[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
HEALTH CARE REFORM: RECOMMENDATIONS
TO IMPROVE COORDINATION OF
FEDERAL AND STATE INITIATIVES
=======================================================================
HEARING
before the
SUBCOMMITTEE ON HEALTH,
EMPLOYMENT, LABOR AND PENSIONS
COMMITTEE ON
EDUCATION AND LABOR
U.S. House of Representatives
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
__________
HEARING HELD IN WASHINGTON, DC, MAY 22, 2007
__________
Serial No. 110-40
__________
Printed for the use of the Committee on Education and Labor
Available on the Internet:
http://www.gpoaccess.gov/congress/house/education/index.html
______
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COMMITTEE ON EDUCATION AND LABOR
GEORGE MILLER, California, Chairman
Dale E. Kildee, Michigan, Vice Howard P. ``Buck'' McKeon,
Chairman California,
Donald M. Payne, New Jersey Ranking Minority Member
Robert E. Andrews, New Jersey Thomas E. Petri, Wisconsin
Robert C. ``Bobby'' Scott, Virginia Peter Hoekstra, Michigan
Lynn C. Woolsey, California Michael N. Castle, Delaware
Ruben Hinojosa, Texas Mark E. Souder, Indiana
Carolyn McCarthy, New York Vernon J. Ehlers, Michigan
John F. Tierney, Massachusetts Judy Biggert, Illinois
Dennis J. Kucinich, Ohio Todd Russell Platts, Pennsylvania
David Wu, Oregon Ric Keller, Florida
Rush D. Holt, New Jersey Joe Wilson, South Carolina
Susan A. Davis, California John Kline, Minnesota
Danny K. Davis, Illinois Bob Inglis, South Carolina
Raul M. Grijalva, Arizona Cathy McMorris Rodgers, Washington
Timothy H. Bishop, New York Kenny Marchant, Texas
Linda T. Sanchez, California Tom Price, Georgia
John P. Sarbanes, Maryland Luis G. Fortuno, Puerto Rico
Joe Sestak, Pennsylvania Charles W. Boustany, Jr.,
David Loebsack, Iowa Louisiana
Mazie Hirono, Hawaii Virginia Foxx, North Carolina
Jason Altmire, Pennsylvania John R. ``Randy'' Kuhl, Jr., New
John A. Yarmuth, Kentucky York
Phil Hare, Illinois Rob Bishop, Utah
Yvette D. Clarke, New York David Davis, Tennessee
Joe Courtney, Connecticut Timothy Walberg, Michigan
Carol Shea-Porter, New Hampshire
Mark Zuckerman, Staff Director
Vic Klatt, Minority Staff Director
------
SUBCOMMITTEE ON HEALTH, EMPLOYMENT, LABOR AND PENSIONS
ROBERT E. ANDREWS, New Jersey, Chairman
George Miller, California John Kline, Minnesota,
Dale E. Kildee, Michigan Ranking Minority Member
Carolyn McCarthy, New York Howard P. ``Buck'' McKeon,
John F. Tierney, Massachusetts California
David Wu, Oregon Kenny Marchant, Texas
Rush D. Holt, New Jersey Charles W. Boustany, Jr.,
Linda T. Sanchez, California Louisiana
Joe Sestak, Pennsylvania David Davis, Tennessee
David Loebsack, Iowa Peter Hoekstra, Michigan
Phil Hare, Illinois Cathy McMorris Rodgers, Washington
Yvette D. Clarke, New York Tom Price, Georgia
Joe Courtney, Connecticut Virginia Foxx, North Carolina
Timothy Walberg, Michigan
C O N T E N T S
----------
Page
Hearing held on May 22, 2007..................................... 1
Statement of Members:
Andrews, Hon. Robert E., Chairman, Subcommittee on Health,
Employment, Labor and Pensions............................. 1
Prepared statement of.................................... 3
Baldwin, Hon. Tammy, a Representative in Congress from the
State of Wisconsin......................................... 5
Prepared statement of.................................... 7
Kline, Hon. John, Senior Republican Member, Subcommittee on
Health, Employment, Labor and Pensions..................... 3
Prepared statement of.................................... 4
Additional submissions:
Letter from an employment community.................. 58
Prepared Statement of the ERISA Industry Committee... 59
Prepared Statement of the HR Policy Association...... 60
Prepared Statement of the Society for Human Resource
Management......................................... 62
Letter from the Corporate Health Care Coalition...... 63
Letter from the Business Roundtable.................. 64
Prepared Statement of Faith Cristol, vice president,
Workforce and Tax Retail Industry Leaders
Association........................................ 64
Hon. Tom Price, M.D., a Representative in Congress from the
State of Georgia........................................... 8
Prepared statement of.................................... 10
Hon. John F. Tierney, a Representative in Congress from the
State of Massachusetts..................................... 11
Prepared statement of.................................... 12
Statement of Witnesses:
Colmers, John, Secretary, Maryland Department of Health and
Mental Hygiene............................................. 25
Prepared statement of.................................... 27
Covert, Kevin, vice president and deputy general counsel for
human resources, Honeywell International, Inc.............. 33
Prepared statement of.................................... 35
Goldman, Steven M., New Jersey Commissioner of Banking and
Insurance.................................................. 45
Prepared statement of.................................... 47
Kofman, Mila, J.D. associate research professor, Health
Policy Institute, Georgetown University.................... 17
Prepared statement of.................................... 19
Moore, Amy N., Covington & Burling LLP....................... 39
Prepared statement of.................................... 40
Morrison, John, J.D., Montana State Auditor and Commissioner
of Insurance and Securities................................ 29
Prepared statement of.................................... 31
HEALTH CARE REFORM: RECOMMENDATIONS
TO IMPROVE COORDINATION OF
FEDERAL AND STATE INITIATIVES
----------
Tuesday, May 22, 2007
U.S. House of Representatives
Subcommittee on Health, Employment, Labor and Pensions
Committee on Education and Labor
Washington, DC
----------
The subcommittee met, pursuant to call, at 3:00 p.m., in
Room 2175, Rayburn House Office Building, Hon. Robert Andrews
[chairman of the subcommittee] presiding.
Present: Representatives Andrews, McCarthy, Tierney, Wu,
Sestak, Loebsack, Hare, Courtney, Sarbanes, Kline, McKeon,
Boustany, and Price.
Staff present: Aaron Albright, Press Secretary; Tylease
Alli, Hearing Clerk; Carlos Fenwick, Policy Advisor for
Subcommittee on Health, Employment, Labor and Pensions; Michael
Gaffin, Staff Assistant, Labor; Joe Novotny, Chief Clerk; Megan
O'Reilly, Labor Policy Advisor; Michele Varnhagen, Labor Policy
Director; Steve Forde, Minority Communications Director; Ed
Gilroy, Minority Director of Workforce Policy; Rob Gregg,
Minority Legislative Assistant; Victor Klatt, Minority Staff
Director; Jim Paretti, Minority Workforce Policy Counsel; Molly
McLaughlin Salmi, Minority Deputy Director of Workforce Policy;
Ken Serafin, Minority Professional Staff Member; and Linda
Stevens, Minority Chief Clerk/Assistant to the General Counsel.
Chairman Andrews [presiding]. The subcommittee will come to
order if everyone would please take their seats.
I first want to thank our witnesses and guests for their
indulgence in the late starting of the hearing. We had a series
of 10 votes on the House floor, which took us for a substantial
period of time, and, unfortunately, there is going to be, I
think, one more interruption in about an hour. But we very much
appreciate the indulgence of those who traveled to be here
today, and we thank you very, very much for your patience.
The purpose of today's hearing is to explore the issues
that are raised by creative state solutions to the perplexing
problem of the growing number of uninsured in our country.
The number seems to rise as time goes on. When I first had
the privilege of being elected to this body in 1990, I believe
we had 35 million uninsured, and then by the beginning of the
1990s, 1992-1993, we had 40 million uninsured. Now it is
somewhere between 45 million and 47 million uninsured.
There have been modest steps at the federal level, most
especially the achievement in 1997 with the adoption of the
State Children's Health Insurance Program, which is up for
reauthorization this year. And I should indicate that we are
involved in efforts with the Committee on Energy and Commerce
to try to provide some additional employer options under that
provision.
But the truth of the matter is the federal government has
not made a dent in fixing this program. Creative state leaders
around our country, both Republican and Democratic, have made
significant progress, not always without controversy, but have
made significant progress.
The purpose of our hearing today is twofold. It is to
consider mechanisms by which state efforts to decrease the
number of uninsured can be properly incorporated into the
federal legal structure. That is to say: How can we give
creative policymakers at the state level in both the Republican
and Democratic parties the opportunity to effectuate good
solutions to problems that will decrease the number of
uninsured?
We are going to hear from two panels today about that
question. One is a panel of three of our colleagues that have
an innovative idea to encourage more state innovation. And then
the second is from a panel that will consist of experts in this
health care legal field as well as representatives of state
governments from throughout the country.
The second question that we are going to address is how to
strike the proper balance between innovative state solutions
and the federal statute, the ERISA statute, which has governed
this area of the law for 33 years. ERISA has set up a finely
balanced structure, where the ability of employers to enjoy one
set of rules through federal preemption has, in fact,
encouraged a number of employers to voluntarily provide
generous and sustained benefits for employees for a very long
period of time.
I would like to believe that we do not have to choose
between disrupting that balance and encouraging creativity at
the state level. I do not think this is an ideological problem.
I think it is a practical problem.
And I would invite comment from all of our colleagues on
the subcommittee and the full committee in finding ways that we
can retain the very laudable aspects of ERISA, which have given
us a stable environment for employers to offer health benefits
and pension benefits, but while at the same time encouraging
creative state policymakers to do something we failed to do
under both Democratic and Republican congresses and
administrations in Washington, which is to reduce the number of
uninsured people in the country.
I believe there is an inextricable link between the growing
number of uninsured and the rising costs of health care for the
insured, and I believe that until we make significant progress
in reducing the number of uninsured, we will not make
significant progress in reducing the burden of health insurance
premiums, copays, deductibles and other costs for those who are
insured.
So we want to kick off this discussion today. We, again,
thank the witnesses for their discretion.
And, at this time, I would turn to the distinguished
ranking member of the subcommittee from Minnesota, Mr. Kline.
Prepared Statement of Hon. Robert E. Andrews, a Representative in
Congress From the State of New Jersey
Good afternoon and welcome the Health, Employment, Labor, and
Pensions Subcommittee hearing today entitled ``Health Care Reform:
Recommendations to Improve Coordination of Federal and State
Initiatives.'' This is part II of the HELP Subcommittee's hearing
series on solutions to covering the uninsured. During our last hearing,
we heard testimony from several health care policy experts regarding
various states' innovative ideas to address the problem of the
uninsured. In this hearing, we will hear directly from several state
officials regarding their state's health care initiatives and the
challenges federal law presents to them. In addition, we will hear from
several Members of Congress regarding a proposal that would establish a
commission to provide certain waivers and grants to states who want to
increase health care.
The purpose of today's hearing is to address the question of
whether the federal government should provide states with waivers from
the federal law known as the Employee Income Retirement Security Act
(ERISA) in order to meaningfully implement their state health care
initiatives. Although ERISA's original intent was to establish minimum
funding and vesting standard for pension plans, its effect has created
an unintended consequence that prohibits states from regulating
employer-sponsored health plans.
While the United States spends over $1.6 trillion on health care
annually, which represents over 15% of our Gross Domestic Product, we
nevertheless remain the only industrialized nation that does not
guarantee health care for all of our citizens. Today, with over 46
million Americans still without health insurance, Congress and states
need to work together, now more than ever, to provide a solution to
this dilemma. Whether we establish a national healthcare model or
provide states with the necessary flexibility to implement smart,
effective health care initiatives or devise a plan that improves
coordination of federal and state health care initiatives, the time to
do so is now. I look forward to hearing our witnesses' testimony today
and the healthy debate we will have regarding a problem that has been
ignored for far too long.
______
Mr. Kline. Thank you, Mr. Chairman.
I, too, would like to thank the witnesses. It is always
interesting and fascinating and enjoyable to see our colleagues
down there at the witness table, so I am looking forward to
hearing from them and then, of course, from the panel of
experts which will follow them.
In the interest of time--and I know some of the panelists
actually have plans to try to get on an airplane sometime this
evening, so we will try to move through quickly--I have a
statement which I would ask unanimous consent to be entered in
the record.
Chairman Andrews. Without objection.
Mr. Kline. And then I would just say that as we look at
this problem of the uninsured and innovative ways to solve it,
we would be very careful to recognize, as the chairman said,
that we have a balance here. And we do not want to destroy the
voluntary efforts of employers who provide the vast majority of
health insurance for Americans, and we want to be very careful
not to damage ERISA in such a way that it would preclude that
service in providing that insurance.
So, with that, Mr. Chairman, I will just say thanks to the
witnesses and yield back to you.
[The opening statement of Mr. Kline follows:]
Prepared Statement of Hon. John Kline, Ranking Republican Member,
Subcommittee on Health, Employment, Labor, and Pensions
Good afternoon. I'd like to thank Chairman Andrews for convening
this hearing this afternoon, on an issue that impacts every American.
At a prior hearing in March, this Subcommittee examined the delivery of
health care in this country, and began to explore many of the issues
confronting our nation's health care system, including efforts to
improve health care quality, access and affordability.
I think one the of the important points coming out of that hearing
is that regardless of the problems that we may face, be it rising
health care costs or the uninsured, it is very important that we keep
in mind some of the success of the current employer-based health care
system, a voluntary system that provides the most common form of health
care coverage for individuals and workers.
For example, the current system delivers high quality coverage for
about 160 million Americans. Testimony from the last hearing reflected
the fact that American businesses are true innovators in efforts to
redesign the health care system to improve price and quality
transparency, and reduce costs. The private sector is leading efforts
to help people learn the true costs of medical services, developing
health care provider report cards, adopting value-based purchasing
systems, and implementing wellness and disease management programs.
The driver behind the successes of the employment-based system is
the federal ERISA law. Specifically, the existence of ERISA, and its
preemption of state law, means that American businesses can provide
high quality, uniform benefits to all their employees across state
lines. And that means companies with workers across the nation can
provide uniform national coverage, without having to worry about
abiding by 50 different sets of rules in order to offer insurance,
which prevents headaches and saves money.
Notwithstanding the successes of ERISA, states continue to have a
role to play in this process, and many have developed health care
proposals worthy of consideration. However, certain state proposals may
undermine the efficiencies developed under ERISA, and have adverse
impacts on the ability to provide efficient, affordable health care
coverage. We must be wary of any attempts, however well-intentioned, to
impose state mandates that detract from the goal of improving access
and efficiency.
When we explore whether or not the federal government should
provide ``temporary'' waivers of ERISA preemption to permit states to
more freely experiment, we must be mindful of the impact on the current
structure, and take care not penalize ``good actors'' that are
providing the type of health care benefits so highly valued by
Americans. Also, we must be mindful of the potential difficulties
associated with creating a waiver program, the fact that waivers once
granted are unlikely to be revoked, and the potential that we will
incur significant costs in permitting waivers of ERISA preemption.
In addition, we must not forget that the Committee has taken the
lead in efforts to improve the current system, such as the creation of
Association Health Plans which would make it easier for individuals and
small businesses obtain affordable health care coverage comparable to
that provided by multi-state employers. I am hopeful we can continue to
work together to reach consensus on measures to provide more affordable
and efficient ways of providing health care benefits.
Despite what we may agree to be the flaws of the current system,
the private sector, as opposed to government, is in the best position
to lead reform efforts and effectuate change. While there is a role for
government, we must recognize the potential impact of any change, and
take care to improve the system while not unnecessarily disrupting the
high quality coverage enjoyed by most Americans.
I'd like to welcome our distinguished witnesses today, including
three of my colleagues who are here to discuss their bill, H.R. 506,
the Health Partnership Through Creative Federalism Act, which is a
helpful proposal that seeks to address some of the very problems we
will discuss today. I look forward to everyone's testimony.
______
Chairman Andrews. Thank you, Mr. Kline.
Without objection, all members will have 14 days to submit
additional materials for the hearing record.
I am pleased to welcome three of our colleagues--the third
is on his way--who have introduced some innovative legislation
to encourage creative solutions at the state level with respect
to this problem.
Congressman Tom Price is a member of our committee. He is a
second-term member representing the 6th District of Georgia. He
is a physician. He is known as Dr. Price. Tom has been an
outspoken advocate for patient-centered health reform and for
finding solutions for covering the uninsured.
And, Tom, we look forward to your comments.
Congresswoman Tammy Baldwin is a fifth-term congresswoman
representing the 2nd Congressional District of Wisconsin. She
is a leading advocate for universal health care, protecting
Social Security and Medicare, and increasing support for public
education, including financial aid for higher education.
Welcome, Tammy.
And to join us in just a moment--he will go third--is
another member of our committee, Congressman John Tierney, who
is a 6th District member representing Massachusetts' 6th
District. He has developed a national reputation as an
effective legislator fighting for America's working families.
John is also a member of our subcommittee.
So I would ask, Congressman Price, if you would like to
lead off. We welcome you home to your home committee.
Dr. Price. I thank you, Mr. Chairman. If I may, I will
yield to Congresswoman Baldwin, who was----
Chairman Andrews. That will be just fine.
Tammy, welcome.
Dr. Price [continuing]. The genius behind of all of this at
the beginning.
Chairman Andrews. Glad to have you with us. You should know
that any written statement will be entered into the record,
without objection. And you are welcome to make an oral
statement at this time.
STATEMENT OF HON. TAMMY BALDWIN, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF WISCONSIN
Ms. Baldwin. Thank you, Mr. Chairman, and thank you,
Ranking Member Kline. I very much appreciate the opportunity to
testify before the committee today.
I think members of the subcommittee are undoubtedly aware
that over 46 million Americans are uninsured. Millions more are
underinsured. In fact, the Commonwealth Fund recently released
a study estimating that there are 16 million Americans who are
underinsured, meaning that their insurance did not adequately
protect them against catastrophic health-care expenses.
So, in aggregate, we have 62 million Americans with no
health insurance, sporadic coverage or insurance coverage that
leaves them exposed to high health-care costs. Sixty-two
million is about 20 percent of our nation's population, one in
five.
Meanwhile, as was noted in the chairman's opening
statement, Congress has taken no significant steps to provide
health care to these uninsured and underinsured Americans, and
this lack of progress is not for want of ideas. We all know
that various proposals have been floating around in Congress
for years, even decades.
Believe it or not, we have been talking about this issue at
the federal level for more than 60 years. The first bill
calling for national health care was introduced in the House by
Representative John Dingell, Sr., in 1943, and as a tribute to
his father, his son, John Dingell, Jr., has been introducing
that same bill as H.R. 15 every session since.
In every session, we have a number of bills purporting to
increase access or to create a national health-care system.
About 24 bills to expand health-care coverage have already been
introduced in this 110th congressional session. Sixty-two bills
were introduced in the 109th Congress, and most were intensely
partisan.
So, clearly, on the issue of health care for all, we are
not at a loss for words or ideas, but we still have not figured
out how to get the job done.
But where we are seeing the job get done is at the state
level. Innovative proposals in states such as Massachusetts,
Vermont, Maine, Oregon and California and my home state of
Wisconsin demonstrate a clear desire on the part of states to
reach an agreement and move forward.
Yet when one studies these proposals, it is clear that the
states are constrained by federal laws and regulations. There
is a reason why we see state proposals that are often very
similar, and that is because states are all operating under the
same set of constraints that we have imposed upon them under
ERISA, under our tax laws and under a plethora of health-care
laws and regulations.
Recognizing this and feeling that we could not afford
additional years or decades of inaction at the federal level, I
convened my colleagues, Dr. Price, Mr. Tierney, and last
session our former colleague Bob Beauprez of Colorado, in
crafting H.R. 506, the Health Partnership Through Creative
Federalism Act.
And our bill is noteworthy, I think, for a number of
reasons. First of all, as a commentator in a medical journal
just mentioned, it is both an end and a means. In other words,
it addresses both the substantive problem that we confront in
this nation, but also the political obstacles that we face in
moving forward on health-care reform.
It is also bold. You could not describe this as an
incremental approach, and a recent analysis of rival health-
care reform plans pending in Congress right now indicates that
about 20 million additional Americans would be covered if only
15 states put forward applications to participate in this
creative federalism concept.
It is also bipartisan. Right now, it enjoys 66 cosponsors
just a few months after introduction: 36 Democrats and 30
Republicans. These are people who disagree intensely on how to
get the job done, but have come together around this bill so
that we can test our rival ideas in the states.
It is also a budget-friendly bill because of its budget
neutrality provisions. It allows the federal government to be a
helpful partner to states which are already taking the lead in
making reforms. The federal government should be helping the
states as they try new approaches, not hindering them.
But this bill, as I mentioned, does not simply throw money
at the problem. We are looking for systemic change and
encouraging bold innovation. Our bill authorizes grants to
individual states or portions of states to enact the strategy
best suited for them, and under our plan, states will have a
lot of freedom to think creatively and independently.
I note my time is over. So I will hope that you read the
rest of my preprinted comments.
[The statement of Ms. Baldwin follows:]
Prepared Statement of Hon. Tammy Baldwin, a Representative in Congress
From the State of Wisconsin
Thank you Chairman Andrews, Ranking Member Klein and Subcommittee
members, and thank you for inviting me to testify before you today.
As members of this subcommittee are undoubtedly aware, 46 million
Americans are uninsured. Millions more are underinsured. The
Commonwealth Fund recently released a study estimating that there are
16 million Americans who are underinsured--meaning their insurance did
not adequately protect them against catastrophic health care expenses.
That means that 62 million Americans either have no health insurance,
have only sporadic coverage, or have insurance coverage that leaves
them exposed to high health care costs. 62 million is nearly 21% of all
Americans. One in five.
Meanwhile, Congress has taken no significant steps to provide
health care to these uninsured and underinsured Americans. And this
lack of progress is not for want of ideas.
We all know the various proposals that have been floating around
Congress for years, and even decades.
Believe it or not, we've been talking about this issue at the
federal level for more than sixty years. The first bill calling for
national health care, was introduced in the House by Rep. John Dingell
Sr. in 1943 (and his son has been introducing that same bill every year
since).
And every session, a number of bills are introduced purporting to
increase access or create a national system. About twenty-four bills to
expand health care coverage have already been introduced this session.
Roughly 62 were introduced in the 109th Congress.
Clearly, on the subject of health care for all, we're not at a loss
for words or ideas, but we still haven't figured out how to get the job
done. And that is simply unacceptable.
But where we are seeing the job get done is at the state level.
Innovative proposals in states such as Massachusetts, Vermont, Maine,
Oregon, California, and my home state of Wisconsin demonstrate a clear
desire on the part of the states to reach an agreement and move
forward.
Yet when one studies these proposals, it's clear that states are
constrained by federal laws and regulations. There's a reason why the
state proposals are often very similar, and that's because the states
are all operating under the same set of constraints that we have
imposed upon them.
Recognizing this and feeling that we could not afford additional
years of inaction at the federal level, I joined my colleagues Dr.
Price and Mr. Tierney in crafting H.R. 506, the ``Health Partnership
through Creative Federalism Act.''
Our bill is noteworthy because it allows the federal government to
be a helpful partner to states which are already taking the lead and
making reforms.
The federal government should be helping the states as they try new
approaches, not hindering them. But, this bill does not throw a bunch
of money at the problem of the uninsured. We're looking for systemic
change and encouraging innovation.
Our bill authorizes grants to individual states, or groups or
portions of states, to enact the strategy best suited for them. Under
our plan, states have a lot of freedom to think creatively and
independently.
The bill is quite simple. Congress would authorize grants to
individual states, groups of states, or portions of states to carry out
any of a broad range of strategies to increase health care coverage.
States desiring to participate in a health care expansion and
improvement program would submit an application to a bipartisan ``State
Health Innovation Commission.''
The Commission would consider applications that include a variety
of approaches, such as tax credits, expansion of Medicaid or SCHIP,
creation of pooling arrangements like the FEHBP, single payer systems,
health savings accounts, or a combination of these or other options.
Some of these state applications might involve waivers of various
federal law or regulation. Some states might ask that certain
provisions of ERISA be waived. Some might ask for more flexibility in
their state's Medicaid program. We don't know exactly what the states
might propose, but we want to allow them the opportunity to think
creatively and to seek temporary waivers of the federal laws which
currently constrain them.
After reviewing the state proposals, the Commission would submit to
Congress a slate of recommended state applications that represent a
variety of approaches.
States receiving grants would be required to report on their
progress. At the end of a five-year period, the Commission would be
required to report to Congress whether the states are meeting the goals
of the Act and recommend future action Congress should take regarding
overall reform.
And I'm happy to report to you that this is an approach that
continues to gather bipartisan support. As of today, the bill has 66
cosponsors and the cosponsors are almost evenly split between Democrats
and Republicans: 36 Democrats and 30 Republicans.
Our Health Partnership Through Creative Federalism is a major step
in the right direction. This is an idea whose time has come; it is
bold; it is bipartisan; and it is budget-friendly. It provides states
with an opportunity to innovate without the current constraints of
federal laws and regulations.
Again, Mr. Chairman, thank you for the opportunity to testify today
and thank you for taking up this important topic.
______
Chairman Andrews. Thank you, Representative. As I said,
without objection, your full statement will be entered into the
record.
Congressman Price?
STATEMENT OF HON. TOM PRICE, A REPRESENTATIVE IN CONGRESS FROM
THE STATE OF GEORGIA
Dr. Price. Thank you, Mr. Chairman and Ranking Member Kline
and other distinguished members of the committee and staff. I
want to thank you for holding this hearing on a critical issue
and allowing me to participate.
We certainly all know that there are many challenges facing
the health-care system today, and the uninsured are at the top
of the list, with 46 million lacking health insurance at some
point during the year 2005. The rate of episodically uninsured
has increased by more than 5 million over the last 4 years.
And as a physician for over 25 years, I have seen firsthand
the problems with the health-care delivery system, and each
result in a decreasing ability for those responsible for
providing the care from being able to fulfill their mission.
Now the partisan battles, as have mentioned, both from the
left and the right have blocked any real solutions for moving
forward at the federal level. It is clear that one size cannot
fit all, and that approach is not likely possible at the
federal level in the near future.
Consequently, many states have determined that they must
act in the absence of federal results. Massachusetts,
Minnesota, Pennsylvania, Vermont, California are just a few of
the states who are attempting to correct the flaws within the
current system.
There have been efforts to expand universal coverage, to
allow for tax incentives, to implement an individual mandate
and even create preventative and wellness programs. Now this
activity we ought to praise and we should continue to encourage
this kind of innovation and creativity.
States have some significant advantages when it comes to
health reform. They already have the responsibility of
regulating health insurance and of licensing health-care
providers, and often they have local demographic advantages
with a more uniform population than the nation as a whole.
It has sincerely been my privilege to work with
Representative Baldwin and Representative Tierney, along with
Representative Beauprez in the last Congress, on this
federalist approach that would help foster innovation and state
reforms.
Our proposal would encourage states or regions or
localities to come up with a diverse set of ideas, each unique
to their own particular challenges, to increase coverage for
the uninsured.
An endless variety of approaches might be implemented, tax
credits, expansion of Medicaid or SCHIP, creation of pooling
arrangements like the Federal Employee Health Benefits program,
single-payer systems, health savings accounts or a defined
benefit insurance model.
A custom-made health-care financing system can be designed
to fit the states' preferences, rather than having to implement
a system designed for the entire nation.
H.R. 506 would work by encouraging states to submit a
health-care expansion and improvement proposal to a bipartisan
commission composed of local, state and federal
representatives. A slate of proposals would then be sent to
Congress for an up or down vote.
Grants to assist in implementation of their health reforms
would be awarded, and the recipients would be required to
report on the progress throughout the 5-year period. This would
give states more flexibility around restrictive federal
regulations that inhibit covering the uninsured.
By expanding state waiver authority and allowing
flexibility in other federal requirements, states may be more
expansive with their reform ideas.
What a great benefit it would be to allow the laboratory of
the states an opportunity to shed greater light on various
health coverage options.
Now, when it comes to reforming our health-care system, the
three of us have very different ideas as to what it should look
like, and I suspect that is true across the panel before me,
and that is why this bill makes so much sense.
Reform that may work in one state or region might not work
in another or might not work well in another, and members of
Congress in this program do not have to pick one solution over
another. It allows each of us to highlight our preferred model.
Due to the political paralysis at the federal level,
allowing states to foster innovation and competition, we will
finally get to see positive and encouraging health-care
solutions.
Let me also take this opportunity to thank subcommittee
members Ms. McCarthy, Mr. Wu, Mr. Holt, Mr. Hare, Mr. Marchant
and Mr. Walberg who are among the 66 cosponsors--30 Republicans
and 30 Democrats--of this bipartisan bill. I am sincerely and
truly enthusiastic about the possibilities for success across
our nation with this type of approach to our vexing challenge.
I thank you for the opportunity to be with you, and I look
forward to any questions that you might have as we move
forward.
[The statement of Dr. Price follows:]
Prepared Statement of Hon. Tom Price, M.D., a Representative in
Congress From the State of Georgia
Good afternoon. I would like to thank Chairman Andrews, Ranking
Member Kline, other distinguished members and staff for holding this
critical hearing and for allowing me to participate.
Our nation's health care system is facing a serious crisis. As a
physician for 25 years, I have seen firsthand the problems with the
health care delivery system. With more than 46 million lacking health
insurance at some point during 2005, the rate of episodically uninsured
has increased by more than 5 million over the last four years. This is
due to a variety of factors including rising health care costs and
decreasing employer-based coverage.
Due to its broad scope and complexity, the challenge and
consequences of the lack of health insurance in America does not have a
quick fix. And the partisan battles over what type of major reform
should be implemented seemingly have blocked any real solutions from
moving forward. For the past decade the focus on reform from the left
has been support for moving us toward a single-payer system. On the
right, the push has been toward market-based or consumer-directed
health plans. If any conclusion may be reached about our current
dilemma, it is clear that a one-size-fits-all approach may not be
possible on the federal level in the near future.
For this reason, many states have determined that they have no
option left to coming up with their own health care reforms as more of
their population becomes uninsured and their health care dollars spiral
out of control. Massachusetts, Minnesota, Pennsylvania, Vermont, and
California are several states that have attempted to correct some of
the flaws found within the current health care system. We have seen
efforts to expand to universal coverage, allow for tax incentives,
implement an individual mandate, and even create preventative and
wellness programs. These types of bold reforms should be praised. We
should continue to encourage this type of innovation and creativity.
States have some advantages when it comes to health reform. States
already have the responsibility for regulating health insurance and
licensing health care providers. They have local demographic advantages
in reforming the health care system, as states usually have a more
uniform population than the country as a whole. A custom-made health
care financing system can be designed to fit the state's preferences
rather than having to implement a system designed for the entire
nation.
Rep. Baldwin, Rep. Tierney (along with former Rep. Beauprez last
Congress) and I have spent over two years working on a federalist
approach that would help foster innovation and state health reforms. By
encouraging states, regions, and localities to come up with a diverse
set of ideas, we may benefit from the use of multiple approaches--
conservative and liberal--to solving the problem of the uninsured. H.R.
506, the Health Partnership through Creative Federalism Act, gives
states and regions the flexibility to try new ways of covering their
uninsured population. An endless variety of approaches might be
implemented--tax credits, expansion of Medicaid or SCHIP, creation of
pooling arrangements like FEHBP, single-payer systems, health savings
accounts, or a defined benefit insurance model.
H.R. 506 would work by encouraging states to submit a health care
expansion and improvement proposal to a bipartisan commission composed
of local, state and federal representatives. The commission would
consider the state applications, weigh the pros and cons, and choose a
variety of approaches. The slate of proposals would then be sent to
Congress for an ``up or down'' vote. If approved, states would receive
grants to assist in implementation of their health reforms and would be
required to report on the progress throughout the five-year period. The
commission would be responsible for reporting to Congress on whether
states are meeting their goals and whether the reforms should continue.
This bill would also give states more flexibility around
restrictive federal regulations that inhibit covering their uninsured.
By expanding state wavier authority and allowing flexibility in other
federal requirements, states may be more expansive with their reform
ideas. What a great benefit it would be to allow the laboratory of the
states an opportunity to shed greater light on various health coverage
options.
When it comes to reforming our nation's health care system, the
three of us have very different ideas as to what this should look like.
That is why this bill makes so much sense. We allow for all of our
ideas, and others, to be tested. Reform that may work in one state or
region might not work as well in another. Let the states foster
innovation and competition. I truly believe this is where we will
finally get to see positive and encouraging health care solutions.
Please allow me to also thank Subcommittee Members Ms. McCarthy, Mr.
Wu, Mr. Holt, Mr. Hare, Mr. Marchant, and Mr. Walberg, who are among
the 66 cosponsors--30 Republicans and 36 Democrats--of this bipartisan
bill. I hope today's testimony will encourage other members of this
Subcommittee and our colleagues on the full Education and Labor
Committee to support this vital legislation. I am enthusiastic about
the possibilities for success across our nation with this approach to a
vexing challenge.
Thank you and I look forward to your questions.
______
Chairman Andrews. Tom, thank you very much.
John Tierney, welcome.
STATEMENT OF HON. JOHN TIERNEY, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF MASSACHUSETTS
Mr. Tierney. Thank you, Mr. Chairman and----
Chairman Andrews. John, your microphone is not on. See, you
are inexperienced. [Laughter.]
Mr. Tierney. You would think I would know. Next week, it
will be too close or too far away, right?
Thank you, Mr. Chairman. I thank all of my colleagues for
giving us the opportunity to talk with you here today.
When I first got elected in 1966--1996--my 30-odd years
here in Congress--but in 1996, I advocated for universal health
care, but in the single-payer form. And there was a big raging
debate at that time and it continued for a while, but it was
clear after a while that that was a big ship to turn around, to
try to get everybody moving in the same direction.
There were others that advocated as passionately for
different ways, but little disagreement about the fact that
everybody wanted universal coverage, every American covered
with quality, comprehensive, affordable health care.
The concept came to the idea that maybe we could do it in a
way that has been outlined by my colleagues here. Obviously, I
was not the first to have that idea, and it was good to not
only start working with them and Mr. Beauprez who has now moved
on from Congress, but with people from the National Governors
Association, Stu Butler, Henry Aaron, a whole group of people
who are interested in trying to put this together and getting
some momentum behind it.
I will not go into the details of the plan. My written
testimony has that, but you have already heard that from my
colleagues. But I do want to address the issue of ERISA and
waivers on that. I think that is critical.
If we are going to have any movement of a system that
allows states to really get creative and to make some new ideas
work, then they have to have the ability to waive a number of
federal regulations and laws and most notably ERISA. So I would
encourage everybody to look at that issue and be inclined to
look at it with favor.
It is time, given the fact that Maryland's Fair Share
Health Care Fund Act was based on the ERISA preemption, and
that is the same with a lot of different states who have to
move in that direction.
Let me just mention a little bit about what Massachusetts
did. I know the chairman had asked that we touch on that in the
testimony. Massachusetts enacted legislation that I would say
is near universal in its reach out.
We did that by expanding SCHIP to a certain degree, by
merging the state's nongroup and small group health insurance
markets, by creating a public entity known as the Commonwealth
Health Insurance Connector to, in essence, if you will, connect
individuals and small business with affordable, quality health
insurance plans.
It is all very innovative in that sense, but we had some
efforts to go to to reach consensus on that. The fact of the
matter is that employers--we are hoping to encourage them to
continue covering people, but if they do not, they are going to
have to pay an annual sum per employee of $295.
Now that is the provision that Governor Romney vetoed
before he went out and took credit for the bill, but the fact
of the matter is that there has to be some mechanism there to
encourage employers to cover people or to participate in
putting money into a fund that can then be used to subsidize,
you know, individuals who cannot afford a policy.
So the Connector group creates policies that are
affordable. We subsidize people into certain income categories,
and then others have to pay on an as-can-afford basis on that.
There are still going to be about 60,000 people, it is
estimated, that will fall in the cracks, and they may well be
people that are self-employed, working at home from Web sites.
My office has been working lately actively with state
officials, with a group called the Freelancers Group, another
group Creative Economy Association of the North Shore, where I
live, to try and find a way to have either the Connector group
allow itself to create a policy for them or to allow these
groups to create a policy which they can afford so that people
that are self-employed and create so much a part of our economy
now probably in all of our districts also have access to that.
It is a crucial step, I think, and probably the only way
that we are going to move forward is to allow a number of
different models to be put forth. As Tom Price said, probably
it is going to be the situation where urban communities are
different than rural communities, different parts of the
country differ on that, but we need a series of models or
pilots that we can then see what works and take up the scale. I
think this bill allows us to move in that direction.
I was pleased and honored to work with my colleagues on
this. If the three of us can work together, then probably
anybody with varying and disparate views can work together
because we had a lot of room between where we were on this.
So I thank you, Mr. Chairman. I thank my colleagues again
for allowing us to put this measure before you for
consideration and look forward to working with all of you on
it.
Thank you.
[The statement of Mr. Tierney follows:]
Prepared Statement of Hon. John F. Tierney, a Representative in
Congress From the State of Massachusetts
Good afternoon. I would like to thank Chairman Andrews for inviting
me to speak before the Subcommittee today.
When first elected, in 1996, I advocated for Universal Health Care,
preferring the ``single payer'' concept. I still support that concept.
However, a number of people sharing the belief in covering all citizens
with quality comprehensive care have proposed other means which they
believe would best reach that end. With this impasse, a number of
people have been committed to exploring all possible avenues to address
the ever-increasing number of Americans without health insurance and to
expand access to quality, affordable health insurance for all of those
in need.
Realizing this impending impasse, I have authored and supported
legislation designed to allow states federal resources to develop and
implement creative proposals to improve their constituencies' access to
health insurance as well as utilize the lessons learned from such
state-based initiatives to inform the growing national debate on how to
proceed with any potential reform of our country's health care system
as a whole.
Obviously, I wasn't alone in having this idea, or similar notions,
and now I've had the pleasure to join with other members--Congresswoman
Baldwin and Congressman Price--and use the considerable intellect of
others knowledgeable in health care policy: Stuart Butler, Henry Aaron,
representatives of the National Governors Association to name several,
in drafting the Health Partnership Through Creative Federalism Act.
This critical piece of legislation would create a commission
comprised of federal, state, and local stakeholders to solicit and
review state--and also potentially multi-state or sub-state--plans to
expand health insurance coverage for their residents. The commission
would recommend a range of plans to Congress for approval and, if
approved, these states would then receive grants through the Department
of Health and Human Services to implement the plans for five years and
periodically report on results.
I think that the diversity incorporated into both the commission
composition and the plan selection process, combined with the bill's
reporting requirements that will help ensure consistent accountability
and assessment of the approved plans, make this measure well-suited to
lower the number of uninsured Americans and expand access to quality,
cost-efficient coverage.
Mr. Chairman, I understand that one of your specific aims in
holding today's hearing is to examine the Employee Retirement Income
Security Act (ERISA), its potential impact on the ability of states to
implement initiatives to expand health insurance coverage, and whether
some form of ERISA waivers may be appropriate in this regard.
This is indeed a timely point of interest given the recent legal
challenge to Maryland's ``Fair Share Health Care Fund Act'' based on
ERISA preemption and the growing momentum in many states to engage in
similar efforts. In that vein, I want to note that our bill
specifically allows for state plans approved by Congress under the Act
to seek ``exceptions to otherwise applicable federal statutes,
regulations, and policies,'' such as and including ERISA.
Going back to the broader principles of the bill, quite frankly,
this legislation is, in my view, long overdue. Absent federal action on
the issue, many states have taken, or are beginning to take, action of
their own accord to address their uninsured populations and expand
access to care. Indeed, my own state of Massachusetts has been a
pioneer in this regard, having enacted legislation last year to achieve
near-universal coverage of the Bay State's residents through a
combination of approaches.
Among other things, the Massachusetts plan includes expansion of
Medicaid and State Children's Health Insurance Program--or SCHIP--
eligibility, individual premium subsidization, merging of the state's
non-group and small-group health insurance markets, and creation of a
public entity--the Commonwealth Health Insurance Connector--to help
``connect,'' if you will, individuals and small businesses with
affordable, quality health insurance plans. These innovative approaches
may have benefited greatly from this legislation. As more and more
states look to follow Massachusetts's lead, now is the time to show
them that they've got the federal government's support.
Employers continue to offer coverage, hopefully, but those who do
not are assessed a per-employee sum which is paid into the system
funding subsidies for individuals qualifying on an income basis. The
goal is to have nearly all residents with insurance by July 2007.
I say that the Massachusetts plan achieves ``near-universal''
coverage because there are an estimated 60,000 Massachusetts residents,
many of whom are self-employed, who are projected to continue to be
unable to afford health insurance under the Commonwealth's plan. I am
now actively working with local stakeholders--including entities like
the Freelancers Union and the Creative Economy Association of the North
Shore--in conjunction with state officials, to generate additional
approaches that will expand access to coverage to these 60,000
individuals.
My point here is that efforts to expand access to health insurance
seem to be occurring everywhere, and Congress must step up to the
plate.
We have a responsibility to the American people to work with state
and local governments to facilitate access to quality, affordable
health care, and the Health Partnership Through Creative Federalism Act
is a crucial step toward this end.
Again, thank you, Mr. Chairman, for having me here today.
______
Chairman Andrews. Well, thank each of the three of you
very, very much. I am impressed by the scope of the ideological
reach of the cosponsors of this bill, and it really does show
that there is a practical orientation to getting the job done.
We are fortunate to be able to ask our colleagues questions
about this at any time in our daily interaction, so I am not
going to ask any questions at this time, so we can get on with
the second panel, but I would ask Mr. Kline at this point if he
has questions.
Does anyone on our side have a question they would like to
ask the members of the panel? Please feel free. There will only
be a limited penalty. [Laughter.]
Mr. Tierney. We are still signing other cosponsors, Mr.
Chairman.
Chairman Andrews. Okay.
And anyone else on the minority side?
Dr. Boustany?
Dr. Boustany. We will have plenty of time to discuss this,
but I am concerned that this does create a new bureaucracy, and
it may have so many cosponsors because it may not in effect
accomplish much, too. So I have some concerns, and I would like
to point that out, but at least we will have plenty of time to
discuss the bill as time goes forward.
Chairman Andrews. If the gentleman would yield, my
intention is to have as free flowing a discussion as we can,
not just in this hearing, but as the process goes forward, so
those kind of views can be entertained.
We, by no means, offer this bill as a perfect template for
what to do. But I offer it as an encouraging sign that members
with very different views on this issue can come together and
try to get something done, and I assure you there will be a
free-flowing discussion.
Dr. Boustany. Yes. Reclaiming my time, I think that is
laudable, and I think it is great that we have the full
partisan divide engaged in this, and that is important. But I
read through the summary of the bill, and I have some major
concerns.
Chairman Andrews. I think Representative Baldwin wanted to
comment.
Ms. Baldwin. I think we had a lot of discussion and would
share a concern about creating some sort of significantly large
new bureaucracy. What instead we have done is create a State
Health Innovation Commission. It is of limited duration. It is
to solicit and receive the applications from the states, try to
assure some diversity and to recommend back to the Congress of
the United States a slate of proposals to be given grant
funding and to be analyzed over the course of a 5-year pilot
program.
It is limited in terms of funding for this entity, and we
would foresee that it would not be something that would be a
permanent part of the bureaucracy. It would be housed within
the Department of Health and Human Services, but most of the
appointees to the commission are political. They sort of know
how Congress works, how state legislatures work. They would
largely not be compensated and would be very much, I think, not
what you would describe as a bureaucracy by any means.
Dr. Boustany. Well, I guess the concern I have is: What
does it add to what currently is in place with the secretary of
health and human services and his staff?
Secondly, my understanding of the bill also creates a whole
number of rules changes to the House of Representatives with
this expedited section which I have some concerns about,
including motions to recommit and certain waivers and points of
orders that could be raised, and I think we can work with it as
we go forward.
We will have plenty of time to discuss this.
Chairman Andrews. We will certainly consult Mr. Price on
any changes in the House rules about motions to recommit, I
assure you.
Were there any other comments from the members?
Again, we thank our colleagues very much for this very
important contribution. We thank you.
We are going to move on to the second panel. I would ask
them to take their seats. Again, I apologize for the delay in
getting to this portion of the hearing.
All right. Well, ladies and gentlemen, welcome to the
subcommittee. The procedure we are going to follow is I am
going to read a brief introduction of the witnesses. We will
get through each of the introductions and then start on the
statements.
As you may have heard with the first panel, your written
statements will be made a part of the record in their entirety,
and we would ask you to do a 5-minute oral synopsis of your
statement.
You will see the light box that is in front of you. When
the light indicates yellow, it means you have 1 minute
remaining. When it reaches red, we would ask you to wrap up so
we can get to questions.
Again, we very much appreciate everyone's presence.
Mila Kofman is an associate research professor at
Georgetown University Health Policy Institute. She conducts a
range of studies on the uninsured and underinsured problems
focused on private market reforms, regulation, access and
affordability. Ms. Kofman has testified on several occasions
before the U.S. Senate, our House of Representatives and state
legislatures. She is recognized and cited as a national expert
on insurance regulation, unauthorized insurance and ERISA. She
was a federal regulator at the U.S. Department of Labor from
1997 to 2001. Ms. Kofman holds a law degree from the Georgetown
University Law Center and a B.A. degree in government and
politics from the University of Maryland at College Park, summa
cum laude.
Welcome, Ms. Kofman.
I want to ask if my colleague from Maryland, Mr. Sarbanes,
will introduce our next witness, as he has worked with him and
knows him.
Mr. Sarbanes. Thank you.
Chairman Andrews. Congressman Sarbanes?
Mr. Sarbanes. Yes. Thank you, Mr. Chairman. Thanks for
holding this hearing, and thank you for letting me join the
committee mostly for purposes of introducing John Colmers, who
is now the secretary of the Department of Health and Mental
Hygiene in Maryland under Maryland Governor Martin O'Malley.
From November 2000 through January 2007, Mr. Colmers was a
senior program officer for the Milbank Memorial Fund. This fund
is an endowed national foundation that provides nonpartisan
analysis, study, research and communication on significant
issues in health policy.
Before that, he spent 19 years--and this is how I came to
know him--in Maryland state government, where he held various
positions, including executive director of the Maryland Health
Care Commission and the Health Services Cost Review Commission
which is the agency that oversees Maryland's all-payer hospital
rate-setting system.
He has a B.S. from Johns Hopkins University and an MPH from
UNC-Chapel Hill and is past chair of the steering committee of
the Reforming States Group, a bipartisan group of executive and
legislative leaders.
I practiced health-care law for 18 years in Baltimore, and
John Colmers was always somebody who had a stellar reputation.
I cannot think of anyone better suited to speak to the issues
you are addressing today than him.
Thank you very much.
Chairman Andrews. Thank you very much, John.
And welcome, Mr. Secretary. We are happy to have you here.
John Morrison was elected as the state auditor of Montana,
the commissioner of insurance and securities in November of
2000, and re-elected in 2004. John has been working to reduce
the number of uninsured Montanans since taking office. He is a
member of the state bar association ethics committee and a
coauthor of dozens of opinions on ethical issues. He is a past
president of the Montana Trial Lawyers Association. He
represented Montana in the states' tobacco litigation,
represented the New York Times and other media organizations in
the Unabomber case. John received his bachelor's degree in
philosophy and politics from Whitman College in the state of
Washington and a law degree from the University of Denver.
Mr. Morrison, welcome to the committee. We are delighted to
have you here.
I am especially happy to welcome my friend, Kevin Covert,
whom I have known for a very long time, both in a professional
and personal capacity.
It is great to see you, Kevin.
He is the vice president and deputy general counsel for
human resources at Honeywell International. In this role, Kevin
leads a department of over 15 legal professionals with
responsibility for all legal matters, including litigation,
compliance and corporate transactions relating to labor,
employment, employee benefits and compensation. Kevin is a
graduate of Ryder University, Rutgers University School of Law
and NYU, with his LLM in taxation.
Kevin, it is great to have you with us today.
Amy Moore is a law partner at Covington & Burling in
Washington, D.C., a fine firm, and co-chairs Covington's
employee benefits and executive compensation practice. She
advises public and private clients on a wide range of tax,
ERISA and employment law issues concerning all types of benefit
programs. She is a graduate of Mount Holyoke College, received
an M.A. from the University of Virginia and a J.D. from the
University of Virginia School of Law.
Welcome, Ms. Moore. We are happy to have you with us.
And finally, last but certainly not least, the commissioner
of New Jersey's Department of Banking and Insurance Steven
Goldman. He was sworn into that office on March 20, 2006. Prior
to his nomination by Governor Jon Corzine, Commissioner Goldman
was a senior member and 22-year veteran of the outstanding firm
of Sills Cummis Epstein & Gross where he focused on corporate
law, focusing specifically on mergers and acquisitions, banking
and finance, joint ventures and leverage buyouts. Commissioner
Goldman earned a master's of law in taxation from New York
University School of Law, a J.D. from the George Washington
University School of Law, and a bachelor's degree in political
science from Boston University. He lives in Woodcliff Lake, New
Jersey, with his wife and three children.
Welcome, Commissioner Goldman.
Welcome to each of you. Again, we will proceed. Your
written statements have been entered into the record.
And, Ms. Kofman, we will begin with your 5-minute oral
synopsis. Welcome.
STATEMENT OF MILA KOFMAN, J.D., ASSOCIATE RESEARCH PROFESSOR,
HEALTH POLICY INSTITUTE, GEORGETOWN UNIVERSITY
Ms. Kofman. Thank you very much, Mr. Chairman. I thank you
and the committee for your leadership and willingness to
examine how ERISA has been used to impede state-based health-
care reform initiatives.
Although I believe we should address the health-care crisis
as a nation and develop a national solution to ensure that all
Americans have the same basic rights and protections no matter
where one life or works, absent meaningful and comprehensive
federal reforms, you should look for ways to make it easier for
states to act.
A law Congress enacted more than three decades ago, ERISA,
has become a major obstacle to states. Unlike public policy
discussions three decades ago when ERISA was passed, in 2007,
we have 18,000 Americans who die preventable deaths because
they are uninsured.
The leading cause of personal bankruptcies in America is
having an illness. We have millions without insurance and
millions who are underinsured. Eighty percent of the uninsured
are in families with either one full-time or part-time worker.
One in four people with group coverage and nearly half with
individual health insurance spend 10 percent or more of their
income on medical expenses.
Health coverage is inaccessible for many, unaffordable for
many more, and insecure for those who have it. While some
states are trying to respond, ERISA, a 1974 law, is a major
obstacle. Today, I will highlight for you three negative
impacts that ERISA has had on state efforts.
First, ERISA limits states' ability to reform state-
regulated health insurance markets and makes it difficult to
pay for coverage expansion programs.
For example, state guarantee-access and rating laws
designed to make insurance more affordable for small businesses
with sicker workers have been undermined by ERISA, which allows
employers to self-insure. When small businesses with healthy
workers self-insure, their claims are not pooled with others
and coverage is more expensive in state-regulated products as
fewer healthy people help pay for the sicker ones.
Another example is when states raise the age of dependent
children, like in New Jersey, to the age of 30 to keep people
covered longer in group coverage. That requirement does not
apply to self-insured ERISA health plans.
Financing coverage expansion has also been a problem. Some
states have public-private partnerships, HIPCs, alliances,
purchasing pools for individuals and small businesses. While
programs vary, none are free and ERISA self-insured plans
generally do not help pay for them.
Second, ERISA limits state options when considering broad
and comprehensive health-care financing reforms beyond
reforming the insurance market.
For example, some states have concluded that employers
should help pay for medical coverage for their workers. One way
is through fair share laws that establish minimum standards for
how much employers contribute. These proposals would assess a
penalty on employers that fall below the threshold, and those
penalties would help pay for public health programs and
clinics.
To this end, Maryland passed the fair share law. The law
was immediately challenged and was found preempted by ERISA. In
Maryland, the law was a response to many workers of one large
company using public insurance programs and clinics and
draining public resources. Interestingly, the company in
question increased its spending on health care for workers, but
challenged the law anyway through one of their associations.
Massachusetts last year passed broad reforms. One new
requirement there is that employers with more than 10 employees
provide health insurance or pay a fee. Already, there are
rumors that some of the lawyers who challenged the Maryland law
are looking for businesses to represent in Massachusetts so
they can go to federal court and use ERISA to challenge
Massachusetts' reforms.
What is important here is that Maryland and Massachusetts
laws were carefully crafted to avoid ERISA challenges and ERISA
preemption, but as demonstrated in the Maryland case, your odds
in Vegas are better than your odds in predicting how ERISA will
be interpreted by federal courts.
The third negative impact of ERISA is that it has a
deterrent effect. The ERISA threat has stopped many states from
considering or even debating certain reforms. Last year, there
were 28 states with fair share bills; this year, three had
those bills.
There are also practical resource problems. States need
upfront money to implement new programs like the Massachusetts
Connector. The ERISA preemption risk deters many from even
trying.
In conclusion, Mr. Chairman, this committee and the
Congress have the power and opportunity to make it easier for
states to achieve universal access to health care and coverage.
As you examine the 1974 law, you have many options, three
of which include allowing federal regulators to give ERISA
exemptions, clarifying that Massachusetts and Maryland type
reforms are not preempted or clarifying that certain types of
state reforms, beyond Massachusetts and Maryland, are not
preempted.
There are, of course, pros and cons to any approach.
Whatever you decide to do, however, the time to act is now.
Many states will continue to explore what is and is not allowed
under ERISA, but this means more litigation, which is not a
good way to respond to the health-care crisis or to reform our
market.
Thank you for your consideration. I look forward to
assisting you as you look for ways to address the health-care
crisis in America. The health-care crisis is really a silent
disease on the middle class. It is killing the middle class,
and I hope that this is the year that Congress will act.
Thank you.
[The statement of Ms. Kofman follows:]
Prepared Statement of Mila Kofman, J.D. Associate Research Professor,
Health Policy Institute, Georgetown University
Good afternoon. My name is Mila Kofman. I am an associate research
professor at Georgetown University's Health Policy Institute
(Institute). Mr. Chairman, I thank you and the Committee for your
leadership and willingness to examine the Employee Retirement Income
Security Act of 1974 (ERISA) and how it has been used to impede
comprehensive state-based health care reform initiatives. It is both an
honor and a privilege to testify before you on this matter.
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 health care
and coverage reform initiatives, new products, and market failures.
Currently I am the co-editor of the Journal of Insurance Regulation and
serve (as one of six non-regulator members) 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.
I believe it would be optimal for us to address the health care
crisis in this nation in its entirety and for the federal government to
ensure that all Americans have the same basic rights and protections
related to health care no matter where one lives or works. However,
absent meaningful and comprehensive federal reforms, the Congress
should look for ways to make it easier for states to act. Currently,
ERISA, a law Congress enacted more than 3 decades ago, is having a
negative impact that most could not imagine when the law was passed. A
law that was designed to protect workers against fraud and abuse in the
private pension system has in fact become a major obstacle for state-
based health care and coverage reforms.\1\
Some state policymakers are trying to respond to the health care
crisis through new initiatives to help finance medical care,
restructuring the private and public insurance programs to cover more
people and to pay for it. ERISA has been used to challenge those state
efforts, and has been a major impediment to comprehensive reform
efforts.\2\
When ERISA was passed in 1974, the public policy was to promote a
voluntary employer health coverage system where uniformity and
administration of benefit programs was of most importance.\3\ Now, more
than three decades later, a different public policy discussion is
taking place.
Now, our public policy discussions focus on the fact that we live
in the wealthiest and most advanced country in the world, yet we allow
18,000 Americans to die preventable deaths each year because they are
uninsured. The uninsured problem is estimated to cost our economy $60
to $130 billion annually.\4\ The leading cause of personal bankruptcies
in the United States is having an illness (the majority of those filers
were insured).\5\ The uninsured problem and the way we finance medial
care handicaps American businesses in a global economy. The Big Three
automakers spend more on health care than on steel. Our spending on
health per capita is higher than Germany, Canada, France, Australia,
and the United Kingdom (UK). Although we outspend those nations as a
percentage of GDP, we have worse health outcomes--with Americans
reporting more access to care problems than in the UK and Canada; we
rank last out of 9 countries in terms of life expectancy behind Japan,
France, Australia, Canada, Germany, New Zealand, the Netherlands, and
the UK.\6\
Our medical care and health insurance coverage crisis continues to
grow--now approximately 45 million people are without any health
coverage and millions more have inadequate coverage. The majority of
uninsured people either work or have a worker in their family (80% with
either full time or part time worker). Premiums for people with
insurance continue to increase in the double digits with 25% of insured
Americans (insured all year with group coverage) spending 10% or more
of their income on premiums and out of pocket expenses for medical
care. (The percentage of people with individual coverage who spend more
than 10% of their income on premiums and medical care is 43%.) Health
coverage is inaccessible for many, unaffordable for many more, and
insecure for those who have it.\7\
So our 30-year old federal policy of encouraging employers to
provide health coverage voluntarily has not worked as well as hoped for
many Americans. It is time to reexamine ERISA and whether it serves our
new priorities and public policy goals of tackling the cost of medical
care and developing sustainable financing so we can provide medical
care for all of America's working families and communities.
Unlike with civil rights laws, labor laws, environmental laws, and
other areas where the federal government has stepped in to address an
injustice and has received high marks for those federal efforts--in the
area of financing medical care (with few exceptions), the federal
government would not achieve a passing grade. Although through programs
like Medicare, we have nearly universal coverage for our seniors, other
federal interventions--mainly ERISA--have had questionable and in some
cases a devastating effect on America's consumers. ERISA significantly
restricts options and state-based solutions to the health coverage
crisis in the United States.
ERISA directly and indirectly impacts states' ability to reform
their health care marketplace. Today, I will discuss three adverse and
arguably unforeseen negative impacts that ERISA has had on states'
ability to successfully reform their markets:
1. ERISA limits states' ability to reform state-regulated health
insurance markets and makes it difficult to have a successful coverage
expansion initiative;
2. ERISA limits options and imposes hard to assess risks when
considering state-based broad and comprehensive health care financing
reforms (beyond insurance); and
3. ERISA has a deterrent effect, preventing some states from going
forward with health care financing and coverage reforms.
1. ERISA limits states' ability to reform state-regulated health
insurance markets and makes it difficult to have a successful
coverage expansion initiative
In the 1990's state policymakers sought to improve access to health
insurance for businesses and individuals using several approaches,
which rely on risk spreading among a broad population and greater risk
assumption by insurers. Guaranteed issue laws required insurers to sell
coverage to sick groups and premium rate reforms prohibited or
restricted the ability of insurers to charge higher premiums based on
the health status and claims of a group.\8\
Such laws allowed employers with sicker workers to access private
coverage. Through such risk pooling requirements, firms with sicker
workers pay less than they otherwise would, which helps them to offer
and maintain coverage. This, however, is frustrated by the ability of
ERISA-covered employers to self-insure. When employers with healthy
workers self-insure, their claims are not pooled with other businesses
in the state regulated market; coverage is more expensive in state
regulated products as fewer healthy people help pay for coverage for
sicker ones.\9\ The problem is magnified as small businesses rejoin the
regulated market when their employees are no longer healthy, making
coverage more expensive for all employers in the state-regulated
market. ERISA has undermined these state-based insurance market
reforms.
ERISA also impacts other types of state reforms. States may require
insurers to keep people with medical needs, minimizing the burden on
state and federally funded public insurance programs. For example, most
states prohibit insurers from canceling insurance for dependent adult
handicapped children who were covered by their parents' policies as
minors. This requirement does not apply to self-insured ERISA plans.
New state requirements aimed at keeping children insured by redefining
``dependent'' status, e.g., raising the age of dependent children (in
New Jersey to age of 30) and including grandchildren as dependents, do
not apply to self-insured ERISA health plans. While some large self-
insured plans cover grandchildren for example, others do not. This
means that state standards only reach part of the state's market.
Dependents who do not qualify for group coverage or age-off parent's
policies may join the ranks of the uninsured or may rely on state
public insurance programs and publicly funded health centers, further
taxing such programs.\10\
ERISA has also been an obstacle to achieving a 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, covering mammograms, or
financing supplies to control diabetes).\11\ The problem here is two
fold when self-insured plans do not cover these services: (1) when
medical care is provided through state funded programs, the result is a
drain on public programs, and (2) because the cost of a benefit
requirement 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). Again, it is important to remember that many
large self-insured plans provide comprehensive, generous coverage for
workers and their families (often much better than the insured products
in state regulated markets).\12\ The problem of equitably financing
these benefits is when self-insured plans do not provide such benefits,
but the benefits are required in the state-regulated market.
ERISA has also become an obstacle in how states finance new
coverage initiatives. For example, in addition to market reforms,
states have tried to expand access to health insurance coverage through
public/private partnerships called ``HIPCs'' (health insurance
purchasing cooperatives)--these are also known as purchasing alliances
and purchasing pools (mostly for small businesses and self-employed
people). The most recent examples include the ``Connector'' in
Massachusetts, Dirigo Choice in Maine, and Insure Montana. These
programs may use the state's purchasing power to negotiate rates and
coverage with private insurance companies. Participating employers and
individuals have a choice of products. State funding may be available
to help pay for the premiums for moderate and low-income workers and
families in some of these programs.\13\
While state coverage expansion efforts vary, none are free. They
all rely on 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--those in self-
insured and fully insured plans. In 2005, privately insured people paid
nearly $1000 more in premiums just to cover the cost-shift from
uninsured patients.\14\
2. Beyond Insurance Reforms: ERISA limits options and imposes hard to
assess risks when considering state-based broad and
comprehensive health care financing reforms; New Generation of
Reforms--Equitable, Fair, and Sustainable Financing of Medical
Care
Absent system wide reforms at the federal level, some states have
taken on the task of reforming the delivery and financing of medical
care. Some have concluded that the voluntary system of employers
providing coverage and people buying coverage voluntarily has not
worked. The new generation of state-based reforms is moving toward
bold, comprehensive system-wide reforms, which may include a personal
responsibility to purchase insurance and an expectation that employers
will help pay for coverage. Mandatory participation requirements and
fair and equitable contribution from employers may be the ``next
generation'' of incremental reforms in the United States. Some states,
however, also have ``single'' payer legislation and other non-
incremental approaches seeking to provide access to medical care to
their residents. Again, it remains to be seen whether individuals using
ERISA preemption are effective in challenging meaningful state reforms.
In the last few years, many states have looked at ``fair share''
bills as a way to more equitably finance medical care. These
initiatives also demonstrate the fiscal responsibility of states to
develop programs that are sustainable financially over time.
ERISA has been used successfully to preclude such state reforms.
For example, Maryland's lawmakers passed ``Fair Share Health Care Fund
Act'' 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.\15\ The law would have required
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 state would have
collected an assessment from companies that fell below 8%; the
assessment would have helped fund Maryland's health care programs for
moderate and low-wage income earners and poor people and families.
Scheduled to go into effect in January 2007, Maryland's law was
immediately challenged using ERISA and in January 2007 the Fourth
Circuit Court of Appeals found Maryland's fair share law to be
preempted by ERISA.\16\
In April 2006, Massachusetts lawmakers enacted broad health care
reforms called the ``Health Care Access and Affordability'' act (a.k.a.
Massachusetts Health Care Reform Plan). Among several standards and
funding mechanisms, there is a new 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 that care is provided for free to patients but financed
through public funding and other sources) in the state.\17\
Although both laws were carefully crafted to avoid ERISA preemption
and many experts concluded 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.\18\ The Fourth Circuit decision shows
that ERISA limits options that states otherwise would have and poses
hard to assess risks to comprehensive reform that may vary according to
the precise design of the reform and the shifting views of the courts
on the scope of ERISA preemption.
3. ERISA has a deterrent effect, preventing some states from going
forward with health care financing and coverage reforms
In addition to its direct, adverse effect on states, ERISA has had
an indirect negative impact on states' ability to reform their health
care marketplace--the deterrent effect. The very real threat of ERISA
litigation has stopped many states from considering new ways to achieve
financing reforms and universal access to care. For example, in 2006
there were 28 states with ``fair share'' bills. Maryland's policymakers
passed the legislation but were not able to win the ERISA-based
challenge to the law. Consequently, in 2007, there were only 3 states
that had fair share bills introduced, down from 28 states in 2006.\19\
The chilling effect of the Maryland ERISA court decision was felt
around the nation. With one decision, the Fourth Circuit Court of
Appeals stopped state policymakers around the nation from even debating
and discussing the public policy behind fair share bills similar to
Maryland's.
Furthermore, states need upfront funding and a resource investment
to implement new state programs (like the Massachusetts Connector). The
possibility that such initiatives are found later to be preempted by
ERISA may deter states from taking the big financial risk of moving
forward with their new programs. Their decision may also be impacted by
the high litigation costs involved in ERISA preemption cases.\20\
Another deterrent effect is that ERISA restricts states to a
limited set of ideas. In recent months I have been working with various
groups in Colorado. Last year Colorado's policymakers established a
Blue Ribbon Commission charged with developing a comprehensive reform
package to achieve universal access to care and reform health care
financing in the state. Every discussion I have had with stakeholders
has included issues around ERISA and the uncertainty that it brings to
state-based reforms. And in those discussions, I advised that a new
state initiative could be challenged using ERISA (even frivolous
challenges are a concern due to state budget constraints) and that some
ideas should not be considered because courts have said ``no'' to
those, e.g., coverage benefit mandates on self-insured ERISA plans.\21\
Some states, prior to proposing reforms, seek to understand their
markets better--to determine who is uninsured and underinsured. But
even simple data collection from self-insured plans by insurance
regulators may be deterred, as regulators must consider how to
structure data collection requests to avoid ERISA preemption
challenges.\22\
ERISA's deterrent effect is not new. You may remember the
significant reforms Washington State passed in the early 1990s. These
would have required universal coverage by 1999 for all citizens as well
as making other significant changes in the insurance market. All were
based on the assumption that the U.S. Congress would amend the law to
allow Washington State an exemption from ERISA. When this did not
occur, most of the reforms were repealed.\23\
Conclusion and Recommendations
ERISA's limitations on what states can require of employers, and
lawsuits using ERISA to question state authority and challenge state
reform initiatives, make it difficult for states to address the health
care crisis. As some states try to be creative in addressing the
uninsured problem, ERISA continues to grow as an obstacle and in many
ways, restricts states to the consideration of a more limited set of
ideas. 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.
Mr. Chairman, this committee and the United States Congress have
the power and opportunity to address these issues. As I've noted, my
preference would be for the federal government to develop a meaningful
and comprehensive national solution to the health care crisis. However,
absent that, I urge you to take a close look at ERISA vis a vis states'
ability to achieve universal access to medical care and equitable and
sustainable financing. As you examine the 1974 law, you have options,
three of which include:
allow federal regulators to give exemptions from ERISA to
states--with standards established for such exemptions;
amend ERISA clarifying that the types of reforms in
Massachusetts and Maryland's Fair Share Act are not preempted by ERISA.
(This would eliminate the expense of potential future litigation on
these issues); and
clarify that certain types of state reforms (beyond
Massachusetts and Maryland's Fair Share laws) are not preempted by
ERISA.
There are pros and cons to these and other options. What ever you
decide to do, however, the time to act is now. 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 despite ERISA challenges. Some states are looking for
equitable and effective ways to finance medical care for their
residents. They are looking for ways to improve the health of their
residents and communities, as well as to remove some of the barriers
that make American businesses less competitive world-wide (by improving
the health of workers for example). Many states will continue to
explore what is and is not allowed under ERISA but this means more
litigation, which is not an optimal way to reform the health care
coverage and financing system in the United States.
I encourage you to look for measures that will encourage and
support meaningful 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. Federal interventions
must be carefully crafted as to not undermine comprehensive benefits
that many have. It is clear that 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\ In some cases ERISA has been used by crooks as a shield to hide
illegal civil and criminal activities. Mila Kofman, Kevin Lucia, and
Eliza Bangit, Proliferation of Phony Health Insurance: States and the
Federal Government Respond, BNA Plus (2003) (hereinafter Fraud Report);
GAO, Private Health Insurance: Employers and Individuals are Vulnerable
to Unauthorized or Bogus Entities Selling Coverage, GAO-04-312 (Feb.
2004).
\2\ Federal preemption of state law may be appropriate when federal
law is more protective than state law and there is sufficient oversight
and enforcement capacity to make federal protections meaningful.
\3\ According to Michael S. Gordon, minority Counsel to former
Senator Jacob Javits (NY--R), who was involved in drafting and passing
ERISA legislation, expanding ERISA preemption language to include
health benefits was necessary to gain political support from the
American Bar Association and AFL/CIO. Also according to Gordon, some
members of Congress realized that ERISA would make it impossible for
states to address health care and coverage issues. Michael S. Gordon,
``ERISA Pre-emption and Health Care Reform: A History Lesson''
originally published in 1993 and reprinted in EBRI Notes May 2007, Vol
28, #5, page 7--9, available at www.ebri.org. According to Gordon, it
was not a ``simple oversight'' to include broad preemption related to
health plans but a political necessity. Whether some, many, all, or
none of the members of Congress in 1974 intended to promote uniformity
or other public policy goals with ERISA is something historians may
never be able to conclude with certainty. However, in interpreting
ERISA's preemption language, courts have relied on apparent public
policy goals behind the statute. The Fourth Circuit Federal Court of
Appeals in striking down state law noted, ``Because Maryland's Fair
Share Health Care Fund Act effectively requires employers in Maryland
covered by the Act to restructure their employee health insurance
plans, it conflicts with ERISA's goal of permitting uniform nationwide
administration of these plans.'' Retail Industry Leaders Association v.
Fielder, 475 F.3d 180, 183 (Court of Appeals 4th Circuit January 17,
2007). The court went on to say, citing Aetna Health Inc. v. Davila,
542 U.S. 200, 208 (2004) and other Supreme Court cases, ``[t]he primary
objective of ERISA was to `provide a uniform regulatory regime over
employee benefit plans.' '' So whether promoting uniformity in the
1970s was the principle reason, one of many reasons, or not a reason
behind ERISA's broad preemption matters little. Judges have concluded
that uniformity in plan administration was the primary objective.
\4\ 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.
\5\ See David Himmelstein, Elizabeth Warren, Deborah Thorne, and
Steffie Woolhandler, ``Illness and Injury as Contributors to
Bankruptcy'' Health Affairs Web Exclusive February 2005.
\6\ See Commonwealth Fund charts, Spending on Health, 1980--2004
(Data source: OECD Health Data 2005 and 2006) and Access Problems
Because of Costs in Five Countries, 2004, available at www.cmwf.org;
\7\ Sara Collins, et al, ``Squeezed: Why Rising Exposure to Health
Care Costs Threatens the Health and Financial Well-Being of American
Families; September 14, 2006, The Commonwealth Fund; Distribution of
the Nonelderly Uninsured by Family Work Status, States (2004-2005),
U.S. (2005), KFF at http://www.statehealthfacts.org.
\8\ Not all states had such reforms. By the mid-1990's, 36 states
had ``guaranteed-issue'' laws that required insurers to sell at least
two policies to small businesses. BCBSA, State Legislative Health Care
and Insurance Issues: 2005 Survey of Plans, December 2005, page 57. In
1996, the Congress enacted the Health Insurance Portability and
Accountability Act (HIPAA) requiring insurers to sell all their small
group policies on a guaranteed-issue basis.
\9\ See Mila Kofman and Karen Pollitz, ``Health Insurance
Regulation by the States and the Federal Government: A Review of
Current Approaches and Proposals for Change,'' Journal of Insurance
Regulation Vol. 24 No. 4 page 77--108 (Summer 2006). 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.
\10\ Not all states have these requirements. To expand access to
private coverage, five states have guaranteed issue and community/
adjusted community rating protections for individuals purchasing
coverage on their own (not through an employer). Other states provide
no or only limited access to private coverage. This is an example of
ERISA coupled with a lack of reforms in the states leaves people
without options. It is also an example of where a national approach,
perhaps establishing a federal floor of protections for all Americans
and allowing states to enhance those would achieve better protections
for all Americans.
\11\ 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.
\12\ For more information about large employer health plans, see
Kaiser Family Foundation annual employer survey (available at
www.kff.org).
\13\ For more information about older programs, see Kofman, Mila,
Issue Brief: Group Purchasing Arrangements: Issues for States, State
Coverage Initiatives, April 2003 available at www.statecoverage.net/
pdf/issuebrief403.pdf.
\14\ In 2005, it is estimated that $29 billion was paid by
privately insured people charged higher rates to cover the cost of
medical care for uninsured people; $43 billion is the total estimate
but some of that amount was paid by state and federal programs. Paying
a Premium, The Added Cost of Care for the Uninsured, Families USA,
Washington DC, June 2005, pages 15-16. Arguably, employers with the
most comprehensive plans (many of which are large self-insured plans)
take on more of this burden than the employers that do not offer
coverage or offer more limited coverage--precisely the inequity that
Maryland's Fair Share law sought to address.
\15\ Interestingly, there was a difference of opinion among large
employers about the need for the law, with some lobbying for its
passage and others opposing.
\16\ See Plaintiff's Complaint, Retail Industry Leaders Association
v. James D. Fielder, U.S. District Court for the District of Maryland
(February 7, 2006); Retail Industry Leaders Association v. James D.
Fielder, 435 F.Supp.2d 481 (U.S. District Court for the District of
Maryland July 19, 2006); Retail Industry Leaders Association v.
Fielder, 475 F.3d 180, 183 (Court of Appeals 4th Circuit January 17,
2007) (upholding district court's decision finding Maryland's Fair
Share Health Care Act preempted by ERISA). In its ruling, the appellate
court found that Maryland law ``effectively requires employers in
Maryland covered by the Act to restructure their employee health
insurance plans, it conflicts with ERISA's goal of permitting uniform
nationwide administration of these plans.'' Id. at 183.
\17\ Massachusetts Reforms (House No. 4850) amends several state
statutes including the insurance code.
\18\ 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). For a comprehensive analysis of ERISA and state authority to
reform health care coverage and financing see, Patricia Butler. ``ERISA
Preemption Manual for State Health Policymakers,'' State Coverage
Initiatives, Alpha Center, and National Academy for State Health
Policy, January 2000. In Fielder, AARP, among others, filed an amicus
brief arguing that the Maryland law is not preempted. AARP was
represented by Mary Ellen Signorille, who for a number of years was the
co-author of ``ERISA Basics: Preemption'' for the American Bar
Association, and then served as Chair of the Employee Benefits
Committee of the Labor and Employment Law Section of the ABA. This
demonstrates that even nationally recognized ERISA experts cannot
predict how courts would rule on ERISA challenges.
\19\ See National Conference of State Legislatures, 2006-2007 Fair
Share Health Care Fund Or ``Pay or Play'' Bills: Can states mandate
employer health insurance benefits? at http://www.ncsl.org/programs/
health/payorplay2007.htm For a discussion of fair share legislation,
see Cassandra Cole and Kathleen McCullough, ``A Review of the Issues
Surrounding Fair Share Health Care Bills,'' Journal of Insurance
Regulation, Vol. 25 No.1, page 25-40 (Fall 2006).
\20\ Litigating an ERISA preemption case involving a health
insurance scam related to a multiple employer welfare arrangement cost
one state over $500,000. See Fraud Report.
\21\ More information about the Commission and all proposals
recommended to the Commission are available at http://www.colorado.gov/
208commission. For an analysis of Fielder's implications for other
state proposals, see Patricia Butler, ``ERISA Implications for State
Health Care Access Initiatives: Impact of the Maryland ``Fair Share
Act'' Court Decision, State Coverage Initiatives and National Academy
for State Health Policy, November 2006.
\22\ E-mail communications with Kent Michie, Insurance
Commissioner, Utah Insurance Department, May 10, 2007.
\23\ E-mail communications with Beth Berendt, Deputy Insurance
Commissioner, Rates and Forms, Office of Insurance Commissioner,
Washington State, May 10, 2007. See also Lawrence Brown and Michael
Sparer, ``Window Shopping: State Health Reforms in the 1990s'' Health
Affairs, Vol. 20 No.1, page 50, at 53 (January/February 2001).
______
Chairman Andrews. Well, Ms. Kofman, thank you very much,
and I apologize for mispronouncing your first name. It is Mila,
I understand.
Ms. Kofman. I respond to everything. [Laughter.]
Chairman Andrews. Well, excuse me for that, and thank you
for your testimony.
Secretary Colmers, welcome.
STATEMENT OF JOHN COLMERS, SECRETARY, MARYLAND DEPARTMENT OF
HEALTH AND MENTAL HYGIENE
Mr. Colmers. Chairman Andrews, Ranking Member Kline and
members of the subcommittee, my name is John Colmers. I am the
secretary of the Maryland Department of Health and Mental
Hygiene, and I appreciate the opportunity to testify before you
today on state health-care reforms and the challenges posed by
ERISA and opportunities to improve coordination of federal and
state initiatives.
As you have already heard, ERISA was adopted in 1974 with
the reasonable goal of allowing multi-state employers to offer
comparable benefits across state lines. Preemption, however,
has had unintended consequences for states and for large
numbers of people with private self-funded plans who fall
outside of state regulatory oversight.
Maryland has had recent experience in attempting to expand
access to a pay-or-play initiative, the Fair Share Health Care
Fund Act. My testimony today will offer the benefits of that
experience and describe limits on voluntary efforts in states
to expand access. I will conclude with some suggested
modifications to ERISA in the absence of broad reform or the
granting of state waiver authority.
Most state initiatives to voluntarily expand employer-
sponsored insurance coverage have attempted to provide low-cost
or subsidized product to employers to offer their workers. To
date, these voluntary initiatives have had modest success.
Several states have created voluntary programs that offer
subsidies to encourage employers to offer insurance or offer
those subsidized products to low-income workers. For example,
in Maine, they attempted to reach near universal coverage by
providing a new source of coverage for small businesses and
low-income individuals. There were significant subsidies
offered, and yet to date, the initiative has enrolled less than
20,000 people, well less of the goal that they had established.
Many states have passed laws to allow insurance carriers to
sell products that do not include all of the state required
benefits. In Maryland, for example, we have a limited benefit
policy, and after a year of being offered, only one group has
enrolled 10 people. This leaves states to consider mandatory
approaches. To the extent that these strategies place
requirements on employers, however, they run headlong into
federal preemption of ERISA.
Maryland's experience with the Fair Share Health Care Fund
Act is an example. That bill gave employers with 10,000 or more
employees a choice: either spend at least 8 percent--or in the
case of a nonprofit plan, 6 percent--of their payroll on health
insurance costs or pay the difference into a fund that supports
the Medicaid program. The act was struck down by the federal
district court and the Fourth Circuit upheld the lower court's
decision.
The state has dropped any further appeal, and while many
policymakers and legal scholars have debated whether such pay-
or-play approach is allowable under ERISA, it is clear that
states attempting these approaches face a long and potentially
contentious process with the courts.
In addition to legal obstacles, many states face practical
obstacles to mandated approaches. Most states have porous
borders and need to remain economically competitive with their
neighbors. The only state that has an employer mandate in place
is Hawaii, and they have the luxury of thousands of miles of
ocean surrounding it.
A sustainable strategy to cover the nation's 47 million
uninsured is likely to build off the base of an employer-
sponsored insurance. While state reforms should continue to be
supported, in my view, comprehensive reform that affects
employers needs to come from the federal government.
However, recognizing that, in the absence of national
health-care reform, states will continue to move ahead with
what they can. Congress may consider granting ERISA exemptions.
It could in the meantime adopt more modest changes that could
help states move forward.
These might include:
One, explicitly allowing states to apply premium taxes to
employer plans. Currently, states have largely leveraged funds
through assessments on delivery systems--that is provider
taxes--rather than direct assessments on employers. A federally
limited premium tax would allow an assessment to be
specifically targeted.
Two, allow states to collect data from ERISA plans.
Currently states do not have the explicit authority to collect
information on who and what is covered by an ERISA plan, and
this is information that is critical for state policymakers to
plan reforms.
Three, set a federal floor on benefits. A federal floor for
benefits or standardization of benefits would assure adequacy
of coverage for individuals receiving health-care benefits
through ERISA plans.
And finally, four, strengthen consumer protections for
those covered by ERISA plans. Strong state consumer protections
do not apply to individuals covered by ERISA plans. Currently,
limited federal oversight is provided by the Department of
Labor, and this oversight could be strengthened and enforced
and could be coordinated with the states.
In summary, states have tried voluntary strategies to
encourage employers to offer insurance. These strategies have
offered only modest effects. So far, the courts have
interpreted ERISA as preventing states from considering
mandatory strategies. In the absence of national reform, there
are some more modest changes that could be done.
I would echo the chairman's suggestion that the first and
foremost thing that you can do is reauthorize SCHIP. It is
critically important. You should also consider changes to the
Medicaid program to make that much more affordable and easier
to operate.
Again, thank you for the opportunity, and I would be happy
to answer questions.
[The statement of Mr. Colmers follows:]
Prepared Statement of John Colmers, Secretary, Maryland Department of
Health and Mental Hygiene
Chairman Andrews, Ranking Member Kline, and members of the
Subcommittee, my name is John Colmers. I am the Secretary of the
Maryland Department of Health and Mental Hygiene. I appreciate the
opportunity to testify before you today on state health care reform
efforts, the challenges posed by the federal Employee Retirement Income
Security Act (ERISA), and opportunities to improve coordination of
federal and state initiatives.
Background
ERISA was adopted in 1974 with the reasonable goal of allowing
multi-state employers to offer comparable benefits across state lines.
ERISA preempted state regulation of employee benefit plans. It has had
the effect of exempting the health benefits offered by self-funded
employers from any regulatory oversight. This occurred because the
federal government did not issue regulations for health coverage
comparable to those it issued for defined benefit pensions. The
combination of preemption and lack of federal action created a
regulatory vacuum that exempts health coverage offered by self-funded
employers from any oversight. This vacuum segments the insurance market
for which the state versus the federal government is primarily
responsible. In Maryland, about half of individuals with private sector
employer-sponsored insurance are covered by self-funded plans.
The majority of individuals still get their health insurance
through their employer. Recent declines in employer-sponsored insurance
account for much of the growth in the uninsured; but employer-sponsored
insurance remains the centerpiece of our nation's health financing
system. The preference for employer-sponsored insurance is embedded in
the federal tax system with about $200 billion in tax incentives to
purchase insurance through employers.
Voluntary Efforts to Improve Employer-Sponsored Insurance
States have tried to implement a number of voluntary measures to
increase the number of individuals who receive health insurance
coverage through their employer, or more recently, to halt the erosion
of employer-sponsored insurance. Most of these state initiatives have
attempted to provide low-cost or subsidized products for employers to
offer their workers. To date, these voluntary initiatives have had
modest success.
Several states have created voluntary programs that offer subsidies
to encourage employers to offer insurance or offer subsidized insurance
to low-income workers. The enrollment experience of these programs has
usually been well below program goals. Further, the majority of
uninsured who are helped by these programs enroll as individuals rather
than through their employers. So these efforts have done little to
improve the rate of employer-sponsored insurance. Other state
initiatives to improve employer-sponsored insurance have also had
modest success. For example, many states have passed laws that allow
insurance carriers to sell products that do not include all of the
state-required benefits. These limited benefit plans have had very low
enrollment. This was the case with Maryland's limited benefit policy--
after a year of being offered, only one group enrolled with 10
individuals.
Voluntary policies have had limited success in strengthening or
sustaining the employer-sponsored insurance system, leaving states to
consider mandatory approaches. To the extent that the strategies place
requirements on employers regarding health benefits, they run head into
the federal preemption of ERISA.
Maryland's experience with the Fair Share Health Care Fund Act is
an example of how state reforms that affect employers are challenging
because of ERISA. The Fair Share Health Care Fund Act gave employers
with 10,000 or more employees a choice: either spend at least 8% (6%
for nonprofit employers) of their payroll on health insurance costs or
pay the difference into a fund that supports the Medicaid program. This
policy responded to the growing body of evidence that many low-income
workers or their dependents are covered by state Medicaid, SCHIP
programs, or are uninsured. The Fair Share Health Care Fund Act was
struck down by the Federal District Court which held that the law would
have required an employer to expand its ERISA health plan which could
interfere with the uniform national administration of the firm's plan.
In January 2007, the Fourth Circuit Court of Appeals upheld the lower
court's decision. The State has dropped any further appeal of the
decision. Many policy makers and legal scholars have debated whether or
not a ``pay or play'' approach is allowable under ERISA, but it is
clear that states attempting these approaches face a long and
potentially contentious process with the courts.
In addition to the obstacle of federal preemption, states find it
difficult to go too far in imposing requirements on employers. States
have borders and need to remain economically competitive with their
neighbors. The only state that has an employer mandate in place is
Hawaii. Hawaii's law preceded ERISA and received specific exemption.
Further, it is the only island state, sharing borders with thousands of
miles of ocean.
A sustainable strategy to cover the nation's 47 million uninsured
is likely to build off the base of employer-sponsored insurance. State
reforms that affect employer-sponsored insurance are important because
they test new ideas. However, comprehensive reforms that affect
employers need to come from the national level because of the legal
limitation of ERISA as well as the practical limitations on how
aggressive states can be in imposing requirements on employers.
Modifications to ERISA
In the absence of national health care reform, states will continue
to move ahead with what they can. Certainly, we are seeing evidence of
that now with many Governors and Legislatures moving ahead on reforms.
ERISA does not allow for state waivers. Therefore, unless there is a
favorable court ruling state-specific exemptions would need to be
authorized legislatively. While Congress may consider granting such
exemptions, it could in the meantime adopt more modest changes that
could help states move forward. ERISA could be modified to allow states
to test reforms that may be more practical for them to implement. These
include:
1. Explicitly allow states to apply premium taxes to employer
plans. Currently, states have largely leveraged funds through
assessments on the delivery system rather than direct assessments on
employers. The Supreme Court held this was allowable in its 1995
Travelers\1\ ruling: A premium tax would allow an assessment to be
specifically targeted; whereas an assessment on the delivery system has
the effect of raising costs for all users of the health system,
including those without insurance.
---------------------------------------------------------------------------
\1\ N.Y. State Conf. of Blue Cross & Blue Shield Plans v Travelers
Insurance, 514 U.S. 645 (1995).
---------------------------------------------------------------------------
2. Allow states to collect data from ERISA plans. Currently states
do not have the authority to collect information on who and what is
covered by ERISA plans. This is critical information for state
regulators to understand what is going on in their insurance market.
3. Set a federal floor on benefits. Because of ERISA preemption
states are not able to define the scope of benefits provided by ERISA
plans. A federal floor for benefits or standardization of benefits
would assure adequacy of coverage for individuals receiving health
benefits through an ERISA plan.
4. Strengthen consumer protections for those covered by ERISA
plans. Maryland approved strong consumer protections and oversight
several years ago, but those protections do not apply to individuals
covered by ERISA plans. Currently, limited federal oversight is
provided by the Department of Labor. This oversight should be
strengthened and enforcement should be coordinated with states.
Conclusion
States have tried voluntary strategies to encourage employers to
offer insurance. These strategies have resulted in only modest
enrollment. So far, the courts have interpreted ERISA as preventing
states from considering mandatory strategies with employers. The need
for states to remain economically competitive also limits their ability
to consider mandatory strategies. Strategies to universally expand
coverage that build on the employer sponsored insurance system
ultimately need to come from the national level.
In the absence of national health care reform, states can be
important testing grounds for reforms. There are specific changes to
ERISA that could help pave the way for more states to act.
I appreciate the opportunity to testify and thank you for taking up
this important issue.
______
Chairman Andrews. Thank you, Mr. Secretary. I will tell you
that we are, as I say, engaged in discussions to try to help
more employers find a way to be a part of SCHIP as well.
Mr. Morrison, is your proper title secretary, auditor? What
is proper?
Mr. Morrison. Auditor or commissioner. Just do not call me
late for dinner. [Laughter.]
Chairman Andrews. Okay. Well, welcome, Mr. Auditor, to the
subcommittee.
STATEMENT OF JOHN MORRISON, MONTANA STATE AUDITOR AND
COMMISSIONER OF INSURANCE AND SECURITIES
Mr. Morrison. Thank you, Chairman Andrews, Ranking Member
Kline, members of the committee. Thank you for your attention
to this issue.
Like other states, Montana has taken the bull by the horns
and is working to find new, innovative solutions to solve the
health-care crisis. In 2007's legislative session, which we
just completed, the state senate and house passed a joint
resolution to create an interim committee to study ways to
study universal, portable, affordable health insurance coverage
for all Montanans that involves private health insurance
issuers and incorporates existing public programs. The bill
directs the interim committee to examine the concept of a
health insurance exchange as well as mandating private
universal coverage.
In addition, in 2005, my office prepared legislation that
created the Insure Montana Program. Governor Schweitzer joined
me in requesting introduction of the bill and signed it into
law that year. This program, administered by the insurance
department, creates a voluntary purchasing pool for small
employers with two to nine employees and provides premium
assistance to both the employees based on income and the
employers.
In addition, there are tax credits for other small
employers who sponsor small group health plans. Insure Montana
now makes health coverage affordable for nearly 10,000 Montana
small business employees and their families, and with the help
of the federal Medicaid waiver, we hope to raise that to 15,000
in the next biennium.
Montana is a rural state with many small employers and a 19
percent uninsured rate. The existing health-care crisis spreads
across America, but the best solutions for addressing the
problem vary from state to state.
Solutions that work in Massachusetts or in California may
not work in Montana, and that is why state-based health reforms
may be the most expeditious solution to a growing national
problem. States can experiment with reforms on a smaller scale,
so the effectiveness of those reforms can be tested.
ERISA preemption of state regulation has been an obstacle
to some state-based health-care reforms and will continue to be
an obstacle to some reforms now being contemplated.
For example, the 2007 Montana legislature passed a new law
that requires health insurance plans to allow parents to
continue to insure their children under the parent's health
insurance policy until age 25, even if the child is not a full-
time student.
This is a simple, but important reform because the age
group between 19 and 30 years old typically has the highest
uninsured rates. Continuing to cover those young adults on
their parents' policies is a cost-effective way to provide
health coverage for those individuals. Dependents who lose
coverage under their parents' health plan often end up on
public insurance programs or subsidized clinics or incur
unreimbursed medical care.
The new law cannot be applied to self-funded employer
health plans because of ERISA and, therefore, can only be a
partial solution.
As with any study, the HJ 48 interim committee that I
described will need to collect data about health plans--
benefits offered, number of individuals covered, amount of
claims paid and cost of coverage. ERISA generally prevents
states from collecting data from self-funded health plans and,
therefore, states are left in a position of trying to find
solutions for problems to which they only have limited
information. State data collection should be safe from ERISA
preemption.
Some years ago, Montana created the Montana Comprehensive
Health Association, which is our high-risk pool. It is funded
by a 1 percent assessment on premiums. Because of ERISA
preemption, self-funded employer plans do not contribute to the
funding for this program, even though their employees are able
to take advantage of the portability and high-risk sections.
In order to keep premiums affordable, we instituted a
premium assistance program for individuals who are 150 percent
or below the federal poverty level. We sought federal funding
for this in 2001, and Montana became a pilot program for the
broader federal effort to assist state high-risk pools.
However, continued funding for the federal grant program for
the high-risk pools has not been reauthorized.
As we in Montana begin to study new reforms to address the
health-care crisis, we must always test the ERISA waters.
Critics may bring ERISA challenges against state laws, causing
uncertainty, significant delay and significant litigation
costs. If the states had the ability to apply to the secretary
of labor for a waiver of preemption in advance of attempting
certain reforms, most of that uncertainty would be removed.
Montana also has a dynamic ballot initiative process, and I
am certain that great strides can be made toward covering the
uninsured through this process in 2008. However, the specter of
ERISA preemption curbs some of the innovative possibilities.
Finally, ERISA preempts states from applying mandated
coverages to self-funded employer plans. Most of those mandates
provide important preventative health care, such as mammograms,
diabetic services and supplies and other things. The cost of
those kinds of care, when not covered, get shifted on to the
narrowing slice of employers and individuals that do have
insurance.
From Maine to Montana, states are starting to get serious
about ending the health-care crisis. While there are many
challenges that require national authority and resources, we
hope your approach to health care will empower the states so
that we can get out of the wagon and help you pull it over the
hill.
[The statement of Mr. Morrison follows:]
Prepared Statement of John Morrison, J.D., Montana State Auditor and
Commissioner of Insurance and Securities
Good afternoon. My name is John Morrison, I am the Montana State
Auditor, and have served as the Commissioner of Insurance and
Securities for the State of Montana since 2001.
I want to thank the committee for inviting me to testify and for
being willing to examine this issue of how ERISA may be an obstacle
that prevents state-based health care reform.
Like other states, Montana is clearly taking the bull by the horns
and attempting to find new, innovative solutions to solve the health
care crisis. In the 2007 legislative session, the state Senate and the
House passed a joint resolution to create an interim committee to study
ways to create ``a system of universal, portable, affordable health
insurance coverage for all Montanans that involves private health
insurance issuers and that incorporates existing public programs.'' The
bill directs the interim committee to specifically examine the concept
of a health insurance exchange and the way that such a connector or
exchange could be implemented in Montana. In addition, it directs the
committee to study the advantages and disadvantages of mandating
private universal coverage for all Montanans. [HJ 48]
In addition, in 2005 my office prepared legislation that created
the Insure Montana Program. Governor Schweitzer joined me in requesting
introduction of the bill and signed it into law that year. This
program, administered by the insurance department, creates a voluntary
purchasing pool for small employers with 2 to 9 employees and provides
premium assistance to both the employees (variable based on income) and
the employers. In addition, there are tax credits for other small
employers who sponsor small employer group health plans. Insure Montana
now makes health coverage affordable for nearly 10,000 Montana small
business employees and their families.
Montana is a very rural state, with many small employers and a 19%
uninsured rate. The existing health care crisis spreads across this
entire country, but the best solutions for addressing this common
problem vary widely from state to state because of widely varying
demographics. Solutions that work in Massachusetts or in California may
not work in Montana, and that is why state-based health reforms may be
the most expeditious solution to a growing national problem. States can
experiment with reforms on a smaller scale, so that the effectiveness
of those reforms can be tested.
ERISA preemption of state regulation has been an obstacle to state-
based health care reforms and will continue to be an obstacle to some
future reforms now being contemplated by many states. For instance:
1. In 2007 the Montana legislature passed a new law that requires
health insurance plans to allow parents to continue to insure their
children under the parent's health insurance policy until age 25, even
if the child is not a full-time student. This is a simple, but
important reform because the age group between 19 and 30 years old
typically has the highest uninsured rates. Continuing to cover those
young adults on their parents' policies is a cost-effective way to
provide health coverage for those individuals. Dependents who lose
coverage under their parents' health plan often end up in public
insurance programs or subsidized clinics, or incur unreimbursed medical
care.
This new law cannot be applied to self-funded employer health plans
because of ERISA, and therefore can only be a partial solution.
2. Some years ago, Montana created the Montana Comprehensive Health
Association, which offers high-risk pool coverage to individuals who
are unable to get coverage in the individual market because of their
health status. It also offers coverage to individuals who are federally
eligible for portability coverage pursuant to HIPAA. Both of those risk
pools are funded by a 1% assessment on all private health insurance
premiums written in this state, as well as the premium collected from
the individual participants. Because of ERISA preemptions, self-funded
employer plans do not contribute to the funding for this program, even
though their employees are able to take advantage of the portability
pool when they lose their employer coverage. The financial viability of
this program has been increasingly threatened since the passage of the
HIPAA portability requirements. Access to coverage for persons losing
employer coverage is a very important consumer protection provided by
federal HIPAA law, but the states were left to shoulder the burden of
the cost of that reform. ERISA prevents the states from assessing self-
funded employer plans, and the entire burden is shifted to persons who
pay private health insurance premiums and other state funding sources.
Experience in Montana has shown that portability pool participants also
tend to be high-risk individuals, and the pool cannot be maintained by
premiums alone. Assessments or other funding sources are necessary.
We work hard to keep premiums affordable in this program and, to
that end, we instituted a premium-assistance program for individuals
who are 150% or below the FPL. We sought federal funding for this
initiative in 2001 and Montana became a successful pilot project for
the broader federal effort to assist state high-risk pools. However,
the only steady source of funding for the program has come from the
state because continued funding for the federal grant program for high-
risk pools has not been reauthorized.
3. As we in Montana begin to study new reforms to address the
health care crisis, we must do so tentatively, always testing the ERISA
waters. Critics of health reforms may bring ERISA challenges (valid or
not) against state laws, causing uncertainty, significant delay and
significant litigation costs, even if the state ultimately prevails. If
the states had the ability to apply to the Secretary of Labor for a
waiver of preemption in advance of attempting certain reforms, most of
that uncertainty, delay, and expense could be eliminated.
The new Montana joint resolution [HJ 48] proposes to study the
advantages and disadvantages of mandating private universal coverage:
for instance, perhaps a pay-or-play system, as well as the concept of a
health insurance exchange. A health insurance exchange could make
coverage more affordable and portable by allowing employees to choose
their coverage from an exchange offering an array of products, and then
carry that coverage with them if they leave that employer. Both of
these ideas are significantly different from the current method of
delivering health insurance coverage. All of the reform ideas emerging
from the states, no matter how promising, must be subject to intense
legal scrutiny and are sometimes discarded, simply because the risk of
ERISA preemption is too great.
4. As with any study, the HJ 48 interim committee will need to
collect data about health plans, benefits offered, number of
individuals covered, amount of claims paid, and costs of coverage.
ERISA generally prevents states from collecting data from self-funded
health plans, and therefore states are left in the position of trying
to find solutions for a problem when they have only half the
information. State data collection should be saved from ERISA
preemption.
5. Montana also has a dynamic ballot initiative process and I am
certain that great strides can be made toward covering the uninsured
through this process in 2008. I have talked to many stakeholders and
found widespread interest in this approach. As we consider different
policy options, the specter of ERISA preemption curbs the innovative
possibilities.
6. The Insure Montana program has not encountered any direct ERISA
challenges. However, the plans offered through the purchasing pool are
privately insured and have higher cost premiums because of premium tax
and high-risk pool assessments. That means that the cost of
supplementing those premiums is higher. Self-funded employer plans are
able to maintain lower costs because they do not pay these taxes and
assessments and also because those plans do not include state mandates.
But the cost savings achieved on the self-funded ERISA side are simply
shifted onto the narrowing slice of the market covered by private
carriers, including Insure Montana.
7. ERISA preempts states from enforcing mandated coverages as to
self-funded employer plans. Most of those mandates provide important
preventative health care such as mammograms, diabetic services and
supplies, immunizations and well-child care for young children, newborn
coverage and maternity coverage. Many individuals, who do not have
coverage for these types of important preventative care items, cannot
afford to obtain them on their own. Serious health problems can occur
and result in costs of uncompensated health care being shifted to the
rest of the population that pays for health insurance, both private and
self-funded, or some of these individuals may end up in public programs
like Medicaid, which all taxpayers must pay for.
From Maine to Montana, states are starting to get serious about
ending the health care crisis. The laboratories of democracy are on the
march, pioneering reforms. While there are many challenges that require
the national authority and resources of Congress, we hope that your
approach to health care will empower the states so that we can get out
of the wagon and help you pull it over the hill.
______
Chairman Andrews. Thank you, Mr. Auditor.
Mr. Covert, welcome to the subcommittee.
STATEMENT OF KEVIN COVERT, VICE PRESIDENT AND DEPUTY GENERAL
COUNSEL FOR HUMAN RESOURCES, HONEYWELL INTERNATIONAL, INC.
Mr. Covert. Thank you, Mr. Chairman, Ranking Member Kline,
members of the subcommittee.
I am pleased to have the opportunity to share my views
about the importance of ERISA preemption in making it possible
for my company and thousands of other employers around the
country to offer and administer a comprehensive health benefit
plan to our employees.
I am going to spend my time talking less about the
theoretical and more about the practical, real-world
implications of eroding ERISA preemption to those of us who
sponsor employer plans.
Honeywell is a diversified manufacturing company with
approximately 120,000 employees worldwide. We have
approximately 60,000 employees in the United States, and we
operate in all 50 states. We provide our employees with a
comprehensive benefits package, including medical coverage that
includes core health coverage, prescription drugs, vision and
dental care.
We will spend in excess of $500 million in 2007 to provide
health coverage to almost 135,000 employees and dependents. We
will also spend in excess of $200 million this year to provide
health coverage to another 60,000 retirees and their
dependents.
By far, health care is the most valued benefit we provide
to our employees, and the provision of a comprehensive benefits
package is absolutely critical to our ability to attract and
retain talent in an ever-increasingly competitive world.
Our employees do not have to go to work every day with the
specter of catastrophic financial ruin caused by serious
illness hanging over their heads. Moreover, we found that a
healthy workforce is a productive workforce. While we have not
attempted to quantify it, there is no doubt in our minds that
the comprehensive health coverage that we provide to employees
accounts for significant annual productivity savings for
Honeywell.
Thus, this truly is an example of a win-win proposition. By
investing in our people, our employees and their families have
the security that a robust health-care package provides, while
Honeywell benefits from the resulting productivity that a
healthy workforce engenders.
Nevertheless, as health-care costs continue to skyrocket,
Honeywell and other employers are increasingly challenged to
find creative ways to provide quality care at manageable costs.
ERISA preemption is the cornerstone of our ability to offer a
comprehensive, affordable health-care package across all 50
states in which we operate. ERISA preemption provides
administrative simplicity, business flexibility and cost
containment, all of which were part of the critical balance
that Congress struck when ERISA was passed in 1974.
Before the enactment of ERISA, employee benefit plans were
regulated by a patchwork of state and local statutes. Employers
like Honeywell that provide a benefit to a national workforce
encountered tremendous administrative difficulties and
extraordinary expense complying with these rules. These rules
differ from state to state and sometimes from locality to
locality.
If we retreat to that pre-ERISA environment, employers will
once again be subject to myriad mandates and regulations that
Congress sought to avoid when ERISA was originally enacted.
Even if one state's rules impose relatively modest
requirements, when viewed from the perspective of an employer's
multi-state health plan, such modest variations and
requirements will impose significant costs and burdens, and I
submit that the financial administrative resources consumed by
efforts to comply with a patchwork of local laws will be better
spent providing benefits to our employees and their families.
Now, as you all know, we live and operate in a very dynamic
global economy. The ability to react quickly and efficiently to
changing circumstances, both in the United States and around
the world, is crucial to our ability not only to thrive, but to
survive as a company. Flexibility is the hallmark of ERISA
preemption. It allows employers to tailor their benefit
programs to the needs of their own workforces as opposed to the
rigidity that a one-size-fits-all state-mandate solution would
inevitably foster.
Moreover, large employers have been the vanguard of
innovation and cost containment in the health-care arena.
Because ERISA preemption allows us to experiment and pilot plan
designs, we have been able to mitigate cost increases and
affect behavior for the positive.
For example, in 2002, we implemented disease management
programs to target high-risk conditions, including asthma,
heart disease and diabetes. In 2004, we began a multi-year
campaign to educate employees about their own role in their
health-care decision-making, providing them with a plethora of
decision-making support tools and resources.
And just last year, we instituted a $500 incentive program
to encourage our employees with one of eight different
conditions that are known to have significant treatment
variations--for example, hip replacement, knee replacement,
hysterectomy, heart surgery--to seek out quality health
information before making that treatment decision.
As a result, while health-care costs have on average
increased 10.8 percent over the past 5 years, Honeywell has
been able to constrain health-care cost increases to 8.9
percent annually over that same period. Without the flexibility
borne of ERISA preemption, that cost containment would not be
possible.
Finally, an employer's ability to provide a national
workforce with a uniform benefits package results in
substantial savings to both the employer and employees.
Approximately 70 million Americans receive health coverage
under self-insured private-sector health plans. Without ERISA
preemption, the complexity of trying to comply with a patchwork
of state and local mandates would result in a massive shift in
coverage from self-insured plans to the fully insured market.
According to a recent study by Hewitt Associates, fully
insured plans cost on average 11 percent to 12 percent more
than self-insured plans because of premium taxes, profit and
risk charges, commissions, claims processing and administration
charges.
Moreover, the cost of the actual mandates themselves,
estimated to be 5 percent of health-care expenditures, would
cause costs to spiral further out of control. These added costs
would inevitably be felt by employees who are already being
asked to shoulder an ever-increasing share of their health-care
coverage.
Chairman Andrews. Mr. Covert, if we just could ask you to
wrap up if you could.
Mr. Covert. In summary, I think we can all agree that a
number of the elements of state reform are laudable goals.
However, we urge Congress to tread carefully here, as we need
to be cognizant of the law of unintended consequences. By
watering down ERISA preemption, we would be stifling the
innovative quality improvement and cost-containment initiatives
that employers have been leading.
Thank you, Mr. Chairman. I look forward to working with you
and your committee to develop a plan that meets the needs of
employers, employees and the uninsured alike.
[The statement of Mr. Covert follows:]
Prepared Statement of Kevin Covert, Vice President and Deputy General
Counsel for Human Resources, Honeywell International, Inc.
My name is Kevin Covert and I am the Vice-President and Deputy
General Counsel for Human Resources at Honeywell. I am a member of the
Board of Directors of The American Benefits Council (``Council''), on
whose behalf I am testifying today. We would like to thank the
subcommittee for holding this important hearing on ``Health Care
Reform: Recommendations to Improve Coordination of Federal and State
Initiatives.'' Addressing the issue of uninsured Americans is a serious
issue that deserves a thorough review by federal policymakers.
The Council's members are primarily major U.S. employers that
provide employee benefits to active and retired workers and that do
business in most if not all states. The Council's membership also
includes organizations that provide services to employers of all sizes
for their employee benefit programs. Collectively, the Council's
members either directly sponsor or provide services to retirement and
health benefit plans covering more than 100 million Americans.
The Council and its members have played a significant role on
numerous health policy issues including supporting public and private
initiatives to improve quality and transparency in our health care
system, working to help stabilize the availability of retiree health
care coverage as part of the Medicare Modernization Act, and serving as
an important resource for policymakers on many other legislative and
regulatory issues affecting employer-sponsored health coverage. The
Council has also published a long-term public policy strategic plan--
known as its Safe and Sound report--which lays out a broad agenda of
specific improvements in benefits policy designed to achieve ``personal
financial security'' for all Americans, including a range of
recommendations intended to make health care coverage more accessible,
more affordable and of higher quality.
Honeywell is a diversified manufacturing company with approximately
120,000 employees worldwide. We have approximately 60,000 employees in
the United States and we operate in all 50 states. We offer our
employees a comprehensive benefits package, including medical coverage
that includes core health coverage, prescription drug coverage, dental
coverage and a vision plan. We will spend in excess of $500 million
this year to provide health coverage to almost 135,000 Americans, at
per employee cost of approximately $10,000. We will also spend in
excess of $200 million to provide health coverage to another 60,000
retirees and dependents.
Honeywell, like other large employers, has been at the forefront of
healthcare innovation. The competitive global markets in which we
compete have forced us to think outside the box in the healthcare arena
as we struggle to control costs, while at the same time competing for a
limited supply of human capital. In 2002, we implemented disease
management programs to target high risk conditions, including asthma,
heart disease and diabetes. In 2004, we began a multi-year campaign to
educate employees about their role in their own healthcare decision
making, providing a plethora of decision support tools and resources.
Just last year, we instituted a $500 incentive program to encourage
employees with one of eight different conditions that are known to have
significant treatment variations (e.g., hip replacement, knee
replacement, back surgery, hysterectomy, heart surgery, etc.) to seek
out quality health information before making a treatment decision.
Thus, it is critical that Congress not do anything with respect to
ERISA preemption that would stifle our health care innovation.
ERISA Preemption is Vital to the Voluntary Sponsorship of Health Plans
Employers have an enormous stake in addressing the problem of the
uninsured and the rising cost of health care. Employers are directly
affected by the costs of uncompensated care for the uninsured, which
drives up costs for all health care payors, including private payors
like Honeywell as well as government programs. Employers, like
Honeywell, are on the frontline of addressing the rising cost of health
care through the development of innovative plan designs, implementing
wellness programs and promoting transparency in the costs and quality
of health care services.
It is critical that federal or state reform efforts not undermine
the crucial role that the Employee Retirement Income Security Act of
1974 (ERISA) and employers play in our health care system. ERISA
``preempts'' state laws that relate to employer sponsored employee
benefit plans in order to promote the employer sponsorship of health
plans and the uniform administration of benefits. Under ERISA, states
retain the right to regulate insurance, however states may not deem
ERISA plans to be insurance in order to subject such plans to state
regulation.
Simply put, ERISA preemption is vital to the voluntary sponsorship
of health plans. Over 70 percent of American workers age 18 to 64 have
employer-based health coverage.\1\ According to unpublished estimates
by the Employee Benefit Research Institute (EBRI), roughly 70 million
workers and dependents under age 65 are covered by private sector self
insured plans.
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\1\ See Employee Benefit Research Institute Databook on Employee
Benefits, Ch 1at http://www.ebri.org (updated April 2007).
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Employers depend on ERISA preemption to ensure that coverage can be
offered uniformly across the country and administered relatively
efficiently. ERISA preemption also gives each employer the flexibility
to design the terms of health plans to meet the changing needs of their
unique workforce and to attempt to control spiraling health care costs.
We strongly believe that legislative responses that affect employers
must build on the current federal framework which preserves uniformity
in plan design and administration.
State Reforms Raise Concerns for Employers
Although Congress has considered a variety of proposals over the
years, states have now taken the lead in addressing the problem of the
uninsured. Major initiatives were passed in Vermont, Maryland,
Massachusetts and San Francisco, and numerous others are pending in
states such as California, New Jersey and elsewhere. While the
specifics of each proposal vary, they can be broadly categorized as
follows:
``Pay or Play'' or ``Fair Share'' Laws: Pay or play laws
require employers of a certain size to spend a set dollar amount or
percentage of payroll for health care. Employers that fail to spend the
required amount on health benefits typically must pay a penalty in the
form of a tax or a mandatory contribution to state run health care
programs. Maryland enacted the most publicized version of a pay or play
law (the United States Court of Appeals for the Fourth Circuit found
the Maryland law preempted under ERISA). Suffolk County, New York and
San Francisco have adopted similar laws.
Fair Wage Laws: Fair wage laws typically require employers
to pay an overall hourly compensation package of a specified amount
(e.g., $12/hr). Employers must pay a certain portion of the overall
amount in cash (e.g., $9/hr) and the balance in either cash or health
benefits. Employers who fail to offer a compliant hourly compensation
package face monetary penalties. Municipalities are examining this
approach as well.
Comprehensive reform: Some states have adopted more
comprehensive health care reforms, which may include (1) a play or pay
assessment on employers that do not provide health coverage that meets
a certain standard, (2) reforms of state insurance markets, (3) a
requirement that individuals obtain coverage (the ``individual
mandate''), (4) expansion of state and federal government health care
programs, (5) premium assistance programs for lower wage workers to
obtain private insurance, and (6) mandates on employers with uninsured
employees to establish cafeteria plans to allow for pre-tax purchase of
insurance. To date, Massachusetts and Vermont have adopted
comprehensive proposals. A number of other states, including
California, are considering proposals.
While a number of the elements of state reform are laudable,
including expanding subsidies to purchase private insurance, helping
consumers make better health care decisions by comparing health care
costs and quality and giving states more flexibility over their use of
federal funds to meet their health care needs, certain elements of
state-based reform raise significant concerns for employers.
The Council is very concerned about proposals that have the effect
of subjecting employers and health plans to a patchwork of state-by-
state regulation. Even if one state's rules impose relatively modest
requirements, when viewed from the perspective of an employer's health
plan that covers employees in multiple states, the cumulative effect of
such variations in requirements will impose significant costs and
administrative burden.
A seemingly minimal employer mandate such as the requirement in
Massachusetts that employers adopt and maintain a Section 125
``cafeteria'' plan may create significant administrative burdens.\2\
Cafeteria plans are benefit plans, adopted pursuant to Internal Revenue
Code section 125, that employers may offer to allow employees to pay
for health care coverage (or other qualified benefits) on a pre-tax
basis. The Massachusetts reform law requires adoption of a Section 125
plan that satisfies both federal law as well as regulations established
by the Commonwealth Connector. The Connector was created to help
connect employers and employees with a choice of health care coverage
options. Certain individuals, including individuals not eligible for
coverage at their place of employment, such as those who work part-
time, will be able to purchase insurance through the Connector using
pre-tax dollars via cafeteria plans established by their employers.
---------------------------------------------------------------------------
\2\ One of the employer responsibilities under the Mass Health Care
Reform Law is the requirement that employers with 11 or more full-time
equivalent employees adopt and maintain a Plan that satisfies both
Section 125 of the Internal Revenue Code and regulations established by
the Commonwealth Connector. Helping Your Employees Connect to Good
Health: Section 125 Plan Handbook for Employers. Version 1.0 (April 23,
2007) p. 2.
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If all 50 states were to require cafeteria plans, employers would
have to establish or modify their cafeteria plans and set up payroll
systems to satisfy requirements in each state where they had employees
working. For example, we understand that the Massachusetts Connecter
program will only receive payroll deductions once-per-month. However,
most employers use a two-week pay period. As such, employers with
operations in Massachusetts will have to create a wholly separate
payroll deduction scheme to meet the Massachusetts requirement. This
could be very burdensome if replicated in several states.
Another obvious concern with state reform efforts is with the pay
or play or other employer assessments that accompany state law reforms.
Because the proposals vary widely in each state, county or
municipality, compliance would be extremely complex, if not impossible.
Current proposals specify different amounts that must be spent on
health benefits and the methods of determining the amounts vary widely.
The proposals may include or exclude part-time workers, may use
different definitions of employee or employer and count different types
of coverage as qualifying coverage. The proposals also require distinct
certification and reporting in each jurisdiction. Imagine the cost and
difficulty of trying to comply with these rules if they varied in all
50 states (let alone 3,077 counties and 87,525 municipalities). Under
this approach, employers would also need to be certain their plans
remain in compliance with all future changes to these state and local
requirements which would be an extraordinarily difficult challenge.
Employees also understand the importance of employer-sponsored
health coverage and the employer's role in financing a large share of
its expense. In a survey released earlier this month by the National
Business Group on Health, two in three respondents (67%) consider their
health plan to be excellent or very good. An even greater number (75%)
said they valued it as their most important benefit from their employer
and about three in every four respondents said they would prefer to get
their health benefits through their employer rather than having a
salary increase in order to purchase health coverage on their own.
ERISA Preemption is Based on Sound Public Policy
We believe that ERISA preemption is based on sound public policy.
Federal preemption fosters uniform administration and reduces the
costly burden of state-by-state compliance and regulation. Without this
essential framework, many employers, including the large employers that
overwhelmingly provide health care coverage to their employees, will be
forced to choose between increasing the employee share of health care
coverage costs or eliminating coverage entirely. The complexity of
administering a health care plan that treats workers differently based
on the laws of each state (let alone each city) is inconceivable. ERISA
preemption was enacted to solve this problem.
ERISA preemption also allows employers to provide uniform benefit
packages across the workforce. Employers do not want to create
disparities within the work force where employees have different
benefits simply based on where they work or live. Instead, benefits
need to be tailored to the specific needs of an employer's workforce
across state lines.
ERISA preemption also helps mitigate the effect of health care
costs as a factor in determining the advantages or disadvantages of
operating in different states. Absent ERISA preemption, employers would
have incentives to locate in states with less burdensome health care
mandates. The high cost of health care already creates a competitive
disadvantage for American employers relative to other countries.
Allowing states and counties to encumber employers further would expand
that gap.
ERISA Waivers are Not the Solution
We believe that any new initiatives at either the state or federal
level that address the problem of the uninsured must be pursued in a
manner that continues to ensure uniformity in plan design and
administration. This will ensure that that employers can continue to be
innovators in plan design and cost control.
We are also very concerned that one response would be for federal
policymakers to pare back ERISA preemption, or grant states ``waivers''
from ERISA preemption. Waivers might be tempting because states are
already acting and it may be difficult for federal policymakers to
develop a consensus for a federal solution.
ERISA waivers raise concerns as to both the mechanics and the
efficacy of such a program. Moreover, it is not an easy solution--ERISA
waivers will involve a tremendous amount of federal policymaking and
oversight. Here are just some of the key issues that would have to be
addressed:
Will the states that are the subject of the waiver be
named in federal law? If so, which standards would be used to protect
certain state laws and not others?
Will the process be administered on a case-by-case basis
by a federal agency pursuant to federal standards? Is this a full-blown
administrative proceeding?
If an agency is granted authority to issue waivers, what
standards would apply to limit the agency's authority or the future
scope of state actions? Will states be limited to certain types of
mandates or experimentation? Will states be free to force employers to
pay for state health care reform?
Needless to say, if the standards for waivers are set in federal
law, as they would have to be, then federal policymakers will have to
resolve most, if not all, of the policy questions that would have to be
addressed in fashioning a uniform, federal approach.
Conclusion
In conclusion, we recognize that the issue of uninsured Americans
is a serious problem that requires a careful examination of every
policy option. Moreover, the Council believes that changes to the
nation's health care system are needed and has put forth in our long-
term strategic plan several proposals to dramatically improve the
health care system. We think the best approach is a federal solution
that builds on ERISA and promotes uniformity and cost containment. The
solution must complement, not undermine, the important role that
private sector employers play in voluntarily sponsoring self-insured
health plans that cover approximately 70 million American workers and
dependents.
Again, thank you for the opportunity to share our perspectives.
______
Chairman Andrews. Thank you, Mr. Covert, very much.
There is another series of five votes here. What I would
propose to do would be to try to get the statements of Ms.
Moore and Commissioner Goldman in. Mr. Kline and I will stay to
hear them, and then we will come back.
Unfortunately, it is going to be maybe an hour because of
this series of votes. If people have to leave, we understand.
Members will come back to ask questions.
So, Ms. Moore, we will proceed with you, and then Mr.
Goldman, and we appreciate your patience.
STATEMENT OF AMY MOORE, PARTNER, COVINGTON & BURLING, LLP
Ms. Moore. Sure. Good afternoon, Mr. Chairman and Ranking
Member Kline, members of the subcommittee.
I represent a number of large employers who do business in
multiple states and who are struggling with many of the same
issues that the states are struggling with and that this
committee is concerned about. So I very much appreciate the
opportunity to be here this afternoon and speak with you about
those issues.
I am happy to be able to affirm that 33 years ago Congress
got something right. The thing that Congress got right was the
preemption provision of ERISA. It has worked well all of these
years. It has made it possible for employers to create uniform
health programs that meet the needs of their workforce, and
they can be administered efficiently across the country.
It has made it possible for employers to use their
purchasing power to keep costs in line, and it has made
possible the kind of employer innovation and improvement in
health care that you heard Kevin Covert describe at Honeywell
and that is also being implemented at large employers across
the country.
A sort of urban myth has arisen that the breadth of ERISA's
preemption provision was an accident and that the members of
Congress at the time did not really foresee the effect that
this preemption provision would have on states' efforts to
reform health-care plans.
In fact, though, that is not the case. In large part,
ERISA's preemption provision was a response to state efforts to
reform their health-care system once they had enacted
comprehensive health-care reform.
Other states were contemplating it, courts were entering
decisions that health plans could be regulated as if they were
insurance arrangements, and employers and organized labor were
extremely concerned that the effect that these kinds of
inconsistent state laws would have on their nationwide health
programs.
Congress at the time carefully considered those concerns,
weighed the competing interests of the state and the federal
system and concluded that a broad ERISA preemption provision
was essential to promote the health and vitality of employment-
based health care, and I believe that experience has shown over
the last 33 years that that judgment was correct.
Individual state mandates might seem like they are not
terribly burdensome for an employer to comply with, but each
mandate requires an employer to first figure out what the law
requires. Does it apply to employees who live in one state and
work in another? How does it apply? Who does it apply to?
They have to amend their health plans. They have to
renegotiate their agreements with their providers. They have to
create a special set of employee communications for the
employees in that particular state, and that can be especially
problematic for employers who are trying to post uniform
communications on a Web site.
They have to train people who answer hotlines and who
communicate with employees to answer questions about the new
benefits or the new coverage. They have to revise their claims
forms and claims procedures, and because, like the states, they
do not have infinite resources, they have to make judgments
about whether they need to cut back on other benefits in order
to finance these new mandates.
So a seemingly small, seemingly benign state law can have a
significant impact on employment-based plans.
There is a great deal that the states can do in the context
of ERISA without ERISA waivers to reform access to health
insurance, to reform individual and small group markets, to
enact individual mandates. There is also a great deal that the
states can do to finance health-care reform within their
borders.
A great many people, I think, including myself, would love
to discover that ERISA prevents the states from taxing
corporate income or personal income to finance health reform,
but, sadly, I fear that even I do not believe that ERISA
preemption is that broad.
So I think that there are opportunities for the states to
reform their health systems. The employers would like to work
with them, but I think as this subcommittee considers how to
address these very serious problems, we would ask that it
remember that 160 million Americans under the age of 65 are
receiving very good, very affordable health insurance from
their employers, and we hope that you will approach this
problem as a doctor approaches his patients, with the maxim in
mind of first do no harm.
Thank you very much, and I will be happy to answer
questions.
[The statement of Ms. Moore follows:]
Prepared Statement of Amy N. Moore, Covington & Burling LLP
Good morning, Mr. Chairman and Congressman Kline. I very much
appreciate the opportunity to speak with you and the Subcommittee today
about health care reform.
I am a partner in the law firm of Covington & Burling LLP. I have
concentrated on employee benefit matters since 1984. I advise many of
the nation's largest employers on issues affecting the group health
plans they maintain for their employees. Most of the companies I
represent have employees in more than one state, and some have
employees in all 50 states. My firm also represents The ERISA Industry
Committee, a nonprofit association committed to the advancement of the
employee benefit plans of America's largest employers. I am testifying
today on my own behalf.
The Subcommittee's focus on the coordination of federal and state
initiatives is commendable. The health care system in this country has
serious problems, and it will take the best efforts of federal and
state policymakers, industry leaders, trade associations, and private
individuals to address them. In the last six years alone, the cost of
health care has increased at 3\1/2\ times the rate of inflation.\1\
National expenditures on health care now consume 16 percent of the
gross domestic product.\2\ Although our health care system is among the
most expensive in the world, it is far from being the most effective.
Forty-seven million Americans, including more than 8 million children,
have no health coverage.\3\
The rising cost of health care puts pressure on employers as well
as on state governments and their citizens; and employers are actively
seeking solutions to the problems in our health care system. In spite
of these difficulties, employment-based health care remains the main
source of health coverage for American workers and their families. The
percentage of workers and their families who receive health coverage
from employment-based plans has remained steady for decades.\4\
Approximately 74 percent of workers are eligible for health benefits
from their own employer, and more than 60 percent of workers are
covered by their own employer's health plan.\5\ Those who decline their
own employer's health coverage often have coverage from a spouse's or
other family member's employer.\6\
As this Subcommittee considers how to address the problems in our
health care system, it should take care to preserve the aspects of the
system that work well. Employers are able to offer health coverage to
their workers in large part because their health plans are subject to
uniform federal regulation, and are protected from inconsistent
regulation at the state and local levels.
I would like to focus on the importance of ERISA preemption to the
employment-based health care system. I have four key points.
First, the employment-based health system delivers comprehensive
health coverage to millions of Americans today, and it is the force
behind some of the most promising innovations in health care. A strong
ERISA preemption provision makes this system possible; any erosion of
ERISA preemption will put it in jeopardy.
Second, Congress carefully considered the effect of ERISA
preemption on state health reform efforts more than 30 years ago, when
ERISA was enacted. Congress concluded that federal preemption was
necessary to eliminate the threat of conflicting state and local
regulation of employee benefit plans. As the House Committee on
Education and Labor explained, ``the Federal interest and the need for
national uniformity are so great that the enforcement of state
regulation should be precluded.'' \7\ Experience has shown that this
judgment was correct.
Third, permitting states to obtain waivers from ERISA not only will
undermine the employment-based health system, it also will prove
impractical. Granting waivers from ERISA is very much more complicated
than granting waivers from Medicaid. No system exists, or can easily be
created, to administer an ERISA waiver program.
Fourth, states do not need ERISA waivers in order to implement
sound and effective health care reforms for their citizens. The
problems most urgently in need of solutions--insuring the unemployed,
providing reliable and accessible information on health care cost and
quality, making affordable insurance available to individuals and small
groups--are outside the scope of ERISA's preemption provision.
Employment-Based Health Coverage Is One of ERISA's Success Stories
Employment-based group health plans provide health coverage to more
than 160 million Americans under age 65.\8\ Although the employment-
based health system is voluntary, 96 percent of employers with more
than 100 workers offer health coverage to their employees.\9\ Large
employers bear the great majority of the cost of this coverage. For
example, employers with more than 100 workers shoulder, on average, 82
percent of the cost of single coverage and 74 percent of the cost of
family coverage.\10\ Large employers spend approximately $3,300 per
year for each employee with single coverage and approximately $8,000
per year for each employee with family coverage.\11\
Large employers are not only major providers of health care, they
also are a major force behind the improvement of the health care
system. Here are just a few examples of the ways in which employers are
making health care safer, better, and more affordable for all
Americans:
Quality and Safety. Large employers and employer groups
such as the Leapfrog Group are using their purchasing power to improve
the safety and quality of health care by rewarding hospitals that
provide high-quality care.
Information Technology. Employers and employer groups are
working to improve health information technology, such as electronic
medical records and health information exchanges, to reduce medical
errors and make health care more efficient.
Transparency. Employers and employer groups are demanding
better information about health care costs and outcomes, in an effort
to make the health care system more efficient and more affordable.
Patient-Centered Care. Individual employers, employer
groups such as The ERISA Industry Committee, and physician groups have
joined together in a Patient-Centered Primary Care Collaborative to
develop and advance the concept that the Patient-Centered Medical Home,
with a primary care physician coordinating a patient's care, is a
better way to provide health care than the balkanized system that is
too often the norm today.
Wellness Programs. Employers recognize the importance of
promoting good health among their employees: they are developing
innovative programs and incentives to encourage exercise, weight loss,
smoking cessation, regular physical examinations, and other healthy
practices.
Consumer-Driven Care. Large employers have been a
significant force behind consumer-driven health care, which gives
employees more flexibility and more responsibility to decide how best
to spend their families' health care dollars.
Employment-based health plans provide affordable, comprehensive
care to millions of workers and their families, and they drive
innovation and improvement in the health care system as a whole. A
major factor contributing to the success of employment-based health
plans is the broad preemption provision in ERISA.
The Continued Vitality of Employment-Based Health Coverage Depends on
ERISA Preemption
ERISA preempts ``any and all State laws insofar as they may now or
hereafter relate to any employee benefit plan'' covered by ERISA.\12\
Because self-insured group health plans are not subject to state
benefit mandates, companies that do business in more than one state can
provide uniform health benefits to their employees across state lines.
An employer with a nationwide work force can maintain a nationwide
health program, with all of the cost savings and administrative
efficiencies a uniform benefit program entails. The employer can
provide all employees with the same health coverage regardless of where
they live, where they work, or where their care is provided, and
regardless of how often they are transferred during their careers.
It is no accident that ERISA includes a broad preemption provision.
Before ERISA was enacted, employee benefit plans were regulated by a
patchwork of state statutes, local ordinances, and court-made rules. An
employer that provided benefits to a multistate work force encountered
severe administrative difficulties and unnecessary expense as it
attempted to comply with rules that differed from state to state, and
sometimes from city to city. It was difficult or impossible for a large
employer to tailor its benefit programs to the needs of its work force.
Inconsistent and conflicting state mandates prevented employers from
providing their employees with the best possible benefits at the most
reasonable cost.
The bills passed by the House and Senate originally included a much
narrower preemption provision, which would have superseded state law
only in areas specifically regulated by the federal statute.\13\ In
conference, however, the members recognized that such a system was
unworkable. Senator Javits, one of the chief architects of ERISA,
explained that the narrow preemption provision ``open[ed] the door to
multiple and potentially conflicting State laws hastily contrived to
deal with some particular aspect of private welfare or pension benefit
plans not clearly connected to the Federal regulatory scheme.'' He
concluded that ``on balance, the emergence of a comprehensive and
pervasive Federal interest and the interests of uniformity with respect
to interstate plans required . . . the displacement of State action in
the field of private employee benefit programs.'' \14\
The principal House sponsor of ERISA, Representative John Dent of
Pennsylvania, was equally emphatic in describing the central importance
of a broad preemption provision. Representative Dent stated:
I wish to make note of what is to many the crowning achievement of
this legislation, the reservation to Federal authority [of] the sole
power to regulate the field of employee benefit plans. With the
preemption of the field, we round out the protection afforded
participants by eliminating the threat of conflicting and inconsistent
State and local regulation.\15\
Senator Williams also emphasized the need to relieve employers of
inconsistent state regulation:
It should be stressed that with the narrow exceptions specified in
the bill, the substantive and enforcement provisions of the conference
substitute are intended to preempt the field for Federal regulations,
thus eliminating the threat of conflicting or inconsistent State and
local regulation of employee benefit plans. This principle is intended
to apply in its broadest sense to all actions of State or local
governments, or any instrumentality thereof, which have the force or
effect of law.\16\
The ERISA conferees understood that the broad preemption provision
included in ERISA would prevent state and local governments from
experimenting with health reform. In fact, one of the main reasons that
the conferees expanded the preemption provision was to preclude state-
by-state health reform efforts.\17\ Hawaii had already enacted a health
reform measure while ERISA was being debated, and California was
considering similar legislation. The conferees feared that inconsistent
state laws regulating health care would undermine employment-based
health plans, and they recognized that the narrow preemption provision
included in the House and Senate bills was not sufficient to protect
plans from this threat.
Congress decided to bar state reform initiatives only after
thoughtful deliberation. After carefully weighing the competing
interests, the ERISA conferees concluded that national uniformity in
the regulation of employee benefit plans was essential to the growth
and soundness of these plans and outweighed the interest of state and
local governments in regulating employee benefit plans within their
borders.
This conclusion was tested again several years later and found to
be sound. ERISA established a Joint Pension Task Force, consisting of
the staffs of the House and Senate committees with primary jurisdiction
over ERISA, and directed the Task Force to conduct a ``full study and
review'' of the ``effects and desirability'' of the ERISA preemption
provision.\18\ Senator Javits observed that the Task Force had ``the
responsibility of studying and evaluating preemption in connection with
State authorities and reporting its findings to the Congress. If it is
determined that the preemption policy devised has the effect of
precluding essential legislation at either the State or Federal level,
appropriate modifications can be made.'' \19\
The Task Force monitored the implementation of ERISA for two years
following the statute's enactment. In addition, the Subcommittee on
Labor Standards of the House Committee on Education and Labor held
eight days of oversight hearings in which it carefully and thoroughly
examined the implementation of ERISA. The Subcommittee issued a
report\20\ concluding that ERISA's broad preemption provision was
necessary and that the limited exceptions to ERISA preemption included
in the original statute should be narrowed still further. The report
reaffirmed the policy choice reflected in ERISA's preemption provision,
that ``the Federal interest and the need for national uniformity are so
great that the enforcement of state regulation should be precluded.''
\21\ The report explained:
We remain convinced of the propriety and necessity for the very
broad preemption policy contained in section 514. To the extent that
the scheme of regulation is found to be deficient with respect to some
or all of the plans covered by the Act, we are prepared to consider
amendments expanding or modifying the federal standards. We will be
most reluctant to consider any remedy involving a limitation of the
preemptive scheme as it applies to the plans [governed by ERISA].\22\
The fact that employment-based health plans are free of state
regulation does not mean that they are exempt from governmental
standards. In the 30 years since ERISA was enacted, Congress has
repeatedly imposed federal health mandates when it believed that they
would improve the delivery of health care to employees and their
families. For example, under federal law, employment-based group health
plans must:
provide health care continuation coverage to employees and
dependents who lose their eligibility for employer group health
coverage;\23\
provide coverage mandated by state medical child support
orders;\24\
provide primary coverage to state Medicaid
beneficiaries;\25\
cover adopted children;\26\
maintain coverage of pediatric vaccines at least at 1993
levels;\27\
avoid imposing preexisting condition limitations, except
within very narrow constraints;\28\
offer special enrollment rights to individuals who lose
other coverage, or who acquire a new spouse or dependent;\29\
avoid discriminating against participants based on their
health status;\30\
cover a minimum hospital stay following childbirth;\31\
provide the same annual and lifetime limits for mental
health benefits that they provide for medical and surgical
benefits;\32\
cover reconstructive surgery following mastectomies;\33\
and
preserve the privacy of employees' medical records.\34\
Although these federal mandates are sometimes costly and burdensome
to administer, they at least have the virtue of applying uniformly to
all employment-based health plans, regardless of where the employee
lives or works.
The same considerations that prompted Congress to adopt a broad
preemption provision 30 years ago still apply today. The voluntary
employment-based health system is one of the success stories in the
history of health care in America; but this system will continue to
thrive only if employer plans continue to be protected from
inconsistent regulation at the state and local levels.
State Waivers From ERISA Preemption Will Undermine a Highly Successful
System
The suggestion occasionally is made that states should be able to
obtain waivers from ERISA's preemption provision so that they can
experiment with health reform, including employer mandates. This
proposal is problematic for several reasons.
First, it undermines the uniform federal system of regulation that
Congress carefully constructed in ERISA and expanded in subsequent
legislation, a system that has served employers and employees well for
more than 30 years. If state and local governments are able to obtain
waivers in order to regulate health care, employment-based health plans
will be exposed to ``the threat of conflicting and inconsistent State
and local regulation'' that Representative Dent foresaw when ERISA was
enacted, and that Congress wisely took steps to prevent. Financial and
administrative resources will be consumed by efforts to comply with a
patchwork of local laws; employers will no longer be able to tailor
their benefit programs to their employees' needs; and workers and their
families will inevitably suffer.
Second, no system exists, or can easily be created, to administer
an ERISA waiver program. The model that proponents of state waivers
cite is the Medicaid statute, which allows the Secretary of Health and
Human Services to grant exceptions to specific substantive requirements
of the Medicaid program.\35\ The Medicaid waiver program is
administered by the Centers for Medicare and Medicaid Services
(``CMS''), the federal agency that is responsible for the Medicare and
Medicaid programs. The CMS staff are expert in matters relating to the
delivery of health care. The agency's mission requires it to develop
and implement health policy; to interact with hospitals, doctors, and
other health service providers; to maintain large databases of medical
and payment information; and to administer complex health programs and
health financing systems in cooperation with state governments and
other partners. CMS's expertise in health matters ensures that the
agency is well-positioned to evaluate the potential benefits and costs
of state waiver proposals, and to determine whether federal grant
dollars will be effectively spent on the alternative programs the
states wish to implement.
In contrast, the Department of Labor, which is the federal agency
responsible for ERISA's preemption provision, plays no role in the
financing or delivery of health care. The Department of Labor
administers a voluntary system in which employers make their own
choices about the design and cost of their group health programs.
Department of Labor staff have no basis for evaluating state health
reform proposals; for determining whether a particular state waiver
will impose burdens on employers that will outweigh any benefit the
proposal might confer on the citizens of a particular state; or for
monitoring the effects of the state program and assessing whether the
waiver should be continued.
Unlike the Medicaid waiver program, an ERISA waiver program would
not merely evaluate how federal grant dollars should be allocated.
Instead, the ERISA waiver program would attempt to determine what
administrative costs and substantive mandates state and local
governments should be permitted to impose on employment-based health
plans, and what effect local initiatives will have on nationwide
benefit programs. Health care is not confined within state borders: it
is provided in major medical markets that transcend state and local
boundaries. The parties best able to determine how multistate employers
should spend their health-care dollars are the employers themselves. A
strong ERISA preemption provision is essential to preserve employers'
ability to make the decisions that are in the best interest of their
workers and the workers' families.
The States Do Not Need ERISA Waivers in Order to Implement Health
Reform
The states appropriately seek affordable, comprehensive health
insurance for all their citizens. Large employers support these
efforts, and most large companies already devote substantial resources
to provide health coverage to their workers and the workers' families.
The problems most urgently in need of solutions are outside the scope
of ERISA's preemption provision: they lie with the unemployed and
marginally employed, who do not receive health insurance through the
workplace; with the lack of reliable and accessible information
concerning health costs and health quality; and with the lack of
affordable insurance for individuals and small groups.
The states do not need ERISA waivers in order to address these
problems. ERISA does not prevent states from regulating the individual
and small group insurance markets. Insurance--including insurance sold
to employers--is expressly carved out of ERISA's preemption provision,
so that states are free to exercise their traditional authority to
regulate health insurance products sold within their borders.\36\ State
initiatives to increase access to health care, to make health care more
affordable, and to improve the quality of health care likewise are not
affected by ERISA. Nor does ERISA preclude individual mandates, such as
Massachusetts' requirement that all of its citizens maintain a minimum
level of health insurance. Accordingly, states may engage in a broad
range of health reforms without any constraint under ERISA.
That completes my prepared statement. I will be pleased to answer
any questions the Chairman or any members of the Subcommittee might
have. Thank you for your attention.
endnotes
\1\ Paul Fronstin, Employment-Based Health Benefits: Access and
Coverage, 1988-2005, Employee Benefits Research Institute (EBRI) Issue
Brief No. 303 (March 2007).
\2\ The Henry J. Kaiser Family Foundation, Trends and Indicators in
the Changing Health Care Marketplace, Publication No. 7031 (Feb. 2006).
\3\ DeNavas-Walt, Proctor, and Lee, Income, Poverty, and Health
Insurance Coverage in the United States: 2005, U.S. Census Bureau
(August 2006).
\4\ Fronstin, EBRI Issue Brief No. 303, supra.
\5\ Id.
\6\ Id.
\7\ H.R. Rep. No. 1785, 94th Cong., 2d Sess. at 47 (1977).
\8\ Paul Fronstin, Sources of Health Insurance and Characteristics
of the Uninsured: Updated Analysis of the March 2006 Current Population
Survey, Employee Benefits Research Institute (EBRI) Issue Brief No. 305
(May 2007).
\9\ U.S. Department of Labor, Bureau of Labor Statistics, National
Compensation Survey: Employee Benefits in Private Industry in the
United States, March 2006 (August 2006).
\10\ Id.
\11\ Id.
\12\ ERISA Sec. 514(a), 29 U.S.C. Sec. 1144(a).
\13\ H.R. 2, 93d Cong., 2d Sess., Sec. 514(a) (1974) (House bill);
H.R. 2, 93d Cong., 2d Sess., Sec. 699(a) (Senate bill). For a
discussion of the legislative history of ERISA's preemption provision,
see Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 96-100 (1983).
\14\ 120 Cong. Rec. 29942 (1974) (remarks of Sen. Javits).
\15\ 120 Cong. Rec. 29197 (1974) (remarks of Rep. Dent).
\16\ 120 Cong. Rec. 29933 (1974) (remarks of Sen. Williams).
\17\ Michael S. Gordon, minority counsel to Senator Javits during
the consideration and passage of ERISA, describing the history of
ERISA's preemption provision in Health Care Reform: Managed Competition
and Beyond, Employee Benefits Research Institute (EBRI) Issue Brief No.
135 (March 1993).
\18\ See ERISA Sec. Sec. 3021, 3022(a)(4), 88 Stat. 999 (1974).
\19\ 120 Cong. Rec. 29942 (1974) (remarks of Sen. Javits).
\20\ H.R. Rep. No. 1785, 94th Cong., 2d Sess. (1977).
\21\ Id. at 47.
\22\ Id. at 48 (emphasis added).
\23\ ERISA Sec. Sec. 601-08, added by the Consolidated Omnibus
Budget Reconciliation Act of 1985 (``COBRA''), Pub. L. No. 99-272,
Sec. 10002(a) (1986).
\24\ ERISA Sec. 609, added by the Omnibus Budget Reconciliation
Act of 1993, Pub. L. No. 103-66, Sec. 4301(a) (1993).
\25\ Id.
\26\ Id.
\27\ Id.
\28\ ERISA Sec. 701, added by the Health Insurance Portability and
Accountability Act of 1996, Pub. L. No. 104-191, Sec. 101(a) (1996).
\29\ Id.
\30\ ERISA Sec. 702, added by the Health Insurance Portability and
Accountability Act of 1996, Pub. L. No. 104-191, Sec. 101(a) (1996).
\31\ ERISA Sec. 711, added by the Newborns' and Mothers' Health
Protection Act of 1996, Pub. L. No. 104-204, Sec. 603(a)(5) (1996).
\32\ ERISA Sec. 712, added by the Mental Health Parity Act of
1996, Pub. L. No. 104-204, Sec. 702(a) (1996).
\33\ ERISA Sec. 713, added by the Women's Health and Cancer Rights
Act, Pub. L. No. 105-277, Sec. 902(a) (1998).
\34\ 45 C.F.R. Sec. 164.504, implementing the Health Insurance
Portability and Accountability Act of 1996, Pub. L. No. 104-191,
Sec. Sec. 261-64 (1996).
\35\ Social Security Act Sec. 1115, 42 U.S.C. Sec. 1315
(authority to approve projects that test policy innovations likely to
further the objectives of the Medicaid program); Social Security Act
Sec. 1915(b), 42 U.S.C. Sec. 1396n(b) (authority to grant waivers
that allow states to implement managed care delivery systems, or
otherwise limit individuals' choice of provider under Medicaid); Social
Security Act Sec. 1915(c), 42 U.S.C. Sec. 1396n(c) (authority to
waive Medicaid provisions in order to allow long-term care services to
be delivered in community settings).
\36\ ERISA Sec. 514(b)(2)(A), 29 U.S.C. Sec. 1144(b)(2)(A).
______
Chairman Andrews. Thank you, Ms. Moore.
Commissioner Goldman, welcome.
STATEMENT OF STEVEN GOLDMAN, COMMISSIONER, NEW JERSEY
DEPARTMENT OF BANKING AND INSURANCE
Mr. Goldman. Thank you. Good afternoon, Chairman Andrews,
Ranking Member Kline and members of the subcommittee. I thank
you for giving me the opportunity to address you today.
As the chief insurance regulator in New Jersey, I am
acutely aware of the crisis our country faces with regard to
health insurance coverage. Of nearly 45 million Americans
without health insurance in 2005, 8 million were children and
1.3 million live in New Jersey.
But there is some good news because there is an increased
level of engagement and innovation at the state level on health
reform issues. Just in the past year or so, we have seen major
legislation adopted in seven states and reform work under way
in six more.
A fundamental principle of insurance is to spread the risk
as widely as possible. That principle is undermined by the
increasing segmentation of the marketplace into smaller and
smaller risk pools. Therefore, a guidepost to New Jersey's
reform efforts is the creation of larger risk pools.
The Corzine administration has as a priority reducing the
number of uninsured through a comprehensive examination of the
current health-care delivery system and its funding mechanisms.
The administration's health reform strategy is to expand health
coverage in three ways: increase affordability and availability
of commercial coverage for individuals and small groups, expand
Medicaid and family care to cover people for whom commercial
coverage is unaffordable, and strengthen the existing system of
reimbursing hospitals for uncompensated care.
At present, this strategy does not require employers or
individuals to purchase or contribute to coverage.
A working group chaired by State Senator Joseph Vitali has
outlined a plan that would reduce by at least 50 percent the
number of uninsured by replacing the New Jersey individual
market with a government-sponsored program that would be
mandatory for all people not eligible for employer coverage or
Medicaid.
The plan would have premiums and other cost-sharing
requirements based on income. So it should be affordable for
every person required to purchase it. A major obstacle is its
cost, estimated in excess of $1 billion, of subsidizing the
premiums of low-income enrollees.
The administration continues to share Senator Vitali's
goals and to work with him on health-care reform.
These approaches probably require an assessment on both
insured and self-funded health benefit plans. Some argue that
ERISA preemption precludes such assessments which will leave
the burden on insured plans only.
In June of 2006, New Jersey, as part of the National
Association of Insurance Commissioners, worked to identify
promising state reform proposals and ways in which the federal
government could encourage continued innovation and reform at
the state level. As a part of that effort, the NAIC created the
State Innovations Working Group and the Federal Relief Subgroup
which I co-chaired with Commissioner Steve Orr of Maryland.
The groups gathered testimony from many sources and
examined ERISA preemption and its effects upon state reform
efforts. The subgroup conducted a survey of the states
regarding potential preemptive effects of federal laws on
innovations related to making health insurance or alternative
health-care financing mechanisms more affordable.
One important issue noted was that ERISA complicates the
ability of states to implement premium assistance programs as
part of their Medicaid and SCHIP programs. Due to ERISA
preemption, states cannot require employers to participate in
these programs.
States also find it difficult to obtain information about
employer coverage because they cannot compel employers to
report this information or inform lower-income employees about
the opportunity to enroll in a public program.
Thus, preemption undermines what would otherwise be a very
effective strategy for helping working families afford the
coverage already offered by their employers.
Importantly, in several areas, the states believe they are
not actually preempted by federal law, but uncertainty
regarding what is permissible has created a threat of
protracted legal action to resolve the question and has
effectively discouraged the states from acting in theses areas.
The NAIC used the results of the survey to formulate a
four-point proposal for federal action that would help
encourage more states to undertake innovative reform measures,
allowing them to act as the laboratories of democracy. We
selected items for inclusion in the proposal to maximize
flexibility to confer upon the states and minimize impact on
sponsors of multi-state self-insured plans.
New Jersey supports the NAIC proposals, and they are as
follows:
Adopt an amendment to ERISA clarifying that data collection
requirements are saved from preemption. To minimize the
administrative burden of this change, it would not be
unreasonable to limit states to collecting the same information
from self-insured plans that they collect from fully insured
plans.
Two, adopt an amendment to ERISA to clarify that pay-or-
play requirements that are neutral as to whether an employer
pays an assessment or offers health benefits and makes no
requirement regarding the form of benefits offered to employees
are saved from preemption.
Three----
Chairman Andrews. Commissioner, if you could just briefly
wrap up, thank you.
Mr. Goldman. Yes.
Amend ERISA to give the secretary of labor authority to
grant waivers.
And, four, create a federal grant program to provide
qualified states startup and operating funds.
[The statement of Mr. Goldman follows:]
Prepared Statement of Steven M. Goldman, New Jersey Commissioner of
Banking and Insurance
Good morning Chairman Andrews, Ranking Member Kline and members of
the subcommittee. Thank you for holding this important hearing and for
providing me with the opportunity to present my views on the
coordination of state and federal health reform initiatives. My name is
Steven M. Goldman, and I am the New Jersey Commissioner of Banking and
Insurance. While I testify today in my capacity as Insurance
Commissioner, my testimony will also touch on my experience as Co-Chair
of the National Association of Insurance Commissioners' Federal Relief
Subgroup.
The problem is clear
As the chief insurance regulator for the state of New Jersey, I am
acutely aware of the crisis our country faces with regard to health
insurance coverage. Nearly 45 million Americans went without health
insurance coverage in 2005.\1\ Eight million of them were children\2\
and 80 percent were from working families.\3\ One million, three
hundred thousand of these uninsured Americans live in New Jersey, and
of these, 230,000 are children. When someone without health insurance
needs extensive medical treatment the financial consequences can be
devastating and the health consequences are even worse. In 2004 the
Institute of Medicine estimated that every year 18,000 deaths in
America can be attributed to a lack of health insurance coverage.\4\
The challenge before us is great and it is growing every year.
---------------------------------------------------------------------------
\1\ De-Navas-Walt, Carmen, Bernadette. D. Proctor, and Cheryl Hill
Lee, U.S. Census Bureau, Current Population Reports, P60-231, Income
Poverty and Health Insurance Coverage in the United States: 2005, Table
C-2
\2\ Ibid.
\3\ Institute of Medicine, Committee on the Consequences of
Uninsurance, Insuring America's Health, 4 Principles and
Recommendations (Washington, National Academic Press, 2004 p. 163
\4\ Ibid. p. 8
---------------------------------------------------------------------------
States are leading reform efforts
In the face of these daunting and discouraging statistics, there is
some good news. The level of engagement and innovation at the state
level on health reform issues has never been higher. Just in the past
year or so, we have seen major reform legislation adopted in seven
states (Indiana, Massachusetts, Pennsylvania, Rhode Island, Tennessee,
Vermont, and Washington) and reform work is underway in at least six
more (California, Illinois, Kansas, Maine, Minnesota, and Oregon).
New Jersey experience
New Jersey passed comprehensive health reform legislation in the
early 1990s. Almost 15 years of history provides some guidance. We
consider our small group market (2-50 employees) very successful. About
900,000 people, over 10% of our population, are covered in this market.
This market provides affordable coverage even though eligibility and
rates cannot be based on health conditions. Rates can only depend (to a
limited extent) on age, gender, and geography. Many of us in New Jersey
consider this market to be an easily replicated template for gradual
reform.
Our individual market, on the other hand, has not been as
successful. In this market, the combination of guaranteed issue, pure
community rating (prohibition of rating based on age, gender, and
territory as well as health status), and the absence of any rating
subsidy has led to increasing rates and decreasing enrollment.
Currently, only about 80,000 people, or less than 1% of our population,
are enrolled in this market. That being said, changes have been made in
this market, including the offering of Basic and Essential policies
with rating by age, gender, and territory, that have stabilized
enrollment to some extent.
In addition, while the New Jersey individual market is often
characterized as having the highest average premiums, these ``average''
premiums are available to any eligible person. Currently, an eligible
individual in New Jersey can purchase a comprehensive HMO policy for
about $435 a month, regardless of health condition. Various reform
proposals being considered in New Jersey seek to reduce this cost, but
no proposal currently being considered does so at the price of creating
separate coverage pools or rating for ``healthy'' and ``unhealthy''
individuals.
Another interesting initiative in New Jersey is our ``Dependent
Under 30 Law'', which allows unmarried, childless dependents to
continue on their parent's coverage by paying the cost of the coverage.
This program, which became effective over the past year, has about
7,000 young people enrolled. A number of states have enacted, or are
considering enacting, similar laws.
We think that a problem with the current health insurance market is
the increasing segmentation of that market into smaller and smaller
risk pools. We think a fundamental principle of insurance is to spread
risk as widely as possible. A guidepost of our reform efforts is the
creation of larger risk pools. The reinsurance of higher cost enrollees
in our reform markets would be an example of this principle.
Governor Corzine is a strong supporter of universal health care. In
the absence of federal action to address the issue, his administration
is proposing significant state reforms to make health care more
accessible and affordable.
The Corzine administration's near term health reform strategy is to
expand health coverage in three ways: 1) increase the affordability and
availability of commercial coverage for individuals and small groups;
2) expand Medicaid and Family Care to cover people for whom commercial
coverage is unaffordable; and 3) strengthen the existing system of
reimbursing hospitals for uncompensated care to provide a safety net
for those who remain uninsured.
In the commercial market, we think it makes sense to combine our
individual and small group markets, and develop a reinsurance system to
cover the largest claims in these markets. We estimate that this will
reduce individual rates significantly for younger people, reduce small
group rates slightly, and reduce the number of uninsured by over
100,000.
Our Medicaid/Family Care initiatives include enrolling the many
Medicaid eligible who are not currently enrolled, increasing the
coverage of parents in low income families, and a buy in program for
high income families to insure their children by paying the full cost
of Family Care coverage.
However, this near term strategy still leaves a vast number (over 1
million) NJ residents uninsured, and does not require employers or
individuals to purchase or contribute to coverage. A working group
chaired by State Senator Joseph Vitale has developed a plan that would
reduce, by at least 50%, the number of uninsured. The Vitale plan would
replace the New Jersey individual market with a government sponsored
plan that would be mandatory for all people who were not eligible for
employer coverage or Medicaid. This plan would have significant cost
savings (perhaps 10%) compared to commercial coverage. Most important,
the plan would have premiums and other cost sharing requirements based
on income, so it should be affordable to every person required to
purchase it. A major obstacle for this plan is the cost (estimated in
excess of $1 billion) of subsidizing the premiums of low income
enrollees. Governor Corzine shares Senator Vitale's goals and is
committed to working with him.
Both the administration initiative and the Vitale plan probably
require, for their success, a broad-based assessment on both insured
and self-funded health benefit plans. As discussed below, some argue
that ERISA pre-emption precludes such assessments, which will leave the
burden of such assessments on insured plans only.
Massachusetts innovation
In Massachusetts, a Republican governor and Democratic legislature
were able to bridge the partisan divide to reach agreement on one of
the most innovative new programs in many years. This program may merge
the small group and individual health insurance markets into a single
market operating under a single set of rules, creates a ``health
insurance connector'' that facilitates the purchase of policies by
individuals and small businesses, requires all state residents to
enroll in health coverage and provides subsidies to those who cannot
afford it.
Montana innovation
In 2005, Montana created the Insure Montana program, which assists
very small businesses with the purchase of health insurance by
providing tax credits to those that already provide coverage to their
employees and by providing monthly assistance to obtain coverage
through a purchasing pool to those that have not been able to it.
Currently the pool provides coverage to 5,100 people from 735 small
businesses in Montana, while the tax credits assist an additional 3,800
people from 655 small businesses.
New York innovation
In operation since 2001, the Healthy New York program provides
private market coverage for small businesses, sole proprietors, and
uninsured workers. Healthy New York reduces premiums through a
reinsurance program that reimburses participating carriers for 90
percent of claims between $5,000 and $75,000 for each enrollee. Since
its inception, over 300,000 New Yorkers have obtained health insurance
coverage through the program, which has reduced premiums by 40 to 70
percent compared to the overall market, depending on the coverage
purchased.
Vermont innovation
Almost one year ago today Vermont enacted a new health reform law.
Beginning on October 1, the new Catamount Health Plan will provide
uninsured state residents with a low-cost health insurance product with
an emphasis on preventive care and chronic care management. The state
will provide subsidies for low-income individuals to purchase coverage
either through the Catamount Health Plan or through employer-provided
coverage and will also make significant new investments to improve the
quality and cost-effectiveness of care for those with chronic
conditions and to create a statewide health information infrastructure
to facilitate the sharing of information between health care providers,
patients, and payers.
While these programs I have mentioned have all received substantial
coverage in the press, many other state efforts have not received as
much attention. The National Association of Insurance Commissioners
(NAIC) has compiled a catalog of innovative state programs to modernize
health insurance and extend coverage to the uninsured, which runs some
90 pages in length.
NAIC efforts to promote state reforms
In June 2006, the NAIC embarked upon an effort to identify
promising state reform proposals and ways in which the federal
government could encourage continued innovation and reform at the state
level. The NAIC's Health and Managed Care (B) Committee held a public
hearing to take testimony from state officials, health policy scholars,
consumer groups, and insurance industry representatives on promising
reform strategies, and created a State Innovations Working Group
(``Working Group'') to concentrate on the issue and hold further
hearings. Since then, the State Innovations Working Group has held two
additional hearings to gather testimony, including one in which we
examined ERISA preemption and its effects upon state reform efforts.
Noted ERISA expert Patricia Butler testified before the Working
Group in September 2006 on the state of ERISA preemption with regard to
health reform legislation on the state level. She detailed two key
areas in which ERISA complicates the states' abilities to implement
innovative health reform plans. First, she told the Working Group, the
status of ``pay-or-play'' assessments on employers was uncertain. A
federal district court had recently invalidated a Maryland statute that
required all private employers with more than 10,000 employees in the
state to spend at least 8 percent of its payroll on health benefits or
pay the difference to help fund the state Medicaid program. A federal
appeals court later upheld that verdict in a 2-1 decision.\5\
---------------------------------------------------------------------------
\5\ Retail Industry Leaders Association v. Fielder, 4th Cir.
January 17, 2007
---------------------------------------------------------------------------
However, she believed a broad-based ``pay-or-play'' assessment
would be likely to withstand an ERISA challenge. To do so, the
assessment would have to remain neutral regarding whether employers
offer coverage or pay an assessment to the state, could not set
standards to qualify for the credit against the assessment, or
otherwise refer to ERISA plans.
Ms. Butler also noted that ERISA complicates the ability of states
to implement premium assistance programs as part of their Medicaid and
SCHIP programs. Due to ERISA preemption, states cannot require
employers to participate in these programs. States also find it
difficult to obtain information about employer coverage (benefits,
premium sharing, employee qualifications, work status, and waiting
periods) because they cannot compel employers to report this
information or inform lower-income employees about the opportunity to
enroll in a public program. Thus, preemption undermines what could
otherwise be a very effective strategy for helping working families
afford the coverage that is already offered by their employers.
Recommendations
In light of this testimony, the Working Group created a Federal
Relief Subgroup, which I co-chaired with Commissioner Steven Orr of
Maryland, and directed it to identify areas in which states could use
additional flexibility to more effectively pursue reforms that would
reduce the number of their citizens without health insurance coverage.
The Federal Relief Subgroup conducted a survey of the states, asking
them if they had considered the preemptive effect of federal laws on
innovations related to making health insurance or alternative health
care financing mechanisms more affordable, particularly with respect to
the small group market in which small businesses purchase coverage.
Fully two-thirds of responding states had encountered situations where
federal law preempted, or threatened to preempt, health reform
proposals. The remaining third either had not kept track of the
preemptive effects of federal laws upon reform proposals or had not
encountered any.
It should be noted that in several areas the states believe that
they are not actually preempted by federal law, but uncertainty
regarding what is permissible has created a threat of protracted legal
action to resolve the question, and thus has effectively discouraged
the states from acting in these areas.
States reported a wide range of areas in which federal preemptions
interfered with their ability to pursue reforms, including the ability
to:
Broadly spread assessments to fund high risk pools across
fully-insured and self-insured plans ;
Broadly pool risk across fully-insured and self-insured
plans ;
Collect data on coverage, benefits, premiums, and
utilization from self-insured plans;
Apply minimum standards to stop-loss insurance to ensure
that it is not used to evade state insurance regulation by smaller
businesses that lack the funds and expertise to self-insure ;
Craft reforms that target very small businesses with 10 or
fewer employees or persons with high medical costs ;
Require employers to provide minimum levels of health
benefits ;
Require self-insured plans to promptly reimburse providers
for covered services ;
Apply state law consumer protections to self-insured
plans; and
Implement a statewide chronic care management and health
promotion programs; and
Create statewide health information networks .
The NAIC used the results of the survey to formulate a four-point
proposal for federal action that would help encourage more states to
undertake innovative reform measures, allowing them to act as the
``laboratories of democracy,'' testing and fine-tuning different
approaches and customizing them to fit different situations in each
state. We selected items for inclusion in this proposal in order to
maximize the flexibility they confer upon the states, while minimizing
the impact upon the sponsors of multistate self-insured plans. It is my
belief that Congress could best help the states to make progress by:
Amending ERISA to clarify that states may require self-
insured plans to submit data regarding coverage, premiums, cost-sharing
arrangements, and utilization;
Amending ERISA to clarify that ``pay-or-play'' assessments
that meet specified criteria are not preempted by federal law;
Granting the Secretary of Labor the authority to grant
waivers from ERISA to states that implement comprehensive health reform
proposals; and
Creating a federal grant program to provide grants to
states pursuing new and innovative reform ideas.
Data collection
Good data is an essential prerequisite of successful reform.
Currently, state policymakers cannot gain a complete picture of health
insurance and health care markets, including accurate and comprehensive
data on benefits, premiums, cost-sharing requirements, and utilization
of care. While state regulators routinely collect this data from
licensed carriers providing fully insured plans, it is not clear that
they can require sponsors of group health benefit plans and third party
administrators to provide it. To get an approximate picture of the
benefits, premiums, cost-sharing arrangements, and care utilization
associated with self-insured plans in their states, legislators and
regulators must rely upon groups such as the Kaiser Family Foundation
and the Employee Benefits Research Institute to conduct surveys and
supply aggregate data. This data is vital to state policymakers, both
in crafting reforms and in administering Medicaid and SCHIP premium
assistance programs.
Congress should remedy this situation by adopting an amendment to
ERISA clarifying that data collection requirements are saved from
preemption. To minimize the administrative burden of this change, it
would not be unreasonable to limit states to collecting the same
information from self-insured plans that they collect from fully-
insured plans.
``Pay-or-Play'' Assessments
As noted above, a ``Pay-or-Play Assessment'' is one which requires
an employer to fund employee health benefits to a specified level, or
pay an assessment (usually intended to otherwise fund coverage.) States
have long held that a properly crafted pay-or-play initiative is not
preempted by ERISA, so long as it remains neutral on the question of
whether an employer would choose to pay the required assessment or
provide health benefits to its employees. Nevertheless, legislative
clarification that these programs are permissible within ERISA's
regulatory framework would obviate the need for states to defend these
programs in court each time they are proposed. I believe Congress
should adopt an amendment to ERISA to clarify that pay-or-play
requirements that are neutral as to whether an employer pays an
assessment or offers health benefits and make no requirements regarding
the form of benefits offered to employees are saved from preemption.
Many experts, such as Patricia Butler, believe ERISA already allows
for pay-or-play programs, as long as they are structured in a way that
does not require self-insured plans to provide a defined benefit
package. However, experts also agree that any pay-or-play program could
be challenged in court and that a specific allowance in federal law
would avoid uncertainty, legal wrangling, and wasted time and money,
all of which would impede a state's reform efforts.
Impediment waivers
In addition to the two flexibility proposals above, it is my hope
that additional ideas will continue to be developed at the state level,
some of which may require additional flexibility from the federal
government. We therefore recommend that Congress amend ERISA to grant
the Secretary of Labor the authority to grant waivers from that statute
for the purposes of encouraging and facilitating innovative state
initiatives to expand health insurance coverage, contain health care
costs, and to improve the quality and efficiency of health care. This
authority would help states that are crafting as yet unforeseen
solutions to the problem of the uninsured and would encourage further
creativity at the state level.
Federal assistance
Finally, new and innovative health reforms are costly to develop
and implement, and a federal grant program to encourage and assist the
states in this process would be very helpful. I believe that a new
federal grant program that provides qualified states both start-up and
operating funds to develop and implement innovative health insurance
reforms that address access and the affordability of health insurance
and health care would be an extraordinarily useful and wise use of
federal resources. I have reviewed H.R. 506, the Health Partnership
Through Creative Federalism and S. 325, the Health Partnership Act and
believe that legislation along the same general lines as these bills
would be very helpful.
Conclusion
Thank you again for the opportunity to share my thoughts on this
important issue. I look forward to working with Congress and this
Committee on ways to help the states craft new, innovative, and
successful initiatives to ensure that all Americans have access to
affordable health insurance coverage and the peace of mind that goes
with it. Please do not hesitate to call upon me if I can be of any
further assistance. This concludes my testimony, and I would be happy
to answer any questions from the committee.
______
Chairman Andrews. Thank you very, very much.
We will briefly adjourn to go cast some votes. I hope it
will be about 45 minutes. It could be longer. Again, if someone
has a pressing engagement and must leave, we fully understand,
but the members will return after that period to ask questions.
Thank you.
The committee stands in recess.
[Recess.]
Chairman Andrews. The subcommittee will resume
deliberation.
I want to, again, thank this extraordinarily patient panel
of witnesses for what you have endured today. The vagaries of
the congressional schedule are sometimes difficult to predict.
Thank you very, very much for your patience.
The statements were outstanding. We are very pleased with
the contribution that each of you has made to our dialogue and
discussions, and we hope that today will not be your last
contribution to this discussion, although, given the schedule,
you may wish that it would be. But we would invite you to
continue speaking with the committee as the process goes on.
I have a few questions.
Mr. Covert, I just wanted to say I know that Honeywell has
a well-deserved reputation as an exemplary provider of employee
benefits. You treat your employees very, very well, and it is
good business to do so, and it is also what the corporate ethic
is. I understand that.
About how much does Honeywell spend on health benefits each
year as a percentage of its payroll?
Mr. Covert. Mr. Chairman, I am not sure as a percentage of
payroll. It is a little over $500 million on actives and
dependents, another $200 million or so on retirees. That is a
little over $700 million on sales of $31 billion. I am not sure
exactly, but I am quite sure that it is more than 8 percent. We
satisfy the Maryland law.
Chairman Andrews. Yes. You sort of anticipate my question.
Mr. Colmers, so, if the Maryland law had been upheld by the
Fourth Circuit and were on the books today, the what I will
call pay-or-play provision would not apply to an employer that
had expended more than 8 percent of its payroll. Is that
correct?
Mr. Colmers. Eight percent for for profit; 6 percent for
nonprofit.
Chairman Andrews. Now, in Maryland, when an uninsured
person goes to a hospital, does the person get care?
Mr. Colmers. Absolutely. Maryland actually is unique in the
country in that regard. Maryland is the only state in the
country that has an all-payer hospital rate-setting system. New
Jersey used to have one. In Maryland, all payers help
contribute to fund the funding of uncompensated care.
Chairman Andrews. So the person would get care, and because
he or she could not pay their bill, am I correct in assuming
that other payers who do pay would, in effect, pay that bill,
would----
Mr. Colmers. Absolutely. It is an explicit adjustment to
the rates that hospitals charge other payers, and those payers,
including Medicare and Medicaid pay for it.
Chairman Andrews. So if an employer that has more than the
threshold number of employees, which is 10,000, under the
Maryland plan, and that employer, let's say, provides less than
8 percent of payroll to health care, if that employer's
employees go to the hospital, they get cared for, correct?
Mr. Colmers. That is correct.
Chairman Andrews. And to what extent does that employer
participate in paying for that care?
Mr. Colmers. That the employer contributes? Well, if they
are not providing coverage, they are not contributing at all.
Chairman Andrews. They are not contributing at all.
Mr. Colmers. Not directly, no.
Chairman Andrews. So if I have 15,000 employees and I do
not provide health benefits to most of them or all of them, so
I am below the 8 percent threshold, and one of my employees
gets into an auto accident, has a brain stem injury, and that
person runs up a huge bill, my contribution as an employer is
zero to that?
Mr. Colmers. Yes. Although I would say, with all due
respect to the insurance commissioners around here, because it
is an automobile accident, it might be a little bit different
than----
Chairman Andrews. Okay. Let's say the person just has an
aneurism. This person just has an aneurism then.
Mr. Colmers. Yes.
Chairman Andrews. Mr. Morrison, in Montana, one of the
provisions that you have talked about was the 1 percent premium
levy in order to fund a fund designed, as I understand it, for
people who are difficult to insure, who are high risk. If one
of those uninsured people goes to a hospital in Montana, an
uninsured person with an aneurism, do they get care?
Mr. Morrison. They do, and, as you know, Mr. Chairman, the
EMTALA federal law requires across the country a certain level
of care in an emergency setting. Montana Hospital Association
estimates that they spend over or they provide over $100
million a year in our small population state in uncompensated
care. They then figure that into the rate base, and those rates
then affect the reimbursement rates for the insured plans.
Chairman Andrews. So what happens is that payers who do pay
their bill are cross-subsidizing payers who do not under that
system.
Mr. Morrison. Exactly.
Chairman Andrews. Ms. Moore, who should pay that bill? What
do you think we should do about that problem?
Ms. Moore. Well, I think that for employers, we have a
voluntary health system. Employers choose how to compensate
their employees, and they choose whether to provide health
benefits or to provide compensation in some other form.
Chairman Andrews. Right.
Ms. Moore. As long as we have a voluntary system, some
employers are going to choose not to provide health coverage at
the level that we might think appropriate, but, interestingly,
I think 96 percent of employers with more than 100 employees do
provide comprehensive health care and are covering those
expenses.
Chairman Andrews. Okay. My time has expired, but I guess I
would ask you to supplement for the record the specific answer
to the question I asked, which is who you think should pay the
bill, and I think I just heard you say whoever volunteers to
pay it.
Ms. Moore. Yes, I think that is right.
Chairman Andrews. Okay. I would yield to the ranking
member, Mr. Kline.
Mr. Kline. Thank you, Mr. Chairman.
I, too, would like to thank the witnesses for their
incredible patience. Unfortunately, one thing in this place
that trumps everything else are votes on the floor, and there
is simply nothing we can do about that. So I apologize, and I
appreciate your understanding.
Dr. Boustany has to leave, and so what I would like to do
now is yield to him so that he can ask his questions.
Dr. Boustany. I thank the gentleman.
I have some simple yes-no questions. Let me start with you,
Ms. Moore. Does the ERISA preemption prevent states from
subsidizing coverage for low-wage workers or small employers?
Ms. Moore. No, it does not.
Dr. Boustany. Thank you.
What about increasing the transparency of information on
health quality and price to give consumers more objective
information on where to go for needed health care? Does the
ERISA preemption prevent states from doing that?
Ms. Moore. No, it does not.
Dr. Boustany. Does the preemption clause prevent
reallocating federal Medicaid matching funds for expanding
health coverage to state residents?
Ms. Moore. No, it does not.
Dr. Boustany. Does it prevent regulating insurance premiums
charged for health coverage offered to small employer groups
and individuals?
Ms. Moore. No.
Dr. Boustany. Does it prevent enacting an individual
coverage mandate for higher-income workers?
Ms. Moore. No, it does not.
Dr. Boustany. Does it prevent expanding coverage under
SCHIP or Medicaid?
Ms. Moore. No, it does not.
Dr. Boustany. Does it prevent forming insurance pools for
offering more affordable coverage to small employers?
Ms. Moore. No.
Dr. Boustany. Does it prevent forming insurance pools for
high-risk, high-cost individuals who are otherwise unable to
afford health coverage on their own?
Ms. Moore. No, it does not.
Dr. Boustany. Does it prevent states from enacting medical
liability reform to lower the cost of defensive medicine and
litigation expense?
Ms. Moore. No, it does not.
Dr. Boustany. And finally, does it prevent reducing or
eliminating state-mandated benefits on health insurance
coverage?
Ms. Moore. No, it does not.
Dr. Boustany. I think it is important, as we look at this
debate, to understand what the fundamental issue is here, and
it is clear that states have many tools. I just mentioned 10.
States have many tools to make coverage and medical care more
affordable and available for families.
But one tool they do lack is the ability to tax employer-
sponsored plans, and my sense of it is that the movement on the
part of the states to chip away with ERISA waivers is basically
to get their hands on the money. I believe that ERISA waivers
are perhaps a thinly veiled attempt to create new taxes, and no
one can guarantee that these new costs will not be passed on to
the working families.
So, before we open the Pandora's box, why not ask whether
new taxes on employers or employer-sponsored health care would
actually lower health costs. I think that is a legitimate
question to ask.
And I think we have to wonder and ask what happens if we
inadvertently dismantle the employer-based health-care system
and make it more cumbersome and more expensive to administer.
What are the consequences of that because, clearly, it is a
system that is working for a segment of our population?
So I think we need to be very clear as we go forward in
this debate how we move on this because we all share the same
concerns. We all want to make health care more affordable. We
want to include the uninsured into the rolls being insured, and
there are many tools out there that currently exist.
So I think we have to be honest about what is at stake
here.
If anyone wants to comment further, I am certainly happy to
entertain your answers or comments.
Yes?
Ms. Kofman. Thank you.
I completely agree with you that we certainly do not want
to jeopardize or in any way adversely impact the comprehensive
benefits that many self-insured large employers offer. The
problem is that not all large employers do that, and when they
do not, it is the state taxpayers that end up subsidizing the
profits of those large employers that do not pay for their
workers. So the idea here is one of equity and fairness in how
we finance medical care and coverage.
And the problem for states that I have observed is that
even though you have a simple answer from one of the witnesses
here that states can and cannot do certain things, it is not so
simple when states are challenged using ERISA and, as I
mentioned earlier, both Maryland and Massachusetts laws were
carefully crafted by many experts to avoid ERISA challenge, and
many people thought that they were okay under ERISA, and it
turned out that they were not. So there is a whole lot of risk.
States are not certain as to how far they can go to develop
good mechanisms.
Dr. Boustany. I think the states do have a number of tools
that they could use, and we are only starting to see some
creative responses. For too long in health care, there has been
a lack of creativity in how to deal with this.
I know. I am a heart surgeon. I also was on the board of a
community hospital. I also worked in the county hospital system
in Louisiana. So we have looked at a number of creative ways on
how to deal with this.
And so I think too often the states have not been creative
and have just simply looked for more money to throw at a
problem without trying to devise a real solution to dealing
with this health-care crisis that I think has continued to
grow.
Chairman Andrews. Mr. Goldman?
Dr. Boustany. I know my time is up.
Chairman Andrews. I think Mr. Goldman just wanted to say
something, and then we will go to Mr. Kline.
Mr. Goldman. Yes. Briefly, Congressman, one aspect that is
totally nonfinancial is just data collection. It is very
difficult to assess the health-care status in your state in its
entirety if you cannot collect data from a large segment of the
population that is having health care provided for it in a
different way, and so that is clearly nonmonetary.
With respect to the monetary aspect, there is a monetary
aspect to it. There is no doubt about it. But I do not think
the monetary aspect is designed as necessarily the principle
driver. There is an effort to bring some fairness across the
system because, as was acknowledged, not every employer is
Honeywell. Lots of employers are not Honeywell and do not pay a
fair share and basically are laying off the same dollars to the
state taxpayers, and that is not fair either.
Chairman Andrews. The gentleman's time has expired.
The gentleman from Minnesota, the ranking member, is
recognized for 5 minutes.
Mr. Kline. Thank you, Mr. Chairman.
And I am mindful of the fact that it is late. Some of you
have made new plane reservations, but even those will run out
here shortly.
Just a couple of things for Mr. Covert--and Ms. Moore, for
that matter. This issue of data collection that Mr. Goldman has
raised. Have you got some position or comment on that? What is
the problem with what he is talking about, either one of you,
both of you?
Mr. Covert. I mean, from my perspective, I mean, we really
do not have a problem with the data collection and sharing of
data. We would be just as happy to get the information that the
states have as well.
From our perspective, what we would ask for, though, is
that, you know, the federal regulating agency tell us what you
want to know, as we do in the 5500s in the pension area. Tell
us what you want disclosed. We are happy to disclose it.
What we do not want to have to do is go out and spend
millions of dollars with auditors because every state decides
they have a different idea of what it wants to know and how it
wants it to be reported. If the federal government were to
determine that they would like us to report and share this
data, from my perspective, we do not have an issue with that.
Ms. Moore. And I think that is generally true of large
employers. They are already reporting a lot of data because
they are required to under federal law. They are willing to
report more if more data would be useful. They are very
interested in getting data on health-care outcomes to improve
their own programs, but their principle concern is that they
not be exposed to the 50 different requirements in 50 different
states.
Mr. Kline. Okay. Thank you.
Let's talk about the 50 different states and the 50
different requirements. I am very impressed. Honeywell, as we
have discussed a couple of times today, has employees in all 50
states, and so the regulation of each state would be of some
importance to you.
If the regulations got too complex and passed some or all
of the states, you could choose, could you not, to just get
fully insured plans or purchase them for your employees, and if
you did that, what would the impact be?
Mr. Covert. Yes, we could, Congressman Kline. The problem
with that approach from our perspective and from our employees'
perspective is that once you go state by state to the
individual or the group fully insured market, you are basically
locked into the various mandates of each of those states which
means we have less flexibility.
So, if we are in New Jersey, we have to comply with
whatever New Jersey has mandated in terms of its insurance
products. Minnesota is something different; Texas, something
different. So we end up with, you know, a fair degree of
difference among the 50 states as they decide on an individual
basis what they think is important and what should be covered
under the policy.
So we do not have the ability to structure some of the, you
know, tools and the cost saving and, you know, innovative ideas
that we have come up with to help provide better benefits at
lower cost.
It is also a lot more expensive. I mean, if we have to go
to Prudential to buy insurance, Prudential is in business to
make money. There is a profit load in there. There is a
retention piece in there just in case their actuaries are wrong
on how much risk and loss they are going to have.
As I noted in my statement, the estimate from Hewitt
Associates is that it is 11 percent to 12 percent more
expensive to go into the fully insured market than self-
insurance because you have all those minimal man costs carved
out. You know, if you are paying $10,000 like we are per
employee for health care, you add 12 percent on top of that,
that is $1,200 more.
Employees are already stretched to the limits. If you add
another chunk of that $1,200 on top of them just because we
went from self-insured to fully insured, I am not sure that
they are going to think that was a great deal.
Mr. Kline. Okay. Thank you.
Mr. Chairman, I see the light is starting to turn on me as
well, and it is late. So I will yield back again with my thanks
to the witnesses. You have just been great.
Chairman Andrews. Let me reiterate my appreciation for the
quality of the testimony, the thoroughness of the analysis.
I did want to say to Commissioner Goldman, we are
especially glad you could be with us today. I know this is a
very busy time in our state, and I find the NAIC proposals very
encouraging as a place to start.
This will be an ongoing dialogue. We welcome your
continuing participation.
We are again very grateful for your patience through a very
long day, and we thank you very, very much.
The committee will now stand adjourned.
[Additional submissions from Mr. Kline follow:]
[Letter from an employment community follows:]
May 18, 2007.
Hon. Robert E. Andrews, Chairman,
Hon. John Kline, Ranking Member,
Subcommittee on Health, Employment, Labor and Pensions, U.S. House of
Representatives, Washington, DC.
Dear Chairman Andrews and Ranking Member Kline: We welcome the
opportunity to share the views of the employer community in advance of
your upcoming hearing on efforts to cover uninsured Americans. Roughly
160 million Americans are insured--primarily through the offering of
voluntary employer-provided health benefits. We support efforts to
expand health care coverage and access, but we strongly encourage you
to recognize the importance of the Employee Retirement Income Security
Act (ERISA) and the role played by its preemption clause in ensuring
the ability of employers to maintain uniform national health care
plans.
The states are doing significant work on the problem of the
uninsured--we applaud those that are approaching this in a responsible
manner working closely with all of the stakeholders to seek solutions
that expand coverage without overburdening employer-sponsored plans.
The uniformity across state lines ensured by ERISA preemption helps
protect affordable, uniform coverage for tens of millions of Americans;
we believe it is critical that states address the health care crisis in
a way that does not violate the ERISA preemption clause.
ERISA provides a crucial framework for offering benefits to
American workers. An important provision requires that it ``shall
supersede any and all State laws insofar as they may now or hereafter
relate to any employee benefit plan * * *'' Referred to as ``the
crowning achievement of this legislation'' by its principal House
sponsor Rep. John Dent (D-PA), the provision aims to ``round out the
protection afforded participants by eliminating the threat of
conflicting and inconsistent State and local regulation * * *''
In a health care system that has many glaring flaws, one of the
true victories since the enactment of ERISA has been the success in
enabling nationwide plans to cover millions of employees in multiple
jurisdictions. This is far more than just a convenience; when employers
negotiate contracts with vendors using a standard approach, they have
maximum leverage in ensuring the lowest possible premium costs, which
greatly benefits plan beneficiaries. It also lowers administrative and
compliance costs, which means that more of a company's benefits
expenses are spent on the provision of benefits to employees and their
dependents than on benefit administration. These advantages would be
lost if employers had to negotiate and set up separate plans to comply
with the unique rules of each jurisdiction.
We look forward to working with you and your colleagues on these
important issues.
American Benefits Council,
National Business Group on Health,
Business Roundtable,
National Business Coalition on Health,
Corporate Health Care Coalition,
National Retail Federation,
The ERISA Industry Committee,
Retail Industry Leaders Association,
HR Policy Association,
Society for Human Resource Management,
National Association of Manufacturers,
U.S. Chamber of Commerce,
National Association of Wholesaler-Distributors.
______
[Statement of the ERISA Industry Committee follows:]
Prepared Statement of the ERISA Industry Committee
Mr. Chairman, Ranking Member Kline and Committee Members: Thank you
for the opportunity to voice the point of view of major employers that
directly sponsor voluntary health care benefit plans for tens of
millions of Americans. Today's hearing addresses the issue of state and
federal initiatives to expand access and coverage, and the importance
of ERISA protections for national health care plans. The ERISA Industry
Committee (ERIC) is a non-profit trade association committed to the
advancement of employee health, retirement, and compensation plans of
America's largest employers. We represent exclusively the employee
benefits interests of major employers. ERIC has a strong interest in
economic policy affecting our members' ability to deliver those
benefits, their cost and their effectiveness, as well as the role of
those benefits in America's economy.
Members of ERIC directly sponsor health care and pension plans that
cover tens of millions of Americans, providing them the freedom to
pursue career opportunities without fear of financial ruin from health
care expenses. The employer-sponsored health care system, specifically
with support of the national uniformity provisions in ERISA, has
allowed American employers to provide workers with the best retirement
and health benefits in the global market.
ERISA has played a vital role over the course of the past decades
in protecting the health care coverage of American workers and their
families, whose employers provide quality health care benefits. Over
160 million Americans have enjoyed the financial security provided by
quality, voluntary health care benefits sponsored by major employers
across the country.
Heath care costs have persisted in rising in the double-digit for
many years, significantly higher than the costs attributable to most
companies' core operations. The driving force behind important
innovations that have slowed this rise, increasing quality of health
care and health insurance for workers while simultaneously controlling
costs, has been major employers. Through strategies like drug therapy,
disease management and prevention, the medical home model, voluntary
mental health coverage, advances in health information technology and
personal health records, consumer-driven health plans, value-based
purchasing and pay-for-performance initiatives, transparency programs,
and myriad other innovations, major employers have brought competition,
openness, and improvement to the United States' health care market.
This has resulted in vast increases in quality for patients and
purchasers, while at the same time helping to curb rising costs.
The erosion of ERISA preemption protections would threaten the
affordable and accessible health insurance coverage provided to
American workers. Major employers, not legislators or government, have
been responsible for the most important improvements in health care in
the United States. An employer is attuned to the specific needs of its
own workforce, and can better design plan offerings that will meet the
needs of its workers, regardless of where they are employed, where they
live, or where their medical providers are located.
Rather than the drastic and possibly disastrous proposition of
removing ERISA protections from national employer-sponsored health care
plans, Congress should consider being proactive in some of the areas
that American health care is severely lacking:
We lag behind other countries in implementation of health
information technology and electronic health records. American
citizens, on average, have no medical home or primary care physician--
driving them to unnecessary emergency room care and inflating the costs
of treatments. Health plans in the United States, especially those
sponsored or managed by the government, place little emphasis on
prevention and disease management, which are the best methods to
improve health and control costs. Individuals do not have tax parity
with employers in the purchasing of health insurance. Small businesses
may not band together to create more powerful purchasing pools. The
health care market in the US is misaligned--it is easier to find
information on the cost and quality of televisions and MP3 players than
on doctors and hospitals.
With all of these (and many other) glaring flaws in the US health
care system, there is much to be done that can positively impact access
and coverage without threatening the health insurance already provided
to more than half of Americans. ERISA has made providing coverage to
employees spread across the country affordable and practical, allowing
major employers to adhere to rules made by Congress and the Department
of Labor--not forcing them to construct a different plan in every
state, or worse, every county or city.
Encroaching state and local health care mandates have threatened
employers' ERISA protections, raising the specter of vastly increased
administrative costs, severely decreased bargaining leverage for plan
sponsors, and a balkanized system of coverage. When employers negotiate
rates for uniform plans to cover thousands of employees across the
country, it allows them to secure the lowest possible premium costs and
ensure the most affordable coverage for plan beneficiaries.
While we applaud the efforts of this Committee to explore options
that may expand much-needed access and coverage to the more than 40
million uninsured Americans, ERIC members urge you to avoid actions
that could jeopardize the positive aspects of our current system. There
are many proven ways to expand access, lower the barriers of high
costs, and increase coverage for uninsured Americans that will not
threaten the affordable and comprehensive coverage offered by major
employers.
ERISA preemption of conflicting state regulations has been an
invaluable tool in safeguarding the coverage currently provided to more
than 160 million American workers and their families, and we urge you
to take this into account when evaluating options to bolster state
initiatives. We look forward to working with Congress to further
efforts that will bolster the voluntary employer-sponsored benefits
system, expand coverage for the uninsured, and improve the quality of
health care in the US.
Thank you for considering the views of America's largest employers,
who sponsor health insurance for so many American workers.
______
[Statement of the HR Policy Association follows:]
Prepared Statement of the HR Policy Association
Mr. Chairman, Congressman Kline and Distinguished Members of the
Subcommittee: We appreciate the opportunity to submit testimony to the
Subcommittee on health care reform activity at the state and local
level and the importance of ERISA to preserving health care benefits
for those covered by group health insurance plans. We strongly believe
that your examination of this subject should include recognition of the
vital role that ERISA and its strong preemption language play in
ensuring the ability of employers to offer uniform benefits nationwide.
HR Policy Association consists of chief human resource officers
representing more than 250 of the largest corporations in the United
States. From nearly every major industry sector, HR Policy members have
a combined market capitalization of more than $8.2 trillion and employ
more than 18 million employees world wide. Most of these corporations
do business in more than one state and several do business in all fifty
states. HR Policy seeks to ensure that laws and policies affecting
employment relations are sound, practical, and responsive to the
realities of the modern workplace. All of HR Policy's member companies
provide health care benefits to employees.
There is no question that the most important domestic policy issue
for employers is the current health care crisis. In the United States,
employers' share of health insurance costs currently represents 6.8
percent of total employee compensation.\1\ Employers' health care costs
have increased more than 550 percent since 1981, while inflation has
only doubled the price of goods and services in the economy during that
same period. Rapidly rising health insurance premiums in the United
States are damaging the ability of some companies, particularly longer-
established ones, to compete in the domestic and international market.
According to the Organization for Economic Cooperation and Development
(OECD), the United States spent 15.2 percent of its Gross Domestic
Product (GDP) on health care in 2003, 30 percent more than Switzerland,
which ranked second, and 78 percent greater than the median for all 30
OECD countries.
---------------------------------------------------------------------------
\1\ Bureau of Labor Statistics, Employer Costs for Employee
Compensation (ECEC) online database, http://www.bls.gov/ncs/ect/
home.htm, series IDCMU2150000000000P, accessed May 2006.
---------------------------------------------------------------------------
Moreover, more than 45 million Americans are uninsured, which is
injurious not only to those who lack coverage, but employers and
society as a whole. The cost of uncompensated care delivered to
uninsured individuals is shifted to payers raising premiums for the
government, employers, and their employees. In 2005, premiums for
family coverage provided by private employers were $922 higher and
premiums for individual coverage were $341 higher due to the cost of
care for the uninsured. A June 2003 Institute of Medicine study
estimated that the uninsured cost the United States from $65 to $130
billion per year in lost earnings and output from absenteeism, chronic
poor health, disability and early mortality.
Because of the severity of the problem--and its national
character--we fully anticipate that Congress over the next few years
will be actively seeking solutions. As the representative of those
responsible for the employee benefits of 19 million Americans, HR
Policy stands ready to work very closely with the Congress in that
effort.
Achieving a national consensus in this area is critical but, thus
far, elusive. It is not surprising, then, that the states have stepped
into the void and are actively pursuing reforms designed to ensure that
the maximum number of their own citizens is covered by health
insurance. We generally applaud the energy and creativity of those
states that are approaching this in a responsible manner, working
closely with all of the affected stakeholders. As they proceed, we have
no doubt that there will be many valuable lessons that can be applied
to a national solution.
What is prompting the states to act is the very large number of
individuals and families in each state who, for a variety of causes,
are not covered by health insurance. Enactment of ERISA and the success
of its preemption in enabling employers with employees in multiple
jurisdictions to offer uniform nationwide plans has been one of the few
strengths of our badly flawed health care system. At present, 61 % of
employees with private health insurance receive it through employer
sponsored health care. It is important that any policy changes made at
either the federal, state or local level do nothing to jeopardize the
coverage of those who are already insured through the employment-based
system.
As you know, ERISA provides in 29 U.S.C. Sec. 1144(a) that its
provisions ``shall supersede any and all State laws insofar as they may
now or hereafter relate to any employee benefit plan * * *'' Referred
to as ``the crowning achievement of this legislation'' by its principal
House sponsor Rep. John Dent (D-PA), the purpose of the provision was
to ``round out the protection afforded participants by eliminating the
threat of conflicting and inconsistent State and local regulation * *
*'' \2\
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\2\ 120 Cong. Rec. 29197 (1974).
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Employers with operations throughout the United States seek to
maintain uniform benefit policies for their employees for a variety of
reasons including the inherent efficiencies for employers, and equity,
cost and convenience considerations for their employees. One of the
advantages large employers have in securing health insurance coverage
for their employees is the size of the pool they bring to the carrier
and the economies of scale in administering the program. Multi-state
employers are able to offer the most affordable coverage to workers
when they negotiate contracts with large vendors using a standard
approach to get the maximum amount of leverage and the lowest costs.
Employees within multi-state ERISA plans benefit directly from this
reduced administrative cost in the form of lower premiums for their
coverage. Employers would lose this leverage if they had to negotiate
with vendors based on local and state rules rather than a single
national standard, which would only exacerbate the challenge that
employers face in maintaining affordable benefits.
Large companies employ the use of regional and national health care
resources to provide benefits for their workers. For example, some
medical centers in major urban areas have expertise in particular
procedures, delivering care in a way that lowers costs and raises
health care quality. Employers have supported a concentration in
regional specialty practices or ``centers of excellence'' by directing
their employee to use carefully selected facilities. ERISA facilitates
employer plans to arrange for health care without being limited by the
locations of their employees' health insurer, employment or residence.
Employers with self-insured plans have led efforts to promote
consumer awareness and decision making about health care cost and
quality in an effort to improve the care delivered and lower overall
costs. Companies have supported improvements in data collection,
patient satisfaction, treatment outcomes, and the use of patients using
this data to select providers. ERISA has provided an incentive for
employers to invest in quality improvements, measures, and adopt a
uniform data standard nationwide. Furthermore, ERISA protects employers
seeking these improvements from having to comply with a variety of
state definitions for data reporting, which could significantly slow
these efforts.
While ERISA permits employers to establish programs that serve
their employees without variation across state, city and county lines,
it also provides needed flexibility for employers to design their
benefit plans. Companies retain the flexibility to vary health benefits
for reasons related to the needs of their employees, rather than
varying benefits based on an employee's state of residence.
Multi-state employers also want to maintain uniform benefits across
state lines for equity reasons underlying a common principle that all
similarly situated workers within one company should be entitled to
similar benefits regardless of the state in which they reside. Uniform
benefit policies facilitate understanding for employees and retirees
who often travel across state lines during the course of their tenure
with one employer. Employees receive the benefit of having consistent
and clear plan choices, equitable treatment of like employees residing
in different states, and continuous access to health care benefits
across state lines.
Furthermore, ERISA remedies provide consistent rights for plan
participants from state to state. This equity ensures plan assets are
used exclusively to pay for benefits and are not consumed in paying a
small number of high damage awards for the benefit of a limited number
of beneficiaries.
An enactment by a single state or locality can disrupt this
uniformity, resulting in additional administrative costs that simply
add to the growing burden of providing health care benefits. If all
fifty states act separately, not to mention the thousands of
municipalities within those states, it could only make multi-employer
plans far less efficient and far costlier for the employers as well as
their employees.
Thus, we believe it is critical that, as the states continue to
address the health care crisis, they do so in a way that does not
violate the ERISA preemption clause. Within this framework, they can
continue to pursue solutions to expand health insurance coverage of
their residents without undermining the coverage that already exists.
Thank you for this opportunity to express our views.
______
[Statement of the Society for Human Resource Management
follows:]
Prepared Statement of the Society for Human Resource Management
Chairman Andrews, Ranking Member Kline, and Members of the
Subcommittee, thank you for holding this important hearing on federal
and state initiatives to increase health care access and coverage. The
Society for Human Resource Management (SHRM) appreciates the
opportunity to submit this statement for the record to highlight our
strong support for the Employee Retirement Income Security Act (ERISA).
SHRM is the world's largest association devoted to human resource
management. Representing more than 217,000 individual members, the
Society's mission is to serve the needs of HR professionals by
providing the most essential and comprehensive resources available. As
an influential voice, the Society's mission is also to advance the
human resource profession to ensure that HR is recognized as an
essential partner in developing and executing organizational strategy.
Founded in 1948, SHRM currently has more than 550 affiliated chapters
within the United States and members in more than 100 countries.
SHRM is well positioned to provide insight on the role of ERISA in
the voluntary provision of health care benefits. HR professionals are
responsible for designing and implementing health care benefit programs
that meet the needs of workers and contribute to organizational
success. SHRM's members strive to offer the right mix of benefits to
attract and retain top performers while balancing the increasing costs
of offering these benefits.
Since rising health care costs are a serious burden for both
employers and employees, HR professionals are working to reduce health
care costs by driving patient safety and quality improvement efforts
through employer health plan purchasing power and employee education.
HR professionals are helping to foster change in employee and provider
behavior by educating employees about the cost of health care and how
to make purchasing decisions based on quality. By ensuring that
employees understand their health care benefits and know how to utilize
them efficiently and to their best advantage financially, HR
professionals can help control the future cost of employee health
benefits.
Despite years of significant cost increases, the majority of
employers continue to voluntarily offer health care insurance,
providing important health care benefits to more than 160 million
Americans. The preemption clause of the Employee Retirement Income
Security Act is critically important to the employer-based health care
system, providing a national framework for organizations to offer
uniform health care plans.
Because ERISA preemption is fundamental in allowing employers to
maintain affordable, uniform coverage for employees and their families,
SHRM believes that ERISA preemption must be maintained and
strengthened. While SHRM supports efforts to expand coverage to the
uninsured, allowing ERISA preemption waivers would harm the employer-
based health care system and could jeopardize the generous health care
coverage of tens of millions of Americans.
While state efforts to increase coverage to the uninsured are
laudable, SHRM has serious concerns and reservations with proposals
that would violate ERISA by imposing health care spending or coverage
mandates, such as the Maryland Fair Share Health Care Fund Act.
Because the Maryland proposal would require employers with a
defined number of employees to spend a certain percentage of their
payroll on employee health benefits or make a contribution to the
state's insurance program, the United States Court of Appeals for the
Fourth Circuit concluded that the Act would require employers to
restructure their health insurance plans, which conflicts with ERISA's
objective to permit the nationally uniform administration of employee
benefit plans. SHRM filed an amicus brief in support of the Retail
Industry Leaders Association's challenge of the Act, and believes this
important decision sends a strong message that self-funded employer
plans are governed by federal law.
As Members of the Committee know, the number of uninsured Americans
is a serious issue that requires careful examination by policy makers
and stakeholders. Major reform of our current health care system, to
include expanded coverage, better quality, and lower costs, is a top
priority for HR professionals. SHRM applauds the committee for
convening this important hearing and looks forward to working with
Congress to pursue important reforms that will strengthen the employer-
based health care system.
______
[Letter from the Corporate Health Care Coalition follows:]
Corporate Health Care Coalition,
May 22, 2007.
Hon. Robert E. Andrews, Chairman,
Hon. John Kline, Ranking Member,
Subcommittee on Health, Employment, Labor and Pensions, U.S. House of
Representatives, Washington, DC.
Dear Chairman Andrews, Ranking Member Kline and Members of the
Subcommittee: The members of the Corporate Health Care Coalition (CHCC)
commend you for considering ways to address the health care crisis and
the unacceptable number of Americans who lack health insurance. As you
consider health care reform proposals, we ask that you recognize the
importance of the Employee Retirement Income Security Act (ERISA) and
the important role that its preemption clause plays in ensuring the
ability of large employers to maintain uniform national health care
plans.
CHCC is comprised of 17 large, multi-state, predominantly self-
insured companies that operate health benefit plans for employees and
their families as well as retirees. Our organization is distinguished
by its focus on issues that are critical for employers who sponsor
health benefit plans on a nationwide basis. Members of CHCC have been
in the forefront of efforts to ensure quality and cost-effective
benefits since its inception.
Enactment of ERISA and the success of its preemption in enabling
employers with employees in multiple jurisdictions to offer uniform
nationwide plans has been one of the few strengths of our badly flawed
health care system. The benefits of ERISA preemption go beyond
administrative convenience for employers. ERISA preemption provides
equity, cost and convenience considerations for employees, ensuring
that all employees of multi-state employers are treated consistently
and fairly regardless of where they work.
When employers negotiate contracts with large vendors using a
standard approach, they have the maximum amount of leverage in ensuring
the lowest possible premium costs, benefiting employees in the form of
lower out-of-pocket expenses for their coverage. This advantage would
be lost if employers instead had to negotiate separate plans to comply
with the unique rules of each jurisdiction in which they have
employees. Eliminating ERISA preemption would ultimately result in
higher costs for employers and their employees.
Several states are undertaking efforts to address the problem of
the uninsured and other flaws in the system. We praise those that are
doing so in a careful manner and working closely with all of the
stakeholders to seek a solution that is economically responsible.
However, as lawmakers focus on the problem of the uninsured, they
should be careful to avoid jeopardizing the benefits of millions of
Americans who receive their existing coverage through the employment-
based system. ERISA preemption enables large employers to provide
comprehensive benefits in a relatively cost-effective manner for
millions of Americans. Our members believe that it is critical that, as
the states continue to address the health care crisis, their efforts do
not weaken the ERISA preemption clause.
Thank you for your attention in this matter.
Marisa L. Milton,
Executive Director.
______
[Letter from the Business Roundtable follows:]
Business Roundtable,
May 21, 2007.
Hon. Robert E. Andrews, Chairman,
Hon. John Kline, Ranking Member,
Subcommittee on Health, Employment, Labor and Pensions, U.S. House of
Representatives, Washington, DC.
Dear Chairman Andrews and Ranking Member Kline: On behalf of
Business Roundtable, I commend you for your interest in health care
reform and for seeking improvements in the coordination of federal and
state initiatives. Our health care system is in need of transformation.
We must ensure that all Americans have access to affordable, quality
health care coverage, whether their coverage is provided in the private
marketplace or through federal or state public programs.
Business Roundtable is an association of 160 chief executive
officers of leading U.S. companies with over $4.5 trillion in annual
revenues and more than 10 million employees. Counting employees and
their families, Business Roundtable companies provide health care
coverage for approximately 35 million Americans.
Health care coverage is of critical importance and value to our
employees and their families. Employment-based health benefits are the
most common form of health insurance for the non-poor and non-elderly
according to the Employee Benefits Research Institute. The Employee
Retirement Income Security Act (ERISA) is the foundation upon which
most employers offer health coverage to their employees. Currently,
more than 159 million Americans receive their health insurance benefits
through the workplace. ERISA allows employers to create health plans
that are tailored to the needs and desires of their employee workforce.
Additionally, ERISA allows employers to provide wellness, fitness,
disease prevention and management programs. Without ERISA, there would
be significantly less health care coverage and less healthy workers in
America's workforce.
We look forward to continuing to work with Congress to seriously
reform and improve our nation's health care system without harming
employee coverage.
Sincerely,
John J. Castellani.
______
[Statement of Faith Cristol follows:]
Prepared Statement of Faith Cristol, Vice President, Workforce and Tax
Retail Industry Leaders Association
Chairman Andrews, Ranking Member Kline, and other Members of the
Subcommittee, thank you for the opportunity to discuss retailers'
continued support for the Employee Retirement Income Security Act
(``ERISA'') that encourages employers to voluntarily offer employees
health care benefits.
I am Faith Cristol, Vice President of Workforce and Tax at the
Retail Industry Leaders Association (``RILA''). RILA promotes consumer
choice and economic freedom through public policy and industry
operational excellence. Its members include the largest and fastest
growing companies in the retail industry--retailers, product
manufacturers, and service suppliers--which together account for more
than $1.5 trillion in annual sales. RILA members provide millions of
jobs and operate more than 100,000 stores, manufacturing facilities and
distribution centers domestically and abroad. 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
Co., Inc., Lowe's Companies, Inc., Target Corporation, The Home Depot,
Inc., Wal-Mart Stores, Inc., and other retail leaders.
RILA members recognize that ERISA, in its current form, is crucial
to the voluntary provision of health care benefits in this country.
Accordingly, RILA applauds Congress both for the passage of ERISA more
than 30 years ago and its ongoing oversight of this important area of
health care policy, including today's hearing. By allowing multi-state
employers to administer employee health care plans uniformly and
efficiently on a nationwide basis, ERISA has created this country's
system of voluntary, employer-provided health care benefits. As I
discuss in further detail below, central to this system is ERISA's
preemption of state and local health care spending mandates.
1. RILA Members Are Leaders in Providing Benefits to Employees
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, paid time
off, life insurance 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.
2. ERISA Encourages Employers to Provide Health Care Benefits
Given RILA members' strong economic and altruistic incentives for
providing competitive employee benefits, they strongly support current
policies that encourage employers to voluntarily provide health care
coverage--of which ERISA is a key and indispensable component. 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 far
more challenging.
The 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. Retailers also have a
high percentage of workers who choose to work part time or who work
only seasonally, characteristics that lead to high turnover. Given the
unique demographics of their workforce, retailers need flexibility in
devising health plans that meet their distinctive characteristics and
compensate similarly situated employees equivalently, and ERISA gives
them that flexibility.
3. ERISA Should and Does Preempt State and Local Health Care Spending
Mandates
Today, however, ERISA's uniformity and efficiency are under attack
by those seeking to undermine it with a patchwork of state and local
governments spending mandates--each imposing a unique set of
regulations and costs on the health care benefit plans offered by
employers. Specifically, lawmakers in more than 30 states have been
lobbied to enact so-called ``fair share'' legislation to force 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
these spending mandates 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.
By precluding the uniform and efficient administration of health
care plans, these spending mandates threaten to undermine this nation's
system of employee benefits voluntarily provided by employers. Federal
courts have correctly held that these state and local health care
spending mandates are preempted by ERISA.
As a result of a legal challenge by RILA, earlier this year the
United States Court of Appeals for the Fourth Circuit affirmed a
district court decision invalidating a Maryland ``fair share'' law that
attempted to impose a health benefit mandate on employers. Retail
Industry Leaders Ass'n v. Fielder, 475 F.3d 180 (4th Cir. 2007). This
judicial ruling makes it clear that employer health plans are governed
by federal law, not by a patchwork of state and local laws. RILA
believes the Fourth Circuit's decision sends a strong message that
bills containing ``fair share'' provisions that are under consideration
in other states also are preempted by ERISA.
The circuit court held that ``[b]ecause Maryland's Fair Share
Health Care Fund Act effectively requires employers in Maryland covered
by the Act to restructure their employee health insurance plans, it
conflicts with ERISA's goal of permitting uniform nationwide
administration of these plans. We conclude therefore that the Maryland
Act is preempted by ERISA.''
The Fourth Circuit also recognized that this decision prevents the
very type of ``regulatory balkanization that Congress sought to avoid
by enacting ERISA's preemption provision.'' Importantly, the Fourth
Circuit specifically noted that if it had not affirmed the district
court's decision ``surely other States and local governments would
follow'' Maryland in passing laws that ``clash[] with ERISA's
preemption provision and ERISA's purpose.''
This judicial ruling validates the position of the business
community\1\ that the U.S. Congress enacted ERISA, in part, to create
uniformity in national health benefit plans. 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. Businesses generally, and retailers in particular, need to
be free to devise health plans that meet the distinctive
characteristics of their employees, and ERISA gives them that freedom.
This is especially important to employers that operate in multiple
states, and ERISA encourages them to offer employee health benefits by
permitting them to administer health plans uniformly and efficiently.
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\1\ Notably, the United States Chamber of Commerce, the Maryland
Chamber of Commerce, the Society of Human Resource Management, and the
National Federation of Independent Businesses submitted ``friend of the
court'' briefs supporting RILA's legal challenge of the Maryland law.
---------------------------------------------------------------------------
ERISA also allows large employers to take advantage of their
nationwide purchasing power to help drive down the costs of health care
for their employees--the same concept that allows large retailers to
offer consumers lower prices on their products.
Supporters of state and local health care spending mandates argue
that they are not preempted by ERISA because they do not mandate what
benefits an employer must offer. The Fourth Circuit rejected this
argument, as well. Maryland argued that its fair share provision was
not mandatory because, inter alia, an employer could pay the state a
tax in lieu of increasing health care benefits. Id. at 193-97 (``the
Secretary relies most heavily on the argument that the Fair Share Act
gives employers the choice of paying the state rather than altering
their health care spending''). The Fourth Circuit concluded that ``this
argument fails,'' noting that ``in most scenarios the Act would cause
an employer to alter the administration of its health care plans.'' Id.
at 197. ``In effect, the only rational choice employers have under the
Fair Share Act is to structure their ERISA health care benefit plans so
as to meet the minimum threshold.'' Id. at 193. A fair share provision
is effectively mandatory because it ``leaves employers no reasonable
choices except to change how they structure their employee benefit
plans.'' Id. at 197.
In sum, ERISA is the lynchpin of our nation's system of voluntary
employer-sponsored health care. If we allow ERISA to be eroded by
``fair share'' spending mandates or other state and local incursions
operating under the auspices of an ``ERISA waiver'' or otherwise, then
we are headed down a dangerous track that could jeopardize employer-
sponsored health care in this country. Differing state and local health
benefit mandates would only increase health care costs, create benefit
disparity among similarly situated employees, and serve as a strong
disincentive for employers to offer health coverage.
4. In Addition to Being Unlawful, Health Care Spending Mandates Also
Are Unwise
RILA believes it is unwise to restrict the flexibility of
businesses by dictating how they should structure their health benefit
plans or how much should be spent on those benefits. For this reason as
well, RILA members are strongly opposed to state health care mandates.
As noted above, these spending mandates represent a ``one-size-
fits-all'' approach to health care coverage that make no sense for
retail businesses that experience a high degree of turnover and employ
a much younger workforce than most industries. Moreover, both common
sense and economic research show that the burden of health care
mandates might very well fall on the employees themselves. State and
local spending mandates put pressure on employers to pass the cost of
mandated health care benefits onto employees. The companies may look to
cut jobs or move out of the jurisdiction altogether. The result is that
employees could end up footing the bill for these newly mandated
benefits. In the end, many of these employees could be forced to
confront the bitter irony that legislation designed to provide
employer-based health care leaves them with neither an employer nor
health care.
In sum, health care spending mandates implicitly blame the business
community for the state's health care problems by placing the burden of
solving these problems on employers. They restrict employers' ability
to be flexible, to respond to market conditions, and to react to the
needs of their employees. Because these spending mandates would
significantly complicate and frustrate employers' efforts to provide
voluntary health care benefits, RILA opposes them as unwise policy in
addition to their being unlawful.
5. Conclusion
ERISA is crucial to the voluntary provision of health care benefits
in this country, and a key feature of ERISA is its preemption of state
and local health care spending mandates. By barring the creation of a
complex and conflicting patchwork of such state and local mandates,
ERISA in its current form allows employers to administer employee
health care plans uniformly and efficiently on a nationwide basis.
RILA appreciates this opportunity to submit a written statement,
and thanks the Committee for addressing this important issue.
______
[Whereupon, at 5:23 p.m., the subcommittee was adjourned.]