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HEALTH CARE REFORM 
(Part 9) 



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Kfaltl. Care Reforii, (P,rt 9). Ssri,... RTfapO 

BEFORE THE 

SUBCOMMITTEE ON 
HEALTH AND THE ENVIRONMENT 

OF THE 

COMMITTEE ON 

ENERGY AND COMMERCE 

HOUSE OP REPRESENTATIVES 

ONE HUNDRED THIRD CONGRESS 

SECOND SESSION 



FEBRUARY 2, 1994— ALTERNATIVE LEGISLATIVE APPROACHES 

FEBRUARY 3, 1994— LONG-TERM CARE AND QUALITY ASSURANfCE 

FEBRUARY 8, 1994— PRESCRIPTION DRUG BENEFIT 

FEBRUARY 10, 1994— HEALTH EQUITY AND ACCESS REFORM 



Serial No. 103-110 



Printed for the use of the Committee on Energy and Commerce 




OCT 2 8 «9«» 



HEALTH CARE REFORM 
(Part 9) 



HEARINGS 

BEFORE THE 

SUBCOMMITTEE ON 
HEALTH AND THE ENVIRONMENT 

OF THE 

COMMITTEE ON 

ENERGY AND COMMERCE 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRD CONGRESS 

SECOND SESSION 



FEBRUARY 2, 1994— ALTERNATIVE LEGISLATIVE APPROACHES 

FEBRUARY 3, 1994— LONG-TERM CARE AND QUALITY ASSURANCE 

FEBRUARY 8, 1994— PRESCRIPTION DRUG BENEFIT 

FEBRUARY 10, 1994— HEALTH EQUITY AND ACCESS REFORM 



Serial No. 103-110 



Printed for the use of the Committee on Energy and Commerce 




U.S. GOVERNMENT PRINTING OFFICE 
82-435CC WASHINGTON : 1994 

For sale by the U.S. Government Printing Office 
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402 
ISBN 0-16-0AA882-4 



COMMITTEE ON ENERGY AND COMMERCE 



JOHN D 
HENRY A. WAXMAN, CaHfornia 
PHILIP R. SHARP, Indiana 
EDWARD J. MARKEY, Massachusetts 
AL SWIFT, Washington 
CARDISS COLLINS, Ulinois 
MIKE SYNAR, Oklahoma 
W.J. "BILLY" TAUZIN, Louisiana 
RON WYDEN, Oregon 
RALPH M. HALL, Texas 
BILL RICHARDSON, New Mexico 
JIM SLATTERY, Kansas 
JOHN BRYANT, Texas 
RICK BOUCHER, Virginia 
JIM COOPER, Tennessee 
J. ROY ROWLAND, Georgia 
THOMAS J. MANTON, New York 
EDOLPHUS TOWNS, New York 
GERRY E. STUDDS, Massachusetts 
RICHARD H. LEHMAN, California 
FRANK PALLONE, Jr., New Jersey 
CRAIG A. WASHINGTON, Texas 
LYNN SCHENK, CaHfornia 
SHERROD BROWN, Ohio 
MIKE KREIDLER, Washington 
MARJORIE MARGOLIES-MEZVINSKY, 

Pennsylvania 
BLANCHE M. LAMBERT, Arkansas 

Alan J. Roth, Staff Director and Chief Counsel 

Dennis B. Fitzgibbons, Deputy Staff Director 

Margaret A Durbin, Minority Chief Counsel and Staff Director 



DINGELL, Michigan, Chairman 

CARLOS J. MOORHEAD, CaUfomia 

THOMAS J. BLILEY, Jr., Virginia 

JACK FIELDS, Texas 

MICHAEL G. OXLEY, Ohio 

MICHAEL BILIRAKIS, Florida 

DAN SCHAEFER, Colorado 

JOE BARTON, Texas 

ALEX MCMILLAN, North CaroUna 

J. DENNIS HASTERT, Illinois 

FRED UPTON, Michigan 

CLIFF STEARNS, Florida 

BILL PAXON, New York 

PAUL E. GILLMOR, Ohio 

SCOTT KLUG, Wisconsin 

GARY A. FRANKS, Connecticut 

JAMES C. GREENWOOD, Pennsylvania 

MICHAEL D. CRAPO, Idaho 



Subcommittee on Health and the Environment 



HENRY A. WAXMAN, 

MIKE SYNAR, Oklahoma 
RON WYDEN, Oregon 
RALPH M. HALL, Texas 
BILL RICHARDSON, New Mexico 
JOHN BRYANT, Texas 
J. ROY ROWLAND, Georgia 
EDOLPHUS TOWNS, New York 
GERRY E. STUDDS, Massachusetts 
JIM SLATTERY, Kansas 
JIM COOPER, Tennessee 
FRANK PALLONE, Jr., New Jersey 
CRAIG A. WASHINGTON, Texas 
SHERROD BROWN, Ohio 
MIKE KREIDLER, Washington 
JOHN D. DINGELL, Michigan 
(Ex Officio) 



California, Chairman 

THOMAS J. BLILEY, JR., Virginia 
MICHAEL BILIRAKIS, Florida 
ALEX McMillan, North CaroUna 
J. DENNIS HASTERT, Illinois 
FRED UPTON, Michigan 
BILL PAXON, New York 
SCOTT KLUG, Wisconsin 
GARY A. FRANKS, Connecticut 
JAMES C. GREENWOOD, Pennsylvania 
CARLOS J. MOORHEAD, CaUfomia 
(Ex Officio) 



Karen Nelson, Staff Director 

Michael M. Hash, Senior Staff Associate 

Andreas G. Schneider, Counsel 

Ruth J. Katz, Counsel 

William Schultz, Counsel 

Howard Cohen, Minority Counsel 

Mary M. McGrane, Minority Counsel 



(II) 



CONTENTS 

Page 

Hearings held on: 

February 2, 1994 1 

February 3, 1994 269 

February 8, 1994 527 

February 10, 1994 877 

Testimony of: 

Ansak, Marie-Louise, founding executive director, On Lok, Inc., on behalf 

of the Program for All-Inclusive Care for the Elderly 366 

Atwater, Bruce, chairman. General Mills, Inc 69 

Bamette, Curtis H., chairman, Bethlehem Steel Corp., also on behalf 

of National Leadership Coalition for Health Care Reform Ill 

Bee, David M., member, board of directors, American Medical Peer Re- 
view Association 422 

Berenson, Robert A., medical director, National Capitol PPO 435 

Bilirakis, Hon. Michael, a Representative in Congress from the State 

of Florida v 175 

Bom, Gerald A., administrator. Division of Community Services, Wiscon- 
sin Department of Health and Social Services 360 

Biyant, Anne L., executive director, American Association of University 

Women, also on behalf of the Campaign for Women's Health 114 

Canja, Tess, member, board of directors, American Association of Retired 

Persons ; 309 

Carver, Albert L., director of Pharmacy Operations, Southern California 

Region, Kaiser Permanente Medical Care Program 735 

Cebrun, Antihony J., president, Tennessee Managed Care Network 85 

Coleman, Hon. Ronald D., a Representative in Congress from the State 

of Texas 232 

Coleman, William H., president, American Academy of Family Physi- 
cians 137 

Cooper, Hon. Jim, a Representative in Congress from the State of Ten- 
nessee 7 

Dallek, Geraldine, executive director, Center for Health Care Rights 461 

DeLauro, Hon. Rosa L., a Representative in Congress from the State 

of Connecticut , 250 

England, Mary Jane, president, Washington Business Group on Health ... 94 
Engman, Lewis A., president, Generic Pharmaceutical Industry Associa- 
tion 688 

Goldberg, Sheldon L., president, American Association of Homes for the 

Aging 394 

Grabowski, Henry G., professor of economics, Duke University 783 

Grandy, Hon. Fred, a Representative in Congress from the State of Iowa . 27 
Green, Davis G., director. Health and Welfare Unit, Institute of Economic 

Affairs, London, England 790 

Grigsby, Sharon Flynn, past Chair, Visiting Nurse Associations of Amer- 
ica 350 

Harahan, Mary, Deputy Assistant for Aging, Disability, and Long-Term 

Care Policy, Department of Health and Human Services 272 

Howley, John, assistant director of public policy. Service Employees Inter- 
national Union 125 

Johnson, Patricia A., president. Lupus Foundation of America 582 

(III) 



IV 

Testimony of — Continued Page 

Lee, Philip R., Assistant Secretary for Health, Department of Health 

and Human Services 540 

Lott, John R., Jr., assistant professor of Business, University of Penn- 
sylvania 815 

Love, James, director, Taxpayer Assets Project, Center for Study of Re- 
sponsive Law 820 

McConnell, Stephen, senior vice president, Alzheimer's Association 288 

Marshall, Robert P., CEO, California Pharmacists Association 744 

Meyers, Abbey S., president. National Organization for Rare Disorders .... 589 
Miller, Donna, chief executive officer, Memphis Business Group on 

Health 84 

MossinghofT, Gerald J., president. Pharmaceutical Manufacturers Asso- 
ciation 635 

O'Kane, Margaret, president. National Committee for Quality Assurance . 407 
O'Leary, Dennis S., president. Joint Commission on Accreditation of 

Healthcare Organizations 445 

Perkins, Joseph, member, board of directors, American Association of 

Retired Persons 597 

Perry, Daniel, executive director, Alliance for Aging Research 613 

Pollack, Ronald F., executive director. Families U.S.A. Foundation 153 

Raab, Kirk, president, Genetech, Inc., on behalf of the Biotechnology 

Industry Organization 666 

Regula, Hon. Ralph, a Representative in Congress from the State of 

Ohio 199 

Reid, Orien, member, national board, Alzheimer's Association, also on 

behalf of Long Term Care Campaign 288 

Rowland, Hon. J. Roy, a Representative in Congress from the State 

of Georgia 173 

Sanders, Charles A., chairman and CEO, Glaxo, Inc 677 

Schondelmeyer, Stephen W., director. Prime Institute 837 

Singer, Sara, Graduate School of Business, Stanford University 80 

Smits, Helen, Deputy Administrator, Health Care Financing Administra- 
tion, Department of Health and Human Services 540, 542 

Steams, Hon. Cliff, a Representative in Congress from the State of Flor- 
ida 180 

Stone, Robyn I., Deputy Assistant Secretair of Aging, Disability, and 

Long-Term Care Policy, Department of Health and Human Services 272 

Thomas, Hon. William M., a Representative in Congress from the State 

of California 877 

Traficant, Hon. James A., Jr., a Representative in Congress from the 

State of Ohio 241 

Vagelos, P. Roy, chairman, Merck & Co., Inc 650 

Wessel, Ken, member, Government Affairs Committee, National Associa- 
tion of Home Care 343 

Willging, Paul R., executive vice president, American Health Care Asso- 
ciation 380 

Yaffe, Sumner J., director. Center for Research for Mothers and Children, 

National Institutes of Health 616 

Young, Anthony J., on behalf of Consortium for Citizens With Disabil- 
ities, and the Long Term Services and Supports Task Force 296 

Ziegler, Ronald L., president. National Association of Chain Drug Stores, 
on behalf of The Community Retail Pharmacy Health Care Reform 

Coalition 757 

Material submitted for the record by: 

American Association of Retired Persons, statement 332 

American Hospital Association, statement 866 

American Society of Hospital Pharmacists, statement 871 



Material submitted fr the record — Continued Page 

George Washington University, letter to Chairman Waxman dated Feb- 
ruary 2, 1994, from Sara Rosenbaum, study for Kaiser Commission 

on Future of Medicaid and The Commonwealth Fund 264 

Life Sciences Industry Services, letter dated February 7, 1994, from Ken- 
neth B. Lee, Jr., to Carl Feldbaum, re analysis, strength and nature 

of capital markets for biotech companies 708 

National Association for Sickle Cell Disease, Inc., statement 874 

Stark, Hon. Fortney Pete, a Representative in Congress from the State 

of California, statement 539 

Vucanovich, Hon. Barbara F., a Representative in Congress from the 
State of Nevada, statement 262 



HEALTH CARE REFORM 
Alternative Legislative Approaches 



WEDNESDAY, FEBRUARY 2, 1994 

House of Representatives, 
Committee on Energy and Commerce, 
Subcommittee on Health and the Environment, 

Washington, DC. 

The subcommittee met, pursuant to notice, at 10:15 a.m., in room 
2123, Raybum House Office Building, Hon. Henry A. Waxman 
(chairman) presiding. 

Mr. Waxman. The meeting of the subcommittee will come to 
order. Today's hearing continues our examination of alternative ap- 
proaches to health reform. 

Yesterday we heard testimony on the proposal offered by Mr. 
McDermott, H.R. 1200, that would achieve universal coverage 
through a single payer approach. We also received testimony on 
H.R. 3080, sponsored by Representative Michel, that would require 
all employers to offer but not contribute to health insurance to 
their workers and dependents. 

This morning we are going to look at H.R. 3222, the Managed 
Competition Act of 1993, introduced by our colleague Mr. Cooper, 
and cosponsored by several other members of the committee. Un- 
like President Clinton's proposal and unlike Mr. McDermott's bill, 
H.R. 3222 would not guarantee health coverage to all Americans 
and would not establish limits on increases in health care costs. 

This afternoon we will hear from members with other proposals 
relating to health care reform. Among the witnesses will be our col- 
leagues, Mr. Rowland and Mr. Bilirakis, testifying in support of 
H.R. 3573, the Community Health Improvement Act of 1993. In ad- 
dition, Mr. Steams from the subcommittee on Commerce, 
Consumer Protection, and Competitiveness will testify on H.R. 
3698, the Consumer Choice Health Security Act. 

Before calling on our first witnesses, I would like to recognize the 
distinguished ranking member of the subcommittee, Mr. Bliley, for 
any opening statement he may have. Without objection, all mem- 
bers' opening statements will be inserted in the record at this point 
in full. 

Mr. Bliley. Thank you, Mr. Chairman. 

It has been a little over a week since the State of the Union ad- 
dress in which the President showed us his "veto pen" and threat- 
ened to veto any bill which does not employ immediate universal 
coverage through a nationalized system. Rather than responsibly 
attempt to accomplish bipartisan reform which will fix the prob- 

(1) 



lems in the insurance marketplace that the President himself iden- 
tified, such as preexisting conditions, continuity of coverage, guar- 
anteed renewability and no medical underwriting, he would rather 
hold out for a nationalized, command and control, "one-size-fits-all" 
health care system which relies on rationing and limiting individ- 
ual choice. The only two bills which meet these criteria are his 
Health Security Act and the McDermott Canadian single payer bill. 

Both these bills lead to a national health care system with global 
budgets, price controls and new payroll and individual taxes. These 
bills terminate every American's current health insurance coverage 
and place everyone permanently in government-controlled entitle- 
ment programs run by Federal and State bureaucrats. Fourteen 
percent of our economy would be under the command and control 
of a National Health Board located in Washington, D.C., and now 
we can look to the experience of our Canadian neighbors, who had 
to shut down their hospitals for 3 weeks during Christmas because 
the government ran out of money. 

When asked about this shutdown, the President of the largest 
hospital in Toronto stated, "This is not about health care; this is 
about the deficit." 

One example of the treatments affected by the shutdown is de- 
scribed by one of Toronto's leading orthopedic surgeons. Dr. Robert 
Bell. He stated that three of his bone cancer patients had to be 
sent elsewhere for 2 weeks during the shutdown. He states that 
"The delay will not reduce the patient's life span, but it will extend 
the duration of their pain. Their discomfort level has been in- 
creased by weeks." 

Dr. Bell, who practiced medicine for 2 years in Boston, further 
stated, "If you said to an American patient, *We are going to delay 
your surgery for 2 weeks because costs are involved,' they would 
never accept it." Well, Dr. Bell, I hope you are right. 

Yesterday, the distinguished Minority Leader, Bob Michel, testi- 
fied with my colleagues. Congressmen Hastert and Thomas, on 
H.R. 3080, the Affordable Health Care Act of 1993. This bill has 
138 cosponsors, more than any other health reform bill. It provides 
targeted fixes for specific problems in the health care marketplace. 
It is a bill which provides universal access for all Americans with- 
out rationing health care and taking away every American's pri- 
vate health insurance. 

Today, our first three panels will discuss H.R. 3222, the Man- 
aged Competition Act of 1993, cosponsored by our distinguished 
colleague. Congressman Cooper. This bill is particularly interesting 
for several reasons. First, it is truly the only current bill which has 
some limited bipartisan support in both the House and Senate. And 
because this bill has some bipartisan support, the administration 
has sent out "its storm troopers" and public interest group "hacks" 
in a "search and destroy" mission to kill it. But so far the adminis- 
tration's efforts have more of the "look and feel" of the "old Key- 
stone Kops." 

In today's environment, it seems that it is a punishable offense 
to sponsor a health care reform bill that does not guarantee imme- 
diate universal coverage for everyone. Today, respected members 
from both parties are given failing marks if they refuse to embrace 
a universal entitlement program for health care, particularly one 



3 

built upon tollgates, CPI premium caps, national boards and giant 
health alliances which will provide health care for almost all Amer- 
icans in large managed care entities. The failing grades should go 
to the Cabinet Secretaries, 0MB officials and HHS bureaucrats 
who have paraded before this subcommittee for over 20 hearings 
and have not been able to explain the basic features of the admin- 
istration's bill. In more than a few instances, they didn't even know 
what was in the bill. 

Like many of us, my colleague from Tennessee is walking a fine 
line in attempting to build a delicate balance. Some days the press 
reports he is at the White House for discussions. Other days the 
administration identifies him as "Public Enemy Number One" in 
the health care debate. 

We on this side of the aisle want to keep the lines of communica- 
tion open. There is great interest in a Bipartisan approach, and I 
would like to remind my colleague from Tennessee that health care 
reform cannot be accomplished in a meaningful way without uni- 
fied, mainstream Republican support. 

The Managed Competition Act of 1993 is a complicated bill. But, 
like the Republican Health Task Force bill, it attempts to fix the 
problems in the health insurance marketplace that need to be cor- 
rected. Although at this point in the debate I cannot support a tax 
cap because it is a tax increase on working Americans, or State- 
controlled mandatory alliances, I want to congratulate our col- 
league. Congressman Cooper, for producing a bill which refuses to 
embrace global budgets, price controls or an employer mandate. 

I am also happy to see that the bill's malpractice reform and ad- 
ministrative simplication sections are similar to the Republican 
Health Task Force bill. Yours is a bill that builds on the strengths 
of the current system, which is the finest health care system in the 
world. And it does this by refusing to ration health care, limit pa- 
tient choice, create an employer mandate, and generally turn the 
American health care system into a second rate one. 

I sincerely hope in the upcoming weeks, that members from both 
parties, who are interested in both reforming and preserving the 
world's finest health care system, can work together in the spirit 
of cooperation. "Veto Pens," "Name Calling," and "Mud Slinging" 
will never advance the debate on such a monumental issue. 

Mr. Waxman. Mr. Wyden. 

Mr. Wyden. I think the gentleman from Virginia is absolutely 
right in saying how important it is to keep the lines of communica- 
tion open. Having spent, I would say, hundreds of hours over the 
years talking with Congressman Cooper, I know he is committed 
to that and that his heart is in the right place. 

Mr. Chairman, I really have three substantive concerns about 
the Cooper legislation. First is, if you want a significant role for the 
private sector in health care, you have to deal with the problem of 
cost-shifting. 

We know that about two-thirds of the employers in this country 
cover their people for health care; about a third don't. We are, in 
effect, paying the hospital emergency room bills of those employers 
that don't cover their people by shifting those costs onto the em- 
ployers that do. 



It seems to me that the Cooper legislation, in effect, surrenders 
in the fight against cost-shifting. It simply walks away from that 
battle. 

I know my friend feels that the way you deal with cost-shifting 
is by reforming Medicare. I would say to him, as we have said over 
a number of conversations, we have to have shared responsibility 
where the employer covers a portion, the employee covers a por- 
tion, rather than to surrender in the fight against cost-shifting, as 
I believe the Cooper legislation does. 

My second point is that I think the Cooper legislation walks 
away from the rights of millions of women in our country. The fact 
is, women are guaranteed under the law the right of free choice, 
the right to choose with respect to abortion; millions of them have 
that right protected in their private health insurance policies. The 
Cooper legislation does not ensure that right of free choice, and I 
think that is unfortunate. 

The third area I think the bill is deficient in deals with medical 
technology. I am surprised at the approach my friend takes on this 
because, in effect, he takes the piece that is driving up medical 
costs, medical technology, and just hands it over to a government 
agency. I and others would like to incentivize the private sector 
through a voluntary approach on technology where companies 
would be given a voluntary incentive to show where their tech- 
nology is superior to others. I am hopeful that we can work with 
our colleague on that. 

Mr. Chairman, let me again say I think Jim Cooper's heart is in 
the right place. We have a debate about how to get this job done, 
but this is a thoughtful member who means well, and I look for- 
ward to continuing to work with him; and I yield back. 

Mr. Waxman. Thank you. 

Mr. Greenwood. 

Mr. Klug. 

Mr. Klug. Let me echo the comments of my colleague Mr. Wyden 
that Jim Cooper's and Fred Grandy's hearts are in the right place, 
and I suspect their heads are also in the right place; but I think 
what has happened with the Cooper-Grandy- Andrews bill, which I 
and a number of Republicans and Democrats are cosponsors on, is 
that it reflects best the traditional ideas of the Jackson Hole model 
where the private sector maintains a role in health care reforrn and 
where we understand the government has very limited ability to 
run the whole system. 

The Cooper-Grandy bill, it seems to me, does the best job of in- 
tervening to correct the problems we all see right now in the health 
insurance area, but at the same time steps back and does not have 
the government too heavily involved in the system. It does not re- 
peat the President's mistake of employer mandates. 

I will be interested to hear Mr. Cooper's and Mr. Grandy's 
thoughts on Hawaii's experience, where we have had an employer 
mandate in place for some time that still does not achieve univer- 
sal coverage. Perhaps importantly for my district, it still allows a 
great deal of flexibility in terms of self-insured programs. I have 
several major employers in my district who estimate their health 
insurance costs under the President's plan could rise $2 million 



next year and you don't need a doctorate in economics to under- 
stand that will mean layoffs and problems for the private sector. 

Let me also express my thanks to my colleagues for avoiding the 
mistakes of price controls or global budgets. If we are going to try 
to hold down costs in the health care system, I think we should do 
it consciously rather than assume, if we set some artificial limits, 
that it will squeeze out inefficiencies. Instead, we may see what 
Mr. Bliley suggested in the case of Canada. You squeeze out cov- 
erage and care that is very necessary and obviously justifiable by 
any kind of medical experience. 

I look forward to hearing my colleagues' thoughts, and congratu- 
late Jim and Fred for putting together the best bipartisan bill 
which I think does the best job of reflecting the government's role 
in the health care crisis. 

Mr. Waxman. Thank you, Mr. Klug. 

Mr. Kreidler. 

Mr. Kreidler. I would like to add my support to the proposal 
that is before us from the standpoint of its thoughtfulness and com- 
prehensiveness. However, I would have to say that I have some 
reservations about how well it will address the two overriding con- 
cerns of health care reform. 

Number one is that it must achieve universal coverage, not only 
because it is the right and the fair thing to do, but also because 
you have to end this interminable cost-shifting between individuals 
who don't pay and individuals who pay more than their fair share, 
and employers who play the same role. I am afraid this legislation 
would come up short on that scale. 

If it could achieve that goal, I think we would feel much more 
comfortable about it because it is one of the driving economic issues 
that is involved. 

The second is, I am concerned that it does not set in place the 
kinds of cost controls that are going to be so critical to slow down 
spending on health care in this country, not spend less, just so we 
hold it down, so we are only spending at the inflation rate, as op- 
posed to two and three times the inflation rate. 

But I commend the sponsors, Messrs. Cooper and Grandy, for 
proposing this legislation. It is indeed well thought out, comprehen- 
sive; it is the kind of legislation we should have in front of us as 
a part of this debate. It is unfortunate that more members have not 
embraced this kind of comprehensive approach, who still look and 
say, "What happens to Americans who go bankrupt because of 
health care needs, what happens when government goes bankrupt 
is not our concern, we can turn our back on these issues and say 
that doesn't matter to us, all we have to do is preserve the status 
quo." 

We know what the status quo is doing to us. In the words of Sen- 
ator Dole when he cosponsored President Nixon's health care re- 
form back in the early 1970's, we had a crisis 20 years ago, indeed 
we have a crisis today. 

That legislation called for an employer mandate. I think an em- 
ployer mandate is probably the most effective tool, something not 
included in this legislation, something that I feel would help to per- 
fect it to the point where we are able to accomplish the goals of 



universal coverage and cost control in our health care system. But 
I commend the gentlemen for their proposal. 

Thank you, Mr. Chairman. 

Mr. Waxman. Mr. McMillan. 

Mr. McMillan. Thank you, Mr. Chairman. 

As a cosponsor of the Cooper-Grandy bill, I want to welcome you. 
I don't agree with 100 percent of it, but I also don't agree with 100 
percent of the Republican alternative, which I helped shape. 

Everyone should be aware that there are close to 140 cosponsors 
on the Republican bill. There are over 60 cosponsors on the Cooper- 
Grandy bill, half of whom are Republicans, half of whom are Demo- 
crats. There are 101 cosponsors of the President's bill, half of whom 
are also single-payer advocates, so in effect the President has at- 
tracted only 50 cosponsors to his bill. 

I remind the gentleman from Washington that if you are going 
to get anjrthing through the Congress, you will have to get people 
like Senator Dole to support it. We have to come together on things 
that we agree are important and not fall apart on those things that 
we disagree on. It is in that spirit that I think that what the two 
gentlemen have proposed is extraordinarily constructive and gets 
at a lot of the major problems. 

It is rank hypocrisy to talk about this bill as not addressing cost- 
shifting, because it does effectively address cost-shifting in the pri- 
vate sector; to the extent that that has been imposed by private in- 
surers, it gets at that in a competitive fashion. The President's plan 
would address cost-shifting only through price-fixing and not 
through competition, which in the end it would tend to diminish. 
It is rank hypocrisy because the President's plan and all plans fail 
to get at the major cause of cost-shifting, and that is Medicare. 

Medicare is not included in any of the plans. It is one of the prob- 
lems I have with all the plans, and it is really tough but there are 
ways to do that. 

If we don't take advantage of the opportunity to incorporate Med- 
icare into health care reform at this juncture, we are going to be 
faced with the kind of decisions that we will be faced with under 
the President's plan, in which he is going to ask us to adopt major 
new entitlement programs covering the senior population, costing 
$131 billion; and then he is going to come back and say he is going 
to pay for it with money he expects us to save by cutting Medicare 
$124 billion, which history has shown he won't do. 

So I think it is hypocritical to deal with Medicare in the fashion 
that the President has proposed. 

My time has expired, and maybe we can get to some of these 
points in the questioning. I want to thank the gentlemen for the 
constructive efforts that they are making. Any constructive effort 
that this Congress is going to succeed in achieving in this session 
has got to be based on bipartisan support, and I dare say that it 
is probably going to have to be about 50/50 in order to pass any- 
thing. So I look forward to our questioning and yield back the bal- 
ance of my time. 

Mr. Waxman. Thank you. 

Mr. Brown. 

Mr. Brown. No opening statement, Mr. Chairman. 

Mr. Waxman. Mr. Paxon. 



Mr. Paxon. No opening statement, Mr. Chairman. 

Mr. Waxman. Our first panel this morning includes two of our 
colleagues, sponsors of H.R. 3222, the Managed Competition Act of 
1993 — our subcommittee colleague, the Honorable Jim Cooper of 
Tennessee and the Honorable Fred Grandy of Iowa, a member of 
the Committee on Ways and Means. 

Thank you for being here. Your prepared statements, without ob- 
jection, will be made part of the record in their entirety. We would 
like to ask you to proceed with your testimony, and we would ap- 
preciate if you would limit it to 5 minutes. 

Mr. Cooper, let's start with you, 

STATEMENT OF HON. JIM COOPER, A REPRESENTATIVE IN 
CONGRESS FROM THE STATE OF TENNESSEE 

Mr. Cooper. Thank you, Mr. Chairman. I would like to ask 
unanimous consent to submit two documents for the record. 

Mr. Waxman. Without objection. 

Mr. Cooper. I would also like to thank you for holding this hear- 
ing. No other Member of Congress combines your skill as a legisla- 
tor with your knowledge of health care. In is an honor to be a 
member of your subcommittee and to appear before you and my 
colleagues as a witness. I wish that you were a supporter of our 
bill, but I am confident that we can work together to make sure 
that the dream of national health reform is achieved this year. 

I am particularly grateful to my colleague, Scott Klug, perhaps 
my earliest cosponsor, who has been a great help in formulating 
this legislation throughout the process, including in the last Con- 
gress. It was vitally important. I appreciate the cosponsorship of 
my colleague, Alex McMillan, and also the cosponsorship of Mike 
Synar and now Bill Richardson on our bill. Some others of you 
haven't cosponsored it yet, but we have learned from your exper- 
tise. My colleagues Ron Wyden, Mike Kreidler and Tom Bliley have 
been very helpful in helping us put together some of these ideas. 

Mr. Chairman, in our committee's long and distinguished history, 
this subcommittee may never have faced a more daunting task. We 
have been given 1 month to decide how to fix the cost and access 
problems in today's health care system. Not since the Great Soci- 
ety, and perhaps not since the New Deal, have changes of this 
magnitude been contemplated with such a tight deadline. 

As my colleagues decide which reform strategy to pursue, I would 
urge everyone to be genuinely bipartisan. I know this sounds sim- 
ple, and it is certainly a goal to which everyone at least pays lip 
service. But it is the only way to pass a bill through the Senate. 
It is the only way to get a bill through the House of Representa- 
tives with the large majority that the historic bills of this century 
have had. 

Far more important than passing Congress, bipartisanship is 
vital to making sure that health care reform really works back 
home in every town and city in America, because we need to pass 
a plan that makes all of our patients feel comfortable whether they 
are Democrats, Republicans, Independents or don't care a thing 
about politics. 

The President and the First Lady deserve tremendous credit for 
their leadership in health reform. As the former Surgeon General, 



8 

Dr. C. Everett Koop, said, the Clintons have already accomplished 
more in health care reform than all their living predecessors put 
together. We think the President and First Lady have a historic op- 
portunity to lead an overwhelming majority of us toward a biparti- 
san solution to health reform this year. 

We are closer to that bipartisan solution than many people real- 
ize. In the last presidential election, both Clinton and Bush set the 
stage by endorsing managed competition in health reform. Just this 
week, our Nation's 50 Governors unanimously endorsed managed 
competition. Now it is Congress's turn. 

I am proud of the fact that our bill is almost identical to the Gov- 
ernors' views. What the Grovernors found this week is what we dis- 
covered some 3 years ago; through two Congresses, our bill is still 
the only bipartisan health care reform approach. Health care may 
be a giant $930 billion issue, it may be 14 percent of the GNP, but 
the bipartisan middle ground in this debate may be 1 inch wide. 

What is managed competition and how has it broken the par- 
tisan gridlock on health reform? Managed competition is an ap- 
proach designed by the so-called Jackson Hole Group. I wish that 
Dr. Alain Enthoven could be with us today on the following panel, 
Dut I understand that his mother fell and broke her hip, and he 
is not able to be with us. 

We basically took the Jackson Hole approach and modified it, 
consulted with hundreds and hundreds of our folks back home — 
regular people as well as with health care experts — and we con- 
sulted with American Health Care Systems, a not-for-profit hos- 
pital chain, as we put together our bill. 

Managed competition is an approach that is being field-tested al- 
ready in various forms in Minnesota, California, Florida and Wash- 
ington State, as well as in 150 American cities. Versions of man- 
aged competition have already been working for years in places 
make Memphis, Tenn.; Cincinnati, Ohio; Rochester, N.Y.; Orlando, 
Fla.; and countless other cities around the country. Nine million 
Federal employees today are benefiting from an early type of man- 
aged competition that has been in place for over 30 years. 

Managed competition has broken partisan gridlock by combining 
the best features of managed competition and government regula- 
tion. This is not a new entitlement program; this is an 
empowerment program. This is not the old please-the-bureaucrat 
regulatory paradigm. This is a new please-the-patient, please-the- 
customer regulatory paradigm. 

Managed competition means that every American should be able 
to shop for health care. That may sound unremarkable, but we 
have never been allowed to shop for care. We have never been able 
to know the price or quality of care in advance. We have never 
been empowered to be able to get the best deals from health pro- 
viders or health insurance companies. 

Now, for the first time, we will have the power and the informa- 
tion to choose the best plan for ourselves and our families. 

We like the idea of annual, menu-based shopping for health cov- 
erage, similar to the system that Federal employees have enjoyed 
for years. Instead of Congress keeping a benefit system to itself 
and its employees, it is high time we shared that system with the 
American people. 



We think that if done properly, managed competition will en- 
hance consumer choice, promote higher medical quality and contain 
costs. In fact, managed competition, we feel, is tougher and fairer 
on costs than any government price control program could ever be. 

We support health insurance reforms like those in the Clinton 
plan. We make sure that every American can get good health in- 
surance at low group rates, as if they worked for the biggest com- 
pany in town. No insurance company would be able to turn you 
down anymore. People would be able to get and keep insurance no 
matter what happens to them, no matter how sick they are, where 
they work, no matter if they are between jobs. 

In health care jargon, we are for guaranteed issue insurance, 
with a ban on preexisting-condition limitations and experience-rat- 
ing — no more cancelled policies, no more price gouging, no more in- 
surance company discrimination. 

We not only make insurance available, we make it affordable. 
Every American under 200 percent of poverty, double the poverty 
level, would qualify for help from the program that would replace 
the current Medicaid program. That means that four times more 
people in our country would be covered than under the current 
Medicaid program. 

Little attention has been paid to the fact that every taxpayer in 
America could benefit from a new tax deduction in our bill for low- 
cost, basic health coverage. Today, in our Nation's third largest 
health program, only corporations can fully deduct. The Clinton 
plan would give the self-employed a full deduction, but not the em- 
ployee. We want not only the self-employed, but also the regular 
employee to be able to deduct. This alone is a $54 billion program 
over the next 5 years to help average Americans better afford 
health coverage. This is effectively a middle class tax cut, paid for 
by trimming a corporate tax break. 

These reforms should remove all obstacles to health insurance 
coverage for all Americans. There is no reason why everyone 
wouldn't be able to be covered under these reforms. If there are 
some, we will soon know who they are and we will be able to cover 
them under the President's timetable, which is 1998. No other bill 
in Congress comes this close to meeting the President's demands 
that "We guarantee every American private health insurance that 
can never be taken away." 

The McDermott bill does not even allow private health insurance. 
The Chafee bill does not promise coverage until the year 2005, and 
then it is highly conditional on a pay-as-you-save basis. 

When you look at a broad range of health issues, you will also 
discover that our bill is the closest bill in Congress to the Presi- 
dent's bill. There are many similarities, but there are also some 
key differences. We agree on most of the goals of health reform, but 
we disagree primarily on the role of government involvement. 

The administration bill usually relies on a big government ap- 
proach; we prefer a small government approach. We disagree with 
the employer mandate, with the bureaucratic price controls, with 
large and regulatory health alliances, with politicalization of the 
basic benefits package and excessive State flexibility. I would be 
happy to go into these and other issues in whatever detail the sub- 
committee would like. 



10 

Our bill does promise less than the administration's bill, but we 
are confident that we can deliver on those promises. The adminis- 
tration bill contains at least four new entitlement programs and 
pays for a number of them by cutting the rate of growth of Medi- 
care by $124 billion over the next 5 years. Will seniors approve of 
this trade? I don't know. 

To conclude, Mr. Chairman, our bill is closer to the President's 
and closer to the Governors' recommendations than any other bill. 
Ours is the only bipartisan bill. It is certainly far from perfect, but 
it is the best starting point to achieve national consensus on this 
complex issue. 

With managed competition, we have an opportunity not to copy 
other nations, but to beat other nations. I hope that we will rise 
to that challenge. 

Thank you, Mr. Chairman. 

Mr. Waxman. Thank you. 

[Testimony resumes on p. 27.] 

[The documents referred to by Mr. Cooper follow:] 



11 

KEY ELEMENTS OIF MAMAGED COMFSTHTIIOM 
Insurance and Delivery System Reform 

If costs are to be controlled, the government must encourage the market to 
fundamentally restructure the way health care is provided. In today's market, few providers 
have strong incentives to hold down costs: The nwre services they provide, the more they can 
bill insurance companies, and the more they are paid. Providers are not accountable for what 
they charge, and they are not accountable for medical outcomes. 

Managed Competition Act: Through changes in the tax code, the bill strongly 
encourages providers and insurance companies to form Accountable Health Plans (AHPs) — 
improved and expanded versions of today's Health Maintenance Organizations, Preferred 
Provider Organizations, other group practices, and even traditional fee-for-service insurance. 
AHPs will be organized to compete on the basis of offering high-quality, low-cost care, and 
will offer insurance and health care as a single product. They will be responsible for looking 
after the total health of individuals. 

AHPs will have to price their plans in a dramatically different way than they are 
priced today. In our current system, heilth plaits can "cherry-pick" the healthiest 
individuals, and deny coverage or charge extremely high rates for others. Plans can also deny 
coverage for individuals with jwe-existing medical conditions. Under our proposal, any plan 
engaging in those practices wflJ lose its tax-favored status. 

• AHPs must offer a standard package of federally-defined uniform, effective health 
benefits. They may offer more comprdiensive plans, but employers and individuals who 
purchase those plans will receive a tax break only for the least costly package of standard 
benefits. AHPs must require copayments for medical services, except for preventive care. 

• AHPs must require all of their providers to report the medical outcomes of their 
patients in accordance with federal guidelines. 

• AHPs will not be allowed to vary premiums based on how sick people have been and 
how many claims they have had in the past AHPs vriU be allowed to vary premiums based 
only on geographic location, and to a limited degree based on age. 

• AHP plans must enroll all individuals who apply for coverage (open enrollment), and 
will not be allowed to deny coverage for preexisting medkal conditions. 

• State mandates on benefits and state restrictions on nunaged care are preempted. 

• An AHP may be set up by a very large business to provide coverage for its employees. 
It must meet all of the above rules, except for the requirement of open enrollment. 

Enhancing Small Business and Individual Purchasing Power 

Compared with large businesses, sn«ll businesses and individuals face two major 
disadvantages that discourage them from purchasing health coverage: 



12 



• As much as 40% of the premiums paid by small businesses and individuals 
goes toward administrative costs of health insurance (compared with less than 
10% for large businesses). 

• Small businesses do not have enough employees to ^read the risk of insurance 
around. If even one employee has high medical expenses, insurance can quickly 
become una/fordable. The problem is even worse for individuals. 

Managed Competition Act; To make health coverage more available, all 
individuals and small businesses will have access to coverage through a Health Plan 
Purchasing Cooperative (HPPC): 

• HPPCs will be state chartered, not-for-profit cooperatives, with exclusive 
geographic territory (i.e. there will be one HPPC per region). States will have the option of 
establishing more than one HPPC in a state (e.g. one in a metropolitan area and one for the rest 
of the state). 

• All employers with fewer than 100 employees will be able to purchase coverage 
through their local HPPC. States will have the flexibility to choose a threshold higher than 
100, so long as no more than half of all employees in a state purchase through a HPPC (around 
500 employees in most states). Individuals also will have direct access to all health plans in 
their area through the HPPC. 

• HPPCs will offer a menu of accountable health plans, including clear, standardized 
information for each plan on its price, an aggregate measure of the quality of care it provides 
and its level of enrollee satisfaction. Each individual (not their employer) will choose the 
health plan he or she prefers and will be able to change plans once a year. 

• HPPCs will collect all individual and small business employee premiums and 
distribute them to the accountable health plans. Using a federal risk-adjustment procedure, 
HPPCs will pay more to AHPs which have enrolled high-risk individuals and will reduce 
payment to AHPs which have enrolled low-risk individuals. 

• HPPCs will eliminate the burden of COBRA health plan continuation coverage for 
businesses. If an individual loses his job, he can remain in the HPPC and pay premiums himself. 

• HPPC administrative expenses will be financed by a small surcharge (less than 1%) 
on premiums which should be dramatically less than today's administrative charges. 

Tax Fairness Under Managed Competition 

Current law provides two tax benefits for the purchase of health insurance: 

• Most businesses are allowed to deduct the full cost of any health coverage 
they provide to their employees. This deduction is allowed for any kind of 
health plan, without limit. 

• Individuals may exclude from their income any amount their employer pays 
toward health coverage. Like the business deduction, this tax exclusion is 
available for any kind of health plan policy with no dollar limit. 

The federal revenue loss associated with these tax provisions exceeds $65 billion a 
year, making it the third largest federal health program after Medicare and Medicaid. And 



13 



because these lax benefits grow with greater health care spending, they contribute to health 
inflation. 

In addition, these benefits are not equitably distributed. Self-employed individuals 
are allowed to deduct only 25% of the cost of health benefits. And individuals who buy 
coverage on their own get no tax benefit unless their health expenses exceed 75 percent of their 
income. -45 a result, families earning more than SlOOjOOO receive, on average, almost 30 times as 
much tax benefit as those mlh incomes of SWjOOO. 

Managed Competition Act: To encourage he ^ plans to offer standard benefit 
plans so consumers can shop on the basis of price and <_ ity, and to discourage inflationary 
"Rolls-Royce" health policies, which don't control costs, the bill caf)s tax deductibility at the 
cost of the lowest-price AHP plan meetii^ minimum federal standards in the area. Subject to 
this cap: 

• Tax deductibility for the sdf-employed is increased to 100% of their AHP premium. 

• Individuals who pay all or part or n AHP premium would be able to fully deduct 
their payments. 

• If an individual or employer purchases coverage from a plan which is not a federally- 
qualified AHP, none of the amoimt paid is deductible. 

Market Oversight and Accountability 

Managed competition ^-^n work oily if ttte market is carefully overseen and AHPs are 
held publicly accountable for re they provide. 

Managed C ontp e Uli c _: An indf ndent Healtl Tare Standards Commission 
will oversee the health market, .i.iidi like the jecurities and _ %change Commission oversees 
the financial market 

• The Commission will: 

- Establish and tipdate tite standard health benefits package, which 
must indude the foO range of medieaMy-a^ r op r iate treatments and 
preventive services 

- Establish standards ! reporting'- "s.healdiou' -nes, and measures 
coi\sumer satisfaction 

-Develop factors for nsicadjustmen ,HPpremil^ 

• The Commission wiU function independently. Its recommendations on the basic 
benefits will be submitted to Congress and wiD have to be approved or rejected on an up-or-down 
vote. 

• The Commission wfll bt. : vised by e^ • private sector boards which ■ us on 
benefits and health plan standar„ (this will in much the same way ieral 
Accounting Standards Board advises the SEC). 

Consumer Information 

Accountable Health Plans will be required to report full information on the outcomes of 
treatments and the costs of their plans. Such information will include: 

• Process measures, such as the percent of t nillees receiving immunizations. 



14 



mammograms, cesarean deliveries, etc. 

• Outcomes measures, such as the proportion of patients who died, had complications, 

fully recovered, etc. 

• Patient satisfaction 

This information will be given to consumers and employers to allow them to choose the 
most efficient, highest-quality health plans. It will also be used by providers to help them 
change their practice styles. This new accountability is fundamentally different from the 
current practices of some managedore groups, where doctors are second-guessed on a case-by- 
case ba^. 



Low-Income Assistance 

Medicaid is the main program providing health services to the poor. The program is 
financed by both the federal government and the states, and covers both acute care (e.g. 
hospitals and physicians) and long-term care (e.g. nursing homes and home health care). 

Medicaid has a complicated set of requirements for eligibility, and today covers fewer 
than half of the people below the poverty line. The shared responsibility for financing has 
bred irresponsibility on the part of U>e states and the Federal government. 

Managed Competition Acfc Medicaid is replaced with a new federal program 
which will help purchase coverage from AHPs for low-income individuals: 

• All individuals and families with incomes below 200% of their state's poverty level 
will be members of a HPPC and will receive federal assistance for premiums and copayments. 
Eligibility for this new program will be separated from eligibility for welfore. 

• Individuals and families with incomes below 100% of poverty will be eligible to join 
an AHP with no premium cost to them, and with nominal copayments. They will also receive 
assistance for certain items (e.g. eye^asses or hearing aids) which mi^t not be covered by the 
basic benefit package offered ^ AI^PS. 

• Individuals and fomilies with incomes between 100% and 200% of poverty wrill be 
eligible to |oin an AHP, and will be reqxmsiUe for paying a fwrtion of the premium, based on a 
sliding scale. They will also have nominal copayments. 

• Medicaid will be repealed, freeing up substantial state funds. The states will 
gradually assume responsibility for long-term care, with greater flexibility to try innovative 
approaches. 

Access In Rural and Other Underserved Areas 

In order to foster competition in rural and underserved areas, HPPCs will have special 
tools to attract health plans and health care providers. The bill also creates new AHP 
development grants and a technical assistance program to encourage the creation of AHPs in 
these areas. New funding will also be made available for Community and Migrant Health 
Centers and Rural Health Clinics to help them transition into the new system. 

A new title on medical education will promote the training of more primary care 
physicians and will increase funding for training mid-lcvcl practitioners, the National Health 
Service Corps and Area Health Education Centers. 



15 



Expansion of Preventive Health Services 

Greater use of preventive care is key to health care cost-containment and a healthier 
nation. The bill encourages preventive care in a number of ways: 

• Because they will be offering insurance and health care as one product, AHPs will 
have a strong financial incentive to keep their enroUees healthy. 

• Preventive health care will be the only service for which no co-payment or 
deductible may be charged. 

• The bill provide significantly increas funding for a variety of existing preventive 
health initiatives, including immunization . ts, lead poisoning prevention, breast and 
cervical cancer screening, and early AIDS inter ion. Increa i funding will also be provided 
for the Office of Disease Prevention and Health Promotioi nd the Office of Smoking and 
Health. 

• In addition, preventive services available under Medicare will be expanded to 
include annual mammography, certain inunutuzations and colorectal screening. 

Malpractice Reform 

Unnecessary litigation and defensive medicine have cc/.:ributed to ris. medical costs, 
and must be controlled as part of health care reform. In some regions of the country the high 
cost of liability insurance has not just driven up costs, but has reduced access to care, especially 
for high-risk services like obstetrics. 

The bill makes substantial changes in the law, including limiti n-economic 

damages and reducing unreasonably long statutes of limitations. It supe state laws, 

except where they are nwre stringent than federal law. These changes will . ^mbined with 
new efforts by AHPs to identify sub-standaid providers. 

Paperwork Reduction and Administrative Simplification 

At least $5 billion in annual health caie Tiditures could be saved by ' cing 

paperwork required by the nation's 1,500 insurar ipanies with their multihidi- rms. 

The bill would establish national goals for heai ans to achieve efficiencies t itanda. 

claims forms and electronic transmission of data. JThe National Health Board v. have the 
responsibility and authority to ensure that these goals are met. 

Financing 

Current Federal Medicaid spending is redirected to fund the new program. In addition, 
the Congressional Budget Office has estimated that the bill requires roughly $25 billion in new 
Federal spending annually. This is financed by: capping employer deductibili' • of health 
benefits ($16 billion); reducing the increase in provider fees under Medicare ■ " billion); 
phasing out the Medicare Part B premium subsidy for upper-income beneficiarie*^ 3 billion); 
and prefunding federal retiree health benefits ($1 billion). 

October? 1993 



16 



The Managed Competition Act of 1993 

Questions and Answers 

Q: How does the Managed Competition Act (MCA) guarantee access to health care for 
all Americans? 

A: The MCA makes health care coverage available and affordable for all: 

* Health plans will be prohibited from refusing to cover anyone; excluding coverage 
for pre-existing medical conditions; or charging higher premiums to those with bad 
medical histories. 

* All Americans will be able to enroll in the health plan of their choice through their 
local purchasing cooperative or their employer. 

* A new tax deduction will reduce the cost of health care by about one-fourth for 
everyone whose employer does not pay for coverage. 

* Enrollment in a qualified health plan will be free for everyone under the federal 
poverty line and subsidized for everyone up to 200% of poverty. 

* Health plans will be given strong incentives to locate in rural and urban underserved 
areas. 

Q: Don't you need an employer mandate to reach universal coverage? 

A: The MCA guarantees universal access to health coverage, a significant achievement by 
any standard. Universal coverage^- a goal shared by all MCA cosponsors ~ is much more 
difficult to achieve. Hawaii's experience with an employer mandate has shown that it alone 
will not guarantee universal coverage. According to the Census Bureau, approximately one- 
third of the uninsured have no connection with the workforce. A mandate on individuals, in 
theory, would reach everyone and would not have a negative effect on jobs, however it is 
likely to be difficult to enforce. Our priority must be to reform the system so that everyone 
feels it is to their benefit to participate voluntarily. If a mandate is necessary, it should be 
imposed after the system is reformed. 

Q: How does the Managed Competition Act control costs? 

A: The MCA addresses the causes of health care inflation, not just the symptoms: 

* Requiring health plans to cover the health needs of their enrollees for a pre-paid 
premium will promote cost-effective care. Plans will have a financial incentive to 
eliminate inappropriate and unnecessary care, administrative waste and inefficiency. 
Prevention will be encouraged. 

* The one-stop-shopping menu and standardized benefits packages make it easier for 
consumers to shop for health plans on the basis of price. Health plans will reap 
greater marketplace rewards for keeping their premiums low. 

* A limit on the tax deductibility of health benefits makes consumers more cost- 
conscious. 

* Group purchasing through a HPPC will dramatically reduce the share of 
administrative costs for individuals and small employers which runs at 40% of 
premiums today. 

* Malpractice reforms will reduce defensive medicine and lower malpractice premiums 
for providers. 

* Administrative simplification will reduce paperwork. 



17 



Managed Competition and Individuals 

Q: How will buying health care change for individuals? 

A: Individuals will choose once a year from a menu of health plans. They will have 
information to compare plans based on price, quality and patient satisfaction. All other 
differences among plans like deductibles, copayments, and benefit packages will be standard 
so that individuals can make direct value for money comparisons. For the first time, 
individuals who purchase their own health coverage would be able to deduct the cost from 
their taxable income. 

Q: Will consumers be able to choose their own physician? 

A: Yes, if they choose such a plan that offers a choice of physicians. Many health plans, 
like preferred provider organizations and point-of-service ^ans, offer provider choices both 
inside and outside their networks. Some HMOs do not oner such choices. 

Q: What benefits will be inchided in the standard benefits package? 

A: The benefits package will be developed by the Health Care Standards Commission with 
the advise of a private sector panel of experts. It will then be sent to Congress for 
consideration using 'base-closing" procedures (i.e. up or down vote, no amendments). It 
will be based on a list of treatable diagnoses rather that an entitlement to a certain amount 
or kind of care. For example, the benefits package would not specify whether chiropractic 
services were covered or not. It would be up to the health plan to determine when 
chiropractors were 4he most effective and efficient provider for. certain diagnoses. 

The benefits package would similarly not specify an arbitrary limit on the number of 
inpatient mental health care days. This kind of benefits package has too often led to abuse 
by providers with little regard to the effect on the individual by the insurance companies. 

Q: How will individuals in rural areas be affected? 

A: Because of the demogn^cs of rural areas, they in particular will benefit from urance 
reforms, group purchasing and expanded assistance to the poor. The MCA includes 
additional measures for rural and uri>an underserved areas including: access requirements for 
AHPs; technical assistance and grants for AHP devel(q)ment; and incr«ised funding for 
programs designed to attract health care providers. States are given flexibility to design 
special approaches for chronically underserved areas. 

Tax Reform 

Q: How docs the Managed Competition Act change the tax treatment of health 
benefits? 

A: Employers would no longer be able to receive a tax subsidy for wasteful or excessive 
health spending. Their deductibility for health benefits would be limited to the cost of the 
least expensive plan in the area offering the standard benefits package. Unless spending 
above the most efficiently-delivered package of benefits is in after-tax dollars, incentives for 
cost-containment will be muted. 

Q: What would prevent the least expensive plan from being the worst quality plan? 

A: Generally, the best quality care is not the most expensive. For example, the Mayo 
Clinic has one of the lowest priced health plans in the country even though it is considered 
one of the best providers of care in the world. They are less expensive because they are 



18 



more efficient. Preventive care, early intervention, prompt diagnosis and appropriate, 
effective treatment are all indicators of high-quality care ild lower cost care. 

Nevertheless, the health plan setting the limit on deductibility would have to meet minimum 
quality standards and enrollment requirements set by the Health Care Standards Commission. 

Q: Would employees' health benefits be taxed? 

A: No. The current exclusion from income of employer-provided health benefits would not 
be limited. Furthermore, individuals who pay all or part of their insurance premiums would 
be able to deduct that cost. 



Low-Income Assistance 

Q: How much would a two parent family with two children and an income of $20,000 
per year have to pay for a health plan? 

A: They would pay about $144 per month for the entire family. The government would pay 
57 percent of the cost or $191 per month. 

Q: How about a single parent with two children making $15,000? 

A: They would pay about $100 per month. The government would pay 70 percent of the 
cost or $235 per month. 

Q: What if a family can't afford the out-of-pocket expenses? 

A: Low-income individuals would receive assistance with out-of-pocket expenses, but 
everyone would still have to pay something, even if a token amount. Preventative care 
would be exempted iirom copayments and deductibles. 

Effect of Managed Competition on Providers 

Q: Will Accountable Health Plans (AHF) be HMOs? 

A: Some of them will resemble today's HMOs, but AHPs will take all forms, just as health 
plans do today. AHPs can be HMOs, PPOs, fee-for-service or any other type of plan. The 
main differences between AHPs and today's health plans is that all AHPs will be required to 
offer coverage to everyone at non-discriminatory rates, offer the standard package of 
benefits, and report on the quality of their care. Within those requirements, the market will 
decide what kind of AHP will work the best. 

Q: What will physicians and hospitals have to do to adapt to managed competition? 

A: Providers will have to change dramatically the way they look at patients. Rather than 
treating symptoms, they will have to treat the whole patient. The measurement of health 
outcomes will cause providers to examine, for example, the extent to which stress and 
depression might be slowing the recovery from a serious illness. 

Providers will be constantly challenged to improve their practice of medicine so that it 
improves the functioning of the patient. For example, by collecting data from follow-up 
visits, a physician in Portland, Oregon found that a high tech ceramic coating designed to 
speed bonding of artificial hips to patient's bones is not worth the potential bone erosion and 
the extra cost (Fortune . March 23, 1992). 



19 



Managed Competition and Employers 

Q: How will small businesses provide health plans? 

A: Small business (those with fewer than 100 employees) will be members of local 
purchasing groups called Health Plan Purchasing Cooperatives (HPPCs). HPPCs will offer 
a choice among all AHPs in the area. HPPCs will give small businesses the buying power, 
lower administrative costs and risk sharing of large businesses. For a company of fewer 
than five employees, 40% of the health care premiums go to administrative expenses 
compared ■with roughly 5% for large businesses (Congressional Research Service). 

Q: Aren't HPPCs a monopoly? 

A: HPPCs are like a farmer's market where all the farmers come to sell their products. 
Each HPPC will be governed by the individuals and snudl businesses for which it purchases 
and will be required to offer all health plans so that no single health plan gained a 
monopoly. 

Q: How will large company ERISA plans be affected? 

A: ERISA plans could continue to self-insure and be exempt fro: :tate mandates, but only 
if they offer the standard benefits package and comply with the outcomes reporting and other 
AHP requirements (except the requirement of open enrollment). They would also be subject 
to the tax deduction limit of the least costly plan in the area. 

October 6, 1993 



^^ 



20 



Comparison of Managed Competition Act and Administration Plan 

SIMILARITIES 

Both plans: 

guarantee universal access to health insurance 

subsidize individuals' purchase of coverage based on their income 

require health plans to offer coverage to everyone and prohibit them 
from denying coverage for pre-existing medical conditions 

promote competition among health plans to reduce the increase in 
health care spending 

establish regional purchasing groups through vyfhich individuals and 
small businesses purchase coverage 

establish a standardized benefits package to be offered by health plans 

provide for individuals to choose their health plan, not their 
employers 

require health plans and providers to report on the quality of their 
care (health outcomes) and enrollee satisfaction with their care 

allow the self-employed to deduct the cost of health insurance 

provide incentives to develop community-based health plans in rural 
and urban underserved areas 

reform funding of graduate medical education in order to promote the 
training of more primary care physicians 

encourage preventive care 

preempt state anti-managed care laws 

encourage the utilization of non-physician providers 

promote administrative simplification, standard claims form and 
electronic claims processing 



21 



DIFFERENCES 



Employer Mandate: The Clinton plan would require employers to pay 
80% of their employees' health premiums. The Managed Competition Act 
(MCA) would not require employers to pay for employee's health costs. 

Premium/Price Controls: The Clinton plan includes alliance-by- 
alliance caps on premiums for managed care plans and provider price 
controls for fee-for-service plans. The MCA does not contain a global 
budget, caps on insurance premiums, provider fee schedules or any other 
artiflcial constraints on private sector health care spending. 

Cost: The MCA costs about $25 billion a year compared with about 
$70 billion a year in new federal spending and as much as $30 billion in 
mandated new employer spending under the Clinton plan. 

Nature of Purchasing Cooperatives: The MCA's Health Plan 
Purchasing Cooperatives (HPPCs) are governed by their members (i.e. 
individuals and employers in the area). HPPCs are non-regulatory bodies 
which must offer to their members all health plans in the area. States choose 
the employer size for purchasing through the HPPC from between 100 and 
roughly 500 employees. Larger employers could not opt into the HPPC. 
The Clinton plan's Health Alliances can be state government agencies with 
the authority to exclude health plans. Employers with fewer than 5,000 
employees are required to purchase through the regional Alliance; larger 
employers are encouraged to opt in. 

Tax Deductibility of Health Benefits: The MCA caps employer 
deductibility of health benefits at the cost of the lowest-priced plan offering 
the standard benefits package and meeting quality and enrollment standards. 
Deductibility is extended to individuals subject to the same cap. The Clinton 
plan limits the employee's tax exclusion to any amount spent on the 
standard package of benefits; however any benefits currently provided 
beyond the standard package would be exempt from this limit for ten years. 

New Entitlement Spending: The Clinton plan would significantly 
increase entitlement spending through new and existing programs (e.g. 
fmancing retiree premiums, establishing business subsidies and expanding 
Medicare benefits). The MCA acknowledges the desirability of some of 
these new benefits but requires that they be extended only on a pay-as- 
you-go basis. 

Malpractice Reform: In addition to various other malpractice reforms, 
the MCA would provide for caps on non-economic damages (i.e. pain and 
suffering) in malpractice awards. The Clinton plan does not limit non- 
economic damage awards. 

State Flexibility: The MCA allows state flexibility within the context 
of nationwide market-based reform. The Clinton plan would allow any state 
to establish a Canadian-style single-payor system. 



22 



Graduate School of Business 

Stanford University. Stanford. California 94305 



ALAIN ENTHOVEN 

Marriner S. Eccles Professor 

OF Public and Private Manaoement 

January 18, 1994 



Robert Reischauer, Ph.D 
Director, The Congressional Budget Office 
Congress of the United States 
Washington, DC 20515 

Dear Bob: 

This letter responds to the recent CBO document "Behavioral Assumptions 
for Estimating the Effects of Health Care Proposals" (November 1993), and to 
CBO estimates that managed competition would not appreciably reduce health 
care costs. It makes four main points: 

L CBO has made an important error in interpreting the research it dtes on 

the premium price elasticity of demand of health plan choice, an error that 
makes all the difference between whether markets can or cannot discipline 
prices. The error may have led CBO to the wrong conclusion. 

Consider an illustrative example. HMO A charges a premium of $100 per 
month. Employers in its area contribute $90. HMO A decides to cut price by 
$1.00. The result in the next open season is a 6 percent inaease in the HMO's 
membership. What does that imply about the price elasticity of HMO A's 
demand curve? 

The CBO answer is that a 10 percent price cut (as seen by the consim\er) 
produces a 6 percent increase in membership. Therefore, HMO A's demand 
curve elasticity at this point is an inelastic -0.6. In that case, of course, HMO A 
would have no incentive to reduce price. The contrary would be the case. The 
market would not drive it to reduce cost and price. 

On the other hand, the answers of Bryan Dowd, Roger Feldman and W. 
Pete Welch [1], [2] - the authors whose work is dted in the CBO doctiment in 
Table 3, page 10 - and my answer, would be that a 1 percent price reduction (as 
seen by the HMO, i.e., the price-maker) produced a 6 percent inaease in 
memb^ship. Therefore, HMO A's demand curve - the one relevant to its price- 



23 



making decision - is an elastic -6.0, ten times greater. In that case, depending on 
its marginal cost, HMO A's reward for cutting price is likely to be a whole lot 
stronger. If HMO A started with 100 members, the $1 price cut would increase 
membership to 106 and total revenue from $10,000 to $10,494. 

Bryan, Roger and Pete explained this point in their articles. The 
econometrics were done using the consumer out-of-pocket price only. But the 
correct inference regairding the relevant demand elasticity for price determination 
must be based on the HMO's total price. In a letter to Sandra Christensen (copy 
enclosed), Bryan and Roger conclude CBO understated the elasticities they found 
by a factor of 16.5. Pete's article explained the same point, and he estimated 
employer contributions averaged about 90 percent of premivun. Thus, CBO 
imderestimated the elasticity implied by his findings by a factor of 10. 

Though these much greater elasticities may not make intuitive sense to 
people who observe today's marketplace, the discrepancy can be explained by 
the fact that, because of common employer practices and the tax code, most 
people do not face a situation in which they must pay a full dollar more out of 
pocket if they choose a health plan that costs a dollar more. Of course, imder 
managed competition they would. 

The significance of this difference in price elasticity is not merely the 
numbers of people who would switch to HMOs. Experience in competitive 
situations suggests that very high percentages of people would switch in order to 
save money, if they get to keep the savings. CalPERS benefifidaries are now 80 
percent in HMOs; most of the rest are in geographic areas not yet served by 
HMOs. We think that with adequate incentives, HMOs v^dll expand into these 
areas. At Stanford this year, we became 100 percent HMO (one with a point-of- 
service option) for all employees living in the local area. 

The main significance of the high elasticity of demand is that a price 
competitive environment would motivate Accountable Health Plans to reduce 
cost over the long run. 

There is much such organizations can do to cut cost while maintaining or 
improving quality: study variations in practice patterns from the point of view of 
cost and outcomes and adopt the least costly way of producing the best outcome; 
match numbers and types of doctors and other resources to the needs of the 
population served; concentrate costly complex procedures like open heart 
surgery in high-volume regional centers; substitute less costly personnel for 
routine tasks within their competence; and practice continuous quality 
improvement along the lines practiced by Xerox and Hewlett Packard. 



24 



Studies of the savings that have been generated by HMOs, such as the 28 
percent reduction in resource use by Group Health Cooperative of Puget Sound, 
compared to fee-for-service in the RAND study, are not an adequate indicator of 
what could be done over time in a price-competitive environment because, to 
date, HMOs have not had to operate in such an environment. But experience in 
other high-tech industries shows that competition over quality and price can 
motivate large cost reductions. 

CBO's error could explain why CBO reached the conclusion that the 
Managed Competition Act of 1992 would not reduce health care costs 
appreciably. Since the issue was the efficacy of market forces, which turn 
decisively on demand and supply elasticities, I assume these understated 
demand elasticities were factored into the CBO model. 

II. CBO's use of studies based on 1982 and 1984 data impart a substantial 
downward bias in the estimated price elasticity of demand, and gives us, at 
best, a lower bound estimate of what price elasticity would likely be today. 

The Welch study - a pathbreaker for its time - used 1982 BLS data, when 
there were 10.8 million HMO members as opposed to today's 45 million. That 
makes a large difference because the presence of competing HMOs, i.e., close 
substitutes, increases the price elasticity of each HMO's demand curve. 
Furthermore, greater familiarity v^rith and market acceptance of HMOs that has 
occurred since 1982 would raise price elasticity. Moreover, because of data 
limitations, Welch was limited to examining the dastidties between conventional 
plans and the largest prepaid group practice in each market, and not the multiple 
HMO situations that characterize most metropolitan areas. Yet, again, the 
presence of multiple HMOs increases each HMO's price elasticity of demand. 

III. Managed competition as proposed by the Jackson Hole Group,[4] and 
largely adopted by Cooper-Grandy, and by Clinton, proposes to generalize a 
set of elasticity-enhancing measures, that have been applied successfully in 
local sitxutions, to the whole health care economy. Somehow you should take 
account of that in your estimates. 

Here are the proposed general principles and procedures: 

1. Everybody participates in an annual "open season" enrollment in 
which, at a single time and place, they have all alternatives presented 
to them for choice, with accurate and binding information on price. 



25 



2. Virtually everyone is in an Accountable Health Plan, so choice of 
managed care plan becomes the norm, and plans become closer 
substitutes. 

3. Full subscriber responsibility for premium price differences, as applied 
at Stanford, recently adopted by the University of California, in place 
since 1986 for Minnesota State employees, etc. Employers required to 
make level dollar defined contributions, as in the Clinton plan. 

4. Limit on tax-free employer contributions set at the price of the low- 
priced qualified plan in the region, so subscribers pay premium 
differences with after-tax dollars. 

5. Standardize the benefits package to facilitate value comparison, 
prevent product differentiation and market segmentation, and to 
prevent fear of "air pockets" or hidden gaps in coverage from deterring 
decisions to change plans. 

6. Risk adjust premiums, at least by demographic variables. 

7. Individual choice (vs. group choice) of plan so those who are willing to 
change doctors and plans to save money can do so even if co-workers 
are not. 

8. Systematic production of information on consumer experience and 
quality of care in all plans. 

I described all this in some detail, inter alia, in two articles in Health Affairs in 
1993. [5],[6] 

All of these measures have been demonstrated in pieces around the coimtry. 
The proposed policy is to. put it all together in a coherent program. The 
combined effect of all these measures is very likely to be a large increase in price 
elasticity of demand compared to the 1982 and 1984 results. 

IV. The combined effect of more and larger HMOs and similar managed care 
plans, greater market acceptance, and managed competition is difficult to 
estimate. We arc talking about new terrain. There is uncertainty, just as there 
is uncertainty about the true efficacy of President Clinton's proposed premium 
price controls. The best way for CBO to handle this is honestly to admit that 
there are large imcertainties in both cases, and perhaps to handle the elasticity 
issue parametrically, giving us a range of estimates following from a range of 
assumptions. 



26 



I suggest you begin with a 16.5-fold increase in the Dowd and Feldnian 
results, a 10-fold increase in the Welch estimates as reconunended by the authors. 
Then test the effect of some substantially greater elasticities to reflect changed 
market conditions and the measures of managed competition. Re-run your 
models with these modified assumptions. If your models are robust, new runs 
should show the significant cost-reducing effects of competition. 



Best wishes. 



Sincerely, ; 
Alain Enthoven 



REFERENCES 

[1] Welch W.P. From Table 3. Price Elasticity Estimstes for Choosing 
Among Plans with Similar Benefits, Congressional Budget Office 
Memorandum, Nov. 1993. p.lO. 

[2] Feldman R, Finch M, Dowd B, Cassou S.. The Demand for 
Employment-Based Health Insurance Plans. The Journal of Human 
Resources Vol.24 (1) Winter 1989., pp.115-142. The University of 
Wisconsin Press. 

[3] Feldman R„ Dowd B. The Effectiveness of Managed Competition in 
Reducing the Costs of Health Insurance. From Health Policy Reform: 
Competition & Controls, (ed. R. B. Helms).p.l76. The AEI Press, 
Washington D.C, 1993. 

[4] Ellwood P, Enthoven A, Etheredge L. The Jackson Hole Initiatives for a 
Twenty-First Centiiry American Health Care System. Health Economics, 
VoL 1: 149-168 (1992) John WUey & Sons, Ltd. 

[5] Enthoven A. The History and Principles of Managed Competition. 
Health Affairs Vol. 12 Supplement 1993, pp. 24-48. 

[6] Enthoven A. Why Managed Care Has Failed to Contain Health Costs. 
Health Affairs, FaU 1993, pp.27-43. 



27 

Mr. Waxman. Mr. Grandy. 

STATEMENT OF HON. FRED GRANDY, A REPRESENTATIVE IN 
CONGRESS FROM THE STATE OF IOWA 

Mr. Grandy. Thank you, Mr. Chairman. 

Let me echo the accolades my colleague from Tennessee has 
given you in helping shape this debate and kicking off the proceed- 
ings today, which I hope will be a long debate. 

I heard the President yesterday, when he was addressing the 
American Hospital Association, talk about how complicated this 
issue is, particularly for people that are not materially involved the 
way lawmakers are. I couldn't agree more with that. That is why 
I hope, as we begin what I hope will be an exhaustive and inform- 
ative number of hearings, we rely more on substance than sniper 
fire as we begin to try to frame these issues. 

With that in mind, I would like to offer with my testimony today 
an editorial in today's Washington Post by Robert J. Samuelson, 
which is entitled "The Dishonest (and Nasty) Health Debate." I ask 
unanimous consent to insert this in the record. 

Mr. Waxman. Without objection, we will receive that. 

Mr. Grandy. I would like to just read one paragraph of this, be- 
cause I think it serves to set what I hope will be the tone of this 
deliberation. 

Mr. Samuelson says, "Both Clinton and his critics skirt the real 
problem. Most Americans expect far more from the medical system 
than it can deliver. In general, we think people should have good 
care when they need it. Costs should be no bar, insurance should 
pay. The issue is a moral one, but naturally we don't want soaring 
insurance costs to raise our taxes or depress our salaries. All of 
these are worthy goals — but, unfortunately, contradictory ones." 

That has led to, I think, in the public's mind a national consen- 
sus on health care debate, which we as lawmakers are now going 
to have to wrestle with. Whatever congressional district you are in, 
you are probably going home and hearing your general public say, 
"I don't know what I want on health care," and, "I want it now." 

That leads to another conclusion that doesn't give us much com- 
fort as we try to frame some solution at the Federal level. You can 
pretty much conclude that when it comes to a national consensus, 
people are all for health care reform as long as they don't have to 
change anything. That is exactly what we are trying to do in this 
particular debate and with the series of proposals. I want to say, 
though, that no matter what we do, the status quo is not on the 
table. We will not remain with what we have. 

Critics of the President's plan believe that there is no health care 
crisis. I think we have come too far to agree that we need only to 
tinker at the margins. But I want to say and echo what Jim Cooper 
said. The Cooper-Grandy bill, although it differs from the adminis- 
tration bill on the means to the end, does believe in guaranteed 
universal coverage at a date certain; and I see the differences now 
more as a border skirmish than a war. 

With that in mind, I think it is unfortunate that we see articles 
in today's New York Times and today's Wall Street Journal saying 
White House Lobbies Strongly to Block Business Support of Rival 



28 

Health Plan, Clinton's Campaigning to Scuttle Endorsement of 
Rival Health Plan. 

Mr. Chairman, this is not a rival health plan. This is a compan- 
ion piece to achieve a goal. The only reason that Mr. Cooper and 
I are allying our forces is because we believe strongly that when 
it comes to health care reform, if you want to control costs; if you 
want to improve access; if you want to maintain quality in what 
is arguably the best quality medicine in the world; if you want to 
solve what I call the "value equation," which is quality plus access 
plus cost-containment, must equal value or the American people 
simply won't buy it, then you have to rely on the strength of our 
Nation, which is markets. 

Markets can say no, Mr. Chairman; governments cannot. 

The Cooper-Grandy bill at its core basically premises that when 
it comes to regulating health care, controlling costs and providing 
access, markets should go first before mandates and monopolies 
kick in. That is the central point that I want to make. 

I want to go now to a criticism that has been leveled against the 
Cooper-Grandy bill that we do not provide for universal coverage 
in our proposal. I don't agree with that. In fact, universal coverage 
is a goal that Mr. Cooper and I share, and we believe that the uni- 
versal access mechanism in Cooper-Grandy is the best means of 
achieving universal coverage. 

The whole discussion of access versus coverage is really, I think, 
an issue of semantics. Access is a means to the end of coverage. It 
is really more a discussion of timetables and how we get to univer- 
sal coverage. As I said earlier, Mr. Cooper and I use a different 
mechanism than the administration to achieve universal coverage 
because we trust markets to do the job for us. 

Picking up on Mr. Klug's point, the one State in the Union with 
an employer mandate for 20 years is Hawaii. They have not 
achieved universal coverage. They have only 88 percent of their 
population covered. That is with an employer mandate. 

In this country, right now we have 85 percent of our population 
covered with a voluntary employer contribution to health care. We 
have to ask ourselves whether or not the market isn't telling us 
something there. 

I came here to offer my aid, along with Mr. Cooper, in achieving 
our shared goal of ensuring all Americans a system of health care 
that provides the quality of care Americans want and deserve and 
will take the responsibility to acquire. This debate too often be- 
comes an argument against right versus responsibility in health 
care. We both agree and many of the people not cosponsors of this 
bill agree that health care solutions must split the difference be- 
tween right and responsibility. 

Having said that, let me go to some of the points in this bill that 
I think are worth mentioning. In many of these places, these are 
not points that divide; they are themes that unite. 

Specific components of the Cooper-Grandy bill include insurance 
reforms to encourage insurers and providers to combine and form 
accountable plans. Accountable health plans will not be allowed to 
exclude coverage of preexisting conditions and will not be allowed 
to charge higher rates based on an individual's medical history. In 



29 

other words, the days of experience-rating are almost certainly 
over, no matter what theme we adopt for health care. 

Access provisions, which will ensure individuals and small busi- 
nesses affordable coverage by joining health plan purchasing co- 
operatives. These cooperatives will offer group rates with lower ad- 
ministrative costs. Once a year individuals will be able to choose 
from a menu of AHP's in the area, much like the Federal Employee 
Health Benefit system. Again, why not give small employers, those 
people in our workplace that have the hardest time providing the 
benefits that they would like to provide to remain competitive, the 
same advantages that you have if you work for the Federal Govern- 
ment? Provisions to change the incentives in the system from 
"more money for more services" — in other words, fee-for-service — 
to a system in which health plans are prepaid so they will have in- 
centives to promote preventive care, which eliminates unnecessary 
tests and ineffective treatments and which reduces administrative 
costs. 

Obviously, one of the successes of managed competition around 
the country is now conditioned behavior among the general public 
to purchase health care and not just insurance. The consumer be- 
comes more materially involved in the product they are buying. 
Right now, the average consumer probably spends more time pric- 
ing a car stereo than he would a package of health insurance. 

A Federal, low-income assistance program will pay a health plan 
premium for all people below 100 percent of the poverty level. Indi- 
viduals between 100 percent and 200 percent of the poverty level 
will receive sliding scale subsidies toward the purchase of a health 
plan. In other words, the neediest victims in that great supposedly 
homogeneous population of 37 million Americans that are without 
health care — which we all know is somewhat of a bogus number, 
because they are not all disadvantaged by the system — but the peo- 
ple that are disadvantaged, the low-income folks, are the first peo- 
ple helped in the Cooper-Grandy bill. 

Tax reforms which will allow employers to deduct the cost of the 
most efficient health plans but not the costs of excessive benefits 
or wasteful spending. In addition, individuals and the self-em- 
ployed will for the first time enjoy 100 percent deductibility of their 
health plan premiums. 

Mr. Chairman, this is an area — and Mr. Bliley brought this up 
in his opening remarks — that I think produced the Cooper-Grandy 
coalition. I too served with Mr. McMillan and Mr. Hastert and oth- 
ers on this committee on the Republican side in crafting H.R. 3080. 
The reason I didn't think that was a package that we could put be- 
fore Congress and enjoy bipartisan support on is that it contains 
a lot of incentives for small employers and for insurance companies 
and for individuals to acquire insurance, the discipline was not 
there to control costs and to put the burden of proof on the 
consumer. That is why I agree with my colleague from Tennessee 
that a tax cap is the most effective price control that we can impose 
and get discipline in the health care system right now. 

People argue about price controls. It is not a question of whether 
we impose price controls; it is where we place them. Do we place 
them at the macro-level and have a global budget and an attempt 
to stay under it, and premium regulation and an attempt to control 



30 

costs with a bureaucracy presiding over the market, or do we put 
that burden on the consumer, limiting deductibiUty? 

While I am sorry that Mr. Bliley cannot find it in his heart to 
support the bill right now, I realize that Republicans are going to 
have a hard time with a bill that stresses both changes in revenue 
and regulation. These are rubicons that we, on our side of the aisle, 
normally don't cross. But the fact is, behavior modification of this 
magnitude involves both, and those people that are on the bill ac- 
knowledge that. 

That is why I want to come back to what my colleague said about 
bipartisanship. The one thing that we have to agree on is, we can- 
not allow major health care reform in this country to pass by what 
is now called, euphemistically, "a Clinton landslide." Two or three 
votes maybe with a handful of Republicans, probably not in the 
House, will not a health care system make. 

Republicans stand ready to participate in this debate, to bring 
the debate back to the center; and we do not claim to have devel- 
oped the final product here. 

Going to Mr. McMillan's comments and criticisms about Medi- 
care, of course that is the dirty little secret we are all dealing with. 
The Clinton plan proposes to take $124 billion of Medicare part A, 
while it expands the program. That is a death knell to every rural 
hospital in the United States. Recent information I got from the 
Iowa Hospital Association says that even under the Clinton budget 
we passed by one vote in 1993, the $46 billion whack out of part 
A is basically going to produce a negative operating balance for the 
average Iowa hospital a negative 5 percent this year. 

Imagine what $124 billion over 5 years will do. There aren't 
enough grants and loans and incentives to get those doors to open 
again. 

The point is — and I agree totally with my colleague from North 
Carolina — we have to put Medicare on the table in some kind of 
reform. Right now we have people over 65 spending the most dol- 
lars for care, using the most undisciplined form of care, and that 
must be part of the equation, too. 

Finally, let me say that I hope as we begin this debate today we 
do argue the substance and not use sniper fire to stress those is- 
sues that divide us. There is one area, I think, that will probably 
be the greatest bone of contention between the forces that support 
the President's plan and those allied with the Cooper-Grandy coali- 
tion, and that is the whole question of the employer mandate, 
which of course is the litmus test of universal coverage versus the 
tax cap on deductibility. Both of these are very thorny issues. 

Whether or not we agree to global price controls or reduce the 
size of the alliances and make some of the changes the President 
indicated he would be willing to do are really, I think, incidental 
to the final conclusion. We must come to closure on whether or not 
we will impose an 80 percent premium tax on the employers of 
America or whether or not we will turn around and impose that 
burden on the consumers of America by limiting deductibility. 

I hope this debate and the debate that will proceed in the Energy 
and Commerce and the Ways and Means Committees and in other 
committees of jurisdiction will allow us to solve that problem and 



31 

write meaningful health care reform this year that will involve 
generous Republican and partisan and Democrat support. 

Thank you, Mr. Chairman. 

Mr. Waxman. Thank you. 

[The articles referred to and the prepared statement by Mr. 
Grandy follow:] 

[From the New York Times, February 2, 1994] 

Clintons Campaigning to Scuttle Endorsement of Rival Health Plan 

(By Gwen Ifill) 

Senior administration ofEicials started an intense lobbying campaign today, in- 
cluding a White House meeting between business leaders and Hillary Rodham Clin- 
ton, to derail a potentially damaging show of support for a health plan competing 
with their own. 

While President Clinton met today with hospital officials and Governors to pro- 
mote his plan, his top aides sought to persuade members of the influential Business 
Roundtabie not to back a less comprenensive one sponsored by Representative Jim 
Cooper, Democrat of Tennessee. The Cooper plan, unlike the President's, does not 
require employers to pay any of the costs of their employees' health insurance. 

"The policy committee of the Roundtabie is scheduled to vote on the competing 
health care plans on Wednesday. The Roundtabie, established in 1972, consists of 
chief executives from 200 companies, including A.T.& T., I.B.M. and Pepsico. 

The White House charge is oeing led by Mrs. Clinton, who has been meeting with 
business leaders for weeks. She has been joined by Thomas F. McLarty 3d, the 
White House Chief of Staff; Roger C. Altman, the Deputy Treasury Secretary; Rob- 
ert E. Rubin, the chairman of the National Economic Council, and Alexis Herman, 
who runs the White House Office of Public Liaison. 

Executives of large corporations have objected to the breadth of the Clinton pro- 
posal, which they say could slow the economy because of its high cost and could give 
the Government too big a role in the private health care system. They have also 
been skeptical of its financing, which would rely on taxes and savings from a pre- 
dicted reduction in the growth of Medicare. 

"We're not asking them to endorse our plan," said a senior administration official 
who took part in the White House meeting todav, which was attended by about a 
dozen members of the Business Roundtabie. "We re asking them to keep their pow- 
der dry. That's it." 

White House officials are hoping to keep the business leaders neutral in the 
health care battle so they will not devote resources and political muscle to portray- 
ing the Clinton plan as unworkable. 

We're simply saving that it is too early to engage the dialogue of one bill over 
another bill,' a White House official said. "We want the Congressional process, 
which is just getting started, to have time to lay our course." 

As officials worked the phones today, several others, including Harold M. Ickes, 
the deputy chief of staff; George Stephanopoulos, the senior policy adviser, and Pat 
GrifBn, the Congressional liaison, went to Capitol Hill for a dinner meeting with 
business leaders arranged bv Representative Dan Rostenkowski, the Illinois Demo- 
crat who heads the House Ways and Means Committee. 

Among those chief executives at the afternoon meeting in the Roosevelt Room of 
the White House were Edgar S. Woolard of E.I. duPont de Nemours & Company, 
Robert L. Crandall of American Airlines and Joseph T. Gorman of TRW. 

"They're all making tactical decisions," the official said of the executives. "I don't 
think any of them want the Cooper plan as it is. They're trying to figure out wheth- 
er it's tactically intelligent to start there." 

"The White House offensive underscores the delicacy of the moment for President 
Clinton, who is trying to shore up support among his natural allies and dampen any 
opposition before it has a chance to solidify. Business groups have proved to be a 
valuable ally for the President on issues like deficit reduction but they could support 
an expensive campaign against him if they choose to. 

A spokeswoman for the Business Roundtabie would not comment on the organiza- 
tion's position today, but in meetings over the last several weeks, several business 
leaders whose companies already provide generous benefits to their own employees 
have told administration officials that they are troubled by the Clinton plan's ap- 
proach. They say it relies too heavily on Government regulation and bureaucracy 
and might prove too costly for businesses. 



32 

In a preliminary tally last month, the policy committee of the Business Round- 
table, which has the final say on policy for the group, voted 45 to 14 to support the 
Cooper bill as "tJie starting point for health care reform." 

PROVISIONS OF COOPER PLAN 

Mr. Cooper's plan would establish purchasing cooperatives to reduce the cost of 
insurance coverage but would not require employers to pay for it. Senator John B. 
Breaux, Democrat of Louisiana, introduced a companion bill in the Senate. 

"They've got the big guns," Mr. Cooper said. "I don't even have a pea shooter in 
this deoate. All I've got is a good bill." 

In response to such arguments, Mr. Clinton has sought to emphasize that his plan 
is not a Government solution, that alternatives will cost State governments more 
and that those who have suggested that a health care crisis does not exist or must 
be solved incrementally are out of touch with reality. 

"You know that the most complex system that could ever be designed is not the 
one in the administration's bill," Mr. Clinton said to a meeting of the American Hos- 
pital Association. "It's the one you're living with right now." 

Lisa Caputo, Mrs. Clinton's press secretary, said the meeting today was part of 
an effort to sway business leaders on elements of the health care plan. But the ad- 
ministration has stepped up its efforts to signal compromise. Governors who met 
with Mr. Clinton on Monday said he had suggested that he was willing to relax pro- 
visions that call for the establishment of regional purchasing alliances. 

Those signals irked even some of Mr. Clinton's most loyal supporters. Senator 
John D. Rockefeller 4th, a West Virginia Democrat who is a memoer of the Senate 
Finance Committee, said that Mr. Clinton's comments, as relayed by Governors 
leaving the meeting, were "not particularly helpful." 

But Mr. Clinton is plajdng on a bigger stage these days, engaging in an escalating 
war of words with Members of Congress, including Senator Bob Dole, the Repub- 
lican leader, and Mr. Cooper, over the scope of his health care plan. 

"Our approach is not to tell you how to deliver health care, not to build barriers 
or bureaucracy," Mr. Clinton told the American Hospital Association today. "What 
we want to do is establish a framework in which people are covered, provide the 
right incentives, help to remove the barriers to access and get out of the way." 

'tinkering' with reform 

In his public remarks today, Mr. Clinton dismissed many of the disputes that 
have sprung up around his health care plan as "linguistic battle" and an effort for 
less courageous politicians to "tinker at the edges" of reform. 

But Mr. Clinton is reassessing some of his language as well, emphasizing the 
need for "guaranteed private insurance" instead of 'universal coverage." Last week, 
Mr. Clinton vowed to veto any health care bill that did not provide universal cov- 
erage, and his opponents have suggested that the White House is promoting a com- 
plicated and bureaucratic Government remedy. 

Mr. Dole, who has aimed many of the harshest broadsides at the administration 

Elan in recent weeks, sounded distinctly more conciliatory today. Speaking to the 
rational Governors Association meeting before Mr. Clinton arrived, he said there 
was a "growing consensus" among Republicans and Democrats about the need for 
a restructured nealth care system. 

On Monday, the Governors endorsed a proposal that falls short of the administra- 
tion's plan. While calling for core benefits to be made available for employees who 
wish to buy insurance coverage, the Governors could not agree on whether employ- 
ers should be responsible for paying part of that cost. 



33 



THE HONORABLE FRED GRANDY 

U.S. HOUSE OF REPRESENTATIVES 

418 CANNON HOB 

WASHINGTON, D.C. 20515 

(202) 225-5476 

FEBRUARY 2, 1994 



THE MANAGED COMPETITION ACT OF 1993 — H.R. 3222 

TESTIMONY BEFORE THE ENERGY AND COMMERCE, 
HEALTH AND THE ENVIRONMENT SUBCOMMITTEE 



Mr. Chairman and members of the Committee, I appreciate this 
opportunity to testify on one of the most important policy 
decisions confronting the United States Congress. Specifically, 
ensuring affordable, high quality, health care coverage for all 
Americans. 

Tv.'lay, I am here to provide an overview of health care 
legislation I am proud to have cosponsored with my colleague from 
Tennessee, Congressman Jim Cooper. The official title of the 
legislation is the Managed Competition Act of 1993, however, it 
is commonly referred to as the Cooper-Grandy bill. It remains 
the only comprehensive bi-partisan health care reform proposal 
introduced in the House. 

As you are by now aware, the Managed Competition Act is a 
market-based approach to health care reform. It guarantees 
universal access to high-quality, affordable health care. Like 
the President's proposal, the Managed Competition Act builds off 
of what works in the current system and reforms the chronic 
problems that have plagued our system for too long. Most 
importantly, like the President's plan, the Managed Competition 
Act ensures every American access to a private sector health 
plan. 

I would like to address upfront a criticism that has been leveled 
against the Cooper-Grandy bill, that we do not provide universal 
coverage under our proposal. I want to make it clear that we are 
not opposed to universal coverage. In fact, universal coverage 
is a goal that Mr. Cooper and I share. I believe that the 
universal access mechanism in Cooper-Grandy is the best means to 
achieving universal coverage. These are not mutually exclusive 
goals. This whole discussion-over access versus coverage is 
really, in my opinion, an issue of semantics. It is more a 
discussion of time-tables and how do we get to universal 
coverage. Mr. Cooper and I use a different mechanism than the 
Administration to achieve universal coverage, but I believe we 
share the same underlying goal. I am here to offer my aid in 
achieving our shared goal of ensuring that all Americans are 
covered ^nder a system of health care that provides the quality 
of care Americans want and deserve. 

Our bill uses a series of strong tax incentives that will 
encourage providers and insurers to form accountable health 
partnerships (AHPs) which, for the first time, will be publicly 



' 34 



The Honorable Fred Grandy Page 2 

The Managed Competition Act of 1993, H.R. 3222 

accountable. Accountable not only for the cost of the care they 
provide but also for the quality of that care. This will enable 
consumers to purchase health care coverage in a much more cost 
conscious manner than they do today. It will also provide them 
with the information necessary to t- .ly determine which of the 
plans available to them provides the nighest quality of care. 

To help facilitate individuals' and small businesses' access to 
these new AHPs and ensure af fordability , regional purchasing 
cooperatives will be developed to give individuals and small 
businesses the benefits of greater buying power currently enjoyed 
by larger employers. A national Health Care Standards Commission 
will establish a uniform set of effective health benefits which 
AHPs will be required to offer in order to receive tax-favored 
status. In addition, AHPs will be required to comply with a 
series of insurance reforms and disclose information on medical 
ouTomes, cost-effectiveness and consumer satisfaction. 

Specific components of the Cooper-Grandy bill include: 

1) Insurance reforms that will encourage insurers and 
providers to combine and form AHPs. AHPs will not be 
allowed to exclude coverage of pre-existing conditions 
and will not be allowed to charge higher rates based on 
an individual's medical history; 

2) Access provisions which will ensure individuals' and 
small businesses' affordable coverage by joining Health 
Plan Purchasing Cooperatives (HPPCs). HPPCs will offer 
group rates with lower administrative costs. Once a 
year individuals will be able to choose from a menu of 
AHPs in the area much like the current Federal 
Employees Health Benefits Program; 

3) Provisions to change the incentives in the system 
from "more money for more services" to a system: in 
which health plans are pre-paid so they will have 
incentives to promote preventive care; which eliminates 
unnecessary tests and ineffective treatments; and 
which reduces administrative costs. Because AHPs will 
be required to provide information on health outcomes 
and beneficiary satisfaction, they will be driven to 
improve quality; 

4) A federal low-income assistance program will pay 
health plan premiums for all people below 100% of the 
poverty level. Individuals between 100% and 200% of 
the poverty level will receive sliding-scale subsidies 
toward the purchase of a health plan; 

5) Tax reforms which will allow employers to deduct the 
cost of the most efficient health plans, but not the 
cost of excessive benefits or wasteful spending. In 



35 



The Honorable Fred Grandy Page 3 

The Managed Competition Act of 1993, H.R. 3222 

addition, individuals and the self-employed will for 
the first time enjoy 100% deductibility of their health 
plan premiums; 

6) A series of provisions and additional resources to 
assist underserved areas in recruiting and retaining 
providers, the development of provider networks, 
integration of public health clinics and coordination 
with urban medical centers; and 

7) Savings mechanisms such as enhanced competition 
among health plans, anti-trust reforms, significant 
malpractice reforms, administrative simplification and 
electronic claims processing. 

Mr. Chairman, this committee has heard various approaches to 
expanding access and ensuring affordable health care 
coverage for all Americans. These range from proposals that 
would eliminate the current system and replace it with a 
Canadian-style system, to proposals that would eliminate the 
current tax deduction provided businesses for their health 
care expenses and replace it with an individual tax credit. 
Our proposal clearly comes in well to the right of the 
single-payer approach and left of the medical IRA approach. 
On a spectrum with these two approaches as the respective 
left and right ends, our proposal comes in on the fifty yard 
line, building upon the very best aspects of our current 
system and providing the flexibility necessary to address 
the deficiencies within that system. 

As important as the specific policies included in any 
legislative framework, are the politics involved in building 
a coalition to pass health care reform. In that regard I 
submit that the Cooper-Grandy legislation provides the 
foundation for bipartisan reform because it represents a 
true bipartisan approach to reform. Unlike the single-payer 
approach, the Administration's proposal, the House GOP 
proposal, and the medical IRA approach, the Cooper-Grandy 
bill remains the only bipartisan approach. 

We do not claim to have developed the final product of this 
debate; only the legislative process itself can accomplish 
that. We do however have the only proposal that has shown a 
good faith effort to put aside partisan positioning and work 
together across the aisle and on both sides of the hill, and 
as such, I believe the Cooper-Grandy bill represents the 
best starting point for the upcoming debate. 

Thank you once again for holding these hearings and 
providing me with this opportunity. I would be happy to 
answer any questions at this time. 



36 



s 




37 



v/Al:- ^':i>^' 



c 'c 



.-■^Cul^AV/j/L. 



White House Lobbies Strongly to Block 
Business Support of Rival Health Plan 



fir- hi tWr^/ -^ . I I < J 



By Hilary Stout 
And Rick Wabtzman 

SlafI n>iivrurf o/TptK Wai I Strkf T Ji •! rn ai 

WASHINGTON - The White House lob- 
bied aRfjessively to stave off an embar- 
rassinR vote by an influential business 
BXf'up in favor of a rival health-care bill. 

The Business Roundtable. a group of 
chief executive officers of some of the 
nation s largest corporations, is scheduled 
to vote this afternoon on a recommenda- 
tion by its healthcare task force to support 
legislation authored by Rep. Jim Cooper 
(D.. Tenn.l and Sen. John Breaux (I).. 
U.t. 

The prospect of the business group 
backing the Cooper bill led the White 
House to invite a group of top executives to 
meet yesterday afternoon v/ith Hillary 
Rodham Clinton and senior admmistration 
officials. President Clinton himself 
dropped by for a few minutes, according to 
participants, underscoring the urgency of 
(he Business Roundtable vote 

Aiiiniig iliusf ;it the meeliiiK wrre the 
chief executives of TRW Inc. Prwler & 
Gamble Co.. Boeing Co.. AJuminum Co. of 
America. DuPont Co. and L'AL Corp.'s 
United Airlines. 

Administration officials, including 
economic adviser Robert Rubin, Deputy 
Treasury Secretary Roger Allman and 
senior White House healthcare aide Ira 
Magaziner, told the group that it would be 
unwise to back a particular health-care bill 
at this stage. 

"We told them to look at all of the 
options on the table. ' said Alexis Herman, 
who heads the White Houses office of 
public liaison. "Why foreclose your options 
this early in the process? We think that's a 
message business understands." 
WilllnE to Compromise 

The administration officials stressed 
that they understand the business commu- 
nity's cipncerns about the Clinton health- 
care plan. But they said the president has 
shown he's willing to compromise on such 
issues as caps on health-insurance pre- 
miums and the shape of proposed regional 
insurance-buying pools. 

Beyond that, the administration offi- 
cials questioned why the CEOs would want 
to endorse the Cooper bill when it wouldn't 
Eiiiiranice he;illh coverage for everyone. 
They nuled thai big companies already 
provide medical insurance for their 
workers. President Clinton has made "uni 
versa! coverage" the one point on which he 
wont yield, even threatening to veto any 
Irtiisialion that doesn't meet that stan 
d;ird. 

Ms llfrm.in denied that yesterday's 
meeting was a last minute scramble, char 
at lerizmg i( mstead as part of a continuing 
effort by (he administration to reach out to 
business leaders. But the White House 
clearly is worried about the bipartisan 



support the Cooper bill enjoys. 

At the White House's request. Reps. 
Dan Rostenkowsi (D.. III.) and John Din- 
gell (D., Mich.t have been contacting 
companies to make the administrations 
case. Rep. Rostenkowski called a group of 
top executives to a meeting on Capitol Hill 
last night. In addition. Messrs. Rubin. 
Altman. Magaziner and White House 
Chief of Staff Thomas McLarty have been 
working the phones. Among those who 
have been contacted by the White House 
are Eastman Kodak Co.. Ford Motor Co. 
and Xerox Corp. 

If the White House succeeds in quash- 
ing ;i roundtable vote in favor of the Cooper 
bill, it will be a considerable victory. The 
pro Cooper resolution already was ap 
proved by the roundtable's policy commit- 
tee in a lopsided vote earlier this month. 
Bui the White House asked the business 
group to delay announcing the vote until 
after the president's Stale of the Union 
address last week. The roundtable agreed 
to rctonsider the vote al its policy commit 
tee's annual meeting today. 
Clinton Attacks Insurers 

While the administration lobbied 
roundtable members yesterday. President 
Clinton stepped up his attack on the na- 
tion's health-insurance industry. In two 
separate speeches, he asserted that in- 
surers are wasteful, discriminatory and an 
impediment to a fully functioning health- 
care system, 

"Insurance companies have set up a 
system which enables them to slam the 
door on people who aren't healthy enough 
to get covered, ' Mr. Clinton charged dur- 
ing a speech to the American Hospital 
Association. Later, he told the National 
Governors Association: 'We do have a 
system, unlike any other in the advanced 
countries in the world, in which insurance 
companies decide who's covered and who 
isn't, what the cost of insurance is; and 
what s covered in specific policies." 

Democrats on Capitol Hill also scorned 
the insurers. Al a Senate Finance Commit- 
tee hearing, the health insurance lobby 
heard angry words about its multimillion 
dollar advertising campaign designed to 
undercut the Clinton health plan. "You're 
scaring people," said Sen. Jay Rockefeller 
(D.. W.Va,) in a sharp exchange with 
former Rep. Willis Gradison. an Ohio 
Republican who resigned from Congress 
last year to head the Health Insurance 
Association of America, Mr. Gradison 
noted that his group supports many insur 
ance reforms in the Clinton administra- 
tion s bill. 

Sen. Rockefeller also suggested that the 
presidents professed willingness to com 
promise on such issues as the premium 
caps wasn't -^particularly useful. " In re 
sponse. Mr. Clinton later said, "I would 
caution Sen, Rockefeller to not think that I 
have left his |K)sition. If we change posi- 
tions, he and I. were going to try and do it 
together. " 

-Jeffrey H. Bimltaum and Michael K. 
Fnsbu contribuled In this article. 



38 

Mr. Waxman. I will start the questions. I want to commend both 
of you for the work you have put into developing your plan, the 
thoughtfulness with which you have approached this subject. 

We do have similarities in all the plans. We would reform insur- 
ance practices; there are slight variations, but President Clinton 
would do that, your bill would do it, to some extent the Republican 
bill would do it as well, so people who have insurance won't have 
it taken away, preexisting conditions won't preclude them from cov- 
erage. That is an important change. 

A lot has been said about the fact that your legislation does not 
provide universal coverage. I think that is an important point be- 
cause I wouldn't want it to be a hollow promise to the 39 million 
people without insurance in this country that we are going to pass 
insurance reform and then large numbers of them, as many as 39 
million, still may be without coverage. 

But I want to focus on something else, and that is the theory be- 
hind this legislation because you do have an intellectual theory 
that we are going to have markets, competition, forces that com- 
petition brings about to hold down health care costs; is that an ac- 
curate statement? You want to see market forces work? 

Mr. Cooper. Not pure markets, not laissez faire, but managed 
competition. 

Mr. Waxman. To a great extent, your bill is pure managed com- 
petition with attachment to the Jackson Hole Group that developed 
the idea of injecting market forces. The idea of market forces is 
that consumers ought to be better shoppers. You say it is empower- 
ing them to be better shoppers. Your tax cap is to make them bet- 
ter shoppers by making health care more expensive for them, so 
that they will shop around for something that is going to be reason- 
ably priced; and the theory then would be that plans would be 
more efficient to try to attract the consumers. 

Isn't that the idea of the tax cap and the change in tax deduct- 
ibility? 

Mr. Cooper. If I could respond in some detail, because this is a 
very detailed issue. 

Mr. Waxman. The problem is that I have only a few minutes. 

Mr. Cooper. I would be happy to grant you additional time. 

There are two major tax break programs working today in Amer- 
ica. Combined, they are the Federal Government's third largest 
health program at $75 billion a year. 

Mr. Waxman. There is a tax break that employers can take now, 
but self-employed can't. You would give the self-employed ability to 
deduct it. Employers — the employers are not taxed for the benefits, 
for the health insurance. You don't change that? 

Mr. Cooper. We don't change that. 

Mr. Waxman. You are saying what employers can deduct now is 
the price for the lowest-priced health insurance package; is that 
correct? 

Mr. Cooper. The last unlimited corporate fringe benefit today in 
America not tax limited is health insurance. We would not elimi- 
nate that. We would trim it to the price of the lowest-cost, 
basic 

Mr. Waxman. So if employers can deduct only the price of the 
lowest-cost health insurance policy, how does that make the em- 



39 

ployee more cost conscious? Is it because the employer will say to 
the employee, this is all I am going to provide you, now you come 
up with the rest of the money to buy your policy if you want more 
than the lowest price? 

Mr. Cooper. I think you are looking at it at the wrong end. 

Most citizens are unable to deduct any health insurance cost 
today. We would grant them new deductibility for the first time in 
their lives for whatever portion of the basic benefits package that 
they are buying. That will involve the individual citizen in noticing 
what is a fully or partly deductible plan. Even the partly deductible 
plans will still be like 80 percent 

Mr. Waxman. Would it be likely that employers faced with high- 
er taxes on them are going to say, they are going to provide only 
that insurance which is tax deductible and let the employee pick 
up the rest? If they go higher than that, they will get a tax deduc- 
tion, which means government will help them pay for part of their 
insurance. 

But rather than ask you that question, in effect, when all is said 
and done, if your bill becomes law, won't that mean that most 
Americans will find that they are going to pay more out of their 
pockets for the health insurance coverage they are now getting free 
from their employers who are taking it as full tax deduction? 

Mr. Cooper. I disagree and would like an ample opportunity to 
explain our views. 

Mr. Waxman. Without objection, I am going to proceed for an- 
other 5 minutes to give you the opportunity. 

Mr. Cooper. We do not affect in any way the current tax exclu- 
sion which is, when the boss buys health coverage for the em- 
ployee, that is not counted as income to the employee. That is a 
policy that we leave in place. If we were to tamper with that, that 
would be a middle-class tax increase. We don't touch it. 

Mr. Waxman. My question to you is, if an employer can't deduct 
the full cost of the insurance except for the lowest-priced plan for 
each employee, isn't that an incentive for employers to say that is 
all we are going to provide? They are going to pay more taxes if 
they provide the present level of benefits that exceed the lowest- 
priced plan. 

Mr. Cooper. If you look at other corporate fringe benefits, in- 
cluding executive compensation, life insurance, child care, parking, 
all are tax limited. That does not prevent corporations from doing 
more than the minimum required in all these areas. It will encour- 
age people to shop for value. 

If the more expensive health plan is worth it, people will buy it. 
If it is not worth it, they probably won't, bearing in mind that 
sometimes — increasingly often — the lower-priced plans give you the 
best value. 

Mr. Waxman. They may well give you the best bargain, but for 
those people that are below 100 percent of the State poverty level, 
you give a full premium subsidy. For those on a sliding scale, until 
they get up to 200 percent of the State poverty level, they get less 
than the full subsidy, but it is based on the lowest-priced plan. So 
those people are only going to get a choice of the lowest-priced 
plan. 



40 

For working people, if they are over 200 percent of poverty — for 
a family of three, this is $23,780, less than $2,000 per month — so 
if an annual premium for that family will be $4,000, which is below 
the estimate of $4,400 for the administration standard plan, pro- 
vided by the Hewlett Associates, that family will now have to come 
up with what is, in effect, 70 percent of their income for health in- 
surance. If they can afford that, they are not about to buy a higher- 
priced plan — probably a lowest-priced HMO. 

If you are going to make consumers comfortable, if that is your 
goal, what in effect the American people will wake up and find is 
that they are being told to pay more if they want more than the 
lowest-priced HMO; and I think the reaction of the American peo- 
ple is going to be one of outrage if they find that placed on them. 

Now, we can tell them if we want to be honest, we want you to 
be better shoppers, more careful in scrutinizing the cost of health 
care; that is an important message. But that is not what they think 
they are getting, because the Clinton administration doesn't plan 
to do that. 

Mr. Grandy. Could I weigh in on this? 

Mr. Waxman. Well, you two decide. 

Mr. Grandy. You keep talking about the lowest-priced account- 
able health plan. Don't forget that this bill, like the Clinton bill, 
does authorize a standard benefit plan. Will it be a so-called Cad- 
illac plan that is conceived in the Clinton bill? Probably not. Will 
it be some kind of low-ball discount package? Definitely not. To as- 
sume that all employers will necessarily go to get the deepest dis- 
count is to presume that benefits are not a competitive item in the 
bargaining place. We know they are. 

The alternative is to allow the government to set the 
standards 

Mr. Waxman. Whatever the choice is, it is going to be the lowest- 
priced HMO. A lot of people don't want to be in the lowest-priced 
HMO. First of all, the poor people are the only ones going to be in 
there to start with. Then they will have a choice. Do they want to 
be in the poor people's HMO or do they want to buy themselves out 
of it? I submit to both of you that your tax cap proposal, as worthy 
as it may be from an intellectual point of view if you accept the 
theory of market competition, is not going to pass the Congress, be- 
cause I don't think Members of Congress will vote for a tax in- 
crease on middle-class Americans. 

Mr. Bliley pretty much said he is not willing to go along with 
that either. 

I guess if your proposal comes up and there is no tax incentive 
to be more scrutinizing as a shopper, or as you would put it, em- 
powered to be a shopper because you now have a financial burden 
on you, your proposal, then, without that tax cap, is pretty much 
the same thing as the Republican proposal. Is that how we are 
going to get bipartisan support, no guaranteed health insurance for 
the uninsured and nothing by way of market forces? 

Mr. Cooper. Mr. Chairman, the 50 Governors on a bipartisan 
basis endorsed a tax cap this week. 

Mr. Waxman. God bless them. They don't get a vote in this insti- 
tution. Do you think you can pass a tax cap in the Congress? We 
will have to see whether that is the case, but that will be the issue. 



41 

Mr. McMillan. Will the gentleman yield? 

I think the President's plan itself has a tax cap in it and also 
taxes benefits to the employees, so the assertion that this plan is 
unique in that respect is not the case. 

Mr. Waxman. The gentleman has to look at the President's plan 
more carefully. He would phase it over a longer period of time. The 
President's plan is premised on one basic idea that nobody should 
be worse off than they are at the present time. If you don't have 
insurance, you will have coverage. If you have insurance, you are 
not going to be forced to pay a lot more money for it and we are 
going to try to standardize it so people really get choices, not force 
them into the lowest-priced HMO because that is all they can af- 
ford. 

I submit this is the consequence of this. 

Mr. Greenwood, you are next on the Republican side for ques- 
tions. 

Mr. Greenwood. Thank you, Mr. Chairman. 

It is the tax policy of the Cooper-Grandy proposal that has been 
the Rubicon between me and sponsorship of the bill. I understand 
you have two purposes: One is to raise the money to provide the 
funding for the subsidy for those individuals under 200 percent of 
poverty; the other is to change behavior in the marketplace. 

I would like to give you ample opportunity to explain to us what 
your intentions are, what the intellectual theory is, and also let us 
know if there is some room to move on this. 

Mr. Grandy. If I can begin on this, I want to go back to some- 
thing Dr. Koop said when he introduced the First Lady to Congress 
this fall when we first began our informal discussions of this. This 
is a point that is worth stressing every day. 

He said that one of the problems in this country is not just that 
too many people have too little insurance, but too many people 
have too much and that is the purpose behind the tax cap. It is not 
the low-cost, discount, accountable health plan that we are trying 
to force everybody into. It is the high-priced, Cadillac plan, sub- 
sidized out to everything from in vitro fertilization to veterinary 
benefits that we are trying to reduce the subsidy for. 

What we are essentially trying to do through the tax cap is redis- 
tribute some of the benefits and the opportunities to the people 
that have nothing or too little. 

Is it flexible? As we said, I think, in both of our arguments, this 
is the beginning of a debate. This is our opening gambit, to hold 
the center of this debate and maintain bipartisanship. I can't re- 
call, but it seems to me that when CBO costed out our program, 
we were talking about a basic benefit of $2,100 per individual, that 
if you cost it out, it is more expensive than what the Clinton plan 
originally envisioned. 

If that is to be the deductibility, is that written in stone? Not in 
my view. 

Mr. Greenwood. Why cap the deductibility at the level of the 
lowest-priced policy as opposed to perhaps the average-priced pol- 
icy, which might make middle-income families feel more com- 
fortable? 

Mr. Cooper. The key question is whether you want bureaucratic 
price controls or market controls. Our approach is tougher than the 



42 

approach you suggest. If you want less cost-containment, endorse 
the average, but realize the consequences. 

Our approach is to help every American afford Chevrolet benefits 
before we subsidize anyone's Cadillac benefits. If you want Cadillac 
benefits, fine. You can still get to deduct most of them, but the 
leather seats and the sun roof you pay for with after-tax dollars. 

There is a real fairness question here, because people in America 
who make over $100,000 receive 30 times greater benefits from to- 
day's tax expenditure system than folks who make lower income, 
under $10,000. This system has been so ignored for so long that we 
have forgotten the unfairness and waste that is in the system. 

Lee lacocca's successor today at Chrysler Corporation could fully 
deduct a policy to send him to Switzerland if he was afraid he had 
the hiccups, no questions asked. Meanwhile, a poor family working 
for a small business, struggling to get by, their boss can't afford to 
buy them coverage, cannot deduct one red cent of their health cov- 
erage. To the extent they are a taxpayer, they are subsidizing the 
Chrysler decision to buy that fancy policy. 

That doesn't make sense, but we have lived with it for so long 
we have forgotten to explain. 

We have to bring fairness and equity into this area. These are 
classic democratic principles, classic bipartisan principles. These 
are things that we can all agree on. The only tax increase here is 
for corporations, and most corporations understand the need for it. 
The only individual tax change is a new tax break worth $54 bil- 
lion over the next 5 years. That is a good deal. 

In negotiations a 1^2 years ago, we came this close, even with 
the AFL-CIO, to cut a deal in this area; plus when you are calm 
about it and you understand the tax laws, you understand the need 
for it. That is why it has such wide support even though it is still 
a political hot potato. 

Mr. Greenwood. You referred to some cities where managed 
competition has been in effect. What do we know about the cost- 
containment results in those areas? 

Mr. Cooper. Donna Miller from Memphis will testify on the next 
panel. I encourage you to inquire in your own area. 

It is widespread, the market miracles that can occur when you 
allow market forces to really work, strong purchasers taking on the 
providers and demanding and getting a better deal. 

Mr. Grandy. From my own point of view, the community I live 
in has embarked on a managed competition model called Care 
Changes. Doctors, consumers, hospitals, all providers and all con- 
sumers are finding it is something that we can live with and some- 
thing that they prefer to the system they used to have. 

That is the bottom line, not necessarily how much money is 
saved out of the system. 

Mr. Waxman. Mr. Wyden. 

Mr. Wyden. I thank our colleagues for an excellent presentation. 
I am not a cosponsor of any of the bills, but planning to work close- 
ly with you both. 

My concern about the Cadillacs and Chevrolets is that you all 
take away the right to the Cadillac, which is fine, but you don't 
guarantee the right to a Chevrolet. I don't see spelled out in the 



43 

bill the right of access to that basic Chevrolet or even Yugo benefit 
package. 

I come from a State where we made some tough calls, so we are 
guaranteeing everybody in the State of Oregon, because we swal- 
lowed hard, the right to — characterize it by your terms — ^the right 
to a Chevrolet. How would you respond to that? 

Mr. Cooper. Perhaps my friend can support the sort of harsh 
government-imposed rationing that Oregon is engaged in. I prefer 
market forces. If you have to choose between services that you 
want or don't want, let the individual patient decide, based on real 
costs, so they are informed and empowered. 

Our tax change is good news for every American. We are not as 
versed on this committee about these technical tax details, but I 
would be delighted to go into detail with the gentleman, because 
most prior proposals in this area did not deal with the deduction. 
They dealt with the exclusion. This is a different thing that we are 
talking about. 

It is important, working with Joint Tax and CBO and others, to 
understand the real economic implications here. The so-called tax 
cap is one of the linchpins of managed competition. Either you have 
that sort of price control or you are inviting the bureaucrats to run 
the system; and I don't want that. 

Mr. Wyden. Oregon had public meetings, 40 meetings across the 
State. The people chose the benefits package. They are now guar- 
anteed the right to a Chevrolet. Under your plan, they are not 
guaranteed, as far as I can tell, anything. 

Because time is brief, I want to go into the matter of the em- 
ployer mandates. As I read it, you are out of step with the Amer- 
ican people on the employer mandates. Poll after poll has shown 
that the majority of the American people now believe that this 
should be some version of an employer contribution on health. We 
can debate what it is, whether it ought to be 80/20 or something 
else, but my concern is, why can't we have some version of shared 
responsibility where the employer does a portion, the employee 
does a portion? I am very open to work with you on what that 
ought to be. 

We can talk, when phasing it in, about multiple standardized 
packages. We did that on the medigap law and it has worked well. 
I would be for a circuit breaker which would indicate that if em- 
ployers had problems with an employer mandate, the government 
would help them. What is wrong with some version of shared re- 
sponsibility when the majority of Americans are now saying that 
is what they want? 

Mr. Cooper. I am all for shared responsibility. Most employers 
do that already on a voluntary basis. Government coercion should 
never be a first resort. It should be a last resort. When those poll- 
sters ask the question and tell folks that even the White House has 
said that 600,000 Americans could lose their jobs as a result of an 
employer mandate, which is a tax on jobs, support for the employer 
mandate goes way, way down. 

We need to be reforming health care and creating new job oppor- 
tunities in this country, not reforming and costing 600,000 jobs. 

Mr. Wyden. On the employer mandate, my concern is, for people 
who want a private sector system, which you want and I want, un- 



44 

less we have some version of shared responsibility what will hap- 
pen in this country is we will see a federalized system like the Ca- 
nadian system; Americans will be concerned that their doctor is 
running around with a white coat that says "Commissar" on it, and 
I think we have to have some version of shared responsibility. 

I have time for one last question. Are you open to reconsidering 
your position with respect to abortion and the right of free choice? 
We have got millions of women in this country who are concerned 
that your proposal retreats from rights they have right now under 
the law. Would you all reconsider that in the name of again trying 
to work out a bipartisan compromise? 

Mr. Cooper. The bill we have is silent on the abortion question 
as is the Clinton bill. Groups like NARAL have approved of our bill 
for the last 2 years, and suddenly last week they have discovered 
that our silence is not acceptable but Clinton's silence is. 

We have strong supporters on our bill who are pro-choice and 
pro-life because we are silent on this issue. 

Mr. Grandy. Mr. Cooper is pro-choice, I am pro-life. 

One of the reasons I find this bill a meaningful compromise is 
because it does acknowledge that Roe v. Wade is the law of the 
land; you have a right to an abortion, but not necessarily the sub- 
sidy. 

I think the reason we stay silent on that is because that is still 
a very contentious issue before Congress. We haven't decided 
whether or not that is something that should be extended fully 
through Medicaid. That is something that States are wrestling with 
right now. 

I would hate to see a debate over national health care or health 
care reform degenerate into another fire-fight over abortion. I 
would encourage any plan to remain neutral on abortion, so that 
we do not re-ignite a battle that I don't think any of us can win, 
no matter what side of the fight we are on. 

Mr. Wyden. The Clinton package does cover reproductive health 
services. That is something in the basic benefit that is not in your 
package. I do think that is a retreat, but I intend to work closely 
with you both. 

Mr. Grandy. We do not specify a basic benefit package in the 
bill. So if abortion is not in there, neither is lower back pain. 

Mr. Waxman. Mr. Klug. 

Mr. Klug. There are a number of supporters of this bill who are 
pro-choice and who think that in whatever way we reconstruct the 
system that you cannot deny reproductive rights to women who al- 
ready have it under private insurance. So a number of us are going 
to work on that area. 

Let me go back to some of the questions the chairman raised. It 
is your intention in the bill, if I am correct, to establish a basic 
benefit package. If you establish a basic benefit package and people 
begin to look for the lowest-cost health care system in terms of the 
lowest-cost benefit package, if the benefits are all the same, nobody 
is going to be discriminated against; is that correct? 

Mr. Cooper. Exactly. In defining the basic benefits package, we 
prefer to keep politicians out of the process because we are not 
health care experts. We would like that package to be defined "all 
medically necessary and appropriate services," have real health 



45 

care experts put it together, and we vote on it, yes or no, without 
amendment. That will be a great package. That will not be a denial 
of service to anyone. It will not be a Cadillac, but it will be a good 
package. 

We think that all the plans on the menu will be of that quality. 
They will differ in price, clinic location will differ, doctor member- 
ship will differ, medical delivery system will differ, but the public 
will be empowered with price and quality and consumer satisfac- 
tion information so they can choose what the best service is. 

Mr. Klug. If my company decides to move from Plan A to Plan 
B because it is a cheaper price, because of the changes in the tax 
laws, it will essentially still be the same set of benefits. I may like 
it better because of its quality or a doctor I worked with over the 
years, and the additional cost may be worth it to me. 

Mr. Grandy. I think the difference will probably be in the way 
those basic benefits will be delivered. But I don't think an em- 
ployer, given the fact that 85 percent are trying to provide benefits 
voluntarily, is necessarily going to go to a rigid staff HMO model 
just to cut it down in price if he has been delivering something 
more generous up to this point. I don't see this enormous disinvest- 
ment in the workplace. 

I will say that one of the reasons that we did not — and we spe- 
cifically did not in our bill — legislate the benefit package is because 
we know, based on our attempts to do that through Medicaid and 
Medicare, what a political process that becomes. Having sat on the 
Health Subcommittee for 2 years, I can tell you every single pro- 
vider, alternative or otherwise, has come before the Health Sub- 
committee and said, we deserve to be in the basic benefit package. 

The only benefit we have conclusively ruled out is life after death 
at this point. But that gives you an idea of what we are talking 
about. 

At some point, somebody has to make a decision as to what a 
basic benefit is. We feel that should be done by a base closing 
model as opposed to a political model that will probably allow spe- 
cial interest groups, rightly or wrongly, to get in. 

Although I think the price change will be in delivery, I don't 
think you will see an enormous disinvestment in delivery systems 
that are currently being provided. 

Mr. Klug. I agree. 

Let me talk about another area that I think your bill is a vast 
improvement over the President's, and it is the idea of self-insured 
plans. Under the President's plan, every business of 5,000 employ- 
ees or more has to belong to the purchasing cooperative, and for 
the State of Wisconsin, that essentially means everybody except 
three major businesses. 

We have in the Madison area three large companies — Nelson In- 
dustries which makes industrial mufflers; Stohlton Trailers, which 
makes tractor-trailers; and Ray-0-Vac, which makes batteries. All 
three are self-insured, all have employees between 1,500 and 2,500, 
and today their basic health care costs are essentially the equiva- 
lent of 3.5 percent of payroll. 

Under the President's plan, they will rise to nearly 8 percent, 
which essentially means for some of those companies anywhere 
from $1 million to $2 million more next year for health care bene- 



46 

fits. I fear what that means is a severe loss of jobs for all three 
companies and others. 

Why the difference between the President's over self-insured 
plans? 

Mr. Cooper. You are pointing out a very important part of the 
President's bill. The limitation in the President's bill that no com- 
pany would ever have to pay more than 7.9 percent of payroll is 
a massive redistribution of income in corporate America. It is a 
bailout for our largest and most inefficient companies, and it is a 
penalty for some of our most efficient companies. 

For companies like yours, who provide in some cases full family 
coverage, 100 percent paid for less than 7.9 percent coverage, all 
of a sudden they will be penalized by having their obligations 
raised; but other companies that have bargained differently and 
have whopping health care costs are suddenly going to be given a 
terrific windfall, hundreds of millions of dollars at taxpayer and 
more efficient company expense. 

This is a key issue and one of the reasons that we rely on small- 
er and less regulatory alliances. Our number is about 100 employ- 
ees or less, and we are thinking for about half a work force in an 
area to be enrolled in our health alliances, half outside but working 
for larger companies. 

Mr. Grandy. Iowa is similar to Wisconsin in that I don't think, 
with the exception of one major employer, there is a business that 
would basically be able to go into a corporate alliance. I feel most 
will go into regional alliances because it would be a better subsidy 
for them. 

On self-insurance, that has been an area under ERISA that com- 
panies have used to get health costs under control. It has been suc- 
cessful, but it has also been abused. One of the reasons we do have 
a mandatory purchasing cooperative threshold of 100 businesses is 
we don't want some company of 25 to self-insure and basically cre- 
ate something that is actuarially unsound. That number was given 
to us as a threshold, below which you probably would run into 
some problems, but above which self-insurance is viable. 

What we are trying to do is not take away tools that have al- 
ready worked in the marketplace for smaller employers; and in a 
State like Iowa and probably to a lesser degree in Wisconsin, 100 
employees is a big workplace. 

Mr. Klug. Thank you. 

Mr. Waxman. Thank you, Mr. Klug. 

Mr. Kreidler. 

Mr. Kreidler. Thank you, Mr. Chairman. 

Mr. Cooper, in your opening statement you made reference to 
several States that are, so to speak, field-testing health care reform 
presently. You mentioned Oregon with a somewhat less than com- 
plimentary tone to your voice. 

How do you perceive the Tennessee plan as it is presently con- 
structed and operating? 

Mr. Cooper. Many States are facing funding crises due to their 
Medicaid burdens. Tennessee is not alone. Many States are scram- 
bling with different solutions, and Tennessee asked for Federal 
flexibility in order to avoid a giant tax increase on our people. 



47 

Any State is going to have implementation problems, no matter 
how well thought out or carefully drafted the plan is. If I were in 
Oregon, I would hate to be a poor person with disease number 584 
on the list or whatever the cutoff is. 

I respect the different States working their way through these 
problems. I wish that we had acted at the Federal level faster. I 
wish that we had not burdened the States with these obligations. 

Mr. Kreidler. Does that mean you would endorse, then, Ten- 
nessee's approach to health care reform? 

Mr. Cooper. That is a State-level reform. I am a Federal official. 
I wish we had acted in Congress earlier so that States wouldn't 
have been put through the fiscal crises that they have put through. 

Different States will work through different problems in different 
ways. 

Mr. Kreidler. The reason for getting into that is because a num- 
ber of States have come forward with proposals. My State is one 
of those that you listed in your opening statement, the State of 
Washington. You also state that you have some concerns about 
States doing their own thing within certain constraints. The State 
of Washington has enacted managed competition with an employer 
mandate. I was part of the commission that held hearings all over 
the State and responded not to government dictates, but to what 
the people called out for, to address the challenges of universal cov- 
erage and to control costs. 

One of the problems we have right now is the ERISA preemption 
for self-insured companies. That needs to be waived for the State 
of Washington so that they might be able to enact their health care 
program. Can I count on your support for the State of Washington 
to have that ERISA waiver? 

Mr. Cooper. I am not a Washington health care expert. I know 
that you are. I look forward to learning the details about the plan. 

Do they have a pending waiver request? 

Mr. Kreidler. I introduced legislation last year for that purpose, 
so it is before the Congress in that respect. 

Mr. Cooper. I look forward to working with the gentleman to 
better understand the Washington situation. 

Mr. Grandy. If we could get you on the Cooper-Grandy bill, I 
think I could persuade Mr. Cooper to help you with that waiver. 

Mr. Kreidler. I would consider that an endorsement of an em- 
ployer mandate. 

Following in the same vein here, that we all agree on the need 
for guaranteed-issue, coverage of preexisting conditions, commu- 
nity-rating and other insurance market reforms, but we also know 
that these reforms would raise health insurance costs for many em- 
ployers with young and healthy employees, and we could expect 
many employers to drop their health plans if they are not required 
to keep contributing, especially if they lose part of the current tax 
deduction. Why do you think your plan will increase the number 
of people with coverage instead of decreasing that number? 

Mr. Cooper. I don't want any employer to drop coverage that 
they are currently providing. I don't think that any sensible em- 
ployer would even think of doing so. The labor market is increas- 
ingly tight. Companies are inviting an employee to leave if they in 
any way curtail benefits because we are creating portable health 



48 

coverage for the first time. We are eliminating job-lock. We are tell- 
ing every employee, you don't have to stay with the old boss, you 
can go to a new and better job, you are free because we finally 
made health insurance portable the way we should have done years 
ago. So if an employer shortchanges employees, he will be in seri- 
ous trouble by losing his best people. 

Mr. Kreidler. We are still looking at a significant number of 
people who are not going to have health insurance, and we are ob- 
viously looking at continued cost-shifting. That results in inability 
to control the cost of health care in this country, which is part of 
the spiral that we find ourselves in right now. 

Mr. Grandy. Are you talking about, supposedly, the young 
healthy individual that is opting out of insurance now because they 
would rather have the cash to spend on something else? That is the 
part of the population that under Cooper-Grandy would not be the 
first to line up for coverage. 

Mr. Kreidler. It would be an employer with a work force with 
those characteristics. 

Mr. Grandy. Let me take my daughter as an example. She is 22 
years old, she is an actress in New York of all things 

Mr. Waxman. It would be worse. She could be in Holl3rwood. 

Mr. Grandy. Give her time, Mr. Chairman. She has got to pay 
her dues first. 

The point is this. She is one of those healthy young people who 
has decided all she really needs right now is catastrophic coverage. 
I am not so sure that is a terrible choice for a young person to 
make right now, and I am not sure that if we had the 
empowerment in place for young people, whether they were self- 
employed as she is, because she is an entertainer, or whether they 
were working for a tool and die company that was not able to pro- 
vide a benefit at this point, giving them the option to find a policy 
they could afford would not bring them into the marketplace. The 
point is, let's conduct the experiment and find out. 

A lot of these people are precluded from buying policies, one, be- 
cause it is too expensive or, two, because they say it is not worth 
the investment right now. As I understand the Clinton plan, those 
people would not be assessed unless they showed up with some 
kind of traumatic injury or illness, and at that point when they ac- 
tually enter care, they are assessed on a retroactive basis for not 
being in the program. 

I am not sure that is cost-containment, either. 

Mr. Kreidler. If they are employed, there would have been an 
employment contribution in the plan, which is not true in the case 
of somebody who opts not to have health insurance and then goes 
in and accesses the system and winds up cost-shifting to everybody 
else and billing it into our premiums. 

Mr. Waxman. Mr. McMillan. 

Mr. McMillan. Thank you, Mr. Chairman. 

Having come from business and having set up health insurance 
plans for a company of 7,000 people some 20 years ago — it was 
more full than the President's plan, more full than is contemplated 
in most plans — I am convinced that most companies don't set up 
insurance programs for their employees because of tax deductibil- 
ity. Compensation is deductible; every expense they have is deduct- 



49 

ible. Most are trying to cut costs. If anything, they have insurance 
plans because it makes for a good work situation, part of our work 
tradition. 

There are some businesses that can't afford it, and that is one 
of the things that we are trying to address here. I think it is one 
of the things that the President's plan is trjdng to address. I think 
it will do it in a way — through the mandate, that forces that issue 
in a way that business will not in many cases be able to afford. I 
think what the Cooper plan is trying to do is to deal with that in 
another way that is far more sensible. I think other plans would 
do likewise. 

I want to address the question, though, of the tax equity here. 
The Republicans debated the question of putting caps on deduct- 
ibility long and hard; and I thought at one time we had basically 
adopted it. It was pretty much a 50/50 kind of thing if I recall. 

If a bunch of Republicans are 50/50 on the equity of that, is any- 
one suggesting that more liberal Members of the House are going 
to be otherwise? I can't imagine that, and yet that is what is being 
said here; and I think it is being said here because the Clinton 
plan makes some major concessions to some major powers in the 
United States, the special interests that he decried in his speech 
the other day, that are let off the hook in this bill. 

These are plans that perhaps have an average cost in the neigh- 
borhood of $10,000 per capita, when the President's plan itself only 
assumes a guaranteed benefit, as they priced it, of about $1,950 per 
capita which, when totalled actuarially, is probably 30 percent 
under what is really true. So the tax cap is really a question of eq- 
uity. 

If you are going to shift resources to subsidize people up to 200 
percent of poverty, which I favor, then there has to be some tax eq- 
uity in this; and the tax cap equivalent to the average cost of not 
the lowest cost necessarily, but the average standard basic cost of 
coverage is the equitable thing to do. I am willing to support that, 
and I wish it had been in the Republican package, and I support 
it in the Cooper package. It has to be a part of any plan; otherwise 
you are going to tax somebody else. 

The President's plan taxes small business. If you are forced to go 
into a regional alliance, which 88 percent of the work force is going 
to be, you are going to be forced to pay a much higher price, and 
that is going to be more onerous than what we are suggesting here 
in tax equity. 

Having said that, I think there is a problem I have with the Coo- 
per bill that I have been tr3dng to maybe consider getting some 
changes to; and that is the whole issue of mandates on business. 
We are not talking about forcing them to pay, we are talking about 
requiring that they provide access, which is different. That is in the 
Republican bill. 

I want to put the question to you, why not individual mandates 
and individual subsidy, as opposed to business subsidy, because 
then that choice rests with the individual; and with respect to the 
issue of tax equity, if you have an individual subsidy, then if an 
employer has someone below 200 percent of poverty, then the sub- 
sidy can go to the individual and offset the effects of the tax cap 
on the other end. That is a far more equitable way to deal with it. 



50 

I know that you have addressed this question, and I would like 
to hear an explanation as to why not build into your plan an indi- 
vidual mandate and an individual subsidy that even adds more 
flexibility and choice to the system? 

Mr. Cooper. The individual mandate is an appealing notion and 
is in the so-called Chafee bill. It has three major drawbacks. 

First, it is probably difficult to enforce because even auto insur- 
ance is tough to enforce; 

It is probably expensive, because the level of subsidies may be 
very great in order to entice the individual to buy coverage he 
would not otherwise buy; 

Third, you have a problem of possible employer dumping. If they 
know that the employee would have to buy a policy anyway and 
they don't have to provide it, some unscrupulous employers may 
shirk their responsibilities. 

Perhaps those problems may be overcome. They have limited my 
interest in that approach at this point. 

Mr. McMillan. On the question of unscrupulous employers, I 
think that if they are unscrupulous, they will be unscrupulous with 
or without health care reform. What you do is provide an avenue 
for that individual who does not have access to good coverage in 
a corporate plan to come into the HIPC and enter into their agree- 
ment. If they have individual mandate and individual subsidy, they 
take that subsidy with them and into your managed care approach. 

Mr. Grandy. The point, rather than mandates, is empowerment. 
We discussed this when the coalition was formed as to whether we 
wanted mandates to come before markets, and the decision was, 
no, let's see who does line up to join the HIPC. 

The other thing we do agree on with the Clinton plan — and I 
think will prevail at the end of the day — is an employment-based 
system. I think that has worked well in this country, and I think 
part of that is that individual mandates notwithstanding, most 
Americans, when it comes to health care, love choice but they hate 
choosing. In other words, they don't necessarily want all of these 
plans laid out in front of them. And even though we are trying to 
win them into perhaps more consumer-wise behavior, I am not nec- 
essarily sure that an individual mandate up front would give them 
that learning curve that they need to get into the system. 

I think it is safe to say that those of us in the coalition — and we 
are working with folks in the Senate, particularly John Chafee and 
the authors of his bill — to kind of split this difference. It is not 
something that we would say, no, we will never agree to that. But 
I do think it is worth saying that government can always impose 
mandates. We do that very well. But it is something else to allow 
a market to go forward and then reassess in 3 or 4 years and see 
if the people Mr. Kreidler talked about are not in the system and 
if we have to mandate them to be in the system to lower costs. 

Mr. Waxman. Thank you. 

Mr. Dingell. 

Mr. Dingell. Thank you, Mr. Chairman. I am delighted to see 
our two colleagues here and want to thank them for being here to 
assist us in our consideration of the matter. 

I was interested in the financing mechanism. I gather that is es- 
sentially going to be a tax cap on benefits; is that right? 



51 

Mr. Cooper. We have two basic ways of funding our proposal. 
One is a tax cap; the other is smaller Medicare savings than the 
President proposes. 

Mr. DiNGELL. You say, smaller Medicare payments than the 
President proposes? 

Mr. Cooper. Smaller savings from the Medicare program than 
the President proposes. He asks that we cut Medicare by $124 bil- 
lion over 5 years; we ask that it be cut by $40 billion over 5 years. 

Mr. DiNGELL. As I read in the bill at pages 17 and 195, the tax 
would begin at the lowest cost premium; is that right? 

Mr. Cooper. That is what we suggest because that is the tough- 
est cost-containment if you are interested in cost-containment. 

Mr. DiNGELL. What would the lowest cost premium be? How 
would you define that? 

Mr. Cooper. The health plan would have to prove it was solvent, 
that it was capable of serving a fair slice of population in a region. 

Mr. DiNGELL. I am trying to understand something. You said 
that it would begin at the lowest premium. It says the term "ref- 
erence premium rate" means with respect to an individual residing 
in an HIPC area with the lowest premium. So, in other words, does 
that mean that anybody who was paying higher premiums than the 
lowest premium in the area would begin to pay a tax; is that what 
that says? 

Mr. Cooper. The goal of the provision is to make all the health 
plans compete on a level playing field whether they are an HMO, 
PPO, IPA or regular service competing for a fair slice of the popu- 
lation. 

Mr. DiNGELL. Let me try and recast the question. 

The bill says the term "reference premium rate" means, with re- 
spect to an individual residing in a HIPC area, the lowest pre- 
mium. 

Am I fair in inferring that any employer who was paying more 
than the lowest premium would begin to pay a tax? 

Mr. Cooper. It would have to be a federally defined benefits 
package. It would have to be at least the Federal standards, and 
there would have to be a competitive bidding process for bidding 
to see who could offer it at the lowest price. 

Mr. DiNGELL. Where would these Federal standards be defined? 

Mr. Cooper. A national standards setting commission appointed 
by the President and approved by the Senate. 

Mr. DiNGELL. Would these all be HMO's or PPO's or freedom-of- 
choice plans? 

Mr. Cooper. They could be any delivery system — HMO, PPO, 
IPA, POF. They could be fee-for-service, indemnity medicine as 
well. 

Mr. DiNGELL. Well, I am trying to find out at what level the tax 
benefits would kick in. You said that the commission — ^you had set 
up, I note, at another section in the bill a set of boards and com- 
missions at page 122. What would be the function of each of these 
boards? 

You set up a health standards commission. I gather that that is 
going to recommend to Congress, according to the language, a uni- 
form set of effective benefits to apply under this title for 1995 and 
subsequent years? Is that the function of this body? 



52 

Mr. Cooper. We want everybody in every State to know what 
the minimum standards package is and never has been a package 
that is worse than that. This would be a good package put together 
by health professionals, not by politicians. We would vote on it, yes 
or no, without amendment, using the base closing mechanism; so 
it would not be a politicized package. 

Mr. DiNGELL. If we reject that, what happens? 

Mr. Cooper. I guess the health standards commission would 
have to go back to the drawing board and draw up another pack- 
age. 

Mr. DiNGELL. Is that set out in the bill? 

Mr. Cooper. Yes. 

Mr. DiNGELL. Where? 

Mr. Cooper. If we use the base closing procedures, Congress is 
free to 

Mr. DiNGELL. The base closing mechanism, as I recall the rec- 
ommendations, if rejected, simply ends it; and the commission was 
not required to come forward with a new set of recommendations. 

Mr. Cooper. I believe, beginning on page 101, we explain the 
procedures; and the intention of the authors of the bill is to have 
them go back to the drawing board. 

Mr. DiNGELL. What we are dealing with here, is the language of 
the bill and not the intention of the authors. Where in the bill 
would they be required to come forward again and bring in a new 
set of recommendations, if the Congress rejected them? 

Mr. Cooper. I would be happy to supply that. Top of page 108, 
treatment of disapproval. 

Mr. Waxman. Mr. Dingell, your time has expired. 

Mr. DiNGELL. I am sorry, Mr. Chairman. I was thoroughly enjoy- 
ing this. 

Mr. Waxman. We will let you have a second round. We want 
other members to have a chance for the first one. 

Mr. Hastert. 

Mr. Hastert. Thank you, Mr. Chairman. 

Mr. Cooper, you have been working on this issue, as have I, as 
has your colleague, Mr. Grandy, for a number of years, trying to 
find solutions to problems. I don't want to lead you on, and I want 
your answers to be as precise as possible, but you base your system 
on the system that we have in this country that employers basi- 
cally pick up the cost of insurance, is that correct, or part of that 
insurance? 

Mr. Grandy. I am sorry. Mr. Cooper was reading the bill. The 
answer he would have provided, had he been paying attention, was, 
yes, we do base it on an employer-based system. 

Mr. Hastert. Is that promise that probably — and we have vary- 
ing statistics — that 85 percent of the people in this country already 
have insurance from an employer based — so Mr. Wyden's assertion 
that most of the people like the system that they have now is based 
on most of the people like the system that employers pick up a 
good part of the bill. 

Mr. Grandy. Voluntary employer coverage paid, or copaid, has 
basically produced that figure, 85 percent coverage. 

Mr. Hastert. If you take that one step further, the problems in 
this country maybe are marginally on those companies that pick up 



53 

employer costs on health care, but more often, they are on groups 
of people who don't provide health care insurance. That is where 
the real problem is, isn't it, in this country? 

Mr. Cooper. Thirty percent of the uninsured in America have no 
contact with an employer at all. They are not employed, or they are 
students or have no contact. They vary in their characteristics. A 
full 30 percent are not, in any way, in the labor market. 

Mr. Hastert. A number of the uninsured are under 26 years of 
age; a lot of them are between jobs. A large number are self-em- 
ployed or work for companies under 50 or under 100. 

Mr. Cooper. That is correct. 

Mr. Hastert. Basically, one of the things that — I think there are 
three premises out there that the President wants to cover, and I 
think most of us want to cover; we want to make sure that we can 
hold down health care costs, and there are provisions in all three 
bills that do that. Is that correct? 

Mr. Cooper. That is correct. 

Mr. Hastert. We also want to give people portability, health 
care security, and take away the problem of preexisting conditions; 
and you do that? 

Mr. Grandy. Absolutely. 

Mr. Hastert. The other issue is, how do you get to that number 
of people out there that don't have access to health care insurance 
today; and because they don't, they still go to the hospital, they 
still are in automobile accidents, and the cost is shifted to other 
people. A large part of those people are either part-time employees, 
working for small businesses — ^tell me if you think I am wrong. 
Don't a lot of those people have to go to the market and pay 150 
to 300 percent of the cost of insurance that somebody working for 
a bigger company — I am talking about a couple earning $30,000 in 
a mom-and-pop grocery store and they have to pay $9,000 if they 
can get it. 

Mr. Grandy. That is correct, and if they have one event, they 
will likely lose their policy next year. 

Mr. Hastert. So the issue is how to get those people on board, 
right? 

Mr. Grandy. That is exactly what the Cooper-Grandy bill tries 
to do, Mr. Hastert. We are trying to change the acute care portion 
of Medicaid so that we do capture those low-income individuals, 
usually in minimum wage jobs, and allow them to buy a policy that 
they can keep; and two, to allow small employers the same kind 
of purchasing power that a large corporation with a lot of employ- 
ees has. That is the whole purpose behind the health care purchas- 
ing cooperative. 

Mr. Hastert. So there is a commonality of purpose across the 
board in all health care plans out there, especially ones that are 
based on employer mandates; that is, we are trying to help people 
who don't have the ability to help themselves today because basi- 
cally they are priced out of the market. 

Mr. Grandy. We want to give them the tools to exercise the right 
of access to health care, but we want them to exercise their 
responsibility 



54 

Mr. Hastert. At the same time you don't take away the health 
care of 85 percent of Americans who have health care and basically 
like what they have? 

Mr. Grandy. We don't try to drastically alter what they have, ei- 
ther. That argues for the smaller threshold in the Cooper-Grandy 
bill than the 5,000-employee threshold in the Clinton bill. 

Mr. Cooper. The gentleman is correct. Most Americans are rel- 
atively satisfied with their current coverage and with their current 
doctor, and we try to preserve what is good in the system and we 
try to root out what is bad. 

Mr. Hastert. So basically most Americans have high quality 
health care, choice of where they can get that health care; and 
being able to get the health care without being rationed is impor- 
tant. What you are trying to do is to take the other group of Ameri- 
cans that don't have that right and give them that right also; is 
that correct? 

Mr. Cooper. Exactly. 

Mr. Waxman. Thank you, Mr. Hastert. 

Mr. Brown. 

Mr. Brown. Thank you, Mr. Chairman. One quick question and 
I will yield to the chairman. 

Mr. Cooper, doctors you talk to anywhere in this country are 
frustrated under the present system with insurance companies 
looking over their shoulders and second-guessing them and sa3dng 
you can't do this or you can't do that. 

That has saved the system money and kept doctors from doing 
procedures they should not have done. However, it contributes to 
the feeling that physicians have that it is not much fun to practice 
medicine anymore, and they are not as good for their patients as 
they could be if they didn't have these insurance companies looking 
over their shoulders. 

Isn't your proposal only going to exacerbate that? Won't there be 
more of that and more pushing prices down and second-guessing 
and insurance companies performing that way? 

Mr. Cooper. I would disagree with your assumption that the cur- 
rent system has really saved us money. As IRA Magaziner puts it, 
today we have checkers checking checkers. We have HCFA employ- 
ees who will never see the patient, who are second-guessing sur- 
geons. We have insurance company employees who are doing the 
same thing. We are trying to shift regulatory paradigms so it is no 
longer please the bureaucrat, please the great unseen reimburser. 
It is, please the patient, do an excellent job of treating your pa- 
tient; and any paperwork requirement should be focused on patient 
care, not reimbursement. 

We think we have an opportunity to restore sanity to the system. 
It has gotten completely out of control, because right now the reim- 
bursement decision is completely separated from the patient. It is 
a long distance transaction where the reimbursers who sometimes 
are not medically trained will be second-guessing highly trained 
people. 

We try to shift the entire regulatory approach. The fundamental 
change of the Clinton administration aaopts a great deal of that 
thinking. We want to try to put power in the hands of people who 
are actually providing the care, so they will have the maximum in- 



55 

centive to do the best job of serving the patient, not pleasing the 
reimburser. 

Mr. Waxman. If the gentleman will yield, you don't think man- 
aged care or HMO's save dollars in delivery of health care? 

Mr. Cooper. I think they do, at least initially. I think once 
HMO's are in place in today's shadow-pricing environment, some- 
times they are tempted to copy the behavior of fee-for-service pro- 
viders. 

There seems to be an initial savings at least. 

Mr. Waxman. The explanation we have heard day after day in 
these hearings is that one of the reasons we are seeing some drop 
in expenditures for health care is because employers are turning to 
managed care HMO's and they are saving dollars. They can save 
dollars through greater efficiency and also by denying people care, 
which is a great concern. 

This is the 20th hearing we have had on health care, particularly 
with regard to the President's bill. We have had hearings on spe- 
cial population groups. If you have a disability, you don't want to 
be forced into an HMO that doesn't have somebody who knows how 
to deal with your disability. 

We had a hearing on essential providers, the only ones available 
in minority communities or rural areas. We had a hearing on alli- 
ances, we had a hearing on the role of the States, employers' re- 
sponsibilities. This is the first hearing, I believe to be the case, in 
any congressional setting on your proposal; and let me submit to 
you, your proposal is not a modest one. 

Your proposal is a radical one, because your proposal, it seems 
to me, is going to take us on an experiment of social engineering 
which, according to Mr. Grandy, would have people have a learning 
curve to shop for health insurance. I think a lot of Americans will 
not be happy to be on the learning curve to shop for health insur- 
ance because they are going to be forced into the lowest-priced 
HMO, or they have to buy out of it and learn how to do that. 

How do you respond to this charge that I am making that people 
are going to be losing what they already have, be forced into the 
lowest-priced HMO because that is all they can afford? Aren't you 
empowering people only to what they can afford, and what most 
will be able to afford is only the lowest-priced HMO and nothing 
more? 

Mr. Cooper. With all due respect to the Chair, I would have wel- 
comed an earlier hearing on the bill. 

Mr. Waxman. What is your answer now? 

Mr. Cooper. I felt as if my bill were being scrutinized even in 
prior hearings. 

Mr. Waxman. Do you think that wrong to scrutinize your bill? 

Mr. Cooper. No. I would have welcomed earlier scrutiny of our 
bill. 

Mr. Waxman. We still have time. 

Mr. Cooper. The chairman and I, I think, disagree on the role 
of government. The chairman has a long and distinguished career 
in health care reform. The chairman has usually preferred larger 
government solutions to problems than I perhaps do. That is not 
to fault the chairman. You have your own views. I tend to be more 
of a new Democrat, focusing on smaller government solutions. 



56 

Mr. Waxman. You are also a younger Democrat. Thank you. 

Mr. Hall. 

Mr. Hall. Thank you, Mr. Chairman. I have a problem with new 
Democrats and young Democrats. I would start by saying to Mr. 
Cooper and Mr. Grandy that I appreciate the time they have put 
into it. 

Mr. Grandy certainly makes sense to me on the abortion issue, 
leaving it where it is. It is another battle that could sink health 
care for this country. 

Mr. Cooper, you have represented the Congress well, the House 
well and this committee well. Sunday morning while we were 
warming up for the Super Bowl, getting ready for it, I watched you 
and Mr. Rockefeller. You handled yourself well there. I don't know 
how you stay around Rockefeller for 30 minutes and don't ask him 
for money, but you didn't even do that. 

I have a complaint about the timetable we have set here. I don't 
have a right to complain because I have not attended every session 
we have held, but I have had someone who knew more about it in 
attendance, telling me what was said. I think we need probably 
more time to work with this subcommittee and more input into this 
subcommittee. 

I think we are also fortunate to have Chairman Dingell, who is 
a congenital anomaly, caring about health. His father before him 
had a plan and a goal and a dream. I think in Chairman Waxman 
we have one of the most knowledgeable people in the area of health 
care. 

I think we are going to get a fair shot at it, but I hate to see 
us telescope it into a time limit when we have to have something 
to the Floor, because we can make mistakes. We made a mistake 
on catastrophic; we didn't really know who paid there until we 
passed a bill, sent it out, and had to come back and redo it. Our 
projections are not too accurate. 

In 1965, if you remember, when health care expanded to the el- 
derly, the government made a prediction that $9 billion would be 
the cost for Medicare, and in 1990 it was way over $100 billion, $9 
to $106 billion; and Medicaid, their estimates were a billion dollars 
back in 1965 for Medicaid, and it is $75 or $80 billion. 

So we have heard projections, and most of the speeches I have 
heard talk about projections. Until we can add and subtract and 
listen to life testimony presented here, I don't see how we are going 
to get to that by the schedule that is laid out. 

I hope we don't pass this simply because somebody can get 216 
votes. I hope it is well thought out. Thank you for the time. I am 
not on either bill, but I am willing to listen. I believe that if we 
pass a bill that doesn't make sense, that won't fund it properly and 
fairly, it will fall and the very people we are trying to help, the lit- 
tle people in our society, get hurt worst. 

My fear and your fear of being forced into an early vote with the 
result that maybe we don't have any bill until we get down to Sep- 
tember or October and then say the do-nothing Congress has done 
nothing, so we will go to single-payer, we are going to nationalize 
it — ^which would be the worst thing to happen — that is something 
none of us wants. 



57 

So I guess my question would be on the major issue, which seems 
to be coverage — how we are going to cover everybody; and there is 
a difference in universal access and universal coverage, and most 
of us want universal coverage. We have universal access now if you 
just have the money. 

Notice in the ads — sometimes for antique cars they say, 
restorable — it might be two wheels and an engine — and if you've 
got enough money, you can restore it; and the health situation is 
the same way. 

Mr. Cooper. I have the highest regard for my friend from Texas, 
and I was delighted to provide him with pregame entertainment 
because you are my favorite Dallas Cowboys fan. 

This may be the biggest job this subcommittee has ever been 
asked to do in its history in 1 month. But we have to tackle these 
issues. The September-October timetable is tight, as well, for the^ 
entire Congress. If we work hard enough, we can do a good job on 
these bills. The Governors have already helped show us the way. 

Mr. Grandy. One of the reasons this bill is before the committee 
today is because we believe this is a bill that we can enact. I can't 
make the same conclusion about the Clinton bill. 

I serve on the Ways and Means Committee. We will have exten- 
sive deliberations, and we haven't even gotten to the judicizil por- 
tions that will be included in any package. I think we have to in- 
tensify the debate, even if we don't decide, because one of the ef- 
fects we are having on the private sector, whether it is a pharma- 
ceuticsd company or groups of physicians, is reducing the inflation 
factor in the health care marketplace. 

Sometimes the threat of what government is going to do to you, 
rather than what we actually do for you, drives the private market- 
place to make voluntary price restraints, which is one of the rea- 
sons we have seen a slowdown in health C£ire costs. I would not 
want to concede that advantage right now. I am in no hurry to pass 
a bill that I am not comfortable with, but I think this Congress, 
particularly with leadership like the chairman of the subcommittee 
and the leadership of the chairman of the full committee and peo- 
ple on Ways and Means and elsewhere, are capable of doing this. 

I don't want this to become too gradual a discussion, because I 
think we are capable of discussing this now and reaching some con- 
clusions; and the more we do that and the more members partici- 
pate in this debate, I think we will have informed decisions and not 
political ones. 

Mr. Hall. I thank the chairman. 

Mr. Waxman. All members have had a opportunity for a first 
round. I will recognize members for a second round, and I am going 
to start. 

Mr. Cooper, I want to apologize. I have the highest regard for 
you, and you are an important and esteemed member of this sub- 
committee. While we are looking at this bill, we have looked at 
other aspects of the problem, on other issues, and we need to look 
at all these issues very carefully because we are looking at a re- 
form that is going to be a major piece of legislation. 

While I am asking questions here, we will have to have a lot of 
other conversations as well to understand differences and where we 
can bridge those differences, and I look forward to that. 



/ 



58 

I do want to get factual information on the record. 

You would cut $40 billion out of Medicare. What would you do 
with that $40 billion you cut out of Medicare? 

Mr. Cooper. Our proposed slowing of the rate of growth of Medi- 
care is a small fraction of what the President proposes, and we 
would take that money and use it to primarily help fund the new 
Medicaid program. 

We repeal Medicaid and start again with a new program for the 
poor and the near-poor. 

Mr. Waxman. As a subsidy for them to be able to purchase 
health insurance. 

Unlike the Clinton plan, you wouldn't provide benefits for pre- 
scription drugs or some advances in home health care; is that cor- 
rect? 

Mr. Cooper. Incorrect. We have a prescription drug benefit. It is 
in our system. We would invite seniors to join our system. We have 
new preventive care services, lots of different things, because we 
feel that Medicare has not been strong enough on the various pre- 
ventive services. We are interested in adding other things. 

My bill was first introduced some 3 years ago, and various long- 
term care issues were not really on the table then. I am very in- 
trigued with the President's home health care benefits for the dis- 
abled. We may be interested in a separate bill to add those to this 
piece of legislation. 

Mr. Waxman. You take $40 billion out of the Medicare program. 
You still leave a Medicare program; you don't eliminate Medicare, 
do you? 

Mr. Cooper. The chairman knows the answer to that question. 
We do not fundamentally change the Medicare system at all. 

Mr. Waxman. You said the elderly can sign up in other plans. 
They would have to voluntarily give up Medicare and go into these 
plans? 

Mr. Cooper. They would use the Medicare benefit to enroll in 
the same plan that their kids or grandkids belong to, if they 
choose, an entirely voluntary decision on the part of Medicare bene- 
ficiaries. 

Mr. Grandy. If you do enroll in some kind of a managed care op- 
tion, then a prescription drug benefit would be part of your basic 
plan. 

Mr. Waxman. I ask you because I am trying to understand it. I 
am not tr3dng to goad you, but would be interested in exploring fur- 
ther how you take a Medicare benefit and trade it in. 

I want to ask you another question. If you eliminate Medicaid, 
instead you replace it with a subsidy for people who are below 200 
percent of poverty on a graduated scale, those close to 200 percent 
get less, those at the bottom get full subsidy. While you repeal 
Medicaid, you also repeal the Medicaid part which pays for nursing 
home services for long-term care. Was that your intention? 

Mr. Grandy. No, Mr. Chairman. We do not repeal the long-term 
care portion, just the acute-care portion. 

Mr. Cooper. The chairman is well aware of the problems of the 
current Federal-State matching system of Medicaid. The chairman 
is also aware that there may be a new and better way to divide 



59 

that responsibility because we are tired of unfunded Federal man- 
dates, and we are tired of State gamesmanship. 

We want the Feds to pick up 100 percent of acute Medicaid costs. 
We want the States to begin acquiring responsibility for long-term 
care for the Medicaid population. We think that is a fair way to di- 
vide the pie, because there would be accountability. 

Mr. Waxman. You are offering an idea for us to consider. Your 
bill repeals title XIX. Title XIX is all on Medicaid. In repealing all 
of XIX, you repeal the program that pays for long-term care. Mr. 
Grandy said you didn't. 

You said you would like to have something to give the States 
more responsibility, but you don't do it in your bill. That is at least 
my reading of it. I suppose we can make the bill say what you want 
it to say later, but it doesn't say that now. 

Mr. Cooper. The chairman knows that for several years we have 
stated our intention to divide the pie as I just discussed with the 
chairman. The Chairman is the world's leading expert on today's 
Medicare programs 

Mr. Waxman. The chairman reads the bill and the bill says title 
XIX of the Social Security Act is repealed. That is page 2.2, line 
16. I only know what I read. I know I should know more, but that 
is all I know. 

Mr. Cooper. States would acquire responsibility for funding the 
long-term care portion for Medicaid. I would be happy to work with 
you and Legislative Counsel Ed Grossman, who helped us with the 
drafting of our bill. 

Mr. Grandy. One point on the long-term care. I can't let it stand 
that we want to repeal long-term care; we do not want to repeal 
long-term care. Not only do we give States control over long-term 
dollars, we have more long-term care dollars flowing in than acute 
dollars. 

We have a transitional benefit that flows in over 4 years to help 
States manage the costs, but we give them more control to create 
community-based care systems which many States 

Mr. Waxman. Do you give them dollars or do you just give them 
the responsibility? 

Mr. Grandy. Dollars to go with it. It is an authorized amount; 
is it not? It is a transition program Mr. Chairman. 

Mr. DiNGELL. Mr. Chairman. 

Mr. Waxman. Mr. Dingell. 

Mr. Dingell. I am comforted to hear the intention, but I am just 
curious, where would you replace the language which relates to 
long-term care in title XIX of the Social Security Act? How would 
that program and how would those moneys and what authorities 
would you have to replace those, the loss of the authorities and the 
requirements of title XIX? 

Mr. Cooper. If I may answer the chairman's prior question, on 
the bottom of page 107 and the top of page 108 is the answer to 
your question about what would happen if the Congress dis- 
approved the health standards committee recommendation. They 
would have a period of about 15 days to respond. That was just in 
answer to your prior question. 

Mr. Dingell. I am delighted about that. 

Could I have an answer to this question? 



60 

Mr. Cooper. If the chairman would give me a minute to try to 
find the answer to your second question. 

Mr. DiNGELL. Is the question important? 

Mr. Cooper. It is extremely important, and I look forward to 
questioning the chairman on his bills in the future. 

Mr. Waxman. Let's move on. Let me advise you that this bill cer- 
tainly is not law yet, so we can make changes in it. You do repeal 
title XIX. As I read it, that repeals the grant of Federal dollars 
under Medicaid for nursing home care and also repeals all the 
nursing home standards that we enacted to try to make sure those 
nursing homes live up to those standards. 

I gather you have not quite the intent to do that, and that is my 
point. 

Mr. Greenwood. 

Mr. Greenwood. Thank you, Mr. Chairman. I would point out 
that if the gentlemen, Mr. Cooper and Mr. Grandy, don't have all 
the answers at their fingertips to every question, they should not 
feel bad. After 20 hearings with administration officials, it is clear 
that the administration also lacks answers by a wide margin. 

I would like to talk to you about the health insurance purchasing 
cooperatives (HIPC's). One of the concerns raised about your pro- 
posal is how the premiums paid by particularly small businesses 
will compare to the premiums that they are pajdng now. 

As I understand the HIPC proposal in your bill, we would bring 
the Medicaid population into the HIPC and we also would mandate 
that employers with fewer than 100 employees be a member. They 
would not necessarily have to pay for the health benefits, but if 
they do provide them, they have to obtain them through the HIPC. 

Explain to me how confident you feel that those risk pools would 
be large enough particularly given the higher-than-average risks in 
the Medicaid population, so as not to cause employers to find high- 
er rates there. If, in fact, employers with fewer than a hundred em- 
ployees find that they can acquire health care elsewhere at a lower 
premium elsewhere, would your bill permit them to do that? 

Mr. Cooper. There is a trade-off. You do not want an unbalanced 
risk pool at all, at whatever level. There are trade-offs. You don't 
want giant health purchasing alliances either, so you have to pick 
a number and there are no magic numbers. It depends on solid ac- 
tuarial data in each region of the country, and it will vary some- 
what. 

So we are anxious to work with committee staff, with 0MB and 
CBO and other experts, to help us find the right balance, because 
without balanced risk pools, you will not have a system that func- 
tions effectively. You will not have the right community rating. 

Our purpose is in no way to penalize providers who see the poor 
or uninsured. Those folks should be rewarded, because we do not 
want any health plan to see the young and wealthy exclusively. 
Any health plan should be seeking out a fair share of the Nation's 
population. That is the best way to spread risks in society and to 
make sure that doctors and hospitals are really treating the popu- 
lation, not just the privileged among us. 

Mr. Grandy. To kind of put the Cooper-Gran dy bill in the great- 
er managed competition cluster, which probably includes the Clin- 
ton bill on the left and the Chafee bill on the right, the reason we 



61 

mandate cooperatives for employers with a hundred or less is two- 
fold. One, we thought 5,000 was too great a number; and two, we 
did want to address the concern of these high risk, usually Medic- 
aid or within-200-percent-of-the-poverty-line individuals who could 
conceivably drive up the cost of the pool. 

Under a cooperative model, there is no protection for these indi- 
viduals. They can buy in but they don't necessarily have the pur- 
chasing power that they would in a mandatory cooperative; or if 
you do get the ability to deliver health care services in that area 
competitively, you must take these people. Will they drive up the 
cost to everybody else? We don't know that yet because we have not 
specified exactly how big these pools are going to be, and we don't 
think v/e should. That is an attempt to let the marketplace work 
itself. 

The one place where there has been some experimentation with 
this, that we have seen prices go down to small businesses and to 
Medicaid populations, is the bill that California enacted last year, 
which is a voluntary purchasing cooperative. It is probably more 
successful in California because California has a longer and more 
successful record of managed care models. 

We believe that with competition for these regions by competing 
health purchasing cooperatives and with the knowledge that you 
must cover everybody in that service territory, price will go down 
and people who up to this point have not been served will find 
themselves in a price they can afford. Don't forget that these folks, 
even if their employer is picking up not one penny of the premium, 
can deduct 100 percent of that premium whether they are self-em- 
ployed or working for somebody else, and that would be in addition 
to a subsidy for a low-income individual. 

Mr. Waxman. Mr. Dingell. 

Mr. Dingell. I want to pursue further the way the benefits 
would work and how the taxes would come into play. I believe we 
have come to an understanding that the commission would rec- 
ommend a level of benefits in a plan; is that right? 

Mr. Cooper. The national standards setting commission would 
come up with a federally defined basic benefits package below 
which you could not go. 

Mr. Dingell. And any plan which afforded a higher level of ben- 
efits would then be subject to tax? 

Mr. Cooper. I think the chairman is using the work "tax" in an 
overly broad sense. We do not touch the exclusion. We would limit 
the corporate ability to deduct so-called "Cadillac plans." 

Mr. Dingell. So you tax the corporation that offered any bene- 
fits that were higher than that; is that right? 

Mr. Cooper. We would trim a currently available tax deduction. 

Mr. Dingell. But anything which an employer provided that was 
above that would be taxed? 

Mr. Cooper. It would no longer be fully deductible. 

Mr. Dingell. What would that be? 

Let's figure that they would fix that level of benefits. What I am 
trying to understand is, would that level of benefits be for a HMO 
or for a PPO or for a freedom-of-choice plan? If the lowest cost — 
because the language says the "lowest cost" or the "lowest pre- 
mium"; that is precise language — if anybody paid more than the 



62 

lowest premium for that, that then would be subject to tax; is that 
right? 

Mr. Cooper. The chairman knows the Detroit area has one of 
the highest health care costs of any region in the country and it 
is hard for me to predict with accuracy which plan what would 
make the best and lowest bid. It may be an HMO; it may be fee- 
for-service. You have a lot of flexibility in your area, as I under- 
stand it, since the margins are so wide. 

Mr. DiNGELL. So anybody that paid more than the lowest pre- 
mium would find that the plan would be subject to the loss of a 
tax exclusion; is that right? 

Mr. Cooper. Only a corporate tax change. The individual tax 
change is a new tax benefit that they have previously never en- 
joyed. It is good news for the average citizen. 

Mr. DiNGELL. I am tr3ring to understand, when the corporation 
lost its tax exclusion, it would lose it on everything over the lowest 
premium; is that right? 

Mr. Cooper. It is a tax deduction, sir, not an exclusion. 

Mr. DiNGELL. But the answer to that question, then, would be 
yes? 

Mr. Cooper. Under our proposal. There are ways to modify our 
proposal if you are interested in less cost-containment. But, yes, 
under our proposal. 

Mr. DiNGELL. So anybody who was a beneficiary of a plan which 
paid more than the lowest premium which was defined by the com- 
mission would then find their employer would pay a tax on that? 

Mr. Cooper. Their tax deduction would be trimmed. 

Mr. DiNGELL. So wouldn't this have the practical effect, then, of 
driving everything towards that lowest — as you use the words in 
the bill, the "lowest premium," because the employer will be then 
under pressure to go down to avoid that tax; is he not? 

Mr. Cooper. I had extensive discussions with the AFL-CIO on 
this issue. This is a friendly change to bring more equity and fair- 
ness to one of the government's most wasteful and ignored pro- 
grams. 

Today, some corporations can fully deduct benefits that are not 
really worth it. 

Mr. DiNGELL. I sense where you are going, because Mr. Grandy 
commented that too many have too much benefits, and I sense that 
this is an attempt by him and you to reduce those benefits. 

I am quoting Mr. Grandy. These are not my words. 

Mr. Grandy. That is a quote that Everett Koop made. 

Mr. DiNGELL. I was so impressed that I wrote them down. You 
feel, I gather, that too many are getting too much benefits, so you 
are going to make some of those benefits subject to tax by their em- 
ployer so as to reduce the level of benefits to those who are deriv- 
ing the best benefits. 

Mr. Cooper. Perhaps the chairman was absent during the first 
part of the hearing in which I stated clearly that we are adding a 
new $54 billion program of tax subsidies for average Americans, so 
they can better afford benefits. 



63 

Mr. DiNGELL. Where is that coming from? The money is coming 
out of the pockets of those who are getting a better level of bene- 
fits, that — as you would describe in your bill, the lowest premium. 

Mr. Cooper. As I stated in my testimony, the money comes from 
trimming the corporate tax break. 

Mr. DiNGELL. Well, thank you very much for that. I want to try 
and understand, does this bill give universal coverage or does it 
not? 

Mr. Cooper. Our bill can achieve universal coverage by the 
President's timetable of 1998, and it is our intention to achieve uni- 
versal coverage by the President's timetable. 

Mr. DiNGELL. You say it can. Can you make the bald statement 
that it will? 

Mr. Cooper. No one has a crystal ball, but I believe our bill has 
a better chance than any other bill in Congress. 

Mr. DiNGELL. If I said it would not, would you deny that? 

Mr. Cooper. No one has a crystal ball. 

Mr. DiNGELL. So you don't know whether it will achieve univer- 
sal coverage or not? 

Mr. Grandy. Mr. Chairman, the President doesn't know that 
about his own bill. 

Mr. DiNGELL. I am not talking about the President's, though. I 
am talking about your bill. 

Mr. Cooper. Can the chairman show me a bill that comes closer 
to achieving universal coverage, other than the single-payer bill? 

Mr. DiNGELL. Let's talk about some other things. 

Mr. Waxman. Mr. Dingell, your time has expired. If you want a 
third round 

Mr. DiNGELL. I have enjoyed the first two greatly. Thank you, 
Mr. Chairman. 

Mr. Waxman. Mr. Klug. 

Mr. Klug. Thank you, Mr. Chairman. We have talked about two 
of the three major disagreements between your piece of legislation 
and the President's plan. Mr. Hall pointed out the great concern we 
have about costs and the level of commitment to the Federal Gov- 
ernment and the fact that we have done a very poor job of estimat- 
ing. And to the degree that the President's plan is more ambitious 
and yours, more directly imbued with a sense of common sense, I 
think it is much more moderate and much more likely what we are 
able to achieve financially. 

We have talked about some of the shortcomings in employer 
mandates and the fact that the President's plan in some wa.ys, re- 
flecting the same problems of Hawaii, cannot guarantee universal 
coverage because based on what the Census Bureau has taught us, 
a third of the folks that don't have insurance aren't connected to 
the work force on a regular basis, so you are not necessarily ever 
going to reach them with an employer mandate. 

Let me talk about the last point of disagreement with the Presi- 
dent's plan, and that is the role for the National Health Board, 
greatly expanded from the original Jackson Hole Model. The Na- 
tional Health Board under the Jackson Hole Model was essentially 
set up to help guarantee that Americans trying to make a much 
more intelligent decision for health insurance purchasing in the fu- 
ture would have a place to look at outcome statistics and quality. 



64 

Now we find, under the President's plan, a National Health 
Board which essentially has the ability to come in and nationalize 
a State plan if a local health plan — if a State has not met the 
guidelines from Washington. 

Would you comment on some of the expanded powers for the Na- 
tional Health Board under the President's plan and why the Jack- 
son Hole Coalition thinks those are too far reaching? 

Mr. Grandy. I would be pleased to comment on that. 

That is a significant difference between the President's bill and 
our bill. The National Health Board is essentially an unaccountable 
group of health czars. At least, as I read the President's bill, the 
only criteria for being on the board is to have no background in 
health care. They would basically be presiding over a series of 
State-run monopolies that would basically be having up or down 
votes on what the level of premiums would be, whether or not a 
plan would be approved or disapproved. 

The Health Care Standards Board that is envisioned in the Coo- 
per-Grandy bill is to a large degree an advisory commission that 
recommends conditions for benefits. I want to stress this, because 
very often you will hear from various kinds of providers, are we in- 
cluded in your bill; and we don't specify exactly what providers 
should deliver the service. 

For example, if you have lower back pain, you might want a or- 
thopedic surgeon or you might want a chiropractor. We don't nec- 
essarily try to pick winners and losers. The Health Care Standards 
Board recommends the condition and then Congress votes on 
whether it should be in the package. 

The health purchasing cooperative which is the regional delivery 
mechanism is closer to a rural electric cooperative or a farmers 
market than a large kind of State-run entity that would be doling 
out health care policies and setting premiums. 

So the point here is that we believe that health care should be 
community delivered and locally accountable. That is why we try 
and build the system from the ground up, as opposed to from the 
top down. 

I am sure we are all familiar with Senator Dole's and Senator 
Specter's interpretation of what the real devils in the details are 
between the top of the bureaucracy and the consumer in the Clin- 
ton health care plan. I haven't looked at it that closely, but the rea- 
son that we tried to make our Health Care Standards Board as 
small as possible is because we did not necessarily want to pro- 
liferate a system of bureaucracies that would begin to usurp local 
control. That is why our purchasing cooperatives are smaller and 
locally run and elected, and that is why our Health Care Standards 
Board is made up of health care policy experts that advise and are 
advised by subordinate councils on what to deliver, and at that 
point they get out of the way. 

Mr. Cooper. Mr. Grandy said it very well. We do not want a big- 
government solution to these problems. We try to keep government 
involvement to the minimum. 

Government is not the enemy. Government can do some things 
very effectively, but then government needs to get out of the way. 

We think by establishing a level playing field and by not having 
an overly intrusive bureaucratic control mechanism, we will deliver 



65 

much higher quality and much more affordable care to the people. 
It is important to get the National Health Board right and not let 
it be a stepping stone like the Canadian system. 

Mr. Klug. Do I understand the President's plan correctly in that 
under the President's plan, Washington can say, Tennessee, we 
don't like the way you are doing business; we are going to run it? 

Mr. Cooper. There are very sweeping powers granted to national 
authorities, including in a lot of seemingly technical areas. People 
are just beginning to understand the President's bill. It is quite a 
job since it is 1,364 pages long. Ours is only 292 pages, but that 
is still a giant bill by congressional standards. So we have a big 
job before us, especially given the timetable. 

Mr. Waxman. Mr. Synar. 

Mr. Synar. Jim, in an attempt to abate the schizophrenic treat- 
ment that you get around here from stick to carrot, let me try the 
carrot. 

Thanks for cosponsoring the letter to Mr. Waxman and Mr. Din- 
gell, advocating universal coverage. I think that is a very important 
statement on your behalf and those who support your position. 

First of all, as has been outlined before, you do not define a spe- 
cific benefit package, which very much troubles me, and I think as 
a fellow legislator, one whose admiration for you is second to none, 
we are really asking, without a defined benefit package, the Amer- 
ican public to advise their Members of Congress on an issue with- 
out knowing really what they are getting. 

Don't you have some kind of an obligation to at least outline 
what you think is within the parameters of a benefit package, not 
necessarily to score it, but to see how far you are willing to go on 
that? 

Mr. Cooper. That is an excellent point. We are not averse to an 
interim benefits package, because people are entitled to know what 
they are getting. We want this package to be an excellent package. 
Our only concern has been whether politicians know anything 
about drawing up such a package. 

Senator Lieberman used to be in the Connecticut legislature, and 
he tells the story of having podiatrists in Connecticut wanting ju- 
risdiction of the knee, so the Connecticut legislature just gave them 
the ankle. That is the way politicians decide things. 

There are very few members of this body — perhaps Dr. Rowland 
and Dr. McDermott and Dr. Kreidler are the exceptions — who can 
even look read one clinical study, much less go through the thou- 
sands that are required to understand what a first-rate benefits 
package is. 

I am afraid that if we do the job, we will politicize it and we will 
respond to every lobby and special interest group in America, and 
it won't be a basic package. 

Mr. Synar. How am I supposed to sell any package to the public 
unless I tell them what they are getting? 

Mr. Cooper. Let's work together on an interim package, but let's 
also have a date to get politicians' noses out of it. 

Mr. Synar. Are you prepared to at least outline an interim pack- 
age, so we can know what you are suggesting? 

Mr. Cooper. Yes. 

Mr. Synar. Second, would that include reproductive rights? 



66 

Mr. Cooper. The Congress has voted on that issue more times 
than I can count. I think we will have to make that a separate 
issue and let our colleagues vote on it. 

Mr. Synar. If I look at the two bills, the President's and yours, 
the real difference is the issue of mandates. 

Let me ask you this. Is there common ground that we can move 
towards each other on this issue? Are there things that can bring 
us together over this issue, so that we could marry up what I think 
are really two excellent ideas? 

Mr. Cooper. I have been searching for common ground on this 
issue for almost 3 years now. I hope that we don't make the Presi- 
dent's job harder than it is already, because in his State of the 
Union speech he never mentioned mandates. He could have, he did 
not. 

The phrase he used was, hear me clearly; if you do not guarantee 
every American private health insurance that can never be taken 
away; then he went on to say, he would veto the bill. 

He said, hear me clearly. We need to listen. The only veto threat 
in that statement was toward the single-payer bill, which happens 
to be the preferred approach over time of many of the members of 
this subcommittee. But many of us don't listen; so we are trying 
to find a way so the word "guarantee" can really mean what the 
President intends. 

I don't think he meant a giveaway program. I don't think he 
meant a free lunch. I don't think he meant coercion. He could have 
used the word "mandate," but he did not. 

Mr. Synar. Is there any bridge that can be built where there is 
mutual cooperation by business and individual employees on any 
kind of schedule that you would consider? 

Mr. Cooper. I am happy to entertain any idea. So far, I haven't 
been persuaded that an employer mandate makes sense. I am still 
interested in looking at employer or individual mandates, but we 
think no mandate is a correct approach, realizing that the Presi- 
dent is not for universal coverage immediately. The President is for 
it in 1998. 

Mr. Synar. So are we talking about the difference being in the 
schedule of the approach of application, or are we talking about the 
principle? 

Mr. Cooper. The key thing is to make sure we have quality, af- 
fordable health care all over America without destroying jobs. That 
is the bottom line. 

Mr. Waxman. Mr. Hastert. 

Mr. Hastert. Thank you, Mr. Chairman. There are some things 
I think we need to talk about where there is some commonality 
across the board. 

I would like to go through — ^first of all, there are no employee 
mandates and there is a commonality with a lot of other plans; is 
that correct? 

Mr. Cooper. No plan but the President's has the employer man- 
date in it that I am aware of. 

Mr. Grandy. The mandate to pay, though. Every bill has either 
a mandate to provide or an individual mandate to consume. 

Mr. Hastert. Your plan doesn't have any global budgets, right? 

Mr. Cooper. No. 



67 

Mr. Hastert. There is a always threat that health care is going 
to be rationed when you have global budgets, so you get around 
that. 

Do you have price controls? 

Mr. Grandy. The price control is the tax cap, Mr. Hastert. It is 
a price control that limits deductibility. We have had significant 
discussion about that. But the point is it is a micro-price control, 
as opposed to a macro-price control, and it is not something that 
would be legislated or rescinded or modified by Congress. 

Mr. Hastert. Beyond that, they have a choice to do that; is that 
right? 

Mr. Grandy. That is correct. 

Mr. Hastert. When we talk about a benefits package, we have 
been working on legislation in this area. We talked about actuarial 
equivalent, having a separate board to do that; because actually 
some health care provisions that have to be on Indian reservations 
in New Mexico and maybe in cow towns in Oklahoma and maybe 
in Connecticut are very different, the needs are different. That is 
why there probably ought to be some type of a national equiva- 
lency, but an actuarial equivalent or somebody else making that 
decision, not politicians that want to put everything in, or every- 
body; is that correct? 

Mr. Cooper. We try to build flexibility into our system not only 
by having health professionals draw up the package but also by 
having them specify conditions that should be treatable in a basic 
benefits package rather than prescribing treatments, because some 
people are going to prefer different treatments than others. 

Mr. Hastert. Is the choice theirs? 

Mr. Cooper. Yes. 

Mr. Hastert. How about preexisting conditions? You say that no 
insurance company can really underwrite to prevent people from 
having preexisting conditions 

Mr. Cooper. That is true. 

Mr. Hastert. So that takes care of the continuity of coverage. 
Somebody can move from job A to job B and still have a choice of 
insurance or be guaranteed of insurance when they get there. 

Mr. Grandy. In that sense, it is health care that is always there. 

Mr. Hastert. There is commonality between the plans? 

Mr. Grandy. That is true. A standard benefit would basically be 
waiting for anybody who moved in or out of the workplace. 

Mr. Hastert. And other plans have that also; is that right? 

Mr. Grandy. That is true. I think that is one area that most 
plans agree on. 

Mr, Hastert. And there is no job-lock where you do these types 
of things? 

Mr. Grandy. No. You can be unemployed under this bill and get 
pretty much the same benefits. 

Mr. Hastert. Your plans and other plans that you have worked 
on, Mr. Grandy, there is almost a quasi-community rating; is that 
correct? 

Mr. Grandy. I would call it modified community rating under 
our bill. We do have provisions for age and geography. 



68 

I would also state, clearly you don't want a community rating 
that is so rigid you conspire against preventive health behavior. 
That is something that we want to empower in the bill, not impede. 

Mr. Hastert. In your plan that has commonality with other 
plans, there is guaranteed renewability also? 

Mr. Grandy. Absolutely. 

Mr. Hastert. How about real tort reform? Do you really get into 
making sure that medical malpractice doesn't drive health care 
costs by overutilization of a lot of different issues and there is a 
way that people can get relief? 

Mr. Grandy. Let me take a stab at this. I think I am the only 
nonlawyer on the panel here, but as you know, when we wrote H.R. 
3080, we spent a lot of time going through antitrust and mal- 
practice and tort reform and added some very tough provisions, not 
just on malpractice but also product liability. Many of those provi- 
sions went from the GOP bill into the Cooper-Grandy Coalition bill, 
and I think it is safe to say that of all the bills that have been 
scored and produced and are now before the Congress, this is one 
of the toughest, if not the toughest, malpractice component in any 
of the legislation. 

Some colleagues that were on the Coalition had to swallow hard 
to agree to some of the limitations on damages and recovery caps 
that we have in the bill. 

Mr. Hastert. Administrative reform using vouchers to buy poor 
people into plans, expansion of community health care centers and 
rural health care centers 

Mr. Grandy. All in the bill and all lifted from the GOP bill, and 
it comes from the Rural Health Care Coalition which both Mr. Coo- 
per and myself and Mr. Stenholm were significant cosponsors or 
members of. 

Mr. Hastert. Thank you, Mr. Chairman. 

Mr. Waxman. Mr. Grandy and Mr. Cooper, you have been here 
for a long time, and I appreciate the fact you have been willing to 
come here and answer the questions of the subcommittee. The fact 
it has taken so long to get through all the questions shows a sin- 
cere desire by members of the subcommittee to understand fully 
your proposal. 

I want to express my sincere desire to work with you. You have 
taken on a task of trying to figure out some ideas that I think are 
worth a lot of careful examination, and we need to work together 
to produce legislation, because I think the American people want 
us to think through all these issues and try to work out ways to 
bridge differences on them. 

I thank you very much for being here. 

We have panels to follow both for and against this proposal. Be- 
cause of some of the panelists' schedules, we will continue on, but 
I am going to call a brief recess of 10 minutes for obvious reasons, 
and then we can get on to the other panels. 

[Brief recess.] 

Mr. Waxman. We are going to continue on with this hearing. Our 
next panel includes a number of witnesses testifying in support of 
H.R. 3222, Sara J. Singer, a Special Assistant to Allen Enthoven, 
professors in the Graduate School of Business at Stanford Univer- 
sity, on whose behalf she is testifjdng today. Donna Miller is the 



69 

Chief Executive Officer of the Memphis Business Group on Health. 
Anthony J. Cebrun is President and Chief Executive Officer of Ten- 
nessee Managed Care Network, or TennCare, in Nashville. Bruce 
Atwater is Chairman of the Board and Chief Executive Officer of 
General Mills, Inc., in Minneapolis. Mary Jane England is Presi- 
dent of the Washington Business Group on Health. 

I want to welcome you all to our hearing today. I want you to 
know that your prepared statements, without objection, will be in 
the record in full. And what we would like to ask you to do is to 
limit the presentation to 5 minutes. We are not as nice to other 
witnesses as we are to Members of Congress so we are going to 
have to keep very strict time. 

Mr. Atwater, I know you are very pressed on your schedule, so 
I want you to go first. I hope you will be able to stay for the ques- 
tions. If you can't, we will certainly understand. 

STATEMENTS OF BRUCE ATWATER, CHAmMAN, GENERAL 
MILLS, INC.; SARA SINGER, GRADUATE SCHOOL OF BUSI- 
NESS, STANFORD UNIVERSITY; DONNA MILLER, CHIEF EX- 
ECUTIVE OFFICER, MEMPHIS BUSINESS GROUP ON HEALTH; 
ANTHONY J. CEBRUN, PRESIDENT, TENNESSEE MANAGED 
CARE NETWORK; AND MARY JANE ENGLAND, PRESIDENT, 
WASHINGTON BUSINESS GROUP ON HEALTH 

Mr. Atwater. Thank you very much, Mr. Chairman. I appreciate 
the opportunity to go first. I also appreciate the opportunity to tes- 
tify. What I am going to do is cover three subjects. The first is Gen- 
eral Mills' successful experience using market forces and incentives 
to control health care costs. 

Second, I want to cover the fundamental principles of health care 
reform that are derived from our experience. Ajid third, I would 
like to comment on our strong support for the Cooper-Grandy bill 
as the starting point for health care reform. This bill relies on the 
same market supports and incentives that have proved so success- 
ful in our own experience. 

General Mills has 126,000 employees and is one of the 25 largest 
firms in the United States in terms of employees. Our employment 
is growing sharply. We added 19,000 new jobs in the past year 
alone, and more than 60,000 jobs since 1988. The businesses that 
we compete in are intensely competitive. 

We have a very strong financial incentive to control all costs, in- 
cluding health care costs. We provide our employees with high 
quality, cost-efficient health care plans. In fact, our plans are an 
important motivator as to why some people join the company. We 
have had remarkable success in controlling health care costs. 

Health care costs at General Mills are currently less than 5 per- 
cent of our payroll; 4.9 is the actual number. And our per capita 
health expense grew only 1.6 percent from 1991 to 1992, and is ac- 
tually down from 1992 to 1993. The question is, obviously, how 
have we been able to get this kind of excellent cost containment. 

We have used managed-care networks with a strong set of em- 
ployee incentives for wellness and preventive care. In Minnesota in 
1992, we helped found perhaps the most well-developed model of 
managed competition currently in the country. This plan costs 17 
percent less than the HMO plan it replaced just 2 years ago. 



70 

In Florida, a similar alliance we helped establish has led to an 
actual reduction in the cost of health care for the entire Orlando 
area in each of the last 2 years. We have also given our individual 
employees incentives to control their own health care plan ex- 
penses. The amount of money that our employees contribute for 
their medical coverage is based on their fitness and lifestyle, as 
well as their actual utilization of our plans. 

These employee incentives are big and they can reduce the cost 
of their contributions by more than 50 percent. This is a real factor 
in cost control, and is something that we would lose if employers 
and individuals were taken out of this business. Our hands-on ex- 
perience in health care in Minnesota and Florida has led us to 
have strong opinions about what actually works and what doesn't. 

We agree with President Clinton that all Americans should be 
able to get affordable high quality health care that can never be 
taken away. We agree that no one should be denied coverage be- 
cause of a preexisting condition. No one should lose coverage be- 
cause he or she becomes sick, changes jobs, gets divorced or what- 
ever. 

We also agree that persons with low and moderate incomes 
should receive Grovemment assistance so they will not be denied 
coverage. All of the wrenching examples of personal hardship that 
the President cited in his State of the Union address can and 
should be taken care of by insurance market reforms. However, we 
also believe very strongly that competition and incentives, as we 
have shown in our own experience, deliver the highest quality 
health care at the lowest possible prices. 

Individual and corporate incentives work. Regulation and bu- 
reaucratic mechanisms cannot provide an efficient health care sys- 
tem. A mandated approach that sets health care costs at a flat per- 
centage of payroll destroys all incentives for both corporations and 
individuals to reduce health care costs. These mandates are the 
major problem with the Clinton administration's plan. The payroll 
tax is a tax on jobs. It would create a huge politically determined 
entitlement program on a scale never before attempted, financed 
principally by employer contributions. 

Fixing an employer's maximum health care cost exposure at 7.9 
percent effectively rewards those companies that have been the 
least efficient providers of health care while removing any em- 
ployer incentive to manage costs below this level. Employer con- 
tributions at 7.9 percent will not generate sufficient income to 
cover premium costs. GrOvemment subsidies must fill this gap, but 
the gap is destined to grow rapidly because premium caps are tied 
to slower growing wages while premiums are tied to faster growing 
health care costs. 

The result will be either an increase in the percentage of payroll 
limits on employer-mandated spending, or price controls or ration- 
ing or both. In Germany 

Mr. Waxman. Mr. Atwater, the rest of that statement is going to 
be in the record in full. But in order to be fair to all the witnesses, 
if you want to make a concluding sentence, but we are going to 
have to move on. 



71 

Mr. Atwater. I guess our concluding sentence is that we feel 
this should be a bipartisan approach, as was said earlier, and as 
such, we support the Cooper-Grandy bill. 

[The prepared statement of Mr. Atwater follows:] 



72 

TESTIMONY OF BRUCE ATWATER 
CHAIRMAN AND CEO OF GENERAL MILLS, INC. 

I. INTRODUCTION 

I appreciate the opportunity to testify today. My testimony will cover 
three subjects. The first is General Mills* successful experience using 
market forces and incentives to control health care costs. Second, I 
will cover the fundamental principles of health care reform derived 
from our experience. Third, I'll comment on our strong support for 
the Cooper-Grandy bill as the starting point for health care reform. 
This bill relies on the same market forces and incentives that have 
proved so successful in our own experience. 

n. GENERAL MILLS* EXPERIENCE 

With more than 126,000 employees. General Mills is one of the 25 
largest employers in the United States. Unlike many major U.S. 
corporations, employment at General Mills is growing sharply. We 
added 19,000 new jobs in the past year alone and more than 60,000 
new jobs since 1988. 

Approximately two-thirds of our sales are in the consumer foods 
business, while the remaining one-third is in the sit-down restaurant 
business. Thus, we are both a major manufacturer and a significant 
participant in the rapidly growing service economy. 

The businesses that General Mills competes in are intensely 
competitive and we have a very strong fmancial incentive to control all 
costs including health care costs. 

We provide our employees with high-quality, cost-efficient health care 
plans. In some of our businesses our health care plans are an 
important motivator to join the company. 

As a result of innovative health benefit design and aggressive cost 
management, health care costs at General Mills are currently 5.6% of 
payroll in our consumer foods business and 4.3% of payroll in our 
restaurant business. Our per capita health expense grew only 1.6% 
from 1991 to 1992 and actually fell from 1992 to 1993. 

The strategies we have employed to contain our health care costs 
emphasize use of managed care networks, with a strong emphasis on 
wellness and preventive care. 



73 



In Minnesota, where our consumer foods operations are 
headquartered, we helped found the Business Health Care Action 
Group in 1992, which is perhaps the most-developed model of 
managed competition currently operating in the nation. Internal 
calculations show that the plan offered by our group, with 
comprehensive benefits, streamlined administration and a strong 
emphasis on quality, with practice parameters developed by the Mayo 
Clinic, actually costs 17 percent less than the HMO plan it replaced 
just two years ago. 

In Florida, where our restaurant business is headquartered, we helped 
establish the Employers Purchasing Alliance. This Alliance has led to 
an actual reduction in the cost of health care for the entire Orlando 
area in each of the last two years. 

General Mills employees also have incentives to control their own 
health plan expenses. The amount of money employees contribute for 
their medical coverage is based on their fitness and lifestyle, as well as 
their actual year-to-year utilization of the medical programs. Those 
who strive for wellness and a more healthy lifestyle or are not heavy 
users of our plans can reduce the cost of their contribution to health 
care premiums by more than 50%. 

ni. PRINCIPLES OF HEALTH CARE REFORM 

Our "hands-on" health care reform experience in Minnesota and 
Florida has led us to have strong opinions about what actually works 
and what won't. These experience-based principles of health care 
reform are outlined below. 

A. Universal Access 

We agree with President Clinton that all Americans should be 
able to get affordable high-quality health care that can never be 
taken away. 

We agree that no one should be denied coverage because of a 
pre-existing condition. No one should lose coverage because he 
or she becomes sick, changes jobs or gets divorced. 

We agree that persons with low and moderate incomes should 
receive government assistance so that they will not be denied 
coverage because they can't afford it. 



74 



All the wrenching examples of personal hardship that the 
President cited in his State of the Union address can and should 
be taken care of by relatively simple insurance market reforms. 

B. Payroll Tax Mandates Destroy Incentives 

We believe very strongly that competition and incentives will 
deliver the highest quality health care at the lowest possible price 
and that regulation and bureaucratic mechanisms cannot provide 
an efficient health care system. 

A mandated approach that sets health care costs at a flat 
percentage of payroll eliminates all incentives for corporations 
and individuals to reduce health care costs. These mandates are 
the major problem with the Administration's plan. 

The payroll tax is a tax on jobs. As proposed by the 
Administration, it would create a huge, politically-determined 
entitlement program on a scale never before attempted, which is 
financed principally by employer contributions. It constitutes a 
massive blank check issued by business to underwrite whatever 
the political system wants to grant its constituents in the way of 
health care benefits. 

Second, as a political and economic matter, employer mandated 
financing cannot be passed without providing substantial 
subsidies for some employers. Under the Clinton plan, these take 
the form of "caps" on an employer's health care expense — as 
little as 3.5% of payroll for small employers up to 7.9% of 
payroll for large employers. 

Employer contributions at those percentages will not generate 
sufficient income to cover premium costs. Government subsidies 
must fill the gap. But this gap is destined to grow rapidly 
because the premium cap is tied to wages while actual premiums 
are tied to health care costs and wages can be expected to inflate 
at a far lower rate than health care costs. The result will be either 
an increase in the percentage of payroll limits on employer- 
mandated spending or dangerously-tight price controls on health 
care premiums and providers, which could result in shortages, 
delays, elimination of procedures and overall deterioration of 
quality. 



75 



Fixing health care costs as a certain percentage of payroll for all 
employers would change the relative cost structures of every 
employer in the country. It would also create winners and losers 
within and among industries. 

Large manufacturers, companies with aging workforces, 
companies offering excessively generous benefit plans ~ would 
reap huge windfalls as the government assumes significant 
portions of their health care liabilities. 

Many manufacturers, with older, higher-skilled employees, pay 
15% or more of payroll for health care benefits today. Under the 
Administration plan, that employer would see its costs reduced 
and capped at 7.9% of payroll annually. Who would pay the 
difference between the ciurent cost and the new maximxmi 
payroll percentage? Other companies who have done a good job 
of health care cost containment and taxpayers. 

Entire industries would lose. They include almost every low- 
wage sector of the economy, like child care providers and semi- 
skilled laborers. The entire service sector, the only part of the 
economy still reliably creating new jobs, could stall. 

Industries in which low-wage, seasonal, or part-time jobs are 
common ~ agriculture, forestry, fisheries, foodservice, 
hospitality, construction, retail trade, business and personal 
services, have higher-than-average numbers of uninsured workers 
— would be hit hard. 

Make no mistake, mandated employer financing will cost jobs. 
Many of these will be lower-paying service sector jobs with 
limited skills held by people who have poor prospects for 
employment in other sectors. These jobs represent their 
opportunity to climb the economic ladder. Employers who can 
will undoubtedly try to offset increased health care costs by 
cutting wages. But employers whose workers already have low 
wages do not have that flexibility. Their only recourse is to cut 
jobs. 

It is ironic that many of those who should benefit most fi"om 
health care reform will pay the ultimate price for universal 
coverage ~ they will lose their jobs — while those who should 



76 



benefit least ~ large manufacturers and employees with bloated 
benefit plans ~ will receive sizable, guaranteed, government 
hand-outs. 

Finally, taxing employers and then subsidizing them to provide 
coverage for their employees is inefficient. It makes much more 
sense to target subsidies to individuals based on their income. 

C. Multiple Health Alliances Vital for Competition 

Despite the fact that we qualify to run a corporate alliance and 
our health care costs are only 5.6% of payroll, we have 
concluded that the cumulative effect of the various provisions in 
the Administration's bill give us no alternative but to join a 
regional alliance and get out of the health care business. We 
have begun to inform our employees and their reaction has been 
uniform. They are appalled. The last thing they want is to get 
health care fi'om a goverrmientally nm bureaucracy. They will 
not look kindly on any plan that forces this result. 

The reasons for our conclusion are varied, but I can assure you 
that many large companies, service and industrial, are reaching 
similar conclusions as they absorb the full implications of the 
Administration's plan. Let me explain why. 

First, the Administration would impose a new tax, at least 1% of 
payroll, on any corporate alliance. This tax would consume 
much of the "savings" a corporate alliance might generate. And, 
because the revenue is being counted on to fund the remaining 
portions of the Administration plan, which is underfinanced, 
there is a strong likelihood the "price of the privilege" will 
increase. 

Second, states are also granted imrestricted authority to tax 
corporate alliances further to pay for providing coverage. Since 
states are financially strapped, yet bear the responsibility under 
the plan for assuring universal coverage, it would be naive to 
think that corporate alliances would not be hit with additional 
state taxes for the privilege of remaining independent. 

Third, the Administration plan does not allow an employer to 
join with other employers to manage costs. The driving force 
behind the best efforts to reform our health care delivery system. 



77 



initiatives like the Business Health Care Action Group in 
Minnesota and the Employers Purchasing Alliance in Florida, 
could be outlawed. 

Fourth, because the regional alliances would dominate any local 
market (95% by most estimates), individual employer plans 
would not be able to compete against them with any hope of 
success; instead, costs would be "shifted" from the alliance to 
that employer, particularly when health alliance premiums are 
"capped." This problem only grows worse as more and more 
employers opt against running corporate alliances. 

Fifth, employers would be forced to deal with various rules and 
regulations in each state in which they operate. Without ERISA 
pre-emption, states could compel employers to join mandatory 
single-payer systems. 

Finally, employers opting for corporate alliances would forego 
the government "guarantee" of a fixed percentage of payroll for 
health care costs. Large employers with part-time workers, 
whom the plan requires to be covered by regional alliances, 
would forfeit the right to cap their premium expenses at 7.9% of 
payroll if they opt to cover their other workers in a corporate 
alliance. Such an employer could easily pay 90% of wages for 
health care benefits for a low-income, part-time worker receiving 
family coverage from a regional alliance. 

D; Part-Time Employees 

Large employers of part-time workers are seriously 
disadvantaged by the Clinton Plan. Part-timers are 19 percent of 
the U.S. work force— a significant segment. Most part-timers 
want part-time work. They are students, young parents, second 
earners or older workers who want or need flexible schedules. 

A part-time job is the first exposure to the workplace for many 
Americans. Such positions offer entry-level employment and 
training to those whose education and skill levels may not qualify 
them for other work. Part-time jobs also offer opportunity and 
upward mobility. The food service sector alone employs over 9 
million people. 



78 



In the restaurant industry, 30 percent of restaurant management 
comes from the ranks of hourly employees, 70 percent of 
restaurant supervisors are women, and 20 percent are African 
American or Hispanic. One of General Mills' Vice Chairmen 
started as an hourly worker in one of our restaiu^ants, as did the 
president of our Olive Garden chain, a $1 billion business. 

Service businesses employing part-time labor have low margins, 
and profits per employee are also low. The problem from a 
business perspective is weighing the economic value of a job to 
an enterprise versus the cost of providing that job. If the cost 
exceeds the value, the job is no longer sustainable. 

Restaiu"ant sales per ftill-time equivalent are only $47,300 per 
year, while manufacturing sales per full-time employee are 
$157,000 per year. Profits per service sector job are one-sixth of 
those in manufacturing. 

Lowering direct wages to offset increased benefit costs in order 
to preserve the cost/value relationship is not an option with 
workers whose wages are already low. Price advances, the other 
option for covering increased costs, are extremely difficult in 
today's economic climate. And, imder the Clinton Plan, price 
advances may be impossible, because our smaller competitors 
would be "capped" at a much lower cost, giving smaller 
businesses a competitive price advantage of up to 4.4 percent of 
payroll (the difference between 7.9 and 3.5 percent). 

As previously noted, we have serious doubts that the premiiun 
caps— which, we might add, do not take full effect for 8 years 
and are not available to us if we maintain a corporate alliance- 
can remain at the level that has been proposed for very long if at 
all, yet they are the only thing standing between us and health 
care costs for our part-time workers averaging 35-40% of wages. 
We think the Cooper-Grandy bill's approach - subsidies for low- 
income individuals but no employer-mandated financing - is a far 
more realistic approach. 

IV. COOPER/GRANDV SUPPORT 

We are very concerned that health care reform not become a partisan 
matter. A bill this sweeping in scope, which profoundly affects our 
employees and impacts 15% of the economy, must reflect broad bi- 



79 



partisan consensus. It's fine for everyone to have strong views and to 
argue for them, but in the end we need to go forward with a plan that 
reflects consensus at the middle of the political spectrum. 

Obviously this is another attractive feature of the Cooper-Grandy bill, 
but the point is larger than any one bill. 

As more and more people begin to understand the full implications of 
various reform proposals on Aeir own families — our own employees 
are a good example ~ the potential for divisiveness will rise. The 
cardinal tenet of physicians for many centuries has been "First, do no 
harm." The way to ensure that we do no harm is to avoid the extremes 
and fmd the broad middle ground. 

Let me conclude where I began: Every American should be able to get 
affordable, high-quality health care that can never be taken away. 

Achieving this does not require a highly regulatory, mandate-oriented, 
government-controlled program. It is neither the best approach, nor 
the only approach. 

H.R. 3222 in our opinion, is a far better model for reform. The 
Cooper-Grandy bill neither creates nor relies upon government 
regulatory mechanisms to dictate health care delivery or constrain 
costs. It would restore responsibility and reestablish competition on 
the cost and value of care consumed. With equitable subsidies for 
persons who could not otherwise afford coverage, the Cooper bill 
would make high-quality health care available and affordable for every 
American. 

The Cooper-Grandy bill is the starting point upon which to build a 
workable, bi-partisan solution to the health care problem. 



80 

Mr. Waxman. Thank you very much for your testimony. 
Ms. Singer, let's go to you. 

STATEMENT OF SARA SINGER 

Ms. Singer. OK. Thank you for allowing me to testify today. It 
is apparent that the traditional system has failed, both in terms of 
cost and access. It is failed primarily because incentives that it cre- 
ates are all wrong. The fee-for-service system pays more for more, 
but not for necessarily better care. 

This contrast, accountable health plans which integrate the fi- 
nancing and delivery components of the system, have an incentive 
to provide better care at less cost. We must rely on market forces 
to create a system in which informed, cost-conscious buyers, switch 
to the most efficient system because they see it in their own best 
interest. 

Government can't accomplish this because it is rigid and inflexi- 
ble. Even according to the administration's own assessment of the 
Federal Government, the Gore report, states in the name of con- 
trolling waste, we have created paralyzing inefficiency. 

Both the Managed Competition Act of 1993 and the Health Secu- 
rity Act claim to rely on market forces. Although there is much in 
the Clinton plan with which I agree, the provision of universal 
health insurance, system reform through accountable health plans, 
and the call for outcomes analysis, quality measurements, and in- 
formation reporting, the plan does not rely on market forces. 

The Cooper plan empowers people with incentives, information, 
and subsidies where appropriate, to purchase health benefits on 
the basis of value for money. Clinton's proposal creates an entitle- 
ment that reduces responsibility for people to promote quality, cost- 
effective care. The Cooper bill limits tax free benefits at the price 
of the low cost qualified plan in an area. The Clinton plan includes 
no such limit, so it decreases the marketplace reward to health 
plans for lowering their price. This leaves market forces weaker 
than they could be. 

Cooper limits the purchasing cooperatives to groups of 200, to 
test them first where they are needed most, and to leave a large 
private sector to ensure pluralistic demand. Clinton's regional alli- 
ances would include everyone, which would concentrate massive 
power in State agencies, easily turned into regulatory bodies. 

The Gore report helps explain why this would be a problem. Fed- 
eral monopolies receive their money without any direct input from 
their customers. Consequently, they try a lot harder to please con- 
gressional appropriations subcommittees than the people they are 
meant to serve. Cooper's National Health Board would have rea- 
sonable political insulation through which it would set and update 
a standard benefits package. 

Clinton's National Health Board would be an arm of the execu- 
tive branch and its benefit package would be set through the politi- 
cal process. Cooper's proposal makes a limited Federal contribution 
for low-income subsidies. The Clinton plan subjects the Federal 
budget to a large open-ended risk. With a 7.9 percent cap on em- 
ployer contributions, the Federal budget must pay the excess if 
health care costs increase faster than wages. Plus, it is virtually 
impossible to predict the cost of windfalls to special interest groups. 



81 

Weak market forces due to lack of a tax cap, plus this risk to the 
Federal budget, force the Clinton plan to set overly ambitious cost 
containment goals, goals that not even the UK or Canada have 
met. Therefore, the Clinton plan will rely on price controls on pre- 
miums. But price controls don't work. 

First, the incentives are all wrong. Health plans are rewarded for 
fighting regulations, not for efficiency. Second, it is politically un- 
tenable for regulators to force health plans to become insolvent so 
they won't do it. 

Third, the fifth amendment forbids the taking of private property 
without due process and just compensation, including a fair rate of 
return to health plans. Furthermore, if price controls did work, 
quality and service would suffer. As Federal revenue requirements 
grow, the Clinton plan is likely to become a tax-financed system, 
through payroll taxes and general revenues. But the average Amer- 
ican believes that the Federal Government wastes 48 cents of every 
tax dollar. 

In addition, taxes depress incentives to work and to take busi- 
ness risks. Clinton claims to provide universal coverage, but the 
cost in terms of jobs, taxes and forgone economic growth may be 
prohibitive. Cooper provides universal access to people to buy cov- 
erage, plus subsidies for the poor. That means that the only people 
not covered by the Cooper plan are free riders. 

While I would like to see more commitment to universality in the 
Cooper legislation, it is not unreasonable to fix the system first be- 
fore committing to pour unlimited resources into it, as long as we 
protect the poor. Ajid if an employer and/or individual mandate 
may not be politiczJly feasible now, system reform could make it 
much more feasible in the future. 

A mandate could be phased in later or combined with a trigger 
mechanism such as the one in the Heart bill. The Clinton proposal 
can be fixed. We hope that the result will be a bipartisan solution 
that looks a lot like the Cooper bill. Thank you. 

[The prepared statement of Mr. Enthoven follows:] 



82 



PREPARED TESTIMONY OF ALAIN C. ENTHOVEN 



We can solve the inteirelated problems of health care cost and access, while maintaining high 
quality of care and service, only by fundamental transformation in our financing and delivery 
system, a transformation that is already well under way. 

The traditional fee-for-service, remote third party payment system has failed primarily 
because the incentives it creates are all wrong: FFS pays more for more, not necessarily 
better, care. Accountable health plans, which integrate financing and delivery, have an 
incentive to provide better care at less cost by: 

• selecting doctors for quality, 

• studying practice variations and adopting cost-effective practices, 

• matching numbers and types of doctors to the populations served, 

• concentrating cosdy specialized procedures in efficient regional centers, and 

• employing quality management and continuous quality improvement 

The only way to accomplish this is through market forces, i.e., by informed, voluntary 
decisions of cost conscious buyers who switch to the most efficient system because they see 
it in their own best interest. Government cannot accomplish this change. Government is 
rigid and inflexible. According to the Gore Repon: 

Yet innovation, by its nature, requires deviation. Unfortunately, faced with 
so many controls, many employees have simply given up. They do 
everything by the book-whether it makes sense or not They fill out forms 
that should never have been created, follow rules that should never have been 
imposed, and prepare reports that serve no purpose-and are often never even 
read. In the name of controlling waste, we have created paralyzing 
inefficiency. 
Civil servants are not allowed to use judgement, but in something as complex and subtle as 
medical care, judgements must be made all the time. 

Both the Managed Competition Act of 1993 and the Health Security Act claim to rely on 
market forces. While there is much in the Clinton plan with which I agree-the provision of 
universal health insurance, system reform through accountable health plans, and the call for 
outcomes analysis, quality measurements, and information reporting-die plan does not rely 
on market forces. 

While the Cooper plan empowers people with incentives, information and subsidies where 
appropriate to purchase health benefits on the basis of vaJue-for-money, Clinton's proposal 
creates an entitlement that reduces responsibility for people to act to bring about quality cost- 
effective care. 

The Cooper bill limits tax bee benefits at the price of the low cost plan in an area. The 
Clinton plan includes no such limit thereby decreasing the market place reward to a health 
plan for lowering its price. The Clinton plan leaves market forces weaker than they could be 
and leaves in place a heavy tax on cost containment 

Cooper limits purchasing cooperatives (HPPCs) to groups of 100. Clinton's Regional 
Alliances would include everyone. HPPCs are new and largely untested. Cooper would 
test them first where they are needed most and would leave a large private sector to ensure 
pluralistic demand. Clinton's plan concentrates massive power in state agencies, easily 
turned into regulatory bodies or single payers. The Gore Report acknowledges the problems 
of federal monopolies: 



83 



Many federal organizations are also monopolies, with few incentives to 
innovate or improve. Employees have virtual lifetime tenure, regardless of 
their performance. Success offers few rewards; failure, few pendties. And 
customers are captive; they can't walk away from the air traffic control 
system or the Internal Revenue Service and sign up with a competitor. 
Worse, most federal monopolies receive their money without any direct input 
from their customers. Consequently, they try a lot harder to please 
Congressional appropriations subcommittees than the people they are meant 
to serve. Taxpayers pay more than they should and get poorer service. 

Cooper's National Health Board would have reasonable political insulation through which it 
would set and update the standard benefits package. Cliriton's National Health Board is an 
arm of the Executive Branch, and its benefits package would be set through the political 
process where political considerations may mean more than economic and medical merit 

Cooper's proposal makes a limited controllable federal contribution toward subsidies for low 
income individuals. The Clinton plan subjects the federal budget to a large open ended risk; 
with a 7.9% cap on employer contributions, the federal budget must pay the excess if health 
care costs increase faster than wages. Plus, costs of windfals such as the early retiree 
contribution and drug and long-term care benefits for Medicare beneficiaries without joining 
an HMO are difficult to predict 

Weak market forces due to a lack of a tax cap plus this risk to the federal budget force 
Clinton to set overly ambitious cost containment goals. Even the UK and Canada have not 
achieved the rates of price increase called for by die Clinton plan. Therefore, Clinton relies 
on price controls on premiums. 

Price controls don't work: 

• the incentives are all wrong; health plans are rewarded for fighting regulations, not for 
innovation and efficiency, 

• it is politically untenable for regulators to force health plans to become insolvent forcing 
millions to change health plans and doctors, and 

• the Fifth Amendment forbids the taking of private property without due process and just 
compensation including a fair rate of return. 

If price controls did work, quality and service would suffer. 

As federal revenue requirements grow, the Clinton plan is likely to become tax-financed, 
through payroll taxes and general revenues. According to the Gore report "The average 
American believes we [the federal government] waste 48 cents of every tax dollar." In 
addition, taxes depress incentives to work and to take business risks. The Clinton plan 
would drive many people over the 60% marginal tax rate, combining federal and state, 
income and payroll taxes. 

Clinton claims to provide universal coverage, though the cost in jobs, taxes and forgone 
economic growth may be prohibitive. Cooper provides universal access to people to buy 
coverage plus subsidies for the poor. The only people not covered by the plan are ftee 
riders. While I would like to see more commitment to universality in the Cooper legislation: 

• It is not unreasonable to fix the system first before committing to pour unlimited siuns 
of money into it, as long as we protect the poor. 

• If a combined employer^dividual mandate is not politically feasible now, system reform 
could make it much more feasible in the fiiturc. A mandate could be phased in later or 
combined with a trigger mechanism such as the one in the HEART bilL 

The Clinton proposal can be fixed. The result I hope, will be a bipartisan solution similar to 
the Cooper Bill. 



84 

Mr. Waxman. Thank you, Ms. Singer. 
Dr. Miller. 

STATEMENT OF DONNA MILLER 

Ms. Miller. I also thank you for the opportunity to be here. I 
am here today to provide you with evidence that a market-driven, 
community-based competitive health care reform model, as pro- 
posed by Congressmen Cooper and Grandy in their Managed Com- 
petition Act is effective and already operational in several commu- 
nities across this country. 

I will describe how the model in Memphis has dramatically 
changed our health care environment and effectively contained the 
rising costs of health care. However, Memphis is not alone. You 
will find managed competition models in other areas and more are 
developing at a very rapid pace. We are all part of a community 
movement of business groups that currently represent over 25 mil- 
lion people and are beginning to document very impressive results. 

In Memphis, our group represents 55 employers with 145,000 
covered lives in the Memphis area and a little under 500,000 na- 
tionwide. Through a variety of services and programs such as 
group purchasing and case management, we have been able to re- 
duce the rising costs of health care and join with the providers to 
improve quality. 

Some examples are the following. The market in Memphis has 
become extremely competitive, with even the advertisements of the 
health care industry reflecting the changes. A few years ago ads fo- 
cused on high technology and "warm fuzzies". Today, ads empha- 
size high quality and price competitiveness. 

Quality has improved through combined efforts of the purchasers 
and providers identifying and correcting problems. One example is 
a case of what has happened with our C section rate. We have had 
a problem a number of years in Memphis with a much higher than 
national average, 37 percent of all C-sections, as opposed to 23 per- 
cent nationwide. We took this to the quality committee through our 
managed care network. The physicians aggressively worked on this 
problem and they were able to drop their rate to 22 percent within 
4 months. 

The impact of this one effort is dramatic in terms of costs and 
in terms of quality. A C-section is a major surgical event with 
much longer recovery time, increased chances of complications and 
certainly much higher costs. 

In our psychiatric and substance abuse managed-care program, 
we have had the following impact. Admits per thousand have de- 
creased by 59 percent since 1989. Days per thousand have de- 
creased by 80 percent. Average length of stay decreased by 53 per- 
cent. Per treatment costs have decreased by 72 percent from an av- 
erage $17,320 to $4,826. 

For the past 7 years, using a bidding process through our pur- 
chasing alliance, we have group purchased hospital and physician 
care for our corporate members. Impact on costs, again, have been 
dramatic. 

For over a 5-year period, our companies have experienced an av- 
erage 6 percent in their average cost per employee increases, as 
compared to 14.66 nationwide. Actually, if we broke out the end of 



85 

1992 from the end of 1991, we found it a little under 2 percent in- 
crease in the average cost per employee. 

For the end of 1993 analysis, we only have 10 of our members 
who have been able to give us the data. However, with that data, 
we have found 0.5 of 1 percent increase. Since I submitted this tes- 
timony, we have been able to do weighted evaluations plus add 
some other companies. 

Actually, from what we have got right now, it is showing a 2.3 
percent decrease in the average cost per employee. This could 
change as more data comes in. We have been able now to try to 
extend this to the small market for fear of cost shifting. Effective 
immediately, we will be offering a fully insured plan for small em- 
ployers where they can access the same pricing that we have been 
able to negotiate for our larger members. 

This will convert to dramatically decreased premiums and we 
will be working through our managed-care network and the se- 
lected insurer to expand this into the community. 

Health care reform is already occurring. For the first time in dec- 
ades, we are achieving success in health care cost containment. The 
Managed Competition Act has the ingredients for promoting simi- 
lar successes in communities around this country. We urge you to 
give us the opportunity to continue to do what we are doing and 
also other communities across the country to do some similar 
things for this market-based community competitive model. Thank 
you. 

Mr. Cooper [presiding]. We are impressed. Donna. You know, I 
think I like it better on this side of the panel than on that other 
side. I may never turn it lose. 

I would like to introduce my good friend, Tony Cebrun, who is 
President and Chief Executive Officer of the Tennessee Managed 
Care Network in Nashville, Tenn. 

STATEMENT OF ANTHONY J. CEBRUN 

Mr. Cebrun. Thank you, Mr. Chairman. The Tennessee Man- 
aged Care Network is a network model HMO serving about 
250,000 members Statewide. The network was developed in a joint 
funding of the Robert Wood Johnson Foundation, the Common- 
wealth Fund and Lyndhurst Foundation, by the Tennessee Primary 
Care Association, an organization initially composed of about 20 
section 330-funded community health centers across the State of 
Tennessee. 

Managed Care Network has in excess of 10 years of experience 
serving Medicaid recipients in Tennessee, first on the voluntary 
basis to a program that ran prior to the implementation, January 
1994 of TennCare, a mandatory managed care program. Addition- 
ally, we have been serving the small business and uninsured mar- 
ketplace in Shelby County, Tenn., which is Memphis, during the 
past 5 years. 

Based on our experience with this market and my 20 years of ex- 
perience in managed care throughout several regions of the coun- 
try, I am convinced that the need for national reform is critical. 
The issue is not whether we need reform, but how we go about it. 
It was precisely because of this reason that I offer my comments 
in support of H.R. 3222. 



86 

I should make it clear that I am not opposed to the President's 
plan. However, though we support the spirit and the intent of the 
President's proposals, his goals and his objectives, and applaud the 
effort of the First Lady in elevating the Nation's consciousness to 
the need for health care reform, we find that Congressman Coo- 
per's bill better supports a market-based solution and we think 
that in the final analysis a market-based solution is ultimately one 
that has desired effects and fewer of the negative externalities that 
we fear will be concomitant with a more regulatory driven ap- 
proach. 

We think that the two approaches are similar with the exception 
that the price controls proposed by the President's plan would not 
have the needed effect of structural market reform in solving the 
marketplace problems which have eventuated in having roughly 37 
million people uninsured. 

Tennessee Managed Care Networks' effort in serving the unin- 
sured was borne out of an idea consistent with our history and a 
mission of an organization — of our organization, as well as a rec- 
ognition of a unique market opportunity. 

The study on the uninsured performed by the association, with 
the additional funding support of RWJ and the Hospital Corpora- 
tion of America and a small grant from the State of Tennessee re- 
vealed that the uninsured population may be largely described as 
young, uneducated, poor, near poor, and more importantly, em- 
ployed; that 75 percent of Tennessee and about 85 percent nation- 
ally of the uninsured represent or are dependents of individuals 
who work every day. 

First, the thing that we have learned in serving that population 
is that most of the working uninsured, as I said, are employed by 
small employers with fewer than 10 employees who do not sponsor 
a group health plan because neither they nor their employers can 
afford the price of adequate coverage. 

In our personal interview survey of small employers, in fact, 67 
percent of those surveyed felt that neither they nor their employees 
would be able to bear the cost for the monthly premium. Faced 
with the constraints of artificially imposed caps on premium rates 
and the prospects of adverse selection, health plans struggling to 
survive may resort to drastic tactics. 

They may decrease benefits or they may compromise quality. 
While the Tennessee Managed Care Network has been committed 
to serving this population and now continues to do so on an ex- 
panded fashion as a result of TennCare, our experience has in- 
formed us that we cannot continue to provide innovative, client-ori- 
ented services, which has been our hallmark on a long-term and 
sustained basis if we are forced to operate under a situation of 
price controls as the President's plan would portend. 

Second, while mandatory across-the-board employer sponsorship 
and participation in a health plan is meritorious, it disregards the 
negative impact upon those businesses least able to afford this, and 
that is on small businesses. Clearly, 23 percent of the Nation's 
work force, according to a 1987 estimate, are working for compa- 
nies that employ fewer than 25 individuals. 

One of the things that happens when this kind of burden is 
passed on to small businesses is they are forced to attempt to try 



87 

to pass this on and they are clearly in a marginal situation, which 
impacts generally in their bankruptcy. 

Third, with the introduction of the Managed Competition Act or 
H.R. 3222, it enables managed-care plans to compete based on in- 
novative pricing and benefit plan enhancements without the re- 
straints that a premium cap would impose. 

As has been evidenced in various commercial markets and now 
in the public sector with TennCare, the payer is — ^the payer and 
consumer is market driven by the value that they can derive from 
the system. Savage managed-care plans intent on their long-term 
survival will respond accordingly. 

Natural market forces cause competing plans to self-regulate 
pricing as well as product design. As it becomes increasingly more 
difficult to distinguish among plans on the basis of price and prod- 
uct, then quality becomes the determining factor of long-term mar- 
ket success. 

Let me just conclude my comments here by saying I would cau- 
tion the assembly to revisit the objectives of health care reform to 
make quality health care affordable, accessible, and assure that all 
parties, consumers, providers, insurers, and employers are account- 
able. 

And in the spirit of accountability, I must assert that we would 
support H.R. 3222, a proposal which enhances market competition 
without restrictive regulatory barriers. 

Thank you. 

Mr. Waxman. Thank you very much for your testimony. 

[The prepared statement of Mr. Cebrun follows:] 



88 



PROPONENT TESTIMONY ON HK3222 

"THE MANAGED COMPETITION ACT OF 1993" 

ANTHONY J. CEBRIJN, J.D^ M.P.H., PRESIDENT/CEO 

TENNESSEE MANAGED CARE NETWORK (NASHVILLE, TN) 

SlJBCOMMlTrEE ON HEALTH AND THE ENVIRONMENT 

CHAIRMAN HENRY WAXMAN 

WEDNESDAY, FEBRUARY 2, 1994 

Mr. Chairman./ merobers o£ lihe committee, and mambere of the 

panel, my name Ib Anthony Ceburn and I am President and CEO of 

Tennessee Managed Care Network^ a not-for-profit network model HMO 

headquartered in Nashville, Tennessee serving over two hundred 

fifty thousand (250,000) raembere statewide. The network was 

developed through the joint funding of the Robert Wood Johnson 

Foundation, the Commonwealth Fund and the Lyndhurst Foundation by 

the Tennessee Primary Care Association (nee Tennessee Aasociation 

of Primary Health Care Centers) an organization initially composed 

of twenty (20) section 330 funded community health centers. 

Tennessee Managed Care Network has in excess of Hen years of 

experience serving Tennessee's Medicaid (Aid to Families with 

Dependent Children) population in a voluntary program prior to the 

January 1994 implementation of TennCare, a mandatory Medicaid 

managed care program. Additionally, we have been serving the small 

business and uninnured market in Shelby County Tennessee during the 

past five years. Based upon our experience with thie market, and 

my twenty years of managed core experience in several regions of 

the country, I am convinced that the need for reform is critical. 

The isBua is not whether we need reform, but how we go about it. 

It Is precisely because of this reason that I offer my comments In 

support of HR3222. T should make it clear that I am not opposed to 



89 



the Praaldent'B plan. Howover, though wo support the spirit and 
Intent of the Praaident's proposal, his goals, and objectives and 
applaud the effort of the First lady in elevating the nation's 
consciousneaR to the need for health care reform, we find that 
Congressman Cooper's bill better supports a market-based solution. 
And wa think that a market based solution is ultimately one that 
has the desired effects and fewer of the negative externalities 
that we fear will be concomitant with a more regulatory driven 
approach. We think that the two approaches are similar with the 
exception that the price controls proposed by the President's plan 
will not have the needed effect of structural market reform in 
solving the market place problems which have eventuated in having 
37 million people uninsured. 

Tennessee Managed Care Network's effort in serving the 
uninsured was borne out of an idea consistent with the history and 
mission of our organisation as well aa the recognition Of a unique 
market opportunity, that is Eerving the uninsured and the 
underserved. The et.udy on the uninsured performed by the Tennessee 
Primary Care Association, with the additional funding support from 
the Robert Wood Johnson Foundation, the Hospital Corporation of 
America (HCA) , and a small grant from the State of Tennessee 
revealed that the uninsured population may largely be described as: 

* Young — children and young adults comprised 54% of the 

uninsured population; 

* Uneducated — 42% of the uninsured were high school 

dropouts ; 

* Poor or Near Poor — 72% were economically disadvantaged 



90 



yet all income groups are represented (Medicaid only 

covers 47% of those under 100% of the federal poverty 

guidelines}; and, 
o Employed (or dependents thereof) - rapraaenting 75% of 

the population (Nationwide this figure was 85%). 
First, what we have learned in serving this population is that 
most of the working uninsured are employed by small employers (with 
ten or fewer employees) who do not sponsor a group health plan 
because neither they nor their employees aan afford the price of 
adequate coverage. In our personal interview survey of small 
employers, in fact, 67% of those surveyed felt neither they nor 
their employees would be able to bear the cost for the monthly 
premium. Anecdotally, one employer stated that "... many employees 
live paycheck by paycheck. They cannot afford a deduction for 
something they may or may not use. If they need care, someone will 
provide it for free or at an affordable cost. If they incur a 
large hospital bill, they will file bankruptcy and let the courts 
decide on payment. Bankruptcy is a vary common practice here." 
What plans experience then ia adverse selection where high 
utilizers, those who expect to oonouine extensive medical and health 
oare reeourcee, will disproportionately select to purchase health 
Insurance while the young and healthy population, burdened with the 
same economic constraints, will select out of this same purchase 
option. Faced with the constraints of artifically imposed caps on 
premium rates and the prospect of adverse selection, health plans 
struggling to survive may resort to two drastic tactics — they may 
deor eaa e benefity or they may compromlBe qu ality. While Tennessee 



91 



Managed Care Network h«s been committed to serving this population, 
and now continuea to do oo in an 9xpanded fashion duo to TennCare 
participation, our experience has informed us that we ran not 
continue to provide the innovative client oriented service, which 
has been our hallmark, long-term and sustain a lose such as that 
which the price controls in the President's plan portends. 

Secondly, while the administration's approach of mandatory 
across the board employer sponsorship and participation in health 
insurance is meritorious, it disregards the negative impact upon 
those busineeeeB least able to bear the burden, small businesses • 
Ultimately, the public will realize this negative impact through? 
1) increased unemployment as financially burdened small businesses, 
representing 23% of the nation's workforce in 1987 (according to 
the Bureau of Labor Statistics Economic Census, Enterpri s« 
Statistics) are forced to close; and, 2) increased prices for goods 
and services as employee health benefits cost(B) are shifted to 
consumers. Moreover, although the President's plan has admirably 
initiated an attempt to minimiee the undue burden on the small 
bueinesB by increasing the level of proposed subsidies, the 
proposed governmental support falls dramatically short of 
forestalling the deleterious effects. Further, while the 
President's plan has gone quite a distance in minimizing some of 
the negative impact upon small businesses, and more specifically 
minority businesses, it still does abate the disproportionate 
burden they would experience as marginal businesses susceptible tn 
bankruptcy. 

Thirdly, with the introduction of the Managed Competition Act, 



QO—zi-at; n _ QA — A 



92 



Mr. Cooper, and his fifty-six co-sponsors / enables managed care 
plans to compete based upon innovative pricing and benefit plan 
enhancements without the restraints of the premium cap imposed by 
the President's plan. As has been evidenced in various coinmercial 
markets, and now in the public sector with TennCare, the payor, and 
consumer, market is value-driven. Savvy managed care plans with 
intention for long term survival respond accordingly. Natural 
market forces cause competing plans to self-regulate pricing and 
product design. For example, many of the new market entrants for 
Tennessee's TennCare, formerly Medicaid, market have expanded the 
government mandated benefit plan with service enhancements which 
closely mimic those Tennessee Managed Care Network has offered for 
ten years. As it becomes increasingly more difficult, to 
distinguish among plans on the basis of price and product, then 
quality becomes the determining factor of long-term market success. 
Artificial governmental ly imposed price controls and mandates do 
not stimulate value-driven market competition # Instead, the 
government can better influence the market as a large purchaser of 
services. 

Fourthly, we find that in a marketplace free of burdensome 
market regulations, increasingly employers (even the smaller ones) 
will be driven to provide attractive benefit packages for a 
decreasing pool of skilled employees. This is supported by recent 
market research which has indicated that in this new healthcare 
environment, a key criterion in job selection is that of health 
care benefits. A 1994 EBRI/Gallup study (Employer Benefits 
Research Institute) found that 18% of employees said that they or 



93 



a family member have rejected a job offer, or remained in a job, 
solely due to health benefits. EBRi also found in a 1993 study, on 
average employees or their family members, would have to receive 
$5,157.00 to be willing to give up their employer provided health 
benefits (a 7% increase over the 1991 study flgrure of $4,835.00). 
Clearly, employees have a real appreciation for the value of their 
health insurance coverage and employers competing for a limited 
skilled work force will structure compensation and benefit packages 
which are attractive. 

In closing, I would like to caution this esteemed assembly to 
revisit the objectives of healthcare reform — to make quality 
healthcare affordable, accessible and ensure that all parties 
(consumers, providers, insurers, and employers) are accountable. 
In the spirit of accountability, I must assert that we protect the 
quality of healthcare through a proposal which enhancec market 
competition without restrictive regulatory barriers. 



94 

Mr. Waxman. Dr. England. 

STATEMENT OF MARY JANE ENGLAND 

Ms. England. Grood afternoon. It is an honor and a privilege to 
be able to present before you this afternoon an issue that is very 
important to all of us, certainly an economic issue, but a personal 
issue in all of our lives. It is an honor also because I know I your 
own deep personal commitment to the poor and disenfranchised in 
this country of which I have great respect. 

The Washington Business Group on Health represents — has 200 
members, mostly Fortune 500 companies, including our Nation's 
most knowledgeable, progressive, and successful managers of 
health care. We are deeply committed to the reform of the health 
care delivery system, but we wish to maintain an active role for 
purchasers to provide high quality, affordable health care. 

We are particularly supportive of the framework of Representa- 
tive Cooper and his Managed Competition Act. It would allow us 
a framework to be able to continue to have purchasers have an ac- 
tive role. Reform started long before this current administration or 
before issues with Senator Wofford in Pennsylvania. It started with 
the employer community. 

For the last two decades, employers with their money and their 
workers' productivity have had a major stake in using their market 
clout to get better quality care at a lower cost. In fact, as you know, 
Mr. Chairman, at the Washington Business Group on Health, our 
signature pin is, "It is the delivery system, stupid". And we hope 
to bring that home, that our employers' success in being able to 
control costs and increase quality has been through organized sys- 
tems of care. 

This has been developed with a partnership with providers, with 
physicians and hospitals at the local level to provide a full contin- 
uum of care that is affordable and also accountable. We are very 
concerned that the Clinton health care plan has dropped the word, 
"accountable" from their health plan. 

We also are very concerned that as employers we spend a great 
deal of time educating our consumers and we — our employees, and 
we feel that is critical. Why should we exclude employers now as 
purchasers? They have been able to force providers to give us the 
kind of data necessary to know whether they are providing high 
quality services. 

We have been able to move forward to fix the delivery system 
through information that is critical. We particularly support the 
notion of Representative Cooper in the health plan purchasing co- 
ops that will address the small market issues for small employers 
and individuals. That is, these co-ops would not be larger than em- 
ployers, including employers of less than 100 employees. 

It is really important that we all address the issue of preexisting 
condition and provide services regardless of your disability to a full 
continuum of care. And we feel that the health purchasing plans 
will allow small businesses and individuals to have the same kind 
of market clout that our employers have today. 

There are a number of issues that we also feel are important and 
that is the medical malpractice that needs to be much stronger 
than in the current Clinton plan as we see it here in the Cooper, 



95 

and we would also encourage, as we move to accountable health 
plans, that we consider holding them liable, with enterprise liabil- 
ity as well. And not just focus on medical malpractice, but look at 
liability as it relates to those larger accountable health plans. 
We support the notion of including Medicare as part of reform, 

Earticularly of incentivizing our old folks to be part of accountable 
ealth plans by giving them a drug benefit. We also support the 
revamping of Medicaid, and the insurance, however, that the poor 
get subsidies so that a mother with a handicapped child can con- 
tinue to work and get the full benefits that she can get now under 
the Medicaid program. 

We also feel it is important to have a comprehensive continuum 
of care. We know that accountable health plans with the right 
kinds of incentive, organized systems of care, can provide a full 
continuum, and it is important that we recognize the commitment 
that Representative Cooper has to a full continuum of care for the 
mentally ill, for mental health and substance abuse. 

Building on the examples of Federal Express and Digital. Federal 
Express, as you know, has had remarkable success by providing a 
full continuum of care for the mentally ill and substance abusing 
employees, and have been able to save $18 million over the last 3 
years and improve the number of patients getting care, as well as 
the quality of care for their employees. So I commend Congressman 
Cooper for his leadership in applying managed competition to men- 
tal as well as physical health care and for supporting the system- 
atic change in service delivery that have enabled large purchasers 
to eliminate limits on mental health coverage. 

This concludes my prepared statement. I appreciate the oppor- 
tunity to appear before the committee and hope that you see in 
your wisdom to allow the employers to continue to be active pur- 
chasers because they will improve the quality of health care for 
their employees and all Americans. Thank you. 

[The prepared statement of Ms. England follows:] 



96 

STATEMENT OF 
THE WASHINGTON BUSINESS GROUP ON HEALTH 



Good morning. It is always an honor to speak with you. But it is an extraordinary 
privilege to be here today because your Committee is considering one of the most important 
reforms in our nation's history. Health care is not just the largest economic sector in our 
country, and one of the largest economies in the world. It is also one of the most profound 
personal issues in all of our lives, with the quality and availability of health care as critical 
issues. 

The Washington Business Group on Health 

As you know, the Washington Business Group on Health (WBGH) is the nation's only 
organization representing large employers solely on issues related to health care. It was 
created 20 years ago to address the growing imbalance between the rising prices that 
employers were paying for health care, and their lack of control over what they were buying. 

Today, WBGH's 200 members, mostly Fortune 500 companies, include the nation's 
most knowlwlgeable, progressive and successful managers of the health care they provide for 
their more than 30 million employees. We often describe the Business Group as representing 
the evolution of large employers from passive payers to active purchasers of health care. I 
would like today to share the most important lessons we have learned in that evolution. 

Our membership spans the gamut of big business in America. In fact, at Chairman 
Rostenkowski's December 15th hearing on the effects of health care reform on the national 
economy and jobs, two of our member companies - Ford Motor and PepsiCo - testified on 
the same panel, but highlighted the diversity in the business community's reactions to the 
Clinton plan. 

This diversity is a source of strength for WBGH. It means that our member 
companies suppress their differences to concentrate on the goals that we share. Reforming 
the health care delivery system, and maintaining an active role for employers in health care 
purchasing, are two of the most important common goals. Achieving these goals will ensure 
vigorous competition among high quality, affordable health plans. Congressman Cooper's 
proposed Managed Competition Act would provide a framework to do that. 

Organized Systems of Care 

The members of WBGH have been involved in public and private sector efforts to 
improve health care delivery, and have been advocating system-wide health reform, for two 
decades. I say this not just to brag, but to remind the Members of this Committee that 
health reform did not begin with the Clinton Administration, or the presidential campaign, or 
even with Senator Harris Wofford's campaign in Pennsylvania. Health reform began, and is 
going on now at an accelerating pace, within the business community. 

Health reform began because employers with iheir money and iheir workers' 
productivity at stake started using their market clout to get better quality health care at a 
lower cost. 



97 



What employers discovered is that they could not solve the discrete problems in 
health care ~ the uncontrollable costs, the variable and often unknowable quality, and the 
unequal access - until and unless they fixed the way that health care services are delivered. 
This is why WBGH's signature button reads: It's the delivery system, stupid. 

The secret to our employers' success is what we call organized systems of care or 
OSCs. 

Our use of the term OSC is comparable to what we understood the White House to 
mean by their early use of the term "accountable health plans." (Unfortunately, the word 
"accountable" seems to have been dropped along the way.) The concept means that unified 
and accountable health care delivery systems serve all Americans and replace the fragmented, 
inefficient, costly and unmanaged fee-for-service approach that many health consumers still 
face today. 

Organized systems of care integrate financial risk with responsibility for outcome. 
These OSCs provide a full continuum of care, and are accountable to patients and purchasers 
for its cost and quality. 

Largely because of the pressures exerted by large employers as caring, invested and 
informed group purchasers, providers are organizing into systems that can deliver the highest 
quality care at the best price. In OSCs, services are integrated and care is managed for 
optimal outcome. Waste and redundancy are reduced because procedures are performed not 
for their profit but for their efficacy. Consumers are educated about their role in their own 
health, and empowered to take control over the quality of their lives. Iatrogenic or 
physician-induced problems are drastically reduced. In fact, the entire focus of care shifts 
from sickness to health. 



The Quality Of Care 

To purchase good care, large employers understood that they had to have good 
information. The Committee should appreciate that when employers first started asking the 
questions that would allow them to evaluate, monitor and improve the quality of health care, 
there were no answers. In the beginning, not even the best organized health systems could 
tell purchasers what their Cesarean-section rates were (let alone the rates of vaginal births 
after C-sections), or the hospitalization rates for treating asthma, or the relapse rates after 
treatment for substance abuse. 

To meet the need for this information, employers began an effort that resulted in the 
recent publication of HEDIS.2 (the Health Plan Employer Data and Information Set). As 
explained in the document, HEDIS.2 helps purchasers to measure the value of the services 
they are buying and to implement programs that assure continuous quality improvement. 



98 



Throughout this process, one of the most exciting discoveries was that when 
purchasers concentrate on improving quality, the cost of care comes down. Actually, this 
won't surprise any Members of the Committee who have availed themselves of the highest 
quality care in this country, which often comes at the most reasonable prices, from centers of 
excellence such as the Mayo Clinic. 

There are several reasons for the often inverse relationship between cost and quality. 
In medicine, as in other professions, skill develops over time and with experience. It is not 
surprising that a physician who has performed hundreds of coronary bypass procedures is 
better at it than is a begiimer. Expertise also develops with the increasing experience of 
surgery support teams and other ancillary personnel. In addition, high volume reduces per 
capita cost. Finally, the symptoms treated by high-tech, high-cost procedures are often 
caused by mental and emotional problems. These symptoms often disappear with 
appropriate, low-cost mental health care. 

The Role Of Employers 

Given all that employers have learned, and all that they have accomplished, it would 
be a terrible irony if reform excluded them from the purchase and delivery of health care. 
Unfortunately, the Clinton proposal offers no recognition of health care as an employee 
benefit issue. Instead, it seems to perceive employers as merely the payers for care. 

Under the current Clinton proposal, the costs and other burdens of creating a 
corporate alliance are too high, and the returns for those who do are too low. We have 
found relatively few corporations, even among those large enough to do so, that would create 
their own corporate alliance. 

Setting the threshold at 5,000 employees for even the opportunity to choose not to be 
in the regional alliance defies the concept of "managed competition." It would leave only 18 
percent of the population eligible for corporate alliances. The Washington Business Group 
on Health has long endorsed a threshold of 100. In fact, when then candidate Bill Clinton 
first used the term "managed competition" during the summer of 1992, there were only two 
working versions of it. The original was the concept developed by the Jackson Hole Group. 
It relied on a threshold of 100 for what they then called "health insurance purchasing 
cooperatives." The only other version was Representative Jim Cooper's Managed 
Competition Act of 1992. In the Act as introduced in the 102nd Congress, the alliance 
threshold was 1,000. In the most current version it is 100, with the option for states to raise 
it (to approximately 500), as long as the alliance does not include more than 50 percent of 
the employees in the relevant area. 

If we really want to give competition a chance to produce better health care ~ as 
Representative Cooper says, perhaps its last chance - the threshold for mandatory 
participation in the regional aJliances must come down. Toward this end, we were delighted 
to hear Treasury Secretary Bentsen say last week that the Administration is flexible on this 
point. 



99 



We must emphasize that simply charging employers a percentage of their payrolls to 
finance health care coverage sold to individuals in large regional alliances would not keep 
these employers engaged in improving the quality and reducing the cost of care. Giving 
them seats on the boards of directors of these alliances is simply not a substitute. We very 
much want the continued active involvement of these skilled, experienced and successful 
evaluators, negotiators and purchasers of care. This should be a central goal of health care 
reform. 

The role that employers as purchasers now play cannot be supplanted by the 
bureaucracy detailed in the Administration's proposal. The very size and cost of this 
bureaucracy is incongruous with Vice President Gore's proposal to downsize government. 
Throwing the 41 percent of persons who work for small (1-99), medium (100-999) and large- 
but-not-really-large (1,000-4,999) businesses into these public pools would destroy much of 
the good that has been accomplished, and waste the value that employers as purchasers add 
to the system. It would also eliminate many of the most successful purchasing coalitions, 
such as the Memphis Business Group on Health. Instead, all of these people, and all of 
those in the largest (5,000-1-) companies that did not form corporate alliances, would be 
evaluating, negotiating and purchasing their plans as individuals. With none of their own 
money at stake, and no investment in worker productivity, the alliances could never do what 
employers now do. This opinion is shared by many businesses and individuals throughout 
the country. 

What We Need 

We need health care reform. But we must take this opportunity to do it right. And if 
doing it right requires more time than the current politically driven time tables would allow, 
then we should take the time that it requires. It would be a terrible failure if, in the rush to 
pass some kind of reform, we simply rearranged the financing for the current system, and 
did not fix the delivery system. 

Toward this end, the Washington Business Group on Health respectfully makes 
several specific suggestions. 

Small Market And Delivery System Reform: For individuals and small 
groups, the business of insurance has become "risk avoidance." Small groups with even one 
high risk person are being hit with huge rate increases or are asked to exclude those 
employees from health coverage who need it most. This has created a situation where the 
sickest people often have the worst access to care. 

For this reason, the Washington Business Group on Health endorses reforms that 
would redesign the purchaser market to pool individuals and private and public small 
employers into coalitions that are large enough to i.^sure access to coverage and achieve 
economies of scale. We recommend that these purchasing pools include persons who buy 
coverage as individuals or single families, and those who work for businesses with 100 or 



100 



fewer employees. These coalitions would serve to organize very small groups into pools 
large enough to force increased competition among h^th plans. 

The individuals who purchase in these pools must have access to organized systems of 
care or accountable health plans. Such plans should offer comprehensive, federally-defined 
coverage. These plans should be prohibited from denying, or prohibitively pricing, coverage 
for selected individuals or for preexisting conditions. They must report and make available 
the full range of information that is necessary for consumers to be wise purchasers. In 
effect, the health plans will be forced to compete on the cost and quality of care, rather than 
on benefit design and risk avoidance. 

Preservation of ERISA Preemption: Multistate employers must be able to 
preserve and continue their successes in health reform. We cannot return to the "bad old 
days, " when large employers who wanted to provide health care coverage for their workers 
had to contend with 50 different sets of rules and 50 different benefit plans. If each state is 
allowed to impose its own system on employers who have workers in every jurisdiction, then 
those employers will simply stop providing coverage. 

Antitrust Reform: WBGH endorses reform of antitrust law to protect and 
encourage the development of vertically integrated health networks. Our vision of organized 
systems of care encompasses the close cooperation of a broad range of providers, the 
provision of comprehensive services, the availability of all information useful to the 
consumer, and adnunistrative ease. The vertical integration of many different facilities and 
providers is crucial to achieve this ambitious vision. 

WBGH also supports the redesign and enforcement of antitrust law to ensure 
competitiveness in the health care marketplace. This may require repeal of the McCarran- 
Ferguson Act, the 1945 law through which the federal government ceded control over the 
insurance industry to the states, including an effective exemption for the industry from 
federal antitrust law. Bringing insurance companies under fair competition laws would bar 
anticompetitive insurance practices while furthering the goal of health system reform: the 
efficient delivery of affordable, accessible, high-quality health care. 

Enterprise Medical Liability: WBGH strongly believes that the current 
medical liability system is in need of fundamental reform. The current system: 1) does not 
effectively deter negligent medical care; 2) reduces access to needed services while 
increasing utilization of costly, inappropriate care that can actually threaten a patient's health; 
and 3) resolves claims in an inefficient and inequitable manner. 

WBGH supports the inclusion of enterprise liability in overall tort reform to improve 
the medical liability system in the context of organized systems of care. Other elements of 
tort reform should include caps on noneconomic damage awards, the use of alternative 
dispute resolution mechanisms, and the increased use of practice parameters. Together, these 
measures would provide greater incentive for the OSC or accountable health plan to monitor 



101 



and improve the quality of care, would lead to a more efficient and equitable compensation 
system for injuries due to malpractice, and would decrease the incidence of negligent care. 

Inclusion of Medicare: WBGH strongly believes that health care reform should 
benefit all people. Older Americans, who are higher utilizers, are particularly vulnerable to 
the worst aspects of fee-for-service care, including its high cost, low efficiency, shortage of 
good information, lack of coordination and absence of management. Unsurprisingly, older 
Americans suffer the most from the results of unmanaged care. An estimated 25 percent of 
hip replacements are in persons in this population who have fallen because they were 
overmedicated. 

WBGH strongly recommends that health reform be structured to extend the benefits of 
organized systems of care to those who could benefit most from them, including Medicare 
and Medicaid beneficiaries. Studies of Medicare beneficiaries who voluntarily joined HMOs 
have shown that overall, consumer satisfaction is high. In a recent study done by 
Mathematica Policy Research, Inc., 93 percent of Medicare HMO enrollees reported that 
they would recommend their HMO to a friend or relative. 

We think it is particularly ill conceived to add a prescription drug benefit to Medicare 
while specifically excluding the program from reform, as the Clinton proposal does. 
Coverage of prescription drugs has been one of the major inducements to bringing older 
Americans into managed care, and this approach would take away this incentive. 

Furthermore, WBGH endorses a subsidy for the poor up to 200 percent of poverty, 
and the elimination of Medicaid. This would allow people to work and be assured of health 
care services for themselves and their children. 

Support for Information Technology: "High technology" often gets 
criticized as a cost driver in health care. And, in fact, the most complicated, invasive and 
expensive treatment is often not the best care. Unfortunately, however, the use of 
information technology is in its infancy in health care. 

Good health care, including integrated medical records and reliable determinations of 
cost, quality and outcomes, requires the use of information technology. Numerous 
demonstrations bear witness to the utility of information technology for: measuring health 
plan performance; assisting patients in making informed decisions about care options; 
coordinating care across treatment sites; and enhancing service delivery in rural and urban 
underserved areas. However, there are few incentives to integrate information technology 
into health care delivery. Consumers, group purchasers and policymakers are generally 
unaware of the contributions to access, cost and quality that information technology could 
make, and they have been slow to advocate its development and use. 

Health care reform provides an excellent opportunity to integrate information 
technology into emerging health care delivery systems. WBGH hopes that whatever reform 
is enacted will address the current barriers to optimal use of information technology, 



102 



including provider reluctance, the lack of technology standards and the absence of 
reimbursement mechanisms. 

Comprehensive Continuum of Care: WBGH members have learned that to 
be high quality and low cost, health care must be comprehensive. WBGH supports 
comprehensive coverage defined by a National Health Board as we move toward providing 
treatment based on determinations of medical necessity, efficacy, severity of illness, and 
level of functioning. Those individuals who need intensive care should be able to get it, 
while the movement of individuals to less intensive levels of care should be encouraged. 
OSCs or accountable health plans must offer a full continuum of services, including 
preventive, primary, acute, rehabilitative and chronic care. 

As a nation, the only way we will be able to afford comprehensive health care for 
everyone is to encourage prevention and early intervention. More than half of the illness 
resulting in early death and disability can be prevented or effectively managed. We can 
encourage preventive practice through educational efforts, financial incentives to seek early 
treatment, and good communication between primary and specialty care providers. This can 
best be done in a system consistent with managed competition where health plans are held 
accountable for the cost and outcomes of care. 

On the issue of coverage for mental health and substance abuse care, I testified before 
this Committee on December 8th to emphasize that the best possible public policy is to 
provide for this category of disease as we do for all other medical illness. If we are to 
achieve affordable, quality health care, we must reform our health care system so that all 
health problems are effectively treated. Mental health and substance abuse problems cannot 
be an exception. They are prevalent in every aspect of our society, including our workforce. 

Experience in private sector health plans demonstrates that limiting the benefit for 
mental health and substance abuse services undermines cost containment and quality 
improvement. By managing care with a systems approach, employers such as Federal 
Express, Honeywell, and Digital Equipment have been able to increase access to care, 
improve employee satisfaction with the health plan, hold recidivism rates steady, and 
drastically reduce the cost trend for mental health care. In many cases, the cost trend for 
mental health is well below that for medical and surgical care. 

Federal Express exemplifies much that we have learned about organized systems of 
care. With a managed approach, including removing the barriers to outpatient services and 
including a full continuum of care, Federal Express saved more than $18 million in the first 
three years of their managed mental health program. Employee satisfaction rose from 85 
percent at the onset of the program to its current level of 91 percent. In addition, recidivism 
has remained constant since the plan was implemented. 

I commend Congressman Cooper for his leadership in applying managed competition 
to mental as well as physical health care, and for supporting the systemic changes in service 
delivery that have enabled large purchasers to eliminate limits on mental health coverage. 

Eliminating limits on mental health care that do not apply to physical health care encourages 
treatment based on medical necessity and appropriateness. It corrects some of the 
inefficiencies in service delivery driven by benefit design, and promotes the incorporation of 
the best available care. 

Mr. Chairman, this concludes my prepared statement. Again, I appreciate the 
opportunity to appear before the Committee and would be pleased to answer any questions 
that you or other Members of the Committee may have. 



103 

Mr. Waxman. Thank you very much for your testimony. I want 
to commend each of you for your presentation to us. I think it was 
very worthwhile. 

Let me ask Ms. Miller, Mr. Atwater or Dr. England, since you 
are representing employers, this bill doesn't end the cost shifting 
that is rampant in our current system. The only effective way, I be- 
lieve, to end cost shifting is to assure that everyone is covered. And 
I think we have established that the Cooper bill doesn't cover ev- 
erybody, so that, therefore, those who aren't covered are going to 
have their care, probably the most expensive emergency room and 
the cost will be shifted to those who are insured. 

Under this bill, employers who decide to contribute to the health 
coverage of their employees will continue to bear these health care 
costs of workers and their families that don't provide coverage be- 
cause of that shift. As business people, how do you intend to pro- 
tect your firms against that kind of cost-shifting under this bill? 
And if you can successfully avoid having cost shifted to your firms, 
what do you think will happen to Medicare beneficiaries and the 
providers that serve them? 

Mr. Atwater, do you want to respond to that, or Doctor England? 

Mr. Atwater. Well, we strongly believe in universal access to 
health care, and all the studies we have seen of the Cooper plan 
would indicate that enactment of that plan would cover more than 
80 percent of those that are currently uncovered, so that the re- 
maining people whose costs might be shifted are exactly the ones 
that were discussed in the first panel. They would tend to be 
young, healthy adults, who put a very small strain on the system. 
So that the cost shifting that is left with those few people would 
be very small indeed. 

The major cost shifter in today's health care system is, in fact, 
Medicare and Medicaid, which pick up only about 80 percent of 
their costs. And under the Clinton administration bill, when they 
are — when the Medicaid people are moved directly into the system, 
that cost shifting would continue to go on. So I think the Cooper 
basically deals with that issue. 

Mr. Waxman. OK. Any other responses, Ms. Miller? 

Mr. Miller. I would like to add one thing to what he said on 
that. I agree with what he said, that through — given the small 
group purchasing power to the alliances, they will be able to ex- 
pand the employer-based coverage much more because the market 
will be able to offer a more competitive price. And again, through 
the market itself it will change and it will only leave the cost shift, 
again, from the Medicaid population, the Medicare. I agree 

Mr. Waxman. Well, there is a cost shift for Medicare, but the 
Cooper bill would cut Medicare by $40 billion. Clinton, of course, 
cuts Medicare as well. But, Dr. England, you have a cost shift from 
Medicare. You have a cost shift from the uninsured who continue 
to be uninsured, and that is going to be shifted on to employers. 
How do you respond to that concern? 

Ms. England. The Medicare issue, we feel that all the public 
programs should be incorporated into reform and not allowed to re- 
main outside. If this reform is good for us that are working, then 
it should be good for all Americans. And when we talk about the 
Medicare cost increases, you are talking about trend. We feel that 



104 

if Medicare patients were included in accountable health plans and 
with the incentive of the additional drug benefit, you would actu- 
ally be able to reduce costs. 

One of the problems we have now is that old folks don't pay for 
their medications, and as you know, then get into serious trouble 
and arrive at the hospital door because they haven't taken their 
diuretics or their medication. So we would encourage that if people 
were allowed to have a full Medicare benefit within the accountable 
health plans, that would actually reduce costs. And what the Rep- 
resentative Cooper 

Mr. Waxman. Excuse me, I just want to interrupt you. I just un- 
derstand, would you do away with Medicare and have them as a 
part of the whole system? 

Ms. England. Yes, yes, I would. 

Mr. Waxman. So everybody in the same system. So do you envi- 
sion the system is going to try for prescription drugs? 

Ms. England. Yes, I do, full coverage of prescription drugs. If 
you are going in this modern type of medicine 

Mr. Waxman. Do you know whether it is the case? You think it 
ought to be, but that benefit package is going to be decided by some 
group. 

Ms. England. It is going to be decided by what is effective, and 
there is no way today with modern medicine that you can provide 
care without having full access to prescription drugs. 

As we all know, as we get older and older, we need more drugs 
to keep the system moving along. 

Mr. Waxman. I am an old Democrat, I know exactly what you 
are saying. Now, so you would — would you recommend that we 
change the Cooper bill to have the Medicare program brought into 
this? Did the rest of you agree with that? Ms. Singer, your — ^you 
are representing Mr. Enthoven. As I understood the Jackson Hole 
Enthoven theory, the cost burden was supposed to be borne by the 
individual by eliminating that tax break that rewards these higher 
priced plans. Isn't that correct? Speak into the mike. 

Ms. Singer. You are referring to the limit on tax free benefits? 

Mr. Waxman. Yes. 

Ms. Singer. The marginal differences in the costs of the plans 
would be borne by the individuals or the employers if they were — 
if they opted to pay for that. 

Mr. Waxman. But under the Enthoven theory, that would not — 
that would then be considered as income and not — and, therefore, 
taxable to the employee; isn't that correct? 

Ms. Singer. It would be taxable to the employer if the employer 
paid for it. Or it would be — it would be taxable to the employee if 
the employee paid for it. 

Mr. Waxman. As I recall the Enthoven theories, as I read them 
some time ago, he wanted whoever pays for it, the employee, to 
have it counted as income. If employers paid for it, there wouldn't 
be that exclusion from income that is now in the law, so that peo- 
ple would understand that they have to be conscious about price 
because they are going to be in effect paying for a higher priced 
health care plan if they want it. And if they want it they can buy 
it, but they have to be able to pay for it and understand that they 



105 

are paying for it and not some amorphous corporation employer 
somewhere else. Isn't that right? 

Ms. Singer. Yes. The idea is that the individual is fully cost con- 
scious of the differences and the price. 

Mr. Waxman. What would you think of the Cooper bill if the tax 
change were eliminated and there was no change in taxes from 
what we now have? 

Ms. Singer. I think you would have much weaker market forces. 
You know, the tax free benefits right now subsidizes the more ex- 
pensive plans. So you would continue to do that. You would cut by 
a margin people's incentives to choose more efficient plans and you 
would cut by that same margin the incentive for the health plans 
to lower their costs. 

Mr. Waxman. One of the goals of reform is not only to cover peo- 
ple that aren't covered, but to figure out some way to hold down 
the tremendously increasing costs that we are seeing in health 
care, except for that period of time when Congress is looking at re- 
forms. That seems to produce some drops. But what — how do we 
achieve cost controls under the Cooper proposal? Is it only because 
we provide the purchasing groups and the changes of the taxes so 
consumers feel the cost to them? Mr, Atwater. 

Mr. Atwater. Well, there are really three systems that can con- 
trol costs. The first is the individual that Ms. Singer was talking 
about. And it is under the Cooper plan the individual is very much 
in the act. As I mentioned in my testimony, we give large incen- 
tives, up to a 50 percent saving on your premium, to incense people 
to pay attention to their health care. 

And as I mentioned in my testimony, our health care costs are 
going down. The second group that works on this is corporations. 
And they, under the Cooper plan, as today, also have incentives, 
as we do and as I mentioned in my testimony. 

The third group, of course, is the way the health alliances per- 
form their purchasing. That is the only area in which there is any 
incentive under the Clinton plan, and since there will probably be 
only one major health alliance in any given State, I think most peo- 
ple think 90, 95 percent of the employees will be in the regional 
health alliance. There will be essentially no market disciplines in 
that plan whatsoever. 

The Cooper plan preserves all tliree of the market disciplines. 

Mr. Waxman. Thank you very much. 

Mr. Cooper. 

Mr. Cooper. Thank the chairman for yielding and I would like 
to thank each one of the panelists for the personal sacrifice they 
made being here today. And believe you me, I wish you could have 
gotten on earlier. 

The first question I would like to direct to Mr. Atwater. It is my 
understanding that you are a member of the business roundtable. 
They have a meeting this evening to decide whether to endorse or 
to delay an endorsement or to oppose the Cooper bill. Have you 
ever seen a business roundtable vote receive so much publicity as 
this one? 

Mr. Atwater. I don't think there is any subject that is much 
more important than health care reform, and the meeting is not 
this evening, it is in about 7 minutes. But, no, I have never seen 



106 

as much public interest, nor as much individual lobbying of CEO's 
as has gone on this time. 

I think it is unprecedented in any business organization, not just 
the business roundtable. 

Mr. Cooper. Would you feel free to describe for us some of the 
lobbying that has gone on prior to this vote? 

Mr. Atwater. Well, I think everyone is aware of what has gone 
on. There has been calls from everyone from congressional chair- 
men to members of the administration, suggesting that we not sup- 
port your plan. 

Mr. Cooper. Did they give reasons for doing that or did they — 
I don't want to make you late for your meeting and you have been 
extraordinarily generous to spend this much time with us, but I ap- 
preciate your leadership on these issues, not only with your own 
employees, as well as in the State of Minnesota. 

It is my understanding that Minnesota health care costs are 
about 18 percent below the national average and health outcomes 
are better. They are proof positive that more efficient care works 
for people. 

Mr. Atwater. Markets work, and I think our experience indi- 
cates it. If I could take 1 more minute, I would like to comment 
on the tax deductibility issue that was so heavily discussed in the 
previous panel. 

When there is a common set of health parameters, then every- 
body is going to be bidding against those. And I believe the low cost 
program of any quality is also going to be the common market 
price, as it is in almost any commodity-type business. When the — 
when the product is established with product specifications, vir- 
tually everybody comes to a common price. So most corporations 
are not going to find that their particular plan is way above the 
average because the average and the low cost are going to be very, 
very close to each other. 

Arid I think it is an important fact, Mr. Chairman, that did not 
come out in the original testimony. 

Mr. Cooper. I appreciate that. Dr. England, the Federal Express 
experience providing flexible mental health benefits, is that experi- 
ence transferable to other corporations? 

Ms. England. I think it is transferable and has been transfer- 
able. I think the important lesson we can learn from instead of 
having a limited benefit, but of allowing the health plan to make 
the determination of what is necessary and appropriate for mental 
health and substance abuse and being able to control costs, is what 
can be done for any health benefits. 

And that is why we like the idea of the National Health Board 
setting up a benefit structure of what is effective and what gives 
good outcomes. And that can be true across the board, not just in 
mental and substance abuse, but across the board in medicine and 
surgery, which is particularly acute in the mental and substance 
abuse area, because for so long we have had a limited benefit. 

So, yes, it is, and many of the companies represented here in the 
room, and as you know, my board is here in the room, and many 
of them have experienced the same kind of cost controls. And the 
important issue, I think, in the mental health area is that we have 
actually been able to increase the number of people getting serv- 



107 

ices. And like in Federal Express where only 2 to 3 percent got cov- 
erage under the original plan, when they moved to this comprehen- 
sive flexible plan, they were up to 8 or 9 percent of their employees 
were able to get access to services early. 

Mr. Cooper. Thank you. I hope that your board has extra sjrm- 
pathy for those of us who work in and with Congress as a result 
of today's hearing. 

The next question is for Dr. Miller. The following panel will have 
a witness from the Service Employees International Union. It is my 
understanding that he will suggest that purchasing groups such as 
yours in Memphis have not been effective in controlling costs or en- 
couraging firms which don't offer coverage to do so. 

What would your response be? 

Mr. Miller. He needs to come to Memphis and visit with me and 
I will give him some information to show that we have been very 
effective. Indeed, I have been able to expand this, to offer it to the 
smaller employer market, which is, of course, the gravest concern 
that we had, was that big business would cost shift over to the 
smaller employers. 

They now can access the same pricing as the big employers, 
which means that a company of 25 employees who is insured will 
have the same pricing by the hospitals and the networks that the 
Federal Express' employees do. 

A second thing is that what we have found and documented in 
Memphis is improved quality and efficiency. And when you find im- 
proved quality and efficiency in the delivery of care, they are not 
delivering that improved quality just to the members of my group. 
That improved delivery is being delivered community-wide. 

Mr. Cooper. You are part of a national coalition, as I understand 
it, of alliances like, or purchasing groups like yours all over the 
country. Do you recall exactly how many cities are involved in that 
group and whether those are just large cities or whether there are 
smaller communities as well? 

Mr. Miller. I think we currently have about 125 business coali- 
tions that belong to the national business group, probably 300 busi- 
ness groups nationwide. Of those groups, maybe currently a very 
small percentage are doing the purchasing alliances. We have got 
groups in Florida, I think Minneapolis, Denver, but it is growing. 

Every day we have more and more of the business groups that 
are developing these alliances, because it is working. You know, if 
you have 6 percent average increase for 5 years compared to 14.66 
percent in other parts of the world, and then we actually are now 
experiencing decreases, then it really shows that there is some- 
thing there that is working for not just the business group mem- 
bers, but I think for the community as a whole. 

Mr. Cooper. Thank you. The next question is for Mr. Cebrun. 
There is considerable skepticism on this panel whether managed 
care works, period, much less for poor people. Do you think it does? 

Mr. Cebrun. Well, I have been in managed care for over 20 
years. A large portion of that time has been spent serving the Med- 
icaid population. From my experience in both the private sector 
plans that I have worked with, I started, as well as those involving 
public sector, managed care does work. It does — whether managed 
care saves money is yet to be seen in terms of savings, because I 



108 

believe that whatever savings are achieved, that they have to be 
plowed back, if you will, or invested in the population served, in 
the form of additional kinds of benefits as what we have done with 
the Medicaid population. 

I think in the short term, there is no doubt in a marketplace 
where there is so much waste that managed care can help to con- 
tain the cost of providing similar benefits there. There is no doubt 
about that. That is almost unequivocal. 

Mr. Cooper. How about in meeting basic human needs? I think 
we realize there is excessive testing sometimes today. If we move 
to a managed-care environment, is there too little testing? Are 
human beings left out? 

Mr. Cebrun. No, I don't think so. In the plan that has the right 
set of incentives, I think there are already some built in, and if the 
regulations don't go too far, I think the incentives are to keep peo- 
ple well. So invariably what happens is that the plan, rather than 
sitting back and waiting for individuals to become ill or to continue 
to engage in behavior or to expose themselves to certain kinds of 
risk, the plan attempts to move aggressively to help to see if it can 
better educate that consumer to avoid certain risks to change their 
behavior. 

The resulting impact is a tremendous amount of dollars that are 
not spent on acute care are then available for even more health 
education and more testing; that is, tests for those individuals that 
we find at the highest risk. You can take some of the dollars and 
really begin to address some of the individuals who are at the high- 
est risk and maybe have the highest level of unmet need. That may 
not necessarily manifest itself in the benefit plan that is available. 

Mr. Cooper. Last question for Ms. Singer. As you know, and I 
appreciate your fine work on this issue as I appreciated the chance 
to work with Mr. Enthoven. Can you think of an alternative to the 
employer mandate that would persuade people on this panel that 
we could achieve universal coverage? 

Ms. Singer. Yes, we have been doing a lot of thinking about it, 
because we see pros and cons of both an employer and an individ- 
ual mandate. We think that although employer mandate distrib- 
utes the burden across all the employers, there is a possibility of 
unemplo)rment effects and you do end up shifting cost to employers. 
And if you are trying to create an explicit financing mechanism, 
that is not the way to do it. 

There is also the possibility of an employer mandate being ineffi- 
cient unless you can find a way to effectively target the subsidies 
to individuals within firms. So the — an alternative is an individual 
mandate which would be more expensive because you wouldn't be 
shifting burden on to employers, but at least it would be explicitly 
financed. 

One other notion that we are examining and we are beginning 
to favor is something that we are calling a free rider tax, which is 
mostly an enforcement mechanism. But as I said, under the Cooper 
proposal, the people that are left uninsured are principally going 
to be free riders. So if you create a free rider tax, you can target 
your enforcement efforts in such a way that you are focusing on the 
people who should be able to afford insurance, but don't go out and 
get it. 



109 

As opposed to necessarily targeting — ^you could have less strict 
enforcement measures for those people who are low income who 
you are offering subsidies to, but for whom those subsidies might 
not be sufficient even with what we provide. 

Mr. Cooper. It would be kind of like a mandate, but only for the 
willfully uninsured. That is interesting. If I could just ask the 
chairman's permission to submit for the record one more document. 

Mr. Waxman. Without objection, we will be pleased to receive the 
document for the record. 

Mr. Cooper. Thank you. 

Mr. Waxman, We have got to move on, but I can't help but try 
to get a clarification. The free riders that you would tax, are those 
the employers that don't provide insurance to their employees or 
the people who don't buy insurance for themselves? 

Ms. Singer. The way we have been thinking about it is you 
would be taxing the individuals who aren't purchasing the insur- 
ance for themselves. 

Mr. Waxman. What do you do with an individual who is making 
over — just barely over 200 percent of poverty and they can't afford 
to buy insurance? You are going to tax them in addition? 

Ms. Singer. No, see, that is what I said, the sort of good thing 
about a free rider tax is you could target the enforcement so that 
you were strictly enforcing it on people with high incomes, and less 
strictly enforcing it on people with low incomes. The problem with 
the subsidies, I mean even though — subsidizing people out to 200 
percent, you may argue about whether or not that is sufficient. 

What we do know is that subsidies are expensive. So you have 
an option between providing greater subsidies and spending more 
money from the Federal Government. So there is this trade-off. We 
do know that whatever — ^you know, we do know that right now in 
the Medicaid program, what you have is, you know, a cliff at what- 
ever percentage of the poverty level you are providing those bene- 
fits for. And under the Cooper proposal, these phasing out of sub- 
sidies are at least going to improve upon that. 

Mr. Waxman. But you still have the cliff. It is a little higher up, 
but it is a cliff nevertheless, and it is even a cliff for those under 
200 percent of poverty if the subsidy is not enough for them to 
make up the difference. But once you are over the 200 percent of 
poverty, you have got no subsidy at all. You have got to come up 
with the money. 

There are some figures I saw that showed that it might be 17 
percent of their income if you measure the cost of the premium at 
what the Clinton benefit would be evaluated. So for those people, 
they may not be able to afford it. You are right, we could raise the 
subsidies and cost more money. What do you recommend we do 
with those people? They want insurance, they just can't afford it. 
Their employers — and they are working people and their employers 
won't provide it to them because they choose not to. 

What do you do to those people? 

Ms. Singer. Well, what we are considering now is the oppor- 
tunity for a commission that would be part of the National Health 
Board would reassess the needs. And if, you know, you can look at 
the percentage of people given those subsidies that are bu3ang and 



110 

not buying to determine whether or not it has a reasonable subsidy 
to be providing. 

And if you determine that it is not a reasonable subsidy, you 
would make a recommendation to create greater — to increase the 
subsidies to the people that you are providing to, and increase the 
numbers of people that you are providing subsidies to. But as I 
said, again, you know, you have to make that trade-off with how 
much you want to spend. 

Mr. Waxman. Do you think employers might find it an incentive 
to drop coverage if they find that there is a subsidy for their em- 
ployees who are at fairly low income? 

Ms. Singer. They may. We think that the — given the sort of com- 
petitive nature of the labor markets, most employers who are cur- 
rently providing insurance would sort of have to continue to do 
that. But there may be some of that effect, which is, you know, 
which is one of the pros for an employer mandate. 

Mr. Waxman. Well, when you think of 39 million people without 
coverage and they are not the poorest of the poor, because they are 
already covered by Medicaid, and two-thirds of them, presumably, 
are working people or their dependents. You have got a lot of em- 
ployers, most likely small businesses, that aren't covering their em- 
ployees now. 

And, you know, I guess it would be more affordable, presumably, 
under this system and you try to make the market work more effi- 
ciently. But I guess we would have to look at it very carefully. Is 
that what you are suggesting? 

Ms. Singer. Yes. 

Mr. Waxman. Well, I thank you very much. You have been very 
helpful. I had a question of Dr. England, which I won't ask because 
we have not even finished the morning session. 

Ms. England. Perhaps I could come and visit with you. 

Mr. Waxman. Well, I was interested in an esoteric question of 
how you think mental health would be handled, because I know 
you are a psychiatrist. And a lot of psychologists and social workers 
tell me they fear that these managed systems will exclude them be- 
cause the medical people will favor psychiatrists. And I don't think 
you would want that to happen, because 

Ms. England. That has not been the experience in most of the 
organized systems of care that our employers use. It usually is a 
combination of psychologists, social workers and psychiatrists. As 
you know, in the public sector 

Mr. Waxman. One would think so. 

Ms. England. And in the public sector under the Medicaid pro- 
gram, we have a multidisciplinary approach, and that is our ap- 
proach, that it should be multidisciplinary. 

Mr. Waxman. We won't have time to get into that issue. Come 
and visit me. Thank you very much. You have been terrific. I ap- 
preciate your testimony. It has been very helpful to help us under- 
stand the legislation. 

Now, to move on to further this morning's schedule of witnesses, 
we have a panel that is here to testify in opposition to H.R. 3222. 
They do so from different perspectives, those of employers, workers, 
providers and consumers. Curtis H. Bamett is Chairman of the 
Board and Chief Executive Officer, Bethlehem Steel Corporation, 



Ill 

and is testifying today on behalf of the National Leadership Coali- 
tion for Health Care Reform. 

Anne Bryant is Executive Director of the American Association 
of University Women. She is testifying on behalf of that organiza- 
tion and the Campaign for Women's Health. John Howley is Assist- 
ant Director of Public Policy at the Service Employees Inter- 
national Union of Washington, D.C. Mr. William Coleman is Presi- 
dent of the American Academy of Family Physicians, and Ronald 
F. Pollack is Executive Director of Families USA Foundation in 
Washington, D.C. 

I want to welcome you all and I express my apologies to you be- 
cause I know some of you have been here all morning waiting for 
your chance to testify. But we are delighted you have stayed and 
are here to give us your presentation. 

Your prepared statements will all be in the record in full without 
objection. And we would like to ask each of you to limit the oral 
presentation to no more than 5 minutes. 

Mr. Bamett, if you will pull the microphone close to you, there 
is a button to push. 

STATEMENTS OF CURTIS H. BARNETTE, CHAIRMAN, BETH- 
LEHEM STEEL CORP., ALSO ON BEHALF OF NATIONAL LEAD- 
ERSHIP COALITION FOR HEALTH CARE REFORM; ANNE BRY- 
ANT, EXECUTIVE DIRECTOR, AMERICAN ASSOCIATION OF 
UNIVERSITY WOMEN, ON BEHALF OF THE CAMPAIGN FOR 
WOMEN'S HEALTH; JOHN HOWLEY, ASSISTANT DIRECTOR 
OF PUBLIC POLICY, SERVICE EMPLOYEES INTERNATIONAL 
UNION; WILLIAM H. COLEMAN, PRESIDENT, AMERICAN 
ACADEMY OF FAMILY PHYSICIANS; AND RONALD F. POL- 
LACK, EXECUTIVE DIRECTOR, FAMILIES V.SJl FOUNDATION 

Mr. Barnett. Mr, Chairman, Congressman Cooper, it is a great 
pleasure to be before you once again. I am chairman of Bethlehem 
Steel Corporation and I appear also on behalf of the National Lead- 
ership Coalition for Health Care Reform. 

Many adjectives are used to discuss the health care issue. We be- 
lieve it to be a crisis. There are 39 million uninsured. Our costs are 
going up dramatically. In the steely industry alone in 1980 to cur- 
rent date our health care costs have gone up some 270 percent, 
while overall emplo3rment costs which health care is a part, have 
gone up some 165 percent. 

Bethlehem Steel Corporation has 160,000 health care bene- 
ficiaries. We have 22,000 active employees. Our health care ex- 
penses are $231 million. I think the relevant factor for us is health 
care expense per health care beneficiary versus active employees. 
And that is $10,400 to cover the beneficiaries that are accountable 
under our health care plan. 

We have chosen to analyze and to support health care reform not 
by supporting or indeed opposing any particular bill, but by identi- 
fying what we believe to be the fundamental principles, the fun- 
damental objectives, against which health care reform must take 
place. And if I may mention only six or seven. 

One, universal coverage with standard benefit packages and em- 
ployer mandates; 



112 

Two, cost control with global budgets, spending targets to get 
health care to CPI inflation rates; 

Third, cost shifting must be eliminated; 

Four, quality, practice protocols, quality measurement systems; 

Five, eliminate administrative waste, and there is ample oppor- 
tunity to do that; 

Six, malpractice reform; and 

Seven having Medicare as a primary payer for the elderly. 

Bethlehem supports the overall objectives of the President's 
health care reform program. 

With respect to the Cooper legislation, I would make only these 
observations. I appreciate the opportunity to discuss this. With re- 
spect to the Cooper bill in at least three areas. Cooper, as we un- 
derstand it — and I appreciate that this is an ongoing and a dy- 
namic process — would not provide universal coverage; 

Second, it does not aggressively deal with cost control; and 

Third, cost-shifting is a serious problem, at least as we under- 
stand it today. 

It is for all of these reasons that we choose to measure the Coo- 
per legislation and all other legislation against the fundamental ob- 
jectives that we think must be achieved, and are prepared and anx- 
iously wish to cooperate with the committee, with the Congress and 
with the administration to achieve the desperately needed health 
care reform that we think is so essential. 

Thank you. 

Mr. Waxman. Thank you. 

[The prepared statement of Mr. Bamette follows:] 

Statement of Curtis H. Barnette, Chairman and Chief Executive Officer, 

Bethlehem Steel Corporation 

Good morning Chairman Waxman and members of the subcommittee. 

I appreciate the opportunity to speak before your subcommittee today to share 
Bethlehem Steel's views and concerns about the Health Care Crisis facing our Na- 
tion and the unique opportunity the Congress has — this year — to address this im- 
portant issue. Health Care Reform is a top priority issue for Bethlehem and, I be- 
lieve, for all Americans. 

The need for comprehensive Health Care Reform — Reform that constrains spend- 
ing, guarantees coverage to all Americans, and improves the quality of care — is 
greater now than ever before. 

Yes, we have a Health Care Crisis. For those who do not see the crisis, I would 
point to the following facts: 

— 39 million Americans have no insurance — the number of uninsured increased by 
over 2 million between 1991 and 1992. 

— One out of four Americans will lose health insurance for some period during the 
next 2 years. 

— Losing or changing a job often means losing health insurance. 

— Health care costs fire rising faster than other sectors of the economy. Costs are 
projected to exceed $1 trillion in 1994, and CBO predicts National health expendi- 
tures totaling $1.68 trillion by the year 2000. 

Bethlehem has 21,000 active employees and 160,000 health care beneficiaries — 
active employees, retirees and their dependents. Bethlehem's health care costs in 
1993 totaled $232 miUion. Our health cost in 1993 was $4,453 per active employee 
for active coverage, but was $10,386 per active employee for coverage for active and 
retired beneficiaries. 

Bethlehem supports the basic principles of Health Care Reform outlined by Presi- 
dent Clinton. We believe that Health Care Reform must be comprehensive — Reform 
that guarantees coverage to all Americans, constrains spending, and improves the 
quality of care. The longer we delay needed reforms, the worse the Health Ctu-e Cri- 
sis will become. 



113 

There is no area of public policy that will affect our Nation's future economic 
growth more than our policy on health care. Our Nation's Health Care System is 
the most expensive in the world, and without change, it will cripple our abiUty to 
compete in he global economy. 

Wiiile I recognize that the subject of the hearing is Health Care, most respect- 
fully, I would submit that Health Care Reform is only one of the major issues that 
must be resolved, since it is closely interrelated to other pending key public policy 
issues. 

If you believe, as we do, that the national interest requires a modernized and 
profitable steel industry in this country, then Health Care, fair trade of steel im- 
ports, infrastructure rebuilding, and ihe responsible application of ovu* environ- 
mental laws, are all of great importance. 

Our steel industry today is the low cost, high quality producer of steel products 
for the U.S. market. This has happened through significant restructuring and cap- 
ital spending. The steel industry today has approximately 169,000 employees, down 
by almost 58 percent, from 399,000 in 1980. Private companies, not foreign govern- 
ments, pay the expenses of this restructuring including pension and Health Care 
costs for deserving retirees and their dependents, and a decreased active workforce 
has to pay these expenses. 

We are still the open market for steel trade, and a net importer of steel products. 
Foreign subsidies and dumping continue to seriously injure the domestic industry, 
so that enforcing our trade laws and keeping them strong and effective, is essential. 

Rising health care costs are becoming an increasingly important factor limiting 
the United States' ability to compete in the global market. For example, Beth- 
lehem's shipments total more than 9 million tons of steel. Health Care accounts for 
6 percent of its total cost, or $25 per ton that is not available for necessary invest- 
ments in plant and equipment, research and development, benefits and employee 
training. Among our major foreign steel competitors, the United States has the 
highest per capita Health Care cost. In the United States, this cost is borne prin- 
cipally by the larger employers. Whereas in Canada, Europe, and Japan, the cost 
of HealtJi Care is spread more equitably among all employers and/or the public. 

Health care costs place American steel companies and other domestic companies 
as well, at a competitive disadvantage. Because steel is an international commodity, 
and U.S. companies must compete in the global market, this cost disadvantage is 
simply not sustainable in the long run. 

Health Care cost problems in the steel industry are compounded because we pro- 
vide medical coverage for active employees as well as retirees. Our current 
workforce is approximately 21,000, and we support Health Care costs for 160,000 
Health Care beneficiaries including 63,000 retirees. 

Pension and Health Care legacy costs place American industry at a competitive 
disadvantage because such costs are not borne by our international competitors, but 
by their governments. 

Bethlehem, other steel companies, and the Steelworkers Union have also been ac- 
tively supporting the Reform principles of the National Leadership Coalition for 
Health Care Reform. We believe that Reform must address three key issues — first, 
universal coverage for all Americans, second, workable constraints on increases in 
Health Care spending, and finally, measures to ensure quality of care. 

The Congress has before it President Clinton's Health Security Act, as well as 
Bills submitted by members in the House and Senate. 

The challenge tor the Congress in the coming weeks will be to shape a comprehen- 
sive Health Care Reform Bui that addresses the Health Care Crisis facing our Na- 
tion. 

I believe that fundamental Reform at the National level should be consistent with 
a few key principles addressing cost, access, and quality. 

I submit the following principles for your consideration as you draft legislative 
language. 

1. Universal coverage must be addressed. All Americans should have the security 
of health insurance with a standard benefit package established at the Federal 
level. 

We support the principle that working Americans should be covered for health in- 
surance tnrou^h the workplace — with appropriate subsidies for small business and 
that non-working Americans, regardless of their circumstances, should be covered 
through broad community programs or Health Alliances. 

2. Costs control must be addressed. Aggregate growth in our Nation's Health Care 
System must be controlled. We support the use of global budgets or spending targets 
to bring the annual escalation in Health Care costs down to an acceptable level (the 
CPI inflation rate). 



114 

3. Cost shifting must be eliminated. Legislation is needed to ensure that public 
and private payers pay the same for Health Care. All payer regional reimbursement 
scheaules for provider fees should be established. 

4. We must ensure that we maintain the quality of Health Care with the use of 
appropriate tools such as practice protocols, technology assessment, quality meas- 
urement systems, and National Quality Data Bases. 

5. Administrative waste must be eliminated through the use of standard identi- 
fication cards and claim forms and electronic processing. 

6. Malpractice reform is needed to reduce costs associated with medical mal- 
practice suits and defensive medicine. 

7. Medicare must remain as the primary payer for the elderly. 

Bethlehem will be appl5dng these key principles in evaluating each of the Health 
Care proposals that are oefore the Congress. 

We commend Congressman Cooper for his leadership on Health Care Reform. 

While the Cooper Bill, H.R. 3222, is consistent with a few of the principles, it does 
not adequately address the most important principles of UniverssJ access and cost 
control. 

H.R. 3222 would not achieve Universal coverage. Bethlehem believes that Univer- 
sal coverage is a crucial element of Health Care Reform. Having access to Health 
insurance is good, but it is not enough. We should make sure that all Americans 
actually have coverage. 

Second, H.R. 3222 is not aggressive enough on cost control. It relies on competi- 
tion to achieve cost control and we do not believe this is sufficient. I urge the sub- 
committee to report out legislation that includes the expenditure targets and rate 
setting to insure cost control. Experience in the United States and elsewhere in the 
world has made it clear that rate setting is an effective tool for controlling cost. 

In its current form, H.R. 3222 would cut the rates of growth in Medicare and 
Medicaid, thereby inviting providers to make up for the lost revenue by raising pre- 
miums paid by businesses and other private payers — thus continuing today's cost 
shifting which needs to be addressed by Health Reform. 

I am encouraged by the clear signs that Republican and Democratic leaders in the 
Congress are intent on achieving meaningful Health Care Reform. We must success- 
fully meet the challenge, and we must do so in 1994. Bethlehem is anxious to work 
with your subcommittee and the Members of Congress and the administration as 
you work to achieve comprehensive Reform of our Health Care System. 

I thank you for the opportunity to meet with you today. 

Mr. Waxman. Mrs. Bryant. 

STATEMENT OF ANNE L. BRYANT 

Ms. Bryant. Thank you for the opportunity to address this com- 
mittee on the Managed Competition Act. I am Anne Bryant, Execu- 
tive Director of the American Association of University Women, but 
I am speaking today on behalf of the Campaign for Women's 
Health, which is a broad-based coalition of 90 national, State and 
community-based organizations representing more than 8 million 
individuals committed to ensuring that women's health is fully ad- 
dressed in the national health care system. 

While I am not an expert on the many nuances of health care 
reform, AAUW's 135,000 members in 1,750 communities care a 
great deal about this issue; and our long history of interest in and 
advocacy on behalf of women's health goes back to 1885, in fact, 
when we produced our first research that was a major study to 
counteract the work of Dr. Edward Clark, who claimed that higher 
education adversely affected women's mental and reproductive 
health. Needless to say, it was not hard to disprove his theories. 

We are pleased that the Cooper-Grandy bill would ensure that 
every American would have the right to purchase health care in- 
surance, but universal access to health care does not necessarily 
translate into universal coverage, an issue that has been talked 
about greatly this morning. Just because health coverage is avail- 
able to the public does not mean it will be affordable to all. 



115 

We believe this proposal falls short in three critical areas: first, 
guaranteeing universal coverage; second, providing comprehensive 
benefits packages for women; and three, ensuring access to the va- 
riety of providers in health care delivery settings that women re- 
quire. 

The first is universal coverage. AAUW and the Campaign for 
Women's Health are convinced that national health care reform 
must provide universal coverage for every individual. 

Although the Cooper-Grandy bill makes certain reforms in the 
insurance industry in order to provide greater access to health care 
coverage, it does not address the issue of affordability for those in- 
dividuals in low-paying jobs. Women are two-thirds of the part-time 
and temporary workers and hold the majority of low-paid jobs in 
the service, sales and household industries, occupations where 
many times these benefits have historically not been provided and 
for whom bujdng the insurance is an impossibility. Congress cannot 
ignore the fact that cost is the major barrier to obtaining needed 
health care and preventive services. 

Although the bill addresses Medicaid-eligible Americans, if it 
were to pass, women on Medicaid will lose current support services 
such as transportation, child care and translation assistance. These 
vital, enabling services are the only way many low-income women 
are able to get access to the care they need. 

The second area is comprehensive benefits. In an attempt to pass 
legislation and get the votes you need, the proponents of this bill 
are finessing the tough decisions regarding health care services and 
which of those will be provided. We are not willing to risk leaving 
those choices to the political vagaries of a National Health Board, 
a politically appointed decision-making body that does not require 
representation of women and women's health care experts. 

Any national health care plan must define its benefits in the leg- 
islation in order to ensure those benefits are secure. It is particu- 
larly important that women receive full coverage for primary and 
preventive care, long-term care, reproductive health care counsel- 
ing, and including services such as contraception, prenatal and ma- 
ternal care and abortion. 

Mr. Waxman. Ms. Bryant, there^ is a vote on the Floor that none 
of us knew about because the lights are not working here. We are 
going to recess, vote, and then come back. 

[Brief recess.l 

Mr. Waxman. The meeting will come back to order. 

Ms. Bryant, please conclude. 

Ms. Bryant. I am assuming I get my time. I noticed that the 
word "abortion" had you all running out of the room. I will pick up 
at the sentence where I left off. 

We believe it is particularly important that women receive full 
coverage for primary and preventive care, long-term care, reproduc- 
tive health care and counseling, including services such contracep- 
tion, prenatal care, maternal care and abortion. Reproductive 
health care is often a woman's entry point into the health care sys- 
tem and may be the only form of primary care that she receives, 

I was pleased this morning to hear Mr. Cooper's response to Mr. 
Synar's question, which opened the way for a predetermined set of 



116 

benefits. This must include reproductive health care. It cannot be 
left to politicians and a separate vote in Congress. 

We are greatly disturbed by proposals to exclude abortion serv- 
ices from any standard benefits package and to make a rider avail- 
able to those women who want coverage for this service. Such a 
proposal discriminates against women by making a medical proce- 
dure specific to women an "extra" in their health care coverage. 
Simply, it is unethical to force women to buy additional coverage 
year in, year out throughout their reproductive lives for a service 
they hope they will never need and could not possibly anticipate or 
plan. 

Moreover, many women already have coverage for this service 
through their private and Federal insurance plans. This is not 
health care reform. Under this proposal, women who now have in- 
surance coverage for abortion services would lose that critical bene- 
fit. 

The third and final area of concern is the range of providers and 
setting. AAUW and the Campaign for Women's Health believe that 
the delivery of health care services is just as important as the serv- 
ices themselves. If a woman cannot get access to these services, 
they are of little benefit. 

We commend the sponsors of this bill for its training provisions 
that will increase the number of primary care providers, including 
physician assistants, health educators, nurse practitioners and 
nurse midwives, many of whom play a significant role in providing 
women with needed care in community-based settings. 

We are also pleased that the bill would make grants available to 
community-based clinics to improve access to coverage in under- 
served areas. However, we are concerned that the bill does not 
reach all underserved populations because it does not specifically 
require reimbursement of services provided in settings of particular 
importance to women such as family planning clinics, school-based 
and school-linked clinics. To exclude these settings is a glaring 
omission because they are frequently the only places that many 
girls, particularly those from low-income families, receive critical 
health care services. 

Two years ago the AAUW Educational Foundation released the 
AAUW report. How Schools Shortchange Girls. This ground-break- 
ing report documented pervasive bias against girls in schools, but 
what the media missed was a major section in the report which 
outlined a distressing finding that in most schools scant attention 
and resources are given to girls' health needs. 

Let's not perpetuate this failure to address girls' health. Services 
provided in school-linked settings would address many problems 
that disproportionately affect the health and educational perform- 
ance of girls, such as eating disorders, depression and suicide, sex- 
ually transmitted diseases and pregnancy. 

One of the major goals of national health reform is to respond 
to the inequities in the current health care system. This is an ex- 
cellent opportunity to remove barriers that women face in obtain- 
ing comprehensive health care. 

While we applaud the Managed Competition Act for its attempt 
to improve access to health care for all Americans, it falls short of 
addressing women's health care concerns. 



117 

In summary, AAUW and the Campaign for Women's Health are 
committed to ensuring that women are not left behind in this re- 
form process. 

Thank you. 

Mr. Waxman. Thank you. 

[The prepared statement of Ms. Bryant follows:] 



118 



STATEMENT OF AMERICAN ASSOCIATION OF UNIVERSITY WOMEN 

Chairman Waxman, thank you for the opportunity to testify 
before this committee about the impact of HR 3222, the Managed 
Competition Act, on women's health care concerns. I am Anne 
Bryant, Executive Director of the American Association of 
University Women (AAUW), an organization of 135,000 members in 
1,750 communities nationwide. I am testifying today on behalf of 
the Campaign for Women's Health, a broad-based coalition of 90 
national, state, and community-based organizations representing 
more than eight million individuals committed to ensuring that 
women's health care needs are fully addressed in national health 
care reform. 

While I am not personally an expert on health care reform, 
AAUW has a long history of interest in and advocacy on behalf of 
women's health. From its beginning in 1881, AAUW has worked to 
improve the health and welfare of all people. In 1935, an AAUW 
resolution called for "more extensive research to assist in the 
scientific knowledge needed for maintaining health." Women's 
health concerns in health care reform are currently a top AAUW 
public policy action priority. 

Although we are pleased that HR 3222 would ensure universal 
access to health care for all Americans, this bill provides only a 
partial solution to the health care problems facing women today. 
We believe that this proposal falls short of guaranteeing universal 
coverage, a comprehensive benefits package for women, and access to 
the variety of providers and settings that women require. 



119 



Universal Coverage 

AAUW and the Campaign for Women's Health are committed to 
ensuring that national health care reform provides universal 
coverage for every individual. This is particularly important to 
women. The current practice of tying health insurance to full-time 
employment has resulted in many women falling through the cracks. 
Two-thirds of part-time workers are women, and women are more 
likely than men to be employed in temporary positions, in small 
businesses, and in service, sales and household jobs where benefits 
are frequently not provided. Due to family caregiving 
responsibilities, women's work patterns are more likely to be 
episodic than those of men. That results in inconsistent coverage 
and vulnerability to pre-existing conditions clauses, including 
loss of pregnancy and maternity benefits. Because women are the 
primary caregivers in most families, they are frequently dependent 
on their husbands' insurance coverage, which they lose upon 
divorce or widowhood. 

The 1993 Commonwealth Fund Women's Health Survey found that 
among the uninsured in this country, women are more likely than men 
not to get the care they need: 36 percent of the women surveyed, 
compared to 23 percent of the men, reported not receiving needed 
care in 1993. The January 1994 report prepared by the Women's 
Research and Education Institute revealed that women account for 69 
percent of the 10.8 million Americans age 15 to 44 for whom 
out-of-pocket health expenditures represent more than 10 percent of 
their income. 



120 



Under the Managed Competition Act, individuals may 
voluntarily purchase health insurance coverage, with or without an 
employer contribution. This proposal for universal access will 
leave many women outside the health care system. It will not 
reduce the burden of health care costs on individuals and their 
families, which constitute a major barrier to obtaining needed care 
and preventive services. 

The bill's provisions for reducing premiums and cost-sharing 
for low-income individuals may not be sufficient to remove barriers 
to poor women's access to health care. According to the WREI study 
I have already mentioned, 55 percent of women below the poverty 
line currently do not receive preventive care. "Universal access" 
in HR 3222, by not substantially lowering premiums and 
out-of-pocket costs, is an inadequate solution to this problem. 
Medicaid-eligible women who must obtain coverage for acute services 
through health plan purchasing cooperatives under this bill will 
lose current Medicaid support services such as transportation, 
child care, and translation assistance. These enabling services 
are the only way many low- income women are able to obtain the care 
they need. 

Comprehensive Benefits 

AAUW and the Campaign for Women's Health are dedicated to 
ensuring that women receive legislatively-defined comprehensive 
benefits that include the full range of reproductive health 



121 



services, an emphasis on primary and preventive care, and 
comprehensive long-term care. HR 3222 's failure to outline a 
guaranteed comprehensive benefits package will also leave women 
without access to all the health care services they need over their 
lifetimes. 

By leaving the determination of covered benefits to a 
National Health Board, the Managed Competition Act makes coverage 
for the health care concerns I have outlined subject to the 
political vagaries of an appointed decision-making body. Women 
have seen the results of panels of policy experts defining our 
health care needs. The General Accounting Office has reported that 
the federal government, the major investor in health research, 
spends a disproportionately small amount of of its $8 billion 
annual budget for studies of diseases and conditions unique to, 
more prevalent, or more serious in women. Women are excluded from 
or underrepresented in clinical trials, leaving physicians unable 
to determine whether the results from studies can be extrapolated 
to women. 

It is particularly important that women receive full coverage 
for reproductive health care and counseling, including services 
such as contraception, prenatal and maternal care, diagnosis and 
treatment for sexually transmitted and reproductive tract diseases, 
and abortion services. Reproductive health care is often the first 
type of care a woman seeks — her entry point into the health care 
system — and may be the only form of primary care she receives. 



122 



We are greatly disturbed by proposals to exclude abortion 
services from the standard benefits package and to make a rider 
available to those women who want coverage for this service. Such 
a proposal discriminates against women by making a medical 
procedure specific to women an "extra" in their health care 
coverage. This requires women to pre-pay for a service they cannot 
anticipate needing and for which many currently have coverage 
through private and federal insurance plans. Under this health 
care reform proposal, women would actually lose a benefit. 

Insufficient funding for breast cancer research has resulted 
in a lack of information on the causes, diagnosis, and treatment 
for this leading cause of death for women ages 35 to 52. The 
National Health Board would determine coverage for diagnostic and 
treatment procedures for breast and other cancers specific to 
women, including the frequency of mammograms and Pap Smears for 
women of different age groups. Given the current controversy over 
the effectiveness of mammography screening for women under SO, 
we are concerned that early detection of these deadly diseases 
might be thwarted by cost-saving efforts. Any attempts to impose 
the costs of these screening services on women will 
disproportionately burden low-income women and women of color, who 
are already more likely to die of breast cancer due to delayed 
diagnosis. 

The future of research on women's health care concerns is 
already in jeopardy. Women are currently under represented in both 
senior research and policymaking positions that determine the 



123 



course of health care research. HR 3222 not only vests these same 
experts with the power to define those services to which women will 
have access under health care reform, but the bill contains no 
provisions for guaranteeing representation of women and women's 
health experts on the National Health Board. 

Range of Providers and Settings 

AAUW and the Campaign for Women's Health are committed to 
ensuring that under national health care reform women will be able 
to obtain covered services in hospital and outpatient settings, the 
home, community-based clinics, school-based clinics, skilled 
nursing facilities, long-term care settings, and hospice 
facilities. To guarantee that the reformed health care system 
provides access for all women, services must be available from the 
full range of health care providers and in community settings that 
are appropriate and convenient for women and girls. The creation 
of a health care continuum, from early childhood to old age, will 
require putting services where women and their families can take 
advantage of them. 

We commend the sponsors of HR 3222 for its training 
provisions intended to increase the numbers of primary care 
providers, including physician assistants, health educators, nurse 
practitioners, and nurse midwives, many of whom play a significant 
role in providing women with needed care in community-based 
settings. We are also pleased that the bill would make grants 
available to community-based clinics to improve access to coverage 



124 



in underserved areas. We are concerned, however, that the bill 
does not specifically require reimbursement of services provided in 
settings of particular importance to women, such as family planning 
clinics and school-based or school-linked clinics. These two 
settings are frequently the only places many women and girls, 
particularly those from low-income families, receive critical 
health care services. 

In 1992, the AAUW Educational Foundation released The AAUW 
Report; How Schools Shortchange Girls , highlighting a variety of 
issues that have an impact on the opportunities of girls to succeed 
in school and beyond. Among them were health needs currently given 
little attention and resources in most school systems. While 
coordination of services and health education would benefit all 
students, it has particular relevance to the lives and educational 
experiences of girls. Services provided in a school-linked setting 
would address many problems that disproportionately affect the 
health and educational performance of girls, such as eating 
disorders, depression and suicide, sexually transmitted diseases, 
and unintended pregnancy. 

Conclusion 

One of the major goals of national health reform is to 
respond to inequities in the current health care system. This is 
an excellent opportunity to remove specific barriers that women 
face in obtaining comprehensive health care. While we applaud the 
Managed Competition Act for its attempt to improve access to health 
care for all Americans, it does not succeed in addressing women's 
health care concerns. It is of the utmost importance that any 
health care reform passed by this Congress bring an end to the 
inequitable treatment of women in the health care delivery system. 
AAUW and the Campaign for Women's Health are committed to ensuring 
that women's health care concerns are not left behind in this 
reform process. I thank you for the opportunity to further that 
goal by speaking before you today. 



125 

Mr. Waxman. Mr. Howley. 

STATEMENT OF JOHN HOWLEY 

Mr. Howley. I would like to thank you, Chairman Waxman and 
the other members of the subcommittee, for this opportunity to tes- 
tify on behalf of the 1 million members of SEIU. I am here today 
to speak in opposition to the Managed Competition Act of 1993, 
H.R. 3222. 

SEIU is opposed to this legislation because it does not meet our 
principles for universal coverage regardless of health or employ- 
ment status, real cost control, quality improvement, and fair and 
equitable financing and protection for health care workers. 

H.R. 3222 fails this test. It creates the illusion of reform without 
the substance. 

The Managed Competition Act is not really, however, a painless 
placebo that simply maintains the status quo. In many ways, we 
believe it would actually make things worse for hard-pressed, mid- 
dle-income, working families. For example, the bill would create 
tax incentives for employers to shift even more of the burden of 
health insurance onto the backs of workers. 

Over the past year, more than 2 million people have lost their 
health insurance, raising the number of uninsured to 39 million. 
One out of every four Americans will lose their health insurance 
for some period during the next 2 years. It is very clear that our 
employer-based health insurance system is unraveling rapidly be- 
fore our eyes. 

Our local unions continue to report that employers have been 
trying to scale back the scope of insurance coverage and place 
greater restrictions on its use. We see this effect every day. For ex- 
ample, we represent workers who are employed by service contrac- 
tors. It is very easy for one service contractor to underbid another 
simply by not providing health insurance to their low-wage employ- 
ees. 

The Managed Competition Act would not require employers to 
make any contribution to their employees' health insurance costs. 
This would leave millions of Americans unable to afford insurance. 

It is remarkable that the Managed Competition Act relies on 
complete faith in the idea that with a little tinkering, market forces 
can be made to keep health care costs under control. During the 
1980's, which was the era of deregulation in health care and other 
markets, we saw greater price increases than ever before. 

We are not opposed to using the market forces, where appro- 
priate, to give consumers more choices. We simply think that there 
has to be a guarantee to working people that they are going to be 
protected in the event that those market forces don't work. That is 
the main difference between the Health Security Act and the Man- 
aged Competition Act. The Health Security Act says, let's use mar- 
ket forces to control costs, but if they don't work, let's back them 
up with caps on the cost increases. 

I think that the chairman was right to zero in on the tax cap pro- 
posal, which we believe is designed to put the burden of the risk 
of continued increase in health inflation and health spending right 
on the consumer. It is accurate to say that the employers will sim- 
ply limit their contribution to whatever the tax cap is, and employ- 



126 

ees will be stuck should health spending rise faster than the tax 
cap itself. 

As for the distributional impact of a tax cap, we did a study last 
year which looked at what would happen if you capped the so- 
called "deduction" that families could take. We found that 75 per- 
cent of the tax increase would be paid by families earning less than 
$75,000. The mechanisms on these tax caps may vary, but the dis- 
tributional impact is there. 

If you ask Mr. lacocca or any of his successors to pay another 50 
bucks a month for health insurance, he is not even going to blink. 
But if you ask the average taxpayer to pay an extra 50 bucks for 
health insurance, that makes a big difference to them. You can't 
separate the issue of the tax cap from the benefit package. 

What is the benefit package going to be? I have heard supporters 
of the Cooper bill say the Health Security Act benefit package is 
a Cadillac package. Let me point out that the Health Security Act 
leaves families exposed to up to $3,000 a year in health costs and 
that is the standard throughout both the union and nonunion sec- 
tor these days. 

So if that is a Cadillac package, what then are we talking about? 
Usually a Chevrolet costs a third to a quarter of what a Cadillac 
costs, so presumably we are talking about bare-bones catastrophic 
coverage here. That would mean setting the tax cap very low and 
shifting a good deal of the cost onto the backs of the workers. 

I think that without an employer mandate that requires all em- 
ployers to cover their workers, we will continue to have competition 
among employers on the basis of who provides coverage and who 
doesn't. 

The impact of the employer mandates — ^the issue of the 
disemployment effects, I think is a red herring. The Health Secu- 
rity Act would require a 15-cent-an-hour increase. President Bush 
signed a 90-cent-an-hour increase in the minimum wage without 
any disemployment effects. 

Thank you. 

Mr. Waxman. Thank you very much, Mr. Howley. 

[Testimony resumes on p. 137.] 

[The prepared statement of Mr. Howley follows:] 



127 



TESTIMONY OF JOHN HOWLEY 
ASSISTANT DIRECTOR OF PUBLIC POLICY 

SERVICE EMPLOYEES INTERNATIONAL UNION, AFL-CIO, CLC 

My name is John Howley and I am the Assistant Director of Public Policy for the Service 
Employees International Union. With over one million service-sector workers in the United 
States, Canada and Puerto Rico, SEIU is the fourth largest union in the AFL-CIO, and the 
largest union representing service workers. 

SERJ members come from both the public and private sectors and include 450,000 health 
care workers who work in acute care hospitals, nursing homes, mental hospitals and other health 
care facilities. On their behalf, I would like to thank Chairman Waxman, and the other 
members of the subcommittee for this opportunity to testify on one of the most critical issues 
facing our nation today. Let me also take this opportunity to applaud the chairman for your 
outstanding leadership in this area over the years. 

Our members don't need charts and graphs or expert pronouncements to understand that 
there is a crisis in our health care system. Over the last decade, health care has been the 
number one issue at the bargaining table. Our members have fought hard to hold on to their 
health insurance, often foregoing wage increases and benefit improvements to maintain coverage 
for themselves and their families. They have faced greater out-of-pocket costs and declining 
choices, as employers have tried to restrict where and when they can see a doctor. 

While disagreements over health care issues have made collective bargaining more 
contentious than it otherwise would have been, labor and management have also worked together 
to pioneer new cost containment strategies such as utilization review and managed care. While 
these measures showed some short-term success, they were unable to blunt the long-term rise 
in costs. Only system-wide reform can provide the relief that workers and their employers need. 

I am here today to speak in opposition to the Managed Competition Act of 1993 (H.R. 
3222). SEIU is opposed to H.R. 3222 because it does not meet SEIU's principles for reforming 
the health care system. These principles include universal coverage regardless of health or 
employment status, comprehensive benefits, real cost control, quality improvement, fair and 
equitable financing, and protection for health workers. These are the criteria by which we judge 
the various health care reform proposals that have been put forward. Unformnately, H.R. 3222 
completely fails the test. It creates the illusion of reform without the substance. 

The Managed Competition Act is not merely a painless placebo that simply maintains the 
status quo. In many ways, it would acnially make things worse for middle-class families. The 
bill creates tax incentives for employers to shift more of the burden of health insurance onto the 
backs of workers. Its reliance on community rating as a substitute for cost control would 
acmally raise premium costs for the majority of businesses, without any compensating slowdown 
in the rate of increase in health costs. 

In my testimony today, I want to address three issues in detail: the failure of the 
Managed Competition Act to guarantee universal coverage; the reasons why the Act would not 
successfully control health care costs; and the likely negative impact of this proposal on the 
nation's public health system. 



128 



Universal Coverage: No Compromise 

It should be a source of shame to us that in the richest nation on earth there are 39 
million people without any form of health insurance whatsoever. Millions more are 
underinsured and often do not discover the crucial gaps in their coverage until it is too late. In 
addition to the high cost of health insurance, many individuals and families are denied coverage 
because their employer does not provide it or because of pre-existing conditions that the 
insurance company refuses to cover. 

Over the past year, more than two million people have lost their health insurance, raising 
the number of uninsured to 39 million. One out of every four Americans will lose their health 
insurance for some period during the next two years. Many of our members report that their 
employers have been trying to scale back the scope of their insurance coverage and place greater 
restrictions on its use. 

Unlike the Health Security Act, H.R. 3222 would not require employers to make any 
contribution toward their employees' health insurance costs. This would mean that millions of 
Americans would still be unable to afford insurance. Workers could still lose their insurance 
if they lost their jobs or if they changed jobs. By failing to guarantee universal coverage, the 
Managed Competition Act fails to provide working families with the health security they so 
desperately need. 



Cost Control: Why the Market Can't Do it Alone 

A remarkable aspect of the Managed Competition Act is its complete faith in the idea 
that, with a little tinkering here and there, market forces would be capable of keeping health care 
costs under control. This scenario flies in the face of our experience over the last decade with 
deregulation in the health care industry. Reagan-era reliance on market forces brought us the 
highest rates of medical price inflation ever. This does not mean that SEIU is opposed to 
making the market for health insurance more competitive and responsive to consumer needs. 
We simply feel that these measures alone will not bring health care costs under control. 

In our view, the cost control strategy in H.R. 3222 suffers from seven major weaknesses: 

• Price competition between plans won't necessarily bring costs down. 

• "Managed Care" plans may not be more cost-effective. 

• Voluntary purchasing cooperatives will be undermined by adverse 
selection. 

• Insurance reform without cost control may raise costs for those with 
insurance. 



129 



• Capping the employers' tax deduction for health insurance will increase 
costs for middle-class families. 

• Allowing the benefits package to be determined later makes it harder to 
assess the likely effectiveness of cost control measures. 

• The lack of universal coverage will lead to higher costs for those with 
insurance. 

I want to deal with each of these points in turn. 



Competition Between Plans Won 7 Necessarily Bring Costs Down 

A key assumption of the Managed Competition Act is that the creation of a more 
competitive climate for health insurance will lead to premium reductions. The experience of 
SEIU Local 1000, the California State Employees Association, suggests that competition may 
not work as advertised. 

Local 1000 members receive their health benefits through the California Public Employee 
Retirement System (CalPERS). For most of the 1980s, CalPERS had most of the elements that 
proponents of managed competition argue must be present if the system is to work. Over 20 
plans, most of them HMOs, competed with each other for enroUees. The vast majority of 
enrollees are in managed care plans, such as HMOs or PPOs. There were significant differences 
in the prices charged by plans and the state government contributed a fixed amount per worker 
(although the amount was not tied to the lowest cost plan), so consumers had an incentive to 
enroll in lower cost plans. 

Despite the apparent existence of a competitive market, CalPERS actually fared worse 
than other employers nationally in managing health care costs during the 1980s. According to 
Lewin-VHL average family premiums for the nation as a whole increased 9.4 percent annually 
between 1982 and 1992, compared to 12.9 percent for CalPERS fee-for-service plans and 9.8 
percent for CalPERS HMO plans. 



Managed Care Has Had Disappointing Results 

The drafters of the Managed Competition Act assume that moving workers into "managed 
care" health plans can play a major role in keeping health care costs under control. Our 
members' experience is that while managed care, UR, and other innovations can produce "one 
time" savings, they haven't kept costs under control over the long term. 



130 



For example, about 6 years ago, members of SEIU Local 79, which represents building 
service and health care workers in Detroit, opted to switch from their indemnity plan to an HMO 
to save money. However, within three years the cost of the HMO equalled that of the previous 
indemnity plan. In the fourth and fifth years, the cost of the HMO was actually higher than the 
indemnity would have been and the workers also began to lose benefits. At the end of the fifth 
year, the workers dropped the HMO and went back to the original indemnity plan. 

In the early 1980s, SEIU Local 668, which represents social service workers in the state 
of Pennsylvania, negotiated with employers over a number of cost-control provisions (second 
surgical opinion, pre-admission certification, generic drugs, etc.) that were instituted for most 
contracts. These measures were successful for three or four years. By the time the contracts 
were up for renegotiation, costs had begun to rise again and employers were asking for further 
concessions. The next round of negotiations saw the introduction of HMO and PPO options, 
as well as increased premium sharing. Despite the introduction of all of these measures, costs 
continue to rise at the same pace. 

Surveys of employers, consumers, and health care industry leaders have consistently 
found that managed care has not lived up to its promise. For example, a 1991 American 
Hospital Association survey of chief executives of voluntary health insurance purchasing 
cooperatives found that only 10 percent agreed that HMOs had been successful in controlling 
health care costs. Only 22 percent agreed that PPOs had been successful. 

I don't want to give the subcommittee the impression that our members have uniformly 
negative attitudes toward HMOs and PPOs. In many cases, we have had to fight hard to get 
employers to provide these options. Often, managed care allows us to preserve benefits without 
increasing the cost to our members. We realize that no health plan is going to suit every single 
person and we want to give our members the widest range of choices that we can. What we 
object to is attempts by employers to make an HMO or a similarly restrictive plan the only 
option available to workers. 

But we also recognize that, in most cases, savings from managed care plans come from 
the discounted rates that those plans pay to providers. Providers make up the difference by 
shifting those costs onto other payers with less market power. Cost shifting among payers by 
providers should not be confused with overall cost control. 



Adverse Selection Will Undermine Voluntary Health Plan Purchasing Cooperatives 

A central feature of the Managed Competition Act is the Health Plan Purchasing 
Cooperative (HPPC), which would offer group purchasing power to employers with 100 or 
fewer employees. Employers would be required to offer employees coverage through the 
HPPC, but they would not be required to make any contribution to the cost of that coverage. 



131 



The lack of such a mandate is almost certain to lead to adverse selection among workers 
in the HPPC. Those employees who are more likely to be sick will purchase coverage, while 
those are relatively healthy may go without coverage. This, in turn, will raise costs for those 
who do choose to purchase coverage. The result could be a vicious cycle that could well destroy 
the HPPC as a meaningful entity. If small employers are unable to realize lower premiums as 
a result of their membership, then they would be no more likely to purchase coverage for their 
workers than they are now. 

With the help of the Robert Wood Johnson foundation, a number of states have 
experimented with purchasing cooperatives for small business that also operate on a voluntary 
basis. While some small employers did obtain coverage through these arrangements, even the 
most successful project only enrolled 17 percent of employers who previously had not offered 
insurance. The Arizona Health Care Group, one of the longest running projects, only succeeded 
in enrolling 939 small firms, for a total of 3,093 covered lives, during the first three and half 
years of its existence. Similar experiments in other states proved similarly disappointing. 

The results of the American Hospital Association's 1991 survey of chief executives of 
voluntary purchasing cooperatives were also discouraging. Less than haif of those surveyed 
agreed that the cooperative had made a difference in controlling health care costs in their 
community. 



Insurance Reforms Without Cost Control Could Make Things Worse for Businesses and 
Consumers 

The Managed Competition Act proposes to regulate the insurance market in ways that 
would make it easier for those without insurance to obtain it. These provisions, which are 
common to most health care reform bills, include prohibiting pre-existing condition exclusions 
and requiring insurers to community-rate instead of experience-rate. 

Taken alone, these reforms would raise costs for many businesses who are currently 
providing insurance. Some of those businesses might choose to drop coverage, potentially 
creating a vicious circle that would ultimately undermine the entire health insurance market. 

While insurance reforms are clearly necessary to eliminate discrimination in the health 
insurance market, they must be implemented in tandem with cost control provisions that ease 
the burden on those businesses and consumers whose costs will go up under reform. To do 
otherwise creates the potential for a political backlash that could undermine the entire health care 
reform effort. 



132 



Taxing Health Benefits Will Hurt Middle-Class Families 

A key feature of the Managed Competition Act is a cap on the employer tax deduction 
for health insurance costs. The bill would limit the deduction to the price of the lowest cost 
plan. While this allows supporters of the Act to claim that no one's taxes are being raised, they 
clearly assume that employers will respond by limiting their contributions for health insurance 
to the price of the lowest cost plan. This, in turn, is meant to make workers more "conscious" 
of the cost of their benefits, encouraging them to enroll in cheaper health care plans. 

The bottom line is that whether the tax is levied on employers or workers, it is the 
workers who will end up footing the bill. They will have to pay more, potentially hundreds of 
dollars more, to maintain their health insurance coverage. If they cannot come up with the 
money, they will be forced to enroll in cheaper, possibly substandard plans which will almost 
certainly limit their ability to choose their doctors. 

As someone who has personally negotiated hundreds of contracts, I can tell you that our 
members are very conscious of the cost of health care. Health care is the number one issue at 
the bargaining table and the number one cause of strikes. Workers are paying a greater share 
of the premium than they used to, they are paying more out-of-pocket for health care services, 
and they have given up wage increases in order to preserve their health benefits. It should also 
be noted that non-union workers aren't able to "shop around" for health plans because it is the 
employer who chooses what plan to offer. 



We have been tracking the cost experience of plans that cover our members since 1987. 
Over the past six years, SEIU family premium contributions have risen an astounding 256 
percent, nearly three times as fast as the increase in employer contributions, which rose 93 
percent. Workers with family coverage now 
pay almost $1,000 a year on average in 
premiums payments alone, up from just $270 
just six years ago. 

In some cases these premium increases 
can be financially devastating. SEIU Local 
100 represents 200 community mental health 
workers in Lafayette and West Bank, 
Louisiana. Most of these workers make 
around the minimum wage. Last November, 
the employee contribution was raised from 
$20.49 a month to $54.74 a month. Most of 
those workers had to drop their coverage. 



Cost Shifting to SEiU 


Famiiies 


Total Premium ^^H 


^^^^1 






Employer ConMxitkx) ^^M 


^^^l 






Employee Contitbutlon ^H 




^^^^^^1 


Percent Change 


lor All Family 


Plana iae7-19e3 

Souw sou ew^H SUMV 



133 



Premium payments are only a part of a worker's total health care bill. Workers also 
have to meet their deductibles, as well as foot the bill for copayments on physician's visits, 
prescription drugs, and hospital stays. Family deductibles for SEIU members have increased 
16 percent over the past six years. Copayments for major medical expenses have risen from 16 
percent of the cost of the service in 1989 to 18 percent in 1993. 

Despite dramatic increases in employee cost-sharing, health premiums have continued to 
climb at double-digit rates. Today, total SEIU family premiums average $5,460 - more than 
double the average premium of $2,600 just 
six years ago. I want to emphasize that the 
reason that premium levels for SEIU plans 
are so high is not because our members have 
"Cadillac plans. " In fact, first dollar coverage 
is increasingly rare. SEIU members are 
concentrated in some of the highest cost areas 
of the country, such as the Northeast, the 
industrial Midwest, and California, and many 
work for smaller employers and industries, 
like health care, that insurers have designated 
as high-risk. 



Total Health Insurance Premiums 
Have More Than Doubled 



$5460 




1967 



1989 1991 

Annual Family Premium 



1993 



Sorm SEIU B«>Wft Suv^ 



Experience provides little support for 
the assumption that shifting even more of the 
burden of health care costs to workers will 
help keep costs under control. Heightened consumer sensitivity to costs failed to slow health 
care spending in the 1980s. In this context, it is clear that capping the employer deduction for 
health insurance costs will merely add insult to injury. 



The Benefits Package Cannot Be Considered Apart From the Rest of the Plan 

The Managed Competition Act also fails to establish a uniform package of benefits to 
which all Americans would be entitled. The establishment of such a package is left to a newly- 
established Health Care Standards Commission. Once the Commission determines the benefit 
package. Congress may vote it up or down, but may not amend it. 

SEIU is strongly opposed to this process. The scope of benefits, and how the costs are 
to be shared by government, employers, and consumers are the central decisions to be made in 
comprehensive reform. They should be made by the Congress, not deferred to an appointed 
Commission. 



134 



It is also difficult to imagine how accurate estimates of the revenue gained by the bill's 
"tax cap" proposal can be generated if we do not know the particulars of the benefit package. 
It will also be difficult to determine just how more much middle-class families are likely to be 
paying because of the "tax cap. " 

Clearly, the decision by the drafters of the Managed Competition Act to defer the hard 
decisions about the scope of the benefit package has political benefits. This sleight of hand has 
allowed some backers of the legislation to attack the supposed "generosity" of the Health 
Security Act's benefit package while allowing them to remain unspecific about what they would 
cut. 



Universal Coverage is the Key to Controlling Costs 

A key failing of the Managed Competition Act is its rejection of universal coverage. The 
growing number of uninsured has contributed to rapidly rising health care costs. Uninsured 
persons still seek care, often through very costly and inefficient mechanisms. These costs are 
passed on by providers to their paying customers, the insured population. 

Many employers who are currently providing insurance are paying more than their fair 
share because they are paying to cover the uninsured and paying to provide coverage to the 
working spouses of their employees. In essence, they are subsidizing their competition. A 1991 
National Association of Manufacturers study found that the cost of providing coverage to 
working dependents increases costs for firms providing insurance by 20 percent. 

The growing disparity in employee compensation costs between firms that do provide 
insurance and those that don't is beginning to generate serious distortions in the labor market. 
The dramatic increase in the number of part-time and contingent employees, which constitute 
half of all new jobs created during the past year, is being driven in large part by the desire of 
employers to avoid the cost of health care benefits. Firms that do provide health benefits to all 
of their employees are increasingly finding themselves at a competitive disadvantage. 

For example, SEIU Local 750 represents building service workers in Orlando, Florida. 
One of the contractors whose employees Local 750 represented lost a contract with Delta 
Airlines that it had held for over eight years to a non-union contractor. The non-union contractor 
did not provide health insurance for its workers, and thus was able to underbid the unionized 
contractor. 



135 



If we can agree that universal coverage is an imperative, the question becomes how to 
provide it. The strength of an employer mandate approach is that it builds on the existing 
system. Nearly two- thirds of the non-elderly have employment based coverage. Among the 39 
million Americans who lack insurance, 85 percent belong to families that include an employed 
adult. A system that required all employers to contribute to the cost of health insurance for their 
workers would reach the vast majority of the uninsured. Unfortunately, the backers of the 
Managed Competition Act have rejected an employer mandate and even the concept of universal 
coverage. 

It is ironic that the backers of the Managed Competition Act style themselves as 
supporters of "pure" managed competition, as opposed to the modified form of managed 
competition that is found in President Clinton's Health Security Act. The Jackson Hole 
Initiative, which is widely regarded as the basis for a number of Congressional managed 
competition proposals, specifically includes an employer mandate. Even the drafters of the 
Jackson Hole proposal understood that, short of a totally government funded plan, there is no 
other way to guarantee universal coverage. 

While the Act provides some subsidies for low-income households, a family earning 
$30,000 could be smck with the bill for a $5,000 policy. A recent New York Times editorial 
commented: "Mr. Cooper calls that universal access; we call it merciless" (Jan. 16, 1994). 

The bottom line is that no other nation with a national health care system relies solely 
on the market to control health care costs. While the specific regulatory tools vary from country 
to country, all nations with such systems have imposed some kind of limit on the amount they 
spend on health care. For all of the reasons that I have outlined above, SEIU feels that the 
advocates of unbridled managed competition are dangerously mistaken. 



Medicaid is Almost One-Half of 
Public Hospital Revenue 



The Impact of the Managed Competition Act on Public Health Workers 

One final issue I want to deal with today is the impact of the Managed Competition Act 
on health care workers, particularly those in the 
public sector. The Act would eliminate the 
Medicaid program in favor of a system of federal 
subsidies that would allow low-income families to 
purchase coverage through Accountable Health 
Plans. While the drafters of the Managed 
Competition Act should be given some credit for 
wanting to make it easier for low-income families 
to obtain insurance, their solution would 
devastate the public health infrastructure, 
particularly public hospitals, on which those 
families depend. 




a. MMMnarua In U 



136 



State Medicaid programs currently pay out over $25 billion annually to hospitals for 
inpatient and outpatient services. The National Association of Public Hospitals estimates that 
Medicaid constitutes just under half of net revenues for public hospitals. The elimination of 
Medicaid could be fmancially devastating for safety-net providers, and would lead to the kind 
massive layoffs of public sector health care workers that we've seen in the steel and auto 
industries over the past decade. 

Advocates of H.R. 3222 are likely to argue that the extension of health insurance to all 
of those under the poverty line will actually increase the amount of funds flowing to providers 
in underserved areas. But there are no requirements in the bill that Accountable Health Plans 
(AHPs) contract with public hospitals or other essential community providers in underserved 
areas. Lacking such a requirement, it is almost certain that AHPs will seek to prevent their 
enrollees from using those facilities because of their historically higher costs. While the bill 
does allow states to mandate that AHPs operate in underserved areas, it does not include any 
provider protections. If they are unable to obtain services from providers in their communities, 
enrollees in underserved areas may have to travel much farther to obtain services and may 
postpone needed primary care. The result will be higher costs for everyone. 

The Managed Competition Act also includes no protections for health care workers who 
could lose their jobs as a result of the kind of unbridled competition between plans and providers 
envisioned in the Act. Our members recognize that the health care industry is going through 
a massive restrucmring. They support a reform of the health care system that places the 
patient's needs at the center and strives to eliminate the inefficiencies that have contributed to 
rapidly rising costs. But our experience has been that when administrators and managers try to 
cut costs in response to competitive pressures, they tend to take the low road of layoffs and wage 
cuts rather than the high road of reorganizing work and retraining workers. 



Conclusion 

By way of conclusion, let me reiterate that the members of the Service Employees 
International Union believe that the United States is engulfed in a health care crisis that threatens 
to leave an increasing number of our citizens without access to health care and to rob the 
treasury of the funds needed for other public investment. Given this situation, the members of 
SEIU cannot support untested theories and untried approaches. 

Rather than settling for the kind of halfway measures embodied in H.R. 3222, we urge 
the members of this committee to support the Health Security Act (H.R. 3600), which would 
provide America's working families with the health security they so desperately need. SEIU is 
committed to defending the Health Security Act against those who advocate that we move more 
slowly, make incremental changes, or simply endure our current situation. We are committed 
to working in coalition with consumers, senior citizens, businesses both large and small, 
community groups, and progressive providers to fight against those special interest groups 
defending their financial stake in the status quo. 

Once again, I want to thank Chairman Waxman and the other members of the committee 
for this opportunity to testify. We look forward to working with you to make the vision of 
"health care that's always there" a reality for America's working families. 



137 

Mr. Waxman. Dr. Coleman. 

STATEMENT OF WILLIAM H. COLEMAN 

Mr. Coleman. I am Bill Coleman. I am a rural family physician 
from Scottsboro, Ala. I am the current President of the American 
Academy of Family Physicians. It is on behalf of the Academy's 
74,000 members that I express sincere appreciation for the oppor- 
tunity to appear before the subcommittee and provide you with the 
Academy's view of Representative Jim Cooper's Managed Competi- 
tion Act of 1993. 

Since the mid-1980's the issue of universal health insurance has 
been of central importance to the Academy. In 1989, we became the 
first physician organization to develop a plan for universal coverage 
through the public-private system. Our plan is built on the current 
model of employer-based insurance. Our plan, Rx for Health: The 
Family Physicians' Access Plan, calls for universal 4access to a 
comprehensive set of benefits that stress primary and preventive 
care. It calls for everyone to have a personal physician in one of 
the generalist specialties, family medicine, internal medicine or 
general pediatrics. 

Rx for Health includes specific methods for moving to a physician 
work force that is balanced between generalist and specialist. It 
also calls for medical liability reforms and tough cost-containment. 

My specific comments on the Cooper bill begin with concern 
about its provisions regarding universal coverage. While the Cooper 
plan provides universal access to health care insurance through tax 
incentives, it does not guarantee universal coverage. No one would 
be required to buy health insurance under the plan, and employers 
would not be required to pay for it. The difference between access 
to health care and actual insurance coverage is critical to guaran- 
teeing universal health care. 

Second, comprehensive benefits are not spelled out in the Cooper 
legislation. The Academy has long supported an explicit, com- 
prehensive benefits package. In Rx for Health, the package covers 
virtually all medical services. Access to these services is limited 
only by patient coinsurance and a deductible. Prenatal care, well- 
baby, well-child care services and childhood immunizations require 
no patient cost-sharing or deductible. Covering medical services up 
front, we believe will save money in the long term. 

Third, we are pleased that the Cooper plan recognizes the impor- 
tance of the generalist positions. We support provisions in the bill 
that increase payments to primary care residents and capping 
funding to residency programs at 4 years. We also support the 
Health Care Standards Commission in the plan that sets up a proc- 
ess to allocate the number of entry positions into medical residency 
programs. 

Unfortunately, the Cooper plan does not require a 50/50 split be- 
tween generalist and subspecialist physicians. The physicians work 
force goals must meet the health care needs of our population, and 
we need more generalists and fewer subspecialists. Changing the 
present work force is a structural change that is fundamental to 
achieving real cost-containment and universal coverage. 

Fourth, the Academy strongly supports enforceable cost-contain- 
ment by using a global budget. The Academy supports a reliance 



138 

on market forces in the Cooper bill. However, should the market 
work imperfectly, there is no default mechanism. By contrast, both 
Rx for Health and the Clinton plan specifically include backup pro- 
visions, such as a global budget. 

We cannot guarantee universal health insurance coverage with- 
out reining in health costs. Both the Cooper plan and Rx for Health 
contain individual reforms to control costs. Administrative and li- 
ability reforms are good examples. While these reforms are impor- 
tant, we do not believe real cost containments can be achieved 
without a mechanism that spans the entire health care system. 

Finally, the Academy is extremely concerned about the impact 
that the professional liability situation is having on patient care in 
the United States. We strongly support the provisions in the Coo- 
per bill that address the malpractice concerns. This includes the 
bill's $250,000 limit on noneconomic damages, reduced statutes of 
limitation, and alternative dispute resolution systems and periodic 
pa3rments for awards. 

Malpractice concerns contribute to the growth of health care 
costs through excessive premiums and awards. Fears of mal- 
practice also lead to practice of defensive medicine. But most im- 
portantly, malpractice affects the access of patients to needed 
health care services and particularly in rural areas. 

The Academy supports many provisions found in the Cooper 
plan. We also believe aspects of the plan could be improved. Never- 
theless, we look forward to working with both the administration 
and Representative Cooper to write a health care bill by the end 
of this Congress. 

Thank you, Mr. Chairman, for this opportunity, and I am ready 
to answer questions. 

Mr. Waxman. Thank you very much, Mr, Coleman. 

[Testimony resumes on p. 153.] 

[The prepared statement of Mr. Coleman follows:] 



139 

STATEMENT OF 
AMERICA ACADEMY OF FAMILY PHYSICIANS 

Mr. Chairman, my name is William H. Coleman. M.D., Ph.D. I am a rural family physician 
from Scottsboro, Alabama, and it is my privilege to serve as the current president of the 
American Academy of Family Physicians. It is on behalf of the Academy's 74,000 members 
that I express sincere appreciation for the opportunity to appear before the subcommittee and 
provide you with the Academy's views of Rq)resentative Jim Cooper's Managed Competition 
Act of 1993. 

Background 

Since the mid-1980s the issue of universal health insurance coverage has been of central 
importance to the Academy. At that time, the primary impetus for national concern was the 
growing number of uninsured people and their inability to access appropriate care. Studies 
documented what family physicians have long known: people who delay seeking medical care 
have higher morbidity and mortality and arc more costly to treat. As the percentage of the gross 
domestic product spent on health care in this country has escalated, national attention on the 
problem of access has shifted to an equivalent concern about cost. The American Academy of 
Family Physicians shares these dual concerns. 

Responding to our membership's concerns, in 1989 the Academy became the first physician 
organization to develop a plan for universal access through a public-private effort, building on 
the current model of employer-based insurance. In April 1992, the Academy released its revised 
and expanded plan for health reform, Rxfor Health: The Family Physicians' Access Plan. 



140 



2 
Rx for Health 

Rx for Health calls for universal access to a comprehensive set of benefits that emphasize 

primary and preventive care. It builds upon the present employer-based system and requires all 

employers, including small businesses, to provide insurance to their employees and dependent 

family members. Employers pay a specific portion of the premium. Employee cost sharing 

varies according to income. 

Better management of patient care is emphasized in Rx for Health. A key element of the 
Academy's plan calls for each person to have a personal physician in one of the generalist 
specialties (family practice, general internal medicine or general pediatrics). Increased cost 
sharing is incurred if an individual seeks non-emergency subspecialty care without referral from 
the personal physician. Rx for Health includes specific strategies for moving toward a physician 
supply that is balanced between generalists and specialists. 

Furthermore, the plan calls for improved quality utilizing practice parameters and malpractice 
reforms, including caps on non-economic damages. And, to address spiraling health care costs, 
it includes stringent cost-containment provisions. A national health board is established and has 
the authority to set and enforce a global budget. Enforcement is targeted specifically to those 
segments of the health care system responsible for inappropriate spending increases. 

Rxfor Health has much in common with President Clinton's plan. However, we fmd much to 
support in Representative Cooper's plan, as well. Following is a brief analysis of the Clinton 



141 

3 

plan and the Academy's view of the Cooper proposal. 

The Clinton Plan 

Based on our review of the Health Security Act, the Academy supports the principles and many 
of the strategies espoused in the Administration's health reform proposal. The plan provides a 
positive framework for considering the many complex issues entailed in health system reform 
and is a good starting point for revision. Academy members are particularly pleased with the 
commitment of the President to universal access to a set of comprehensive benefits that include 
preventive services and prescription dnigs and that provide a good start on mental health 
coverage. As deliberations on reform continue, these elements must not be compromised. 
Everyone in the United States must have access to comprehensive, affordable, high-quality health 
care services. 

The Cooper Plan 

The Cooper plan contains several provisions that are supported by the Academy, as well as 
provisions we believe could be improved. We look forward to working with both the 
Administration and Representative Cooper to craft legislation that provides health care insurance 
to all our citizens. In that spirit, we have made the following specific comments on his plan 
below. 

Universal Coverage 

The Academy's primary concern with the Cooper plan is its provisions relating to universal 



142 



4 
coverage. While we are aware of Representative Cooper's sincere desire to provide health 

insurance to all Americans, in our view, the proposal falls short in this area. 

With the release of Rx for Health, the Academy established its firm support for universal 
coverage. While the Cooper plan provides universal access to health care insurance through 
incentives in the tax code, it does not provide universal coverage; individuals would not be 
required to purchase health insurance and employers would not be required to pay for it. In our 
view, that is a critical difference. 

It has long been the position of the Academy that the issue of universal access to affordable, 
appropriate health care can best be addressed through a system that is based primarily in the 
private sector. However, this system must also include a public sector insurance component for 
people not otherwise covered, and it must include significant structural and fmancial reforms to 
promote the delivery of appropriate, cost effective health care services. Universal health care 
coverage will significantly reduce cost shifting due to a heavy burden of uncompensated care, 
thereby achieving savings for sectors of the economy now bearing these costs. 

Comprehensive benefits 

While the Cooper plan establishes a health care standards commission to recommend a uniform 
set of benefits to Congress, the benefits are not clearly stated in the legislation. However, 
"medically appropriate" and preventive services would be included. No cost sharing would be 
required for preventive services. Individuals would be permitted to purchase supplemental 



143 



insurance. 

The Academy has long-supported an explicit comprehensive benefits package. In Rxfor Health, 
the Academy defines a basic benefits package that covers virtually all medical services. With 
the exception of prenatal care, weU baby, well child services and childhood immunizations, 
which require no patient cost-sharing or deductible, access to other services is limited only by 
a required patient coinsurance and/or deductible. In our view, initially covering medical services 
will save money in the long term. The comprehensive benfits package is buttressed by a 
requirement to see initially a generalist physician, as noted above, to further ensure that patients 
receive comprehensive, cost-effective care. 

Physician Workforce 

The Cooper plan recognizes the need to support the availability of primary care. We view this 
as a structural change of fundamental importance to achieving real cost-containment and 
universal coverage. While much has been said in recent years about the shortage of generalist 
physicians (family physicians, general internists and general pediatricians) the rhetoric is often 
urmiatched with action. 

We are particularly pleased that the Cooper plan focuses attention on the importance of 
generalist physicians. Under the legislation, payments to residency programs would be based 
on a per-resident amount; primary care residents would be weighted at 175 percent of the 
amount compared to 150 percent for non-primary care residents. Payments to residents would 



144 



6 
be capped at four years; money is also included for physician retraining. Unfortunately, the 

plan does not require a 50/50 split between generalist and subspecialist physicians. 

The health care standards commission in the Cooper plan would establish a process to allocate 
the number of entry positions into medical residency programs based on the number of necessary 
health care professionals. The total number could not exceed 1 10 percent of the number of U.S. 
medical graduates who completed undergraduate medical education in the previous year. The 
commission would work with health plans and medical organizations to determine the quality, 
geographic distribution and outpatient setting opportunities for residency programs. The plan 
establishes a national medical education fund, which would provide money to approved residency 
programs. 

Physician workforce goals must reflect the health care needs of the population. Correcting the 
problems of specialty imbalance in the system will require significant changes in current federal 
policies and aggressive interventions. These efforts are controversial as they challenge the status 
quo, but they are essential if we are to achieve universal access to comprehensive health 
benefits. 

Cost Containment 

The Academy strongly supports enforceable health care cost containment though the application 

of a global budget. We took and continue to adhere to this position for two main reasons. 



145 



7 
First, ensuring universal health insurance coverage cannot be achieved without reining-in health 

care costs. If we are to be serious in our commitment to universal coverage, then we must be 

absolutely serious in our commitment to contain runaway health care costs. Any proposal to 

provide universal coverage that does not contain enforceable cost-containment is simply not 

credible. 

In the Cooper plan, cost containment is dqiendent on market forces, specifically 1) price 
competition among plans, and 2) wh^her tax benefits in the plan are sufficient to encourage 
employers and individuals to purchase the lowest cost health plans. While we support the 
reliance on market forces in the legislation, we do not support its lack of a default mechanism 
should the market work imperfectly. By contrast, both Rx for Health and the Clinton plan 
specifically include backup provisions, i.e., a global budget mechanism. In the Cooper plan, 
no national health budgets or other price controls are permitted. 

Cost containment in Rxfor Health 

In developing Rx for Health, we searched for the best mechanisms for achieving real cost- 
containment. Our strategy, like many other proposals, is multifaceted. We have proposed 
various administrative simplifications, professional liability reforms, expansions in primary and 
preventive care, and structural reforms designed to improve the management of patient care. 
As illustrated above, many of these provisions are contained in the Cooper plan. 

However, as important as each of these individual reforms might be, we do not believe real cost- 



146 



8 
containment can be achieved without a mechanism that over-arches the entire health care system. 

When we looked at other developed countries, it was readily apparent that the only consistently 

successful mechanism for controlling health care expenditures is global budgeting. It may not 

be that global budgeting is the only mechanism that can control costs, but it the only one that 

we found to have a documented record of success. 

Waste in the Current Health Care System 

The second reason for our support of universal coverage and enforceable health care cost 
containment relates to the amount of waste in our current health care system. You have seen 
the studies. The subcommittee should be aware of evidence that twenty to thirty percent of 
medical procedures may be unnecessary, and you have seen the data showing that the United 
States spends thirty to fifty percent more of its gross domestic product on health care than any 
other developed country without even achieving universal coverage. 

The cost-containment strategies proposed in Rxfor Health and in the Health Security Act would 
force a thoughtful consideration of how health care services are delivered. These proposals 
stand in sharp contrast to the current situation in which we find ourselves, a situation devoid of 
any meaningful incentives for cost-containment and one in which, by default, health care 
resources are too often rationed on the basis of the ability to pay. Within the current health care 
debate, the specter of rationing is often raised in the context of global budgeting. We think this 
a misuse of the term. With universal access and an explicit global budget, it becomes necessary 
to carefully define need, appropriateness, and cost-effectiveness in rational and defensible terms. 



147 



9 

In the absence of a budget, there is no accountability for allocation decisions, and too often 

services are rationed in the cruelest way imaginable, on the basis of the ability to pay. We urge 
you to carefully assess any assertions that one solution or another will lead to rationing. The 
question needs to be asked, "Compared to what?" 

Malpractice Reform 

The Academy is extremely concerned about the impact that the professional liability situation 
is having on patient care in the U.S. Concerns about malpractice contribute to the growth in 
health care costs directly through excessive premiums, awards, and administrative payments, 
indirectly through the induced practice of defensive medicine, and also affect access of patients 
to needed health care services. 

According to a 1988 Medical Economics study, 62 percent of family physicians gave up 
obstetrics between 1982 and 1988. A recent report from the Institute of Medicine states that 
many rural providers have given up OB services, due, in large part, to the high cost of 
malpractice insurance and fear of lawsuits. A recent study. The North Carolina Obstetrics 
Access and Professional Liability Study: A Rural-Urban Analysis, concluded that 46% of rural 
physicians compared to 16.7% urban physicians, decreased their obstetric services due to fear 
of a malpractice lawsuit. 

The tendency of family physician to limit their practices because of the cost of insurance 
premiums has important implications for health care, especially in rural areas. Family 



148 



10 

physicians who include obstetrics in their practices in many areas of the country are providing 

necessary health care that cannot be offered by other specialists. 

The Academy strongly supports the provisions in the Cooper bill that address malpractice 
concerns, including the bill's $250,000 limit on noneconomic damages, reduced statutes of 
limitation, alternative dispute resolution system and periodic payments for awards. 

Health Research Initiatives 

The Academy is gratified that the Cooper bill allocates 15 percent of Agency for Health Care 
Policy and Research (AHCPR) funding for research, demonstration projects and training to 
primary care. 

For the past thirty years, over 95 percent of all medical conditions have been evaluated and 
treated outside of hospitals. However, the traditional focus of medical education and research 
has been on medical problems in referred and hospitalized patients. Thus, the training of 
physicians and the research agenda have focused almost exclusively on inpatient rather than 
outpatient evaluation and treatment. 

Family practice and primary care research relates to better assisting the generalist physician in 
diagnosis and treatment of the undifferentiated patient population treated in the ambulatory care 
setting. The 15 percent allocation should initiate and expand office-based, community-oriented 
family practice and primary care research. 



149 



11 

Definition of Primary care 

As this committee considers issues related to the physician supply we urge that the concept of 
primary care not be trivialized. A primary care physician (or generalist physician) provides 
definitive care to the unselected patient at the point of first contact. The Council on Graduate 
Medical Education (COGME) defines primary care as entailing first-contact care of persons with 
undifferentiated illnesses, comprehensive care that is not disease or organ speciric, care that is 
longitudinal in nature, and care that includes the coordination of other health care services. Such 
a primary care physician will have been specifically trained to provide primary care services, 
usually through completion of a residency in family practice, general internal medicine or 
general pediatrics. 

The Cooper plan defines primary care residents as residents enrolled in training programs in 
family medicine, general internal medicine, general pediatrics, preventive medicine, geriatric 
medicine or osteopathic general practice, a definition that is broader than current accepted 
definitions. With the exception of osteopathic general practice, these additional medical 
specialities do not, in our view, fit the definition of primary care providers. 

Although, the contribution of limited primary care providers may be important to specific 
patients, the absence of a full scope of training in primary care and limited practice skills in the 
fiill range of primary care services requires that such providers work in consultation with fully 
trained primary care physicians. Effective systems of primary care wUl use limited primary care 
providers as adjuncts to the health care team with primary care physicians taking responsibility 



150 

12 
for the total care of each patient. 

Other Concerns 

Finally, the Academy is concerned that there are no specific provisions in the Cooper bill to 
increase reimbursement for primary care physicians, nor are there any provisions relating to 
either the Clinical Laboratory Improvement Amendments, (CLIA) or the Occupational Safety 
and Health Administration (OSHA) bloodbome pathogens regulations in the bill. 

Reimbursement Issues 

The Academy has long-supported a variety of targeted measures to increase Medicare payments 
for primary care services. The inadequacy of Medicare payment for primary care services 
constitutes a major disincentive for physicians to select the primary care specialties and to locate 
in underserved communities. 

Under the Medicare fee schedule, payment for office visits are less than the cost to the physician 
of providing the services. Based on an extrapolation of Medicare payment rates (using the time 
values and Medicare fees assigned to visit codes), a primary care physician seeing only Medicare 
patients would be unable to financially support a practice. In addition, because of the 
Geographic Adjustment Factor, Medicare payment rates in rural areas are generally below 
average. This circumstance is well-known and is a major disincentive for young physicians to 
select primary care residency training and to locate in underserved areas. Although the 
Medicare physician payment refonn provisions passed by Congress in 1989 were supposed to 



151 



13 
have addressed these issues, problems in the implementation of the fee schedule have all but 

completely undermined the gains due to primary care physicians. 

By its nature, family practice is impacted particularly hard by low Medicare payment rates. This 
is because family physicians tend to locate their practices in rural areas, because the services 
provided by family physicians are predominantly office visits, and because a relatively high 
proportion of family physicians' patients are Medicare beneficiaries. There is, therefore, little 
opportunity for family physicians to compensate for low Medicare rates. 

Physician "Hassles" 

The Clinical Laboratory Improvement Amendments (CLIA) regulations are perhaps the most 
onerous federal requirements presently imposed on family physicians. The level of regulation, 
expense and exasperation inflicted on small physician office laboratories has no relationship 
whatever to improvements in patient care or patient safety. 

The impetus for COA '88 was in response to quality problems in large reference laboratories 
f)erforming PAP tests, not physician office laboratories. However, the resulting law subjects 
office laboratories to the same level of regulation as reference labs. This makes no sense in 
terms of quality of patient care, and in fact has resulted in reduced access to testing and 
increased expenses for physicians. 

Family physicians routinely perform lab tests to get immediate results to begin appropriate 



152 



14 
treatment and monitor care while it is being delivered. The choice, timing, and interpretation 

of laboratory tests are integral to a physician's clinical decisions regarding subsequent diagnostic 

and treatment interventions; lab procedures are not a separable aspect of clinical medicine. 

The present OSHA bloodbome pathogens regulations are a good example of other federal 
regulations that serve only to increase the cost of medical care and the administrative burden on 
physicians without any measurable benefit to patients. The Centers for Disease Control 
guidelines for universal precautions are straightforward and afford patient and health professional 
safety in regard to HTV, Hepatitis, B. etc. The OSHA regulations, enforced by intimidating 
OSHA inspectors, are excessive and threatening to physicians. 

Conclusion 

The American Academy of Family Physicians appreciates the opportunity to provide 
observations on the Cooper plan. In our view, the time has come for comprehensive health 
system reform. This will be challenging for the Congress, the Administration, health care 
providers, businesses, and patients. Change, even positive change, is always difficult. 
However, the status quo is no longer acceptable. We look forward to working with you to 
achieve the positive change that we all seek. 

I thank you again for this opportunity to appear before you and would be pleased to answer any 
questions. 



153 

Mr. Waxman. Mr. Pollack. 

STATEMENT OF RONALD F. POLLACK 

Mr. Pollack. Dare I say good morning? Mr. Chairman, Mr. Coo- 
per, Mr. Bilirakis, I admire your perseverance. 

I come here Mr. Chairman as an admirer of Mr. Cooper, but not 
exactly an admirer of his bill. As Mr. Cooper knows, we have is- 
sued our own critique with respect to the Cooper bill. Much of that 
is contained in a report that we released on Monday, the salient 
parts of which are included in my testimony — specifically, the con- 
cerns about coverage for everybody, the failure to provide a defined 
benefit package, the lack of any definition with respect to 
deductibles, coinsurance, caps on payments and for senior citizens, 
a lack of any coverage with respect to long-term care and prescrip- 
tion drugs. 

I am not going to focus on any of those concerns here today. 
Rather, I am going to focus on some material frankly that was as- 
sisted—developed through the courtesy of the Center for Health 
Policy Research at Greorge Washington University. I understand it 
will be included in the record. This is research done for the Henry 
J. Kaiser Commission on the Future of Medicaid and the Common- 
wealth Funds. I would like to focus on the out-of-pocket premium 
burden that would be borne under the Cooper bill for those people 
who are marginally above the poverty line. 

What this — what the preliminary research tries to look at is 
what would be the premium burden that a family of three would 
incur to pay for a group health plan that is essentially the average 
group health plan cost as determined by HCFA. In 1993 dollars, 
that would be a little over $3,700, $3,709. 

I might suggest for another plan with different benefits the dol- 
lars may be somewhat different. But the central point that is made 
through these numbers would essentially hold under a plan with 
different benefits. What the analysis shows is what the burden in 
premiums would be for people marginally above the poverty line. 

I am going to look at two groups, those at 150 percent of poverty 
and those at 200 percent of poverty. For a three-person household, 
we are talking about an income level of $17,835. Under the Clinton 
plan, which mainly has subsidies through an employer purchase, 
the amount of money that the family would pay as a premium 
would be a little under $769, or 3.9 percent of the family's income. 
That same household, that same family under the Cooper plan 
with the subsidy assistance that the Cooper plan provides, would 
require that same family to pay $1,855 as a premium. Mind you, 
I want to emphasize this does not include deductibles, coinsurance 
or out-of-pocket costs for services that are not covered. So just for 
the premium alone, that family would be paying 10.4 percent of its 
income for the premium. 

Look at a family at 200 percent of poverty that has an income 
of $23,780. That family, under the Clinton plan, would be paying 
$742 as a premium, or 3.1 percent of its income. Under the Cooper 
plan, that family would be paying the entire $3,709 or 15.6 percent 
of its income. Again, that 15.6 percent of its income is exclusive of 
what it would be paying in deductibles, copajrments and uncovered 
services. 



154 

Most notable — and I am sure that Congressman Cooper, as he 
looks at various modifications that he might be interested in sup- 
porting, one of the things that I think will need to be taken into 
account is the adverse impact with respect to work, because the 
Cooper plan with its subsidies provides a tremendous work dis- 
incentive. Let me illustrate that with one set of numbers if I may 
have that time. 

Mr, Waxman. We are going to have to take your word for it and 
have the chart in the record. If you want one sentence more 

Mr. Pollack. For a family, that jumps from 150 percent of pov- 
erty, $17,835 to $23,780; that is an increase in income of $5,945. 
The increase in premium for that same family under the Cooper 
plan would be $1,855; in other words, a tax rate of 31.2 percent. 
That is over and above what that same family would be losing 
under the earned income tax credit. 

I suggest to you when you look at the subsidies in the Cooper 
plan you will find that it is a major disincentive for work. 

Mr. Waxman. Thank you very much, Mr. Pollack. 

[Testimony resumes on p. 170.] 

[The prepared statement of Mr. Pollack follows:] 



155 



Testimony by 

Ronald F. Pollack 
Executive Director 

Families USA Foundation 



Mr. Chairman and Members of the Subcommittee: 

Thank you for inviting me to testify today on the Managed Competition Act of 1993, 
H.R. 3222 cosponsored by Congressman Jim Cooper and Fred Grandy. 

The current crisis in our health system has deprived American families of the peace of 
mind of knowing that they will always be able to take care of their families' health care 
needs. The following is an excerpt from a Families USA report entitled "The Human Impact 
of Health Reform." This report analyzes the three most prominent health reform proposals 
to determine their impact on ten families experiencing common problems with our current 
health system. 

In today's testimony, I examine two proposals: President Clinton's Health Security 
Act of 1993; the Managed Competition Act of 1993 sponsored by Representative Jim Cooper 
(D-Tennessee) and Senator John Breaux (D-Louisiana). As the following analysis shows, the 
President's health reform plan would provide all of the ten families with the security and 
peace of mind American families so profoundly lack today. By contrast, under the other 
proposal, many families would face continued insecurity. 



r^'^ >i '^ r- 



156 



PEOPLE WHO WILL LOSE THEIR INSURANCE 

Over two million Americans lose their health 
insurance each month. ' Most of these people will lack 
insurance for less than five months, yet a significant 
portion will lack insurance for six months or more. ' 
During this time, families are at grave financial risk if 
a member becomes sick or injured. 



Jerry and Donna Weldon live in Fenton, Missouri with their two 
young children. Jerry is a plumber and the family is covered through 
Jerry's union. Every three months, Jerry must work a minimum 
number of hours in order to qualify for health insurance coverage. 
Lately, work has been slow and the number of hours required by the 
union for health insurance will be increasing. The Weldons ' eight- 
year-old son has leukemia and he had a bone marrow transplant this 
fall. After this procedure, he wilt need ongoing medical care and 
prescription drugs. The Weldons are worried that they will lose their 
insurance in the fiiture because of Jerry's lack of work and the in- 
creasing number of required hours for insurance. 



CLINTON: 

The Weldons wtnild always have the same comprehensive insurance, regardless of how much work Jerry 
gets. 

As of 1 998. the Clinton bill mould guarantee that no American would lose their health insurance, regardless of any changes in 
health, employment or economic status. 

Workers and their families would receive insurance coverage through their employment. Self-employed or unemployed people and 
their families would purchase coverage directly. Their insurance premiums would be fully tax deductible, instead of only 25 percent 
deductible as they are now. Discounts would help businesses and families afford their premiums. 

Families would choose from a variety of health plans offered by regional health alliances where they live. Employees of firms with 
more than 5,000 employees could choose from at least three plans offered by their firm. 

COOPER: 

The Weldons would still have to worry about losing health insurance. 



Under the Cooper bill, all individuals, families and small businesses that choose to purchase health insurance would do so through 
their local cooperative. Employers would choose to contribute or not contribute to their employees' health insurance premiums, as 
they do now. 



157 



Employees and their families could still lose their health insurance if they lost their job; if they changed jobs; if their employer could 
no longer afford the premiums; if they retired before age 65; and (or a variety of other reasons. 

Low-income families and individuals who choose to purchase insurance would be eligible for some financial assistance. 

Families and individuals who purchase insurance on their own could deduct from their taxes the premium for the lowest-priced 
plan. 



1. Families USA Foundation, Losing Health Insurance (Washington, D.C.: Families USA Foundation, 1993). 

2. Katherine Swartz, John Marcotte and Timothy t^cBride, 'Spells Without Health Insurance: The Distribution of Durations 
When Left-Censored Spells are included,' Inquiry vol. 30, (Spring 1993), pp. 77-83. 



158 



CARE UNAVAILABLE FOR MEDICAID BENEFICIARIES 

Low-income Americans face numerous barriers to medical care, even when they 
are covered by Medicaid, the government's health insurance program for low-income 
persons. Last yew, almost one out of five adults receiving Medicaid were turned 
away by a hospital or a doaor. Another 20 percent had to go to an emergency room 
for care because they did not have a regular doaor. ' 



In late 1990, Sherri Wilbum of Blount County, Tennessee learned she was pregnant. Although she 
qualified for Medicaid coverage, neither Sherri nor a social worker at the local health department could find 
a doaor willing to provide Sherri with prenatal care. Sherri was finally able to schedule her first doaor 
visit for in her seventh month of pregnancy. Three days before her scheduled appointment to begin prenatal 
care, Sherri went into labor. Her daughter, Cassandra, suffered brain damage and was hospitalized for 
months. Cassandra will need special education and ongoing physical therapy. According to one of 
Cassandra's doaors, Sherri's pregnancy was "complicated by a lack of prenatal care. " 



CLINTON: 

Sherri Witbunn would have her tJioice of any insurance plan offered in her region with an average premium 
or lower. 

Under the Clinton bill, alt Medicaid beneficiaries would have access to the same plans offered by the regional health alliances as 
everyone else. 

For individuals like Sherri Wilbum who are eligible for Aid to Families with Dependent Children (AFDCI or individuals who receive 
Supplemental Security Income (SSII, the Medicaid program would make payments to the health alliances and allow beneficiaries to 
choose among all health plans witti premiums equal to or below the average. 

Those who receive cash assistance would be responsible for very small copayments. They would continue to receive all mandatory 
Medicaid benefits and any optional benefits that the state chooses to provide that are not included in the comprehensive benefits 
package. 

Sherri's daughter would be eligible for services through a new federal program for low-income children with special needs. 

Persons currently receiving Medicaid, but not receiving cash assistance, would obtain their health insurance through their regional 
health alliance in the same manner as all other persons. Persons with incomes below 1 50 percent of poverty would be eligible for 
some assistance with their premium costs. 

COOPER: 

Sherri Wilbum would be fuBy subsidized for only the lowest-priced plan offered by her local purcltasing 
cooperative. 

Under the Cooper bill, Medicaid would be replaced. The funds would be used to pay the premium for the lowest-priced plan 
offered by the local purchasing cooperative for individuals and families with incomes under 100 percent of poverty. 

All individuals and families with incomes between 1 00 and 200 percent of poverty would be eligible for some assistance with the 
cost of the premium for the lowest-priced plan, based on a sliding scale. All individuals and families with incomes under 200 percent 
of poverty would be responsible for only a portion of the difference in premiums between the lowest-priced plan and higher-priced 
plans and for reduced deductibles and copayments. 

For those with incomes under 100 percent of poverty, the Cooper bill would cover prescnption drugs, hearing aids and eye-glasses 
and other benefits currently covered by Medicaid and not included in the standard benefits package. 

1 . Kaiser Family Foundation, 'News Release: New Survey Shows Significant Gaps in Medicaid Safety Net* (Menio Park, CA: 
Kaiser Family Foundation, March 17, 19931. 



159 



INADEQUATE INSURANCE 

Millions of Americans have inadequate insurance that can leave them with thou- 
sands of dollars in medical bills. Such inadequate coverage is most common for 
families who buy non-group coverage and can only tfford or qualify for very limited 
coverage with high deductibles, high copayments or limitations in benefits. Families 
USA estimates that 18 million Americans who have insurance are currently spending 
ten percent or more of their pretax income on out-of-pocket health expenses, 
excluding expenses for nursing home care, health insurance premiums. Medicare 
payroll taxes, federal, state and local taxes, and wages lost because of their employ- 
ers' costs for health insurance.' Economists generally consider individuals to be 
underinsured if they are at risk of spending ten percent or more of their income on 
out-of-pocket health costs.^ 



Susan and David Mast live in Wheaton, Maryland with their three 
young children. David Mast is a self-employed contraaor. In 1992, 
his income was about $20,(XX). He paid $4,000 to purchase health 
insurance on his own for his family, but couldn't afford the extra 
$4,000 a year maternity coverage would have cost. Even then, the 
coverage wouldn 't have been effeaive for one year. Their son, 
Joshua, was bom in February 1992. Susan Mast worked two jobs 
as a proofreader and typesetter and took in babysitting and 
accounting work to pay off the $3,300 bill from that birth. 



CLINTON: 

The Mast family would have a choice of health insurance plans that provide comprehensive benefits, and 
wouM save about $2,000 a year in premium costs. 

The Clinton bill specifies a comprehensive benefit package that would cover a full range of services. 

The guaranteed national benefits have no lifetime limitations on coverage and would include: hospital services; emergency 
services; services of physicians and other health professionals; mental health and substance abuse services; family planning services; 
pregnancy-related services; hospice care; home health care; extended-care services; ambulance services; outpatient laboratory and 
diagnostic services; outpatient prescription drugs and biologicals; outpatient rehabilitation services; durable medical equipment, 
prosthetic and orthotic devices; vision and heanng care; dental services; and health education classes. 

A variety of preventive services would be available at no cost. Prescription dnjg, dental, vision and mental illness services would 
be more generous than many plans today. 

No individual would have to spend more than $1,500 annually for covered services and no family would have to spend more than 
$3,000 annually. 



Based on national average premiums, the Mast family would pay approximately $2,000 for health insurance, and that amount 
would be fully tax deductible. 



160 



COOPER: 

Would not guarantee the Mast famBy comprehensive health benefits. 

The Cooper bill would require all health plans to provide a uniform set of effective benefits, but the bill fails to specify what bene- 
fits would be covered within the broad categories of medically appropriate treatments, the full range of 

effective clinical preventive services and a full range of diagnostic services. The bill does not specify limits on the amount families 
would have to pay in deductibles and copayments. The bill leaves these decisions to a Health Care Standards Commission and then to 
the Congress. 

The Heath Care Standards Commission and the Congress could review annually the uniform set of effective benefits. Thus, 
benefits could be modified or eliminated every year. 

Because their family income is under 200 percent of poverty, the Mast family would be eligible for some assistance to cover the 
cost of their premium. Given their income, the Masts would have to pay about 19 percent of the premium for the lowest-priced plan, 
and that amount would be tax deductible. 

Since the Cooper bill does not specify a benefit package, it is impossible to determine the amount the Mast family would have to 
pay for premiums, deductibles, copayments and uncovered services. 

1 . Families USA Foundation, Half of Us: Families Priced Out of Hea/th Protection (Washington, DC: Families USA Foundation, 
19931. 

2. Pamela J. Farley, 'Who Are the Underinsured?' Milbank Memorial Fund Quarterly/Health and Society vol. 63, no. 63. (1 985), 
pp. 477-501. 



161 



HIGH PRESCRIPTION DRUG COSTS 

An estimated 72 million Americans currently lack health insurance for pre- 
scription drugs. ' Medicare does not cover outpatient prescription drug costs. Elderly 
persons take more prescriptions, on average, than younger people and have higher 
drug costs, but less than half (49%) of all elderly Americans have prescription drug 
coverage.^ As a result, elderly persons pay almost two- thirds (64%) of their 
prescription drug costs out of pocket. ^ 



lona O 'Neill is an 83-year-old resident of Spring Hill, Florida, 
lona 's income from Social Security is less than $700 per month. She 
has no insurance covering prescription drug costs. lona suffered 
bladder cancer and now spends $300 per month on medicine. Her 
income is too high, however, to qualify for any public assistance 
with prescription drug costs. 



CLINTON: 

lona O 'Neill would not have to pay more than $1,132 a year for prescription drugs. 

As of January 1 , 1 996 under the Clinton bill. Medicare beneficiaries would be eligible for a new outpatient prescription drug 
benefit. 

After an annual deductible of $250 per person, Medicare beneficiaries would pay only 20 percent of prescription drug costs up to 
an annual maximum of SI, 000 (including tfie deductible). After reacfiing tfiat maximum, Medicare would cover all drug costs. The 
benefit would be part of Medicare Part B. Medicare beneficiaries pay Part B premiums that cover 25 percent of Part B costs. The 
additional Part 8 premium for the prescription drug benefit would be approximately $11 per month. After 1996, the deductible and 
out-of-pocket maximum would increase only for inflation. 

Those Medicare beneficiaries who purchase Medigap insurance will also benefit from this new coverage. Three of the ten Medigap 
policies on the market today have prescription drug coverage. The most generous prescription coverage available through Medigap has 
a $250 deductible, 50 percent coinsurance and a $3,000 maximum annual benefit. Medicare beneficiaries who purchase Medigap 
insurance with some prescription drug coverage will be able to save money by purchasing policies without this coverage and see their 
benefits improve. 

All Americans under age 65 also would have coverage for prescription drug costs as of 1998 under the Clinton bill. Under the 
lower cost-sharing plan, individuals and families would pay only $5.00 per prescription. Under the higher cost-sharing plan, after 
meeting a $250 deductible per person, individuals and families would pay only 20 percent of. prescription drug costs. If an individual's 
health costs exceeded $1,500 or a family's costs exceeded $3,000 in a year, they would no longer have to make any additional 
payments for prescription drugs. 

COOPER: 

lona O'Neill would still have to spend $3,600 or more a year for prescription drugs. 

The Cooper bill would not expand Medicare coverage to include prescription drugs. 



For those under age 65, the Cooper bill does not require coverage of all prescription drug costs. A Health Care Standards 
Commission would define, and the Congress would approve, a uniform set of effective benefits that provide medically appropriate 
treatment. As part of the uniform set of effective benefits, the Commission also would specify the level of deductibles and 
copayments. 

The uniform set of benefits could be reviewed annually by the Health^Care Standards Commission and the Congress. Thus, 
benefits could be modified or eliminated every year. 

The Cooper bill would cover prescription drugs for persons with incomes under 100 percent of poverty. 

1 . John Rother, 'Statement of the American Association of Retired Persons on the Health Care Crisis in America: A Growing 
Threat to Economic Security,' Testimony before the Joint Economic Committee, U.S. Congress (Washington, DC: AARP, 
September 15, 1993). 

2. American Association of Retired Persons Public Policy Institute, 'Older Americans and Prescription Drugs: Utilization, 
Expenditures and Coverage,' Issue Brief Number Nine (Washington, D.C.: AARP, September 1991). 

3. Families USA Foundation, Prescription Costs: America's Other Drug Crisis (Washington, DC: Families USA Foundation, 
1992). 



162 



EARLY RETIREES LOSING HEALTH BENEFITS 

One-third (32%) of all retirees who have health insurance coverage through 
their former employers are under age 65. ' In light of skyrocketing health care costs 
and new accounting rules requiring employers to report this liability, companies are 
cutting health benefits for current andfiaure retirees. A recent major survey of larger 
corporations found that 12 percent of companies responding have eliminated or plan 
to eliminate all retiree health benefits. Another 56 percent have reduced or plan to 
reduce health benefits covered.^ 



Kazimer "Casey " Patelski and his wife Bonnie live in Costa Mesa, 
California. Casey was a design engineer for McDonnell Douglas for 
28 years. He helped design various aircraft, missiles, satellites and 
the Skylab Space Station. Casey, who suffered from polio as a young 
man, turned down numerous job offers from other companies over 
the years because of the generous retirement benefits, including 
health insurance, promised by McDonnell Douglas. When Casey 
retired at age 63, he was assured that he and Bonnie would have 
health insurance coverage for the rest of their lives. A year later, 
McDonnell Douglas announced that it was eliminating health insur- 
ance benefits for all retirees. Current retirees, like the Patelskis, 
were allowed to purchase health insurance coverage with their 
pension funds. 



CLINTON: 

The federal government would pay 80 percent of the Patelskis ' health insurance premiums until Mr. 
Patelski was eligible for Medicare. 

The Clinton bill would provide early retirees and their families with guaranteed health coverage. Under this bill, the federal 
government would pay 80 percent of premiums for retirees between the ages of 55 and 65. For retirees whose previous employers 
currently pay retiree health costs, their employers would now pay the retirees' share of premiums (20 percent). 



COOPER: 



The Patelskis woukl stitt have to pay 100 percent of their health insurance premiums. 

The Cooper bill would provide no federal assistance for early retirees who are not yet eligible for Medicare, or their families. 

If the Patelskis choose to buy insurance, under this bill they would buy that insurance through their local purchasing cooperative. 

Their premiums would probably be less than if they had to buy insurance on their own, but they could pay higher premiums than 
others in the purchasing cooperative because of their age. 

1 . Steven DiCarlo, Jon Gabel, Gregory de Lissovoy and Judith Kasper, Research Bulletin: Facing Up to Postretirement Health 
Benefits (Washington, D.C.: Heath Insurance Association of America, 1989). 

2. Hewitt Associates, FA SB Retiree Health Accounting (Lincolnshire, IL: Hewin Associates, October 1993). 



163 



JOB LOCK 

American families with a member who has a chrome health condition can easily 
find themselves in the position of being unable to change jobs because the family is 

dependent on the health insurance obtained through one family member's job. One in 
five (19%) workers report that they or a family member are locked in their jobs 

because new work offers limited or no health insurance. ' 



Melanie and Randy Wood live in Houston, Texas with their three 
children. After her third child was bom, Melanie intended to leave 
her Job to become afidl-time mother. At the time, the family had 
health insurance coverage through Melanie 's job. Jordan, now ten, 
was bom with Sturge-Weber syndrome, a congenital neurological 
disorder. Jordan also has hydrocephalus and needs a shunt to drain 
excess fluid from his brain. Melanie started calling insurance 
companies immediately after Jordan 's birth and found that Jordan 
was uninsurable. Since Randy is self-employed, Melanie was forced 
to return to work in order to keep health insurance for her family. 



CLINTON: 



Melanie Wood could become a full-time mother and the Wood family would have a choice of health 
insurance plarts for the same premium as everyone else, approximately $2,000 a year. 

The Clinton bill would eliminate job lock because it guarantees all Americans aflordable, comprehensive health coverage. 

As of 1 998, all employers would contribute 80 percent of average premium costs for health insurance for workers and their 
families, or more if they choose. As a result, workers would no longer have to choose between jobs that offer health benefits and 
those that do not. 

This insurance would be affordable for small businesses and individuals because low-wage businesses and individuals would be 
eligible for discounts on premiums; because no business or self-employed individual would have to spend more than 7.9 percent of 
their payroll on premiums; and because premiums could increase no faster than Inflation by the end of the decade. 

Immediately upon enactment, the Clinton bill would prohibit insurers from excluding pre-existing conditions for individuals and their 
families who were insured within the previous 90-day period. For individuals and their families who were not previously insured, 
insurers could limit coverage for pre-existing conditions for no more than six months. This bill also would require insurers to accept 
immediately all newly-hired, full-time employees and their families added to groups currently insured. By 1998, this bill would prohibit 
exclusions for pre-existing conditions under any circumstances. 

If Melanie Wood stayed home with her children, the Wood family would purchase their insurance through their regional health 
alliance and have the same choices as everyone else in the region. They would be eligible for significant discounts on their premiums 
based on their income. Based on national average premiums, the Wood family would pay approximately $2,000 a year for 
comprehensive health insurance. Since Randy Wood is self-employed, that amount would be fully tax deductible. 



164 



COOPER: 

If Melanie Wood became a fuO-time mother, the famOy could purchase insurance and would be erigible for 
assistance with premium costs, but there is no way of knowing what bene As their premiums would cover 
and what out-of-pocket expenses they wouU have. This bW would not eliminate job lock for workers who 
wish to change from a Job with health benefits to a Job that does not have health benefits. 

The Cooper bill would not eliminate job lock. Since employer contributions to health insurance would remain voluntary, most 
employers who do not contribute to health insurance now would not in the future. Thus, workers would still have to choose between 
jobs that offer health insurance benefits and those that do not. 

Individuals and small businesses could purchase insurance through their local purcfiasing cooperative. The premium cost would be 
tax deductible, but only up to the cost of the lowest-priced plan. Insurance premiums would vary by age. Any plan that denied 
coverage to any person, family or group because of one person's health condition would not be tax deductible. For individuals and 
families who lacked insurance coverage for three months, insurers could limit coverage for six months for any pre-existing condition 
that appeared in the last three months. 

The Cooper bill would not limit the amount insurance premiums could increase each year. It would not provide any discounts to 
small businesses or self-employed persons, or limit the percentage of payroll they could spend on premiums. 

Under this bill, individuals and families with incomes under 1 00 percent of poverty would be fully subsidized for the cost of the 
lowest-priced plan and would pay ten percent of the difference between the cost of the lowest-priced and higher-priced plans. 
Individuals and families with incomes between 100 and 200 percent of poverty would pay a percentage of the premium equal to the 
percentage their income is above the poverty line for the lowest-priced plan and that same percentage of the difference between the 
cost of the lowest-priced plan and higher-priced plans. 

Since Randy Wood is self-employed, the Woods could purchase insurance through their local purchasing cooperative. Since the 
Woods' income from Randy's business is 1 9 percent above the poverty line, the Woods would pay about 1 9 percent of the premium 
of the lowest-priced plan. Since Randy Wood is self-employed, this cost would be tax deductible. Since the Cooper bill does not 
specify a standard benefits package, it is Impossible to determine the amount the Woods would have to pay for premiums, 
deductibles, copayments and uncovered services. 

1 . Henry J. Kaiser Family Foundation and Louis Harris and Associates. 
'News Release: One in Five American Families Victim of 'Job Lock.' 
High Cost and Lack of Insurance Top Reasons' (Menio Park, CA: Kaiser 
Family Foundation, October 15, 1993). 



165 



SMALL BUSINESS OWNERS AND THEIR FAMILIES 

Small business owners, employees and their families encounter great difficulties 
obtaining cffordable health insurance. Small groups generally must pay ten to 40 
percent more for health insurance than large groups. Those who would purchase 
health insurance as individuals or as part of a small business group face another 
formidable barrier to health coverage— medical underwriting practices. Medical 
underwriting is the process by which an insurer evaluates the health history and the 
potential for poor health status, and high claims, for an individual or group. Based 
on current underwriting practices, approximately 15 percent of all small businesses 
are ineligible for insurance or eligible only for restricted coverage. ' 



Ann and Hubert Maddux live in Corpus Christi, Texas with their 
four-year-old daughter and infant son. Hubert runs a tackle shop 
and makes approximately $25,000 a year. As a small business 
owner, the best insurance Hubert could get for himself and his 
family was through his alma mater in 1986. At that time his premi- 
ums were $1,000 a year. After their daughter was bom with Downs 
Syndrome and serious heart defeas, the Maddux family 's premiums 
increased to $1 7,000 annually. For the last two years, the Madduxes 
have cut back on their insurance coverage because of the high costs. 
As of January 1994, the Madduxes pay $8,520 a year for their 
insurance. But the policy requires a $5,000 deductible per person, 
and payment of half of the first $10,000 in covered expenses per 
person. Both children need prescription drugs which the family 's 
insurance does not cover. Medicine for the children costs the family 
between $100 and $200 per month. 



CLINTON: 



The Maddux family would save about $5, 700 on health insurance premiums and wocdd have a choice of 
plans that provide comprehensive benefits. They would have to spend no more than $3,000 out of pocket 
annually for their family's health care. 

Under the Clinton bill, most Americans would obtain their insurance through consumer-controlled reBicnal health alliances. This 
pooling of individuals and businesses would result in lower premiums for those who previously purchased insurance alone as small 
businesses or individuals. The Maddux family would pay the same premium as ail others under age 65 purchasing insurance through 
the alliance. 

Small businesses and indiwiduals would no longer see their premiums skyrocket from year to year. This bill would limit the amount 
by which insurance companies can raise premiums each year so that, by the end of the decade, premiums would go up no faster than 
inflation. 



166 



Insurers would no longer be able to set the premiums for small businesses on the basis of that group alone. Instead, premiums 
would be based on health costs for the entire region. Insurers would no longer be able to reject businesses or individuals for any 
reason. 

Small businesses would be eligible for significant federal discounts on premiums. No business would have to spend more than 7.9 
percent of its payroll for health insurance costs. Businesses with 75 or fewer employees would pay less if their average wages are 
$24,000 or less. The lowest wage small businesses would pay only 3.5 percent of payroll. 

Many small business owners would pay less to cover themselves, their families and tfieir employees than they now pay just to 
cover themselves and their families. Based on national average premiums, ttie Maddux family, for example, would pay no more than 
about $2,800 for health insurance premiums. This amount would be fully tax deductible. The amount the Madduxes currently pay for 
health insurance would cover the cost for the Maddux family and two additional families under the Clinton bill. 

COOPER: 

The amount the Maddux f amity would pay for premiums and the coverage they would have, including 
deductibles and copayments, are unknown. 

Under the Cooper bill, the Maddux family and other small businesses and individuals who choose to purchase health insurance 
would purchase it through their local purchasing cooperative. Since not all small businesses and individuals would choose to purchase 
insurance, the purchasing cooperatives would not pool as much risk or have as much negotiating power as if all small businesses and 
individuals had to purchase insurance through the cooperative. 

The Maddux family's premiums would differ from others who purchase insurance through the cooperative based on their age. Any 
plan that denied coverage to any person, family or group because of one person's health condition would not be tax deductible. 

This bill does not specify the standard benefits, or the deductibles and copayments. 

Small businesses and families could deduct the cost of their health insurance premiums, up to the cost of the lowest-priced plan, 
and only for the benefits included in the unspecified uniform set of benefits. Small businesses would not receive any discounts on 
premiums for low-wage workers, nor would there be a cap on the percentage of payroll spent for premiums. 

There are no limits on the amount premiums could increase each year. 

Since this bill provides no subsidies for small businesses, small business owners and their families would be eligible only for 
individual subsidies. Families and Individuals with incomes under 100 percent of poverty would be fully subsidized for the cost of the 
lowest-priced plan and would pay ten percent of the difference between the cost of the lowest-priced plan and higher-pnced plans. 
Families and individuals with incomes between 100 percent and 200 percent of poverty would pay the percentage of their income 
that is above the poverty line for the lowest-priced plan and that same percentage of the difference between the cost of the lowest- 
priced plan and higher-priced plans. 

Since the Maddux family's income is 74 percent above the poverty line, they would pay 74 percent of the cost of the premium for 
the lowest-priced plan. This amount would be tax deductible. 

Since the Cooper bill does not specify a standard benefits package, it is impossible to determine the amount the Maddux family 
would pay for premiums, deductibles, copayments and uncovered services. 

1 . Wendy Zellers. Catherine McLaughlin and Kevin Frick, 'Small Business Health Insurance: Only The Healthy Need Apply,' 
Health Affairs vo\. 11, no. 1. (Spring 1992). pp. 174-180. 



167 



LONG TERM CARE AT HOME 

At any given time, there are an estimated three and one-half million Americans 
Hfej have great difficulty taking care of themselves. These persons require assistance 
with three or more of the five most basic activines of daily living— eating, bathing, 
toileting, dressing and getting out of a bed or chair. The services that they need are 
largely non-medical in nature and, as a result, options for financial assistance or 
insurance coverage are very limited. Approximately half of these Americans currently 
do not receive arty paid home care services. ' 



Roz and Harold Barkowitz live in North Miami Beach, Florida. 
Harold is a 72- year-old retired shoemaker who had to give up his 
business six years ago to care for Roz, age 67, w/w has multiple 
sclerosis. They had to sell their house and move into an apartment 
because Roz could no longer climb the stairs. They get no outside 
assistance caring for Roz, only someone who comes to clean once 
a week. Harold's greatest fear is that something will happen to him 
and he will no longer be able to care for Roz. He currently spends 
24 hours a day taking care of her. 



CLINTON: 

Mr. and Mrs. BarkowHz would be eligible for services to assist Mr. Barkowiti with eating for his wife. The 
new program woukt ensure such care is affordable. 

Ttie Clinton bill establishes a major new program to provide services to individuals wrth severe disabilities without regard to age. 
Beginning In 1996, the federal government would provide signrticant new funds for states to develop plans of care for, and provide 
services to, persons with severe disabilities. 

These persons would be eligible for services that include personal assistance and a wide variety of other services that would help 
them continue to live in their homes and community. This new program would be fully phased in by the year 2003. Individuals- would 
be responsible for modest copayments based on income. 



COOPER: 

77ie Barkowitzes would receive no assistance. 

The Cooper bill does not provide families any new assistance with providing long term care at home. 

Under this bill, states would become entirely responsible for long term care expenses currently financed jointly by the federal 
government and states through the Medicaid program. Thus, fewer services could be available than currently. 

1. Data provided by Lewin-VHI, Inc. This estimate includes persons with physical disabilities only. Due to limitations 
in the data, it does not include persons with cognitive impairments. 



168 



EMPLOYEES VULNERABLE TO ARBITRARY LIMITS ON BENEFITS 

Approximatefy 40 percent of all employees and their families are covered by 
employer health plans that are self-insured. Self-insured companies do not purchase 
health insurance from a private insurance company. Instead, they pay the cost of their 
employees' medical care direaly. The U.S. Supreme Court recently ruled that self- 
insured employers may limit or eliminate health insurance benefits at any time, even 
cfier an employee or a family member contracts a serious illness. 



John andJoan Qeveland of St. Louis, Missouri had health insur- 
ance through Joan 's employer, a company that is self-insured. John 
was diagnosed with leukemia in September 1990, and he needed a 
bone marrow transplant. Even though his insurance had a $500,000 
lifetime maximum, the policy capped coverage of organ and tissue 
transplants at $75,000. John 's transplant cost about $250,000. John 
died of complications from his transplant in June 1993. 



CLINTON: 

John and Joan Cleveland would have had to pay no more than $3,000 out of 
pocket for John 's medical care in the year that he had his bone marrow transplant. 

The Clinton bill would prohibit all employers and insurers from imposing caps or exclusions on coverage for specific medical 
conditions or any lifetime limit on benefits for covered services. The bill would require all businesses, whether they pay for their 
employees through a regional health alliance or through their own corporate alliance, to provide the comprehensive benefits specified 
by federal law. John Cleveland's bone marrow transplant would have been covered. 



COOPER: 



Joan Cleveland's employer coukJ not impose arbitrary limits on the Clevelands ' health benefits, but it is 
impossible to know if John 's bone marrow transplant would have been covered. It is impossible to determine 
the amount the Clevelands wouU have had to pay out of pocket for John's medical care. 

The Cooper bill would prohibit all employers who provide insurance, either through a purchasing cooperative or on their own, from 
limiting any benefits in the uniform set of benefits. 

The bill, however, does not specify the uniform set of effective benefits within the broad categories of medically appropriate 
treatments, clinical preventive services and diagnostic services. The bill also does not specify the amount families would have to pay 
in deductibles and copayments. The uniform set of benefits could include limits on benefits for specific treatments or diseases. The bill 
leaves these decisions to a Health Care Standards Commission and then to the Congress. 

The Health Care Standards Commission and the Congress could review annually the uniform set of benefits. Thus, benefits could 
be modified or eliminated every year. 

1. Cynthia B. Sullivan, Marianne Miller, Roger Feldman and Bryan Dowd. 'Employer-Sponsored Health Insurance in 1991,' 
Health Affairs vol. 11, no. 4, (Winter 1992), pp. 172-185. 



169 



EMPLOYERS WITH SKYROCKETING PREMIUMS 

The amount American families and businesses are charged for health care has 
far outpaced increases in family iiKome and business profits. Today, business 
spending for health care nearly equals the amount corporations make in (^er-tax 
profits. By contrast, in 1980, business health care spending amounted to 41 percent 
of corporations' cfier-tax profits.' If health care inflation had been held to the same 
rate ofirflation as the rest of the economy from 1980 to 1992, health care costs for 
businesses today would be one-third less than they are. This difference averages about 
$1.000 per worker.^ 



Roger Flaherty owns a small company. Floor Covering Resources, 
in Kensington, Maryland. He has rwo employees, and they are 
covered by a small group health insurance plan. Both employees 
have ongoing health problems. In 1987 Roger paid $285 a month to 
cover these employees. In November 1993, his premiums increased 
to $885 a momh. The business pays the fitll cost of the insurance. 
Roger is committed to providing health insurance for his employees, 
but doesn 't know if he can continue to afford it. 



CLINTON: 

Mr. Flaherty would see his health insurance prentiums for his employees go up no faster titan inflation by 
1999. 

The Clinton bill would limit the amount by which all insurance companies could raise premiums. By 1 999, American families would 
no longer have to swallow health insurance premium increases that are larger than general inflation, American families would see 
larger wage increases and more disposable income and businesses would see less of their profits eaten up by health cost increases 
and have more money to invest and to create new jobs. 



COOPER: 



Mr. Flaherty and other employers would see their health insurance premiums continue to climb 
uncontrollably. 

The Cooper bill does not limit the amount health insurance premiums could increase annually. Mr. Flaherty's expenses could 
continue to increase far faster than inflation. Employers and workers would not be protected from the devastating economic effects of 
rapidly nsing health insurance premiums. 

1. Cathy A. Cowan and Patricia A. McDonnell, 'Business, Households and Governments — Health Spending 1991," Health 
Care Financing Review vol. 14, no. 3, (Spring 19931, pp. 227-248. 

2. Service Employees International Union, Out of Control, Into Decline: The Devastating 12-Year Impact of Healthcare Costs on 
Worker Wages, Corporate Profits and Government Budgets (Washington, DC: SEIU, October 1992). 



170 

Mr. Waxman. I want to thank each of you. You have given us 
excellent testimony. 

Dr. Coleman, your organization, the American Academy of Fam- 
ily Physicians, did you say that your organization had a benefit 
package that you thought was a reasonable one? 

Mr. Coleman. Yes, sir. It is Rx for Health. I thought that had 
been distributed. 

Mr, Waxman. I am sure it has. Do you have a lot of politicians 
there making those decisions? Do you think that you are capable 
of making them without having some 

Mr. Coleman. Yes, sir, we do. We have had commissions in our 
Academy consisting of 12 physicians each; 6 worked on this, and 
we worked with the 

Mr. Waxman. We should, I think, pay attention to the rec- 
ommendations you have made — this is a better way to phrase this. 
We should pay attention to the recommendations you have made 
because we know that they have been designed by people involved 
in health care and are not going to be responding to political pres- 
sures, as my colleague rightfully pointed out sometimes happens 
when elected officials decide what should or should not be in a 
plan. 

Mr. Coleman. I gratefully accept the way you stated that, sir. 

Mr. Waxman. I hope my friend over there does, too. We went 
through a lot of these issues but I am concerned about that $40 bil- 
lion cut in Medicare that takes in the elderly to subsidize low-in- 
come people. In the Clinton proposal, he would take some reduc- 
tions in increases for Medicare and use it for improving benefits. 
I am just troubled that the elderly are going to find themselves ag- 
grieved if they suddenly find cuts in their increases to pay for their 
medical services, for which they get nothing in return and for 
which they may be worried that they are going to have less access 
to good care. 

I don't know if anybody wants to respond. 

Mr. Pollack. The thing that senior citizens are most concerned 
about is, they are really worried about home care and long-term 
care. There is nothing in the Cooper bill that does an3rthing for 
them there. They are really concerned about the cost of prescrip- 
tion drugs. There is nothing in the Cooper plan that helps them 
there. 

There are two problems. One is, the Cooper plan would cut Med- 
icaid funding which would leave the States in a more difficult posi- 
tion with the commitments they already have on long-term care; 
and it would exacerbate the differential between what you get with 
public-financed versus-private-financed care, which will make it 
more difficult to gain access to a doctor and a hospital. 

Mr. Waxman. You raise a good point, because this morning I 
learned for the first time — and maybe the authors of the bill did, 
as well — that they repealed title XIX, which repeals all of Medicaid, 
including that part of Medicaid which pays for nursing home bene- 
fits, presumably leaving it to the States to decide what to do with 
funding nursing homes or home health care. 

Mr. Barnette, It is inevitable that if Medicare and Medicaid are 
reduced that the States will find ways to simply shift those liabil- 
ities onto the employers in some way or other. That is inevitable. 



171 

Mr. Waxman. That is a good point. I hope somebody who called 
up the members of the Business Roundtable — if they spend more 
time doing that than threatening the members of their families, we 
would probably get more attention paid to it. 

Thank you very much. 

Mr. Cooper. 

Mr. Cooper. I appreciate the expert testimony of the panel. I re- 
gret that Dr. Coleman wasn't on my panel. 

The main questions would be for Mr. Bamette. You have a ter- 
rific imbalance, it seems to me, between active employees and 
health care beneficiaries. Have you calculated how much money the 
Clinton bill would help you in providing benefits to your retired 
population and others? How much is it worth to your company to 
have the Clinton bill? 

Mr. Barnette. I think we calculated first what the Clinton bill 
would do for all America in terms of reform that is much needed; 
whether it is in the form of the Clinton bill or your bill, that is our 
starting point: What is the overall public interest in terms of 
health care reform? 

Second, in terms of Bethlehem Steel's health care liabilities, yes, 
there would be some improvements and some reductions in our li- 
abilities because of the gross inefficiencies that exist in the present 
health care delivery system. Certainly the cost-containment issues 
are part of this plan, but they will be applicable to many corpora- 
tions other than Bethlehem. 

Third, many of our problems are caused by the ravage — signifi- 
cance of unfair trade that has taken place. We see this as a matter 
of international competitiveness. Health care reform is vital for our 
ability to compete in a tough foreign market in which we are now 
the low-cost, high-quality producer of steel in this country. 

We see all those implications. 

Mr. Cooper. But as a percent of payroll what are your health 
care costs today? 

Mr. Barnette. It depends on the starting point. I think the rel- 
evant percentage for purposes of this analysis is, if our health care 
costs are $231 million this year — we have a health care beneficiary 
population of 161,000 — our health care costs as a percentage of the 
active payroll are 24 percent. 

We have 22,000 employees. They are supporting 161,000 bene- 
ficiaries at a cost of $231 million. Our individual, per capita health 
care costs, we have managed very effectively and efficiently on a 
per capita basis. They are quite reasonable and our health care 
trend rate is quite reasonable. 

Mr. Cooper. I am not saying this is anyone's fault. I just want 
to understand. 

So under the Clinton bill, if the current percent of payroll is 24 
percent, that would be lowered to 7.9 percent? 

Mr. Barnette. We are using a different calculation, I think, for 
this analysis. I am explaining to you what our costs are and a way 
of doing that in terms of the Clinton plan, my understanding is, it 
would be a percentage of payroll cost; and our pajroll cost is some 
$1 million aggregate payroll cost. We continue to have liabilities for 
retirees and for other beneficiaries. 



172 

Mr. Cooper. I want to help figure out a fair and just way to help 
folks. I have been told by a number of folks that this could be a 
windfall to some companies if their percent of payroll costs is well 
above 7.9 percent and it becomes the law of America that you never 
have to pay more than 7.9 percent. 

Mr. Barnette. I would hardly characterize it as a "windfall." 

If I may, I would be happy to give you detailed cost judgments 
on the pending legislation. 

Mr. Cooper. That would be helpful. I don't want to keep you 
from that important Business Roundtable vote coming up here. 

Mr. Barnette. I intend to be there. 

Mr. Cooper [presiding]. I would like to turn the questioning over 
to my colleague, Mr. Klug. 

Mr. Klug. I want to follow up on what Mr. Cooper just said, Mr. 
Barnette. To the degree that you and a lot of other major U.S. cor- 
porations, especially in the manufacturing sector, have large 
groups of retirees, you have to provide for; but at the same time, 
under the President's plan — I have a number of companies in my 
district who pay much less than 7.9 percent. Under the President's 
plan, why do we want to penalize companies that are already doing 
a more efficient job than companies like yours are doing? 

Mr. Barnette. I don't think we want to penalize any company. 
Hopefully, that will not be the case. 

However, I think the case is responsibly made that many of our 
major companies have gone through such restructuring, have for 
many years been substantially overpaying health care expenses. 
This legislation, I think, will bring health care expenditures under 
reasonable control. I think that is the benefit. 

Mr. Klug. No argument from me, and I have been involved with 
Jim and Fred for a year trying to come up with a plan. We see our- 
selves as part of a solution, although we may disagree which way 
to get there. I think from an economic perspective, while you and 
GM and Ford may all prosper under this and see your rates go 
down substantially, I am going to see medium-sized companies in 
Wisconsin have their rates go up dramatically. And from a public 
policy perspective, we now assume liability for early retirees from 
55 to 65. 

What message does that send to corporations 5 or 6 years from 
now? Aren't we going to see the numbers swell dramatically, be- 
cause it is a terrific invitation, if I am a major company, to say, 
I am going to give this to the government. 

Mr. Barnette. That is misunderstood. There are many pre-Medi- 
care retirees in just the classification we are talking about, who are 
not associated with any particular company. Again, the specific de- 
mographics of the steel industry certainly do not suggest that it is 
a windfall for the steel industry. 

If we take our numbers today of early retirees, look at the num- 
bers in 1998 and look at the numbers in the year 2001 — and that 
is the transition to phase-in, the so-called "pre-Medicare retiree 
coverage," the numbers are decreasing very substantially. I think 
it is a matter of fairness to all early retirees, whether from large 
companies or otherwise, to have the certainty of medical care. 

Mr. Klug. Mr. Pollack, you indicated earlier support for ex- 
panded prescription services for seniors. Does your organization at 



173 

the same time think those seniors should be qualified by means- 
testing for prescription services? 

Mr. Pollack. I don't particularly have any grievance with the 
notion of tailoring premiums based on income. I think it is a pro- 
gressive thing to do. I think that it can best be done perhaps by 
having a sliding scale with respect to out-of-pocket costs that they 
bear, and deductibles and copa3rments. So I think that if we made 
that change and we tailored it based on financial need, I would be 
very happy to see that. 

Mr. Klug. Would you support other means-testing changes in 
the Medicare program for seniors to guarantee that we could con- 
tinue to provide coverage to folks that really need help? 

Mr. Pollack. Families USA has taken the position that the pre- 
mium financing of the Medicare program under part B is a regres- 
sive way of doing it. I think it is ridiculous for somebody at a 
$75,000 income to be paying the same premium as somebody mak- 
ing $25,000. If we could make it more progressive, we would sup- 
port that. 

I might say, however, that in terms of the difficult political ele- 
ments of achieving that, I think that is best done in the context of 
a significant reform that includes some of the most crucial benefits 
that seniors are looking for, like prescription drugs and long-term 
care. In that context, I think politically it is easier to achieve that 
kind of tailoring based on income, which I don't think you can 
achieve outside that context. 

Mr. Klug. I think your instincts are correct. Thank you for your 
testimony. 

Mr. Waxman. Thank you, Mr. Klug. 

Further questions? Thank you very much for your testimony. We 
look forward to working with you. 

We now resume our hearing on H.R. 3222 and other health care 
reform legislation. On our first panel this afternoon is the Honor- 
able J. Roy Rowland of Georgia and the Honorable Michael Bili- 
rakis of Florida who will present testimony on their bill, H.R. 3573, 
the Community Health Improvement Act of 1993. 

It is a special pleasure today to have a hearing where we have 
so many of our colleagues on the subcommittee testifying to us. 
You have important information to give us as to how to sort 
through the difficult job of enacting health care reform, doing the 
best for the American people, making progress to make the system 
work better for everyone. 

We are delighted to have the two of you with us. Your prepared 
statements, as you have heard me say many times before, will be 
in the record in full. We would like to ask you to limit the oral 
presentation to no more than 5 minutes. 

Dr. Rowland. 

STATEMENT OF HON. J. ROY ROWLAND, A REPRESENTATIVE 
IN CONGRESS FROM THE STATE OF GEORGIA 

Mr. Rowland. Thank you very much. I am not so sure how much 
I like having this shoe on my foot. I will know better how well it 
fits after I finish this testimony. 

Mr. Chairman, thank you for the opportunity to present our 
views about the consensus proposal and our concept for broadening 



174 

access to care, particularly for the medically underserved. It is im- 
portant to consider all points of view, and the subcommittee should 
be commended for helping make this possible. 

As a family physician, I know from firsthand experience how peo- 
ple are affected by the bewildering range of problems that have 
plagued the health care system for years. 

Our goal is to address every one of these problems and help re- 
build a system that provides quality, affordable access to everyone. 

As a legislator who has been involved with health care policy on 
the State and Federal levels, I also know how difficult it is to 
achieve this. Medicare and Medicaid are examples of how Washing- 
ton tried to address the problems of the elderly and poor, and ex- 
pectations were never fulfilled as costs soared far beyond any pro- 
jections. Many things have been tried since then and the problems 
only get worse. 

Our goal is also to help make sure we do not make the same mis- 
takes again. In my view, we should not implement experimental 
programs before they have been adequately studied and tested and 
we should not try to fix parts of the system that are not really bro- 
ken. 

We view our consensus legislation as a beginning. It is an effort 
to establish the debate on a foundation of agreement rather than 
on one of divisiveness. From the standpoint of quality, and even 
perhaps the quantity of reform, we believe we can achieve more 
this year in an environment of cooperation than we can in the 
midst of a political and philosophical free-for-all. 

It is a plan that can help get the health care reform process mov- 
ing forward. It is a problem-oriented approach that can help sort 
out which ideas should be implemented now and which should be 
studied further. And it can be a substantial basis on which we can 
enact additional reform. 

The reforms included in our consensus proposal, with few excep- 
tions, are also included in virtually every one of the other com- 
prehensive health care plans pending in Congress. The provisions 
may not be exactly the same in all instances, but they are similar. 

Included are: 

Insurance portability, so insured workers won't lose their cov- 
erage if they change or lose their jobs; 

Noncancellability of policies and prohibiting exclusion for pre- 
existing conditions, to give people the health care security many 
now lack; 

Malpractice liability reform, to reduce so-called "defensive medi- 
cine" and create a better system of accountability; 

Increased preventive care programs that emphasize primary 
care, inoculations, and early diagnosis of health problems; 

Administrative streamlining, to reduce the costs and hassles of 
paperwork; 

Antitrust reform, to facilitate the consolidation of services and re- 
duce costly duplication; 

The consensus legislation is now in the final drafting stage and 
we expect it to be ready for introduction soon. Some of the details 
are still being worked out. We are trying to refine and strengthen 
these reform provisions as much as we can. But, again, they will 
be similar to those in plans already before you. 



175 

We introduced the Community Health Care Improvement Act in 
November. This plan can potentially provide access to care to every 
citizen, particularly the Medicaid eligible population and the unin- 
sured and underinsured. 

There are features in this plan that we believe also have consen- 
sus potential. It is based on community initiative more than Fed- 
eral control. It does not rely as much on bureaucratic regulation as 
some other access plans do. It is a system built around community 
health care centers, which have a proven record of cost-effective- 
ness. 

In Georgia, there are 25 community centers providing a wide 
range of medical, laboratory and x-ray services for an average cost 
of just $190 per patient per year, according to the Georgia Associa- 
tion for Primary Health Care. There are more than 700 of these fa- 
cilities around the country. If encouraged, many more will emerge. 

Our proposal would link community hospitals to these centers, 
where inpatient and outpatient care would be provided to enrolled 
patients either free of charge or on an ability-to-pay basis. Al- 
though partly financed with Medicaid and other Federal funds, as 
well as State and local funds, grants from foundations and other 
sources, it is a system that would enable communities to tailor 
services to their own needs. 

Mr. Chairman, we are concerned about the conflicts that exist in 
this debate over reform of the health care delivery system. Our 
purpose is not to compete with other plans, but only to make sure 
this opportunity to make real progress in health care reform does 
not slip away. 

Thank you for the opportunity to be here this morning. 

Mr. Waxman. Thank you. 

Mr. Waxman. Mr. Bilirakis. 

STATEMENT OF HON. MICHAEL BILHIAKIS, A REPRESENTA- 
TIVE IN CONGRESS FROM THE STATE OF FLORIDA 

Mr. Bilirakis. Thank you, Mr. Chairman. I have already 
thanked you and commended you for your open-mindedness and for 
your willingness to allow all these plans to be presented. I very 
much appreciate your giving us this opportunity. 

My friend and our colleague. Dr. Rowland, has ably outlined the 
major points of our bill. Of course, he talked about the Community 
Health Centers bill which has already been introduced, but he also 
talked about the Health Reform Consensus Act, which is in the 
process of being drafted and will be introduced some time next 
week we believe. 

Quite simply, Mr. Chairman, we believe it is imperative to begin 
the process of health reform with the consideration of items where 
there is broad bipartisan agreement. Our draft bill draws legisla- 
tive language from the Clinton administration proposal, the plan 
offered by our colleague, Representative Cooper, the Michel bill, 
and the Bentsen legislation of 2 or 3 years ago. 

We have intentionally violated the cop3n*ight in order to draft a 
bill Henry Clay might find judicious and passable. We believe our 
bill will provide real relief now to real Americans. Provisions on 
portability will prevent job-lock, a situation where individuals are 



176 

forced to stay with unrewarding employment simply to maintain 
insurance. 

I am certain, too, that each member of this subcommittee has 
heard horror stories back home of individuals denied coverage due 
to preexisting conditions. 

We all know that preventive care can save scarce resources and 
improve the quality of life for many individuals. Malpractice reform 
is also sorely needed as we all have said so many times, and we 
must eliminate fraud and abuse inherent in our current system. 

Our consensus bill addresses these issues in addition to changing 
the antitrust laws to afford facilities the opportunity to share re- 
sources. The point of our legislation, Mr. Chairman, is that people 
are hurting now. And we can do something to help now. We can 
act now and correct many identifiable problems with our health 
care system. However, as you know, no single bill that has been in- 
troduced in Congress has received anything close to majority sup- 
port. 

Only 21 percent of House members have signed on to the 
McDermott legislation. Only 23 percent have cosponsored the Clin- 
ton bill. Only 13 percent support the Cooper bill, 1 percent the 
Thomas bill, 32 percent the Michel bill, and 4 percent the Steams 
bill. 

In this fractious situation we must seek common ground. We 
must seek consensus and that is precisely what our bill draft will 
do. Significantly, the bill provides a ready majority for both com- 
mittee and Floor action. As of January the 26th, 297 Members of 
the House supported at least one of three bills that we used in 
drafting our consensus legislation. Many members also support 
multiple bills, as we know, and 101 of our colleagues agree with 
the basic principles of our approach. 

Our bill offers a harmonic convergence among the din of Harry 
and Louise, the newspaper ads of the health care reform project 
and the rumblings of Rush Limbaugh. It offers a chance to begin 
the debate from a point of common reference. We also believe that 
the bill does not represent a final product, and I do want to empha- 
size that, Mr. Chairman. 

There is no intent that it represents a final product. Instead, we 
view our bill as a starting point for reform of the Nation's health 
care system, a basic foundation on which to build. This, we believe, 
is crucial to the legislative process of health reform. To those who 
are concerned about universal access, our bill offers a platform for 
amendment. To those members who want a vehicle for cost contain- 
ment, nothing in our bill would prohibit the imposition of further 
cost controls. 

Our fundamental position, however, is that these provisions 
should be added to the basic consensus bill by affirmative vote 
under majority rule. We should use a consensus bill to first fix 
what we know is broken, and then debate and vote on amendments 
addressing the broader questions of access and cost containment. 
We believe that the Democratic process works best when it is a 
process of addition, rather than subtraction. 

Members should be allowed to cast their votes yea or nay on the 
fundamental elements of providing access and controlling costs. We 
believe we should build a health care reform house from the ground 



177 

up with each plan standing on its own merit. Conversely, if we 
start from a committee print based on the Clinton health care pro- 

f)osal, Mr. Chairman, the bill text will land in our committee much 
ike the farmhouse in the Wizard of Oz. We will hear a thud and 
then most likely a whimper. 

Under this process, we will be asked to strip away objectionable 
elements under the threat of a veto. We will start with a completed 
house, and then be asked to rebuild it without breaking any win- 
dows or scratching the paint. And, Mr. Chairman, you yourself 
have said that the veto, and I quote from a recent Washington Post 
article, "holds the prospect for Republicans and some nervous 
Democrats that they will be held responsible if health care fails. 
And that is a tough label for those people to have when they go 
back home to face the voters in November," end quote. So, Mr. 
Chairman, let us instead start from a position of true bipartisan- 
ship and let us stray away from abject politicization of the legisla- 
tive process. 

This health care debate should and must be about intelligent re- 
form, and not about, as you have said, November elections. And in 
terms of simple fairness, we ask that whatever proposal becomes 
the markup vehicle, that the Chair continue, and I know you will, 
its long-standing policy of allowing any member of the committee 
to offer any amendment or substitute to the bill which falls within 
our subcommittee's jurisdiction. And at the risk of disagreeing with 
our full committee Chair, at considerable risk, I might add, al- 
though he isn't here, so maybe the risk is lessened somewhat, I 
must also individually state that I believe we should not labor 
under artificial deadlines to the detriment of the process. 

Our prime obligation is to thoroughly consider the health reform 
bill in an orderly fashion. We know, Mr. Chairman, that the ad- 
ministration has missed deadline after deadline on health care, and 
now we are told we have only a few weeks to act. Something is 
wrong with this picture. We must act on health reform. We must 
act in the sober light of day with our full wits about us. 

In conclusion, Mr. Chairman, I know I speak for both of us and 
for many others. We are willing to work with you throughout the 
coming weeks, but we would hope that you also give full consider- 
ation to a bottom up process of amending a core bill, whether it be 
ours or another subcommittee print. 

In the interest of time, Mr, Chairman, I will finish up by saying 
that again we need to face the facts. With only 21 percent of House 
members supporting McDermott, only 23 percent the Clinton bill, 
only 13 percent the Cooper bill, 1 percent the Thomas bill, 32 per- 
cent the Michel bill and 4 percent the Steams bill, we cannot take 
an all-or-nothing approach with regard to health care reform. 

We are probably never going to get what we really need to do 
done that way. And so we drafted our bill in an attempt to define 
a common position among the competing proposals that have been 
introduced. 

Mr. Chairman, we can do it if we truly want to. 

Mr. Waxman. Thank you very much. Both of you, I want to com- 
mend both of you for your testimony. And, Mr. Bilirakis, I took 
those statements you made to me as very constructive ones, and to 
show my friendship, I am not going to show the transcript of this 



178 

hearing to Mr. Dingell, so he won't even know what you said about 
him. 

The two of you have offered a very constructive bill, and I want 
to commend you, particularly on the community and migrant 
health centers program. I think they are tremendously important, 
no matter what we do in health care reform. And you have given 
us a number of the ideas for which there is a consensus. 

Now, I think the job of this committee is to see is there more 
that we can do, is there broader consensus we can develop. And 
that is what we have got to do together. So I appreciate your testi- 
mony. 

Mr. Cooper, questions? 

Mr. Cooper. Thank you, Mr. Chairman. I appreciate the friend- 
ship and expertise of my colleagues. I have enjoyed working with 
both of you on a number of issues. The consensus proposal is a very 
novel committee procedure that I hadn't thought of before, and I 
am looking for any idea to make sure that we can break the 
gridlock on health reform. 

It is awfully hard to overcome pride of authorship and things like 
that, even when folks say they have no pride of authorship, that 
is kind of when you know that they do. So I look forward to seeing 
the draft of the bill when test released and see exactly what sort 
of combination of those bills that it actually is. 

I have particular regard for my friend and colleague. Dr. Row- 
land, because, as you know, there are so few health professionals 
even in politics, much less in this body, much less on this commit- 
tee. And as we debate these crucial areas, it worries me deeply that 
any politician who blocks access to a physician or health provider 
by a patient is going to be a dead politician. 

You know, the most intimate, personal and urgent concern that 
any of us ever has is when we are sick, or a loved one is sick. And 
the health professions have a special expertise that we rely on reg- 
ularly. That is such an ironic situation, when our own doctor is 
probably our most trusted advisor, and yet somehow, according to 
the polls, doctors are not very popular. It is kind of like Congress, 
people like their own Congressmen, but don't like Congress. 

Mr. Rowland. I have a double click. 

Mr. Cooper. You do. Have you ever sold any used cars? 

So as we work through these things, whether it is beefing up 
community and migrant health clinics, which certainly needs to be 
done, and we have about $100 million, I believe, in our bill to try 
to do that, but I want to work with you to make sure that I under- 
stand exactly how we need to strengthen those programs, whether 
as an alternative to my bill or as a supplement. Also I want to 
work with you to understand the best way to draw up this basic 
benefits package. 

There has been a lot of discussion on today. Because despite the 
high regard I hold my colleagues in, I get deeply worried when I 
think that we would be specifying the details of a package. Perhaps 
we would choose wisely, perhaps not. Even if we did write it in 
statute and it was perfect, a new medical discovery could happen 
during the recess and we would have to reconvene Congress to ad- 
just the package. I just worry that if we do it, it won't be basic, 
it won't be scientific, and it won't be flexible enough to meet human 



179 

needs. But I look forward to working with you and, Mike, and oth- 
ers to make sure that we can come to a good solution to these trou- 
bling problems. And I am just delighted that we will have your ex- 
pertise not just as general in Congress, but here on the committee 
as we wrestle with these tough problems. 

Mr. Rowland. I really appreciate your kind words and those of 
the chairman as well, and certainly look forward to working with 
you as well. I will have to tell you that we have plagiarized a little 
bit of your legislation 

Mr. Cooper. Good. 

Mr. Rowland [continuing]. Trying to put our consensus bill to- 
gether, as was pointed out by my good friend and colleague, Mike 
Bilirakis. We have taken a lot from other bills and while it may 
have made some little changes in it, but for the most part very 
similar to legislation that is already out there. So we certainly 
don't have any pride of authorship of much of the language in the 
legislation that we will be introducing as consensus legislation. I do 
appreciate very much your kind remarks. 

Mr. Waxman. Thank you, Mr. Cooper. 

Mr. Hall? 

Mr. Hall. Mr. Chairman, thank you. I have the opportunity to 
make a comment when I didn't have to sit here and listen to the 
testimony. I join the gentleman from Tennessee in saying that I am 
proud that there is a doctor in the House. And also pleased that 
there is a patient in the House, because Mike has been a patient. 
And a lot of us have had his health as a great concern, because he 
is a very dear friend. And that is how — that is why this whole 
thrust is so important to so many people out there that mean a lot 
to us. 

And there are those out there that can't get insurance today. And 
I really think the country should feel good that while I am brag- 
ging on people, that we have a chairman that totally understands 
the health thrust and cares about people. And though we haven't 
always agreed on the avenue to get there, his word has always 
been good to me and I have always had to run with what I wanted 
to run with. So I think we have a good platform here to spring 
from, and we have a little bit of difference of opinion, but I think 
all of us certainly want to get there. 

And I want to add my voice to the support of the work that both 
of you have done. We have had support for insurance reform, 
standardization of benefits and billing, malpractice and tort reform, 
and we should have passed these reforms when Secretary Bentsen 
first recommended them. These ought to already be on the books, 
but it is not too late and I think Dr. Rowland, you have had some 
good ideas on how to expand, enhance and promote our community 
health centers. 

I am fortunate to have a very excellent one in Greenville, Tex., 
right in the heart of my district there, and I believe health access 
and delivery can be greatly improved by increasing the number of 
community-based clinics that serve neighborhoods and entire com- 
munities. It is working very well there. 

I understood that our President was in favor of going ahead with 
these reforms at one time, and in the course of several days and 
nights, he was changed, and that the First Lady really didn't want 



180 

to go ahead with these reforms because she thought it would take 
from her overall program. And it seems to me it would make a lot 
of sense to go on and put them on the books now. It would give 
us a year, at least a year's head start on saving some money that 
can be applied to whatever type bill that we do pass. But I thank 
you for the hard work you all have put into it, and, suggest that 
we look forward to worlang with you as we move along. 

I yield back my time. 

Mr. Rowland. If I may, Mr. Chairman, I really appreciate the 
kind remarks, and I am glad you came in when you did, Mr. Hall, 
because I am really pleased to hear you say what you said. And 
I look forward to working with you. And I agree with what you said 
about the chairman. 

While we may not always agree on a specific item, there has 
never been any doubt in my mind that our goal was the same. We 
were always looking for a way to provide the best quality care for 
everyone that was affordable for them. I appreciate that. Thank 
you very much. 

Mr. Waxman. Thank you. Thank you both very much for your 
testimony. We are certainly going to look forward to working with 
you. 

We now have the opportunity to hear from another one of our 
colleagues on the Energy and Commerce Committee, the Honorable 
Cliff Stearns of Florida. He is a sponsor of H.R. 3698, the 
Consumer Choice Health Security Act of 1993, but presumably 
would be changed to 1994. 

Mr. Steams, we are pleased to have you with us. Your prepared 
statement will be in the record, without objection, in its entirety. 
We would like to ask you, if you would, to try to keep the oral pres- 
entation to 5 minutes. 

STATEMENT OF HON. CLIFF STEARNS, A REPRESENTATIVE IN 
CONGRESS FROM THE STATE OF FLORIDA 

Mr. Stearns. Thank you, Mr. Chairman. Appreciate the oppor- 
tunity that you have extended to me to testify here on your com- 
mittee. There is a portion of this I would like to read and put — 
even though you have been kind enough to put it in the record. I 
would like to read a portion of this. 

As you mention, it is H.R. 3689. On the Senate side, Senator 
Nickles has offered the same companion bill, it is S. 1743. We 
dropped it last year so it has the title of the Consumer Choice 
Health Security Act of 1993. Senator Nickles was to be here today. 
Unfortunately, he had a conflict of schedule and he couldn't be. 

As members of this committee are aware, the issue of health care 
reform has been in the forefront of our citizens' concern, and right- 
ly so. The President's State of the Union Address, we all heard him 
say that he would not sign a bill into law that did not guarantee 
universal coverage. H.R. 3698 does that and more. 

As such, I believe that it merits full consideration by the Con- 
gress before a final bill is brought to the House Floor for a vote. 
I would like to quote, Mr. Chairman, the President, from his State 
of the Union remarks, when he said, quote, "The American people 
provide those of us in government service with terrific health care 
benefits at reasonable cost. We have health care that is always 



181 

there. I think we need to give every hard working taxpaying Amer- 
ican the same health care security, that they have already given 
us here in Washington." 

Mr. Chairman, over 40 of my colleagues and yours here in the 
House and Senate agree with that statement. That is why we have 
introduced this bill, the Consumer Choice Health Security Act of 
1993. 

Now, as the title indicates, this legislation seeks to provide qual- 
ity, necessary medical care to all Americans through the oldest 
proven mechanism, the free market. Furthermore, this legislation 
is patterned after the Federal Employee Health Benefit Program 
that has been in existence for over 30 years, and it has held down 
its costs while providing quality health care. 

As you know, Mr. Chairman, all Members of Congress our staff, 
the President, the Vice President, the Cabinets, the Supreme Court 
Justices, and some 10 million employees, retirees and dependents, 
are enrolled in this plan. The program is unique in that it is explic- 
itly based upon the free market principles of consumer choice and 
market competition. 

Unlike our constituents, we have the luxury of being able to pick 
and choose from over 30 different health care plans, be it a tradi- 
tional, HMO, PPO, or a union-sponsored plan like the postal work- 
ers. Unlike the rest of America, we get to make a personal choice, 
compare the prices, and level of benefits of each plan. We then 
make a decision based upon our budget, our needs, and our bottom 
line, not some corporation's bottom line. 

While the FEHBP model is not perfect, with the modifications 
that have been added in our bill, this plan can be expanded to 
cover all Americans. Combined with an individual mandate, rather 
than an employer mandate, that is explicitly written into this bill, 
the President's goal of universal coverage is met. The Government 
program is a sound program with good benefits and while the level 
of benefits has increased over the years, costs for these plans have 
been effectively kept down. Not with price controls, mind you, but 
with competition. 

On September 14, 1993, Jim King, the Director of Office of Per- 
sonnel Management, stated, and I quote, "Our enrollees continue 
to gain from the competition and jnanagement care that form the 
backbone of the Federal Employee Benefits Program." 

Mr. Chairman, this is evidenced by the fact that the price of pre- 
miums for Federal employees that they have to pay in 1994 are 
only 3 percent higher than the prices they paid in 1993. In short, 
the market forces have worked for the FEHBP program. There is 
no reason why these same principles cannot be worked for the 
American people. 

Most Americans are kept out of the picture when it comes to pur- 
chasing health insurance because it is usually purchased by their 
employer. Doctors and hospitals rarely discuss bills or fees required 
for delivery of care and rely on third party reimbursement. 

Consumers are shielded from the true cost of health care and as 
such there is no incentive for all parties involved to control costs. 
The old time saying of supply and demand, the market forces that 
control costs in every sector of the American economy, are not 
present in an employer-based health care system. In sharp contrast 



182 

to Gk)vernment-based insurance or mandatory employer-based in- 
surance, where government bureaucrats or corporate officials are 
deciding what level of benefits Americans will receive, our bill will 
provide every American with the means to purchase health insur- 
ance within the framework of the free market and with consumer 
choice. 

Under our bill, health insurance benefits will be made available 
to all Americans with the tax relief currently enjoyed by individ- 
uals with employer-provided insurance. However, this coverage will 
no longer be dependent upon employer status. 

Furthermore, consumer choice would serve as a driving force in 
bringing down costs, the same way it does in the rest of our econ- 
omy. This would be accomplished by transferring the multibillion- 
dollar Federal tax break for employers providing health benefits in 
the form of deductions and exclusions, and giving that money to 
American workers in the form of a Federal tax credit. 

The Federal tax exclusion alone was worth $66.6 biUion in 1991 
dollars for 1992. As members of this committee are aware, this leg- 
islation imposes a mandate on individuals to purchase, at a mini- 
mum, a health care package which must include catastrophic cov- 
erage to address the free rider problem. Every individual who ful- 
fills this legal requirement will receive a Federal tax credit to offset 
the cost. 

This new tax relief would also be extended to individuals and 
families for pajrment of out-of-pocket expenses. The tax credit 
would be provided directly through the tax withholding system, or 
through a voucher for the working poor. The size of the tax credit 
will vary according to a percentage of health care expenses in rela- 
tion to an individual's adjusted gross income. 

Mr. Chairman, by giving every individual the same tax advan- 
tages, irrespective of place of employment or income, and empower- 
ing them with tax credits to purchase insurance, a consumer choice 
system will enable Americans to seek the best value for their 
health care dollars when buying health insurance. 

If private employers wish to continue providing health benefits 
to their employees, there is nothing, and I repeat, there is nothing 
in this legislation that would prevent them from doing so, and they 
can still continue to deduct the cost of providing that benefit. How- 
ever, it should be noted that with equal tax treatment for all Amer- 
icans who purchase health insurance, company plans will be com- 
peting with different types of health insurance packages, keeping 
prices down. 

Mr. Chairman, at the risk of sounding redundant, I would like 
to emphasize to you that the core problem of our health care sys- 
tem is the Tax Code. And if we are to ever remedy the problem 
arising out of the current inequity, the Tax Code needs to be 
changed. By changing the Tax Code and empowering the individual 
directly, the health care market will be changed from an employer- 
based market to an individual-based market, as it should be. 

By giving the American people what you and I have as Members 
of Congress enjoy, the power to choose our own health insurance 
plan and combining that power with widespread competition, our 
bill will offer constituents the best chance of controlling health care 
costs. And I would like to say also that our legislation has been 



183 

scored by Lewin-VHI, the same health firm that President Clinton 
used, that the administration used. It is budget neutral, deficit 
neutral, and does not raise taxes on Americans. 

No price controls are employed, no global budgeting, no new bu- 
reaucracies are created, no monolithic alliances are set up under 
the purview of a national health care board. The major objection 
I have encountered to an individual mandate is that our citizens 
aren't capable of choosing their own health care plan. I couldn't dis- 
agree any stronger. 

Even Enthoven, one of the architects of managed competition, a 
proposal that has been offered by our esteemed colleague from Ten- 
nessee, Mr. Cooper, has stated the following, and let me quote 
here. Quote, "Critics of the consumer choice position usually are 
not very explicit about whom they consider to be better qualified 
than the average American to choose his health plan for him." 

I would like to point out that the Americans have made impor- 
tant decisions themselves before. They make decisions with respect 
to their mortgage policies, their car insurance policies, their life in- 
surance policies, homeowners insurance policies, all without the 
creation of alliances, national health boards. Why? Because these 
matters are not employer-based. 

When an individual loses his or her job, they do not lose their 
car insurance or go to a new mortgage company. There is no reason 
why a health insurance should be treated any differently. 

While the changes to the Tax Code are the heart of this proposal, 
Senator Nickles and I have included several other key reforms 
which must be addressed in this debate. Antifraud measures are 
included to enhance Federal criminal penalties established against 
health care providers, and insurers who knowingly defraud persons 
in connection with a health care transaction. 

Antitrust provisions have been included to create safe harbors 
from Federal antitrust laws for certain groups of providers, medical 
self-regulatory entities that do not operate for financial gain, cer- 
tain joint ventures for high technology and costly equipment and 
services and hospital mergers. This is especially crucial for rural 
new hospitals forced to compete against each other for patients. 

We also, Mr. Chairman, we have malpractice insurance reform. 
And, Mr. Chairman, this provision of malpractice that we have in 
our bill, is patterned after California medical malpractice law. So 
it has been in operation, I think, since 1976. There is administra- 
tive reforms, too. 1970, in there, yes. 

Let me just conclude by mentioning three things about this bill. 
It would require health insurance policy to cover specific diseases, 
services or providers, limit the ability of managed-care plans to — 
let's see here. Let me start off again, Mr. Chairman. 

Another important feature of this legislation is the explicit pre- 
emption of State laws which are deemed to be anti managed care 
laws. For example, the bill would preempt the State laws which re- 
quire health insurance policies to cover specific diseases, services 
or providers, limit the ability of managed-care plans to selectively 
contract with health care providers, and third, limit the ability of 
managed-care plans to impose higher cost-sharing provisions on 
treatment obtained from providers outside of a plan's network. 



184 

Mr. Waxman. Mr. Stearns, I am going to commend you on this 
presentation, all of which is going to be in the record, and your 
hard work on this legislation. It is clear you have given it a great 
deal of thought. I think it is a constructive recommendation to the 
subcommittee. 

You are a member of the full committee and Ranking Republican 
on the subcommittee that also has jurisdiction over this issue. I 
want to get a chance to review your legislation in detail and I am 
going to read over your comments and talk to you further about it. 
I think you have given us some good suggestions and I want to 
thank you for it. 

[Testimony resumes on p. 198.] 

[The opening statement of Mr. Stearns follows:] 



185 



OPENING STATEMENT 

by the 

HONORABLE CLIFF STEARNS (R-FL) 

Testimony before the House subcommittee on Health & Environment 

February 2, 1994 



Thank you Mr. Chairman for allowing me this opportunity to testify 
before your subcommittee on H.R.3698 / S. 1743, the Consumer 
Choice Health Security Act of 1993, legislation I jointly introduced 
with Senator Don Nickles of Oklahoma. As the members of this 
committee are aware, the issue of health care reform has remained at 
the forefront of our citizens' concerns and rightfully so. In the 
President's State of the Union address we all heard him say that he 
would not sign into law a health care reform proposal that did not 
guarantee universal coverage. H.R. 3698 does that and more. As 
such, I believe that it merits full consideration by the Congress 
before a Hnal bill is brought to the House floor for a vote. 

I would like to quote the President from his State of the Union 
remarks. 



186 

"The American people provide those of us in government service 
with terrific health care benefits at reasonable costs. We have health 
care that's always there. I think we need to give every hard working, 
taxpaying American the same health care security they have already 
given us." 

Mr. Chairman, members of this committee, over 40 of our colleagues 
here in the House and Senate agree with that statement. That is why 
we introduced the "Consumer Choice Health Security Act of 1993." 
As the title indicates, this legislation seeks to provide quality 
necessary medical care to all Americans through the oldest and 
proven mechanism -- the free market. Furthermore, this legislation 
is patterned after the Federal Employee Health Benefits Program 
(FEHBP) that has been in existence for over thirty years and held 
down costs while providing quality health plans. 

As you know, all members of Congress, our staffs, the President, the 
Vice President, the cabinet, the Supreme Court Justices, and some ten 
million federal employees, retirees and dependents are enrolled in the 
FEHBP. The program is unique in that it is explicitly based on the 
free market principles of consumer choice and market competition. 



187 

Unlike our constituents, we have the luxury of being able to pick and 
choose from over thirty different health plans -- be it a traditional 
fee for service, HMO, PPO, or union sponsored plan like the postal 
workers etc. Unlike the rest of America, we get to make a personal 
choice and compare the prices, and level of benefits of each plan. 
We then make a decision based on our budget, our needs, and our 
bottom line, not some corporation's bottom line. 

While the FEHBP model is not perfect, with the modifications that 
have been added in this bill, an FEHBP type system can be expanded 
to cover all Americans. Combined with an individual mandate that is 
explicitly written into this bill, the President's goal of universal 
coverage is met. The FEHBP is a sound program with good benefits. 
And while the level of benefits has increased over the years, costs for 
these plans have been effectively kept down. Not with price controls 
mind you. But with competition. On September 14, 1993, Jim King, 
the Director of Office of Personnel Management stated "Our 
enrollees continue to gain from the competition and managed care 
that form the backbone of the FEHBP program." This is evidenced 
by the fact that the price of premiums federal employees have to pay 
in 1994 are only 3% higher than the prices they paid in 1993. 



188 

In short, the market forces have worked for the FEHBP. There is no 
reason why these same principles cannot work for the American 
people. Most Americans are kept out of the picture when it comes to 
purchasing health insurance because it is usually purchased by their 
employer. Doctors and hospitals rarely discuss bills or fees prior to 
delivery of care and rely on third party reimbursement. Consumers 
are shielded from the true costs of health care and as such, there is 
no incentive for all parties involved to control costs. The time old 
saying of supply and demand ~ the market forces that control costs 
in every other sector of the American economy are not present in an 
employer based health care system. 

In sharp contrast to government based insurance or mandatory 
employer based insurance, where government bureaucrats or 
corporate ofHcials are deciding what level of benefits Americans will 
receive, H.R. 3698 will provide every American with the means to 
purchase health insurance within the framework of the free market 
and consumer choice. 

Under the Consumer Choice Health Security Act of 1993, health 
insurance benefits will be made available to all Americans along with 



189 

the tax relief currently enjoyed by individuals with employer 
provided insurance. However, this coverage will no longer be 
dependent on employment status. Furthermore, consumer choice 
would serve as a driving force in bringing down costs the same way 
it does in the rest of the economy. This would be accomplished by 
transferring the multi-billion dollar federal tax break for employers 
providing health benefits, in the form of deductions and exclusions - 
and giving that money to American workers in the form of a federal 
tax credit. The federal tax exclusion alone was worth $66.6 billion 
in 1991 dollars for 1992. 

As the members of this committee are aware, this legislation imposes 
a mandate on individuals to purchase at a minimum, a health care 
package which must include catastrophic coverage to address the free 
rider problem. Every individual who fulfills this legal requirement 
will receive a federal tax credit to offset the costs. This new tax 
relief would also be extended to individuals and families for payment 
of out-of-pocket medical expenses. The tax credit will be provided 
directly through the tax withholding system or through a voucher for 
the working poor. The size of the tax credit will vary according to a 
percentage of health care expenses in relation to an individual's 



190 
adjusted gross income. 

By giving every individual the same tax advantages, irrespective of 
place of employment or income, and empowering them with tax 
credits to purchase insurance, a consumer choice system will enable 
Americans to seek the best value for their health care dollar when 
buying health insurance. If private employers wish to continue 
providing health benefits to their employees, there is nothing, I 
repeat, there is nothing, in this legislation that would prevent them 
from doing so and they can still continue to deduct the cost of 
providing that benefit. However, it should be noted that with equal 
tax treatment for all Americans who purchase health insurance, 
company plans will be competing with different types of health 
insurance packages and keep prices down. 

At the risk of sounding redundant, I would like to emphasize that the 
core problem of our current health care system is the tax code, and if 
we are to ever remedy the problems arising out of the current 
inequity, the tax code needs to be changed. By changing the tax code 
and empowering the individual directly, the health care market will 
be changed from an employer based market to an individual based 



191 

market as it should be. By giving the American people what you and 
I as Members of Congress enjoy, the power to choose our own health 
insurance plan, and combining that power with widespread 
competition, H.R. 3698 will offer our constituents the best chance at 
controlling health care costs. 

I would like to point out that this legislation has already been scored 
by Lewin-VHI, the same health econometrics firm used by the Clinton 
Administration. It is budget neutral, deficit neutral, and does not 
raise taxes on Americans. No price controls are employed, no global 
budgeting, no new bureaucracies are created, and no monopolistic 
alliances are set up under the purview of a National Health Board. 

The major objection I have encountered to an individual mandate is 
that our citizens aren't capable of choosing their own health plan. I 
couldn't disagree any stronger. Even Alain Enthoven, one of the 
architects of "Managed Competition", a proposal that has been 
o^ered by our esteemed colleague from Tennessee, Mr. Cooper, has 
stated the following, and I quote: 

"Critics of the consumer choice position usually are not very explicit 



192 

about whom they consider to be better qualified than the average 
American to choose his health plan for him." 

- New England Journal of Medicine (1978) 
I should point out that Americans make important decisions every day 
without delegating those responsibilities to government bureaucrats 
or politicians. They make decisions with respect to their mortgage 
policies, car insurance policies, life insurance policies, homeowner's 
insurance policies all without the creation of alliances, national 
health boards, or bureaucrats. Why? Because these matters are not 
employer based. When an individual loses his job, he does not lose 
his car insurance or go to a new mortgage company. There is no 
reason why health insurance should be treated any differently. 

While the changes to the tax code are the heart of this proposal. 
Senator Nickles and I have included several other key reforms which 
must be addressed in this debate. Anti-fraud measures are included 
to enhance federal criminal penalties established against health care 
providers and insurers who knowingly defraud persons in connection 
with a health care transaction. Anti-trust provisions have been 
included to create "safe harbors" from federal anti-trust laws for 
certain groups of providers; medical self-regulatory entities that do 



193 

not operate for financial gain, certain joint ventures for high 
technology and costly equipment and services and hospital mergers. 
This is especially crucial for rural area hospitals forced to compete 
against each other for patients. In my district down in Florida, there 
have been instances in which a hospital will decide to purchase an 
MRI machine just so that it can advertise to the public that they have 
state of the art technology when just a few miles away, another 
hospital will have the same equipment already in place that could be 
used by the patients of that first hospital. 

Long term care is addressed as well in this bill. H.R. 3698 also 
exempts from taxation certain exchanges of life insurance policies for 
long-term care policies, and amounts paid or advanced from a life 
insurance contract to a terminally or chronically ill individual who is 
confined to a hospice or nursing home. 

Malpractice reforms are also included. The bill caps noneconomic 
damages at $250,000, reduces the amount of damages paid in a 
medical malpractice case by the amount of other payments (such as 
private disability insurance or employer wage continuation program 
payments) made to the injured party for medical care, limits the 



194 

liability of manufacturers or sellers of health care products approved 
by the FDA, except in cases where the manufacturer withheld or 
misrepresented information to the FDA or bribed an official, and 
provides for a schedule of limits on attorney fees in medical 
malpractice actions: 

1) 40% of the first $50,000, 2) 33.3 % of the next $50,000, 25% of 
the next $500,000, and 15% of any additional award or settlement. 
Mr. Chairman, this provision may sound familiar because it is 
patterned after California medical malpractice law, also known as 
(MICRA). This law has been in effect since the mid 1970's and 
proven to bring down the number of frivolous claims while ensuring 
the residents of California who are harmed by a negligent doctor to 
be justly rewarded. 

Administrative reforms are also included which are designed to 
reduce the amount of paperwork and double-billing the insurance 
industry and hospitals are famous for. Another important feature of 
this legislation is the explicit pre-emption of state laws which are 
deemed to be "anti-managed care" laws. For example, the bill would 
preempt state laws which: 
1) require health insurance policies to cover specific diseases, 



195 



services, or providers; 

2) limit the ability of managed care plans to selectively contract with 
health care providers; 

3) limit the ability of managed care plans to impose higher cost 
sharing provisions on treatment obtained from providers outside a 
plan's network. 

In conclusion, this legislation achieves universal coverage, provides 
portability, security, simplicity, and cost containment without raising 
taxes or the creation of powerful and potentially monopolistic 
alliances. Instead, it will allow all Americans a wide array of 
choices of benefits within many health plans, just like the system that 
is currently available to Administration officials and Members of 
Congress. The major cost constraint is a purely competitive health 
care market, something that has been sorely missing for the past five 
decades. Combined with personal responsibility and the security of 
knowing that they can purchase health insurance from plans they 
trust, such as their union, church, farm bureau, or employer, AND 
enjoying tax relief, this is an alternative that Americans will want to 
explore further. 



196 

As Members of Congress and members of the House Energy & 
Commerce Committee, we have been presented with an historic 
opportunity to rectify what is wrong with the health care system, and 
to maintain what is right. There is no need to subject one-seventh of 
the nation's economy to a new and untried scheme that has not been 
proven to hold down costs while continuing to provide quality 
medical care to our nation's citizens. We can resort to price 
controls, decisions coming down from bureaucrats in Washington, 
DC, and rationing. Or, we can open up the market and give every 
American the same benefits of choice and competition that Members 
of Congress enjoy. 

Finally, if this Congress fails to give the American people the same 
beneHts and advantages of a free market system of health care, then 
this Congress should be willing to deny themselves those same 
advantages and withdraw themselves from a market driven federal 
system - and enroll in whatever state run health program we force 
upon the rest of America. Thank you, Mr. Chairman. 



197 



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198 

Mr. Stearns. Well, I appreciate you allowing us to present it, 
put it in the record. You know, I would say that on our side of the 
aisle, Mr. Chairman, this is a plan that provides universal cov- 
erage. And I don't think many individuals are coming to you with 
a plan on our side with universal coverage to this, shall we say, 
as well thought out as this. 

And I think in the long term, the idea of moving the employer- 
based mandate to an individual mandate, is something that you, I 
hope, will consider. And I know a little bit of how you feel on this 
debate, but I — if anything, I could leave you with, it is the thought 
that a mandate on employer is something that would not bring per- 
sonal responsibility. 

A requirement on individuals will give universal coverage and in 
that way will give personal responsibility. They will control the dol- 
lars that they can use in medical IRA's as well as buying their own 
health care. So let me just say in your heart of hearts, if you can 
look at this proposal and realize it is an alternative for universal 
coverage and almost every country, the further they go down with 
more government insurance, is some day going to have to return 
to the market and return to the idea of maybe a mandate on em- 
ployees, on the individual, rather than the employer. I pose that as 
a closing argument. 

Mr. Waxman. I appreciate that. I am certainly going to take that 
to heart. 

Any questions by members of the committee? 

Mr. Hall. 

Mr. Hall. I think the chairman has stated very well. I like his 
ideas on consumer choice and using the free market. A lot of good 
stuff is in there that can probably merge into a final bill when we 
really write it, when we get one written. 

Mr. Waxman. Thank you very much. 

Mr. Stearns. That would be terrific if the chairman would say 
he would merge part of this into the final bill, make that commit- 
ment. 

Mr. Waxman, Well, I think we ought to continue to work to- 
gether and to see if he can take the best of all of the items of legis- 
lation, and I want to work with you on that. 

Mr. Stearns. And I look forward to working with you. Thank 
you. 

Mr. Waxman. Thank you. 

Our final panel consists of four of our colleagues who are here 
to offer their perspectives on health care reform, the Honorable 
Ralph Regula of Ohio, the Honorable Ronald Coleman of Texas, the 
Honorable James Traficant of Ohio, the Honorable Rosa DeLauro 
of Connecticut. 

I would like to ask each of you to come forward. We are pleased 
to have you all here and looking forward to your testimony. Your 
prepared statements are going to be in the record in full. There is 
not a sentence that is going to be left out. So if you don't get a 
chance to go over ever5^hing that is in it and want to just summa- 
rize, we wouldn't have any serious objections and you shouldn't feel 
as a consequence of that that we wouldn't have in the record your 
whole — all your thoughts on this. 



199 

We would like to ask you, if you would, to try to keep the oral 
presentation to around 5 minutes. This has been a very long day 
and we may even have some questions so we want a chance to ask 
those questions as well. 

Mr. Regula, why don't we start with you. I am going to use the 
clock. It will tell you when the 5 minutes is up. And just so you 
have an idea of that time frame having passed, because I know 
sometimes it goes quicker than we might imagine. 

Mr. Hall. You are not going to invoke the hook or anjrthing? 

STATEMENT OF HON. RALPH REGUIA A REPRESENTATIVE IN 
CONGRESS FROM THE STATE OF OHIO 

Mr. Regula. Thank you, Mr. Chairman. I will be brief. I simply 
want to talk about the inclusion of preventive health care for senior 
citizens, because Medicare is a separate program in the proposal by 
the President. I think evidence is rather strong that preventive 
health care is a way of improving the quality of life while at the 
same time saving money. 

For example, testing for hypertension and high blood cholesterol 
has proven very effective in reducing the death rate from heart dis- 
ease and stroke by 10 to 25 percent. You, Mr. Chairman, and, of 
course, the chairman isn't here now, but he is among the 120 peo- 
ple who have cosponsored my bill, which would allow Medicare re- 
imbursement for preventive health care benefits such as cervical, 
colon and breast cancer examinations. 

Does it work? Legislation I sponsored as a demonstration project 
whereby flu shots were reimbursed under Medicare, was recently 
implemented by the Department of Health and Human Services, on 
a permanent basis because of the clear evidence that it saved thou- 
sands of lives, in addition to millions of dollars. The problems that 
come from respiratory diseases are especially severe in the case of 
seniors, and the flu shots, which are now Medicare reimbursed by 
law, have been very effective. And I think it illustrates the fact 
that if we can develop the other types of reimbursement under 
Medicare for preventive medicine tests, then we can save a lot of 
money in addition to improving the quality of life of our seniors. 

So that is something I think ought to be included as part of any 
health care reform bill, to encourage the use of preventive medicine 
techniques. Not only for seniors, but for all people, because I be- 
lieve the greatest gains we can make in reducing the cost of health 
care will be in pushing for preventive medicines. Thank you for 
your time. 

[Testimony resumes on p. 232.] 

[The prepared statement and attachments of Mr. Regula follow:] 



200 



FEBRUARY 2, 1994 
STATEMEKT OF THE HOSDRABLE RALPH REGUIA, 16TH DISTRICT - OilO 
BEFORE THE SUBOOM^ITTEE W HEATH A^D THE ENVIROsIMEISrr, 
OOI^MITTEE CN ENERGY AND 0GM1ERCE 

Mr. Qiairman: 

Over a decade ago, the Surgeon General's report on Health Promotion & 
Disease Prevention stated, "Inprovemsnt in the health status of our 
citizens will not be made predominantly through the treatnent of disease, 
but rather through its prevention." 

I am here today for the sole purpose of reinforcing this idea, by 
reconmending that coverage for preventive care must be part of any prt^xDsal 
for health care access to both the young and the old. 

One of the best arguments for preventive care benefits can be determined by 
looking at the facts involved in one the major causes of death in the 
ISiited States-- cardiovascular disease. In 1990, an estimated 392,000 
coronary artery bypass procedures were perfomed on 262,000 patients at an 
estimated expenditure of over $9 billion. 

While we do not understand all the causes of heart disease, we can act on 
studies which show that increased blood cholesterol levels and hypertension 
are high risk factors of coronary heart disease. 

In a recent national study, nearly 13,000 men and women were screened at 11 



201 



lipid research centers across the country. Roughly 25% had blood 

cholesterol levels throughout to place them at moderate risk of heart 

disease, defined as 200 milligrams per deciliter at age 20, 220 at age 30, 
and 240 at age 40 and above. 

Scientists from the National Heart, Lung, and Blood Institute have reported 
that testing for hypertension can be effectively conducted in shopping 
centers, workplaces and schools. Moreover, the study found that nearly 
half of those people identified as "high risk" of heart disease will 
contact their physicians for follow-up care. Clearly, the successes of 
such tests have been repeatedly demonstrated. Since 1978, the death rate 
from heart disease and stroke has fallen 10% and 25% respectfully. 

Comnran sense tells us that not only lives have been saved as a result of 
such preventive tests, but health care dollars have been saved as well. 

Now I am fully awaiB that the majority of the main health care reform • 
proposals (Clinton, Gocper/Grandy, etc.) include preventive health carie. 
To that end, I praise those proposals. 

Yet, in these same proposals, wheire Medicare is maintained as a separate 
program, preventive care is not consistently included as an expansion of 
Medicare benefits. Mr. Chairman, we must see to it that the elderly 
maintain the continuum we provide to the younger through health care 
reform. 

In the past three Congresses, I have introduced legislation to require 



202 



Medicare to consider coverage of preventive health services to the elderly. 

As a ranking Minority member on the Subcantiittee of Health and Long Terro 
Care on the former Select Conmittee on Aging, much of the work that was 
done supported the need for expanding Medicare to include an assortment of 
preventive health services. As you know, Medicare reimbursements are 
largely limited to the payment of pneumonia and hepatitis vaccinations, and 
wore recently flu shots due to a demonstration project which I initiated. 

In 1988, HCFA began iirplemsnting legislation which I had introduced 
requiring a nationwide demonstration project to test the effectiveness of 
flu shots. Last year over 20,000 lives were saved by the program with an 
estimated cost savings of $63 million. 

I am pleased to announce that last October, Secretary Shalala made the flu 
shot a permanent part of the program without further congressional 
consideration. The key to making flu shots effective is the point of 
delivery and targeting high-risk population subgroups. HCFA's accumulated 
data OTi this matter can provide a framewDrk for determining the settings 
under v^ch the benefit would be best reimbursed. An across-the-board 
reimbursement that does not establish such a framework will be a waste of 
precious tax-dollars. 

Despite similar studies revealing hew certaiin preventive health tests can 
significantly inprove the quality and length of life in such diseases as 
colon, cervical, and breast cancer the government continues to refuse 
reimbursansnt for these treatments. My bill takes a ocrmon sense approach 



203 

to includes such tests, so that both lives and money will be saved. 

I would like to raise two concerns with my legislation as it is currently 
drafted. I refer to the provisions regarding Medicare reimburssnent for 
colorectal examinations and nutrition screening. These are both areas for 
which I have longstanding familiarity. 

First, fecal blood stool tests should be reimbursed under Medicare. 

Fecal stool blood tests are a recognized and reliable means for determining 
irregularities within both the upper and Icwsr colon, ffcvrever, because the 
test does not conclusively establish the presence of cancer, I vrould 
recommend to the Oonnittee that consideration be given to making 
reimbursement for the flexible sigmoidoscopy conditional upon first a 
positive test result under the stool examination. 

Second, I recocimsnd that the Msdicare reimtwrse for nutrition screening- - 
that is, a systematic method to identify those vto are malnourished. 

Older Americans are at a disproportionate risk of poor nutrition, whereby 
25% of elderly patients and 50% percent of those hospitalized suffer from 
malnutriticxi. Elderly patients vdio are malnourished get more infections 
and diseases, their injuries take longer to heal, surgery en them is 
riskier, and their hospital stays are longer and more expensive. 

The Nutriticxi Screening Initiative has developed and distributed matericils 
to assist health care professionals and individuals themselves to identify 



204 



malnutrition. NSI estimates that for every $1.00 spent on nutrition 
screening and services, we save at least $3.25 in other health care costs. 

Currently, reimbursement for nutrition screening and medical nutritional 
ther^:iy, \«diich can be used to treat malnutrition, has been limited because 
Medicare, using 1965 guidelines, covers medical nutrition ther^^y only vAien 
patients are hospitalized and the hospital chooses to provide the service. 
More recent clinical data demsnstrates that medical nutritional therapy can 
help elderly patients avoid chronic and acute care and speed their recovery 
vihen they do get sick. 

Mr. Chairman, I viculd like to comient on the fact that President's bill 
does include clinical visits and nutritional counseling. I stress that 
language should specifically reference nutrition screening and counseling. 

We can do a great service by designing a preventive health care package for 
the young and the old. It makes no sense to spend money on care after the 
onset of an illness when prevention cuts costs and prtsvides a better 
quality of life for all of us. 

Medical science has brought to us the ability to preserve life far beyond 
that of our ancestors. But it is not enough to add years to life. Our 
objective must also be to add vibrancy to those years. Preventive health 
care can add that vibrancy not only through maintaining life, but 
maintaining it at a higher quality. 

Thank you. 



205 

NUTRITION SCREENING AND TREATMENT 
EXAMPLES OF COST SAVINGS 



Nutrition Services 

Nutrition services can save costs in a number of ways. 

1. Elderly patients with chronic malnutrition often die of infections, most 
commonly pneumonia and urinary sepsis. Patients who have limited 
mental or physical ability quickly become dehydrated and 
dysfunctional. They require lime for IV rehydration once hospitalized 
before their physical abilities can be evaluated. In a study of older 
patients admitted to a hospital, those who were malnourished had actual 
hospital charges double that of those who were not malnourished, and 
their average length of stay was S.6 days longer than patients without 
malnutrition. Another study in a Pittsburgh hospital found that the 
presence of malnutrition resulted in increased variable costs to the 
hospital of $9,715 per patient. A third study indicated that costs are four 
times higher for malnourished patienu ($3,000 compared to $12,700). 

2. On the other hand, adequately nourished patients have decreased 
morbidity/mortality and fewer secondary medical 

complications/diseases; wounds heal faster; fewer infections occur; and 
hospitalizations are shorter. These factors all reduce Medicare/Medicaid 
and other third-party payer costs. Optimum nutrition care is not only 
important in the prevention of complications. It is crucial in the 
progression of other therapies (physical, occupational, speech, etc.) and 
on the effect of medication on the patient's disease and recovery. 

Example I: A 7S year old man with head and neck cancer worked with a 
Registered Dietitian during his two month radiation treatment program. 
Together they had a goal of maintaining his weight and preventing 
weight loss during the ueatments. He actually gained weight during 
this time and his nutritional status remained stable. He was able to eat a 
modified diet and utilized nutrition supplements as needed. He was able 
to have almost continuous treatments since his nutrition status was so 
good. The typical scenario for most patients undergoing radiation 
treatments is to lose weight and end up on enteral tube feedings. The 
initial placement of a feeding tube requires hospitalization none of 
which was needed in this case. 

3. Patients in nursing homes are often malnourished on admission and are 
frequently on tube feedings that require the nutritional expertise of a 
Registered Dietitian to determine the balance of nutrients and fluid. In 
addition, many older Americans are referred for home health care for a 
lifetime of tube feeding due to dysphagia, confusion, coma. etc. Often, 
the initial order needs to be adjusted to meet the patient's actual 
nutrient needs that are coordinated with other aspects of their medical 
treatment and care. 



206 



Example: In 1988 a 61 year old Maryland woman lost S4 pounds in one 
month. She was referred to several physicians and psychiatrists and 
even spent one week in a psychiatric unit and yet no one could 
determine the cause of her problem. Finally a physician diagnosed her 
as having "pseudo obstruction', a disease that mimics intestinal 
blockage but is seldom found through routine diagnostic procedures. He 
started her on an intravenous (parenteral) feeding system that 
bypassed the digestive tract and her weight and health returned. A 
Registered Dietitian was called in to do an assessment and found that the 
patient was able to tolerate a less invasive feeding through a tube 
inserted into the small intestine. This type of feeding (enteral feeding) 
is associated with fewer complications and costs $200-300 per month 
compared to the parenteral nutrition which costs $4,000-5.000 per 
month. This woman will need nutritional assistance for the rest of her 
life and the change to an enteral feeding will result in a considerable 
amount of savings. 

4. The average cost of treating a pressure sore (decubiti ulcer) is $15,000. 
Home health care data show an increase in the number of patients at 
home with pressure ulcers. Long tt^rm care facilities and hospitals also 
see problems with pressure ulcers when residents are malnourished, 
especially on admission. Patients with malnutrition on admission to 
hospitals had more pressure ulcers than those who were not 
malnourished. Furthermore, those who received nutritional 
supplementation healed faster than those who did not. The development 
of pressure ulcers correlates directly with incidence of protein-calorie 
malnutrition and is one of the practice guidelines being developed by 
the Agency for Health Care Policy Research. 

A recent study found that 70% of all pressure sore patients on oral 
intake needed additional commercial meal replacements to meet the 
nutritional requirements for ulcer treatment. Thirty-four percent of 
all pressure sore patients required enteral or parenteral nutritional 
support. Ideally, the prevention and treatment of pressure sores should 
be the joint responsibility of the entire health care team - nursing 
staff. Registered Dietitian, and physician. 

Example: While attending pressure sore rounds in a Philadelphia 
nursing home, a Registered Dietitian recommended a high protein 
feeding for a resident with severe (Stage III) ulcers The wounds healed 
without further surgical intervention which could have cost up to 
$10,000. 

5. Older persons with diabetes who receive nutrition services control their 
diabetes and blood sugars better and have fewer hospital admissions. 
Nutrition affects the outcome of diabetes mellitus dsrectly through 
control of body weight, blood glucose, and blood lipid levels (cholesterol 
and triglyceride) and indirectly by decreasing blood pressure. 

Example: A woman in Atlanta with Type II diabetes and elevated 
cholesterol and triglycerides was treated with oral hypoglycemic agents 



207 



and lipid lowering drugs, but still had elevated blood glucose. Following 
four sessions with a Registered Dietitian for nutrition management, the 
patient lost 2S pounds, her blood glucose and lipid levels were 
acceptable, and no medication was needed. The nutrition management 
consisted of a low fat, low cholesterol diabetic diet with emphasis on 
changing eating habits. The net savings for just one year were S1,0S0 
(Cost of medications for one year was $1,200 minus the cost of four 
Registered Dietitian visits at SISO). 

6. Nutrition services are an integral pan of medical treatment for renal 

patients. The provision of nutrition services help delay the progression 
of the disease and help the patient maintain or improve his/her 
nutritional status while on dialysis. 

Example: A 65 year old male with unconuollcd hypertension and Type 
II diabetes was referred to a licensed. Registered Dietitian in Atlanta. 
The nutritional therapy consisted of a diabetic diet with protein, sodium, 
and potassium restrictions. The nutritional intervention was an attempt 
to 'buy time" before placing the patient on hemodialysis. Following two 
sessions with the Registered Dietitian, the patient was able to delay 
dialysis treatments for four months. The cost of the nutrition therapy 
was $90 and the cost of the 64 hemodialysis treatments that were avoided 
cost $345 per treatment x 14 times a month x 4 months for a total of 
$19,320. Nutrition therapy netted a cost savings of $19,230. 



208 

TO: Nutrition Screening Initiative 

FROM: Peter D. Hart Research Associates, Inc. 

DATE: April 15, 1993 

SUBJECT: National Survey on Nutrition Screening and Treatment for the 
Elderly 

Between April 1 and 8, 1993, Peter D. Hart Research Associates conducted a national 
telephone survey among 757 health care providers and administrators who care for 
America's elderly population. The survey includes five types of health care professionals 
who fall into two broad categories and were selected for their familiarity with the health 
care needs of the elderly: health care providers, including gerontological doctors (132 
interviews) and nurses (101), and health care administrators for hospitals (202), nursing 
homes (217), and home care agencies (105). The Methodological Appendix enumerates 
the five samples used in this project. 

The results from this survey can be summarized in the five following main points: 



Malnourishment is a serious problem that affects a substantial 
proportion of elderly people in the United States. Taken 
together, gerontological doctors and nurses estimate that one in 
four of their own patients suffer from malnutrition and that fully 
one-half of the elderly patients in hospitals are malnourished. 

Doctors and nurses who specialize in geriatrics and the 
administrators who run America's hospitals, nursing homes, and 
home care agencies agree that nutrition plays a major role in the 
prevention, treatment, and recovery from illness and disease. 

Gerontological doctors and nurses and health care 
administrators widely agree on the cost-effectiveness of routine 
nutrition screening and treatment for the elderly population. 

One of the biggest obstacles to routine nutrition screening and 
early nutrition intervention is the lack of reimbursement to health 
care providers. 

There is broad consensus among those who care for America's 
•iderly population that nutrition screening and treatment should 
be part of a basic benefits package and should be reimbursed 
by the government and other third-party payers. 



Peter D. Hart Research Associates, Inc. 

> PnnlBd on Receded Paper 



209 



Memo on Survey Results-Nutrition Screening Initiative 

Page 2 /' 

The consistency of results across all five types of health care professionals 
provides crucial support for the reliability of these conclusions. Indeed, the 
similarities in attitudes and perceptions among these groups invariably outweigh 
the differences in the exact proportions who emphasize the role of nutrition, the 
extent of malnutrition, and the cost-effectiveness of a program of nutrition 
screening and treatment. 

1. Mainourishment is a serious problem among America's elderly 
population. We turned to doctors, nurses, and administrators who specialize in 
the care of the elderly to be our "eyes and ears" when it comes to the incidence 
of malnutrition among the population age 65 and over. After defining 
"malnourishmenf as "a state in which, because of deficiencies, excesses, or 
imbalances in food or diet, someone is not getting proper nutrients, which 
weakens his or her body and is harmful to his or her health." gerontological 
doctors and nurses and health care administrators were asked their perception of 
the proportion of hospital patients, nursing home residents, home care recipients, 
and their own patients who are malnourished. 

As the following table demonstrates, these gerontological doctors and 
nurses and health care administrators provide disturbing estimates of the number 
of elderly Americans suffering from mainourishment. Doctors and nurses who 
specialize in caring for the elderly estimate that approximately one-half of all elderly 



Peter D. Hart Research Associates, Inc. 

Printdd on Recycled Paper 



210 



Memo on Survey Results-Nutrition Screening Initiative 
Page 3 

hospital patients are malnourished, as are more than two in five nursing home 
residents. 



Table 1 : Estimate of the Extent of 


Malnutrition 


among Selected Elderly Populations 




Median 




% 


Elderly hospital patients 




Nurses 


57 


Doctors 


43 


Hospital administrators 


34 


Nursing home residents 




Doctors 


50 


Nurses 


38 


Nursing home administrators 


25 


Home care recipients 




Home care administrators 


44 


Their own patients 




Nurses 


28 


Doctors 


26 



Even hospital administrators estimate the proportion of elderly patients in hospitals 
who are malnourished at one in three; nursing home administrators judge the 
proportion of malnourished nursing home residents to be one in four; and home 
care administrators think that more than two in five of the elderly people receiving 
home care assistance are malnourished. 



Peter D. Hart Research Associates, Inc. 

Pnmea on Recyniect Pape' 



211 



Memo on Survey Results-Nutrition Screening Initiative 
Page 4 



Most striking is the estimate by gerontological nurses and doctors that more 
than one in four of their own patients are not receiving proper nutrients to such an 
extent that it is weakening their bodies and harmful to their health. 

2. Doctors, nurses, and health care administrators who care for America's 
elderly population widely agree that nutrition plays a major role in the 
prevention, treatment, and recovery from illness and disease. As the following 
table illustrates, few of the providers and administrators assign nutrition the most 
important role in prevention, treatment, and recovery, but these health care 
professionals do express an extraordinary degree of consensus that nutrition plays 
a major rather than a minor role in the prevention, treatment, and recovery from 
illness and disease among the elderly. 

Table 2: Th« Role of Nutrition in Health Care 



Prevention 

The most important rote 

A major rote 

A minor rote/not much of a role 
Treatment 

The most impKXtant rote 

A major rote 

A miTKX rote/rxx much of a role 
Promoting recovery 

The most imponant rote 

A major rote 

A minor rote/not much of a rote 



Doctors/ 


Admin- 


Nurses 


istrators 


% 


% 


15 


19 


80 


77 


5 


4 


6 


8 


84 


80 


10 


11 


18 


12 


80 


83 


2 


4 



Peter D. Hart Research Associates, Inc. 

Prnad on Recycled Paper 



212 



Memo on Survey Results-Nutrition Screening Initiative 
Page 5 



Nutrition's vital role is also illustrated by the importance that health care 
administrators and providers attach to nutrition screening. Indeed, a majority of 
hospital and home care administrators, two-thirds of gerontological doctors, and 
three-fourths of gerontological nurses and nursing home administrators thin(< it is 
important to ask about diet, eating habits, and weight loss, as well as conducting 
more intrusive assessments, such as blood tests, tjlood cholesterol tests, and 
measurements of body fat, when elderly people are admitted to hospitals, nursing 
homes, and home care agencies. 

Indeed, a majority of gerontological nurses, nursing home administrators, 
and home care administrators, and a plurality of doctors and hospital 
administrators believe that more than 90% of elderly hospital patients, nursing 
home residents, and home care recipients would benefit from routine nutrition 
screening upon admission. Moreover, similar proportions of gerontological 
doctors and nurses and health care professionals in this survey believe that four 
in five of all elderly people in the United States who are living on their own would 
benefit from periodic nutrition screening and appropriate treatment. 

3. Health care professionals who specialize In geriatrics and the people 
who run America's hospitals, nursing homes, and home care agencies agree 
on the cost-effectiveness of routine nutrition screening and treatment, both 
for their own patients and as part of the health care system for the elderly 



Peter D. Hart Research Associates, Inc. 

@ Pmted on Recycled Paper 



213 



Memo on Survey Results-Nutrition Screening Initiative 
Page 6 



population In general. "Cost-effectiveness" was defined in this survey as "the 
extent to which the savings from fewer illnesses and more complete and rapid 
recoveries would offset the cost of a nutrition screening and treatment program." 
As the following table demonstrates, virtually four in five administrators and 
gerontological doctors and nurses think it would be cost-effective to provide 
routine nutrition screening and treatment for their patients, and similar proportions 
believe it would be cost-effective for the health care system in general to provide 
nutrition screening and treatment for all elderly people in this country. Fewer than 
one in five believe it would not be cost-effective to have a comprehensive program 
of nutrition screening and treatment for the elderly. 

Table 3: The Cost-effectiveness of Nutrition Screening and Treatment 



Routine screening and treatment for their own patients 

Definitely cost-effective 

Probably cost-effective 

Probably not cost-effective 

Definitely not cost-effective 
Routine screening and treatment for all elderly people 

Definitely cost-effective 

Probably cost-effective 

Probably not cost-effective 

Definitely not cost-effective 



Admin- 


Doctors/ 


istrators 


Nurses 


% 


% 


40 


49 


38 


35 


14 


9 


5 


2 


35 


43 


45 


39 


13 


13 


4 


2 



Peter D. Hart Research Associates, Inc. 

PnntBd an Recy:led F^iper 



214 



Memo on Survey Results-Nutrition Screening Initiative 
Page 7 



The health care professionals in this study were also asked to evaluate the 
importance of several arguments in favor of conducting nutrition screenings and 
implementing appropriate and early nutrition intervention for elderly patients under 
their care. The following table shows that a majority of gerontological doctors and 
nurses tselieve that reducing the number and duration of pressure ulcers, reducing 
complications, and promoting faster wound healing are all extremely important 
reasons for conducting nutrition screening and treatment. A majority of the health 
care administrators agree with providers when it comes to the beneficial effects of 
nutrition on pressure ulcers and faster healing, but they also regard the argument 
that prevention is less costly than treatment as an extremely important argument 
in favor of nutrition screening and early intervention. 



Table 4: Assessments of the Importance of Selected Reasons for 

Conducting Nutrition Screenings and Implementing Nutrition lnte:vention 

for Elderly Patients 

Extremely 
Important Reason 



Admin- Doctors/ 

istrators Nurses 

% % 



Adequately nourished patients tend to have fewer 

pressure ulcers and to recover from them (aster than do 

malnourished patients 58 68 

Adequately nourished patients experience faster wound 

healing after surgery 53 62 

It is significantly less costly to prevent malnutrition than 

to treat it 53 56 

Malnourished patients have three times as many major 

complications as do adequately nourished patients 49 59 

Health care facilities can save thousands of dollars 

caring (or an adequately nourished patient rather than a 

malnourished patient who recovers more slowly and can 

develop complications 46 57 

Malnourished patients stay in health care facilities two- 
thirds longer than do adequately nourished patients 44 55 



4. One of the biggest obstacles to routine nutrition screening and early 
Intervention Is the lack of reimbursement to health care providers. The health 
care administrators and doctors and nurses in this study were asked to rate how 
much of a factor six reasons are for why nutrition screenings and early nutrition 
interventions are not routinely performed. As the following table shows, health 
care administrators place the most emphasis on the cost and lack of direct 



215 



Memo on Survey Results-Nutrition Screening Initiative 
Page 9 



reimbursement for nutrition screenings and early intervention, especially those 
administrators in charge of home care agencies. 



Table 5: Reasons Why Nutrrtion Screenings and Early Intervention 
Are Not Routinely Performed 

Single Biggest or 
Major Factor 

Admin- Doctors/ 
istrators Nurses 



The cost of the procedure and lack of direct reimbursement 

Doctors do not request or emphasize nutrition screenings 
and treatments 

Most institutions are not informed well enough to follow up 
properly on the results of nutrition screenings 

A shortage of staff and qualified personnel 

A shortage of registered or licensed dietitians 

There is no proven need for nutrition screenings or scientific 
evidence of their benefit 



62 
51 



46 



55 



34 


34 


31 


32 


29 


20 



17 



19 



The gerontological doctors and nurses place this reason--the cost of the 
procedure-second on their list of factors; both the nurses and the doctors 
themselves assign greater importance to doctors' failure to emphasize nutrition 
screenings and treatments. Overall, a clear majority of the doctors and nurses and 
three-fourths or more of the administrators believe that nutrition screening and 
appropriate treatments for malnourished patients would be routinely performed if 
the costs were reimbursed. 



Peter D. Hart Research Associates, Inc. 

Pnrted on Recyded Paper 



216 



Memo on Survey Results-Nutrition Screening Initiative 
Page 10 

5. A broad consensus exists among those who care for America's elderly 
population that nutrition screening and treatment should be part of the basic 
benefits package Included in comprehensive health care reform and should 
be reimbursed by the government and other third-party payers. As the 

following table shows, health care professionals in this study overwhelmingly 
believe that routine nutrition screening and treatment should be reimbursed and 
that these measures should be part of the emerging package of comprehensive 
health care reforms. 

Table 6: Coverage of Routine NulrHion Screening and Treatment 

Nursing Home 
Hospital Home Care 
Admin- Admin- Admin- 
Doctors Nurses Istrators Istrators istrators 

% % % % % 

Should be part of the basic 

benefits package being 

developed as part of 

comprehensive health care 

reform 74 90 82 86 88 

Should be reimbursed by 

the government or other 

third-party payers 83 89 88 86 87 

This high degree of consensus on the appropriateness of reimbursing 
nutrition screening and treatment costs, and including these measures in a basic 
benefits package is entirely consistent with all the other data in this study, which 

shows the extent to which these health care professionals believe that malnutrition 
exists among the elderly, understand the importance of nutrition In the prevention, 
treatment, and recovery from illness and disease, and recognize the cost- 
effectiveness of nutrition screening and early intervention to treat malnutrition. 



217 

Methodological Appendix 
This survey consists of the five samples listed in the following table. 



r^ " — ^ ^ = ■■ n 

Samples Used In the Survey of Health Care Professionals 
Providing Care for the Elderly Population of the United States 


Tvoe of ResDondent 


Sample 
Size Source of List 




Members of the American Geriatric 


Gerontological Doctors 


Society engaged in family practice 
132 or internal medicine 


Gerontological Nurses 


Members of the National Gerontological 
101 Nurses Association 


Hospital Administrators 


202 SMG Hospital Market Database 


Nursing Home Administrators 


217 SMG Nursing Home Market Database 




Home care agency members of the 


Home Care Agency Administrators 


1 05 National Association of Home Care 



More than 90% of the health care administrators in this survey hold one of 
the top three positions in the "chain of command" in their institution; more than 
80% are among the top two administrators. 

The administrators and health care providers do, in fact, run institutions that 
care for the elderly. Seventy percent of hospital administrators say that 50% or 
more of their patients are age 65 and over; 83% of the home care administrators 
report that 70% or more of the people they serve are age 65 or over; 89% of the 
nursing home administrators say that 90% or more of their residents are at least 
65 years old. In addition, 70% of doctors repon that at least 80% of their patients 
are age 65 and over; the same is true of two-thirds of the nurses inten/iewed in 
this survey. 

The three samples of administrators were weighted according to the 
number of hospitals, nursing homes, and home care agencies in the United States 
in order to form a representative sample of health care administrators dealing with 
the nation's elderly population. The samples of nurses and doctors were 
weighted according to the ratio of registered nurses to licensed physicians. 



218 





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226 



The Warning Signs of poor nutritional 

health are often overlooked. Use this 

checklist to find out if you or someone you 

know is at nutritional risk. 

Read the statements below. Circle the number in the 

yes column for those that apply to you or someone 

you know. For each yes answer, score the number in 

the box. Total your nutritional score. 



DETERMINE 
YOUR 

NUTRITIONAL 
HEALTH 





YES 


I have an illness or conditHHi that made me diange the kinl aiM^or aiiM)unt (^f^ 


2 


I eat fewer than 2 meals per day. 


3 


I eat few fruits or vegetables, or milk products. 


2 


I have 3 or more drinks of beer, liquor or wine ahnost every day. 


2 


I have tooth or mouth problems that make it hard for me to eat 


2 


I don't always have enough money to buy the food I need. 


4 


I eat alone most of the time. 


1 


I take 3 or more different prescribed or over-the-counter drugs a day. 


1 


Without wanting to, I have lost or gamed 10 pounds m the last 6 months. 


2 


I am not always physically able to shop, cook and/or feed myself. 


2 


TOTAL 





Total Your Nutritional Score. If it's - 

0-2 GoodI Recheck your nutritional score in 6 

months. 

3-5 You ar« att modorate nutritional risk. 

See what can be done to improve your eating 
habits and lifestyle. Your office on aging, 
senior nutrition program, senior citizens 
center or health department can help. 
Recheck your nutritional score in 3 months. 

6 or more You are at high nutritional risk. Bring 
this checklist the next time you see your 
doctor, dietitian or other qualified health or 
social service professional. Talk with them 
about any problems you may have. Ask 
for help to improve your nutritional health. 



These nuuerials developed ami 
distributed by the Nutrition Screening 
Initiative, a project of: 



AMERICAN ACADEMY 
OF FAMILY PHYSICIANS 



THE AMERICAN 
DIETETIC ASSOCIATION 



NATIONAL COUNCIL 
ON THE AGING. INC. 



^ 



Rrmember that wanting signs 
suggest risk, but do not represent 
diagnosis of any rondition. Tiim the 
page to learn more about the 
Harning Signs of poor nutritional 
health. 



227 



The Nirtrifien Checklist is based en Hie Vtarning Signs described belew. 

DUse the werd PETERMINi to remind yeu ef Hie Warning Signs. 
ISEASE 

Any disease, illness or chronic condition which causes you to change the way you eat, or makes it 
hard for you to eat, puts your nutritional health at risk. Four out of five adults have chronic diseases 
that are affected by diet. Confusion or memory loss that keeps getting worse is estimated to affect 
one out of five or more of older adults. This can make it hard to remember what, when or if you've 
eaten. Feeling sad or depressed, which happens to about one in eight older adults, can cause big 
changes in appetite, digestion, energy level, weight and well-being. 

Eating poorly 

Eating too little and eating too much both lead to poor health. Eating the same foods day after day or 
not eating fruit, vegetables, and milk products daily will also cause poor nutritional health. One in 
five adults skip meals daily. Only 13% of adults eat the minimum amount of fruit and vegetables 
needed. One in four older adults drink too much alcohol. Many health problems become worse if you 
drink more than one or two alcoholic beverages per day. 

Tooth loss/ mouth pain 

A healthy mouth, teeth and gums are needed to eat. Missing, loose or rotten teeth or dentures which 
don't fit well or cause mouth sores make it hard to eat. 

Economic hardship 

As many as 40% of older Americans have incomes of less than $6,000 per year. Having less- -or 
choosing to spend less-than $25-30 per week for food makes it very hard to get the foods you need 
to stay healthy. 

Reduced social contact 

One-tfiird of all older people live alone. Being with people daily has a positive effect on morale, 
well-being and eating. 

ULTIPLE medicines 

Many older Americans must take medicines for health problems. Almost half of older Americans . 
take multiple medicines daily. Growing old may change the way we respond to drugs. The more 
medicines you take, the greater the chance for side effects such as increased or decreased appetite, 
change in taste, constipation, weakness, drowsiness, diarrhea, nausea, and others. Vitamins or 
minerals when taken in large doses act Uke drugs and can cause harm. Alert your doctor to 
everything you take. 

Involuntary weight loss/gain 

Losing or gaining a lot of weight when you are not trying to do so is an important warning sign that must 
not be ignored. Being overweight or underweight also increases your chance of poor health. 

Needs assistance in self care 

Although most older people are able to eat, one of every five have trouble walking, shopping, 
buying and cooking food, especially as they get older. 

Elder years above age so 

Most older people lead full and productive lives. But as age increases, risk of frailty and health 
problems increase. Checking your nutritional health rrgularly makes good sense. 



1 



The Nutrition Screening Initiative, 2626 Pennsjlvania Avenue, N^V', Suite 301, Washington, DC 20037 
c The Nulhuon Screening Initiative is funded in pan by a gram fiom Ross Laboratories, a division of Abbott Laboratories. 



228 



Level 1 Screen 

Body Weight 

Measure height to the nearest 
inch and weight to the nearest 
pound. Record the values below and 
mark them on the Body Mass Index 
(BMI) scale to the right. Then use a 
straight edge (ruler) to connect the 
two points and circle the spot where 
this straight line crosses the center 
line (body mass index). Record the 
number below. 

Healthy older adults should 
have a BMI between 24 and 27. 

Height (in): 

Weight (lbs): 

Body Mass Index: 

(number from center column) 

Check any boxes that are true 
for the individual: 

Q Has lost or gained 10 pounds 
(or more) in the past 6 
months. 

Q Body mass index <24 

Q Body mass index >27 

For the remaining sections, 
please ask the individual which of the 
statements (if any) is true for him or 
her and place a check by each that 
appUes. 



Eating Habits 

Q Does not have enough food to eat each day 

Q Usually eats alooe 

Q Does not eat anything on one or more days each 
month 

Q Has poor appetite 

01 Is on a special diet 

Q Eats vegetables two or fewer times daily 



NOMOGRAM FOR BODY MASS 


INDEX 


WEIGHT 




HEIGHT 


KG LB 


BODY 


CM IN 


ISO- 


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MASS 






140' 


INDEX 


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Q Eats milk or milk products once or not at all daily 

Q Eats fruit or drinks fruitjuioe once or not at all daily 

Q Eats breads, cereals, pasta, rice, or other grains 
five or fewer times daily 

Q Has difficulty chewing or swallowing 

Q Has more than one alcoholic drink per day (if 
voman); more than two drinks per day (if man) 

Q Has pain in mouth, teeth, or gums 



< 

m 



o 

ao 
m 
m 



I 



229 



A physician should be contacted If the Individual has gained or lost 10 
pounds unexpectedly or without Intending to during the past 6 
months. A physician should also be notified If the Individual's body 
mass Index Is above 27 or below 24. 



Living Environment 

Q Lives on an income of less than ^6000 per year 
(per individual in the household) 

Q Lives alone 

Q Is housebound 

Q Is concerned about home security 

Q Lives in a home with inadequate heating or cooling 

Q Does not have a stove and/or refrigerator 

Q Is unable or prefers not to spend money on food 
(<<25-30 per person spent on food each week) 



Functional Status 

Usually or always needs assistance with 
(check each that apply): 

□ Bathing 
Q Dressing 
Q Grooming 

□ Toileting 

□ EaUng 

Q Walking or moving about 

Q Traveling (outside the home) 

Q Preparing food 

Q Shopping for food or other necessities 



If you have checked one or more statements on this screen, the individual you have interviewed may be at risk 
for poor nutritional status. Please refer this individual to the appropriate health care or social service professional in 
your area. For example, a dietitian should be contacted for problems with selecting, preparing, or eating a healthy 
diet, or a dentist if the individual experiences pain or difficulty when chewing or swallowing. Those individuals 
whose income, lifestyle, or functional status may endanger their nutritional and overall health should be referred to 
available community services: home-delivered meals, congregate meal programs, transportation services, coimseling 
services (alcohol abuse, diepression, bereavement, etc.), home health care agencies, day care programs, etc. 

Please repeat this screen at least once each year-sooner if the individual has a major change in his or her 
health, income, immediate family (e.g., spouse dies), or functional status. 



5172 



These materials developed by the Nutrition Screening Initiative. 



230 



Level II Screen 

Complete the following screen by 
intervjewing the patient directly and/or by 
referring to the patient chan. If you do 
not routinely perfonn all of the described 
tests or ask all of the listed questions, 
please consider including them but do not 
be concerned if the entire screen is not 
completed. Please try to conduct a 
minimal screen on as many older patients 
as possible, and please try to collect serial 
measurements, which are extremely 
valuable in monitoring nutritional status. 
Please refer to the manual for additional 
information. 

Anthropometrics 

Measure height to the nearest inch 
and weight to the nearest pound. Record 
the values below and mark them on the 
Body Mass Index (BMI) scale to the right. 
Then use a straight edge (paper, nJer) to 
connect the two points and circle the spot 
where this straight line crosses the center 
line (body mass index). Record the 
number below; healthy older adults should 
have a BMI between 24 and 27; check the 
appropriate box to flag an abnormally high 
or low value. 

Height (in): 

Weight (lbs): 

Body Mass Index 
(weight^eighr^): 



NOMOGRAM FOR BODY MASS 


INDEX 


m 










WEIGHT 




HEIGHT 


m 


KG LB 


BODY 


CM IN 




ISO: 

140- 


rSJO 
rSOO 


MASS 
INDEX 


I2S- 


-90 


s 


130-1 


7ltO 


[WT/(HT)2] 


ISO- 




en 


■ to-i 


:»o 


J 


■70 




- 


o 


iiO-i 


J- 240 




«0 


iSS-f 


; 


3D 


100 -i 
• 9- 


:«o 




so 


140- 


-9' 


m 


•0- 


-200 
' 1*0 

' itO 






: - 


m 


• 3- 


WOMEN 


■ 40 HEM 


149-i ■ 


z 


r»-. 


■ ITO 

■ 140 


oacsc 


OBESE 


IM-j 


• 




^0- 


•ISO 




'\n 


'"■^ 












«5- 

•0- 


-140 

- HO 


OVERWEIGHT 


OVERWEWHT 


ico-j ■ 












5»: 

»0' 
*9- 


i-120 
-no 

- 100 

- fS 


ACcenAiLC 


*ccePTABLe 

■ to 


: ■ 
'«■■ -« 

: - 

ITO-i - 

ITS-: . 
: -TO 


z 








40- 


- to 

■ iS 

- CO 






IM-i 




■■ 


55- 






• 10 










- T5 






IM-J 


-TS 






• TO 












SO- 


■ »5 






-H: 1 










200: 








■ (0 






-•0 










20S: 






25- 


■ 59 




210-1 






"«- SO 






-•5 








4Z>Gmi«« 4 Bf«t iiri 1 





Please place a check by any statement regarding 
BMI and recent weight loss that is true for the patient. 

U Body mass index <24 

U Body mass index >27 

U Has lost or gained 10 pounds (or more) of body 
weight in the past 6 months 

Record the measurement of mid-arm 
circumference to the nearest 0.1 centimeter and of 
triceps skinfold to the nearest 2 millimeters. 



Mid-Arm Circiuiference (cm):. 
Triceps Skinfold (mm):_ 



Mid-Arm Muscle Qrcumference (cm):. 



Refer to the table and check any abnormal values: 
U Mid-arm muscle circumference <10th percentile 



U Triceps skinfold <10th percentile 
U Triceps skinfold >95th percentile 

Note: mid-arm circumference (cm) - 10.314 x triceps 
skinfold (mm)l= mid-arm muscle circiunference (cm) 

For the remaining sections, please place a check 
by any statements that are tnie for the patient. 

Laboratory Data 

U Serum albumin below 3.5 ^dl 

U Serum cholesterol below 160 mg/dl 

U Serum cholesterol above 240 mg/dl 

Drug Use 

U Three or more prescription drugs, OTC 

medications, and/or vitamin/mineral supplements 
daily 



9 



231 



Clinical Features 

Presence of (check each that apply): 

U Problems with mouth, teeth, or gums 

U Difficulty chewing 

U Difficulty swallowing 

LI Angular stomatitis 

U Glossitis 

U History of bone pain 

U History of bone fractures 

U Skin changes (dry, loose, nonspecific 
lesions, ec^ma) 



Eating Habits 

LJ Does not have enough food to eat each day 

U Usually eats alone 

U Does not eat anything on one or more days each 
month 

U Has poor appetite 

U Is on a special diet 

U Eats vegetables two or fewer times daily 

LI Eats milk or milk products once or not at all daily 

LI Eats fruit or drinks fruit juice once or not at all 
daily 

U Eats breads, cereals, pasta, rice, or other grains 
five or fewer times daily 

U Has more than one alcoholic drink per dav (if 
woman); more than two drinks per day (if man) 

Living Environment 

LI Lives on an income of less than 26000 per year 
(per individual in the household) 

LI Lives alone 

LI Is housebound 

U Is concerned about home security 



him 


Women 


Percentile 55-65 v 65-75 y 
Arm circun^erence (cm) 


55-65 y 


65-75 y 






10th 27.3 26.3 


25.7 


25.2 


50th 31.7 30.7 


30.3 


299 


95th 369 355 


38.5 


37.3 


Arm muscle circun^erence (cm) 






10th 24.5 23.5 


19.6 


19.5 


50th 27.8 26.8 


22.5 


22.5 


95th 32.0 30.6 


28.0 


27.9 


Triceps skinfold (mm) 






10th 6 6 


16 


14 ■ 


50th 11 11 


25 


24 


95th 22 22 


38 


36 


From. Fhtancho AX. New norms of u^rperUmt fat and muscle artas fin 


aaseiiTnenl of nutritional status Am J Clin Nutr 1981,34 2S40-2S4S C 1981 


American Society fiir Clmical Nutrition 







LI Lives in a home with inadequate heating or 
cooling 

LI Does not have a stove and/or refrigerator 

LJ Is unable or prefers not to spend monev on food 
(<225-30 per person spent on food eacn week) 

Functional Status 

Usually or always needs assistance with (check each 
that apply): 

Q Bathing 

LI Dressing 

U Grooming 

G Toileting 

G Eating 

U Walking or moving about 

LJ Traveling (outside the home) 

LI Preparing food 

LI Shopping for food or other necessities 

Mental/Cognitive Status 

LI Clinical evidence of impairment, e.g. Folstein<26 

LI Clinical evidence of depressive illness, e.g. Beck 
Depression Inventory>15, Geriatric Depression 
Scale>5 



Patients in whom you have identified one or more majo? indicator (see pg 2) of poor nutritional status require 
immediate medical attention; if minor indicators are found, enswe that they are known to a health professional or to the 
patient's own physician Patients who display risk factors (see pg 2) of poor nutritional status should be referred to the 
appropriate health care or social service professional (dietitian, nurse, dentist, case manager, etc.). 



These materials developed by the Nutrition Screening Initiati\<e. 



232 

Mr. Hall [presiding]. And the Chair thanks you for your time 
and for your brevity. 
The Chair recognizes Mr. Coleman. 

STATEMENT OF HON. RONALD D. COLEMAN, A 
REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS 

Mr. Coleman. Thank you, Mr. Chairman. 

Mr. Hall. Before we do that, let me say, Mr. Coleman, that I to- 
tally approve of his bill and I have cosponsored it. 

Mr. Coleman. I appreciate that very much. I was going to point 
that out to the rest of the committee members and offer them a 
grand opportunity to also cosponsor the same legislation. It is H.R. 
2305. 

By the way, what it does is create the U.S.-Mexico Border Health 
Commission, and really I am here to testify specifically on that bill, 
as well as the impact of any health care proposal and what it may 
have on the U.S.-Mexico border region. 

As Chairman of the Border Caucus, I will say to you that the 
American Journal — the Journal of the American Medical Associa- 
tion most recently had an article which illustrated why we need to 
be concerned. I have provided a copy of that article for the record 
as well. 

It explored the reasons why Latinos, particularly those of Mexi- 
can origin, have the lowest rate of insurance coverage in the Na- 
tion. That article demonstrated that if reform is piecemeal, up to 
25 percent of Latinos could remain uninsured. Well, those are my 
constituents and your constituents and a lot of us don't intend to 
see them being left behind. We have got to keep focused on the 
twin goals, and I know you are, of universal coverage and cost con- 
trol, and we have also got to keep the debate positive. I think there 
are some specific measures that must be taken if we are to truly 
improve health along the U.S.-Mexico border, and that entire re- 
gion of the United States, which I happen to think has been ne- 
glected for far too long. 

I am privileged to represent a border community called El Paso, 
a city of a half a million people with a sister city just across the 
river of a million and a half people. That area, that community, 
shares a lot of things. It shares the air, it shares the water, it 
shares families, and unfortunately, it shares diseases. They include 
hepatitis, tuberculosis, measles. 

Recently, we discovered the cholera bacteria right across that 
river. You know, we know that disease doesn't recognize inter- 
national borders and all of us in El Paso are aware of those prob- 
lems, especially among the thousands of people that live in what 
we call colonias in the United States, in El Paso County, in Texas. 
Estimates run as high as 35,000 people without water or sewage 
facilities. You know, in this way we are really a community very 
representative of the U.S.-Mexico border. 

And while we don't expect President Clinton's bill to have dealt 
with every specific need in developing a proposal, as far reaching 
as the one he has presented, many of us believe we have got to go 
further if we are going to make a difference on the border region. 
That is why I think the creation of a U.S.-Mexico Border Health 
Commission is important. 



233 

It was endorsed by the American Medical Association, the medi- 
cal associations of every Southwestern border State, by public 
health officials in California and San Diego, El Paso, Tex. I can tell 
you that I think the time has come for us to understand that we 
are not going to address the problem of health along the U.S. -Mex- 
ico border by only looking in our own backyard. We are going to 
have to do it on both sides of that border. 

I think there is some very interesting proposals that have been 
made, by the way, by Mexico, with regards to their costs and how 
we can share those costs together. We don't have to go this alone. 
Why do we think that we have to only look inward? It is astound- 
ing to me that we worry about health care and then even in the 
legislation itself. 

The second issue I wanted to talk about, to suggest we are only 
going to treat American citizens. Hey, I understand you got to sell 
a bill. I will buy onto it. We are only going to treat American citi- 
zens. But you and I know something different. You know, my hos- 
pital treats you whether or not your legal resident status has been 
established by a due process hearing or not. 

If you are having a child and you are having a problem birth, if 
you have got a leg or an arm cut off, we are going to treat you, 
right there at my general hospital. We will worry about where you 
are from and where you were bom and whether you have an accent 
or not, whether you speak the language or not, later. 

Well, who pays for that? Well, you and I know that under the 
current system, the local taxpayers pick that tab up, with no assist- 
ance from the Federal Government. Why? Failed immigration pol- 
icy. I call that a Federal issue, not a local problem. Well, you and 
I know that the reality is that any legislation that comes forward, 
many of us know that we are going to continue to treat people in 
many facilities along that U.S. -Mexico border from Brownsville to 
San Diego. And so long as we do, there has got to be some mecha- 
nism by which my hospitals don't dive into the ground economi- 
cally, so that they can continue to provide the kind of health care 
that we all have come to expect in the United States without a 
diminution because of a lack of finances and a lack of funding from 
the Federal sources that we know we are going to need if we are 
going to continue to treat people in the real world. 

And, by the way, what is wrong with that? If a child has got tu- 
berculosis, I would much rather us cure that tuberculosis and let 
that child go back to school. And by the way, the U.S. Supreme 
Court has ordered that that child is entitled to a free public edu- 
cation in my State and yours. And I would rather us start curing 
the tuberculosis and let that child back than let that child back in 
the classroom without curing it to infect other children. 

When it comes to communicable diseases, I can tell you right 
now, let's not worry about the niceties of what we say about a card 
that we are going to carry around and provide only to American 
citizens. You and I know that we are going to have to have some 
funding mechanism to deal with the problems that hospitals are 
going to see. And I would say to you that while we have been prom- 
ised Federal funding to address the burden, my staff has been told 
by representatives of the White House that they already know that 
the funding will be insufficient to cover the expenses. So we need 



234 

to call this what it is so far, it is an unfunded mandate once again 
to units of local governments and States. 

I want to remind you once again of the empty promise we had 
called SLIAG. You may remember the State Legalization Impact 
Assistance Grant Program that was made in connection with the 
Immigration Reform Act of 1986. Six billion dollars was the prom- 
ise, I remember it. When I voted no on that legislation, I said I did 
it because I didn't believe it. 

I serve on the Appropriations Committee and nobody had asked 
us for the money. Sure enough, what is it, 8 years later now, we 
have seen about $2 billion been requested and expended. That is 
a shortchange to units of local governments and States, and we 
ought not to let that happen with a health care plan that we are 
requesting to believe in. And so I would just say that I hope the 
committee will agree that H.R, 2305, dealing with U.S. -Mexico Bor- 
der Health Commission legislation is important, it should be incor- 
porated into any comprehensive health care legislation. 

And second, that we will also look at the real way that we are 
going to begin to fund the problems that many, many health care 
providers in poorer regions of the United States are going to have 
to deal with the issue. 

Thank you very much for permitting me to testify here this 
morning. 

[The article referred to by Mr. Coleman follows:] 



235 



Insuring Latinos Against 
the Costs of Illness 



R. Sjrciaqa Vaidaz, P^D: Hai Mc-gens-ern. FhC 
Cnac Wang. PhD: WiiLaTi Cumbenanc. PhD 



Hicnard B-owr. PhD: Roberta Wyn, MPH, 



Oblectlve. — ^To exaiiine Ihe determr ants of healln insurance coverage for Lai- 
inss 'n the United States and how diffa^nt targeted strategies for health care re- 
fotTT! differerrtlaJly affect the country's major ethnic groups, focusing on the implica- 
tions 'or the Latiio peculation. 

Design.— Data from the 1980 and 1590 Currerr Population Surveys were used 
:c conpare the insurance status of nonelderiy (<55 years) Latnos with the A.Tglo 
;':rn-Hlsp£nic wnte), alack, and Asian and other populatons by estimating the at- 
tnou-Ebie paction for seiectsd covariates. The effects of health ca-e reforrr strai- 
egies on tne cov9rag6 of the major sthric groups were simulated from tiese data. 

Main OLftcome Measures. — Percentage uninsured, percentage insured by 
Mediiaid, a-nd atlrtutable fraction lor csvariales. 

Results. — Ijtnos have the worst health i.nsurance coverage of any ethnic group 
n ne country. Appnoxjmately 39% of Lainos are uninsurec compared '/vith 1 3.8% 
or the Anglo and 24% for the black population. ProvJing cove.'age to all the poor 
coulc reduce tne uninsured late for Anglos by about 23%, whereas the reduction 
anc.".g Latinos could be aboirt 37^^. arc among blacks about 42%. Similar reduc- 
•jo,ns could be achieved by cove.Tng all .votkers anc their minor dependents. Re- 
garc'lrss of 'tie asproa;^ to reforrr., hcv.ever. Latinos would remain with high ao- 
saute rates ot uninsu-ed. 

Conclusions. — Differences in Medcaid ellgiDIlt:^'. labor force cnarEcfensiics, 
£.no fanily compos,lion betweer Latinos and other ethnic groups suggest tha; pol- 
icy irtatives may affec: Latinos difrerently. Targeted strategies, such as empioyer 
.mandates, "pay-o.--play programs, or MedlcaJd expansions, can improve cover- 
age, 3ut many Latinos could still remain uriinsured. 

UAMA. 3932S3-iWM94) 



■ LATINOS, especially llexican ."Vjiieri- 
cms, have the bwes: ievel of medical 
and mencal faealtii care udlizainori in :lie 
couacrj'.'"' Wh2e it i£ net clear why tiis 
jiniation exists, issnes of access Co care 
£re at the center of :he debate. HealtJi 
insiuance coverage and aSbrrl ability are 
major determinants of access to caic' 
Aninng all ethnic groups in the 

Ficm me □epwTinenna< Hi>ar< SarvCK (Or Viklaz 
H^ Ms 'Mynl cpidAfntftogy (Or ?Aj^ensttmJ. Com- 
Hiixrty rtftaifr Scorcse fD- Bnnvn). anc Soaaliain 
(Dra Wang tna O^bcrtavfl. UC_A ScBool * F\XKic 
Kl«alm. Lu ^ngeies. Couf. ana tne IXLM^ANO Cerv 
tertof Heaun Policy Studies (Dr vanez). Saru Mcnca. 
Cain. 

"he 03/iOflS ezpnesscd lerein are 3icse or in« ai- 
^.ar% 5.10 CO net .necassariy rer.£a [tut opnors of it)e 

ncn. UOA a MUD. 

^•pnn; raquecls to Dflpamwnt of HedKh Scnicca. 
-^■J^ Scnod of r^ioie Hull-.. Li» Angeln. Ca 

9002.«-l?72(0rVal(lea, 



United States, Latinos are least likely 
to have insurance coverage against loss- 
es due to illness.' The Latino population 
deserves special consideradon because 
it is oflen asstimed by polic^Tnalfers that 
policies devised with poor black eom- 
munities in mind will equally well serve 
other poor populatioas. But persistent 
pover^ among Latinos exists despite 
high rates of labor force participation 

anHfamityfhrm^fjnTi Xhi>mfrin' thTB ar- 

tide examines the magnitude and tbe 
potential reasons for lower health in- 
surance coverage among Latino popu- 
lations. It also iHustratee the impacts 
that public polides aimed at rednnng 
the proportion of nninsured Am#'n'r>f>nc 
may have on tbe Latino population. 

Latinos, particularly Mexican. .Amer- 
icans, are aniosured because their pri- 



mary employment is in the lower sldHed 
and paid sec^rs of the ecaromy, which 
are less likely to provide insurance cov- 
erage as a benefit. Therefore, Latino 
communities appearparticularly vulner- 
able to the weaknesses in the current 
systeni of financing medical care. Fvr- 
thermore, a large proportion of Latinos 
live in scares such as Texas and Florida 
that severely restrict eligibility far Med- 
icaid servicES. Restricted eligibility stan- 
dards increase the number of u.Tinsured 
in a state.' But even in sta'.es with more 
generous eligibility standards, such as 
Cahfomia and New York, few provid- 
ers pardcipate in Medicaid programs be- 
cause of low payment schedules and ex- 
cessive reimbursement delays ^" Thus, 
the catsgoriaJ nature of the Medicaid 
programs, which serve only afrsction of 
the nation's poor, and the inadequate 
medical resources available through 
these programs farther reduce access 
for Latlnoe. 

Finally, the ertent of health icsirr- 
ance coverage among those labeled as 
insured is not well understood. Kecent 
trends in health insnnmce plan design, 
characterizec by higher deductibles and 
coinsurar.ee," suggest that even among 
the insured the net personal expense of 
seeking medical care has risen. Thus, 
given tae relatively low family income 
among Latinos, even the insured &ce 
higher medical care costs. 

This article illustrates that health in- 
surance coverage for Latinos varies ccm- 
sidembly, reflecting geographic differ- 
ences in state MKiir-aid poUcies and 
labor markets. Strategies, to rednce 
the number of unimBired that are aimed 
at the working -poor and their depen- 
dents would benefit ^e Latino comma- 
nity greatly, but wookl still leave siz- 
able oumbefs uninsured. Employer- 
mandated strategies, bowrver, pose au- 
msroTis serioDS economic risks for 
Latmoa, including potential job losses 
or dislocations, f 



JASaA. Hbruaiy 17. 1993— Vcl 269. No. 7 



Insunng Latinos— Valdsz e; al 889 



236 



METHODS 

We anaiyTed data from the 1980 and 
1990 March Current Population Surreys 
(CFS), which includes sodoeconomie In- 
formation coDected by tbe US Boreau of 
Uie Census. The CPS provides mfarma- 
tion about work experience, irj-imi', fam- 
ily structure, migration, health insurance 
coverage, and other characteristics. 

Tbe Mardi CPS saapie is a national 
probability sample drawn so chat esti- 
mates that are properly wei^ted can be 
generalized to the US population and tbe 
populations of large states such as Cali- 
fornia, Texas, Florida, and New York. 

Respondents to the CPS were inter- 
viewed by trained census esployeea, 
but standard Spanish translations or the 
survey were cot used. Instead, 3painsh- 
speaking interviewers independently 
translated questions and responses, and 
non-Spanish speakers relied on trans- 
lators, if one could be found. (This is 
standard procedure for mar.y af oar na- 
tional sxirreys; however, these survey 
procedures are believed to res.ilt in an 
ujsdercQ'int cf the number of iirJnsnred 
Latinos.'O Surveyors collected in&rnia- 
tion on hesdth insurance coverage fcr 
each household member during the pre- 
ceding year. 

The health insurance coverage ques- 
tioni aak whether each person was cov- 
ered by a group health insuriJice plan 
obtained through employment, individ- 
ual purchase, CHAMPUS or militar/ 
medical services. Medicare, or Medic- 
aid. Persons covered by ary of these 
sources £t arytme during the previous 
yezT arc lategorized as insurec. The re- 
naining population — those with to third- 
party coverage during the entire year — 
are described as the uninsured. Because 
people in our insured categor^• include 
those with coverage for only part of a 
given year, prevalence estioates for the 
uninsured population are conservative. 

New quesdons added to the CPS in- 
surance battery in 19S8 asking general, 
rather than specific queetions about chil- 
dren's insurance coverage were cot used 
to compute the 1990 esamates in this 
article. Ignoring the new questions per- 
mits the calculation of insurance cover- 
age status compatible with earlier es- 
timates. When one includes some or ail 
information from these new variables, 
the 1990 estimates of tiie uninsured n^ 
tionally decrease by varying levels de- 
pending on how the new information 
about children is treated.'-'' Estimates 
for Latino children do not appear to be 
sensitive to these questions but re- 
sponses for other children suggest few- 
er uninsured among that group. There- 
fore, the insurance coverage estimates 
of the total Eonelderry populations may 



overestimate the mimber of uninsured 
in some gronpe. These new quextkms, 
howerer, do not affect estimates among 
the working-age population. 

Despite the reliance on .self-reportiDg 
of health insurance coverage, respon- 
dents provide &irty accurate infbnna- 
tion about whether tbey are insnred, 
whether the insurance is public or pri- 
vate, and its source." But respondents 
are less accurate in describing the scope 
of benefits for themselves and their de- 
pendents.'^ In general, respondents 
somenmes think tbey or their depen- 
dents are covered when they are not 

Using information about family rela- 
tionships within households, we con- 
structed units of observation that are 
commonly eUgible for health insurance 
coverage. These "insurable units" were 
classified into four types: (1) married 
couples with minor children or youth in 
college, (2) single parents with children 
or youth in college, (3) married couples 
without children, and (4) single adolts. 

"Hiese units reflect the customary pat- 
terns of eligibility under most private 
health insurance plans. Thus, some 
households contain more than one in- 
surable unit. For example, a household 
composed of a married couple and their 
three chDdren aged 25, 17, and 8 years 
could have two insurable units: one unit 
composed of tbe married couple and their 
dependent children and the Other unit 
composed of tbe 25-year-ald. We used 
information about individuals' age, pri- 
mary work-related activity, and feanily 
relationship to assign them to an insur- 
able unit. 

Our comparisons focus on differences 
between Latinos and other ethnic groups 
in the United States as a whole and in 
states with high concentrations of Lat- 
inos. Respondents were categorized on 
ie basis of self-reported ethnicity and 
mterviewer-idennfied race. We catego- 
rized Latinos as individuals of any race 
who identified themselves as Hispardcs 
of -American origin (eg, Mexican, Puerto 
Rican, Cuban, or Central or South Amer- 
ican). Hispanics of European origin and 
other non-Latino white inxlividuals were 
classiSed as Anglo (a general ethnic iden- 
tiScation commonly used in the Amer- 
ican Southwest), non-Latino blacks or 
Aftican Americans were classified as 
black, and non-Latino Asians and aU oth- 
er groups were identified as "Asian and 
otiier.' 

Analysis 

To understand what factors contrib- 
ute to the difference in health insurance 
coverage between Latinos and Anglos, 
we applied a stratified analysis (frt;- 
quently used in epidemiology'^ and ex- 
pressed the unadjusted association be- 



tween ettmidty and lack of insuraaoe 
covence as the crude rriative rick (orudc 
ratio [CRD: the propordan of LatinoB 
who are uninsured iSvided by the pro- 
poroon of Angloe who are unJnstiRd. 
The crude attributable fractkm CAF) in 
the Latino Cezposed'O population, es- 
timated by the quantity (CR-IVCR, is 
the proportioD of uninsured Latinos wlio 
wot^d have been hisured had they been 
Anglo. The diSerence between the ac- 
tual number of uninsured T^ntjpix and 
the expected number had they been An- 
gb is the attributable number (AN) — 
ie, the axoees cumber of uninsured Lat- 
inos who would hare been insured had 
they been Anglo, which is estimated by 
multiplying AF Ijy the total number of 
uninsured Latinos in tbe population. 

The primary objective of the strati- 
fied analyses was to estimate the pro- 
porticr. of Lhe attributable nomber that 
is due specifically to differences in the 
distribtrtion of one or more other vari- 
ables (covariates) that are known to af- 
fect health insurance coveiage. We re- 
fer to this proportion as the attributable 
fraction for covariates (AFC). Using this 
measure, therefore, we are able to quan- 
tify how much of the differenc* in in- 
surance coverage between Latinos and 
Anglos is explained by ethnic diSer- 
encea in selected covariates. For exam- 
ple, we were able todetermine how much 
of the Latino-.A-T^o dirferecce ir. insur- 
ance coverage is due to ethnic differ- 
ences in economic factors and/or family 
structure. 

The AFC is estimated by comparing 
the crude AF with the AT stand ardiied 
(adjusted) for covariates. The standard- 
ized AF is estimated by the quantity 
(SR-1)/SR, where SR (tiie standardized 
ratio) is the ratio of uninsured rates, 
comparing Latinos with .■^gbs. stan- 
dardized to the covariate distribution of 
the total Latino population. Thus, the 
SB reflects the magnitude of the asso- 
ciation between etbnicit>' and lack of 
insurance coverage, cantroQing for co- 
variates. (In epidemiDlogy, the SR is 
ofter. called the standardized morbidity 
or mortdity ratio; it is equivalent to tbe 
estimated ratio of observed to expected 
numbers of 'jninsnred Latinos.) Thus, 
substituting the above quantities forthe 
crude and standardized attributable frac- 
tions, we have the following formula: 



AFC= 



CR-1 ^-1 ■ 
CK'' ^ ■ SR CE-SR 



SR(CR-l) 



To estimate a standard error for the 
AFC, a Taylor aeries was used to ap- 
proximate its fariance as a simple eom- 



390 JAMA. =eb(uary 17. 1993— Vol 269. No. 7 



Insjring Latinos— VMez et al 



237 



TabI* 1 .— Picportion of Unnucd Sfenakteiiy (<5S-Yem--Old) flesiaoits ir »» United Statu by Y.«r uid 





117* 


^^■" 


■am 




CMn^ 


■"- 


anidtyr 


HO. 

(xioao) 


1 


1 

No. 
IxlOOO) 


1 

% 


No. 
(XIOOO) 


1 
% 


AUUntMScam 


21703 


14.1 


37 739 


17J 


9034 


ys 


LMma 


2SN 


2S.7 


7177 


3La 


4317 


160.3 


IMnon 


2119 


S7J 


SMI 


«1.t 


3iaz 


190.2 


PMru ^an 


291 


1&5 


463 


22.B 


173 


St.l 


Cuur 


165 


22.1 


IS> 


22.1 


Z7 


1S.4 


omart 


as 


2S.9 


1221 


40 


oaa 


322.4 


*.i8b 


10 ne 


liT 


22ZB1 


lis 


256S 


ia.0 


3la« 


K36 


22J 


ssit 


2<0 


1348 


2ST 


Asian BXI Other 


asi 


J2.1 


legs 


21 .« 


BO* 


902 



*Saum of aa* wat Muai igBS zxl 1S90 Cuircnt Potuium Sucveyi. 

TLa^no jacans Hiapjniei of 2/y rmem bom ne Western honuBpno/v. Ango. 7B norvHispanic MTite pootdason 
anc H^Danjcs tf Bjn:peen counvy ol origin: Bteck, ths non^Hiscv^ alsx poouianon or Alnon Amaikans; axio 
Asian ano other me rarrainoar of t^e nofv>t«panio pcaUsotn. ««r>^i ;£ oomposao pnmantf at pacplas ol Aaiar 
nentagt- 

tOettr Laanot Induo* Cantni and Seurt Amaficwu. 



bimdon of vamnces and raTariances of 
its components. In sampling tetminol- 
ogy, this is often referred to as linear- 
ization. A Vmilar procedure was done to 
approamace the variance of tne atcrib- 
utabie fratSion (AP). Adjustments to the 
variaace estimates for clustering were 
not done because the CPS does not in- 
dnde ie necesBar>- vHriables to define 
the dusters. (Thus, the 95% confidence 
interrals shown in Table 5 may he sH^t- 
ly cooservadTe [too oarrcw].) 

' By multipIyiEgthe AFC by the total 
attrihuuble nnmiier (AN), we estimate 

iie number cf exce3s uninsured Latinos 
attribntable to ethnic di&rences in the 
coTariates (ANCj — ie, the auniber of un- 
insured Latinos who woojd hare been 
insured if they had the same covsriate 
diiithbution as Arglos. 

Ai alternative method for esumating 
AF and AFC i» to use a model-fitting 
technique, saeh as logistic regression. '"* 
But this approach requires additiomi] 
assuraptlans about the mathetnadcal re- 
lationship berween predictors and out- 
come, and it is more tedious to apply, 
especially with data collected in a com- 
plex survey. 

The .AFC may be computed for var- 
ious sets of covariates by stratifying si- 
multaneously an covariates in each set. 
in this way, we can explain ihe Lattno- 
Angio difference in insurance coverage 
tn lerras of multiple factors. We exam- 
ined the role of age, sex, education, &m- 
ily income (reladve to the poverty lev- 
el), family si?/', employment status (fiill- 
time/full-vear, fuB-time/pan-vear, part- 
time, or nnemployed), type of industry, 
type of occupation, firm size (where em- 
ployed), insurable unit size and type, 
and state of residence in attempting to 
explain the Latjno-Angb difCerence. 

Because Latinos are regional^ con- 
centrated, we decided to focna oar strat- 
^j analyses oo infiannatlon from Che 



nine states with the largest Latino pap- 
ulations. Eighty-five percent of the er- 
tire Latino population lives in these 
states. ConcentratiDg oar analysis 0:1 
these nine states, rather than using the 
entire nation, permits a more effident 
wtthin-state comparison of diSerences 
between Latinos and Anglos. 

Limitations i the CPS data prechide 
US from e-vamining other factors that 
may play a role in health insurance cov- 
erage. In parscilar. the CPS contains 
no information about health status, the 
extent or nature of health insurance cov- 
erage, medical care expenses, aources 
of care, or other eniployer-related in- 
formation such as whether insurance 
was offered or level of shared plat 
expenses. 

In orcer to determine how health in- 
surance coverage would charge under 
different strategies, assmningthese fac- 
tors remained constant, we used infor- 
mation about the employment and in- 
surable unit characteristics associated 
vriih individuals to perform a series of 
simple projections. These projections 
provide an initial basis for understand- 
ing difierential impacts of pubh'c poli- 
cies on various ethnic groups. Little se- 
rious analysis of the distributional ef- 
fects of targeted policy approaches ex- 
ists despite decision ir^diers' and policy 
analysts' preference far such strategies. 

We examinee the following general 
strategies representing a broad range 
of approaches: 

1. Provide coverage'for all poor ia- 
dividiuls (individuais .with family in- 
comes below the federal poverty level). 

2. Provide coverage for all minors. 

3. Provide coverage for all ftill-time 
workers (those who work 35 hours or 
more for at least 50 weeks a yearX 

4. Provide coverage for all full-time 
workers and their chUdren (ie, all their 
minor dependents). 



5. Provide coverage for full-time and 
part-time wnrkers (ie, all actrre 
employees). 

8. Provide coverage for fiiD-time and 
pajt-time worlcars and their ^[ildren (ac- 
tive employees and their depoident 
children^ 

7. Provide coverage for all poor m- 
dividuals and all full-time workers (aD 
innividnals balow the poverty level pins 
all fiilly employed persons). 

Other strategies and mjses could be 
examined, but these provide an initial 
uamlsation of the broad range of strat- 
egies that are generally being debated 
across the country. For example, Med- 
icaid expansion strategies call for cov- 
ering the entire population of individu- 
als below the poverty line. Employer 
mandate strategies speo^ the covo^ 
age of those in the wori force with some 
specific rmmber of hours of work per 
week. Some of these mandated propos- 
als include the coverage of depsidents 
as well as the pmployed individuaL Many 
•^pay-or-play" proposals include man- 
dated employer coverage and Kediexid 
exTmnn'on. 

For each strategy, uninsured individ- 
uals with particular personal or msur- 
able unit characteristics that meet the 
coverage criteria were reassigned to an 
insured status, and the overall impact 
on ethnic group health insurance cov- 
erage was assessed. For example, one 
strategy could call for developing a na- 
tional health plan that provitles health 
insurance coverage for all children un- 
der 18 years of age. If we reassign un- 
insured children to the insured catego- 
ry, what impact would this have on Lat- 
inos and other ethnic groups? 

RESULTS 

In 1989, 39% of Latinos under G5 years 
of age — 7.2 mQllon persons — were nn- 
insured for the entire year (Table IX 
TliiB rate is about three times higher 
than the rate experienced by Anglos (ie, 
the non-Latino white popuiatian) and 
almnst. twice the rate experienced by 
blacks. In 1989, there were more unin- 
sured Latinos than uninsured blacks (6.5 
million) in America. (Our estimates us- 
ing the additional CPS ^^'1H questions 
indicate that 3£% of Latinos, 13% of 
Anglos, 23% of blacks, and 21% of 
A «i:m« and others were iminsuied in 
1989.) 

There is sobstantiai variability in in- 
surance coverage, ^suvig IJtinns, For 
example, Puerto ^-Ti^tiq and C'obans ex- 
perience ncar^v half.iihe^nninsTired rate 
experienced by Mexican Americans jnd 
Central and South Americans. The dra- 
matic estimate of Latino uninsured re- 
flects the increasing numbers of unin- 
sured Mexicans and Cilential and South 



JAMA. =sbrua/v 17. 1993— Vol 269. Na 7 



Insunig Latnos— Valdez et al <91 



238 



Itmm 2.— Hann Inaunnoa C«v«r>9« in tM Nine StKai WIti Dw Largoi Lnro NonaMwV Poaiadan* 





TsBl 
("000) 














SUB 


1 


■■ - .. 


1 
OtMT 
MWMt 


UUrUM SUB 


1)422 


31.0 


11J 


4(.2 


OKnru 


6»W 


43.7 


11J 


4U 


Tcm 


3880 


47.« 


7J 


44.i 


NcwYorli 


1727 


31.0 


2U 


42J 


!=lon<la 


1331 


3&S 


B.7 


(M 


DUtus 


■as 


22J 


1&S 


K.Z 


N*w Jinay 


S33 


3ai 


lOS 


aij 


Connaoiiu 


123 


13J 


1IJ 


710 




106 


zu 


202 


5&4 



M^-ugan 



2l5 



62.1 



*Sourc« of dito MM Uutf> 1990 dmwit f^puUfon Si«f«y. 
TOW Iraumd eamgarf (ncUtu Qmup and h^AdiMl covcngs. 



M wnfl as aoma Matlcam camaga. 



TaUe 3.— Pfcporfion or fuHim Woik Fere* VVttiaut HnlSi Iruunnce 
SaiKiK) indtsiTMS* 


in 198goyE>inioty. 


Sender, and 






Pnipcrton Uiri>vuvi^ % 




InsiMtry 


1 
Lalino 


Aogb 


Bhck 


laUn 
andOOiar 


Agriaittm 


5S.2 


Urn 
Zi2 


62.2 


37J 


Ccnsmicbofi 


30.1 


25.1 


42jO 


ia.i 


DuUKs 


2(J 


6.7 


14J 


12.4 


Relai! 


t*.9 


1&0 


3SJ 


33J 


PanaiaJ scfvioM 


60^ 


17J 


37J 


29J 


ProfaMi«nal 


21.4 


7.7 


15.0 


11.0 


AgnaJUie 


se-3 


Waiian 

156 


4».7 


47.5 


CjnMs 


».« 


7.3 


>J 


11.1 


R«Bil 


40.S 


10J 


2BJ 


23.4 


Pe-aoAai sarvioe* 


se.2 


1S.0 


44.0 


Z7.7 


PTttfessJtftal 


19.0 


7.4 


116 


1«2 



*£oufca al data wac Uirttt '600 Cin«.it Populden Sufvey- 



Americans and the growth in the uniii- 
sursdrate. In the last lOyears, the num- 
ber of usiiisured Mexicans increased by 
150% and the muziber of uniiisTired Cen- 
tral and Sonth Americans increased bv 
328%. 

LatmoB liriiig in the Southwest and 
South are more likely to be oninsureO 
Lfaan Latinoe HTing in other parts of the 
eounuy. (These regions of the country 
tend to hare higher rates of tminsored 
among aB popolations compared with 
other regions.) tbe rnimber of Dninanred 
Latinos increased by 168% in the South- 
west, by 156% in the Sooth, by 108% in 
the Northeast, and by 64% in the Mid- 
west daring the 1980s. 

ExaminiDg the insurance coverage of 
those nine states with the largest Lat- 
ino papaUtians saggesta that state dif- 
ferences in Mpdifaid corerage greatly 
affect the proportion of Latinos who are 
left uninsured (Table 2). Some statts 
provide a sohttantlal proportiott of cov- 
erage through thor Medicaid programs, 
such as New Toik (26.2%}, Micfaigas 



(25.5%), and Washingtnii (20.3%). Other 
states with more restricdve digibiltty 
standards provide a relatively small 
share of insurance coverage, such as Tex- 
as (7.8%) and Florida (e.7%X 

Becaose most indiridaals obtain their 
health insurance coverage throng em- 
ployment, either directly or indirectly 
through a spcuse or parent, we exam- 
ined ^e labor force participation and 
characteristics of Latinos (Table 3). He 
n^nnrrs^] distHbutiDn of full-time work- 
ers across m^jcffiadustry cat<>gtiries in- 
dicates that Latinos are distxibnted 
across jobs in roughly the same propor- 
tion as the An^ work force, except 
with slig^itiy higher partidpation in ag- 
ricnltnre, sales, and personal aerriees. 
These indoatriea tend to provide health 
benefits sparing^. This rather stmOar 
distribution across Industries, however, 
maftiw ethnic group difGerences in occu- 
pations within indnsbries: Latinos are 
far nure hkely than Angloe to be unin- 
sored across ^ industries by a &ctor of 
two to five times. For example, among 



men. 60% of Latinos and 25% of An^os 
in oonstmcdon are aninsnred; 35% at 
Latinos and 7.5% of Anglos in the non- 
dnrable manufaeturingindustries are un- 
insured. Similar relationships are finmd 
among the female work, force. 

Employees who work for """11 finns 
are lea likely to receive employer-spon- 
lored health benefits. Latinos, particD- 
larly those in the South and Southwest, 
are more likely than Anglos to work far 
small empbyers (Orms w^ fewer than 
25 empk>yees) and to be paid on an hour- 
ly ba^ For example. 74% of Latinos 
and 50% of Anglos in the Southwest are 
paid on an hourly basis. These labor force 
difierences are most acute in Cahfor- 
cia," where 30% of full-time Latino em- 
ployees work in finns with fewer than 
25 employees, compared with 18% of 
Anglos. The higher concentration ofLat- 
inu workers in relatnrely low-coverage 
industries and smaller firms reduces 
their likelihood of recaving health 
benefits. 

To determine what factors account 
for the difference in health insurance 
coverage between Latinos and Anglos, 
we estimated the AF in the Latino pop- 
olation and the AFC. In 1989, there were 
6.2 million uninsured nooelderly Lati- 
nos living in nine states. Of this number, 
67.8% (the estimated AF} would have 
been insured if they had been Anglo 
CTable 4). This ft3ctioD represents about 
4.2 million excess nninsured Latinos — 
the estimated attnbotable number (AN). 

By stratifying for one or more eo- 
variates. we estimated the proportion 
(AFQ of the Latino- Anglo difference in 
insurance coverage that was due to eth- 
nic drfTerences in the covahate distri- 
IriHon. The covariates that explained 
individually the largest portions of this 
difference were {amily inctnne (AFC, 
33.0%), education (AFC, 122%), occu- 
pation (AFC, 6.6%), and state of resi- 
dence (AFC, 6.5%) (Table 4). Relatively 
little of the Latmo-Anglo difEerence in 
insurance coverage was explained by 
ethnic differences in age, sex, charac- 
teristics of the insurable unit, or em- 
pbyment factors other than income. (^ 
lectrvely, the AFC for the combination 
of family income, education, and oecn- 
pation was 35.7%. That is, of the 42 
million fTCfas uninsured Latinos in 1989, 
total of 35.7%^-or about 1.5 nuUion 
Latinos — ^wouid have been insured If 
they had ^^** sazq^ distribution of tn- 
come, education, and occupation as did 
Anglos. No other cgm^ination of the co- 
variate; in Table 4 explained a signifi- 
cant degree of the Latino- Anglo SSer- 
ence in insurance coverage. Thus, more 
than 60% of this difference appears to 
be due to etiinie differences in other 
factors not iac^ded in these analyses. 



893 JAMA. Febmaiy 17. 1933— Vd 2B9. Kto. 7 



Insurmg Latinos— VaMez et al 



239 



Table «.— ABril»«iae Fracoon (or SalaoM Cowialac (AFC) Eiplalrw^ tw Ltf no-Anak) Dthnne* in 
MeoiVi Insmroa Cavange n Nine US Slaua. 1889 


(Ne. of Snu) 


«• 


AFCr 


ana 
<*rew, 


AHCt 

(xlCDO) 


^kln•<1) 


110 


57.8 


M.MUI 


4176 


Ag»m 


2A4 


2.5 


2.1-3JB 


lOE 


S«>0 


3.10 


oja 


o.»o.i 


2 


&(ucailor(4) 


1.47 


12^ 


ia.7-u.« 


511 


P*n*vmcom« (4^ 


1.B3 


33J) 


aa»-3SJ 


1379 


Emsioymew si3nj» (4) 


aST 


2.1 


1.7-t6 


as 


InausByfT) 


2.95 


2.9 


2.0-U 


104 


OeojntiaKn 


1.7S 


E.e 


SS-7.4 


275 


Rrm uz« (fl) 


2J6 


2.4 


).9-2J 


99 


Typ« of nsumAls tfi4 [4) 


zja 


4.0 


3>4.a 


169 


SiZ4 or insi0aa« unit (5) 


3.20 


-1.S 


-1J— 1.1 


..» 


sue << nsiasnn (91 


2.73 


6.5 


5J-7.i 


270 


Occupidon and sducatfor (24) 


2JS 


14.4 


12.&'l&2 


em 


Oocuprfon and fanuly tncDine (24) 


1J1 


34.1 


3IJ-a&5 


1428 


Parity Income and Mucanor (16) 


1.78 


3&2 


324-3ai 


1471 


Fflndy income and e<linaaan 
and oasipation (96) 


1.77 


36.7 


3Z«.38.C 


1491 



The siardsidas4raao(SR) IS 9ie ratio oTuntttorM rxafi,comp4iYTgLatncsinttiAnglac,«andanii2BdtoBi« 
ovanaia ^vtnliialan ol Uabncaa. When m«ra are no oovailztBa. me value snoiMI [s 118 Oljdi rmOo. 

tThe Ai=C is ttvpniportiisi of ^ La0Y>.An^ dfffervnce in insurance coveraga misdua 13 sOirK (Slersnoaa 
Ir th4 jsvlbution 0^ covanaiea wnentnir9a;anaeff.anatBa.vi«valuashawnlaaiaanTt}Ulalilarradcninin«Lallno 
- populaooa CI cndicatas crjniidence mltirval. 

tTTie annoutalile number for covanaies (ANC) is the fturnber of ezcew jranoMwti LaHnos tid ia due to emnic 
OifatviGeslnu-adi3iriCiilonotcovaria*.B&.v«ienihe:aajanooovanaias. SievaiucshoiMila Vie total aiBibulabie 
number 

$TbB 4MC s rv3l KtmaloO whan the AfC la negflttve. ryratrtfi a nagalive AFC means Viat lower (not moiv) 
[_a4noe mhHO have been insired if tney lud ttie amv covutala dJctrtojton as An^F^. TTiiB. etfinic dZTeiences In 
this ccvaiiate do noi exptajn De axcess lack of inau/ance amaig ' a'^'w* 



Differences in Uedicsid eligibility, la- 
bor &n:e (Aaracterlstiis, antl insnrabie 
•init composition betwMn Latinos and 
:]Clier etimie groups suggest that piiblic 
policy initiatives may affect Latinos dif- 
ferently. We examined simple aimola- 
tions to determine if this was the case 
(Table 5). Efforts to expand Medicaid to 
cover all poor people (ie, by dropping 
categorical eligiliility standards) or oth- 
er ininadves to cover all the poor, far 
example, would be expected to retlnn? 
the proportion of unitisured Ainericaiis 
by ^%. This impact, however, wotild be 
greater among popolatians with lar^ 
proportions of tiielr popolarions living 
in poverty, such as Latinos (37% reduc- 
tion) and hlai-lrr: (42% rednetion). 

EfEorts to ensure covarage of the work- 
ing popuiaCiaD (ie, fuQ- and part-'time 
workers) sudi as employer Tn3nrfert-j»«! 
would produce rerinrfions of 22* overall, 
with similar reduction levels in all ethnic 

groups. RfFnrtg ftmh. r yimh TTwiTna ^^ffTTigmi: 

to cover the ftill-tiine wodc force and the 
poor, such as pay-or-play proposals, coold 
be ei^>ected to reduce the ovarii nation- 
al rate by 4G%, the Latino rate by 54%, 
and the black rate by 56%. 

No matter wMch strategy we choose 
to undertake, Latimn may stUl face ma- 
jor health Cnandng difSoilties. For ex- 
ample, applymg the strategy that woold 
CO ver all poor people in the United States 
could result in a decline in the Latino 

insixred rate from 39% to 24.6%; al- 



ternatively, ^iplyrng a strategy that pro- 
vides health benefits to all workers and 
their minar dependents would result in 
a decline of -he uninsured rate amnng 
Latinos to 10.8%. None of the sevsi 
strategies we examined reduced the tm- 
insored rate below 10% because some 
element of the population waa not spec- 
ified in the strategy. 

COMMENT 

The dramatic increase in the number 
of uninsTired nmnng the Mexican and 
Central/South American papulations re- 
flects several social and economic trends 
affecting the United States. Two trends 

deserve special ^Hingir^ar aHnn- Latino 
population growth and the restructor- 
ing of the economy. 

The rapid growth of the Latino pop- 
ulation reflects both increased immigra- 
tion and higiier fertility rates than are 
found xn other groimE. Many T.nHnn in^- 
migrsnta, especially the Mexican and 
Central American populaticms, have set- 
tled in the Sooth and Southwest, re- 
gions in which state eligibility for Med- 
icaid remains leverely Kmited." 

Historically, immigrsnta occupy the 
lower end of the occupational diraAo- 
tion. Because of limited education and 
the lack of job sldlla required in the 
United States, Mexican and (Central 
American nnmigrants are often em- 
ployed in low-paying jobs that do not 
include health insurance as a benefit of 



employmenL Many native Lacinas also 
work in low-paytng jobs that lack ben- 
efits BQch as health insurance.*" 

ffigher-than-averagc fertility levels 
ammig both native and immigrant seg- 
ments of the Latino population result in 
a larger shaxe of dependents. Latincs 
and yiPTjpap Americans in particular 
have a greater number of dependeota 
per worker than do Angloe or bladks. A 
large share of the dependents are chil- 
dren and women who are not woriong 
fcr wages. Therefore, proposals that only 
address coverage fbr workers and ex> 
dude benefits for family members pro- 
vide limitad protection for Latinos 
against the costs of illness. 

The restructuring of the economy, 
however, may reduce the types and 
amounts of con^iensation made to less 
skilled woikzrs. Increasingly, the econ- 
omy has seen job growth in high- and 
low-skilled ocaqsitions. Dunng t£> 1980s 
the real wages of low-skilled woricers 
stagnated or declined while higher- 
skilled wnrkars prospered."* Smilariy, 
benefits, including health insurance cov- 
erage, have shrunk for most workers, 
(jiven that Lattnos are disproportion- 
ately en^loyed in smal firms, in knv- 
wage jobs, and in industries that his- 
torically provide few benefits, perhaps 
it is not Emrprising that Latinos lack 
health insurance coverage imder our vol- 
\intary employment-based approacL 

As our projections indicate, incremer- 
tal efforts to change the voluntary em- 
ployment-based h^Ith insurance scheme 
could still leave many Latinos uninsnred. 
Furthermore, the likely economic dis- 
ruptions that some of these strategies 
could produce wnuld further negatively 
affect the various Latino oommusities. 

Strategies mandating employers to 
provide hcaJth insurance coverage to 
their employees pose several major con- 
oems for Latinos. First, such strategies 
threaten jobs available to this commu- 
nity. To the trxtent that employers &ce 
increased costs of labor, some may be 
forced to lay off workers, keep wages 
low, or go out of business. (]liven the 
relatively high concentration of Latinoa 
working for small business and operat- 
ing small businesses, such strat^es 
pose considerable concem and threats. 
Second, mandates, depending on bow 
they are specified, could leave out large 
segments of the Latino ptrpulation. Cov- 
ering only those in the workforce would 
leave many Latinpa^ ejpeciaDy chUdreii, 
without coverage; Third, low-wage jobs 
could see fctrther dedit£s in real wages 
to pay for the mandated fringe benefits, 
lliese potential "ff'^^'Ji would father 
reduce finani-'al resources available in 
these comnmnMes to pay for increas- 
in^y more expensive m*^'*^! care. 



JAMA. Faoniary 17. 1983— Vbl 269. No. 7 



Insuing (.ainos— Valdez et al 893 



240 



Tabie 5— ^ro(ecsed Parcentage Reduction in ttie Uninsured flales Under Oittewit Stratogies fcy Cov«nng 
the UninsiMwl by Etmicxy* 



S««,gy 




T9&J 


l.atlna 


Angle 


eink 


Asun 
ana Osier 


% unrsjied in 1989 




I7J 


33.0 


I3J 


24.0 


21 J 


Poor :< 1.0 oi) 




PnilectM) r. Raduetian 

Z9 37 


23 


43 


25 


An cwaren «is yl 




34 


36 


» 


37 


33 


FJHime won^rs 




11 


21 


IS 


16 


17 


f til-tuTie vwniBre antf rrwior 3eoBnd«it» 


J* 


39 


34 


3Z 


30 


FiiMiTne/Dan*lbne wdrturi 




22 


13 


23 


20 


20 


Full-llm«^ajT-lun« wohctrs one 


depenoenB 


41 


44 


41 


38 


3S 


FuD-drni womcfs wid xnw 


^^^ 


4£ 


54 


40 


9S 


40 



*Source Of data wu tAin:i\ 1990 CunBfit Populaton Survey. PI indcates Po»«r1y Indsz. 



The number o£ ucinsared Latinos in 
the United States cooid be dramatically 
redu:ed if Medicaid eligibility were not 
categoricaDy defined sr.d Medicaid were 
available to serve all of the poor. The 
proportion of the onijisiu'ed in the st^ites 
wi^h the four laij^t Latino Dopulations 
(accountiiig for about 78% of Jie UEin- 
snred Latinos) would dramabcally de- 
cline. E3orts directed a: California, Tex- 
as, New York, and Florida to reduce the 
proportion of uninsured residents conic 
greziy affect the proportion of Latinos 
who go without health insnraJioe nation- 
ally. Expanding Medicaid eligibility un- 
der ihe current federal-state finandng 
arra-igBments, however, could create se- 
vere state budget crises. But e2:pansion 
of a program in which few providers 
wish to participate would not alleviate 
the for.daiDental problems of access to 
medical care faced by :he Latino popc- 
ladoa. 

Other alternatives include a "pay-or- 
play" approach that would provide cov- 
erage tliough job-based benefits or a 
public progTam and universal national 
or state health insurance The pnbKc 

RMeruieas 

1. TreJTfiorM,Moy«rJiIE,ViIii«RB,Stiw^CA- 

HeaJth insuruce ccvenfic and jtiG^i^n of health 

sernee* by MejicaD Amaicans, mainland Ptarta 

Ricacs, and Cuban Americans. JAilA. 1<»1 ,-?(«• 

238-23T. 

L Gocndtlman S, Sclrtralb« J. Medical on ndli- 

aation by HispAnic childrec: lu)w dnes IC differ tnm 

blade and wfaita pasn? Uri Cirn. 1965£ia£S-»IO. 

a. EsnJa AL. Trevtfin FM. £17 LA. Hailili mrc 

u tiliMtio Q bsrrien asiong Haian Amtntanaz av. 

idenx from HEAMES 19S-SL^js /Puiiu .fftoJ^ 

199C;Wup?D27JL 

*. AilaTLA,An<laieiR,Flami2GV.AattfcCbiT 

IV tht US. BrveHr Hllb, ^^'Jr- San ?abUca£uais; 

IflSa 

S. . . . cud Aeatt M' *U^ itKliimii ami BiapttK- 

ia. WislunKtai, DC- CoaUtiaD of Sodal Sarn« 

uul Ucmal Beiia Qrganiacian^ 1990. 

S. RovlindO,I>;cmB,EdwiRlsJ.lIedimd:luaIth 

can &r the pacr la ttae KaigBi sa. itatn Jin Pci- 

7. ADtauUqfMmHeaxi Exfcrima. Fitcal Faan 
im Thmgh HO. BaKmam, Hi: Baltli Can 
F^nandng AdnnalstntiaK ISS. Health Can FV 
*"'*'*"g 4 /*„iliiiw ii^ n «« pnblicatiao 03210. 
L Sil)c:J,01C<nsS,SiIliT3nC,RiceT.£iaplayir- 



progranr. in a pay-or-play system would 
cover primarily the lower-income pop- 
ulation, thus nmaing the risk of political 
iaolation and vulnerability to budget 
cuts. These budget constraints couldlead 
to low provider reimbursement rates, 
as in the ctnrent Medicaid program, 
which would create access barriers for 
persons enrolled in the program. A nni- 
venal public program could avoid that 
dflemma by giving all sectors of aodetj 
a common stake in controlling health 
spending and increasing access to qua' 
i^ care. 

No matter which strategy we under- 
take. Latinos may still face major health 
care access difBculties. Thus, we must 
look beyond simply "the finandng" to 
consider basic reform of this nation's 
medical care system. Recent work in 
Los Angeles County, CaHfnmia, dem- 
onstrates the allure of the current sys- 
tem to provide basic primary ears to our 
communities." We see rates of hospi- 
talizations for conditiona that we know 
how to inexpensively treat, prevent, and 
control in a physician's offiue that are 
two to three times the e.\pected rate. 



ipuiumd health in^ranrt. 1989. SialiJx Aff. 1990; 
9-J61-17E. 

9. Sbart PF. Trands m enqiUlycc liealdl Inaumice 
boieilts. fftalth Aff 198g,-T:13S-196. 

10. Moyer ME. A rerued look ai ibe nuabtr at 
vaiinsured Airyrirmn HtaWi Aff. 1939;gJQ2-I10. 
11 Walden DC, Hnrjan CM, CaHeistta CL. Ctc- 
sumers' knowledge of their healtb msiuance ajy- 
engK. Read be.^JfT the FtTnzth Conference oo Health 
Siu-re; Beaenrji SIeCho<fa; Maj 4, 1392; Waaiimg- 
ton. DC 

J2. Uinjiii3 MS. Ct&sureen'kziavladgB about their 
health insaraoec corerajie. Beaitk Can Pawmc 
Ha. VSeifi£o^a. 

U. EleinbBtm DG. Kopps LL, Morgensten H. 
Eptdmnioloyu: R4atarck: FrtaexpUa and Quoniz- 
tatwm UttkwU. BelmoQi, Cali£ Lif^dme Lcaraisg 
PubEcsbuinc UC 

14. Gr^m]iadS,illadimM,SdilaaMlinanJ7, Poole 
C Bdorgessten H. Stasdaidtxed zegzesaun mal- 
flaentsT a fistber cstlqiie and review of alteraa- 
tlvel. Bpidmiolon- 199:;£3S7.3B2. 

15. Eaopeibefx CI, Pedtci DB. Uiiig logistic re- 
gnaaien to aacuzata the adjuiced am I bu ta ble rWc 
of low till til ww^tt m aa ■■"■.■"'^— ^ caae-cootttd 

taij. Bjridtimiolom. I9gi;2j<^jes. 



These hospitalizations are very costly 
for the individual patients, their fami- 
lies, and socety." 

Ensuring adequate medical care ser- 
vices to the Latino comniunity requires 
attention to both the finandsg meeha- 
mKrrt and the structur(» of the mgd it'a) 
care system. Even Latinos with health 
insurance cannot find an adequate sup- 
ply of providers in their communities. 
Many physicians serving Latino com- 
munities immigrated to the United 
States during tie mid 1960b and early 
1970s. Those physicians are near retire- 
ment, but US medical schools have not 
produced adequate numbers of native 
Latino physicians to replace them. Few 
providers understand the sodal or cul- 
tural Issues important to providing hi^- 
quality medical care in Latino commu- 
nities. Speaking some Spanish is a nec- 
essary but insnfBcienl prarequiBitc. 

A rededication to consumer-sponsored 
comprshensrve prepaid health plaii:> 
would greatly serve Latino communities. 
Such effiirts, exemplified on a small sole 
by the Office of Economic Opportunity's 
neigiiborhood health centers and, on a 
larger scale, by such piacs as the Group 
Health Cooperative of Puget Sound, of- 
fer Latino nei^iborhoods multiple ben- 
efits, economic opporturity, job training 
and education, dedsiou-making power, 
and, of contse, primary nvHti(Ti1 care. Cur- 
rent debates about health care reform 
must take into account the structioral 
problems we face in providing medical 
care, espedally in Latino communities. 

This study was supported by grants froni the 
Robert Wcod Johnson Fonnriarinn, PruKston, NJ, 
the Cahfomia Foliq Seminar, Berkdey, Calif, the 
JaniK Ir'Tme FooiuiatiDa, the Calliunuii Commu- 
nitj Poundatoc, Sailer Pormaneuli. ind Blue 
Cmsi of Callfon^a. Los AngBles, and a UCLA, Ca- 
reer Developnent Avanl. 



IS. Brown £S, ValdecBB, Marfsstem H, Cam- 
baiaai W, Wang C, Motm J, Hiaith Inatnxa 
Cotemgt 0/ Cali/ommMt m I3ts. Berkeley, Calt 
CalilbnLa Fancy Semmar, 199L 

17. Emsrin^s Q^ort iha Smut Stltti C o w uiutoa 
vnAffing and ths Co^ffraaianal BiapaJiic CaucoM, 
lOZntL Cocg. 2nd Seas (1391) (taatimoav ofEIeaiitf 
ChHrTwtT. PbD). GAO/T-PEMn-91-3. 

18. McCarthyEF,ValdeiaB-CinTTntaai>'iiii»» 
Efftcu qfMtxiam IniTTugnium into Cai^bnaa. 
Sana ^"*^''^. rj'tf HAND; 1986. PobUcatiai 
B-33eE 

19. Camay IC Delay H, Ojada SH. Latiao in a 
Chimffmo US B Lu m uiui f: EjM . \ttu, « Suwtm^y.Hrw 
Tcrt, HT: Sasaaitli Foimdatinn ct tha City Uid- 
«iaty of New Yorii; I99a 

a. Valdea RB, DaOek 0, Dou Uu Biaish Cm 
Sgttm Smyt Black mdjMtaa Comntnatiti s 
Zai Anf*U» Ctaauyf piiAniant, CaJiC The Tomaa 
Rim Canter 19BL'' ' 

n. Softer S, RajdaE TG,4«lfc- WL. Heatrittjra 
nimblffvesieiit pwn^»* and cXDnvnpeasacad oarv ni 
CaSiiniM baipltais, I9ei-I38G. Bosf Btaltk "Str- 
•nea AAimKutustum. 19S0^S<Zl::89-206. 



JAMA. Fetvuaiy 17. 1933— Vd 269. No. 7 



Inauring Latinos— Valdez et al 



241 

Mr. Pallone [presiding]. Thank you. Thanks a lot, we will take 
that into consideration. 
Congressman Traficant. 

STATEMENT OF HON. JAMES A. TRAFICANT, JR., A 
REPRESENTATIVE IN CONGRESS FROM THE STATE OF OHIO 

Mr. Traficant. Thank you. I want to thank the committee for 
having me in here to testify. I have three specific issues. Two of 
them are bills I have submitted. The last is an amendment because 
you can't have a bill when a card doesn't exist at this point. 

The first one deals with the Council on Graduate Medical Edu- 
cation who have told us repeatedly that increasing specialization in 
the health care industry forces costs up, and the medical schools 
have been dealing mostly and primarily trying to deal with this 
specialization, and most doctors and most professionals seek this 
specialization. 

H.R. 3220 will shift the number of health professionals hopefully 
into primary care service delivery systems that will save an awful 
lot of money and they are drastically needed in our country. So the 
first part basically does this, of H.R. 3220. Medical schools that re- 
ceive Federal grant or contract money must agree to emphasize, in- 
corporate in their curriculum and their delivery system, primary 
care training and emphasize such and encourage such to produce 
more primary care physicians. It doesn't stop specialization. 

Second, part of it is basically this, American citizens and legal 
residents should be given priority through American medical 
schools. I agree wholeheartedly what Mr. Coleman had stated. He 
is exactly right. 

When we talk about our kids having to go to Grenada to get a 
medical degree, it astounds me. In the Trsificant bill, second part 
of H.R. 3220 says if there is a slot open and there is an American 
student that qualifies for it, that American student gets the pref- 
erence. 

The second bill deals with lower back pain. I don't want to give 
you anymore of that. H.R. 2079, it has a very funny name to it 
called the arachnoiditis. Very controversial now. It is sort of taking 
the pattern on of the breast implants and that whole controversy 
over the years, people denying the problem, admitting the problem, 
studying the problem. 

Arachnoiditis is basically this, it is an inflammation of the lower 
back, the subarachnoid area, basically caused in these myelograms 
where they inject these dyes. There is two types of dyes, oil-based 
dyes, water-based dyes. And the problem is after they remove the 
dyes after the test, there is a lingering residue that is being care- 
fully now stated as a common problem and a contributor to perma- 
nent back pain. And they are saying this is one of the most costly 
health-related problems that we have. 

The Traficant bill would, in fact, in this position call for a study 
of all of those afflicted with it, but it would ban the oil-based and 
water-based dyes used in these myelograms. It would not stop, 
though, the procedures, and it would call for a study on them and 
to specifically address itself to those individuals who suffer from it. 

Just let me say this. Eighty million Americans who suffer chronic 
back pain, four out of those five cases could have been prevented. 



242 

Many of our costs that we deal with in the Federal Government 
from lower back pain, and these cases are permanent to our coffers. 
These individuals are lost from work. The average loss of work, by 
the way, is about 5 days a week, $55 billion a year from back pain. 

I am asking you to take a good look at these dyes. Pantopaque 
is the oil-based. You have Amipaque, Omipaque, and Isoview as the 
water-based dyes, and I am asking that we would look at that and 
ban them and to study other methods and methodologies to assess 
that need to study that lower back area. 

Finally, we talked about the card. It is not a bill because there 
is no card. And I am saying rather than have two or three different 
cards, in the form of an amendment it basically says this, that the 
Social Security card and the Health Security Act be rolled into one. 
You have one number, your Social Security card number. And that 
amendment provides for protections with computer programming 
and blocking that would retain the confidentiality of the use of that 
card. So we wouldn't have people with a number of different cards 
and it also calls for a study in there to see how that database can 
be affected by the card holder themselves as they are responsible 
with their own automatic teller machine cards, et cetera. 

So it is not a real reinvention of the wheel, but here is what the 
third one says, Mr. Chairman. There would just be one card. We 
would get a grip on what the social security card is all about and 
all the people there, who is living, who is not, what mistakes we 
have. And that social security number also becomes your health se- 
curity number. It is one card, both of those phase into that one par- 
ticular card. The new card would be issued and the identification 
from that would be manifest in that process. 

It also calls for a study how we can through our super tech- 
nology, the information highway, prevent the access from people 
who would be eavesdropping for other information. Someone might 
want to know, for example, if Mr. Regula has a family history tree, 
has a heart problem, heart condition when they are hiring. Say, 
well maybe we will stay away from Ralph because his family had 
three or four brothers and they are known for heart disease. 

I think that is clearly unconstitutional, to allow that kind of tap- 
ping. And although we don't have the technology right now, it puts 
in place, at least, and calls for a study of that technology and a re- 
view to, in fact, prevent that from happening and protect the con- 
fidentiality of the privacy of patients. 

I know the arachnoiditis is very controversial at this particular 
point, but so were breast implants. I am asking you look at those 
two bills and that amendment. They make a lot of sense. 

The only last thing I will say, I want to be very careful, every- 
body ends up with health insurance and no one ends up with a job. 
And finally, I absolutely want to place upon the record here, what- 
ever the health insurance program is for the Nation, each and 
every one of us have the same health insurance that our constitu- 
ents carry around and the same card and the same program for 
service. 

I thank you for your time. 

Mr. Pallone. Thank you, Jim. 

[The prepared statement of Mr. Traficant follows:] 



243 



JAMES A. TRAFICANT, JR. 

17TH O'STRlCt OHIO 
COMMirTEES 

COMMITTEE ON PUBLIC WORKS 
AND TRANSPORTATION 



SueCOMMlTTEE on ECONOMIC OEVIIOPUEMT 
SuaCQMMITTet ON SURFACE TRANSPORTATION 

COMMITTEE ON SCIENCE. SPACE. 

AND TECHNOLOGY 

SUBCOMMITTEE ON S»*Ct 

SELECT COMMITTEE ON NARCOTICS 

ABUSE AND CONTROL 



Congre£;£( of tije ?Hniteb ^tatti 

^ouste of ^ElepresfentatibeK 
Maaljington. 5BC 20515-3517 

STATEMENT OF THE HONORABLE 

JAMES A. TRAFICANT, JR. 

SUBCOMMITTEE ON HEALTH 

AND THE ENVIRONMENT 

FEBRUARY 2, 1994 



2446 RAYBURN HOUSE OFFICE BUILDING 

WASHINGTON DC 205 i5 

(2021 225-5261 

1 1 OVEBHILL BOAD 

YOUNGSTOWN OH 445 12 

(216) 788-24 14 



5555 VOUNGSTOWN-WABBEN BOAD 

SUITE 2685 

NILES OH 44448 

(2161 652-5649 



109 WEST 3flD STREET 

LAST LIVERPOOL. OH 43920 

(216)365-5921 



Mr. Chairman and members of the Committee, thank you for the 
opportunity to testify on health care reform and to offer my recommendations in 
legislative form. While recent reports suggest health care inflation is the lowest 
it's been in a decade, medical spending is expected to top $1 trillion dollars in 
1994 - with or without the enactment of a national health care plan. 

I believe wholeheartedly that every American should have access to 
affordable as well as responsible health care. My top concern in the 
consideration of a comprehensive health care reform package is the funding 
mechanism. The bottom line is, who's going to pay for it? The Department of 
Labor recently reported that, for the average American worker making $12.68 an 
hour, an employer has to come up with $5.20 in benefits. That's a 41 percent 
expenditure in addition to the average worker's pay or $15,246 a year according 
to U.S. Chamber of Commerce statistics. This trend is even higher for the 
government and big business. I caution Members of Congress to be careful that 
we don't win the battle for health care and lose jobs in the process. 

I believe that any health plan considered by Congress should address the 
following: 

1 . Coverage or incentive for the insurance industry to cover the 
nation's 37 million uninsured and underinsured. 

2. Medicare waste and fraud must be eradicated. Fraud may 

1 



THIS STATIONERY PRINTED ON PAPER MADE OF RECYCLED FIBERS 



244 



account for $75 billion of America's annual health care expenditures. 

3. Tort reform. Physicians must cease the practice of providing 
unnecessary care which adds an additional $21 billion to the U.S. 
health care bill every year. 

4. An emphasis on preventative care. The excessive costs of 
catastrophic care can be greatly deflated through early testing, 
nutrition counselling and education, prenatal care, etc. 

Finally, I strongly believe a comprehensive health care reform package 
should firmly address and provide for three additional provisions. At this time, I 
would appreciate the opportunity to offer my legislation which speaks to these 
issues. 

First, it's a well-known fact that shifting the emphasis in the physician 
workforce from specialists to generalists will improve access to health care and 
cut costs. In fact, the Council on Graduate Medical Education (COGME) under 
the Department of Health and Human Services has issued an extensive report 
supporting this fact called, "Improving Access to Health Care Through Physician 
Workforce Reform: Directions for the 21st Century." America is in need of more 
primary care physicians. As a result, I have introduced H.R. 3220, the "Health 
Professions Education Availability Act of 1993," to emphasize training in primary 
care education and to encourage students to enter a field in primary care. 

At this time, I would like to summarize COGME's findings on this issue. 
First, the growing shortage of practicing generalists (I.e. family physicians, general 
internists, and general pediatricians) will be greatly aggravated by the growing 
percentage of medical school graduates who plan to specialize. The expansion of 
managed care and provision of universal care will only further increase the 
demand for generalist physicians. Second, increasing specialization in U.S. health 



245 



care escalates health care costs, results in fragmentation of services, and 
increases the discrepancy between numbers of rural and urban physicians. Third, 
a rational health care system must be based upon an infrastructure consisting of a 
majority of generalist physicians trained to provide quality primary care and an 
appropriate mix of other specialists to meet health care needs. Today, other 
specialists provide a significant amount of primary care. However, physicians 
who are trained, practice, and receive continuing education in the generalist 
disciplines provide more cost-effective care than nonprimary care specialists. 

In its first report in 1988, COGME recommended increased numbers of 
physicians in family practice and general internal medicine to assist in meeting the 
problems of access to primary care services. However, interest by medical school 
graduates is rapidly increasing in procedurally oriented specialties, and similarly, 
interest in primary care is declining dramatically among U.S. medical students. 
Should these current trends continue we can conclude that primary care services 
wilt increasingly be provided by specialists who have had little or no education for 
primary care. Moreover, primary care provided by specialists can be expected to 
cost more. And finally, while an overall increase in the total physician-to- 
population ratio would further hinder efforts to reduce costs, an oversupply of 
specialists would be more costly than would an oversupply of generalists. 

The truth is, the medical education system must respond today, to the 
nation's health care and physician workforce needs in the 21st century. These 
include the need for more minority and generalist physicians, more primary care 
research, and increased access to primary care, particulariy in underserved rural 
and urban communities. Changes in the institutional mission, goals, admissions 
policies and curriculum are necessary to respond to these needs. My bill, H.R. 
3220, does not increase the overall medical student population, rather, it directs 



246 



health professions schools respond to the need for more minority and generalist 
physicians by shifting the current trends in the physician workforce. 

Specifically, under H.R. 3220, a grant or contract to a health professions 
school can only be awarded if the school agrees to emphasize training in primary 
health care and encourage the students of the school to enter a field of primary 
health care as a career choice. 

Furthermore, foreign students are often accepted over American and legal 
alien students. As a result, America is exporting one of our greatest national 
resources - education - and taking away opportunities from qualified minority 
students. Under H.R. 3220, a grant or contract to a health professions school 
can be awarded only if the school agrees that, in considering applications for 
admission to the programs of health professions education operated by the 
school, the school will admit an individual who is not a citizen or permanent 
resident alien of the United States only if no qualified applicant who is such a 
citizen or alien is seeking admission. 

The final vote on health care reform legislation will usher a new era of 
health care for all Americans. It's time to prepare our physician workforce for the 
21st century, improve access, and cut costs. 

Second, of the 80 million Americans who suffer from chronic back pain 
each year, 4 out of 5 cases could have been prevented. Back problems are the 
most common work injury today, usually striking people between the ages of 
twenty and fifty. According to The Power of Pain by Shirly Kraus, 100 million 
Americans are either permanently disabled or are less productive due to back 
pain. And, those who work lose about 5 work days per year, a productivity loss 
of $55 billion. 

Evidence now suggests that a significant number of these "failed backs" 



247 



are cases of adhesive arachnoiditis resulting from a myelogram, a diagnostic 
procedure that precedes surgery. In a myelogram, a radiopaque dye is injected 
into the spinal subarachnoid space. After the x-ray, as much of the oil as 
possible is withdrawn. However, the amount left behind often causes irritation 
and leads to arachnoiditis, an inflammation of the subarachnoid. 

Symptoms of arachnoiditis include chronic serve pain and a burning 
sensation which may attack the back, groin, leg, knee or foot and can result in 
loss of movement to almost total disability. Other symptoms include bladder, 
bowel, thyroid, and sexual disfunction. 

Harry Feffer, professor of orthopedic surgery at George Washington 
University states that patients who have had two or more myelograms stand a 50 
percent chance of developing arachnoiditis. Furthermore, animal studies confirm 
the devastating effect of Pantopaque, an oil-based contrast medium, on the 
myelin sheath and nerve cells. 

For several years. Members of Congress have repeatedly asked the Food 
and Drug Administration (FDA) to recall the use of Pantopaque. In 1 987, Alcon, 
a subsidiary of Eastman Kodak, voluntarily stopped producing the drug due to 
public pressure. Pantopaque has a 5-year shelf date. The last batch of the drug 
was due to expire April 1 , 1 992. However, use of Pantopaque has continued, 

with reported usage as recent as September 1993.. This evidence leads me to 
believe that Kodak is once again manufacturing Pantopaque. One final point I 
would like members of the Committee to know is that Pantopaque is still 
commonly used in veterans and military hospitals across the nation. 

The bottom line is, the FDA clearly has not reviewed the safety of 
Pantopaque as well as water-based dyes, in spite of medical evidence. My bill, 
H.R. 2079 would recall the use of Pantopaque, Amipaque, Omipaque, and Isovue 



248 



in the myelogram procedure. My bill does not ban myelograms altogether, nor 
does it ban the use of these dyes outside of the myelogram procedure. 

I understand my bill, as written, is stringent. I would be willing to make 
compromises based upon the findings of the Committee. Therefore, I would 
support a hearing on this bill which would include the participation of medical 
experts, the FDA, and sufferers of this disabling condition. I would then ask for 
the advice of the Committee on any further proceedings on H.R. 2079, as 
determined from the outcome of the hearing. 

Additionally, H.R. 2079 provides for a thorough government study that 
would determine the number of Americans suffering from myelogram-related 
arachnoiditis and would explore medical findings showing this cause-and-effect 
relationship. 

As I have previously mentioned, every year, chronic back pain is 
responsible for billions of dollars in lost revenues and millions of dollars added to 
the nation's health care bill. Unfortunately, people who develop arachnoiditis 
eventually become totally disabled and cannot work at all. They become 
permanent fixtures on the rolls of Social Security, disability, welfare, Medicaid, 
and Medicare. 

As we undertake the reform of health care in America, It's time to protect 
unsuspecting Americans from this debilitating and preventable condition. I ask for 
your prompt consideration of my bill, H.R. 2079. 

Third, studies show 20 percent or more of total medical costs go to 
maintain our current record-keeping system. The average hospital shuffles 5 
million pieces of paper a year. A health card is inevitable. 

No federal laws protect the privacy of medical records except those related 
to treatment for drug and alcohol abuse and psychiatric care and few states have 

6 



J 



249 



medical privacy laws. A health card could be used for numerous non-medical 
purposes. For example, a prospective employer could discover that your family 
has a history of heart disease and decide not to hire you. And as history has 
shown, during times of perceived crises, the government can and often does 
trample on individual liberty. 

I have an amendment to the Clinton health care reform legislation that will 
protect consumers and cut government waste. My amendment proposes to 
combine the health card and Social Security card into a dual purpose card. All 
persons with access to medical or Social Security information should have . 
feature in their system that would block personal Identifiers as well as block the 
use of Social Security or medical benefits should an individual qualify for one of 
the benefits and not the other. Furthermore, based on the principle that people 
have the right to control information about themselves, information collected 
should not be used for surveys or polls without an individual's consent. Likewise, 
information that needs to be shared between agencies, companies, hospitals, etc. 
should be stripped of all personal identification, such as name, address, etc., 
unless the information is vital or needed in case of emergency. 

Ideally, we should be trusted as citizens to maintain our own medical 
database, much as we do our own credit card. Medical information could be 
backed up in an encrypted form at a private database company of choice. 
Doctors or hospitals could have access to this information with patient approval, 
or in case of an emergency. 

My amendment also provides for an analysis of database companies 
currently able to provide this service or convert easily and what the conversion 
time factor would be. Under the study, an estimated cost to individuals should 
they want their records maintained as well as the cost of a government program 
that would subsidize or cover these costs for individuals who cannot afford to 
maintain their records but wish to do so. An analysis of projected participation 
and the cost to the government is also included. 

Once again, I thank you, Mr. Chairman, and members of the Committee for 
the opportunity to testify. I ask for your consideration of the legislative initiatives 
I have presented here today. I would be more than happy to address any 
concerns or questions that you or members of the Committee may have. 



250 

Mr. Pallone. Congresswoman DeLauro. 

STATEMENT OF HON. ROSA L. DeLAURO, A REPRESENTATIVE 
IN CONGRESS FROM THE STATE OF CONNECTICUT 

Ms, DeLauro. Thank you. Thank you for the opportunity to be 
here today. I agree with the President that we need to pass in the 
Congress this year meaningful health care reform legislation, and 
that, in fact, that there should be the general principles, some 
which he has laid out, including guaranteed universal health care 
coverage, a comprehensive benefit package that includes preventive 
services that specifically addresses the needs of women and chil- 
dren, the chronically ill and disabled, that we have to assure qual- 
ity care, and we have to reduce the waste and fraud in the system 
which amounts to about some $80 billion a year. 

I also have three specific areas that I wanted to mentioned, and 
I will be brief. One major concern that I have is that health care 
reform should address the issue of mental health care. It is an im- 
portant issue, one that has been overlooked in health insurance for 
too long, in my view. 

The President's plan would improve mental health care coverage, 
but it doesn't go far enough. On the other hand, his plan is better 
than most that are out there in terms of a beginning effort at men- 
tal health coverage. I am fully aware that the expansion of the cov- 
erage services has some budgetary implications. I also believe that 
we can be penny-wise and pound foolish in continuing to give men- 
tal health treatment second class status. 

If you determine, if the committee determines that it is impos- 
sible to provide full coverage for all mental health services right 
away, I would encourage the subcommittee to consider taking one 
small additional step beyond the President's plan by providing full 
coverage for neurobiological disorders in the initial benefits pack- 
age. 

Insurance plans have discriminated against these disorders, 
which include Tourettes syndrome, autism, and obsessive compul- 
sive disorder, because they have been classified as mental health 
disorders. The recent advances in science document that many of 
the severe mental illnesses are actually physical illnesses; in fact, 
neurobiological disorders. 

I have introduced legislation, the Equitable Health Care for 
Neurobiological Disorders Act, which would ensure that health in- 
surance plans would have to provide equitable coverage for 
neurobiological disorders on a par with the manner in which they 
cover other physical diseases. 

Another issue about which I am concerned is graduate medical 
education. I represent a congressional district which is fortunate to 
have one of the finest academic health centers in the country, and 
a first rate health care professional community. However, I also 
represent an area which the Department of Health and Human 
Services says is a primary health care shortage area. 

We need to make sure that whatever approach to graduate medi- 
cal education we take in health care reform, that we wind up with 
the adequate number of primary care and specialist physicians in 
our underserved urban and rural areas, and that everyone has ac- 
cess to them. 



251 

I believe that we have to carefully consider what incentives we 
use to attract medical students into primary care practice, how we 
determine the number of specialists that we are going to need for 
the future, and how residency slots will be distributed and funded. 

The Federation of Pediatric Organizations representing the com- 
munity of practicing and academic pediatricians has developed a 
graduate medical education allocation and funding proposal, which 
you may wish to consider in the subcommittee's deliberations. The 
proposal calls for a creation of a National Health Care Work Force 
Commission, akin to the base closure type commission, that would 
determine the appropriate national number of allocation and allo- 
cation of residency slots. 

Funding derived from all health care payers would be allocated 
directly to the programs, regional or local, or given to medical stu- 
dents as proposed in the commonwealth fund Task Force on Aca- 
demic Health Centers. I submit the proposal from the Federation 
of Pediatric Organizations for your review as your deliberations go 
on. 

The final matter I would like to touch on has to do with an issue 
that is really of great concern to senior citizens in my State. It is 
a glitch in the Medicare reimbursement for paramedic services pro- 
vided on voluntary ambulance company ambulances. 

When Connecticut seniors call for an ambulance, they often are 
billed hundreds of dollars for paramedic services that Medicare will 
not cover. Medicare will cover paramedic services when a commer- 
cial ambulance answers the call for help, but not when a volunteer 
ambulance takes a senior to the hospital. 

A community-sponsored ambulance is often qualified to provide 
only the basic life support services, because they don't have highly 
trained paramedics that can perform the advanced life support 
services. So because the paramedic services are performed aboard 
the basic life support ambulance, neither the volunteer ambulance 
services nor the paramedic can bill Medicare for reimbursement. 
Unless the technicality in the Medicare law is changed, voluntary 
ambulance services may F.oon disappear and, quite frankly, for the 
small community, the small places that are in my district, we are 
really going to see lives endangered. 

Again, I have introduced legislation that would allow for these 
intercept paramedics that provide the emergency life support 
aboard these nonprofit ambulances to apply directly to Medicare for 
reimbursement. They would be covered at the same rate under 
Part B of the Medicare Program that they would be as part of the 
commercial ambulance services. So I would ask you to take a look 
at that in your deliberations, and if you will give serious consider- 
ation to rectifying this in terms of health care reform legislation. 

I thank you for the opportunity to be here today. I guess I am 
the last witness, so I guess we can go home or go to vote, and I 
really do appreciate the long hours that you have spent today at 
all of this. Thank you very, very much. 

[The prepared statement of Ms. DeLauro follows:] 



252 
Statement of the Hon. Rosa L. DeLauro 

Mr. Chairman. I want to thank you, Rep. Bliley, and all of the 
Members of the Subcommittee for allowing me the opportunity to 
testify before you today about health care reform. I know how 
hard you have all worked over the past several months and how 
difficult your job over the next several weeks will be, so I 
deeply appreciate your arranging this afternoon's hearing so that 
my colleagues and I can share our concerns with you. 

Mr. Chairman, The President's State of the Union address 
crystallized the debate between those who believe we have a major 
health care problem and those who believe things are just fine. 
The President clearly and forcefully restated the case for reform 
and I firmly agree with his call for the Congress to pass 
meaningful health care reform legislation this year. Those who 
don't believe there's a health care crisis have not been talking 
to the people I see in my district every week. I do not want to 
hold any more office hours in my home town where hour after hour 
people tell me heart-breaking stories about their need for health 
insurance. We must make sure that no American, ever, will lose 
his or her health care because they change jobs or get sick. We 
must also make sure that if you are fortunate* Enough to survive a 
serious illness that, subsequently, you cannot be denied health 
care coverage. If we fail to boldly address these shortcomings 
in our current system, we will have squandered a tremendous 
opportunity. 



253 



I believe the final product should reflect the President's health 
care bill's principles, including: guaranteed universal health 
care coverage; a comprehensive benefits package that includes 
preventive services and addresses the special needs of women, 
children, the chronically ill and disabled; assuring high quality- 
care; and reducing waste, fraud and abuse to keep costs down. We 
must devote the resources necessary to aggressively go after 
those who commit fraud now, roughly $80 billion dollars worth, 
and build in safeguards against the potential for new ways our 
system may be abused. 

In addition to these general principles, there are a few specific 
concerns I wish to discuss with you today. One major concern I 
have is that health care reform should address mental health 
care, an important and too long overlooked element of health 
insurance. The President's plan would improve mental health care 
coverage, but it does not go far enough. On the other hand, his 
plan is better than most of the competing proposals. While I am 
fully aware that any expansion of covered services has budgetary 
implications, I also believe we can be penny wise and pound 
foolish in continuing to give mental health treatment second 
class status. In fact, according to the National Institutes of 
Mental Health, equitable insurance coverage for severe mental 
disorders would yield $2.2 billion annually in net health care 
savings through decreased use of general medical services and 
decreased social costs. 



254 



If you determine it is not possible to provide full coverage for 
all mental health services right away, I would encourage your 
Subcommittee to consider taking one small additional step beyond 
the President's plan by providing full coverage for 
neurobiological disorders in the initial benefits package. In 
the same manner in which they have limited coverage for all 
mental health problems, insurance plans have discriminated 
against these disorders, which include Tourette's disorder, 
autism, and obsessive -compulsive disorder, because they have been 
classified as "mental health" disorders. However, recent 
advances in science document that many severe "mental" illnesses 
are actually physical illnesses -- neurobiological disorders -- 
that are characterized by significant neuroanatomical and 
neurochemical abnormalities. Legislation I introduced, the 
Equitable Health Care for Neurobiological Disorders Act, would 
ensure that health insurance plans would have to provide 
equitable coverage for neurobiological disorders on a par with 
the manner in which they cover other "physical" diseases. 

Another issue about which I am greatly concerned is graduate 
medical education. I represent a Congressional District which is 
fortunate to have one of the finest academic health centers in 
the country and a first-rate health care professional community. 
However, I also represent an area which the Department of Health 
and Human Services says is a primary health care shortage area. 
We must make sure that whatever approach to graduate medical 
education we take in health care reform, we wind up with adequate 



255 



numbers of primary care and specialist physicians in our 
underserved urban and rural areas, and that everyone has proper 
access to them. 

The President's proposal calls for a dramatic increase in the 
number of primary care physicians we train versus specialists. 
While there seems to be a consensus that we need to move in that 
direction, there is a lot of concern about how we achieve the 
proper physician mix. I believe we must carefully consider what 
incentives we use to attract medical students into primary care 
practice, how we determine the number of specialists we will need 
in the future, and how residency slots will be distributed and 
funded. The Federation of Pediatric Organizations, representing 
the community of practicing and academic pediatricians, has 
developed a graduate medical education allocation and funding 
proposal you may wish to consider in your Subcommittee's 
deliberations on this matter. In short, this proposal calls for 
the creation of a National Health Care Workforce Commission that 
would determine the appropriate national number and allocation of 
residency slots. Funding, derived from all health payers, would 
be allocated directly to programs, regional or local consortia, 
or given to medical students as proposed in a Commonwealth Fund 
task force report on academic health centers. With your 
permission, I would like to s\ibmit for your review and for the 
record, copies of this proposal and the Commonwealth Fund report. 



256 



The final matter I'd like to touch upon has to do with an issue 
that is of great concern to senior citizens in my state --a 
glitch in Medicare reimbursement for paramedics' services 
provided on voluntary ambulance company ambulances . 

When Connecticut seniors call for an ambulance, they often end up 
stuck with an enormous medical bill they cannot afford to pay. 
They are billed hundreds of dollars for paramedic services that 
Medicare will not cover. Medicare will cover paraimedic services 
when a commercial sunbulance answers the call for help, but not 
when a volunteer ambulance takes a senior to the hospital. The 
result is seniors who are scared to call 911, and towns that 
cannot afford to continue providing volunteer ambulance services 
to their communities. 

Community- sponsored ambulances often qualify to provide only 
Basic Life Support (BLS) services, because they don't have the 
highly- trained paramedics necessary to perform Advanced Life 
Support (ALS) . When necessary, community BLS cimbulances borrow 
paramedics from commercial ALS ambulances. Because the paramedic 
services are performed aboard a BLS ambulance, neither the 
volunteer ambulance services nor the paramedic can bill Medicare 
for reimbursement. Unless this technicality in Medicare law is 
changed, volunteer ambulance services may soon disappear, and 
lives could be endangered. If communities give up their 
volunteer ambulances, they will be forced to rely on commercial 
ambulance seirvices that often must travel longer distances to 



257 



pick up patients, wasting precious minutes that can mean the 
difference between a senior's life and death. 

I have introduced legislation that would allow "intercept" 
paramedics providing emergency life- support aboard non-profit 
cimbulances, to apply directly for Medicare reimbursement. These 
intercept paramedics would be covered at the same rate, under 
part B of the Medicare program, that they would as a part of a 
commercial ambulance service. Intercept service will only be 
billable to Medicare if transportation services are provided by a 
town- sponsored non- commercial ambulance corp. The paramedic 
providing these services must meet the same qualifications 
Medicare currently requires for paramedics as part of full ALS 
services. I would ask that you give serious consideration to 
rectifying this situation as you deliberate health care reform 
legislation. 

Again, I want to thank you all very much for providing me with 
this opportunity to testify today. You have a tremendous and 
important task ahead of you, and I look forward to working with 
you in any way you deem appropriate . 



258 

Mr. Pallone. Thank you, Rosa, and thank all of you. 

Let me just say, I noticed a number of you mentioned primary 
care and the fact that the President's proposal relies so much on 
the existence of primary care physicians, providers, and how that 
is linked to the whole issue of medical education. And it is a real 
problem. I mean we 

I think all of us realize, and I certainly do, just talking to some 
of the physicians and hospital administrators that have come to see 
me, that it is nice to talk about how we are going to emphasize pri- 
mary care and create incentives for it, but right now when you talk 
about medical education, most doctors who are in training, you 
know, are not primary care, and they are not really interested in 
it. Or at least a lot aren't. So I don't know. 

It is a problem figuring out how we are going to deal with that 
and how we are going to get some more people into primary care, 
not only physicians but other health care professionals as well. So, 
I don't know. Congressman Hall, did you have anything you want- 
ed to 

Mr. Hall. Well, nothing, except I think there have been very 
good presentations and I think with the presentation that some- 
times we need the facts on the cost and what your proposal saves 
and what it does for us. That is going to be very important to the 
First Lady because she is looking for money right, left, and side- 
ways now to fund the health plan that she is proposing, and I 
think it would be helpful to her, too. 

And I would say to Mr. Traficant, on your card bill, would that 
have a picture on it also? 

Mr. Traficant. It doesn't call for it, it just creates the card, and 
that would be up to the Congress. And it certainly would probably 
make sense to have it. With all the magnetic technology they have 
now, that could also be incorporated into it. 

Mr. Hall. Looks like it would help them, not a card that some- 
one could use against them, but could use in their behalf to even 
cash checks and things like that. It would be very helpful. And on 
your myelographic — are you outlawing any type of myelographic 
study? 

Mr. Traficant. No, no, we are not, but we are banning those 
that leave a residue that produces those problems. And the medical 
community is saying it does cost more to have the magnetic reso- 
nance imaging, but they are much safer and they are beginning to 
bring the cost down on these MRI's and they are suggesting that 
be a far greater technology and the use of these dyes is leaving peo- 
ple chronically dysfunctional for the remainder of their life and 
being wards of social security and the government. That is one of 
the findings on that case dealing with myelograms. 

Mr. Hall. Of course, everyone hopes that they can — no one 
wants to have a myelographic study done. I don't know if you have 
ever seen one. 

Mr. Traficant. No. 

Mr. Hall. I used to practice personal injury law, and I always 
had my doctor testify they were total and permanent, and their in- 
surance company doctor would testify, if they had a leg off it would 
grow back, you know. And they all wanted a myelographic study. 
And if you spring that — if you bring that hook in there that they 



259 

use for myelographic study, it always had the impression on the 
jury that it would have had on me. It was a frightful looking thing 
and people have died undergoing myelographic studies. 

If there is a way around them, I think you are doing a great 
service to probe this and to give them an alternative. MRI certainly 
should be an alternative. And just as the television sets which were 
this big around with sets that wide, technology is going to overtake 
us and help us in the fields that you have laid out there. Of course, 
Mr. Coleman knows I am for his bill. 

I say, Ron, that your type legislation is the very type legislation 
that your folks sent you here to do and I know you well enough 
to know it is right down your line, that you really believe it, you 
really feel it. I live inland from the border, from the 2,000 mile Rio 
Grande border, but we have many Mexicans that step across that 
river that come up into our area looking for work and looking for 
help. And they work and they give you a hard day's work, and be- 
cause they are family-oriented, because they care about their fami- 
lies, they send 90 percent of that money back to take care of their 
own. They are pretty good people. I think your bill is certainly on 
track. 

Mr. Coleman. Well, appreciate your cosponsorship, Mr. Hall. Let 
me just say to everyone here, that — two things. First of all, that 
that is the point also about border health issues. When we talk 
about them, everybody needs to know, the problem isn't sta5dng on 
the border. We have a program whereby migrant workers work all 
over the United States. They are in Mr. Traficant's district and Ms. 
DeLauro's district, and yours, Mr. Chairman, mine, everjrwhere. 
And if, in fact, we don't believe that we have a common problem, 
then we don't understand the problem. That is my real view. 

In fact, when I introduced the legislation, Ralph, Mr. Hall, one 
of the things I did was, of course, I also shared it with some of our 
counterparts in Mexico, to see what their review of a U.S. -Mexico 
Commission would be. As you know, we already have a Inter- 
national Boundary and Water Commission where we meet on a 
regular basis to deal with, again, problems on the river and the 
way it flows, the taking of water from the Rio Grande. We do all 
of those things on a regular basis. It is nothing new. 

In fact, the response was communicated to me shortly after the 
introduction of the legislation by the ambassador to the United 
States from Mexico, who called me to his office and told me that 
the response from Mexico is very positive. Because I had also in my 
letter suggested, when my legislation suggested and I wanted to 
raise the issue because you did, Ralph, about how we pay for 
things, a part of this commission idea was, of course, that we can 
share some of these costs together with Mexico and the United 
States for the care of patients in each other's country. 

As you may know, many of my constituents, and I am sure some 
of yours that you may not even know about, shop for drugs, for ex- 
ample, prescription drugs, in Mexico. They are cheaper. Get the 
same drug, it may be under a different name, but you will get the 
same drug and they are cheaper. We are utilizing Mexico's facilities 
for our own health care. 

A lot of people may not believe that or may not know that too 
much, but we are doing a lot of it, not just in that field, but in oth- 



260 

ers. I would suggest to you that we have some common problems, 
some common things that we need to do. And you and I know, 
Ralph, that many — we found that if we can get women to come for 
the kinds of radiological tests that are needed for breast and cer- 
vical cancer and other things, we get many of the women, they 
bring their children and we are able to immunize them simulta- 
neously. We are doing a lot of things. And this is from an old house 
trailer right there in my county. I fought like crazy with HHS just 
to give us some help to get the house trailer. We didn't succeed, 
so we did it locally. 

Those are the kinds of things, that is what we have got to under- 
stand is in an overall, and believe me, you know, I am a strong 
supporter of this idea of universal health care coverage. There is 
no question from my district where we need to be on this kind of 
an issue. I have got so many people that just do not have health 
care and don't have the coverage and many literally have a hard 
time even accessing it. 

Everybody says, well, everybody gets it, some in the most expen- 
sive way. Let me just tell you, even because of the wide expanses 
out in west Texas, many people are not getting the health care 
they ought to get and they will ignore it. As you know, if you ignore 
something that is a problem, you will pay for it again later. We 
will, at a greater, much higher cost. 

So I compliment the administration first and foremost for staying 
with their guns and drawing the line in the sand where they have 
done it. We need to have universal health care coverage, at least 
from the perspective of my district. Thank you very much, Mr. 
Chairman. 

Mr. Pallone. OK. 

Mr. Hall. Mr. Chairman, could I ask one other question of Ms. 
DeLauro? 

Does your proposal address both psychiatry and the psychologist? 

Ms. DeLauro. It addresses this whole issue of neurobiological 
disorders, and I wanted to make the point to you because you 
asked what is a very, very relevant question on the cost. And all 
of this is related to cost. 

The whole purpose, in my view of health care reform, is to try 
to do something about cost. And the National Institutes of Health 
have done the study that says equitable insurance coverage for 
these severe mental disorders, and these Tourettes, autism, obses- 
sive compulsive disorder, schizophrenia, it would yield a $2.2 bil- 
lion annually net health care savings. 

It costs us now somewhere around $8.7 billion to care for people 
who have these disorders. And this would — the coverage, insurance 
coverage, would be about $6.5 billion. So we would save money in 
effect. 

Mr. Hall. You have got a savings there? I will accentuate, it is 
important. 

Ms. DeLauro. Now, clearly, there is a debate within the medical 
community about what are neurological disorders, and other kinds 
of mental illnesses. Because these are regarded as physical ill- 
nesses, there is a higher rate of success in treating some of these 
disorders than there is with heart trouble or cancer. We have done 
so much scientifically in these areas except that these folks are 



261 

then dealing with the stigma of a mental disorder and get no relief 
on the health insurance side. It really is unfair. 

Mr. Hall. I thank you for that and I thank you all. You make 
your next presentation. Mr. Regula, you always do such a good job, 
I can't think of anything to ask you. 

Mr. Pallone. Thank you to all the panelists. This concludes the 
hearing. 

[Whereupon, at 4:17 p.m., the subcommittee was adjourned, to 
reconvene at the call of the Chair.] 

[The following statements and letters were submitted:] 



262 



STATEMENT OF THE HONORABLE BARBARA VUCANOVICH 
BEFORE THE SUBCOMMITTEE ON HEALTH AND THE ENVIRONMENT 

FEBRUARY 2, 19 94 



MR. CHAIRMAN, I APPRECIATE THIS OPPORTUNITY TO COME BEFORE THIS 
SUBCOMMITTEE ON THE ISSUE OF HEALTH CARE REFORM. THEY SAY IF YOU 
EAT AN APPLE A DAY YOU CAN KEEP THE DOCTOR AWAY. BUT HOW CAN WE 
KEEP CONGRESS AWAY FROM DESTROYING OUR HEALTH CARE SYSTEM WHICH 
DOES HAVE ITS PROBLEMS, BUT HAS BEEN ABLE TO PROVIDE MILLIONS OF 
AMERICANS WITH THE HIGHEST QUALITY HEALTH CARE IN THE WORLD? THE 
ANSWER IS SIMPLE: LISTEN TO THOSE AMERICANS WHO PUT US IN 
OFFICE. I HAVE LISTENED TO THE PEOPLE IN NEVADA WHO HAVE WRITTEN 
TO ME OR ATTENDED ONE OF MY MANY HEALTH CARE' FORUMS LAST YEAR, 
AND THEY DO NOT WANT OUR GOVERNMENT INVOLVED IN THEIR HEALTH CARE 
SYSTEM . 

YET THE CLINTON ADMINISTRATION IS WILLING TO TAKE OUR CITIZENS' 
FREEDOM AWAY BY DETERMINING WHAT TYPE OF HEALTH CARE IS NEEDED 
AND WHO WILL PAY FOR IT. OUR WHOLE NATION WILL BE PAYING FOR IT 
- I SAY THIS BOTH LITERALLY AND FIGURATIVELY. 

SMALL BUSINESSES IN NEVADA AND THROUGHOUT THE NATION FEAR THE 
CLINTON PLAN. AT A TIME WHEN WE SHOULD ENCOURAGE ENTREPRENEURS, 
THE CLINTON PROPOSAL DISCOURAGES THEM BY REQUIRING THAT BUSINESS 
FUND OUR HEALTH CARE SYSTEM. WITH OR WITHOUT A SUBSIDY, SMALL 
BUSINESSES WILL BE FORCED TO PAY AN EMPLOYER BASED MANDATE --IN 
OTHER WORDS, A PAYROLL TAX. WHEN ASKED ABOUT HOW THEY WOULD BE 
AFFECTED BY A 3.5% INCREASE IN PAYROLL COST IN A AUTUMN GALLUP 
POLL, ONE THIRD OF BUSINESS OWNERS 'RESPONDED THAT THEY WOULD LET 
EMPLOYEES GO AND NEARLY ONE HALF SAID THEY WOULD BE FORCED TO 
RAISE PRICES ON THEIR PRODUCTS OR SERVICES. HOW CAN WE EVEN 
SPEAK ABOUT HEALTH SECURITY, WHEN IT WILL COME AT THE EXPENSE OF 
JOB SECURITY? 

ALREADY, NEVADANS ARE FEELING THE EFFECTS OF THE CLINTON 
PROPOSAL. I HAVE HEARD THAT ONE BUSINESSMAN IN RENO, NEVADA HAS 
EVEN DECIDED TO HOLD BACK ON PLANS FOR EXPANSION, FEARFUL THAT A 
PROMISING BUSINESS WILL GO DOWN THE DRAIN IF HE IS REQUIRED TO 
MEET THESE NEW FINANCIAL REQUIREMENTS. 

BUSINESSES ARE NOT THE ONLY ONES WHO ARE ALREADY FEELING THE 
EFFECTS OF CHANGES PROPOSED UNDER THE CLINTON ADMINISTRATION. 
WOMEN, TOO, ARE SEEING CHANGES IN THEIR HEALTH CARE. THIS YEAR, 
THE NATIONAL CANCER INSTITUTE CHANGED ITS RECOMMENDATIONS ON THE 
NEED FOR MAMMOGRAPHY FOR WOMEN. AT ALMOST THE SAME TIME, THE 
CLINTON ADMINISTRATION OFFERED ITS HEALTH CARE PROPOSAL, LIMITING 
ACCESS TO MAMMOGRAPHY SERVICES TO ONCE EVERY TWO YEARS. ALREADY, 
WE HAVE SEEN SOME INSURANCE COMPANIES PULLING BACK MAMMOGRAPHY 
COVERAGE. SUFFERING THE MOST FROM THESE CHANGES ARE WOMEN OF 
POORER MEANS, WHO ALREADY FIND DIFFICULTY IN ACCESSING QUALITY 
HEALTH CARE, LET ALONE PREVENTATIVE CARE. 

THE CLINTON ADMINISTRATION CLAIMS TO IMPROVE THE QUALITY OF CARE 



263 



FOR WOMEN, YET MAMMOGRAPHY SERVICES ARE LIMITED TO ONCE EVERY TWO 
YEARS FOR WOMEN 50 YEARS OF AGE OR OLDER. THIS IS QUITE BAFFLING 
TO ME SINCE THE NATIONAL CANCER INSTITUTE AND THE AMERICAN CANCER 
SOCIETY RECOMMEND AN ANNUAL MAMMOGRAM FOR WOMEN OF THAT AGE 
GROUP. IF ANYTHING, THESE SERVICES NEED TO BE INCREASED. THAT 
IS WHY I HAVE INTRODUCED LEGISLATION TO INCREASE MEDICARE 
COVERAGE OF MAMMOGRAPHY TO ONCE A YEAR FOR WOMEN AGED 6 5 AND 
OLDER. I THINK THIS IS SOMETHING THAT CONGRESS CAN AGREE UPON 
SINCE 160 COSPONSORS, BOTH DEMOCRATS AND REPUBLICANS ALIKE, ARE 
ON THE BILL. IF WE ARE TO REFORM HEALTH CARE TO IMPROVE THE 
HEALTH FOR WOMEN AND MEN ALIKE, AND IMPROVE THE ACCESSIBILITY OF 
HEALTH CARE TO INDIVIDUALS, THESE SERVICES SHOULD BE PROVIDED AT 
A FREQUENCY WHICH WILL ACTUALLY HELP THE INDIVIDUAL. TWO YEARS 
IS A LONG TIME IN WHICH A TUMOR CAN GROW AND KILL.. 

LASTLY, BUT OF NO LESS SIGNIFICANCE IS HOW THE CLINTON HEALTH 
CARE PLAN WILL AFFECT RURAL COMMUNITIES. I REPRESENT A STATE 
WHOSE RURAL POPULATION MAKES UP 17% OF THE STATE AND 87% OF THE 
LAND MASS AREA. THE LARGE PERCENTAGE OF MEDICARE AND MEDICAID 
POPULATIONS WHO RESIDE IN RURAL COMMUNITIES WILL BE SEVERELY 
IMPACTED BY CUTS TO THE MEDICAID PROGRAM IN A DISPROPORTIONATE 
WAY. I AM CONCERNED, ALSO ABOUT HOW THE FORMATION OF REGIONAL 
HEALTH ALLIANCES WILL AFFECT THE RURAL POPULATIONS. WHILE SOME 
HAVE PROPOSED THE DESIGNATION OF HEALTH PROFESSIONS SHORTAGE 
AREAS, THIS HAS NOT ADDRESSED THE FACT THAT ONE PHYSICIAN WILL 
LIKELY BE THE SOLE PROVIDER FOR A VERY LARGE AREA. WITHOUT AN 
INCREASE IN PROVIDERS, HEALTH CARE WILL NOT IMPROVE FOR RURAL 
COMMUNITIES. 

RURAL AREAS MUST BE CONSIDERED ON THEIR OWN MERITS. URBAN HEALTH 
POLICIES CANNOT BE RETROFITTED TO .INCLUDE RURAL POPULATIONS. IT 
JUST WON'T WORK. RURAL POPULATIONS HAVE SPECIAL NEEDS AND 
DESERVE THE SAME QUALITY AND ACCESS TO CARE AS URBAN POPULATIONS. 
THE ADMINISTRATION'S ATTEMPT TO SECURE HEALTH CARE FOR THESE' 
PEOPLE IS ADMIRABLE BUT FALLS SHORT OF WHAT IS NEEDED. I 
ENCOURAGE THIS SUBCOMMITTEE TO WORK WITH THE HOUSE RURAL HEALTH 
CARE COALITION AND TO VlSI't RURAL STATES, LIKE NEVADA, TO 
DETERMINE HOW CONGRESS CAN BEST MEET THE SPECIAL NEEDS OF OUR 
RURAL CITIZENS. 

MR. CHAIRMAN, THERE ARE SO MANY CONCERNS I HAVE ABOUT THE CLINTON 
PLAN. I AM PLEASED THAT THE SUBCOMMITTEE IS HOLDING THESE 
HEARINGS TO LISTEN TO MY CONCERNS, AND THOSE OF MY COLLEAGUES, 
PERTAINING TO THE CLINTON PLAN AND HOPE THAT CONGRESS WILL 
PROCEED CAUTIOUSLY. .HASTE MAKES WASTE -- LET'S NOT WASTE THE 
QUALITY HEALTH CARE OUR WHOLE NATION HAS COME TO ENJOY AND TO 
EXPECT. 

THANK YOU MR. CHAIRMAN. 



264 



Jhe 

TJmvemty 

Center for Health Policy Research 



February 2, 1994 



The Honorable Henry A. Waxman 

Chainnan, Subcommittee on Health and the Environment 

Committee on Energy and Commerce 

U.S. House of Representatives 

2408 Raybum House Office Building 

Washington, D.C. 20515 

Dear Chainnan Waxman: 

We wish to submit for inclusion in the Subcommittee's national health reform hearing 
record today preliminary information from a study we are preparing for the Henry J. Kaiser 
Commission on the Future of Medicaid and The Commonwealth Fund. This study will 
assess the degree to which various national health reform proposals now under Congressional 
consideration assure low and moderate income working families financial assistance in paying 
for private health insurance. 

The three measures we have analyzed are H.R. 3600 (the Health Security Act); H.R. 
3222 (The Managed Competition Act); and H.R. 3704 (The Health Equity and Access 
Reform Today Act). We have selected these three measures because of their similarities sind 
differences. On one hand, all three bills incorporate a premium-based approach to health 
coverage and seek to achieve universal health coverage by expanding access to affordable 
private, group purchased health insurance. On the other hand, the bills take highly different 
approaches to financing coverage for working Americans. These differences yield 
dramatically different results for working families. Indeed, our results suggest that neither 
H.R. 3222 nor H.R. 3704 may significantly reduce the number of uninsured workers and 
their families. This is because, even after full implementation of either bill, coverage still 
would be unaffordable for millions of working families with modest incomes. 



2021 K Street, N.W., Suite soo • Washington, DC 20052 • (202) 296-6922 • Fax (202) 785-0114 



265 



1. Relative levels of premium assistance 

Table 1 shows the level of premium assistance provided to low and moderate income 
working families under the three measures. We have calculated the premium assistance 
impact of each bill, using a family of 3 headed by a full-time worker, 1993 federal poverty 
level data, and a group health plan premium whose 1993 dollar price would be considered 
average by HCFA.' 

H.R. 3600 : In the case of H.R. 3600, employers bear 80 percent of the premium cost 
for full-time workers and their families, leaving low and moderate income workers with out- 
of-pocket premium costs that amount to no more than 3.9 percent of their taxable income. 

In the case of H.R. 3704 and H.R. 3222, however, the family's potential premium 
burden is far greater. This is because the only assured premium subsidy comes from the 
public subsidy system specified under each bill and because neither subsidy system appears to 
be adequate to assure affordabUity. 

H.R. 3704 : Under H.R. 3704, individuals receive vouchers to buy insurance through 
purchasing groups. Voucher assistance begins for individuals with incomes at or below 90 
percent of the f^eral poverty level and expands annually up to 240 percent of the poverty 
line by the year 2005. In that year, a family of 3 with taxable income amounting to 180 
percent of the federal poverty level ($21,400 in 1993 dollars) would have to pay more than 
$2100 in premium costs alone for health coverage. This amounts to 10 percent of the 
family's annual taxable income. A family with taxable income amounting to 250 percent of 
the federal poverty level would have health insurance premium costs of over $3700. This 
premium burden amounts to 12.5 percent of the family's annual taxable income. This 
finding is significant, since economists have suggested that a family's maximum out-of- 
pocket liability for all health costs — premiums, deductibles, coinsurance and uncovered 
health expenses - should not exceed 10 percent of wages. 

H.R. 3222 : H.R. 3222 shows even more dramatic results. Under the bill, subsidies 
are available to low and moderate income families with taxable incomes up to only 200 
percent of the poverty level. ^ Moreover, unlike H.R. 3600, the premium financing system 
in H.R. 3222 does not assume a premium payment structure for low and moderate income 
workers equal to the price of at least the average cost plan. Instead, health plans would be 
required to absorb a significant portion of the premium cost through a sizable discounting 



In the case of H.R. 3222, two additional assumptions unique to their bill were necessary in order to conduct the analysis. 
First, the national subsidy percentage was projected to be 90 percent. 'Secondly, the reference premium rate was presumed to be equal to 
the average premium amount. In both cases, we attempted to make the most favorable assumptions in order to display the maximum 
potential impact of the measure. 

The measure would also revise the federal poverty level to nuke it state-specific. For the sake of simplicity here, we have used 
the current federal poverty level stnicture. 



266 



system. In our opinion this discounting arrangement would seriously limit the willingness of 
health plans to market to low and moderate income workers. 

The financial impact of H.R. 3222 on workers can be seen on Table 1. Under the 
measure, a family with taxable income no greater than twice the federal poverty level 
($23,780 for a family of 3 in 1993 dollars) would be guaranteed no discount or subsidy and 
would pay $3,709 for health coverage. This premium burden amounts to 15.6 percent of the 
family's annual income. A family with taxable income as low as 150 percent of the federal 
poverty level would still be required to pay annual premiums amounting to more than 10 
percent of annual taxable income. 



2. The impact of declining premium assistance for workers moving out of poverty 

Table 2 shows the "cliffs" that occur for low income working families as they move 
out of poverty and the already limited subsidies provided under H.R. 3600, H.R. 3704 and 
H.R. 3222 as they are phased out. These calculations are of particular importance, because 
they show the impact of insufficiently financed premium subsidies on the overall well-being 
of low and moderate income workers as they attempt to better their financial situation.. 

In the case of a worker whose earnings increased from 100 percent to 150 percent of 
poverty, under H.R. 3600 the worker's annual premium liability would increase by $339, 
while her wages would grow by $5,945. Thus the "price" of her salary increase amounts to 
only 5.7 percent of her additional earnings. Under H.R. 3704, however, the worker would 
lose more than 22 percent of her additional earnings to higher health insurance premiums. 
Under H.R. 3222, the "price" of moving out of poverty would be over 31 percent of her 
additional earnings. Put another way, under H.R. 3222, for each additional dollar our 
hypothetical worker earns, more than 30 cents are lost immediately to higher health 
insurance premiums. These cliffs, when combined with the relatively high cost of coverage 
for near-poor and moderate income workers, act as a powerful work disincentive. More 
importantly, perhaps, they would deprive families with modest incomes of they funds they 
need to meet other basic necessities of life.' 

In the end, the most important question Congress must confront is which plan does 
the most for those families who constitute the bulk of uninsured Americans today - full-time 
workers earning low or modest incomes and their families. These tables suggest that unless 
direct public subsidies are financed at far higher levels than those contemplated under either 
H.R. 3704 or H.R. 3222, legislation to aid the uninsured may provide little meaningful help 
to the working uninsured. Even for a family earning the median income (approximately 

$30,000) the cost of health insurance under either bill would exceed 10 percent of its annual 
income and would be virtually unaffordable in the absence of an assured subsidy. 

We thank you for including this information in the hearing record. 

Sincerely, 

Sara Rosenbaum, J.D. Julie Darnell, M.H.S.A. 

Senior Research Staff Scientist Research Associate 



I 



We should also note thai the cliff would be even greater were we to factor in the added lost of the eamtd 
which would take place as her wages increased. 



267 




268 




HEALTH CARE REFORM 
Long-Term Care and Quality Assurance 



THURSDAY, FEBRUARY 3, 1994 

House of Representatives, 
Committee on Energy and Commerce, 
Subcommittee on Health and the Environment, 

Washington, DC. 

The subcommittee met, pursuant to notice, at 10:12 a.m., in room 
2123, Raybum House Office Building, Hon. Henry A. Waxman 
(chairman) presiding. 

Mr. Waxman. The meeting of the subcommittee will come to 
order. 

Today, we continue our review of President Clinton's Health Se- 
curity Act with a focus on two important issues: long-term care and 
quality assurance. If you ask Americans the best way to live out 
their last days, most would say they would like to do it quietly at 
home. If you ask them the worst way to spend the rest of their 
lives, they would say years of bankruptcy and loneliness in a nurs- 
ing home. 

For those who share these worries and fears, America's elderly 
and disabled, these problems have become real health care catas- 
trophes, for their family members as well, many of whom must now 
leave jobs and forego retirement savings to provide care for their 
loved ones. These catastrophes are very much part of the Nation's 
health care crisis. 

For these millions of Americans, there is no true health reform 
without long-term care reform. There can be no comprehensive 
health care without home care and nursing home care. There can 
be no complete health financing plan without a plan to pay for dis- 
ability and chronic diseases. 

The Clinton health reform plan takes important steps in this di- 
rection. It makes access to home- and community-based services for 
people of all ages a top priority. It includes only modest improve- 
ments in nursing home services, but does begin to focus on the 
need for real health reform in this area, and as we discussed in a 
previous hearing, the President's program establishes real 
consumer protections for those who wish to finance their long-term 
care needs through the purchase of private insurance. 

The President's bill also offers a new approach to quality assur- 
ance, a performance-based program based on monitoring health 
care outcomes, consumer surveys and public disclosure of health 
plan performance. The bill also calls for a stepped up research ef- 

(269) 



270 

fort on quality assurance and an expanded program for the devel- 
opment of clinical practice guidelines. 

All of us want to assure that the quality of care under health re- 
form meets the highest standards, especially as more and more 
people choose to enroll in managed care plans. We certainly need 
to have explicit quality standards in place and the capacity to mon- 
itor health plans. Too often in the past the failure to hold providers 
and plans accountable for their performance has put patients at 
great risk. There is no substitute for vigorous oversight by States 
and the Federal Government as we make such sweeping changes 
in the health system. 

Before calling on our first witnesses, I want to recognize mem- 
bers of the subcommittee for opening statements. I would like, first 
of all, to ask unanimous consent that all members have an oppor- 
tunity to insert an opening statement in the record at this point, 
and I want to recognize Mr. Greenwood first. 

Mr, Greenwood. Thank you, Mr. Chairman. I don't have an 
opening statement per se. I would simply like to welcome Orien 
Reid, who is a friend and neighbor from the Philadelphia region. 
She is a member of the national board for the Alzheimer's associa- 
tion. We are very much looking forward to her testimony which 
comes straight from the heart and from her personal experience. I 
would like to welcome you, Orien. 

Mr. Waxman. Thank you, Mr. Greenwood. 

Mr. Wyden. 

Mr. Wyden. Thank you, Mr. Chairman. I want to commend you 
and our staff. I think this is a very important hearing and you all 
have been leading this fight for a long time. With respect to long- 
term care, I think we know that one of the great tragedies in this 
country is that literally millions of older people scrimp and save all 
their lives and try to plan for their retirement and then they or 
their spouse is faced with long-term care costs and they are lit- 
erally wiped out. 

What is important about the Clinton long-term care initiative, 
the initiative proposed in his bill, is they are the beginning of a 
long-term care policy for our country. They are the first steps. They 
go to the heart of what a long-term care ought to be, which is to 
make sure that the older people and disabled people have the op- 
tion for services in their home, and it seems to me in the fight to 
develop a long-term care policy for our country, the Clinton legisla- 
tion is a good start, and I hope my colleagues will support it. 

With respect to quality, Mr. Chairman, I want to thank you and 
your staff in particular for having worked with me for a number 
of months because I intend in the committee to offer an alternative 
approach to the Clinton legislation in the quality area. 

It seems to me that quality and quality issues have gotten short 
shrift in the debate about health care in our country. The vast ma- 
jority of attention has been paid to the question of cost. It seems 
to me that if you really want to hold down cost, you better take 
steps to enhance quality, because if the health system has to come 
back after their botched surgeries, for example, or misdiagnoses, 
costs are going to go up and people in this country will suffer. So 
I intend in committee to offer an alternative approach in the qual- 



271 

ity area that will bring a more activist approach to dealing with 
quality. 

It seems to me that the Clinton bill, again, is a good start but 
it consists mostly of monitoring quality on paper, reviewing a great 
deal of paper and forms and the like. What I would like to do is 
take a more activist approach and when there is evidence of a pro- 
vider who is not delivering good quality care, what we want is for 
officials in the health system to bring that to the attention of plans 
and providers, sit down with them, go over the problem, look at a 
remedial plan, and try to deal with it in a much more activist way. 

Mr. Chairman, you and your staff have been very helpful in 
terms of working with us on this. I look forward to this important 
hearing. 

Mr. Waxman. Thank you very much, Mr. Wyden. 

I am now pleased to recognize the distinguished ranking repub- 
lican member of the subcommittee, Mr. Bliley. 

Mr. Bliley. Thank you, Mr. Chairman. 

The central focus of the administration's long-term care benefit 
is a new home- and community-based services capped entitlement. 
The programs' eligibility is based on an individual's level of cog- 
nitive and functional disability. This benefit would provide a broad 
array of services to disabled individuals of all ages. Overall, I ap- 
plaud the administration's focus on providing services to disabled 
persons in a home- and community-based setting. We are aware of 
the financial costs of placing individuals in skilled nursing facilities 
and other custodial places. More important than cost, however, is 
that a home- and community-based approach gives the elderly and 
disabled a long-term care benefit which helps maintain their at- 
tachments to family and community while preserving their inde- 
pendence and dignity. 

With that said, let me now offer some more critical observations. 
First, I would like the administration to explain to this committee 
the following contradiction in their long-term care initiatives: On 
the one hand, the centerpiece of the Health Security Act is the 
home- and community-based benefit for the disabled. On the other 
hand, it was not more than 6 months ago during budget reconcili- 
ation that the administration led the charge to repeal the Medicaid 
mandatory home- and community-based benefit. Of course, this 
was the Medicaid benefit that was passed into law during 1990 
which CBO said would cost $25 million when passed. However, be- 
cause of a drafting error in the legislative language, its repeal dur- 
ing the 1993 reconciliation bill led to $4 billion in savings. That is 
right, $4 billion in savings. Therefore, I would like the administra- 
tion's witness, Ms. Stone, to explain the logic and rationale behind 
the repeal of the Medicaid benefit while simultaneously recreating 
a much more ambitious entitlement for the same services in the 
President's health care reform act. 

Second, the administration's plan gives the States complete au- 
thority to set up the quality and safety assurance standards. Well, 
Mr. Chairman, we remember the 1989 hearings and debates con- 
cerning the Florio "MR/DD" legislation and the Frail Elderly bill 
which specified detailed Federal quality assurance and safety 
standards based on the nursing home reform provisions of 1987. 
Just, yesterday, Mr. Chairman, you criticized Mr. Cooper for the 



272 

fact that his managed competition bill repealed all of the Medicaid 

statute, including nursing home reform standards. I am sure you 

will examine very closely the complete State deference to establish 

quality assurance standards, 
Thanx you. 

[The opening statement of Hon. Gary A. Franks follows:] 

Opening Statement of Hon. Gary A. Franks 

Thank you, Mr. Chairman. Connecticut is very interested in seeing long-term care 
insurance being adopted as a more humane way of preparing and paying for long- 
term health insurance. Long-term care insurance allows an individual to continue 
their standard of living without having to sell off all of their assets if a time comes 
where the individual will need more intensive long-term care. 

Long-term care insurance gives people the chance to plan ahead for the future 
and make legal and financial arrangements. It allows the individual to stay at home 
longer. 

People are living longer than their previous ancestors, we need to encourage indi- 
viduals to plan ahead for the longer lives they will be living. It is a shame that peo- 
ple save all their lives and end up spending it all for nursing home care. 

Connecticut has developed the Connecticut Partnership for Long-Term Care. It is 
a joint public-private program which encourages individuals to plan for their long- 
term care needs by purchasing insurance protection in an amount equal to the 
amount of assets he or she wishes to protect. If and when an individual exhausts 
insurance benefits, the individual can apply for Medicaid and each dollar that the 
insurance policy has paid out in accordance with State policy will be subtracted 
from the assets the individual still has to that those assets would not be recognized 
or considered in determining the individual's eligibility for Medicaid. 

The State of Connecticut is currently involved in a 6-year demonstration project. 
Connecticut is the first State to implement such an ambitious initiative to make 
long-term care insurance benefits available to many of its residents by combining 
private insurance with State Medicaid funds. The project will also sponsor six spe- 
cial studies ranging from surveys of individuals denied insurance or dropping cov- 
erage, to a survey of recent nursing home admissions and the collection of baseline 
information on those newly insured. Because this project is intended to inform the 
national debate over how to finance long-term care, uie demonstration will include 
a process evaluation and examination of now the partnership affects the demand for 
insurance and utilization of long-term care. 

I comment the President for wanting to strengthen the Government's role in the 
regulation of long-term care insurance. 

Mr. Waxman. Our first witness at todays hearing is Dr. Robyn 
Stone, Deputy Assistant Secretary for Disability, Aging and Long- 
Term Care Policy for the Department of Health and Human Serv- 
ices. This is Ms. Stone's first appearance before the subcommittee. 
We are pleased she could join us. 

I want to thank you for your participation today. We have al- 
ready received your written statement, which will be included in 
the record in full. Now what we would like to ask you to do is to 
take no more than 5 minutes for your oral presentation. 

STATEMENT OF ROBYN I. STONE, DEPUTY ASSISTANT SEC- 
RETARY OF AGING, DISABILITY, AND LONG-TERM CARE POL- 
ICY, DEPARTMENT OF HEALTH AND HUMAN SERVICES, AC- 
COMPANIED BY MARY HARAHAN, DEPUTY ASSISTANT 

Ms. Stone. Thank you, Mr. Chairman and members of the com- 
mittee. I am, by the way, accompanied by Mary Harahan, my dep- 
uty who is here to answer questions. 

Thank you for inviting me to appear before you today to talk 
about long-term care. The inclusion of long-term care in the Health 
Security Act is concrete recognition that the long-term care needs 
of people with chronic illness and disability, a ventilator-dependent 



273 

child, a young man bom with mental retardation, an elderly person 
with Alzheimer's disease, the survivor of an automobile accident, 
are as important for this Nation to address as the health needs 
arising from acute illness or injury. 

The constituency for long-term care reform is a significant one. 
It includes many of our Nation's senior citizens, for older people 
have the highest probability of becoming disabled toward the end 
of life. It includes at least 10 million family members and friends 
of older persons and countless other family members of younger 
people with disabilities who experience caregiving responsibilities 
firsthand as they respond to the long-term care needs and problems 
of their loved ones. 

It also includes 12.6 million people of all ages who, as a result 
of a disability, require some help to carry out routine activities of 
daily life. 

Finally, it should include all of us, for anyone of us on any par- 
ticular day or any of our children could become disabled as a result 
of an accident or chronic illness. 

Long-term care in America today is at best a patchwork of fi- 
nancing and delivery systems frequently piggybacking on programs 
that were not designed to deliver chronic care. At worst, it is not 
there at all when people need it. 

Long-term care is and must be a part of the health care contin- 
uum. It is not coverage for maids and butlers and other household 
staff. On the contrary, long-term assistance for many is the vital 
link that keeps people living at home. In fact, without long-term 
support at home many people turn to higher cost institutional care. 

The Health Security Act takes both strides to create a plan that 
makes sense for people when they face the dilemma of needing 
long-term care. Importantly, the plan is prudent. It is carefully tar- 
geted at people with the highest level of need, people who are least 
likely to be able to make due only with family care. 

We recognize that our available resources will not permit us to 
do everything. The Federal budget is capped and the financial li- 
ability of Federal and State government is limited. It will bring 
health and hope to millions of Americans without breaking the 
bank. 

While a significant component of the long-term care program is 
a major new expansion of home- and community-based services, the 
plan also liberalizes Medicaid nursing home requirements, provides 
tax credits to help defray the costs of personal assistant services 
for working people, establishes Federal regs, consumer education 
and tax incentives for private insurance, and provides demonstra- 
tion dollars to explore how to better integrate acute and long-term 
care services. 

Since long-term care insurance was addressed in a previous hear- 
ing, I will focus the remainder of my remarks on the home- and 
community-based care program and the nursing home provisions. 

The new home- and community-based care program offers highly 
individualized services tailored to the unique needs of people with 
severe disabilities. Eligibility is based on a person's level of func- 
tion or cognitive impairment, with no limits by income or type of 
disability. 



274 

The new long-term care program is a Federal-State partnership. 
The Federal contribution is generous, 28 percentage points higher 
on average than the current Federal Medicaid match rates with the 
upper limits set at 95 percent. The high match rate is intended to 
encourage all States to participate. 

This is a freestanding program, separate from Medicaid, Medi- 
care and the health alliances, so States have the flexibility to build 
on the most creative practices of their communities and design 
packages that meet consumers' needs. 

Each State must guarantee that every person has been carefully 
assessed and has an individualized plan of care. In addition, each 
State must offer personal assistance services, although every par- 
ticipant may not use this particular service. 

In addition. States are required to have something somewhere in 
their service menu to address the needs of each category of eligible 
individuals. Beyond that. States are encouraged to include what- 
ever services can best accomplish this, whatever people need to 
lead successful lives at home. 

In addition, the program allows States to offer consumers cash 
or vouchers, instead of services permitting those who want to take 
on the responsibility of controlling their own services to do so. The 
legislation establishes a national budget for the new program. Al- 
though there is no individual entitlement to services, the budget 
was estimated as if there were. It is based on the cost of providing 
an adequate level of service to the eligible population and then it 
is capped. 

There is also a sliding fee scale for consumers above 150 percent 
of poverty to pay a portion of the cost of services under this pro- 
gram. The funding for this program will be phased in incrementally 
over 7 years starting in 1996. Over the first 5 years, the Federal 
Government plans to spend $56 billion for this program. The exact 
funding levels are specified in the legislation. The funding for the 
program is not discretionary. It is entitlement to States. 

Let me very briefly in about another second just quickly describe 
the Medicaid nursing home improvements because they are an im- 
portant part of the plan. 

The plan also takes a series of steps to strengthen the resource 
protections of the Medicaid program for nursing home residents. 
All States will be required to establish medically needy eligibility 
criteria. Also the amount of income that nursing home and other 
institutionalized residents may keep for their personal needs will 
be raised from $30 to $50 per month. Finally, States will be al- 
lowed the option of increasing the level of assets that unmarried 
residents may retain from $2,000 to $12,000. 

Mr. Waxman. Thank you very much for your testimony. I know 
you haven't completed reading it but everything is going to be in 
the record so we will have all of that in there. 

Ms. Stone. Thank you. 

[The prepared statement of Ms. Stone follows:] 



275 

STATEMENT OF 

ROBYN I. STONE, Dr.P.H. 

DEPUTY ASSISTANT SECRETARY OF AGING, DISABILITY, 
AND LONG-TERM CARE POLICY 

OFFICE OF THE ASSISTANT SECRETARY FOR PLANNING AND EVALUATION 

Mr. Chairman and Members of the Committee: 

Thank you for inviting me to appear before you today to talk 
about long-term care. From the outset of the health care reform 
debate, the President and the First Lady have made long-term care 
an essential component of their commitment to comprehensive 
health care. The inclusion of long-term care in the Health 
Security Act is concrete recognition that the long-term care 
needs of people with chronic illness and disability. . .a 
ventilator dependent child, a young man born with mental 
retardation, an elderly person with Alzheimer's disease, the 
survivor of an automobile accident. . .are as important for this 
nation to address as the health needs arising from acute illness 
or injury. 

The constituency for long-term care reform is a significant one. 
It includes many of our Nation's senior citizens, for older 
people have the highest probability of becoming disabled toward 
the end of life. It includes at least 10 million family members 
and friends of older persons and countless other family members 
of younger people with disabilities who experience care-giving 
responsibilities first hand as they respond to the long-term care 
needs and problems of their loved ones. It also includes 12.6 
million people of all ages who as a result of a disability 
require at least some help from others to carry out routine 
activities of daily life. Finally, it should include all of 
us... for any one of us on any particular day or any of our 
children could become disabled as a result of accident or chronic 
illness. 

In short, for the elderly, for younger individuals with 
disabilities, their families and other people who care for them - 
for each and every one of us - long-term care reform is not 
expendable. It is a vital piece in solving the health care 
puzzle. Without basic ongoing supports to live in the community, 
a person with a severe disability might never get as far as 
exercising his or her right to universal health care coverage. 

THE LONG-TERM CARE PROBLEM 

Today I will tell you about the growing long-term care problem, 
explain our belief that health care reform is not complete 
without a long-term care component, and tell you about our 
proposed plan for tackling long-term care reform. 

What would you do if you or a member of your family were suddenly 
not able to take care of themselves. . .to feed themselves or 
prepare meals, bathe, go to the bathroom, dress themselves, get 
in and out of bed, shop for food, manage their money, take 
medications. . .unless someone were there to help them. If you 
were married to such a person, and if you did not have to hold a 
paying job, you might be able to manage. But suppose you did 



276 



have to work, or your parent lived 3,000 miles away or you 
yourself were disabled or had an illness that prevented you from 
providing assistance. . .then what? 

You would do what the vast majority of people in this country do 
now in such a situation — make do the best you can with informal 
care. . .purchase extra help to the extent you could afford, or do 
without. Why? Because if you turned to the obvious places that 
you would turn to if you experienced an acute health problem — 
private health insurance. Medicare, the government ... you would 
find precious little. 

Most people are surprised to find that Medicare, which provides 
substantial coverage for acute health services, offers only 
limited, post acute support services to help beneficiaries get 
back on their feet. Similarly, even the best private health 
insurance policies provide virtually no long-term care. The only 
government program with significant long-term care benefits — the 
Medicaid program — is targeted to the poor, requiring many to 
become impoverished before qualifying for help. 

In addition, Medicaid funding has been, and continues to be, 
significantly biased towards institutional care. In 1993, almost 
85 percent of Medicaid long-term care expenditures were for 
institutional care. Further, despite increases in Medicaid home 
and community care spending, access to Medicaid home care 
services varies tremendously across States. So even though the 
overwhelming number of people with long-term care needs prefer 
services in their own homes and communities, these services are 
not universally available even to very poor people. In fact, in 
some sections of the country, you cannot obtain publicly funded 
home care no matter how poor or how much in need you are. 

Long-term care in America today is, at best, a patchwork of 
financing and delivery systems, frequently piggybacking on 
programs that were not designed to deliver chronic care; at worst 
it is not there at all when people need it. 

HEALTH CARE REFORM MOST INCLUDE LONG-TERM CARE 

Long-term care is part of the health care continuum. No one 
questions the right to treatment for an acute health problem — 
setting a broken leg, putting a cast on the leg, and following 
through with the necessary medical care to fix the leg. Yet 
long-term care is often misperceived as an extra service, almost 
a luxury. 

Long-term care is not coverage for "maids and butlers" and other 
household staff. On the contrary, long-term assistance for many 
is the vital link that keeps people living at home. In fact, 
without long-term support at home, many people turn to higher 
cost institutional care. 



277 



THE ADMINISTRATION'S LONG-TERM CARE PACKAGE 

The Health Security Act takes bold strides to weave the threads 
of patchwork into a comprehensive tapestry that makes sense for 
people when they face the dilemma of needing long-term care. The 
plan respects the dignity of people who need support — it is not 
means tested and does not discriminate by age. It honors the 
choices of individuals and their families. It offers public 
services and incentives for people who can afford to protect 
themselves against the high cost of long-term care. 

Importantly, the plan is prudent. It is carefully targeted at 
people with the highest level of need, people who are least 
likely to be able to make do only with family care. We recognize 
that our available resources will not permit us to do everything. 
The Federal budget is capped and the financial liability of 
Federal and State government limited. It will bring help and hope 
to millions of Americans without breaking the bank. 

While a significant component of the Long-Term Care proposal is a 
major new expansion in home and community-based care services, 
the plan also liberalizes Medicaid nursing home requirements; 
provides tax credits to help defray the costs of personal 
assistance services for working people with disabilities; and 
establishes Federal regulations, consumer education and tax 
incentives for private long-term care insurance. 

MAJOR EXPANSION OF HOME AND COMMUNITY CARE 

The new home and community-based services program offers highly 
individualized services tailored to the unique needs of people 
with severe disabilities. Eligibility is based on a person's 
level of functional or cognitive impairment, with no limits by 
income or type of disability. Because people of all ages are 
equally eligible, this program goes a long way toward promoting 
an equitable intergenerational division of the long-term care 
pie. 

Who will be eligible? The goal was to define — across 
disability categories and age lines — people with the most 
significant needs. The four mandatory eligibility categories 
include: 

• people who need hands-on or stand-by assistance or cuing or 
supervision to perform three of five activities of daily 
living (eating, bathing, dressing, toileting, and 
transferring) ; 

• people with severe cognitive or mental impairments; 

• people with severe mental retardation; or 

• children under six who have chronic disabilities and would 
otherwise require hospitalization or institutionalization — 
after age six, children's eligibility is measured using the 
other three criteria. 



278 



Based on these criteria, it is estimated that approximately 3.1 
million people will be eligible for this program; 71% or 2.2 
million will be over age 65. 

FEDERAL STATE PARTNERSHIP 

The new long-term care program is a Federal/State partnership. 
The Federal contribution is generous. .. 28 percentage points 
higher on average than current Federal Medicaid match rates, with 
the upper limit set at 95%. The high match rate is intended to 
encourage all States to participate. The President wants to 
encourage the creation of a universally available home and 
community-based services program for all people with significant 
disabilities no matter where they live. 

The new home and community program is a free standing program, 
separate from Medicaid, Medicare, and the health alliances, so 
States have flexibility to build on the most creative practices 
of their communities and design service packages that meet 
consumers ' needs . 

BENEFITS AND SERVICES 

Each State must guarantee that every person who receives services 
has been carefully assessed and has an individualized plan of 
care. In addition, each State must offer personal assistance 
services, support in daily living activities — although every 
participant may not use this particular service. States must 
also offer consumers the opportunity to direct their own services 
if they are able. 

In addition. States are required to have something, somewhere in 
their service menu to address the needs of each category of 
eligible individuals. Beyond that, States are encouraged to 
include whatever services can best accomplish this — case 
management, homemaker and chore services, home modifications, 
respite services, assistive technology, adult day services, 
habilitation, supported employment, home health. . .whatever people 
need to lead successful lives at home. 

In addition, the program allows States to offer consumers cash or 
vouchers instead of services, permitting those who want to take 
on the responsibility of controlling their own services to do so. 
In the words of many disability advocates: "we are not cases and 
we don ' t want anyone to manage us . " 

FINANCING AND BUDGET 

The legislation establishes a national budget for the new home 
and community services program. Although there is no individual 
entitlement to services, the budget was estimated as if there 
were; it is based on the cost of providing an adequate level of 
service to the eligible population and then it is capped. The 
new program is not funded to replace family caregiving. In fact, 
the budget assumes that family caregivers will continue their 



279 



support. There is also a sliding fee scale for consumers to pay 
a portion of the cost of services under this program, ranging 
from 10% of costs for those at 150% of the poverty level to 25% 
of costs for those above 250% of poverty. 

The funding for this program will be phased-in, incrementally, 
over seven years, starting in 1996. Over the first five years, 
the Federal government plans to spend 56 billion new dollars for 
this program. The exact funding levels are specified in the 
legislation; the funding for the program is not discretionary, it 
is an entitlement to States. In addition, during the phase-in, 
the law permits the Secretary of the Department of Health and 
Human Services (HHS) to increase these specified amounts if the 
new program results in reductions in Medicaid home and community 
care expenditures for persons with severe disabilities. 

QUALITY 

Experts in the quality field have noted that one of the best ways 
to ensure that services are of high quality is to involve program 
participants and their families in the quality assurance process. 
Therefore, the President's plan, in addition to requiring States 
to develop and obtain Federal approval of a thorough system for 
assuring the health and safety of consumers, also requires that 
consumers be involved in every step of the design of the program, 
its implementation and its evaluation. To ensure consumer input, 
States must set up special consumer dominated boards who help 
design the program and monitor its implementation. The board is 
also responsible for assessing the consumer-responsiveness of the 
plan as part of the Federal approval of the State program. 

MEDICAID NURSING HOME IMPROVEMENTS 

The plan also takes a series of steps to strengthen the resource 
protections of the Medicaid program for nursing home residents. 
All States will be required to establish medically needy 
eligibility criteria — to take medical expenditures into account 
in determining financial eligibility for Medicaid coverage of 
nursing home care. Also, the amount of income that nursing home 
and other institutionalized residents may keep for their personal 
needs will be raised from a minimum of $30 to $50 per month, 
making a real difference in the dignity and quality of life of 
many residents. Finally, States will be allowed the option of 
increasing the level of assets that unmarried residents may 
retain from $2,000 to $12,000. 

NEW WORK INCENTIVE TAX CREDIT 

Having a severe disability can be very expensive; it can cost so 
much to buy the personal assistance services, home and vehicle 
modifications, and specialized equipment, that many people with 
disabilities throw up their hands and ask: "Why work? It costs 
more to work than to stay home." What a terrible waste; an 
explicit vision in this plan is to help all members of the 
community, including those with disabilities, to bring their 



280 



talents and skills to the fore, to be productive, contributing 
members of their communities. 

To accomplish this goal, the plan includes a 50% tax credit for 
persons with disabilities for out of pocket expenditures on 
personal assistance and related services, up to a maximum of 
$15,000 per year (or earned income, if less). For a maximum 
credit of $7,500. This tax credit phases out for persons with 
income between $50,000 to $70,000. People with disabilities 
welcome this new incentive to work. This provision also works 
well with the employment provisions of the Americans with 
Disabilities Act. 

IMPROVING LONG-TERM CARE INSURANCE; OFFERING INCENTIVES TO BUY 
As we complete the solution to the long-term care puzzle, the 
final piece is a series of improvements to the quality and 
reliability of the long-term care insurance market and make it 
more affordable. Unlike acute health care, private insurance 
pays very little of the nation's long-term care bill. Many 
people would be able to protect themselves against catastrophic 
long-term care costs if affordable and high quality insurance 
products were available. If an employer-based group market can 
be created, the number of people who can purchase private 
insurance to protect themselves will increase even more. 

The President's plan takes a variety of steps to improve the 
quality of insurance and make it more affordable. New Federal 
regulations will be developed, implemented, and enforced by the 
States. A new Federal matching grant program will be initiated 
to help States with enforcement of new standards. Grants will 
also be made available to States and national organizations to 
provide education for consumers about their risks of needing 
long-term care, as well as the pros and cons of various kinds of 
insurance products. 

The new insurance standards will be developed by HHS, in 
consultation with a long-term care insurance advisory board of 
national experts, including representatives of the National 
Association of State Insurance Commissioners. The Federal 
standards will include: a recjuired nonforfeiture benefit, an 
offer of inflation protection; limits on pre-existing condition 
exclusions; notifications of pending lapse and required 
reinstatement in the event of incapacitation; clear definitions 
of coverage and eligibility triggers; and rules regarding 
continuation and conversion of group policies. Federal standards 
governing the business practices of agents and insurers as well 
as penalties for noncompliance will also be included. 

The plan also includes tax provisions that treat long-term care 
insurance by providing favorable treatment for certain qualified 
long-term care policies more like health insurance. Consumers 
will be allowed to exclude from taxable income the amounts 



281 



receive as benefits under qualified long-term care policies. In 
addition, the premiums paid for qualified policies may be 
deductible as an itemized medical expense. To promote the group 
market, employers will be able to deduct premiums paid for 
qualified long-term care insurance and employees will not be 
taxed on the value of the coverage. 

PERFORMANCE REVIEW 

Finally, the plan also includes a performance review — an 
interim and final report card so we can check up on how the new 
public and private long-term care system is working, and identify 
areas for improvement. On a related note, there are provisions 
for a series of demonstrations studying various ways to integrate 
acute and long-term care. 

SUMMARY 

In summary, we face a crossroads. Left untouched, the problem of 
unmet long-tenn care needs will not go away and will only get 
worse as the population ages. It's a problem that is unalterably 
entwined with the problems in our health care delivery and 
financing systems. We must address it in that context and 
demonstrate our commitment to all Americans to meet a range of 
health and related needs. 



282 

Mr. Waxman. I want to start off the questioning and let me un- 
derstand how this new program is supposed to operate. First, as I 
understand it, participation in this new program is purely vol- 
untary on the part of the State. Second, from a financing point of 
view, the program is based on the Medicaid model that is a joint 
Federal-State effort in which the Federal Government matches the 
State's contributions at significantly higher rates than is currently 
the case under Medicaid. Unlike Medicaid, however, the total 
amount of the Federal contribution is capped at the dollar amounts 
specified in the legislation. 

Third, States which choose to participate are required to provide 
services to four mandatory groups: One, people in need of assist- 
ance with certain activities of daily living, such as bathing, eating, 
dressing, toileting or transferring out of bed; second, people with 
severe cognitive or mental impairments; three, people with severe 
mental retardation; and four, young children with chronic disabil- 
ities who would otherwise require institutionalization. States may 
pick and choose what types of services these people may receive 
but they must provide some services to all four categories of indi- 
viduals. 

Now, let me ask you a series of questions about how this new 
program will actually operate. I know you expect all States to par- 
ticipate in this new program, but what is your backup plan just in 
case a State, for whatever reason, chooses not to participate? How 
are people in that State supposed to get the home- and community- 
based care they need? 

Ms. Stone. First of all, Mr. Chairman, let me indicate that be- 
cause the match rate is so high, substantially higher, 28 percentage 
points higher than the current Medicaid match rate, we fully ex- 
pect all States to participate in the program. It will be able to draw 
down significantly more dollars basically serving even the same 
people that they serve today. So there is a tremendous incentive for 
them to participate in the program, even States that are currently 
doing very little in home- and community-based services. 

I think it is also important to point out that Medicaid remains 
"as is" on the long-term care side. That is to the extent that States 
are currently participating in the personal care program, the Med- 
icaid waiver program, and also providing State-only dollars, these 
will continue and folks may be served in those programs as well 
as in the new programs. So in essence we are talking about those 
programs as a safety net. 

Mr. Waxman. And this is going to replace the Medicaid program 
or be in addition to it? 

Ms. Stone. This is in addition to the Medicaid program. 

Mr. Waxman. Let's assume that all States do in fact participate 
in the program. Let's also assume that for whatever reason the 
amount of dollars for this new program in a given year is not 
enough to provide services for all four of the mandatory eligible 
groups. What is a State supposed to do if that happens? 

Ms. Stone. Well, first of all, we think that the amount of the 
funds provided should be adequate to serve the approximately 3.1 
million people we have estimated who will be eligible for this pro- 
gram. This is the way that the budget has been calculated, and we 
believe that we would be able to serve all these folks adequately. 



283 

If funds provided were not adequate, there are a number of options 
that the States could take, including cutting back on services, or 
also limiting new admissions. But you must remember that they 
cannot cut back on the eligibility. All the groups must continue to 
be served, and again, remember that folks can also be served in the 
continuing Medicaid program and the State-only programs. 

I would like to point out that we have got a whole variety of ex- 
perience with States using capped programs. The State of Oregon 
is a perfect example of a very successful home- and community- 
based program that works within a cap that has been able to allo- 
cate resources very prudently and judiciously across a whole set of 
populations. 

Mr. Waxman. If a State is forced to cut back on the services it 
has been providing because they just don't have enough money, 
let's say they decide to cut back on adult day care services, what 
happens to those individuals who have already been receiving those 
services? Are adult day care services just no longer available for 
new program participants or are these current beneficiaries just 
out of luck? Is the State required to continue the coverage even if 
they have to pay for it with 100 percent of State dollars? 

Ms. Stone. Well, again, as I indicated, we believe that this is a 
generous budget and that we will be able to serve all of the eligible 
persons within the cap. If a State chooses to reduce services, my 
assumption would be that current persons receiving services would 
continue to receive those services and, again, would have access to 
adult day care services, for example, through the Medicaid program 
or through other programs such as title XX or the Older Americans 
Act. 

Mr. Waxman. If those dollars 

Ms. Stone. If those dollars were available. 

Mr. Waxman. If those dollars aren't paying for it, they are using 
this new program and they run into the cap and they don't have 
the money and they decide they have got to serve everybody in 
every category but this is something they have got to cut out, what 
happens then? The beneficiaries are out of luck? You don't think 
that it will happen but it could. 

Ms. Stone. My sense is what would happen is that persons who 
are currently receiving services would continue to receive services 
and then persons who then became eligible for the program would 
probably not have access to adult day through that particular pro- 
gram. 

Mr. Waxman. Thank you very much. Mr. Bliley. 

Mr. Bliley. Thank you, Mr. Chairman. 

Ms. Stone, welcome to the committee, and as I said in my open- 
ing remarks, and I will repeat, I would like you to explain to this 
committee the following contradiction in the administration's long- 
term initiatives. On the one hand, the centerpiece of the Health Se- 
curity Act is the home- and community-based benefit, but it was 
just 6 months ago that during budget reconciliation that the ad- 
ministration led the charge to repeal the Medicaid mandatory 
home- and community-based benefit. This Medicaid benefit that 
was passed into law during 1990 which CBO said would cost $25 
million when passed, however, because of a drafting error in the 
legislative area, its repeal during the 1993 reconciliation bill led to 



82-435 0-94-10 



284 

$4 billion in savings. That is right, $4 billion in savings. So I would 
like you to explain the logic and rationale behind the repeal of the 
Medicaid benefit while simultaneously recreating a much more am- 
bitious entitlement for the same services in the President's Health 
Care Reform Act. 

Ms. Stone. The repeal of the personal benefit in the administra- 
tion's proposals was not a repeal of the Medicaid personal care ben- 
efit. Rather, the administration's proposal corrected a drafting 
error that occurred in the previous reconciliation package. The ad- 
ministration's proposal reinstated the previously optional personal 
care benefit as an optional benefit. So that is really what occurred. 

And I would also like to point out that we are not talking about 
an open-ended entitlement within this new program. This is a 
capped program. It is an entitlement to the States. It is not an in- 
dividual entitlement program. 

Mr. Bliley. Thank you. Thank you, Mr. Chairman. 

Mr. Waxman. Thank you, Mr. Bliley. 

Mr. Wyden. 

Mr. Wyden. Thank you. 

Dr. Stone, it is a pleasure to have you, and you obviously have 
great qualifications for this assignment. Let me ask you first, if I 
might, about the question of budget caps and this program and its 
specifics in terms of its finding. 

I think you are absolutely right. My State has shown that com- 
passion and good service in home care can peacefully coexist with 
a budget cap if it is done properly, and our State has shown that 
for a decade, and I guess my question first with respect to the cap 
is, how is the cap indexed and adjusted for such things as growth 
in the over 75 population? 

Ms. Harahan. We have started with the 1990 census, the growth 
changes between the 1980 and 1990 census. That is in the current 
formula and that will continue to be updated to reflect the changes 
in the over 75 population. 

Mr. Wyden. How would you deal with future changes in Federal 
law that would increase costs of providing long-term care? 

Ms. Harahan. In terms of adjusting the cap? 

Mr. Wyden. Nursing home reform issues, that kind of thing. 

Ms. Harahan. I think we have to look very carefully as the pro- 
gram is fully implemented in terms of whether the dollar amounts 
that we have calculated as the proxy for expenditures per person 
don't need to be adjusted, and that is built in as an evaluation into 
the program. It is possible that they would need to be adjusted in 
the out-years. 

Mr. Wyden. The reason I ask that, I very much share the con- 
cerns of Chairman Waxman with respect to the budget issue be- 
cause I think a lot of the States are not as advanced as my State 
is. My State has shown it can do it. As I say, budget caps and good 
care in the home sector can coexist, but I think the chairman is 
right because a lot of other States are not so far advanced and we 
want to work with you on it. 

Let me ask you about one other thing. We already have a fair 
number of fly-by-night artists in the home care field. Now we are 
going to set up a multibillion dollar program and I am concerned 
about what this bill does to deal both with the rip-off artists that 



285 

I think are going to move into this field, and also not just people 
who are genuinely corrupt, but what is going to happen if you have 
a poorly trained case manager, for example? These case managers 
are going to be the people out on the front lines making these criti- 
cal decisions with respect to the kind of services that our parents 
and our grandparents are going to be getting and I am concerned 
that there are not enough checks in there, both on the kind of cor- 
rupt rascals that I think are going to get into this field, and some 
already are, and second, not just about corrupt people, but people 
who may mean well but are not properly training the case man- 
agers who are going to be the hub in this whole operation. 

Ms. Stone. I think you have raised some very important ques- 
tions with respect to quality assurance and monitoring and train- 
ing and certification. As you know, we have left quite a bit of dis- 
cretion to the States, given the fact that we already have a wide 
range of States that have been very successful in developing case 
management programs, in training case managers, and ensuring 
that home care providers are scrupulous and working within the 
law. 

Our plan basically leads toward consumer input and consumer 
involvement as the major check and balance with respect to looking 
at the quality of how case management is performed and how pro- 
viders do their jobs. 

We have two advisory groups, one at the Federal level and one 
at each State level, which is comprised of at least 50 percent con- 
sumers. These consumers are involved from the development of the 
State plan all the way through the implementation and the evalua- 
tion of the plan, that is to say, they really are the nuts and bolts. 
They roll up their sleeves and work with the States in designing 
the plan and ensuring that providers are providing the care in a 
very scrupulous manner and that the case managers are trained in 
a way that they can make those kinds of allocation decisions. 

Mr. Wyden. What would happen if the case manager was just in- 
competent? How would the system root that out in a fast way so 
that senior citizens, vulnerable people in these programs weren't 
hurt? 

Ms. Stone. Well, again, I helieve, and we believe, that States 
have been very successful in monitoring their case — in setting up 
and monitoring their case management systems, and rather than 
prescribing at the Federal level how every State should deal with 
its case management system because there is so much variability 
across the States, we have built in this consumer input check to 
work with the States in ensuring that we will not have incom- 
petent case managers. 

Mr. Wyden. Thank you, Mr. Chairman. 

Mr. Waxman. Thank you, Mr. Wyden. 

As you might have noticed, the bells ringing indicate that we are 
being summoned to the House Floor for a vote. So we will take a 
recess to vote and come back as soon as we can. 

[Brief recess.] 

Mr. Brown [presiding]. The committee is now back in session. 
The gentleman from Pennsylvania, Mr. Greenwood, will be recog- 
nized for 5 minutes. 



286 

Mr. Greenwood. Thank you, Mr. Chairman. I think now that 
the two freshmen on the committee are in charge, we ought to 
move the previous question, call up the bill and get things rolling. 

I would like to ask you a question about the transition. I know 
you have addressed some of this already, but let me be specific 
with regard to constituents of mine who are mentally retarded 
adults, Medicaid eligible and in institutions now. Are you saying 
that, in fact, they are guaranteed service or are we assuming that 
is what the States would continue to provide coverage under the 
President's program in the transition years? 

Ms. Stone. Yes. They are in an ICFMR? Is that what you are 
telling me? 

Mr. Greenwood. That is right. 

Ms. Stone. The Medicaid program remains as is on the institu- 
tional side. The phase-in is for this new home- and community- 
based care program. 

Mr. Greenwood. How about a CLA, community living arrange- 
ment [CLA]? Would that also be 

Ms. Stone. That also continues. 

Mr. Greenwood. So there would be no effect on that population? 

Ms. Stone. To the extent that States are participating now, they 
would — ^they could continue to participate. The law does not 
change. 

Ms. Harahan. We have also said in the new program that States 
must continue to serve their current Medicaid recipients at an ap- 
propriate level, so they cannot withdraw services from — and just, 
for example, serve only a subset of the population. This program 
is not an excuse to dump people and the bill language makes that 
clear. 

Mr. Greenwood. OK. Now, with regard to the home-based com- 
munity service which has the higher Federal participation. I be- 
lieve that is probably the right way to go because to the extent that 
we can keep people in their homes and their communities, it is bet- 
ter for the client and better for the taxpayer. What safeguards are 
there in the program, though, to ensure that patients who in fact 
do need and require the institutional care aren't shifted to home- 
based or community care for State budgetary reasons? 

Ms. Stone. There are no specific safeguards in the legislation, 
but, again, I want to reiterate that with respect to this plan and 
the new program, there is significant consumer input into the de- 
sign of the plan and the implementation of the plan, and that, in 
addition to that, there will be — consumers will be aljle to look at 
what is happening with respect to the continuing Medicaid pro- 
gram, including the institutional side, and will be able to have 
input in terms of insuring that there is no inappropriate movement 
of folks who are in institutions into home- and community-based 
services just to draw down more dollars. 

Mr. Greenwood. To what extent do family members have a 
choice to make? Suppose that my mother or father were in need of 
care. Further, suppose my wife and I believe we can't manage with 
our work schedules and so forth to care for him/her at home, even 
though he/she may be better served that way. He/she may not need 
institutional care. Where does the familj^s role come in? 



287 

Ms. Stone. Well, again, there is no Federal prescription in the 
bill. Basically these decisions are made at the State level. Families 
are clearly involved in the care planning process and the extent to 
which families can provide assistance in the home and are avail- 
able to provide assistance in the home, they would be built into the 
care planning process with respect to the home- and community- 
basedf care part. 

With respect to the institutional side, there is the option of being 
placed in an institution. The State would take into consideration 
the family situation, but choice is built into this plan. 

Ms. Harahan. Could I just say one more thing about this, as 
someone who has faced this particular kind of decision with their 
own parent, and there are certainly circumstances under which 
when you have to go to work every day, you can't cope at home no 
matter what. But one of the great strengths of the President's 
home- and community-based services proposal is that it provides 
incentives to develop lots of different kinds of residential arrange- 
ments in addition to the nursing home sector that we already have. 
So we would think that — assisted living, for example, would be a 
kind of residential arrangement where this program would begin to 
help pay for services and people would have more choices about 
settings outside their home where their parents or their other rel- 
atives might be able to go if they had severe disabilities. 

Mr. Greenwood. Thank you. Thank you, Mr. Chairman. 

Mr. Brown. Thank you, Mr. Greenwood. 

The administration initially intended to require States to in- 
crease the level of asset protection for nursing home residents 
under Medicaid to $12,000, my understanding was, and make this 
a Federal requirement. When the bill was introduced, currently the 
increased protection is a State option. First of all, why was that 
change made and are States going to change? How many States are 
going to exercise that option? 

Ms. Stone. Well, the decision was made with respect to that pro- 
vision to change it from a requirement to an option because of a 
lot of problems that the States had with an unfunded Federal man- 
date, and so the decision was made, therefore, to make it optional 
rather than a requirement, and, frankly, we do not have an esti- 
mate of how many States would take up this option. 

Mr. Brown. Do you have any guess as to — what logically does 
that option tell you? 

Ms. Harahan. Probably not a whole lot. 

Mr. Brown. The gentleman from Connecticut, Mr. Franks. 

Mr. Franks. Thank you, Mr. Chairman. 

Ms. Stone, Connecticut and a few other States have worked hard 
to create a public-private partnership for long-term care, and I per- 
sonally would like to see the State's plans, as well as — not only 
Connecticut, I think Indiana and California would have the same — 
I would like to see that continued under any health care policy 
change. So my question to you would be, where do you stand as far 
as the concept of a public-private partnership per the Clinton plan? 

Ms. Stone. Well, with respect to a public-private partnership, we 
believe that this plan is in fact a public-private partnership. What 
we have done is to put together a package that develops a new 
home- and community-based care program using public dollars and 



288 

regulates very strongly and provides very important consumer edu- 
cation and tax clarifications and tax incentives for the development 
of a quality affordable private market for those who should be pur- 
chasing private insurance policies and want to prefund for their 
long-term care needs. So in that sense, we do see this as a very 
strong public-private partnership, being able to use both public and 
private dollars to try to meet the needs of a very desperate group 
of folks with very significant needs, some of them working through 
the public sector and some of them receiving services through the 
private sector. Also, Medicaid remains unchanged, and therefore 
the Robert Wood Johnson-type of programs that you were alluding 
to in Connecticut and several other States can continue. 

Mr. Franks. Very good. Thank you. 

Mr. Brown. Thank you. Dr. Stone, for joining us. 

The members of our next panel represent various consumer orga- 
nization with a strong interest in long-term care. Orien Reid is a 
member of the National Board of the Alzheimer's Association, 
which is a member of the Long-term Care Campaign on whose be- 
half she is testifying today. Appearing on behalf of the Consortium 
of Citizens With Disabilities is Anthony Young; and representing 
the American Association of Retired Persons as a member of its 
board is Tess Canja. 

I want to thank all of you for appearing before the subcommittee. 
We have received copies of each of your prepared remarks which 
will be included in full for the committee record. Please take no 
more than 5 minutes to summarize your comments, then the sub- 
committee obviously will have questions for you. 

Ms. Reid, let's begin with your opening statement. 

STATEMENTS OF ORIEN REID, MEMBER, NATIONAL BOARD, 
ALZHEIMER'S ASSOCIATION, ALSO ON BEHALF OF LONG 
TERM CARE CAMPAIGN, ACCOMPANIED BY STEPHEN 
McCONNELL, SENIOR VICE PRESIDENT, ALZHEIMER'S ASSO- 
CIATION; ANTHONY J. YOUNG, ON BEHALF OF CONSORTIUM 
OF CITIZENS WITH DISABILITIES, AND THE LONG TERM 
SERVICES AND SUPPORTS TASK FORCE; AND TESS CANJA, 
MEMBER, BOARD OF DIRECTORS, AMERICAN ASSOCIATION 
OF RETIRED PERSONS 

Ms. Reid. Thank you, Mr. Brown. I am here today as a spokes- 
person for the Long-term Care Campaign and for the Alzheimer's 
Association, one of the lead organizations in the campaign. I am a 
member of the National Board of the Alzheimer's Association and 
the board of our Greater Philadelphia Chapter. 

The Long-Term Care Campaign is a coalition of 137 national 
consumer organizations organized in 1987 to get long-term care 
into our health care system. Together, we represent more than 60 
million Americans. I would like to submit a list of those member 
organizations for the hearing record. 

The makeup of the campaign underscores a central truth about 
long-term care. This is not just an aging issue. It is a family issue, 
as I well know. One-third of all persons who need long-term care 
are children and younger adults, but regardless of the age of the 
person with the illness or disability, every person in the family is 
affected. 



289 

Our health care system now discriminates by disease and by dis- 
ability. If you have a heart attack and need surgery or if you have 
cancer and need chemotherapy, the system recognizes your health 
care needs and insures them. But if your child has cerebral palsy, 
if you suffer a spinal cord injury, if you get Alzheimer's disease, the 
system abandons you because the type of health care you need, 
long-term care, is not provided in hospitals or doctors' offices. 

We organized the Long-Term Care Campaign to change that sys- 
tem. From the very beginning, the chairman has been one of our 
strong allies. Now President Clinton has joined us with a far-reach- 
ing proposal for long-term care, and the President's proposal meets 
the essential needs. It starts in the right place with home- and 
community-based care. It provides a program for people with all 
kinds of illnesses and disabilities. It covers cognitive and mental 
impairments. It is consumer choice. It is a plan with consumer 
choice, and it is flexible. But I would like to tell you my personal 
story because I think it may help you understand best how families 
in our situation face long-term care needs. 

I brought along with me a picture of my family. These are my 
children with me and my mother who had Alzheimer's disease. In 
1988, she was diagnosed with the disease. At that point I was a 
single parent raising these two children who were young teenagers 
at that point, and she was supposed to come to Philadelphia and 
I was supposed to meet her at the bus station and she didn't show 
up. She aidn't even remember that she was supposed to come. 

For the next 3 years after that, I felt like I was living a night- 
mare. I was in the middle of a vise between trying to take care of 
my children, trying to take care of my mother, and trying to keep 
a full-time job. I am a reporter for CBS news, WCAU-TV in Phila- 
delphia and I am paid decently but it is a very difficult job and it 
is very hard to take care of somebody with Alzheimer's disease no 
matter what you earn. 

At that point my stepfather — my mother was living in Atlanta. 
My stepfather was 80 years old and there was a limit of to what 
he could do. For the next few months I spent time running back 
and forth, fljdng between Atlanta and Philadelphia, trying just to 
make sure that things got organized for them. 

A short time later, my stepfather was diagnosed with pancreatic 
cancer. That was a nightmare in itself because it meant the day 
he went to the hospital, and I talked with my mother, I said, who 
is with you, and she said, nobody, and I knew she couldn't be there 
by herself, so I had to hire a home health aide immediately at $11 
an hour, 10 hours a day, to stay with her, and I managed this long 
distance. 

My stepfather died within 6 months. The day after the funeral, 
I had to bring my mother to Philadelphia with me and I took her 
to work with me because I had no other choice. I needed to do that 
for a few days until I could arrange day care for $32 a day. My 
mother was sick, but her insurance, nor mine, would pay for any 
of this. It almost wiped me out, totally taking money that I had 
saved for my children's education. I used it for my mother. I don't 
know how anybody could manage that. 

Our whole family life was in chaos. I had to depend on my chil- 
dren to take care of my mother after school. I was — all of the jug- 



\ 



290 

gling I was doing finally came to an end in October of 1990 when 
I came home one day and my daughter said to me, Mom, this has 
just got to stop. My mother was normally a very sweet lady, but 
that particular day she had been chasing my son around the house 
with a coat hanger until he ran across the street to a neighbor's 
house for protection. 

I had to do something right away and the only option I had was 
to move my mother into a nursing home, and I had to sign papers 
at that point saying that I would be responsible for her bills. My 
mother had been a secretary all of her life, all of her career. She 
only earned $12,000 a year and that was not enough. That was just 
one-third of the cost of a nursing home. I had to pay the rest of 
that. 

In all of this my children lost a part of their childhood. My son 
had serious problems in school. It meant that my daughter lost 
some money that I was saving for her for college, and we all want- 
ed to take care of my mother, but we just needed a little help and 
the help wasn't there. Just a little help would have helped us so 
much for my mother and my children. 

The program that the President is proposing would have been a 
godsend for us. If would have paid for enough help to help prevent 
the crisis that forced us into the nursing home. We still could have 
provided most of my mother's care, and I would have been willing 
and would have paid my fair share. 

Members of the Long-Term Care Campaign and the Leadership 
Council of Aging Organizations recently released a midterm report 
card rating the various plans that are before Congress. I have that 
and I would like to submit that, too, for the record. 

The bottom line here is that none of the other health care propos- 
als before you, except the single-payer plan, does anything mean- 
ingful for long-term care. 

One of the principles of health care reform President and Mrs. 
Clinton talk about is personal responsibility and they are right. We 
are all responsible for our loved ones and I didn't want to give up 
caring for my mother, but I had no choice. The system abandoned 
us. It abandoned my mother. It abandoned me, and most of all, it 
abandoned my children. 

With health care reform, your committee has perhaps the most 
difficult and important challenge of our lifetime, but health care re- 
form cannot accomplish its objectives. It will not be comprehensive, 
it will not provide health security for all Americans, and it will not 
contain costs unless it includes long-term care. All of the organiza- 
tions in the campaign and all of the families in the 221 chapters 
of the Alzheimei^s Association are prepared to work with you to 
make sure that happens. Thank you. 

Mr. Brown. Thank you, Ms. Reid. 

[The prepared statement of Ms. Reid follows:] 



291 



STATEMENT OF ORIEN REID 

HOUSE ENERGY AND COMMERCE COMMITTEE 

SUBCOMMITTEE ON HEALTH AND ENVIRONMENT 

January 20, 1994 

Thank you Mr. Chairman. I am here today as a spokesperson 
for the Long Term Care Campaign and for the Alzheimer's 
Association, one of the lead organizations in the Campaign. I am 
a member of the National Board of the Alzheimer's Association and 
the Board of our Greater Philadelphia Chapter. 

The Long Term Care Campaign is a coalition of 137 national 
consumer organizations organized in 1987 to get long term care 
into our health care system. The Campaign is made up of 
organizations representing older Americans, persons with 
disabilities, women, veterans, nurses, church and labor union 
members. Together, we represent more than 60 million Americans. 
(I would like to submit a list of the member organizations for 
the hearing record.) 

The Alzheimer's Association, as you know, is the national 
voluntary health agency that represents the interests of the 4 
million Americans who have Alzheimer's disease and the families 
who care for them. We work through over 200 local Chapters in 
the 50 states, more than 2000 support groups and over 35,000 
volunteers . 

The makeup of the Campaign underscores a central truth about 
long term care. This is not just an aging issue. It is a family 
issue. It affects people of every age. One third of all persons 
who need long term care are children and younger adults. But 
regardless of the age of the person with the illness or 
disability, every person in the family -- parent, spouse, 
sibling, child, grandchild -- is affected. 

We have a health care system now that discriminates by 
disease and disability. If you have a heart attack and need 
surgery, or if you have cancer and need chemotherapy the system 
recognizes your health care needs and insures them. But if your 
child has cerebral palsy, if you suffer a spinal cord injury, if 
you get Alzheimer's disease, the system abandons you because the 
type of health care you need -- long term care -- is not provided 
in hospitals or doctors' offices. 

We organized the Long Term Care Campaign to change that 
system. From the very beginning, Mr. Chairman, you have been one 
of our strong allies. Now President Clinton has joined us with a 
far-reaching proposal for long term care. 

The Clinton Plan for Long Term Care 

The President's proposal meets essential principles of the 
Long Term Care Campaign: 



292 



• First, it begins in exactly the right place, with home and 
community care. The President's plan will turn the system 
upside down. Instead of forcing people into nursing homes - 
- where no one wants to be -- his plan provides services in 
settings that are more humane, more appropriate, and for the 
vast majority of people less expensive. 

• Second, it is a program for persons with disabilities of all 
ages and income, with protections for low-income families 
and cost-sharing for those who can afford to contribute. 

• Third, it includes specific eligibility language to assure 
coverage for persons with cognitive and mental impairments 
as well as physical disabilities. 

• Fourth, it provides consumer choice of services and 
providers . 

• Fifth, it is flexible, so that services can meet individual 
needs, through personal assistance, day care, respite, home 
modifications, habilitation and rehabilitation, and services 
in community residential settings. 

One Family's Story 

I would like to tell you my family story, because it may 
help you understand why the Alzheimer's Association and other 
organizations in the Campaign are so enthusiastic about the 
President ' s ' proposal . 

In 1988, I was a single parent, raising two young teenagers 
in Philadelphia and working as a reporter with the CBS owned and 
operated station there, WCAU-TV. My mother and stepfather lived 
in Atlanta. Our lives changed forever that year. It was Labor 
Day weekend. My children and I were excited that my mother was 
coming to visit. We went to meet her at the bus station. She 
never showed up. I called her long distance and she didn't even 
remember that she was supposed to come. I told her, "Mother, 
something's wrong. I'm going to bring you here to find out what 
it is". A few weeks later, I finally got her to Philadelphia. 
She went through a thorough diagnostic evaluation. The diagnosis 
was Alzheimer's disease. 

For the next three years, we lived a nightmare. I felt like 
I was in a vise, with the screws just turning tighter and tighter 
between trying to raise my children, care for my mother, and keep 
a full time job. 

My stepfather was 80 years old. There was a limit to what 
he could do. I flew between Philadelphia and Atlanta just trying 
to get things organized for both of them. I can't begin to tell 
you how expensive that was. A short time later, my stepfather 



293 



was diagnosed with pancreatic cancer. My mother couldn't stay 
alone so I paid an aide $11 an hour for 10 hours a day to stay 
with her while he was in the hospital. He died within 6 months. 

The day after his funeral, I brought Mother to live with us. 
I even had to carry her to work with me a few days until I could 
arrange for day care. When I finally found it, it cost $32 a 
day. 

My mother was sick, but neither her insurance nor mine paid 
for any of her care. It almost wiped me out, taking all of the 
money I was saving for my children's education. I had a good job 
and was paid decently. But no one can afford to handle this kind 
of expense over a long haul. I can't imagine how an elderly 
couple on a fixed income would manage. Or how a parent working a 
minimum wage job could manage. 

My family's life was in chaos. I had to depend on my 
children to look after my mother when they came home from school. 
All of the juggling I was doing fell apart one afternoon when my 
daughter met me at the door and said, "Mom, this has got to 
stop!" My mother, who had always been a sweet adorable lady, 
had terrorized my son, chasing him around the house with a coat 
hanger until he ran to a neighbor's house for protection. 

I had to do something right away. The only option we had 
was to put her in a nursing home. It cost $100 a day and I had 
to sign papers saying I would be responsible for the bill. After 
working all her life as a secretary, my mother's pension and 
Social Security came to $12,000 a year -- not even a quarter of 
the nursing home bill. She could have qualified for Medicaid, 
but there was a two-year wait for a Medicaid bed. We couldn't 
wait . 

My children lost a part of their childhood. My son had 
serious problems in school . My daughter lost the money I was 
saving for her college education. We wanted to care for my 
mother. But we needed help -- and the help just wasn't there. 
Just a little help would have made such a difference for my 
mother and for my children. 

The program the President is proposing would have been a 
Godsend for us. It would have paid for enough help to prevent 
the crisis that forced us to the nursing home. We still could 
have provided most of Mother's care. And I would have paid a 
fair share of the cost of the help we received. 

Alternative Proposals Ignore Long Term Care 

Members of the Long Term Care Campaign and the Leadership 
Council of Aging Organizations recently released a mid-term 
report card on long term care, rating the various plans before 



294 



Congress. I would like to submit that report card for your 
record. The bottom line is, none of the other health care 
proposals before you, except for the single payer plan, does 
anything meaningful about long term care . 

Most of the plans would rely on private insurance. That 
just will not work. With monthly premiums of $200, $300 or more 
for reasonable coverage, it is just too expensive for most 
families. Tax incentives might make it affordable for a few 
more, but most families would still be priced out of the market. 
Is that really the way we want to spend the next tax dollars for 
long term care? Especially when companies will not sell policies 
to people who are most likely to need care. And most policies 
will not begin to cover all of the care a person with a long term 
illness or disability will need. 

My mother would not have been able to purchase long term 
care insurance and I could not have bought it for her, even with 
tax incentives and better standards. And with two children to 
put through college, I certainly could not afford such insurance 
for myself. 

There is one proposal on the table, the Cooper bill, that 
would take a huge step backwards. It would take away what 
federal support there is now for long term care . Imperfect as 
Medicaid is -- it at least provides some safety net for low- 
income families. Under the Cooper approach, states could use any 
money they "save" out of health reform to replace the federal 
dollars they will lose. But there are at least three problems 
with that assumption. 

• First, there is no guarantee states would use the money for 
long term care -- and there would be a lot of worthy 
competition for the dollars -- education, roads, jobs, for 
example . 

• Second, because the bill does not provide universal coverage 
for basic health care, there are still going to be a lot of 
uninsured families and someone is going to have to pay for 
their care -- there will be a lot of pressure on the states 
to pick up the pieces. 

• Third, even if every "freed up" dollar was spent for long 
term care, at best there would be enough money to sustain 
current Medicaid long term care benefits -- leaving families 
like ours right where we were, with no help at all. 

Long Term Care as Cost Containment 

We do not ignore the central concern Congress must have 
about cost. The President is proposing significant new 
expenditures for long term care. But there is mounting evidence 



295 



that such expenditures will yield important savings, in nursing 
home costs and in avoidable hospital expenses. 

• You will hear later this morning about Wisconsin's community 
options program which has led to a dramatic reduction in 
nursing home bed use in that state, at the same time bed use 
was rising 24% nationally. 

• According to the National Institute of Medicine, delaying 
admissions to nursing homes by just one month would save $3 
billion a year. Wisconsin proves this is an achievable 
goal . 

• In the Independent Living for Seniors program in Rochester, 
New York, use of adult day care has cut hospital utilization 
by participants in half. 

• A study released this summer found that costs of paid care 
for persons with Alzheimer's disease in a nursing home are 
three and a half times more than the costs of paid care for 
a person living at home. That is because families continue 
their central role as caregivers when they get help, instead 
of turning the whole job over to paid providers. 

Mr. Chairman, one of the principles of health care reform 
President and Mrs. Clinton talk about is personal responsibility. 
Th y are right. We all have to take responsibility for our own 
health and the health of the people we love. I didn't want to 
give up caring for my mother. But I had no choice. The system 
abandoned us. It abandoned my mother. It abandoned me. And 
most of all, it abandoned my children. 

Mr. Chairman, with health care reform, your Committee has 
what is the perhaps the most difficult and important challenge of 
our life time. But health care reform cannot accomplish its 
objectives.... It will not be comprehensive.... It will not 
provide health security for all Americans.... And it will not 
contain costs.... Unless you include long term care. 

All of the organizations in the Campaign, and all of the 
families and 221 Chapters that make up the Alzheimer's 
Association are prepared to work with you to make that happen. 



296 

Mr. Brown. Mr. Young, your opening statement, please. 

STATEMENT OF ANTHONY J. YOUNG 

Mr. Young. Crood morning, Mr. Chairman. I am Tony Young, Di- 
rector of Residential and Community Support Services with the 
American Rehabilitation Association. I am appearing before you 
today as a consumer of long-term services and as a representative 
of the Consortium For Citizens With Disabilities, a coalition of over 
100 national organizations representing consumers and providers 
of services to people with disabilities. 

I have several points to make this morning, but the one over- 
riding message that I want to convey to you is this: Health care 
reform that does not include provisions to address the urgent need 
for long-term service is not real reform. It is critical that reform 
proposals address both the acute and long-term service needs of 
Americans with disabilities of all ages. 

I can tell you from personal experience that effective long-term 
services can have a profound effect on a person's life. As an individ- 
ual who is a C-4 quadriplegic, I require assistance with many ac- 
tivities in my life, including bathing, dressing, eating, toileting, 
transferring and other tasks. Before I was able to arrange personal 
assistance, I spent my time watching television and sleeping. There 
were many days when I never got out of bed because my family did 
not have the energy to help me in both mornings and evenings 
after working all day. 

With personal assistance, I have been able to complete a degree 
in business administration and to work in a series of jobs which 
have developed into a satisfying career. I have an active social life 
and participate in a variety of community activities. 

The lack of effective long-term services frustrates the efforts of 
individuals with disabilities to live in the community, to find jobs, 
to receive employment training and do all the different things that 
makes one a participating member of society. An effective long- 
term services program would assist providers of residential, voca- 
tional, habilitation, rehabilitation, and medical services to enable 
people with disabilities to achieve their chosen goals. 

There are many strengths to the President's proposal. First, the 
eligibility criteria do not exclude people by categories such as age, 
disability or income. This is a major improvement in eligibility de- 
termination approaches. 

The proposal also calls for a broad range of long-term services. 
Individuals with families have diverse needs for long-term services. 
Comprehensive, flexible long-term services are essential in order to 
meet these diverse needs to preserve families and to support people 
in their own homes and communities. The President's proposal 
does not require individuals and families to impoverish themselves 
in order to receive long-term services. 

The introduction of a disability into a family means substantial 
changes. One of those changes should not be the forced divestiture 
of all resources. No family wants anymore than to be able to help 
their family member stay at home without being an undue burden 
on the family structure. 

The proposal maximizes the empowerment of people with disabil- 
ities by infusing consumer control into all levels of the long-term 



297 

services system. Individuals with disabilities and their representa- 
tives will constitute a majority of both the Federal and State advi- 
sory committees that will design and monitor the new systems. 
Consumers will be able to choose their own services and service 
providers as well as to direct them. 

There are substantial investments in productivity in the Presi- 
dent's proposal. The tax credits for working individuals with dis- 
abilities will be the difference for many people that will enable 
them to work. They cannot afford to work now due to the cost of 
the personal assistance required for them to hold jobs. This pro- 
gram should encourage individuals with disabilities to be produc- 
tive members of society. 

There are a number of improvements or refinements to the Clin- 
ton proposal that CCD would like to suggest. As currently drafted, 
the severity requirements for eligibility will not cover many people 
who desperately need long-term services. We are especially con- 
cerned that the eligibility criteria for persons with cognitive and 
mental impairments and children with disabilities be appropriate 
to capture those who most require services. 

Another improvement involves the range of services that State 
programs are required to offer. States must be required to dem- 
onstrate — show conclusive assurances that all needs of eligible in- 
dividuals with disabilities can be met within their State plans. 

The current schedule outlined in the draft bill raises several 
problems. CCD recognizes that the individuals with disabilities 
should participate in the financial possibility for long-term services, 
but there must be a cap for low- and middle-income families on 
long-term service, out-of-pocket cost, similar to those placed on out- 
of-pocket costs for acute care. 

None of these problems are insurmountable. CCD looks forward 
to working with the Congress to make this program the best sys- 
tem possible. CCD will submit specific legislative language to ad- 
dress these issues within 2 weeks. 

All individuals with significant disabilities have one thing in 
common, the promises of the Americans With Disabilities Act, for 
inclusion in the mainstream of American society are meaningless 
to us without effective long-term services. Many of us would never 
be able to contribute to the Nation's economic, cultural or spiritual 
growth without long-term services. You can make the — ^you can en- 
sure that the promises of the ADA are kept for people with signifi- 
cant disabilities by making long-term services an indispensable 
part of the health care reform. 

Thank you for this opportunity. I would be happy to answer any 
questions you might have. 

Mr. Brown. Thank you. 

[Testimony resumes on p. 309.] 

[The prepared statement of Mr. Young follows:] 



298 



TESTIMONY OF ANTHONY J. "TONY" YOUNG 

ON BEHALF OF THE 

CONSORTIUM FOR CITIZENS WITH DISABILITIES 
LONG TERM SERVICES AND SUPPORTS TASK FORCE 

Good Morning, Mr. Chairman. I am Tony Young, Director of Residential and Community Support 
Services at the American Rehabilitation Association, formerly the National Association of Rehabilitation 
Facilities. I appreciate this opportunity to appear before you today as a consumer of long term services and 
professionally on behalf of ARA and the Consortium for Citizens with Disabilities (CCD). ARA is the 
largest national trade association representing providers of medical, vocational, and residential services to 
individuals with disabilities. 

CCD is a working coalition of over 100 national consumer, advocacy, provider, and professional 
organizations which advocate on behalf of people of all ages with physical, mental, and sensory disabilities 
and their families. Since 1973, CCD has advocated for federal legislation, regulations, and funding to 
benefit people with disabilities. My testimony today is presented on behalf of the undersigned members of 
the CCD Task Force on Long Term Services and Supports. 

As an individual with quadriplegia at the C-4 level I require assistance with many activities in my life, 
including assistance with bathing, dressing, eating, transferring, travel, shopping, laundry, housekeeping, 
and taking medications. These services form the foundation onto which 1 build my life of work and leisure. 

These are critical services for me and for many other people with severe physical disabilities. 
However, in designing a national long term services program. Congress must keep in mind that the causes 
and consequences of chronic disabilities are highly varied and require significantly different responses on the 
part of the service delivery system, depending on the nature and extent of the individual's disabling condition 
as well as the surrounding circumstances of his or her life. An infant with complex medical needs in 
combination with severe cognitive disabilities will require a much different constellation of services and 
supports than someone with needs similar to mine. Likewise, a young adult with severe and persistent mental 
illness needs access to an array of continuing and intermittent supports that would be inappropriate in the case 
of an elderly individual who no longer is able to perform basic functions of daily living. Formulating an 
effective national long term service policy, therefore, must begin with an appreciation of the diversity of 
needs represented among the millions of Americans with severe disabilities and proceed to the creation of 
financing mechanisms and service delivery strategies that fully accommodate these differences. 

PERSONAL SITUATION AND SYSTEMS ISSUES 

All of my personal needs are not met by the current service system. While there are some services 
and supports available, the major funding source — Medicaid — is not available to me unless I impoverish 
myself. Many states severely limit the duration and scope of personal care that their Medicaid programs will 
purchase. Furthermore, even if a state has a Medicaid home and community-based waiver program, it may 
be targeted to elderly individuals or to people with specific types of disabilities and not available to 
individuals with other disabling conditions. After I became disabled, I became eligible for Medicare after 
two years but Medicare does not cover any ongoing personal assistance or rehabilitation. These gaps must be 
filled. 

It is fair to say that personal assistance services have not simply influenced my lifestyle; they have 
enabled me to have a lifestyle. Without the education, employment, mobility, and freedom of choice that 
personal assistance services have brought to my life, I would have a bleak existence and an even bleaker 
future. Consider the differences with and without personal assistance services. 

Without personal assistance services I spent the majority of my time watching television and sleeping. 
I watched television because it was my only companion, as I was unable to get out to see friends and meet 
new people. I slept to escajw the boredom of watching television. There were many, many days when I 
never got out of bed because my family did not have the time or the energy to help me in both the mornings 
and the evenings, especially after working all day. 

The days when I did get up were short days, partly because I had to do so between family members' 
work schedules, and partly because I didn't get up enough to build up my endurance. Even though I never 
worried about getting food, drink and medications, there wasn't much more to my life than eating, sleeping, 
and watching television. 



299 



With personal assistance services I have been able to complete a degree in business administration and 
to work in a series of jobs which have developed into a satisfying career. I manage to pursue an active social 
and advocacy life, and I have a reasonable expectation that these activities will continue. I find myself 
thinking of the future in terms of the next few years instead of the next few days. I find myself now living in 
a world of potential rather than a world of despondency. There is the potential of a home of my own, and a 
family of my own. 

This is not to say there are not problems with my personal assistance arrangements. The current 
system of long term services does virtually nothing for me. I am not eligible for any subsidies because of my 
income level. The current tax structure is limited to medical deductions, which are subject to a 7.5% 
Adjusted Gross Income exclusion, and deductions for personal assistance at the worksite. 

Therefore, my family and friends must still spend too much time helping me, because I can only 
afford about one quarter of the long term services time I really need. I now pay about $600 a month for 60 
hours of services, an average of about two hours per day. The rest of the support time I need, about six 
hours per day, is provided through a combination of family, friends, and my far-sighted, enlightened, 
supportive employer. There is no way I could personally afford the full cost of my long term services, which 
can be as high as $2,000 a month. In addition, my private insurance covers rehabilitation services and 
therapies if I need them. My insurance also covers my equipment, such as my wheelchair, my braces, and 
training to use this equipment properly. 

With this system I often receive inadequate personal assistance services in the form of too few hours 
of services, leading to health problems such as pressure sores from lack of pressure releases, or urinary tract 
infections from a lack of fluids (I can't use the bathroom because I don't have the assistance 1 need, therefore 
I simply don't drink any fluids). Sometimes I am forced to employ providers with inadequate personal 
assistance services skills in order to have someone to cover enough hours of basic services such as food 
preparation and assistance with eating. In addition, I cannot offer my personal assistance services employees 
typical benefits, including sick and annual leave, or health insurance, rendering it very difficult to recruit and 
retain quality personzd 2issistance services providers. 

I choose to hire my own attendants for certain reasons. People can receive attendant services through 
home health care agencies and often are required to do so if the services are being paid for by Medicaid. 
However, if you are paying for services out of your own pocket, agency-run programs are often costly and 
do not permit full consumer direction. 

Simply locating good personal assistance services workers is a daunting task, as is keeping them once 
they are located. It is difficult for individuals working alone to locate reliable, competent employees to fill 
personal assistance services positions. I do not have the authority or the resources to investigate the 
backgrounds of potential personal assistant services providers who answer requests for applications. Too 
often the only way for me to judge the true character of a personal assistance services provider is to allow the 
provider into my home and monitor the individual's performance. This is an inappropriate, dangerous 
procedure. 

I have attempted to work with various agencies, including an Area Agency on Aging and a Center for 
Independent Living, in order to recruit workers. Efforts to create registries of potential workers have had 
limited success, at best. These agencies, despite their best efforts, do not now have the resources to maintain 
a system that could offer pools of eligible workers, emergency workers, or orientation programs for these 
workers. A better, more comprehensive system must be established. 

I manage despite these problems, although at times I feel as though I am operating a personnel 
department in order to conduct my professional and personal life. Maintaining an adequate personal long 
term services system consumes a great deal of my time and energy, in addition to money. I am fortunate that 
I have a job which pays me enough to afford what I can, and that I have an employer, family, and friends 
that help to make up the staggering difference. Few others are as fortunate as I am. Given the age of some 
of my family members, my good fortune will end in a short time as well. 

This is my personal experience with long term services. Other individuals with different disabilities 
will have different service ne«ls, hour requirements, and circumstances to contend with. A person with a 
cognitive disability might need several hours per week of assistance in managing their money and making 



300 



financial decisions. In another instance, a person might need a reader, sign language interpreter, or oral 
interpreter to communicate with landlords, relatives, or shopkeepers. 

People with other long term support needs, such as individuals with mental retardation or 
developmental disabilities or people with serious mental illness, typically receive their services through a 
variety of specialized provider agencies. Many of these community providers serve individuals who are 
receiving Medicaid-reimburseable services. However, access to these services depends on the state you live 
in and your level of income and resources. Again, Medicaid services are limited to individuals with very low 
incomes who are among the most vulnerable. But I would prefer not to make myself more vulnerable by 
becoming poor just to receive services. As I said, I want to be productive and live my life. 

Many people with disabilities are in jeopardy of being placed in a long term care institution, such as a 
nursing home, psychiatric treatment facility, or a residential center for people with developmental disabilities. 
The existing federal policy bias toward using institutional care when a person has a particular diagnosis or 
may need a high level of service must be reversed. I know I would never voluntarily choose this option, as 
most others would not. 

The lack of an effective long term services system raises additional systems issues as it complicates 
the delivery of residential, vocational, habilitation, and medical services. Consumers are hampered in their 
efforts to achieve their life's goals because they do not have the services and supports necessary to access 
needed services from providers in the community. Although the symptoms of this problem manifest 
themselves in different ways for different providers, the underlying cause of each symptom is the lack of a 
solid foundation of long term services. 

Consumers needing residential services and supports face the most flagrant of the problems. In their 
efforts to locate community living arrangements, individuals and providers must struggle with funding 
sources that require burdensome levels of resident supervision, and service requirements which force the 
creation of miniature institutions rather than homes. These same programs may be unable to compensate 
provider personnel with a living wage and with benefits commensurate with the professional level work they 
perform, resulting in great difficulty in recruiting quality personnel, and an unacceptably high turnover rate 
among staff. These and other restrictions conspire to keep some residential services unacceptably expensive, 
inappropriately institutional, and inordinately difficult to deliver. 

Individuals with disabilities needing vocational services are hampered as well. The most obvious 
impediment is a lack of transportation, in the form of drivers and companions to assist in the use of public 
transit, which prevents participants from traveling to the worksite. Less obvious, often because this situation 
is not reported due to its embarrassing nature, is that people with severe disabilities have no one to help them 
get them out of bed, washed, dressed, and into their preferred mobility aids. This barrier not only prevents 
people with severe disabilities from getting to work, but also forces individuals to either inappropriately rely 
on volunteers, coworkers, and even supervisors in order to eat lunch and use the bathroom while at work, or 
to try to do without food and drink all day long. 

In situations where consumers receive acute rehabilitation, physical and occupational therapy, and 
related services, they often face an impossible task when attempting to complete the final step in returning to 
the community. They face the dilemma of returning to a community setting without adequate long term 
services or staying inappropriately in the acute or chronic care facility. Without appropriate support services, 
returning to the community often results in the person developing additional health problems, which increases 
the chance of the person obtaining a secondary disability, adds severe stress to the family, and drastically 
reduces the individual's quality of life. Remaining in an acute or chronic care facility results in unnecessary 
costs, an inappropriate living situation for an individual who is no longer ill, and prevents an individual in 
true need of acute or chronic care services from receiving those services. Appropriate community supports 
would prevent these negative outcomes. 

VARYING LONG TERM SERVICE NEEDS: SOME EXAMPLES 

The following are brief descriptions of various people with disabilities of all ages and the 
circumstances of their lives. Long term services reform as a part of the health reform package will be vitally 
important to them all. 



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o A ten year old boy in Connecticut who required 24-hour a day ventilator support lived in a hospital 

for the first three years of his life. With intensive respiratory interventions and exercise, he has been able to 
reach the point where he lives at home with his family, attends public school in the fifth grade, and requires 
ventilator support only at night while sleeping. Continued access to such support will be vital to him. 

o A twenty-eight year old man lives in a nursing home in Virginia because he is unable to receive the 

combination of nursing services, personal assistance services, and companion services which he needs to 
remain in his home. As a result of multiple gunshot wounds, he is paralyzed from the neck down, requires a 
ventilator, and uses a motorized wheelchair controlled by a mouthstick. His marriage has ended and he is 
now able to see his two children, ages seven and four, in short visits spread over the year, totalling only 
about 48 hours a year. With proper personal assistance and other long term supports, he could live in his 
home community and participate more fully in the lives of his children. 

o A young woman, age 24, with cerebral palsy and mental retardation has benefitted significantly from 

the Medicaid community supported living arrangements services program. She lives in her own apartment 
with a roommate and counselor, has found a job, and pays taxes. She has formed new friendships and has 
increased her independence, access to the community, and her self esteem. Although she has made great 
progress, she will continue to need long term services and supports for the foreseeable future. 

o A twenty-five year old man in Maryland who is diagnosed as having paranoid schizophrenia has spent 

many months in psychiatric hospitals over the last several years. Although his disability and numerous 
hospitalizations had a serious impact on his ability to participate in school, he eventually earned his diploma. 
Through a community outpatient psychiatric rehabilitation program, he receives numerous long term support 
services which are enabling him to become more independent in the community. He receives assistance in 
keeping his medications under control, learning to use public transportation, learning job seeking skills and 
appropriate business attire and behavior, managing money and paying bills, and is learning to live on his 
own. He will need continued support in various aspects of his life in order to maintain and increase his 
ability to live independently and to avoid future hospitalization. 

o A seventeen year old girl is experiencing major changes in her life as a result of traumatic brain injury 

during a car accident. She is having a slow recovery, is experiencing learning problems, frustration and 
extensive social changes, and attends school only half day while she receives rehabilitation services everyday. 
As she matures and as the extent of her injuries are revealed, she will need various supports over time, 
including services to assist her in making the transition from school to work and to assist her to become as 
independent as possible within her community. 

o In Wisconsin, a young boy bom with cerebral palsy and sensory impairments requires a tracheostomy 

tube to help him breathe, a gastrointestinal tube to help him eat, and other extensive medical, health, and 
social supports. He lives at home with his family, attends his neighborhood school, and relies on a number 
of basic supports from numerous sources such as the school system, private insurance, Medicaid waiver 
services, and state and county community and respite care services programs. While managing services 
from many different sources is complicated, the mix enables him to live at home and to stay out of an 
institution. He will continue to need supfwrt at school, specialized therapies, prescription medications, 
special diets, personal assistance, adaptations such as a lift on the family van, and support for community 
living as he grows older. 

o A retired fifty-six year old woman with multiple sclerosis has periods when she is able to take care of 

herself with just a few hours of personal assistance a day. However, there are periods when her condition 
worsens and she is completely paralyzed, sometimes leading to hospitalization and the need for total care 
when she returns home. She needs a wide range of long term services that can be provided in varying 
intensities depending on her needs at a given time. However, her retirement income — a small pension and 
some income from investments — is insufficient to pay for these services. Medicaid does not provide the 
home and community based services she needs and, to be eligible for nursing home care when she needs total 
care, she would have to impoverish herself by spending all of her income-generating assets, at which point 
she would no longer be able to afford to live in her own home. 

CCD APPROACH 

CCD has considered the development of a comprehensive long term services program to be a critical 
need area for many years. A comprehensive long term services program would include supported living 

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services, personal assistance services, supported employment, assistive technology devices and services, and 
an array of community support services for people with disabilities. 

CCD's Task Force on Lx)ng Term Services and Supports is a combination of two previous Task 
Forces. The Task Force on Long Term Services/Medicaid worked on issues related to the long term service 
provisions of Medicaid. The CCD Personal Assistance Services Task Force, created in 1990, included 
representatives from across the disability community, including people with physical, cognitive and other 
mental impairments, including mental illness, and sensory impairments. Together we worked to refine the 
draft bill Personal Assistance for Independent Living originally produced by the World Institute on 
Disability. 

In addressing personal assistance issues, CCD established working groups on crucial issues of system 
design; training and compensation; quality assurance; eligibility & services; and due process. The 
deliberation of these groups lead to the development of a concept paper, Recommended Federal Policy 
Directions on Personal Assistance Services for Americans with Disabilities , that sets forth the philosophies 
and principles that CCD believes any comprehensive personal assistance services program must meet. This 
document is included as Appendix 1 . 

CCD has been meeting on an ongoing basis with the American Association of Retired Persons, the 
Long Term Care Campaign, the Older Women's League, the Alzheimer's Association, Families USA, and 
other groups representing elderly people to discuss and compare our long term service proposals with a view 
toward defining areas of consensus regarding long term services between the disability and aging 
communities. Ideas, views and opinions are exchanged among the groups through a number of meetings and 
forums. Together, CCD, AARP, and the Alzheimer's Association have presented consensus 
recommendations to the Administration Working Group on Long Term Care. While there has not been total 
agreement in all areas, there is enough common ground among the groups to establish an ongoing dialogue 
and a continuing working partnership. 

REACTION TO PRESmENT CLINTON'S PROPOSAL 

President Clinton's proposals on long term services (as embodied in H.R. 3600) have many strengths. 
He calls for a bold new commitment of $38 billion per year (at full implementation) for services that are 
vitally need by people with significant disabilities. If I am able to leave you with only one message today, 
it would be this: It is absolutely critical that long term services be part of the reform of our national 
health care system. We must stress that ignoring long term services will short-change many people and 
limit the effectiveness of any health care reform. 

There are many positive aspects to the President's plan and some areas where the plan can and must 
be strengthened. CCD is committed to work together with the Congress and the Administration to ensure 
that the best possible reform program be enacted. In addition to what is presented here, the CCD Long Term 
Services and Supports Task Force is preparing a paper addressing specific recommendations for statutory 
language and we will submit those additional comments to you within two weeks. 

A. STRENGTHS OF THE FRESffiENT'S PROPOSALS 

There are many commendable components in the Clinton long term service proposal. 

1. New Commitment to Long Term Services -- First and foremost is the President's willingness 
to commit new federal resources -- at least $38 billion dollars per year at full implementation - to expanding 
and improving long term services that are desperately needed by Americans with significant disabilities. This 
commitment will enable thousands of people with disabilities to access education and training programs, hold 
jobs, and participate in community activities — often for the first time in their lives. 

2. Emphasis on Home and Community Services — CCD is pleased with the Clinton 
Administration's emphasis on expanding access to home and community based services rather than 
institutional services. In general, home and community based services are more cost effective than 
institutional services and afford people with disabilities greater opportunities to become contributing members 
of society. The overwhelming desire of most people with disabilities of all ages is to remain in their own 
homes and communities, while receiving the support services necessary to remain as independent as possible. 



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3. EligibiliW Criteria — The President's plan takes a positive step forward in attempting to cover 
people of all ages with all types of disabilities — cognitive, mental, and physical. Historically, other 
proposals have excluded people on the basis of one type of disability, such as mental illness; CCD considers 
that approach unacceptable. The President's proposal also allows eligibility for all income levels, thereby 
beginning to address the marriage penalties of the income-based programs and the problem of people having 
to impwverish themselves in order to have the assistance they need to survive and prosper. It also addresses 
the work disincentives issue, where people who are receiving needed services accept a job, lose their 
benefits, and yet do not earn enough money to meet their basic living needs and purchase their disability- 
related goods and services. 

4. Basic Philosophies — The disability community is delighted to see that the Clinton proposal 
contains many principles and philosophies that we believe must be a part of any long term services system if 
it is to be effective. These principles include a commitment to consumer directed services, an option for the 
use of vouchers or direct cash payments, consumer involvement in planning the state long term services 
program, and individualized service needs assessments and plans of services. 

These directions are particularly important because of the changing nature of the entire disability 
services system and we applaud the Administration's recognition of them. Services for individuals with 
disabilities historically have been delivered in a paternalistic manner. In light of the promise of 
empowerment implicit in the Americans with Disabilities Act, people with disabilities now expect to exercise 
an increasing degree of control over their lives, their rehabilitation and their support systems. Involvement in 
the design, direction, management, and assessment of their individual support services enables people with 
disabilities to exercise a degree of control over their own lives that is essential to physical and emotional 
well-being. 

The ability of people with disabilities to participate actively at the planning level of long term services 
means that there will be a greater chance that the service system ultimately will meet the needs of those it is 
intended to serve. Given tifie number of jobs that will be created by a new $38 billion a year program, this 
program represents an unique opportunity to employ some of the persons with disabilities in America (67 
percent of whom are not working) through their participation in policymaking, administration, management, 
and direct service jobs that will be created. 

5. Tax Treatment - The proposed tax credits and changes in medical care deductions will help to 
offset the extraordinary expenses of living with a disability and assist people with disabilities to enter the 
workforce by giving them a measure of economic equity with those who do not need to pay these 
extraordinary costs. 

6. A Good First Step — CCD believes that the President's long term services plan represents a . 
significant beginning for a system that should ultimately be comprehensive. While it is desirable to make 
long term services available right away to all individuals with disabilities who need them, CCD recognizes 
that fiscal restraints wUl necessitate the gradual phasing in of coverage in some orderly fashion. We are 
concerned about phasing in this coverage in an equitable manner so that people with varying types of 
disabilities and economic circumstances will be treated fairly and in a manner which ensures that their needs 
are appropriately met. 

B. ISSUES TO BE ADDRESSED IN THE CLINTON PLAN 

In the previous section, I have described the numerous positive aspects of the President's proposal for 
long term services reform and, in particular, those areas which reflect the principles and philosophies which 
the disability community believes must be included in any true reform of long term services. In this section, 
I want to draw your attention to various issues that CCD has identified which raise serious concerns about the 
effect of the proposal on people with disabilities. We believe that these are not insurmountable obstacles and 
we look forward to working with the Subcommittee and the Administration to resolve these and other issues. 

1. Eligibility Criteria — The eligibility criteria contained in the proposal cU'e too limited in several 
ways. Taken as a whole, the criteria would not cover many people who clearly need long term services. 
The President's principle of universal coverage would not apply to long term services where eligibility is so 
limited. Concerns regarding the specific criteria are as follows. 



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According to the Administration's own estimates, only about 25 percent of the people who need long 
term services and supports will be eligible to receive them under the proposed new, universal home and 
community funding authority. Congress should recognize that the use of the "3 out of 5 activities of daily 
living (ADLs)" test will leave many people with physical disabilities with substantial service needs without 
coverage. 

The Administration-proposed equivalency criteria applicable to people with cognitive and mental 
impairments would similarly extend eligibility to only a small percent of people who need long term services. 
Successful community support programs have evolved which prevent or decrease utilization of institutional 
care by providing seamless access to services that include rehabilitation and assistance to people with 
cognitive or other mental impairments in areas such as: nutritional needs, including purchasing, storing, and 
preparing food; taking medications; and budgeting for food, clothing, and shelter. We want to ensure that 
people with serious cognitive or mental impairments who require such extensive ongoing services and 
supports are not excluded by the use of inappropriate criteria. The standard mental status exam proposed by 
the Administration has yet to be developed and validated. Responsibility for development of that criteria is 
left to the Secretary. While we recognize that the bill includes some significant changes (from prior drafts) 
regarding the need for supervision and in the use of instrumental activities of daily living, we want to assure 
that the process used to develop the standard criteria includes experts representing the broad range of types 
and causes of mental and cognitive impairments. 

Finally, the criteria for use with children is far too limited. It would cover only children under age 
six who would otherwise require hospital or institutional care. This standard would, once again, use 
institutional need as the yardstick for eligibility, thereby furthering the institutional bias which already 
permeates the Medicaid program. The need for and availability of home and community services should not 
be benchmarked against institutional admissions criteria in the case of either children or adults. An earlier 
draft required that the child also be technology dependent. Such a requirement would be severely limiting 
and would likely leave children with equivalent disabilities who do not depend on respirators or other 
technological devices without the home based support that they need. Finally, it is not clear what happens to 
children over age six who otherwise meet the children's criteria and to children of any age who might qualify 
under one of the other criteria. Are criteria that are standardized on the adult population to be used in 
establishing the eligibility of children over six years of age? 

CCD had submitted to the Administration proposed criteria which would attempt to reach people who 
do not meet the ADL and other tests yet have disabilities at levels equivalent to the 3 ADL criteria. Such 
criteria would give the Secretary flexibility in assessing other circumstances and factors for eligibility as 
needed. We believe that a provision granting the Secretary discretion regarding inclusion of other people on 
the basis of medical condition or other circumstances should be added. In addition, CCD's proposed criteria 
(Appendix 3) would have used the SSI functional approach (for evaluating disability only) for all children 
from birth to 18 years of age, that is: inability to function independently, appropriately, and/or effectively in 
an age-appropriate manner. We will propose specific recommendations regarding these eligibility issues in a 
separate paper within the next two weeks. 

CCD believes it is important to note that, although the eligibility criteria are not ideal, the proposal 
reflects an understanding of the need to use different approaches for determining eligibility for people with 
differing disabilities. This is within the expressed intent of covering people with all types of disabilities, 
regardless of diagnosis. 

2. Scope of the Basic Service Package - There are two issues which must be addressed regarding 
services to be covered under the new home and community long term services program. One is the breadth 
of the service package and the other is the definition of personal assistance services itself. 

a. Breadth of the Basic Service Package - Regardless of the ultimate definition of personal 

assistance (discussed below), the proposed program must recognize that personal assistance services is only 
one element of the array of long term services and supports required by people with severe disabilities. As I 
stressed earlier in my testimony, severe disabling conditions occur in many forms and, thus, a broad array of 
services and supports must be available to appropriately address the needs of all eligible participants. There 
is a real danger that many eligible individuals - especially people with significant mental and cognitive 
disabilities or multiple disabilities — will be denied the full range and intensity of community services they 
need if this new federal funding authority is narrowly construed by the states. Given the fact that federal 
funding levels would be capped and the states granted broad discretion in determining the range of services to 

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be provided (i.e., other than personal assistance services), we believe that this danger is a real possibility 
which should be seriously addressed. 

CCD believes that the services which are considered to be state options under the President's proposal 
should, in fact, be part of the basic service coverage in each state, in addition to personal assistance services. 
As stated in the proposal, these services include "any other community based long term care services 
including: case management, homemaker and chore assistance, home modifications, respite services, assistive 
technology, adult day services, habililation and rehabilitation, supported employment and home health 
services not otherwise covered under Medicare, private insurance or through the basic health plan." 

In addition, we believe that the bill language should be strengthened regarding the requirement for 
states to demonstrate in their state plans that the range of services to be offered will be sufficient to meet the 
needs of all eligible people regardless of the type of disability they have, their age, or the level of complexity 
posed by their disabling condition. In preventing the furtherance of the use of institutions, it is important that 
people have access to a full range of n^ed services and that they not be forced to accept institutional 
services for lack of adequate and appropriate home and community services. Costs should not be an issue in 
making these changes since the level of federal financial participation is capped. CCD's recommendations 
would, however, assure that people with disabilities will be eligible for similar services no matter where they 
live thus ensuring interstate "portability" of long term services and supports and that they will not be subject 
to the vagaries of state-level political decision making regarding vital services which they require through this 
joint federal/ state program. 

b. Definition of Personal Assistance Services — In the Clinton plan, personal assistance services 
for the new home and community services program are defined by the state and must include at least "hands- 
on and stand-by assistance, supervision, and cueing with activities of daily living." CCD believes that the 
inclusion of sup)ervision, standby assistance, and cueing is important and should remain in the definition. 

However, CCD is concerned that the definition only references activities of daily living. This aspect 
of the definition will make the services useful primarily to people with physical impairments who meet the 
ADL test and will not address the personal assistance needs of jjeople with mental or cognitive impairments 
who are otherwise eligible. CCD has recommended a broad definition of personal assistance services which 
would include the services needed by people with cognitive and other mental impairments and sensory 
impairments. This definition can be found in the paper Recommended Federal Policy Directions on Personal 
Assistance Services for Americans with Disabilities in Appendix 1 . 

Again, broadening the definition to include essentially any services which will assist the functioning 
of an individual should not affect the cost of the proposal since the home and community based services 
program is capped. Broadening the federal minimum definition will, however, allow the states to be more 
flexible in meeting the needs of all eligible people in the program. We note that the bill includes a much 
broader definition of personal assistance services in the (Section 7901) dealing with the tax credit. We will 
propwse more specific recommendations. 

The proposal makes a distinction between agency-administered and consumer-directed services. We 
note that, while consumer-directed or voucher programs may be the purest form of consumer control, even 
agency-run services can be designed to be consumer-directed in many respects. 

3. Medicaid Long Term Services for People with Low Incomes — Central to our analysis of the 
impact of the new program on people with disabilities is the elimination of the previously-proposed low 
income home and community services program. Instead, the bill assumes that the Medicaid program will 
continue to provide both home and community and institutional long term services to people who are eligible 
for Medicaid. Given the fact that the new eligibility criteria for the Administration's new long term services 
program is much more limited than the current eligibility criteria for Medicaid long term services, the 
continuation of community services through Medicaid is absolutely essential to meet the needs of people who 
are now eligible for Medicaid as well as people who may become eligible for Medicaid in the future. For 
example, under the Medicaid optional programs now available to people with serious mental illnesses 
(targeted case management, clinic services, and rehabilitation services), innovative long term services have 
reduced unnecessary or prolonged institutional care, homelessness (which can be prevented or ameliorated 
with assertive community treatments when not restricted by arbitrary limitations) and inappropriate 
incarceration of children and adults when there are no other places of treatment or supports because of 
inadequate funding in the health care system. 

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CCD believes that it is necessary to continue to make improvements to the Medicaid long term 
services programs so that they will better reflect state of the art approaches in serving people with disabilities. 
Such improvements are needed in: the home and community based waiver program (including the expansion 
of the definition of habilitation services to include supported employment for all waiver recipients), making 
the community supported living arrangements services program a coverage option under all state Medicaid 
plans, eliminating the discriminatory treatment of low income people with mental illness under the Section 
1929 home and community-based state plan coverage option, the Intermediate Care Facilities for the 
Mentally Retarded (ICF/MR) option, and improving administration and regulation of OBRA 1990 PASARR 
requirements regarding inappropriate nursing facility admissions. CCD has previously submitted to Congress 
specific proposals for dealing with each of these limitations in current Medicaid policy; and, I would stress, 
none of them have been shown to cause a significant increase in federal-state Medicaid spending. 

It should also be noted that most current Medicaid long term services are optional to the states. In 
conjunction with the differential federal match available to states for services under the new home and 
community program (expected to be significantly higher than the match for the remaining Medicaid 
program), there is significant fear that states will divert existing Medicaid matching dollars that currently are 
being used to furnish community services to low income people who need them but who would be ineligible 
under the new program's stricter eligibility criteria. This potential situation raises serious issues of long term 
security for individuals and their families and must be addressed in any forthcoming legislation. 

We will be submitting more specific recommendations regarding these Medicaid issues within two 
weeks. 

4. Consumer Involvement — As discussed above, the Administration proposal rightly includes a 
new focus on consumer involvement in various aspects of federal and state policymaking. CCD believes that 
this positive direction should be enhanced with greater attention to consumer involvement in state planning 
and program design, and in quality assessment of the services and supports and the system through which 
they are provided. CCD submitted extensive consumer participation recommendations to the Administration 
earlier this year. These recommendations, which would enhance the role of consumers and their 
representatives at the policy and implementation levels, are attached as Appendix 4. 

In addition, it is crucial that the proposed Medicaid Commission (to be appointed to determine the 
future of Medicaid acute and long term services) have adequate representation and input from all areas of the 
disability community. As major consumers of Medicaid acute and long term services, the disability 
community must be heard and must be a full participant in efforts to develop the Commission's 
recommendations. We believe that the Commission must have full staff support and must have the resources 
to support the disability-related costs of participation of Commission members with disabilities. We will 
submit further recommendations regarding this issue. 

5. Institutional Bias - The current Medicaid program contains clearly recognized institutional 
biases which CCD believes should be eliminated and thus should not be carried forward into or exacerbated 
by any new home and community services funding authorities. According to unpublished data prepared by 
SysteMetrics, Inc. for HCFA, approximately 85% of the $38.9 billion in Medicaid expenditures for long 
term services for low-income people in FY 1992 was spent for care in institutional settings (nursing facilities 
and ICFs/MR) while 15% was used for home and community-based services. It is our hope that the creation 
of a new community long term services program would help to reverse these current biases. However, there 
are some features of the proposal which we believe threaten to establish new biases in favor of institutions. 
They include: establishing a cap on expenditures for the new community services program while the nursing 
facilities and ICFs/MR remain uncapped; new mandates for medically needy spend-down programs for 
institutional services but not for community based services; proposed increases in the resource limits and 
personal needs allowance, which are sorely needed but which are targeted only to people living in institutions 
without comparable income and resource protections for people living in the community; and the lack of a 
limit on out-of-pocket expenses for long term services (see further discussion below regarding co-payments). 
[The Administration's subsequently-abandoned low income proposal contained features which many believe 
would have further exacerbated the institutional biases of the Medicaid program. We believe that those 
features were completely unacceptable, but will not dwell on them here.] We urge Congress to address these 
institutional biases and we will submit more specific recommendations. 



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6. Equity in Co-Payments — As in the acute portion of the plan, CCD believes that more work is 
needed on the co-payment sliding scale. The amount an individual or family (with a member living at home) 
is required to pay should also be capped, based on a percentage of income. Otherwise, the current co- 
payment structure may make home and community long term services exorbitantly expensive for people with 
low incomes. Particularly since people with higher incomes will be eligible for services, it is imperative that 
the costs of services not be out of reach of low and middle income individuals and families. This would be 
especially true of individuals with high service needs and costs. Is it fair that a family of four with a net 
taxable income of $24,000/year which is supporting a ventilator-dependent child at home, whose costs total 
$85,000, should pay fully 10 percent of the cost with no cap, while they would incur no costs if the child 
were institutionalized in a Medicaid certified long term care facility? Similarly, should not a couple with net 
income of $125,000/year £md community services costs of $8,000 be required to pay more than $3,200 per 
year? 

Further, it is unclear what impact the tax credit will have on low and high income people in relation 
to their co-payment costs. We are concerned that the tax credit does not appear to be available for working 
families with children with disabilities and families with non-working adult members with disabilities and Uie 
tax credit has been written to apply only to people with physical disabilities. In addition, there is great 
concern within the disability community with the proposed prohibition against allowing states to use income 
as a basis for allocating resources during the phase-in, since this will prevent states from targeting resources 
to those most in need. 

7. Children — Special attention must be paid to the effects of the proposal on children. Children 
who lose Medicaid coverage because they are covered by the alliance health plans should not lose their access 
to important therapy and other long term services and the protections of the Medicaid Early and Periodic, 
Screening, Diagnosis, and Treatment program (EPSDT). Forcing these children to go without cost-effective 
extended services would be unacceptable. The failure to fully cover these vital services also would 
jeopardize early intervention and education-related services under Part H and Part B of the Individuals with 
Disabilities Education Act by withdrawing a major funding source at a key time during implementation. This 
would be especially important for infants, toddlers and children who do not meet the eligibility test for the 
new program. We are still analyzing the bill's approach to coverage of these essential services and will make 
more specific recommendations in the near future. 

8. Payment Rates — Payment rates for providers must be high enough to enable them to cover 
legally required employee benefit payments such as Social Security, Medicare, tax withholding, and the new 
employer-mandated health insurance premiums. This is particularly an issue in voucher and cash payment 
situations where the individual with a disability directly hires his/her personal assistants. Experience in 
several states has shown that people either have to go without essential services or they get the services by 
paying below legally required minimum wages and benefits. We are reviewing other issues related to 
providers in the bill. 

9. Private Long-Term Care Insurance - WTiile we do not believe that private insurance will be 
able to adequately meet the long-term service needs of persons with disabilities of all ages, we recognize that 
it may help to pay some of the long-term service costs of those persons with disabilities (generally older 
people) who are able to afford and maintain private coverage. Since numerous inadequacies and abuses in 
the long-term care insurance market have been well documented, we believe that private long-term care 
insurance should not be given preferential tax treatment unless adequate standards are in place to protect 
consumers from such practices. It is imperative that the inequities that we are attempting to correct in the 
acute care insurance market not be permitted to continue in the long-term care insurance market. 

We are pleased that the Administration's proposed standards address many of the current inadequacies 
and abuses and, most importantly, include a prohibition on discrimination in the provision of benefits based 
on a person's diagnosis. Currendy, insurers routinely deny benefits if a person's functional impairment or 
disability is due to a "mental" condition. In fact, the National Association of Insurance Commissioners 
(NAIC) Model Regulations state that such limitations are acceptable. Therefore, it is essential that the 
Administration's proposed standards not be weakened in any way. 

We would further strengthen these regulations by referencing the obligation of insurers to comply 
with the Americans with Disabilities Act (ADA) when medically underwriting long-term care insurance. 
Curtently, insurers routinely deny long-term care insurance coverage to persons with preexisting conditions, 
whether or not the condition is related to a need for long term services. The ADA requires that underwriting 

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and the classification of risks be based on sound actuarial principles, or be related to actual or reasonably 
anticipated experience. The Department of Justice preamble to the final regulations for Title III of the ADA 
states clearly that individuals with a pre-existing condition cannot be denied coverage for an illness unrelated 
to the pre-existing condition. Because existing NAIC standards and state regulations do not in any way 
prohibit this discriminatory practice, it is essential that federal standards reference the obligations of insurers 
under the Americans with Disabilities Act. 

10. Other Issues - There are numerous other critical issues which will need to be addressed in 
ensuring that the proposal can meet the needs of people with disabilities. These include: the need to provide 
psychiatric services required over time which are beyond those covered by the basic benefits package; the 
need to resolve issues regarding state medical practice and nurse practice acts in relation to health-related 
tasks performed by personal assistance providers such as medication administration and catheterization; the 
relationship between acute health services and long term services for people with disabilities including 
clarification of treatment of services such as "outpatient" rehabilitation services which might be considered 
acute or long term services; an assessment of the impact of the state option for making capitated payments to 
health plans or other providers for community based long term services; and the length of time until full 
implementation of the long term services proposal. The relationship between acute health and long term 
services is problematic for all people with serious and persistent physical, cognitive, and mental disabilities; 
for people with psychiatric disabilities, there is the additional question of the linkage to essential long term 
services for people who exceed limitations for non-residential intensive services until the year 2001 when full 
coverage is scheduled to be in effect. The Task Force will propose more specific recommendations in the 
forthcoming paper. 

Again, CCD looks forward to working with this and other Committees of Congress to address the 
President's long term services proposal. We believe that long term services are a critical component of 
health reform and that the President has made a significant and important commitment and step forward with 
the proposal of a new home and community long term services program to serve people with disabilities of 
all ages without requiring impoverishment for eligibility. We urge Congressional support of this commitment 
and for inclusion of a strong long term services component in legislation to restructure the American health 
care system. We pledge to work with you to ensure the availability, appropriateness and effectiveness of 
such supports for all people with disabilities. 



11 



309 
Mr. Brown. Ms. Canja. 

STATEMENT OF TESS CANJA 

Ms. Canja. Thank you, Mr. Chairman. I am Tess Canja, a mem- 
ber of the AARP's Board of Directors. 

Most of us have had personal experience or friends or family who 
have had to cope with the financial, physical and emotional stress 
of meeting long-term care needs. For you as policy-makers, it is 
natural to translate long-term care into a vision of Federal budget 
dollar signs. Families involved in long-term care also see dollar 
signs. They see huge dollar signs as they struggle to pay for home 
care for a child or spouse or parent while still dealing with college 
tuition costs and a home mortgage. 

Caregivers, most often daughters, spouses and mothers, see not 
only the direct cost of giving care, but also the income lost, both 
now and in the future. Caregivers often forego higher paying job 
opportunities. They work part-time or they give up their jobs alto- 
gether. Each of these decisions means less income now, less pen- 
sion, and less social security income in the future. The government 
also pays in lost tax revenue and higher assistance costs later. 

Health care coverage for acute illness alone will not give families 
real security and peace of mind. For families, there is no difference 
between spending $20,000 on home care or $20,000 on hospital 
care. It is still $20,000 that they don't have. The President's pro- 
posal for a new home- and community-based care program recog- 
nizes that few families can afford the cost of long-term care. It also 
recognizes that the need for long-term care extends to all ages. 

In our own family, I have a grand niece who was born with spina 
bifida. I have a cousin who at the age of 21, after working late at 
night fell asleep at the wheel and has been a quadriplegic ever 
since. I have an 86-year-old mother for whom I have a caregiver 
and she is disabled and needs assisted living. 

AARP appreciates that the President's proposal focuses eligibility 
on measures of disability, not age and not income. We also appre- 
ciate that we give persons of all generations new choices and ad- 
dress the current system's institutional bias by helping families 
avoid having to place their loved ones in a nursing home. 

The President's home- and conimunity-based care proposal also 
would be good for our economy by creating approximately one mil- 
lion new jobs — we have a new study that shows that — ^by providing 
assistance to working caregivers and by helping some adult dis- 
abled persons become productive taxpaying members of society. 

There are a number of areas, however, in which we believe the 
proposal could be strengthened. For example, stronger incentives 
should be created to encourage States to participate in the pro- 
gram. 

Another, while we agree that there is merit in State administra- 
tion of a home- and community-based program, provisions should 
be included to improve State accountability and to ensure that tax 
dollars are appropriately spent. 

In addition, the liability of the funding within the proposal's caps 
should be improved to provide — reflect certain limited cost in- 
creases that are beyond the control of the States. 



310 

Although we are pleased to see even the small improvements in 
Medicaid nursing home coverage, millions of persons would remain 
vulnerable to bankruptcy due to expensive nursing home costs. 
Studies show that people's greater fear is impoverishment from 
nursing home costs, which now average $30,000 a year, and can go 
as high as $60,000. 

It is also important to clarify that the President's long-term care 
proposal is not a new entitlement program, but it is still a vast im- 
provement over our current nonsystem. The President has made an 
important far-reaching start toward achieving security against the 
overwhelming human cost of long-term care. Since it does not, how- 
ever, meet the full extent of the need for long-term care, we must 
be careful not to over sell it. 

The President's statement in his State of the Union address that 
the American public is way ahead of politicians on the issue of 
health care reform is instructive. We believe this is particularly 
true with long-term care. The findings from each of four surveys 
that an independent firm conducted for AARP between April of 
1993 and this January all show that public support for health care 
reform increases dramatically when long-term care is included. 

In conclusion, Mr. Chairman, AARP commends the President 
and members on both sides of the aisle who have brought the de- 
bate to this stage. As we go forward, we ask you to consider the 
cost to American families of not including long-term care in health 
care reform. The President's home- and community-based care pro- 
posal can begin to provide greater security and protection now and 
a solid foundation for the future. 

Thank you. 

Mr. Brown. Thank you, Ms. Canja. 

[Testimony resumes on p. 339.] 

[The prepared statement of Ms. Canja and an AARP statement 
follow:] 



311 

STATEMENT 

of the 

AMERICAN ASSOCIATION OF RETIRED PERSONS 

Good Morning. My name is Tess Canja and I am a member of the Board of Directors of the 
American Association of Retired Persons (AARP). Thank you for the opportunity to testify 
today as the Subcommittee reviews one of the most critical problems facing families today: 
the need for long-term care. 

Over the past several years we have listened closely to what the American people, including 
our diverse membership tell us they want in a health care system. Despite their differing 
circumstances, the vast majority of Americans, old and young, have consistently stressed the 
need for broader protections against the high costs of health and long-term care. How is it, 
they ask, that we cover the cost of a lengthy hospitalization, in the tens of thousands of 
dollars, but we do not help with the cost of nursing home or home care? Some assume that 
concern about and support for long-term care coverage is confined primarily to the older 
population, but, in fact, strong support exists across all age groups. The 50-64 age group is 
particularly concerned, both for their parents and themselves. It is this middle generation, 
particularly the women, who see and feel the staggering costs - financial and emotional - of 
long-term care. It is they who bear the costs of providing care in the home and then the 
costs of institutional care when it can no longer be avoided. 

AARP commends President Clinton for his bold and constructive plan for accomplishing 
reform. We also commend the First Lady, Congressional leaders in both parties, and this 
Committee for a commitment to addressing this issue now . The nation has waited too long 
for comprehensive reform. We must use this unique point in history to enact true reform 



312 



which covers everyone, maintains high quality care, makes health care costs affordable, and 
includes coverage of both prescription drugs and long-term care. 

The inclusion of long-term care in the health care refomi legislation is vital to our 
members and their families and is critical to AARP's support for any health care reform 
proposal. Historically, many Americans have equated long-term care with nursing home 
care. Long-term care, however, is much more than just nursing home care. It includes a 
wide range of home and community-based care as well as residential alternatives. 

AARP is very pleased that the President's proposal includes coverage for home and 
community-based care for persons of all ages and incomes. The President's proposal 
represents a serious start towards addressing the unmet long-term care needs of millions of 
American families. 

Too many reform proposals focus only on acute care and simply ignore the long-term care 
needs of American families, as if these needs were so easily compartmentalized in the lives 
of these families. These proposals are fundamentally flawed because they fail to address the 
need for a full continuum of care throughout an individual's life. Without long-term care 
coverage, no family has real security against the crippling costs of serious illness or 
disability. 



313 



Long-term care is typically considered a benefit for the elderly. This is a myth. The need 
for long-term care crosses generational lines. An estimated 10 million persons need some 
form of long-term care. Approximately one-third of these individuals are under age 65. 
Many are children. Moreover, the need for long-term care is felt not just by those requiring 
care, but also by their families ~ often those providing and paying for care. This is 
particularly true in the case of those in the "sandwich generation," caught between meeting 
the needs of their children and their parents. 

Health Care Reform Must Include Long-Term Care 

While approximately 38 million people lack basic medical insurance, virtually all Americans 
lack protection against long-term care expenses. With average annual nursing home costs of 
over $30,000 (and some areas experiencing costs of $60,000 or more) and home health care 
costing from $50 to $200 per day, long-term care out-of-pocket costs can often devastate a 
family. For most people, the cost of long-term care is an unmanageable financial burden. 
Many families are also shocked to find ~ only too late ~ that neither Medicare nor private 
insurance covers long-term care to any great extent. To a family sitting around the kitchen 
table, there is no difference between spending $20,000 on hospital care and spending 
$20,000 on home care. It is still $20,000 they do not have. Therefore, to achieve true 
security, savings, and quality in our health care system, care must not be limited to the 
provision of services by a hospital or doctor; long-term care must also be included. 



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314 



The need for comprehensive services - It makes little sense to provide financial protection 
against the cost of an acute illness but leave people vulnerable if they suffer from a chronic 
and disabling condition, especially since the need for these services often is so interrelated. 
Results from research conducted on the Social Health Maintenance Organization (SHMO) 
demonstrations in the late 1980's illustrates why integrated care is so important - custodial 
and skilled services are often needed to complement one another. Almost 70 percent of 
initial referrals for community-based long-term care originated from hospitals and other parts 
of the medical care system. Moreover, 37 percent of the care plans developed for home and 
community care included concurrent authorization for medically necessary skilled services. 
In addition, individuals' levels of disability frequently changed and was tied to acute episodes 
of illness. Without comprehensive benefits, effective patient care will not be achievable, and 
costs "avoided" in long-term care may instead show up as costs in the acute care setting. 



Caregivers are being unfairly burdened ~ Family members provide the vast majority of long- 
term care to persons of all ages. But caregivers place their own health in jeopardy and 
frequently are forced to leave the labor market, thereby suffering not only short-term loss of 
income, but also long-term reduction in Social Security and private pension benefits. 

In a recent focus group, a woman in her 50's related her story: 

Rose had held a good job with a large corporation until her mother needed long- 
term care. Unable and unwilling to place her mother in a nursing home. Rose quit 
her job ~ 6 months before her pension would have vested ~ to care for her mother. 



315 



She saw her future income potential and retirement security disappear as she made the 
painful decision to take care of her mother ~ for the next seven years. 

There are many stories just like this. They typically involve women in their 50's - 

primarily spouses and daughters ~ who sacrifice financially, physically, and emotionally to 

assure that a loved one is cared for. Institutionalization of loved ones often occurs because 

of caregiver "burnout" if no outside help is available. The Association believes that 

caregivers deserve strong support. 

Private sector solutions cannot work ~ The private market has not provided nor can it 
provide adequate and affordable protection against the cost of long-term care. Private long- 
term care insurance that provides meaningful coverage is very expensive and generally 
excludes people with pre-existing conditions or mental disorders. Few people can afford the 
cost of private long-term care insurance for any length of time, particularly if the policy 
provides meaningful protection. Private long-term care insurance policies have done a 
particularly poor job in trying to cover home care because insurance companies are not 
confident of their ability to control the risks and demand involved. 

Public Support for Long-Term Care 

Americans of all ages strongly support health care reform that includes coverage for long- 
term care . A random sample survey of 2,020 adults conducted for AARP by the ICR Survey 
Research Group this past April found that 90 percent of the respondents felt that including 
long-term care in a health reform proposal was important. Support for health care reform 

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*-»^ >i -^ c 



316 



increased from 46 percent to 82 percent when long-term care was included (see Attachments 
1 and 2). 

According to a survey conducted in the fall of 1991 by DYG, Inc., three-fourths of 
Americans (18 and older) were "very concerned" about paying for the cost of long-term 
care. The concern, which is felt sharply by both men and women, extends to all income and 
age groups. In fact, concern about long-term care was greatest among persons age 50-64 — 
those most likely to be caring for older parents and worrying about their own futures (see 
Attachments 3-7). 

In a Harris survey conducted during December 1992 and January 1993, 91 percent of the 
respondents said they could not afford long-term care when they were told it would cost 
$15,(X)0 to $60,(XX) a year, or $40 to $160 a day. With regard to a federal program 
providing long-term care in the home for the chronically ill or disabled, over 80 percent of 
these same respondents favored such a program not only for people 65 years of age and 
older, but for younger adults and children as well. 

AARP Views on Long-Term Care 

To make long-term care coverage affordable and accessible to all Americans, the Association 
believes that the ideal solution is a social insurance program, similar to Medicare and Social 
Security, that would provide a comprehensive set of benefits in the home and community, as 



317 



well as in nursing homes. A social insurance program would require financial contributions 
from all members of society and would provide protection to all who need long-term care, 
regardless of age or income. Such an approach would spread the risks so that the costs to 
any one person would be small, while offering protection and appropriate care to all. Under 
such a social insurance system, private sector initiatives would supplement the public system 
by covering coinsurance, deductibles, and additional needed services. 

Other fundamental principles that underlie AARP's views on long-term care include: 
(I) provision of a comprehensive range of services, including institutional and home and 
community-based care; (2) effective cost containment mechanisms; (3) financing which is 
equitable, broadly based, and affordable to all individuals; (4) coordination between the 
acute and long-term care systems to assure a continuum of care across an individual's 
lifetime; (5) assurance of high quality care; and (6) support for informal caregivers. 

These principles are at the foundation of AARP's proposal for comprehensive health care 
reform - "Health Care America." The proposal, which was developed with the extensive 
involvement of AARP members across the country, would create a new Medicare-like 
program to provide comprehensive coverage for both acute and long-term care. The nursing 
home component of the proposal would be available over the entire length of an individual's 
stay, excluding coverage for room and board. 



318 

The President's Proposal for Home and Community-Based Care 

The Health Security Act includes a significant, much-needed proposal to provide home and 
community-based care to millions of American families. The proposal represents a dramatic 
improvement over our current "non-system." 

The President is on the right track in basing eligibility for the new home and community- 
based program on levels of disability, rather than age or income. Given the limited 
resources available, it is appropriate that the program target the most severely disabled 
individuals. An eligibility assessment and determination based on level of disability, when 
combined with the proposed care plan, would begin to address the serious problems of 
fragmentation and unmet need that currently exist for disabled persons of all ages. Age is 
not a viable eligibility criterion because approximately one-third of persons with severe 
disabilities who need home and community-based care are under age 65. In addition, while 
the program does ask persons with greater income to pay more for their long-term care 
services, it is not based on a welfare model. Therefore, those in need would not be forced 
to bankrupt themselves before getting help, as they must do now, to be eligible for Medicaid. 

The President's proposal for home and community-based care would provide much needed 
support to caregivers who are shouldering enormous burdens by taking care of their loved 
ones and often missing work to do so. Many caregivers perform these services out of a 



319 



strong family commitment and a desire to postpone nursing home placement for as long as 
possible. 

The President's proposal also would begin to provide to disabled persons and their families 
real choices about how to arrange for and where to receive the most appropriate care. 
Today, people are forced into nursing homes prematurely or going without care because they 
do not have access to affordable home and community-based care. Historical patterns in 
public spending reflect a perverse bias, where approximately four out of five dollars spent on 
long-term care go to institutional care. This creates situations in which families are broken 
apart and Americans are denied care in the most appropriate setting, as well as where they 
would like to receive it. For the first time, under the President's proposal, many disabled 
Americans could receive services through the full continuum of care. 

The Health Security Act proposal also includes reasonable cost-sharing and low-income 
protections which will discourage overutilization and yet help ensure that care is affordable 
for those who need it. 

The President's home and community-based care proposal will also have a positive impact on 
the economy. For example, Lewin-VHI has estimated that the proposal would ultimately 
create approximately one million new jobs. Working caregivers would be better able to stay 
in their jobs and absenteeism would decline, thereby improving productivity. Many adult 



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320 

adult disabled persons would, for the first time, be able to work and become productive, 
taxpaying members of society with the proposed assistance available to them. 

Su ggestions to Strengthen the President's Home and Community-Based Care Proposai 

The Association strongly applauds the President for recognizing the need to expand coverage 
and options for home and community-based care. 

We agree with the need to contain long-term care costs and to keep federal expenditures 
under control, given limited resources. Effective care management and appropriate provider 
reimbursement should help in this regard. However, certain elements of the proposal that 
are designed to limit program costs and others relating to the role of the states raise 
particular concerns. In this regard, the Association has a number of specific suggestions for 
strengthening the proposai. 

Proposals to Limit Program Costs 

Caps on Funding - The proposal is, in effect, a matching grant program to the states. We 
have questions about how this would work. The capped nature of the proposed program 
makes it ail the more critical that the data and criteria used to estimate full funding over time 
are accurate. Otherwise, funding shortfalls could easily occur, resulting in potentially 
serious levels of unmet need. What would happen if the program ran out of money before 



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321 



the ena of the fiscal year? Could services to persons currently receiving care simply be cut 
off? To help prevent this from occurring, baseline estimates must include accurate cost and 
utilization assumptions for all groups of eligible persons, including severely disabled 
children. In addition, could individuals lose eligibility at the end of each year's grant? 

The adequacy of inflation and trending factors are a concern because they do not seem to 
account sufficiently for future changes in the intensity of service needs or real wage growth 
among workers in the very labor intensive home care area. 

To help address these concerns, we recommend that the caps on funding for home and 
community-based care be accompanied by the same safeguards as caps on low-income 
subsidies for acute health care services. Specifically, an additional 15 percent cushion should 
be included as a margin of error, and any excess funds should be permitted to be carried 
forward and not be charged toward the next year's cap. 

Definition of Disability ~ The Association is pleased that the proposal would cover persons 
who need stand-by assistance or cueing to perform 3 or more ADLs. However, we would 
ultimately like to see a 2 of 5 ADL standard. 



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322 

Issues Regarding the Role of the States 

Option for the States -- Under the proposal, states would have the option of not participating 
in the program. This could pose serious problems for consumers. Some states may elect not 
to establish a program or may postpone participation until much later in the phase-in 
schedule. Consideration should be given to strengthening incentives for state participation. 

State Accountability ~ While we agree with the Administration that there is merit in state 
administration of the home and community-based program, the Association believes that, to 
ensure accountability, state flexibility must be balanced by a clear federal framework for 
state participation and strong, effective federal oversight. Standards should ensure that 
federal dollars are being spent appropriately, that consumers are protected, and that a range 
of services are available. Federal oversight should include review of state plans and 
monitoring of compliance with standards. Careful reporting of substandard performance 
should be accompanied by strong enforcement tools. Particular attention should be paid to 
monitoring states so that they do not simply shift eligible Medicaid recipients into the 
program during the phase-in period, without extending services to other vulnerable persons. 

State Incentives for Residential Care Alternatives ~ One way to promote savings through 
competitive market forces would be to provide strong incentives to assist the development of 
residential alternatives to nursing home care, such as assisted living. Experience in Oregon, 
for example, has shown assisted living to be a cost effective, preferred alternative to nursing 



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323 



home care for many frail elderly. Although we are pleased that the proposed home and 
community-based care benefit would be portable and available to eligible persons in these 
settings, more needs to be done on the capital and housing side of the equation. Ways to 
make such residential options affordable to persons with low and moderate incomes should be 
specifically addressed. 

Nursing Home Care and Medicaid Improvements 

In addition to a new program for home and community-based care, the President's proposal 
also would include modest improvements for those who need nursing home care. 
Specifically, it would: (1) require all states to have medically needy programs under 
Medicaid; (2) give states the option to increase the level of protected assets for single persons 
from $2,000 to $12,000 for purposes of Medicaid eligibility; (3) increase the minimum 
Medicaid personal needs allowance from $30 to $50 (scaled back from $100 in the 
September 1993 draft); and (4) create new uniform federal minimum standards for private 
long-term care insurance policies, together with certain tax clarifications. 

Although AARP is supportive of these modest attempts to improve Medicaid, millions of 
Americans would remain vulnerable to impoverishment due to lack of protection against 
enormous nursing home costs. The cost of a nursing home stay now averages $30,000 a 
year and can exceed $60,000 in some parts of the country. Studies conducted for AARP in 
1989 and 1991 by DYG, Inc. found that while people prefer home care, it is the cost of 



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324 



nursing home care which individuals fear most when they consider their long-term care 
needs, and it is this concern that appears most related to their willingness to pay increased 
taxes to finance new benefits. 

Long-term care insurance standards ~ AARP strongly supports the requirement for uniform 
federal standards for private long-term care insurance. Such reform is long overdue. 
Findings from studies conducted by the U.S. General Accounting Office, the Office of the 
Inspector General, and by Project Hope for AARP clearly demonstrate that the current state 
regulatory system has failed to provide sufficient consumer protection throughout the nation. 
We do, however, have some questions about the costs and distributional effects of the tax 
clarifications proposed in this area, particularly for those selling insurance policies. 

AARP agrees with many of the proposed standards in the President's proposal. We are 
particularly pleased by the Administration's approach on two key issues: inflation and 
nonforfeiture protection. In our view, inflation protection should be offered to all 
prospective buyers and nonforfeiture protection should be mandatory for all long-term care 
insurance policies. These views are consistent with the current standards proposed by the 
National Association of Insurance Commissioners (NAIC). 

Incremental Nursing Home Reforms - If sufficient funding for a comprehensive nursing 
home program is not available at this time, less expensive incremental reforms could help 
many people. For example, one option would be to reduce the inappropriately high $87 



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325 



Medicare Skilled Nursing Facility daily coinsurance and make it more consistent with the 
extended care benefit available in the President's proposed basic benefit package through the 
alliances. We also strongly urge that the proposed optional increase in the level of assets 
protected under Medicaid for single persons (from $2,000 to $12,000) be made mandatory, 
as was originally proposed in the September 1993 draft, since states are very unlikely to 
provide such protection voluntarily. Further, in our view, the amount should be increased 
beyond $12,000 so that people need not spend-down to such a low level before receiving 
protection. 

The President's proposal should also do more to promote the key principles of savings and 
choice for Americans who need nursing home care. Nursing home costs must be contained 
and the access problems that low and middle income applicants experience in gaining 
admission to the nursing home of their choice must be addressed. Hospitals and other 
providers will have incentives to shift costs to this sector if it is the only one not subject to 
some form of spending limits. These goals could be furthered by making charge data 
available to consumers and prohibiting discrimination in admissions on the basis of wealth 
and source of payment. 

Conclusion 

On June 8, 1988, the late Senator Claude Pepper brought a bill covering home and 
community-based care to a vote on the House floor. Much was said by many members about 



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326 



the need to provide this kind of protection. Even opponents, who argued that the timing was 
not right, spoke eloquently about the importance of covering services in the home. Just 
before the proposal was defeated by a 169-243 vote. Congressman Pepper stated: 



This is a day for which I have waited and worked, and I might say prayed for, for 50 
years - a chance to lighten the burden upon the masses of the people of this country, 
trying to help those saddled with a long-term illness.... We can help millions of 
people to meet crises in their homes that are heart-rending in their character. When 
are we going to have another opportunity if we lose this one? 



The opportunity has now come. We have a chance to begin to create a new system that 
removes the existing bias in favor of placing people in institutions for the rest of their lives; 
a system that does not force people to bankrupt themselves and go on welfare in order to 
receive help; a system that does not force caregivers to quit their jobs or jeopardize their 
own health to continue caring for loved ones; and a system that is not as intimidating for 
those who need to use it. 

As advocates and policymakers we will need to educate the public that long-term care is a 
family issue, affecting disabled persons of all ages. The public should also understand the 
specific benefits of and limits to the President's proposal. The limitations of this program 
will loom larger in the public's eye in the future if they come to believe that there is more 
coverage and protection in the program than really exists. But the fact that it does not 
provide all the answers for everyone in need, cannot be an excuse for doing nothing. The 
President's proposal is a very important, significant start and a vast improvement over our 

current long-term care "non-system." Our job is to shape and improve the proposal so that it 

will provide real protection now and a solid foundation for the future. 

AARP looks forward to working with members of this Subcommittee to help realize these 
goals and ensure that long-term care remains an integral part of whatever health care reform 
package is enacted. 



327 



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329 



ATTACHMENT 3 



Ratings of Health Care Concerns 

Total Sample 

Very Concerned About: 



Payment of Uninsured Costs 



Payment of Long Term 
Care Costs 

Affordability of Good 
Health Care 

Losing Government-Provided 
Health Insurance 

Losing Health Insurance Due 
To Job Change 

Health Insurance Eligibility/ 
Pre-Existing Conditions 

Losing Employer-Based 
Health Insurance 

Finding Needed M&dical 
Services 




0% 20%40%60%80%100% 



DYG. Inc. - STUDY ON HEALTH CARE REFORM for AARP 



330 



ATTACHMENT 4 






Ratings of Health Care 


Concerns 




Very Concerned — ' 


Total 
% 


Total 
Women 

% 


Total 

Men 

% 


Being able to pay for 
costs of health care 
not covered by 
insurance/government 


75 


75 


75 


Being able to pay for 
the cost of long term 
care such as nursing 
home care 


74 


76 


73 


Being able to afford 
good health insurance 


71 


70 


71 






Continued.. 


_1/ Rating of " 


4" on a 4 


-point scale 




ATTACHMENT 5 






Ratine^s of Hi 


ealth Care 


Concerns 






Total 
Vomen 1 


Women: Aee 


y 


8-49 50-64 


65-H 


Very Concerned ' 


% 


% % 


% 



Being able to pay 

for costs of health 

care not covered by 

insurance/ 

government 75 

Being able to pay 
for the cost of long 
term care such as 
nursing home care 76 

Being able to 
afford good health 
insurance 70 



74 



72 



82 70 



85 78 



69 85 



60 



Continued. 



1/ Rating of "4" on a 4-point scale 



331 



ATTACHMENT 6 



Ratings of Health Care Concerns 



Men: Age 



Very Concerned — ' 

Being able to pay 
for costs of health 
care not covered by 
insurance/ 
government 



Total 
Men 18-49 50-64 65+ 

% % % % 



75 



75 76 76 



Being able to pay 
for the cost of long 
term care such as 
nursing home care 


73 


69 


80 79 


Being able to 
afford good health 
insurance 


71 


73 


75 58 
Continued 



1/ Rating of "4" on a 4-point scale 



ATTACHMENT 7 



Ratings of Health Care Concerns 



Very Concerned -^ 

Being able to pay 
for costs of health 
care not covered 
by insurance/ 
government 

Being able to pay 
for the cost of 
long term care 
such as nursing 
home care 



Total 



% 



75 



74 



Income 
(SThousands) 



Under 25- 
25 49.9 



% 



% 



80 



78 



77 



74 



50-1- 



% 



59 



68 



Continued... 
1/ Rating of "4" on a 4-point scale 



332 

STATEMENT 

of the 

AMERICAN ASSOCIATION OF RETIRED PERSONS 

The American Association of Retired Persons (AARP) welcomes many 
of the President's initiatives included in the Health Security 
Act (HSA) , H.R. 3600, to improve the quality of care. We believe 
that health system reform brings with it not only the challenge 
to preserve quality, but also the opportunity to set in place 
systems that will enable us to improve significantly and 
continuously the quality of American health care. The issues of 
quality and consumer protection go hand-in-hand, and many of the 
provisions of Title V of the HSA reflect a vision of a broad 
quality system, a vision that we wholeheartedly support. Several 
provisions of Title V were the subject of a hearing by this 
subcommittee earlier this week on the topic of consumer 
protection, and are addressed in the testimony of the "Coalition 
for Consumer Protection and Quality in Health Care Reform." The 
Association concurs with the recommendations included in the 
Coalition's testimony. Our comments here are focused on the 
discrete issue of quality assurance. 

ACCOUNTABILITY FOR QUALITY 

In a reformed health care system, consumers need to have a say 
not only in their selection of health plans, but also in 
governance and in assuring accountability throughout the system. 
AARP is supportive of HSA's provision that Alliance Boards of 
Directors be composed of equal representation by consumers and 
employers. This principle of substantial consumer representation 



333 



should be carried over to the Boards and Commissions established 
to oversee health care quality. For example, there is currently 
no provision for consumer representation on the National Quality 
Management Council; consumers should be a distinct category for 
representation on that important body. 

HSA's extensive consumer information program, when fully 
implemented, will be a cornerstone of public accountability, a 
component which is sorely lacking in the current system. The 
program is welcome and needed. We must recognize, however, that 
it will take a long time, and a significant financial investment, 
to develop and implement the data systems which are envisioned. 
Many critical performance and quality measures — particularly 
those which measure the quality of care for those with chronic 
illnesses — have not been developed. 

THE NEED FOR INDEPENDENT OVERSIGHT 

While consumer information is an essential component in the 
overall quality assurance strategy, it is only one piece. 
Consumer information, particularly in its current state, cannot 
substitute for a coordinated system of independent quality 
oversight. Such oversight includes: (1) monitoring to assure a 
basic level of quality and detect patterns and significant 
instances of poor care; (2) quality improvement activities to 



-2- 



334 



assist practitioners and plans in reaching quality levels 
achieved by the best performers; and (3) referrals to appropriate 
enforcement entities when action may be needed to protect 
consumers. 

WHAT'S IN HSA AND WHAT'S MISSING 

While taking a more comprehensive approach to quality assurance 
than any other proposal currently under consideration, The Health 
Security Act does not currently provide all the tools necessary 
for a comprehensive quality monitoring system. We believe that 
the quality assurance system must balance the need to improve the 
"mainstream" of care through non-punitive feedback of information 
to providers with the need to protect consumers from poor quality 
care. The Act does not identify any entity responsible for 
assuring a basic level of care and protecting consumers from poor 
quality care. 

HSA does address quality improvement (as opposed to quality 
assurance or protection) through creation of "Regional 
Professional Foundations" based in academic medical centers. 
Such foundations are charged with developing programs of lifetime 
learning for health professionals, disseminating information and 
fostering collaboration among health plans and health care 
providers. While we believe that these are important roles which 
academic medical centers can and should play in a reformed health 

-3- 



335 



care system, we do not believe they can substitute for a system 
of independent quality oversight that holds plans publicly 
accountable. Under the President's proposal, plans and providers 
would not be obligated to participate in the foundations' 
programs, and the foundations would not be obligated to work with 
particular health plans or communities. The foundations, 
comprised of and governed by representatives of academic 
medicine, would not be publicly accountable through a consumer- 
guided board of directors. Compared with state-based foundations 
(which were originally proposed) , these regional level entities 
would also be more distant, and therefore less responsive to 
local needs. 

RECOMMENDATIONS 

We recommend that the Act be amended to include establishment of 
state-based quality organizations, governed by independent Boards 
of Directors, one-half of whose members represent consvuners. 
These quality organizations would be charged with ongoing quality 
monitoring of all plans within their jurisdiction and would be 
able to hold plans accountable for quality of care. They would 
provide technical assistance tailored to the specific needs of 
each plan, in order to improve quality. Quality organizations 
could also be structured to provide independent medical review of 
care denials during the grievance and appeals process, and to 
investigate consumer complaints regarding the quality of care. 

-4- 



336 



Such organizations would not have enforcement responsibilities, 
but would be obligated to refer appropriate information to 
licensure and other regulatory bodies for disciplinary action. 

Experts tell us that quality improvement efforts are more 
successful if they come through an entity that does not also 
conduct disciplinary activity. Therefore, we propose that the 
authority for enforcement and discipline reside within the state 
medical licensure boards and other regulatory entities. However, 
in order to make enforcement more effective than it is today, the 
new system must find a way to obligate the state agencies to 
conduct timely and thorough investigations of reports of poor 
care, and to respond with appropriate sanctions. Such obligation 
must be accompanied by sufficient funding to do the job. 

We applaud HSA's provision that requires the Secretary to develop 
regulations allowing access to information in the National 
Practitioner Data Bank on practitioners who have been subject to 
multiple reports. However, the language, which currently 
restricts access to "individuals seeking to enroll in health 
plans" under HSA, should be broadened to include any individual 
(such as a Medicare beneficiary) . Medicare beneficiaries should 
have the same rights to information as alliance members. We 
further urge that any final disciplinary action that would be 



-5- 



337 



public in another forum (such as action of a state medical 
licensure board) should be accessible by individuals through the 
Bank. 

It is unclear from the context of HSA how the quality assurance 
provisions would apply to Medicare beneficiaries who continue to 
be covered under the separate Medicare program. 
Nevertheless, the Act terminates the primary quality assurance 
program for Medicare beneficiaries. Specifically, it deletes the 
section of Title XVIII that authorizes the Medicare Peer Review 
Organization (PRO) program, including its appeal rights for 
hospitalized patients, without providing for any successor. An 
independent, external oversight body will continue to be needed 
in Medicare to assure that quality of care does not suffer, 
especially during a time of unprecedented budget cuts and rapid 
delivery system restructuring. The Association urges this 
committee to remove section 4031, which terminates PRO 
responsibilities for th« Medicare program one year after 
enactment. If independent quality organizations are enacted and 
prove effective in improving quality and protecting consumers, 
consideration should then be given to assigning them the PRO 
responsibilities for Medicare quality assurance. 

A comprehensive quality management program will need sufficient, 
reliable funding. Funding is needed not only for operation of 
the independent quality organizations, but also for the consumer 

-6- 



338 



and practitioner information efforts and the related consumer 
grievance and appeals system and the ombudsman program. HSA 
should be amended to provide an explicit set aside as a 
percentage of premium to establish and maintain the program. 

CONCLUSION 

Accountability to the consumer for the quality of care will be an 
important accomplishment of health care reform. In a system that 
seeks to achieve a uniform nationwide standard of care, but is 
proposed to be managed by fifty different states and even more 
alliances, such public accountability and consumer participation 
in governance takes on heightened importance. Accountability 
will be enhanced through the establishment of state-based 
independent quality monitoring and improvement organizations that 
are governed by consumer-guided Boards of Directors. We urge the 
committee to embrace the good foundation for quality assurance 
created in HSA, and to improve it by incorporating the missing 
component of accountability through independent oversight. 



-7- 



339 

Mr. Brown. I think this is for any or all of you to answer. I think 
it is fair to say that the President's proposal doesn't address the 
full range of the long-term care needs, as particularly Ms. Canja 
indicated. However, given limited resources, the President in his 
plan has chosen as a first step toward comprehensive health care 
reform coverage accomplishments for home- and community-based 
services. My question is, is that the right priority and do the orga- 
nizations that you represent seek coverage for home- and commu- 
nity-based care and services as the place to begin a more com- 
prehensive coverage of all services? Mr. Young? 

Mr. Young. As far as CCD is concerned, yes. We think that the 
home- and community-based program is absolutely the place to 
start, and we think this is an excellent beginning for v/hat will 
eventually be a comprehensive program of supports and services 
for people with disabilities of all ages. 

Ms. Reid. The Long-Term Care Campaign's organizations unani- 
mously support that. 

Ms. Canja. What we have now is a system that is institutionally 
biased. This begins to level out the system. It also provides care 
where people really want to be in their own homes. So it is an ap- 
propriate first step. 

Mr. Brown. Yesterday, we had a hearing on the Cooper-Grandy 
bill, the H.R. 3222, the managed competition bill. Under that bill, 
the Medicaid program, including its coverage of nursing home and 
home- and community-based services, is repealed effective January 
1, 1995. While there would be reduced Federal payments to States 
for long-term care services until 1998, there is no continuing Fed- 
eral requirement for assistance for these benefits. Mr. Cooper said 
yesterday that he expects the States to assume the responsibility 
for financing these services and they would be able to take on this 
job with the savings they realized from the federalization of the 
acute care part of Medicaid. Is your view that the States will live 
up to his expectations? 

Ms. Reid. No. In Pennsylvania, I know that the State's — and we 
have a very progressive State — ^but there are so many other com- 
petitors for those dollars. There are roads. There is education. 
There are so many other issues, and I don't think that we will see 
that the States will be able to — will decide to use that money in 
this way. It gives them four options and it means that for people 
like me and millions of others, we are right back where we started 
from, and maybe even worse off. 

Ms. Canja. I can speak also from experience in Florida, knowing 
the financial straits, not just Florida, but many States have been 
in, and I could add to that list. Prisons are now very big and we 
are to find the money for all of this, and to free up a pot of money, 
you know, it is going to be very hard for legislators to continue a 
commitment to long-term care. 

I am also thinking in answer to your question of the burden on 
consumer advocates. Right now we are doing everything we can to 
protect State programs for care. We are trying to develop in our 
State a long-term care system. I think Florida is not unique in 
really not having a rational long-term care system, and unless that 
is in place, unless there are some State guidelines that we are 



340 

going to do this, this is a priority, there is no priority for the money 
that would be released. 

Mr. Young. The Medicaid program as it is today represents 
many, many years of hard work on the efforts by advocates and 
policy-makers to try and build a — something of an infrastructure 
for supports and services for people with disabilities, and it would 
take — to have it go away with the stroke of a pen would take 
many, many years of much hard work again to try and rebuild. 

Mr. Brown. Ms. Reid, you mentioned single-payer for a moment, 
sort of in passing. Does the Alzheimer's Association support single- 
payer over the Clinton health plan? 

Ms. Reid. The Alzheimer's Association does support the Clinton 
health plan first. We feel that that is the most important program 
that will serve our community, our folks first. 

Mr. Brown. But you didn't really answer my question. Does the 
association not support single-payer or does it? You seem person- 
ally to like the idea, obviously. 

Mr. McConnell. Steve McConnell, Senior Vice President for Pol- 
icy for the association. The association has taken a position in 
strong support of the President's long-term care portion of the 
health plan. We have not taken a position on any of the other as- 
pects of the Clinton health plan or on any of the other plans, but 
we have evaluated all the plans and concluded that on long-term 
care, the Clinton plan meets our standards, as does the single- 
payer plan, but we have not commented on the rest of them. 

Mr. Brown. Ms. Reid, I would particularly like to compliment 
you. You must have interviewed a lot of politicians by the way you 
answered that question. 

Ms. Reid. I am a quick study. 

Mr. Brown. The gentleman from Ms. Reid's almost hometown, 
Mr. Greenwood from Pennsylvania is recognized for 5 minutes. 

Mr. Greenwood. Thank you, Mr. Chairman. 

Orien, would you walk us through your experiences when your 
mother came home with you, and in your attempts to find financial 
support for caring for her in your home or elsewhere? 

Ms. Reid. Well, back in 1988, the very first step after she was 
diagnosed with Alzheimer's disease, I thought that, well, she has 
been paying. I knew that she and my stepfather had been paying 
for Medigap insurance all of this time and I knew it was very ex- 
pensive, so I assumed that we would get some kind of help there, 
and I discovered that there was no help there, that they didn't 
cover the kind of care that she needed. 

The next thing I did was contact the Alzheimer's Association and 
ask them for a list of insurance companies, and I can't tell you the 
number of days that I spent on the phone calling insurance compa- 
nies to see if there was any way that I could get an insurance pol- 
icy that would help us out. That didn't turn out. So I finally 

Mr. Greenwood. That was because of her preexisting condition? 

Ms. Reid. Because of her preexisting condition, that there was 
absolutely no help for us. 

Then at some point — in fact when my stepfather was sick, I could 
never convince either one of them that she was really sick, even 
though a diagnosis had been made. So when he was in the hospital, 
it was just inconceivable of having them pay for home health care 



341 

because she believed she could stay at home by herself, so I as- 
sumed that responsibility. And this went on for several months 
while my stepfather was in the hospital. 

When my stepfather finally died, by that time I had oriented my 
mother and said, you know, you will never have to worry. You are 
going to come and live with me, and she was very comfortable with 
that. So I went to Atlanta, brought her back, as I said. We 
caught — I will never forget this, a 6 a.m. flight out of Atlanta so 
that I could be at work at 9 a.m. and I showed up at work with 
my mother and I took her with me because I hadn't even had time 
to look into what I was going to do with her during the day while 
I had to work. 

And I continued to do this until I could find day care, and the 
first day care facility I found, she wasn't happy with it, and that 
was important to me. I found a second day care facility that cost 
$32 a day. She spent 3 days a week in day care. She wanted to 
spend some time at home and I wanted to honor, because she did 
have a choice, and I had to consider her. So I hired a home health 
aide for her and this went on for a IVIz years. 

Mr. Greenwood. Was Pennsylvania participating voluntarily in 
the Medicaid program that would provide assistance? 

Ms. Reid. My mother didn't qualify. My mother didn't qualify for 
any assistance. She didn't qualify. She was just over the limit for 
our PACE program, which was the prescription drug program, 
which meant even our medicines were all out of pocket. 

Mr. Greenwood. Was she working? Did she have income from 
your father's pension or something? 

Ms. Reid. She had some income from — it totaled, OK, about 
$1,100 a month. That was it. That was all she got from social secu- 
rity. She got $300-some from her pension, and $800 from social se- 
curity, so that was it. That was the extent of our — of her income, 
and the rest of this had to be supplemented. 

When I moved her into a nursing home, as I said, it was $100 
a day just for the nursing home. It did not include all of the ancil- 
lary services that go with a nursing home, and when somebody 
mentioned — ^you mentioned a mortgage, I used to think of it as a 
second mortgage because I was looking at $1,500 to $1,700 or more 
a month for the nursing home while she was there. It was very dif- 
ficult. 

Mr. Greenwood. Thank you. This is an editorial comment. You 
mentioned the fact that you were concerned that when we struggle 
with this issue of the Federal versus the State responsibility for 
long-term care, that you feel that the States won't assume the fi- 
nancial responsibility because of their competing demands. 

Having spent 12 years in that legislature and having been in- 
volved in that, I can tell you that the only difference between here 
and there is they have to balance their budgets; we don't. We bor- 
row trillions of dollars and it makes it a little easier for us to make 
that choice. 

And you talked about the concern that you were spending down 
your children's college education. What we are engaged in in this 
town is spending down all of our children's future, so we have some 
real policy struggles to deal with. Thank you. 

Ms. Reid. Thank you. 



342 

Mr. Brown. Thank you, Mr. Greenwood. The gentleman from 
Connecticut, Mr. Franks. 

Mr. Franks. Thank you, Mr. Chairman. My colleague, Mr. 
Greenwood, hit upon a very key point and I think you didf as well, 
Ms. Reid, that being the preexisting condition element of your situ- 
ation prevented you from being able to purchase any type of long- 
term health insurance. 

In our State of Connecticut, and I believe in about three or four 
other States, we strongly advocate the use of long-term insurance, 
but if you are looking at a preexisting condition-type situation, it 
does create a problem. But I don't believe that anyone would find 
any objections on either side of the aisle on that issue. I think we 
should look at the preexisting situation as being one in which we 
change immediately. 

Second, if we were able to make that change and also offer some 
kind of long-term insurance coverage, how would — I believe that 
those two changes in itself could have addressed your situation 
within a very favorable light instead of looking at the prospects of 
a single-payer type system, which you spoke favorably of. Obvi- 
ously, the organization may not have an opinion on that but you 
did speak very favorably of that proposal, and/or the proposal men- 
tioned by the President. I believe that those two changes in itself 
would have addressed your situation rather well. If you disagree or 
there are any comments you would like to make to that, I would 
like to hear them. 

Ms. Reid. It certainly would have, as long as the long-term care 
insurance was affordable for all. I certainly would have been will- 
ing to pay something to help take care of my mother, pay a fair 
share, and I think it is very possible that with — for people of all 
incomes on a sliding fee scale, that you can have some participation 
in this. 

Mr. Franks. And also, I am a strong advocate of some type of 
tax relief for individuals that would opt to purchase long-term in- 
surance. So I am not, as you can tell, I am not a supporter of the 
single-payer system and I am not — I agree with the President on 
many of his proposals within his plan, including the preexisting 
condition change, but I believe that situations like yours and others 
can be handled by eliminating or addressing the preexisting condi- 
tion problem and also looking at the Connecticut plan and the Cali- 
fornia plan and Indiana plan that will address long-term insurance 
coverage as well as looking at tax relief for those individuals who 
will take advantage of such a plan. 

Yield back the balance of my time, Mr. Chairman. 

Mr. Waxman. Thank you very much, Mr. Franks. 

I want to thank each of you for your testimony today. You have 
given us very useful, important information which we will have in 
the record to share with our colleagues. 

Our second panel includes various providers of long-term care 
services. Mr. Ken Wessel is Executive Director of the Visiting 
Homemakers Service of Passaic County, N.J. He is testifying on be- 
half of the National Association for Home Care. Ms. Sharon 
Grigsby is President of the Visiting Nurse Associations of Los An- 
geles and is appearing on behalf of the Visiting Nurse Associations. 
Gerald A. Bom is Administrator of the Division of Community 



343 

Services with the State of Wisconsin's Department of Health and 
Social Services. Appearing on behalf of the PACE program, the pro- 
gram for All-Inclusive Care for the Elderly is Ms. Marie-Louise 
Ansak. And we will also hear from two representatives from the 
nursing home industry, Dr. Paul Willging, an Executive Vice Presi- 
dent of the American Health Care Association, and Dr. Sheldon 
Goldberg, President of the American Association of Homes for the 
Aging. 

We are pleased to welcome you to our hearing today. Your pre- 
pared statements will be in the record in full. What we would like 
to ask of each of you is to limit the oral presentation to no more 
than 5 minutes. If the bell rings and we run out of time, don't 
worry that we won't have the information you wanted in the record 
because we are going to include your written statements in full, but 
we are going to have to be very strict about the 5-minute rule in 
order to be fair to everybody and to get through the hearing. 

We are pleased to have all of you here. Let us hear first from 
Mr. Wessel. 

STATEMENTS OF KEN WESSEL, MEMBER, GOVERNMENT AF- 
FAIRS COMMITTEE, NATIONAL ASSOCIATION FOR HOME 
CARE; SHARON FLYNN GRIGSBY, PAST CHAIR, VISITING 
NURSE ASSOCIATIONS OF AMERICA; GERALD A. BORN, AD- 
MINISTRATOR, DIVISION OF COMMUNITY SERVICES, WIS- 
CONSIN DEPARTMENT OF HEALTH AND SOCIAL SERVICES; 
MARIE-LOUISE ANSAK, FOUNDING EXECUTIVE DIRECTOR, 
ON LOK, INC., ON BEHALF OF THE PROGRAM FOR ALL-IN- 
CLUSIVE CARE FOR THE ELDERLY; PAUL R. WILLGING, EX- 
ECUTIVE VICE PRESIDENT, AMERICAN HEALTH CARE ASSO- 
CIATION; AND SHELDON L. GOLDBERG, PRESIDENT, AMER- 
ICAN ASSOCIATION OF HOMES FOR THE AGING 

Mr. Wessel. Thank you. My name is Ken Wessel. I am the Exec- 
utive Director of the Visiting Homemakers Service of Passaic Coun- 
ty, a nonprofit home care provider in New Jersey. I am currently 
the Chair of the National Accreditation Commission of the National 
Home Care Council and a member of the Cxovemment Afiairs Com- 
mittee of the National Association for Home Care, NAHC. 

NAHC, which represents the Nation's home care providers and 
the individuals they serve, has long advocated the development of 
a national plan to ensure universal access to basic acute care and 
long-term care services. We are particularly pleased to be here 
today to share our views with Chairman Waxman and the other 
members of the committee regarding the home- and community- 
based long-term care program that President Clinton has proposed. 

To have meaningful reform in our Nation's health care systems, 
the members of NAHC, like many of you, believe that making long- 
term care services affordable and accessible is imperative, espe- 
cially if we are going to protect the American people against the 
staggering financial and human costs associated with providing 
long-term care to our Nation's chronically ill and disabled citizens. 
Clearly, current public programs and private insurance are inad- 
equate to meet the country's growing need for long-term care. 

We believe that the home- and community-based long-term care 
component of the President's plan is one of its strongest provisions 



344 

and sets it apart from the whole host of current health care reform 
proposals that have neglected to seriously address the long-term 
care issue. We are especially pleased that the President's long-term 
care program does not exclude individuals on the basis of age or 
income, but instead qualifies them for services on the basis of need. 
Second, we are pleased this proposed legislation does not require 
States to use costly external case management procedures that du- 
plicate standard caregiver activities. 

In order to qualify for service under the Clinton plan, individuals 
would have to either need assistance with at least three activities 
of daily living, have severe cognitive or mental impairment, have 
severe or profound retardation, or for children under the age of 6, 
be dependent on technology and otherwise require hospital or insti- 
tutional care. 

Fewer than one-third of the 10 million disabled people who live 
in community settings and need long-term care would qualify for 
care under these eligibility criteria. NAHC urges Congress to work 
with the administration to lower this standard to make long-term 
care available to all individuals in need of it. 

NAHC is concerned with the amount of flexibility States will be 
given to implement this program, especially the amount of discre- 
tions the States will have in determining the level of benefits. 
NAHC recommends strengthening the existing language by requir- 
ing the full range of home- and community-based services be of- 
fered to all eligible individuals regardless of the State in which 
they reside. 

We support the plan's requirement that no more than 10 percent 
of a State's expenditures are used for State administrative costs. 
Given the already scaled back nature of the long-term care pro- 
gram, it is important that precautions are taken to ensure that 
funding goes towards providing actual services. 

While there is no requirement that the States use external case 
management services, there is likewise no recognition that pro- 
vider-based case management is a viable method of furnishing 
these services. 

NAHC has consistently supported permitting home care agencies 
to perform case management functions. Case management has al- 
ways been an integral part of the caregiving process and is a re- 
sponsibility that agencies have performed for more than a century. 

The General Accounting Office studied various methods of case 
management in six States and was unable to identify any studies 
or evaluation that showed one system to be more effective than an- 
other. 

A number of States successfully utilize provider-based case man- 
agement, or have positive collaborative relationships in place. New 
Jersey, for example, uses a medical-social model of case manage- 
ment with an interdisciplinary approach for its Medicaid, home- 
and community-based services program. 

Many case management providers under the program are home 
care agencies. Home care agencies have firsthand intimate knowl- 
edge of their client needs and are currently performing case man- 
agement activities to a large extent. We urge clarification of this 
provision of the President's plan to ensure a role for home health 



345 

agencies as case managers. Our agency is a case manager for a res- 
pite plan in New Jersey and a provider. 

With respect to involvement of paraprofessionals like home care 
aides in the delivery of long-term care services, NAHC supports 
standards for training, testing and supervision of these workers. 
The National Association of Home Care has written a white paper 
on that very issue, Levels of Care, and that is available to the com- 
mittee, if you would like it. 

State certification of these workers should be ensured so that all 
home care aides are appropriately trained, tested and supervised. 
Quality assurance standards should be applied to the delivery of 
services in the home regardless of the source of payment. 

The Clinton plan at the very least represents an important step 
in the right direction. The members of NAHC anticipate that the 
President's plan will be a foundation for long-term care that is reli- 
able and progressively financed. It will also serve all people regard- 
less of income and age. We look forward to working with the mem- 
bers of the administration and Congress towards this end. 

Mr. Waxman. Thank you, Mr. Wessel. Appreciate your testimony. 

[The prepared statement of Mr. Wessel follows:] 



346 

Testimony 

of 

Ken Wessel, Executive Director 

Visiting Homemaker Service of Passaic County 



My name is Ken Wessel. I am the Executive Director of the Visiting 
Homemaker Service of Passaic County in Paterson, New Jersey and a 
member of the Government Affairs Committee of the National 
Association for Home Care (NAHC) . NAHC, which represents the 
nation's home care providers -- including home health agencies, 
home care aide organizations, and hospices -- and the individuals 
they serve, is committed to ensuring the availability of humane, 
cost-effective, high quality home care services to all individuals 
who require them. NAHC has long advocated the development of a 
national plan to ensure universal access to basic acute care and 
long-term care services. We are particularly pleased to be here 
today to share our views with Chairman Waxman and the other members 
of the Energy and Commerce Committee regarding the home- and 
community-based long-term care program that President Clinton has 
included in his health care reform package, the Health Security 
Act. 

Let me begin by saying that we have been encouraged by the remarks 
many Members of Congress and the Administration have made on the 
need to include long-term care in any health care reform proposal 
passed by Congress. To have meaningful reform in our nation's 
health care system, the members of NAHC, like many of you, believe 
that making long-term care services affordable and accessible is 
imperative -- especially if we are going to protect the American 
people against the staggering financial and human costs associated 
with providing long-term care to our nation's chronically ill and 
disabled citizens. Clearly, current public programs and private 
insurance are inadequate to meet the country's growing need for 
long-term care services. 

NAHC has given qualified support to the Clinton health care reform 
proposal . We wholeheartedly support the goals of guaranteeing 
access to high quality, affordable care to all Americans and 
simplifying the current health care system. Our endorsement 
extends to the specifics of the Clinton reform plan that are 
consistent with the top three priorities established by our 
membership last year: (1) the plan preserves the Medicare program; 
(2) home care is part of the acute care benefits package; and, (3) 
the plan includes a new comprehensive long-term care benefit based 
on home care. We believe that the home- and community-based long- 
term care component of the President's plan is one of its strongest 
provisions and sets it apart from the whole host of current health 
care reform proposals that have neglected to seriously address the 
long-term care issue. We are especially pleased that the 
President's long-term care program does not exclude individuals on 
the basis of age or income, but instead qualifies them for services 
on the basis of need. Second, we are pleased his proposed 
legislation does not require states to use costly external case 
management procedures that duplicate standard caregiver activities. 



347 



Eligibility Criteria 

In order to qualify for services under the Clinton long-term care 
proposal, individuals would have to either need assistance with at 
least three of the five activities of daily living (bathing, 
dressing, transferring, toileting, and eating) ,- have a severe 
cognitive or mental impairment; have severe or profound 
retardation; or, for children under the age of six, be dependent on 
technology and otherwise require hospital or institutional care. 
Fewer than one-third (3.1 million) of the 10 million disabled 
people who live in community settings and need long-term care would 
qualify for care under these restrictive eligibility criteria. 
Millions of individuals of all ages and disabilities who are in 
need of long-term care would not be helped by this program. 

NAHC urges Congress to work with the Administration to lower this 
standard and make long-term home care available to all individuals 
in need of this care. Specifically, NAHC recommends lowering the 
criteria so that all individuals who need assistance with one or 
more activities of daily living (ADLs) and all those with cognitive 
or mental impairments are eligible for assistance. In this way, 
the plan will reach more than just the most severely disabled 
citizens of our nation. NAHC members have consistently voiced 
their support for a broad-based progressive financing method to 
fund a national long-term care program, including such necessary 
improvements . 

The Role of the States 

The Clinton home- and community-based long term care program will 
be administered as a block grant program. NAHC is concerned about 
the amount of flexibility states will be given to implement this 
program. Specifically, we are concerned about the amount of 
discretion the states will have in determining the level of 
benefits. We believe this could lead to an inequitable situation 
in which benefits vary greatly from state to state. To make the 
program more equitable and uniform, NAHC recommends strengthening 
the existing language by requiring that the full range of home- and 
community-based services be offered to all eligible individuals 
regardless of the state in which they reside. These services 
should include nursing care; home care aide services; medical 
social services; personal care services; chore services; physical, 
occupational, speech, and respiratory therapy and rehabilitative 
services; hospice services; respite care; adult day care; medical 
supplies and durable medical equipment; minor home adaptations that 
enable beneficiaries to receive services at home; transportation 
services; nutritional services; and patient and family education 
and training. This list, while extensive, represents the 
appropriate kinds of services that should be available to all 
Americans under a national long-term care program based on home- 
and community-based care. 



82-43S o - q4 - ^7 



348 



As long as the President's home- and community-based long-term care 
proposal remains a block grant program, the states will have 
considerable control over their own expenditures. For this reason, 
we support the plan's requirement that no more than 10 percent of 
a state's expenditures are used for state administrative costs. 
Without such an assurance, a disproportionate amount of money could 
be diverted from patient care. Given the already scaled back 
nature of the President's long-term care program, it is important 
that precautions are taken to ensure that funding goes toward 
providing actual services. 

Case Management 

The President's plan does not specify the form in which states may 
choose to implement optional case management services. While there 
is no requirement that the states use external case management 
services, there is, likewise, no recognition that provider-based 
case management is a viable method of furnishing those services. 
For several reasons, NAHC has consistently supported permitting 
home care agencies to perform case management functions. First, 
case management has always been an integral part of the caregiving 
process, and is a responsibility that agencies have performed for 
more than a century. Second, payors and providers of service have 
different goals for case management as performed by an external 
entity. Experiences vary widely in states currently providing case 
management services with no one model emerging as ideal. 

The General Accounting Office, in its report of April, 1993, Long- 
Term Care Case Management: State Experiences and Implications for 
Federal Policy, states that after studying various models of case 
management in six states it was unable to identify any studies or 
evaluations that showed one system to be more effective than 
another. In our own observations, there are many successful models 
which either require or permit provider-based case management . 
They include the Medicare home health benefit, the Medicare hospice 
benefit, the demonstration Social HMO projects, the demonstrations 
under P.A.C.E. (Program for All-inclusive Care for the Elderly; 
also know as OnLok) , and Medicaid Home- and Community-based 
Waivers . 

A number of states successfully utilize provider-based case 
management, or have positive collaborative relationships in place. 
In Connecticut, for example, a one year demonstration project was 
conducted in 1992, sponsored by the Department on Aging, to 
determine whether provider case management could be cost-effective, 
without succumbing to self-interest while meeting established 
goals. The project was a success as reflected in a letter from the 
State of Connecticut to one of the home health agency participants. 
It states in part, "the need for administrative overhead associated 
with additional layers of case managers was eliminated in its 
entirety without adverse effect on the client population." 



349 



New Jersey utilizes a medical -social model of case management with 
an interdisciplinary approach for its Medicaid home- and community- 
based services program. The sites are chosen through a Request For 
Proposal process, using interviews and definitive guidelines. A 
mixture of agencies serve as sites, but the predominant case 
management providers are home health agencies. In Iowa, case 
management is technically assigned to the Area Agencies on Aging. 
However, by regulation, an interdisciplinary team case conference 
is required, which includes the home care agency, to develop the 
plan of care for the client. 

Case management, among other purposes, serves to enhance 
communication and coordination of services. Home care agencies 
have first-hand, intimate knowledge of their clients' needs, and 
are currently performing case management activities to a large 
extent. We urge clarification of this provision of the President's 
plan to ensure a role for home health agencies as case managers. 

Special Delivery Issues 

With respect to involvement of paraprof essionals, like home care 
aides, in the delivery of long-term care services, NAHC supports 
the standards for the training, testing, and supervision of these 
workers as established by the Joint Commission on Accreditation of 
Healthcare Organizations, the Community Health Accreditation 
Program and the National Homecaring Council. As it is currently 
written, the President's home- and community-based long-term care 
program would allow consumers to select their own caregivers, but 
would not establish any standards or regulations regarding these 
caregivers. State certification of these workers should be ensured 
so that all home care aides are appropriately trained, tested, and 
supervised. 

Finally, provisions enabling the use of vouchers to purchase home 
care services, or direct payments by patients to individuals 
providing home care as envisioned in the Clinton plan, should be 
prohibited. Individuals should be encouraged to purchase services 
from qualified home care agencies that can control the quality and 
utilization of services, protect vulnerable patients, ensure 
adequate training and supervision of home care personnel, and 
provide employee benefits. This practice would diminish the 
potential for fraud and abuse by holding agencies responsible for 
all facets of their patients' care -- financial as well as medical. 

This recommendation is also consistent with the program's need to 
ensure quality of care. Quality assurance standards, including 
minimal standards of training, testing, and supervision should be 
applied to the delivery of services in the home, regardless of the 
source of payment for those services. The requirements contained 
in the Medicare conditions of participation for home care and 
hospice should be applied to the delivery of in-home long-term care 
services where appropriate. 

NAHC believes that the home- and community-based long-term care 
plan proposed by President Clinton can be strengthened to ensure 
the delivery of comprehensive, quality home care services to all 
those in need. Nonetheless, we want to reiterate that the Clinton 
plan at the very least represents an important step in the right 
direction. The members of NAHC anticipate that the President's 
plan will be the foundation for a long-term care program that is 
reliable and progressively financed for many years to come and 
serves all people regardless of income and age. We look forward to 
working with members of the Administration and Congress toward this 
end. 



350 

Mr. Waxman. Ms, Grigsby. 

STATEMENT OF SHARON FLYNN GRIGSBY 

Ms. Grigsby. Mr. Chairman and committee members, thank you 
for this opportunity to discuss the President's Health Security Act 
provisions for home- and community-based services for individuals 
with disabilities. 

My name is Sharon Grigsby and I am the President of the Visit- 
ing Nurse Association of Los Angeles and Past Chair of the Visiting 
Nurse Associations of America on whose behalf I am here today. 

Mr. Chairman, I bring you greetings from the very shaky region 
you represent and bring also our thanks to all of you for the signifi- 
cant and very effective Federal presence in Los Angeles after our 
recent earthquake. With our President and members of the Cabinet 
and many of our elected Representatives present and demonstrat- 
ing your support, recovery efforts have gotten under way very 
quickly. 

As part of these recovery efforts, the Los Angeles Visiting Nurse 
Association was asked to staff Red Cross emergency shelters with 
our nurses. I have been out to several of these shelters talking with 
the residents and with our staff. The spirit and resilience of 
Angelinos, both those directly affected and those helping out, would 
inspire you as it has me. 

After the tours, however, I must report that the much stretched 
health care safety net now has a few new holes. Loss of three of 
our major inpatient facilities, especially those serving the indigent 
and veterans, are a great loss to the people of San Fernando Val- 
ley. Our health care system, especially as govemmentally funded, 
uses these hospitals as the hub of health care services for their re- 
spective populations. With the quake, not only are these facilities 
gone but the support systems, ambulance and Medivan transpor- 
tation, outpatient treatment, rehab and pharmacy services, are dis- 
rupted or disappeared. The lost looks on the faces of the people in 
the shelters reflect the enormity of the task they face in putting 
their lives back together. For the frail and elderly and disabled, 
that task is even greater. 

While they struggle with housing and food, what happens to that 
previously scheduled appointment for their hypertension, their dia- 
betes, their pulmonary disease, their heart condition? With their 
hospital closed, they will try to do without until things settle down 
or until someone has to call 911 for them or rush them to the emer- 
gency room. 

I believe the Los Angeles quake illustrates a very serious struc- 
tural flaw in our health system and that is the subject of our hear- 
ing today. 

In our formal written testimony to the committee, we expressed 
five concerns for a new long-term care program. First, there is an 
urgent need to implement a national comprehensive long-term 
services program to complete the continuum of service necessary to 
manage the health care status of our elderly and disabled popu- 
lation; second, a minimum set of benefits should be offered to eligi- 
ble patients in each State delivered to federally established stand- 
ards; third, the financing for the long-term care program must be 
adequate to assure quality, access to care and patient choice, while 



351 

protecting patients and the government from profiteering; fourth, 
professional case management is the most effective way to coordi- 
nate cost and care for chronically ill patients. We must not dupli- 
cate existing regulatory requirements to do this; and fifth and fi- 
nally, a research component should be built into the program to de- 
termine optimal functional outcomes and the effectiveness of our 
eligibility requirements of deficits in three ADL's. Each of these 
points is developed further in our paper, but I greatly fear we will 
never get to the content of this essential program. 

Based on more than 100 years of experience in home care and 
on serving millions of Medicare and Medicaid beneficiaries, Visiting 
Nurse Associations bring you an urgent plea. Please do not allow 
the debate on long-term care to be framed as simply the analysis 
of a new and costly benefit. You have the power to use this forum 
to focus on the real issue in long-term care, and that is the needs 
statement from those persons who make up the fastest growing, 
most complex and most expensive health care consumers, persons 
with serious and persistent chronic illnesses. 

Our present health care system is a forced fit for them at great 
cost to them and to us. Their care resources are emergency rooms, 
acute inpatient facilities and nursing homes. True, long-term care 
would manage these chronic cases to intervene before the 911 call 
to prevent delay and minimize the progression which tends to char- 
acterize these situations. 

Inpatient care in nursing homes would be accessed only when no 
other source of care would be appropriate to meet their needs. 
Without a commitment to meeting these needs in the most cost-ef- 
fective way, through an integrated, acute home- and community- 
based care program, there can be no real health care reform, Ra- 
tional comprehensive managed long-term care is now the missing 
piece and attempting health reform without long-term care is mere- 
ly rearranging the deck chairs. 

The voluntary nonprofit Visiting Nurse Associations of America 
urgently request that you take up the challenge of health reform 
and fight for the necessity of appropriate long-term care as a nec- 
essary prerequisite to achieving the quality, access and cost con- 
tainment goals of this health reform effort. 

Thank you. 

Mr. Waxman. Thank you very much, Ms. Grigsby. 

[The prepared statement of Ms. Grigsby follows:] 



352 



Testimony of Sharon Flynn Grigsby, President 
Visiting Nurse Association of Los Angeles 



Introduction 

My name is Sharon Flynn Grigsby. I am President of the Visiting Nurse Association of Los 
Angeles, and past chair of the Visiting Nurse Associations of America. We are pleased to be invited to 
present before this subconrunittee our views on President Clinton's "Health Security Act," Title 11, Subtitle 
B, Part 1 - State Programs for Home and Community-Based Services for Individuals with Disabilities. 

Summary of Recommendations 

In this testimony we will offer Visiting Nurse Associations' (or " VNAs") credentials of more than 
100 years' experience providing non-profit home care in this country. Based on this experience, we would 
like to make five recommendations for your subcommittee's consideration. 

First, there is an urgent need to implement a national comprehensive long-term care program to 
complete the continuum of services necessary to manage the health care status of our elderly and disabled 
populations. 

Second, a minimum set of benefits should be offered to eligible patients in each state. 

Third, the financing for the long-term care program must be adequate to assure quality, access to 
care and patient choice, while protecting patients and the government from profiteering. 

Fourth, professional case management is the most effective way to coordinate cost and to care for 
chronic patients. 

Fifth, and finally, a research component should be built in to the program to determine optimal 
functional outcomes and the effectiveness of the three activities of daily living (ADLs) deficits eUgibility 
requirement vs. one or two ADLs. 

These recommendations will be discussed and developed in the body of this testimony. 



353 



Visiting Nurse Associations' Bacl(ground and Credentials 

Over 100 years ago. Visiting Nurse Associations embarked on a mission to provide 
compassionate, high-quality home and community care to people of all ages regardless of their ability to 
pay. As early as 1885, VNAs recognized that providing both health care and assistance with daily activities 
in the home helped people get well. VNAs are proud of their volunteer Boards' leadership in their 
communities, which assures that each community's individual needs are identified and addressed. 

During the past century, VNAs grew from organizations providing basic health and hygiene care 
for a relatively small indigent and immigrant population, to today's provision of comprehensive, multi- 
disciplinary services to p)eople of all ages in the home. 

Originally, VNAs' primary mission was to lower infant mortality and to combat infectious 
diseases. They provided poor families with milk, basic nutrition, and nursing care. As more preventive 
and curative health services became available, VNAs were able to treat children and adults suffering from 
a wide range of health problems, which kept them temporarily or permanently home-bound. 

Today, VNAs constitute a national network of approximately 500 community-based, non-profit, 
Medicare-certified home health agencies. While retaining their public health orientation, VNA services 
now range from skilled nursing and mental health care to hospice service, social work and physical 
therapy. High-tech services previously provided only in hospitals, such as ventilator care, blood 
transfusions, pain management and home chemotherapy are now routinely provided by VNAs. Although 
comprising less than ten percent of all certified home health agencies, VNAs might be called the 
government's unanointed home care partner since we provide about half of all Medicare home visits and 
over three-quarters of all Medicaid home visits. VNAs also carry a significant share of pnvately-insured 
home care and the bulk of indigent care. VNAs have special expertise in working with complex patient 
care needs, including poor women at-risk for delivering premature infants, HIV patients, individuals with 
chronic disabilities and elderly patients requiring long-term care. The fastest growing segments of the 
VNA patient population are the dependent elderly over 80. and chronically ill children under age five. 



354 



VNAs have been, and continue to be, the safety net for patients who are denied services, either 
because they are not poor enough to qualify for Medicaid, because Medicaid or Medicare do not fully 
cover the services they need, or because they are uninsured, underinsured. or have exhausted their 
insurance. Charity support from the United Way and other philanthropic sources is what allows us to be 
that safety net. Charity giving is used to pay the difference between cost of care and reimbursement. 
However, the level of charitable contributions has been severely affected by the recent economic 
downtum. VNAs also are feeling the impact of Medicare cuts from the 1993 Omnibus Budget 
Reconciliation Act. 

By history and practice, VNAs have a long-term care focus and help their chronically ill and 
disabled patients bridge the gap between these needs and the rigidities of our acute, short term care driven 
health system. Accordingly we believe VNAs have both experience and commitment to offer in the 
construction of the much needed new long- term care program. 

Rationale for Recommendations 

We commend the Administration for recognizing that the heart of health care reform is long-term 
home and community -based care. If we, as a nation, are to move beyond our acute care focus and achieve 
both universal access and cost-containment, we must have expedient implementation of this Act, 
and this program. The following are our recommendations for a long-term care program: 

1 . There is an urgent need for a national comprehensive long-term care program to complete 
the continuum of services necessary to manage the health care status of our elderly and disabled 
populations. 

Lacking a long term care component, the present health system forces the chronically ill and people 
with disabilities to access care through the most costly chaimels: emergency rooms and acute hospitals. In 
our current system, long term care is equated with nursing homes. Of the $53 billion the nation 



355 



spent on long term care in 1988, according to the Pepper Commission report (1990), 
only 18% of these services were provided in the home. Yet four out of five people with 
disabilities live at home. 

Every day VNAs see Medicare patients who must be discharged from hospitals because their 
conditions have reached a chronic state and skilled care will no longer be covered by Medicare. These 
patients typically have one or more chronic conditions and our experience is that within three to six months 
the padent will decompensate and require rehospitalization. These same patients will then be readmitted to 
home care following hospital discharge. This revolving door phenomenon is painfully common and 
frightfully expensive! The gaps in the health care system are nowhere more evident than in the chronically 
ill and disabled populations. All too often their only recourse is institutionalization. Most patients prefer 
to stay in their own homes. By implementing a comprehensive long-term care program. Congress will 
have plugged this costiy gap in our health care system. A well-planned long-term care program will 
require coordination of services and integration of care along the full spectrum of health providers. Done 
properly, long-term care will move patients smoothly and effectively through the health care system, 
spending only the minimum required time in inpatient enviroimients and maximizing caregiving in the 
community. 

A successfijl long-term care program must address current trends and future inevitabilities 
including an aging population; earlier hospital discharges; increased patient survivorship due to new 
medical breakthroughs and high-technology equipment and services; and the growing incidence of 
Americans with AIDs. In addition, an increasing number of family members, particularly women, who 
traditionally provided home care, are being pressed by economic conditions to enter the workforce. 
Access to comprehensive long-term home care is essential to preserve health care dollars by the most 
appropriate use of each level of care. 

2 . A minimum set of benefits should be offered to eligible patients in each state. VNAs believe 
that the federal government should require a uniform minimum set of services that must be offered to 



356 



patients defined as eligible by federal standards. Services that states should provide include home health 
care not already covered by the skilled portion of Medicare, Medicaid, or by another health plan; case 
management; homemaker and chore assistance; home modifications; respite services; assistive devices; day 
care services for impaired adults and children; habilitation and rehabilitation; supported employment; and 
any other care or assistive services that are determined to help people with disabilities to remain in their 
homes and communities. 

3 . The fmancing for the long-term care program must be adequate to assure quality, access to 
care, and patient choice while protecting patients and the government from profiteering. 

In pursuit of quality concerns, licensing and accreditation should be required for long term care 
providers. We advise caution in developing the needed federal/state partnerships so that requirements are 
not duplicated and that quality can be assured without instituting unnecessary bureaucracy. 

With regard to methods of reimbursement, VN As believe states should establish a mechanism to 
ensure that providers do not prosper at patients' expense, yet are reimbursed at fair market rates. We 
want to be sure that any reimbursement method is well thought-out, so access to care 
and quality of care are not curtailed. By contrast, in too many states the Medicaid home health 
program is heavily subsidized by providers. The fact that VNAs do 80% of Medicaid home care suggests 
that Medicaid providers are disproportionately non-profits. This program must ensure that rates fiilly 
cover the reasonable cost of providing care. The for-profits will not accept patients for less, and the non- 
profits are already using all their charity dollars for free and subsidized intermittent care services. VNAs 
do not have a "pot of money" to carry a providers' share of cost for this new program. VNAs strongly 
caution against building into the long-term care effort yet another federal program that depends on 
charitable organizations' subsidies to succeed. 

VNAs recognize and support the plan's offer to eligible consumers the ability to contract for 
personal assistance services. Autonomy and choice in this option are important to people with disabilities. 



357 



However, VNAs are concerned that, without some regulation of these providers, consumers might receive 
substandard, or worse, hazardous care. Quality of service remains the heart of the issue. For patient 
choice to be effective, objective indicators of quality must be available, measured, and published. 
Significant conflict can arise around the issue of patient autonomy versus the cost of the bureaucracy 
created by imposing quality measures. Compliance with all the regulatory and quality standards costs 
money. If a patient takes the "low bid" and hires a minimum-wage, unbenefitted worker, the federal long- 
term care program would be blamed for horror stories that could result. We believe that consumers 
should be able to contract independently for personal assistance, but with providers 
who have met appropriate certification requirements and who receive benefits accorded 
to employees, such as FICA and workers' compensation. 

In financing the program, the Act would require patient cost-sharing. VNAs see so many patients 
living at the economic margin for whom even a minimal share of cost would be prohibitive. If cost 
sharing is implemented, we beUeve that there needs to be a stop-loss mechanism so that patients and their 
families do not have to choose between impoverishment and foregoing care. Stop-loss levels should be 
created as limits to how much patients are assessed for their care. We also beheve that mechanisms for 
determining individuals' income be appropriate, sensitive and consistently applied. 

The program's financing mechanisms also should address the availability and cost of long-term 
care insurance. Effective use of tax incentives could draw additional private support, increase consumer 
choice and decrease the financial burden on government. 

VNAs would point out that the Medicare home health program sustained significant cuts this year 
through reductions in Medicare cost limits, and by a two-year freeze on these limits. Further cuts in the 
Medicare home benefit to pay for this new program would result in two weak federal health care 
programs. Effective implementation of the reform plan should help eliminate overutilization and 
duplication of service, the savings from which could help support the new benefit. 



358 



4 . Professional case management is the most effective way to coordinate cost, and to care for 
chronic patients. 

Most experts agree that the complexities of chronic illness are best served through case 
management. Debate rages, however, as to how this should be done. Some feel that providers have a 
conflict of interest and should be excluded from this process. VNAs believe that the providers' ethical, 
regulatory and liability concerns require them to do it and anyone else who does it, duplicates effort and 
cost. Medicare requires a full assessment by the clinical professional admitting the patient to care and 
developing the plan of treatment. This also is required under many state licensing regulations. Medicare's 
Conditions of Participation, and by national accrediting bodies. In addition, most of our staffs believe that 
their professional credentials rest on the quality of their assessments in determining patients' plans of care. 
Thus, home health agencies must perform a full assessment before beginning care. This assessment is the 
starting point for managing the case. 

Others call for "independent case management," precluding home health providers who are 
ultimately responsible for the patients. This group offers the "fox in the hen house" argument and 
postulates that case management be done by staff responsible to a case management company whose 
services are paid for by the case management company, insurance company, federal program, or another 
payor source. It is difficult to believe that such a structure can be expected always to act in the best interest 
of the patient. Rather than argue who has the bigger conflict-of-interest, the long-term care system should 
be designed so that the patient's needs are central and so that no one can profit by defining those needs to 
their personal benefit. One means of doing this is to capitate the population, assuming that quality care 
standards are being measured and met. The provider must then manage the patient's case within the 
dollars allowed. Over-utilization under capitation would benefit no one. VNAs urge that case 
management be built in to the long-term care program without redundancies in assessments, which create 
duplicate effort, drive up cost and burden the patient. 

5 . A research component should be built in to the program to determine optimal functional 



359 



outcomes and the effectiveness of the three or more activities of daily Hving (ADLs) screen versus one or 
two ADLs. 

The program bases eligibility on patients with three activities of daily living (ADLs) deficits. 
VNAs are concerned that patients who depend on home care to remain out of nursing homes, and who are 
defined with only one or two ADL deficits, might be excluded. Most chronically ill patients experience 
progressive deterioration. By using three ADLs as the trigger for long-term care eligibility, the program 
may lose the ability to intervene earlier and perhaps slow the progression. Alternatively, a stair-step 
program with minimal service intervention for people needing assistance with one ADL, and additional 
services for those needing assistance with more than one ADL, might delay the need for 
institutionalization. VNAs propose that the program be implemented with a research component to 
determine the best functional measures for program eligibility. We need to be sure that we are accurately 
identifying a population of people who can be helped by long-term home care. We believe this research 
should be ongoing to test and fine-tune eligibility criteria, and to determine optimal functional outcomes. 
We recognize that needing assistance with three ADLs has been the traditional definition of need in the 
past. VNAs do not believe that this definition is the sole determinant of need. There are some ADLs 
that are more critical than others. We should not limit our solutions for the future by untested 
reliance on indicators from the past. Sound research is necessary to establish best practice. 

In Summary 

We appreciate the opportunity to present our views and concerns. We realize that the 
subcommittee and Congress have a monumental task of creating the best and most affordable health care 
system for all Americans. We hope that you will continue to call on VNAs as you work in areas where 
our experience may be helpful to you. 

For additional information regarding Visiting Nurse Associations of America, please feel free to 
contact Bill Vamell, President and Chief Executive Officer, VNAA, 3801 E. Florida Avenue, Suite 900, 
Denver, Colorado 80210, 303-753-0218. 



360 
Mr. Waxman. Mr. Bom. 

STATEMENT OF GERALD A. BORN 

Mr. Born. Thank you, Mr. Chairman, I am Gerald Bom, rep- 
resenting the Wisconsin Department of Health and Social Services. 
I am pleased to have the opportunity to talk about Wisconsin's ex- 
perience in community-based long-term care and the proposed long- 
term care portion of the Health Security Act. 

There are two reasons we have been in the forefront of long-term 
care reform. First, there is broad support in Wisconsin for public 
efforts to address the devastating effects of long-term chronic ill- 
ness and disability on the social and economic well-being of fami- 
lies. Governor Thompson has led a significant expansion of home- 
and community-based long-term support programs for the elderly 
and other adults and children who experience chronic physical, 
mental or developmental disabilities. We are pleased that Congress 
and the Federal administration will be examining the need and the 
value of a nationwide system of long-term care based on consumer 
choice. 

The second reason States like Wisconsin have been the leaders 
in long-term care reform has been the rising cost of an unmanaged 
institutional long-term care entitlement financed under title XIX. 
Governor Thompson and his predecessors have realized that long- 
term care costs will go up no matter what they do because of the 
dramatic rise in the population over age 85, the rising survival 
rates of adults and children with the most severe disabilities, and 
the rise in nursing home costs. Perhaps most remarkable about our 
efforts in the long-term care field is that it has been a marriage 
of cost control strategies and the pursuit of improved quality for 
consumers. 

Wisconsin has developed a State-funded community options pro- 
gram, subsequently adding a Medicaid home- and community- 
based waiver, to support in their homes individuals who otherwise 
would qualify for care in a nursing home. 

Community Options is administered by county agencies who 
serve about 13,000 individuals each year. Consumers pay a portion 
of costs on a sliding scale. Participants receive a comprehensive as- 
sessment of their resources and needs from a nurse and a social 
worker, a care plan which reflects consumer preference for types 
and location of services, and authorization for services from a wide 
variety of formal and informal providers. Community Options will 
pay for anything identified in a care plan as necessary to enable 
the person to remain at home. There is no limiting schedule of ben- 
efits or authorized providers and maximum flexibility and 
consumer responsiveness is a key feature in the success of Commu- 
nity Options. We recognize the effort of the Health Security Act to 
provide the same flexibility to States and to consumers and we 
urge you to retain these provisions. 

The quality of Community Options is achieved through its highly 
individualized approach to managing the care of individuals in a 
manner which respects each person's values and preferences. Cost 
control is achieved in two ways. First of all, Community Options 
and the waivers are not an entitlement. A fixed budget is approved 



361 

each biennium which finances a number of community care places. 
Cost control is exercised at the county level where case managers 
are obliged to maintain an average cost across a case load. There 
are no individual cost caps. Each case manager is expected to be 
knowledgeable about the cost of services and about providers and 
to be a prudent purchaser of service. 

Our goal is to achieve a balance between spending on institu- 
tional and community care. A second goal has been to expand serv- 
ice options for individuals. Expenditures on personal care, home- 
makers, home-delivered meals, adult day care, family respite care, 
housing modification and transportation are emerging as impor- 
tant — as important to keeping people out of nursing homes and 
functioning at a higher level at home than the historical reliance 
on skilled nursing care. 

A third goal in Wisconsin has been to create a predictable fund- 
ing source to reduce complexity and to coordinate access to commu- 
nity care. 

We hope that Congress recognizes the considerable experience we 
have developed and the considerable outlay for long-term care al- 
ready being made by States. It goes without saying that States can- 
not absorb any new unfunded mandates. We are concerned that 
this program not become de facto an individual entitlement promis- 
ing more than can be delivered by the fiscal capacity of either the 
State or Federal Government. 

As a State committed to strong home- and community-based 
care, we are pleased to have had the opportunity to discuss the pro- 
gram as well as share our concerns. Thank you. 

Mr. Waxman. Thank you very much, Mr. Bom. 

[The prepared statement of Mr. Born follows:] 



362 



STATEMENT OF 

GERALD A. BORN, ADMINISTRATOR 

DIVISION OF COMMUNnY SERVICES 

WISCONSIN DEPARTMENT OF HEALTH AND SOCIAL SERVICES 

Mr. Chairman and distinguished members of the House Subcommittee on Health 
and the Environment, I am Gerald Bom representing the Wisconsin Department of Health 
afHl Social Services. I am pleased to have the opportunity to talk about Wisconsin's 
experierKe in community-based long term care and the proposed long term care portion of 
the Health Security Act. For more than a decade, states like Wiscortsin have been the 
leaders in developing community-based programs for older persoru and other persons with 
disabilities who choose to receive lor>g term care at home rather than in nursing homes. 

There are two reasons we have been in the forefront of long term care reform. 
First, there is broad support in Wisconsin for public efforts to address the devastating 
effects of lor^ term chronic illness and disability on the social and economic well-being of 
families. Governor Thompson has led a significant expansion of home and community- 
based long term support programs for tt>e elderly and other adults and children who 
experience chronic physical, mental or developmental disabilities. We »t« pleased that 
Congress arvj the federal administration will be examining the need and the value of a 
nationwide system of long term care based on consumer choice. 

The secorvl reason states like Wisconsin have been the leaders in long term care 
reform, has been the rising costs of an unmanaged institutiorMi lortg term care entitlement 
financed ur>der Title XIX. Governor Thompson and his predecessors have realized that long 
term care costs will go up. no matter what they do. because of the dramatic rise in the 
population over age 85, the rising survival rates of adults and children with the most 
severe disabilities, and ttw rise in nursing home costs.' In spite of this pressure. Wiscor\sin 
is required to balartce its budget, even as the cost of Medicaid begins to surpass xhe cost 
of the University of Wisconsin system. Perhaps most remarkable about our efforts in ttM 
long term care field is that it has been a marriage of cost control svategies and the pursuit 
of improved quality for consumers. 



363 



Wisconsin has developed a state-funded Community Options Program, subsequently 
adding a Medicaid home and community-based waiver, to support in their homes 
individuals who otherwise would qualify for care in a nursing home. Community Options is 
administered by county agencies (either social services departments, area agencies on 
agir>g or community mental health and developmental disabilities boards) who serve about 
1 3,000 individuals each year. Consumers pay a portion of costs on a sliding scale. 
Participants receive a comprehensive assessment of their resources and needs from a 
nurse and social worker, a care plan wtiich reflects consumer preference for types and 
location of services, and authorization for services from a wide variety of formal and 
informal providers. Community Options wiH pay for anytfvng idemified in a care plan as 
necessary to enable the person to ramain at home. There is no limiting schedule of 
ber\efits or authorized providers, and maximwt flexibility and consumer-resporuiveness is a 
key feature in the success of Community Options. We recognize the effort of the Health 
Security Act to provide the same flexibility to states and to consumers and we urge you to 
retain these provisior\s. 

The quality of Community Options is achieved through its highly individualized 
approach to managing the care of irtdividuals in a manner which respects each persons 
values and prefererKes. 

Cost control is achieved in two ways. First of aH, Community Options and the 
waivers are not an entittement. A fixed budget is approved each biennium which finances 
a number of community care 'places,' just as Medicaid firwnces a limited number of beds 
in nursing homes. Cost control is also exercised at ttie county level, where case managers 
are ot>liged to maintain an average cost across a caseload; there are no individual cost 



364 



caps. Each care manager is expected to be knowledgeable about the cost of services and 
about providers arwl to be a prudent purchaser of services. 

Our first goal is to achieve a balance between spendir>g on institutional ar>d 
commurvty care. We are able now to spend about >1 .00 for the elderly in the commur^ity 
for every $5.00 we spernl in nursing homes. Since a majority of disabled and elderly 
persons prefer to receive care in the community, we still aim for a better balance in 
speruling in the two sides of the system. Through the last decade, Wisconsin has 
achieved savings by maintaining a freeze on nursing home expartsion while investing in 
community care. 

A second goal has been to expand service options for individuals. Sirwe long term 
care involves support with basic activities of daily living, it is increasingly clear that 
traditional home health services and other medical services in and of themselves are not 
necessary, sufficient or even desirable to meet the daily support needs of participants. 
Expenditures on personal care, homemakers, home-delivered meals, adult day care, family 
respite care, housing modification, and transportation are emerging as more important to 
keeping people out of nursir>g homes and functioning at a higher level at home than the 
historical reliarKe on skilled nursing care. For instance, although it represents less than 5% 
of expenditures in our program, home modification and adaptive equipment are necessary 
in 45% of care plans. 

A third goal in Wisconsin has been to create a predictable funding source, to 
reduce complexjty and to coordinate access to community care. We would welcome 
adequate and svaightforward participation by the federal government In finarwing 
community long term care, unencumbered by excessive regulation or the complexity of the 
Title XIX waiver administration. Key to the success of state programs like ours has bean 



365 



th« abMnc* of axcAssiva federal intervention in the regulation and definition of programs 
and services. Where federal Medicaid has been a central funding source, complexity and 
rigidity inevitably creep in. The nature of the Medicaid entitlement is to breed over- 
regulation arHl reduce consumer responsiveness because of the necessity to control cost 
by limiting service. Fixed budgets as proposed in the Clinton Plan, like our Community 
Options program, allow for creativity and flexibiiity witlun budget caps. 

Our state Community Options Program is able to tie money to the individual care 
plan, to maximize family and community connections and increase consumer choice. In 
our experience, a participant-centered system of care contrasts with the more traditional 
programs of Medicare and Medicaid. A participant-centered program leads to new 
definitior^s of quality which are more client centered arxJ less dependent on inspection and 
paperwork. 

We hope that Congress recognizes the considerable experierKe we have developed 
and the considerable outiay for long term care already being made by states. It goes 
without saying that states cannot absorb any new unfunded mandates. We are concerr^ 
that this program not become de facto, an individual entitlement promising more than can 
be delivered by the fiscal capacity of either state or federal government. As a state 
committed to strong home and community based care, we are pleased to have had the 
opportunity to discuss our program, as weH as to share our concerns. 



366 

Mr. Waxman. Before we go on with the panel, I am going to do 
something I almost never have done and I hope you will all be un- 
derstanding. I am sure Ms. Grigsby will be. 

Today, we have on the House Floor special legislation because of 
the earthquake in Los Angeles, which is disrupting the day for me 
personally, and what I want to do now is recess until 1:30. Then 
we will come back and pick up the rest of the testimony, then ask 
this panel questions, and then hear from our remaining witnesses 
of the day. Ordinarily, as members know, and others who have 
watched this committee, we usually just keep on going, but we are 
going to take this break, and I apologize to those of you who might 
be inconvenienced, but we will recess now and come back at 1:30. 

[Whereupon, at 12 noon, the subcommittee recessed, to reconvene 
1:30 p.m. this same day.] 

AFTER RECESS 

Mr. Wyden [presiding]. The subcommittee will come to order, 
and let me convey Chairman Waxman's regrets that he cannot be 
here. As you may be aware, the Congress is doing the earthquake 
legislation on the Floor right now and the chairman's district has 
been extremely hard hit, so it is a matter of great importance and 
he will come back just as soon as he can. 

Ms. Ansak, welcome and please proceed. We do have a 5-minute 
requirement for testimony and we will put your prepared remarks 
into the record. 

STATEMENT OF MARIE-LOUISE ANSAK 

Ms. Ansak. Mr. Chairman, I want to thank the committee very 
much for inviting us here. Today with me is Judy Baskins. She is 
sitting back there. She is from our replication project in South 
Carolina and, as you know, in your own district, you have a rep- 
lication of the PACE project in Portland. Unfortunately, they were 
not able to be here. 

We wanted to take a stand on the security act and look at it from 
the perspective of the PACE program. 

As you know, the PACE program essentially takes care of older 
people who are nursing-home certified and who need long-term 
care. We have personally started in San Francisco and we pres- 
ently have this project replicated with a congressional mandate, 
which this committee was very active with, and we have it rep- 
licated in 12 States. There are a total of 15 projects. All of them 
are doing well in providing all the health anci social services on a 
capitated basis to those people who are nursing-home certified. 

All the projects assume financial risk and provide their services 
primarily out of day health centers. The services include all medi- 
cal services, at least from the hospital to the primary care all the 
way to the portable meal and to transportation. 

What we are actually coming here for today is to encourage the 
committee to help us to expand the program. As you well know, we 
have at the present time 15 projects through the ORD in HCFA, 
through the Office of Research and Development. Needless to say, 
they have been successful. 

A study is presently being done by HCFA, but we would like to 
expand further. There is a lot — ^there are a lot of requests from var- 



367 

ious communities and various States. The States have been very 
positive about this project and we would like to expand further. 
Now, ORD, of course, is not able to expand in a limitless way. 

We have some concerns about the Clinton bill, and of course also 
the Cooper bill where it has been mentioned because long-term 
care is not adequately recognized, 

I think the other thing that is a big item in the Clinton bill is 
that acute and long-term care is not in one package. I think if any- 
thing, if anything we have shown in the PACE project why we can 
be cost-effective is because we are combining the long-term care 
dollars with the acute care dollars. If you separate those, you are 
going to push one up and the other one goes down, or vice versa, 
so we feel strongly that these two should be combined. 

I think all in all the PACE project has shown that it is very cost- 
effective, and in view of this success and the urgent need to rep- 
licate further, we would, number one, we would like the committee 
to help us to broadly expand the availability of the PACE sites ulti- 
mately without limitations and defining those sites in terms of the 
PACE protocol, which we are submitting with our testimony. This 
gives the guidelines on how a PACE project should be built up and 
what the quality assurance should be, et cetera. 

We would like to facilitate and expedite the development of new 
sites through a systematic approach that draws upon the experi- 
ence of the successful PACE sites. Each new PACE site should be 
complete up to a 3-year trial period before gaining regular provider 
status. We are actually asking that the bill provide us with some 
mechanism that after an initial period, these projects could become 
a regular provider. 

If the Clinton proposal were enacted, including PACE as an eligi- 
ble insurer, in view of its assumption of full responsibility and risk 
for all health services necessary. PACE should also be authorized 
as an eligible subcontractor to other insurers or providers where 
they determine that the frail, long-term patient needs the kind of 
comprehensive care PACE provides. 

Essentially that is — ^we would like to encourage you to go ahead 
and to allow us to expand the project. 

Mr, Wyden, Thank you. We will put your prepared remarks in 
the record and you are absolutely right. We know about the good 
work that you all are doing in Portland and appreciate it. 

[Testimony resumes on p. 380.]^ 

[The prepared statement of Ms. Ansak follows:] 



368 



TESTIMONY 

Marie-Loiiise Ansak, Founding Executive Director, On Lok, Inc., San Francisco, 

at the Hearings of the Subcommittee on Health and the Environment 

Thursday, January 20, 1994, in Washington, D.C. 

Mr. Chairman, Members of the Committee, 

I am accompanied today by Judy Baskins, from Palmetto SeniorCare, the PACE 
replication in Columbia, South Carolina, and Jack Cradock, of East Boston 
Neighborhood Health Center, the PACE replication in Massachusetts. They are here to 
assist in answering any questions. 

Thank you for this opportunity to comment on the long-term care provisions of the 
American Health Security Act. 

We applaud several feattires: the focus on community-based services for long-term 
care, drug benefits, and recognition of th.c need to integrate acute and long-term care. I 
will provide more specific comments and suggestions. Let me give you our particular 
context. 

I speak from the perspective of PACE, the Program of All-inclusive Care for the Elderly. 
PACE is the Congressionally sponsored replication demonstration of the fully 
integrated, managed care system for the frail elderly that On Lok originated. For 15 years. 
On Lok hcis run a highly successful program in San Frandsco that meets the complex 
medical and sodal needs of the frail elderly. Every PACE enroUee is certified as meeting 
Medicaid requirements for institutional care. 

This model has already been replicated in a variety of communities. In fact, PACE sites 
are now — or will soon be — operating in 12 states: New York (two sites), Massachusetts, 
Maryland, South Carolina, Wisconsin (two sites), Michigan, Illinois, Colorado, Texas, 



369 



Ansak Testimony, 1 IIQIS^ PAGE 2 

California (three sites), Oregon, and Hawaii. Every PACE site is spxjnsored by a 
conununity-based nonprofit 501(c)3 organization. 

The PACE enrollee receives one-stop service, usually based in a day health center. Care is 
given, usually for life, in all kinds of settings: day health centers, homes, hospitals And 
nursing home. From the same multidisdplinary team, which includes the primary care 
physician, the older person gets the quickest possible response as needs change — without 
the burden and confusion of copayments or deductibles! 

Because it assumes financial risk in covering all medical, health and sodal services, 
without limit, PACE has built-in incentives to control cost. Its capitation rates, as has been 
repeatedly demonstrated, save money for Medicare, Medicaid and private payors. 

This year 15 PACE sites will serve well over 2,000 very frail elderly persons. A 1993 
evaluation by the independent Commmunity Health Accreditation Program (CHAP) 
showed exceptional quality and coordination of care at all PACE sites reviev^ed. In 
addition, the cost savings are about 15%. Hospital and nursing home utilization of PACE 
participants is much lower than that of the frail elderly not enrolled in PACE. 

Many community agencies, providers such as hospitals, and state Medicaid agencies want 
to establish additional PACE programs. States see PACE as a way to cope with the rapid 
aging of their population, without building new nursing homes. Others want to apply 
this model to new groups, such as frail children and p)ersons with AIDS. Unfortimately 
the present statutory limit of 15 sites is now allocated, making it impossible to meet 
urgent demand for new sites. 

We have four general concerns about the long-term care aspect of the Clinton bill. First, 
long-term care is not adequately recognize^. Gains we have made will be lost. Second, 
expansion of a successful program such as PACE might be limited to demonstration status 
in virtual perpetmty under the bill's present provisions. Third, community-based long- 



370 



Ansak Testimony, 1 /20/94 PAGE 3 

tenn care ("Title XV") would be segregated from iristitutional care (Medicaid) and 
Medicare. This approach promotes categorical funding, fueling the fragmentation and 
inefficiency we have overcome with the PACE model. Fourth, states are given great 
flexibility without dear federal guidelines. In implementing PACE, we have seen 
tremendous variation across states in their sophistication and commitment to long-term 
care, and even some unfairness. We believe unbridled flexibility might lead to further 
inequities and confusion for an increasingly mobile elderly population. 

The years of experience v«th PACE show that it is a proven, cost-efficient way to meet 
the complex, changeable health care needs of the frail elderly. It is a program urgently 
needed now and necessary whether you do no more than retain the existing Medicare 
and Medicaid programs or go all the way up to the Clinton plan. 

In view of the PACE replication sites' success and the enthusiastic, urgent interest 
among community agencies and states in the PACE model, we would like to propose, 
as an amendment to either existing or prospective law: 

1. Broadly expanding the availability of PACE sites, ultimately v^thout numerical 
limitations, and defining those sites essentially in terms of the PACE Protocol, a 
draft of which I wrill submit today. This should be done soon because of the 
urgent need for new sites and the relatively long lead time for successful 
development and coordination of the comprehensive services in a PACE plan. 

2. Facilitating and expediting the development of new sites through a systematic 
approach that draws upon the experience of On Lok and the successful PACE 
sites. Each new PACE site should complete up to a three-year trial period before 
gaiiung regular provider status. 

3. If the Clinton proposal were enacted, including PACE as an eligible insurer — in 
view of its assumption of full responsibility and risk for all health services 

necessary. PACE should also be authorized as an eligible subcontractor to other 
insurers or providers where they determine that a frail, long-term patient needs 
the kind of comprehensive care PACE provides. 

Thank you. We are also submitting for your information a summary of the PACE 
evaluation and a listing of the current PACE sites. 



371 



THE PACE REPLICATION 



If idigirotmd and Stotoi" 



The Program of All-inclusive Care for the Elderly — PACE — is a nationwide effort to replicate 
the comprehensive service and financing model of long-term and acute care created by On Lok 
in San Francisco. The first PACE replications began of>erating in 1990. Today, 10 replication 
sites care for frail older people across the country and five more expect to begin operations by 
mid-1994. An additional 17 organizations are exploring replication of the model in twelve 
states and expect to implement die model when additional waivers become available. 



WATVERED PACE SITES 
As of January, 1994 



m 



10 



HT 


ro 


1^ 




«> 


i '* ^P 




^^ 


UV 




re 


\'"i 


^^^d 


_1 ^ 



iPACBJPrtedfilea 



All PACE providers share a common set of principles and must 

• focus exclusively on frail older poisons who are certified eligible for nursing home care; 

• maintain PACE enrollees in the community for as long as medically, socially and 
economically feasible; 

• provide comjTrehensive medical and supportive services through a multidisciplinary team 
with a broad range of professional and paiaprofessional staff, including enrollees' primary 
care physician; and 

• assume financial risk by accepting fixed capitation payments to cover all service needs. 



On Lok, Inc. 



January 14, 1994 



372 



[:$errice P<wlgB. " 7 " '"■ ': ; " '''''" .,..,. ................... .■.-.■.,■.■■. 

Comprehensive Services 

In PACE one organization combines all medical, restorative, social and supportive care. The 

range of services: 

• exceeds traditional Medicare and Medicaid benefits by far; 

• extends from hospital and nursing home care to podiatry, dentistry, grooming, 
transportation and home-delivered meals; 

• is available to all PACE enrollees with no limitations on the benefit package; and 

• has no copayments or deductibles in addition to the capitation payments. 



In-Home 
Services 



MSB 



SkiUed 

Nuning 

Facility Care 




Customization and Prevention 

PACE'S multidisciplinary teams develop individualized treatment plans for all PACE enrollees 

and deliver the majority of services directly. Team members: 

• have daily contact with enrollees; 

• detect even the most subtle changes in enrollees' conditions; and 

• modify enrollees' treatment plans accordingly. 

Continuous monitoring and the high level of integration of acute aiud long-term care services 
achieved in PACE resvdts in 

• dramatic reduction in enrollees' utilization of costly hospital and medical specialty services; 
and 

• preservation of the fnH older person's dignity and ability to keep living at home despite 
severe disability. 



On Lok, Inc. 



Page! 



373 



j Capitated Financing 



By pooling monthly capitation payments from Medicare, Medicaid and private individuab, 
PACE provides the type, volume, and continuity of services needed, not the often restricted, 
fragmented benefits package that is available in the traditional system. Capitated financing 
motivates the programs to keep the frail elderly person functional and ambulatory, which in 
turn keeps the provider's costs low by reducing the need for high-cost institutional care. 

The PACE replication provides a viable community-based alternative to nursing home care: 

• PACE eiu-ollees mirror a resident nursing home population along a variety of measures; 

• PACE'S tight integration of acute and long-term care services and emphasis on preventive 
and suppwrtive services keep enrollees out of institutions, thereby improving their quality of 
life and reducing costs. 



Demographic and Functional Characteristics of PACE Enrollees 

Determining who PACE sites are enrolling and comparing the characteristics of clients served 

with those of other elderly populations are crucial to understanding the impact of the PACE 

approach. 

• PACE eiu-ollees' average age is 78.6; 30% are 85 or older. 

• PACE enrollees, on average dependent in 2.8 Activities of Daily Living, look very much like 
a nursing home population in terms of functional limitations. 



Comparison of % of Persons Dependent in 
Activities of Daily Living 



91% 



82%. 




Bathing 



Dnsaing 



Toilating 



Transfeiring 



EaUng 



■ PACE EnrallMs B Nnning Home * 



Comnranily ' 



• SoxiTce: National Nursing Home Survey 
*• Source: National Health Interview Summary 



On Lok, Inc. 



Page 3 



374 



• PACE cnrollees are dependent in almost all Instrumental Activities of Daily Living (e.g. 
houseworky laundry, managing money, and taking medication as prescribed). 

• PACE enroUees have an average of 6.1 medical diagnoses each. 

• Like nursing home residents, over half of PACE eru-ollees are incontinent (PACE: 54%, 
nursing home: 55%). 

• Three-fifths of PACE enroUees are cognitively impaired due to dementing illnesses, including 
Alzheimer's disease. 

• Average length of stay in PACE is about the same as that of chronically ill patients in 
nursing homes — approximately three years. 

Managing EnrolUes' Care in the PACE Model 

PACE providers successfully control eiu-ollees' utilization of hlgh<ost inpatient services by 

providing expanded preventive and supportive services. 

• Despite PACE enroUees' level of fraUty, their rate of hospital utilization is just sUghtly 
above that for aU elderly (2,777 days/l(X)0/annum, vs. 2345 days/10(X)/aimum, for the 
Medicare 65-plus population which includes healthy older persons). 

• PACE enroUees have shorter hospital stays than the total Medicare 65-plus population (5.4 
days vs. 8.7 days). 

• Although aU PACE enroUees are certified eUgible for nursing home care, just 6% actuaUy 
reside in the nursing home at any given time. 

PACE Cost Savings 

Medicare and Medicaid rate-setting methods for PACE produce savings compared to 

expenditures in the fee-for-service health care system for equaUy frail people. 

• Medicare's Adjusted Average Per Capita Cost (AAPCC) rate-setting methodology for 
PACE guarantees Medicare at least 5% savings. In 1993, Medicare monthly capitation rates 
for PACE ranged from $619 to $1,341, reflecting the geographic variation seen in Medicare 
fee-for-service expenditures. 

• Medicaid capitation payments to PACE yield states 5% - 15% savings relative to their fee- 
for-service expenditures for a nursing-home<ertified (NHC) population. In most states, 
nvirsing home residents make up the NHC population, but where weU-developed home and 
community-based alternatives exist, those clients costs drive the rate, too. 

• An accurate estimate of savings depends upon PACE enroUees and their fee-for-service 
counterparts being equaUy fraU. A 1993 study by the Long Term Care Data Institute of 
Medicare's expenditures for a fraU, elderly population that was functionally comparable to 
PACE enroUees foiuul that PACE may actuaUy yield Medicare savings of between 14% and 
39%. 



On Lok, Inc. Page 4 



375 



• To insure appropriate targeting of PACE services, states verify potential partidpants' 
eligibility prior to eivoUment. Linking the rate-setting and eligibility determination processes 
gives states confidence that PACE enroUees match the standard used. 

• Beyond the immediate cost savings to Medicare and Medicaid for persons enrolled in 
PACE, PACE offers states a means of substantially reducing future long-term care 
exjjenditures. As the demand for long-term care grows with the size of the 65-plus 
population, so does pressure to build nursing homes. Starting up PACE costs far less than 
constructing new nursing home beds. 

Quality of Care in the PACE Model 

Because PACE is a managed care model that eru-olls only frail older persons, assuring enrollees' 
quality of care is extremely important. To augment the quality assurance regulations of the 
states where PACE providers operate. Standards of Excalencefor the PACE Model have been 
developed by PACE and the independent Commimity Health Accreditation Program (CHAP). 
To date CHAP has evaluated five PACE sites and found the quality and coordination of 
enrollee care to be exceptional. All existing and future PACE sites will be evaluated on a regular 
basis. 



[Flatw to SxpjBd PACE -^ ,;,..; ; „ 

The number of PACE providers has grown steadily since 1990 when the first replication sites 
began enrolling participants. Because the PACE model calls for complete transformation in the 
approach to caring for older persons with chronic illnesses and severe disabilities, development 
cannot take place overnight The level of commitment and financial resources necessary to 
implement PACE are coiKiderable. To date, programs have taken from three to five years to 
develop fully. Nonetheless, numerous organizations, including providers in states intent on 
replicating PACE statewide, seek to operate PACE in the immediate future. Although current 
legislation limits the total number of PACE replication sites to 15, PACE is currently seeking 
Congressional authority to expand this number, based on the success of the replication to date. 



On Lok, Inc. Page 5 



376 



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380 

Mr. Wyden. Mr. Willging, welcome. 

STATEMENT OF PAUL R. WILLGING 

Mr. Willging. Thank you, Mr. Chairman. It is a pleasure to be 
with you today to discuss the long-term care provisions of the 
Health Security Act. 

I am Paul Willging, the Executive Director of the American 
Health Care Association, which represents over 11,000 subacute 
nursing and assisted living facilities in the country. 

We certainly applaud the President and the Health Security Act 
for being the first of the health reform proposals to deliberately 
deal with the area of long-term care. We commend you, Mr. Chair- 
man, and this committee, for also being willing to devote as much 
time to some of the long-term care provisions of health reform as 
to the acute care side. Certainly, the American Health Care Asso- 
ciation supports the principles within the Health Security Act and 
a good number, if not a majority, of the actual proposals. 

The emphasis on the use of nursing facilities in the subacute 
area, the eligibility refinements within the Medicaid program, the 
emphasis on long-term care insurance. The recognition of home- 
and community-based services is a critical part of the long-term 
care continuum and the mandated medically needy program for 
nursing facilities services, all critical and important issues to be 
dealt with within the context of this debate. 

We sjrmpathize with you, Mr. Chairman, and your colleagues 
that as you deal with these very laudable principles, you are inevi- 
tably going to have to deal with the fiscal realities. That is going 
to be a difficult task for you because obviously the issue of dollars 
will inevitably crop up. 

Just to take a few examples. Even the very laudable provisions 
for Medicaid eligibility enhancement, the movement from $2,000 up 
to $12,000 in terms of retained assets and the movement of the 
personal needs allowance from $35 to $50. Those two together have 
a half billion dollar price tag. 

A very critical part of the President's proposal, perhaps one of 
the linchpins, which is the mandate that all small businesses and 
others provide health insurance, will itself in the Federal share of 
Medicaid alone cost $700 million per year. 

So obviously you have a difficult task ahead of you as you try to 
combine both the aspects of health reform, which are critical in 
meeting the needs of the American public and the fiscal realities 
as to how much one can deal with. 

I think this very issue of cost ramifications is absolutely critical 
in terms of the home- and community-based services proposal. 
There is no question that we, as all here on this panel, are highly 
supportive of the recognition finally provided home- and commu- 
nity-based services as a critical part of the long-term care contin- 
uum. We do have some questions, however, as to the proposed fi- 
nancing mechanism and eligibility requirements for this program, 
because they do, inevitably, lead to the issue of cost. 

The President has estimated that by the year 2003 the home- 
and community-based provisions of the Health Security Act would 
cost $38.3 billion, and has in fact proposed a cap at that level for 
this program. A cap might be workable if indeed it was set close 



381 

to the actual dollars required to fund the program. Unfortunately, 
this cap is not so set. 

In a study released today, the home- and community-based provi- 
sions of the Health Security Act are likely to come much closer to 
$69 billion per year by the year 2003 and indeed depending upon 
one's assumptions could reach as high as $91 billion per year. 

One can talk about a capped entitlement as one does with re- 
spect to the home- and community-based services program. In re- 
ality, it is a underfunded entitlement, and I think that is the kind 
of issue the Congress is going to have to grapple with. How does 
one combine the proposals, the principles, for expanded home- and 
community-based services with the fiscal realities that are going to 
have to be dealt with? 

I think one option is certainly to look at whether one could incor- 
porate the principles in the programs by the President into a re- 
formed Medicaid program itself. That brings with it, I think, three 
basic advantages. The first is that by incorporating it somehow 
within the Medicaid program, we do recognize that those who have 
the resources to pay for services should in fact pay their fair share, 
and the scarce Federal and State funding should be reserved for 
those in fact who have no other options. 

Second, by incorporating the program into the Medicaid program, 
we deal with the issue that we think is a very critical one, the per- 
verse matching proposals that accompany the home- and commu- 
nity-based program. Where the normal Medicaid match is any- 
where from 50 percent Federal funding to 78 percent, this one is 
78 percent to 95, an incredible inducement for any Medicaid direc- 
tor across the country to make placement decisions based not on 
the needs of the patient but rather on the needs of the State treas- 
ury. An incorporation into the Medicaid program would take away, 
I think, that perverse incentive. 

And finally, I think by incorporating these proposals into ongoing 
programs such as Medicaid, we have a better opportunity to deal 
with the very important issues of quality. 

The home- and community-based services program is notably ab- 
sent as far as provisions for quality. You and I, Mr. Chairman, this 
committee, our staffs, worked in 1987 long hours to make sure that 
in fact those in need of long-term care, particularly those in nurs- 
ing facilities, received the protections and the services that the gov- 
ernment was paying for. 

I am not sure as we worked through those long days and nights, 
Mr. Chairman, we were trying to protect long-term care patients 
only in one setting within the continuum. I believe as we talked 
about adequate staffing, well-trained staff, I believe as we talked 
about resident assessments and plans of care, I believe as we 
talked about highest practicable mental, physical, psychosocial 
well-being, we were talking about all long-term care patients, not 
just those who happen to be at one spot along the continuum. I 
think it would be incredibly unfortunate if we were, in fact, to say 
that the responsibility of Federal and State government, those re- 
ceiving services paid for by Federal and State government, will re- 
ceive the protections, will receive the benefits of Federal and State 
oversight only along a part of the continuum. 



382 

In closing, Mr. Chairman, I want to thank you again for the op- 
portunity to talk about these provisions. I want to extend from the 
American Health Care Association our willingness to work with 
you as you debate and conclude your discussions in this area. 

Mr. Wyden. Thank you very much. That is very helpful and we 
look forward to having some questions here in just a moment. 

[Testimony resumes on p. 394.] 

[The prepared statement and attachment of Mr. Willging fol- 
lows:] 



383 

TESTIMONY 

Of the 

AMERICAN HEALTH CARE ASSOCIATION 



Paul R. Willging, Ph.D. 

Executive Vice President 

American Health Care Association 



Mr. Chairman, members of the subcommittee, my name is Paul 
R. Willging, Executive Vice President of the American Health Care 
Association (AHCA) , a Washington, D.C. based trade association 
which represents more than 11,000 nursing and residential care 
facilities, and the residents they care for, through its 50 state 
affiliates and the District of Columbia. 

I am pleased to appear before the subcommittee today to 
present AHCA' s views on the long-term care provisions of 
President Clinton's "Health Security Act" (H.R. 3600 and S. 
1757) . Among the major legislative initiatives proposing to 
reform our nation's health care delivery system, the Health 
Security Act enjoys the distinction of being the only proposal to 
date to seriously begin the debate on reforming the long-term 
care component of our nation's health care delivery system. By 
proposing to fund, on a limited basis, home- and community-based 
services for the disabled, the President has opened the debate on 
one of the most notable shortcomings of our health care delivery 
system. 

The long-term care provisions of the Health Security Act 
also include a state option to liberalize eligibility standards 
for the Medicaid nursing facility benefit, mandatory extension of 
Medicaid benefits for individuals meeting "medically needy" 
criteria, a limited skilled nursing benefit as part of the acute 
care portion of their proposal, and greater regulation of the 
private, long-term care insurance market (including tax 
clarifications of the premiums paid for these policies) . 

Because AHCA testimony presented before this subcommittee 
in conjunction with the Subcommittee on Commerce, Consumer 
Protection, and Competitiveness on November 9, 1993 dealt 
extensively with the subject of increased regulatory standards 
for private long-term care insurance, my remarks today will focus 
upon the other long-term care provisions of the President's bill. 

Overview of AHCA' s position on the Health Security Act 

The American Health Care Association applauds the President 
and First Lady for offering comprehensive health care reform 
legislation — comprehensive in that it begins to address the 
need for reforming long-term care services and financing. Like 
virtually all other organizations with a vested interest in the 
outcome of the proposal, we support the intent and goal of the 

-1- 



384 



legislation, yet retain reservations on various specific 
proposals and methods proposed to achieve these mutually agreed 
upon objectives. It is the purpose of my testimony today to 
address those specific issues and proposals relating to the long- 
term care portion of the Health Security Act. I also want to 
share with you, AHCA' s comments, questions, and criticisms so 
that together, we can achieve the overall goal of the proposal 
while at the same time, ensure equity for consumers as well as 
providers in this effort. 

Liberalization of Eligibility Standards for Medicaid Nursing 
Facility Benefit 

Section 4212 of H.R. 3600, "Increased Income and Resource 
Disregards for Nursing Facility Residents, " increases the 
personal needs allowance for residents of nursing facilities to a 
minimum of $50 per month and proposes a state option to allow 
unmarried individuals applying for nursing home benefits under 
the Medicaid program to exclude the first $12,000 of resources. 
While this proposal, if adopted, would expand access to the 
Medicaid nursing facility benefit, it would simultaneously have 
the negative effect of increasing reliance upon the Medicaid 
program for funding nursing facility services. Clearly, the 
budgetary goals of health care reform — reducing overall 
expenditures and decreasing the reliance upon federal and state 
funding for services — presents an inherent conflict with this 
proposal. While the provider community is not in position to 
decide the fate of this proposal, we can sympathize with the 
dilemma facing the policy makers who will ultimately be called 
upon to make the choice between expanding necessary access to 
services while striking a balance with fiscally responsible 
policy decisions. 

Extended Care Services 

Section 1119 of the Health Security Act provides for 
extended care services as part of the acute care benefit 
established by the bill. In essence, this provision mirrors the 
current 100-day skilled nursing facility benefit (SNF) under 
Medicare Part A. This benefit of the Clinton proposal clearly 
recognizes, as do we, the need for developing and providing for 
the entire continuum of health care services to beneficiaries. 

AHCA believes that the promotion of these extended care 
services, or "subacute" care, in skilled nursing facilities will 
generate a substantial financial savings for the health care 
reform effort. These savings will come from utilizing the more 
efficient, free standing SNF providers who have developed 
efficiencies that do not exist in hospital-based post acute 
services. In addition. Medicare routine cost limits for 
hospital-based SNFs are higher than those for a free-standing 
SNF. Because both hospital-based and free-standing SNFs provide 
identical services, the establishment of a shared routine cost 
limit will generate additional savings to the government. The 



385 



similarity in services between these two delivery sites results 
primarily from a continually escalating acuity level of nursing 
facility residents over time which has compelled the free- 
standing SNF provider community to adjust its services 
accordingly. The President's proposal has recognized this 
phenomenon, and on September 29, 1993, in her testimony before 
the Senate Labor and Human Resources Committee, the First Lady 
stated, "...we want to provide reimbursement for subactue care at 
nursing facilities rather than in a more expensive hospital 
setting," 

For a more detailed discussion of the role of SNFs in 
providing subacute care services under the Health Security Act, I 
would refer the subcommittee to my testimony submitted to the 
Ways and Means Subcommittee on Health on November 2, 1993. 

Home- and Community-based Care Services 

Possibly the most ambitious of the Health Security Act's 
provisions, the President has proposed the creation of a new 
"capped" entitlement program to provide home- and community-based 
services (HOBS) for individuals with disabilities. AHCA supports 
the development of public assistance for these services, and 
considers this provision of the HSA to be a good beginning for 
the subsequent discussion of proposals to develop the 
infrastructure it will take to properly implement it. However, 
AHCA has several questions and reservations about how the benefit 
is to be implemented and operated. 

State Plans 

As proposed, the HCBS program would be an optional program 
for states, whose participation would depend upon federal 
approval of a state plan meeting specified requirements such as: 
eligibility requirements, provider participation requirements, 
reimbursement standards, and how federal funds are utilized to . 
meet the objectives of the program. It is anticipated that the 
state plan submission and approval process would be very similar 
to the current Medicaid participation approval process currently 
in place. AHCA shares with the Administration, its interest in 
extending to the individual states, flexibility in designing 
their own delivery system reflecting the unique characteristics 
and needs of the communities which will be served. AHCA and its 
membership have an extensive history dealing with all 51 Medicaid 
programs as well as with the federal regulators overseeing these 
programs. Our collective experience has taught us that state 
plans, and their subsequent approval for programs such as this 
are not a guarantee of compliance. This subcommittee is well 
aware of the laws it has been forced to enact to require state's 
to amend their Medicaid plans in order to conform with new or 
modified federal requirements of participation. The states, 
facing limited Medicaid budgets have not been as eager to 
sufficiently fund the expansion of quality, services, and access 
to care that their federal counterparts have imposed upon them. 

-3- 



386 



Although the home- and community-based program contained in the 
Health Security Act is not part of the Medicaid program, the cap 
imposed on the federal revenues available to fund the costs of 
care create similar restraints on the availability of services. 
AHCA supports strengthening the federal oversight of the state 
plan approval process and urges this body to specify the criteria 
under which state plans are approved. 

Eligibility Requirements 

As introduced, federal and state funding for the home- and 
community-based services program would be available to 
individuals with disabilities without regard to income, age, 
residential setting, and other criteria apparently designed to 
ensure universal access for disabled individuals. While this 
represents a laudible goal, we feel that the capped nature of the 
funding for these services prohibits states from being able to 
meet all of the needs of their entire disabled population. We 
believe that the individual states will be compelled to establish 
beneficiary selection criteria due to the limited funding 
available for providing services. In spite of the fact that the 
bill prohibits state plans from allocating services based upon 
income, we believe that such a "means test" is an appropriate 
manner to determine program eligibility in light of the limited 
funding provided for in the proposal. 

Quality Assurance and Safeguards 

As part of the state plan, it must specify how the state 
will ensure the quality of services delivered through the home- 
and community-based program. We are discouraged by the plan's 
deference to state regulatory authorities to establish this 
critical feature of the proposal. The long-term care provider 
community cannot endorse any proposal that does not include a 
specific and thorough set of standards from which the safety and 
well-being of beneficiaries can be ensured. Compounding this 
problem of the proposal is the lack of any provision which would 
require periodic surveys or evaluations of provider services and 
qualifications. While state plans must provide for the 
"monitoring" of services, no comprehensive evaluation of the 
quality of care is provided for in the legislation. In its 
simplest terms, this program \jill permit individuals into the 
residences of the elderly or disabled, with no specified 
professional qualifications while unsupervised. The potential 
for crimes and abuse against the beneficiary is too great for 
Congress to ignore. AHCA recommends that federal standards for 
caregivers be created and that federal oversight, including 
oversight for a comprehensive survey system is included in the 
proposal . 

Home Care vs. Institutional Care 

Aside from the genuine need to include home- and community- 
based services as part of health care reform, there is reason to 

-4- 



387 



believe that the HSA' s authors intend to realize savings by 
diverting individuals needing institutional long-term care to 
home- and community-based programs. This belief stems from the 
misconception that nursing facilities care for ambulatory 
residents who, except for assistance with certain activities of 
daily living, could just as well continue to reside in the 
community with minimal assistance. A profile of the needs of the 
nursing home population shows that a full 69 per cent require 
assistance with four or more ADLs (Lewin-VHI Inc., 1993). 
Considering the limited funding of the HCBS program and distinct 
lack of professional qualifications imposed upon caregivers under 
the program, it is unlikely that meeting the same level of need 
as determined by the Lewin-VHI Inc. study was anticipated by the 
bill's authors. Institutional long-term care providers do not 
view the establishment of a home- and community-based care 
benefit as competition. If for any reason at all, our nation's 
demographics indicate that there will be more individuals seeking 
long-term care services than there will be financial resources to 
care for their needs. But we must not delude ourselves into 
believing that home- and community-based care provided by 
unlicensed individuals in an unsupervised environment is a 
panacea for states who cannot afford to pay for the institutional 
long-term care needs of their frail elderly population. 

It is a fact that nursing facilities care for a separate 
and distinct population than those served by home care. The 
distinctions between these two populations is addressed in the 
AHCA Issue Brief, "Home Care and Nursing Home Care: Serving 
Separate Populations" which I have attached to this testimony. 

Financing Home- and Community-Based Services 

Although it has been estimated that the $65 billion 
commitment made by the HSA will serve the needs of approximately 
one-third of the disabled population, the minimum 78 per cent 
federal match (and up to a maximum of 96 per cent) sets new 
standards of generosity for health care programs jointly funded 
by the federal and state governments. While this may induce the 
states, who may otherwise be reluctant to increase the level of 
services available to the disabled to participate in the program, 
it also creates a perverse incentive to make placement decisions 
based upon financing grounds, rather than the actual level of 
care needed by the beneficiary. Specifically, a state Medicaid 
program with a 50 per cent federal matching rate is required to 
pay one-half of the costs associated with extending the Medicaid 
nursing facility benefit to every resident admitted. Conversely, 
diverting that same potential resident to a home- and community- 
based care program would cost the state a maximum of 22 per cent 
of the costs of care; clearly generating a financial savings to 
the state, while increasing access to more beneficiaries. 
Therefore, monies could be shifted from the state Medicaid 
program that pays for nursing facility care and used to enhance 
the ability to increase the federal revenues made available for 
home- and community-based services. We recognize that the 

-5- 



388 



"capped" nature of the home- and community-based services program 
would place an overall limit on this ability to generate 
additional federal dollars for use by the states. However, even 
Congress' own Congressional Research Service pointed out that, 
"While funding for the program is substantial, there are concerns 
that it may nevertheless arouse expectations it cannot satisfy. 
... Over time, there might be pressure to convert the program 
from a fixed block grant to an entitlement." (CRS Report for 
Congress. Health Care Reform: President Clinton's Health 
Security Act, p. 66, November 22, 1993) . Given the diverse 
nature of the constituency a program such as this could generate, 
CRS' predictions are not unrealistic. If these predictions were 
to become a reality, the financial implications for meeting 
consumer expectations to both the federal as well as the state 
governments would be substantial. AHCA urges Congress to include 
safeguards into this proposal to ensure that individuals are 
placed within the appropriate delivery setting for the care they 
need and that the funding for institutional long-term care 
services not be diluted to enhance alternative delivery 
mechanisms . 

Restrictions on Delivery Sites 

Section 2104 of the Health Security Act would prohibit 
coverage of home- and community-based services furnished in a 
nursing facility or intermediate care facility for the mentally 
retarded. While this provision is consistent with the intent of 
making non-institutional long-term care services available to 
beneficiaries, AHCA requests that this provision be clarified. 
Specifically, we request that existing institutional long-term 
care providers not be precluded from offering home- and 
community-based care services in conjunction with other 
institutional services. For example, "residential care" sites 
provide for living arrangements offering minimal assistance with 
activities of daily living while at the same time and within the 
same physical environment, offering other beneficiaries services 
that extend through the entire long-term care continuum up to and 
including skilled nursing care. These arrangements have proven 
popular with beneficiaries primarily because the need for 
institutionalization does not necessarily mean displacement from 
other residents, loved ones, or spouses. By promoting the 
integration of the entire spectrum of long-term care services, 
beneficiaries are able to retain their sense of community and 
continuity. AHCA believes that this is a positive development in 
the long-term care delivery system and one that Congress and this 
subcommittee should promote. 

Conclusions 

When the long-term care provisions of the Health Security 
Act are looked upon for their intent to increase services, they 
are laudable; however, much, much more needs to be done in this 
area of our health care delivery system. In addition to funding 
the costs of services, additional revenues will be needed in 

-6- 



389 



order to create the infrastructure necessary to ensure both 
quality of care and availability of services. Adequate funding 
for all long-term care services needs to be guaranteed. The 
home- and community-based program proposed by President Clinton 
will not replace the need for institutional long-term care. We 
strongly encourage the maintenance of a seperate and distinct 
funding source for these services. 

As an exercise in constraining the budgetary pressures that 
have generated this debate, we are concerned that inadequate 
funding will be made available to finance new long-term care 
programs. The majority of funding for the home- and community- 
based services program comes from Medicare and Medicaid budget 
cuts that do not enjoy much popular or political support. 
Without adequate funding, this important new program could end up 
a hollow promise to the thousands of individuals it hopes to 
help. Reconciling policy aspirations with budget realities will 
undoubtedly remain the most difficult aspect of health care 
reform. 

Thank you for this opportunity to testify and to present 
the views of the American Health Care Association. If you have 
any questions, I'd be pleased to answer them at this time. Thank 
you. 



94003. rm 



-7- 



390 



MJE-MffiF 



alfca 



American Health Care Association 



HOME CARE & NURSING HOME CARE: 
SERVING SEPARATE POPULATIONS 



As Ihc 76 million Ameiicans bom during the 
Babv Boom years grow older, ihe search for attiac- 
trve aliematives lo nursing home care gains intensity. 
Over the years, home and conununity-based care 
(HCB) programs have become increasingly popular 
with lawmakers, the media, and the public. 

Government spending reflects this widespread 
longing for HCB care. From 1980 to 1990, Medic- 
aid spending on HCB programs increased from S300 
million to S2.2 billion, according to the Health Care 
Financing Administranon (HCFA). Today, all states 
offer HCB programs; the Dismci of Columbia does 
noL 

Supponers justify the need for HCB care by 
asserting that it is a cost-effidem alternative to 
nursing homes. While public sennmem for HCB 
care is high, three myths about nursing facilities and 
the people who live in them perpetuate the 
misperception that HCB care is a cost-effective 
subsntuie for nursing home care. 



Growth in Medicaid HCB Spending 

1980-1990 




1985 



1990 



lull riiiiii irr 



MYTH #1: Nursing Home Residents 

Generally Can Care For Themselves 

With Minimal Assistance. 



Most of the public erroneously assumes that 
nursing homes provide custodial care for older, 
generally ambulatory people. But the typical nursing 
home resident is older and needier than a decade ago. 

According to the U.S. Census Bureau. 22 percent 
of Americans age 85 and older live in nursing 
facilities. In 1960, only 5.6 percent of Americans 
were 85 and older That figure skyrocketed to 10.3 
percent in 1990.(1) 

Octogenarians, of course, suffer more chronic 
and serious medical problems than the "young" 
elderly. But no matter how old, a typical nursing 
facility resident simply is unable to live independent- 
ly — even with daily visits from a health care 
professional. 

A full 69 percent of nursing facility residents age 
65 and older need help with four or more actvities of 
daily living (ADLs), which include transferring, 
toileting, feeding, bathing and dressing, and mobili- 
ty. This compares to only 21 percent of the general 
elderly population. (2) 

Nursing facilities, no longer the custodians of 
yesterday, have adjusted to meet this demand for 
complex medical services. 

More and more nursing homes — already 
equipped to handle serious medical needs that cannot 
be accommodated in a home setting — are beginning 
to specialize. They are offering, for example, special 
AIDS, Alzheimer's, and rehabilitation units. 

Nursing facilities also are moving rapidly into 
the "subacute" market, providing services for people 
who need skilled care, but do not require the expen- 
sive, acute-care services of a hospital. Examples of 
subacute services include intravenous therapy, 
complex wound management, and rehabilitabon for 
stroke patients. 



1201 L Street, NW Washington, DC 20005 • (202) 842-4444 • Fax (202) 842-3860 



391 



Bruce Vladeck. head of HCFA. has recognized 
the imponance of nursing facility care to the elderly 
American. 

Vladeck wrote in a 1989 article: "... there is little 
question that in most communities, most nursing 
home residents are pretty ill and preny disabled. 
Almost all have multiple, serious medical problems: 
peiiiaps as many as half have significant cogniuve 
impairments. 

"Continuing grouth in the number of impaired 
elderly persons necessitates a continued reliance on 
nursing homes to care for at least those v^'ho are most 
impaired or most lacking in other supports ..." (3) 



ADL Dependency in Nursing Home 
Residents and General Elderly 

Nursing Home Residents 



l^nully Depcmkm / 
li«Ji-|«-mk.-iii I U'i t 



e 



lontUy Uupcndeni* 
(69* ) 



General Elderly 



PjniaUy DcficntlcfK / 
Indepcodenl (79%) 



« 



Toully Depcndenl* 

(21%) 



Snmt Le.in.VHI Inr lu.> ,<H\ 



MYTH #2: Home And Community-Based Care 
Will Reduce 
- Nursing Home Utilization 



The services offered in nursing homes and the 
services provided by HCB care simply cannot be 
compared. 

Study after study — spanning more than a 
decade — has shown that substituting HCB care for 
nursing home care is unrealistic because separate 
populations utilize each service. 

Consider the following: 

• Genei^ Accounting Office ( 1987): "HCFA 
now assumes that all those receiving home and 
c(}mmunity-based care otherwise would use nursing 
homes ... HHS funded research and demonstration 
projects do not suppon this assumption. Many 



people who have participated in community care 
demonstration projects would not have entered a 
nursing home had the community-based care been 
unavailable." (4) 

* General Accounting OfTice (1982): "When 
compared to an elderiy population for whom tradi- 
tionally available care is offered, recipients of ex- 
panded conununity-based services do not use signifi- 
cantly fewer days of nursing home care." (5) 



MYTH #3: Home And Commimity-Based Care 

Will Reduce The Total Cost 

Of Long Term Care. 



Several studies that explore whether HCB care 
can be a viable and cost-effective substitute for 
nursing home care reveal that HCB care actually 
increases the total costs of long term care. 

HCB care is a "new service directed at a new 
population." explains William Weissen. former 
director of the Program on Aging at the University of 
Nonh Carolina. (6) Consequentiy. communities thai 
offer HCB programs spend more resources on long 
term care than do communities without HCB services. 

Over the years, study after study has proven that 
HCB care does not reduce the costs of nursing home 
care: 

'Institute for Health Policy (1993): "Increased 
financing for HCB services may be desirable but will 
not significantly influence nursing home expendi- 
tures. The underlying assumption is that the delivery 
system is correct, but funding is inadequate. ... We 
must seek to justify HCB on grounds other than cost 
effectiveness or clinical efficacy: the debate should 
focus on how much community care we are willing to 
purchase as a society, rather than how much money 
we can save by purchasing these services." (7) 

• The Brookings Review (1990): "Given a 
choice between nuning home care and nothing, many 
elderiy people will choose nothing. But when the 
choice is expanded to include home care, many will 
choose home care. Thus, the costs associated with 
large increases in home care more than offset small 
reductions in nursing home use." (8) 



392 



• Health Services Research (1988): *The 

overall conclusion thai the demcmsuadon services 
led to increases in average costs is quite cenaia" (9) 

• Health Services Research (1988): The 
increased costs of case management and expanded 
conununity services exceeded the cost savings from 
reduced nuising home cosu." This study concluded 
that overall long term care costs associated with 
adding a HC6 care benefit increased between 6 and 
18 percent (10) 

•General Accounting Office (1987): "Fbr the 
majorit>' of ... clients receiving home and commu- 
nity-based services under ihe projea. these services 
represented added costs for a new Medicaid benefit 
rather than a cost-effective substitute for nursing 
bomecaic.'dl) 



care — the fastest growing item cm the state's $13.9 
billion Medicaid tab. The New York Depanmeni of 
Social Services reports that annual costs for home 
care have doubled in the past four years to S2.4 
billion. While Medicaid officials still see home care 
as cost-effective, they are also admitting that it can 
be more expensive than nursing facility care in some 
cases. This is especially true when it is used as a 
primary care service rather than a supportive ser- 
vice." (12) 

The American Health Care Association (AHCA) 
believes that while the need for nursing home 
services will grow, HCB programs are a vital pan of 
what long term care can offer 

Appropriate care in the appropriate setting is in 
the common interest of all providers — providers of 
HCB care and providers of nursing home care — as 
well as of those needing long term care. 



CONCLUSION: 



More than a decade of government studies, pilot 
projects, and demonstration programs have exposed 
the fallacy of assumptions that: a) nursing home 
residents generally can care for themselves with 
minima] assistance: b) HCB care will reduce nursing 
home utilization; and. c) HCB care will reduce the 
total cost of long term care. 

It is a time-tested faa that nursing home resi- 
dents getKrally caimot live on their own. It is a time- 
tested faa. that HCB care and nursing homes serve 
different populations. It is a time-tested faa that 
HCB care does not reduce the cost of long term care: 
it actually increases the amount spetu on those 
services. 

The myths about the intersection of HCB care 
and nursing homes persist because the public has 
expressed a strong and understandable desire to 
receive care in the most comfortable and familiar 
setting possible. 

But that sentiment cannot mask the reality. 
Many jurisdictions are beginning to confront the 
myths used to justify HCB care. Witness, as re- 
ported in the Reimbursement Bulletin, the recent 
problems in New York, which consumes a fiill 63 
percem of all Medicaid dollars spem on home care: 

"Panicked by forecasted increases in the eldeily 
population. New York wants to scale back on home 



393 



SOURCES: 

(1) Uniied Stales Depanment of Commerce, Bureau 
of the Census. 

(2) Lewui-VHI. Inc. Long Tem Care: Background 
facts on Use and Financing June 1993; 4. 

(3) Vladeck. BC. "Long-Tenn Care for the Elderiy: 
The Future of Nursing Homes." Western Journal of 
Medicine February 1989; 150: 215-220. 

(4) Uniicd Stales General Accounting Office. "Med- 
icaid: Determining the Cost-Effectiveness of Home 
and Community-Based Services." April 1987; 3. 

(5) Uniied Sutes General Accounting Office. "The 
Elderly Should Benefit From Expanded Home 
Health Care But Increasing Those Services Will Not 
Insure Cost Reductions." December 7, 1982; 43. 

(6) Weissen. William. "Seven Reasons Why Ii Is So 
Difficult To jMake Community Based Long Teim 
Care Fffecrive " Health Service s Research October 
1985; 20(4). 

(7) Hallfors. Diane Dion. Center for Vulnerable 
Populations. Institute for Health Policy, Brandeis 
University. "State Policy Issues in Long-Temi Care 
for Frail Elders." March 30, 1993; 8. 

(8) Wiener, Joshua M. and Katherine M. Hams. 
"Myths and Realities: Why Most of What E\erybody 
Knows About Long-Term Care is Wrong." ]l£ 
Bmokings Review Fall 1990; 32. 

(9) Thornton, Craig and Shan Miller Dunstan and 
Peter Kemper. "The Evaluation of National Long 
Term Care Demonstration: 7. The Effea of Channel- 
ing on Health and Long Term Care Costs." Health 
.Services Research April 1988; 23(1): 130. 

(10)Ibid..l41. 

(11) "Medicaid: Detennining the Costs...,18. 

(12) "New Yoric Officials Sound Alaim Over Bur- 
geoning Home Care Bill." Reimbursement Bulletin 
Febniaryl6, 1993;5(17):6. 



394 

Mr. Wyden. Mr. Groldberg, welcome. 

STATEMENT OF SHELDON L. GOLX)BERG 

Mr. Goldberg. Mr. Chairman, thank you very much. It is my 
privilege to appear before this committee. It is a committee which 
has for a long time provided leadership and has championed the is- 
sues of access to the poor, and proper health care services and 
quality. 

My name is Sheldon CJoldberg. I am the President of the Amer- 
ican Association of Homes for the Aging. I think I come here today 
from a unique perspective. Yes, my members are all not for profit. 
There are 5,000 across this country. Today almost a million people 
receive services. We represent nursing homes, but equally we rep- 
resent housing, community services, retirement communities, low- 
income housing, a broad range of other types of services. 

I have to tell you something, I am excited at being here with the 
opportunity it presents. First of all, there is so much within the 
President's proposal which we support. Number one is the public- 
private partnership, the ability to infuse dollars into the program 
from those who have those resources. Most importantly, it is sup- 
port of the home- and community-based services program. We see 
this especially for those who reside in the housing program, low- 
income housing 202 as an opportunity to provide appropriate serv- 
ices to keep them independent as long as possible. 

We support the provisions which are involved pertaining to the 
expansion of long-term care as well as providing consumer protec- 
tion by bringing a standard of. Federal standard to minimally regu- 
late these to make sure it is appropriate for the consumers across 
this country. 

Demographically, we are at a crossroads in this country, and I 
hope that the Congress can seize the opportunity or seize the mo- 
ment to move forward with long-term care reform. 

I recognize the fiscal realities we face, but it is my hope that the 
Congress will not jettison these issues and move on to health care 
reform without addressing this critical issue. Our fear is if they are 
not addressed now, it may be years in the future before we again 
talk about them. 

We are concerned, obviously, about the fiscal nature. We feel and 
strongly support the idea that the costs of the community base 
have to be on a sliding scale basis. To those who have the least 
amount of money to pay for them, they are the ones who should 
be receiving these services for free, and it needs to be directed in 
that way, and those who can zifFord to pay for the services, obvi- 
ously they are the ones who should pay for them. 

We support this on the same premise that we feel there is prob- 
ably going to be, to some degree, an adverse effect on nursing home 
payments. Certainly the freeze on Medicaid, Medicare, will have an 
impact. Because these are the sickest and the residents with the 
most promise of rehabilitation. 

We had hoped that the freeze could be lifted. We see more and 
more Medicaid residents coming into the nursing homes in the fu- 
ture simply by the demographic nature of what is going on. Our 
hope is we will not see States reallocate funds from the Medicaid 
program to provide proper reimbursement and to support other 



395 

types of programs. We hope there is a commitment to maintaining 
the principles advocated for in OBRA 1987. 

Now, let me add a very major concern. There is a recent Federal 
court decision in New Jersey that defined in the 1987 OBRA, which 
this committee helped to write and champion, the highest practical 
level for the well-being of the resident. This court said, number 
one, that we will not support a superior standard of care. It said, 
number two, we will not support excellent care. And what concerns 
me the most is the court's ruling said it will not, quote, "support 
compassionate care." And I think what you have worked for for so 
long, and this is that we do not have a double-tiered system of care 
and that we have one system of care that is responsible to all, and 
that is why we are advocating that we do have safeguards to main- 
tain a quality level and reimburse them for the care side of it. 

There is another provision that causes concern, and that is the 
idea that a new model exists called continuing care retirement 
communities, which is starting up, would possibly require that 
there is a minimum standard Federal regulations related to the 
Federal Government. CCRC's in this country are really very locally 
community-based organizations most of them sponsored by church- 
es at the community level. I find it very difficult for them having 
the ability to relate to a Federal bureaucracy. We believe very 
strongly that they are really State issues. There are proper roles 
for the regulation and safety. 

We also advocate that there are an existence of accreditation pro- 
grams, which are consumer driven, resident driven, that we think 
could adequately address those issues as well, and let me be very 
quick and come to a conclusion. 

We support very wholeheartedly the home- and community-based 
system. We support the concept that it be on a sliding scale so the 
economic resources that are there go to those who are the most 
poor and who need those resources, I will suggest very strongly 
that they have to be available for people in their residences. I use 
programs such as the 202 and other low-income housing programs. 
We obviously are very supportive of the provisions in OBRA 1987, 
at the highest level practical be maintained and not diminish in 
terms of those who reside in nursing homes. We see minimum Fed- 
eral standards for long-term care insurance. They are