Director 

(II) 

C O N T E N T S 

Page 

Opening Statement of Senator Ron Wyden ........................................................... 1 

Opening Statement of Senator Gordon Smith ....................................................... 1 

Opening Statement of Senator Thomas Carper .................................................... 72 

PANEL I 

Mike Roach, owner, Paloma Clothing, Portland, OR ............................................ 5 

Lee Anne Fitzpatrick, employee, Paloma Clothing, Lake Oswego, OR ............... 9 

Benjamin Lindner, owner, Nutshell Enterprises, Redmond, OR ......................... 13 

PANEL II 

Paul Fronstin, director of Health Research and Education Program, Employee 

Benefit Research Institute (EBRI), Washington, DC ........................................ 24 

Jeanne Lambrew, associate professor, LBJ School of Public Affairs, Austin, 

TX .......................................................................................................................... 36

John Sheils, senior vice president, The Lewin Group, Falls Church, VA ........... 53 

APPENDIX 

Mike Roach Responses to Senator Smith’s Questions .......................................... 79 

Lee Ann Fitzpatrick Responses to Senator Smith’s Questions ............................ 79 

Paul Fronstin Responses to Senator Smith’s Questions ....................................... 79 

Jeanne Lambrew Responses to Senator Smith’s Questions ................................. 82 

(III) 

(1) 

SCRAMBLING FOR HEALTH INSURANCE COVERAGE: HEALTH SECURITY FOR PEOPLE IN 

LATE MIDDLE AGE 

THURSDAY, APRIL 3, 2008 

UNITED STATES SENATE, 

SPECIAL COMMITTEE ON AGING, 

Washington, DC 

The Committee met, pursuant to notice, at 10:36 a.m., in Room 

SD-608, Dirksen Senate Office Building, Hon. Ron Wyden presiding. 

Present: Senators Wyden, Carper, and Smith. 

OPENING STATEMENT OF SENATOR RON WYDEN 

Senator WYDEN. The Senate Special Committee on Aging will 

come to order. 

The ranking minority member, Senator Smith, who has a longstanding interest in these issues, is here, and I think he is being 

summoned to the floor. I think what I would like to do is recognize 

him first for his comments. Then I will have my opening statement. 

We are very pleased to have a terrific group of Oregonians here, 

and we are anxious to have their comments in a moment. 

But let’s recognize Senator Smith first. 

OPENING STATEMENT OF SENATOR GORDON SMITH, 

RANKING MEMBER 

Senator SMITH. Thank you, Senator Wyden. 

Mr. Chairman, I appreciate so much your courtesy and more I 

appreciate your laser-like focus on health care. There just simply 

is not a more pressing problem in our country, both for the health 

of our people, particularly, as is the focus of this Committee, on 

elder Americans, but also for the health of our economy, and there 

are many senators and elected representatives who are trying to 

get a handle around this, and there are probably as many ideas as 

there are members. But there is a convergence coming, and that is 

why this hearing and Senator Wyden’s focus and mine, as well, is 

timely and appreciated. 

With your permission, Mr. Chairman, because I am being asked 

to come to the floor to speak literally in 10 minutes with Senator 

Kerry on an important housing amendment that we have, I would 

like to put my statement in the record. 

Senator WYDEN. Without objection, that will be so ordered. 

[The prepared statement of Senator Smith follows:] 

2 

PREPARED STATEMENT OF SENATOR GORDON SMITH

Good morning and thank you all for being here today. 

I would like to extend a personal welcome and thank you to Ms. Lee Anne 

Fitzpatrick, Mr. Mike Roach and Mr. Benjamin Lindner for traveling all the way 

from Oregon to be with us. I look forward to hearing from each of you this morning. 

I also would like to thank Senator Wyden for chairing this important hearing and 

for his on-going efforts to make health care reform a top priority of this Congress. 

As Senator Wyden and I know from our many years of working together, to truly 

make progress on improving the health of this nation, lawmakers must put partisanship aside and work towards a common goal. 

I commend Senator Wyden for his bipartisan efforts to reform the current health 

care delivery system; and I appreciate the ideas he has put forth. 

Over my tenure as a United States Senator, I have fought year after year to protect both Medicaid and Medicare for our most vulnerable individuals. But now it is 

time to turn our attention toward crafting new solutions. 

Today’s discussion will focus on the challenges that some individuals in their late 

middle age face to maintain or access health insurance coverage, and on the challenges that small business employers’ face to provide health care benefits to their 

employees. 

We understand that while individuals in this age group have more health problems than other age groups; fortunately they also are more likely to be insured— 

67.4 percent have employment-based insurance. 

However, their health problems can have a significant financial impact on them 

and their employers, especially for those with small businesses. 

Of the 46 million Americans without health insurance, more than 27 million, or 

nearly 60 percent, are small business owners, their employees or dependents. 

Small business owners and their employees are disproportionately burdened by 

the current structure of our health care system and health care costs. 

Under current law they do not enjoy the same tax breaks, coverage or pooling options as large businesses and corporations, and on average, they pay 18 percent 

more for the same healthcare benefits. 

To deliver real and meaningful healthcare reform we must recognize the challenges faced by small business and develop reform proposals that support them. 

Before becoming a Senator, I managed a small company called Smith Frozen 

Foods. I was fortunate to be able to provide health care to my employees. I do, however, understand the difficulties small business owners face in offering quality 

health care coverage to their employees without bankrupting the business. 

I know that small business owners want to provide health care, they just need 

an affordable way to do it. That is why I have been working on legislation that will 

partner the federal government with states and small businesses to deliver comprehensive health care coverage to small businesses at an affordable rate. 

Just by focusing on small businesses, we can cut the ranks of the uninsured in 

America by more than half. 

While a more comprehensive approach, like the one offered by my colleague Senator Wyden, certainly could be ideal, it’s important to point out that America’s 

health insurance system was established incrementally. For this reason, it very well 

may take incremental steps to improve it to ensure all Americans have access to 

care. 

Senator Wyden and I share the same goal of providing high-quality health care 

in this country that is accessible and affordable for all Americans. We understand 

that finding real solutions require the cooperation of diverse, bipartisan groups willing to work together for change. 

I look forward to learning more from our panelists about these issues and to discuss what options we, as a government, have in order to improve upon our health 

care delivery system. 

With that, I turn to Senator Wyden. 

Senator SMITH. I would like to personally welcome Ms. Lee Anne 

Fitzpatrick, Mr. Mike Roach, and Mr. Benjamin Lindner, who are 

all the way with us from Oregon. The Oregon Trail is a long way, 

and you appreciate the ride that Senator Wyden and I make on a 

weekly basis. But your testimony—I have reviewed it, and you 

have added measurably and competently to the record of the 

United States Senator, and so I thank you for that. 

I thank you, Mr. Chairman. 

3 

Senator WYDEN. I thank you, Senator Smith, and I know you 

have a tight schedule, been there and done that, in terms of trying 

to get to the floor. If it is possible for you to come back, we would 

welcome you. 

Today, the Senate Special Committee on Aging is going to look 

at an increasingly stressed part of American health care, the spectacle of hundreds of thousands of Americans between the ages of 

55 and 64 scrambling to obtain quality, affordable health coverage 

in the strongest and richest country on earth. 

In helping to arrange this hearing, we are grateful to Chairman 

Kohl who has done outstanding work on a score of senior issues 

ranging from ending Medicare private insurance marketing abuses 

to the quality of long-term care for older people. 

We also want to thank Senator Smith because all of those initiatives have been bipartisan, and Senator Smith has had a great interest in these matters. 

I have been told that this is the first time that the Senate Special Committee on Aging has actually held a hearing on the issue 

of health coverage for those who are in the late middle age period. 

I am certain with the prospect of troubled economic waters leaving 

more Americans between 55 and 64 without a health care lifeboat, 

this hearing is not going to be the last time this matter is considered. 

The big question before the Committee on Aging is straightforward: How can it be that so many Americans between 55 and 

64 are falling between the widening crack of American health care? 

They are not old enough for Medicare, they are not poor enough for 

Medicaid, and many of them, if they work for an employer, are 

often one rate hike away from losing the even limited health coverage that they have. 

I was struck, in fact, in putting together the Healthy Americans 

Act, which we are going to talk about some today, by how many 

older people came up to me at home, at town hall meetings, and 

would say, ‘‘Ron, I just hope my employer can hang on to my health 

coverage until I am 65 and I am eligible for Medicare.’’ Increasing 

numbers of employers in this country have not been able to live up 

to that hope. 

According to the Kaiser Family Foundation, between 2000 and 

2007, 9 percent fewer employers offered health coverage for their 

workers. Even more prevalent has been the problem of employers 

facing crushing increases in their health care costs, keeping the 

coverage they have for the employees, but constantly whittling that 

coverage down with more co-payments and more deductibles. 

So fresh approaches for addressing the health needs of workers 

in late middle age is especially important right now. The facts 

show that in tough economic times, the job market is especially 

harsh on the older worker. A recent study of the challenges facing 

older workers during the last two recessions, 1981 and 1982 and 

the early 1990s, found that in each recession, older workers lost 

significant ground. Serious economic downturns, according to researchers, can be used as an excuse to get rid of older workers who 

finds themselves pushed towards the door under the guise of ‘‘corporate restructuring.’’ 

4 

The pressures that dedicated older workers and their sympathetic employers are under are illustrated by the testimonies of the 

Oregonians who have joined us—Lee Anne Fitzpatrick, Mike 

Roach, and Ben Lindner. I consider you all the human faces of this 

scramble for health coverage for folks between 55 and 64, and we 

really appreciate your making the trek back here to Washington. 

I was struck—and Mr. Roach will go into it a bit further—about 

how so often it seems that for these workers in late middle age, 

what they mostly have is hope. I think, as Mr. Roach points out, 

hope is not exactly an effective game plan, if that is all you have, 

to make it through those years in terms of what you need in health 

care. 

The desperation that workers feel is also illustrated by some especially important accounts offered by the journalist Reed Abelson. 

Ms. Abelson has described what I thought was a particularly telling example of how a retiree who was not eligible for Medicare. He 

could not find private insurance because of a previous illness so he 

started down the road with the COBRA program, the federal program to continue coverage with a former employer. 

He still was not eligible for Medicare after his first stint with 

COBRA coverage expired. So he went back to work for the same 

employer again, thereby earning eligibility for COBRA coverage 

once more. After finishing this round of work with the employer, 

he retired, again getting COBRA once more. Finally, he became eligible for Medicare after turning 65. 

As I read this and have heard from so many folks at home, I had 

to ask myself, ‘‘Is this the best America can do for these patriotic, 

dedicated citizens?’’ Pushing workers into some kind of COBRAorama just to get health coverage in the middle-aged years. 

Now, fortunately, some employers have been championing the 

cause of quality health coverage. We know at home, for example, 

Intel, a very important employer in our home state, offers retirees 

options to buy a fine health care package, but, obviously, most companies have not been able to afford it. 

So, today, we have two excellent panels to talk about a variety 

of approaches to address the needs of workers. I am very pleased 

that this was the special focus of what we tried to do in the 

Healthy Americans Act. Fourteen United States senators—seven 

Democrats, seven Republicans have sponsored the legislation. We 

believe that several of the key features of the Healthy Americans 

Act—cost-containment guarantee of coverage, insurance reform, 

portability, and the largest subsidies to low-income people that 

have been proposed to date—go at least part of the way to meet 

the needs of this very vulnerable group. 

We are going to hear from a panel of people with a lot of good 

ideas, on how to approach meeting the needs of this age group, and 

we will enjoy having them here. 

So our first panel: Ms. Fitzpatrick and Mr. Roach of Paloma 

Clothing in Portland; Mr. Lindner, the owner Nutshell Enterprises 

in Redmond, OR. Then our next panel of witnesses includes three 

of the most influential and thoughtful people who have looked at 

health care for many years: Paul Fronstin, director of health research and education programs at the Employee Benefit Research 

Institute; Jeanne Lambrew, associate professor at the LBJ School 

5 

of Public Affairs; and John Sheils, senior vice president of The 

Lewin Group. 

So we have a very fine group. Why don’t we just begin at this 

time? 

Let us start with you, Mr. Roach. Welcome. Let me thank you 

for the many, many hours you gave us as part of the group of small 

employers that worked as we tried to develop the Healthy Americans Act. So please proceed. 

STATEMENT OF MIKE ROACH, OWNER, PALOMA CLOTHING, 

PORTLAND, OR 

Mr. ROACH. Chairman Kohl, Mr. Wyden, Ranking Member 

Smith, and members of the Committee, thank you for inviting me 

here today to share my experiences as a small business owner navigating the small employer health insurance market. 

My wife, Kim Osgood, and I own and operate Paloma Clothing 

in Portland, OR, and we have been in business for over 30 years. 

Paloma Clothing specializes in dressing middle-aged women and 

older and, as such, most of our employees are also of the same age 

group. This presents a particular set of problems when shopping 

for health insurance, including but not limited to pre-existing conditions and higher premiums. 

When my mother and I started the business in 1975, we did not 

offer health insurance to our employees. At the time, I paid out of 

pocket for an individual health insurance plan. In 1980, I chose to 

drop my individual coverage and opt in to my wife’s less expensive 

employer-sponsored health insurance. In 1982, my wife left her job 

and joined our business. At that time, we purchased a family plan 

that was very expensive. 

We began offering our employees health insurance in 2006. We 

did this not because we could afford it, but in order to retain our 

highly valued manager, Lee Anne Fitzpatrick, seated beside me. 

Lee Anne was previously covered by her husband’s employer-sponsored insurance, but he was laid off from his job and they subsequently lost their coverage. Lee Anne explained to me that she 

would need to find a new job that would provide her and her husband with health insurance. 

Because of Lee Anne’s commitment to Paloma Clothing, I have 

been able to spend much more time with my family, I have been 

able to coach my daughter Isabel’s soccer team from kindergarten 

through 8th grade, volunteer in her school every Monday from kindergarten through high school, and very rarely miss any of her important activities and special events. 

It is solely in the effort to retain quality employees like Lee Anne 

that we made the choice to offer health insurance. We felt it was 

our duty as her employer to help her meet her health care needs. 

Unfortunately, offering health insurance was not a simple or an affordable decision to make. 

When our accountant, David Downs, cautioned that he felt that, 

should sales and profits decline at all, the cost of group health insurance would seriously threaten the financial health of our business, I made it clear to David that losing Lee Anne would be even 

more threatening to the financial health of our business, not to 

mention the quality of life of both of our families. David reluctantly 

6 

agreed that we could move forward with buying group health insurance coverage for our employees. 

Fortunately, sales and profits increased that year by just enough 

to cover most of the cost of our group health insurance. As Lee 

Anne accurately predicted, offering health insurance has helped us 

attract and retain the best customer service team our business has 

ever employed in our 33 years of doing business. But only in the 

past few years has our revenue per employee grown to a point that 

we can barely afford to offer group health insurance. 

As we head into the uncharted waters of a clearly troubled economy, we, like all other small locally owned mom-and-pop businesses offering employee health insurance, hope that our revenues 

can grow enough to keep pace with the seemingly unending increases in health insurance costs. While hope would not normally 

be considered a viable small business strategy, hope is really all we 

have at this point. 

I want to thank you again for holding this hearing today and 

shining a spotlight on the health care crisis facing small businesses. I greatly appreciate your interest and your willingness to 

listen to my story. 

[The prepared statement of Mr. Roach follows:] 

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Senator WYDEN. Mike, thank you. Again, you have been so helpful. As a member of NFIB, the National Federation of Independent 

Business, at home, your voice on these issues has been really constructive. We thank you for it. 

Mr. ROACH. Thank you. 

Senator WYDEN. Ms. Fitzpatrick, welcome. We will get your 

microphone set. It works. There we go. 

STATEMENT OF LEE ANNE FITZPATRICK, EMPLOYEE, PALOMA 

CLOTHING COMPANY, PORTLAND, OR 

Ms. FITZPATRICK. Thank you. 

Senator WYDEN. All right. 

Ms. FITZPATRICK. Chairman Kohl, Mr. Wyden, Ranking Member 

Smith, and members of the Committee, thank you for inviting me 

here today to share my story with you. 

My name is Lee Anne Fitzpatrick, and I am 57 years old. When 

I was 5, I was in a serious accident, and two surgeries were required to save my life. The accident has left me with pre-existing 

conditions, which have presented me with additional problems 

when looking for insurance. 

As Mike already explained, I currently have insurance, but that 

has not always been the case. Before joining Paloma Clothing, I 

worked for 10 years as a nurse, owned my own restaurant for 12 

years and a flower shop for one year. When I was self-employed, 

I applied for an individual health insurance plan from Blue Cross. 

They sent me a letter stating that they would insure me, except for 

most of my internal organs. 

Senator WYDEN. Can I make sure I understand that? They sent 

you a letter saying that they would insure you for a part of your 

body? 

Ms. FITZPATRICK. Yes. 

Senator WYDEN. OK. Could you make that letter a copy of the 

record? Do you still have it? 

Ms. FITZPATRICK. I doubt if I have it. I actually should have 

looked for it, but it was, quite a few years ago. But they listed the 

organs they would not cover and the organs they would cover. 

Senator WYDEN. They went organ by organ? 

Ms. FITZPATRICK. Yes. 

Senator WYDEN. OK. Please go ahead. 

Ms. FITZPATRICK. They would not cover my internal organs because of the accident I had when I was 5 years old and the health 

problems that resulted from it. I did not purchase the insurance 

and instead went without health insurance for about a year until 

my husband, Chip, got a job that gave us health insurance. 

Soon after, I was admitted to the hospital where I spent the next 

month and had two surgeries. The bill was around $75,000. Thankfully, about 80 percent of the cost was paid for by my insurance. 

After being discharged, I was unable to work for three months. I 

remember how fortunate I felt to have had insurance when I became ill. 

During Chip’s last year at Intel, he was diagnosed with cancer 

and underwent surgery to treat it. In 2006, my husband was laid 

off from his job. At that time, Paloma Clothing did not offer a 

health insurance plan, so we chose to go on to COBRA to avoid losVerDate Aug 31 2005 08:14 Dec 17, 2008 Jkt 000000 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 H:\DOCS\45475.TXT SAG PsN: JOYCE
10 

ing insurance. Our monthly payment was the entire cost of the premium, almost $1,000. 

When my husband was laid off, I explained to Mike that I would 

need to find a new job with health benefits. I did not want to leave 

my job, but the fear of being uninsured and the burden of paying 

out of pocket for insurance for two adults with pre-existing conditions, as well as a history of illness, made it necessary. I am fortunate to have an employer who cares enough about his workers to 

make the difficult and costly decision to offer them health insurance. 

As Mike has stated, our accountant gave the green light or blinking red light to obtain coverage, and I undertook the task of finding 

a plan that would work for me and the other employees. Much of 

my original research on insurance was conducted via word-ofmouth referrals and calling insurance companies directly. Plan 

comparisons took a great deal of time and involved a subjective decision-making process. All had big bucks riding on making the 

right decision for Mike’s business. 

Paloma Clothing is in the midst of changing insurance providers 

due to an increase in cost. Under our old coverage, Mike paid 85 

percent of the monthly cost of the plan, or $2,662. Under the new 

plan, Mike will still pay 85 percent, but his monthly cost will fall 

by about $450 a month, to just over $2,200 per month. 

Even with the reduction in cost, offering insurance to employees 

will continue to be a stress on the financial security of Mike’s business. As he mentioned, all we can do now is hope that the business 

makes a profit greater than the cost of the health insurance. 

It baffles me that in a country of such opportunity and wealth, 

so many of us live in fear of losing our financial security due to the 

lack of access to health insurance. My husband and I are lucky 

that I work for an employer who with considerable financial difficulty is able to offer me health insurance. Not all employers are 

in his position. As a small-business employee, I believe that we 

must find a solution to the ever-increasing cost of health care in 

our country. 

I hope that the testimony given today will inform and guide you 

to crafting a solution that will lift the costly burden of health care, 

as well as reduce our fear and uncertainty. 

Thank you. 

[The prepared statement of Ms. Fitzpatrick follows:] 

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Senator WYDEN. Thank you. It is very helpful to hear your account. 

Mr. Lindner, welcome. 

STATEMENT OF BENJAMIN LINDNER, OWNER, NUTSHELL 

ENTERPRISES, REDMOND, OR 

Mr. LINDNER. Good morning, Senator Wyden. Thank you for this 

opportunity to testify before this committee. 

It is my hope that my testimony may shed some light on the 

challenges faced by small business owners and more mature Americans in obtaining health insurance. I would particularly like to 

highlight the difficulties faced by those with pre-existing medical 

conditions obtaining health care insurance. I would also like to 

touch on some of the challenges that we as consumers have experienced in accessing insurance benefits. 

By way of background, my wife and I founded a small business 

in 1993 and live and work in central Oregon. We have had one 

health insurance provider supplied through our business and one 

type of policy since 1993. Prior to 1993, we had been continuously 

insured through previous employers or personal policies. 

In 1993, when we contracted for our small business insurance 

policy our annual out-of-pocket expenses, including premiums, were 

approximately $5,000 combined. Today, we have the same 

healthcare policy. However, our annual expenses are now about 

$21,600. This works out to $5.19 per hour per person in health care 

costs. 

From a national perspective, I believe that this level of cost constitutes a significant disincentive to employing mature workers. 

Mature workers raise the average age and corresponding health 

care costs of a company’s workforce. Businesses then have further 

incentive to retire older workers and staff with younger employees 

or to outsource. 

Every year at our policy renewal period, we search for a better 

rate from insurance providers. Unfortunately, the market is such 

that health insurers now pick and choose whom they wish to insure, rejecting any potential client that they view as unprofitable. 

I have psoriasis and psoriatic arthritis, chronic inflammatory diseases that affect my skin and joints. Seven-and-a-half million other 

Americans suffer from these conditions. If my psoriasis were not 

treated, my ability to work would be severely impacted. 

My business partner and wife, Leslie, has cancer. As a result of 

these pre-existing conditions, we are simply uninsurable through 

any means other than continuing the business policy that we have 

had for 15 years. Frankly, we are thankful that we can obtain this 

insurance coverage at any price. We are, in fact, captive not only 

by our insurance company, but to staying in business in order to 

maintain our coverage. We are lucky to have access to excellent 

medical care in our area. 

Unfortunately, the barriers to accessing that care erected by our 

insurance company are formidable. The amount of time invested by 

us in resolving claim issues and by our health care providers in 

justifying treatments and prescriptions represents a significant 

burden and expense to all of us. I believe that the tug of war between our health care providers and our insurance company is reVerDate Aug 31 2005 08:14 Dec 17, 2008 Jkt 000000 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 H:\DOCS\45475.TXT SAG PsN: JOYCE
14 

sponsible for a substantial portion of the cost of care. The expenditures in time that we as consumers make in this area are tremendous. My wife has been on a first-name basis with claims representatives at our insurance company for 5 years since her diagnosis. 

An example of the frustrations connected with these methods of 

operation occurred when Leslie was recently diagnosed as being in 

renal failure. Her physician ordered an immediate MRI. Our insurance company initially refused coverage for this test. We assumed 

financial responsibility and had the test performed. Some time 

later, the insurance company reconsidered and approved the claim. 

Regarding prescriptions, our insurance company’s adherence to 

Nancy Reagan’s policy of ‘‘Just say no to drugs’’ can be relied on 

to reject any prescription other than the most routine generic 

drugs. Remarkably, even after an appeal process in which coverage 

has been granted, a subsequent refusal may occur. 

Our insurance company utilizes an exceptionally complex formula for calculating drug co-pays. This allows assessments of copays for cost differentials for branded drugs that are four time or 

more higher than what is represented and what would be expected. 

The health care cost system in general is so complex and obtuse 

as to be indecipherable to even the most sophisticated consumer. 

This is because of the practice of cost shifting to insured by providers. 

As an example, I compared the costs of a procedure recently. An uninsured individual was charged $1,000. An insured individual 

was charged $700. The same procedure at a clinic that does not accept insurance costs $175. I think tiered pricing should be eliminated and cost information readily available to consumers. 

A structure in which an insurance company can arbitrarily 

choose to exclude all those but the most desirable risks is really the 

antithesis of what insurance is. We need inclusive access for all 

people, not exclusive acceptance. In short, we need all Americans 

to be insured. 

[The prepared statement of Mr. Lindner follows:] 

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Senator WYDEN. You all are probably being too logical for much 

of Washington, but I think you have said it very, very well, and I 

just so appreciate what you have described. I think what you have 

really highlighted is essentially how much of the health care system in our country is melting down on people. We have to make 

some changes. What I am going to do now is ask some questions 

to kind of highlight what I think are the most important things to 

change. 

First, Ms. Fitzpatrick, beginning with you, I am still unclear 

about the coverage that you can get. Are you still faced with insurance companies saying that they will only cover certain body parts 

and not cover others? Can you now get coverage, for your entire 

body? 

Ms. FITZPATRICK. A private policy or a group policy? 

Senator WYDEN. Yes, either one. 

Ms. FITZPATRICK. Well, group policies, most of them, as long as 

I have been continually covered, then I would be continually covered completely. But if I tried to get a private policy, I would be 

pretty much waivered between, I always say, my neck and the top 

of my legs, so most of my internal organs probably because I have 

had continual problems because of my surgeries and because of the 

accident that I had. 

So, no, I would be covered probably, but it may be very high premiums and also I have not actually tried to get a private policy for 

so many years because it was so scary when I was told that I 

would not be covered that I have not tried and I have not been in 

the position that I had to. 

Senator WYDEN. I think what you and Mike have described, are 

a dedicated, capable worker and a compassionate employer who 

wants to stand up for the worker. Your testimonies sort of highlight how broken our health care system is and how important it 

is to modernize the employeremployee relationship. 

Mike, you have spent some time thinking about this. Some questions for you: First, it sounds to me like you are one rate hike away 

from having to either drop coverage or whittle it down very dramatically. Is that right? 

Mr. ROACH. If you ask our accountant, yes. I mean, when I initially showed him the numbers on what it could be—again, we did 

not know exactly how many employees were going to opt in to the 

plan—but when I initially showed him, he was very skeptical that 

we should go forward with it, and, you know, we sort of argued 

back and forth, and he finally said, ‘‘Okay. If you want to do it, but, 

boy, things better go right or you are going to be in trouble.’’ So 

far, so good. 

But it is a cost that is a really significant burden to trying to 

stay in business, and you do have this constant fear that you are 

suddenly going to be unable to offer the insurance, and then you 

are letting your employees down, you may lose your employees, 

they go to some larger employer that can offer insurance that buys 

it generally at a much more favorable rate. 

So, for small businesses, small locally owned businesses like 

ours, if we can do the group health insurance, it is a way to attract 

capable employees, and if you cannot offer it, it is much more difficult to attract the kind of talent to deliver the customer service 

19 

that our customers expect when they walk into our store. So it is 

a tough situation. 

Senator WYDEN. I would assume that this also makes it very 

hard for you to grow your business because you would like some 

predictability and some certainty about where you would be in 

terms of your workers and how much you would have to pay for 

their expenses, health and others. It also sounds to me like the 

crushing cost that you have throws your entire business plan out 

of whack. 

Mr. ROACH. It is absolutely an issue, and as I think Ben maybe 

alluded to, there is an incentive to always want to have fewer employees instead of more. Even when you can identify where you 

could move your business forward with more employees, you have 

this nagging thing, more employees, higher health care costs. It is 

not just what you are going to pay the employee for their wage. 

You have the added burden. 

Then as Ben pointed out, in our business, we really need to have 

middle-aged workers to serve middle-aged customers, and we know 

that they add the most to the insurance cost when we hire, when 

we add on a middle-aged employee, and yet that is the kind of employee that best serves our customers. 

Senator WYDEN. You have talked to me in the past, Mike, about 

this phenomenon known as job lock. In effect, both a worker, like 

Ms. Fitzpatrick, and yourself, to some extent, are paralyzed in 

terms of your options. Can you talk to me a little bit more about 

that and how prevalent the problem is? 

Mr. ROACH. Well, I guess, as a locally owned business owner for 

33 years, I see an awful lot of benefits to having a lot of locally 

owned businesses in your community. You know, it is sort of like 

the more, the merrier. The locally owned business owners are the 

ones who volunteer to do a lot of the civic work. They volunteer on 

school boards. They volunteer on a lot of different things. 

So to me any person who is locked into a job who wants to start 

their own business but cannot because they feel like if they go off, 

if they are over 50, 55, they know what they are going to have to 

pay for health insurance costs, and the thought of going out there 

and leaving their health insurance behind is frightening. 

Senator WYDEN. Well, that is bad. 

Mr. ROACH. It holds them back. 

Senator WYDEN. That is bad for our economy then. 

Mr. ROACH. Exactly. I mean, I have been in business with my 

wife now for a long time, and I see the benefits that we have. The 

skills we have developed in managing a family, we are able to 

apply to running our business. I will not say that having employees 

is like having children, but, to some degree, it is, and so to me couples—older couples—could be the best people, best group in this 

country to successfully start businesses, albeit they are older, but 

they life experience, they generally have good credit and so on. 

But for a couple to go out at 55 and say, ‘‘Okay. We are quitting 

our jobs, and we are going to go start a business,’’ they go, ‘‘Well, 

what about health insurance? Do you know what that is going to 

cost us?’’ It is a significant added cost of startup capital that they 

would have to have set aside, so most couples do not do it. 

20 

But I feel like you know, the couples I see that run their businesses together do very well. They already have complete trust in 

each other. There is no question about trusting your partner, and 

I want to say if you have managed to get your kids through adolescence, that is a pretty significant skill that probably would help 

you manage employees as well and manage a business. 

So I really feel like if we could remove the huge health cost burden for couples that want to start a business of their own, they 

have always dreamed of that—but by the time they are 65 and eligible for Medicare, they are probably not going to have the energy 

to start that business, but at 50, 54, 57, they have still got energy, 

they have life skills, they could be successful. But the health insurance burden is too great today. 

So somehow if we can get that burden to go to something reasonable and not scary, I think you would see business formation 

among older couples could be a whole new source of entrepreneurship in this country and not leave it just to the 20-something who 

do not even have to think about health insurance and generally do 

not even have it. 

Senator WYDEN. I so appreciate your making that argument because I think it really has not been highlighted in the past. What 

people have heard so often in the past is, ‘‘We have older people. 

They have tremendous health costs. Let’s figure out a way to meet 

them.’’ Rather we should look at the fact that if we did this right 

and if we modernized the employer-employee relationship, a lot of 

those older people that you have described who have entrepreneurial skills could go off and set up some of their own small businesses, and put people to work. Not only would we be able to deal 

with health care more efficiently, but we would also give our economy a boost this is going to be very, very important, given what 

we see now continually in the morning newspapers. 

Mr. ROACH. I would just throw in it might end up saving some 

marriages. You know, it gives you something to work on together 

after your kids are gone. You have something to focus on. 

Senator WYDEN. I have made virtually every claim for the 

Healthy Americans Act that I could. Now I will talk about how it 

is—[Laughter.] 

Pro marriage. 

Mr. ROACH. Okay. All right. 

Senator WYDEN. Thank you. 

Ms. Fitzpatrick, tell me a little bit more about the situation that 

you are faced with. You have been just jostled around by the health 

care system as far as I can tell for years and years. You and Mike 

have sat down and with Herculean efforts managed to secure coverage. 

But what is going to happen if Mike has those, rate hikes, as you 

know, in a very fragile economic situation in Oregon? What is going 

to happen if any of these things tip in a way that is not favorable 

to you? 

Ms. FITZPATRICK. Well, I try not to think about the unknown and 

try to work on, what I can do, and I feel like I kind of have had 

to develop a lot of skills which has been interesting and great. But 

I think it is a very scary feeling for myself and my husband, especially since Chip’s developed cancer and as we get older. 

21 

But I think Mike is, you know, a really important key to my 

wellbeing and the business, and I feel like I have a very important 

role in making sure our business stays, growing, but faced with not 

having health insurance, I have to say because I am kind of an entrepreneur myself, it has stopped me from going out and starting 

another business. 

It is not so much the fear as my responsibility to myself and 

other people that would, you know, maybe need to help take care 

of me, and I feel like I should be responsible for what I do in my 

life, and so I will stay probably with Mike as long as we can keep 

health insurance. 

Senator WYDEN. Now your husband has cancer. 

Ms. FITZPATRICK. Yes. 

Senator WYDEN. How are you all dealing with that in terms of 

meeting your expenses? I mean, when you think of cancer, of 

course, it just means that the whole family drops everything they 

are doing to try to deal with it. Do you think about catastrophic 

coverage and these very large bills? How are you all wrestling with 

that? 

Ms. FITZPATRICK. You know, some parts of us kind of look the 

other way about it and just try to concentrate on our day-to-day 

life, but it is difficult. 

Senator WYDEN. Do you all have catastrophic coverage? 

Ms. FITZPATRICK. No, no, no. We have worked really hard both 

of our lives and, Chip does have a job now. He became employed 

again, and we are just, hoping that he will stay employed. Chip’s 

on his own policy with the work that he does, but you just really, 

I guess, hope. 

The closer I get to 65, it seems like it is farther away than ever 

in some aspects, and sometimes that is kind of scary because I 

enjoy working, and I want to continue working, but probably if I 

had my choice and we both had health insurance right now, I 

would start another business. I love business, and I enjoy it. 

Senator WYDEN. You would be able to do something that would 

be better for you and your husband. It would also be better for the 

country at a time when we so need entrepreneurship and extra jobs 

in a sluggish economic situation where in the daily paper you read 

about the prospect of recession. 

That is why those studies from 1981 and 2001 and 2002 are so 

important. That is, there is no question the tough economic circumstances are especially punishing on older workers and will accelerate the problems that we are talking about, today because it 

is those older workers. They are the first to be laid off. When companies run into extra expenses, coverage is further whittled down. 

So you two have, I think, been especially helpful because you 

have highlighted how in an ideal situation where a caring employer 

and dedicated talented workers want to work hand in hand, it still 

is an enormous challenge to navigate in these kinds of troubled 

health care times. So we really appreciate what you are doing, and 

we thank you. 

Let me turn to you, Mr. Lindner. I mean, what you have described, is bureaucratic water torture where your wife is on, a firstname basis wish everybody in the claims department. This is a 

22 

story we hear continually. I gather that you cannot change insurance companies at all at this point. Is that right? 

Mr. LINDNER. We have a company insurance policy, and each 

year we examine other company insurance policies. We do not even 

bother to apply because, in general, there is no advantage financially, and we have no chance of getting a personal policy. Personal 

policies are substantially less money, but we are unacceptable risk 

candidates for those types of policy. So we are stuck. 

Senator WYDEN. So these so-called small employer market policies or the individual, non-group market policies are just not available to you? 

Mr. LINDNER. No. They will not accept any pre-existing conditions. 

Senator WYDEN. You said you and your wife paid $21,000 a year 

plus for the coverage you have? 

Mr. LINDNER. That is correct. 

Senator WYDEN. What do you get for your $21,000? 

Mr. LINDNER. We actually have fairly extensive coverage. We do 

the calculations every year and determine what deductibles are economical and things like that, and we generally end up with just 

about the maximum coverage that you can purchase. 

Senator WYDEN. What would you like to see most out of this upcoming effort to fix American health care? I mean, you have seen 

most of the big challenges. We need to fix the insurance market, 

obviously. There needs to be a stronger containment of costs. I feel 

very strongly about portability. I cannot tell you how critically 

needed that is. 

This country essentially set up the employer-based system in the 

1940s pretty much by accident because there were wage and price 

controls. We did not have the situation we have today with workers. A typical worker today changes a job seven times by the age 

35. What Mike and Lee Anne have described are instances where 

older people want to be able to change jobs, but it has not been possible to get a portable product. 

The coverage today as it relates to portability is not very different than it was in 1948 where somebody went to work at 19 

years old and stayed put for 40 years. Then you gave him a steak 

dinner and a big retirement watch. I think we have to have portability. 

So, Mr. Lindner, what would you like to see most in this upcoming effort to fix health care? 

Mr. LINDNER. Well, actually, I think we are interested in the 

same things by different names. You call it portability. I call it accessibility. If someone had access to health care insurance through 

all stages of their life and through all health challenges, that would 

give the flexibility necessary for people to move around. So if I did 

want to change professions or directions in my life right now, I 

could not because of the structure of the insurance. So accessibility 

is critical, in my view. 

I believe that the cost shifting that is occurring that I mentioned 

really is a contributing factor to this not only accessibility but cost, 

and then, obviously, the cost of insurance as well. If everybody 

were insured, the premiums would drop, and if everybody were in 

23 

the program, so to or if everybody was insured, the whole system 

would work a lot better, in my opinion. 

Senator WYDEN. A great way to wrap up this excellent panel is 

to have a group of Oregonians talking about how you cannot fix 

American health care unless you cover everybody. It is very clear 

that if you do not do that, just as Mr. Lindner has described, the 

people who are uninsured shift their bills to the people who are insured. They shift the most expensive bills, and, of course, that is 

what goes on today as a result of a federal statute. A federal statute actually requires that hospital emergency rooms serve people 

who do not have coverage, and those costs are shifted. 

So, once again, Oregonians sum up the big challenges very well. 

It has been an excellent, excellent panel. You three are really the 

face of this scramble. You know, Lee Anne, you have faced so 

much. Mike, you have described the many efforts you have done. 

I love the fact that I can go home and I can see you in the stands 

at the high school football game. All your life you have backed 

every good cause around. 

Mr. ROACH. Thank you. 

Senator WYDEN. You try to work with your workers. The question remains about how to make this system work. 

Mr. Lindner, I know that you see things much the same way, 

and a big part of what we want to do in 2009 is to fix the health 

system. I think you have called it accessibility. I think people sometimes call it portability. I think the point is we have to deal with 

the costs and we have to make sure people are covered. It has to 

be done more efficiently, and, boy, are you on target when you talk 

about getting information about costs and quality out to people because, right now, it is possible to get a lot more information about 

buying a washing machine than it is to find out about health care 

costs and quality. So we will keep your answer in mind. 

Mr. LINDNER. Actually, Senator, for time reasons, I had to remove a sentence in my statement that was just about exactly that. 

You can access information about a car repair more easily than 

health care. 

Senator WYDEN. Right. 

Thank you all. It has been great. I appreciate it. 

Let’s bring our next panel up: Paul Fronstin, director of health 

and research and education benefits of the Employee Benefit Research Institute; Jeanne Lambrew, associate professor of the LBJ 

School; and John Sheils, senior vice president of The Lewin Group. 

We will make prepared remarks a part of the hearing record. I 

know you three have testified once or twice in the course of your 

very distinguished careers. So why don’t you, if you would, summarize your principal points and we will have some time for questions. 

Mr. Fronstin, welcome. 

24 

STATEMENT OF PAUL FRONSTIN, DIRECTOR OF HEALTH RESEARCH AND EDUCATION PROGRAMS, EMPLOYEE BENEFIT 

RESEARCH INSTITUTE (EBRI), WASHINGTON, DC 

Mr. FRONSTIN. Thank you. 

Chairman Kohl, Senator Wyden, Senator Smith, and members of 

the Committee, thank you for the opportunity to appear before you 

today. 

My written testimony includes information on trends in coverage 

for workers. So I am going to limit my comments to trends in coverage for persons ages 55 to 64. 

Older workers and individuals are particularly vulnerable, as we 

have heard, if they were to lose health insurance. Older workers 

may lose coverage because of job displacement and may be unable 

to afford or obtain health insurance on their own due to either 

their age or health status. Furthermore, retirees will be less likely 

than in the past to have access to retiree health benefits as employers have been cutting back on this benefit. 

Despite the vulnerabilities that older individuals face when it 

comes to health insurance, they are the least likely age group 

among adults to be uninsured. In 2006, nearly 13 percent of individuals ages 55 to 64 were uninsured This is lower than the overall 

uninsured rate of roughly 18 percent among individuals under age 

65 and lower than all other age groups except for children. 

Workers between the ages of 55 and 64 have experienced a slight 

erosion in coverage and a slight increase in the likelihood of being 

uninsured. In 2006, over 78 percent of workers between the ages 

of 55 and 64 were covered by an employment-based health plan, 

down from 80 percent in 2003, but higher than the levels seen in 

the late-1990s. The percentage uninsured increased from nearly 10 

percent in 1999 to 11 percent in 2006, which is essentially the 

same uninsured rate among these workers from back in 1994. 

We have not seen an overall erosion in health insurance coverage 

rates among retirees between the ages of 55 and 64. The percentage of these retirees with employment-based health benefits from 

either a former employer or other family member, mostly a spouse, 

has bounced around between 56 percent and 60 percent between 

1994 and 2006. 

In 2006, 58 percent of 55- to 64-year-old retirees had some form 

of employment-based health benefit. During this time period, the 

uninsured rate for this group bounced around between 131⁄2 percent and 161⁄2 percent. In 2006, nearly 15 percent of retirees ages 

55 to 64 were uninsured. 

It does appear, however, that retirees ages 55 to 64 are becoming 

more likely to get employment-based coverage through another 

family member and less likely to get it through a former employer. 

For the most part, the percentage of retirees with coverage through 

a former employer or through a spouse did not show a clear trend 

between 1994 and 2006. However, the percentage of retirees with 

coverage through a former employer was at about 35 percent in 

2006, the lowest point between 1994 and 2006 with the exception 

of 2000. The percentage of retirees with coverage through a family 

member was nearly 23 percent in 2006, which is essentially the 

highest level during the same time period. 

25 

Given the erosion in availability of retiree health benefits, it 

might be surprising that the percentage of retirees ages 55 to 64 

with health benefits through a former employer have not fallen 

more than we have seen. Rates of retiree health benefits coverage 

may not be falling for a number of reasons. 

First, there is a strong link between the availability of retiree 

health benefits and the decision to retire early. Workers often remain in the labor force longer than expectedto maintain health insurance. EBRI’s Health Confidence Survey has found that 30 percent of workers expecting to retire before becoming eligible for 

Medicare would not do so if they did not receive retiree health benefits. 

The declining availability of retiree health benefits may also, in 

part at least, explain the rising labor force participation rate 

among individuals 55 to 64. Between 1996 and 2006, the labor 

force participation rate for men increased from 67 percent to nearly 

70 percent, while for women, it increased from nearly 50 percent 

to 58 percent. 

The percentage of retirees with health coverage from a former 

employer may not be declining as quickly as the availability of retiree health benefits because workers without access to this benefit 

may be remaining in the labor force longer than workers with access to retiree health coverage. 

Thank you. 

[The prepared statement of Mr. Fronstin follows:] 

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Senator WYDEN. Thank you very much, Mr. Fronstin. We will be 

talking to you in a few minutes, and I know we will be talking to 

you often in the months ahead as well. 

Ms. Lambrew, welcome. 

STATEMENT OF JEANNE LAMBREW, ASSOCIATE PROFESSOR, 

LBJ SCHOOL OF PUBLIC AFFAIRS, AUSTIN, TX 

Ms. LAMBREW. Thank you. 

Thank you, Chairman Kohl, Senator Smith, distinguished members of this Committee, for holding a hearing on this important 

topic of health security for people in late middle age. But I especially want to thank you, Senator Wyden, for your leadership, not 

just on this narrow slice of health coverage, but for your focus and 

persistence in trying to address the broad-based problems in our 

health system starting with the uninsured. 

I would argue that this population is the window into a larger 

system crisis, and, in fact, it is often that proverbial canary in the 

coal mine showing where our system cracks are and how hard it 

is to solve them. 

What I would like to do is briefly profile some of the facts that 

Paul did not talk about in terms of the health and risk profile of 

this group, talk about incremental options for addressing this population because I think that John will talk about the comprehensive 

policies as well, and to present some pros and cons and tradeoffs 

of these options, but to start with a few facts. 

We cannot forget that this age group is growing rapidly. As the 

baby boomers move through this age cohort, the number of people 

ages 55 to 64 will increase by 50 percent between 2000 and 2010 

alone. This is not just a big demographic change. It is a very highrisk group. 

The risk of having health problems when you turn age 55 increases more than you would expect. We know that people in this 

age group compared to people ages 45 to 54 have twice the death 

rate, the highest rate of obesity, and in addition have greater functional limitations. As a result, they have higher health costs, 50 

percent higher than the next age group below them, in addition to 

having high out-of-pocket spending. 

We heard in the previous panel the issues of being underinsured. 

We know that people with private insurance spend twice as much 

in this age bracket than the next youngest generation. 

So to talk about the options for beginning to address this population, as Senator Smith noted, there are numerous options out 

there. What I would like to talk about is the four major incremental low-cost options that could be considered by Congress, one 

of which we heard about already, which is extending COBRA. 

The Consolidated Omnibus Budget Reconciliation Act of 1986 requires employers to allow certain former employees and dependents 

to purchase into that coverage for up to 18 months. This option 

could be extended. There have been past proposals that would 

allow people to continue to buy this coverage for longer than 18 

months, maybe as a bridge to Medicare. 

A second option is to extend an existing group insurance purchasing pool to these people. Group purchasing pools offer people 

a choice of plans at a fair premium with equal access to comVerDate Aug 31 2005 08:14 Dec 17, 2008 Jkt 000000 PO 00000 Frm 00040 Fmt 6633 Sfmt 6633 H:\DOCS\45475.TXT SAG PsN: JOYCE
37 

prehensive benefits. Probably the only group large enough to accept 

the 55- to 64-year-old age cohort is the Federal Employees Health 

Benefit Pool, being the largest purchasing pool in the country. This 

could be done by charging a different premium or using risk adjustment to bring this population in, as another option. 

A third option would be to make individual health insurance 

more accessible and affordable for this group. We heard previously 

about some of the challenges people face getting access to this market. This could be changed through regulation that limits pre-existing condition exclusions. It could be done by limiting age rating, 

the practice of charging higher premiums to older people, or it 

could be done through some sort of reinsurance or risk pool to reduce the high risk in this group. 

A fourth option often considered is an early Medicare buy-in, the 

idea of letting people join Medicare earlier than the age of 65 with 

some sort of premium that would effectively be self-funded; with 

participants paying a premium when they join the program prior 

to age 65 and paying a so-called risk premium after they retire. 

How do we assess these four options? There are very simple 

questions: Who pays for the high-risk people, who is most helped, 

and what are the political prospects for change? 

In incremental reform, we basically do not necessarily have the 

option of spreading the cost of these people across the entire population. You have to spread the cost over the group that you are 

adding them to. What we know about COBRA is that you are basically backloading the cost on active workers, potentially making it 

harder for those workers and employers to continue offering that 

coverage. 

With group purchasing pools, you have a broader base across 

which you are spreading the risk, but there is really no connection 

among participants and there are concerns that come up with this 

politically. 

In the individual market, you are shifting the cost down to 

younger workers who are a members of that market. With the 

Medicare buy-in, you are pushing the cost to later life. So you are 

spreading the risk in different ways. 

Who is helped? COBRA basically helps only those people who 

were lucky enough to have the types of jobs that we just heard 

about with employer-based coverage, not small business workers, 

not many other workers. Individual market will effectively help 

your lower-risk people, while a group purchasing pool will help 

your higher-risk people. Medicare will help those people who are 

risk averse and really want to get into the program earlier. 

Now we can go through the political implications in greater detail in the Q&A, but I would argue that this is a population for 

whom there is tremendous political pressure to figure out what we 

do as they move through this age cohort. What I think is the interesting question is: Will that pressure result in incremental policy 

changes that are difficult to implement given how these are the 

highest-cost people in the non-elderly population, or will it fuel 

ground efforts for major reform because, at the end of the day, the 

best way to help these people is probably comprehensive reform 

that gets them into the broad-based pool? 

Thank you. 

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[The prepared statement of Ms. Lambrew follows:] 


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Senator WYDEN. Very well said, and I think it is especially helpful to have you and John Sheils coming together to talk to us about 

some of the specific options and the role of comprehensive reform. 

It is a good way to trigger the debate. 

So, Mr. Sheils, welcome. You have done wonderful work for so 

many years, and we appreciate your involvement today. 

STATEMENT OF JOHN SHEILS, SENIOR VICE PRESIDENT, THE 

LEWIN GROUP, FALLS CHURCH, VA 

Mr. SHEILS. I thank the Committee for inviting me. It is a real 

privilege to be here. 

My name is John Sheils. I am a senior vice president with The 

Lewin Group. We are a non-partisan group. We do not advocate for 

or against any particular legislation. 

Today, I have been asked to talk about some of the ideas on how 

you could expand coverage for the group. There are about a dozen 

bills out there right now that would expand coverage in the country 

and all of them would touch on this age group. 

Some of the background: There are about 5.1 million uninsured 

people age 55 to 64. Nineteen percent are below poverty. Twenty 

percent have out-of-pocket spending for health care in excess of 15 

percent of their income. The average premium for a typical employer policy would be about $9,000 for someone in this group. That 

is about four-and-a half times as high as it would be for someone, 

say, under the age of 25, and that is what makes this group require 

special attention. 

One of the proposals—more modest in size, but one of the proposals—to come out is something called a Medicare buy-in. People 

age 62 to 64 would be able to buy into the program by paying the 

full cost premium in a policy we looked at where there is a cap on 

what the premium would be to 10 percent of your income. That 

would cover only about 285,000 uninsured people, and the key reason for it is that even with the buy-in, the premium will still be 

very high relative to what most people are facing in their health 

care costs. 

Another idea is to expand Medicaid to cover people in this age 

group. Right now—let’s see—a non-disabled individual who does 

not have responsibility for a child is not eligible for the program 

regardless of their income, and one of the things you could do is— 

it has been proposed several times—to expand coverage under the 

program to the poverty level, for example. That would get you 

about 1.1 million uninsured people. You would still have a lot of 

people remain uninsured, and the reason for that is that even at 

125 percent of poverty, premiums for health care in this group are 

going to be prohibitively high. 

We have also seen some tax credit proposals that would essentially replace the tax exclusion for employer-provided benefits with 

a flat tax credit. An example would be a credit of about $2,000 with 

$5,000 per child. We looked at the impact of these, and we have 

estimated that this could cover perhaps 22 million uninsured people. About 2.2 million of those would be people 55 to 64, and that 

approaches 50 percent of the uninsured population. 

The big problem here is that the credit is fixed at, let’s say, 

$2,000, for example. That really does not give you very much help 

54 

in paying a premium if you are facing a $10,000 premium, as some 

people do, in some of these high risk pools. So we find that it is 

fairly ineffective. Also, the lower-income people in this group will 

require additional subsidies to purchase it. 

Now, over the past year, I have had the privilege of working with 

Senator Wyden and helping them work through his bill, and this 

is a comprehensive health reform bill which I think is going to be 

particularly advantageous to this particular age group. 

Under this bill, all individuals have to have insurance. Your benefits at work are cashed out, which means your wages are increased by the amount of what the employer has been spending on 

your health benefits. You then buy the insurance either through 

your own employer or through private health plans. 

The program includes what we call community rating. Everybody 

pays the same premium, regardless of their age or health status 

characteristics. So the average premium would be, for example, 

$4,300 in the example I have been using. That compares with 

$9,000 for those 55 to 64. Of course, the youngest people spend 

more. They would spend $2,700 under the current law, but they 

would be paying $4,320 under this policy. 

The program also provides subsidies through 400 percent of the 

poverty level, people between the poverty line and 400 percent of 

the poverty line. I think it is easy to argue that they need at least 

some level of subsidies to help them pay for their policies, and it 

is this combination of community rating and the subsidies to this 

higher income level that I think makes the bill unique, and I believe there are other bills that include features like this, but we are 

still working on them to figure what they would mean. 

Thank you very much. 

[The prepared statement of Mr. Sheils follows:] 

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Senator WYDEN. Mr. Sheils, thank you, for all of your collaboration and assistance. We are very, very appreciative. Let me just 

ask a few questions of each of you and feel free, the three of you, 

because you are so renowned in this field, to chime in at any point. 

This is not some kind of Star Chamber kind of grilling thing, but 

a chance to really get an education on these critical questions. 

Mr. Fronstin, what do you make of this situation described by 

Mr. Roach and others. How are these trends going to actually hurt 

the economy? They are saying that some older persons who are 56, 

57 years old, would like to go out and set up their own business. 

In today’s health care system, there are many challenges you have 

in front of you like pre-existing illness problems. They are claiming 

that not only is this an issue and others going to effect people getting health care coverage, but they assert that this situation is 

going to be harmful to the economy. 

Forty-five minutes ago Ms. Fitzpatrick just sat where you are 

now and said her first choice would be to be able to go out and set 

up her own business—hire people, help our economy during these 

kind of troubled times—but she cannot do it. What do you make 

of that? 

Mr. FRONSTIN. Well, I thought her comments were very interesting because towards the end of the Q&A she had mentioned that 

her husband gets coverage from his own job now, and while they 

are concerned about his ability to continue working because of his 

health status, I presume she does have the ability to go onto his 

policy and start her own business, and she did not talk about that. 

Her employer offered coverage to keep her employed at his company. He was making a business case for that as well. Listening 

to that exchange and the comment that came up from the other 

witness, I just found it interesting, because the middle witness— 

I forget the name—was agreeing with you and agreeing with Lee 

Anne. Yet, if we made coverage more portable he would potentially 

lose a valued employee, someone who he added a benefit for his entire company to keep this one person. At least that is what I heard 

in the testimony. I just found that interesting. 

That is not to minimize the fact that there are some real issues 

here with the impact on the economy. I think health care costs in 

general are having a huge impact on the economy. They are having 

a huge impact on wage growth, and portability in general is an 

issue whether you are 55 to 64 or even younger. It does not matter 

what your age is if you have a pre-existing condition and you try 

and go out on your own. Chances are if you have not met the 

HIPAA rules that pre-existing condition is going to be excluded, 

and even if it is not, you may not be able to afford the premiums. 

Senator WYDEN. Dr. Lambrew. 

Ms. LAMBREW. Just a quick comment: This issue of job lock, I 

think, is interesting because it cuts in both directions. On one 

hand, it means that people continue to work longer or in types of 

jobs that they do not want to be in because of the health insurance 

situation, and vice versa, so that people may, when there is a 

choice, decide to retire earlier. That might be a choice that people 

want, although some people say it would depress economic activity. 

But all the trends you see are in the opposite direction, which 

is given since health care costs are fairly high. People want difVerDate Aug 31 2005 08:14 Dec 17, 2008 Jkt 000000 PO 00000 Frm 00070 Fmt 6633 Sfmt 6633 H:\DOCS\45475.TXT SAG PsN: JOYCE
67 

ferent types of jobs. There is this whole literature on what are 

called bridge jobs to retirement meaning that people want a new 

second career or to go into self-employment or work part time as 

a way to work their way through a retirement that is now lasting 

longer than it used to. 

So, having the freedom of having health insurance independent 

of jobs will potentially prevent some people from being locked into 

working longer than they would like, but also could free up some 

people to go into these part time self-employed bridge jobs to retirement. 

Senator WYDEN. Do you want to respond to that? 

Mr. SHEILS. Well, anything that restricts one’s ability to innovate 

or be an entrepreneur, to develop some new ideas in the economy, 

anything that does that is really a drag on the economy, and you 

have me wondering whether I should start my own business all of 

a sudden. 

But it is a complicated issue, and I know, knowing people who 

have started their own business in this age group, that it is baffling when you try and work through the different options available 

on insurance coverage. It is very difficult to figure out what these 

health plans really do and what they do not do, and I am talking 

people who are health experts who have gone out in their own business and they are totally lost when it comes to the insurance for 

their small group. 

So anything that limits one’s ability to innovate, like the fear or 

the concern about how difficult it is to arrange insurance, anything 

like that, has the potential to really be a drag on the economy. 

Senator WYDEN. I think this is particularly important for people 

like yourselves who are the scholars to get us more information. I 

think this is going to be a big deal because we are clearly faced 

with huge economic challenges, even beyond what we have seen 

with the subprime, mortgage mess and Wall Street and credit card 

debt. 

I will tell you, Mr. Fronstin, I do not get the sense that it is 

going to be real easy for somebody to go off and set up a business, 

find coverage and coordinate with a spouse who has existing coverage. I think it is going to be a huge challenge, and I would like 

to see the three of you take a further look at this because I think 

it is going to be hugely important as we figure out what to do for 

this group between 55 and 64. 

Mr. FRONSTIN. I did not mean to imply that in my comments. I 

was just trying to bring up the fact that it seemed like there was 

a constraint that was being talked about that did not really exist 

in the example that we heard about during the testimony. 

Senator WYDEN. Well, I have heard it so many times from so 

many people, I think it would be helpful if the three of you could 

look at that further. 

Ms. Lambrew, you make a number of points that are very helpful. I especially like your conclusion—that as you look at the incremental, options, it really does push you down the road to examining comprehensive reform, which is essentially the conclusion I 

came to. 

But I am curious about the costs of those four incremental options, and how one would raise, the revenue for it. When we startVerDate Aug 31 2005 08:14 Dec 17, 2008 Jkt 000000 PO 00000 Frm 00071 Fmt 6633 Sfmt 6633 H:\DOCS\45475.TXT SAG PsN: JOYCE
68 

ed the Healthy Americans Act, the first thing we came up with 

was, well, we are spending $2.3 trillion today. There are 300 million of us. You divide 300 million into $2.3 trillion, and you could 

go out and hire a doctor for every seven families in the United 

States, pay the doctor $200,000 for the year, and say, ‘‘Doctor, that 

is going to be your job, taking care of seven families.’’ 

Whenever you bring it up with the physicians, they always says, 

‘‘Where do you go to get your seven families?’’ Because they like the 

idea of being doctors again and using the dollars in the system 

more efficiently. But if we are going to look at these incremental 

options that you have described, clearly, that will cost additional 

money. What are your thoughts about how much these various four 

options would cost, and what are the options for generating the 

revenue? 

Ms. LAMBREW. Well, I will just say that my task as I understood 

it, my mission as I understood it, was to look at incremental reform, and I would define that as being relatively low cost and at 

the margin. When we used to do the Medicare buy-in policies, the 

cost was $5 billion, $10 billion over a five year period, although 

John could answer this question as well as I can. 

Senator WYDEN. That is Medicare buy-in, would be $5 billion to $10 billion? 

Ms. LAMBREW. The way that these policies are designed, there is 

an upfront cost that gets paid back later by the premiums that get 

paid after you turn 65. So it is a timing issue. So you seed the pool, 

get people in, and then, over time, they pay back the excess cost 

of their risk during this period. 

But I wanted to say that there are public costs and private costs, 

and we are not ever very good at talking about this. You are absolutely right. We have a $2.2 trillion health care system of which 

about 45 percent is public and 55 percent is private, and when you 

talk about federal budget costs, you take that 45 percent slice and 

go down further because this includes state and local spending too. 

We oftentimes try to jam into our federal spending slice the subsidies for the entire system and try to figure out how we spread 

that, and it is very difficult. Almost all the policies I outlined would 

try to do that by using implicit private-sector subsidies, either by, 

in the individual market, using rate bands, which causes the lower 

cost people in that market to pay more to cross subsidize. If you 

are talking about group purchasing pools, the federal employees 

cross-subsidize the people who come in. If you are talking about 

COBRA, the active workers are going to be cross-subsidizing the 

older workers who are retired. 

At the end of the day, it is all this kind of cost shifting that goes 

on short of a comprehensive system where we think through as a 

society how much we want to raise, how do we want to spend, do 

we want to target some of the options like John mentioned, to poor 

people or high-risk people, or do we want to cross-subsidize in different ways. 

So the short answer is these are all low-budget items in the federal budget, but that is only looking at the federal budget perspective, and these are largely costs that have to be spread somewhere. 

Senator WYDEN. I think it would be very helpful—because I read 

your testimony and I thought it was very good—if you could give 

69 

us for the record and for the staff in the days ahead some sense 

of what those options would cost and—to the extent you can—on 

the public and private side. That would be very helpful. 

One other question I had for you just as we look at this whole 

question of funding. I think you and the panel know that I feel 

very strongly about the tax code. The group working on the 

Healthy American Act have had some briefings. There is a $200 

billion expenditure—or, I guess, it would be more accurate to say 

$200 billion in revenue forgone. It is more likely to be $300 billion 

in revenue foregone. It would be the biggest single item in terms 

of revenue foregone in this whole debate, and I feel very strongly 

that this is regressive in terms of its very nature. 

I mean, if you are a high flyer in this country today and you 

want to get a designer smile put on your face and your company 

has a plan, you can go off and get a designer smile put on your 

face, and the federal taxpayer, picks it up. If you are a hardworking woman in the local furniture store, your company does not 

have a plan, you do not get anything other than really getting your 

federal tax payment out there to subsidize the high flyer. 

It seems to me most economists agree on this, and I want to just 

ask you, Ms. Lambrew. Here is what Bob Greenstein who heads 

the Center of Budget and Policy Priorities, somebody I respect very 

much, said. Mr. Greenstein said, ‘‘I do not think there is much disagreement that the current tax treatment of health care is regressive.’’ Would you by and large share Bob Greenstein’s view? 

Ms. LAMBREW. Yes. 

Senator WYDEN. Great. Very good. 

Let me turn to Mr. Sheils, and for you Mr. Fronstin and you Ms. 

Lambrew, feel free to just chime in at any point. 

What I want to see, Mr. Sheils, is how the Healthy Americans 

Act addressees what I think are the big issues that people between 

55 and 64 care about. They care about affordability, they care 

about portability, availability, loss of insurance. So could you just 

answer a few questions with respect to that? 

Under the Healthy Americans Act, could a person in this age 

group move to another job if it did not offer health insurance? 

Mr. SHEILS. Yes. 

Senator WYDEN. Could they get employer health benefits if they 

worked less than full time? 

Mr. SHEILS. Yes. 

Senator WYDEN. Since they have health problems in my example, 

would it be possible to purchase or afford to buy health insurance 

on the individual and non-group market? 

Mr. SHEILS. I think that much is done in the plan to try and address the question of affordability. Community rating is a key part 

of that. It gets the premium to a level that is more affordable for 

everyone, rather than unaffordable for some and pretty affordable 

for others, and then it provides subsidies through a mechanism 

which we think will be fairly easy to use through the tax code to 

help people pay for that coverage and to essentially have that assistance at the point when they actually need it. So the premium 

subsidies are a key feature of what will assure that sort of availability. 

70 

Senator WYDEN. If we were to take somebody who was 62, say 

a woman who was 62, and her husband was retiring at 65 and is 

going to sign up for Medicare, but they would no longer have 

health insurance through his employer. What would happen in the 

next three years to that person until they were Medicare eligible? 

Mr. SHEILS. Well, really nothing. The way the program works is 

that your employment is really independent of where you work. 

You can get any insurance policy that is offered in your area. You 

can move from one job to another and never change your plan. You 

could move in and out of the labor force and never change your 

source of health coverage, and if you decided to change coverage, 

you became unhappy with your plan and you want to move on, you 

would still be able to do that. You would be able to do that as freely as would a person who has employer coverage available at work. 

Senator WYDEN. Now we are going to have to be very sensitive 

to the financial situation of small businesses. That is where most 

of the jobs are in our country. That is where certainly most of the 

jobs are in our state. I would be interested in knowing your view 

under the Healthy Americans Act. How would Mike Roach’s responsibility change in paying for health insurance coverage for his 

employees? 

Mr. SHEILS. Well, the change would come first in the form of a 

cashout. He would just figure out what he is spending on health 

benefits. There will be a weighted procedure for that. Then they 

will take that amount and give it to the workers in the form of a 

wage increase. Individuals would then be responsible for buying 

the insurance. 

If their employer is offering coverage and they want to use the 

employer’s plan, they would be permitted to do that. If they would 

prefer to go to a health plan available in their area through—they 

are called health help agencies—if they want to go to a plan in the 

area that—you will be able to make those changes. 

After two years, the employer is going to have to start paying an 

amount equal to up to 25 percent of the premium. For the very 

smallest firms, it is around 2 percent of the premium, which is a 

fairly small amount. As you work your way up, you know, the discounts off of the 25 percent requirement are pretty substantial. So 

the small firms in particular are going to find themselves contributing at least after the second year, and that contribution will for 

a lot of them be fairly small, but for no one it will be greater than 

25 percent of the premium. 

Senator WYDEN. I have just a couple of other questions, and then 

we have been joined by my friend from Delaware who has a great 

interest in these issues. So I will just ask a couple of additional 

questions. Then we will recognize the senator from Delaware. 

Some of the health insurance problems, Mr. Sheils, that people 

in late middle age face are essentially these various locks. There 

is a job lock, where they cannot leave or move to another job for 

fear of losing insurance. There is an insurance lock—they cannot 

change insurance companies. That was essentially the situation 

Mr. Lindner described. Or they cannot get individual non-group insurance or they cannot afford to pay for it. 

So how would the Healthy Americans Act, in effect, unlock some 

of these precarious economic circumstances that our citizens face? 

71 

Mr. SHEILS. Well, they make it possible for you to make changes 

without hurting yourself, without disadvantaging yourself. As I 

said, the premiums that you pay under the plan are community 

rated. They are the same regardless of your age or health status. 

So you are in the labor force, you know. In that respect, in terms 

of your health insurance premium, you are as healthy as anyone 

else is. 

That does not create any kind of a barrier to your moving. The 

arrangement is such that there will be an open enrollment period 

at the end of every year, and individuals would be able to acquire 

a change in their coverage without going through any sort of extraordinary steps. It will be irrelevant whether you are working, 

who you are working for, how much you make. All those things 

would be irrelevant in the process of selecting a health plan, retaining that health plan, or moving to another health plan when 

you decide you would prefer a different source of insurance. 

Senator Wyden. The last question I had for you, Mr. Sheils, deals 

with an issue that is getting a lot of discussion in our country. That 

is, how much is health reform going to cost? Certainly, there is no 

consensus in the United States about this. There are people saying 

it will cost hundreds of billions of dollars more but then there are 

a wide variety of projections. 

What we felt very strongly about in the Healthy Americans Act 

was right at the center of the reform effort. That is, the key issue 

of showing that this is not going to dramatically increase health 

spending. When The Lewin Group looked at the legislation, the 

judgment was that in the short term that it would essentially be 

revenue neutral. It was possible to do that for the short term. For 

the longer term, after 10 years, the plan generates a substantial 

amount of savings, close to $1.48 trillion. 

What are some of the critical elements in the legislation that you 

found helped to hold the costs down? 

Mr. SHEILS. Well, I think that, you know, typically if you were 

to just talk about covering the uninsured under today’s system, we 

would get an increase in health spending of about $50 billion. But 

that is because you are using the existing system and you are continuing to rely upon a system that does is really very expensive to 

administer. It also has some poor incentive structures for individuals and for physicians that actually cause us to use more health 

care. 

Under your proposal, you included provisions which are first designed to reduce administrative costs. Those uninsured people, yes, 

they may go out and start using more health care, but you are 

going to adopt a system which makes it simpler and easier to administer the system. So you have some savings there. You also 

change incentives in the system by really replacing the existing tax 

exclusion for employer-provided benefits with a fixed tax credit. I 

am sorry. In your case, it is a deduction. 

The idea here is that in today’s system the system actually rewards you if you spend more on health care. Right now, the premium that your employer spends for your health benefits is not 

taxable. Any contribution you make for your health benefits generally is not taxable. Some people have flexible spending accounts, 

which allow them to take, say, $3,000, put it in an account, use it 

72 

to pay for their out-of-pocket expenses. All of that is in pretax dollars. So there is quite a tax benefit there. 

Under your system, you give people a standard deduction for 

health care that is uniform. You get on average roughly the same 

tax benefit you are already getting from a tax exclusion, but it is 

set up so that you are not going to lose any tax benefits because 

you decided to go to a less costly plan, and the idea here is to make 

the tax code as neutral as possible when it comes to consuming 

health care. 

A lot of economists believe that this tax exclusion is really distorting the way people see their health care expenses. A lot of people do not even know what the premiums are for the benefits they 

have. I had a meeting—a brown bag lunch—at our work, and I 

asked people what they thought the health benefits costs were for 

our firm, and I actually offered $100 to whoever got it right. 

Virtually, no one knew the answer. I did not know the answer 

until I had checked a couple of days before. This is a firm filled 

with health care experts, half of whom are economists. We have no 

idea what we are spending on the health benefits we get. 

Under a system like this, you are going to see that. You are 

going to write the check for the full amount, and if you can find 

a lower-cost source of insurance, the check you write can be smaller. You can save some of that money for other purposes. This is a 

change in incentives. This is intended to fuel competition. It is intended to get people more cost conscious about their utilization of 

health care. 

It is a controversial ideal. But it is one of the few ideas out there, 

outside of regulating what providers are paid, outside of regulating 

payments for providers. There is really very little else out there 

right now in terms of a comprehensive cost-containment initiative, 

and I think this would have that feature. 

You are not alone. There are other plans with this in it. So your 

leadership has certainly been noticed, but it is certainly a feature 

in your plan. 

Senator WYDEN. Well, thank you very much. 

In fact, thank all three of you. We have a very strong advocate 

for older people here with Senator Carper, and let me recognize 

him for whatever questions he may have. 

Do not feel constrained by the 5-minute rule. 

Senator CARPER. Thank you. 

Senator WYDEN. I want you to be able to ask what you choose. 

OPENING STATEMENT OF SENATOR THOMAS CARPER 

Senator CARPER. Thank you. Thank you, Mr. Chairman. Thanks 

for pulling this together today. 

This is the second panel. I have four Committees that are meeting today, and we are working on housing legislation on the floor 

which I am keenly interested in, so I apologize for arriving here at 

the tail end. I would like to say we saved the best for last, that 

being me, but that is not at all the case. 

Senator Wyden indicated that I have a real concern for older 

Americans, and I used talk a lot about my mom. She died about 

two years ago, and I would always talk about my care for her and 

73 

for her generation. Now I guess I am getting to be an older American, I am 61 years old, and I try to take pretty good care of myself. 

I am going to ask you really two questions. 

One of the questions I want to ask is I presume some of you are 

pretty familiar—is it Mr. Sheils? 

Mr. SHEILS. Yes. 

Senator CARPER. Mr. Sheils, I presume that you are pretty familiar with the Healthy Americans Act which Senator Wyden has 

worked on for years and which I am pleased to co-sponsor with 

him, and you may have already had some discussion about the aspects of the legislation that you like, particularly within the context 

of the age 55 to 64 group. 

But let me just ask if when you look at this legislation, our legislation, what are some areas that you all think we can do better? 

Mr. SHEILS. Well, I have been working with Senator Wyden on 

it. 

Senator CARPER. I say that knowing everything I do, I can do 

better. 

Mr. SHEILS. Yes. I am sure everything I do can be done better, 

too. So it is probably a better question for my colleagues here. But, 

occasionally, we see features of it that we want to tailor. It comes 

up time and time again, and I know that during the year we added 

in the ability for employers to continue to provide health insurance, 

if they want, and that has been a very important improvement in 

the bill. So we have made those changes. 

We have added some cost-containment provisions, things having 

to do with clinical trials research, health information technology— 

a lot of people have come up with these ideas—all in an effort to 

strengthen the cost containment package. The incentives plus the 

clinical trials research so that you know what works and what does 

not, all those things together, we are hoping, is going to have a 

long-term cost-containment effect. 

Senator CARPER. All right. Let me ask our other witnesses. If I 

am asking an unfair question, I do not know how familiar you are 

with the legislation, but are there some aspects to it that you 

would like to see improved? Mr. Sheils has just mentioned a couple 

of changes that have been made in the past year. 

Ms. LAMBREW. Sure. I will say this in the context of giving you 

all credit for what you have done so far. It is a universal coverage 

bill with access that really matters, as we talked about previously. 

Accessibility for this particular age group is particularly important 

because their ability to access quality coverage is limited given 

their risk. I think access is, as John Sheils has mentioned before, 

pretty well dealt with. 

A couple open questions about affordability. This issue is something that is difficult to define. We are learning that as Massachusetts is unfolding its health reform plan. Whether the premiums 

are considered affordable for middle-income, low-income families is 

an open question weall have to look at, as is the issue of cost sharing. We know that right now people are underinsured in greater 

extents, so will there be sufficient and adequate protections on the 

cost-sharing front? I think this comes up especially important in 

this bill in the context of eliminating Medicaid and having Medicaid play a supplemental role. Will that be sufficient to make the 

74 

cost of services affordable for low-income people and people with 

disabilities who rely on the key protections in that program? 

I will also throw in a concern that I have about health savings 

account, which is, I think, what we are seeing in the Medicare 

medical savings account demonstration. When you have medical 

savings account, i.e., health savings account, next door to a comprehensive plan, people will fit themselves into where they are 

going to be most benefited, and if, like in the Medicare plan, the 

people can join them when they are healthy, get that account buildup and then switch to a comprehensive plan when they are sick, 

there are some concerns about whether or not that is a viable longrun model. 

But these are some of the things that I am happy to talk to your 

staff about. 

Senator CARPER. Sure. Thank you, ma’am. 

Is it Fronstin? 

Mr. FRONSTIN. Fronstin. 

Senator CARPER. Fronstin. Mr. Fronstin. 

Mr. FRONSTIN. Clearly, a lot of thought has been put into this 

bill, and a lot of work behind it. As far as recommendations go for 

improvement, that is not what we do at EBRI. We stay away from 

recommending changes. So I am going to pass on the rest of the 

question. 

Senator WYDEN. You have the best deal in town. 

Senator CARPER. All right. One last question I would like to ask 

you. There are some folks around the country, employers around 

the country in an employer-based health insurance system who 

have done a pretty good job of not only providing coverage for their 

employees, but also finding ways to rein in the growth of their 

health costs and premiums, hopefully not at the expense of their 

employees’ health. Starbucks is one that comes to mind. 

But there are a lot of other companies that are trying to figure 

out how to incentivize healthier behaviors, healthier lifestyles for 

their employees, and I think must be succeeding to some extent because they are demonstrating maybe some growth in health care 

cost premiums, but not double-digit growth, not the kind that some 

others are incurring. 

What might we do to help incentivize, to encourage more of that 

behavior to emulate those that are doing well, doing well by their 

employees and doing well by their bottom lines? 

Mr. SHEILS. Well, I think I spent too many years as an economist, I guess, but I think that incentives are the key thing for Congress to work on at every turn of the corner. 

Providers have to have an incentive to do it right, but to do it 

without waste. Individuals have to have an incentive to seek out 

those sources of coverage that are going to help them reduce costs. 

We need to be open to ideas. The bill, for example, is open to 

HSAs, for example. These are hot issues. Some people do not like 

them. We need to basically do as much as possible to set up these 

incentives. 

When employer insurance works, it works really well, and if a 

firm wants to continue providing coverage, they would be able to 

do that, and I know a lot of the larger firms are already working 

75 

on wellness programs. So they have this financial incentive to help 

people more. So I tend to think in terms of these incentives. 

Senator CARPER. All right. Thanks. 

Anyone else on that? 

Ms. LAMBREW. Just quickly two points. I actually want to underscore this because I think that in the absence of seeing a revised 

bill, in addition to giving people a choice of joining HSA, giving 

firms that self-insure that are doing a good job the option of continuing to offer that coverage is something that is right now, without that being changed in your bill, a major concern among some 

people who think that they have been doing a good job and people 

should have the choice of that type of insurance option. 

But the second thing I will say is that I have been spending a 

lot of time thinking about this issue of prevention and wellness because, with our chronic disease epidemic, it has to be a priority, 

and this bill clearly does take this on at some level. 

But sometimes we rely on insurance for too much. There is a 

point at which insurance is not supposed to be doing prevention per 

se. Why would they want to invest now in a benefit that is going 

to accrue to people in society 10, 20, 50 years out? 

So I have been working on a proposal called the Wellness Trust 

where we pull the prevention money out of the system, consolidate 

it, and figure out pay-for-performance and other incentive mechanisms to pay for it ubiquitously, get it out into supermarkets and 

schools and workplaces to really move prevention to a new model 

that is not an insurance model. That is something I would recommend you think about. 

Senator CARPER. All right. Thanks. 

Ms. LAMBREW. Thank you. 

Senator CARPER. Mr. Fronstin, anything you want to add? 

Mr. FRONSTIN. In the work that we have done in the past year, 

employers want a number of things. They want provider accountability, they want more price and quality transparency, they want 

more information technology, and they specifically told us that they 

viewed government as a partner. So they are certainly willing to 

partner with you to work at this, because they are concerned about 

health care costs as much as anyone else. Even those that are having success would like to continue to manage those costs in the future. 

Senator CARPER. All right. 

Mr. Chairman, I am sorry I got here so late, and I am glad I got 

here at all. 

Thank you to this excellent panel, and we appreciate very much 

your being here and your responding to my questions, I know to 

all of our questions. Thank you for your testimony. 

Thank you, Mr. Chairman, again for your leadership. 

Senator WYDEN. Well, I thank my friend for all his interest and 

involvement, and we are just thrilled to have you part of the group 

of 14. Thank you. 

A couple of points—I want to give you a chance—one on this 

question of prevention, Dr. Lambrew, is that I think you are absolutely right about the nature of what happens to prevention in today’s insurance market, no question about it. One of the reasons 

I feel so strongly about reforming the private insurance market as 

76 

it stands today is that I think in the future when individuals stay 

with companies with private insurance because they like it, because they get better treated, that creates new incentives for the 

private insurers to offer prevention. 

So we envision under our legislation that, when private insurance companies can no longer cherry pick and focus just on taking 

healthy people and sending sick people over to government programs more fragile than they are, they compete on the basis of 

price, benefit, and quality. You will see private insurers use as a 

draw for their particular package during the open enrollment season, ‘‘We have the best prevention programs around,’’ ‘‘We have the 

best programs for dealing with early incidence of diabetes,’’ that 

kind of thing. 

In fact, I will keep the record open for all three of you on this 

issue for prevention because I think it is an area where there is 

widespread interest in incentives. We try to do that with the Medicare portion of the bill where there would be reductions for seniors’ 

premiums if they lower their blood pressure and cholesterol. We try 

to do that for parents with young children where if the parents 

take the kids to preventive programs, the parents are eligible for 

reductions in their premiums. As far as I am concerned, we cannot 

do enough to create incentives for prevention, and we will just keep 

the record open for the three of you on that point. 

I want to give you three, actually, the last word. I am particularly glad we had a chance with Senator Carper’s question to get 

into what we have accepted in terms of a change in the bill from 

its original version to provide this role for the employer. It was our 

judgment that once you have allowed the worker to really see what 

their compensation is all about, because that is what health benefits are, it is kind of a myth that it is the employer’s money. It is 

really part of the compensation package for the worker, and as Mr. 

Sheils said, a lot of the most knowledgeable people in the country 

do not even know what is being spent. 

Once you have made that change people will see what is being 

spent and that it is their money, I think it is very wise to say that 

if the worker wants to choose between the various private-sector offerings—we offer that in the Healthy Americans Act—and the employer wants to offer coverage we feel very strongly about preserving that option. I think all three of you have today and in the 

past made statements indicating that you were interested in that 

sort of thing. 

So the last word to you three for being so patient and all the 

good work you have done. Mr. Fronstin, Ms. Lambrew, Mr. Sheils, 

last word for you three. 

Mr. Fronstin. Real quickly I would just say, in response to your 

comment about worker compensation and choice, there are some 

employers, large employers, very concerned about—even though 

they are cutting back on retiree health benefits—the implications 

of that, and they are trying to create markets for retirees to give 

retirees choices and accessibility that they do not have, and I just 

want to recognize two examples out there. 

One is a consortium of about 50 colleges and universities that is 

known as Emeriti Retirement Health Services that has created this 

coalition, is partnering with an insurance company to offer benefits 

77 

right now to Medicare-eligible retirees, but eventually they plan on 

extending that to early retirees, and a sizeable number of the 50 

never offered retiree health benefits to begin with. So they have 

been brought into this group. 

Then there is a group of large, private-sector employers organized by the Human Resources Policy Association that has created 

their retiree health access program that is, providing guaranteed 

issue benefits without, exclusions for health status to early retirees 

that are associated with those organizations. So they are very concerned about choice, and it is voluntary. It is a very small step in 

terms of the number of people that are covered, but I think it is 

very significant that this is where they are thinking. 

Senator WYDEN. I agree with you. 

Dr. Lambrew. 

Ms. LAMBREW. I will give you unsolicited advice;—which is, given 

the jurisdiction of this Committee, I think it would be useful in 

your future hearings and study to look at why it is important to 

Medicare for us to solve the health system crises, and I say that 

from the narrow perspective of today’s hearings. 

What we know is uninsured people, when they join Medicare, are 

sicker and more expensive. You find that after five years of being 

on Medicare, you can reduce some of that sickness gap by about 50 

percent, but there is still a cost to the program of being uninsured 

prior to Medicare. We know that the chronic disease epidemic cannot be stemmed after the age of 65. We have to each back into the 

younger populations to do it, and, more importantly, a lot of the 

cost drivers of Medicare are systemic. 

There is the lack of a high-quality, high-value system. It is a lack 

of prevention that we talked about. So, as a potential topic for future hearings, we hear a lot of ‘‘Medicare is the problem,’’ but I 

would argue that the health system is the problem, and if you call 

could focus on that as well, that would be greatly appreciated. 

Senator WYDEN. Spot on. Absolutely agree. 

Mr. Sheils. 

Mr. SHEILS. Thank you. I think we are very fortunate right now 

that we have—I think there are a dozen health reform bills in Congress right now—three presidential candidates who have plans that 

would greatly expand coverage in the United States. We are very, 

very fortunate, and I think that one of the things that you have 

clearly explored in your work here is a bipartisan approach to making some choices and making some decisions, and I am very encouraged by your leadership in that regard. 

I guess my one word of advice—and this is very easy to say, very 

difficult to figure out how to actualize on—is incentives, incentives, 

incentives. We need to change the incentives in the system. People 

have been saying this for 14 years. We need to change the incentives in the system as much as possible so that we have incentives 

for people to be efficient, for people to stress wellness, and for people to moderate their use of health care, frankly, in cases when it 

is of little or no benefit. 

Very difficult issues, but I think that focusing on incentives in 

those regards, continuing to be clever, continuing to try and change 

incentives for everybody in the system in any way that you can is 

going to be the key to the cost problem. I do not see how any proVerDate Aug 31 2005 08:14 Dec 17, 2008 Jkt 000000 PO 00000 Frm 00081 Fmt 6633 Sfmt 6633 H:\DOCS\45475.TXT SAG PsN: JOYCE
78 

gram would be sustainable if we have costs growing as they are 

now for the indefinite future. 

Senator WYDEN. Good one to quit on. It is very obvious that if 

you can make it attractive for people to do something, rather than 

taking yet another government approach where people feel like 

they are beaten over the head with a stick, it is much more attractive. So we have a lot of work to do in the days ahead, and I think 

this time there is a real sense that this is doable. One of the reasons it is doable is because we have good people like you three out 

there helping and offering good counsel and good suggestions. 

So thank all three of you for the work you do and your patience 

this morning. 

With that, the Committee is adjourned. [Whereupon, at 12:23 

p.m., the Committee was adjourned.] 

(79) 

A P P E N D I X 

MIKE ROACH RESPONSES TO SENATOR SMITH’S QUESTIONS

Question. As an owner of a small business trying to provide health insurance, 

what do you think of this type of assistance? Would you support this type of assistance at the federal level (i.e. a federal tax credit to small businesses who employ 

low-income workers)? 

Follow Up: Mr. Roach, what are your thoughts on this program? 

Answer. The Oklahoma program would improve the status quo but still leaves our 

business with the significant burden of being responsible for our employees’ health 

insurance. I am very interested getting out of the health insurance business and 

just running our clothing store. I am prepared to contribute toward a health insurance pool but prefer not to be involved with making health insurance decisions for 

our employees. 

Young or Old: Sick Individuals Pay Higher Costs 

We understand older workers tend to be sicker. However, whether young or old 

it’s clear even one sick employee or dependent can drive up an employee’s health 

care costs. 

Question. Are there situations in which younger workers at your firm have had 

an illness that impacted your company’s overall health care costs? In your experience, have you seen a difference in cost impact to your company depending on the 

employee’s age? 

Answer. As far as I know, employee age drives the cost of health insurance more 

than individual experience. Our older employees definitely increase our premiums 

substantially. 

LEE ANNE FITZPATRICK RESPONSES TO SENATOR SMITH’S QUESTIONS

Question. The issue of health reform is gaining increased attention both in the 

media and in Congress. Over the next year, my colleagues and I will devote time 

through hearings like these, and on the Senate floor, to this critical issue. It’s important for Congress to hear directly from the men and women who are struggling 

to afford health insurance coverage. 

Would you rather we make changes to the current system to make health insurance more accessible and affordable—so you could pick your health care plan and 

providers? Or would you like the government to provide your health care coverage? 

Answer. I feel that all Americans dependent of age, race and their economic situation should have equal availability and access to good health insurance. We should 

have good health options whether that be resources for well health or treatment for 

a serious illness or accident. I am more interested in a government program but I 

also feel it is our responsibility to help pay for this expense based on our incomes. 

PAUL FRONSTIN RESPONSES TO SENATOR SMITH’S QUESTIONS

Employer Perspectives 

According to EBRI, almost 60 percent of employers with three to 199 employees 

provide health care coverage to their employees. 

Question. How do employers view the current employer-based health care system? 

What types of improvements do employers think should be made to the system? 

Follow Up: What are the differences, if any, between how small and large employers view the existing employer-based health care system? 

Answer. Employers offer health benefits voluntarily because they think there is 

a business reason for doing so. They think it affects the overall success of their business, in that it helps with recruitment and retention. They also think that offering 

80 

health benefits has a positive impact on worker health and therefore worker productivity. Both small and large employers share these opinions. 

In terms of improvements, you can say that employers are all over the map on 

what they think should happen with the system. Large employers generally think 

that they should be getting more value for the money that they spend. They would 

also like to see the adoption of health information technology with an enhanced 

focus on wellness and prevention. They would like to see the measurement and publication of quality and price information. They would like to see the promotion of 

quality and efficiency. They would like a more competitive and accountable marketplace. Most medium and large employers, and employer associations, think that employer should continue to offer health benefits and continue to play an active role 

in the health care system, while other employers do not share this sentiment. Small 

employers are generally not as engaged on these issues as are large employers. 

Tax Deduction To Purchase Health Insurance Outside The Workplace 

During the budget debate last month, the Senate voted on an amendment offered 

by Senator DeMint that would have created an above-the-line federal income tax deduction for individuals purchasing health insurance outside the workplace. Although 

I voted for the amendment, it failed by a vote of 45 to 51. One of the arguments 

against the amendment was that if this change were to be enacted, it would mean 

the end to the current employer-based health care system. 

Question. What are your thoughts with respect to this argument? 

Answer. Any change to the way in which employment-based health benefits are 

taxed could mean the end of such a system of financing health insurance coverage 

in the United States. Presumably, young and/or healthy workers would be the first 

to leave employment-based health benefits for the individual market were a tax 

preference given to the individual market in its present form, where premiums 

charged generally vary by age and health status. This would be less true where an 

individual market is regulated to provide flat community rating so all would pay 

the same amount, with guaranteed issue to assure that even the sick can purchase 

coverage. To the degree that this happens in the present individual market environment, workers remaining in the employment-based system would be disproportionately old and unhealthy, which would drive up premiums in the employment-based 

system. The employment-based system would then be in a vicious cycle: As premiums increase, the youngest/healthiest workers would move to the nongroup market, leaving relatively older/less healthy workers in the employment-based system, 

which would continue to drive up premiums for employer coverage. This phenomenon is known as the ‘‘death spiral’’ because it means the death of employmentbased health benefits as a result of continued and increased adverse selection. As 

workers leave the employment-based system, for the nongroup market and drive up 

premiums in the employment-based system, employers would find coverage less and 

less affordable, and would eventually drop that coverage. Furthermore, as fewer 

workers demand health benefits through work, employers could respond to this lack 

of demand by dropping benefits. 

Retiree Coverage 

Based on your testimony, surveys show there has been no erosion in health insurance coverage rates among retirees ages 55 to 64 from 1994 to 2006. However, I 

understand these retirees are more likely to get employment based coverage 

through another family member rather than through their former employer. 

Question. Are you finding that retirees are getting coverage through a family 

member because it is less costly or more generous in terms of benefits? 

Are you finding that employers are passing on a greater cost to early retirees? 

Answer. Retirees may be getting coverage through a spouse as opposed to through 

a former employer for a number of reasons. First, fewer employers are offering those 

benefits. The Agency of Healthcare Research and Quality (AHRQ) reports that only 

about 13 percent of private-sector establishments offer health benefits to early retirees in 2005, down from nearly 22 percent in 1997. When the benefits are offered, 

employers have generally made it more difficult for retirees to qualify for health 

benefits and retirement, so not all of those who work for an employer that offers 

the benefit will qualify to receive it. They have been tightening eligibility requirements to control spending and reward longer-service employees. This might involve 

requiring workers to attain a certain age and/or tenure with a company before they 

qualify for health benefits in retirement. In addition to tightening eligibility for benefits, some employers have simply made the cost of participating in retiree health 

benefits more expense for retirees and some employers have gone so far as to eliminate their subsidy for retiree health benefits altogether for workers hired (or retiring) after a specific date. 

Health Insurance Challenges for Workers Ages 55 to 64 

81 

Today’s hearing focuses on some of the unique issues individuals 55 to 64 face 

to obtain and afford health insurance coverage, especially if they have pre-existing 

medical conditions. 

Question. Do workers age 55 to 64 face any special problems if they lose their 

health insurance—and do they have any special options for obtaining new coverage? 

Follow Up: If a worker age 55 to 64 loses coverage and has to obtain it on the 

individual market, what is the premium likely to be compared with the premium 

offered through an employer? 

Answer. Individuals ages 55–64 have a limited number of options for obtaining 

health insurance coverage. If a person is working they may be able to obtain health 

insurance coverage through a new job. Some retirees may have to go back to work 

to obtain health insurance coverage. Some individuals can continue to be covered 

under COBRA though they will be required to pay 102 percent of the premium on 

an after-tax basis, which may not be affordable. Married persons may be able to 

maintain employment-based health benefits through a working spouse. 

Individuals not eligible for employment-based benefits face a daunting situation 

when it comes to health insurance. Individuals seeking insurance on the individual 

market will be subject to medical underwriting and are likely to face preexisting 

condition exclusions or outright denials of coverage. Even when coverage is available, premiums are often unaffordable for an older person with health conditions 

with limited retirement income. Medicare is available for persons under age 65 with 

disabilities after a 29 month waiting period. Medicaid is available for certain low 

income people. 

Premiums for persons 55–64 will depend heavily on an individuals state of residence, health status, and choice of health plan. Individuals may be able to choose 

less comprehensive coverage by either picking plans with high cost sharing requirements or plans that exclude certain benefits. Coverage is more affordable when an 

individual chooses a less comprehensive plan, though that usually means an individual will be responsible for higher out-of-pocket costs. 

Finally, under the current system, employees generally pay only a small portion 

of the total premium, while they would pay all of it in the individual market. This 

approach allows the employer to keep all workers in the pool, rather than driving 

out the young and the healthy. 

Health Promotion & Worker Productivity 

As you stated in your testimony, employers have a motivation to provide health 

insurance and additional benefits as a means of protecting their investment in their 

workers. Health promotion programs have shown to decrease health care costs due 

to diet-related chronic disease and obesity, and to increase employee productivity 

through lower rates of absenteeism. Studies have reported a proven rate of return 

within 12 to 18 months, ranging from $2 to $10 for each dollar invested. 

Question. Based on your experience with employers, if they no longer offer health 

care coverage, would these wellness programs go away? Would employees have access to wellness programs on the individual market? 

Are employees less likely to enroll in these programs if they are not offered onsite? 

Answer. Employers offer health benefits because they think there is a business 

case for offering benefits. The availability of health benefits helps employers be competitive in the labor market and to the degree that health coverage improves worker 

health, it also improves worker productivity. If employers stop offering traditional 

health benefits they may or may not continue to offer wellness programs. If employers think that there is a business case for offering a wellness programs then they 

will offer such a program. 

Insurers already offer wellness programs to employers and may continue to do so 

to the individual market. If insurers find that offering such programs help them 

manage population health and controls health care use and costs, they are very likely to offer these programs. Whether insurers offer these programs depends on 

whether they expect individuals who would benefit from these program will stay 

with the insurer 12–18 months so that they reap some reward. 

Insurers and employers have found that most workers do not take advantage or 

wellness and prevention programs. This has led them to try many methods of increasing the use of such programs ranging from paying all costs to provision of dollar incentives and/or penalties. None of these experiments to date have led a majority of workers to participate. Were the employer to no longer provide health insurance these financial tools that have served to increase use at least somewhat would 

be less available. Employer interest in health employees would be no lower, but the 

capacity to affect health status would decline. 

82 

JEANNE LAMBREW RESPONSES TO SENATOR SMITH’S QUESTIONS

Medicare Buy-in 

In your testimony, you mention health care reform proposals that would expand 

Medicare eligibility to Americans under age 65 and would allow Medicare to ‘‘compete’’ with private health plans. 

Question. As we are aware, individuals in the commercial market experience higher costs or cost-shifting because of uncompensated care and underpayments in public health programs. I am curious if you or any of the second panel witnesses have 

done any research to determine whether expanding Medicare to early retirees, or 

everyone under age 65, would exacerbate the cost-shifting phenomenon? 

Answer. I have not conducted research on this topic. However, most research suggests that the premiums of insurance in the commercial market are higher than 

larger, self-insured plans due to greater administrative costs and less ability to bargain for lower provider payment rates. Uncompensated care does contribute to higher costs, but the shift due to an unpaid bill for an uninsured person is greater than 

that of a low payment from public programs. To the extent that a policy like a Medicare buy-in insures the uninsured and better manages the chronic illnesses and 

risks of people in this age group, it should lower uncompensated care and costs, not 

raise them. 

Could this type of proposal push health insurance coverage further out of reach 

of small businesses? 

If a Medicare buy-in was a viable option for people in this age groups, who tend 

to have higher health risks and thus premiums, it could lower the premiums for 

small businesses since the workers left in their insurance plans would be younger 

and less expensive. 

Should Reforms Target the Uninsured or the Employer Market? 

Question. As we have heard today, nearly 162 million individuals under age 65, 

or 62 percent, are covered by an employment-based health plan, while 18 percent 

of this population is uninsured. According to an EBRI survey, we also understand 

that most employees are satisfied with their employer-sponsored coverage. There 

are several reform proposals being considered, including those which would convert 

the employer system into an individual market. 

What is your opinion? Should reforms target the 18 percent of the uninsured population or make large-scale changes for the 62 percent of the population who already 

have coverage? 

Answer. In my opinion, policy makers cannot solve the problem of the uninsured 

without making health coverage more affordable for all Americans. The uninsured 

is not a single, static group. Over the course of two years, 85 million Americans 

have some gap in coverage. The problem is increasing affecting middle-income workers, people with higher education, and young adults. Policy makers could target subsets of the uninsured, but until systemic reforms are implemented to promote highvalue care, coordinated care, continuous coverage, and prevention, people will continue to fall from the employer system into the widening cracks in our health insurance system. 

Question. What are your thoughts on this disparate tax treatment—and what are 

the pros and cons to moving to a tax system that treats people who get their health 

care through their jobs the same as those who do not? 

Follow Up: Jeanne or Paul, do you have thoughts on this? 

Answer. I believe that public financing—both when it is provided as direct premium assistance or indirect tax breaks for insurance—can and should be used to 

leverage value-oriented, accessible, and affordable health insurance. The tax breaks 

for employer coverage support coverage that: (a) guarantees access to all workers 

and their dependents; (b) charges enrollees the same premiums regardless of age 

or health risk; (c) sets benefits based on employer and employee, not insurer, preferences; and (d) has lower administrative costs than policies sold in the individual 

market. These tax breaks could be improved; for example, they could be linked to 

benefit packages that promote high-value services and calibrated to provide greater 

assistance to low-income than high-income workers to make the premiums for such 

coverage more affordable. 

I do not believe that the goal of using public financing to leverage value-oriented, 

accessible, and affordable health insurance would be achieved by extending the current tax break for employer coverage to individual coverage. Currently, in most 

states, individual insurers can: (a) deny applicants coverage; (b) charge enrollees 

higher rates if they are older, have greater risks, or have had a health problem in 

their past; (c) set benefits to exclude coverage for preexisting conditions or high-cost 

services like maternity coverage; and (d) pass along underwriting and marketing 

83 

costs to enrollees through higher premiums. In short, this idea would use good 

money for bad coverage. 

That said, policy makers must develop viable accessible, and affordable insurance 

options for the large and growing number of people who lack access to employersponsored insurance. Numerous solid ideas would achieve this, from building on 

group purchasing pools to using regulation to make individual-market insurance 

function more like group health insurance. People without access to employer coverage should receive a comparable tax subsidy, but only for coverage that shared 

the positive features of employer-sponsored insurance. 

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