[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]
EXAMINING THE IMPACT OF STATE MANDATES ON EMPLOYER PROVIDED HEALTH
INSURANCE
=======================================================================
HEARING
before the
SUBCOMMITTEE ON EMPLOYER-EMPLOYEE RELATIONS
of the
COMMITTEE ON EDUCATION
AND THE WORKFORCE
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED NINTH CONGRESS
SECOND SESSION
__________
May 4, 2006
__________
Serial No. 109-40
__________
Printed for the use of the Committee on Education and the Workforce
Available via the World Wide Web: http://www.access.gpo.gov/congress/
house
or
Committee address: http://edworkforce.house.gov
______
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27-984 WASHINGTON : 2006
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COMMITTEE ON EDUCATION AND THE WORKFORCE
HOWARD P. ``BUCK'' McKEON, California, Chairman
Thomas E. Petri, Wisconsin, Vice George Miller, California,
Chairman Ranking Minority Member
Michael N. Castle, Delaware Dale E. Kildee, Michigan
Sam Johnson, Texas Major R. Owens, New York
Mark E. Souder, Indiana Donald M. Payne, New Jersey
Charlie Norwood, Georgia Robert E. Andrews, New Jersey
Vernon J. Ehlers, Michigan Robert C. Scott, Virginia
Judy Biggert, Illinois Lynn C. Woolsey, California
Todd Russell Platts, Pennsylvania Ruben Hinojosa, Texas
Patrick J. Tiberi, Ohio Carolyn McCarthy, New York
Ric Keller, Florida John F. Tierney, Massachusetts
Tom Osborne, Nebraska Ron Kind, Wisconsin
Joe Wilson, South Carolina Dennis J. Kucinich, Ohio
Jon C. Porter, Nevada David Wu, Oregon
John Kline, Minnesota Rush D. Holt, New Jersey
Marilyn N. Musgrave, Colorado Susan A. Davis, California
Bob Inglis, South Carolina Betty McCollum, Minnesota
Cathy McMorris, Washington Danny K. Davis, Illinois
Kenny Marchant, Texas Raul M. Grijalva, Arizona
Tom Price, Georgia Chris Van Hollen, Maryland
Luis G. Fortuno, Puerto Rico Tim Ryan, Ohio
Bobby Jindal, Louisiana Timothy H. Bishop, New York
Charles W. Boustany, Jr., Louisiana [Vacancy]
Virginia Foxx, North Carolina
Thelma D. Drake, Virginia
John R. ``Randy'' Kuhl, Jr., New
York
[Vacancy]
Vic Klatt, Staff Director
Mark Zuckerman, Minority Staff Director, General Counsel
------
SUBCOMMITTEE ON EMPLOYER-EMPLOYEE RELATIONS
SAM JOHNSON, Texas, Chairman
John Kline, Minnesota, Vice Robert E. Andrews, New Jersey
Chairman Ranking Minority Member
Howard P. ``Buck'' McKeon, Dale E. Kildee, Michigan
California Donald M. Payne, New Jersey
Todd Russell Platts, Pennsylvania Carolyn McCarthy, New York
Patrick J. Tiberi, Ohio John F. Tierney, Massachusetts
Joe Wilson, South Carolina David Wu, Oregon
Marilyn N. Musgrave, Colorado Rush D. Holt, New Jersey
Kenny Marchant, Texas Betty McCollum, Minnesota
Bobby Jindal, Louisiana Raul M. Grijalva, Arizona
Charles W. Boustany, Jr., Loiusiana George Miller, California, ex
Virginia Foxx, North Carolina officio
[Vacancy]
C O N T E N T S
----------
Page
Hearing held on May 4, 2006...................................... 1
Statement of Members:
Johnson, Hon. Sam, Chairman, Subcommittee on Employer-
Employee Relations, Committee on Education and the
Workforce.................................................. 1
Prepared statement of.................................... 3
Wal-Mart fact sheets..................................... 58
McCarthy, Hon. Carolyn, a Representative in Congress from the
State of New York, Chicago Tribune article................. 50
McCollum, Betty, a Representative in Congress from the State
of Minnesota:
Minnesota Public Radio article........................... 52
Atlantic Monthly article................................. 53
Statement of Witnesses:
Drombetta, Larry, president and CEO, H.R. Stores, Inc., on
behalf of the National Retail Federation................... 17
Pending State Health Care Mandate Matrix................. 18
Prepared statement of.................................... 24
Garthwaite, Craig, research fellow in economics, Employment
Policies Institute......................................... 6
Prepared statement of.................................... 7
Kelly, Paul T., senior vice president, Federal & State
Government Affairs, Retail Industry Leaders Association.... 26
Prepared statement of.................................... 27
Kofman, Mila, J.D., associate research professor, Georgetown
University................................................. 10
Prepared statement of.................................... 11
Additional Submissions:
Prepared statement of the United Food and Commercial Workers
International Union........................................ 60
EXAMINING THE IMPACT OF
STATE MANDATES ON EMPLOYER
PROVIDED HEALTH INSURANCE
----------
Thursday, May 4, 2006
U.S. House of Representatives
Subcommittee on Employer-Employee Relations
Committee on Education and the Workforce
Washington, DC
----------
The subcommittee met, pursuant to call, at 10:34 a.m., in
room 2175, Rayburn House Office Building, Hon. Sam Johnson
[chairman of the subcommittee] presiding.
Present: Representatives Johnson, Kline, McKeon, Platts,
Tiberi, Wilson, Musgrave, Foxx, Kildee, Payne, McCarthy,
Tierney, McCollum and Grijalva.
Staff Present: Robert Borden, General Counsel; Byron
Campbell, Legislative Assistant; Steve Forde, Communications
Director; Aron Griffin, Professional Staff Member; Jessica
Gross, Legislative Assistant; Richard Hoar, Professional Staff
Member; Kimberly Ketchel, Deputy Press Secretary; Jim Paretti,
Workforce Policy counsel; Steve Perrotta, Professional Staff
Member; Molly Mclaughlin Salmi, Deputy Director of Workforce
Policy; Deborah L. Emerson Samantar, Committee Clerk/Intern
Coordinator; Jody Calemine, Minority Labor Counsel; Michele
Evermore, Minority Legislative Associate/Labor; Tylease
Fitzgerald, Minority Legislative Assistant/Labor; Tom Kiley,
Minority Communications Director; Rachel Racusen, Minority
Press Assistant; and Michele Varnhagen, Minority Senior Labor
and Benefits Counsel.
Chairman Johnson. Good morning, everyone. A quorum being
present, the Subcommittee on Employer-Employee Relations of the
Committee on Education and the Workforce will come to order. We
are holding this hearing today to hear testimony on examining
the impact of State mandates on employer-provided health
insurance. Under committee rule 12(b), opening statements are
limited to the chairman, the ranking minority member of the
subcommittee. Therefore, if other members have statements, they
will be included in the hearing record.
With that, I ask unanimous consent for the hearing record
to remain open 14 days to allow member statements and other
extraneous material referenced during the hearing to be
submitted in the official hearing record. Hearing no objection,
so ordered.
Good morning, again. Let me extend a warm welcome to all of
you, to the ranking member, Mr. Andrews, who isn't here, and my
other colleagues who are here.
Most folks know I have a devout respect for democracy. Some
of the cornerstones of democracy include freedom and free
enterprise. Another hallmark of democracy is empowering States
and cities and counties to be the laboratories of ideas, and as
local areas experiment, the best ideas always seem to rise to
the top.
Today I want to hear what local areas are doing to find
health insurance solutions. Are they increasing the insured?
Are they protecting patients? Are the costs rising or
declining? We can use these test cases, if you will, to see
what works and what doesn't. In Congress, we have a civic
obligation to make sure that the proposals developing in the
States don't override Federal law. That is especially true when
it comes to health insurance because, one, peoples' lives are
on the line; two, the laws that govern many health insurance
plans are protected by Federal law called ERISA.
As you know, the vast majority of Americans with health
insurance have their coverage through an employer. Let's be
clear, employer-provided health insurance is a benefit to the
employee. It is not mandatory. Governments that value freedom
and free enterprise don't tell businesses how to operate. If
States are tinkering with ERISA, we must make sure that the
results are fair and have no unintended consequences, or,
worse, giant problems in the future.
Close to Capitol Hill, we all watched the State of Maryland
chart a new course. In Maryland, some believe that employers
must be forced not only to provide health coverage to their
employees but to provide a specific set or level of benefits.
For example, a much discussed law that recently passed in
Maryland seeks to penalize companies--well, at this point, only
a single company--that do not provide what politicians deem
adequate health insurance for employees. In short, the folks in
the State Capitol of Maryland are legislating what one company
must do for its employees. In my mind, mandating certain health
benefits on one company from a State Capitol, that is not
freedom and that is not free enterprise. I am very concerned
about what that would mean in the future for people, for States
and for companies.
There is such a thing as good government. Overreaching
government, it is not. Listen, as a former State legislator in
Texas, I am happy to see these State legislatures working on
solutions for the uninsured. However, I am deeply alarmed that
some of these proposals override the good intentions of ERISA,
the Federal law that governs employer benefits.
I am also concerned that these proposals largely ignore the
problem of skyrocketing insurance costs and instead simply add
additional burdens on employers and their employees who may end
up with the short end of the stick.
As such, today we will hear from large and small business
owners on how legislation in their States would affect their
employees' livelihood and their businesses. In addition, we
will hear from someone who can look at the issue from 30,000
feet and talk about potential results of enacting such
mandates.
I welcome our witnesses and look forward to their testimony
today. I now yield to the distinguished ranking member, Mr.
Payne, today for whatever opening statement you wish to make,
sir.
[The prepared statement of Chairman Johnson follows:]
Prepared Statement of Hon. Sam Johnson, Chairman, Subcommittee on
Employer-Employee Relations
Good morning. Let me extend a warm welcome to all of you, to the
ranking member, Mr. Andrews, and to my other colleagues.
Most folks here know I have a devout respect for democracy.
Some of the cornerstones of democracy include freedom and free
enterprise.
Another hallmark of democracy is empowering states--and cities--and
counties--to be the laboratories of ideas.
And as local areas experiment, the best ideas always seem to rise
to the top.
Today I want to hear what local areas are doing to find health
insurance solutions.
Are they increasing the insured? are they protecting patients? are
the costs rising or declining?
We can use these test cases, if you will, to see what works--and
what doesn't.
In congress, we have a civic obligation to make sure that the
proposals developing in the states don't override any federal laws.
That's especially true when it comes to health insurance because:
One: peoples lives are on the line and,
Two: the laws that govern many health insurance plans are protected
by a federal law, called E.R.I.S.A.
As you know, the vast majority of americans with health insurance
have their coverage through an employer.
Let's be clear: employer-provided health insurance is a benefit to
the employee; it's not mandatory. Governments who value freedom and
free enterprise do not tell businesses how to operate.
If states are tinkering with E.R.I.S.A.--we must make sure that the
results are fair and have no unintended consequences--or worse--giant
problems in the future.
Close to capitol hill, we all watched the state of maryland chart a
new course.
In Maryland, some believe that employers must be forced, not only
to provide health coverage to their employees, but to provide a
specific set or level of benefits.
For example, the much-discussed law that recently passed in
maryland seeks to penalize companies, well, at this point only a single
company, that do not provide what politicians deem ``adequate'' health
insurance for employees.
In short--the folks in the state capital of maryland are
legislating what one company must do for its employees.
In my mind--mandating certain health benefits on one company from a
state capital is not freedom and free enterprise * * * and I'm very
concerned about what that would mean in the future--for people * * *
for states * * * and for companies.
Could you imagine if maryland told mcdonalds that they could only
feed their employees big macs?
There is such a thing as good government.
Over-reaching government it is not.
Listen, as a former state legislator in Texas, I am happy to see
state legislatures working on solutions for the uninsured.
However, I am deeply alarmed that some of these proposals over-ride
the good intentions E.R.I.S.A.-the federal law that governs employer
benefits.
I am also concerned that these proposals largely ignore the problem
of sky-rocketing insurance costs and instead simply add additional
burdens on employers--and their employees who may end up with the short
end of the stick.
As such, today we will hear from large- and small-business owners
on how legislation in the states would affect their employees'
livelihood and their businesses.
In addition, we'll hear from someone who can look at the issue from
a 30,000 foot level and talk about potential results of enacting such
mandates.
I welcome our witnesses and look forward to their testimony today.
______
Mr. Payne. Thank you, very much, Mr. Chairman, and let me
thank you for calling this very important hearing examining the
impact of State mandates on employer-provided health insurance.
I think your background in the State legislature before coming
here to Congress certainly sits you well on this committee. Let
me just say, I appreciate the opportunity to talk about what
States are doing to address the health care crisis facing our
country covering the uninsured.
The urgent crisis demands our continued attention and
debate; 46 million Americans are uninsured, and millions more
are struggling to pay the skyrocketing cost of health care, and
many are underinsured. So we really have a crisis, a dilemma in
health care. I think really it is a crisis that has to be
shared by all of us. We have to come up with a solution to the
problem because it is a gigantic problem, and our Nation's
health is going to be very important to our future development.
This is a life or death problem, as we know.
The Institute of Medicine estimates that 18,000 Americans
die unnecessarily each year because they lack health insurance.
That is here in the United States of America, not a Third World
country. People who need health care or medication are risking
their lives because they just can't afford needed care.
As we talk about this, I hope that we can keep in mind the
families that are forced to decide between paying for cancer
treatments or their weekly groceries. With the skyrocketing
cost of petrol and home heating fuel coming up this winter,
serious dilemmas and crises are going to impact even millions
more Americans.
I hope that we can think of the families who are trying to
figure out how to keep a loved one alive and healthy when they
are hit with a illness they simply can't afford to live for.
While health care costs are always a major problem for low-
income workers, even people who have health insurance are
having trouble keeping up with the bills, as we all here know.
A survey done by USA Today to Kaiser Family Foundation and the
Harvard School of Public Health found that 62 percent of people
struggling to pay their bills actually have health insurance.
The Labor Center at Berkley recently reported that
Americans who have job-based family coverage paid 50 percent
more for their health care in 2004 than they did in 2000, an a
increase of $3,264 in out-of-pocket costs.
I would like to see this Congress do something to really
address the rising cost of health care, to find creative ways
to cover those people who can't afford it. But until that
happens, we must not stand in the way of States that are
working hard to come up with ways to provide their citizens
with quality, affordable health care.
I have good, honest employers in my district who are
working hard to provide health care to their employees. Rather
than being rewarded for prioritizing the health of their
workers, these employers are at an unfair disadvantage and are
unable to compete with the larger employer, especially highly
profitable ones that refuse to provide health care for their
employees.
I understand that some of our witnesses today are opposed
to requiring even those very large employers to provide workers
with health coverage. I also know that, in my State, Wal-Mart
tops the list of employers with employees on New Jersey Family
Care, our State's Medicaid program, with 589 employees in the
program. Currently, in New Jersey, there is legislation pending
that is similar to the Maryland legislation which requires
companies with over 10,000 employees to spend 8 percent of
their payroll on health care or pay the State the difference.
There is also a bill that would require companies with at least
1,000 employees to pay at least $4.17 per hour on health care.
So, as I conclude, this is a timely and important issue to
discuss. I know that companies are trying to do better. I know
Wal-Mart has started some scholarship programs and is
discussing these issues. We can't have a piecemeal approach,
and I think that we really have to take this issue head on.
I yield back the balance of my time, Mr. Chairman.
Chairman Johnson. The gentleman's time has expired.
Mr. Payne. I figured I would yield back before you said it.
Chairman Johnson. You all watch those lights. The green
light comes on, you have got 5 minutes. When the little yellow
light comes on, you have 1 minute. And we would appreciate it
if you would try to close it down when the red light comes on,
unlike Mr. Payne, who went a half a second over.
Mr. Payne. I am color blind.
Chairman Johnson. Thank you, Mr. Payne.
We have got a distinguished panel of witnesses before us
today, and I thank you all for coming, and I would like to
introduce them one at a time. Mr. Greg Garthwaite is a research
fellow in economics at the Employment Policies Institute where
he manages research projects with labor economists at major
universities across the country. Mr. Garthwaite's research
focuses on issues such as minimum wage, health care mandates
and the economic benefits of employment. Mr. Garthwaite holds a
bachelors and a masters degrees from the University of
Michigan.
Thank you for being here.
Ms. Mila Kofman is an associate research professor at the
Georgetown University Health Policy Institute where she
conducts studies on the uninsured and underinsured problems.
Ms. Kofman was a Federal regulator at the U.S. Department of
Labor from 1997 to 2001 and, prior to joining the Department of
Labor, was counsel for health policy and regulation at the
Institute For Health Policy Solutions. Ms. Kofman holds a law
degree from Georgetown University and a bachelors degree from
the University of Maryland, College Park.
Thank you for being here.
Mr. Larry Drombetta--is that pronounced correctly--is
president and CEO of H.R. Stores, Inc., an independent retail
shoe store group based in Maryland. H.R. Stores operates mall-
based shoe stores located in Virginia, Maryland and North
Carolina. Throughout his career, he has worked as an executive
officer for several retail businesses. Mr. Drombetta holds a
degree from the Youngstown State University.
Thank you for being here, sir.
Mr. Paul Kelly is senior vice president of Federal and
State government affairs for the Retail Industry Leaders
Association where he leads the association's overall government
affairs and advocacy efforts. A government affairs veteran with
more than 20 years in Washington, Mr. Kelly has also worked
with the National Association of Chain Drug Stores, American
Dietetic Association and the American Chiropractic Association.
Mr. Kelly holds a masters degree from Johns Hopkins University
and bachelors degree from Lynchburg College.
Thank you for being here as well.
Before the witnesses begin their testimony, I would like to
remind members we will be asking questions after the entire
panel has testified. In addition, the committee rule imposes a
5-minute limit on all questions.
I have already explained the lights. So I would like to
recognize the first witness, from my left to my right, for your
testimony, sir.
STATEMENT OF CRAIG GARTHWAITE, CHIEF ECONOMIST, EMPLOYMENT
POLICIES INSTITUTE
Mr. Garthwaite. Thank you, Mr. Chairman, ranking member,
members of the committee, for inviting me to testify today.
My name is Greg Garthwaite, and I am a research fellow in
economics at the Employment Policies Institute. Founded in
1991, EPI is a nonprofit research organization dedicated to
studying public policy issues surrounding employment growth. In
particular, EPI focuses on issues that affect entry-level
employment.
The vast majority of employees receive health insurance
through their employer. Recent escalations in the cost of
health insurance, however, has put added pressure on the
continuation of these benefits. Faced with double-digit
increases in premium costs, many employers are changing their
health plans by either requiring employees to pay a larger
share of the cost, increasing copays and deductibles, or
restricting coverage in general.
Economists at Dartmouth University found these higher rates
for employer-provided insurance have already led to significant
job loss throughout the economy. As a result of these factors,
a recent Gallup Poll ranked health care as the public's top
concern. Over two-thirds of Americans said they personally
worry a great deal about the affordability and availability of
health care.
Due to these facts, it is no surprise that States have
devoted so much energy this year to health care legislation. If
States were examining policies that attempted to address the
fundamentals behind the dramatic increases, their efforts would
go toward expanding coverage. Unfortunately, States are largely
avoiding this potentially productive discussion, instead, with
the most blunt policy tool available, simply requiring someone
to pay for it. Invariably these efforts are focused on forcing
all employers to provide health benefits to their employees.
Nominally, they require for increased coverage. Research shows,
however, that the burden of these mandates will actually fall
on employees through decreased job opportunities and wages.
Economic studies on mandated benefits reveal that, where
possible, employers will pass these new costs onto their
employees through lower wages. For the least skilled employees
in the economy, lower wages are often not an option. Government
data shows approximately 43 percent of all uninsured employees
are working at or near the minimum wage. Bound by the minimum,
employers are forced to react to the newly imposed health cost
through layoffs. The end result is the least skilled employees
in the economy end up footing the bill for these newly mandated
benefits, often with their jobs. As a result, many of these
employees are forced to confront the bitter irony of a bill
designed to provide employer-based coverage, leaving them with
neither an employer or coverage.
The recent history of employer-mandated health care can be
traced back to California's Proposition 72. This initiative
would have employers with more than 20 employees provide
individual health coverage, and those with more than 200
employees provide family insurance. Economists estimated that
this legislation would have cost California employers upwards
of $12.9 billion and up to 150,000 jobs would have been
destroyed.
Furthermore, those who lost their jobs would have been
disproportionately younger, poor, less educated and minority.
While Proposition 72 narrowly lost at the ballot box in 2004,
the defeat did nothing to stem the tide of these costly
mandates. In 2005, legislators in Washington debated the Health
Care Responsibility Act, a similarly destructive mandate.
This year, 26 States considered legislation requiring
employers to provide health benefits to their employees. The
legislation varied significantly across the States. Some were
limited to employers of a certain size while others sought to
require a minimum level of benefit. High cost and fewer jobs
may be justifiable if these mandates significantly reduce the
problem of the uninsured. But research shows that employer
mandates, due to their dependence on the workplace as the
source of insurance, do little to address the problem of the
uninsured. Often they leave the vast majority of uninsured
without new coverage. In California, for example, the $12.9
billion dollars in new spending would have only decreased the
uninsured population by 31 percent, a shocking cost of nearly
$6,600 per newly insured individual.
Due to poor targeting, only 30 to 35 cents of every dollar
spent on the legislation would have gone toward the uninsured.
Similar results should be expected from any mandate that
attempts to address the problem of the uninsured solely through
the labor market. Often the very characteristics that have left
these employees without insurance in the first place deny them
the benefit of workplace dependent mandates.
True progress toward addressing the pressing problem of
rising health cost and the uninsured will not come from simply
shifting the cost and the responsibility onto the backs of
employers. Rising health care costs have made it prohibitively
expensive for many small businesses to either offer or continue
to offer coverage. These same hire rates already contributed to
significant job loss throughout the economy.
It is critical that States and Congress attempt to enact
meaningful reforms to our health care market that will actually
decrease the number of uninsured instead of simply trying to
pass the buck. Thank you. I am happy to answer any questions.
[The prepared statement of Mr. Garthwaite follows:]
Prepared Statement of Craig Garthwaite, Research Fellow in Economics,
Employment Policies Institute
Thank you Mr. Chairman, Ranking Member and members of the
subcommittee for inviting me to testify today. My name is Craig
Garthwaite, Research Fellow in Economics at the Employment Policies
Institute. Founded in 1991, the Employment Policies Institute is a non-
profit research organization dedicated to studying public policy issues
surrounding employment growth. In particular, EPI focuses on issues
that affect entry-level employment.
It is supported by contributions from private citizens and
businesses and foundations. We also engage a panel of distinguished
academic advisors, including Dr. James Heckman, winner of the Nobel
Prize in economics, Dr. June O'Neil the former director of the
Congressional Budget Office, and Dr. Kevin Murphy, a recipient of the
2005 MacArthur ``Genius'' Grant.
A recent Gallup poll ranked health-care as the public's top
concern. Over two-thirds of Americans said they personally worry ``a
great deal'' about affordability and availability of health-care. While
policy issues are often cyclical, it is likely that health-care will
remain a top concern for the foreseeable future. As our population ages
there will be increasing demands on our health-care system. At the same
time, companies in all industries are striving to restrain costs to
better compete in the global economy. Many are finding it increasingly
difficult to provide the kind of comprehensive health coverage the
public has come to expect.
It is no surprise then that state legislatures are engaged in
robust deliberations on health-care issues. Their efforts have largely
been driven by the goal of expanding the number of people with health
insurance. These efforts try to cement coverage that is already in
place and reduce the ranks of the uninsured
With these policy currents, naturally, states have devoted a great
deal of energy this year to health-care legislation. Unfortunately,
most of their efforts have been misdirected. Rather then delve into the
underlying pressures that make health insurance increasingly
unaffordable, state lawmakers have largely directed their energies at
determining who should pay for it. Invariably, there efforts have
focused on forcing employers to provide health benefits to their
employees.
Employer-Provided Health-Care
In many respects, employer-provided health benefits are an
historical anomaly. They arose during World War II, when wage and price
controls made it difficult for businesses to compete for labor or
retain valued workers. Offering health insurance as a benefit got
around these controls, but created a lasting expectation that
employment and health benefits were inextricably linked.
Today, around 60% of employees receive health insurance through
their employer. Recent escalation in the cost of health insurance,
however, has put added pressure on employers providing these benefits.
Faced with double-digit increases in premium costs, many employers are
changing their benefits: requiring employees to pay a larger share of
the cost, increasing co-pays and deductibles, or restricting coverage
in general.
Policies that fail to address the fundamentals behind the increases
in the cost of health insurance will not make meaningful progress in
expanding access to health insurance. This is an area where state
legislative action can have a dramatic and positive impact. State
policies that mandate the coverage of certain procedures have an
enormous impact on the cost of health insurance. While any one mandate
may seem inexpensive, the cumulative effect of 30 or 50 specific
mandates can make insurance unaffordable. Research shows that across
the states, the impact of these mandates can increase the cost of
insurance by 20-50%.
The other consequence of these state mandates is that today's
health insurance marketplace is a patchwork quilt of coverage
requirements. Policies have to be designed to meet the requirements of
each individual state, lessening the ability to achieve savings through
economies of scale. Worse, state mandates are continually being
adapted. Each year, states consider hundreds of pieces of legislation
that seek to change the minimum benefit package that can be offered in
the state. This creates enormous uncertainty within the insurance
market.
Passing the Buck
Reforming coverage mandates or increasing the availability of
``basic'' health plans that are exempt from certain mandates would go
far in increasing the affordability of health insurance. Unfortunately,
states are largely avoiding this discussion. Instead, they are
addressing the increase in the lack of health coverage with the most
blunt policy tool: simply requiring someone to pay for it. Nominally,
these bills require employers to foot the bill for increased coverage.
Economic research shows, however, that the burden of these mandates
will actually fall on employees through decreased job opportunities and
wages.
While only one state has successfully implemented an employer-
mandated health-care system, economists have used other mandate
programs to estimate the economic impact of these policies. In total,
the research reveals that-where possible-employers will pass the cost
of mandated benefits onto employees through lower wages.
For the lowest-skilled employees in the economy, however, this is
not an option. Government data shows that about 43 percent of all
uninsured employees are working at or near the minimum wage. Bound by
this minimum wage, employers are forced to react to the increased costs
of the mandate through decreased hours and positions. The end result is
that the least-skilled employees of the economy end up footing the bill
for these newly mandated benefits.
Many of these employees are forced to confront the bitter irony
that legislation designed to provide employer-based health-care leaves
them with neither an employer nor healthcare.
Estimated Effects of Mandated Health Insurance
The recent history of employer mandated health-care can be traced
back to California's defeated Proposition 72. This initiative would
have required employers with more than 20 employees to provide
individual health coverage to all employees working more than 100 hours
a month. Employers with more than 200 employees would have to provide
family insurance. The legislation would have cost California employers
upwards of $12.9 billion and destroyed up to 150,000 jobs.
While Proposition 72 was narrowly defeated at the ballot box in
2004, the defeat clearly did nothing to stem the tide of these costly
mandates. In 2005, legislators in Washington debated the Health-care
Responsibility Act which would have cost employers in that state
upwards of $1.6 billion and destroyed up to 25,500 jobs.
This year, 26 states considered legislation to require employers to
provide health benefits to their employees. The legislation varied
significantly across the states; many were limited to employers of a
certain size, while others sought to additionally require a minimum
level of benefit.
These costs may be justifiable if these mandates significantly
reduced the problem of the uninsured. But, research shows that employer
mandates-due to their dependence on the workplace as the source of
insurance-do little to address the problem of the uninsured.
In California, for example, the $12.9 billion in new spending would
have only decreased California's uninsured population by 31%--a
shocking cost of nearly $6,600 per newly insurance individual. Due to
poor targeting, only 30 to 35 cents of every dollar spent under the
legislation would have gone towards covering the uninsured.
Similar results should be expected from any mandate that attempts
to address the problem of the uninsured, particularly the working
uninsured, through the labor market. Often, the very characteristics
that have left these employees without insurance in the first place
deny them the benefits of these mandates.
Employer mandates often exempt small businesses and require
employees to work a certain number of hours. Recent research from the
University of California-Santa Cruz found that employees working in
small firms were the most likely to lose insurance from year to year.
In addition, the rates of working uninsured clearly increase in smaller
firms. These companies may very well want to provide insurance to their
employees, but find it to costly. Employer mandates will do little to
address that problem.
Employer mandate legislation is based on a false premise of the
labor market and a misunderstanding of the nature of today's uninsured
population. It is not only ineffective at solving the problem, but it
results in unintended consequences that are counter-productive.
By attempting to simply require employer-provided care, rather than
address the underlying problems plaguing the nation's healthcare
market, state legislators are doing little to address the problem of
the uninsured. Even without the mandate, attempting to rely on
employers as the primary provider of health coverage is already leading
to significant job losses for American. Economists at UCLA and Harvard
University found that the rising healthcare rates have potentially
forced millions of Americans out of the labor force. Even without the
presence of a mandate, employers have reacted to rising costs by laying
off employees; mandating coverage would only exacerbate this problem.
Conclusion
True progress towards addressing the pressing problem of rising
health-care costs and the uninsured will not come from simply shifting
the cost and responsibility onto the backs of employers. Rising health-
care costs have made it prohibitively expensive for many small
businesses to either offer or continue to offer coverage. These same
higher rates have already contributed to significant job loss
throughout the economy. It is critical that states, and Congress,
attempt to enact meaningful reforms to our health-care market that will
actually decrease the number of uninsured instead of trying to simply
pass the buck to employers.
______
Chairman Johnson. Thank you, sir. I appreciate your
testimony. How quick we forget World War II price controls. I
bet there is not a single one of you that remembers it. Are
there? Anybody in the audience remember World War II price and
wage controls. Outstanding. I guess you and I are the only
ones.
Mr. Payne. I am trying not to admit it.
Chairman Johnson. There is a guy that remembers it, I know
that.
Ms. Kofman, you are recognized for 5 minutes.
STATEMENT OF MILA KOFMAN, ASSOCIATE RESEARCH PROFESSOR,
GEORGETOWN UNIVERSITY HEALTH POLICY INSTITUTE
Ms. Kofman. Thank you. Thank you very much. My name is Mila
Kofman and I am an associate research professor at Georgetown
University. Thank you for having me here today. It is both an
honor and a privilege to have a chance to chat with you for 5
minutes.
As you know, I have studied the insurance markets for over
a decade, various health care reforms. I am currently co-
chair--co-editor, excuse me, of the Journal of Insurance
Regulation, and I am also a member of the Consumer Board of
Trustees of the National Association of Insurance
Commissioners, and before that, I was a Federal regulator
working on ERISA-related issues at the Department of Labor.
I want to thank you for your leadership in holding this
hearing during Cover the Uninsured week. As the number of
uninsured people continues to rise, the problem gets greater
and greater, and as you have heard, 18,000 Americans die each
year preventable deaths because they don't have any health
coverage whatsoever. This problem may cost our economy as much
as $130 billion dollars each year. It is timely to examine the
interplay between ERISA and State health care reform
initiatives. As States continue to find ways to address the
health care crisis in the United States, ERISA continues to
present a number of challenges to State-based reform, and today
I will discuss just a few of those challenges.
Importantly, despite ERISA challenges, Governors and State-
Elected officials are undeterred and continue to develop new
strategies and successful programs to finance medical care for
their residents. Federal interventions you look at now and in
the future should support all of these State-based initiatives
and efforts.
First, I would like to talk about why coverage is so
expensive, then I want to talk about briefly some of these more
recent State initiatives, as well as some of the older State-
Based programs that seek to address the uninsured problem and
then I want to make you aware of one ERISA related issue that
prevents States from doing what they are supposed to in the
criminal area, if there is time.
So, first, health coverage is expensive because medical
care is expensive. And you all know this, this is nothing new.
We know the cost drivers behind health coverage is higher
prices for prescription drugs, higher prices for provider
costs. We also know that we use more health care. We are an
aging population, and more of us have chronic conditions.
Millions of Americans suffer from chronic conditions, and so we
use more health care.
So as we think about solutions to the uninsured problem and
the ever-increasing costs, we need to address those factors,
the cost drivers, as well as come up with a more fair way to
finance the medical care, more equitable way to finance care.
Many States have sought to address the Nation's health care
crisis. State-based initiatives like fair-share health care
seek a more fair way to finance medical care, and I believe
will help employers in the long run. Cost shifting for
uncompensated care costs of privately insured people are over
$40 billion each year out of your pockets to pay for
uncompensated care. It is estimated that each family pays more
than $900 per year just to make up for uncompensated care.
So State initiatives that seek to achieve cost savings like
the one in Massachusetts, like the one in Maryland will help
employers because there will be less cost shifting. Maryland's
lawmakers as you know passed a fair-share law program in
response to financial pressure on public programs. One large
employer, their employees use public programs extensively, and
so Maryland found a way to pay for that coverage.
Similar things are happening in Massachusetts. State
lawmakers are just trying to find a more fair way to finance
medical care. Many States having enacted programs in the past
decades that have worked to help people finance medical care
and access company coverage. Things like high-risk pools and
purchasing coalitions and reinsurance programs, those are all
helping. None of them are free, and, in fact, they are very
difficult to finance in the ERISA environment because self-
funded employer plans don't pay into those programs, don't help
finance those programs.
So as you consider new initiatives at the Federal level,
keep in mind that any ERISA expansion will financially hurt
those existing State-based programs. And I see that the light
is on, so I will stop and take any questions. Thank you.
[The prepared statement of Ms. Kofman follows:]
Prepared Statement of Mila Kofman, J.D., Associate Research Professor,
Georgetown University
Good morning. My name is Mila Kofman and I am an associate research
professor at Georgetown University's Health Policy Institute
(Institute). Thank you for inviting me to testify today. It is both an
honor and a privilege to be here.
As a way of background, researchers at the Institute conduct a
range of studies on the uninsured problem. My specific focus is private
health insurance. For the past decade I have studied regulation of
health insurance products and companies, state and federal reform
initiatives, and market failures like insolvency and fraud. Currently I
am the co-editor of the Journal of Insurance Regulation and serve on
the Consumer Board of Trustees of the National Association of Insurance
Commissioners.
Before joining the faculty at Georgetown University, I was a
federal regulator at the U.S. Department of Labor, where I worked on
issues affecting ERISA health plans. Prior to that, I was Counsel for
Health Policy and Regulation at the Institute for Health Policy
Solutions, a non-profit, non-partisan firm, assisting small businesses
in establishing health insurance purchasing coalitions and studying
state small group reforms. My knowledge, therefore, is both practical
and academic.
I want to thank you for your leadership in holding a hearing on
state health reform initiatives and employer-sponsored medical benefits
during ``Cover the Uninsured Week.'' As the number of uninsured
continues to rise, now at over 45 million people without any health
coverage, you and other members of Congress, as well as state
policymakers are trying to address this problem. As you know, 18,000
Americans die preventable deaths each year because they are uninsured.
This problem is estimated to cost our economy $60 to $130 billion
annually.\1\
It is very timely to examine the interplay between ERISA and state
health care reform initiatives. As states continue to find ways to
address the health care crisis in the United States, ERISA continues to
present a number of challenges to state-based reform. Today, I will
discuss some of those challenges.
As you deliberate about state health reform efforts by looking at
``fair share health care'' and ``pay or play'' proposals, it is
important to remember that there are practical considerations and legal
parameters, e.g., ERISA. One such consideration is the cost of medical
care. Health coverage is expensive because medical care is expensive.
The double-digit premium increases of the past five years, can be
explained in part by certain cost drivers including increased
prescription drug costs and higher provider costs (in part due to
mergers).\2\ Utilization of services is also increasing--we are using
more health care services as our population ages and the number of
people with chronic conditions continues to grow. It is important to
address the cost drivers of medical care.
ERISA's limitations on what states can require of employers,
lawsuits using ERISA to question state authority and challenge state
reform initiatives, and other ERISA-related issues make it difficult
for states to address the health care crisis. This makes it difficult
to adopt successful reforms, to cover millions of Americans who do not
have health insurance, to address the ever growing cost of health
coverage for people who are insured, and to assure that in fact health
insurance is adequate, accessible, and secure for people who are sick
today and those of us who will become sick in the future. Despite ERISA
challenges to state initiatives, however, governors and state
legislators are undeterred and continue to develop new strategies and
successful programs to finance medical care for their residents.
Newest State Initiatives Background
In recent years, many states have sought to address the nation's
health care crisis. State-based initiatives like ``fair share health
care'' seek a more equitable way to finance medical care and I believe
will help employers. Cost-shifting (for uncompensated care) costs over
$40 billion per year and hurts employers that provide comprehensive and
generous benefits. The cost-savings from eliminating uncompensated care
that state initiatives like ``fair share'' seek to accomplish will help
those businesses.
ERISA has been used to challenge state reforms. For example, the
Maryland Legislature passed a law, called ``The Fair Share Health Care
Fund Act'' that requires companies with more than 10,000 employees in
Maryland to pay for medical care and coverage for their employees in
the amount equal to or more than 8% of salaries (6% for non-profits).
The law requires a company that falls below 8% to pay an assessment to
help fund Maryland's health care programs for moderate and low-wage
income earners and poor people and families.\3\ Maryland's lawmakers
passed this law in response to financial pressure on public programs,
after learning that Maryland's public programs covered many employees
of at least one large national company, drawing down the programs'
resources; similar bills have been introduced in 18 other states.
Scheduled to go into effect in January 2007, Maryland's law was
immediately challenged using ERISA.\4\
In April, Massachusetts lawmakers enacted broad health care reforms
called the ``Health Care Access and Affordability'' (a.k.a.
Massachusetts Health Care Reform Plan), which include a requirement
that employers with more than 10 employees provide health coverage or
pay an annual fee per employee to help finance medical care that their
employees use (currently care provided for free to patients but
financed through public funding and other sources) in the state.\5\
Although both laws were carefully crafted to avoid ERISA preemption
and many experts (including me) believe that these laws would not be
preempted, it is difficult to predict (even for ERISA experts) how a
federal court may interpret the scope of ERISA.\6\ It remains to be
seen whether Maryland, Massachusetts, and other states seeking to
implement meaningful reforms to address the nation's health care
problems will be precluded from achieving their goal of universal,
affordable, and meaningful coverage for all residents.
Background: ERISA
In 1974 the Employee Retirement Income Security Act (ERISA) was
passed to regulate job-based health and pension benefits. Under ERISA,
state laws that ``relate to'' an ``employee benefit plan'' are
generally preempted. Not all state laws have been found to ``relate
to'' an ERISA plan, however. And ERISA explicitly exempts regulation of
insurance from its broad preemption, thus allowing states to regulate
health insurance products and companies that sell coverage to ERISA
plans. Employers that self-insure (also called self-funding) are not
subject to state insurance laws, however. Self-insurance means that an
employer is responsible for paying medical claims of workers and their
dependents. When an employer buys health insurance, it pays a premium
to an insurance company; this is called ``fully-insured'' and the
insurance company not the employer is obligated to pay medical bills.
Insurance Reforms
ERISA presents challenges to meaningful state health reforms. As a
way of example, take state benefit mandates. These are requirements for
health insurance policies to cover certain benefits, like specific
medical conditions and treatments. States have a wide range of such
standards. For example, in 46 states health insurers are required to
either cover (or offer to cover) benefits for diabetes supplies and
education. Twenty-seven states require insurers to cover cervical
cancer screening. Fifty states require coverage for mammograms and 32
require coverage for well-baby care (childhood immunizations and visits
to pediatricians). Mandated benefits also include requirements that
insurers reimburse certain types of medical providers, such as nurse
practitioners. And they include state laws requiring coverage for
special populations, e.g., adult handicapped children who age-off their
parent's policy and newborns (required to be covered from birth by
their parent's insurer).\7\
Benefit mandates are used to spread the cost of a medical condition
or treatment among a broad population, making it less expensive for the
group of people who need such coverage. Policymakers also use benefit
mandates to encourage people to seek certain care (immunizations and
preventive services) that otherwise may not be obtained if people have
to pay for it out-of-pocket.\8\
In the absence of mandates, adding optional benefits to a policy
can distort the price if only people who need that benefit select
coverage. For example, in Washington State premiums for policies that
covered maternity and mental health benefits were anywhere from 30 to
100 percent more expensive than policies that excluded those two
benefits. The choice in benefit design led consumers to select those
specific benefits based on their expectation of using them, with
adverse selection fueling a steep increase in premiums for those
products.\9\ Also, absent a requirement, some services and benefits may
not be available even as an add-on (or ``rider''). For example, in
states that do not require maternity to be covered, an individual
policy with a maternity rider is rarely available; and even when
available, the price for a maternity rider is higher than paying for
the average pregnancy out-of-pocket.
With respect to mandated benefits, state policymakers make
tradeoffs: balancing the cost (added to the premium) with the need to
help their constituents finance costly illnesses. Here, the impact of
ERISA is felt. Self-funded ERISA health plans are not subject to
benefit requirements and thus can avoid helping to finance the cost of
such coverage. This, however, frustrates the public policy goal of
broadly spreading the cost of certain medical conditions and achieving
public health goals (such as immunizing the population against certain
diseases, stabilizing mental health conditions, encouraging treatment
for substance abuse, or financing supplies to control diabetes). It is
important to note that many self-funded large employer plans are
comprehensive, covering for example diabetes supplies. Absent federal
mandates, not all self-funded plans provide such coverage. When
employers choose to self-fund, because the cost of mandates is spread
across a smaller population (among those in state-regulated products),
the price is higher than it otherwise would be had the cost been spread
over the entire population (self-funded and fully-insured plans).
How mandated benefits add to the cost of health insurance has been
an issue of longstanding controversy and depends on the extent to which
mandates spread the cost of a particular health care service over a
large number of policyholders. Literature on the cost of mandates
generally does not consider the true cost of the benefit because many
benefits would have been covered absent the mandate.\10\ Even so, a
recent industry study, for example, found that mandates add minimally
to the cost of premium (an estimated 5 percent).\11\ Given the recent
double-digit premium increases for employers (for some in the range of
20%-30% annually), the anticipated cost savings from a mandate-free
environment would be minimal. Importantly, both employers exempt from
state mandates (self-insured) and fully insured have seen their
premiums increase. There is a reason why GM, for example, adds $1500 to
the price of each car to pay for health coverage for workers and
retirees. It is because the cost of medical care is expensive and thus
reflected in the price of coverage; it is not because of mandates. So
eliminating mandates will not address the rising costs of coverage.
Also, the studies on the cost of mandates generally do not consider
the cost to the patient. In other words, if a health plan is excused
from covering a treatment, then it does not mean that your illness
disappears. It just means that you pay for it out-of-pocket, if you can
afford it. And if not, then assuming you still receive the care, the
cost of your treatment is added to the cost of uncompensated care
(generally paid with public funds and cost-shifting to privately
insured patients).\12\ The question here is who pays for your illness:
your health plan because it is required by a mandate, you pay out-of-
pocket if you can afford it, or other people with comprehensive
coverage pay for it (through cost-shifting). Additionally, studies on
the cost of mandates generally do not consider system-wide costs, that
is affordability issues and the increased costs of delayed or foregone
medical care when patients cannot afford needed medical services.\13\
State Regulated Health Insurance Products: ERISA 's impact
ERISA influences prices for regulated health insurance products.
Self-insuring allows employers to avoid having their medical claims
pooled with other employers; especially for mid-size (500 employees or
less) and small businesses that employ a relatively healthy workforce,
this may be an advantage.\14\ Smaller firms that employ workers with
higher medical needs are less likely to self-insure and are more likely
to buy state-regulated products. Since guaranteed-issue laws were
enacted, requiring insurers to sell products to any small business, it
has in fact become easier to buy insurance. In the past insurers were
free to sell insurance only to businesses with healthy workers. In
addition, state small group rate reforms require insurers to pool risk
and in some states insurers are prohibited (or restricted) from
charging higher rates to businesses with sicker workers. Through risk
pooling requirements, firms with sicker workers pay less than they
otherwise would, which helps them to offer and maintain coverage. If
employers with self-funded plans (small and mid-size) in fact have more
favorable risk than other employers, the cost for state regulated
products may be lowered if all businesses participated and everyone's
claims experience was pooled.\15\
State Market Reforms and Programs: Background and ERISA Challenges
State insurance regulation has sought to promote several policy
objectives, such as assuring the financial solvency of insurance
companies, promoting risk spreading, protecting consumers against
fraud, and ensuring that consumers are paid the benefits that they are
promised. Also as products and markets evolve, e.g., managed care in
the 1990's, states have responded to some abusive industry practices
through ``patient protections'' like guaranteed access to emergency
services and specialists, and external review of denied claims for
medical care.
State policy makers have also instituted certain rules for
insurance companies, establishing who they must sell coverage to, how
products must be priced, and the types of benefits that must be
covered. Absent legislative interventions, in a private health
insurance market, insurers adopt practices to avoid incurring high
medical claims, including denying coverage to applicants who have
health conditions or a history of health problems. An estimated 20% of
people account for about 80% of health care spending.\16\ Avoiding even
a small number of high-cost individuals can substantially reduce an
insurer's losses.
In addition to market reforms, state policymakers have tried a
variety of ways to help their residents and businesses to access and
afford health coverage. ERISA presents a number of challenges to states
in how to finance certain health coverage programs. For instance,
states require insurers to pay premium taxes and assessments, which
helps to pay for certain state health programs for residents including
high-risk pools. Risk pools are state programs for people with high
medical needs who insurance companies won't cover. Thirty-three states
have such pools. In 2004, they covered approximately 180,000 people.
States fund high-risk pools in a variety of ways, but many rely on
revenue from premium taxes and assessments on health insurance
companies. For self-insured plans, an exemption from premium taxes is a
small cost savings, but it cuts the amount of available revenue from
health insurance companies by approximately 50%--the estimated portion
of the insured population that is in self-funded plans.\17\
Another approach to expand access to health insurance has been
through public/private partnerships called ``HIPCs'' (health insurance
purchasing cooperatives)--these are also known as purchasing alliances
and purchasing pools for small businesses. These programs use the
state's purchasing power to negotiate rates and coverage with private
insurance companies.\18\ Participating employers have a choice of
products and typically a choice of insurers. Arizona, California, New
Mexico, and New York City have such purchasing pools for small
businesses.\19\ One of the newest operational programs was established
in 2005 in Montana. The state has used its purchasing power to
negotiate rates that are better than available in the private market
and is using tobacco taxes to help pay for the cost of coverage in the
pool for moderate income wage earners.
Other states have tried to make coverage more affordable through
``reinsurance,'' subsidizing the cost of big losses (claims). This
would limit insurers' losses and thus seeks to keep premiums lower.
Reinsurance programs have been tried in 21 states. Healthy New York, a
state-wide program, for example, covers over 100,000 people and uses
the state's tobacco settlement funds to subsidize a portion of high-
cost claims under the program.\20\
While these state coverage expansion efforts vary, none are free.
They all rely on some funding, and ERISA self-insured plans generally
do not contribute to financing such programs. However, self-funded
plans benefit when people with medical needs have insurance--there is
less uncompensated care and therefore less cost-shifting. In other
words, the cost of uncompensated care is borne by all people with
insurance as the costs are shifted to all privately insured people--
self-insured and fully insured plans.
In addition to funding, these state programs rely on insurers
assuming significant risk. As policymakers provide new incentives for
employers to withdraw from state-regulated policies (as some bills
pending before Congress would do), insurers would have greater
incentive to dump their poor risks.\21\ States may allow insurers to do
so but pressure on state coverage expansion programs will be great.
Expansion of ERISA is likely to escalate this pressure and impact
adversely state coverage programs that rely on insurers taking on
significant risk and on insurer assessments to spread cost broadly
across the insured population.
ERISA Abuses
Operators of unauthorized entities (a.k.a. phony insurance
companies) have used ERISA as a way to avoid or to delay state
regulator actions. By way of background, phony insurance entities
collect premiums but don't pay medical bills, instead using the money
for personal gain. During the most recent cycle of health insurance
scams, more than 200,000 policyholders were left with over $252 million
in unpaid medical bills. The federal government and the states
identified 144 scams between 2001 and 2003; the federal government shut
down 3 and the states shut down 41.\22\ Operators of health insurance
scams claim that they are regulated by the federal government under
ERISA and therefore exempt from state regulation. Some create complex
legal documents that, at least on paper, raise questions about their
legal status under ERISA.
Although Congress clarified ERISA in 1983, some ambiguities remain
and operators of phony health plans continue to use ERISA preemption as
a shield to avoid state enforcement actions, challenging state
authority by removing cases to federal court. Operators of phony plans
use this tactic to delay final court action, which gives them an
opportunity to spend or hide assets. This use of ERISA makes it
difficult for states to protect their residents against criminal
behavior.\23\ Expanding ERISA, for example through AHPs or similar
legislation, is likely to increase ERISA-related scams.\24\
Conclusion
As the number of people in the United States without health
insurance continues to rise, governors and state legislators continue
to look for ways to address the problem, financing medical care through
private and public insurance despite ERISA challenges. States are
looking for equitable and effective ways to finance medical care for
their residents. For this reason, Congress should be cautious when
looking at proposals that seek to expand ERISA or to deregulate the
market. Not only will some proposals not accomplish their desired goal,
but they may actually add to the uninsured problem, make it even more
difficult for state-based reforms to succeed and drive-up costs for
people who have insurance. I encourage you to look for measures that
will encourage and support state initiatives.
It is also important to remember that many self-funded large
employer plans provide generous benefits to workers and dependents,
covering expensive medical conditions and covering people with
significant medical needs. America's businesses need real help to
address factors driving cost increases for medical care so they can
keep their workers healthy and stay competitive in a global economy.
Thank you for your consideration of this important issue, and I
look forward to assisting you as you look for ways to address the ever
growing problem of millions of Americans without health insurance and
rising costs of coverage for all Americans.
ENDNOTES
\1\ For highlights see, Press Release, January 14, 2004, ``IOM
Report Calls for Universal Health Coverage by 2010; Offers Principles
to Judge, Compare Proposed Solutions'' available at
www4.nationalacademies.org/news.nsf/isbn.
\2\ For example, in 2004, health care spending included: 30.4% for
hospital care, 21.3% for physician services, 10.0% for prescription
drugs. Distribution of National Health Expenditures, by Type of
Service, 1994 and 2004. page 5, Trends and Indicators in the Changing
Health Care Marketplace, KFF 2006 available at www.kff.org. Spending on
prescription drugs increased two to five times more than spending on
hospital care and physician services between 1995 and 2000. Id. at 6.
\3\ See 2005 Regular Session, SB 790, Veto Override version, Jan.
12, 2006.
\4\ See Plaintiff's Complaint, Retail Industry Leaders Association
v. James D. Fielder, U.S. District Court for the District of Maryland
(February 7, 2006).
\5\ Massachusetts Reforms (House No. 4850) amends several state
statutes including the insurance code.
\6\ Maryland's Attorney General analyzed the bill and concluded
that ERISA would not preempt it. See Letter from Joseph Curran,
Attorney General, Maryland, to Michael Busch, Speaker of the House,
Maryland General Assembly, January 9, 2006 (copy available from
author).
\7\ See Kofman, Mila and Karen Pollitz, ``Health Insurance
Regulation by the States and the Federal Government: A Review of
Current Approaches and Proposals for Change,'' Health Policy Institute,
Georgetown University (April 2006), available at www.allhealth.org.
\8\ Which benefits are required to be covered is in part a function
of how successful a particular group advocating for the mandate is in a
state. Enacting benefit mandates is not done in a vacuum but is a part
of a legislative process.
\9\ See Kirk, Adele, ``Riding the Bull: Experience with Individual
Market Reform in Washington, Kentucky, and Massachusetts,'' Journal of
Health Policy, Politics and Law Vol. 25, No. 1, 2000.
\10\ Chollet, Deborah ``Finance Committee Hearing: Health Care
Coverage for Small Businesses: Challenges and Opportunities. Questions
Submitted for the Record'' April 13, 2006 (copy available from author).
11See Bender, Karen and Beth Fritchen, ``Health Insurance Marketplace
Modernization and Afordability Act of 2006, `` Mercer Report, March
2006, page 4 (copy available from author).
\12\ In 2004, uncompensated care totaled $40.7 billion. Jack Hadley
and John Holahan, The Cost of Care for the Uninsured: What Do We Spend,
Who Pays, and What Would Full Coverage Add to Medical Spending? Issue
Update 2004, Kaiser Family Foundation available at www.kff.org. One
study estimates that cost-shifting adds over $900 annually to the cost
of family coverage. ``Paying a Premium: The Added Cost of Paying for
Care for the Uninsured'' Families USA (June 2005) available at
www.familiesusa.org/assets/pdfs/Paying--a--Premium--rev--July--1 3731
e.pdf.
\13\ According to a RAND study, doubling co-payments for long-term
prescription drug use caused patients to decrease the recommended use,
which resulted in more and longer incidents in the hospital, including
increased emergency room visits. Goldman, D. et al, ``Pharmacy Benefits
and the Use of Drugs by the Chronically Ill,'' JAMA, May 19, 2004, Vol.
291, No. 19, page 2344. One recent study found that patients delay
going to the doctor, for example, because of affordability issues.
Michelle Doty et al ``Seeing Red: Americans Driven Into Debt by Medical
Bills,'' Commonwealth Fund (August 2005) available at www.cmwf.org/
usr--doc/837--Doty--seeing--red--medical--debt.pdf.
\14\ Small businesses that self-insure may not be able to properly
reserve for claims. The financial risk they take on is high.
\15\ See Attachment A in Kofman, Mila and Karen Pollitz, ``Health
Insurance Regulation by the States and the Federal Government: A Review
of Current Approaches and Proposals for Change,'' Health Policy
Institute, Georgetown University (April 2006), available at
www.allhealth.org. Additionally, self-insurance allows employers to
save money by avoiding the cost of paying for reserves and minimum
capital. Such requirements apply to insurers and are designed to ensure
solvency. There are no solvency requirements for health plans in ERISA.
While saving some cost, the trade-off here is that people in ERISA
self-insured plans have fewer protections than those in fully-insured
plans, and as such may be stuck with medical bills if their employer
goes bankrupt. When an insurer becomes insolvent, outstanding medical
claims are paid for by guaranty funds. There is no similar safety-net
for people in self-insured arrangements. A problem for state policy
makers is that ERISA self-funded plans do not contribute to state
programs like guaranty funds, which are financed through assessments on
health insurance companies. A broader financing base would make these
safety-nets less costly; and of course, protect all workers against
their health plan's insolvency.
\16\ See Berk, Marc and Alan Monheit, ``The Concentration of Health
Care Expenditures, Revisited,'' Health Afairs, (March/April 2001): 145-
149.
\17\ Financing risk pools is also a question of fairness. Arguably
because former workers of ERISA self-funded plans may enroll in high-
risk pools, it is fair to ask self-funded employers to help finance
that coverage. For a discussion of funding mechanisms and more
information about state high-risk pool programs, see ``Comprehensive
Health Insurance for High-Risk Individuals: A State-by-State Analysis''
18th Edition, 2004-2005, Communicating for Agriculture and the Self-
Employed, Inc.
\18\ Maine also has a program similar to a purchasing pool, called
Dirigo. Among its many features, is it helps pay for the cost of
private health insurance for moderate income wage earners insured
through the program. The coverage is through a private insurer. Funding
for the program partly comes through Medicaid.
\19\ Kofman, Mila, Issue Brief: Group Purchasing Arrangements:
Issues for States, State Coverage Initiatives, April 2003 available at
http://www.statecoverage.net/pdf/issuebrief403.pdf.
\20\ Chollet, Deborah, The Role of Reinsurance in State Eforts to
Expand Coverage, State Coverage Initiatives, October 2004; see also,
Chollet, Deborah and Carolyn Watts, Pooling and Reinsurance in
Washington State Insurance Markets, 24 Journal of Insurance Regulation
81 (Winter 2005); Swartz, Katherine, ``Reinsurance: How States Can Make
Health Coverage More Affordable For Employers and Workers,''
Commonwealth Fund, July 2005.
\21\ For example, prior to guaranteed-issue requirements in the
small group market, states allowed commercial insurers to choose to
whom to sell coverage. In many states, Blue Cross/Blue Shield plans
were looked to as insurers of ``last resort'' and generally offered
coverage on a guaranteed issue basis. With a changing marketplace in
the 1980s, as more large employers began to take themselves out of the
insurance market (and self-funding their medical benefits), the market
became more fragmented. Commercial carriers became more selective in
who they would cover. Financial pressure on many Blues plans as
insurers of last resort became significant. Taxpayer subsidies and
whole scale market reforms became necessary requiring commercial
insurers to bear more risk for sick groups. See Kofman, Mila and Karl
Polzer, ``What Would Association Health Plan Mean for California: Full
Report?'' Prepared for the California HealthCare Foundation, January
2004 available at http://www.chcf.org/documents/insurance/
AHPFullReport.pdf (hereinafter California AHP Report).
\22\ U.S. General Accounting Office, Private Health Insurance:
Employers and Individuals are Vulnerable to Unauthorized or Bogus
Entities Selling Coverage, GAO-04-3 12 (Feb. 2004).
\23\ Also some entities have developed complex ``ERISA'' schemes
that they claim allows an exemption from state insurance laws
protecting small businesses or to avoid state initiatives to increase
the availability of affordable health insurance coverage. Unlike the
outright scams these schemes straddle the line between regulatory
violations and criminal conduct.
\24\ In the case of American Benefit Plans, although the Texas
Insurance Department had a letter from the U.S. Department of Labor
stating that the arrangement was subject to state regulation, one of
its promoters, nonetheless, removed the state case to a federal court.
See Kofman, Mila ``Association Health Plans: Loss of State Oversight
Means Regulatory Vacuum and More Fraud,'' Georgetown University Health
Policy Institute, July 2005, available at http://hpi.georgetown.edu/
ahp.html.
______
Mr. Kline [presiding]. Thank you very much. I am sure we
will have an opportunity for increased dialog when we get to
the question-and-answer session.
You have the floor, sir.
STATEMENT OF LARRY DROMBETTA, PRESIDENT AND CEO, H.R. STORES,
INC.
Mr. Drombetta. Thank you, Mr. Chairman, members of the
committee. My name is Larry Drombetta, and I am the president
and CEO of a small Maryland based company, H.R. Stores,
Incorporated. I am pleased to be here today on behalf of the
national retail federation. I commend you for holding these
timely meetings focusing attention on health care mandates as
they impact employees, employers and particularly on small
retail businesses like my own.
The NRF is a large retail trade association, membership
that comprises all retail format and channels of distribution.
The NRF also represents more than a hundred State, local and
national and international retail associations.
Mr. Chairman, as the employer of more than 23 million
employees, about 1 in every 5 Americans, the retail industry is
one of the biggest supporters of employer-based health
insurance. We also are mainstays of the economy with 2005 sales
of $4.4 trillion. Ours is not an easy employee population to
cover with health insurance. Our employees are fairly young;
they have high turnover rates. We employ half of all the
teenagers in the workforce, and one-third of all workers under
the age of 24 years old. More than a third of our retail
workforce is part-time, and two-thirds of that part-time
workforce are women. Often retail industry employees are
second-wage earners and mainstays of family economies.
I am the president and CEO of a very small company. We
operate shoe stores in Maryland, Virginia, North Carolina and
soon in Pennsylvania. We have a staff of 35; 33 are full time,
and 18 participate in the company health insurance program. My
health care costs have steadily increased through the years and
are increasingly unbearable. Coverage costs have increased by
155 percent in the period 2000 through 2006. My company has not
grown 155 percent, and we cannot continue to sustain these
coverage cost increases.
The cost increases are directly related to the impact of
not just my business and company but the people who work for me
and I work with. Let me explain how that relates. The younger
members of my staff drop insurance out of a belief that they
really don't need it. Some of us can recall how invincible we
felt when we were young. This leaves in turn my group aging,
having an increasing average age that in turn drives up the
rate. This process repeats itself each year as my group becomes
older and older.
My health insurance program is in what insurance industry
people call a health insurance death spiral. I appreciate the
Chairman's leadership in sponsoring legislation for association
health plans. I am hopeful the Senate will soon develop a
bipartisan counterpart bill and catch up with the House.
We as retailers offer good benefits but do not support
mandated provisions of benefits, particularly the entire--the
current cost environment and given the unique workforce mix we
contain, State health mandates do nothing to address the cost
of health care. In fact, they make matters worse. Legislation
mandating that employers spend arbitrary percentages on
benefits tends to--excuse me, a little nervous.
I believe that health care mandates amount to an ill-
advised tax. It will result in a tax on workers, a tax on
consumers and a tax on the economy in general. The National
Retail Federation has established a Tax on Jobs Coalition to
fight State health care mandates.
With the Chairman's permission, I would like to insert the
coalition matrix of spending State health care mandates at the
conclusion of my testimony.
[The information referred to follows:]
PENDING STATE HEALTH CARE MANDATE MATRIX
----------------------------------------------------------------------------------------------------------------
Number of
States targeted Bill employees/ Date of
by AFL-CIO number mandate Status Sponsor(s) introduction
mandate percentage
----------------------------------------------------------------------------------------------------------------
Alabama........ Session ............... ....................... ............................. ............
started
1/10/06
----------------------------------------------------------------------------------------------------------------
Alaska......... HB 449 2,000/8% ....................... Representative Croft; 2/13/06
Representative Guttenberg;
Representative Kertulla;
Representative Crawford
----------------------------------------------------------------------------------------------------------------
Arizona........ Session ............... ....................... ............................. ............
started
1/9/06
----------------------------------------------------------------------------------------------------------------
California..... SB 1414 10,000/8% Hearing May 8 in Senate Senator Midgen 2/22/06
Appropriations
Committee
------------------------------------------------------------------------------------------------
SB 593 20,000/don't ....................... Senator Alarcon 2/18/05
use %
----------------------------------------------------------------------------------------------------------------
Colorado....... HB 1316 3,500/11% Hearing Postponed Representative Solano; 2/6/06
Indefinitely Senator Tochtrop
----------------------------------------------------------------------------------------------------------------
Connecticut.... SB 462 5,000 Labor and Public Not Listed 3/1/06
Employees Committee
Hearing 3/9 at 2PM in
Room 2A
----------------------------------------------------------------------------------------------------------------
Delaware....... Session ............... ....................... ............................. ............
started
1/10/
2006
----------------------------------------------------------------------------------------------------------------
Florida........ HB 813 10,000/9% Referred to Health Care Representative Bucher 1/23/06
Regulation Committee
------------------------------------------------------------------------------------------------
SB 1618 10,000/9% ....................... Senator Campbell 1/25/06
----------------------------------------------------------------------------------------------------------------
Georgia........ HB 1339 10,000/8% Session adjourned Representative Orock 2/15/06
------------------------------------------------------------------------------------------------
SB 579 10,000/10% Session adjourned Senator Miles 2/21/06
----------------------------------------------------------------------------------------------------------------
Illinois....... Session ............... ....................... ............................. ............
started
1/11/
2006
----------------------------------------------------------------------------------------------------------------
Indiana........ Session ............... ....................... ............................. ............
started
1/09/
2006
----------------------------------------------------------------------------------------------------------------
Iowa........... HB 2430 10,000/8% Referred to Human Representative Taylor T. 2/16/06
Resources
------------------------------------------------------------------------------------------------
SB 2246 8,000/9% Referred to Commerce Senator Bolkcom 2/21/06
----------------------------------------------------------------------------------------------------------------
Kansas......... HB 2579 10,000/8% Session adjourned Representative Flaharty 1/9/06
------------------------------------------------------------------------------------------------
SB 557 10,000/8% Session adjourned ............................. 2/14/06
----------------------------------------------------------------------------------------------------------------
Kentucky....... HB 98 10,000/8% Session adjourned Representative Henley; 1/3/06
Representative Gray;
Representative Hoffman;
Representative Jenkins;
Representative Marzian
------------------------------------------------------------------------------------------------
HB 493 25,000/10% Session adjourned Representative Henley; 2/1/06
Representative Gray
----------------------------------------------------------------------------------------------------------------
Louisiana...... SB 69 Less than 8,000/ Referred to Senate Senator Nevers 3/13/06
8% Healthand Welfare
Committee
------------------------------------------------------------------------------------------------
HB 552 5,000/6% Referred to House Labor Representative Herbert 3/16/06
& Industrial Relations
----------------------------------------------------------------------------------------------------------------
Maryland....... HB 1510 Less than Rejected by the Health Delegate James Hubbard 2/15/06
10,000/4.5% and Govt Operations
Committee
----------------------------------------------------------------------------------------------------------------
Massachusetts.. MA SB 99/don't use % Referred to Committee Senator McGee; Senator Tolman 1/26/05
695 on Health Care
(intro Financing
in 2005)
----------------------------------------------------------------------------------------------------------------
Michigan....... SB 734 10000/8% Referred to Committee Senator Basham; Senator Clark- 9/6/05
on Commerce & Labor Coleman; Senator Jacobs;
Senator Thomas; Senator
Scott; Senator Brater;
Senator Clarke
----------------------------------------------------------------------------------------------------------------
Minnesota...... HF 74 10,000/6% ....................... Representative Latz 6/13/05
------------------------------------------------------------------------------------------------
(2005 ............... ....................... Representative Peterson ............
Special
Session)
------------------------------------------------------------------------------------------------
HB 2786 10,000/10% ....................... Representative Rukavina 2/16/06
------------------------------------------------------------------------------------------------
HF 3025 10,000/10% Referred to Health Representative Lesch 3/1/06
Policy & Finance
Committee
------------------------------------------------------------------------------------------------
HF 2573 10,000/10% Health Policy & Finance Representative Mullery 1/19/06
Committee Hearing 3/10
at 8:15 AM, Room 10
------------------------------------------------------------------------------------------------
SB 2672 10,000/8% Committee Meeting in Senator Lourey 3/2/06
Health & Human
Services Budget
Division 3/23/06 in
Room 123 Capitol
------------------------------------------------------------------------------------------------
SB 2673 10,000/8% ....................... Senator Lourey 3/2/06
------------------------------------------------------------------------------------------------
SB 2674 10,000/10% ....................... Senator Lourey 3/2/06
------------------------------------------------------------------------------------------------
HF 3143 10,000/8% Referred to Jobs & Representative Lesch 3/8/06
Economic Opportunity
Policy & Finance
Committees
------------------------------------------------------------------------------------------------
SB 2839 10,000/10% Referred to Jobs, Senator Tomassoni 3/8/06
Energy, & Community
Development Committee
----------------------------------------------------------------------------------------------------------------
Mississippi.... SB 2684 10,000/8% Legislation is dead Senator Dawkins; Senator ............
Williamson
----------------------------------------------------------------------------------------------------------------
Missouri....... SB 944 10,000/10% ....................... Senator Bray; Senator Green; 1/24/06
Senator Days
----------------------------------------------------------------------------------------------------------------
New Hampshire.. HB 1704 1,500/10.5% Legislation is dead Representative Moody; 1/10/06
Representative M.J. Quandt;
Representative Waltz
----------------------------------------------------------------------------------------------------------------
New Jersey..... SB 477 1,000/$4.17 an ....................... Senator Sweeney; Senator 1/10/06
hour Coniglio
------------------------------------------------------------------------------------------------
SB 1320 10,000/8% Referred to Senate Senator Vitale; Senator Buono 2/6/06
Labor Committee
------------------------------------------------------------------------------------------------
AB 2513 10,000/8% Referred to Assembly Assemblyman Cohen 2/9/06
Financial Institutions
and Insurance
Committee
------------------------------------------------------------------------------------------------
AB 2891 1,000/$4.17 an ....................... Assemblyman Burzichelli 3/21/06
hour
----------------------------------------------------------------------------------------------------------------
New Mexico..... Session ............... ....................... ............................. ............
started
1/17/
2006
----------------------------------------------------------------------------------------------------------------
New York....... SB 6472 500 employees/ Amended and recommitted Senator Klein 1/20/06
$3 per hr.for to the Committee on
health care Labor
------------------------------------------------------------------------------------------------
A 10583 100 employees/ Referred to Health Assemblyman Gottfried 4/4/06
$3 per hr. Cmte.
------------------------------------------------------------------------------------------------
SB 7090 100 /$ 3 per hr Committee on Health Senator Spano 3/21/06
------------------------------------------------------------------------------------------------
A 9534 10,000/8% Committee on Codes Assemblyman O'Donnell 1/17/06
------------------------------------------------------------------------------------------------
A 9776 500 employees/ ....................... Assemblyman Peralta 2/1/06
$3 per hr. for
health care
----------------------------------------------------------------------------------------------------------------
Ohio........... HB 471 30,000/8% Referred to House Representative Garrison; 1/17/06
Finance & Representative Healy
Appropriations
Committee
------------------------------------------------------------------------------------------------
SB 256 10,000/8% Referred to Senate Senator Brady 1/18/06
Commerce & Labor
Committee
------------------------------------------------------------------------------------------------
SB 258 1,000/8% Referred to Senate Senator Brady; Senator 1/19/06
Commerce & Labor Prentiss; Senator Roberts;
Committee Senator Hagan
----------------------------------------------------------------------------------------------------------------
Oklahoma....... HB 2678 3,000/9% Referred to House Representative Gilbert 1/18/06
Insurance Committee
----------------------------------------------------------------------------------------------------------------
Pennsylvania... HB 2495 10,000/9% Referred to Committee Representative J. Taylor 4/5/06
on Insurance
----------------------------------------------------------------------------------------------------------------
Rhode Island... HB 6984 1,000/8% Referred to House Representative Naughton; 1/31/06
Finance Representative Gallison;
Representative Pacheco;
Representative Almeida;
Representative Slater
------------------------------------------------------------------------------------------------
HB 6917 1,000/8% Referred to House Representative Rice; 1/25/06
Finance Representative Handy;
Representative Sullivan;
Representative Faria;
Representative Almeida
------------------------------------------------------------------------------------------------
SB 2201 1,000/8% Referred to Senate Senator Pichardo; Senator 1/26/06
Health and Human Perrt; Senator Ciccone;
Services Senator Issa; Senator Lanzi
----------------------------------------------------------------------------------------------------------------
Tennessee...... SB 3392 10,000/8% Referred to Senate Senator Herron 2/16/06
Interim Committee
------------------------------------------------------------------------------------------------
HB 3962 10,000/8% Referred to House Representative McMillan 2/23/06
Interim Committee
------------------------------------------------------------------------------------------------
HB 3354 10,000/10% Referred to House Representative Turner 2/23/06
Interim Committee
------------------------------------------------------------------------------------------------
SB 3729 10,000/10% Referred to Senate Senator Cohen 2/23/06
Interim Committee
------------------------------------------------------------------------------------------------
HB 3686 1,000/8% Referred to House Representative Johnson R 2/24/06
Interim Committee
------------------------------------------------------------------------------------------------
SB 3755 1,000/8% Referred to Senate Senator Burchett 2/24/06
Interim Committee
----------------------------------------------------------------------------------------------------------------
Washington..... HB 2517 5,000/9% Legislation is dead Representative Cody; 1/10/06
Representative Conway;
Representative Chase;
Representative Morrell;
Representative Appleton;
Representative Green;
Representative Wood;
Representative Hasegawa;
Representative Hudgins;
Representative Ormsby;
Representative Miloscia;
Representative Dickerson;
Representative Kenney;
Representative Moeller;
Representative McDermott;
Representative Sells;
Representative Hunt;
Representative Williams;
Representative Simpson;
Representative Roberts;
Representative Schual-Berke;
Representative Lantz;
Representative McIntire;
Representative Kagi
------------------------------------------------------------------------------------------------
S 6356 5,000/9% Legislation is dead Senator Kohl-Welles; Senator 1/11/06
Keiser; Senator McAuliffe;
Senator Franklin; Senator
Thibaudeau; Senator Fairley;
Senator Prentice; Senator
Kline
----------------------------------------------------------------------------------------------------------------
West Virginia.. SB 147 10,000/8% Legislation is dead Senator Hunter; Senator 1/13/06
Kessler; Senator Dempsey;
Senator Foster; Senator
Lanham; Senator McCabe;
Senator Jenkins
------------------------------------------------------------------------------------------------
HB 4024 10,000/8% Legislation is dead Delegate Brown; Delegate 1/16/06
Caputo; Delegate Hartman;
Delegate Hrutkay
----------------------------------------------------------------------------------------------------------------
Wisconsin...... AB 860 10,000/don't Legislation is dead Representative Berceau; 12/8/05
use % Representative Nelson;
Representative Lehman;
Representative Black;
Representative Pope-Roberts;
Representative Sinicki;
Representative Zepnick;
Representative Shilling;
Representative Molepske
------------------------------------------------------------------------------------------------
SB 440 10,000/don't Legislation is dead Senator Hansen; Senator 11/16/05
use % Robson; Senator Taylor
----------------------------------------------------------------------------------------------------------------
Mr. Kline. Without objection, that will be inserted and all
your written testimony will be inserted.
Mr. Drombetta. The special interest groups that are at the
State level make no secret of the ambition to move to expand
mandates to cover employers of all sizes. Let me be specific
with two examples. In the aftermath of the Maryland veto
override, legislation, House Bill 1510, was introduced by the
original law sponsors that would apply the same Maryland
payroll tax to all businesses in the State with fewer than
10,000 employees. These employees would be required to spend at
least 4.5 percent of their payroll on health expense.
To the committee, I would tell you my raw dollars spent in
support of health care exceed that. And if my costs had gone up
from 2000 through 2006, which you heard me mention, I don't
know how mandating a percentage changes that.
In New York, legislation is currently being considered that
would mandate all employers in the State with more than 100
employees spending at least $3 per hour on employee hours
worked to pay for health cost. No distinction is made between
part-time and seasonal employees. Obviously, the legislation
would do nothing to address the fact in the State of New York
the health care costs are the highest in the Nation.
I see my time has expired, and I haven't done a good job of
delivering my entire text but you certainly have it, and I
would welcome any questions the committee may have.
[The prepared statement of Mr. Drombetta follows:]
Prepared Statement of Larry Drombetta, President and CEO, HR Stores,
Inc., on Behalf of the National Retail Federation
Mr. Chairman and honored members of the committee, my name Larry
Drombetta and I am the President and CEO of HR Stores, Inc. I am
pleased to appear today on behalf of the National Retail Federation
(NRF). On behalf of my fellow NRF retailers, I commend you for holding
this hearing to focus attention on the effect of health care mandates
on employees and employers, particularly on smaller retail businesses
like my own.
The NRF is the world's largest retail trade association, with
membership that comprises all retail formats and channels of
distribution including department, specialty, discount, catalog,
Internet, independent stores, chain restaurants, drug and grocery
stores as well as the industry's key trading partners of retail goods
and services. The NRF represents an industry with more than 1.4 million
U.S. retail establishments and 2005 sales of $4.4 trillion. As the
industry umbrella group, NRF also represents more than 100 state,
national and international retail associations. www.nrf.com.
As the employer of more than 23 million employees (about one of
every five Americans), the retail industry is one of the biggest
supporters of the employer-based health insurance system. We are also
mainstays of the economy. Our 1.6 million retail and restaurant
establishments had sales of $4.4 trillion in 2005, or 8.6% of our
nation's Gross Domestic Product. According to the Bureau of Labor
Statistics, our industry will add some 1.65 million new jobs over the
next decade: an increase of 11%. We added 500,000 new jobs in 2005
alone.
Ours is not an easy workforce population to cover with health
insurance. We have a fairly young workforce (though with a significant
senior cohort) with a high turnover rate. We employ half of all
teenagers in the workforce and a third of all workers under 24 years
old. More than a third (35%) of this workforce is part-time. Two-thirds
of our part-time employees are women. Often retail industry employees
are second wage earners, mainstays of family economies. Some qualified
retail workers opt-out of the coverage we offer because they already
have alternative coverage through a family member or another job.
HR Stores, Inc.
Let me tell you a little about my own company. I am the President
and CEO of a small company that operates 12 shoe stores in Maryland,
Virginia, North Carolina and Pennsylvania. We have a staff of 35 of
which 33 are full time and 18 participate in the company health
insurance program.
My health care costs have steadily increased through the years and
are increasingly unbearable. Coverage costs have increased by 155% from
2000-2006, a level my business cannot sustain with related growth. My
company has not grown 155% in this same period and cannot continue to
sustain these cost increases.
These cost increases directly impact my staff. This results in
younger members of the staff dropping out in the belief that they are
not likely to need the coverage at this price. This in turn results in
the group having an increase in the average age, driving up the rates
yet again. This process repeats itself year after year with the group
becoming older and more costly to cover each year. My health insurance
program is in what insurance industry people call a ``health insurance
death spiral.'' Under current law, there is nothing that I can do. The
end result will be no more insurance for my employees.
A Federal Solution Needed
I believe that what is needed is a federal solution that allows a
small business the same access to large group insurance rates that is
now available to larger companies and unions. The mechanics needed to
do so must be provided at a federal level and soon to avoid more small
businesses like mine reaching the end of company provided/supported
health insurance coverage.
We appreciate the work this committee has done to this end and
especially appreciate the leadership of Chairman Johnson in sponsoring
legislation for Association Health Plans (AHPs). I am hopeful that the
Senate will vote soon on the bipartisan counterpart bill introduced by
Sens. Enzi and Nelson. Perhaps then the Senate will at last catch up to
the House in supporting health insurance relief to small businesses
like my own.
I realize that there are many complexities involved in the cost of
health coverage and that my request only impacts a small part of the
solutions that we need nationally. The National Retail Federation
stands ready to work with you and your colleagues from both parties to
find these solutions.
I do hope that, on the way to seeking these solutions, we don't
overlook the more immediate needs of companies like mine--small
businesses caught in the health insurance death spiral. I also urge you
and your colleagues to avoid adding additional costs to my health
insurance burden. I refer here to the health insurance mandates and
mandates to provide coverage that are the focus of today's hearing.
Health Insurance Mandates Exacerbate Cost Pressures
Retailers provide their workers with good benefits that accommodate
the unique dynamics of the retail workforce. As I noted previously, our
workforce is dominated by young people, non-heads of household,
retirees and part-time and seasonal employees, many of whom have
coverage through sources other than their retail employer. We offer
coverage to help attract workers and to maintain a productive
workforce. Nevertheless, we are greatly concerned by the mandated
expansion of these benefits, particularly in the current cost
environment and given our unique workforce challenges.
State Health Care Mandates: Anti-Job, Anti-Business and Anti-Consumer
State health care mandates do nothing to address the real health
care challenge: rising health care costs and reduced accessibility. In
fact, they make matters worse. Legislation mandating that employers
spend arbitrary percentages of their payroll on health care does not
solve cost pressures but instead will jeopardize current employment
levels, stunt future job growth and raise consumer prices.
We believe state health care mandates amount to an ill-advised tax
on jobs. This is also a tax on workers, a tax on consumers and a tax on
the economy. We believe that we are already taxed quite enough, thank
you. Through my trade association, the National Retail Federation, my
fellow retailers and I have established the Tax on Jobs Coalition to
fight these state health care mandates.
Anti-Retail Industry
Many of these proposed state mandates have unfairly singled out the
retail industry. Imposing an arbitrary payroll tax on an industry with
already slim profit margins (averaging between two and three percent)
will force retailers to make a choice between laying off workers and
raising prices. Too often there is no choice but to look to both
options. States that pass mandated health care legislation should not
be surprised to see job losses, higher prices, fewer new stores,
limited store hours and services as well as diminished tax revenues.
The special interest groups pushing these bills at the state level
make no secret of their ambition to move beyond the retail industry to
expand their mandates to employers of all sizes. Once they establish
the precedent of gauging the sufficiency of employer contributions by
payroll size, they will seek to lower the employee thresholds and raise
the payroll tax--thus making all businesses susceptible to these
mandates.
Let me provide two examples. In the aftermath of the Maryland veto
override, legislation was introduced (H.B. 1510) by the original law's
sponsors that would apply the same Maryland payroll tax on all
businesses in the state with fewer than 10,000 employees. These
employers would be required to spend at least 4.5% of their payroll on
health expenses.
In New York, legislation is currently being considered that would
mandate that all employers in the state with more than 100 employees
spend at least $3.00 an hour per employee hour worked to pay for
employee health expenses. No distinction is made for part-time or
seasonal employees. Obviously, this legislation would do nothing to
address the fact that New York State still has the highest health care
costs in the nation.
This ``tax on jobs'' legislation is not about health care at all
but rather a legislative assault under the pretense of benefiting
working families--throwing more money into a health care black hole. We
hope that through the NRF Tax on Jobs Coalition we can work with you to
help turn the tide against mandated health benefits and to help
encourage policies that promote more affordable health insurance
coverage. We urge Congress also to look to less expansive and less
burdensome means to improving health insurance coverage. We stand ready
to assist your efforts.
Thank you, Mr. Chairman. I will look forward to any questions you
may have.
______
Mr. Kline. Thank you very much.
Mr. Kelly.
STATEMENT OF PAUL KELLY, SENIOR VICE PRESIDENT, RETAIL INDUSTRY
LEADERS ASSOCIATION
Mr. Kelly. Thank you. I appreciate the opportunity to
testify today.
Thank you, Mr. Kline, Chairman Johnson, and other
distinguished members of the panel.
By way of introduction, the Retail Leaders Industry
Association represents the largest and fastest-growing
companies in the retail industry. Its members operate more than
100,000 places of business, have facilities in all 50 States
and provide millions of jobs to American workers.
RILA is governed by a board of directors that includes the
top leadership in some of the country's most innovative and
successful companies, including Best Buy, Target, Ikea, Wal-
Mart, Lowes, Dollar General, Petco and other retail leaders.
Let me get right to the bottom line. We are adamantly
opposed to the unlawful State healthcare mandates that are the
subject of today's hearing. RILA members want to and in fact do
provide competitive health care benefits to their employees.
But they do not intend to be dictated to by State governments
about how those benefits should be structured or how much they
should spend for those benefits. That is why our board of
directors unanimously charged RILA to challenge these misguided
statutes in court. These laws violate the Federal ERISA statute
and are little more than hollow political gimmicks that do
nothing to address the real health care challenges facing our
Nation.
We strongly oppose healthcare spending mandates enacted in
Maryland and Suffolk County, New York, and similar bills they
have spawned across the country. These so-called fair-share
bills remove a key element of flexibility by forcing businesses
to spend a specific prescribed amount on health care benefits
or, failing that, to pay a penalty to the state.
The exact percentage and the size of the companies captured
by the mandate vary from jurisdiction, but the basic formula is
the same: It is our position that these health mandates
restrict employers' ability to be flexible, to respond to
market conditions, and to react to the needs of their
employees. Therefore, they significantly complicate and chill
employers' efforts to provide health care benefits.
Just as important, we oppose these laws because they ignore
the most pressing problems in health care today, namely ever-
growing health care costs and the needs of the uninsured.
Simply forcing employers to pay a specific amount for health
care does nothing to reduce health care costs. To the contrary,
it merely forces them to pay more for coverage that is already
expensive.
Furthermore, the law does virtually nothing to address the
needs of the uninsured and provides no assurance that a single
person will gain coverage. In fact, Maryland's law affects only
a tiny fraction of those working in the State partly due to the
fact that the Maryland legislature excluded the government, the
State Government from the bill. That is right, the law does
nothing to provide health care for almost 20,000 uninsured
employees who work for State and local governments in Maryland.
RILA recognized early that the Maryland law was a dangerous
precedent not just for our members for all businesses who would
likely--and that the bill would likely serve as a model for
similar or even worse legislation in other States. And that is
why RILA traveled to Annapolis last spring to testify against
the Maryland law when it was being considered in the State
legislature.
Each time we asked Maryland lawmakers to reject this
spending mandate, we urge them to instead work with RILA and
all stakeholders on figuring out ways to combat health care
costs. Again, costs are the real problem in health care, but
laws like these do nothing to address costs.
So once the Maryland bill became law, our industry had
really only one avenue left to challenge this spending mandate
and that was the Federal courts. In February, RILA filed two
lawsuits seeking to overturn the new spending mandates in
Maryland and Suffolk County. Our cases maintain that both laws
violate the Federal ERISA statute and arbitrarily single out
certainly employers for unfair discriminatory mandates.
We are pleased that four important allies have submitted
friend of the court briefs in support of our leadership efforts
to overturn the Maryland law. These groups include the U.S. and
Maryland Chambers of Commerce, the National Federation of
Independent Businesses, and the Society of Human Resource
Management. RILA is confident that its lawsuits will be
successful and that the recently enacted statutes will be
overturned.
In the meantime, we hope other jurisdictions will await the
results of our two court cases before considering similar
legislation.
In closing, Mr. Chairman, RILA believes that ERISA is a key
linchpin that undergirds our Nation's system of voluntary
employer-sponsored health care. When Congress enacted ERISA
more than three decades ago, it created a system that
encourages employers to offer employee health benefits by
permitting them to administer health plans uniformly and
efficiently. This is especially important to employers like
those who RILA represents who operate in multiple States.
Without such uniformity, these employers would be faced with a
hodgepodge of complex, conflicting State regulations that would
make providing health benefits administratively cumbersome,
more expensive and much less attractive to provide.
If we allow ERISA to be eroded by fair-share spending
mandates or other State or local incursions, then we are headed
down a dangerous track that could jeopardize employer-sponsored
health care in this country. ERISA is critical, and it must be
defended. Thank you, Mr. Chairman.
[The prepared statement of Mr. Kelly follows:]
Prepared Statement of Paul T. Kelly, Senior Vice President, Federal &
State Government Affairs, Retail Industry Leaders Association
Introduction
Good morning. I am Paul T. Kelly, Senior Vice President, Federal &
State Government Affairs for the Retail Industry Leaders Association
(RILA). Allow me to begin by expressing my appreciation to Chairman
Johnson, Ranking Member Andrews and the other Members of the
Subcommittee for the opportunity to appear today, to offer RILA's
position on state and local health care mandates.
By way of introduction, RILA represents the largest and fastest-
growing companies in the retail industry. Its members include more than
400 companies worldwide, including retailers, product manufacturers,
and service suppliers, which together account for more than $1.4
trillion in annual sales. RILA members operate more than 100,000
stores, manufacturing facilities, and distribution centers, have
facilities in all 50 states, and provide millions of jobs both here and
abroad. In fact, today, one in five Americans is employed by the retail
sector making retail one of the most important employers and economic
drivers in our economy. Finally, RILA is governed by a Board of
Directors that includes the top leadership of some of the country's
most innovative and successful companies, including Best Buy, PETCO
Animal Supplies, Target, Wal-Mart Stores, IKEA, Procter & Gamble,
Lowe's Home Improvement, Dollar General and other retail leaders.
For members of RILA, offering competitive salaries and
comprehensive benefits is not just good for employees; it is also good
for business. Attracting and retaining a qualified and satisfied team
of employees is one of the most significant challenges that our members
face everyday. Throughout the country, competition for employees is
robust; especially in times of low unemployment such as we are
experiencing in today's economy. As a result, RILA members on average
pay their hourly employees nearly twice the federal minimum wage, and
offer competitive benefit plans that often include health care
benefits, employee discounts, profit sharing and retirement savings
plans, stock option plans, disability insurance, training and
educational opportunities, and other benefits. RILA members want
employees who are healthy, productive and satisfied with their jobs--
and the competitive nature of their industry demands that they provide
attractive employee benefits. In short, RILA members have strong
economic and altruistic incentives for providing competitive employee
benefits and they oppose state and local government mandates that would
limit their ability to design benefit plans that meet the needs of
their workforce.
Leadership in Fighting Spending Mandates
RILA has a long history of involvement in federal, state and local
public policy issues that impact our members, their customers and
employees. RILA has worked closely with state retail associations,
state and local business groups, and other organizations to take action
whenever state and local policies threaten to adversely impact our
members, such as the health plan spending mandates we are discussing
today.
RILA has been at the forefront of efforts to resist health plan
spending mandates imposed by states. Our members believe that lawmakers
should focus on the root causes of our nation's health care
challenges--particularly ever-increasing health care costs--rather than
simplistically forcing employers to pay more for health care benefits
that they are already struggling to afford.
In 2004, RILA organized its members and joined a larger business
coalition to help defeat a California ballot initiative (Proposition
72) that would have forced most employers to provide expensive employee
health care coverage. In the spring of 2005, RILA traveled to
Annapolis, Maryland, to testify against legislation to impose a health
plan spending mandate on large employers in the state. And, in the
autumn of 2005, RILA urged legislators to reject the Suffolk County,
New York, legislation that imposes a health care mandate on large, non-
unionized retailers that sell groceries. RILA was the only national
organization to testify before the legislature in opposition to
Maryland's health care mandate, and is proud of its ongoing leadership
on both the legislative and legal fronts in the battle against these
mandates.
Since that time, both bills have been enacted into law, and while
that is not the outcome we would have favored, RILA is heartened that
other business organizations have increased their involvement in
opposing these ill-advised proposals. Today, RILA continues to take a
leading role in working with state retail associations, small business
groups, and other organizations to oppose similar bills that have been
introduced in more than 30 states and localities.
And, as the committee is aware, RILA has also challenged these
unwise spending mandates in court on the grounds that they unlawfully
regulate health benefit plans that Congress intended to be regulated
under the federal Employee Retirement Income Security Act (ERISA). A
discussion of these legal challenges follows later in this statement.
RILA's View on Health Care
Everyone agrees that good health care and good health benefits are
important. Health care issues are a key concern for retailers, both
large and small. As such, RILA supports meaningful efforts to improve
our system of health care for everyone. For the last several years,
RILA has urged lawmakers to focus on policies that will help reduce
health care costs. Premiums for employer-sponsored health insurance
have experienced significant increases for the last several years.
Health care insurance premiums increased 9.2 percent last year, and are
projected to increase another 10 percent this year, and health care
spending now represents 16 percent of the nation's gross domestic
product--an all time record. Clearly, something needs to be done about
costs. The retail industry is highly competitive with razor-thin profit
margins, and ever-increasing health care costs put great pressure on
our members' businesses. Penalizing low-margin businesses by forcing
them to pay more for health benefits makes no sense, and does nothing
to address the real problem in health care. Any additional costs forced
upon retailers by local, state or federal governments will jeopardize
their ability to continue to offer benefits that may be more important
to workers.
As leaders in providing value to American consumers, RILA members
see tremendous opportunity for Congress to take action on policies that
will improve the health care system by stimulating more competition
within that system. RILA members are not health care experts and we do
not presume to have all the answers to our nation's complex and
entrenched health care challenges. However, just as RILA members have
transformed the retail market through competition and innovation--all
to the benefit of consumers--we are confident that enhanced competition
will bring important improvements to the health care system as well. We
support policies that will:
Empower individuals by giving them more control over their
health care choices and spending--what is sometimes broadly called
consumer-directed care;
Provide individuals and employers with more and better
information about prices and the quality of the care they are
purchasing, including information about health providers and insurance
plans;
Help make health benefits portable, so workers can take
benefits--or the money they would use to pay for benefits--with them
when they switch jobs;
Encourage wellness programs, preventative care and disease
management services; and
Stimulate innovative technologies to help reduce medical
errors and shrink administrative costs.
We readily admit that none of these ideas are new or
groundbreaking, and other policies surely will need to be explored.
However, we believe these ideas will help move us toward a more
competitive health care system where costs will be lowered--and that
lower costs will help bring affordable health care options within reach
of more Americans.
And, importantly, we also strongly support current policies that
encourage employers to voluntarily provide health care coverage--of
which ERISA is a key and indispensable component.
The Importance of ERISA
When Congress enacted ERISA more than three decades ago, it created
a system that encourages employers to offer employee health benefits by
permitting them to administer health plans uniformly and efficiently.
This is especially important to employers that operate in multiple
states, such as RILA's members. Without such uniformity, these
employers would be faced with a patchwork of complex and conflicting
state regulations that would make providing health care benefits much
less attractive.
The single, national regulatory framework afforded by ERISA gives
companies the flexibility they need to meet and respond to the unique
requirements of their workforce. This is especially important to
retailers who employ a much younger workforce than most industries. In
fact, one-third of all retail workers are under 24 years of age, as
compared with only 14 percent for all industries. Young people often
decline to participate in employee-sponsored health care for a variety
of reasons. Retailers also have a high percentage of workers who choose
to work part time. Given the unique demographics of their workforce,
retailers need flexibility in devising health plans that meet their
distinctive characteristics, and ERISA gives them that flexibility.
Today, however, ERISA's uniformity and efficiency are under attack
by lawmakers who seek to undermine it with a patchwork system in which
state and local governments could regulate health plans--each imposing
a unique set of regulations and costs on the benefit plans offered by
employers. As RILA member James Myers, CEO of PETCO Animal Supplies,
Inc., recently observed, ``The health care system cannot be fixed with
a patchwork of state and local mandates that require individual
industries to play by different rules. It's a national issue that
requires a national approach.''
State and local legislation seeking to mandate arbitrary health
plan spending levels for businesses is misguided and unwise because it
does nothing to address the most significant health care challenge that
needs to be addressed, namely health care costs. And this legislation
is fundamentally unlawful, because it violates ERISA and, in some
instances, the constitutional principle that our laws should not
arbitrarily discriminate. Legislation that singles out any one company
or industry in this way is unlawful, unwise, and should not be
supported by policymakers.
State and Local Health Spending Mandates are Unwise, Ineffective and
Unlawful
RILA and its members are strongly opposed to unwise statutory
health plan spending mandates imposed by government at any level. We
have been reminding policymakers that health plan spending mandates in
themselves do nothing to improve the quality of health care or address
health care costs. Paradoxical as it may seem, more health care
spending does not equate with increased health care quality. Spending
alone is not the solution.
In addition, we oppose these mandates because we believe they have
the potential to harm both employers and the overall employment
climate. If state and local health plan spending mandates are
permitted, businesses may be forced to abandon plans for growth, reduce
jobs or consider reducing employee compensation and other benefit
areas.
We are continuing the efforts to combat health plan spending
mandates at the state and local levels that target both large and small
companies that belong to RILA. Based on experience, we believe that
whenever legislation singles out just one commercial industry or one
segment of an industry, all businesses should be concerned. Any bill
that mandates health care spending makes no sense for retail
businesses, regardless of size. Both large and small businesses oppose
arbitrary requirements for health care benefits.
RILA is now coordinating opposition to these mandates through
public policy, public relations, and networking efforts at the local,
state, and federal levels. That is why we are here today. We also
maintain an active liaison with other retail associations and business
groups that share our concerns. Even groups whose members are not yet
impacted by these laws stand with us in opposition because they
recognize the threat that these laws represent. In fact, RILA's legal
challenge to the Maryland health care mandate has been supported
through ``friend of the court'' briefs by the National Federation of
Independent Business, the Society of Human Resource Management and the
Maryland and U.S. Chambers of Commerce. Clearly, these discriminatory
mandates--even though narrowly focused on large businesses--are of
grave concern to the broader business community.
Spending mandates such as these are bad policy and bad law, and
should not be enacted elsewhere. In fact, given the well-grounded
lawsuits that RILA filed in those two jurisdictions in February, which
I will discuss in a moment, we would hope other jurisdictions would
await the results in these two cases before considering similar
legislation.
Laws Driven by Special Interest Concerns
At present there is an aggressive coordinated campaign underway
across the country by organized labor to introduce health plan spending
mandates. We understand that labor unions have their own agenda
designed to advance their own interests, but in this case that agenda
has harmful consequences for our members, customers and employees.
Organized labor groups are asking lawmakers in 33 states to enact
model legislation forcing large employers to spend a percentage of
their payroll on employee health care benefits or else pay a fine, in
effect, to a state health care fund. The exact percentages, and the
size of the companies captured by the mandate, vary from state-to-
state, but the basic formula is the same: employers with a specific
number of workers would be mandated to pay a specific amount or
percentage on worker health benefits. To the extent an employer's
spending falls short of these mandated amounts, the difference would
have to be paid to a state fund set up by the legislation for the
supposed purpose of defraying state expenditures on health care.
So far, the State of Maryland, New York City, and Suffolk County,
New York have enacted discriminatory health care mandates that
prescribe arbitrary spending requirements. As we have noted, earlier
this year, the Maryland State Legislature enacted the so-called ``Fair
Share Health Care Fund Act,'' requiring employers with more than 10,000
employees to make expenditures on health benefits equal to 8 percent of
total compensation paid to their employees. In Suffolk County, New
York, the law specifically targeted non-unionized food retailers,
requiring that they make health care payments at a rate of no less than
$3 per hour worked. Since that time, Suffolk County has amended its
law, to modify the $3 per hour mandate, in direct response to the
litigation initiated by RILA. While RILA is still reviewing this
amended legislation, we believe that the amended law remains an unwise
and unlawful health benefit mandate.
Versions proposed in other states include smaller businesses and
mandate even higher levels of health spending. That is why all of our
members and the business community at large are so concerned about
these proposals. Clearly, it is only a matter of time before the
proponents of this approach target even more businesses for these
spending mandates. For example, in Oklahoma, a version of this bill
requires businesses with 3000 workers to pay 9 percent of payroll on
health care. In New Hampshire, the threshold is 1500 employees with a
10.5 percent spending requirement. In Rhode Island, the thresholds are
1,000 employees and 8 percent of payroll. In New Jersey, a spending
mandate would apply to businesses with 1,000 employees and in New York,
businesses with 100 workers would be hit. In all, 30 states have
initiated these types of bills and the legislation remains a viable
threat in many states. (RILA's detailed legislative matrix on the
status of all these bills is attached.)
And while these bills have lately become of concern to the broader
business community, there is little doubt that they initially were
designed to discriminate against a specific segment of the retail
community. Suffolk County Council public hearings reflected this. The
head of the New York State Food Industry Alliance opposed the original
version of the bill, saying it was ``far-reaching,'' ``inflationary,''
and would cause ``major economic damage.'' He also expressed concern
that it ``gets into our collective bargaining agreements with our
unions and supersedes them.'' The legal counsel for a large mini-market
chain cautioned that ``there are several areas where the bill could be
challenged legally. * * * First of all, the definition of employee is
broad * * * and there is an argument that ERISA may preempt this law. *
* * There is also a potential that the bill could be preempted by the
NLRA.''
In response, Suffolk County legislators told concerned witnesses
that this legislation was aimed only at out of town competitors. And
that's why in the final bill they exempted unionized companies; the
legislators had been told that the $3-an-hour spending mandate was more
than large unionized employers in Suffolk County were paying.
Since the law was initially enacted, Suffolk County has changed its
law specifically in response to the legal action initiated by RILA.
While RILA is still analyzing the revised Suffolk County law, we
believe that this new law still violates ERISA.
RILA Lawsuits
More than 30 years ago, Congress wisely created a single law to
govern employee health benefit plans--ERISA--to prevent a patchwork of
different state and local laws. The Supreme Court of the United States
has held repeatedly that state and local laws regulating employee
health benefit plans are superseded by this federal law. Moreover, the
U.S. Constitution and some state constitutions specifically prohibit
laws that arbitrarily discriminate against any one entity or group of
entities, as these laws do.
Recognizing the troubling precedent that the Maryland and Suffolk
County, New York laws represented, in January 2006, RILA's Board of
Directors unanimously authorized the association to pursue legal
challenges to the laws. RILA filed two lawsuits in February 2006, one
seeking to overturn the new benefits mandate law in Maryland, and the
other addressing the similar statute in Suffolk County, New York. We
maintain that both laws arbitrarily single out certain employers for
improper and discriminatory health plan spending mandates. We are
challenging these laws on a variety of federal and state bases.
The Maryland law requires significant expenditures by one large
employer in the state, at present. Supposedly, this was done to improve
health coverage in the state, but it will do no such thing. Maryland's
law actually would affect only a very tiny fraction of the state's
workers. Interestingly enough, more of the uninsured in Maryland work
for state and local governments, and in sectors other than retailing.
As originally adopted, Suffolk County's law requiring health care
payments at a rate of no less than $3 per hour worked. This law also
was discriminatory in a way that did nothing to address the problem it
was supposed to solve.
Again, let me reiterate that while we recognize that the law has
since been amended, we still believe that the mandate it imposes is
unlawful.
ERISA
When the U.S. Congress created a single law to govern employee
health benefit plans in 1974, as an incentive for employers to offer
these plans, it correctly recognized that it was in employers'
interests to have a uniform and consistent law regulating employee
benefit plans. The protections that ERISA gives for employee benefit
plans have proven to be good public policy; and over the last three
decades, the U.S. Supreme Court has repeatedly ruled that ERISA is
preemptive. It says that states and localities cannot force mandates on
employee health benefit plans. RILA believes that legislation in
Maryland, like the Suffolk County law (in its original form, and as
amended), violates this important and well-established principle.
U.S. Constitution
We also contend that discriminatory health care mandates are
inconsistent with other important requirements of federal and state
law. They violate the Equal Protection Clause of the Constitution,
which prohibits irrational, discriminatory distinctions in the law. The
Constitution prohibits anyone from arbitrarily targeting certain
employers, and unreasonably singling some out for health care
requirements not expected of others. Yet that is exactly what is done
by discriminatory health care mandates.
RILA is confident in its position and optimistic that its lawsuits
will be successful and that the recently enacted statutes in Maryland
and Suffolk County, New York, will be overturned.
Conclusion
Mr. Chairman, we all know that our nation faces serious health care
challenges today. But a real solution does not involve quick-fix,
simplistic approaches that ignore the fundamental causes of the health
care crisis in this country. I want to make clear that RILA supports
initiatives designed to increase access to health care and to promote
competition in the health care marketplace through comprehensive
policies that will help control skyrocketing health care costs.
Discriminatory health care mandates do nothing to reduce health care
costs, but actually increase costs for employers who are already
struggling to provide workers with affordable health coverage.
RILA urges Congress to work with retailers and other stakeholders
concerned about this important issue to achieve meaningful reforms to
the health care system, instead of imposing unwise and ineffective
health care mandates on businesses.
Thank you very much.
______
Chairman Johnson [presiding]. Thank, you sir. I appreciate
your testimony. I thank you all for testifying today.
Mr. Garthwaite, your testimony made sense to me. I sat
through a couple of hours of testimony on the new Medicare
prescription drug plan yesterday, part D. You all are aware, I
am sure. And there was compelling evidence that choice and
competition work so it makes perfect sense that a one-size-fit-
all approach wouldn't succeed in bringing down costs for
employers or employees.
One thing I would like to focus on is how the blunt
instrument of a mandate affects options for employees. There
are all kinds of insurance products out there, and it seems
like people should be able to choose the option they want. For
example, a younger person who doesn't smoke might not want the
same kind of insurance a 55-year old smoker might want. Can you
explain to me how a mandate might limit their options?
Mr. Garthwaite. Certainly. If you take, for example,
California, which was the linchpin that started most of the
State-mandated reforms in the recent years, they required a
minimum level of benefit that was extremely rich. It required
full HMO coverage, full prescription drug coverage, very gold
standard coverage, which is good, as you said, for older
Americans, someone who may smoke, may need that kind of day-to-
day care.
For someone who is younger, it may make more sense for them
to look for some sort of catastrophic plan where they are
insured for some sort of horrible event but takes care of their
regular routine maintenance out of pocket. Maybe they can come
out with some sort of health care savings accounts. Any sort of
mandate that requires a minimum level of benefit would exclude
the ability for companies to enact these kind of choices for
their employees.
Chairman Johnson. So really what you are saying is that if
the employer was forced to offer insurance, there is nothing
that says a younger guy has to participate, unless the State
requires it, and if they do, then he may not be getting the
lowest cost insurance for himself. Is that true?
Mr. Garthwaite. In California, there was a mandate both on
the employer to provide coverage and on the employee to accept
it. So the employee was responsible for paying for 20 percent
of the cost of this very expensive coverage and didn't have the
option to seek out other insurance options.
Chairman Johnson. I think that I will pass to my friend Mr.
Payne for questions.
You are recognized for 5 minutes, if you desire.
Mr. Payne. Thank you very much. Let me thank all of you for
your testimony. I think the first speaker Mr. Garthwaite
mentioned in your opinion it seems unfair that the cost of
health care should be shifted to the backs of the employee.
Since a person works for a company, how do you characterize
that as shifting the burden back? Do you feel that in your--
therefore, I would conclude that in your opinion that health
care is simply the responsibility of the individual, period. Is
that what you conclude by that statement you made?
Mr. Garthwaite. What I was referring to is what the
research shows is, when you mandate an employer provides health
coverage, they react in the way, I am sure Mr. Drombetta can
speak better, they will look for ways to save money on that.
They lower the wages of the employee. So it ends up that the
employee ends up paying for the insurance even if they are not
nominally footing the bill.
Furthermore, in cases where they can't actually lower the
wages, they look to treat it like an increase in the minimum
wage, for example, where they will lay off employees in order
to maintain their profitability.
Mr. Payne. Mr. Drombetta, you were mentioning the names of
the organizations, State chamber, et cetera, small business,
whatever, that oppose this. How do they characterize, and
maybe, Mr. Kelly, you have strong feelings too, maybe you can
also chime in, how do you characterize the businesses that
provide health care? I mean, you are all sitting around the
table--a good example, UPS does provide health care for part-
time employees. They compete against FedEx and even the new
guys in from Germany, DL-something, subsidized by their
government and creating problems in that industry.
You all sit around the table with the chamber guys, and the
chamber comes out and says, we should not put the
responsibility on the company that doesn't want to do it, and
the guy next to him is doing it. How do you--how does that
work?
Mr. Drombetta. I can't speak for UPS or FedEx.
Mr. Payne. Maybe Mr. Kelly.
Mr. Drombetta. But I would like an opportunity to respond
because as part of it I want to bring to light, I believe the
number I hear, if my recollection is correct, is that 65
percent of the uninsured nationally are in small businesses.
They don't work for FedEx or UPS. They are small business
owners, managers; they participate in small organizations. And
I don't know that my organization is necessarily a good measure
nationally of what is going on, but this I can tell the
committee with confidence, the bottom-line earnings in my
company cannot keep up with the increase in health care costs.
I have a small company, much the same as many small businesses,
and the rates are different for me than UPS.
Mr. Payne. I agree with you. As a matter of fact, the
majority of people work for small businesses, 80 to 85 percent
of Americans, believe it or not, work for small businesses, so
it is a real dilemma for small businesses. Maybe Mr. Kelly
might want to chime in on, how do you reconcile those who do
it? Because therefore it is a disincentive for the companies
who do provide it, and, second, when in our State, as we
mentioned, 50 percent of the people that work for a particular
company, I mentioned, have no coverage, and they, therefore,
when they are hospitalized, they end up with charity care,
which the taxpayers, someone who is paying health insurance
themselves, really have to pay for that employee because the
hospital is going to bill someone, and the State is usually the
provider of last resort.
Mr. Kelly. Well, just to be clear, as we said in our
written statement and I said in my oral statement, all of our
members provide health care benefits. None of them provide
exactly the same type of health care benefits, and that is why
we are emphasizing the importance of ERISA, because ERISA
provides them the opportunities to be flexible, to avoid State
mandates, local mandates which tie their hands in how they
provide care to employees.
I mentioned the U.S. Chamber of Commerce, the Maryland
Chamber of Commerce, and the National Federation of Independent
Businesses really to make the point that, while RILA represents
large employers, this is a concern across the business
community. Mr. Drombetta is evidence of that fact. These health
care mandates that are being introduced across the country will
eventually, people realize in the business community, get down
to impacting businesses of all size. That was really played out
in the State of Maryland. Shortly after we sued in Federal
courts to overturn the Maryland law, a bill was introduced in
Annapolis that would impact all employers with a similar
mandate.
So our point is, it is a very bad precedent, and it
concerns the entire business community.
Mr. Payne. My time has expired. But years ago, there was
H.R. 1200 that President Clinton was attempting to get national
health insurance. That would have been some way where everybody
could participate, totally opposed by everybody in business,
General Motors. That would have been some way the Federal
Government could participate.
I don't understand, what are we going to finally do to help
offset the cost? They don't want the Federal Government to be
involved in national health insurance; it was killed; don't
feel it is fair that a company should have the responsibility
to provide it.
This problem is not going to go away unless there is some
reconciliation of what way we are going to go as it relates to
health insurance. Believe me, as I end before my time totally
expires, there are more and more serious problems in the world
with climate change. You are going do have malaria into
moderate zone countries. It used to only be in tropical.
Because of the change of the weather, you are going to have
countries that never had a malaria problem, have it. Wait until
that, with the avian flu and all these other kinds of diseases,
comes forward. We have got a serious problem in front of us.
I will stop, Mr. Chairman. Thank you. You have been kind.
Chairman Johnson. The gentleman's time has expired, twice.
Thank you.
You know, part of the reason that companies provide
insurance coverage in the first place is competition, and that
happened some years ago when the companies were trying to get
employees to come work for them so they provided insurance, and
others didn't, so the guy has his choice. Nowadays, if you try
to Federalize health care, I think it is a mistake because
costs will go up, and that is why the most recent Medicare
change that you see that we passed here I think is working. It
has got an element of free enterprise involved in it. People
pick and choose. I think it makes a difference.
Mr. Kline, you are recognized for 5 minutes.
Mr. Kline. Thank you, Mr. Chairman. I would like to thank
the witnesses. This is indeed a very, very important subject as
we are looking at the cost of health insurance and how
employers are struggling to provide that health insurance for
their employees.
Mr. Drombetta, you mentioned the association of health
plans. Many of us on this committee and this House have been
trying for a very long time to get those enacted so that small
employers would have some of the same advantages that larger
employers have provided by ERISA. Now we are seeing that
perhaps some of those advantages are being eroded and hence the
subject of today's hearing.
Staff provided for us a piece of paper that looks like RILA
had put forward, and it is interesting to look at what is going
on in the States. I see that, in this year alone, it looks like
Rhode Island has three different bills proposed mandating
health care; Tennessee has about six. And I look at my own
State of Minnesota, and there are eight different proposals in
the legislature this year. It looks like to me we are building
a very large, confusing and unmanageable situation. We have in
Minnesota, we are the home of several very large companies,
many of them that you have mentioned, big companies like
General Mills and 3M and Best Buy and so forth. I can't imagine
how they deal with providing health care if there are now--if
the protections of ERISA go away, and they now have to comply
with these many mandates. A perplexing problem.
It looked like we are very much aware of what was going on
in Maryland because it is right next door here, but it looks
like now that sort of thing is spreading. Mr. Kelly, you talked
about this earlier. And you provided this.
What are you seeing in terms of success rates? This shows
bills introduced. What is happening in other States as far as
actually changing the law, getting it signed, Governors
signing?
Mr. Kelly. Well, we are seeing, as you indicate, these have
been introduced across the country. It is close to 30, if it is
not 30 States where it has been introduced. Many States have
really not acted on them, but I will say there are other States
where these remain legislative proposals subject to hearing and
debate, large States like California, New York, New Jersey,
smaller States like Rhode Island. It continues to be something
that percolates and is something that has the entire business
community, has their interest, and they are very concerned
about, and we are doing everything we can to work with other
trade groups, other business groups to again not just oppose
this but to oppose it and help lawmakers figure out ways to
reduce costs and to address the real problems in health care
that could help make health insurance and health care
affordable and within reach for more folks.
Mr. Kline. I thank you. I think it is an issue that has
been in front of us, and we have been grappling with it in many
ways. I am a big proponent of the health savings accounts
enacted into law with the Medicare modernization bill. I have
talked to a number of employers, large and small and employees,
who are finding this is working to their benefit. We have
already mentioned the association health plans.
The point here is, we are looking for ways for more people
to be insured and for companies to be able to provide that
insurance in affordable ways, so I appreciate all of your
testimony here today.
In the interest of keeping this moving along, I am going to
do the unthinkable and yield back my time before the red light
comes up.
Ms. Kofman. I am sorry, can I just add something to the
discussion about States and what they are trying to do?
The impetus behind many of these State proposals is the
problem that many employers that provide coverage to their
employees don't provide adequate coverage, and the coverage
doesn't cover all of their employees, so what happens is these
workers rely on State programs, on government programs, and it
becomes unsustainable to keep on funding these government
safety net programs without income streams.
And so this is one way to help finance the programs that
serve all of the States' residents, by asking employers to pay
into those programs that their employees use. It is also a
question of fairness. For example, you have companies that
provide very generous, very comprehensive benefits to all their
workers, and their workers never use State-funded programs. And
of course, it is an issue on their bottom line because they pay
for that comprehensive coverage, the company that is. It is
very unfair for other employers to send their workers to
government programs and not pay for that. They are making
bigger profits, and it is really unfair, and I think it is not
competitive. That is not the kind of competition we want to
encourage. Thank you.
Chairman Johnson. Competition is what drives America. If
somebody wants to make a little extra money by doing a better
business plan, they ought to be allowed to do it, in my view.
Mr. Kildee, who remembers World War II price controls.
Mr. Kildee. OPA.
Mr. Drombetta, if the four states in which your company
does business were to replicate the Massachusetts plan recently
passed by a Democratic legislature, signed by a Republican
Governor, would that not give you and your competitors the same
level which to compete?
Mr. Drombetta. I am not an expert on the Massachusetts
plan. But from what I have heard of it, it wouldn't address a
couple issues that need to be thought about at the committee.
One is small businesses like mine won't buy health coverage in
an vacuum. There are three providers that meet the standards
set by the State, primarily, and those are my three choices. In
the last 7 years, we have explored costs with each of those
three providers on exactly the same coverage, and that is where
the increases come from.
If I could find a way--well, let me restate that, I can bid
my freight to move product into my stores, but I can't find as
much competition to buy health care.
I am not the expert in the field, but something seems
strange to me that I can go through and--let me explain a
little bit better.
I belong to the National Shoe Retailers Association. I can
tell you why I belong to that association, because they
competitively talk to freight companies across the country and
come out with the best rate they can get, which I, in turn as a
member, elect to use. Each year I take health savings and
freight, compare that to costs and benefits from that
association.
I can't do that with health care. I don't know the
intricacies of it. I don't understand the Massachusetts law. I
would welcome an opportunity to add more people to the list of
options I have.
Mr. Kildee. But of all the retailers, particularly the shoe
retailers, were required to provide insurance that would at
least put you on the same level with your competitors.
Mr. Drombetta. I can tell you I did go out and take my
employee base, 33 people, about 18 in health care, and
considered moving them to their companies. I forget the term
for them; but you take your employees to--I think it is a
contractual relationship where my employees would really
become----
Mr. Kildee. Contract employees?
Mr. Drombetta. Contract employees. The health care cost of
such an arrangement would have dropped by almost 40 percent.
That is huge when you think about the cost of my health care
going from X to 155percent higher. To be able to say that that
cost can be driven down by 40percent is a lot of money, and to
the people who work in my stores who run them, who turn the
keys, this is a big impact.
I cannot do that. It is not permitted by law in the State I
happen to live in, my company exists in, and I am sure there
are good reasons for those laws, that they have a place, that
they are needed. I am not debating their necessity, but the
reality is that the committee, it puts restrictions on a small
business choice.
Mr. Kildee. Mr. Garthwaite, if employers shouldn't cover
health costs for workers, the government also shouldn't bear
the cost, and the minimum wage shouldn't be raised so the
people can pay for their own premiums, where is it people will
find the money to pay for it, their health insurance?
Mr. Garthwaite. With all due respect, I don't think I ever
said employers shouldn't provide health care. I certainly
didn't say the government shouldn't provide any money for
health care. I think what I am talking about, employers
shouldn't be required to provide health care to all their
employees, because in the event that happens, the economic
realities that must be confronted, you can't ignore the
economic reality that employers will look to save costs
wherever possible, and they'll do that in many ways at the
expense of the employee.
Mr. Kildee. And the employer is not providing the health
care cost, and they don't qualify for government health care
costs or Medicaid, for example, or Medicare if they are older,
then where would they find the money if you also take a strong
position on not raising the minimum wage? Where will they
provide for their own health care?
Mr. Garthwaite. I think the important thing we should be
looking at, how we will decrease the cost of health care to
make it affordable. Clearly as health care keeps getting more
and more expensive, it will be almost impossible for anyone to
buy health care in the private market, but we need to look for
ways to lower the cost so that employers can.
There are a number of ways that have been discussed. Health
savings accounts can be seen to lower the cost of health
coverage. There have been proposals for tax credits. All of
these will be ways that you can make coverage more affordable
to people.
Mr. Kildee. Thank you very much.
Ms. Kofman. May I add something to that?
Mr. Kildee. Please do.
Ms. Kofman. When we think about people's needs, medical
needs, we need to think about the question of who pays. Just
because the employer doesn't pay doesn't mean the medical need
go away. If the person is lucky enough to be able to pay for it
out of pocket, that is fantastic, but many people can't. And so
what happens is that person ends up waiting to too long to get
the care that they need, end up paying more; and actually, all
of us pay more for it because the cost of that care gets
shifted to the rest of us.
So the question here we should all be thinking about is who
pays, and how do we pay for it efficiently so it doesn't cost
us more in the long run?
I know that some folks have raised the issue of HSAs and
some of these other new products that are out there. The cost
savings from those are on the employer side of it. Premiums are
lower, but someone still has to pay for the medical care, for
the cost of going to the doctor, and the cost of that is
shifted to the patient. So when you need care, you pay for it
out of pocket.
It used to be that your health plan or your employer paid
for it. Now you pay for it with some of these proposals. So I
would submit to you that some of these proposals will actually
not help address any of the cost drivers and actually will
shift costs to patients and will make it harder for us to
address this ever-growing problem.
Chairman Johnson. Well, you made one misstatement, in my
view. Employers did not used to pay for it. I mean, it is a
competitive thing. Employers may or may not choose to provide
health care coverage, and it is a competitive thing.
In the case of the gentleman sitting next to you, his
company may not provide it because they don't have the profit
margin to do it. So I think he is right. If you start mandating
it, employee wages are going to decrease, it is a given,
because they have to make a profit to make the business run.
Mr. Payne. Mr, Chairman, do you mind if I may have a
second? Actually during World War II and actually following
World War II, it was almost a rule that employers did provide
health care. I mean, the whole new thrust of employers dropping
health care is a new phenomenon in the last 20, 25 years; but
it was almost--if you took those companies that were around at
that time after World War II, it was more the rule than the
exception that health care was provided. That is a fact.
Chairman Johnson. That is true. And the reason it was is
because there were price and wage controls, which made them
offer health care as an incentive to get more workers, more
money.
Mr. Payne. However, following the war it remained, and even
defined pension contributions were there. So we have seen
something happen within the last 20 or 30 or 40 years that have
taken away those benefits that American workers were privileged
to have following the world war. And now we move into various
401(k)s, Roth IRAs and all that, which I am not saying it is
necessarily bad, but I am just saying there has really been a
big sea change in that. Thank you.
Chairman Johnson. Sure. Sixty years ago. I hope things are
changing.
Mr. Wilson, you are recognized.
Mr. Wilson. Thank you, Mr. Chairman, and thank all of you
for being here today. I particularly appreciate, Mr. Drombetta,
your concern about small businesses. Those are the people I
represent in the district that I represent. Around 99percent of
the businesses that I represent are small businesses with about
85percent of the employment. So I really appreciate.
And, indeed, I want to join with my colleague from
Minnesota to point out that with the Association of Health
Plans, hopefully that will make a difference. And then with the
health savings accounts, I really believe that has great
potential and finally is being recognized, and it was pointed
they may be limited. I disagree. I think they provide options.
I think they provide for preventative health care, and so I am
very, very hopeful.
In addition, looking at different States, I am happy to see
that my home State, South Carolina, has zero planned mandates.
I served 17 years in the State senate, and I remember well by
providing for mandates, it really limited the competition. So
South Carolina is wide open for business, wide open for jobs.
I am happy to see Mr. Kelly here with the Retail Industry
Leaders Association, 100,000 stores. I want you to know I am
doing my part because--innovative and successful, as I look at
your testimony. Best Buy, I just bought a camera. Wal-Mart, I
got a good deal on socks; on Monday some shoes. On Monday, you
had a great deal at Lowe's on geraniums. I want you to know
that the best deal on cough drops in the world is the Dollar
General Store right here. And finally, in my home community,
the biggest news in our home community--you would think it
would be a brand new school or whatever. No, it is the new
Target superstore in Lexington, South Carolina. That has caused
quite a stir. So we appreciate the retail industry.
And that is why I am concerned about the Maryland law and
would like to know how this law affects your members. Would it
force large employers to pay more for health care? Does this
improve the quality of health care? And does it remove an
incentive for employers to negotiate the best coverage for the
money?
Mr. Kelly. I think our viewpoint on the Maryland law and
those that--the legislation it has spawned across the country
is that it doesn't do anything to reduce health care costs. It
simply says a specific--an employer of a particular size
provide health care benefits at a particular spending level.
That doesn't do anything to impact reduction in costs of care.
It doesn't even do anything to help provide coverage to people
who don't have coverage. It simply says, you have to pay more
for coverage than you are already providing.
That, to us, seems to really miss the point and, you know,
gives State legislators a convenient way to say they are doing
something on health care without actually addressing the issues
of costs and coverage. With that being said, we continue to
reach out to lawmakers across the country to try to figure out
ways to help reduce costs.
Mr. Wilson. And what would happen to your members' health
care costs if they did not operate ERISA plans?
Mr. Kelly. Well, if ERISA eroded in any way, we believe
that would increase health care costs, making a much less
attractive option to provide health care. Again, ERISA was
designed originally to provide multistate employers an
opportunity to offer benefits in a uniform way, to avoid sort
of the patchwork or hodgepodge of State and local mandates on
health care.
You know, our members are in competition with each other
for good employees. They want to provide healthy and good
benefits. They do provide good benefits packages. It is
becoming increasingly difficult, given that health care costs
continue to skyrocket every year. Again, I think the latest
figures show that health care spending represents 16percent of
our gross domestic product in this country. That is an all-time
record. Let us address that so health care is more within reach
for everybody.
Mr. Wilson. And in your testimony you indicated that your
industry employees say a high percentage are young and part-
time workers. And this really applies to all four of you. What
can be done to educate younger employees about the need for
health insurance?
Mr. Kelly. Mr. Drombetta did a great job talking about sort
of the unique characteristics of the retail workforce. It does
tend to be younger. About a third of all retail workers are 24
years of age or younger. You know, these are folks who, if
offered health insurance, frequently don't want it. They may
feel they would rather use the money they would otherwise use
on insurance premiums for savings on a down payment for a car,
or home, or for any other use.
It is important to educate folks about health care
insurance. Our members do that. Our members provide broad
packages of benefits; but there's not always a high rate of
take-up on the benefits, and frankly, I am not sure we really
know what the answer is to that. But more education certainly
would help, and more options would certainly help as well.
Mr. Wilson. Anyone else want to comment?
Mr. Drombetta. My experience is limited, but I would tell
you the younger members of my staff are at a point in their
lives where they have different priorities. They hope to come
out of an apartment into a condo or out of a condo into a house
or to have their first child, and it is hard--certainly hard
for me to think back to those--that time of my life, to those
years. But that is the choices they make, and in the small
business environment, you are deciding what do you need to do.
Our typical store has two people in it. Two people. One of them
may be 24 or 26 and feel they don't need the coverage.
Mr. Wilson. Do you have a comment, too? Pardon me.
Ms. Kofman. I actually agree. There is a segment of the
young population who believe they can fall out of an airplane
and not get hurt without a parachute. So you can give coverage
away, but they may not sign up. It is a very difficult segment
of the population to reach and educate about insurance and
financial security and why you need health insurance that would
give you financial security.
If I could just go back to some points earlier that were
made about Maryland's law. I think it is important to remember
that Maryland legislators passed the law not in a vacuum, but
they have a certain regulatory environment. They have done a
number of different things in Maryland that all work together
to help address the rising costs of medical care and the rising
premiums.
For instance, Maryland has a high-risk pool which is now
growing to be one of the biggest in the Nation, and it covers
the people in Maryland with the highest medical needs so they
don't go to the hospitals, and we all experience cost shifting
as a result.
Maryland also has a hospital rate-setting commission so the
hospital rates are all set. There is no negotiation. It is a
more level playing field, for example, for insurance companies.
They all know what they are going to pay the hospital for
services and for employers in Maryland. Maryland has a variety
of programs of a different nature that all work together to
help provide medical care and coverage, a way to finance that
medical care. So this new Maryland law is designed to work
together with existing programs and help existing programs,
especially the public programs, continue to exist.
Mr. Wilson. Thank you very much, Mr. Chairman.
Chairman Johnson. Yes. Thank you, ma'am. I appreciate some
of the comments you made.
Mr. Tierney, you are recognized.
Mr. Tierney. Thank you, Mr. Chairman. Mr. Chairman, I am
sure--maybe she appreciates some of the comments you have made,
but I am not sure. We will have to check with that.
First of all, you know, Mr. Drombetta, I want to tell you
that I sympathize with you because I was a small businessman--
smaller than you; but I was the president of the Chamber of
Commerce, and these were issues that we dealt with. Right off
the top, I will tell you the United States Chamber of Commerce,
from my experience, doesn't represent the chambers of commerce
district to district in this country. It is not their interests
they are looking out for, and I hope local retailers and other
businesses appreciate and understand that.
The fact of the matter is, the cost is an issue. If you
were in Massachusetts, Mr. Drombetta, you would have an option.
Now you pay $295 per employee to cover your employees, and I
think you might find some value in that or some assistance in
that.
But the fact of the matter is while cost is an issue,
coverage is an issue, too. Some States feel one way to do that
is to either have the employees--employers cover their
employees, if they choose, or to opt to be a partner with
individuals and with the States to find a way to pay for
whatever the cost is and move forward on that. And that is some
of the rationale I understand from my State legislators they
were thinking about that.
I would be curious to know from a show of the panelists who
among you thinks health care is a right? And who among you
thinks it is only a privilege? And some don't have an opinion
either way. Interesting on that.
If cost is an issue--I have heard that repeatedly down the
line here--I think the evidence is pretty clear that at least
20percent of every dollar we spend on health care is going to
administration and profits for insurance companies and things
of that nature. Do any of you object to the fact--Medicare is
about a 3percent, or less than 3percent, administrative fact on
that. Do any of you object to expanding Medicare to cover
health care so that the employer won't be unburdened with this
and individuals in society will cover it in some sort of an
equitable fashion?
Mr. Drombetta. I certainly can't speak for the rest of the
group, but to address that, of course not. I have 33 employees.
I know them by name.
Mr. Tierney. Good.
Mr. Drombetta. Are we entitled to or do we have some given
right to health care? As an employer who wants those 33 people
to continue to work for me, I would be foolish from a
competitive point of view to not want to have a reasonable,
reasonably competitive product. That is not my issue.
Mr. Tierney. Let me interrupt you. I am not saying it is a
right for you to pay for it. I am asking is it a right for them
to have it; not necessarily that you have to pay for it as an
employer, but do people generally have a right to have health
insurance as opposed to it is only a privilege, and some will
have it and some won't?
Mr. Drombetta. I don't know why I would want anyone on my
staff not to have health benefits.
Mr. Tierney. Exactly. So my follow-up question on that is
if cost is the overriding factor that I hear each of you talk
about, and 20percent of every dollar at least is going to
either insurance profits or administrative costs, whereas
Medicare pays less than 3percent, is there objection amongst
the individual panelists to have Medicare expanded to cover
health care so you and your employees will have it?
Mr. Drombetta. I could only address that problem from the
practical point. I don't know what is out there. I don't know.
Besides association health plans, what else is there?
Mr. Tierney. Association health plans either give you their
conflicting evidence on that or not a stitch of evidence. They
will do nothing but increase the number of uninsured on that
basis.
Mr. Drombetta. This I know. I bid my health care costs
every year. If I were in a different pool, if legally I could
take my 18 people to a pool of 70,000, exactly the same
coverage costs less.
Mr. Tierney. You can do that within your State, right?
Mr. Drombetta. No, I cannot, sir.
Mr. Tierney. Not within your State?
Mr. Drombetta. No, sir.
Mr. Tierney. Well your State has an issue with that. In
Massachusetts and most States and most other chambers of
commerce----
Mr. Drombetta. Doesn't that draw back to the fact that we
have a national crisis; that we don't need Massachusetts to
solve problems for Massachusetts, we need the Federal
Government to solve a Federal problem?
Mr. Tierney. Well, I agree with you, sir. You check my
colleagues on the other side, they will probably have a stroke
if they think that is the way we will approach providing health
care for all. Ma'am, do you have any comments you would like to
make?
Mr. Drombetta. Would you please tell me what the costs are,
and I can compare it to what I am doing and give you a
response.
Mr. Kelly. On the issue whether we should expand Medicare
or not, our association hasn't developed a position on that. We
would have to talk about it among our membership. The fact, as
you point out. 20percent of the health care dollar goes to
administrative costs, that seems pretty high. I think my
members generally would support proposals that bring more
competition to the health care system. I don't know what they
would specifically be, but it ought to be explored to find new
ways to help, you know, drive that kind of cost out of the
system. If there are ways to do it, it ought to be explored.
Mr. Tierney. One of the problems you see with competition,
you can have all sorts of competition if you want inferior
plans and better plans, etc. One of the reasons it is
difficult, shoes ain't health insurance, and health insurance
aren't shoes. You can change shoes in a lot of different ways,
and nobody's life will be at stake; but health insurance is a
whole different item on the market than that.
Do you want to make a comment?
Ms. Kofman. Yes.
Chairman Johnson. The time for the gentleman has expired.
Mr. Tierney. Yes. And I appreciate the Chairman allowing my
witness to respond, or at least ask for unanimous consent for
the courtesy of that.
Chairman Johnson. Fine.
Ms. Kofman. Thank you.
When you think about competition in the insurance market,
you know, most insurance companies are for profit, and their
goal to their shareholders is to make profits, and the way to
do that is to avoid risk, to avoid competing over sick people.
You are not going to have insurance companies, no matter what
the rules are, ever competing for sick people. So you just have
to remember that when you think about competition in the
insurance market.
In terms of expanding Medicare, it is a terrific option. It
certainly would be cost-effective, and I believe it would make
U.S. Companies more competitive globally. We are the only
country in the world that is industrialized that is this
wealthy that doesn't pay for medical care for our citizens, and
that makes it more difficult for our U.S.-based companies to
compete against Great Britain companies, against French
companies, where they do have the government taking on most of
the costs for providing medical care, for keeping workers
healthy so companies could compete.
Chairman Johnson. Could I ask you if you would go to France
to get your medical care?
Ms. Kofman. I am actually lucky enough to be married to
someone who works for the Federal Government, so I have the
best health care in the world.
Chairman Johnson. I didn't ask you that question.
Ms. Kofman. I might.
Chairman Johnson. Would you go to England for it? I have
been in England when I was in the Air Force, and I am here to
tell you their socialized medicine stinks. I also would like
to----
Mr. Tierney. Mr. Chairman, if you would yield, I think you
ought to go back because it is a whole different world over
there, if that was the last time you were there.
Chairman Johnson. The fact that you stated a while ago that
many companies provide health care for their employees, but the
young ones don't take advantage of it. Exxon, I happen to know
about, it is in our area, and they offered to match whatever
the employee puts in for health care. And there is a large
number that do not accept that health care because they think,
as you said, they are bulletproof. You know, and it is that age
bracket of 21 to 35. Once they get over that age bracket, they
feel like maybe they need insurance.
And I don't know if insurance is a right or not. I think it
may be an option, not a right. There is--you know, America has
the best health care in the world. That is why people come over
here for operations of various sorts and medical attention from
other countries. Why do we have good health care? It is because
we don't mandate it.
Mr. Tierney. Mr. Chairman, we love it when you riff like
that, but it is hard not to respond. We may have great health
care, but we have a terrible insurance system, and that is part
of the problem. When I talk about people having a right, it is
not a right to insurance, it is a right to health care, and
there is a significant difference in that. And I thank you for
the chance to make that point.
Chairman Johnson. You are welcome.
Mr. Tiberi.
Mr. Tiberi. Dr. Kofman.
Ms. Kofman. I think you just promoted me.
Mr. Tiberi. A professor?
Ms. Kofman. A lawyer.
Mr. Tiberi. Sorry. I was going to ask you a question, but
the dialog we just had I find enlightening since I have more
family in Europe and Canada, which I think you would agree the
Canadians and the Europeans, for the most part, have a single-
payer system that gives you the right to health care. But the
thing that we don't hear about that my relatives tell me
about--in fact, I have a cousin, or my mom's cousin, who just
had a serious surgery operation in New York, and he is
Canadian, by the way, and I have family in Italy who have had
rationed care for years. And while we can talk about the right
and how wonderful the single-payer system is, there are also
problems with the single-payer system that I hope you would
acknowledge.
Ms. Kofman. Um, yes. I agree. No system out there is
perfect, but the fact that we let 18,000 people, Americans, die
each year, preventable deaths, because they don't have coverage
is, I think, un-American and unacceptable.
Mr. Tiberi. Well, there are two sides to the story
certainly. Mr. Drombetta--and my point is that there are, just
so we are clear--we have in a single-payer system in Canada and
a single-payer system in Europe. Thousands of people die, too,
under rationed care. There is no question about it. And I have
heard personal horror stories, family members who have had
rationed care and have begged to come to the United States as
well. So there is certainly another side to this debate.
Mr. Drombetta, you are a small business owner. I see you
are educated in the great State of Ohio and appreciate----
Mr. Drombetta. I did take note of the fact that I have the
lesser of the degrees at the table.
Mr. Tiberi. You operate, obviously, a small business, and I
worked for a small retailer both in high school and college.
And what, in your mind, would happen--I have heard from small
employers in my district, friends of mine, who do everything in
their power to try to offer as much benefits as they can to
their employees because--particularly small employees, small
employers. It is like a family business, and the people who
work for them are family. And you are an employer with under 50
people, from what I remember reading your testimony. What would
happen to the typical employer--don't even talk about
retailer--typical employer that is mandated to apply a certain
type of insurance to all their employees?
Mr. Drombetta. I can only really respond to what my
reaction would be. I run a small business. I would look at that
mandate and its costs and take it inside the organization and
make the determination, and it is pretty black and white.
Mr. Tiberi. Do you believe, though, there are small
organizations or small businesses that might not be able to
survive the mandate?
Mr. Drombetta. Let me drive the point home. If a family
plan inside--and with an HMO costs $17,000 a year. That is a
lot of money. That is an awful lot of money. And if we want the
small business owner to pay it completely, his operation either
will have the ability to do that, or it won't.
You can't deficit-spend a small business. It is called
bankruptcy. You don't have that option. If you look at what
your costs are, you look at what your margins are, and you say,
I can or I can't. I don't think it is any small fact--there is
a mistake or a court of economics that 65percent of the
uninsured are involved in small businesses.
I have personal friends who run shoe stores with family
dominating that don't have health care. Why is that? They don't
want their son to have it or their wife? That is not the case.
Mr. Tiberi. It is the cost.
Mr. Drombetta. It is a cost issue. And I am willing to
listen to anything, but I have difficulty understanding how
mandated coverage is going to drive down costs, because when
the gavel hits and this is over, and we all leave, I still have
those costs to deal with, along with millions of small
businesses.
What would bring my rates down next year and the year
after? And who's going to face my employee in 5 years when my
insurance costs have gone up another 100 percent? It isn't
going to be anybody on this committee.
Mr. Tiberi. Mr. Chairman, can I just ask one brief
question?
Chairman Johnson. One brief one.
Mr. Tiberi. Mr. Kelly, do you know who the largest employer
in the State of Maryland is that has the largest number of
uninsured individuals? Do you know?
Mr. Kelly. I am sorry. Can you ask again?
Mr. Tiberi. Do you know who the largest employer in the
State of Maryland is that has the largest number of uninsured
individuals? I know it is not Mr. Drombetta. I had read
somewhere that it was the State of Maryland itself. Do you
know?
Mr. Kelly. That is right. I thought you were asking
private. I don't know if they are the largest, but State and
local employees in Maryland, there are 20,000 State and local
employees in the State of Maryland who don't have health
insurance.
Mr. Tiberi. Are they exempt by the Maryland bill?
Mr. Kelly. The Maryland bill does, in fact, have a specific
exclusion for government employees.
Mr. Tiberi. Thank you.
Thank you, Mr. Chairman.
Mr. Payne. Mr. Chairman, if you could just yield on your
question on the costs going down. If people had health
coverage, there is a philosophy that it is preventative care,
and that if people--oh, I am sorry. If people would--and no one
mentioned it up to now. If people had precare to prevent these
catastrophic, radical--for example, if you detect, say, breast
cancer before you have to go in for a radical operation which
costs tens of thousands of dollars--of course, what it does to
the person is even worse--that is where this coverage can
indirect----
Everyone is saying that by having people covered, it is not
going to bring down the costs. I believe that if there was
preventative health, it would. And I am sorry, Ms. McCarthy, I
stole your--and I am not asking for an answer, but just an
opinion. In my district where people make the minimum wage,
they have no health coverage, they are very impoverished in the
city of Newark. They go to the hospital; they are put in some
intensive care for 5 or 6, 7 days. It is thousands of dollars a
day because they haven't had any preventative care; and the
cost is through the roof, which is eventually paid for by the
State because it is uncompensated care. But I think that the
overall health of people would get better, and it would over--I
believe--therefore would have a driving-down effect on the
prices. Thank you.
Chairman Johnson. Mr. Kelly, would HSAs provide
preventative care in this instance that less expense----
Mr. Kelly. Well, as I understand health savings accounts,
individuals are able to spend their money as they see fit on
health care. So it certainly could cover preventative services
and may, in fact--people may see that in their self-interest to
have checkups, medical care, preventative care.
Chairman Johnson. Thank you.
Ms. McCarthy. I am enjoying the debate because I am the
only one on the panel that has a nursing profession behind
them. So I am kind of looking at this debate a little
differently. When HMOs started, the whole idea of HMO was
preventative care. Part of that conversation has come into play
here.
With that, Mr. Chairman, I am hoping that I might be able
to offer this article from the Chicago Tribune that talks about
part of the debate that we are hearing today. Mind the Gap:
England Found to Be Healthier Than America even though America
spends twice the amount of money.
Which brings me to my point. Health care today is basically
geared to illness instead of prevention, and that is one of the
big problems that we are facing in this nation. And until we
start actually recognizing that fact, you talk about a lot of
your employees are older, and yet we know as you get older,
obviously your health care costs are going to go up, whether
it's diabetes, whether it's heart condition.
At the age of 50, all of a sudden I came down here, you
know, one of the doctors examined me, OK you are on this
medication, this medication, all preventative because of my age
and probably because of the stress of the job, but all
preventative.
So what I am saying is we are not the healthiest people in
the world; and as far as Canada goes, they keep their costs
down and their care because they only have, I believe, two
MRs--two MRI in the country. So that kind of cuts back on the
kind of care they are going to get.
But with that being said, I keep looking at the health care
system that we, as Federal employees, have. I pick out which
health care I want. I pick out what I am going to be paying,
and that certainly is up to me. For the small businesses, I
happen to agree that small businesses should be able to band
together so that they have more of a pool to be able to pick
from.
One of the things that I did not agree with the bill that
came through this committee, we stripped out completely any
preventative care, taking out mammographies.
My other statement would be the States are probably as
frustrated as we are here in Congress because the people in the
States are not getting the health care that they need, and it
is ending up costing our health care system more money because
you are going in the hospital at a later time, you are sicker,
and a lot of times you are being released from the hospital
when you really technically are not ready to be released,
especially if you have no one home to take care of you.
So it is a problem all the way around. So the debate will
go around in a circle. None of us have the full answers, but we
need to address it. And it is going to take a unified--
businesses working together with politicians on both sides of
the aisle on how we are going to actually do this.
We, as Democrats, looked at--we want to give health care to
everybody. I do, because I happen to think it saves money and
especially to the children. We deny health care to children. I
mean, that is unthinkable in my part mainly because it ends up
costing us more money in the long run.
Diabetes. We fought in this government on giving basic
allowances to some people that could control their diabetes. If
we don't, we end up paying--we, the Federal Government, ends up
paying millions and millions and millions of dollars more
because someone should go--hopefully more Members of Congress
would go to a dialysis center and look at those people that are
on dialysis centers and all because they weren't treated at an
early stage. So there are ways to cut, and administration costs
are too high.
I offered legislation years ago to expand Medicare to a
younger age; not for everybody, but to a younger age, to open
up that pool. I think those are important things we need to
look at.
We will never find one answer. I never thought that I would
ever say I would look at a one-pay system; but when I have
doctors coming to me saying, I take it because of the paperwork
that they have to fill out; or in the nursing homes and the
paperwork they have to fill out; or the home care nurses, the
paperwork they have to fill out. We have to look at the health
care system, certainly provide--and one other thing as far as,
you know, we talk about--on pensions right now, 401(k)s, one of
the things the businesses told us, if we are going to go to the
401(k), and I hope we don't, not for everybody, it should be
mandatory. Anyone that goes into that employer, mandatory that
employee has to join. Well, it should be the same for health
care, even for a child, a young person, an 18-year-old, because
they all think they are--you know, they are not going to get
sick, or they are not going to get hurt. Even if it is basic
care, they should have to join some sort of--I certainly had
to.
As a young nurse I had to be in the health care system. I
had no choice. It came out of my paycheck every single week. I
think we should look at that again, too.
I thank you for your testimony. I don't actually have a
question because it goes back and forth, and we all don't have
the true answers, but it is a debate that needs to come to a
head and a discussion that needs to be done. Thank you, Mr.
Chairman.
Chairman Johnson. Thank you. The gentlelady's time has
expired.
Ms. McCollum, you are recognized.
Ms. McCollum of Minnesota. Thank you, Mr. Chair.
Unfortunately the gentleman from Minnesota has left; but he
referred to some bills that are pending in our statehouse.
In Minnesota we could only put five authors on a bill, so
we clone bills, and that is why there are as many bills as
there are. And they all are dealing with something that is very
near and dear to the taxpayers' and providers' hearts in
Minnesota, and that is the fact that we are trying to
understand why Wal-Mart feels that the taxpayers in Minnesota
and the providers who pay a provider tax in Minnesota, health
care's available in Minnesota, go sign up for the State-
Sponsored health care plan, which is called the Minnesota Care.
So doctors are paying for it, hospitals are paying for it. We
were just trying to get a handle on the costs.
Those are the bills that the gentleman from Minnesota was
referring to. And on the handout that is passed out by the
Retail Industry Leaders Association that says, States targeted
by the AFL-CIO, yes, I am proud that labor is trying to help us
collect this information on behalf of working families because
we are the ones who ultimately pay for the emergency room
visits and pay for people who don't have health insurance when
they come into the emergency room sicker or were paying for it
with States that do put plans together to--Mr.--nobody has said
your name again, and I want to--Larry, if I say it wrong----
Mr. Drombetta. Drombetta.
Ms. McCollum of Minnesota. I worked retail for 27 years,
and I would love to work for you in a heartbeat. We would.
Mr. Drombetta. We would welcome you in joining us.
Ms. McCollum of Minnesota. Because we do need--you are
addressing--you are speaking for America's families here in
small business, and I thank you for coming.
But the problem that we are facing here in Congress, it is
either associated health plans or nothing, and we need to have
a full, enriched debate on this issue.
Mr. Drombetta. Can I address that? I don't want to impose
on your time, but I think it was 1993, if my recollection is
correct, about 25 million uninsured existed in the country. We
need to stop looking.
Ms. McCollum of Minnesota. Right.
Mr. Drombetta. And we would have 46 million uninsured, most
of them out of small businesses, my kind of business. I hate to
say this, but your constituents aren't adding any risk really
in what you are looking at. They want to know what brings down
cost. That is really what----
Ms. McCollum of Minnesota. Excuse me, Mr. Drombetta. I have
to reclaim my time here. I am going to speak as a woman. You
look at me, it is obvious I am one.
The associated health plans offer no protection for women.
Contraceptive protection, mammography, breast cancer, maternity
coverage, all those things, when we just try to say by gender,
can associated health plans not discriminate against women--and
that is how a lot of these mandates came into play was just
basic health care coverage for women--we were told no. And so
associated health plans that discriminate against women for
their coverage, in the United States of America, I just don't
see as acceptable.
I would like to ask Mr. Garthwaite--am I saying your name
right, sir? A couple of things you have said intrigued me, as
being the mother of 20-somethings.
First off, my children want to drive. They have to have car
insurance, they have to have health insurance, and they have no
choice. They pay it. Health care insurance, if we tell people
they have to have it, they have to have it. And so do you see
that there is something wrong with saying that young adults
have to have health insurance versus car insurance? And then
how do you figure into the whole pension debate? Because part
of what we were talking about was, you know, Social Security
doesn't work, we should abolish it, and that young adults were
going to automatically save for themselves.
So as a young, bright man, can you speak for your entire
generation and why car insurance is OK, health insurance is bad
to be mandated, and everybody will save and set aside for their
pensions in this young age group?
Mr. Garthwaite. We can start with the car insurance versus
health insurance first. I think the important thing to realize,
you set a minimum level of car insurance people have to have,
and people then choose to buy more than that, buy collision
coverage, buy other things.
I don't see that the needs in terms of health insurance for
a 55-year-old person are the same as for a 20-year-old young
man or a woman. So I think mandating the same level of health
insurance, which a lot of these bills are trying to do
regardless of age group, is not a very good way to tackle the
problem.
I mean, Social Security is a little outside the pivot we
are talking about, but the way I understand a lot of what was
proposed, there was a certain amount that had to be invested in
terms of your contribution to the Social Security plan, and it
wouldn't be a voluntary system.
Chairman Johnson. Time of the gentlelady has expired. Thank
you for your questions. I guess we are drawing to a close.
Mr. Kelly, I would just like to ask you, if the State
mandated 8percent of your pay or of the company to be awarded
the health care, as a mandate, would there be any negotiation
room; they would go up instead of down, wouldn't they?
Insurance companies wouldn't--if they knew there was an
8percent requirement or whatever?
Mr. Kelly. It would seem to tie the hands of companies who
were forced with the mandate to accept the mandate, yeah, and
might take away some negotiating leverage that they might
otherwise have. I agree with that.
Chairman Johnson. OK. Thank you.
I want to enter in the record Ms. McCarthy asked if we
would allow an article from the Chicago Tribune to be entered
in the record. Is there any objection?
Hearing none, so ordered.
[The information referred to follows:]
[From the Chicago Tribune, May 3, 2006]
Mind the Gap: England Found to Be Healthier Than America
By Carla K. Johnson and Mike Stobbe, Associated Press
White, middle-age Americans--even those who are rich--are far less
healthy than their peers in England, according to new research that has
experts scratching their heads.
Americans had higher rates of diabetes, heart disease, strokes,
lung disease and cancer--findings that held true no matter what income
or education level.
U.S. health-care spending is double what England spends on each of
its citizens.
``Everybody should be discussing it: Why isn't the richest country
in the world the healthiest country in the world?'' asks study co-
author Dr. Michael Marmot, an epidemiologist at University College
London.
The study, based on government statistics in both countries, adds
context to the fact that the United States spends more on health care
than any other industrialized nation yet trails in rankings of life
expectancy.
The U.S. spends about $5,200 per person on health care. England
spends about half that in adjusted dollars.
Even experts familiar with the weaknesses in the U.S. health system
seemed surprised by the study's conclusions.
``I knew we were less healthy, but I didn't know the magnitude of
the disparities,'' said Gerard Anderson, an expert in chronic disease
and international health at Johns Hopkins University who had no role in
the research.
Just why the United States fared so miserably wasn't clear. Answers
ranging from too little exercise to too little money and too much
stress were offered.
Even the U.S. obesity epidemic couldn't solve the mystery. The
researchers crunched numbers to create a hypothetical statistical world
in which the English had American lifestyle risk factors, including
being as fat as Americans. In that model, Americans still were sicker.
Smoking rates are about the same on both sides of the pond. The
English have a higher rate of heavy drinking.
Only non-Hispanic whites were included in the study, to eliminate
the influence of racial disparities.
The researchers looked only at people age 55 through 64, and the
average age of the samples was the same.
The upper crust in both countries was healthier than middle-class
and low-income people in the same country.
But richer Americans' health status resembled the health of the
low-income English.
``It's something of a mystery,'' said Richard Suzman of the U.S.
National Institutes of Health, which helped fund the study.
Health experts have known the U.S. population is less healthy than
that of other industrialized nations, according to several important
measurements, including life expectancy. The U.S. ranks behind about
two dozen other countries, according to the World Health Organization.
The study, supported by grants from government agencies in both
countries, is published in Wednesday's Journal of the American Medical
Association.
This is the first to focus on prevalence of chronic conditions,
said Anderson, the Johns Hopkins professor.
Differences in exercise might partly explain the gap, he suggested.
One of the study's authors, Jim Smith, said the English exercise
somewhat more than Americans. But physical activity differences won't
fully explain the study's results, he added.
Marmot offered a different explanation for the gap: Americans'
financial insecurity. Improvements in household income have eluded all
but the top fifth of Americans since the mid-1970s. Meanwhile, the
English saw their incomes improve, he said.
Robert Blendon, a professor of health policy at the Harvard School
of Public Health who was not involved in the study, said the stress of
striving for the American dream may account for Americans' lousy
health.
Americans don't have a reliable government safety net like the
English enjoy, Blendon said.
However, Britain's universal health-care system shouldn't get
credit for better health, Marmot and Blendon agreed.
Both said it might explain better health for low-income citizens,
but it can't account for better health of Britain's more affluent
residents.
``It's not just how we treat people when they get ill, but why they
get ill in the first place,'' Marmot said.
SELF-REPORTED ILLNESSES
[In non-Hispanic whites age 55-64, percentage]
------------------------------------------------------------------------
Health disorder United States England
------------------------------------------------------------------------
Hypertension............................ 42.4% 33.8%
Heart disease........................... 15.1% 9.6%
Diabetes................................ 12.5% 6.1%
Cancer.................................. 9.5% 5.5%
Lung disease............................ 8.1% 6.3%
Heart attack............................ 5.4% 4.0%
Stroke.................................. 3.8% 2.3%
------------------------------------------------------------------------
Note: Based on unweighted samples of the 2002 Health and Retirement
Survey in the U.S. and the 2002 English Longitudinal Survey of Aging
in England.
Source: Journal of the American Medical Association.
______
Ms. McCollum of Minnesota. Mr. Chair, Mr. Chair, I have two
items, if this is a proper time, to submit for the record as
well.
Chairman Johnson. Sure.
Ms. McCollum of Minnesota. I have an article from Minnesota
Public Radio, the number of uninsured children in Minnesota.
Minnesota, in order to balance its budget decided to remove
children from health insurance, and these are children under
the age of 1 and 2.
And I have from the Atlantic Monthly an article, The New
War Over Wal-Mart, dealing with the way Wal-Mart is not
insuring its employees and is putting it on the public for
taxpayers to cover their employees.
Chairman Johnson. Without objection, so ordered.
[The information referred to follows:]
[From Minnesota Public Radio, April 19, 2006]
Number of Uninsured Kids Grows in Minnesota
By Lorna Benson
The number of Minnesota children without health insurance has grown
by at least 8,000 in the past few years. The figures, collected by the
Minnesota Department of Health, are included in a new report by the
Children's Defense Fund Minnesota.
The Children's Defense Fund says the trend is troubling because
access to health care coverage is a key indicator of child well-being.
The group says without insurance, kids are more likely to develop long-
term health problems.
St. Paul, Minn.--Sixty-eight thousand Minnesota children were
without health insurance in 2004. That compares to 60,000 uninsured
kids in 2001, the last time the Department of Health collected the
data.
Jim Koppel, the executive director of the Children's Defense Fund
Minnesota, says the spike in uninsured kids is most noticeable in the
youngest age group. ``There has been an increase of 11,000 children
under the age of 5. The very youngest children in Minnesota have seen
the most dramatic rise of all children,'' Koppel said.
Koppel attributes some of the growth in this group to changes in
state eligibility rules.
Before 2003, he says newborns were automatically enrolled in
Medical Assistance until age 2, if their mothers qualified for the
program when they were pregnant. Medical Assistance is Minnesota's
version of the federal Medicaid program.
Koppel says lawmakers decided to cut off automatic enrollment at
age 1, as a way to help balance the state budget in 2003. As a result,
3,800 kids were kicked off the program.
Koppel says many of those kids still qualified for the state's
other subsidized health insurance program, MinnesotaCare, but he says
many didn't realize it--in part because lawmakers cut the budget to
promote MinnesotaCare. The number of enrollment forms to be filled out
has tripled, and families now have to re-enroll every six months,
rather than every year.
``That's how you get rid of kids in coverage. That's how you cut
participation. Just make it complicated,'' Koppel said.
Of the 68,000 uninsured kids in Minnesota, it's believed that more
than three-fourths are eligible for public health insurance programs.
Department of Human Services Commissioner Kevin Goodno says many of
the eligibility changes were prompted by a desire to make the program
more accountable.
``What we want to do is make sure we're covering the kids that are
uninsured, and not covering kids that already have good insurance in
the private sector, by taking away some of those elements that were
preventing the erosion from the private sector,'' Goodno said.
Goodno is referring to parents who decline their employer-sponsored
health insurance to buy cheaper state-subsidized insurance. The state
has a rule that if a family has access to employer-based insurance
where the employer pays at least 50 percent of the premium, the family
cannot use MinnesotaCare.
On the complexity issue, Goodno agrees that enrollment paperwork
can be daunting. He says the state is working on a project right now
that would streamline the eligibility process by helping parents get
connected with the right programs. But he says there's only so much the
state can do.
``Parents do have to take responsibility for * * * coming into the
counties or coming into our agency, and asking how they can cover their
kids for health insurance. So there is some personal responsibility
involved in all this as well,'' he said.
Goodno says while he does think it's a serious problem that so many
children are uninsured in the state, he points out that Minnesota is
doing well compared to other states. He says the state has one of the
lowest overall uninsured rates in the country. He says it's also one of
the healthiest states.
But that doesn't satisfy the Children's Defense Fund's Jim Koppel.
He says other states are showing more progress when it comes to kids.
``Forty states in this same time period we're talking about, 40
states, decreased the number of uninsured children in their state,'' he
said.
Koppel says three other states--Massachusetts, Illinois and Maine--
have recently passed legislation that makes sure that all of their
children have health insurance. Legislative proposals to do the same
thing in Minnesota have not gone anywhere.
______
[From the Atlantic Monthly, June 2006]
The New War Over Wal-Mart
The mounting attacks on the world's largest company could change
American business-and transform the health-care system
Wal-Mart has made its slogan (``Always Low Prices. Always.'') into
a blood oath. The company has grown to prominence through legendary
cost-saving acumen and a relentless adherence to low prices, which it
maintains by rigid cost control. Today, Wal-Mart employs more people-
1.7 million-than any other private employer, and by this measure is not
just the largest company in the world but the largest company in the
history of the world.
With size comes power. Several years ago, economists coined the
term ``Wal-Mart effect'' to describe the consequences, large and small,
that flow from the company's unending war on prices. The Wal-Mart
effect drives down consumer prices so powerfully that it helps check
U.S. inflation. But it has hastened the outsourcing of U.S.
manufacturing jobs to cheaper countries, and, some argue, it also
drives down wages and benefits.
Big business in America is both admired and instinctively
suspected, and the biggest business of all is a natural magnet for
criticism. The overwhelming focus lately has been its health-care
policy, which covers fewer than half its workers and leaves the
government to care for tens of thousands of its employees and their
children through programs, like Medicaid, that were created to help
poor people. Some states have begun to retaliate. Maryland passed a
bill in January forcing any company with more than 10,000 workers to
spend at least 8 percent of its payroll on employee health care-a law
aimed squarely at Wal-Mart, the only company that qualifies. Similar
``fair share'' bills are pending or planned in thirty states.
Especially in the nation's capital, there's a growing sense that after
years of frustration the Lilliputians are finally tying down their man.
One of the major forces opposing Wal-Mart is organized labor. The
United Food and Commercial Workers International Union has long wanted
to organize Wal-Mart's stores. Last year, it succeeded at a Canadian
Wal-Mart, which the company immediately shut down. ``If Wal-Mart
doesn't change its ways, we'll turn it into Big Tobacco,'' Chris
Kofinis, communications director for the UFCW-funded Wake Up Wal-Mart,
told me recently.
The company's other main antagonist, Wal-Mart Watch, is also backed
by labor, though at first glance its motivations are opaque. Wal-Mart
Watch is heavily financed by the Service Employees International Union,
whose president, Andy Stern, says he has no intention of organizing
Wal-Mart. Not long after the Maryland law passed, I asked Stern, who
helped push it, what he was up to. He smiled. A social service worker
turned union organizer, Stern at fifty-five already has a full head of
white hair. But he hardly resembles the stereotypical, cigar-chomping
union boss. Fit and energetic, he speaks with the assuredness and big-
picture worldview of a motivational speaker, an effect amplified by his
bright purple shirt (purple is SEIU's official color). The sleek purple
chairs and frosted glass in the union's Washington offices lend an air
of Scandinavian minimalism and further the sense of calculated
nonconformity. ``Why go after Wal-Mart?'' Stern replied. ``Because Wal-
Mart is the GM of our era. Whatever business practices they adopt have
huge influence across other American businesses.''
Stern has something much grander in mind even than unionizing Wal-
Mart. ``Ford wasn't created to be a health-care provider; it was
created to produce cars,'' Stern says. ``My goal is to get Wal-Mart's
leadership out there in traffic and holler, 'We can no longer compete
in the global economy when health care is factored into the cost of our
products' If Wal-Mart's CEO, Lee Scott, were to come out and say, 'We
need a national health-care system that works for everyone,' then it's
a whole new ball game.''
Stern says that he first contemplated trying to get Wal-Mart to
change its practices in 2003, after the company announced plans to open
forty Supercenters in California. Local grocery chains reacted by
proposing to cut wages and health benefits in a preemptive bid to
remain competitive, some even locking out their employees. The result
was a massive strike. ``When you saw that, you realized what an
incredible effect this one company has on a market,'' Stern said. It
was a classic example of the Wal-Mart effect-and it didn't stop there.
When the supermarkets did in fact cut their health-care plans, the
janitorial companies whose workers SEIU represents complained that
they, too, could no longer remain competitive. ``They came to us and
said, 'We're not as big as the supermarket chains, and if they can't
afford to pay for health care, how can we be expected to?''' Stern
said.
After the 2004 election, SEIU joined with environmentalists,
women's groups, and community activists to form Wal-Mart Watch, hiring
seasoned Democratic operatives and jumping into the public debate. The
new group focused much of its efforts on the company's healthcare
programs, with considerable success. Wal-Mart, despite investing
heavily in public relations and making slight improvements in its
plans, was unable to stop the Maryland law or quiet the growing chorus
of critics.
The company appears to have no clear idea of how to stop the
fallout. Some Wall Street analysts believe the ``headline risk''
associated with the negative publicity is one reason for Wal-Mart's
sagging stock price. The company topped Fortunes most-admired list in
2003 and 2004-but slipped to twelfth place this year.
Stern seemed to take a Bart Simpson-like delight at the spectacle
of a flummoxed symbol of authority whose current chaos he'd helped
devise. Spending around $5 million annually, Wal-Mart Watch has pushed
anti-Wal-Mart laws in dozens of states, leaked damaging internal
documents, and helped make the company known as much for its
exploitation of government health plans as for its business acumen.
Over the last year, and very much against its will, Wal-Mart has been
moved to the center of the national debate over health care, and Stern
has drawn one step closer to what he's really after.
In Stern's thinking, if the world's largest company could be coaxed
or bullied into publicly favoring a national health-care policy, here's
how things might play out: a rush of other companies already beset by
health-care costs and accustomed to mimicking Wal-Mart would fall in
line, putting business on the same side as labor. Governors burdened
with soaring Medicaid costs might also join in. The pressure on the
federal government would be overwhelming. Stern, in other words, is
seeking to turn the Wal-Mart effect to his own ends, harnessing it to
transform health-care policy just as it routinely transforms business
policy. It's an audacious plan.
In late February, Wal-Mart CEO Lee Scott gave a speech to the
National Governors Association in Washington, D.C. The group's chairman
this year, Arkansas Governor Mike Huckabee, chose health care as the
focus of the annual meeting. (Huckabee is an able governor and possible
Republican presidential nominee, but he's most famous for losing a
hundred pounds and writing a diet book, Quit Digging Your Grave With a
Knife and Fork, and he extols the virtues of healthy living just about
any time he can.) hi one sense Huckabee's invitation to Scott was
natural: Wal-Mart is based in Bentonville, Arkansas. But it promised a
certain drama, too, because fewer than half of Wal-Mart's American
workers are covered through the company's health plan.
Scott's audience was also significant. Governors are caught in the
middle of Wal-Mart's health-care crisis. The company is believed to be
the largest employer in at least two dozen states, so its well-being is
important to them. But in many of those states, Wal-Mart workers
correspondingly top the list of Medicaid recipients. The program itself
has exploded, adding 8 million Americans between 2000 and 2004 and
putting enormous strain on state budgets, which fund about 40 percent
of Medicaid. What's especially troubling is that so many new recipients
aren't jobless-their employers simply don't offer health care, or not
cheaply enough to keep them off public assistance. Many of these people
work for Wal-Mart.
Scott got right to the point. ``America is facing some pretty tough
challenges these days,'' he stated. ``We know our benefits are not
perfect.'' His goal before the governors was to slow the onrushing
storm directed at Wal-Mart's healthcare coverage. For maximum effect
the press had been notified ahead of time that he had come bearing a
peace offering of sorts-his speech would announce improvements in the
company's benefits.
These turned out to be relatively minor concessions: reducing the
waiting period for part-time employees to qualify for benefits,
broadening availability of Wal-Mart's cheapest plan, and allowing
children of part-timers to become eligible with their parents. Though
constructive, such increments won't solve the larger problem, as Scott
seemed to understand. Wal-Mart's CEO is fifty-seven and slightly
doughy, with the bland, unassuming aspect of a middle manager. But when
he finished his pitch, he became soberly defiant: ``We cannot do it
alone. No business can. No business should have to. The fact is the
soaring cost of health care in America cannot be sustained over the
long term by any business that offers health benefits to its
employees.'' This is exactly Andy Stern's position.
Scott made clear that he had not come to surrender, to unions or
state governments. ``I believe we're seeing a little too much
politics,'' he said. Bills like Maryland's ``may score short-term
political points, but they won't solve America's health-care
challenges.'' He angrily denounced them as ``horrible public policy.''
Clearly, Stern and his fellow critics have Wal-Mart seeing purple.
For all Wal-Mart's size, its business model leaves it more
vulnerable than most companies to the rising cost of health care. Its
key to consistently outcompeting everyone else on price is low margins
and high volume. Wal-Mart doesn't make a lot of money on any individual
sale; it makes huge multiples of small profits on a torrent of sales.
In 2005, Wal-Mart earned profits of $11.2 billion on sales of
$312.4 billion-a hefty sum, to be sure, but a startlingly thin margin
of less than four cents per sales dollar-about $6,000 in profit per
employee. (Exxon Mobile, by comparison, earned around $300,000.) That's
fine if you can keep holding down costs, as Wal-Mart goes to incredible
lengths to do. (Among the exquisite revelations in Charles Fishman's
recent book, The Wal-Mart Effect, is the company's policy of
reimbursing meal tips only up to 10 percent-there goes its image with
one big sector of the American workforce!) But one cost that is well
outside its formidable power to control is health care. At Wal-Mart
that outlay has risen 19 percent over each of the last three years.
Just how big a problem this poses was brought to light last
October, when someone leaked an internal memo written by the company's
executive vice president for benefits, Susan Chambers, to Wal-Mart
Watch. The Chambers memo reported that the company's cost of benefits
was outpacing its profits. ``Growth in benefits is unsustainable,'' it
warned, going on to recommend fourteen measures of containment: nine
``limited-risk initiatives'' and five ``bold steps.'' These ranged from
such benign ideas as giving employees discounts on healthy foods to
highly controversial ones like thinning the number of unhealthy (and
thus more expensive) workers by adding physical tasks, like collecting
carts, to jobs that currently don't require them.
The uproar that ensued focused on the practice of discriminating
against unhealthy workers-a potential violation of federal law. But the
truly startling thing is the memo's estimate of how little even the
most extreme ``steps'' could accomplish. Enact every proposal, and Wal-
Mart will still merely maintain its current ratio of benefit costs to
profits for five more years. That's it.
The significance of the Chambers memo isn't that a major company is
plotting to scale back health-care coverage; it's that employer health-
care costs are growing so sharply that the apotheosis of American
capitalism is frantically digging in its heels merely to slow their
rate of growth. The alarming implication for a company whose greatness
rests upon squeezing a few pennies out of every dollar in sales is a
microcosm of the health-care issues beating against American business.
As employers are hit with spiraling benefits bills, economic
rationality leads them to want to dump their most costly employees.
This pushes those most in need of care into the ranks of the uninsured
or onto the dole.
Wal-Mart has little cushion to absorb increased costs, which is why
laws like Maryland's, which force it to spend more on health care, are
such a threat. Stern's gamble is that Wal-Mart won't be able to
maintain its profit margin in the face of sustained political and
economic pressure, and that sooner or later this reality will force the
company in the direction he wants it to go.
There's something shrewd, and at the same time deeply cynical,
about the critics' moves against Wal-Mart. Stern shows no qualms about
supporting ``fair share'' laws like Maryland's, even if they slow the
arrival of a national plan, operating as they do through the current
employer-based system he says is broken-and do so by singling out one
company and punishing it for shortcomings that exist across the entire
retail sector. ``Fair share is not the ultimate answer to this
problem,'' Stern concedes. ``But it's the difference between tactical
and strategic. There will be state-based efforts like Maryland's to
shore up the present health-care system or there's going to be a
national effort to convert from it.''
What the war against Wal-Mart tends to gloss over is that it's not
at all clear that the company behaves any worse than its competitors.
When it comes to payroll and benefits, Wal-Mart's median hourly wage
pretty much tracks the national median wage for general merchandise
retail jobs. And its health-care benefits are a good deal more
accessible, if still not entirely affordable, than those of many of its
competitors. Target, for instance-unlike Wal-Mart, to which it is often
compared-does not offer benefits to part-timers. A recent report on the
company by Jason Furman, a visiting scholar at New York University and
a former Clinton health-care official, dubbed Wal-Mart a ``progressive
success story,'' noting that ``more Wal-Mart employees are eligible for
health insurance than in the retail sector as a whole and even slightly
more than the nationwide total.''
Looked at from another angle, the most damning statistic deployed
against Wal-Mart-that its workers and their families form the largest
company group on the Medicaid rolls in so many states-is a function of
Wal-Mart's size more than mean-spirited company policy. In percentage
terms, rather than raw numbers, the company's workers and their
children are less likely to draw Medicaid coverage than their
counterparts elsewhere in the retail sector. Among retailers, Wal-Mart
is actually one of the better providers of health care-which shows how
terrible the problem has become.
There is every technical reason why Wal-Mart should support
universal health care and shift the burden onto the only entity in the
country bigger than itself: the federal government. Lee Scott's speech
to the governors very nearly went this far. What lies at the bottom of
Wal-Mart's angry resistance to what is in its own self-interest are
matters of corporate culture that extend to most big businesses. First,
corporations typically don't think in broad public policy terms-
particularly not Wal-Mart, which until recently was a regional company
so reverent of its small-town heritage that most of its executives
started as hourly workers. Second, business in general, and Wal-Mart in
particular, reflexively distrusts anything that resembles
``Democratic'' policy or is favored by labor unions, like universal
care. This is not an unreasonable reaction when the chief advocate is a
union president busily promoting laws aimed at boosting your company's
health-care spending. Third, businesses are inherently suspicious of
government-in this case fearful that bargaining over a national system
could leave them worse off than they are now, by saddling them with new
spending mandates. This concern is reinforced by their Republican
allies, who are ideologically opposed to government-run health care.
Wal-Mart's health-care problem, and the nation's, is partly the
result of historical accident. During World War II, a labor shortage
forced U.S. employers to compete for workers. Wage controls at the time
prevented them from offering higher salaries. So health and pension
benefits, which were unregulated, became a means of competing for
employees. This turned out to be popular with workers and businesses
alike, because employer-provided health benefits, while unquestionably
valuable, are not part of a worker's taxable income; and they gave
employers a justification for paying more moderate wages.
For a long time, health benefits were not a major expense. But as
health-care costs have spiraled upward, they've become a significant
part of the payroll-more and more, the most significant pan. Stern's
real reason for pursuing national health care is that he's every bit as
hurt by soaring costs as business is: ``As a union we are steadily
trading wages for health care.''
During the last presidential campaign, a couple of hard-hit
automakers indicated privately that they liked John Kerry's health-care
plan, recognizing how significantly it would reduce their burden. Under
Kerry's plan, the government would have helped pay catastrophic medical
expenses-greatly relieving businesses of the fastest growing benefit
cost, the one driving Wal-Mart and others to try to dump unhealthy
workers. ``But none of [the automakers] would say that publicly,'' says
Furman, who worked on the Kerry campaign. ``None of them wanted to get
involved in the political debate.''
That won't be true forever. The sheer economics of the health-care
crisis for business is forcing Wal-Mart and other large companies to
balance reflexive opposition to government with enlightened self-
interest. ``What makes Stern's idea so intriguing is that this is no
typical union shakedown: it is in Wal-Mart's own financial interest, as
well as Stern's. As much as Lee Scott must dislike his critics, it's
hard to dispute much of what they're arguing-indeed, Scott sounded the
same themes in his speech to the governors.
And what Scott is saying lately is changing the debate. ``The
controversy over Wal-Mart is framing the failure of the health-care
system in a very public way,'' says Chris Jennings, a former senior
adviser to Bill Clinton and a health-care-policy consultant. ``And not
just failing workers but businesses, too.''
Barring a major terrorist attack, health care could be the biggest
domestic issue in 2008, and a vehicle for any number of presidential
hopefuls. It would be a natural for a Republican governor and economic
moderate like Mike Huckabee, a dark horse who must distinguish himself.
In Massachusetts, Republican Governor Mitt Romney just agreed to a bill
creating the first mandatory statewide health plan. The most
politically astute Democrat has already taken a provocative step:
Hillary Clinton recently brought in as her legislative director Laurie
Rubiner, who helped write the late Republican Senator John Chafee's
plan for universal coverage.
A national health-care plan need not be a ``single-payer'' system
in which government covers all costs-most likely it won't. Stern
suggests something modeled after the health benefits plan for federal
employees. Most of the Democrats who sought the nomination in 2004
offered plans based on expanding existing programs like Medicaid.
Rubiner has proposed a system modeled after auto insurance: everyone
would be required by law to have health insurance, but government would
subsidize the poor. (The Massachusetts plan works like this.) None of
these approaches would be the dreaded ``socialized'' medicine-they
would be organized by government but operate through private doctors
and health plans. Employers would still contribute something toward
health care, but their contribution would go through the government,
and in exchange they would at last receive a measure of cost
predictability.
Still, Washington's hypercautious culture seems unlikely to produce
a solution anytime soon. The United States currently spends 16 percent
of its gross domestic product on health care-far more than any other
country. Who better to initiate the mother of all cost-saving
efficiencies than Wal-Mart?
______
Mr. Payne. Mr. Chair, are you going to conclude and end the
program right now? I just want to say, just let me thank you
once again for having this hearing. Let me thank the panel. I
think it is--when we can have sound discussions without a whole
lot of acrimony, it makes a lot of sense to try to come up with
solutions. I would hope that our colleagues would have this
quorum.
And let me just commend you for having a civil kind of a
conversation where we could have give and take. If we have more
of that, perhaps we could not be the do-nothing Congress, which
we happen to be this year, and get something done.
Chairman Johnson. Wait a minute. It is a----
Mr. Payne. So I think that we really want to work on health
care to see whether we can provide it for our people in this
country. Maybe look at the Europeans, and we are a little
wealthier than they are, so maybe we can throw a little more
cash to make what they are doing better.
I do believe it is something we will have to come up with a
solution to, or we are going to be in serious problems in the
future. And it can't be all born by your little shoe people; I
won't be able to afford the shoes. But we need to take a look
at some sound solutions.
And your question about, you know, these health savings
accounts, all of those things are great. Even tax credits are
great. The only problem when you don't have any savings, you
can't do the savings account. And if we had minimum wage
people, they are not going to be able to provide health savings
account for themselves because they have got nothing to save.
They don't even have enough to live on. So these--we have to
think of the totality, but once again, Mr. Chairman, let me
commend you for having a very good hearing.
Chairman Johnson. Thank you. I think that if you look at
the HSAs in a lot of cases, the employers would provide some
savings buildup for the individual. It seems like Congress
ought not to get lazy and just put the burden on employers. I
think there are other ways to reduce costs, and HSAs and AAPs
and whatever the Senate wants to call them reduces the tax
burden on individuals who do not get their insurance from their
employer, making cost and quality information available. I
think the list goes on and on. We can be more creative and more
effective than a mandate on employers, I believe, as you do.
I want to thank the witnesses for their valuable time and
testimony, and both the witnesses and members for their
participation. If there is no further business, committee
stands adjourned.
[Whereupon, at 12:18 p.m., the subcommittee was adjourned.]
[Additional submission from Chairman Johnson follows:]
[Fact sheet provided by Wal-Mart, Inc.]
Wal-Mart's Health Care Benefits Are Competitive in the Retail Sector
When compared to other retailers with similar business models--such
as Target and The Home Depot--Wal-Mart's health benefits are
competitive in the retail sector. In many areas we, along with Target
and The Home Depot, are setting the standard.
Eligibility: Wal-Mart offers health coverage to both full- and
part-time associates--only 23% of all employers offer coverage to their
part-time employees.
On average in 2005, 73% of all associates were eligible for Wal-
Mart plans and 43% of all associates chose to enroll. In January 2006,
the number of associates covered by Wal-Mart health care insurance
increased to 46%.
According to a 2005 survey by the Kaiser Family Foundation, the
proportion of Wal-Mart associates eligible for company health care
benefits (73%) is comparable to other large employers (79%) and
significantly higher than the retail industry average (61%).
Coverage: We estimate that more than three-fourths of Wal-Mart
associates have some health insurance, through either a company plan, a
spouse's plan, or Medicare.
According to a survey conducted by The Segmentation Company, 5% of
Wal-Mart associates are on Medicaid. This is lower than the retail
sector average of 6% and only slightly higher than the national average
of 4%. 27% of the children of Wal-Mart associates are on Medicaid or S-
CHIP programs, a proportion lower than the retail sector average of
36%.
Affordability: Wal-Mart's deductible for individual coverage starts
at $350, which is comparable to our competitors.
We have plans available for as little as $11 per month for
associates and 30 cents more per day for children. These innovative
plans include some first-dollar coverage for doctor visits and drugs.
Preventive dental coverage with no deductible is available to
individuals for as little as $6.52 per month, to associates and their
children or spouses for $13.58 per month, and to families for $20.64
per month.
Company Contribution: Historically, Wal-Mart's contribution to both
individual and family health care coverage has been approximately two-
thirds of the total cost.
The total benefits package for a Wal-Mart associate includes, in
addition to health care, programs such as company contributions to
401(K)/profit-sharing plans, associate discount cards, paid time off
and life insurance. In FY 2006, Wal-Mart is projected to spend roughly
$4.7 billion on associate benefits.
The Current State of Health Care in America
Providing access to quality, affordable health care is a challenge
facing businesses large and small across the country. Health care costs
are soaring, some of the most vulnerable Americans are not receiving
care, and the current health care system is inefficient and wasteful.
Simply put, our health care system is unhealthy, and its deficiencies
are profoundly impacting millions of Americans and businesses.
All Americans are affected:
There are about 46 million uninsured Americans.
Disproportionately represented among the uninsured are
young adults ages 19 to 34 who make up a quarter of the total U.S.
population, but represent 40% of the nation's uninsured population.
Of the 53 million Americans relying on Medicaid or other
public assistance programs, 32% are adults who work full or part time.
Working families are affected:
In 2005, the average annual premium for family coverage
was $10,880. Health premiums in 2005 increased 9.2% on average over the
year before. Since 2000, premiums have risen 73%.
Retail prescription drug prices increased an average of
8.3% per year from 1994 to 2004 (from $28.67 to $63.59), more than
triple the average annual inflation rate.
All this despite wages rising only 2.7% in 2005.
Businesses, large and small, are affected:
Health care costs represent a significant portion of
payroll costs for all American businesses, and in particular, for low-
margin, labor-intensive businesses like retail. In 2005, 60% of
employers offered medical coverage to their employees, down from 69%
five years ago.
The cost of providing health benefits has been increasing
faster than the growth in sales and earnings of a typical business.
Furthermore, higher spending is often not translated into greater value
to employees.
Wal-Mart is affected * * *
In FY 2006, Wal-Mart is projected to spend roughly $4.7
billion on associate benefits including, for example, contributions to
health and dental plans, 401(K)/profit-sharing plans and associate
discount cards. For perspective, Wal-Mart's net income for FY 2005 was
$10.3 billion.
Benefits spending at Wal-Mart has grown 15% per year over
the last three years, increasing from 1.5% to 1.9% of sales between FY
2002 and FY 2005.
Health care spending alone has grown 19% per year during
the same period * * * and Wal-Mart is responding with solutions:
We are providing access to private insurance: Wal-Mart
provides health insurance to full- and part-time associates after a
waiting period considered standard in the retail industry. For many
associates, a job at Wal-Mart means new access to health coverage.
Surveys of hourly associates showed that 30% had no health coverage
before coming to work for Wal-Mart. After joining Wal-Mart, the
percentage of associates who are uninsured drops. By our estimates, we
have helped over 160,000 associates get off the rolls of the uninsured.
We are taking people off public assistance programs:
According to a survey by The Segmentation Company, 7% of associates
join Wal-Mart on Medicaid. Only 3% of associates remain on Medicaid
after working for Wal-Mart for two years.
Wal-Mart is exploring ideas and working hard to find solutions to
America's health care challenges. We believe that America's health care
challenges are larger than any individual corporation--even one of the
largest. We want and need partners--leaders in government and industry,
our loyal associates and customers, and thoughtful associations and
academics--to work with us toward these solutions. Together, we are
working on some exciting new initiatives, and we're confident these
will lead to many more.
Current Wal-Mart Health Care Overview
Every business in America is dealing with the rising cost of health
care and shares a concern about the number of Americans who are
uninsured or relying on government-sponsored health programs. Millions
of working Americans put their trust in us, and we take that trust very
seriously. That's why we continue to work hard to find affordable,
accessible health benefit solutions for our associates and our
customers.
The health care demands placed on Wal-Mart are unique.
Understanding the size and diversity of our workforce puts into
perspective the range of choices and plans that we offer our
associates.
As the largest private employer in America, Wal-Mart
employs approximately 1.3 million people.
The majority of Wal-Mart's hourly associates are full-
time. (Fulltime at Wal-Mart is 34+ hours per week.) That's well above
the 20% to 40% typically found in the retail industry.
Many associates--such as students looking for work
experience, seniors supplementing their retirement income and
individuals working a second job--join Wal-Mart with existing health
care benefits.
Wal-Mart's offerings are tailored to the needs of our diverse
workforce, and associates are provided a great deal of choice.
In some markets, associates can choose from as many as 18
medical coverage options. This gives them the opportunity to tailor
their benefits to their individual needs and the needs of their
families.
Wal-Mart offers Health Savings Accounts (HSAs) to our
associates, which provide yet another option for families to gain
access to health insurance and save for future health care needs. Wal-
Mart matches associates' contributions to their HSAs dollar-for-dollar
up to certain amounts, and associates own the accounts. (The match
ranges from $250 to $1,000, depending on coverage level selected.)
Based on input from associates, in 2006 Wal-Mart
introduced a new Value Plan--specifically designed to provide more
affordable access to health care coverage with some first dollar
coverage for doctor visits and prescriptions--all before associates
have to meet their deductibles.
Our plans have some very attractive features.
Unlike the employees of many of our retail competitors,
both full- and part-time Wal-Mart associates can become eligible for
health coverage.
After one year, there's no lifetime maximum on health care
expenses-protecting employees and their families from catastrophic
loss. Wal-Mart is one of few retailers to offer this benefit.
After an annual deductible is met, Wal-Mart's medical plan
typically covers 80% of charges for all services included in the plan.
After an associate reaches an annual out-of-pocket maximum, the plan
pays 100% of all eligible charges.
New offerings are making health care even more affordable for our
associates.
In some markets, premiums for the new Value Plans are as
low as $11 per month and 30 cents more per day for children, no matter
how many children an associate insures. Nationwide, every eligible
associate--both full- and part-time--has access to individual coverage
for no more than $23 per month and 50 cents more per day for children.
Family coverage starts at $65 per month.
Prescription drugs for some common conditions are
available for as little as a $3 co-pay.
Wal-Mart continues to set up ``high-performance
networks,'' which establish a competitive environment among health care
providers and continue to lower the costs of health care services and
monthly premiums for associates.
Our initiatives are working.
During our recent open enrollment, about 70,000 associates
who had previously waived coverage signed up for Wal-Mart plans.
Of these associates, 78% of those surveyed said they were
previously uninsured.
Over one-third of those associates, previously uninsured
and recently electing coverage, selected the Wal-Mart Value Plan.
Considering factors that include associates who left Wal-
Mart, those that elected to drop coverage as well as those who recently
became eligible, this growth in enrollment leaves Wal-Mart in January
2006 with over 615,000 associates, (or over 1 million Americans,
including spouses and dependants) on Wal-Mart health plans.
Wal-Mart is also working on behalf of our customers.
Currently, Wal-Mart is conducting a pilot project that
puts health clinics in our stores. With an emphasis on affordability
and convenience, these clinics will give the communities we serve
access to quality care while providing an alternative to expensive
emergency room visits.
Wal-Mart is committed to sharing our expertise in supply
chain management and technology to reduce costs and increase efficiency
within the health care system.
These are bold, innovative, outside-the-box solutions that reflect
our care for our associates and a desire to be a leader in our
industry. They're just a start and much more is to come. We welcome
partners in this effort to further these goals. Additional details on
all Wal-Mart health plans can be found at www.walmartfacts.com.
______
[Statement from the United Food and Commercial Workers
International Union follows:]
Prepared Statement of the United Food and Commercial Workers
International Union, (UFCW)
Thank you for the opportunity to submit written testimony to the
Subcommittee on the important issue of state law innovations in
covering the uninsured. As the Subcommittee is aware, the nation is
facing a crisis in the number of Americans who lack health insurance
coverage and, as a result, do not have access to critical health care
services. There are approximately 45 million uninsured Americans in
this country today and 8.5 million of these are children. As health
care numbers and costs rise and publicly funded federal health care
programs are cut, states have been left with no choice but to develop
approaches to address with this issue.
The Subcommittee has learned through Congressional testimony about
innovative ways states are acting to deal with this crisis. For
example, Massachusetts and Maryland both passed laws earlier this year
to help their own uninsured citizens. These two states took very
different approaches--with Massachusetts, among other things, requiring
state residents to obtain health insurance, and Maryland enacting a
fair share law. Fair share laws assess a state tax on employers that is
offset, in whole or in part, by the amount of money the employer spends
on employee health expenditures. States must be free to try these
different and innovative approaches that best fit the needs of their
residents. Congress should not impede their progress.
Some opponents have wrongly argued that Maryland-type fair share
laws are preempted by the federal Employee Retirement Income Security
Act (ERISA). ERISA preempts states laws that relate to employee benefit
plans, including health benefit plans. Opponents, including some who
have testified before this Subcommittee, point out that ERISA preempts
state laws that mandate health benefits, except for state laws that
mandate benefits in insurance policies. As the Subcommittee has heard,
large employers usually do not buy insurance policies for their
employee benefits and employers that do not buy insurance policies are
not subject to state law mandates for their health plans. Some large
employers view state mandates as good guidance for appropriate benefit
offerings.
The Subcommittee has heard about the advantages and disadvantages
of state law mandated benefits, including mandates for coverage of
diabetes supplies, cancer screening, well-baby care, and childhood
immunizations. However, fair share laws (those that impose a tax on
employers with a credit against the tax based on money spent on
employee health expenditures) are not preempted because such laws do
not mandate particular benefits as do the other mandated benefit laws.
Instead, fair share laws offer employers three choices--to pay the full
amount of the tax to the state and paying no health care expenses in
order to obtain the credit, to pay no tax by obtaining the full credit
against the tax and paying the specified amount (or more) on employee
health expenses, or an employer may also choose to pay some amount
toward employee health expenses and some tax. States need the revenue
to help support the public financing of medical treatment for those
workers availing themselves of the state-based safety-net. This is
because employees not receiving payment of health expenses through
their employer must use the public system and therefore costs are
shifted onto the safety-net.
States have traditionally regulated areas related to medical care
received by state residents and raising state revenue, and have done so
both before and after Congress passed ERISA in 1974. Certainly in
passing ERISA, Congress did not intend to undermine these traditional
areas of state regulation. ERISA was not intended to, and does not,
restrict the states' ability to raise revenue through taxes or
assessments or the states' ability to provide offsets, deductions, or
credits against state taxes or assessments. This is what the fair share
laws do and therefore, they are not mandating benefits and are not
preempted by ERISA.
The states are merely taking action to protect their citizens and
their state treasuries since Congress has not dealt with the growing
problem of Americans without health coverage on a national scale.
Clearly Congress could--and in our view, should--enact a sweeping
overhaul of our health care system. Until Congress acts, states should
be free to innovate and experiment, thereby providing models of success
that can be emulated in other states and, in time, at the national
level. Existing federal law under ERISA does not preclude this and fair
share laws such as the Maryland law must be considered in other states.
Congress must recognize the important contributions of both the
private and public sector in working to make quality, affordable health
care available to all of our citizens. Whether there are collectively-
bargained efforts that improve and expand health care coverage for
working families, innovative public policy proposals that ensure
public-private partnerships or private sector initiatives that improve
health care quality, these small steps should be acknowledged as
positive. While comprehensive health care reform at the national level
is clearly preferable, it is also obvious that it is not on the agenda
of the 109th Congress or the current administration. In the meantime,
more than two dozen states have introduced ``fair share'' legislation
in 2006. These are states from all over the nation; Georgia, West
Virginia, New Hampshire, Washington, Kentucky, Tennessee, Minnesota and
others. In addition, the state of Vermont recently enacted sweeping
health care legislation. We applaud the actions of these states and
urge the Congress to act as well. The need for thorough health care
reform is an approaching national crisis, and a national solution
provides the most consistent and far reaching answer. In the absence of
national leadership, however, we applaud the legally appropriate and
thoughtful approach of state governments.
Thank you again for the opportunity shares our views on this
vitally important issue with the Subcommittee.