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PHOTOCOPY
PRESERVATION
TESTIMONY- (not HRC)
PROTOCORY
PRESERVATION
3
OCT 26 '93 11:23 SBA CONGRESIONAL AFF.
P.2/5
STATEMENT OF ERSKINE B. BOWLES
ADMINISTRATOR
U.S. SMALL BUSINESS ADMINISTRATION
BEFORE THE
HOUSE ENERGY AND COMMERCE COMMITTEE
OCTOBER 28, 1993
HEALTH CARE REFORM
* DRAFT *
Mr. Chairman, I am pleased to testify today on the economic
effects of the Health Security Act on our nation's small
businesses. I want you to know up front that I am excited about
this plan and I am excited about what it can do for small business.
For the first time ever, small business will be able to buy rock
solid, comprehensive insurance at an affordable rate. I believe
this plan will be good for small business and it will create jobs.
I am also concerned by what could happen to our country and to
small business if we don't enact comprehensive health care reform
and do it now.
RISING HEALTH COSTS: THE BIG PICTURE
Mr. Chairman, the statistics reflecting the current health
care system are frightening. Every month, two million people lose
their health care coverage. During the next two years, one out of
four Americans will be without health care for some period of time
-- that's 63 million people. There are 37 million Americans
without insurance today, and another 22 million who are
underinsured.
The rising cost of health care could literally bankrupt this
country. The U.S. now spends more per capita on health care than
any other country in the world; more than double what Japan spends
and 40% more than Canada, which is the second most expensive
country. Twenty-five years ago, health care consumed 5.9% of GDP.
In 1992, that number topped 14% to reach a staggering total of $840
OCT 26 '93 11:24 SBA CONGRESIONAL AFF.
P.3/5
billion. By the year 2000 we will see health care spending top
$1.6 trillion and approach 20% of GDP if this trend continues. If
we do nothing, health care costs will consume about two-thirds of
the increase of GDP in the rest of this decade. This is simply
unacceptable. Clearly, from a macro economic viewpoint, we have a
serious problem in this country with our health care costs.
SKYROCKETING HEALTH CARE COSTS HURT SMALL BUSINESS
Small business is faced with the worst of all worlds with
respect to rising health care costs. The two-thirds of small
businesses that are still able to afford to provide their employees
with health care coverage are experiencing skyrocketing cost
increases. Health care costs have increased for small business at
a rate of 20% to 50% a year. Small businesses pay 35% more for the
same insurance than do big businesses, and the rate of increase in
the cost of health care for small businesses is 50% higher than the
rate of increase for big businesses. Unfortunately, the smaller
the company, the more disproportionate are the costs they pay for
health insurance.
ABUSES OF CURRENT SYSTEM DISADVANTAGE SMALL BUSINESS
Not only have small businesses experienced skyrocketing
increases in the cost of health care, they also have been subjected
to every one of the most blatant abuses that occur within the
health care system. These abuses include such practices as
occupational redlining, whereby insurers will simply refuse to
cover entire industries perceived to be too high a risk. These
industries often include such basic businesses as automobile
dealerships, florists, grocery stores, barber and beauty shops,
construction companies, and trucking firms.
Some insurance companies also engage in price baiting and
gouging, by offering discounted rates for the first year of
coverage, to be followed by much higher rates in the next year when
pre-existing condition exclusions expire. Many insurance companies
refuse to renew insurance policies if one of the employees of a
small business gets sick and really needs insurance. When this
happens, the insurer may either pull the policy or jack up the cost
to an unaffordable level.
OTHER WAYS THE CURRENT SYSTEM PENALIZES SMALL BUSINESS
Unlike large firms, small business owners generally don't
generally have a benefits department. The small business owner or
a valued employee must perform all the functions of such a
department. As a result, the small business owner not only loses
valuable time away from his business, but he also is at a
disadvantage when trying to negotiate the purchase of a benefit for
his employees that is extraordinarily complicated to understand and
is constantly changing. A self-employed individual also operates
at a disadvantage because of the inequitable tax policies for the
self-employed. A self-employed individual is only allowed to
deduct as a business expense up to 25% of the cost of health care
coverage. All other businesses are able to deduct the full cost of
coverage. This is clearly unfair to the self-employed and almost,
by definition, increases their cost of insurance for their
families.
Workers compensation has also become a bigger burden to small
business owners. Increasing at an even faster rate than the rest
of the health care system, workers compensation medical costs grew
more than one and a half times as fast as medical costs between
1980 and 1985. Between 1982 and 1992, the average workers
compensation medical claim rose from $2,584 to $8,900.
Clearly, small businesses have a large stake in solving the
health care crisis in this country.
SOLUTION: UNIVERSAL COVERAGE
Today, together with individuals, three major groups finance
the cost of health care in this country:
1. The government;
2. Self-insured companies -- generally big corporations; and
3. Businesses which insure through traditional insurance
companies -- generally small businesses.
These groups finance virtually all of the nation's health care
spending. When one of these groups pays less, the others must pay
more to cover the cost. The federal government system, which sets
the amounts Medicare pays for particular services, can reduce the
government's expenses for Medicare. However, when this action is
taken, it has done nothing to lower the overall cost of health care
and government has actually driven up costs for the privately
insured.
When health care providers cannot get adequate compensation
from the government, they simply raise the prices charged to
everyone else. Large, self-insured plans frequently have a great
deal of clout in a given area and can negotiate with providers to
reduce the impact of this cost shift on them. However, small
employers have no ability to reduce this cost shift and must bear
its full brunt.
This same cost shifting scenario also occurs when providers
deliver uncompensated care, primarily to the uninsured. Make no
mistake about it, the uninsured are provided health care in this
country. They simply get it at the emergency room at four or five
times the cost it would be at the doctor's office. And because
there is no insurance coverage, someone has to pay for this
treatment. Today this cost is shifted onto the backs of small
business. Clearly, no part of the business community is hit harder
by the high cost of the uninsured than small business.
OCT 26 '93 11:25 SBA CONGRESIONAL AFF.
P.5/5
A solution that doesn't offer universal coverage for the
37 million workers who are uninsured is simply no solution. Unless
these uninsured Americans are provided insurance, we will continue
to have the cost shifting that has gone on in the past.
Unfortunately, the sector of the economy that will bear a big
portion of this cost shift will be the small businesses that are
currently paying as much as 35% more for the same insurance that
big business pays today.
HOW THE HEALTH SECURITY ACT WORKS FOR SMALL BUSINESS
The Health Security Act provides small business with
comprehensive insurance coverage at an affordable rate. The
President worked hard to give small business comprehensive and
affordable insurance that couldn't be just jerked away.
The Health Security Act will control the skyrocketing cost of
health insurance by increasing competition in health care, reducing
administrative costs, and imposing budget discipline. By forming
buying groups and health care alliances, the Act shifts the power
of the marketplace to benefit the consumer.
The Act simplifies the health care system and eliminates
waste. The plan reduces administrative costs through standardized
forms, uniform billing, electronic claims submission, coordinating
benefits, and malpractice reform.
The Act also reduces the enormous burden of paperwork and
administration that currently falls on small business. The cost of
administering coverage in small companies declines because they
purchase through health alliances that exercise market power
reserved only for large employers in today's system.
The Health Security Act will give small business what it needs
by offering:
1. Rock solid, comprehensive insurance coverage -- not a bare
bones plan or just catastrophic coverage, but real insurance.
2. Affordable coverage with caps and subsidies to hold down the
cost of health insurance for small businesses. National Small
Business United estimates that the average small business that
currently provides its employees insurance has a payroll of
$15,600. If that is the case, then these small businesses
will see their annual insurance cost fall to only $827 per
employee. That's about $2.25 a day per employee, representing
a significant savings for that average small business
currently purchasing insurance.
3. Mechanisms to bring the cost of health care under control and
to ensure that the cost of health care will increase by
approximately the rate of growth of wages, as opposed to
current skyrocketing costs.
OCT 26 '93 11:26 SBA CONGRESIONAL AFF.
P.6/5
4.
Elimination of abuses of the current health care system. If
one worker in a small business becomes seriously ill, the
business will no longer see their rates jacked up beyond
belief or lose coverage for the sick employee or dependent.
5.
Full, 100 percent tax deductibility of coverage for the self-
employed instead of the current 25% deductibility.
6.
Choice to employees to pay more for health care insurance if
they choose more expensive health care coverage. This will
give -the employee strong incentive to choose an economical
provider group.
9.
Finally, the plan removes the hassle that small businesses
must now undergo in dealing with insurance companies and frees
up valuable time for the small business owner to manage and
grow his or her business.
Mr. Chairman, I am confident that when small business owners
who provide insurance compare the Health Security Act their current
plan, the vast majority of them will see both a decrease in cost
and better coverage. Small business owners who have wanted to
offer their employees insurance but couldn't afford will see a
comprehensive plan that they can afford. And those very small
businesses that pay low wages are going to be able to offer their
employees rock-solid, comprehensive insurance coverage that will
cost the small business owner as little as $1.00 to $2.00 a day per
employee.
Clearly, every small business will not be better off under the
Health Security Act, but the vast majority will. Those small
businesses that have been scared off by the constantly escalating
cost of health insurance and the relatively poor coverage will see
a plan that they can afford to offer.
In summary, Mr. Chairman, I am convinced that small business
owners, when they examine the facts, will realize the value of the
Health Security Act. They will understand that the Act is good for
small business.
Thank you.
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DRAFT
STATEMENT OF ROBERT B. REICH
SECRETARY or LABOR
BEFORE THE
HOUSE ENERGY AND COMMERCE COMMITTEE
SUBCOMMITTEES ON
ENERGY AND POWER
AND
HEALTH AND THE ENVIRONMENT
OCTOBER 28, 1993
HEALTH CARE REFORM
Chairmen, Members of the Committee. Thank you for giving me
the opportunity to discuss the Administration's health care reform
plan. These hearings demonstrate your commitment to a through
exploration of an issue which is of profound importance to the
Nation.
In the past month, President Clinton and the First Lady have
each made historic appearances before Congress. They have
described for you a comprehensive plan for providing all Americans
with health care coverage. This plan is based on six principles:
security, simplicity, savings, choice, quality, and responsibility.
Rather than repeat their descriptions of the principles and
structure of the plan, today I will focus on the urgent need for
health care reform and the substantial benefits it will bring for
workers, business, and the economy.
The Cost of Doing Nothing
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Even before the Administration's plan was unveiled, special
interest groups, lobbyists, and sentries of the status quo were out
in full force. Foremost among their dire predictions has been the
complaint that we can't possibly afford to provide real health
security for all Americans.
Mr. Chairmen, Members of the Committee, if there is one point
we must agree upon, it's that we can't afford not to reform this
badly broken health care system. Exploding health care costs are
choking our economic competitiveness and robbing American workers
of the fruits of their labor. Fundamental change is needed to
ensure our future prosperity and security.
Americans will spend over $900 billion on health care this
year. Next year, this amount will rise to nearly a trillion
dollars. Since 1980, the nation's health costs have nearly
quadrupled, growing at 2-3 times the rate of inflation. Health
care's share of the gross domestic product (GDP) has risen from 9%
to 14% during this period. If medical costs continue growing at
this pace, health expenditures will be over 18% of GDP by the year
2000 and will swallow up 40% of all the real per capita GDP growth
we will achieve from 1993-96. No other advanced industrialized
nation spends more than 10% of GDP on health care.
These soaring costs are a function, in part, of a bloated and
inefficient administrative structure. Over $45 billion of health
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care expenditures went for administrative expenses in 1992. And no
wonder. Doctors, nurses, and hospital administrators must contend
with 1500 different claims forms, most of which must be filled out
by hand and submitted to more than 1000 different health insurers.
We have heard endless horror stories about physicians and nurses
spending hundreds of hours each year on paperwork instead of
patient care. And on top of all this, fraud and abuse may account
for up to 10% of U.S. health care costs.
Every dollar our society unnecessarily spends on health care
is a dollar we can't spend on education, training, infrastructure,
environmental protection, and other important needs. For American
families, every dollar unnecessarily spent on health care is a
dollar that can't be spent on food, clothes, transportation,
household goods, tuition, or other expenditures that improve the
quality of life.
Business currently spends over $200 billion on health care.
Real business spending on health care per employee has risen by
200% since 1970. For business, every dollar unnecessarily spent on
health care is a dollar that cannot be invested in wages, capital
improvements, marketing, workforce development, or R&D.
Remarkably, business health care expenditures now nearly equal
after-tax profits.
The cost of providing health care is a major source of
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contention between labor and management. This issue has been a
major concern in [insert number here] percent of labor-management
disputes.
These exploding health care costs are putting American
companies at a competitive disadvantage in the world marketplace.
For instance, health care costs add $1100 to the cost of an
American car -- double the burden carried by Japanese imports.
This disparity will continue to widen as heavy corporate
obligations for retiree health care come due.
Health care costs are so high partly because $25 billion in
costs for uncompensated care are shifted to companies that do
provide insurance. Many people who cannot afford insurance wait
until they are acutely ill to seek emergency room health care.
Since these people cannot afford to pay for this expensive
treatment, these expenses are shifted to those who can afford to
pay for care, the insurance companies. That cost shows up in the
rapidly rising price of premiums charged companies providing health
care coverage.
As the President said in his address last month, rising health
care costs are a special nightmare for small business, an important
source of entrepreneurship and job creation in this country.
Health care premiums for small businesses are up to 35% higher than
for large corporations. Even so, a majority of workers in
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businesses with less than 100 employees work in companies that
provide health insurance. Small firms that provide insurance are
at a competitive disadvantage with respect to both large firms and
small businesses that do not provide coverage. To add insult to
injury, the cost of premiums for small companies that do insure is
so high in part because they are subsidizing the health care costs
of their competitors' uninsured employees.
Rising workers' compensation costs are further increasing the
health care burden on American firms, both small and large.
Between 1980 and 1985, workers' compensation medical costs grew
more than 1.5 times faster than medical costs generally. They now
account for more than $16.8 billion a year in health expenditures,
or about 40% of total workers' compensation costs.
American workers spend $55 billion a year on premiums and
out-of-pocket costs. In addition, the excessive cost of health
insurance translates into lost wages or reductions in other forms
of compensation. It is estimated that the average worker today
would be earning $1000 more per year if the cost of health
insurance had not outpaced wages over the past 15 years. If the
cost of health insurance continues at the current pace, by the year
2000, workers may lose another $650 in annual wages. The Brookings
Institute has estimated that rising health care costs have consumed
58% of workers' potential wage increases since 1980, and,
unchecked, would soon consume 100%.
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Skyrocketing health care costs are only part of the problem
for American workers. Of the 37 million uninsured in this country,
almost 85% are workers and their families. Millions more American
workers are, as the President said, just a pink slip away from
losing their insurance. The tragedy of job loss is compounded by
loss of health insurance. Surveys show that up to 30% of workers
are locked into their current jobs because they fear their new
employer may not offer insurance, or because someone in their
family has a preexisting condition that would not be covered if
they switched jobs.
Concerns about health insurance also contribute to "welfare
lock." Studies show that a substantial number of non-working
welfare recipients would be more likely to work if they could be
assured of continuous health care coverage.
Among part-time workers, only 28% of those who work in large
firms, and 6% of those who work in small firms, participate in
health care plans at least partially supported by employers.
Temporary workers have an even harder time qualifying for medical
benefits.
The Remedy: The Clinton Plan
Let me move to the specific job effects of President Clinton's
health care reform plan. The benefits of the plan can be best
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understood by analyzing the job consequences under the following
four-point framework:
1.
Competitiveness -- Lifting the extraordinary burden of
health care costs from American companies will increase
their competitiveness, resulting in higher profits, more
investment, higher wages, and more jobs.
2. Worker Mobility -- Enabling people to keep their health
insurance when they find a better job or leave welfare to
join the job market will end job lock and welfare lock.
Guaranteed coverage will also free individuals to join or
start new businesses.
3.
New Jobs -- Universal coverage will increase the demand
for health care services and therefore expand the number
of health-related jobs. For instance, dramatic growth in
the use of home health care services will result in a
significant increase in number of people needed to care
for people at home.
4.
Low Wage Workers -- The Clinton plan is designed to
minimize any potential adverse employment effects on low-
wage workers.
1. Competitiveness
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Soaring health care costs are weighing down the
competitiveness of American firms. The cost per product for health
care in the United States is apt to be much higher than the health
care cost per product manufactured in other countries. That makes
our businesses less competitive, and less successful in the
marketplace. When we get health care costs under control, we are
making American industry more competitive.
Under the Administration's reform plan, no firm that
participates in a regional alliance will pay more than 7.9% of its
total payroll for the guaranteed basic health insurance. This cap
will lower costs for most large corporations, making it easier for
them to hire future workers, give wage increases to existing
workers, and invest in training, capital, equipment, and R&D. They
can also lower prices to increase competitiveness. Firms with
older workforces will benefit from community rating and a reduction
in the cost of fulfilling their obligations to early retirees.
Firms will benefit from less-protracted labor-management disputes
as the issue of providing basic guaranteed health care benefits is
removed as a source of controversy. These effects will provide a
much needed shot in the arm for manufacturing firms, which have
borne more than their fair share of the nation's uncompensated
health care costs.
The small businesses that are currently providing health
insurance have a special stake in reform. While it is true that
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small businesses that now fail to insure their workers will pay
more under the new system (since they pay nothing now), small
businesses currently providing insurance will be much better off.
Here are some of the ways:
o
The pooling of small businesses into regional alliances
that are able to offer a community-rated premium will let
small firms realize the same administrative efficiencies
and cost advantages that large firms already enjoy.
Firms with less than 50 workers and low wages will be
eligible for discounts. Many small firms will pay as
little as 3.5% of total payroll on health insurance.
The Clinton plan will eliminate the free-rider problem
and level the competitive playing field between
businesses that currently provide insurance and those
that don't. Firms will compete on the basis of the
quality of their products and services, not on the
ability to avoid health care costs.
Small businesses are likely to experience less turnover
once they are able to provide workers with good health
insurance.
o
Administrative costs for small business should decline
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significantly. Small firms currently pay as much as 40%
of their health insurance expenditures on administrative
activities. The President's plan will shift most of
these administrative burdens to alliances, whose size and
efficiency will lower overall administrative costs.
These reforms will allow small businesses to better compete with
large firms and will enhance their ability to generate jobs and pay
higher wages.
The partial integration of workers' compensation medical costs
into the new system will help lessen the burden that these costs
impose on American industry. Under the President's plan, workers
who are injured on the job will receive care through their regular
health plan, and the doctor they have chosen. Employers will
continue to buy separate insurance through workers' compensation
insurance carriers on an experienced-rated basis. Regional
alliances will set fee schedules for workers' compensation cases.
This policy will ensure that the cost savings of health care
reform are passed on to the workers' compensation system, while
preserving the employer's incentive to maintain a safe and
healthful workplace. It also will eliminate wasteful disputes over
which provider will treat a work-related injury. And the fee
schedule will prevent providers from charging exorbitant fees for
workers' compensation cases.
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Large and small businesses alike will benefit from the plan's
increased-emphasis on preventive care. This will result in fewer
lost work days and a healthier, more productive workforce.
2. Enhanced Mobility and Other Benefits for Workers
The reform plan will provide substantial benefits to workers.
First, the guarantee of comprehensive coverage will eliminate job
lock, welfare lock, and other limitations on the mobility of
workers in and out of the workforce. As the President said, if you
switch jobs or lose your job, you're covered. If you're laid off,
you're covered. If you have a preexisting condition, you're
covered. If you're on Medicaid and you get a job, you're covered.
If you decide to retire early, you're covered. If you are a
part-time or temporary worker, you're covered. If you leave your
job to start a new business, you're covered.
As a consequence, people will no longer feel they cannot get
a better job because they fear that if they leave their present
job, they will lose their health insurance. People on welfare will
no longer feel that they cannot join the workforce, because they
are afraid of losing their health insurance. Individuals who would
like to start or join a small business will not be prevented by
fear of losing their own health insurance or by the prohibitive
costs and burdens of providing their employees with health
insurance.
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Second, by putting the brakes on health care inflation, the
President's plan will allow workers to pay lower premiums, earn a
higher income, and enjoy a better standard of living.
Third, the President's plan will guarantee workers a choice of
plans, both in the regional and corporate alliances. Only 29% of
companies with fewer than 500 employees currently offer any choice
of plans. Under the new system, workers, not employers, will
choose the plan that suits them best. They will have at least
three categories of choices in the reformed system: an HMO, a PPO
(preferred provider organization), and a fee-for-service plan.
And, in all likelihood, there will be several plans to choose from
in each of these categories.
Fourth, by requiring all employers to contribute to their
employees' health care coverage, the plan also eliminates the
incentive to hire people based on their health insurance status
rather than their productivity and qualifications. And firms will
no longer have an incentive to hire part-time and temporary workers
simply to avoid paying health care benefits.
3. The Reform Plan Will Create New Jobs and Occupational Shifts
Because the vast majority of large firms will pay less for
health insurance, they will have more funds available for better
wage increases, hiring new workers, and investment. Each of these
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results will stimulate the economy and increase employment. In
addition, small businesses that already provide insurance will see
lower costs under the reform plan, and will not face the
uncertainty of unbridled rising costs. As a result, these firms
also will be able to create more jobs and pay higher wages.
Increased demand for health care resulting from universal
coverage will likely lead to short-term increases in employment in
the health care industry. Thousands more nurses, physician's
assistants, home health aides, and other non-physician health
providers will be required to directly or indirectly support the
health care system during the first few years.
Undoubtedly, the purpose of much of the reform plan is to
reduce paperwork. We have seen an extraordinary increase in what
may be called the "paper health care industry." A lot of people
put data into computers and take data out of computers, monitor
forms and process paper. This does not generate health care, it
generates the monitoring of health care. These jobs would not grow
as fast; in fact, many of these jobs may be eliminated.
The plan will contain a workforce development proposal to
ensure an adequate supply and mix of health care workers in the new
system. This program will also create new training and employment
opportunities for workers in the health and insurance industries,
offering them a chance to move to higher-wage, higher-skilled
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health care provider positions or to switch from one field to
another.
4. Impact on Minimum Wage and Lower Skilled Workers
Finally, it is true that the cost of health care reform will
put some pressure on low-wage jobs in firms that do not currently
provide insurance. But this pressure will be greatly alleviated by
the discounts provided by the President's plan. With discounts,
firms in regional alliances will only spend between 15-34 cents an
hour more for minimum-wage workers. The empirical evidence shows
minimum wage changes of this magnitude have not had substantial
effects on employment in the past. Indeed, an increase of this
amount would not even bring the real value of minimum wage up to
its mid-1980s level and would provide an important safety net for
low-wage workers and their families. In any case, any worker who
loses his or her job during the health care reform transition
period will be eligible for enhanced retraining and employment
services through a comprehensive dislocated workers program which
the Administration will be developing in coordination with many of
you.
Conclusion
In short, we cannot afford not to reform our current health
care system. If we don't get costs under control and provide true
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health care security, many more jobs will be lost in the long-term
as American businesses of all sizes are forced to spend an
increasing share of their payroll on health care, eroding their
competitive advantage in the world marketplace.
Even when change is in the best interest of all Americans,
there is a natural fear of stepping beyond the status quo. I am
convinced that many concerns about the President's plan have little
to do with health care reform per se, and much to do with the
pervasive anxieties arising from economic and social changes that
are already affecting Americans. We cannot let these anxieties
paralyze us and prevent necessary reforms. Our health and the
health of our economy depends on our ability to provide health care
security at an affordable price for all Americans.
I look forward to working closely with the members of this
Committee in our efforts to improve the lives of American workers
and their families.
Reichit.dr3
10/25/93
15
10/20/93
15:35
OMB LRD/LWP
003
STATEMENT OF
KENNETH THORPE, Ph.D.
DEPUTY ASSISTANT SECRETARY FOR
PLANNING AND EVALUATION (HEALTH)
BEFORE THE
COMMITTEE ON LABOR AND HUMAN RESOURCES
UNITED STATES SENATE
OCTOBER 22, 1993
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Mr. Chairman and Members of the Committee:
I approach today's hearing with a special sense of excitement and
anticipation. As the President said, I believe we have embarked on a truly
historic journey. The President's Health Care Security Plan will restructure
our current health system SO that all Americans will have access to quality
health care at a price they and the Nation can afford. The plan builds on a
foundation of what works in the existing system and seeks to fix those parts
of the system that are broken.
BACKGROUND
The First Lady and her task force have put forward a comprehensive
proposal that will provide security, savings, quality, simplification, choice and
responsibility - six objectives that must be achieved In health care reform.
The Issues raised in health care reform are complex and difficult to resolve.
We continue to work on the policy and details of the President's plan, and
we value your advice and counsel as we work through the nuts and bolts of
the system.
At the outset, we must agree that our Nation has the resources to meet the
health care needs of all our oitizens, if we spend our health dollars wisely,
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It is the lack of rational spending in today's health care system. with costs
growing at twice the rate of the rest of the economy, that cannot be
sustained and must be dealt with in any approach to health care reform.
We need health care reform as an economic strategy -- -- to bring the growth
In health care In line with overall economic growth, and to be able to invest
our resources in areas other than health care. We need to fix the current
system's Incentives In order to Increase competition, Improve consumer
cholos, reduce administrative costs, Increase the negotiating power of small
businesses and individuals, and Impose budget discipline. The President
has proposed a plan to do this.
OVERVIEW
As we have discussed in other statements, there are three primary sources
of private and public funding that will support the President's plan:
premiums, savings, and tax revenues. This financing will support:
Coverage for all Americans with discounts for low Income
Individuals, small and low wage businesses, and early retirees,
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New long-term care and Medicare prescription drug benefits, and
Public health Initiatives.
Today, I will focus on the savings that will result from the Health Security
Plan.
Savings In Health Care Expenditures
In the plan we are proposing reforms that will result in savings in private and
public health spending. Assuring access to health care for the previously
uninsured or underinsured will by Itself yield savings. Primary care for these
newly Insured people will move out of emergency rooms - the most
expensive and least appropriate sites for such care -- and preventable
hospitalizations will decline. In this city, for example, poor children are
hospitalized for asthma five to seven times as often as middle class children
because they lack access to comprehensive outpatient care.
in addition, the private health care Industry will see immediate cost savings
upon passage of the President's health care plan as a result of
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administrative simplification, reform of the insurance markets, and stiff
penalties for fraud and abuse.
We have all heard countless grievances about the problems of administering
healthicare. By establishing uniform administrative procedures, we will out
much of the overhead and waste from the health care system. Steps we're
taking that will be of particular Interest to this Committee include:
Development of standard forms for enrollment, billing, claims, medical
records, and reimbursement. These forms will build on both Medicare
and private sector models, and will save money and time by simplifying
administration for consumers, providers, and health plans.
Reforming standards for automating Insurance transactions which will
help eliminate conflicting information, formate and definitions used by
health care providers,
Fraud is yet another high-cost factor of our health care aystem. The
President's plan increases the penalties for those who cheat the system and
commits more Investigative and prosecutorial resources to pursuing and
ultimately deterring such behavior.
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Our most substantial savings will be achieved through market-based forces
which will aggressively control costs through negotiation and competition.
The President's plan will make It possible for families, small businesses, and
Individuals to band together to get the same olout as big businesses,
allowing them to bargain for high quality care at affordable prices. We are
encouraged by local reforms that have already headed In this direction.
Consumers will be able to review annual quality report cards and choose
plans based on the value they get for their dollar. Each year, people will
have the opportunity to say yes or nay to their health care plan. This will be
a powerful mechanism for promoting efficiency and quality among health
care Insurers and providers.
While we expect that market incentives created by our health care reform
plan will control costs, the national health care budget will serve as a
backstop by limiting the growth of premiums in regional alliances to a
national Inflation factor anchored to the Consumer Price Index. The National
Health Board will adjust the budget for each alliance to reflect unusual
changes in the demographic and socioeconomic characteristics of the
population covered by the alliance.
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The National Health Board will calculate a per capital premium target for
each alliance weing the national per capita baseline target as a reference
point. For each alliance, the Board will adjust the national target for regional
variation in health care spending and for rates of underinsurance and
overinsurance. The alliances then negotiate with health plans in order to
meet the alliance premium target. If the target is exceeded, the amount
above the target is recouped from plans In the alliance area.
We are well aware of the controversy that surrounds the savings figures in
our plan. I want to assure the Committee of our ability to achieve significant
one-time savings In the early years of this plan as well as long run savings
from productivity improvement In the health system.
Significant health care expenditure reductions will result from eliminating the
email group and non-group insurance market; from standardizing and
streamlining hospital and physician reimbursement and reporting
requirements; from consumers switching to lower cost plans; and from
providers Improving their productivity.
Under the President's health reform plan, providers will have to examine
ways to make their systems more efficient - without sacrificing quality.
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"Business as usual" will no longer be acceptable - or profitable. We already
have many existing examples of how technology, quality Improvements and
heightened productivity can reduce costs and we have every reason to
believe the health care sector will respond positively to Incentives to reduce
costs.
We know, for example, under the prospective payment eystem, that the
more successful hospitals have learned to utilize their bed and equipment
capacity more efficiently, to employ labor in more creative and productive
ways, to manage inventories of supplies and medications much more
economically, and - perhaps most critically - to work with their medical
staffs to Identify and eliminate practices and procedures that are wasteful
and detrimental to high quality.
We have also seen that the more heart surgery, cateract surgery, or AIDS
treatment performed at a particular hospital, the lower the costs per case "
and the better the outcome. There are, in other words, significant and
Identifiable economies of scale In the treatment of many conditions.
And we've long known that the better managed HMOs use fewer specialty
referrals, lab tests, and invasive procedures; and produce better care than
typical fee-for-service practices.
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For years doctors, nurses, and hospital administrators have been saying me
that they could do things much more efficiently If only they weren't penalized
economically for doing so. Under the President's plan, health plans and
providers will finally have the right Incentives to increase productivity.
It wouldn't be fair to ask Americans and their employers to earry the burden
of financing a universal health care system without a promise from the
Government to do Its part in making the system as economically efficient as
possible.
Our plan. and virtually every Democratic and Republican plan that has
been proposed - recognizes that with national health care reform, we can
save money by lowering the rate of growth in Medicare and Medicald. Our
bill will Identify specific, soorable, line-by-line savings in the Medicare
program - an amount comparable to the savings proposed by the Senate
Republican plan, and less than the savings called for by some single-payer
proposals. And while the amount of our seven-year savings may seem high
today, we must keep in mind they will be taken from a future base of $1.4
trillion in projected Medicare spending over the years 1996 to 2000.
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At the same time, let me assure you that the President has no Intention of
putting Medicare beneficiaries at risk. The President is committed to a
strong Medicare program and, In fact, Medicare recipients will see their
benefits enhanced under our plan. Unlike a budget reconciliation bill, our
savings will be a result of a thorough reform of the entire system in which
everyone stands to gain. In the context of a plan that will bring down private
sector costs, we can achieve Medicare savings without shifting costs or
endangering beneficiaries' access to services. And reducing costs in both
sectors of the economy will serve to improve the long-term Integrity of the
Medicare trust funds.
Shortly, Mr. Chairman, we will be submitting to you the specifics of these
savings, and you will see that a substantial proportion are a result of
reducing or eliminating payments that now address the financial pressures
on providers created by uncompensated care. With universal coverage,
uncompensated care will be substantially reduced.
in addition to the Medicare savings discussed above, the President's plan
will also produce Medicald savings by reducing Medicaid disproportionate
share payments to States and by folding into the alliances the acute care
portion of the Medicald system. We also anticipate substantial cost offsets
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from other federal health programs such as the Defense Department's health
program and the Federal Employees Health Benefits program.
For additional revenues, corporations who choose to form their own health
alliances will be asked to pay an assessment. Employers in the regional
alliances will pay premiums that Include a contribution toward the costs of
biomedical research and health professions training incurred by our
academic health centers. Because academic health centers are so critical to
the continued high quality of our health care system, we believe It is fair to
ask all payers -- including the self-insured employers - to help support these
investments.
CONCLUSION
In conclusion, the President's Health Security Plan provides an ambitious
agenda for restructuring our Nation's health care system. The President's
plan provides a unified system to cover all Americans, one that is built
largely on the foundation of existing employer health coverage. with federal
assistance for low income individuals and small businesses. And the price
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of doing this is a shared responsibility that we can afford without
compromising quality or limiting the availability of necessary health care
services.
The President's plan calls for financial responsibility, fiscal prudence and
budgetary discipline In the way we set premium rates, select and pay for
Insurance coverage, and compensate providers for services they render.
We will ourb the dramatio growth of health care costs by linking cost
containment controls In both the public and private sectors. We have set
hard objectives, but ones I think we can agree are critical to the health and
welfare of this Nation.
We look forward to working with the Committee In the months shead to
forge a consensus on health care reform that promotes the improved health
status of our citizens and strengthens our national productivity.
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QUESTIONS & ANSWERS FOR ERSKINE BOWLES' HEARING
BEFORE THE HOUSE EDUCATION AND LABOR COMMITTEE
ON NOVEMBER 16, 1993
#1 The Administration previously advertised their health plan
as costing 82,800 for individual coverage and $4,200 for
family coverage. In testimony last week, the numbers for
1994 were changed to $1,932 for individuals and $4,360 for
families.
Health care in high cost urban areas today may cost twice
this much. When the President wont to New York, he said
that a family whose coverage costs over $8,000 today would
see the cost halved. It doesn't seen possible that a
regional health alliance could reduce their baseline
premiums in this fashion, virtually overnight.
My question is what the 61,932 and $4,360 figures actually
mean. would they be applicable to any given regional
alliance or would they vary alliance by alliance?
Answer
The $1,932 (single) and $4,360 (family) are the preliminary
estimates for health insurance premiums for the regional
alliances. They are based on 1994 numbers. The specific
numbers average will vary by region and by alliance.
While full reductions in premiums may not occur "overnight",
substantial savings should be achieved with further economies
over time.
Do these premiums represent a national average for only
regional alliances or for regional and corporate alliances?
Please break down the promium for the following and any
additional factors needed to fully explain the 1994 dollar
cost -- 1994 expected claims costs; increases for uninsured,
Medicaid, over 65, and presently underinsured groups;
induced demand; increases or decreases for insurer
expenses, alliance expenses, other expenses; decreases,
if any, for any controls (please specify which); increase
or decrease for uncompensated care; etc.
Answer
The premiums represent a national average for the regional
alliances only.
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The break down of the premium and dollar cost is explained in the
attached 33 page document titled "Methodological Description of
Health Care Reform Premium and Discount Estimates."
II actual premium bids in the baseline year crocod the
estimated baseline premiums, will alliances have to obtain
rebids or will the baseline for each alliance be adjusted to
the actual average premium bid?
Answer
The premium target bid will vary by regional alliance. If the
weighted average final bids from health plans are above the
target for a regional alliance area, then the National Health
Board would assess what action might be taken to assure that the
target is achieved.
#2 who pays for alliance shortfalls? Under section 1571 of the
Health Security Act, the Scoretary of HHS is given the role
OR auditing alliance performance in the area of financial
management including shortfalls. What is the procedure that
HHS will invoxe in the event that one of the regional
allianocs has a funding shortfall? How will the shortfall
be paid for and by whom?
Answer
The Secretary of HHS can make loans available through the
Treasury in order to cover any temporary period of cash flow
shortfall. The loans are to be repayable with interest over a
period not to exceed two years. Future premiums will be
increased or decreased as needed to allow for repayment. In
general, 11 total premium payments made by the regional alliance
to the health plans exceed or are less than the total estimated
by the alliance, then in the next year the premium amount io
reconciled -- either Increased or decreased.
#3 According to Secretary Shalala, the National Health Board is
"a minor oversight group with some functions." As I
understand the National Health Board, it appears to be much
more than a minor oversight group. The NHB will oversee all
cost containment requirements (p. 256), establish premium
tax factors (p. 257), develop a risk adjustment mechanism
for premium payments to regional alliances (p. 257),
establish minimum capital requirements for state guarantee
funds and health plans (p. 258 and D. 202), and promulgate
rules for how states pay the debts of a failed plan (p.
103), just to name a few.
The Health Security Act also gives the NHB the power to hire
whatever staff 1s needed, and delegate any function
necessary (P. 259). How many additional staff do you expect
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will have to be hired by not only the National Health Board
but by MMS and DOL to carry-out the Board's function?
Answer
The National Health Board will consist of seven members. Any
staff of the Executive Branch may be detailed to the Board to
assist the NHB in carrying out its duties.
Please describe the enforcement power of the National Health
Hoard. If the states do not conform to the regulation of
the Health Security Act and the National Health Board, who
will enforce these regulations? The National Health Board,
the Department of Labor, or the Department or Health and
Human Services, or whom?
Answer
If states do not conform to the regulation of the Health Security
Act and the NHB, the Board notifies the Secretary of Health and
Human Services. Upon receiving notice, the Secretary of HHS can
take steps to establish new regional alliances, which must meet
all requirements that apply to a regional alliance established
and operated by a participating state. Guaranty Funds must be
established by the secretary of HHS in order to provide financial
protection to health care providers and others in the case of a
failure of a regional alliance health plan established and
operated by the Secretary.
The premiums charged under the regional alliance (established and
operated by the Secretary or HHS) in the state shall be equal to
premiums that otherwise would be charged under a regional
alliance established and operated by the state, increased by 15
percent. The 15 percent increase will be used to reimburse the
Secretary of HHS for any administrative or other expenses
incurred as a result of establishing and operating the state
system.
#4 Do you consider the minimum health benefits package under
the President's plan a federal entitlement or a federal
mandate to the states and why?
If, as I understand, the small business, early retires, and
low-income subsidies provided by the federal government to
state health alliances are capped under the President's
plan.
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Answer
Under the President's plan, the minimum benefits package is not A
federal ontitlement or a federal mandate to the states. The
standard benefits package is a National standard and without it
market fragmentation would lead to "cherry picking," and the
dilution of competition in the health care industry. Health
plans will compete for customers on their ability to provide the
best quality and most efficient care. It would also be difficult
or impossible for consumers to compare the cost and quality of
available plans if they were not standardized. They would be
comparing "apples to oranges." Risk adjustment would be
difficult or impossible and a standard set of benefits is
necessary to calculate risk adjusted payments. Where benefits
ditter today, there can be no valid actuarial comparison of risk.
IN it your understanding that these subsidice will not be
characterised as federal antitlements?
Answer
They will be characterized as federal entitlements, but as capped
federal entitlements.
Perhaps you can help де understand exactly how the
President's plan can promise a fixed package of benefits and
say it can never be taken away when the primary source of
federal financing 1a subject to limits and when the total
amount of employer mandated contributions is subject to
unpredictable fluctuations year-by-year and alliance by
alliance. what mechanisms are available to the states and
health alliances to meet premium commitments, if the
combined state, federal, employer and individual
contributions prove insufficient?
Answer
OMB to supply answer.
#5 Under the Clinton plan, it is possible that the weighted
average premium for an alliance will increase by more than
the 5.2 or other percentage premium cap allowable under the
Health security Act. HOW will the Administration ensure
that the alliance lowers its rate of increase if it is
greater than the cap? It is possible that there could be an
increase greater than 5.2% in weighted average premium
without an increase in costs. If enough individuals choose
a higher cost plan in the second year, the weighted average
premium will increase by a number greator than the premium
cap. Will the National Health Board or HHS force regional
alliences to reduce the choice offered to individuals by
climinating some of the high cost plans in order to keep
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premium cost increases in line with the premium caps? Could
that result in the elimination of all fcc-for-service plane?
Answer
OMB to supply answer.
#6 Who is regional alliance eligible? Section 1571 of the
Health security Act defines the duties of the Secretary of
HHS. one of the duties that HHS must perform is the
auditing of alliance performance by ensuring all regional
alliance eligible individuals are enrolled in the health
plan. MY question is, who exactly is considered eligible?
Are resident altens considered eligible? HOW will illegal
aliens who request health care be treated under the
President's plan? will they be enrolled at the time of
their hospital or doctor visit? In fact, how will alions be
identified as illegal - by health providers or by whom?
Answer
Eligibility
An eligible individual is any person who resides in the U.S. and
who is a citizen or a national of the U.S., an alien lawfully
admitted for permanent residence in the U.S. or a long-term
nonimmigrant. Aliens lawfully admitted for permanent residence
in the U.S. are defined as an alien who is admitted as a refugee,
granted asylum, admitted for residence under the amnesty programs
under the INA, one whose deportation is withheld, an alien who
has been paroled inderinitely into the U.S. or who has been
granted an extended voluntary departure, an alien who is the
spouse or unmarried child under the age of 21 of a citizen or the
parent of a citizen over age 21 and has appliod for permanent
residence, and any other classes of permanent resident aliens as
the NHB recognizes. Long-term nonimmigrants include: aliens
entering under a treaty of commerce or trade and their families
and certain temporary workers and trainees.
Medicare-eligible individuals are entitled to benefits through
the Medicare program rather than through the HSA unless they are
qualified employees or spouses of qualified employees. Prisoners
(who are imprisoned by Federal, state or local authorities
following conviction as an adult) are not entitled to coverage
under the Act during the term of imprisonment.
Individuals will have the opportunity to register for particular
health plans. II they fail to do so, they will be required to
pick a health plan at the point of service.
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Emergency care for anyone in need w111 be available through
emergency rooms and community and migrant health centers paid for
through the existing Medicaid programs. Primary and proventive
care services will continue to bo provided through the Public
Health service programs. These services will be available since
it is necessary to protect the public's health. For example, it
is important that all children are vaccinated and that all
persons with active TB receive medical treatment.
When the Department of Health and Human Services finds a
regional alliance eligible individual who is not enrolled in
the plan, what recourse will HHS have to force individuals
into the regional alliance?
The Department of HHS will not be involved in this area. When an
individual needs service and has not joined a health plan through
a regional alliance, that individual will need to join a health
plan at the point of service.
#7 It was recently stated in the New York Times that "what you
pay would no longer depend so much on what you get.
Instead, it would be determined even more by where you live
and who you are grouped with."
I suppose the article was referring to the distribution
among regional alliances of the various high cost
populations -- some who may now be uninsured or insured
under government programs.
MY question is whether this kind of high cost concentration
and cost-shifting could result in businesses in alliances
that cover areas like inner oities paying more than
businesses in alliances that cover suburban areas? Would
you agree or disagree that these artificial boundaries will
create new disincentives for business location and favor the
employment of residents of low-cost areas?
Answer
Generally, today businesses in inner cities have a higher cost of
doing business than businesses in suburban areas. Under the
regional alliances, the cost differential is not going to bury
any more dramatically than is already experienced.
We disagree that regional alliances will create disincentives for
businesses to locate in low cost areas and favor the employment
residents from low-cost areas. community rating would make this
practice lllegal. Under the Health Security Act the
disincentives to relocate should decrease. The Health Security
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Act WILL not change economic realities such as Bast and West
coast cost of living differentials. But the Health Security Act
will taokle the problem of cost-shifting and the spiraling costs
or health care on many different levels. Through reform we will
see overall costs decrease, thereby leveling out the playing
field.
#0 TAO President's plan is quite complex and stretches over
1,342 pages. I presume that small employers who are
required to pay into regional alliances will continue to
have various recordkeeping and other obligations. Bruetly
what is the extent of the employer's responsibility? What
kinds of records, reports, and so forth would have to be
maintained and to whom would they be forwarded?
Answer
The employer under the HSA must maintain records, as is done
today, on the total number of employees who work full time, part-
time, their hours worked, the employer premium contributions made
for each employee and each employee's family status. on a
monthly basis the employer must send this information to the
regional alliance and any changes in qualifying employee status.
on a yearly basis, the employer premium payment must be
reconciled to take into account employer/employes discounts and
any other discrepancies.
would employers also be responsible to disseminate
information on the myriads of health plans offered in, say,
a state-wide alliance?
Answer
No, an employer does not disseminate Information on the variety
or health plans. It is the regional alliance that provides that
information.
#9 In general, small business is the major source of new jobs
in this country. MY first question is whether or not your
agency (SEA) has determined the number of small businesses
and employees who are now engaged in the health insurance
and health care industry?
Answer
According to the 1991 U.S. Department of Labor, Bureau of Labor
Statistics, Employment and Earnings, 4,324,000 individuals were
employed in small businesses relating to the health services
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industry. These Industries Include physician offices, dental
offices, nursing/personnel, medical dontal labs, and outpatient
care facilities.
secondly, what is the magnitude of effect of the President's
plan on those existing businesses?
Answer
OMB to supply answer.
#10 Under the President's plan, there appears to be great
emphasis placed on so-called "subsidies"--that is, subsidies
for small employers, for early retirees, for employers whose
payroll costs exceed 7,53, and so forth. My question do, if
those receiving these subsidies are not paying their own
way, who then will pick up the costs for those being
subsidized? Please quantify the amount and source of
financing for each subsidy type.
Answer
First, everyone will pay something, even if it is just nominal
cost-sharing. There will not be one particular group which must
pick up the costs of those who will be subsidized. Funding will
come primarily from the incorporation of the acute portion of
Medicaid into the overall system. Slower growth in tax-exempt
health spending, excluding health insurance from cafeteria plans,
tax changes and corporate retiree assessments, a reduction in
debt service and increasing the federal orwise tax on cigarettes
will assist in the contribution to those needing to be
subsidised. The discounts are a Federal guarantoo and it is a
capped untitlement.
#11 Mombers of your staff recently held a meeting with
approximately 40 small business owners to analyse the effect
of President Clinton's health care plan on small companies.
The business men and women vere led through a computer
program that prepared various caloulations based on their
total number of employees, average wages, their anticipated
costs of insurance and the value of the government subsidies
proposed by the Administration. Because many Members of
this committee have substantial contact with small business
each and overy day, would you please share with us the
methodology used to prepare this small business analysis?
would you also provide the members of this Committee # copy
of the program used to prepare the analysis?
Answer
The methodology used to prepare the small business analysis in
which we invited omall business owners to analyze the cost under
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the President's plan looked at the fundamental components of the
plan that were available at that given date. He have produced à
worksheet whion can be followed to help estimate coats. A copy
18 enclosed.
Did the USA prepare a report regarding the impact of the
President's plan on small businesses as a result of this
meeting, if so would you please provide us & copy of those
findings?
Answer
The SBA has not yet prepared any studies regarding the impact of
the President's plan on small businesses. However, because of
the considerable stake that our nation's small businesses have in
the resolution of the current health care orleis, the SDA's
office of Advocacy has been very involved in the GRA's efforts to
educate pollcy makers and small businesses about health care cost
and coverage. Advocacy currently 1m. working on two studies that
are relevant to the debate. The first, recently received in
draft from the University of Kentucky By the Office of Advocacy,
"Measuring the Uninsured by Firm size and Employment Status,"
uses 1992 Census Data to contrast the level of insurance offered
by firms of differing sizes with percentages of employees in
those firms that are covered by health insurance from some
source.
The second study, to be conducted by Lewin-VHI, will examine
differences in cost and coverage of benefits offered to employees
by firms of differing sizes. The questionnaire for this study is
about to be field tested and, 11 the field test is successful,
will be sent to approximately 6000 firms to gather nationally
representative data by firm 51% and demographic oharootcriation
(such as employee age, marital status, gender as well no employer
data by industry and geographio region).
These two studios will provide information that will be vital to
the ability of the office of Advocacy to play a very active role
in ropresenting the small business point of view in health care
reform as it moves through the Congress.
#12 Many employers, particularly the self-insured, have been
developing innovative ways of containing health care costs.
Many have successfully out their costs below 7.9 percent or
payroll. what provisions in the President's plan will
encourage employers under regional alliances to promote good
health habits and contain health spending?
Answer
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Cost sharing by employees under the plan will encourage employees
to make informed health choices.
#13 The small Business Administration, along with the Department
of Commerce, opont approximately $82,000 to prepare and
publish 200,000 copies of a glossy brochure which outlines
the Administration's health care plan, In response to
congressional criticism, members of your staff have called
the brochure "educational," yet no mention was made of the
five other health care plans presently being considered by
Congress. Does the SBA plan to produce similar
"educational" broohures for the five other health care
plans?
Answer
unfortunately, due to the lack UL **5001000 at this time, the SBA
does not plan to produce any additional health care brochures.
Within the limits of our resources, we AFC willing to analysa
competing plans and disseminate information about them to small
business owners.
#14 Mr. Bowles, it is my understanding that the latest version
of the President's plan still excludes any employer with
less than 5,000 full-time employees from establishing a
corporate alliance. can you explain why an employer with
4,000, 3,000 OF even 500 employees should be prohibited from
forming a corporate alliance and self-insuring? what is
"magic" about the $,000 employee threshold? Even allowing
for such a high threshold, would the Administration,
consider allowing employers who might whare a common
association (1.2. & local chamber of Commerce, an inductry
association, etc.) and, together, have 5,000 employses, to
form a corporate alliance and solf-insure? If not, why not?
I also understand the President's plan would require
corporato alliances to: (1) pay up to a 18 payroll tax; (2)
*otablish trust funds and reserves; (3) contribute to a
newly established federal guarantee fund; and (4) meet cost
controls and other reporting requirements. In addition,
neither the companies nor their employees would be eligible
for the premium cap, early retires, and other individuals
subsidies which are made available only under the regional
alliances.
Answer
The question of the size or the alliance has been a difficult
issue. it is important to spread risk so that omall employers
(firms of 100 or less), do not have to absorb the total cost of
insuring Medicaid enrollees, the unemployed, the disabled, and
high cost individuals who have previously been denied insurance
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because of preexisting conditions. In particular, we need to
design regional alliances with surficient critical mass to
achieve effective community rating. We also need to ensure that
the alliances are not victims or adverse selection. We fear this
would happen if companies were allowed freely to opt in or out
of the system. Largely for those reasons, we have chosen to
require all smaller employers to participate in the regional
alliances. We firmly believe that the benefits of the regional
alliances as effective purchasers of health care will work to the
advantage of its corporate participants.
Can you please explain why the Administration would erect
these kinds of disincentives to the formation of corporate
alliances?
Answer
The HSA would require corporate alliances to pay a 1.5% corporate
assessment, not a 1% payroll tax. It is important to distinguish
between micromanaging - as the Federal government perhaps has
done with the Medicare program -- and setting guidelines within
which statos and regional alliances can carry out the day-to-day
operation of the system. The regional Alliances do not add an
additional level of bureaucracy; rather they are "purchasing
pools" which will increase buying power of consumers and small
businesses by banding them together in groups which purchase
quality health insurance at discounted prices. These alliances
also can be thought of as large risk pools, pooling individuals
together to bring down the costs for all.
IS this an attempt to force everyone into the government run
health alliances?
Answer
NO, most definitely not. If the President had intended to run a
government system, then he would have chooon the single payer
system over the employer based system.
#25 According to recent press reports, the SBA gave 10,000
copies of the health care brochure directly to the
Democratic National Committee for it to distribute as a part
of its grass-roots lobbying efforts. Can you provide for
the Committee now the decision made to provide the 10,000
copies to the DNC, and whether as of today the DNC has
reimbursed the American taxpayers for its 10,000 copies?
Answer
The SBA aid not give 10,000 copies to the DNC. The DNC will pay
the costs of their 10,000 copies UF the brochure.
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#16 It seems to MO that President Clinton's Health security Apt
discriminates against larger employers and higher wage
employers. The plan includes шапу disincentives for large
companies to continue their self-insured health plans. A
one parcent payroll tax, ostablishing and paying into a
reserve, and moeting cost controls and other reporting
requirements are just a few of the disincentives inherent in
the plan.
The plan also discriminates against higher wage employers.
They are not given the subsidies that lower vage employers
are offered. This appears to be an incentive that keeps
average wages down.
Why does the Health Security Act treat less favorably thome
employers who offer higher average wages and who may already
offer good health benefits?
Answer
The Health Security Aot does not treat employers who pay higher
wages and offer good health benefits less favorably. There are
many incentives for small and large amployers. Large employers
(with less than 5,000 employees) who now see an ever increasing
percentage of their payroll going toward health care insurance
will see it drop to 7.9% 1£ they Join the regional alliance and
will also FOR lower premiums in general. Those employers will
see the burden of early retiree health care costs reduced.
Standardized benefits and a single insurance form will
dramatically lower business costs and a more equitable
distribution or the costs of retiree health care will help
American business to be more competitive. The discounts offered
to lower wage employers W121 only be offered to omall business,
which would be seriously hurt If they did not receive assistance.
under the HSA, small businesses will be able to get the same
coverage at the price that most large businessot do today.
#17 My concern is over the increased obligation of small
employers under the plan. can you give me an estimate of
the number and percentage of small business with less than
100 employees who will have new or increased contribution
obligations under the President's health plan?
Answer
According to the 1991 ICF/Lewin Retirement Plan Survey, 934 of
firms with employees between 25-99 provide health insurance for
their employees. 50.0% of the employers with employees botwoon
1-24 provide health insurance. The percentage of small
businesses which will have an increase in contribution
obligations under the President's plan will vary depending on
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whether the firm currently does or does not offer insurance and
how much they are paying for that insurance. It is obvious that
those firms that currently do not offer health insurance will
have a new obligation. The final result, however, will be that
the many small films that currently do provide insurance will be
able to offer a comprehensive plan at a more affordable rate.
#18 MY question involves the subsidy in regional alliances for
early retirees who are age 53 or older but not eligible for
Medicare. First, what is the criteria used to define
"early retiree" -- does this include the individuals
cligible for a pension or could anyone age 55 quit working
and receive the government subsidy equal to sor of the cost
of an average health plan? Could this include the self-
employed and small business employees who would be laid off?
Answer
The American Health Security Act defines a retiree eligible for a
government payment for the 80% employer share of premium as an
individual who: 1) is at loast 55, but less than 65 years of age:
2) is not employed on a full time basis; 3) would be aligible
(under section 226 (a) of the Social security Act) for hompital
insurance benefits under Part A is the individual were 65 years
of age based solely on the employment of the individual; and 4)
is not a Medicare eligible individual. Employers who currently
provide a retiree health benefits package must pay the 20% family
share of the premium for their former workers.
what kind or price tag does the Administration place on this
early retirement subsidy and what will bu the source of
financing?
Anewer
The early retirement benefits are now estimated to cost
approximately $12 billion over the 1995-2000 period. All non-
workers, regardless of age, are eligible for subsidies on the
eighty percent (or employer) share if their non-wage income is
less than or equal to 250 percent of poverty. The $12 billion
dollars noted here reflects the extra cost of subsidizing early-
retirees beyond the regular subsidy to non-working families. In
addition, government subsidies are offset somewhat by individuals
aged 55-64 who work part-time or who have employed spouses. For
example,a 58 year old man who is working half time will have
fifty percent of the employer share paid by hiis employer and
fifty percent by the government. No government subsidy is
necessary when a retiree has « full-time working spouse. These
factors combine to limit the costs to the government of this
provision.
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will employers who currently have an obligation to pay for
early retires health coverage be excused of this obligation
under the Procident's plan? If so, please provide year by
year estimates of current employer obligation and the
reduced obligations under the President's plan.
Answer
we do not yet have an industry-by-industry estimate of who will
receive the $12 billion in fiscal relief. This would require
detailed information, not currently available, on current retires
health provisions in each industry.
#29 My concern relates to the basis on which employers will have
to pay into regional hoalth alliances. My understanding is
that employer premium costs will be determined solely by the
bidding process and by the structure of the alliance their
employees are assigned to -- rather than the health care
choices of their employees. There SOOQK to be numerous
factors establishing the "weighted average premium" of which
employers may pay 80%. Some of these factors in the 1342
page document include: the demographics of the alliance, the
"uniform per capita conversion factor", "reinsurance
methodology", "premium class factors", "risk-adjustment
factors", AFDC, BSI, administrative costs, penalty
adjustments for exceeding the premium target, and 50 forth.
Could you please explain what role these factors have in
establishing a small employer's contribution?
Answer
The employer premium costs will be determined by the bidding
process between the health plan and the regional alliance. The
bidding process is something that health plans (groups of dootors
and insurance companies) must negotiate with their regional
alliance. Employees are not "assigned" but will join the
regional alliance closest to where they live and choose the
health plan they would like to join. The various factors:
demographics; "uniform per capita conversion factor;" reinsurance
methodology; premium class factors; risk-adjustment factors;
administrative costs; etc, all will factor into the health
insurance premium costs within regional alliances.
since these factors are not specific to each employer's
workforce, on what basis would you agree or disagree that
this employer mandato 10 anything other than a tax set by
such alliance?
Answer
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The employer mandate 18 not a tax. The 1967 Report to the
President's commission on Budget concepts clearly states what $
tax is and is not. According to the Commission, an item is not &
tax if it has a price that is used by the consumer to purchase a
service. As an example, mandatory auto insurance is not
considered a tmx because the individual is paying for goods and
services received.
In what respect do you think that regional alliances build
on the present employer-based system?
Answer
The President's system or regional alliances builds upon the
current employer-based system, but 15 superior because it puts
the choice of health UHIS plans where it should be -- with the
consumer. The regional alliance system gives individuals
information, and empowere Wassess unenoumbered by employer limits
on the number or type or plan they select, to make decisions
about thoir health coverage.
OUTLINE OF TESTIMONY
BY
ARTHUR S. FLEMMING
Former Secretary of Health, Education and Welfare
BEFORE THE
SENATE COMMITTEE ON FINANCE
September 14, 1993
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I. Introduction
A. I am honored by the opportunity to appear before the Committee on
Finance to discuss Senator Moynahan's proposal to make the Social
Security Administration a separate agency.
B. First of all, I would like to express my deep appreciation for the
creative leadership which Senator Moynihan has provided the Social
Security system.
1. He has shown his deep interest in improving the system.
2. In doing so, however, he has always demonstrated that his
primary interest is in the individual-how he can help him
in his journey through this life.
3. I would like to apply his test by asking: Would his proposal
make it possible for the national community do a better job in
helping the individual deal with some of the hasards and
vicissitudes of life?
II. Body
A. The Save Our Security coalition (sos) which I represent today, has
been led in their consideration of this issue, by two men who were
closely associated with the development and implementation of the
system.
B. I refer first of all to the late Wilbur Cohen who founded SOS in 1979.
In testimony on behalf of SOS on July 30, 1984 he said:
"We believe the policy and administration of the agency should be
under a Board. This was the majority view of the National
Commission on Social Security (1981) on which Robert J. Myers and
I served. It was the view also of a substantial number of the
members of the National Commission on Social Security Reform
(1983).
"I was the Technical Advisor to the Social Security Board for the
entire duration of its existence (1935-1946) and subsequently
Technical Advisor to three Commissioners of Social Security
(1946-1955). Then as Assistant Secretary, Under Secretary and
Secretary for eight years (1961-1969). During this time, I
worked closely with two Commissioners.
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"Thus, I had nearly thirty years of close working association
with several different organizational structures in Social
Security. From my experience, I strongly favor removing SSA
from HHS and restoring it to the independent status of a Board
as it was from 1935-1946. It worked well then and I believe
would work even better now."
2.
It would be difficult for me to over-emphasize the support for
his position that Secretary Cohen received from the members of
SOS.
3. In my judgment the events of the late 80s would simply reinforce
his conviction that a three-member independent board "would
work even better now."
C. In the second place I refer to the testimony of former
Commissioner Robert Ball.
1. In testimony before the Subcommittee on Social Security and Family
policy of the Finance Committee he said:
"I was Commissioner of Social Security from 1962 to 1973. Prior
to my appointment by President Kennedy I was a civil service
employee of the Social Security Administration for some twenty
years. Since leaving the government. in 1973, I have continued
to write and speak about Social Security and related programs.
"I am testifying today as the Chair of the Independent Agency
and Administration Committee of the Save Our Security (SOS)
Coalition.
"sos believes it would add significantly to public understanding
of the trustee character of Social Security as a retirement and
group insurance plan if the program were administered by a
Board directly under the President.xx
"Just about every American has a major stake in protecting the
long-term commitments of the Social Security program from
fluctuations in politics and policy. The administration of
Social Security by a separate Board would strengthen public
confidence in the security of the long-run commitments of the
program and in the freedom of the administrative operations from
short-run political influence. It would give emphasis to the
fact that In this program the government is acting as trustee
for those who have built up rights under the system."
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D. Why did the late Wilbur Cohen and Robert Ball state, and re-state
before the appropriate committees of the Senate and House of
Representatives that Social Security should be handled by a bi-partisan
independent board?
1. They saw Social Security as the greatest contributor to
the prevention of poverty that has been made by any program
in world history.
2. They lost confidence in the arrangement for the leadership of
Social Security because they saw that the leadership could not
prevent the infiltration of a belief that you could promise the
people of this country certain benefits and then tell them you
could not provide those benefits promptly because of lack of money.
3. They saw the system, under the leadership provided by present law,
sharply deteriorate.
4. They saw that leadership in the 1980s unable to prevent an
arbitrary and capricious downsizing of the Social Security
Administration from 80,000 to 63,000.
5, They saw the leadership of the 80s unable to deal with я growing
backlog of disability cases which the budget says will reach
1,320,000 by the end of 1994.
a. This means that persons who file an application for
disability will wait an average of 7 or 8 months
before they get a reply.
b. Persons who file an appeal will wait for an average of
two years for action.
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E. Here is the testimony of the two leaders who actually devoted the
best years of their live> to the Social Security system:
1. Wilbur Cohen's;
"I sincerely believe that if there had been a Board administering
the disability provisions of the Social Security program in 1981,
we would not have had the unfortunate recent experience with
the administration of the disability program. With a bi-partisan
Board, there very likely would have been a "whistle blower" on
the Board who would have prevented or moderated the precipitate
and uncompassionate implementation of the 1980 amendments.
"Moreover, I also believe a Board would never have unanimously
opposed the House-passed disability amendments in the Senate
this year. Nor in my opinion would a Board have defied the
Courts as has the present Department and Administration.
2. Robert Ball's:
"It seems unlikely that under a Board form of organization we
would havehad the major shifts in the administration of the dis-
ability program that has characterized the last several years.
A Board with a minority member would have been unlikely to remove
hundreds of thousands of people from the disability rolls and later
restore benefits to a large percentage of them through the
appeals process. Nor would a Board have adopted a policy stance
that caused many Governors under contract with Social Security to
refuse to carry out Social Security's directions. And a Board
would have been unlikely to pursue a course overturned by the
courts in literally hundreds of cases.
"I believe, too, a bi-partisan Board would have looked at some of
the less visible operations of Social Security--the selection
of representative payees and an accounting of their trusteeship,
the reinvestigation of disability recipients diaried for
possible recovery, post-entitlement work generally and the
administration of the Supplemental Security Insurance program,
including the vigor of the outreach program.
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F. Personally, I would like to see the law worded so that a President
would be encouraged to include the Chair of the Social Security
Board as a member of his Cabinet.
1. I would like to see the chairmanship of the Board serve a
term which parallels the term of the President.
2. I would like the Chair to be a person of outstanding
qualifications.
a. Such a person could assist the President and the
Cabinet in their discussion of major Social Security
policies.
b. Such a person could also assist the President as a
general adviser.
III. Conclusion
A. I have concluded that when dealing with a people's program-and
certainly Social Security is a people's program-it is imperative to
keep the authority to act as close to the grass roots as possible.
1. It is only as we do 50 that the field official will be able
to meet promptly the individual's need.
2. We should not, by layering, create a situation where action
to meet human need is delayed indefinitely while clearances
are obtained from a higher authority.
B. T was a member of President Eisenhower's committee on government
organization for eight years--the other two members were Nelson
Rockefeller and Milton Eisenhower. Don Price became e member when
Nelson Rockefeller became Governor of New York,
OSON:18 LNES
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1. I was given the responsibility of representing the committee
in developing a reorganization plan for creating what became
the Department of Health, Education and Welfare.
2. We made a mistake. Instead of providing for layering above
the Social Security agency we should have recommended that
Social Security be established as a department with a mandate
to delegate authority to act. whenever possible, to the field
official who comes in contact with the needs of a member of the
system.
3. By the same token Congress makes a mistake of layering when it
requires departments to clear all kinds of administrative action
with the Office of Management and Budget, or some other central
agencies.
C. We create layers above the point where the Federal official comes Into
contact with human need in order to prevent mistakes.
1. Yes, mistakes will be made.
2. Often times the regulations we promulgate calling for review at
higher levels cost far more in dollars and cents and certainly
far more in the morale of federal employees at the grass roots.
D. Finally, Mr. Chairman, I know that your bill calls for a single
administrator.
1. Social Security is for all the people.
2. I feel that when the Republicans are in power it is wise to provide
a Democratic voice, and likewise when the Democrats are in power
it is wise to provide for a Republican voice.
3. As a Republican I ask that you give this careful consideration.
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