U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

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

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

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

80–694 2013

HEARING ON IMPLEMENTATION OF 

HEALTH INSURANCE EXCHANGES AND RELATED 

PROVISIONS 

HEARING 

BEFORE THE

SUBCOMMITTEE ON HEALTH 

OF THE

COMMITTEE ON WAYS AND MEANS 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

SEPTEMBER 12, 2012

Serial No. 112–HL15 

Printed for the use of the Committee on Ways and Means 

( 

ii 

COMMITTEE ON WAYS AND MEANS 

DAVE CAMP, Michigan, Chairman 

WALLY HERGER, California 

SAM JOHNSON, Texas 

KEVIN BRADY, Texas 

PAUL RYAN, Wisconsin 

DEVIN NUNES, California 

PATRICK J. TIBERI, Ohio 

DAVID G. REICHERT, Washington 

CHARLES W. BOUSTANY, JR., Louisiana 

PETER J. ROSKAM, Illinois 

JIM GERLACH, Pennsylvania 

TOM PRICE, Georgia 

VERN BUCHANAN, Florida 

ADRIAN SMITH, Nebraska 

AARON SCHOCK, Illinois 

LYNN JENKINS, Kansas 

ERIK PAULSEN, Minnesota 

KENNY MARCHANT, Texas 

RICK BERG, North Dakota 

DIANE BLACK, Tennessee 

TOM REED, New York 

SANDER M. LEVIN, Michigan 

CHARLES B. RANGEL, New York 

FORTNEY PETE STARK, California 

JIM MCDERMOTT, Washington 

JOHN LEWIS, Georgia 

RICHARD E. NEAL, Massachusetts 

XAVIER BECERRA, California 

LLOYD DOGGETT, Texas 

MIKE THOMPSON, California 

JOHN B. LARSON, Connecticut 

EARL BLUMENAUER, Oregon 

RON KIND, Wisconsin 

BILL PASCRELL, JR., New Jersey 

SHELLEY BERKLEY, Nevada 

JOSEPH CROWLEY, New York 

JENNIFER SAFAVIAN, Staff Director and General Counsel 

JANICE MAYS, Minority Chief Counsel 

SUBCOMMITTEE ON HEALTH 

WALLY HERGER, California, Chairman 

SAM JOHNSON, Texas 

PAUL RYAN, Wisconsin 

DEVIN NUNES, California 

DAVID G. REICHERT, Washington 

PETER J. ROSKAM, Illinois 

JIM GERLACH, Pennsylvania 

TOM PRICE, Georgia 

VERN BUCHANAN, Florida 

FORTNEY PETE STARK, California 

MIKE THOMPSON, California 

RON KIND, Wisconsin 

EARL BLUMENAUER, Oregon 

BILL PASCRELL, JR., New Jersey 

iii 

C O N T E N T S 

Page 

Advisory of September 12, 2012 announcing the hearing .................................... 2 

WITNESSES 

The Honorable Michael Consedine, Commissioner, Office of the Commissioner, Department of Insurance ........................................................................ 8 

E. Neil Trautwein, Vice President, Employee Benefits Policy Counsel, National Retail Federation ....................................................................................... 22 

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

America’s Health Insurance Plans ..................................................................... 30 

James F. Blumstein, University Professor of Constitutional Law and Health 

Law & Policy, Vanderbilt Law School ................................................................ 47 

Heather Howard, Director, State Health Reform Assistance Network, Lecturer In Public Affairs, Woodrow Wilson School of Public and International 

Affairs, Princeton University .............................................................................. 58 

(1) 

HEARING ON IMPLEMENTATION OF HEALTH 

INSURANCE EXCHANGES AND RELATED 

PROVISIONS 

WEDNESDAY, SEPTEMBER 12, 2012 

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

The subcommittee met, pursuant to call, at 3:20 p.m., in Room 

1100, Longworth House Office Building, the Honorable Sam Johnson presiding. 

[The advisory of the hearing follows:] 

2 

HEARING ADVISORY 

Chairman Herger Announces Hearing on Implementation of Health Insurance Exchanges and Related Provisions 

Wednesday, September 5, 2012 

*UPDATE: NEW TIME* 

ALL OTHER DETAILS OF THE HEARING REMAIN THE SAME. 

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

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

implementation of health insurance exchanges as authorized by the Democrats’ 

health care law (P.L. 111–148 and 111–152). The hearing will take place on 

Wednesday, September 12, 2012, in 1100 Longworth House Office Building, 

beginning at 2:30 PM. 

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

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

consideration by the Subcommittee and for inclusion in the printed record of the 

hearing. A list of witnesses will follow. 

BACKGROUND: 

The Democrats’ health care law calls for the creation, operation, and regulation 

of health insurance exchanges. The health care law states that exchanges must 

meet minimum operational standards, provide for the certification of qualified 

health plans (QHP), and facilitate Medicaid and plan enrollment. 

The health care law requires states to establish exchanges, in accordance with 

federal law and subsequent regulations, by January 1, 2014. Eligibility for premium 

and cost-sharing subsidies, which are financed through cuts to Medicare and tax increases on families and employers, are tied to enrollment in a QHP offered in stateestablished exchanges. If a state is unwilling or unable to establish an exchange, 

the law authorizes the Secretary of Health and Human Services (HHS) to establish 

a federal exchange within the state. States have until November 16, 2012, to declare 

their intentions. 

Open enrollment in the exchanges begins on October 1, 2013. Plans are required 

to be certified as a QHP prior to open enrollment. Additionally, enrollment is predicated on the establishment and operation of information technology infrastructure, 

referred to as the data hub, to accurately and reliably transmit sensitive personal 

data. Prior to open enrollment, states, insurers, and other federal agencies need to 

conduct tests with the data hub, to ensure citizenship, income, plan enrollment, and 

other data necessary for eligibility determinations can be transmitted accurately 

and securely. This is clearly a significant undertaking. 

However, to date, the Obama Administration has failed to publish final regulations to guide states, employers, and health plans as to what will be expected of 

them when open enrollment begins, including regulations on mandated benefit packages, new insurance regulatory mandates, expected enrollee costs, and much of the 

exchange-related information. Instead, the Administration has often relied on ‘‘bulletins,’’ which are not enforceable by law and are issued without first conducting a 

rigorous cost-benefit analysis. 

Between 2012 and 2022, the Congressional Budget Office (CBO) and Joint Committee on Taxation (JCT) estimate exchanges will process more than $1 trillion in 

premium and cost-sharing subsidies. Additionally, exchanges are also responsible for 

facilitating Medicaid enrollment, which CBO and JCT estimate will result in an additional expenditure of more than $640 billion. 

In announcing the hearing, Chairman Herger stated, ‘‘In just over a year, the 

Democrats’ health care law is slated to begin funneling more than $1.6 trillion in taxpayer and Medicare beneficiary and provider-funded subsidies 

through state-based insurance exchanges. However, the necessary regulaVerDate Mar 15 2010 00:18 Jun 04, 2013 Jkt 080694 PO 00000 Frm 00006 Fmt 6633 Sfmt 6621 I:\WAYS\OUT\80694.XXX 80694
3 

tions for exchange operation, plan design, and eligibility still have not been 

finalized by the Obama Administration, leaving many to question whether 

political motivations are delaying the release of much-needed guidance for 

states, employers and health plans. Such uncertainty threatens to saddle 

stakeholders with higher costs and also increases the risk of waste, fraud, 

and abuse. Given this massive undertaking, the hearing will allow the subcommittee to hear about the progress and the pitfalls associated with this 

unprecedented expansion of government into America’s health care system.’’ 

FOCUS OF THE HEARING: 

The hearing will focus on the implementation status of health insurance exchanges and related regulations. 

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS: 

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

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

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

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

with the formatting requirements listed below, by the close of business on September 26, 2012. Finally, please note that due to the change in House mail policy, 

the U.S. Capitol Police will refuse sealed-package deliveries to all House Office 

Buildings. For questions, or if you encounter technical problems, please call (202) 

225–1721 or (202) 225–3625. 

FORMATTING REQUIREMENTS: 

The Committee relies on electronic submissions for printing the official hearing 

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

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

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

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

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

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

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

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

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

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

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

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

by the Committee. 

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

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

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

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

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

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

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

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

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

f 

. 

4 

Mr. JOHNSON. We are going to bring the subcommittee to 

order. We have got two guys in here, the two most important ones 

in the whole Congress. 

Let me say our thoughts are with the Health Subcommittee 

chairman Wally Herger as he continues to recover in California 

from a hip replacement surgery and a recent bout with the flu, and 

I speak for all of us when I say we wish him well and hope for a 

speedy recovery. 

We are here today to discuss implementation of Obamacare insurance exchanges and related provisions, and I want to thank our 

witnesses for your flexibility so we will be able to hold the hearing 

today, and thank you for sticking around. I appreciate it. 

In the interests of time and to accommodate our witnesses, I ask 

unanimous consent that my opening statement be made part of the 

record. Do you agree to that? 

Mr. THOMPSON. Absolutely. 

Mr. JOHNSON. And Mr. Stark isn’t here yet, so, without objection, I would ask that you make his opening remarks part of the 

record as well. 

Mr. THOMPSON. Absolutely. 

Mr. JOHNSON. Thank you, appreciate that. 

Today we are joined by five witnesses, and given the home State 

ties, I will yield to the gentleman from Pennsylvania to introduce 

our first witness. Go ahead. 

Mr. GERLACH. Thank you, Chairman Johnson, for giving me 

the opportunity to introduce my fellow Pennsylvanian, Insurance 

Commissioner Michael Consedine. Last year Michael was appointed by Governor Tom Corbett to serve as our insurance commissioner for the Pennsylvania Insurance Department and was 

confirmed by the Pennsylvania Senate back in April of last year. 

The Insurance Department of Pennsylvania administers the laws 

of the Commonwealth as they pertain to the regulation of the insurance industry in order to protect insurance consumers. Given 

that Pennsylvania is the fifth largest insurance market in the 

United States and the 14th largest insurance market in the world, 

Michael certainly has his work cut out for him when you add it to 

the implementation of the State exchanges under the Affordable 

Care Act. 

Throughout his legal career he has concentrated his practice on 

regulatory and corporate matters involving insurance entities and 

consumers. From 1995 to 1999, he served as department counsel 

for the Pennsylvania Insurance Department where he represented 

the department in an array of litigation proceedings and on transactional filings, including major corporate restructurings. He has 

also practiced law with the firm of Saul Ewing in Philadelphia, 

where he was a partner and vice chair of its insurance practice 

group. 

He is a graduate of James Madison University as well as the 

Widener University School of Law, and given his vast experience 

and knowledge in the industry, he is an important asset to our 

Commonwealth. So we want to welcome him to the panel today and 

thank him for testifying on this important matter. 

Yield back. Thank you, Mr. Chairman. 

Mr. JOHNSON. Thank you. 

5 

Also testifying today are Neil Trautwein, vice president and employee benefits policy counsel at the National Retail Federation. 

Thank you for being here. Dan Durham, executive vice president 

of policy and regulatory affairs at America’s Health Insurance 

Plans; Jim Blumstein, professor of constitutional law and health 

law and policy at Vanderbilt Law School, director of Vanderbilt’s 

Health Policy Center; and Heather Howard, director of State 

Health Reform Assistance Network and lecturer in public affairs at 

Princeton University’s Woodrow Wilson School of Public and International Affairs. 

Thank you all for being here. You will each have 5 minutes to 

present your oral testimony, and your entire written statement will 

be made a part of the record. 

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

6 


Insert offset folio 001 here 80694.001
7 


Insert offset folio 2 here 80694.002
8 

f 

Without further ado, Commissioner Consedine, you are welcome 

to begin. 

STATEMENT OF THE HONORABLE MICHAEL CONSEDINE, COMMISSIONER, OFFICE OF THE COMMISSIONER, DEPARTMENT 

OF INSURANCE, HARRISBURG, PENNSYLVANIA 

Mr. CONSEDINE. Thank you very much, Mr. Chairman. 

Thank you for that introduction, Representative Gerlach. 

Good afternoon, distinguished members of this committee. My 

name is Michael Consedine, and I am Pennsylvania’s insurance 

commissioner. As some of you may know, I had the privilege of presenting testimony in front of your colleagues on the Committee on 

Energy and Commerce in March of last year about our experiences 

in Pennsylvania with the first year of the implementation of the 

Affordable Care Act. In that testimony I described Pennsylvania’s 

early experiences with the ACA as traversing a path that was 

marked by a lack of clear direction and troubling indications of the 

terrain ahead. 

Unfortunately, in the 18 months that have followed, very little 

has changed. We still lack clear direction, and the flexibility promised us has not materialized, something that at this point poses a 

significant barrier to our ability to make informed decisions on 

issues that could impact the lives of millions of Pennsylvanians. 


Insert offset folio 3 here 80694.003
9 

To date, the Department of Health and Human Services has 

failed to issue numerous regulations regarding how States are to 

implement the ACA. Most of these outstanding regulations address 

critical issues on the operation and requirements of key components of the ACA, like health insurance exchanges. The lack of detailed information from HHS has put Pennsylvania and many other 

States in a very difficult position. We are traveling down a road directionless while knowing the road will soon end. Pennsylvania, 

like many States, needs final rules and guidance on exchanges in 

order for us to determine what course is in the best interest for our 

State. 

These concerns and the absence of clear guidance prompted me 

to write a letter to Secretary Sebelius 2 weeks ago outlining 26 specific questions that we in Pennsylvania felt needed to be answered 

in order for us to make an informed decision on exchanges. I have 

submitted a copy of that letter to the committee for inclusion in the 

record. As of the date of this testimony, HHS has not responded to 

our letter. 

Pennsylvania is not an outlier in feeling directionless on this 

road. Recently I was asked to chair a National Association of Insurance Commissioners working group charged in part with collectively identifying the universe of unanswered questions and issues 

with exchanges in order to help other States begin to better understand the impact the operation of a Federal exchange may have on 

the insurance markets. We have yet to hold our first meeting, but 

already 22 States have signed up to participate in this working 

group. 

A poorly executed Federal exchange launch and transition from 

current market rules to the new ACA rules could result in severe 

market disruptions and a weakening of States’ control over their 

insurance markets. Continuing without answers to these crucial 

issues is like driving down a winding road at night without headlights. Nothing good will come of it. 

As chair of this working group, my hope is that we may provide 

the needed direction, guidance, and support for all States that are 

traveling on this road together so that we as regulators can help 

our States make informed decisions and minimize disruptions to insurance consumers and our markets. We sincerely appreciate the 

efforts of Congress in aiding us at this critical juncture. 

The road to exchange implementation is also a toll road. No matter what exit a State takes, it will cost something. However, without answers to our questions, the total costs are unknown, but 

seemingly grow every day. 

States are also being asked to make a selection of essential 

health benefits benchmark plan by the end of this month, but no 

rule, proposed or final, has been released outlining the details of 

this process. Will a State’s selection really be the selection, or can 

HHS modify a State’s choice or, worse yet, override the selection 

and replace it with another benchmark? At this point no State can 

answer those questions because there is no regulation. All we know 

is that the ACA clearly intended for the decision on essential 

health benefits to be made by the Secretary of Health and Human 

Services, so at this point any inference that States have binding decisionmaking authority on issues appears to be an illusion. 

10 

HHS has been similarly silent on how it intends to pay for a 

State exchange or what costs States should expect to incur whether 

entering into a partnership or merely interfacing with a Federal 

exchange. States are required to live within their fiscal means, 

which requires thoughtful budget planning. Without answers to 

these questions, it is impossible for States like Pennsylvania to 

adequately prepare. These questions are just a few of the many 

outstanding issues to which States like Pennsylvania need answers 

if we are to make informed decisions. 

In the end, the unfortunate but consistent delay of information 

from HHS will hurt Pennsylvania individuals and businesses the 

most. They are the passengers on this journey that is supposed to 

bring them to a destination of affordable and accessible health 

care. A poorly implemented Federal exchange, however, will put 

those passengers at risk. Two years after the ACA’s implementation, we see health care premiums in Pennsylvania continue to 

rise, with no promise of reductions in sight, and we see an increase 

in the bureaucracy surrounding health insurance regulation. As I 

told Secretary Sebelius in my letter, Pennsylvania’s focus remains 

on getting health care reform done right, not just done quickly, and 

certainly not done in a manner that puts Pennsylvanians at risk. 

Even though the lack of information from Washington is producing roadblocks to effective exchange implementation in many 

States, it will not stop Pennsylvania from continuing its own work 

towards achieving meaningful and sustainable health care solutions in our State. 

Thank you very much for the opportunity to testify before you 

today. 

Mr. JOHNSON. Thank you. 

[The prepared statement of Mr. Consedine follows:] 

11 


Insert offset folio 4 here 80694.004
12 


Insert offset folio 5 here 80694.005
13 


Insert offset folio 6 here 80694.006
14 


Insert offset folio 7 here 80694.007
15 


Insert offset folio 8 here 80694.008
16 


Insert offset folio 9 here 80694.009
17 


Insert offset folio 10 here 80694.010
18 


Insert offset folio 11 here 80694.011
19 


Insert offset folio 12 here 80694.012
20 


Insert offset folio 13 here 80694.013
21 


Insert offset folio 14 here 80694.014
22 

f 

Mr. JOHNSON. Did you get an answer from the Secretary? 

Mr. CONSEDINE. We did not. 

Mr. JOHNSON. Thank you. 

Mr. Trautwein, you are now recognized for 5 minutes, sir. 

STATEMENT OF E. NEIL TRAUTWEIN, VICE PRESIDENT, EMPLOYEE BENEFITS POLICY COUNSEL, NATIONAL RETAIL 

FEDERATION, WASHINGTON, D.C. 

Mr. TRAUTWEIN. Thank you, Mr. Chairman, Ranking Member 

Stark, and Members of the Committee. I appreciate the opportunity 

to appear before you today. 

My name is Neil Trautwein, and I am a vice president and employee benefits policy counsel with the National Retail Federation. 

I am pleased to appear here today on behalf of the NRF, which is 

the worldwide voice of retail in all channels and all forms of distribution. 

Retail supports one out of every four jobs in the economy today 

and contributes $2.5 trillion to the gross national product. We support effective implementation of the Affordable Care Act, even 

though we don’t support the underlying law. We are concerned, as 

people who have to live with the law, by the delays in issuing regulations and agency reliance on temporary guidance rather than formal regulations, but we do recognize that the agencies are balancing a lot of different concerns, and probably we wouldn’t have 

been happy had they issued interim final regulations in the first 

place. 

Still, we cannot afford to have the ACA stumble out of the starting gate, because it is our employees and individuals out there who 

will bear the brunt of the problems, particularly as regards health 

insurance exchanges, which is very important to employers and 

employees alike. 


Insert offset folio 15 here 80694.015
23 

The fate of exchanges will be a significant indicator for the ultimate success or failure of the Affordable Care Act. Unanswered 

questions abound on exchanges despite a final exchange rule. The 

lack of additional guidance on questions we and others have asked 

has not only slowed exchange planning in many of the States, but 

also employer planning for benefits in years 2014 and beyond. NRF 

and other members of the Coalition on Choice and Competition 

have worked hard to encourage both the States and implementing 

agencies to move forward, but the clock is ticking, and fall 2013 is 

very short away. We particularly fear that as the regulations are 

released late in the ballgame, a cascade of regulations will telescope onto employers and really frustrate them as they are trying 

to manage new responsibilities. 

To employers, genuine reform would lower the cost of coverage 

and make it easier to provide coverage. The ACA is nothing if not 

complicated, something that advocates and opponents both agree. 

We do credit the regulatory agencies for working hard and fairly 

cooperatively to implement the ACA, which has not been the easiest task in the world. 

The administration has been appropriately solicitous of the retail 

industry, partly because of our place in the economy, also because 

of the difficulty of covering the retail and restaurant workforce. 

Much of the regulatory guidance released to date will help accommodate our workforce concerns, but we really would prefer not to 

have to revisit these issues on a year-by-year-by-year basis. 

Much of the administration’s guidance lacks the notice-and-comment finality employers must rely upon to plan for the future. The 

consistent attention and cooperation of the administration, though 

it has been both welcome and helpful, doesn’t make up for that finality. 

Timing is becoming critical for benefits that are to be available 

in January 2014. My members tell us that they commonly need 6 

to 9 months to prepare for each year for coverage in an ordinary 

benefit year. 2014 will be anything but normal. It will be a lot of 

new issues and responsibilities to take on. Without final regulations in the first quarter of 2013, I fear that we will have a lot of 

attrition in the level of employer-sponsored plans. 

Again, I appreciate the opportunity to appear before you today. 

Fair and final regulations will help individuals, employers, health 

plans, and exchanges prepare for the difficult transition ahead in 

January 2014. The best chance health insurance exchanges have to 

succeed is to launch smoothly and as glitch-free as possible. NRF 

stands ready to work with the administration and Congress to help 

make the ACA more workable so long as it remains the law of the 

land. 

Thank you, and I look forward to your questions. 

Mr. JOHNSON. Thank you, sir. 

[The prepared statement of Mr. Trautwein follows:] 

24 


Insert offset folio 16 here 80694.016
25 


Insert offset folio 17 here 80694.017
26 


Insert offset folio 18 here 80694.018
27 


Insert offset folio 19 here 80694.019
28 


Insert offset folio 20 here 80694.020
29 

f 

Mr. JOHNSON. Mr. Blumstein, you are now recognized. Well, 

wait a minute. Durham, let me get you first. 


Insert offset folio 21 here 80694.021
30 

STATEMENT OF DANIEL T. DURHAM, EXECUTIVE VICE PRESIDENT, POLICY AND REGULATORY AFFAIRS, AMERICA’S 

HEALTH INSURANCE PLANS, WASHINGTON, D.C. 

Mr. DURHAM. Thank you, Mr. Chairman. 

Good afternoon. I am Dan Durham, executive vice president for 

policy and regulatory affairs at America’s Health Insurance Plans. 

I appreciate this opportunity to testify on health insurance exchanges. 

AHIP members are strongly committed to competing in the new 

marketplace and offering high-quality, affordable coverage to consumers who shop in exchanges. Since the day the Affordable Care 

Act was enacted, our members have been working around the clock 

to implement the law, while continuing to meet the needs of their 

200 million customers. Health plans are complying with the thousands of pages of regulations, data requests, and other requirements that Federal agencies have issued. In short, health plans are 

focused like a laser on implementation, while continuing to offer 

high-quality, affordable coverage within the parameters of the law. 

My written testimony focuses on key implementation issues and 

recommends five things: minimizing disruptions as we transition to 

exchanges, ensuring workable exchange operations and State flexibility, minimizing coordination to prevent redundant regulations in 

data collection, maximizing choice and competition, and addressing 

specific ACA provisions to make healthcare coverage more affordable. 

I will begin by emphasizing the urgent need for regulatory clarity 

with respect to exchanges. Health plans, States, and others need 

clear regulatory guidance on the following: First, the comprehensive insurance market reforms, including guaranteed issue, adjusted community rating, and geographic rating areas. Health 

plans need clear guidance on how these new market rules will be 

applied both inside and outside the exchange to appropriately develop and price their products. 

Second, essential health benefits. While we appreciate the flexibility provided in the bulletin released last December, health plans 

need final guidance on essential health benefit requirements to develop products that qualify for individual and small-group coverage. 

The process for developing new products is data intensive and time 

consuming and typically takes between 12 and 18 months. 

Third, cost-sharing reductions. While the bulletin released last 

February was very helpful, health plans still need clear guidance 

on how to develop additional products on the silver tier that will 

meet the cost-sharing reduction requirements. 

Fourth, actuarial value. While the bulletin was released last February, and we know a great deal of work has been proceeding, we 

look forward to the release of the actual calculator that will provide 

a simplified means for health plans to compute and report actuarial value for the plans they intend to offer. 

Fifth, risk-mitigation programs. While the final rule was released 

earlier this year, and significant work is ongoing, the specific parameters for reinsurance and the methodology for risk adjustment 

have yet to be released. Health plans will need to know the details. 

And, sixth, the certification standards for qualified health plans, 

including quality reporting requirements on the activities that imVerDate Mar 15 2010 00:18 Jun 04, 2013 Jkt 080694 PO 00000 Frm 00034 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\80694.XXX 80694
31 

prove health outcomes and patient safety. Health plans need to 

know all the requirements necessary to be certified as a qualified 

health plan in order to develop their products appropriately. 

Clear regulatory guidance in each of these areas is needed in the 

very near future. Unless such guidance is forthcoming, it will be 

difficult for health plans to complete product development, fulfill 

network adequacy requirements, obtain necessary State approvals, 

and ensure that their operations, materials, training, and customer 

service teams are fully prepared for the initial enrollment period 

that begins on October 1, 2013. 

Our testimony also outlines specific recommendations for ensuring that exchanges work efficiently and effectively by minimizing 

duplication of regulations, data collections, and exchange functions 

and adopting common standards for the flow of data between exchanges and health plans. 

And, finally, while the ACA expands coverage to millions of 

Americans and provides subsidies, several provisions of the law 

will have the unintended consequence of making coverage less affordable. Our written testimony examines three such provisions: 

first, the health insurance premium tax; second, the minimum coverage requirements; and, third, the age-rating bands. We strongly 

urge Congress to revisit these issues to avoid higher costs and potential coverage disruptions for the American people. 

Thank you again for this opportunity to testify. I look forward to 

your questions. 

Mr. JOHNSON. Thank you, sir. 

[The prepared statement of Mr. Durham follows:] 

32 


Insert offset folio 22 here 80694.022
33 


Insert offset folio 23 here 80694.023
34 


Insert offset folio 24 here 80694.024
35 


Insert offset folio 25 here 80694.025
36 


Insert offset folio 26 here 80694.026
37 


Insert offset folio 27 here 80694.027
38 


Insert offset folio 28 here 80694.028
39 


Insert offset folio 29 here 80694.029
40 


Insert offset folio 30 here 80694.030
41 


Insert offset folio 31 here 80694.031
42 


Insert offset folio 32 here 80694.032
43 


Insert offset folio 33 here 80694.033
44 


Insert offset folio 34 here 80694.034
45 


Insert offset folio 35 here 80694.035
46 


Insert offset folio 36 here 80694.036
47 

f 

Mr. JOHNSON. Professor Blumstein, now you can talk. 

STATEMENT OF JAMES F. BLUMSTEIN, UNIVERSITY PROFESSOR OF CONSTITUTIONAL LAW AND HEALTH LAW AND 

POLICY, VANDERBILT LAW SCHOOL, NASHVILLE, TENNESSEE 

Mr. BLUMSTEIN. Thank you, Mr. Chairman, Mr. Stark. My 

name is James Blumstein. I am a professor at Vanderbilt Law 


Insert offset folio 37 here 80694.037
48 

School and Vanderbilt Medical School. I am pleased to be invited 

to appear before the committee. I speak as an individual, however, 

not as a representative of Vanderbilt or any other institution. 

Briefly, I have been asked to address a very focused and very 

specific question: What is the scope of subsidy that is available on 

these new exchanges that are going to be created under the Affordable Care Act? Clearly there are subsidies available under the statute for State-run exchanges. The question I want to focus on is 

whether those same subsidies exist or can exist under the law for 

federally run exchanges. 

Secondly, the IRS has issued a rule that extends coverage of the 

subsidy to federally run exchanges. Is this rule sustainable? 

The subsidies have two roles. They support those who have incomes at 100 to 400 percent of the Federal poverty level, but they 

also serve to trigger an employer tax, a penalty, if an employer is 

obligated to provide—a large employer is obligated to provide coverage that is affordable and meets the Federal standards. And the 

question is whether or not the IRS, through the rule, can impose 

the subsidy requirement which, in turn, triggers this tax or penalty 

upon employers. My brief conclusion is the following: The Affordable Care Act, or the ACA, does not provide for a subsidy on the 

Federal exchanges, and the IRS exceeds its authority in promulgating this rule. 

So let me focus first on the provisions of the Affordable Care Act. 

The Affordable Care Act provides two types of exchanges, a Staterun exchange under Section 1311 and a federally run exchange 

under Section 1321. Under Federal constitutional principles, the 

Federal Government can induce States to establish exchanges, but 

they cannot force them or commandeer them to do that. So inducement is okay, but coercion is not. 

The ACA provides different treatment for these two exchanges. 

There is a subsidy expressly provided for State-run exchanges, and 

to make clear there is no ambiguity, under Section 1311, that is 

the section that provides for State-run exchanges, there is an important canon of construction in written documents, contract statutes called, excuse my Latin here, but expressio unius est exclusio 

alterius, which means the expression of one thing is the exclusion 

of another of the same kind. 

So there are two—very straightforwardly, there are two types of 

exchanges under the ACA, State run and federally run. The subsidy provided for in the ACA provides only a subsidy for the Staterun exchange. So under the exclusio unius principle, granting subsidy on one exchange and omitting that subsidy on the Federal exchange means that there is no grant of comparable subsidy on the 

Federal exchange, and so if the issue were only under the statute, 

it would be pretty straightforward, and it would be relatively easy 

to interpret. 

What about the IRS rule? The IRS expands the scope of coverage 

so that subsidies exist on both the State-run and the federally run 

exchange. There is no question that the IRS has rulemaking power 

to establish the rules of the road on how these exchanges will be 

implemented. The question is whether they have, narrowly speaking, power to extend the subsidy to these Federal exchanges and 

thereby impose a tax on large employers. 

49 

Federal agencies have gap-filling authority when an issue is either expressly delegated to it, or when, because of ambiguity, the 

issue is implicitly delegated that power to fill a gap. But the agency 

gap-filling power, because of ambiguity, must relate to the specific 

issue the agency addresses in its rulemaking not globally, but specifically. Here that question is the scope of the subsidy. 

In determining whether ambiguity exists, the courts have said 

that you look at traditional tools of statutory construction, for example, the expressio unius rule, and under the expressio unius 

rule, there is no ambiguity on the question of the scope of subsidy. 

Only State-run exchanges are qualified for that subsidy. The ACA 

provides for subsidy on only one of the exchanges, the State-run exchanges. It makes reference to the statutory Section 1311 to make 

sure that there is no ambiguity, so it mentions State-run exchanges, and it mentions Section 1311. Absent ambiguity, the IRS’s 

power to expand the subsidy vanishes, there is no gap to fill, and 

thus no power for the IRS to act as it did. 

Thank you, Mr. Chairman. 

Mr. JOHNSON. Thank you, sir. 

[The prepared statement of Mr. Blumstein follows:] 

50 


Insert offset folio 38 here 80694.038
51 


Insert offset folio 39 here 80694.039
52 


Insert offset folio 40 here 80694.040
53 


Insert offset folio 41 here 80694.041
54 


Insert offset folio 42 here 80694.042
55 


Insert offset folio 43 here 80694.043
56 


Insert offset folio 44 here 80694.044
57 

f 

Mr. JOHNSON. Ms. Howard, you are recognized. 


Insert offset folio 45 here 80694.045
58 

STATEMENT OF HEATHER HOWARD, DIRECTOR, STATE 

HEALTH REFORM ASSISTANCE NETWORK, LECTURER IN 

PUBLIC AFFAIRS, WOODROW WILSON SCHOOL OF PUBLIC 

AND INTERNATIONAL AFFAIRS, PRINCETON UNIVERSITY, 

PRINCETON, NEW JERSEY 

Ms. HOWARD. Thank you, Chairman Johnson, Ranking Member 

Stark, Members of the Committee. My name is Heather Howard, 

I direct the State Health Reform Assistance Network, or State Network. It is a program of the Robert Wood Johnson Foundation that 

is helping States implement the coverage provisions of the Affordable Care Act. The program is housed at Princeton University’s 

Woodrow Wilson School, where I am a lecturer in public affairs 

teaching about health policy, and before coming to Princeton, I was 

New Jersey’s commissioner of health and senior services. 

My testimony today calls on my experience working with States 

on exchange implementation and my previous service as a State 

health official. My comments are my own and not on behalf of 

Princeton University or the Robert Wood Johnson Foundation. 

From my experience I can tell you that while hurdles remain to 

be overcome, many States are actively implementing and are on 

schedule to stand up health insurance exchanges that will provide 

a competitive marketplace for individuals and small businesses to 

shop for affordable coverage just over a year from now. 

Today I want to talk about a couple of the themes that we are 

seeing in State implementation of health reform. First, we are seeing that States that want to move ahead with reform are effectively 

implementing exchanges. Second, those States that have not yet 

made significant progress have a path forward through the partnership or federally facilitated exchange. Third, we are seeing that 

the Federal-State relationship has been marked by flexibility and 

collaboration. And, finally, we are seeing that States are using that 

flexibility to innovate and tailor their solutions to meet their 

State’s needs. 

Let me start first with what we are seeing in the States that are 

successfully getting ready to implement the Affordable Care Act. 

We know that 49 States and D.C. have received Federal planning 

grants, 35 States received establishment grants to facilitate additional planning and implementation, 13 States plus D.C. have already submitted letters to HHS affirming their intent to establish 

a State-based exchange, and 15 States already have exchange 

structures in place. 

Now, that is 13 States and the District of Columbia that have already signaled their intent to establish a State-based exchange. We 

know that other States, though, are working diligently, but may 

need to use the partnership model to bridge the gap to when they 

can actually stand up a State-based exchange. This partnership 

model allows States to retain plan management and consumer assistance functions. Those are two areas where States have traditional expertise and regulatory authority. And we know that still 

other States have done little beyond basic research in preparing for 

an exchange, but many of them are studying the issues and preserving their options. And we know that the ACA clearly envisioned that not all States would stand up a State-based exchange, 

59 

so the federally facilitated exchange will provide consumers access 

to affordable health insurance products in those States. 

Now, we have heard today that the reason for State inactivity is 

a lack of guidance from HHS, but if a lack of guidance were a real 

barrier to progress, one would expect that the leading States would 

be confronting the most barriers and complaining the most loudly 

about the need for additional rules and regulations. In reality, the 

opposite is true. Those States, those leading States, are seizing the 

flexibility afforded them to pursue innovative approaches, and I believe, indeed, that the primary factor contributing to this variation 

in State activity is the political climate in the States. 

Now, we are also seeing that Federal officials are taking a flexible and collaborative approach to ACA implementation. In my experience they have provided enough guidance, responsiveness, and 

flexibility to enable the States to be successful. Indeed, we are seeing time and again that they have come down on the side of State 

flexibility, and something that as a former State official I know and 

appreciate. The best example of this is the guidance establishing 

the exchange blueprint which CCIIO has offered to the States. It 

is a step-by-step outline of what States will need to accomplish in 

order to comply with the ACA. HHS has set up a series of collaborative meetings, what they call establishment reviews, to go over 

State progress and address State concerns. 

Another example that is in my testimony that I can refer you to 

of this State flexibility is the essential health benefit process, 

where CCIIO has indicated that States can choose their own benchmark based on plans in their own States. 

Now, are more formal rules on EHB and other difficult topics 

still needed? Absolutely. But do implementation efforts need to 

come to a halt in the absence of formal rules on every open issue? 

State Network States and other States across the country are proving that is not the case. 

Now, finally, we are seeing that States are using the ACA resources to address long-standing problems and persistent needs. 

While ACA implementation has presented an enormous challenge 

to States, we know they are dealing with, of course, budget constraints, staffing constraints, but at the same time, I have talked 

to many State officials who are seizing the historic opportunity to 

expand health insurance coverage and are tailoring their implementation efforts to meet their State’s unique needs, and I offer 

many examples of this in my written testimony. 

So in conclusion, the range of tasks that lie before States and the 

Federal Government are both daunting and exciting in scope. Nevertheless, States that haven’t made substantial progress have a 

path forward under the partnership or federally facilitated exchange models, and States that want to implement reform have 

and will continue to make great strides in developing and implementing exchanges. 

Thank you. 

Mr. JOHNSON. Thank you, ma’am. 

[The prepared statement of Ms. Howard follows:] 

60 


Insert offset folio 46 here 80694.046
61 


Insert offset folio 47 here 80694.047
62 


Insert offset folio 48 here 80694.048
63 


Insert offset folio 49 here 80694.049
64 


Insert offset folio 50 here 80694.050
65 


Insert offset folio 51 here 80694.051
66 


Insert offset folio 52 here 80694.052
67 


Insert offset folio 53 here 80694.053
68 


Insert offset folio 54 here 80694.054
69 


Insert offset folio 55 here 80694.055
70 


Insert offset folio 56 here 80694.056
71 

f 

Mr. JOHNSON. Commissioner Consedine, you know, you said 

you had never gotten a response out of the Secretary. 

Mr. CONSEDINE. That is correct, Mr. Chairman. 

Mr. JOHNSON. And our concern is that HHS has been slow to 

provide States with the necessary information on a number of key 

issues. In reviewing your letter, your requests seem very reasonable, like asking for a detailed timeline on when the hundred fuVerDate Mar 15 2010 00:18 Jun 04, 2013 Jkt 080694 PO 00000 Frm 00075 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\80694.XXX 80694

Insert offset folio 57 here 80694.057
72 

ture or forthcoming exchange-related regulations cited by HHS will 

be released, and if HHS will be issuing final regulations to their 

numerous interim final rules, when HHS will release its rule governing federally facilitated exchanges, and when will they release 

a mandated benefit package rule, and you have never received an 

answer; is that true? 

Mr. CONSEDINE. Not today, Mr. Chairman, no. 

Mr. JOHNSON. And you asked all those questions? 

Mr. CONSEDINE. We did, indeed. 

Mr. JOHNSON. Well, let me get this straight. States are supposed to make decisions on benefit packages in the exchange by the 

end of the month; is that true? 

Mr. CONSEDINE. That is generally true at this point. 

Mr. JOHNSON. Yet HHS hasn’t released so much as a proposed 

regulation outlining the details of this process. 

Mr. CONSEDINE. We have guidance at this point. 

Mr. JOHNSON. What kind of guidance? Detailed? 

Mr. CONSEDINE. It is detailed in some ways, lacking in others. 

Mr. JOHNSON. And States are supposed to let HHS know by 

November 16th—that is not that far off—whether or not they intend to create their own exchange despite the fact that there are 

nearly 100 forthcoming exchange-related regulations, and HHS has 

yet to propose regulations on what a federally facilitated exchange 

might look like; is that correct? 

Mr. CONSEDINE. That is correct. 

Mr. JOHNSON. It is baffling that the Obama administration can 

expect State governments to make informed decisions, ones that 

could require tens of millions of dollars in additional cost in the 

face of such regulatory uncertainty. Perhaps I shouldn’t be surprised, however. By withholding information critical from stakeholders, stakeholders are paralyzed, and the Obama administration 

holds all the power. By keeping information from States, employers 

and health plans, the Federal Government’s takeover of our health 

care system will be complete. As a defender of states’ rights, that 

frightens me. 

I thank you for your testimony, all of you, and, Mr. Stark, I recognize you for 5 minutes. 

Mr. STARK. Thank you, Mr. Chairman. 

Thank the witnesses for enlightening us today. 

I am concerned, Mr. Consedine, that you are having trouble getting in touch. You wrote to Secretary Sebelius in August, the end 

of August, with a bunch of questions regarding exchanges, and 

have you had any meetings with them? 

Mr. CONSEDINE. Not since we sent the letter, Representative. 

Mr. STARK. Have you asked for any meetings? 

Mr. CONSEDINE. We have fairly regular discussions with the— 

with HHS, but not in response to our questions, no. We have not 

asked for a meeting at this point. 

Mr. STARK. I see. Well, if you contact Mr. Dioguardi, the Health 

and Human Services External Affairs, he will set up a meeting. If 

you didn’t have to catch a 4 o’clock train, I would set up the meeting for you this afternoon, and I am sure that they could help you 

far better than any of us could, and, you know, they would welcome 

the chance. So I hope that you will take advantage of that and 

73 

sometimes not wait for a letter. I mean, wait for a call back we 

learn in this business is to wait a long time. Make the second call, 

will you, and see if they can’t help you. I think they would cooperate with you and get you all the information you need. It may not 

make it any easier, don’t misunderstand me, but I think that they 

could probably answer a lot of questions for you. 

I am concerned. All of you, I can recall some time ago, had to 

implement supplemental insurance rules, right? Your State has? 

Mr. Trautwein? Mr. Durham? Ms. Howard? I mean, and there was 

some grumping and complaining by the insurance companies and 

others, but now it seems to work pretty well. Seniors like it. They 

can all look at the same policies, different in each State, but they 

get a selection of, what, 10 or 11 policies varying from very limited 

benefits to generous benefits, and the prices are all there, and it 

is wonderful for the consumers. And I shouldn’t think that the insurance companies, then, it would seem to me, and their brokers 

or salespeople are selling the same benefits at different prices, and 

they have to pitch the fact that they can provide good service. And 

that is—you know, it is hard to spell out what is good service, but 

people can check with references, or if it is a company, people dealing with group policies can find out from their other companies 

how well Aetna does against Blue Cross. 

And I think that it serves us so well and serves your constituents 

or States so well to have some kind of a determined outline so that 

people—so that we make it easier—not easy, but easier—to compare. Most of us are not experts in insurance, as you all are, and 

you are dealing with people who get the broad idea, but if they can 

see a list, and that is really what I think we are talking about, I 

think you do a real service to your constituents. 

I would say that it is too bad we don’t have anybody from California. But we are going to be ready on time, the Governor, our 

great Republican Governor, is ready to roll up his sleeves. He 

signed the implementing legislation in September, and I would 

hope that other States’ Governors would move ahead. 

Sometimes we just have to dig in and say, this is a pain in the 

butt, like a new tax regulation or a new whatever. You have got 

to go ahead and do it, and I don’t mean to say that we just put 

those things in law to make trouble for you, but we try and put 

them in law, so that we have to write laws here for every State in 

the Union. We can’t write one law for California and one—and so 

thank you for putting up with us, and please call on our staff. I 

know the Republican staff is willing to help and see if we can’t cooperate and get this done for all of our constituents, because in the 

end to bring in millions of additional people is going to save us all 

money. It is going to save the taxpayers money. It is going to lower 

in time the cost of medical care. 

The worst thing we could have is somebody without medical insurance or a way to pay for medical care ending up in the emergency room. That costs all of us; you, it raises our insurance premiums, it raises our taxes. And that is one thing I think we can 

all agree, we have to see that everybody gets covered one way or 

another. You may not like my universal health care plan, but let 

us work toward it. 

74 

Thank you very much, Mr. Chairman. Thank the witnesses 

again. 

Mr. JOHNSON. Did the Governor of California change parties? 

Mr. STARK. No, he hasn’t. Now, we have talked to him about 

that. 

Mr. JOHNSON. Well, you called him a Republican Governor. 

Mr. STARK. But then his wife would become a Republican, and 

then we would have real trouble. 

Mr. JOHNSON. Well, you called him a Republican. 

Mr. STARK. Well, he is. 

Mr. JOHNSON. Really? 

Mr. STARK. Arnold? 

Mr. JOHNSON. Arnold? Arnold’s not Governor anymore, I don’t 

think. 

Mr. STARK. Well, no, but he signed it. It was Governor 

Schwarzenegger, I am sorry, not Governor Brown. 

Mr. JOHNSON. Okay. Mr. Nunes, you are recognized. 

Mr. NUNES. Thank you, Mr. Chairman. 

I just want to state for the record that in my district from California, with Medicaid and Medicare going broke and the State of 

California in dire need of financial and budget reform, they actually can’t even pay the bills now. Governor Brown, who is a Democrat, is going to the people to raise taxes, and they are not even 

sure if those taxes will pay for the current requirements under 

Medicaid, what is known as MediCal in California. 

Ms. Howard, in your testimony that Federal officials have been 

responsive, I think you used the words ‘‘flexible’’ and ‘‘collaborative,’’ I am troubled to understand how it is collaborative or responsive when bulletins and guidelines are being substituted for 

the normal procedures which involve drafting clear rules allowing 

for public comment and then setting formal policy. 

Ms. HOWARD. Well, actually it is more collaborative the way 

they have been doing it because it allows them to meet with stakeholders. And I think we heard from some of the stakeholders here 

that they had been involved in that process, and that they are able 

to inform the formal policymaking role; that in the first year of 

ACA implementation, they issued a number of interim final rules, 

and there was an outcry from the regulated community that, you 

know, we want to be more collaborative. 

And so now they have taken the less formal approach, and they 

have been meeting with stakeholders, and I have certainly seen 

that. I saw the commissioner at the National Association of Insurance Commissioners meeting in August, and there were a number 

of Federal officials there holding office hours, meeting with State 

officials. 

So I think this process and EHB, the central health benefits, is 

another example of where the Federal Government has been flexible. They received input from an expert panel at IOM, they met 

with stakeholders, they developed initial guidance. Then they met 

with stakeholders again, they issued frequently asked questions, 

and in the end they came down on giving States flexibility and said 

to States, you can choose a plan that operates in your State; we 

are not going to come up with a one-size-fits-all Federal approach. 

75 

So I think we really are seeing the Federal Government be as 

flexible as they can. And as a former State official, I know you 

want clarity from the Federal Government, but that is not always 

the best thing, because what we are seeing is States are seizing 

that flexibility to come up with solutions that work for themselves. 

Mr. NUNES. Well, that sounds nice, but in reality here we 

passed legislation. I didn’t vote for it; many of us up here didn’t 

vote for it. But at the end of the day, there has to be clarity for 

folks like the insurance commissioner to implement law in his or 

her own State. 

So, Commissioner, how are you finding the flexibility? 

Mr. CONSEDINE. Representative, we hear the words ‘‘flexibility,’’ ‘‘collaboration’’ a lot. You know, what we often get, however, 

is we will be collaborative and flexible within a fixed sort of parameter of a mindset within HHS, but outside of that you quickly run 

into resistance. 

You know, we have a very good working relationship with HHS, 

a number of those folks are former insurance regulators, and I 

have nothing but admiration for the job they are trying to do, but 

what we often get—well, you know, what we are really after at this 

point is the guidance and the clarity that you talk about. And they 

are not, you know, in-the-weeds questions at this point. We are 

asking very general, broad questions like how much is this going 

to cost us? What level of autonomy are we really going to have? 

How is this going to work? And it is, we will get back to you soon. 

Mr. NUNES. Well, it sounds like the flexibility you are going to 

need is you are going to have to have friends on the Ways and 

Means Committee to get you appointments with the folks over at 

HHS who you can’t get a response from. 

I just want to be kind of general here just to get a general flavor 

for all of you on the panel, just on a scale of 1 to 10, just to kind 

of give the general public your view of whether or not how successful this is going to be by 2014 in terms of its implementation. So 

1 being it is going to be great, not going to be any problems, to 10 

being it is going to be a complete train wreck, and we have got a 

lot of problems before 2014. Why don’t we start with you, Mr. Commissioner. 

Mr. CONSEDINE. Thank you for putting me on the spot. 

Mr. NUNES. We can start on the other end if you like. 

Mr. CONSEDINE. I would give it an 8. I mean, we have very 

grave concerns at this point that people, if they don’t have good information, they are going to make bad choices, and when you are 

making bad choices when it comes to health insurance, that has 

very significant repercussions. 

Mr. NUNES. Mr. Trautwein? 

Mr. TRAUTWEIN. I worry that we are in that 7 to 8 range myself. I represent employers who are going to have to deal with the 

compliance issues and understand how to navigate through their 

responsibilities. I spent a lot of time trying to educate my members 

about how the law will come into effect and what their responsibilities will be. There is a lot of confusion out there. 

Mr. NUNES. Thank you. 

Mr. Durham. I am out of time here. The chairman’s being very 

gracious. 

76 

Mr. DURHAM. It depends. The sooner we get clear regulatory 

guidance, the closer we can get to 10 on the scale. 

Mr. NUNES. You mean to 1 or 10? 

Mr. DURHAM. It depends on—— 

Mr. NUNES. It depends on the guidance. 

Mr. DURHAM. The sooner the better. 

Mr. NUNES. Mr. Blumstein? 

Mr. BLUMSTEIN. Yeah. I don’t know that I can give you a number. Of course, I am from Tennessee where we implemented our 

TennCare program in about 60 days, so our folks are pretty good 

in navigating that process. 

I would have to say that it would be nice to get more clarity and 

have a rule of law. When you talk about negotiation, it is really not 

a rule of law, and that is the problem that I have with that process. 

Mr. NUNES. Great words. 

Ms. Howard. 

Ms. HOWARD. And like the professor here, I am a lawyer, not 

a math person, so I will just say that I think the building blocks 

are in place. The Federal Government has experience with Part D, 

with HIPAA, with the early implementation of the under 26 and 

the preexisting exclusion for kids, a lot of experience under its belt, 

and I am hopeful it will be close to that end of the spectrum. 

Mr. NUNES. So 3 heading to 1? 

Ms. HOWARD. You know, I am hopeful it will get there. Millions 

of people are hoping for it. 

Mr. NUNES. Thank you. 

Thank you, Mr. Chairman. 

Mr. JOHNSON. The gentleman’s time has expired. 

Mr. Kind, you are recognized. 

Mr. KIND. Thank you very much, Mr. Chairman. 

I want to thank the panelists for your testimony here today. 

Ms. Howard, let me start with you. Perhaps I missed the memo 

that went out somewhere that said this was going to be easy, that 

this was going to be seamless, that this was going to be perfect 

right out of the block. I think we all know, those of us who have 

been dealing with healthcare reform, how complicated and how difficult this is going to be to try to increase the access of healthcare 

coverage in our country, improve the quality of care, and bend that 

cost curve. 

This is probably the paramount issue that we are facing with as 

a Nation today. We are not going to get our fiscal house in order 

unless a lot of these reforms succeed, and being able to bring 

healthcare costs while expanding coverage and improving quality. 

I mean, it is as simple as that. And yet I hear a lot of people complaining that things aren’t happening immediately and perfectly 

right out of the block. 

Mr. Consedine, I appreciate your testimony, but I think you are 

here and you are a little more sophisticated than you are leading 

us to believe in the political world. You don’t send a letter to a Department like HHS and expect an immediate response within 2 

weeks and then rush down to Washington complaining about lack 

of responsiveness. I will guarantee you, you pick up the phone, you 

call and you set up a meeting down there, they will be more than 

happy to sit down with you and go through this chapter and verse. 

77 

And you are not going to need any leverage on this committee or 

any other Member of Congress to help grease the skids to get an 

appointment with HHS. 

Ms. Howard, I am hearing from you that with the collaboration 

that you are working with the States, willing to go forward on the 

exchange, that there has been some open communication, and yet 

we heard testimony today there is a lack of communication, there 

is a lack of direction, there is need for clear guidance. Is this what 

you have been experiencing in working with the 10 States that are 

trying to implement the exchanges right now? 

Ms. HOWARD. I will start by saying I think you are right; if it 

were easy, we would have done it already, and it would have been 

done generations ago. And we have some good early news today 

with the census numbers. I am seeing a drop in the uninsured 

rates. There is a lot of work to be done. 

What we are seeing in our States is that the States that want 

to move are able to move. And, in fact, they are seeing this flexibility as an opportunity. So I will take, for example—I am sorry 

that Congressman Blumenauer is not here right now, but Oregon 

is seizing the flexibility under the EHB rules. They have recommended the third most popular small-group plan in their State 

to be their central health benefits benchmark. So if there had been 

something from on high from the Federal Government saying, this 

is what the benefits package will look like, Oregon wouldn’t be able 

to do the analysis and see what works for Oregon. 

So certainly time and again we are seeing States are seizing this 

opportunity and are really able to do it in a way that works for 

them, and that is that Federalism that I think we want to see, that 

collaboration between the Federal Government and the States. 

Mr. KIND. Well, we just heard previously from Mr. Trautwein, 

and I appreciate his testimony, that by the first quarter of next 

year, we are going to need some clear direction, we are going to 

need clear rules at that point. Do you agree with that assessment? 

Ms. HOWARD. I agree. I agree, absolutely. I think the Federal 

Government has been prioritizing what they have done. They have 

done a number of final rules this year, they did the exchange final 

rules. They actually did the final rules on risk adjustment, which 

was really important, very complicated, and that is something they 

tackled early knowing that it was so complicated. So I think you 

are seeing a sequencing, and I think we will see more as soon as 

they are able. 

Mr. KIND. I thank you, and with all due respect to the chairman 

of this committee, this hearing may be a little premature in that 

regard, but as far as I am concerned, I am of the attitude the more 

oversight, the more hearings, the more feedback we can get, the 

better off I think everyone is going to be. So I don’t have a complaint having a hearing like this today, but let us also be realistic 

in regards to the timetable involved. 

I guess what is frustrating for me is, you know, the whole creation of the exchanges in the Affordable Care Act was based on legislation that I and others had introduced for years around here, 

called the SHOP Act, and every time I introduced that bill, I had 

an equal number of Republicans and Democrats supporting it, because, I mean, what is conceptually not to like? It is giving conVerDate Mar 15 2010 00:18 Jun 04, 2013 Jkt 080694 PO 00000 Frm 00081 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\80694.XXX 80694
78 

sumers choice to be able to go to a health insurance exchange and 

be able to choose their own plan amongst competing private health 

insurance plans through the power of the competition in the marketplace that is going to help drive prices down and hopefully improve the quality of care, and then we couple it with tax credits to 

make it affordable for those who can’t do it on their own, for lowincome families. That is really the whole concept behind the exchanges. 

By the way, I mean, if States want to join together and form a 

larger exchange across borders, they are allowed to do that, too, 

under the Affordable Care Act. There is no restriction for States to 

be able to partner and create even larger exchanges. If all 50 

States want to eventually create 1 national exchange, there is nothing stopping them or prohibiting them from doing it. 

But I sense from your testimony, Ms. Howard, that your opinion 

is that there is a difference in attitude and therefore approach from 

those States willing to make their best effort and go forward in the 

implementation of the exchange and those that for whatever political reason are choosing not to. Is that a reasonable assumption? 

Ms. HOWARD. I think that is correct. I think that variation in 

State approaches is due in large part to the political climate in the 

States, and the States that do want to move and are trying to seek 

or trying to implement are finding ways to do so. 

Mr. KIND. Well, I think this is a response to the 54 million uninsured and the fact that the small-group market has failed miserably for so many individuals, small businesses and family farmers, 

and if anyone has a better idea of how we can extend healthcare 

coverage on an affordable basis to more Americans, we are all ears. 

I mean, this is not all set in stone, and we are willing to make adjustments as we go along, too. 

Thank you for your testimony. I yield back. 

Mr. JOHNSON. Drink more milk. 

Mr. Reichert, you are recognized. 

Mr. REICHART. Thank you, Mr. Chairman. 

I want to quickly follow up, Mr. Blumstein, with some questioning as far as how you communicate with the government. I was 

a sheriff for a long time and had the opportunity to work closely 

with some of the Federal law enforcement agencies and know that 

sometimes communication by phone is an expedient way of getting 

things done, but sometimes you need things in writing. 

And I was just listening to your earlier testimony and your description of the two exchanges that exist, the Federal and the 

State, but we have information here, too, that lists some other— 

maybe these are subexchanges under the two main exchanges— 

American Health Benefit Exchange, the sub—the Small Business 

Health Options Program, the regional, or other interstate exchanges, the subsidiary exchanges, exchanges operated by HHS 

Secretary. And then there is a partnership exchange listed, and 

under that title it says, via rulemaking HHS has created and modified federally controlled partnerships—in quotes, ‘‘exchanges’’— 

which are not defined or contemplated anywhere in the law. 

So when we go to the question of how we communicate with the 

government, what would you rather see, something in writing, you 

send a letter, you get something back in writing so you would know 

79 

that the government has answered the question in a way that you 

can respond to; or does a phone call, personal meeting—what is 

your opinion on that? 

Mr. BLUMSTEIN. Well, I think that the relationships between 

citizens and their government should, when possible, be based 

upon rules. And we live in a rule-of-law society, and I think it is 

important to specify those rules; otherwise one lives in a world of 

governmental discretion. And governmental discretion can be exercised in ways that are appropriate, and it can be exercised in ways 

that are questionable, and it can be exercised in ways that are 

questionable and inappropriate. And so I tend to err on the side of 

having clearly delineated structures and rules and guidelines and 

to develop a process with some degree of transparency so that the 

accountability concern that citizens have is really adhered to. 

I have been in many negotiations, and, you know, what is negotiated can work for one situation and not for another. That sounds 

flexible. But it also runs the risk of bias, cronyism, using leverage 

in an inappropriate way. So I think that the way, the better way, 

to communicate is through formality. Now, that doesn’t mean that 

there is not a role. I think that Mr. Stark’s proposal to get together 

is not a bad proposal. I think that is a reasonable proposal. But at 

some point at the end of the day, the proposal has to be written 

down, and it has to be neutrally administered so that the particular government official is going to be—is going to say what the 

deal is, what the structure is, and you don’t always have to go to 

the government, please, Daddy or Mommy, can I do something at 

a certain time? There have to be claims of right, and that is what 

the rule of law is about. 

Mr. REICHART. If you have a piece of paper to look at, we all 

know what the rules are. So it bothers me that this last partnership exchange is not mentioned anywhere in the law or in any 

rules, but it is still a part of the plan that maybe some of you may 

or may not know about as yet. 

I want to focus on the cost real quick in referencing our State 

of Washington in particular with the commissioner and Mr. 

Trautwein. The healthcare law requires exchanges to be self-sustaining by 2015, as you well know, and this means that the Federal 

Government cannot support ongoing exchange operations and administrative costs. Washington State’s own exchange consultants 

have estimated that in 2015 the cost of operating the exchange will 

range from 40- to $60 million per year. So this runs between 11 

and $22 per member per month, runs about 500 to $1,000-plus for 

a family of four per year. And this is on top of the premium for 

health insurance and just to pay for the administrative costs of operating the exchange. That is the cost. So many of the functions of 

the healthcare exchange are already provided in the private sector; 

for example, verifying eligibility, billing, those examples. 

Why is it costing taxpayers in the State of Washington from 500 

to over $1,000 per family per year to receive subsidies through this 

structure? 

Mr. CONSEDINE. Congressman, I really don’t have much in the 

way of insight as to Washington State’s costs. In our experience 

looking at various exchange options in Pennsylvania, cost is really 

dependent on the design of the exchange you go with. Some States 

80 

are looking—were looking and are looking at designs where the 

State’s involvement is minimal, and, therefore, costs are less. Some 

are looking at a very engaged State exchange with additional levels 

of bureaucracy, employees, and of course that adds to the tab. 

Certainly from our perspective, coming from a State that does 

have its fiscal challenges, being cognizant of the cost is a significant part of the analysis process we are going through, because at 

the end of the day, those costs will be borne by the taxpayer directly or indirectly. And again, this is coming at a time when 

healthcare costs, even with the passage of the Affordable Care Act, 

continue to go up. So to add to that further by adding additional 

costs caused by potentially moving forward with the State exchange is, again, part of the dynamic that we are all looking at in 

weighing our options at this point. 

Mr. REICHART. I see my time has expired, Mr. Chairman. 

Thank you. 

Mr. JOHNSON. Thank you. 

Mr. Pascrell, you are recognized. 

Mr. PASCRELL. Mr. Chairman, the exchange grants program has awarded over $1.6 billion to States and territories in pursuit 

of this effort to implement the legislation. My home State of New 

Jersey—and I am glad we have a Jersey girl on the panel—my 

State of New Jersey has already received 8.6 million in grants for 

research, planning, information technology development to get the 

exchange off the ground; yet there is some political involvement 

there, which continues to get in the way. And it seems that certain 

Governors and certain legislatures would rather reject input into 

something critically important for their own constituents just to 

make a point. 

Now, I am convinced after listening to the distinguished panel, 

each and every one of you did a really fantastic job, that, number 

one, we are here discussing the bill and the act right now and the 

particular exchanges that are going to come about in 2014 because 

the past system or the system that we have now didn’t work. There 

is a lack of competition, and you have said it in different ways. 

There are some States where you had only three or four companies 

writing policies, and that is controlled by the individual insurance 

director or commissioner of that particular State. 

So it wasn’t easy just to talk about; there is no easy answer to 

why don’t we just have people out to cross the State lines and go 

into Nova Scotia, which is not a State, and buy insurance? It 

wasn’t that easy. 

How much competition do we have in most States? Very little. 

Is this what capitalism advocates? No. Don’t we essentially desire 

to increase competition? Yes. Is the objective of the exchange system to increase options in competition; is that what its purpose is? 

And do we have really an enlargement of a Federal system, whatever that is? The answer to the first question is yes, yes and yes. 

And the answer to the last question is no. 

How this is an enlargement of the Federal system—and remember, in the beginning it was called socialism; now we have gotten 

off that term, and we are using other terms now. How, when we 

want to increase competition, when people are going into the private market into these exchanges regardless of how they are estabVerDate Mar 15 2010 00:18 Jun 04, 2013 Jkt 080694 PO 00000 Frm 00084 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\80694.XXX 80694
81 

lished in each State, does that reduce private entrepreneurship? 

That is a good question, I think. I have never heard a good answer 

to it. 

Now, Mr. Blumstein said that—rightfully so—that there are only 

subsidies for those State-run exchanges. I think that is what you 

said, Mr. Blumstein, correct? If you read the legislation, I think it 

is pretty clear. So you omit subsidies, subsidies are omitted for 

Federal exchanges; in other words, for Federal Government exchanges. I would like to know Ms. Howard, Director Howard, what 

do you think about that? 

Ms. HOWARD. So we have—what is also clear is we have very 

clear guidance from the IRS on this issue. And the IRS actually 

testified yesterday before another subcommittee of this committee 

on this issue, and we have career attorneys at the Department of 

Treasury that have been looking at this and have come down, in 

all due respect to my colleague here, on the other side. And certainly what I am seeing across the country—— 

Mr. PASCRELL. What is ‘‘the other side’’? 

Ms. HOWARD. The other side is that the exchanges—that regardless of the type of exchange, consumers should have access to 

subsidies. 

Mr. PASCRELL. That isn’t what he said. 

Ms. HOWARD. Right. 

Mr. PASCRELL. Oh, okay. 

Let me ask you this question: In your testimony you identified 

several different forms, State exchanges. The forms they have 

taken are very different. It seems that a rigid approach would not 

be the most effective. I think we all agree with that. 

Can you discuss some of those different approaches that States 

are taking and address some of the unique State-level insurance 

market issues that might be beneficial to one State and not another? 

Ms. HOWARD. Thank you. That is a great question, and I will 

tie it back to your earlier point, which is that we do see variation 

across the country. In some States they have one insurer may have 

85 percent of the market, so you have incredible competition—you 

have incredible concentration. 

Mr. PASCRELL. You wouldn’t call that competition, would you? 

Would anybody on the panel call that competition. When one 

firm—when one company is writing 75 percent of the policies in 

that State, is that competition? 

Mr. DURHAM. I would just like to add here that you can go to 

healthcare.gov in any State, in any ZIP code, and you can see all 

the plans that are available now in the individual and small-group 

market. The plans have made an awful lot of effort to load those 

systems with what they have to offer in those States. So there is 

a lot of choice. 

Mr. PASCRELL. Well, things have changed in the last few years. 

It is interesting that when we debated the bill, it precipitated many 

changes in many plans and many offerings. So already I think before we get to the exchanges we have healthcare reform to some 

degree. But I interrupted you. 

Mr. JOHNSON. One more. 

82 

Ms. HOWARD. Congressman, you are right. There are different 

exchanges options available to the States. There is the State-based 

exchange in which the State runs all the functions of the exchange. 

At the other end of spectrum is the federally facilitated exchange 

with the Federal fallback. But there is this new model called the 

partnership model, which would allow the State to take on some 

of the functions of the exchange, and that model is attractive to 

some States that might not yet be ready to run their own exchange, 

might want to do only parts of it, and it really allows a State to 

maximize the areas in which they have expertise. 

A State like New Jersey that has a robust regulatory scheme, the 

Department of Banking and Insurance has a lot of expertise there, 

they might want to maintain plan management, or they might 

choose to maintain control over their insurance market rather than 

having the Federal Government come in and do it. So that is that 

partnership model, which is really a flexibility for the States. 

Mr. PASCRELL. Mr. Chairman, in conclusion, if I may, if—we 

heard complaints about certain States having a problem getting to 

the goal line. One-third of the population of this country right now 

is living—are living in States that have a darn good exchange plan 

moving, one-third of the population already. 

Mr. JOHNSON. Okay. 

Mr. PASCRELL. Thank you. 

Mr. JOHNSON. The gentleman’s time has expired. 

Mr. Gerlach, you are recognized. 

Mr. GERLACH. Thanks, Mr. Chairman. 

Commissioner Consedine, you have had a couple of questions 

from some of our Members of the Committee today about your August 23rd letter to Secretary Sebelius and whether realistically you 

have given her enough time to respond to your questions. But I understand also you might have had prior meeting with HHS on a 

number of issues that you still continue to question. Is that accurate? And if so, what was the outcome of that meeting or meetings? 

Mr. CONSEDINE. I appreciate the question, Representative, and 

the opportunity to clarify. 

The questions that we have in the letter are questions that we 

have been asking for months now as part of our meetings with 

CCIIO and HHS that we do have. And they are very accommodating in meeting with us and sitting down with us, but what we 

haven’t gotten to date are answers, and guidance and the clarity 

that we need on these questions. So really the letter is the formalization of the process that we have been going through for 

months now. 

And, you know, we are nearing the end of sort of the timeline 

we have been given. We have until November 16th really to make 

a decision as to when—what the States are willing to do. So we 

need these answers. 

Mr. GERLACH. Okay. Also understand there is a July 23rd letter to Kathleen Sebelius from the Republican Governors Policy 

Committee asking a whole slew of questions very similar to the 

questions you have raised in your August 23rd letter. And since 

Governor Corbett of Pennsylvania is a member of the Governors association, do you know whether or not he has received any responses to that letter or to the questions raised in that letter? 

83 

Mr. CONSEDINE. To my knowledge, there was a response to the 

letter, but not answers to the questions that were raised. 

Mr. GERLACH. Ms. Howard, you indicate, I think, on two occasions that really the lack of progress in moving forward with State 

exchanges is really connected to the political climate in a State and 

not maybe other things. Are you suggesting that the questions 

posed by Commissioner Consedine or the Republican Governors 

Policy Committee, those questions really aren’t valid or fundamental as to whether a State ought to move forward in establishing 

a commission—excuse me, an exchange? 

Ms. HOWARD. No, not at all. I think there are important questions to be raised, and this is a deliberative process. And I think 

they are in constant dialogue, as we have heard actually, with 

CCIIO, and I think it is constructive to be asking these questions. 

I just make the larger point that while some States may be in 

a holding pattern now because of external forces, external factors, 

the—you know, some States, the States that really do want to 

move, are able to move absent the guidance that they are asking 

for. 

Mr. GERLACH. As somebody that has been in the State legislature in Pennsylvania, before I would be asked to put up a vote on 

whether or not to move forward with something that commits taxpayer dollars at the State level, I would want to have answers to 

the questions of how much it is going to cost the taxpayers of Pennsylvania to have this exchange. Based on your work with the foundation, do you know how much it is going to cost taxpayers in 

Pennsylvania to have an exchange in the Commonwealth? 

Ms. HOWARD. No, I don’t think we know that yet, because it is 

an evolving—we don’t even know what policy decisions and what 

type of exchange Pennsylvania would choose to have. 

Mr. GERLACH. Here is a question from one of those posed to the 

Secretary: What financial costs will the State face if it elects to default on a federally facilitated exchange? Do you have an answer 

to that question? 

Ms. HOWARD. No. That is the issue that is pending, the final 

federally facilitated exchange rules. 

Mr. GERLACH. Another question: If HHS operates an FFE in 

the State, will the multiple State insurance plans be required to 

adhere to all applicable Pennsylvania insurance laws? Do you know 

the answer to that? 

Ms. HOWARD. I do not. 

Mr. GERLACH. So how can you expect any State to really put 

forward a public position on whether to move forward with an exchange if it doesn’t know the impact on costs to the taxpayers of 

that State or to the insurance laws of that State? Isn’t it prudent 

for the State decisionmakers to have those answers before they 

make that decision? 

Ms. HOWARD. Well, I think they are all proceeding prudently 

in the sense that they are all investigating their options and making policy decisions. And I do think it is admirable that they put 

so much effort in. And I know there are a lot of people working 

hard in Harrisburg, and in Trenton and in all these State capitals. 

I do go back, and while every ‘‘I’’ may not be dotted, there has 

been substantial guidance. In fact, we heard, I think, one Member 

84 

testify about thousands of pages of guidance. So I think there is 

substantial guidance out there. 

Mr. GERLACH. But if the right questions aren’t being answered, 

you still don’t have the information as a decisionmaker in a State 

to move forward. So just as you acknowledged that the August 23rd 

letter from Commissioner Consedine and the July 23rd letter from 

the Republican Governors Policy Committee were appropriate to 

raise with the Secretary of HHS, wouldn’t it be prudent for her to 

respond as soon as possible? 

Ms. HOWARD. I think so. I do know, having been a government 

official, that sometimes getting letters out is not always easy. And 

I do agree that often the phone may be the best way, and I think 

that hopefully will be one outcome of today. 

Mr. GERLACH. But answers need to be in writing because there 

could be litigation down the road, could there not? And so having 

formal answers in writing from both sides would be a very important part of building the record in making sure the proper decisions 

are made; would you agree? 

Ms. HOWARD. Not always, because, again, sometimes on the 

spectrum of Federal options, the Federal Government could be very 

prescriptive, and they could handcuff the States. And we are seeing 

the States that want to implement are seizing that flexibility and 

moving ahead. 

Mr. GERLACH. If I were in the State, I think I would want 

something in writing before I could rely on it from some Federal 

agency. Thank you, I yield back. 

Mr. JOHNSON. Good point. 

Commissioner, I understand you have got to catch a train, so I 

just want to thank you for being here and for answering our questions so intimately. Thank you again, and you are excused, if you 

desire. Thank you. 

Mr. CONSEDINE. Thank you, Mr. Chairman. 

Mr. JOHNSON. Mr. McDermott. Doctor, you are recognized. 

Mr. MCDERMOTT. Thank you, Mr. Chairman. 

Mr. Chairman, I disagree with the main point of this hearing. If 

the point is that the administration won’t be ready for implementation of the Affordable Care Act, then I am here to tell you that is 

wrong. 

I come from the State of Washington, which is leading the way 

in moving forward with the Affordable Care Act. My office is in regular contact with all the principal players in Washington State, 

and they say that all systems are go. The legislature has enacted 

the authorizing legislation necessary to implement the act. In 

March of this year, the Governor signed into law the second and 

final piece of exchange legislation. 

Washington State is one of the first States to receive a Level 2 

establishment grant funding to build its exchange. Washington is 

also one of the first States to select a benchmark healthcare plan. 

It is a Blue Shield plan that is currently the most popular smallgroup plan in the State of Washington. 

The exchange now has an 11-member board of directors, including various operating committees. The exchange also has in place 

an advisory committee and working groups that focus on consumer 

protection and plan management, among other things. The exVerDate Mar 15 2010 19:55 Jun 04, 2013 Jkt 080694 PO 00000 Frm 00088 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\80694.XXX 80694
85 

change has a CAO and staff in place. They have hired the contractors to build the necessary user infrastructure. They are on track 

to get conditional certification from the administration in January 

and to start using testing in the spring. 

The exchange CEO tells me they are projecting to have 300,000 

Washingtonians in the exchange, in the pool, by 2015 in a State 

with 1 million people without insurance, which spends $1 billion 

annually on uncompensated care. Getting those people into plans 

is what I am most focused on, not on picking fights over perceived 

faults with the new system. I think if you are looking for excuses 

for not implementing, you can find them. If you want to implement, 

you can do it, because the State of Washington is perfect proof that 

that is going on. 

And what I hear from the State about the administration is really nothing but praise. They have said that HHS is working with 

them at every step of the way and giving them all the guidance 

and support they need. So if my colleagues on the other side of the 

aisle are here to argue that stakeholders don’t have the tools they 

need to get health reform off the ground, I am here to tell you I 

am not buying it. 

Mr. Kind is correct, this is a premature hearing, because you 

could have had States out here that are actually up and running. 

You brought one person who says, I couldn’t get them to write 

down exactly how I should do it. Well, you can always find that 

kind of stuff, but there are other places where it is in place, working, and Washington State is ready to go. 

And I think that I just want to say one last thing before I stop 

here, and that is the chairman said in his opening statement that 

the administration is implementing the Affordable Care Act, quote, 

‘‘behind closed doors with little or no public input.’’ Now, I would 

like to submit for the record, and I ask unanimous consent for that, 

for a record—a list of 34 just exchange-related conferences, meetings, listening sessions and consultations HHS has held since December 2010. Thirty-four meetings is hardly without public input. 

[The information follows: The Honorable Jim McDermott] 

86 


Insert offset folio 58 here 80694.058
87 


Insert offset folio 59 here 80694.059
88 

f 

Mr. MCDERMOTT. This is a process that is working in some 

States because the political leadership wants it to work, and is not 

working in certain places because the political leadership thinks 

that this is how they will use it to defeat President Obama in the 

election. And there is a very clear break point. It is possible to implement, it is being done. 

And will there be problems? I am certain we are going have problems in the 2013 session that we are going to be in here trying to 

tinker with this and tinker with that and make things, because you 


Insert offset folio 60 here 80694.060
89 

can never design a human system without making mistakes. You 

cannot anticipate all the problems that you face. 

But we are on our way in Washington State, and it can be done, 

and anybody who says it can’t simply is unwilling to look at the 

facts on the ground in some States. You heard about Oregon from 

Ms. Howard, and I can give you Washington. These are the States 

with the lowest healthcare costs in the country. Medicare costs in 

the State of Oregon and Washington are the lowest. And we also 

are implementing our exchanges because we are getting ready to 

make this thing work. 

I yield back the balance of my time. 

Mr. JOHNSON. Thank you. The gentleman’s time has expired. 

We don’t like the program in Texas either, and there is no taxes 

in Texas. 

Dr. Price, you are recognized. 

Mr. PRICE. Thank you, Mr. Chairman. And I want to thank the 

witnesses as well. I am sorry Mr. Consedine had to leave. 

I was pleased to hear, though, from Mr. Kind that nothing is set 

in stone. Whew, thank goodness that nothing is set in stone. I 

thought this was a law that was moving forward. 

And Mr. Kind also said, look, if anybody has got a better idea, 

just bring it to us, we are happy to listen to it. Well, the fact of 

the matter is that during this whole process, there were many of 

us who felt like we had a better idea, and we appealed to the administration week after week after week to just sit down with us, 

just talk with us about these ideas, because we believe that you 

can solve all these challenges without putting Washington in 

charge. And the administration ignored us at every single turn 

week after week after week. So there is great skepticism on our 

side when we hear someone say, oh, if you have a better idea, we 

are happy to listen to it. 

The question I wanted to ask Mr. Consedine was who is subject 

to the penalties if you don’t comply with the law? Ms. Howard, who 

is subject to the penalties if the law is not complied with; is it the 

Federal Government that is subject to the penalties? 

Ms. HOWARD. I think it is—which—— 

Mr. PRICE. Is it the Federal Government? 

Ms. HOWARD. I don’t believe so. 

Mr. PRICE. Heck no. It is these folks, the folks in the States, the 

folks trying to comply with this law. And all that we are hearing 

is that the rules haven’t been promulgated in enough time to be 

able to put things in place, and they are working as hard as they 

can. 

Mr. Durham, you have a paragraph in your testimony: Clear regulatory guidance in each of these areas is needed in the very near 

future. Unless the guidance is forthcoming, it will be difficult for 

health plans to complete product development, et cetera. 

How long does it take usually to—when the Federal Government 

or when it—there are major changes to rules and regulations that 

come out, how long does it take the plans to come up with the programs and products to be able to market to the public? 

Mr. DURHAM. I believe it typically takes 12 to 18 months to 

fully develop a product, get it through the State review and get it 

to market. 

90 

Mr. PRICE. Twelve to eighteen months, Mr. Chairman. 

And, Mr. Durham, am I correct in saying that the time that the 

enrollment period begins that you are required to have something 

available is October 1st, 2013; is that right? 

Mr. DURHAM. That is correct in the statute. 

Mr. PRICE. We are bumping up against that right now. 

Mr. DURHAM. Yes. 

Mr. PRICE. So, Mr. Chairman, it is clear that HHS has been delinquent in their responsibilities and what they have been able to 

do. And these folks are trying just as hard as they can to comply 

with the law. 

Mr. Durham, I also want to touch on the whole issue of choices 

for patients, because as a physician, having cared for patients, 

what they want are choices. They want to be able to know who is 

going to take care of them. They want to be able to know that they 

are going to be able to pick a plan that has the doctors that they 

want in that plan to care for themselves and for their family. 

Do you know if your members are planning on offering Stateand Federal-facilitated exchanges in all the States where they have 

networks? 

Mr. DURHAM. I don’t know that because it really depends upon 

getting clear regulatory guidance here before plans can really decide which markets they want to compete in, and so I think that 

is a critical step in the process here. We have some guidance as has 

been discussed today, but there is still guidance missing, and to be 

able to develop products, get them through the various State review processes, and if they have to be a qualified health plan, there 

are additional requirements, that will take time. And I think it depends in terms of plans being able to compete in those markets 

when they get the final guidance to be able put together the product and comply. So it is very important, but they want to serve 

their customers, absolutely. 

Mr. PRICE. But it is possible that the guidelines will come out 

and make it such that it will be impossible for them to provide 

products or—to individuals out there in certain markets; is that accurate? 

Mr. DURHAM. I guess that is possible. We would hope that 

would not be the case, because the plans really do want to compete 

in these marketplaces. 

Mr. PRICE. Mr. Durham, I also want to talk about some of the 

plans—one requirement for the plan sold for small-group markets 

in the exchange is they have got to meet annual deductible limits; 

is that correct? Isn’t that right? 

Mr. DURHAM. Yes. In the statute the deductible limits are 

$2,000 for a single individual and $4,000 for a couple. 

Mr. PRICE. Now, my sense, my understanding about that is that 

that will make it extremely difficult or problematic for small business employees to enroll in, for example, a high-deductible health 

savings account or catastrophic plan. 

Mr. DURHAM. That could be the case. We haven’t received the 

clear guidance there yet. We expressed in terms of a bulletin on 

this issue that in—reach the actuarial value requirements, they 

ought to allow and count the employer’s share to health savings account and the high-deductible health plan. But clearly I think the 

91 

deductible limits in the small-group market will be a problem since 

they are lower than what is offered in today’s market, and that will 

reduce choice for small businesses. 

Mr. PRICE. Reducing choices, that is right. 

Thank you, Mr. Chairman. 

Mr. JOHNSON. Thank you. 

Mrs. Black, you are recognized. 

Mrs. BLACK. Thank you, Mr. Chairman, and I want to thank 

you for allowing me to sit on this committee although I am not a 

member, and I appreciate the opportunity to be able to ask questions as well. 

Very informative panel, and thank you so much for being here 

today on this very, very important topic as we move forward. 

Mr. Blumstein, I have a question for you. I thought you brought 

up a very interesting question that I have been reading about now 

on more and more in publications, and that is the issue, the matter 

that was raised by Alder and Cannon, and in particular does the 

ACA clearly provide for subsidies if the Federal Government runs 

a program. 

I can hear what was said by Ms. Howard or others who are experts disagreeing with your analysis and their analysis. Who will 

eventually make this decision; will this be another court struggle 

here? 

Mr. BLUMSTEIN. Well, nice to see you, Representative Black. I 

guess we should say we are in neighboring congressional districts 

in Tennessee, and thank you for your service. 

I would have to say that, you know, the statements that the 

IRS—some official at IRS has said that the agency has authority 

is, you know—that is not a surprise. They issued the regulation. 

But they are supposed to speak in a regulatory process in a formal 

way. They are supposed to explain their reasons. The reasons are 

lacking; they are virtually nonexistent, in my opinion. And for 

someone to say, oh, well, an IRS person said X without saying what 

the argument is is not very satisfying, I must say. 

In terms of how arguments occur, usually lawyers reason with 

each other. And I have certainly have changed my mind on issues, 

but I only change my mind in response to arguments, not in response to these, you know, five different people said something to 

disagree with you. I am sure there are millions of people disagree 

with me on many things. Until you know what the arguments are, 

it is hard to confront them. 

I think the IRS has overreached here. They have not explained 

their rationale. The rationales that are out there are unsatisfying, 

they are not satisfactory. The IRS has to establish that there is 

ambiguity, implicit authority to rule not just in gross, but on this 

specific question. They have not established that because the courts 

have said that these normal ways of construing statutes, the 

exclusio unius rule is part of the interpretive process. And so once 

you say that that is part of the interpretive process of determining 

whether there is ambiguity, then, to me, the IRS really has a problem. 

And so it is conceded; everyone concedes that there are two exchanges. The statute provides subsidies in one exchange; it does 

not provide subsidies in the other exchange. And when that hapVerDate Mar 15 2010 00:18 Jun 04, 2013 Jkt 080694 PO 00000 Frm 00095 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\80694.XXX 80694
92 

pens, basically there can be no subsidies in the other exchange. So 

then you have to look for exceptions to those kinds of rules, and 

I have not seen exceptions that really hold—in my opinion are persuasive. 

So then the question you asked is who—how will this be determined, and I see two different scenarios. If there is a change in the 

administration in this election, my guess is that Governor Romney 

as President will very likely have a new set of interpretations in 

the Internal Revenue Service, and that this very well—this rule 

may be modified or changed in some way, because I think the argument in favor of it is very thin, it is very results oriented. 

If President Obama is reelected, then I think the rule will stand, 

and then there will be a legal challenge here. I think we will be 

in court. And at first I thought that it would be hard to imagine 

who would bring this case, because it adds benefits to certain people, and that is the good part. But it also adds a tax to some people 

and companies, these large companies, and they are paying $2,000 

or $3,000 per employee in taxes if their provisions don’t meet the 

affordability criteria and the benefits and coverage criteria of the 

Federal Government. 

And so I think States may have the ability to bring this action. 

They will claim that they would have a competitive advantage if 

they choose not to set up an exchange. So I think you are going 

to find some kind of injury in the recruiting of companies. And certainly the companies themselves will have standing ability to challenge it. So I think you are going to see a coalition, and coalitions 

are actually in the process of being formed, I am told, where States 

and arguably private employers of 50 or more employees would 

bring this action and challenge the IRS ruling. 

Mrs. BLACK. I think you certainly laid this all out very well. I 

am not an attorney, I am a nurse, so reading your statement, it 

flowed very well so that I did understand it. But what it did make 

me think of is just one more complexity, one more complexity in 

what is already a very complicated program, one that we don’t 

have a lot of definition. Frankly, I am just hearing it from my employers and hearing it from folks back in my State, where they are 

employers or they are government officials or whatever, that there 

is so much uncertainty and confusion, and it is very, very hard to 

make a decision when there is not clarity. 

And just to end here, we come from a State where we tried to 

have a single-payer system, where we tried to have universal care, 

and it was very difficult and didn’t work in our State of Tennessee. 

I know we’re involved with our good Governor in trying to fix a program which ultimately just really unraveled, and we no longer 

have the program. 

Mr. BLUMSTEIN. Yes, Governor Breseden is a hero for trying, 

and I must say he is—in Tennessee, as you know, the Tennessee 

Democrats, and he is a Tennessee Democrat, and I have worked 

and am proud to work for him and support him. 

Mrs. BLACK. Well, I served under the good Governor, and I 

know what difficulty we had there with the program, and, now that 

it is gone, on looking at what may be a mirror of what we tried 

and didn’t work. So thank you so much for your testimony and 

coming here today. 

93 

Mr. JOHNSON. Thank you. 

The lady’s time has expired. 

I want to thank the witnesses for their thoughtful testimony and 

insights into the status of health insurance exchanges. The Obama 

administration’s repeated avoidance of a transparent regulatory 

process and ongoing delays may be politically expedient, but it has 

not been without substantial cost. How do we account for the cost 

of unemployed Americans losing job opportunities because businesses are not hiring workers while the full compensation costs are 

unknown? Can you put a price on the family forced to forgo 

healthcare coverage because they have been priced out of the market by costly regulations? 

The more Americans learn about the law, the less they like it. 

Despite years of assertions to the contrary, information is the most 

significant threat to Obamacare. Holding back necessary regulation 

to avoid public scrutiny is irresponsible. Americans deserve better 

from their government. 

As a reminder, any Member wishing to submit a question for the 

record will have 14 days to do so. If any questions are submitted, 

I ask the witnesses to respond in a timely manner. 

Mr. JOHNSON. With that, the committee stands adjourned. I 

thank you all for being here today. 

[Whereupon, at 4:48 p.m., the subcommittee was adjourned.] 

94 

Public Submissions For The Record 

American Society of Association Executives 

f 


Insert offset folio 62 here 80694.061
95 

Association of American Physicians and Surgeons 


Insert offset folio 62 here 80694.062
96 

f 


Insert offset folio 63 here 80694.063
97 

Barney Nemiroff MD 

f 


Insert offset folio 63 here 80694.064
98 

Citizens Council for Health Freedom 


Insert offset folio 63 here 80694.065
99 

f 


Insert offset folio 63 here 80694.066
100 

David J. Pasek MD 

f 


Insert offset folio 63 here 80694.067
101 

Medical Research Technology Information Consortium 

f 


Insert offset folio 63 here 80694.068
102 

Metro Pain Associates 

f 


Insert offset folio 63 here 80694.069
103 

National Association for the Self-Employed 

f 


Insert offset folio 63 here 80694.070
104 

Robert L. True 

f 


Insert offset folio 63 here 80694.071
105 

Stephen Welk MD 

f 


Insert offset folio 63 here 80694.072
106 

The Leukemia and Lymphoma Society 


Insert offset folio 63 here 80694.073
107 


Insert offset folio 63 here 80694.074
108 

f 


Insert offset folio 63 here 80694.075
109 

The National Small Business Association 


Insert offset folio 76 here 80694.076
110 


Insert offset folio 77 here 80694.077
111 


Insert offset folio 78 here 80694.078
112 


Insert offset folio 79 here 80694.079
113 

f 


Insert offset folio 80 here 80694.080
114 

Timothy Stoltzfus Jost 


Insert offset folio 81 here 80694.081
115 


Insert offset folio 82 here 80694.082
116 


Insert offset folio 83 here 80694.083
117 


Insert offset folio 84 here 80694.084
118 


Insert offset folio 85 here 80694.085
119 


Insert offset folio 86 here 80694.086
120 


Insert offset folio 87 here 80694.087
121 


Insert offset folio 88 here 80694.088
122 

f 


Insert offset folio 89 here 80694.089
123 

Walter H. Wood MD 

Æ 


Insert offset folio 90 here 80694.090