S. Hro. 103-216, Pr. 1
HEALTH SECURITY ACT OF 1993
Y4.L 1 1/4: S.HRG. 103-216/
PT.l
Health Security Act of 1993, S.Hrg....
HEARINGS
BEFORE THE
COMMITTEE ON
LABOR AND HUMAN RESOURCES
UNITED STATES SENATE
ONE HUNDRED THIRD CONGRESS
FIRST SESSION
ON
EXAMINING THE ADMINISTRATIONS PROPOSED HEALTH SECURITY
ACT, TO ESTABLISH COMPREHENSIVE HEALTH CARE FOR EVERY
AMERICAN
SEPTEMBER 29, 30, and OCTOBER 6, 6, 15, 19, 1993
PART 1
Printed for the use of the Committee on Labor and Human Resources
F?5
ts
®H
S. Hrg. 103-216, Pr. 1
HEALTH SECURITY ACT OF 1993
HEARINGS
BEFORE THE
COMMITTEE ON
LABOR AND HUMAN RESOURCES
UNITED STATES SENATE
ONE HUNDRED THIRD CONGRESS
FIRST SESSION
ON
EXAMINING THE ADMINISTRATIONS PROPOSED HEALTH SECURITY
ACT, TO ESTABLISH COMPREHENSIVE HEALTH CARE FOR EVERY
AMERICAN
SEPTEMBER 29, 30, and OCTOBER 6, 6, 15, 19, 1993
PART 1
Printed for the use of the Committee on Labor and Human Resources
U.S. GOVERNMENT PRINTING OFFICE
72-671cc WASHINGTON : 1993
For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
ISBN 0-16-043322-3
COMMITTEE ON LABOR AND HUMAN RESOURCES
EDWARD M. KENNEDY, Massachusetts, Chairman
CLAIBORNE PELL, Rhode Island
HOWARD M. METZENBAUM, Ohio
CHRISTOPHER J. DODD, Connecticut
PAUL SIMON, Illinois
TOM HARKIN, Iowa
BARBARA A. MIKULSKI, Maryland
JEFF BINGAMAN, New Mexico
PAUL D. WELLSTONE, Minnesota
HARRIS WOFFORD, Pennsylvania
NICK LlTTLKFIELn, Staff Director and Chief Counsel
SUSAN K. Hattan, Minority Staff Director
NANCY LANDON KASSEBAUM, Kansas
JAMES M. JEFFORDS, Vermont
DAN COATS, Indiana
JUDD GREGG, New Hampshire
STROM THURMOND, South Carolina
ORRIN G. HATCH, Utah
DAVE DURENBERGER, Minnesota
(ID
CONTENTS
STATEMENTS
Wednesday, September 29, 1993
Kennedy, Hon. Edward M., a U.S. Senator from the State of Massachusetts ... 1
Kassebaum, Hon. Nancy Landon, a U.S. Senator from the State of Kansas,
prepared statement 2
Clinton, Hillary Rodham 4
Mikulski, Hon. Barbara A., a U.S. Senator from the State of Maryland 33
STATEMENTS
Thursday, September 30, 1993
Kennedy, Hon. Edward M., a U.S. Senator from the State of Massachusetts ... 51
Kassebaum, Hon. Nancy Landon, a U.S. Senator from the State of Kansas 52
Wofford, Hon. Harris, a U.S. Senator from the State of Pennsylvania 53
Dodd, Hon. Christopher J., a U.S. Senator from the State of Connecticut 54
Mikulski, Hon. Barbara A., a U.S. Senator from the State of Maryland 55
Wojnar, Kathy, former business manager, Belchertown, MA; Joseph P. Roach,
retired businessman and realtor, Ambler, PA; and Linda Montgomery, wife,
mother, retired nurse, Council Grove, KS 57
Prepared statements:
Ms. Wojnar 59
Mr. Roach 63
Ms. Montgomery 69
Adams, Cyndy, subcontractor, Deny, NH; Michael Braxmeyer, grocer, At-
wood, KS; and Tomaca Govan, owner, secretarial/ word processing business,
Hartford, CT 80
Prepared statements:
Ms. Adams 82
Mr. Braxmeyer 87
Ms. Govan 91
STATEMENTS
Tuesday, October 5, 1993
Kennedy, Hon. Edward M., a U.S. Senator from the State of Massachusetts ... 97
Jeffords, Hon. James M., a U.S. Senator from the State of Vermont 98
Metzenbaum, Hon. Howard M., a U.S. Senator from the State of Ohio 99
Coats, Hon. Dan, a U.S. Senator from the State of Indiana 100
Gregg, Hon. Judd, a U.S. Senator from the State of New Hampshire 100
WelTstone, Hon. Paul D., a U.S. Senator from the State of Minnesota, pre-
pared statement 101
Durenberger, Hon. Dave, a U.S. Senator from the State of Minnesota 104
Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah 105
Simon, Hon. Paul, a U.S. Senator from the State of Illinois 106
Mikulski, Hon. Barbara A., a U.S. Senator from the State of Maryland 107
Dodd, Hon. Christopher J., a U.S. Senator from the State of Connecticut 109
(III)
IV
Page
Davidson, Dick, president, American Hospital Association, Washington, DC,
and Sister Maryanna Coyle, president, Sisters of Charity of Cincinnati,
and chairperson, board of trustees, Catholic Health Association of the Unit-
ed States, Washington, DC 110
Prepared statements:
Mr. Davidson 113
Sister Coyle 116
Dr. Rose 133
Todd, Dr. James S., executive vice president, American Medical Association,
Washington, DC; Linda Shinn, R.N., executive director, American Nurses
Association, Washington, DC; Dr. Leonard Lawrence, president, National
Medical Association, and associate dean, University of Texas School of
Medicine, San Antonio, TX; and Dr. Robert Graham, executive vice presi-
dent, American Academy of Family Physicians, Washington, DC 143
Prepared statements:
Dr. Todd (with an attachment) 145
Ms. Shinn 158
Dr. Graham 172
ADDITIONAL MATERIAL
Articles, publications, letters, etc.:
Response to question of Senators Hatch and Kassebaum from Mrs. Hil-
lary Rodham Clinton 194
STATEMENTS
Wednesday, October 6, 1993
Kennedy, Hon. Edward M., a U.S. Senator from the State of Massachusetts ... 195
Shalala, Hon. Donna E., Secretary, U.S. Department of Health and Human
Services . •••••••• • •• iyo
Dodd, Hon. Christopher J., a U.S. Senator from the State of Connecticut 216
Mikulski, Hon. Barbara A., a U.S. Senator from the State of Maryland 225
Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah 233
Wofford, Hon. Harris, a U.S. Senator from the State of Pennsylvania 234
Pell, Hon. Claiborne, a U.S. Senator from the State of Rhode Island 246
Joyner, Florence Griffith, co-chair, President's Council on Physical Fitness
and Sports, Washington, DC; Dr. Irvin D. Fleming, president-elect, Amer-
ican Cancer Society, Washington, DC; Dr. Charles K. Francis, chairman,
Department of Medicine, Harlem Hospital, New York, NY, and member
of the board of directors, American Heart Association, Washington, DC;
Dr. John M. Ludden, medical director, Harvard Community Health Plan,
Boston, MA; and Dr. Douglas E. Henley, member of the board of directors,
American Academy of Family Physicians, Kansas City, MO, and chairman,
Academy Commission on Public Health and Scientific Affairs 236
Prepared statements:
Dr. Fleming (with attachments) 240
Dr. Francis (with attachments) 249
Dr. Ludden (with attachments) 268
Dr. Henley (with attachments) 280
Moore, Sharon, mother of DeMario Moore, Rochester, NY 304
STATEMENTS
Friday, October 15, 1993
Metzenbaum, Hon. Howard M., a U.S. Senator from the State of Ohio 307
Mikulski, Hon. Barbara A., a U.S. Senator from the State of Maryland 307
Warren, Diane, owner/operator, Katzinger's Delicatessen, Columbus, OH; and
Eleanor Bonsaint, child development journal editor, Massachusetts Insti-
tute of Technology, Brookline, MA, prepared statement 309
Kennedy, Hon. Edward M., a U.S. Senator from the State of Massachusetts ... 313
Wofford, Hon. Harris, a U.S. Senator from the State of Pennsylvania 318
V
Page
Sweeney, John J., president, Service Employees International Union and
chairman, AFL-CIO Health Care Committee, Washington, DC; Peter J.
Pestillo, executive vice president for corporate relations, Ford Motor Co.,
Detroit, MI; and Michael A. Peel, senior vice president for personnel and
human resources, General Mills, Inc., Minneapolis, MN 318
Prepared statements:
Mr. Sweeney 320
Mr. Peel 327
Durenberger, Hon. Dave, a U.S. Senator from the State of Minnesota 336
Dodd, Hon. Christopher J., a U.S. Senator from the State of Connecticut 346
Patricelli, Robert E., chairman, Health and Employee Benefits Committee,
U.S. Chamber of Commerce, Washington, DC; Michael O. Roush, director,
Federal and Government Relations-Senate, National Federation of Inde-
pendent Business, Washington, DC- William Lindsay, president, Lindsay-
Sandbak Group, Inc., Englewood, CO, on behalf of National Small Business
United; and Helen H. Mills, president, Soapbox Trading; founder and board
member, Business for Social Responsibility, and managing principal, The
Mills Group, Fairfax, VA 348
Prepared statements:
Mr. Patricelli (with an attachments) 350
Mr. Roush 364
Mr. Lindsay 372
Ms. Mills 378
STATEMENTS
Tuesday, October 19, 1993
Kennedy, Hon. Edward M., a U.S. Senator from the State of Massachusetts,
prepared statement 389
Dodd, Hon. Christopher J., a U.S. Senator from the State of Connecticut 390
Mikulski, Hon. Barbara A., a U.S. Senator from the State of Maryland 392
Tyson, Laura D'Andrea, Chair, President's Council of Economic Advisers,
Washington, DC, prepared statement 394
Lcwin, Dr. John C, director, Hawaii State Department of Health, Honolulu,
HA; Mark Pauly, chairman, Health Care Systems Department, The Whar-
ton School, University of Pennsylvania, Philadelphia, PA; and Jacob A.
Klerman, lnbor economist, The Rand Corp., Santa Monica, CA 430
Prepared statements:
Dr. Lewin 436
Mr. Pauly 450
Mr. Klerman and Dana Goldman (with an attachment) 457
HEALTH SECURITY ACT OF 1993
WEDNESDAY, SEPTEMBER 29, 1993
U.S. Senate,
Committee on Labor and Human Resources,
Washington, DC.
The committee met, pursuant to notice, at 10:04 a.m., in room
SR-385, Russell Senate Office Building, Senator Kennedy (chair-
man of the committee) presiding. :
Present: Senators Kennedy, Pell, Metzenbaum, Dodd, Simon, Mi-
kulski, Bingaman, Wellstone, Wofford, Kassebaum, Jeffords, Coats,
Gregg, Thurmond, Hatch, and Durenberger.
Opening Statement of Senator Kennedy
The Chairman. We will come to order. We are now beginning the
most significant domestic policy debate since Medicare was enacted
almost 30 years ago, and it is appropriate that as the Senate be-
gins its action on this issue, we are meeting in this caucus room
that has witnessed so many historic hearings going back to the ear-
liest years of this century. .
Congress enacted Medicare in 1965 because the Nation had
reached a consensus that action was essential to end the health
care crisis affecting senior citizens. Today, a comparable crisis faces
every American family and action is just as urgent.
The key to success in this undertaking is bipartisanship. Going
back over many years, no major reform nas been enacted without
bipartisan support. This committee has had a tradition of biparti-
sanship, a tradition which I am confident will be extended to con-
sideration of the Health Security Act. All of us intend to work
closely together and with the administration. The final bill that
Congress approves needs and deserves the support of both Demo-
crats and Republicans, and the country expects that kind of partici-
pation and consideration.
No individual has contributed more to the development of the
President's plan than our witness this morning, the First Lady,
Hillary Rodham Clinton, and she has worked tirelessly with great
skill to shape this plan. In doing so, she has reached out to a large
number of citizens, to experts on all sides of the debate, and to all
of us in Congress. Her leadership has been extraordinary, and we
are honored by her presence here this morning.
I am looking forward to working with all the members of this
committee, the Finance Committee, and the other committees in
the Senate with jurisdiction over the many complex aspects of our
health care system. Today, Mrs. Clinton testifies here before the
(l)
Labor and Human Resources Committee. Tomorrow, she will tes-
tify before the Finance Committee.
I know that under the guidance of Majority Leader George
Mitchell and Republican Leader Bob Dole, we will work as closely
as possible together to pass a bipartisan bill that meets the goals
the President has set and that the American people deserve.
Senator Kassebaum.
Opening Statement of Senator Kassebaum
Senator Kassebaum. Mr. Chairman, I certainly agree with you
that Mrs. Clinton has provided extraordinary leadership. It is a
pleasure to welcome you here this morning, at our first formal
hearing.
The task before us is numbing in its complexity. It is also rich
in opportunities for political conflict. For some of us, the challenge
will be to make sure our concerns about the specifics of reform do
not overwhelm the commitment to making it happen. For others,
the challenge will be the reverse to temper eagerness to move a bill
with recognition that lasting reform cannot occur without careful
deliberation and sincere compromise. Obviously we cannot achieve
this overnight, but I have great confidence that bipartisan com-
promise will ultimately be achieved.
I would like to ask that my full statement be made a part of the
record, Mr. Chairman.
The Chairman. Fine. Thank you very much.
[The prepared statement of Senator Kassebaum follows:]
Prepared Statement of Senator Kassebaum
I am pleased to welcome the First Lady before our committee as
we begin the long and difficult process of debating national health
care reform.
The task before us is both numbing in complexity and rich in op-
portunities for political conflict. Health reform could well be the
greatest challenge that either this committee or Congress faces in
this decade — and how well we respond will be nothing less than a
test of our capacity to govern.
For some of us, the challenge will be to make sure our concerns
about the specifics of reform do not overwhelm our commitment to
making it happen. For others, the challenge will be the reverse —
to temper eagerness for moving a bill with recognition that lasting
reform cannot occur without careful deliberation and sincere com-
promise.
Consensus cannot be achieved overnight, but I am optimistic that
bipartisan agreement will ultimately be reached on this issue. I am
encouraged for example, that elements of my own bipartisan
BasiCare health reform bill have been incorporated into both the
President's plan and into the new Senate Republican proposal.
Nearly all of us of both parties sincerely share the basic goals
eloquently outlined by the President last week: security, savings,
simplicity, quality, choice, and responsibility. Bipartisan common
ground is also growing on a wide range of important details in this
debate, ranging from protections for persons with pre-existing
health conditions to the need for standardization of medical paper-
work.
Our job now is to roll up our sleeves and get to work on the
tough issues over which we differ.
For me, a major concern is the administration's proposal to cre-
ate massive new regional insurance monopolies to manage and reg-
ulate nearly all aspects of health care in the United States. Most
Americans probably don't yet realize what these so-called "health
alliances" will mean for them — but when they do, I doubt they will
like what they see.
Under this new system, nearly all Americans would be mandated
to buy insurance through exclusive regional alliances set up by the
States. Accountable to virtually no one but government, the alli-
ances would have broad regulatory authority to decide which
health plans consumers can choose and what these plans will look
like — as well as to dictate monopoly rules to health plans, doctors,
and hospitals.
In my view, powerful and regulatory alliances insert an
unneeded, bureaucratic, and authoritarian level of control into a
system already clogged with rules and paperwork. The last thing
we need is a new layer of middlemen processing our health care
dollars.
If the President wants simplicity, this is not the way to achieve
it. A better alternative would be to build reform around small and
voluntary purchasing cooperatives. Combined with a uniform bene-
fit package, community rating premiums, and risk-adjustment
among health plans, voluntary cooperatives could give small pur-
chasers the market clout they need, but without requiring costly
and cumbersome apparatus of massive alliances.
The huge cost and questionable financing of the White House
proposal is another area where I have serious questions. Can we
trust the numbers? Are we putting promises ahead of payment? Is
cutting Medicare and Medicaid to pay for new entitlements just an-
other way of robbing Peter to pay Paul?
Can we ever end cost-shifting if we do not integrate Medicare
into the new system? Moreover, can we justify creating a new enti-
tlement for early retirees when our existing entitlements are burst-
ing at the seams? And most important, can the American taxpayer
really afford the cost of guaranteeing a Fortune-500 plan to every-
one?
Like many, I am also concerned about the administration's pro-
posal to mandate that every employer pay 80 percent of the cost
of providing insurance to its employees. Even factoring for the sub-
sidies the President proposes, the impact of the mandate on small
business through reduced wages and lost jobs could be great.
In Kansas 74 percent of businesses have fewer than 9 employees.
Many of these small firms have very narrow profit margins, which
means that even a capped mandate of only 3.5 percent of payroll
could mean the difference between breaking even and going under.
A further drawback to the administration's mandate proposal is the
complex tangle of subsidies it would establish.
Finally, on the issue of cost containment, I am pleased that the
administration has adopted a version of my own proposal to limit
the rate of growth in insurance premiums. I believe this basic ap-
proach offers a way to firmly restrain costs, but with a relative
minimum of bureaucratic micromanagement. I am extremely trou-
bled, however, by the rapid and heavy- handed way such premium
limits would be implemented under the White House plan. Forcing
premiums down to CPI over just 2 years is realistic — and if en-
acted, such severe reductions could do serious harm to our health
care system.
These and other questions will take time to work through, but
I am to eager for the challenge and look forward to beginning the
process here today.
The Chairman. Mrs. Clinton, we would be glad to hear from you.
We will have a 5-minute time limitation for the members. Thank
you very much.
STATEMENT OF HILLARY RODHAM CLINTON
Mrs. Clinton. Thank you, Mr. Chairman. Thank you, Senator
Kassebaum. I want to begin by thanking the members of this com-
mittee for the consultation and advice that you have given me over
the last months. I have met not only with this committee several
times, but with many of the members individually numerous times,
and I am very grateful for the assistance that you have given me.
It is an historic opportunity as we come together in this Senate
caucus room. This is a place where much of America's history has
been played out. It is a place where, years ago, President Kennedy
announced his campaign for the Presidency. Eight years later, Sen-
ator Robert Kennedy announced his own Presidential candidacy
here.
Your family, Mr. Chairman, and your commitment to health care
reform bears special notice. It is a commitment that goes back 25
years, and you have added your own stamp to our history in this
room and your name has been attached to every piece of health leg-
islation that has passed through Congress. So I am especially
grateful that we would have this opportunity to begin this discus-
sion about the future of health care reform before this committee
in this room.
I am also grateful because this committee has shown a welcome
and courageous spirit of bipartisanship when addressing difficult
social problems. For the good of the Nation of many occasions, you
have put aside partisan and ideological differences. That tradition
of open-mindedness and courage will be beneficial to all of us as
we work toward lasting, substantive health care reform in the
months ahead.
Like you, I have had the opportunity to travel around the coun-
try and listen to thousands and thousands of ordinary Americans
talk about health care. I have listened to the employed, the self-
employed, the unemployed, those who labor in our factories, on our
farms, in our offices, those who never have had to worry about
health care because of their financial affluence.
I have read letters from, I think, every State represented here
that came in amongst the more than 700,000 pieces of mail re-
ceived at the White House from citizens pouring their hearts out,
sharing their stories, and offering their suggestions. Nothing is
more important to our Nation than ensuring that every American
has comprehensive health care benefits that can never be taken
3.W3.V
When the President laid out his goals for health care reform, he
was committed to building on what is right in our current system
and fixing what is wrong. That principle will guide us throughout
this debate. We want to preserve and strengthen the high quality
of medical care that is a trademark of our Nation — our unrivaled
doctors, nurses, hospitals, and sophisticated technology. We also
want to honor every family's desire to choose a doctor and other
health care providers.
At the same time, we have to be equally committed to fixing
what is clearly broken. Each month, more than two million people
lose their health insurance for some period of time. Every day,
thousands discover that, despite years of working hard and provid-
ing for their families, they are no longer covered. Every hour hun-
dreds who need care wind up in our emergency rooms because they
have no health care insurance.
These are not isolated and individual tragedies because every
person who loses health benefits, who is denied health insurance,
is part of a growing national problem. This is a problem that is not
only causing human tragedies, but undermining our social fabric,
reducing our Nation's productivity, draining our Federal and State
budgets, as well as denying hard-working Americans the kind of
wage increases that they deserve to have because their compensa-
tion is so heavily weighted now toward health benefits instead of
You have, as I have, heard the stories about those insurers, 40
percent of whom refuse coverage to people with so-called preexist-
ing conditions. Up to 30 percent of employees report they are afraid
to switch jobs for fear they will lose their health insurance, and
hundreds of thousands of people are locked into our unproductive
welfare system because to leave welfare would mean giving up
Medicaid benefits. The harmful effects of the rising health care
costs on our work force and on our Nation cannot be overestimated.
I think all of us as we move through this debate have to put our-
selves into the lives and into the terrible stories that we all know
as well: to really know what it feels like to be the most qualified
applicant for a job but be told you can't be hired because your child
has an illness that will drive up the company's health care pre-
miums; to be told that if you leave the job you have to take a better
opportunity, which is the American dream, to move to another city
and move up the ladder of success, you will lose your health care
coverage. Imagine the disillusionment of those people who have
worked so hard all their lives who now, because of economic
changes, lose that job, are laid off, and find themselves without
health care coverage.
Today, the average worker pays $7,423 for health care each year.
If we don't change our system now, that amount will rise to
$12,386 by the year 2000, and as the average worker's bill for
health care goes up, his or her real wages will decrease by about
$655 a year by the end of the decade. Today, the trade we are offer-
ing American workers is to give up any wage increases that they
deserve and that they have earned in return for less health care
coverage and less health security.
When I was with you in Massachusetts last spring, Mr. Chair-
man, we met a number of small business owners and had a con-
versation with them. One man particularly stays in my mind. He
owned a small family bowling alley. He also manufactured great ice
cream, homemade, right there at the alley. He had one longtime
employee. That is the only person he employed, and that man s son
became seriously ill. As a result of the boy's illness, the cost of that
very small business' health insurance premiums went up.
As I am sure you remember, Mr. Chairman, that bowling alley
owner told us with tears in his eyes how confounded and confused
he was by being left with the choice of either firing his longtime
employee, denying the man coverage for his family wnen he needed
it most, or continuing to pay the rising cost of nealth premiums,
knowing that that increasing cost could undermine the success of
his family business.
In our current system, stories like these have become too com-
mon. That is why we must finally ensure that every American citi-
zen has comprehensive health benefits that can never be taken
away, not when you lose a job, not when you change jobs, not when
you move, and not when someone in your family gets sick.
We have learned probably more about the technicalities and de-
tails of health care and the way it is delivered in this country in
the last months than any of us ever knew before. But what I know
most and what I care about most is what I have learned from per-
sonal experiences. Because when you strip all the technical details
away, what health care really matters is what is there for you
when you need it.
Those of us who are well-insured, those of us who do not have
to worry about getting the best care that can be offered anywhere
in the world, I hope will always keep in mind the mothers and the
fathers and the sisters and the brothers and the children of this
country who do not share that sense of security.
We want to emphasize primary and preventive health care as
well because we think that will save us money and provide more
security for all Americans. We want to extend prescription drug
benefits to all Americans, but particularly older Americans, be-
cause we have heard more about the costs of prescription drug in-
creases than probably any other issue from older Americans.
We want to be sure that we begin to provide long-term care for
older Americans. The choices we now pose to families are just un-
conscionable in many instances — spend yourself into poverty in
order to find a safe, secure nursing home for your family. You can't
get care for taking care of that family member in your home. You
can't get reimbursed for a much cheaper form of care in your com-
munity. All that is available is a nursing home.
We also want to be sure that everyone's health care needs are
taken care of, and I want to say a particular word about women's
health care needs. For too long, women have been relegated to the
fringes of medical research and medical care. The leading cause of
death among women in our country is coronary disease, but until
recently women were routinely excluded from major coronary clini-
cal trials, and I want to thank this committee for its leadership in
including women where they rightfully belong, at the forefront of
being taken care of in our health care system.
But we still have a ways to go. We need to focus on other dis-
eases such as osteoporosis. We need to provide diagnostic tests like
mammography and pap smears. We need to be sure that women,
who are the primary caretakers of our families, are taken care of.
By ensuring comprehensive benefits to all Americans, by empha-
sizing primary and preventive health care that saves money and
keeps people healthy, and by devoting more attention to the special
health problems of women, we can control costs and build a
healthier Nation and make our economy and our work force more
productive.
I want to thank the members of this committee for the assistance
you have already given to us, and thank you ahead of time for
what I know will be a very productive and fruitful relationship as
we move forward to solve this problem.
The Chairman. Thank you very much, Mrs. Clinton. I think as
we examine the proposal, there is obviously a long list of detailed
questions that come to mind, a number of which we will examine
today. But I think it is important that we don't lose sight of the
real importance of this program and how it will affect families all
over the country.
I was wondering if you could really elaborate for just a moment
about what this program will mean to most American families. I
don't like to use the word "average" because no one is average, but
how would you describe for most working families what this pro-
gram really means to them, for their situation today and for their
future?
Mrs. Clinton. Mr. Chairman, I think that is exactly the right
question to ask because we have to look at what we want to do to
try to increase security for Americans, and particularly American
families. I would describe the impact on most families in terms of
security, and break it down into several different kinds of security.
I would start by the obvious that we will be able to look every
American in the eye and say that they are guaranteed health secu-
rity. The health security card that the President held up during his
speech is a symbol of what we mean when we will be able to say
that. Every American who is entitled to that card will have one,
and standing behind it will be a guaranteed set of benefits.
I think we will also be able to tell American families that they
will be more economically secure. Right now, what has happened
over the past decades is that most American families have seen
their standard of living either stagnate or begin to diminish be-
cause wage increases have not been able to keep up with inflation
at the rate that they did in the decades previous to the 1970's and
1980's.
Many American families feel immense economic insecurity, and
what they may not realize is how our rising health care costs — the
burdens that have been imposed on both government, and particu-
larly business, is directly related to the kind of economic insecurity
that too many Americans feel. We believe that we will be able to
stabilize the amount of money that we will spend on health care,
and because of that we will be able to bring costs down for many
businesses. As a result, we hope we will begin to see wages react
accordingly and economic security once again become a cornerstone
of American working life.
8
I guess I would finally say, Mr. Chairman, that I think we will
provide a lot of psychological security. One of the issues that wor-
ries me a great deal is how alienated and how insecure many of
our people seem to be. Clearly, in material ways, they are not less
well off than my parents and grandparents were during the De-
pression, but in psychological terms they feel that the future is
closing in on them, that they aren't taken care of, that they can't
count on their children having the same kind of opportunities as
they did.
I don't think there is anything more important to establish than
the fact that they will not have to worry about health problems
that come up and that might undermine their sense of security. So
in those very important respects, I think we will find through
health care reform not only what we will be taking about in terms
of benefits and cost containment and the like, but we will find a
shift in attitude among our people that will render them more se-
cure. I therefore believe our citizens will be more productive, and
more willing to face the future with the kind of confidence that we
need in America.
The Chairman. Well, that is a certainly an enormously impor-
tant change in attitude among the American people going back to
kind of a community of caring, which I think is a central challenge
of this society. As the President has pointed out in his speech, you
can also be for this program because it gets a handle on the Fed-
eral deficit. You can be for it because it reduces bureaucracy for the
providers. You can be concerned about the increasing share of prof-
its that are taken away from American businesses.
But I think for many who want this program enacted, it is be-
cause of their out-of-pocket costs to doctors and to hospitals, are
rising beyond their ability to pay and I think many people will
want to know whether this program is really going to do something
about these costs. This is of enormous concern to most Americans,
those that have health insurance as well as those that don't. What
kind of impact do you think that this program will have on those
working Americans and others who have seen the extraordinary in-
crease in out-of-pocket costs?
Mrs. Clinton. Our estimate is, Mr. Chairman, that for Ameri-
cans who are currently insured, about 63 percent will have the
same or better benefits at less cost or the same cost, and that in-
cludes out-of-pockets, it includes deductibles. Individual consumers
will be able to make choices that will drive those costs down even
lower because we will, we believe, through this reform enhance the
number of choices available to citizens. If they want to choose an
organized network of doctors or a health maintenance organization
that has very low or no co-pays, they will be able to do that.
Another issue that is very important to many families is that we
want to eliminate the lifetime limit kinds of considerations that in
too many insurance policies have required people, once they have
exhausted their limits, to pay out of their own pockets. We think
that if you are insured, you should be insured across the board.
We also believe that we should bring down the cost of
deductibles. Deductibles will still be present, but will be set at
manageable level. So if we take into account all of these costs, we
will have, we believe, a significant decrease in out-of-pocket ex-
penditures both for the premium share as well as co-pays and
deductibles for many people who are currently insured. For about
20 to 22 percent of those who are insured, they will pay a little bit
more, but they will be getting more comprehensive benefits because
they are now paying too much for catastrophic or major medical
policies, often with a very, very large deductibles. Those
deductibles will be dropped. Their benefits will increase. So, over
a lifetime, they will also realize cost savings, even though initially
they may pay a little more.
For about 12 percent of the people, they will pay more for about
the same benefits. Those are largely young, single people who now
benefit from an insurance system that is really skewed in their di-
rection because those of us who are older, and anyone who has ever
been sick, pays much more than they should, while young and sin-
gle people pay less than they should in terms of being part of an
entire community pool. So they will pay a little more in these early
years, but they too will realize benefits over their lifetime.
The Chairman. Thank you.
Senator Kassebaum.
Senator Kassebaum. Mrs. Clinton, as you know, I have been con-
cerned about the health alliance structure and have worried about
the size, the monopolistic purchasing power, and the sweeping reg-
ulatory authority of such alliances. I would like to ask you some
questions to clear up just how these entities would work.
In Kansas there are only 6 employers who have 5,000 or more
employees. Now, it is my understanding that 5,000 employees is
the cut-off and that everyone below that must be enrolled in and
buy insurance through the alliance.
Mrs. Clinton. Senator, it is 5,000 nationwide. So if there are
employers in Kansas who are part of larger companies, even
though their employment levels in Kansas may be less than 5,000,
if the aggregate nationwide is 5,000 or above, they can be part of
a self-insured alliance.
Senator Kassebaum. Do all insurance dollars both from employ-
ers and employees — go into the alliance?
Mrs. Clinton. Yes, for the guaranteed benefits package. Now,
there will be, we anticipate, not only supplemental insurance, but
new insurance markets for products like long-term care and those
will go directly to insurers, or if an alliance wants to contract with
an insurer in order to handle those dollars, it could be done that
way. But there will still be an insurance market outside of the alli-
ance.
Senator Kassebaum. What type of care would require additional
markets?
Mrs. Clinton. For anything that is outside the guaranteed bene-
fits package, so that, for example, if a person wanted more mental
health benefits or long-term nursing home care, the alliance would
be able to offer those through health plans. In addition, there will
also be an independent insurance market as well for benefits that
people want to buy with their own dollars in addition to the pre-
mium dollars.
Senator Kassebaum. Well, for instance, if you are with Blue
Cross/Blue Shield and that had been your longtime carrier, but
they did not opt to go into the alliance or the alliance didn't include
10
them as part of the insurers participating, do you have any choice
at that point of where you go?
Mrs. Clinton. Well, Senator, we anticipate that Blue Cross and
other insurers will be in the business of running and offering the
accountable health plans. It is almost inconceivable to envision
that Blue Cross/Blue Shield would not opt to offer a plan — or be
ineligible to do so — within a regional alliance.
In our conversations with a number of insurance companies,
what they are moving toward is what they are already doing,
which is to help organize networks of physicians and hospitals into
the delivery points. So they would, in effect, become the managers
of the accountable health plans.
So if you had Blue Cross/Blue Shield now and the Blue Cross/
Blue Shield health plan were one of your choices, much as we now
have with the Federal employees plan, you might very well con-
tinue to be insured by Blue Cross/Blue Shield.
In the future, in the alliances, it will be just the same kind of
model as is the case in the Federal Government. The money will
go into the alliance, as it does now with the Federal Government,
but the choices available will be perhaps the local HMO, the Blue
Cross/Blue Shield health plan. Maybe the local hospitals have cre-
ated, you know, the Lawrence, KS, plan or whatever it might be.
So there will not only continue to be a role for insurance companies
in managing and delivering care, but we anticipate that it may
even be an expanded role in that area.
Senator Kassebaum. Could you go outside the alliance for the
purchase of your insurance?
Mrs. Clinton. Let me walk through this. If you are an employee
now or an employer, you make your premium payments directly to
the insurer, and the insurer then decides in some instances which
doctors or hospitals you can attend, or you have a fee-for-service
plan and then you pick and the insurance company reimburses
your doctor.
In what we are proposing, the alliance is the body to which the
money is paid. The accountable health plans are what you now
think of as your health plan, whether it is Blue Cross/Blue Shield,
some health maintenance organization, or some other form of
health plan. The money goes into the alliance so it can be pooled
there. We propose doing it this way because we want to get the
most purchasing power possible — just the way it happens now with
the Federal Government, in Minnesota like some of the very large
purchasers of care there, or in California like the CALPERS sys-
tem. They are formed to pool purchasing power. Then the health
plans like Blue Cross and the others come and say, we can deliver
the guaranteed benefits package at this price.
Then each year, every consumer, as you do now with the Federal
plan, will get a brochure about all of the plans. The alliance is
merely a collection agency. Every plan that is qualified has the
right to bid for your money and you then tell the alliance, send my
money to Blue Cross, and that is how you get your health care.
Senator Kassebaum. I just got a note that I have 2 minutes re-
maining, so I will be brief. The alliance is appointed by the gov-
ernor or the legislature of a State, is that correct?
11
Mrs. Clinton. Well, the governors think that it ought to be the
governors. The legislators think they ought to have a role.
' Senator Kassebaum. But the fact is, they have a great deal of
authority in setting out some very firm guidelines for the alliances.
And then there are the guidelines of the national board, which su-
persede, do they not, some of the directions the alliances receive
from the States.?
Mrs. Clinton. What we would like is to have Federal guidelines.
For example, what is a qualified health plan and what is the bene-
fits package? Then each alliance would implement those Federal
guidelines. But we also want to give some flexibility to alliances be-
cause we know that western Kansas is not the same as Kansas
City. So we want some flexibility so that an alliance could have
some opportunity to maybe do things a little bit differently in one
part of the State from the other, but they would all have to meet
the basic Federal guidelines of what the health plans would have
to be.
Senator Kassebaum. Thank you.
The Chairman. Senator Pell.
Senator Pell. Thank you, Mr. Chairman, and I congratulate you
in choosing this room, where so many historic events have oc-
curred, for this hearing on a subject and a program whose time has
come. We are seizing it, and I hope under the leadership of Mrs.
Clinton we will move ahead with it.
I think the affection and regard of the country for you was shown
at the joint session speech when the applause was louder than I
have heard for anybody who was not the principal speaker himself
in the 33 years I have been in the Senate. The affection and regard
is universal, I think.
The question specifically that I have in mind concerns unemploy-
ment. This little chart^-your eyes may be better than mine and you
can see — shows that the unemployment in my State of Rhode Is-
land is far worse than it is on average in the country as a whole.
Who would pay the premiums on this health plan when one is un-
employed? Would it be the employer? There is no employer. Would
it be the public, or who?
Mrs. Clinton. It would be the public through the Federal Gov-
ernment. The Federal Government will provide the insurance share
for the unemployed, and when someone is employed there will be
a combination of contributions from the employer and employee. In
some cases, such as for small businesses who have low wage em-
ployees, will underwrite discounts for the health premium contribu-
tion.
Senator Pell. In that regard, how does this little health security
card work that I have seen? It was presented to me. It has got
somebody else's name on it, I regret to say, but how does it work,
in fact? Is it like a charge card or credit card?
Mrs. Clinton. That is the way we would like to see it work be-
cause one of the ways we think we can save billions of dollars in
this system is to move toward electronic billing, to move toward
single forms to try to simplify the collection of the health care dol-
lars. So, yes, we would like to see the health security card working
very much like a credit card in which we will have much more
12
economies of scale in terms of collecting and paying out money
throughout the system.
Senator Pell. Thank you. The columnist, Ann Landers, wrote a
column which, without objection, I would like to see inserted in the
record.
The Chairman. It will be inserted.
[The column referred to follows:]
The Washington Post— September 19, 1993
(By Ann Landers)
Dear Ann Landers: What is happening to our beloved country? Every time I pick
up a newspaper, I read yet another horrible story about a child killed by gunfire.
In Chicago, 7-year-old Dantrell Davis was shot in the head and killed as he was
entering his school. The following week, three teenagers were wounded outside their
high school in the Bronx. A few days later, three more teenagers were shot near
their high school in Brooklyn.
I have three children under 12. Since they were tots, I have instructed them to
be careful when crossing the street, but it seems they are in greater danger of being
hit by a bullet than by a car.
What is going on that puts ordinary, everyday people at risk of being shot? Please
explain this because I am utterly — Baffled in Brooklyn.
Dear Brooklyn: Fm glad you asked because you've provided me with an excellent
opportunity to present some alarming statistics.
The United States is the most heavily armed Nation on earth. Its 255 million peo-
ple possess more than 200 million guns — 73 million rifles, 66 million handguns and
62 million shotguns.
In 1990, 2,874 boys and girls 19 years of age and younger were murdered with
guns. According to Lou Harris pollsters, four out of 10 teenagers said they knew
someone who had been shot.
About half of all handgun owners keep their guns loaded at all times. Whenever
you read about a 5-year-old or 6-year-old who snot a playmate or himself, you be-
come painfully aware that the child somehow managed to get his hands on a loaded
weapon.
In spite of all the terrible things guns are doing to our lives, Congress still hasn't
passed the Brady bill. This bill asks only for a waiting period of five working days
so a background check can be made on gun purchasers.
American women have been taught to fear violent crime by strangers. The gun
industry is using this fear to sell guns to women under the guise that guns will pro-
tect them. This is false. According the New England Journal of Medicine, a handgun
in the home is 43 times more likely to be used to kill the owner, a family member
or a friend than to kill an intruder.
The National Rifle Association is the most powerful special interest group in the
country. The extremists who control the NRA spend more than $100 million a year
to defeat every gun law proposed. The NRA has lobbied shamelessly against ban-
ning machine guns, plastic pistols and cop-killer bullets designed to pierce bullet-
proof vests.
America is the most violent Nation in the world. To give you some notion of just
how violent it is, here are some comparisons: In 1990, handguns murdered 10 jpeople
in Australia, 22 in Great Britain, 68 in Canada and 10,567 in the United States.
The easy availability of handguns is at the root of this problem. The NRA says,
"Guns don't kill people, people kill people." Of course they do. But they use guns
to do it.
Senator Pell. It points out the number of deaths from guns. As
you may know, the annual cost of hospital care associated with
firearms treatment is about $1 billion. In Rhode Island alone, the
estimated annual health care costs attributable to those killed by
firearms between 1984 and 1990 was about $22 million.
What would be your reaction to the thought of introducing legis-
lation that would have a tax on firearms with that tax devoted to
the health plan?
Mrs. Clinton. Well, Senator, that is not part of the President's
proposal, but I think that there is interest in that proposal. I was
13
asked the same question yesterday in the House, and targeting
some kind of payment for violent crime to our health care system
might be something worth considering.
Senator Pell. Another question is on research in hospitals. We
have in my State some very fine teaching hospitals, and I am curi-
ous how the President's health plan will impact on their quality.
As you know, when you have a research institution, it increases the
quality of care. It also increases the expense.
Mrs. Clinton. That is a very important question and one that
we have talked a lot with the deans of our various medical schools
around the country about. We believe that the academic health
centers ought to be the quality foundation for this health care plan.
Rather than reinventing the wheel and creating any new kind of
bureaucracy or entity to keep track of quality and to try to deter-
mine outcomes related to procedures, we would like to see that re-
search and that kind of quality reporting function really housed in
our medical schools around the country. We think they are fully ca-
pable of doing that work.
We also know that many medical schools and academic health
centers have higher costs because the care that they deliver is so
highly specialized. So we have some special provisions to help sup-
port financially those academic health centers so that they are
available to patients not only in the States where they are, but also
around the country if they have developed a certain technique or
procedure that should be used because of its importance. In short,
we take very seriously the role of the academic health centers, and
have some provisions that we think will strengthen their position
in the health care system.
Senator Pell. Thank you very much.
Mrs. Clinton. Thank you, Senator.
The Chairman. Senator Jeffords.
Senator Jeffords. Thank you, Mr. Chairman. First, I want to
commend Senator Kassebaum for all of her help and leadership on
our side of the aisle, and I want to commend you, Mr. Chairman,
for your efforts leading up to this important occasion. I know that
you are delighted, as I am, that the process is now underway to
finally make health reform a reality.
I also want to commend you, Mrs. Clinton, for your efforts, par-
ticularly for your and your staffs willingness to work with all of
us, my party especially. I know it was helpful for us and I hope
it was helpful for you.
I am sure managing your task force of 500 was a tough job, but
I suspect it was nothing compared to the task force of 535 that are
here on Capitol Hill that you now have to deal with. Thus, the
toughest part certainly remains before us.
The principles that guide your effort and most of the major policy
choices you have made mirror my own. You have made a great
start, but a vast amount of work still needs to be done. I hope we
can improve upon your proposal, particularly with regard to financ-
ing, bringing costs down, and promoting good health. To do so, I
am convinced, will require the talents and energy of Republicans
as well as Democrats. No party has a monopoly on wisdom or expe-
rience. You, in your role as the first navigator, know better than
most that we are sailing into largely uncharted waters.
14
I think it is critical to the country that this be a bipartisan effort.
I know of no better way to ensure it than to ioin as a cosponsor
of your legislation upon its introduction. I will do so, but I want
to do more than this. I want this bill to be broadly bipartisan, and
I pledge to do what I can to make this a bill Republican colleagues
can support.
I have been thinking about our Nation's health care problems for
many years and have definite ideas on what our health care goals
ought to be and how they can be accomplished. I don't think any-
one would disagree with the administration's goals. Everyone in
this Nation needs the security of knowing that no matter whatever
else happens in their life, they can count on the fact that they have
good, quality health care. We need a much simpler health care sys-
tem with far less paperwork. Finally, we need to be sure that our
new system will get health care costs under control.
I look forward to working with you and the administration and
my colleagues on both sides of the aisle in this essential effort. I
agree witn the administration's approach and will do what I can
to ensure that the historic proposal becomes law next year.
Now, a question.
Mrs. Clinton. May I iust say thank you very much, Senator Jef-
fords. I know that you share the President's and my belief that this
is an issue beyond partisan politics, and I think most of the mem-
bers of this body share that same belief. We will look forward to
working with you and other Republicans. We have learned a great
deal from you and the work that you had done. I read vour bill,
I read Senator Kassebaum's bill. We learned a lot about the appro-
priate way to address our health care needs, and I am very grateful
for your commitment today to be a cosponsor and to work with us
so that we can make sure that this issue is beyond politics and that
we get the very best possible resolution for the American people.
Senator Jeffords. I thank you for those words, and we are all
dedicated to help.
Mrs. Clinton. Thank you.
Senator Jeffords. First, I want to applaud your efforts with re-
spect to State flexibility. Some might accuse me of being a little pa-
rochial in this, but you know Vermont has been working very, very
hard to come forth with their own health care plan. They are con-
cerned, though, that they may be restricted by the national plan
which we come forth with. So I think success in reform and getting
it approved depends upon the States being able to support it.
I understand that you have indicated an openness to change, but
to what extent do you feel State flexibility is important to your pro-
posal?
Mrs. Clinton. I think it is very important, Senator, and Ver-
mont is just one of several States that has shown tremendous lead-
ership in moving ahead and really demonstrating to the country
the kinds of steps that needed to be taken. So we want to maximize
State flexibility.
On the other hand, we have to recognize that there are States
that have been very blunt in saying they don't want anything to
do with health care reform. It is not an issue they feel comfortable
tackling and they don't want the responsibility. So striking the
right balance between those States that really should be encour-
15
aged to move forward and the kind of Federal program that will
be needed to ensure security for every American so that States that
don't want to be move forward will be motivated to do so is what
we are trying to achieve. We will certainly look forward to working
with you in making sure we strike that right balance.
I personally prefer maximum flexibility. I think the problems in
Vermont are different from the problems in Arkansas, and I want
both States to deal with them responsibly.
Senator Jeffords. My final question will test a little bit of that
flexibility in the sense of the State of Vermont's desires. My ques-
tion is, under the Clinton plan will the State of Vermont will al-
lowed to require that doctors be paid the same rate whether they
see someone young or old or whether they work for a large com-
pany or a small company?
Mrs. Clinton. You mean an all-payor rate system for physi-
cians?
Senator Jeffords. An all-payor rate system.
Mrs. Clinton. Yes. I was asked that question yesterday by
Maryland. Maryland already has an all-payor hospital system.
They are developing an all-payor physician system, and I think
that that is one of those areas that we would permit States to move
forward on if that is what they thought was in their best interests.
Senator Jeffords. Thank you. I look forward to working with
you. Thank you, Mr. Chairman.
Mrs. Clinton. Thank you very much, Senator.
The Chairman. I just want to express our appreciation to Sen-
ator Jeffords for his support. We are obviously eager to work with
all of our colleagues to try and find common ground.
Senator Metzenbaum.
Senator Metzenbaum. Mrs. Clinton, as I sat here, I was thinking
to myself that you and your husband are truly unique because both
you and your husband are knowledgeable about the specifics of this
program. I have served here with five different Presidents, but I re-
member the record of many other Presidents as well, and I don't
remember any other President, and certainly no other Presidential
spouse, that was as fully involved and fully knowledgeable about
a legislative program as the two of you are.
Your husband the other evening, the President, took questions
for over 2 hours, and then, as I understand it, stayed for another
hour answering additional questions. I think the American people
probably have not realized that you are just totally unique in the
fact that you have not only said I am for this program, this great
piece of legislation, I will sign it, whatever the case may be, but
you know this program. You are a part of it, you helped create it,
as well as did the President, and I think the American people have
a right to be very proud.
As I sat here this morning and I heard my colleague, Senator
Jeffords, speak, I said to myself I don't know what it is that creates
Republicans of that flavor, but he follows Bob Stafford and George
Aiken, and I feel very proud to have the privilege of serving with
him.
Having said that, let me ask you a couple of questions. We are
talking about a program that now costs about $940 billion a year,
almost $1 trillion a year. I am concerned to see how we go about
16
consumer control, not only window dressing, but actually having
consumer rights. We will have health alliances, 50 percent by em-
ployers, 50 percent by consumers, but the employers will be an in-
tegrated group in all probability; they will work together.
I am concerned about how does the consumer, really the Amer-
ican public, get their voice heard and have a right to control this
system, not just be a party to it.
Mrs. Clinton. Well, Senator, we believe that the principal dif-
ference in what we are proposing is that for the first time ever con-
sumers will be making the decisions that count. They will be decid-
ing which health plan they will join.
To go back to Senator Kassebaum's inquiry, it will be the
consumer, not the employer and not the alliance and not any gov-
ernment agency, whether it be Medicaid or anything else, who will
determine what health plan a particular individual decides to join.
Every year, consumers will be, in effect, voting with their feet. If
they are not satisfied with the service they got or they have met
somebody that they prefer in a different plan, well, they will be
able to make that decision. As a result, the ultimate market and
competitive forces that we think will lead to high-quality health
care being delivered most efficiently will rest upon millions and
millions of individual consumer decisions. The richest person and
the poorest person will have the same vote because they will each
decide where they want to go, and that will make a difference in
how health care is delivered.
Second, as you point out, the kind of alliance structure that we
are envisioning will be governed by an employer representative and
consumer representative board, with consumers having 50 percent
of the seats.
I would anticipate with the kind of interest in health care that
we are now seeing, there will be a very active consumer constitu-
ency in which people will be making all kinds of judgments about
health plans. We will be getting information out to each other. I
think we will see a lot of very positive consumer activity.
Then the last thing I would say is that for the first time consum-
ers will have good information about quality and will be able to
make decisions. That will in turn, I hope, drive the hospitals, the
physicians, the insurers and others to be responsive because they
will have to deliver the quality information and then it will serve
as a basis for both the representatives at the alliance level and the
individual consumer to make decisions.
Senator Metzenbaum. Would it make good sense to put some
limit on administrative expenses that see to it that insurance com-
panies operate efficiently?
As you know, the average insurance company administrative ex-
penses today run about 25 percent. Medicare administrative ex-
penses run about 3 percent and Canada has administrative costs
of 1 percent. I am concerned that, whether it is Blue Cross/Blue
Shield or the Prudential Insurance Company or the Metropolitan
Life Insurance Company or whatever the case may be, that they
all will build in a tactor of high administrative costs. I am con-
cerned as to whether there will not be enough competition to drive
that down and whether or not we as legislators ought to be placing
some limits on the administrative costs.
17
Mrs. Clinton. Senator, I do not believe that will be necessary for
the following reasons. If we reform the insurance market and we
particularly reform the nongroup and small-group market, we will
be eliminating a lot of the administrative costs that currently are
in the insurance system. If we further begin to eliminate preexist-
ing conditions and make it clear that people cannot be denied cov-
erage on the basis of underwriting and determining how much of
a risk that they present, that will eliminate an additional very
large portion of the administrative expense that currently drives up
costs within the private insurance market.
I think those two changes will have a big impact on the kinds
of decisions that insurers make. They will then find it in their in-
terest to become more efficient and to make decisions more quickly
on the basis of trying to get the highest quality care to people at
the lowest possible price. So, I do not think that we need to regu-
late that. I think the market will take care of that as we make the
kinds of changes that we hope you will make in the legislation to
eliminate preexisting conditions to reform the insurance market.
The administrative load will go down dramatically.
Senator Metzenbaum. Thank you very much, Mr. Chairman.
The Chairman. Isn't that the case for the California public em-
ployees, too? They are at about 1.5 percent administrative costs?
Mrs. Clinton. That is right. That is, in effect, a very large alli-
ance. It has been able to drive a very hard bargain with the insur-
ers who provide the services through the plans that are available
to the members.
The Chairman. Senator Coats.
Senator Coats. Thank you, Mr. Chairman
Mrs. Clinton, thank you for appearing before us. I hope I am not
the first dark cloud to appear on the horizon today for you. I hope
what I say is not interpreted as being partisan politics because I
do agree with every member on this committee and with you that
there are inefficiencies and distortions in our health care system
that are robbing people of care that they need. It is costing all of
us more money than we ought to spend. I think we all agree that
reforms are needed and necessary. The question is not whether,
but how we go about doing it.
I have joined some Senators in offering a proposal to deal with
those reforms that is different than what you are advocating. It is
primarily different because it is based on some different assump-
tions. I would like to just outline four of those assumptions and
then ask the question as to whether or not you think those as-
sumptions are valid or invalid and, if invalid, why and how we
might address that.
The first assumption that we are operating under is that govern-
ment, for all of its good intentions, is less efficient than the private
sector. My experience with government and my constituents' expe-
rience with government is that because it is not driven by a market
system and does not have a profit motive, it is less efficient. I think
anybody who stands 5 minutes in a post office and then goes and
visits UPS sees the difference between a government-run operation
and a private-run operation, if we look at the State level.
I just, in the last 2 days, have gone through the process of help-
ing my 16-year-old son attain a driver's license. It has been a
18
nightmare for my wife and I to go through the lines and the forms
and delays just to get a driver's license.
The second assumption that we are operating under is that the
political process often, almost always, overwhelms the marketplace.
Outside my office every day that we are in session, there is a
steady stream of people coming to try to influence the political
process saying, include our program, include our benefits. Whether
it is healtn care or any other aspect of what government does, it
seems that the ultimate decision is not a marketplace decision, but
a political decision.
Therefore, we are concerned that a health plan which basically
says these are the benefits that will be available will simply invite
many more saying, include us. Whether it makes economic sense
or not, they will try to garner enough support from the political
process to be included.
Third, it is my experience and our assumption that costs that
government estimates for the costs of a program are always gross-
ly, grossly underestimated. I went back and looked at the Congres-
sional Record for when we enacted Medicare and the projections
that were listed by Congress for expenditures under just Part A of
Medicare for 19— they ran those out to 1990. They said by 1990,
we would be spending $9 billion a year on Part A Medicare. The
actual expenditure in 1990 was $67 billion, 7 1/2 times the esti-
mate.
So, we may estimate figures here today as associated with this
health care plan. My experience is, like every other program gov-
ernment gets involved in, it grows partly because of this political
process and the inefficiencies; it grows far beyond our estimates.
Our final assumption is that a great deal of health care expendi-
ture is, as your husband pointed out in his speech to the Congress,
caused by human behavior, choices that we as human beings make.
Now, I appreciate your husband saying we must do much better
than this, but my experience is that human beings react to incen-
tives, positively to rewards and negatively to penalties.
It seems to me that any health care plan that is truly going to
modify human behavior, and therefore help hold down health care
costs, whether it is smoking, excessive drinking, unwarranted sex-
ual practices that lead to disease, on and on, lack of exercise, over-
eating, et cetera — if we are going to affect that, we need a system
of rewards or a system of penalties.
Why should someone who exercises behavior that results in lower
healtn care costs be paying the same thing as someone who is dis-
regarding that? Why shouldn't there be a differential?
Those are some basic assumptions on which we are basing our
plan. I do not think I see those assumptions in your plan. Are my
assumptions valid? If not, why are they invalid? How are we going
to reconcile the differences?
The Chairman. Just before Mrs. Clinton answers, over in the
House they restricted Mrs. Clinton to 2 minutes, for both the ques-
tion and the answer. She had to sandwich her answer into that 2
minutes. We have developed marvelous skills here. Within our 5
minutes, we ask a lot of questions. We want to give you the assur-
ance that you take whatever time you want to to respond to the
cumulative questions of our colleagues.
19
Mrs. Clinton. Thank you.
Senator Coats. Since we did not have opening statements, I
thought I would slip mine in in my questions. [Laughter.]
Mrs. Clinton. I appreciate that, Senator.
Let me start by saying that I do not know that any of your as-
sumptions in general are wrong, but in particular, as applied to the
health care system, I do not believe they are applicable. Let me run
through them. In fact, what we are trying to do is to create a sys-
tem in which there truly is some kind of a market and some kind
of competitive pressures that will enable us to move this health
care system to a much more efficient level than it currently is oper-
ating On. re- • -l.
Your first assumption about government being less efficient than
the private sector is not true in the health care system, as it is cur-
rently structured. I think that one of the Senators earlier referred
to the fact that the administrative costs in Medicare are much less
than they are in the private sector. The private sector has become
much less efficient in health care delivery and health care pricing
than you would think it should be, but it has done so because of
the kinds of incentives currently in the market.
So, for example, the heavy administrative percentage that you
will find in the private sector insurance market is due to a very
clear decision, which is the more money we can spend making sure
we do not insure people who might cost us money, the more money
we will make. So, therefore, the kind of underwriting practices and
the kind of selling practices that are aimed at insuring people are
aimed in part at eliminating from coverage people who might be a
cost on the insurance system. For example, it takes a lot of time,
manpower, and resources to choose among everyone sitting in this
room who is and who is not a good risk.
If you look at the way the current private sector operates, you
will find an enormous amount of inefficiency, as Dr. Koop has
pointed out, not only on the insurance side, but on the medical de-
cisionmaking side. Now, part of that is driven by decisions that are
made in government as well as in the private sector. Government
followed the private sector in deciding to reimburse for medical
care based on procedure and on tests and on diagnosis, on the kind
of fee-for-service model that we have grown up with in our country.
So in both the private sector and the government sector, with re-
spect to health care, we do not have a real market. You will find
a great deal of inefficiency in the private sector in the health care
market.
Someone has pointed out recently that many of our industries
have had to become more efficient in the last 20 years because of
external competition. We are now producing high-quality cars in
our country that are very productive and are really giving a good
run for the money against our competitors. It took outside competi-
tion to come in and do that. We have to create a competitive mar-
ketplace. We do not currently have one.
The second point about the political process overwhelming the
marketplace is also, in general, true and we have to be very careful
about that in fashioning this health care reform. Senator Kasse-
baum and I have talked about this. In her bill, she puts the deci-
sion about what benefits will be covered at the level of the national
20
board. She does this to take these difficult decisions out of politics,
so you do not have people grabbing on you as you walk down the
hallway saying, include this, include that, include my favorite, par-
ticular kind of treatment.
We thought very hard about that and I had a very good meeting
with Senators Kassebaum and Danforth, in which they, I thought,
very clearly explained why they favored that approach. We decided
that, initially, we should have the benefits package approved by the
Congress, so that individual citizens could know what was in it.
Then any changes to it, any enhancements to it, should be moved
to the national board, as the Kassebaum-Danforth Bill had origi-
nally suggested. We do not want the political process overwhelming
the marketplace and we agree with you that is something we have
to guard against.
The third assumption about cost estimates by government being
underestimated is absolutely right. In the health care system, cost
estimates by the private sector have also been grossly underesti-
mated. I think in large measure, you would see a parallel in the
increase of government expenditures that is at least equal to, if not
slightly below the increase in private sector expenditures in the
health care system. Those two go hand in hand.
It is very difficult for you as a Senator to make projections about
what Medicare or Medicaid will cost because what happens is you
set a certain amount of money to be available in the budget. Wnat
the private sector does is to shift costs that they do not get from
the budget out of your decisions onto the private sector. What the
private sector consistently has done, both in employers buying in-
surance and insurers pricing insurance and doctors making deci-
sions, is consistently underestimate what health care costs are or
will be and, I would argue, what it should cost.
So this is an issue that is not just a government issue. This is
a private sector issue. One of the reasons we want to have some
market forces and some competition in this system is so that cost
estimates can be made on the basis of delivering health care, not
on a diagnosis-procedure basis, but on a per capita basis in which
decisionmakers, insurers, doctors, hospitals and others have to
make decisions so that costs will be kept down. We can no longer
afford to write a blank check.
Finally, I think that there is no doubt that human choices drive
health care costs, like it does in most other areas of our lives. What
we are trying to do is to have a system in which everybody is part
of that system because to leave some out who make bad choices is
a cost to us whether we like it or not. Everyone who makes a bad
choice who is uninsured drives our costs up. They will eventually
cost us something either in more tax dollars or in higher insurance
premiums.
If we have everybody covered and everybody in the system so
that we finally can stop the cost shifting, tnen I think health plans
and individuals will be able to make cost-conscious choices that will
reward us with the benefits of their decisionmaking. I think until
we get everybody in the system, then the human choices that inevi-
tably drive up health care costs will continue to be shifted onto the
backs of those who have taken responsibility for their own insur-
ance.
21
The Chairman. Thank very much.
Senator Dodd.
Senator Dodd. It is hard to follow that answer; that was so bril-
liant a response in my view. [Laughter.]
I am going to bring this back down to the real world here. First,
let me respond to a point made by my colleague from Indiana — for
whom I have a great respect.. He and I worked together and we
would not have passed family and medical leave legislation without
Dan Coats. And picking up on the point you made, Mrs. Clinton,
about the bipartisanship, I appreciate you mentioning that because
this committee has had great success with bipartisanship. But
frankly, the analogy of someone going to their local post office as
opposed to going to UPS does not work very well. The situation of
a 16-year-old waiting in line to get a driver's license and a 16-year-
old showing up with his parents because he has cancer or a tumor
and is trying to access the medical system of this country is pro-
foundly different.
We may have differences about how best to address this system,
but I think drawing comparisons between systems where people
have choices, and problems where people have no choices is com-
pletely unwarranted. And yet, I appreciate the points that were
raised by the comparison.
Let me begin, as well, if I can, very briefly by commending our
chairman. This is an extremely important issue. You rightly point
out that for many of us here who have arrived in the last decade
or so, this has been fairly new. For the chairman of this committee,
this has been a lifetime commitment. His public service goes back,
as I recall, to legislation by Kennedy-Korman; Long— Ribicoff, my
predecessor in the Senate; Congressman Dingell's father — all of
whom were deeply committed to health care. So there is a long his-
tory here.
The chairman of this committee has worked tirelessly from the
day he arrived to this day. As chairman of this committee this is
an extremely important day for him. We are finally going to deal
with this issue. I did not want to begin my remarks and questions
to you without recognizing his tremendous contribution to what we
have achieved already.
Let me turn to a particular constituency that is of great interest
of you, given your involvement with the Children's Defense Fund
and your involvement in Arkansas over the years with regard to
children. A third of the uninsured in this country are children. Of
the 37 million uninsured, 12 million children have no insurance. In
my State, the most affluent State on a per capita basis in the Unit-
ed States, 54 percent of the uninsured are ages 24 and under.
In many ways, the current system is really stacked against chil-
dren. Adults arguably have some choices about where they can go.
But, children are entirely dependent upon what happens to their
parents. If you lose your job, you lose your insurance and so does
your child. Preexisting condition exclusions deny the coverage.
And in addition, children's needs, particularly in the preventive
area, are different from adults.
Again, I am preaching to the choir on this particular issue. I do
not think there ought to be too much debate here about our com-
mon determination to see to it that this constituency, the most in-
22
nocent in many ways, gets the kind of proper care and coverage,
that they lack under the present system. As I said at the outset,
it is stacked against them.
You rightly talked about women at the outset of your remarks.
I wonder if you just might spend a couple of minutes focusing on
children. Children do not have lawyers. They do not have the right
to vote. They do not make campaign contributions. My fear in this
debate is that they are going to be left aside and brought in as an
after-thought. I hope that is not the case. If you could just spend
a couple of minutes addressing that particular constituency, I
would appreciate it.
Mrs. Clinton. Well, Senator Dodd, I would be happy to. I want
to thank you for never forgetting that constituency and the work
that you have done over the years to make sure that children's
needs are not forgotten. I suppose, on an emotional level, it is the
most important thing to me. I don't know that anyone can look into
the eyes of a child who is sick and has been made sicker because
costs kept a parent away from getting care when needed, without
feeling that there is something seriously wrong with the way we
are taking care of our children.
I don't think there are any stories that have moved me more
than the stories of parents who have just given up everything in
order to take care of their children's health needs. I mean, it is a
bizarre situation to have a country in which there is parent after
parent — and we can give you their names and their addresses and
their phone numbers — who had to give up a job when they lost
their insurance, whether it was taken away from them because of
a child's illness or whether it was priced so high that they could
no longer afford it, to go on welfare to be able to take care of their
children's medical needs. That is absolutely the wrong message. It
is the wrong message that you have tried to send, that Senator
Coats with his work on behalf of children has tried to send and it
is something we have to end.
I think that one of the great benefits that we will have from
health care reform is insuring the kind of primary and preventive
care that all children need to be healthy. We will cover vaccina-
tions. We will cover well-child care.
I have to confess, like many people, before I had children, I didn't
think about what my insurance policy did or didn't cover. I remem-
ber the shock I felt when I realized that my very good insurance
policy would not pay for the well-child exam. They would pay if
Chelsea were sick and I brought her to the hospital for some kind
of treatment, but they would not pay for me to make sure she was
kept well. I thought that was absolutely backwards then and I still
believe it is. So if we emphasize primary and preventive care for
children, then I think we will begin to reverse what has been a ne-
glect of our children in our health care system.
We need to insure that no parent, whether that parent loses the
job that they had or cannot find a job or whatever their cir-
cumstances might be, will have to worry about taking care of their
children. If we do, we will once and for all end this travesty of hav-
ing people give up jobs to go on welfare to be able to take care of
their children. It is one of the reasons why the Academy of Pediat-
rics supports this plan. They see firsthand every day the costs of
23
what it means for parents to wonder whether they can afford the
x-ray that the doctor says they should have or wnether they can
pay for the medication that tneir doctor has prescribed for their
child.
For years, I worked as a member of the Board of Directors of the
Arkansas Children's Hospital. I have never walked into that hos-
pital without a combination of such gratitude and also such emo-
tion. I just do not want any parent ever to have to worry about
wnether or not they can afford to take care of their child. I don't
have to worry about that. I cannot imagine what that must feel
like. We need to end it and this would help us do that.
Senator Dodd. Thank you very much.
Thank you, Mr. Chairman.
The Chairman. Thank you very much.
Mr. Gregg.
Mr. Gregg. Thank you. Let me associate myself with the acco-
lades, which are very appropriate. The depth and substance of your
responses and input on tnis subject has been of great benefit to this
country, I believe, because it has focused so much attention on it.
Like with so many issues like this, this is complex. It is inter-
woven. It is a tremendous matrix, with a lot of different strings
running through it. The devil tends to be in the details. I have read
through the program a couple of times. I have to admit that I am
not as substantively up to speed as I would like to be, but have
tried to get there.
I sort of scratch my head because, in a lot of areas, the boot does
not seem to fit the binding. For example, there is the desire — and
it is a very legitimate one, one I support — to get significant savings
in health care, $280 billion in Medicare and Medicaid making up
most of that. At the same time, there is a proposal for a $91 billion
deficit reduction which is obviously a good cause.
At the same time, there are five major new entitlements pro-
posed: a drug entitlement, a long-term care entitlement, an early
retirement entitlement, the entitlement to everyone who does not
have health care now, and a small business entitlement, which is
a huge one in the benefits package.
My experience with government tells me that if you are putting
in place entitlements of those sizes, with those costs, you are going
to drive up costs. You are not going to be able to control costs, and
the savings which are desired and legitimate and you are trying to
attain will be very hard to realize. So, there, the boot does not fit
the binding.
Second, there is the issue of flexibility, which is, again, very im-
portant. I know that in your husband's role as a governor, he was
totally committed to States' rights and to making sure the States
had proper power. Governmental States' rights and simplicity are
very appropriate roles.
I look at this National Board and the power which is being laid
at the feet of this National Board is awesome, especially in its rela-
tionship with dealing with the States. I made a list of the powers,
and I know you are familiar with them, but they go on considerably
and they are all extremely substantive, from the capacity to control
the structure of the alliances to the capacity to set the premium
the alliances deal with. Really, when you look at this National
24
Board, as I see it, it is probably going to be more important to get
on the National Board, the seven-member board, than to get on the
U.S. Supreme Court of the United States. That is the level of influ-
ence that this Board is going to have in driving health care policy,
especially at the State level.
So I don't see the flexibility and I don't see the simplicity. I see,
rather, an organization that is dominant at the center, to the det-
riment of the States' capacity to have flexibility. So I don't see
where those fit.
Then there is this whole question of competition, which is the
way you drive down costs. You certainly have spoken about that
this morning, but underlying this competition, you have stand-by
price controls. You have a proposal which basically is global budg-
eting— in the capacity of the National Board to review the pre-
miums that are set. You have the question of the National Board
itself, which essentially, to simplify it and to characterize it, is a
nationalization of the health industry — to take 14 percent of the
American economy and put it under the control of that Board. So
I don't see that competition exists there.
The States have flexibility only to the extent that they basically
follow what the Federal Government's guidelines are. If a State
wishes to do something other than a health alliance, if a State
wishes to do something other than single-payor, then as I under-
stand it, that flexibility is extremely limited.
So the debate here, as I see it, is not over universal coverage or
security. Those are goals I accept. It is not over the well-child pro-
grams or primary care. Those all have to be in whatever package
comes through. As I see it, the debate here is over whether or not
there should be universal control centralized in the hands of a few
to the detriment of the many, the many being the States and the
legislatures and the governors and the people in the local commu-
nities who traditionally have made these health care decisions. I
guess my question goes to this issue.
As I understand it, the powers that lie here are if a State does
not come forward with a plan — and you alluded to this earlier —
which conforms to Federal guidelines, which was the phraseology
I believe you used, then the National Board deems that the State
is not in compliance. Then they tell the Secretary of Health and
Human services this, and she then has the power to withdraw from
the States all financial support that is going to the States and all
functions which Health and Human Services deal with.
Second, the National Board then has the authority to draft a
plan for the States and institute it. Third, the Secretary of the
Treasury has the authority to unilaterally, without even Congres-
sional approval, as I understand it, assess a tax on business activ-
ity within the States.
Are those three powers appropriately described? If they are not
appropriately described, could you give me your definition of
them — in regard to the National Board's decision that a State is
not in adequate compliance?
Mrs. Clinton. Well, Senator, we view what you have just de-
scribed as an absolute last resort. The only reason that it is even
in there is because, very honestly, there are some States that have
told us privately that they will need the Federal back-up enforce-
25
ment provisions to successfully implement health reform. They are
not yet ready to do it by themselves. Then there are other States,
like Vermont, Florida, Washington, Hawaii and Minnesota, that
are chomping at the bit. They can't get there too soon.
So what we are trying to do is to give as much encouragement
to States as possible ana we will enhance the flexibility, as I men-
tioned to Senator Jeffords. Any ideas that you have and, particu-
larly I would welcome yours as a former governor, that would give
States that kind of flexibility, we are ready to look at and to ex-
tend.
This is a federally guaranteed program. We do want every Amer-
ican to have access to the same benefits. So if you live in New
Hampshire, you have them and if you live in Arkansas, you have
them. If we have a State, for whatever bizarre combination of rea-
sons, that doesn't want to do anything — they don't want to make
their own choices, they don't want to do what Maryland has done
or what Minnesota has done, they don't want to guarantee the ben-
efits package to their citizens, then we believe there has to be some
fall-back position.
Now, I think it is highly unlikely. I cannot even imagine a politi-
cal circumstance in which a State would not be willing to do what
it needed to do and, given flexibility, what it thought was right for
itself. This is not a program like some programs in the past where
only a few people have been affected by them. This is a program
that will affect everyone.
So I imagine that the political situation in most States will lead
every governor I have ever met and every State legislature I have
ever heard about to do what they think is right for their State. In
the event of some unforeseen circumstance where a State refuses
or is unwilling to do so, we do think there needs to be some kind
of enforcement mechanism, so that if you live in one State, you are
not denied what you would have if you lived across the border or
in any other State. That is the only reason that is in there. We
honestly don't see it ever coming into play, but we needed some-
thing there as — going back to Senator Coats' example, as a kind of
stick as well as a carrot.
If there are additional ways that you would like to see State
flexibility considered, if there are additional ideas that you think
would meet the basic requirements of providing universal coverage
in a State and doing it in a way that is appropriate to a particular
State, we welcome that. We want to hear more about that.
Let me just say a final word about the national board. The na-
tional board is meant to be a coordinating and advisory board. If
the way we have described some of its functions sound too regu-
latory, we want to take a look at that. That has not been out inten-
tion. It is mostly there in a kind of monitoring advisory capacity.
We will be happy to sit down and go through the very specific pow-
ers and to talk about why we think they are necessary and to have
your response to that.
Mr. Gregg. Thank you.
The Chairman. Senator Simon.
Senator Simon. Thank you, Mr. Chairman.
We thank you for your leadership, which has, I think everyone
agrees, been superb. Let me also join Senator Dodd in thanking the
26
chairman, Senator Kennedy, for his yeoman work through the
years in this field. We are all grateful to him.
You mention in your opening remarks this room, where we have
had many historic gatherings. One thing is different. In every other
involvement here, the Democrats were over there on the left and
the Republicans were over here on the right. I hope it is signifi-
cant. Democrats are moving to the right. Republicans are moving
to the left in this room. [Laughter.]
To my colleague, Senator Pell, who brought up the question of vi-
olence in health, I would be happy to join him — and if we need ad-
ditional revenue, let's have a 25-percent tax on handguns and a 50-
percent tax on assault weapons. We would be helping the health
of this Nation in more ways than one. So, Clai Pell, if you want
to move in that direction, I will join you on that.
One word for all of my colleagues, as well as those in the admin-
istration. I think it is important that we move expeditiously here.
If this drags on too long, people are going to look at and focus on
the minutiae. They are going to distort. Absolutely, we ought to
hold hearings like this, and we will hold plenty of them. The chair-
man this morning was talking about 29 hearings. Let's focus on ev-
erything we should, but let's move and move rapidly so that we
give the American people what they are entitled to.
You opened your remarks talking about research. There are
those who say, in the pharmaceutical industry, that this is going
to hurt research. There are those in the university community who
are concerned about the research aspects. I would be interested in
your response to their concerns.
Mrs. Clinton. I can understand those concerns, Senator, because
this has been an issue that we have really struggled with. We have
tried to balance what we consider the necessary kinds of invest-
ments in research and development that we want to see biotech
companies and pharmaceutical companies pursue, as well as other
research that is perhaps located on our campuses.
With respect particularly to pharmaceutical and other kinds of
research, we have a dilemma. There are some in this body, as you
well know, who believe that pharmaceutical pricing has Tbeen un-
justified, much too high, not related to a return on the investment
into the research and development of the products. There are oth-
ers who believe that it is one of our most profitable industries and
that it has been a great boon both in job creation and in bringing
down medical costs and human suffering. They believe that it is
only fair for those companies to realize a good return on those in-
vestments. Both are probably right, both positions.
What we have got to figure out how to do is to encourage re-
search, make sure there always is a fair and profitable return on
the investments in research, but not permit the kind of pricing that
has caused our drug prices to rise at three times the rate of infla-
tion and causes drugs that are produced in this country with a
combination of government-funded research and private research to
be sold at less of a cost overseas than they are sold to the tax-
payers who paid for the research.
So we have tried to strike a balance. That balance would ask
that as we move forward with prescription drugs being available to
Americans, which will put more money into the pharmaceutical in-
27
dustry, that Medicare, for example, be permitted to have a discount
on the price of those drugs. We think that that is a fair request
for the kind of dollars that will be going into drug companies.
We also think with respect to breakthrough drugs, there ought
to be some review of pharmaceutical pricing and then the publish-
ing of information about those drugs tnat would be widely available
to consumers, and institutional purchasers of prescriptions. This
review process would have no authority to regulate the prices of
drugs and we suggest it not to chill the development of drugs or
their marketing, but to make available information about what
their real costs are and what their efficacy is as anticipated by the
research.
I mentioned yesterday, and I am still very struck by the story I
heard just a few days ago of the specialist at Mayo Clinic who dis-
covered that a pill that is used to de-worm animals is useful in
helping people with colon cancer. He teamed up with one of our
major pharmaceuticals and they did the research together. It was
not, as he described it, very complicated research. It was merely to
make sure that the components in the drugs used for animals were
safe for humans and that it would have a good effect on humans.
At the end of this work, the company began to manufacture the
drug and the only difference, as he described it, in the drug was
that it was made smaller because sheep has to swallow a bigger
pill than the rest of us do. Well, the net result is if you went into
a vet or you went into an animal feed store, you would buy that
pill for 6 cents. If you wanted to prescribe it for your patient for
colon cancer, it would cost $6 a pill.
Now, this physician said that he had always been a strong be-
liever in the use of pharmaceuticals. He had been a strong sup-
porter of the pharmaceutical industry because he had seen with his
own eyes what miracles can be done. He could not for the life of
him understand what the costs were that would permit that com-
pany to recover that kind of profit on that particular pill.
So that is the kind of concern we have. How do we get to market
with good research, supported research, the kind of cost-effective
pharmaceuticals that our people need? How do we ensure that our
pharmaceutical industry continue to grow and be productive? How
do we be sure that we get good value for the dollars we spend? So
that is how we have tried to balance that.
Senator Simon. Thank you.
Thank you, Mr. Chairman.
The Chairman. Thank you very much.
Senator Thurmond.
Senator Thurmond. Thank you, Mr. Chairman. Mr. Chairman,
I would like to join my colleagues in extending a warm welcome to
the First Lady, Mrs. Hillary Rodham Clinton, an able person who
is dedicated to improving the health care of our people. Ms. Clin-
ton, it is a pleasure to have you here this morning.
Mr. Chairman, we all agree that our health care system needs
comprehensive reform. However, while we attempt to address the
problems of our health care system, we need to preserve the suc-
cessful parts of our present system. As you know, America now has
the highest quality health care system in the world. We need to
maintain the quality of services for the 85 percent of Americans
28
who currently enjoy health care coverage and cover those currently
without a health care plan.
Mr. Chairman, I believe that we should insure that coverage is
available to all Americans. We should not allow the cancellation of
health care coverage because of illness, nor allow coverage to be de-
nied because of a preexisting condition. Further, I believe that cov-
erage should be portable. If some individuals lose their jobs or de-
cide to change jobs, they should be free from the fear that they will
have to take a reduction in the amount of health care coverage or
that they may lose it entirely.
We must preserve the ability of Americans to choose from a vari-
ety of health care plans and to choose their primary physician. We
should provide patients with information that will them make cost-
effective choices by providing patients with this information and
the ability to choose. We will encourage competition and raise the
quality of care provided.
Mr. Chairman, if we provide information and incentives concern-
ing preventive health care, I believe we could prevent many of the
health care problems we have today. Each of us must take respon-
sibility to practice preventive health care. Proper diet, reasonable
exercise and an optimistic attitude toward life promote health. The
savings incurred by practicing preventive health care are not easily
measured, but surely they are cheaper in cost and suffering than
practicing curative medicine. I strongly suggest that serious consid-
eration be given to including preventive health care in any program
that is adopted.
Finally, Mr. Chairman, the cost of health care planning is the
number one health issues to Americans according to the Wall
Street Journal. Americans do not want their health care costs to
rise and the quality of health care to diminish because of sweeping
new government controls over the health care system. We must
find some way to pay for these reforms without an undue burden
on business, trie taxpayer or others.
Again, Mr. Chairman, I would like to welcome the First Lady
here today. Mrs. Clinton, thanks for your testimony and I look for-
ward to working with you to address the health care problems fac-
ing America today.
I have two questions. If time will permit, I will just ask one. Mrs.
Clinton, some antitrust experts in the health care field compliment
the recent DOJ-FTC statements of antitrust enforcement policy as
being useful and clear summaries of existing enforcement policies.
However, the antitrust experts are concerned that the policy state-
ments do announce a significant change occurring in antitrust en-
forcement policies.
The question is, do you contemplate that additional policy state-
ments from the enforcement agencies will be forthcoming or will
the other antitrust adjustments be necessary as part of health care
reform?
Mrs. CLINTON. Thank you, Senator, and could I just say amen to
your opening statement. I thought especially the emphasis on pri-
mary and preventive health care is absolutely on target. You are
a living example of that and I hope everybody will pay attention
to you. [Laughter.!
29
Senator, we did believe that we made some progress. We want
to particularly thank Senator Metzenbaum and Congressman
Brooks for their support for the statements that were made by the
Department of Justice and the FTC. We are still concerned that
physicians do not know whether or not they can join together to be-
come accountable health plans either on their own or with hos-
pitals and we do want to clarify that. I think it is very important
that doctors around the country feel they have the same oppor-
tunity to offer an organized health plan to their communities as in-
surance companies or HMOs currently do.
So we are still looking at that. We are working with the AMA
about that. We are going to try to clarify it. If we think any clarify-
ing legislation is necessary, we will be recommending that and we
would welcome any ideas you have as to how we could achieve our
common goals about the antitrust enforcement so that we can have
a health care system that really is competitive.
Senator Thurmond. Thank you very much. I don't have time to
ask my second question. I will submit it for the record.
Thank you, Mr. Chairman.
The Chairman. Thank you very much.
Mrs. Clinton, Senator Harkin, as you know, is the floor manager
for the HHS appropriations legislation and is on the floor and has
been there all morning, and he deeply regrets he couldn't be here.
Senator Mikulski.
Senator Mikulski. Thank you very much, Mr. Chairman.
Mrs. Clinton, really, a cordial welcome here today. I believe you
are the third First Lady in American history to come before the
United States Congress and offer testimony on social policy. The
other two First Ladies who came offered comment on a policy initi-
ated by others, but I believe you are the first First Lady to come
who is actually the architect or the chief architect of a plan.
I would like to compliment the President for attempting to
achieve a national goal of safety and security for all Americans in
the area of health care, and the effort that you have made in tak-
ing that national goal and now trying to operationalize it into a
health plan.
It is not easy to operationalize idealism. It is not easy to
operationalize noble intentions, but I believe that you and the
President have undertaken to do that, and I think we see it re-
flected in the plan that you have put forth here today. You have
taken the ordinary stories of people and translated them in the
most significant public policy initiative in three decades.
I think all of us owe accolades to the core benefit package that
has been established that emphasizes prevention, primary care,
and personal responsibility, and understanding the needs of
women, children, and the elderly. The fact that our conversation is
focussed on so many details is a tribute to what is already agreed
upon in the conversation, particularly related to the core benefit
package and the emphasis on those three areas.
My question goes to picking up on the health alliance. I truly be-
lieve that what you want to achieve is a combination of market-
place discipline, and yet allowing mission-driven plans focussing on
those ideals to go into place.
30
I am concerned, Mrs. Clinton, that with the health alliance, they
will be able to choose the plan, and I am concerned if the criteria
is solely or primarily cost, the cost of the plan, mission-driven
plans, those that are primarily operated by nonprofits, those pro-
viders that serve either urban areas or rural areas that will by the
very nature of who they serve be high-cost, be pushed aside, and
that it is not that we will have too little of marketplace activity or
too little competition, but we will have too much, and that instead
of having a community of health care, it will all be focussed only
on the marketplace.
Could you comment on that?
Mrs. Clinton. That is a very important question, and as you
were talking, Senator, I was thinking back to our morning at Jim-
my's Diner and all of the people who told us their stories, and
every one of those was a responsible, tax-paying, hard-working
American citizen, every single one of them, and every one of them
was having trouble affordable health care that would be available
to them.
I think it is important that we have a system in which many dif-
ferent kinds of health plans can compete, but I guess I see it a lit-
tle bit differently. I see the mission-driven, which is a wonderful
phrase, health providers being more than ready to step into this
system.
Let me just give you a few examples of what I mean by that. If
you look at our plan, it is remarkably similar to the plan put for-
ward by the Catholic Hospital Association. The Catholic Hospital
Association worked for 2 years before my husband was even elected
President and came up with a plan in which they talked about hav-
ing networks of health care providers competing for business that
would be provided to people in their communities.
If you look at the Catholic Hospital Association, they have been
providing health care of high quality often under very difficult fi-
nancial circumstances in many areas that nobody else wanted to
serve. They are certainly mission-driven.
Under our system, they will be advantaged because they have
taken so many charity cases. They have provided so much uncom-
pensated care. They have provided care in inner cities and rural
areas where there was a very large uninsured base that couldn't
compensate them for their services. Now all of a sudden they will
be getting funds coming in through reimbursement that will enable
them to be even more competitive. .
I will give you another example. If you take the Mayo Clinic, it
is a multispecialty, nonprofit clinic. Doctors are on salaries. They
make the decisions about how they provide the care. They provide
care at a cost that is much less than many other sectors of the
health care economy because they have made decisions about how
to be more cost-effective, high-quality providers.
So I think there are many examples around the country where
the mission-driven, those who have made decisions to provide high
quality even when they don't get compensated, like many of our
Catholic hospitals, are going to be extremely well-positioned to be-
come health providers to many more people.
Now, in order to assure that, these networks are going to have
to be created with sensitivity to the populations to be served. We
31
i
are hoping that, going back to Senator Thurmond's question, we
will remove whatever antitrust and other kinds of problems that
are in the way of doctors and hospitals banding together. If we
achieve those goals, more providers will find it profitable, will find
it possible to stay in business and provide health care because we
are going to insure the uninsured and we are trying to provide
health care coverage where before there was none.
I guess the final point I would make about that is that I have
seen in my discussions now a growing awareness on the part of
many of the large hospitals and large insurance companies about
these issues. They now realize that if they want to compete for the
business of everyone who now can buy health care through the alli-
ance, they are going to have to make partnerships with community
health centers with that inner-city Catholic hospital, with those mi-
nority providers who are the traditional providers in an inner-city
area.
So I actually think these partnerships will further enhance the
opportunities for those who, up until now, have been kind of
pushed into the corners of the market because they weren't able to
be competitive because they took on more people and cared for
more people who couldn't pay an adequate reimbursement than
maybe some other providers have.
Senator Mkulski. Well, thank you for the answer to that ques-
tion. It is reassuring to hear that, and we look forward to further
discussion.
You exactly identified those facilities that I am most concerned
about: the Catholic hospital, like Mercy in my downtown Balti-
more; Sinai Hospital, which is undertaking care to inner-city people
and new immigrants and Soviet Jews who have refugeed in this
country and so on.
I would like now, if I could, to change to the issue around the
elderly. There was some talk about Medicare Part C and the pre-
serving of long-term care. You and I both lost our fathers to
wrenching situations, and then as you know many families have
had to spend down to qualify for Government help. So, while there
has been family responsibility, the cruel rules of Government have
often pushed people into family bankruptcy.
I wonder where you see the plan heading in terms of providing
a safety net for long-term care that does provide for family respon-
sibility, but does not set people up for family bankruptcy.
Mrs. Clinton. I don't think there is any issue that I hear more
about from both older people and people our age whose parents are
getting into situations where they need some kind of continuing
care.
We have a couple of parts of this proposal that I think will help.
One is that we want to extend long-term care coverage by making
sure we have got in place the services that older citizens need, and
so to that end we want States to develop more home-based care
and community-based care that will be reimbursable and will be
much more available.
We also want to raise the spend-down limit, so that families
don't have to impoverish themselves to the extent we require now
before they are eligible for nursing home care.
32
We want to provide reimbursement for sub-acute care at nursing
homes rather than in the much more expensive hospital setting.
If you take these various pieces, you can see how each meets a
need that is not met now. Starting with home-based care, we do
not provide the kind of financial support that many families would
need in order to keep an older relative at home, and it is a very
penny-wise-and-pound-foolish policy as well as one that I think is
unfair to families.
If a family wants to take on the responsibility, some little bit of
help, whether it is a visiting nurse or some other person to come
in to help or provide respite care, we need to provide them access
to these services. They are much less expensive than having some-
one go into a nursing home.
With respect to community-based care, I would only repeat the
example that I saw the first time I visited an adult day care center
in the last 9 months. It was at St. Agnes Hospital in Philadelphia.
That hospital wanted to provide a service to the community. So
they told families that if you keep your older relative at home, but
you both work during the day, then bring them to the hospital. We
will watch them during the day. If anything happens, we will be
able to provide medical care.
Well, the hospital had to charge something, and the hospital
tried to keep the cost as low as possible, but they had to charge
about $35 or $40. Well, that is about $200 a week for a working
family. That is more than most working families can afford to pay.
So the net result was that, because there was no reimbursement
help for working families, most of those families according to the
St. Agnes medical staff were forced to put their relatives in nursing
homes which then cost the State and the Federal Government
much more than maybe helping to support a $35- or $40-a-day
charge.
Then, finally, with the sub-acute care, many older and disabled
patients, patients who are under very severe medical conditions
and often on life support, are kept in hospitals because if they are
moved out of the hospital, Government assistance for their care
stops.
I did not have to face that issue with my father, but I would have
if he had not died. So, all of a sudden, what you think you have
available in terms of financial assistance ends, and many doctors
have told me, as favors to families under great financial and emo-
tional stress, they keep patients in hospitals far longer than they
should because they know to discharge them to a nursing home or
discharge them to home is an unconscionable psychological and fi-
nancial burden on many families.
We need alternatives to that, and providing this kind of long-
term care, reimbursing for sub-acute and maintenance care, will
help so many families, and those are the things we want to pro-
vide.
Senator MlKULSKl. Thank you very much, Mrs. Clinton, and
thank you for the kind words you said about the Maryland pro-
gram.
Mr. Chairman, I have a statement for the record.
The Chairman. It will be so included.
[The prepared statement of Senator Mikulski follows:]
33
Prepared Statement of Senator Mikulski
Good morning Mrs. Clinton. It is an honor to have you with us
today, and it is an honor to be a party to these deliberations.
I think that the President, working through you and your task
force, should be commended for taking on this issue and dealing
with it in such a comprehensive and well considered manner.
Some people see this issue as too complicated to solve. But I
think this is what we were all sent to Washington to do — to deal
with problems as important and difficult as this.
We are, of course, dealing with a huge issue here: it consumes
one-seventh of the American economy; there are entrenched special
interests all around; and this is an issue that touches people where
they live — the health and well being of their families.
And there is no question that we have a crisis on our hands: ex-
ploding costs and all that means in terms of access to service and
trying to stay competitive in the world marketplace; and fear of los-
ing coverage and the financial ruin associated with a medical need.
This is not the America we have known, much less the America
we aspire to. People who play by the rules — work hard, pay their
taxes, serve their country when called upon — end up without life
or liberty or a chance at happiness because of a medical emergency
or medical condition.
If we don't reform this system, if we don't help to solve this prob-
lem, if we can't figure out how to make this system work better,
we will have failed more than this task, we will have failed our
country in a time great need.
I want to work with you and the President on how to improve
this plan, and I the will do everything I can to make sure that the
President is successful in achieving comprehensive health care re-
form.
So we've got our work cut out for us, and in that regard I believe
all Americans owe you a debt of thanks for the leadership you have
provided on this problem.
Before this plan was announced I decided on a set of principles
to use to guide my deliberations on this subject. I am pleased to
tell you today that this plan does pretty well in terms of those prin-
ciples.
This plan makes health care accessible, affordable, and controls
costs. It also goes a long way to eliminating the hassle.
Providing all Americans with a comprehensive set of benefits re-
gardless of pre-existing health conditions, job changes, moves or—
God forbid — actually getting sick or becoming disabled, would in it-
self be a remarkable achievement.
Let me tell you what else I like: the universal coverage and pre-
ventive care elements are a major plus, as is the support for the
network of health clinics that have traditionally been there for the
underserved — it is not enough to provide a list of covered services,
you have to have the community infrastructure to deliver those
services; I'm also pleased with the new benefits for senior citizens,
the addition of prescription drug coverage under medicare, and
community and home based long-term care benefits; I like what I
see for women — breast and cervical cancer screenings, reproductive
health services and so forth. But we need to make sure these serv-
34
ices are comprehensive; and finally I'm pleased about the fact that
people will continue to have the right to choose which health plan
to join and who their doctor will be.
But, as I said I want to be up-front about my concerns, and I do
think this plan can be improved.
I'm concerned about financing — I am worried about the size of
the cuts in medicare and medicaid, and I'm worried about the im-
pact on small business.
I need to learn more about what hospitals and health care pro-
viders think about whether this proposal promotes an improved
quality of care.
I'm concerned about a provision which will weaken quality con-
trol in clinical laboratories, the frequency of some tests (PAP and
mammography, and the lack of specifics in the area of family plan-
ning and pregnancy related services.
My ultimate test for this plan will be how well it serves the peo-
ple of Maryland, and I plan to spend a considerable amount of time
talking with and listening to the people of Maryland to find out
what they think about this plan.
But above all else I'm concerned about the consequences of doing
nothing.
We simply can't afford the status-quo.
And its not just the health of our people at stake, its the health
of our economy as well.
In 1980 Maryland companies spent $1.15 billion on health care
for their employees.
Twelve years later that number is fast approaching $4 billion (up
more than 250%). If things don't change it will hit $8 billion by the
year 2000.
No wonder its tough to compete in the global marketplace.
So while I don't think we are there yet, and I see a need to hear
from my State, I am prepared to go to work on this subject, to roll
up my sleeves and work with you on this most important issue.
The Chairman. Very good.
Senator Hatch.
Senator Hatch. Thank you, Mr. Chairman.
Welcome to the committee, Mrs. Clinton, and I just want to say
it is always good to be with you and always good to see you again.
I also want to thank you for elevating our Nation's dialogue on
these critical health care issues, and I think you have done that
single-handedly. You and the President have clearly done your
homework on this issue, and you deserve a lot of credit in my opin-
ion for your hours of study and your eloquent defense of the admin-
istration's plan.
So I, for one, personally admire you for getting into this battle
and doing what you have done, and I want to work with you on
this.
I agree with all of the principles for reform which the President
articulated last week. We do need to provide health security for our
citizens. We do need to reduce cost. We do need to reduce bureauc-
racy. We do need to eliminate fraud and greed. All of those are im-
portant, but the problem is we don't need to create more problems
than we fix, and that is what people are worried about. With the
massive sweeping changes the administration is proposing for our
35
health care system, it is a matter of great, great concern to a lot
of us. . .
It is no secret that I have some problems with the administra-
tion's approaches to health care. For example, I don't believe that
we need a national health benefits board to determine what health
care should be in this country. I believe more employer mandates
would be devastating to job creation, and, of course, there is always
the question of how are we going to finance this beast.
These are very, very tough issues, but I look forward to seeing
the details in the administration's plan when you get it done, hope-
fully within the next couple of weeks, and as I have said before,
I want to work with you and help you to the extent that I can. I
am afraid there is a lot of work to do no matter what or how we
look into health care reform.
Maybe I would just ask one specific question, and that is this.
I know this sounds trite, but price controls didn't work in the
1970s, and I don't think they are going to work any better now. Ob-
viously, we all want to get health costs under control.
I raise the same issues that you have already discussed with re-
gard to innovation and technology, but I am afraid that global
budgeting is going to result in rationing, pure and simple. In order
to control cost, you simply have to control volume as well in order
for it to work.
So I think it would be useful if you could walk us through exactly
how the global budget would work, explaining how the costs are
going to be restrained without reduction in quality of care, choice,
access, or technical innovation.
Let me just say this. One of my friends, a really great author in
this country who is a doctor, an internist, Robin Cook, wrote Coma
and the recent best seller, Terminal. He is writing a new novel that
should come out before the end of this year which will show the
horrors and the nightmares of global budgeting and Government
management of health care. I think we will all want to read it be-
cause it will be right in line with what we are discussing here
today.
I know you are concerned about those matters, too, but if you
would, walk us through how the global budget would work, ex-
plaining how we can constrain costs without reductions in quality
of care, choice, access, or technical innovation, etc.
Mrs. Clinton. Senator, that is obviously one of the key issues,
and let me start by saying that the term "global budget" is really
a misnomer because there is not any intention to in any way budg-
et every health expenditure that any American would make. The
budget we discuss in our proposal would only apply to the guaran-
teed benefits package. Anything over and above that, anything that
any individual wished to spend is clearly available for that individ-
ual to do. The marketplace will be there for individuals to take ad-
vantage of.
With respect to trying to provide some budgetary discipline with
the delivery of the guaranteed benefits package, we are operating
on the basis of several beliefs about the best way to do that, that
I would like to share with you.
The first is that rationing already takes place in our country. It
happens every single day in every single community, and it is done
36
by removing people from the insurance roles. It is done by putting
barriers to access. It is done by making it much more difficult for
some people to pay for their health care than for others. The net
result is that many people are already suffering the effects of ra-
tioning because we have a kind of nonsystem of health care in
which those of us who are able have access to the very best health
care in the world. However, if we compare ourselves to some of our
competing countries on many health indicators, we do not do a very
goocf job For our entire population. So rationing is already happen-
ing, and, in fact, what we want to do is increase the market and
increase the competitive forces that will make health care more
available to the entire society.
The second point is that there has now been some very convinc-
ing work that illustrates the stark differences in health care deliv-
ery and costs that exist from one part of our country to another,
and a number of people have been studying this.
This is what Dr. Koop has been doing since he left being surgeon
general. He and Dr. Wenberg at Dartmouth are two of the leading
researchers in this area.
If you have, as we currently do, just one of our programs, take
Medicare, a 300-percent differential between the delivery of care in
Miami, FL, and the delivery of care in Wisconsin, or, as Senator
Durenberger never tires of pointing out to me, a 100-percent or
200-percent differential between Minnesota Medicare delivery and
a place like Philadelphia, with no difference in quality that any-
body can point to. These differences point out very clearly that
there is a huge amount of inefficiency in the way we are delivering
health care right now.
Now, if health care has been delivered at one-half the cost in
New Haven, CT, compared to Boston, MA, or one-third the cost in
Wisconsin compared to Miami, FL, or many other examples I could
point out to you, why hasn't the whole market figured out that they
can delivery health care more efficiently if they followed what Min-
nesota has done than if they follow what another community has
done? Well, that is because, going back to Senator Coats' example,
we don't have any incentives; in fact, we have got the wrong incen-
tives in the health care system as it is currently structured.
We reimburse on a basis of diagnostic treatment, on procedure,
not on the basis of what is the quality outcome that will be deliv-
ered for a particular population.
I showed it yesterday, and I have it, I think, again today. This
is a consumer guide that makes the point better tnan I could. It's
called "A Consumer Guide to Coronary Artery Bypass Surgery." It
is put out by the Pennsylvania Health Care Cost Containment
Council.
What Pennsylvania has been doing for a number of years is
going to every hospital that performs coronary bypass surgeries,
finding out how much they charge and what happened to the pa-
tient, how many died, what kinds of recovery and other problems
did they have. In that one State, you can get the same operation
for $21,000 or $84,000. There is no difference in quality. In fact,
if you look at this consumer guide, the hospital that is delivering
the surgery for $21,000 is doing as good or better a job than hos-
pitals delivering it for 3 or 4 times that amount.
37
There is no current incentive in our system to move any other
hospital in Pennsylvania to close that gap. We think by creating a
market-driven competitive system and by providing good consumer
information, we will begin to see hospitals get those costs more in
line with each other. So, in fact, instead of rationing care, if more
hospitals in Pennsylvania delivered a high-quality coronary bypass
at $21,000, you would have more people taken care of than you do
currently when the cost is $84,000.
The way we view the budget is as a backstop. It will not come
into effect in the vast majority of cases because we believe that
good information and decision-making on the part of providers will
begin to move this system in a more rational way, so that we will
have better quality health care for less money.
So the budget is there not to be imposed, but to serve as a saving
guarantee, and I know my time is up, but we could go through very
technically and explain how it would be enforced in the event that
it should be triggered, but we really don't believe it will be trig-
gered in most instances if people pay attention to what we know
is out there about how to provide quality health care at less cost.
Senator Hatch. Thank you.
Thank you, Mr. Chairman. That is all I wish to ask today.
The Chairman. Thank you very much.
Senator Bingaman.
Senator Bingaman. Thank you, Mr. Chairman.
I will join all the others in congratulating you, Mrs. Clinton, and
the President for your leadership and also Senator Kennedy for his
long record of leadership on this issue.
I wanted to ask you about the cost containment part of it because
I know that is central to your plan. I introduced a bill last year
based on work that the Jackson Hole group had done, and a central
part of what they proposed and what I proposed in that bill to con-
tain cost was a limit on the amount of the employer's contribution
which would be tax-free to the employee.
I know that Alan Enthoven has continued to urge that that be
considered in this plan. It does seem to me that if I have a choice
of a high-cost plan that perhaps is doing bypass surgery at $84,000
a crack and a low-cost plan that is doing bypass surgery at $21,000
a crack, we ought to build all the incentives in we can for me to
choose the low-cost plan.
Making me pay tax on the increased cost of going to the high-
cost plan would, I think, be a strong incentive. What is your think-
ing for not including that in what are you planning to propose?
Mrs. Clinton. Well, Senator, let me start by saying I don't think
that a restructured competitive market, where health providers are
coming to get your dollar and mine and we are making the choice,
will not sustain very many providers who are charging $84,000 for
a bypass surgery. Providers are going to have to become more cost
effective.
We are asking consumers to make cost-conscious decisions, and
if I choose to join the most expensive health care plan, I will pay
the difference, and that will be the choice that I make.
The issue about taxing health benefits is one that we have really
struggled and worried over because we have a great deal of respect
for Alan Enthoven and for the people who have worked on man-
38
aged competition. We believe that we have incorporated a managed
competition system in many of the features that we have adopted,
but we had several big problems starting with the taxing of health
care benefits immediately when the plan began, and they include
the following.
If you start a health care reform proposal that will affect the
whole country, we know that people are starting at different levels
of insurance right now. Some people have bargained for their
health insurance. Some employers have offered health benefits as
a competitive device to keep employees and to hire employees. So
we are starting with differing levels of health insurance.
The guaranteed benefits package that we are offering, we believe
is a very good benefits package, and it does emphasize primary and
preventive health care. It does not, however, include some of the
features that are available in insurance policies that are currently
insuring millions of Americans. So to say at the very beginning
these millions of Americans are going to be worse off than they
would be without reform struck us as unfair.
So what we decided to do instead was to say we intend to impose
a tax cap, but we want to give everybody enough notice, employers
and employees, so that they can get ready for it, so that they can
see how our system operates, so that they can feel secure that they
are not giving up benefits that they have either bargained for or
paid for in wages. So we do believe in the tax cap as advocated by
the pure managed competition advocates. A tax cap will be added,
but it will be several years out after the system has actually gotten
up and consumers can see what the benefits are for them.
The second is that to impose a tax cap right now would be to
raise taxes on millions of working Americans. I don't know how we
could do that. I don't think the President feels comfortable coming
to you and saying remove the tax treatment for health care bene-
fits, and, oh, by the way, that is a tax hike on tens of millions of
Americans. I can guarantee you once your constituents figure that
out, you would hear a lot from them because they would think it
was unfair. Our proposal does ask consumers to make cost-con-
scious decisions, ana we have seen companies where this has
worked. We have seen States where it has worked.
The State of Minnesota decided it would only pay its employer
share for State employees into the lower-cost plans, and people
switched. Many employers who have given lower cost alternatives
to their workers have saved money because people have switched.
So that is our thinking behind it.
Yes, we believe the tax cap is a tool. Yes, we want it included,
but to do it now would result in a tax increase on millions of Amer-
icans which we don't think at this point in time is fair to do.
Senator Bingaman. Thank you for clarifying that. It is obvious
you have given it a lot of thought.
Let me ask one other incentive-related question. One of the in-
centives that exist in the present system of health care is an incen-
tive not to smoke. Most or at least many health care providers or
plans give you a discount if you do not smoke. As I understand
what you are proposing, that would not be available.
You have an assessment provision in the plan or contemplate one
for employers of over 5,000 who decide to opt out. I think you
39
charge them a certain percentage. Why does it not make sense to
maintain some kind of additional cost for individuals who choose
to smoke or for employers with work forces that choose to smoke?
Would that not put the incentive where you want it as we talk
about responsibility in the health care system?
Mrs. Clinton. Well, Senator, I think that we ought to take a
close look at that again. We are going to propose taxing tobacco
which we consider a disincentive to smoking, and we hope particu-
larly for young people.
If there is a way without getting back into the problems caused
by experience rating and underwriting practices that draw lines be-
tween people where we can just target certain very limited behav-
iors, we will look at that again because I share your belief that we
should try to encourage wellness and discourage harmful behav-
iors, but we don't want to start down a slippery slope where all we
do is separate young from old, healthy from sick. Once we get back
into that, then we are back into all of the administrative costs and
the underwriting practices that eliminate people from care, and we
don't want that to happen.
Senator Bingaman. I agree entirely, and I think your decision to
just impose the tax on tobacco products made a lot of sense. It was
an exception to the community-based plan, and it might be in this
other area as well.
Thank you, Mr. Chairman.
The Chairman. Senator Durenberger.
Senator Durenberger. Mr. Chairman and Mrs. Clinton, thank
you.
Let me begin by saying that the people I represent like you a lot.
Many of them even trust you which is very unusual for people who
work in this town, and I think it is because you are one of the first
national leaders to take responsibility for actually getting some-
thing done, and they feel that.
Even though they may not know enough about the plan or not
trust the financing and so forth, I must say that the sense of re-
sponsibility for doing something has not been lost on my constitu-
ents.
They also appreciate your mentioning Minnesota so often. It is
a unique constituency, and I have been blessed to represent it for
a long, long time, and whatever I have to say by way of a question
will reflect our experiences in Minnesota.
One of the things that I hope we can agree on — and I am just
going to suggest one, but we don't have to do it now — is I think we
need a goal for all of this that people can relate to so we don't get
bogged down in all of the mechanics.
I nave always used the goal of equal access to high-quality care,
and a system of high-quality care through universal coverage of fi-
nancial risk. I would like to add in a community commitment to
the health of our citizens.
There is nothing in there about basic benefits or insurance com-
panies or health alliances or any of that sort of thing. But it is an
important measure because as we undertake this task, there are
two really important things we don't have in our country today
that we need to get to. One is cost containment, and the other is
the goal of universal coverage.
40
So my question is going to be a question I have discussed with
you before, and that is, why can't we do one before the other?
In order to devise an effective reform strategy, we somehow have
to figure out how to get the cost under control. The reality from my
experience has been that people control costs. People control costs.
This is particularly true if you want to maintain high quality.
Government can control cost by putting lids on things, but then
something else is lost in the system, rationing or quality or what-
ever. But the reality is in whatever we buy, whatever we use in
our society, it is people, people that contain the cost.
Communities as markets are very, very important because com-
munities are a series of relationships between people who have cer-
tain needs and people who can meet those needs. It is in commu-
nities where you have caregivers, in our context of the medical
term, caregivers and consumers meeting on a daily basis.
So the reality is that communities across this country are con-
taining cost. You have mentioned Minnesota. You have mentioned
other States. There are employer coalitions. That is a sense of com-
munity. There are multispecialty clinics, and you have mentioned
one of them, David Nexon's favorite, but there is also the Cleveland
and then there is Oxner, and there are smaller ones in many of our
communities.
There are efforts to increase consumer information. You men-
tioned Pennsylvania. However, they are all over the place. All of
this is being done in communities. I need to stress this because it
is communities that make the difference. It is not State Govern-
ments. Nothing that has happened in Minnesota has happened be-
cause the State Government said it needed to happen. It happened
because people wanted it to happen. You have already mentioned
Duluth and the difference between Duluth and Philadelphia and
Wisconsin and Miami and so forth.
So the issue is really how do we spread this across the country,
and what is the Government's role in all of this?
I am going to suggest two. First, the national Government ought
to set the rules for a sound marketplace. If we want high quality,
if we want cost containment, if we want more for less, we need to
get productivity. We need dynamic markets. What are the rules for
dynamic markets? It defies any logic of any experience I have had
that 51 States can come up with rules for markets for products like
health care and medical services.
The second part of the goal is the issue of universal access. There
the Government role is probably even clearer, although even Re-
publicans differ on this. The first role is the State role, and that
is to make services available to people who can't get them from a
market. Most of us who know anything about markets know that
markets can get you higher quality for a lower price, but they can't
do equity. They can't get doctors to go out into this part of northern
Minnesota where there are only 2 people per square mile. They
can't get good diagnostic equipment into certain areas. Only Gov-
ernment can do that.
So one of the responsibilities of Government is to make services
available, and that is going to require subsidies, and that is one of
the things on which State governments really ought to be con-
41
centrating, and they are not doing it today. They are leaving it to
some medical marketplace.
The second is the affordability of the premium prices that we
now pay for our coverage, and clearly that is a national issue. To-
morrow you will be before the Finance Committee, and we will talk
about low income, elderly, disabled, and doing something about our
policy. Before this committee, you will talk about the employer's
role and so forth.
I am sort of setting up this question by saying we have to get
to a market, we have to get the people to contain the cost, and we
have to get the Government to make the access to the system af-
fordable in some way.
Right now the American people as reflected by the people in my
State believe that you can get to a market without universal cov-
erage. We are doing it in Minnesota. Even though there is cost-
shifting, we are moving to a market. It is happening in Utah and
Oregon and in parts of New York and lots of other places. They are
moving to cost containment even though there exists some cost-
shifting. So I have a hard time with the notion that you have to
have universal coverage in order to make a market work.
Even more important than that, it seems that we have already
talked about the fact that Americans don't want their taxes raised.
You have just said they don't want their taxes raised on their bene-
fit. We all know the difficulty you have there.
Beyond that, the reason they don't want the taxes raised is they
are not sure the plan is going to work. Is there not some value in
demonstrating that your particular approach to markets in medi-
cine, which no one has seen before, actually works in some commu-
nities in this country before we move to a national universal cov-
erage system?
Mrs. Clinton. Well, Senator, as always, you ask the most inter-
esting and challenging questions because of your concern and com-
mitment to this issue, and I appreciated greatly the times that we
have spent together talking about this.
I guess I would answer in this way. We have seen markets begin-
ning to work, the ones that you named. We believe we know the
conditions that markets need to be able to work effectively, and we
do need to define whatever the Government role is in creating that
national market, so that we will have a sound and effective one.
The problem that I have in putting cost containment before uni-
versal coverage or vice versa is that in any decent marketplace, you
would have people flooding to Minnesota to figure out how to keep
cost down. You would have people flooding to the university in Du-
luth to figure out how to train more family care providers than are
trained by any other medical school. You would have people lined
up at Rochester, NY's boundary saying show us how you keep those
costs down in Rochester, NY.
That has not happened, and it hasn't happened because there is
no market there, and there is no real pressure for that market to
be created by the kind of market that there would be if somebody
thought they could buy a car for one-third the price in one State
than they would in the other. You would have an exodus into that
State.
42
Part of the reason there isn't is because we don't have either a
good theory for cost containment with the right incentives built in
that will move the market in that direction across the country and
not just in the pockets where it is moving, and the other is there
are all these escape valves because we don't have universal cov-
erage. People don't feel the pressure to move because they can al-
ways shift their cost to somebody. Maybe we have States in which
there is beginning to be a market, but then the neighboring State
doesn't follow that example. They are still writing the blank check
and they are still getting reimbursed in the old way, which is a lot
easier than to come together to figure out how to make that market
more dynamic.
So, from our perspective, looking at all of the factors you laid out,
it seems to us we have to proceed in tandem, and I know that is
a more complicated way perhaps to proceed, but we think it guar-
antees a better outcome. I will look forward, as I always do, to talk-
ing with you in more detail about how to fulfill the Government
role that you have outlined and the universal coverage while we ob-
tain cost containment.
Senator Durenberger. Thank you very much.
The Chairman. Thank you.
Senator Wellstone.
Senator Wellstone. Thank you, Mr. Chairman.
First of all, Mrs. Clinton, when Senator Mikulski was talking
about other First Ladies that have testified, I think of my heroine,
Eleanor Roosevelt, and I thought maybe a quote from her words
would help you through this journey where all too often politics can
be so tough and all too cynical.
Eleanor Roosevelt once said, "The future belongs to those who be-
lieve in the beauty of their dreams," and maybe T am just a roman-
tic, but I think somehow that applies to this journey.
I am also very honored to be here, and I look at this committee
hearing and your presence with a sense of history because the
pricklings in my fingertips tell me that after over a half-a-century
political struggle, after all that Franklin Delano Roosevelt talked
about some kind of national health insurance or universal health
care coverage in 1935, we are as close as we have ever been as a
nation to adopt some kind of maior health care reform that will
provide humane, dignified, affordable care for people.
I think we have crossed the divide, and we are no longer debat-
ing whether or not we will have universal health care coverage, but
what kind, and I would thank you and I would thank the Presi-
dent, and I would thank the Chair of this committee for that.
Now for an abrupt transition. In Minnesota, I told you that as
a strong single-payer advocate, I was going to continue to press
hard, and you said to me that if I didn't press hard, you would
worry I was in need of health care. So, in that spirit, I will press
hard.
I am going to try to do this in under five minutes. First of all,
some of the concerns that were raised today, I am just going to
highlight and then go to my central question. I do believe that Sen-
ator Mikulski raised a tough set of issues because when I talk to
people in the cities and in the rural areas, they don't see yet the
public health and the community health care clinic infrastructure,
43
and they are not quite sure where the poor are going to fit into
these networks who are, after all, competing on the base of price,
and I think that is a valid concern.
I appreciate how willing you have been to work with many of us
on the mental health substance abuse, but I still think outpatient
copay is too high, and I worry about that as well.
As long as we were going to talk about long-term care and I
think of the people that I meet in Minnesota, I think we have to
have a time certain for comprehensive package of benefits and for
universal health care coverage. We can't over-promise, and we have
to be clear about when we are going to come through.
Now my question. The thing that you say that is so powerful, the
thing that the President said that was so powerful, is there is a
card and there will be a comprehensive package of benefits, and no
one can take that away, and I think we are also talking about qual-
ity of service.
Now, when we talk about quality of service, I would like to zero
in on a technical point, but I think it is basic. That has to do with
the average-price plan. For those who don't know what the aver-
age-price plan is about, that means that at any given State if one
plan in a State or a region is 800 and another plan is 300, that
80-percent employer contribution will go to the $500 average-price
plan. I am glad it is the average-price plan. That makes sense to
me.
But the issue is this. It is not just a question of a package of ben-
efits that everybody will be entitled to. It is whether that pap
smear is read correctly. It is whether or not the phone call that you
make is answered. It is whether or not you can make the appoint-
ment and not have to make. It is whether or not you can get into
the clinic and you can be treated well.
I am worried that middle-class people might get the short end of
the stick. What happens to them if in these average-price plans you
do not have that quality of care and you have deficiencies? Those
of us as Senators and Representatives with more income, we can
buy up to a higher-price plan, but middle-income people might not
be able to.
So my question to you is what do we do about that problem. Part
of me says Senators and Representatives can basically participate
in the same plan. Then we can monitor and make sure that it is
a good average-price plan since I think it is going to be for the vast
majority of people
Another part of me says let's set some limit on the differential,
so that the higher-price plan can't be more than 20 percent above
it, so that we don't have tiers of medicine. That is what I am wor-
ried about, and I just wonder how you respond to this concern.
Mrs. Clinton. Senator, I think that it is a legitimate worry, and
it is one that we are going to have to be very sensitive to as we
move through this. The short answer is that if it is an average-
price plan there should be some variety, both somewhat lower and
somewhat higher, and the clearest way for a consumer to dem-
onstrate his displeasure with a plan is not to rejoin it the following
year. I don't think there is any way we can predict right now which
plan will suit which consumer.
44
Some of the low-priced plans that are now available in Minnesota
have very high consumer satisfaction. The State employee rep-
resentatives with whom I spoke, who switched to the low-price plan
because the State of Minnesota was not paying for higher cost
plans are perfectly satisfied with that plan. I think that there will
nave to be on an annual basis each individual making a decision.
Now, that is not to say that some plans might be more of a finan-
cial stretch than others, and I recognize that, but until the market
is really up and going, we are not going to know which plan,
whether it is high-, medium-, or low-priced will be most satisfac-
tory to which consumer.
The second point is that there does need to be some guarantee
of quality. There is a difference between maybe having to wait a
little bit longer in one plan and having a pap smear read wrong,
and there needs to be guaranties on quality of those features that
directly affect health care. That is one of the jobs that the health
plan, the alliance, and all of us make certain is our top priority.
We need to give consumers quality indicators and to put out report
cards.
If I had a choice every year, if I got information that X-percent
of pap smears had been read wrong in a plan, I would not join that
plan, and that would be a very clear message to that plan that they
were going to have to change what they were doing. There should
be a system to intervene even before that to make sure those kinds
of things don't happen.
Senator Wellstone. My time has run out. I have just a quick
point. The problem is that there are parts of the country where
within that average-price plan, there may not be another choice.
Your position is that each person has a vote. My position is that
that is not exactly the case because some people don't have that
vote to buy up to a higher-priced plan because they don't have the
income. So I want to make sure that we don't move to these tiers
of medicine. I want to make sure that we shed tiers, as in T-I-E-
R-S. I frankly think people in the country don't want to see that.
That is my point.
Mrs. Clinton. You are absolutely right. None of us do.
What we are trying to create, as Senator Durenberger said, is a
dynamic market that responds to price and quality and gives real
cnoice to consumers unlike what exists in many places now where
there is no choice whatsoever. You don't have a low, medium, aver-
age, or high plan; you have got very little access. We want to in-
crease that, and we are going to watch that very carefully.
The Chairman. Thank you very much.
We have one final questioner here, our good friend, Senator
Wofford, who has been one of our real leaders on health care. We
will hear his questions now.
We know that you have another hearing to testify at. So we will
not have a second round of questions, although we will ask our col-
leagues if they do have questions to submit them in writing.
After Senator Wofford, if there is a member that wanted to say
a very brief final comment, we would entertain that as well.
Senator Wofford.
Senator Wofford. Mrs. Clinton, I am happy to join Senator Jef-
fords and others as a cosponsor of this bill because I think it not
45
only reflects my own bill of a year and a half ago, but it is designed
to meet the tests that the President put to us, and they were the
tests that I put to the people of Pennsylvania 2 years ago.
Mr. Chairman, you have carried this ball through thick and thin
over the years, and too many of those years have been thin years.
Harry Truman was beaten back when he tried to advance this
ball half-a-century ago, and Richard Nixon, 25 years ago. But I be-
lieve this time, thanks to a President of the United States who is
committed and to the First Lady of the land and the extraordinary
work that you have done, Mrs. Clinton, we are going to take the
ball across the goal line.
You won't fix the common cold, such as the one I have, but I do
think that you are going to weave us together as we press hard to
fix many of the major problems of our health care system.
Before I ask about early retirees and workers' compensation and
possible savings there in the system, I would like to introduce you
to someone behind you who helped me advance the ball up in
Pennsylvania, Dr. Robert Reinecke, who is the leading
opthamologist of Pennsylvania.
Robert, stand up for a minute.
He said to me when we were talking about how to reform the
health care system, "Senator, we can reform the system. We can
decide how if we set the goal, and I just wish you would take this
Constitution to the people of Pennsylvania and say in this Con-
stitution if you are charged with a crime, you have a right to a law-
yer. It is even more fundamental if you are sick to have a right to
a doctor." I took the ball from him and ran with it, and you are
throwing a great ball to us now to make a reality of that.
On early retirees, I would be interested in your reminding this
hearing what you are proposing there, including any comments you
have on any short-term measures to stop, the great retreating
sound of companies pressed by their own cost crises, withdrawing
from, reducing, or canceling the benefits for early retirees.
Mrs. Clinton. Thank you. Senator, but before I start, I must say
that none of us might be sitting here if it had not been for your
courageous campaign that was waged on providing health care to
every citizen of Pennsylvania. Your campaign was a call that went
around the country. I am just pleased that you will be part of actu-
ally delivering on that promise to your people and to the people of
this Nation, and I am very grateful for the leadership you have
shown on this issue.
I know of your deep concern about retirees, particularly those
who are being denied health benefits which they thought they had
in a sense paid for through collective bargaining agreements and
through other agreements with employers over their work lives. It
is a serious problem, and it is a problem both for the individual
who is perhaps unpredictably in their lives denied health care
when they most need it, and it is an economic problem for many
of our companies which have labored under much greater costs
than their competitors in trying to meet their health care needs.
We have proposed that the burden of retiree benefits of those
who retire between the ages of 55 and 65 after a certain set period
of work, who are not yet eligible for Medicare, be taken off of the
46
backs of the employer and be shared between the employers and
the Federal Government.
We have costed this out at about $4.5 billion a year. We believe
it is sound public policy because it does release an enormous
amount of economic potential in the marketplace by taking this
burden that some employers bear. The employers would continue
to be responsible for a portion of the payment under their contracts
or they could make some kind of lump-sum payment, but the Fed-
eral Government would pick up the rest which would guarantee
health security to those individuals who are caught between their
work lives and Medicare eligibility. We think this would be an ap-
propriate kind of security to extend to them with their making the
contribution as they were able and, if they went to work after they
retired, they would be required to do so.
Senator Wofford. Do you have any thoughts on a stop-gap
measure, such as the one some of us are proposing, between now
and when we deliver the goods of a universal affordable health se-
curity system?
Mrs. Clinton. We will certainly look at that. I am aware of the
legislation that you have sponsored and your strong statements on
benalf of that legislation. Obviously, we hope that the Congress will
deal with health care reform expeditiously, so that it may not be
necessary for any transition or stop-gap, but we will certainly keep
that under consideration.
Senator Wofford. Any last words or first words on workers'
compensation and how it will be included in this as a way of sav-
ings for business?
Mrs. Clinton. We very much would like to see the workers' com-
pensation health care benefits integrated into the national health
care system. We think that would be a great benefit to small busi-
ness particularly, but to all businesses that are not paying increas-
ingly high workers' compensation premiums.
We also would like to work toward an integration of the entire
workers' comp system if we are able to make adequate substitutes
for workplace safety and the kinds of inducements for safety that
the current system provides through the experience rating of insur-
ance premiums in that system. At the very beginning, however, we
would like to start by integrating that portion of workers' comp
into the health care payment that the employer and employee
would share and having the workers' comp insurers contract out
with accountable health plans to deliver the kinds of health serv-
ices that workers need, including rehabilitation services.
Senator Wofford. Thank you.
The Ckmrman. It will be so included.
We have recomputed the time. We find that Senator Kassebaum
had 1 minute left, and it seems she has one very small question.
Senator Kassebaum. That is one of the advantages of being a
ranking member and a thoughtful chairman. I appreciate it, and I
appreciate, Mrs. Clinton, all the time you have given.
There is a witness coming tomorrow, and I would like to get your
answer to this question. I am sure each and every one of us nere
has at one time or another tried to help constituents in our States
raise money to cover costly experimental procedures, particularly
transplant procedures, and have done fund-raisers and so forth.
47
In this case, this is a mother who has multiple myeloma, and her
employer's self-insured plan doesn't cover costly experimental pro-
cedures. She has gone through all the traditional treatment proto-
cols and they haven't worked. Her doctor is recommending a bone
marrow transplant.
Would such procedures — costly, experimental procedures such as
transplants — be covered under the plan as it is devised now?
Mrs. Clinton. If a procedure is truly experimental, so that it has
not yet proven in appropriate research trials its clinical efficacy for
treating a certain disease, it will not be considered for inclusion in
the guaranteed benefits package, but accountable health plans as
they do now will certainly be free to offer any procedure that they
choose to do so.
Once a procedure is still considered experimental but provable,
then it may be considered by the national board to be included in
the benefits package. So there will be some time lag there.
What we have been telling people, in the condition of the woman
you have described, is that health plans currently make available
around the country some procedures that other health plans do not.
There are some that provide reimbursement for bone marrow kinds
of procedures with respect to breast cancer and other kinds of can-
cer and other plans which do not.
We believe that that will continue to be the case, but now the
consumer will be able to choose the plan that does provide that
kind of treatment, so that there will be a clear, up-front commit-
ment if we provide this service. Even though it is still considered
maybe experimental and not totally proven, you or I will be able
to join that or we will be able to buy in the supplemental insurance
market coverage for that which is not now readily available.
So we think that the net effect will be that this woman and
women like her will have much greater choice to gain coverage for
this procedure before the national board were to decide it could be
part of the benefits package as a matter of course.
Senator Kassebaum. You wouldn't appeal to the alliance? The
health alliance would not make a decision regarding this?
Mrs. Clinton. Well, the health alliance would in the first in-
stance decide whether it was going to offer that service, and if it
did, then it would be part of the benefits that the health plan itself
were to offer.
What we also think would be available is the point of service op-
tion that we want every plan to offer including the closed-panel
HMOs; that that would then be a referral. There might have to be
some additional payment, but it wouldn't be the kind of horrific
costs that now are faced by individuals who are out there all by
themselves.
I would be happy, in preparation for your witness tomorrow, Sen-
ator, to have written down exactly what our procedure is with some
examples and some scenarios as to how we believe it would work,
if that would be helpful.
Senator Kassebaum. Thank you very much.
The Chairman. Just a closing brief comment from Senator Dodd.
Senator Dodd. Thank you very much, Mr. Chairman.
48
Just very briefly, I appreciated your comments about the phar-
maceutical industry. Senator Simon raised the issue, and you
talked about trying to find a balance here.
I know you are aware of this. Like any other industry, there are
good guys and bad guys. So, it is important to note, I think, that
it takes on the average about $400 million and 12 years for a prod-
uct to go from laboratory to market, and only about 1 in 5,000 actu-
ally make it from the laboratory to the market. So, as we look at
individual pieces here, it can cause our level of anger to rise. But
looking overall at the incredible contribution that the industry has
made to the health of this country is something that I think needs
to be emphasized. I raise this in a larger context, and maybe you
would make a brief comment if you would.
I have listened to you countless times talk about the role of the
private sector and how important it is you have said that whatever
plan we develop, it should be extremely sensitive to small business
in this country, and have emphasized how critical that component
is to this country's economic success.
There is out there this notion somehow that this proposal is
antibusiness, that it is particularly anti-small business. Nothing
could be further from the truth for those of us who have listened
to you and continue to listen as this plan gets developed. I wonder
if you might just take a moment to comment on that particularly
broad criticism that I think many of us hear from our particular
constituencies.
Mrs. Clinton. Senator, I really appreciate that opportunity. I
guess I would start by saying I think it would be hard to design
a system that is more anti-business than the one we currently have
in which business bears the bulk of responsibility, pays most of the
bills, and has until very recently had very little to say or very little
control over the kinds of costs in the health care system that have
increased their costs and, in many industries, lower their competi-
tiveness.
What I believe is the fair approach to what we are doing is to
recognize that business has borne the burden for taking care of
most Americans. Ninety percent of those Americans who are in-
sured are insured through their employer.
What we want to do is to build on the system and to begin to
make it work for all businesses. Those businesses, large and small,
that have been responsible, provided health care benefits, deserve
to have some kind of cap or some kind of discount, some kind of
effort made to help them control their cost because they are having
such a hard time doing that. This is particularly true for small
business.
For those businesses that have not insured, but who may have
wanted to, we want to make it affordable for them. We are very
sensitive to small business concerns. You know, my father was a
small businessman. He never employed more than one or two peo-
ple his whole business career. My mother worked with him. He
never had health insurance for himself, his family, or his employ-
ees. It was just something that could never have been possible as
the market was constructed because it was so heavily weighed
against small businesses.
49
What we want to be able to do is to build on what works and
to fix what is wrong. What is wrong is an insurance market that
prices too many businesses for their insurance too high and prices
others totally out of the marketplace. I think that reform will ad-
dress many of the concerns that make businesses today scared to
death of the insurance market and worried to death when they
hear us talking about insuring everybody. They will soon realize we
are talking about an entirely different set of pricing and of opportu-
nities for coverage, and that for small businesses we are going to
provide it at a discounted rate, and we are going to cap the amount
that any small business has to contribute that has low wage em-
ployees and has below 50 employees.
I just don't think that we could come up with a plan that would
build on what already works better than to try to bring in those
businesses that don't insure at an affordable cost and bring down
the cost to those who are already insuring. That is just what we
are attempting to do in this plan.
Senator Dodd. I thank you for that answer.
The Chairman. We have kept you beyond the time that was des-
ignated.
Are there any further comments here?
I just finally want to personally congratulate the President and
you, Mrs. Clinton, for the fashioning and the shaping of this pro-
posal, and not only for its development, but for really the momen-
tum and in this case the bipartisan momentum which has really
Obviously, there will be adjustments and changes as the legisla-
tion moves along, but I dare say that this has been really a perfect
launch. If Republicans and Democrats can do half as well in meet-
ing our responsibility, as you have and the President has, we will
get a good, workable, effective program for all Americans.
We thank you very much for your presence here today. We will
meet tomorrow and have hearings on the health security and sav-
ings. We have a vigorous program of hearings, as we want to learn,
and we are enormously grateful to you for your presence here and
most importantly for your responses and the illumination that you
have given to so many different questions.
The committee stands in recess.
Mrs. Clinton. Thank you, Mr. Chairman.
[Whereupon, at 12:40 p.m., the committee adjourned.]
SECURITY AND SAVINGS: AMERICANS RE-
SPOND TO THE HEALTH SECURITY ACT OF
1993
THURSDAY, SEPTEMBER 30, 1993
U.S. Senate,
Committee on Labor and Human Resources,
Washington, DC.
The committee met, pursuant to notice, at 1:08 p.m., in room
SD-430, Dirksen Senate Office Building, Senator Kennedy (chair-
man of the committee) presiding.
Present: Senators Kennedy, Wellstone, Wofford, Kassebaum, Jef-
fords, Gregg, Durenberger.
Opening Statement of Senator Kennedy
The Chairman. We will come to order.
First of all, I want to express appreciation to our colleagues and
our witnesses for the adjustment and changes in the time, slipping
the hearing several hours. The First Lady, Mrs. Clinton, was testi-
fying in the Finance Committee, and it seemed the better part of
judgment, since the Senate of the United States was focusing on
health care and health care issues, and she has an extremely im-
portant message to give, that we permit her to complete her testi-
mony and for us to get started at the conclusion of that. So that
is the reason for the change in the time, and I am grateful to our
colleagues and also to our witnesses.
I'd like to say at the outset how appreciative all of us are to our
witnesses for their presence and their willingness to testify. It is
not easy to talk about one's needs for themselves or for their fami-
lies or for their businesses, and people consider those issues as
being extremely private, so we understand the kind of thought that
has gone into their willingness to share their experiences with us
here today.
I think the best way that we can express our appreciation is to
be responsive to those concerns. I know I speak for the members
of the committee, and others will speak for themselves, but we are
very interested and committed to doing so.
Yesterday we heard eloquent testimony from the First Lady
about the President's plan for comprehensive health reform. Mrs.
Clinton emphasized the six basic principles that the President out-
lined in his speech last week. Two of these principles, security and
savings, are the focus of this afternoon's session.
Today we will hear from six Americans about their struggle to
get and keep affordable health insurance for themselves and their
(51)
52
families or for their workers. Each witness has a different story
and a different perspective of what is wrong with the current sys-
tem, but all their stories have the same two common themes: the
lack of secure coverage and the exorbitant cost of health care.
Every family deserves the protection and peace of mind that
comes with secure coverage. Protection must not be lost because
someone loses a job or changes jobs, or develops a chronic illness,
or because an employer drops coverage to cut business costs. Medi-
care provided that security for the elderly in the 1960's, and the
Health Security Act will provide it for everyone in the 1990's.
We all know the statistics, but too often, we forget the faces be-
hind these figures: working men and women, children, retirees,
small business owners, the self-employed, all struggling to survive
in a system that breaks down just when they need it most.
We intend to work with the President to fix the problems with
the current system. I think the plan the First Lady outlined for us
yesterday represents a solid framework for achieving this incred-
ibly important goal.
People like Kathy and Linda, whom we'll hear from shortly, will
know that no insurance company can exclude them for pre-existing
medical problems or charge them more for health insurance be-
cause they have those problems.
And Joe and millions of other early retirees like him will not
have to worry about losing the medical coverage they counted on
when they planned their retirement.
And small business owners like Cyndy and Mike and Tomaca
will be guaranteed coverage at an affordable rate.
The President's plan will ensure that there will be coverage of
those particular concerns. So we'll be interested in hearing the re-
actions of our witnesses today on whether the President's approach
is one that will meet their needs for health care security and finan-
cial protections.
We look forward to their comments.
Senator Kassebaum.
Opening Statement of Senator Kassebaum
Senator Kassebaum. Thank you, Mr. Chairman.
I am pleased that we have the opportunity today to hear from
six individuals about their personal health care experiences and
their hopes for and concerns about the directions that we may take
in comprehensively reforming our Nation's health care system.
I want to personally welcome all of our witnesses. As you say,
Mr. Chairman, it isn't easy, and it takes time and effort to come
here and testify. And I know that it means a great deal to those
watching and listening to hear this testimony, so we are very
grateful for the effort that has been made to come by everyone.
I want to extend a special welcome, of course, to our two wit-
nesses from Kansas, Linda Montgomery and Michael Braxmeyer,
and Linda's husband, Richard Montgomery. Mike Braxmeyer is a
third-generation owner and operator of a grocery store in rural
western Kansas, Atwood, KS. He will share his experiences as a
small business owner who provides health care coverage for his em-
ployees. I believe his testimony and observations will be helpful to
53
our evaluation of the role of small business in the health care sys-
tem. .
Linda Montgomery, who is from Council Grove, KS, is a wife, a
mother, and a health professional. Mrs. Montgomery was diagnosed
last year with bone cancer. Her physician has recommended that
a bone marrow transplant may hold the best hope of survival for
her. However, her insurance does not cover this type of transplant.
I have asked Linda to testify today because I believe that we
must as part of comprehensive health care reform address the very
difficult issue of coverage for experimental therapies. These thera-
pies may hold the only hope of survival for individuals, but may
also significantly add to the health care costs shouldered by every-
one.
I do not know the answer to this dilemma of balancing health
care costs with access to potentially life-saving remedies; but the
questions posed by very costly treatments made possible by the
rapid advances we have made over the past several decades in
medicine and technology are important for everyone to consider.
Those who are on the cutting edge, of course, lead the way in an-
swering many questions which these new advances pose.
But I do know that our current coverage policies vary widely and
are often neither rational nor fair.
Thank you, Mr. Chairman.
The Chairman. Senator Wofford.
Opening Statement of Senator Wofford
Senator Wofford. Mr. Chairman, it is good and important that
the experiences of our witnesses are being voiced at this congres-
sional hearing. , ,
We had an extraordinary experience yesterday with the First
Lady, analyzing the whole problem and presenting in an amazingly
sweeping and detailed fashion the President's proposals. But you
today, our witnesses, I know are going to match her. You are the
other half that we need to hear, because the problems that you
have faced have been voiced around the country for a long time,
but have somehow still not been heard by the Nation — or, they
have been voiced and not acted upon. So it is very good that the
time has finally come — a time I have been pushing for since a cam-
paign 2 years ago in which I brought this issue forward in Penn-
sylvania— the time when our Nation's political leadership is rec-
ognizing that the health care status quo cannot continue and that
we have got to do something to change it.
That system is broken for too many people. In my home State of
Pennsylvania, people are suffering from a lack of security, most of
the people, although we have a relatively high proportion of people
covered with insurance.
Like our witnesses today, Pennsylvania families are being denied
coverage or charged astronomical premiums because a child has
asthma or another pre-existing condition. Individuals who are
underinsured are becoming bankrupt by high out-of-pocket costs.
And as you will hear from Joseph Roach, a Pennsylvania retiree,
early retirees must worry about meeting their future health care
needs as more and more employers are cutting back on promised
benefits in order to cut costs.
54
And perhaps one group that is being hurt the most by the status
quo is small business. Small business owners are being charged
much higher premiums, up to 35 percent higher, than their larger
counterparts, and their premiums continue to go up. Many small
business owners who want to offer their employees coverage cannot
afford to do so or are denied the opportunity because they happen
to employ one person with poor health.
Small and large businesses are charged higher premiums to
cover the costs of the uninsured because some of their counterparts
refuse to offer their employees coverage.
So those are the problems that we are beginning to wrestle with,
and we have got to win that match. And your facts and your per-
sonal experience are going to help us do so.
I am grateful to an of you for your time, which is the thing we
have least of in this world.
Thank you, Mr. Chairman.
The Chairman. Thank you very much.
Senator Durenberger, do you have a statement?
Senator Durenberger. No, Mr. Chairman. I am just pleased to
be here.
The Chairman. Thank you.
The basic concept today is to try to take some very typical situa-
tions and measure them against what is before the Congress in the
statement of principles of the President's program, and get people's
reactions to that program and see how it would affect them and
their lives and their future.
I would just mention that Senator Dodd wanted to be here and
plans to try to be with us a little later for Tomaca Govan's testi-
mony, but we'll include his statement in the record at this point.
[Tne prepared statement of Senator Dodd follows:!
Prepared Statement of Senator Dodd
Mr. Chairman, I want to thank you for holding this hearing
today to put a human face on what will be a very long and detailed
debate on health care reform.
Inportance of individual stories
In all of our discussions of health maintenance organizations and
preferred provider networks, of pre-existing conditions and em-
ployer mandates, of numbers and systems and percentages, I fear
that we may lose sight of what should be a central focus of the
health care debate — the human faces that comprise the uninsured
and human stories that mark our health care crisis.
It is these stories that have made health care reform one of the
Nation's top priorities. We must keep them foremost in mind as we
debate the issues in the coming months.
Nicole Iannuzzi
I went to the floor several weeks ago to share the story of Nicole
Iannuzzi — a girl from Trumbull, CT — to put a human face on the
problem of children and health security. Nicole found out that she
had no coverage shortly after her doctors diagnosed her with a spi-
nal cord tumor. Her father, who is a self-insured businessman had
just switched policies when she was diagnosed. The new company
55
said that it would not cover her because her problem was "pre-ex-
isting."
While Nicole is thankfully recovering from her illness, she and
her family live with a great deal of uncertainty about the future.
Because of Nicole's illness, the Iannuzzi's face a debt of close to
$200,000. They cannot obtain affordable insurance for Nicole, not
even to cover a routine exam. The best they can buy is a policy that
costs $937 per month. And this policy — as incredibly expensive as
it is — will not cover any problems related to Nicole's back.
Nicole's story is terrible, but not unusual. It illustrates why we
must tackle the problems of the health care system and enact
meaningful health care reform legislation. For we know that right
now in this country, there are 12 million children without the pro-
tection of health insurance. And we know that 2 million people lose
insurance each month.
The individuals who lack coverage may not understand the com-
plexities of our health care delivery system. But what they do un-
derstand is the pain of an illness left untreated, the anxiety of an
uncertain future, and the problem of facing huge, mounting medi-
cal bills, without much hope of paying them.
Connecticut witness
One of our witnesses this morning is Tomaca [toe-may-sha]
Govan of Hartford, CT, who— because she has her own business —
cannot obtain affordable insurance for her family. I look forward to
hearing from her and from our other panelists, and hope we are on
our way to eliminating the problems that have brought them before
us this morning.
The Chairman. Before we begin I have a statement from Senator
Mikulski.
[The prepared statement of Senator Mikulski follows:]
Prepared Statement of Senator Mikulski
Mr. Chairman, yesterday we witnessed an extraordinary event.
We had the opportunity to hear from the first lady of the United
States who has become the Nation's expert and the President num-
ber one advocate for health care reform. What impressed me the
most — is that she and the President have taken the ordinary sto-
ries of people around the country and translated them into the
most significant public policy initiative in three decades!
It was an exciting and historic day. Only the third time in our
Nation's history that a first lady has testified before Congress. But
only the first time, a first lady has testified on a President's major
domestic policy priority.
Today we are going to hear from our witnesses some of the sto-
ries the President and Mrs. Clinton have heard over the last year
and a half. Sad and difficult stories about not having health care
when you get sick. About losing health care when you get old.
About having a sick child and not being able to afford to go to the
doctor or buy the medicine to make him well.
We have all heard similar stories from citizens in our States —
but it is important not to lose the real face of health care reform.
We all get caught up in the detail; in the structure; in the com-
plexity. And we must produce legislation. But let's not forget for a
56
minute why we are here: to fix a system that is broken and doesn't
work for the majority of our citizens. That's why today's hearing is
so important. So that we keep our focus on the all too ordinary sto-
ries of people like our witnesses today.
I've set up a health care hotline for my Maryland constituents.
I've asked my constituents to tell me their prescription for what
ails health care. But as people leave their prescriptions, they also
tell me their stories.
A woman from Hagerstown, MD called my office to tell me that
she is spending more on prescription drugs than she is on her utili-
ties. She told me about her friends who are spending as much for
health care as they are on their rent.
A couple from Laurel, MD called my office to tell me their story.
Don's company closed. Kathy had cancer and her treatments had
been covered under her husband's policy until they lost their insur-
ance when the business closed. She had $20,000 surgery without
insurance and numerous other bills have piled up. They have lost
everything. Kathy said they were reaping the benefits of the Amer-
ican Dream, but now their dream is gone and they'll have to work
the rest of their lives to pay off the medical bills. People never
think it can happen to them.
Our witnesses today will tell us stories like these and worse.
This is not the America we have known much less aspire to. Peo-
ple who play by the rules — work hard, pay their taxes, serve their
country when called upon — end up without life or liberty or a
chance at happiness because of a medical emergency.
If we don't reform this system, if we don't help to solve this prob-
lem, if we can't figure out how to make this system work better,
we will have failed more than this task, we will have failed our
country in a time of great need.
We have our work cut out for us. Before this plan was an-
nounced, I decided on a set of principles to use to guide my delib-
erations on this subject. I am pleased that it tackles the major is-
sues: access, affordability, controlling costs, choice of plans and doc-
tors, quality, eliminating the hassle factor and rewarding people
who play by the rules.
I would like to thank the witnesses who have come here from all
around the country to tell us their difficult and personal stories.
Thank you, Mr. Chairman.
The Chairman. Our first panel is composed of individuals who
know first-hand what it is like to lack health security. Kathy
Wojnar from Belchertown, MA lost her health insurance when she
lost her job. She needs that health insurance because of a heart
condition. I know her testimony will put this discussion about
health reform in the proper context.
Joseph Roach, from Ambler, PA, is one of millions of early retir-
ees whose company cut back on benefits.
We also have with us Linda Montgomery, from Council Grove,
KS, who will share with us her personal fight against bone cancer
and her struggle to find insurance to pay for her treatment.
Ms. Wojnar, thank you very much for joining us today. We look
forward to hearing your story.
57
STATEMENTS OF KATHY WOJNAR, FORMER BUSINESS MAN-
AGER, BELCHERTOWN, MA; JOSEPH P. ROACH, RETHIED
BUSINESSMAN AND REALTOR, AMBLER, PA; AND LINDA
MONTGOMERY, WD7E, MOTHER, RETHIED NURSE, COUNCH.
GROVE, KS
Ms. Wojnar. My name is Kathy Wojnar, and I currently reside
in Belchertown, MA. I am a 37-year-old widow with heart disease.
I was diagnosed with coronary artery disease when I was 34 years
old and underwent a procedure called an arthrectomy to remove
the blockage.
Initially, the procedure was thought to be a success. However,
that evening, I suffered the first of three heart attacks. It was de-
termined that during the arthrectomy, the physician tore my artery
with the lead wire.
I underwent several angioplasties to open this artery, but it
closed each time, causing two additional heart attacks. Fortunately,
there was minimal damage done to the heart. However, even after
laser surgery that was performed at Cedars-Sinai Hospital in Los
Angeles, the artery still remains closed. There is no procedure at
this time that will keep this artery open, and I was informed by
my former physician in California that bypass surgery would pro-
vide little or no help to my situation. I take several medications per
day, follow a strict diet and exercise program, and live a restricted
lifestyle.
Up until April of this year, I was employed at Lambert Bridge
Winery in California as a general manager. Through this company,
I was provided with a good health insurance plan. We were a small
company with under 20 employees. The winery owner lost a major
lawsuit in 1991, and we were therefore forced to close the operation
in December of 1992. I continued working until April of 1993. At
that time, I lost my health insurance policy, and I am currently un-
insured and uninsurable.
While we were still covered, and after my stay in the hospital,
the insurance company raised our rates 60 percent. In order to
combat some of the cost, I was forced to raise the deductible for all
employees from $250 per year to $500 per year. It was a difficult
decision to make and to implement, as I felt responsible since it
was my disease that caused this increase, and now everyone had
to pay for it. Intellectually, I knew that having heart disease was
not my fault, but I still felt extremely guilty.
After losing the lawsuit, the winery was put up for sale. I knew
that I would probably be losing my job and therefore would be fac-
ing a major problem in regard to health insurance. I spoke to our
broker and was informed that because we had under 20 employees,
the insurance company did not have to offer COBRA, but were re-
quired to offer a conversion plan. He also stated that if I did not
take this conversion, I would be virtually uninsurable.
I checked with the insurance company and was informed that for
myself, the conversion would be approximately $850 per month and
that the insurance would not be the same coverage. There would
be no prescription drug insurance, not dental, etc. It would be your
basic major medical insurance. I felt that I should still take this
conversion, though, when the time came as I had no other alter-
native.
58
Just before I left the winery, I again contacted our insurance
company. I was informed that because the business had closed,
they did not have to offer the conversion; therefore, they were can-
celing my insurance. I have been without insurance since that time
and pay approximately $400 a month for prescription drugs.
After the winery closed, I decided to sell my house, which I did
at a loss, and moved back to my home State of Massachusetts. My
family is there, and with my husband deceased, my health situa-
tion and lack of employment, I thought it best to move back home.
Just prior to leaving California, my cardiologist also moved. I
was given copies of my records and sent on my way. So now I was
not only without health insurance, but without a physician as well.
This left me feeling frightened and alone. My former physician did
provide me with prescriptions that would last a few months, but
I was instructed to find a cardiologist as soon as possible.
I began phoning cardiologists in western Massachusetts to make
an appointment. When I spoke to the office staff, I was asked if I
had nealth insurance. When I answered no, I was told that they
were not taking new patients. When I mentioned that J would pay
for my own bills, the best one office would do was to put me on a
waiting list. I was also told by another office that I needed to find
a primary care physician who could refer me to them. I told this
office that I was a cardiac patient, I had my records, and I did not
want to incur the expense of seeing another physician. They would
still not see me.
During the humidity of the summer, I was having trouble
breathing, and when I asked a nurse at one of these offices if this
was normal for cardiac patients, she responded that she did not
know, and that I should go to the emergency room. I felt the situa-
tion was not serious enough to incur the expense of an emergency
room visit, so I did not go. I was simply looking for some reassur-
ances from her.
I finally made an appointment with an internist that my sister
used to work for. They did not want to see me, either, but when
I mentioned that my sister used to work for this doctor, they spoke
to him, and he accepted me. I saw him on September 17th. He was
very concerned that I had been without medical care for so long,
sent me to a lab for blood work, and got me an appointment with
a cardiologist.
This cardiologist is not aware that I do not have health insur-
ance, so this may be my first and last appointment with him.
The question of insurance also plays a big part in my job search.
I need to and want to work. I spend many hours each week looking
for employment. I am afraid, however, that once I am hired, my
health situation will become an issue. So far, I have not mentioned
this during any of my interviews and will only mention it in regard
to health insurance. I was told by a health insurance broker that
the only way I could possibly get insurance with this pre-existing
condition was to become employed by a large corporation and hope-
fully, the insurance application would just get pushed through.
Recently, I was offered a job at a much lower pay rate than I was
making in California. I would have considered taking the position
if there were health insurance benefits, but there were not. I was
recently up for a position in a much larger company, for the same
59
low salary, but there were health benefits. If it had been offered
to me, I would have accepted this position. Again, I may not have
been accepted by their health care provider, but it would have been
worth a try.
The thought of spending the rest of my life without health insur-
ance is a frightening notion. If I need to have any tests done other
than blood work, I cannot afford it. If I must go into the hospital,
it will wipe out what little savings I have. Once that is gone, then
the State will have to pay for me. I do not want to be dependent
on anyone else for my health care.
I am fortunate to have a small income besides unemployment
benefits, so I can afford my $400 per month in prescription drugs.
But for the first time this month, I will need to dip into my savings
to pay for the doctor visits and lab work. There are also times
when money is so short that I am not able to take these drugs as
often as prescribed.
It is terrifying enough to live with a life-threatening disease, but
to have this disease and no insurance makes it almost unbearable.
In the past 2-1/2 years, I have lost my health, my husband, my job,
and my health insurance. I struggle each day to start a new life
for myself and to fight off the depression that keeps trying to
sweep over me. If we do not have some kind of health care reform
in this country, I may never be able to obtain health insurance
again because of this pre-existing condition.
I am in favor of President Clinton's health care reform plan, and
I only hope that the Government and the American people will re-
alize how serious a situation this is for millions of people in this
country. I not only live in fear that I am going to have another
heart attack, but that this time I will be having a heart attack
without insurance.
At least now, however, I do have two things to be thankful for.
The first is I have finally found a physician who will at least pre-
scribe my medications for me. The second is the health care reform
plan introduced by President Clinton last week. For the first time,
there appears to be some hope for people like me.
Thank you all for the opportunity to share my story.
[The prepared statement of Kathy Wojnar follows:]
Prepared Statement of Kathy Wojnar
My name is Kathy Wojnar and I currently reside in Belchertown, MA. I am a 37-
year-old widow with heart disease. I was diagnosed with coronary artery disease
when I was 34 years old, and underwent a procedure called an artherectomy to re-
move the blockage. Initially the procedure was thought to be a success. However,
that evening I suffered the first of three heart attacks. It was determined that dur-
ing the artherectomy the physician tore my artery with the lead wire. I underwent
several angioplasties to open this artery, but it closed each time, causing two addi-
tional heart attacks. Fortunately there was minimal damage done to the heart.
However, even after laser surgery was performed at Cedar-Sinai Hospital in Los An-
feles, the artery still remains closed. There is no procedure at this time that will
eep this artery open, and I was informed by my former physician in California that
bypass surgery would provide little or no help to my situation. I take several medi-
cations per day, follow a strict diet and exercise program, and live a restricted life-
style.
Up until April of this year, I was employed at Lambert Bridge winery in Califor-
nia as a General Manager. Through this company, I was provided with a good
health insurance plan. We were a small company with under 20 employees. The
winery owner lost a major lawsuit in 1991, and we were therefore forced to close
the operation in December of 1992. I continued working until April of 1993. At that
60
time, I lost my health insurance policy, and I am currently uninsured and uninsur-
able.
While we were still covered, and after my stay in the hospital, the insurance com-
pany raised our rates 60%. In order to combat some of the cost, I was forced to raise
the deductible for all employees from $250 per year to $500 per year. It was a dif-
ficult decision to make and to implement. I felt responsible, since it was my disease
that caused this increase, and now everyone had to pay for it. Intellectually, I knew
that having heart disease was not my fault, but I still felt extremely guilty.
After losing the lawsuit, the winery was put up for sale. I knew that I would prob-
ably be losing my job and would therefore be facing a major problem in regard to
health insurance. I spoke to our broker, and was informed that because we had
under 20 employees, the insurance company did not have to offer COBRA, but they
were required to offer a conversion plan. He also stated that if I did not take this
conversion, I would be virtually uninsurable. I checked with the insurance company
and was informed that, for myself, the conversion would be approximately $850 per
month, and the coverage would not be the same as under Lambert Bridge s company
coverage. There would be no prescription drug insurance, no dental — it would be
your basic major medical insurance. I felt that I should still take it, though, when
the time came, as I had no alternative.
Just before I left the winery, I again contacted our insurance company. I was in-
formed that because the business had closed, the insurance company did not have
to offer a conversion. Therefore, they were canceling my insurance. I have been
without insurance since that time and pay approximately $400 per month for pre-
scription drugs.
After the winery closed, I had decided to sell my house, which I did at a loss, and
moved back to my home state of Massachusetts. My family is there, and with my
husband deceased, my health situation, and my lack of employment, I thought it
best to move back home. Just before I left California, my cardiologist moved to Eu-
reka, CA. I was given copies of my records and sent on my way. So now I was not
only without health insurance but without a physician as well. This left me feeling
frightened and alone. My former physician provided me with prescriptions that
would last a few months, but I was instructed to find a cardiologist as soon as pos-
sible.
I began phoning cardiologists in western Massachusetts to make an appointment.
When I spoke to the office staff, I was asked if I had health insurance. When I an-
swered no, I was told that they were not taking new patients. When I mentioned
that I would pay for my own bills, the best one office would do was to put me on
a waiting list. I was also told by another office that I needed to find a primary care
physician who could refer me to them. I told this office that I was a cardiac patient,
had my records, and I did not want to incur the expense of seeing another physi-
cian. They still would not see me. During the humidity of the summer, I was having
trouble breathing and when I asked a nurse at one of these offices if this was nor-
mal, she responded that she did not know and maybe I should go to the emergency
room. I felt the situation was not serious enough to incur the expense of an emer-
gency room visit, so I did not go. I was simply looking for some reassurances from
her.
I finally made an appointment with an internist that my sister used to work for.
They did not want to see me either, but when I mentioned that my sister used to
work for this doctor, they spoke to him and he accepted me. I saw him on September
17. He was very concerned that I had been without medical care for so long, sent
me to a lab for blood work, and got me an appointment with a cardiologist. This
cardiologist is not aware that I do not have health insurance, so this may be my
first and last appointment with him. The question of insurance is also a big part
of my job search. I need to and want to work — I spend many hours each week look-
ing for employment. I am afraid, however, that once I am hired, my health situation
will become an issue. So far, I have not mentioned this during any of my interviews,
and will only mention it in regards to health insurance. I was told by a health insur-
ance broker that the only way I could possibly get insurance coverage with this pre-
existing condition was to become employed by a large corporation, and hopefully the
insurance application would iust get pushed through.
Recently I was offered a job at a much lower salary than I was making in Califor-
nia. I would have considered taking the position if there were health insurance ben-
efits, but there were none. I was recently up for a position in a much larger com-
pany, for the same low salary, but it would have included health benefits. If the
position had been offered to me, I would have accepted it. Again, I may not have
been accepted by their health care provider but it would have been worth a try. The
thought of spending the rest of my life without health insurance is a frightening
notion.
61
If I need to have any tests done, other than blood work, I cannot afford it. If I
had to go into the hospital, it would wipe out what little savings I have. Once that's
gone, then the State will have to pay for me. I do not want to be dependent on any-
one else for my health care. I am fortunate to have a small income besides my un-
employment benefits, so I can afford my $400 per month in prescription drugs, but
this month, for the first time, I will need to dip into my savings to pay for the doctor
visits and lab work. There are also times when money is so short that I am not able
to take my medication as often as prescribed.
It is terrifying enough to live with a life-threatening disease, but to have this dis-
ease and no insurance to pay for the necessary care makes it almost unbearable.
In the past two-and-one-half years, I have lost my health, my husband, my job, and
my health insurance. I struggle each day to start a new life for myself and to fight
off the depression that keeps trying to sweep over me. If we do not have some kind
of health care reform in this country, I may never be able to obtain health insurance
again because of this pre-existing condition.
I am in favor of President Clinton's health care reform plan, and only hope that
the government and the American people will realize how serious a situation this
is for millions of people in this country. I live in fear not only that I am going to
have another heart attack, but that this time I will be having a heart attack with-
out insurance. At least now, however, I do have two things I can be thankful for.
The first is that I have finally found a physician who will at least prescribe medica-
tions for me. The second is the health care reform plan introduced by President
Clinton last week. For the first time there appears to be some hope for people like
me.
The Chairman. Thank you. I think we'll hear from the whole
panel and then come back to questions.
Mr. Roach.
Mr. Roach. Chairman Kennedy, Senator Kassebaum, Senator
Wofford, and other members of the committee, my name is Joe
Roach, and I live in Ambler, PA. I would like to thank you for the
opportunity to testify today about the need for health care reform
for retired persons who are not yet eligible for Medicare benefits.
I worked for almost 40 years for a major computer manufacturer
in a variety of senior management positions. Two years ago, I took
an early retirement package from my company at age 59.
Health insurance is very important to me and my wife, who de-
pends on my coverage. I am a diabetic, diagnosed about 15 years
ago. I also become insulin-dependent about 5 years ago. Also about
5 years ago, I was operated on for cancer. Fortunately, up until
now, there has been no recurrence.
Last year, I was diagnosed with heart disease and had an
angioplasty which so far has been successful.
With these pre-existing conditions, obtaining health insurance for
myself and my wife would be cost-prohibitive, if not impossible al-
together.
As you know, many companies today are asking their employees
to share in the costs of medical coverage. Some companies are try-
ing to do away complete with retiree health benefits. With myself
as an example, it is hard to imagine or even believe that a retiree
who has contributed so many of his years to a life is today suffering
reductions in benefits or being forced to pay the entire cost of the
coverage. ...
Most early retirees like me were enticed to retire through addi-
tional benefits offered. These often related to payment of medical
benefits. In my company, one of the major inducements was free
or nominal cost medical benefits throughout retirement, for life.
This was not a gratuitous offer. The company saved significant
62
payroll expenses by retiring many people at their peak earning
years, myself included.
From the employee standpoint, there was a significant trade-off.
In my company, early retirement meant serious reductions in pen-
sion payments during retirement — 5 to 6 percent per year before
age 65 for employees with less than 20 years of service, and before
age 62 for employees with more than 20 years.
As an example, someone with 35 years of service retiring at age
65 would have his or her pension reduced by 35 percent in some
plans and 42 percent in others. If you assume that someone's pen-
sion would be approximately 40 percent of his or her last 5 years'
average salary, reduce that by 35 percent. The resulting pension
would be only 26 percent, or roughly one-quarter, of the worker's
average salary or wages for the 5 years before retirement.
Just to give you a couple of examples, if someone was making
$20,000 average salary, their retirement would be $5,200 per year.
At $30,000, that would be $7,800 per year. And someone who aver-
aged $40,000 would have the magnificent sum of $10,400.
Pensions are computed considering service and compensation. An
employee retiring at 55, as in my example, has given up 7 to 10
years' salary at his highest level of income. That employee has also
accepted a reduced pension, because of a lower service multiplier,
the 7 to 10 years that he gave up. He has also foregone higher av-
erage earnings for that period — anywhere from 7 to 10 years at his
highest level.
Please keep in mind that the pension is further reduced by 5 or
6 percent for each year before age 65 per our company's plan.
In addition, an employee who intended to work until age 65 has
also given up 20 percent of his Social Security benefits, having
probably had to start receiving Social Security benefits at age 62
instead of age 65, because of his lower income.
I strongly feel that any contributions expected of early retirees
under health care reform must take into account that they already
have had to make significant sacrifices and should not be required
to pay as much as other retirees who have not had to sacrifice.
As a specific example, my company has informed me and other
retirees that because of increased medical costs and pressures on
profits, that it is changing the medical benefits for all retirees, not
just future retirees.
Effective in January 1996, both early and regular retirees will
have to pay the entire cost of their coverage for medical benefits.
Increasingly large portions will have to be paid in 1993, 1994, and
1995. The company projects that the cost for a retiree and spouse,
both under age 65, under their program, will be $9,500 per year
by 1996, which in many cases will consume the entire pension
check and more, leaving nothing for other necessities. Worse still,
many retirees may have to make the decision to give up coverage
and risk total financial disaster from a serious illness or hos-
pitalization.
It is important to note that for employed workers, these possibili-
ties for retirement years are having a severe negative effect on mo-
rale in the workplace. Many employees feel they can no longer
trust their employers. Low morale and increasing mistrust has to
63
mean long range reductions in our productivity as a Nation. This
is extremely important in the competitive world market of today.
I and my fellow retirees are taking our company to court to stop
this incredible breach of contract and violation of law. Whatever
the outcome of our particular case, however, the problem of early
retirees will endure. By definition, early retirees have no Social Se-
curity income. If they have a pension, a big portion of it has al-
ready been lost in the trade-off to retiree early. Finding employ-
ment is difficult.
Our former employers are unconscionably casting us adrift, just
when we have increasing medical needs. Companies are placing the
bottom line ahead of ethics, honesty, and human values.
Meeting the needs of early retirees is a vital part of national
health care reform. I am very encouraged by what I have learned
about how the President's Health Security Plan proposes to provide
secure coverage for early retirees.
I also strongly believe that the immediate problem of retirees los-
ing their employer-sponsored coverage must be addressed now.
Senate Bill 1268 introduced this past summer by Senator Wofford
would do a great deal to help early retirees by requiring employers
to continue coverage during litigation.
I and my fellow retirees therefore urge you to support and
promptly enact S. 1268 to provide this immediate protection to re-
tirees whose companies are removing or significantly reducing their
benefits.
Our needs must be addressed through comprehensive health care
reform. I hope Congress will consider our needs and move swiftly
to enact this bill.
Gentlemen, my appreciation for your attention and for your con-
cern for the early retirees, as this critically needed legislation, com-
prehensive health care reform, moves through Congress.
Thank you.
[The prepared statement of Mr. Roach follows:]
Prepared Statement of Joseph P. Roach
Chairman Kennedy, Senator Kassebaum, Senator Wofford, and members of the
Committee: My name is Joseph P. Roach and I live in Ambler, PA. Thank you for
the opportunity to testify about the need for health care reform for retired persons
who are not yet eligible for Medicare benefits.
I worked for almost 40 years for a major computer company in a variety of senior
management positions. Two years ago, I took an early retirement package from my
company at age 59.
Health insurance is very important to me and my wife, who depends on my cov-
erage. I am a diabetic, diagnosed about 15 years ago. I become insulin-dependent
about 5 years ago. Also about 5 years ago, I was operated on for cancer; fortunately,
up to now there has been no recurrence. Last year, I was diagnosed with heart dis-
ease and had an angioplasty which so far has been successful.
With these pre-existing conditions, obtaining health insurance for myself and my
wife would be cost-prohibitive, if not impossible altogether.
As you know, many companies today are asking their employees and retirees to
share in the costs of medical coverage. Some companies are trying to do away com-
pletely with retiree health benefits. With myself as an example, it is hard to imag-
ine or believe that a retiree who contributed many years of his life to a company
is today suffering reductions in his benefits or being forced to pay the entire cost
of coverage.
Most early retirees like me were enticed to retire with additional benefits. These
often related to payment of medical benefits. In my company, one of the major in-
ducements was free or nominal cost medical benefits throughout retirement, for life.
64
This was not a gratuity. The company saved significant payroll expenses by retiring
many people at their peak earning years.
From the employee standpoint, there was a significant trade-off. In my company,
early retirement meant serious reductions in pension payments during retirement —
5 to 6 percent for each year before age 65 for employees with less than 20 years
of service. As an example, someone with 35 years service retiring at age 55 would
have his or her pension reduced by 35 percent in some plans, and 42 percent in oth-
ers.
If you assume that someone's pension would be 40 percent of his or her last 5
years' average salary and reduce it by 35 percent, the resulting pension would be
only 26 percent, one quarter, of the workers average salary or wages before retire-
ment.
fceraie Silary/Wajes %«*?„'"
$20,000 $5,000
$30,000 $7,800
$40,000 $10,400
Pensions are computed considering service and compensation. An employee retir-
ing early has given up 7 to 10 years salary. That employee has also accepted a re-
duced pension, because of a lower service multiplier and foregone higher average
earnings for 7 to 10 years. And keep in mind the pension is further reduced by 5
or 6 percent for each year before age 65.
In addition, an employee who intended to work until age 65 also has given up
20 percent of his or her Social Security benefits, having probably had to start receiv-
ing Social Security benefits at age 62 instead of age 65.
Any contributions expected of early retirees under health care reform must take
into account that they already have had to make significant sacrifices and should
not be required to pay as much as other retirees who have not.
My company has informed me and other early retirees that, because of increased
medical costs and pressures on profits, it is changing the medical benefits for all
retirees. Effective in January 1996, both early and regular retirees will have to pay
the entire cost of their coverage for medical benefits. Increasingly large portions will
have to be paid in 1993, 1994, and 1995. The company projects that the cost for
a retiree and spouse both under age 65 will be $9500 per year by 1996, which in
many cases will consume the entire pension check ana more, leaving nothing for
other necessities. Worse still, retirees may have to give up coverage and risk total
financial disaster from a serious illness or hospitalization.
For employed workers, these possibilities for retirement years are having a severe
negative effect on morale in the workplace. Employees feel they cannot trust their
employers. LAw morale, and increasing mistrust, has to mean long-range reductions
in our productivity as a nation.
I and my fellow retirees are taking the company to court, to stop this incredible
breach of contract and violation of law. Whatever the outcome of our particular case,
however, the problem of early retirees will endure. We have no Social Security in-
come. If we have a pension, a big portion of it has been lost in the bargain to retire
early. Finding employment is difficult. Our former employers are unconscionably
casting us adrift, just when we have increasing medical needs. Companies are plac-
ing the bottom line ahead of ethics, honesty, and human values.
Meeting the needs of early retirees is a vital part of national health care reform.
I am very encouraged by what [ have learned about how the President's Health Se-
curity Plan proposes to provide secure coverage for early retirees. I also believe that
the immediate problem of retirees losing their employer sponsored coverage must
be addressed now. Senate Bill 1268, introduced this summer by Senator Wofford,
would do a great deal to help early retirees, by requiring employers to continue cov-
erage during litigation. I and my fellow retirees therefore urge you to support and
promptly enact S. 1268 to provide this immediate protection For early retirees. Our
needs must be addressed through comprehensive health care reform. I hope Con-
gress will consider our needs and move swiftly to enact it.
Thank you for your attention and for your concern for early retirees as this criti-
cally needed legislation, comprehensive health care reform, moves through Con-
gress.
The Chairman. Thank you very much.
Ms. Montgomery.
65
Ms. Montgomery. Thank you, Mr. Chairman and Senators. I am
very grateful for the opportunity to come today and speak before
you, and I would like to thank you beforehand.
My name is Linda Montgomery. I currently have a social work
degree, a degree in mental health, and I am a licensed mental
health technician practicing at Stormont Vail Hospital in Topeka,
KS, the largest medical center in northeast Kansas.
A year ago, I was diagnosed by my doctors with multiple
myeloma, a form of bone cancer, also a diagnosis usually given to
the elderly of a mean age between 65 and 75 years. It is rare for
someone my age to have this affliction.
But this year, by my insurance company, I was given a death
sentence when, through Federal legislation, they were allowed to
refuse to treat me.
Following my diagnosis in the fall of 1992, my physician advised
me to seek chemotherapy immediately. My own hospital was too
busy to take me in for the initial outpatient procedures that I need-
ed in order to start my chemotherapy, so my doctor then arranged
for me to go to a neighboring hospital to get these outpatient proce-
dures done.
While I was waiting for the procedure in the outpatient waiting
room, I collapsed from hypercalcemia, a side effect of my condition
at that time. As I became unconscious, I was admitted on an emer-
gency basis to the neighboring hospital. This was how I became
aware that while the insurance card that I carry looks like a Blue
Cross and Blue Shield card, and all correspondence I receive comes
from Blue Cross, what I really had was insurance coverage through
a self-insured plan carried through Stormont Vail and adminis-
tered by Blue Cross only.
Even though I was unconscious at the time and unable to give
coherent instructions as to my needs, Blue Cross on my behalf later
penalized me 25 percent of the normally covered expenses in addi-
tion to my regular deductible and my co-pay for my hospitalization.
This I found out was just to be the beginning of the insurance and
financial nightmare that continues to this day.
Conventional chemotherapy for me proved unsuccessful, and 6
months later I relapsed and had to be rehospitalized. This time, I
was hospitalized in my own hospital.
During the time following the first and second hospitalizations,
none of my medical bills were paid, including Stormont's own bills.
Bill collectors from my own employer became more persistent than
many of the others, trying to get money from a person. Twice, they
insisted that I sign a payroll deduction form so that they could
begin to try to receive payments on these bills, although I had no
income.
I am still unable to work to this day. Blue Cross, on behalf of
Stormont, then spent the rest of this time searching for evidence
that my condition had pre-existed, so that from that point they
would be unable to deny my claim entirely.
Also, while I was still hospitalized in April, the second hos-
pitalization, I had applied for Social Security as soon as I was diag-
nosed, on the advice of doctors and hospital personnel. So I had ap-
plied, and I had received notice that I had been denied my claim
66
and was advised it was my right to reapply if I wanted to. I did
so, and was denied a claim a second time.
Knowing this, I decided at that time that I would have to at-
tempt to return to my job, and I did so. Social Security after the
second denial told me that what I should do was continue to work;
if I could not work in my current capacity on this gero-psychiatric
unit, which is what I do in the nursing service, that I should seek
a job as an office manager, a position for which I am not even
trained.
So I filed an additional appeal at this time with the administra-
tive law judge and was later sent a letter and told not to expect
a hearing to De scheduled for at least 3 to 5 months, at which time
I might want to seek legal counsel.
So at this point, being totally frustrated, I wrote a letter to seek
aid from my Senators and have just recently in the last few weeks
qualified for disability from Social Security.
Following this hospitalization in April, and with the aid of my
physician, I was able to apply and also qualify for an experimental
protocol that is being sponsored by the National Cancer Institute
and the National Institute of Health. So I have begun this treat-
ment, and after 6 months of facing death and bill collectors and
their attorneys, Blue Cross finally came through and began to pay
some of the bills of my claim.
I still have not been able to achieve a remission even on this in-
vestigational drug, but I have been able to maintain some control
over my disease to this point. My doctor, however, advises that this
is time-limited, since I am not in remission, and I have to be aware
of that, and I would like to make you all aware, that my only real
chances for a return to health would be to have what is now called
a stem cell bone marrow transplant.
This procedure is not considered experimental in many cases and
is also a recognized therapy for persons with cancer of the blood-
forming organs, which is what I have. In checking with Blue Cross,
they initially said that I was covered. I was grateful and went run-
ning back to my doctor to tell him the good news. They then
checked further and called me the next day and said no, my plan
wouldn't cover the procedure; it only covered certain cancers, and
mine wasn't one of them. And it did not mention multiple myeloma
at all in their contract, so it would not be covered in the future.
In 1991, before my diagnosis, after the loss of several jobs due
to the economy — both my husband and I had lost about two jobs
apiece — my husband and I decided to withdraw all of our retire-
ment money and invest it in a small ice cream shop business as
a hedge against future unemployment. We moved to a small town
in Kansas, Council Grove, with a population of roughly 2,000, and
began our business there. We purchased this business from the
bankruptcy court, and while we have made great strides in this
business, if we make any money in 1993, it will be our first profit.
We have owned this company for 2 years.
At the same time, we employ between 20 and 25 employees in
this community, which is roughly 2.5 percent of our population.
And since I could no longer work and was refused disability, in an
effort to maintain my home, I sold first my furniture, my valued
and prized antiques, later my appliances — all to make my house
67
payments. Finally, in an effort to try to cover the unpaid medical
bills and the 25 percent penalty that they gave me for my insur-
ance, I had to sell my house, because I could no longer maintain
the mortgage and was about to be foreclosed on.
Unfortunately, I hadn't owned the house long enough to have eq-
uity built up, but the foreclosure didn't cost me on my credit— the
only benefit I think we received.
I now live in a secondhand mobile home. I was advised that I
should apply for Social Security and seek SSI and a medical card
from my county social and rehabilitative services office. SSI noti-
fied me, and with their regrets, told me that since I still main-
tained an IRA with slightly over $3,000 in it, that I did not qualify,
and I was refused SSI assistance, and even if I had renewed this
IRA and paid the taxes and the early removal penalty and paid
these medical bills— some of them— that still, the store and its op-
erating losses during the winter months was considered an asset,
and I would not qualify.
Later, social and rehabilitation services, whom I contacted to see,
as a disabled person, if I would be able to qualify for a medical
card, told me that, yes, I could fill out an application; yes, I could
try to apply for a medical card. They said that, yes, indeed, I was
legally disabled, and because I did have this business, that there
wasn't a thing they could do for me because it was a major asset;
and that if I wanted to qualify for this medical card and get help,
that I needed to divest myself of the business, my husband then
becoming unemployed.
Also, the thing I found most difficult to deal with was they said
it was unfortunate that they couldn't do anything for me; my only
other alternative would be to seek a divorce because as an inde-
pendent woman with no support, I would then qualify.
Now, I need to tell you at this point that the stresses of having
to live with any catastrophic illness alone is enough to tax many
marriages, possibly ending them. But when couples with the loss
of career, the loss of my income, insurmountable medical bills, plus
the emotional stresses I have personally of living with a body that
I no longer recognize, being bald, loss of intimacy in my personal
marital relationship, the loss of friends, a move to a different com-
munity, and no longer a social life because my health won't permit
it^_few marriages could stand these stresses, and I consider myself
fortunate to be married at this time.
My husband, however, is a wonderful, caring, and very support-
ive man, and because of our Christian beliefs and our personal eth-
ics, divorce is out of the question.
We also have to realize at this point that we have no other alter-
native and no way at all to pay for any treatments that I need. And
now the bone marrow transplant seems to be totally out of the
question. .
Several people have come to me with documentation about how
they may have the diagnosis that I have — there are few of us— but
I have learned through phone calls, through my Senator's office,
through support groups that there are other people like me out
there. Some of them, after learning about my diagnosis, were able
to get help; they sought that help through their State insurance
commissioner. They got their insurance company then to cover
68
their bone marrow transplants. One of these cases, I learned later,
was from my home town, and it involved Blue Cross. The lady was
then permitted the bone marrow transplant; she died before she re-
ceived it.
When I called the insurance commissioner's office at that point,
they were very sympathetic to my plight and then explained to me
that what I had was a Blue Cross administered plan; it was a self-
insured group plan and was not under their jurisdiction as insur-
ance commissioners, and in short, there wasn't a thing they could
do to help me.
This was also confirmed later by the director of the risk manage-
ment office in my own hospital, Stormont Vail, who at the time
would not talk to me on the telephone but sent a secretary to tell
me that, "If it wasn't written in our insurance contract, then we
won't cover it — sue us."
This, I had not expected from the place where I had worked, and
this was probably the hardest knock of all — the same hospital
whose motto is: "Caring for generations."
Several friends and acquaintances who are physicians said there
would be no problem with Medicare, and they would assist with my
needing of treatment for this procedure. But then they were as
shocked as I was in the beginning when I learned that even though
I was a permanently disabled person, I did qualify for Social Secu-
rity, but I cannot qualify for Medicare for 2 years, something you
all are aware of. So for me, this is mostly likely going to be 1 year
too late.
It seems at this point that I am at a dead end and little can be
done to help me. But you as Senators are about to write a new
chapter in health care, and you have the opportunity to see that
others in the future won't fall between the cracks in the system the
way I seem to have done so thoroughly.
I want you to know that as small business owners, my husband
and 1 want very badly to offer health care to our employees; but
under the current system, we just cannot.
When other business owners in town learned that I had this op-
portunity to come before you and speak, they asked if they could
please add their voices to mine as I came before you, and tell you
that they also want health insurance for their employees and to
please try to get the point across to you. So I am here to carry that
message that they consider the need for health care important, and
they, as a very caring community, want too the health and safety
of all their employees in these small businesses.
I don't know enough about the Clinton plan at this time. I did
hear him speak, but as we all know, we need to know more in
depth. What we hear in the media, I always take with a grain of
salt, because a lot of it seems to be highly sensationalized. But I
have had the opportunity to study Senator Kassebaum's proposal,
and I would whole-heartedly support health care reform of that na-
ture.
I with you all Godspeed. I hope you can do this expeditiously, get
health care for American citizens. For me, the clock is running.
I thank you.
[The prepared statement of Ms. Montgomery follows:]
69
Prepared Statement of Linda Montgomery
My name is Linda Montgomery. I have a BSW and a degree in mental health and
work in the geriatric-psyc diagnostic unit of Stormont Vail Hospital in Topeka, KS,
the largest medical center in north east Kansas. A year ago I was diagnosed, by
my doctors, with multiple myeloma a form of bone cancer, but this year I was sen-
tenced to death by my insurance company and the Federal legislation that allows
companies to self insure.
Following my diagnosis in the fall of 1992 my physician advised that chemo-
therapy begin immediately. My hospital was too busy to do the initial procedures
necessary so my doctor arranged for me to go to a neighboring hospital to have the
procedures done on an out patient basis. While I was waiting for the procedure to
be done I collapsed from hypercalcemia a side effect of my condition, became uncon-
scious and was admitted on an emergency basis to this neighboring hospital. This
was how I became aware that while the insurance card I carry looks like a Blue
Cross card and all correspondence comes from Blue Cross what I really have is a
self insured plan from Stormont Vail administered by Blue Cross. Even though I
was unconscious and unable to give coherent instructions Blue Cross, on behalf of
Stormont, penalized me 25% of the normally covered expenses in addition to my reg-
ular deductible and co-pay. This was just the beginning of an insurance and finan-
cial nightmare that continues to this day. Conventional chemotherapy proved unsuc-
cessful and six months later I relapsed and had to be rehospitalized. During that
entire time none of my medical bills were paid, including Stormont's own bills. Bill
collectors from my own employer were more persistent than many of the others.
Twice they insisted that I sign payroll deduction forms even though I was unable
to work at that time. Blue cross, on behalf of Stormont spent the entire time search-
ing for evidence that my condition had pre-existed my employment at Stormont so
they could deny the entire claim. Also while I was still hospitalized, Social Security
denied my disability claim for the second time, this time claiming that I was fit to
return to my job as an office manager, a position I have never held and am un-
trained for. I filed an appeal with the administrative law judge and was told not
to expect to have a hearing scheduled for at least 3 to 5 months, at which time I
might want to seek legal counsel. With the aid of my Senators I have just recently
qualified for disability but I have been informed that I won't qualify for medicare
for another two years. Following my hospitalization I was, with the aid of my physi-
cian, able to begin a new experimental protocol, never used before in this area,
sponsored by the National Cancer Institute. At this point, after six months of facing
death and bill collectors and their attorneys, Blue Cross began to pay some of the
bills. I was not able to achieve a remission on this investigational drug but I have
been able to maintain some control over my disease to this point. My doctor advises
that this is time limited however and my only real chance for life lies in my ability
to receive a stem cell bone marrow transplant. This procedure is not considered ex-
perimental and is a recognized therapy for persons with cancer of the blood forming
organs. In checking with Blue Cross they initially said that I was covered, then
checked further and said that my plan covers the procedure for certain cancers and
doesn't mention multiple myeloma and since it isn't mentioned it isn't covered.
In 1991, because of the loss of several jobs due to slow downs in the economy,
my husband and I withdrew most of our retirement money and purchased a small
ice cream shop in a town of 2,000 in central Kansas as a hedge against future un-
employment. We purchased the business from the bankruptcy court and while we
have made great strides, if we make any money in 1993 it will be our first profit.
At the same time we employee between 20 and 25 employees which is roughly 2.5%
of the towns total population. Once I could no longer work, and since I was refused
disability we were forced to sell our furniture, antiques and appliances in an effort
to make house payments. Finally, to pay my medical bills ana keep our business
we had to sell the house before we got behind in the mortgage and we now live in
a used mobile home. I was advised that I should apply for SSI and seek a medical
card from my county SRS office. SSI turned me down because there was still more
that 3,000 dollars in my IRA and even if I removed it and payed medical bills they
felt they would still have to deny me on the basis of the money we have in the bank
to cover the stores operating losses during the winter months. SRS informed me
that no matter how much money you owe on the business or how little money you
make, it is still considered a major asset and so I must either get rid of the business
or seek a divorce from my husband. The stresses of having to live with catastrophic
illness alone is enough to end many marriages, but when coupled with loss of job,
loss of income, insurmountable medical bills, and the emotional stressors, the loss
of intimacy due to illness, and the loss of friends and social life few marriages can
70
over come this. Because our marriage is still strong and because of our personal eth-
ics divorce is not an option so we have no way to pay for the treatment I need.
Several people have come to me with documentation of how when they found
themselves with my diagnosis, they were able to, with the help of their State Insur-
ance Commissioner, get their insurance company to cover the bone marrow trans-
Flant. One of these cases was even from my town and involved Blue Cross. When
called the Insurance Commissioners Office they were very sympathetic but ex-
plained that even though Blue Cross administered the plan, it was a self insured
plan and was not under the jurisdiction of the Insurance Commissioners Office. In
short, there was nothing they could do. Which was confirmed by the Director of Risk
Management for Stormont Vail Hospital, who would not talk to me directly but had
his secretary tell me that he said if it's not written in the plan sue us. Several
friends and acquaintances who are physicians suggested that there would be no
problem since medicare would assist in the payment for the procedure, but they
were as shocked as I was to find that even though I was qualified for disability I
could not receive medicare for another two years. Most likely at least one year too
late.
It seems like I'm at a dead end and little can be done to help me at this point,
but you as Senators are about to write a new chapter in health care and have the
opportunity to see that others in the future won't fall between cracks of the system
the way I have. I want you to know that we as small business owners want to offer
health care to our employees. But under the current system we can't. When other
business owner's in town heard I was getting this opportunity to speak, they ask
me to add their voices to mine in telling you that many small businessmen care
about their employees and want help to keep them safe and healthy. I don't know
much about the Clinton plan, because what you hear in the media seems to be high-
ly sensationalized but I have had the opportunity to study Senator Kassebaum's
proposal and we would wholeheartedly support health care reform of that nature.
The Chairman. Thank you very much, Ms. Montgomery, and all
of our panelists, for your very moving and timely comments and
presentations. I think we're going to hear an awful lot during this
debate about what we are spending here, what we are spending
there, about costs, about deductibles, about co-pays, about co-insur-
ance. So much of the debate and discussion is on those issues, and
we all know they are important. But we have three Americans, our
fellow citizens, who have worked their whole lives — worked their
whole lives — and have basically fallen through the cracks of the
system; the system has "gamed them.
Taking care of our fellow citizens is going to involve costs and ex-
penditures, but any one of the problems that they have could hap-
pen to any one of us. It could happen to any one of us up here; it
has happened I know in terms of our colleagues in different ways.
I have a son with cancer who has been lucky enough to survive.
But it could happen to any one of us, and if we aren't able to recog-
nize that the kinds of voices that we have heard here today are
really the voices of all Americans, and if we get weighted down, as
some would have us do, in being reluctant to at least try to deal
with these — we may not get it right, but we sure as the devil ought
to try to get it right. That, we must do.
Very briefly, because the stories speak for themselves, I'd like to
ask Kathy Wojnar, as I understand, you would be prepared if you
could get coverage to make a contribution; would you not?
Ms. Wojnar. Oh, absolutely.
The Chairman. You're not just trying to get something for noth-
ing.
Ms. Wojnar. Oh, no, absolutely not. I think we should all pay
for our health insurance, but we should be guaranteed the right to
get it.
71
The Chairman. And you have some income, and you are cer-
tainly prepared to participate in the system, but the problem is you
can't even get in the front door because you are denied virtually
any kind of consideration, no matter how much you could pay.
Ms. Wojnar. That's right.
The Chairman. Then we have the retirees. American citizens—
and Mrs. Clinton was talking about young people paying a little bit
more the other day— had better listen to Mr. Roach here. It s not
going to be too many years, and they are going to be right where
Mr. Roach is. Let's point out— 16 percent of all employers dropped
retiree coverage between 1991 and 1992; just dropped them. Thats
16 percent. ,
We've got 32 million active workers who have been promised re-
tirement coverage. They had better start listening to Mr. Roach
They had better start listening and look at what has happened
with employers over the period of the last 2 years. They have been
dropped like hot potatoes and just pushed out into the cold.
This will continue to happen unless we are going to try to re-
spond to those like Mr. Roach, who have worked 40 years of their
lives, and unless we are going to try to, as the administration's pro-
posal does, provide 80 percent of the cost of the premium. If the
company had been participating, they will pick up the 20 percent.
You'd be willing to participate, would you not, Mr. Roach?
Mr. Roach. Yes; my point being, however, Senator, that we have
already given up or traded off a significant portion of our promised
pensions for this early retirement and no-cost health benefit. To go
into that same pool, my point is that even if the Government picks
up that responsibility from the private sector that the Government
has to consider the fact of early retirees who have already given
up anywhere from 20 to 40 percent of their pensions.
The Chairman. Well, I think you are absolutely right. Over in
the Finance Committee, Mrs. Clinton got heavy, heavy-duty criti-
cism for that aspect of the program just about 3 hours ago, from
those saying we can't afford to look after those people. The esti-
mate, at least before our committee, was about $4.5 billion even
under the program.
I think you make an excellent case in terms of the additional eq-
uity for the early retirees beyond the 80 percent, and you make a
very, very strong argument on that. But we're finding out that even
this part of it has been criticized.
Your story is just so moving. We just don't quantify the kinds of
anxieties that you described and which anybody can understand.
Mr. Roach. Senator, hopefully, I was only describing that which
is a condition for many, many people, not for myself. Many people
are at a much lower income than I am able to attain through my
own pension, and in many cases, these medical costs are going to
exceed their pensions.
The Chairman. I think you said it well. I think the witnesses un-
derstand that we can be criticized by others saying that we can
find three people in the country who have tough problems, but
what all of you have commented on is the kinds of situations that
are affecting millions of our fellow citizens.
Finally, Ms. Montgomery, your statement and comments, as I
think every member of the committee understood, were brought to
72
our attention and national attention by Senator Kassebaum, in di-
rectly asking Mrs. Clinton about it yesterday in our committee
hearing. So she has been a very effective advocate for you, and I
am certainly hopeful that we can find the wisdom to be able to re-
lieve you of the kinds of heavy anxieties that you are feeling with
regard to the health aspects of it. It is just an absolutely horren-
dous situation, and you are an inspiring figure to be able to talk
about it.
Ms. Montgomery. You are very kind, Senator, and I do thank
you for that. My purpose in being here, though, wasn't just to seek
help and a sympathetic viewpoint for my own welfare. If I have a
limited time on this earth, I have decided that I want to make a
point of making sure that no other citizen in the future ever has
to fall between the cracks as I did, and that health care should be
a right in a country like this, not a privilege, and it has been left
to the privileged citizens. And I am sorry to say that, but that's
what we're coming down to. It is getting harder and more difficult
than it is easier, and I am very grateful to finally see health care
reform come to the fore during an administration. I think it is high
time, and I know many of you feel that way, and I am grateful to
see it happen and happy to participate in any way I can.
The Chairman. Well, you are absolutely right. Every member of
the Congress has it — and I won't get into my little comments about
those who are going to oppose it; I just hope they won't continue
to take advantage of it themselves.
Ms. Montgomery. And you can be aware that I am not nec-
essarily the exception.
The Chairman. Thank you very much.
Senator Kassebaum.
Senator Kassebaum. Thank you, Mr. Chairman.
I would just like to observe that all three of you do represent
many voices, and some in more special ways perhaps than others;
also, all three represent enormous costs in the health care system
one way or another. I think that is the dilemma as we try honestly
to look at a situation where obviously there is great compassion for
the individual and balance that concern with society's responsibil-
ity.
It isn't easy when we are trying to write legislation to do that
in ways that can take everything into account. Mr. Roach, I think
in your situation as an early retiree, this is an issue, because to
a certain extent, the President's plan really moves the Medicare
kick -in point from age 65 to age 55. The estimated cost of $4 bil-
lion, I would suggest, is quite low. It is going to be far greater. It
doesn't mean that there isn't great concern for those who are being
laid off and who have been encouraged to take early retirement
and for those who see what they thought was going to be a lifetime
of security iust evaporate.
That's wnat, in another way, we are struggling with as I men-
tioned in introducing Linda Montgomery — the high cost of new
technology and how do we meet it. Also, her testimony indicates
the whole kind of web of the system that everybody can get caught
in and, as you said, fall through the cracks.
I would like to ask Mrs. Montgomery first, why did your physi-
cian recommend that you receive a bone marrow transplant, and
73
is this something that you could get through the National Cancer
Institute or a National Institutes of Health-sponsored trial in any
way? Was this something that was explored?
Ms. Montgomery. We haven't had a lot of time, really, to com-
municate. I have a wonderful doctor, Dr. Stanley Vogel, a wonder-
ful oncologist, who also studies heavily all aspects of research and
does belong to the Southwest Oncology Research Unit, which is a
subsidized research organization. It was through that study, which
is ongoing, that he had information about the Topotecan investiga-
tional drug that he is now administering to me, which is an i.v.
therapy process.
Through reading the research, I had read and heard that bone
marrow transplantation of the stem cell nature, where these cells
harvest from my own body, would be an opportunity for me.
I asked my doctor about it. His eyebrows went up, and he got
bright-eyed, and he said, "Do you really think your insurance could
help you with that?" And with that, I had my first idea that, yes,
this was the thing I needed to pursue.
As we talked, I found out that, yes, this was probably the best
chance I had at not only protracted remission, but also the resump-
tion of a healthy lifestyle where I might even be able to work once
more.
As far as the NCI and the National Institutes of Health, I have
to fall to my doctor for that, because as a study of research, he is
the one who led me into this new investigational therapy that I am
on. The process of applying for and meeting the criteria necessary
to participate in sucn a study is rather lengthy and somewhat dif-
ficult, and you also have to have a connection through certain
study groups. The doctor who is studying the Topotecan that I am
taking now, his major research is seated, I think, in Columbus,
OH, and it is through telephone and fax machines that most of my
case work gets carried on.
So as far as the bone marrow transplantation, my doctor would
have to pursue that for me; I would then take application and see
if, health-wise, physically, I could meet all of the criteria necessary
to qualify as a study aspect in an ongoing research program. If I
qualify, then I might possibly receive one. No, the topic has not
been broached at this time.
Senator Kassebaum. Have they given you any estimated cost for
a bone marrow transplant for multiple myeloma?
Ms. Montgomery. Dr. Vogel is a very conservative man, but I
don't think he was conservative enough when he told me approxi-
mately $100,000. I have talked to many people since, and I esti-
mate probably closer to $130,000 to $150,000. The costs vary in dif-
ferent institutions; I am not sure exactly why, but I know costs
vary in different parts of the United States. So I sort of reserve the
$150,000 amount in my head just to try to cover everything.
Also, you need to know that I am not pursuing a gift" of a bone
marrow transplant, even though I would happily participate in a
study. When it appeared as though I was going to die rather quick-
ly, I was happy to volunteer what I had to this study, because if
I could do nothing more useful with my life than basically leave a
legacy that might help another person, if that's all I had to offer,
I was going to do it. If I could once again qualify for a study of that
74
nature, I would, but I am not even asking that for free. I would
happily contribute to some portion of that myself, with whatever
funding I could either raise or earn or as I continue to liquidate
my personal holdings — but I'm afraid I'm getting down to the nitty-
gritty at this point and don't have a whole lot left. But I do still
have that precious IRA that I have hung onto until more medical
bills need to be paid. Any of those things, I am willing to contribute
toward expenses. So, no, I'm not asking for a gift nor a free lunch,
and I don't think that anyone here on this particular panel is want-
ing that, either.
Senator Kassebaum. Mr. Roach, yes?
Mr. Roach. If I could come back to one point, Senator, the over-
all health care reform that is being discussed, and what the Presi-
dent is proposing, will probably go through a long period of discus-
sion and then a transition period. In the meantime, there are a
number of companies that are unilaterally discontinuing, reducing,
cutting plans. I think there is a stopgap that is needed in the
meantime, and I think Senator Wofford's plan is an excellent one
that would help stop that. If we don't, companies are going to start
jumping on this thing like it's a rolling freight train, and before you
know it, everyone in the country is going to be removed from medi-
cal benefits if they have been retired.
It is unconscionable. Something has to be done, and I think the
Senator's plan is the answer. We would really appreciate any of
your help in getting that plan pushed through Congress as fast as
possible.
Thank you, Senator, for your help.
Senator Wofford. Thank you.
Ms. Montgomery. If I might inject something, too, with Mr.
Roach, Senator Wofford's plan also has something to offer for peo-
ple who now are finding themselves in the unique position of being
forced into early retirement; if you can make the criteria and then
meet that sliding age, then it's also something, because I am find-
ing as a disabled person who is probably no longer able to work,
I qualify for many things under Social Security until they find out
my age, and then all of those things go back out the window. So
that is going to be very important as time goes on.
The Chairman. Linda, the interesting point is that even if you
go to NIH, someone is paying for it. I mean, this is a game. Some-
one has got to spend a lot of time to see if you can get into one
of those studies.
My son had osteosarcoma when he was 12 years old, and he was
in a 2-year program, but after about 8 months, the experiment
ended because they had sufficient information to make a judgment
that it was positive. From that point on, it was $2,800 a treatment
every 3 weeks for 3 days. And I remember going out into the wait-
ing room and hearing parents say, because their child had about
a 15 percent of living without this treatment, "What kind of chance
does my child have if we can only pay for 3 or 4 months?" because
they had finished the experiment at NIH, and the insurance com-
panies hadn't picked it up. And it took years before the insurance
companies would pick that up. The last thing they want to do is
put something else in there that is going to slow down their profits.
75
I don't know how many times we have to keep hearing this story.
My time has expired, and I exercise the prerogative of the chair,
which I will not do again on this, but I couldn't help commenting.
Unfortunately, I must chair another hearing on a nomination for
the administration, so Senator Wofford will chair the rest of the
hearing. But I want to thank all of you very much, and I hope
you'll take a look at the President's plan, and I hope you'll take an
interest in it and hold our feet to the fire. You know, we may not
always have it just right, and I hope you'll really take an interest
and keep after all of us on it and make sure we do you justice.
Senator Wofford.
Senator Wofford [presiding.] Thank you, Mr. Roach, for your
pitch for the stopgap bill. I hope my colleagues on this committee,
in the same bipartisan fashion that we have looked at so many
things so well in this committee in my brief experience here, once
we have received the President's plan and have held these first
basic hearings on it, will come together and look at that stopgap
measure, because it would put real pressure on companies to keep
plans in place while we move forward toward universal health in-
surance and while their canceling of benefits if being challenged in
court.
Mr. Roach. That's very important.
Senator Wofford. And I assure you that my colleagues and I
will be looking at that soon.
As I listen to you, I think first: There, but for the grace of God,
go I. And I remember my wife, in my own campaign for this job,
being genuinely scared that because of a serious pre-existing condi-
tion she has, that if I lost the election and lost my job, that we
would not have health insurance coverage, that it would be too
costly or impossible to get — the same sorts of stories that we have
just heard today — and that we wouldn't be able to pay the mort-
gage on our home very soon.
And then, aside from thinking personally, as I look at the people
behind you, 30, 40 people who are concerned, listening to your sto-
ries, I think: There, but for the grace of God, go they, because if
we don't move to universal health insurance security in this coun-
try, and if we don't find a way to stop the inflation in costs, the
pressure on companies and institutions, on employers and on insur-
ance companies, to do what you are reporting is going to just
mount. And we have got to stop it. That is why I appreciate the
urgency you are giving to us today, because every month every
day, more and more employers are feeling the need of being
pressed to take steps to cut costs and cut out benefits and coverage.
So I am very grateful for what you gave us.
I have been carrying my own health security card around — it
doesn't entitle me to anything yet, and it is a little different style
from the President's, but I yield to the President. It is time that
each of us has a card that makes clear that we will have health
security, health care, when we need it. And we have to find the
way to achieve that, and working together, I believe we can.
Senator Jeffords.
Senator Jeffords. Thank you.
I don't want to prolong the testimony any longer, because you
have made very passionate and emotional speeches. But I would
76
like to emphasize the situations that you are in. We had earlier
hearings on retirees which brought to my mind the kinds of policies
that we are enhancing with our situation. We are creating very un-
fortunate hiring practices now. One certainly is to let workers go
early; hire only the young and healthy; don't hire workers over age
40, and certainly not above 50; don't provide good pension plans to
entice workers to want to stay with you.
These are very serious, not only from the perspective of leaving
people without health care, but it is a real downer on pension plans
to have good pension plans. It is a downer to having defined benefit
plans any longer, because they get too expensive.
As baa as trie situation is in health care right now, the thought
of having good health care and not having a good pension are two
of the worst possibilities, and we are leading ourselves into both if
we don't do something about good health care.
So I want to thank you all for your testimony. It has been very
helpful to us to accentuate the difficulties this Nation is getting
into with the present health care policy.
Thank you very much.
Senator Wofford. Senator Wellstone.
Senator Wellstone. Thank you, Mr. Chairman.
I just wanted to apologize — this is one of those days when there
are conflicts. But I wanted to come down just to tell you I appre-
ciate your being here, and I will get hold of the written testimony
and read it carefully.
Thank you for taking the time to come. And I would quite agree
with what I think all of my colleagues have said, which is that this
is a very special and I think very important moment in the history
of the country, and we just simply have to come through for people.
We have to do well for people. And I think your testimony is sort
of a jolt, and it reminds everyone of what these statistics all mean
in human terms and why it is so important that we don't stalemate
and that we come together and pass really good health care reform
for people.
Thank you.
Senator Wofford. Senator Gregg.
Senator Gregg. Ms. Montgomery, I think your case is the one
that I find most difficult to deal with, because it's the one that I
don't believe the President's plan deals with effectively, and I be-
lieve that Senator Kassebaum has made this point, and when I
was-
Senator Kassebaum. I would just add I don't think any plan
does, really.
Senator Gregg. Right. We don't have a system that deals with
this. In fact, I was going to point out that when I had my prior job,
which was running the State of New Hampshire as Governor, we
had this same problem consistently coming up, and what we had
in New Hampshire was a contingency fund, where we used to find
money from all sorts of accounts to try to help people out who were
in your position. But that doesn't work, either.
You have certainly been extraordinarily eloquent in making your
point, and I would hope that whatever we put together addresses
this catastrophic illness situation that falls between the experi-
mental and the accepted practice, which is the procedure you are
77
talking about. Experimental, still, we probably cannot come up
with something that will effectively deal with the experimental
issue, but we have got to come up with something that deals with
this area. One way to do it, I think, is through a national cata-
strophic insurance, and somehow, we have to work this into the
process. But you have certainly highlighted a very important gap
that exists in our system, and I appreciate your doing that.
Ms. Montgomery. Thank you very much for your kind words.
Senator Gregg. Mr. Roach, I guess I have a question for you.
You made the decision to go into early retirement, and you thought
you had a contract with your employer that was going to give you
health insurance. Now, I presume you do have legal recourse that
you are pursuing— in fact, I think you stated that you have a legal
recourse; you think those rights were contractually agreed to,
and
Mr. Roach. With the retirees of our company, Senator, there
have been 11 different lawsuits filed, all in a class action suit,
three by union organizations and eight by nonorganized groups.
Senator Gregg. So there is a legal recourse that you have there.
Mr. Roach. Yes.
Senator Gregg. I guess my question is if the Federal Govern-
ment is going to come in and take over this area, which is extraor-
dinarily expensive — the $4.5 billion is a ridiculous estimate; I
mean, it's a ridiculously low estimate — do you think there ought to
be some quid pro quo? For example, should that benefit be a tax-
able event to you?
Mr. Roach. To the employee receiving the benefit?
Senator Gregg. To you. You are going to be getting $4,000 to
$9,000 in insurance, which is now not taxable, assuming you are
getting it, which you are not, unfortunately, because of your legal
situation, but if you do get it, if the Federal Government sets up
a structure where there is no question but that you are going to
get it, as your participation in the process, shouldn't that be tax-
able income to you?
Mr. Roach. Well, if it wasn't taxable when it was supplied by the
company, why should it be taxable if it is supplied by the Govern-
ment?
Senator Gregg. Because it is a major benefit. It probably should
be taxable from the company, too.
Mr. Roach. Well, that would have to be something that would
have to be thought about in a retroactive sense, and if it were, then
it certainly would bring in revenue, which someone should reduce
other taxes.
Senator Gregg. I guess I just wanted your reaction as to wheth-
er or not — you then feel the Government should come in and sim-
ply take on this $4,000 to $5,000 burden, or maybe as much as
$9,000 if you're talking about family structure
Mr. Roach. No, no. Don't let me allow myself to be misunder-
stood, if I may; maybe I did a poor job of explaining it. None of us
are asking for a free ride. I think if you start to do things as of
today, for the future, you can look at that as future income, taxing
rights and percentages, and go from there.
The program that I was addressing primarily was the fact of
where companies are now taking things that have already been
78
paid for, if you will, by giving up large portions of pensions and
that type of thing, and then unilaterally deciding that they are no
longer going to pay it. That's different from just taking a future
benefit and deciding whether or not to tax it.
Senator Gregg. OK. I guess my question went to a different sub-
tlety, then; I missed the point you were making.
Mr. Roach. I think so, but believe me, I have no problem with
paying part of the bill, and I don't think most Americans today do.
People in this country are a lot more intelligent than many people
give them credit for. They are also realists who know the economic
situation today. We know the problems with budgets in the Federal
Government, the State Governments. And people are willing to sac-
rifice somewhat.
But everything is relative. People don't want to have something
that they nave paid a considerable amount of money for turned
around and taken away from them by someone else in a unilateral
fashion. The retirees who gave up 30 and 40 percent of their pen-
sions don't feel that their benefits now should be taken away from
them; they have paid for them.
If this were to go back several years, and that condition did not
exist, and you asked me the same question, my immediate answer
to you, sir, would be that I would be more than willing to pay a
fair share.
Senator Gregg. Thank you.
Senator Wofford. Mrs. Clinton yesterday on that subject here,
as I heard her and as I read the plan, said that in the normal case
where there has been no agreement from the company, the em-
ployee would contribute 20 percent. It would be approximately a 20
percent contribution. In cases where the company had made the ex-
plicit promises in their contracts, they would pay that 20 percent
so that the employers and employees would both be contributing,
in the proposal she is making.
Mr. Roach. Yes. I hope, Senator, that I have distinguished be-
tween something that is retroactive and something that is in the
future. For example, a company has a right to change some of its
policies. If it were to decide that in the future, it cannot afford to
cover the same kinds of medical benefits that it has in the past,
it has a right to change that and to request the employees to pay
a portion.
What we are looking at here, though, is companies unilaterally
making decisions that are retroactive; people who have been told
something for 20, 30 years and have paid for it in lesser wages,
paybacks, trade-offs of pensions and everything else are all of a
sudden told: None of that counts.
That is my point, and I hope, sir, that I have made that point
clearly.
Senator Gregg. I think we understand that, but the point you
were just making, Senator, of course, goes to the fact that what is
being proposed here, independent of Mr. Roach's point, which is
separate from that, is basically a new entitlement of massive pro-
portions, because what is being said here is that for people between
55 and 65, the Federal Government is going to come in and pick
up a minimum — or, potentially 80 percent, not a minimum — poten-
79
tially 80 percent of the cost of their health care insurance, which
translates into — it has to be a lot more than $4.5 billion.
So the question is if the Federal Government is going to come in
and assert that type of a new entitlement, shouldn't that become
a taxable event. That's my point.
Senator Wofford. We'll certainly have to look at all the num-
bers. But Mr. Roach was also testifying as to the trade-offs in-
volved in early retirement. You give up a lot of things. You give
up the income that you would have had, and on the other side of
the ledger, you give up various pension benefits and the actual sal-
ary that you are foregoing. If you are able to get another job, then
you pay the contribution for that.
The other side of the ledger is that companies, because of the in-
creasingly growing burden of the retiree health benefits, are not
able to employ new people, so we are obviously dealing with a com-
plex question, and well have to do a cost analysis as we move
down the road.
Mr. Roach. Senator, there is another word that hasn't been men-
tioned here that I think is extremely important, and that is "port-
ability." Because of the fact that so many of these things are hap-
pening, people do not have the same loyalty to a company that they
had before. You've heard people today talk about 30, 40 years with
a company. I don't think you'll see that anymore. People are mov-
ing from company to company whenever they can get a better deal.
And that is going to require that all these benefits be considered
portable.
Senator Wofford. We thank this panel very much. It is very im-
portant for us that as we look at all these proposals from the Presi-
dent and from other people, that we test them against real human
experience, practical experience, the kind that you have given us
today. And I hope we remember your stories as tests to put up
against, including Linda Montgomery's test for us, to see whether
the system we move toward deals effectively with you situation.
Thank you all very much. I hope we can keep in touch with you
as we move forward.
Our second panel this afternoon is composed of small business
owners and self-employed people who have struggled with benefit
cutbacks and premiums that continue to rise with no end in sight.
Cyndy Adams is here from Deny, NH. She and her husband run
a contracting firm. She will describe the bite taken out of their pay-
roll by insurance costs after her small business was reclassified by
their insurance provider.
Mike Braxmeyer is a grocery store owner in Atwood, KS, who
will describe the difficult situation he encountered when the son of
one of his long-time employees developed leukemia.
Finally, we'll hear from Tomaca Govan, who took a gamble on
the American dream. She left her job to start her own business and
found herself shut out of the insurance market.
We look forward to hearing from all three of you, and we'll hear
from Cyndy Adams first.
80
STATEMENTS OF CYNDY ADAMS, SUBCONTRACTOR, DERRY,
NH; MICHAEL BRAXMEYER, GROCER, ATWOOD, KS; AND
TOMACA GOVAN, OWNER, SECRETARIAL/WORD PROCESSING
BUSINESS, HARTFORD, CT
Ms. Adams. Mv husband and I own and operate a Sub-S corpora-
tion doing consulting and engineering in the field of land use plan-
ning in southern New Hampshire. As self-employed individuals, we
belong to the Salem Contractors Association which, as a group, had
contracted with Blue Cross and Blue Shield of New Hampshire
many years ago for their health insurance. Until a few years ago,
our premiums had been affordable, and our annual increases were
moderate.
In April of 1991, the 72 member businesses included in our group
plan were notified by Blue Cross and Blue Shield that they had
split our group and rated the premiums by the age and sex of the
subscriber. Our premium increased from $389 a month to $560 a
month for a family plan with a $100 deductible. That was a 44 per-
cent increase. Others received even more substantial increases.
This monthly payment was impossible for us to manage, so we
opted for a $250 deductible with a 20 percent co-pay at $484 a
month. Of the 72 participating businesses prior to this change, 16
immediately dropped insurance for themselves and their employ-
ees, and 35 were forced to increase their deductibles. Today, only
29 of those businesses still have coverage.
In 1992, we were notified that our premium would only increase
from $484 per month to $508 per month. Others who entered new
age brackets were not as lucky, and many again increased their
deductibles or dropped coverage completely.
This year, we were notified that our premium was to increase
from $508 a month to $670 a month for a $250 deductible, a 32
percent increase. We were forced to take a $1,000 per person de-
ductible and still pay $489 a month. Given the fact that our only
claims last year were for a couple of cold and flu-type ailments, and
our 6-year-old son's physical and some necessary prescriptions, we
feel quite certain that the 1994 increase will force us to drop our
insurance completely.
Prior to the 1991 increase, our health insurance represented ap-
proximately 11 percent of our payroll. With the increase in pre-
miums and based on a very hopeful projection of our payroll this
year, that cost will now be a minimum of 21 percent of our payroll.
During the 12-month period ending last quarter, that cost will
now be a minimum of 21 percent of our payroll, during the 12-
month period ending last quarter, our monthly insurance pre-
miums exceeded our monthly payroll tax deposits six times. The
fact that we cannot deduct 100 percent of this cost is another dis-
advantage to the current system.
As a Sub-S corporation, we are required to report the cost of our
annual health insurance on our tax return. Unlike an employee of
a larger corporation who receives health insurance as a benefit, our
health insurance cost is included as income on our 1040 tax return.
Last year, we were only permitted to deduct 25 percent of the first
6 months of our premium. This meant that of the $6,029 of health
insurance costs, only $745 was deductible, and the remaining
81
$5,284 was figured into our taxable income, even though this was
a legitimate expense.
We need the enactment of the President's proposal to allow 100
percent deduction of our health insurance costs.
Based on our business income, we qualify for the 3.8 percent cap
in the President's health reform proposal. Assuming our premium
stays at $5,965 a year, this would yield a savings of almost $3,700
annually, excluding the $2,000 in deductibles we must pay. And
even if we were to receive the maximum proposed cap of 7.9 per-
cent, we would still save over $2,500 annually without the deduct-
ible.
With the kind of savings President Clinton proposes for us, we
would again be able to invest in our business, increase our payroll,
and feel secure that we would not be bankrupted by the cost of
health insurance and medical care.
Because of the $1,000 per person deductible and the high cost of
our premium, we effectively have no coverage for primary care, pre-
scriptions, accidents requiring emergency treatment, diagnostic
tests, or other preventive care.
I turned 40 this year and cannot have a mammogram or any
other screening because we cannot afford to pay the full cost. For
the same reason, my husband cannot have a physical, blood pres-
sure medication, or testing or other screenings. Dental work and
eye exams have become luxuries my husband and I try to avoid.
We do, however, find a way to see that our 6-year-old receives all
appropriate care. To this end, we have budgeted this summer in
order to pay for his annual physical in October. It seems to us that
the more we pay into the current system, the less secure we are
with respect to medical care.
We have also heard a great deal lately about the negative effects
President Clinton's proposal may have with regard to choice of phy-
sicians, rationing, and the effects of price controls set by a national
board. We already have limited choice of physicians and price con-
trols, but they are set by our insurance company through negotia-
tions they undertake with the health care providers. Each year,
Blue Cross and Blue Shield publishes a list of participating physi-
cians who have agreed to accept their maximum allowable charge
for each procedure. In our case, this means that a physician may
charge any amount, but he must accept a combined payment of 80
percent from Blue Cross and 20 percent from us in an amount set
by Blue Cross as payment in full. If we choose to see a
nonparticipating physician, Blue Cross will only pay 75 percent of
their maximum allowable charge, and we must pay the entire bal-
ance even if it exceeds the Blue Cross limit. We have changed par-
ticipating physicians.
Rationing also exists for us now. Those of us with high
deductibles are self-rationing due to the economies of the situation.
Rationing also exists through the requirement of advance author-
ization for an ever increasing list of procedures, including hospital
admissions, that are not covered unless it is decided in advance
that the physician's order is correct. Even if admitted on an emer-
gency basis, we have 24 hours, regardless of our condition, to notify
them and request authorization to stay in the hospital. We would
82
prefer a system in which our medical needs are the sole basis for
these decisions.
The President's plan addresses many of our concerns as individ-
uals and citizens. Through the workings of the national board, pro-
viders would no longer have an economic interest in the procedures
they order, and physicians would be the ones making informed de-
cisions about our care, rather than insurance companies.
Through the use of large risk pools, as we once had, premium
costs would be a reasonable percentage of our payroll instead of
forcing us into real or near bankruptcy. Universal coverage could
reduce the hospital costs that are now being passed on to those of
us who still have insurance.
Preventive care would significantly lower the overall health care
costs and some Government subsidy programs by treating problems
before or immediately after they occur.
Universal coverage would also allow a growing number of people
to return to work without the fear of losing the only source of medi-
cal insurance they have, which is Medicaid.
And the President's proposal would, by eliminating the rating of
subscribers by age and sex, remove the potential for employment
discrimination due to the disparity in premiums. In our current
system, companies find that young, single males are preferable to
middle-aged and older men and women with families, because they
are cheaper to insure. Given the choice between two reasonably
qualified individuals, employers looking to the bottom line are more
apt to hire the applicant with the lease expensive benefits.
For us, the President's proposal would guarantee our insurance,
provide us with primary and preventive care, and significantly
lower our costs. Althougn we do still have some questions on the
specifics of certain areas, of President Clinton's proposal, we wel-
come the change he is calling for and sincerely hope this proposal
for health care reform will not become the focus of contentious par-
tisan debates designed to prevent its passage.
Thank you.
[The prepared statement of Cyndy Adams follows:]
Prepared Statement of Cyndy Adams
My husband and I own and operate a Sub-S Corporation doing consulting and en-
gineering in the field of land use planning in southern New Hampshire. As self-em-
ployed individuals, we belong to the Salem Contractors Association which, as a
group, had contracted for health insurance with Blue Cross Blue Shield of New
Hampshire many years ago. Until a few years ago, our premiums had been afford-
able and our annual increases were moderate. In April 01 1991, the 72 member busi-
nesses included in our group plan were notified by BCBS that they had split our
group and rated the premiums by the age and sex of the subscriber. Our premium
increased from $389/month to $500/month for a family plan with a $100 deductible,
a 44% increase. Others received even more substantial increases. This monthly pay-
ment was impossible to manage, so we opted for a $250 deductible with a 20% co-
pay at $484/month. Of the 72 participating businesses prior to this change, 16 im-
mediately dropped insurance for themselves and their employees, and 35 were
forced to increase their deductibles. Today, only 29 businesses still offer coverage.
In 1992, we were notified that our premium would increase from $484/ month to
$508/month. Others who entered new age brackets were not as lucky, and many in-
creased their deductibles or dropped coverage completely. This year we were notified
that our premium was to increase from $508/month to $670/month for a $250 de-
ductible, a 32% increase. We were forced to take a $l,000/person deductible and still
pay $489/month. Given the fact that our only claims last year were for a couple of
cold/flu ailments, our 6-year-old son's annual physical, immunizations, and the nee-
83
essary prescriptions, we feel quite certain that the 1994 increase will force us to
drop our insurance completely.
Prior to the 1991 increase, our health insurance represented approximately 11%
of our payroll. With the increase in premiums and based on a hopeful projection of
our payroll this year, that cost will now be a minimum of 21% of our payroll. During
the 12 month period ending last quarter, our monthly insurance premiums exceeded
our monthly payroll tax deposits 6 times. The fact that we cannot deduct 100% of
this cost is another disadvantage to the current system.
As a Sub-S corporation, we are required to report the cost of our annual health
insurance on our tax return. Unlike an employee of a larger corporation who re-
ceives health insurance as a benefit, our health insurance cost is included as income
on our 1040 tax return. Last year we were only permitted to deduct 25% of the first
6 months of our premium This meant that of the $6,029 of health insurance costs,
only $745 was deductible, and the remaining $5,284 was figured into our taxable
income even though this was a legitimate expense. We need the enactment of the
President's proposal to allow 100% deduction of our health insurance costs.
Based on our business income, we qualify for the 3.8% cap in the Presidents
health reform proposal. Assuming our premium stays at $5,965/year, this would
yield a savings of almost $3,700 annually, excluding the $2,000 in deductibles we
must pay. Even if we were to receive the maximum proposed cap of 7.9%, we would
still save over $2,500 annually, without the deductible. With the kind of savings
President Clinton proposes for us, we would be able to invest again in our business,
increase our payroll, and feel secure that we would not be bankrupted by the cost
of health insurance and medical care.
Because of the $l,000/person deductible, and the high cost of our premium, we
effectively have no coverage for primary care, prescriptions, accidents requiring
emergency treatment, diagnostic tests or other preventive care. I turned 40 this
year, and cannot have a mammogram or any other screening because we cannot af-
ford to pay the full cost. For the same reason, my husband cannot have a physical,
blood pressure medication or testing or other screenings. Dental work and eye
exams have become luxuries my husband and I try to avoid. We do, however, find
a way to see that our 6-year-old receives all appropriate care. To this end, we have
budgeted this summer in order to pay for his annual physical in October. It seems
to us that the more we pay into the current system, the less secure we are with
respect to medical care. .«"••., »
We have heard a great deal lately about the negative effects President Clinton s
proposal may have with regard to choice of physicians, rationing, and the effects of
price controls set by a national board. We already have limited choice of physicians
and price controls, but they are set by our insurance company through negotiations
they undertake with the health care providers. Each year BCBS publishes a list , of
participating physicians who have agreed to accept the BCBS maximum allowable
charge for each procedure. In our case, this means that a physician may charge any
amount, but they must accept a combined payment of 80% from BCBS and 20%
from us in an amount set by BCBS as payment in full. If we choose to see a non-
participating physician, BCBS will only pay 75% of the maximum allowable charge,
and we must pay the entire balance, even if it exceeds the BCBS limit. We have
changed to participating physicians.
Rationing exists for us now. Those of us with high deductibles are self-rationing
due to the economics of the situation. Rationing also exists through the requirement
of advance authorization for an ever-increasing list of procedures, including hospital
admissions, that are not covered unless it is decided in advance that the physician's
order is correct. Even if admitted on an emergency basis, we have 24 hours, regard-
less of our condition, to notify them and request authorization to stay in the hos-
pital. We would prefer a system in which our medical needs are the sole basis for
tnPIP fiodsions
The President's plan addresses many of our concerns as individuals and citizens.
Through the workings of the national board, providers would no longer have an eco-
nomic interest in the procedures they order, and physicians, rather than the insur-
ance companies, would be the ones making informed decisions about our care.
Through the use of large risk pools, as we once had, premium costs would be a rea-
sonable percentage of our payroll instead of forcing us into real or near bankruptcy.
Universal coverage could reduce the hospital costs that are now being passed on to
those of us who still have insurance.
Preventive care would significantly lower the overall health care costs and some
government subsidy programs by treating problems before or immediately after they
occur. Universal coverage would also allow a growing number of people to return
to work without the fear of losing the only source of medical insurance they have,
Medicaid. And, by eliminating the rating of subscribers by age and sex, the Presi-
84
dent's proposal would remove the potential for employment discrimination due to
the disparity in premiums. In our current system, companies find that young, single
males are far cheaper to insure than middle-aged and older men or women with
families. Given the choice between two reasonably qualified individuals, employers
looking at the bottom line are more apt to hire the applicant with the least expen-
sive benefits.
For us, the President's proposal would guarantee our insurance, provide us with
primary and preventative care, and significantly lower our costs. Although we do
still have some questions on the specifics of certain areas of President Clinton's pro-
posal, we welcome the changes he is calling for, and we sincerely hope this proposal
lor health care reform will not become the focus of contentious partisan debates de-
signed to prevent its passage.
Senator Wofford. Thank you.
Mike Braxmeyer.
Mr. Braxmeyer. Senators, I'd like to thank you for having me
here to tell our story. Fortunately, I do not have a catastrophic ill-
ness to tell you about; I do hope the new reform covers that. I did
experience indirectly some of the problems associated with that.
My story deals with a young man who was about 2 years old in
1986. He is the son of one of my employees who is the meat market
manager in our supermarket, which, by the way, according to in-
dustry standards, just barely qualifies for that name. That's how
small we are.
My meat market manager had a son who was 2 years old in
1986, who was diagnosed with leukemia. At that time, the insur-
ance at our business was around $200 per month for individual and
a little under $400 per month for family coverage. Our business
covers the single person; if our employee wishes family coverage,
he picks up the difference. That has worked for 30 or 40 years.
In 1988, the young man, about 4 years old, had a bone marrow
transplant. The transplant, according to his mother, cost $70,000
or $80,000. Luckily, our insurance covered that.
In 1988, we received notice from our insurance carrier that our
premiums had risen. From a family plan of $697 in 1991, we were
informed, with eight people on the plan, that our plan would now
run $1,242 per month. Single coverage was $421.
To avoid a lot of numbers games nere, that meant that my em-
ployee, as long as we stayed with our particular plan, was going
to have to come up with $800 per month out-of-pocket. That is
$9,600 per year plus, over $10,000.
Needless to say, our employee could not handle that. Neither
could my business afford $400 per month individual premium plan.
Our plan was not associated with any larger plan, any larger
group.
At that time, I was forced as an employer to go out — and I can
assure you I lost a lot of nights' sleep; it wasn't only lost sleep, it
was anxious time — we are not big enough as an employer to hire
a broker to go out and broker our situation — I had to hunt and
hunt and hunt, and believe me, if you have a group with eight peo-
ple, you are not going to find many insurance carriers that want
to pick you up. Everyone I talked to would pick up our group ex-
cept for the leukemia patient, who was in remission at this time,
and at 5 years old, was doing quite well. However, he had a lot of
medical expenses. He was still collecting from Blue Cross and Blue
Shield. His parents to this day take him every 2 or 3 months to
Denver, which is 200 miles from our home, for checkups. Three
85
times a week, he goes up to the local hospital for physical therapy
because his left arm has atrophied to a certain extent. He has to
have wax treatments and physical therapy on that arm. All his
teeth are capped because some of the anti-rejection drugs essen-
tially ate those teeth away. He has high blood pressure because of
some kidney problems, which is directly related to the bone marrow
transplant. This young man and this family still have a lot of ex-
penses.
Anyway, back to 1991. We are hunting for a plan. I cannot find
a plan that will cover my employees, and one very loyal employee
who has gone through a living nightmare trying to keep his son
alive, like some of these three people behind me are trying to do.
But I cannot find a plan that will cover him, and I sure can't afford
the single premium, and that employee cannot stand $800 a month
plus the deductible.
We settled on a plan that costs me $205 single coverage and
$428 family coverage. However, that plan ridered that young man
for $5,000. There is a chance that might have covered it, but his
folks could not play that game. They went out and bought a single
plan for him for $119 a month. At this time, it is now $130 a
month with a $2,500 deductible. They are paying $130 a month for
that single plan for that young man. They are paying approxi-
mately $200 to pick up family coverage for the rest of the family.
They are meeting a $2,500 deductible yearly, which I'm sure they
are using up — actually, it should probably be them and not me
standing here before you. This young may is about 8 or 9 years old
now and in school with the rest of the kids his age in our commu-
nity. He is one of five out of twenty out of his class at the Univer-
sity of Iowa who had a bone marrow transplant who are now alive.
Believe me, his folks have a lot of faith, and that family of seven
has pulled together.
Anyway, back to the situation. He is paying $300 to $400 out-
of-pocket right now, and I am covering him on our health plan.
I am here today because of pre-existing condition problems, and
I think we are all aware of it. And after listening to the testimony
today, I think we need to pay attention to catastrophic illness. I am
not sure our problem — and I am not going to preach, because I
don't know the numbers — is not so much basic health insurance as
some catastrophic problems. A catastrophic problem is really the
reason why I am here. It is a major problem for my business.
That is what happened to the business. Let me sit here before
you as an employer — and I have heard some sorry stories about
employers who were not honest or who did not want to take care
of their employees — I am from a small town in a small State with
few people. We have some problems. My employees are valuable to
me. I could not leave my employee, this meat market manager,
hanging out there without some coverage.
Some of the plans I went to told me one way to get around this
was to fire the meat market manager, and 2 days later hire him
back; they'd have to take him. Those are the kinds of things we
don't get into out our way, and I am afraid of those. I am a small
enough business that I don't have a lawyer or an accountant or a
consultant on retainer. I deal with most of these problems myself.
86
It is a hands-on business. I really cannot speak to the larger busi-
nesses that were referred to earlier in the testimony.
Anyway, as far as businesses go, you folks are about to saddle
the employers in this country with the burden square on their
shoulders. And I'm not sure we shouldn't cover it. I personally feel
we should, and I'm willing to do it. I don't know what percentage
of my payroll goes directly to health insurance premiums right
now. I have 13 employees that I pay $205 a month on. I am willing
to go more if that's what it takes to cover them. Please make sure
your plan covers them.
It is also a choke-hold or a strangle-hold you are going to put on
our shoulders and around our necks. All I ask as an employer — and
I'm not sure I represent the employers in Kansas and in this coun-
try; I'm awfully small — but I ask you to try to take care of all situa-
tions as best you can. You are taking cost questions and choices
right out of our hands.
We will no longer determine in companies, if I understand the
plans right — and Senator Kassebaum s, I have looked at thor-
oughly; I like the plan — please hear me; I'm an employer, and I like
the plan, and I am willing to pay. I think it is a good plan. But
5 and 6 years from now, the commissions making decisions, are we
going to have some Medicare coverage slipped in on us? What
about home health and long-term care?
I'm not sure maybe we shouldn't be paying some of those, but
please be up-front with those charges. We have an independent
manufacturer in my home town — a town of 1,500 people, 3,000 in
a county of about 900 square miles — we have a small manufacturer
who used local funds, 10 or 12 years ago, to start a manufacturing
company. Right now, I believe they employ between 60 and 75 peo-
ple. They do not have an insurance plan. I understand they are
looking at one right now. Depending on what legislation you folks
pass up here, they will or will not be in business 2 or 3 years from
now. I think it will weigh heavily on them. Indirectly, my business
depends on that.
I think most employers want to work together. I guess one of the
last things I'd like to say is let's do this together — employees, em-
ployers, and you folks in the Government making the decisions —
I think we're all willing to do that.
Last but not least, a pitch for rural health care. On October 1,
1992, you folks designated a community health center for our area.
You helped fund it, and it is active at this time. I happen to be on
the board of directors of that organization. I think it is a salvation
for rural care in America. I think it is probably where you are
going with some of your legislation, and I applaud that. I think the
Public Health Corps is essential to health care in rural commu-
nities. You are also helping with that.
Our particular organization is a multicounty, multiState organi-
zation. We have two counties in Kansas and one in Nebraska. It
is working well, and I hope you consider that in the legislation.
Thank you.
[The prepared statement of Mr. Braxmeyer follows:!
87
Prepared Statement of Michael Braxmeyer
Good afternoon senators. First I thank you for the opportunity to address
your committee. Having spent the last several days knowing that I had this
opportunity, trying to determine just what I needed to say, 1t came down to
three major topics.
But before that — just some kind of Introduction. My name Is Mike
Braxmeyer. My age— 44. Married for 22 years with three children. My wife,
Rosie, is from a small community in Central Kansas. My oldest daughter is at
Kansas State, Adam is in high school, and Emily Is In grade school.
1 was born In Oregon, raised In Atwood, Kansas, graduated from high school
there and from Kansas State in 1971 with a degree In economics. I was employed
by K-Mart from 1971 to 1974 In Oes Moines, Chicago, and Milwaukee.
My wife and I moved back to Atwood, Kansas, In 1974 to manage my family's
business and to raise our family 1n rural USA. The business is Williams
Brothers, a supermarket begun by two brothers in 1938. As a business we employ
11 people full time and 15 to 20 part time. As for size, we have 10,000 square
feet of floor space and do just enough volume to be classed a supermarket — by
industry standards. Atwood Is a town of 1,500 In a farm county of 3,700 people
and 950 square miles. He are located 200 miles from downtown Denver and 400
miles from Kansas City in the very northwest corner of Kansas. The nearest
town over 10,000 people Is 140 miles distant.
I would like to make several points.
Some kind of health reform Is necessaryl Here's our story.
In 1988 we had an independent group of about eight employees on a health
plan costing less than $200 a month for single coverage and $400 for family
coverage. He were Independent—not associated witn any other groups. For
years we have covered our full-time employees by payina 100 percent of their
premium, and If they desired family coverage, the employee funded the premium
over and above the single rate. At that time, the company was paying right at
50 percent of the total, and I believe we had three or four enrolled In family
plans.
On August 7, 1986, Roman Carroll, aged two, was diagnosed with leukemia.
Roman Is the youngest son of our meat market manager, Pat, who was enrolled In
the family plan. As I'm sure you all know, it was devastating for the family
of eiqht. After nearly two years of expensive treatments and heartaches, Roman
was taken to the University of Iowa at Iowa City for a bone marrow transplant,
the donor being Roman's oldest sister, Glna. The operation was successful and
today Roman is in school with others his age. He has some health problems
relating directly to his condition and may have many more. He has had all his
teeth capped and experiences high blood pressure due to his disease and
medications. One arm has atrophied slightly, and he undergoes physical therapy
three times a week. He takes numerous medications to prevent donor rejection
and to alleviate side effects. He travels to Denver every other month for
checkups and to Iowa City for examinations yearly. Needless to say his family
has undergone many anxious times, and It has been an ordeal for them.
But faith has not paid the bills. I have watched Pat, the father, my
employee, suffer through the threat of losing his son and the worry of covering
bills. Pat's wife, Madge, has suffered with Roman and also dealt with endless
paperwork trying to nay uncovered services as best they are able. She Is still
paying for medications not covered, and because of a Kansas insurance policy,
she still has to hassle with bills from Iowa and Colorado where coverage Is
fuzzy. Here are some figures.
88
Their report:
In 1991 . Roman
In 1992
In 1993
$109 a month
I!
19 a month
59 a month
$1,000 deductible
$1,000 Co-Insur.
Changed to $130 a month with $2,500 deductible
Store Report:
1991 preimums
March
By this time down to
one on f ami ly
May
210 single
697 family
I
$ 421 single
$1,242 family
$ 821 dlff. 1992
Pat $130 premium
.200 deductible
223 single to family dlff. IGA Group Insurance Trust
553
Result In 1991--Absolutely unable to pay those high premiums even for single
coverage. No family Is able to pay $821 a month for family
coverage plus $500 deductible. By this time, three of the four
families had gone elsewhere — my own Included.
Many, many, not just sleepless nights, but anxious time. We could not
afford this policy, Pat had to have coverage for Roman, no other plan would
accept Roman except on a rider for his condition, we're not large enough to
broker.
Result: IGA group Insurance with $154, $299 premiums but riders (5,000 on
Roman and one on heart medication and one on allergies, etc.
Madge and Pat still estimate that they pay $100 to $200 a month on medical
bills dating back to Roman's $76,000 transplant.
Who will pay for the health of this country's people?
Voluntarily, for say 40 or 50 or more years, employers have paid for more
and more health benefits of employees. I guess we've done this to keep our
employees, to reward their dedication over and above their pay. Both large and
small employers alike to varying degrees have paid for the health of employees.
Now its cost has "EXPLODED." and Washington would like to mandate employer
payments. Maybe we voluntarily have put ourselves In this position as
employers, fifty or 60 years ago would this have been expected of us. Twenty
or 30 years from now will employers be mandated to pay room and board, or the
education, primary, secondary, college, along with vocational tech, of our
employees' fam11ies--or maybe vacations.
Possibly you'll Interpret this as a small businessman attempting to
backpeddle or avoid business costs. Please understand, one health care needs
to be revised,. but two, you're laying it on our shoulders. Please do it
gently. Business as a whole believes In helping pay our employee's health
costs. But more than NAT1A, more than FICA, more than minimum wage laws, this
has the potential to choke and strangle the life out of businesses, large and
small. I know I sit before you with some small numbers--sma 1 1 town, small
business rural small state--and I'm sure I am looked on as a small business,
but I do believe If this Is not handled justly and delicately , a lot of us
large and small will suffocate. Ihree or four years from now, some businesses
will not exist because of this reform. Honest employers who would like to
share health costs with thHr employees — good souna businesses who were simply
put ouf of business because of the legislation you're going to pass. Again I
say this not to undermine your reform but to ask you to be careful with this
potential choke.
Costs will now be out of our hands. Insurers and providers and alliances
will now determine costs. Increases will be determined by your appointed
national health board or alliances.
I would
centers and
care.
also like to add, please continue to support community health
the Public Health Service Corps. These are vital to rural health
89
Senator Wofford. Thank you. You and Cyndy Adams both are
doing what people all over this country are doing. They are not
only thinking about their own problems, but they are thinking
about how we ought to fix the problems of the country on this. We
very much want tne kinds of suggestions that both of you have put
in terms of where we go from here, as well as putting so clearly
to us your own situations.
Tomaca Govan, your Senator Dodd very much wanted to be here
to welcome you and ask questions; he is on another assignment
now, however, and may not make it, depending on how long we go.
Please go ahead.
Ms. Govan. Thank you. Good afternoon. Thank you for having
me here today.
I am a small business owner from Hartford, CT. I am married,
and I have three children. Currently, my family has no health in-
surance. My husband has a part-time job and is looking for full-
time employment with the medical benefits that we need.
I had insurance with an HMO through my previous employer. I
left my job earlier this year, after I had a baby, to start my own
business. I expected to keep my insurance for 18 months through
COBRA coverage. The insurance premium for myself, my husband,
and our three children was $462 per month. This amount was pret-
ty steep, but I knew I had to have insurance for myself and my
family, and I just figured okay, if that's what it is, I'll just have
to pay it every month. I also believed that if at some point down
the road, the expense of this HMO coverage, which is top-of-the-
line medical insurance, was too expensive, that I could easily
change over and get insurance that did not cost as much because
it wouldn't cover as much.
I was unprepared for my business income to waiver and fluctuate
as it did over the summer. I knew I wasn't going to be able to keep
paying almost $500 per month for insurance, so I began looking for
other options. I had no idea how hard it was going to be to find
coverage that was comparable to what I had and that was afford-
able. Affordable, comprehensive medical insurance — I didn't think
that was too much to ask for, but it was.
I started by going through the yellow pages. As I called different
insurance companies and agents, my initial shock turned to anger
and frustration. It was also very frightening. I learned that finding
anything that was remotely comparable in terms of coverage and
price was impossible. Either the cost was a little less than what I
was paying and covered only emergency care, or it was more expen-
sive and offered less than the same level of care that I had.
Many insurance companies did not sell insurance to self-em-
ployed individuals and their families. I did not know this. I fell
under a separate category and was referred to companies that I
had never heard of before to obtain insurance. I called several of
these companies. Most of them would not give me information over
the phone and would not send me any brochures or other docu-
mentation in the mail to review. They insisted that they be able
to come over and personally show me tneir insurance plans.
I agreed to look at two plans from two different companies. These
people came to my house with big binders and showed me page
after page as they discussed each one. It reminded me of meeting
90
with Amway salespeople. We reviewed what I considered to be
"rickety" insurance plans, where I could pick and choose coverages
and deductibles. Then they tried to press me for an immediate deci-
sion.
It was clear that they only wanted to walk out of my house with
my check in their hand.. Also, one of the salespeople could not fully
answer my questions. Again, these were companies I had never
heard of before; they were not regulated by the State of Connecti-
cut, which means that there are specific requirements and guide-
lines for coverage that the State of Connecticut has that these com-
panies were not required by State law to provide.
I was afraid of signing up with one 01 these companies. I envi-
sioned my monthly premiums just disappearing into never-never
land every month, and I seriously wondered if the insurance was
really real. And if I did have to go into the hospital, would that in-
surance be there and would it be useful?
I knew that eventually, I would lose my medical insurance cov-
erage completely. I began to panic because I could not find any-
thing. And I was told by many companies that I had to be insured
already in order to get insurance. That doesn't make sense to me.
I have an infant who is now 7 months old. Before I lost my medi-
cal insurance, I went to my HMO carriers and tried to insure just
the baby. That way, at least he would be taken care of, and I would
not have to worry about the out-of-pocket costs for vaccinations and
doctor visits. Also, because infants are fragile, they tend to contract
colds, ear infections and other viruses easily, and having access to
good medical care is very important. I figured that as soon as busi-
ness picked up, I would oe able to add otner family members to the
insurance as our income allowed. This was an ideal plan to me. I
would pay a much lower monthly premium for just one person in-
stead of the whole family. I would still have an "in" to the HMO,
and family and I could ieel confident with keeping the same level
of medical care that we had for years.
However, I was not able to insure the infant only. One of the par-
ents had to have coverage, too. The cost for two people in this HMO
was over $300. This, again, was something I just could not afford,
so I had no choice but to let my insurance go.
Currently, my family does not have medical insurance, and we
are afraid. We are afraid to be without it. I realize that a hospital
cannot refuse emergency treatment to anyone. However, it is all
the nonemergency situations that may arise that I am worried
about.
I have a very active 7-year-old son, and because boys are boys,
what do I do if he falls on his bike and breaks his arm? I am also
concerned about us needing to go the doctor for checkups and ill-
nesses and prescription medication. These things would have to be
paid for out of our pockets.
I am greatly disillusioned. I decided to take a risk and take my
shot at the American dream by starting my own business. If I had
known that finding insurance would be this difficult, this frustrat-
ing, and this frightening, if I had known that it was totally
unaffordable, then I would not have quit my job. I would have
stayed there and explored other options. I knew that insurance was
expensive, but I had no idea just now expensive. I honestly thought
91
that I could obtain affordable medical insurance. I thought it was
just the HMOs that were hundreds and hundreds of dollars per
month.
I know many people like me who have dreams of self-employ-
ment, but are forced to keep their jobs because they are afraid to
be without medical insurance for themselves and their families.
Our country and our communities are denied their brilliance, they
are denied the economic stimulation and growth that these new
businesses would bring.
President Clinton's plan makes sense to me. It doesn't just offer
affordable insurance — and to me, the key is affordable — it offers a
comprehensive benefits package. I will know what I am getting.
And most importantly, that insurance is going to be there, regard-
less of what my income is, where I work, or where I live in the
United States.
I need to be able to provide medical protection for my family, and
from what I have heard, President Clinton's plan will allow me to
do that, and it will also allow me to freely continue to pursue my
quest for success as an entrepreneur. And I know I speak for many
other people back home in Connecticut.
Thank you.
Prepared Statement of Tomaca Gov an
My name is Tomaca Govan. I am the owner of a small business from Hartford,
CT. I am married and have three children. Currently, my family has no health in-
surance.
I had insurance with an HMO through my previous employer. I left my job earlier
this year to start my own business. I expected to keep my insurance for 18 months
through COBRA coverage. The insurance premium for myself, my husband, and our
three children was $462/month. This amount was pretty steep, but I knew I had
to have insurance for myself and my family and I just figured Okay, if that's what
it is, I'll just have to pay it every month." I also believed that if at some point down
the road the expense of this HMO coverage, which is top of the line medical insur-
ance, was too expensive, I could easily change over and get insurance that didn't
cost as much because it wouldn't cover as much.
I was unprepared for my business income to waver and fluctuate, as it did over
the summer. I knew that I wasn't going to be able to keep paying almost $500/
month just for insurance. So I began looking for other options. I had no idea how
hard it was going to be to find coverage that was comparable to what I had and
that was affordable. Affordable, comprehensive medical insurance: I didn't think
that was too much to ask for, but it is.
I started by going through the yellow pages. As I called different insurance com-
panies and agents, my initial shock turned to anger and frustration. It was also
frightening. A lot of companies would not offer insurance to self-employed people.
I learned that finding anything that was remotely comparable to what I had before
in terms of coverage and price was impossible. Either the cost was a little less than
what I was paying and covered only emergency care, or it was more expensive and
offered less than the same level of care that I had. Many big name insurance compa-
nies did not sell insurance to self-employed individuals. I fell under a separate cat-
egory and was referred to companies that I had never heard of before to obtain in-
surance. I called several of these companies. Most of them would not give me infor-
mation over the phone and would not send me any brochures or other documenta-
tion in the mail to review. They insisted that they be able to come over and person-
ally show me their insurance plans.
I agreed to look at two plans from two different companies. These people came
to my house with big binders and showed me page after page as they discussed each
one. It reminded me of a meeting with Amway sales people. We reviewed what I
considered to be "rickety" insurance plans, where I could pick and choose coverages
and deductibles. Then, they tried to press me for an immediate decision. It was clear
that they only wanted to walk out of my house with my check in their hand. Also,
one of the salespeople could not fully answer my questions. Again, these were com-
panies I had never heard of before. They were not regulated by the State of Con-
92
necticut, which means that there are specific requirements and guidelines for cov-
erage that the State of Connecticut has, that these companies were not required by
law to follow.
I was afraid of signing up with one of these companies. I envisioned my monthly
premiums just disappearing into never-never land every month, and seriously won-
dered if the insurance was for real. And if I did have to go into a hospital, would
that insurance be there and be useful?
I knew that eventually I would lose my medical insurance coverage completely.
I began to panic because I couldn't find anything. And I was told by many compa-
nies that I nad to be insured already in order to get insurance. That doesn't make
sense to me.
I have an infant who is now seven months old. Before I lost my medical insurance,
I went to my HMO carrier and tried to insure just the baby. That way, at least he
would be taken care of and I would not have to worry about the out-of-pocket costs
for vaccinations and doctor visits. Also, because infants are fragile, they tend to con-
tract colds, ear infections, and other viruses easily, and having access to medical
care is very important. I figured that as soon as business picked up I would be able
to add other family members to the insurance as our income allowed.
This was an ideal plan to me. I would pay a much lower monthly premium for
just one person instead of the whole family. I would still have an "in" to the HMO
and my family could feel confident with keeping the same level of medical care that
we had for years. However, I was not able to insure the infant only; one parent had
to have coverage, too. The cost for two people in this HMO was over $300. This,
again, was something that I could not afford, so I had to let my insurance go.
So, my family currently does not have any medical insurance. I am afraid to be
without it. I realize that a hospital cannot refuse emergency treatment to anyone.
However, it's all the non-emergency situations that may arise that I am worried
about. I have a very active seven-year-old son. And because boys are boys — what
do I do if my son falls off his bike and breaks his arm? Or if someone in my family
needs to have surgery? I am concerned about us needing to go to the doctor for
check ups and illnesses, and prescription medication that would have to be pur-
chased: these things would have to be paid for out of our pockets.
I am greatly disillusioned. I decided to take a risk, and take my shot at the Amer-
ican dream by starting my own business. If I had known that finding insurance
would be this difficult, this frustrating, and this frightening, if I had known that
it was totally unaffordable then I would not have quit my job. I would have re-
mained there and explored other options. I knew that insurance was expensive, but
I had no idea just how expensive! 1 honestly thought that I could obtain affordable
medical insurance. I thought it was just the HMO's that were hundreds and hun-
dreds of dollars per month.
I know many people like me who have dreams of self-employment, but are forced
to keep their jobs because they are afraid to be without medical insurance for them-
selves and their families. Our country and our communities are denied the economic
stimulation and growth that these new businesses would bring.
President Clinton's plan makes sense to me. It doesn't just offer affordable insur-
ance, (and the key here is affordable) it offers a comprehensive benefits package.
I will know what I am getting. And most importantly, that insurance is going to
be there, regardless of what my income is, where I work, or where I live. I need
to be able to afford medical insurance for my family. President Clinton's plan will
allow me to do that. It will also allow me to be able to continue my own personal
quest for success as an entrepreneur.
Senator Wofford. I thank all three of you.
Senator Kassebaum.
Senator Kassebaum. Thank you all very much.
I will start with Mr. Braxmeyer. First, I will say that he drove
200 miles in order to get to the airport in order to get to Washing-
ton. It is a far piece out in the western part of the State.
I have not supported employer mandates. That is one difference
that I have had with the President's approach. Was that something
that you were indicating, perhaps, in your comments, Mr.
Braxmeyer, that you would have some difficulties with an employer
mandate? Or, do all three of you believe the employer mandate is
important — the 80 percent/20 percent contribution.
93
Mr. Braxmeyer. I personally believe in it. We have done it, Sen-
ator Kassebaum, in our business for — I came back in 1974. It is a
family business. I don't know how many years it was going on be-
fore that. I believe in it personally, and from what I read in the
papers back in Kansas, Capitol Hill is heading that way. And I do
not see any way to avoid that.
Right now, I don't see that the public can stand an income tax,
or a sales tax. whatever kind of taxes are available, so I support
employer involvement. It looks like possibly, if I put the figures to
it correctly, it could save me money personally. Now, I want to
make sure my employees are covered as well as they are now. I
have this leukemia patient, and I don't know if they are anxious
to trade doctors right now.
What concerns me a little bit is all the alliances amongst provid-
ers that might get together. We are out there in virtually nowhere.
I am 400 miles from Kansas City, and the nearest town over
10,000 is 100-plus miles. It bothers me a little about the alliances
that may be formed amongst providers. That's why I really endorse
the community health centers. I think they are the answer for us
out there.
Back to your question, I do endorse employer involvement.
Senator Kassebaum. Do you believe that's true for the other em-
ployers in Atwood? You mentioned the small manufacturer there
who brought certainly some employment to the area.
Mr. Braxmeyer. He is essential to our community of 1,500. They
are looking at a plan, I understand. Now, how extensive that plan
is — if that plan is as extensive as the plan you have outlined or
President's plan, I don't know. I would think it would depend on
the premiums involved. I don't know what coverage they are look-
ing at.
Senator Kassebaum. You didn't ask necessarily about an em-
ployer mandate in visiting with them?
Mr. Braxmeyer. No, I aid not.
Senator Kassebaum. One other aspect of this, of course, that has
been a real problem in Kansas is the escalating cost of workmen's
compensation. That is affecting other States as well, but I know in
Kansas it has really become a high cost of doing business. Is that
a problem for you? Would you feel it would make it more attractive
if workmen's compensation were rolled into the basic benefit pack-
age, if that can be worked out. That's something that is not in the
President's plan at this point.
Mr. Braxmeyer. I just came from an industry meeting in Kansas
City a week ago, where we spent an entire afternoon on this. State-
wide, the State of Kansas has a very liberal workmen's compensa-
tion package. I am going to pay 4 percent next year. I'll pay about
$10,400, my agent tells me, for workmen's comp. Since 1982, I
think I have had eight or maybe nine claims, amounting to less
than $4,000 in 11 years. I'll pay $10,000 this year.
Depending on how it is managed in Washington, DC, I think
most employers in Kansas would like to see that considered. How-
ever, I would like to see that considered as a separate measure
over and above or side-by-side with health coverage for employees;
in other words, separate accountability, so it is not all rolled into
one package. One package premium-wise, but let us look at that as
94
an employer or as a business and say, well, so many dollars are
going for workmen's compensation and so many dollars for health
care for our employees. I would welcome that, I think, at least the
consideration of that.
Senator Kassebaum. I would just say to Ms. Adams and to any
self-employed person that I think there is total agreement here
that there should be 100 percent deduction for the basket of bene-
fits. I think you would find that everyone believes that the 25 per-
cent limit is an inequity that should not be continued.
I thank you. I certainly appreciate all three of you coming. It is
faring to take a long time for us to sort out — for some of us, maybe
onger than others — some of the complexities of this, but everybody
who has testified points to some of the real concerns that we have
to try and find answers for.
Thank you, Mr. Chairman.
Senator Wofford. Let's explore the employer mandate and the
employer costs today with all three of you. Mr. Braxmeyer was say-
ing that as he perceives the President's plan, it would probably
save him money.
Would you just give me your analysis on that to see whether
we're on the same wavelength?
Mr. Braxmeyer. I'm not sure how accurate that estimate is, Sen-
ator. I base that on the fact that we pay $205 a month for 13 em-
ployees.
Senator Wofford. The 7.9 percent cap on payroll might help
you?
Mr. Braxmeyer. I think that is probably in the neighborhood of
where I am at now. The thing I am not sure about is family cov-
erage involved in that and especially part-time coverage. Some of
my part-time employees also work other places. Some of them are
dependents under other family coverages, and I am not sure where
I would fold into that cost- wise.
Senator Wofford. In the President's plan, family and part-time
are both specifically covered in ways you need to look at. But a big
item for you is that the rating oi that, whatever the premium is
in your region, would be for everyone in that region and not based
on your own company's experience, so that the high cost of an em-
ployee with leukemia would be shared across a large pool and not
imposed on you.
Mr. Braxmeyer. That is the attractiveness of this package. We
were an eight-member, stand-alone, group insurance, and when
this catastrophic illness hit us, thats exactly what happened. We
also have some minor heart conditions involved in our gnmp and
some typical allergies and things like that, but I personally do not
feel that was the reason for the jump; it was the catastrophic ill-
ness.
Senator Wofford. And as you perceive, one of the reasons for
the alliances or the big purchasing cooperative pools, is so that you
would have the benefit of big purchasing power that large corpora-
tions now have and large State employee programs have.
We are being buzzed by something, Senator Kassebaum. I think
there is a vote on.
Senator Kassebaum. There is a vote on, I hate to say.
Senator Wofford. Which means we have just a few minutes.
95
The percent of payroll that Cyndy Adams referred to, I think you
said you had reached 30 percent; is that right?
Ms. Adams. Right now, we project 21 percent this year. But
when you have your monthly health insurance for one family plan
exceeding your payroll tax deposits each month for 6 months, it's
a bit rough. We see the President's plan, if they couldn't lower our
premiums for 1 year, we would still save $3,700 plus the $2,000 in
deductibles that we pay out. It would be a substantial savings for
us right now if that were to take place.
Senator Wofford. Would there be some savings in terms of time
and investment in the health plans if there were one large regional
purchasing alliance, where you paid to that alliance the premium,
but the administering of the plan and the choices the employees
and you would have would be a menu that everybody in the whole
region would have, and you would not be individually negotiating
it each year?
Ms. Adams. That would probably help our association. The asso-
ciation still administers it, but we are not a large group anymore.
Senator Wofford. But your story suggest that a lot of small
businesses want or feel the need to have health insurance, but that
it has gotten out of reach.
Ms. Adams. That is exactly right. We have some members who
have had their insurance increased by 168 percent in that first
year of de-grouping, and it was a phenomenal increase. Those peo-
ple dropped out immediately. And that was for a two-person plan.
Senator Wofford. We will want to hear your thoughts as the
proposals for the health alliances and how they are organized and
shaped come before the committee, and we start crafting it, be-
cause there will be a lot of concern on this committee to make sure
that they are organized in such a way that they represent you and
your employees. Under the President's proposal, a provider is not
permitted to be in the alliance. The alliance is to represent you,
dealing with the providers. So you need to follow this as we go to
see that we live up to that. The theory of it is that those alliances
would be nonprofit corporations that you will be represented in,
businesses and employees, and not the providers, so that it deals
in strength on your behalf with the p/oviders. That is the theory.
We have to see if we can shape it in such a way that it leads up
to it.
I guess we are coming to the end. Tomaca Govan, would you like
to give us any last words on this? I'm sorry that this is being cut
short. I know that you all have to leave for plans, so that by the
time we got back in 20 minutes or so, it wouldn't make sense to
try to continue. But do you have a last thought for us?
Ms. Govan. Well, basically, I really think it is important for ev-
erybody, the citizens as well as Senators, to just keep track of what
is going on and to make sure to let our representatives know what
our needs are.
That's basically it — everybody pay attention to what is going on.
Senator Wofford. We are delighted that you are, all six of you
today, and we look forward to keeping in touch with you as we
move forward.
Thank you for this afternoon, for this whole day, and for the long
drives and flights that you took.
96
The committee is adjourned.
[Whereupon, at 3:10 p.m., the committee was adjourned.]
THE HEALTH SECURITY ACT OF 1993: VIEWS
OF HEALTH CARE PROVIDERS
TUESDAY, OCTOBER 5, 1993
U.S. Senate,
Committee on Labor and Human Resources,
Washington, DC.
The committee met, pursuant to notice, at 10:05 a.m., in room
SD-430, Dirksen Senate Office Building, Senator Kennedy (chair-
man of the committee) presiding.
Present: Senators Kennedy, Metzenbaum, Simon, Bingaman,
Wellstone, Wofford, Kassebaum, Jeffords, Coats, Gregg, Hatch, and
Durenberger.
Opening Statement of Senator Kennedy
The Chairman. We'll come to order.
All of us know that the American health system is in crisis. No
American family can be confident that the health insurance that
protects them today will be there tomorrow if serious illness
strikes. Costs are out of control. Excess medical cost inflation
threatens to price care out of reach for individuals and families,
and it is a major burden on the economy, the Federal deficit, and
the ability of businesses to compete in world markets.
The system is overflowing with red tape and excessive adminis-
trative costs, which affect doctors, hospitals, nurses, and patients
alike. Large numbers of citizens — even those with insurance — in-
creasingly find their choice of doctors limited by insurance compa-
nies and their employers.
Much is wrong with American medicine, but there is also much
that is right. U.S. doctors, nurses, and hospitals provide the best
medical care in the world. We are the world leader in biomedical
research.
The President has proposed a bold, comprehensive plan to fix
what is wrong with the health care system while preserving what
is best. There is broad bipartisan agreement on the basic goals that
President Clinton has set out, and in the coming weeks, Congress
will be working closely with the administration to write legislation
achieving these goals.
This hearing is the fourth in a series that the Labor and Human
Resources Committee is holding on the President's plan. We intend
to explore this proposal in detail and to give it the highest priority.
Today we will hear from representatives of major organizations
representing the views of doctors, nurses, and hospitals. The sup-
port and cooperation of health care providers is essential for health
(97)
98
care reform. Those who provide the care are the ones who will
make reform work. They see the problems of the current system
firsthand, and they have an indispensable contribution to make in
helping to define the problem and developing workable solutions.
Those on the front lines of health care share the same sense of
urgency felt by the American people. They know it is wrong when
patients cannot receive necessary care because insurance will not
pay, or lose the savings of a lifetime because they become ill.
Often, they spend more time filling out forms and talking on the
telephone to insurance companies than treating patients. Too often,
they see patients in the emergency room with serious illnesses that
could have been avoided or easily treated by earlier care. Too often,
continuity of care is interrupted when an employer changes health
plans, and patients must change doctors.
At the same time, providers have legitimate questions and con-
cerns about the consequences of reform for themselves and their
patients. I am prepared to work with them to resolve their con-
cerns, and I know the President is as well.
From the point of view of someone who has been involved with
this issue of comprehensive health care reforms for some period of
time, the striking thing is not the concerns that health providers
have expressed about trie President's plan, but the unprecedented
degree of agreement and enthusiasm about many of its central pro-
vision, the recognition that comprehensive reform is essential, and
the strong desire by everyone to work constructively together to fi-
nally pass legislation that will assure health security for every
American.
The representatives of the leading health provider organizations
who are here today will address many of the issues posed by the
plan — both the areas of agreement and the areas that may need
adjustment. I welcome their participation and look forward to their
testimony.
Senator Jeffords.
Opening Statement of Senator Jeffords
Senator Jeffords. Thank you, Mr. Chairman.
It is a pleasure to be here this morning to discuss the Health Se-
curity Act with various health providers. No group is more impor-
tant to health reform than, of course, are the providers. Providers
are the health care system. I doubt health care reform can be suc-
cessful unless most providers want to make it a success.
As many of you know, in my own State of Vermont, we are on
the verge of enacting our own State health care legislation. We
have already enacted numerous significant reforms, all aimed at
making the most of each health care dollar spent throughout the
State.
I don't think any State is more efficient nor does any State have
any higher expectations concerning health care than does my State.
I believe the State of Vermont is at present the only State that al-
ready has a State health care budget. For a one-year period start-
ing tnis past July, our budgets take the form of expenditure targets
and are frequently phased in.
For the past 10 years, Vermont has enacted statewide budget re-
view process for hospitals, continuous quality improvement pro-
99
grams for outcomes research, a Medicaid supplement for children
and families of up to 225 percent of poverty, and insurance market
reforms requiring community rating and guaranteed acceptance.
Many people have asked me how Vermont was able to accom-
plish such sweeping reform. The answer is simple. In Vermont, no
decision on health care has been made without the advice and the
support of the providers. Nobody knows more about what is wrong
with our health care system than do the providers. We must seek
and rely upon their expertise to make it better.
That is why, Mr. Chairman, I look forward to hearing the panel-
ists today. I appreciate your holding this hearing in order to pro-
vide all the committee members an opportunity to hear what they
have to say and to work with them in order to make this a work-
able system.
Thank you, Mr. Chairman.
The Chairman. Thank you.
Senator Metzenbaum.
Opening Statement of Senator Metzenbaum
Senator Metzenbaum. Mr. Chairman, I commend you on holding
this hearing today, and I am looking forward to hearing the testi-
mony of today's witnesses, some of whom I have worked with very
closely in the past and some of whom have been naysayers and
have been very difficult to get to the negotiating table.
Clearly, health care providers play a crucial role in our health
care system and must play a key role in any reform plan. But the
ultimate test of reform must be that it serves the needs of the pa-
tients.
I think what we have found now in America is a situation where
the American people very, very much want a health care plan. The
don't know how to go about; they don't know the intricacies; they
don't know the details. But those who stand in the way of provid-
ing a health care plan for all Americans will not be very popular
with the American people.
Most Americans do not understand all the details about health
alliances and some of the other terms that are being used at the
present time. But they do know this — they are afraid of the future.
They are afraid of getting sick, they are afraid of their children get-
ting sick, and they want some action.
So I say to those who are the providers, the system needs you
very much, but the American people are demanding of you a sense
of cooperation. They feel that they are entitled to it; I think we in
Congress feel they are entitled to it. We respect the professions, we
respect the people in the professions, we respect the providers, but
we also respect the demands of the American people.
I found over the weekend a rather interesting phenomenon
among a number of my friends who are members of the medical
profession with whom I was spending some time — there was a gen-
eral consensus, a general feeling, that we want something to work.
They don't want to be the ones against whom fingers are pointed.
And I am hopeful that the American Medical Association and the
various other associations will see fit to join with us in moving for-
ward and being supportive rather than standing in the way.
100
I am pleased to say that the American Hospital Association and
I have had a good working relationship to date; we have made
great progress; we have brought about some new guidelines at the
antitrust division, and I am sure we will hear more about that
from Mr. Davidson as he speaks.
But I do call upon those who are the providers to join with us
in coming up with the answers and not standing in the way.
Thank you, Mr. Chairman.
The Chairman. Thank you very much.
Senator Coats.
Opening Statement of Senator Coats
Senator Coats. I don't have an opening statement, Mr. Chair-
man, but I am pleased that we are holding these hearings. I think
there is a great deal to learn about the system. It is extraordinarily
complex. Many, many parts go into making up the whole in terms
of health care delivery.
Assessing exactly what the problem is and providing an adequate
solution to the problems is a huge challenge for this Congress. I
hope that we can do so on an objective basis. There is much to
learn about the impact of the President's proposed plan. Hopefully,
there is much to learn about alternatives that will address the very
real problems that exist within the health care delivery system.
I think we all understand and agree that reforms need to be
made. The question is which reforms, how will they be imple-
mented, and what will the ultimate impact be on the ultimate
consumer of medical care.
It is one thing to look at a nicely drafted plan that might look
good on paper. I think the question, as the Senator from Ohio has
stated, has to be what is the ultimate impact on the recipient of
the medical care.
Certainly, within our system, we have many who are very
pleased with the care that they are receiving; we have others who
are not receiving care or are not happy with the level of care they
are getting.
Making sure that we don't turn the tables upside-down to pro-
vide better care to some at the expense of others, but having the
goal of providing sufficient and quality care to all Americans I
think is a worthy goal that we need to work toward, and I hope
we can do so on an objective basis. I for one have a great deal to
learn in terms of how all this works and am looking forward to the
testimony of the witnesses.
The Chairman. Thank you, Senator Coats.
Senator Bingaman.
Senator Bingaman. Thank you, Mr. Chairman. I really just came
to hear the witnesses.
Thank you.
The Chairman. Thank you.
Senator Gregg.
Opening Statement of Senator Gregg
Senator Gregg. Thank you, Mr. Chairman.
101
I also came to hear the witnesses, but I do think that prior to
the witnesses speaking, there are some areas that we need to ad-
dress.
Obviously, the objective here is to maintain a high-quality sys-
tem and to contain costs. And as we talk to these health care pro-
viders, a question which I hope they will address is how they see
the various plans which are being considered affecting, one, qual-
ity, and two, cost.
For example, the Clinton proposal has suggested that we take
approximately $238 billion out of the system in the area of Medic-
aid and Medicare. Now, I have to presume that most of that is
going to come out of the hospital community and out of the physi-
cian community, in some way or other, and I would be interested
in the views of the hospital and physician communities on how
they feel they can deliver quality in light of that sort of a contrac-
tion in the amount Medicare/Medicaia payments and whether or
not they feel that there is some conflict there.
Also, I am interested in knowing how global budgeting and pre-
mium caps which may be put in place by the national boards and
standby price controls are perceived within the community in af-
fecting quality of care, because the bottom line here is quality of
care, and the question is whether or not this proposal that has
been put forward by Mrs. Clinton and the President is an academi-
cally driven event which may not have taken into consideration the
reality of the hands-on deliverers of the service. So I will be inter-
ested of a review in that framework.
Thank you.
The Chairman. Thank you, Senator Gregg.
Senator Wellstone.
Opening Statement of Senator Wellstone
Senator Wellstone. Thank you, Mr. Chairman. I apologize for
being late. I was in a mark-up of the Committee on Energy and
Natural Resources.
I would like to thank all of the panelists for being here today.
I really do believe that all of you have made an enormous contribu-
tion. I cannot remember a time in my adult life — and certainly the
chairman has been the leader in the United States Congress on
this — when we have been as close in our country to adopting what
I think will be significant health care reform.
There are a couple of questions or issues, though, that I would
like to highlight today with you that I would be very interested in
your reaction to. In Minnesota when I talk to caregivers, one of the
concerns that they do have about the managed competition frame-
work, based upon current experience, is the concern about being
micromanaged, the concern about what damage might be done to
the traditional doctor/patient relationship, which I think is very,
very important not only to the caregivers but also to consumers as
well.
There was a piece in the business section today, and later on I d
like to zero in on this, and the title is, "Thinning the Health Care
Herd." It is about recent health care mergers. And I think if there
is any concern that I'd like to share with you all today and talk
with you about, it's this whole issue of the big insurance companies
102
coming in and buying up managed care networks, and whether we
have a real danger of medicine going oligopoly. The bottom line is
clearly not the only line, and I worry about where caregivers fit
into this. I would like to get your reaction to a proposal that I cer-
tainly want to make, wnicn is that in any health care plan,
caregivers — and I define that broadly — doctors, nurses, nurse prac-
titioners, occupational therapists and so on — are going to have to
have access to capital so they can set up their own independent
networks and not nave to hang out a Prudential sign or whatever.
I wonder what your reaction might be to that kind of proposal
because I do worry about caregivers getting swallowed up in these
networks, being micromanagea, and I also worry about wnat I read
today in the Washington Post, as to where all of this is going.
A second question that I have, Mr. Chairman, that I certainly
want to put to the panelists today is that I am still concerned
about whether or not there is real choice, and whether or not the
financial incentives or disincentives built into the plan may make
it much more difficult for caregivers and, for that matter, consum-
ers as well to operate within a fee-for-service framework. Since that
is extremely important in parts of Minnesota, where we are not at
all sure managed care is going to fit — rural, small town, inner
city — I'd like to talk to you all about that as well.
Then, finally, I would like to zero in on the whole question of liv-
ing witnin annual budgets. I think I know what your position is,
and I think we have a different position, but as we think about
how we are going to provide good care and also have some cost con-
trol, I think that is a thorny issue and one that I look forward to
discussing with you.
My final, final point — again, I really would like to zero in on
whether or not we run the danger of moving toward a very
bureaucratized, conglomerate-like health care system, unless some-
how the caregivers are able to set up their own networks with their
own capital, without having to hang out a Prudential sign. To me,
that would be an anti-design for where we want health care to go.
I thank you, Mr. Chairman.
[The prepared statement of Senator Well stone follows:]
Prepared Statement of Senator Wellstone
I want to thank each of our distinguished panelists for coming
before us this morning, and to thank you, Mr. Chairman, for call-
ing this hearing. The views of health caregivers on health care re-
form are critically important to those of us who would legislate that
reform. All of us will be touched in important ways by health care
reform, but the lives of health caregivers will be changed pro-
foundly on a day to day basis by the project we undertake here.
I am pleased to note that there is fundamental agreement among
those of you here before us that we must change our health care
system to ensure adequate coverage for all. We don't have to think
back very far to remember a time when this was not the case. I
know that we owe this progress to the farsighted leadership of sev-
eral of you, and I want to thank you for that contribution as well.
I am concerned by some aspects of the President's health care re-
form proposal, and I believe I share these concerns with many
caregivers. The most consistent message I hear from doctors and
103
nurses and other providers in Minnesota is that they want the au-
tonomy to make the best clinical decisions for the people they treat.
They are worried about being herded into managed care plans run
by and for an insurance company, whose primary goal is to turn
a profit. It is one reason why the Ramsey County Medical Society,
the largest medical society in Minnesota and, since it is based in
the Twin Cities, the one with the most experience with health
maintenance organizations, recently proposed a study of single
payer systems. Some 40 percent of managed care plans are already
owned by insurance companies, and the figure grows daily.
The President's proposal must assure community caregivers the
funding and the independence to run their own practices, without
insurance company interference and micromanagement. We must
assure that there is adequate capital provided to set up the kinds
of community-based and value-driven networks of caregivers that
the Catholic Hospital Association has described so eloquently.
Those networks, and all networks, must incorporate the voices and
concerns of consumers in a central, decision-making role.
Our new world of providers must include a greater role for ad-
vanced practice nurses and other mid-level practitioners who are
already so important in bringing primary care services to under-
served rural areas in places Tike Minnesota. The President's plan
goes far in recognizing the importance of these professionals. We
must go farther, and give them the opportunity to work in the pa-
tient-intensive settings in which they are so effective, and not con-
sign them to increasingly understaffed institutions, where covering
an alarmingly high number of patient beds and filling out forms
take priority over high quality patient care.
The proposal must make free choice of provider affordable, in-
cluding the choice of a fee-for-service provider. The current pro-
posal places financial penalties on those who would choose fee-for-
service over a managed care plan, where choice of caregiver is lim-
ited. Free choice has got to remain available to middle-income and
low-income Americans, not just to the wealthiest and most privi-
leged among us.
I am introducing into the record today a statement by Dr. Cecile
Rose, President of the Physicians for a National Health Program
(PNHP). PNHP represents 5,500 physicians nationwide who sup-
port the single payer system proposed in my legislation, the Amer-
ican Health Security Act, S. 491. They suggest that the single
payer system would provide patients and caregivers the greatest
freedom to choose their care, while controlling costs most effec-
tively.
PNHP has also raised questions recently about whether fee-for-
service medicine will remain viable, if the majority of consumers in
an area are forced, for financial reasons, into managed care plans.
I believe those concerns merit consideration.
PNHP also supports, as does the President's plan, the need for
annual budgets for health expenditures, and global budgets for hos-
pitals and health care institutions. This budget discipline is key to
controlling health care costs, and achieving the expansion of cov-
erage and services that we all agree is so critical. Those of us who
applaud universal coverage must face the hard facts, that it is not
possible if expenditures are limitless. It is irresponsible to suggest
104
that we undertake the kind of major expansion of benefits the
President has suggested, and hope we can leave it to market forces
to control the costs.
The market cannot distribute health care services or technology
fairly. We have a greater supply of high-tech diagnostic equipment
in the world, but life expectancy for young males in parts of Har-
lem is worse than in Bangladesh. The U.S. has 10,000 mammog-
raphy machines, while current demand could be met with 2,000
machines. Still, low-income women and African American women
have little access to this life-saving early cancer detection device,
and as a result die sooner than white women with breast cancer;
and because of under-utilization, the cost of each test is twice as
high as necessary.
Americans already pay more out of pocket than residents of any
other nation. Somehow we have not become sufficiently cost-con-
scious consumers to control prices.
I invite our provider friends to focus on the needs of their pa-
tients and their nation, as they always have at their best, and take
the cod liver oil of a budget as necessary to the cure, even if not
always pleasant.
We have a great deal of work to do together in the coming
months. I will continue to advocate that consumers deserve the
best health care, based on informed, value-driven medical judge-
ment, and on consideration for the feelings and opinions of pa-
tients. It's the kind of care I know our providers want to give. It
must be based on the needs of all of the people, in underserved
urban and rural areas, as well as in comfortable corners of our
country. It must recognize the contributions of all of the caregivers
who are willing to serve. And it cannot be based on a corporate
mentality driven by profits and mergers.
I look forward to continuing to work with you on these goals, and
thank you again for your testimony.
The Chairman. Thank you, Senator Wellstone.
Senator Durenberger.
Opening Statement of Senator Durenberger
Senator Durenberger. Mr. Chairman, I just appreciate the
chance to be here, and I appreciate the fact that in my experience,
I have had now going on 16 years of speaking with these associa-
tions, and I just nope we are finally at the point where we can de-
velop a consensus not just on the fact that something needs to be
done, but where we find the common interest among all of us.
I smile when I think about it, but I must tell you — and this is
for Jim Todd's benefit as well — how confused providers are. I really
put this down to the fact that we are all using the same vocabu-
lary, but we are all talking different languages, literally. But all of
this stuff you're going to hear around here, talk about choice, and
accountable health plans, and until we can learn to make the vo-
cabulary mean the same thing to everybody, we are going to have
some problems.
Without Minnesota, a very progressive State that Mrs. Clinton
uses as an example all the time, and we've got all these terrific
doctors and hospitals and all that sort of thing, last weekend, the
Minnesota Medical Association went up to Duluth, and the pro-
105
posal was that they should initiate a study of the single-payer sys-
tem, the one which my colleague advocates, and it came within two
votes of passing. To me, in a State which has shown provider cre-
ativity, which is being penalized consistently by Government-run
systems, the past president of the association says, "Well, I am for
a single-payer system; I just don't want the Government involved
in it. [Laughter.]
Senator Wellstone. He says more than that, but I'll keep that
out.
Senator Durenberger. Well, with all due respect to him and to
others, it is confusing out there; it is really very confusing out
there, particularly for people who have committed themselves pro-
fessionally to the good of all the rest of us in health care.
The Chairman. Thank you, Senator Durenberger.
Senator Hatch.
Opening Statement of Senator Hatch
Senator Hatch. Thank you, Senator Kennedy.
P.J. O'Rourke said if you think health care is expensive now,
wait until you see it when it is "free."
As we continue this important series of hearings, certain points
will be repeatedly heard — the need for universal coverage for all
Americans, the need to make institutions more efficient, the need
to reduce bureaucracy; the need to reduce fraud and abuse, and the
need to curtail increases in Federal spending for Medicaid and
Medicare.
I want to emphasize that we must seek to preserve the vast ma-
jority of our health care system because it works well, and select
carefully those aspects that need improvement. We should seek to
avoid making changes for the sake of change, or for trying out new
ideas that have not been appropriately tested or refined. We must
recognize that there is no single simple answer although witnesses
may offer many steps that might be helpful.
During these hearings, we must hope that witnesses will offer
differing opinions of how they view problems and solutions of our
complex systemic problems in health care. I am hopeful that at the
end of these hearings, we will have a robust and useful set of
views. We will then need to decide what problems need to be ad-
dressed, in what priority, and move rapidly to determine the best
options for reform.
I would like to hear these witnesses' views on insurance reform
as we contemplate universal insurance. I would like their reaction
to my belief that reform must require individual responsibility and
provide choice of care provider. I want to know why they believe
Americans should not be responsible for their own health care
under an individual manage. And why shouldn't Americans have
real choice over what is covered under a benefit package? Shouldn't
each American have the right to choose his or her own physician?
As you know, I have long championed malpractice reform as a
fundamental improvement to health care. Medical liability costs
are estimated to range by the AMA upward of around $25 billion
plus. I think it is far higher than that if you take into consideration
all the aspects of defensive medicine tnat come from the fear of
doctors that they are going to be sued for medical liability.
106
The providers testifying today all confront medical liability daily.
I want to have their views on my proposals for innovative arbitra-
tion and alternative dispute resolution mechanisms to keep medical
liability problem out of the courtroom. Do they favor caps on non-
economic damages; limitations on single payments and limitations
on attorneys' fees?
Likewise, I have urged reform of antitrust laws that unneces-
sarily cost us. Hospitals in Utah and other States have spent mil-
lions defending against Federal enforcement of antitrust laws — mil-
lions of dollars that could have been spent on patient care. Do the
witnesses agree with the providers in Utah and elsewhere, which
have repeatedly complained that Federal laws prevent them from
achieving greater efficiency in giving services?
Do the witnesses share my view that the legislative relief is nec-
essary to protect rural hospitals, which are fearful of even talking
about any kind of cooperation, because Federal enforcement agen-
cies may find an antitrust violation?
We all hear complaints about the bureaucratic complexity of pro-
viders and Government, the mountains of forms and the tangle of
necessary approvals. I am sure that the witnesses will agree that
agreement on common forms and electronic processing will greatly
simplify administrative costs. Do they believe, however, that we
can have a single form on one page for all providers?
As we look ahead, I want to keep the bureaucracy to a minimum.
I hope the witnesses will let us know how different types of propos-
als for Government intervention would add administrative costs. If
the goal is to keep health care money flowing to patient care and
cut trie cost of red tape, then we ougnt to do everything we can to
do that.
Finally, the bottom line issue is controlling the costs of health
care, including the soaring costs associated with Medicaid and
Medicare. My view is that price controls in whatever form should
be avoided at all costs, and I believe that we need to hear opinions
on how to control costs without price controls.
I also want to avoid shifting Medicaid and Medicare costs to pri-
vate insurance without making the necessary reforms that would
curtail unnecessary cost increases. It is in the area of cost control
that I think we will need the views of our very best minds in this
country to determine approaches that can control costs without los-
ing quality or imposing rationing.
So Mr. Chairman, I am happy that you are conducting these
hearings and taking such a great interest in this matter, as you al-
ways have, and I appreciate your leadership in this matter. I hope
these questions, though, can be answered.
The Chairman. Thank you, Senator Hatch.
Senator Simon.
Opening Statement of Senator Simon
Senator Simon. Thank you, Mr. Chairman.
I have no opening statement. We obviously are going to be hear-
ing a great deal in this area over the coming months, and I look
forward to that.
The Chairman. Senator Kassebaum.
107
Senator Kassebaum. I have no opening statement, Mr. Chair-
man.
The Chairman. Thank you.
The Chairman. The first panel is composed of representatives of
the two leading hospital associations of the United States. Dick Da-
vidson is president of the American Hospital Association. Many of
us have worked closely with him over the years. He is widely re-
spected by Members of Congress on both sides of the aisle.
I think you know, Mr. Davidson, we have a very effective associa-
tion in Massachusetts; Steve Hagerty chairs that association, and
they have been enormously constructive and positive and helpful to
all of us in terms of understanding the interests of the hospitals.
We are delighted as well to welcome Sister Maryanna Coyle, who
is the president of the Sisters of Charity of Cincinnati and is re-
sponsible for the operation of the health care system that includes
20 hospitals as well as other health facilities. She is here today as
chairperson of the board of trustees of the Catholic Health Associa-
tion of the United States. The Catholic Health Association rep-
resents more than 1,200 Catholic health facilities nationwide and
has been in the forefront of the movement to assure health care ac-
cess for all. As she knows, Sister Caritas of Mercy Hospital in
Springfield is one of the very dynamic spokespersons also on the
issue of health care, and I know she shares my high regard for her.
We are delighted to have her here today.
Mr. Davidson, as you can probably tell at the outset, there is not
a uniform opinion about what we ought to be doing.
Just before you proceed, I see my friend and colleague Harris
Wofford. Did you have any opening comment?
Senator Wofford. No, Mr. Chairman. Thank you.
Mr. Chairman. Before we begin I have a statements from Sen-
ators Mikulski and Dodd.
The prepared statements of Senators Mikulski and Dodd follow:]
Prepared Statement of Senator Meculski
Madame Secretary, it is an honor to welcome you back to this
Committee. In your short tenure at HHS you have already become
a forceful advocate for prevention. Your leadership on childhood im-
munization is to be commended. And that leadership is reflected as
well in the President's health care plan, I would also like to extend
a warm welcome to our other witnesses testifying today.
I am very pleased to see that the President's plan builds on the
provision of prevention services— especially for women and children
where it has been so neglected in our health care system in the
past.
In fact, I believe that this is the first President to not only advo-
cate a comprehensive core benefit package for everyone but to ad-
vocate access that is based on prevention and screening.
Health promotion and disease prevention are perhaps our best
opportunity to reduce the ever-increasing portion of our resources
that we spend to treat diseases. Medical care alone won't work. The
best research alone won't work. Caring and sensitive health care
providers alone won't work.
We need all of that and we need more. We need a basic benefit
package that provides — free of charge — key preventive health bene-
108
fits. We need to create a culture of personal responsibility for
healthy behavior. And we need a strong public health service that
provides education, outreach and services for people in their com-
munities.
There is perhaps no greater challenge we face than stopping dis-
ease and illness before it starts. Saving lives has long been a core
mission of this Committee and of the public health service. The eco-
nomics of prevention — as we have found out from Healthy People
2000 — is not only good for our health — it is good for our wallet.
Think of the lives and money we could save if we turned our
health care system upside down and started preventing disease in-
stead of waiting until people got sick. The yearly cost of treating
alcohol and drug abuse is at least $16 billion. Smoking related ill-
ness cost $65 billion a year. Preventable injury alone costs over
$100 billion a year, cancer over $70 billion and cardiovascular dir
ease $135 billion.
We need to change the mind set in this country. And this pla
will begin to help us do that.
Madame Secretary, last year one-third of American women di
not get any basic preventive service. No mammogram. No pelvic
exam or pap test. No physical or breast examination.
Breast cancer, cervical cancer and other gynecological cancers
diseases can be prevented or detected early and treated success-
fully. Yet by and large, these women were not referred by their
physician for screening services.
I am very pleased that the President's plan provides for these
services, but I have some serious concerns about the frequency for
which they will be provided.
The President's plan seems to call for a screening mammogram
for women every other year after the age of 50 — even though the
American Cancer Society and the National Cancer Institute rec-
ommend annual screening after the age of 50 and screening every
other year for women over the age of 40. The Plan also limits an-
nual pap tests to once every three years if a woman tests negative
for three years in a row.
I also have some concern that money will be cut — over $90 mil-
lion— from the public health service programs to offset the cost of
the new plan before the new plan is even operational.
Mr. Chairman, the public health services this Committee legis-
lates are vital to our states, our local communities and to the peo-
ple they serve. They create the infrastructure at the community
level that get people to the services they need. They monitor access
to care and assure services for people who otherwise do not have
access to appropriate care. They promote health.
I know we share common goals in reforming our health care sys-
tem Madame Secretary: first, that the new system make health
care accessible to everyone: second, that it control costs without
cutting quality: third, that it make health care reliable and port-
able, and forth, that it eliminate the hassle for families, business
and providers.
I look forward to your testimony and to working with you in get-
ting the best health care reform legislation enacted into law.
109
Prepared Statement of Senator Dodd
I want to thank the Chair for holding this morning's hearing. In
my view, it's critical that we hear the views of people on the front
lines of medicine early in the discussion of health care reform.
IMPORTANCE OF PROVIDERS' VffiWS
It makes sense that our first two hearings— following Mrs. Clin-
ton's overview — would focus on patients and providers, the groups
most directly affected by our current system and proposed reforms.
providers' UNIQUE VD3W to what's wrong
Our providers have a unique view of what's wrong with our
health care system. Our doctors and nurses know what it means
when a patient's care cannot be continued because of the loss of in-
surance. They know what it means when necessary procedures are
not covered by a patient's insurance plan. Patients end up in their
offices who cannot afford to pay the out of pocket costs for medi-
cine. And our hospitals know the human and economic cost of
treating the uninsured in emergency rooms.
Our providers face frustration in the system every day. They
spend time doing paper work when they could be with patients.
They are forced to practice defensive medicine, yet are blamed for
ordering too many tests. If they choose to practice in an under-
served area they have limited access to information and technology
and face demand for their services that outstrips their time.
MAINTAIN QUALITY CARE
While providers can tell us much about what's wrong, they offer
an important view on proposed changes to the health care system.
We need to hear from providers so that as we move to fix what's
wrong, we do not inadvertently disrupt or destroy what's right in
our health care system. And our Nation's providers are a major
part of what's right. Indeed, the Nation is focused on the issue of
health care reform largely because we want all Americans to have
access to the high quality care that now exists only for some.
Mrs. Clinton emphasized to this committee last week that "we
want to preserve and strengthen the high quality of medical care
that is a trademark of our Nation — our unrivaled doctors, nurses,
hospitals, and sophisticated technology." She and every member of
this committee agree that the health care in this country is the
envy of the world. I look forward to hearing from the provider
groups this morning and expect to maintain an ongoing dialog as
the debate continues. Our nurses, hospitals, primary care doctors,
and specialists are the backbone of our health care system, and
therefore critical to the discussion.
Mr. Chatoman. Mr. Davidson, please proceed.
110
STATEMENTS OF DICK DAVIDSON, PRESIDENT, AMERICAN
HOSPITAL ASSOCIATION, WASHINGTON, DC, AND SISTER
MARYANNA COYLE, PRESIDENT, SISTERS OF CHARITY OF
CINCINNATI, AND CHAHiPERSON, BOARD OF TRUSTEES,
CATHOLIC HEALTH ASSOCIATION OF THE UNITED STATES,
WASHINGTON, DC
Mr. Davidson. Thank you, Mr. Chairman and good morning.
I am Dick Davidson, president of the American Hospital Associa-
tion. We are kind of the umbrella group of all of the hospitals in
America, some 5,000 member institutions across the country, rep-
resenting virtually all of the interest — religious, not-for-profit, in-
vestor-owned, governmental institutions. You name them, and they
are an integral part of our association. So when we speak here be-
fore you today, we are speaking in the interests of all of the hos-
pitals in America.
I want to say at the outset that the American Hospital Associa-
tion salutes President Clinton and the First Lady for nurturing the
current health care reform debate. We think it is time; we think
we will all come to some place where we will reach some agree-
ment. America is ready for this, and providers are ready for it. The
status quo is no longer sustainable, and we have got to move to a
better place.
We commend you, Mr. Chairman. I know you must feel excited
about what is going on, after 25 years of being a pioneer in this
area. It seems tnat timing is everything, and the time is now.
What I would like to do this morning is to talk a little bit about
some of the issues of the President's proposal and get to some de-
tails later. There are three things.
First, the President's plan has a lot of common ground for hos-
pitals in this country, because we stand for a variety of things and
feel strongly about them. No. 1, we feel that our job is to help im-
prove the nealth of the population. Second, we are for universal ac-
cess to health insurance. We think that is a moral imperative, and
it is time to move there. Third, we think we need a more integrated
delivery system. The current one does not work effectively, and we
must change it.
In addition, we think there needs to be economic discipline in the
system in order to deal with cost control, and we think there must
be much greater public accountability. We need to deal with the
problems of professional liability and to move on into other areas
of antitrust, and we thank Senator Metzenbaum for his leadership.
We have made an important first step, and we thank you publicly,
Senator, for your leadership in that area.
Second, universal access and delivery system reform are our two
highest priorities. We do not believe that access to care in America
should be expanded into this delivery system; if we are going to
give more Americans the opportunity to get care, it shoula be into
a new delivery system, and we are prepared to talk about that.
Finally, with any comprehensive health care reform proposal,
there are going to be certain things that people have some concern
about, and we have some concerns with the Clinton plan and will
share our observations about them and whether we can offer some
proposals to clear up the rough spots.
Ill
Let me first accentuate the positive — how the President's plan
fits our vision. We stand squarely behind the President's insistence
on achieving universal access to insurance through the workplace.
It is the most practical way to achieve the objective; we think it
may be the only way to get there in the near term. The status quo
is not sustainable, and that is why we support that notion.
The President's plan also begins to create a new environment for
health care delivery for hospitals, for doctors and other providers,
in essence bringing us together to cooperate. The accountable
health plans he proposes are Trissing cousins" to the AHA's notion
of community care networks. We would hope that they would actu-
ally become "twins" in that we think it is essential that we have
community-based organizations working together. So we think we
can build on the President's proposal to bring about more commu-
nity-based collaboration among doctors and hospitals, and we can
talk about that.
Our job, in our view, is that we should do what we do best, and
that is keeping people healthy and taking care of the sick and in-
jured. That is the nature of the business we are in, community by
community, across America.
Next, the problems and our proposed solutions. First, Medicare
program spending growth is arbitrarily capped so that about $124
billion is squeezed out by the year 2000. These changes are not in-
tended to fix what is wrong with the Medicare program. These
changes in payments to hospitals and doctors are made solely for
the purpose of financing additional benefits. And of course we agree
with the idea of providing expanded benefits, but we strongly object
to financing them out of further payment cuts to hospitals, which
in essence provide a substantial portion of care to the Nation's el-
derly. We do not think that system can work the way it is struc-
tured at this point.
This, coupled with the fact that services for the Medicare popu-
lation continue to be paid for in the President's plan on a per-ad-
mission or per-visit basis, really amounts in our view to business
as usual, and we have got to change that.
Medicare's payment system is broken. We can tinker on the
edges of payment forever and never get it straight and never get
it fixed. We have got to change that, and in this reform proposal,
we have got to look at ways that we can move the elderly of the
Nation into a new delivery system. We think that that is absolutely
essential.
Also, the overall plan reduces the deficit by $91 billion. We just
went through a budget debate and budget crisis where we ulti-
mately ended up using payment to hospitals and doctors to reduce
the deficit by some $56 billion. We cannot imagine that we are
going to sustain another $91 billion deficit reduction strategy in the
ealth care field, and we think that those funds ought to be used
to expand the benefits to senior citizens, and those funds ought to
be set aside to assure that we don't have to have arbitrary cutbacks
in the future; that health care reform should not be the vehicle for
deficit reduction. We are trying to solve a very serious social and
economic problem in this country. So we are very concerned about
that.
112
In addition, the way we treat Medicare patients today if we are
going to move into the future and have two kinds of delivery sys-
tems— one for people outside Medicare and one for people in Medi-
care. Forty percent of the revenues that flow through hospitals and
30 percent of the patients that we treat are senior citizens. We can-
not reform the delivery system if in fact almost half of the folks
that we take care of are on a different kind of payment arrange-
ment. So we have got to change that.
The Medicare spending cap is iust one kind of cap that is being
looked at. But there is also another cap being looked at, and that
is another way to find how to put a cap on private sector spending.
The administration proposes a formulistic strategy to putting a cap
on private spending through insurance premium caps, and it is a
formulistic approach which defies some logic. We think it is impor-
tant to begin to look at how we have targets to look at in the fu-
ture, but to say that we are going to have arbitrary caps and kind
of put the system on "cruise control" and take our hands off the
wheel is something that concerns us very much.
Instead, in our view, any attempt to limit spending on the pri-
vate side must include a process to match personal health needs
with available resources in an open and public way. We have got
to have public debate as we expand benefits, so we are sure we
don't make more promises than we can deliver. We think the Presi-
dent's proposal for an independent commission provides the public
opportunity to have those kinds of debates along with the U.S. Sen-
ate and the House of Representatives, and we think that is an es-
sential way to do that.
So we are unalterably opposed to the kinds of price controls that
are described in the President's proposal, but we are certainly will-
ing to talk about some way to establish reasonable growth and
oversight in health care expenditures for the United States.
Health system costs can only be controlled if we change the way
we operate at the community level. I just want to repeat that. To
us, that is the most essential thing. We must change the health de-
livery system community by community across America. The job of
the Federal Government is to provide incentives to make that hap-
pen. There is no cookie cutter that we can provide from Washing-
ton to make these things happen. But there are incentives, and we
think the President's plan provides incentives. They employ
capitated payments to groups of providers. From our perspective,
this is absolutely key to cost control because it is going to encour-
age hospitals and doctors and other providers to begin to work to-
gether in a way you have not seen them work together in the past.
We think that is the key to success for the future.
For such collaborative effort to be successful, we see the need for
some change in the way the President's accountable health plans
are put together. There needs to be a lot more detail. We think the
President is absolutely on the right track. We think there must be
better safeguards to prevent these plans from being simply fly-by-
night insurance mechanisms run out of tall buildings in big cities,
with computers and discounted contracts. In our view, that is not
health care reform. We think we have got to reform the system
community by community and let communities have responsibility
for oversight.
113
So we propose minimum Federal guidelines for health plans to
ensure that they are locally governed and accountable to the people
they serve. We need to turn the health care delivery system back
to the people. To us, that is the essential way to reform this sys-
tem.
In closing, these are the key issues for America's hospitals. We
have many other ideas for change that will help make the pieces
of this reform plan better and fit together, and we are willing to
support them and support them vigorously. We pledge to you, ^lr.
Chairman and members of this committee, a constructive hospital
effort to achieve the key principles outlined in the President's plan
and reach our shared goal of better health care for all Americans.
We think the time is now.
The Chairman. Thank you very much.
[The prepared statement of Mr. Davidson follows:]
Prepared Statement of Dick Davidson
Good morning. I am Dick Davidson. President of the American Hospital Associa-
tion, representing 5,000 hospitals ana health care organizations across America. It
is a pleasure to be here this morning in the cause of moving health care reform for-
ward!. Senator Kennedy and other members of this committee have been true pio-
neers in the effort to extend and improve health coverage for the nation, and I know
you share the American Hospital Association's excitement about the real oppor-
tunity for achieving that goal that the current environment provides us.
AHA salutes President Clinton and the First Lady for their significant work in
nurturing the current reform climate. America's hospitals, through AHA, have
worked for more than two years to shape our own blueprint for health care reform:
we are very pleased that the President's plan shares many of our building blocks.
In a nutshell, AHA's reform objectives include:
1. Universal access in a reasonable time period financed in a pluralistic man-
ner;
2. Redeveloping health care delivery into an integrated and coordinated sys-
tem able to address the needs of the population;
3. Economic discipline based on clear incentives rather than
micro management;
4. Balancing promised benefits with adequate financing;
5. Public accountability for the clinical effectiveness and economic efficiency
of health plans;
6. Antitrust and malpractice reform.
You will notice that "universal access" is at the top of the list. We share the Presi-
dent's belief that any reform plan must move us as quickly as possible to health
coverage for all. This is a non-negotiable item for us, not only because it is the mor-
ally right thing to do, but also because without universal coverage health care re-
form simply doesn't work — without it, you will still have a system with providers
continuing to shift costs from the uninsured to the privately insured, undermining
our goal of moderating rising health costs.
The other basic building block we share with the Clinton proposal is its boldness
in calling for a fundamentally restructured health care delivery system. In the Clin-
ton proposal, health plans would offer a guaranteed national benefit package to con-
sumers, without regard to pre-existing conditions. The plans would receive a fixed,
per-person annual payment, providing the financial resources for preventive care
that our current system so sorely lacks.
The Clinton proposal's "health plans" provide the structure to accommodate
AHA's own approach to restructuring the delivery system through community care
networks — cooperating groups of local providers paid on a capitated, or per-person,
basis. This approach provides the economic incentives for providers to work to-
gether, eliminating expensive duplication of services and technology, and for estab-
lishing a seamless system of care that works better for patients.
We also like the fact that the Clinton proposal establishes a framework for a na-
tional independent commission that would interpret and update the guaranteed na-
tional benefit package to be offered to consumers. And, we endorse the proposal's
movement toward more clearly spelling out anti-trust guidelines. The current anti-
trust climate is murky. Hospitals that want to merge or share technology are some-
114
times discouraged from doing so out of fear of running afoul of the Justice Depart-
ment and regulators. This chilling effect undermines our shared goal of achieving
greater efficiency in health care delivery.
While we have more agreement than disagreement with the Clinton proposal —
more common ground than battleground — we would like to share with you our areas
of significant concern, and offer our view of how these areas can be improved.
First, under the Clinton proposal Medicare spending growth is capped so that
$124 billion is squeezed out of the program by the year 2000. These changes are
not intended to fix what's wrong with the Medicare program. They will fund pre-
scription drug and long-term care benefits for the elderly. We are supportive of
these benefits, but we can't support underpaying hospitals in order to finance them.
The solution? The Clinton plan calls for using reform savings and taxes to reduce
the deficit by $91 billion. We believe those savings should be left in the health care
reform effort where they can reduce the need for arbitrary cuts. First of all, provid-
ing universal access to health coverage is going to increase health spending. This
is not the time to be bleeding resources from the system. Second, the process of
reconfiguring hospitals and other provider services also takes financial resources.
We know from experience that laying out a solid plan for merging services between
two hospitals, or between a hospital and physician group, can take a year or more.
Hospitals must have the resources that allow them to do this; they won't have them
in a too-constrained financial environment.
The infrastructure investments we all endorse in order to reduce administrative
costs — electronic billing, computerized patient records, new information systems —
also require front-end dollars before they can be put in place. Our ability to get be-
yond the traditional hospital acute care role that will be necessary under reform is
also jeopardized by excessive spending reductions. For example, consumer edu-
cation, wellness, and outreach programs — not funded by the current system — are
among the most vulnerable programs when finances are squeezed.
A similar disconnect of actual needs from resources happens on the private side
in the Clinton proposal, where spending growth is capped by tying it to the
Consumer Price index (CPI). But the CPI has no real link to the actual costs of pro-
viding care; health care has its own set of input costs that aren't reflected in the
CPI — labor costs that are driven up by health care personnel shortages and the
steeply rising cost of new medical technology, for example.
We agree on the need to slow health spending growth. But to try to do it through
a rigid formula amounts to putting the system on cruise control, taking one's hands
off the steering wheel, and hoping for the best. That is not a responsible way to
navigate the uncharted territory of health reform. Why? Because it doesn't allow us
to adjust course to accommodate unforeseen circumstances. The slowness of the
economy in coming out of the recession; previously unknown crises such as the AIDs
epidemic — all caution that we keep our hands firmly on the steering wheel. And the
way v-e do that is to match health needs with available resources in an on-going,
open and public way. In our view, that should be the job of the independent national
commission.
We also have concerns about the structure of the Clinton health plans. While they
have shared characteristics with our vision of integrating care through community
care networks, they are by no means identical. The health plans must have a better-
defined role set out at the national level, and more accountability built in at the
local level. We have real concerns that as currently defined they could harbor fly-
by-night insurance schemes. The way to address these concerns is to make sure
health plans are under local governance, are targeted toward meeting local needs,
and have a local accountability mechanism.
So yes, there is work to be done in examining these and other areas of concern,
such as the size of health alliances. We need to work together to identify options
and compromises. But it's not an impossible job. We have been given a strong start
by the President and the First Lady in putting forth a serious reform initiative.
Much work has already been done in Congress as well, including efforts by this com-
mittee. And a spirit of bi-partisanship is emerging.
For those of us who see a broken health care system and want to fix it, it's a truly
exciting time — even an historic time — for health policymakers and providers. We
sense a rare opportunity, an opportunity that may not come again for a long time,
to reshape our health care system to make it work better for all of us.
Hospitals pledge to play a constructive role in that process. To work hard to sup-
port reform elements we believe build the right foundation, and to find agreement
in those areas we now feel are not solidly grounded. As the American Hospital Asso-
ciation serves in that role, we dont see ourselves as advocates for the President's
plan, or the Conservative Democratic plan, or the Senate Republican plan; for busi-
115
ness or for labor. We see ourselves as advocates for the workable, the truly better-
in short, for good public policy. ,...,.,, , j e •*• n
Legislation that captures these qualities is likely to be drawn from positions all
along the political spectrum. As politicians skilled in the art of compromise, I know
you recognize that truth as well. The American Hospital Association looks forward
to working with you to reach our shared goal of better health care for all Americans.
The Chairman. Sister Coyle.
Sister Coyle. Good morning, Mr. Chairman and members of this
committee. My name is Sister Maryanna Coyle, and I am here as
chairperson of the board of trustees of the Catholic Health Associa-
tion of the United States, CHA, which represents over 900 health
care facilities nationwide.
As president of the Sisters of Charity, I am also a sponsor of our
health care system, which is the 5th largest Catholic system in our
country, with facilities in Ohio, Kentucky, Colorado, New Mexico,
and Nebraska.
The CHA recognizes and commends you, Mr. Chairman, for the
untiring dedication that you have shown toward the cause of uni-
versal health care coverage during the past 25 years. Like the
President, CHA believes that the debate about health care reform
is essentially a debate about values. We believe that, first, health
care is a service, not a commodity; second, human dignity requires
universal, comprehensive coverage; third, public policy must serve
the common good- fourth, growth in health care spending must be
controlled; fifth, the well and the wealthy have a responsibility to
care for the poor and the sick; and sixth, a reformed health care
system must promote simplicity.
CHA is encouraged by the fact that the President's proposal is
based on a similar set of principles. We believe that nothing short
of comprehensive health care reform can fix our broken system. To
that end, CHA has designed a proposal for systemic health care re-
form.
We are convinced that if Congress fails to act forcefully, com-
prehensively, and soon, matters will only get worse. Incremental
approaches are no longer an option.
Mr. Chairman, we call on you and your committee to hold fast
to several components in the President s health care proposal. Hold
fast to universal coverage and the speed with which it is accom-
plished under the Clinton proposal. It is the linchpin of reform.
Hold fast to a substantial uniform benefit package. Avoid a basic
package that becomes a floor for the middle class, but a ceiling for
the poor.
Hold fast to the many protections for low-income populations
that are incorporated, including the incorporation of Medicaid
funds into health alliances.
Hold fast to provisions for uninterrupted coverage of consumers
regardless of employment status — a focus on keeping people
Hold fast to the high degree of consumer choice among health
plans created by the use of regional health alliances.
Hold fast to overall expenditure controls. CHA is on record in
favor of a global budget.
Hold fast to the financing mechanism in the Clinton proposal
that asks everyone to share the burden. Do not retreat on the em-
ployer mandate.
116
Finally, hold fast to the high cut-offs for firms that use health
alliances, to avoid exacerbating the fragmentation and cost-shifting
which is the reality of our current system.
While we all urge you to hold fast to these components, I want
to share with you five ways in which the CHA believes that the
President's proposal must be strengthened.
First, it needs a much sharper focus on delivery system reform.
This can be achieved by a) merging the insurance and delivery
functions in the form of integrated networks that provide a coordi-
nated continuum of care for an enrolled population; b) incorporat-
ing Medicare into the overall reform system through a scheduled
transition process; c) fully integrating long-term care with acute
care under a specified timetable if we are to have truly a contin-
uum of care, and d) creating a more realistic timetable for reducing
the rate of growth in both public and private health care spending.
The President's proposal indicates that reductions may not be too
much, but they certainly are too fast for an effective, quality sys-
tem.
Our second recommendation for strengthening the Clinton pro-
posal is to employ a more effective process for setting the global
budget by incorporating critical information about population needs
and local system efficiencies over time. This is a bottom-up, top-
down, as opposed to top-down approach.
Third, CHA strongly opposes, on both moral and political
grounds, the inclusion of abortions in the guaranteed national ben-
efit package. We are hopeful that Congress will keep health care
reform and legal abortions as separate and distinct issues.
Fourth, CHA firmly supports the inclusion of a strong conscience
clause provision for individuals, institutions, and employers in
health care reform legislation.
Fifth, it is quite possible that commercial influences will over-
whelm the professional ethos in American medicine. In this regard,
two questions arise. How will patients fare when the treatment
that they need could make their provider less competitive and less
profitable? Second, will health plans owned by commercial interests
beholden to distant shareholders abandon communities when their
profits are squeezed?
In conclusion, Mr. Chairman, our success in reforming the Amer-
ican health care system will be measured by the responsive given
to the following question: Did we produce a reformed health care
system that better meets the needs of individuals, families, and
communities?
Thank you.
[The prepared statement of Sister Coyle follows:]
Prepared Statement of Sister Maryanna Coyle
Good morning, Mr. Chairman and members of the Committee. My name is Sister
Maryanna Coyle. I am Chairperson of the Board of Trustees of the Catholic Health
Association of the United States (CHA). The Catholic Health Association represents
more than 1,200 healthcare facilities and organizations that make up the nation's
largest group of not-for-profit healthcare institutions under a single sponsor.
I am also President of the Sisters of Charity of Cincinnati which sponsors the Sis-
ters of Charity Health Care Systems, Inc. Our twenty hospitals, four long-term care
facilities and five retirement communities in five states constitute the fifth largest
Catholic healthcare system in the United States.
117
Mr. Chairman, it is an honor to appear before your committee as Congress begins
to determine how — not whether — to reform our nation's healthcare system. At the
outset of our testimony we want to recognize and commend you for the dedication
and perseverance you nave shown to the cause of universal healthcare coverage dur-
ing the past twenty-five years. You had the courage and tenacity to keep the beacon
lit even when the prospects for universal coverage seemed hopeless.
CHA shares your belief, and President Clinton's, that the goal of universal
healthcare coverage is and must remain the one non-negotiable item throughout the
coming debate on healthcare reform. It is. Mr. Chairman, the linchpin of reform.
Since 1986, CHA has been a consistent advocate for universal coverage in a rede-
signed healthcare system. La our testimony today, we will, first, state our basic
agreement with many of the components of President Clinton's proposal and indi-
cate that we believe his proposal is headed in essentially the right direction. Second,
we will make a number of recommendations that we believe are necessary to
strengthen the proposal. Finally, we will pledge ourselves to work with the White
House and the Congress to do everything we can to make meaningful healthcare
reform a reality in 1994.
A. THE NEED FOR VALUES-BASED REFORM
Two years ago the Catholic Health Association developed its own proposal for
healthcare reform.1 This comprehensive plan describes our vision for a healthy
America. You can imagine how pleased we were to hear Mrs. Clinton cite our plan
as a model for the Administration's own reform proposal in her testimony before
this and other committees last week.
Like the President, we believe that healthcare reform is essentially a debate about
values. Accordingly, our proposal is anchored in the following set of core values. We
believe that:
• healthcare is an essential social good, a service to persons in need which
should never be reduced to a mere commodity exchanged for profit;
• human dignity requires that all persons be guaranteed a right to a uniform,
comprehensive package of healthcare services;
• our nation's excessive focus on individual and institutional self-interest must
be balanced by a recognition of the common good;
• our healthcare system must be reorganized so that it can better manage
healthcare resources and better control the growth in healthcare spending;
• we must re-establish the principle that the well and the wealthy have a re-
sponsibility to care for the poor and the sick; and,
• a reformed healthcare system must promote simplicity by placing responsibil-
ity at the most appropriate levels of organization.
CHA is encouraged by the fact that President Clinton's reform proposal is based
on a similar set ofprinciples. As the President's reform proposal notes, these values
"reflect fundamental national beliefs about community, equality, justice and liberty"
and they anchor healthcare reform in our nation's "shared moral traditions."
B. THE NEED FOR SYSTEMIC HEALTHCARE REFORM
Today, millions of working Americans, their families, and others cannot afford or
otherwise obtain healthcare insurance, and are often excluded from the benefits of
our nation's healthcare system. Hundreds of thousands go without needed care or
become impoverished when they have to pay their medical bills. And large numbers
die prematurely for lack of care. Paradoxically, all of this is happening at a time
when national healthcare expenditures are escalating rapidly, seemingly without
control, and are consuming increasing portions of the nation's wealth. These prob-
lems have been exacerbated by the abandonment of community rating in private
health insurance and employers' growing resistance to cost shifting. Together these
developments are undermining our nation's voluntary social safety net in healthcare
and are making it more difficult for many of our non-for-profit healthcare institu-
tions to meet their historic missions of community service.
Meanwhile, the healthcare delivery system is fragmented and lacks economic dis-
cipline. It is increasingly burdened by a broad range of private and public rules on
prices, volume, and methods of treatment that make American healthcare providers
among the most regulated in the world.
Mr. Chairman, we have reached the point in healthcare when one thing is certain:
if Congress fails to act forcefully, comprehensively, and soon, things will only get
1 Setting Relationships Right: A Proposal For Systemic Health care Reform, The Catholic
Health Association of the United States.
118
worse. We no longer have the luxury of ignoring the problem and hoping that, some-
how, someday, it will simply fix itself. Similarly, partial or incremental approaches
are no longer an option. The underlying problems are systemic in character and, as
the President has recognized, can only be addressed through comprehensive change.
C. COMPONENTS OP THE CLINTON PROPOSAL SUPPORTED BY CHA
Now let me turn to the specifics of the President's proposal. Mr. Chairman and
members of the committee, we call on you to hold fast to several critical components
of the President's approach to reform.
1. We urge vou to hold fast to universal coverage. The Clinton proposal calls for
coverage of all our citizens by January 1, 1998. For both moral and pragmatic rea-
sons, we ask you not to compromise either on the principle of universal coverage
or the speed with which it is accomplished under the Clinton proposal. The moral
reasons should be clear to everyone. We should no longer tolerate being the only
Western industrialized nation that leaves millions of people without healthcare cov-
erage. Research has shown repeatedly that the 37 million uninsured in this nation
are more likely to forego or postpone care than their insured counterparts.
ACCESS AND COSTS: THE VICIOUS CIRCLE
/
RESTRICTED ACCESS IS COSTLY
• Postponed care/costly conditions
• Inappropriate soilings
• Uncoordinated care
• Mlsallocatlon of resource*
INCREASING- COSTS
FURTHER RESTRICT ACCESS
• Insurance less affordable
• Public programs restricted
• Providers less able/willing to
serve uninsured
INCREASING COSTS ,
ARE SHIFTED TO EMPLOYERS
• Uncompensated care
• Public program underpayment
• High employer premiums
THE COST-SHIFT
DESTABILIZES COST CONTAINMENT
• Unoven provider playing field
• Costs shifted rather than saved
• Blunted Incentives for efficiency
• Declining employer tolerance
Catholic Haa/tfi Allocation of tha UrJt.d Statu
The pragmatic reasons for universal coverage are equally compelling. Anything
less than universal coverage creates a vicious circle whereby the uninsured are more
likely to receive care in costly settings like the emergency room and for conditions
that have grown more severe with time. The resulting high cost of this carets then
shifted to employers who in turn find insurance coverage for their workers increas-
ingly unafforaable. We must break this vicious circle if there is to be any hope of
controlling health expenditures in this nation.
2. We urge you to bold fast to the guaranteed national benefit package included
in the Clinton proposal. Again there are both moral and pragmatic reasons for this.
Morally, we should avoid crafting a "basic" package that becomes a floor for the
middle class and ceiling for the poor. We believe that the best strategy to defend
the interests of the poor is to create a system that ties their fate to that of the aver-
age person. Such a system has the powerful potential of drawing our society to-
gether rather than dividing it alone economic or class lines. Our most successful so-
cial programs, Social Security ana Medicare, include all Americans, rich, middle
class and poor. Pragmatically, a pared down uniform benefit package would only
119
perpetuate the cost shifting and insurance risk segmentation that are tearing our
current healthcare system apart.
3. We urge you to hold fast to the many protections for low income populations
in this proposal. Most important is the incorporation of Medicaid funds into the
Health Alliance along with most other forms of financing. No longer would the poor
be treated as a separate class of citizens when it comes to financing for the new
system, because premium payments to plans for former Medicaid recipients, other
low income populations, and everybody else in the Health Alliances will be indistin-
guishable. The fate of the poor will be tied to the fate of the middle class. This is
the right and moral thing to do. It will also contribute substantially to system sta-
bility over time because it ends the cost shift from Medicaid to the private sector,
reduces the exposure of Medicaid financing as a singular "easy" target for budget
cutting, and eliminates many of the financial disincentives to serve the poor. Fi-
nally, it would eliminate the current disincentive to leave welfare since the poor
would no longer face the prospect of losing their health insurance when they take
a job.
4. We urge you to hold fast to provisions for continuous, uninterrupted coverage
of consumers. As in our own proposal, President Clinton has largely ended the link
between employment and health insurance coverage. Both the employed and the
non-employed under his plan can select from among any certified health plan in
their community. No longer would a person's choice be restricted to the one or two
health plans selected by his or her employer, and when a person changes jobs or
becomes temporarily unemployed, he or she can stay with the same health plan and
the same family physician. This is important both because it is the humane and dig-
nified thing to, and because a continuous, uninterrupted relationship with ones
physician is critical to the goal of keeping people healthy.
5. We urge you to hold fast to the high degree of consumer choice embodied in
the President's plan. The main reason there is so much choice in his plan is not
because of the so-called "fee-for-service" option, but because the link between em-
ployment and health care coverage has been severed. Even without the fee-for-serv-
ice option, a family could select any certified plan in the community, which means
they could go to the health plan that has their family physician as a practitioner.
This is simply not possible for many working families today who often find they
must abandon their family physician as they change jobs.
6. We urge you to hold fast to overall expenditure control in the President s pro-
posal. CHA has long been on record in favor of a global budget. Morally, this is a
question of responsible stewardship. As a nation we can no longer allow unpredict-
able and uncontrollable health expenditures increase in a way that squeezes out
other important social needs like education, social services and public health, en-
larges the deficit, and makes many UJ3. companies less competitive. Pragmatically,
we all know that the rate of increase in healthcare spending is unsustainable and
there is no guarantee that "managed competition" by itself will work without an ex-
penditure "backstop." .
7. We urge you to hold fast to the more equitable financing inherent in the Clin-
ton proposal. Everyone is asked to share the burden in this plan and "free riders"
are no longer allowed to shift their health care costs to those who have been willing
to pay. The employer mandate is critical to this approach because it ends the desta-
bilizing cost shift from one employer to the next, and because it reinforces the no-
tion that we are all in this together. Please don't retreat on the employer mandate.
8. Finally, we urge you to hold fast to the high cutoff for firms that must use the
Health Alliance in the President's plan. As you know, all firms with fewer than
5,000 employees would pay standardized premiums to the Health Alliance which
would then negotiate with health plans on behalf of all workers. To lower this
threshold and allow substantial numbers of employers to continue negotiating sepa-
rately with health plans outside the Health Alliance would be a serious mistake.
We carefully considered letting employers have this option when we developed our
own reform proposal, but we found that it would have the potential to:
• perpetuate the cost shift as different premium levels are negotiated inside
and outside the health alliance;
• constrain consumer choice as families might be limited to the health plans se-
lected by their employer rather than all health plans in a community;
• disrupt continuous relationships with physicians as consumers are forced to
change plans whenever their employment status changes;
• reinforce risk segmentation as health plans could continue to find ways (even
with insurance market reforms) to selectively market to firms with younger,
healthier populations;
120
• segregate lower and higher income populations as the health — alliances would
serve predominately small, low wage firms and the former Medicaid popu-
lations; and
• increase administrative costs associated with continued employer involve-
ment, multiple health plan contracts, and turnover among plans by consumers.
Please don't retreat on the high employer threshold for participation in the Health
Alliances.
D. STRENGTHENING THE CLINTON PROPOSAL
Allow me to share with you five ways in which the Catholic Health Association
believes the Clinton proposal must be strengthened.
1. Delivery Reform
First, the proposal needs a much sharper focus on reform of the healthcare deliv-
ery system. As it now stands, the proposal deals extensively with coverage, access,
financing, and expenditure control, but says very little about how the healthcare de-
livery system can and should be reoriented to achieve both lower costs and clinically
effective healthcare.
CHA's healthcare reform proposal starts with delivery reform as the way to make
healthcare better coordinated, less costly, and more responsive to needs of people
and communities. At the heart of our plan is the person-centered, community-based
Integrated Delivery Network or DDN. The IDN is a set of providers organized to as-
sume financial risk for a full continuum of healthcare services. Providers are linked
together through a series of contractual or ownership arrangements. These networks
receive a risk-adjusted, capitated payment and are held accountable for improving
or maintaining the health status of their enrolled populations. In the CHA vision,
consumers participate in network decision-making and choose among competing net-
works based on quality and service.
We believe that the kind of delivery reform embodied in these networks is essen-
tial for true, long term cost control in a reformed system. This is because the incen-
tives in a capitated network are realigned to encourage primary and preventive
care, less unnecessary care, better coordinated care, services in less costly settings,
more appropriate capacity levels, and a more rational use of high technology serv-
ices. Without delivery reform, however, insurers will be encouraged to rely on a la
carte discounting, rate setting, formula-driven utilization controls, and
micromanagement of providers in order to get the "quick" savings they need to live
within premium caps. Some of these devices may, in fact, be appropriate. But to rely
on them solely will be a mistake. We believe that the insurance function should be
merged with the delivery function in the form of integrated networks and that the
focus should be on more efficient methods of organizing care, not simply clamping
down on payments and utilization.
I want to emphasize that the Clinton proposal does include new incentives for de-
livery reform. As you know, consumers in the President's proposal are given finan-
cial incentives to select cost-effective health plans, and the plans will often have to
organize themselves to operate within annual premium limits. The President has
also stressed primary ana preventive care in his guaranteed national benefit pack-
age.
But there are also several elements of the Clinton proposal that will impede or
hinder delivery reform. First, there is little emphasis on the need for clinical and
financial integration of care in the form of community -based, person-centered net-
works. Rather, the proposal assumes and even encourages significant reliance on in-
surance companies to form and administer plans. This, in itself, is not a problem
as long as the insurers act as partners with providers to create truly integrated
community -based networks. It does become a problem, however, if insurers act as
distant regulators who seek savings simply through discounts and formula-driven
utilization controls, as many do today. This kind 01 arrangement may bring "quick"
savings to the system and substantial profits for insurers, but it will not result in
better coordinated or more efficient care. Nor will it ensure accountability to local
communities.
Another impediment to delivery reform is that Medicare is left outside the new
financing arrangements. While the Health Alliances may encourage more integrated
systems of care through annual per person payments, Medicare will perpetuate the
opposite incentive by paying providers on a procedure-by-procedure basis. Thus pro-
viders will continue to face the mixed and counterproductive financial incentives
that plague our current system. We can understand why Medicare may not be im-
mediately folded into the Health Alliances, but we urge you to consider a fixed
121
schedule and transition plan for bringing in Medicare to ensure consistent, stable
incentives.
Another impediment to delivery reform is the failure of the President s plan to
fully integrate long term care with acute care. We support the President in his ex-
pansion of long term care services to the disabled ana elderly, but once again, sus-
tainable cost savings will occur only if integrated networks can manage the full con-
tinuum of healthcare services, thereby allowing them to make patient-specific deci-
sions about the most appropriate, most humane, and least costly patient care set-
tings. Admittedly, local healthcare systems are not yet prepared to accept capitated
payments for the full array of acute and long term care services, but reform should
move the system in that direction through a target date and transition plan. Other-
wise, we will perpetuate an artificial and costly bifurcation in what should be a
seamless continuum of care for people in all stages of life.
Finally, delivery reform will be hindered because expenditures in the Clinton pro-
posal are compressed unevenly and unrealistically fast. As I said earlier, CHA fully
supports the need to bring both private and public healthcare costs under control
through a global budget. But the current draft of the Clinton proposal calls for a
faster compression for Medicare and Medicaid. This will result in greater cost shift-
ing between the public and the private sector, and could ultimately lead to severe
access problems for the elderly.
More importantly, total spending is brought down at an implausibly rapid rate
that may well encourage "quick and easy" payment and utilization controls, out cer-
tainly will not allow time for the development of efficient, community-based
healthcare networks. The reduction in spending increases envisioned in the Clinton
plan may not be too much, but it is certainly too fast for effective delivery reform.
2. Process for Setting the Global Budget
Our second recommendation for strengthening the Clinton proposal is to employ
a more effective and realistic process for setting the global budget. Our reform pro-
posal calls for a "top down/bottom up" national budget-setting process that would
incorporate critical information on population needs and local system efficiencies
over time. Our plan likewise outlines a series of "checks and balances" that would
help ensure direct and explicit accountability to voters for each year's global budget.
In contrast, the President's plan calls for a "top down only" approach to a national
budget as defined by a formula-driven rate of increase. In CHA s view, this approach
misses an important opportunity to make healthcare expenditures not only more
predictable and reasonable, but also more consistent with changing health needs,
system capacity, and the public's own view with regard to the tradeoffs between
healthcare and other important social goals.
3. Abortion
CHA strongly opposes on both moral and political grounds the inclusion of abor-
tion in the guaranteed national benefit package of benefits provided under
healthcare reform. While abortion is currently legal it is strongly opposed by mil-
lions of employers and taxpayers. This government should not compel them to pay
for abortions. We believe that this position is shared by many members of the House
and Senate. We are therefore hopeful that when Congress decides this issue it will
come down in favor of keeping healthcare reform and legal abortion separate and
distinct issues.
4. Conscience Clause
CHA firmly supports the inclusion of a strong conscience clause provision for indi-
viduals, institutions and employers in healthcare reform legislation. The President
has stated his intention to include conscience clauses in his legislation. CHA will
be working with the White House and Congress to ensure that the protection is ade-
quate.
5. Maintaining the Professional Ethos in American Medicine
Most politically viable healthcare reform plans (including the President's proposal)
would rely heavily on market forces to control healthcare costs and improve the
quality of care. They would accomplish this by shifting most of the financial risk
in healthcare from the purchasers of care (government and .employers) to those who
are providing the care, hospitals and doctors. The latter would be organized into ac-
countable health plans that would compete with one another on price and quality
for market share. Inefficient plans and/or low quality plans would either improve
or fail and leave the market. In certain areas of the United States economic forces
already are forcing local healthcare systems to reorganize themselves along these
lines.
122
While it is hoped that these developments will result in lower cost/higher quality
healthcare, it is important to recognize that they represent a profound shift from
existing practice. During the past fifty years, healthcare providers have been largely
shielded from financial risk and enabled thereby to treat their patients without re-
gard to the economic consequences for the patient, themselves or society. This sepa-
ration of financial accountability from clinical autonomy has helped to preserve a
strong professional "patient-first" ethic in American medicine. While some patients
are occasionally overtreated, few insured patients are ever systematically
undertreated. Furthermore, most U.S. communities are able to develop and sustain
reasonably good-to-high quality healthcare services. Nevertheless, most analysts be-
lieve that shielding the clinician and patient from the economic consequences of
their actions has led to a level of inefficiency and high costs that is no longer eco-
nomically or politically sustainable.
However, the implications of shifting financial risk to providers in the context of
all-out price competition have not been carefully examined. It is quite possible that
intense competition in some healthcare markets will unleash commercial influences
that will overwhelm the professional ethos in American medicine, threatening pa-
tient care and undermining the long term stability of a community's healthcare re-
sources.
At least two questions need to be addressed in this regard:
• How will patients fare when the treatment they need could make their pro-
vider less competitive in a market, less profitable or even force the provider into
bankruptcy?
• Will AHPs owned by commercial interests beholden to distant shareholders
abandon communities when their profits are squeezed (as they will be) and a
higher return on investment can be achieved elsewhere in the economy?
These are critically important questions that have not received enough attention.
We know from the savings and loan debacle that when economic incentives change
and systems of accountability are relaxed individuals and society can be uninten-
tionally saddled with very high costs.
E. THE MEASURE OF SUCCESS
Finally, Mr. Chairman, we conclude our testimony by returning to the point at
which President Clinton opened this historic healthcare debate: a clear focus on val-
ues. Values are the beacons which guide us, especially in stormy times when our
sense of direction can become distorted. But values also provide us with the stand-
ards by which we can measure our progress. How should we measure it in this de-
bate? By one very simple standard: the availability of persons throughout America's
future healthcare system who are motivated to help others.
However impressive governmental programs, universal coverage, fee schedules,
"market opportunities," corporations and mstitutions may be, successful healthcare
reform will come down to people caring for people. When we are sick and in need,
it is the very small events in each of our lives that make the difference. At such
times we ask, "Is someone there when I call? Do they make me feel like a human
}>erson? Can I maintain my dignity and self-respect?" These are the issues by which
uture generations of Americans, their families and communities will judge the suc-
cess of what we are beginning today. They are the issues we must keep in front
of us throughout this debate. It is what the American people expect of us and what
we owe to them.
The Chairman. Thank you both for your very important, con-
structive statements and testimony. We have a great deal of re-
spect from working with both of you, and I think all the members
of the committee and the American people can understand why. It
has been very positive and helpful testimony.
We will follow 7-minute rounds for questioning, and I will ask
staff to keep us on track.
As I understand both Mr. Davidson and Sister Coyle, you will
work with us, this committee and the other committees and the ad-
ministration, in helping to achieve a program to reach the goals
that you have outlined.
Mr. Davidson. Absolutely, Mr. Chairman.
Sister Coyle. That is certainly true, and we at CHA have spent
2 years with a committee representing the broad section of consum-
123
ers and providers in determining the direction. We want to be very
present to you, both in the technical and the philosophical and
value-oriented sense.
The Chairman. That is enormously helpful. I think all of us look
forward to continuing that relationship.
Mr. Davidson — and I would ask Sister Coyle as well if she might
give a reaction — the areas in which we have agreement, as I under-
stand it, are universal coverage
Mr. Davidson. [Nodding head.l
The Chairman. Let the record show that they both nodded their
heads in approval. , . , , , •, j
Mr. Davidson. Well, we can respond with more than a head nod.
Sister CoYLE Yes.
The Chairman. OK. Let me mention just three or four. You agree
with universal coverage; you agree with employer contributions
and individual contributions; you agree with protection for the
poor; you agree with the national benefit package, and you agree
with an independent commission or board. Am I correct?
Mr. Davidson. Yes.
Sister Coyle. That is correct.
The Chairman. And you agree on antitrust changes. There are
still areas within all of these, obviously, that have to be worked
out, but you do agree that there have to be antitrust changes. You
agree that there have to be integrated systems of care; you agree
that there must be insurance reform, administrative simplification,
and slowing of spending growth. Am I correct?
Sister Coyle. That is accurate, yes.
Mr. Davidson. That latter question, I would like to hear again,
Mr. Chairman.
The Chairman. Slowing spending growth.
Mr. Davidson. We are certainly for slowing spending growth; it
is the question of the strategy to get there.
The Chairman. As I understand, you would say reasonable but
not "arbitrary."
Mr. Davidson. We think behavior change is going to have some
effect on spending growth. You asked us earlier the question about
a willingness to work with the committee, and I think it is essen-
tial that you all understand that we have very strong feelings that
the status quo is not sustainable, it doesn't not serve America well,
and we need to move to a better place. We are committed to that,
and we are committed to substantial change. We may disagree over
some of the vehicles to get there, but when you listen to what it
is that we have said we are for, we are calling for more dramatic
behavior change among hospitals and doctors than perhaps any-
body here in Washington.
So we are willing to work with you to deliver better services to
communities, which should have the net effect of gaining some con-
trol over cost growth as opposed to an arbitrary way of setting caps
and working backward.
So there is a very strong commitment, and I know that is how
Sister feels; we have talked about this. The hospital community
feels very strongly that they want to see change.
Sister Coyle. To add to that, we believe that merely addressing
the financing will not solve the problem, that we need a substan-
124
tial, fundamental reshaping of our health care system, and that
ways in which we work together as partners in the concept of an
integrated delivery network will in fact be an efficient, cost-effec-
tive, and still quality-driven system.
The Chairman. As time is moving along, let me ask your reac-
tion to the benefit package under the President's plan. Is it too
broad? Is it a Cadillac, or a Ford, or what could you say about that?
Do you think it is in the ball park?
Sister Coyle. From the description Mrs. Clinton has given, I be-
lieve that the benefit package as they have constructed it is com-
parable to the package of a Fortune 500 company. If that is true,
then certainly, that would meet our expectations. We believe that
a benefit package should be broad enough to include those benefits
that middle class citizens in our society have at the present time.
The Chairman. Mr. Davidson.
Mr. Davidson. Mr. Chairman, we see a pretty comprehensive
package there. We think that probably you are going to have to
face the question of some limits on some of those benefits and that
the national commission that should oversee this ought to be think-
ing through times when we can expand benefits. But we think it
is a pretty basic and fundamental package that would serve a lot
of Americans quite well.
The Chairman. Senator Kassebaum.
Senator Kassebaum. Thank you, Mr. Chairman.
I was very impressed with both statements. You both understand
well the problems of the hospitals as being on the front lines. I to-
tally agree with both of your comments about fully incorporating
Medicare into the system of reform. I think the cost-shifting that
would continue to occur would be a terrible problem if this integra-
tion does not occur.
Is that your basic concern?
Mr. Davidson. Well, that is certainly one concern, in other
words, that we are going to stay with the current payment system
and keep squeezing it back, which ultimately, the current payment
system is underpaying hospitals and their care for the elderly now,
which means that we will have further reductions in it. Two out
of three hospitals that treat Medicare patients lose money in the
process of treating them. The Medicare program is paying on aver-
age at about 88 to 90 cents on the dollar, so if we squeeze tighter
and still deliver care in the same way, we are going to have a seri-
ous set of problems — we have missed the point, and the point is to
change the delivery system and the way we treat senior citizens.
We could do better.
Senator Kassebaum. Sister Coyle.
Sister Coyle. Not addressing the Medicare issue and including
it is again a fragmented approach to health care reform. We believe
in a reformed system that provides a continuum of care. That
means all forms of care. We oelieve that other sources of revenue
ought to be looked at rather than Medicare reductions.
As you both know, too, it is particularly hard on rural hospitals,
where such a large percent of the patient population is Medicare.
I was interested in both of your talking about reform of the deliv-
ery system and the importance of an integrated system of care.
One question that I would have is in talking about moving to an
125
integrated delivery system, how would you envision incorporating
perhaps the support for some for a medical savings account? Obvi-
ously, I think all of us would like to see a medical savings account
somehow be a part of the system, but how would you envision it
as part of an integrated system of care and an ability to stress indi-
vidual responsibility?
Mr. Davidson. I think in any reform notions that we move to-
ward, we are going to see individual participation in paving for the
care; the whole idea of medical IRAs as a way to supplement that
individual payment would make some sense in any redesigned sys-
tem.
Sister Coyle. Again, I think we are talking about shared respon-
sibility, and the part that every individual ought to be playing in
a reformed system.
Senator Kassebaum. And finally, just to touch on the health alli-
ances. I have worried that this structure could become too monopo-
listic in its current form. Both of you spoke about the importance
of community and regions, obviously, having differences that need
to be addressed. Do you think that the health alliance structure al-
lows enough flexibility? Do you worry that it could become too in-
trusive and be difficult to shape, State by State? I mean, one State
may have a very different approach through their health alliance
structure than the adjoining State. What problems do each of you
see with a health alliance structure?
Mr. Davidson. I think the worry that many of us have is that
the health alliance strategy is kind of the linchpin of the plan; that
we have a lot that we are banking on in it being successful. We
are talking about creating 50 or more organizations that do not
exist today. When you just begin to think about the mechanics of
that, that means developing a governance structure, that means
developing a staff, a management information system, and so forth.
Our view is that we think it is important to create that kind of
an approach at the State level, but perhaps we ought to move it
along slowly and start it off with its original notion. The original
notion of the purchasing alliance was to in essence create some-
thing like a farmers' coop for the little guys, for the small employ-
ers who did not have any leverage in the market place, and you
would provide them an opportunity with market reform and com-
munity rating to come together in the aggregate and better rep-
resent their interests. We think that is probably a good strategy.
Now, what is the cut-off point in terms of companies with a given
number of employees? We do not know whether that is 50 or 100.
But we think the idea of perhaps going slowly there would make
more sense. To bank the whole operation on bringing everybody
into the organizations that do not exist today is a bit risky, and we
would urge rethinking some of that, and we think there is a way
to work out some common ground there.
Senator Kassebaum. Sister Coyle.
Sister Coyle. The concept of a health alliance, which we also
have in the CHA plan, is very acceptable. We feel that there should
be a brokerage type of arrangement so that objectivity and
inclusivity are part of the reform system.
However, our emphasis is certainly on the local community, on
the formation of integrated delivery networks where providers, par-
126
ticipants, and consumers together can assess community needs, can
monitor the quality of health care service; that there would be an
accountability built into the system at the local level as well as at
the State level.
Senator Kassebaum. Thank you very much.
Thank you, Mr. Chairman.
The Chairman. Senator Metzenbaum.
Senator Metzenbaum. Mr. Davidson and Sister, I might say how
pleased I am to have somebody here from Ohio speaking for the
Catholic hospitals of this country, and I know what a fine job you
do at your own hospital in Cincinnati.
One of the areas that has concerned me vis-a-vis the question of
cost has to do with the fact that just about every hospital in this
country leases out on an exclusive basis departments to radiolo-
gists, anesthesiologists and pathologists. There is really no medical
reason for that that I can understand, but the pressure of the orga-
nization has now made it possible for these three specialties to be-
come some of the highest paid medical practitioners in the country.
Wouldn't you agree that hospitals could achieve some economies
by making it possible to have competitive procedures available in
tne hospital or, absent that, and probably trie best way, if you fol-
low the procedure that used to be the case, the pathologist used to
be on the payroll of the hospitals. Then they decided they were
independent, and they had the right to act as professionals, and
that they would run these departments. But the patient winds up
getting a bill for anything they want to change. The hospitals don't
provide any pressure to Keep the prices down, and it has become
a runaway situation for these various professions.
I am much disturbed about this. I think we ought to be doing
something about it, and I would like to get your views.
Mr. Davidson. Senator, there is great variation in practices
among hospitals across the country in terms of their contracting re-
lationships with anesthesiologists and radiologists and so forth. It
is hard to generalize the way those matters are treated. In some
cases, there is a lot of internal oversight, monitoring of charges to
patients, and all the rest; in others, they are exclusive franchises
where the group makes a determination.
If we were going to continue the hospital system as we know it
today, then this issue is one that woula need to be looked at very
carefully. But we are talking about developing a system that is
very different, integrating hospitals together with physicians and
being paid on a capitated basis, which will provide us new incen-
tives to provide services at the lowest cost possible, which should
deal with individual pricing arrangements within our institutions.
We think that there will be the leverage there to deal with these
issues in this new capitated arrangement.
Senator Metzenbaum. Mr. Davidson, you and I and my staff
worked out a procedure dealing with the antitrust problems hos-
f>itals had, and we came out very well. I think that was your prob-
em. and we tried to work with you, and we did work with you, and
we helped solve it. This one is mv problem, and I think the Amer-
ican people's problem. I would like to see if we couldn't work out
something on this subject to prevent these runaway costs becoming
affixed to the cost of medical care, or continuing to be affixed to the
127
cost of medical care in this country, and I would to explore the sub-
ject with you. .
Mr. Davidson. We would be very happy to speak with you, Sen-
ator.
Senator Metzenbaum. Sister, do you have any comment on this?
Sister Coyle. Yes, Senator. I think that we are talking about a
reformed system. But I am aware of initiatives that are already
taking place that are perhaps returning us to our original purpose
in providing health care, being a service and not a commodity.
Just this past month in Cincinnati, OH, six hospitals with an in-
surance group with 1,000 physicians and 100 pharmacies created
an integrated network. It is called "New Health." That shows ways
by which insurance groups, physicians, providers, and pharmacies
can work together, giving people a broad range of choice. One thou-
sand physicians are in this particular network.
I point this out because I think it is beginning to say to the
health care industry and to our local communities that partner-
ships, networks, in providing health care are going to be for the
best service of our people, and that is why we are in the business.
Senator Metzenbaum. Sister, let me ask you what do you need
the insurance companies for? What do they add? All the others con-
tribute something. Insurance companies now get 25 cents out of
every dollar that is spent for medical services, and it seems to me
that you can form health care associations without the insurance
companies. I don't have any antipathy toward the insurance com-
panies, but the fact is if you do not need them, then why are you
paying for it?
Sister Coyle. Well, I think in this situation, the insurance com-
pany was already part of the structure, and they already are hold-
ing contracts with a number of purchasers. I believe this is an in-
cremental step. But the need to reform the insurance industry is
also part of health care reform, and I do not think in Cincinnati,
OH, we are able to abolish the insurance industry tomorrow.
Senator Metzenbaum. I am not suggesting that we abolish the
insurance industry. They provide a very useful factor in our econ-
omy. But in the health care field, I do not think that they are a
necessity, and therefore I think one of the big battles that we in
Congress are going to have is the effort of the insurance industry
to preserve its position and its ability to reap in hundreds of mil-
lions of dollars for doing the administrative work. If we could elimi-
nate that, it would seem to me that there would be tremendous
economy. There are many other areas for the insurance industry to
operate in other than this one, as I see it.
Sister Coyle. I think that will be an issue that will be part of
the debate and discussion. But we as the CHA have called for
bringing insurance providers into the concept of managed care.
Senator Metzenbaum. Mr. Davidson, this is my last question.
The American Hospital Association has proposed the creation of
community care networks to provide health care to individuals. Do
you believe these networks will be able to compete against the big
insurance companies?
Mr. Davidson. I guess if you were to look at a forecast of what
is going to happen over the next decade, we will probably see a re-
structuring or the health insurance field. When you move to a sys-
128
tern of community rating and change the nature of their business,
we will see a reduction in the number of insurers. I think you will
see partnerships developing, integration of not only delivery sys-
tems of hospitals and doctors, but partnerships with insurance
companies.
So I think you are going to see a lot of change in that field, driv-
en by a different set of values and a different set of incentives. So
I think you are going to be seeing lots and lots of change.
Senator Metzenbaum. Thank you.
Thank you, Mr. Chairman.
The Chairman. Senator Jeffords.
Senator Jeffords. Thank you, Mr. Chairman.
I appreciate your testimony, and I am very interested in some
specific aspects of it. With respect to Medicare, you suggest that it
would be wise to have sort of a seamless system and not have two
systems. Can you think of any disadvantage to the elderly of hav-
ing it as one system?
Mr. Davidson. I think for the elderly — and I must share a per-
sonal experience. In our family, we have lost three parents in the
past year and a half, and on the basis of that experience and how
care was accommodated and coordinated and the degree of collabo-
ration that exists, I guess I learned from that experience that we
could do a lot better.
I think the concern that elderly patients have when we begin to
talk about these changes is the fear of the unknown, of if you
change something, will it be better for me, and since I don't know
about it, I am nervous about it. I think that what we have got to
do is to assure people that we can deliver care perhaps better than
we do today. We can do a better job of taking care of patients. For
an awful lot of people in America, the elderly as well as middle
aged, many of us are in charge of our own care, and we make deci-
sions about what kinds of physicians we see. No one coordinates it.
So we think there is a way to treat all patients better, and for the
elderly, if we are going to move them into a new kind of system,
we are going to have to persuade them of that, and give them a
demonstration that care for them could be better.
Senator Jeffords. Sister Coyle.
Sister Coyle. I agree with Dick. I think that maintaining the
current status with Medicare perpetuates the treatment and cure
approach. We are looking at a holistic, preventive promotion of
health approach, and to me, that would be very much more incor-
porated by having Medicare part of the total package.
Senator Jeffords. Thank you.
One of the presumptions that is made by the Clinton plan is that
there are so many inefficiencies and problems in our system that
if we become more efficient and can operate better that we can op-
erate without huge additional resources. In making that conclusion,
they note that we spend twice as much as most industrialized na-
tions do per capita for our health care right now. I just came back
from Taiwan, where they are in the process of health care reform,
and they spend 4 percent of their GDP, and they have better statis-
tics than we do.
129
Second, there is no evidence from commonly used statistics that
we are really reaching any better results, holistically, anyway, in
health care by our present system.
And third, there are such inefficiencies — such as those noted by
Dr. Elwood, which are startling, that maybe as much as one-third
of our health care is either nonproductive or counterproductive —
and with the medical malpractice, defensive medicine paperwork
and the cost-shifting that goes on, that perhaps we can live within
our present budget and even do things better.
Do you agree or disagree with that?
Mr. Davidson. I think we would certainly agree that we can do
better. The degree of savings from administrative cost changes may
get exaggerated, but there are plenty of savings involved. There are
certainly savings involved in coordinating care more effectively.
Just within a given hospital, if you begin to study procedure, from
the time we order a test to the time the results get into a physi-
cian's hands and then a treatment protocol begins, there are lots
of ways that we could be more efficient.
We see the efficiencies growing out of, again, the delivery system
change. Let me give you a for instance. On any given day in an
American hospital, people who work there on nursing stations are
confronted with 150 different utilization review forms from insur-
ance companies. And the insurance companies are not willing to
share the nature of these things, and you can't get them coordi-
nated. And they add little or not value to the quality of patient
care, yet we spend a lot of time filling forms out, responding to
phone calls as to whether this procedure is appropriate, necessary,
or can we move ahead with this protocol.
That alone, just in coordinating the whole utilization and review
process in a better way, would make good sense. When we talk
about delivery system reform, we see internal focus on real value-
driven indicators of quality, looking at medical outcomes and get-
ting rid of a lot of the paper that does not add any value to patient
care
So there are savings there, but you cannot pick these savings up
and put them in a bucket and say we are going to make that buck-
et of money available for new benefits; in other words, these are
things that will come out of the system over time. But it is going
to take a lot of time, Senator.
Senator Jeffords. Well, what does that mean at the bottom
line? Does that mean you do not believe we can live substantially
within our present resources dedicated to health care, that we will
have to raise substantial amounts of revenue, or that we can live
within the present budget and make the efficiencies to provide us
additional revenue to take care of additional benefits?
Mr. Davddson. If we were to bring 37 million more Americans
into mainstream health care in the next 4 years, we obviously
would be incurring more costs. Yet there are savings to be gained
down the line by getting everybody into organized delivery systems.
So I think you are going to see two lines that pass each other
at some point, and it is hard to forecast where that point is.
Senator Jeffords. But 37 million Americans are getting health
care; they are not being left to die in the alleys, are they? Isn't that
cost-shifted to somebody else?
130
Mr. Davidson. Well, they are the people who show up at our
doors for care. There are millions of Americans who do not get care,
who defer care. Ultimately, when they arrive at a hospital door,
they are in much more serious condition than they are otherwise.
Senator Jeffords. But they get care at that point even though
it is more costly; right?
Mr. Davtoson. Generally, when that is an emergency.
Sister Coyle. But the reason it is more costly is because they
have not had preventive care. For example, with the neonatal and
prenatal situations, we have women who do not have appropriate
care during the term of pregnancy, and at the point when they are
ready to delivery, very often the cost of delivery and the care of
newborn babies that need intensive care within our facilities has
escalated because there has not been a pattern of healthy habits.
So when we talk about a reformed system, we are talking about
everyone having access to care.
Senator Jeffords. And that preventive health care would have
been cheaper than the acute health care, would it not?
Sister Coyle. Overall, it will be. And that is one of the failings
of our society
Senator Jeffords. I am running out of time, and I do want to
get one provincial question in. Vermont has some of the lowest
costs in the country. Are you concerned about what will happen if
we have a universal capping of costs and so on for those States and
hospitals which have proved to be more efficient; or, how do you
see the system as presently devised being able to handle the dif-
ferences in the per capita costs of various hospitals, and what
kinds of problems do you foresee?
Senator Wellstone. [Presiding.] Would the Senator yield for a
moment, and if you could be kind enough to be relatively brief—
I am trying to chair, but also vote, so Fd like to have the chance
to get in a couple questions before I have to leave.
Senator Jeffords. Oh, is there a vote on?
Senator Wellstone. Yes, in just 1 minute.
Senator Jeffords. OK. This is my last question. It is not exactly
one that is easy to answer in a few words, however.
Mr. Davidson. I think your concern is very legitimate. Look at
States that have somehow experienced lower health care costs than
others. If you ultimately move some kind of an arbitrary cap onto
these things, you lock people in at a lower cost level, have less abil-
ity for growth — I think that is one of the reasons we are against
any kind of an arbitrary cap. We have to build the system from the
bottom up to make a determination of appropriate spending levels,
and there are going to be variations geographically, and Vermont
ought to be rewarded for being low cost, and Kansas ought to be
rewarded for being low cost. We have got to find a way to do that,
and a straight, arbitrary formula will not get you there, and that
is one of the areas we are concerned about.
Sister Coyle. And I think that is our primary concern about the
present concept regarding the global budget. The formula approach
needs to be addressed in light of local population needs, statewide
resources, and health care patterns. I think that is what is missing
in the Clinton proposal.
Senator Jeffords. Thank you.
131
Senator Wellstone. Thank you.
I wonder if I could be very direct and just lay my major concern
right out on the table. Again, in today's Washington Post, there is
a charge of recent health care mergers. In June, Galen Healthcare
takes over. There is a merger of Galen and Columbia. In July,
Merck and Medco; in August, Humana takes over Group Health.
And now, we have Columbia and HCA, the Hospital Corporation of
A New York T?mes headline: "Health Industry is moving to form
service networks."
My concern about this is that I think we may not be moving to-
ward competition, but rather toward collusion. We may be moving
toward oligopoly at best. And the big question for people in our
country is going to be who manages the managed competition.
And the second question, one more time — and I am a huge pro-
ponent of health care perform, and I come at it from a single-payer
perspective— but one thing I don't want to see happen is bottom
Fine medicine where the bottom line is the only line, and one thing
I do not want to see happen is these conglomerates taking over
with, I think, very severe damage done to the traditional doctor-
patient relationship.
I will tell you one more time, Senator Durenberger is quite right
about what happened in Minnesota, including that the largest med-
ical society, in Ramsey County, is asking for a study of single-payer
in our State, because of the experiences that caregivers had with
some of the managed care plans. They have been micromanaged to
death, to the extent that I think there is a considerable amount of
demoralization.
I think when caregivers raise questions about this, they are rais-
ing these questions in very good faith. So I would like to ask you
for a response to my proposal. I think built into whatever health
care reform there is, there has to be an assurance that caregivers
can have access to capital to set up their own independent net-
works. I do not want doctors and nurses and nurse practitioners
and others to have to hang out an Aetna sign or a Travellers sign.
Forty percent of these HMOs are already owned by an insurance
company, and we are right now experiencing a buying frenzy; that
is what these stories are about today. While we are talking here
today, there is merger mania in health care.
What direction is this taking us in, and would you agree or not
agree with this proposal that built into any reform effort should be
that providers have to have access to capital.
Mr. Davidson. Senator, in our testimony we made reference to
the point that the whole question of alliances and their structure
needed much more attention to assure that the accountable health
plans that they work with represent local communities. That is
how we have got to come at that.
You see on the business pages the mergers of investor-owned or-
ganizations; all across America, you have lots of hospital and doctor
organizations talking to each other in local communities, seeing
how we can reconfigure the capacity of the health delivery system
to meet the demands of tomorrow. Those things do not make the
business pages because they are generally being done by small,
community-based institutions. But the underlying concern that we
132
do have, all of us, is how do we maintain community-based control
of our organizations. How can we come together and make deci-
sions at the community level about the appropriate levels of capac-
ity? The Government cannot do it; it has not done that effectively
in any State, and we think it ought to be done by community-based
organizations that address your concerns.
Senator Wellstone. I would like to get to the community-based
organizations, but do you or do you not think it is a proposal that
is worth considering taking up that again the caregivers — I am just
going to focus on that for a moment — have to have the capital and
the wherewithal to be able to set up their own networks, if this is
the direction we are going in, as opposed to having to hang out an
Aetna sign? Because I see this whole thing going toward merger/
conglomerate.
Sister Coyle. Senator Wellstone, we do not envision our health
care system to be managed by Wall Street. It is essential that
caregivers and consumers be active participants in assessing com-
munity needs and designing the types of integrated delivery or con-
tinuing care networks that will be community-focused.
Health care reform is about responding to the needs of people.
It is not about building an additional corporation. We are very con-
cerned that managed competition that focuses primarily on price
and cost rather than on quality, scope of service and efficiency, will
not be an appropriate, healthy approach to health care reform in
our society.
Senator Wellstone. Well, Sister, that is precisely my concern.
Let me ask one more question of a different kind. I really appre-
ciate— I followed your statement very carefully that we must at all
costs avoid — and I quote — "creating a basic package that becomes
a floor for the middle class and a ceiling for the poor." I just want
to tell you, Sister, that I am going to continue — I tried once last
week with an amendment, and I am going to have a different for-
mulation— but the principle is going to be that whatever plan Sen-
ators and Representatives participate in by way of package of bene-
fits and quality of services for ourselves and our families must be
available and affordable for the people we represent. I think that
has to be built into this. Otherwise, we have lots of tiers of bene-
fits.
I am not asking you to respond and agree or disagree. I just want
to let you know that I am going to continue to push that forward.
My question is this, on the community part, for both of you — the
poor and where they figure in. If you have these alliances, maybe
one, maybe several in a State, and then you have these networks
that are competing, many of which are in fact going to be owned
by insurance companies or get bought up — I am telling you, I know
you don't want to see this happen, but I am telling you we are
going to head toward monopoly, and we are going to head toward
collusion and not competition. I mean, I read the articles about
what the big insurance companies are planning on doing. They are
competing to keep costs down. Why would they want to take care
of poor people? What is the guarantee that we nave any kind of in-
frastructure of delivery, like community health care clinics, public
health, out in the community where people really get the care and
133
where they have some say? Where is the guarantee in this plan
that that is going to happen?
Sister Coyle. First of all, we advocate that there would be an ob-
jective outside group, the alliance, for example, that would charter
these integrated delivery networks, and that within them, there
would be a range of service as well as population so that all of the
poor are not shifted to one network as opposed to another. That is
going to require monitoring by the alliance; it is also going to re-
quire the responsibility to share the burden, because the concept of
capitation is based on spreading the risk, and if we have all the
poor in one network, we have not spread the risk; we have consoli-
dated it. „ , . . .
So it is very essential that in the forming of the networks, m the
approval of the networks, there be specific guidelines that require
a broad spectrum of the population to be served.
Senator Wellstone. This is a tremendous focus you are putting
on the alliances.
My time is up. Senator Gregg, have you voted already?
Senator Gregg. Yes.
Senator Wellstone. Then why don't I let you go ahead, and
then I will excuse myself.
Thank you very much. I would certainly like to pursue some of
this with you.
I also, Senator Gregg, would like to include in the record a state-
ment by Dr. Cecile Rose, who is the president of Physicians for a
National Health Program, the PNHP, expressing some of their con-
cerns about where fee-for-service fits in.
Thank you.
[The prepared statement of Dr. Rose follows:]
Prepared Statement of Cecile Rose
Good morning. My name is Dr. Cecile Rose, and I am the President of Physicians
for a National Health Program (PNHP), a membership organization of 5,500 physi-
cians in the United States. PNHP is organized to educate physicians and the gen-
eral public on the merits of a Canadian-style, single-payer health care system,
which we believe would meet the goals for reform outlined by President Clinton.
PNHP believes that the evidence supporting single-payer reform makes it a far
better policy choice than the managed-competition approach favored by President
Clinton. We believe that managed competition cannot achieve the administrative
savings needed to expand coverage to the uninsured and underinsured. Single-payer
reform, on the other hand, has been shown to achieve tremendous savings. The Con-
gressional Budget Office released a report in July of this year comparing the four
leading health care reform proposals. Single-payer evidenced by far the greatest
amount of savings. .
A study by the General Accounting Office in June 1991 found that the administra-
tive savings using a Canadian system in the United States would be $67 billion per
year. In 1993 that figure would be $90 billion annually. The cost of serving the
newly insured and increasing coverage for the currently insured could be easily paid
by these savings.
We fear that the administrative savings claimed for managed competition cannot
be achieved. On the contrary, the market forces on which managed competition re-
lies to restrain costs have not succeeded in doing so during 20 years of various state
and private sector cost control initiatives.
We fear that managed competition will push all but the wealthy into stripped
down versions of HMOs and assure a multi-tiered health care system, separate and
unequal. , . , ,
We fear that managed competition will deny most patients the right to choose or
change their doctor and hospital, completing the transformation of American medi-
cine from one-on-one doctor-patient relationships to a medical system run by insur-
ance giants like Prudential and Aetna.
134
In half of America, the population is too sparse to allow competition; a town's only
hospital can't compete with itself. In the rest of the nation, the big insurance compa-
nies, which will run the system, are more likely to collude to raise prices than to
compete to lower them.
The Canadian approach is simple and straightforward: include everyone in a sin-
gle public insurance program like Social Security; cover all needed care without co-
payments or deductibles; and leave patients free to choose any doctor, clinic or hos-
pital in the country. Since Canadians started their program 25 years ago, their life
expectancy has soared — nearly two years higher than that of Americans. They pay
40 percent less for care than we do, and get more care: more doctor visits, more hos-
pital care and even more bone-marrow transplants.
We support the principles President Clinton has outlined for his plan. Each prin-
ciple can be achieved by single-payer reform.
Security — A single-payer system is based on universal coverage. Managed com-
petition, on the other hand, would create an elaborate system to determine eligi-
bility and set premiums. Even before the Clinton plan's official release, White House
spokespeople discussed delaying the phase-in of universal coverage to soften the cost
impact. The example of Massachusetts is illustrative of what could happen across
the country. Five years after passage of universal health insurance legislation, more,
not fewer, people are uninsured, and as costs have soared, the phase-in of the em-
ployer mandate has failed to materialize.
Simplicity — Single-payer reform will make the government the sole insurer, elimi-
nating the need for duplicative and costly bureaucracy in the nation's 1,500 health
insurance companies. Managed competition, on the other hand, will create a new
layer of bureaucracy in the form of Health Alliances. Furthermore, the bureaucratic
tasks assigned to the Health Alliances are daunting. They will administer premium
caps; negotiate with and monitor health plans for quality of care, risk selection and
financial abuses; set fees and capitation payments; collect premiums from millions
of employers and hundreds of millions of individuals; and verify eligibility for pre-
mium subsidies available to the 45.6 million people whose incomes are at or below
150% of poverty. A single-payer approach, on the other hand, would require no in-
come eligibility, no premium caps, and no concern about risk selection, since every-
one is covered. The single-payer approach would sharply cut the $50 billion spent
annually on insurance overhead by eliminating marketing costs, efforts at selective
enrollment, stockholder's profits, executives' exorbitant salaries, and lobbying ex-
penses.
Savings — The Government Accounting Office stated in June 1991 that the single-
payer approach would save $67 billion per year in administrative costs. The Clinton
proposal, relying solely on computerization and standardization of billing for admin-
istrative savings, is unlikely to save more than $7-8 billion per year.
The Clinton proposal would create Health Alliances, necessitating a complex regu-
latory mechanism to control premiums and hence to control costs. The single-payer
system eliminates the need for such complexity, and therefore requires a much
smaller administrative network. The Canadian health care system administration,
employs approximately the same number of persons as does Blue Cross/Blue Shield
in the state of Massachusetts alone!
Furthermore, insurance overhead in Canada's public system takes only one cent
of each premium dollar; our private insurance companies and HMOs keep an aver-
age of 14 cents of every premium dollar in overhead.
Choice — The Clinton proposal claims it will allow freedom of choice. However, by
shepherding most people into HMOs, most people will have fewer choices. A nation-
wide study of 17,000 patients released in August 1993 found that patients are wide-
ly dissatisfied with health maintenance organizations.
A single payer system allows for true choice. Canadians can choose any hospital
or doctor, and may change providers at any time. Under managed competition, one
must choose from those providers allowed within a particular plan.
Ouality — A single payer system could apply all the techniques for quality im-
ftrovement that managed competition proposes and apply them over the entire popu-
ation, not merely within health plans. Providers would compete solely on the basis
of quality since all costs would be equal.
Responsibility — The Clinton proposal will shift a significant cost of the new sys-
tem onto small businesses, self-employed people, and middle and lower-income peo-
ple. Many of the "savings" will be achieved by restricting or denying care, rather
than by expanding care. Single-payer, on the other hand, is financed by progressive
income ana payroll taxes, eliminating the need for co-payments and deductibles, and
making the system more equitable.
I hope you will seriously consider the potential for savings, simplicity, streamlin-
ing, and universal coverage achievable with a single-payer system. We in Physicians
135
for a National Health Program stand ready to work with you in ensuring that
health care reform in this country incorporate the best mechanisms to meet the
goals we all share.
Senator Gregg. As I understand your view, it is that the $238
in savings which the administration plan has suggested in the way
of Medicare and Medicaid is too much and too fast, or too fast, any-
way, and probably too much. And if I heard you, Sister, I think you
used the phrase there should be another source of revenue. What
is it^a VAT and higher income tax? What is the other source of
revenue if these savings are not recognized in Medicare and Medic-
aid?
Sister Coyle. Well, I thought you were going to define that other
source of revenue.
Senator Gregg. No. We are here to hear your suggestions, so
why don't you give us some specific suggestions on where we'll find
the revenue to pay for this fairly significant benefit package which
now would be an entitlement?
Sister Coyle. I know that the Clinton proposal has already sug-
gested a tax on the tobacco industry.
Senator Gregg. That is correct. I think they expect to get $105
billion; I'm not sure.
Sister Coyle. It believes that it is possible that a similar tax
could be placed on the alcohol industry. I am looking at those in-
dustries that in some way contribute to the health needs within
our society.
Senator Gregg. So you think that rather than this savings in
Medicare and Medicaid, you could make up most of this cost in-
crease through taxes on sin?
Sister Coyle. Well, I did not call it "sin." [Laughter.] Other peo-
ple have referred to it as that. But I am looking at those behaviors
in our society that contribute to the escalating cost of health care.
Frankly, I really have not looked at other revenues, but
Senator Gregg. Well, it is a big number; my point is it is a big
number.
Sister Coyle. Yes.
Senator Gregg. The administration is talking $230 billion. Actu-
ally, I think their total number is $287 billion in total Federal sav-
ings. And I understand that the hospitals do not want to bear the
brunt of that, because clearly, if Medicare and Medicaid are con-
tracted in their rate of growth, you folks are probably going to bear
the majority of that contraction as you did in the DRG program
and other programs.
But that still leaves the gap. If you are going to have the benefits
package — and in fact, vou nave suggested an even broader benefits
package than what the administration has suggested, then you
have got to pay for it somehow. And I guess I am just looking for
ideas.
Sister Coyle. I also think that in addition to other sources of
revenue, we need to look at other changes in societal behavior pat-
terns that contribute to the cost of health care in our society, and
that is a long-term savings that is not going to happen tomorrow.
Senator Gregg. I think the whole package is aimed at that pri-
mary preventive care, which is something I strongly support. But
those are hard to quantify, as is the effect of insuring everyone and
136
how that will affect utilization. I mean, you have to presume that
that is going to dramatically increase utilization from a lot of sec-
tors that may not be taking advantage of the system now — and I
do not mean taking advantage in a pejorative sense, but I mean
just using the system. So those are difficult ones to quantify.
But what is quantifiable, using the administration numbers,
which I happen to think are low — their estimates on the new enti-
tlements are clearly low* their estimate of $4.5 billion which is now
being adjusted upward, but is not enough in my opinion to pick up
the early retirement item of that new entitlement; it is very low.
Their long-term care entitlement is low. Their drug entitlement es-
timates are low. But using their numbers, they have got this num-
ber of $287 billion, of which 230-some-odd billion is made up of
Medicare and Medicaid. And you folks are taking the position that
that is too much to take out of your industry at this time, that hos-
pitals cannot bear that, and so I guess you have answered the
question. You think it should come from a tax on various activities
which incur negative effects on the health care system.
Sister Coyle. That is one possibility to look at, yes.
Senator Gregg. Mr. Davidson, do you have any thoughts on this?
Mr. Davidson. Well, I would like to separate the numbers. I spe-
cifically addressed the $124 billion in Medicare growth reductions
over time, and then the Medicaid numbers are another set of num-
bers. There will be some legitimate savings on the Medicaid side
as you ultimately move Medicaid beneficiaries out of current State-
run programs into integrated delivery systems, but we do not know
what those savings win be. But we think they are legitimate sav-
ings.
Senator Gregg. Do you have an idea? Do you have a ball park
figure— 5 percent, 10 percent?
Mr. Davidson. That could be as good a guess as any. I would be
hesitant to name a number except to say that there will be some.
But our specific reference to the Medicare program was address-
ing here a savings by treating Medicare the same as usual, and you
cannot expect that to happen in those particular numbers. Eighty
percent of the cuts do come from reductions in hospital payment.
So the question goes back, Senator, to the commitment to reach-
ing universal access, and can we agree that that is a commitment
people want to make. And then you have to face the hard choices
of how you finance it. I certainly would agree with Sister in the
whole notion that we ought to look at financing mechanisms that
are tied to vehicles that contribute to the poor health of the Nation.
You can begin to brainstorm that whole idea as to what else you
might legitimately do.
Obviously, the excise tax on tobacco and distilled spirits is a le-
gitimate question in terms of social policy. I mean, someone has
raised the question of a firearms tax. You can go down the list. But
they are legitimate questions. Someone has raised the question of
whether or not we ought to have a national lottery, since there is
a feeding frenzy on the development of gambling, and it tends to
f>ay on the problems of the poor, and if the poor are users of the
ottery system, then perhaps that is a strategy to have them con-
tribute to health care. That is another kindof thing people are
thinking about.
137
The point is that if we are going to be committed, we do have
to make honest and hard choices, and we are prepared to work
with you on that and to recognize that the question is the objective
and how achievable is it, and can we continue to sustain the status
quo, and what is the economic impact of doing nothing.
Senator Gregg. I am just trying to get to some hard numbers.
On the $124 billion, which is what you are willing to discuss, the
Medicare number, do you have a number that you feel the Hospital
Association has agreed that they could absorb?
Mr. Davidson. No, I do not, but we would be happy to work with
you on some kind of forecast and estimate about what you might
expect in changes in the delivery system if in fact Medicare were
brought into the changed delivery system.
Senator Gregg. You have not done those yet?
Mr. Davidson. No.
Senator Gregg. I was also wondering about the issue of utiliza-
tion. In my State, I think it is about 60 percent — most hospitals,
I guess, statewide — so you have a large number of beds which are
not being utilized. This system is inevitably going to lead the ad-
ministration system, or just about any system which fundamentally
changes the way we deliver health care and addresses efficiencies,
is going to lead to a contraction in the number of beds that are
available.
Mr. Davidson. Absolutely.
Senator Gregg. How do you address that in the context of rural
hospitals, which are underutilized, which are not efficient for that
reason; and should there be something in this that deals with that
fact, or do we just close them?
Mr. Davidson. Well, the way the current system is working, we
are starving some of those institutions, and they will close. Wheth-
er they should or not is another question.
I think when we talk about reform, we talk about bringing insti-
tutions together to work together in collaboration where we can
make some decisions about who should continue to exist and who
should not, and if in fact you have to close a rural acute care hos-
pital, what kind of service ought to remain in the community. Up
until now, we have not had a real strategy or public process to deal
with those questions.
Senator Gregg. I guess my question is — I asked Mrs. Clinton
this question at one of our meetings, and I respected her response.
She said, "Well, basically, our plan is to structure a plan where the
marketplace settles that issue." I do not happen to think that is
going to happen, but you are saying there should be something be-
yond the marketplace settling the issue of rural hospitals that are
underutilized but that represent a community service, whether
those stay open or close.
My question is do you have any proposals for us that we should
be putting into this process.
Mr. Davidson. Senator, there may be frontier institutions that
somehow fall out of any of these new concepts of delivery. For in-
stance, in the State of Montana — when we think of something more
rural — hospital people have said that they are anxious to begin to
come together and try to link the rural hospitals of Montana into
138
some kind of an organized delivery system. We were impressed
with their vision and their view that they could make that happen.
There are going to be certain places where in fact this might not
be able to be worked out, and the question is if there would be a
great void for the community by that institution closing, then
maybe we need to have some kind of Federal assistance to assist
those particular institutions. I do not know how many fit into that
category, but there may be some. That would be outside of the alli-
ance structure as we see it proposed.
Senator Gregg. That is the concern I have. If I could ask one
more
Sister Coyle. Senator, we have a rural hospital in Martin, KY.
We are currently reshaping that hospital. In its current pattern, it
is quite costly. This has been a phenomenon over the past 20 years,
that each one of our stand-alone hospitals has continued to escalate
the amount of service and the nature of service. By forming a part-
nership with a neighboring hospital, we are beginning to redefine
the presence of that hospital. It will be continuing in that commu-
nity, but its service will be preventive as well as treatment and
cure. I think that is what we are going to be looking at, because
we just cannot abolish the rural hospitals if we believe that provid-
ing health care is a community responsibility.
Senator Gregg. I guess that is my concern. I think we may end
up with abolishing a lot of the rural hospitals from an economic
standpoint, but I am not sure that from a quality of service stand-
point, that is the best approach.
Let me ask one more question of you, Sister. If the benefits pack-
age includes in it as a directive of the national board that abortions
must be done, how is the Catholic medical hospital system going
to address that issue?
Sister Coyle. Well, the Catholic Hospital Association is not
ready to speculate on that "if at this time. I believe we made our
position clear that we perceive legal abortion and health care as
separate and distinct issues. Through our own efforts, we will con-
tinue in the debate to maintain that voice. At this time we cannot
and do not wish to speculate on another outcome.
Senator Gregg. Thank you.
The Chairman. Senator Simon.
Senator Simon. Thank you, Mr. Chairman, and thank you both
for your testimony.
Mr. Davidson, I heard you say something, and I did not quite
catch it, and I looked through your written statement and did not
see it. You expressed concern about the per-patient visit or stay
basis for payment. Did I miss something?
Mr. Davidson. A continuation of the current Medicare payment
system proliferates a system that we have that has not been as ef-
ficient as it could be. What we are saying is that the whole notion
of restructuring the health care delivery system cannot have a seg-
mented set of patients. In other words, in rural areas of your State,
you have some hospitals that may treat 60 percent who are elderW,
and we are talking about changing the delivery system, but Medi-
care is going to continue to pay on a per-unit basis, per admission,
per visit, and so forth, and that will get in the way of changing
that system.
139
We are saying that we ought to have encouragement for senior
citizens to join organized delivery systems that are paid on a
capitated basis. We think that is essential, because otherwise, we
are going to run a two-track system, and it will get in the way of
restructuring the way we deliver health care, and I think we are
going to get very frustrated, and we are going to fail. That is a very
serious concern that we have.
Senator Simon. As I look at the total program — and I think basi-
cally, it is a very sound program — but the two areas of concern that
I have, you have touched upon. One is cost control. And I believe,
Sister, it was you who expressed the concern that it is attempting
to move too rapidly. I guess some of us have the feeling it is not
moving rapidly enough.
The second concern I have is that we are all guessing in terms
of utilization, but when you add the 37 or 38 million people who
are uncovered, it does seem to me that we are likely to have fairly
significant increases in demand — and I see Dr. Todd in back of you
there — in terms of use of physicians, and also in terms of utiliza-
tion of hospitals. But part of that can be good. In other words, you
may have a hospital move from a 70 percent occupancy rate to an
80 percent occupancy rate.
Assuming that we move away from the savings on Medicare and
Medicaid that are anticipated here, do you have any suggestions as
to how we should pay for the costs that we are talking about?
Mr. Davidson. How to finance the new costs, in terms of new
revenue sources?
Senator Simon. Yes.
Mr. Davidson. We have talked about the excise taxes, consider-
ation of a variety of options. And that, again, takes you back to
what is our commitment to move to universal access. We have to
determine how strongly we feel about that, and then once we have
made a determination that we have strong feelings about it, then
we have to make the hard choices on the financing options, and I
guess the view that Sister and I have expressed is that we ought
to consider revenue sources that are somehow tied to contributing
to health problems in America. That is what takes you to the to-
bacco tax, the distilled alcohol tax, and you start to go down the
list of other things that may be related to that.
Senator Simon. Sister, do you want to add anything there?
Sister Coyle. No. My response is similar. I do think that over
the long-term, we will see cost-effectiveness. Our concern at the
present time is when I said too fast and too soon, that we cannot
just attempt to reform the system and lose the emphasis on quality
care, quality service, and shortcuts in the short term may be liabil-
ities in the long-term.
Senator Simon. But short term, you are talking about limiting
growth to 11.6 percent the first year. Now, that does not sound like
a very extravagant aim.
Mr. Davidson. I do not think you heard us expressing special
concern over that. It is the long-term forecast by the year 2000 that
takes you down to inflation plus population. The health care field
has never operated at straight inflation for a whole variety of good
reasons, and the CPI is not always the best measure to be compar-
ing health care costs against. I think that is our concern, Senator,
140
that those forecasts may be overly ambitious, and from a hospital
perspective, on the Medicare side, 80 percent of those savings are
going to be reduced payments to hospitals — and that is without
changing the way you deliver Medicare services. That is why we
make the point that you cannot make that happen and accrue sav-
ings unless you really begin to hone in on new ways to deliver serv-
ices to America's senior citizens.
Senator Simon. By the year 2000, the aim is 4.1 percent. Even
under the present system, a representative — and I do not think he
would mind my mentioning this — of General Electric mentioned
that in the State of Ohio, by using managed competition, they
brought down their costs to about 5.6 percent, which is not that far
from 4.1 percent, and with additional savings that you should expe-
rience, it does not seem to me that 4.1 percent is that unrealistic.
What is wrong with my thinking here?
Mr. Davidson. Senator, I do not know that there is anything
wrong with your thinking, except that what we are talking about
is substantial change that could turn out to be a crapshoot, and we
think the issues are too significant to let it happen that way, and
we need to be very careful as we progress. And I think that is what
you hear us expressing.
Sister Coyle. I think our concern is about the timing and the
ability to accomplish that amount of savings over the short period
of time. That is probably less than 5-year period if you look at
where we are today.
Senator Simon. All right. Thank you both very much.
Thank you, Mr. Chairman.
The Chairman. Senator Durenberger.
Senator Durenberger. Mr. Chairman, I appreciate the pressure
of the time, and I really regret very much that we do not have
more time with these witnesses.
I have a series of questions that I would like to submit for re-
sponse in writing. I must begin, however, where I left off, which
was vocabulary versus language. There is no managed competition
in the State of Ohio, and everybody knows that. There is some
managed care going on, and again, that is a misnomer; some people
are managing the costs, taking discount rates out of hospitals and
doctors and so forth, and then there are, in some parts of the coun-
try, genuine organizations that try to manage care, and I am sure
in Ohio there are some of those. There are a couple of cities in
Ohio, as I recall — Cleveland, Cincinnati — that are trying to get the
markets even in a very dysfunctional environment. But until we
have national rules in which people can make choices based on in-
formation and have the resources to make those choices and have
a genuine choice of providers from whom to buy that and rules for
health plans and health alliances as we are debating, there is not
going to be any managed competition; there will not be any man-
aged competition until we get every community being rewarded for
doing good things.
As I recall the Part A statistics during the 1980's, when we gave
some appropriate signals to the hospital industry, they changed.
You talked about behavior earlier; it changed. If you look at the
Medicare increases in the 1980's, they did not come from Part A,
and they did not come from hospitals, because hospital behavior
141
changed drastically in this country. The expenditures increased be-
cause nobody did anything about the Part B side.
I understand both of you to say that if we had a plan on the
table now where the elderly and the disabled in this country who
are Medicare-eligible could buy an accountable health plan in a
community in which they function appropriately, rather than buy-
ing a Part A, Part B, Medigap and so forth, that if in fact those
plans would coordinated the access to services in that community
for an appropriate annual price, that you would favor that kind of
system; you think it is important for the elderly and the disabled
in this country to move in the direction of being treated the same
way that everyone else in this country is treated in terms of com-
prehensive benefits, somebody to do their work for them other than
HCFA, and that that would be fair to the elderly and the disabled,
as well as enable communities to do a better job of finding the effi-
ciencies in the provider system.
Mr. Davidson. Yes, Senator, that is a view that we hold, and the
view is that we ought to use the expansion of benefits as an incen-
tive to enroll elderly people in these new kinds of delivery systems.
In other words, consider the expansion of benefits for pharma-
ceuticals and long-term care as something you get by enrolling in
an integrated delivery system.
There are other ways that we could provide incentives. I think
the point that we are making — I don't know that we said we were
opposed to what we see on the table because this is not in there—
what we are saying is that we have serious concern that we will
not achieve the objectives if we keep Medicare the way it is today,
and we are going to frustrate each other. You will be angry with
us, we will not be happy with you, and the elderly will not be bet-
ter served. We have got to address that as a real issue.
Sister Coyle. We believe that placing the elderly in the plan
really does integrate the continuum of care. It also would spread
the financial risk more appropriately across the total community.
It seems that if we are reforming the system to exclude a very sig-
nificant portion, especially in the consumption of health care goods
and costs, that we are really not reforming the total system.
Senator Durenberger. Would either of you take on the issue of
capital? I do not know that that has been raised here yet. Particu-
larly for hospitals, there is an over-investment, but maybe we need
new investment in new kinds of hospitals. We have all experienced
that in rural areas, and you might experience that in transition
communities. Access to capital is critical.
Traditionally, you will have some kind of reserve in your pay-
ment system to use for that kind of investment. In capitated sys-
tems, in fixed-rate systems, in systems with budgets that con-
stantly ratchet down — I am just guessing — but I would think you
would be very apprehensive that the individual hospital institu-
tions in this country would have the room, without the help of
some other entity — for example, an accountable health plan or
some kind of an integrated service network — someone who in effect
spreads the risk of capital investment, to get the kind of capital
that our communities are going to need to shut down some hos-
pitals, transition the function of others, whatever it may be out
142
there. Would one or the other of you speak to the issue of capital
and how that relates to the payment system?
Mr. Davidson. One issue, specifically. In talking about new inte-
grated delivery systems, the major area of new capital investment
is going to be in information systems. What we learn as we talk
through all of this and try to coordinate the connections of elec-
tronic information and standardized medical records and all the
rest is that you are not going to see the building of buildings. You
will see the changing in the configuration of buildings. You will see
more care at home and in alternative settings to hospitals. But you
are going to see very sophisticated information systems develop
that cost an awful lot of money.
I was just with a hospital CEO from the State of Virginia that
runs what we would call a community care network. They are look-
ing at a potential $25 million investment next year, just in infor-
mation system development. So the concern for capital is that we
are probably talking about new capital configurations. Some of this
will come through capitated payment, some of it will come with
new partnerships with other players and all the rest. But it is a
real issue; we cannot get from here to there without an infusion of
capital, perhaps for different kinds of things than we have used in
the past.
Sister Coyle. Yes, I agree. In fact, when you mentioned earlier
in your opening remarks that there is much confusion about the vo-
cabulary and having different meanings, I think that is also true
in regard to how we image capital. In a reformed system and in
a new approach to health care delivery, the emphasis shifts from
brick and mortar to provision of care, to information systems, to
those types of equipment that will better meet the needs of people.
Senator Durenberger. Thank you.
Thank you, Mr. Chairman.
The Chairman. Senator Wofford.
Senator Wofford. It was very constructive, important testimony,
what I heard and all that I have read, and I want to thank you
both. I will not hold up the other panel, or you are going to be
blocked from hearing them, Mr. Chairman.
Thank you.
Mr. Davidson. Thank you, Senator.
Senator Wofford. I have many questions for you, and I look for-
ward to getting together with you.
The Chatoman. We will submit some written questions as well.
Thank you very, very much. It was very constructive and helpful
presentation.
Mr. Davtoson. Thank you, Mr. Chairman.
Sister Coyle. Thank you.
The Chairman. Our next panel is composed of representatives of
many of the most important organizations speaking for front-line
providers of health care services.
Dr. James Todd is executive vice president of the AMA and is
known to everyone here. He is a forceful spokesman for his mem-
bership and someone that I and other members have worked with
closely for many years on a variety of issues.
Linda Shinn is the executive director of the American Nurses As-
sociation. The ANA represents a group of providers, American
143
nurses, who have been unswerving in their commitment to their
patients and who can expect to play an even more important role
under the health reform than they do today.
Dr. Leonard Lawrence is associate dean of the University of
Texas School of Medicine at San Antonio, TX. He is also president
of the National Medical Association. For over 20 years, he has been
a medical educator, administrator, and physician, devoting himself
to the needs of the medically underserved communities. Trie NMA
speaks for African American physicians, especially for the concerns
of minority patients.
Dr. Robert Graham is the executive vice president of the Amer-
ican Academy of Family Physicians, a key group representing pri-
mary care. Prior to joining the Family Physicians, Dr. Graham was
a career officer of the Public Health Service and among many other
posts, served as the director of health resources and services ad-
ministration.
We are delighted to have had the opportunity to work with him
on a number of different health measures in the past, and he has
always been very constructive and helpful to this committee.
We are glad to have all of you here, and we will start with Dr.
Todd.
STATEMENTS OF DR. JAMES S. TODD, EXECUTIVE VICE PRESI-
DENT, AMERICAN MEDICAL ASSOCIATION, WASHINGTON,
DC; LINDA SHINN, R.N„ EXECUTIVE DIRECTOR, AMERICAN
NURSES ASSOCIATION, WASHINGTON, DC; DR. LEONARD
LAWRENCE, PRESIDENT, NATIONAL MEDICAL ASSOCIATION,
AND ASSOCIATE DEAN, UNIVERSITY OF TEXAS SCHOOL OF
MEDICINE, SAN ANTONIO, TX; AND DR. ROBERT GRAHAM,
EXECUTIVE VICE PRESIDENT, AMERICAN ACADEMY OF FAM-
ILY PHYSICIANS, WASHINGTON, DC
Dr. Todd. Thank you, Mr. Chairman, and good morning, mem-
bers of the committee.
I am Jim Todd, executive vice president of the American Medical
Association. Let me say right up front that we applaud President
Clinton as well as the First Lady for taking the first necessary step
in bringing to an end the difficulties of far too many of our patients
in finding affordable, adequate health care coverage.
The basic principles of the President's plan mirror what the
American Medical Association has been calling for in its own re-
form proposal. "Health Access America," for the last 4 years. Both
plans seek to build on what already works well in health care, and
both would make certain that the health care system works fairly
for all Americans.
We also understand the need to produce a system that is dis-
ciplined and can provide a measure of quality upon which our pa-
tients can rely.
Our plans also agree on the need for universal coverage, a na-
tional package of health benefits emphasizing preventive care; a re-
quirement that all employers share in the responsibility of provid-
ing coverage that most employees in America have long enjoyed,
while at the same time providing mechanisms to deal with the po-
tential for dislocation among small employers and their employees;
insurance reforms that will require insurers to insure risk rather
144
than avoid it; a competitive environment where health care costs
at all levels will have to be justified; and a pluralism as a means
of guaranteeing health care quality and access.
We are very pleased that in the various discussions we have had
with the administration as it has crafted this proposal, many of the
suggestions we offered were accepted.
In many other respects, however, we still do not see the nec-
essary level of physician participation on behalf of their patients in
some of the crucial aspects of the President's plan that we have dis-
cussed.
We understand that modification is ongoing, and we are encour-
aged that the President has signalled a willingness to negotiate the
specifics of the plan. Yet right now, physicians have simply too
many questions about how the plan will be implemented; about
why the plan's effort to cut waste and spending does not go far
enough in limiting liability costs through caps on noneconomic
damages and meaningful limits on attorneys' fees; about why phy-
sicians will not be given adequate exemptions from current anti-
trust restraints to allow them to protect their patients' interests in
a health care market that will be dominated by large managed care
entities under this plan; about why strict spending controls are
called for when they have never been shown to work anywhere
else; about a national health board designed basically to regulate
the system when better, more participatory models for providing
guidance to the health care system are available; about health alli-
ances that could add another level of regulatory authority to the
system when all that is needed is an impartial entity that helps or-
ganize the way insurers and small employers come together in the
marketplace; about the intent to nationalize medical education by
essentially telling students what careers they may pursue — some-
thing done nowhere else in any field in this Nation; and finally,
about why a whole new bureaucracy of quality oversight will be
better than that now existing in the private sector.
Before physicians can say whether they oppose or support the
President's plan, they need more detailed answers to these ques-
tions. Other health system reform plans have been and will con-
tinue to be offered from both sides of the aisle; none are perfect,
nor should we expect them to be at this juncture. But on balance,
the President deserves our congratulations for his unprecedented
leadership in making, at long last, meaningful, comprehensive
health system reform a real possibility.
We also congratulate this committee and its chairman not only
for its past leadership but for quickly beginning the task of examin-
ing and shaping the President's plan. There is still much work to
do, and at the end of this long process, when all is said and done,
our litmus test will consist of only two questions: Will patients
have the freedom to obtain care from the provider and facility of
their choice, and can physicians provide necessary, effective, effi-
cient care without undue restrictions on their clinical judgment?
Our patients deserve positive answers to these questions, and the
AMA promises to work with the administration, the Congress, and
our patients to see that positive answers will be achieved.
Thank you.
The Chairman. Thank you very much.
145
[The prepared statement of Dr. Todd follows:]
Prepared Statement op James S. Todd
Mr. Chair and Members of the Committee:
My name is James S. Todd, MD, Executive Vice President of the American Medi-
cal Association (AMA). Accompanying me is David L. Heidorn, JD, of the AMA's Di-
vision of Federal Legislation.
On behalf of the AMA's 300,000 member physicians, I am pleased and honored
to be able to share with you what I believe many individual physicians would say
about the President's proposal for health system reform if they had this opportunity
to be here and talk with you today.
The President's proposal is long awaited. Physicians know the limitations of the
current system. They see the difficulties far too many of Americans have finding af-
fordable, adequate health care coverage. For the past four years, the AMA has been
telling whomever would listen about the need for comprehensive reform and a way
to achieve meaningful change through our own proposal, Health Access America.
Before that, we helped organize an effort of leaders among physicians, a wide range
of health care providers, academia, and both federal and state government to define
the difficulties and solutions needed to address problems in the health care sys-
tem—called Health Agenda for the American People — well before the problems of
the health care system captured the public's attention as they have in the last sev-
eral years.
We have long understood that problems with America's health care system had
to be addressed, that the status quo was no longer sufficient. We applaud President
Clinton for his resolve in addressing these problems, in taking the first necessary
step to end the status quo. Likewise, we applaud the First Lady for her leadership
in the difficult process of framing the President's proposal. It is encouraging to phy-
sicians that the President has signalled a willingness to negotiate details of the plan
as long as such negotiation does not undermine the basic principles of reform. We
look forward to such negotiations as the package proceeds through the Congress.
For these reasons alone, I can confidently say that the Administration, the Con-
gress, the medical profession and others can move forward into a new era of health
system reform.
BUILDING FAIRNESS INTO WHAT WORKS
Our confidence that we can accomplish our joint goals is fueled by how much
there is in President Clinton's proposal that reflects our own plan for health system
reform. Most importantly, we share President Clinton's intended goal of building on
what works well in the system now, not replacing it or tearing it down. We also
recognize that a strong theme in the President's proposal is enforcing fairness on
a system that, for all the world-leading wonders in medical care it makes readily
available to most Americans, does not fairly ensure that all Americans have access
to that same level of care.
Every American should have coverage so that the system is available to every
American, and the rules of the system should work the same for everyone. President
Clinton's proposal would make a great leap in ensuring that they will — by making
sure that all employers share in the responsibility of offering health care coverage
that most employees in America have long enjoyed; by defining at the national level
a package of health care benefits including preventive care that will be available
to all Americans; by requiring health insurers to insure risk, not avoid or limit it;
by reconstructing federal tax incentives so that the self-employed are treated the
same as large corporations, and ending federal tax dollar underwriting of health
care benefits richer than the nationally defined benefit package; and by establishing
reasonable cost-sharing requirements that will encourage individuals to assume a
level of responsibility for the health care choices they make. We are also encouraged
that the plan recognizes the need for liability reform to be part of health system
reform.
These changes alone would bring about a resolution of many of the difficulties our
patients now experience in the health care system. Even more is needed, though.
Unfortunately, many of the directions taken in the President's proposal beyond
these basic principles create in physicians serious reservations about the effect the
proposal, if enacted as it stands today, would have on the ability of physicians to
provide quality health care to their patients.
146
ONE MEASURE: THE PHYSICIAN-PATIENT RELATIONSHIP
There is only one measure by which physicians will judge this proposal — how will
it affect the ability of a physician and his or her patient together to make whatever
decisions are necessary about the patient's medical needs. When a physician sits in
an examining room with a patient facing a difficult, often life-threatening moment
of decision, the physician needs to know, without doubt, that a decision can be made
solely in the best interests of that patient's health and well-being, nothing else. As
the President's proposal stands now, far too much could come between the physician
and patient at that moment of truth, making it difficult to make the best possible
decisions on behalf of patients.
The combination of arbitrary global budgets, premium caps and the need to save
dollars by plans could necessitate many of the same intrusive controls and second
guessing of physician decisions that exist in many of today's tightly controlled insur-
ance plans. Such interference is, has been, and continues to be inappropriate. It is
inappropriate now when insurance companies arbitrarily second-guess physicians'
clinical decisions in utilization review or force physicians to step out of the examin-
ing room to seek preauthorization for necessary care. It is inappropriate when the
threat of liability action forces physicians to order tests that would not be necessary
in a less hostile environment.
Under a new health care system, we must avoid interference that results from
decisions about the availability and quality of health care made from a bureaucratic,
centralized place, distant from the patient's bedside, and disconnected from the
needs of a physician's individual patient. There are many positive aspects of the
President's plan that could and should be carried out with little government involve-
ment, however new levels of bureaucracy are envisioned at the federal, state, and
corporate levels. Physicians wonder what role will be left for them in the new sys-
tem.
FEDERAL INTERFERENCE
At the federal level, a national health board of seven individuals would have sole
responsibility for establishing, administering, and disciplining the system proposed
by the President. One of its key responsibilities would be to enforce global budgets
on health care spending. If such budgets were truly targets, meant as a flexible
guide established with the help of physicians to assist in identifying cost difficulties
and specific solutions, reflecting changing demographics and specific health care
needs across the population, the AMA could support them. Instead, the "targets''
here are strict spending controls based solely on changes in the Consumer Price
Index and enforced through the cost of insurance premiums, with potential assess-
ments on providers.
Nowhere in the world, in any kind of system that delivers any service or good to
anyone, have such spending controls ever worked. Their implementation does noth-
ing to control the demand lor services and often times increases that demand. Such
controls result in arbitrary maldistribution of services that often falls far short of
meeting consumers' needs. With health care in the United States, the result will be
no different. Treatment plans on how to meet individual patient needs now made
between a physician and a patient in the physician's examining room could be made
instead in Washington, DC. Physicians cannot accept this limitation. We do not be-
lieve our patients will either when beneficial care is not promptly available. That
is not the kind of reform the American people are expecting.
Physicians have the same kinds of concerns about the control the federal govern-
ment will be taking over the supply of physicians under the President's proposal.
By mandating medical schools to train 50% of their physicians in primary care and
allocating medical residency slots through new national and regional graduate medi-
cal education councils, the federal government will essentially nationalize medical
education in this country. While there is a need for more primary care physicians
throughout the nation, the incentives to practice primary care included in the Presi-
dent's plan, along with changes in the health care marketplace that are already
happening, may well be enough to encourage and enable medical students to pursue
primary care. The AMA has advocated for these same incentives for a long time.
They should finally be given an opportunity to work.
STATE INTERFERENCE
At the state level, health alliances, as proposed in the President's plan, will only
add to this bureaucratization of the health care system, providing another layer of
decision-making which could undermine the physician-patient relationship. The
AMA has watched with interest the development of the concept of health alliances
147
in the managed competition proposals that have come before Congress. In a pure
managed competition approach, health alliances — or insurance purchasing coopera-
tives— would act simply as unbiased conduits between health insurance plans and
consumers, acting to organize the market under rules that apply equally to all.
There is a need for such a role to be played to help small businesses organize their
Eurchasing power in the insurance market. Such a system — the Federal Employee
[ealth Benefit Plan (FEHBP)— -provides health benefits to federal workers, mem-
bers of Congress, and their dependents. With little bureaucracy, FEHBP empowers
individuals to make rational insurance purchasing decisions based on their needs
and desires. The American people deserve no less.
President Clinton's proposal for health alliances goes beyond this basic need, how-
ever, giving alliances what will amount to regulatory command and control author-
ity, in concert with the national board, to enforce premium prices on insurance
plans and exclude plans with higher premiums. Authority also is given to alliances
to determine what kinds of health plans would be allowed to compete by limiting
the number of fee-for-service plans under an alliance. This is not competition. We
recognize the need to manage competition fairly, but this limitation is not fair and
is not going to promote competition, which is the only way that cost-effectiveness
and quality health care can be guaranteed. An open fee-for-service plan should be
available in every area of the country.
The proposal for health alliances is also problematic in that it requires all employ-
ers with up to 5000 employees to purchase coverage through them. Such a nigh
threshold will give alliances far too much market power in a state or region, choking
off pluralism and competition in a market. It is truly small employers, those with
less than 500 employees, that need government help in pooling their resources to
buy insurance, not employers with thousands of employees. Government involve-
ment should be limited to where there is a need, allowing competition to work
where it is able. Allowing medium sized employers to maintain their own plans will
Jtrovide an appropriate counterbalance to the power of the alliance and wul provide
reedom for an expanded number of plans in any particular geographic area.
CORPORATE INTERFERENCE
Finally, physicians see the erosion of their professional decision-making role and
their ability to represent the best interests of their patients in the overwhelming
preference the plan gives to what will no doubt become large corporate managed
health care entities. The AMA does not oppose managed care. We understand the
current economic pressures that are already pushing more and more physicians into
managed care arrangements. That is competition, for now. A health care reform
plan should not, however, codify that marketplace phenomenon. If fee-for-service is
truly noncompetitive, our patients should make that decision, not the federal gov-
ernment. Government action should at least he neutral, or, where there is a domi-
nance in a 8 market, should help balance the marketplace to encourage competition.
Instead, we see an overly narrow definition of fee-for-service under a proposal la-
beled fee- for-service that eliminates many of the elements of fee-for-service. Rather
than giving physicians and patients the ability to choose how and where medical
care is delivered, and how much the service should cost, the government will impose
a price on services that all physicians choosing to practice outside large managed
care entities will have to accept. It is doubtful whether many physicians will be able
to make tins choice outside of already underserved areas of the country where man-
aged care corporations will not find it cost-effective to go. In a short time, managed
care will have no competition in the marketplace. A physician will have little choice
if she or he cannot agree to managed care decisions that limit her or his ability to
meet patient's medical needs. Such a situation is unacceptable to physicians. The
fee-for service option, as proposed by the President combined with the global budget
would limit patient freedom of choice to only an IPA/HMO type of fee-for service
plan.
True fee-for-service, without arbitrary constraints, should be given an opportunity
to fully compete in a new health system. Instead of price controls, a reimbursement
system based on the RBRVS could be created, giving patients an opportunity to
compare prices based on physicians' choices of conversion factors they individually
want to apply.
Also needed are greatly expanded protections from anti-trust constraints for phy-
sicians to ban together and organize networks to compete with the accumulation of
health care market power in large corporate entities. Physician organizations like
the AMA should be allowed to represent physicians. Current restraints on such ac-
tivities are already no longer valid where individual physicians have little choice but
to accept arrangements offered to them.
148
Physicians also must be given the opportunity to compete for patients in such
markets, by requiring dominant managed care entities to allow physicians who meet
credential requirements to provide care under a managed care arrangement. Large
corporate entities should not be allowed to freeze otherwise qualified physicians out
of providing needed care to their patients if those patients want to choose that phy-
sician.
FINANCING
Fueling physicians' concern over the President's proposal is the light brush that
has been given to financing the plan. The key revenue source offered is a continued
federal cutback in Medicare and Medicaid funding. Not only is this unacceptable to
physicians and their patients who rely on these already underfunded programs, it
is doubtful that this can be a reliable revenue source to fund the expansion of health
care access hoped for in the proposal. An increased "sin" tax on tobacco has been
proposed by the President, which the AMA would support. We would also support
increased taxes on alcohol as well as increased cost savings that will come with ad-
ministrative savings envisioned in the plan.
With some reservations, the administrative cost savings offered in the plan are
laudable and necessary. But given the bureaucratization of health care at the fed-
eral, state, and corporate level provided in the plan, we see, in fact, greater adminis-
trative costs, not less. For example, the National Board will have numerous sub
boards and commissions, such as in quality, benefits, graduate medical education,
that will all need to develop complex rules and regulations. A system that adds lev-
els of management, not reduces them, can only be more expensive. The absurd du-
plication of oversight over the physician-patient relationship physicians now experi-
ence under insurance company control will not lessen under a system dominated by
large corporate health care entities; more oversight is only added through the new
state and federal superstructure of control. We simply do not see sufficient adminis-
trative cost savings in the President's proposal.
And where there are unnecessary costs in the system in the high cost of liability
both in litigation costs and defensive medicine, the President's proposal takes too
little action. To ensure such high costs do not continue under a new system, initia-
tives similar to those taken by California under its MICRA liability reform law
should be enacted. A $250,000 limit on noneconomic damages must be established
if true cost savings are to be achieved, and limits on attorneys' fees significantly
below the 33 1/3 percent limit proposed by the plan are needed. That is no limit
at all, since this is the typical share of awards taken from their clients now.
Physicians need to know from where the actual financing of the President's pro-
posal will come.
CONCLUSION
The President and the First Lady should receive full credit for advancing the
health reform issues and ensuring that health system reform has finally begun.
Now, Congress has an unprecedented opportunity to enact legislation that will
change forever the way health care is delivered in this nation. It is our intent to
help ensure that change is for the positive, so that all Americans can receive the
high quality, personal medical care that most Americans now receive from their
physicians. That is our goal.
My comments today are general. It is my intent to provide an overview of our
more basic concerns as the President's proposal applies to physicians' ability to con-
tinue to serve in their professional role oi providing medical care to their patients,
without constraint, a matter on which physicians have serious reservations. (A de-
tailed response to the President's plan is attached.) As the members of this Commit-
tee well know, many hearings can and will be held on these and many more specific
issues over the next several months. I hope and trust that the AMA will have the
opportunity to make more specific comments when the time is appropriate.
149
IMF. IRr.SIDtM S rROCRAM
All I'*? clti/cns h*pnl resident* nnri enroll in health insurance plans
Plans may In* purchased through a stale regional health alliance A
hi cc crnphncr (nunc lhan ''ion employee*} mas provide en crape
rjtrouch its own alliance llcihh seem it; card entitles each in
nationally ill lined Comprehensive benefit paikape ' i"v crilllKDt
employees, Medicaid hcocth j nicv anil rcluccs mulci age M also
purchase through atlramc? Medicare, rtiilii.it> health care. VA. ami
fiulian Health Service continue
Fmpbiyrr Requirement
All employers nuisl pa* Rll% of weighled-avg plan piemhnn for all
employ ccs, with pin rata contribution tot paiMimc employees umler
.in tn-; .1 ttccl Rut employer tnntributimi is cappcl at 7 9% of
pa* roll Small einptuyc's (lets than ?" employees) are capped
between !*■ 5% ami » s-*i, depending on employee avp annual wages
Corporate alliances self insured large employers (5.IHHI* ) and
equally huge nni"n plan* may self fund, contract with health plan, or
arrange coverage thioupli alliance: but must generally meet same
rcquitcmcnis as Insured plans.
F.mp1n*rf /Individual Requirement
l-'inpbnrcs pav ?'*% <»l wclp.lited avg cns| alliance health plw.
depending "ti its «•<! Sell-employed and uncmplovcd pay 100%. httl
anyone below 15'*% nl pmcrt* icteocs federal pi cm him assistance
h'»m alliance Undocumented aliens riot eligible tvri federal aid In
institutions for their care continues State* must niltlress migrant
wotker issues.
Nationally Refined Rrnrftt Package
Comprehensive medical, clinical preventive services based on
periodicity schedule; hpspirc and home health: ?0 days episode and
Mi ilav^.vr inpatient mental health substance abuse with JO visiis/vr
p«Achomc' apy ; family planning, pregnanes- •related; hospice:
outpatient prescription drugs; rehab. |JV|| and prosthetic 'orthotic
devices; tfciitn/ticatinp: preventive dental Tor chlldien: health
education
AMA S RKSI'ONSt
I'lncha-mir cooperatives can he useful in helping smalt businesses
pi ltd then purchasing power in huv Insurance I nice employers
should remain mitsidc of alliances in create Iriic cmnpclililHl. As fl
envisioned here, though. Alliances have far tort much rn.ul.et
influence and nmsl serve a regulator* role undci the couind ol (he
national health hoard I or alliances lo work, large employers
nmsl he delined at more than 5'HI employees, not 5*MMI It is huh
small employers, not "lies with thousands <d employees, who now
ha^e pioHcms huyiug insurance ami cui'ld use alliances Ity
including laipc employ eis. alliances will uionopoli/e markets.
therein reducing cmitpctilHtti and eon-inner ciuiliol it| health care
dc«:Hions. • -At;o. the Alliances arc far ton much under ihc eonl'ol
nt the national health hoard lo he cllcctKc esptcially hecnuse «>(
Ihc hudpcl caps ihcy must enfmcc Ralher than helping improve
the htsurancc market, alliances will scr\e as regulators iherehy
hurcaucrali/iug Ihc health care system even more than it is now
I he AMA believes that ihc hest »n) to achieve meaningful health
reform i< to huild »n (he exisiioc employ er-h tsetl health iusiuance
syslem. Ihc mctiuiircs in ihe current sjstcin should *'c addressed
v* iihout satriticing (lie health caic quality and access that must
Americans enjoy fhls goal can he achieved through an employer
requirement with appiopriate protections for small businesses.
I ilewisc. il l< critical for employers to contribute the same
percentage of premium to whichever plan lis employees choose.
otherwise the system is biased toward mauaccd cue. lire percent
of pavrolt tap is itm low foi large business, discouraging them
from establishing llierr own plans, therefore increasing monopsony
buying power of ihc Alliances
Ihc federal government nmsl Increase, not reduce its funding and
leadership in addressing widnrumenlcd individuals and migiant
workers rrohlems associated wild providing Ihem caic go far
beyond states resources Assistance should he provided for
individuals and families with incomes under 2t*tr» nf the poverty
rale.
f'osl Sharing
Health plan-, may olfer I of 1 options.:
• low eost shaiing -• no dcilitctihle. Sltl copaj for oulpatienl service
b'H ihmk lor htpaliciri. 10" I coin manee p"ini-of ser\i» e option.
5t^tH» indivfthrnlfinOO family out otp.tcket mat. ^5 copay for
pie--tiiptii>n
• Mich tost sharing: • none for preventive: MlW S"M* deiluclihlc.
2tr*» coinsruatKC, and -ame rurl-ttl-poi'lcl n»a\ lor
inp itit nl oirlpalreril t?5'*"jr deductible. 20% coinsurance, and same
pul-of.pntAel ma\ Hu diugs
• ( nmhinatiori - htw ci»st <haring if preferred providers used and
higher cost sharing with ?ti% coinsurance for nut-nf-nclwnrk
providers; same mtt-ol pocket mas
Ihe preventive hcnrlit package is inadequate and doesn't appear
to use most current data Other benefits nrc not Inconsistent with
AMA s own rcctiuimcitdatrcms Tor a staodaid hcnellt package flm
much more detail Is needed Any national health bftard uptlaiing
of this package should he subject to Congressional approval,
(overage for menial health/substance ahuse should minor medical
care
National Health P.nnirt
National Itoatd oversees the eslahlt'ihntcnl and adminKintion of the
new system President appoints 7 members In slaggcied l-yr terms
who linn are fed-ral employees and may not have health care as«.els;
I imrl represent sta'es holies include
• implementing and enlbrt inp national health spcudtng budget
• establishing state plan icpiiiemcnl'. moniioriug compliance
• reviewing alliance plans submillcd by stales, with enforcement
Ihiouph ItllS and lirasury
• Intei pi 'ting updating benelif package
• selling qit.tlriv nianacemcnL ttnprov etttent sjstem
■ commenting on breakthrough drug prices, hut cannot conlrot drug
prices
I'ndcr low eost sharinp. -10"* coinsuiancc fur a poini-of-scrvice
option is unacceptable, especialb under a plan that will allow
managed *aic plan? to dominate die market lo help en.ure th
quality of managed tare, patients nmsl he given a reasonable
oppxiiuuilv in sc physicians outside a plan Further, nianaged
care plan's slnnrld be iequiied to accept any physician nlm meets
elated credentials and i*hn agrees in provide services mulct an
agreement with the plan and subject to p'iri capacity. Health
Medical Savings Accounts (MSA) should be authorized lo assist
individuals and families in meeting out of pu< kel expenses
Including co-insuiance and deductibles plan should authorize
individuals lo contract Tor any health services they wont with ihelr
own after vox funds
Ihc AMA unequivocal!) opposes a nalional heallh spending
budret and giving a national hoard responsibility for Implementing
and enforcing one Such centralized decision-making and artificial
spending have never ivrukcd anwvhcrc and will quickie bring
about dilficulties in heallh care access and quality. A truly
representative national commission may be able to help in selling
goals for the health care system for expanding access, and In
setting budget goals that take Into account disease and
demographic t hanger and changes in demand. Rut this proposal
cicatcs anew federal bureaucracy with price control authority.
Also, il i> unacceptable that no place has been reserved on the
| hoard for a physician or AMA representative.
150
inr. rnf.sinr.Nrs rnncRAM
Stuff RpxpornlhillllM
Stales
■ bx I 1,97. must cMahlMi at least I alliance and assure all eligible
individuals cm. til
• ccrfdv health plans In partii ipale in alliance*
• ensure the axailahilitx of a plan priced a! or helm* weighted -atg
premium
• submit lo National Health Hoard plan* i»t regulate health plan*,
at Int ini Met Jala collection and ipialitt management, unpin vrmcnl
• tnav establish a xing'e-pavof health care sjslcm cnrnplx inp with
benefit pad ace anil rosl stinting requirement!!, nt a single pa> or
alliance lor part of a Male
am,vs nrsroNsc
Ihc AMA Mrnuplx opposes ihc establishment of a single pax or
healili cue sxmciii. whether on a slate or national level a- pan nl
national bealih sssleni rcfiiim legislation No centralized dechfcm
making Billhvlil) can control ensis nnd engine ath-pia'e access hi
qu.itiiv services, espccialh in healih core When, lor good reason.
the national plan rejects a sinrjlc payor ssslem nationally allowing
a Mate lo suHecl its tf sidcnls lo such an unreasonable approach is
ennliadiclory nnd makes lillle sense.
Health Alliances
Health alliances act as conduits between hcalllt plan*; and indiv frtual
pun It !•«.■»« ol health hr-utnnce coverage, emitiaclinc with hcaltfi plan?
In provide llie ic'|ntiij benefit paitapc ami providing a simplified
uniform means for indiv idu.ds In choose hciwon plans Alliances
• must cinittaci with a plan unless ils pteniiutn exceeds die weighlcd-
:nr premium hv more than 20% its ipialilv is poor, nt it
di uimin ites
• mnsl use tisk >a<ljuMulcnl ineihaukm In account lor cmnlhncnl
variations asr»»ss pi tns
• Inns he a n*mprnlll corporation or slate ncen<\. hnt nonpodil s
hoard mnsl ei|nall\ consist cd cunsnniers and cmptiwers «ln«c
selection is determined bx the Mite
• mnsl establish pimidei advisors tmaids
• tnuM enroll all eligible Individual* and ha\e annual open enrollment
periods
• max not bear insurance risk
• Itni5l publish consumer info on enM. providers, access restrictions,
and mialiix of plans
Alliances mnsl ollei ai least I ait)-wi|linp-nrovWcr frf-fpr-xervlte
plnn. bill '"is limit nnmher to 1 ihrough competitive bidding
National Health Hoard mas waive rc<|iutcnicni il not viable or
lu<ttnictenl Intel «*sl \pci collective provider ncpotiali'Uis. alliance
sets prmldci **r schedule |i»l caeh lec-f««r-scrvice pi <n and
ptn\ldrrs ma) not lulanrf bill Slate s max impose pro'polixc
budeeliop no fee b«r sen he plans, f oiporalc alliances must also
nllct at least I fce-for-scrv kc plan
ERISA
• Corporate alliances suHecl lo ikw fidtirjatv/ cnfoitnoent
teipiiretnenis rcpatdtiifl national Itcoclll pad ace. plan tnfri
te(|iiitenieuts and itntfoltn data claims, electronic hillinp, and
|ricsani r procrdurcs
• Sell btoded plans miiM set h«:nelil pasuicnt trust fund, beneficiaries
ICCfhc 'perial proliclion in banktuptC) If emploxcr fails
• National puaiaut) htnd cslahlislted
• I riS\ ptrcinpitnn of state laws modified In apph mil) lu
cm pot ate afltauees all"\s nondiseiitninatoty taxes on litem, allow
state all pawn rate setting, allow states lo include corporate
alliances i» icimhursc essential enmnntnll) pins Met s
flcnlth Hans
• Hcalllt plans must accept all clipihlc Imlis idiials. haic an open
cnmllnicnl period, and max not cancel reduce benefits r\en tor
curnllcc nonpasincnl rre*i*\isting condition limits and dfecase-
specillc csclusliHis are ptnhiMfcil
• I aelt At ip list, alliaiue nepoti.ile* pieiuinni tales isith rath plan and
pnhltsltcs tates I'mplnscr' rrupltwce rax communits rate
Alliance adiliMs ptsments lo plans based on ri-A. u inp b-nnida set
hx n.uioual bealih hoanl flans with bipb ti^l populations max
rcinsmc
• Hans must puttidc aMiaorc with cMcn^isc inlo on ftM i|ii:tlil).
pio\Met ax ailahilitx . t 'ft coii'timci li rhls and r'an tespnnsihHilics
• I'lans ttnoi pn-vide inu'-Miuei' Into t»n rlslts, bene lit*, mrdhal
pttK'edittc to -is. and ndxaucc iliiecfixrs ttricsancc procerhircs and
alicruiiixc dispute ie ol-itinn iei|itiieil
• Slate laws protrttini ar*alns| m:uiapcd care abuses are prcernptcrl
• *xtalr laws hanninp ibe roipoiate piaclicc °f medicine are
ptecuipled
• Ihc ahdit) nf plans to vwn facilities or offer medical serxkes Is
niitbo'l'' d
• thil -ol-seixkr-atea rni'ireinx ittpctll care reiplired paid on
alliance s f(< lor vet* tec pasnicnl <»hedule
• A plan must haxr nthisois boaids • I proxiilris sel clcd hs
proslder*. which must be consulted (remienlb and has access to
plan inform itlon
• loans are axadablc for coinmunttx based plans
Ihc AMA h ailamantU oppused In (he ptjn's ic*lrictnms t»n lee-
fot-scrxke true rce-lur-scixke gives individuals the Inedom tr»
choose health tare jenkes ll> cstabltshine a fee schedule and
bairinp plo sieians and patients vxillinp anil aide lioin apreeine In
the co<t ol llirii medical rare, hue choice no lonper vvill cvi<1 in
lite I'S hea'lh rate «ss|em I'livsieians and patients will I'tnd il
dillicnh l»» use clmice In pnaid againsl health cue decision-malinp
made al corp>>rale and hmeaueraiic levels thus diminishinp ihc
abilitx ol phxsiciarts trx advocate lor their patients
If a health alliance at is as an impartial conduit between hcahh
plans and purchasers^ ailinp io male il easier tot indit tibials ;md
sniaH bicincssc- lo make insurance purchases and enemtntrhtc
comprtiiivcness between be tlih plans, health alliances can help
bring ahctul needed fairness In the health insurance market II an
alliance caunnt ?ct tairh. Irtic compeliiivcness cartnrri be assured
Alliances should h>- rei|uii> d In accept all Tee fi>r-s-rx lee plans
olfcred Instead id limiting Ihc number In 1 Ime hecdotn-of-
chotce f*'i indls (duals to determine what |>ind nl health care
dcli\er> hesl mecls iheli necsls is scveteh diminished
Plans sfiould hf encouraged in recognize Ihc Ul.lftA S lor
dcteimining phssician rcimlntrscment using Individual phxsician
selected ennvrrsiort factors
Plans vbi>uld atitlu<rt7C mdividnals lo contract foi an> healih
services tbev want xviih their oxxn aMcr-lax funds.
AMA his lone supported I RI^A relorm the plan pmpo es to
address mam n! the problems idcii'ilied bv Ihc AMA lhai have
ilex eloped under frtlSA. including protecting beneficiaries ol sell
Insured plans fiotn unfair coverage declsihns and plan insoltenc}.
Such chanrcs have long been needed (»> ensure tlni all American":
arc treated fairlx bx ihosc who insure their bealih benelils.
whclhct an emplover nr an insutancc cntupanv
llnwexet I'RISA s ptcrniplinn of stale law should not be
amended In authnii/c a stale single pax or «> Stent to appl) lo lare
cinp' xcrs or in allow varying icscrve ictpiircmculs from insured
plans within the state
Ihc insmancc iclnnns nlfctcd in ihc I'tcsident's plan are
important elements of hcahh svslem reform Setting premiums
based nn communlls taiiup and eliminating pre-exislinr condhhtn
ewlu "»n< have loop been utged bx the \M \ Health Plans
shmdd be ie<|uii-d (<• cicatc a < ommiiiee nf praclkmg plissicrans
within" the plans thai is responsible for establishing clinical
decision crilciia I xtepiions lo communitx rating should not be
planted In huge fiinis Pstahllshlng a sxsiem nl shatinp unifmm
inl-Hpi atiou ahoiil plans ihliillgh ihc illianees will help mnsmners
male hifoi tned iu-ui.-uue puicha<iiig tlei'iih)tt5 Ncscrlhcleps,
pro\lsti*ns Mm would preeinpl lavxs ih.it states have enacted l<»
proicct ntninsl abuses In inaiiar.cd cur need in he eliminated, Ih
President ^ p'1" twerall. gisc such a sifi«np cncnuiagemcnl hi
managed care that states need In be nlhmcd in continue their
NUthmH) In ad when abuses occur
I lie plan should not override slate corporate prnelice of medicine
laws In slates that curreull) prohibit such
further, managed tare plans should be reunited In accepl am
pits sic lau who meets Mated credentials and who agrees lo pioxldc
services under an ngreemenl with Ihc plan and subject In plan
capacitx
151
IMF. PIUSIIHNI S IfMXiHAM
f'lnhat Rodf rls'Prlrr f nnfrnls
I he plan ill*- tides a ntiliun.il health caie Imdpcl died mi ihr
wc ichtcd-a* g ptetuhim I'M the guaranteed Kcitcl'l p'u.tag*' as a
lairctcd barfcsfnp in mail.et action Id- tarpef incrca^-: in premiums
|"f l*W 15 I'M • 1 5. CM * I for t')'»7. ( 11 • n S („r |TJR. ant!
(. I'l for ln'>°- anil beyond A national per capita based premium is set
hv ilu- national hoard, as is a s\«tem In adiusl a' alliance level for rjsl
fa« Ints lil.c ape demographics f Program* for Alliances then receive
an avg premium from the national hoard Plans submit bids In
alliances cHltci blind w with knowledge nf ll'c taig-i Alliances then
submit ihcif negotiated premiums in national hnatd. which tells the
atltancc il iis i\p premiums is acceptable nf n»l If not. the nllinnce
renegotiates If Ihc alliance e>cc*'ds its tamei. thee K a 2->r
recoupment Impels mav nnt dc adjusted. except h» C"nnptcss
t iHptiiate alliances use an equivalent target and are terminated If the\
miss target 2 out ol } \rs
I he AMA <laiinchh ppnscs the selling nl anv national budget
Am tic isinn-maVinp in health tare based mainly on economics
and nnt ■■« patient nods is nnt in the best interests ol patients anil
will lead in rationing tint cannot address the dilli- nines and
inetpjitics in ntli cuncnt health rate system. I his issue wilt he a
lej area or concetti and activit) in the coming months as health
System reform continues in Congress I he President s plan calls
its spending limits "targets " I he AMA relieves that a
paitkipaiory process that Inctudci physicians might be u'dnl to
establish true gnils that can he flcxihle and arc based on patient
needs. As written, though IhcsC ' targets' are stringent, arbitrary
caps on spending this Is fully unacceptable
AdminNll Jlllvf Slmpliriratlnn
• National heitd must develop simplified forms IU human l**9S.
1 11***2 mul dc used for lns|iltrtb»nal services standard health
in ui in-.c claim loon similar tn IK I A IMrrt f«»r ntminslitutinnat.
IK I V 15'Ht inr dentists, and universal drug elahn form for
ph -itm.icics
• National hoard nuisi set automated transaction and ending standard
Private proms must adopt electronic data Interchange fl l>M
standards hs I * I # ** ^ : federal programs ASAl' niVr enactment
Providers, including medical groups id mri 2". must automate
within r"» ums id standardization States ran denv pav incut tn plans
lint UMIlg I IM
• Medicare simptilh ration contractors will h-- c"iiM»lldaied based on
function not aiea: halamc hilling fin PMI eliminated, national
data 111*.- on Mediraie K'ncTitiarics created and Mcdigap
Icrminnlions take place as put ol national data lite . presumptive
waiver of en insurance with plij sir tan's acfcnnwlcdc* inent:
phyckians input in catrier performance. Tarts ,V and I! claim
pTf*rC55tnfE irttcpiaied. alleviation tet|iiirctiicul rlimiua'eil except fnr
hospital medical «laff plivilcg'-s; pre approval fnr It) surgical
procedures eliintnaled; system ehangrs mote than mice evcrv 120
dav* ptfhihiitd. Ii7.'»s onisi rocits on patterns, not individual eases
• The health sec mil; cards all uulixiduab receive Is lile an
automated leuYr machine. Ii« he "^A to access ,i national uniform
health data -el cslalilishrd by the n.linnal bn.ml
• I'niipie idcHtifteiS In be established for plans, piaeltlinners.
providers, and patients
• An hifniuialton system is envisioned thai will t>c and- l«» ctdlect dal
fmm all rncponlcfs using a standard Inimal »Wi an emphasis on
electronic records Fncninlct data Is to he ItansiniUcd ti» regional
information nclwml. in he used to set ualinnal info trends A
national data advisors committee fur research is established
AM \ supports l-uward moviinent in electronic data management
that will had tn patient caie Irnpnucmenls. but sued changes
should not soles he predicated on cost saving-; While
administrative simplilivatinn |< necessary In help contain health
care costs, certain specifics nl thh pmposal ma) prove
tins alisf actnts if not implemented in the best wav. Wheic the
private settor is capable ol bringing about simplification.
eovrrnmcut boidd trot duptkalc Ihose elliuis. We are concerned
that the national hoard will set standards lor coding systems when
AMA s ( I'l coiling i1- ahead) used fin coding ihronghnui the
health care industry the national board should recogui/C this
achiet emcnl which is the result of a long conpeialive rclitionship
between Ihn private S"Ctti and go%citnn<nl We are also
concerned that, while private payors arc given the icspimsibilily
for ado|>(ing I Ml standards o time limit is set for its adoplinn
We arc fnlh cnnlident that the ptivntc sector is developing and
quictlv lnlct*ratiug MM without (»iivenm'cnl involvement Nn
new iMirpi- ith-uliliers should be created hv the government
I'hvsicians already are idcntlllcd b> Mcdicare.Medicaid I'l'IN
numbers, and SPIN is already widclv accepted tn sectors ol the
Indu^n Accepted identifiers need not be duplicated As with
other I l»l issues a' soring patient cooltdentinlily will continue tn
he n goal nf the AMA
I here should he nn mitm-manapement of the Inlounatlnn system
at the national level I he e*«sts ol developing ans Information
management systems slmold dc kept in a minimum and not
shilled Confldentlallts must he assured.
t)iiatlt>
• A national iptalitv management program is sci to be nvetsecn hv a
IS-memhcr advlsiir) council to Ihc nalhmal board, consisting of
consumers, plan reps, slates, and pnldie health and qualitv. experts
Naliuual pcrfnrrnanrc goals, minimum standards, research support,
and a report i«n quality arc trtpiircd. Advisory council must set
national pr*>gram to rlevelop practice guidelines. Scientific standards
and priorities
• I inptani is "eusiomer-h'cti'cd," based on conumci satisfaction and
mitcomcs Plan info c»»He«l<d h\ attimces I* tn he li«d lo compart-
plans Pitigiam pnhlKhes results i«| alt plans annually Regional
data centers cieiied States eufnue standards
• National regulation preempts Incal rreulatfam; inter vention ntitsl
Pvens nn prohleuis. with targeted reviews and tainhmth selected
validation sites; demo program required hv 1/1 9r*»
• Medicate I1WH continue until I II IS determine thev are nn longer
nccc sary
• Mill funding expanded for elleiilvencss and ini*cmncs ba'.ed on
quality*, nhii a piogjiam to evaluate reform and progtatn to slud\
how ennsnmcr choice and dcci-dominating late place.
AMA recommended a comprehensive progtatn that would
rccngni'C the profession's vsell-csfahlished accrediting and tptalitv
assurance programs lh«: AMA is decpl) concerned that phvsiciam
have nnt been included spccificallv in the adslsmy council that
will he responsible for sn Item) iniiiatfves in t|tiality. especiallv
the establi'hment ol practice parameters We will noflc to ensure
that suth eldnls eonlimie In he led h> the ptofcs^rmi We are
hopelul that 1 HIS will ouicklv, come to the conclusion that
Medicate I'ROs nre not cost etfecllve
Senpr nl rracllcf
Siope t*f professional practice continues in he based on state laws
However. IIIIS oiusl develop and encoinage state adoption of a
natimial mnttel profession il practice statute for advance practice
nurses ami phssktan assistants Stales mas irslikrl the practice of
health care professionals mtlv on the basis of compeiencs
Hie AMA imposes an> federal elintts to duplicate or supplant
states rrsprmsibilitv. to ensure their residents health and satetv
tluongd national professional practice standards Slates are in a
unitfue ptisithm In react to their specific health care needs, and
deciding the appupiialcncss of professional practice is a lev
means id assuring the safety and <pjali|v n| health caie in a slate
federal standards must not supplant slate authorit) or criteria.
152
iiif. mi.si»r.Nrs rno<;n.\M
AMA S RFSrONSE
Phvslrlan Wnrktmrr
• After 5-m transition. ?<**« t.( plosicMns in training must be in
prioiarv care l"hasc-ln trquirc* primary slot* eaeh \r in increase
"; and special!* slots In dcir -,is»- |n"i
• WIS alloc itr* positions ha- rd nil recommendation* nl new national
council on pmduatc medical r ducal ion: national council allocate*
positions in regional councils which distribute positions in
programs, AuWatious based on pHH*ram f|tm1il\ . relevance of
traming pro-prams to actual practice minorit; representation, and
pa'iin ipatfnn t>f lot allv coordinated plan*. Programs wi'h more
slots th.m assigned receive no national (iMI lundinc IIMS ha*
icto met allocations Allocation* pood fin tip In 1 vr*.
• National conncil members mini in < hide cifwat»rs. practicing
physicians, hospital administrator*, prorram directors, nurses.
other* Views id national pmh-ssinnal associations musl be sought
Regional council* include rep* htnn health alliance*, teaching
programs, consumers
• Financing insure! and Meditate pi toted (SMI- Funds l5o hillion)
oic made tn programs, not institutions, to encourage out-of-
Institution program* transition pavmciil made in h«» pitil* that
have rcdm cd positron* to replace residents with oilier slafT.
hepinninc at I5ti"« nl a*g resident amoimt in Inst vr
• I'r utiiiiv cate incentives primar* practice loan lorpivcne*$:
development o( prima t} care retraininc special emphasis Tor
minorities and enmmunit*. (raining it undergraduate level and
continuing medical education; double training positions fin nm*e
piaclilinners. nurse mid- wi\es. and phv*ici;»n assistant*: special
emphasis lot mental health •iiihstnnce abuse prevention, geriatric*,
sclmid-ha* cd health cue. community cate. ami managed care.
• Medicate primar) care incentives rehire payment rale* for office
consultations with savings transferred to increase reimbursement lot
nllicc \i*-its: increase oHice visit RVI's to cmer pre- and post- visit
time and reduce RVI's uj» .ill non -primar v carr services to maintain
rtcufralilv: resource based nvcrhcad cuiiponcnt; Increase piimaty
care MI'VS lot primal*, caic In (SIM' per capita • 5"« in P9V
rncirasc 10% bonus lor nonprlmary care in urban shortage areas
and double hnnos to 20% foi primal} care In all shortage areas:
retlnce imf-ticr Intensity procedures
Ihc program would fed- rali/c the nations' s system »»l medh it
education While mote prirnan care physicians arc needed 'he
AMA opposes arbitrary quota* restricting individuals free choice
tn pursue their chosen field* the reasons Mime phssici-in* do in»i
chouse piimnix care are complex and Involve, filcslvlc. practice
envirnomcnl, educational bait ground. Inline income ami meelhig
pcrstmal ro.iI* ha*cd on Individual intcrevt Sn a rnutti-lacetfil
approach in ^liimihlr lnl« rc*t i* nceocri I cdcral centralized
dcil*i»ninakiiip will not pnnrantee an ruleinnte snppK ul primar*
care ptrvsiclans. Allocations are best made based tm local need*
and Institutions' ability to provide an acceptable educational
experience
While the idea »f a national council ma> have some merit ft
*h«mld be advisory in nature nnd it* tnmpo.ilimt reflect those
knowlcdpeahle about inrdkal education, Rrgi'mal councils
prcilonilnanllv made up of pity sfe tans could be established to nuu\i
advisor) rccoiinnendalions The *i/e *houM not he excessive:
tepinnal health plinniup bodic* with ttide tcpresenlotUUl
demonstrated the political nature "I such groups resulting In
Ineffective function IIIIS *ltould nut have vein povxer. Regional
council decision* *hould be advisory
AM \ oppose*
• dillcicniiat pavuient to ptograms based on special!)
• the use nl accreditation bodies 'o rank programs by qualitv: the
concept is not \ct rlevelopcd sulliv icntly to be effective
• fcdcial prohibition of Independent fun-ling nf <;MI poshhms:
changes In need for phvslctan Iraininp mav require flexibilitv in
seeking fmitling
• allocating lund* in individual programs, which would fragment
ihr svsicm and create a large, irtcllrcienl horeaueracv: nflocatiofl
of funds to constutia that include medical schools would provkh
more ellecllve cooidinalinn and evaluation of programs
• RMKAS shuulil not be manipulated tn achieve
allocation po;il*
Ararlrmlr Health ('enters
• Medicare fund* and a surcharge on private he ihh plan premiums
{<f\ hltlitml are n» be collected a* a tiicit pcrcent:ipe adtt-on to help
academic hospitals,
• KK'dkaie pavment* in teachinf hopiial* io lourpensaie for
Uninsured and di^prnpiutituiale *harc are reduced
• A national pool i* established I" snpp'trt insliluitonal research
po'.Hiou* for '.p< i i ili/id i aie
• Health plans iimii covet inntiiic c t* of approved clinical poUocoh
and have agreements with atademn h-'ahh ccnt-rrs in tare fur
certain d^ca^e* in patiVnl p«pul uioti-. in a-.-iuc access to academic
health center* Regional health alliance must monitor.
AMA supports assistance to academic health centers based on the
additional costs nf pimidinp leilian care AMA alto suppnoi ihe
lemilieiiienl thai plan* have an agreement thai ensure ■ ;>i cess 't»
academic health center* when needed Special attention must be
r-Ufii In the Iransithm period nntil an entire s>5tcin ol health care
rclnfin is imptem>'nied. so that eliniitialion nf disproportionate
share fumlinp for imlipenl caic dues no| create excessive hardship
riihliWl'mrnllsr/nurrd Health Inlllallirs
• Nil! lundinp lor prevention and health research service* are
expanded
• With universal coverage, pnhlii health dept* can th* data collection
sntv cillatKc rn* ironincnlal protection huuslng fiMul t%ater supph.
cpiilemitdjups munitorlng, cmerpeiKs rcsntmsc Stale formula
grants established
• Stairs encouraged to develop stale health education programs lo
a* sure propci licensure. Irninlop conununiiv focus
• Alliances can spmisnr plans in rural mens
• Rtnat health prolcsshmal Incentives include mmrpfnndaMe personal
tlO'Hlmo lax ciedil for p|o -.it ians (? 5011 mo for mjlvC practitioners
ami ploii ian asslsranlsr: NIIS( loan pavbacis escluded lorn
Ituomc tin oitii \r lax allowance foi cipiiprnctit purchased In
I IPSA: student loan HilCICSl iledmiion up In $VtO»>r
Ihc AMA has lonp called Tor these kinds of incentives, cspecralh
in rutal areas Similar initialives in cuneullv undcrserved urban
areas must not be ipnoicd
WnrltPM* f "nmprnsntlnn/Auto Injury
Health plans piovide Ifalluvnl fiu metlical *crviir* under vvi«iker*
compcnsatiim ami nutu insurance pnlkles and are relinhuiscd ai
negotiated fee lot-sen kc alii. true schedule willt 110 copiy incut*
Stale* must detcrntiue wotLcri compeosathtn I" nelit* t'nder
woilei* compensation, stale frcerhrnl-nl-chnlee provider lavs* are
preempted.
the AMA opposes the preemption of state fieedorn-ol ehniec
piovldci law* under untLcts' cornpcnv>aiion W iilimrl such law*
wofVei* will he forced to *ec phv^ician* who will no) be Ihctr
ptis"nal phvMeian f. ontinuitv of care, and thus qualitv nf care,
m,i) be serhnjsl) challenged
153
nir. HvT.sii>i:ni s pkocrxm
Supplemental Insurance
|\\n types of suppteMuniaiy Insurance arc allow cil -• beneficiary
benefit supplemental Insurance mill cost -sharing Mipplentcnt.il
Insurance t)nl) plans llt.il lir»\ c high cml '.Immmc option; may oiler
both fin!} high i u*a sharing can oiler supplemental en1;! ^lijtintB
insurance Added benefits 'Mpp1eincnt.il Insurance may not duplicate
coverage, community rating generally required, nn exclusions
allowed National health hoaril regulates.
AMA'S UisroNSE
I he AMA supports consumer protections fur supplemental
Insurance similar to those now established fur Mcdigap the plan
should recognize the expertise of Male insurance commissions and
Ihe NAlC I he AMA object* to a centralized national board
approvlog all supplemental policies Irccdnm-ol-cholcc require*
thai the government not restrict (he availability of supplemental
policies lis long as consumer protections arc maintained
f llnlral I nt,n
• Inspections requited for labs pcrfoiuiinp 5n).l'0p or mote tests per
vi. that dots critical testing »hrie answer Rented quietly, where
erroneous re tills would lead to serious harm, where testing done to
monitor tare
• I \empt labs lining waivct tca>.niietosc<«pic tests no lonpcr have In
ngi;ter «>r he invoked at ail
• I .mailed license practitioners allowed to he added lo microscopic
category;
« More le -ts added l« nailer category
• l:\tsliug personnel piandt.ttlieicd
• Proficiency testing education, with action mil* if cxtremcf\ poor
• Study to modify the cvtolocy profit ietics standard.
» In pet lion lot. its shitted honi all talis; to hiph risV lahs
• Announced inspections arc under review
Inng Urm f Rff
Ifonrf and commtinils caic program for all arcs Included In henefHs
parfage. State* may desir n then riuiimoniti bn*ed <erslccs cittern
Sliding stale co -incur nice required MI|S sits a natloit.ll budget for
home and community based service* and allocates fumls to the stales;
annual Increases generally the same as national hudpet
I. lability Reform
• I'aiients must submit claims through an alternative dispute
resolution (AMR) sxitcm each health plan mud establish u<ing
models developed by national board Complaint may be pursued in
court alter APR
• Suits mirt iuchid" certificate td merit affidavit 'igncd by medical
Specialist lo field relevant to claimed Irqun that care deviated from
established standards
• Attorneys' feels limited In 11 I '}"'- or toncf slate limit. It Imposed
• IIIIS must set Miles bit public access to Info contained in Notional
Practitioner l>ata Mink.
• I ntlatcial source rule recovery aitmunl* must be reduced by
amount received from other source*.
• Tither parly may request awards lo be paid in reri'Mic installments
• Stale enterprise liability demonstration projects receive federal
funds.
- MHS notlinrirrd tn develop pilot pipn.tam to lest eltcctivencss or
limine practice guidelines adopted by the new national qnilily
lii.inaccmcnt program, which is an expansion of the new Maine
experiment Ihysicians demonstrating compliance with puidclincs
not liable. IlltS may vinik with stales to Invest practice guidelines
with the force of law In pilot program.
I lie AMA believes that the (I I A migrant is a COSlh bureaucratic
hurden and should be repealed. Itui II Cl IA must commue. these
provisions arc consistent with changes the AMA believes are
necessary and has been uorllop to bring about.
Apain plating a national hudftl »WI health cate services Is mil
acceptable farther, the need for hmg-lemi caie services will not
be fully, niel unless a program Is established to finance all lone-
term care scrviics. not only home and community care. Due to
the custodial natuic of soch services. lhe*c issues should be
addressed separately .
Ihe President's plan has not met the need to address the
continuing liaMliiv crisis In health caie AMA proposed detailed
Initiatives similar lo actions liken in C alifomla under its MK R.\
law arc needed lo deal with the high costs thai excessive litigation
and awards will only continue in Hie fulurc. Including a S25"MHHi
limit on noncconomic damages and more slrinpent limits mi
attorneys Tees Selling the limit on attorneys fees al 1.1 13
petcent Is no limit al all since this Is Ihe typical share of awards
lli.il attorneys late louo their clients now. We ate also concerned
that health plans and not stales are responsible for establishing
ADR programs: such responsibility should be given lo an impartial
state luilmtitv. Ihe AMA Is also opposed to enterprise liability,
since it d-e* not address the costs ol Ihe liability crisis, only shifts
who pays for liability premiums Providers following clinically
relevant guidelines developed by professional associations should
be allowed to raise such compliance as an alfimtative defense in
liability actions
154
iiiF. rnr.smr.Ni s i-rocram
Antitrust Reform
A Small hospitals nw> m ip- I)')! I !( rmrt pu'dih guideline*
providing safctv enne* n»i hospital mergers am! Joint % intuits,
including the nnalvsls used, noil expedited reviews and ndvlsnrv
opinions
M |M>I I K limit poMMl Guidelines providing sa*etv rnncs lor
plix. *-»*. i tn network ji»int ventures with lc*s than 2*1" Si mail el ■dinrc
and that >ftarc financial irk. with examples «»l acceptable venture*
expedited Imtiricx* tcview pi ntf 1 1 on opinion ptiK'i'tture \\ Hhln
the sflfctv jnncs, phvslrlnns ma? bfl'gnln mllrtthrh with
health plans annul pn _\ mc n i. coverage, decision* about ntcdiral
rare, and nthcr matters without fear of federal enforcement of
the antitrust lam.
t" l>uiing iMi'ilinM. phv sii l.uis niln, i pun liter*: allowed In negotiate
with hcnlih plans narrow sale harhni established to r»rp>»tt.iir
price* it il*c> vhatc financial ii| (nut not imlv fee discounting):
phv slelans prnvldiiig henciit p'tk.ire services ma* enrnhine ,,,
c^i il'tisti or negotiate prit cs il the} share risk and their combined
market Onic is less than 2<t% Ihcsc safe harbors di> not appk In
inipHcllcvpfirll ilirc:H nfhoveoH,
D I">1 I |r must publish guidelines hu appk hip stale action
doctrine, where slates giant antitrust Immnnits to
hospitals institutions
1* t>f Vt-I K' must p*irSti^(i guidelines tie -i ritiinp under existing law
providers ahilltv to cnHcctlvct* negotiate fee sihedulcs «ith the
alliances
t Ittalih insurer*' anli hud exemption under current law is repealed
so they no longer tan collective!* determine Inch rates.
Fraud and Abuse
A l>OMIIIS tnlntlv coordinate federal sinie local fraud and abuse law
cu forte me nt activities.
H ( 'intent Medicate Medicaid anli kkl.hacfc statute expanded In all
pavers; civil mom larx penalties added; exception* in include at-
rkk pa; merits, all "downstream " pavments made to provider in at-
risl plan
(." All sell referrals prohibited, except on at-risk basis
l> 1 1 (trial antivirus Is expanded tr include forfeitures of fraud
pun mis and Mi * lav\ mod ltd after existing matt and bank fraud
law in (.hiding % Ml.fMMI cl*H rnnnclar\ pen diies
T Medic are exclusion piovkion* appk to all health plan*.
I" Standard of knowledge in "known nr shmdd know,"
amas RisruNsr.
these provisions nr ^sufficient in letting nfi>flcbns contpcle in
what will he. nmlci this. plan, a health catc s\<tlem d<>ininaied bs
laipe t"tpni3ie martaprd carr entitles rrniisluns most he
inttmlcd to nlltws phssitiair to icMttii^eb ntpotiaic ssiih these
large entities as well a\ for the AMA and other societies to
oepnli.iie on behalf of ph\sician<
A AttnwriM* small h<o-pilnls t" metpe mas alktw them lo ha\c
domin tot market pttwci in ninsl tomnuiiiilits I urt Ik r
considldatlon "ill md* enhance tins control anj prositlc tar tiM«
nmih lever ipe met phjsieiaits In negotiations
II fj|h>trlincn tor physician nclwofk |oinl venimes ma> In' tKCllri
AMA has pifpoud dtlaMtd pnidcHnct tor --lie hmbrHS lor
plijsiii>ti nrlworkn Clear-cut cvamplcn are needed, inelndinc
etlicieniies associated with clinical patient management using
piaiiicr parameters, ic'crral prt-lotoU lonmrla for cattulatinc
physician market share also needed
C A carchdls craftctl definition is needed for financial risk
sharing, eg. accepting capitation contracts, contrails with tec
withholds related In iitilizaliim pnils, and Investing equil*
mleiest in the nehiofk itself
I) I he state action doctrine should be more brondl) written
f Psclol
r Useful
A Sitppoif el forts tint arc coruptchensive to combat Iraud in
public and private sectors, don t extend I II IS Id aulhrwitv or
civil monc) penalties lo private sector. I HI DO.I ok
fl Appropriate for criminal penalties for intentional kickbacks foi
all pavers
C General!} support l»an on «crT-fcfcnals but need exceptions in
siluatl'-ns where theic Is a demonstrated comrminitv need nnd
where alttruniivc rmaocing unnvailahlc
(1 [oileiltnc <»l proceeds id baud nk. but not RK'O confiscation
Support bank -fraud model.
T Ivchisinn procedures should appb lo all pavers Tor criminal
convklinns except in cases where loss of provider would put
patients at risk of no access The WIS Sectclarv should not
be authorized to exclude pro v Met s ilom ptls&tc plans unless
there Is a criminal convictions or their Is an Immediate and
grave risk of harm In patients Otherwise I he Secicrary could
denj a livelihood f>»r failure to cnmpl) with various
Medii arc Medicaid tulel
I* Standard of knowledge shmdd be "intent to commit fraud" so
that honrsl errors without criminal intent are not handled as
criminal mailers
Medlrare/Rrdurllnni In Rrimhmsf mrnl
A States ma) Inicpraic Medicare hcnelrriaHci into alliitu.es if
coverage Is same or better Alliances must nlfci at least I fce-
for- service option offering Medicare
It Individuals may remain in alliance upon reaching age f»5
C l'av uuni 'in ihod.di-gv to increase pasinent under the Medicare
managed caie program,
I) ftv 7;|/'Wi Medicate will cuvcr ouipuieni prescription drugs
U"dcr fail ft « ith ??5o* dtdut libit", ?""; topay capped al
lltHtfisi I hug m anol.n tiutis inn ( -ip.o nl-Ur agreements fnr
difference helwecit r-tail nin retail markets Reimbursement set
ai nrith peicentHc nl aciu.it charge*
AH | lie AMA <upp<>rt< Mtditarc as a sccond.irx pa>nr. but
benclkiaries 'houM not be hirccd Into other coverage
siiuitioiis II the alliante would impnsc limits on access to
phvsicians nr other ptnvlders henelictnries should be apprised
ol this situation and have the npwirfwnlts hi keep existing
Medicare covrrapc
(' Meditate now gives a hichet level of coverage for care
piovhh'd thioiigh a man aged care cniilv II care Is c<|ua! <o
should Ci\craec and Itc lor- service should he given parilv
l> the AMA supported »hug coverage added as pait nl the
Medicare Catastrophic Coverage \cl I he prhnarv AMA
concern was paiivnt access to die cornpletc range id
drug biological regimens I II IS should not he allowed to limit
such access to certain drugs
155
itiF. 1'iu.sinr.Nrs prim-ram
• Reduction! In reimburse mt nl
r IVIcle volume nnH Intensity from MVPS formula
f I xtahlish cumulative expenditure goals bit pit; sic inn expenditures
fi Reduce Medicate fcc schedule com crslnii litem hy •'"'« In l''"».
with ptnnnr) cntc services exempt
II fclahlish prospective payment Bit hmpil.il outpatient radiology,
surgery, and diagnostic services
I Reduce Hospital Mallei llaxkel Index update hv a further 0 5*1 ii
1997 nml Hi in |9')R-2(i(in
I Retime IMI- Adjustment to 5 65?; in I99S mill Jn-1 in 199(1 ami
Iheieaftei
AMAS RF.SroNSE
K Reduce hospital Inpatient capital payment*
I Pha«c down Disproportionate Share I lovftil.il ad'ilxlmcnl bv I99K
M 1'xpniid cctilcts nf excellence
N lower home licnllli cost limits In I'MP; nf median hv 7/1/99
() (.ompeiiloclv l"il for all I'aii It lab xeivlccx. except in mini
atcax. and nlhci Medicare, services
I' r.xtend Medicare Scenmlaix I'nynr Provisions fur ISRIt pnlicnix
t) Inctctsc Pail It premiums tor individual*! with iiicninc above
tlnniMio ami lor cnuptcx with inennicj above $I25.(HM
R 10% coinsiliancc fur linitie health visits mine than 20 days nflct
discharge: 2»% coinsurance for lab xeixicex
S -Subject all state local employees In III lax
I Set Part It premium into law
Rrdiicllnn; In Medicare rclinliurx'tnenl me un-icrrplahlr. Nnl
nut) ate thrxe savings Inadr <|iinlc In finance hrattlt reform.
tltcx nlll sacrifice Mrdlraie lirntllclarlcx ircrM Id c»r«. Ihe
cuts »i proposed «lll mnllnuf the Iradlllnn of coil shifting
Medicare coxlt to the private sector.
lax Subxldlrt
Intptovcr contributions Invvntd ptcrniliin.'cnst staling of henelit
pa. kare aic lax deductible In lite cnipl">et and tint counted nx inenin
lit lite employer When alliances ntc established, lax rfcihictinn ix
allowed only II cniiiiihiitlon Is mi. Ic iliifirlt nu nllhnc •. Pencil's
exceeding heurlil paclapr ate la'able In lite rmplpy «*e: hut II benefits
pittxided ax of 1/1*9.1, lax picfcicncc allowed for 10 years.
M
Oppose I liininaiiiif iiilunic and Intcnrilv from the MVPS
fittmula presupposes ili-it Ihcse factors arc ncxcr legitimate
occurrences It would penalize physicians fnr pttiptam growth
bey und lltcir cttitlittl
lliicic-'t. II Ihix would prevent annual MVPS ichasing. II
would he al odds with lite migin.il intent in base, in part.
annual update* on initial expenditures
tlppttxc. Ihix Ix attulltci nthitiarv ledllctiull in Medicate lhal
hnx nt) relationship In any likely icduclinn in the cnxl of
pitu idittp caic
(ippuxc Scttine. relnlcd physician services on a prospective
basis places all cciinomic Incentives against patients Ihe
AM A hax long npptixed piuspcctive payment for physician
scivlccs
Oppose, the AMA hixlniicall) hns opposed hospital updates
below die market basket
Oppose I he AMA has supported a 07 reduction In the 7 7%
IMI. adjustment, with a fnllmv-up slud> In dclclllline n
pavment amount nud eqtiiiahle accounting meihiidnluey
Unclear Ihe AMA supported the I)I1IIA-9.1 extension of tltv
eunenl lO** leiliit'llon in pnyments f"r the capital-related com
nf outpatient hospital services which pretltnixlv applied
Ihntiipli I > I'OS. through I "1 I0''* We gcneraM} support
icasonahle pa; incuts fur hospital capital expenditures
I'nclcar litis adjustment mav hecome incrcasinglv
unneccssaiv if Medicare acute cnte coverage Is shllled from
state Medicaid ptogtatns In alliances.
Ilnilcar While lite AMA recognizes that such centers
nnturalK develop etlitits to ninitinrilv establish a center can
nverlool existing tapahtlilies nnd mav stjlic cnmpclition lhal
aeiuill> serves In increase access in care hx decenlializing
cntc sites
I'nclcar. However, hy slttPing p.ivntenl lui these xeivices
ha-.cil on a national median overlooks the highly labor
Intensive nature of the cate pmvided resulting in oserrmyrncnl
and itudcipavmenl for llicxe services based on where the cate
is piov ided.
(ippttse. Medical services, including clinical lab setvlces. ate
Inglilv pcisnnal. ami do npl lend ihcniselves lo competitive
bill Patients should mil have options lot these setvices
limited based on price, ax opposed to quality.
Support
Support
Suppi'it Medicare paymcol of the 20% coinsuiuncc Tor lab
services was cnaclcil as a tpiid pin quo for tcqililing thai these
sen Ices be finrii-licd slriciK on on assigned basis With
application nf coinsurance fot these setvlces. Ihe mandatory
assignment tcquiienienl should be lined
Support
Unclear. Ihe AM \ has supported an income- sensitive Part II
niemiuin and maintaining payment levels lor the premium al e
level to achieve at least the cuncut 2.S% of costs for aged
hcnclli iaries. IWillioul a change lo current law. piemiums
would decicasc in 1999 I
AMA supports a cap on lire tax advantages placed on health
insmani e piciniiims Such a cap eslablishes a limit on tax
support, but continues In allow Individuals Hie right to seel.
additional eioeiage with "licit n'ui alter tax dull us. Such leap
will Improve consumei decision making since expendliuies bevoml
the cap arc not subsidized.
156
The Chairman. Linda Shinn.
Ms. Shinn. Good morning. Mr. Chairman and members of the
committee, I am Linda Shinn, the interim executive director of the
American Nurses Association. We very much appreciate this oppor-
tunity to discuss President Clinton's health care reform proposal.
I would like to summarize my statement and ask that a copy of
my complete remarks be entered into the record.
The Chairman. It will be so included.
Ms. Shinn. Thank you.
The American Nurses Association is the only full-service profes-
sional organization representing the Nation's 2.2 million nurses.
We are pleased and proud to support the Clinton administration's
health care reform proposal.
My remarks today are also on behalf of the following organiza-
tions: the American Association of Critical Care Nurses, the Amer-
ican Association of Nurse Anesthetists, the American Association of
Colleges of Nursing, the Association of Operating Room Nurses, the
Emergency Nurses Association, and the National Nurse Practi-
tioner Coalition.
Mr. Chairman, we commend you on your leadership in health
care reform, and we were proud to support S. 1227 in the 102nd
Congress, one of the first steps in this very important process. And
we thank you for your particular attention to nursing's issues
throughout your leadership with this committee.
America's 2 million registered nurses deliver many health care
services in the United States today in a variety of settings — in hos-
pitals, in nursing homes, in schools, in home health agencies, in
the workplace, in community health clinics, in private practice, and
in managed care settings. Nurses know first-hand of the inequities
and problems with our Nation's health care system. Because we are
there 24 hours a day, 7 days a week, we know all too well how the
system succeeds so masterfully for some and yet continues to fail
so shamefully for all too many others.
Like President and Mrs. Clinton and so many members of Con-
gress, America's nurses believe it is time to frame a bold new vi-
sion for health care. For the last 5 years, nursing has worked to
develop a plan which encompasses the profession's best vision for
a health care system for the future. There are several key features
of nursing's agenda for health care reform that are very similar to
provisions contained in the President's American Health Security
Act.
Like the administration, nursing believes that universal access to
health care services is a principle that cannot be compromised.
Their proposal would ensure that health care would be available
everyone — the uninsured, the underinsured, and the potentially un-
insured. For any health care reform plan to be successful, it is criti-
cal that it address not only access to health insurance, but also ac-
cess to health care services. Under the administration's proposal,
the health care setting could be restructured and reoriented so that
services would be available in schools and in workplaces and in
community settings, as well as in hospitals and in providers' of-
fices. Consumer access to health care services in this process must
be maximized.
157
A cornerstone of nursing's agenda for health care reform has
been the guarantee of a standard health benefits package. This is
a critical point of our agreement with the administration plan
which places new emphasis on primary care and preventive serv-
ices delivered not only by physicians, but also by nurses and other
qualified providers in convenient, accessible settings.
We do, however, have some concerns about the mental health
benefits package, the full integration of long-term care in a re-
formed health care setting, and the schedule of screenings that are
proposed for reproductive nealth cancers.
The expanded role of nurses in a reformed health care delivery
system is apparent throughout the President's proposal. It is an
important element of the plan's emphasis on preventive health
services, which have been the center for nursing practice since the
inception of the profession many, many years ago.
However, the ability of nurses to provide health care services has
been continually hampered by a number of artificial barriers that
serve to cut the consumer off from access. These barriers include
restrictive reimbursement policies and State restrictions on nursing
practice.
The President's plan addresses this problem by preempting bar-
riers to practice, providing States incentives to adopt a Federal
model for nursing practice statutes, and by including payment for
services of advanced practice nurses, such as nurse practitioners,
certified nurse midwives, and clinical nurse specialists.
Consumers have shown their widespread acceptance of these
services and their willingness to continue receiving primary care
services from nurses. A very recent Gallup poll revealed that the
vast majority of Americans, some 86 percent, are willing to receive
many of their everyday health care services from advanced practice
registered nurses that they now usually go to a physician to re-
ceive.
As the focus of the health care delivery site has shifted from
acute care institutions to community-based care, there has been
and will continue to be an increase of hospital mergers and hos-
pital closures resulting from oversupply of beds. While we acknowl-
edge that this change is inevitable, we have been working closely
with the Department of Labor and the White House on their work
force proposals in the health care reform plan, and we commend
the Department of Labor for developing an initiative that provides
assistance to workers before they potentially become unemployed.
Critical work force issues are raised by the health care reform
plan and its effect on employment. Registered nurses are the Na-
tion's single largest group of health care providers, and many of
them will need to be retrained to appropriately staff a new, revised
health system. It is essential, we believe, that a retraining and re-
deployment plan be designed to facilitate that transition. That
transition is critical, and a transition plan is outlined in the state-
ment that has been submitted for the record.
Nursing commends the administration and this committee for its
focus historically on nursing education issues. Funds are needed as
well to support the education and training of primary care nurses,
including in rural areas. We also applaud the administration's pro-
posal to expand the Nursing Education Act. Nursing shares as well
158
with the administration and this committee a commitment to in-
crease the cultural diversity of the health care work force by sup-
porting programs aimed at underrepresented ethnic minority and/
or disadvantaged persons.
Mr. Chairman and members of this committee, thank you for
this hearing and for your diligent efforts to find solutions to the
health care crisis. We appreciate this opportunity to share our
views with you and look forward to the continuing work ahead as
all of us move toward comprehensive health care reform.
Thank you.
The Chairman. Thank you very much.
[The prepared statement of Ms. Shinn follows:]
Prepared Statement of Linda Shinn
Mr. Chairman and members of the Committee. I am Linda Shinn, MBA, RN,
CAE, Executive Director (Interim) of the American Nurses Association (ANA).
Thank you for inviting us to testify today on President Clinton's health care reform
proposal.
The American Nurses Association is the only full-service professional organization
representing the nation's two million registered nurses including staff nurses, nurse
practitioners, clinical nurse specialists, certified nurse midwives and certified reg-
istered nurse anesthetists. ANA advances the nursing profession by fostering high
standards of nursing practice, promoting the economic and general welfare of nurses
in the workplace, projecting a positive and realistic view of nursing, and by working
closely with the U.S. Congress and regulatory agencies on health care issues affect-
ing nurses and the public.
Access to high quality, affordable health care is of concern to millions of Ameri-
cans— not only to the over thirty seven million who are uninsured, but to the grow-
ing number of currently insured who fear that changing or losing their jobs will re-
sult in loss of coverage or that skyrocketing costs will make their dependent's cov-
erage or their own out-of-pocket health care costs unaffordable.
We are also testifying on behalf of the:
• American Association of Critical Care Nurses (AACN), the largest specialty
nursing association in the United States with over 73,000 members who are
dedicated to the welfare of people experiencing critical illness or iniury. AACN
has pledged its strong support of the Clinton Administration's health care plan;
• American Association ol Nurse Anesthetists (AANA), the professional society
that represents over 24,000 certified registered nurse anesthetists (CPNAs),
which is 96 percent of all nurse anesthetists who practice across the United
States. AANA's Board has voted to support the Clinton Plan;
• American Association of Colleges oi Nursing, with over 432 members offering
baccalaureate, master's, and doctoral nursing education;
• The Association of Operating Room Nurses, Inc., the professional organization
of perioperative nurses dedicated to enhancing the professionalism of
perioperative nurses, promoting standards of perioperative nursing practice to
better serve the needs of society and providing a forum for interaction and ex-
change of ideas related to perioperative health care;
• Emergency Nurses Association, the voluntary membership association of over
21,000 professional nurses committed to the advancement of emergency nursing
practice; and
• National Nurse Practitioner Coalition, a group of nurse practitioners who ad-
vocate for universal access to basic health care and the removal of barriers to
consumer access to nurse practitioner care.
Mr. Chairman, we commend you on your leadership on health care reform and
we were proud to support S. 1227 in the 102nd Congress as one of the first steps
in this process. We thank you for your attention to nursings' issues throughout your
leadership with this Committee.
America's two million registered nurses deliver many essential health care serv-
ices in the United States today in a variety of settings — hospitals, nursing homes,
schools, home health agencies, the workplace, community health clinics, in private
practice and in managed care settings. Nurses know firsthand of the inequities and
problems with our nation's health care system. Because we are there — twenty-four
159
hours a day, seven days a week— we know all too well how the system succeeds so
masterfully for some, yet continues to fail shamefully for all too many others.
Nurses see people on a daily basis who are denied or delayed in obtaining appro-
priate care because they lack adequate health insurance or are unable to pay for
care. These people often postpone seeking help until they appear in a hospital emer-
gency department in an advanced stage of illness or with problems that could have
been treated earlier in less costly settings or, more appropriately, prevented alto-
gether with earlier treatment or prevention services.
Delayed access to needed care is associated with problems of increased morbidity
and mortality as well as countless hours of lost productivity in the workplace. In-
fants and children, pregnant women, the frail elderly, people with persistent health
problems, rural and inner city residents and minorities are disproportionately rep-
resented among these most vulnerable uninsured groups. Their complex and diverse
needs are not met by the existing system.
Nursing is concerned by the failures in our current health care system. More than
37 million people have no health insurance and millions more are critically
underinsured. our health care systems are oriented toward expensive interventions
to treat illness, rather than essential health services designed to promote and main-
tain health. As a nation, we have failed to develop appropriate ways to allocate
available health care resources and services. Unfortunately, the burden of the re-
ality of the failures of our health care system are disproportionately felt by vulner-
able segments of our nation's population. This includes the very young, the very old,
the poor, the illiterate and those who live in rural and frontier communities and
low-income urban communities. » • »
Like President and Mrs. Clinton and so many Members of Congress, America s
nurses believe that it is time to frame a bold new vision for reform— one that keeps
what works best in our current system, but casts aside institutions and policies that
fail to meet present and future needs— a plan that addresses the triad of problems
that exist in the current system: inequitable and limited access, soaring costs and
inconsistencies in quality and appropriateness of care delivered.
NURSINGS AGENDA FOR HEALTH CARE REFORM
For the last three years, nursing has worked to develop a plan which encompasses
the profession's best vision of a health care system for the future. To ensure that
all areas of specialty practice (i.e., critical care, operating room, emergency nurse,
nurse practitioner and other advanced practice nurses, etc.) and unique geographic
differences were sufficiently represented in the development of this plan, ANA con-
vened a special task force of nursing experts. They evaluated the current health
care system in the United States, as well as those of other nations, and subse-
quently developed a plan for reform that is uniquely American.
To date, in addition to ANA's state and territorial associations, more than 80 na-
tional nursing and health-related organizations have endorsed this^ proposal for
health care reform, entitled "Nursing's Agenda for Health Care Reform .
Nursing defines the health care crisis in terms of the need to restructure, reorient
and decentralize the health care system in order to guarantee access to services,
contain costs and ensure quality. Fundamental restructuring must occur because
patchwork approaches have failed. Health care reform must be comprehensive and
not limited to addressing only one or two components of the problem. Nursing's pro-
posal does not define the problem only in terms of the uninsured or underinsured;
rather, it addresses the health care needs of the entire nation.
"Nursing's Agenda for Health Care Reform" calls for building a new foundation
for health care in America while preserving the best elements of the existing sys-
tem. Influencing the direction of health care reform is a complex, demanding task.
Nurses know, however, that in order to preserve the health and well-being of our
country and its people we must make important, fundamental changes in how.
where and to whom health care is delivered.
Today, America's two million registered nurses are united in urging that the na-
tion's health care system be cured . . . and cured now. We must reshape and redi-
rect the system away from inappropriate use of the expensive, technology-driven,
hospital-based models we currently have. A balance must be struck between high-
tech treatment and prevention. It is nursing's belief that the system must empha-
size and support health promotion and disease prevention and show compassion for
those who need acute and long-term care. n
Among the basic components of "Nursing's Agenda for Health Care Reform are
the following:
• universal access for all citizens and residents provided through a restructured
health care system;
160
• a federally-defined standard package of health care services including preven-
tive, pre-natal, well-child, mental health, acute and short duration long-term
care services;
• guarantees that coverage is provided for the poor with a plan administered
by the states in order to anticipate the health care needs and changing demo-
graphics of the population. Elimination and restrictions on co-payments and
deductibles for those near or under the poverty level;
• an employer mandate to ensure that all employed persons have access to
health insurance with a standard benefits package;
• a shift in focus to provide a better balance among treatment of disease, health
promotion and illness prevention such as coverage for immunizations, prenatal
care, and health screening which has proven effective in preventing costly and
devastating disease (e.g., colorectal ana testicular exams, pap smears and mam-
mograms);
• enhanced consumer access to services by delivering primary health care in
community based settings. The new system would facilitate utilization of the
most cost-effective providers and therapeutic options in the most appropriate
settings;
• Steps to reduce health care costs, such as: ensuring consumer access to a full
range of qualified health care providers; providing early treatment and preven-
tion services at convenient sites, such as schools, the workplace, and other fa-
miliar community settings; reducing defensive medicine ana unnecessary prac-
tices; controlled growth of the health care system through planning and prudent
resource allocation; and elimination of unnecessary bureaucracy and decreased
administrative requirements through the use of uniform claim forms and elec-
tronic billing;
• utilization of case management for people with continuing health care prob-
lems to promote active participation in their care and reduce fragmentation of
the health care system;
• provision of long-term care services of short duration and in addition to a pro-
gram of extended care in order to prevent personal impoverishment. This pro-
posal will require more shared community responsibility for care. It will prevent
impoverishment due to extended long-term care needs;
• insurance reforms are required to ensure improved access to coverage, includ-
ing community ratings, affordable premiums, reinsurance pools for catastrophic
coverage and other proposals to assist the small group market;
• access to services are ensured by no payment at the point of service and
elimination of balance billing in all health plans.
There are several key features of "Nursing's Agenda for Health Care Reform" that
are very similar to provisions contained in President Clinton's "American Health Se-
curity Act".
Universal Access
Like the Clinton Administration, nursing believes that universal access to health
care services is a principle that can not be compromised. The Clinton Administra-
tion proposal woula ensure that health care would be available to everyone — includ-
ing those who are now uninsured, underinsured and those who are potentially unin-
sured.
For any health care reform plan to be successful, it is critical that it address not
only access to health insurance, but also access to health care services. Under the
Clinton Administration's proposal, the health care setting could be restructured and
reoriented so that services would be available in schools, workplaces and community
settings as well as in hospitals and providers' offices. Consumer access to health
care services must be maximized. Consumer education must be prioritized to foster
increased awareness and responsibility for personal health and self care and to pro-
vide a greater capacity for informed decision making in selective health care serv-
ices. In addition, criteria for outcomes of care should reflect the joint perspective of
both the health care consumer and the health care provider.
The plan's emphasis on preventive and primary care services is also crucial, be-
cause it means that consumers will have a relationship with a primary care pro-
vider including nurses, nurse practitioners, certified nurse midwives, etc., that be-
gins when they are still well — so that disease can be prevented whenever possible
and so that the provider will be able to intervene earlier, to minimize the severity
of illness.
We commend the Administration's plan for recognizing that there will be a greatly
increased need for primary care providers in order to ensure access to care and for
addressing this need in a comprehensive manner. The plan calls for increased fund-
ing for primary care providers — including advanced practice nurses such as nurse
161
practitioners, clinical nurse specialists and certified nurse midwives. It also calls for
removing barriers to the practice of these advanced practice nurses so that consum-
ers' access to these much-needed services is not restricted.
We applaud these moves because they will greatly assist in achieving the goal of
universal access to care. The role of nurse providers is very important to the issues
of access to high quality health care. The health care system will need a substantial
increase in hours of care of these providers.
We are also extremely pleased to see that the Administration plan has addressed
the need for increased access to services in rural areas by creating incentives, in-
cluding financial incentives for health care providers to serve in those areas. Again,
nurse providers can play a key role in treating the newly insured populations under
health reform. One of the mechanisms that the Administration is proposing to in-
crease access to health care in rural areas is the expansion of the National Health
Service Corps. Nursing applauds the Administration for proposing a 20 percent set
aside within this program for providers other an physicians.
As the members ofthis Committee know, there is a growing trend in this country
toward part-time and intermittent employment. Unfortunately, such employment
status has often meant foregoing benefits, including health insurance benefits.
Women comprise the majority of these part-time employees. Nurses have not been
immune to this trend, and nursing associations are very concerned about it. Increas-
ingly, nurses in both full-time and part-time employment are losing their employ-
ment benefits including health insurance. We know of registered nurses employed
full-time at $ 10.00 per hour and with no health care benefits. Their salary does
not permit purchase of individual insurance. Guaranteeing health insurance to all
employees is something that is of great importance to nurses both as health profes-
sionals and as employees.
Standards Benefits Package
A cornerstone of "Nursing's Agenda for Health Care Reform'' has been the guaran-
tee of a standard health benefits package. We are gratified that the Administration s
proposal provides a guaranteed package of benefits, emphasizing a broad scope of
quality health services, not just treatment of disease. It supports school-based clin-
ics, enhanced services for underserved populations and health education. It includes
such critical elements as home-based care and public health initiatives and also
takes an important step toward addressing the growing need for better and more
accessible long-term care services. In addition, the Administration's package in-
cludes such important preventive services as immunizations, screening and prenatal
care. It places new emphasis on primary care and preventive services delivered not
only by physicians, but also by nurses and other qualified health care providers in
convenient, accessible settings. ....
By including services that are geared toward preventing and minimizing disease,
the Administration's plan can save the health care system immense amounts of
money and ensure a healthier population. One of the clearest examples of preven-
tive care saving long term costs in the health care system is the provision of pre-
natal care. Numerous studies have shown that receipt of adequate prenatal care is
associated with the improvements in pregnancy outcome, particularly a reduction in
the risk of low birth weight infants. Health care costs for newborns is significantly
lower for babies with mothers who have had adequate prenatal care. In one study
in Missouri, adequate prenatal care during pregnancies resulted in a savings of
$1.49 for each extra $1 spend on pre-natal care.
We urge the Committee to act to ensure that full and complete reproductive
health services are available to women and that preventive screening services, such
as mammograms and Pap smears, be available in intervals that are sufficient to de-
tect disease in a timely fashion. Prevention screening for breast and cervical cancer
literally saves thousands of lives. The incidence of breast cancer in the United
States approximates 150,000 women per year and about 44,000 of those women will
die of the disease. Early detection of breast cancer is important because survival is
directly related to tumor size and lymph node status. Small, non-palpable cancers
found by screening mammography have a 10-year survival rate of 95 percent. When
nodes are involved, the survival rate drops to 53 percent or less. Currently, the ma-
jority of breast cancers are detected at this latter stage.
THE ROLE OF THE NURSE PROVIDER
The expanded role of nurses in a reformed health care delivery system, including
advanced practice nurses such as nurse practitioners, is apparent throughout Presi-
dent Clinton's proposal. It is an important element of the plan's emphasis on pre-
ventive health services — services which have been at the center of nursing practice
since the inception of the nursing profession. Nurses are key providers in acute care,
162
school and community health clinics, in home care, hospice care and ambulatory
care, all of which are part of the package of benefits to be available under the Presi-
dent's plan.
Nurses, including advanced practice nurses, are well-positioned to fill many of the
current gaps in accessibility and availability of primary and preventive health care
services. There are over 100,000 advanced practice nurses with advanced education
and training in providing primary care services. As many as 300,000 additional
nurses could be prepared to provide such services with additional training.
Virtually every study of patient care provided by providers other than physicians
has concluded that these providers can deliver services of the same quality as physi-
cians at lower costs. To meet the estimated additional 64 million nonemergency am-
bulatory care visits under a universal access health care system, 9,000 additional
feneral and family practice physicians would be required at an office expense of
2.1 million. Alternatively, less than 17,000 nurse practitioners, could provide the
same level of services at a similar level of quality for about $1.5 million, a savings
of 25 percent.
For example, in Philadelphia, a new model for home care of very low birth-weight
infants is run by a group of certified nurse specialists. This project yields the same
health outcomes as those generated by physicians, but at an average savings of over
$18,000 per infant.
A family nurse practitioner in Washington, Kansas directs a clinic serving the
critically underserved, as defined by the Kansas Department of Health and Environ-
ment. The physician director of this clinic left in 1986, and the clinic subsequently
lost its Federal funding. At this time, the clinic is being leased by a country hospital
from a non-profit corporation and has contracted with the advanced practice nurse
to run the clinic which includes eight exam rooms and is fully equipped. Since a
physician is not on the premises, the advanced practice nurse needs to be eligible
for direct reimbursement of her services. As she serves in a rural area, she became
eligible for reimbursement under Medicare in 1991. She also works through the
Kansas Blue Cross and Blue Shield office, the state Medicaid Bureau, and other pri-
vate insurers to obtain reimbursement under each of their systems. Currently, in
the town of Washington, Kansas, there is only one family physician and only three
physicians in the entire county. The nurse run clinic is essential to providing the
citizens of Washington, Kansas with health care services.
The Marriott Corporation has a nurse-managed program that administers a
multi face ted approach to work site health care including primary, secondary and
tertiary care. Marriott estimates that with the services oi each nurse, the company
saves $250,000 per year in health care costs and lost productivity. Occupational
health nurses work as employee advocates handling worker's injuries and collabo-
rating with physicians to make sure injured workers receive appropriate care as
well as providing primary and preventive care to ensure workplace safety.
The Department of Labor is currently using registered nurses as case managers
for workers compensation cases. The use of registered nurses has enabled the par-
ticipating states to reduce case backlog and has facilitated earlier rehabilitation and
return to work of the injured employees.
In Spencer, Iowa, a program entitled The Northwest Aging Association's Parish
Nurse Project" provides health education, resources and referral to elderly persons
and facilitates implementation of volunteers and support groups. These interven-
tions have provided assistance which has allowed 118 of the elderlv in Spencer to
remain in their homes — a cost savings to both the families and the health care sys-
tem.
In Chicago, there is a program called the Beethoven Project. This program occu-
(>ies 10 renovated apartments in a Chicago public housing project which has a high
evel of poverty and crime. Comprehensive services, such as primary health care,
Head Start, and a full-time child care center in addition to drop-in counseling, psy-
chological consultation and care management are provided by the nurse directors.
Nursing centers with nurse practitioners in 17 nursing centers in southern Ari-
zona provide health care to about 6,500 patients each year, including many tradi-
tionally underserved and at risk populations (e.g., especially senior citizens, His-
Ranics, and Native Americans). For a half day each week, the Community Nursing
fetwork sets up health centers in churches, recreation centers, physicians' offices,
and retirement communities. Registered nurses manage 25,000 visits each year, per-
forming physicals, treating minor illnesses, and monitoring chronically-ill patients.
These programs provide free care for those with no insurance coverage.
However, the ability of nurses to provide health care services has been continually
hampered by a number of artificial barriers that serve to cut the consumer off from
access to services provided by these competent and qualified health providers. These
barriers include restrictive reimbursement policies hy Federal and state programs
163
and private insurers. They include irrational restrictions on nursing practice such
as physician supervision requirements by laws and regulations at the state level.
We have a Medicare program that denies payment for needed health care services
by nurse practitioners or clinical nurse specialists in non-rural areas, including un-
derserved urban areas. The laws regarding reimbursement for advanced practice
nurses are complicated and convoluted as to which categories of advanced practice
nurses may be reimbursed, in what geographic areas, who may be paid and whether
or not collaboration with other health providers is required. They are confusing and
complex enough, to carrier, provider and consumer alike, as to provide a barrier to
access to these services in and of themselves. In addition, there are state Medicaid
programs that deny reimbursement to certified registered nurse anesthetists and
many categories of nurse practitioners and clinical nurse specialists, even when they
are the only providers willing to furnish services to underserved Medicaid recipi-
ents. Laws and regulations in many states put unneeded restrictions on the practice
of nurses, including advanced practice nurses, to provide services to patients, to pro-
vide routine care and medications, to bill insurance companies, operate a private
practice, obtain clinical privileges or admit patients to a hospital.
For example, in Vancouver, Washington, one nurse practitioner provides health
screening, immunizations and other services to over 2,000 poor children in five
inner-city schools which she visits weekly in her mobile van. In other state such as
Illinois, this nurse practitioner could not perform these services, as state law would
prohibit her from being directly reimbursed by Medicaid.
Inconsistent state restrictions on prescriptive authority for advanced practice
nurses is another barrier to health care and promotes the costly use of an additional
provider.
In addition to the general examples of barriers to practice just noted, there are
three specific Medicare reimbursement barriers to practice that exist for certified
registered nurse anesthetists (CRNAs). First, the current Medicare conditions of
payment for anesthesiology services that anesthesiologists must meet in order to be
paid for Medicare for medically directing a CRNA, restrict CRNAs from performing
all the components of an anesthesia service that they are legally authorized to per-
form. For example, some anesthesiologists insist on performing the anesthesia in-
duction on all patients themselves, then leaving the CRNA to finish the case. Sec-
ond, the current Medicare hospital condition of participation for anesthesia services
and the Medicare ambulatory surgical center condition of participation for coverage
for surgical services restrict CRNA practice by requiring physician supervision of
CRNAs. Third, the current Medicare regulation on payment for the services of
CRNAs states that if a CRNA and anesthesiologist work together on one case, the
anesthesiologist may bill the case as if he/she personally performed it and receive
100 percent of the Medicare payment. No Medicare payment is typically made to
CRNA involved in such a case, even if the CRNA was the provider actually admin-
istering the anesthesia to the patient.
Nurse managed units within acute care settings are also both cost effective and
provide quality care. For example, nurse managed units are proving to be very suc-
cessful in managing patients being weaned from respirators. In addition, studies
have documented the positive outcomes demonstrated t>y the use of neonatal nurse
practitioners with low birthweight infants.
The President's plan would address the problem of artificial restrictions on nurs-
ing practice by preempting such barriers to practice, providing incentives for states
to adopt a federal model for nursing practice statutes, and by including payment
for services of advanced practice nurses. It is our understanding that the Adminis-
tration plans to shore up these provisions by ensuring that advanced practice nurses
do not face exclusion or other discrimination by health plans and by extending Med-
icare coverage to the services of nurse practitioners and clinical nurse specialists in
all settings.
Just as nurses throughout the United States have demonstrated their ability to
provide high quality, cost effective and accessible health services, consumers have
shown their widespread acceptance of these services and their willingness to con-
tinue receiving primary care services from nurses. A recent Gallup poll revealed
that the vast majority of Americans (86 percent) are willing to receive everyday
health care services from an advanced practice registered nurse that they now must
go to a physician to receive. Only twelve (12 percent) percent said they would be
"unwilling^ to go to a registered nurse. Nurses are currently working with
consumer-oriented organizations in order to promote shared principles of health care
reform. We are confident that as the American public becomes more familiar with
the primary care services that nurses can provide, and as more Americans have an
opportunity to receive such care from nurses, that the "unwilling" category will de-
crease sharply. In fact, we believe that, based on the experiences of advanced prac-
164
tice nurses in HMO, clinic, and private practice settings, more and more Americans
will identify nurses as their provider from whom they select to receive primary care
services.
QUALITY ISSUES
As health care reform becomes a reality, hospitals and other health care institu-
tions will experience increasing pressure to contain costs. As the focus of the health
care delivery site shifts from acute-care institutions to community based care, there
will be an increase of hospital mergers and closures of hospitals resulting from an
oversupply of beds. It is anticipated that some hospitals will specialize and others
will integrate services such as home health and nursing homes.
Nurses have had an opportunity to experience first-hand what many hospitals do
when they face pressure to cut costs. In the last few years, nurses have grown in-
creasingly alarmed at the wholesale reduction in quality of care that many hospitals
have initiated in the name of cost-savings and cost-efficiency. Numbers of nurses
have been cut and nurses have been laid off. In their place, hospitals have hired
unlicensed, semi-skilled personnel, often trained by the hospitals themselves in brief
training courses. While the use of unlicensed personnel to assist registered nurses
is not new, hospitals in the last few years have greatly expanded the use of these
Eersonnel, both in numbers and in the range of functions they perform. This has
appened at a time when, due to a number of factors, the severity of illness of the
hospitalized patient population has increased significantly. As a result, registered
nurses find themselves caring for and supervising care for ever-greater numbers of
increasingly sick patients. This has meant a continual downgrading of care for pa-
tients, one which poses a real risk to their health and safety while hospitalized.
Many hospitals have openly stated — threatened, if you will — that they will in-
crease the trend toward downward substitution if health care reform is enacted. We
consider this not only a threat to nurses, but also to the patients we care for — pa-
tients who literally entrust their lives to the hospitals. We believe that hospitals
must adhere to strict quality controls if patient care is to be protected. Hospitals
should not be permittee! to sacrifice patient care in the name of cost efficiency. We
have received every indication that the Administration will work to institute mecha-
nisms to protect and ensure safe, quality care both in the long run and in the period
of transition to a reformed health care system. These mechanisms will include the
development of patient outcome measures as well as, in the immediate period, cri-
teria that monitor changes in hospital staffing and patient care delivery patterns
to ensure that patient care is not compromised.
THE HEALTH CARE WORKFORCE
Nursing has been working with the Department of Labor and the White House
on their workforce proposals in the health care reform plan. We commend the De-
6 ailment of Labor for developing an initiative that provides assistance to workers
efore they potentially become unemployed. Nursing supports their concept of devel-
oping a National Institute for Health Care Workforce Development in order to have
a mechanism to analyze the workforce needs of a new health care system.
Critical workforce issue are raised by the health care reform plan and its effect
on employment. Within the health care industry, there will be impacts based on the
types of jobs individuals hold. Nurses are the single largest groups of health care
providers. It is estimated that fully two-thirds of the nation's registered nurses will
need to be retrained to appropriately staff a revised health system. Although we are
optimistic that nurse displacement will be short term, it will be essential that a re-
training and redeployment plan be designed to facilitate that transition. Nursing be-
lieves that the transition plan must include a series of interim quality protections
that safeguard patient care and provide for retraining and redeployment of health
care personnel. The decision of hospitals and other institutions to significantly alter
staffing levels, mix or re-ploy personnel should be guided by several basic principles:
• Advanced public disclosure of the intention to merge, close, or significantly re-
deploy personnel;
• Involvement of consumers and affected professional personnel in development
and implementation of educational programs and other means for redeploy-
ment;
• Evaluation and report to health care consumers;
• Analysis of the impact of the redeployment on patient outcomes and other
quality care indicators; and
• Assurance that re-deployment plans use professional personnel in accord with
licensure laws, educational preparation and assessed competence.
165
In addition, a national transition plan for the health care workforce should con-
tain, at a minimum:
• Retraining and relocation programs to prepare personnel to assume positions
in primary health care, public health, and critical care across a variety of health
care delivery settings;
• Use of conversion boards to assess the opportunity for the hospital or institu-
tion to be converted to some other use in order to keep the jobs in the commu-
• Institution of training programs on "How To Start A Business" and access to
small business loans in order to encourage nurses and other providers to estab-
lishment small community health care clinics to benefit their communities;
• Pre-notification to providers and the community of any hospital closure or
merger;
• Continuation of health and pension benefits for health care personnel;
• Continuation of HIV disability coverage;
• Limits on discounting health care services to prevent cost shifting; and
• Annual public reports about the impact of major institutional changes in
staffing levels, mix, or deployment on the quality of care delivered.
The situation of a re-focused health care workforce must be monitored very care-
fully throughout the transition period and into the enactment of health care reform.
Should there be significant increases or changes in morbidity or mortality rates or
increases in adverse occurrences (i.e., falls, infections, medication errors) or other
indicators of change in the quality of care in hospitals, then more aggressive steps
to ensure quality patient care will need to be enacted such as a decertification or
fine system for hospitals not complying with quality standards.
We understand that the Administration's health care proposal contains many of
these provisions to provide a workforce transition plan for health care personnel.
Nursing cautions, however, that training opportunities envisioned for low skilled
workers in the health care industry (clerical and administrative support positions)
may inadvertently increase the pool of another group of low skilled workers (such
as nurses' aides, nursing technicians, nursing assistants). Nursing is concerned that
any emphasis on short-term and on-the-job training as well as the use of the term
"higher value added health care jobs" without defining such jobs will increase the
number of low skilled health care providers. This goal neither meets the health care
needs of the nation, or is in the best interest of these workers, most of whom are
women. Rather, increasing the pool of professional health care providers is critical.
Another issue associated with a decreasing demand for hospital based nurses is
the possible decline in nursing wages. To minimize this downward pressure on
wages, the current and future supply of nursing labor must be channeled away from
settings with decreasing demand and into high growth areas. To maximize nurses
earnings and avoid serious imbalance in the supply and demand for nurses, a spe-
cific plan to systematically assess, manage and evaluate the recruitment, education
and utilization of nurses is needed.
NURSING EDUCATION
Health care reform will require a refocusing of knowledge and skills for nursing
faculty and future nurses. With greater emphasis on prevention and early interven-
tion, as well as a decreased need for acute care nurses, nursing education will need
to be re-focused on primary health care and the management of acute minor illness
and complex chronic diseases. Skills in case management, discharge planning, su-
pervision of health personnel, and financial planning will be essential. Fortunately,
many nurses are skills in these vital areas, but many more will be needed.
The trend that will occur in a health care reform environment which is of most
significance to nurses is the shift in balance between episodic, high cost, specialty
focused, hospital based tertiary care to primary and preventive care delivered in a
range of ambulatory care settings by a variety of practitioners. This shift is already
occurring, as witnessed by the rapid growth in home care and ambulatory care serv-
iocs*
Since World War II, the majority of nurses have been educated for and employed
in hospitals. Significant educational efforts on both the part of individual nurses and
the health system are now needed to focus on the delivery of primary health care
services. The Administration has included several health provider education initia-
tives in their proposal. Under their pian, the Secretary of Health and Human Serv-
ices will determine the estimated need of nurse workforce and advance practiced
nurses needed to meet the current health care demands of the nation. This will be
based on the workforce estimates developed by the National Council on Nurse Edu-
166
cation and its allocated regional councils. To fund nurse education, new programs
need to be established to increase the supply of nurses.
According to the National Sample Survey of Nurses (1988), there are approxi-
mately 125,000 registered nurses working in physician offices, freestanding clinics,
ambulatory surgical centers, health maintenance organizations and other ambula-
tory care settings. In addition, there are approximately 11,000 registered nurses
working in community/public health settings, 48,000 in school health, and another
22,000 in occupational health. With the appropriate funding support, this pool of
generalists nurses could begin to rapidly increase the nation's supply of primary
care providers.
Nursing commends the Administration for its increased focus on nurse education
issues. It is clear that the United States health care system has an increasingly ur-
gent need for primary care providers. Immediate funding must be made available
to strengthen existing advanced practice nurse programs and to establish new pro-
grams to prepare the primary care providers so urgently needed.
The Administration s plan would shift the funding emphasis under Graduate Med-
ical Education from specialty physicians to primary care physicians. Advanced prac-
tice nurses will be increasingly needed to fill the future gap created in this shift
in medical education. For example, a reduction in the supply of physician anesthe-
siologists will require increased funding to educate a greater number of certified
registered anesthetists.
Nursing has specifically recommended that an amount equal to 10 percent of di-
rect Graduate Medical Education (GME) funds bepooled from all insurers and be
used in a manner similar to that used in the GME program for physicians. These
funds would be allocated to support the education ana training of primary care
nurses and specialty advanced practice nurses, such as certified registered anes-
thetists, who will be needed in greater numbers under the Administration's plan by
allowing reimbursement of providers for faculty costs and student stipends through
GME. This program would enable hospitals to maintain quality service and cost ef-
fectiveness within the constrains of the new system. This new program could be
funded by a combination of Medicare contributions and a surcharge on health pre-
miums. Because of the importance of advanced practice nurses to the delivery of
care, a constant stream of dollars is needed to support the education and training
of these providers on a basis similar and equal to resident physicians. Nursing be-
lieves that this fund must be in addition to the current Nurse Education Act pro-
gram. ,, ,
We applaud the Administration's proposal to also expand The Nurse Education
Act for the purposes of retraining nurses to meet the new health care needs of the
nation as well as expand the supply of nurses. Increases in the number of graduate
programs which focus on primary care as well as increases in the capacity of current
graduate funding programs will be necessary under a reformed health care system.
Funds are needed to develop retraining opportunities for nurses who are forced
to leave the tertiary care workforce for community, primary and preventive care
practice areas including post-master's certificate programs to enhance the primary
care skills and abilities of clinical nurse specialists and other master's prepared
nurses. BSN programs will need to be expanded to assist the diploma and associate
degree nurses employed in acute care settings to rapidly obtain a BSN in order to
enhance their community, public health and/or critical care knowledge and skills.
In addition, hospitals will need assistance to provide continuing education to acute
care nurses for acquisition of community care nursing skills. These BSN assistance
programs and continuing educations programs are essential in order to prepare
nurses to make the transition from hospital to community based nursing care.
In addition to preparing primary care providers and other nurses, it is also of im-
portance to ensure that there is an adequate supply of nurse educators, both at the
undergraduate and graduate levels of education. Existing nursing faculty may need
additional training themselves in order to become nurse practitioner and other ad-
vanced practice nurse educators.
Nursing strongly supports the Administration's stated intention to increase the
cultural diversity of the health care workforce by supporting programs aimed at
under-represented ethnic, minority and/or disadvantaged persons. The proposal sup-
ports efforts to recruit and retain students to nursing and other professions and to
increase the number of minority faculty and researchers in the health professions.
RESURGENCE OF THE PUBLIC HEALTH SYSTEM
Increased funding for public health programs at a state level is critical to the fu-
ture health and well being of a diverse population. The Administration's proposal
coordinates the delivery of personal health care services through state alliances with
167
the delivery of public health services in order to reach the common goal of improv-
ing the health of the American population.
Nursing endorses the Administration's proposal to repair, strengthen and consoli-
date essential Federal, state, and local public health services. The plan s focus would
help to restore the original mission of public health programs to engage in commu-
nity prevention rather than direct delivery of health services. The plan would sup-
port such core public health activities as data collection; surveillance and monitor-
ing; protection of the environment, housing, food, and water; and disease investiga-
tion and control. #
We applaud the inclusion of a strong public information and education component
to mobilize communities and motivate individuals to reduce risks to health. Nursing
stands ready to lead community and individual efforts to reduce some of our dead-
liest and costliest health risks— tobacco use, drug and alcohol abuse, sexual activity
that increases the prevalence of HIV infection and other sexually transmitted dis-
eases, inadequate or poor nutrition, physical inactivity, and the lack of childhood
immunizations.
REMOVING BARRIERS TO PRACTICE
One of the key features of the Administration's proposal is the elimination of anti-
competitive practices in the health care industry would be to ensure that health pro-
viders are treated equitably within the health system by removing barriers to prac-
tice. In discussing how this can best be achieved, nursing has stressed aggressive
enforcement of anti-trust guidelines and a reiteration of their commitment to en-
couraging competition in the health care marketplace.
Nursing encourages this Committee to develop a new health system that will com-
pel all business entities to treat all health providers in accordance with the legal
scope of their practice and will review all actions taken by corporations working
within a health plan, especially when they adversely impact upon one class of
health professionals.
ADMINISTRATIVE SIMPLIFICATION AND COST SAVINGS
Nurses throughout the nation breathed a collective sigh of relief when the Presi-
dent outlined the need to simplify the mounting paperwork 'and other administra-
tive requirements that burden our health care system. We know firsthand what a
waste of professional time these requirements can represent. Too often, nurses are
forced to take time away from patient care and devote it to filling out forms. It has
been estimated that a staff nurse fills out an average of 19 forms per patient. Thus,
we applaud the President's proposals to pare down and simplify paperwork and
other wasteful administrative requirements.
However, we need to draw a distinction here between completion of insurance
forms and other activities that serve little other than facilitating the flow of paper-
work and bureaucracy, and efforts that do facilitate maintaining and improving
quality and patient care standards. The Administration's proposal would emphasize
data collection that is related to quality of care, development of outcomes criteria
and other activities that are directly relevant to patient care. As health care profes-
sionals, we regard this as important and necessary. The distinction we make is be-
tween needless and endless paperwork and the collection of patient care information
that leads to continuous improvement in the quality of care. We are more than
happy to give up the former and opt for the latter.
Nursing also supports the greater use of community rating, eliminating pre-exist-
ing conditions as a way for insurance companies to reject higher-risk individuals
and limiting an individual's out-of-pocket expenses following a catastrophic health
event.
CONCLUSION
Mr. Chairman, we commend the Committee for holding this hearing and for work-
ing so diligently to find solutions to the health care crisis. We appreciate this oppor-
tunity to share our views with you and look forward to continuing to work Svith you
as comprehensive health care reform legislation is developed.
Thank you.
The Chairman. Dr. Lawrence.
Dr. Lawrence. Mr. Chairman, members of the committee, good
morning — well, I guess it is morning in Texas; it is afternoon here.
My name is Leonard Lawrence. I am a 1962 graduate of Indiana
University School of Medicine. I am a child psychiatrist by training
168
and a community advocate by choice. I have been a faculty member
of the medical school of the University of Texas Health Science
Center at San Antonio since 1972, and I am currently associate
dean of student affairs and professor of psychiatry, pediatrics, and
family practice at that institution.
I am here today in my role as president of the National Medical
Association, the organization which represents the interests of this
Nation's 17,000-plus African American physicians. Since 1895,
NMA has been an active advocate for the health care needs of Afri-
can Americans and for other underserved populations.
I am also here as an interested parent, with three children, two
of whom are physicians. My daughter has recently completed a
residency in general pediatrics, and my older son is a third-year
resident also in general pediatrics. They will be prime movers in
the delivery of health care services to minority populations for per-
haps the next 30 years.
The National Medical Association applauds the presidential lead-
ership which has led to the current national discussion over health
care reform. Our patients within the African American population
have long been underserved. Whereas other populations have expe-
rienced an increase in life-expectancy during the past 2 decades,
the African American population is reported to be experiencing a
decrease in life-expectancy. Our excess death rate is significant,
and without modifications in the existing process, the outlook will
remain bleak.
Minority providers labor under onerous burdens, not the least of
which are diminished support for the medical infrastructure within
minority communities and limited access to health care training op-
portunities for minority students.
It is in the context of the above reality that NMA has reviewed
the President's health care reform proposals. There are several
areas of strength, from our perspective. One, that there is clear,
well-defined presidential leadership is a critical issue for the Na-
tional Medical Association and for a coalition of over 100 other Af-
rican American health care, civic and social service organizations
which have been reviewing issues related to health care needs
within the minority communities for the past year.
Two, that a comprehensive basic benefits package which stresses
primary care as well as some preventive services is included is also
a clear strength.
Three, that pre-existing conditions will not be barriers to cov-
erage is an asset.
Four, that coverage would be portable, that people can move
from place to place and still be assured of health care, is seen by
the National Medical Association as a clear strength.
Five, that patients and/or consumers would have a choice of
plans and providers, including fee-for-service, is clearly a strength.
Six, that recommendations for simplification of administrative
process, as illustrated by a standard claim form, is seen as a posi-
tive feature by our organization.
Seven, that there is consideration for insurance to be tax -deduct-
ible for self-employed persons will especially impact favorably on
minority small business personnel.
169
That attention will be paid to issues of both malpractice and tort
reform will be of assistance to minority populations.
Our concerns are in the following areas. One, reform processes
should speak directly to the specific health care crisis which exists
within the African American community. To date, public discussion
of this issue has been limited.
Two, systems must be structured in such a manner as to ensure
minority participation at all levels of policy development, process
implementation, and decisionmaking. This encompasses both mi-
nority providers and consumers.
Three, the National Medical Association supports the full inclu-
sion of Medicaid recipients into a reformed health care system.
Four, the National Medical Association recognizes that the pro-
posal acknowledges the need for an increased number of African
American physicians and other providers. We await further delin-
eation and clarification of the mechanisms which will be developed
to approach this goal and to respond to the current barriers within
and without academic institutions which have impeded minority
student matriculation. As one who has functioned in medical edu-
cation for 21 years, I can speak specifically to the problems that
are inherent there.
Five, health care services are best delivered when done so in a
culturally sensitive, culturally appropriate manner. Cultural sen-
sitivity involves not only attitudes, but also familiarity in access.
The National Medical Association therefore supports front-line pro-
viders in all medical settings to include clinics, public hospitals,
and other front-line facilities, and clearly expanded funding is re-
quired if they are to continue their work.
The managed competition approach has the' potential of
marginalizing African American physicians and other minority
health providers. In a competitive environment, large, well-fi-
nanced health care organizations with low bottom-line costs have
distinct advantages. Regional health alliances will be required to
select health plans principally based on cost, as we understand it,
not based on quality or cultural sensitivity.
Managed care agencies owned by African Americans, already few
and dwindling, face stiff competition in the current competitive en-
vironment. It is hard to imagine how these agencies, to say nothing
of independent African American physicians, could successfully
compete for patients with large megasystems.
It is recommended that patients will be able to choose their pro-
viders, but they will have choices among a limited number of ap-
proved plans, which may not include African Americans, either as
entrepreneurs or as providers. If we are excluded from these oppor-
tunities now — and we are at present — the future, under full-fledged
managed competition, is clearly of significant concern.
The NMA expects to advance alternative proposals that will
hopefully level tne playing field and allow our physicians and our
consumers to compete as groups and as individuals.
Institutional racism remains alive and well in the health care in-
dustry. Health maintenance organizations have taken our patients
gladly, but have excluded our physicians with impunity. Redlining
is a reality. Racism has been masked by cost-effective decisions,
but the results are the same. African Americans are disproportion-
170
atelv served in many HMOs, but clearly disproportionately left out
as decisionmakers, managers, and providers. The National Medical
Association will be advancing proposals to combat racism within a
reformed health care system.
Finally, while State flexibility brings Government closer to the
people, it also holds the potential for negative impact on African
American citizens. It is much more difficult for us to monitor
health care reform in 50 States and to work to prevent abuses.
Therefore, we propose that specific national standards be developed
and enforced within every State, which assures minority participa-
tion throughout the entire system of whatever reformed system is
coming.
The National Medical Association is pleased with the opportunity
to participate in this debate. We supported Medicare in 1968. We
support the concept of health care reform in 1993, and we look for-
ward to continued interaction in service to the people of this Na-
tion, to include minority, underserved, and disadvantaged popu-
lations.
Thank you.
The Chairman. Thank you very much, Dr. Lawrence.
Dr. Graham.
Dr. Graham. Mr. Chairman, members of the committee, thank
you very much for the opportunity to be present with you this
morning. I am Dr. Robert Graham, the executive vice president of
the American Academy of Family Physicians, which has 75,000
members across the country providing front-line primary care, day
in and day out, the largest such specialty organization in the Na-
tion.
I would like to summarize briefly for you my statement, which
is before you, for the record, pointing out those areas of President
Clinton's plan where we are enthusiastic and supportive, and areas
where we have questions. Before I do so, I would like to acknowl-
edge that this committee, the chairman in particular, those of you
here now and those in the past, have kept the flame alive for the
issue of universal enfranchisement over many, many difficult years,
and it is a real pleasure to appear before you this morning to fi-
nally be able to start to grapple with this issue with some sense
that we may actually be able to resolve it in the interest of the
public.
The question that everyone has of any medical or provider orga-
nization is, What do you think about the President's plan? We
think the President has made an important and historic first step.
It is in many ways very consistent with the principles for universal
enfranchisement that the Academy has been advocating for 5
years. If we had imagined when we began in 1989 with our advo-
cacy of this issue that we would have a President within 4 to 5
years who would deliver a plan to Congress so consistent with the
principles that we had articulated, we would have been ecstatic.
Most important to us in those principles is the fact that there
will be universal enfranchisement; every American will have access
to a defined, comprehensive set of benefits. Second, those benefits
will be comprehensive. We will have individuals receiving the care
they need — preventive, health maintenance, curative, catastrophic.
Third, there will be pluralism in the system. We will be able to do
171
this not out of Baltimore, not out of HCFA, but State by State, city
by city. Individuals as patients will have a choice of providers, will
have a choice of plans. Individuals as physicians and nurses will
have a choice of how they practice their respective professions.
Last, there is a serious recognition of the need for cost contain-
ment. We do not believe that it is possible to reform and reshape
the health care system in the United States unless there is a com-
mitment to containing the increasing rise in cost that the total sys-
tem takes out of our economy. Since Medicare passed, the percent-
age of gross domestic product in 30 years has doubled, from 7 to
16 percent. It cannot double in another 30 years. We must deal
with cost containment.
As previous speakers have indicated, no plan is perfect. We do
have areas of continuing concern. We acknowledge that the Presi-
dent and his staff are continuing to work on revision of the pro-
posal we saw in early September. There are areas where we are
in discussion with them, areas that we think are perfectible and
changeable. We do not believe that the President's proposal at the
present time goes far enough in providing regulatory relief to pro-
viders in areas ranging as broadly as antitrust protection, so that
providers can organize and participate fully in this reform system
to areas as nitty-gritty and day to day as the Clinical Lab Improve-
ment Act, which is a tremendous burden on the practicing primary
care physician. We need more regulatory reform and relief.
As Dr. Todd has indicated, we are very disappointed that they
have not gone further in terms of tort reform. If it is legitimate and
reasonable to think about global budgets for the health care sys-
tem, it is legitimate to think about some sort of global controls on
our spiralling malpractice costs.
We believe that there are open questions in terms of the way the
system will be financed and the way the cost containment mecha-
nisms specified will actually operate. We are not convinced that
adequate assurance and provision has been made to assure that
every American does have access to a personal physician who can
provide the majority of their medical care on a first contact basis,
when they need it and where they need it. And we are also not con-
vinced that there has been adequate attention paid to the implica-
tions of personal behavior and choice in health status and health
outcomes.
I believe that we are beginning on a historic conversation and
journey. We have heard some reference that the system is not sus-
tainable. Not only is the system as we see it today not sustainable;
it is inequitable. We do need to change it. It has needed attention
for 10 to 20 years. This President for the first time in 40 years will
send a comprehensive health reform bill to the Congress. For that,
we applaud him and we support him. We have looked forward to
the opportunity to now work with the Congress so that a bill can
be put together within the next 12 months that is passable by the
Congress and signable by the President.
I will close with a comment that the first speaker began with.
In politics, timing is everything. Now is the time.
[The prepared statement of Dr. Graham follows:]
172
Prepared Statement of Robert Graham
I am Robert Graham, M.D., Executive Vice President of the American Academy
of Family Physicians. The Academy is the national medical specialty society rep-
resenting over 74,000 family physicians, family practice residents and medical stu-
dents. It is my pleasure to appear before you today to share with you the views of
our membership on the critical issue of health system reform.
BACKGROUND
Since the mid-1980s the issue of universal access to care has been a focal issue
for the Academy. At that time the impetus for national concern was primarily the
growing number of uninsured people and their inability to access appropriate care.
Studies documented what family physicians have long known, that people who delay
seeking medical care have higher morbidity and mortality and are more costly to
treat. As the percentage of the GDP spent on health care in this country has esca-
lated, national attention on the problem of access has shifted to an equivalent con-
cern about cost. The American Academy of Family Physicians shares these dual con-
cerns.
In response to our member's concerns, in 1989 the Academy became the first phy-
sician 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, Rx For Health:
The Family Physicians' Access Plan. Permit me to briefly describe the principal ele-
ments of this plan. Rx For Health calls for universal access to a comprehensive set
of benefits, emphasizing preventive services. It builds upon the present employer-
based system and requires all employers, including small businesses, to provide in-
surance to their employees and dependent family members. Employers pay a spe-
cific portion of the premium. Employee cost sharing is based on income, with sub-
sidies available. A key element of the Academy's plan calls for each person to have
a Personal Physician, who is in one of the generalist specialties (family practice phy-
sician, general internal medicine or general pediatrics). Increased cost snaring is in-
curred if an individual chooses to seek non-emergency subspecialty care without a
referral" from the Personal Physician. Rx For Health includes specific strategies for
moving toward a physician supply that is a balance between generalists and special-
ists. Further, it calls for improved quality utilizing practice parameters and mal-
practice reforms, including caps on noneconomic damages. And, to address the spi-
raling health care costs, it includes stringent cost containment provisions, including
the establishment of a National Board with authority to set and enforce global
spending targets. Enforcement is targeted specifically to those segments of the
health care system responsible for inappropriate spending increases.
Rx For Health was and is the Academy's vision of health system reform. It has
formed the basis of our discussions with members of the House and Senate and with
the Administration. It is the gold standard against which we evaluate proposals for
reform, and it includes the specific elements that we will seek as you work for en-
actment of comprehensive reform.
As we strive for this mutual goal, the Academy believes that we must keep in the
forefront of the discussion the original impetus for seeking reform — universal access
to a comprehensive benefits package, assurance of high quality care, and control of
health care costs. In the following statement, we comment on the Clinton plan and
compare its principles with those in Rx For Health. We then highlight those ele-
ments of the plan of particular interest to the Academy over which your committee
has jurisdiction.
THE CLINTON PLAN
The Academy has had significant interaction with the Administration during the
development of the Clinton health plan and is continuing to work with the White
House as the final revisions of the plan are being made. We have had the oppor-
tunity to review the September 7 draft and have measured it against the principles
outline in Rx For Health. The Academy commends the President's leadership and
initiative in identifying health system reform as a priority issue and in developing
a comprehensive plan. He has demonstrated a willingness to work with consumers,
providers, businesses and others organizations invested in health reform and has
expressed a commitment to work with the Congress for passage of a comprehensive
plan.
Additionally, the work of the Senate Republicans to study the complex issues and
develop a legislative proposal is deeply appreciated by the Academy. It is a signifi-
cant contribution to the debate. We have reviewed this proposal and note that many
173
of its principles are consistent with those in Rx for Health. The bipartisan effort in
Congress to promote positive solutions to problems in our health system is encour-
aging.
How does the Clinton Plan stack up against principles in Rx for Health?
The following is a comparison of the major principles of Rx for Health and those
included in the Clinton plan. In general, the approaches outlined in the plans are
very consistent. . .
Universal health insurance coverage: Rx for Health calls for universal health in-
surance coverage achieved through employer based plan in combination with state-
sponsored public plans that would replace Medicaid and provide coverage for eligible
low income individuals and employees of small businesses.
The Clinton plan calls for universal coverage that is employer-based. Medicaid-
eligible individuals receive coverage through health alliances, as does the general
population. Subsidies are available for those with low incomes. Small businesses pay
an amount between 3.5 percent and 7.9 percent of payroll based on the average em-
ployee wages. No business will pay more than 7.9 percent of payroll.
Physician specialty distribution: Rx for Health addresses the shortage of general-
ist physicians, calling for at least 50 percent generalist physicians, at least half of
whom are family physicians, through changes in Medicare GME and incentives for
ambulatory based training.
The Clinton plan also calls for 50 percent primary care physicians (defined as
family medicine, general internal medicine and general pediatrics), but does not
specify a percentage of family physicians. It takes an aggressive regulatory approach
that includes reform of GME; payments.
Basic health benefits: Basic health benefits in the AAFP plan ensure comprehen-
sive coverage, emphasize prevention, and utilize cost sharing to promote cost-effec-
tive delivery of care. Rx for Health specifies that self-referral for services not or-
dered by the personal physician have a higher patient cost-sharing.
The Clinton plan includes a comprehensive benefit package, including preventive
services. Provisions for limiting payment for services obtained on self-referral in
non-fee-for-service plans are provided. In the mandatory fee-for-service option, the
use of a gatekeeper is prohibited.
Cost containment: Cost-containment in Rx for Health includes a national global
budget set by a national health commission and enforced, if necessary, by limiting
provider payment increases or otherwise controlling expenditures under private and
public plans.
The Clinton plan includes a stringent cost containment initiative, but specifies the
target rates or increase in the plan itself. It also provides for a National Health
Board.
Quality: Rx for Health calls for quality of care to be protected and enhanced
through a variety of reforms and research efforts. rm^
The Clinton plan places significant emphasis on quality and replaces the PRO
program with a new Quality Management Program.
Insurance reform: Rx for Health calls for insurance reform, including require-
ments that all health plans be guaranteed issue, guaranteed renewable, and com-
munity rated. It ensures the portability of basic health coverage.
The Clinton plan includes all of the above insurance reforms.
Malpractice reform: Rx for Health calls for comprehensive malpractice reform, in-
cluding limits on payments for non- economic damages, limits on attorney's fees,
elimination of joint and several liability, reduction in awards by the amount of com-
pensation from collateral sources, and structured payment schedules to replace
lump sum awards.
The Clinton plan includes an alternative dispute resolution mechanism, certifi-
cation of merit, limits on attorney's fees, collateral source rules, periodic payment
of awards, demonstration projects on enterprise liability, and a pilot program using
practice guidelines. There is no cap on non-economic damages.
Medicare: Rx for Health calls for Medicare beneficiaries to have coverage com-
parable to the basic benefit package.
The Clinton plan permits states to integrate Medicare beneficiaries into health al-
liances if they nave the same or better coverage as Medicare. After the health alli-
ances are established, individuals have the right to elect to remain in alliances after
age 65 and receive the national guaranteed package. _
Financing: Rx for Health finances the plan through a surtax on personal and in-
come tax liabilities, increases in excise [axes on tobacco and alcohol, and taxing as
income to employees that portion of employer paid premiums in excess of the pre-
mium needed to provide the basic benefit package.
174
The Clinton plan includes increases in excise taxes and the tax cap, but does not
increase income taxes. The plan relies heavily on Medicare savings.
Based on the draft plan and the President's speech to Congress, the Academy ap-
plauds the direction and supports the principles and many of the strategies es-
poused in the Administration's health reform proposal. The draft plan provides a
positive framework for considering the many complex issues entailed in health sys-
tem reform.
From the perspective of this organization, the Clinton plan holds the promise of
reforming the health care system in a positive direction. We are particularly pleased
with the commitment of the President to universal access to a set of comprehensive
benefits that include preventive services and prescription drugs and that provide a
good start on mental health coverage. These are services often overlooked in insur-
ance benefits packages. As deliberations on reform continue, these elements must
not be compromised. All people in the United States must have access to com-
prehensive, affordable, high quality health care services.
I will next address a set of health reform issues that the Academy regards as es-
sential and that we believe will receive consideration in your committee delibera-
tions. Our comments focus on efforts to achieve the appropriate supply of primary
care physicians, the role of non-physician providers, the need for family practice and
primary care research, regulatory burdens, malpractice reform, and fraud and
abuse.
ACHIEVING AN APPROPRIATE PHYSICIAN SUPPLY
While much has been said in the past year about the shortage of generalist physi-
cians— family physicians, general internists and general pediatricians — the rhetoric
is often unmatched with action.
We are particularly pleased that Clinton the plan focuses attention on and identi-
fies specific strategies for achieving a more appropriate balance of generalist and
specialist physicians. Physician workforce goals mist reflect the health care needs
of the population. Correcting the problems of specialty imbalance in the system will
require significant changes m current federal policies and aggressive interventions.
These efforts are controversial as they challenge the status quo, but are essential
if we are to achieve universal access to comprehensive health benefits. This will be
one of the most difficult and challenging legislative issues. While many offer rhet-
oric on the need for more generalists, few are willing to take meaningful action. The
strong message currently m the plan regarding physician workforce is critically im-
portant.
As this committee considers its deliberations on health system reform, we urge
you to address the issue of ensuring a physician supply that is adequate and appro-
priate to meet the health needs ol the population. While grappling with strategies
for meeting the demand for primary care service, however, we urge that primary
care not be trivialized in the process.
A primary care physician (or generalist physician) provides definitive care to the
unselected patient at the point of first contact. Such a physician will have been spe-
cifically trained to provide primary care services, usually through completion of a
residency in family practice, general internal medicine or general pediatrics.
Primary care physicians devote the substantial majority of theirpractice to pro-
viding primary care services to a deemed population of patients. The style of pri-
mary care practice is such that the personal primary care physician serves as the
first point of contact for substantially all of the patient's medical and health care
needs.
Occasionally, individuals who are not trained as primary care physicians will pro-
vide patient care services within the domain of primary care. These limited primary
care providers may be physicians from other specialties, nurse practitioners, or phy-
sician assistants. Such providers may focus on patient care needs related to preven-
tion, health maintenance, acute care, chronic care or rehabilitation.
The contribution of limited primary care providers may be important to specific
patients. However, the absence of a full scope of training in primary care and lim-
ited practice skills in providing full primary care services requires that such provid-
ers work in close consultation with fully trained primary care physicians. Effective
systems of primary care will use limited primary care providers as adjuncts to the
health care team with primary care physicians taking responsibility for the total
care of each patient.
We understand that obstetricians-gynecologists have sought to be recognized as
primary care physicians. The fact that Ob-gyns provide certain services that are
within the domain of primary care is well recognized. Furthermore, we recognize
that many women receive the majority of their health care from Ob-gyns during cer-
175
tain periods of their lives. However, the commonly accepted definition of primary
care incorporates a much broader range of skills and knowledge than is present in
Ob-gyns. As deemed by the Council on Graduate Medical Education, primary care
entails first-contact care of persons with undifferentiated illnesses, comprehensive
care that is not disease or organ specific, care that is longitudinal in nature, and
care that includes the coordination of other health services. In its fullest sense, pri-
mary care includes the assessment and evaluation of signs and symptoms initially
presented by the patient, the management of acute and chronic medical conditions,
the identification and appropriate referral of conditions requiring specialized care,
and the provision of health promotion and disease prevention services. While a num-
ber of providers receive training in and typically provide some important aspects of
primary care, it is only the primary care specialties of family practice, general pedi-
atrics, and general internal medicine that are specifically ana fully trained to pro-
vide the broad range of primary care competencies. We note that the Ob-gyn lit-
erature clearly acknowledges the limited role of Ob-gyn in the provision of primary
care.
As the definition of primary care is used in the President's health reform plan,
it dictates a substantial redirection of training funds. Because the role of Ob-gyn
in primary care is limited, we are very concerned that efforts to improve access to
primary care will be compromised by including Ob-gyn in the definition of primary
care. Increasing the training funds for Ob-gyns will not substantially improve the
number of providers of primary care services. Furthermore, including Ob-gyns in the
definition of primary care suggests that there are available many more primary care
physicians than is, in fact, the case.
We understand that many women may, by personal preference, choose to obtain
the majority of their routine health care from an obstetrician-gynecologist during
certain periods of their lives. We support the continued opportunity for women to
make that choice. This is clearly an option that will be preserved under the manda-
tory fee-for-service plans, and we expect that many managed care entities will allow
women to utilize an Ob-gyn routinely. What is at issue for the Academy is improv-
ing access to primary care services. An important part of addressing this issue is
training more primary care physicians. We believe this best accomplished by leaving
undiluted the current definition of primary care (family medicine, general internal
medicine, and general pediatrics). Prior to reaching a final decision on this issue we
would urge you to pose the following questions to the Ob-gyn community:
• What percentage of currently practicing Ob-gyns spend the majority of their
clinical practice providing services in the domain of primary care?
• If all Ob-gyns are classified as "primary care providers, how will the Ob-gyn
community assure women that a specific Ob-gyn physician is both willing and
competent to serve as her primary care physician?
• If Ob-gyn, as a specialty, is classified as "primary care," in what ways and
how rapidly will Ob-gyn residencies redirect their current training towards the
full competencies of primary care providers?
Unless you are satisfied by the answers to these questions that Ob-gyn will truly
function as a primary care specialty in the future, we would urge you not to change
their specialty designation in the President's plan.
NON-PHYSICIAN PROVIDERS
As the challenge of moving toward an appropriate balance of generalist and spe-
cialists in the physician supply is addressed, the related issue of the role of non-
physician providers in the health care system emerges.
At a recent meeting with the Academy, Administration officials indicated that the
language in the September 7 draft dealing with barriers to the practice of nurse
practitioners, nurse midwives, and physician assistants (hereafter referred to as
non-physician providers) would possibly be strengthened to include a pre-emption of
state laws and regulations deemed to be overly restrictive. We believe that the lan-
guage contained in the September 7 draft provides sufficient means to address un-
warranted barriers to the practice of non-physician providers and, furthermore, the
current language avoids unnecessary consequences that would accompany a federal
pre-emption. Preempting state practice acts would constitute an unwarranted fed-
eral intrusion in an area of traditional state jurisdiction and may result in adverse
consequences for both the cost and quality of care.
As the plan currently reads, the Secretary of the Department of Health and
Human Services is directed to develop and encourage the adoption of model profes-
sional practice statutes for advanced practice nurses and physician assistants (page
130). In addition, an earlier section defining a covered service establishes a standard
176
that prevents any state from limiting the practice of any class of health profes-
sionals except as justified by skill and training (page 21).
No topic that we will address in this letter presents more difficulty to a physician.
We recognize that it is all too easy to read into these words an attempt to simply
protect professional "turf." Allow us. therefore, to preface these comments by noting
that no other physician specialty is as likely to be engaged in collaborative practice
with non-physician providers. We fully appreciate the substantial contribution of
non-physician providers to the delivery of primary care. Furthermore, our members
are cognizant of the fact that many state laws impose undue restriction on the prac-
tice of non-physician providers. We approach this issue supporting the expanded uti-
lization of non-physician providers and the elimination oi undue barriers to their
practice.
The substantial abilities of nurses to provide certain high quality services that are
within the domain of primary care is well recognized. However, the commonly ac-
cepted definition of primary care incorporates a much broader range of skills and
knowledge than is present in any of the non-physician practitioners. While a num-
ber of providers receive training in and typically provide some important aspects of
primary care, it is only the primary care specialties of family practice, general pedi-
atrics, and general internal medicine that are specifically ana fully trained to pro-
vide the board range of primary care competencies. (See also our comments above
on obstetrics and gynecology as "primary care physicians.")
We find the call for the unsupervised practice of primary care by non-physician
firoviders unsupported for a number of reasons. First, while generally positive in its
indings, the available research on the quality of care and cost-effectiveness of non-
physician providers is limited in the scope of services examined, employs a narrow-
range of quality measures, and provides no basis on which to judge the quality and
cost-effectiveness of unsupervised practice. All of the studies of which we are aware
examined non-physician providers practicing with physician supervision. The claim
that unsupervised non -physician practitioners can provide the mil range of primary
care services with physician -like quality has absolutely no basis in research.
Second, we note that the call for independent non-physician provider practice
comes from a relatively narrow segment of the non-physician provider community.
The physician assistant profession has explicitly rejected independent practice. The
non-physician providers with whom family physicians work, especially those who
practice in remote settings without on-site supervision, do not consider independent
practice to be professionally responsible. They, as well as their patients, need to
know that when confronted with a serious or confusing medical condition, a respon-
sible supervising physician is immediately available to provide either consultation
or direct intervention. Anything less risks compromise in the quality of care.
If, however, for whatever reason you decide to propose a federal pre-emption of
state medical practice acts in order to remove barriers to the practice of non-physi-
cian providers, we believe that the same logic and mechanism should be applied to
state nursing acts. As you may know, many hospitals have sought to improve effi-
ciency and productivity by utilizing non-RN personnel to provide numerous patient
care tasks. These efforts have been frustrated by the nursing profession, which has
asserted that an RN's license is required to provide many routine bedside duties.
To address only one aspect of this issue of "barriers to practice" in the President's
proposal would be intellectually inconsistent.
REGULATORY BURDENS
The Clinical Laboratory Improvement Amendments (CLIA) regulations are per-
haps 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 pa-
tient safety. The impetus for CLIA '88 was a response to quality problems in large
reference laboratories performing Pap tests, not physician office laboratories. How-
ever, the resultinglaw 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.
As you work to reform the health care system and develop regulatory strategies that
improve efficacy and cost-effectiveness, the Academy again urges you to call for re-
peal of CLIA provisions relating to physician office laboratories and instead con-
centrate efforts on improving quality of Pap testing.
While the Academy appreciates the initial efforts outlined in the plan to provide
a measure of relief from the regulatory burden, practicing family physicians who
have reviewed the material are concerned about the stipulations that regulation will
continue for labs that engage in critical testing or conduct testing to monitor care
177
while it is being delivered. These provisions will largely undermine the efforts in
subsequent sections aimed at easing the regulatory burden on labs performing sim-
ple and moderately complex tests. As an inherent component of patient care, family
physicians routinely perform lab tests to get immediate results in order to begin ap-
propriate treatment and monitor care while it is being delivered, not dissimilar to
{thysicians who perform microscopic tests. The choice, timing, and interpretation of
aboratory 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. To continue the present regulations in these instances will con-
tinue the present unreasonable regulatory burden.
We urge deletion of the requirement for continued regulation of labs engaging in
critical testing (a test is critical if an answer is needed quickly or an error can result
in serious harm to an individual) or conducting testing to monitor care while it is
being delivered.
Other federal regulations also serve only to increase the cost of medical care and
the administrative burden on physicians without any measurable benefit to pa-
tients. The present OSHA bloodborne pathogens regulations are a good example.
The Centers for Disease Control guidelines lor universal precautions are straight-
forward and afford patent and health professional safety in regard to HTV infection.
Hepatitis B, and other diseases. The OSHA regulations, enforced by intimidating
OSHA inspectors, are excessive and threatening to physicians. We urge that you call
for repeal of this overly burdensome regulation and, instead, acknowledge the appro-
priateness of the CDC guidelines.
HEALTH RESEARCH INITIATIVES
The health research initiative described in the September 7 draft limits new fund-
ing for health research to two areas, prevention research and health services re-
search. While these are important, the draft plan omits a highly relevant and to-
date largely ignored research area, family practice and primary care research. For
the past 30 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.
Given that the National Institutes of Health has not in the past and does not now
include primary care research, and given that the limited resources and other prior-
ities of the Agency for Health Care Policy and Research have precluded all but the
most limited attention to it, we believe that it is imperative to identify family prac-
tice and primary care research as a priority in health system reform.
The draft plan placed considerable attention on effective strategies to emphasize
[inning of generalist physicians in ambulatory settings to meet the considerable de-
mand for primary care services. However, the research initiatives portion of the
plan is deficient in the comparable area of research. We therefore suggest that a
third focus for new funding for health research be specified as family practice and
primary care research.
Suggested language follows:
Family practice and primary care research related to better assisting the gen-
eralist physician in diagnosis and treatment of the undifferentiated patient pop-
ulation treated in the ambulatory care setting.
PRIORITY AREAS FOR FAMILY PRACTICE AND PRIMARY CARE RESEARCH
The Agency for Health Care Policy and Research and/or the National Institutes
of Health initiates and expands office-based, community-oriented family practice
and primary care research in priority areas including:
Research to better understand the role of diagnosis in family practice and pri-
mary care to assist the generalist physician to evaluate the myriad symptoms
of the patient, differentiate self-limited diseases from those requiring ongoing
or intensive treatment and initiate effective treatment. The tangible benefits of
such research could streamline the diagnostic process, increase accuracy, and
reduce the use of expensive and potentially dangerous medical tests.
Research to improve the effectiveness of medical care as the physician, in col-
laboration with the patient designs and implements an effective treatment that
reconciles the idiosyncrasies, preferences and the needs of the patient with the
realities of the illness.
Research to improve access to health care and the cost-effectiveness of care
focusing on the role of frontline, generalist physicians.
178
We appreciated the attention that this committee Rave to primary care research
in report language accompanying last year's reauthorization of the Agency for
Health Care Policy and Research/We look forward to working with you to improve
the federal effort in this important research arena.
MALPRACTICE REFORM
While provisions of the draft plan to address malpractice concerns are consistent
with those supported by the Academy, it is silent on two effective strategies that
have been utilized in state malpractice reforms: the limit of payments for non-eco-
nomic damages and a statute of limitations for filing a claim. Additionally, two pro-
visions need to be strengthened. First, the requirement for a Certificate of Merit
does not specify that the physician submitting the affidavit be of the same medical
specialty and be actually practicing in the field of the defendant physician. We be-
lieve this is essential to provide an accurate assessment of whether the physician
deviated from the established standard of care. Second, in its present form, the al-
ternative dispute resolution mechanism would add more administrative burden to
the resolution of malpractice claims than it would eliminate.
We suggest the following language (both modifications and additions) to the pro-
posals relating to malpractice reform in the draft:
Creation of Alternative Dispute Resolution Mechanisms (modification under-
lined). Each health plan establishes an alternative-dispute resolution process
using one or more of several models developed by the National Health Board.
Potential model systems include early offers of settlement, mediation and arbi-
tration.
Consumers who have a claim against a health-care provider are required to
submit the claim through the alternative dispute system. At the completion of
the alternative dispute system, if one of the parties in the dispute wishes to
challenge the outcome of the alternative dispute resolution, he or she may do
so in court. If the decision rendered in court is less favorable to him or her than
in the alternative dispute resolution, he or she shall pay all legal fees.
Requirement for Certificate of Merit (modification underlined). Lawsuits
claiming injury from medical malpractice include submission of an affidavit
signed by a physician of the same medical specialty and practicing in the same
medical specialty as the defendant physician. The affidavit must attest that the
specialist examined the claim and concluded that medical procedures or treat-
ments that Produced the claim deviated from established standards of care.
Statute of limitations (additional section). A claim must be filed within 2
years from the date that the alleged injury should have reasonably been discov-
ered, but in no event more than 4 years from the time of alleged iniury. In the
case of alleged injury to children under 6, a claim must be filed within 4 years
from the date that the alleged injury should have reasonably been discovered.
Limits on non-economic damages (additional section). The plan establishes a
$250,000 limit on non-economic damages, often referred to as "pain and suffer-
ing" awards.
FRAUD AND ABUSE
While the Academy supports the effort to eliminate provider initiated fraud and
abuse, certain provisions place providers at undue risk, particularly in regard to
false claims for deliberate upcoding (p. 174). However, there is currently consider-
able disagreement about the utilization of the various levels of visit codes between
physicians and Medicare carriers. Physicians who have performed the services de-
scribed in the CPT coding manual for a particular level of visit are challenged by
carriers and accused of "upcoding.'' As we interpret this section, these physicians,
who believe they have submitted codes that are consistent with the services pro-
vided, would be subject to assessment of civil monetary penalties.
Another concern relates to preventive services. Physicians have neither coded nor
charged for preventive services, because these services currently are not covered.
Physicians expect to appropriately code and charge for these services when included
in the nationally guaranteed benefits package. We are concerned that physicians
charging for previously uncovered services may be subject to charges of
"unbundling" and the commensurate civil monetary penalties.
While deliberate upcoding and unbundling should be prohibited, we believe that
including these as false claims and subjecting them to severe penalties should be
reconsidered in light of current problems with the use of visit codes and potential
accusations of unbundling when appropriately coding for newly covered services.
We are also concerned about the provision to toughen penalties for wrongdoers
that allow forfeitures of proceeds derived from health care fraud. In view of the
179
above definitions and identified implementation problems, the penalties appear too
Physicians who now live in fear of inadvertently committing Medicare fraud and
abuse will have this fear considerably increased by the proposed provisions.
CONCLUSION
The time has come for comprehensive health system reform. This will be challeng-
ing for the Congress, the Administration, health care providers, businesses, and pa-
tients. Change, even positive change, is always difficult. However, the status quo
no longer is acceptable. The American Academy of Family Physicians looks forward
to working with you to achieve the positive change that we all seek.
I thank you for the opportunity to appear before you and would be pleased to an-
swer any questions.
The Chairman. Thank you very much.
We have six members here, and we will follow a 5-minute time
limit and try to wind up as close to 1 o'clock as we can. I know
there are party meetings, so we will proceed that way, and if we
get through earlier, we will continue with an additional round.
' I would like to begin with a threshold question for Dr. Todd. Dr.
Todd, you have expressed a number of concerns about the Presi-
dent's plan. Do you think these concerns will prevent you from
working constructively with the President and the Congress to pass
the kind of comprehensive reform that can meet the needs of the
American people?
Dr. Todd. Absolutely not. The need for reform is now. The Presi-
dent has provided a good foundation from which to start. We have
found him to be responsive to some of the concerns that we have
raised, and we need to go forward with the President, with this
committee, and with the Congress, and get it done.
The CHAffiMAN. Let me ask you again about the areas of agree-
ment and disagreement, Dr. Todd, and then I would ask the other
panelists this question. You agree on universal coverage; that an
employer makes a contribution and individuals make a contribu-
tion; assistance for low-income individuals, and a national benefit
package.
Are you all in agreement on that?
Dr. Todd. Yes, we are.
The Chadiman. Let the record show that there is agreement on
those issues.
Then, there is the fee-for-service option; the emphasis on individ-
ual choice; insurance reform should include no pre-existing exclu-
sions, and should have open enrollment. Is there agreement on all
of those?
Dr. Todd. Yes, there is.
The Chairman. All right. Malpractice reform, and a commission
or a board — I think there were references in all of the testimonies
to either a commission or a board. There are differences as to what
the ftinction ought to be with regard to the commission or board,
but nonetheless, as I understand, there is agreement that that kind
of formulation makes sense.
Dr. Todd. That is correct.
The Chairman. Is there agreement on global budget, but that the
budget and fees are negotiated with the providers?
Dr. Todd. We do have a problem with the global budget, but I
think you have expressed it very well, that if the profession and
all of the providers are involved in looking at what patients need
180
and how best to supply that need, it becomes clear there has to be
a degree of economic discipline introduced into the system.
We would prefer to do it based on patient need, efficiency, and
effectiveness rather than on choosing some arbitrary number that
may or may not serve the patients of this country well. But given
the ability to sit down and negotiate budget predictability, we
would be in agreement.
Dr. Graham. We have felt for a number of years that the only
way to get reform is to have economic discipline. Our plan itself
calls for an approach to global budgeting. We do not differ substan-
tially with what Dr. Todd has said, but the bottom line is without
that discipline, there will be no lasting reform.
Dr. Lawrence. And our position is that it must be recognized
that when we talk about patients' needs, patients' needs vary
across groups. Within our community, the patients' needs are so se-
vere that we do not want to be locked out by any limitation which
would restrict resources that could become available to the sickest
segment of our population.
Ms. Shinn. And I would say, Senator, that we believe that great-
er utilization of registered nurses in our system is going to help a
lot with our economic discipline.
The Chairman. OK. I just have time for one more question, and
it is targeted at Dr. Lawrence, but others may wish to make a brief
comment. How concerned are you as these budget crunches are put
in place, so to speak, in terms of whatever is worked out in terms
of the cost restrictions, that it is going to mean a diminution of
care for the needy and the poor in our society?
Dr. Lawrence. Let me say up front, I am not a financial expert.
I am a hard-working, day to day doctor. However, I have opinions.
The populations whom my organization serves are those who,
again, are most in need of resources, and those whose needs his-
torically have been cut first when there were budget crunches. It
may not appear that way to a lot of people on the outside, but the
impact of budget cuts across-the-board within minority commu-
nities is devastating because of the total dearth of resources that
are there now.
Anything that seeks to limit the economic development, the re-
source allocation within communities which are at greatest need,
my organization does have a problem with.
The Chairman. Thank you.
Senator Jeffords.
Senator Jeffords. Let me follow up on that because it does con-
cern me. In other words, the system which is outlined in the Clin-
ton plan which would require physicians to receive lower payment
for services to subsidized poor if you are in an area that has large
numbers of subsidized poor, and you try to average that into the
premium, it is going to be extremely difficult to do,is it not?
Dr. Lawrence. Senator, with all due respect, I do not have the
knowledge that allows me to go through the mathematic manipula-
tion, but let me say it like this. Physicians in inner cities and un-
derserved areas already are, relatively speaking,
undercompensated. Primary care physicians are clearly under com-
pensated. If there is a restriction on their ability to be able to ap-
propriately meet even their own expenses as other costs increase,
181
then we further contribute to a diminution of health care — quality
health care — within undeserved and minority communities.
Again, I think this needs to be part of the general consideration
as we go through this process, because I realize we are not at a
final end point right now.
Senator Jeffords. If the other doctors would comment on that
part of the plan, which I believe would require you to receive a
lower fee for service to subsidize patients.
Dr. Graham. Let me start at the other part of the plan. Yes, that
provision does have application, but the intent of the plan is to re-
quire the accountable health plans to have available services
mroughout any area where they wish to market and to provide the
patient with the total option, on a year by year decision, on as to
which plan they seek their care from.
It would be my anticipation that if that worked in the manner
described, what you are going to have is a reversal of the con-
centration that we now find of disadvantaged populations within
an area as they can seek care in the direction that they wish, and
on top of that, there are specific provisions for the public health in-
frastructure.
So yes, that provision is there. As our members have looked at
it, they see 30 percent of the patients every day, and those are pa-
tients by and large that they are not getting paid anything for.
Dr. Todd. Really, Senator, from our point of view, the question
is equity, fairness for all, to take care of those who need to be cared
for in a setting where they can choose what best suits their needs,
and that the resources be made available to take care of those who
have thus far been shut out of the network. And Dr. Graham
makes a very good point — when we have universal coverage, care
that is now going uncompensated and therefore contributes to the
cost shift, that cost-shifting may well diminish and allow those who
cannot now afford to get into the system to access it more easily.
Senator Jeffords. What protection will doctors need against
being excluded from being able to participate in a health alliance?
Dr. Lawrence talked about minorities, but I know in my State al-
ready, one was formed leaving one doctor out. How are you going
to cope with that, or should it be coped with?
Dr. Todd. Senator, that is a tough issue. We are talking about
competition. Competition means winners and losers, and obviously,
nobody likes to be a loser. From the AMA's point of view, our posi-
tion is that decisions regarding allowing physicians to participate
in these health care alliances and plans depends upon tneir train-
ing, their demonstrated experience, and their willingness to con-
form to the requirements of the plan.
We also believe this is part of the reason why physicians do need
the ability to come together and be able to negotiate with some
plans that may, for reasons that are not totally appropriate, tend
to exclude physicians who should be allowed in the plan because
of the mix of demography, the need for specialists, and other rea-
sons we can talk about.
Negotiation for physicians becomes very important in trying to
continue to act as advocates for patients to make sure that the
plans are fair and their coverage is fair and their treatment is fair
and their prices are fair.
182
Dr. Graham. That is one of the reasons I emphasized our dis-
appointment with the extent of antitrust relief. We anticipate that
for many family physicians, where they participate in one or more
plans, much less being excluded, they will want to look at the op-
tion of organizing themselves as a primary care group, region by
region and State by State.
Senator Jeffords. Dr. Lawrence.
Dr. Lawrence. Well, it is one of the reasons why we want to see
very clear monitoring of the kinds of criteria that are going to be
set up for inclusion. Granted, physicians may be excluded from
interaction for a variety of reasons, many of which may come out
under the rubric of board certification, under the rubric of quali-
fications. On the other hand, we think that new parameters of
standards of practice may need to be developed within certain
interactions, within certain organizations, so that minority physi-
cians just because of the training that they, quote, "did not have,"
or the board certification that they did not have, are automatically
excluded from participation in areas where they were previously
delivering service, but now that the patients can be paid for, other
external groups want to come in and take over those systems.
Senator Jeffords. Thank you.
Thank you, Mr. Chairman.
The Chairman. Senator Metzenbaum.
Senator Metzenbaum. Dr. Todd and Dr. Graham, you both have
talked about exemptions from our Nation's fair competition laws,
the antitrust laws. You even suggest that the AMA should get
some kind of special exemption that would permit them to nego-
tiate fees on behalf of unrelated groups of doctors.
Now, I am frank to say to you that I am a little disappointed we
have not heard from the AMA, nor from your group, Dr. Graham.
We have heard from the Hospital Association, and we have been
successful in working out solutions to any concerns.
The fact is the antitrust laws do not prevent groups of doctors
from negotiating fees with health alliances or any large insurer.
The recently published antitrust guidelines make that very, very
clear. The only requirement under antitrust laws is that doctors
form themselves into some kind of group practice, a PPO or an
independent practice association, when they negotiate fees. In
other words, doctors must have some real incentive to bargain
more like a cost-efficient single entity than a group of price-fixing
competitors.
Wouldn't you both agree that your proposal could actually in-
crease the cost of health care for most patients and undermine
health care reform because it would discourage doctors from joining
cost-cutting group practices?
Dr. Todd. I think I would have to answer that in the negative,
Senator Metzenbaum, and in all honesty, we have been making
contacts with your office; we have been in to the Justice Depart-
ment, we have met with Mrs. Bingaman, who is the deputy attor-
ney general in this respect. And our interest is not in any special
exemption for the AMA or for any group of physicians that is not
in the best interest of health system reform.
You heard Senator Wellstone talk about the mega companies
that are going to be coming along, and in some of the rural areas
183
of this country, it is impractical for physicians to be able to inte-
grate their practices in the fashion that the current antitrust stat-
utes require. Therefore, if they are going to be able to negotiate on
behalf of their patients, if they are going to be able to negotiate on
the conditions of participation, they must be able to come together
as independent practitioners. Obviously, they are not going to
strike; obviously, they are not going to boycott. But they certainly
ought to have the ability to express their opinions both as to condi-
tions of participation and reimbursement.
If indeed we are going to have the concentration of purchasing
power in the hands of mega organizations, what is it that physi-
cians can do to protect their patients and protect their ability to
provide necessary care?
Senator Metzenbaum. They could have a PPO or an independent
practice association. They can do that. There is no problem with
that under our antitrust laws.
Dr. Graham. If I could respond to that, because you cited our
specific example, family physicians, if they organize for the purpose
of negotiation with the alliances as they appear right now, probably
wouldn't organize into a PPO or an IPA as you recognize them.
They are primary care physicians. They are not a vertically ori-
ented, muhispecialty group. That is one of the difficulties that we
have in looking at new models and the flexibility of negotiation.
And I must say as that as I travel throughout the country and
meet with our members, the advice that they are getting from
counsel, State by State, is to stay away from it. The climate of in-
timidation and risk aversion that has been generated by the Jus-
tice Department's efforts in antitrust in the professional area is
such that it makes a country doctor very, very reluctant to talk
about it when their lawyer is sitting right Deside him, saying, "Stay
away, doctor."
Senator Metzenbaum. You know, Dr. Graham, I sat before a
committee of five United States Senators not too long ago, chaired
by Senator Rockefeller, including Senator Baucus, Senator Duren-
berger, Senator Chafee, Senator Daschle, and they were all con-
cerned about the hospitals and the question of what happens to the
rural hospitals. That was the bugaboo. And I said then that these
matters can be worked out and that they do not need to change the
antitrust laws. And in fact, we have now worked them out.
I would say to you that I think these matters can be worked out
so that the rural physician and the city physician can get their fair
share, they will be able to negotiate on a fair basis. But I think the
idea of a new antitrust exemption is most distasteful to many of
us, and I think we are prepared to try to be helpful to deal with
the real problems.
If I have time, Mr. Chairman, I have one more question on an-
other subject.
The Chairman. Go right ahead.
Senator Metzenbaum. Let me just address myself to this matter
of malpractice coverage and insurance, that big bugaboo that is
going to give all these plaintiffs' lawyers millions of dollars, and in-
deed that has been the case. But the fact is that the pendulum can
swing too far the other way. That is, I am concerned about that in-
jured child or woman or man who has really suffered badly by rea-
184
son of malpractice of a physician. To say that that person has to
live the rest of his life with a maximum of $250,000 — which I think
is the proposal of the AMA — is to me very distasteful.
It seems to me that a reasonable approach to this matter relates
more to the question of some limitation as to the amount of legal
fees and to the percentages that may be charged, but not to deny
that individual, who is suffering so much, the right to collect what-
ever a jury thinks is appropriate.
I should point out in this connection that the total amount we
are talking about as far as health care is concerned, paid to the in-
surance companies, is only one percent of the total cost. Now, that
can be a pretty large amount. But the fact is, the total amount paid
out to injurea individuals, or to individuals who have suffered, is
far, far, far smaller than the amount that the insurance companies
have collected. I think some doctors have seen fit to form their own
malpractice insurance groups and as a consequence have cut their
expenses tremendously. There may be a need to do that for doctors
on a national basis, and I think that would bring the costs down
substantially.
Dr. Todd. Senator, there are a lot of truisms in the statement
that you have just made, and it would be difficult to disagree with
many of them.
On the other hand, the cost to society, the cost to patients of pro-
fessional liability is higher than the dollars and cents in terms of
withdrawal of physicians from doing risky procedures, leaving prac-
tice for other reasons. We agree that a patient who is injured
should not be limited in whatever amount they receive to rehabili-
tate, to make them whole, to carry them through what might be
a lifelong need for care.
On the other hand, we do not believe that unlimited awards for
pain and suffering serve society well or serve anyone else well. We
have a model in California that has been in existence now for sev-
eral years, where there is a limit of $250,000 on awards for pain
and suffering. Any economics that are necessary will be com-
pensated. We are only talking about pain and suffering. They have
a sliding scale on attorneys' fees. They have structured settlements,
collateral source, technical matters of how the awards are made. It
has worked well, and the malpractice premiums have stabilized in
California. Doctors are feeling better about their doctor/patient re-
lationships because they do not see as much of the adversarial —
is this the patient that is going to sue me next — approach.
And probably most important, the public, those who potentially
may be injurea, have not risen up and said this is inequitable, or
asked for it to be changed.
So we have a model out there that works, and I do not think,
and certainly we at the AMA are not convinced that we have the
right answer for professional liability yet. Our specialty society
group has suggested an alternative dispute resolution that Senator
Jeffords' State has written into their legislation in health system
reform. We want to see how that works.
But until we find a better solution than we have now, we believe
this program should include those provisions that we know to work
and that have been found acceptable to the public.
185
Senator Metzenbaum. I think it might be advantageous for some
of us to reason together with you and see where we go, rather than
getting into a confrontation on the issue.
Dr. Todd. Absolutely.
Senator Metzenbaum. Thank you, Mr. Chairman.
The Chairman. Thank you, Senator Metzenbaum.
Senator Coats.
Senator Coats. Dr. Todd, has the AMA either conducted its own
study or commissioned an outside study that will tell us the actual
cost of what you consider excessive malpractice premiums? And
also, you mentioned the intangible cost of not performing proce-
dures, but isn't there also a cost of ordering extra tests in order to
protect yourself from a liability standpoint?
Dr. Todd. Absolutely. Averages are dangerous to assume because
if you take the average malpractice premium that is paid in this
country, it may not sound too bad until you realize that in Califor-
nia, that has had tort reform, the average premium is $5,500; but
if you go to Florida, it may be $190,000 before a neurosurgeon can
first begin to practice. So there is great variation.
We have done some studies at the AMA that would suggest be-
tween $15 and $20 billion a year of health care costs go to defen-
sive medicine, not necessarily tests that are unnecessary, but prior
to processional liability concerns, a physician will be able to rely on
his or her clinical judgment rather than having to have a piece of
paper or an x-ray film to document everything.
An independent study done by Lewin and Associates end up with
the conclusion that defensive medicine savings could be as much as
$36 billion over a 5-year period. That is an independent study.
Those are the figures that we are working with. We know it is
out there, but quantifying it becomes much more difficult.
Senator Coats. Linda, has the American Nurses Association
done any similar studies relative to the — I assume most of the mal-
practice liability cost is picked up by the organizations that nurses
work for; is that a correct assumption?
Ms. Shinn. In some instances, Senator. However, in other in-
stances, nurses carry their own malpractice insurance. We have
been very fortunate that, with the exception of some of the special-
ists like the nurse midwives and the nurse anesthetists, the insur-
ance has been very affordable.
We have also been fortunate that by and large, our practices
have been such that we have not been subjected to a great deal of
litigation, although we have been subjected to some.
Senator Coats. You indicated support for the portion of the ad-
ministration's plan because it provide for a considerably expanded
role for medical services provided by nurses.
Ms. Shinn. That is correct.
Senator Coats. Have you assessed what impact this might have
on your potential liability? I assume expanding the role moves you
into areas of higher risk, and as a consequence, there might be a
liability exposure that was not present before.
Ms. Shinn. We have given that a great deal of thought, and one
of the things that we continue to uncover is that nurses' experi-
ences by and large in patient satisfaction, patient compliance, pa-
tient adherence to treatment regimens and protocols, patient un-
186
derstanding of what is wrong with them and how to respond, has
been very good. And while we certainly are sensitive to liability is-
sues, I think the quality of the service we provide certainly moves
in the direction of us not having had some of the experiences that
physicians have had.
Senator Coats. I would like to get to the question of the cost
shift. We understand now that the 37 million Americans, or what-
ever that number is, who are either underinsured or uninsured cre-
ate a pool of cost that is shifted and has to be paid for by someone
else in the system. Now, under the administration plan, we are
going to provide those 37 million people with a basic benefit plan —
in fact a basic benefit plan that is described as comparable to a
Fortune 500 plan. I think it is natural to assume that that would
substantially increase utilization of those services among those un-
insured, because I think there is an understanding now that one
of the problems is the uninsured only show up at the emergency
room, or show up in times of crisis rather than for basic medical
care.
Has there been any analysis by any of your organizations rel-
ative to the cost of the cost shift as it now exists versus the cost
of providing the Fortune 500 basic benefit plan and the utilization
that will result from that, and measuring those two? I ask that be-
cause the administration says we are going to get all these huge
savings by avoiding the cost shift, but that obviously has to be
measured against the utilization that is going to come under provi-
sion of those services for 37 million Americans.
Dr. Graham. I think there are two separate parts to your ques-
tion, Senator. One is the existing documentable shifts of cost that
you could find in records today because someone presented himself
for care, and that care was rendered, and he could not pay for it
or he did not have an insurer, so the doctor or the hospital or some-
body else picked it up. That is documentable. I have not see what
those costs are, but that would be fairly straightforward.
What is more significant to us is the second level of cost-shifting,
and that is when you give everyone a basic benefits package, and
when that package is clearly tilted toward preventive and primary
care, the people that we are seeing today where there is cost-shift-
ing show up later, sicker, and in higher cost settings. They do not
come to see the primary care provider. They do not get the preven-
tion. The woman does not get prenatal care; the baby is born pre-
maturely.
It does not take very many middle of the night, emergency room
visits to run up a total cost that would keep you in primary care
for 5 or 10 years, so
Senator Coats. Oh, I understand the theory. I am trying to get
at the numbers.
Dr. Graham. I know of no one who has run the numbers. Once
the specifics of the plan are delivered to you, and the assumptions
are tangible, I think those are things that you will find organiza-
tions such as ourselves and the other consulting organizations
being able to target more accurately.
Senator Coats. And just a final question that all four of you can
answer if you like. With the global budgeting proposal — and some
of you have spoken with different degrees of support or lack of sup-
187
port for it — measured against the increased utilization that will
clearly come and may be justified on the basic benefits package —
and we talk about basic benefits, but it is a pretty good-looking
package — doesn't there have to come a squeeze somewhere in terms
of quality and rationing? Can we have both? Can we provide that
Fortune 500 plan to every American, put a global budget on top of
it to hold down costs, and not squeeze? Something has got to pop
out somewhere, it seems to me, and my concern is that it is quality
and availability.
Dr. Todd. Senator, it seems to us that there are many things
that can be done to make more rational the care that we give, the
cost of that care, improve the efficiencies in how we do it, and get
to see patients sooner before we have to pay for the high cost of
prior neglect, to get the regulatory situation under control. There
is a long way to go before we have to look at an arbitrary budget
that fixes in places the inequities instead of addressing what they
are. And I do not think anyone at this table would object to sitting
down and trying to figure out what is an appropriate national
budget for health care and then find out if we can meet it and, if
we cannot meet it, why didn't we meet it — don't just ratchet it
down the next year and make matters worse, but try to fix what
blew the budget. That is where we are coming from, and we hope
that that will be part of the President's ultimate package where we
can sit down and reason together on how much health care we
should give and how much it should cost.
Dr. Graham. We are not alone in this universe. Germany, Japan,
and Canada are all providing Fortune 500 care to every one of
their citizens and doing it at less cost to their economy than we
are. They all use some nature of global budgeting. None of us like
to talk about rationing, partially because we are embarrassed by
how much rationing goes on today. When the hearing is over, walk
down to Union Station, walk around, and see how we are rationing
care today. I think we can do a lot better.
Dr. Lawrence. I think the important thing in talking about glob-
al budgets is that we all be a part of that process of determining
what that should be. I do not think that up front or in advance we
can say that something has got to go, but we all have to participate
in making that decision.
Ms. Shinn. I would not disagree, Senator, and in fact, this might
be one place where the ANA can agree with the AMA, and that is,
we have all got to come to the table in this discussion, and we have
got to be able to provide this care to the people who do not have
it or are losing it in a cost-effective way, and we cannot sacrifice
quality. We have got to be able to come to those terms.
Senator Coats. Thank you.
Thank you, Mr. Chairman.
The Chairman. Senator Wellstone.
Senator Wellstone. Thank you, Mr. Chairman.
Let me in 5 minutes just make two quick comments and then ask
my two questions and then open it up for discussion.
First of all, Dr. Graham, thank you so much for your response
to the important question raised by the Senator from Indiana. I
was thinking to myself that we do not like to talk about the ration-
ing we do right now, which has a very cruel effect, by income, by
188
employment, by race, by age, by where people live. And I think
that, of course, is sort of the impetus for what we are trying to do
together. I would like to thank all of you for emphasizing the im-
portance of universal coverage and a decent package of benefits,
which are the first two questions people ask. I have hardly met
anybody yet who really talks about all-payer, no-payer, pay or play,
managed competition, or single-payer. People do not just look in
the mirror and ask, "Which one of those things am I?" but they
want to know whether it is a decent package of benefits.
And thank you very much, Ms. Shinn, for emphasizing the men-
tal health, substance abuse, and long-term care. I think we will
have to fight very hard to make really sure that is part of the pack-
age of benefits.
Two questions. Is there consensus on the panel of a concern
about choice? That is the third question people ask — will we have
a choice of doctor? That is to say, with higher premiums — I am not
talking about single-payer, American Health Security Act, which I
am very committed to; we are all working together here — that is
to say, with a higher premium on fee-for-service, or higher copays
and deductibles — and I was asked this question both in inner city
Chicago and, interestingly, enough, in small-town northwest Min-
nesota— will in fact that really be a choice if, in the very commu-
nities where many people may not expect to see these managed
care operations, and fee-for-service makes more sense, we are going
to impose a higher cost. Are you concerned that there may not in
fact really be choice from the point of view of the consumer or, for
that matter, caregivers?
The second question I have, and again, I will go back to the New
York Times. One headline: "Health Industry is Moving to Form
Service Networks." Another headline: "Humana Bets All on Man-
aged Care." Another headline: "Many Patients Unhappy with
HMOs." Another headline: "Hospitals Begin Streamlining for a new
World in Health Care. Hospitals Merging and Closing."
Are you concerned that, as a matter of fact, the very quality of
care that you want to give, that we may have a danger once more
of not competition, but collusion, with micromanagement of
caregivers, where the bottom line becomes the only line, and the
kind of care that you believe you should provide to people is not
there?
Those are my two questions.
Dr. Todd. Senator, we feel very strongly at the AMA that as the
President's program is currently constructed, there will be a signifi-
cant limitation of choice both for physicians and for patients — not
as much are there might be, but it will be a limitation in terms
of the plan that they choose — sorry. The choice will be they will
choose the plan in which they wish to participate.
The problem comes when an illness strikes, or they wish to see
another physician who is not in that plan. They will either have
to pay an additional premium or perhaps all of the cost of having
the choice of going to that plan.
For the fee-for-service, the deductibles and copayments, even
though there is a limit to out-of-pocket, may price fee-for-service
out of the realm of possibility for those who want to participate,
just on the basis of economics.
189
We believe very strongly there are no benign incentives, whether
you go to managed care or fee-for-service, and what we need to do
is to make available to the public the information that will allow
them to make their decisions based on what the economic con-
sequences may be to them. So we think that we can improve the
choice by some modifications, all the while realizing that patients
do have to be involved in the economic consequences of their health
care decisions.
Second, with regard to the giant insurance industries, the head-
lines you see this morning are not as bad as one in the New York
Times some month ago, when Cigna
Senator Wellstone. And there is also a quote from you, which
I did not read, but which I thought was right on the mark. I do
not know — I am agreeing with the AMA — I have to carefully re-
evaluate this. But go ahead. [Laughter.]
Dr. Todd. But in the New York Times section some weeks ago
was the president of Cigna, a $19 billion operation, saying we are
not in the insurance business anymore; we are in the health care
business. And that scares the living daylights out of physicians,
and the doctors scare the living daylights out of patients, when you
think these are profitmaking operations, and they are siphoning
money out of the health care system to pay investors dividends. We
worry about this.
Senator Wellstone. It is a merger frenzy at the moment.
Dr. Graham. We have a number of the same concerns that Dr.
Todd has expressed; our position may be slightly different. What
we see in the Clinton plan that leaves us most hopeful is the fact
that it maintains pluralism. It is a plan which is structured to pro-
vide choice. Now, the question will be as it plays out, does that
work. But the degree of choice in today's system is markedly dimin-
ishing, is gettingless every day
Senator Wellstone. I agree with that.
Dr. Graham. — and I have some concerns about the status quo
if you extend it 10 years in the future and see practically no choice
at all.
So as in all things, when you look at the political side of it, I
think it is going to be a relative measure. There can be problems
with Mr. Clinton's proposal. The problems that we face today with
the limitation of choice of patients with limited insurance options
or no options, and providers, to me are on a worse slope than the
slope described in working out the President's proposals.
Dr. Lawrence. Senator, we in the NMA do not take anything for
granted. We cannot assume that there will be more or less choice,
because for many of the patients, consumers, and providers whom
our organization and the coalition represent, there is no choice
today; there really is not. And what is described in the proposal
would in fact be better. And I am not just talking about the ward
attendant; I am talking about many African American physicians
have very little choice, if you will, as far as where they will prac-
tice, how they will practice, and the same thing for their patients.
So we do not at this point in time have a fixed opinion that the
choice options as described in the plan will be limiting. We do not
see it that way. We are willing to wait and see right now.
190
Ms. Shinn. Senator, we are excited about the choice of providers
that the President's plan envisions, and we think it would be good
for Americans.
Senator Wellstone. I thank you very much. By the way, I fully
appreciated your comment about the status quo and the lack of
choice. I just want to make sure that it is pluralistic. I take it there
is a concern about this merger and concentration of power that I
think could be very bad.
Thank you very much.
Thank you, Mr. Chairman.
The Chairman. Senator Gregg.
Senator Gregg. Let me ask a couple questions, first, about com-
munity rating, which the Clinton plan proposes as one of its hall-
marks, I guess. Isn't that inherently inconsistent with preventive
care and with trying to encourage people to do what is right for
their lifestyles? Doesn't community rating by definition mean that
the person who smokes, the person who is an alcoholic — maybe
using an alcoholic is a wrong example, because that is a person
who is sick — but a person who abuses alcohol, someone who abuses
drugs, the skydiver, the race car driver, end up basically being sub-
sidized by the balance of the community because they all get
charged the same rate?
So there is emphasis in this plan, or at least there is lip service
given in this plan, to preventive and primary care, and yet if you
have community rating, aren't you fundamentally undermining one
of the key incentives for creating primary and preventive care,
which is to say to people who smoke and people who do things
which are conscious decision on their part to undermine or threat-
en their health, that, hey, it's okay to do that, because everybody
else is going to bear the burden of your doing that, rather than pe-
nalize them?
Dr. Graham. Senator, as I have always understood the economics
of an insurance system, it is risk-pooling. Community rating is
risk-pooling with a different set of rules than we have right now.
In the health insurance industry right now, we have risk-averse be-
havior, and you have redlining, and you have exclusion.
I think your points are exactly correct. Any time you sell life in-
surance to someone who has a different genetic makeup, or who
has different employment, you can argue that one low risk is subsi-
dizing the high risk. In our view, the move toward community rat-
ing as part of insurance reform is a far more acceptable way within
our communities to share the risks that we all face.
The other issue that we have to address as professionals and in-
dividuals that I commented on in my opening statement is some
way to get a handle on the implications of individual behavioral
choices. The current system does not do that well; the President's
proposal really does not address it; really, none of the proposals do.
I see that as an open agenda.
Senator Gregg. Well, community rating by definition does just
the opposite. I mean, for you to make that statement is absurd.
Doctor, that is probably the most absurd statement I have heard
today.
Dr. Graham. It is early in the day.
191
Senator Gregg. I mean, to come here and tell me that you are
supporting
Senator Wellstone. I thought it was eloquent.
Senator Gregg. If you are going to come here and tell me that
you think there should be efforts to encourage people to act respon-
sibly in the way they deal with their health, and then tell me that
we should have community rating because it is a nice way to insure
people, you are saying two things which are fundamentally incon-
sistent.
Dr. Graham. I think, Senator, that really, the question is what
is society trying to accomplish, what is the President trying accom-
plish. They are trying to get universal access to health care, and
how do you do that in the quickest fashion? How do you get these
Eeople back in who have been redlined and who have been ignored
y the system, and nobody has been there as a safety net to try
to rehabilitate them.
You talk about destructive behavior, but we are going to have to
deal with the mayhem on the highways, we are going to have to
deal with the gun issues, the interpersonal violence. These are all
things that if they get redlined out of insurance policies, the only
ones who will be covered will be healthy people, and then those
who need it most will not be receiving care.
I think we all understand the concern you have; it is how do you
motivate healthy lifestyles. We just do not think redlining through
insurance is the way to do it.
Senator Gregg. There is a big difference between redlining and
community rating.
If I go to a doctor who is in an HMO, and under the President's
plan, I pick a doctor and say that is my family practitioner, that
is the family practitioner I like, and then I have a specialty prob-
lem— let's say I have a very severe injury or a severe disease — and
I am advised that the best person in this specialty area is in some
other city in some other State, maybe nearby. Under the Presi-
dent's plan, of course, as I understand it, once you are into one of
these systems, you are not going to be able to get out of it. You
are going to have to choose the doctors who are in that specialty,
in that vertical specialty group.
So isn't choice significantly restricted here? Yes, you have the
choice of the entry-level doctor, theoretically, the primary care pro-
vider, but beyond the primary care provider, the referral choice is
dramatically restricted under this proposal.
Dr. Todd. As we understand it, yes, it is restricted economically
in the sense that if the individual were to choose to go to somebody
outside the plan, he would have to pay an additional amount. That
may not be all Dad, as long as that amount is not disabling, be-
cause as we have all said, there has to be some economic discipline.
And indeed, in the quality studies and reports that will be required
of the health plans, if they do not have competent, widespread,
good physicians, people are not going to sign up for those plans. So
that you do have the choice; it is just not a totally free choice.
Senator Gregg. That is a nice response in theory, but in prac-
tice, let us take an example. You are going to have single-State
health alliances. One presumes that within those single-State
health alliances, you are going to have three, four, maybe five ac-
192
countable health plans which are probably also going to be single-
State accountable health plans. They mav not be, but they probably
will be. So if you are from New Hampshire or Vermont or Maine,
and you have gotten an injury which is a unique injury — a child
who has some sort of unique problem — you are going to be limited
in your capacity for referral to the vertical group which is within
that community of physicians. You are not going to be able to go
to Boston where you may have the best person in the country,
which is just a snort drive away. So choice is going to be fun-
damentally and dramatically limited on a regional basis by phys-
ical location of where you happen to be.
Dr. Graham. I think we may read an element of the plan a little
differently than you do, sir. You have emphasized the word
"unique." As I read the outline, the accountable health plans
Senator Gregg. Well, it does not have to be "unique." It just has
to
Dr. Graham. — well, therein lies the difference. As Dr. Todd has
outlined, the alliances are responsible for having a full range of
services that would be needed for the population in their area. If,
for a matter of your convenience or choice, you do not want to ac-
cept those services even though they are medically correct and pro-
vided by a competent provider, then you have an economic dis-
incentive to select another. However, if you
Senator Gregg. Well, I would put to you that that is
The Chairman. Let him complete his answer, please, Senator.
Dr.. Graham. Thank you, Mr. Chairman.
If you do come up with one of those one in a million — your child
has a malignancy which is seen three times a year in the United
States — as I read the outline, there is the flexibility for the ac-
countable health plan to arrange for appropriate therapv, even
though it may be across the country, and the plan will pay tor that.
Senator Gregg. I think the first part of your answer reflects the
fact that it is a dramatic limit of choice.
Dr. Graham. Compared to today? I have wonderful health insur-
ance from my association. If I want to go and see Michael de
Baake, I cannot do it. I have to pay for it. Compared to what, Sen-
ator?
Senator Gregg. Compared to today. If you happen to be in New
Hampshire, and you want to go to Boston to be treated, you can
do it—today.
Dr. Graham. It depends on your insurance.
The Chairman. Well, by and large, the employer makes the deci-
sion today for the employees, if they are covered. We have got to
start learning about the elements of that question. The employer
makes the choice today about what is going to be available to the
employees. They are the ones making the choices today.
We are going to keep the record open for written questions. As
I always say when I sit down and talk about this issue, it is always
informative, and today was especially helpful and informative.
There are clearly some differences among our witnesses on a vari-
ety of concerns about the specifics of the Clinton plan, but never
before has any group so broadly representative of our Nation's pro-
viders stated so clearly unanimously and unequivocally that health
193
security for all people is essential and that the basic thrust of the
President's proposal to achieve security is right on target.
Never bemre has any group of this kind committed itself unani-
mously to comprehensive reform, and never before has such a posi-
tive feeling and desire to work with the President on this issue
been so clearly expressed.
I am more optimistic than ever about the likelihood that we will
finally be successful in guaranteeing affordable health care for all
of our citizens, and I look forward to further hearings we will be
holding on the President's plan in the coming weeks.
Our hearing tomorrow will examine with Secretary Donna
Shalala and otner witnesses one of the most important components
of the President's plan, preventive health.
Senator Jeffords?
Senator Jeffords. Mr. Chairman, I just want to thank Dr. Todd
for his help and that of the American Medical Association over the
years in helping me better understand the system.
I think we had excellent witnesses today, and I want to thank
you all for coming.
The Chairman. Thank you, Senator Jeffords.
[Additional material submitted for the record follows:]
194
Additional Material
Response to Question of Senator Hatch From Mrs. Clinton
Question. Walk us through exactly how the global budget will work, explaining
how the costs are going to be restrained without reduction in quality of care, choice,
access, or technical innovation.
Answer. We do not have global budgets in this plan. We do have enforceable caps
on premiums for plans covering the guaranteed benefits. This is an important dis-
tinction.
Global budget signifies a limit on total health care spending, including copays and
deductibles, spending for noncovered services, and any other health care expenses
individuals may incur by electing to pay for care privately, outside of their nealth
plan. It is a much broader concept than that included in our bill.
A premium cap, by contrast, constrains the rate of growth in the price of health
plans. In the Health Security Act, these caps are a backstop — we are confident that
competition in a reformed market will bring down costs dramatically.
In the unlikely event the caps were triggered — here is what would happen:
Every noncomplying plan in a noncomplying alliance is subject to a reduction in
its premiums to insure that total alliance spending is within the allowed target.
An alliance is considered to be noncomplying if the weighted average accepted bid
exceeds the per capita target. A plan is considered to be noncomplying if its final
accepted bid exceeds the per capita target for that alliance for that year.
The amount of the reduction is equal to the plan's proportion of the total excess
spending that would be generated by all the noncomplying plans in the region.
In addition, each plan that is subject to the reduction reduces its payment rates
to providers by a comparable percentage. This can be adjusted to offset any antici-
pated increase in volume that might result from lowering the rates.
Response to Question of Senator Kassebaum From Mrs. Clinton
Question. How will experimental procedures like transplants be covered?
Answer. The National Institutes of Health supports clinical trials and other clini-
cal research, which assist providers and third party payers in determining which
clinical treatments are effective. The cost of investigational treatment is currently
supported by research funds and by third payers who may cover the cost of routine
care associated with investigational treatment.
NTH also supports efforts to evaluate treatment and prevention efforts through
development of prevention and treatment guidelines ana by sponsoring consensus
conferences. The results of these activities can be used by the proposed National
Health Board in updating the Comprehensive Benefits.
Experimantal treatments for life-threatening disease can be covered at the discre-
tion of the health plan. However, even if the experimental treatment itself is not
covered by the plan, the benefit package includes coverage for routine care during
treatment, if such care would have been provided even if the treatment, if such care
would have been provided even if the individual were not receiving an investiga-
tional treatment. All plans, together with their providers, will determine what is
medically necessary and appropriate treatment on a case-by-case basis.
The National Board will be charged with monitoring advances in medical tech-
nology and will be able to revise the guaranteed benefits package over time to re-
flect these advances. Consequently, a procedure that is considered untested and ex-
perimental today may at some point Decome incorporated into standard, accepted
medical practice. In such a case, the Board could direct all plans to include such
a procedure in their covered benefits.
The Chadiman. The hearing is adjourned.
[Whereupon, at 1:05 p.m., tne committee was adjourned.]
PREVENTION AND THE HEALTH SECURITY
ACT OF 1993: INVESTMENT IN GOOD HEALTH
WEDNESDAY, OCTOBER 6, 1993
U.S. Senate,
Committee on Labor and Human Resources,
Washington, DC.
The committee met, pursuant to notice, at 10:26 a.m., in room
SD-430, Dirksen Senate Office Building, Senator Kennedy (chair-
man of the committee) presiding.
Present: Senators Kennedy, Pell, Metzenbaum, Dodd, Simon,
Harkin, Mikulski, Wellstone, Wofford, Kassebaum, Jeffords, Coats,
Gregg, and Durenberger.
Opening Statement of Senator Kennedy
The Chairman. If it is agreeable with the committee — I believe
it is with our ranking minority member — I will introduce the Sec-
retary, and unless any member has a profound statement, we will
move right to hearing from the Secretary.
Madam Secretary, we are delighted to have you here, and we ap-
preciate your tolerance of our delay in reporting out legislation in
executive session. We very much appreciate your presence here
today.
We are restraining opening statements this morning, so we look
forward to hearing from you. We understand that the President's
program includes extremely important provisions with regard to
health promotion and disease prevention, and we look forward to
hearing from you this morning. You are a good friend to so many
of us on the committee, and we are delighted to welcome you back
before our committee.
STATEMENT OF HON. DONNA E. SHALALA, SECRETARY, U.S.
DEPARTMENT OF HEALTH AND HUMAN SERVICES
Secretary Shalala. Thank you very much, Mr. Chairman and
members of the committee. It is indeed an honor to appear before
you this morning to discuss the President's comprehensive plan for
our health care system.
It is only fitting to appear before this committee, which has been
at the center of so much of our national debate over health care,
education, and civil rights.
The Chairman. Madam Secretary, just a moment.
Could we have order in the committee? We will ask our guests
if they will be kind enough to be seated and restrain conversations.
(195)
196
This is a very important subject matter, and the Secretary is enti-
tled to be heard. Thank you very much.
Secretary Shalala. Mr. Chairman, as you know, it was your
brother, President Kennedy, who first drew me into the public serv-
ice as a member of the Peace Corps in the 1960's and helped in-
spire me to commit my life to the betterment of our Nation s most
vulnerable. And under your leadership, this committee has kept
our focus on the critical issue of health reform.
At HHS, we are enthusiastic about the promise of the Presidents
plan for health care reform. We have worked many months on this
plan and believe it will deliver what the President has promised,
a system that provides every American with the security of health
care that is always there.
The enthusiasm that we have is tempered by the knowledge that
when you have completed this vital legislative process, it will be
HHS, and other agencies, that must implement this program in
rapid fashion so that the benefits and the savings we promise today
quickly become the reality of American life tomorrow. It is a
daunting task, but we look forward to the challenge.
We in the administration know that each member of this com-
mittee believes in the promise of health reform. While we have
given considerable thought to our proposals, we also know that
many of you may have other ideas that could work in tandem with
our own. Over tne coming months, I plan to be here on Capitol Hill
to work with you, to consult with you, and, yes, to struggle together
with you over the details of this legislation. And we commit to you
now that we will listen carefully to your comments and your criti-
cisms; we will study your ideas and work with you to fashion the
very best piece of legislation that we can.
And when we are done, I promise you that my Department will
be ready to share in the responsibility of implementing the law
with all the urgency that it will require.
In his speech to the joint session of the Congress, President Clin-
ton laid out six principles that have guided our work: security, sim-
plicity, savings, quality, choice, and responsibility. As long as we
adhere to these guideposts, we can create a system of health care
that provides the kind of protection for the American family that
we all desire. It has been heartening to hear how much agreement
there is on these principles. If we can agree where we want to end
up, the task of getting there will be made that much easier.
We want a plan that guarantees all Americans the security of
health insurance that is both affordable and reliable.
We want consumers and providers to participate in a system that
is simplified so that all players know what is due them and what
is expected of them.
We want to deliver savings to individuals, to business owners,
and, yes, to the Federal and State governments.
We want to preserve the high quality of our system that truly
makes it the envy of the world, and we want to make sure it is
available to all our citizens.
We want all Americans to have a choice of quality health plans
that compete not on the basis of the slickest marketing campaign
but on the basis of who offers the best policy to meet the needs of
the people.
197
We want our people to have a choice of the thousands of talented
health professionals who, once freed from the red tape of our cur-
rent system, stand ready to provide top-quality medical care.
And, finally, we would ask all Americans — employers and em-
ployees, hospitals and physicians, insurers and drug companies —
to take responsibility for their own health and the health of our
system.
As you know, Mr. Chairman, we share your commitment to ex-
panding our efforts to prevent disease before it strikes. Our com-
prehensive benefit package is rich with preventive benefits that we
believe will save lives and money. For example, pregnant women
will receive prenatal delivery and postnatal care, and their new-
born babies will get well-baby care. Every American will receive
regular physical exams with appropriate counseling and testing to
detect a range of conditions that, if caught early, can be treated
and eradicated. Women' will receive preventive examinations in-
cluding Pap smears, breast examinations, and mammograms. Chil-
dren will receive all required immunizations, well-child care, full
dental benefits, and coverage of eye care. This package of benefits
vast increases the availability of fully covered preventive services
for all Americans. Less than 50 percent of adults are now covered
for routine physical examinations under traditional indemnity
plans or preferred provider organizations.
Insurance alone does not always assure access to health care
services. An enhanced public health system will offer protection
against environmental pollutants, outbreaks of infectious diseases,
and provide education to all consumers. This will include invest-
ments to establish provider networks, to renovate and expand the
number of community and migrant health centers, and to expand
the availability of enabling services as well as expanding the size
of the National Health Service Corps. Through these efforts, we
will guarantee that all children, no matter their family income or
their geographic location, will have access to needed health care
services.
Let me discuss a little further our commitment to quality be-
cause I believe that all of us here today agree that when it comes
to health care quality is job one. Without a system that not just
maintains but improves on the level of quality in our health care,
we cannot guarantee security or any of our other principles.
From the beginning of our efforts, we were determined to pre-
serve what is good about our health care system while fixing what
is broken. For millions of our citizens, the current system delivers
high-quality medicine from some of the most talented doctors,
nurses, and other health care practitioners in the world. But when
that quality is not universally available, the promise becomes a
cruel hoax for those left out of the system. By providing universal
coverage to all Americans, the President's Health Security plan will
guarantee access to health care services.
And by establishing a comprehensive benefit package that runs
the gamut from prevention to treatment, it makes sure not only
that those who are ill get treatment but that those who are well
stay well.
198
By building on an employer-based health care system that is fa-
miliar to our Nation's workers, the plan makes sure that we get to
a universal system without first tearing down the system we nave.
And by guaranteeing all Americans of a choice of at least three
qualified health plans, it provides a choice of quality care.
By adding prescription drugs and long-term care benefits to our
Medicare benefit package, the plan improves the quality of life of
our elderly and disabled citizens.
And by blending our Medicaid population into this new system,
it guarantees that a mother will not have to explain to her child
why they have to travel many miles to a clinic when the practition-
ers in their area will not take "their" kind of insurance.
By eliminating much of the useless red tape in our current sys-
tem, we allow our talented health care providers to concentrate on
patients instead of paperwork.
And by curbing the astronomical rise in health care costs, we can
make sure that all of us — employers, employees, government, and
individuals — can afford to keep the quality we have.
But we do not rest with a simple promise of quality. We will cre-
ate a system that oversees our medical care without interfering in
the relationship between a healer and a patient. It will offer infor-
mation and advice, not a new form or pamphlet. We will ask those
who are involved in the system to grade our health plans, and that
information will be made available to every person in the system.
In conclusion, Mr. Chairman, I know that we share a common vi-
sion, one of a health care system that is secure but not stagnant,
simple but not simplistic, saves rather than saps our resources,
gives us choice not chance, guarantees quality for all not a few, and
asks responsibility instead of risk.
None of this will come easily, not here, not at my Department,
not in our State legislatures, and certainly not in the board rooms
and the family rooms of this country.
But I believe we can work together to make change work for all
of us.
Each of us has come here to our Nation's Capital to improve the
lives of the people we represent. Too often our efforts to achieve
change are necessarily at the margins. Health reform presents all
of us an opportunity to be part of history, to be able as we end this
century to leave behind us tangible evidence of our ideas and our
work.
It allows us to keep the promise of America. Health reform is
about the people in our communities, the people that each of you
represents. It is about our own children. It is about our friends,
and it is about our neighbors. It is about big dreams, big steps, and
bigchanges.
Thank you very much.
The Chairman. Thank you very much, Madam Secretary.
Given the numbers here, we will try at least in the first round
to have 5 minutes, and then we will come back for repeated rounds
and see what progress we can make.
As I understand it, there is only about 10 percent or less of the
programs that are out there, insurance programs now, that provide
anything close to what will be in the President's program. Those,
as I understand again, are HMOs. Only one State, which is Massa-
199
chusetts, requires that every insurance policy have mammography
and pap smears. So there is an enormous vacuum out there in
terms of these kinds of services. Am I correct?
Secretary Shalala. That is exactly right, and as my testimony
indicated, this is literally twice as much as any major indemnity
plan, regular insurance plan that we know of in terms of preven-
tion services. This is an enormous step, Mr. Chairman, from the
point of view of every American toward prevention.
The Chairman. And what are the co-pays and deductibles in
this?
Secretary Shalala. Well, for prevention services, there are no co-
pays.
The Chairman. Oh, there are no co-pays. The administration's
program is emphasizing the preventive, prevention; is that correct?
Secretary Shalala. We put our money where our mouth is; in
other words, ask Americans really to accept a plan in which the
prevention part is free, encouraging people to keep themselves well,
to keep their children and members of their family well, and then
the acute care part of the benefit package introduces some co-pays.
The prevention piece is scientifically based, so we put together a
package based on what the best evidence that we have to date is.
The Chairman. So what you are saying to every family, all the
parents, is that their children are going to be immunized.
Secretary Shalala. Yes.
The Chairman. What you are saying is that the pap smears and
mammography are going to be available to people on a timely
basis.
Secretary Shalala. Yes.
The Chairman. What can you tell us about the numbers or the
times in terms of mammography or pap smears?
Secretary Shalala. Well, let me give you an example. The latest
scientific evidence is that women over 50 ought to go to their physi-
cian and get a mammogram once every 2 years. That is the latest
evidence.
However, we are going to ask the national board to define the
high-risk group, and they also will be able to come in and have
mammographies perhaps even more often. So we are going to not
only cover the group identified by the best scientific information
with 100 percent coverage in terms of co-pays, but we are also
going to identify the high-risk group. The same thing is true for
breast exams, and for Pap smears there is a different kind of
schedule.
Whatever the scientific base is, that could be changed over time
by the national board as they get more information.
The Chairman. So mothers who might have taken
diethylstilbestrol and have higher incidences of cancer, those indi-
viduals that are at higher risk will be able to come in and receive
those services.
Secretary Shalala. Yes, and they will get free coverage, too.
The Chairman. Let me just mention testing. I am thinking now
of lead paint poisoning of children. Many of major cities have that
particular challenge. Will there be testing for lead paint poisoning,
too?
200
Secretary Shalala. There certainly will, and as part of our
screening and part of the exams for our well-baby care strategy, we
will include testing for lead-based paint. As you know, Mr. Chair-
man, I spent a number of years at the Department of Housing and
Urban Development worrying very much not only about lead paint,
but earlier we worried about lead in the air for children. So this
kind of screening, this kind of preventative strategy ought to make
a significant difference in the quality of life in this country.
The Chairman. Well, this is very important, and particularly the
public health aspects of it. Because what you find out with lead
paint poisoning, for example, is that the doctors treat these chil-
dren in the emergency rooms, and very few, if any, hospitals have
case management, and you have the doctors doing it instead of
other kinds of social service management. That is enormously im-
portant.
You have a K through 3 program that some States have, birth
to 3-year programs, which is, as I understand, very important and
successful.
Let me mention one other item. On the service corps, the Public
Health Service doctors, very few of them are dentists. As I under-
stand it, there are only about 17 to 20. This is something that our
neighborhood health center people in Massachusetts told me about.
I would ask you to give attention to that, if you are going to pro-
vide that dental care For children, that we have under the National
Health Service Corps more dental slots because there are not a lot.
But that is an important aspect, particularly in many cities.
Could you just comment on that briefly: What is this going to
mean, for example, for children in regard to dental care?
Secretary Shalala. We have included preventative dental serv-
ices for children, and I think you will find that when the American
Dental Association comes in, they are very enthusiastic about what
has been included. They feel strongly that it ought to be targeted
for children and, again, we ought to start with prevention. The
point is to start early and to get kids into the right habits. So it
is an enormous benefit and a big step forward for the children in
our society.
The Chairman. Finally, as I understand it, there is a change in
the policy for more pap smears and more mammography for those
high-risk individuals. Is that right?
Secretary Shalala. Yes. We actually went through it very quick-
ly. If you read the package, it looks like all we are going to do is
cover women over 50 as part of the prevention coverage. We have,
in fact, added the high-risk group, and that definition will be done
by the national board. That group will also be covered. That is ter-
ribly important because that group needs to be tracked very care-
fully. So they will be coming in for periodic mammograms.
We have not put a timing on that because their physicians work-
ing with them may decide they need to do it every year, not every
2 years. So it is the high-risk group plus every woman over 50.
And, of course, mammograms are available for every woman. The
difference is it is free if you are over 50, and if you are in the high-
risk group, you will have a small co-pay depending on which plan
you join if you and your physician decide that you want them more
frequently.
201
The Chairman. Senator Kassebaum.
Senator Kassebaum. Yes, Madam Secretary, I would like to ask
a bit about the prevention benefits and just how it was decided
what would be included as prevention benefits in the package.
Secretary Shalala. Well, there is a panel, a U.S. Prevention
Services Panel, made up of distinguished experts. We relied on
them to identify what is in the prevention package. In addition to
that, like the other parts of the benefit package, the national board
will be able to make changes as we get different kinds of scientific
information about prevention.
The U.S. Prevention Services Board, also, their recommendations
are consistent with those of the American College of Physicians and
of the Canadian group that does the same kind of prevention strat-
egy. So it is a group that are the experts in the field, and, of
course, both the Department but the national board in particular
will continue to review this.
Senator Kassebaum. Now, these are benefits, whether it is pre-
vention or any other benefits, that are in the package that the ad-
ministration will recommend and will come to Congress, and we
can add or subtract from that package. Is that correct?
Secretary Shalala. Senator Kassebaum, you are absolutely cor-
rect. The first cut of the package, of the benefits package and of
the prevention package, will be done by Congress as part of the
health care reform plan, as part of the Health Security Act. So I
am sure that you will have lengthy hearings on every piece. I can
just give you the background on how the initial draft was put to-
gether.
We are fine-tuning it still a little bit, so in 2 weeks when you
see it, it will be our best work. Then we would be happy to discuss
any part of it.
Senator Kassebaum. You said in your statement that all Ameri-
cans would have a choice of at least three qualified plans. Now, it
is my understanding that the basic benefits would be in each plan.
Is that correct?
Secretary Shalala. That is correct.
Senator Kassebaum. So they would be the same benefits in each
plan offered in different ways as determined by the health alliance?
Secretary Shalala. Well, probably as determined by the health
plan; that is, the plan itself may decide to deliver the services in
different ways. The comprehensive benefits package, which in-
cludes a prevention piece, will be in every qualified plan.
If, for instance, a plan decided that they were going to offer some
supplementary benefits and sell them to members of the plan, they
certainly could do that. But this is a very comprehensive plan, as
you know, in terms of meeting — it is as good as any Fortune 500
company offers. With the exception of prevention, it is a lot more.
Senator Kassebaum. In the prevention section, you address
school-based health clinics, I believe. Is that correct?
Secretary Shalala. I had better check. I do know that we ad-
dress school-based health clinics in our public health section of the
overall plan.
Senator Kassebaum. Right. I did not mean as part of the benefit
package.
202
Secretary Shalala. Certainly the plans could work with schools
if they decided to do that. But certainly as part of the public health
section of the overall package that is coming up, we do provide
some resources to work with school-based clinics. And that is part
of the public health kind of outreach, making certain students get
information.
Senator Kassebaum. I would guess that you as well as I support
strong parental and community control of any school-based clinic.
Secretary Shalala. Absolutely.
Senator Kassebaum. Do you in any way address parental in-
volvement?
Secretary Shalala. It is the position of this administration that
it is parents, the local community, the local officials that should de-
termine the content of what is offered in a school-based clinic. That
includes the wide range of health or counseling services. Those are
local decisions.
Senator Kassebaum. And just one last — no, I have two more
questions. How much time do we have?
The Chairman. That is fine. You have enough time to ask your
questions.
Senator Kassebaum. I believe the President's reform proposal
earmarks some specific research initiatives. Is that correct?
Secretary Shalala. Yes.
Senator Kassebaum. Would it not be better, let me just ask you,
to perhaps leave it up to NIH or CDC recommendations for what
type of research initiatives should be involved in a priority listing?
Secretary Shalala. Those research initiatives that are identified
in the President's proposal were identified by the National Insti-
tutes of Health and the CDC. We, of course, usually ask for the
money and then do that later, but we felt that a way of clarifying
the importance of research as part of the overall prevention strat-
egy of the United States was to have the NIH and the CDC to iden-
tify those areas specifically in the prevention area that they
thought were the top priorities.
Senator Kassebaum. And one last question because my time is
running out, but you talked a lot about prevention, and I know the
administration has suggested, of course, an increase on tobacco as
a means of targeting an area which has contributed significantly
to health costs. But why not then beer and wine and hard liquor?
Secretary Shalala. I think that our explanation for choosing the
cigarette tax at this point is, as Mrs. Clinton explained, when ciga-
rettes are used as directed, they clearly lead to serious health prob-
lems. When liquor and beer are used as directed in moderation,
they do not necessarily lead to health problems. And it was the
health connection that led the President to that final decision.
Senator Kassebaum. Well, I find that a rather peculiar logic,
Madam Secretary, but I know that it was given a great deal of con-
sideration.
Secretary Shalala. That is the best I could do, Senator. [Laugh-
ter.]
Senator Kassebaum. Thank you.
The CHAmMAN. I thought you did just fine.
Senator Pell.
Senator Pell. Thank you, Mr. Chairman.
203
Madam Secretary, I am a strong believer in alternative medicine,
new medical techniques. Thanks to the creativity of a member of
this committee, Senator Harkin, we have an Office of Alternative
Medicine. I was curious how its work is planned to be phased into
the health plan.
Secretary Shalala. One of the wonderful things about that Of-
fice of Alternative Medicine is it will over time change our atti-
tudes and the kinds of medicines and approaches we use to medi-
cine, that we use as part of health care. And as those things are
folded in, the health professionals in the various plans, I am sure,
will use them.
What we are doing with that rigorous new office is to do both the
thinking and the review and to make more visible the results of the
office. But I have no reason to believe that the health professionals
in this country, on being presented an alternative way of improving
the health of an individual, would not incorporate many of those
proposals.
Senator Pell. Madam Secretary, you may have heard of a disas-
ter we had in my own home city of Newport, RI, with a hospital
that did many thousands of pap smears, and they were not cor-
rectly done, and a woman died. What can be done to make sure
that instances of this are not repeated?
Secretary Shalala. Well, I think that both quality assurance
systems within the hospitals as well as within plans themselves
certainly have to be put in place. And anything we can do in terms
of the health professionals themselves putting in place quality as-
surance systems and risk-based systems will reduce those kinds of
terrible experiences. And as we do more scientific research, as we
do more prevention research, as we do more research on risk reduc-
tion, we will be better able to manage a whole series of tests as
well as acute care procedures that we do in this country.
We need a lot more information about what we do and what the
effectiveness is and a lot more data base kinds of decisions and
controls over the quality of our system.
Senator Pell. Finally, I have a more general question; that is
the expense. We spend twice as much as Great Britain on the
health care per citizen, per person. The reason for that is they have
rationing there where a man of my age, for instance, would not be
given kidney dialysis.
How will you handle this question of keeping the costs down and
still have the present philosophy carried out that everybody gets
the maximum medical care?
Secretary Shalala. Well, in two ways. I think that we want to
make certain that we maintain a system of the highest quality.
That means that the budgets of the rate of growth for this system,
we have to be very careful as we make decisions, and there will be
some controversy. There will be some challenging of us on whether
we have made the system too tight.
Second, we honestly believe that with better quality assurance
systems, with more information to our health care professionals,
eliminating the paperwork that now both bogs down health profes-
sionals, our hospitals, and other kinds of providers. But there is an
enormous amount of money in the system that can be focused on
health care, and before there are any discussions about limiting
204
health care for any individuals, we need to get the resources fo-
cused back on health care.
We also believe that what we just talked about, prevention, helps
to reduce the number of people that get sicker. That also frees up
money so that we can focus on those that are very ill.
So I think we are a long way away in this country from that kind
of an approach because there are just so many things that we can
do ourselves to focus our resources more efficiently to improve the
quality of health care for all of us.
Senator Pell. In view of the fact that the vast — I think it is
about a third of the expenses one has in medical treatment is spent
in the last 6 months of one's life, isn't there some way that that
can be reduced?
Secretary Shalala. Well, the decision about the amount of re-
sources to be spent on an individual, no matter what their age is,
is a decision that ought to be made by the family and by health
care professionals, not by a distant government or a third-party
payer.
What we need to do is to make sure that the resources that we
have in this country that are labeled for health care, that we are
willing to commit, are actually spent on health care instead of
paper, so that that health care professional is really free to work
through with the family appropriate decisions.
Senator Pell. Finally, I was struck by the TV program this last
weekend showing how Cuba had pretty well contained, controlled,
and is eliminating AIDS. Were you aware of that program, and is
there anything we can do along the same lines?
Secretary Shalala. Well, there certainly is a lot that we can do
in this country about AIDS, about kids that get sick because they
are not immunized, and these are preventable diseases. AIDS is
preventable for the most part if people change their behavior.
Senator Pell. The basic thing they did was to quarantine every-
one who had it.
Secretary Shalala. Well, that is a pretty extreme proposal, and
I suppose a country like Cuba could do something like that. I think
that our strategy ought to be a public health, a public awareness,
an individual responsibility strategy to begin to get people in this
country to take more responsibility for their own behavior, to re-
duce tne amount of risky behavior. And that is simply more con-
sistent with our democracy.
Senator Pell. Thank you very much.
Secretary Shalala. You are welcome.
The Chairman. Senator Jeffords.
Senator Jeffords. Thank you, Mr. Chairman.
I would like to make you aware of some of the idiosyncrasies of
our system which make it difficult sometimes for us to do things.
I am talking about committee jurisdictions and the budget, and I
will get to the point on that. But right now, for instance, I served
in the House on the Education and Labor Committee. We had ju-
risdiction over nutrition programs, school lunch, WIC, all of them,
and yet when we went to try and do something, we would find that
we had to show savings, that the savings would occur to the Ways
and Means Committee because they had the social programs. So if
205
we were going to improve those programs, we would have to cut
back on education in order to help improve nutrition.
In the Senate, the Agriculture Committee has most of the nutri-
tion programs, except we have the one for the elderly. Senator
Leahy, who has been a champion in the area of nutrition, along
with Bob Dole, if they go to try to improve nutrition programs, they
have to cut back the subsidies or the programs in agriculture.
The reason I bring that up is because nutrition in preventative
health care ought to be a very important element of it, and I am
sure you agree with that. But I just want to make you aware that
when we get into this, unless you have a formula with the budget
people to try and sift out what kind of savings you are going to
get — and we do this in Congress — we are going to run into prob-
lems when it comes to bring the bill up.
I note that there is no mention of nutrition in your statement
today on preventative health, and I do not think the plan really
covers nutrition programs. I would hope you would agree with me
that certainly nutrition is an essential element for the young and
the elderly which could result in savings. I might ask for you to
comment on that as to whether or not you intend to put nutrition
programs in as an element of preventative health care.
Secretary Shalala. Senator, first let me thank you for your lead-
ership. We absolutely are committed to nutrition in a variety of dif-
ferent places in this health plan. There is some focus on it as part
of our commitment to the National Institutes of Health. We need
to know a lot more about nutrition, and it clearly is a preventative
health research issue.
Second, in the public health portion, which you do not have yet,
when the bill comes up you will see a commitment to national pub-
lic health outreach efforts in relationship to nutrition.
Third, in the plan itself, in terms of the comprehensive coverage,
of course a physician, a plan, can either refer a patient for nutri-
tion counseling, make sure that everyone in the plan gets exposed
to nutrition education. It is in the interests of the plans to do what
they can to increase the amount of prevention efforts way beyond
what is outlined in detail because that reduces the long-term costs
for the plan in terms of individuals' health.
So I think that you will find the plans being energetic, and I
think that most health care providers care very much about the re-
lationship between nutrition and someone's health. It is not listed,
though, specifically for prevention under the 100 percent coverage
issue.
Senator Jeffords. Physicians and individuals have suggested to
me that we ought to have an incentive program — I think the next
panel will get into this — to reward people who have sort of lived
the perfect life with no booze, no cigarettes, and they are up every
morning at 6:00 jogging, etc, etc, by perhaps reducing their
deductibles or increasing, rather, their deductibles, reducing their
co-payments. What do you think about that?
Secretary Shalala. Well, you know, that was one of the issues
we struggled with as we were thinking about a comprehensive ben-
efit package and whether it ought to apply to everyone or whether
there ought to be differentials based on someone's behavior. I think
that we concluded that there are enough incentives in the way the
206
overall plan is designed, and for businesses, the wellness clinics,
the wellness strategies that businesses have now instituted, are in
their interest because it increases the productivity of their workers.
It makes certain that people do not miss days because of their own
health. So within the American economy, in American businesses,
they are reporting to all of us that it really makes a difference in
terms of the productivity of their businesses for them to invest in
the plans. So I think they still have a reason to invest in their own
efforts.
Second, the plans themselves have good reason to strengthen
even beyond what we have done the prevention efforts because
anything they can do to reduce the number of people that have to
be dealt with by more specialists in an acute care setting, anything
they can do to get every child immunized, to deal with issues of
obesity, for example, of individual health, will help that plan to be-
come more efficient and to really be a quality plan.
So I think the incentives, botn economic and social, are built into
the plan without getting into lots of differentials among the plans.
Senator Jeffords. Thank you.
The Chairman. Senator Metzenbaum.
Senator Metzenbaum. Good morning.
Secretary Shalala. Good morning.
Senator Metzenbaum. It is nice to see you again.
Under the plan, it is provided that the States would regulate the
quality of the health care programs in the State or the health care
plans. I am aware of the fact that insurance commissioners of the
various States now regulate the health insurance industry. On a
scale of 1 to 10, I would not give them much more than 1. They
do a lousy job. They do a totally inadequate job. And as a matter
of fact, generally with respect to the subject of insurance, the
States, with some few exceptions, fail to meet their responsibilities
to the public.
Now the Clinton administration is saying to us these health
plans are going to be regulated; we are going to have the States
do that. And whether its insurance department — which I would as-
sume would be the case — or some other department, there is not
much reason to think that they are going to do a very adequate job.
My guess is they are going to play favorites. My guess is that the
insurance industry is going to wind up controlling the plans and
the people are going to wind up being at the bottom of consider-
ation as far as health care is concerned.
By that time, the Clinton administration may be out; it may be
8 years down the road. But I am concerned about this whole con-
cept of giving this regulatory authority to the States and why you
are doing it.
Secretary Shalala. Thank you, Senator, for a very good ques-
tion. Let me talk a little about the philosophy, the underlying qual-
ity philosophy behind the plan.
We do not see the State insurance people or whoever is des-
ignated as actually being the single responsible entity for the qual-
ity of the plan. In fact, the President's health care approach is very
much based on us building a quality assurance system in this coun-
try that goes way beyond the kind of State minimums on trying to
determine the quality of a plan. In fact, the best States can prob-
207
ably do now is do a minimum kind of oversight, and as you have
indicated, there has been a varying degree of quality between the
States in terms of what they have done.
A first-class quality assurance program which makes the infor-
mation public, a report card, empowering consumers — one of the
reasons that we have asked that the boards of the alliances have
consumers as well as employers is because the real quality assur-
ance in the system, our ability to compare plans, is actually going
to take into account a lot of new research and a lot of new informa-
tion that we will collect about the plans: how many immunizations
they have done, outcome measures in terms of the success of treat-
ments by the plans themselves.
The health care professionals are helping us to develop some of
these measures as are consumer organizations because they have
had experience working with different kinds of plans. So I think we
will not only have a data base but a new attitude about disclosure
about the information that will compare plans. And we believe that
the real quality assurance in these plans will be based on these
data bases that will be developed, the kind of disclosure that will
be made available, and the report cards that every person in an al-
liance will get that will allow them to compare their plan and the
quality of its delivery system and the satisfaction that those in the
system have about the plan.
Now, this, of course, is a very sensitive area for many health care
professionals, but they are working with us to develop these quality
assurance data bases. So while we will rely on the States to set up
the systems, to draw the alliance lines — certainly the State will
designate their lead hitter, like an insurance commissioner — that
individual, the alliances themselves, and the consumers will have
a lot more information. It really will be a different world.
Senator Metzenbaum. You have been involved with consumer
advocacy groups during your lifetime. What assurance do we have
that the consumers will have an adequate say? It looks good on
paper, but how do we go about the mechanics of seeing to it that
the consumers actually have this impact on the health alliances or
the organizations that will be formed? And I am concerned that
when push comes to shove, the special interest groups will see to
it that their people are there, and the average consumer will not
really have a spokesperson involved.
Secretary Shalala. I think one of the wonderful things about the
consumer movement in this country is that they really do come to
the table, both with governmental officials, with elected officials,
and are sophisticated enough to tell us in the legislation whether
we have achieved a balance that both protects the professionalism
of the system and leaves these health decisions to the health care
professionals and the families, but simultaneously assures the
consumer of due process. We have built in an ombudsman, for in-
stance, as part of this system, an appeal process. And while I am
not convinced when we come up here with our bill in 2 weeks that
we have gotten it exactly right, I think every major consumer orga-
nization will be here explaining to both us and to you whether we
have gotten it right and what their additional recommendations
are.
208
I think it is a continuing conversation, but after we get the bill
passed, even then we are going to have to continue to work with
the system to ensure that this really, from our point of view, is a
buyer's market, not a seller's market, that consumers and the citi-
zens that participate in the plans really do have genuine power to
do more than comment to keep the quality of their plans, to make
sure that they are in a continuous improvement mode. And you
have our pledge that we are not only sensitive, but we see it as the
centerpiece of this approach.
Senator Metzenbaum. Thank you. Thank you, Mr. Chairman.
The Chairman. I thank the Senator.
Senator Coats.
Senator Coats. Thank you, Mr. Chairman.
Madam Secretary, I find that all of our discussion, including this
morning, has been on what the plan will do, and I think we all ap-
preciate the fact that there are areas of health care that Americans
are not now receiving that are beneficial. You have outlined a com-
prehensive benefits package, not detailing every item, but you have
already seen that even with a Fortune 500-plus plan on prevention,
members are saying, yes, but this is not covered or that is not cov-
ered.
Now, you understand the political process and how it works. We
love to give things away. We do not enjoy asking people to pay for
them. Inevitably, it seems to me, the political process is going to
kick in here, and the groups who are not covered will be lining up
making their case for inclusion in the benefits package. And so
even as generous as the administration's proposal is, my guess is
that there will be tremendous pressure to increase even that.
That then leads us to the question of cost, which no one wants
to talk about. It is great to be able to talk to people about what
additional benefits they will be receiving, what additional services
will be covered, how we will expand health care coverage to not
just the 37 million Americans that are uninsured, but many, many
other tens of millions of Americans whose plans do not now include
all those items.
So my question is: What are the hard numbers in terms of mak-
ing all this work in a way that we can afford to provide this cov-
erage? For instance, the administration says that Medicare and
Medicaid savings will total $285 billion over 5 years. Now, when
you run those numbers out, that implies a 15 to 20 percent reduc-
tion in Medicare and Medicaid spending. That inevitably is going
to have to lead to a reduction in benefits; otherwise, you cannot get
those savings.
So on the one hand, we are saying we want to expand coverage,
we want to provide new services, we want to add all these benefits
that people are not now getting in the name of good health and
prevention, and I understand that. On the other hand, we are say-
ing we want to cut $285 billion out of Medicare and Medicaid.
I do not see how those two goals can be accomplished, and when
I look at the way the political process works, I do not see how they
can even begin to be accomplished. I would guess the AARP would
be lining up outside our door very quickly. The leadership in Con-
gress has already said they do not want to see any reductions in
that.
209
So I guess it is left to me to ask the tough question: How do we
pay for it?
Secretary Shalala. Fair enough. I fully expect to be able to an-
swer that question in detail when we come up with our financial
package in a couple weeks with the legislation, but let me tell you
what Sie elements are for paying for it and comment on the Medi-
care cuts, the so-called Medicare cuts, which is really slowing down
on growth in particular.
I might preface, though, my comments by talking a little about
the process that we went through, which, as you know, was very
rigorous. In the process of bringing together all the actuaries and
all of the people who do this kind of analysis at the national level,
combined with the Urban Institute, we have built a model that
even though all of you are going to be under enormous pressure be-
cause everybody is going to want in to the package initially, we
have a model in which, as you are considering whether you should
put something in or take something out, we actually will be able
to give you a fiscal analysis of that.
If that is helpful as part of the discussion, because one of the
things that happens is these packages get shifted around and you
have no idea until the end what the actual costs are. And we will
be available as part of the political process, because we have the
model, to cost these things out.
There are three elements to the financing of the new plan, and
we will both provide detailed briefings when we come up with the
actual legislation as well as make our models available and our
economic assumptions available.
First is that we are asking everybody to pay. This an employer/
employee-based program that we have in the United States. We
pay for health insurance that way. Most Americans who work get
their health insurance through a contribution from their employer,
and in most cases, they make a contribution themselves to their
health benefits. And so we are paying for much of it by expanding
the existing system and asking everyone to pay.
In the case of small businesses, we have indicated that we will
be coming in to discuss the possibility of a subsidy plan to help
small businesses as they adjust to paying for their own employees.
But it is an employer/employee-based plan that we are building on
the existing system.
Second, we are talking about savings, but we are taking the ex-
isting Medicaid program and the money we spend on that program,
plus the State portion of that — and we need to negotiate a baseline
with the States, a minimum, an effort by the States — and we are
putting that into the plan to pay for the Medicaid people that we
are folding into the plan.
In addition to that, we are, in fact, slowing down the growth —
we are going to make recommendations to Congress, and I am sure
we will nave a long discussion about those recommendations — slow
down the growth of parts of the Medicare reimbursement system
for the most part from three times the rate of inflation to just
under two times the rate of inflation.
Now, you may not like the specific items on the list. It is not a
cap and that just throws to the Congress we are going to cap the
system. We are actually going to give you a line item, line by line,
210
of the specific recommendations that we have of where we think we
can slow down some of the growth in the Medicare system. So they
will be very specific to try to slow down the growth in parts of the
Medicare system. And those savings we put in as part of our effort
to pay for this system, and that will help us pay for the new bene-
fits that we are adding for the elderly population.
And, finally, we are adding a cigarette tax, the exact numbers for
which — and we are asking those large businesses, over 5,000, to
pay an assessment that will also go into the new system. But the
vast majority of the money will come from extending the current
employer-based system across every business in this country.
The specific numbers on that, we will come up in 2 weeks; we
will show you our models; and we will show you our details.
Senator Coats. Well, now, Mrs. Clinton said last week it was
going to be 2 weeks, and this has been going on since April. Is
there a fixed date now for coming forward with these numbers?
Secretary Shalala. I think I am operating off of— I cannot give
you an exact date, but I do believe that we are winding up our final
runs and the drafting of the legislation, and I have no reason to
believe that it will not be 2 weeks.
Senator Coats. And so the $285 billion of savings in Medicare
and Medicaid and, as vou said, the reductions, the cutbacks in re-
imbursements and so forth, that will be specifically outlined for us
in 2 weeks?
Secretary Shalala. Not outlined. It will be detailed for you.
Senator Coats. Detailed.
Secretary Shalala. And I want to be very clear that we are not
coming up with outlines. While I cannot run through those num-
bers now because they are being finalized, it will be detailed.
Senator Coats. Will the numbers include the models that were
used to
Secretary Shalala. Yes, end-
Senator Coats. And will that include increased utilization in
terms of — we are taking 37 million people and we are giving them
a Fortune 500-plus plan, as you said. Will that incorporate extra
utilization to give somebody extra benefits obviously they are going
to utilize?
Secretary Shalala. We obviously will be prepared to detail how
we expect to both — where the resources are going to come from to
finance the system and where we believe we are going to get the
savings from in the system.
Senator Coats. We will look forward to those numbers.
Secretary Shalala. Thank you very much, Senator. I thought
you were going to ask me about the Indiana-Wisconsin game.
Senator Coats. I was trying to avoid that. I was hoping the
chairman would cut me off before you raised that. We will get you
next year. [Laughter.]
The Chairman. As Madam Secretary knows, we had the Repub-
lican plan during the budget debate which would have reduced it
$53 billion more than the administration's program. $53 billion
more.
Senator Coats. That was some of the Republicans.
The Chairman. Some of the Republicans. I think the Senator
voted for it. Didn't the Senator vote for it?
211
Senator Gregg. We did not have the detail of the models.
The Chairman. I think our colleagues voted for that as well.
As I understand, also— and then I will recognize Senator
Simon— with the DRGs that went in in 1983, CBO has estimated
that $60 billion has been saved. And according to the Rand studies,
there has been no discernible impact in terms of quality.
Senator Simon.
Senator Simon. Thank you.
As I understand, Madam Secretary, there will be, with the excep-
tion of these preventive services, a co-payment, and I think this is
a desirable thing, though I applaud the idea of not charging for the
preventive services. Our friends in Canada tell us the great mis-
take they made was not having a co-payment, so the system tends
to be overutilized. And we are talking about a co-payment of $10.
Secretary Shalala. Depending on what plan you pick, the co-
payments can vary. You may go into a fee-for-service, for instance,
as opposed to a closed-panel HMO. It is the choices that you have.
But there will be co-payments for a variety of different services
under the new plan. And they look like sort of normal co-payments
for a generous plan.
Senator Simon. Now, my concern, Illinois pays more on welfare—
you are an expert in this field — than most States, and yet in Illi-
nois the average family on welfare gets $367 a month. Now, if you
have a $10 co-payment, let us say you have a sick child and you
end up going into the hospital or to a physician's office three or
four times. If you go four times in the course of a month, that is
10 percent of your salary. Is there any adjustment? How do we deal
with that kind of problem?
Secretary Shalala. Well, Senator, I think that in our conversa-
tions, both with the Hill and in our own re-review of that draft,
that is exactly the kind of thing that many of you identified for us,
and we do have that under review.
Obviously, if we would like everybody to take some responsibility
for their own behavior, we would like at least some contribution.
But we cannot put very poor families in a situation in which we
are asking them for a substantial part of their income for a co-pay-
ment. So that is under review, and I thank you for noting that.
Senator Simon. Senator Coats and others have talked about the
cost factor. It seems to me as I review what you are going through,
you have done a — you are trying to get those cost factors down as
solidly as you can. But there really is going to be a lot of guesswork
in this because we really do not know what is going to happen.
It occur to me as you put the revenue picture together that we
maybe ought to do something that we have not done before in Con-
gress, and that is provide a revenue source where there is some
flexibility, where the administration, after consultation with the Fi-
nance Committee and the Ways and Means Committee, can have
some flexibility so that we, in fact, meet whatever the needs may
be.
I hope the projections are correct. I think there is a very real pos-
sibility, as you increase utilization of our health delivery services,
that we may have some problems in this area. I just pass this flexi-
bility idea along that I would hope you and our colleagues in the
House and the Senate would consider.
212
Secretary Shalala. We look forward to discussing that with you,
Senator.
Senator Simon. Thank you, Madam Secretary.
The Chairman. Thank you very much.
Senator Gregg.
Senator Gregg. Thank you.
Let me ask you one procedural question because I am not sure
I understand how the actual process of the bill works. First let me
say that I look forward, as I think the whole community does, to
the detail that you reflected and the fact that you are going to give
us access to the models. I very much appreciate that. That will be
of big assistance to us figuring out what the numbers are.
Secretary Shalala. And econometrics training along with them.
[Laughter.]
Senator Gregg. I will just turn it over to somebody who claims
to have had econometrics training.
If a woman goes into her doctor whom she has chosen — she has
chosen an HMO, and she has a primary care doctor, and she goes
to that primary care doctor for preventive medical checkups, a
mammogram, for example, or a pap smear, and the benefits pack-
age says you can get one every 2 years if you are over 50 — and I
understand the Cancer Society's recommendation is that it be every
year for mammograms — I am not suggesting that that be made
part of the benefits package, but this is where my question comes
in. If that woman says to her doctor, "I would like to have a mam-
mogram this year, but I had one last year; therefore, it is not cov-
ered by my plan, it is not covered in the benefits package," as I un-
derstand the way this whole process works, her doctor cannot give
her a mammogram and have her pay for it because her doctor can-
not take balanced billing payment. She would have to go to another
doctor in another plan and purchase that additional mammogram
in the following year.
Do I misunderstand the way this works?
Secretary Shalala. Yes, I think so, Senator. What is detailed in
the plan that you are reading is the prevention part of the plan;
that is, what we will provide 100 percent coverage for. That means
that what is free is coming in every 2 years for a mammogram. But
if a woman and her physician — if he decides it is medically nec-
essary for her to have a mammogram, then it is covered. It may
require a co-payment depending on the organization of that plan.
What we are reading now is the prevention piece that we are
providing with no co-payment as opposed to other kinds of medi-
cally necessary services, which we could never detail, unless you
really believe that the Government ought to write every detail
down as opposed to a plan that makes medically necessary deci-
sions.
Senator Gregg. No, that was not really the thrust of my ques-
tion. I guess my question really was not tnat clear. The point I am
thinking is that as I understand the basic concept that is being
presented here, you cannot buy services from your doctor, is essen-
tially what I am saying. You cannot go to your doctor in whose
plan you are enlisted and buy the additional services that you
want. You can buy services. You can go out and use cash to buy
services, but you cannot buy them from your doctor. You have to
213
buy them from another doctor because your doctor cannot take bal-
anced billing.
Secretary Shalala. Let me say to you, if the example is a mam-
mogram, it you go to your doctor and say, "I am really nervous, and
I would like a mammogram this year even though I had it last
year," and you and your doctor decide that it is an appropriate
thing for you to do, tnat is covered. You will pay your co-payment,
but that is covered.
If you, however, do not find a medical provider in your plan who
thinks you ought to get something but you insist that you want to
get it, one of the things that we are looking at now is something
called the point of service option, and that is you end up going out-
side the plan. And the plans will have different rules about wheth-
er they will pay a portion of that or whether you can just go out-
side and get
Senator Gregg. But do you have to go to another doctor, is my
question. As I read the language — and obviously it is in general
terms now — you would have to go to an entirely different set of doc-
tors in order to get that treatment. You could not go to the doctor
who you were enlisted with.
Secretary Shalala. I just do not think that that is what hap-
pens. It is within the plan, and you pay your co-payment and you
get the service that you want.
Senator Gregg. Well, maybe we could get some clarification.
Secretary Shalala. Yes. Let me ask a prevention expert.
Senator Gregg. Well, that is okay. Maybe you could just drop us
a line or something on it.
The Chairman. As I understand the question, you are talking
about not medically necessary. So we are talking about something
which is not medically necessary and how someone is able to pur-
chase nonmedically necessary services.
Senator Gregg. From his or her own doctor.
Senator Wellstone. If you talk your doctor into it, medically
necessary, you can receive it. If you do not
Senator Gregg. You have to go to another doctor.
Senator Wellstone. No. The balanced billing means the doctor
cannot charge you more than the regular fee. That is what bal-
anced— that does not mean you cannot get the service.
Secretary Shalala. That is what balanced billing means.
Senator Wellstone. So you have the services and the charges
confused.
Senator Gregg. Well, maybe I do. Maybe I can get an expla-
nation.
Secretary Shalala. We will provide it in writing.
Senator Wellstone. I will send you a postcard.
Senator Gregg. Thank you. That would be great.
Secretary Shalala. We will provide it in writing, but we think
that the mammograms are covered. Someone might use a point of
service option and go outside if they really wanted to go to another
specialist or something else. But we believe it is covered.
Senator Gregg. OK. Well, on another topic, then, as I look at
this proposal, you have a cigarette tax which represents about $100
billion, and you have deficit savings which represent $91 billion. So
really the cigarette tax you are talking about — and I do not oppose
214
philosophically a cigarette tax. In fact, when I was Governor, I
raised cigarette taxes. Really, the cigarette tax is going to create
deficit reduction, is it not? It is not really going for the purposes
of this health care plan?
Secretary Shalala. I think I would rather wait until we have the
final numbers. The cigarette tax could well be assigned to part of
the plan.
Senator Gregg. But I mean as long as the only tax you have in
the package raises $100 billion and you have $91 billion of deficit
reduction, all you are really doing with your tax is creating a defi-
cit reduction number. And that may be good politics, but it really
does not have a whole lot to do with health care.
Secretary Shalala. That could be true of part of the employer
contribution, too. I mean if you wanted to assign part of the financ-
ing to deficit reduction. I think it is safer for me to say at this mo-
ment, since I cannot confirm your $100 billion number out of the
cigarette tax, for us to wait and see what the whole package looks
like, what the deficit number is. But, you know, the deficit, if there
is a deficit, a substantial deficit piece in this, it could be assigned
to any part of the financing. It is a coincidence that the numbers
look close together.
Senator Gregg. Thank you.
Thank you, Mr. Chairman.
The Chairman. Senator Dodd.
Senator Dodd. Thank you, Mr. Chairman.
Welcome, Madam Secretary. I would note just as a preface that
when you were president of Hunter College in 1986, some 7 years
ago. y°u wrote a report on the needs of America's poor children,
and as part of that, you called for a comprehensive initiative to pro-
vide preventive meaical care for children. So you are not a new-
comer to the issue, and it is with that preface that I would like to
ask three questions, two that relate to children, and a third that
deals with the elderly.
I happen to subscribe to the view that there is no better way to
address the cost of health care — not throng Medicare or Medicaid,
or through a cigarette tax — than prevention. This has been dem-
onstrated over and over and over again, and I think the President
was accurate in talking about the importance of personal respon-
sibility, of how people conduct their lives, and obviously, of the in-
vestments we make early on.
We in Connecticut have full funding for immunization programs;
you do not have to pay a nickel for tnem. The State picks up the
cost, and yet we only get about 65 percent of the 2-year-olds. So
despite the fact that we have universal availability for child immu-
nizations, we are not achieving the desired result. I might add that
a lot of effort is going into this.
I would like you to first address the question of how we are going
to achieve fuller coverage in the immunization area, just some
practical ideas.
Question No. 2 relates to a second group of children. Everyone
talks about the importance of infants, but children ages 6 to 19,
which includes adolescents, under the draft report as it is right
now, will receive only five clinical visits between the ages of 6 and
19. The American Academy of Pediatrics and others are rec-
215
ommending at least twice that number of clinical visits for children
in that age group, because of sexually- transmitted diseases, teen-
age pregnancies, violence, and a lot of other issues.
I realize this is a draft report, but let me just tell you how I feel
about it. I think the American Academy is absolutely correct, that
we are doing a tremendous amount at the early ages, but that 6
to 19 is a critical age group. And again, given the fact that preven-
tion will save billions of dollars, we can do a better job in that age
category. It seems to me that five clinical visits is painfully short
of what needs to be done.
My third question relates to older Americans and prevention. A
paper in the American Journal of Preventive Medicine reported
that Medicare currently pays for only 4 of the 44 preventive serv-
ices recommended for the elderly by the U.S. Prevention Service
Task Force. We have raised that number slightly by covering flu
vaccines. I would like to get from you, as the third part of my ques-
tioning, what we are recommending with regard to preventive serv-
ices and the elderly. This again goes back to the basic point that
there is no quicker way to save taxpayer money, it seems to me,
than in this particular area. I realize we are dealing with a draft
report, and you are seeking recommendations and ideas in this re-
gard, out I am utilizing your presence here to emphasize the sig-
nificance I place on prevention, particularly in the area of children,
but also noticing what was recommended in the area of the elderly.
I would be interested in your response.
Secretary Shalala. Let me start with the immunization and the
outreach. I have spoken to this committee before, and one of the
things I said was that as we mounted the national immunization
campaign, one of the reasons why we wanted to provide the vac-
cinations to physicians and not simply through community health
plans is because we were well aware of the need to get that connec-
tion between the physician and the family very early on— well-baby
care and all the other things that need to take place.
What the President's plan in draft form now does, going back to
the quality assurance issue, is one of the things that we will meas-
ure those plans by is whether they have gotten all the kids immu-
nized who are in the plan. They will have an incentive as part of
their quality management system, not only an incentive to get ev-
erybody into their prevention programs because that will help them
to hold down costs, but also because it will really make them a
quality plan.
So as we have talked about what is going to be in the report
card, I can guarantee you the percentage of preschool kids who are
immunized is going to be in that report card.
Not only will the plans themselves be doing outreach on their
prevention services because they are going to be measured by
them, but our public health initiative will continue our national ef-
forts to remind everybody about the range of prevention, in particu-
lar immunization, where we need to get young people in.
Second, on the whole issue of children's services and whether we
should focus more attention particularly on high-risk kids in the
prevention area, one of the reasons the plan still is in draft is be-
cause of these kinds of consultations, and we are, as we did on the
mammograms and on the breast examinations, continuing to look
216
particularly at whether we ought to cover high-risk groups, wheth-
er it is women in terms of mammograms on the prevention side so
there are no copayments, or whether it might be expanding some
prevention services for children. We will look at that very carefully.
On the elderly and prevention, I absolutely agree with you, and
our goal is to substantially beef up the Medicare program in rela-
tionship to prevention. We have mounted, as you know, a national
campaign — I just did two more TV spots yesterday — and you will
be interested that Fernando Torres-Gil, the new assistant secretary
for aging, has done them in Spanish for us — telling our elderly pop-
ulation that they need to get flu shots, they need to get them now,
they are free under the Medicare program. And the press has been
tremendously helpful in getting the information out. I even told the
President to call his mother — I do not know whether he did or not,
but the point is I have told everyone to call their family members.
As part of this national campaign, we need to personalize that,
but increasing attention to prevention. I was at senior citizens'
homes' activities over the last 2 weeks, and in every group what
we talked about was prevention. As we get the institutions that
work with our elderly population to do more about prevention, to
get them their flu shots, pneumonia shots are going to be terribly
important; so, absolutely.
Senator Dodd. Thank you very much.
Thank you, Mr. Chairman.
Prepared Statement of Senator Dodd
I would like to thank Secretary Shalala and our other witnesses
for being here today to talk with us about the important topic of
preventive medicine and how it fits into the President's health care
reform proposal.
Secretary Shalala has been a leader in this area, and she has not
simply happened upon it recently. As president of Hunter College
in 1986, Dr. Shalala wrote a report on the needs of America's poor
children, and part of that study called for a comprehensive initia-
tive to provide preventive medical care for our children.
The need for preventive care
The fact that we are here, seven years later, discussing this prob-
lem again is frustrating. Frustrating because we know the value of
preventive medicine, but we fail to act on what we know. Like Sec-
retary Shalala's analysis in 1986, countless reports have shown
that preventive medicine is good medicine and good public policy.
By stopping illnesses before they happen, or catching them in
their earliest stages, we can stave off major health problems. This
often ends up saving money in the long run. But despite the dem-
onstrated need for preventive care, it remains the neglected step-
child of our current health care system.
Less than four cents of every health care dollar we spend goes
to preventive medicine and health promotion. To put that figure in
perspective, we spend nearly a quarter of every health care dollar
on administrative costs. We are spending more than six times as
much on paperwork for and about sick people as we are on trying
to keep people from getting sick in the first place.
217
The Clinton plan and preventive medicine
I know I'm preaching to the choir here, and I applaud the admin-
istration for stressing the importance of prevention in its health
care proposal. Coverage for physical examinations, mammograms,
cholesterol screening, child immunizations and other preventive
measures are all included in the president's plan. Like other parts
of the proposal, we will be working out the details in the months
ahead. For instance, how often should people be eligible for these
tests and examinations?
All of the fine print will be resolved, but the principle is the criti-
cal thing at this point, and the principle has been clearly stated:
prevention is important. For that, I commend the administration.
Child immunizations
I am particularly interested in the issue of prevention because it
is so important to children's health. I think one compelling example
illustrates this point. Immunizing children against measles is an
excellent case study in how simple, preventive medicine can protect
a child from an unnecessary disease and save significant amounts
of money down the road.
Despite the overwhelming evidence in favor of measles vaccina-
tions, the United States has what can only be described as an ap-
palling record in this area. The measles immunization rate for one-
year-olds in the United States puts us below India, below
Zimbabwe, below Iran, below Vietnam, and below Mongolia.
Here is a situation in which it can be proven that a small invest-
ment in preventive medicine would save money down the road. It
is estimated, for example, that the measles outbreak of 1989-91 in
this country led to more than 44,000 days of hospitalization. Each
1,000 cases of measles during this epidemic cost $3 to 4 million in
medical expenses.
Yet despite the strong case for action, despite the knowledge that
inaction leads to needless illness and unnecessary expenses, our
system fails to take the simplest of preventive measures.
Child Health Day
This past Monday was Child Health Day, and to mark the occa-
sion the American Health Foundation released a report on child
and adolescent health in this country. After reviewing the United
States' performance on a wide range of preventable childhood
health problems — from substance abuse to lead poisoning, from
sexually transmitted diseases to child abuse — the foundation gave
us a grade of C minus.
We are the world's one remaining superpower, we have an econ-
omy that, despite its problems, remains the envy of the world. Yet
we can do no better than a C minus when it comes to looking out
for the health of our children. That is a sad statement on our prior-
ities as a nation.
Youth violence
One of the major preventable causes of medical problems in chil-
dren is violence. I have been doing my best to bring the crisis of
youth violence to the attention of my colleagues this session. Four
218
thousand children every year in the United States are murdered.
Thousands more are seriously hurt in violent incidents.
The statistics tell us that today, as we gather here to discuss
ways we can prevent illness and injury, 12 children will die victims
of violent crime. Nine out of every ten murders of young people in
the industrialized world happen in the United States.
Again, I am not telling the Secretary and our other witnesses
anything they don't already know. I commend the administration
for recognizing that violence in our society is a major contributor
to our health care crisis. And I look forward to continuing to work
with Secretary Shalala, Attorney General Reno and others in the
administration to address this terrible problem.
Conclusion
I would like to close by again commending Secretary Shalala for
supporting an approach to health care reform that is not limited
to treating disease and injury after they happen but to trying to
keep them from happening in the first place. Thank you.
The Chairman. Thank you, Senator Dodd.
On Senator Dodd's point about the public health delivery, we had
a hearing in Boston, and we have an excellent program in Massa-
chusetts. It costs about $600, and they track people almost 90 per-
cent in terms of TB. If you go to Harlem, where they are able to
track 10 percent, it costs $20,000 to treat. So this kind of invest-
ment in terms of the outreach aspects has enormous cost implica-
tions.
Senator Durenberger.
Senator Durenberger. Mr. Chairman, thank you.
Madam Secretary, I would like to have time to ask you two ques-
tions. One is on defining health, and the second is on universal cov-
erage.
I recently discovered that if I contribute to the Combined Federal
Campaign, it is not really a United Way, where the money goes to
all the deserving organizations; it goes to organizations that are
designated for specific purposes. So this morning at 7 o'clock, I was
with a little group of 60 to 80 people that a congressman brings
together every Wednesday morning in the new library in the heart
of the city, and they pray for the people of the city, and one of their
organizations is called People's House — and if there is any tele-
vision on me, it is CFC Number 7390. People's House has been put
together by a Democratic Member of Congress and a lot of other
people to try to respond to the desperate needs of people who live
in this community.
This community is not that different from other communities in
the country. At this little group this morning, one of the people
who was there said, you know, there ought to be a sign for a lot
of people in this town. When you come into this town, it says "Wel-
come to Washington, DC, Mayor Sharon Pratt Kelly," etc. Then
there ought to be a little sign, out of Dante, that says, "Enter here,
all ye without hope," because in this community, there are thou-
sands and thousands of people without hope. You need only pick
up our newspapers and watch our television. And it is true in Min-
neapolis, and it is true in Bridgeport, CT, and it is true all over
the country.
219
So my first question really deals with the issue of health, broadly
defined. I know we have all this concentration on health insurance
for everybody and so forth. And all of the discussion this morning,
as I know it — and I am also running down to a Finance Committee
hearing — has been about prevention and wellness. We have not
talked a lot about poverty, and we have not talked about homeless-
ness, and we have not talked about all the many other generational
driving forces that adversely impact on health in this country.
So what I would like is either your observations about what the
President said about increasing personal responsibility or your ob-
servations about how a national Government's public health pro-
grams, which have not succeeded in doing anything other than
slowing down, perhaps, the incidence of violence and self-abuse and
abuse of others, and everything else in this country — how a na-
tional health care system is going to do something for the real seri-
ous health problems that a lot of people in this country face.
Secretary Shalala. Well, that is a very thoughtful question, Sen-
ator. I am not sure I can do it justice in a few minutes.
This is not simply a narrow health program for a narrow, limited
group of people. The significance of the program — and while I think
the prevention piece is key — is the comprehensiveness and the cov-
erage for every American. What this does is significantly raise the
quality of health care for the poor as well as for the rich, for work-
ing Americans.
It does deal with issues that have ravaged our communities,
whether it is AIDS— if you have AIDS in this country, you are
more likely than not to have either lost your insurance or are un-
able to get insurance — so it is the broad coverage, the access for ev-
eryone of a comprehensive program, but it is the message that that
sends. It is not simply that everybody is going to be able to bring
in their children to get immunizations, but it is a message that in
this Nation, we believe that the quality of life we are going to in-
vest in in terms of giving people a real chance to lead healthy lives.
But they are going to have to do some things. They are going to
have to take some responsibility for their own behavior, whether it
is risky behavior. They are going to have to share some of the cost.
They are going to have to take responsibility for their kids to get
them in.
We are going to get a top-notch professional, a primary care phy-
sician, to work with them and their families, but we are also going
to expect them to not only share economically in the responsibil-
ities but to share personally in the responsibility for their own
health and for the health of their families.
So it sends a fundamental message about what I think the coun-
try is about. It also has broader underpinnings. I think we see the
link in the Department between everyone getting coverage, which
is wonderful, but also the connection with public health, which is
far broader than giving everybody access to vaccinations or to
mammograms. It includes issues like security
Senator Durenberger. Madam Secretary, I really appreciate
your response, and I do not mean to cut you off except that I have
gotten a little sign that says my time is running out.
Secretary Shalala. OK But it includes issues like violence, from
our point of view; it includes issues like poverty. And there are
220
many people who are poor in this country who cannot get up and
get off of poverty and go to work because they do not have health
care. So the connection between working and health care, the con-
nection between domestic violence and our ability to put programs
in place
Senator DURENBERGER. And we have had this discussion before,
and I think in this committee in particular, everybody is much
more sensitive to the issue than they are in other committees. But
I am leading up to another question and observation which is that
everywhere I go to speak in large groups, I am asked this question
about where is public health, and where is this insurance plan.
And I iust caution you about too much expectation that an insur-
ance plan is going to be able to cover all of the things that are real-
ly wrong in our communities.
We are in the third generation of poverty, and sort of a loss of
conscience and whatever else it is in this community and so many
other communities around this country, and it is going to take a
bigger effort than that.
Tne problem for a lot of people is there is $903 billion this year,
one-seventh of our economy that is just going into the doctors and
the hospital part of this system — so what is left for the poor? I
mean, what is left to deal with these problems?
Just saying that we are going to get rid of Medicaid, and we are
going to have a low-income voucher program, is not really going to
meet those expectations. And I am not sure — and this is my ques-
tion— I am not sure that until we can demonstrate to the American
people that this new system of getting care to people at a lower
price, bringing that 14 percent of GNP down, is actually going to
work, that we are going to have the resource commitment to fund
it universally, because so many people realize there is much more
to this problem than just insurance.
So my question is one I asked the First Lady also last week, and
that is why don't we demonstrate the value of whatever new sys-
tem we can all agree on, whatever these rules are, and begin to let
the system work from community to community before we insist on
universal coverage all over this country, when you have such a dis-
parity in what the systems are producing today by way of quality
and cost? Is there an easy answer to that question?
Secretary Shalala. Well, the easy answer is that this system is
based on universal coverage. If you are really going to both have
an impact on poverty for people and see the link between health
care and welfare, for example, then universal coverage is very im-
portant as a key part. But I would argue that the Congress has al-
ready taken enormous steps, and if you link this national effort for
health care reform to what this Congress has done on the earned
income tax credit, those are two enormous steps for the working
poor, for example, in this country.
I would argue that we have tried all the incremental pieces. We
have tried to link all the pieces together, and unless we are pre-
pared to take a giant step in health care, we not only cannot have
an impact on poverty, but we cannot have an impact on our econ-
omy. One of the problems the economy has in creating jobs is that
the health care costs cannot be planned for by most of our busi-
nesses.
221
One of the problems that people on welfare have is that if they
get off welfare in this country and take a minimum wage job, they
lose their health care.
So that the only way that I know of to deal with issues like pov-
erty in a signal and a significant strategic way to deal with issues
like poverty is to understand the linkage between health care re-
form and our economy, and some of the other things that we are
doing. If you see that, then you see what an enormous step this is
to deal with other kinds of fundamental issues like lifting people
out of poverty.
Senator Durenberger. Thank you.
The Chairman. Thank you, Senator Durenberger.
Senator Harkin.
Senator Harkin. Madam Secretary, again my compliments to you
for taking this on and for focusing your attention on prevention.
That is what this hearing is supposed to be about. As you know,
I feel very strongly that unless we really have this as the underpin-
ning of our health care reform, I do not care how you fund it or
who pays or whether it is single-payer, multipayer, or whatever it
is, if we do not really have prevention as the underpinning of it,
we are just reshuffling some chairs, and we are really not going to
accomplish much.
So I have four things that I would like to cover with you, and
they all deal with prevention. The first is children. It has to do, I
guess, with the immunization problems we have had. I mean, we
can get the money for immunizations, but we really cannot get peo-
ple in. These young children whose mothers are, in most cases, sin-
gle mothers are barely literate and low-functioning, and they really
just have no incentive to bring them in. I am wondering again are
you going to build into this plan both the carrot and the stick ap-
proach— in other words, incentives to get these people in on the one
hand, and if they do, they see some tangible benefits; on the other
hand, if they do not, they may see some tangible losses.
I am, again, hopeful that this will be built in and not just left
up to the plan to do it, because I fear that the plan in terms of try-
ing to hold costs down will think of the immediate cost and not
think of the long-term benefits. That is what Senator Kennedy was
talking about in terms of the costs. So I hope that will be built in.
Second, prevention in schools, or school-based prevention. I just
read an interesting statistic in Working Mother Magazine — you
may wonder why I am reading Working Mother Magazine, but I
was
Senator Mikulski. I am taking note of that.
Senator Harkin. Less than one-third of the children in elemen-
tary school now receive some physical exercise or physical edu-
cation during the day. Again, I know you are Secretary of the De-
partment of Health and Human Services, and this gets into the De-
partment of Education, but I hope we can break this down in some
way so that in the health care plan that we are looking at, we can
build in incentives for school-based physical exercise and physical
education. That will, again, give rewards or incentives to kids to do
this.
One of my kids is in elementary school in Fairfax County, and
they have physical ed every day. If they meet certain arm, leg,
222
heart, lung, and weight/height goals, they actually get grades for
it. It is built into their grade base, which sends them a signal that
not only do they have to prepare their minds, but they have to pre-
pare their bodies also. It is that kind of thing that I hope will be
built into the health care plan.
The third part of that is the school lunch program. There is just
too much fat and too much sodium in the school lunch programs.
Again, I know that is not under your jurisdiction, but it sure is
part of the health problem in America today. These kids are getting
too much fat and too much sodium in their school lunches. Again,
this has got to be built into this health plan.
So I just wonder if those three items — first, incentives for low-
income mothers to bring their kids in, or a tangible loss if they do
not; second, something that would promote physical education and
physical exercise in elementary schools; and third, focusing on the
school lunch program — are these things that are being thought
about in a way that will not just be an ancillary thing under the
health care program?
Secretary Shalala. Senator, let me answer it at one level, and
then continue the conversation with you. The point that you are
making, which is so good, is that if you are really committed to pre-
vention, it is not just prevention services as part of the comprehen-
sive benefit package, but that this country has to move to a dif-
ferent level, whether it is the Department of Education or the De-
partment of Transportation. The new Secretary of Transportation
is very interested in what role that Department can play in rela-
tionship to prevention, whether it is seatbelts or other kinds of de-
signs. The Department of Agriculture has already initiated some
things in relationship to what is going into the meals that our kids
are getting. The Government of the United States itself, the Clin-
ton administration, has to see all of these connections way beyond
what is in the comprehensive benefit package
Senator Harkin. That is very true.
Secretary Shalala. — and it is that kind of strategizing that we
are indeed doing. In fact, one of the three themes of the Depart-
ment that is not just focused on health reform is prevention. So it
is not only prevention for us under the assistant secretary for
health, but it is also the assistant secretary for children and fami-
lies, the head of the office of aging — it is stretched throughout our
Department so that everyone sees prevention as one of the major
strategies. That is exactly the way we are thinking. We are think-
ing about what the supporting pieces are that make that com-
prehensive benefit package work.
Senator Harkin. Yes, because I think a lot of people do not think
about the school lunch program as being part of a national health
care system. I say it is vital to it, vital to how these kids start,
what they eat and how they eat when they are in grade school.
So again, I just hope that that is part of this package.
Second, workplace prevention. Employers are going to pay 80
percent, employees 20 percent. Some companies have good wellness
programs for their employees where they give incentives to their
employees — if they quite smoking, if they meet certain goals, cho-
lesterol screening, blood pressure, that type of thing. If a company
has a wellness program which can meet certain goals set out by the
223
national health care board, I think they should also get an incen-
tive— may be a reduced rate; maybe they should not have to pay
so much in, a little cut rate, to encourage and give incentive to
businesses to set up wellness programs, to get a discount, for exam-
ple. That is, again, part of prevention.
Now, again, you run into the costs — well, we lose money coming
into the system. Again, that is what I am afraid of, that we are
going to look at the up front costs so much that we are going to
forget about the downstream benefits of putting more into preven-
tion.
Third, as you said, the national board would make recommenda-
tions on preventive measures based on science. Well, this gets into
my whole thing about research and that we have to focus on re-
search. I will make this point publicly again as I have to you pri-
vately many, many times. We had a big debate here on the
superconducting super-collider, and all of the benefits that we were
going to receive from it — ephemeral at best, maybe 20, 30, 50 years
from now — but there is one project that I think is so much more
important than the collider or the space station or anything else,
and that is the Humane Genome Project. That, we are going to see
tangible benefits from immediately. Dr. Collins tells me we can fin-
ish that project; we can map it and sequence the gene by the year
2000 if we have enough money.
Now, what does that mean? Well, cost savings. Getting back to
breast cancer, for example, not every woman needs a mammogram.
Some women do not get breast cancer. If we can find the genetic
markers that indicate which women are susceptible to breast can-
cer, those that are not do not have to get mammograms every year.
Those who do should, at an earlier age, maybe 34, 35, something
like that. The cost savings from that alone will be remarkable.
So that is just one area, and we can do this by 1997, 1998. But
unless we put the money into the Human Genome Project, we will
not have that, and we will not be able to realize those cost savings.
I know you agree with me on that, but I just wanted to make that
point again publicly, that we are not getting the money into the
Human Genome Project that we ought to be getting into it. We can
finish it, and we will finish it someday; if we just dribble along
now, we may finish by 2020 or 2030. But we can finish it by the
year 2000 and map and sequence the entire human gene. What
that will do for us in terms of preventive health care will be re-
markable.
Finally, on alternative medicine, just to pick up on what Senator
Pell said, the Eisenberg study showed that more than 50 percent
of the American people at some time during the year use some
form of alternative medicine. By and large, a lot of that has to do
with gateway procedures in terms of prevention or forestalling and
putting off more serious types of intervention programs.
I recommend to you a study that was done and just released by
the Province of Ontario. Their health director just issued a study
on certain alternative health measures, and I would recommend
that to you. And again, I hope — I do not know what is going to be
in the plan, but if it is just going to sort of obliquely refer to alter-
native methods and practitioners, I think it is going to be deficient.
224
I think it has to incorporate them fully into the plan, and I hope
it will do so.
Secretary Shalala. I appreciate your comments, Senator. We
talked a little earlier about the wellness and whether there should
be a discount on the plans. We had, in our early draft, rejected that
because we felt that having a wellness plan was in the economic
interest of the business in terms of the productivity of their work-
ers, and that is was more complicated to administer something
where there were various discounts in the comprehensive benefit
package, and it keeps their workers' comp costs down, so there are
economic incentives for wellness plans. But certainly, we are al-
ways open to ideas, and we should keep the conversation going
about the whole range of issues.
On research, you know that I agree with you that the best kind
of prevention strategy for this country is fundamental research.
The Human Genome Project is expected sometime this year to give
us a breakthrough in breast cancer research where we will be able
to more carefully identify those women who are at high risk. But
it also reflects health and why health is a different business; that
you can have a scientific breakthrough which has enormous sav-
ings, and it is not the normal kind of service industry, and if we
do not keep our investments in research, we are not going to be
able to both contain costs and improve the quality of health.
So I see research as part of the prevention strategy of this coun-
try, and I know that you agree with that conclusion. All I can say
is we will do our best.
Senator Harkin. Well, again, I hope those who are drafting this
plan see it your way.
Secretary Shalala. I also want to thank you, Senator, for your
enormous and very quick work on the conference committee on our
appropriations. We really appreciated it and enjoyed watching the
master at work.
Senator Harkin. It was very interesting.
Thank you, Mr. Chairman.
The Chairman. Thank you.
Madam Secretary, could you just elaborate on what is going to
come out with regard to breast cancer, what you are expecting with
regard to the Human Genome Project?
Secretary Shalala. Yes — in the prevention package?
The Chairman. No; just in response to Senator Harkin.
Secretary Shalala. The Human Genome Project — I think Sen-
ator Harkin may well want to comment, since he has talked to Dr.
Collins, too.
The Chairman. Senator Harkin.
Senator Harkin. Well, they are very close to finding the markers
on certain genes that indicate a propensity toward breast cancer.
I do not know that they are going to do it this year, but they are
very close to it. We already have some preliminary information on
that that I have spoken to him about, but they do not really have
it quite tied down yet.
Again, we have part of it now to indicate some propensity, but
he believes we will probably have the entire gene mapped by the
end of 1995, early 1996. They are working on certain portions of
it now — Huntington's disease, Parkinson's, and breast cancer is an-
225
other one— and we think that by 1996 or 1997, we will have it both
mapped and sequenced so that we will have a definitive marker for
a propensity to breast cancer. What will come out shortly this year
or early next year will be some of the first markers on that. It will
not be comprehensive, but it will be some of the first markers.
Secretary Shalala. The implications of it, Mr. Chairman, are
that if we can fine-tune our ability to identify those women who are
more likely to have breast cancer, we can focus our resources,
mammograms, and more careful screening on that group of women.
This is an example of where an investment in basic research — the
creation of the Human Genome Project— and I am sure when Dr.
Varmus comes up for his confirmation hearings, he will be talking
about the range of new scientific discoveries that are going to be
possible because of this committee's commitment and investment.
The Chairman. Thank you very much.
Senator Mikulski.
Opening Statement of Senator Mikulski
Senator Mikulski. Thank you very much, Mr. Chairman.
Dr. Shalala, we are really very impressed with the fact that the
President has undertaken to give us a benefit package that focuses
on prevention, primary care, and personal responsibility.
I think what you are hearing, though, in today's hearing is that
we are now in a postrhetoric phase. We have had the launch strat-
egy, we have had the momentum strategy in terms of what has
come out of the White House, and it has been stunning. But what
we are into now is really the specificity of the plan and the direc-
tion we need to go in, and I think this is the nature of the ques-
tions that you are getting. f
Mine goes to a preventive aspect particularly related to women s
health care, and we appreciate the fact that the President has real-
ly taken women and their needs seriously. As you know, the pre-
ventive aspects that are talked about in the plan, particularly the
diagnostic screening or the screening, are far more skimpy than is
recommended by professional associations, whether it is the Amer-
ican Cancer Society, the American Society for Ob-Gyn, in terms of
when and how often pap smears and mammograms are being done.
Could you elaborate on whether this is open for discussion; was
this decision based solely on the issue of cost, and how do we pro-
ceed with this — because I am getting calls that say hats off for in-
cluding this in the first place, but is this good enough to really
function, or is this a hollow victory.
Secretary Shalala. All of the decisions about the prevention
package were made on the basis of the latest scientific information,
and there has been a recent panel the information for which is
starting to come out on the issue of breast cancer and how often
women need mammograms.
Whether the National Cancer Society will agree with those find-
ings or not, or as the American College of Physicians and the other
medical groups review them, we believe those scientific findings
will hold up. But based on those scientific findings we have modi-
fied, as I reported earlier, Senator Mikulski, the diagnostic screen-
ing for breast cancer related to mammograms and to breast exami-
nations and added the high-risk group, the definition of which will
226
be determined by the national board, for the diagnostic screening,
with mammograms as often as they are needed.
So in addition to the mammograms for women over 50 which re-
flect the scientific evidence to date, we are adding the high-risk
group for regular mammograms with no copayment.
Senator Mikulski. Dr. Shalala, are you saying therefore that the
"how oftens" and at what age groups were determined not on the
basis of cost, but on the basis of scientific findings?
Secretary Shalala. I am, but in addition
Senator Mlkulski. Let me then say this. Obviously, these find-
ings are under dispute, or these findings are not well-known and
well-disseminated.
Secretary Shalala. No.
Senator Mikulski. At the risk of sounding hubris here, I pride
myself on knowing what is going on in terms of the diagnostic as-
pects related to women's health. We are all wearing these little
pink ribbons for Breast Cancer Awareness Month. And I am not
nere to dispute the scientific findings, but I do not think these sci-
entific findings have been widely promulgated. I think they are
under dispute. And if in fact the benefits package is going to be de-
termined on the basis of science and not cost, which would indeed
be an ideal situation, then I think we need to promulgate that; or,
if they are being made on the basis of cost, say that, and not call
it scientific findings.
Secretary Shalala. Senator Mikulski, they are being made on
that basis; they are under review, though, and one of the reasons,
since we are using the latest scientific panel findings, we need to
explain what we are doing to make sure that we cover both the
high-risk group as well as the group that has been identified for
diagnostic screening according to the scientific findings in the diag-
nostic prevention package. But any woman who feels that she
ought to get a mammogram will be able to go to her physician and
get that mammogram. She may have a small copayment if she is
not either in the high-risk group or in the group that has been
identified on the basis of scientific research.
Let me say finally, Senator Mikulski, that I agree that because
we are making these decisions now, and we are still in conversa-
tion with both the groups and with members of Congress, they are
not finalized on this whole prevention package, but will be in the
next 2 weeks. One of the reasons that you and I committed to
science and to scientific findings are suspicious is because we basi-
cally are part of the generation, and led by many women and sup-
)ortive men in Congress, who had to drag both the scientific estab-
ishment and the health community into focusing on women's
lealth, and therefore there is an underlying suspicion by all of us —
and that includes the Secretary of Health and Human Services.
You can be assured that both Mrs. Clinton and I are going to per-
sonally look at the package of women's health services that go into
this package, and we are going to be open and friendly and sup-
portive and relaxed about any kind of discussion we have.
Senator Mikulski. Dr. Shalala, I appreciate that. I have been
told I have 2 minutes, and I really have some other questions I
want to get in. I know you have been supportive, and I agree with
your statements.
227
My questions, though, go to what Senator Gregg talked about
and also many of the questions raised by Senators Harkin and
Dodd. We need to know what this is, and we cannot say we will
drop you a line and explain that maybe you can get a mammogram
if you need it and if it is medically necessary. There is a great deal
of confusion about this plan. There is a great deal of confusion
about what triggers what. There is a great deal of suspicion about
the health alliances. You can say all you want about, well, if it is
medically necessary and all of those wonderful things, but if you
have solely market-driven health alliances, I am not sure how
those decisions will be made, and a lot of us are not sure, and at
the same time we are being very friendly.
So we are laying those issues out and hope to arrive at a core
benefit package with diagnostic screening that does meet the test
of science, and good science, without gender blinders on it.
But I want to go, if I can, just to one other issue, Mr.chairman,
with your indulgence, as cnairperson of the Subcommittee on
Aging. While we are talking about this health insurance reform,
you have within your shop the Older Americans Act, which I think,
Dr. Shalala, is one of the core components in preventive services.
Senator Harkin talked about the children's nutrition program,
the school lunch program. I would hope that as part of the preven-
tive aspects, you would also look at those feeding programs avail-
able to the elderly, both the meals-on-wheels and the congregate
services, in terms of what they need in terms of adequacy and the
need for food and hydration.
Second— and this is really a heads-up unless you want to com-
ment>-as the chair of the Subcommittee on Aging, I have been very
concerned about the uneven nature of something called "geriatric
evaluation service" that are provided under the Older Americans
Act. In one case, they relate to the Francis Scott Key program in
Maryland, run by Johns Hopkins, that we used for my own father,
that included a comprehensive physical, neurological and psycho-
logical evaluation. When he became ill, that is how we were led to
the findings on Alzheimer's disease. But that is not replicated
around the State of Maryland. Every county has its own geriatric
evaluation, and in some places, it is just somebody with a book and
a list of phone numbers. That is not adequate for geriatric evalua-
tion services in the United States of America. It has to be com-
prehensive, it has to be clear, and it has to have definite uniform
standards, because that will be in many ways the gateway to these
community-based services that we are talking about.
So I really urge you and your excellent new assistant secretary
for aging to really look at the geriatric evaluation services, because
I think they leave a lot to be desired.
Secretary Shalala. Thank you very much, Senator.
Just a quick comment. On your recommendation, I actually per-
sonally have been visiting a lot of the feeding centers, the nutrition
centers, that serve our elderly population to take a look at them
across the country myself, as we think through what are the appro-
priate programs and policies.
Second, I hope when we come in in a couple of weeks and lav
out the plan and talk about its market elements, that you will
begin to see it as I see it, and that is as a consumer-driven pro-
228
gram with consumer protections and the consumers really being in
the driver's seat. If we have not quite gotten that right, I am sure
that I will hear from you, but would also assure you that that is
exactly the direction that we are moving in.
Senator Mikulski. Mr. Chairman, you have been generous with
your time. Thank you.
The Chairman. Thank you very much.
Senator Wellstone.
Senator Wellstone. Thank you, Mr. Chairman.
First, Madam Secretary, I would like to commend you and
Health and Human Services for your emphasis on preventive
health care and for your emphasis on outreach into community and
public health. I think it is extremely important, and I am very
pleased that you are here today.
Let me pick up on a couple of things that have been said — that
is the one advantage of waiting and being at the end. I think one
of the things you have heard from a good number of us on the com-
mittee today is that it is important not to over-promise, and the
first two questions people ask us in our States and in our commu-
nities is, a) will I be covered and will my loved ones be covered;
and b) is it going to be a decent package of benefits. We cannot
scale that back. That is the contract we have made with people.
That is the promise that has been made to people.
Let me emphasize what Senator Simon mentioned earlier. I do
believe that co-pays that are too high, especially on the low-income
end, will undercut the very thing you are trying to do with preven-
tive health care, and I think Senator Simon s concern was right on
the mark.
Let me also emphasize that in your definition of preventive
health care, I think we are going to have to do better on mental
health, because 50 percent co-pays on outpatient care and some of
what we have done with mental health I think will discourage the
ways in which mental health can really be preventive health care,
and I will give an example in a moment.
A three-part question. First of all, I would like to go to the ques-
tion Senator Mikulski raised, and this is the thing that bothers me
the most. I really appreciate where we are at right now in the
country, and thank you for your leadership. But quite frankly, yes-
terday, in talking with the caregivers, I had articles from the
Washington Post and the New York Times with titles like, "Merger
Mania, Humana Moving into Managed Care," the whole danger of
oligopoly, big insurance companies targeting these managed care
networks. And I have to tell you, if they compete on the basis of
keeping costs down, not only is it not clear to me whether we are
going to have collusion as opposed to competition, but it is also not
clear to me whether they have the incentives to actually provide
good care to poor people, who are the most expensive people to deal
with. .
So the question becomes in terms of where they locate their serv-
ices, whom they market to, whose phone calls they return, whether
they are culturally sensitive, whether they even give a darn if the
bottom line is the only line. People ask this of me, Senator Mikul-
ski, in inner city communities, and they ask the same thing in
small town rural areas.
229
So number one, where do poor people fit in. No. 2, I believe in
the proposition, and I think my colleagues do, that whatever plan
we are able to afford for ourselves and our children, that plan
should be affordable and available to the people we represent. How
do we avoid these tiers? You talked about choice — higher tier, aver-
age price plan, and low. Low-income people will be in the lower
price plan. They do not really have a choice to go to the next level
up or the next level up. How do we prevent stratification and tiers
built into this whole delivery to the point where we are right back
to where we do not want to go?
And then, finally, the last question I want to ask, which is so im-
portant, and I am hoping to get a strong, affirmative answer from
you, and if you have specifics, great — where will the public health
infrastructure, and the community health care clinic, and the fam-
ily planning clinics, fit in, because they have done a great job of
being out there in the community, of empowering people, where
people are in fact able to have more control over the services and
take more charge over their own lives. And frankly, these big alli-
ances or networks, many of them run by insurance companies, are
not going to do that. They are not going to do that.
Secretary Shalala. Thank you, Senator. First, let me tell you
that our bottom line is quality, access and quality. While the Presi-
dent's plan obviously would like to and intends to control costs, as
I have said in other places, 30 years from now when this plan is
reviewed by the people and by historians, it will be measured by
whether it provided quality health care to every American, not
whether it provided it to rich Americans as opposed to poor Ameri-
cans. So I believe that the bottom line and the design of the plan
begins with that core commitment.
Second, on the issue of the organization of the plan and how do
we protect the underserved — but more importantly, empower the
under served — how does their situation get better, not simply be-
cause they get a health card, but because they get real access to
quality health care — what happens to minority providers? Do they
get invited in? Do they have a chance to participate in some of the
larger plans? What if a group of doctors get together, and they do
not belong to one of these big insurance conglomerates; are they
protected in the system?
Those are precisely the kinds of things that we believe we have
built into the plan, and as the legislation comes up here, we will
have detailed discussions with you.
Let me speak specifically, though, to the group that we call es-
sential providers, and that is the community health centers, the
federally-sponsored health centers, the public hospitals, those that
are currently serving low-income people and have done it after
years of fine-tuning and working with great sensitivity. They will
very much have a part in this new health plan.
We do not believe that simply giving every person in America a
card means that they have real access, means that they can suc-
cessfully access a system that does not have to change. Not only
will those essential providers be protected in the system, because
they will be rejuvenated with a public health piece that we intend
to come in with, but we intend to mandate the alliances to contract
230
with them for the provision of services, and they will very much be
a central part of this overall strategy.
So that you will see in the public health initiative that we bring
in as part of the overall plan, as well as in the details of how the
alliances are going to work themselves, a strong role. Now, many
of those institutions will be in better shape because they actually
will be serving people whom they will be reimbursed for. They can
organize in some cases the public hospitals themselves into plans.
We will come in and detail the kinds of strategies, but let me as-
sure you we do not believe that we can simply walk away from ei-
ther the poor or the working poor simply by giving them a card and
some choices among health plans.
Senator Wellstone. I have run out of time, but just a quick re-
sponse to your response. I do believe that community health care
clinics should have access to capital and assistance so they can
phone their own networks, so they do not have to work for one of
these large managed care plans, which, I am telling you, the trend
right now is more and more concentration. So I do not think they
necessarily will want to have to work for a plan run by Signa or
Prudential or whatever, number one. I think they should be able
to do that.
The second thing is I think we are going to want to see exactly
what expansion of resources is going to be going into this infra-
structure of delivery.
My final point is, in all due respect, I do think we have a prob-
lem of incentives. I think if you have these plans competing on the
basis of cost, there are all sorts of reasons why they may not want
to include a lot of poor people — and then we are going to have to
regulate the very disincentives or distorted incentives and create a
bureaucracy that we do not want to create. I think there is a prob-
lem here, and I will leave it at that right now, but we can continue
to talk about it.
Secretary Shalala. We look forward to working with you, Sen-
ator Wellstone. I hope that you will see the incentives in terms of
our ability to work with these community-based programs and the
public hospitals to help them create networks. We did do some
thinking in this area, but we certainly look forward to both the con-
versations and whatever changes or reorganizations you may sug-
gest.
Senator Wellstone. Thank you very much. I was going to talk
about an anger management program, which I think would be very
relevant to all of us, in the mental health field, but I think I will
just put that question to you later.
Secretary Shalala. OK, great.
The Chairman. I would just underscore Senator Wellstone's
point about the community health programs. There is a lot of con-
cern that with the emphasis on primary care, they have taken a
long time to finally get their doctors, and they may be pulled away.
And you have a lot of them who do receive — in my State, about half
of them receive Federal funds; others do not. We want to make
sure that the complex issues involving those community health
services are included in the plan.
231
Secretary Shalala. And we are actually in conversation with
your staffs about the community health centers and about these
initiatives.
The Chairman. Thank you.
Senator Wofford.
Senator Wofford. Mr. Chairman, despite the fact I am at the
end of the line, I have no anger in me to be managed, no frustra-
tion. I am in fact encouraged tremendously by the fact that, one
after another, the questions I wanted to ask and points I wanted
to make sure were addressed have been pressed by my colleagues,
and it encourages me to believe that, together, we are going to get
at this. We are going to see it, look at it from all angles, and we
are going to succeed in a plan that makes sense.
I am also encouraged by Secretary Shalala's candid responses
today, and in Pennsylvania, when she was good enough to spend
the day and night up there with us, answering all kinds of ques-
tions. And I spend a good part of the night with her last night, lis-
tening to her— on C-SPAN
Secretary Shalala. I am glad you clarified that, Senator.
[Laughter.]
Senator Wofford. I look forward to more evenings like that, it
is my addiction, this subject.
So I will just ask two questions now. I was glad to see that the
President's plan includes new funding for NIH for prevention re-
search related to both the biomedical and behavioral aspects of
health promotion and prevention. I am interested in what in par-
ticular is planned in the area of nutritional research. I know the
National Cancer Institute has studied the relationship between
diet and cancer, and there was a very interesting report yesterdav
on the link between prostate cancer and dietary fat. Are other such
efforts planned, and what efforts will be made to disseminate this
information to the public on a regular basis so individuals can act
and adapt their lifestyles?
Secretary Shalala. Senator, this country has not made a com-
mitment to nutritional research of any substantial amount in many
years, almost a generation. As we move into a different attitude
and a different investment in prevention, nutrition research be-
comes terribly important. So that it is not only the National Insti-
tutes of Health in terms of the kind of primary research they will
be doing, but behavioral research on nutrition. To make Americans
healthier, we need to know a lot more about what people eat and
in what quantities and the range of nutritional issues so that that
information can be passed on not only to the individuals, because
part of this new health care strategy is individual responsibility,
but also to health care providers and to companies that provide
meals to the people at the Agriculture Department who work with
the school lunch program. I mean, there is a range of issues in
which we need to take a big step up in terms of investment and
dissemination strategy to have an impact on people's behavior and
on the behavior of our institutions. .
Senator Wofford. You and everyone else in this field have dis-
covered that another really encouraging thing is the degree to
which this whole range of preventive action is a common ground
between Republicans and Democrats, the administration and Con-
232
gress and the people in the field on the front lines from whom we
are going to hear. So I just want to enthusiastically ioin in that em-
phasis, to hammer further that point here and with the American
people.
One area is violence and the connection between violence and
prevention of health costs. I was pleased with the appointment of
Dr. Satcher from Meharry Medical College as director of the Cen-
ters for Disease Control. I know he is especially interested in in-
creasing efforts in violence prevention. Do you have anv existing or
future plans for initiatives in this area that you would like to talk
about today?
Secretary Shalala. We do, Senator. Attorney General Reno and
I have put together a task force chaired by two of our senior col-
leagues. In my case, Peter Edelman is chairing it for HHS. They
are focusing initially on youth violence and on domestic violence,
and we expect them to report back to us initially by the end of the
year because the Attorney General and I are very anxious — this
will be a Government- wide task force that they are heading— we
are very anxious to give the President some recommendations that
can have an impact on not only how our agencies behave, but strat-
egies that will really make a difference in working with commu-
nities.
We see violence as a public health issue, with a clear public
health dimension, and believe that there are many things that can
be done in our communities that would mitigate against violence,
not the least of which is to do something about the terrible pro-
liferation of guns in our communities and the kind of hopelessness
in our communities. It requires an integrated strategy, and by
merging for the first time the Department of Health and Human
Services and the Attorney General s Office, we are getting a clearer
dimension to what we might do together.
Senator Wofford. Well, let us do it, because as Dr. Satcher said,
if violence is not a public health problem, why are all these people
dying from it.
Thank you, Mr. Chairman.
The Chairman. Thank you, Senator Wofford.
Madam Secretary, other of our colleagues are here, but we have
a situation where we do have a vote. So I am going to leave the
record open for additional questions, and what I would like to do
is recess briefly and then hear our next panel. It is a very impres-
sive panel, and we want to hear their testimony. So if that is agree-
able with the members, that is the way we will proceed.
Senator Gregg. Mr. Chairman, is it possible that the Secretary,
after we get these numbers and the backup information, will be
able to come back to the committee?
The Chairman. Oh, yes.
Secretary Shalala. Yes, certainly.
The Chairman. She has said she would be delighted to do that.
Secretary Shalala. You will see me and everyone else in my De-
partment, Senator.
Senator Gregg. Thank you.
The Chairman. Thank you.
We thank you very, very much for your testimony. It has been
enormously helpful and impressive, and it is obviously an area that
233
this committee is very interested in. We are grateful to you for
your presence.
Secretary Shalala. Thank you, Mr. Chairman.
The Chairman. Before we introduce our next panel I have state-
ments from Senators Wofford and Hatch.
Prepared Statement of Senator Hatch
Mr. Chairman: I am pleased that the committee is holding this
hearing today. And, I am even more pleased that Secretary Shalala
has chosen the theme of prevention for her first health care reform
testimony before the Committee.
Welcome to the Committee, Madame Secretary. It is always good
to see you.
If your staff has done its job, you know that traditionally three
issues are certain to get Orrin Hatch's immediate attention: AIDS;
home health; and prevention. Today, I'm going to have to amend
that list to add dietary supplements and medical devices, and I
hope these are issues we may talk about at another more appro-
priate time!
As you know, I have long been a champion of preventive health
initiatives. I am glad that the Administration recognizes they must
be a part of any serious health care reform package. If we had been
more successful in promoting prevention over the past decades, we
wouldn't have some of the health problems we face today!
In a July 22, New England Journal of Medicine article, Stanford
University Doctor James Fried noted that "Preventable illness
makes up approximately 70% of the burden of illness and the asso-
ciated costs." He showed that health habits have a strong correla-
tion with health insurance claims costs. In one study Dr. Fried
cited, persons at low-risk had average claims of $190, whereas
those at high risk at claims averaging $1,550.
The implications of these statistics for health care reform are
staggering.
Madame Secretary, in your testimony yesterday on the House
side you said something that got my attention. You reminded com-
mittee members that "an ounce of prevention is worth a pound of
cure," and you added that "until now we have been a country that
is all too ready to spend a pound while conserving our ounces."
There is a lot of merit in what you said. But, while it may be
true in the sense of overall health care spending, I can't help but
remember some of those battles we've had over on the Finance
Committee. Every time we tried to authorize any new spending for
prevention activities, we were told it couldn't be done because it
would "score" and we did not have "offsets"!
So, I see this year's debate as an improvement over our previous
narrow-sighted, budget-blinders approach. The Administration's
heightened dialogue on health care reform offers the country the
real opportunity to shift our focus away from short-term struggles
to long-term successes in the area of prevention. I happen to be-
lieve that these long-term successes will result in substantial cost-
saving as well as life-saving.
So, I will reiterate what I have said to Mrs. Clinton in our meet-
ings. I want to work with you and Senator Kennedy and Senator
Kassebaum as this process unfolds. There is no issue more impor-
234
tant than health care, and no health care issue more important
than prevention.
[The response to questions for Secretary Shalala from Senator
Hatch may be found in the files of the committee.]
Prepared Statement of Senator Wofford
Welcome to our distinguished witnesses. Today we will be talking
about one of the key building blocks of national health care re-
form— prevention. Preventive care and prevention services will not
only help control spiralling health care costs, but also improve the
lives and health of our nation's families.
The economic costs of the lack of preventive care in our nation
are astounding. The lifetime cost of treating a child with congenital
rubella can be as high as $400,000, vet could have been prevented
if the mother had been immunized for $30. Care for the tiny, low-
birthweight babies whom Bill Clinton and I visited last year at
Pennsylvania Hospital's neo-natal intensive care unit ran into hun-
dreds of thousands of dollars each. But if their mothers had re-
ceived a few hundred dollars of prenatal care, many of those babies
could have been born healthy. I've seen cases like this all over
Pennsylvania and indeed they exist all across the country.
Of the over $900 billion we spend a year on health care, less
than three percent is spent on preventive services, and a large per-
centage of the rest of these costs could be avoided through appro-
priate preventive care. It's time that we make preventive care —
taking the measures to keep people from getting sick and keeping
them well — a top priority.
More importantly, the human cost of this lack of preventive care
is devastating. Our country's infant mortality rate is higher than
in most other industrialized countries, and for nonwhite babies the
statistics only get worse. Throughout the nation, there is a shock-
ing rate of preventable illness, including hypertension, lead poison-
ing, AIDS and other infectious diseases, particularly among inner-
city populations.
Including preventive services in the basic benefits package is a
necessary first step, but we also must ensure that all Americans
have real access to these services. We can do this by investing in
our public health delivery system — a major vehicle of preventive
care — and by increasing our investments in primary care health
professionals. Right now onlv 30 percent of our nation's doctors are
primary care physicians and 70 percent are high-priced specialists.
We need to focus our resources, and encourage young medical stu-
dents to go into primary care. Because through these investments,
we can demonstrate a commitment to caring, not just curing.
We also need to encourage people to change unhealthy behav-
ior— the kind of behavior that is contributing to escalating human
and economic costs.
Violence, especially in our inner-cities, has become a public
health crises. It has reached truly epidemic proportions — affecting
even toddlers, as tragically demonstrated this past week in the Dis-
trict of Columbia. Dr. Satcher, the new head of the Centers for Dis-
ease Control, has said, "If violence is not a public health problem,
why are all those people dying from it?" Violence is a leading cause
of injury and death and we must work to stop it.
235
The links between our behavior and our health are obvious. Peo-
ple have to recognize and take responsibility for the costs of smok-
ing, excessive drinking, and lack of exercise. One of the key ele-
ments of the reform the President and I both want to see is respon-
sibility. We all have to take greater responsibility for our own
health, and that of our children, to make health care reform a suc-
cess. It was one of the key points Secretary Shalala and I stressed
in a visit to Harrisburg this past Friday. And it was the focus of
a hearing I held earlier this year at Temple University.
To Secretary Shalala and our other witnesses: I look forward to
working together to make sure that the prevention cornerstone is
a key part of our new health care system.
The Chairman. As soon as we return, we will hear from rep-
resentatives of different organizations about prevention programs.
Florence Griffith Joyner is here from the President's Council on
Physical Fitness, the task force that was created to promote
healthy lifestyles and encourage individuals to seek preventive
services generally.
Dr. Irvin Fleming is president-elect of the American Cancer Soci-
ety. Dr. Charles Francis is a member of the board of directors of
the American Heart Association. Dr. John Ludden, from my home
State, represents the Harvard Community Health Plan. And fi-
nally, Dr. Douglas Henley, with the American Academy of Family
Physicians.
If you would be good enough to come forward, we will recess
briefly and then resume to hear your testimony.
[Recess.]
The Chairman. The committee will come to order.
We apologize to our witnesses for the interruption and for their
patience here this morning. The testimony you will give is enor-
mously important, and we are particularly honored to have Flor-
ence Griffith Joyner with us today. I think all Americans have been
inspired by her extraordinary grace and sportsmanship and talent
as well as the honor she has brought to this country in athletics
as well as respect for her personally and her strong and continuing
commitment to all Americans in the area of physical fitness and
sports.
We are delighted to have you here and look forward to hearing
your testimony. And if you would like to introduce your husband,
we would be glad to welcome him as well.
236
STATEMENTS OF FLORENCE GRIFFITH JOYNER, CO-CHAIR,
PRESIDENT'S COUNCIL ON PHYSICAL FITNESS AND SPORTS,
WASHINGTON, DC; DR. HtVIN D. FLEMING, PRESIDENT-
ELECT, AMERICAN CANCER SOCffiTY, WASHINGTON, DC; DR.
CHARLES K. FRANCIS, CHAHIMAN, DEPARTMENT OF MEDI-
CINE, HARLEM HOSPITAL, NEW YORK, NY, AND MEMBER OF
THE BOARD OF DHIECTORS, AMERICAN HEART ASSOCIA-
TION, WASHINGTON, DC; DR. JOHN M. LUDDEN, MEDICAL DI-
RECTOR, HARVARD COMMUNITY HEALTH PLAN, BOSTON,
MA; AND DR. DOUGLAS E. HENLEY, MEMBER OF THE BOARD
OF DIRECTORS, AMERICAN ACADEMY OF FAMILY PHYSI-
CIANS, KANSAS CITY, MO, AND CHAHIMAN, ACADEMY COM-
MISSION ON PUBLIC HEALTH AND SCD3NTIFIC AFFAIRS
Ms. Joyner. Thank you very much, yes. A] Joyner, Olympic gold
medalist from 1984, and he is also training for the Atlanta Games
in 1996.
The Chairman. Good to see you. Thank you.
We would be delighted to hear from you now.
Ms. JOYNER. Thank you, Mr. Chairman.
It is a distinct pleasure and honor to testify before this commit-
tee. When I talked to the President and then read his health care
reform plan, it was heartening to see that prevention is finally
being recognized as a major and critical factor in the health care
arena.
I am sure all of us agree with the common sense wisdom that
President Clinton referred to in his address to the Congress, when
he reminded us that, "All our mothers told us that an ounce of pre-
vention is worth a pound of cure."
But as a Nation, we do not abide by that lesson, and that is why
the obvious, common sense preventive measures which comprise
the President's plan will reap great benefits to individual health
and to the Nation's economic health.
The President's proposal includes a whole range of achievable
preventive measures, from regular checkups to a comprehensive
immunization approach, to emphasizing the need for regular exer-
cise activity for all.
All of the preventive prescriptions proposed in the health care re-
form plan echo our mothers' mandate to take that "ounce of pre-
vention," which we must do to ensure that our national family will
not be faced with having to ensure and pay for the inevitable and
expensive "pound of cure."
If prevention is the most effective approach in reducing the need
for medical services, then physical fitness and exercise is the key-
stone of the prevention arch. If we had a country that was more
fit, we would need far fewer medical services; we would substan-
tially reduce the adverse economic impact of those services; we
would raise the overall quality of life and have a far more produc-
tive work force.
Despite the increasing evidence of the health benefits of physical
activity, the United States remains a predominantly sedentary so-
ciety. Despite the well-known fact that individuals who engage in
no physical activity are at a higher risk of death from coronary
heart disease, it has been documented that nearly 60 percent of the
237
United States adult population reported little or no leisure time
physical activity. . .
This fact was highlighted last year when physical inactivity was
cited by the American Heart Association as joining high blood pres-
sure, smoking, and elevated cholesterol levels as the leading causes
of heart disease.
The fitness of our youth is in an equally disturbing position.
Youth fitness has not only not improved over the last 10 years, but
in some cases has actually declined. Not only have children become
fatter since 1960, but 40 percent of children ages 5 through 8 show
at least one heart disease risk factor— being physical inactivity,
obesity, elevated cholesterol, and high blood pressure.
Mr. Chairman, the American body politic is overweight, out of
shape, out of breath, and inactive to the extreme. If America is to
truly get serious about health care reform, then it must also get
serious about reforming its exercise and physical activity habits.
Without simple but effective exercise and physical activity hab-
its, even the most ambitious and enlightened health care reform
program will be handicapped from the start.
When I accepted this position with Tom McMillen as co-chair of
the President's Council on Physical Fitness and Sports, President
Clinton stated that he wanted us to emphasize fitness for all. We
recognize that our message must be targeted to different segments
of our population. We want to target seniors as well as young peo-
ple. We recognize the needs of special populations like inner city
residents and Native Americans. We understand the level of vio-
lence that permeates our society and the value of exercise and
sports in reducing tension and stress.
If we are to be successful in preaching the value and benefit of
exercise and fitness, it is critical that exercise and fitness be recog-
nized as everyone's responsibility to himself. As President Clinton
said in his speech on health care reform, "Too many of us have not
taken responsibility for our own health care."
I was born and raised in Watts, the seventh of 11 children. My
mother instilled in her children the values of independence and in-
dividualism. She stressed the need to perform as best you can and
served as my role model and inspiration.
While I have been most fortunate in my athletic career and en-
deavors, I consider my appointment as co-chair to be my greatest
honor as it allows me the opportunity to communicate the value of
exercise and fitness with so many others. At the Council, we envi-
sion major cooperative efforts with business, industry, educational
institutions, and nonprofit and grassroots organizations, to high-
light the need for all Americans to be physically ft. We value the
benefits of organized team sports and will call on amateur and pro-
fessional athletes to serve as role models.
Mr. Chairman, we will also need the help of your committee, the
Cabinet, members of Congress, governors, mayors, and locally-
elected officials to make the fitness of America a high priority.
We want to emphasize family fitness. Parents must recognize
that they serve as the primary role models for their children and
should be encouraged to exercise and by physically active with
their children to set the right example.
238
We need to instill in our children the fact that exercise should
be a lifetime habit. Fitness is not something that one achieves and
then moves on to something else. Just as we need to instill in our
children sound eating habits, they must also realize that to live as
full a life as possible, they must exercise and be physically active
for life.
We must reach out to the adult population to make them realize
that they can be in control of their own health and that exercise
is critical to improving their quality of life. There is a critical need
to substantially change this country's mind set regarding sports,
physical activity, recreation and fitness from that of a spectator to
that of a participant.
Mr. Chairman, I thank you for allowing me to appear before this
committee, and I will be pleased to answer any questions you may
have.
The Chairman. Thank you very much.
Dr. Fleming, please.
Dr. Fleming. Mr. Chairman, it is a real pleasure to be here this
afternoon representing the American Cancer Society. The release of
President Clinton's comprehensive health reform proposal has
launched a public debate that has been in the making for decades,
and the American Cancer Society applauds President Clinton and
First Lady Hillary Rodham Clinton for recognizing that there is no
more time for delay.
I am also here to thank the members of the Senate, both sides
of the aisle, for the leadership many of you have shown on this
issue. I implore you to seize the moment and find a nonpartisan
solution to the health care crisis confronting America. We cannot
afford to wait any longer.
In 1989, the American Cancer Society renewed its commitment
to address health care reform for all Americans, particularly those
who are socioeconomically disadvantaged, and developed a state-
ment of principles which summarized the cancer control needs of
the Nation. My comments this afternoon relate primarily to Presi-
dent Clinton's plan, but we will be in the next few weeks analyzing
the other major congressional proposals according to these prin-
ciples.
President Clinton's strong position on prevention and health pro-
motion is vital to improving the health of our Nation's citizens, and
the ultimate legislation that is enacted must include this important
component.
An emphasis on prevention reduces human suffering and saves
millions of dollars in the treatment of avoidable diseases. President
Clinton's plan provides routine preventive health exams that will
offer appropriate risk avoidance and health education for all Ameri-
cans, including nutrition counseling, skin cancer prevention, and
smoking cessation.
I must emphasize that smoking kills 419,000 Americans each
year, yet accounts for one-third of all cancer deaths and robs our
economy of more than $68 billion in needless health care costs and
lost productivity. Tragically, 3,000 teenagers become regular smok-
ers each day in the United States. Any plan adopted must include
a strong educational component for children and adults about the
dangers of tobacco.
239
Research is showing the important role nutrition plays in pre-
venting and reducing certain cancer risks. The American Cancer
Society has incorporated into its prevention strategy the promotion
of comprehensive school health education in order to educate indi-
viduals from youth about risky behavior such as smoking and to-
bacco use. Statistics reveal that among all age groups, just three
diseases — cancer, heart disease and stroke — account for nearly 70
percent of all deaths. In many cases, these conditions are prevent-
able and are substantially due to behaviors established during
youth.
A well-coordinated education program for grades kindergarten
through 12 will provide young people with the knowledge, skills
and attitudes needed to control and limit behaviors that place them
at risk.
The ability to detect and diagnose cancer in an early stage, while
not prevention, is critical to preventing suffering and savings lives
from cancer. We are pleased to see that President Clinton's plan
acknowledges the lifesaving benefit of pap smears, pelvic examina-
tions, and mammography. The coverage of pap tests and pelvic
exams conforms to the American Cancer Society's recommendations
for asymptomatic women.
With regard to screening mammography, the plan proposes full
coverage every 2 years for asymptomatic women age 50 and older.
However, according to Mrs. Clinton, every woman may be able to
have a mammogram or pap smear on the advice of her physician
if she is at risk for breast or cervical cancer or has symptoms of
these diseases.
The American Cancer Society acknowledges this attempt to en-
sure access for all women for whom these tests are appropriate.
However, we have some concerns about how reimbursement is
structured for asymptomatic versus at-risk individuals.
The American Cancer Society believes that a diagnosis of breast
cancer in an early stage provides a woman more choices in terms
of treatment and may substantially reduce her suffering. Until
such time that we have better information on prevention of breast
cancer or improved detection tests, we recommend screening by the
current American Society guidelines.
The American Cancer Society supports a $2 per pack increase in
the cigarette excise tax which is supported by the majority of the
American public. A major tax increase would simultaneously help
pay for health care reform, offset the enormous burden of tobacco-
related diseases and, more importantly, discourage millions of
young people from beginning to smoke in the first place.
In closing, Mr. Chairman, it is time to recognize the need for
sound, effective preventive medicine as a routine part of health
care for every American. The American Cancer Society will work
with the Clinton administration and Congress on the final resolu-
tion of specific plan elements as they relate to the needs of millions
of Americans living with cancer and every American who may po-
tentially be at risk for cancer.
Thank you for the privilege of being here.
The Chairman. Thank you very much.
[The prepared statement of Dr. Fleming follows:]
240
Prepared Statement of Dr. Irvin D. Fleming
Mr. Chairman and Members of the Committee, it is a privilege to be here this
morning. The release of President Clinton's comprehensive health care reform pro-
posal has launched a public debate that's been in the making for decades, and the
American Cancer Society applauds President Clinton and First Lady Hillary
Rodham Clinton for recognizing that there is no more time for delay.
I am also here to thank you, Members of the Senate from both sides of the aisle,
for the leadership many of you have shown for years on this issue. I implore you:
seize this moment and find a nonpartisan solution to the health care crisis confront-
ing America. We cannot afford to wait any longer.
In 1989, the American Cancer Society renewed its commitment to address health
care reform for all Americans, particularly those who are socioeconomically dis-
advantaged, when we conducted hearings around the country to find out how poor
Americans fare when they are diagnosed with cancer. We learned that deaths from
cancer are higher among groups that lack knowledge about how to prevent or con-
trol cancer and among those without access to the health care system. To address
these issues, the American Cancer Society developed a Statement of Principles on
Health Care Reform which summarize the cancer control needs of this nation. My
comments this morning relate primarily to the Clinton plan, but we will analyze
each proposal according to our Principles.
President Clinton's strong position on prevention and health promotion is vital to
improving the health of our nation's citizens. We will work to ensure that all propos-
als coming from Congress, and the ultimate legislation that is enacted, will acknowl-
edge and include this important component.
Cancer prevention demands education and regular medical care to empower indi-
viduals with the information and medical tests to help reduce their cancer risks. An
emphasis on prevention reduces human suffering and saves millions of dollars in
the treatment of avoidable disease. We are pleased that the Clinton plan provides
routine, preventive health exams that will offer appropriate risk-avoidance and
health education for all Americans, including nutrition counseling, skin cancer pre-
vention, and smoking cessation.
On that note, I must emphasize that smoking kills 419,000 Americans each year.
It accounts for about 30% of all cancer deaths, and it robs our economy of more than
$68 billion in needless health care costs and lost productivity. Tragically, approxi-
mately 3,000 teenagers become regular smokers each day in the United States. Any
plan adopted must include a strong educational component for children and adults
about the dangers of tobacco use.
Research is showing the important role nutrition plays in preventing cancer. For
example, individuals who are 40% or more overweight increase their risk of colon,
breast, prostate, gallbladder, ovary, and uterus cancers. Studies have likewise
shown that daily consumption of vegetables and fresh fruits is associated with a de-
creased risk of lung, prostate, bladder, esophagus, colorectal, and stomach cancer.
As mentioned above, cancer prevention demands an educated population — edu-
cated from childhood to avoid such risky behaviors as smoking and poor eating hab-
its. In light of this, the American Cancer Society has incorporated into its preven-
tion strategy the promotion of comprehensive school health education. Statistics re-
veal that among all age groups, just three diseases — cancer, heart disease, and
stroke — account for nearly 70% of all deaths. In many cases, these conditions are
preventable, and are substantially due to behaviors established during youth, are
interrelated, and persist into adulthood. These conditions are substantially due to
the use of tobacco, excessive consumption of dietary fat and calories, and a lack of
physical activity. A well-coordinated health education program for grades K-12
would provide young people with the knowledge, skills, and attitudes needed to con-
trol and limit behaviors that place them at risk for preventable illness or death.
Another extremely important focus of the Clinton plan and other Congressional
bills, is the focus on early detection of cancer. The ability to detect and diagnose
cancer in an early stage, while not prevention, is critical to preventing suffering and
saving lives from cancer. The American Cancer Society estimates that we could save
100,000 more lives this year alone from cancers of the breast, tongue, mouth, colon,
rectum, cervix, prostate, testes and melanoma if these cancers had been detected
in a localized stage and treated promptly.
We are pleased to see that the Clinton plan acknowledges the life-saving benefit
of some of the cancer detection tests that the American Cancer Society has rec-
ommended. The White House proposal would cover Pap smears and pelvic exams
that follow the American Cancer Society's guidelines for asymptomatic women. With
regard to screening mammograms, the jplan proposes full coverage every two years
for asymptomatic women 50 and older. However, according to Mrs. Clinton, in addi-
241
tion to routine coverage under the "Preventive Services" section, however, every
woman will be able to have a mammogram or Pap smear on the advice of her physi-
cian, if she is at risk for breast or cervical cancer, or has symptoms of disease. The
American Cancer Society acknowledges this attempt to ensure access for all women
for whom these tests are appropriate. However, we are concerned that the tests for
at-risk individuals are provided as "diagnostic" exams when they are intended as
routine screening tests. This may rely too heavily on health professionals to discuss
risk factors and recommend detection tests to women who may benefit from the
exam. Unfortunately, one of the primary reasons that women currently do not get
mammograms is that doctors do not recommend the exam.
Finally, every woman is at risk for breast cancer, and that risk increases with
age; will this complicate procedures unnecessarily by paying in full for an exam one
year but not in other years if it is appropriate? Although the scientific debate on
the mortality benefit from screening younger women for breast cancer is still going
on, and screening intervals for women ages 50 to 70 needs further study, the Amer-
ican Cancer Society believes that a diagnosis of breast cancer in an early stage pro-
vides a woman with more choice in terms of treatment and may substantially re-
duce her suffering, a benefit that may be lost in the published results of clinical
trial data. This is an important question when looking at breast cancer incidence
and mortality rates among minority groups, for whom lack of access to screening
and treatment has most often resulted in a death sentence. The American Cancer
Society believes that a careful review of clinical evidence and scientific data, as well
as health economics considerations, support a continuation of our current guidelines
for breast and cervical cancer detection until such time as we have more information
about mammography and other detection tests, or have learned how to prevent the
diseases.
With the exception of mammograms and Pap smears, other cancer-screening tests
and clinical examinations recommended by the American Cancer Society are not
specifically mentioned in the plan as proposed. The American Cancer Society's can-
cer screening guidelines are intended to be used to guide individuals in making deci-
sions about their routine health care needs. We will work with Congress to clarify
these issues as we move forward in finalizing a standard benefits package.
Finally, the American Cancer Society's expertise is in the area of cancer, and not
in health care financing. However, we believe that in order to ensure universal ac-
cess to health care coverage and to focus most effectively on important aspects such
as cancer prevention, effective cost-containment strategies must be implemented to
control excessive costs. The financing of universal care ought to come from both the
public and private sectors to avoid disproportionate burdens on any individuals or
groups. We applaud the President's decision to require everyone in America to share
the responsibility for ensuring health care for all Americans.
The American Cancer Society also supports, and calls on President Clinton to in-
clude, a $2.00 per pack increase in the cigarette excise tax. This method of financing
has been proposed by the American Cancer Society and others, and is supported by
66% of the American public. A major tobacco tax increase would simultaneously
help pay for health care reform, offset the enormous burden tobacco imposes on our
economy and, most importantly, discourage miltions of young people from beginning
to smoke in the first place.
In closing, Mr. Chairman, it is time to recognize the need for sound, effective, pre-
ventive medicine as a routine part of health care for every American. We must build
in mechanisms for reimbursing prevention, effectively transfer the scientific knowl-
edge available to practitioners throughout the health care system, stop the needless
loss of life, and decrease the wastefulness in not addressing disease before it has
taken hold. The American Cancer Society will work with the Clinton Administration
and the Congress on the final resolution of the specific plan elements as they relate
to the needs of the millions of Americans living with cancer, and every American
who may potentially be at risk for cancer.
Thank you for the opportunity to testify. I have provided, with my written state-
ment, a copy of the American Cancer Society's Statement of Principles on Health
Care System Reform and a copy of health care reform principles developed by the
voluntary health agencies of the National Health Council, together representing 150
million Americans and their families living with disease, disability or other health
disorder.
242
American Cancer Society
statement of principles for health care system reform
Background
The American Cancer Society (ACS) is the nationwide, community-based, vol-
untary health organization dedicated to eliminating cancer as a major health prob-
lem by preventing cancer, saving lives from cancer and diminishing suffering from
cancer through research, education and service.
Despite major advances in cancer prevention and control, millions of poor and un-
derserved Americans are dying needlessly because they lack access to those services
because of serious gaps in the current health care system. An estimated 37 million
Americans are uninsured, and an additional 60 millions are thought to have inad-
equate health insurance coverage. This group includes many cancer patients who
are "uninsurable" due to their diagnosis of cancer. Today, with the United States
facing an uncertain economic situation, spiraling health care costs and health care
cost-shifting have combined to widen the access gap already felt by millions. Every
year, one million Americans will lose their health insurance because they lose their
jobs or develop a serious illness. This will further inflate the number of individuals
and families made vulnerable to cancer and other diseases.
In 1989, the American Cancer Society conducted a series of hearings around the
nation to speak directly to socioeconomically disadvantaged persons of all racial,
ethnic and cultural backgrounds to learn about the problems they face in obtaining
health care. We also spoke to persons in these communities, including community,
religious and business leaders, social workers and community health professionals,
who understand the culture of poverty and how that impacts the health of poor and
underserved Americans. We learned about obstacles to care: lack of knowledge about
how to prevent or control cancer, and real and perceived barriers in the current
health care system. At the conclusion of these hearings, our major findings were
summarized in A Report to the Nation: Cancer and the Poor. They include the fol-
lowing truths.
Poor people lack access to quality health care and are more likely than others
to die of cancer.
Poor people endure greater pain and suffering from cancer than other Ameri-
cans.
Poor people face substantial obstacles in obtaining and using health insurance
and often don't seek needed care if they can't pay for it.
Poor people and their families must make extraordinary personal sacrifices to
obtain and pay for health care.
Cancer education and outreach efforts are insensitive and irrelevant to many
poor people.
Fatalism about cancer prevails among the poor and prevents them from gain-
ing quality health care.
The American Cancer Society believes that a health care delivery system should
work in a way that makes it easy for people to obtain necessary care. Individuals
should be empowered with the necessary information and tools to share responsibil-
ity for their own health care. As a nation, we must turn our attention to these seri-
ous unmet health care needs. The American Cancer Society believes that all Ameri-
cans should have unimpeded and facilitated access to comprehensive quality health
care services. This care includes cancer prevention and regular proper medical treat-
ment and continuing medical care. It is the role of the American Cancer Society to
focus the attention of policy makers at all levels of government on this problem and
participate in the debate by providing important information about the cancer con-
trol needs of poor and underserved Americans which can be incorporated into pro-
posals for health care system expansion, reform or restructure.
The American Cancer Society relieves that the United States is capable of deliver-
ing high quality, state of the art medical care to every citizen in the United States.
The Society also believes that this point is well demonstrated by many components
of our current health care delivery system which benefit a large segment of the pop-
ulation. The Society recognizes, however, that serious gaps exist in accessibility, af-
fordability, and quality oi health care for many Americans which must be addressed
now by the nation as a whole. Health care reform in the United States must deal
collectively with the complex and interrelated concepts of access, cost and quality
in health care. To sacrifice one concept for another simply postpones the debate and
the ability to implement necessary comprehensive reforms.
Thus, the American Cancer Society Delieves that a balanced approach to health
care reform, encompassing elements of patient accessibility and nondiscrimination,
243
aflbrdability and availability of care, standardization of covered services, insurance
market reform, system administration reform, health care cost containment, provi-
sions for quality assurance, technology assessment and practice guidelines, and edu-
cation of the public and health care professionals, will best achieve its goals with
respect to the delivery of cancer prevention and control services in the United
States.
Eligibility
All persons have the right to health care, regardless of employment status, ability
to pay, or preexisting health conditions.
Coverage and benefits
The U.S. health care system must provide for continuity and portability of health
insurance benefits to ensure universal access.
Coverage should address the continuum of care and include cancer prevention,
early detection, diagnosis, treatment, rehabilitation, and long-term care. More spe-
cifically, covered services should include, but not be limited to:
Cancer Prevention: regular, routine medical care to identify and reduce risks for
cancer from environmental and occupational exposures; information about lifestyle
choices, including diet and nutrition, and use of tobacco and alcohol; and limiting
exposure to sunlight.
Cancer Early Detection: appropriate, effective cancer early detection tests lor
asymptomatic persons, according to guidelines of the American Cancer Society, the
National Cancer Institute and other appropriate medical experts; and targeted as-
sessments for individuals and family members at high risk for cancer.
Cancer Diagnosis and Treatment: medically-appropriate tests for the diagnosis of
cancer, treatment for cancer which includes all medically-appropriate prescription
drugs, therapies or modalities, including those prescribed for pain management;
clinical trials of experimental protocols; and related services.
Cancer Rehabilitation: a range of services, including physical therapy, prostheses
and medical devices, psychosocial counseling, occupational therapy, and all related
services. .
Long-Term Care: chronic, rehabilitative, home-based, nursing home, and respite
care services to enhance the quality of life of cancer patients and their families. Em-
phasis should be placed on patient autonomy and responsibility. Avoid
pauperization of the cancer patient and his or her family.
Delivery of Health Care Services
Encourage patient choice, autonomy and responsibility for the cost and use of
health care services through continued educational and other appropriate strategies.
Medical benefits should be provided in a variety of health care settings.
Health care delivery systems should be organized to reduce fragmentation of
available community services.
Health care reform proposals should ensure continued and expanded support of
the U.S. Public Health Service and the community-based health infrastructure for
the delivery of necessary health/cancer care services.
Simplification of the system
All persons should have unimpeded and facilitated access to the health care sys-
Administration of the U.S. health care delivery system should be simplified to re-
duce costs and maximize resources for actual health care services. Standardize bill-
ing, claims, and utilization review procedures to significantly reduce the administra-
tive costs of health care delivery, to ensure uniformity in coverage and benefits, and
to control fraud and abuse in the system.
Quality assurance
Quality assurance standards should be required to ensure that tests are safe and
g ffo c t i v© .
Technology assessment and the development of medical practice guidelines should
be encouraged to provide important information on the quality, effectiveness and
cost-savings potential of cancer prevention and control services.
Cost containment
To ensure access to health care for people confronted by the cancer problem, it
is essential that appropriate cost containment strategies be implemented at all lev-
els to control excessive health expenditures.
244
Administration and financing
Increase the federal cigarette excise tax by at least $2.00 per pack as a means
of financing changes in the health care system to expand health/cancer care access
for all Americans and ensure an appropriate level of cancer-related services.
Administration of health care should be provided through an appropriate com-
bination of public and private sector mechanisms that will improve access to such
care.
The financing of universal health care should avoid placing disproportionate bur-
dens on any individual or sector within society.
Medical research
In addition to health services research, health system reform should promote con-
tinued innovation and progress through medical research.
Senate Republican Health Care Reform Plan
This Analysis of the Senate Republican (GOP) plan is taken from an outline of
the legislation and is subject to change. This Analyst was prepared on the date
shown Delow. Previous Copies of this Analyst should not be referenced.
The assumptions made are those of the sponsors of the Senate GOP plan, and the
American Cancer Society is basing its responses on those assumptions at this time.
As more details about the plan become available, the America Cancer Society will
be able to more closely examine the provisions to determine impact on cancer con-
trol. Future analyses may result in interpretations different from those contained
in this document.
October 1, 1993
National Health Council— Mission and Goals
The National Health Council is a private, nonprofit association of national organi-
zations which was founded in 1920 as a clearinghouse and cooperative effort for vol-
untary health agencies. To work more extensively for the public interest, the Coun-
cil expanded its membership to encompass professional and other membership asso-
ciations, health related nonprofit agencies, business corporations, and federal gov-
ernment agencies.
The Council's MISSION is one of enabling its member organizations to work to-
gether effectively to promote the health of all Americans with a strong sense of
human concern, especially for vulnerable people.
Specifically, the Council strives to achieve the following GOAI^S:
1. To stimulate greater public awareness of health and health related concerns:
a. by encouraging inquiry and research in health matters of mutual interest, and
b. by disseminating health related information.
2. To strengthen cooperative efforts among health related private sector organiza-
tions, and between the private and governmental sectors: a. by facilitating the shar-
ing of ideas, resources and leadership in the health field, b. by promoting a deeper
appreciation of public policy issues and other extrinsic forces affecting health, and
c. by maintaining open channels of communication
3. To foster collaborative activities among voluntary health agencies that will pro-
vide accountability and public confidence in their programs: a. by maintaining and
monitoring high standards of public accountability, b. t>y assisting voluntary health
agencies to meet such standards, c. by stimulating high levels of management per-
formance, and d. by entering into selective advocacy on public policy matters affect-
ing voluntary health agencies.
The National Health Council wants all Americans to take care of themselves and
to use health resources wisely so that they can lead independent and productive
lives.
Consumer Voice in Health Care Reform
In 1992, 37 million Americans had no health insurance. The number of uninsured,
moreover, does not take into account the tens of millions of Americans now living
with disease, disorder, or disability who daily encounter problems with our health
care system. These individuals are the true victims of the health care crisis; yet,
they are consistently denied access to care because of their pre-existing physical or
mental conditions.
For over a year, thirty-two voluntary health agencies (VHAs) have come together
through the National Health Council — an organization created 73 years ago to im-
prove the health of all Americans, particularly those most vulnerable in society.
These VHAs put aside their individual concerns in favor of cooperation to draft a
245
set of principles that we assert must be included in every health care reform pro-
posal. , ...
Throughout the health care reform debate, the consumer voice has been missing.
Altogether, the voluntary health agencies listed to the side represent over 150 mil-
lion Americans and their families who cope with serious and chronic conditions. As
a group, we urge President Clinton and the Congress to consider our principles and
guarantee their inclusion in the health care reform debate and final solution.
Be it resolved: Consumers must be afforded an active role in the formation of na-
tional health care policy: therefore, the undersigned Voluntary Health Agency
(VHA) Members of the National Health Council call upon the Congress and the
President of the United States to enact comprehensive health system reform em-
bracing the following principles:
Eligibility: Health care is a right for all Americans. Our national health care sys-
tem must guarantee universal access, regardless of employment status, ability to
pay, or pre-existing conditions.
Personal health and public education: Individual responsibility for health is cru-
cial to an effective health care system. All sectors of society, both public and private,
must be encouraged to provide comprehensive health education, thereby empower-
ing individuals to become active and aware of their responsibility for positive health
behavior, disease prevention, and maintenance of healthy lifestyles.
Coverage and benefits: Coverage must address the continuum of mental and phys-
ical health care including preventive, acute, chronic, rehabilitative, and long-term
Health care services should be effective, appropriate, and timely. Medical effec-
tiveness is defined by research findings. Appropriateness is determined by the pa-
tient, the family, and the health care team.
Health care plans and benefits should be portable so that continuity of coverage
is not affected by changes in an individual's employment, geographic location, phys-
ical or mental condition, dependent status, or ability to pay.
Health care system reform must include incentives to encourage a more equitable
distribution of health care providers to ensure access to care in rural, inner city,
or otherwise underserved areas.
Cost Containment: The administration of the health care system must facilitate
patient access to care. The administrative process of the health care system must
be simplified and standardized for all payers, thus reducing costs and maximizing
resources for actual health care services.
To ensure universal access, reimbursement to providers should reflect fairly the
costs of providing services.
Medical liability reform is essential to ensure availability of health care services
and to reduce the need for and burden of defensive medicine.
Results of outcomes research and technological assessment studies should be ana-
lyzed regularly to determine the efficacy of procedures, equipment, and drugs used
in the diagnosis and treatment of illness.
Financing: The financing of universal health care should avoid placing dispropor-
tionate burdens on any individual or sector within society.
The Chairman. I recognize Senator Pell, who has another en-
gagement and just wanted to ask a question.
Senator Pell. Thank you very much, Mr. Chairman.
I just had one question, really, for Ms. Joyner, whom I have long
admired. Is the direct relationship between physical fitness and
health is as real as you believe, or can you sometimes find people
who are not physically active, who seem to do just as well?
Ms. Joyner. I think there is a great relationship between those
who are physically fit and those who are not. No. 1, if you take the
statistic of those suffering from heart disease, certain cancers,
women with osteoporosis, they were not educated on how to become
involved in how to become involved in some type of physical activ-
ity, which can prevent the onset of those diseases.
So yes, the benefits of exercise in connection with a good diet can
help prevent the diseases that are killing so many Americans daily.
Senator Pell. I come from this State where, I think more than
many other States, people are less active and more sedentary, and
246
I was just curious as to how you thought we could turn people
around.
Ms. Joyner. Well, when you look at the State of Illinois, it is the
only State that requires some kind of physical education curricu-
lum for children from kindergarten through 12th grade. Well, that
is disturbing because a lot of the programs have been cut, and
what we are seeing for the last 10 years is unfit children; that kids
involved in physical activities have declined. It is disturbing that
we are putting lunch programs together that are making the statis-
tics go up even higher, where we have added more fat to the kids'
diets, they are not exercising. What is the solution? Putting more
Physical fitness activities into the schools. It should mandatory,
here should not be only one State where it is required; we should
take a better look at the State of health of kids throughout the
country.
Senator Pell. Thank you. I think if we follow your advice, we
will have fewer what we call "couch Americans."
Ms. Joyner. Couch potatoes.
Senator Pell. And I appreciate the chairman letting me come in
this way out of order.
[The prepared statement of Senator Pell follows:]
Prepared Statement of Senator Pell
Mr. Chairman, I thank you for holding today's hearing on a topic
near and dear to my heart: the role of prevention and wellness in
a reformed health care system. I am particularly glad that Sec-
retary Shalala is here to testify on this important subject, and be-
lieve that her presence is an indication of the importance that the
President and First Lady attach to the role of prevention and
wellness in our health care system.
I have several questions that I would like to ask Secretary
Shalala regarding mammograms, pap smears, and other preventive
services, after she completes her testimony. So I will defer any fur-
ther remarks to that time.
I do want to thank all of today's witnesses for appearing and as-
sure them, and you, Mr. Chairman, that this is an area of the
President's plan — and of health care reform — that I intend to pur-
sue fully in the coming months.
Thank you very much.
The Chairman. Thank you very much.
Dr. Francis.
Dr. Francis. Thank you very much, Mr. Chairman.
On behalf of the American Heart Association, I would like to
thank the committee for affording me the opportunity to be here
today.
I am Dr. Charles Francis, a member of the American Heart Asso-
ciation Board of Directors and professor of clinical medicine at the
College of Physicians and Surgeons of Columbia University, and
chairman of the department of medicine at the Harlem Hospital
Center in New York City.
The American Heart Association is a nonprofit, voluntary health
organization, funded by private contributions. The goal of the asso-
ciation is to reduce disability and death from cardiovascular dis-
ease and stroke. To support this goal, the American Heart Associa-
247
tion has contributed more than $1 billion to cardiovascular re-
search and has developed educational programs designed to pro-
mote health and to prevent and reduce the risk of heart disease
and stroke.
The position of the American Heart Association to date has been
guided by our five principles on access to health care. These are at-
tached to my testimony. We feel these are critical to any health
care reform package. We are pleased that the President's plan con-
tains provisions addressing all of these principles, although we are
still looking into the details of the plan.
We are also pleased to hear that the President and the First
Lady talk about many of the objectives contained in our five prin-
ciples, particularly the high priority given to preventive health ben-
efits.
The administration has clearly taken a leadership role in setting
the tone and direction for the debate on health care reform. It is
clear that the administration is committed to improving health care
for all Americans, and we are greatly appreciative of the effort and
sincerity that the administration has given to this issue.
The focus of today's hearing provides the perfect opportunity to
discuss our third principle of access to health care — "Coverage for
preventive care must be part of any proposal for health care ac-
cess," and there is indeed a critical need to have preventive health
services made available to all Americans.
We believe that prevention can have a major impact on the
health of all American people. This is especially true of heart dis-
ease and stroke because of the considerable available knowledge
about methods to prevent these diseases.
Unlike many organizations that will undoubtedly testify at the
numerous hearings on health care reform, the Heart Association
has no special interest or for-profit motivation. What guides our po-
sition and our policies are the 250 million Americans who are can-
didates for cardiovascular disease and stroke.
As you know, Mr. Chairman, heart disease and stroke which are
the number one and number three killers of Americans account for
over 930,000 deaths each and every year. We know that behavior
modification can reduce these deaths, and we know that preventive
health services provide the most effective means of behavior modi-
fication.
The Heart Association has developed a package of basic preven-
tive cardiovascular services that should be part of basic medical
coverage. The benefit package that is attached to my testimony has
been approved by our Heart Association scientific advisory council.
This preventive package reflects accepted procedures and principles
for the prevention of cardiovascular diseases.
The National Heart, Lung and Blood Institute's National Choles-
terol Education Program's Adult Treatment Panel II update, re-
leased in June of this year, confirms the AHA's recommended pre-
ventive services package.
In the past 3 decades, great strides have been made in the pre-
vention and treatment of heart disease, with a resulting decline in
cardiovascular deaths, mainly attributed to lifestyle changes. Peo-
ple are paying much more attention to modifiable risk factors such
as high cholesterol, cigarette smoking, hypertension, physical inac-
248
tivity, obesity, and elevated blood sugar. If the current health care
reform debate stresses the implementation of preventive measures,
we anticipate a major impact on the health of individuals and the
public.
The Heart Association believes that a basic medical plan should
include the following basic cardiovascular preventive services: blood
pressure checks, cholesterol screenings, electrocardiograms, exer-
cise stress testing, counseling, and medications, of course. We do
not believe that every procedure should be available on demand,
and the attached document provides in detail when and for whom
these procedures should be done.
I would like to stress the importance of counseling at the pri-
mary care level. Periodic preventive counseling regarding the in-
take of fat, cholesterol, complex carbohydrates, sodium, potassium,
and caloric balance, and the need for a regular exercise program,
is critical. For those people who are at high risk with high choles-
terol levels, we recommend that dietary therapy with monitoring
and long-term follow-up by a physician, a registered dietician, or a
licensed nutritionist be covered under the health plan.
I would also like to mention the importance of primary preven-
tion of hypertension. As a member of the Fifth Report of the Joint
National Committee on Detection, Evaluation, and Treatment of
High Blood Pressure — commonly referred to as JNC-5 — we rec-
ommended that for people who are at high risk for the development
of hypertension, particularly African Americans, persons with high
normal blood pressure or with a family history of hypertension,
that they moderate their sodium intake, reduce consumption of cal-
ories, increase regular physical activity, and moderate alcohol con-
sumption.
Providing coverage for counseling on tobacco prevention and ces-
sation is also very important to the AHA. Tobacco use is the num-
ber one preventable cause of death in the United States, and we
know that most smokers would like to quit but cannot.
We also know that smoking cessation programs work and that
they are cost-effective. But AHA believes that only proven and ef-
fective programs should be covered and only if they are conducted
by appropriate and qualified individuals.
In fact, the Agency for Health Care Policy and Research is now
developing practice guidelines on smoking cessation and preven-
tion.
We are presented with a great opportunity now to provide en-
couragement to smokers to quit. That, coupled with increased ex-
cise taxes and increased regulation of tobacco products by the FDA,
would have a tremendous impact on decreasing tobacco use
throughout the country.
At the present time, as a result of the tremendous political influ-
ence of the tobacco industry over the year, there is no Federal
agency that regulates tobacco products for health and safety pur-
poses. This is in spite of the fact that tobacco accounts for over
400,000 deaths and is the single most preventable cause of death
in our society.
It is time to change this scenario, time to provide the public with
assurances and protections that we provide for other chemical sub-
stances in the marketplace. I hope, Mr. Chairman, that the tobacco
249
issue and its importance to public health does not get lost in the
health care reform debate. Too many Americans have died because
Congress has failed to pass legislation to adequately regulate this
product, and many more will die if action is not taken.
Mr. Chairman, prevention, both educational and for the medical
profession and other health providers, has an integral role to play
in health care reform. The American Heart Association has public
education programs to inform people and providers on how to re-
duce risks of heart diseases. These efforts would be greatly com-
plemented by a comprehensive health care plan, public education
programs which are accessible to all and that include preventive
cardiovascular health care as outlined in our attached documents.
Thank you very much for your time and consideration.
The Chairman. Thank you very much.
[The prepared statement of Dr. Francis follows:]
Prepared Statement of Dr. Charles K. Francis
On behalf of the American Heart Association, I would like to thank the committee
for affording me the opportunity to be here today. I am Dr. Charles Francis, a mem-
ber of the AHA Board of Directors and Professor of Clinical Medicine at the College
of Physicians and Surgeons of Columbia University and Chairman of the Depart-
ment of Medicine at the Harlem Hospital Center in New York City.
The American Heart Association is a non-profit, voluntary health organization
funded by private contributions. The goal of the association is to reduce disability
and death from cardiovascular diseases and stroke. To support this goal the AHA
has contributed more than one billion dollars to cardiovascular research, and has
developed educational programs designed to promote health, and to prevent and re-
duce the risk of heart diseases and stroke.
The position of the AHA to date has been guided by our five principles on Access
to Health Care, which are attached to my testimony, and which we feel are critical
to any health care reform package. We are pleased that the President's plan con-
tains provisions addressing all of these principles, although we are still looking into
the details of the plan. We are also pleased to hear the President and the First Lady
talk about many of the objectives contained in our five principles, particularly the
high priority given to preventive health benefits.
The Administration has clearly taken a leadership role in setting the tone and di-
rection for the debate on health care reform. It is clear that the Administration is
committed to improving health care for all Americans, and we are greatly appre-
ciative of all the work, effort, and sincerity that the Administration has given to this
issue.
The focus of today's hearing provides the perfect opportunity to discuss the AHA's
third principle of Access to Health Care: "Coverage for preventive care must be part
of any proposal for health care access", and that there is a critical need to have pre-
ventive health services made available to all Americans.
We believe that prevention can have a major impact on the health of the Amer-
ican people. This is especially true of heart disease and stroke because of the consid-
erable available knowledge about methods to prevent them.
The need for access to preventive services is plain in the face of the fact that there
are 250 million Americans who are candidates for cardiovascular disease and stroke.
As you know, Mr. Chairman, these two diseases, which are the No. 1 and No. 3 kill-
ers of Americans, account for more than 930,000 deaths each and every year. We
know that behavior modification can reduce these deaths and we know that preven-
tive health services provide the most effective means of behavior modification.
As advocates for people who suffer from cardiovascular diseases and their fami-
lies, we are pleased that we are seeing progress in research, education and healthier
lifestyles. Unfortunately, we still face daunting problems:
• In 1990, heart and blood vessel diseases killed more than 930,000 Ameri-
cans^— more than two out of every five deaths.
• Of the current U.S. population of about 250 million people, more than 70 mil-
lion suffer some form of cardiovascular disease, in many cases with a reduction
of the quality of life.
250
• Heart diseases and stroke are not only a threat to the elderly. More than
161,000 Americans under the age of 65 die from cardiovascular disease each
year.
• Cardiovascular diseases and stroke cost $117.4 billion in 1993, which includes
$75.2 billion for hospital and nursing home services; $17.9 billion for physician
and nurse services; $6.7 billion for drugs; and $17.6 billion in lost productivity.
In the past three decades, great strides have been made in the prevention and
treatment of heart disease with a resulting decline in the cardiovascular death
rates, mainly attributed to lifestyle changes. But, since up to 50% of heart attack
victim's first warning is sudden death, there is little opportunity for treatment, and
prevention offers the only hope.
In 1990, an estimated 392,000 coronary artery bypass procedures were performed
on 262,000 patients at an estimated expenditure of over $9 billion. Should all heart
attack prone individuals be treated surgically, resources to defray the costs would
not be available. This is true, even more so, for heart transplants, which constitute
a frequent treatment for end-stage heart disease. The technological treatments for
heart disease such as angioplasty, thrombolytic therapy, antiarrhythmic drugs, and
pacemakers are not curative. More importantly, such procedures can do nothing
about the underlying process, atherosclerosis (the hardening of arteries), which is
the principal cause of the problem.
It seems obvious that more effort should be directed to preventive approaches.
Atherosclerosis begins in young adulthood and it may be decades before clinical dis-
ease is manifest. While we do not fully understand all of the causes of heart disease,
large epidemiologic studies have identified risk factors and strategies to reduce the
risk. These modifiable risk factors include high total cholesterol levels in the blood,
cigarette smoking, hypertension, and physical inactivity.
There has been a significant reduction in cardiovascular mortality in the U.S. due,
in large part, to the public's adopting a more healthful lifestyle. This underscores
the importance of encouraging the medical profession to assume a preventive pos-
ture. More and more evidence is accumulating showing that atherosclerotic plaques
in arteries can regress even in individuals with advanced disease.
Unlike many organizations that will undoubtedly testify at the numerous hear-
ings on health care reform, the AHA has no special interest, or for-profit motivation.
What guides our position and policy are the 250 million Americans who are can-
didates for heart disease and stroke.
We have developed a package of basic preventive cardiovascular services that we
believe should be a part of basic medical coverage. The benefit package that is at-
tached to my testimony has been approved by the AHA Science Advisory Commit-
tee, and it reflects accepted procedures and principles for the prevention of cardio-
vascular diseases. The National Heart, Lung and Blood Institute's National Choles-
terol Education Program (NCEP)'s Adult Treatment Panel II update, released in
June of this year, confirms the AHA's recommended preventive services package.
The AHA believes that a basic medical plan should include the following basic
cardiovascular preventive services: blood pressure checks, cholesterol screenings,
electrocardiograms, exercise stress tests, counseling and medications. We do not be-
lieve that these procedures should be provided to everyone on demand; the attached
document details when and for whom these procedures should be done.
I would like to stress the importance of counseling at the primary care level. Peri-
odic preventive counseling regarding the intake of fat, cholesterol, complex carbo-
hydrates, sodium, potassium, and caloric balance and the need for a regular exercise
program is critical. For those people who are at high risk with high cholesterol lev-
els, we recommend that diet therapy with monitoring and long-term follow-up by
a physician, registered dietician or licensed nutritionist be covered under the health
plan.
Preventive services can also make a large impact on recurrence of disease in those
who have already had a heart attack or surgery. The AHA urges the committee to
insure that that coverage is available for secondary preventive services, namely,
treatment after an angioplasty. We believe that patients who have already been
treated for cardiovascular disease should have health care coverage for diet counsel-
ing, drug therapy counseling, rehabilitation, smoking cessation and exercise counsel-
ing. Clearly, secondary prevention measures are highly cost effective, as well as an
essential treatment for patients who we know are in trouble.
Providing coverage for counseling on tobacco prevention and cessation is also very
important to the AHA, and we have noted that President Clinton's plan would in-
clude this under the substance abuse treatment benefit. Tobacco use is the leading
cause of preventable death and disability in the United States. We are presented
with a great opportunity right now to provide the encouragement that they need.
251
Each year tobacco use kills 434,000 Americans and burdens our health care system
with $65 billion in direct medical costs and lost productivity. Tobacco use is linked
to heart disease, high blood pressure, stroke, cancer of the lung, larynx, trachea,
pancreas, bladder and lip and respiratory diseases. Smokers also have increased
problems with colds, pneumonia, influenza and bronchitis.
But above and beyond the need to ensure coverage for smoking cessation, there
are other equally important public policy initiatives that need to be addressed if we
are to deal with the tremendous tobacco problem in this country. I would be remiss
if I did not bring these issues to the attention of the Committee. Clearly Congress
needs to take the tobacco industry head on. The AHA, along with its sister agencies
the American Cancer Society and the American Lung Association, believe that to-
bacco must be regulated in the manner in which other legal products in our society
are regulated, including the way they are manufactured, distributed, sold, labeled,
and advertised. FDA should be given specific authority over tobacco products. It is
indeed a national health travesty that this nation's single most preventable cause
of death is also the least regulated. As long as this product remains exempt from
health and safety laws passed by Congress and designed to protect consumers, the
tobacco industry will have free reign to market its products while realizing huge
profits at the expense of hundreds of thousands of lives lost each and every year.
The tax on cigarettes should also be significantly increased. The AHA strongly
supports an increase in the cigarette excise tax of $2 per pack, to help finance
health care reform and to reduce consumption. For every ten percent increase in the
price of tobacco products, there will be approximately a four percent decrease in to-
bacco consumption and possibly a greater decrease by children.
And, when it comes to tobacco and the prevention of disease, we are no longer
just talking about the smoker but the nonsmoker as well. As you know, in January
of this year the EPA released a report that concluded that environmental tobacco
smoke (ETS) has a serious and substantial impact on the public's health. ETS is
now listed as a known human carcinogen along with asbestos, benzene, and arsenic.
The EPA report found that children who are exposed to ETS are at a higher risk
for lower respiratory tract infections, ear problems, and new and increased symp-
toms of asthma. The AHA estimates that 35,000 to 40,000 cardiovascular disease-
related deaths occur each year as a result of ETS.
Mr. Chairman and members of this Committee, we must do more to protect our
citizens and particularly our children from the ravages of tobacco. After allowing the
tobacco industry to control the tobacco and health agenda in Congress for the last
40 years, the opportunity exists for "change." Do not let the tobacco industry hold
health care reform hostage to its special interests. Too many Americans have died
because Congress has failed to act. Many more will die if Congress does not inter-
vene.
Mr. Chairman, prevention — both educational and medical — has an integral role to
play in health care reform. The AHA has public education programs to inform peo-
ple how to reduce their risk of heart disease. Countless numbers of posters, bro-
chures, booklets, advertisements and kits targeted to schools, businesses and health
care sites reach millions of Americans every year with educational messages pro-
moting good heart health. The AHA's community service programs educate the pub-
lic on now to control high blood pressure, stop smoking, adopt healthy dietary habits
and be physically active.
These efforts will be greatly complemented by a comprehensive health care plan,
accessible to all, that includes preventive cardiovascular health care as outlined in
the attached document.
President Clinton has emphasized the need for preventive care research as a part
of his health care reform proposal. The AHA believes that the allocation of funds
for biomedical research is pivotal to any health care reform plan.
Without continuing research, we will not be able to improve the diagnosis and
treatment of cardiovascular diseases. We will only make critical advances if bio-
medical research, research tag and clinical training are recognized as integral parts
of health care reform.
We recognize, as well, that biomedical research is essential to the development
of preventive measures. Recent developments in molecular and genetic cardiology
indicate that the near future will present the opportunity for highly cost-effective
preventive interventions, targeted to high-risk individuals with identified genetic
predisposition to disease, before the development of clinical disease states. An early
example will be familial hypercholesterolemia.
The AHA wants to participate in the development of guidelines for appropriate,
quality cardiovascular care and see more research on methods to measure quality,
outcomes and cost-effectiveness. We believe that professional groups, such as the
AHA, should be an important part of guideline development. Proper, effective and
252
cost efficient care is necessary if the United States is going to find a solution to the
health care crisis we are facing today.
The American Heart Association, in conjunction with the American College of
Cardiology, has already developed ten practice guidelines on procedures ranging
from electrocardiography to exercise testing to coronary angiography and by-pass
surgery. The AHA and ACC are currently working on additional guidelines. The
AHA would be happy to provide copies of guidelines to the committee at your re-
quest.
Death rates from heart attacks, among both men and women, have gone down
substantially in the last twenty years. These statistics are the result lifestyle
changes by the public and advances in medical technology and therapy. Health care
providers play an important role identifying people at high risk for cardiovascular
disease and encouraging them to modify their behavior. However, there is much to
be done in the area of outcomes research. The New England Journal of Medicine
notes that "further research about the overall risk-benefit ratios of these interven-
tions and the development of effective strategies to help implement risk-factors
modifications are needed."
The AHA is prepared to assist the committee as it proceeds in the health care
reform debate. We will be happy to provide you with more information on any of
our programs at your request.
PREAMBLE TO BASIC PREVENTIVE CARDIOVASCULAR SERVICES
In the past three decades great strides have been made in the prevention and
treatment of heart disease with a resulting decline in cardiovascular deaths, mainly
attributed to lifestyle changes. Because approximately half of all deaths from heart
disease are sudden and unexpected, there is little opportunity for treatment in this
group, and prevention offers the only hope. In 1990 an estimated 392,000 coronary
artery bypass procedures were performed on 262,000 patients at an estimated ex-
penditure of over $9 billion. Should all heart attack-prone individuals be treated
surgically, resources to defray the costs would not be available. This is even more
true for heart transplants. The technological treatments for heart disease such as
angioplasty, thrombolytic therapy, antiarrhythmic drugs, and pacemakers are not
curative. More importantly, procedures can do nothing about slowing the underlying
process, atherosclerosis, which is the principal cause of the problem.
It therefore seems obvious that more effort should be directed to preventive ap-
proaches. Atherosclerosis begins in young adulthood and it may be decades before
clinical disease is manifest. While we do not fully understand all of the causes of
heart disease, large epidemiologic studies have identified risk factors and strategies
to reduce the risk, these have been proposed and tested. The modifiable risk factors
include high cholesterol levels in the blood, cigarette smoking, hypertension, phys-
ical inactivity, obesity, and elevated blood sugar. There has been a significant reduc-
tion in cardiovascular mortality in the U.S. due, in large part, to the public adopting
a more healthful lifestyle. This underscores the importance of encouraging the medi-
cal profession to assume a preventive posture. More and more evidence is accumu-
lating showing that atherosclerotic plaques in arteries can regress even in individ-
uals with advanced disease. As our understanding of the causes of heart disease and
stroke improves, the day will come when we are able to direct preventive measures
at the pathology of the disease. The opportunity to reduce the major causes of mor-
bidity and mortality from heart disease and stroke is at hand. Through the imple-
mentation of preventive measures we can have a major impact on the health of the
individual ana the public. This is especially true of heart disease and stroke because
of the considerable available knowledge about methods to prevent them. Although
a cost has not been placed on preventive services, it seems logical that they would
cost less than the present medical system which is primarily responsive to estab-
lished disease through expensive interventions.
The American Heart Association believes that an equitable comprehensive health
care plan, accessible to all, should include as an integral part, basic preventive
health care services as outlined.
253
OR AFT
AMERICAN HEART ASSOCIATION
BASIC CAHOIOV ASCULAH PRFVENT1VE SERVICES
CHILDHOOD THROUGH ADULTHOOD
BIRTH TO 20 TEARS OF AGE
20 YEARS OF AGE ANO OLDER
Uaoca History
Idamncson « Eany Syrnpaomoiorjy
inounnq Couawnq
Birth, auu at 2 year*, tnan ovary 4 yaara uo
10 age 20
Every S rears, every 2 years between 81 '5
svary yaar altar aga 75
Phy*eal£»am
Bain to i8morana|2.4.S.i8rnanmsi:2«: J-
12: 13-14
Same as above.
Growiri CMn iCtnldrani
Homi Wavy*
Sam. ongomq up to 13
13-18
Waasm aj pan oi pnyscai nam
Btood Preuura
Apparent* Haaam>
Wo/iFta*.
Age 3. every aumnaaon inereaner
Physnan iimiunnu, and loaox-up ■ avary
physical
It 8P.i30v.8S mrnHq avary 2 yaara
BP 1 30-1 39/85-89 mmHq ovary yaar 140-
159/90-99 rnmMn oonlirm w«ren rwo iiunual
(Saa anacnaa sawua oar jnc V)
Scream) lor Lad Lmn
■ ApparanVy HftaBny
-• At High nsk
Altar aga two cm Mr bo oi oarem vain
>240 mgrai toiai cnowseroi
Adults mm cholesterol nenreen 200-240
moral wnnoui omsf ran laaors
Total cnoewrol
Tout Cnokmam and HOC
Ages 20-60 evary 5 yaara
Ages 61 - 75 ana ovar opaonM
Recnec* annuaav. areiary iraormanon I saa
attached scneouwt
•Fasonq UarJ Profile:
Al two years ol age. children wan cholesterol
>200 rrryu or because ol a ooajmwiM
history ol oremaiure cardiovascuiai umm in
par en granoDaren. aura or unoe. age s5 or
less
Aduis v/nn cnoarsieroi between 200-239 mryol
in] vmn oinsr ru« laaori. or wan owmmi
>240mn/dt.
Irnrnaoaiary
limanjaieiy
Reavaeiai* anruaay (saa arocned sncsdulei
Reavaaja* anruaay (see maenad acnaduiaal
Fasting Plasma Gucose
Apparerery Heaarry
Hical ns* indrwrjiaU barman 110-130%
above aesaaoie »»on! wan
caroovascuiar immm ana aonormal
rod profile
Every i yaara uo <o aga 75 inereaner Mjeonai
Every 2-11 yaara up to aqa 45. yearly altar aqa
50.
RasanqECO
HtgnRIsM
Two or more risk laaors and umn
history or pramarura coronary naal
disease
Ona (base anal by aqa «o
"New recornrmndamns «*■ be avaUabte rrom
Naaonai Cholesterol Educamn Program
(NCEP1 later in 1993
Ej erase Stress Tests
HfcjnRls*
Hafi rsk inOMduais woo nm 2 or mora nsk
laaors or sirong lamfy nisiorv ol premature
coronary rman osease or over aga 40 wno ara
plamng io be in a vigorous e«erose program,
or mosa wno would endanger oubac salary
ware inav to eioenence sudden carraac evanra
9 o. airana pilots, lira ttgntari
254
Counaaanq
Anoararaty M«IBI»
n*r f*»
BIRTH TO 20 VEAflS Of AGE
Paranw d cmartn oi al aqa*. inBTjouca AHA
low rat am a Aq* 2. eftacis ex oasma
vnouno. nutj ex oomuv. pnyacai acw*y.
Pirtmt ana CntHran km 6 ana ovar sr«x.d
ba ouimm an omx looaaoo ana suosuno*
CMIdran Mn Iwjn blood onrsajia ana maw
parami snouid racarea couraaanq on ntt and
aiarasa. CfrUran aain nvDanotjama ««i
nojn nutnnonai qudanca and WW awnd, dv
a rarasiarad rjaattan or hscansad nuumoraaL
lonq larm io<iow-<a oi tod m<wi and
idantmeaaon and avooanoa ex am CV flak
laaon. eFoaowNCEPGuoaanaai
20VEAJW OF AGE Ar+0 OLDER
Penuuc rajajyaaraa oournawq rtKjaranq
daury << iiaa oi i at. saajratad. cnoanuarr*
conoai carbonvtvaiaa. sooum. cxxaiaum.
caanc Daanca. maw ex an nmu
proqram. tooaooo avoaunca o> cessation,
tuaa. usaot taatbani
Ota mangy (AHA Slao < and 2 oaui would
b* naaiad m irmoua wan cnowaeta '«»»■
BO ill <>00-2*0 mrya ana o* 240 mr>ai
«•» rnonaonnq and lonq iprm loaow-uo by a
pnyaoan and a taqaaawa] aaaaan tv aoanaad
raaaannax. (Foaaw NCg giadaianai.
Etovaiad cnokmam m*«i batad on NCEP
oudnanas nocaia ma naad lor druq tnanoy. •
may oa conanarad lor crttdran <0 yean of »oa
and ovar ~nn nava UXC lawa raqmr man
190 rrrytjor > I SO mqrdt and eanar a sronq
iarrn» nronry of Dntmanjra CI '0 ex mo or mora
adua CVD nsk laaon. 11mm tMM stand
ba Iraaiad Or pnysoana aipanarcad <n ma
manadamara oi kod diaordan •
Snouid ba avadanta lor al cnaonn
CTiaaiiawa awwiing oiuqa moid a*
taianu n oauam mm oarsman
Onaodarraa baaao on NCEP quoaanaa angjn
many paaans worn esiatasnad or hnewn
ooronary anery oisaasa. ^harmaooprjc
Wfman m o* ner-oeo lor rovnuars ones*
raaoonaa <o Hasty*) rnooncanona >or wood
praaaura paannq ara inadaouaia. Adaouaia
i lor drurja snouaj ba proMdad aa
■at
^
Maaaaj
</
laaaa
^
^ 1 "
•■■da
•
* \ *
•■Mi
•/
•m
-
Ml— «
"
lilt -MB 1
IT"
"— 1
*
IVUoas 1
^
•r
U«a
»r
*
-
IMIwi
•*-
,.44- |
«r
PlaTJnaTI ormn laoum proof ot vaocnaoon
alar tna nrsi baindav or uouraany xmanoa al
Immunfy anoual iacai>a runaia aajajaj—
Aiaaaoac proon*oaoa
M«jn Risk
ChKdtan -an Croup A Suafanrnrod
Aqa «5 and rxrar r»qn m* grauoa
H»rior» or Acuia Rhaumaac Favar
ValMiiar n tan aaaaaa -wrt orocaduraa
255
FIGURE
3-
Initial Classification Based on Total Cholesterol
Mttff W^mt
■ (mrlM ■
lUtaM
OfJnkW
•lo»< Oioltitfnt
^ < 200m»« _,
lortt'lit Hlfk'
flood C*«Hrl»r»l
208 -131 agi
Nlfk'
>2W ***
Ct it Fi|«n 4
Detection. Evaluation, and Treatment of High Blood
Cholesterol in Adults. USHS. NIH, Jan.. 1989.
'Muit b<9 confirm*^ by '«p*it rrtASfur»m«n(: ui« tvaragt v«lufc
* "Ont of which can b« maia •*> Iim Tabta 2).
256
FIGURE
4-
Classification Based on LDL- Cholesterol
■ tl kw fm
turf cVtr-trr* - HOI
■Mali
-'»Viw.*»ii
Otiinblf
101 Ch«l««Uril
<1J0 mUdl
lo'dfiiat High Rnk
tDl ChnlMifial
HO IMmiH
A II CHO
I RIU
tntfl-l T«
Fictore*
1*1 CHO tf 1*1 U»
Rita. Ficltrt*
•— ►•
0» OS** ft*"**
fHlMhyv^..;
►
MWWtWfHJ
• M
r Hjh Risk
tDl ChritiMral
> 160 m|.'dl
,
—»
• tii* m ft* wi»>f •••"■iv
■ <mag« -ihcm
htMhKH*
Ct n Ftf oca }
*On« of which cm b* mil* >•> lt*« T»bl» 21
257
4. Inadequate Response to Diet
A p.itient who fails to achieve the goals for lowering of total cholesterol (or LDL-
cholcstcrol) by dietary therapy should be classified as having an inadequate
response to diet This does not necessarily mean diet failure, because a significant
reduction in cholesterol levels may have occurred by diet modification. There are
four categories of inadequate response to diet that can be distinguished
(I) Patients who have severe elevations of serum cholesterol often cannot achieve
the goals of serum cholesterol lowering by diet, no matter how strict the diet
For these patients (see Appendix II). it is not necessary to wait for six months
of dietary therapy before adding drugs to the regimen
FIGURE
5
— Dietary Treatment
3« Seal OMbjettral
6 Ml
tOt CWtntant
|-| CUD ■ W II Twe
Blrt fetefe*
(•I CHO at 1*1 N»e
Uli* Factere'
<llt mj*
Sin«frt» Seal
fctal Cleaifi el
<1SI
X
l»ttt»1 re
Stee 1 DIM
Inmiti rieleaterel
lllll r>Hto
t«4 it ] aoitti
Choi
Wat
iiitiul Goal I
5 Achieves" I
Cho'etterel Caal
J
101 CeeewttreJ
SMlhWm4
Rrtw t» Hae/Herf W«lW«a
c
Cholartaral Gail
Achieved
RMttt<W
Sta* 1 DM
MrwM
Jtaf I Ote«
3
Oe l»»| Tar* Mealtarief
■ Innun fatal
ekoriftereJ
4X hi fliet T**r
IXIftm rttraaliar
■ Releierte Jinan anJ
getaekn ■ee'tlleetles
h4tllMaaj
c
Cholittarol Goal
ggj Achia««a)
"0"e ol which can be male >e» (Table 21
258
FIGURE
6
— Drug Treatment
Eveluele tOl Cnolat*in>l
Mlo*>lr>| • minimal* if I
months en dial
IDl fholttn
Ooal Aehie»*a'
Q
Da UhjIiii Maafeariaa.
<U» fl|aia SI
IDl Cholaitsrel
ijoil Not Achiavad
lOt Ckaimwa«
110 111 *•««
HHCHOaaa)
II Tma Mak
fact an*
101 t>elatt»njl
>1*t rfJ t>
>1*la*<«
II i'l C1>D w
I'l TWa Rl*k
Fact an*
MeiJalta
aaaaaaipaiitiaja
• aaraMkaaj
Rat ana ajaskal
alitafa
Caaarfaar *>af
traataaat k>
MtatfrfM tat mtt
PftmiTi tstaM HWlHHnl
■ ■•••**"
•VflHtM ••»*•«""■ 1 Catrtitrr rrii
atetea>
MhWealie a«a»a»*lia
traaHaaaa.
Ceatiear boeaeaa Wb ads)
tSaJNaatTMtt
iabn frsfaf
flnt I
IDl Ctioletlerel
Goal *t»ii«d
101 Cn»letterel
Coal Ret Hcnleyee1
Meeha/ tatal
ckalaitaral
rmo ♦ maactai
Rereaaar*
IDl CtotaalatsJ
thai
•n«
Cava* n nstrr ta
fcaf irut^mm a a*
101 Chnleslorol
Coat Nat Achieved
"One of which can be mala «a« ITabla 21
259
TABLE I RECOMMENDATIONS FOR FOf.LOWUP
BASED ON INITIAL SET OF BLOOD PRESSURE MEASUREMENTS
FOR ADULTS AGE 18 AND OLDER
Followup Recommended'
Recheck In 2 year*
Recheck In 1 year**
Confirm within 2 months
Evaluate or refer to source of care within 1 month
Evaluate or refer to source of care within 1 week
Evaluate or refer to source of care Immediately
* T/ the ryttollc and diastolic categoriti are different, follow recommendation for
the thortrr time follou-vp {t j. 16045 mm Hg fhoutd b* evaluated or referred to
source of can within I month}.
t The scheduling of followvp shouldbe modlfledby reliable information about past
blood pressure measurements, other cardiovascular risk factors, or target-organ
disease.
"Consider providing advice about lifestyle modifications 1st* Chapter 111)
Initial Screening
Blood Pressure
(mm HgT
Systolic
Diastolic
<130
<85
1T0-139
85-89
140-159
90-99
160-179
100-109
180-209
110-119
2210
J120
Joint K.i'ional Committee on Detection, Evaluation
and Treatment of High Blood Pressure (V), NIH NHLBI,
Jan., 1993.
260
FIGURE I TREATMENT ALGORITHM
Lifestyle Modifications:
Weight reduction
Moderation of alcohol intake
Regular physical activity
Reduction of sodium intake
Smoking cessation
Inadequate Response*
Continue Lifestyle Modifications
Initial Pharmacological Selection:
Diuretics or Beta blockers arc preferred because a reduction in
morbidity and mortality has been demonstrated
ACr. inhibitors. Caldum antagonists. Alpha, -recrptor blockers,
and the Alpha be'a blocker have not been tested nor shown to
reduce morbidity and mortality
Increase
Drug Dose
Inadequate Response*
Substitute
Another Drug
Inadequate Response*
Add a Secord
Agent From a
Different Class
T
Add a Second or Third Agent and/or
Diuretic if Not Already Prescribed
RtipOHU mrtuu tchirrid foil blood prttturt. or patunl It miklmf contldtrmbU
trrrgrm towtrdi this goal.
261
Figure 1
Risk Assessment
Measure total
blood choiesiero!
R.sK
assessment
Pa'ental High
Blood Cholesterol
2240 mg dL
Acceptable
Blood Cholesterol
< 1 70 mg dL
Borderline
Blood C^o'eslerol
1 70 199 mgdL
High
Blood Cholesterol
2200 mg dL
Positive tamily
history*
Repeat cholesterol
and ave'age
with p'pvious
measurement
< 1 70 mg dL
j170 mgdL
Oo lipoprotein
analysis
Reoeat cholesterol
measurement
within 5 years
Provide education
on recommended
eatmg pattern
and risk 'actor
reduction
Co lipoprotein
analysis
Highlights of the Report of the NCEP. USHS. NIH. 1991
Denned as a hutory oi premature (before age 55 years) cardiovascular disease in a parent or grandparent
262
Figure 2
Classification, Education, and Followup Based on LDL-Cholesterol
Oo lipoprotein analysis
• 12 hour fast
• Measure total cholesterol.
HOLchoiesterol. and triglyceride
• Estimate LDL cholesterol • total
cholesterol - HOLchoiesterol -
(triglyceride/ 5)
Acceptable
LOLCholesterol
<1 10 mg'dL
Borderline
LOLCholesterol
110-129 mg/dL
High
LOLCholesterol
it 30 mg/dL
Repeat
lipoprotein
analysis and
average with,
previous
measurement
Acceptable
LOLCholesterol
<110 mg/dL
Borderline
LOLCholesterol
110-129 mg/dL
High
LOLCholesterol
*130 mg/dL
Repeat lipoprotein
analysis within
5 years
Provide education
on recommended
eating pattern and
risk (actor
reduction
Risk factor advice
Provide
Step-One Diet
and other risk
(actor intervention
Reevaluate slatus
In 1 year
Oo clinical
evaluation
(history, physical
exam, lab tests)
• Evaluate lor
secondary
causes
• Evaluate (or
familial
disorders
Intensive clmlcal
intervention
Screen all family
member*
Set goal
LDL-choiesterol
• Minimal:
<130 mg/dL
• Ideal:
<1 10 mg/dL
Step One (hen
Step-Two det
263
Figure 3
Diet Therapy
264
Position Statement
Principles of Access to Health Care
Access to Health Care Task Force,
American Heart Association
Harriet P Dustan. MD. and Charles W Francis, MD. Cochairs; Hugh D. AJIen. MD:
Susanna L Cunningham. PhD. RN: William Dulany. Esq ; Joel Hay. PhD:
Gerard A Kaiser. MD: Thomas H. Lee. MD: Pamela Mattson. JD;
David A Ness: and Anthony G. Wagner, Members
Richard Hamburg: Sarah Kayson:
Rodman D. Starke. MD: and Kathryn A. Taubert, PhD. AHA staff
Principle t: All United States Residents Should
Hive Access to Quality Medical Care
It is widely agreed that the United States leads the
world in terms of its medical care expertise. America's
physicians and other health care professionals are
among the world's best trained, our hospitals are among
the world s best equipped, and our biomedical research-
ers are constantly testing the limits of the world's
scientific knowledge yet among industrialized countries
the United States does not have the lowest infant
mortality nor the longest life expectancy.
Manv would argue that this discrepancy is at least parity
due to the fact that many of America s less fortunate
residents do not have access to basic health care, including
basic cardiovascular care Many obstacles deter entry into
the health care system and utilization of many of its
services, and often the services available may not be of
high quality. Furthermore, for this population, access is
too often delayed until the person is desperately ill and
requires long and costly hospitalization. This forced delay
results in diseases being treated rather than prevented.
Individuals suffer needlessly, and our health care system
bears additional, unnecessary costs because some of our
nation s residents do not have access to the basic preven-
tive medical care that can delay or prevent i disease s
progression A related problem is that some people may
have access to care but do not take advantage of it for
reasons such as cost, transportation or language barriers,
bureaucracy, fear of the system, or lack of exposure to and
education about what is available. The problem of access
has many components.
The American Heart Association supports the posi-
tion that regardless of preexisting conditions, all US
residents must have access to quality medical care,
including appropriate medications and prevention
programs.
Principles ot Acceu 10 Health CiW *u irpt-Jved by the
American Heart Auociition • Board o( Directors oo October U.
IQQ9
Requests (or teprims ihould be »eni to the Offlc* of Seenitflc
Aftiirt American Heart Association. TJ7J Gteeoville Avenue.
Dillu. PC ?5JJI-«S»6
Principle 2: Universal Coverage for Basic Medical
Care Should Be Available
Accotding to the US Congressional Budget Office, in
March 1940 about 37 million Americans had no insurance
coverage, reflecting a tremendous growth in the number of
uninsured persons in the 1980s. The Congressional Bud-
get Office data permit some generalizations about the
uninsured: Children account for approximately 25^; the
majority have incomes at or below 20OTs of the poverty
level; most have one or more family members in the work
force; and although most are white, members of various
minority groups are disproportionately more likely to be
uninsured. Frequently the lack of health insurance cover-
age is temporary, such as when a person changes jobs or is
temporarily unemployed. Minimum-wage jobs are unat-
tractive to many because often health insurance is not 1
fringe benefit This unavailability of health insurance, for
example, would discourage a parent from leaving the
welfare rolls to accept minimum-wage employment.
Although people may lack health insurance for a num-
ber of reasons, the consequences of being uninsured are
often negative. Compared with the insured, the uninsured
use the nation s health care system less frequently, are
more likely to be without a regular source of basic health
care, are less likely to engage in preventive measures, and
are more likely to delay seeking medical care
Of particular concern to the AHA is how the lack of
health insurance affects basic cardiovascular care Be-
cause the uninsured are less likely to seek basic medical
care, they probably are less likely to receive basic
cardiovascular care. The task force believes that when
this care is not provided, in manv cases people are more
likely to suffer from preventable cardiovascular diseases
and the nation s health care system incurs treatment
costs that far exceed those of preventive care.
The AHA supports health care reform that Includes
universal coverage of basic medical care.
Principle J: Coverage for Preventive Care Must Be
Part of Any Proposal for Health Care Access
Over the last several decades researchers have iden-
tified a number of risk factors for cardiovascular dis-
265
eases, mosi of which can be modified or eliminated by
appropriate interventions. Because cardiovascular dis-
eases are the major cause of death in the United States,
control of modifiable risk factors can improve the
nation s health, prolong lives, and diminish health care
costs The magnitude of the potential benefit of such
risk factor control is emphasized by the fact that in 1992
cardiovascular diseases afflicted more than one in four
Americans and cost approximately $109 billion.
Cardiovascular diseases affect both adults and chil-
dren Atherosclerotic cardiovascular diseases, particu-
larly coronary heart disease, are associated with elevated
blood cholesterol, cigarette smoking, hypertension, dia-
betes, and lack of exercise Control of these risk (actors
by lifestyle modification or medication lowers morbidity
and mortality rates.
The occurrence of stroke is critically dependent on
hypertension, and modern treatment programs have
resulted in a striking decrease in stroke mortality rates.
Other modifiable risk factors for stroke include smokjng
and excessive intake of alcohol
AJthough the development of hypertension is strongly
influenced by heredity, modifiable risk factors include
obesity, excessive alcohol consumption, and. in suscep-
tible people, high sodium intake.
Heart disease in children is either congenital or
acquired. AJthough research has yet to define all the
causes of congenital defects, it is known, for example,
that both alcohol and cocaine use during pregnancy can
cause specific heart lesions in the offspring Abstinence
from these two toxins during pregnancy would prevent
many cases of heart disease in the newborn Another
preventable cause of congenital heart disease is rubella,
or German measles, a risk that can be eliminated by
immunization of the mother before pregnancy.
Rheumatic heart disease, the result of rheumatic
fever, is a leading cause of acquired heart disease in
children. Rheumatic fever is a preventable consequence
of strep throat. Rheumatic heart disease can largely be
avoided by preventing rheumatic fever through treat-
ment of streptococcal pharyngitis with penicillin.
It is important to note that the adult cardiac problems
discussed above can have roots in childhood, so appro-
priate measures for detection and control of risk factors
should be part of basic pediatric and prenatal medical
care. Prevention is the key to eliminating many cardio-
vascular diseases: therefore, the AHA strongly supports
the coverage of preventive care as part of any access
proposal litis would complement other AHA activities
in the areas of public policy and public education
related to preventive health care.
Because children have less access to health care than
adults, equal access will require more resources than
previously used This will necessitate some redistribu-
tion of these resources. Children must b« a high
priority.
The AHA supports the position that resources must
be targeted to the prevention of heart disease.
Principle 4: Funds Must B« Allocated Tor
Biomedical Research, Research Training, and
Clinical Training
High-quality health care and continuing improve-
ment in diagnosis and treatment depend in large mea-
sure on the results of biomedical research The AHA
has long been a vigorous proponent for support of
biomedical research and research training
As part of the debate about plans for universal access
to and universal coverage for health care, the AHA
emphasizes that support of biomedical research and
research training are necessary components of any
national program Results of past research are respon-
sible for the improved health and longer lives of the
American people. Future research can be relied on to
improve diagnosis, prevention, and treatment of all
diseases, making medical care more cost-effective For
example, polio vaccine has eliminated one scourge that
crippled thousands of young people annually The vac-
cine was developed when researchers learned how to
grow the virus in the laboratory Other examples in-
clude development of open-heart surgery, coronary
bypass procedures, and thrombolytic and diuretic drugs.
Substantial benefits have been derived from biomed-
ical research in this country. For this to continue, health
care reforms must include support for 1) basic and
clinical research at a level that allows reasonable
growth, 2) research training at a level that eliminates
the current downward trends in research manpower,
and 3) resources adequate to supply needed equipment
and other types of infrastructure.
To contain costs. Medicare rulings were changed to
allow support of postgraduate training only through the
first period of specialization. This ruling, along with
other cost control measures, means that support of
training for cardiac subspecialties and other needed
cardiovascular care providers will be in jeopardy.
The AHA supports the position that funding for
biomedical research, research training, and training of
cardiovascular practitioners must be considered when-
ever health care reform is planned.
Principle 5: The American Heart Association
Should Participate In the Development of
Guidelines for Appropriate Patient Cart and
Should Support Research Into Methods of
Measuring Quality, Outcomes, and
Coat-Effectiveness
The AHA recrgnues that there are limits to the
resources that the United States can provide for health
care. Neither private insurers nor government should be
expected to provide medical care to all without consid-
ering the appropriateness, efficacy, or cost of treatment.
To ensure the quality and cost-effectiveness of the
medical care provided, two general requirements must
be met: 1) the development of practice guidelines by
professional groups with the appropriate expertise, and
2) the knowledge of treatment outcomes generated by
health services research to determine not only clinical
effectiveness but also cost-effectiveness Because health
services research is a relatively new discipline, the
number of trained researchers is small and knowledge is
limited.
The AHA advocates the continued development and
wide promulgation of basic practice guidelines by ap-
propriate professional groups, the support of health
services research, and the training of health services
researchers.
266
The Chairman. Dr. Ludden.
Dr. Ludden. Mr. Chairman, thank you very much for the oppor-
tunity to testify before you today. I am here representing the Har-
vard Community Health Plan, which is a 545,000-member health
maintenance organization which takes care of patients from New
Hampshire, Rhode Island, and Massachusetts. We at HCHP believe
that the reform of the U.S. health care system must include a re-
orientation of all of medical care toward prevention.
We know that inadequate attention to prevention makes us a
sicker, poorer Nation and undermines the ultimate quality of our
medical care. I do not think there will be anyone here who dis-
agrees with that premise, and we have a solid foundation as a na-
tion in the 1989 Guide to Clinical Preventive Services of the U.S.
Preventive Services Task Force.
What has gone wrong? There is a problem, with two parts to it
as I see it. First, without universal coverage, tens of millions of un-
insured Americans do not have adequate access to preventive care
or coverage and cannot afford simple preventive measures that will
improve their health, so they delay, they cost more, and they use
the most expensive medical resources.
Second, for those who are insured, preventive benefits are lim-
ited, and the fee-for-service system is designed to provide incen-
tives for physicians to treat the sick, to treat very sick and illness,
and not to engage in prevention counseling and education.
Therefore, we feel strongly that the essential first steps are to
guarantee coverage of preventive care and to assure access to medi-
cal professionals who are oriented to prevention, as are found in
the primary care specialties.
HMOs and other managed care organizations have been provid-
ing this kind of care since their inception. We provide and cover
routine exams, screening tests, immunization, prenatal and well-
child care, eye exams, allergy tests,, preventive dental visits for
children for which our members pay either a small office visit fee
of $5 to $10, or in the case of immunizations and prenatal care, no
visit fee at all.
We also provide comprehensive mental health and substance
abuse coverage, and we offer health promotion and education class-
es at nominal charge. These are the kinds of benefits the Clinton
plan would provide tor all Americans.
At HCHP, our preventive package becomes synonymous with our
practice of medicine. It includes primary prevention, including im-
munizations against preventable diseases, doing risk assessment
and behavior modification, secondary prevention, including out-
reach to patients and early detection of disease. Prevention like
that can begin before birth, sometimes even before conception,
when it comes to nutrition and other issues.
The third part of our preventive program includes the informed
treatment of illness, including understanding factors that make
treatment difficult and applying coordinated care, teamwork, and
problem-solving, so that we are continuously improving outcomes.
And finally, preventive medicine includes the wise use of re-
sources, avoiding unnecessary and ineffective care; it means basing
clinical decisions on clinical and scientific assessment and never on
cost alone. There is a lot less certainty in what preventive meas-
267
ures work, applied in what form, than one might hope. So we need
to reach a consensus, and we base our practices at HCHP on a con-
sensus which our group practice is able to achieve.
I would like to mention very briefly four things that are exam-
ples of the synonymous prevention and all of medical practice that
we engage in at Harvard Community Health Plan.
As I mentioned before, we cover all immunizations and screen-
ing. Every new member receives a brochure — some of which are
here — on staying healthy, that contains all of our recommendations
for immunizations for screening tests for men, women, and chil-
dren. We support compliance of our membership in that with a
number of ways, using computer-generated reminders, sending
postcards and notes to patients, or actually going out and finding
them.
As the report card that I have attached to these materials shows,
we measure our performance on a regular basis and use clinical
quality improvement to help increase compliance and follow-up.
The second example included in the attached tables shows the
improvement in our ability to follow up abnormal pap smears with-
in 6 to 9 months so that we are now following up at a level of al-
most 99 percent across Harvard Community Health Plan compared
with a typical benchmark of about 70 percent.
In managing illness as a piece of prevention, I would point to
HCHPs AIDS program, which couples primary care providers who
may know less about treating people with HIV with a central group
of experienced resources, including nurses and education programs,
available 24 hours a day. We have beginning evidence that the
length of stay for hospitalizations for people with AIDS is signifi-
cantly, perhaps up to a third, less than in the disorganized fee-for-
service system, and that our total costs for caring for AIDS patients
may be as low as half as great as those in the disorganized fee-for-
service system, with satisfaction levels that are superior.
Finally, in all of these areas, we work to prevent the unnecessary
use of resources in all the preventive maneuvers we look at. The
example I have included in our handout is a collaborative effort be-
tween primary care physicians and specialty neurologists to look at
using cranial imaging, MRIs and CTs, and through that kind of col-
laboration and teamwork, which is the heart of a group practice
HMO, we are able to reduce the use of that test by about a third.
Ultimately, our goal should be to make health care in fact a
much smaller piece of people's lives, in terms of incidence of illness,
cost, and administrative hassle. A national strategy of prevention
that is based on clear goals, coordinated processes of care, nec-
essary follow-up, measurement of performance and continuous im-
provement, all supported by adequate funding, all of those will con-
tribute to our goal.
Thank you for the opportunity to testify, and I would be glad to
answer any questions.
The Chairman. We will come back to questions, but let me ask
if you have smoking cessation in your program?
Dr. Ludden. Yes, many.
[The prepared statement of Dr. Ludden follows:]
268
John M. Liidden, M.D.
Medical Director '
Hnrvard Community Health Tlan ' I
Testimony Before the Senate Committee on Labor and Human Resources
October 6, 1994 . .
Mr. Chairman, members of the commJtiee. Thank you for the opportunity to testify before
you today. I am here representing Harvard Community Health Plan, a 545,000-member
health maintenance organization serving Massachusetts, Rhode Island and southern New
Hampshire.
We believe that reform of the U.S. health-care system must include a reorientation of
medical care to prevention. Inadequate attention to prevention makes us a sicker, poorer
nAtion, It undermines the quality of our medical care and it strains the relationship between
patients and their physicians. In almost all cases, preventing disease Is more humane and
cost-effective than treating Its consequences.
i
I dunk we would be hard pressed to find anyone who disagrees with my premise. The value
of prevention Is strongly imbued In the classical view of medicine. Prevention as a nadonal
health-care strategy already has a solid foundation In die 1989 Guide to Clinical Preventive
i
Services of the U.S. Preventative Services Task Force, which recommended 169
interventions tint would help prevent 60 medical conditions. So what Is niissing7 What has
gone wrong?
The pioblem, In my view, Is both economic and structural. Without universal coverage, tens
of millions of uninsured Americans do not have adequate access to preventive care or
coverage. Many cannot afford simple preventive measures that will improve dieir health and
well being. Iliey delay or do not receive the care diey need, and when they do receive care,
they are likely to consume the most expensive medical resources, such as emergency room
services.
269
For those who &re Insured, preventive benefits may be limited or non-existent, 80 prevention
becomes a luxury rather than a given. Our traditional unorganized fee-for-service Insurance
system reimburses physicians for treating Incidents of illness, not for preventive practices,
counseling or patient education. In turn, these fee-for-servlce payment incentives have led to
diminished Interest in primary care among medical students and to a lack of coordination
among specialties and levels of care. These are barriers to prevention that must be
overcome.
i
The essential first steps are to guarantee coverage of preventive care and to ensure access to
medical professionals who are oriented to prevention. HMOs have been providLngtha^ kind
of care and coverage since their Inception. We provide and cover routine examinations,
screening tests, immunizations, prenatal and well child care, eye exams, allergy tests and
treatment, and preventive dental visits for children, for which our members pay either a
small office visit fee of $5 to $10, or in the case of immunizations and prenatal care, no visit
fee. We also provide comprehensive mental health and substance abuse coverage and we
offer health promotion and education classes at a nominal charge to members and non-
members. These are the kinds of benefits the Clinton plan would provide for all Americans,
and I applaud that. However, prevention cannot simply be added on to current medical
practice. Instead, we believe that it must be redefined to include all aspects of medical
..... | ,| i
At Harvard Community Health Plan, our goal is to make prevention synonymous with
medical practice - to manage the health of our members through their entire lives and to
manage their care tluough the course of any disease or medical condition. HCHP's
Principles of Medical Quality are based on prevention; they state, "We endeavor to give care
i
that will make a real difference In keeping people healthy or restoring their health; the
delivery of such care Is our highest priority."
! r !
The practice of preventive medicine is not limited, in our view, to the traditional emphasis
on those tilings one doctor can do with one patient. Instead, prevention must involve
270
Individual providers, groups of providers, and organized networks. And prevention must be
based on continously refined programs that have far-reaching, measurable benefits for all or
part of a population.
Prevention Is a clinical process, or series of processes, just like the rest of medicine. The
processes of prevention must be organized, measured, subjected to standards of effectiveness
and appropriateness, and continuously Improved upon. In tills context, prevention Includes
assessment of patient risk factors, behavior modification, health screening, education and
counseling, outreach, clinical quality Improvement, coordination of medical services, and
integration with social services outside of the medical setting.
Specifically, in HCHP's preventive practice, we seek to manage, on behalf of our members:
i
i i
'I I
Primary prevention, which Includes immunization against preventable diseases, risk
assessment and behavior modification to reduce health risks. The Preventative
Service a Task Force states that "The most promising role for prevention In current
medical practice may lie In changing the personal health behaviors of patients long
before clinical disease develops... conventional clinical activities may be of less value
to patients than activities once considered outside the traditional role of the clinician."
o Secondary prevention, which includes outreach to patients, the early detection of
disease through appropriate screening, and the use of clinical guidelines for the
management of conditions before they become serious. Prevention can begin before
birth, even before conception. Timely detection of problems often makes more
effective treatment possible and almost always improves planning for future
management of Illness or other conditions.
o Informed treatment of illness, which Includes understanding the factors that make care
and ueatment difficult, Bnd applying coordination of care, teamwork and problem-
solving to improve outcomes, quallty-of-life and value In a measurable way.
271
o And the wise use of resources, which means avoiding unnecessary or ineffective care
that In many cases can do more harm than good. At the same time, it means basing
clinical decisions on clinical and scientific assessment and never on cost alone.
As in all areas of medical practice, there is much less certainty than one might hope for or
I
assume about which preventive practices work and which are most cost-effective. For
I
Instance, It was once believed that the annual physical exam was good preventive care; today
i i
the focus Is on appropriate health screenings at appropriate times In one's life, not only to
prevent unnecessary cost, but to improve quality of care.
!!......„,'..; ■ ! :'
Reaching a consensus on what comprises good preventive practice Is not easy. There is
much work being done tlirough expert panels and research projects on developing consensus,
and our understanding of what Is useful prevention Is constantly evolving. At HCHP we try
to base our preventive interventions on those practices where a consensus has been achieved.
In addition, we seek to continuously monitor and update the latest knowledge and build
consensus within our own group through communication and team-building.
Let me outline a few specific examp!es_of what HCHP is doing to Integrate prevention into
our practice of medicine.
As I mentioned earlier, we provide and cover a wide variety of primary and secondary
preventive measures and we try to encourage and teach healthy behaviors to our members.
Each new member now receives a brochure ("Staying Healthy") that contains our
recommendations for Immunizations and screening tests for men, women and children at
various ages. We support compliance with our screening recommendations In a number of
ways, Including computer generated reminders that are produced at patient visits, and
tlirough programs such as our flu shot program for high-risk members. As the attached
"reportcaid" shows, we measure our performance on a regular basis and we use clinical
quality improvement techniques to help us Increase compliance and follow-up. A striking
example of success In clinical quality improvement Is documented on another attachment,
272
which shows that follow-up or notification within 6 to 9 months of an abnoma! pap smear li
now at the 99 percent level at HCHP. compared with typical benchmark data of 70 percent.
I: :
I I;
i li ' J
In the managed treatment of illness. I would point to the example of HCHP's central AIDS
program. Our AIDS program enables a large number of primary care providers with varying
levels of experience with HIV infection to provide up-to-date management of their patients'
problems by having a central clinical resource available 24 hours a day, along with ongoing
educational programs. Our patients feel supported by having a sympathetic and
knowledgeable nutse who provides education, emotional support and help in assessing
clinical trials, and who facilitates appropriate and timely care for acute problems. Since the
inception of the program, we find that potentially serious illnesses are diagnosed earlier,
decreasing hospitalization and maximizing use of at-home therapies, which leads to shortened
length of hospital stays as indicated on the attached graph.
I
i
And finally, how do we prevent the unnecessary use of resources? Several years ago a team
began looking at the use of cranial imaging - MRIs and CT scans of the head -- as a
diagnostic tool for headaches. Information on cranial Imaging use in internal medicine and
pediatric departments was compiled and distributed to primary care physicians along with
medical literature on the use of cranial Imaging for headache disorders. Consultation with
staff neurologists was encouraged. The result, shown on the attached chart, has been a
significant decrease In cranial Imaging utilization, without any reduction In quality of care.
ii
! : |l
HCirP's preventive care Is delivered primarily to an enrolled population through prepaid
group practice. As an HMO, we aren't faced with many of the barriers, mentioned earlier,
that stand between the patient or the provider and the practice of prevention. At the same
i
time, managed group practice allows for a complex Interplay between the care of a
population and the care of an individual. The care of a population involves probability,
statistics, systems of care, and the careful measurement of the outcomes of care. The care of
an Individual requires weaving the probability characteristics of a population into the
meaningful care of a single person at a single point In time. For our group practice, this
273
means crafting the teamwork, collaboration, Innovation and various viewpoints of the group
members Into single acts of care between a provider and patient.
It is important to acknowledge tliat even with universal coverage for preventive care, an
Increase in primary care providers, and even a restructuring of our health care system over
time into one that is less fragmented and more coordinated, there is no guarantee that a
strategy of prevention will be successful. Health core is only a small part of most people's
lives. In order to be effective, prevention must be delivered and communicated forcefully
and consistently in many other settings - at home, In schools, in places of employment, to
i
prisons, in community organizations and agencies of all kinds. And we as a nation must deal
with the many social and economic issues that stand In the way of effective prevention -
poverty, homelessness, Illiteracy and lack of transportation to name a few.
Ultimately, our goal must be to make health care a much smaller part of people's lives, In
terms of incidents of illness, disfunction, cost and administrative hassle. An effective
national strategy of prevention, based on clear goals and standards, coordinated processes of
care and necessary follow-up, measurement of performance, and continuous Improvement, all
supported by adequate funding, will all contribute to our meeting that goal. ,
274
; i
T3
u ;
.s t:
*-§
"3 ^
E °
3 1
C3 ^
U CO
rt
ffl
TB JSJLLJJJ
E
IS
fc
E
Q
u
SEpSS
Bass
ttitfci?n
r.r-CC-H:
82
5
iZ
ss
m
o
8
I
5
m
tire
Si
o
»-
©
3
-- HJCr
SI,
Si
r
z
■<
Z
J?
3
SJli
3£
m
$
IN
mk
Ski
Sis
HI
•<
|
r-
-rrrr
M
S;srr
8
^rasl ■:: t
if. Vp.C, ■! )'
z
$'
pr
Hi
11
fc :;-:!s
;: : :*
18ff
•*■
e'jjii
*««=53
^isg
B
ssasaas
Si I'll "SSlfcSiir
gr>c oj .[-^Sr<p^ i en-
i
%
ruan
3S
vat
HI
iasa
1^1
g PI'.-
SP
275
276
|i I Inrvnrd Community 1 1 cnltli Plan
Summary: Abnormal Fap Smear Follow-up
yunpn<f| To At tr.rmjne the ntti it fbllou-iip and mtl/lcnUon fht women who hud an abnormal Fap imtai.
Mrftin<)n1c^y| All "'moinuil F»p snitvs pe iferme^ during July - S'ptenitvr 1971 wrre Identified froro the various Ub
systems Fcllow-up Inrorn'atlon vts collected flcm Die lab systems, claims data, and medial record teview. Folhw-
t/r> wa« oVfln-d si r repeat Top smeai, colposcopy or mtiftry. Wot[f\totion was defined as an attempt to notify lha
patient of the abnormal remit. The snvtA ptrloti for data collection «u July 1992 - Much 1993.
Key Findings
S\rcce«« In ach1e\lng follow -np for abnormal T>p smears li exctfllrigly hl|h In all three division*, particularly when
compared to benchmark data Benchmark data available fiom published studies In a variety of clinical !<etUnj»l Indicate
a t>plc-d follow-up rile of 70V.. The best follow-up me achlei ed In any published repon Is 9S% at one year. Previous
IfCirr studies Indicate fellow -up.Votjfiejtloft rates of 99.?'/. In the IICD and 100.0% In the NED (follow-up/
notification to occur within one year). No previous MOD data are available.
Results
Follow-up or Notification without follow-up
within 6-9 Months of Abnormal Pop Smear
D Notified Only
P3 FcUevwfl-up
I. OH
_i£3TT!?rjs??i
UCIIT
N-17IJ
No r.videnct of Follow-up of Notification
w Itliln 6-9 Months of Anncr mal Pap Smear
0.9'A
IICD
K-I0J7
MOD
N-J7S
NED
N-Jtl
There are no slrntflf-rrt dilferrrKta between divisional ra'es (fJli). .
team Mftnb*sJ'C»«filimf<)i n De'na Coolsin * Jam*! Zs'.rMI, co lr->ders. Driart Chunf*. Ua relnfiold, MSI'll, I -arty
Gottlieb, MT», Tain Llnov. MA. Svan»1 Payne M( Gtilttt, MP. A, Stertitn J clnrnl-aum. MP, Dorlicne Smith, lean Thorn", NP.
For mart Information, pteasf contact James T^Trall at «|7> 731-7533 nr i»7?33. Report Bate: September 1991
277
MHO
Of"'
Harvard Community Health Tlan
HCD Central AIDS Program
ii
Significance;
i
The HCIIF Central AIDS Program provides a wide range of
hospital, ambulatory, and homecat e services Tor members with
IUV, ARC, and AIDS Ihe goal of the program Is to piovide
coordinated and comprehensive care through a team of medical
and nurse specialists, aimed at supporting affected members'
complex routine and emergency medical, aocial, psychological,
and educational needs.
Central AIDS Trogram Inpatient Discharge Summary
20 .r
Si
"8
iB.er
10.7*
874
f-
-I
4-
+
+
H
FY87
FY88
FY80
FY'90
FT»1 I FY92
Fres
Flist Nina
Months
Action for Improvement; Ongoing tracking system of services provided for and Status of
membets with HIV, ARC, and AIDS
278
MPO
UUtMl
OJ1««
: 'I
1
Harvard Community Health Plan
Analysis of Use of Mill's and CT Scans of the Head
Significance:
:l
The use of expensive dingnostlc tests does not always result in
Impioved health outcomes for our members. In an effort to
understand cranial Imaging utilization, the Neurology
Department hit tricked and reviewed utilization over the past
three years. t
Cranial Imaging Utilization
1S.0H T
■ I
I
r
12 0%
0.0%
eon
s.os
0.0%
FVBO
(Q2)
MeaiuremenU i\ere eorvlueted tntec yearly
I
Remits:
Action for Improvement:
• Information on cranial Imaging uttlbation for departments of
Internal medicine and pediatrics was compiled and distributed
to primary care clinicians.
• Clinicians were offered medical literature concerning cranial
imaging for headache disorders and reinforcement that
Neurologists are available for conjultatloa
Stable levels have been achieved as of FY'90 (Q5). Plans are
to continue tracking Individual and comparative data.
279
The Chairman. Dr. Henley.
Dr. Henley. Thank you, Mr. Chairman.
I would ask that our written comments of the Academy be placed
into the record.
The Chairman. They will be.
Dr. Henley. My name is Douglas Henley, and I am here today
as a member of the board of directors of the American Academy of
Family Physicians; but I would indicate to you that I am also a
family doctor in rural North Carolina, practicing with my four part-
ners and three physician's assistants that we employ, providing
comprehensive medical care to over 25,000 patients in our area.
On behalf of our 74,000 members at the Academy, I am pleased
to discuss with you the important issue of coverage for clinical pre-
ventive services in the President's health care reform proposal.
Let me first indicate that the Academy is extremely supportive
of the President's principles of health care reform and many of its
strategies. But we are especially excited and encouraged and sup-
portive of the emphasis being placed by the President on clinical
preventive services and their coverage. Family physicians are
uniquely trained to provide these services regardless of the pa-
tient's age or gender.
We have long advocated the need to provide for age-appropriate
and effective clinical preventive services. Those services identified
in the President's proposal are essentially the same as those which
exist in our health care reform proposal, "Rx for Health." They
would cover all age groups and are consistent with the rec-
ommendation of the U.S. Preventive Services Task Force.
In the President's plan, we finally have an approach that is truly
comprehensive, that places strong emphasis once and for all on pre-
ventive services, while at the same time providing coverage for rou-
tine medical care.
If I may, I would like to summarize three particular points re-
garding our concerns on these issues. The first deals with the
methodology of determining which preventive services should be
covered in the President's plan. We believe this is a very important
scientific issue.
Some preventive services, such as prenatal care and immuniza-
tions, have been well documented to reduce both individual and so-
cietal costs. Where those exist and the data exist, they should be
covered, without deductibles or copayments or coinsurance.
But other services, even some that are highly promoted, have
very limited or no documentation regarding positive outcomes. We
would highly recommend that the work of such experts as Dr.
David Eddy and the Preventive Services Task Force be utilized by
your committee as a resource to determine those preventive serv-
ices to be ultimately included in the basic benefits package.
These experts advocate and utilize, as has the Academy, an ex-
plicit method for making clinical policy recommendations. This is
a very rigorous and outcomes-based approach and one that the
Academy has used since 1990 in developing our age charts for peri-
odic health intervention, which are updated annually and are ap-
pended to our written testimony that I would bring to your atten-
tion.
280
As you debate this important issue of coverage, the methodology
of determining coverage must be addressed. We would ask that you
require two things. First, insist on an explicit method and an out-
comes-based approach to be utilized to establish and update these
services. The old-style consensus approach must be thrown out. We
cannot afford to pay for services simply because they seem right or
because they relate to the most current fad disease in the eye of
the public or the media.
Second, establish a single entity empowered to make the final
recommendations for covered clinical preventive services, based
upon the methodology that I have outlined. Multiple guidelines
from multiple groups are confusing to physicians and patients. A
single entity to approve such covered services will eliminate this
confusion.
The second issue that relates to the first deals with the issue of
funding. We would suggest that the research necessary to develop
this methodology and to determine which services should be cov-
ered, based upon first dollar amounts, is clearly within the domain
of primary care research.
I urge caution in how you utilize increased Federal funding to ac-
complish this research. We would strongly urge that such research
occur through the Agency for Health Care Policy and Research;
caution in the sense that through the National Institutes of Health,
primary care research is perhaps not the right domain.
Finally, I would like to emphasize the important issue of the
periodic health exam. The President's proposal for clinical preven-
tive services includes such age-appropriate examinations. The time
necessary for these visits, however, is dealt with primarily as a
routine office visit and frequently focuses on just simply tests and
procedures. If we are truly to put prevention into practice, we must
shift the focus of such visits to the necessary counseling, screening,
and risk factor reduction that is necessary for these very, very im-
portant visits. They are anything but routine, and they require
greater expertise and time and skill on the part of the physician.
I strongly encourage you to place more attention on the physi-
cian/patient interaction rather than on the tests that may be or-
dered. Unique CPT codes exist for these services and should be re-
imbursed to reflect the time and skill required in carrying out a
comprehensive history, a comprehensive exam, risk assessment and
counseling.
In summary, Mr. Chairman, we applaud the President's strong
emphasis on clinical preventive services. Clarification about which
services to be covered is very important, and we provide our infor-
mation for your use.
The Academy stands ready to assist this Congress and the Presi-
dent as these issues are debated. I thank you for your time and
would be happy to respond to your questions.
The Chairman. Thank you very much.
[The prepared statement of Dr. Henley follows:]
Prepared Statement of Dr. Douglas E. Henley
My name is Douglas E. Henley M.D. I am a member of the Board of Directors
of the American Academy of Family Physicians, and I am privileged to serve as
chair of the Academy's Commission on Public Health and Scientific Affairs. On be-
half of the Academy's 74,000 members, I am pleased to appear before the Committee
281
this morning to discuss coverage of clinical preventive services in President Clin-
ton's health system reform proposal.
The Academy is encouraged and excited by the emphasis on clinical preventive
services in the President's program for health care reform. Family physicians are
uniquely trained to provide these services, but we and our patients have been frus-
trated that such services have not been covered by existing insurance plans.
The Academy has long supported the need to provide age-appropriate and effec-
tive clinical preventive services. Those services identified in the President's program
are essentially the same as those included in our health care reform plan, Rx for
Health. In the President's plan, we finally have an approach that is comprehen-
sive— one which includes preventive services as well as medical care services. In so
doing, the President's proposal agrees with our philosophy and approach to com-
prehensive, cost-effective primary care.
Preventive services in the President's proposal cover all age groups and are con-
sistent with the recommendations of the US. Preventive Services Task Force
(USPSTF). The Academy has actively participated in the deliberations of the Task
Force and applauds its outcomes-based method for in determining the effectiveness
of specific clinical preventive services.
We have also worked with the National Coordinating Committee on Clinical Pre-
ventive Services (NCCCPS) and the Office of Disease Prevention and Health Pro-
motion (ODPHP) to integrate clinical preventive services into the practices of our
74,000 members. We are, in fact, very excited to have just received funding from
the Department of Health and Human Services to implement their "Put Prevention
into Practice" campaign.
Some specific issues I would like to discuss with you today are the costs of clinical
preventive services, the scientific methods for recommending coverage of specific
clinical preventive services, the critical importance of protecting physicians who fol-
low the recommended protocols, the importance of emphasizing the periodic health
exam, and a major concern we have about coverage of clinical preventive services
in the Medicare Program.
Costs of clinical preventive services
Working with data collected by the NCCCPS, we have learned that including pre-
ventive services into the existing system would increase total premiums in the aver-
age employer's health plan by only three percent or less. While we acknowledge
these costs to be real, we believe strongly that great savings would ultimately result
from this important investment. These savings come from the prevention of disease,
diagnosing disease early and thereby effecting early cure or control, allowing for less
expensive interventions, reducing the physical and emotional burden associated
with an illness, and allowing affected individuals to be more productive in our soci-
ety.
Methods for recommending coverage
Careful consideration must be given, now and in the future, to those clinical pre-
ventive services identified for coverage in the proposed benefits package. Some serv-
ices, such as prenatal care and immunizations, have been well documented to re-
duce both individual and societal costs. These should be included without requiring
deductibles, copayments or coinsurance. Other frequently recommended clinical pre-
ventive services do not have clearly established beneficial outcomes, and there are
few useful studies showing they are worth the cost. Some services, even some that
are highly promoted, have very limited or no documentation of positive benefit in
relation to the high associated costs.
I would highly recommend the work of such experts as Dr. David Eddy and the
USPSTF be used as resources as you in determine those clinical prevention services
to be ultimately included in a basic benefits package with no cost-sharing.
For the past 6 years, the Academy has used an explicit method for making clinical
policy recommendations. The method is outcomes-based and considers both the
harm and benefit to the patient. This rigorous, evidenced-based method is also uti-
lized by the Agency for Health Care Policy and Research (AHCPR) and the Centers
for Disease Control (CDC). It is not being used, as yet, by the NIH!
Since 1990, the Academy has published its Age Charts for Periodic Health Inter-
vention, which are updated annually using this approach. These charts are ap-
pended to the written testimony distributed to each of you.
As you debate this important issue of coverage for clinical preventive services, we
urge you to require two things:
(1) Insist that an explicit method and outcomes-based approach be utilized to
establish and update these services. The "old style" consensus approach must
be thrown out. We cannot afford to pay for such services simply because they
282
"seem" right or relate to the most current "fad" disease in the eye of the public
or the media.
(2) Establish a single entity empowered to make the final recommendations
for covered clinical preventive services based upon the method described above.
Multiple guidelines or clinical policies from multiple groups or organizations are
confusing to physicians and patients. A single entity to approve the covered
services will alleviate much of this confusion.
Presumptive defense
The third issue I wish to address is the protection of physicians who follow the
recommended protocol for clinical preventive services. It is critical that such a liabil-
ity shield be legislatively mandated for when a physician's practice is based on such
a protocol. The current inconsistency of the multiple sets of guidelines including
such services as mammography and prostate cancer screening continue to leave the
physician open to litigation. Without a liability shield, the need to protect oneself
will continue to motivate the inappropriate use of tests and procedures.
Periodic health exams
The President's proposal for clinical preventive services includes age-appropriate
periodic health exams. The time necessary for such a visit, however, is dealt with
as a "routine office visit" and focuses on tests and procedures. If we are truly to
put prevention into practice, we must shift the focus of such visits to the counseling,
screening and risk factor reduction that occurs during these important visits. They
are anything but routine and require greater expertise and skill on the part of the
physician. I strongly encourage you to place more attention on the physician-patient
interaction than on the test that may be ordered. Unique Current Procedural Termi-
nology (CPT) codes exist for these services and should be reimbursed to reflect the
time and skill required in carrying out a comprehensive history, exam, risk assess-
ment and patient counseling.
Coverage under Medicare
This brings me to a major concern of the Academy about coverage of these peri-
odic health exams under the Medicare Program. While we strongly support such
coverage, we ask you not to do so at the expense of other primary care services. The
current process for updating the Medicare physician fee schedule does not protect
grimary care services in a manner afforded by Medicare Volume Performance
tandard. It is, therefore, critical that coverage of these periodic health exams not
reduce payment for other equally important primary care services.
In summary, we applaud the President's strong emphasis on the provision of clini-
cal preventive services as a part of health care reform. Clarification about the pre-
ventive services to be covered is important, and we provide our guidelines as one
resource. The Academy stands ready to assist Congress and the President as these
issues are debated. I thank you for the opportunity to appear before you today and
will be pleased to respond to any questions.
American Academy of Family Physicians
age charts for periodic health examination
510— Preamble, 510A— Ages Birth-18 Months, 510B— Ages 19 Months-6 Years,
510C— Ages 7-12 Years, 510D— Ages 13-18 Years, 510E— Ages 19-39 Years, 510F—
Ages 40-64 Years, 510G — Ages 65 Years and Older
These recommendations are provided only as an assistance for physicians making
clinical decisions regarding the care of their patients. As such, they cannot substitute
for the individual judgment brought to each clinical situation by the patient's family
physician. As with all clinical reference resources, they reflect the best understanding
of the science of medicine at the time of publication, but they should be used with
the clear understanding that continued research may result m new knowledge and
recommendations.
Preamble to Age Charts for Periodic Health Examination
Periodic health examination, including immunizations, counseling, and other pre-
ventive services, are a part of continuing, comprehensive care in family practice.
The content and frequency of these health examinations should be tailored to the
patient's age, sex, and risk factors. Delivery of clinical preventive services should
not be limited only to visits for health maintenance but also should be provided as
a part of visits for other reasons such as acute and chronic care. For many patients,
these visits provide the only opportunity to receive preventive services.
283
The following age-specific charts for periodic health examination are rec-
ommended by the Subcommittee on Periodic Health Intervention of the Commission
on Public Health and Scientific Affairs as the minimum clinical preventive services
to be provided for asymptomatic patients. They are based on the Guide to Clinical
Preventive Services: Report of the U.S. Preventive Services Task Force, the Amer-
ican College of Physicians outcomes-based recommendations on hormone replace-
ment therapy and recommendations of the Commission on Public Health and Sci-
entific Affairs. In making these recommendations, the subcommittee notes:
A) That all patients new to a medical practice should be urged to receive a
comprehensive history and physical as well as the screening, laboratory and di-
agnostic procedures, counseling, immunizations and chemoprophylaxis appro-
priate for the patient's age, sex, and risk. Subsequent visits may be used in
completion of workup.
B) That former health records should be obtained for review and avoidance
of duplications of laboratory testing.
C) That the charts are not exhaustive and that physicians may add other pre-
ventive services either routinely or for individual patients based on clinical
judgment.
D) That as new scientific findings become available, the subcommittee antici-
pates changes in the recommendations.
E) That the subcommittee has added interventions beyond the recommenda-
tions of the U.S. Preventive Services Task Force and other explicitly developed
guidelines that it feels are necessary. These are noted with footnotes on the
charts and shown in italics.
F) The date in the lower right hand comer identifies the most recent update
of these charts. The date in the lower left hand comer is the most recent print-
ing. This document is updated annually.
284
American Academy of Family Physicians
Periodic Ilcallli Examination*
Ages: 65 Years and Over
Schcdul-: P.n ciy \ ear'
<Sre Vrea/nble)
Screening
llhlnr?
h\iri\irt mc tidal and family hulpfy'
MnlKattpn iiif (prrsrripiion and
nt<n p'ti'.rtiuia)
Prior svmptoms of transient Ischemic
attack
Dietary mini c
I li j «ii t al ar tivlly
I obacco/akohoi/ding use
function.il status al lioinc
'An ipttafilf if tht rtevitntsly "/'Mi i^f
nis in .1. aivt f un'ly riftllcal nlHriJ If
irt fnvnrn.irii by ihr luhcommmrr
I'h-slcnl F.-mmlnillon
llrlpli' and uclRhl
Mi-i'd picssun;
Visual acullv
Heating nnd Iraihig aids
CUnlcal breast exam'
I'rh ir nam
C'lutiii ein.il ultMitit
Digital iri.wl rutin'
Mi'-h Hisk G n -ups
Auscultation l"t r.itotid" Fiu>ts (MR I)
Complete skin exam (.1 IR2>
Complete cnl cas ilv csain (IIR3)
Palpation ol thyroid nodules (MTM)
Ml r*r'j f Sy u. I ti vijiV with m minimum of
r ri > lvw> \rnrt
'Ail .nil)
'Mr in/ ( ntimi'tee Iftf-nr'/ni'l lAu
pnxrduir but rtcvf 1I"CJ l'* "• leniifle
evi4> .I- *• "iirr'~*'i"'f i' "^T n/1' 1^
f o-r/ujivc.
Diet nnd F.irrclse
I .it (especially saturated lat).
cholcslcml, complex carbohydrates.
Ii1>et. sodium, calcium'
rYiuritii-n-ii1 astewnent
Selection of exercise program
'for women
InliiryTrcvcnllon
rnvcnllon "f falls
Snlclv Kits
Smoke d-dectrr
Smoking near bedding or upholstery
Mot vaier healer temperature
<r, 120/)
Safety helmets
High-Risk Grrurs
I'lrvt tilii'ti ol rhiidhood injutlcs
fllRI?.
(Jounsellng
Substance Hse
lobaccr cessation
Aitnli"! and oilier drugs:
Limiting alcohol consumption
DiMmx/oiliS' dang-nous activities
while under die Influence
1 rcalmrnt for abuse
Denial llrallh
Rcculai tooth brushing, flossing,
dental visits
Laboratory /Pin enoxtlc Procedures
Nonlasthig or fauing total blood
choleslrrol
Dipstick urinalysis
M-unmcgram'
Thyroid functl"n lets'
High- Risk Groups
f astlng nlasnia glucose (ilUJ)
lulKlLillin skin let (pl*D. (MR6)
F_lccUptatdior,tam (IIR7)
Papanicolaou smear' (IIR8)
fecal occult blood/slgmoidoscopy
(MR11)
leca' occult blood/colonoscopy
(IIRIO)
M' Uast t\rry fur wan
'ft It mom nrruitd t\al manmoftarny bt
pe'f»in*ii a nua /- fnr all nnmen
brt'nnjnf fit flgf iO
'Fur *'»mf-|
'Fvery I 1 yritl
Sexual Practices
Sexuality
Other rrlmaiy
Pre\enllve Measures
Glaucoma testing
Advance dirrciivrsillvlng
v. ill dm able /'cmer oj nilomty
Discussion o( honnone replacement
llierapy In women
llljtf'jyslLpJSuiS
Discussion ol a pirin liict.ipy (HRI3)
Skin rtctrctlon from ultraviolet light
(MRU)
285
Arcs: 65 Veari ind Over
Immunizations and Clicmoproplnlaxls
tetanus diphtheria (Td) booster"
Infliirn/a vaccine"
rncunincur.lt vaccine
Hlr;h Rlek rtrrmps
Ilcpalilis B vaccine (MR 15)
'Tvery 10 vrarr
"Annually
leading Causes of Dcalh:
tic ^rt disease
Cerebrovascular dlrcase
ObMtucthr lung disease
Pncuinnnia/tnflucnzjl
I. imp chut
Colorectal cancer
Additional Notes
Remain Alert Tor:
Depression symptoms
Suicide risk factor; (IIRII)
Abnormal bcrravcmcnl
Chuigcs In cognitive function
Medications that Increase risk of
falls
Signs of physical abuse or neglect
Malignant skin legions
Peripheral arterial disease
Tooth decay, gingivitis, loose teeth
(High Risk Categories listed on following page.)
•Ihit list ol preventive i-fvlc-i li tv<l etltl"Mi>r 1l reflet u orly I) "Jc I«-pt<-» reviewed by the U S. Pievrntivc Service! TisV. l"c"ce atd tht A.\Tf
Co'imt'.MiVn on fuM c Ihili'i an4 Ju'iii/I' 1,fl,i"i. Clinician! mi) »i<h in • Id oiler preventive lervicel on • routine brill ard elm considering
the patient » medical hist.'ty tin I other lul' .Mill .Ircuinilancel. F.iami -In of luff condition! not specifically eiamlned by the Task Force Include:
Clttnnie nh^o-.<tive pilmomry dircase Ttlvel trilled Hires!
llrpnt'ililirjv di«eare rtercriptlon Hrug ab'tse
BWMrt cen-et Occupational lllnesi and tnjutlei
Fn<li*mrftii1 disrare
(The rrconunoidrH icher'ub- ipplies !•".!« lo ll'C pen-Jic »I»H '"'If- The frequency of the Individual preventive lervicel tilled bi thll table U left 10
clinical discretion, eicept as Indicated In other fooumtel-
Age: 65 Years and Over
High Risk Categories
IIR1 rets .nj »ilh ri<l railou fri ceiebrovauu'at 01 c«t<tlnv««tllu dj-ease (r |„ h>pcilenjlon, I'noUnf. CAD. atrial fibrillation, diabetes) or thoie
with nriitnloele ijmploml (t g . transient Ivhrmlc Macks) or a hlrlnry of eete brovaseulaj disease
1IR2 rcrsiw » iih a family ol personal hist, ty ct il In < anccr, Inneased oceupalional ot recreational eipmute lo lunhghl. or clinical evidence of
prrcutsor lesions (e g . d)splistle nevl, certain congenital nevl)
IIRJ Persons «llh eipniure *> tobacco or escesslve amounu of alcohol, or ihore wltb luspicloul lymptomi or leilona detected through lelf-
elimination
tlRI Prisons uiih a history of tipper body Inidiulon.
IlltS The markedly obese, persons «lth a family M<wty of dlibelei. or »omen with • hlilory of gerlatlonal diabetes
HRo llo.U'l -..Id mrml -ss of p. t.ons U rth Itlhcrcidosii or other I II ri.k for rlose cot'tacl » ilh the disea-e (e g . slljf of luhc.culosls clinlcl aheltctl
tor l).e h..n,rle-i nursirf. tt.-mes. iUi n-nce ■'nj.- uevn'cn! f.cil.'lM. dialyril u'du. crnecdonil Innituilons). recent Intmigranil or relugcel
fr. m co.inriei In »hi.h llrl«c.ulofU il co"uron (e g . Aria. Africa Central and South America. T,\r«: Wlndi). migant v-orke-i: reirdenll
ol mitring homer, correctional Inllltullnnr. 01 bnmelerr ihrlleri: or perroni with certain underlying medical dliorderl (e g . IttV rnfectton).
286
IIRT Mm »lth t*n or more cardiac risk factors (high Mood cholesterol, hypertension, cigarette smoking, diabetes mctlltui. fi-nlly hiiujty of CAD);
mrn »ho would endangrr public safely »rre <liry to experience sudden cardiac eventi (e g., commercial airline pilots): or sedentary or high risk
males planning to begin I vigorous etetclse program.
IIR* Women who hive not hid previous documented screening to which smears heva been consistently negative.
IIR9 fVrsnns uhn ha*e first degree relatives ^ ith colorectal cancer: • personal history of endometrial, ovarian, or breast cancer: or ■ previous
diagnosis of Inflammatory bowel disease, adenomatous polyps, or colorectal cancer.
IIR10 Persons with a family history of familial polyposis coll or cancer family syndrome.
MRU Recent divorce, separation, unemployment, depression, alcohol or other drug abuse, serious medical Illnesses, living done, or recent
bereavement
MRU Tenon* with children bi the home or automobile.
MRU Mrn avfca have rl«k faiiors kVi myocardial InfatMl'-n (eg., high b'ood choietiesrl, invktng, diabetes mcllltus. family history of early-onaal
CAD) and »hn lack a history of gastrointestinal or other bleeding problem!, and other risk factori for bleeding or cerebral hemorrhage.
MR 14 Tetsons with Increased eapmitre In sunlighl
IIR 1 3 ItnfnpMSiwHy a/hit' sexually active mrn. Intrivnous druf titers, recipients of lome blood products, persons In health related Jobs with frequent
erposurr to blood or blood pioducts. hnusrlwld and sexual contacts of HBV carriers, sexually active heterosexual persons with multiple sexual
partners d'utgncsed as fining recti*!? acquired sexually transmitted disease, prostitutes, and persons who have m history of sesmol activity with
multiple partners in th* previous six- months
Arc*: 40-64 Years
liigti-Rtitc Categories
MR I fVt 'nn< with a family of personal hls|--ry of skin cancer. Increased occupational or recreational eapofure to sunlight, or clinical avfdmca of
precursor lesions (e g . dysplartle nevl. certain congenital nevl).
IIR2 rrison.* with eipnsme to tobacco or eicesske amounts of alcohol, or those with suspicious symptoms or lesions delected through aclf-
etaminatlon
HR1 Persons witb a history of upp*r body Irradiation.
1IR4 Ters-nj with risk factors fir cerebro\ascu'ar or cardiovascular li-ea.se (e g.. hypertension, StnokJng, CAD. atrial fibrillation, diabetes) or thoia
with neiifor^glc symptoms fe g . transient Ischemic attacks) or a history of cerebrovascular disease.
IIR1 The markedly ohrse. persons »lth a family history of diabetes, or women with ■ history of gestational diabetes.
IIP * Prostitutes, persona who engage In set with multiple partners In areas in which syphilis Is prevalent, or contacts of persons with active syphilis.
MR? Persons with diabetes.
MRS retsons who am nd clinics for se»<iallv transmlttH diseases, »ue*td other high ri'k health cit Uciliil i (e g„ adol -stent and family planning
clinics), or have other rl«k (acton for chlamydial Infection fe g , multiple seaual partners or a aeaual partner with multiple actual contacts).
IIR9 Prostitutes, persons with n <jWr>!e actual partners or t icua' partner with multiple contacts, seaual contacts of persons with culture proven
gonorrhea, or prisons with a rmtniy of reprated episodes of gononhea.
IIR 10 Prrs <rs serVing 'reaunent for ftusllv transmit-cd disea«ta; hom ire sua! and blse\ual men; past or present Intra vnous (IV) drug us<"ra: re* sens
* rlVdtug
i tail)* long i
between |l?t ..„< |9RV
with a history <d pr< stituhon ©• multiple soual p'tlreri: »omen « h*»ie past or ptccnt tei"al partners were HIV mfottcd. bisexual, or I
users; p rtsitj »ti)< long term residence or birth In an area with high prevalence of HIV Infection: or pcrsoni with ■ history of transfusion
HRI1 Ho'tsclnltl rtiensVl* of r* (Sons, v it], tul>ctc"losis it other! at risk fur close contact with Use discs e (* g .. staff of ruboculofis clinics, iheltcra
for the htimelr s. masinr, hiHiiej. tul it-»ote ihartQ hrnrrrnt (•ciliilf*s. dialyif u iiti. C'-rrcclionil sru'itulirmsy. recrnt Immigrants or refugees
ft- m counties in *lmh tubrttulosis if conui<on (eg, Ajig, Alnca Cenual and Suuth Amaica, I ■ ilic IsU'sds); migrant workers: residents
of mitring burner, conectional ln<llitillon«. or homeless shelters: or perrons »lth certain underlying medical disorders (e.g., HIV bifectkm).
IIRI2 rerrons rtpmed regularly to pgretttve noisr
IIR1J Men uith uoo' more cardiac risk factors (I igh l»lcod cholesterol, hyrcrlenstrn. cigarette smoking, diaheles nellitus, fanily history of CAD);
men v l»o *ould ei dinger (nrbtic saf-ty *eie 'hey t«> experience sudden cardiac events (e g.. commercial airline pi lots h or aedentary or high-risk
maler pfenning to begin a vlgrnorrr eiercl*e pogtam.
IIRI4 remirtl ageil W andoMcr uhohave first-degrc* reliilt-s »ith colore:Ul cwei: • ocrsunal history of endometrial, ovarian, or breast cancer,
or a previous diagn<nls of InnatnrnUnry bowel diiease. adenomatous polype, or colorectal cancer.
If R 1 5 r*-rsnnr with a family history of familial pn|)pottl coll or cancer family syn«lrome.
IIRin rerlmcnof lusal armen it Incrcucd ritk for o5cop»rosii (e f m Taucaslan race, bilateral oophorectomy before menopause, slender build) and
for whom estrogrn rTlarement therapy would otherwise not be recommended
HR1T Recess* divorce. srs>araiion, unemployment, depression, alcohol or other drug abuse, serloui medical Illnesses, Dvlng alone, or recent
oerrnvfment
IIR1S Tetrons nvrt age 50. smokers, or persons »lth diabetes mellitus.
IIR19 Intravfnoiis drug users
1IR70 ferrona at Increased risk for low hack ln|ury KeeiUM of past history, body configuration, or type of ectlvhlet.
11R71 fersons »ith rhlldren In die home or automobile.
1IP7J Tersooa with oldr^ adults In the home
IIR?* Ter^ons with Increnod nr- 'if In tttntight.
1IR24 Men who have risk fa-.lora for p.ytKardial Infu & n (e.g.. Idgh b'ood rholesu-trl, tnvllnr. diabetes mellitus. family hlsU-ry of early-onset
CAH) »na »lm lark a history or ga<rrolni*iilnat o? other Herding probVmt. and other risk factota for bleeding or cerebral hemorrhage.
I1R25 l(imiosrsuall) a-vf b'sexwi'ly »cii\ e <nen. bttrav noi'i drug users, ret Ipientt r.f some Mood products, persons In health relafd Joba with fiequcrtt
esp.siire t>< Uratd cr blrod p -iducts. hwhnld and texval contacts nt IIBY i arriers. scualh active heterosexual persons wtth nwtuple sexual
pi.- en m d1n9nn.tr d os h rting rcceitflv acquired sexually transmitted disease, prostitutes, and persons who have a hisloey of sexual activity with
multiple pnrlnm in the prr\ rVtyt »tr mnntht
HRJ« rcnom » Mh nifrlKil wnJiUurt ihit Inctrwc Die H-V of jmzvnxocctl WecU.in(t K.chmnlc endiac cr pulmon.ry <H"i«. .icH.ceD dlwuc.
ncphioik •vndomt. lln!|Vui I dL-tMe. i«rlrnit iitbtitt mcllliui. dcohollim. clnhoili. mulilplt myeloma mul dltcu. et condliloni
IIR1J Rc<l.lrnl< o( cluonic cue l.cililicl tnl pctjcnl tiittt>in| fool cluonlc cndiopulinonuy dboidal. meubollc <Sutin (lnclvdln| dlitxUI
nwWllii.). hemn^lopinoct.lhlf.. bnmunofiipp««in«. of lend dyifunctkjn. .
287
American Acntlcmv of Family riijsiciaiy;
Periodic Health Examination
Birth to 18 Months
Schedule: 2. 4. «. (12). 15. \% Month?'
(See Preamble)
First Week
()| lillulruic antibiotics'
McmoelpMn electrophoresis (f!R4)
1 4/i sir
I'Iicii\ la'aiiini*
Hearing (MR))
'Al Wi||<
'Diy» 3 in 6 piefcnH for l«lin||
lllslnrv
Interval medical and family history1
'An uflo'inf of the nrcviniLt'y ol'tatiett
medical mut (unity nfdu at niuory it
recommended by ihe subcommittee .
Screening
Plnslcnl Examination
Height and weight
.nbornlorv/DlnEnostIc Procedures
Hemoglobin and/or hematocrit'
Hlghj-Rtsk Clrouw
Hearing' (UP 1}
U hole blood lead (HR2)
'Once du'int Irlancv. Ihe subcommittee
be'teic* either test is act cpiablr.
'fly m 18 months, II no! Icsnd nrlltt.
Diet and Exercise
BieaMlc-dlng
Nulilcm Intake, especially lion-rich
foods
ln|ury Prevenllon
Child silcty scats
Stni'kc detector
Mot wale* heater temperature
IS 120 V)
Stairway gates, window guards, pool
fence
Stotarc rf dnigs and toslc chemicals
Syrup of ipecac, pnison control
telephone number
f'nrcnt Counseling
Substance Use
Dental Health
Haby bottle tooth decay
Sexual
Other Primary
Preventive Measures
Effects of passive smoking
Assess risk of lead exposure (IIR2)
1
Immunisations and Chemoprophylaxls
Diphtheria tetanus pertussis (DIP) vaccine
Oral polinvirus vaccin': (UPV)
Measles mumps rubella (MMR1 vaccine
Haemophilia influewttt ijpe b (lllb) conjugate vaccine
Hepatitis B watte (linV)'"
Mich :Rlsk Q roups
fluotidc sui^ilcmriils '.IIR3)
Irdhtema \accine (IIR5) ,
i. ( vd IJ -r ISm
'Af~i 7. V anil 15 or M month*
'A' »tr 'J nHinihs
mhi Arellular prrtossh vaccine may be used for the fourth and fiflh doses
thin al a%rs 2. *, and 11 mowKt.
*Al • !■•» 2.
jAf-.i? 1
'If ut^t llboi! the i at at' ? < < iiivi (3 "v nils If u.ii"f f RP OHf, thin al a%ts 2. *, and II mon<ht.
''ll« *">Z r led oSi in 1 .1 rlfcliniliiilHi It Ml* (Moil dhchnie firm hospiAl). \ i months, and 6 18 month.. A sreond option Is
1--2 moniju. 4 moniha «nd 6- - 1 8 months.
288
nirlh (o 18 Monlht
Additional Notes
Leading Causes of Death: Conditions originating In Remain Alert For. Ocular misalignment
perinatal period Tooth decay
Congenital anomalies Signs of child abuse or neglect
Ucart disease
Injuries (nniimntor vehicle)
Pneumonia/influenza
HfRh-Rlsk Categories
HRt Inland *trh i family hl'iotv of childhood hearing Impairment or • tti-niul history nf congenital perineal Infection *ilh herpes, syphilis,
rubelli. cyiomcfatnvlius, or loi«plrsmosi»; maMofmitlent Involvlrt the head oi neck (r.(. dysmorphic and syndroms! ■ broimali'let. clcfl
palate, it rufinit plum) hlrthw nghl below ! *0O g; hict-tlal menlnf Ills. h)pcibllinibln«-mle requiring exchange transfusion; or sever* perinatal
a<phyila fApgar KW! nf 0 V absence of spontaneous respirations for 10 minute*, or hypotonia at 2 Imun of if)
IIR2 Infants who live In or frequently »Ml ho"*inf, bulli rwfo»e 1950 that li dilapidated or under jnlnf renovation: who come In ^or'aM »lth other
children -■*■ t rh known had l-niti'y; *h<> li r mh lev) proteasing plinti or whose parent* rr household mcmtVi* work In a lead related
otcupiii'-n; w »hn live near nus) hifhwiys or hirftdtstij waste sites. Dki >«iui clilM: a U*e In rt regularly villi a house built before 19607
"This roold Inel'tdr a day r are center, preschool, (lie home of a ba'iy ill'et oi a flatlve . eir. b. Have I brother or tisler, hous-male. or playmate
bring fc'lo v« I nt tf-ated for lead poisoning (that It, blood lead 2 15 pr.AJL)? C. Uv with in adult whose Job or hobby Involve* exposure
to lead? h\ Uve near an active lead imrltrr. battery recycling plant, or other Industry likely to reletse lead?
IIR3 Infants living In areas with Inadequate water fluoridation (less than 0 7 pans per million).
IIR4 Newborns of Caribbean. Latin American. Asian. Mediterranean, of African descent
IIR5 Children ever * months of age wiih chmnic pulmonary or cardiovascular problems Including ajdurta; nr *ho required modical folio a up or
hropifalfestiori dmlrg the past year for chronic metabolic d'tcaie (Including diabetes mellltus). rrnat dyafunction. hemogloblnopaihlet. or
Immunosuppression (Including tmmunosuprre nion cauied by medications).
•This tlai nf pfvenllvf art* Ires L« nil rxha>i5ilve It reflects only those to|4cs reviewed by the U.S. Pieveitttvc Services T%sk Force anA the AAFP
Ctunmintittn f* Vubtk lUrUih nnA \f%tn\ifit Affat't, t tiuitianj may »l-h 'o add ouVi preventive services on • routlnr basis and afler considering uS*
patient a m-di. nt hUtnry aj-d odter I" dividual circumstances. Examples of Utgri condition* not specifically examined by the Task Force include:
tVietopuKniil disorders MetahrMc disorders
Musculoskeletal malformations Speech ptrhlems
Cardiac anomslies Behavioral dl'ordetf
Genitourinary disorder* Parent/family dyafunction
tA» Irasl five vl'il* sje lequirct for Immunization? ftccau'e of lack of data *nd differing patient risk profiles, the ichcdnling of additional visits and
the frequency of the Individual preventive services listed In this table are left to cllnkal discretion (except aa Indicated m other footnote*).
289
American Academy of Family Physicians
Periodic Urnl'th Examination*
Ages: 19 Months to 6 Yenrs
Schedule Sec loolnolc'
(See Preamble)
Screening
History
t'hvsical Examination'
Laboratory/Diagnostic Procedures
Interval medical and fnmily history'
Heigh' and weight
Urinalysis for baclcrlurla'
llevclopmcntalbrhavioral
nicx-d prcsure
HlrthRlsk Croups
assessment
Hjc exam for amblyopia and
Whole blord lead (IIR1)
strabismus1
Tubciculln skin lest (PPD) (IIR2)
Hearing' (IIR3)
the opumal frequency for yrint U'ting haj
An uf fj'mr »/ l/v i rr\ioujlt obiatred
'a«m 3 4
medicitl <tnd Jvrt'ly ricdual hjttor)- it
not htm d'tftnirvd Old it left to clinical
dn retion In general, dip licit combining
rerommended by the lubeommilte* .
the /<«'>>< wr t'le'OJt and nitrite lent
ihnvld br vied to detect asymptomatic
I acleriutia.
'Annually
'rtctoie «je 3. K not luted culler
Fallcnl Si Parent Counseling
Diet and F.xcrcise
Substance Use
Sexual
Sweets and between 'real snacks.
Initiate sex education
Iron enriched food-;, sodium
Huttitional assessment
Selection of exercise program
Other Prliimiv
ln|tirv Prevention
Dental Health
Preventive Measures
Safclv belts
Tooth blushing
Effect? of passive 'tnoklng
Smoke de'ector
Dental visits starting at age 3
Assess risk n) lead exposure (HR1)
Hot water heater temperature
IlighRlsk. Groups
(< V.IU 1)
Skin piotcciiori irom ultraviolet
Bum p'ofction
light (HR4)
Etcitrital cords and rutins
H anting ahcut sttargeis
Window guards and pool fence
Dlcvclc safety lie'mcis
Sloraec of dings, toxic chemicals.
matches arid llfaims
SMiip of Ifvtac. poison control
Telephone number
-r— — n_ _— . — _ _ _^_ -=
Iinimiuizalions and Chcmoprophylaxls
Diphtheria tetanus pertussis (DIT) vaccine"
Dial pollovirus vaccine (OPS)*
Mra\lc'-m<tmps iithcUa (MMR) vaccine
Review llacvuypliil'B influenzae i\pe h (llib) conjugate vaccine Immunization status
Resins Ifpauiis R \atrinr (IIBV) status
IlifJ' Rl'fc Oroups
fluoride surplcmrii's (,IIIV>
Influenza vaccine (IIRf>)
Pnewnococcal vaccine (IIR7)
'Once l*ctacen apes s untt fl
'Before school entry
290
Ages: 19 Months-6 Years
Additional Notes
Leading Causes of Death: Injuries (nonmotor vehicle) Remain Alert For Vision disorders
Motor vehicle Clashes Dental decay, malalignment.
Congenital anomalies premature loss of teeth, mouth
Homicide breathing
Heart disease Signs of child abuse or neglect
Abnormal bereavement
High Risk Categories
MR! Infirm « ho live In or frequently »1*H howling bulli befo<e 1950 thai Is dibpldaicJ ot undcrgobif renovation; who come In contact »|ih olhct
children wi»li Vno^-n Irad l-nlclty: »ho live near lend ptuce'ting rlsnu or whose ruf»'i ot household mcmlrri woik In t lead-related
occupation; or *bo live nfo hvatj htr.h*svs or iia/->rdous waste sites Does y»ut child ■ \.Ut In of regularly vlilt t house built hef-we I960?
Ibis co"M include ■ Any < tie center, preschool. uV home of ■ ba'n, iiVer ot a t'lailve. etr. b. Have a brother nf sister, how-mate, of playmate
being followed or O'-s-'d for I-f J po'vming (that It. Mood lead 2 13 ug dL)7 c. Live with an adult whose job or hobby Invotvea etposure
to teailr* rl. Live near an arrive lead imelter. haiiery recycling plant, or other Industry likely to release lead?
IIR2 Household memb- rs of penons with tub'-iculn-Js or riltcrs at risk for close furuici with the disease; recent Invmlpa/vj or refugees from
countries in which tuberculosis is rnmmon (r g . Asia, Africa. Central and Smth. America. Pacific Islands): family members of mi giant workers;
resident* of homeless shelters; or persons with certain underlying medical disorders.
MR3 Children srtiJt • fimily history nf childhood h'-aiing Impairment or a per«onal history nf congenital perinatal Infection with herpes, syphilis,
pibetH f) ir»ncralo\ Inn, or tr»ff»plrtmnsl«: mal'o'mvlons Involving the head or neck (e.g. dysmorphic snd syndromiJ abnormalities, cleft
palate, «( no'im) pinna): bvthw-ight br|<iw 1 500 g, bact-Ttal meningitis; hyi>er bilirubin- mi a requiring eachange tiansfualon; or severe perinatal
asphyxia (Apgar scores of 0 3. absence of spontaneous respirations for !0 minutes, or hypotonia si 2 hours of age).
MR4 Children with Increased eapnsure to sunlight.
MRS Children living in areas with Inadequate water rbmndition fleji than 0.7 parts per million).
IIR6 Chil'frcn »tih chronir pulmene-y or canjlhi vascular problems Including ut'una; or who required medical follow iip or hospit dilation during the
past yea fur chronic meisbotlc disease (Including diabetes melHtus), renal dysfunction, hemoglobinopathies, or immunosuppression (Including
Immunnsirpprrssion caused by medications).
IIR7 Children aged two and over a ith chronic illnesses spcrifi<ally associaied «lth pneumococcal disease ot its compile alions. anatomic or functional
asplenia, sickle ee'l disease, nephrotic syndrome or chronic renal failure, cerebrospinal huid leaks, or conditions associaied with
ImmunosuraTresrion (Including III V J.
•This \\\{ nf preventive frtvirrs (• nol ethau'llvc. ft reflects only 'hose topics reviewed by the U.S. Preventive Services Task Torce anA the AAFP
Ccmmixiio* e>i fublk 11'ahh mvi Scientific Affairs. Clinicians may wbh to add other preventive services on a routine ba-ls. and a*ler considering the
patient's medii -J history aid other Individual circumstances. Eaamples of Uuget condlUons not specifically esamlned by the Task Force Include:
PrvrtorwrilM di'nrdera
Speech problems
DehaMoral and learning dismdera
Tarent/farnily dysfunction
Khie visit it rrq-iteit for iintnuntralbim Pecause of |a<k cf dan and differing patient risk prifiles. the scheduling of addlUonal vtalts and the frequency
of the Individual preventive services lined m this table are left to clinical discretion (escept as Indicated In other footnotes).
291
Amcricnn Academy of Family Physicians
Periodic Health Examination*
Ages: 7-12 Years
Schedule Sec footnote'
(See Preamble)
Screening
History
Physical Examination*
Laboratory/Diagnostic Procedures
Interval medic ft! and family history*
Ilrlglit and weight
Dtmd pressure
Tanner staging1
Mich Risk Oroupj
Total cholesterol' '
Lipoprotein analysis
Tuberculin skin test (PPD) (IIRI)
mr4u.al ami fvn.tj mrjnal birtery is
reeommendied by tkt juhenmmiitee.
M pli)iieat estSjiiiniiiion including Tanner
staff is reecrimcndr.d at least once in this
age group by the subcommittee.
'Child f>f a parent with a blood cholesterol
of ItOmxtdl. or higher
,Child of a p nent Of granitparent \iitk a
documented hi'tory of premature {age less
tKtn J3 yais) cardiovascular disease
'lhe rule! frequency t% not determined It
should be performed at least once.
1
'atlcnt & Parent Counseling
Dirt and F.xcicise
Substance Use
Sexual Practices
T at (especially saluiatcd hi).
cholesterol, sweets and between meal
snacks, sodium
Nutritionist assessment
SclccUon of exercise progiain
ToUmco. alcohol, and other drugs:
primary prevention
Sex education
Injury Pretention
Denial Health
Other Primary
Prevents e Measures
S.ifct> hells
Smoke dclrttor
Storage of firearm*, drugs, toxic
chemicals, matches
Dicyclc salcty helmets
Regular tooth brushing and dental
visits
lllr,h Risk Oroups
Skin protection from uluavlolet light
(HR2)
I m in
unlznflons nnd Chcmoproph)
taxis
Update "1 lnv>vini?arinn stattts, Includin
!llr,h Rl'li Croups
f luotidc sui-plcmenis 'IIR3)
Inflttrnra sarrinr (1IR1)
rncwnoi.oi.cal vaccine (I1R3)
g measlesmwnpsrubella
292
Ages: 7-12 Veori
Additional Notes
Leading Causes of Death:
Motor vehicle clashes
Injuncs (nonmolnr vehicle)
Congenital anomallcJ
leukemia
Homicide
Heart disease
Remain Alert For
Vision disorders
Diminished hearing
Dental decay, malalignment, mouth
breathing
Signs of child aliusc or neglect
Abnormal bereavement
Depressive symptoms
High Risk Categories
IIRI Ifiuuehotd memc-rj of person with tub-rcalr-sli of rUitti •< risk tut clnse roniicl vviih the disease; recent lnunl(itnu or icfupes from
commies In which tuberculosis li 'ornrnon (r t All*. Africa. CenfaJ end S'>ut>i America, Pacific Islands): family members of mi|iinl workers;
residents of homeless shelters; or persona with certain urvderlyin| medical disorders.
IIR2 Children with Increased e-spmute to sunlight.
IIR1 Chtldirn llvine, fn areas wirh InaHrqiisir valet fluoridation (lesa than 0.7 parts per million).
IIR4 Children with chronic pulmonary or ^aiiltovn-.culn proMemi Imludinf udtrtta; cr who requuH medical fnltowup or finspiutiuitiun during
the put yew for cloonlc nsetabnlic disease (includtng diabetes melllrus). renai dysfunction, hemoglobinopathies. 01 Immunosuppression
(Including Immimosirppresslnn ranted by medic sllons).
IIR5 ChlMirn "{cdlwn anlnver with clucnlc Illnesses specifically tusocliird with pneumococcal discste or lu complications. insuunicot funcilonal
asplenia, sickle ce'l disease, nephrotic lyndrome of chronic renal failure, cerebrospinal fhiM teaks, of condlltonj associated with
Immunosuppression (Including HIV).
•This list of pfvctfiiv* acr s it es L* not eOss'Ptlsc li reflet ta only iliota torses reviewed hy the U S. Preventive Services Task force and ihr A/Sfr
Ccmmr iticrei on t'ut.-lic tl'allh ,wd \citiuifu ttf.urt C tints in"J mi) wl'h n add rjdiei preventive lervltrs on a routine bs*ls. and s'ter considering the
palient'a m-di< it hlftnrs, aid other Individual circumstances, r: samples of target condiUons not specifically esamlned by the Task Force Include:
Ucvel vpitr -itnt discidnt
llrliav total and lcarnin| disordcra
Parenl/fauilly dvsfunrtlnn
♦ Pel mi' nf la>k p| d"ia ruid lifl linR ps'ienl risk pi "Mrs. die scheduling of visits am* the f'eqiirjit y of the Individiisl ptcveuuve ses vices listed In thll
tat le are left tu c'in:'.a1 discretion fes< rft a* indttatrd m ah/' fccnmn) AJJiiionnl sir it j <h *uld oiatr oi rLtk/ictcvj an dutimin/d. At Hitvemrni
oi driel'Trim'dl c* rixiol isilfScv f, <v n at rnlrv to jttniof nijr/A unooi. may oho warrant a visr'l. Fach visit fry patitnlM In this age feme? Intmld be
rontirirrrd on opportunity to utters and addtetr rislr
293
Amcricni) Academy of Family Physicians
Periodic Health Examination*
Ages: 13-18 Years
Schedule- At least one visit fi't preventive services should occur'
<See Preamble)
Screening
History
Physical Examination'
Laboralory/Olngnosttc Procedures
Interval ini-ii\i.nl and family history'
Height and weight
Hlfh-RWt Croups
Dietary Intake
Dlnii'l pressure
Rubella iuuHK)dir$ (HR3)
Physical activity
Tanner stofiinf;'
VDRL/RI P (WRA)
lirbacro/alioholAlrug use
•!LrJ! BJlLnrpuQl
Chlamydial testing (IIR5)
Sexual practices
Complete skin cx-un (J)R|)
Oononhca culture (HR6)
Clinical testicular exam (IIR2)
Counseling and testing for HIV (IIR7)
Tuberculin skin lest (fTD) (HR8)
Heating (MR0)
Papanicolaou smear3 (MRIO)
Total iholtucrot1*
A ph* ii- til rxtvnitvjjte, t i if lud'nt 1 nrwrt
Lipoprotein anatvsis*
Mn u^./jfrif •>/ thr rte.vit*uxty attained
Ail no* iri M y> an nj aft should have ti
nvitLtil mut J ut'ly rtrJu ti tuitoij ii
slofC is rt t" vj\en.ted al least cue in this
annual rap letl <n t pelvic euvtirujiion. All
rfrenmrtvied hj the lubcommitlee
a%* t'nuP by the subcommittee.
hewn be>*ren H and 1* *ho a-e or who
have !>■ en snuoliy active, should oho hive an
Annual Pop 'est r.nd prlvir exoi-dncticn After
a woman h'i$ had t'tree or more consecwivg
tali'tact'vy nirruii annual ej. vriuvions, the
r<sp test may 1 e p"fnmed it the discfticn of
the p*S) wii'i b'ised on the assessment »y
patient ri;k but not lets frequently than every
three yevt.
C hdd of a parent with o hi- od
ehaitwetot of 240metdL or higher
'Child of a patent or fta-viparenl h.iS
a dc ur-ented history of prerrvuure fate lets
■ i p
than 33 years) cardiovascular disease
Ages: 13-18 Years
Dlel nnd F.xrrclsc
I it Icspcclally satur.ncd fat).
clinlc sterol, sodimn. Iron'.
cnlilum*
Stttiition-il Assessment
Selection of exercise program
Tor (rmnlr
Injury ricvcntlnn
Silcly belts
S.nlcly helmets
Violent behavior'
Fiieaiins"1
Smoke detector
Noiie Intlttrrtl hraitnx loss*
'r.fpcciitHy 'pi rn«lri
r.ttl'totli.n i I " Imp hrj/'nt lossf-pm
ft 'Mlk'ail and pr • lo«ai h\toiin% deuces
h tecnnvnfnd'tt ry the tuhcnmmnlre.
Counseling
Substance Use
tobacco: cessation/primary
prevention
Alcohol and nijiet drugs: cessa-
tion /primary prevention
Uiivlng/oiliri dioecious activities
while und'f the Inlluence
Treatment for a,-u"!
Illfd' Risk Groups
Sharing/using iinsicrilized needles &
syringes (IIRII)
Dental llrnllh
Rcrjular toodt brushing, flossing,
dental visits
Sexual Prnctlces
Sexual development and bcliavlor*
Sexually transmitted diseases: partner
selection, condoms
Unintended pregnancy and contra-
ceptive options
"Ode" tfil performed ettly \n •<tntejc*nc« and
»lth the ImnNrment ot pajenrj
Other t'rliuniy
Preventive Measures
Brcau self-examination"
Testicular sclf-cwini'iation
Hlrh-Risk Groi'ps
Discussion ol hemoglobin testing
(IIR12)
Skin protection from ultraviolet light
(1IRI3)
ulhe leachin* of <et{ breait cjuvmniiim h
re> ommeml' d hy the tulKOmmtitee al the time
of tpttaiicn c( p*l\ic e laminations.
"/ he trathmt at 'elf testicular extvMn,nlon Is
teccmrnrniled by \h* tube onvnhlee for malt
patients.
ltnmunl/ntlons nnd Clicmoprophylaxts
Tetanus ijijli'h-ii.i (Td- N'nsier'1
lliph-RKfc Qrouns,
Mnislcs mump* tube Ha tAIWR) vaccine*'
I luoritle ruj plcniriv.s 'IIP 14)
Influenza \a< cine (IIRI^i
^^r^i;M^>c"C'.l,/ vaccine (MRttS)
Hepatitis B vaccine (MR I 7)
'V'.ce h*-t vcrn iR'i M and 16
"A secorl measl t immum ration, preferably as MKtP (Meules. Mfnpt, nnd Rubelto Vaccine, Live), is recommended bv the subtcimittee fo'iJl
patients wudle to *V>- pr&i of irvnunity *<hr> nre entering prtt tecondafj school e duration a»ui for \ho\e becoming employed In
me die aloe c upas ions *\sh direct patient care.
294
Additional Notes
Lending Cauacs of Death: Molor vehicle craclies Remain Alert Pon Dcprcs'lvc symptoms
Homicide Suicide rlMc factors (IIRI I)
Suicide Abnormal bctcavcmcnl
Injuries (notunotor vehicle) "Toolh decay, malalignment.
Heart disease gingivitis
Sign* of child abuse and neglect
HPT
Ages: 13-18 Yean
Hlgh-Rlsk Categories
IIRI Petlnns with Inoea-ed recreational ot occupational exposure to aunlight. • family or personal hlllory of tktn cancer, ot clink al evidence of
preemtor letk»na fe.g , dytpla«tic nevl. certain congenital nevl).
IIR2 Males with I hlttory of cryptorchidism, orehlopety, or testicular atrophy.
IIRJ Females of childhearing ifr tacking evi.tcnee of Immunity.
HRt Trf<nn« who engage In era with multiple pannria In iifh wi which typhillt li prevalent, protlllutel. of contacts of partem with active syphilis.
IIR5 rersons «bo atuiid clinks for setiallv uuvmhtc I dtsrlKt; iv;^ other high risk health care. faeilliiYa |e g., auol< scent and famlh plannlrg
clinica): or ha*e othn ri«k farlnrt for rhlarmdiel Infection (e | . multiple leiual partnerl or ■ teiuil pannes with multiple setuel contacts).
IIRri rersons with o'ulliple «e>ual pwlnfl or • I «• tl partner with multiple contecli. leiuil contecle of rteteons with culture proven gonorrhea or
persons * Ith ■ history of rrpeitrd epitodri of gMporrhee
Fer»«rtJ seeking Icaunrni lo> srju.illy u sntnilt'cd diteas-s: hoin'seiua' and bl eiual n rn: prior present Iruavcnout (IV drug users: pc'ioni
with a history "lit' thtu'iono' ntuluple sesual puloets; women vhg«' put 01 prt-erlsraual pulnert »ae HIV Infested, hisesualoi IV drug
uicri; p- "ens with lone "■"" r««Mfnee or birth In en net with hl|h prevalence of HIV Infection: or pertonj with t history of transfusion
between 191* and |0«5
HRS Hnu-.ehotl i'ietnbc'1 0I person.' » Ith tuber. ul-jl> rr c'liett tt tl'k fur clos- cont'd with tie discs-*; recent Immigrants or rcfu|ecs from
cotmtrici in which tuberculosis li emman teg. Asia. Africa. Cental and South A/neiica. Pacific lilindiy. migrant workers: reiklenii of
correctional institutions or homeless shelters: or persons with certain underlying medlctl disorders.
HRa reranns espnsed regularly to etressive noUe In recrearlnnal or other tetllngt.
HRIO Recejtt divorce, repetition, unemployment, dcpretslon. alcohol ot other drug abute. serious medkal nineties, living alone, or recent
heieevrmrrrl
IIRII Intrevrnntis drsig users.
IIRI? rersons of Caribbean, t atln Amrrlca. Asian. Mediterrenetfl or African deicenl.
IIRI 3 reraom with rnrteaserl eipotnrr rn sunlight
IIRI4 rersons Using In ai*a« wlrh InanVqnate water ntiotldatlnn (lr«i than 0 7 paju per million).
HRIJ Children with chimlc pulmonary or ctsdioviculel ptot lenu) Including asthma: ot »lro teaulrfd medical followup or h'lrpltalturion during
the rut )-ar for chrunic mct<Mk r'i««e (inclujing diabetes melltrus). renal dyifunctlon. hemogloWnopathles. or liTununoiuppTeislon
; immimo^oTTre^flnn eaiited bv medicationl).
the put )-
fine hiding i
IIRIo Childtcn -grd two and r er \«h ch' mic IHncMei spcciFcaMy aslex ialf d with pneumococcal .'ocali of Its complkatkjnj, anatomic or
luncliottal asplenia, tickle tell ditea.te. nepltiotlc syndrome ot chionlc renal failure, cerebrotpinal Hold leaks, ot conditlonj associated with
loimnnntufT*tetfinn flnrto<lftig HIV)
IIRI 7 llnmote furlly ami btt-aua'ly active men. initavn.x'i drug ute,s. re' ip'rrnt . f mme II™ id po-'uru. tritoni In health telai-vj ko'vj with bequrnl
e<r».vn- in blood ■■• 'Ivd pr-d.inv I cct'-hol.' and Kl'ltl tonucu ol IID V carrietl, te <ua|ly active hetcoleltal persona with "> tlujla •->"•■
pailncrt lisgiK^r I at having recrnlb acqirlrrd teiually ttanimlited dltease. ptottltuiei. and per tons who have a history of leaual acdvlry avl*
multiple pattners In the ptevinus ill months. •
•tint lit! ot pt-vrniii- -rrvk-s t n^il etha tube It rcll-clt .nly t'lote to| ica >eviev cd by lh' US Ttevertl e Servicet Task Totce and tht A/FP
Cownit...on vi I uHk //-o/i/. nnd tornrt/if SffoiH. Cliniclnu) may wlh to nld other ptevntbe snvkes en a routine bails and aUes co'ulikrkig the
patient a m-di- *l hliloiy a >d oilier ludlvi.|.ial citeumttances Eaarnples of uigel condiUons not rpeclflcatly eaamlned by the Task Force Include:
Ucvcl')|vu ntal ditmdeft
Bcltlv total wd learning dltotders
rair-nt/lamilv dytfimrhon
t/t^.filliwtl viiits ff^ulrf -x'ara as oth'r ri-kftdorl H't dfttmimi tucn -u inilialiti of .-tiiull octiv.ry. g-paimmiaiivi ««« akohol or eilltr **$•■
or liccnwl:* c» e/at ng « ruMor vrnklf AcAiormf-tl o/ afrtf lormeniaf /r.lul 'i«j tm<\ as imry to h,fh iikool may also warrant a vlrir. Eork voir
by palirnll In fnrl «ge group tnouli he tonsidtrri an nnr""lu>tfry to attetr tln^ aiiilts rtjU
295
American Academy of Family r'hysiclans
Periodic Ilenlth Examination*
Ages: 19-39 Years
Schedulr F.very 1-3 Years'
(Set Preamble)
Screening
History
riijslcnl Ttamlnntlon
Laboratory/Diagnostic Procedures
h\tci\nl nirilknl and family hlMory'
llrlplit and weight
Noulastlng cr fasting toral blood
Dietary Intake
Blivid pressure'
cholesterol'
Physical activity
refw'r eiaminmton (for women)
Papanicolaou smear'
lohncrn/alrnlinl/drug use
Clinical breast exam (for \totnenf
High Risk Groups
Sexual practices
Clinical leMttulo' com (for men)
Tasting plasma glucose (IIR6)
mchJBhLriumH
Rulxrlta antibodies (MR7)
Complete oral cavity csam (IIRI)
VDRL/RPR (IIR8)
Palpation for thyroid nod'jlcs (HR2)
Urinalysis for badcrlurla" (IIR9)
Complete skin exam (IIR5)
Chlamydial testing (MR 10)
Gonorrhea culture (MRU)
Counseling and testing for HIV
(MRU)
Hearing (IIRI3)
Tuberculin skin lest (PPD) (IIRI4)
Tlcctrocardlograin (HRI5)
Mammogram MIF.1)
Colonoscopy (MR 16)
'At It tut rvesy five yars
'An upd<s'ing of the previotUtl't obtained
Ml every physician visit, with a minimum of
medical a'ld f unity medical hittcry is
every two years
'ill wornrn IS yars of are a'uf ever should
recommended by the subcommittee.
'twy 15 years, starting at age 30 until aft
have an anmi.tl Vnp tett ami pelvic
40
eS'Vnmonon After a v.cman has had three
or mor* consecutive <otL<focti'rj normal
annual examinations, the Fop test may be
perfemrd at the discretion of the physician
bas'd on tlie assessment of patient risk but
n. I t'ss frequently than every thjee year t.
*1he optimal frrquentv for urvut testing hat
not been determined. In general, dipsticks
ccmf-ining the leukocyte esterase and nitrite
tests should be used to detect asymptomatic
bacleriuria.
296
Ages: 1939 Veart
Dirt nnd Fxrrcl*e
f~nl (especially satura'cd fat),
cli'ilr'lciol. complex caitv-hydrates,
filler, soill'ini. Itvn . calcium
Hmtilionil iijsei.ime'il
Selection of exercise progiam
Tot i
ln|urv rrr<mllon
Safety belts
Safety helmets
Viotrnt b/disvlnr'
f irr.lrns"
Smoke dtcfiii
Smoklnp I'nr bedding or Upfintslcry
! ! '.r.'\.5 L' *£. -' JiE!!P3
B.i<k condiiionltii excic'scs f MR 19)
Prevention of rhlidhnnd Injuries
fllP.^Ot
falls In the elderly (IIR2I)
Counseling
Substance Use
Sexual Tracllces
Tobacco: cessation/primary
prevention
Alcohol and oilier drugs:
Limiting ako'iol consumption
Diking/other d nigcrous activities
uliile under 'he Inllnence
Treatment for alyise
i! Ig'i Risk. Orpu ns
Sharing/using itiiMcrlJired needles A
syringes (IIRI8)
ScuualK tiansmllicd diseases:
partner selection, condoms, anal
Intercourse
Unintended piegnanc) and
contrnccpllve options for men and
women
Dental Health
Other Prlmnrj
Preventive Measures
Rcpub' toolli brushing, flossing,
dental visits
B'ttist itlf-rxominaiien
le.iticufai <>li zxiim'niuion™
Mich Risk Cirours
Discussion of hemoglobin testing
(IIP22)
Skin Iiotccllon from ultraviolet light
(IIR23)
"lAr Ifaihinf ,i jrU IreaJl tJUSJnirytic^ b
ttco i/» tnlrd by In' lube •mmitlee at the
tint of initiation of rtlvie eja itnatiora.
'Ti* leaching of sel'lt'tteulor examination
is It' om-nfnj'd fry the subcommittee for
malt patients
Immttnlzntlons nnd Clicmoproph)lnxls
Tetanus dipliihciia (Id) booster"
INcH Rik (imnos
Hepatitis fi valine (HRJ14)
Pneumococcal vaccine (HR2S)
Inllucn/a vaccine" (HRJ'i)
Measles-mumps rubella vaccine (MMR) (IIR27)
CvflX |0 \*M1
"Annudly
Additional Nolrs
Leading Causes of Death:
Motor vehicle crashes
Homicide
Suicide
InJuri'S (nenmotnr vehicle)
Heart di'i a'-e
HIV infection (nutlet)"
Remain Alert for
D^ptcs'lvc 'ymploms
Suicide tl'k lactors (IIR17)
Abnormal bereavement
Malignant sUn lesions
loolli drca>. gingivitis
Signs of physical abuse
"UTS' infretinn m lendinf tau-te iff death amont jrunf adults In US eilits and Halts JAMA 1993,169 1991 2994
297
Ages: 19-39 Yran
High Risk Categories
IIRI Ttnon.' with Mpnwt In tob»cco of e«ce«ilve ■mouou of llcohol. ot thole with lutpkloui tymptoml ot leelonj delected through tcK-
e»*mlni»tlon
IIR2 retioofwlth • hluory of Itpnef body In*'!!*!!™
IIRI Wonrrn «gfd '1 end olrlei »llh • trunlly MMnry of prpmenrpumllv dlagnoled bteut cincet In • flrll degree iclitlve.
HR1 Men with ■ hiMotv of ctyptntchlrlltm. orchlnpriy. of leiltrnlw •ttophy
IIRI rmom "ilh ■ tenvl) -t peticntl him ry of l1 in iincet. Inoeaied oecupillonil at tecteetionel eipoiute lo lunllghl. of cllnkeJ evidence of
rf< ur<ot |r»ionf fe f. , rly «pNMfc nevl. cc rutin rongriiilll ne\ll
HRn The mnrkedK oh/-..-, rymni »ilh ■ fnmily hlilniy of dltbetei. ot women with • hlllory of geiutJonll dltbctel.
I1R7 Women ler-Ving eild'ncr of (mmrmity
IIR» Plntlilulei, p-non. whoeogege In »e« wlih multiple p«itnet« In lieu In which lyplillii ll ptevijenl. Of conliclJ of pcnonl with tcllve lyphllli.
IIRO ration. *irh diii'welr
MRIO Teivins who •tl/ndclriict fot lei'ulh ImiiJinlliel dlieuei I'lnid olhef Hgh lliV health ' w ficUllle' (t|, «dnle.<cenl end fimlly planning
clir'o); 01 hie olhet ilik lecture fof chltrrty.llil Infecllon (e | . multiple teeuil peilnol Of • le«u«l pmrnrr with multiple iciut! conticu.
ife Irn then 2°)
MRU rioiriiuirj penonj » iih tti'lhiple jeiuel p.uincr 01 • je-uil pumei »lth multiple eonUcll. leiuil conteeu of pctsont with eultt»« ptoven
gonorrhea, or rv-rf«»n« with a hmoty ol tr|"-ir*d rpNo<lri of gnr.onhel
MR 1 2 r>i« ni »rrli -r •leitmeui t& i-imlly trininil'fd Jilei'M: horn xejue1 and bi e\ual lien: put oi pie cot I' nevcnr.ui<|Vidrv| uirtK pe«om
with e hi-.trry I tnr mwlrtn oi multiple <e>»il p iu en women i h.iir put of pie-eni ie«"ilp«itnei< w.ie HIV Inlec'c I. biieiiil 01 lvdiu|
Ulrri- p. rum urt>. luiie trim leirdenie or hiilh In en uei »lth high prevelence of HIV Infecllon: Of penoni with • hlitoiy of Danjfullon
hclurrn l«f« and l°«.<
HRM Penritu "|v'*"l ffilntlv lo etcriiivr tvuae
IIRI4 llcudol.l o"rn1 n ol p. r<i«t >■ ilh luScio loiil . I other) ■■ rl'k fuf r|o«" COPIKI with the diiri e (e g , stall if lubcrculo'U clirics ihelleil
In the houirle-.t. nuiiirt, hunn. <u' uiin r |l nn- lieslni nl liciliicJ. dulyil 'inili a ncctioueJ Injtitulloll); fecrnl luun (rinu of telueeel
fr. m roun'ricj 'n »hkli ruben illofil h cnirmun: mifilil vorVfi; ic-.iJenn of muilog home), cuneclionnl Injlilulion). oi homeleit thelteti:
or p>-r'"in »i'h rerinin llr»l"KinJ nir.li'il iliiinilrfi (e f . HIV Inlcrlirm)
IIRH Mrn »lio Mould en.|«nfei piMIr nlflv «ri' lliry In e-peiienre aulilen emlllr evenll (e | . commetclll ellllne pilots).
HRI6 T>t*nn* siiih • family hiilory of fimlllll pol^p«^tll coll of cincrt fninlly lyndiome.
IIRI7 Recent diiorce. lepetelion. unemployment Hrpteiiion. llcohol of othei dru| ibvue. leiloui medietl lllneiiei. tlvlnf ilone, of fecenl
hcreive m<-nl
IIRIK Inlrevrnorr* dni| u«*n
IIRI0 r>noni >r lncre»"H ti<V for to* h«, k Injury r»-catl« of pe« history, body conrijuteilon. of type ol ectlvlllet
MP 20 TV|ton« wilh chilHten In the h"m* or lulomohile-
IIR2I Terson« «ith ohlrr edtilLf In ih' home
IIR22 Young *lulr< of Tiriho'tn. t nlln An.rrlre. Allen. Mediteirlneen. Of Aftlcin deicenL
IIR2^ rcrirni «l'h lnae«*p*l ftpoiur* lo funlight
HR24 Hnmiiciuellv W b texua'ly »cti> e 'nen Inuiv ncu i <Iiug uwn. ic< ip en» 'il tome Hood pio'UkU, |euons In hee Ith telttod JoW with fi-quenl
e\n»urc to Mood o' b' >od mi lixb. *, u.ic^,.IY c-,d un,o> coniatu of IIBV cenrrt. .irurti'ly ■dm* hei'rn.ietua/r< •{?« <"ihtuilnplr texual
p.vl mis iiafmri as rVniV »ei tnll) it luuri irtuallj iranimi/ierf rfueaie. foililu/ef. onrf prr ioiu »ho hove a hn/ocy of jejuni activity
M-itfl mulliptr fn'tnr'l in tht pre\r'-MI fif mo-rlol
HR25 rcnnnl v .thmnlicel ^ondi'jori 'hit innc-ue the ri-k of poet -nucpcciJ Infection (e g.chionlc cuditc c pulmooiiv diteye, elclle cell diieue,
ncpluuiic -yndome. Hr-lgkin ■ diie«e. Kplenil. Hi.beiee mellitm. ekohollim. ciiihoill. mulnple myeloinl. tenil dlieue ot condillonj
e*«r»'iilrd u rill iriimirrv'*in'prel,i"n)
HR26 Reiiilnito nf ctuonic cue fiuiUiiw oi fcrvai lufferng (i *m chionk cwHiopnlmonwy diKHderi. meuHolic dlseues (lncludln| dlibelri
m<-jlih«). h-mi«([|r-1''.n(y»thifi, lHimunn<ti|iw*«tii«f.1 «r rrritl H\ »ifunrlion.
IIR27 rersoai b- m i'lrr 195^ »ho UV r«kV.nce o( hnmimln m mrulrj (rfccipi of live viccine on or ifm fbii bbihdiy. lihofitoiy evidence of
Inimunlty, «*l • hUimy of r-'>^fiBT1 dlsfnotrd n\f*\t\)
•lhl« llttof p. venth- jomi^i L- not eOirifllvi It -cll-cti . i.ly "ime ! -o, ki -eviev ed by 0,- U.S. trfverllvg S«r»lc« T«* Fojw^ AejWFP
C..o,m,l.ic.n on I ufrlic ll'ol* md W-ilr/V t'/TauS. ( linicivj inly wi h 'o eild oUrcl prevnU-e ICTvket 01 • touUrK bJ U ind J lei wu.uerlng the
pjiienl » m-li. ,1 hi lotv wd o.'rci tmli.iu .1 cuciunil.ncr, F.iorpl-j ol t-^gel co iditi.m. not .pecifictlly e.tnuned by the Tuk Foice Include
( Itrnnic oi«rj icuie pilmooery rliieese I f »^ ol irlil-d lib en
lirpMul .li.vv di.'.ie Piejaiplioni'nil ib-oe
Bl-ul'lct cin-ef (Vcupeuonil Ulnesi tnrt Injurlel
To I r.r-rri.l nVr..e
|1V f.cominendcl .cher'uk .pplie. . nlv U) U e pe.iodic vl.it ll«lf. The fterujency of the IndlvlduJ pteventlve tervlce. Il.ted In thk l.ble U left to
clinic ■! Hiicir.i-fi. f ir^r* u rnHifaifd 'm other foninoirs
298
American Academy of Family Physicians
Per iodic Ilenllh Examination*
Ages: 40-64 Yeats
Schedule: F.vcry 1-3 YearV
(See Preamble)
Screening
History
Interval fintt family history*
Dictaiy Intake
rii) ifc^l activity
lobacro/alcohol/drug use
Sexual practices
M/i updating of the nre\iou.*iy oluained
medical and f unity medical history It
recommended by the subcommittee.
I'hjslcal Examination
Height nnd weight
ni(H>d pressure'
Clinical breast exam1
Pelvic r.xam
Digital rectal rxttm'
High Risk Clroup*
Complete skin exajn (MRU
Complete oral cavity exam (IIR2)
Palpation for lliyrold nodules (HR?)
Auscultation for carotid bruits (HR4)
Mr fvry physician visit wish a minimum of
once ever y two yea/*
'Annually for »omen
'I he xut't rvnminee recommend' iMf
procedure but rei og'uies thai the scientific
evidence may not be conclusive to support
Laboratory/Diagnostic Procedures
Noufastlng or fasting total blood
cholesterol'
Papanicolaou smear*
Mammogram'
Hlch Risk Groups
Fasting plasma glucose (MRS)
VDRIVRPR (IIR6)
Urinalysis for barteriuHl (HR7)
Chlamydial tcsllng (IIRR)
Gonorrhea culture (MR*?)
Counseling and testing for HIV
(HRIO)
Tuberculin skin test (PPD) (I1RM)
Hearing (IIRI2)
Electrocardiogram (HRI3)
Fecal occult blood/slgmoldoscopy
(IIRI4)
Fecal occult bloodVcolonoscopy
(IIRI3)
Done mineral content (HRI6)
Mr least every five year*
Mil womr-n who are. or who ha*e been
sen-ally active should have an annual Pap
irit and pelvic caminntion. After a woman
has had three or rrvre consecutive
satisfactory normal annual esa-ninatinns.
the rap test may be performed eg the
dni relinn of the phytirian nnd the patient,
but not less frequently than every three
years.
It Is recommended that mammography be
performed annually for all women
beginning at age 50. It may be clinically
prudent to perform mammegraphj every
one to two years in women between ages 40
and 49.
299
Ages: 40-M Yean
Counseling
Did anil Exercise
Substance Use
Sexual Practices
Tat (especially saturated (at),
cholesterol, complex carbohydrates,
filler, sodium, calcium'
Nutritional assessment
Selection of exercise program
Tobacco cessation
Alcohol and oilier drugs:
Limiting alcohol consumption
Driving/other dangerous activities
«hilc under the Influence
Treatment for abuse
High-Risk Groups
Sharing/using imstcillized needles A
syringes (HRI9)
Sexually transmitted diseases:
partner selection, condoms, anal
Intercourse
Unintended pregnancy and
contraceptive options
*Fof women
Injury rreuntlon
Denial Health
Other rrltnnry
Preventive Measures
Safety belts
Salcty helmets
Smoke detector
Smoking neir bedding or upholstery
Hlr>h-Rirk Groups
Back conditioning exercises (IIR20)
Prevention of childhood Injuries
Falls In the elderly (IIR22)
Regular tooth brushing, flossing, and
dental visits
Discussion of hormone replacement
therapy In women
Hlnh-Rlsk Groups
Skin protection (rom ultraviolet light
(IIR23)
Discussion of aspirin therapy (IIR24)
therapy (IIR25)
Immunizations and L'licmopropliylaxls
Tetanus-diphtheria (I'd) booster'
High Risk Groups
Hepatitis D vaccine (HR25)
Pneumococcal vaccine (TIR26)
Influenra vaccine (IIR27)10
"F.very 10 veeri
"Annually
Additional Notes
Leading Causes of Death:
Heart disease
Lung cancer
Cerebrovascular disease
Breast cancer
Colorectal cancer
Obstructive lung disease
HIV Infection (males)"
Remain AJert For
Depressive symptoms
Suicide ri-k factors (HRI7)
Abnormal bereavement
Signs of phvslcal abuse or neglect
Malignant skin Iclons
Peripheral arterial disease (HR18)
Tooth decay, gingivitis, loose teeth
"f»V infection as trading cause of death among young adults in VS. cilia and states. JAMA 1993.269.2991 1994.
(High Risk Categories listed on following page.)
•Thii list ot pi'ventiv- Services l« not eihm-live. It tr(lecu enly 'hose toilcs reviev ed by the U.S. Preventive Services Tuk Foiw and the AAfP
Commivwn on FMic H'olth and Uiemific Affairs. Clinician rosy <*l'h 'o add olhet piev-nlivs leivlcei on • routine burls and s'ler eo'ulderini ths
pstlent's m-dkal hi-tnry and oi'iei Individ *1 ciicumMences. E»unpl-i ot tatgtl coiditlon" nol specifically eismlned by the Tuk Force Include:
Chronic ohsti'ictlve pulmonary disease Travel rrlstid llb-cn
Hi patol ilijiy disuse Piejaiptlon I'nif sb'ise
Blsddct cut' er Occupedonsl tibial end Injuries
Fmtntnetrlal disease
(The recommended scha'ulr sppllei • nN to the pcilodlc »lilt luelf. The tVequency of the Individual prevendve services U»ied bi thJt leble b left to
clinic*] discretion, eicrpt u Indicated bi other footnotef.
300
The Chairman. Ms. Joyner, just to pick up briefly where Senator
Pell left off in his questions, regarding osteoporosis, how can you
encourage women to be more active in order to avoid or decrease
the incidence of osteoporosis, or have some impact?
Ms. Joyner. I believe education is one of the best ways. How do
we educate women about osteoporosis and the benefits of exercising
to prevent the onset of that disease? Through doctors. Doctors can
provide them with information when they come for an examination.
I think exercise should be the prescription for preventing that dis-
ease.
As for the women who do not go to the doctor, cannot afford
health care to be able to visit doctors, we at the President's Council
on Physical Fitness and Sports will have to go into those commu-
nities. We will ask for role models, parents, community organiza-
tions, to come in and help us so that we can go and deliver that
message. So education is one of the best ways.
The Chairman. I suppose if you have school-based clinics as well,
you will be able to get that important information out to young peo-
ple at an early time in their lives.
Dr. Fleming, is the Cancer Society satisfied with the preventive
package?
Dr. Fleming. Yes, sir, except there is some disagreement in the
area of mammography as far as screening versus diagnostic or pre-
ventive mammography. Our guidelines have been developed over a
period of years, and the areas of controversy center around two is-
sues. One, should women between the ages of 40 and 50 have any
screening studies done with mammography, and second, should
mammograms be done on a yearly basis as a screen, or every 2
years as a screen.
The Chairman. I think I heard the Secretary say they were
going to increase the numbers for the higher-risk populations. Is
that enough or not enough, or how shall we judge that?
Dr. Fleming. I consider that a step in the right direction. I am
not sure that is as far as we would like to see them go. What that
does is it puts a burden on the physician to make a decision about
risk. Now, there will be some easily identifiable risk factors, but
you are still going to have the patient who is very concerned, may
be a little difficult to examine, who wants a mammogram, and she
will basically not be able to get it unless she pays for it herself.
The Chairman. Dr. Ludden, how does your HMO handle mam-
mograms?
Dr. Ludden. We, as you can see from our report card, have an
improving record that is in fact ahead of the Healthy People 2000
standards in terms of the number of our women over 50 that we
are to get for mammography.
I think the important thing which is really a counterpoint to
what was just said, or an additional point more than a counter-
point, is that we use a lot of systems to make sure that women get
in for those exams; that is, the kind of computer-generated systems
and so on. And while physicians are very important to make sure
that screening and prevention occur, we found, for example, that
in one of our centers, it was more important that the receptionist
know that the woman was due for mammography than the physi-
301
cian, because the receptionist would make quite sure that the
woman did not get out of their without an appointment for a test.
The Chairman. Continuing, Dr. Ludden, are you able to do this
in a cost-efficient and effective way, and it has not increased your
premiums significantly— or has it?
Dr. Ludden. Our premiums are close to and often at the bottom
of the market in the Massachusetts area. We feel that we have
been able to provide these kinds of screening services very cost-ef-
fectively. I would, I suppose, warn us all that some of the expenses
come first, and the savings come later, and that is the nature of
many of these kinds of prevention.
The Chairman. Dr. Francis, are you satisfied with the prevention
package as you understand it, or do you have additional sugges-
tions to make?
Dr. Francis. I think by and large the Association is satisfied
that most of our issues have been addressed. The need for com-
prehensive cardiovascular risk reduction and a widespread public
education approach I think is really very important.
In getting to inner city communities, just referring to where I
work, it has been very difficult to get the education message out
and to get people to adhere. So I think there are going to be special
efforts needed to reach inner city populations, and prevention is
not a high priority when you are trying to deal with the major con-
cerns of life.
That has been perhaps our most difficult sales job in trying to
get our people in Harlem to even think about reducing cholesterol
or stopping smoking.
The Chaeiman. It gets awfully hard if they are worrying about
the next meal to start thinking about some of the things that we
have been talking about here, or if they do not have a job.
Finally, Dr. Henley, is the methodology available for the kinds of
evaluations that you think are so necessary in terms of the preven-
tion package? I mean, have we moved along sufficiently as a society
to be able to do more than sort of anecdotal information? Can you
evaluate whether it is five visits or 11 visits for children? Can you
really make a determination? Is there sufficient information out
there so we can make that determination?
Dr. Henley. The methodology is there, Mr. Chairman. The cur-
rent science produced by that methodology at times is lacking, but
we feel that with appropriate efforts in research, many of those
questions can be answered now, many of those questions can be an-
swered in the near future. But it does come back to the issue of
appropriate funding for that science to move forward, and we feel
that the explicit-based methodology is the best approach to achieve
that data. So that it takes into account the outcomes of the patient
and the potential harms and benefits to the patient as we engage
in these clinical preventive services.
The Chairman. Thank you. We will obviously be interested in all
your views as soon as the fine print is out, but this has given us
a lot of very good information on the preventive aspects of the ad-
ministration's goals.
Senator Jeffords.
Senator Jeffords. Excellent testimony, and it is an area that I
am very much interested in. You may have heard me this morning
302
ask the Secretary about nutrition and whether we should not try
to ensure that our nutrition programs, especially for the economi-
cally disadvantaged, are adequate to provide good nutrition and
would not be very helpful in the area of preventive medicine.
I wonder if I could get some reassurance on my thoughts there
from anyone here.
Dr. Henley. With my work with the Academy, Senator, we have
been involved in an effort called the nutrition screening initiative
with the American Dietetic Association and the National Council
on Aging. We have recently presented testimony to this Congress
regarding the significant need, particularly in our elderly popu-
lation, for appropriate emphasis on adequate nutrition and provid-
ing that nutrition.
We have identified clearly that it is really a simple matter in the
primary care physician's office to identify patients at nutritional
risk. It is easy to do that in our nursing homes and in our long-
term care facilities.
The key, like in all preventive services, is to educate not only our
patients, but our members of the Academy and all physicians, that
these are services that we need to focus on; they can be accom-
plished, and if we emphasize the need to do so and perform that
service, generally it can be done in a very organized fashion, at low
cost, with minimal initial intervention.
Senator Jeffords. What about pregnant women and infants?
Dr. Henley. Well, nutrition clearly has no specific domain within
an age group or agenda, and we certainly need to focus that in all
of our health care avenues.
Senator Jeffords. Yes, Dr. Fleming?
Dr. Fleming. Senator Jeffords, as far as nutrition and cancer is
concerned, we have some clear clues about nutrition and breast
cancer, nutrition and colon cancer, and you probably read this
morning about nutrition and prostate cancer. There is a tremen-
dous need for good research to come up with the reasons why these
clues exist.
The problem with nutritional research programs is they are ex-
pensive and very long-term. What you do today affects you 20 years
from now, and it makes it very difficult. But I think as we focus
on preventive medicine, we should focus on preventive research.
Senator Jeffords. Yes, Dr. Francis?
Dr. Francis. I think heart disease clearly has been a leader in
identifying the relationship between diet and heart disease. I think
the information with cancer suggests a long-term benefit, but with
heart disease, we now have well-documented studies showing that
low cholesterol diets actually cause regression of hardening of the
arteries. I think this is an area that we are seeing now being im-
plemented across the commercial, the FDA labelling rules and that
kind of thing. I think that has really taken off from some of the
earlier programs that the Heart Association was interested in advo-
cating. So I think that for heart disease, diet and nutrition is prob-
ably a key factor; hypertension and low sodium; atherosclerosis and
cholesterol; obesity, across the board with cardiovascular disease.
Senator Jeffords. The physician that I talked to suggested we
ought to have some way to reward people who have good health
habits, eating, drinking, whatever. I suggested this morning that it
303
might be a good idea, for instance, to give the plan or someone the
opportunity to reduce the deductibles or reduce the copayments if
you could get a stamp of approval from your physicians or what-
ever, to try to emphasize the importance of good health care, good
nutrition and exercise.
Does that seem like something we ought to pursue or not?
Dr. Ludden. I would like to point out that in many ways, HMOs
and managed care, with the prepaid nature of their insurance, get
us down the road to being able to in fact reward a health plan, a
group of providers, and allow us to turn that benefit around if we
wish to other things, for encouraging exactly those things which
are effective in prevention, that over time, we would see concrete
results in terms of being able to do such things as smoking ces-
sation or to take the cholesterol findings and integrate them into
our nutrition support.
So on the whole, that matches the sort of thing that you are de-
scribing, without trying to get into the enormous problem of decid-
ing exactly how you fiddle around with deductibles for individual
people, which sometimes can create more hassle, and an atmos-
phere where what we are trying to do is break down the barriers
that keep people from coming in and getting the care they need.
Senator Jeffords. What kind of reinforcement to reward people
would you suggest, then?
Dr. Ludden. I am suggesting that the nature of a prepaid health
organization is that thebetter you do — we do better and better at
pap smear follow-up, or better and better at mammography screen-
ing, or better and better at smoking cessation, or better and better
at cholesterol reduction — the benefits, even including the financial
benefits, come back into the health plan and are returned to the
membership of that health plan. That is the way the reward takes
place.
The Chairman. You mean in additional kinds of services.
Dr. Ludden. Yes.
Dr. Henley. I would agree with Dr. Ludden. The reward for bet-
ter health activity is in fact better health. That is the reward to
the patient who responds positively to those types of programs.
As a practicing physician, it would be very difficult for me to
track and identity patients that we may feel need to be penalized
because of their bad health behavior. I sometimes know who they
are and can identify them in the context perhaps of an office visit,
but how do I continually identify whether they are smoking a year
after I see them at V point in time, or whether they are continu-
ingto abuse alcohol? Sometimes I can, sometimes I cannot.
The tracking of that — we create another whole bureaucracy that
I think probably would cost more than providing the preventive
services to begin with.
Senator Jeffords. Well, suppose you just rewarded those who
could prove, and the burden was on them to prove that they are
doing the good things; that does not create a bureaucracy, does it?
Dr. Henley. Proof is very difficult sometimes in these areas.
Senator Jeffords. Thank you very much.
Thank you, Mr. Chairman.
The Chatoman. We have a situation with cholesterol where Rob-
ert Kennedy's family all have a much higher cholesterol count than
304
my family does, for different reasons. I do not know how you would
be able to quantify some of these is sues, Just individually.
The Chairman. We have had wonderful testimony from the Sec-
retary and very, very powerful and compelling testimony from this
group. We have a mother and a child who are here this morning,
and I would ask the panel if they could remain for a few moments,
because Ms. Sharon Moore and her son, DeMario Moore, have come
to address the importance of preventive health, especially childhood
immunizations.
DeMario is 5 years old — he has gotten off school today to come
here — we will try to find him something to take back for "show and
tell." We are delighted that you are here, and we want to welcome
you both.
Ms. Moore, we very much appreciate your presence here. We
know it is a difficult story, but it is a very powerful one, and we
are very appreciative of the fact that you are willing to share it
with us.
STATEMENT OF SHARON MOORE, MOTHER OF DeMARIO
MOORE, ROCHESTER, NY
Ms. Moore. Thank you, Senator Kennedy and other distin-
guished members of the committee on Labor and Human Re-
sources, for the opportunity to tell you about my son, DeMario.
About 5 years ago, I was a single mother with two daughters, 11
and 2, and a 4-month-old son, DeMario. DeMario weighed 9 pounds
when he was born and was in perfect health until he became ill
with meningitis. Like all of my children, I took DeMario to the pe-
diatrician at Anthony Jordan Community Health Center in Roch-
ester, NY. Before he became ill, he had been to the clinic two or
three times and had had the first set of shots. But our lives
changed quickly when he came down with meningitis — something
no child should ever have to go through today.
At first, DeMario was not acting very sick, but after a day or
two, he would cry when I picked him up, even if I was trying to
do something that would usually calm him down. I knew something
was wrong, so I took him to trie emergency room at Strong Hos-
pital. That is when my nightmare began.
The doctors knew DeMario was very sick and immediately began
to do blood tests and spinal taps. Since they did not know what he
had for sure, they could not be very reassuring, and I just became
more frightened and worried. When the results of the spinal came
back, the doctors told me that DeMario had spinal meningitis. They
said that he was very sick, and they were not sure whether he
would live. They also warned me that if he did live, he may have
some serious problems for the rest of his life. He could be deaf or
blind or retarded.
I was alone, and I was hearing these things about my youngest
baby. It hurts to remember.
The 11 days that DeMario spent in the hospital were a living
hell. DeMario was in the intensive care unit and connected to all
kinds of tubes, and I am sure suffering terribly with his illness. For
the first day or two, the doctors were not sure whether he would
live or die, and every time I heard or thought my baby might die,
I thought I might die, too.
305
The doctors and nurses were wonderful, and DeMario did not die.
He was still very sick, but when he left the intensive care unit, I
knew he was going to live; I just did not know how many handi-
caps he would have to live with.
Before I left the hospital, I knew he could not hear. At first,
there was some hope his hearing would return, but it has not, and
it will not. We are lucky that he is not blind and generally enjoys
good health, but DeMario's life has always included hearing aids,
special tutors, and now special classes to help him grow up and do
what other kids take for granted.
DeMario has learned sign language and tries to teach me and his
sisters how to sign, so that we can communicate better. It has been
hard to watch DeMario grow up deaf. He cannot play ball with
other children, because if he does not see what is happening, he
does not know what he is supposed to do.
At the same time, I am grateful that he is alive and otherwise
normal. I am glad that his deafness was recognized early and that
he has been getting help all of his life.
But all this is preventable now, and no other child should have
to go through what DeMario has. That is the reason I agreed to
come here today and speak to you. I do not think any child should
have to suffer from a disease that can be prevented by vaccine.
Every child in America should be able to get all the immunizations
he needs, easily, as part of regular health. I am sure that thou-
sands of kids could have been vaccinated for what it has already
cost to treat DeMario for his illness and the deafness that has fol-
lowed.
I am lucky that DeMario's younger sisters have gotten the vac-
cines to prevent meningitis. I know many other kids have not. I am
grateful to President Clinton for making immunizations a top pri-
ority and including it as part of every child's health plan. I urge
you to do all that you can as you change the health care system
to make sure all children can get their immunizations easily. They
deserve all the best chances for a healthy and happy life that we
can give them.
Thank you again for the opportunity to speak. I am glad to an-
swer any questions you may have.
The Chairman. Well done. Thank you.
As I understand it — and I will ask Dr. Van Dunn, who is a mem-
ber of our staff, to correct me if I am wrong — but as I understand
it, the immunization or vaccine which he could have taken was H-
flu-meningitis; is that right?
Ms. Moore. Yes.
The Chairman. And that was not available.
Ms. Moore. No.
The Chairman. It has only become available in the last 2 years.
Ms. Moore. Yes.
The Chairman. And I guess it is pretty certain that if it had
been available and he had taken it, he would not have had this
health problem. Is that your understanding as well.
Ms. Moore. Yes.
The Chairman. And his sisters have had that shot?
Ms. Moore. Yes, the 3-year-old and the 1-year-old.
306
The Chairman. So thev both are covered. This really dem-
onstrates so clearly what nappens when we do not give attention
to achieving the kinds of immunization programs that are included
in this plan.
Well, I wish we knew sign. Senator Harkin does some sign be-
cause his brother is hearing-impaired, so if he were here, he would
be able to talk to DeMario. But we are very, very grateful to you
for being here today.
Ms. Moore. Thank you.
The Chairman. Let me iust ask you, Dr. Henley, in your commu-
nity, what percent do you have totally immunized?
Dr. Henley. Of our 25,000 patients, Senator, I am happy to indi-
cate that we are probably at about an 80 percent level. But that
is unusual, and I understand that, and even though we have a fair-
ly large portion of Medicaid patients, we have been able to work
out arrangements with our local health department to allow for
one-stop shopping, if you will, for immunizations, and that has
made a big difference.
The Chairman. Terrific.
Dr. Ludden.
Dr. Ludden. Our childhood immunization statistics read in the
90 percent range.
The Chairman. OK. Dr. Fleming.
Dr. Fleming. Mr. Chairman, ifl may make just one other com-
ment, in response to your question, I focused on the differences be-
tween the American Cancer Society and the proposed plan. The 2.5
million volunteers of the American Cancer Society strongly support
the prevention and detection aspects of this plan. It is a major step
forward as far as we are concerned in cancer control.
The CHAmMAN. Good. That is terrific. And of course, eliminating
the pre-existing condition — as the father of a son who lost his leg
to cancer, as you well know, anyone who has those kinds of condi-
tions as an individual finds it now virtually impossible to purchase
any kind of coverage.
Let me ask you. Dr. Fleming, are you familiar with the center
over in Grenoble tnat does a review worldwide in terms of preven-
tive health care on cancer? They have studied different parts of the
world, looking at eating habits and the incidence of cancer, such as
the Japanese and stomach cancer, and Hawaii, where they have
different kinds of cancer.
I had a briefing over there years ago, and I wondered whether
you had any familiarity with that center?
Dr. Fleming. No, sir, I am not familiar with that at all.
The Chairman. OK. Thank you all very much.
The committee stands in recess.
[Whereupon, at 1:45 p.m., the committee was adjourned.]
THE HEALTH SECURITY ACT OF 1993: AMER-
ICAN BUSINESSES AND WORKERS RESPOND
FRIDAY, OCTOBER 15, 1993
U.S. Senate,
Committee on Labor and Human Resources,
Washington, DC.
The committee met, pursuant to notice, at 10:18 a.m., in room
SD-430, Dirksen Senate Office Building, Senator Kennedy (chair-
man of the committee) presiding.
Present: Senators Kennedy, Metzenbaum, Simon, Wellstone,
Woffbrd, Kassebaum, Coats, and Gregg.
Opening Statement of Senator Metzenbaum
Senator Metzenbaum [presiding.] Good morning. Senator Ken-
nedy is at the White House, and Senator Metzenbaum tried to
catch a few winks, since we got out of here at about one o'clock last
night. .
We are very happy to have all of you with us this morning. There
is a concern on the part of the committee as to the reaction of the
American business community, as well as the American labor com-
munity, as to the need for health care, its impact upon businesses
at the present time, and how you look forward to its impact in the
future. m
It is particularly pleasing to me to have a witness from Ohio as
the first witness. Ms. Diane Warren is the owner-operator of
Katzinger's Delicatessen in Columbus, OH, and Eleanor Bonsaint
is a child development journal editor at the Massachusetts Insti-
tute of Technology in Brookline, MA.
Senator Kassebaum intended to be with us this morning, but she
has laryngitis, and a Senator that cannot speak just is not — so
please proceed, and we are happy to welcome you.
Before we begin I have a statement from Senator Mikulski.
Prepared Statement of Senator Mikulski
Good morning Mr. Chairman and distinguished witnesses. This
is indeed an important hearing, as the response to the President's
health care reform proposal from businesses and workers is critical
to our deliberations.
This is more than a "how is it playing in Peoria" hearing. Doing
right by our country in health care reform in large part means
doing right by the businesses and workers who will bear the bulk
of the price of this initiative. We need to listen carefully to what
(307)
308
these people have to say and take it to heart as we shape this leg-
islation.
We should also never forget that American businesses and work-
ers are also among the chief victims of the mess we are now in
with health care in this country.
These are the companies who have to compete in a global mar-
ketplace carrying the burden of the world's most expensive health
care system hidden in the cost of their products.
And these are the workers whose standard of living has declined
in real terms for more than a decade partly because the exploding
cost of health care has eaten away at their take home pay and kept
employers from offering pay raises.
Lots of people are worried about the cost of this plan and you can
count me among those worried about the effect on unemployment
and small business in particular, but I'm even more worried about
the cost of die status-quo.
As I've said before, its not just the health of our people at stake
in this debate, its the health of our economy as well.
Let me just share a few facts from my own State of Maryland.
• In 1980 Maryland businesses spent $1.15 billion on health
care for their employees. By 1992 that number was almost $4
billion— up over 250%!!!
• No wonder its tough to compete in the global marketplace.
• If things don't change the health care burden for Maryland
companies will top $8 billion by the year 2000. And because
many won't be able to afford that cost we will end up with
more uninsured and underserved citizens.
And these rapidly increasing costs only tell part of the story, be-
cause the more we pay the less we get.
• Deductibles are up, copays are up, covered services are in de-
cline, and employees have to pay an ever increasing share of
the price of health insurance.
So the impact of these cost increases on workers is in many ways
even worse than the impact on business.
• If health costs had not risen faster than the cost of living
since 1980, the average Maryland worker would be taking
home $1000 more in wages every year.
• In 1970, the people of Maryland spent just about the same
amount on education as on health care. Today we spend twice
as much on health care.
A major concern of everyone involved in this debate is how many
iobs will be lost or created as a result of this initiative. I know I'd
like to see reliable data on that question.
But another question which also should be answered is how
many jobs we have already lost as a result of the uncontrolled cost
explosion we have seen in the current health care system, and how
many more jobs we would lose if we don't do something to fix it.
Mr. Chairman, I expect this hearing to shed important light on
the cost of the reform the President has proposed, but we should
always remember to measure that cost in the context of the hard
realities of the alternative.
I look forward to the testimony to be provided today.
309
Thank you Mr. Chairman.
STATEMENTS OF DIANE WARREN, OWNER/OPERATOR,
KATZINGER'S DELICATESSEN, COLUMBUS, OH; AND ELEA-
NOR BONSAINT, CHILD DEVELOPMENT JOURNAL EDITOR,
MASSACHUSETTS INSTITUTE OF TECHNOLOGY, BROOKLINE,
MA
Ms. Warren. Good morning. In October 1984, my husband Steve
and I opened Katzinger's Delicatessen with 17 employees, a health
insurance policy for our full-time management staff, and no money
in the bank. We worked 7 days a week for a long time to grow this
business. Today, we work 6 days a week, have around 35 employ-
ees and a great reputation, and a little bit of money in the bank.
Because we are a food service business, our staff is primarily
young, part-time and healthy. And not incidentally, they are the
backbone of our business.
Shopping for health insurance in 1984 was easy. Every few
years, our rates would go up, a new company would come in with
the lower quote, and we would switch carriers. We covered 100 per-
cent of the premiums for our employees.
In 1989, the Central Ohio Restaurant Association endorsed a
local insurance company and offered us group rates, rates far bet-
ter than we were paying at the time. On June 1, we switched to
this company.
In mid-June, during a routine pap smear, I was found to have
cervical cancer. I had surgery in July and have remained cancer-
free ever since.
However, at the end of 1989, the Restaurant Association with-
drew its endorsement of this insurance company, recommending
another company for its members. In my naivete, I called CORA,
assuming that I was part of a large group and that, despite my
cancer, I would still be able to get coverage for my employees with
this new company. It was here that my education about health in-
surance began.
Of course, our entire group was refused health insurance because
one member had a "pre-existing condition." But I was fortunate in
that I had a choice — I could stay with our current carrier and thus
stay insured, and although the rates were expensive, they were
still manageable. Besides, I thought, in another year or two, if I
stay healthy, someone will pick us up. After all, this is a cancer
with a 95 to 99 percent cure rate.
I was wrong. No one would pick us up— not in 1990, 1991, or
1992. In the meantime, our rates were going up at about 40 per-
cent a year, and we had to ask our employees to help by covering
20 percent of the costs.
In November 1992, we received the insurance company's pro-
posed rates for 1993. To cover just my family — that is my husband,
my child and myself— *iot including the rest of my group, the rate
was $1,041 a month with a $2,000 deductible. There was obviously
no end in sight as to how high these premiums could go, and this
was the point where I panicked.
With die help of an independent insurance agent, I was able to
find a company that would insure our group excluding "pre-existing
conditions. The rates are fairly reasonable, but the deductible is
310
high, too high for most of my employees to handle, and the cov-
erage is lacking. And of course, I have had to gamble on my cancer
not returning.
Despite all this, it is clear to me that I am in a unique and iron-
ically fortunate position. As the business owner, I could make the
decisions about where the health care dollars are spent. I could
pull money from the advertising budget, I could employ less people,
I could not expand a certain area, or I could take a smaller salary
to afford health insurance.
And from my vantage point, not having health insurance was not
an option for me. I nad had a serious illness. One day I was
healthy, and the next day I was not. If it was me today, then to-
morrow it could be my husband or my child. If we did not have
health insurance, could we get proper medical care? I doubt it. If
we had astronomical medical bills tnat we could not pay, would we
lose our business, our home, and everything we had worked for? I
think probably we would.
But Steve and I could make the financial decisions for
Katzinger's based on our own self-interest; our business interest
and our personal interest are the same. Assume for a moment,
however, that it is not me, but one of my employees, who has a
cancer diagnosis. It would take more wisdom than I possess to
make the decision of whether to drop that person from our health
insurance plan to keep our costs down and thus risk their personal
health and financial security, or to bear the burden of astronomical
costs and potentially risk the solvency of our business, the financial
security or my family, and the jobs 01 34 other employees.
Do my employees deserve the security of the availability of
health insurance? Of course they do. It is good for them, and it is
good for my business. I have both a moral and financial justifica-
tion for wanting universal health care. I believe it is the right thing
to do, and it is the smart thing to do. The bottom line is that
healthy employees are more productive workers. And I am willing
to take the responsibility for helping to provide insurance for them.
But I need reasonable costs so I can stay in business or I will not
be able to provide jobs, let alone health insurance. And I need the
availability of health insurance regardless of our "pre-existing con-
ditions" to do that as well.
I strongly support health care reform, but I recognize there are
many small business people like myself who are opposed to health
care reform. I can only say to them that they, too, are potentially
one moment away from catastrophe. Any day, any one of you or a
member of your family can be diagnosed with a serious illness. To
you, it is a serious illness with all the personal upheaval that that
implies. But to your insurance company, it is a "pre-existing condi-
tion" with all that implies. The bottom line here is that insurance
companies do not want you if you are sick. And if you are a small
businessperson, you have no leverage. There is potential disaster
for all of us in the status quo.
Thank you.
Senator Metzenbaum. Thank you very much, Ms. Warren, for an
excellent statement.
We will hear from Ms. Bonsaint first, and then we will have
some questions.
311
Did I pronounce your name correctly?
Ms. Bonsaint. Well, in these wonderful United States, the
French pronunciation, which is "Bonsaint," has been Anglicized,
and it is now "Bonsaint."
First, I would like to express my most sincere appreciation for
being invited here today and also to express my complete amaze-
ment that my letter, one of I am sure millions of other letters that
have been mailed to the White House, actually got read. I consider
that an astounding feat, and I have to say thank you to a very dili-
gent staff for their extraordinary efforts. It simply means that all
of the letters that are being written are being read.
Some of the concerns that I expressed in my letter to the First
Lady and the President are what I would like to share with you
today.
I would say that over the past 3 or 4 years, there has been such
an outpouring of anxiety and fear and worry, for me and for many
people, about how long is my health insurance coverage going to
last; and for millions of others, such as in the case of my three
sons, it is are they going to have health coverage at all.
Now, you may think this is a recent phenomenon, but it is not.
In 1967, with four children under 6 years of age, I became ill and
was hospitalized for 3 weeks. Shortly after returning home, my
husband received a letter from his employer's health insurer, in-
forming him that they would no longer provide health care cov-
erage for our family. Now that I had a pre-existing condition, we
could not avail ourselves of any other insurer, and if it were avail-
able, we absolutely could not afford the premiums for an individual
policy. So for the next 5 years, we were without health insurance,
with very, very young children.
These same four children today are adults themselves, and they
have children. I would like to share with you their experiences with
current health care coverage.
My married son Ronald works for a business that experiences
seasonal layoffs. Because his employer cannot afford to pay his
benefits while he is unemployed, he is without health care cov-
erage. I assure you, with two children under 3 years of age, this
is a serious problem for him and his wife.
My eldest son Michael works for a very small employer — they
have three employees — and he has no health care coverage at all.
His wages are rather small, and it really leaves him with no alter-
natives.
My daughter Marcell, who has worked for the same business for
the last 8 years, has watched her employer shift from a fee-for-
service policy to a PPO. This is a preferred provider organization
that provides a list of doctors and health services for you, and you
may choose from them when you need them. Initially, it looked
very good, and after some time I asked my daughter how it was
working out for her, and she said, "Mom, it is just useless. I do not
now why I bother carrying it. Do you know what they tell me when
I call some of these doctors on the list? They say they are sorry,
but the doctor is not taking any new patients." So she is left with
having to go outside her health care plan, at her own expense,
whenever she needs health care.
312
My youngest son Jim just went through a period of unemploy-
ment and was recently hired by a well-established computer firm
in Massachusetts. He has been hired as "temporary" worker. This
allows the company to hire him without incurring the cost of bene-
fits. So he, too, is without health care coverage.
Now, it may be helpful to the business to do this, but it does not
help Jim at all. He also feels like no one really cares whether he
has coverage.
As for myself, after working these past 22 years, I have ioined
a number of health care plans. Currently, I am with an HMO. You
would think I would feel protected, but I do not. Last year, after
a phone call to the American Cancer Society and the American Ra-
diology Association, to find out if the mammography services of-
feredthrough this health service met their accreditation standards,
I found out they did not. In order to feel more secure about my
mammography services, I go outside my health plan, at my own ex-
pense.
I must ask all of you here today this question: Why is it that in
order to maintain or control costs, so many of us have no options
at all to health care, which is the case with my three sons, and so
many of us have extremely limited or marginal options, which is
the case with my daughter and myself?
I wonder how long my children and my grandchildren and I have
to continue to sit on this powder keg we call health care?
Thank you.
[The prepared statement of Ms. Bonsaint follows:]
Prepared Statement of Eleanor Bonsaint
I want to express my sincerest appreciation and gratitude for being invited here
today, and I also want to express my profound amazement that my letter, one of
a million letters that have poured into the White House over the past few months
on health care reform, actually got read! It can only mean that all the letters that
people have so carefully written on this topic are also being read.
Some of the health care concerns I wrote about to Hillary Rodham Clinton and
the President last March, I want to share with you today.
Over the past three or four years, there has been an outpouring of anxiety, worry
and fear from families and individuals who wonder how long will their health care
coverage last; and for millions of others, will they ever have any coverage at all.
One might think that this is a recent phenomenon, but it isnt.
In 1967, with four children under six years of age, I became ill and was hospital-
ized for three weeks. Shortly after my return home, my husband received a letter
from his employees health insurer informing him that they would no longer provide
health care coverage for our family. Because I now had a pre-existing condition, we
could not avail ourselves of another insurer, nor could we afford the costs of an indi-
vidual policy. As a result, our family went another five years without health insur-
ance.
These same four children are today adults with children of their own, and these
are their experiences with health care coverage:
My son Ronald, who is employed, experiences seasonal layoffs. Because it is too
costly for his employer to provide benefits during a layoff, he loses his health cov-
erage. With a wife and two children under three years of age, this is a serious prob-
lem.
My oldest son, Michael, who works for a very small business with three employ-
ees, has no health care coverage at all. Further, his small wages make it impossible
for him to find alternatives.
Over the past eight years my daughter, Marcelle, has worked for the same com-
(>any. During this time, her employer, in order to reduce costs, has shifted from a
ee-for-service health policy to a JPPO. This is a preferred provider organization that
offers a listing of doctors to choose from. Initially, she thought it looked good. Some
time later, I asked how it was working out, and she said: "Mom, it's totally useless.
I don't know why I bother to have it. Do you know what happens when I call one
313
of these doctors on the list? They tell me the doctor isnt taking any new patients!
So, I wind up with no one I can see on this list, and end up paying for everything
myself."
My youngest son, Jim, after experiencing a period of unemployment, was hired
by a well-established computer firm in Massachusetts as a "temporary worker". This
category allows a company to eliminate benefits from the cost of hiring. It may have
benefitted the employer, but it left Jim without any health care coverage, and it also
left him feeling as if no one cared if he didn't have it. ■ m
After working these past 22 years, in and out of health care plans each tune I
change jobs, I am now under an HMO. Do I feel protected? No. After a phone call
to the American Cancer Society, I found out that the mammography services offered
through this health service do not meet their accreditation standards. In order to
feel more secure about mammography services, I go outside my health plan for care.
I must ask all of you here today why it is that so many have no options at all,
which is the case with 3 of my children, and why so many have limited options,
which is the case with my daughter and myself?
How long do my children, my grandchildren and I have to continue to sit on this
powder keg called health care?
The Chairman. Thank you very much, first of all, to the wit-
nesses. I apologize for being late. I think Senator Metzenbaum
mentioned, I was called to a meeting at the White House on this
very subject, and I am grateful to Senator Metzenbaum, who has
been one of our strongest and most forceful advocates on health
care reform, for moving ahead with the hearing. So I do apologize
to our two witnesses for my tardiness.
Opening Statement of Senator Kennedy
The Chadiman. At the outset, I want to say that I know how dif-
ficult it is to talk about the health care challenges that face our
families. I think for most of us, these involve very personal aspects
of our lives, and it takes a good deal of coverage to be willing to
share these experiences in public, so I am personally grateful to
both of you for being willing to share your experiences with us and
reviewing your own current situations.
We are going to hear a great deal about the costs of health care,
but what we hear about so rarely are the costs in human terms,
the anxiety that afflicts parents about their children not being cov-
ered. How can you put a dollar figure on the fact that they go
home, and they see their children, and they think about their
grandchildren, and they worry about their own coverage every day?
Where does that come out in the total dollar amounts? We do not
account for these costs very well. And certainly, that has been true
in the whole health care debate.
As Senator Metzenbaum and I hear from people — and each of
these stories is different— people will say, "Well, you can always
find one person who has that problem," or "Here they go again.
They searched all around to come up with those two people." But
as Senator Metzenbaum and I know, you can find these stories in
every single small community and large community, not only in my
State and in Ohio, but across this Nation. I think that is sort of
beginning to get through now to people; certainly, the President
and Mrs. Clinton understand that very well. These problems are
out there, and they are affecting people every single day.
And hopefully, as this debate has begun and as we attempt to
deal with the issues, some of those who are expressing the greatest
opposition to these efforts — and there are many out there, and by
314
and large, they are people who are doing very well under the cur-
rent nonsystem — will come around.
One of the points, Ms. Bonsaint, that is often made, and I think
you have made it very well today, is are we going to have choice.
In the President's program, there will be, in terms of individual
employees being able to choice various kinds of programs, and the
doctors being able to move from one group to another. That is very
unique. I have been in this debate for a iong time, and they have
made very strong efforts to try to provide some choice. But the
point that I think many of us understand, and you pointed out so
well, is that you have no choice today. We have 40 million Ameri-
cans who have no health care, and probably another 50 million
who, even under President Reagan, have completely inadequate
health care, and those people have no choice of doctors. By and
large, the employer is the one who is making the choice, not the
employee.
We hear a lot about that, and I am just wondering if you want
to make a comment about the issue of choice and what you under-
stand to be the limitation of your opportunity to choose under the
current system.
Ms. Bonsaint. I realize that it has only been in the last 2 or 3
years that this has really come to the forefront of our society, but
I have been experiencing this for the last 25 years, personally expe-
riencing the shortcomings in a health care system that is mar-
velous by any other standards in the world— but it is not available
to anyone, and the means to correct it are not available, such as
in my case, where I find the mammography services through my
health care plan are not accredited. But I cannot change that. Can
I change the health plan? No, because I do not have other choices.
It is frightening to watch my children in situations where they
do not have health care coverage, but they all work. That is a real
concern. It actually makes me very sad to think that we are all
contributing members of society, and it feels so undeserving to be
shortchanged, where I feel we are.
The Chairman. Again, these are hardworking people who are
prepared to make some contribution to a good program that will try
to provide that coverage. As you know, there are very strong provi-
sions in the program in terms of preventive care, with mammog-
raphy, pap smears and so on, that will meet the standards.
We have had continuing willingness to provide even greater cov-
erage in terms of mammography, understanding the differences of
age and situations of people, and we will be working on that. But
that is obviously enormously interesting.
Ms. Warren, as a small businessperson, with high premiums and
high deductibles and pre-existing condition, do you ever consider
dropping your health insurance?
Ms. Warren. As I said in my statement, Senator Kennedy, it is
not an option for me because I have had a serious illness, and I
know how financially devastating that would have been for us had
we not had health insurance. So what my husband and I have done
instead is cut in other areas — not grown our business to its poten-
tial in order to maintain health insurance for ourselves and our
employees.
315
It is not an option for me because of my personal experience, and
consequently, it is also not an option for my employees either. And
with some of them, I have to say, "Look, you have got to do this."
I have to do the "Mom" thing with them, because a lot of them are
young, and they think they are going to live forever and never get
sick. And I have so say, "No— you really should have health insur-
ance. Trust me. You really need this." And some of them will buy
into it, and some will not.
The point is that the potential for catastrophe is something that
people do not recognize until they are faced with it. I have a close
friend who had a breast cancer diagnosis in April; at the same
time, her husband lost his job. They are in their early 50's. They
have 12 months left on their COBRA plan, and then what are they
going to do? She is going to be having chemo for a long time. What
are tney going to do? What are they going to do?
I need answers from people like you guys as to what can be done
in situations like that, because I have searched everywhere I know
how, and there are no answers. Carriers will not pick you up. The
medical community will not provide insurance for you free. You are
not poor enough to get Medicare. You are not old enough to get
Medicaid. What do you do?
The Chairman. As I understand, you have been a small
businessperson for 9 years; is that right?
Ms. Warren. That is right.
The Chairman. How do you feel about a mandate? This is one
of the "hot button" items that people focus on. I would be interested
as to whether you think if everyone is covered, all businesses, large
and small, it would help and assist the smaller businesses? That
is something that would be included. What is your general feeling
about that?
Ms. Warren. My husband and I are entirely in favor of that. I
think that health care is so basic to our society. When I started
having all the problems in 1989 when I got sick, I remember going
home and saying to my parents, "What is going on here? This is
America. I do not understand why we cannot get health care. I do
not understand it." I think I was so naive prior to that that I was
really stunned.
I think it should be mandated. It is fine with me if it is an em-
ployer mandate. That is fine with me. I do not really care how we
all get it. I just think that we all should get it. I think in the long
run, in 20 years or in 30 years — and this is a process, not an
event — I think in the long run, we are going to find that as a soci-
ety, we are far better off because we had prenatal care, our kids
were immunized, we made steps all along the way to stay healthy,
physically and mentally, that in the end we are going to reap the
rewards for that. My child will have a better society because of
that, and her children will.
The Chairman. Very eloquent and compelling testimony.
Senator Kassebaum.
Senator Kassebaum. I am sorry, Mr. Chairman, but I have lar-
yngitis, and I just came to listen.
The Chairman. This was true last Friday, too, Nancy. [Laugh-
ter.] Thank you for being here.
316
Senator Metzenbaum. I hope that Senator Kassebaum has ade-
quate health care coverage. [Laughter.]
Ms. Warren, where is Katzinger's located?
Ms. Warren. Third and Livingston, in German Village. I brought
a menu if anybody wants to see it. [Laughter.]
Senator Metzenbaum. Very good.
Ms. Warren. Some of your staff, I understand, have been there.
Senator Metzenbaum. I will have to visit.
Ms. Warren. I certainly hope you will. We need all the business
we can get so we can afford our health insurance. [Laughter.]
Senator Metzenbaum. I will indeed. As I sat here, I was think-
ing to myself, you are obviously an intelligent person; you and your
husband have a small business and apparently have done reason-
ably well. And Ms. Bonsaint is, as I understand, a child develop-
ment journal editor at MIT, also certainly an intelligent person and
aware of what is available and what is not. And I say to myself,
there is something I do not understand — and I know we will hear
a witness later in the day, although I am not sure I am going to
be able to stay for the witness because I have another commit-
ment— but the National Federation of Independent Business, as I
understand, is opposed to the program. And I am saying to myself,
I was in small business — I was in larger business as well — but it
seems to me that we are talking about an issue with respect to
which the administration has come forward with an answer. A per-
fect answer — no. They are willing to accept changes and make im-
provements.
There is unbelievable dedication of a President and his First
Lady to a program. Never before in my experience since I have
been here — I have not been here as long as Ted, but I have been
here pretty long — have I known of a President and his First Lady
who knew the details of legislation being considered by the Con-
gress. They oftentimes take a position, and they get a summary
from some staffer. But this President and Hillary Clinton not only
know it, but they have been involved in creating it.
I am just wondering how do you explain, or do you have any ra-
tional explanation, for the fact that a group such as the NFIB
would be making this tremendous effort to oppose this legislation?
How do you comprehend that?
Ms. Warren. I certainly cannot answer as to how they think, but
my opinion is that businesses are afraid of cost. Many small busi-
nesses do not provide any health insurance for their employees at
all, so for them it is an added cost.
I think that if I were a business that was teetering on the edge
of extinction, and this would potentially tip me over, maybe I would
think twice about having a health insurance plan for my employ-
ees.
But the flip side is that we pay astronomically not just finan-
cially, not just in lost productivity, but in a psychological and spir-
itual way, by not having health insurance right now. As Senator
Kennedy said, I do not know how you place a value on that; I do
not know how you place a dollar value on those kinds of spiritual,
psychological things. But they exist, and in my opinion, that cost
is too high for us to bear; as a society, that cost is too high for us
to bear.
317
It is worth it for me to pay those dollars out of my pocket to get
health coverage — that is more valuable to me than to see people
not have the security and have the fear of what is going to happen
if they do not have health insurance, and they have a serious ill-
ness. Or, in the short run kinds of things, I have employees who
come to work, and they are sick. They should be going to a doctor.
I tell them, *Tou cannot come to work sick. This is food service,
guys. You are going to make the customers sick. You cannot do
this." But they say, I cannot afford to go to the doctor." Even those
with insurance cannot afford to go to the doctor because the
deductibles are so high.
Now, there is a cost here that somehow business associations I
think are not recognizing, that what we are paying now is a lot;
it is not just what we pay out of our pockets. It is this other stuff
that we pay, these other ways in which we pay as well.
That is the only way that I can respond. It comes down to fi-
nances, but finances is not just money. Costs are not just money.
Senator Metzenbaum. Ms. Bonsaint, I think we would be remiss
if we did not ask you for your thoughts on this very subject of
health care, not just from your family's personal challenge, but you
are a child development journal editor at MIT. What are your
thoughts in that capacity with respect to the challenge of child de-
velopment problems?
Ms. Bonsaint. I would say, for instance, with my experience
with my grandchildren, that to watch the psychological impact on
their parents and their ability to tolerate the anxiety of wondering
every day, aI hope she does not fall, I hope she does not trip and
bang her head. Where would we go if something serious should
happen?" — as Diane just mentioned, those costs, we do not see in
the bottom line of a balance sheet. But in worker productivity, we
know that that is where it is showing. And the anxiety is picked
up by our children; it goes sort of unspoken. But you start to feel
a real lack of confidence in the country, in our business community
that we depend so much upon, and a profound and deep lack of
trust in people we must turn to when we are sick, wondering
whether they are really concerned about me, are they concerned
about our families and our children, or are they trying to cut cor-
ners because a dollar seems to loom up in front of them much more
readily.
Those are my concerns.
Senator Metzenbaum. Thank you.
Thank you, Mr. Chairman.
The Chairman. I would just say we had a wonderful mother tes-
tify here who talked about how she had to tell her children they
could not ride bicycles because of her fear that they would fall. Par-
ents of a young boy who wanted to play sports in school had to say,
"No, you cannot play football or other sports, because something
might happen to you."
As you point out, Ms. Bonsaint, it is a fact that in companies all
over the country, at 3:30 in the afternoon, productivity begins to go
down significantly and measurably, as parents worry about their
children getting out of school and whether they are getting home
safely.
318
We do not do as well figuring out the cost of these factors in dol-
lars and cents. For instance, children get better quicker by 40 to
50 percent if they have a parent with them. That saves money
someplace, but we do not do quite as well as the opposition does
in terms of framing the debate, but I think many of us understand
exactly what you are talking about. It is a very real and powerful
factor, and the country ought to hear a good deal more about it.
Senator Wofford.
Opening Statement of Senator Wofford
Senator Wofford. I am sorry I was in another meeting on
health care, which is my wont. I will read your statements with
great care.
Certainly one of the things that I hope happens on day one of
our legislation is that pre-existing conditions as an exclusion are
out, out, and gone from day one.
I appreciate very much what you have put forth today in your
personal stories.
Thank you, Mr. Chairman.
The Chairman. Thank you very, very much. We appreciate your
being with us. We are very grateful to you.
Our next panel includes distinguished witnesses who will provide
commentary on the President's plan from the perspectives of work-
ers at firms large and small, and from the perspective of large busi-
nesses.
John Sweeney is the chairman of the AFL-CIO Health Commit-
tee and president of the Service Employees International Union
and has been one of the most important national leaders on the
issue of health care for many years. We are very pleased that he
is able to join us today.
Peter Pestillo is the executive vice president for corporate rela-
tions at the Ford Motor Company. He and his company have been
frappling with these issues for many years, and he brings a wide
nowledge of how this issue affects not only his business, but other
business as well.
Michael Peel is the senior vice president for personnel and
human resources at General Mills, a company that is engaged in
innovative activities to control health care costs. And for the
record, I know that General Mills owns and operates Gordon's Sea-
food in Gloucester, MA.
Mr. Peel. Yes, we do, Senator.
The Chairman. Let us begin with Mr. Sweeney.
STATEMENTS OF JOHN J. SWEENEY, PRESIDENT, SERVICE EM-
PLOYEES INTERNATIONAL UNION AND CHAIRMAN, AFL-CIO
HEALTH CARE COMMITTEE, WASHINGTON, DC; PETER J.
PESTTLLO, EXECUTIVE VICE PRESIDENT FOR CORPORATE
RELATIONS, FORD MOTOR COMPANY, DETROIT, MI; AND MI-
CHAEL A. PEEL, SENIOR VICE PRESIDENT FOR PERSONNEL
AND HUMAN RESOURCES, GENERAL MILLS, INC., MINNEAPO-
LIS, MN
Mr. Sweeney. Thank you, Senator.
319
Mr. Chairman, members of the committee, thank you for the op-
portunity to testify on one of the most critical issues facing our Na-
tion today.
After almost a century of struggle, we are on the verge of bring-
ing much-needed reform to our Nation's health care system. We ap-
plaud the President and the First Lady for their courageous initia-
tives in tackling this issue.
Let me also take this opportunity to applaud the chair of this
committee for your outstanding leadership in this area over the
years.
The AFL-CIO has long been on record in calling for Federal legis-
lation to assure all Americans access to quality nealth care at an
affordable price. To this end, a resolution endorsing the President's
proposal and committing the Federation to a strong effort to secure
comprehensive health care reform was unanimously adopted by the
delegates to the AFL-CIO convention last week.
We support the President's plan because it meets all of the AFL-
CIO principles for reforming the current system. The plan elimi-
nates existing barriers to coverage and guarantees every American
access to a comprehensive range of benefits. The plan also includes
strong measures to control costs and improve quality. Finally, the
financial burden of this plan is fair and spreads the costs broadly
and equitably across the population.
As you and your colleagues are well aware, Mr. Chairman, rising
health care costs are burdening workers and employers in all levels
of Government. A 1992 study by my own union, the Service Em-
ployees International Union, found that if health care costs had
only grown as fast as the economy as a whole between 1980 and
1992, average real wages would not have declined, employers
would be paying one-third less for health insurance for their work-
ers, and the Federal Government would have saved $79 billion
alone in 1992.
Health care costs now consume 14 percent of gross domestic
product and will consume 20 percent of GDP by the end of the dec-
ade if nothing is done. Without reform, this Nation will be unable
to make the kind of investments in human and physical needed if
the United States is to be economically competitive in the 21st cen-
tury.
For these reasons, the AFL-CIO strongly supports President
Clinton's cost control strategy, which uses a blend of regulation and
market pressures to bring costs under control.
Opponents of the President's plan have argued that with a little
tinkering here and there, market forces alone would be sufficient
to bring costs under control. This flies in the face of our experience
over the past decade with deregulation in the health care industry.
Reagan era reliance on market forces brought us the highest rates
of increase ever. It should be a source of shame to us that in the
richest Nation on earth, there are 37 million Americans without
any form of health insurance whatsoever and millions more
underinsured.
There are some opponents of the President's plan who argue that
the benefit package is too generous and that we must limit the
range of benefits available. The AFL-CIO would strongly oppose
any such move in this direction. While comprehensive, the adminis-
320
tration's proposed benefit package is not goldplated health care and
represents the minimum that all Americans should be entitled to.
The AFL-CIO is also supportive of the ways in which the Presi-
dent and his task force resolve some of the issues related to the fi-
nancing of the health care reform effort. We have supported pro-
gressive financing that distributes the costs of health care reform
as broadly and as equitably as possible. The Clinton plan requires
all employers to contribute at least 80 percent of the cost of the av-
erage premium in their region. But many employers, especially
those who pay poverty-level wages and provide no health benefits,
are resisting and want more of the burden shifted to workers and
their families. This would be exactly the wrong direction for the
Congress to move.
The President has wisely declined to make taxation of health
benefits a major part of his proposal. Union members have suffered
real wage losses in recent years as they have struggled to maintain
their current level of healtn care benefits.
Some employer associations who have complained bitterly about
the cost of the employer mandate have ignored the significant ben-
efits that many businesses will receive as a result of the Presi-
dent's plan. Aside from cost control measures, which will benefit
both employers and workers, the plan calls for a cap on employer
premium contributions of 7.9 percent of payroll. Many small busi-
nesses will benefit from Federal subsidies and will pay less for cov-
erage than they do not.
The special concerns of health care workers must be addressed
as part of national reform. Any cost containment system must en-
sure fairness for health care workers and seek to ntinimize worker
displacement. Funds should be provided to retain insurance and
help workers to match skills to health care sectors that have ex-
panded service needs.
The President's initiative and his political commitment to health
care reform offers the best hope for achieving our long-sought goal
of universal health coverage. We intend to defend the Clinton pro-
posal against those who will advocate that we move more slowly,
that we make incremental changes, or simply ensure our current
situation.
We are committed to spearheading a coalition of consumers, sen-
iors, businesses — large and small — community groups and progres-
sive providers to fight against those special interest groups defend-
ing their financial stake in the status quo.
Once again, I want to thank you, Mr. Chairman and the mem-
bers of the committee, for this opportunity to testify. We look for-
ward to working together with you to achieve health care that is
always there and that is a reality for America's working families.
Thank you.
The Chairman. Thank you very much.
[The prepared statement of Mr. Sweeney follows:]
Prepared Statement John J. Sweeney
Mr. Chairman, members of the committee, thank you for this opportunity to tes-
tify on one of the most critical issues facing our nation today. After almost a century
of struggle, we are on the verge of bringing much needed reform to our nation's
health care system. For the first time in the history of the health care reform move-
ment, virtually all of the major health care stakeholders — consumers, providers, and
321
public and private purchasers — are united in their call for comprehensive reform.
There is a consensus that our current system is broken and must be fixed. We ap-
Flaud the President and Mrs. Clinton for their initiative in tackling this issue, and
am pleased to be invited to testify before this committee on our views on the Presi-
dent's national health care reform proposal. Let me also take this opportunity to ap-
plaud the chair of this committee for your outstanding leadership m this area over
theyears.
The AFL-CIO has long been on record in calling for federal legislation to assure
all Americans access to quality health care at an affordable price. To this end, a
resolution endorsing the President's proposal and committing the Federation to a
strong effort to secure comprehensive health care reform was unanimously adopted
by the delegates of our biennial convention last week.
We support the President's plan because it meets all of the AFL-CIO principles
for reforming the current system. The plan calls for universal access to care for all
Americans, regardless of health or employment status, real cost control, quality im-
provement, and fair and equitable financing.
Health care costs continue to eat up a growing share of corporate revenues, crip-
pling the ability of U.S. businesses to compete in the global marketplace. A recent
study by Employee Benefit Research Institute revealed that health care costs
consume over 14 percent of payroll in the consumer products sector, over 11 percent
in manufacturing and mining and construction, and over 10 percent in the transpor-
tation sector. These high costs are consuming resources that could otherwise be used
to fund other critical national priorities. High costs are also exacerbating the poten-
tial competitive advantage that unscrupulous businesses can gain in the market-
place by not providing health care benefits to their employees.
President Clinton's reform proposal would dramatically improve the situation of
workers, their families and the businesses for whom they work. It would also allevi-
ate pressure on state and federal government budgets which are being severely
strained by health care inflation rates often running at more than three times the
Consumer Price Index.
A recent study by the Service Employees International Union (SEIU) and Lewin-
ICF examined the effects of health care cost inflation since 1980 on workers, busi-
ness, and government. The study compared their actual experience with what they
would have experienced if health care inflation had grown only at the rate of overall
growth in the economy (an average of 8.3 percent per year over 12 years). The study
concluded that if health care inflation had been held to 8.3 percent per year:
• Real wages would not have declined.
• Employers would be paying an average of $1,015 less per employee per year
for health insurance coverage — a savings of one third.
• The smallest businesses would be helped even more and would be paying
$1,283 less per employee per year, on average.
• U.S. companies would be more competitive, with health care in the U.S. con-
suming roughly the same proportion of GNP as it does with our major trading
partners (instead of 1.5 to two times as much).
• Our states would have had an extra $34.9 billion available in 1992.
• The federal government would have saved $79 billion in 1992 alone.
In addition to suffering cuts in real wages due to rampant health care inflation
over the past 12 years, working families have been paying more out of pocket for
health care as employers have tried to shift more of the burden of rising costs to
their employees.
A 1991 study by Families USA found that the share of health insurance pre-
miums paid by workers increased markedly between 1980 and 1991. In 1980, em-
ployees paid 18 percent of the cost of employer-sponsored health insurance. By 1991,
that percentage had increased to 23 percent. If this trend continues, the average
worker will be contributing 26 percent of the cost of their health insurance. It is
important to bear in mind that this is an average, and that millions of workers will
be paying much more.
These figures illustrate the profound need for health care reform, and what we
stand to gain from it. Cost control is vital if we are going to reduce the economic
burden that runaway health care costs place on the budgets of workers, businesses,
and state and federal government. If present trends are not reversed, health care
will consume one-fifth of our national income by the year 2000, diverting society's
scarce resources from pressing investments and social needs.
For these reasons, the AFL-CIO strongly supports President Clinton's cost control
strategy, which uses a blend of regulation and market pressures to bring costs
under control. Opponents of the President's plan have argued that, with a little tin-
kering here and there, market forces alone would be sufficient to accomplish this
322
task. This flies in the face of our experience over the past decade with deregulation
in the health care industry. Reagan-era reliance on market forces brought us the
highest rates of health care cost increases ever. Furthermore, no other nation on the
planet relies solely on the market to control health care costs. While the specific reg-
ulator^ tools vary from country to country, all nations with national health care sys-
tems have imposed some kind of limit on the amount they spend on health care.
It should be a source of shame to us that in the richest nation on earth there are
37 million people without any form of health insurance whatsoever. As many as 50
million more are underinsured and often do not discover the crucial gaps in their
health insurance 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 health insurance coverage or because of pre-existing conditions that the in-
surance company refuses to cover.
Universal coverage is also an important element in cost containment. 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.
Under the President's plan, the financing burden of covering the uninsured will be
distributed fairly and equitably.
The members of the AFL-CIO have long supported a universal right of access to
health care. President Clinton has heard that call. The administration's plan would
eliminate existing barriers to coverage and guarantee every America access to a
comprehensive range of health care benefits. No one would be denied coverage be-
cause of their income, health or employment status.
There are some opponents of the President's plan who argue that the benefit
package is too generous and that we must limit the range of benefits available. The
AFL-CIO would strongly oppose any move in this direction. While comprehensive,
the administration's proposed benefit package is not "gold plated" health care and
represents the minimum that all Americans should be entitled to.
The AFL-CIO is also supportive of the way in which the President and his team
of advisors resolved some of the issues related to the financing of the health care
reform effort. For many years the Federation has argued that health care reform
should be based on progressive financing that distributes the costs of health care
reform as broadly and equitably as possible.
The Clinton plan requires all employers to contribute at left 80 percent of the cost
of the average premium in their region. But many employers, especially those who
pay poverty level wages and provide no health benefits, are resisting and want more
of the burden shifted to workers and their families.
This would be exactly the wrong direction for Congress to move in. It would en-
courage employers to seek the "low wage path" to competitiveness. The Clinton plan,
by requiring that all employers contribute, begins the process of taking benefits "out
of competition" and denies unscrupulous employers the ability to gain a competitive
advantage by denying needed benefits to their workers.
The AFL-CIO is also strongly opposed to "individual mandates," which would shift
the responsibility for providing health coverage from employers to families. Many
employers would end up dropping their health plans, forcing middle class workers
to foot the bill.
The President has wisely declined to make taxation of health benefits a major
part of his proposal. Union members have suffered real wage losses in recent years
as they have struggled to maintain their current level of health care benefits. While
union members will be asked to contribute through taxation of the kind of supple-
mental benefits found in the top tier of health benefit plans, the plan provides a
ten year period during which wages tradedoff for health benefits in recent years can
be built back.
Some employer associations have complained bitterly about the cost of an em-
ployer mandate and have ignored the significant benefits that many businesses will
receive as a result of the President's plan. Aside from cost control measures which
will benefit both employers and workers, the plan calls for a cap on employer pre-
mium contributions at 7.9 percent of payroll. The majority of businesses who now
provide health insurance to their employees currently pay more, and therefore,
stand to gain a windfall under the plan. The President's proposal also calls for a
lifting of the heavy burden on businesses competing in the global marketplace by
subsidizing the crippling costs of early retiree health care costs.
Some members of* congress are suggesting that the Clinton plan is financing re-
form on the backs of small businessTThis is not the case. While small businesses
which are not now providing benefits to their employees will clearly pay more under
the President's proposal, many small businesses will pay less for better benefits
under the plan. The special subsidies for small businesses will make the plan par-
323
ticularly attractive for small businesses who now offer health benefits to their em-
ployees.
The special concerns of health care workers must be addressed as part of national
reform. Any cost containment system must ensure fairness for health care workers
and seek to minimize worker displacement. Funds should be provided to retrain in-
surance and health workers to match skills to health care sectors that have ex-
panded service needs, using appropriate providers, settings and delivery arrange-
ments.
We continue to believe that nothing short of full scale restructuring will solve the
current crisis of the health care system. The AFL-CIO will continue to oppose pro-
posals for change that rely on uncontrolled market forces, incremental measures, or
that focus on taxing the health care benefits that workers and their families have
fought for over the years. Such measures will only serve to delay comprehensive re-
forms.
President Clinton's initiative, and his political commitment to health care reform,
offer the best hope for achieving our long sought goal of universal health coverage.
We intend to defend President Clinton's proposal against those who will advocate
that we move more slowly, make incremental changes, or simply endure our current
situation. We are committed to spearheading a coalition of consumers, senior citi-
zens, businesses (large and small), community groups, and progressive providers to
fight against those special interest groups defending their financial stake in the sta-
tus quo.
Once again, I want to thank Senator Kennedy and the other members of the com-
mittee for this opportunity to testify. We look forward to working with you to make
President Clinton's vision of "Health Care That's Always There" a reality for Ameri-
ca's working families.
The Chairman. Mr. Pestillo.
Mr. Pestillo. Thank you, Senator, and I thank you and your col-
leagues for having us here today.
Comprehensive health care reform probably is the most signifi-
cant domestic issue facing our Nation today. The President and
Mrs. Clinton really ought to be applauded for their courage in forc-
ing the issue and taking a bold approach.
I can tell you that Ford employees view health care coverage as
fundamental to their quality of life. But major and persistent in-
creases in health care costs are making today's benefits more ex-
pensive than America can afford. For example, Ford health care
costs have more than tripled since 1970, and now amount to more
than $5,000 per employee and retiree.
It is not just the sheer dollars alone. These costs jeopardize our
ability to compete globally because U.S. health care system and its
costs are out of line with the rest of the world. In 1991, U.S. per
capita health care costs were nearly double those of Germany and
more than double those in Japan. That translates to about a $500
per car disadvantage for each car and truck we build.
Labor and management cannot fix this problem alone. Ford costs
have continued to increase despite the close working relationship
with the UAW, with insurance carriers and providers on numerous
cost containment programs such as managed care, case manage-
ment, and wellness programs. In 1992, these cost reduction efforts
helped Ford save more than $200 million. But that was not
enough. Even with that, for example, Ford's average annual health
care cost increase of 8 percent over the last 5 years, although half
that for industry at-large, was still double the rate of growth in the
consumer price index.
We congratulate the administration for their leadership in devel-
oping a health care reform proposal that we reallv believe is a
meaningful step in solving this serious national problem we have.
324
It addresses in a comprehensive way all the principles that we
at Ford believe are key to successful reform — universal coverage,
cost containment, quality assurance, equitable financing, and ad-
ministrative simplicity.
There are several provisions included in the proposal that are es-
sential if reform is to improve the competitiveness of U.S. business.
First, there must be limits on how much our Nation can spend
on health care. Every business in America has to live within a
budget that eliminates inefficiency and concentrates resources on
the most productive output. It only makes sense that we do this for
health care, as do the nations with whom we compete. A budget
will force the elimination of unnecessary claim forms, excess hos-
pital beds, unnecessary operations, and other areas of waste that
are in our present system.
If we simply build efficiencies into the system that save even one
percent of the U.S. GDP, we would save $60 billion. That money
could be translated into improved international competitiveness
and spent on such things as education, roads, and research and de-
velopment, which would improve our standard of living.
Second, if we are going to have an employment-based health care
system, we need all employers to contribute. Today, businesses pro-
viding health care coverage are subsidizing those who do not in the
form of dependent care. There may need to be relief for some small
businesses, but major exemptions will exacerbate this cost-shifting.
Third, we need to level the playing field by using broad-based fi-
nancing mechanisms to fund health care for retirees, as other coun-
tries do. Ford is willing to bear our fair share of health care costs,
but the U.S. cannot afford to give jobs away to foreign competition
based solely on the way they pay for health care. In an employer-
based system, all retirees must be treated the same. It would be
severe discrimination to fund health care for those workers not cov-
ered by company programs at the expense of those who are.
If the plan that emerges from the Congress contains these ele-
ments, we believe the competitiveness of Ford and other American
businesses will be helped over the long run. It should reduce the
rate of growth in health care costs and eliminate the cost-shifting
that has resulted in major companies paying 128 percent of the
hospital costs their employees generate. The benefits will depend
importantly on the financing and success in achieving the reduction
in the rate of growth of health care costs.
On the other hand, piecemeal reform could achieve the opposite
result. If universal coverage is provided with adequate cost con-
trols, if cost-shifting from other companies and from Government
to private industry is continued or increased, if there is discrimina-
tory treatment for companies with older work forces located in
urban areas, American competitiveness could be further disadvan-
taged if we do not address these issues.
In the end, we must step up to health care reform because we
are the only industrialized Nation that does not provide universal
coverage, and because health care costs are really out of control.
Without prompt action, as Mr. Sweeney indicated, by the year
2000, with that much of our GDP committed, it will cost more than
$14,000 per family for health care costs. Nobody will be able to af-
ford coverage if we do not do something soon.
325
In summary, the health care system is broken and must be fixed
at the national level. The solution must be comprehensive m na-
ture— piecemeal reforms simply do not work. The President's plan
should help make health care costs more affordable, provide uni-
versal coverage, and improve our competitiveness.
So we urge the Congress to move forward promptly on com-
prehensive health care reform. A successful solution will benefit all
Americans and businesses large and small.
Thank you.
The Chairman. Thank you very much.
Mr. Peel.
Mr. Peel. Thank you, Mr. Chairman and members of the com-
mittee.
I have a written statement that I would request be included in
the record.
The Chairman. Yes; all the statements will be printed in their
entiretyin the record.
Mr. Peel. Thank you very much.
Senator Wellstone. And a Minnesota hello to you, Mr. Peel.
Mr. Peel. Thank you, Senator Wellstone.
I appreciate the opportunity to testify today. My testimony will
really cover three subjects. The first is General Mills' company ex-
perience, operating in the current and rapidly changing health care
environment. Second, I would like to cover our fundamental beliefs
with respect to health care reform that come from this operating
experience. And finally, I would like to comment on the administra-
tion's proposed health care plan in its current form.
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, our employment is growing sharply as we added
19,000 jobs last year alone and more than 60,000 new jobs since
1988.
Approximately two-thirds of our sales is in the consumer foods
business while the other one-third is in the sit-down restaurant
business. Thus, we are both a major manufacturer as well as a sig-
nificant participant in the rapidly growing U.S. service economy.
The businesses that General Mills compete in are intensively
competitive, and we have long had a very strong financial incentive
to control our health care costs. As a result of innovative and ag-
gressive management of health care costs, our health care is cur-
rently costing 5.6 percent of payroll in our consumer foods business
and 4.3 percent of payroll in our restaurant business. Our per cap-
ita health expense grew only 1.6 percent from 1991 to 1992 and ac-
tually fell from 1992 to 1993.
The strategies we have employed to contain our health care costs
have emphasized heavy use of managed care networks and a strong
emphasis on wellness and preventive care. In Minnesota where our
consumer foods operations are headquartered, we helped found the
Business Health Care Action Group, which is perhaps the most de-
veloped model of managed competition currently operating in the
Nation.
In Florida, where our restaurant business is headquartered, we
helped establish the Employers Purchasing Alliance, in which all
employers, large and small, public and private, purchase health
326
care through the Alliance on the same terms. This Alliance has ac-
tually led to health care cost reductions for the entire Orlando com-
munity in each of the past 2 years.
General Mills employees also have a range of financial incentives
to help control health plan expenses. The amount of money that
employees contribute for their medical coverage is based upon their
fitness and lifestyle as well as their actual year-to-year utilization
of our medical programs.
Our hands-on health care reform experiences in Minnesota and
Florida have led to rather strong opinions about what actually
works and what will not.
These basic beliefs about health care are as follows. First, con-
taining the rapidly escalating costs of health care must be reform's
primary objective. Health care must be affordable for individuals,
employers, and the Government, and must not undermine our glob-
al competitiveness.
Second, all Americans should have access to quality, affordable
health care. And third, attempts to regulate people into behavior
that does not make economic sense for them will ultimately fail.
Economic incentives, not regulation, must reward consumers, pro-
viders, and payers for making appropriate choices about health
care utilization, coverage, and cost and penalize those who do not.
We have reviewed carefully the Clinton administration proposal
on health care reform. Certain aspects of the administration's pro-
gram are right on target, particularly features such as universal
access to affordable care, purchasing coops to enable individuals
and small employers to purchase health care efficiently, portability
of health insurance, and the elimination of rating discrimination
based on pre-existing conditions.
However, there is much in the Clinton plan that we believe is se-
riously flawed and likely to harm most of the very Americans the
plan seeks to aid. Despite claims to the contrary, the plan pre-
scribes a Government-run, regulation -based system, instead of pro-
viding the right incentives to encourage marketplace competition
on quality and on value. Fixing an employer's maximum health
care cost exposure at 7.9 percent effectively rewards those compa-
nies that have been the least efficient providers of health care
while removing any employer incentive to manage costs below the
7.9 percent level, as we and others have done. The lack of incen-
tives for employers and individuals to contain costs is the most se-
rious problem we see with the administration's plan.
The Chairman. Well, just on this point, though, they would be
able to keep it. If you go below 7.9 percent, why wouldn't there be
continuing incentives to go below it, because they could keep the
savings?
Mr. Peel. I do not think, Senator Kennedy, that most major com-
panies would remain self-insured under the bill as proposed. I
think most would opt for regional alliance coverage.
The Chairman. Well, just on the point — and I do not want to in-
terrupt your flow — but you talked about disincentives to going
below the 7.9 percent cap. In fact, they can go to where you are
and still be able to retain those kinds of savings.
327
Mr. Peel. But I think in the program as proposed, what would
happen is that most major employers would opt out of their current
plans and opt into the regional alliances with the caps as proposed.
In fact, I think the plan's provisions taken together make it un-
likely that many large employers will set up corporate alliances.
And without corporate alliances, there will be no competition, only
huge Government-run regional alliances with no hope of controlling
this major Government entitlement program.
The plan also mandates economic costs for employers of low wage
or part-time workers that cannot rationally be covered by raising
prices or reducing wages. This will hit the service sector of the
economy hard, and that is the only sector of the economy reliably
creating new jobs.
This burden placed on the service sector is compounded by the
subsidies proposed for small businesses that are not available to
large employers of low wage employees. Many small businesses are
very profitable, while many larger employers operate on profit mar-
gins so thin they will not be able to absorb the significant cost in-
crease.
I should also note that the 3.5 percent cap for small employers
would take effect immediately, while the 7.9 percent cap for larger
employers would not take effect for 8 years. The result could be as
much as 20 times difference among competitors in health care costs
in that time frame.
Finally, financing capped at 7.9 percent is unrealistically low,
and the subsidies required to keep it at that level are likely to cost
infinitely more than the current forecasts. We spoke about Ger-
many, which has a reasonably efficient health care system consum-
ing 8 percent of their GDP and financed by a 13 percent payroll
tax. It defies logic to think that a system already consuming 14
percent of the GDP could be financed for so much less.
Most of the issues we see can be traced back to the plan's de-
pendence on employer mandates for its financing, and as you will
see in our written testimony, we favor a voluntary, incentive-based,
managed care approach.
Mr. Chairman, I know my time is up, but I would be happy to
try to cover these or other points in more detail during the question
and answer period.
Thank you very much.
[The prepared statement of Mr. Peel follows:]
Prepared Statement of Michael A. Peel
I appreciate the opportunity to testily today. My testimony will cover the two key
issues in the health care debate: universal access and cost containment.
Our views on this subject are formed by our experience as a large and rapidly
growing corporation headquartered in Minneapolis, which as you know, has long
been a center of innovative approaches to health care.
Universal access
We believe that health care should be available to every American. Furthermore,
no America should lose their coverage when they change or lose their jobs, divorce,
or become sick. Pre-existing conditions should not prevent any American from get-
ting health care coverage at the same cost as other Americans in their geographic
area.
There are, obviously, a number of different ways that the objective of universal
access to health care can be met. While legislation is needed to provide universal
access to health care, common benefits, portability, ad assistance for low income
328
families, we must avoid mandates which will eliminate incentives for corporations
and individuals to control health care costs.
The Administration has been most articulate on the problems of lack of health
care access. All of these issues can be addressed with very straight-forward legisla-
tion. Universal access does not require a highly regulatory ana mandate-oriented
program.
Mandates destroy incentives
Unfortunately, the Administration's plan achieves universal access to health care
via a mandated approach that sets health care costs at a flat percentage of payroll,
thereby eliminating all incentives for corporations and individuals to reduce health
care costs. Furthermore, the Administration's plan, with its state and federal regu-
lators, global budgets, ad payroll taxes on employers will drive health care costs to
unprecedented levels or result in rationed care. Mandates are the major problem
with the Administration's plan.
Cost containment
By contrast, the current market-oriented approaches are beginning to result in
substantial cost containment. For instance, CaLPERS has told 18 managed care com-
panies that it expects 5% roll-back in health care premiums next year.
At General Mills, we are having excellent cost experience in managing health
care. We obviously have a major incentive to deal with this problem since success
directly affects our productivity and competitiveness. Here is some background on
the company and our approach to health care. 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, our employment is growing sharply as we added 19,000
new jobs in the past year alone ad more than 60,000 new jobs since 1988.
Approximately two-thirds of our sales are in the consumer foods business, while
the other one-third is in the sit-down restaurant business. Thus, we are both a
major manufacturer as well as a significant participant in the rapidly growing serv-
ice economy.
As a result of innovative and aggressive management of health care costs, health
care is currently costing 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 have empha-
sized heavy use of managed care networks and a strong emphasis on wellness and
preventive care.
In Minnesota, where our consumer foods operations are headquartered, we helped
found the Business Health Care Action Group which is perhaps the most-developed
model of managed competition currently operating in the nation.
In Florida, where our restaurant business is headquartered, we helped establish
the Employers Purchasing Alliance with other larger purchasers of care. This Alli-
ance has actually led to health care cost reductions for the entire community in the
Orlando area in each of the last two years.
General Mills employees also have a range of financial incentives to help control
health plan expenses. The amount of money that employees contribute Tor their
medical coverage is based upon their fitness and lifestyle, as well as their actual
year-to-year utilization of the medical programs.
We believe that similar competitive pressures for productivity improvement will
drive most American companies to do an increasingly better job of managing their
health care costs.
Our "hands-on" health care reform experience in Minnesota ad Florida have led
us to have fairly strong opinions about what actually works and what won't.
Regulation instead of competition
One of the major problems with the Administration proposal is that it has the po-
tential to reduce competition among health care providers, not increase it. Each of
the 50 states has the option of creating a single payer plan. This would result in
no competition and either a dramatic escalation in cost or health care rationing.
Furthermore, we believe most corporations will not form corporate alliances.
Despite claims to the contrary, the plan prescribes a government-run, regulation-
based system instead of relying on competition and market forces. Long-term, this
plan would result in a single payer system in each state.
The plan relies on the existence of corporate alliances to provide competition for
the regional health alliances, yet the plan s various provisions, taken together, make
it unlikely that many large employers will set up corporate alliances. The potential
costs ad restrictions the plan imposes for doing so make that a poor economic choice.
Without corporate alliances, there is no competition — only large government-run re-
329
gional alliances with dubious prospects for hope of controlling the costs of a huge
new government entitlement program.
Our current analysis is that we would not form a corporate alliance at General
Mills. Many large companies, service ad industrial, are reaching similar conclusions
as they absorb the full implications of the Administration's plan. Let me list the rea-
sons why.
First, the Administration would impose a new tax, rumored to be at least 1% of
payroll, on any corporate alliance. This tax would likely consume much of the "sav-
ings" a corporate alliance might generate. And, because the revenue is being count-
ed on to fund the remaining portions of the Administration plan, there is a strong
likelihood the "price of the privilege" will only increase over time.
Second, states are also granted unrestricted authority to tax corporate alliances
further to pay for providing coverage. Since states are financially strapped, vet 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 would eliminate the ability of a employer to join
with other employers to manage costs. The driving force behind the best efforts to
reform our health care delivery system, initiatives like the Business Health Care
Action Group in Minnesota and the Employers Purchasing Alliance in Florida,
would be outlawed.
Fourth, because any individual employer would be small in comparison to the re-
gional health alliance, costs could be "shifted" from the alliance to that employer,
particularly when health alliance premiums are "capped."
Fifth, employers would be forced to deal with various rules and regulations in
each state in which they operate. States could even compel employers to join manda-
tory single-payer systems. It will inevitably be easier and cheaper administratively
to just send off a payroll-based premium to the health alliance.
Finally, employers opting for corporate alliances would forego the government
guarantee of a fixed percentage of payroll for health care costs. Moreover, large em-
ployers with part-time workers, whom the plan requires to be covered by regional
alliances, will forfeit the right to cap those premium expenses at 7.9% of payroll if
they opt to cover their other workers in a corporate alliance. This means that for
low-income employees, employers could easily pay 90% of wages in the case of a
part- time worker receiving family coverage from a regional alliance.
Winners and losers
Fixing health care costs at 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 ad among industries.
Large manufacturers, rust-belt industries, companies with aging workforces, For-
tune 500 companies offering very generous benefit plans — would likely benefit inor-
dinately as the government assumes significant portions of their huge health care
liabilities.
Many manufacturers, with older, skilled or unionized employees, pay 15% or more
of payroll for health care benefits today. Under the Administration plan, that em-
ployer would see its costs reduced ad capped at 7.9% of payroll annually. Who would
pay the difference between the current cost and the new maximum payroll percent-
age? Other companies who have done a good job of health care cost containment and
taxpayers.
Other industries would lose. They include almost every low-wage sector of the
economy, like domestic workers, 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 — agri-
culture, forestry, fisheries, food service, hospitality, amusement parks, construction,
retail trade, business and personal services, have higher-than- average numbers of
uninsured workers. They would be hit hard.
Those who should benefit from health care reform may pay the ultimate price for
universal coverage — they could lose their job. While those who should benefit least —
large manufacturers and employees with overly generous benefit plans — will receive
sizable, guaranteed, government had-outs.
Part-time employees
Large employers of part-time workers are seriously disadvantaged by the Clinton
Plan. Part-timers are 19% of the U.S. workforce — 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.
330
Part-time jobs also offer opportunity and upward mobility. In the restaurant in-
dustry, 30% of restaurant management comes from the ranks of hourly employees,
70% of restaurant supervisors are women, and 20% are African American or His-
panic. One of General Mills' Vice Chairmen started as a hourly worker in one of
our restaurants, as did the president of our Olive Garden chain, a $1 billion busi-
ness.
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 do not qualify them for other work. The Food service sector alone employs
over 9 million people.
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 eco-
nomic value of a job to a enterprise versus the cost of providing that job. If the cost
exceeds the value, the job is no longer sustainable.
Restaurant sales per full-time equivalent are only $47,300 per year, while manu-
facturing sales per full-time employee are $ 157,000 per year. Profits per service sec-
tor job are $500 versus $3500 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, which is the other option for covering increased costs, are difficult
in today's economic climate and, under the Clinton Plan, virtually impossible be-
cause of the lower cost structure the plan gives smaller competitors.
Premium caps
We also have serious doubts that the premium 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 ana may
even be breached immediately by the states. If Germans pay a 13% payroll tax to
finance a health care system that consumes 8% of their GDP, it defies logic that
premium caps at 3.5%-7.9% of wages can pay for a U.S. system that consumes 14%
of GDP.
Our major recourse for dealing with the business economics that the plan dictates
is to eliminate or consolidate jobs. Here's an example from a business perspective.
The proposed plan requires businesses to pay for part-time workers on a pro-rated
basis. At ten hours per week, businesses would pay one-third of the 80% share. At
20 hours per week, businesses would pay two-thirds of the cost. At 30 hours or more
per week, the employer would pay the full 80% share of premium costs.
An employer with two employees working 20 hours per week, would pay two-
thirds of the 80% employer-mandate for each employee — or four-thirds. Common
sense tells you that the employer will try to eliminate both part-time jobs ad create
one 40 hour per week job and cut his health care costs by 25%.
Estimates of job loss in the service sector range from the high hundreds of thou-
sands to 3.1 million. Studies are studies, and people will disagree about their con-
clusions, so I suggest you look at it this way: There are 375,000 eating and dining
establishments in the U.S. and about another million retail establishments. If each
one of them eliminated just one job, that would mean that 1.4 million jobs would
be lost.
How to achieve full access and cost containment
Every American should have access to high-quality, affordable health care cov-
erage. To achieve that goal, we favor careful reform of our health care system.
Universal access and cost containment do not require public price setting or exces-
sive government intervention. With the right incentives to encourage competition on
quality and value, the marketplace is much more likely than government budgets,
caps or controls to deliver the highest quality health care at the lowest possible
price.
Bureaucratic mechanisms that set prices and allocate resources are simply not ef-
fective in regulating dynamic markets. If they were, Medicare — already a price-con-
trolled system — would have controlled health care costs in the Medicare system. It
has not.
The formation of cooperative, actively-managed, member-controlled, non- govern-
ment purchasing pools, or health alliances, should restore legitimate market forces
in health care. These purchasing cooperatives should ensure open enrollment, meas-
ure quality, streamline administration and maintain consumer choice.
The purchasing cooperatives would negotiate with health plans to offer clear, un-
derstandable, competitive choices for consumers, who would retain the power to
choose their own health plan.
331
The formerly uninsured and all government-subsidized purchasers should be re-
quired to join, with risk -adjustment mechanisms developed to balance any negative
selection. Individual purchasers and most small groups would probably join imme-
diately. They won't need to be coerced.
Each member of the HIPC would receive the same comprehensive benefit pack-
age, making it easier to compare price and value, with consumers, not employers,
choosing annually among competing plans.
Employer contributions toward that premium would be tax-exempt to the em-
ployee, and tax-deductible for the employer, up to the level of the lowest-cost plan
in the HIPC.
Premium payments should be 100% deductible for all individuals, including the
self-employed, up to that same amount.
Health benefits or premium payments above that amount would be neither tax-
exempt, nor tax-deductible.
Consumers who choose high-cost plans over cheaper ones should be willing to pay
the difference with their own money — without tax subsidies. Eliminating the tax
subsidy for overly generous health care benefits will help fund coverage for the un-
insured, while creating cost-consciousness to hold down the cost of health care.
Statutes should outlaw pre-existing condition exclusions and other discriminatory
rating practices. Portability and re new ability should be guaranteed. Each of us is
only a illness away from being sick instead of well. Health alliances should be com-
munity-rated, with some variations for age and utilization.
Subsidies should be directed to individuals, based on income, not to employers
based on size or wage-rates, with full subsidies for those below 100% of federal pov-
erty guidelines and sliding scale subsidies for those below 200%.
u additional subsidies are necessary on grounds of equity, access and social re-
sponsibility, tax revenues — not mandated employer financing — should be raised to
fund them.
Managed competition would restore a functioning health care marketplace, weed
out low-value health care spending, restore responsibility, and establish competition
based on the cost and value of care consumed.
Conclusion
A regulatory, government-dominated approach is neither the best nor the only ap-
proach. Managed competition, in our opinion, would effectively restore the market
forces necessary to control health care costs — and should form the basis for an
emerging, workable, bipartisan approach to health care reform.
The Chairman. Thank you. Of course, in theirs, the Germans
cover long-term comprehensive care. They even include spas. It is
a somewhat different kind of comparison, I think.
Mr. Peel, your company currently provides fairly comprehensive
insurance for your employees. Even for part-time workers — you
cover up to 17 hours a week; is that right?
Mr. Peel. Our part-time eligibility, Senator Kennedy, is 6
months of service and 25 hours per week.
The Chairman. And you pay a proportion of the premium?
Mr. Peel. We make the coverage available, and the employee
participates with the premiums, yes.
The Chairman. Good. That is a lot better than most companies.
We will have 5-minute rounds for questioning, and I will ask
staff to keep track of the time
Do your competitors in the restaurant business provide com-
parable coverage?
Mr. Peel. Most do not. The restaurant industry is a minimum
wage industry where in many cases, particularly smaller res-
taurant operators do not.
The Chairman. And how does that affect your competitiveness?
Do you think that that is fair?
Mr. Peel. Well, we tend to provide better coverage than a lot of
the smaller players, and that puts us at a bit of a competitive dis-
advantage, no question. But with the subsidies proposed, it would
332
reverse that relationship, where small restaurant operators would
have their exposure on health care capped at 3.5 percent, while
ours would be virtually uncapped until the 7.9 percent cap took ef-
fect late in this decade.
The Chairman. You are at 4.3 percent now.
Mr. Peel. Yes.
The Chairman. And the 3.5 percent is, of course, for the lowest-
paid employees.
I just want to come back to the other question. You provide cov-
erage, and I think it is certainly a commendable decision, because
you do not have to provide it, and you are in competition with peo-
ple who do not provide it, yet you do. So I think that that is a com-
mendable decision. But do you think that it is fair for others not
to provide it? Does that bother you either as a competitor or as a
human being? How do you react to that? [Laughter.] Those terms
are synonymous in some sense.
Mr. Peel. Well, many small restaurant operators are break-even
businesses, and to the extent they had to provide medical care,
many of them would cease to exist. So I think there is a number
of restaurant operators who would like to provide coverage, but do
not have the profit margins for employees to do that.
The Chairman. Of course, they were one of the top two in terms
of employment growth over the last 6 months, so someone is doing
okay in the restaurant business, because part-time restaurant
workers is where that 1.2 million job growth has been over that pe-
riod of time.
Mr. Peel. But a change in health care might change that job
growth.
The Chairman. That is what has always been said. We heard
that with regard to minimum wage, and we have heard that with
regard to a lot of other things. And the increase in the minimum
wage, for example, the last time, all the studies showed it did not
impact jobs, quite frankly, and we saved the Federal Government
a good deal of taxpayers' money because these people were no
longer eligible for the safety net programs. So that is something
that ought to be looked at and examined, and we certainly will do
that.
Mr. Sweeney, you represent workers in all the sectors of the
American economy. Your own union represents the service employ-
ees. I want to bring your attention to the issues of cost and cost-
shifting and retiree nealth costs. Is this an issue only for large, ma-
ture industrial companies, or is it widespread throughout the econ-
omy?
Mr. Sweeney. It is really widespread throughout the economy,
and we have heard many of the examples related to basic indus-
tries, but it is the same or similar experiences in the building and
construction trades as well as retail and service trades. They are
all sharing similar experiences in terms of costs being shifted and
in terms of the experiences with retirees' health care costs.
The Chairman. Mr. Sweeney and Mr. Pestillo, Mr. Peel sug-
gested that these problems can be effectively addressed without a
mandate for the employers to contribute to the cost of coverage and
without a budget to backstop the competitive forces. I want to give
333
each of you a chance to respond, and then I will ask Mr. Peel to
respond.
Mr. Pestillo. It is two issues, Senator. I think the budget is crit-
ical, so that we can have some targets at which to shoot and
against which to measure ourselves. The budgetary process is com-
mon to any business or Government, and whether violated or not,
at least it is a standard. So I think budgets are critical. At least
it will tell us where we are vis-a-vis competition among the other
nations of the world.
With respect to mandates, to the extent to which you continue
to free people either to elect or not elect coverage, you will have
probably even more hodge-podge of a system. That is, there will be
ineffective alliances as well as independence, and I do not think
you can achieve the kind of oversight or control of the problem that
will let us begin to reduce the costs of health care.
Mr. Sweeney. I do not think there is a business in the country
that operates without a budget, and the only way we are going to
control costs is with budget caps. Every other Nation's experience
has been in that direction.
There is no way that we can accomplish universal access with
any kind of voluntary programs. There have to be mandates if we
are sincere about providing health care to every American.
The Chairman. We will give you the last word, Mr. Peel.
Mr. Peel. There is no question that the health care system in
the United States needs major reform. We believe strongly that
that reform can be accomplished without mandates; that if health
care is available and affordable that many employers would love to
cover their people with health care, and that with reform, there
will be a lot of people brought into the health care system, and we
will move very far along the curve toward universal access, which
is an important social goal.
The Chairman. Thank you.
Senator Coats.
Senator Coats. Thank you, Mr. Chairman.
Mr. Pestillo, I wonder if I could ask you some questions so that
I can understand the basis for Ford's decision to support the ad-
ministration's plan.
I appreciate your competitiveness problem with foreign competi-
tors and the cost per employee. It has been well written and docu-
mented that automobile companies, under their union contracts,
basically offer some of the best and most comprehensive health in-
surance coverage of any business, and I know that that is expen-
sive.
Do you have the percent of payroll that Ford currently pays for
health insurance coverage?
Mr. Pestillo. Senator, yes, but the more compelling numbers
are really in the aggregate because the active versus retiree — we
have almost as many retirees as active, so the average hourly per-
son carries about a $10,000 a year obligation for covering retirees,
dependents, and the like.
Senator Coats. What is that percent of payroll?
Mr. Pestillo. It is almost 20 percent.
Senator Coats. Twenty percent?
334
Mr. Pestillo. Yes. We pay more for health care than we do for
steel. And the total cost with the FASB effect is nearly $2 billion
a year.
Senator Coats. So that going down to 7.9 percent is pretty at-
tractive. [Laughter.]
Mr. Pestillo. Senator, no, as a practical matter, it is not a free
ride down, because with the proposed new taxes as well as the ad-
ditional programs we do not provide, such as child wellness and of-
fice visits, those costs more than offset the costs of removing our
early retirees.
Senator Coats. OK What is the savings from going from 20 per-
cent to 7.9 percent?
Mr. Pestillo. The principal savings associated with what we
will do, given those offsets, will be in the broader oversight that is
cost control, in that shifting of the 28 percent which we do, and
other efficiencies there. But we will indeed incur costs on the way
down.
Senator Coats. So what is the aggregate number? What is the
net savings.
Mr. Pestillo. Hopefully, when we get down there, it will be to-
ward $1 billion, but it will be a long time coming and
Senator Coats. Toward $1 billion?
Mr. Pestillo. Yes. I doubt if we would ever reach that — if indeed
we will get to half of what we are now.
Senator Coats. Are you including the savings from the early re-
tirement pickup on the part of the Government?
Mr. Pestillo. Yes, which again are offset by the new coverage
and the tax. That is a wash, effectively.
Senator Coats. But you are looking at a potential saving of $1
billion?
Mr. Pestillo. Hopefully.
Senator Coats. That is a great incentive to endorse the plan. I
mean, I do not blame you. If I were a businessman, I would en-
dorse that plan, too, if I could save $1 billion.
Mr. Pestillo. But it is not a gift $1 billion, Senator. It is the
rough equivalent of what our competitors are doing today.
Senator Coats. Your foreign competitors.
Mr. Pestillo. Right. And it is not merely the Japanese in Japan.
The Japanese in the U.S. have an even greater advantage vis-a-vis
the American companies because they do not have retirees. They
have a younger work force, and they operate more nearly in rural
areas; where most of our plants are located in large urban centers,
where we have the burden of the uncovered people getting their
health care as needed in the emergency rooms.
Senator Coats. It is still a great incentive.
Mr. Pestillo. Absolutely.
Senator Coats. When you made your decision to go ahead and
endorse the proposal, I am sure it was based on the fact that there
was some certainty that with the plan that was proposed, you could
count on the savings.
I have this very nice brochure here that is put out by the Depart-
ment of Commerce that describes the administration's health secu-
rity plan, and then it has a question and answer section in the
back. The question is: Can you, the businessman, be confident that
335
the plan has been analyzed rigorously and that the financing is re-
liable? There have been a lot of press reports and so forth that the
administration absolutely believes it is reliable, although that has
really come under question in the last several weeks.
But quoting the answer to that, according to the administration,
is: Yes. The President has brought together the best minds in the
country to design this. The numbers and analyses that underline
the President'sproposed health plan represent months of vigorous
work, etc, etc. These cost and savings projections are solid, credible,
and conservative.
Yet I read in the Wall Street Journal this morning that, "The
Clinton administration has decided to take back half of the early
financial gains realized by companies that take advantage of a
Clinton proposal in which the Government would pay most of the
medical costs for early retirees."
They are now saying that half of the "windfall" gained by compa-
nies from the Government picking up 80 percent of the cost of early
retirees' health care is going to have to be paid back. Because their
cost estimates were not solid, credible, and conservative, they are
having all kinds of problems with those cost estimates.
It says also, "Most notably, the administration is sticking by ear-
lier estimates for Medicare and Medicaid savings." I think any of
those of us either involved in the system or who understand the
system really put a question mark on whether or not, politically,
we are going to achieve Medicare and Medicaid savings to the ex-
tent the administration has suggested.
Then it says, "Officials also said that they have decided that
large corporations will have to pay an annual surcharge of one per-
cent of payroll."
Now, I guess my question is are you aware of this shifting plan
relative to costs, and are the people at Ford starting to say, "Wait
a minute. We based that endorsement on supposedly solid, conserv-
ative estimates, and now the plan has not even been introduced
yet, and they are assessing us surcharges, taking back half of our
'windfall.'"
Are you sure you want to be as definitive as you are at this par-
ticular point?
The Chairman. Before you answer that, of course
Senator Coats. Mr. Chairman, I would like the witness to re-
spond.
The Chairman. Yes, but I would like the question to be accurate,
factually. The administration has denied the Wall Street Journal
article, and I think our witnesses are entitled to the facts on that.
Senator Coats. OK. Well, I said that this was from the Wall
Street Journal.
The Chairman. And the administration has disputed that. I do
not know if the witness has had the opportunity to see the admin-
istration's response to that story since he has been in this hearing
room all morning; he ought to know about it.
Senator Coats. Let me rephrase the question, then.
Does it give you any pause?
Mr. Pestillo. Senator, without accepting the term "windfall," by
the way, I have been around long enough to say two things about
my savings. Indeed, they are prospective, as I indicated; it will not
336
be all that money all at once. And second, they are indeed specu-
late as well. We are at risk on the costing, which in all good faith
the administration has indeed formulated. They are affirming
them. They are not rearranging them, I think. It is an issue.
And second, the last bill I remember coming through the admin-
istration unamended was the Highway Beautifi cation Act. So there
are a lot of issues that play before we get to enactment, and I am
mindful that many things could change.
If, for example, as I have indicated, we deal dramatically dif-
ferently with the early retiree issues, if we fail to have a broad
mandate — there are potentials here that this could indeed cost the
Ford Motor Company money. I think we feel it our obligation to
step up on what we consider a broad national issue and take a po-
sition. But this is not a blank check either for the Senate or for the
administration to say we will take whatever you come up with.
The proposal as we have seen it
Senator Coats. Saves you $1 billion.
Mr. Pestillg. Off in the distant future, Senator, off in the dis-
tant future; not tomorrow.
Senator Coats. Well, it is still $1 billion; $1 billion is $1 billion.
The Chairman. Senator Well stone.
Senator Coats. I do not blame you.
Mr. Pestillo. Not until you have it, Senator.
Senator Coats. But you know, somebody has got to pay for that
$1 billion, and I guess that is what we are looking at, and we can-
not seem to get an answer as to who is going to pay for it.
Mr. Pestillo. Right, but we argue that the savings that are
associated
Senator Coats. It sounds like General Mills is going to pay part
of it by moving their payroll tax from 4-something to 7.9 percent.
So it is a nice cost shift for you, but I do not know what good it
does for General Mills.
The Chairman. The Senator's time expired about 2 minutes ago.
[Laughter.]
Senator Coats. Mr. Chairman, if I could just do a housekeeping
matter.
The Chairman. You bet.
Senator Coats. Senator Durenberger regrets that, due to a death
in the family, he is in Minnesota for a funeral. He particularly
wanted me to extend his apologize to Mike Peel from General
Mills. And I have a statement here that he would like put in the
record, and he asks that his full statement be put in the record.
The Chairman. It will be included.
[The prepared statement of Senator Durenberger follows:]
Prepared Statement of Senator Durenberger
Mr. Chairman, I am sorry that I am unable to attend today's
hearing on "The Health Security Act: American Businesses and
Workers Respond." Unfortunately, due to a death in my family, I
have to be in Minnesota today to attend a funeral.
I particularly want to extend my apologies to Michael Peel, Sen-
ior Vice President of Personnel for General Mills in Minneapolis,
MN. General Mills has been one of the national leaders in holding
down health care costs and making quality health care available to
337
its employees. General Mills has a lot to add to the debate over
how we reform our nation's health care system, and I know that
Mr. Peel's testimony will be particularly illuminating to my col-
leagues.
Mr. Chairman, I want to commend you on the tremendous lead-
ership you've shown on health care, and for focusing on the issues
that will be addressed at today's hearing.
One of the important things I've witnessed, from my perspective
on both the Senate Finance and Labor Committees, is the abso-
lutely critical role that both employers and employees play in the
current health care system, and the critical role they must play as
we struggle to reform the system to deliver higher quality health
care at lower costs.
I applaud President Clinton for preserving an employer-based
system in his proposal for reform.
Many employers have been a creative force in containing health
care costs. Under the current system, employers voluntarily con-
tribute about $180 billion each year toward their employees' health
care.
We should point out that the vast majority of Americans are sat-
isfied with their current health care coverage primarily because
employers have done a good and responsible job of making health
care available. A recent survey by the Employee Benefit Research
Institute found that over three-fourths (77 percent) of Americans
rated the quality of their health care as either excellent or good,
and only four percent said the quality of their care was poor.
General Mills has an excellent track record of holding down costs
while making health coverage available to all of its 126,000 plus
employees — both full and part-time. As a result of innovative and
aggressive management of health care costs, General Mills is cur-
rently spending only 5.6 percent of payroll in the consumer foods
business and 4.3 percent of payroll in the restaurant business on
health coverage. The companys per capita health expense grew
only 1.6% from 1991 to 1992, and actually fell from 1992 to 1993.
General Mills has been successful in containing health care costs
largely through its heavy use of managed care networks and a
strong emphasis on wellness and preventive care. One of the major
reasons for General Mills' success in Minnesota, is its leadership in
establishing the Business Health Care Action Group — perhaps the
most developed model of managed competition in the country.
The success of General Mills and other companies doesn t mean
that the current system is free from problems. It isn't.
The system needs to be reformed so that health care is available
to all Americans.
There should be no bar to insurance based on pre-existing condi-
tions, and no one should have to face the fear that they will lose
their health insurance when they lose their job, change jobs, di-
vorce, or become sick.
We also need to do more to bring down the cost of health care
in order to ease the burden on both employers and employees, and
help speed the availability of universal coverage.
As we begin to address the current shortcomings in our nation's
health care system, both businesses and workers bring to the de-
bate a great deal of hope — and a great deal of apprehension. Both
338
have much to gain from health care reform. But both also could
stand to lose. As we work to reform health care, it is our duty to
make sure that the benefits and the burdens of the system are dis-
tributed fairly.
No single employer views health care reform— or President Clin-
ton's reform proposal — in exactly the same way. Each company's
views are shaped to a significant degree by the size of their firm,
the nature of their business, their location, the composition of their
workforce, and the financial health of their company.
Similarly, employees bring differing perspectives and opinions
based on now much they make, where they are employed, and by
whom.
As we shall see more clearly from today's testimony, where one
stands depends largely on where one sits.
As we work to reform the nation's health care system around our
current employer-based model, we should keep in mind the follow-
ing points:
• Employers should not be forced to give up control over
health benefits, without gaining control over costs.
• Companies and corporate alliances that are already aggres-
sively containing costs should be rewarded for the headway
they have made already in saving money and developing cost-
effective delivery systems.
• Arbitrary employer mandates only serve to reshuffle costs
without delivering true reform because they don't take into ac-
count the economic diversity among small and large employers.
• Workers should have the flexibility to choose doctors and
change jobs without losing their health coverage.
• We can't look solely to Dusiness for higher contributions" to
finance health reform. We need health care, but we need jobs
too. We should never accept a "reform" that sacrifices jobs for
health insurance.
• We can't force employers or employees to buy high cost
plans. Before we address the coverage problem, we must ad-
dress the cost problem.
• We can't have 50 different state health plans if we are going
to have true national reform. At the same time, government in
Washington doesn't have all the answers. We should be striv-
ing to set up national rules, that allow local markets to work.
Markets are wiser than government.
• Universal access does not require a highly regulatory, man-
date-oriented program. We must avoid mandates that elimi-
nate incentives for companies and individuals to control health
care costs.
• We should strive to build a partnership between business
and government, not an adversarial relationship. Instead of
mandating and controlling the health care market, government
should ensure that the market operates efficiently to deliver
value to all consumers.
The Chairman. Also, just in point of fact, it does not raise it, be-
cause it does not require them to go up to 7.9 percent. If they can
get the savings, they can keep the savings. It would be useful to
understand what the administration's bill is really all about when
we are characterizing it.
339
Senator Coats. It sure would.
Mr. Pestillo. Senator, could I answer that last point, if I may —
rather than be seen as attempting to shift my costs to General
Mills — our attention is to achieve the savings through a better dis-
tribution system. With 70 percent of our hospital beds utilized, we
have got overcapacity that can be better controlled with, we think,
a broader national plan.
And second, I think the way in which we deal with the 37 million
currently uncovered, and better distribute the costs of caring for
them, which we now share, is a better way to go about achieving
the savings.
The Chairman. Senator Wellstone.
Senator Wellstone. Thank you, Mr. Chairman. These are inter-
esting questions.
Let me just comment on what we have been talking about. I
think Senator Coats' questions are interesting and important. This
whole question of great incentive — I mean, part of what is going on
in the country today is that in addition to some of the people in
the past who have called for universal health care coverage, you
have a business community along with many caregivers who are
saying, "We really have to see the reform."
I think the twin evils, Mr. Chairman, are the skyrocketing costs
and the plummeting security. So I do not know exactly what the
Senator from Indiana means by "great incentive," but I say this as
a strong single-paver advocate — and that is not for today — but as
to what the President has proposed, I think it is a great incentive,
and that is all in the positive, that there are people in the business
community who see that we have to do something about these sky-
rocketing costs. And to the extent that this benefits the business
community, and you can invest back into your company and back
into what you produce in the automobile industry, and that creates
more jobs, we are going to be much better off.
So I frankly do not nave any problem with this working out well
for important parts of the business community because I think it
works out well for all of us. I just want to make that crystal clear,
that this is not a problem, to talk about the great incentive. This
is a plus. I would be more worried if you were talking about some
sort of disincentive.
I want to ask a couple of questions. First, Mr. Peel, with the con-
cept of companies self-insuring and the managed care plans, there
is the issue, I think, of the relationship between an alliance or alli-
ances that are set up at the State level to the networks that are
going to be competing against one another, including if you are a
company of 5,000 or over, nationally, you could self-insure.
My question is in terms of focusing on the market, do you see
any need for some sort of public accountability with the self-in-
sured plans? I will be specific. One of the things that people worry
about is what do you do if a company that is self-insured, trying
to keep costs down, should not want to hire a woman because her
child is a diabetic, or somebody is laid off work because of a health
care condition?
The one thing we are trying to get rid of is this experience rat-
ing. I am not talking specifically about your fine business, but is
there a way that we can get a handle on this, as you see it?
340
Mr. Peel. I think, Senator Wellstone, it is going to be academic
under the Clinton plan as proposed because I do not think large
employers will self-insure. The one to 2 percent surcharge, the fact
that States have unlimited taxation on self-insured plans, and the
fact that you forfeit that 7.9 percent cap if you remain self-insured,
I think the economics work against self-insurance.
So I think as a practical matter, what will happen with compa-
nies like ourselves, who have been able to effect economies in the
system by grouping with other employers, which is prohibited by
the Clinton plan, as a practical matter, you will opt for the public
system and cap your costs at 7.9 percent rather than experience
the cost-shifting that will occur when you are a relatively small
component in the broader system.
Senator Wellstone. Two minutes remaining? Did you take just
5 minutes, Senator Coats?
Senator Coats. Exactly. [Laughter.]
Senator Wellstone. You know, the chairman of this committee
is always biased toward the Republicans. I have noticed that.
[Laughter.]
Senator Coats. We have noticed that over the years. [Laughter.]
The Chairman. Now your time is up. How do you like that?
[Laughter.] The Senator may continue.
Senator Wellstone. In the remaining 3 minutes that I have, let
me ask you what your position is on the question of the universal
coverage. Do you see that as being kind of a priority goal both in
terms of making sure that people indeed are covered and also from
the point of view of an argument, which I forget who made, that
if you do not have that, you have the cost-shifting anyway? I mean,
do you think that within these alliances, within what happens in
the State, within what is set at the Federal level, that that should
be a priority goal now?
Mr. Peel. We believe strongly that universal access is a critical
component. What we are really concerned with is how do you fund
it; I mean, what is the most
Senator Wellstone. OK That is what I want to get to, is the
funding part.
And then the second part, for all of you, on the package of bene-
fits, the argument that is being made over and over again — and I
feel like there is almost consensus on this, too — is that to the ex-
tent that you have a comprehensive package of benefits, heavily
tilted toward primary care, toward preventive health care, toward
delivering health care out in the community, actually toward
health as opposed to health care — most people really do not want
health care; they do not want to have to go to the doctor or to the
hospital, but they want good health — it makes sense both from the
point of view of humane, dignified care and cost-effectiveness.
Do you all see it as a priority to have as comprehensive a pack-
age of benefits as possible, tilted in this direction, or not? If each
of you could answer that, and then I have concluded with my time.
Mr. Sweeney. As I said in my testimony, I think that the core
benefit package that the administration has been proposing is a
good basic level of benefits. Knowing where I am coming from, any
expansion of that benefit package, we would encourage, Dut I think
341
the basic level of benefits that the administration has proposed is
excellent.
Mr. Pestillo. Two parts, Senator. We clearly favor wellness pro-
gram. I think over time they do save money. We employ them, and
they are not shown as part of our health care costs. We do them
routinely.
And with respect to the comprehensiveness of the package, I
think you do have to have a comprehensive package. We might dis-
pute a provision or two within it, but we accept the concept.
Senator Wellstone. Mr. Peel.
Mr. Peel. We believe the plan, as we understand it, is a gener-
ous plan. And again the question becomes what are the costs over
the longer term, and how do you fund them.
Senator Wellstone. If I do not get a chance to ask you today,
because I may have to excuse myself, I would like to talk to you
about what you would see as the alternative way. If we agree on
those goals, and that is the commitment, and people are serious
about it — and I know all of you are in good faith — then I would be
interested in what you would see as the alternative way of financ-
ingit once we say it is what we really need to do as a Nation.
Thank you, Mr. Chairman.
The Chairman. Thank you very much.
Senator Gregg.
Senator Gregg. Thank you, Mr. Chairman.
I would like to try to return to some of these numbers, Mr.
Pestillo, so that I understand what the income shift here is.
How much does the early retiree package cost Ford Motor Com-
pany for people between the ages of 55 and 65? How much do you
pay in health care benefits for that group?
Mr. Pestillo. We do not currently disaggregate the data. I will
provide the number for you, but I will have to gather it.
Senator Gregg. So what you have is a gross number of $2 billion
that represents 20 percent of your payroll.
Mr. Pestillo. Right.
Senator Gregg. And you would go down to 7.9 percent, which is
in the $1.2 billion range.
Mr. Pestillo. Well, Senator, let me pause on that because I
might have misled you as to my savings. At 7.9 percent there is
that dramatic saving, but we will not get down that far. We would
anticipate, for example, paying the retirees 20 percent and the em-
ployees 20 percent. I do not expect our costs will ever get as low
as 7.9 percent. The 7.9 percent does not embrace paying additional
sums to the employees.
So that is why I said to the Senator our savings will not be that
great, and they will indeed be prospective.
Senator Gregg. But they will be approximately $1 billion, pro-
spectively.
Mr. Pestillo. No. That is at 7.9 percent, Senator.
Senator Gregg. At 7.9 percent, it would be $1.2 billion.
Mr. Pestillo. Actual, I think they will probably not be $500 mil-
lion. I thought the Senator's question was what would it be at 7.9
percent.
Senator Gregg. Well, at 7.9 percent, it would be $1.2 billion.
Well, it is going to be significant. If it is $500 million, $500 million
342
is real money, too. And I guess my question is where does that
money come from. You are saying it is going to come from effi-
ciencies in the program, and yet isn't this really an income trans-
fer?
Any company that has 50 or more people and is not unionized
and is between 50 and 500 employees and does not have an insur-
ance package which costs it 7.9 percent of payroll is going to have
to pick up insurance through the mandated, premium, and that
money, or tax — it is a payroll tax; it should be called a payroll tax
and is a payroll tax — that money is going to go to Ford, will give
you $500 million. I mean, that is the way it works under this sys-
tem.
Mr. Pestillo. Well, the issue is to what extent am I obliged to
deal with the 37 million uncovered or those with less than what
we will call comprehensive coverage, and the extent to which I deal
with my early retirees. To me, those are broader social concerns
than a mere windfall to the Ford Motor Company.
If I have 125,000 employees, and if we are to put them out in
society without the coverage they currently have — something I am
unwilling to do — we redistribute the costs that way. I shift my
costs that way, and that is something I do not find attractive for
us as a people.
Senator Gregg. Yes. I can understand that, but I guess what I
cannot understand is that a mere windfall to Ford Motor Company
is nothing something that I think the average person who has a
small machine tool company, or maybe a restaurant with more
than 50 employees, or maybe a couple gas stations, or runs an oil
delivery business — a mere windfall of $500 million to Ford Motor
Company so that those small, job-creating entities in this society
can transfer their profitability, to the extent they have it, to Ford
is not something that I think really excites a lot of small business
America. I guess my question to you is if we are talking fairness
and equity and social policy, which you seem to be identifying with,
is this appropriate social policy?
Mr. Pestillo. Most of the industrialized countries have broader
and more comprehensive health care than we. I guess if that is so-
cial policy, then, yes, I would indeed support that.
Senator Gregg. Well, I think that in getting to social policy, you
have to get to equity in treating small business people who are, it
appears, going to get hit with a bill and the windfall falling on the
larger corporations in this country.
I would ask Mr. Peel
Mr. Sweeney. Could I just respond, Mr. Chairman, to Senator
Gregg, if I may?
The Chairman. Yes.
Mr. Sweeney. This is not just a "small business versus big busi-
ness" argument. There are many large corporations, real big busi-
ness, that do not provide any health care whatsoever. Beverly
Nursing Homes, with close to 100,000 employees across this coun-
try: Manpower Temp, one of the largest employers in the country —
no health care.
Senator Gregg. Well, that is certainly part of the issue, and I
do not think anybody is arguing the need to have broader health
care availability and access. But the point that I am making, and
343
I think the point that Senator Coats is making, is that there is an
income transfer occurring to accomplish this which is unfair on its
face when you take companies that have 50 to 500 employees who
are not unionized, and you stick them with a bill, the majority of
which bill is going to land as a windfall to unionized companies
that are big and can probably take care of themselves. If you are
a small company, I think you find that a little tough to take in the
craw. I mean, you are orobably willing to pay something, and you
are probably willing to deal with your insurance issues, but you are
not willing to see an income transfer, which is what is happening
under this proposal. And that is what happens under the mandated
premium or the payroll tax approach to financing this, and that is
the argument we have, that the payroll tax approach to financing
this is the wrong way to finance it. We do not have an argument
with what you have raised, Mr. Sweeney, which is access. That is
a legitimate issue.
I guess my time is up. I did have a question for Mr. Peel, but
I will get it on the next round.
The Chairman. Please go ahead.
Senator Gregg. Thank you, Mr. chairman.
Mr. Peel, how would you presume to address this issue if you
had your druthers, since you do not seem to identify with some of
the core problems in the Clinton plan?
Mr. Peel. I think there are certain aspects of the system that are
working, particularly the incentive that employers currently have
and that employees currently have to contain costs. I think any so-
lution should not destroy those incentives.
I believe strongly that regional purchasing cooperatives and the
elimination of discrimination based on pre-existing conditions, and
things that need to be done to shape the system in a way that ev-
eryone has access to affordable health care are imperative.
But I think in the same way that we have been able to group
with other employers and effect not only economies for ourselves,
but the broader community, that over-regulating the system would
be a huge error.
Senator Gregg. Do you believe in community rating?
Mr. Peel. I do not believe in community rating. I think that any
solution will probably be such that employers, large and small, and
individuals will be able to get affordable health care, and commu-
nity rating often militates against that possibility.
Senator Gregg. Thank you.
Thank you, Mr. Chairman.
The Chairman. Just very briefly, because we need to move on to
the next panel, Mr. Pestillo, the way I look at it, you are being
asked to do your fair share, and that may be troublesome to other
people, but you are doing more than your fair share today. You are
covering hundreds of thousands of workers because you are paying
more out of Ford, and the workers are paying more in the form of
lost wages or other kinds of benefits, because others are not paying
their fair share. I mean, that is what is happening today, and all
I understand in this is tnat you are doing your fair share. It might
bother some that others who have not done their fair share are
now being asked to do it. That is evidently bothering some people,
but to me it seems like an issue of simple equity.
344
Let me ask you, Mr. Peel, they have done a remarkable job of
retaining costs at General Mills. What has been the record in the
last several years? Has it been equal to what you have outlined
here today — say for the last 5 years, how much have the premiums
gone upin your company?
Mr. Peel. As I testified, in the last 2 years, it has been relatively
flat, with a 1.8 percent increase in 1991-1992 and an actual de-
crease in 1992-1993. Before that, it was accelerating at a much
higher rate, and through the managed care networks we have
joined and through, frankly, the wellness and preventive care work
we have done over the past 20 years, it is starting to come down
very sharply. We are encouraged by what we see with coalitions of
employers particularly, bargaining for the best quality and best
value health care.
The Chairman. I am trying to get some understanding as to
what it was going up previously and what it has gone up in the
last couple years. In the last 5 years, what has been the increase
in your premium, generally?
Mr. Peel. Five years ago, it was going up in double digits, and
it has progressively come down over tnat 5-year time frame.
The Chairman. Good.
Senator Coats.
Senator Coats. Just a comment, Mr. Chairman, and then a cou-
ple brief questions.
Relative to the fair share question, that implies that General
Mills, which pays — did you say 4.7 percent of payroll
Mr. Peel. A little over 5 percent in consumer foods, and 4.6 in
restaurants.
Senator Coats [continuing.] — 5 percent of payroll — that implies
that you are not doing your fair share, and Ford is doing more than
their fair share; that Ford's plan is four times better than your
plan, and that you do not care about your employees because you
are only paying 5 percent of your payroll to cover your employees.
But it might also mean that you are doing a heck of a lot better
job at cost containment, that you have some innovative programs
that are providing incentives to your employees, whereas Ford does
not.
Doesn't Ford basically provide first-dollar coverage for all its em-
ployees?
Mr. Pestillo. But Senator, that is a most misleading number,
because one has to look at the total population covered. If one had
a large number
Senator Coats. So you have a lot of early retirees that you are
paving for.
Mr. Pestillo. We have 125,000 retirees of all ages. That is a sig-
nificant factor. Almost half my population is retired. We have not
had dramatic growth in our business.
Senator Coats. But do you provide first-dollar coverage, essen-
tially?
Mr. Pestillo. Yes, essentially.
Senator Coats. So there is not a whole lot of incentive to control
utilization cost if it is first-dollar coverage.
Mr. Pestillo. No, on the contrary. We work very aggressively at
controlling cost.
345
Senator Coats. OK. What does General Mills do to try to hold
down unnecessary utilization?
Mr. Peel. The vast majority of our employees contribute to their
health care coverage, and there are deductibles and other provi-
sions in the plan that disincent excessive utilization.
Senator Coats. So there are incentives for wellness and disincen-
tives for misuse. I do not see how the big three have that. I was
just at the GM plant last week in Fort Wayne, and they said the
only thing they require of their employees is a 35-cent payment for
each prescription. I think most of us can come up with 35 cents.
I mean, that takes the consumer totally out of the picture in terms
of asking the druggist how much does this cost, is there a generic,
is there a substitute, or "Gosh, Doctor, this costs a lot of money.
Is there anything else I can do here?"
j If all I have to come up with is 35 cents, and the company pays
first dollar on everything — isn't that part of your problem?
Mr. Pestillo. Well, not as substantially as you suggest, Senator.
I do not think economic considerations weigh heavily on one's mind
when making health care determinations. I think we look for the
best care we can get.
Senator Coats. Well, maybe you ought to look at what General
Mills is doing.
Mr. Pestillo. Indeed, we do.
Senator Coats. Why don't you implement what they are doing?
I mean, gosh, they have got— or is it all the retirees? If it is all the
retiree program, I understand that. You are in significant
downsizing now. In that regard, if the administration is going to
pick up 80 percent of your early retirement, if I were a 55-year-old
worker at Ford, I would be real nervous about my job security, be-
cause the natural tendency is to say, well, if we are going to lay
people off— and the big three have been doing that, and I under-
stand why they need to do that — I am going to lay off somebody
who is between 55 and 64, because the Government is going to pick
up 80 percent of their health care costs, and if it is 20 percent of
my payroll, I do not see what job security your 55-to-64-year-old
people have at all under this plan.
Mr. Pestillo. Senator, other parts of the law prevent that choice
on our part.
The Chairman. Mr. Peel, how many retirees do you pick up?
Mr. Peel. We have a much smaller retiree population than Ford
Motor Company does, to be sure.
Senator Coats. Oh, I understand that is a significant part of the
difference, but I do think the utilization of the incentives and dis-
incentives— we have proven that with first-dollar coverage, it is
just human nature that if someone else is paying for it, you use it.
Thank you, Mr. Chairman.
The Chairman. I would just mention that we have about 32 mil-
lion people eligible for retiree benefits; more and more companies
are cutting back or altogether terminating retiree coverage. Wheth-
er they have legal cause or not. But to do so depends on the nature
of the contract that is going right up through the roof at the
present time, with companies just axing out all of these individuals
in terms of bottom-line costs.
346
I think we are seeing more and more of that, leaving people hung
out to dry.
Senator Gregg. But Mr. Chairman, doesn't that raise the sec-
ondary issue which I think is critical, and I hope we can get to it
here, and maybe we could have somebody come in and testify on
it, and that is the hard numbers on just how much this early re-
tiree situation going to cost?
I notice that Mr. Magaziner has upped the number, but as you
say, it is an area where there is a lot of activity right now in the
area of people being cut off, which is not right, obviously; but also
this woodwork effect, if you want to use that term, which Senator
Coats has referred to, which probably would not affect the big
three, because they are union contracts, but certainly might affect
a lot of others.
So I think that getting a hard number on that issue is going to
be something we should concentrate on.
The Chairman. I could not agree with you more, and we will cer-
tainly address it.
I want to thank all of you very much. Your testimony has been
very helpful.
Our next panel illustrates the diversity of opinion on the part of
the small business community and poses many issues that Con-
gress needs to consider.
Robert Patricelli represents the U.S. Chamber of Commerce; he
is chairman of the health and employee benefits committee and is
CEO of Value Health Incorporated in Avon, CT.
Michael Roush represents the National Federation of Independ-
ent Business, where he is director of Federal and Government rela-
tions for the Senate.
William Lindsay represents National Small Business United. He
is president of the Lindsav-Sandbak Group in Englewood, CO.
And Helen Mills is a founder and a board member of Business
for Social Responsibility and is president of Soapbox Trading.
Senator Dodd had planned to be here this morning. The hearing
was originally scheduled for next week, but the date was changed,
so he was unable to adjust his schedule, but he wanted to extend
a warm welcome to Robert Patricelli.
We will also include a written statement from Senator Dodd in
the record as if read.
[The prepared statement of Senator Dodd follows:]
Prepared Statement of Senator Dodd
Mr. Chairman, thank you for holding today's hearing on the
views of American businesses and workers, two groups that are
critical to the well being of our economy and our society. I believe
that we have reached our current need to enact health care reform
legislation, in part, because businesses and workers bear so much
of the burden of today's health care crisis.
Problems for business
The cards are currently stacked against business that offer
health care coverage for tneir employees. Those that provide cov-
erage not only face increasing costs, they also indirectly pay for the
347
37 million uninsured and underinsured Americans in this country.
Cost shifting increases premiums by as much as 20 percent.
Rising health care costs have placed an enormous financial bur-
den on business. Average annual health care costs per employee for
businesses have risen from $1,465 in 1984 to nearly $4,000 per em-
ployee in 1992. In my own State of Connecticut, the health care
payments of businesses have increased 253 percent in the last ten
years.
An even more shocking figure is the $26 million per hour that
American businesses spend in total on health care — this averages
out to $225 billion per year. It is no wonder that eight out of ten
new companies created each year do not offer health benefits to
their employees.
Health care costs have cut seriously into business profits and
have put U.S. business at a competitive disadvantage. Health care
costs of businesses are almost equal to their after-tax profits. Back
in 1980, 41.2% of after-tax profits were allocated toward health
care coverage for employees. In 1991, this percentage had sky-
rocketed to 97.5% of after-tax profits! Health care costs have clear-
ly reached an unreasonable level.
The increasing cost of health care hurts U.S. competitiveness.
U.S. automakers spend more on health care than on steel. Even
more compelling, the price of a car made in the U.S. includes
$1,100 in health care costs. $1,100 per car for health care when the
Japanese pay only $550 per car for health care.
Small businesses
Small businesses are hit the hardest by the cost of health care.
Those companies with fewer than 25 employees pay premiums that
are one third higher on average than large businesses. And these
rates increase 50% faster than those of big companies.
Although 62 percent of small businesses provide their workers
with coverage, many cannot afford to operate under such a finan-
cial strain. This reality must change because other businesses that
provide coverage end up picking up the cost for those without cov-
erage. We must aim to make coverage affordable so that small and
big business alike can operate profitably and contribute to their
employees health care coverage.
I am delighted that Robert Patricelli of Avon, CT will testify this
morning on behalf of the U.S. Chamber of Commerce. He brings to
the committee the perspective of small businesses which have en-
countered first hand difficulty securing affordable coverage and
also have legitimate concerns about the impact of reform. I think
we all agree that health care reform should lessen the obstacles
faced by small businesses.
Problems for workers
Just as businesses are affected by the health care crisis, workers
face an incredible burden as well — the burden of high premiums,
job insecurity, "job-lock," and worse yet, the fear and anxiety of be-
coming uninsured.
Health care costs have become the number one cause of labor-
management disputes in the United States. Unions have sacrificed
348
wage increases for health benefits. Still, an incredible 85.5% of in-
dividuals with no insurance are workers and their family members.
Those who are lucky enough to have insurance have seen their
premiums rise faster than their wages during the last 15 years.
The average worker could be earning $1000 more a year if this
were not the case. If health care costs continue to rise at the cur-
rent rate, workers will lose an additional $650 per year out of their
potential wages.
On top of this reality, coverage for America's workforce is not se-
cure. Even those who are covered by their employers run the risk
of losing their job and thus losing their insurance. 37 million people
in the United States do not have health insurance, and 57 million
will be without insurance at some point during 1993. Also, insured
workers have no guaranty that they will not lose their coverage.
Employees are often "locked in" to their jobs regardless of their
job satisfaction or potential, because they rely on the coverage they
receive in their current job. One out of every three Americans who
earns between $30,000 and $50,000 report that they or a family
member remained in jobs they would rather leave because they
were afraid of losing their health insurance.
Even those who would be guaranteed another job with coverage
fear changing policies because they or a dependent have a pre-ex-
isting condition which would disqualify them for a new policy. Our
nation's workers have become imprisoned by their health care cov-
erage— this reality hurts our economy and our society.
The Clinton plan aspires to reform and improve the health care
system for businesses and workers by ensuring health security and
controlling costs. Our goal — as we debate the details — should be to
relieve business and workers of the burdens imposed under the
current system, achieving this goal will benefit both our economy
and our hard-working citizens.
I look forward to hearing from business and workers this morn-
ing and working with them in the coming months to achieve this
end.
The Chairman. Mr. Patricelli, welcome and please proceed.
STATEMENTS OF ROBERT E. PATRICELLI, CHAIRMAN, HEALTH
AND EMPLOYEE BENEFITS COMMITTEE, U.S. CHAMBER OF
COMMERCE, WASHINGTON, DC; MICHAEL O. ROUSH, DIREC
TOR, FEDERAL AND GOVERNMENT RELATIONS-SENATE, NA
TIONAL FEDERATION OF INDEPENDENT BUSINESS, WASH
INGTON, DC; WILLIAM LINDSAY, PRESDDENT, LINDSAY
SANDBAK GROUP, INC., ENGLEWOOD, CO, ON BEHALF OF NA
TIONAL SMALL BUSINESS UNITED; AND HELEN H. MHXS,
PRESDDENT, SOAPBOX TRADING; FOUNDER AND BOARD
MEMBER, BUSINESS FOR SOCIAL RESPONSB3HJTY, AND
MANAGING PRINCBPAL, THE MILLS GROUP, FAIRFAX, VA
Mr. Patricelli. Thank you, Mr. Chairman and members of the
committee.
I am Bob Patricelli, chairman and CEO of Value Health, a spe-
cialty managed care company based in Avon, CT. It is a particular
personal pleasure for me to be here as a witness before this com-
mittee where I was a staff member 25 years ago.
349
The Chairman. I remember you. Others may not, but I have
warm memories.
Mr. Patricelli. Thank you, Senator. You and your brother had
just come on the committee at the time I was a staff member.
I am here today in my role as a board member of the U.S. Cham-
ber of Commerce and cnairman of its health and employee benefits
committee.
The Chamber supports national health care reform aimed at
achieving universal nealth coverage and cost containment, and we
want to see a bill passed in 1994.
We give President Clinton great credit for creating a political cli-
mate in which virtually all factions favor major health care reform.
Moreover, we believe that many of the basic tenets of the Clinton
plan, where they conform to the managed competition model, are
correct.
Specifically and first, universal coverage which is paid for
through the shared responsibility of employers, employees, and
Government. Second, subsidies to help small businesses and low
wage workers afford health insurance. Third, portability of cov-
erage and elimination of medical underwriting. Fourth, pooled pur-
chasing arrangements. Fifth, streamlining of the processing of
health insurance claims. And finally, 100 percent tax deductibility
of basic health insurance costs for the self-employed.
We believe health care costs can only be contained if everyone is
in the system and playing by the same rules. Therefore, we accept
the proposition that all employers should provide and help pay for
insurance on a phased in basis over time. That way, companies
now providing insurance would be freed from the cost-shifting
caused by those who do not provide benefits.
But at the same time, individuals should be required to have in-
surance coverage, and they should help pay for it and should face
sufficient cost-sharing requirements to make their use of medical
services economically prudent.
We recognize that some individuals and employers are unable to
afford coverage, and as we told the White House task force from
the very beginning, the Chamber opposes any health insurance
mandate or requirement for an overly rich, standard benefit pack-
age or one that does not include adequate subsidies for low wage
workers and their employers.
While there are elements that we like in the Clinton plan, we
also have very serious concerns in several areas, and let me list
five such areas.
First, the regional health alliances are so large they absorb vir-
tually the entire nonelderly population. They should instead be fo-
cused where they are needed, on small firms with less than 100
employees. And moreover, to guard against adverse selection, we
strongly advise against allowing larger companies to opt into the
alliance and cost-shift their costs to the small business community.
Larger companies over 100 employees in size should be permitted
to choose commercial insurance, to form purchasing groups among
themselves, or to self-insure. These large companies, as we have
just heard, have driven much of the innovation in cost contain-
ment, managed care and wellness programs, and their energy and
creativity should be preserved in the nealth care system, let the
350
*
Clinton plan is full of disincentives for this kind of constructive em-
ployer role.
Second, the Clinton plan creates a vast new web of Government
regulation and bureaucracy to contain health costs and oversee the
operational details of the health care system. That regulation will
assuredly prevent the efficient operation of a health care market,
which ironically is one of the professed goals of the plan. In par-
ticular, we object to the use of Government-specified premium caps.
The adoption of premium caps would freeze in place historical inef-
ficiencies such as regional variations in practice patterns and
prices and will create an annual political Donnvbrook as regions
and their congressmen fight over the size of their slice of the pie.
Third, there is excessive State flexibility to establish varying
health care systems up to and including single-payer plans. In to-
day's global economy, that kind of fragmentation is ill-advised.
Fourth, we object to a premium split that requires employers to
pay 80 percent of the cost of an overly rich plan with low cost-shar-
ing provisions. This insulates employees from most of the economic
consequences of their own purchasing decisions. We would support
a maximum premium contribution requirement of around 50 per-
cent for employers, leaving it to their discretion to pay more. Con-
sumers must be aware of how much health care really costs.
Fifth and last, we fear that the plan creates excessive new costs,
but involves savings and revenue assumptions that could prove to
be unrealistic. We honestly find it hard to believe that we can cover
37 million uninsured people, guarantee a generous benefit package
to all, create new programs for prescription drug coverage for Mem-
care, long-term care coverage and early retiree subsidies, and fi-
nance almost all of that out of savings. We would be happy to see
such major savings, but in the meantime we are wary about count-
ing our chickens Defore they hatch, and we worry about what the
financing fallback might prove to be.
So in conclusion, the President's plan is one of several proposals
which deserve very serious consideration. The Chamber is also en-
couraged by the introduction of the Cooper-Grandy Managed Com-
petition Act of 1993 in the House and by the proposal offered by
Senator Chafee and colleagues in the Senate. Both are valuable ad-
ditions to the debate and indeed are closer to our thinking on struc-
ture than the Clinton plan. But we think a compromise is possible,
and we look forward to working with members of this committee
in forging a workable bill.
Thank you, Mr. Chairman.
The Chairman. Thank you very much.
[The prepared statement of Mr. Patricelli follows:]
Prepared Statement of Robert E. Patricelli
Good morning, Mr. Chairman and members of the Committee. I am Robert E.
Patricelli, Chairman and CEO of Value Health, Inc., a specialty managed care com-
pany in Avon, CT. I serve on the Board of Directors of the U.S. Chamber of Com-
merce, and am chairman of its Health and Employee Benefits Committee. I appre-
ciate this opportunity to present the Chamber's views on an issue that has become
almost as central to us institutionally as it is to each American personally.
As you may know, the Chamber federation includes some 3,000 local and state
chambers of commerce, 1,200 trade and professional associations, 68 American
Chambers of Commerce abroad, and 215,000 businesses, 96 percent of which employ
fewer than 100 people. Roughly two-thirds of these small companies, and virtually
351
all of our larger members, currently provide some form of health insurance for their
workers. In the past six years, the overall cost of health insurance for these employ-
ers has doubled. Some have been forced to cut back or drop insurance coverage, and
many others fear they will have to do the same if relief from escalating costs is not
forthcoming. These rapidly growing health care costs have hit small businesses par-
ticularly hard. Unlike larger companies, whose size enables them to contract with
providers and insurers for discounted services, small companies pay full freight. In
addition, they are burdened by unfair medical underwriting practices employed by
the insurance industry, and by costs shifted by hospitals and doctors to make up
for uninsuredpatients unable to pay their bills.
President Clinton deserves credit for moving the health care debate to center
stage. As is probably inevitable in something so complex, his proposal has strengths
and weaknesses. The Chamber has serious concerns about some aspects of the Clin-
ton plan, such as:
• Regional health alliances that include most of the population instead of focus-
ing on small business.
• A huge new bureaucracy to regulate, monitor, and ultimately tax employers.
• State flexibility to establish independent systems.
• Government-specified premium caps.
• A requirement that employers pay 80 percent of the premium for an overly
rich benefit package.
• Optimistic savings assumptions coupled with excessive new federal spending.
We will elaborate on these concerns later in this testimony.
The Chamber supports the need for universal coverage and recognizes that it can
only become a reality and be paid for through the shared responsibility of employ-
ers, employees, and government. This principle is reflected in the Clinton plan. In
addition, some specifics of the Clinton plan consistent with Chamber policy rec-
ommendations include:
• Universal coverage.
• Subsidies to help small businesses and low-wage workers afford health insur-
ance.
• Portability of coverage and elimination of medical underwriting.
• Streamlining the processing of health insurance claims.
• 100 percent deductibility of basic health insurance costs for the self-employed.
Chamber members recognize that employers have a critical role to play in reform-
ing our health care system. We are in favor of a system that achieves affordable
health insurance coverage by building on the strong current base of employer-pro-
vided health benefits. Our members maintain that health insurance should remain
Eart of the compensation package. This may seem surprising in light of the small-
usiness alarms sounded so frequently in the news. What we have found, though,
is that small business views on health care policy do not necessarily follow tradi-
tional ideological lines. A study published in the September/October issue of the
Journal of American Health Policy (copy attached) mentioned a variety of views
within the small business community and noted that "small businessmen and
women are more open to health care reform than conventional wisdom holds." Most
small businesses that do not provide health insurance to employees cite high cost
as the barrier. If convinced that health insurance could be made more affordable
through pooled purchasing, four-fifths of small businesses surveyed would favor
such a system.
Health care costs can only be contained if everyone is in the system and playing
by the same rules. Therefore, we accept the proposition that all employers should
provide and help pay for insurance on a phased-in basis over time. That way, com-
panies now providing insurance would be freed from the cost-shifting caused by
those that do not provide benefits. At the same time, individuals should: be required
to have insurance coverage and to help pay for it, and should face sufficient cost
sharing requirements to make their use of medical services economically prudent.
However, we recognize that some individuals and employers are unable to afford
coverage. As we told the White House task force from the very beginning, the Cham-
ber opposes any health insurance requirement that does not include adequate sub-
sidies for low-wage workers and their employers.
We think this is an area where the Administration listened to us. The Clinton
proposal incorporates both a small-business subsidy in the form of an expenditure
cap on percentage of payroll and an individual subsidy for those whose incomes are
below 150 percent of the poverty level. We think these provisions would help make
insurance affordable.
To elaborate on the concerns sketched earlier:
352
Regional health alliances that are so large they absorb virtually the entire popu-
lation. The Chamber has long supported pooled purchasing arrangements (whether
called alliances, or HIPCa, or whatever) for small businesses. Statistics indicate that
it is among employees of small businesses that the greatest coverage gaps exist, and
it is these companies that need to band together to achieve economies of scale. In
this way, small businesses and individuals will finally have the leverage to compete
against larger companies in the market for health insurance. Many of our smaller
members eagerly welcome the idea of one-stop shopping — that they can call and get
from a single source all necessary information about health care plans, prices, and
quality without having to spend hours on the phone calling around to agents. These
members remind us that they are in the business of selling hardware or lumber or
manufacturing coolers and have neither the time nor the expertise necessary to sift
through health insurance policy language to find the appropriate features and the
best deal. To concentrate assistance where it is needed, the Chamber would set the
ceiling for required participation in a regional alliance at 100 employees. To guard
against adverse selection, we would advise against allowing large companies to opt
into the alliance.
Larger companies should be permitted to choose commercial insurance, form pur-
chasing groups among themselves, or self-insure. Large self-insured companies have
driven much of the innovation in cost containment, managed care, and wellness pro-
grams. We believe that their energy and creativity should be preserved in our
health care system. If such companies no longer are able to reap the cost savings
from improving their group experience, there is little incentive for them to continue
to develop and maintain such programs. Large companies community rate their em-
ployees, and do not discriminate on the basis of health status. Reform should focus
on the parts of the system that don't work — not the parts that do work.
Over-reliance on government regulation and bureaucracy to contain health care
costs and oversee the operational details of the health care system. The Clinton plan
would vest substantial regulatory power in a new National Health Board, granting
it authority for tasks ranging from modifying the guaranteed benefit package to set-
ting the national health care budget to disciplining alliances and states that fail to
meet budget targets. Such a weight of federal oversight is bound to hamper efficient
operation of the market, and is counter to a professed intent to streamline the
health care bureaucracy that already exists.
State flexibility to establish separate health care systems. In today's competitive
global economy, such fragmentation is ill-advised. Multi-state companies potentially
will be forced to squander resources on complying with 50 different sets of rules at
a time when American companies need to focus on improving productivity to meet
foreign competition. To help states go their own ways, the Clinton proposal makes
a series of changes to the Employee Retirement Income Security Act of 1974
(ERISA) that would vitiate the preemption provisions at its very center. We recog-
nize that achieving universal coverage will require some modification of ERISA —
for example, through application of a minimum standard benefit package. But any
ERISA changes should continue to permit self-insured plans to rely on a single fed-
eral regulatory standard; indeed, that standard was what led employers to support
ERISA at the time of its enactment.
Government-specified premium caps, rather than market forces, setting the rate
at which health insurance premiums could increase. A properly functioning market
is a more efficient resource allocator than a government agency. The adoption of
premium caps would freeze in place historical inefficiencies, such as regional vari-
ation in practice patterns and pricing. For example, Mrs. Clinton has noted that av-
erage per-patient Medicare costs in the Boston area are twice as high as those in
New Haven, without any discernable difference in overall patient well-being.
A premium split that places a disproportionate burden on employers. Requiring
employers to pay 80 percent of the health insurance premium insulates employees
from the consequences of their own purchasing decisions. We would support a mini-
mum premium contribution of 60 percent for employers, leaving it to their discretion
to pay more. Consumers need to be aware of how much health care really costs. We
also question basing the required payment on the weighted average premium in a
regional alliance. Given that all plans would have to offer the guaranteed benefit
package, consumers could be encouraged to choose less expensive plans if the em-
ployer contribution were pegged to the average of the lower third or half of plans
in the alliance.
Savings and revenue assumptions that could prove to be unrealistic. Expanding
coverage to bring in an estimated 37 million uninsured at the same time that we
guarantee a generous benefit package to all, provide the elderly with prescription
drug coverage, create a new long-term care benefit, and subsidize coverage to early
retirees cannot help but be an expensive proposition. It may be that efficiencies can
353
be realized, fraud and abuse curtailed, and wages and profits increased (reflecting
health cost savings), thus generating higher tax revenues. The Chamber would be
happy to see such results. In the meantime, however, we are wary of counting our
chickens before they hatch, and worry about what the financing fall-back might
prove to be.
One of the reasons for the President's commitment to health care reform is his
desire to bring the federal deficit under control. Since this cannot occur without con-
straining costs in federal entitlement programs, the Chamber believes that Medicare
and Medicaid must be included in reform measures. As people reach Medicare eligi-
bility, we foresee their choosing to remain in their existing care networks rather
than disrupting their physician relationships to move to a wholly separate, artifi-
cially preserved government program. We support the Clinton Administration's deci-
sion that Medicaid beneficiaries should be brought into the reform mainstream im-
mediately, obtaining coverage through a purchasing cooperative like any other indi-
viduals, but with government assistance to pay the premiums. We also agree that
the Medicaid population should be pooled separately for premium purposes, so that
small businesses participating in the cooperative are not put in the position of subsi-
dizing the relatively sicker Medicaid population.
Medical malpractice reform is a necessary component of health care reform. The
President's proposal includes provisions meant to address this concern, but it does
not go far enough to produce real changes in the way physicians practice medicine.
So long as doctors still feel the need to practice defensive medicine, serious savings
in this area will not be realized.
The Chamber recognizes, as do President and Mrs. Clinton, that this proposal is
by no means immutable. It represents the beginning of serious debate and of a pub-
lic education program. The Chamber is heartened by an emergence of some common
themes among a broad spectrum of reform proponents. These themes include port-
ability of coverage, an end to pre-existing condition exclusions, administrative
streamlining, and 100 percent deductibility of health insurance costs for the self-em-
ployed.
The President's health care plan is one of several proposals which deserve serious
consideration. The Chamber is encouraged by the introduction of the Managed Com-
petition Act of 1993 in the House and by the proposal offered by Senator Chafee
and colleagues; both are valuable additions to the debate. The Chamber will con-
tinue to play a constructive role in the formation of national health care policy by
advocating the concerns of the business community as we work to forge a national
consensus and enact legislation. We look forward to working with the members of
this Committee in that process.
354
Small Businesses5 Changing Views
on Health Reform
Our nntinnnl sample of 750 randomly chosen firms with fewer than 50 employees reveals surprising
findings about the traditional views of small business on health care reform. A substantial segment
of the small business community is sympathetic to health care reform, Including such controversial
measures as mandating that all employers contribute to the coverage of their workers, limits on
health care spending, and altering the tax treatment of employer contributions for health insurance
. Without premium savings, fewer than half of small businesses support the concept of health
Insurance purchasing cooperatives. Ilith premium savings, a majority support It
ppw . r— - « « in ■ — ■ ■ ' ■» — f ■■'»- »i |i pi i| !)■■■■■ I | M ■ IP i I ijpipp»^»«— ■ ■ i | p| i. in in i ■
By Gail A. Jensen, Robert J. Morloclc, and Jon R. Gabe!
!n the Clinton Administration's
quest for comprehensive health care
reform, few interests will exert
greater inllucnce through the polit-
ical process than small business.
Because Americans tend to roman-
ticize small businesses, the small
business lobby — along with the
elderly — is one of the most influ-
ential interest groups in Washing-
ton. Small business Is also seen as
the engine of economic growth.
Between l°R2 and 1990. two-thirds
of the new jobs created were in the
small business sector (Kent. 1993).
"the dilemma faring policymak-
ers is that the same small business-
es that fuel economic growth are
also w here an estimated 50 percent
of the nation's 36 million unin-
sured Americans work (Congres-
sional Budget Office, 1991). The
GnrV A Jensen, I'hD, ft associate
profesinr. and Robert J hf or lock is
research assistant. Institute oj Gcr-
onto\og\ and Department of Fco-
nnmics, Wayne State University. De-
troit Jon R Cabcl Is director of
empln\ce benefits research at KVMG
Teat Marwick. Inc., Washington DC
Health Insurance Association of
America found. In their national
survey of employers, that fewer
than 30 percent of firms with 10 or
fewer workers offer health insur-
ance to their employees (Lippert
and Wicks, 1991). To achieve uni-
versal coverage, preliminary ver-
sions of the Administration's re-
form package call for mandatory
contributions by all employers to-
ward the cost of health coverage
for their employees. Small employ-
ers would send their contributions
to a health Insurance purchasing
cooperative (HITC, also termed
health alliance) where their employ-
ees would select from a menu of
accountable health plans.
The small business lobby, as rep-
resented by the National Federa-
tion of Independent Businesses
(rlfin), Is adamantly opposed to
the Administration's reform pack-
age. Tor example, NFIB refused a
White House invitation to appear
on a small business panel for a
March 29, 1993, health care task
force meeting. Yet the view s of the
small business community are di-
verse and occasionally deviate from
those of the small business politi-
cal lobby.
Using a national survey of 750
firms with fewer than 50 workers
conducted in the spring of 1993,
we examined the views of the small
business community on current pro-
posals for health care reform. Small
business owners were asked about
the need for reform of the health
care system, their views about the
fairest way to treat employer con-
tributions to health benefits under
the tax code, and how they felt
about the basic principle of requir-
ing all employers to contribute to
the cost of health Insurance. Our
findings suggest a variety of views
within the small business commu-
nity and that small businessmen
and women are more open to health
care reform than conventional wis-
dom holds.
Methods
In April and May 1993 the sur-
vey research firm National Re-
search Inc. of Washington DC con-
ducted telephone Interviews with
750 small businesses nationwide.
355
The l.impte wjj drawn from the
Dun A Pradstreet Corp (DAP) list
of private businesses nationwide
that employ lewer than 50 work-
ers Survey participants were drawn
randomly from D&H's list after
stratifying hy si7e and location.
The sample excluded businesses
with no employers and govern-
ment employers. In advance of
the interview, business owners
were sent a letter inviting thrm to
participate in the study and indi-
cating when they would be con-
tacted for their interview At the
lime of the survey, the interview-
er asked to speak with the person
most knowledgeable nhout the
fringe benefits the business offered.
In most cases that person was the
owner, president, or office manag-
er of the firm. In all, 1,721 firms
were contacted, and 750 agreed to
participate In the survey this re-
sponse rate of 44 percent Is typical
of small business surveys.
Reflecting the probability of se-
lection, each employer was as-
signed a wrighi. This allowed us
to calculate national statistics rep-
resenting all private businesses
employing fewer than 50 work-
ers. The margin of error on esti-
mates from the survey is approxi-
mately plus or minus four per-
centage points.
Siie Determines Coverage
We found that 50 percent of all
businesses with fewer than 50
workers do not ofrer health bene-
fits as a fringe benefit. The size of
a business, as measured by the num-
ber of people It employs. Is the
single most important piedictor of
whether it provides health insur-
ance The larger the firm, the more
likely it is to provide coverage.
Our survey found that the per-
centage of fitms offering health In-
surance Is 44 percent among firms
employing fewer than 10 workers,
70 percent among firms employing
10 to 2A workers, and 85 percent
among firms employing 25 to 49
Figure 1
Hie rercenloge of Small Firms That Offer Health Insurance
by Size of Firm, 1993
If FmployMl
tOJHr^Jo,
1W1 bn»l«rm
Sourer Wayne Stale Vnlverslty/KPMG Peal Mont-id. Suney of 7 SO Small
Firms. Spring 1993.
workers (see Figure I). Among all
firms with fewer than 50 workers,
the low overall percentage offering
coverage — 51 percent — reflects
the fact that the vast majority of
firms in this size range employ few-
er than 10 workers.
Reasons Against Coverage
Our survey asked firms that do
not provide health insurance to in-
dicate why. The most frequent re-
sponse was that current premiums
were simply too high. Eighty per-
cent of small businesses indicated
that high premiums were a "very
important" factor in the decision
not to provide benefits, and anoth-
er 1 0 percent Indicated that they were
a "somewhat important" reason (see
Figure 2). Other often cited reasons
for not offering insurance were that
the firm's profits (79 percent) and/or
premiums for Insurance (75 per-
cent) were too uncertain from year
to year to make a commitment to
provide health benefits.
Our survey reveals that most
small businesses maintain a high
degree of continuity in their insur-
ance offerings. We found that many
firms (56 percent) that chose not to
offer insurance feared that if they
did provide il, they might have to
take it away at some future date. It
was unusual to find firms that did
not provide insurance at the time
of our survey had ever provided it.
Only 1 7 percent Indicated that they
had. Likewise, nearly all firms (89
percent) offering Insurance at the
time of our survey had offered It
for at least the past three years.
These findings of a high degree of
stability in the insurance offerings
of small businesses confirm the
findings of earlier surveys on this
issue (Lichtenstein and Witte,
1991). Many small businesses, and
356
particularly those with fewer than
10 employees, report that qualify-
ing for a policy at group rales lj
often difficult. Thirty-nine percent
of the firms not offering insurance
reported that their inahility to
qualify for coverage at employer
rates was a very important reason
for not offering coverage. Yet
when asked why they were un-
able to qualify, only about half
could give a specific reason The
three explanations, identified with
roughly equal frequency, were:
the firm was too newly established;
the type of business or industry the
firm made it ineligible for a policy;
or one or more employees could not
qualify for Insurance because of
health conditions.
Desire (or Reform
Participants In the survey were
asked their opinions ahout some
potential reforms of the health
care system. Rcpardlcss of wheth-
er they provide health coverage,
most small businesses (75 per-
cent) say they favor a major re-
structuring of the health care sys-
tem. It percent are opposed to ma-
jor changes, and the rest gave no
opinion Support for major changes
In the system, however, is not syn-
onymous with support for any one
particular reform sttategy.
To assess the direction in which
small business owners felt public
policy should go, we asked respon-
dents to comment on the appropri-
ateness of several possible reforms
to the health care system Specifi-
cally, we asked them how they felt
about: (I) requiring all employers
to contribute toward the cost of
health insurance for their employ-
ees; (2) imposing overall limits or
budgets for health care spending;
(3) changing the tax treatment of
Figure 2
Why Small Firms Say Tfiey Don'J Offer Health Insurance
riKrfwm Im Mai, F^T^f"^
in
Primlum Inn nut loo owirloln™
Dot mtiti It ofti sit w«l«c :f
foot mlgril rtli Bvnry In if* fvhflf ^
fnftt nljh» woo>
Ceimel ouatiry lor fioup rolrl
311!
19%
Weikin nvtrWfcr ^ovw
Wortw tt*mt» loo nlgS
SIS
\i<n
E3
Source llomt Jrele Uiilveriliy/KPMG Peal Marwlci. Survey of 750 Small
Fir ml. Spring 1993
employer contributions for health in-
surance; and ('1) adopting a "man-
aged competition" model for secur-
ing workers' coverage rather than •
direct employer provision model.
To elicit their views on the first
Issue — the desirability of mandat-
ing that employers contribute to
the cost of health Insurance — the
Interviewer said, "Some employ-
ers ate concerned about proposed
legislation that would mandate all
employers to provide or contribute
to the costs of health benefits for
their employees. Others contend
that a mandate Is the only fair way
to see that everyone has health in-
surance, and that when Employer
A doesn't provide coverage, other
employers Indirectly pay for the
coverage of A'* workers. How do
you feel about requiring all em-
ployers to contribute for the cover-
age of their employees?"
We wanted the respondent's
opinion after he or she had heard at
least part of the rationale for such a
requirement Small business own-
ers were then asked to indicate
whether they strongly support man-
dated contributions, somewhat sup-
port them, are neutral, somewhat
oppose, or strongly oppose them.
Our survey found that close to
half (42 percent) of all small busi-
nesses support the principle that em-
ployers should be required to con-
tribute to the cost of health insurance
for their employees. Even among
firms not currently offering Insur-
ance, close to one-third (29 percent)
say they support such a requirement.
Among firms now providing cover-
age, 51 percent favor mandated con-
tributions (see Figure 3).
This level of support for a man-
date Is much higher than earlier
surveys of small businesses have
found. For example, a 1989 survey
of member firms of the NFtB found
357
Figure 3
Small Firms Offering Health. Coverage Have DiffrrenI
Attitudes About Mandated Coverage Than Firms Declining
Coverage
Firms not offering
Shong/BTIJ' rrF^^n
HX
A ks^►xl,'u,T,
Firms offering coverage
it*
Sourer H'aynt Siote Unlvtriity/KPMG Tta\ Aforn/cJ. Survey of 7S0 Small
Flrmi, Spring 1993
thai only 25 percent agreed lh.it
"employers have a responsibility
to provide employee health insur-
ance," and only 24 percent sup-
ported the statement that "employ-
ers should he required to provide a
basic level of employee health insur-
ance" (Hall and Kuder. 1990). Re-
spondents to the NriH survey were
overwhelmingly small firms, and, at
least in terms of their size and indus-
try composition, were similar to the
fiuns covered by our survey.
Il is possible that the increased
support for a mandate may stem
from our questionnaire"* format.
Unlike previous opinion surveys of
smalt business, our survey attempt-
ed to give the respondent informa-
tion on the case for various reforms.
After hearing the argument for the
proposition in question, business
owners may have been more likely
to support it as reasonable. It is
also conceivable that the particular
argument for a mandate that we
chose to present — that firms not
offering coverage end up as free-
riders lo the health care system —
evoked either a sense of guilt or
disturbance among some respon-
dents This might explain why so
many (29 percent) of the firms that
currently do not ofTer coverage es-
sentially favor what amounts to a
new requirement and cost for them.
On the Issue of imposing over-
all budget limits for health care
spending, respondents were sim-
ply asked to indicate whether they
strongly support such measures,
somewhat support them, are neu-
tral, somewhat oppose, or strong-
ly oppose them. Many small busi-
ness owners (66 percent) indicate
that they would like to see over-
alt limits or budgets for health
care spending imposed as part of
a health care reform strategy.
Firms that want ■ major restruc-
turing of the health care system
are most likely to support this
particular reform.
To assess business owners'
opinions about changing the cur-
rent tax treatment of health insur-
ance, we took a different ap-
proach. We asked small business
owners which of three approach-
es they thought w ould be the "fair-
est" way to treat employer contri-
butions for health coverage: (I)
"treat all employer contributions
for health Insurance as tax-free,
as they are today"; (2) "tax em-
ployer contributions for health
Insurance the same as w'age in-
come"; or (3) "treat employer con-
tributions as tax-free up to the
lowest cost plan in an area." Be-
fore giving them these choices,
however, the interviewer said,
"Currently, employers' contribu-
tions for health insurance are not
treated as taxable Income of em-
ployees. Some economists con-
tend that this encourages Ameri-
cans lo over-insure and choose
Cadillac henllh plans. Others say
that taxing workers for employ-
ers' contributions for health in-
surance would place a greater bur-
den on the middle class. Which of
the following is the fairest way to
treat employers' contributions for
health coverage?"
As with our previous question
about required contributions, we
wanted to obtain business owners'
opinions about changing the tax
code after they had heard at least
part of the case for reform.
Only a slim majority (60 per-
cent) of smalt businesses believe
that maintaining the status quo Is
the fairest approach to taxation
(see Figure 4). Fifty-two percent
of firms that do not now offer
coverage believe that the current
tax-free status of ill employer
358
contributions to health benefits
should be preserved; among firms
Ihat offer Insurance ■ slightly
higher percentage, 65 percent, be-
lieve so Just over a quarter of
businesses (26 percent overall)
believe a tax cap on employer con-
tributions Is fnirest. A small mi-
nority (9 percent), concentrated
largely among firms that do not
now offer insurance, believe that
employer contributions for health
insurance should be treated the
same as wage income.
Managed Competition Views
On the matter of managed com-
petition as a model for health care
reform, we asked small business
owners to indicate which of two
approaches they would prefer If
they were required to conttihute to
the cost of workers' health insur-
ance. The choices described were
providing group health insurance
directly themselves, or contribut-
ing to the cost of securing workers'
Insurance through a IIIPC.
The Hire system that small
businesses were asked to consider
was described as entailing the cre-
ation of new statewide purchasing
cooperatives specifically for firms
in their size class (fewer than 50
workers). Employers would be re-
quired to pay a contribution on be-
half of each of their workers, which
would be used toward the lowest-
cost certified plan In their area. That
contribution would then buy an
employees' health insurance
through the local IIIPC. which would
offer a wide choice of health plans to
employees and would relie\e small
businesses of having to administer
benefits themselves Survey respon-
dents were asked if they would pre-
fer to pay the contribution to a HITC
or to provide group insurance them-
Figure 4
Almost Half of AJI Small Firms Are Willing To Change the
Tax Treatment of Employer Contributions to Health
Insurance
In ■rfHjf m tor*feA*u fti v^*i
I
m
PjtV
u . ■■'. .■
J
Note: Tsrccnligrt do not lum to 100 due to ronndin|.
Sourer II a>n« Stole Unlvtrilly/KPMG Peal Marwick Survey of ISO Small
Flrmt. Spring 1993
selves. The firms were also asked
what price incentives would cause
them to prefer the IIITC model to
providing the insurance themselves.
Small business owners' attitudes
toward managed competition de-
pend critically on the perceived sav-
ings associated with that approach.
If a required HITC contribution will
cost firms the same amount as If
they purchased health insurance Tor
their employees directly, then most
small businesses (61 percent) are
unwilling to endorse a Hire system
(see Figure 5). In this case, 43 per-
cent prefer providing health benefits
themselves, and I? percent say they
"don't know" which approach they
prefer. Firms not now offering In-
stance are much more supportive
of IlirCs than firms currently pro-
viding benefits, yet Fewer than half
of them endorse the concept (46
percent Favor IlITCs compared to
32 percent among firms offering
coverage).
If IlirCs can save small busi-
nesses money, however, then sup-
port for them Is actually very
strong. Four-fifths (79 percent) say
that they would Favor a HIPC-type
system iFit can save them 15 per-
cent over providing Insurance di-
rectly. Thirteen percent say that
Ihey would prefer to provide health
Insurance themselves, and the rest
(8 percent) say they "don't know."
If IlirCs can save businesses 50
percent over the cost of direct pro-
vision, then nearly all firms (90
percent) endorse them. Interesting-
ly, most of the firms that changed
their opinion of tltrCs when the
relative price was lowered were
359
Figure 5
Under What Circumstances Will Small Firms Support
HiPC-Style "Managed Competition" Over Direct
Provision
l»
I'
*
m
*m
m
Note: rrtccnt.i(rcs may not sum to 100 <lue In rounding
Sourer. n<i)nt Stair Vnl\ersiiy/KrMG Peal Marwlek Survey of 7}0
Small Firms. Spring 1993.
Figure 6
Political Subgroups Among Small Business
53%
Sourer Wayne Stale Universily/KPMG Peal Harwlek Survey of 750 Small
Firms. Spring 1993.
firms (hut currently provide bene-
fits. The fact thnt they reversed their
pieferences so readily reflects the
obvious importance they place on
saving money on health insurance.
Lowering their costs is their pri-
mary goal, and if HIPCs can take
them there, they will support them.
For our initial HIPC question
(about preferences if the employ-
er's costs under both approaches
were the same) the high percent-
age of small businesses that say
they "don't know" which they pre-
fer (19 percent) suggests that
many of them still don't under-
stand how a managed competi-
tion system would work, and they
may not understand the full im-
plications of it for their business.
Even without such an understand-
ing, however, we found that many
of them converted to supporting
a HIPC system when they per-
ceived savings under that ap-
proach.
These findings convey two mes-
sages. First, policymakers will need
to carefully explain alternative re-
form proposals If they wish to elic-
it the true preferences of small busi-
nesses. Second, the overriding con-
cern of small businesses is to save
money on the cost of insurance.
Political Subgroups
the above discussion suggests
that there is considerable diversi-
ty among small businesses in their
opinions of various reforms. Al-
though characterizing firm views
on a reform-by-reform basis is
useful for summary purposes, ex-
amining the data in that way does
not tell us whether there are cer-
tain sets of opinions that tend to
go together. For example, do
firms that express opposition to
one measure also tend to reject
360
other reforms, or I* there arty con-
gruence In responses? Alterna-
tively, to what extent rlo supporters
of change in one nrea overlap the
supporters of change In oilier areas?
We examined our data to deter-
mine whether there was a natural
segregation oT small businesses ac-
cording to their opinions on the Tour
policy issues discussed in the prior
section. Within the small business
population, we were able to identi-
fy three distinct subgroups of firms:
(1) those that support several of
the reforms we had them consider,
(2) those who oppose almost all of
them, and (3) those who are some-
where between these two carrp«.
The first group, who can be
described succinctly as "reform-
ers," consists of firms that say
they want a major restructuring
ofthe health care system and who
then back up that position by sup-
porting change in at least two spe-
cific areas. Just over half (53 per-
cent) of all small businesses are
reformers by these criteria (see
Figure 6). They uniformly sup-
port global limits on health care
spending (91 percent), and most
(62 percent) also believe that em-
ployers should be required to con-
tribute lo the cost of health insur-
ance They are split, however. In
their views on changing the tax
code and on the desirability of
HtPCs. Fifty-five and 58 percent
of reformers, respectively, favor these
Mr pc«»iMe refc-rm? As a group,
reformers encompass all sizes and
types of firms. Indeed, their compo-
sition closely mirrors the general
population of smalt businesses.
The second group are best de-
scribed as "defenders of the sta-
tus quo." They are small busi-
nesses that say they oppose any
restructuring of the system and
who then go on to reject (perhaps
not surprisingly) all, or all but
one, of the specific reforms we
discussed. They comprise nearly
one-fifth (17 percent) of all small
businesses. If defenders are will-
ing to support anything. It is al-
most always changing the current
tax treatment of employer contri-
butions for health Insurance.
Twenty-two percent of defenders
do not consider the current tax
treatment to be the fairest ap-
proach to taxation, but many of
them are still undecided as to the
best alternative. Firms with more
than 10 workers, and those offer-
Figure 7
Support for HlPC-Style "Managed Competition" Varies Sharply by Polifical Subgroup
Question
Reformer
Group
Defender
Group
Betwixted
Group
Suppose the required MITT contribution for employee health Insurance were lo cost you the <imr as If you purchased
health Insurance for your employees directly. Which would you prefer: to pay a contribution lo a HIPC or provide the
group Insurance directly yourself!
Prefer lo pay the required HITC contribution
Prefer lo provide group Insurance though the firm
Don't know
58
27
15
8
20
62
61
30
19
What If the requited HIPC contribution were lo cost your firm 15% less?
Prefer to pay the required HIPC contribution
Prefer to provide group Insurance Ihough the firm
Don't know
What If the Hire contribution wete to cost your firm 50% less?
87
47
79
7
34
12
4
19
9
Prefer to pay the requlrrd Hire contribution
Prefer lo provide group Insurance Ihough the firm
Don't know
96
3
1
69
22
9
90
5
S
Source. Wayne Slate VnlversirylKTMG Peat Maroict Surrey of 750 Small Firms, Spring 1993.
361
Ing health Insurance, are most
likely to defend the status quo.
Not surprisingly, defenders ire
more than twice as likely as re-
formers to reject HITCs as a
means of providing coverage (62
percent compared to 27 percent
favor direct provision) (see Fig-
ure 7). Their attitude toward
MITCs Is consistent with their re-
jection of the other reforms that
were presented to them.
The third group, which ac-
counts for 30 percent of small
businesses, are firms that do not
fit either of these profiles. We
call them the "betwixted" group.
They are typically firms that say
they want major restructuring of
the health care system, but yet
they reject the specific reforms
we offered them. Obviously, these
firms are frustrated with the cur-
rent system. Their failure to em-
brace the measures we described,
however, could be interpreted a
number of ways. They may favor
some particular reform not dis-
cussed during the interview, or
they may simply not know what
they want. For example, we ne-
glected to ask about support for a
single payer all-government sys-
tem, yet reportedly many small
businesses favor this approach to
providing universal access (Ed-
wards et a!., 1992) Our omission
of this alternative Is a limitation
of our survey. Also, since the re-
forms that we did discuss with
them could entail eventual costs
to either firms or Individuals
(some nonpecuniary), respondents
who perceived these costs might
have rejected the measures on that
basis. While conceivable, we
think this possibility Is less like-
ly than the first two mentioned.
Nonetheless, we can only specu-
late on (he reasons for this rejec-
tion of specific reforms by firms
that say they want change.
The opinions of small business on
national health care reform have
changed profoundly over the past few
years. It Is no longer true that small
businesses are unified in opposition
to an all-employer mandate. Today,
42 percent of small businesses agree
that employers should be required to
contribute to the cost of health insur-
ance for their employees. Yet as re-
cently as 198°, only 24 percent of
small business owners lent their sup-
port to a statement that employers
should be required to provide basic
health Insurance for their workers
(Hall and Kuder, 1990).
The common view that small
businesses are unwilling to reduce
the current tax subsidy for em-
ployer contributions to health In-
surance Is inaccurate as well,
based on this survey. Today.only
a slim majority believe that main-
taining the status quo Is the fair-
est approach to the taxation of
health benefits Forty percent of
small business owners either fa-
vor a reduction in the current tax
subsidy for employer contribu-
tions or are undecided on this Is-
sue. Among firms that reject the
status quo. most believe that a
limit should be placed on the
amount of employer contributions
counted as nontaxable Income to
employees. They favor a tax cap
set at the level of the least costly
plan in a firm's local area.
A Heterogeneous Group
This survey also tells uj that
while their opinions are chang-
ing, small businesses today are
quite heterogeneous In their atti-
tudes toward health care reform.
While there are many firms that
endorsed several specific policy
reforms touched on In the survey,
there are others that repeatedly
rejected the possible reforms de-
scribed to them, and still other
firms that said they wanted major
reform but then were unwilling
to support specific strategies In
1993, the first group is by far the
largest, comprising 53 percent of
all small businesses. Each of the
reforms discussed In our survey
was endorsed by a majority of
these "reformers." In order of
preference, reformers favor over-
all budget limits for health care
spending, a mandate that employ-
ers contribute toward the cost of
health Insurance, a HITC system
for small business health Insur-
ance, and changes In the current
tax treatment of employer contri-
butions for health insurance.
The cost of health Insurance Is
an overarching concern of small
businesses. Our survey found that
cost was the most frequent rea-
son given for not offering cover-
age, and it was also pivotal in
Influencing small business own-
ers' support for managed compe-
tition. If insurance purchasing
cooperatives can deliver savings
on the order of 15 percent, then
small firms overwhelmingly fa-
vor securing workers' coverage
through such purchasing arrange-
ments rather than directly provid-
ing insurance themselves. Absent
such savings, however, only a
minority of small businesses en-
dorse the managed competition
model Our survey also suggests
that many small firms still don't
understand how managed compe-
tition would work, so policymak-
ers need to educate this group if
they want to elicit their true pref-
erences on this Issue.
Small businesses may now be
a more potent force for national
362
health cste reform than Ihey were
Jus! f few years ago. Not only do
firms say they want major restruc-
turing of the health care system,
but most are now willing to en-
dorse specific changes in poli-
cy. This Is new. Although still a
collective minority, many small
businesses are even willing to
support reforms which entail ob-
vious costs to themselves or to
their employees.
Small business should not be
viewed as a roadblock to reform,
but rather as a group that needs to
be educated. Our survey shows that
when presented with both sides of
the case for reform, many businesses
are willing to sacrifice for the greater
goal of achieving positive change In
the system, ft
Financial support from the
Robert Hood Johnson Foundation
and the Henry J. Kaiser Family
Foundation Is gratefully acknowl-
edged. H> thank Kevin 1 laugh and
Jeffrey Dwyer for providing use-
ful comments on a preliminary
draft of this paper.
References
Kent C. "Will an Employer Man-
dale Sink Small Business7" Medi-
cine and Health 47 (15) April 12.
I99J: 4.
Congressional Dudget Office, Se-
lected Options fnr Fxpanding llralth
Insurance Coverage. Washington
DC: CBO. July 1991: 28.
Lippert C and EK Wicks. Critical
Distinctions. How Firms That Offer
Health Benefits Differ From Those
That Do Hot. Washington DC:
Health Insurance Association of
America. 1991: 4.
Llchtensteln I and H Witle. Gov-
ernment and the Special Circum-
stances of Small Employers In Res-
cuing American Health Care: Mar-
ket Rx s. Washington DC: The NFIB
Foundation. 1991: 43.
Hall C and J Kuder. Small Business
and Health Care: Results of a Sur.
vey Washington DC: The NFIB
Foundation, 1990: 17 and 37.
Edwards J, R Dlendon. R Leitman,
E Morrison. I Morrison, and It Tay-
lor. "Small Business and the Na-
tional Health Care Reform Debate."
Health Affairs II (I). 1992: 169.
363
The Chairman. Mr. Roush.
Mr. Roush. Mr. Chairman, members of the committee, the Na-
tional Federation of Independent Business is a small business ad-
vocacy organization that represents some 610,000 small
businesspeople across the country. Our average member has about
seven employees, and our members set our position. On behalf of
those members, I am extremely pleased to be here this morning be-
cause this committee is addressing the number one problem of
small businesses in this country, and that is the cost of health in-
surance for their employees.
For small businesses, at least for our members, the status quo
is not acceptable, and they want the system to be changed.
In order to judge the impact of any reform package and to under-
stand why our members support the kinds of reforms that they do,
it is important to have at least a little bit of an idea of the composi-
tion of the business community and some demographic characteris-
tics of business owners in general.
So very briefly, there are about 5 million employers in this coun-
try. Of that number, only 15,000 employ more than 500 people;
that is .3 percent. On the other end of the scale, 60 percent of the
employers in this country employ one to four people. In fact, nine
out of ten employers in this country employ less than 20 people.
As far as the small business owners themselves, they have obvi-
ously all kinds of characteristics, but some generalities do hold.
Most got into business with their own personal or family savings.
One-half of all the new businesses that are started in this country
are started with less than $20,000. One in five businesses that are
started in this country is started with less than $5,000. Ten per-
cent of all business owners in this country earn $10,000 or less.
When you are starting a business, for the first few years of starting
a business, that number is one-quarter of all the new businesses
earn $10,000 or less for the first year or two.
These kinds of businesses are surviving on cash flow as opposed
to profitability in many cases, just getting from pavroll to payroll.
But nevertheless, 800,000 to 900,000 of those kinds of businesses
start each year, and in doing so, they create about one-third of all
of the net new jobs in any given period that are created in this
economy.
Unfortunately, one-half of those 800,000 to 900,000 new start-up
businesses, or the owners of those businesses, will be out of busi-
ness in 5 years. The survival rate is not terrific. And if one of those
business owners is providing health insurance to his employees, he
is struggling to pay for it, and he wants the system to change. And
if he is not providing health insurance to his employees, as about
one-half of them do not, he is also struggling, and he really wants
the system to change because he wants health insurance.
In general what our members are telling us is that they want the
costs to come down; they want a major reform that brings the cost
of health insurance down. Particularly what they are saying is that
they want insurance reforms that many people have spoken of,
guaranteed renewability, portability, elimination of pre-existing
conditions, modified community rating. They also tell us that they
would like to see legislation that would encourage the creation of
364
purchasing coops or purchasing groups so they can exercise the
same kind of negotiating power that larger corporations now enjoy.
They would like to see self-employed individuals be able to de-
duct 100 percent of the cost of their health insurance, as corpora-
tions can currently do. They would like to see the creation of an
affordable, basic, essential care health insurance package and have
it required to be offered to them.
They would like to see the malpractice law reformed. They would
like to see State-mandated coverage laws and anti-managed care
laws preempted. They would like to, like everybody, ensure that
administrative and paperwork savings are ensured and brought
into the system. And they would like to have requirements in the
law that consumer information be much more readily available and
in language that they can understand.
So the NFIB, despite what Senator Metzenbaum might have
thought, is looking forward to working with you and other mem-
bers of the Senate and the Congress to bring about major health
care reform in this Congress and thereby relieve small businesses
of their number one problem.
Thank you, Mr. Chairman.
The Chairman. Thank you very much.
[The prepared statement of Mr. Roush follows:]
Prepared Statement of Michael O. Roush
Thank you for this opportunity to testify before the Senate Labor and Human Re-
sources on the important subject of health care reform. We appreciate the oppor-
tunity to share the views of the National Federation of Independent Business. NFIB
has accumulated much information over the course of a decade of research and com-
munications on the health insurance needs of the small business community and
what they would like to see in a reform package. NFIB is the nation's largest small
business advocacy organization, representing more than 600,000 small and inde-
pendent busihess owners nationwide. NFIB's positions on legislative issues are es-
tablished by its members.
BACKGROUND
Health insurance was first cited as the number one problem for small business
owners in a 1986 NFIB Foundation survey, Problems and Irriorities. Since that
time, the cost of health insurance has been rated the number one small business
problem. In recent years, it has become twice as critical as the number two problem,
federal taxes on business income.'' For this reason, reform of the nation's health
care system has become NFIB's top issue priority.
NFIB Foundation surveys found that small business owners view health insur-
ance as the top fringe benefit they make available to their employees, both out of
a sense of familial obligation and competitive necessity. According to NFIB studies,
firms that provide insurance tend to be the more stable, mature, more profitable
firms, and have more full time employees than their counterparts that do not offer
insurance. NFIB's members tend to be more stable and mature than the general
small business community. A larger percentage of them (nearly two-thirds) provide
health insurance as a fringe benefit than does the general small business commu-
nity. Of the firms that do not offer health insurance, most say they would do so if
they could afford it.
SMALL BUSINESS AND HEALTH INSURANCE COVERAGE
The question of how many employers are currently providing health insurance
should be important to all those who are committed to reforming the system because
the President's proposal will require an employers who do not currently provide in-
surance to spend at least 3.5% of payroll to pay for coverage. And many other em-
ployers who have not been able to cover all of their employees or who have not pro-
vided coverage that is as rich as that envisioned in the President's plan will be pay-
ing more than they have in the past.
365
Because the small business community is extremely concerned about the potential
burden this proposal may place on the economy, we believe that understanding how
many employers are and are not providing health benefits for their employees is a
vital component in the health care debate. While the White House has indicated
that the Vast majority of employers currently provide health insurance for their
employees", all the data we have seen paint a very different picture.
Based on data from the Health Insurance Association of America (HIAA), the Cen-
sus Bureau, the Congressional Budget Office, the U.S. Small Business Association
and others, we find that between 40 and 45 percent of employers provide health in-
surance. This percentage is driven by the huge number of employers with fewer
than five employees (about 3,000,000 firms), of which only 26% provide coverage.
Percent of firms that do and do not offer health insurance (HIAA, 1989)
Do
fine tin Offer not
offer
Fewer than 5 employees 26 74
5-9 employees 54 46
10-24 employees 72 28
25-49 employees 90 10
50-99 employees 97 3
100 or more employees 99 1
Total 421 58
1 A 1992 HIM study adjusted this figure to 40%.
Even the U.S. Small Business Administration's estimate on this matter states
that 53.7% of employers provide health insurance for their employees. NFIB be-
lieves this figure is inflated because of the method used to extrapolate the data to
the population as a whole. But even if you accept the SBA figure at face value, it
still contradicts the White House claim.
The smaller the firm the less likely it is to provide health insurance. Not only
do these firms pay higher administrative costs, but health insurance premiums rep-
resent a larger percent of their payroll because they tend to employ more marginal,
lower wage workers. The lower the pay of the employee, the heavier the burden of
health insurance premiums.
In general, we have found that cost is the primary determinant of small business
owners' purchase of health insurance coverage. Health insurance is often the largest
non-wage payroll item in a small rum, more than the cost of workers' compensation
and liability insurance combined. Recent polls by Foster and Higgins showed a 79%
increase in the cost of employee coverage over a four year period to $3,968. For
many small firms, this figure can be considerably higher. Small businesses find the
health insurance market extremely volatile and unpredictable, experiencing sudden
cancellations and 20-300% annual premium increases. They pay 30-40% more in ad-
ministrative costs than their larger counterparts, and struggle to find and retain
their coverage. In order to keep their coverage, many have been forced to increase
employee cost-sharing.
Employers of all sizes have been trying to find ways to control and slow rapid and
unpredictable premium increases. Larger firms have been able to contain costs by
self-insuring and moving into managed care arrangements. Smaller firms, however,
have limited access to managed care options and are usually unable to self-insure.
As a result, they are faced with expensive state mandates, state premium taxes,
medical underwriting and higher administrative expenses.
EMPLOYER MANDATES AND JOB LOSS
The ever increasing burden of federal mandates on employers continues to raise
the cost of starting or expanding a business and hiring employees. According to nu-
merous studies, the result of these higher costs will be jobs lost or not created. A
July 1993 survey of 2400 small businesses in seven cities, conducted by University
of Michigan professor Catherine McLaughlin, indicated that one third would de-
crease their numbers of full time employees if they faced a health insurance man-
date.
A 1000 member survey of the American Economics Association in June 1993 indi-
cated that 80% of the economists interviewed projected a decrease in employment
among all employees as the result of requiring employers to provide health benefits
to low wage employees.
366
Another study, conducted by the Employment Policies Institute in September
1993, concluded that requiring employers to pay for worker's health insurance ex-
penses would increase labor costs, leading to the loss of 3.1 million jobs. These job
losses would be concentrated in just a few industries. 75% or more would be in res-
taurants (828,000 lost jobs), other retail trade (726,000 lost jobs) and agriculture
( 194,000 lost jobs). Other industries that will see disproportionate job loss are con-
struction, repair services, personal services and private household services.
A CONSAD Research Corporation study conducted in May 1993 found that three
leading health care reform plans requiring employer mandates could impact 7.5 mil-
lion to 18 million jobs in terms of reduced wages, reduction of other benefits and
potential cuts in hours worked. Job loss estimates ranged from 400,000 to over 1
million.
Even Administration officials acknowledge the potential loss of 200,009 to 700,000
low income jobs if some type of subsidy does not accompany mandated employer pro-
vided benefits, as was reported in The New York Times on August 30, 1993.
The White House attempts to address the job loss problem by including subsidies.
However, the subsidies are temporary — the mandates are permanent. IF the White
House's predicted savings do not materialize, the subsidies may be doomed. They
have already reportedly been reduced by $16 Billion since the Administration's plan
was first revealed.
Small businesses do not want subsidies, they want affordable health insurance
coverage. This was proved by a recent Gallup poll of small business owners that
showed nearly half (46%) of business owners who opposed the mandate in the Presi-
dent's plan said the idea of a subsidy would strengthen their opposition to an em-
ployer requirement.
ADMINISTRATION HEALTH CARE REFORM PLAN
While we wait for the details of the President's health care reform plan to be sub-
mitted to the Congress, we can mention briefly some of NFIB's preliminary concerns
about the package as we know it.
We believe the following are positive aspects of the plan:
Self employed individuals will be allowed to take a permanent 100% deduction for
health insurance premiums, rather than the current 25% temporary deduction.
Insurance reforms are proposed in the President's package that would make in-
surance easier, and less expensive, to buy. These include guaranteed coverage for
all regardless of health status, elimination of the pre-existing condition limitation,
adjusted community rating and guaranteed portability of coverage.
Purchasing groups are created to enable small businesses and individuals to band
together to purchase insurance more affordably. Members of the purchasing groups
will receive detailed comparative information on health plans to help them make
more effective choices for their money.
Paperwork and administrative simplification, including standard forms for claims,
reimbursement, enrollment and plan visits, and electronic networks for data trans-
mission and record keeping, will keep down costs and ease compliance.
Antitrust restrictions are loosened to make it easier for hospitals to jointly pur-
chase medical equipment and allow doctors to share information and form networks
of providers.
Medical liability reform, while it needs to be strengthened, will create an alter-
native dispute resolution mechanism for each health plan, limit attorneys' fees and
include a collateral source rule (award reduced by amount recovered from other
source).
Following is a list of parts of the plan we find troubling:
Employers are required to pay at least 80% of premiums for all employees and
dependents, including part time and seasonal employees. Small businesses survive
on cash, not profitability. While profitability is critical to long term survival, a prof-
itable small firm can go out of business if it does not have enough cash to make
payroll and pay bills. A mandate will critically impact the cash flow of small busi-
ness, particularly start-ups or those firms that have not reached a mature enough
level to have casn reserves.
The "subsidies" included for small firms are temporary, the mandates are perma-
nent. The White House has stated that any changes in the savings expected from
reform could doom the subsidies altogether or erode them over time.
Payment calculations are complicated and cumbersome. Employers must calculate
payments based on four categories of "family status" (single individual, couple with-
out children, single parent family, two parent family) and specific wage categories.
If there is more than one worker in the family, employers must determine the per
367
employee cost by the following formula: 80% of family premium divided by the aver-
age number of workers per family for that region.
Recordkeeping and paperwork requirements involved in this proposal are far
reaching. Employers must track the changing "family status" of each employee, fur-
nish employees' names and other relevant information to the regional alu'ance, no-
tify the alliance of new enrollees and forward new registration material within 30
days. At year end employer must reconcile total premium payments and report to
the alliance. Complete records must be kept for alliance audits. Do the requirements
of the Paperwork Reduction Act apply?
A standard benefit plan that is consistent with a Fortune 500 plan" is not what
most small firms offer, and may be too highly priced for many small employers.
While we are heartened that purchasing groups are included in the proposal, they
appear to have turned into quasi-governmental monopolies with broad regulatory
powers. Do the requirements of the Administrative Procedures Act and Regulatory
Flexibility Act apply?
Approved health plans are allowed to contract exclusively with single source sup-
pliers, which could mean many small independent service providers such as phar-
macies will lose significant amounts of business to larger chains.
The national board envisioned by the President is charged with establishing and
enforcing health care spending limits. How these spending limits are calculated by
the board is unclear. In addition, the board appears to add a new layer of federal
bureaucracy to the program, and gives inordinate power to the federal government
to regulate the system.
States that are not in compliance with their budget may be able to levy an addi-
tional payroll tax on employers in order to meet the state budget.
States are allowed to opt out of the new system, and may choose a single payer
system for all or part of the state. In addition, states are allowed to restrict the
number of purchasing alliances in the state, thus reducing competition and increas-
ing the possibility of quasi-governmental alliances.
States are allowed to add benefits to the standard package, although they must
be separately funded. What is to keep a state, many of which have added state man-
dated benefits prodigiously in the past, from adding to the size and cost of the bene-
fit package?
The President's proposal, while placing a heavy burden on small business, ap-
pears to be a boon for large corporations. Health obligations for early retirees (aged
55-65) will be transferred from corporations to American taxpayers, and overall
health insurance costs could be significantly reduced for the big business commu-
nity.
A SMALL BUSINESS HEALTH CARE REFORM PLAN
Small business owners believe that better alternatives to the President's plan
exist. Many have already been introduced in the Congress and states like Florida
have actually enacted some of them. Proposals that do not increase payroll costs on
employers, particularly new businesses, would avoid the inevitable job loss associ-
ated with expensive mandates. Following is a list of guiding principles which we be-
lieve any comprehensive reform plan should follow. Taken together, we believe these
measures will increase access to affordable health coverage and help to contain cost
increases. While the list is not all-inclusive, it does represent the results of numer-
ous surveys of small business owners over the last several years.
Formation of health insurance purchasing groups should be encouraged. By join-
ing together to purchase health insurance, small businesses and individuals can re-
duce costs through administrative savings and risk-sharing. Referred to as "health
alliances" by the Administration, these purchasing groups should operate under the
following guidelines:
The alliance should act as a health insurance broker, negotiating annual
agreements with insurers and approved health plans, enrolling members, col-
lecting premiums and disseminating cost and quality information to help con-
sumers make educated health care choices;
enrollment in the alliance should be completely open, with purchasers free to
choose the plan that best suits them;
states should allow multiple purchasing groups in each area and operation
across state lines;
the size of the purchasing group should be large enough to be effective, but
not so large as to essentially create a "single-payer" entity within a state (i.e.,
membership in a single alliance should probably be restricted to firms with 100
employees or fewer, certainly not more than 500. We are currently collecting
data to determine where the optimum number for small business lies); and
368
the alliance should be run by a local purchaser-controlled board.
Self-employed business owners should be allowed a permanent 100% tax deduc-
tion for health insurance premiums purchased for their employees and themselves.
Self-employed business owners such as sole proprietors, partnerships and 5-corpora-
tions are allowed only a 26% deduction; that deduction is temporary. Expanding and
making permanent the tax deductibility of premiums would enable many of the
nearly five million uninsured self-employed to buy coverage for themselves and the
millions they employ.
Insurance company practices should be reformed to make health insurance cov-
erage easier and less expensive to buy. Being able to count on obtaining insurance
with fairly stable premiums would enable more small business owners to purchase
coverage for themselves and their employees. Specifically, any reforms in this arena
should include:
elimination of the preexisting condition limitation;
guaranteed access to policies, regardless of medical condition, and guaranteed
renewal of policies;
the elimination of experience rating and the institution of a fairer rating sys-
tem such as rating bands or a system in which individuals are community
rated, with considerations made for age and sex; and
portable insurance coverage for all, regardless of employment status.
Financing of the new system should be spread as equitably as possible, without
overburdening our primary job creating sector — the small business community. His-
torically, small business has had a difficult time obtaining affordable health insur-
ance coverage for its employees. For the millions of employers who find coverage
prohibitively expensive, proposals that increase payroll taxes and force all busi-
nesses to cover all employees will be particularly devastating and should be rejected.
The small business community strongly opposes broad employer mandates to pay
for health care reform. Recent surveys show that 88 percent of small business own-
ers oppose a federal mandate requiring employers to purchase health insurance for
all employees. Although very many small firms provide health insurance, most fear
a broad government mandate for two reasons: the business owner's financial flexibil-
ity would be gone, and an expensive, politically-dictated benefits package could
mean that their already high costs would escalate further. The bottom line is that
mandated coverage may force many new and marginally-profitable businesses to lay
off employees or shut down altogether. It would also significantly reduce the profit-
ability of more established companies and inhibit their ability to expand and create
jobs.
Similarly, those who wish to fund the new system by imposing a payroll-based
premium are ignoring certain realities of the small business market place. Because
small firms are so labor intensive, this. would in fact be the worst possible choice.
Payroll taxes have no link to profitability and will only stifle new business start ups
and inhibit job creation because they are a tax on jobs. Rather, reforming the sys-
tem to make affordable coverage more widely available will encourage more small
business owners to purchase coverage for their employees.
In addition, NFIB believes that the tax code should be amended to help control
health costs and make purchasers of health coverage, whether employers or individ-
uals, more cost-conscious in their choices:
the employer deduction for health insurance should be capped, with the sav-
ings used only to broaden access to basic standard health coverage;
the employee's current tax exclusion for health benefits shoulabe capped;
the deduction/exclusion for both employers and employees should be tied to
the average cost of the lower-priced health plans;
the deduction for the self-employed (currently 25%) should be permanently in-
creased to 100% of the cost of the average plan; and
the above mentioned tax deduction should be tied to participation in a pur-
chasing group, in order to encourage small business owners to join.
Costly state benefit mandates and anti-managed care laws should be preempted.
Enactment of certain state laws have significantly limited the availability of afford-
able health plans and discouraged the growth of managed care systems. State man-
dates alone can raise the cost of insurance 30%. Pre-empting these mandates and
repealing restrictive state anti-managed care laws would allow small business own-
ers easier access to affordable plans and greater access to cost-saving managed care
arrangements.
However, NFIB does not oppose state laws that require free and open competition
for the business of managed care patients. NFIB members oppose exclusive contract
arrangements with certain providers, such as pharmacies, within managed care sys-
369
terns. Small business owners believe that managed care systems can hold down
costs effectively with open competition among many providers who are able to sell
the same product at the same competitive price. Several states are currently consid-
ering laws that require managed care systems to allow all providers to compete.
A uniform, affordable standard benefits package should oe developed in consulta-
tion with business and consumers. However, regardless of who determines what is
in a "basic standard benefits package," care must be taken to ensure that the plan
is at a level necessary to assure adequate coverage and care but remains affordable.
As such, we should consider the packages developed by the most efficient and cost-
effective health maintenance organizations. Developing Fortune 500 type "bench-
mark" packages that are too generous will price them out of the reach of individuals
and small business owners. It is imperative that the package be affordable to both
employers and individuals.
Accountable health plans (AHPs) should compete to provide high quality, low cost
coverage to purchasers of health care. In order to be successful, it is crucial that
there always be multiple, truly competitive AHPs. AHPs should operate as follows:
AHPs should be registered;
enrollment should be open in all AHPs;
plans must be subject to all reforms imposed on the insurance industry, in-
cluding restrictions on the preexisting condition limitation, modified community
rating, guaranteed availability, guaranteed renewability, portability, etc.;
AHPs must offer the uniform benchmark benefit package;
cost outcomes reports should be developed by all AHPs;
plans may charge different prices, but not based on health status;
plans should compete on the basis of price, quality and any additional serv-
ices they can offer,
plans should not impose waiting periods or deny access to any enrollee, except
in the case of capacity limits;
if higher premium plans are offered, the difference should not be covered
(must be paid by individual or employer); and
consumers should be offered a choice among "actuarially equivalent" delivery
options: HMO, PPO, or traditional fee for service. However, employers who are
contributing to the cost of the premium should be allowed to encourage em-
ployee enrollment in a particular plan.
Attempts to control costs by imposing spending restraints or "global budgets" fail
to address the root causes of the problem and should be avoided. Many have sug-
gested the imposition of "global budgets"— caps on overall health care spending —
in order to bring health expenditures under control. However, NFD3 believes that
global budgets are fundamentally unworkable (especially within a managed competi-
tion framework) and will lead to political rationing of health care. Currently, most
experts agree that we do not possess the relevant data on which to base such alloca-
tions. Further, global budgets do not address the root causes of health care inflation,
nor do they provide any incentives to increase efficiency in delivery of care.
Changing our medical malpractice laws. The current malpractice crisis only adds
to the already astronomical cost of treatments, services, medical devices and phar-
maceuticals, and inhibits research and development of new products. We believe
that serious reform of the medical liability system can reduce the overuse of exces-
sive and costly defensive medicine and save about $30 billion a year. Medical liabil-
ity reform should consider the following:
limits on awards for noneconomic damages;
caps on attorneys' fees;
encouragement of alternative dispute resolution;
allowing use of treatment guidelines and protocols as a defense in malpractice
cases; and
enterprise liability, which will create "deeper pockets" and encourage law-
suits, should be rejected.
Implementing administrative and paperwork reforms. As much as one quarter of
every health care dollar in the U.S. goes to paperwork and administrative costs.
Economies of scale for small firms mean that more of their health care dollar — up
to twice as much as large businesses — goes to cover paperwork and administrative
costs. As such, simplifying paperwork requirements and reducing administrative
costs must be a part of any health care reform:
uniform claims forms should be developed; and
electronic claims filing, billing and enrollment should be more widely utilized.
If an independent board or national entity is set up to oversee the new health
care system, it should be guided by the following principles:
370
its functions should be limited to establishing standards for information col-
lection and data reporting, outcomes and consumer information, setting the gen-
eral parameters of an affordable standard benefits package and general over-
sight;
such a board should not become simply another bureaucratic government en-
tity that inhibits innovation and effective reform;
the board must include purchasers, be insulated from political pressures, and
not be staff driven; and
the board's functions should not include setting global budgets.
Consumer information and education is essential. NFIB strongly believes that in-
formed consumers make more cost-conscious decisions relating to their health care.
Currently, part of the reason that health care costs are going up so rapidly is due
to the fact that consumers have lost their sense of "shopping around" in the health
care market. Most Americans are shielded from the true cost of their insurance cov-
erage and the cost of medical care, largely because the premiums are borne by em-
ployers. As a result, there is little or no incentive to search out the highest quality
health product at the lowest cost, a process fundamental in the purchasing of most
other goods.
Miscellaneous.
In addition, NFIB strongly supports the following:
improved access in rural and underserved areas;
increased emphasis on preventative health;
removal of some antitrust restrictions on the medical community to allow pro-
viders to collaborate and pool resources;
increased cost-sharing among employers and employees to encourage cost-con-
scious decision making;
low income assistance to the poor and near poor;
CONCLUSION
As you can see from the list of principles above, there are numerous items on
which we agree with the Administration and sponsors of other packages (encourage-
ment of purchasing groups, insurance reform, malpractice reform, administrative re-
form, etc.). The controversial items, while critical, are few. We urge the Senate
Labor Committee to seek passage of these consensus items as soon as possible.
We look forward to working with you to craft a reform measure that will control
costs and encourage more small firms to purchase coverage for their employees. We
hope to work with you to pass a reform measure in the 103rd Congress. Thank you.
The Chairman. Mr. Lindsay.
Mr. Lindsay. Mr. Chairman, members of the committee, my
name is Bill Lindsay. I am a principal with the Lindsay-Sandbak
Group, a benefit management and consulting firm in Englewood,
CO. We are, as Mr. Roush just described, a small business.
I am an active member of the health care policy committee of Na-
tional Small Business United, which I am here representing today.
We very much appreciate the opportunity to visit with you.
National Small Business United represents over 65,000 small
businesses in all 50 States. Our association works to improve the
economic climate to promote business growth and expansion, and
we have always worked on a bipartisan and proactive basis.
For the last 4 years, health care has been our top Federal prior-
ity for concentration. Although we have many specific comments
about the Clinton proposal, I would like to focus my testimony on
the system of health care alliances that the plan would establish
to deal with small businesses' purchase of health care coverage.
First, we need to consider the concept of a business mandate. We
stringently oppose any form of business mandate, especially when
it is paid for by higher payroll taxes. We oppose payroll taxes be-
cause of four primary reasons. First, they increase incentives to
lower wages and reduce the number of employees. Second, they
raise the hurdle for starting a new business or for hiring additional
371
employees. Third, payroll taxes must be paid whether a business
is currently profitable or not. A highly profitable business will pay
the same as one struggling to meet its payroll. And fourth, a man-
date requires the development of subsidies for small and economi-
cally fragile businesses. Subsidies create a whole host of problems
and complexities which result in significant administrative issues
and, we feel, inherent unfairness in the system.
Now, in the interest of time, let me move on to the subject of
health alliances. We are all familiar with the monopolistic health
alliances being proposed by the administration. These alliances
would have far-reaching responsibilities from enforcing budgets to
delivering provider quality information to individual buyers. It
seems unlikely that large and busy bureaucracies will find creative
enough ways to encourage innovation and competition.
The key question is how to bring competitive forces to bear for
cost containment when the individuals, who are paying only a lim-
ited amount for the cost of coverage, are allowed to make choices
for their employers' dollars. In our view, small businesses should
have the opportunity to form and run their own purchasing co-
operatives. When you look at the economic landscape of other situa-
tions where alliances exist, such as in the agricultural community,
they operate on that basis very successfully.
Many businesses which currently provide coverage and therefore
might not otherwise oppose a mandate will most certainly oppose
a provision which traps them into providing coverage from only one
quasi-governmental source where they have limited or no options
to select from.
Competing cooperatives will have strong incentives to negotiate
tough deals from providers, which also will be extensively monitor-
ing the quality of the care provided, maximizing the opportunity for
cooperatives to establish themselves and compete for better deals
in the marketplace.
The administration has been especially anxious about allowing
multiple alliances, since they might seek to game the system, se-
lecting only the best risks. We do not think that this is a realistic
concern for the following reasons.
First, if all individuals must have coverage, such as under some
form of mandate, we believe risk selection issues will be minimized.
Second, in a reformed system, underwriting, the use of pre-existing
condition limitations, etc, will go away, which again provides indi-
viduals free and open access to virtually any one of the health part-
nerships that they might wish to participate in. Third, risk adjust-
ers could be added to address any differences in employee enroll-
ment demographics, such as Medicare does currently for its risk
contracting. Fourth, if businesses were making decisions about
what cooperative to join, individual risk selection would not be a
problem. Furthermore, by publicizing the other options that would
be available in the community, the various markets would have an
equal opportunity to participate in the plan that they selected. And
finally and maybe most important, multiple alliances provide the
employer with ways to avoid feeling penned in, a role that allows
them to keep on shopping and look for ways to lower costs and in-
crease efficiencies system-wide.
372
We appreciate the opportunity to testify. National Small Busi-
ness United wants fundamental reform in the system. We believe
that such reform is critical to the long-term survival and growth
of business. But the new system must make sense, and it must fit
the unique aspects of small businesses.
As you would guess, we have many other comments about the
Clinton plan, and if there is further input or opportunity for input,
we look forward to providing the committee witn that information.
Thank you again for your interest.
The Chairman. Thank you very much.
[The prepared statement of Mr. Lindsay follows:]
Prepared Statement of William Lindsay
Mr. Chairman: My name is Bill Lindsay, and I am a Principal with the Lindsay-
Sandbak Group, a benefits management firm based in Englewood, Colorado. I am
an active member of the Health Care Policy Committee of National Small Business
United, which I am representing today. We very much appreciate the opportunity
to be here.
National Small Business United (NSBU) represents over 65,000 small businesses
in all fifty states. Our association works with elected and administrative officials in
Washington to improve the economic climate for small business growth and expan-
sion. We have always worked on a bipartisan and proactive basis. In addition to in-
dividual small business owners, the membership of our association includes local,
state, and regional small business associations across the country. For the last four
years, health care reform has been our top federal priority.
This hearing has been called primarily to ascertain our reactions to the health
care reform plan of the Clinton Administration. Since the Clinton Administration
has not vet released a detailed plan, we still have many specific questions about the
practical operation of the plan. In terms of the costs and potential savings of the
plan, those are also very difficult to address without having seen specific language
or heard from CBO. Nevertheless, we will react as best we can to the outline that
has been presented. Though we have many specific comments on the Clinton plan,
I would like to focus my testimony today on 1) the impact of the mandate on small
businesses, including the small business subsidy and payroll based premiums; and
2) the system of health care alliances that the plan would establish to deal with
small business' purchase of health coverage, and the need for competitive purchas-
ing cooperatives. But, before going on, I would like to give you a picture of where
NSBU is coming from on health care reform, in order to put our response into per-
spective.
Our plan for ensuring that all employees of small businesses (and, indeed all
Americans) have health coverage has been consistent for almost three years: 1) re-
Suire everyone to have coverage; 2) reform the insurance system so no one can be
enied coverage; and 3) institute a system of federal payments, based upon family
income, so that everyone can afford coverage. It is a plan that responds to people,
not to businesses; that responds to health care needs, not to employment status.
It is worth noting that NSBU agrees with the importance of all of the health care
reform principles laid out by President Clinton during his presentation of the plan:
security, simplicity, savings, choice, quality, and responsibility. We think that our
own proposal encompasses all of these principles. In fact, we think that many items
from our recommendations would actually heighten the President's plans adherence
to these principles. Given our agreement on goals and principles, it is our hope to
play a constructive role in the debate and to help design a system with which small
businesses can live.
Of course, the details of our plan, like everyone's, become considerably more com-
plex. We have to deal with critical issues such as who gets subsidized, how the plan
gets enforced, what goes into a basic benefits package, how tight the insurance
bands should be, and — the biggest question — how to keep a lid on costs; but all of
these questions can only be addressed once we have decided the answer to the most
fundamental question in this debate: Who pays?
I. THE MANDATE
The Choices
It seems to us that we have three distinct financing options for a universal cov-
erage plan: 1) have the government cover everyone; 2) require employers to cover
373
all of their employees and dependents, with the government picking up the rest; or
3) require all individuals to have coverage, with the government subsidizing those
who need it. We have rejected the government-run option on philosophical and sub-
stantive grounds. In addition, it is our perception that such a system stands little
chance of adoption. Between the two remaining systems, we believe that the individ-
ually-based system makes far more sense — for businesses, for individuals, for pro-
viders, and for the nation.
Unfortunately, the Clinton Administration has chosen the employer-based ap-
proach— and along with it, an elaborate, cumbersome, unequitable, and painfully ex-
pensive system of subsidies for many small employers.
Problems With an Employer Mandate
Any employer-based mandate is essentially a payroll tax, but the Clinton plan
makes that connection explicit by gearing premium levels to payroll levels for small
employers. There are no more damaging taxes to small businesses and their employ-
ees than payroll taxes.
Of course, higher payroll taxes add to the cost of current employees, increasing
incentives to lower wages and to reduce the numbers of employees. But probably
of even greater importance is that these taxes would further raise the hurdle for
starting a new business or for hiring an additional employee. The continuous flow
of new business start-ups is one of the keys to the success of the VS. economy. The
total number of business start-ups must exceed the total number of failures in order
to keep a growing small business community — and the gap between these groups
is already closer than many people think. Unfortunately, payroll taxes are likely to
increase the failures while making the start-ups more costly and difficult.
We should also remember that payroll taxes must be paid whether a business is
currently profitable or not. A highly profitable business will pay the same as one
struggling to meet payroll. And this, we feel, is perhaps the greatest problem posed
by an employer mandate: its complete lack of flexibility. Under the Clinton plan,
small businesses and their employees will no longer have the option of purchasing
less expensive insurance in bad economic times, even if the business is quickly los-
ing money. Unfortunately, the major remaining areas of flexibility for the business
will be wages and the jobs themselves. This problem is one more reason that we
believe that the health care mandate should be severed from the work-place.
The Small Business Subsidy
In an admirable attempt to deal with many of these employer mandate woes, the
Clinton plan attempts to help small businesses through an elaborate and extraor-
dinarily expensive system of subsidies. It sounds simple. Businesses with fewer than
50 full-time employees would have a cap on their health care costs of between 3.5
and 7.9 percent of payroll, depending upon its average size. In actual practice, this
system could be extraordinarily complex. But there are many questions to which we
do not know the answers.
First, how and when is business size computed? Many businesses have greatly
fluctuating work -forces and may or may not fit under the 50-employee cap at any
given point during the year. Recalculating the payroll cap with every pay period
would obviously be very difficult. But using past experience (say, an average from
the past year) could be very harmful to businesses in distress. For instance, a busi-
ness that had 60 employees — and no subsidy— that has had to downsize to 35 em-
ployees because of economic hardship would receive no subsidy under a "look-back"
procedure, even though it might need and deserve a substantial one.
More difficult still is the calculation about full-time versus part-time employees.
Employers would be required to pay a pro rota share of premiums for part-time
workers, based upon a 30-hour work-week. So, a business would pay 60 percent of
the premium for an employee working 18 hours per week, and 33 percent for an
employee working 10 hours per week. If an employee works 15 hours per week dur-
ing one pay period and 25 hours per week the next, does the premium rate- change
for the employer? Here, a look-back procedure could not really work since many
part-time positions are new or temporary and there is no past experience on which
to rely. We could go on with the potential practical problems of this type of subsidy
for some time, but you get the idea of the kinds of problems we are describing.
An additional problem is the arbitrariness of the subsidy to businesses with fewer
than 50 employees. If there are two competitors, one with 45 employees and one
with 55 employees, there are probably very few differences between them — except
that one could pay more than twice as much for health insurance than the other.
There is every incentive for the second employer to get its number of full-time em-
ployees down to 50, whether through eliminating positions or simply reducing sev-
374
era] employees' weekly hours to below 30. We think this is the wrong basis for criti-
cal employment decisions.
So, how would we distribute subsidies differently? Unfortunately, we are only able
to be critics of small business subsidies at this point. We can simply think of no
way to equitably and effectively distribute health care subsidies to businesses. Do
you subsidize the businesses that do not currently provide insurance? Tell that to
their competitors who have been providing coverage and will receive no subsidy. Do
you subsidize low-wage businesses — thereby encouraging low wages? Do you sub-
sidize low-profit or low-revenue businesses/ There are plenty of low-revenue busi-
nesses that are highly profitable, and there are plenty of ways to hide profits in
order to collect federal dollars. Frankly, we are skeptical about whether there is a
way to fairly subsidize businesses for health insurance, which is just one more rea-
son we have rejected an employer mandate as the appropriate avenue for universal
coverage. And it is one more reason that we support health care subsidies for indi-
viduals, based upon their ability to pay.
One of the primary reasons for considering an employer mandate has always been
that significant employer financing relieves the federal government of the need to
finance the care of many low-income individuals. Since an employer mandate avoids
a lot of federal spending, it requires fewer new taxes and becomes more politically
popular. Of course, we have a lot of trouble with a government that wants to avoid
the tough choice of cutting spending or raising taxes — even for appropriate societal
responsibilities — yet that insists on shifting those responsibilities to small busi-
nesses. But on a more practical level, we wonder whether the employer mandate
in the Clinton plan saves the government any money at all. After all, the mandate
is slated to cost almost $450 billion over five years in small business subsidies
alone. In its zeal to make the mandate work, has the Administration forgotten one
of the fundamental arguments for an employer mandate? We think that an individ-
ual mandate could be targeted to cost less than these government subsidies to small
businesses, without all of the attendant equity and implementation problems.
Individual Mandate
As President Clinton has so consistently and correctly pointed cut, small business
is the engine that drives job creation and economic growth in this nation. Small
businesses employ 57 percent of the private work force, make 54 percent of all sales,
and contribute 50 percent of the gross domestic product. In the last decade, small
businesses created the vast majority of new jobs. Yet, we also have to remember
that small business jobs are more likely to be filled by younger workers, older work-
ers, women, and part-time workers. Unfortunately, a health care mandate that
drains tens of billions of dollars out of small businesses every year will put a dra-
matic damper on job creation and economic growth, affecting those workers and the
businesses that employ them most of all.
Please understand where we are coming from: an individual approach is not an
attempt by small business to duck responsibility for the health of their employees;
over 80 percent of small business employees and their dependents have insurance.
An individual mandate will not cause those businesses currently providing insur-
ance to drop it. In fact, we think that requiring all individuals to participate in the
system would actually increase the pressure that employees place on their employ-
ers to provide that coverage for them, causing employer-provided coverage to in-
crease. Yet, there are situations where the added expense of health insurance would
cause wage deflation, lost jobs, and even business closings. A system that responds
to the needs of the employees and families of such businesses — on an individual
basis — would be the best system. As important as it is to provide access to quality
health care for all, we think that employment and jobs should receive equal atten-
tion, especially when there is a conflict between these two needs.
II. HEALTH ALLIANCES
Single Regional Alliances
Under the Clinton plan, all employees of businesses with fewer than 5,000 em-
ployees would be enrolled in their regional health alliance, to which their individual
ana employer premiums would flow. Once in the alliance, the individuals would
choose from the various health plans that qualify to be offered by the alliance. At
no point in the process are small employers, who will be paying most of the bill for
their employees, given a choice or allowed any avenue to find a better value for their
money — and they are certainly not given the chance to actually save money.
Under the Clinton plan, the health alliances will have far-reaching responsibil-
ities— from enforcing budgets to delivering provider information to individual mem-
bers. It seems unlikely that this large and busy bureaucracy will find creative ways
375
to encourage competition and innovation. There may need to be some sort of "health
alliance" at the local level to coordinate provider expenditures and provide a frame-
work for community-wide health care decisions. But these roles should be separated
from the purchasing cooperative role, which is simply to bring businesses together
to bargain for the best deal on coverage for their employees. Unfortunately, this dy-
namic cannot occur in the Clinton plan.
How are we to bring competitive forces to bear for cost containment when those
who are paying are not allowed to make any choices for their dollars?
Competing Purchasing Cooperatives
Small businesses should have the right to organize and run their own health care
purchasing cooperatives, in order to have choice and empowerment within the sys-
tem. A mandate on employers which provides neither an avenue for these busi-
nesses to choose how to purchase coverage nor an ability to organize for their own
best interests and survival will be very unpopular with small business. Many busi-
nesses which currently provide coverage, ana might not oppose an employer man-
date, will almost certainly oppose a provision which traps them into purchasing cov-
erage from a single — potentially inefficient — source.
Moreover, we believe that private competing health alliances are essential for
maximizing competitive forces for cost containment. Competing cooperatives will
have strong incentives to negotiate tough deals with providers, in order to attract
members. In areas where the market cannot sustain multiple cooperatives, they will
not exist, thereby maintaining the efficiencies of larger pools. Multiple cooperatives
represent an important component for maximizing the cost containment potential of
managed competition.
The Administration has been appropriately nervous about allowing single, monop-
olistic (and monopsonistic, depending upon your point of view) health alliances to
exclude health plans from participation in the alliance. The only mechanism the alli-
ances would have to exclude plans would be a price cap and several other objective
standards. But competing alliances could actually bargain with insurers and pro-
vider groups for the best deals for their members, and groups that would not deal
could be excluded from the alliance. The competing alliances' ability to exclude in-
surers and provider groups would be one of their most powerful cost containment
tools.
The Administration's plan allows large corporations with more than 5,000 lives
to opt out of the health alliance system and self-insure. They will only do so if that
action enables them to save money. Small businesses are given no similar opportu-
nities to find cost savings in the system. Small businesses need this kind of flexibil-
ity even more than their larger counterparts. Moreover, even in a system of compet-
ing health care purchasing cooperatives, we believe that the ceiling for business par-
ticipation should be much lower than 5,000 lives.
Risk Selection
Some opponents of competing health cooperatives have argued that competing
health alliances will foster adverse selection problems, causing many of the plans
to descend into a doomed "death spiral." We simply think that these arguments are
somewhat overblown and should not be viewed as an insurmountable problem. If
all individuals must have coverage, and all providers and alliances must offer cov-
erage and accept individuals under the same conditions, we believe that the risk se-
lection problems will be relatively minor.
But, if necessary, there are several ways to deal with potential risk selection prob-
lems in a competitive purchasing cooperative environment. Since adverse selection
has primarily to do with individuals "gaming" the system for their own benefit (sick
people enrolling in the most expansive plans and young healthy individuals choosing
HMOs), we expect most risk selection problems to occur within the purchasing co-
operatives, rather than between them. Within the purchasing cooperatives a risk ad-
juster could be used, hist as the Administration plans to use in their health alli-
ances' health plans, which will have the same problems. Such a risk-adjuster would
essentially allow insurers to insure against having too many unhealthy individuals
in a plan. This mechanism will spread the costs of caring for the sick equitably
across all carrier groups.
In a system of competing health purchasing cooperatives, businesses would be
making the decisions about which cooperative to join, so the individual risk selection
problem would not exist. Any risk- selection would occur from the relatively subtle
marketing decisions of the purchasing cooperatives. For instance, purchasing co-
operatives could choose to only market their services to "better risk businesses in
better risk areas — assuming these non-profit entities were wily enough to have that
knowledge. But it would be relatively simple to circumvent this problem by inform-
376
ing all businesses of all purchasing cooperatives which are available, along with a
thorough description. And if cooperatives attempt to serve one part of a region dif-
ferently than another, it would be easy enough for the states to draw boundaries
in a way to make this practice at least very difficult.
Again, competing purchasing cooperatives are likely to provide greater cost con-
tainment than single alliances; competing cooperatives can be structured to avoid
risk selection problems at least as well as single health alliances; competing co-
operatives provide small businesses with empowerment in the system, room to ma-
neuver without feeling "locked-in", and a role in keeping costs down system-wide.
We think that the issue of competing purchasing cooperatives will ultimately be one
of the key small business issues in this debate, unless it is addressed early -on .
III. CONCLUSION
We appreciate being invited to testify today. National Small Business United
wants fundamental reform of the health care system; we believe that such reform
is critical to the long-term survival and growth of small businesses. But the new
system must make economic sense, and it must take the unique problems and limits
of small businesses into account. As you might guess, we have many other com-
ments on many other aspects of the Clinton plan. If there is any further input that
we might be able to provide to the Committee, we will be pleased to do so. Thank
you.
The Chairman. Ms. Mills.
Ms. Mills. Good afternoon, Senators.
My name is Helen Mills. I speak to you todav from several per-
spectives^— first, as a founding board member ot Businesses for So-
cial Responsibility; a founder and managing principal of The Mills
Group, an employee benefits brokerage and consulting firm; also,
I own another small business which is a franchise of The Body
Shop, a five-store retailing operation in Washington, DC; and per-
haps most importantly as a concerned citizen.
I would like to begin my testimony by observing how vitally im-
portant it is to our Nation's economic health that our populace be-
come informed about and actively debate the options for reforming
the health care system.
President and Mrs. Clinton have shown tremendous courage by
throwing down the gauntlet to begin the dialogue at a national
level. And you, Senator Kennedy, the long-term and consistent
leadership you have demonstrated in the health care arena has
been instrumental in bringing us to this point.
Foremost in this effort is the importance of providing universal
coverage for all. This is the most urgent and most noble goal of the
President's proposal.
I have been in the insurance business since I was 15 years old.
Over the years, I have sold term policies to single mothers and dis-
ability plans to sole proprietors, provided incentive plans for execu-
tives, and implemented group plans for companies with over 10,000
employees. And under our health care system as it stands today,
I have begun to feel like a doctor treating a terminally ill patient.
Let me give you an example of the type of situations I deal with.
I received a call from a family friend whose 24-year-old son was
dying of cancer. He was in the hospital and haa been fighting a
brilliant battle for 2 years. That day, the father had received two
calls. One was from the son's employer, and one was from the em-
ployer's insurance company.
The son's employer was calling to lament that the insurance com-
pany had called to say that as long as this boy was on the plan,
his rates were going to go up 400 percent, and that meant the de-
mise of his company.
377
Later, the insurance company called the father to say that $1
million worth of treatment was going to be unpaid because they
had categorized it as experimental!
This story typifies the inequities and unfairness which ripple
through our system, dividing our society into the haves and the
have-nots, as underwriters cherry-pick or skim the cream off the
market and overcharge for the privilege of doing so.
My Mills Group clients and the businesses I nave spoken to that
belong to Businesses for Social Responsibility feel the system is un-
just and must be immediately and dramatically reformed. The
health care issue transcends whether you identify with a donkey,
an elephant, or a diminutive Texan, for that matter. It is wholly
an American issue.
The Clintons and their team of advisors have drafted a thought-
ful, meaningful and comprehensive plan, and while my colleagues
and other business leaders have varying sentiments about some of
the particulars of the proposed plan, most agree with the corner-
stones serving as the foundation of the plan. I would like to talk
about those briefly.
First, the mandates. Requiring all employers to provide health
care levels the playing field between those of us who have been
providing coverage and those who have not. It removes the poten-
tial for unfair competitive advantage in the marketplace.
The decision of a business owner to provide health care for his
employees should not create a competitive disadvantage. While
philosophically, I am no fan of Government mandates, in this pack-
age, it means that I as a small business owner am no longer paying
an extra load in my premiums for all the charges incurred in the
system by my uninsured competitors. This is a matter of fairness.
Second, purchasing power. It is a reality that small businesses
are hostage to their carrier's inequitable, discriminatory rules and
untenable rate increase. If an employee has been to a marriage
counselor, suffered back pain, or experienced almost any other ill-
ness, a new carrier frequently will not accept the group. I have had
to finagle my own way with both of my businesses to covering my
employees by finding loopholes in the systems to link with larger
companies to provide coverage.
It is a fact that small companies cannot negotiate their rates like
large companies can. I recently chatted with a friend of mine who
is trie owner of a Fortune 100 company, and he was describing his
insurance renewal process. He was talking about his ability to ne-
gotiate lower rates for his company, but he acknowledged the cost
of those savings would be passed on to small business. We as small
business owners and individuals do not have the luxury of negotiat-
ing, of saying, "Take 15 percent off, and you have a deal."
The concept of alliances that pool small companies will help
spread the risk and share the burden while reducing the adminis-
trative charges that small companies presently disproportionately
bear. No one in business wants more Government bureaucracy. But
in this case the alliance system, or some form of that, should re-
duce total administrative costs. I cannot imagine a system more
bureaucratic than the one we have now.
As an advocate for a free market economy I find myself, as others
do, succumbing to the realization that free market forces have sim-
378
ply failed to effectively control health care costs. Increases in costs
outpaced corporate profits last year by 108 percent. The alliances
should foster a cost-effective and competitive environment with reg-
ulatory power to assure that all the stakeholders in the system are
fairly balanced.
The third cornerstone is the subsidies for business and the caps.
As the plan appears now, many small businesses who want to
cover their employees but cannot afford to do so under the current
insurance system should find relief in the concept of subsidizing
benefits under the new plan.
The plan will actually allow me a wonderful opportunity. Cur-
rently, I cover all of my 14 full-time employees in my Body Shop
retail business. Under the proposed maximum schedule of the new
plan, I will be able to cover my 35 part-time employees as well for
only $150 more per month than I am paying now.
The proposed 7.9 percent cap should help protect employers and
balance the current inequities in the system. The majority of my
Mills Group clients and many of the companies I have spoken with
at Business for Social Responsibility are paying between 6 and 10
percent of payroll in health care costs now.
Fourth is the budget. All good businesses run on a sound budget.
The President's proposal establishes a budget that is tied to the
consumer price index. This feature, coupled with other caps and
cost controls, should give business owners and individuals alike the
comfort of knowing there is top-side protection where absolutely
nothing exists like that now.
Senators, it will be easy to find problems with this plan — or any
other plan, for that matter. Achieving consensus will be a challenge
unlike any you may face during your tenure as a public servant.
I urge you not to square off into your traditional corners. I urge
you to rise above the political face-off and find the way — find the
way to put people before politics; find the way to implement a re-
form package which manages costs while providing coverage for all
our fellow citizens.
Thank you very much.
[The prepared statement of Ms. Mills follows:]
Prepared Statement of Helen H. Mills
Good morning, Senators. My name is Helen Mills. I speak to you today as a
Founding Board Member of Business for Social Responsibility; as the Founder and
Managing Principal of The Mills Group, an employee benefits brokerage and con-
sulting firm; as a small business owner who serves as President of the Soapbox
Trading Company, a five-store retailing franchise of The Body Shop; and as a con-
cerned citizen.
I would like to begin my testimony by observing how vitally important it is to our
nation's economic health that our populace become informed about and actively de-
bate the options for reforming the Health Care System.
President and Mrs. Clinton have shown tremendous courage by throwing down
the gauntlet to begin the dialogue at a national level. And, Senator Kennedy, the
long term and consistent leadership you have demonstrated in the health care arena
has been instrumental in bringing us to this point.
Foremost in this effort is the importance of providing universal coverage for all.
This is the most urgent and noble goal of the President's proposal.
I have been in the insurance business since I was fifteen years old. Over the
years, I have sold term policies to single mothers and disability plans to sole propri-
etors, provided incentive plans for executives and implemented group plans for com-
panies with over 10,000 employees. And, under our present health care system, I
nave begun to feel like a doctor treating a terminally ill patient.
379
Inequities and unfairness ripple through our system, dividing our society into the
"haves" and the "have nots".
My Mills Group clients and the businesses that I have spoken to that belong to
Business for Social Responsibility (which doesn't take stands on public policy) feel
the system is unjust and must be immediately and dramatically reformed. The
Health Care issue transcends whether you identify with a donkey, an elephant, or
a diminutive Texan, that matter. It is wholly a America issue.
The Clintons and their team of advisors nave deed a thoughtful, meaningful and
comprehensive plan. And, while my colleagues and other business leaders have
varying sentiments about some of the particulars of the proposed plan, most agree
with the cornerstones serving as the foundation of the plan. I would like to discuss
those now.
First, the mandates. Requiring all employers to provide health care levels the
playing field between those of us who have been providing coverage and the minor-
ity ofbusiness owners who have not. It removes the potential for unfair competitive
advantage in the marketplace.
The decision of a business owner to provide Health Care for their employees
should not create a competitive disadvantage. While philosophically I am no fan of
government mandates, in this package it means that I, as a small business owner,
am no longer paying an extra load in my premiums for all the charges incurred in
the system by my uninsured competitors. This is a matter of fairness. Second, pur-
chasing power. It is a reality that small businesses are hostage to their carrier's
unequitable, discriminatory rules ad untenable rate increases. If a employee has
been to a marriage counselor, suffered back pains or almost any other illness, a new
carrier frequently will not accept the group. I have lived through this on many occa-
sions with my clients and my own business. Further, whole industries are excluded
by many carriers.
It is a fact that small companies cannot negotiate their rates like large companies
can. The owner of a well-known Fortune 100 company told me recently about his
annual insurance renewal process. He was able to negotiate lower costs for his com-
«any, but acknowledged the cost of his savings will be passed on to small business.
fe dont have the luxury of negotiating, of saying "Take 15% off and you have a
deal".
The concept of Alliances that pool small companies will help spread the risk and
share the burden while reducing the administrative charges that small companies
presently disproportionately bear.
No one in business wants more government bureaucracy. But in this case the Alli-
ance system should reduce total administrative costs. I can't imagine a system more
bureaucratic than the one we now have — one in which, in some cases, requires small
businesses to spend up to 40% of their premium dollar for administrative costs.
As a advocate for a free market economy, I find myself, as others do, succumbing
to the realization that free market forces have failed to effectively control health
care costs. Increases in costs outpaced corporate profits last year by 108%. The Alli-
ances should foster a cost effective and competitive environment with regulatory
power to assure that the stakeholders in the system are fairly balanced.
The third cornerstone is the subsidies for business and the caps. As the plan ap-
pears now, many small businesses who want to cover their employees, but cannot
afford to do so under the current insurance system, should find relief in the concept
of subsidizing benefits under the new plan.
This plan will allow me a wonderful opportunity. Currently I only cover 14 full-
time employees in my Body Shop retail business. Under the proposed maximum
schedule of the new plan, I'll be able to cover my 35 part-time employees as well
for only $150 more per month.
The proposed 7.9% cap should help protect employers and balance the current in-
equities in the system. The majority oi my Mills Group clients and many of the com-
panies I have spoken with at Business for Social Responsibility are paying between
6 ad 10% of payroll in health care costs. As a rule, those with high claims are pay-
ing more ad those who have strong managed care plans or those who are shifting
a greater portion of the price to the employees are paying a lower percentage of pay-
roll.
Fourth, is the budget. All good businesses run on a sound budget. The President's
proposal establishes a budget that is tied to the consume-price mdex. This feature,
coupled with the other caps and cost controls, should give business owners and indi-
viduals alike, the comfort of knowing there is top-side protection where absolutely
nothing exists like that now.
Senators, it will be easy to find problems with this plan— or any other plan for
that matter. Achieving consensus will be a challenge unlike any you may face dur-
ing your tenure as a public servant.
380
I urge you not to square off into your traditional corners. I urge you to rise above
the political face-if and find the way — find the way to put people before politics —
to implement a reform package which manages costs while providing coverage for
all our fellow citizens.
The Chairman. Thank you very much.
Since it is just Senator Coats and myself, we'll try 10-minute
rounds for questioning.
I have here the October 15, 1993 statement of the Chamber, and
in the report, for September-October, they talk about a poll that
the Chamber did with regard to the mandate issue. It says — and
this is talking about the businesses — "To elicit their views on the
desirability of mandate that employers contribute to the cost of
health insurance, the interview said: ' Some employers are con-
cerned about proposed legislation on a mandate on all employers
to provide or contribute to the cost of health benefits for their em-
ployees. Others contend that a mandate is the only fair way to see
that everyone has health insurance, and that when employer A
does not provide coverage, other employers indirectly pay for cov-
erage of employer A's workers. How do you feel about requiring all
employers to contribute to the coverage of their employee?' Small
business owners were then asked to indicate whether they strongly
support mandate contributions, somewhat support, or are neutral,
somewhat opposed, or strongly opposed. Our survey found that
close to half, 42 percent, of all small businesses, support the prin-
ciple that employers should be required to contribute to the cost of
health insurance for their employees. Even among firms not cur-
rently offering insurance, close to a third say that they support
such a requirement among firms now providing coverage. Fifty-one
percent favored mandated contributions."
Then it continues: This level of support for a mandate is much
higher than earlier surveys of small business have found. For ex-
ample, in an 1989 survey, members of the NFIB found only 25 per-
cent agreed that employers have a responsibility to provide em-
ployee health insurance.''
Then it goes on to other paragraphs. "On the issue of imposing
overall budget limits for health care spending, respondents were
similarly asked to indicate whether they strongly support such
measures, somewhat support them, or are neutral, somewhat op-
posed, or strongly opposed. Many small business owners, 66 per-
cent, indicated they would like to see overall limits or budgets for
health care spending imposed as part of a health care reform strat-
egy." And it goes on into other areas as well.
On the issue of the mandate, I always wish we could find an-
other word that could be used. I am always looking around for the
person who labelled the MX missile "the Peacekeeper." I thought
that was just a magnificent terminology, and I would like to find
that person. If we could find another word instead of "mandate,"
I think we would all be better off.
I would ask the panel, is this basically a moral position in oppo-
sition, or is there an economic rationale as well? We have two
members of this panel who favor a mandate. As I understand, Mr.
Lindsay favors an individual mandate.
Mr. Lindsay. Yes.
381
The Chairman. So we have that kind of development. I am inter-
ested in whether there is a moral, economic, or some other ration-
ale at issue here.
Mr. Patricelu. Senator, if I may start on this, first I would like
to make a slight correction in that the survey you were quoting
was not a Chamber survey. It was done by a private group and
published in the Journal of American Health Policy. But we
thought it was very interesting, and indeed we believe it under-
states the potential for support for a mandated approach among
small business because, as you noted, it involves nothing by way
of subsidy. And the Chamber support for a mandate is very cru-
cially conditioned on the presence of some Government subsidy to
help low wage workers and their employers.
So we believe, given the opportunity to comment on that kind of
a support mechanism, even more small businesses would support
it.
The Chairman. So this did not include the subsidy?
Mr. Patricelli. No; no reference to subsidy.
The Chairman. OK
Mr. Patricelli. Now, your point is a good one. Is this a moral
issue? As you can imagine, we struggled within the Chamber on
this issue, and we finally came to conclude that indeed it was not
a philosophical, ideological issue. Business faces numerous man-
dates now. In fact, it seems to be forgotten that all businesses now
have a health care payment mandate. It is called Medicare. And
even small businesses are paying about 1.5 percent of payroll for
health care, ironically, mostly for people they have never seen.
So mandates exist, and ideologies should be behind us. The issue
that we confronted was who pays. And on that issue, our view is
that what we need is shared responsibility. We encourage the sub-
stitution of that term for mandate. We believe everybody has to be
required to participate, and that is employers, individuals, and
Government.
The Chairman. Mr. Roush.
Mr. Roush. Senator Kennedy, as I indicated, we try to determine
our positions by polling our members, and sometimes in doing that,
we are not always able to determine the reasons for which they
give the responses that thev do give.
In this particular case, however, we have been involved in this
issue for so long, and we have polled it so many times, in so many
different ways — we have had outside people poll it, Gallup poll it
and use their own standards for posing questions and variations —
that it comes down to primarily a cost question. But there is a very
large core of small business people, our members particularly, that
seem to view it as, yes, an ethical if not moral question, in the
sense that they ask: How did it all of a sudden get to be my respon-
sibility to pay for the health insurance of my employees? Am I
thereby responsible for paying their mortgage? Am I thereby re-
sponsible for paying their car payments?
So, yes, there is a core — and a substantial core, I believe, from
the checking we have done — that views it as an ethical question
and a question of personal responsibility.
Now, having said that, at the same time we ask other questions
of them, and 69 percent of our members agree that every American
382
has the right to basic health care; 63.5 percent believe that every
American should receive a minimum level of health care regardless
of their ability to pay.
So we are left in the position of trying to interpret what those
kinds of results mean, and in this case, cost and, underneath that,
ethical.
The Chairman. That is not entirely surprising. I was looking at
some studies on crime where 70 percent of the American people
want tougher sentences, but only 30 percent of them now favor
building more prisons. So I think we get caught in these kinds of
inconsistencies in many different areas of public policy.
Mr. Lindsay.
Mr. Lindsay. Thank you, Senator.
You asked if this is a conceptual issue, or is it a financial or cost
issue. I really think that for most small businesses, it is both.
First of all, I agree with the statistics from NFIB about the na-
ture of small business owners. Most small business owners are in
business for themselves because they are rabidly independent. That
means that from a conceptual standpoint, they resist any intrusion
of the Government into any other aspect of their lives. So there is
a very strong conceptual aspect to that.
The first speaker referred to the example with Medicare, that
that is a mandate we all pay. But I would remind him and remind
the Senators that that cap with Medicare first was limited to the
normal wage base; just a few years ago, that wage base was raised
to a level of $150,000, and just last year it was taken off. So that
is an unlimited tax at this point. It is that lesson that is instructive
for business owners. They say, "Well, I may only have to pay 3.5
percent now, but what is it going to be next year?
The second point that I think the first and second panels spoke
to, which mav have been inherently inaccurate, when we talk about
this cost shift from one business that does not provide health care
to another business that does, although that is true, we need to re-
mind ourselves that by far the greatest aspect of cost shifting does
not occur from the uninsured to the insured, but rather from the
Federal and State Governments who do not pay their full share. So
there is a much broader issue here than just simply institutionaliz-
ing the cost shift by developing a mandate so that we level the
playing field.
The Chairman. Ms. Mills.
Ms. Mills. It is both. Often, business is put in the position that
what is good economically may not be good morally. I think the
moral issues override here, and I speak personally in that regard,
that it is unconscionable that we have 37 million uninsured. I
think it is something that needs to be addressed, and if it is man-
dates that have to do it, to bring people to the plate and pay their
fair share, then we have to do that. But I do feel subsidies are a
part of the solution, a critical part.
The Chairman. Mr. Roush, you have indicated that about half of
all of your members, the smaller businesses, do provide some
health insurance.
Mr. Roush. I indicated in my oral statement about half of all
businesses. Actually in the category of those having one to five em-
ployees, it is 26 percent.
383
The Chairman. And below 25 employees, I think it is about 43
or 44 percent, I believe.
Mr. Roush. I believe it is in that neighborhood, yes.
The Chairman. Yes, those are general figures. Small businesses
that have a small number of employees, their premiums have been
escalating dramatically in the period of the last 3 or 4 years. You
can tell us what they nave been average nationwide.
Mr. Roush. Per employee now, it is something like $3,900; just
a few years ago it was down under $3,000. So they are getting hit
very hard; you are exactly right.
The Chairman. So how do you view this program with regard to
those small businesses that are today providing health insurance?
Mr. Roush. The program that the President is going to be put-
ting forward?
The Chairman. Yes.
Mr. Roush. Senator, I do not mean to be cute by this answer,
but there is no legislative language yet, so I hesitate to criticize or
comment in too great detail because the legislative process is such
that you need to have the language to know what the program is.
But having said that, in general and conceptually, as I indicated
in my opening statement, we support the concept of purchasing co-
operatives; we support the concept of insurance reform. And to the
extent that those are in the President's package, we are certainly
willing and interested, as I think lots of people have indicated, in
working out the details of those things and support them concep-
tually.
We have problems, as others have indicated, with some of the
ways they are going, but none of those things are deal-breakers
from where we are sitting.
The one thing that is of major concern that is in the President's
package is the employer mandate, and we believe that the goals
that the President set forward, the six guiding principles that he
established, can be achieved without that component, and I think
that people are trying to reach that point — Congressman Cooper,
Senator Breaux, perhaps soon, Senator Chafee. I think people are
trying to reach that point without the trading of health security for
job security.
The Chairman. OK. We will either have you back to respond in
more detail, or get further reaction from you for the record.
Senator Coats.
Senator Coats. Thank you, Senator Chairman. You actually
tracked right down the line of questioning I was going to pursue,
which made me a little nervous that you and I were thinking along
the same lines. In fact, I asked my staff if I was given your ques-
tions. [Laughter.]
They are very valid questions, and I think everyone here has ba-
sically said that for this thing to work correctly, we have got to get
universal coverage. And yet how do you get that coverage for those
who currently are not covered or who are undercovered, without
imposing some kind of mandate. It is a dilemma that we are trying
to deal with there.
Let me just ask a side question. Has either the Chamber or
NFIB done any models relative to job impact? I am particularly in-
terested in job impact as it affects small business.
384
Mr. Roush. Senator, yes. We are searching, and we believe we
have found a research firm that is capable of doing that, and as
soon as we have the details, we intend to submit them to the firm
with that explicit purpose of trying to find the job loss effects of the
proposal.
So we have not done it yet because we do not have the details,
but when we do, we will.
Mr. Patricelli. Nor have we. Senator Coats, the problem being
that all of the studies to date deal with possible job impacts inde-
pendent of any of these subsidy devices. We are unaware of any
studies that look at the cushioning of the subsidies on a possible
job loss.
So like the NFIB, when we have a good sense of that subsidy for-
mula, we too will go out and get some research.
Senator Coats. Some of the larger companies, particularly those
in the retail and service business and those that tend to employ
lower wage earners or part-time workers, have come forward — It-
Mart ana Federated Department Stores and so on — with job esti-
mates. Are they based on models or studies, or just estimates?
Have you had a chance to analyze those? Or are they in the same
position, essentially, waiting to get the final details, before you can
get hard, firm numbers?
Mr. Patricelli. We have not been inside their estimates, nor do
we know whether they include some specific reference to possible
subsidy supports for their firms.
Mr. Roush. And I do not know, either.
Senator Coats. Well, those will be helpful when we get the de-
tails.
Do any of you have any suggestions — we talk about no pre-exist-
ing conditions, deductions for small business owners at the rate of
large business owners, portability, etc. But those are all changes
that impact on the costs of administering the system.
If you do not go the mandate route, do any of you have any sug-
gestions as to how we can bring in the uninsured or the low-income
underinsured, without mandating? I mean, should we look at Gov-
ernment-sponsored community health centers across the country to
provide a basic level of benefits? Should we look at the availability
of a tiered benefits package at a lower cost? I know no one wants
to go to a tiered system, but do you have any thoughts about op-
tional ways of providing at least basic coverage without mandating
employer coverage?
Mr. Lindsay. Senator, just as a comment, our firm worked for
quite a few years as a consultant to the Robert Wood Johnson
Erojects of the working uninsured across America. I am sure that
otn the Senators are familiar with those studies. Those studies
were very interesting. They polled small businesses, primarily
those with less than five employees — because that is where the
working uninsured are by number — as to the primary reason for
them not offering insurance. The primary reason was cost. The sec-
ond reason, which was closely behind the first, was fear of future
cost increases. And then the number of responses fell off dramati-
cally from that.
So what that tells me is that there are two ways to approach this
problem. One is an accessibility problem, which you can do effi-
385
ciently through the Government by just making it law; you man-
date it. But the other one is really addressing the issue of cost.
Now, the Clinton proposal, as best we all Know, has many provi-
sions in there to try to address some of the drivers in the cost sys-
tem. But we have a real strong belief that if there are aggressive
and effective cost containment strategies that are put in place
throughout this country, that alone will help many small busi-
nesses be able to afford coverage without a mandate and make
them feel comfortable and safe in offering a plan of benefits that
will not only be available today, but will be affordable in the fu-
ture.
Senator Coats. Would you suggest, then, that the cost savings
aspects of the plan be implemented first to demonstrate the viabil-
ity of that and then see how business responds, and if they do not
respond, then
Mr. Lindsay. That is certainly a viable option that is being dis-
cussed in many circles — rather than fight the battle of the man-
date, to ask can we do something to make the coverage more af-
fordable.
The sense that I have just anecdotally with my peers is that
most small businesses really would like to be able to provide cov-
erage for their employees. The two reasons that they do not are
that, one, they cannot afford it, and/or they have pre-existing medi-
cal conditions.
The interesting development is that since the Clinton proposal
has emerged, it has had a significant effect on health care reform
in America. Health care reform is going on right now in many
States through the National Association of Insurance Commis-
sioners passing laws that outlaw pre-existing conditions, that out-
law medical underwriting. The problem with those laws is that
they generally do not curtail costs.
So to answer your question, I would say that if there were effec-
tive cost containment, it would be interesting to see first what that
would do in the system and whether or not we would bring enough
people into the system to be able to avoid having to have a man-
date.
Ms. Mills. We have had HMOs who, in the beginning, did not
have pre-existing condition clauses, and their rates have been
growing at half the rate of a pure indemnity plan, and still busi-
nesses did not choose to do that when there were no pre-existing
condition rules. Now there are pre-existing conditions rules in
HMOs. The costs are still lower, but there was the opportunity
there, and many businesses did not avail themselves of it.
Mr. Patricelu. Senator, it was the Chamber position for many
years that we could virtually close the coverage gap through vol-
untary efforts that would lower the cost of coverage to small busi-
ness through a combination of cost containment and perhaps some
kind of tax credits or something like that.
However, like Mr. Lindsay, we followed closely the results of that
Robert Wood Johnson program in which I believe seven or eight
communities tested the effect of special subsidies on small busi-
nesses choosing to implement insurance programs, and to us the
very disappointing conclusion of that set of studies was that lower-
ing the cost, subsidy alone, did not produce significant sign-ups of
386
new business, with the single exception of the State of Florida, for
some reason.
Now, perhaps that had to do with context and extraneous factors,
but we were reluctantly led to the conclusion that absent some
kind of national framework of requirements for business, individ-
uals, and Government, you are not going to get there.
Mr. Lindsay. Senator, if I could just respond to that, I think that
is an interesting point, but again, because I was involved in those
programs, the point that I would raise with the statement by the
Chamber is that in follow-up interviews with many of the busi-
nesses that did not elect to participate in those subsidy programs,
the main reason they did not was that these were experiments, and
they did not believe that the subsidies would continue. Their con-
cern, therefore, was what happens if I sign up today and look like
a hero to my employees, and 2 years from now the State can no
longer afford the subsidy; then I am going to look like the bad per-
son by taking it away. That specifically happened in several States
when the legislature, as coverage started to increase and people
started to be covered, became very concerned about the additional
cost and had to look at cutting back on those approaches.
So my commentary on addressing cost is not with artificial sub-
sidies that artificially reduce the rates and cannot be sustained
over time. I am talking about systemic change in our health care
system that would have long-term and lasting cost effects.
Mr. Roush. Just very briefly, we believe that the changes to
bring costs down will in fact increase coverage, but we are not con-
vinced, based on our own surveying, that it will accomplish univer-
sal coverage in and of itself. Our surveys indicate that about 10 to
15 percent of small business people say that under no cir-
cumstances would they ever provide health insurance.
The vast majority, nowever, who do not now have health insur-
ance for their employees want to do it, and in the surveys, just as
Mr. Lindsay indicated, cost is why they are not.
So you will get a dramatic increase in coverage by the kinds of
voluntary programs you are talking about, but you will not get ev-
erybody, I do not believe. I believe Senator Chafee's proposal has
ways of getting at those through vouchers; and Congressman Coo-
per tries to get at them through individual tax kinds of things.
One other point if I could, just briefly. There is a sense that —
and the President has said this numerous times — we already have
universal coverage. The question is rationing it so it is paid for
more reasonably.
Those are some comments.
The Chairman. Let me ask Mr. Lindsay, do you really think that
by encouraging the coops and the other suggestions you have made
that you can really get a handle on the issues of cost in the total
system? I mean, won t we just have continued cost shifting?
Mr. Lindsay. I think that to a certain degree, Senator, you are
always going to have some degree of cost shifting. I would suggest
that even in the administration's proposal with Medicare being a
significant payer in the system, outside the system you will still
have cost shifting from Medicare to everyone else.
So I think to some degree you will always have cost shifting. But
I think the real reason why you have cost shifting, again, is be-
387
cause of the nature of the costs in general. There are a lot of as-
pects of the administration's proposal that would get at costs.
There are other things in addition that maybe are not included at
the present time that could be added that would further address
the issue of cost. And I guess, speaking on behalf of National Small
Business United, we would rather see the focus on the cost rather
than the mandate initially, and then work through it on that basis.
The Chairman. We saw earlier in the year an enormous amount
of political pressure to put limitations on the Medicare and Medic-
aid programs, and that only missed by 8 or 10 votes. And if this
process does not move ahead, that thing is going to whistle through
here, and who will end up paying for it? Chamber members, who
currently have some coverage. It is going to be that 40-odd percent
of small businesses that will see their premiums go up, and it will
just break the backs of many of those small businesses as well. It
has a head of steam, and the political reality is that people want
to cut Government spending, and that is coming down the track as
well, with all the implications it has in terms of shifting costs to
the private sector.
That is why it is enormously important to understand that we
are all in this together, whether we like it or not, and to try to
think anew about some of these issues; that's really what is re-
quired. It was mentioned earlier in the course of the hearing, and
that is certainly something that we are all going to try to come to
grips with.
This has been enormously interesting. On these health care is-
sues, I say I always learn a great deal, and I have a lot more to
learn, from the hearings.
I am grateful for the very constructive attitude that has been
taken by the small business community and the business commu-
nity generally. There are differences, and we should not minimize
those differences, but there is a great deal of common interest and
an even broader common understanding and awareness about
where we are at this time in this debate. I daresay, as someone
who has been involved in the issue over some period of time, that
5 years ago, we would never have had this kind of a panel with
the level of discussion and interchange that we have heard here
today. We have all come a long way, and I want you to know that
we are interested in trying to find additional common ground.
There will probably be areas where we just cannot, but I think cer-
tainly the attitude of the President and having been with Mrs.
Clinton earlier this morning, there is a very deep desire to maxi-
mize the areas of common interest and see now far down the road
we can go, because as was mentioned by Ms. Mills, and I believe
very sincerely, this is in many respects the issue of this generation.
It is what Social Security was in the 1930's and Medicare was in
the 1960's. And the institutions are really on trial. There is a lot
of questioning about institutions around here. But the American
people are really wondering whether Republicans and Democrats
can work together, and whether the different elements in terms of
our private sector can work with the institutions, and whether we
can come to grips with an issue as complex and difficult as this —
an issue that has the most dramatic impact on every family in this
country.
388
That is really going to be the challenge of the time, but I am very
much encouraged by the positive attitudes of our witnesses today.
We look forward to working with you.
Senator Coats has left, but we are having hearings next week on
the whole question of the macroeconomic impact of the health care
reform issue. We have had some hearings in the past which I think
dealt with the issue in an important way, but we will be looking
at that issue as well as the issue of retirees.
Thank you very much. The committee stands in recess.
[Whereupon, at 12:50 p.m., the committee was adjourned.]
ECONOMIC IMPACT OF THE HEALTH
SECURITY ACT OF 1993
TUESDAY, OCTOBER 19, 1993
U.S. Senate,
Committee on Labor and Human Resources,
Washington, DC.
The committee met, pursuant to notice, at 10:02 a.m., in room
SD-430, Dirksen Senate Office Building, Senator Kennedy (chair-
man of the committee) presiding.
Present: Senators Kennedy, Harkin, Wellstone, Wofford, Kasse-
baum, Jeffords, Coats, Gregg, Thurmond, and Durenberger.
Opening Statement of Senator Kennedy
The Chairman. The committee will come to order.
We welcome this morning Dr. Laura Tyson, who is the chair of
the President's Council of Economic Advisers, as our first witness,
and a very distinguished group of health economists in our second
panel.
This committee is attempting to focus on a variety of different as-
pects of the health care crisis, and today we want to give consider-
ation to some of the macroeconomic implications of the President's
program. And there is no one who is better qualified to be able to
respond to those kinds of concerns than our first witness this morn-
ing, Dr. Tyson, who is the chair of the Council of Economic Advis-
ers. She is well-known to all the members of this committee. She
previously appeared here to describe for us the important economic
problems created by our current health care system. Today, she re-
turns to discuss how the President's program will address these
critical problems and to answer questions on the economic implica-
tions of the President's plan.
I will have my written statement included in the record in its en-
tirety.
[The prepared statement of Senator Kennedy follows:]
Prepared Statement of Senator Kennedy
The President has proposed a bold plan to achieve comprehensive
reform of the American nealth care system and provide affordable
health security for every citizen. The plan could also have a signifi-
cant impact on the economy. Health care accounts for one-seventh
of total national spending.
The high cost of health care is a problem not just for families,
but for business, federal, state and local budgets, and for the econ-
omy as a whole. The federal deficit is in large measure driven by
(389)
390
excessive inflation in health care spending. In fact, if such spending
were held to the same rate of growth as the rest of the budget, we
would cut the federal deficit in half in just five years. Restraining
the growth in health spending as the Presidents plan progresses
is an essential part of a strategy to revitalize the economy. At the
present time, soaring health costs are eating up funds needed to fi-
nance investment, job creation, and economic recovery.
In many ways, it is small businesses that suffer the most from
the current system. Insurance companies charge small businesses
a premium mark-up that makes coverage far more costly than
large businesses have to pay. For the smallest businesses, up to
fifty cents of every premium dollar stays with the insurance com-
pany to cover administrative and sales costs and profits, rather
than paying for essential health benefits.
Any program as comprehensive as the President is proposing will
have substantial economic impacts beyond the health care system.
These impacts deserve careful assessment.
As with any major reform, special interests opposed to the reform
will produce excessive estimates of the alleged economic harm that
will be done if the reform is adopted. In recent years, we have seen
that tactic with the minimum wage, with the Family and Medical
Leave Act, and with the Americans with Disabilities Act. The chal-
lenge facing Congress is to weigh all aspects of the change, includ-
ing the economic impacts, as accurately as possible, and to compare
them with the cost of doing nothing, or doing something ineffective.
Our hearing today will explore these issues. There are legitimate
differences of opinion about the impact of some aspects of the
President's plan. I welcome our witnesses, and I look forward to
their testimony.
The Chairman. Dr. Tyson, we remember very well your appear-
ance here earlier, when you spoke about some of the pressures that
exist on our economy because of the health care costs, and today
we are very interested in hearing from you again about how you
view the President's program and what its impact is going to be on
the economy, on employment, and on the other economic indicators.
We very much appreciate your presence here this morning.
We are currently in the process of a vote, but our other col-
leagues will be here momentarily, so I think we should get started
with your presentation.
Before we begin I have statements from Senators Dodd and Mi-
kulski.
Prepared Statement of Senator Dodd
Mr. Chairman, today's hearing — the sixth this fall on health care
reform — focuses on issues of great importance — the impact of pro-
posed reforms on jobs and the economy.
Without question, assuring health security to all Americans is
among our highest priorities, along with employment and economic
security. The relationship between these priorities must be exam-
ined carefully throughout the health care reform debate, so as not
to ensure one at the expense of the others.
However, as we analyze the economics of proposed changes to the
system, we must also keep in mind the economic impact of the cur-
rent system and the consequences of failing to achieve reform on
391
jobs, businesses, and international competitiveness. We must not
allow unsubstantiated fears to keep us from enacting meaningful
reform and needed change.
Current system — what we know
We know that our current health care system has a negative ef-
fect on the economy. The first indication of the problem is the in-
creasing percentage of profits absorbed by health care. In 1980,
health care consumed 41 percent of after-tax profits. By 1991, it
consumed 97 percent.
Our current system forces major manufacturers to spend far
more on health care than their international competitors. We know
that the U.S. automobile industry pays more for health care than
for steel and that on average, they pay about $500 more per car
on health care than the Japanese. The U.S. spends 14 percent of
GDP on health care, while Japan and Germany spend closer to 8
percent.
The current system also has had a negative effect on workers'
wages. Labor has foregone wage increases for health benefits. And
employers' contributions to health insurance absorbed more than
half of workers real income between 1973-1989. A significant por-
tion of the premium includes the cost of care for those without
health insurance.
So we know that without action, health care system will continue
to hurt the U.S. economy. The question that follows is what effect
will change have?
Will the plan hurt us economically?
At present, there is no evidence that the Clinton proposal will re-
sult in lost jobs or that it will hurt the U.S. economy. We have
heard that the job losses predicted by several economists have been
based on incorrect assumptions. And as recently as last week,
when this committee heard from businesses and workers, both the
U.S. Chamber of Commerce and the National Federation of Inde-
pendent Business conceded that the previous estimates of job losses
did not take into account the plan's proposed subsidies for business
nor the schedule for phasing in coverage.
The draft plan's provisions to control escalating health care costs,
make coverage affordable to smaller businesses, and prevent cost
shifting on their face appear to be steps toward improving the cur-
rent situation, but we will need to explore these issues more as we
move forward in the debate.
Hawaii
I am interested in hearing more about Hawaii's experience with
employer mandated coverage. Hawaii has had mandatory coverage
for close to two decades. While significant differences exist between
Hawaii and the experience other States might have under a similar
system, Hawaii's experience with mandated coverage has been a
positive one. The Hawaii example is not theory or fantasy. It's real
world experience and warrants our attention.
Dr. Lewin, director of Hawaii's State Department of Health, is
here with us this morning and I'd like to welcome him. When he
392
testified before this committee in 1989, he told us that Hawaii's
system has not hurt Hawaii's businesses.
In fact, he and others have found that businesses who provided
insurance before the mandate have benefited. They no longer foot
the bill for the uninsured who worked for businesses that did not
provide coverage. Hawaii's system has lowered the cost of coverage
to small businesses, who sometimes pay as much as 40 percent
more for insurance than larger businesses. I look forward to hear-
ing more about the Hawaii experience this morning.
In closing, I want to welcome and thank our witnesses who will
share with us their analysis of the administration's draft proposal.
I hope that as we see and debate actual legislation, they will con-
tinue to provide their expertise to the committee.
Prepared Statement of Senator Mikulski
Good morning Mr. Chairman, I want to begin by thanking you
for holding this nearing.
It woula be a major understatement to characterize the issue we
are going to deal with today as very important. The economic im-
pact of health care reform is second onlv to the health impact itself
in terms of the need to address this problem.
As I've said before, it is not just the health of our people at stake
in this debate, its the health of our economy as well.
Everyone who is party to the deliberations about health care re-
form should be vitally interested in today's testimony.
After hearing from the people of Maryland, it is clear to me that
our economy is among the chief victims of the mess we are now in
with health care in this country.
I've heard too many stories about exploding costs that have hurt
both employers and workers, and too many stories about people los-
ing coverage and ending up economically devastated because of a
medical need. The need for action is clear.
Mr. Chairman, you told a story the other day which really made
me stop and think.
It was about testimony you heard from a mother who had to tell
her kids that they weren't allowed to ride their bicycles because of
the chance they might fall. This family did not have the protection
needed to pay for a broken arm.
This is not the America we have known.
This is not the America we should aspire to.
People who play by the rules, people who work hard and pay
their taxes and serve their country when called upon, shouldn t
have that kind of fear.
That kind of fear results in an insidious loss of liberty.
We need the kind of health care reform which will end that kind
of fear forever, while constraining costs in a way that supports
rather than undermines our economy.
A major question for everyone involved in this debate is: "How
many jobs will be affected by this initiative?" "How many will be
lost: ' How many will be created?"
I know I'd like to see reliable information on that question.
But we also have to recognize that we have already lost too many
jobs to the status-quo. And many more jobs will be lost if we don t
do something to fix it.
393
If all we were worried about was the economy, we would still
need health care reform. As it is, this system imposes what I call
a "value subtracted" tax on every American product. The exploding
cost of health care is hurting business, hurting workers, and mak-
ing us less competitive in the global marketplace.
We heard testimony last week from the Ford Motor Company
about just that problem. That testimony told of a hidden $1000
"value subtracted" tax on every American made car because of the
cost of health care!
I've been talking to Marylanders about the economic impact of
health care reform, and let me tell you they are plenty worried. But
what they are most worried about is the economic impact of no
health care reform.
Let me just share a couple of facts from my state.
In 1980 a large employer in Allegheny County paid 5% of its
total payroll for health care premiums. By 1992, that same
company paid 11.3% of payroll.
That is astounding enough, but to make matters worse, the
more they paid the less they got.
Deductibles were up, copays were up, covered services were
down, and employees had to pay 20% of the price (compared
to none in 1980).
And the impact of these cost increases on employees has been
worse than the impact on employers.
If things don't change, by the year 2000 almost $1 of every
$5 earned by the average Marylander will go to health care
spending. This compares to 30 cents in 1970, and 65 cents
today.
One last fact that I found most disturbing and have cited before
because of its importance. It speaks volumes about the priorities of
our society and also about how well the public and private sectors
constrain costs in an area of critical importance.
In 1970, the people of Maryland spent just about the same
amount on education as on health care. Today we spend twice
as much on health care.
Mr. Chairman, we need to turn that record around.
I hope that this hearing will shed important light on how to do
that. We need to both understand the impact of the reform the
President has proposed on our economy and how we can move our
nation away from the destructive path we have been following.
When I think of all of our country's many needs which remain
unaddressed, I am convinced that we can no longer afford the sta-
tus-quo.
Mr. Chairman, I have never been more serious about anything
than what I am about to say. Problems as fundamental and com-
plex as this is what we were all sent to Washington to address.
And the time to do it is now.
I look forward to the testimony to be provided today.
Thank you Mr. Chairman.
394
STATEMENT OF LAURA D'ANDREA TYSON, CHAIR, PRESI-
DENTS COUNCIL OF ECONOMIC ADVISERS, WASHINGTON,
DC
Ms. Tyson. Thank you very much, and thank you for the oppor-
tunity to speak about our health care system and our proposed re-
form. It is really a pleasure and an honor to speak with this com-
mittee and with you, who have spent so much time thinking about
this very important issue for our country.
I want to briefly summarize some of the problems I spoke with
you about the last time, just so that we can have again in mind
the shortcomings of the system that we are trying to reform.
The system we are trying to reform has many shortcomings
which have important economic effects, and I just want to summa-
rize what they are.
First of all, the current system does not provide security for
many Americans. When people get sick, the cost of their insurance
can increase dramatically and unexpectedly, or they can be dropped
from coverage altogether. This is really a situation which is the re-
sult of risk selection practices on the part of insurers. While it
makes sense for any individual insurer to behave this way, it does
not make sense from the point of view of the economy and what
insurance is supposed to do.
The second problem with our health insurance system is it dis-
torts the employment decisions of individuals. Since almost 40 per-
cent of insurers exclude pre-existing conditions from their coverage
of newly-insured people, many individuals feel locked into their
current insurance policies and their current jobs. Up to 30 percent
of employees in surveys report that they feel locked into jobs. They
feel they cannot move to other jobs, and they feel a disincentive to
start out on a new small business on their own because of the cost
of getting insurance. People feel locked into welfare because to go
off of welfare risks Medicaid coverage if they take a job.
So if we are to have a flexible work force, if we are to have a
matching of individuals' skills and talents with job opportunities,
we must end job lock and welfare lock, which come out of our in-
surance system.
The third problem with the current system, of course, is that the
number of people who cannot find affordable insurance is very
large and expanding. Over 37 million Americans do not have
health insurance, and this is not a predicament of the unemployed
alone. Three-quarters of all uninsured people are in working fami-
lies, and over one-third of all uninsured people are in families with
at least one full-time worker.
So we have a system which simply cannot deliver insurance even
to working Americans.
Now, it is a myth that the people who have insurance do not
have to worry about the uninsured, because when the uninsured
incur health care costs, the insured pick up the bill. Currently, the
uninsured pay only about 20 percent of the costs they incur. The
privately insured pay 130 percent of the costs they incur. That is
about $25 billion in uncompensated care paid for by the insurer.
The fourth problem with our system, of course, is that our costs
are very high and rising rapidly. No other country in the world
spends more than 10 percent of its GDP on health care. We spend
395
14 percent. American consumers spend more on health care than
fuel oil, electricity, natural gas, oil and gasoline, local transpor-
tation, furniture, and other household equipment combined.
There have been reports — there was a report yesterday — that
health care inflation has shown some signs of moderation. Let me
emphasize that during the last quarter, health care inflation was
still three times as rapid as overall consumer price inflation. Dur-
ing the last year, medical prices have increased at a 5.7 percent an-
nual rate, compared to an overall CPI increase of only 2.7 percent.
So our costs are high, and they are continuing to rise rapidly.
Health care spending per worker in the United States in our cur-
rent system will be over $7,000 per worker in 1994. American
workers on average pay $1,864 directly for health care. Their em-
ployers spend an additional $3,409, and Federal, State and local
taxes for health care amount to $2,149.
Now, what we know from empirical research is that this heavy
weight of health care cost per employee shows up in part by em-
ployers responding with lower wage growth. So if employer con-
tributions to health insurance had remained the same share of
compensation as they were in 1975, American workers today in
real terms would earn $1,000 more. It is basically the case that
health costs have been gobbling up more and more of the real wage
possibilities of the American work force.
Finally, the fifth problem in our system is that it is riddled with
waste, excess supply and inefficiencies. Despite our massive com-
mitment of resources to health care spending, the United States
ranks 19th out of 26 countries in infant mortality and 18th in life
expectancy. We lose an estimated $80 billion a year to fraud and
abuse, $45 billion a year is spent on administrative expenses and
paperwork, and over one-third of medical procedures are judged in
studies to be unnecessary or inappropriate. Hospital prices con-
tinue to rise in many parts of the country despite the fact that beds
are in excess supply. And finally, HMO experience from my State
and many other States indicates that you may be able to reduce
the cost of medical care by 10 to 20 percent without reducing the
quality of outcome.
There are a number of diverse indicators which paint a very com-
pelling picture that we have waste and inefficiency in our health
care system. For an economist, that is perhaps the main reason to
reform the health care system. If you have one-seventh of the econ-
omy riddled with inefficiency and excess resources, the standard of
living of the entire economy can be brought up by reforming and
getting rid of this waste and inefficiency.
Now, those are the problems. What will our health security plan
do? What are the major economic effects?
First of all, the employers who currently offer health insurance
will see their costs fall immediately. Under our health care security
plan, every individual will receive health insurance. What will this
mean for those companies that are currently providing insurance?
Eliminating uncompensated care will lower costs to businesses that
currently provide, thereby making resources in those businesses
available for higher wages, more investment, more research and
development, higher profits, lower prices — a variety of things.
396
In addition, businesses that provide will be benefited also by
eliminating corporate free riders. That is, there are many compa-
nies that currently provide health benefits for their employees and
for the spouses of their employees. If those spouses are working, in
our system, their employers will cover their health care costs.
So we will eliminate uncompensated care and eliminate cor-
porate free riders. That will help companies that are currently in-
suring.
Second, we have done estimates indicating that as a result of our
plan bringing the rate of growth of costs down over time, by the
end of this decade, aggregate business spending — that is, total
business spending on health insurance — will decline. In fact, at the
end of the decade, our preliminary estimates indicate that aggre-
gate business spending on health care services provided by the
health security plan will fall by $10 billion.
As I said, businesses can do many things with the resulting sav-
ings, and they are all beneficial for the economy. They might decide
to use the savings to increase employment. They might decide to
use the savings to increase wages. They might decide to reduce
prices. They might decide to invest more.
Each of these outcomes which come from the business commu-
nity as a whole spending less on health care is a beneficial outcome
for the economy and for employment.
I want to emphasize, as I think the press and the American pub-
lic are beginning to understand, that small businesses will be par-
ticularly benefited from the health security plan. Currently, small
businesses that provide insurance face administrative costs of up to
40 percent, while large business administrative costs are only 5
percent.
Under reform, the administrative costs alone for the small firms
will fall by up to 25 percent. Additionally, many of the small insur-
ing firms will receive discounts on their premiums. Right now, the
system really works to the disadvantage of the small firm. They
pay up to 35 percent more for the same insurance as big compa-
nies, and the rate of growth of health insurance for small business
has been 50 percent faster than the rate of growth of health insur-
ance for big business. So this will be a benefit to the small business
community.
Although small businesses that do not currently provide insur-
ance will indeed pay more, they are very likely to receive health
care discounts. We have designed a system of discounts which pre-
cisely reflects the reality that small firms that do not now provide
insurance should get a discount — should get an affordable package
of insurance.
Many small businesses have reported in surveys that they wish
to provide insurance, but that they cannot find affordable insur-
ance. In one study done for the National Federation of Independent
Business, Charles Hall of Temple University found that 64 percent
of small business owners would like to provide some or better in-
surance for their workers. When they are asked why they are not
doing so, they say because the premiums in the current system are
too high. Yes, they are too high, for all the reasons I suggested be-
fore. Small firms are at a disadvantage.
397
Under our health security plan, small firms will be able to get
affordable insurance, and the discounts will make sure that is the
case.
The health care security plan will also have an effect on the
health care sector in many ways. In particular, I would argue it
would make it more efficient, but it also will actually in the short
run increase employment. You have to think about the plan as ini-
tially bringing more people in, a net increase for health care serv-
ices, and then bringing down the rate of increase of health care
spending over time, slowing it down over time.
We estimate that the net effect of this in the short run, by the
end of the decade, we should have something like 400,000 addi-
tional new workers in the health care sector.
Over time, of course, the health care sector will become more pro-
ductive, but that does not mean — and again, I want to emphasize
there is some confusion sometimes— we do not anticipate at any
time a decline in health care sector employment. If anything what
we are saying is there is an increase in health care sector employ-
ment initially, and then it grows more slowly over time. Sometime
in the future, relative to baseline employment, we may have less
health care sector employment, but there is not an absolute decline
in the number of workers in the health care sector.
Another economic effect which will be very beneficial is the re-
duction of job lock and welfare lock. As I have indicated, workers
feel right now that they are locked into their jobs for fear of losing
their health insurance. Welfare families feel they are locked in wel-
fare for fear of losing their health insurance, their Medicaid cov-
erage.
We believe that the additional flexibility will allow workers to
pursue more productive careers, will allow a better match between
employers and employees, and this will improve efficiency in the
economy.
It should also be emphasized that some workers may decide in
a changed health care system to retire early as a result of health
care reform. This voluntary increase in retirement may in fact in-
crease employment opportunities for younger workers.
Now, I have painted so far the beneficial picture. Nonetheless
there are some studies out there that claim that the health security
plan will cause substantial damage to the economy, and I want to
try to indicate what I believe to be wrong with the existing ap-
proaches and existing studies.
First of all, it is important to begin by emphasizing that some
firms and some individuals will in fact pay more for health insur-
ance than they did prior to reform. We know that the health secu-
rity plan will increase costs for some young, single workers and
will increase health insurance costs for some firms that did not
previously offer health insurance. Both of those things are true.
The vast majority of American families and American workers,
however, will benefit from a reduction in health insurance costs,
from having portable health insurance coverage, from having a re-
duction in the job lock that currently makes them less flexible.
Then, in addition, as I noted, many employers, both large and
small, who currently provide insurance will initially benefit right
398
off the bat, an immediate benefit, and the business sector as a
whole will benefit within 3 years of the plan's full implementation.
So what do the studies have to assume, or what do they miss,
to get a negative effect? Given that I have just indicated all the
reasons why the effects are positive, what do the studies have to
assume to get a negative effect?
There are several studies. One study in particular, by O'Neill
and O'Neill, which has been the most widely cited study, which
suggests that the job number may be as many as 3.1 million jobs
lost, is a study that is riddled with inaccuracies about our plan and
what our plan actually is and with also questionable analytical as-
sumptions.
As to the inaccuracies on our plan, this study does not account
for any of our discounts. As I said, we have put into our plan dis-
counts for small, low-wage firms, precisely to deal with the reality
that many of these firms currently do not provide insurance. So we
are giving a discount to them, and the study overlooks that.
The study also overlooks the fact that the costs for the firm will
depend upon the part-time or full-time nature of the worker, so
this will be a pro-rated premium for part-time workers, not a full
premium for part-time workers.
This study also vast overestimates the cost of the premium. They
use a premium of $5,310 per worker and a family, and $2,160 for
a single worker. The estimates of our health security plan, which
have been signed off by a number of actuaries, are $2,500 per
worker and a family, and $1,500 for a single worker. So these are
the more realistic estimates of what our premiums will cost.
Those are the factual errors. Now the analytical errors. Any
study which tries to estimate the employment effects of health care
has to make a decision about how sensitive firms are to a change
in their employment costs. So some firms will see their employment
costs going down; those are firms that are already providing insur-
ance and are going to get a better deal. Some firms will see their
costs going up. In order to judge the employment effects, you have
to make an estimate of how sensitive the firm is to changes in
those costs.
The O'Neill study, for example, assumes that firms that see their
costs increase by 10 percent will lay off 3 percent of their workers.
We looked through the economic literature on this, and the esti-
mates in the economic literature suggest that the employment re-
sponse may be only one-sixth to one-third as large. That is, they
are making a very out-of-range, in our view, assumption about how
sensitive firms are in their employment decisions.
Finally and most importantly, the existing studies that are out
there do not really allow for any new job creation in businesses
whose costs fall as a consequence of our reform. That is, most of
the studies ask the following question: Suppose the only effect of
our plan were an increase in insurance costs for some firms. What
would be the effect on employment? That is the wrong question. It
is the wrong question because many firms will see a decline in
their costs, and the overall business community will see a decline
in its costs. So you actually have to ask a much more complicated
set of questions where many firms are actually benefiting.
399
Finally, if you just look at the real world evidence from Hawaii,
of course, the suggestion that job loss claims in studies like O'Neill
do appear to be exaggerated. Hawaii imposed an employer health
insurance mandate in 1974. Since the 1970's, total private nonfarm
employment has grown by 80 percent in Hawaii, compared to 54
percent in the Nation as a whole; and retail and wholesale trade
employment have grown more in Hawaii than in the Nation as a
whole.
I understand that you will be hearing from Dr. Jack Lewin later
this morning. He certainly understands and can explain Hawaii's
experience with a health care mandate.
Now, where does that lead us in terms of a summary conclusion
on the likely effects of health care reform? We believe that neither
the models nor the data are available to yield a precise estimate
of the employment effects of health care reform. In many areas of
economics, there are models that allow economists to make a pre-
diction and have a reasonable amount of faith in their prediction.
For example, if you asked me what the effect of a particular spend-
ing cut is on economic performance at the aggregate level, I can use
a standard model, the Wharton econometric model or the DRI
model or a number of models out there, and make a prediction. The
model is designed precisely to answer that question. I can make
the prediction and give you a prediction with a reasonable range
of accuracy.
There are not any existing models that allow us to do that in an-
swering the question of the employment effects of health care re-
form. This is because the appropriate model, the model you would
need for such an exercise, would have to make distinctions between
firms that currently provide insurance and firms that currently do
not provide insurance; between large firms and small firms. They
would also have to make distinctions among the various ways that
a firm can respond to a change in health care costs, whether it is
an increase or a decrease. Firms can do many things. The model
would also have to predict how individuals will respond. Will indi-
viduals change their behavior in terms of deciding to start a new
business, deciding to retire, deciding to move jobs more frequently,
deciding to go off of welfare?
There is simply no model around which allows you to take into
effect all of these very important incentive questions about our
health care reform. In the absence of such a model — and no one
has such a model; I want to emphasize this — one can generate ei-
ther small net positive or small net negative effects on employment
with existing models depending upon what you assume. It is sort
of the old adage that you get out what you put in. I can put in a
set of assumptions that will generate employment gains that are
perfectly reasonable. I can put in a set of assumptions that will
generate employment losses.
The net effects are small. Not surprisingly, therefore, several pri-
vate sector economists have concluded as we at the CEA have con-
cluded, that the net effect of our health care plan on aggregate em-
ployment is likely to be small.
What we suggest on the basis of a series of internal runs is a
range of plus or minus one-half of one percent at the aggregate em-
400
ployment level. That is plus or minus one-half of one percent at the
aggregate employment level.
What is the intuition here? Why is it plus or minus? Because
there are some factors in the plan that will encourage employment,
for example, by firms that are better off because their health care
costs are coming down or because we may have greater job mobility
into self-employment or something like that. There are factors that
will tend to decrease employment— -a firm facing higher costs might
in fact decide to adjust its size.
These offsetting factors tend to cancel out. What we know for
sure is that the composition of employment is likely to change; that
over time, the factors encouraging an increase in employment will
get stronger because business sector spending will come down; and
on balance, the net effects are small.
Therefore, as an economist I conclude that the net effects on em-
ployment per se are likely to be small, but this is clearly a very
important, good plan for the American economy. We know this with
certainty. It diminishes job lock, it diminishes welfare lock, it al-
lows more people to be self-employed, it gets health care costs
under control, it guarantees security to all Americans, it reduces
waste and inefficiency in one-seventh of our economy.
If we reorganize our health care system, we can use our scarce
resources more efficiently to help us realize the goal of higher liv-
ing standards for ourselves and our children.
I would be delighted to answer any other questions you have
about the economic effects of health care reform, and I Iook forward
to working with you to make sure we reform the problems in our
current system.
Thank you.
[The prepared statement of Ms. Tyson follows:]
Prepared Statement of Laura D'Andrea Tyson
the economic effects of health care reform
Thank you, Mr. Chairman, for the opportunity to come before your Committee to
discuss the economic effects of health care reform.
The United States is facing a health care crisis. The rapidly rising cost of health
care hurts businesses, depresses wages, and contributes to fiscal imbalance. The av-
erage working American will be charged, directly and indirectly, over $7,000 for
health care in 1994. The lack of health security makes many individuals afraid to
leave their current jobs, discourages others from working for small businesses or be-
coming self-employed, and keeps people on welfare instead of working.
Reforming health care is a difficult challenge, but one that we must face. Let me
first outline the problems that force us to take action, and then I will move on to
the economic effects of the Health Security plan.
Why Reform Health Care?
There are five reasons why urgent health care action is needed.
The First problem is that our health care system does not provide security to indi-
viduals. When people get sick, the cost of their insurance can increase dramatically,
or they can be dropped from coverage completely. This situation is a result of risk
selection practices on the part of insurers. Insurers spend large amounts of money
trying to select good health risks, and avoid bad risks. This practice is profitable
for any one insurer but is socially wasteful. After all, someone must cover the costs
incurred by people who get sick. The result is that many people cannot get coverage,
and many more fear for their ability to get coverage in the future.
The second problem with our health insurance system is that it interferes with
the employment decisions of individuals. Almost 40 percent of insurers exclude
prexisting conditions from their coverage of newly insured people, thus locking
many people into their current insurance policies and jobs. Up to 30 percent of em-
401
ployees feel "locked" into their jobs. Others do not form small businesses or become
self-employed because of the difficulty of obtaining insurance. Finally, many people
remain on welfare because they will lose their Medicaid coverage if they take a job.
If we are to adapt to changing domestic ad international economic circumstances,
we must not penalize people every time they change or lose a job.
The third problem with our health care system is that the number of people who
do not have access to affordable insurance is large and expanding. Over 37 million
people do not have health insurance. And this is not a predicament unique to the
unemployed. Three-quarters of all uninsured people are in working families, and
over one-third of the uninsured are in families with at least one full-time year-round
worker. We have a system in which millions of people, many of them in working
families, cannot afford the rising costs of health care coverage, and they face the
risk of being financially crippled by events beyond their control.
It is a myth that insured people do not need to worry about the uninsured. Under
our current system, when the uninsured face catastrophic costs, the insured pick up
the bill. Currently, the uninsured pay only 20 percent of the health care costs they
incur, while the privately insured pay 130 percent of their actual health care costs.
According to recent estimates, there will be about $25 billion of "uncompensated
care" paid for by the insured in 1994. Providing health insurance for all Americans
could therefore lower premiums for the currently insured by over 10 percent.
The fourth problem with the health care system is that health care costs are high
and rising: No other country in the world spends more than 10 percent of its GDP
on health care. The United States spends 14 percent. American consumers spend
more on health care than on fuel oil, electricity, natural gas, other household oper-
ations, oil and gasoline, local transportation, furniture, and other household equip-
ment combined. Even though health care inflation has moderated recently, during
the last quarter it was still three times as rapid as overall consumer price inflation.
Health care spending per working American will be over $7,000 per worker in
1994. American workers will, on average, pay $1,864 directly for health care in
1994. Their employers will pay an additional $3,409. And Federal, State, and local
taxes for health care will total $2,149.
Empirical research suggests that businesses generally respond to higher health
care costs by lowering the wages they pay to their employees. Similarly, the taxes
required to pay for government health spending are borne to some extent by work-
ers in the form of lower wages. Thus, if employer contributions to health insurance
had remained constant at their 1975 share of compensation through 1992, and if
employers had passed these savings on to workers, real wages per worker would
have been over $1,000 higher in 1992.
The fifth problem with our health care system is that it is riddled with waste,
excess supply, and inefficiencies. Despite our massive commitment of resources to
health care spending, the United States ranks 19th out of 26 countries in infant
mortality and 18th in life expectancy. We lose an estimated $80 billion a year to
fraud and abuse. Over 5 percent of our total health care spending — conservatively
$45 billion in 1992— covers administrative expenses and paperwork. As many as
one-third of common medical procedures may be unnecessary and inappropriate.
Hospital prices continue to rise even though hospital beds are in excess supply in
many parts of the country. HMO experience indicates that the cost of medical care
can be cut by as much as 10-20 percent without reducing the quality of care.
These diverse indicators paint a compelling picture of the inefficiency and waste
in our current health care system. Perhaps the most important economic reason for
reform is to improve the efficiency of this system. This in turn will make resources
available to cover the uninsured and to address our other pressing economic and so-
cial needs.
The Economic Effects of Reform
The Health Security plan addresses these fundamental problems with the current
system. It will lower costs, provide security, increase job opportunities and increase
the efficiency of the economy. Many businesses will see their costs fall, and many
others will have access to coverage previously denied them. Slower cost growth will
allow workers to enjoy faster growth in their real wages, and reduced job lock will
increase workers' ability to find better jobs. Let me describe what I believe to be
the important economic effects of health care reform.
First, many employers who currently offer health insurance will see their costs
fall immediately. Under the Health Security plan, every individual will receive
health insurance. Eliminating uncompensated care in the current system will lower
costs to businesses that provide care, thereby making resources available for in-
creased wages or additional hiring. Eliminating corporate "free riders" will also re-
402
duce spending by companies that currently provide health benefits for their employ-
ees and for their spouses who are not covered by their own employers.
Second, the Health Security plan gradually lowers aggregate business spending
on health insurance. Although the business sector as a whole will initially pay more
for health insurance, the reduction in health care cost growth lowers the growth of
premiums over time. In fact, by the end of this decade, preliminary estimates indi-
cate that aggregate business spending on services covered by the Health Security
plan will fall by $10 billion.
Businesses can do many things with the resulting cost savings. They can: hire
more workers; raise wages or provide better benefits for existing workers; invest in
more plant, equipment, education and training, and research and development; in-
crease dividends to shareholders; or lower prices, thereby leaving consumers with
more income to spend on other goods. Each of these outcomes will have a stimula-
tive effect on the economy and will increase employment. Economic research has not
reached clear conclusions about how to apportion the savings among these effects.
Almost all models suggest that wage increases are a likely response, but they differ
about whether all of the savings will flow into wage increases. Nevertheless, the ef-
fects of lower health care spending are clearly beneficial for the economy.
Small businesses will particularly benefit from the Health Security plan. Cur-
rently small businesses that provide insurance face administrative costs of up to 40
percent, while large businesses face costs of only 5 percent. Under reform, adminis-
trative costs for small firms will fall by up to 25 percent. Additionally, many of those
currently insuring small firms will receive discounts on their premiums.
Although small businesses that do not currently provide insurance will pay more,
they are likely to receive discounts to make health care affordable. There is a com-
mon myth that small businesses cannot afford to pay anything for health insurance.
In fact, many small businesses report they would uke to provide health insurance
for their employees if it were more affordable. According to a recent study for the
NFEB performed by Charles Hall of Temple University, 64 percent of small business
owners would like to provide some or hetter insurance for their workers. When
asked why they do not offer insurance, the most common response (65 percent) was
that premiums are too high. Ninety-two percent of small business owners agree that
the cost of health insurance is a serious business problem. Under the Health Secu-
rity plan, with affordable health insurance and discounts for small businesses, this
will no longer be the case.
Third, the Health Security plan will result in greater employment in the health
care sector in the short run and a more efficient health sector in the long run. With
the increase in the number of insured Americans and the decrease in the adminis-
trative burden of health insurance, there will be a significant expansion of employ-
ment of health care providers and a decrease in employment of health administra-
tors and insurance workers. By 1996, as many as 400,000 net new jobs will be cre-
ated in the health sector. As the cost savings of the plan begin to accrue, employ-
ment in the health sector will grow more slowly, although there will be no absolute
decline in the number of employees.
Over time, the health sector will become more productive. This benefits all of us.
We will be able to have the same or better health care as well as more investment,
research and development, or just plain goods and services.
Fourth, the efficiency of the economy will also be increased by reducing job lock
and welfare lock. By providing health care security, the reform will give workers the
freedom to move to iobs where they might be more productive without having to
worry about losing their health insurance. Small firms should particularly benefit
from this, since they often have the hardest time attracting highly skilled workers.
In addition, firms should be more willing to hire workers with pre-existing condi-
tions because the new system does not penalize individuals with a prior illness. This
allows for better, more efficient matches between employers and employees and in-
creases the efficiency of the economy.
Some workers may decide to leave the labor force completely when there is contin-
uous health coverage. Evidence suggests that about 350-600,000 people will decide
to retire early under health care reform. This increase in voluntary retirement may
increase employment opportunities for younger workers.
The Shortcomings of Existing Studies on the Employment Effects of Health Care Re-
form
As you know, some have claimed that the Health Security plan will cause sub-
stantial damage to the economy. There is no denying that some firms and individ-
uals will pay more than they did prior to reform. In particular, the Health Security
Slan will increase Costs for some young, single individuals as well as for firms that
id not previously offer health insurance. The vast majority of Americans, however,
403
will benefit from the reduction in health insurance costs, the portability of coverage,
the lower administrative costs, the reduction of job lock, the lower costs for small
businesses and the self-employed, and the reduction in welfare lock. In addition, as
already noted, many employers, both large and small, currently providing insurance
will enjoy lower costs immediately and the business sector as a whole will enjoy
lower costs within three years of the plan's full implementation.
There are some studies, including an often cited study by June and David O'Neill,
that criticize the Health Security plan as a job-destroyer. I believe these studies are
riddled with error and inaccuracies. First, they completely overlook the discounts for
small and low-wage businesses provided by the Health Security plan. The lack of
discounts— coupled with the questionable assumption that Finns cannot shift any
costs to workers earning less than $25,000 per year— lead directly to massively ex-
aggerated estimates of job loss. Additionally, in the O'Neill study, employers are as-
sumed to pay the full premium for all workers who work more than 20 hours per
week. In the Health Security plan, however, employers pay a much smaller, pro-
rated premium for part-time workers.
Second, the studies assume a premium for the benefits package that far exceeds
the premium for the Administration's benefits package. The O'Neill study assumes
that employers pay a premium of $5,310 per worker with a family and $2,160 per
single worker. Estimates for the Health Security plan, however, suggest that em-
ployers will pay about $2,500 per worker with a family, and about $1,500 per single
worker. These estimates take into account the fact that many families have two
adults in the labor force, and that each working adult will have an employer con-
tributing to health care coverage for the family.
These studies also assume that business employment decisions are three to six
times more sensitive to increases in the costs of hiring labor than most conventional
estimates. The O'Neill study, for example, assumes that firms will lay off 3 percent
of their work force if employee compensation rises by 10 percent. Summary esti-
mates in the economic literature suggest that the employment response might be
only one-sixth to one-third as large.
Finally, and most importantly, the existing studies do not allow for any new job cre-
ation in businesses whose costs will fall as an immediate or dual consequence
of reform.
In fact, real-world evidence from Hawaii suggests that the job loss claims in stud-
ies like the O'Neill study are exaggerated. Hawaii imposed an employer health in-
surance mandate in 1974. Since the 1970s, total private non-farm employment has
grown by 80 percent in Hawaii, compared to 54 percent in the Nation as a whole;
and retail and wholesale trade employment have grown by more in Hawaii than in
the Nation as a whole. Although we cannot extrapolate from these results and make
sweeping judgments about the national impact of an employer mandate, the experi-
ence of Hawaii appears to contradict the conclusions of studies suggesting that such
a mandate will destroy jobs.
Additional evidence from recent literature on the effects of increases in the mini-
mum wage on employment also calls into question such conclusions. We estimate
that under reform the increase in health care costs for currently uninsured low-
wage workers in small firms is equivalent to a very modest increase of $.15 to $.35
per hour in the minimum wage. This will leave the real compensation cost for mini-
mum wage workers below its average level in the 1980s. Research by Lawrence
Katz at Harvard and Alan Krueger and David Card at Princeton finds that recent
increases in the minimum wage have had minimal or even positive effects on em-
ployment. These results lead us to conclude that the O'Neill study greatly exagger-
ates the effects of reform on the employment prospects of minimum wage workers.
Summary Conclusions on the Likely Economic Effects of Health Care Reform
Neither the models nor the data are available to yield a precise estimate of the
employment effects of health care reform. In many other areas of economics, there
are models that have been tried and tested for decades, and economists generally
place a good deal of faith in the outcomes they predict. Standard macroeconomic
models, for example, can make reasonably precise predictions about how a tax in-
crease or a spending cut will affect aggregate output or employment.
But there are no existing models that allow us to predict the employment effects
of health care reform with the same degree of precision. This is because the appro-
priate model for such an exercise would have to make distinctions both between
Finns that currently provide insurance and those that do not and among the many
ways that firms in either group might respond to a change in their health care
costs. Such a model would also have to predict how individuals might respond to
404
new incentives in the plan, particularly those affecting small business creation, job
mobility, welfare lock, and retirement.
In the absence of an appropriately specified model, one can generate either small
net positive or small net negative effects on employment with existing models de-
pending on the assumptions one is willing to make — demonstrating the old adage
that you get out what you put in. Not surprisingly, several private-sector economists
have concluded, as we at the CEA have concluded, that the net effect of our health
care plan on the aggregate employment level is likely to be small — our internal esti-
mates suggest a range of plus or minus one-half of 1 percent of the aggregate em-
ployment level. This is because although there are some factors in the plan that will
tend to decrease employment, there are others that will tend both to increase em-
ployment and to change its composition. These offsetting factors are likely to cancel
each other out, although over time as business spending falls below baseline, the
factors encouraging an increase in employment are likely to strengthen.
On balance, lam certain that the Health Security plan is good for American busi-
ness and the American people. It diminishes job lock and welfare lock and allows
more people to become self-employed. It gets health care costs under control. It
guarantees security to all Americans. And it reduces waste and inefficiency in one-
seventh of our economy. Reorganizing our health care system to use our scarce re-
sources more efficiently will help us realize our goal of realizing higher living stand-
ards for ourselves and our children.
I will be delighted to answer any questions that you may have at this time.
The Chairman. Thank you very much for an excellent presen-
tation.
We will have 7-minute rounds for questioning, and I will ask the
staff to watch the time and notify the members.
If we do nothing at all — you pointed out we are at 14 percent
now, 14.3, 14.4 percent, and there is no other country that is above
10 percent, and most of the other industrial countries are under
that — if we do nothing at all, what is your projection now through
the end of this century, for the next 5 or 6 years?
Ms. Tyson. Our projection now is that we will go up in the year
2000 to $1.63 trillion spent on health care, or 18.9 percent of
GDP — and that is with no coverage of any additional person.
The Chairman. So that is almost virtually double what we are
spending at the present time, and you are drawing that away from
all the other areas of spending in terms of goods and services.
It is interesting to me when people talk about the various figures
and costs, I think what we ought to understand, as I think the
President stated very well, is that that is a completely unaccept-
able alternative, just doing nothing at all, because its impact and
what it would mean in terms of cost to the economy, cost to busi-
ness, cost in profits and cost in human suffering is dramatic.
Now, people ask can we really expect to believe with the 37 mil-
lion people who are not covered, and with the kind of preventive
program which is included in the President's plan, which would be
the most extensive, really, of any insurance programs — a few per-
cent of total insurance programs may include them, but certainly
not for the most part I think one of the very strong aspects that
has great appeal, as we saw yesterday, is the President's strong
commitment on breast cancer and all of the implications in terms
of preventive health care measures. Do you think we will be able
to cover those individuals who are not covered and also provide
those services I just referred to only with increases in sin taxes?
Ms. Tyson. Well, I think that you have to begin with a recogni-
tion of the extent of inefficiency and misallocation in the current
system. I think one of the reasons people are grappling with how
405
can we cover all of these uninsured and rely simply on a sin tax —
I think the answer really lies in how the current system works.
First of all, people who are uninsured do get services. They get
them in the most expensive possible way. And when they get them
in the most expensive possible way, those costs then fall on the in-
sured. So if the uninsured pay 20 percent of the health care costs
they currently incur, and they are incurring the high-cost parts of
the health care system, that results in $25 billion of uncompen-
sated care.
So the first thing is that we are covering people, and we want
to cover them in a much more cost-effective way.
The second thing to emphasize here is that when you think about
what we are suggesting, we are suggesting that by the end of this
decade, when all is said and done, we are looking for a system
which through reform might generate savings of $136 billion. That
is less than 10 percent of total projected spending for the year
2000.
Where will these savings come from? I have already indicated
that we have a lot of areas for improvement. We have the $80 bil-
lion of fraud and abuse, we have the $45 billion of administrative
expenses. We have the fact that was pointed out by Professor Rine-
hart in Monday's editorial, that in some parts of the country — in
San Francisco, which I know to be a high-cost city, doctor spending
per Medicare beneficiary is in the order of $894 a year. In Miami,
also a high-cost area, but certainly no higher-cost than San Fran-
cisco, it is $1,000 more a year. There is something clearly amiss
with the current system. There are resources that are misaflocated,
that are being wasted.
You have the other piece of evidence, which for an economist ac-
tually suggests that market forces are not all they could be in this
sector of the economy. You have the phenomenon of excess supply
of machinery and excess supply of hospital beds. Now, in situations
of excess supply, prices should go down. If the market mechanism
were functioning effectively, prices would go down. But prices con-
tinue to rise, and that does suggest again that if we had competi-
tive pressure, we could serve a larger number of people for less.
Finally, let me iust point out the HMO experience. Again, Cali-
fornia has a lot of evidence in this regard. The HMO experience is
that for the same quality care, we can have costs as low as 10 to
20 percent below current levels. So we believe that we can by re-
forming the system improve the allocation of resources, improve
the efficiency of resource use, and cover those extra people — and
cover them in a more effective way so they do not wait until the
last minute to come to the emergency room.
The Chairman. An article in the Washington Post on Sunday
said, "Economists have expressed concern that President Clinton's
program would establish a large new entitlement of the kind that
caused the current deficit problem."
How do you respond to that?
Ms. Tyson. I respond to that in a number of ways. First, I want
to emphasize that the estimates that have gone into our health
care planning process are, I think, the best available estimates.
This has not been a quick process. This has been a process that has
taken months, and during those months, my staff and the staffs of
406
all the major agencies involved went through every, single study,
we talked to every major expert that we could find, we worked with
the actuaries at HHS, we have worked with private sector actuar-
ies. We came up with a set of numbers which we believe to be the
best possible set of numbers around.
We believe that in the ongoing debate about health care reform
which will continue that these should be the baseline numbers for
anybody to start with. They may make different policy decisions,
but the numbers themselves we believe to be sound.
So I really disagree with a number of the comments, including
the one by my predecessor, that somehow these numbers are
groundless. They are based on very serious research and the best
possible evidence coming from some of the Nation's most important
health care experts. So tnat is the first thing.
The second thing is we have built into our estimates some cush-
ions. We understand that the world is an uncertain place and that
there is no crystal ball, and there is no absolute precision. So we
do have cushions built into our financing to reflect the fact — we
have cushions built into our subsidy estimates.
Finally, of course, what I think is important to emphasize is that
our global budget caps are essentially what we view as an emer-
gency brake or a safety clause. We think that there is enough inef-
ficiency and misallocation in the current system that the global
caps will not be binding. But we do not want to sell the idea to the
American people that ultimately there are no controls here and
that we are getting ourselves into an uncontrolled program. We are
not, because we are asking for a failsafe or emergency clause — glob-
al budget caps.
Finally, we are going to have a gradual phase-in here. We will
be learning from the phase-in process. So I think we have done ev-
erything we can to start out with the best possible estimates and
to build in safeties into all of our estimates and to build in a safety
through the emergency clause.
The Chairman. My time is up.
Senator Kassebaum.
Senator Kassebaum. Thank you, Mr. Chairman.
Dr. Tyson, my apologies for missing your opening statement. We
are having a hearing on Somalia right across the hall as well, and
I am trying to balance the two, but I was particularly anxious to
come and ask you a couple of questions on the estimates.
I think from past history, we have found out that estimating the
cost of entitlements is enormously difficult and usually notoriously
off-base. When we go back to Medicare Part A, it is about seven
times higher than it was projected to be when it was passed in
1965; it went into effect in 1965. Medicaid was estimated in 1964
when it was passed to cost about $1 billion a year. It now costs
about $76 billion a year.
So keeping that in mind, which I think is important to keep in
mind, does it not concern you that the President is now proposing
four really massive new entitlement programs, particularly in light
of the fact that we have argued for some years over just being ame
to end wool and mohair and honey entitlements, which are minus-
cule compared to what we are talking about — the four being, of
course, the guaranteed so-called Fortunate 500 benefit package for
407
everyone; the prescription drugs for Medicare; early retirement
benefits; and the Federal payment of 80 percent for all retiree
health costs.
I just wonder how you view this in the light of past history.
Ms. Tyson. OK First of all, there are several things which oc-
curred to me in your questions. Let me just begin with one point,
which you ended with, about the generosity of the basic benefits
D&CjL&CB
One of the reasons — the primary reason — for the package being
a generous one is because of the clear evidence that if we are going
to nave the system behave more efficiently, if we are going to have
people get care earlier when it is less expensive, or to get the most
cost-effective form of care, which may often be drug care, we need
to have a basic benefits package which encourages and allows peo-
ple to make the most cost-sensitive decision at any moment in
time.
So the more you go toward a more limited package, the more it
seems to me that you reduce the incentive we want both providers
and users of the system to have to use preventive least cost rem-
edies rather than to wait for the most expensive catastrophic rem-
edies. So that is just on the nature of why we went for the benefits
package that we did.
As far as the general dangers of introducing entitlements, I again
want to start with what I emphasized in my opening remarks. We
have to look at where we are headed without doing anything.
Where we are headed without doing anything is bringing 18.9 per-
cent of our GDP into the provision of a very costly health care sys-
tem without universal access, with 37 million Americans not cov-
ered.
So we are looking for a set of programs which will actually over
time reduce the burden of health care spending on the economy,
not increase it.
I think that we are aware, and I think we have all learned from
the experience of the past. In designing this program, we were cog-
nizant of the issue of needing to establish caps. So we do have —
and it is criticized by some, but we believe it to be absolutely nec-
essary—global budget caps for the private sector as well as for
Medicare and Medicaid. We believe that we need to have a failsafe
mechanism here so that the system does not spin out of control.
And I think, finally, what I also emphasize is that we have taken
into account some of this problem already, for example, in our sub-
sidy estimates by putting in a cushion to account for the fact that
in any given year, there may be more unemployed people than we
thought, or in any given year there might be some other reason for
more subsidies than we thought.
So we are trying to deal with some of your concerns. But the
issue comes back to do we allow what must be some residual uncer-
tainty to stop us from acting, when the certainty of not acting we
know to be detrimental.
Senator Kassebaum. Well, Dr. Tyson, first let me say I am sup-
portive of a comprehensive health care reform plan. But my ques-
tion to you is from the standpoint of an economist, the President
is proposing— and I am not quarreling with the pros and cons of
it, Dut just an acknowledge — the four largest entitlement programs
408
that have ever been proposed to Congress. Are you comfortable
with the cost estimates and what will nappen given the past his-
tory of what has happened to our entitlement programs?
Ms. Tyson. I am comfortable with the cost estimates, and I am
comfortable with the cost estimates because I have been and my
staff has been part of the process of putting them together. It has
been a very careful process, and it has been a process where a wide
range of experts have been involved.
Frankly, at the beginning, I raised the same questions. I think
any economist would raise the same questions.
Senator Kassebaum. I would think so.
Ms. Tyson. It is part of the process of going through the esti-
mations and bringing together the numbers and talking to health
care experts like Professor Rinehart and others that I have become
convinced that in fact the estimates of financing, the estimates of
anticipated savings, the estimates of subsidies are not only credi-
ble, but they are cautious; they build in some cushions.
So I have become convinced, but it is an important question that
everyone must ask, and I just hope that when people ask the ques-
tion, they then spend a little time going through the evidence, as
I have, and the evidence has convinced me.
Senator Kassebaum. That is true, but also keeping in mind the
signposts from the past and what we estimated Medicare and Med-
icaid at the time.
My time is up, but I am sure there will be questions that will
be asked regarding early retiree benefits, because essentially, isn't
that extending Medicare to age 55?
Ms. Tyson. Do you want me to talk about the early retirement?
The Chairman. Yes.
Senator Kassebaum. Just whether you regard that as extending
Medicare to age 55.
Ms. Tyson. I think the early retiree issue is best understood —
there is a lot of talk about the early retiree issue, and I think one
needs to understand that if we have a system of universal access,
which we want, and if we have a system of community rating,
which we want, then essentially there will be in our new system
incentives for early retirement built in, because the cost of obtain-
ing insurance as an early retiree will be brought down by both the
universal access and the community rating of premiums.
So I do want to emphasize that to some extent if you want to
deal with this issue — if you want to have universal access and you
want to have community rating, you are going to bring down the
cost of health insurance for age 55, and that will undoubtedly have
some incentive for some workers to decide to retire early.
So that is the main issue in early retirement, and I do not think
one can get around that main issue without undermining universal
access and undermining community rating, and those are two basic
principles of our system.
Senator Kassebaum. Thank you. My time is up.
Thank you, Mr. Chairman.
The Chairman. Senator Harkin.
Senator Harkin. Thank you, Mr. Chairman.
Dr. Tyson, I apologize that I was not here for your opening state-
ment, and I have tried to read through it. I just want to make one
409
point this morning, and it may seem like it is coming out of left
field, but I think there is a glaring omission that people are not
looking at in terms of this whole health care reform debate.
I was looking at your opening statement, and you were talking
about the diverse problems that we have here. I think there is an-
other problem. Let me first set the stage. I think it is well-known
that a high proportion of our health care dollars are spent later in
life. People are living longer, they are coming down with illnesses
that they did not get before because they did not live that long-
Alzheimer's, cancer, prostate, evervthing else.
Right now, we are spending on biomedical research in this coun-
try about one percent. Out of about $1 trillion in health care, about
$10 billion goes into the National Institutes of Health. I may be
wrong in my percentage, but it is one percent or less.
I am wondering if you or anyone else has looked at the economic
impact of the lack of biomedical research in this country. For exam-
ple, again, it is well-known that it is not just the technologies and
so on that we develop, but finding the causes and cures for the ill-
nesses that strike us. The research into the gene and gene therapy,
the whole Human Genome Project that is now under way but is
being inadequately funded. This just seems to be something that no
one is talking about. And yet if we do not find the causes and cures
for Alzheimer's disease alone, I do not care what kind of health
care system you have out there, it is going to sink us, because the
costs will be exorbitant, and they will continue to escalate as peo-
ple live into their late eighties and early nineties.
Yet no one talks about medical research in medical terms. It is
sort of out there on the side someplace. And I am going to continue
to ask this question of you and of the people who come before us
today, because we are asking about the economic impacts of health
care reform— what are the economic impacts going to be if we do
not find causes and cures and treatments for Alzheimer's and pros-
tate cancer and breast cancer, most of the things that strike us
later on in life. And what would the return be if we were to in-
crease, for example, our funding in biomedical research by another
percent? Instead of one percent or one-tenth of a percent, make it
2 percent or 3 percent.
I am just wondering why this has not been looked at, or have you
looked at it? Have you made any judgments at all as to what would
happen or what might be the payoffs in economic terms if we were
to put more emphasis on biomedical research.
Ms. Tyson. Let me answer the question in two ways. No. 1, 1
agree with the notion that biomedical research— I would argue that
spending on research and development through a wide part of our
economy is critically important. And I think that the evidence
about the returns to Government spending on both biomedical re-
search, but also on other kinds of research programs in other kinds
of technologies, the evidence is fairly strong, and actually, econo-
mists in general agree that the evidence is fairly strong that there
are very high returns on this kind of Government spending.
Most economists who in general argue against Government
spending will still make the case that in the area of research
spending, the social returns can be double the private returns eas-
ily.
410
So I think that there is a very strong general argument, and
there is evidence to support the argument, that additional funding
for research has society-wide benefits, and biomedical research is
obviously a very important part of our research dollars.
That is the first thing I would say. The second thing I would say
is I think it is not enough in the following sense. We do not do
enough research on the cost-effectiveness of therapies, whether
they are equipment therapies or drug therapies. We need to have
more research dollars on looking at alternative therapies so that
we can make better-informed judgments over time about which
therapies really are cost-effective and which are not. We are spend-
ing much too little on that part of research.
In part, we are spending too little on that part of research be-
cause our current health care system has no incentive to really ask
the question very often, how cost-effective is this remedy or that
remedy.
So we have a system in which every player in the system is en-
gaged in passing the cost along to someone else, and not asking the
question enough, is this a cost-effective therapy.
So in general my answer to you is it would be perfectly consist-
ent with economic evidence that we spend more on biomedical re-
search. I would like to see us spend some fraction of that on exam-
ining the cost-effectiveness of alternative therapies, and I would
like to embed this in our health care reform system so that the in-
centives are there for using technology wisely.
Finally let me say that as a student of technology in other
areas — I have not looked directly at the biomedical area, but I have
looked at the computer area, for example, and the semiconductor
area — as a student of technology in other areas, it has to be em-
phasized that technology is partly endogenous; that is, it moves
along a path in response to market incentives. So right now, the
incentive in our system is an incentive which does not ask many
individuals to ask about the cost of the technology. You sort of look
for the technology, you look for a cure, and you do not look for the
cost.
So that presumably, by changing the system in which research
is done, we may actually encourage technological breakthroughs
that are much more cost-effective.
Senator Harkin. I am glad to hear you talk about outcomes re-
search, because that is a very important facet of it. But I want to
get off the idea of technology, and I know there is some thought
that technology does increases costs a lot of the time. I am talking
more about the basic biomedical research into the structure of the
cell and what happens at the cellular level, the whole Human Ge-
nome Project, mapping and sequencing the human gene and find-
ing the gene therapies that can interrupt and stop these illnesses
and diseases.
We are on the verge of that, but it will not happen unless we
really focus more of our attention on research, and by that I mean
put more money into it. That is why I wanted to get this out on
the table about the economic impact of these researches.
I would just say that by the year 2000, we will have eradicated
polio from the face of the earth. We have already done it for the
North American continent. We are isolating it in a couple places
411
around the world now, but they are confident that by the year
2000, there will be no more polio on the face of the eartn. Not only
will that make people's lives better; it will save us in the neighbor-
hood of about $250 to $300 million a year in this country alone in
that we will not have to give vaccines to children any longer. So
again, the savings over a period of time will more than make up
for all the research that went into that.
Again, I want to emphasize that there would be some looking at
the impact of that.
The second thing I wanted to say was that there are a lot of peo-
ple talking about jobs that are going to be lost in the health care
industry because of health care reform. But it seems to me that if
we put more money into medical research, that will create jobs. It
will do two things. It will create jobs, but it will create high-tech
jobs, and it will encourage the wnole educational system to move
in that direction.
Right now, we have a problem in that funding research lasts for
one or 2 years, but the research stream has to be funded for a
longer period of time. You cannot just put a researcher on a project
and say, "You are funded for 1 year, and then you are off." That
does not do any good.
So by putting more of this money into medical research, you do
create jobs. I do not know if anything has been done to look at that
from an economic standpoint and the types of jobs that are created
and what it does in terms of a pull on getting young people to take
up this field of study in college or postgraduate study and get into
research. I think that also has an economic impact, and I do not
know if anything has been done to even look at that. I do not find
this in any of the talk on health care reform.
Ms. Tyson. I think you are raising a very important point. I per-
sonally think we run a great danger in not just the biomedical
area, but again, in all of our research support areas in this country.
We need to make sure that we do not in a shortsighted way under-
mine what is a fundamental foundation of our long-term prosper-
ity.
America's prosperity is based very much on its basic scientific
breakthroughs, which then are adopted by the private sector, com-
mercialized, and form whole industries. Our biotechnology industry
is in no small measure the consequence of our support for basic
science and research.
Senator Harkin. Precisely, exactly. That is right.
Ms. Tyson. I certainly agree with that, and I do not see our
health care reform proposal in any way at odds with your point of
view.
Senator Harkin. But it is silent. It is silent on medical research.
It is not even a part of the health care reform, and it ought to be.
Ms. Tyson. Well, I will make sure that we talk about it as much
as possible because I support the notion very much.
Senator Harkin. Thank you.
Ms. Tyson. And the other thing I want to say about jobs— and
I said this before you came in, and I just want to emphasize it
again — it is incorrect to think that this nealth care reform will de-
stroy jobs in the health care industry. On balance, it will initially
create some additional jobs in the health care industry, then slow
412
the rate of growth down. Ultimately sometime in the next decade,
in baseline terms, you are below where you would have been in
baseline employment, but this is not the same as defense conver-
sion. We are not downscaling our health care sector employment.
We will change the composition, and we will slow down the rate
of growth, but we will not downsize it.
I think that we should wed the benefits of basic science and re-
search to our health care system even more effectively than we
have done in the past, and I would be interested in working with
you on this issue.
Senator Harkin. Yes, I would like to work with you because I do
not think anything has been done to look at the economic impact
of medical research.
Thank you very much.
The Chairman. Senator Jeffords.
Senator Jeffords. Thank you.
I would like to get a little bit better understanding of economic
impact. As you may remember, I am a supporter of the Clinton
plan, so I hope you will take my questions as being somewhat
friendly.
I introduced by own concept, called Medicore, which has quite a
different financing system, but very similar to the Clinton plan in
its other structure. Let me just ask you some basic questions.
I assume that the larger the payroll premiums which are re-
quired, the more of a negative economic effect that would have as
far as jobs go.
Ms. Tyson. To the extent you allow the premium to rise without
offsetting discounts, that is correct. The basic economics are that
for any firm that is not currently providing insurance, or for any
firm that is currently providing insurance, if you end up paying
more as a percent of payroll, then that may in fact show up in
terms of employment effects, a decline in employment.
I want to emphasize that there are other ways it may show up.
It may show up in an increase in prices. It might show up in a de-
crease in wages. So that there is a lot of evidence — in fact, most
economics tend to read the evidence that over long periods of time,
the primary manifestation of an increase in health care spending
by an employer is reduced rate of growth of wages for the em-
ployee. That is the primary — it is not the only way, but it is the
primary way.
But yes, in general, what you have said is correct.
Senator Jeffords. Some of the payroll premiums now represent
12 or even 14 percent of payroll. If those were reduced to about
half, would that have a positive economic impact?
Ms. Tyson. Yes, it would have a positive economic impact and
could have an impact in any of the ways I have suggested. There
are a number of ways that a positive effect could show up.
Now, of course, you then have to ask — there is one possible
issue — we have to ask if we are going to reduce them that much,
what mechanism are we going to substitute in place for paying for
health care. But I assume you will tell me the answer to that.
Senator Jeffords. If you take no more money out of the private
sector by your financing system than presently goes out of the pri-
413
vate sector for health care, would that be a rather nonevent as far
as the overall economy of the private sector?
In other words, you spread it differently, so that the net amount
that you take out of the private sector would end up being the
same. Would that generally not have an adverse impact?
Ms. Tyson. Well, the problem with answering that question is,
again let me emphasize, there are lots of ways firms can respond.
So if you want to redistribute this total expense differently, some
firms that are benefiting might decide to offer that in the form of
wages. Some firms that are hurt might decide to take it in the form
of higher prices or reduced employment.
One of the things I said before you came in was that the great
difficulty in making precise estimates, even to answer a question
like yours, is that we are dealing with a world, a starting point,
where firms are not the same. They are not the same in terms of
how much they are currently paying or whether they are currently
paying. They are not the same in terms of the extent to which they
are a high-wage or a low-wage firm, and a high-wage firm might
respond differently from a low-wage firm.
So it is very hard. On average, if you did nothing but change the
composition, on average, you should have an average effect. But I
would not want to give you a precise answer precisely because the
model
Senator Jeffords. Oh, I am not asking for a precise on. On the
other hand, certainly, if you take more money out, you are more
likely to have a negative impact, then.
Ms. Tyson. If you take more money out, yes — I would say if you
want to do it in likelihoods, I am willing to do it in likelihoods, yes.
Senator Jeffords. All right. Now, if you were able to get the def-
icit impact from health care under control in 2 years versus 8
years, would that be a positive impact upon the economy?
Ms. Tyson. I think anything we could do to reduce the deficit,
particularly in a situation in which the reduction would come by
improvements in the allocation of resources would be likely to im-
prove the economy.
Senator Jeffords. Finally, we talk about a $45 billion saving in
administrative costs. I presume if there is a lot of paperwork, that
means there are a lot of people involved with that $45 billion. So
in your job losses, did you consider what the impact would be of
knocking $45 billion out of the paperwork stream?
Ms. Tyson. Yes, we have, actually. We have come up with our
net figure for the health care sector as a whole; as a result of addi-
tional people going in for health care services or using more but
different kinds of services — for example, more preventive or more
long-term care — we anticipate that that on balance will create jobs,
but that there will be some loss of employment in paperwork and
in insurance. Then, when we net all of these out, we come up with
an increase in employment in the health care sector overall of
about 400,000 as the kind of immediate effect, and then over time,
the rate of growth of health care sector employment would slow
down.
So we did take into account the fact that a reduction in paper-
work would mean a reduction in certain kinds of jobs, but that
414
would be balanced out, more than balanced out, by an increase in
other kinds of health care sector jobs that are available.
Senator Jeffords. I was concerned by your response to Senator
Kassebaum that you are happy — and that is probably not a good
word — that we are creative an incentive for early retirement, and
with the Social Security program we are going in the opposite di-
rection, trying to encourage people to work longer because of longer
life expectancy.
So I was wondering, do you really think it is a good idea to en-
courage people to retire early?
Ms. Tyson. I did not say that I was happy. I tried to make the
case that when you think about the retiree issue, the most impor-
tant place to begin is with the fact that if you have a system which
guarantees universal access and which also community rates, so
that the premium for a 55-year-old and the premium for a 25-year-
old, except for firm size differences and regional differences, will be
the same, that there is an incentive. That system is different in its
incentive effects for early retirement than the system we currently
have.
I do not see, without jeopardizing those two principles of univer-
sal access ana community rating, what you do about it. There is
the other issue of whether or not, if someone has a contract, and
they go into early retirement, whether the Government should pick
up the employer share of 80 percent. That is sort of the additional
early retiree incentive. That does not cost every much. It is talked
about a lot in the press, but it actually does not cost us very much.
But the big issue is not that issue. The big issue is simply what
I said it is. We certainly do not want to have a system in which
we say that if you are 55, and you have decided to retire early, you
are not going to have access, or you are going to have a higher pre-
mium just because you decided to retire. That does not seem to be
a possibility that we want to impose on the system.
So the truth is the system generates a different incentive. Now,
incidentally, it creates a lot of good general incentives. An early re-
tiree may decide to actually start a small business. And what you
may think of as initially an early retirement decision may ulti-
mately be a decision to try something new in life. And furthermore,
the fact that universal access and community rating is exactly
what you need to address job lock; it is exactly what you need to
address welfare lock; it is exactly what you need to bring costs
under control.
So any part of it, you can look at and say you do not particularly
like the incentive effect here, but the net effect of this I think is
a set of positive incentives.
Senator Jeffords. Thank you.
Thank you, Mr. Chairman.
The Chairman. Senator Wofford.
Senator Wofford. Thank you, Mr. Chairman.
You touched on welfare lock, I think — I just read your testimony
recently.
Ms. Tyson. Yes, I did.
Senator Wofford. That is a fairly significant factor in the econ-
omy, isn't it? My experience at labor and industry in Harrisburg
found that many women with dependent children offered, chal-
415
lenged, encouraged to go into a very good job training program,
with day care, with transportation assistance programs, asked,
"Will I nave health care benefits and my children have them if I
take an entry-level job at the end of the training?" And too often,
we were not able to say yes. It was a major disincentive we found.
What is the impact on the economy of the welfare lock?
Ms. Tyson. Our estimate is that based on existing studies of pro-
grams like the ones you are talking about is that about one out of
4 million families may currently be trapped exactly that way. If we
could move one million families out of welfare simply by addressing
their health insurance concerns — if we are going to have meaning-
ful welfare reform in this country, then this has to be a building
block for it.
So we view the welfare reform efforts that we are interested in
pursuing with the Congress integrally connected to this medical
issue, and we feel that it might solve as much as 25 percent of the
Eroblem by itself; that is, families wishing to leave now, but not
eing able to leave because of the fear of losing insurance — or the
reality, not the fear, but the reality of losing insurance.
Senator Wofford. Dr. Tyson, would you talk a little about the
effect of the present system— because we are comparing the new
proposal not with perfection, but with the present system — in re-
gard to the incentives now to employers not to hire full-time peo-
ple, but to hire part-time people, and the degree to which the Presi-
dent's proposals will change those incentives?
Ms. Tyson. I want to emphasize to start with a general employ-
ment issue, that we have a situation in which we know that the
largest number of jobs created in this country for a considerable pe-
riod of time now have been created by the small sector of the econ-
omy, small size firms.
I want to start by emphasizing what I said in my oral statement.
The system we have now is one in which the ultimate burden is
heaviest on the small size firm. You have a system in which the
cost of care for the uninsured is shifted onto the insured; the pro-
viders of Medicare and Medicaid often, then, inflate their private
sector charges, so that goes on to the insured as well. And then you
have a situation in which the large corporations in turn are able
to use their market power to actually negotiate with the insurers
to get a pretty good rate, so they pass on some of these costs by
getting a better rate. So where do the costs ultimately fall? They
fall the hardest on the small firms who have to pay 35 percent
more or see their costs rising at 50 percent, twice as fast as the
cost of the big firms.
So I think we have a system in which the job generators in the
country, the small firms, have been bearing the big burden. I think
that is very important to start with, because there is a concern
about what this will do to small firms. I want to emphasize that
the current system could not be worse for small firms, and they
create jobs.
Now, the second thing about part-time versus full-time, I think
the view here is that the way the part-time versus full-time rating
of insurance would work, this would probably encourage firms to
do more full-time employment, which many workers express in sur-
veys that they would like to have a full-time job, but all they can
416
get is a part-time job. It is our view that this will encourage firms
to actually go to the full-time choice rather than the part-time
choice.
So I think it is an incentive to encourage small firms to employ
more, and it is also an incentive to encourage all firms to go for
full-time — it is a slight incentive to increase or go toward full-time
employment.
Senator Wofford. The present system puts the incentives in
favor of part-time workers and in favor of overtime work rather
than hiring a new full-time worker.
Ms. Tyson. And in favor of large firms, right, yes.
Senator Wofford. Thank you.
Thank you, Mr. Chairman.
The Chairman. Senator Coats.
Senator Coats. Thank you, Mr. Chairman.
I have two questions, but I want to start with a comment, and
you do not have to respond to this unless you would like to. It
seems that whenever we have a description of the Clinton adminis-
tration health plan, or usually the first question to the witness is:
If we do nothing, isn't it going to be worse?
But I do not know that that is a relevant question anymore, be-
cause I think everyone has agreed that the current system is
flawed in a number of ways, it is inequitable in a number of ways,
and there need to be changes.
But the choice that is presented to us by the administration is
to do everything to cure a problem that we all acknowledge exists.
So we are presented with a "do everything" plan, and that seems
to be where we are running into problems, because we are talking
about one-seventh of the economy, we are talking about extraor-
dinary restructuring in the way we do business in this country, and
we cannot seem to get a handle on, or we are not sure what all
the assumptions are. We have talked about some of those this
morning, that this might happen, that might happen, therefore
that would affect cost, etc.
Don't you think that given the enormous implications for our
economy if we do not do tnis right, that a less than "do everything"
option might be something we ought to look at, at least in the short
term, to see what kind of economic changes we can make within
the system? I mean, is it valid to talk about a less than "do every-
thing" proposal?
Ms. Tyson. I think I would need to know a little bit more about
what a "less than' do everything'" proposal you had in mind.
Senator Coats. Well, there have been a number of plans intro-
duced by a number of different people relative to saying, well, let
us look at the medical liability, let us look at the inequities that
exist between small business and large business, let us look at
portability, let us look at pre-existing conditions, let us look at ad-
ministrative reform. There is a whole layer of options that we can
go through and probably gain a consensus on in Congress, a bipar-
tisan consensus that says, yes, let us go forward with that and see
what effect it has, rather than get into the questionable territory,
as Senator Kassebaum said, 01 creating four new entitlements,
when our experience with entitlements and our inability to control
costs has been so wretched.
417
Ms. Tyson. Well, I think that what we have tried to do here is
to look at what you would need to do to get the current system
under control. And although the kinds of insurance reforms that
you have suggested, and the malpractice reforms that you have
suggested are important parts, they are really not enough; and
they are not enough precisely because we have the following basic
problem.
The only way to really get costs under control, the only way to
get our system used efficiently, is to have universal access. A lot
of the problems in our costs and a lot of the inefficiencies in our
use are precisely because we have 37 million Americans who do not
have insurance but who, in catastrophic or high-cost circumstances,
receive services that the rest of us pay for.
Now, the only way to deal with that problem is universal access.
It cannot be dealt with through portability of insurance, and it can-
not be dealt with through pre-existing conditions, and it cannot be
dealt with through malpractice reform.
So I think the "everything" nature of it is basically all tied to
what we read to be the essential requirement of starting with uni-
versal access.
Senator Coats. I would like to talk a little bit about the early
retirement entitlement. You talk about early retirees as those who
decide to retire early. My experience is that most early retirees be-
tween 55 and 64 have been told by the organization that they work
for that their services are no longer needed. We have a lot of very
large firms in this country that are attempting to maintain or ob-
tain more competitiveness in the global economy by downsizing.
They admit that they were overemployed, and that therefore, to
compete in the economy of the future, they are going to need to un-
dertake and have undertaken some very, very substantial, forced
early retirements.
My question is have we really estimated accurately what the im-
pact of this is going to be. Clearly, it is an impact on the Social
Security System, because those people will be drawing out of rather
than paying into Social Security. But I am wondering really in
terms of the cost, and I ask that question because initially, just a
couple of weeks ago, Mrs. Clinton said it was going to cost $4.5 bil-
lion. Ira Magaziner then said, well, we think it is more like $6 bil-
lion. Other administrative officials have now said $10 billion.
We had a representative from the Ford Motor Company here last
week who basically admitted that, gosh, if you are looking at
downsizing, and the Government is going to pick up 80 percent of
the health care costs of the people that you early retire, I am going
to start at 55, in terms of the labor pool.
I had a CEO in my office who privately said, "We would be stu-
pid not to — I mean, we have got to go through some very substan-
tial layoffs and terminations in order to get competitive, and we
would be crazy to lay off anybody except those 55 and over." He
said, "That is just the reality of what it is, and that is why we en-
dorse the plan. We are going to go out of business unless we do
this."
So I am just wondering if we have accurately estimated what the
cost is going to be to the economy and understood the reality of
418
how people make decisions when they make these decisions as to
how to downsize their business.
Ms. Tyson. OK. Let me say that it is my understanding that the
range that we have in mind is really in the $3 to $6 billion range.
Senator Coats. Well, then, why does Ira Magaziner say $6 bil-
lion?
Ms. Tyson. I said $3 to $6 billion.
Senator Coats. OK.
Ms. Tyson. It does include that number. We have also built into
our subsidy or discount estimates a cushion to take account of the
possibility that that effect would be larger, or that there might be
in any 1 year more unemployed workers. So we do recognize that
with all of these estimates, tnere is some uncertainty, and we
Senator Coats. You recognize it is a great incentive for compa-
nies to do that.
Ms. Tyson. I recognize that there is an incentive. However, I
wanted to emphasize that I thought that also, even if companies
did not have that incentive, there is a new incentive for workers.
So that basically, you have a situation where there is a voluntary
incentive — workers may just want to do this, and the system we
are designing may encourage them to do that relative to trie system
they are currently living in — and some employers may want to do
that. That is exactly right.
As far as the costs to the economy are concerned, again let me
make a distinction here between the incentive we are creating
through universal access and community rating — which I believe is
part of the overall health care package we are proposing. Then
there is the incentive for the early retiree benefit which would be
available to large companies with these contractual relations. That
is the $3 to $6 Dillion. Then there is the issue of what are the ef-
fects of that on the economy.
Well, it seems to me that there are arguments that could be
made of beneficial effects to the economy. We want to encourage
companies to engage in the competitive restructuring that they
need to encourage and to meet international competition. American
companies have, I think justifiably, said that they operate in a sys-
tem where they do not have the same degree of flexibility on tnis
issue because their international competitors have systems in
which retirees are supported by other kinds of funding mecha-
nisms.
So the costs to the economy, I think you have to take into ac-
count that there are some benefits to the economy from this as
well, and presumably, companies that are restructuring are doing
it for the reason of trying to gain market share over their inter-
national rivals, and that ultimately the competitiveness of the U.S.
economy depends upon a competitive U.S. industry. So this may in
fact be a benefit to the U.S. economy.
And I do not think the price tag, the price tag of just the special
retiree benefit, is very large, particularly given that, as I said, the
real issue here is the incentive for retirement in general.
Senator Coats. Have you run an economic model of this? Is there
an economic model to give us some
Ms. Tyson. No, although I would say the following. You hear
about the employment effects of the health care reform proposal,
419
and I said before you came in that our estimates are in the range
of plus or minus half a percent of the employment level. Those
numbers, anybody's numbers like that, include voluntary retirees.
They include people who just decide to leave the labor force. That
is an employment effect.
We have 117 million people employed right now. In a different
health care system, some people may choose to leave employment.
This is not just a person age 55; this may be a person age 45. And
we have changed the incentives by the health care system.
I think that basically, the benefits of universal access and the
benefits of community rating are such that we want to maintain
these things, but the employment numbers do include those effects.
Senator Coats. My time is running out, and I will just ask one
last question. In response to Senator Jeffords' question — I guess I
want to follow up on that question — about no net cost to the pri-
vate sector, isn't it true, though, that under the plan, we are creat-
ing a situation whereby those employment entities and manufac-
turing firms that have basically not been very progressive in terms
of loolcing at the impact of health care costs on their total net busi-
ness cost — Ford, for instance, paying 20 percent of payroll for
health care costs, essentially because they bargained themselves
into a position where they provided first dollar coverage for every-
thing— for those firms, there is going to be a huge windfall, because
their 20 percent is going to drop to 7.9 percent. And those are the
firms, by the way, that are not competitive as a result and are lay-
ing people off. So the cost is going to be shifted from those firms
to firms that have been progressive, are competitive, have nego-
tiated much more sensible health care cost plans with their em-
ployees— we had a dramatically example of that last week, where
we heard from Ford and General Mills, and General Mills is paying
4.7 percent — they are going to be paying the windfall.
In other words, the people who have seen this coming, the people
who have addressed the question — and they are the ones who are
more competitive and therefore growing and therefore adding
jobs — they are going to have a cost shift from those who have not
really done the job. How is this going to have an overall net plus
impact on the economy of the country?
Ms. Tyson. I think the numbers suggest that actually the em-
ployers who are currently providing will by and large benefit. So
that if you phased this all in in 1994, for example, then the em-
ployer spending for the 70 million workers who have insurance
would fall. It would fall. So although there might be some firms
that would get a better deal than other firms, they would all bene-
fit.
I think it is incorrect to say that somehow, Ford is going to pass
this off onto another insured firm. The workers who are
insured
Senator Coats. Well, they have admitted they are going to get
a $1.2 billion windfall, and it has got to come from somewhere.
Ms. Tyson. We are going to reduce business spending, and if we
reduced it overnight in 1994, the employers who provide insurance
would benefit, and there are some firms that would benefit more
than others. But all of those firms would benefit.
420
So what I was saying is I do not think it is appropriate to think
that just because Ford may benefit more than another company
that is insuring does not mean that the other company that is in-
suring is losing; it is also benefiting.
Senator Coats. But my point is what is the equity in providing
a bailout for the firms that really did not do the job and imposing
extra costs on the firms that did do the job?
Ms. Tyson. I am disagreeing with you because I do not think we
are imposing extra costs on the firms that did do the job.
Senator Coats. Well, General Mills' rate is going to go from 4.7
to 7.9.
The Chairman. No, no, it does not. It stays just where it is.
Ms. Tyson. That is right. First of all, General Mills almost cer-
tainly can decide what it wants to do itself; it is a big enough firm
that it can be
Senator Coats. Well, that was not the testimony of the General
Mills representative. He said that inevitably, with the alliances
and the way it is set up, you will have to move into the system.
Ms. Tyson. But they do not need to be in the alliance.
Senator Coats. They said they are going to be forced into the al-
liance, that under the plan there is just no way not being in there.
Ms. Tyson. Well, I think that a lot of misinformation about this
plan is out there. I mean, small firms who thought they were going
to be hurt by it, having read it, now conclude that they are going
to be helped by it.
I think maybe we should make sure that General Mills under-
stands that they are in a situation where presumably they can opt
out of the alliance altogether. Their desire to go into the alliance
would depend upon whether they think they can get a better deal
in the alliance by staying self-insured. So I do not think that exam-
ple rally works.
The issue, I would say, if you want to think about the
compositional change, is between firms who are currently insuring
and firms that are not currently insuring. Firms that are not cur-
rently insuring will have to pay more. Some of those firms, how-
ever, a large number of them in a number of surveys suggest they
actually would like to provide insurance for their employees, but
they cannot under the current system.
So if you just looked at the numbers, you might say that right
now, they are paying zero percent of their payroll, and 3 or 4 years
from now when they are phased in, they are paying 3.5 percent,
and they are worse off. If you ask them, they might say, "No. We
are better off. We wanted to provide insurance all along, and we
could not, but now we can."
So I do not think the payroll percentages can tell you all about
what is going on from the point of view of the compositional effects.
The Chairman. Senator Gregg.
Senator Grkgg. Well, that is an unusual economic analysis to
say the reason you can defend this position from an economic policy
standpoint is that you have concluded that firms that are going to
be told by the Federal Government that they must undertaken an
additional cost and are hit with a payroll tax of 3.5 percent to 7.9
percent, that they really wanted to do that all along, and that the
421
reason they have not done it is because the Federal Government
has not told them to do it. That is an interesting economic analysis.
But independent of that, please explain to me this community
rating concept. If I do not smoke, and you smoke, and I know sta-
tistically that because you smoke, your life expectancy is less, and
your cost of health care is significantly higher, why should I have
to pay a higher premium for trie smoker?
Ms. Tyson. We are trying to deal with getting a system of insur-
ance which makes sense. The system we currently have
Senator Gregg. That is what we are trying to deal with?
Ms. Tyson. Right. That is what we are trying to do. We are try-
ing to find a system that makes sense. The system we currently
have is a system which allows insurers to basically try to get rid
of the insurance risk, to try to find only those people who do not
need insurance and then provide insurance for them. So that all of
the people who need insurance, because they have pre-existing con-
ditions, because they have a high-risk job, because they work in an
industry with high risk of illness, they cannot get insurance, or
they can only get insurance at exorbitant rates. Many of them
therefore do not have insurance.
Now, does this work to the benefit of me, the privately insured
person? No, it does not. It does not work to my benefit because
when I pay my insurance, I am paying for their insurance. If they
cannot get insurance because the current industry will not give it
to them, then I am paying for their insurance. So community rat-
ing is an attempt to pool risk. That is what insurance is all about.
Insurance is about pooling risk so that we all share the risk, so
that no single one of us bears an intolerable amount of risk, which
we cannot afford. And our system has let us down.
Senator Gregg. Well, that might be applicable in pre-existing
conditions, and in fact all the proposals that have been put forth
address the pre-existing issue. But it is your proposal that uniquely
says that a person or a group of people who are committed to
health because they do not smoke, because they do not drink, be-
cause they undertake physical exercise, that those people are going
to be penalized — penalized— because they are going to be rated the
same way as the people in the community who take no concern at
all for their health because they smoke and they drink and they
just do not undertake healthy lifestyles.
Now, I do not understand if the goal is, as you said — and I agree
that that is the goal — the goal is to improve health care and to get
a better system, why you would structure a system that inherently
discriminates against people who attempt to improve their life
styles through healthy life styles and encourages nonhealthy life
styles that are general life styles, such as smoking and drinking.
That may be community rating in your concept, and that is com-
munity rating generally, but I do not understand why it makes
sense. And I am taking off the table the issue of the pre-existing
condition people, because they are already going to be addressed by
everyone. I am talking about why you have a community rating
system that penalizes people who have a healthy lifestyle and dis-
criminates against them to the advantage of the people who do not.
Ms. TYSON. Again, you have to start with where we are. I am a
healthy person, and I do not smoke or drink — I drink wine at din-
422
ner, but I do not smoke at all, and I never have — and I would say
that I am already penalized. You have this notion that somehow
we have a perfect system where I am not influenced by the smoker
or the drinker; if course, I am, and I am influenced much more pro-
foundly than I would be under a community rating system, because
that person will go to the emergency room when he has a cough,
and he will get an x-ray of his lungs, and it is in my insurance pre-
mium. If they are community rated, and they have insurance, and
they have preventive care, and that preventive care includes infor-
mation about the dangers of cigarette smoking, and it includes in-
formation about how to change your life style, I may very well be
much better off living with the drinker or the smoker than I am
now.
So I think your starting point is wrong.
Senator Gregg. No. Your starting point is wrong. You are as-
suming that people who live a healthy life style should have to pay
a higher premium.
Ms. Tyson. I am saying the people who live a healthy life style
already are paying a higher premium because of people who are
not currently insured.
Senator Gregg. They are going to be paying a much higher pre-
mium than if they are in an insurance policy where you have the
opportunity to have that policy adjusted by your life style.
Now, I do not understand why you are putting forward a pro-
posal which does not encourage people not to smoke through the
usual incentive process that we have in a capitalist system, called
"paying for it." If you want to smoke, you should pay more for your
premium. If you drink heavily, you should pay more for your pre-
mium.
Ms. Tyson. Can I suggest that we have looked at the issues of
families and who wins under the current proposal, and these are
the facts. Two-thirds of American families will be better off in
terms of seeing a decline in their health insurance premiums — two-
thirds of American families.
Twenty percent will pay more initially, but for better coverage;
they already have coverage, but they are paying more. That leaves
the young, single Americans, or basically young workers, most of
them single, some with families, who will pay more and not for
more.
So if you are talking to talk about the community rating issue,
the issue really is one that as a young, healthy person, your incen-
tives to get insurance are somewhat diluted. You tend to get less
insurance than what our package is proposing, and we are going
to require you to get more.
On the other hand, you have a whole life — and presumably it is
going to be a longer life because of our health insurance scheme —
so over time as an individual going through life, you will end up
paying substantially less because as you get older, under the cur-
rent system your premiums would go up and up and up; under our
system, you pay more when you are young and less when you are
old, and over your lifetime, which is going to be longer, you pay
less.
423
So I agree that there are some people here who will pay more.
It is primarily an age issue at this point, and I think that that is
what the facts of the proposal turn out to be.
Senator Gregg. Well, I really do not think that is responsive to
the issue of the smoker and the nonsmoker, because whether you
are in a family or whether you are single, the smoker/n on smoker
issue cuts across all those demographic groups.
Ms. Tyson. Is it that you would want just that exclusion? I
mean, would vou want to have a community rating but for smoking
and drinking?
Senator Gregg. I think there are a number of conditions which
people put upon themselves which cause their health to be less,
which cause their health care costs to be higher, which tradition-
ally, the marketplace has acknowledged as being self-inflicted —
smoking and alcohol being the primary ones, but drug use would
be right up there with them. And to take a community rating sys-
tem and say that those people who do that to themselves, those
people who undertake that health risk themselves, are going to be-
come the burden of everyone else who does not undertake that
health risk, is not creating an incentive for better health care; it
is creating an incentive for worse health care, and it undermines
the cost of health care and it undermines the confidence people
have in what the theory is behind the health care proposal.
I guess my time is up, Mr. Chairman.
The Chairman. Of course, I think HCFA points out that actually,
the nonsmoker costs the health care system more because they live
longer. [Laughter.]
Senator Gregg. That is an interesting analysis, but I suspect
HCFA probably did come up with that conclusion, Mr. Chairman.
Ms. Tyson. That is a good one.
The Chairman. Senator Durenberger.
Senator Durenberger. Thank you, Mr. Chairman.
This is both a delightful and interesting discussion, and it just
proves the value of keeping this whole reform process going as long
as we possibly can.
I was hoping that Dr. Tyson's response to the question from my
colleague would be, "Why do you own fire insurance, or why do you
own automobile insurance?" I am assuming that you are probably
a very careful driver, Judd, and have not had an accident in a long
time. I am sure that you live in a home that is building code ap-
proved, and you take steps to make sure that that home is
Senator Gregg. But of course, if my neighbor has had six acci-
dents, his policy price goes up.
Senator Durenberger. Well, that is a questionable way in which
some insurance companies, as she points out, try to avoid risk.
There is the value of insurance as a wav of spreading risks, and
the cost of that neighbor and everybody else having insurance
makes a big difference.
I think the first question is do we insure for catastrophic cov-
erage, like in fire or the loss of a life in an automobile accident,
or are we insuring for health maintenance. And it is pretty clear
that Americans have gotten used to insuring themselves for health
maintenance, for all the very ordinary things that go on in our
lives, rather than for the catastrophic. And it is pretty clear that
424
one of the debates we are going to engage in is, as to the basic ben-
efit package, are we going to do a catastrophic, as some of our col-
leagues have proposed, with basic preventive care, or are we going
to try to do a more comprehensive coverage.
But to get into the point of the hearing, the point that my col-
league raises relative to life style impact does not have to be dealt
with only in the price of the premium. It can also be dealt with in
the value to the employed person of the employer's contribution.
And I must say that one of the things that bothers me greatly
about the administration's proposal is that it turns the employers
in this country into check-writing agencies, as we have done with
so many other good things that employers have suggested to us.
That in effect all of the things that General Mills has already done
to try to use their contribution to the employees' premium as a way
to encourage healthy life styles, not overutilize the system, get into
relationships with providers in the community, are discouraged by
this kind of approach.
What one of the witnesses after you will say is that, "In its ef-
forts to hold down the explicit budgetary costs of health reform, the
administration has developed a plan that is the worst of both
worlds. It is too regressive to be equitable, but too distorted to be
efficient. The fundamental overall problem with the administra-
tion's strategy is that it proposes to use the employment relation-
ship as the basis for mandated coverage. The only reasons for doing
so are force of habit or historical accident and the attractiveness
of financing a public program with an off-budget tax generated to
confuse the electorate. '
And let me take that just one step farther, if I might, and just
ask you this. Would you please try to justify for us Government-
imposed limits on private spending in this country? Some people
say the biggest problem we have is $903 billion being spent. Tell
me why that is a bigger problem than the problems of market fail-
ure in this whole system that end up giving us those kinds, at least
in part, of costs — restricted entry into the system which Govern-
ment imposes through licensure and a variety of things like that;
price distortions, which are all over the place, which are reinforced
by Medicare and Medicaid and a whole variety of reimbursement
systems; poor information, which Government does not do anything
about, and that is one thing where Government could — it could
force more information into the system; the insurance industry — for
political reasons, we have decided that up until now, we are not
going to take on the insurance industry, so we end up having a sit-
uation in which all of these people are out there competing to avoid
risks, as you appropriately pointed out.
So I hope my question is clear. If you would agree that market
failure in some of these respects is really the problem, then why
is it that so much of what the administration is recommending ap-
pears to be aimed at containing the private spending in ways that
a lot of us would suggest, and other witnesses before this commit-
tee have suggested, might be getting in the way of restoring mar-
kets?
Ms. Tyson. There are actually a number of ideas which came in
your question. First, let me talk a little bit about the limits on pri-
vate spending, which is the critical part of your question.
425
I think the view is, as you well know, that we have tried to de-
velop health care reform which is very much based on the best
practices of the private system. That is, we are trying to model,
based on what we have learned from employers who have done a
good job at encouraging health maintenance organizations, at figur-
ing out efficient care delivery mechanisms, and building on State
experience as well, for both State and private sector experience.
So our system really is one of managed competition. The limits
on private spending are meant to be a backup or an emergency
break or a failsafe mechanism. So I think the debate really should
appropriately be about what do you think the odds are that these
will bind. That is really the issue. If you think that there is enough
inefficiency in the system, that by the year 2000, we can easily
save 10 percent off projected spending simply be encouraging pro-
viders to form more networks and allowing consumers to have
greater choice — after all, we have a situation now where only 30
percent of the employees of companies of 500 or smaller have any
choice at all. There is no choice. That is a market failure. We do
not have market competition in the choice of providers, and we do
not have an incentive for providers to network. So we are going to
put these incentives in, and we believe we can get that 10 percent
saving by the year 2000, without the private sector caps binding.
But they are there. So the debate between us really is a debate
about what is the probability that they are going to hit. And our
reading of the evidence is that the probability is not high, but we
absolutely have to have it, and the reason we absolutely have to
have it is because whatever happens to this health care reform
package, it seems to me it is very likely that we are going to have
some form of restraint on the growth of our public sector programs,
Medicare and Medicaid, where the Federal Government is now
spending 40 percent of our national health care budget primarily
through those two programs.
If we try to rationalize and control those programs and do noth-
ing to the private sector, we know what the consequences will be.
The consequences will be
Senator Durenberger. But pardon me — you are not recommend-
ing rationalizing any of those programs. I mean, the efforts that
some of us have made to urge you to reform Medicare in some very
substantial way so that it can De bought in the private sector from
accountable health plans have been rejected as political.
Ms. Tyson. Well, we are going to make a series of very specific
proposals on what our Medicare proposal is, what the cuts will be,
and I think at that point we should have that discussion, because
it is our intention to reform those systems and to make them work
more efficiently. But if we try to work just on that part of the budg-
et and not on the private sector budget, the result will be a balloon-
ing out of the private sector budget.
So I think we absolutely have to have these limits in there, but
our view is that the work is really going to be done by changing
incentives and not by the budget caps. That is the first part of my
answer.
A number of other things you mentioned, I think we are trying
to do. One of the main responsibilities of the regional alliances
would be to improve information to consumers. I have to profess a
426
great deal of ignorance about health insurance, the plans that are
available to me, and someone has to sit down and tell me what
they are. And as I said, lots of people have no choice at all. What
the regional alliance guarantees is that no matter how small you
are, if you are an individual, self-employed person, you have a
choice between three plans; you will have full information about
those plans; you will have a report card on those plans, and you
can make a wise choice. So information is a very important part
of what we want to do.
We certainly want to reform the insurance industry along the
lines that you have proposed. And you talked about restricted
entry. I again want to emphasize that the reality that we are start-
ing with is that most people do not have a choice anyway, so this
will expand choice and expand entry opportunities for many indi-
viduals.
Senator Durenberger. I am just talking about restricted entry
of people who want to practice better medicine and/or get to a more
appropriate end are restricted from doing that by the current sys-
tem. There really is not an opportunity in the current system to re-
ward good behavior.
Ms. Tyson. You mean with the current proposal. But ultimately,
you have a system in which the better providers who figure out a
better way to do this with capitation will be more profitable, they
will attract more consumers because they will have a better report
card, and they will be the ones who grow. That is the managed
competition aspect of this.
The providers who do not do a good job will not be able to make
any money in the current system because of capitation, and fur-
thermore, I assume their report cards would show things like long
waiting times, and consumers would move to the other plans. So
this should help the good providers.
Senator Durenberger. Thank you, Mr. Chairman.
The CHAmMAN. Thank you very much, Dr. Tyson.
Two final questions. Just yesterday, we were down in the south-
eastern part of Massachusetts, where we have the highest unem-
ployment, and we talked with some of the small business people,
who were pretty evenly divided, actually, in terms of the mandate
issue. Have you figured out, even with the 3.5 percent, what that
impact would be in terms of being sufficiently troublesome to be
the straw that breaks the camel's back in terms of the country gen-
erally?
Ms. Tyson. As I pointed out in my written testimony, this means
essentially, given the caps for small, low-wage firms, you are talk-
ing about what would be equivalent to an increase of 15 cents to
35 cents per hour in the minimum wage. That is a figure which re-
cent studies have demonstrated or clearly suggested is likely to
have a very small impact on the employment prospects of low-wage
workers.
Some of the low-wage workers may see a slower rate of growth
in their wages over time, but the notion that firms will not be able
to absorb that amount of an increase is really a notion that is
called into question by the most recent researcn. I think 15 cents
to 35 cents an hour still leaves us below minimum wage levels that
427
we realized in the 1980's, with lower unemployment rates than we
have right now.
The Chairman. Finally, you have had a chance to review the
next panel's testimony. Would you be good enough in a summary
way to just give us a brief comment on those?
Ms. Tyson. Sure. First, I already mentioned Dr. Lewin, who will
talk about the Hawaii experience. There are lots of models you can
look at about what are the effects of this or that change, but we
actually have a real experience to look at in the Hawaii experience,
and that experience suggests that in fact the employment concerns
associated with this kind of health care funding mechanism have
not proven to be real issues in the State of Hawaii. So that is the
first point.
In the paper by Dr. Klerman, his conclusions are by and large
absolutely consistent with ours. As I said, our basic conclusion is
the net effect on employment; if that is what you want to look at,
if that is your metric or standard, we can give you runs that gen-
erate plus or minus one-half of one percent of the employment
level, and that is exactly where Dr. Klerman is coming out.
He emphasizes, as we do, that the employment effects are small.
He also acknowledges that his results so far do not take into ac-
count some of the beneficial effects of the plan that we have tried
to take into account. So we generate some positive numbers in our
runs because we have taken into account some of the beneficial ef-
fects of the plan in terms of bringing down business spending over
time.
So in general it is consistent with our reading of the evidence.
Dr. Pauly's testimony, we are confused by, because our reading
of his, I think self-avowedly back-of-the-envelope calculations, sug-
gest that he is using a very high what economists would call elas-
ticity, or what we might call the sensitivity of employment to a
change in labor costs. In fact, doing what we know about our plan
and the discounts and all the rest, doing what we know about our
plan, we conclude that he is using an elasticity that may be 10 to
20 times as large as the standard elasticity in the labor economics
literature.
So even if you wanted to do a simple employment effect, we are
confused by where he gets the numbers he gets, because our read-
ing of our own plan is that this elasticity or sensitivity measure is
really much too large.
It is also important to note, and I said this in a couple of my re-
sponses, that he talks about a decline in health care employment.
It is important to understand that this is a slowdown in the rate
of growth of health care employment relative to where the baseline
would otherwise bring us. The net effect at the beginning is to in-
crease health care employment and then to slow its rate down.
Health care employment does not fall absolutely in our world. It
does not fall; it slows down.
And finally, this study, like the rest of the studies, does not take
into account the fact that a lot of firms are not just winners in the
year 2000, but they are winners once they get into the alliance.
Their costs fall right at the beginning, and those firms can do a lot
of possible things with their benefits. Anything they do with the
benefit of the health care system benefits the economy. We are not
428
sure exactly what they will do, but it is beneficial to the economy.
And that is not in this paper.
So those would be my quick reactions from a quick reading.
The Chairman. Senator Jeffords.
Senator Jeffords. Just a quick follow-up. Being a member of the
55 to 65 group — and I am sure you are not — I would just pass a
little information on. It is the most discouraged group of people in
the world when they get laid off. If you are in your 50's or 60's.
and you are not an executive who has the capital to open a small
business, it is a very, very severe and discouraging thing.
I would say that I hoped the result would be the opposite, that
the tendency will be not to create early retirees, because there will
not be the risk of higher health care costs for that group, and
therefore there will not be the attempt to risk-screen at the em-
ployment level.
Ms. Tyson. I absolutely agree with you, and furthermore, we can
accept that over time what this does is it allows people in that age
group a choice if they would like to retire early, but it does in fact
do exactly what you said. It brings down the costs of keeping the
employee from the point of view of the employer. So I think that
that should actually work as a benefit to that age group.
Finally, let me say that the issue that you have raised of wheth-
er or not this will cause firms to downscale even more than they
would have otherwise is something we are looking at, and we are
looking at ways to try to phase this in or have the firms pay for
more of that benefit if they want to exercise it.
So we are sensitive to tnis issue.
Senator Jeffords. From an economist's perspective, the biggest
concern right now seems to be health care, but right on the horizon
is pensions, and anything that we do that gets rid of people before
they are vested, or any tendency to put people out before they have
a viable livelihood in senior years is going to be of very deep con-
cern to all of us.
One final, quick question. Did you add up the amount of all the
accrued liabilities that were added under the new accounting proc-
esses for the corporations that had to accrue their future nealth
care benefits?
Ms. Tyson. I do not think we have added all that.
Senator Jeffords. I have a feeling if Ford was $1.2 billion, and
I think IBM was over $2 billion, that you are going to a get a figure
that is an awful lot bigger than $3 to $6 billion if you add those
up.
Thank you.
Senator Durenberger. Mr. Chairman.
The Chairman. Senator Durenberger.
Senator Durenberger. May I put in writing the question that
I asked Ms. Tyson, and maybe I can clean it up a little and make
it more precise, because I think at least in part, the commitment
to go with an employer-based system and the way in which the
plan currently recommends doing it causes enough concern for
enough people so that it would be at least helpful to me and prob-
ably to some of my colleagues, especially here, to deal more fully
with that.
So if I may, I would like to do that.
429
Second, you might clarify for us the recommendations relative to
health alliances. I just walked in when we were doing General
Mills, and I was not here Friday, but my impression is that the ad-
ministration has a system in which they try to get as many em-
ployers as possible into the regional health alliances, and that the
5,000 employee cut-off really would not be by company; it would be
by community, since competition and all the rest takes place at a
community level. So if General Mills has fewer than 5,000 people
in Minneapolis, then General Mills employees would be in a re-
gional health alliances, and they would not have an option.
Is that a correct interpretation of the recommendation?
Ms. Tyson. I think that is not correct. Basically, the whole idea
of the firm size exclusion was that we have to deal with the reality
that for big employers who cross many State lines, we cannot im-
pose on them the administrative costs of having employees in dif-
ferent regions and different regional alliances.
So my understanding is we have the 5,000 employee limit pre-
cisely so you can remain self-insured and out of the regional alli-
ance— a]] of your employees, regardless of where they are located.
Senator Durenberger. We might check that out.
The Chairman. If the Senator would yield, that is correct. It does
not make the problem any easier. For instance, Textron, a company
in Massachusetts, is in 40 different States. So this does not make
the problem any easier. Obviously, in some areas, there is not
going to be any competition. I know that this has been a reality
which they have attempted to address in the program, and we will
have a chance to take a look at the language later on.
Ms. Tyson. The real reason for doing this was precisely to deal
with firms who are already dealing in 40 different places, they
have already got arrangements for this. To try to require them to
go into several different regional alliances would really undermine
their own effectiveness.
I will be happy to write an answer to the question, and will work
on one. On the general issue, the quote you read, you could write
the same explanation with different words. The reality is that we
are not starting from square one, and we are trying to reform a
system which is one in which even two-thirds of employees in firms
with less than 100 employees are currently covered by their firms.
That is the reality. It seems to me that the way society has moved
forward is in general by making adjustments to where they start,
not by starting over.
So if we had a different starting place, we might not work with
an employer-based system. But the fraction of Americans who are
covered by their employers is simply the overwhelming majority, so
that seems to be the sensible place to start.
The Chairman. OK. Just listening to Senator Durenberger, I re-
cently purchased a car, and it was very interesting as I watched
the various advertisements. The two things that are going for them
are the antilock brakes and the twin airbags. That is setting the
standard in terms of what people are buying today. It is extraor-
dinary how the automobile companies are adjusting to that kind of
demand. And of course, we really do not have the competition in
health care existing even with the major automotive companies,
430
which obviously makes all of this much more complex and difficult
in how we structure competition the best that we can.
Thank you very much.
We will leave the record open for additional questions, and I am
sure we will be talking with you again, soon. We appreciate it very
much.
Ms. Tyson. Thank you for the opportunity, Senator.
The Chairman. Our panel includes three experts with differing
viewpoints who will comment on the economic implications of the
President's plan.
John Lewin brings the unique perspective of the State of Hawaii,
the only State in the Union that has implemented an employer
mandate. Dr. Lewin has some fascinating new findings to report on
what has actually happened to small businesses and employment
in Hawaii as a result of the mandate.
Dr. Mark Pauly is chairman of the Health Care Systems Depart-
ment at the University of Pennsylvania. He is a health economist
and the author of a plan to provide universal insurance coverage
through an individual mandate. He is a critic of programs that re-
quire employers to provide or contribute to coverage.
And Dr. Jacob Klerman is a labor economist at the Rand Cor-
poration who has written extensively on the employment impacts
of various proposals to extend universal health insurance coverage
by requiring employers to provide coverage and contribute to its
cost.
We will start with Dr. Lewin.
STATEMENTS OF DR. JOHN C. LEWIN, DIRECTOR, HAWAII
STATE DEPARTMENT OF HEALTH, HONOLULU, HA; MARK
PAULY, CHAIRMAN, HEALTH CARE SYSTEMS DEPARTMENT,
THE WHARTON SCHOOL, UNIVERSITY OF PENNSYLVANIA,
PHILADELPHIA, PA; AND JACOB A. KLERMAN, LABOR ECON-
OMIST, THE RAND CORPORATION, SANTA MONICA, CA
Dr. Lewin. Thank you very much, Mr. Chairman and Senators.
It really is a pleasure to be here. I bring you greetings from Gov-
ernor Waihee and the people of Hawaii.
Hawaii has been in the spotlight of late in terms of health care
reform issues, simply because so much of what is being discussed
nationally has already occurred in Hawaii. I have been accused at
times of being a salesperson for Hawaii's system, and I want to
start off by offering a disclaimer to that.
I think Hawaii's successes stand on their own, and in fact, we
are the most expensive society in America today as far as States
go in terms of real estate average costs and in terms of consumer
products, which are nearly 40 percent above the national average
at the present time.
Hawaii's accomplishments have been difficult to come by and
have required a lot of courage and action on the part of many peo-
ple who have preceded me. I have had the privilege of being the
director of health in the State for the last 7 years, and we have
taken some major steps in that time as well to close the gaps. But
we will be talking about what really has been the foundation of our
successes, namely, the employer mandate, which dates back to
1974.
431
We have a system in which we have an employer mandate that
covers about 83 percent of our population the employees and their
dependents. We also obviously have Medicare and Medicaid. Our
Medicaid system in Hawaii is generous, it is very broad, and it cov-
ers a wide array of benefits and more people than most State pro-
grams have been able to do.
We have added a mandate for substance abuse and mental
health insurance coverage as kind of a wraparound to the Prepaid
Health Care Act, which is now available to more than 92 percent
of our population, and also is available to Medicaid in a different
form, so that we have nearly universal mental health and sub-
stance abuse benefits, although they are limited compared to what
I would like to see them be in the future.
We have a very extensive public health system, and we have in-
vested a lot there compared to other States. And we have a certifi-
cate of need process that we have reallv used very effectively and
extensively compared to other States, which has contributed to less
overcapacity of hospital beds, and the technologies and better utili-
zation of those.
These all contribute, but the success of Hawaii is that we are at
98 percent access to nealth insurance coverage; the remaining 2
percent of people are going to be extremely difficult to bring into
the system, because they are often people who are homeless or
mentally ill, or who simply do not lend themselves to insurance
kinds of systems, and it will be extremely difficult in any society
to bring these people in, but we are committed to all of them. The
commitment is to 100 percent, and everyone in Hawaii has some
access to an insurance program if they make less than 300 percent
of Federal poverty; if they make more than that, then they can af-
ford to buy a program. Everyone in the work force is mandated to
buy a program.
The outcomes in Hawaii are also very impressive. We have the
lowest rate of infant mortality in the Nation this year. We have the
lowest morbidity and mortality from heart disease, global cancer,
emphysema. Outcomes look really, really good in terms of medical
care costs and in terms of just plain medical outcomes.
Costs of care. As a percent of gross State product, our costs are
comparable to Canada, Germany, Sweden, the Netherlands, and
are far less than the rest of the united States and less than 9 per-
cent of our gross State product.
In terms of consumer satisfaction, Hawaii was surveyed with
Harris polls along with all the other 49 States compared to Can-
ada, and we come out with the highest degree of consumer satisfac-
tion of all 50 States, at 74 percent very happy with the system
compared to 40 percent U.S. at-large, 18 percent unhappy with the
system compared to 57 percent U.S. at-large.
In terms of medical system costs and the kind of system, we are
the high-tech, glitzy American health care system, where physi-
cians make a lot of money, where hospitals are high-tech and cer-
tainly very expensive.
But given all of that, and given the accomplishments, I want to
point out that we fully support national health care reform. We
need national health care reform. We need it to bring the dysfunc-
tional aspects of our system, namely Medicare and Medicaid, into
432
the efficiency of the rest of the system. We need it to work in no-
fault auto insurance, in workers' compensation. We need the data
and outcomes commitment that has been mentioned in the Clinton
strategy, and we certainly need some kind of tax system that offers
some more incentives for people to purchase more carefully and
more efficiently.
So we are very excited about the Clinton strategy as terrific
progress and leadership and a bold step forward, and we would like
to see national health care reform.
The background for the employer mandate for Hawaii is that the
critics always talk nationally about how we are going to see an
enormous loss of jobs, small business failures, and so forth. What
we can tell you from practical experience is that we have had to
face this, and it was not just back in 1974, Senators. One thousand
new businesses form each year in Hawaii, and they all have to
come in and face this when they start. A new McDonald's fran-
chise, a new dry cleaning establishment, they have to face it
today — in 1993, in 1992, and in 1991. We are familiar with the re-
ality of it.
We think the critics who do not understand what has happened
in Hawaii fail to see that we have a level playing field, that we
have standard insurance benefits, we have insurance market re-
form, our employer mandate offers every small business the same
low rate that the big businesses have in the State. The community
rating means that if they hire somebody with HIV disease or AIDS
into their business tomorrow, in a "mom and pop" store, that their
insurance rates do not go up and that the individual's rates are the
same as anybody else's in the State. Trying to understand how it
might be in that environments for small businesses is difficult, but
in fact in our State, the small businesses that were not providing
coverage back in 1974, yes, they had to add an increased cost of
goods and services, but in fact the public was willing to absorb that
increase. Hamburgers went up 25 cents, dry cleaning a shirt went
up a dime; people paid the difference. And in fact, those businesses
made it without an enormous subsidy, and they have been insuring
for 20 years.
We eliminated a lot of cost-shifting, and we believe we created
new jobs by virtue of the fact that the businesses that previously
were paying exorbitantly high rates when we did not have commu-
nity rating have lower insurance costs now. In fact, all of the small
businesses in Hawaii have lower insurance costs than could be pur-
chased anywhere else in America.
The Prepaid Health Care Act is our employer mandate, and it
took a number of years of study to bring it in. I think people know
that we are a Democrat State, but this is a bipartisan issue, and
our employer mandate looks very much like what Richard Nixon
was proposing in 1972 through 1974.
The law itself as applied needs to be clarified a little bit. In the
original law, dependents were optional; although the employee
could say that my dependents will be covered, and the employer
would have to include them, the dependent would have to also
agree to take on part of the share of the cost for that dependent
coverage. In fact, dependent coverage is universal in Hawaii. All
433
dependents have taken them on, and it has become a universal
process. .
The benefit package looks very similar in reality in Hawaii to
what the Clintons have proposed in their benefit package. Although
originally, mental health and substance abuse were not in the
package, dental, drug, and eye coverage were not in the package,
we have mandated mental health and substance abuse as a kind
of wraparound insurance mandate, and dental, eye, and drug bene-
fits were added as a community-rated supplement that 85 percent
of the public has voluntarily purchased. So in essence, Hawaii func-
tions like it has the benefit package today.
Originally, insurance reform was not written in as mandated
community rating, but in fact community rating became the norm
because the law says that all in the work force and their depend-
ents must be accepted by any insurer without regard to pre-exist-
ing condition. And by virtue of that, all of the sick and the chron-
ically ill became part of the program either by virtue of being em-
ployees or by being dependents of employees. Just about everyone
has somebody working full-time in their family. So the insurance
companies took that burden on, and they transformed themselves,
frankly, from insurance companies to health care companies be-
cause they had to manage chronic disease; they had the burden,
and they had to deal with it. And that puts us in a very different
world. That is how managed competition has come about in Ha-
waii. Hopefully in the questions, we can go into that a little more.
I have included in my testimony some charts to show you some-
thing about the effects of the mandate on the economy — the major
industries, what they are in the State, the relationship to gross
State product. The gross State product chart, by the way, is in
1982 dollars. Our gross State product this year is over $30 billion.
But I tried to give you an inflation -protected relationship to gross
State dollars there.
I show you that we are a small business State, the 98 percent
of the 25,000 businesses in Hawaii have less than 100 employees,
and in fact 90 percent have less than 25 employees; that new busi-
ness growth has not been impeded. From 1974 until now, we see
an increased number of new businesses created each year as com-
pared to U.S. averages.
You see a decreased number of business failures compared to
U.S. averages. You see no effect on unemployment. Where you see
unemployment going up and down on our chart, it relates directly
to the U.S. economy, nothing to do with health insurance costs in
Hawaii.
And in fact I think most important is the last addition. Dun and
Bradstreet published in the Wall Street Journal a study by David
Birch, an economist, that shows that Hawaii is the place which is
most favorable to new entrepreneurial ventures and in fact over
the last 5 year has, more than anyplace in American, new busi-
nesses of under five employees that are growing and thriving. Even
after Hurricane Iniki, even during this 2-year slump in tourism,
Hawaii's small businesses are doing really quite well.
We need to point out that small businesses have an ideological
issue about Government mandates. They do not like Government
mandates. But in essence, we have had a number of important fac-
434
tors to demonstrate. From 1982 to 1984, Hawaii's law was declared
void by the Federal appellate courts when challenged by Standard
Oil on the basis of ERISA. It had been in place Tor 8 years. For
2 years, small businesses could opt out until we went to Congress
and got our ERISA exemption. We know of no business that did.
When you ask NFIB why small businesses did not opt out during
those 2 years, they give you 2 reasons. One, employers had become
accustomed to providing health insurance; it was a kind of way of
doing business in Hawaii. And two, that employers were very
pleased with the satisfaction coming from employees about the ben-
efits of coverage for them and their families.
Now, these things to us are a very strong affirmation. And sec-
ond, we had a premium supplementation fund built into our law
to supplement the premiums of businesses that could demonstrate
by means-testing that they could not pay the premiums. And in
fact, in 20 years, only five businesses have applied, only $85,000
has been tapped from the original million-dollar fund, and it is now
a multimillion-dollar fund gaining interest.
So while we were concerned about the possibility that small busi-
nesses might be very adversely affected, and we put the law into
place during a peak period of unemployment, in fact businesses
have accommodated very well.
The myths about Hawaii are that we are all healthy because of
excellent weather, or maybe superior genetics. I hear that often.
We have a lot of Asian Americans, and they are supposed to be ex-
tremely healthy and not require any health care. Or that life styles
are exemplary in Hawaii, or finally, that we are an island situa-
tion, locked in, businesses cannot leave, and only in an island situ-
ation could things like this occur.
I want to point out that we have good data to support the fact
that none of these myths are valid. There are many places at our
same latitude around the world, and there is no place with the
health results of Hawaii or the health statistics of Hawaii.
Certainly, southern Florida or San Diego have great weather, but
unfortunately they cannot claim to have the kind of health care
costs that we do.
Genetics and life style, we can dispute very, very effectively with
Centers for Disease Control data that compares all States.
And the island status issue is that small businesses cannot leave.
Well, the small businesses that do not provide health insurance are
the service businesses. They cannot leave anyway. They are locked
to their consumers and their customers.
The real reason Hawaii succeeds is because we have reduced un-
necessary emergency room use by 50 percent; we have a hospital
bed ratio of 2.6 instead of 3.7 U.S. average per 1,000; we have inpa-
tient days reduced by 12 percent per capita, with enormous savings
deriving from that; and surgeries reduced by nearly 40 percent over
U.S. rates. And we are not rationing care.
We have increased investments in public health, and therefore
we have the lowest infant mortality, and we have reduced our child
abuse rates by 50 percent in the last 5 years through intervention,
and we have reduced our HIV infection rates.
So I want to point out that what Hawaii has by virtue of its em-
ployer mandate is a level playing field. I can tell you that the rich-
435
est employee in Hawaii and the poorest employee have the same
one-tiered health care system. What the richest employee can buy
is amenity — plastic surgery, liposuction, prayer partners— you
name it; whatever people want to buy on the outside. But frankly,
it is not providing longer longevity or a better quality of life or re-
duced morbidity and mortality.
I would like to say that Hawaii is not a blueprint, and we do not
claim to be. We need national health care reform. We are part of
the American health care svstem unless it changes. We cannot con-
trol our 10 percent rate of cost increase. But if you talk to Bank
of Hawaii, which has subsidiaries in New York and Phoenix and
San Francisco and Hawaii, they are paying $300 a month for
health insurance for their employees in Hawaii, $900 in New York,
$600 in Phoenix and in San Francisco. A 10 percent rate of in-
crease in Hawaii is $30 a month for them; it is $90 a month in
New York. We are not catching up with the costs on the mainland.
I think the point is that we are part of the American health care
system. We cannot control drug costs or Medicaid and Medicare in-
creases by ourselves, so we do need reform, and we like the Clinton
strategy. But the reason we are in front
The Chairman. I will give you just a couple more minutes.
Dr. Lewin. OK. I will wrap it right up.
The reason we are in front is because of the employer mandate.
There is no doubt about it. It is the foundation for the other things
that I have had the privilege of effecting in the last few years.
Without the employer mandate, I could not have done it. We had
17 percent of our public uninsured in 1974. When I came as direc-
tor of health, only 4 percent were uninsured. So I could go after
that gap group aggressively, and we could afford to take them on.
We could not have done that without the employer mandate.
We know in Hawaii that America can achieve a very high quality
of care, excellent health care system, one that most of us are used
to, and we can do it for approximately 10 percent of our gross na-
tional product. We know that that is possible, and we know that
we will still have room left, then, to bring the poor the
disenfranchised, and those who are outside the system on with dig-
nity.
We think that the employer mandate part is the most essential
key link to doing that.
Thank you, Senator.
The Chairman. Thank you very much.
[The prepared statement of Dr. Lewin follows:]
436
Prepared Statement of Dr. John C. Lewin
Thank you for the opportunity to contribute to national health policy development
by outlining Hawaii's health care reforms. We appreciate the opportunity and
recognition you have given by Inviting us here today.
Hawaii is often thought of as a tropical paradise. What isn't known i9 the fact that we
have one of the best basic health systems In the nation. Our system delivers high-
quality care for low cost, despite our high cost of living. While we emphasize early
intervention and outpatient treatment, Hawaii enjoys high tech tertiary care
programs as advanced as any state or nation. The key to our success Is our state's
longstanding commitment to ensuring that basic health care is available to all our
people -- our system offers access to coverage to all and in fact has covered about
98% of our people. Another cornerstone is Hawali'9 Innovative health care
community which experimented with short hospital stays, outpatient surgery, and
preventive health programs some time before they became the norm on the
mainland United Stale9.
Our state has a mandated employer benefits program, the only one of Its kind In the
nation, a Medicaid program which reflects our people's high commitment to those
In need, and coverage to those left In the gap between these other programs through
our new State Health Insurance Frogram (SHIP). We don't offer these programs as
panaceas for the national crisis of the uninsured. But, they are applicable to the
national debate on health care, and we are glad to offer our contribution at this
forum. Together, we can contribute to national policy In health care.
Today, I am here to apply Hawaii's experience to the economic effects of the Clinton
Health Core Flan. I will not attempt to discuss the many elements which might be
covered here, but rather will focus on a major area of controversy on which our
experience may shed Important light -- that of the economic effects of an Employer
Mandate.
BACKGROUND
Hie economic Impact of an employer mandate is controversial. Opponents claim
there will be significant job losses B9 well as serious economic damages to small
businesses. Such allegations are certainly based on the assumptions that small
businesses are to be Incorporated Into a health Insurance mandate that reflects the
existing adverse environment. However, an employer mandate which Is associated
with Insurance mnrket reform, community Insurance rating, a fixed and broad
standard benefit package, appropriate utilization controls and a level playing field
437
of assured and equal participation by all businesses and all workers has not been the
experience of the small business community In America except In Hawaii. The level
playing field of above-described conditions which accompany Hawaii's mandate
have provided a workable framework In which nearly all businesses have been able
to both thrive and incorporate the cost of health insurance for employees through
Increases In the costs of their goods and services. In other words, In Hawaii, after the
passage of the Prepaid Health Care Act the cost of a hamburger did Increase
slightly, as did the cost of dry cleaning a shirt, as did any other cost of either goods
or services produced by businesses which formerly had not provided health
Insurance for their workers. However, all of these businesses were affected equally
and at the same time.
The allegations of opponents to an employer mandate maintain that the high costs of
health Insurance today cannot be accommodated In small businesses through
efficiencies or higher prices of goods and services, although critics fall to recognize
that they cannot escape such costs through federal and state taxation and increasing
health Insurance costs to cover the uninsured populations.
Critics further project that many employers will react to an employer mandate by
eliminating low-wage employees or going out of business completely. Such
allegations fall to take Into account the effects of lower Insurance costs resulting
from community Insurance rating and reduction of administrative costs In health
Insurance through a well-designed employer mandate. Through reductions In cost
shifting, resulting in lower public taxation costs, and lower health Insurance costs,
many small businesses who presently Insure their workers will experience
significant savings, which would presumably result In the ability to create new jobs
In these businesses. Further, Hawaii's small businesses were given the opportunity
to opt-out of our employer mandate In the early 1980s when the low was
successfully challenged on the basis that It violated the Employees Retirement
Income Security Act of 1974 (ERISA). It took Hawaii nearly two years to reestablish
the law through an ERISA exemption, yet there Is no evidence of any small
businesses who discontinued Insurance coverage during that period. The reason
most often cited by small business representatives for the continuity of universal
coverage during this period Is that businesses had both become accustomed to
having health Insurance benefits coupled with employment, and they
acknowledged the peace of mind and security among their employees related to
guaranteed health coverage.
We must differentiate between the ideological concerns of small businesses related
to government mandates over their domain as compared to concerns about their
economic effects resulting from Amercla's only employer mandate In actual
practice, namely Hawaii's mandate. Allegations of those who claim an employer
438
mandate cannot succeed economically relate more to Ideological assumptions than
sound data. We believe that It Is time for a reality check. Hawaii is that reality check
because we have twenty years of actual exeperlence to add to the national
dl6CUSSlon.
HAWAII PREPAID HEALTH CARE ACT
The keystone of Hawaii's health care reform system rests in its Prepaid Health Care
Act. Adopted in 1974 in a time of high unemployment, this measure was effected
after six years of study and policy development.
The Prepaid Health Care Law is the nation's first and only employer mandate.
Employers are required to provide health insurance to their employees. Costs are
shared. The employee may pay up to 1.5% of monthly wages, or up to half the
premium cost, whichever is less. The employer pays the balance. Dependent
coverage is optional. Under the law, employers may provide benefits through self
Insurance as long as the benefits offered meet the provisions of the Act and the plan
Is approved by the Hawaii Department of Labor. There are coverage alternatives, a
fee-for-service plan and a health maintenance plan. The fee-for-servlce plan •- most
used in Hawaii -- provides a good package of diagnostic and treatment services,
using co-payments to reduce over utilization. The HMO (health maintenance
organization) plan provides a generous package of benefits.
Basically, any employee who works over 20 hours a week is covered by Prepaid
Health Care. Because the program Is administered in conjunction with temporary
disability and workers' compensation Insurance In our State's Department of Labor
and Industrial Relations, no large state bureaucracy was created to administer
Prepaid Health Care. A Premium Supplementation Fund assists small employers
who cannot, because of economic limitations, provide the insurance, and helps
employees whose employers have gone out of business or who have not provided
for the insurance. This fund has had minimal use over the 18 years of the program.
Administrative and legal sanctions are available for use when employers do not
provide the mandated coverage.
Excluded from the provisions of the Act are government employees (who have their
own alternatives for coverage), seasonal agricultural workers, real estate and
Insurance agents working on commissions, Individual proprietorship members In
small family business, and government assistance program recipients.
439
AN OVERVIEW OP HAWAII'S ECONOMY
Hawaii'6 economy Is based on three major products: tourism, defense expenditures
and agricultural products. Direct income from these three products entailed 44.6%
of the state's Gross Domestic Product In 1975 and 47.9% In 1991, with the growth of
tourism during the period being the dominant feature of economic change. Major
Industries In Hawaii are services, government, finance, retail trade, transportation
and construction (Chart 1). Gross state product, adjusted for inflation, has grown
consistently throughout the period 1972-92 (Chart 2). While it may be noted that
Hawaii's economy Is less diverse than that of the nation, it Is typical of many 6tates
nnd does have a concentration of economic activity in the service, retail trade and
construction sectors, all of which are cited as sectors In which an employer mandate
would have a significantly negative Impact.
Hawaii is also a small business state. As can be noted from Chart 3, In both 1975 and
1990, 98% of the businesses In Hawaii employed less than 100 workers, and 95%
employed less than 50. In 1990, small businesses employing less than 100 persons
entailed 51% of the total employees. Again, with such a high proportion of small
businesses, it would be expected that an employer mandate, If It were to have a
negative Impact, would show that Impact in a state with such a high proportion of
small businesses.
BUSINESS EFFECTS
None of the negative effects projected for an employer mandate appear in Hawall'9
business experience:
• Chart 4 shows the steady growth of the number of businesses In Hawaii
during the period 1970-1991 There does not appear to be any fall-off In the
growth of businesses either Immediately or In the long term after the effective
date of the Prepaid Health Care Act (January 1, 1975).
In Chart 5, new job creation for the period 1969-1989 is displayed. Note that
new jobs continued to be created after the effective date of the mandate and
that, In fact, every succeeding year saw Job growth with the exception of 1981,
a period of exceptional economic downturn. Instead of the job loss which
would seem to be predicted by the current studies, Hawaii has seen job
growth.
440
• Loss of Jobs would also be measured by unemployment levels. If, as
predicted, on employer mandate would Impact business negatively, sizeable
unemployment should result, as employers shift to automation, or reduce
employees to reduce the extra costs of Insurance coverage. Hawaii's
experience shows that this did not happen. Chart 6 shows that
unemployment, high before the mandate, has actually declined In the years
since its Implementation to the point that throughout the period since 1980,
our unemployment rate ha9 been consistently below that of the nation. For
every year since 1936, In fact, It has been below the 5% level Identified by
economists as "structural unemployment."
• Business failure is another dire predicted consequence of an employer
mandate. With the burdensome costs of health Insurance, the theories hold
that some or many businesses will fail. Again, Hawaii's experience belles this
assumption. We do not have data prior to 1977 on this Item, but Chart 7
6how9 how Hawaii ranks vis a vis the nation on the Dunn and Bredstreet Index
of business failures since 1977. As can be noted, Hawaii's rate has been well
below the national rate for every year since 1977.
• Certnln projections have focussed on certain types of small business jobs as
the focal point of negative impact of an employer mandate. Projections are
made that low wage service Industry jobs would be those most Impacted, as
the high cost of Insuranre Impacts the low compensation package for low
Income workers Health insurance costs would raise the total compensation
package to a point that It i9 economically not viable for the employer to raise
prices, depress wages or find economies In operations to offset the Increase, It
Is felt. The Inevitable projection of job loss In these job categories results.
Hawaii's experience with these categories of low wage employees does not
bear out the projections. Chart 8 shows the growth of employment In the
restaurant Industry, one of the Industries most fearful of a mandate nationally.
As can be noted, growth In restaurant jobs ha? been consistent across the
period 1975-1986 after the mandate was passed, with the only slow down
being in the early 1980s.
• Chart 9 shows the steady growth In service Industry jobs after the mandate.
For the period 1974-1984, service Industry jobs Increased from 74,000 to almost
104,000. A decline In construction jobs Is also evident, but this has been
attributed by our analysts to a cyclic decline In major capital Investments
rather than an increase in health care costs. Construction jobs in Hawaii have
had a high proportion of unionized members with health care benefits.
441
♦ A recent study by corporate demographer David Birch called Hawaii the
number one "entrepreneurial hot spot" In the U.S. The study focused on the
number of surviving start-ups by young companies during 1988 through
1992. Honolulu came In second among medium-sized cities, and our
neighbor islands ranked first among rural areas. Chart 10 shows the results of
the Cognetics Inc., survey for states.
All of this indicates to us that, in fact, dire predictions of Job loss from a mandate are
Just that -- predictions. Our actual experience Indicates that no negative Impact Is
evident In business/job growth, unemployment, or business failure in Hawaii.
In fact, we believe that the mandate actually had positive effects on employers.
Because there are few uninsured in Hawaii, our hospitals report a level of
uncompensated care much lower than the U.S. as a whole. Thus, little
uncompensated care costs ate factored into the insurance rates of business.
Businesses who do the socially right (and legally required) thing In Hawaii are not
forced to pay for the health care for workers of businesses who do not. Moreover,
businesses enjoy fair Insurance practices which give them accessibility to coverage
at reasonable costs. Our businesses know this, and In a recent survey, 55% of them
said they would support an employer mandate were It to be reproposed today.
That Is very significant, given the high proportions of small businesses said to
oppose a mandate nationally. In fact, our system belles the fears, and our businesses
know It.
EFFECTS ON ACCESS
The effect? of Trcpnld Health Core Is evident on ncce39. In 1971, o survey show that
those without hospital insurance were also 12% of our population and those without
physician Insurance were more than 17% of the population. Implementation of
Prepaid Health Care significantly reduced those percentages. Estimates of those
newly provided with health Insurance range to more than 46,000. A survey done In
1970 by the Department of Health estimated that only 3.9% of Hawaii's people
lacked coverage. Other people were provided better coverage. The Department of
Health estimates that those figures grew with the shrinking of Medicaid during the
1980s to approximately 5% In 1987-1988.
A more complete analysis of the Act and Its effects, particularly Its effects upon
health and health status, Is contained In an article by myself and my Deputy
Director, Dr. Teter Syblnsky, recently featured In the journal of American Medical
Association (JAMA), "Hawaii's Employer Mandate and Its Contribution to
Universal Access." We have attached (Attachment 1) the article for your
Committee's use.
442
MYTHS ABOUT HAWAII
In addition to the effects of an employer mandate, Hawaii ha9 a number of lessons
which cnn be of assistance In national health care policy. Many people do know
about our experience and many misconceptions exist:
1. Hawaii's geography and climate Is healthier to begin with.
Hawaii Is located between 18-23 degree N. Latitude. Other Islands at or near
the same latitudes are: Taiwan, Hainan (China), Haltl/Domlnlcan Republic
Cuba, and. In the southern latitudes, Madagascar. None of these comparative
Island environments are particularly healthy, per se.
2- There's less stress In Hawaii thpn there Is on the mainland.
The cost of living In Hawaii in 1990 was 34% above that of the average
mainland urban area. Housing costs are extremely high (the median rental
cost In 1990 was $960, 240% of the mainland median; the median cost for
purchase of a home In 1989 was $267,000). This leads to a high percentage of
two wage earner families and concomitant family stress over economics, latch
key children, etc. In Hawaii, we have our share of stress.
3. In Hawaii, people live a healthier lifestyle.
Despite a climate that should make such a lifestyle more possible than
anywhere else, that lifestyle remains an elusive goal. In a recent survey,
Hawaii ranked belovv the national median on 4 of 7 healthy lifestyle
Indicators: no leisure activity; greater sedentary lifestyle; more "binge"
drinking; and greater drinking and driving
4. B?ca_use_67_% of Its population .is Aslpn • Pacific Islander, which Is healthier In
rntlpnal statistics, Hawaii's people are healthier per se.
In fact, our population Is not Innately healthier. When comparing on a
Centers for Disease Control (CDC) Index of premature mortality, the four
large population groups in Hawaii (Caucasians, Japanese, Filipino and
Hawaiian), Caucasians, Japanese and Filipinos have roughly the same levels
of premature mortality. It does not appear In Hawaii, then, that these Asian
groups differ significantly healthwlse from Caucasians. Hawaiian*, however,
have iwice the rate of premature mortality than the other groups. Because of
the small size of this group within the national "Asian - Pacific Islander"
443
category, this poor status could well be missed. Because persons of Hawaiian
descent make up 207o of Hawaii's people, actually this poor status negatively
Impacts on Hawaii's health figures.
5. Hawaii has been successful with an employer mandate because "it? businesses
can't move away."
While, on the surface, this argument would seem to hold, as Hawaii consists
of islands 2,500 miles from the U.S. mainland, a deeper look suggests that this
might be an erroneous assumption. Hawaii is 4-1/2 hours by airplane from
the U.S. mainland, about the same distance as San Francisco is from
Washington, D.C. It Is connected by satellite and electronic media with
financial centers worldwide. While a business person might spend a few
more hours In air travel In moving from Hawaii to another state, there are not
real "barriers" to such a move. A more realistic concern is the ability of a
business to move across state borders (in the event the state were to enact an
employer mandate) and service Its previous service area from outside the
state. Obviously, this could not happen In Hawaii, but It Is Important to note
that such a problem Is not generic, but would apply only to specific
businesses and business locations. While the problem could be a real one for
the computer Industry in New England, for example, such experience should
not be generalized to the fast food Industry In Oregon. For small businesses,
even a relatively small distance precludes such a solution and In most of the
United States distance, while not as extreme a factor as in Hawaii, does
preclude such moves.
LESSONS FROM HAWAII
Because our system provides up-to-date American health care services, uses
Insurance as its mechanism of financing and operates within the same
legal /constitutional framework as other states, we believe our experience has real
relevance to the nation's efforts to bring Recess to all of Its people, at affordable costs.
In brief, these are:
1. Mandated employer coverage can be an effective tool for universal access,^
without negative Impact on business.
Hawaii's employer mandate brings large numbers of people under the
umbrella of health care coverage. While this approach could be criticized as
being "antl-buslness," it actually Is In accord with America's faith In the free
enterprise system to find cost-effective solutions to complex problems.
444
Through an employer mandate, government defines the extent of coverage
and uses the competitive marketplace to provide that coverage costs
effectively and efficiently. By requiring employers to cover their employees,
an employer mandate avoids complex governmental bureaucracies and
allows business to get the Job done well.
Data and experience shows that, contrary to small business fears, our mandate
has not brought about a bad business climate In Hawaii. Business growth and
unemployment have not been Impacted by the mnndate despite concerns
expressed prior to our mandate's passage which mirror the same arguments
we find against a national employer mandate. These fears did not, in fact,
prove to be substantiated then and we do not believe they are substantiated
now. Our employer mandate has leveled the playing field for all employers
and has ensured a strong package of health care benefits for all.
2. Insura nee reform Is vl tal to the success and equity of an employer m andflte.
W.h PL' S also qu 1 1 e dear la that a n employer mandate helps io ensure that
Insurance reforms are successful .
It is only fair that a mandate be accompanied by affordable insurance rates,
which are possible In Hawaii through community rating, and the appropriate
prohibition of exclusionary practices. Our community rating Is voluntary, a
likely product of the important role of our two large non-profit Insurance
providers In Hawaii's market. This voluntary modified community rating
system works to keep our rates among the lowest In the nation. The Insurers
have been able to maintain this system without a specific legislative mandate
because all employers must purchase coverage. Because all employers are In
the risk pool, community rates are affordable. Because the Insurance
companies must compete, the market, not governmental controls, keeps the
rales competitive. Thus, Insurance reforms are necessary to the success of an
employer mandate but the mandate Is also likely to assist In making the
Insurance reforms viable for Insurance companies.
3. Crlrnajrj health care works, not only to resolve health needs, but to contain
health care costs.
Historically, Hawaii's doctors emphnsl/cd outpatient care Instead of
hospitalization. Today's modern practice patterns reflect this orientation.
Our Trepnld Health Care Art rind the other elements In our system make It
possible for most people living in Hawaii to finance this care. Today, our
health Indicators show the results of primary care. As noted in our recent
445
article in the Lournfd_ofJ^merlcjmJ^edk Hawaii has low infant
mortality and low rates of premature death due to chronic disease such as
heart disease and cancer. This Is reflected In our use of expensive Inpatient
and emergency room services. As Table B, In the JAMA article shows,
utilization rates for the high cost modalities is well below the national
average. Early detection of potentially life threatening conditions results In
low premature mortality and low hospitalization. Our people are healthier
not because of unique genetics, healthy climate or high tech medicine, but
because they have access to primary care.
Bringing basic health services to all Americans will not only help to improve
their status but should work to reduce health care costs. Far from adding to
the costs of the systems, it will actually make the system less expensive in the
long run.
This is suggested by our systems experience. Recent analysis of Hawaii's
health care costs suggests that our costs for health care a? a share of Domestic
Product are closer to those of Canada, Germany, France and Japan than to
that of the rest of the United States. Despite Hawaii's high cost of living,
health care in our State Is less expensive. We have attached this article,
Hawaii Medical journal "Comparison of health expenditures in U.S. and
Hawaii economies," (Attachment 2) for your committee s review.
A_cnM_rJLrkpge_nf standard benefits Is a vital component of any_health_carg
reform effort.
A broad standard benefits package, emphasizing primary, outpatient, and
community care, but including a comprehensive spread of benefits extending
from preventive services to Inpatient and catastrophic care, is necessary to
contain overall costs. Hawaii's experience supports inclusion of benefits and
services that ore demonstrated to be clinically and financially effective and
appropriate and that collectively reduce unnecessary emergency department,
Inpatient, and high-technology care by design.
I. Hawaii show that states are Important actors In affecting health care reform.
Thanks to Its ERISA exemption, Hawaii, though a small state, has
demonstrated that an employer mandate can be successful In reducing the
numbers of uninsured. Even the small number remaining has not been
reached through our SHIP. Further, the voluntory efforts of Hawaii's two
major Insurers have produced health care coverage at costs well below other
areas of America. These efforts have set the stage for fuither reform In our
446
Health QUEST program. Under national reform, stales like Hawaii can and
must have flexibility to tailor their system to the specific needs of their
people.
In closing How-all's experience ehow that health reform can be accomplished, while
still maintaining the basic strengths of America's health care system. Regardless of
the approach our nation takes, ultimately, reforms must be rooted on these three
principles:
1. Public health and prevention must be a priority to foster a healthier and more
responsive society. Unless each one of us adopts responsible health practices,
our health core needs will Increase, wiping out the fruits of any cost
containment efforts we may adopt.
2. Primary care, focusing on a community-based medical home for each citizen,
must be the first priority and foundation of access efforts. Primary care Is
effective in lowering the need for more expensive care. It Is vital that each of
us has such a regular source of care, which will best be able to guide us
through the complexities of the health care system.
3. Government doesn't need to run a health care system. Its presence In delivery
of care, setting of reimbursements, or payments serves mostly to stifle the
Innate creativity which has made American health care the best In the world.
Government does not need to set and enforce rules by which a fair and
equitable marketplace can operate.
We believe that awareness of and commitment to these principles will assure
ultimate success to our health care reform endeavors. In any case, we all must move
forward at both state and federal levels to achieve health care reform for America.
Hawaii Joins enthusiastically In this effort.
Thank you and ALOHA.
447
The Chairman. Mr. Pauly.
Senator Wofford. Mr. Chairman, could I just say to Mark Pauly
that I welcome him warmly. We have been in very instructive con-
versations for a long time.
I must leave because of a pre-existing commitment, and will be
back as soon as I can, and I will study his testimony with the usual
interest and respect I give to what he and his colleagues at the
University of Pennsylvania, The Wharton School, and the Leonard
Davis Institute have done.
I will be back as soon as I can. Thank you.
The Chairman. Thank you very much.
Mr. Pauly.
Mr. Pauly. The objectives of the administration s health reform
proposal, to change the current health care system in order to pro-
vide universal coverage and a lower rate of growth in medical
spending, are certainly praiseworthy. I am in favor of reform. The
key issue here is what is the best vehicle to take for reform.
And in line with my attempt to offer advice and caution, there
are five potential problems with the administration's plan in its
present form that I want to comment on in the hope that some al-
teration may be possible.
First, the plan in its present form will cause a substantial and
probably inequitable reduction in real take-home pay for the 40,000
workers currently not receiving employment-based health insur-
ance. .
Second, it will potentially cause substantial unemployment
among low-wage uninsured workers, whose money wages cannot
fall below the minimum wage.
Third, it will cause reductions in work effort by low-wage and
probably by high-wage workers. Fourth, it will distort incentives to
organize small low-wage firms, and finally, it will wipe out the pos-
sibility of creating one million health worker jobs by the end of this
dfiCfldc
The key to understanding the adverse consequences of a mandate
that employers pay part of worker compensation in the form of
health insurance premiums is the recognition that under such a
mandate, the entire cost of health insurance will ultimately fall on
workers. Whether the payment for the insurance is withheld from
the worker's compensation before the paycheck is calculated or
after, the effect is the same— higher benefit payments imposed on
all workers will reduce money wages. After all, the total amount
an employer can afford to pay an employee depends on the employ-
ee's productivity, and a legally mandated benefit payment, unlikely
to affect productivity, must cut into money wages or other benefits.
This is why the overall employment effects of mandated coverage
are fairly small, because the primary effect is not on the number
of jobs but on the wages per job.
While the administration's proposal does contain some subsidies
for workers in low-wage firms, it translates into a head tax for
workers in firms with wages high enough that the employer's share
of the premium is less than the average wage times the tax or con-
tribution rate. c
For instance, an employee who gets single coverage in a firm
with more than 50 employees will pay 80 percent of the premium,
448
estimated to be about $1,420, regardless of his or her wage level,
for all firms with average wages above $18,000 per year.
Even with the subsidies, the overall tax structure is highly re-
gressive because it takes the form of a head tax for firms with av-
erage worker wages above some cut-off, and a payroll tax for firms
with lower average wages.
A head tax is not the worst tax in the world. After all, it ap-
peared to the Thatcher Government, if not to the rest of the British
electorate. Such a tax does not in itself distort incentives. However,
it is brutal in terms of equity, since it does not reduce the obliga-
tory payment at all as wage income falls. Some, perhaps including
some in Hawaii, might even regard such a pattern of uniform oblig-
atory payments for most workers as fair, but that judgment, if it
is to be made, should be made explicit.
For those workers whose money wage is not enough above the
minimum wage to permit it to be reduced by the share the em-
ployer is required to pay, there is a different consequence — job loss.
The impact of a mandated benefit is much like an increase in the
minimum wage, but with a twist — the increase can be much larger
than any increase in the minimum wage we have ever seen, as
much as $1.67 an hour for low-wage full-time workers in firms with
high average wages who get family coverage.
Moreover, while increases in the money minimum wage quickly
get eroded by inflation, the cost of health benefits will not. This
means the recent studies showing modest, though positive, unem-
ployment effects of minimum wage increases provide little guidance
to estimate effects here.
The other major effect on total employment comes from possible
work disincentive effects of higher implicit or explicit tax rates.
This phenomenon will potentially appear in two places. Most obvi-
ously, since the required employer contribution tax rate will rise
for firms with fewer than 50 employees with money wages, there
will be an incentive to keep average wages down.
The implicit marginal tax rate embodied in the proposed sched-
ule for small firms is as high as 18.4 percent of additional wages.
Second, when it proves impossible to make the kinds of cuts in
Medicare and, most implausibly, Medicaid that are envisioned,
taxes on upper-income workers will need to be raised, and there
will be adverse incentive effects there.
Finally, the complicated pattern of subsidies proposed, especially
to low-wage firms and self-employed, will set up perverse incen-
tives with regard to firm employment patterns ana structure — in-
centives so perverse as to overwhelm the so-called "job lock" distor-
tions.
The reason is simple. Under the plan, workers get a bigger sub-
sidy if the employment group is small and the average wage low.
This offers an incentive to split off low-wage workers into separate
small firms in order to maximize the subsidy.
For instance, at a firm with 100 employees, half with wages of
$40,000 and half with wages of $15,000, all workers can gain by
splitting the firm into two 50-worker units, since the firm with 50
low-wage workers will get a subsidy, and the firm with 50 higher-
wage workers will pay no more for their health insurance than
would have been paid in the initial configuration.
449
Additional distortions arise from the treatment of self-employed
workers and early retirees. The amount of mischief that will be
done by such perverse incentives is hard to quantify but, given the
increasing flexibility of employment relationships among American
workers, is sure to be substantial.
In its efforts to hold down the explicit budget cost of health re-
form, the administration has developed a plan that is the worst of
both worlds. It is too regressive to be equitable, but too distortive
to be efficient. The fundamental overall problem with the adminis-
tration's strategy is that it proposes to use the employment rela-
tionship as the basis for its mandated coverage.
But the employment-related group, while appropriate for some
sets of workers, is for many an inferior vehicle to arrange insur-
ance purchasing.
The final impact on employment comes not from the mandated
benefits but from the limit on spending growth due to take effect
after 1994. In a labor-intensive industry such as medical services,
limits on spending growth have to translate into reductions in
raises or reductions in jobs added.
The medical care sector has been one of the few bright spots in
our moribund economy, adding 300,000 jobs a year and offering a
growth in wages per worker in the 1980's more than 40 percent
greater than average. While limits on spending growth will not
necessarily take away jobs, they will halt the creation of new jobs,
to a virtually complete stop by the year 2000. Of course, the poten-
tial medical workers may get jobs elsewhere. The only sensible rea-
son to curb medical spending growth is, after all, a judgment that
there should be more of other kinds of output and less growth in
jobs providing medical care quality and technology.
However, while some medical workers are highly skilled, there
are many decent jobs in this industry, often held by women and mi-
norities, that do not require sophisticated training. It is these jobs
that are most at risk from a medical spending cap.
My judgment is that between 1996 and 2000, the administra-
tion's plan will result in the creation of approximately one million
fewer health sector iobs relative to baseline, many of which will be
difficult to replace elsewhere in the economy.
Thank you.
The Chairman. Thank you very much.
[The prepared statement of Mr. Pauly follows:]
450
Prepared Statement of Mark V. Pauly
The objectives of the Administration'* health reform proposal - to change the current
health care system in order to relieve universal coverage and lower rate of growth In medical
•pending -• are certainly praiseworthy. However, there are five potential problems with the plan
In its present form First, It will cause a substantial and probably Inequitable reduction In real
take-home pay for the 40,000 workers currently not receiving employment-based health
insurance Second, it will cause substantial unemployment among low wage uninsured workers
whose money wages cannot fall below the minimum wage Third, it will eaus« reductions in a
work efTort by low wage and probably high wage workers Fourth, it will distort incentives to
organize small low wage firms Finally, it will wipe out the possibility of creating 1 million health
woiker jobs by the end of this decade
The key to understanding the adverse consequences of a mandate that employers pay part
of worker compensation in the form of health insurance premiums is the recognition that, under
sucli a mandate, the entire cost of health Insurance will fall on workers Whether the payment is
withheld from the worker's compensation before the paycheck is calculated or after, the effect is
the same: higher benefit payments imposed on all employers will reduce money wages After all,
the total amount an employer can alTord to pay an employee depends on the employee's
productivity, and a legally mandated benefit payment, unlikely to affect productivity, must cut into
money wages or other benefits
While the Administration's proposal does contain some subsidies for some workers in low
wage finns, it translates into a head tax fot woikeis in ftirris with wages high enough that the
employers' share of the premium is less than the average wage times the tax rate For instance, an
employee who gets single coverage In a firm with more than 50 employees will pay 80 percent of
tire premium (estimated to be about $1420), regardless of his or her wage level, for all firms with
average wages above $18,000 per year Even with the subsidies, the overall tax structure is
highly regressive, because It takes the form of a head tax for firms with average worker wages
above some cutoff, and a payroll for firms with lower average wages
451
A head tax is not the worst tax in the world; after all, it appealed to the Thatcher
government (if not to the rest of the British eleciorate). Such a tax does not, in itself, distort
incentives However, it is brutal in terms of equity, since It does not reduce the obligatory
payment at all as wage income falls Some might even tegard a pattern of uniform obligatory
payments for most workers as fair, but that judgment should be made explicit
For those workers whose money wage isnt enough above the minimum wage level to
permit it to be reduced by the share the employer is required to pay, there is 8 different
consequence: job loss The impact of a mandated benefit is much like an increase in the minimum
wage, but with a twist: the increase can be much larger than any increase in the minimum we
have ever seen •- as much as $1.67 en hour for low wage full time workers in firms with high
average wages who get family coverage. Moreover, while increases in the money minimum wage
quickly get eroded by Inflation, the cost of health benefits will not. This means that recent studies
showing modest (though positive) unemployment effects of minimum wage increases provide
little guidance to estimate effects here
There axe, as far as I am aware, no models to predict the overall impact of mandates on
low wage workers Jobs It Is reasonable to believe that those low wage small businesses currently
providing insurance who receive lubsisides will translate most of that subsidy Into higher
takehome pay, not more jobs On the other hand, there are about 40 million workers who do not
now pay for insurance as part of their job, of whom at least 15 million earn $6 50 per hour or less,
am to would be at risk for minimum wage effects. I would conjecture that at least 1 5% of these
workers, or 2.2 million wotlers, are so close to the minimum wage that they will be priced @ of
the labor market after the imposition of a mandated employer contribution
The other major effect on total employment comes from possible work disincentive effects
of higher implicit or explicit tax rates This phenomenon will potentially appear in two places
Most obviously, since the required employer contribution tax rate will rise with wages for firms
with fewer than 50 employees, there will be an incentive to keep average wages down The
452
implicit marginal tax rate embodied In the proposed schedule is as high as 18 A percent of
additional wages Second, when it proves Impossible to make the kinds of cuts In Medicare and
(moat implausibly) Medicaid that are envisioned, taxes on upper income workers will need to be
raised, there will be adverse incentive effect* there
Finally, the complicated pattern of subsidies proposed will itself set up perverse incentivei
with regard to firm employment patterns and structure — incentives so perverse as to overwhelm
the ao-called "job lock" distortions The reason is simple under the plan, workers get a bigger
Subsidy if the employment group is small and the average wage low This offers an incentive to
split off low wage workers into separate, small firms in order to maximize the subsidy For
Instance, at a firm with 100 employees, half with wages of $40,000 and half with wages of
S15.0O0, all workers can gain by splitting the firm Into two 50-workcr units, since the firm with
50 low wage workers will get a subsidy, and the firm with 50 higher wage workers will pay no
more for their health insurance than would have been paid In the Initial configuration. Additional
distortions arise fiom the treatment of self employed workers and early retirees The amount of
mischief that will be done by such perverse incentives is hard to quantify but, given the increasing
flexibility of employment relationships among American workers, is sure to be substantial
In its efTorts to hold down the explicit budgetary cost of health reform, the Administration
has developed a plan that is the worst of both worlds It is too regressive to be equitable, but too
distortive to be efficient The fundamental overall problem with the Administration's strategy If
that it proposes to use the employment relationship as the basis for its mandated coverage The
only reasons for doing so ate force of habit or historical accident, and the attractiveness of
financing a public program with an off-budget tax generated to confuse the electorate But the
employment-relBted group, while appropriate for some sets of workers, is for many an inferior
vehicle to arrange insurance purchasing
The final Impact on employment comes not fiom the mandated benefits but from the limit
on spending growth due to take effect after 1995 In a labor intensive industry such as medical
services, limits on spending growth have to translate into reductions in raises or reductions in jobs
453
added. The medical services sector has been one of the few bright spots in our moribund
economy, adding 300,000 jobs a year and offering a growth in wages per worker in the 1980s
more than 40 percent greater than average. While limits on spending growth will not necessarily
take away Jobs, they will halt the creation of new jobs — to a virtually complete stop by the year
2000. Of course, the potential medical workers may get Jobs elsewhere - the only sensible reason
to curb medical spending growth is a judgment that there should be more of other kinds of output
and less growth In jobs providing medical care quality and technology However, while some
medical workers are highly skilled, there are many decent jobs in this industry often held by
women and minorities that do not require sophisticated training It Is these jobs that are most at
risk from a medical spending cap. My Judgement Is that, between 1996 and 2000, the
Adminstration's plan will result in the creation of approximately 1 million fewer health sector jobs,
many of which will be difficult to replace elsewhere in the economy.
454
The Chairman. Mr. Klerman.
Mr. Klerman. It is both an honor and a pleasure to be here
today to testify on my joint research with Dana Goldman, also at
Rand, about the magnitude of the iob loss likely to occur as a result
of the proposed Health Security Act. We have prepared a written
statement describing our analysis in detail, ana we ask that it be
entered directly into the record. For the committee, I will briefly
summarize the analysis, and I will then be happy to answer any
questions you might nave.
The country is now engaged in a great debate over health care
reform. Many valid and important arguments have and will be
made concerning the details of the President's plan and those of al-
ternative plans. Among those arguments has been a prediction that
health care reform willlead to the loss of several million jobs.
We believe that such estimates are incorrect. Our best estimate
of the direct job loss due to health care reform is under one-half
of one percent of total employment, so that direct job loss need not
be a major consideration in the evaluation of the Health Security
Act.
Let me explain how we arrived at our estimates. The fundamen-
tal question in evaluating the likely employment effects of health
care reform is who will really pay for the mandated health insur-
ance. Nominally, the President's plan requires employers to pay 80
percent of the required premiums. In response to such a mandate,
employers can pursue some combination of four actions. First, a
firm can do nothing, which will cause labor costs to rise and profits
to be lower. Second, a firm can raise the prices it charges for its
products. Third, the firm can lower wages. And fourth, the firm can
reduce employment, possibly through attrition.
As we discuss in detail in our written statement, recent research
on the incidence of mandated benefits suggests that most if not all
of the increased labor costs — net of any Government subsidies — will
be passed on to workers in the form of lower wages. If so, employ-
ers' total labor costs will not rise significantly, and they will have
little reason to reduce employment.
The administration has frequently noted that the earnings of
American workers would be considerably higher if health care costs
had increased only at the general rate of inflation. Dr. Tyson said
that this morning. So for example, if employers had not had to pay
the higher health insurance premiums, they would have raised
wages $1,000 since 1975.
The converse of that position is that if we require firms to pro-
vide health insurance, they will lower wages over the intermediate
term. While lower wages for some workers are a potential dis-
advantage of the Health Security Act, this effect will be mitigated
by subsidies. It is this assumption that workers themselves will
pay for much of the health care in the form of lower wages which
yields our lower employment effects.
This observation that employers will pass on the cost of the in-
surance premium to workers in the form of lower wages breaks
down for low-income workers. The Fair Labor Standards Act, the
minimum wage law, prevents workers from paying their employees
less than $4.25 an hour. For workers whose current earnings are
less than the sum of the minimum wage and the cost to the firm
455
of the health insurance benefit, health care reform will effectively
raise the minimum compensation. In this sense, it will have effects
analogous to an increase in the minimum wage.
There is a large literature on the effects of the minimum wage.
That literature has recently been updated to reflect the 1990 and
1991 increases in the Federal statutory minimum wage. Contrary
to the expectation of most economists and basic textbook theory,
case studies of the recent increases fail to find any employment
loss due to the increase in the minimum. Econometric studies over
longer time periods attribute measurable, but small, job losses to
changes in the minimum.
Putting together these two sets of assumptions — first, the shift-
ing of costs to employees, and second, the analogy to an increase
in the minimum wage — our best estimate of the effects of employ-
ment loss due to health care reform is about one-half of one percent
of employment.
Our lower estimates of job loss, compared to several others that
have been given, really fundamentally on the assumption that
wages are flexible downward, so that employers will be able to pass
on the costs of the mandated health insurance to workers. Experi-
ence in the American economy over the last 15 years suggests that
there is considerable downward flexibility in wages over the inter-
mediate term.
The magnitude of the actual job losses are likely to be quite sen-
sitive to the details of the final health care reform legislation.
Which firms will be eligible for the subsidies? How large will they
be? Will they be phased out over time? How fast? And what restric-
tions will be put on the ability of firms to out-source labor and
therefore change whether or not their workers are eligible for those
subsidies?
Among the crucial details, it is important to note that under the
Health Security Act, the subsidies go to firms with low average
payroll. A firm with a high average payroll that considers hiring
a worker at the minimum wage will pay the full premium, consid-
erably increasing employment costs and giving the firm an incen-
tive to out-source that work or to not hire the low-wage worker.
In our work, we have deliberately considered only employment
effects due to firms laying off workers as a result of the require-
ment that they contribute toward their employees' health insur-
ance. If health care reform succeeds in its goal of lowering health
care cost inflation over the intermediate future, it would have posi-
tive effects on the economy as a whole, which would be likely to
include higher wages and higher employment. Our estimates do
not consider such positive effects.
On the other side, the legislation is likely to have two effects that
will induce workers to be less inclined to work. First, health insur-
ance will be guaranteed for both workers and nonworkers. Thus, it
will not be necessary to work in order to get health insurance. Sec-
ond, if individuals do work, their wages will be lower because em-
ployers will have allocated some of their compensation to cover the
cost of the health insurance. Therefore, we will probably see fewer
people working, by their choice, and these decreases are likely to
be concentrated among low-income workers, mostly young people,
and among early retirees.
456
On the other hand, these same reforms are likely to increase job
mobility by eliminating the link between a particular employer and
insurance, and may increase the desirability of low-wage jobs to
welfare recipients by allowing them to keep their health insurance
which they had as a result of Medicaid.
Finally, we would like to note that the magnitude of the changes
involved in any reorganization of a major sector of the economy
lead us to treat our estimates as informed guesses; unexpected con-
sequences seem possible, if not likely.
Nevertheless, our estimates are, for reasons discussed in detail
in our written testimony, considerably lower than many that have
been widely cited by the opponents of the Health Security Act. We
believe they represent best estimates at the present time, and they
imply that significant job losses need not be a major concern in
your evaluation of the President's plan and its alternatives.
Thank you.
[The prepared statement of Mr. Klerman and Dana Goldman fol-
lows:]
457
Prepared Statement of Jacob Alex Klerman and Dana Goldman
With the release of the proposed Health Security Act, the great debate about health
cure reform in the United State* has entered it m-w plwse. The fundamental Issues in the
debate involve how much heath care should be guaranteed to which Americans, the role of
govenunent in Die reformed health care system, and who will pay the additional costs of
extending health insurance to the currently uninsured1.
Like other proposals. Fresident Clinton's plan would extend the current employment-
based fuxanring of health insurance The plan would require employer* to pay 80 percent of the
health care costs for each of their employees. The required plans are not inexpensive; the
President's plan will cost approximately Sl.flOO per year for an individual policy and $4,200 for
n two parent family policy.2 Average annual earnings In the United States are approximately
$74,500, and a full time employee working at the minimum wage only earn.* $8,840 annually.
Thus in the nbsenee of Kiibsldles. employer contributions towards health insurance for an
Individual earning the minimum wage would constitute 16 percent of a single worker « earnings
(B0% x $1,800 / $8,849). and 38 percent of earnings for a worker in a two-parent family
(80% x $4,200 / SS.mO).^ For an individual with average earnings, projected premiums still
constitute 5 percent of earnings for a single earner find 14 percent for earners in a two-parent
family. Thus, heidth care reform may substantially increase labor cosh; for employer* not
currently offering health insurance*
In a period In which employers have already pared employment and company balance
•hoots are lean, many policy makers and researchers are concerned about the potentially
adverse effects of these cc*t Increases cm employment A widely cited report by June O'Neill
end Dave O'Neill. "The Impact of Health Insurance Mandate on Labor Cost* and
Employment" for the Employment Policies Institute, projects that health care reform would
result in 3.1 million lost jobs 5 In this testimony, we nttempt to outline whM is known about the
likely employment effects of requiring employer* to pay 80 percent of the health Insurance costs
of each of their employees
The piper proceeds as follows In the next section. «e consider how an employe:
mandate might affect firm behavior There we discuss recent research which finds that when
government require employers In provide benefits to employees, most of the cost is shifted to
employees In the form of lower wargMi. Wc also note that for workers with very low hourly
wages, it Is lllor.ru for firms to lower their wag- enough to completely shift the cost of the
employer contribution reemploys Fo. employers of Fuch low-wage workers, the mandate
effectively become, an increase In the minimum wage. We then discuss recent research on the
employment effects of increasing the minimum wage.
In the so, ond section, we discuss the methodology and results of the O Neill and
OKclll study. For several reasons, we conclude that their estimates overstate the numbct of
458
jobs lost. In the third srction, we use the recent evaluations of the minimum wage anil new
tabulations of the characteristics o/ the uninsured from the 1990 Survey of Income and Program
Participation to derive our own simple aggregate estimates of the likely employment effects of
the Health Security Act as It Is currently formulated. The paper concludes with a summary of
the key policy issues, as well as a discussion of details of the final legislation that would cause
significant shifts in our estimates of employment effects.
1. The Employer's Perspective
1.1. The Employer's Choices
To provide perspective, it is useful to consider the choices facing a firm that does not
currently offer health insurance. After health care reform passes, such a firm will pursue 6ome
combination of four fictions.
• First, the firm can absorb the Increased labor costs, in which case the new mandate, will
result In lower ptnfits.
• Second the firm could rois* the prices It charges for Its products. In so far an the firm's
competitors also do nol currently offer health insurance, their labor costs will also
Increase. Thus, while an employer may feel there Is no leeway to raise prices now, doing so
may be easier In the context of health enre reform. If this occurs, consumers hear the burden
of the mandate through higher prices.
• Third, the firm can reduce worhnt' wages so that its hourly labor cost remains unchanged
after a transition period. Since earnings usually increase with job tenure, over the
intermediate term firms need not actually reduce the wages of any current employee. Firms
could simply forgo wage increases, or keep them helovv the rate that would have
prevailed In the absence of health care reform* This strategy may be particularly
appealing to employers for young, low-wage workers Evidence suggests that the median
wage increase for workers starting at the minimum wage is 20 percent after the first year
(Smith and Vavrichek, 1992) In addition, low-wage and uninsured jobs have considerably
hicher job turnover than insured jobs, so Turns could explicitly lower wages as new hires
replace departing workers (Klerman. Buchanan and Leibowirz, 1992).
• Fourth, the firm can reduce employment (possibly through attrition) of workers who do
not warrant the increased compensation.
1.2. Who Pays for an Employer Mandate?
Recent experience with other employee benefit mandates suggests much of the increased
costs to firms will be passed on to workers in the form of lower wages Grtiber and Krueger (1990)
examine workers' compensation Insurance. Worker's compensation insurance premiums vary
widely across stales and across time periods. Comparing change* in wages with changes in
459
Insurance premiums (for high-risk occupations where the premium* arc large), they find that
firms passed on approximately 85 percent of the increase in workers' compensation costs to
employees In the foim of lower wage*. In other words, for every $10 Increase In worker's
compensation prtmia, employee paychecks were reduced by $8.50. Because of thin backward-
shifting onto wages, they find little evidence of n significant decrease in employment.
Gruber (1992) explores the effect of state requirements that firms offering health
Insurance cover childbirth. In the 1970s, several states passed such legislation, and then in 1978
the federal government passed a national requirement. Gruber Ftudles the relative changes in
earnings for women of chlldbearing age before and after the leglslntion passed, ncross stales
which did and did not pass such legislation. He finds that essentially all of the increase In
costs per female of childbcarlng age (between $250 and $950 in 1990) was passed on to the
female population in the form of lower wages. He also finds evidence for a Kmall reduction in
employment 7'8
These results are both encouraging and discouraging for the proponents of a mandate.
They nre encouraging because they imply that, for most workers, the probability that any
Individual will lose his or her job due to health care reform is likely to be small. However, if
health care reform in designed to provide an additional benefit of health insurance to the
working poor, these results may be discouraging. After all, if employers backward-shift the
costs of a mandate onto wages, then the currently uninsured will pay for much of their new
health insurance out of their own earnings. Perhaps the working poor would prefer to buy other
goods with these wages, such as food or housing.
From the perspective of the working poor, health care reform Is regressive not simply
because it would require them to buy health insurance in place of other goods they may prefer.
Under the current system, If the uninsured get very sick , they will almost always receive some
care at minimal cost in a public hospital or as uncompensated care. Health care reform forces
them to buy insurance to pay for such care. This economic phenomenon has been called the
"Samaritan s dilemma" and has been used as an argument for forcing people to buy income
insurance such as Social Security, even though its effects ore regressive (Summers, 1989).
Community rating provides further disincentives for the healthy to buy insurance. II
requires that all individuals, rogiudle.su of oge, race, sex, or health status, be charged the same
premium The currently uninsured are disproportionately young'. As a result, their health care
costs nre approximately 33 percent lower than the average, so they will implicitly subsidise
the premiums of older workers.10 Therefore, community rating Implies that the young workers
subsidise old workers; and since young workers earn less on average than old workers, low-wage
earners subsidize high-wage earners.' '
To address the regressive burden on low-wage earners and the large increase In
employer costs, the Health Security Act includes subsidies to small employers and low-wage
earners. These subsidies limit employer contributions for health care as n percentage of
payroll. These caps range from 3.5 to 7.9 percent of payroll, depending on the average wage for
460
a full-time equivalent worker. For firms with fewer than fifty employees and average per-
full-time equivalent payroll of less than $12,000, the contribution is capped at the lowest rate.
Thus, contributions by small firms hiring predominantly minimum wage employees are limited
to 3.5 percent of payroll. Since our eaxliex calculations suggested that employer costs could
Increase by ns much as 38 percent, these subsidies significantly alter the burden of the mandtite.
Clearly, the Impact on employment costs Is dramatically lower with the subsidies. In
addition, the subsidies make the proposed reforms more progressive.
1.3. Employer R<>pponses to Increases in the Minimum Wage
The argument that employee? bear the cast of lower wages breaks down for very low-
wage workers. The Fair Labor Standards Act, known ns the minimum wage law, provides that
ns of April 1, 199 1 most employees may not be paid less than $4.25 an hour. For employees
currently earning less than the sum of the minimum wage (54. 25) and the hourly cost to the
employer of the health benefit (approximately f 1.00 to $2.00 per hour depending on family
composition), employers cannot legally cut wage* In the intermediate term. Standard economic
theory suggests that firms will cut employment until the remaining worker* are each wordi
55.25 to S6.25 per hour (Stigler, 1946). Some workers earning between $4.25 an hour and $5.25 to
$6.25 an hour will lose their jobs.
The crucial question then becomes: How many? For employers of these low-wage
workers, health catc reform will act like an Increase In the minimum wage (in this case
minimum total compensation). Thus, we can look at historical experience to determine the job
loss associated with a rise In the minimum wage. The magnitude of this employment effect is
the subject of a large empirical literature on labor economics. That literature has grown
considerably with studies of the increases In the minimum In April 1990 (from $3.35 to $3 85)
and In April 1991 (from $3.65 to $425).
Contrary to the expectation* of many economists and businessmen, the answer oppears
to be "not many." Few of the workers earning between a new, higher minimum wage and an old,
lower minimum lose their Jobs. A series of case 6ludies of the 1990 and 195'1 increases In the
federal statutory minimum find no employment losses at all.,J
With sufficiently latge samples and lagged effects, 8 slightly more subtle picture
emerges- Many economists have compared changes in aggregate employment of teenagers (16-
19) and young adults (20-24) with changes in the «tatutnry minimum, while attempting to
control for pos*ible confounding factors such as the number of young people, the overall level of
wages, and thp sl?e of the mllit.-iry. Thnta studies report estimates of the elasticity of
employment with icspect to the minimum wage; i.e., the percentage change in overall
employment with respect to a percentage change In the minimum. Thus, if the elasticity Is 0.1,
then a 10 percent increase In the minimum wage (as we had in 1991) will lower leenage
employment by 1 percent The estimates of this employment elasticity are small and
relatively stable The estimates range from 01 to 0.3 for trmagers and from 0.0 to 0.2 for young
adults. *3 Extending the standard time-series analysis through 1986. Wellington (1991) obtains
elasticities at the low end of Ihr range; 0.076 for teenagers and 0012 for young adults1*
461
We prefer the most recent work by Ncumark and Woscher (1992) They apply • time-
serles of cross-sections methodology. Exploiting slate minima, they are able to include dummy
variables for each time period and for each stole. Furthermore, Ihey consider, find important,
and correct for lagged effects of the level of the minimum wage. Together, these changes result
in a larger (in absolute value) eljstidty estimate: 0.17 for both teenager and young adults
(defined as 16-24 year old*).'5 Finally, note that no recent study has attempted to estimate a
minimum wage elasticity for workers over age 25
2. The O'Neill and O'Neill Study
In Iheir widely publicized study,16 ONeill and O'Neill (1993) make different
assumptions in pursuing an alternative approach to estimating the employment effects of
health care reform. Their approach yields job loss estimates of 3.1 million. They base their
estimates on a scries of Industry-wide calculations, which we heuristlcally describe here (the
actual computations are more disaggregated). First, they compute the change In payroll costs
for each industry, based on the percentage of workers who are uninsured, whether the uninsured
are full-time or part-time, whether the uninsured an: single or In families, the estimated price
of insurance, the degree of backward-shifting onto wages, and the current payroll. On average,
they estimate that payroll costs for uninsured employees will rise by 2fl percent.
Next, O'Neill and O'Neill translate this Increase In labor costs into a percentage
reduction in employment using on estimate of the elasticity of employment ti'flh respect to labor
cosls.17 They assume an elasticity of 0.3, which they argue falls In the middle of the range of
the relevant empirical estimates. Thus, the 2fl percent Increase in labor costs for the uninsured
translates into an employment loss of approximately 8.4 percent (0.3 X 28%). Because their
data Indicate Uiat approximately 32.6 percent of the nation's workforce will be affected by
this mandate-, they estimate that, overall, approximately 3 percent of all worker, will lose
their |.ibs (-32.6% X 8 4%). They disaggregate this figure according to whether the individual
Is currently covered under another family member's employer-based plan and by industry.1
Given our analysis of the effects of mandated health benefits, several methodological
aspects of their approach appear to upwardly bias their estimates. In addition, their paper
was written before the details of the President's plan were public Differences between the
plan they simulate and the President's proposal suggest several other reasons why their
estimates are too high.
. Choice and npplicaHcm of elasticities. O'Neill and ONeill compute the increase In
payroll costs for an Industry as a whole. Multiplying the percentage Increase in labor costs
by an employment elasticity, they compute the percentage of workers who will lose their
jobs. However, mandated health benefits will not uniformly raise all employment costs as
would be required for a strict application of the labor cost elasticities they use. Those who
do not have insurance and therefore rruuht lose their jobs are predominantly those
individuals in the low-wage industries earning close to the minimum wage. Thus, wc
462
prefer a strategy tliat draws on this analogy by applying the appropriate minimum wage
elasticity estimate to the subpoputatlon of young adults.19
O'Neill and O'Neill argue that there Is a downward bias in the elasticity estimates
based on the federal minimum wage analogy. This bias arises because a firm cannot
substitute capital for labor in the short-run, and so the long-run response will be more
elastic than the short-nm elasticity estimates suggested by the empirical literature.20
Our preferred estimate* (Ncumark and Wa6oher, 1992) dots allow for these logged effects.
Substituting these estimates to compute an Intcrmcdiatc-run response would cut O'Neill
and O'Neill's predicted Job loss by almost 50 percent.
» Assumptions nbout labor's slwc of the burdm. O'Neill and O Nclll assume employers
shift none of the cost back to employees earning less that $25,000, and only 50 percent of
the cost to employees earning above thnt level. In thdr opprndlx, they do report
estimates assuming costs wrre shifted for employees earning $15,000 or more, but only at a
rate of 50 percent. As we noted in the previous section, the empirical evidence suggests
that for workers earning above the minimum wage (plus thu cost of the additional
mandate), the employee bears nearly all of the increased cost. Assuming an 85-percent
shift In costs would reduce their estimates by approximately 30 percent.
• rlan crsls Using data from n private benefits consulting firm, O'Neill and O'Neill assume
a family plan costs $5,310 and an individual plan costs $2,160. These figures arc
approximately 25 percent higher than the more recent estimates by the Clinton
administration of $1,800 and $4.200.21
• No firm sub.iidies. O'Neill and O Neill have assumed no offsetting subsidies to small
firms or employers of low-wage workers. The draft proposal calls for limits on employer
contributions to between 3 5 and 7.9 percent of payroll. It is the explicit intention of *uch
subsidies to minimize employment effects Tor the industries they estimate will lose the
most jobs, O'Neill and O'Neill assume pHyroll costs will increase between 4.0 and
16 4 pcrcenl, oven after taking into account offsetting reductions In wages. These numbers
clearly exceed the caps identified In the Clinton plan.
3. Better Estimate* of Employment Effects
In tl\is se-ction, we generate preliminary estimates of the employment effect of the
Health Security Act under a rot of assumptions that we believe most closely reflects its likely
effects. It is undoubtedly possible to generate more disaggregated estimates of the minimum
wage elasticity and to apply them to disaggregated population counts. We do not pursue such
an opprof^ch here. Rather, we provide an aggregate estimate of the jobs lost for the age group
considered most at risk due to the Imposition of a mandate In both the subsidised and
unsubsldlzed cases.22
463
Tabic 1 presents estimates of the Job loss under the Health Security Act under six
scenarios: two sets of minimum wage elasticities (Wellington vs. Ncumark and Wascher) and
three sets of assumptions about the effect of the employment subsidies. We have already
discussed the minimum wnge elasticities above. Wellington's (1991) estimates update to the
conventional time-series methodology for estimating the minimum wage. Neumark and
Wascher (1992) Implement what wc believe Is a superior econometric methodology yielding
much larger minimum wogc elasticities and therefore much larger employment effects.
Table 1
Job Loss from the Health Security Act
Elasticity Wellington (1991) Neumark and Wascher (1992)
Cap on Employer % Reduction Jobs Lost % Reduction Jobs Lost
Contributions In Employment (millions) In Employment (millions)
FW 022% 0.251 148% 1-662
797,, 007% 0062 0 49% 0 545
3.5% 0.03% 0.036 0-22% 0-***
Even given the choice of minimum wage elasticity, there Is an issue nbout how to
extrapolate to the population over the age of 25. We define the "vulnerable" population as the
set of workers who do not currently have employer provided health Insurance and whose
hourly wage is less than the sum of the minimum wnge and the (unsubsidiied) hourly cost of the
health benefit (bnscd on the worker's marital status and presence of children). Using Wave 5
of the 1990 Survey of Income and Program Participation (for the Spring vf 1991), we compute
that the vulnerable population constitutes approximately 24 .0 percent of all employees under
age 25, but only about 63 percent of workers age 25 and over. Thus, it is not surprising that It is
difficult to detect an effect of Increasing the minimum wage on this group's aggregate
employment. Nevertheless, workers ORed 25-64 constitute over sixty of all vulnerable workers.
Tho estimates in Table 1 extrapolate from tf\e percentage of vulnerable workers aged 20-24 who
lose their Jobs to all vulnerable workers over age 25.M
The rows of the table vary the estimates to reflect different levels of government
subsidies. The first row shows tlic effect of the legislation without the associated subsidies.
From our data. It Is nol possible to exactly simulate the effects of the subsidies. There arc two
related problems. The first problem U that the Health Security Act provides subsidies on o
sliding scale depending on the firms average per-employce payroll (and firm sire)24. Our S1FP
dalaset does not include average per employee payroll of an employee's firm.
The second row corresponds to a 7.9 percent cap on employer contributions to health
Insurance, assuming the cap was takes a basis of Individual earnings. This estimate of the
number of workers who will lose their Jobs Is both overstated and understated because of this
assumption. It is overstated, because tome firms (Ihosa with under 50 employees and low
average per-employee personnel costs; e.g. a firm which Is all minimum wage workers) will
464
receive subsidies cquivolent to a lower cap*5 . It is understated because some low wage workers
are employed by firms with high average per employee personnel costs (e.g. the mall clerk in a
small law firm); thus, these employers will not receive a subsidy.
The third rev- corresponds to a 3.5 percent cap on employer contribution to health
Insurance. This corresponds to the outcome if ell employees worked In small firms with low
average per employer personnel costs This estinvatc provides a lower bound because most firms
will focc n cap higher than 3 5 percent. Dy how much it is too low, is however, unclear.
The legislation provides strong Incentives to reorganize employment such that low
wage workers work for small firms (under 50 employees) with low average per-employec
personnel cost. In the extreme ense, the magnitude of the subsidy Is over $3,000 per employee.
A low-wage worker in a high wagf firm is Ineligible for any subsidies. The cost to the firm for
his health Insurance is thus the full 60 percent of the premium ($2,479 for a couple with
children, SI, 546 for a single individual). However, If the firm contracts out the work to o firm
eligible for the 3.5 percent cap, then the cost to the firm for his health Insurance Is capped at
$309 (3.5% of $8840). Employment costs fall by over $2,000 for o married person with children,
and over $1,200 for n single individual without children. These subsidies are respectively 25
and 14 percent of payroll. Clearly thia huge differential In the subsidy creates strong
Incentives for firms to outsource their relatively unskilled labor-intensive tasks In order to
appropriate some of these government subsidies.
The possibility of this reorganization Is the second problem with choosbvg which of the
rows of the table to use to gencrotc on estimate. The more Such reorganization occura, the eloper
the employment effect will be to the third row (and the higher will be the cost In the form of
subsidies). rhftsing-out the subsidies or enacting regulations to discourage ttuch reorganization
would have the effect of lowering government cost* but also raising employment losses.
Although there are many uncertainties Involved In the calculations, we hove greater
confidence in the Neumark end Wascher methodology than in those Involved In other
estimate* In the literature. We believe that the 7.9 percent cap is probably a good estimate of
the net effect of the offsetting biases (some low wage employees in high wage firms will be
Ineligible for subsidies; some worker? arc, or will find themselves after the reform. In firms
eligible for caps below 7.9 percent of payroll). Under these assumptions, we esdmito that the
Health Security Acl will yield a decline in employment due to the burden of the required
premium of about half a percent of total employment (of 18 to (A year olds). This estimate is
only one-sixth of the estimate of O'Neill and O'Neill using a different methodology which we
discussed earlier.
4. Conclusion
In tlvis white paper, we have reviewed the theory behind estimating employment
effects of health care reform, critiqued a widely cited set of estimates, and provided
alternative estimates of the job loss associated with a mandate Our best estimate is that job
465
losses will total about half of one percent of employment. This estimate Is about a sixth of the
estimates of O'Neill and O'Neill. Ultimately, the magnitude of these employment effects
will depend on the details of the final health care reform legislation.
Our estimates have only considered the direct employment effects due to job losses as
employers react to increases In the minimum legal compensation. There are several other
possible employment effects which we have not considered here. First, an explicit goal of the
Health Security Act is to reorganize the health sector to yield better health care nt lower cost
to more Americans. In as much as firms see their health insurance bills go down (either due to
lower cost of health care Itself or due to lower loading factors), firms may increase employment.
Similarly, the H5A's guaranteed health coverage should alleviate problems of job-lock and
welfare lock. These changes may also Increase employment.
On the other side, some of the effects of the plan may yield lower employment. First
today some people work In order to gain health Insurance. Under the plan, health Insurance
will be available even to non-workers. This effect Is likely to be most Important for older
workers considering early retirement. Second, In as much as firm* pass the cost of health
insurance on to worker* In the form of lower wages, some people may choose not to work, the
cash wage per hour worked has declined. This effect is likely to be most salient among
secondary workers.
Finally, It Is possible that the sluft of expenditures into or out of the health sector
(depending on the net effect of the reform on employment In the health sector) may cause n
change in total employment. To a first order, however, the dollars spent In the health sector
are dollars not spent in some other sector, so net employment effects will be a function of the
relative employment in the health sector for a dollar of expenditure. These effects are likely
to be small.
Though our employment effect t-stimatrs are lower than many other estimates, this
does not imply that health cue i.form will increase health Insurance coverage at minimal cost
(beyond the explicit on-budget expenditures) Our estimates are low specifically because we
expect that firms will successfully pass on die cost of their share of the health insurance
premium to their employees in the form of lower wages. Real wages for low skilled workers
have fallen considerably o^er the last two decades, so the assumption of downward flexibility
of wages seems plausible. Thus, the currently uninsured will pay much of the cost of the
expansion of health insurance. This gives this apparently progressive legislation a significant
regressive component.
The obvious way to mitigate the regrcss.ve nature of employer-based health insurance
finance is to provide government subsidies to low-wage workers. Doing so will mitigate the
negative employment effects and the fall In wages. However, doing so is also expensive. The
higher the subsidy, the higher the budgetary expense An alternative Is to subsidize only firm.,
that do not offer health insurance (and then possibly only their low-wage workers). However,
this creates large incentives for firms to rearrange production to take advantage of the
subsidies.
466
In summary, our best estimates of Job loss axe much lower than many of those which
have been cited In the debate over the Health Security Act. The magnitude of these changes
Involved In a major reorganization of a major sector of the economy lead us to treat our estimates
as informed guesses; with such n major reform unexpected consequences seem possible, if not
likely. Nevertheless, our best estimate Is that job losses due directly to increased costs to
employers will be under one half of one percent of total employment. Plausible alternative
estimates are much lower. We conclude Ihot direct job loss need not be a major consideration In
the evaluation of the President's plan. However, these low estimates of job loss arc a direct
result of our assumption that most of the cost <*f the mandated health benefit, including what Is
nominally the employer's share, will be shifted back to employees in the form of lower wages.
Literature Cited
Brown, Chnrles, "Minimum Wage Laws: Are They Overrated?* Journal of Economic Perspectives, VoL
2, No. 3, Summer 1988, pp. 133-145.
Brown, Charles, Curtis Giboy. and Andrew Kohen, "The Effect of the Minimum Wage on Employment
and Unemployment," Journal of Economic Literature, June 1982, Vol. 20, pp. 487-528.
Drown. Charles, Curtis Gilroy, and Andrew Kohen, "Time series Evidence of the Effect of the Minimum
Wage on Youth Employment," Journal of Human Resources. Winter 1983, Vol. 18, pp. 3-31.
Card, David. "L'sing Regional Variation In Wages to Measure the Effects of the Federal Minimum
Wage," Industrial and Labor Relation* Remnu, Vol. 46, No. 1, 1992a, pp. 22-37.
Card, David. "Do Minimum Wages Reduce Employment? A Case Study of California, 1987-89,"
Industrial and Labor Relations Review, VoL 46, No. 1, 1992b, pp. 38-54.
Gruber, Jonathan. "The Efficiency of a Group-Specific Mandated Benefit: Evidence from Health
Insurance Benefits for Maternity," NBER Working Paper No. 4157, September 1992.
Gruber, Jonathan and Alan Krueger. "The Incidence of Mandated Employer-Provided Insurance: Lessons
from Workers' Compensation Insurance," NBER Working Paper No. 3557, December 1990.
Kotz, Lawrence F. and AJan B. Krueger. "The Effect of the Minimum Wage on the Fast Food Industry,"
Industrial and Labor Relations Review. Vol. 46, No. 1, 1992. pp. 6-21.
Hahn, B. and D. Lefkowltz. "Annual Expenses and Sources of Payment for Health Care Services,"
AHCPR Pub. No. 93-0007, National Medical Expenditure Survey Research Findings 14, Agency for
Health Care Policy and Research. Rockvillc, MD Public Health Service, November 1992
Klerman. Jacob A. "Employment Effects of Mandated Health Benefits," Health Benefits and lite
Workforce, Washington, DC: U.S. Government Printing Office, 1992.
467
Neumnrk, David and William Wascher. "Employment Effects of Minimum and Sub-Minimum Wages:
Panel Data on State Minimum Wage Laws," Industrial nnd Labor Relations Review. Vol. 46, No. 1,
1992. pp. 55-88.
O'Neill, June E., and Dave M. O'Neill, 77n- Impact of a Health Insurance Mandate on Labor Coslt and
Employment; Empirical Evidence, Washington, DC: Employment Policies Institute. 1993.
Endnotes
lThls testimony draws on our ongoing research M RAND. It doc* not necessarily represent the position of
RAND or Its sponsors.
Personal communication with staff at the Council of Economic Advisers Indicates that the e*ti mated
premiums ire $1,800 for single individuals, $3,600 for married couple?, $3,700 for single-parent families, and
$4,200 for two-parent families.
1 Average earnings come from the Bureau of Labor Statistic*. Lnrp/oymrnl and Wages Annual Averages, 1991,
Bulletin 2419, United States Department of Labor. January 1993. Ttw compulation* «or employer
contributions as a percentage of payroll are as follows: A single individual working at the minimum wage
earns $8,800 annually. Under the mandate, the employer contributes 80% of tlic cost of Insurance ($14*00).
Thus, the employer contributes 16 percent of earnings towards health insurance (80% x $1 ,8O0/$8,8O0). For
a worker In a two-parent family, the contribution Is 38 percent of earnings (80% x $4,2O0/$8,8O0).
^Subsidies may limll employer contributions to between 3 J and 7.9 percent of payroll.
>The O'Neill and O'Neill report has been cited by the Boston Globe (September 8), Christian Science Monitor
(September 24). Newsweek (August 30). New York Times (August 30, September 28, and September 30), San
Diego Union-Tribune (September 1 and September 22), Wall Street Journal (August 20), and tl* Washington
Times (August 31).
6Ovor the last decade, the real earnings of low-wage earners have proven tube quite flexible downward.
Karoly and Klerman (1993) estimate teal earnings for low-wage workers have fallen 13 percent.
'Various problems with Gnibcr (1992) limit lb applicability to the more general mandated benefits case For
instance, Cruber (1992) finds that o $1 rise In the cost of mutonity care on average leads to a XL percent
reduction In the pn<bnbi)ity of employment. Extrapolating to the case of a mandate that increased cost* by
only $250, his results imply a 50-percent reduction In the probability of employment. This figure Is
Implausibly high.
8Grubcr> work revises earlier work on the effects of payroll taxes on wages. Currently, both the einployet
and the employee nominally contribute 6.2 percent of taxable earnings to Social Security and 1.45 percent to
Medicare. However, many economists argue that employees bear ail the burden of both the employer and the
employee's share In the form of lower wages (Brittaln, 1971). Some researchers have tried to exploit slight
annual changes in these tax rates, and larger differences across countries, to estimate the extent of backward-
shifting of employer contributions. Not surprisingly, the empirical evidence on this question Is mixed.
Brittaln (1971) and Vroman (1974) both use cross-national comparisons to demonstrate that labor bears 100
468
percent of the burden nf the tax However. Hamermesh (197$) estimates that only 33 percent nf the tax is
shifted for white mnles Because of the disparity In these estimates, we cannot Infer much from this literature
that Is relevant to the debate on mandated benefits. In conjunction with the above onalyses of narrower
mandates, we tentatively conclude that higher wage employees bcu much of the burden of a mandate in the
form of lower wages.
For Instance, 27.4 percent of individuals 18 to 24 years old arc uninsured, whereas only 10.5 percent of
individuals 45 to 61 years old aro without coverage (Rles, 1991).
l0UsinR dat-a from the 1987 National Medical ExpenJiluros Survey. Hahn and LefVowltz (1992) compute
mean health care expenditures for the entire United Stares population, as well es for the subpoputation of 18-
to 44-year-olds Pot the entire population the mean annual oxp<Jns« fur health care la $1,521 (computed ns ttw
product of two figures In Table 1 of their findings: the percent of persona with expense and the mean annual
total expense per person with expense) For 18- to 44 yev-old*, the mean expense is $1,019. For those under
65, the mean expense is $1,150 Thus, 18- to 44-year-olds have mean expenses that are approximately 33
percent lower than the national average and 11 percent of the average for those under 65.
1 JThe resident's plan further subsidizes the rich at the expense of the poor. By financing the benefits
expansion through cigarette taxos rather than tl>e taxation of premium contributions, the President Implicitly
taxes lnw-tvagn earners (who may have a greater propensity to cmoke) at ihccxp*ni* of high-wage earners
(who may have a greater propensity to purchase expensive health care plans).
" In a study ol fan I food restaurants in Texas, Kal7 and Knieger (1992) find no employment response to the
1990 and 1991 Increases In the minimum wage Cird (1992a) compares the changes In employment In states
wilh high and low wages around the increases In the federal minimum In 1990 and 1991 He also finds no
evidence of a regul.ir impact on employment Card (1992b) analyic; employment responses to change? in
California's minimum wage in 1988 for the retail industry, which employs almost W percent of the minimum
and subminimum workers. By comparing retail trade in California with other Flares that did not change their
minimum, he also finds no employment effects From these case studies It Is clear that firms reactions to the
minimum are not simply to fire all (or even a large share of) workers with wages between the old and the new
statutory minimum.
'^Brnwn. Cilroj and Kohen (1982) and Brown. Cilroy. and Kolien (1983) aro the standard references on the
effects of the minimum wage Their two papers survey the previous research, provide updated estimates of
employment elasticities with rospect to rhangrs In the minimum (as nf the early 1980s) and explore the
sensitivity of the rcf ultf to several estimation decision* Following earlier literature, they estimate the
elasticity of tevnage employment with respect to the minimum wage, where an elasticity of x Implies: If the
minimum wage rises by 1 percent, teenage employment falls by j percent Also following the literature, they
estimate this elasticity using time-series regressions on aggregate employment counts since tlsc late 1950s
Thus, the parameter of Interest Is the percentage change In employment nf teenagers or young adults with
respect to a percentage change In the minimum wage Since over mmt of the post-war period the minimum wage
was relatively constant, the estimates are necessarily Imprecise. Still, Brown, Cilroy and Kohen (1983) find
o small but significant employment elasticity. According to their estimates, a 10 percent increase In the
minimum wage lowers teenage employment from 1 to 3 percent (an elasticity In the ninge of 0.1-0.3).
469
In the late 1970s and 1980?, the nominal wage remained fixed, but substantial Inflation eroded the real
minimum's value. This natural experiment provided subs tantlal variation in the real minimum wage,
prompting speculation thai a larger employment elasticity (more In line with the stark predictions of economic
theory) could bo found. Brown (1988) provided iome baek-of-the-envelope calculations tuples tinp thot a
large elasHdry was unlikely to emerge from extending the time series. Klcrman (1992) and Wellington (1989)
capitalize on this natural variation In the real minimum over the 1930s lo update these estimates. They find
even lower elasticities than Brown, fjllroy and Kohen — an elasticity of feu ttvinOl ftir teenagers and
approximately zero for young adult?. This elattidty IrnpliiK only a 1 -percent decline In teen employment due
to a 10-percent lncrojse In th« minimum wage.
Neumark and Woscher (1992), exploiting variation in state minimum wages ffoni t°73-1989, also estimate a
1- to 2-percent decline in teenage employment line to a 10-percent increatc in the minimum. Thus, It seems safe
to conclude, as Brown, Cilmy, and Kohen (1983) do earlier, lhat there it "...little evidence that the eifect of
the minimum wape iin the employment of white, male, or female, teens dl/lcred appreciably from the 1 percent
estimate."
1 ^Thi-se elastidties nre her base case plus the enrollment to population ratio. I ler base case (without the
enrolln\cnt lo population ratio) is not Significantly different from tero Even Including the enmllment to
population ralio, the- estimate for young adulb> Is not significantly different from lew. ■
'•^Specifically, we prefer Neumatk and Wasdier't (1992) specifications (2) and (6) from Table 5.
l^The study has been cited in the Wall Street Journal (August 20), New York Times (August 30), Newsweek
(August 30), BwUm Globe (September 8), Washington Times (August 31). San Diego Union-Tribune
(September 1), and the results have been entered into the Congressional Record (September 22).
17ONeill and O'Neill (1993) ba« their osd males on the following calculation for those individuals affected
by the mandates:
(% change in ^
^employment J
'% change in 1
employment
% change in
k labor costa ,
(% change ln\
\ labor costs J
The first quantity on the right-hand tide is the elasticity of demand for labor; thus, the relationship may ho
written nt: (% change In "1 ("elastidty of \ (% chnnco in")
^employment J ^employment/ y. l^ber costa j
By multiplying this elasticity by the percentage change in labor costa, thoy compute the relative change in
employment.
18ONeSll and O'Neill Identify seven Industrie* characterised by rclnUvely low wages or a large fraction of
uninsured that will be extremely adversely affected by the mandates: cnting and drinking private household
services, agricullorv, repnir services, personal services, other retailing, and construction.
1 'ideally, we would like to know how the minimum wage legislation affects all segments of the age
distribution, not |ust teenagers and young adults However, for most segments of the wage distribution, the
mandate will have little effect on employment for those earning greater than the sum of the minimum wage and
the hourly cost of the mandate. Thus, older worker* will be relatively unaffected by a mandate due to the
470
strong link between age find earning*. Fnr exactly thl* reason, researchers examining the minimum wage do
not estimate elasticitiis for older segments of trie population, f (nee the law Is not binding for thb group. With
regard trt o health Insurance mandate, oldrr Indivlduab tie far more likely to have health eaie and higher
wages. Thus, a health insurance mandate will not significantly affect employment for these individuals
Therefore, the appropriate elasticity for older Individual? should be very closo to tern, or at the very least
bounded by the minimum wage elasticity.
20O'Neill and O'Neill also dismiss the case-study evidence showing elasticities much closer to r.ero. because,
in their view, it considers only short-run changes, because It uses data (rem three national chain* of
restaurants that may be atypleil in a number of way*, and because the results do not Include the effect of the
minimum on firm entry and exit This point Is made by Ncumark and Wascher (1992), whose methodology i*
designed to accommodate these effects.
J1A nationwide survey of employers indicate* the overage annual premium was $1,728 for an Individual and
$-4.26n for family coverage (Sullivan et al., 1992). Assuming an employer mandate did nothing to teduce
premiums, O'Neill nnd O'Neill's figure* ttill exceed the average nationwide cost by approximately 25 percent
•'"'Most Investigations of the effect of the minimum wage estimate elasticities for teenager* (16-19) and young
adults (20-24) only. Tb«S« subpopulations constitute the majority of Individuals who art most likely to be
affected by change* In the minimum wage. If a researcher were tn estimate an employment elasticity with
retpect to the minimum wage for Individuals over 25, thb elasticity would be very dor* lo rem Mrwl
workers In this age bracket earn more tluxn die ndnlmum. and so the legislation L* non-binding for this age
group. Analogously, the majority of indivlduab over the age of 35 already have health uisurance or their
earning* ore sufficiently high that they are at not at risk for losing their Jobs. Thus, we look for employment
effects only in the subpopulatJon under the age of 35.
J3The estimates nrc based on employment counts for Calendar Year 1992 from the Current Population Survey
(the Moucchold Dala) a* reported In Lmyhymmt rtnrf Earnine/. January 1993: 3.3 million worker* agtd 18-
19, 12.1 million workers aged 20-24. and 96 6 million workers ae,rd 25-64. The niunber of vulnerable
workers are 1.5 million aged 18-19. 2.2 million aged 20-24, and 6.0 million aged 25-64 As Is noted In the text
these numbers are er imputed based on the percentages of vulnerable worker* In the SflT (0.440. 0 IBS, and
0.063) multiplied rimes the 1992 employment counts.
24Only firms with 50 employees or fcte are eligible for a subsidy. The subsidy rate varies with average
payroll, ns indicated in the following table:
Subsidy a* a Function of Avenge Wage
Average Wage per Full-Tune Equivalent Subaidy
512.000 or les* 3.5%
512 001 to $15,000 3.8%
$15,001 to $18,000 4.4%
$18,001 to $21,000 53%
$21,001 to $24,000 6.5%
$24,001 or more 7.9%
J3ln executing the si mutations, thb cap merely recrulres that we reesfimar* the employment effects assuming the
Increase in labor costs I* the minimum of the subsidy or our estimate of the Increase in labor costs In the
obtence of subsidies.
471
The Chairman. Thank you very much.
I almost feel like we are back at a NAFTA hearing in terms of
what is going to be lost and what is going to be gained in regard
to jobs on this issue.
Dr. Lewin, in terms of the CPI, what are the health care costs
in Hawaii versus the CPI?
Dr. Lewin. Health care costs have risen more rapidly than CPI,
as they have elsewhere. But the differential between the mainland
costs and CPI in Hawaii have been less catastrophic for our small
businesses. Our CPI costs have certainly increased of late very,
very much in terms of real estate costs, for one thing, but then all
other costs — fuel, food, etc.
If you compare health care and its relationship to total cost, it
looks like a bargain compared to CPI costs in Hawaii
The Chairman. Just to be clear, we are talking about between
2.5 and 3 percent for health care costs — prescription drugs are a
little higher — greater than the CPI.
Dr. Lewin. That is right.
The Chairman. And I am just wondering what the experience
has been in Hawaii, say in the last 5 years.
Dr. Lewin. Hawaii has had about a 10 percent rate of increase
in health care costs over the last few years. CPI in the last 2 or
3 years has been less than that as a percent of increase. But Ha-
waii had enormous leaps in CPI costs in the 1970's and 1980's, as
a result of labor —
The Chairman. So it is difficult.
Dr. Lewin. It is difficult to make the comparison, but I can give
you the bottom line. CPI right now is 38 to 40 percent higher than
the U.S. Health care costs are 35 percent lower than the U.S. aver-
age.
The Chairman. Mr. Pauly, given the experience in Hawaii — and
I will ask Mr. Klerman to respond as well — and the way that it has
worked out in terms of employment and in terms of the types of
people who have been employed, how should we look at the way
that you calculate the impact on jobs versus the practical experi-
ence that we have seen in Hawaii over a considerable period of
time? Where is the disconnect?
Mr. Pauly. It is the usual problem that economists have—other
things are not necessarily equal, and other circumstances, includ-
ing growth in the tourist industry and so forth, have affected Ha-
waii more than other parts of the country. So there is really no way
to tell with one observation, a sample of one, what is a generaliz-
able conclusion.
The Chairman. But the disparity is so dramatic in terms of the
impact on jobs and the total number of people who will be ad-
versely impacted versus some of the other economists, generally
speaking. I was just trying to better understand how you reached
those conclusions.
Mr. Pauly. I think the disparity is not actually all that substan-
tial. The difference is between one-half of one percent of employ-
ment and, in my calculations, approximately 2 percent.
The Chairman. Well, that is a pretty big number in terms of the
millions of people that would be affected.
472
Mr. Pauly. It will surely matter to those individuals. I think the
answer is — for reasons that I discuss in my statement — that I be-
lieve the studies of the minimum wage are not particularly rel-
evant to understanding what is likely to happen with this kind of
mandated additional benefit of the order of magnitude — $1.67 per
hour for some workers, as I discuss — and adding the cost of a bene-
fit which, even under the administration's proposal, will increase in
cost each year in line with the CPI.
The reason why we think the minimum wage empirical studies
seem to clash with the textbook — I guess economists do not want
to believe the textbook is wrong — at least one of the explanations
is that employers rationally figure that inflation will erode a 25 to
50 percent increase in the minimum wage fairly quickly.
But the thing about health care costs, with the possible exception
of Hawaii — and maybe this is an answer — is that historically, infla-
tion has not eroded their value; in fact, inflation has actually added
to their cost.
So in my calculations, I tried to set an upper bound estimate of
what the worst consequence could be.
The Chairman. You are saying that it increases by $1.67 an
hour?
Mr. Pauly. I think that is what Jacob said as well. If you think
of a minimum wage worker, working for a firm with hign average
wages, buying family coverage.
Mr. Klerman. That sounds about right; something like $1,700
for an individual, and it is about $2,500 for a family, and there are
2,000 hours. So $1.20, $1.60— it depends on exactly
Mr. PAULY. I was using $4,200 for the family premium, for hus-
band, wife, and children.
The Chairman. Dr. Lewin.
Dr. Lewin. Senator, I appreciate the dilemma that economists
have when they are looking at the way things have evolved on the
mainland and the complexity of all the issues. The tendency is that
we tend to project our present status into the future and not envi-
sion what it is like to be in an insurance reform environment, with
a standard benefit package, where every insurer or accountable
health plan in the State is making a quote on the same exact prod-
uct, with all the same features built into it, and there is a tremen-
dous desire to undercut the price of the competitors to bring the
consumers in. So that there is a degree of real competition in a
marketplace on the same product and with insurance reform fac-
tors built in to eliminate the pre-existing exclusions and all that
stuff.
What happens then is you end up with overall lower costs of cov-
erage and more efficient coverage. And when you do that, you are
not giving businesses this lousy situation of projecting the present
bad environment for businesses, and therefore you are going to
have — yes, if you project the present environment, you are going to
lose jobs, the low-wage employers are going to be adversely af-
fected, etc. That just nas not happened in Hawaii because of the
level playing field.
The Chairman. Did you include the subsidies, Mr. Pauly, in your
calculation?
473
Mr. Pauly. Yes. That was intended to take into account what the
net increase would be in costs.
The Chairman. So I guess it is approximately $167 billion. That
is what the administration has talked about. You have taken that
into consideration as well in terms of your projections?
Mr. Pauly. I use the word "conjecture," which is I think appro-
priate for an economist to use here, but the calculation was based
on looking at the number of workers who currently do not have
health insurance — who have jobs paying at or very near the mini-
mum wage, where any mandated increase in the cost of their com-
pensation, because it cannot be offset by a lower cash wage, would
cause unemployment to occur.
I understand Secretary Reich has been contemplating or at least
discussing the possibility that some of the minimum wage increase
might actually be adjusted for increase in the cost of mandated
benefits. That is something I very much favor.
The Chairman. Mr. Klerman, what is your reaction in terms of
the overall figures? How do you come up with those different re-
sults?
Mr. Klerman. I guess I would view my reading of the situation
as broadly consistent with Dr. Lewin's report about what has hap-
pened in Hawaii. My bottom line was one-half of one percent. That
would be something you would not be able to see in a State like
Hawaii where there are lots of other things happening, and it con-
firms my bottom line, which is that there are lots of things to con-
sider about health care reform, but one of them is not job loss.
I am a little bit disturbed by the difference in my final, bottom
line numbers, between my analysis and Dr. Pauly's. Dr. Pauly is
a well-respected health economist, and I guess in the hall after-
ward, we will talk about why our numbers differ exactly. But I can
give you a couple of hypotheses that might help.
I would like to start by saying that I have not seen the details
of Dr. Pauly's analysis, but I am reassured that the basic assump-
tions he seems to be making are basically similar, that most of the
costs of the health insurance premiums will be borne by the indi-
viduals, by the workers, and that means their employers will go
down.
But I disagree with Dr. Pauly in his assessment that this is real-
ly going to be a very large increase in the costs, even in the ab-
sence of subsidies. In 1990 and 1991, we raised the minimum wage
in the United States from $3.35 an hour to $4.25 an hour over 2
years. That was 90 cents. That is in the same order of magnitude
as the increase in cost that we are talking about with this plan,
even in the absence of subsidies, and it is off by 50 percent, say,
depending exactly on how you calculate. But to say, as many people
have, that the order of magnitude of changes and costs are totally
out of range of what we are used to I think is a misnomer.
The second thing is that inasmuch as I can figure out how Dr.
Pauly does his analysis, I have a couple of comments. He figures
that everyone with earnings below $6.50 will be vulnerable. We
went through and did the calculations exactly based on the costs
per individual that were given to us by the President about costs
based on family status, and we get an estimate of the vulnerable
population which is only about two-thirds the size of Dr. Pauly's.
474
Also, our bottom line number is that of those people, about 15
Eercent of the vulnerables would lose their jobs. That is the num-
er that we get if we ignore a subsidy. If you put those two num-
bers together, Dr. Pauly's number is pretty close to ours in the ab-
sence of subsidies, but the President's plan was specifically crafted
to minimize job losses in the form of offering subsidies, and that
should mean that the numbers will get lower.
We are personally unhappy, or not done, with our analysis of ex-
actly how many people would be eligible for which types of sub-
sidies, and those analyses are complicated by the fact that it is
hard to figure out how many people will take advantage of reor-
ganizing their firms, breaking up firms, as Dr. Pauly said. The
more that that happens, the smaller will be the health effects. But
as of now, our best guess is that the average premium will be
about 8 percent, sort of the maximum subsidy, and in that case we
get numbers that are on the order of one-fifth lower than Dr.
Pauly's.
The other thing to note is that we believe that the minimum
wage analogy is correct, but it is also true that the numbers we are
using for the effects of minimum wage are among the largest in the
literature. As an econometrician, I personally am happy with those
larger numbers, but it would be easy to pick a smaller set of num-
bers, based on slightly more conventional methodologies, and they
would give you estimates of employment effects that would be — I
think there are six of the ones that are in our testimony. So I
would think that if anything, my numbers are too high, not too low.
The Chairman. Thank you.
Senator Jeffords.
Senator Jeffords. Thank you, Mr. Chairman.
Dr. Lewin, could you explain to me a little more how the Hawai-
ian system works as far as universality goes? If I am unemployed,
how am I covered?
Dr. Lewin. If you are unemployed, and you have no other means,
there is no one in your family who is working — if you are unem-
ployed, and you have another family member working, which is
probably the case, then you will be covered through that family
member. Let us say you have no other working family member who
would be able to extend family coverage to you. Then you would be
covered by a program called the State health insurance program,
funded by general funds of the State of Hawaii. It provides health
insurance for these individuals and for their families if needed at
a shared cost between the State and the individual. The State picks
up the entire premium. The program is free, in essence, if you are
at 100 percent of Federal poverty or less in terms of whatever
sources of income you have as a family, and it goes on a sliding
scale up to 300 percent of poverty.
So the unemployed, the part-time employed, the self-employed on
commissions, and students are covered through the State health in-
surance program. Anyone who is not covered by Medicaid, Medi-
care, or by virtue of employment, veterans, or some other full cov-
erage, is eligible for SHIP.
Now, at the moment, as we talk, Hawaii is preparing to fold
SHIP, this gap insurance program, with Medicaid and general as-
sistance into one public sector program with the same benefit pack-
475
age as the work force program, meaning that everyone under 65 in
Hawaii will be covered in one basic benefit package. One portion
of it will be publicly funded, and one will be funded by employers
and employees. But it will all be the same basic program. We are
in the midst of that conversion. We have obtained a waiver for the
Medicaid portion of it from HCFA, so we are converting it. That is
how everybody is covered.
The only people who would not be covered in Hawaii — of course,
we have 8 million visitors a year, and many tourists come in and
cost-shift to us because some of them do not have coverage. We also
have all the Pacific Island American-affiliated nations who come to
Hawaii for their health care, because it is the only place they can
get it. They come, and they basically cannot afford to pay, and we
pay the bill. We also have cost-shifting from a very large number
of undocumented aliens who come from the Philippines, from Asia
and other ways into Hawaii and who are part of our population.
So we still have that cost-shifting, but the main cost-shifting in
Hawaii is from Medicare and Medicaid.
Senator Jeffords. Mr. Pauly, assuming you want universality,
how would you provide funding?
Mr. Pauly. Well, I think there are really two issues. One is the
vehicle and the other is the pattern of subsidies. The main prob-
lem, as I have emphasized, in the pattern of subsidies embodied in
the administration's proposal is that it is very stingy. It imposes
the lion's share of the cost of insurance coverage on low and mid-
dle-income families, essentially by taking it out of their money
wages.
So the proposals that I and my colleagues have looked at have
generally involved a more progressive scheme of tax credits that
would extend subsidies up to perhaps 300 percent of the poverty
line. So that is an issue of how to make it equitable.
The issue of how to make it efficient, I think the easiest ap-
proach there is to simply require individuals to obtain adequate
coverage and let them choose what is the best way they want to
obtain it. I think most people will find, partly because it is the way
things are, and partly because it is usually most efficient, they will
try to arrange it through their employment relationship. But for
others, it may be that that is not the best way to arrange coverage,
that other sorts of groupings may work better, or purchasing di-
rectly as individuals, particularly if there is, as we propose a fall-
back Government contract that would be an insurer of last resort.
Senator Jeffords. Would those tax credits be in the form of
vouchers?
Mr. Pauly. They would be in the form of a voucher for somebody
who owes no additional tax and would be in the form of an offset
against income taxes owed for people who owed income tax.
Senator Jeffords. Thank you.
The Chairman. Senator Durenberger.
Senator Durenberger. Thank you, Mr. Chairman.
Mr Pauly, I think you were quoted in the winter 1990 issue of
Financing Health Care Quarterly Review of Economics and Busi-
ness by one of my friends in Minnesota who admires you greatly,
Brian Dowd, as saying— I use this in reference to a question of Dr.
Tyson earlier— "The problem is not total spending, particularly in
476
the private sector. The problem is market failure, primarily in the
form of health insurance and health care services, purchased with
subsidized dollars at noncompetitive prices."
The question I want to ask you as a background is how wise are
we as a nation to go to universal coverage before we are convinced
that we know how to change the system, either the way they have
predicated change in Hawaii or in some other way?
Mr. Pauly. Well, I think the universal coverage in terms of real
cost is not very substantial, for exactly the reasons that Ms. Tyson
mentioned, that for the most part, people are already receiving
services, so the extra cost is really just a transfer from someone
else, from one pocket to the other.
The real issue is, as I said, how equitably are we going to move
toward universal coverage, and somewhat surprisingly, the admin-
istration's proposal is highly regressive on that score.
And then the issue is whether we need to add, or whether it is
possible to avoid adding, a set of additional distortions and restric-
tions that might cause people to fail to be able to get the coverage
in the way which is really best for them.
So I would not lie awake nights worrying about the impact of
universal coverage on cost. I would worry about the impact of the
tax subsidy that I benefit from substantially, causing me not to be
as economical a consumer of health care as I really ought to be.
Senator Durenberger. Those are difficult issues to get across to
people. It is pretty simple, I would guess, to say that we are gong
to guarantee everybody a health security card and we are going to
find some way to pay for that. In the case of the administration,
they pay for that by this sort of elaborate interchange of savings
and expenditures between employers at various levels, plus a sin
tax.
But there is still this doubt out there in America that anything
invented in Washington, whether it is predicated on Hawaii, Can-
ada, or something else, is really reliably going to do anything about
the cost of the individual American.
But what I hear you saying is that you could probably construct
a minimum benefit comprehensive package — you could put together
some preventive services and the catastrophic — and we could buy
that, or some part, for the 36 or 37 million uninsured, or we could
hook it into employment so that the employer would pay part of it.
We would use public funds up to 100 percent of poverty or what-
ever it is, and then use some other system after that. And you are
saying that except for the transfer of funds, which is ongoing, be-
tween Hawaii and Los Angeles or between Minnesota and Los An-
geles, or between conservative practitioners or small businesses
and large, the ones that have the big tax subsidies, except for the
fact of the inequities in the system, the overall cost to the country
would not be that great to go to universal coverage. Is that right?
Mr. Pauly. Yes.
Senator Durenberger. John, let me ask you about
The Chairman. Would the Senator yield?
Senator Durenberger. Yes.
The CHAmMAN. Do the other panel members agree with that
comment?
477
Mr. Klerman. I agree with what Mr. Pauly said and what the
Senator is going toward. As I said in my testimony, the administra-
tion's plan has some regressive aspects to it, and alternatively, one
could think about plans that do not go through the employment re-
lation. But I am not convinced that the negative effects of the em-
ployment relation are as drastic as Mr. Pauly thinks right now.
The Chairman. I think the question was on the cost in terms of
covering the uninsured, and I thought Mr. Pauly said that given
the reality that everyone does get covered, that it would not be sig-
nificant—iut I do not want to put words in your mouth.
Mr. Pauly. Yes.
The Chairman. And on that particular question, I would like to
hear from the others.
Dr. Lewin. We found that to be the case. If you really have the
full effects of an employer mandate, then the people remaining are
an upwardly mobile group of relatively healthy people, because you
bring in most of the chronically ill with the employer mandate and
their dependents, if the dependents are in.
So that we found with our gap group — it was a tremendous risk
that Hawaii took when we put the SHIP program out there, be-
cause the fear was that we would have this huge mass of chron-
ically ill, uninsured people. We found out they are an upwardly mo-
bile group. And what we have discovered is that the same group
of people in the gap would quit their part-time jobs and go back
to Medicaid coverage if somebody in their family got sick. And in
fact, with the advent of the SHIP program, they kept their jobs and
moved on to full employment and then went off the program, the
subsidy the State had to provide, so it has been an economic bene-
fit botn in terms of jobs and upward mobility of that in-between
group.
Senator Durenberger. Dr. Lewin, help me understand. The first
part is the problem that you and I both suffer from, which is that
people will say Hawaii and Minnesota are different. I have just
been through the experience you may have had yesterday, of argu-
ing with HCFA over tougher risk contracts, because you are getting
penalized the same way I am getting penalized in Minnesota, for
efficiencies.
Dr. Lewin. Yes, absolutely.
Senator Durenberger. But they are willing to give New York a
15 percent bump and so on.
Dr. Lewin. Yes.
Senator Durenberger. If you can in 2 minutes — and you have
probably practiced this — demonstrate that it is not the weather and
things like that that make Hawaii different. I happen to think it
is the weather in Minnesota that makes us different, because ev-
erybody has to have a common enemy in order to do good, and we
have a common enemy in the weather. [Laughter.] But you know,
we hear that all the time, that somehow Minnesota is different,
and you cannot replicate it somewhere else. But then go from that
into principally the role that the insurance plans play in all of this.
Are they just traditional insurance, or have they taken on some
other aspects?
Dr. Lewd*. No, they are not. As far as the weather, genetics, and
life style, you know, the weather, you have to look at as kind of
478
nebulous factor, but you really need to look at morbidity and mor-
tality risk factors in the population and behaviors of the popu-
lation.
Hawaii, for example, has a higher rate of essential hypertension
than the United States, a higher rate of elevated cholesterol. In
terms of behaviors, Hawaii consumes more alcohol per capita than
most States. We are very heavy in terms of excessive alcohol,
drinking and driving, fat consumption, salt consumption, and sur-
prisingly— here is one with the weather — Hawaii is more sedentary
than the national average. We have the greatest weather, but what
is happening is that people are working two jobs and then a part-
time job to try to make their lives work, and the stress in families
is very, very high.
So CDC does relationships of States, and although we come out
really great — in fact, with Minnesota, the best in terms of health
status outcomes, when you start out with risk factors, population
life styles, and premature morbidity and mortality risks, we look
like we are going to head for all kinds of problems. Our system in-
tervenes.
Let me take breast cancer very briefly. We have one of the high-
est rates of breast cancer among Caucasian women in Hawaii of all
50 States. We also have the lowest death rate from breast cancer
of all 50 States. How does this add up? We are diagnosing it more
effectively, and we are treating it earlier, at lower cost.
Hawaii shifts toward primary care because of universal access.
Universal access saves money if it is designed right and works
right, and that is part of the way we get to the other end.
Insurance in Hawaii has behaved — your second question — be-
cause it has had to take on the burden and risk of all of that chron-
ic disease population. In other States, insurance companies have
been able to eliminate that risk by rejection or ejection, or even ge-
ographic kinds of patterns of bringing in their consumers so that
they avoided the risk. And risk avoidance has been the whole proc-
ess. In Hawaii, since they could not do that, our insurance compa-
nies frankly have learned to behave differently. They have been
much more aggressive at utilization controls, much more aggressive
at holding down costs. Ninety percent of Hawaii's doctors partici-
pate, for example, fully with Blue Cross, and they accept no addi-
tional payment other than what Blue Cross assigns them. That is
nearly miraculous considering that Blue Cross, then, is the cost
controller that sets almost a global rate for services and methods.
Senator Durenberger. Who has got what percentage of the busi-
ness? Do you have basically the same insurance companies all the
time?
Dr. Lewin. No, we do not.
Senator Durenberger. Does anybody new ever show up on the
scene and become successful?
Dr. Lewbv. We do have new ones, but in 1974 when the law was
passed, we had mostly the commercials — the Aetna, Prudential,
Signa type group. It totally changed in 1974, where Blue Cross and
Kaiser started moving up because they community-rated. The com-
mercials refused to community-rate, and so they dropped out of the
employment market in Hawaii.
479
Senator Durenberger. Did they community-rate within their
own system so that the price might be different to different people,
depending on what plan you went into?
Dr. Lewin. No. The plan is statewide. In essence, what we have
is kind of an informal alliance for all businesses under 100 employ-
ees. There is no structure to it, but all businesses under 100 are
in one huge risk pool, and in that risk pool, insurance companies
quote a statewide rate for their product. Again, recognize they are
quoting a statewide rate for the same product, so Blue Cross, Is-
land Care, HDS, Queens Health Plan, and Kaiser Permanente all
quote their rates; and then, frankly, if their rates vary much, con-
sumers do shift from company to company on an annual basis.
There is real competition around rates.
Now, it is true that Blue Cross has almost half of the total mar-
ket of employees, although they have it divided among competitive
plans in their own organization. They have an HMO, a PPO, a fee-
for-service. But people always talk about when a prepaid, capitated
health care system like Hawaii's would come into being, then auto-
matically, everyone would be forced into HMOs, fee-for-service dis-
appears, etc. Hawaii, 20 years later, still has two-thirds of its popu-
lation in fee-for-service. We have a great HMO in Kaiser
Permanente, one of the most popular and most effective of all the
Kaiser regions, but people still choose fee-for-service.
The thing is that fee-for-service in Hawaii is more managed than
any fee-for-service in the country. It is managed because the com-
panies that provide it in essence have a fixed budget, and they
have all the chronic disease, or most of it, in their populations.
Senator Durenberger. I have a series of questions, and maybe
I could just submit them. I think one of the things that would be
helpful in terms of — certainly, whatever you might want to say and
add to the record relative to Medicare, Medicaid, the tax subsidy —
the three big public subsidies that in one way or another may end
up distorting the market, but particularly Medicare and Medicaid,
because that is where you point out you are getting a huge cost
shift and so forth.
Dr. Lewin. Yes, we are. I think the biggest concern we have right
now, the biggest error we see happening in the planning for the fu-
ture with the Health Security Act concept, is that the Nation feels
that the Clintons are advised that they must subsidize small busi-
nesses and that out of that $167 billion, we are going to have some
enormous amount of money subsidizing small businesses.
We have not seen that experience. We would like to see those
subsidies go to bringing up the Medicaid and the gap insurance
populations, giving States the resources they need to pay reason-
able reimbursements and to really contribute well for those at-risk
populations and underfunded and unincluded populations, because
we think that will set up the level playing field that leads to the
cost containment that comes out of competition in a socially and
ethically conscious marketplace.
If we continue to underfund Medicaid and gaps for States, if we
put subsidies, say, at small businesses that are not really needed
if we create means tests, then frankly we are going to fail, because
we are going to have lower funding for those disenfranchised popu-
480
lations, and they will not come in, and the whole system will not
work. That is the cost-shifting problem.
Senator Durenberger. One other question. What do you think
would happen in Hawaii right now if we redesigned the Medicare
benefit so that it was at least as comprehensive as they are talking
about for everybody else in the country, and we get away from this
specific deal, but we give them a comprehensive benefit like I as-
sume you are talking about being offered to other people, and what
we do at this level is simply give a dollar amount to the company —
Kaiser, Blue Cross, whoever it is — based on age, sex and health
status in that community. Would most of the 65 and older and dis-
abled buy into that kind of plan?
Dr. Lewin. I think they would, because they perceive that they
get a less effective health plan as soon as they shift over from their
employer-based coverage to Medicare. I think they would be very
happy to do that as long as they knew that the Federal Govern-
ment was going to continue to fund it adequately.
Similarly, I think we could bring Medicaid up, save a lot of
money and make the whole system more efficient by unifying the
whole thing. We would like to see Medicare in this process, in-
cluded fully.
Senator Durenberger. Apparently, the reluctance on the part of
the administration to get into reform of Medicare is perhaps two-
fold. One is political — at least, that is what I have heard — and the
other is that nobody over at HCFA apparently has figured out how
you do this dollar amount based on age, sex, and health status. The
third one, you have suggested, which is that maybe the elderly
would not trust us to keep that level of reimbursement up.
Dr. Lewin. That is the fear.
Senator Durenberger. But what I hear you saying is that on
the basis of your experience, where you have everyone for the most
part buying a health plan, the notion that at 65, they have to buy
differently, and they have to put up with the same kinds of A, B,
medigap and paperwork stuff that the elderly on the mainland put
up with, that it would be an attractive way to go.
Dr. Lewin. Yes. May I also just add that our Prepaid Health
Care Act limits out-of-pocket costs to $1,500 per year for family
coverage, and that is strict; and in fact, there is no deductible on
the front of the program, so you get instant coverage. As soon as
you come into the program, you are covered, first visit. There is no
spend-down or anything.
The Medicare population starts out with a program that tends to
cause them to have to spend money up front before they get cov-
ered for prevention, and then they find, basically, that their pre-
ventive services, their annual health assessments, all those things
are deemphasized. And really, the poor elderly end up in the hos-
pital in order to get covered.
Senator Durenberger. Thank you.
The CHAmMAN. Under the administration's plan, of course, there
are no copays at all for the preventive services.
You made a comment earlier that 90 percent of the doctors in
Hawaii treat Medicaid and Medicare patients. What is the back-
ground on that? What is going through their minds?
481
Dr. Lewin. Ninety percent of doctors in Hawaii are participants
with the insurance companies for the work force in that there is
no balance billing for 90 percent of the doctors; they accept what
the insurers say are the levels of reimbursement. For the
consumer, that means that they are not paying more out-of-pocket,
so out-of-pocket costs are lower.
But also in Hawaii, physicians have been good about taking on
Medicaid and Medicare clients. Recently, there has been a lot of
concern that if there is any more reduction of Medicaid and Medi-
care reimbursements that more physicians may pull out. But 90
percent currently do.
The Chairman. Have you costed out what your administrative
savings are from that?
Dr. Lewin. It is very significant. The Hawaii Medical Services
Association, which is the biggest Blue Cross/Blue Shield, the big-
gest of the private insurers, has an indirect cost rate that is 3 or
4 percent, or its administrative cost rate. And again, it is hard to
imagine what it is like to be in an environment where you have
a standard benefit package and standard economic conditions in
terms of deductibles, copayments, etc, so everybody is competing on
the same package. There are only a few insurance companies in the
marketplace, and all that has caused a tremendous reduction of ad-
ministrative costs. They are all using the same basic claim form
now.
The Chairman. We thank you very much for your testimony, as
well as the excellent testimony of Dr. Tyson. It has been enor-
mously interesting. There are some areas of difference in terms of
the employment figures, and I think there is, very interestingly,
general agreement that even the cost for coverage of those who are
not covered is not of great significance — whatever "great signifi-
cance" is in terms of billions of dollars — but I think that in most
people's minds, that is the major element in terms of additional
cost, and I think the broad agreement we have on that is not insig-
nificant.
We will be keeping in touch with you and drawing on all of you
as we go through the weeks and months ahead. We are grateful to
you all for your testimony here today.
The committee will stand in recess.
[Whereupon, at 1:01 p.m., the committee was adjourned.]
O
BOSTON kudlik L,u
3 9999 05982 540 4
ISBN 0-16-043322-3
9 780160
433221
90000
Live Music Archive
Librivox Free Audio
Metropolitan Museum
Cleveland Museum of Art
Internet Arcade
Console Living Room
Books to Borrow
Open Library
TV News
Understanding 9/11