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[Senate Hearing 114-675]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 114-675

                      THE SMALL BUSINESS STRUGGLE
                            UNDER OBAMACARE

=======================================================================

                                HEARING

                               BEFORE THE

                      COMMITTEE ON SMALL BUSINESS
                          AND ENTREPRENEURSHIP
                          UNITED STATES SENATE

                    ONE HUNDRED FOURTEENTH CONGRESS

                             SECOND SESSION

                               __________

                              MAY 18, 2016

                               __________

    Printed for the Committee on Small Business and Entrepreneurship

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            COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP

                    ONE HUNDRED FOURTEENTH CONGRESS

                              ----------                              
                   DAVID VITTER, Louisiana, Chairman
             JEANNE SHAHEEN, New Hampshire, Ranking Member
JAMES E. RISCH, Idaho                MARIA CANTWELL, Washington
MARCO RUBIO, Florida                 BENJAMIN L. CARDIN, Maryland
RAND PAUL, Kentucky                  HEIDI HEITKAMP, North Dakota
TIM SCOTT, South Carolina            EDWARD J. MARKEY, Massachusetts
DEB FISCHER, Nebraska                CORY A. BOOKER, New Jersey
CORY GARDNER, Colorado               CHRISTOPHER A. COONS, Delaware
JONI ERNST, Iowa                     MAZIE K. HIRONO, Hawaii
KELLY AYOTTE, New Hampshire          GARY C. PETERS, Michigan
MICHAEL B. ENZI, Wyoming
                Meredith West, Republican Staff Director
               Robert Diznoff, Democratic Staff Director
               
               
               
               
               
               
               
               
               
               
               
               
               
               
               
               
               
               
               
               
               
               
               
               
               
               
               
                            C O N T E N T S

                              ----------                              

                           Opening Statements

                                                                   Page

Vitter, Hon. David, Chairman, and a U.S. Senator from Louisiana..     1
Shaheen, Hon. Jeanne, a U.S. Senator from New Hampshire..........     3

                               Witnesses
                                Panel 1

Frank, Hon. Richard G., Assistant Secretary for Planning and 
  Evaluation, U.S. Department of Health and Human Services, 
  Washington, DC.................................................     5

                                Panel 2

Kunkel, Tom, President, Full House Marketing, Inc., Edgewood, MD.    26
Brey, Mike, President, Hobby Works, Laurel, MD...................    33
Kuhlman, Kevin, Director of Legislative Affairs, National 
  Federation of Independent Business, Washington, DC.............    37

          Alphabetical Listing and Appendix Material Submitted

Brey, Mike
    Testimony....................................................    33
    Prepared statement...........................................    35
Frank, Hon. Richard G.
    Testimony....................................................     5
    Prepared statement...........................................     7
Kuhlman, Kevin
    Testimony....................................................    37
    Prepared statement...........................................    39
    Responses to Questions Submitted by Senator Enzi.............    67
Kunkel, Tom
    Testimony....................................................    26
    Prepared statement...........................................    29
    Responses to Questions Submitted by Senator Enzi.............    65
Shaheen, Hon. Jeanne
    Testimony....................................................     3
    Prepared statement...........................................    62
Vitter, Hon. David
    Opening statement............................................     1
    Prepared statement...........................................    54
 
                      THE SMALL BUSINESS STRUGGLE
                            UNDER OBAMACARE

                              ----------                              

                        WEDNESDAY, MAY 18, 2016

                      United States Senate,
                        Committee on Small Business
                                      and Entrepreneurship,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 2:05 p.m., in 
Room SR-428A, Russell Senate Office Building, Hon. David 
Vitter, Chairman of the Committee, presiding.
    Present: Senators Vitter, Risch, Scott, Fischer, Gardner, 
Ernst, Ayotte, Shaheen, Cantwell and Cardin.

 OPENING STATEMENT OF HON. DAVID VITTER, CHAIRMAN, AND A U.S. 
                     SENATOR FROM LOUISIANA

    Chairman Vitter. Good afternoon, everybody, and thanks for 
joining us today in the Senate's Small Business Committee 
hearing to discuss the impact of the Affordable Care Act on 
America's small businesses and employees.
    I would like to thank the Ranking Member, Senator Shaheen, 
and the other members of the Committee, who should be on their 
way, for participating today.
    Since its enactment in 2010, the Patient Protection and 
Affordable Care Act has forced so many small businesses to 
change fundamentally the way they provide employer-sponsored 
health insurance coverage for their employees. Currently, 60 
percent of small employers do not offer health insurance to 
their employees, and much of that is due to the high cost of 
providing health insurance that must be purchased on the small 
group market.
    Clearly, in my opinion, the Affordable Care Act has failed 
its namesake intention. From rising premiums and increased 
health care cost, to reduced access to doctors and hospitals, 
ObamaCare just is not working for so many Americans.
    Now lest you think that is a partisan statement, let me go 
specifically to demonstrated facts. Fact number one, premiums 
and deductibles have risen every year since the ACA passed in 
2010. Premiums have gone up 24 percent, deductibles have gone 
up 67 percent. Wages, on the other hand, have only increased 10 
percent.
    Fact number two, ObamaCare has increased premiums for the 
average American family. Now we all recall when the President 
said he would sign a universal health care bill by the end of 
his first term that would cover every American and cut the 
costs of a typical family's premium by $2,500 a year. That just 
has not happened.
    Between 2009 and 2015, the average family premiums for 
employer coverage have increased to $4,170. This year is just a 
continuation of that trend, with average premiums for 
benchmarked Silver plans on the Federal exchange rising by 7.5 
percent this year, far surpassing inflation. For Bronze plans, 
premiums have increased an average of 12.7 percent this year 
and the fear is that next year they will go up even more.
    Fact number three, over 4 million people had their plans 
canceled because those plans did not meet the new ObamaCare 
requirements. And of course, that is despite the President's 
promise 37 times over that if you like your health care plan, 
you can keep it.
    Fact number four, visits to emergency rooms have increased 
by 75 percent, which becomes enormously expensive for hospitals 
and taxpayers. And this utterly contradicts one of ObamaCare's 
biggest selling points, that once everyone got health insurance 
coverage, emergency room care would go down significantly.
    Fact number five, with all of this, there are still 33 
million people who are uninsured.
    When it comes to ObamaCare and small businesses, there were 
a number of provisions meant to encourage employer-sponsored 
health insurance coverage, particularly among small businesses. 
Unfortunately that, too, did not play out as promised by 
President Obama and his administration.
    Today I want to focus on three ObamaCare provisions that 
most directly relate to small businesses. Number one, an 
employer penalty for not offering health insurance known as the 
employer mandate. Number two, a tax credit to increase the 
affordability of health care for the smallest firms. And number 
three, small business health insurance exchanges designed to 
increase plan options and lower plan costs.
    The employer mandate punishes small employers who do not 
offer adequate or affordable coverage if at least one of their 
employees enters an individual health insurance exchange and 
receives a premium credit. These related penalties were 
scheduled to take effect in 2014 but, because of the political 
implications, the administration delayed implementation for 
businesses with 100 or more full-time employees until 2015 and, 
for businesses with 50 to 100 until 2016.
    Last year, small employers who offered to pay their 
employee's medical expenses directly through a health 
reimbursement arrangement were told by the IRS they could not 
do that anymore and, if they did, they would be penalized $100 
per day per employee, up to $36,500 a year.
    It is worth noting that a $36,500 penalty is 18 times 
greater than the $2,000 penalty on a large employer that does 
not provide insurance at all.
    That logic does not make sense to me. Small businesses 
account for over 99 percent of employer firms in the U.S. and 
we should be focused on helping them grow and create more jobs 
instead of penalizing them.
    Another ObamaCare failure is the Small Business Tax Credit. 
The ACA provides a Small Business Tax Credit to for-profit and 
non-profit organizations with fewer than 25 full-time 
employees, phasing out as firm size increases. The problem is 
that most small businesses are not signing up. The 
administration estimated that 4 million small businesses would 
be eligible and sign up for the tax credit, but only 181,000 
claimed the credit in 2014, according to the GAO. A big gulf, 
obviously, between 4 million and 181,000.
    Small businesses are also avoiding the Small Business 
Health Options Program and the SHOP exchanges, which were 
specifically designed to help small business utilize the risk 
pool mechanism of the newly established health insurance 
exchanges.
    Despite the Small Business Tax Credit and the SHOP 
exchanges, businesses simply cannot afford to provide health 
insurance for their employees in many cases. Not only do small 
businesses pay approximately 18 percent more, on average, for 
health insurance per employee, than large companies, they also 
receive fewer comprehensive benefits.
    Part of the small business struggle is having limited 
options in health plans. Big insurance companies are bailing 
out of the health insurance exchanges, leaving individuals--
especially folks in rural areas--with only one or two choices 
in health plans. So choices are shrinking as we speak, not 
expanding. This consolidation of health care providers is 
forcing out the small independent physicians who are essential 
to a competitive health care market.
    Then there are the taxes that have been imposed, like the 
health insurance tax and the Cadillac tax.
    When you put all of these problem areas together, it is 
quite clear to me that ObamaCare is failing American small 
businesses.
    I am hopeful that today's discussion will shed some light 
on how folks are managing their businesses in the real world, 
despite all of these impediments.
    With that, I will turn to our Ranking Member, Senator 
Shaheen.

OPENING STATEMENT OF HON. JEANNE SHAHEEN, RANKING MEMBER, AND A 
                U.S. SENATOR FROM NEW HAMPSHIRE

    Senator Shaheen. Thank you, Mr. Chairman. The purpose of 
today's hearing is to examine the impact of the Affordable Care 
Act on small businesses.
    I am sure it will come as no surprise to anyone here in the 
room that I have a very different view of how the Affordable 
Care Act is working than Chairman Vitter.
    I believe that the Affordable Care Act is working. Millions 
of Americans, including tens of thousands of people in New 
Hampshire, now have access to affordable health care coverage.
    Just yesterday, the National Health Interview Survey 
released estimates that showed that 9.1 percent of Americans 
are currently uninsured, and that is the lowest uninsured level 
on record. The survey also shows consistent declines in 
uninsured rates since the Affordable Care Act took effect.
    Since the law was passed in 2010, the country has had over 
74 straight months of job growth with more than 14.6 million 
jobs created, and the unemployment rate has been cut in half. 
In my home State of New Hampshire, our unemployment rate is 2.6 
percent.
    Now I know that we would all agree that we must continue to 
create and promote policies that incentivize better health care 
at lower costs. The Affordable Care Act has taken some 
important steps forward to develop, test, and implement 
innovative health care delivery system reforms. And this is 
essential to controlling health care costs, which is important 
to individuals and small business owners.
    Because of the ACA, Americans now have health insurance 
options and can no longer be discriminated against because they 
have pre-existing conditions. This gives so many people the 
opportunity to leave a job they may otherwise have stayed in 
just because of the health benefits. So now they can pursue 
their dreams in other areas.
    It also allows some who are self-employed to get insurance 
for the first time. Take, for example, Steve, who is a self-
employed real estate broker from Londonderry, New Hampshire. 
Steve is 61 years old and he had a bypass 12 years ago. Because 
of his medical history, prior to the ACA he was unable to 
purchase health insurance. Once the ACA was enacted, he 
purchased a Silver plan and two months later he had another 
quadruple bypass. This year, Steve pays about $80 a month for 
coverage, after a tax credit is taken into account. So the 
Affordable Care Act saved Steve from financial ruin and it has 
allowed him to continue to work.
    I do appreciate, though, that despite the gains made under 
the Affordable Care Act, there is still more work to be done. I 
also have heard from small businesses who are concerned by 
provisions in the ACA. They tell me about the impact of higher 
insurance premiums, the reporting requirements that can be a 
burden to some small businesses, and the effect the employer 
mandate has on hiring practices.
    I believe there are changes that need to be made to the law 
to make it work better, especially for small businesses. For 
example, I am pleased to support Senator Coons' legislation--a 
member of this Committee--that would expand and simplify the 
ACA's Small Business Tax Credit, making it available to more 
employers for a longer period of time.
    I am also a cosponsor of Senator Warner's Commonsense 
Reporting Act, which makes important changes to streamline the 
ACA's reporting requirements, making it less burdensome for 
employers.
    And last fall, Senator Tim Scott, another member of this 
Committee, and I joined together to pass the first stand-alone 
bipartisan Affordable Care Act change. The PACE Act will help 
small businesses by protecting them from premium increases in 
the small group market that could have otherwise occurred 
without that legislation.
    So it is my hope that we can continue to come together to 
work in a bipartisan way to improve the Affordable Care Act, 
particularly for small businesses in New Hampshire and across 
the country.
    I look forward to today's discussion. I look forward to 
hearing from our first witness, Mr. Frank, and from our other 
witnesses who will come later.
    Thank you.
    Chairman Vitter. Thank you.
    Now we will go to our first panel, an Administration 
witness, Dr. Richard Frank. He is the Assistant Secretary for 
Planning and Evaluation with the U.S. Department of Health and 
Human Services. As such, he advises the Secretary on the 
development of health, disability, human services data and 
science policy and provides advice and analysis on economic 
policy.
    From 2009 to 2011, Dr. Frank served as the Deputy Assistant 
Secretary for Planning and Evaluation, directing the Office of 
Disability, Aging, and Long-Term Care Policy.
    Dr. Frank has a BA in Economics from Bard College and a 
Ph.D. in Economics from Boston University, and is on leave from 
his position at the Harvard Medical School.
    Welcome, Dr. Frank. You have five minutes and are certainly 
welcome to submit anything additional for the record.

  STATEMENT OF HON. RICHARD G. FRANK, ASSISTANT SECRETARY FOR 
 PLANNING AND EVALUATION, U.S. DEPARTMENT OF HEALTH AND HUMAN 
                    SERVICES, WASHINGTON, DC

    Mr. Frank. Thank you, Chairman Vitter, Ranking Member 
Shaheen, and other members of the Committee. Thank you for the 
opportunity to discuss the progress that has been made in 
reforming our health care system through implementation of the 
Affordable Care Act and, most significant to today's 
discussion, small businesses and their employees.
    In the time I have with you today, I will touch on the 
accomplishments of the ACA and the specific impacts it has had 
on small firms. I will also touch on some of the economic 
issues that have been raised in connection to the ACA.
    In the past, although many small businesses have wanted to 
offer health benefits to their employees, they have faced many 
challenges. Historically, small businesses have been charged 
more for the same benefits than large employers.
    The ACA has equipped us with a number of tools for 
addressing health insurance coverage in small businesses. These 
include coverage expansion, small employer tax credits, the 
creation of Small Business Health Options Program, or SHOP, 
exemptions from the employer mandate. And we judge our success 
by the impact of this whole package of policies.
    In 2013, prior to the implementation of the ACA's coverage 
expansion, more than 44 million Americans were uninsured. In 
2012, it was estimated that 61 percent of uninsured workers 
were employed by firms with 100 or fewer employees. Since then, 
we have made historic progress in reducing the size of the 
uninsured population.
    In the years since the ACA passed, we estimate that 20 
million Americans that were previously uninsured have gained 
health insurance coverage. These coverage gains are 
particularly notable for employees of small businesses. Data 
from the Current Population Survey highlight the overall gains 
in coverage among workers employed by firms with under 100 
employees. Overall, there have been reductions in the number of 
uninsured employees and owners of small businesses across all 
categories of small businesses.
    For firms with 10 or fewer employees, for example, the 
percent of workers with no health insurance fell by 6.8 
percentage points between 2013 and 2014, from 32.1 percent to 
25.3 percent.
    These gains have been realized while keeping spending 
growth in check. Current enrollee spending growth for the 
private sector, in private insurance, remains low. A similar 
pattern is apparent when one examines the Bureau of Labor 
Statistics Employment Cost Index. That measure measures changes 
in the cost of compensating workers. The ECI data through April 
of 2016 shows 12 month growth in employee benefit costs are at 
3.3 percent, a continuation of historically low rates of cost 
growth in health benefits.
    When the ACA was enacted, there were predictions made by 
some that the ACA would cause shifts from full-time to part-
time work and reduce total employment. Several studies have 
been conducted examining the impacts of the ACA on labor 
markets. The evidence consistently shows that there were no 
significant negative effects on either total employment or the 
mix of full-time and part-time employment attributable to the 
ACA.
    Some recent data from the National Federation of 
Independent Businesses, NFIB, shows an increase to 53 percent 
in the percentage of small businesses that are hiring or trying 
to hire.
    The Affordable Care Act created the Small Business Health 
Options Program, or SHOP, to make it easier for small employers 
to obtain health coverage for employees. The SHOP allows 
eligible small employers to easily compare and select plans 
that meet the needs of their employees. In 2015, some 85,000 
Americans were covered by SHOP and had about 10,700 small 
employers participating.
    Now we continue to work on improving the consumer 
experience through better technology, expanded choices for 
employers and their employees, and existing research suggests 
that these improvements can be expected to attract more 
participants in SHOP in the future.
    The ACA also offers a Small Business Health Care Tax Credit 
for eligible employers with fewer than 25 full-time equivalent 
employees to assist with up to 50 percent of their premium 
contributions. Data from 2014 shows that $541 million in tax 
credits due to this provision were claimed.
    The ACA has used a range of policy tools to expand health 
insurance coverage. Connecting workers to coverage regardless 
of where they work helps improve productivity of the American 
labor force and the evidence clearly shows that small 
businesses are sharing in these benefits.
    Thank you for your attention and I am pleased to take 
questions.
    [The prepared statement of Mr. Frank follows:]
    
    
   [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
 
    
    
    Chairman Vitter. Okay. Thank you.
    You heard my critique of the actual experience of so many 
Americans with ObamaCare since it was passed in 2010. You said 
these provisions, like the tax credit provision for instance, 
have to be judged by the success and impact of these policies. 
Let us go to that because I think that is a good example, 
certainly not the only one.
    Again, if we can put up the relevant slide, the Small 
Business Tax Credit slide.
    The administration talked about 4 million small businesses 
being eligible to take advantage of that. The actual experience 
is 181,000, a trivial percentage of the 4 million. What 
happened? And what is being done to change that?
    Mr. Frank. I can tell you that we are doing a number of 
things that we believe, and research supports, will allow this 
market to grow. First of all, it is important to note that this 
is an entirely new market and we are working in uncharted 
territory. We are building a new market from the start.
    In so doing, what we are working on is improving the 
consumer experience by making choice clear and having 
technology very supportive of consumers making choices and 
businesses being able to negotiate the options out there.
    Second, what we are trying to do is we are working with 
partners such as brokers and agents. Recently, we have 
completed training about 31,000 of these folks to help 
consumers and employers find their way through the thicket of 
options. And then finally, we are continuing to conduct 
webinars and reaching out into the community in a variety of 
ways to increase awareness of this program, which actually at 
this point in time is still very low.
    Chairman Vitter. So all of those things, I mean, we are at 
181,000. The stated promise was 4 million. All of those things, 
where are they going to get us over the next year, say from 
181,000 toward 4 million?
    Mr. Frank. I cannot tell you. I can tell you that we have 
been talking to a number of states, and states like California 
are projecting pretty rapid growth over the next two years in 
their SHOP program by taking----
    Chairman Vitter. First of all, I am talking about the Small 
Business Tax Credit specifically. So do you have any estimate 
or guesstimate about where we will go in the next year, from 
181,000 toward the promise of 4 million?
    Mr. Frank. Well, on the Small Business Tax Credit, that is 
really sort of a Treasury jurisdiction, so I do not really have 
the data that they have to sort of look at where the 
projections are on that one.
    Chairman Vitter. Okay. Can you submit for the record, by 
talking to your colleagues at Treasury, where they expect to 
get over the next year?
    Mr. Frank. We can follow up with you on that.
    Chairman Vitter. Probably the most fundamental fact that 
has not played out was a promise that the President made 37 
times over: If you like your health plan, you can keep it.
    Has that promise been kept?
    Mr. Frank. The vast majority of people who have liked their 
health plan have been able to keep it.
    Chairman Vitter. The promise was to everybody--if you like 
your health plan you can keep it--37 times over. Has that 
promise, that commitment, been kept?
    Mr. Frank. As I said, we have worked very hard to make sure 
that Americans are covered and the vast majority of people have 
been able to keep their health plan and, in fact, many new 
people--in fact, 20 million new people--have health plans that 
they are now keeping.
    Chairman Vitter. Well, the promise was not to the vast 
majority. The promise was to everybody, right?
    Mr. Frank. Well, there are 20 million people who now have 
coverage and have the option of keeping their health plans that 
did not have it before.
    Chairman Vitter. Well, the promise was not about new 
coverage. The promise was if you like your existing plan, you 
can keep it. Four million folks, at least, have been forced off 
their health plan. That promise has been broken. What is being 
done to correct that?
    Mr. Frank. We continue to work with all parties to do 
things that will increase access, improve affordability, 
improve quality of our health care system and our health 
insurance system.
    Chairman Vitter. Is that going to mean that those folks can 
go back to their old plans that they were on and wanted to 
keep?
    Mr. Frank. Was that the question?
    Chairman Vitter. The folks that were involuntarily thrown 
off their former plans that they wanted to keep, is the work 
that you are describing going to mean that they will be able to 
go back?
    Mr. Frank. We are working to try to get everybody 
affordable, high quality health insurance. That is what I----
    Chairman Vitter. Okay. That was not my question. So, can 
you answer my question?
    Mr. Frank. That is my answer.
    Chairman Vitter. Okay, that was not my question.
    Has competition in this important sector of the economy 
increased since ObamaCare passed?
    Mr. Frank. Yes. Actually, it has increased dramatically. 
For the first time in years there are new entrants into the 
small individual health insurance market. The provisions, for 
example, we are putting into SHOP now allow people to choose 
across issuers, within a middle level, which allows people to 
really comparison shop in a way that they have not previously 
been able to.
    We have dramatically increased the transparency of 
insurance offerings so that people can look at the cost-sharing 
and look at the premiums and make easy comparisons between 
them, including whether a plan includes their doctor or not. 
That improves competition.
    Chairman Vitter. So overall, as an economist, you believe 
that overall competition has increased significantly?
    Mr. Frank. I think competition in the individual health 
insurance market has improved since the initiation of the 
Affordable Care Act.
    Chairman Vitter. Should that not stabilize and lower prices 
instead of increase prices?
    Mr. Frank. This is a start-up, and you have to remember 
that prior to the creation of the Affordable Care Act, the 
individual market was seeing double digit price increases 
continuously, which was part of the slide that was not shown, 
that they were growing very rapidly in the period prior to 
2010. And what you have seen is, in fact, that level of growth 
has actually stabilized and has come down a bit since the 
initiation of the Affordable Care Act.
    Chairman Vitter. So are you happy with what prices are 
doing? And what do you expect in the near future?
    Mr. Frank. We have work to do. We are not done, and I think 
that is true on the small business side; it is true in the 
individual market. And we are continuing to work within our 
authorities to improve matters. But we are also anxious to work 
with members of Congress to make changes that would improve 
affordability, improve quality, and continue to grow access to 
care.
    Chairman Vitter. Okay. Well, I have a lot more concerns and 
questions, but let me turn to Senator Shaheen. I am already 
over time.
    Senator Shaheen. Thank you, Dr. Frank, for your testimony.
    One of the things that you pointed out is that there are 
some jurisdictional issues around the Affordable Care Act. So 
maybe it would be helpful if you could just clarify for me, and 
for the Committee, what the role is of Health and Human 
Services in terms of the Affordable Care Act and how you work 
with some of the other agencies. You mentioned Treasury, 
obviously the Department of Labor is also involved.
    And then, if you would, talk about how you are working with 
small businesses to address some of the concerns that you hear 
from small businesses.
    Mr. Frank. Thank you very much for the question.
    The Department of Health and Human Services has a variety 
of authorities. They relate, in part, to the exchanges. They 
relate partly to insurance coverage. They relate very broadly 
to what you termed delivery system reform.
    Now we work very closely with the Small Business 
Administration, the Department of Labor. Many of the insurance 
regulations associated with the Affordable Care Act are so-
called tri-department regulations which involve Treasury, HHS 
and Labor. In fact, yesterday I was down in Atlanta with my 
Labor colleagues working on some mental health issues and 
coverage policy there. That is just sort of an example of sort 
of the way we do things regularly.
    In terms of the small business side of things, the Small 
Business Administration has been just fantastic partners to us. 
They have done a tremendous amount of outreach to try to 
increase awareness in the small business community, to try to 
bring back ideas to us from their contacts. RCMS has worked 
very closely with them to do webinars, to do visits around the 
country. And we continue to work with our partners, including 
the Small Business Administration, to train and support brokers 
and agents in helping small businesses find their way into 
things like SHOP.
    Senator Shaheen. Thank you.
    Obviously, rising health care costs are a concern that 
everyone has, and I mentioned delivery system reforms in my 
opening statement, as you pointed out. New Hampshire is proud 
to have Dartmouth-Hitchcock Hospital and they are part of a 
nationwide collaborative that is looking at delivery system 
reforms and what that can do to lower health care costs.
    Can you talk about how HHS is working on trying to address 
some of those rising costs of health care and what you are 
seeing in terms of the delivery system reform efforts?
    Mr. Frank. Yes. Well, first of all, I do think it is 
important to reemphasize that we are still in a period of 
historical low rates of growth in spending. And that shows up 
in savings to individual consumers and to employees of small 
business. And we have seen some of the most dramatic effects--
--
    [Audio system failure.]
    Mr. Frank. In terms of delivery system growth reform, some 
of the key elements are the way we pay providers. And we have 
been making a dramatic pivot from the traditional fee-for-
service pay for volume [inaudible.]
    Is this better?
    Senator Shaheen. I think so. Try it again.
    Mr. Frank. Usually they put a microphone on me to dampen my 
voice.
    [Laughter.]
    What we have done is made this pivot from fee-for-service 
pay for volume system to one where we are really trying to pay 
for value. Our Secretary set a goal of moving the Medicare 
program to a 30 percent pay for volume away from fee-for-
service by the end of 2016. We have already hit that goal.
    Senator Shaheen. I am sorry, can you say that again?
    Mr. Frank. So our Secretary, Secretary Burwell, when she 
came in set a goal of getting 30 percent of Medicare no longer 
just paying for volume, and moving toward value, including 
quality through risk-based payments and the like. We hit that 
goal at the beginning of this year, even though the goal was 
for the end of this year.
    So we are moving very aggressively to really changing the 
incentives, so that all health care providers really are 
focused on doing what is right and getting patients healthy, as 
opposed to generating a lot of volume.
    Senator Shaheen. Thank you. My time is up.
    Chairman Vitter. Senator Ayotte.
    Senator Ayotte. Thank you very much.
    I wanted to ask Secretary Frank about, in particular, one 
of the tools. I actually happened to have a meeting on Monday 
with a number of small businesses in New Hampshire about this 
topic. And one of the concerns that was raised in the meeting 
by the small business owners was the restriction on the use of 
Health Care Relief Acts. In other words, the Health Care Relief 
Fund, I should say, reimbursement arrangements where you have 
small businesses that have previously been funding their 
employees' Health Savings Accounts. In fact, this one business 
was doing it in supplement even to existing health care--they 
had health care coverage for their employees and they provide 
100 percent to their employees. And they had a health savings 
account to allow their employees to help cover any gaps in 
their coverage. So this is an employer who has gone--who is 
doing a lot, really right, by their employees.
    And yet, they raised the issue with me that they are very 
concerned that now there is a regulation, currently a Treasury 
regulation, essentially fining them $100 a day if they do that 
as an employer. It seems to me, especially for our small 
businesses, this is an important tool.
    And I also think about our sole proprietors, too. I have 
heard a lot from them, you know, that this Health Savings 
Accounts can be a very important tool. And also, if you are an 
employer who wants to help their employees--like this 
employer--a health reimbursement account.
    I am actually cosponsoring legislation to be able to 
address that, but can you talk about this? Do you agree it is 
an important tool that we should allow small businesses to have 
access to help their employees?
    Mr. Frank. Well, the HRAs are addressing--first of all, you 
are correct that they are mostly sort of subject to the 
regulations and the purview of the Treasury Department.
    Senator Ayotte. Right. But we are talking about small 
businesses, affordable health care. Do you think that that 
regulation makes sense? Do you think that these types of 
accounts are an important tool that consumers should have 
access to, including small businesses?
    Mr. Frank. So a couple things to note. First of all, HRAs 
are not insurance. They are sort of these other types of 
accounts and they do not meet the definition of insurance. So 
one issue is that I think people conflate the two.
    Senator Ayotte. I am not conflating. I am just being clear. 
I have an employer that provides 100 percent coverage. They 
have insured their employees. And they use the HRA as a 
supplement to fill in any gaps in insurance.
    Mr. Frank. As I said, this is mostly the purview of the 
Treasury Department, but what I do know about is there are 
provisions that if you have insurance and you want to do 
additional funds through an HRA, that is permissible.
    I think that what gets conflated in many quarters is sort 
of where the line between HRAs and insurances are drawn.
    Senator Ayotte. Okay, but do you think that--right now, you 
would be fined $100 a day from Treasury. So do you think that 
is a good idea?
    Mr. Frank. Yes, I do not know the details. I do not 
understand the details of that.
    Senator Ayotte. Also, do you think that Health Savings 
Accounts are good tools for people who--like, let us say you 
are below the mandate level and you are an individual, and that 
is something that is an important tool that you want to 
utilize. What is your view on those?
    Mr. Frank. Health Savings Accounts, for individuals?
    Senator Ayotte. Yes.
    Mr. Frank. I do not----
    Senator Ayotte. What does Health and Human Service think--I 
mean, the Affordable Care Act reduced the ability of what you 
could use, in terms of over-the-counter medications and some of 
these tools that we have had for Health Savings Accounts. So I 
just wanted to know what is the administration's view on that? 
Because I think it is an important tool that many have come to 
me and say we want expanded access to these tools.
    Mr. Frank. So, as I said, the details to that are really 
the Treasury thing. I can tell you that HHS is focused on 
really trying to get as many people covered as we possibly can 
and that is sort of our number one priority here.
    And really, the HSAs and the HRAs are really under the 
purview of the Treasury Department. I am not that familiar with 
the details of those regulations.
    Senator Ayotte. I just think as we look at the big picture, 
these are tools that we need to look at and we cannot have one 
side of the Federal Government doing this and the other side of 
the Federal Government interfering with other really important 
tools that people use that, for some individuals, are very 
helpful in covering their health care costs.
    Mr. Frank. Okay.
    Senator Ayotte. Thank you.
    Chairman Vitter. Let me follow up with some questions that 
Senator Ayotte brought up.
    I realize you are in HHS, you are not in Treasury. But this 
penalty is a big deal and it is a big part of the system and it 
is a big impact on health care. And it is there to penalize 
small business who want to do it one way versus the SHOP 
exchange, which is what you are directly involved in.
    So quite frankly, it just does not cut it to say you are 
not in Treasury. This is a big deal and it is $100 a day 
penalty per employee, up to $36,500 a year, small businesses 
who are trying to pay their employees' medical expenses through 
a Health Reimbursement Arrangement.
    Do you think that draconian penalty is good policy? Because 
that is a key policy that the administration is promoting.
    Mr. Frank. So Senator Vitter, I appreciate your question 
and really, the issue for me is I am not familiar with all of 
the details. I do know----
    Chairman Vitter. This is not exactly, you know, a comma on 
page 672. This is a big deal, including for small businesses, 
which was the whole purpose for this discussion.
    Mr. Frank. I understand. I just am not familiar with all of 
the details of that regulation. But what I think is important 
is that we are interested, if there are problems, if there are 
things that need to be changed, and they meet the test of 
improving access, affordability and quality, we are happy to 
work with Congress on that.
    Chairman Vitter. Does that include lifting this penalty?
    Mr. Frank. Look, we do have a variety of tools that we can 
work on. We are willing to----
    Chairman Vitter. Does that include lifting this penalty?
    Mr. Frank. I think that we are willing to talk about moves 
that will improve quality, access and affordability. I just do 
not know--I have not been able to look into the consequences of 
changing the policy you are talking about. It is for that 
reason that I need to refer to the Treasury for the details.
    Chairman Vitter. Thank you.
    Senator Ernst.
    Senator Shaheen. You mean Senator Cantwell.
    Chairman Vitter. Oh, I am sorry.
    Senator Cantwell.
    Senator Cantwell. Thank you, Mr. Chairman.
    Mr. Frank, good to see you here.
    One of the issues, obviously, for small businesses, among 
many people who are looking for affordable insurance these 
days, is the ability to get leverage in the marketplace. One of 
the provisions of the Affordable Care Act was the Basic Health 
Plan. I do not know if you are familiar with it, but it is my 
understanding that a couple of states have implemented that.
    Do you see that as a way for smaller employers/employees to 
leverage themselves in the marketplace, bundled up with others 
to get more affordable rates?
    Mr. Frank. Yes, I think so far we have seen these in New 
York and Minnesota and we have about 400,000 people now signed 
up in those and they seem to be doing well. They are set up in 
a way that is fiscally very solid because they are budget 
neutral. And again, it is a way of addressing some of the 
problems that have historically plagued small businesses, which 
is having difficulty to spread risk.
    Other tools that we are using, such as the SHOP, are sort 
of aimed at the same kind of fix.
    Senator Cantwell. Well, you say spreading risk. I look at 
it and say small businesses know that if you are an employee at 
a small company versus a larger employer, you do not have the 
same leverage in the marketplace. But what we have seen about 
Basic Health Plans, at least when we had them, was that by 
bundling up a large percentage of people together, 30,000 or 
40,000 people, that you can gain a lot of leverage in the 
marketplace.
    And I think that is what these individual employees or 
small entrepreneurs want to see, is their ability to get the 
same kind of leverage as somebody that works for a larger 
company.
    Mr. Frank. Absolutely. In a sense, there are two things 
that are accomplished at once. You grow the risk pool, you 
spread the risk, and you bring a greater ability to move market 
share and therefore bargain better in the marketplace.
    Senator Cantwell. Well, I hope that--I know that it was a 
challenge getting these rules out until just 2015, so it is 
possible that other people could take this up and use it as a 
solution in the coming years. Is that correct?
    Mr. Frank. I think so, yes.
    Senator Cantwell. Thank you.
    Chairman Vitter. Okay, Senator Risch is next, and then 
Senator Ernst.
    Senator Risch. I just have a comment, not a question.
    I have to tell you, Mr. Frank, I am astonished, sitting 
here and listening to you tell us that you do not know the 
details of these Treasury regulations that are so important to 
what you do, that are related to what you do, that dovetail to 
what you do, and you cannot answer simple questions that 
Senator Ayotte or the Chairman has asked you about this.
    This is an embarrassment. I mean, here you are in the 
middle of this mess and you are supposedly administrating 
certain parts of it, and you cannot tell us the details--as you 
call them--of the other parts of it that are so important?
    Can you imagine if you are a small businessman somewhere in 
America who does not want to have anything to do with this and 
who has to deal with this? And here you are, a bureaucrat that 
deals with this every day. And you do not get it, you do not 
understand it, you do not know about it. This is astonishing to 
me, that you would come here before this Committee and give 
those kinds of answers.
    I will tell you, I am taken aback by this and it is 
impossible for me to understand how whoever it is that is 
running this can allow those of you who are further down, 
trying to administrate it, not knowing what this is all about.
    Mr. Chairman, this is--to me, this is just absolutely 
astonishing.
    Thank you.
    Chairman Vitter. I agree, Senator. This is not a detail of 
this legislation. It is a huge component with huge impact on 
small business.
    Senator Ernst.
    Senator Ernst. Thank you, Mr. Chairman, and thank you for 
coming today. I hope that we are able to get a number of 
answers today.
    I understand that earlier you were talking about the myth 
that exists with small businesses that maybe are not able to 
hire additional employees. And I would push back on that, 
because that is not a myth in Iowa, because I hear it from 
small businesses all the time.
    One of those is a small business in Okoboji and the owner 
had told me that they have had to halt plans to expand their 
business, which was a thriving business. And then the ACA came 
into play and because of the rules and the Affordable Care 
Act's employer mandate, they decided not to expand and they 
have stopped filling open positions. And what they did in that 
transition period is they allowed people to retire and they 
simply did not backfill jobs.
    So that is not healthy for small businesses. When they have 
an opportunity to expand and fill a gap that exists in our 
marketplace, they should be able to do that without feeling the 
heavy weight of the Federal Government.
    I have heard those stories over and over again. Chuck 
Grassley and I both do a 99 county tour across Iowa. What we 
hear over and over again is about the detriment of the ACA, 
whether it is the individual mandate or the employer mandate. 
And so it is not a myth and we have got to stop saying it is a 
myth because I see it and it is impacting people's lives.
    Is your agency doing anything to address these challenges 
that those employers have and the negative impact that the law 
is having on job creation, specifically on job creation?
    Mr. Frank. Well, first of all, I do not think I referred to 
that as myth. We are always concerned about doing things that 
will expand coverage for as many as we can and to promote the 
interest of small business. That is why, in a sense, we have 
exemptions from the employer mandate wherein 96 percent of 
businesses are exempt from it. It is only--there is 2 percent 
of businesses that are between 50 and 100 that are subject to 
it that fall under the definition----
    Senator Ernst. So timeout, just a second, 96 percent of all 
businesses have exemptions?
    Mr. Frank. Yes.
    Senator Ernst. Then why did we need the ACA?
    Mr. Frank. From the business mandate. There are other 
provisions that are enforced.
    The impact on the small businesses has been actually 
strikingly positive. There have been very large decreases in 
the uninsured rate among small businesses and particularly 
among sole proprietorships. They have seen some of the largest 
decreases in the uninsured rate.
    And that, to us, is an incredibly important success here.
    Senator Ernst. Okay. And you will count that as a success, 
but I would like to push back from the other side to say--and 
yes, I would agree that perhaps we do have more people that 
have insurance, but they have extremely high deductibles. And I 
spoke to a podiatrist yesterday that explained most of the 
folks, especially young people, that are coming in and that 
maybe have foot or ankle problems, they will come in and get 
their initial evaluation to solve whatever issue they are 
having with their feet. And because they have such a high 
deductible, they will choose not to get a surgery. He said they 
will limp around the rest of their lives on a bad foot, having 
bad feet problems, because they do not ever meet that 
deductible. They are young and healthy otherwise. Maybe they 
have hurt their foot, but they are never going to meet the 
point where they can actually engage in that surgery. They 
simply cannot afford to do so.
    So I would say yes, you know, they have got insurance. But 
what good does it do when they have got such high premiums? It 
is a real issue with folks in Iowa.
    And I have got about 30 seconds, so if you could answer 
that charge.
    Mr. Frank. Sure. I think the important thing to recall is 
deductibles have been increasing economy-wide for some time. In 
the Affordable Care Act, there are a lot of provisions that try 
to insulate people from that. For example, all the preventive 
visits are now free, and so they do not count toward the 
deductible.
    People have choices among plans in most places, 90 percent 
of people have choices of multiple plans where some deductibles 
are higher and some are lower. And if they are low-income, they 
have got cost-sharing reductions which insulate them further 
from the deductible.
    So I think that the statistics can be pretty misleading if 
you do not sort of look at all of the nuances.
    But I would like to go back to your point on the 
employment. We have looked very hard because we are concerned 
about employment. We worked closely with our colleagues at the 
Department of Labor, who are really the main agency focused on 
this. And we have been monitoring very closely changes in 
employment, changes in full-time/part-time work among 
businesses of different size. And overall, the trend is up.
    I presented quite a bit of data on that in my written 
testimony so I would be happy to share further details with 
you.
    Senator Ernst. Certainly. And I would like to make a point, 
too, Mr. Chair, about those types of services that are 
included, the preventive measures. One thing I have also heard 
from physicians is that those that are not paying for those 
services, they will call the doctor's office, they will make an 
appointment, but they simply do not show up. And so the doctors 
do block off time and then they are not able to recoup anything 
for blocking off that time when they could be using that time 
for a patient that really does want to be seen by a doctor and 
treated.
    So I know there are many issues out there and we really do 
need to navigate through this and make sure that not only are 
people receiving the health care that they need, but it is done 
in a responsible manner and I do not think this law was done in 
a responsible manner.
    But I do thank you for your time.
    Thank you, Mr. Chair.
    Chairman Vitter. Thank you, Senator, and thank you, Dr. 
Frank.
    Now we are going to move on to our second panel. I will be 
introducing them as they come to the witness table.
    Tom Kunkel is President of Full House Marketing, Inc. He 
started his own marketing company in 2007 and has over 30 years 
of marketing, graphics, and business development experience 
assembling his company that offers print, promotion, sign and 
web solutions to local and regional businesses. Mr. Kunkel has 
a degree from Towson University in marketing and mass 
communications and had studied publications design at the 
University of Baltimore.
    Mike Brey is the owner of Hobby Works. That opened in 1992 
and has expanded to five locations throughout Maryland and 
Virginia. He had previously been a manager for larger retailers 
such as Sam Goody, Tandy and Macy's. Hobby Works is a new breed 
of retail store that brings a different shopping experience to 
the consumer, combining the unique product mix of a specialty 
shop along with the neatness of a chain store. It employees 48 
employees in five locations.
    Kevin Kuhlman is with the National Federation of 
Independent Business. He is a Director of Legislative Affairs 
there and he has also focused his advocacy efforts on health 
care issues with members of Congress. Prior to his tenure at 
NFIB, Kevin handled health care, labor, education and small 
business issues for Congressman Peter Roskam from the western 
suburbs of Chicago. He started his career on Capitol Hill, 
working in support and research staff for the Ways and Means 
Committee, serving under Chairman Bill Thomas, Ranking Member 
Jim McCrery, and current Chairman Dave Camp. He holds a 
Bachelor of Arts degree from the University of Illinois at 
Urbana-Champaign.
    With that, we welcome all of you. You will each have five 
minutes. You can submit anything else you would like in writing 
for the record.
    We will start with Mr. Kunkel.

STATEMENT OF TOM KUNKEL, PRESIDENT, FULL HOUSE MARKETING, INC., 
                          EDGEWOOD, MD

    Mr. Kunkel. Thank you, Chairman Vitter, Ranking Member 
Shaheen, and members of the Senate Small Business and 
Entrepreneurship Committee.
    Thank you for this opportunity for me to testify today 
before you and share my experience on how the Affordable Care 
Act has impacted my business and my employees.
    As you mentioned, my name is Tom Kunkel. I am President of 
Full House Marketing and Print. We are actually neighbors. I 
have a location based in Edgewood, Maryland, which is up in 
Harford County, Maryland.
    Growing up in a family owned business and then working 
through various corporate positions, I was excited to return to 
my hometown to fulfill my dream of owning my own small 
business. In 2013, I took the plunge and left a full-time job 
to take a part-time business that I was running to full-time. I 
formed my company, Full House Marketing and Printing, as 
mentioned. We are a full service marketing company. Over three 
years, we have acquired and merged seven different companies in 
all areas of marketing and printing into one company.
    We provide the majority of our services in-house. We do 
outsource some. We are able to provide cost effective marketing 
and print solutions to local small- and medium-sized 
businesses.
    So I am not here only as a small business owner but also, 
you know, a lot of small businesses are my customers, so I 
obviously want a thriving customer base.
    In 2015, we also opened several other locations. We 
currently have four locations in three counties in Maryland, 
with 25 full-time and six part-time employees.
    I have a variety of employees, from retail positions 
working at minimum wage to employees in the delivery and 
production at $12 to $18 an hour, and then sales and technical 
employees up to the $50,000 range, so a pretty diverse set.
    Prior to the Affordable Care Act, as a small business, 
growing up in a small business, it was difficult to compete for 
employees with large companies with large benefit offerings. 
Things like pre-existing conditions and few insurance options 
for individuals, many qualified workers chose large businesses 
over working locally because of their benefit programs.
    From a small business perspective, the ACA actually could 
have been a huge relief and benefit for us. We had hoped we 
would be able to offer employees affordable health insurance 
without pre-existing condition exclusions. They could choose a 
variety of plans they wanted, not what our plan just offered. 
And I was optimistic the ACA would help my 21 employees to 
obtain health insurance.
    I had several employees, one with diabetes and one with 
high blood pressure, that actually--because they were 
considered pre-existing conditions--could not get insurance.
    I was reimbursing my employees for their premiums because 
this offered me, as a small business, a way to compete with 
larger companies who provided employer-sponsored health 
insurance plans. I also had a Health Reimbursement Plan, still 
do, that we set up. And we also offer supplementary insurance 
programs.
    I felt that I could better retain or compete to get better 
employees because I had an affordable option for my employees. 
And essentially, I offered the ACA as part of my benefits 
program and my reimbursement as part of my benefit package.
    However, in a meeting with my accountant in June of 2015, 
just several weeks prior to the IRS Notice 2013-54, I learned 
of that notice that prohibits employers from assisting with 
employees' individual market health insurance. I was just 
stunned. I could no longer help my employees with their health 
care benefits, and there were also very steep penalties.
    So mid-year, essentially July 1st, I had to pull my 
employees together and tell them I could no longer reimburse 
them for their health care and that they were essentially on 
their own again. I had several employees who could not afford 
their premiums without my contribution.
    Since we were mid-year in their plans, they were forced to 
cancel insurance, reenroll--some of them reenrolled in lower 
cost plans with higher deductibles. Then they had to start over 
with those deductibles for the year.
    One of my employees, who happens to have cancer, was not 
able to get his prescription refilled for over three weeks 
because of the new plan, having to meet new deductibles. His 
prescription is about $10,000 a month, so it is obviously very, 
very difficult for him.
    I do not believe this is what was intended by the 
regulation, but it is the reality of what happened.
    So now I had three options as a small business. I could 
simply offer nothing at all, just tell them that we offer no 
plans. My second option was to artificially inflate wages to 
cover the cost for the employees. But to do that I would be 
required to essentially inflate it by 35 percent, so that their 
net pay would equal my previous contribution. In addition, this 
option would have required me to pay additional expenses that 
are employer-sponsored, including Worker's Comp, matching FICA, 
Social Security, State and Federal unemployment. That equals 
about $3.50 an hour in our case, or about $1,735 per employee 
per year in additional costs for me, as an employer.
    This also meant that any contribution would be subject to 
individual income taxes and payroll taxes, which is the reason 
for having to gross it up. And actually, the contribution 
cannot be designated for health insurance, according to the 
IRS.
    For most workers, this inflated pay would have also caused 
them to qualify for less of a subsidy through the Health 
Exchange since they would have shown more gross income. I have 
several examples of specific people and it would have 
essentially reduced their subsidy by about $100 a month, which 
essentially would have come out of their pocket.
    My third option was to offer a group health plan. So, I did 
go out, I researched a number of group options, spoke with a 
number of different brokers, and I settled on a Maryland-based 
plan that did not require a guaranteed participation--which was 
a challenge with a lot of plans--and had very affordable rates.
    I also did look at the SHOP program, but I was actually 
told by two different brokers that it was too cumbersome and 
that the tax credit would expire soon, so it was not worth 
actually taking that as an option.
    So I did offer the plan and, because of the expense of the 
rates compared to individual plans in the exchange, none of my 
employees elected to enroll in it. I do have several examples 
which I can show later, but essentially it was several hundred 
dollars a month more for someone to go on our group plan than 
it was to go through exchange programs.
    In a situation where my employees cannot afford insurance 
and I am prohibited from helping, I look like the bad guy. I 
tried to help them out and now I feel--or they feel--like I am 
taking something away from them. I also expended a lot of time 
and resources in exploring options and I am certainly not a 
health insurance expert but none of them happened to work out 
for my business.
    Most recently, I lost a long-time employee who left to go 
to a competitor who was able to offer him full-time benefits 
and insurance. He cited his loss of that insurance contribution 
as a major reason for his leaving. I also have another employee 
that most recently left that I believe that was also part of 
her decision.
    IRS Notice 2013-54 has essentially taken us back to the 
situation before the ACA, where a small business cannot afford 
to offer health benefits to its employees. It has essentially 
negated the ACA, from my perspective, for any of the benefits.
    In today's political and economic climate, as a small 
business it is difficult to operate in the global economy. I 
feel the burden of many new initiatives as they affect my 
company's ability to operate profitably and to hire and retain 
employees. Many of these initiatives often have unforeseen 
consequences and cause small businesses expenses and burdens 
that can lead to actually less hiring, more expenses, and 
sometimes lead to businesses closing their doors altogether.
    IRS Notice 2013-54 is one such initiative. But the----
    Chairman Vitter. Mr. Kunkel, I do not want to cut you off, 
but I want to get everyone in and have time for questions and 
discussion, so if you want to wrap up and we will go to Mr. 
Brey.
    Mr. Kunkel. Essentially, the Senate can help. The Small 
Business Health Care Relief Act is one way in which it can help 
in protecting small businesses from catastrophic IRS penalties 
and restoring a business' ability to help their employees 
afford individual affordable health care.
    [The prepared statement of Mr. Kunkel follows:]
    
    
  [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
  
    
        
    Chairman Vitter. Thank you very much. And now we will hear 
from Mr. Brey.

   STATEMENT OF MIKE BREY, PRESIDENT, HOBBY WORKS, LAUREL, MD

    Mr. Brey. Thanks for having me, Chairman Vitter and Ranking 
Member Shaheen.
    My name is Mike Brey. I am President of Hobby Works. We are 
a hobby and toy store with four locations in the D.C. Metro 
area, Maryland and Virginia. We have just under 50 employees, a 
little over 30 full-time equivalents. Thanks for allowing me to 
share my comments with you.
    I started my business in 1992. I have been in retail my 
entire life. So almost from the beginning I offered health 
coverage, not only to help attract and retain good employees 
but because, as a former retail employee myself, I had found it 
difficult to get good affordable insurance.
    My business has been successful, moderately successful, and 
we have been able to expand on multiple occasions. But over the 
years it became more and more difficult to continue offering 
health insurance to my employees.
    Prior to the passage of the Affordable Care Act, our 
insurance rates were going through the roof. We were seeing 
annual premium increases of 15 to 20 percent, sometimes even 
higher. As a result, we were forced to ask employees to pay 
more of their premiums and face higher deductibles in order to 
continue offering coverage.
    To put things in a little bit of perspective, from 2009 to 
2010 we experienced increases of 18 to 21 percent. Prior to 
2009, we experienced similarly large increases, usually double 
digits, beginning in the early 2000s.
    Once the Affordable Care Act provisions started going into 
effect, our rates started improving and for a little bit of 
time even stabilized. During the 2014 to 2015 enrollment 
period, our rates went up 9.7 percent and the most recent 
enrollment period our rates increased about 5 percent.
    Other small business owners also struggled with rising 
health care costs. Research shows that many small business 
owners struggled to offer health insurance to their employees 
due to costs. Small Business Majority's scientific opinion 
polling found that the majority of small business owners 
provided insurance to at least some of their employees. But of 
those who did not, 70 percent said it was because they could 
not afford it.
    What is more, small businesses paid 18 percent more, on 
average, for health coverage than large companies and we 
received fewer comprehensive benefits.
    So to me, inaction was inexcusable. The passage of the 
Affordable Care Act was really the first thing that ever gave 
me hope that the spiral of escalating costs and depreciating 
quality of insurance coverage might finally end.
    Many provisions of the health care law have been key to 
making health insurance more accessible and affordable for 
small businesses like mine. In addition to the marketplaces, a 
multitude of cost containment provisions have gone in effect 
that I feel like--at least in the short term here--are helping 
to lower costs and provide more stability throughout the 
system.
    A survey conducted by Towers Watson and the National 
Business Group on Health found that in 2013 employers 
experienced the lowest increase in health care costs in 15 
years. Some argue that the health care law is requiring many 
small firms to drop their coverage. Analysis conducted by the 
Kaiser Foundation found that the percentage of adults under 65 
with employer-based insurance has held firm for the last five 
years after steadily declining in the early 2000s.
    Thanks to the health care law's cost containment 
provisions, premiums are starting to stabilize and I believe 
that I am finally starting to have some predictability and 
stability when it comes to health insurance premiums and my 
choice of plans.
    What is more, in Maryland we actually have more options now 
when it comes to insurance carriers and health plans. Where 
before we only had a couple of carriers to choose from, we can 
now choose between a variety of insurers that offer many 
different health plans. The last cycle in Maryland, it was 110 
options for my business to choose from.
    Meanwhile, some claim that the health care law is a job 
killer and that small businesses are being forced to make their 
full-time employees to cut their hours. We have not felt that 
same impact. For my part, I do not make expansion decisions 
based on tax law. I do make expansion decisions based on 
consumer confidence and how we expect sales to increase over 
time. As a retailer, we are still recovering from the effects 
of the recession but I, frankly, have never thought of 
expanding or shrinking based on the health care law.
    Some say that the health care laws are forcing small 
businesses to hire more outside help in order to comply with 
the law's requirements. As a small business owner, I can tell 
you that the vast majority of owners, including myself, already 
rely on the expertise of accountants and lawyers and brokers. I 
had a broker before the health care law. I have a broker now.
    I have been concerned about health care coverage costs and 
how they impact my business and my employees since long before 
anybody heard of the Affordable Care Act. And while the ACA is 
not perfect and it will not solve our health insurance problems 
overnight, it is the first meaningful law in decades that 
attempts to meet many small businesses' core needs in regards 
to rising health care costs. In this economy, policies that 
allow us to spend less on health premiums so we can keep more 
of our profits to reinvest in our companies and create jobs is 
what we need most.
    I will close by saying that strengthening and improving the 
Affordable Care Act is the only path forward, I think, to 
lowering the overall cost of health care and providing more 
options for coverage for small business owners like myself.
    Thank you for your time.
    [The prepared statement of Mr. Brey follows:]
    
    
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    Chairman Vitter. Okay. Thank you, very much, Mr. Brey.
    Now we will welcome Mr. Kuhlman.

 STATEMENT OF KEVIN KUHLMAN, DIRECTOR OF LEGISLATIVE AFFAIRS, 
  NATIONAL FEDERATION OF INDEPENDENT BUSINESS, WASHINGTON, DC

    Mr. Kuhlman. Thank you, Chairman Vitter, Ranking Member 
Shaheen, Senator Ernst and other members of the Senate Small 
Business and Entrepreneurship Committee for hosting this 
hearing today on this important matter.
    My name is Kevin Kuhlman. I am a Director of Legislative 
Affairs at the National Federation of Independent Business. 
NFIB is the Nation's leading small business advocacy 
association.
    The ACA is and was the most significant overhaul of health 
insurance markets and the tax code in more than 20 years. 
NFIB's research and story collection demonstrate that the costs 
to small businesses outweigh the benefits. The ACA has led to 
higher premiums, increased compliance burdens, and decreased 
benefit flexibility.
    Congress does deserve credit for addressing some of these 
concerns. Senator Shaheen referenced the PACE Act. But NFIB 
urges further relief for small business owners and employees.
    The Small Business Health Insurance Tax Credit and SHOP 
Exchange were intended to incentivize small businesses to offer 
group health insurance to employees. But these provisions 
failed to deliver premium savings to a significant number of 
small businesses due to fundamental limitations and 
implementation problems.
    The ACA added insurance requirements and taxes to help 
insurance plans that were passed along in the form of higher 
premiums. Congress thankfully suspended the health insurance 
tax for the year 2017, saving an additional 3 percent in 
increased premiums, but the tax restarts in 2018 and escalates 
significantly in future years.
    ACA implementation requires additional compliance and 
paperwork burdens for small businesses, even when Federal 
agencies have not fulfilled their responsibilities.
    The biggest current compliance headache is the employer 
mandate, which was fully phased in this year. Businesses with 
50 or more employees must offer affordable and adequate health 
insurance to employees or pay penalties. Business must track 
the offers and cost of coverage for each employee monthly, 
provide current and former employees with transmittal forms, 
and provide the IRS with an additional form.
    The IRS estimation of four hours and 12 minutes to conduct 
research, complete paperwork, and file forms is grossly 
understated. In reality, compliance requires much more time.
    The SBA Office of Advocacy wrote that the employer mandate 
would have a significant economic impact on a substantial 
number of small businesses, triggering the Regulatory 
Flexibility analysis. Unfortunately, Treasury disagreed and did 
not conduct a small business economic analysis. The lack of 
recognition from Treasury is frustrating for small business 
owners.
    The individual exchanges were supposed to notify employers 
when they are at risk of a penalty because an employee receives 
an advance premium tax credit on the exchange. But not a single 
business has received a communication from the IRS yet.
    Small businesses do not commonly employ human resource 
professionals, so compliance responsibilities fall on the 
business owner, like these gentlemen. Some of these functions 
can be outsourced, yes, but those services are costly.
    Many small businesses are unable to afford the high cost of 
group health insurance. Instead, they directly paid for or 
reimbursed employees individual market health insurance plans 
and qualified medical expenses. This arrangement worked for 
both employers and employees.
    Now to be clear, this prohibition actually started with 
HHS. I would be happy to go into further details on that during 
questions. But in 2013, the IRS published sub-regulatory 
guidance that prohibited employers from assisting employees 
with individual plans. Enforcement began July 1, 2015, after an 
initial delay, and continuing the practice risked that $100 per 
employee per day penalty that was mentioned earlier. Penalties 
of this magnitude would be disastrous for small businesses, 
forcing many to close their doors. Certainly, lawmakers who 
drafted the ACA did not intend to punish small businesses in 
this manner.
    Fortunately, bipartisan, bicameral legislation exists that 
would right this wrong for small businesses. The Small Business 
Healthcare Relief Act, S. 1697, would allow the flexible 
practice to continue. NFIB urges Congress to consider this bill 
and relieve small businesses from the threat of significant 
harm.
    Thank you again for allowing me to share NFIB concerns 
before the Committee today. I look forward to answering any 
questions and working with you to help provide further relief.
    [The prepared statement of Mr. Kuhlman follows:]
    
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    Chairman Vitter. Great. Thanks to all of you for your 
testimony. Now we will get into some discussion.
    Mr. Kunkel, obviously your testimony focused on health 
reimbursement arrangements. If that draconian penalty against 
what you did previously were removed, what would you do in your 
small business? What would be the impact for employees?
    Mr. Kunkel. Well, it would allow me to offer what I was 
offering for a period of time, before the regulation took 
effect. It would allow me to provide a set amount, a set 
reimbursement to my employees essentially as a health plan for 
them. And then it would allow them to go into the open market 
and purchase whatever plan best suited them.
    Because when we actually looked at even our own plan, our 
own group plan, I am limited to three different plans that I 
can choose and it is very, very difficult to have three plans 
meet all of my employee's needs. So it would allow them to go 
and get whatever plan they needed, whatever best fit them, and 
then I am contributing to them and doing my part in helping 
them have affordable health care.
    Chairman Vitter. So again, if that major penalty were 
lifted, would you, in fact, go back to that sort of 
arrangement?
    Mr. Kunkel. Absolutely.
    Chairman Vitter. And in your opinion, how would your 
employee's health care situation compare under that arrangement 
versus now?
    Mr. Kunkel. It would very definitely improve. One is that 
it would allow some that are maybe paying right now out-of-
pocket because they wanted to keep health care. Now, if I am 
giving them, for example, $300 a month they can use that to pay 
for their entire plan. Or some people will probably get a 
better plan and use the $300 to supplement and pay the rest out 
of their pocket. But it certainly would give them better 
opportunity to have health care. And again, from a competitive 
standpoint now, I am able to say I offer a health care plan or 
health care option that helps me retain employees and get 
additional employees.
    Chairman Vitter. Okay. Mr. Brey, I got the impression from 
your testimony, and maybe I missed something, that you never 
participated in that sort of HRA arrangement. Is that accurate 
or not?
    Mr. Brey. No, we did not. We always tried to offer full 
health insurance plans and, at various times, covered different 
amounts toward people's premiums. So at one point, when we 
first start offering, we paid 100 percent of coverage. Now we 
are down to somewhere in the 40 or 50 percent range.
    Chairman Vitter. And understanding that you never directly 
participated in that HRA, do you have an opinion about the 
$36,500 penalty against it?
    Mr. Brey. You know, I am opposed to anything that prevents 
myself and my employees from having access to health care 
coverage.
    Chairman Vitter. Okay. Excuse me, one minute.
    [Pause.]
    Mr. Kuhlman, what are your members' concerns about 
premiums, what they are doing 2017 and beyond? And what do you 
think that is going to do in terms of small businesses offering 
any health care?
    Mr. Kuhlman. The high cost of health insurance has been our 
member's number one concern every time we have asked them since 
1986. So it continues to be that problem.
    I think the initial requests for 2017, especially in the 
individual market, where about 41 percent of small business 
owners themselves purchase their coverage, is very concerning. 
I think the requests on the small group side, the small 
business side, traditional employer insurance, are a little bit 
more moderated but they are still increasing.
    So it is definitely a concern. The number one reason 
business owners do not offer health insurance is cost. And if 
you continue to offer--if costs continue to increase, you are 
going to see a decrease in offer rates. What I mean by that is 
in 2010 there were 39 percent of businesses with fewer than 50 
employees that offered health insurance. In 2014, there was a 7 
percent drop and only 32 percent of businesses with fewer than 
50 employees offer health insurance. Those are HHS figures.
    Chairman Vitter. Okay. Previously, Senator Ernst brought up 
disincentives to job growth. And the most obvious one is the 50 
employee line. Talking to your members, which you do both 
informally and, I assume, you take surveys as well, is there a 
meaningful disincentive for them to cross that 50 employee line 
because of the employer mandate?
    Mr. Kuhlman. I probably heard the most concerns with people 
who were near or at that threshold. They breathed a little bit 
of a sigh of relief when there was the upward adjustment for 
the year 2015 to businesses with 100 employees and then it was 
fully phased in this year, in 2016. So there was a little bit 
of relief there, but anyone needs to be very concerned about 
moving below that threshold because you can set yourself up for 
ERISA lawsuits even after that.
    So it is certainly a disincentive to grow, and dropping 
could bring you new legal liability.
    Chairman Vitter. Okay. Thank you.
    Senator Shaheen.
    Senator Shaheen. Thank you all very much for your testimony 
and for being here today.
    Mr. Brey, one of the challenges, I think, is to--as you 
pointed out and Mr. Kunkel pointed out--is getting small 
businesses to offer insurance and cost is the top concern that 
they have. What more can we do to try and encourage small 
businesses to help cover their employees?
    Mr. Brey. You know, that is a big question. I think a lot 
of small businesses, cost is obviously the number one issue. 
And sort of the struggle to know what is coming the next year. 
Especially in the years before the Affordable Care Act, it was 
very frustrating for me to be providing coverage knowing that I 
basically had just advanced the cause by one more year and that 
next summer we might be having a similar conversation with our 
broker, how can we lower the average age of our group, what 
kinds of things--one year I think it was a 33 percent increase 
because not only did costs go up a lot that year, but we also, 
as a group, crossed an age band, which is how it used to work 
in Maryland before then.
    So that was really the most frustrating thing, the high 
cost and the unpredictability of future costs.
    Senator Shaheen. And Mr. Kuhlman, I appreciate the concerns 
that NFIB has that you have heard from small businesses, and 
that there is probably a disagreement among members of this 
Committee about what we should be doing around health care. I 
would bet that most of the members on this side of the room 
would say we should repeal the law and most of the members on 
this side of the room should say we should not.
    So let us assume that we are not going to repeal the law, 
because I do not think we are. I do think there are changes 
that we should be looking at that we can make that would 
improve it, make it work better, address many of the concerns 
that small businesses have.
    So can you talk about those changes that you would like to 
see? Assuming the law stays in place, what would you like to 
see done to improve it so that it works better for small 
businesses?
    Mr. Kuhlman. Thank you, Senator.
    Again, I want to thank you for helping lead the effort on 
the PACE Act. Had that not been passed, we would have seen 
some----
    Senator Shaheen. Right
    Mr. Kuhlman [continuing]. Tumult in the market this 
upcoming year.
    I think what Tom identified and what I identified in my 
testimony would be number one on the priority, the Small 
Business Healthcare Relief Act. It has 14 bipartisan cosponsors 
in the Senate, over 90 bipartisan cosponsors in the House. I 
think it was just one of these unintended consequences, a game 
of regulation telephone almost, where IRS says HHS says this 
and HHS says IRS says that.
    Senator Shaheen. So this is primarily the HRA issue?
    Mr. Kuhlman. Yes, ma'am.
    Senator Shaheen. Are there other things in there that you 
think are important?
    Mr. Kuhlman. I think Congress did some help with the end-
of-the-year legislation when they provided some relief from 
some of the taxes. I think the Cadillac tax is going to be not 
only a problem as we get closer to that threshold and above it 
but, just reading from the two initial IRS notices, the 
compliance responsibilities on the Cadillac tax for small 
businesses is going to be far worse than the compliance 
responsibilities for the employer mandate.
    Further relief from the health insurance tax, I think, 
would be another good place to--or a good effort to pass 
because any of those excise taxes are just passed along in the 
form of higher premiums.
    Senator Shaheen. One of the things that we have heard a 
fair amount about as the Affordable Care Act was being worked 
on were efforts by admittedly larger companies like Safeway to 
try and look at their employees and incentivize personal 
activities that made them healthier; to try to encourage 
exercise and reduce smoking and some of the challenges to 
health care costs.
    Are there things like that that small businesses have 
looked at, that you are aware of, that have made an impact on 
the cost of health care?
    Mr. Kuhlman. I think those might come downstream in the 
future but I just do not think the luxury is there yet. Usually 
those are efforts by the human resources department to say hey, 
we are going to put a big effort into a wellness program. In 
this case, it would probably have to be the bosses here who 
would have to say hey, we are all going to wear Fitbits and 
walk 20,000 steps today. So I would defer to them.
    Mr. Brey. We are in retail, we walk all the time.
    Senator Shaheen. We have been trying to get people in 
Congress to do that, as you know.
    Do either of you have--have you all looked at that option 
and have you thought about trying to encourage healthier 
behavior among your employees?
    Mr. Kunkel. That is--again, that is not a luxury, 
typically, within a smaller business. I mean, I am the HR 
department, I am the IT department, I am the accounting 
department. So certainly we encourage our employees to be 
healthy and do certain things, but, you know, I am typically 
worried about getting orders out the door and answering the 
phone. That is the reality of a small business.
    Mr. Brey. I mean, we are in retail, so you know, people are 
on their feet, walking around all day anyway.
    But sort of the bigger answer to the question is that is 
why I have been trying to provide health insurance since a year 
or two after I started the company, especially in retail at the 
time. It was very difficult to get any kind of health 
insurance, even if you were a low level manager.
    Mr. Kunkel. I think the challenge in that is that the 
concern I saw was a lot of employees that--especially younger, 
who thought they were invincible--that would not get health 
insurance because they could not afford it, because they were 
not providing it or were not providing an option. So they were 
not getting their regular checkups and dental and all of that.
    So I think us being able to afford it, in my case the 
reimbursement was a way that I could provide that to them. That 
was certainly preventative care from their standpoint. 
Otherwise, they were waiting until they had to go to the 
hospital before they sought health care.
    Senator Shaheen. Well, thank you all very much.
    Chairman Vitter. Senator Cardin is on the way so as we wait 
for him, I think he will be here momentarily, just a comment 
following up on Senator Shaheen's really good point.
    I think when you talk to those companies like Safeway who 
have done a lot of that, one big thing they will tell you is 
the way to have an impact is not through feel good 
encouragement but through provisions that have a bottom line 
impact to the employee's bottom line, to their wallet, to their 
take-home pay, to what they keep and enjoy.
    Now obviously, we do not want to do anything that penalizes 
genetics but outside of that, I think the way to have that sort 
of healthy behavior impact is to make it pay for the individual 
to go to this class, to lose weight, to not smoke or to 
penalize things in the opposite direction.
    Is Senator Cardin still on the way?
    The Clerk. Yes, Senator.
    Chairman Vitter. Well, would anybody like to break into 
song, tell a good joke?
    Mr. Kunkel. I have been involved--I am also on another 
advisory board for Maryland Health Benefits Exchange. I know 
there is a lot of talk about the SHOP program. So I certainly 
see any kind of modifications in that--I mean, I was told by--I 
do not know a lot about it, quite honestly, but I was told by 
two different brokers not to--it was very cumbersome. You had 
to apply with--essentially if you had three different insurance 
companies, you had to fill out the paperwork for each of those 
three.
    So I was discouraged going into that. So I certainly see 
that as a viable option moving forward, as long as it was made 
a little less cumbersome for small business owners.
    Mr. Kuhlman. Regarding the SHOP, I think there was a great 
opportunity, and NFIB was long supporters of the concept of the 
SHOP. I think either through the regulatory process and the 
implementation process things kind of got lost in translation. 
I think if it would have acted more like a vehicle where you 
could do these HRAs or a defined contribution that allows 
employees to pick a plan that fits theirs and their family's 
needs, and the employer plays a supporting role, but is not 
doing everything, that might have been--and it is a technology 
tool that would help do that. I think that would be an 
opportunity there.
    The last thing is I would just discourage participation 
requirements, minimum contributions requirements, because these 
things serve as barriers of entry. And they can exist, 
sometimes in just the State ones, but the Federal one has a 
participation requirement barrier, as well.
    Mr. Brey. Just as a Maryland small businessman, to add on 
to this a little bit, let us not forget that as a small group 
in Maryland we basically had no choices prior to the Affordable 
Care Act coming along. Maryland already mandated in their small 
group a lot of--like Maryland did not have pre-existings. They 
already mandated small group coverage. So if you wanted to sell 
small group coverage in Maryland, you had to abide by certain 
rules.
    And so as a result, we basically had two choices, plus 
Kaiser. Kaiser did not work for us because we span three 
states. So when the Affordable Care Act came along, frankly, I 
understand that it is easiest and most fun to beat up on it. 
But let us be honest, the coverage we had to choose from went 
from almost nothing to dozens and dozens of plans, maybe too 
many, almost.
    But I would certainly rather have to fight through too many 
plans than be stuck with this is the plan that you can get for 
small groups this year.
    Senator Shaheen. Mr. Brey, let me just say that in New 
Hampshire we had some of those same problems. And in fact, when 
the ACA started in New Hampshire, we only had one insurer in 
our marketplace. We have now grown to five insurers and 11 plan 
options, I think, have grown. I cannot remember how many now.
    But it has been--it has had that same impact, and hopefully 
that will continue and we can make the kinds of changes that 
you all are encouraging in a way that makes it even more robust 
and available for people who need it.
    Chairman Vitter. Senator Scott.
    Senator Scott. Thank you, Mr. Chairman. I know that you, I 
believe, have already discussed the PACE Act a little bit 
earlier and the importance for keeping the threshold of small 
businesses defined at 50. We are very thankful for the passing 
of our bill.
    Senator Shaheen. I gave us credit.
    Senator Scott. Oh, did you? Good job. Thank you very much. 
Teamwork works, even in the United States Senate. It is a great 
thing.
    Mr. Kuhlman, ObamaCare imposed a new tax on--we call it the 
HIT tax--which has been delayed for a year. But this is a 
massive tax. Over the next couple of years, by 2018, it should 
cost about $14.3 billion. And while we have that one year 
moratorium on the HIT, the question really is how will that 
impact small businesses in 2018 and beyond? This will be passed 
on in higher premiums, without any question.
    As a small business owner myself for about 14 years, it is 
hard to wrestle with the reality that small businesses can pay 
higher taxes, they can deal with higher amounts of red tape, or 
they can hire more employees. It is almost impossible to do all 
three.
    Mr. Kuhlman. Yes, sir. Yes, Senator, it is passed along 
dollar for dollar, so it is--in real numbers, it is $350 to 
$500 per employee, on the individual market per family member. 
It is problematic. And that is just when it does come back in 
2018 at about $14.3 billion. Ten years down the road it is 
going to be nearly double that, and that is just another added 
cost there.
    So we recommend--NFIB recommends any further relief that 
can come from that. We are very thankful for the one year 
moratorium and hope that it can be revisited soon.
    Senator Scott. Thank you.
    Chairman Vitter. Senator Cardin.
    Senator Cardin. Thank you, Mr. Chairman. I appreciate it.
    I want to thank all of our witnesses. I particularly want 
to acknowledge with pride two Maryland people that are on our 
panel. Mr. Kunkel, welcome. Mr. Brey, welcome.
    I want to--I am a strong supporter of the Affordable Care 
Act. I make no pretense otherwise. However, I think it can be 
improved. I think we can make it better for small businesses. 
That is why I think this hearing is particularly important on 
how we can improve our health care system to help particularly 
small companies. That is why this hearing, to me, is very, very 
appropriate.
    I have been in Congress long enough to remember the 
hearings in which we had small businesses present on health 
care before the passage of The Affordable Care Act. I served on 
the Ways and Means Committee in the House of Representatives 
and I recall very vividly the hearings that we had.
    The number one issue, by far, that was brought up when we 
had small businesses before us was the availability of 
affordable quality health insurance.
    And there were several reasons for it. One, there was a 
huge escalation of costs of health care. And in fact, if we 
used the pre-2010 Health Index, if that cost curve had not been 
reduced, the average family health premiums today would be 
$2,600 higher. So we have been able to bend the cost curve.
    Now did the Affordable Care Act do that? I think it 
contributed to that. But clearly, the cost curve is not what it 
was pre-2010.
    Secondly, there was a huge differential between small 
companies that did not have a risk pool similar to larger 
companies that caused, in my State I think we set up a small 
market reform in my State to try to deal with it. But it was 
about an 18 percent differential generally, between small 
companies and large companies, for identical policies. That is 
not totally eliminated but we have dealt with that under the 
Affordable Care Act.
    And then lastly, everyone who had insurance was paying for 
those who did not have insurance because of cost-shifting. We 
know that not just hospitals, which is pretty direct, the cost-
shifting to those who pay their bills, but all health care 
providers there is a cost shift because of people who do not 
pay their bills. In Maryland, the uninsured rates have dropped 
from 13 percent down to about 7.5 percent.
    So we have seen those three trends.
    So Mr. Brey, if I could just start with you. Has there been 
a noticeable effect on smaller companies as a result of these 
dynamics occurring within the last five years in the health 
market?
    Mr. Brey. Well, since the full implementation of the 
Affordable Care Act, we have seen premium increases in the 
single digits compared to mostly double digits before. I think 
I said in my testimony 9.7 percent in the 2013-2014 and then 5 
percent--I am sorry, 5 percent in the current year and 9.7 
percent before then.
    Rates prior to that were increasing anywhere from 13 
percent to 25 percent. That is each year. Not 24 percent over a 
period of time since the passage of the Affordable Care Act, 
which people point to quite a bit now. I am talking about those 
were increases each and every year.
    Senator Cardin. And of course, every employer and every 
plan dealt with that differently. Some changed the benefits, 
reduced the benefits. Some added to the costs for the 
beneficiaries, copayments, deductibles, et cetera. And some 
increased the premium contributions by employees. And of 
course, employers put more money in, in some cases. It was a 
combination of all of that.
    So it is difficult at times, when you see premium 
increases, to compare apples to apples because the Affordable 
Care Act, of course, requires a certain benefit structure.
    Mr. Brey. Correct. In fact, we did every single one of 
those things, depending on the year. When I first started, we 
paid 100 percent of people's coverage. And as I explained 
earlier, by the time we got to the end, we are about 50 percent 
covering the cost of their premiums. We had also switched to 
plans that had higher deductibles, et cetera. So we had done 
all of those things, trying to keep costs under control for us 
because the number one thing I wanted to do is continue to 
provide coverage for our employees.
    Senator Cardin. Of course, the other thing we saw is, of 
course, some companies just terminated their policies because 
the premiums were unpredictable and they just could not do it. 
So they had to terminate their policies. We also saw that in 
the marketplace.
    I am not saying it has been solved. I am saying this is 
where we were before the passage of the Affordable Care Act. 
And sometimes we forget where we were before we had a more 
level playing field for small companies.
    And the one practice that I always remember small companies 
telling me, they would hold their breath every year to see 
whether someone had a major illness. Because if they had a 
major illness, one person, one family, it could very well 
affect the ability to continue a health insurance plan because 
of the costs going up reflecting that particular individual's 
experience.
    Mr. Brey. You also did not want your employees to get old 
because they worked on the average age of the whole group.
    Senator Cardin. Yes. I just think that it is useful for 
Congress to reflect on that because if you look at it in 
absolutes today--and obviously, there are dynamics occurring in 
health coverage that we have to deal with. But if we did not 
have the number of people insured, if we did not have a level 
playing field, if we did not have broader pools available for 
smaller companies, the circumstances would be far more 
difficult to us to find affordable coverage for employees of 
small companies.
    Thank you, Mr. Chairman.
    Chairman Vitter. Thank you.
    One last point, there has been some criticism of the Small 
Business Exchange. I just want to say for the record, I think 
that is a fabulous deal if you are a member of Congress. If you 
are a small business, I am not sure. But that is a different 
topic and a different hearing.
    And so with that, we will thank all of our witnesses. Thank 
you for being here today. Thanks for what you do for the 
economy.
    We are adjourned.
    [Whereupon, at 3:44 p.m., the Committee was adjourned.]
    
    
    
    
    
    
    
    
    
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