Barriers To Lower Health Care Costs For Workers and Employers

BARRIERS TO LOWER HEALTH CARE
COSTS FOR WORKERS AND EMPLOYERS
HEARING
BEFORE THE
SUBCOMMITTEE ON HEALTH,
EMPLOYMENT, LABOR AND PENSIONS
COMMITTEE ON EDUCATION
AND THE WORKFORCE
U.S. HOUSE
OF
REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS

SECOND SESSION
HEARING HELD IN WASHINGTON, DC, MAY 31, 2012
Serial No. 11262

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COMMITTEE ON EDUCATION AND THE WORKFORCE

JOHN KLINE, Minnesota, Chairman
Thomas E. Petri, Wisconsin
Howard P. Buck McKeon, California
Judy Biggert, Illinois
Todd Russell Platts, Pennsylvania
Joe Wilson, South Carolina
Virginia Foxx, North Carolina
Bob Goodlatte, Virginia
Duncan Hunter, California
David P. Roe, Tennessee
Glenn Thompson, Pennsylvania
Tim Walberg, Michigan
Scott DesJarlais, Tennessee
Richard L. Hanna, New York
Todd Rokita, Indiana
Larry Bucshon, Indiana
Trey Gowdy, South Carolina
Lou Barletta, Pennsylvania
Kristi L. Noem, South Dakota
Martha Roby, Alabama
Joseph J. Heck, Nevada
Dennis A. Ross, Florida
Mike Kelly, Pennsylvania
George Miller, California,

Senior Democratic Member
Dale E. Kildee, Michigan
Donald M. Payne, New Jersey
Robert E. Andrews, New Jersey
Robert C. Bobby Scott, Virginia
Lynn C. Woolsey, California
Ruben Hinojosa, Texas
Carolyn McCarthy, New York
John F. Tierney, Massachusetts
Dennis J. Kucinich, Ohio
Rush D. Holt, New Jersey
Susan A. Davis, California
Raul M. Grijalva, Arizona
Timothy H. Bishop, New York
David Loebsack, Iowa
Mazie K. Hirono, Hawaii
Jason Altmire, Pennsylvania
Barrett Karr, Staff Director

Jody Calemine, Minority Staff Director
SUBCOMMITTEE ON HEALTH, EMPLOYMENT, LABOR AND PENSIONS

DAVID P. ROE, Tennessee, Chairman
Joe Wilson, South Carolina
Glenn Thompson, Pennsylvania
Tim Walberg, Michigan
Scott DesJarlais, Tennessee
Richard L. Hanna, New York
Todd Rokita, Indiana
Larry Bucshon, Indiana
Lou Barletta, Pennsylvania
Kristi L. Noem, South Dakota
Martha Roby, Alabama
Joseph J. Heck, Nevada
Dennis A. Ross, Florida
Robert E. Andrews, New Jersey

Ranking Member
Dennis J. Kucinich, Ohio
David Loebsack, Iowa
Dale E. Kildee, Michigan
Ruben Hinojosa, Texas
Carolyn McCarthy, New York
John F. Tierney, Massachusetts
Rush D. Holt, New Jersey
Robert C. Bobby Scott, Virginia
Jason Altmire, Pennsylvania
(II)
C O N T E N T S
Page
Hearing held on May 31, 2012 ...............................................................................

Statement of Members:
Andrews, Hon. Robert E., ranking member, Subcommittee on Health,
Employment, Labor and Pensions ...............................................................
Roe, Hon. David P., Chairman, Subcommittee on Health, Employment,
Labor and Pensions ......................................................................................
Prepared statement of ...............................................................................
Statement of Witnesses:
Fensholt, Edward, J.D., senior vice president, director, compliance services and health reform advisory practice, Lockton Benefit Group ............
Hall, Jody, owner, Cupcake Royale & Verite Coffee .....................................
Ramthun, Roy J., president, HSA Consulting Services, LLC .......................
Streitberger, William, vice president of human resources, Red Robin
Gourmet Burgers, Inc. ..................................................................................
Additional Submission:
Chairman Roe: PowerPoint slide, Tax Changes .........................................
(III)
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BARRIERS TO LOWER HEALTH CARE COSTS

FOR WORKERS AND EMPLOYERS
Thursday, May 31, 2012
U.S. House of Representatives
Subcommittee on Health, Employment, Labor and Pensions
Committee on Education and the Workforce
Washington, DC
The subcommittee met, pursuant to call, at 10:02 a.m., in room

2175, Rayburn House Office Building, Hon. David P. Roe [chairman
of the subcommittee] presiding.
Present: Representatives Roe, Wilson, Thompson, Walberg,
DesJarlais, Rokita, Bucshon, Noem, Heck, Ross, Andrews, Kildee,
Hinojosa, Holt, Scott, and Altmire.
Also present: Representative Miller.
Staff present: Andrew Banducci, Professional Staff Member;
Katherine Bathgate, Deputy Press Secretary; Adam Bennot, Press
Assistant; Casey Buboltz, Coalitions and Member Services Coordinator; Molly Conway, Professional Staff Member; Ed Gilroy, Director of Workforce Policy; Benjamin Hoog, Legislative Assistant; Barrett Karr, Staff Director; Ryan Kearney, Legislative Assistant;
Krisann Pearce, General Counsel; Molly McLaughlin Salmi, Deputy
Director of Workforce Policy; Todd Spangler, Senior Health Policy
Advisor; Linda Stevens, Chief Clerk/Assistant to the General Counsel; Alissa Strawcutter, Deputy Clerk; Aaron Albright, Minority
Communications Director for Labor; Tylease Alli, Minority Clerk;
Jody Calemine, Minority Staff Director; John DElia, Minority Staff
Assistant; Richard Miller, Minority Senior Labor Policy Advisor;
Megan OReilly, Minority General Counsel; and Michele
Varnhagen, Minority Chief Policy Advisor/Labor Policy Director.
Chairman ROE. Call the meeting to order, and today before we
get started we have a guest here today that I would like to introduce from my home state. It is William Bell.
And William, if you would stand up just so people can see you
here?
William istoday he drew the short straw. He gets to shadow
me all day today for the Foster Youth Shadow Day program, and
heWilliam entered foster care at age 15 and he represents now
3,000 young people in Nashville, Tennessee here in Washington.
Their foster care youth have come from all over the country.
William is doing great. He is in one of our technology centers
studying to be an electrician and will finish in 6 months.
And, William, welcome today to our hearing. [Applause.]
(1)
2
A quorum being present, the Subcommittee on Health, Employment, Labor, and Pensions will come to order. Good morning, everyone.
I would like to thank our witnesses for being here and offering
their thoughts during todays subcommittee hearing on health care
costs.
With 160 million Americans acquiring health insurance through
an employer-sponsored plan, job creators clearly play a critical role
in the nations health care system. As a result, employers know all
too well the difficult challenges of expanding access to affordable
health care.
To help control the cost of offering insurance employers have traditionally maintained a great deal of flexibility over the design of
their health benefits plan they provide. This has led to some tough
decisions, especially during times when a business is struggling to
make ends meet. However, preserving an employers ability to
navigate a complex health care market even during an uncertain
economic environment has served us well for decades.
Many employers have found consumer-directed health care as
one way to better manage costs on behalf of workers. One particularly popular choice is to pair a high deductible health plan with
a health savings account. This allows individuals to guard against
the cost of catastrophic medical treatment while also setting aside
a portion of their pretax income to pay for future medical expenses.
Demand for consumer-directed health plans is on the rise. For
example, Americas Health Insurance Plans report an estimated
13.5 million individuals had a health savings account last January,
compared to just 3.2 million in 2006.
The popularity of health reimbursement accounts and flexible
spending accounts among workers is also growing, and employers
have shown their support, as well. According to the Kaiser Family
Foundation, nearly 70 percent of employees with a workplace-sponsored health savings account received employer contributions.
Consumer-directed health plans offer common-sense options to
help millions of individuals secure a benefit plan that meets their
health care needs at an affordable price. Unfortunately, recent policy changes threaten the success of these important plans.
President Obamas 2010 health care law placed an arbitrary cap
on contributions to flexible spending accounts, severely limiting the
annual amount workers are allowed to save. The law also prohibited the use of flexible spending accounts and health savings accounts when purchasing over-the-counter medications, forcing individuals to spend more time and money visiting their doctor to obtain prescriptions.
Additionally, a bulletin released by the administration suggests
government bureaucrats are crafting an unusual accounting
scheme that will severely undervalue the contribution workers and
employers make to a health savings account, which may actually
discourage employers from offering this benefit in the future.
I am pleased that the Ways and Means Committee is considering
legislation today that will help roll back a number of these harmful
policies, reflecting a commitment by this Congress to dismantle the
job-destroying health care law. However, even though more than
12,000 pages of rules and regulations have been written there are
3
still many unanswered questions surrounding the law that make it
virtually impossible for any employer, large or small, to plan for
the future.
We still dont know how the administration will ultimately define
the essential health benefit. Up to now the administration has
operated in the regulatory shadows and outside the formal rulemaking process, delivering uncertainty instead of the facts on its
regulatory proposal. We still dont know why the administration
chose not to fulfill the intent of the laws grandfather provision,
choosing instead to raise regulatory roadblocks that will significantly alter the health care of millions of Americans.
And we dont know what small businesses will do now that a
highly touted tax credit has proven to be a failure. A Government
Accountability Office study reveals the small business tax credit
has helped few employers, thanks in part to the costly administrative burden. As the Associated Press reports, the tax credit has
turned out to be a disappointment.
Forcing the nation into a costly government-run health care
scheme is perhaps the greatest obstacle to more affordable health
care. The American people deserve every opportunity to pursue
new initiatives that will lower health care costs.
We should empower individuals and employers to create a health
care plan that best fits the needs of their families and workplaces.
Unfortunately, the 2010 health care law stands in their way.
As members of Congress we have a responsibility to examine federal policies and hear directly from those who live with the consequences. I am pleased that we have a number of employers who
will share their thoughts on health care costs, as well as various
experts to help inform the subcommittee of the technical aspects of
the policies we will address today. I look forward to our discussion.
I will now recognize my distinguished colleague, Rob Andrews,
the senior Democratic member of the subcommittee, for his opening
remarks.
[The statement of Chairman Roe follows:]
Prepared Statement of Hon. David P. Roe, M.D., Chairman,
Subcommittee on Health, Employment, Labor and Pensions
Good morning, everyone. I would like to thank our witnesses for being with us
and offering their thoughts during todays subcommittee hearing on health care
costs.
With 160 million Americans acquiring health insurance through an employersponsored plan, job creators clearly play a critical role in the nations health care
system. As a result, employers know all too well the difficult challenge of expanding
access to affordable health care.
To help control the cost of offering insurance, employers have traditionally maintained a great deal of flexibility over the design of the health care benefits they provide. This has led to some tough decisions, especially during times when a business
is struggling to make ends meet. However, preserving an employers ability to navigate a complex health care market, even during an uncertain economic environment, has served us well for decades.
Many employers have found consumer-directed health care as one way to better
manage costs on behalf of workers. One particularly popular choice is to pair a high
deductible health plan with a health savings account. This allows individuals to
guard against the cost of catastrophic medical treatment while also setting aside a
portion of their pretax income to pay for future medical expenses.
Demand for consumer-directed health plans is on the rise. For example, Americas
Health Insurance Plans reports an estimated 13.5 million individuals had a health
savings account last January, compared to just 3.2 million in 2006. The popularity
of health reimbursement accounts and flexible spending accounts among workers is
4
also growing, and employers have shown their support as well. According to the Kaiser Family Foundation, nearly 70 percent of employees with a workplace-sponsored
health savings account received employer contributions.
Consumer-directed health plans offer commonsense options to help millions of individuals secure a benefit plan that meets their health care needs at an affordable
price. Unfortunately, recent policy changes threaten the success of these important
plans.
President Obamas 2010 health care law placed an arbitrary cap on contributions
to flexible spending accounts, severely limiting the annual amount workers are allowed to save. The law also prohibited the use of flexible spending accounts and
health savings accounts when purchasing over-the-counter medications, forcing individuals to spend more time and money visiting their doctor to obtain prescriptions.
Additionally, a bulletin released by the administration suggests government bureaucrats are crafting an unusual accounting scheme that will severely undervalue
the contribution workers and employers make to a health savings account, which
may actually discourage employers from offering this benefit in the future.
I am pleased the Ways and Means Committee is considering legislation today that
will help roll back a number of these harmful policies, reflecting a commitment by
this Congress to dismantle the job-destroying health care law. However, even
though more than 12,000 pages of rules and regulations have been written, there
are still many unanswered questions surrounding the law that make it virtually impossible for any employerlarge or smallto plan for the future.
We still dont know how the administration will ultimately define an essential
health benefit. Up to now, the administration has operated in the regulatory shadows and outside the formal rulemaking process, delivering uncertainty instead of
the facts on its regulatory proposal.
We still dont know why the administration chose not to fulfill the intent of the
laws grandfather provision, choosing instead to raise regulatory roadblocks that will
significantly alter the health care of millions of Americans.
And we dont know what small businesses will do now that a highly touted tax
credit has proven to be a failure. A Government Accountability Office study reveals
the small business tax credit has helped few employers, thanks in part to its costly
administrative burden. As the Associated Press reports, the tax credit has turned
out to be a disappointment.
Forcing the nation into a costly, government-run health care scheme is perhaps
the greatest obstacle to more affordable care. The American people deserve every
opportunity to pursue new initiatives that will lower health care costs. We should
empower individuals and employers to create a health care plan that best fits the
needs of their families and workplaces. Unfortunately, the 2010 health care law
stands in their way.
As members of Congress, we have a responsibility to examine federal policies and
hear directly from those who live with the consequences. I am pleased we have a
number of employers who will share their thoughts on health care costs, as well as
various experts to help inform the subcommittee of the technical aspects of the policies we will address today.
I look forward to our discussion. I will now recognize my distinguished colleague
Rob Andrews, the senior Democratic member of the subcommittee, for his opening
remarks.
Mr. ANDREWS. Thank you, Mr. Chairman. The term senior is

so grave.
Okay. Thanks for your friendship and thanks for this opportunity.
William, welcome to Washington. You are shadowing a person
with a lot of integrity and ability and we are very hopeful that you
will be able to achieve great things in your life. Welcome. We are
happy to have you with us.
I would like to also thank the witnesses for being here and begin
with a couple of points in which I would part company with the
chairmans statement, and then talk about some things we have in
common that I hope we can work on today to find some solutions
to our countrys problems.
5
I do agree that thewe are disappointed with the number of
businesses that have taken advantage of the tax credit thus far to
buy health insurance for their employees. I think the record will
show the reason for that is the credit isnt quite generous enough
and it doesnt extend to enough employers. And frankly, if we could
find a way to make it reach more small businesses in a more dramatic way, it might increase the uptake, and that is something we
should work on together.
With respect to the proposition that we dont want to force people
into a government-run health plan, I agree completely. And that is
why the 2010 law does not do that at all. What it does is create
more choices and more attractive options for employers and individuals to find the health care that best suits their families.
There is no government health plan created by the 2010 law.
What there is are marketplaces set up around the country called
exchanges that, if you think about it, they are almost like a Costco
or a Sams Club, where you can go into a marketplace and increase
and leverage your purchasing power to get more for your business
or your family.
And finally, we heard that it is a job-destroying health care law.
This is part of the narrative of the season. It is the campaign season.
The fact is, of course, that private sector employers have added
more than 4 million new private sector jobs since the law went into
effect in March of 2010. Now, lets talk about what we agree on.
We want to do something so that we can control rising health
care costs for employers and families while improving the quality
of health care for employers and families and not rationing it or
limiting it in any way. And I think there are three strategies that
would help us achieve that objective.
One is to encourage more people to take personal responsibility
for their own health carediet, exercise, wellness checkupsa
sense where we all are the CEO of our own health care plan, in
that respect. To the extent that we can educate and encourage people to do that, I think there is essential unanimity on that point.
Second, we need to change the way hospitals and doctors and
medical organizations deliver health care. Right now, if you run an
MRI center and I run an MRI centerI am very glad I dont run
one; I wouldnt be very good at itif I do more procedures than you
do I make more money than you do, particularly for Medicare. The
more procedures you do the more money you make.
We really ought to have a payment system that measures the
quality of how well we work. If your MRI system or business has
an outstanding track record of identifying problems early on and
helping someone heal and recover from them, you should be rewarded for your success rate and encouraged to do that; and if I
am not so good at it, there ought to be some economic consequences
for me. So changing the way hospitals and health care providers
provide health care is another important thing that we have to do.
And then finally, I think that we can help achieve this goal of
more affordable health insurance for employers, and families, and
individuals by having more competition in the health insurance
marketplace. Virtually every American lives in a health insurance
marketplace where only one or two or sometimes three health in-
6
surance underwriters have 90 or 95 percent of the market. This is
not true of our cell phones; this is not true of the groceries we buy;
this is not true of the coffee that we buy; it is not true of the restaurants we eat at; it is not true of the hotels that we stay at; it
is not true of the banks that we put our money in.
Competition works in the American economy and there is not
enough competition among health insurance underwriters.
I believe the new law facilitates the progress toward each of
those three points. It can encourage wellness; it can encourage reform of our delivery system; and it can encourage fruitful competition among health insurance plans to provide the best deal for employers and for families.
These are the issues on which we should focus, and I know we
have four witnesses this morning who can help us in a very significant way.
I thank you for traveling to be here and I look forward to your
testimony.
Chairman ROE. Thank you.
It is now my pleasure to introduceexcuse me. Pursuant to rule
7(c) all members will be permitted to submit written statements to
be included in the permanent hearing record, and without objection
the hearing record will remain open for 14 days to allow such statements and other extraneous material referenced during the hearing
to be submitted for the official hearing record.
It is now my pleasure to introduce our distinguished panel.
First is Mr. Ed Fensholt. He is the senior vice president and director of compliance services at Lockton Companies LLC, Locktons
Benefit Group, in Kansas City, Missouri, and you haveyour group
has testified here before. We welcome you back.
Roy Ramthun is the president of HSA Consulting Services, in
Washington, District of Columbia.
Welcome.
Jody Hall is the founder and owner of Cupcake Royale, in Seattle, Washington. I have had the privilege of summiting Mt.
Rainier four times, so I have been out in your great state many
times. That doesnt say much about my intelligence, but anyway I
enjoy it.
Bill Streitberger is the vice president of human resources at Red
Robin International, in Greenwood Village, Colorado.
Welcome.
Before I recognize you to provide your testimony let me briefly
explain our lighting system. You have 5 minutes to present your
testimony. When you begin the light in front of theyou will turn
green; when 1 minute is left the light will turn yellow; and when
your time is expired the light will turn red at which point I will
ask you to wrap up your remarks as best you are able to.
After everyone has testified members will each have 5 minutes
to ask questions of the panel.
I will now begin with Mr. Fensholt?
STATEMENT OF ED FENSHOLT, SENIOR VICE PRESIDENT,
LOCKTON COMPANIES, LLC
Mr. FENSHOLT. Chairman Roe, Ranking Member Andrews, and

members of the committee, my name is Edward Fensholt and I am
7
a senior vice president of Lockton Companies, LLC, the worlds
largest privately-held insurance brokerage and consulting firm. We
provide employee benefits expertise to 2,500 mostly middle market
employers.
We and our clients appreciate the stated goal of the Affordable
Care Act and very much appreciate the efforts made to date by federal agencies to take employer concerns into account in crafting
regulations and other guidance. Yet there is no question that the
act has, to this date, bent the health insurance cost curve north,
not south, and the forecast in that regard is growing darker.
The act requires health care plans to cover individuals they did
not cover in the past, eliminate lifetime and annual dollar maximums, and provide a great many preventive care services, including, beginning several months from now, contraception drugs and
devices at no out-of-pocket cost to the enrollee. These mandates
have increased our clients health plan costs 2 to 3 percent on average to this point. For some sectors the increase is more.
In 2014 or shortly thereafter plans must reduce waiting periods
to 90 days and automatically enroll eligible full-time employees in
coverage. Reductions in waiting periods will add up to 25 percent
to the cost of plans that now have a 6-or 12-month waiting period,
which is not uncommon in the construction and trucking industries.
Our actuaries expect the automatic enrollment requirement to
add 4.4 percent to health insurance costsmore than that in the
retail, restaurant, and hospitality sectors.
The act levies billions of dollars in excise taxes against health insurance, pharmaceutical and medical device manufacturing industries, and on third party payers of self-insured medical claims. The
taxes on health insurers and TPAs alone amount to $20 billion in
2014. Insurers we have talked to and our own actuaries estimate
that the price of group health insurance in 2014 will rise $10 to
$15 per employee per month as a result of these excise taxes.
Of great frustration to our clients are the acts many additional
administrative burdens. Under federal law and regulations today a
simple group health care plan is required to supply up to more
than 50 separate notices, disclosures, and reports to enrollees or
the federal government, many of these more than once. The Affordable Care Act added more than a dozen of these.
Here are some of them: Plans are or will be required to notify
enrollees regarding the plans retention of grandfathered status,
the plans temporary waiver from the annual dollar limit prohibitions, and the availability of health insurance exchanges, just to
name a few. Employers must report the value of medical plan coverage on Forms W-2, not to reflect a taxable event but simply because Congress wanted to collect the information.
Plans must supply a four-page, double-sided summary of plan
coverage in a very hardwired format and at specific times not only
to enrollees but to individuals who are merely eligible for coverage.
And plans face fines of up to $1,000 per violation of this requirement.
The play or pay mandate imposed on all but the smallest employers in 2014 and beyond requires significant and frequent reporting by employers regarding the employers specific medical cov-
8
erage offerings, a roster of eligible and enrolled employees, and the
full-time or part-time status of those employees, the cost of the employers coverage offerings, and the employers and the employees
respective shares of that cost, the actuarial value gauged against
benchmarks of the employers coverage offerings, and the number
of months during the year during which an employee and each of
his enrolled dependents were covered by a plan sponsored by the
employer.
In conclusion, our clients are already drowning under the cost of
providing robust health insurance to employees. Rather than tossing employers a lifeline, the Affordable Care Act is in many ways
an anchor, albeit a well-intentioned one, by piling on additional
costs and burdens.
An Oliver Wyman report out yesterday reveals that two-thirds of
employers surveyed say health insurance cost trend is
unsustainable even if the trend is reduced 5 percent. And here the
ACA is adding cost.
Our clients simply do not understand, Mr. Chairman, why at a
time when they struggle to supply this valuable fringe benefit, now
the most expensive element of compensation next to wages, Congress would make the process more expensive and more complicated rather than less so.
Thank you.
[The statement of Mr. Fensholt follows:]
Prepared Statement of Edward Fensholt, J.D., Senior Vice President, Director, Compliance Services and Health Reform Advisory Practice, Lockton
Benefit Group
Chairman Roe, Ranking Member Andrews and members of the Committee, my
name is Edward Fensholt and I am a Senior Vice President of Lockton Companies,
LLC. Lockton is the largest privately-held insurance brokerage and consulting firm
in the world. Domestically, Lockton employs 2,300 associates in 24 offices nationwide who serve the insurance risk needs of approximately 9,000 employer clients
from coast to coast. Lockton Benefit Group (LBG) is the employee benefits consulting arm of Lockton Companies, LLC, and provides employee benefits consulting
services to approximately 2,500 of those clients.
LBG provides consulting expertise related to qualified and nonqualified retirement plans, group life and disability insurance programs, voluntary supplemental
benefits, dental, vision, and comprehensive group medical benefit packages. The majority of our 2,500 employee benefits clients employ us to assist in the design and
administration of their group medical insurance programs.
I am the Director of LBGs Compliance Services Division, and also lead our
Health Reform Advisory Practice, a multi-disciplinary team of professionals formed
to steer our clients through the federal health reform initiative. On behalf of
Lockton I thank you for the opportunity to appear here today to share our observations and our clients views regarding the impact of aspects of last years health reform law on the group health plans sponsored by our clients.
Most LBG clients are middle market employers, employing between 500 and
2,000 employees. Our clients include private and governmental employers, and employers across many industry segments, including construction, healthcare, manufacturing, transportation, retail, professional services firms, and the hospitality/entertainment industry.
More than half of LBGs clients maintain self-insured group health plans. The
others purchase group health insurance from licensed insurance companies.
The PPACA Imposes Additional Costs on Employment-Based Health Insurance
The Patient Protection and Affordable Care Act of 2010 (PPACA) is a sweeping
piece of legislation affecting the health insurance marketplace, the Medicaid program, the Medicare program, and health care providers from doctors to nurses to
hospitals and community health clinics. It affects health insurers, group insurance
plans (both insured and self-insured), the employers who offer them, and the em-
9
ployees and their dependents enrolled in those plans. My comments today are confined to the cost impacts on the latter, that is, the impact of the PPACA on employers who sponsor group health insurance plans, and the employees and dependents
who receive coverage through those plans.
Let me say at the outset that neither Lockton nor the vast majority of its clients
have any quarrel with the stated goal of the PPACA, that is, to provide health insurance protection to millions more Americans who want or need it, but cannot afford it. We and the laws proponents may disagree on how that should be provided,
who should bear the administrative burden, who should pay for the new entitlements and how to allocate the nations financial resources to provide them. But we
appreciate the stated goal behind the measure.
As a firm heavily engaged in analyzing the statutory and regulatory construct of
the PPACA, and advising and shepherding our clients through that construct, we
have respect for and appreciate the efforts of the federal administrative agencies
working hard to implement the law as Congress has mandated they must. In listening to and speaking with officials from the Labor Department, the IRS and the Department of Health and Human Services, and analyzing the guidance they have
issued thus far, its clear that federal regulators are making a strong effort to listen
to the employer community, to understand the concerns of employers, and to endeavor to balance the needs of employers with the needs of those individuals the
PPACA was intended to benefit.
That said, theres no question the PPACA has, to this date, bent the health insurance cost curve north, not south. As additional taxes, fees and mandates on employer-based health coverage come on line, we fear the health insurance affordability forecast will continue to deteriorate. Let me mention a few examples for the
Committee.
2011 Coverage Mandates
Health plans are already complying with the obligations to cover adult children
to age 26 (even if married and non-dependent upon the employee), to waiver preexisting condition restrictions on newly enrolled children, and to eliminate lifetime
and annual dollar maximums on what the PPACA terms essential health benefits.
Most plans in our book of business have lost grandfathered status under the
PPACA, subjecting them to additional mandates such as the obligation to cover a
wide-variety of preventive care servicesincluding, beginning several months from
now, well women care, including contraception drugs and devicesat no out-of-pocket cost to the enrollee.
The increase in health insurance costs to employers in our book of business, to
implement these mandates, has been 2-3 percent. For some sectors the increase is
more, for some it is less.
There is also a new nondiscrimination rule that applies to fully insured medical
coverage. Lockton has clientssuch as regional and national restaurant chains, retail establishments and other employers in the hospitality industrywho currently
supply typical medical coverage to corporate staff and select others (such as restaurant, store or hotel managers) but cannot afford to offer the same level of coverage, at the same rate of employer subsidies, to hourly employees. Maintaining the
status quo, however, might subject these employers to excise taxes of $100 per day
per hourly employee who does not receive an equivalent offer of coverage.
It is possible, depending on how federal regulators flesh out the requirements of
the nondiscrimination rule, that these employers will simply have to terminate their
existing group coverage. However, the nondiscrimination rule has yet to be interpreted by the regulatory agencies, and therefore our actuaries have not yet estimated the cost impact of this mandate.
2014 Coverage Mandates
Additional coverage mandates apply beginning in 2014. For example, health plans
must reduce waiting periods to 90 days, and auto-enroll eligible full-time employees
in available employer-based coverage.1 Depending on the employers industry segment, these additional expenses can be substantial. For example, our clients in the
construction and transportation industrieswhere we find 6-month or even 12month waiting periodscan expect to see significant cost increases. Our actuaries
tell us these clients with 6-month waiting periods currently should see a cost in1 Federal regulators recently deferred the compliance deadline for the automatic enrollment
rules, concluding guidance regarding how to implement the requirement will not be ready by
2014.
10
crease of an additional 4% in 2014; those with a 12-month waiting period should
see a cost increase of nearly 25%.
Our actuaries tell us that, across all industry segments other than retail and hospitality, our clients can expect to experience a 4.4% cost increase attributable to the
automatic enrollment requirement.2
Taxes and Fees
To at least partially offset the cost of the health reform law, Congress (in the
PPACA) levied excise taxes against the health insurance, pharmaceutical and medical device manufacturing industries, and on third-party administrators (TPAs) of
medical claims. Of course, health insurers and TPAs will simply pass along these
additional costs in the price of their products.
The taxes on health insurers and TPAs amount to $20 billion in 2014. Insurers
weve talked to, and our own actuaries, estimate that the price of group health insurance in 2014 will rise $10-15 per employee, per month (or about 2-3 percent) on
account of these excise taxes alone.
Health plans are also subject to a $1 per covered life fee in 2012, increasing to
$2 per covered life next year and beyond (subject to inflation-based adjustments),
to pay for comparative effectiveness research, or research into medical best practices.
Administrative Burdens
Of great frustration to our clients are the many additional administrative burdens, and their attendant costs, imposed by the health reform law. The majority of
our clients want to continue to supply health insurance, but they struggle with the
cost and the federally-imposed complexity of plan administration.
For example, under federal law and regulations today, a simple group health plan
is required to supply up to more than 50 separate notices, disclosures and reports
to its enrollees and the government (many of those more than once). Virtually every
aspect of plan administration, from enrollment to benefit summaries to specific eligibility and benefit requirements, to claim processing times and the timing, form and
cost of post-employment coverage, are now under (primarily federal) statutory or
regulatory dictates.
The PPACA has added more than a dozen additional notice and disclosure obligations to health plan administration. This frustrates our clients immensely. They do
not understand why, at a time when they struggle to supply this valuable fringe
benefitwhich is now the most expensive element of employee compensation, behind wagesCongress would make the process more expensive and more complicated, rather than less so.
A full 80 percent of our clients said, in responding to a survey we conducted last
year, that they were concerned or very concerned about the additional administrative complexity created by the PPACA. They tell us the additional costs, complexity and uncertainty wrought by the PPACA affect their ability to hire additional
workers, or to retain full-time employees.
Here are just some of the additional administrative obligations imposed upon
health plan sponsors by the PPACA:
Plans are (or will be) required to notify enrollees regarding the plans retention
of grandfathered status under the PPACA, the plans obtaining a waiver from the
annual dollar limit prohibitions, the right of enrollees to designate certain physicians as a childs primary care physician, the availability of health insurance exchanges, the plans participation in the Early Retiree Reinsurance Program, and the
retroactive loss of coverage due to misrepresentation or fraud.
Employers must report the value (employer- and employee-paid) of medical plan
coverage on Forms W-2, not to reflect a taxable event, but simply because Congress
wanted to collect the information. Because many employees change their level of
health coverage during the taxable year (due to marriage, domestic partnership, divorce, birth or emancipation of a covered child, etc.), employers must track the
changes in values of the coverage, to ensure accurate reporting.
Although the Employee Retirement Income Security Act (ERISA) already required most employers to supply health plan enrollees with a summary plan description summarizing their health coverage, the PPACA imposes an additional requirement to supply a four-page (double-sided) summary of plan coverage, in hardwired format and at specific times, to not only enrollees but also to individuals
2 In modeling the effect of the automatic enrollment provision, our actuaries assumed that
75% of employees who are newly eligible for coverage but have not affirmatively enrolled, and
who are automatically enrolled by the employer, will opt out of coverage.
11
merely eligible for coverage. Health plans face fines of up to $1,000 per violation
of this requirement.
The shared responsibility obligations imposed on all but the smallest employers in 2014 and beyond will significantly ratchet up the administrative obligations
on employers subject to those obligations. o Many employers will face substantial
complexity in determining when their employees are considered full-time for
PPACA purposes, triggering an obligation on the employer to offer them at least
minimum essential coverage or risk various penalties. The challenge will be particularly acute for seasonal employers. While the administrative agenciesthe IRS
in particularhave done an admirable job working to strike a balance between
pragmatism and the PPACAs literal requirements, we expect the process to remain
significantly burdensome.
In order for federal authorities to coordinate employers shared responsibility obligations with the availability (to the uninsured) of taxpayer subsidies in the new
health insurance exchange, federal and state authorities will need employers to submit detailed reports on a regular basis, reports reflecting:
The employers specific medical coverage offerings,
A roster of eligible and enrolled employees, and the full-time or part-time status
of the employees,
The cost of the employers coverage offerings, and the employers and employees
respective shares of that cost,
The actuarial value, gauged against designated benchmarks, of the employers
coverage offerings, and
The number of months (during the year) for which an employee, and each of
his enrolled dependents, were covered by a plan sponsored by the employer.
Last week came word from Washington that the IRS is re-evaluating how to assess the affordability of an employers coverage offering to a full-time employee.
Under the PPACA, if the employers offer of coverage requires the employee to pay
more than 9.5 percent of his or her household income for coverage, the coverage is
considered unaffordable and the employee may qualify for taxpayer-supplied subsidies to buy insurance in a health insurance exchange. If that occurs, the employer
will incur a $3,000 annual nondeductible penalty with respect to that employee.
The legislative history to the PPACA is scant, but what history exists is clear that
the affordability test was to be applied to employee-only coverage, not family coverage. The IRS has initially said this is how it interpreted the statute.3
Now comes word that the IRS might, in fact, require that family coverage meet
this affordability test. If federal authorities are going to require employers to heavily subsidize a full-time employees family coverage, so that family coverage does not
cost the employee more than 9.5 percent of his or her household income, the number
of employers exiting the group insurance market, and dumping their employees into
the health insurance exchanges, will be far greater than the Congressional Budget
Office has estimated to date. That has profound implications for the dollars budgeted to supply taxpayer-funded subsidies in the exchanges.
The flight from the group insurance marketplace will most acute in industries
where the employees tend to be modestly paid, hourly workers. Employers will opt
to pay the relatively modest $2,000 per full-time employee penalty for offering no
insurance, rather than pay larger subsidies for health insurance for the employees
and their dependents. Congress can also expect to see many employer sectors transition full-time employees to part-time status, to take the employees out of the penalty equation.
What Employers Appreciate About the PPACA
This is not to say that employers are concerned about every aspect of the insurance reforms reflected in the PPACA. Some employers who buy group insurance (as
opposed to self-insuring medical coverage) will receive refunds this August from insurers who failed to reach specific medical loss ratios in the given state.
And the PPACA supplies greater leverage to employers to encourage employees
to make lifestyle changes to improve their health. The law allows employers to require unhealthy employees to pay an additional amountup to 30 percent of the
total cost the employees coverage, up from 20 percent under pre-PPACA rulesfor
their health insurance, to account for the additional risks they pose to the health
plan.
3 The IRS has also indicated a willingness to allow employers to utilize W-2 wages as a surrogate for household income in the affordability calculation.
12
Conclusion
Lockton greatly appreciates the opportunity to appear before you today. In assessing the impact of the health reform legislation, we urge you to place yourselves not
only in the shoes of those Americans who need access to affordable insurance, but
in the shoes of the employers who supply valued coverage to 160 million of us.
Employers are burdened and frustrated by aspects of the health reform law that
add costs and complexity to their health plans, and may lead some of them to eliminate group coverage and full-time jobs.
We welcome the opportunity to work with you to mitigate these burdens on the
employer community.

Mr. Ramthun?
STATEMENT OF ROY RAMTHUN, PRESIDENT,
HSA CONSULTING SERVICES
Mr. RAMTHUN. Chairman Roe, Ranking Member Andrews, and

other members of the committee, I would like to thank you for this
opportunity to testify before your subcommittee today. My name is
Roy Ramthun and I am a private consultant here in the Washington, D.C. area.
I would like to take this opportunity to discuss one of the bright
spots in health coverage benefits, that known as account-based
health planshealth insurance plans paired with an HSA or HRA.
These are the fastest-growing product in the market for employerbased group health plans.
It is my opinion that account-based health plans have helped to
arrest the decline in employer-based health coverage. That said, I
am uncertain that even account-based health plans can overcome
the new employer responsibilities and costs of complying with the
Patience Protection and Affordable Care Act. I will touch on some
of these issues during my testimony today.
Account-based health plans now account for about 15 percent of
all employer-sponsored health coverage. The consulting firm Towers Watson states that nearly 60 percent of employers have implemented account-based health plans and that number will increase
to 70 percent by 2013. Twelve percent of employers now offer total
replacement plans, where account-based health plans are the only
option offered to employees.
What is fueling this growth? Certainly one of the reasons is the
dramatic increase in health insurance costs over the past decade.
Milliman Incorporated recently reported that health care costs for
the typical family of four are projected to reach over $20,000
through an employer-sponsored PPO plan this year.
In contrast, companies with at least half of their workers enrolled in an account-based health plan report that their per-employee costs are over $1,000 lower than companies without an account-based health plan. This is hard evidence for bending the cost
curve that is so elusive for the rest of our nations health care system.
Several insurance carriers have similarly reported dramatic savings for employers that switch to account-based health plans. This
potential for reducing health care spending was recently confirmed
by researchers at the RAND Corporation.
13
Their analysis suggests that the health care spending in the U.S.
could drop by $57 billion per year if account-based health plans
grow to represent half of all employer-sponsored in the U.S. They
estimate that the annual savings would be as high as $73.6 billion
if all these individuals were enrolled in HSA plans.
But account-based health plans are not just about saving money.
It is also about how the money is savedby changing how employees think about their health and taking action to improvement. In
my written testimony I address some of the common
misperceptions about account-based health plans, including that
account-based health plans dont cover preventive services and generally offer skimpier coverage, that individuals will forego needed
care just to save money, that individuals will go bankrupt due to
high out-of-pocket costs, and that patients will be overcharged and
unable to navigate the complex world of health care.
Why isnt every company offering account-based health plans?
Well, they may have to if the so-called Cadillac plan tax goes into
effect in 2018.
I believe that companies have few other options as effective as
account-based health plans to keep their costs below the thresholds
where the excise tax will affect them. However, other issues are or
will create challenges much sooner than 2018.
For example, employees with HSAs, HRAs, and even FSAs must
now obtain a prescription from their doctor to seek reimbursement
for over-the-counter medicines. In 2014 the health reform law will
require employer-based health plans to limit their plan deductibles
to no more than $2,000 for single persons and $4,000 for family
persons. Many employers are already offering account-based health
plans with deductibles above these limits.
Also in 2014, the law will require employer-based health plans
to provide a minimum actuarial value of at least 60 percent. While
this sounds reasonable, recent guidance issued by the Internal Revenue Service and HHS proposed to devalue the typical employer
contributions to HSAs and HRAs when determining whether a plan
provides the minimum actuarial value. Thus, some account-based
health plans might not meet the minimum 60 percent standard.
In my written testimony I cite statements from the American
Academy of Actuaries and the Congressional Budget Office suggesting that this policy should be changed. I agree completely and
I believe that employer and employee contributions to HSAs should
be valued at the full amount of the contributions, not adjusted.
Another issue of concern is the new minimum medical loss ratio
requirements. Unfortunately, the regulations do not adequately
take into account HSA or HRA contributions, thus making it extremely challenging for account-based health plans to meet the
MLR requirements, limiting the availability of these plans to
small-and medium-sized employers in the future.
In closing, strategies like account-based health plans that reduce
employer health benefit costs free up money that companies can
use to stimulate the economy by raising wages, creating jobs, or
making critical investments for the future. We also need to ensure
that workers will be permitted to keep the coverage they have, as
was promised throughout the health reform debate.
14
Mr. Chairman and members of the subcommittee, I appreciate
the opportunity to provide this testimony today. I look forward to
the opportunity to discuss these issues in greater detail and am
pleased to answer any questions you may have.
Thank you.
[The statement of Mr. Ramthun follows:]
Prepared Statement of Roy J. Ramthun, President,
HSA Consulting Services, LLC
Chairman Roe, Ranking Member Andrews and the other members of this Committee, I would like to thank you for this opportunity to testify before the Subcommittee on Health, Employment, Labor and Pensions about the barriers to lower
health care costs for workers and employers. My name is Roy Ramthun, and I am
a private consultant in nearby Silver Spring, MD. My consulting practice focuses
primarily on helping employers, financial institutions, and consumers to better understand and take advantage of the benefits offered by consumer-driven health care
programs such as Health Savings Accounts (HSAs), Health Reimbursement Arrangements (HRAs), and their associated health insurance plans.
I have had the distinct honor to serve our country in positions at the Department
of Health and Human Services (HHS), the Treasury Department, the White House,
and the U.S. Senate Committee on Finance. While at the Treasury Department, I
led the implementation of the Health Savings Account program after its enactment
in 2003. I started my own consulting practice after leaving the White House in 2006
to devote my full time and attention to this program and related issues.
Account-based health planshealth insurance plans paired with HSAs and
HRAsare the fastest growing product in the market for employer-based group
health plans. There is no disputing the fact that the number of employers offering
group health plan coverage to their employees has declined as the cost of providing
coverage has increased. It is my opinion that account-based health plans have
helped arrest this decline. That said, as employers wrestle with the decisions whether or not to continue sponsoring health insurance benefits, I am uncertain that even
account-based health plans can overcome the new employer responsibilities and
costs of complying with the Patient Protection and Affordable Care Act. I will touch
on some of those issues during my testimony today.
Account-based health plans are approximately 10 years old, but have grown substantially over the past decade. Estimates vary, but account-based health plans now
account for about 15 percent of all employer-sponsored health coverage. The Employee Benefit Research Institute (EBRI) says approximately 21 million Americans
were covered by an account-based health plan in 2011, up 40 percent from 2010.
The number is certainly higher for this year as the number of Americans covered
by HSA-based plans is approximately 13.5 million, as reported just this week by
Americas Health Insurance Plans (AHIP). There is no reliable survey of HRA-based
plans, but my best guess is that another 11-12 million Americans are covered by
these plans.
The consulting firm Towers Watson states that nearly 60 percent of employers
have implemented account-based health plans, and that number will increase to 70
percent by 2013. Twelve percent of employers now offer total replacement plans
where account-based health plans are the only option offered to employeesup from
7.6 percent in 2010. Enrollment by employees in account-based plans has nearly
doubled in the past two years, from 15 percent in 2010 to 27 percent in 2012.
What is fueling this growth? Certainly one of the reasons is the dramatic increase
in health insurance costs over the past decade. According to the 2011 Kaiser Family
Foundation/Health Research & Educational Trust annual survey of employer benefits, the cost of family coverage more than doubled over the previous 10 years (see
exhibit below). Other surveys suggest that costs may be even higher. For example,
Milliman Inc. recently reported that health care costs for the typical family of four
are projected to reach $20,728 through an employer-sponsored preferred provider organization (PPO) plan this year. The 6.9 percent increase over 2011 is actually the
lowest rate of increase Milliman has seen in the 10 years of this study.
15
Contrast that to the experience of employers who have account-based health

plans. According to Towers Watson and the National Business Group on Health,
companies that successfully move their employees into account-based health plans
can achieve significant savings on their health benefit costs. For example, companies with at least half of their workers enrolled in an account-based health plan report that their per-employee costs are over $1,000 lower than companies without an
account-based health plan. This is hard evidence for bending the cost curve that
is so elusive for the rest of our nations health care system.
Similarly, Aetna reported late last year that employers who switched to accountbased health plans as their only plan option had saved $21.8 million per 10,000
members over the past five years. Aetna found that employers who offered an account-based health plan along with other traditional plan options (e.g., PPO, HMO)
also had realized savings, but not as significantonly $8 million per 10,000 members over five years.
Finally, Cigna published a study earlier this year concluding that employers can
save an average of $9,700 per employee over five years by switching to accountbased health plans. Given these results, Cigna believes that if the share of Americans enrolled in account-based health plans rose to 50 percent and achieved the
same results as this study, the U.S. could save $350 billion over 10 years and the
level of patient care would improve.
This potential for reducing health care spending was recently confirmed when researchers at the RAND Corporation published in the journal Health Affairs the results of their analysis of the potential impact of account-based health plans on the
American health care system. The RAND analysis suggests that if account-based
health plans grow to represent half of all employer-sponsored insurance in the
United States, health care spending could drop by $57 billion annuallyabout 4
percent of all health care spending among non-elderly Americans. The study acknowledges that HSAs are far more cost-effective, and estimates that if all of these
people were in HSA plans, the annual savings would be as high as $73.6 billion.
I believe that is a conservative estimate.
But account-based health plans are not just about saving money. Its also about
how the money is savedby changing how employees think about their health and
taking action to improve it. I would like to take a few moments to clear up some
common misperceptions about account-based health plans.
First, research is increasingly suggesting that lifestyle behaviors account for approximately three-quarters of health care spending in the U.S. This is likely to only
get worse as diet, obesity, lack of exercise, and smoking take its toll on our bodies
16
and our health care system. Fortunately, account-based health plans cover preventive care services and usually do so without applying a deductible or other out-ofpocket expense. In fact, preventive care was included in the original design of HSAs,
long before the PPACA made it a requirement of all health plans. Data from Aetna,
Cigna, EBRI, and others suggests that utilization of preventive care services is higher when individuals are enrolled in account-based health plans. Additional data suggests higher compliance with disease management and treatment regimens for individuals with chronic conditions. While there is always a risk that people will seek
less care when spending their own money (several studies have raised this concern),
I am not aware of any evidence to suggest that the health status of individuals enrolled in account-based health plans has declined, and in most cases it appears to
be improving. Obviously, this is an issue to monitor for the future.
Second, individuals enrolled in account-based health plans are more engaged in
their health care. The most recent survey by EBRI suggests that enrollees in account-based health plans are more likely to: (1) check whether their plan would
cover their care; (2) talk to their doctor about treatment options and costs; (3) talk
to their doctor about prescription drug options and costs; (4) ask for a generic drug;
(5) check the price of service before seeking care; (6) use an online cost-tracking tool;
and (7) develop a budget to manage health care expenses. Similar findings have
been reported by insurance carriers.
Third, HSA-qualified account-based health plans provide true catastrophic protection by virtue of their annual limits on out-of-pocket expenses. Under the PPACA,
these limits will be applied to all plans starting in 2014, but account-based health
plans already provide this protection and have been doing so since 2004. These limits apply both to medical and pharmacy expenses and therefore provide an extremely important benefit to people with chronic conditions and/or high annual
health care expenses. Most people dont understand that their traditional pharmacy
coverage likely does not have any limit on out-of-pocket prescription expenses.
Fourth, covered benefits and services are generally identical to traditional plans,
not skimpier as some critics believe. What is different is the amount of covered
benefits paid by the account-based health plan. So while the exact same benefits
may be covered by each plan, the account-based health plan may only cover 60 or
70 percent of the cost of covered benefits, whereas a traditional HMO or PPO plan
may cover 80 or 90 percent of the cost of covered benefits, on average. However, the
difference in out-of-pocket costs for covered benefits is typically offset almost dollarfor-dollar by a difference in premiums. For example, a plan with a higher deductible
(by $2,000) will typically have a premium that is $2,000 lower. Many people understand this concept when applied to their auto and homeowners insurance policies,
but the concept is relatively new to many people for their health insurance.
Fifth, even though individuals enrolled in account-based health plans typically
have higher out-of-pocket expenses, they still receive the benefit of the discounted
prices for medical services negotiated by their insurance plan. For example, a patient may have an office visit with his or her personal physician. While the physician may charge $150 for each office visit, he usually accepts a discounted fee of
$70 to $100 depending on the insurance plan. In these cases, the patient would pay
only $70 to $100, not the full $150 charged by the physician.
Sixth, there is a growing industry of companies providing complementary information and services to help people manage their medical care and health care finances.
Companies like Compass, Medibid, BidRx, Direct Labs, Healthcare Blue Book,
change:healthcare, IF Technologies, INSNET, and others are responding to the
needs of patients by providing better information about the price and quality of
health care services. Another industry is responding to the demand for wellness
services to help people maintain and improve their health to avoid disease and
chronic conditions. These companies would likely not exist without the growing consumer demand for better value for their health care dollar.
Finally, even though individuals enrolled in account-based health plans are typically subject to higher up-front deductibles, most employers are providing a contribution of funds to the associated HSA or HRA which helps lessen the sting of
the deductible. Data from the most recent Kaiser Family Foundation/HRET survey
indicates that workers enrolled in HRA plans receive an annual employer contribution to their HRA of $861 for single coverage and $1,539 for family coverage, on average. Workers enrolled in HSA plans receive an annual employer contribution to
their HSA of $886 for single coverage and $1,559 for family coverage. With HSAs,
unspent funds automatically roll over each year. However, approximately 30 percent
of workers enrolled in HSA plans receive no contributions from their employer. Although I believe these individuals primarily work for smaller companies, we all
should be mindful of government policies that may discourage employer contribu-
17
tions in the future, such as changes to tax policy and how health plan actuarial values are calculated.
Why isnt every company offering account-based health plans? They may have to
if the so-called Cadillac plan tax in PPACA goes into effect in 2018. I believe that
companies have few other options as effective as account-based health plans to keep
their costs below the thresholds where the excise tax will affect them ($10,200 for
single coverage; $27,500 for family coverage). The recent surveys suggest that private employers are taking action and moving to account-based health plans, but
public and non-profit employers appear to be lagging.
The one exception is the State of Indiana. Indiana has been offering account-based
health plans to state employees since 2006. In 2012, its seventh year for accountbased plans, 90 percent of Indiana state workers with its health insurance coverage
participate in an account-based health plan. The state says these plans have already
reduced the states overall health benefit costs by more than 10 percent, and only
2 percent have switched back to a traditional plan.
In the 22 other states where enrollment in account-based health plans is voluntary, only 2 percent of government employees have signed up. Last year, Arizona,
Louisiana, Minnesota, Utah and West Virginia joined 18 other states that already
offer an account-based health plan. If Indianas program continues to hold down
costs while satisfying state employees, more states can be expected to try accountbased health plans.
Barriers to Future Growth
For larger employers, cost pressures will continue under the PPACA as the Cadillac plan tax looms in 2018. However, other issues are or will create challenges
much sooner than 2018. For example, employees with HSAs, HRAs, and even Flexible Spending Accounts (FSAs) must obtain a prescription from their doctor to seek
reimbursement for over-the-counter medicines. The irony is that these medications
have been approved by the U.S. Food and Drug Administration (FDA) as safe and
effective for purchase without a prescription. But a provision in the PPACA requires
individuals to obtain a prescription for these products or they will have to pay income tax plus a 20 percent penalty if they use their HSA, HRA, or FSA funds to
pay for these medicines. This provision has been in effect since January 1, 2011.
In 2014, the PPACA will require employer-based health plans to limit their plan
deductibles to no more than $2,000 for single persons and $4,000 for family policies.
Many employers are already offering account-based health plans with deductibles
above these limits, especially employers that have been offering account-based
health plans for several years. If companies are required to lower their deductibles,
they will likely see their costs go up and will have to raise their premiums offset
the lower out-of-pocket costs. This would send account-based health plans in the
wrong direction!
Also in 2014, the PPACA will require employer-based health plans to provide a
minimum actuarial value of at least 60 percent. This means the plan must be designed to pay at least 60 percent of the cost of the benefits covered by the plan,
and the employee/patient must pay the remaining 40 percent. While this sounds
reasonable, recent guidance issued by the Internal Revenue Service (IRS) and HHS
reflects a bias against account-based plans in favor of traditional first-dollar coverage plans. The guidance proposes to devalue the typical employer contributions to
HSAs and HRAs when determining whether a plan provides the minimum actuarial
value. Thus, even if an employer is providing the same amount of total contributions, the plan might not meet the minimum 60 percent standard.
Here is an example of how this could happen. Consider an employer that is providing coverage through a traditional PPO group health plan at a cost of $5,000 per
employee. The company then chooses to switch to an account-based health plan and
lowers its per-employee premium costs to $4,000 but contributes the $1,000 savings
to each employees health savings account. From the employers perspective, his
total costs remain $5,000 per employee. But under the IRS/HHS guidance, the employers $1,000 contributions to employees HSAs will not receive full credit (e.g.
might be cut in half or more) towards the plans actuarial value, putting the employer at risk of not meeting the minimum actuarial value of 60 percent. This again
sends the wrong message to employers about account-based health plans.
In its comment letter to HHS dated May 16, 2012, the American Academy of Actuaries said the following:
This adjustment * * * could have the effect of discouraging employers from contributing to HSAs/HRAs. For a given amount of employer spending toward health
insurance, a higher [actuarial value] likely would be achieved by devoting more of
those dollars directly toward a health insurance program than to an HSA/HRA. To
the extent that HSAs encourage plan enrollees to seek cost-effective care, discour-
18
aging this option may run counter to goals of achieving more effective use of health
care dollars.
Likewise, in its 2008 report analyzing major health insurance proposals, the Congressional Budget Office (CBO) said that:
* * * the actuarial value of consumer-directed plans would include the expected
value of any contributions that an insurer or employer sponsoring the plan would
make to an enrollees accountso that contribution could be set to make the overall
actuarial value of the consumer-directed plan equal to the value of a conventional
health plan.
I agree completely with the Academy and CBO. I believe that employer contributions to HSAs should be valued at the full amount of the contribution, not adjusted. In addition, employee contributions made through payroll deduction should
be counted as well and in full (not adjusted). Currently, the guidance does not provide any credit for employee contributions.
Another issue that will impact the availability of account-based health plans to
some companies is the new minimum medical loss ratio (MLR) requirements under
the PPACA. This issue impacts plans sold by insurance carriers to small and medium-size companies. Unfortunately, the MLR regulations do not take into account
HSA or HRA contributions, thus making it extremely challenging for account-based
health plans to meet requirements they were not designed to meet. I have been
seeking changes to the regulations to reflect the unique circumstances of accountbased health plans, but no changes have been made so far.
In closing, we should all keep in mind that premiums paid by employers for workers health benefits are another form of compensation in lieu of wages earned by
employees. Strategies like account-based health plans that reduce employer health
benefit costs free up money that companies can use to stimulate the economy by
raising wages, creating jobs, or making critical investments for the future. We also
need to ensure that workers will be permitted to keep the coverage they have, as
was promised throughout the health reform debate.
Mr. Chairman and members of the Subcommittee, I appreciate the opportunity to
provide this testimony today. I look forward to the opportunity to discuss these
issues in greater detail with you. I would be pleased to answer any questions you
have.
Thank you.

Ms. Hall?
STATEMENT OF JODY HALL, FOUNDER AND OWNER,
CUPCAKE ROYALE
Ms. HALL. Thank you.

Chairman Roe, Ranking Member Andrews, and members of the
subcommittee, I am honored to be here today to testify. My name
is Jody Hall and I own a business called Cupcake Royale, in Seattle, Washington. It is a cafe and bakery.
I am also a leader in a group called the Main Street Alliance of
Washington that represents over 2,000 small business owners because weour voices werent heard in groups like NFIB. And that
was pulled together about 3 or 4 years ago.
And I founded my business in 2003. When we opened our first
shop we took a big risk. We were the first cupcake bakery outside
of Manhattan to open.
The risk paid off. Our made-from-scratch cupcakes were an instant hit and we since have expanded to five locations. I am actually herewe started building our sixth location yesterdayand
am taking time out because I believe in this issue. We employ currently 72 employees, 45 FTE equivalents, and soon we will cross
that 50-FTE threshold.
This year I was honored as Business of the Year by the Greater
Seattle Business Association and just wanted to talk a little bit
19
about this. I build my business on the notion that a good business
supports a strong local economy and gives back to the community.
The community includes our employees. If I treat my employers
well they will treat our customers well and our business will do
well as a result.
This includes health care coverage. Since 2004 we have offered
health care coverage to our employees who work 28 hours a week
or more and we pay 75 percent of the cost. It is an important part
of our business values but it is also a huge challenge.
Between 2004 and 2010 we were faced with rate increases that
exceeded 20 percent30 percent and up to 40 percent in 2009. In
2011 our health care costs more than $67,000.
Before I started my business I worked in corporate America for
a little coffee company called Starbucks and one of the biggest surprises I faced when I left my Starbucks corporate job was how little
benefit I got as a small business owner. Basically I paid twice the
amount for half the coverage as a small business owner, and that
was a big shock. And even now businesses our size have very little
bargaining power.
The ACAs state insurance exchanges are finally going to change
that. A state exchange will give me the opportunity to band together with thousands of other small business owners across Washington State to get access to better health care at better rates.
Joining a group with hundreds of thousands of participants will
be a big leap in risk pooling, economies of scale, and negotiation
clout. We finally would be able to tap into the kind of insurance
that Starbucks and Microsoft have had all along. And by adding
competition of an exchange this will create efficiency and cost savings in the private sector and hopefully bring costs down, I would
imagine, if we are a good competitor.
On top of the state exchanges, other parts of the ACA are already helping small businesses. The 80/20 value for premiums rule
is one example. Under this rule rebates for this year alone are estimated at $1.3 billion and checks are due out in the mail, which will
add a nice shot in the arm for the economy.
There also health care lawthere are also the health care laws
rate review provisions, which are helping bring much-needed transparency to the proposed rate hikes. These provisions are making a
difference. My rate increase this year was a lot lower, and I have
heard this from other small business owners.
I would like to make a point about employer responsibility. The
part of this law is sometimes claimed to be a barrier to job creation, and I dont see it this way at all. As a business owner who
offers health care coverage, the real barrier for me is when other
businesses my sizeor dare I say biggerdont offer health care I
am forced to subsidize their costs.
This health care cost shifting actually costs my business hundreds of dollars per employee per year, and this is not fair competition. The only way to fix this free-rider problem is through a system that combines personal responsibility and shared responsibility, a system where all businesses above a certain threshold
pitch in and nobody takes a free ride.
On the note of the business tax credit, I think that there is an
opportunity to make this work for more businesses. For example,
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my business is a restaurant. We are open 7 days a week; we staff
16 hours a day. It is hard for restaurants to have less than 25
FTEs. So I think by expanding that to 50 or 75 that would be an
opportunity to create a tax credit for a lot more businesses.
So in conclusion, the Affordable Care Act is taking critical steps
to lower health costs and bring affordable and quality coverage
within reach for small businesses. And this will allowthis kind of
work is allowing small businesses like me to focus on not how I am
going to pay for my health care but how I am going to grow my
business, hire people, and strengthen our local economies.
Thanks for your time.
[The statement of Ms. Hall follows:]
Prepared Statement of Jody Hall, Owner,
Cupcake Royale & Verite Coffee
Chairman Roe, Ranking Member Andrews, and members of the HELP Subcommittee, thank you for the invitation to testify before your subcommittee on the
topic of barriers to lower health care costs for business owners and workers. I appreciate the opportunity to share my experiences and perspective on these issues as a
small business owner.
My name is Jody Hall. I own Cupcake Royale, a cupcake bakery and cafe business
in Seattle, Washington. Im also a leader in the Main Street Alliance of Washington,
a statewide network of local, independent small businesses in Washington State
that gives small business owners like me a voice on the most pressing public policy
issues facing our businesses.
I founded my business in 2003. When we opened our first shop in Seattles
Madrona neighborhood with 10 employees, we were taking a risk. It was the countrys first cupcake bakery to open outside of New York City. The risk paid off. Our
made-from-scratch-daily cupcakes were an instant hit. Over the years, weve expanded to five locations in Seattle and neighboring Bellevue.
Cupcake Royale is recognized as a local institution. Were proud to employ 72 people (adding up full-time and part-time workers, we have 45 full-time equivalents).
This year, I was honored as the Small Business Person of the Year by the Greater
Seattle Business Association. Ill be rushing to get home to Seattle tonight to take
care of the final details for opening a new store in July near Pike Place Market in
downtown Seattle. That will be our sixth location, and I expect well be hiring another 15 employees for the new store as we continue to grow.
From day one, I built my business model on the notion that a good business supports a strong local economy and gives back to the community that supports it. We
partner with Washington farmers and producers as much as possible: our flour
comes from a handful of wheat farmers in Eastern Washington who mill it specially
for our needs and our dairy is local along with fresh fruit from nearby farmers. And
we donate over 40,000 cupcakes a year to help raise funds for local non-profits.
I also built my business on a commitment to treating my workers like family.
That includes offering health care coverage. We offer health care to all employees
who work over 28 hours a week and we pay 75 percent of the cost. Its an important
part of our business values to offer health care. The way the costs have risen over
the last decade, its also been a huge challenge. Between 2004 and 2010, we were
faced with rate increases routinely exceeding 20 percentreaching as high as 40
percent in 2009. In 2011, our health care costs were more than $67,000.
Weve got to take steps as a country to get these costs under control. Small businessesand the country as a wholecant afford the cost of doing nothing. And
weve got to do it in smart ways that ensure decent quality, promote informed
choice, and guarantee good value for our health care dollars. Thats why I support
the Affordable Care Act and the measures it includes to lower health care costs
while promoting quality, choice, and value for small businesses and our employees.
Barriers to Lower Health Care Costs: How the Health Care Reform Law Helps
Some of the biggest barriers we face to getting decent health coverage as a small
business stem directly from our size. Before I started my business, I worked in corporate America for 13 years, and one of the biggest surprises when I decided to go
out on my own and start my own enterprise was how little we got in terms of health
care benefits for almost twice the dollars (and these plans only covered medical
not dental and vision, which were included in my corporate packages). When we
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have to brave the health insurance market on our own, whether with the 10 employees we started with or the 72-plus we have now, were still too small to have any
bargaining power, effective risk-pooling, or economies of scale.
A State Health Insurance Exchange
The state insurance exchanges made possible by the Affordable Care Act are going
to change that. A state insurance exchange will give us the opportunity to band together with thousands of other small businesses across Washington State. There are
more than 120,000 private sector firms in Washington State with fewer than 100
employees that could be eligible to join the exchange, and these firms employ almost
900,000 people.1
I cant wait for Washingtons exchange to open its doors for enrollment. Joining
a pool with hundreds of thousands of participants will be a huge improvement in
risk-pooling, efficiencies of scale, and negotiating clout for my business and for small
businesses across the state. Well finally be able to tap into the kind of bargaining
power that big companies like Starbucks and Microsoft enjoy.
Other Provisions of Health Care Reform that Put Downward Pressure on Insurance
Rates
The health insurance exchange is the biggest thing Im looking forward to from
the health care reform law, but there are also other provisions that are taking effect
already and helping to put the brakes on rising insurance premiums.
One example is the 80/20 value for premiums rule, or minimum medical loss
ratio requirement, which requires health insurers to spend at least 80 percent of
our premium dollars on actual health care costs or pay a rebate to consumers. For
small business owners who know that offering good value to our customers is critical to our survival, the idea that we deserve a basic guarantee of value from our
health insurance companies is common sense. The first rebate checks are due in the
mail this summer and independent researchers have estimated that health insurance customers are going to get back in the vicinity of $1.3 billion in premium overpayments. Thats a nice shot in the arm for small businesses and other insurance
purchasers. And it doesnt even count downward adjustments in rate hikes taken
by insurers to comply with the 80/20 rule and avoid owing even more in rebates.
Another example is the health care laws support for more careful review of proposed rate increases. In Washington, where we already have strong rate review laws
on the books, this part of the law is allowing our state to strengthen its systems
for collection, analysis, and reporting of data, and to increase transparency for consumers.2 For small businesses in the many states across the country that didnt already have strong laws like Washingtons, the rate review rules are doing even more
to bring much-needed scrutiny to double digit rate hikes by requiring insurers to
publicly post the justifications for their proposed increases and ensuring review of
these proposed increases by insurance experts.
These early provisions of the health care law are making a difference. My rate
increase this past year was a lot lower than Id come to expect from my experience
over the past five years. And Ive heard stories of small business owners across the
country whove seen their rates held flat this year. Some have even had their rates
cut, while keeping the exact same coverage.3
Employer Responsibility and Reducing Health Care Costs
The employer responsibility provision of the ACA is another way the law will help
lower insurance costs for businesses like mine. This piece of the law is often presented as a problem for small businesses. I believe the opposite is true. As a business owner whos doing the right thing and offering health coverage to my workers,
the real problem for me is that when other businesses my size (and bigger) dont
offer health care, Im forced to subsidize their health care costs. The shifting of uncompensated health care costs to businesses that pay for health insurance costs my
business hundreds of dollars per employee per year. How is that fair?
1 Agency for Healthcare Research and Quality, Center for Financing, Access and Cost Trends,
2010 Medical Expenditure Panel SurveyInsurance Component; Table II.A.1(2010) Number of
private-sector establishments by firm size and State: United States, 2010, http://
www.meps.ahrq.gov/mepsweb/datastats/summtables/insr/state/series2/2010/tiia1.htm;
Table II.B.1(2010) Number of private-sector employees by firm size and State: United States,
2010,
http://www.meps.ahrq.gov/mepsweb/datastats/summtables/insr/state/series2/
2010/tiib1.htm
2 Health Insurance Premium Grants: Detailed State by State Summary of Proposed Activities, HealthCare.gov, http://www.healthcare.gov/news/factsheets/2010/08/rateschart.html
3 Health care reform: good for business, The Baltimore Sun, April 1, 2012, http://
www.baltimoresun.com/news/opinion/oped/bs-ed-obamacare-business-20120401,0,6828504.story
22
Opponents of the health care law argue that the employer responsibility requirement will hurt job creation. I disagree. More than 9 out of 10 businesses with 50
or more employees already offer health coverage.4 Think about it this way: for every
business around the 50 FTE threshold that doesnt already offer coverage, there are
multiple others that do. Right now, the barrier to job creation for the businesses
that do offer health carelike mineis the fact that were subsidizing the ones that
dont. The only way to fix this is through a system of shared responsibility where
all businesses above the threshold pitch in and nobody takes a free ride at the expense of the rest of us.
Opportunities to Keep Moving Forward on Health Care
Does more need to be done to fully fix health care for small businesses? Yes. I
believe we need to build on the new health care law and take further steps to help
small businesses, not tear it down and throw us back into the broken health insurance marketplace that visited rate hikes of 20, 30, and 40 percent on businesses like
mine.
One opportunity to move forward that I would encourage you to support is an expansion of the ACAs small business health care tax credit. Not enough businesses
are benefiting from the credit in its current form. While some elected officials are
using this news as an excuse to criticize the credit and the whole ACA, thats not
helpful to small businesses. If you want to help us, it would make more sense to
ask the question, What can we do to make this credit work for more of our small
businesses?
For my own business, were not eligible for the credit because we have more than
25 full-time equivalents (FTEs). Why not expand that FTE requirement to 50, 75,
or even 100 employees? Under a recent proposal to expand the credit, I could be
eligible for a credit of about 8 percent of my health care costsaround $5,000. If
youve built a bridge and you find out not enough cars can get across, you dont blow
it up, you find a way to build it wider. You have an opportunity to do that with
the small business health care tax credit. I hope you will take it.
Alternative Proposals: Will They Work for Small Businesses?
Opponents of the Affordable Care Act say they want to replace it with something
else. Some of these ideas sound good as talking points, but what will their real impact be on small businesses?
We hear a lot about the idea of letting health insurers sell across state lines.
This sounds fine, but in reality this is a back-door way to get around basic protections put in place at the state level to make sure when we buy an insurance policy,
its worth more than the paper its written on. Across state lines is really an invitation to insurance companies to throw quality and value out the window and start
selling junk health insurance. If you want to give small businesses more bargaining
power, thats what the state insurance exchanges in the ACA will dowithout compromising the basic standards of quality and value we have in place now. The state
of Georgia passed a cross state lines law last year and it didnt work: not a single
out-of-state insurer applied to sell a new product in the state.5
Another alternative we hear a lot about is health savings accounts. Theyre marketed on the idea that they will make people make more responsible choices about
health care utilization. But the reality is HSAs are another form of high-deductible,
low-coverage insurance, which for many people in many years means paying a
monthly premium to basically be uninsured. This is not a solution, eitherits just
shifting more risk and shifting more costs onto small businesses.
Conclusion
The Affordable Care Act is taking critical steps forward to address the barriers
to lower health care costs and bring affordable, good quality health coverage within
reach for small businesses. Many businesses are already seeing the benefits as early
provisions of the law take effect. We have even more to look forward to with the
establishment of the state health insurance exchanges and other provisions that are
still on their way.
We need to keep building on the foundation of the ACA, not tear it down. Small
businesses across Washington State and across the country cant afford to go back
4 Agency for Healthcare Research and Quality, Center for Financing, Access and Cost Trends,
2010 Medical Expenditure Panel SurveyInsurance Component; Table I.A.2(2010) Percent of
private-sector establishments that offer health insurance by firm size and selected characteristics: United States, 2010, http://meps.ahrq.gov/mepsweb/datastats/summtables/insr/national/series1/2010/tia2.htm
5 No out-of-state insurers offer plans in Georgia, Atlanta Journal-Constitution, April 30,
2012, http://www.ajc.com/news/no-out-of-state-1428329.html
23
to the broken health care marketplace we faced before reform. We need to keep
moving forward.
By taking full advantage of the opportunities created by the Affordable Care Act,
we can break down the barriers to lower health care costs and finally level the playing field for small businesses. Then business owners like me will be able to focus
our full attention on building our businesses, creating jobs, and strengthening our
local economies. Thank you.
Chairman ROE. Thank you, Ms. Hall.

Mr. Streitberger?
STATEMENT OF BILL STREITBERGER, VICE PRESIDENT OF
HUMAN RESOURCES, RED ROBIN
Mr. STREITBERGER. Chairman Roe, and Ranking Member Andrews, and committee, my name is Bill Streitberger and I am the
vice president of human resources for Red Robin, and I appreciate
the opportunity to speak with you today. Red Robin is a casual dining restaurant chain with more than 460 locations across the
United States. We were founded in 1969 in Seattle by an independent business man, and during more than 4 decades of history
we have expanded to 42 states and also operate in two provinces
in Canada.
We pride ourselves in being, you know, Americas gourmet burger experts with over 24,000 team members across the country.
Every day we serve, you know, millions of guests.
Red Robin has been able to grow our business at a fairly steady
pace, opening new restaurants every year even during the recent
weak economic conditions. In fact, in the last 2 years, even in a recessionarywith the recessionary environment that saw a number
of our restaurant conceptscompetitors close locations or even go
out of business all together we were able to open 30 new restaurants and still have another 12 on the books to open this year.
This is important to us for a number of ways. First, opening new
restaurants allows us to grow our revenues, which in 2011 surpassed $900 million. Secondly, by expanding to new communities
we serve even more of our guests, but more importantly, opening
new restaurants allows us to add to our growing family of team
members, creating new jobs at each location and in the communities we serve.
This doesnt include the job expansion that takes place in our
home office in Greenwood Village, Colorado, just south of Denver,
as the growing restaurant base creates the need to grow in the corporate support function and the additional business that we are
able to give to over 8,700 vendors and other outside entities who
we count on for all of our food, supplies, services, and oversight
that we need to develop and run our businesses. We try very hard
to buy everything American.
There is another benefit to a healthy, profitable, growing Red
Robin business, and it is manifested in the way we give back to our
communities where we do business. One example of this is the
great work of our Red Robin Foundation, an internal resource. And
because of this foundation many of our team members receive support when disaster strikes, family emergencies, and even a scholarship fund when there is an opportunity for a college education.
24
In addition, we support our corporate giving program, such as
contributions to National Center of missing and Exploited Children, Special Olympics, and countless other local foundations that
our team members and the restaurants organize. We are proud to
say that we like to give back and part of being a good neighbor.
But running restaurants is not a high-margin business. Red Robins net income, as a percentage of revenues, was less than 3 percent in the lasteach of the last 3 years. After we have paid our
team members, our vendors, our landlords, and all other expenses
including payroll, property, state, and federal taxes, we use the remaining cash to reinvest in our business, including opening new
restaurants that create more jobs and support the surrounding
communities.
When health care and other costs increase we have fewer resources to reinvest and grow the business. We cant simply pass
along higher costs to our customers. As you and your constituents
know too well, very few Americans have been immune to the intense economic pressures in recent years and there is very little appetite during these difficult times for even marginal increase in retail prices.
In regards to health care specifically, taking care of our team
members is part of living our values as a company. We have thousands of team members who are eligible to participate in the health
and welfare plans. In addition to providing these team members
with these health care benefits we try to create and promote a
well-being to all of our people, such as our LiveWell program,
which isnot only encourages healthy choices but also provides
channels outside the company such as athletic events, volunteerism, to promote a healthy and fulfilling lifestyle.
But health care coverage remains an essential component of our
benefit programs. During the last 3 years Red Robins health care
cost per employee increased more than 6 percent every year. This
is a much greater pace than the growth of our guest sales, same
store sales, or net income.
Increasing the burden of health care costs through the 2014
mandates can negatively impact the ability of companies to grow
and offer benefits to other employees, forces companies like Red
Robin to decide on whether to reduce benefits and maintain affordable coverage, or accept the burden of increased company contributions, limiting our ability to continue to grow and create new jobs.
Either way, we feel it can be a lose-lose for Red Robin and for our
existing and prospective new team members.
We hope you will consider the adverse impact of these mandates
on health care coverage and costs andthat these can have on an
employer like Red Robin. I know I speak for our folks in our restaurants and office when I say that we are excited about the prospect of opening new and additional restaurants in new communities, creating new jobs, and welcoming even more folks into the
family.
As long as we can maintain our financial health, manage our
business profitably, and overcome any economic and other pressures effectively we will continue to grow, and serve more guests,
and serve more communities in the years to come.
25
I want to thank you for your time and your opportunity, again,
to speak with you.
[The statement of Mr. Streitberger follows:]
Prepared Statement of William Streitberger, Vice President of Human
Resources, Red Robin Gourmet Burgers, Inc.
Chairman Roe, my name is Bill Streitberger and I am the Vice President of
Human Resources for Red Robin. Red Robin is a casual dining restaurant chain
with more than 460 locations in North America. We were founded in 1969 in Seattle, Washington, and during our more than four decades of history weve expanded
to 42 U.S. states and we also have restaurants in two Canadian provinces. We pride
ourselves in being Americas Gourmet Burger Expert, and our 24,000 Team Members across the country every day treat our guests with what we at Red Robin call
our Unbridled spirit, which includes living our values of Honor, Integrity, Constantly Seeking Knowledge and, most importantly, Having Fun.
On behalf of all of my fellow Red Robin Team Members, I want to thank you for
the opportunity to appear here today to share our thoughts on the potential impact
of health care reform on all of us as employees, our many guests and the communities we serve.
In the many years since our first restaurant began serving guests on the University of Washington campus, despite the many challenges to maintaining a successful
and profitable restaurant company, Red Robin has been able to grow our business
at a fairly steady pace, opening new restaurants every year, even during the recent
weak economic conditions. In fact, in the last two years, even in a recessionary environment that saw a number of restaurant concepts close locations or even go out
of business altogether, Red Robin opened more than 30 new company-owned and
franchised restaurants, and we have another dozen or so new company-owned restaurant openings planned for this year. This is important to us in a number of ways.
First, opening new restaurants allows us to grow our revenues, which in 2011 surpassed $900 million. Secondly, by expanding into new communities, we can serve
even more of our guests, who, by the way, continue to thank us whenever we open
our first Red Robin in any neighborhood. But most importantly, opening a new restaurant allows us to add to our growing family of Red Robin Team Members, creating on average approximately 70 new jobs every time we open a new location. This
doesnt include the job expansion that takes place at our home office in Greenwood
Village, Colorado, as the growing restaurant base creates the need for growth in the
corporate support function, and the additional business that we give to nearly 8,700
vendors and other outside entities who we count on for all of the food, supplies,
services and oversight we need to develop and run our restaurants.
Theres another benefit to a healthy, profitable and growing Red Robin business,
and its manifested in what we give back the communities where we do business.
One example of this is the great work of the Red Robin Foundation, an internal resource that was created in the spirit of our Unbridled culture. Because of our foundation, many of our Team Members receive support when disaster strikes, help
when theres a family emergency and scholarship funds when theres an opportunity
to get a college education. In addition, with the support from our corporate giving
programs such as our past contributions to National Center for Missing & Exploited
Children and the Special Olympics, to the countless local fundraisers that our Team
Members organize at our restaurants, we are proud to say that giving back is part
of being a good neighbor.
Unfortunately, the rising costs of running our business, including significant and
escalating health care costs, make the prospects for continued profitability, job creation and contributions to our communities increasingly difficult. Running restaurants is not a high margin business. Red Robins net income as a percentage of
revenues was less than three percent in each of the last three years. After weve
paid our people, our vendors, our landlords, and all of our other expenses including
payroll, property and state and federal taxes, we use remaining cash to reinvest in
our business, including building new restaurants that create more jobs and support
the surrounding communities. When health care and other costs increase, we have
fewer resources to reinvest and grow our business. And we cant simply pass along
higher costs to our consumers. As you and your constituents know too well, very
few Americans have been immune to the intense economic pressures in recent years,
and there is little appetite during these difficult times for even marginal increases
in retail prices.
In regards to health care specifically, taking care of our Team Members is part
of living our values as a company. We have thousands of Team Members who are
26
eligible to participate in our health and welfare benefit plans. In addition to providing these Team Members with health care benefits, we try to be creative to promote the well-being of our people, such as our LiveWell program that not only encourages healthy choices, but also provides channels outside the company such as
athletic events and volunteerism to promote a healthy and fulfilling lifestyle. But
health care coverage remains an essential component of our Team Member benefits.
During the last three years, Red Robins healthcare costs per employee increased
more than 6% every yeara much greater pace than growth in our guest visits or
same store sales. Increasing health care costs through mandates that can negatively
impact the ability of companies to offer attractive benefits to employees forces companies like Red Robin to decide either to reduce benefits and maintain affordable
coverage or accept the burden of increased company contributionslimiting our
ability to grow the business, attract talented people to our organization and add to
our payrolls. Either way, its a lose-lose for Red Robin and for our existing, and prospective new Team Members.
We hope you will consider the adverse impact that mandates on health care coverage and costs that are not thoughtful and balanced will have on employers like
Red Robin. I know I speak for my many fellow Red Robin Team Members when I
say that we are excited about the prospect of opening additional restaurants in new
communities, welcoming even more Team Members into our family and serving our
communities in the years to come.
Again, thank you for the opportunity to share our views and work with the Committee.
Chairman ROE. Well, thank the panel for their testimony.

And I will now ask Mr. Andrews if he has any questions.
Mr. ANDREWS. I do, thank you.
I would also like to thank the panel for their preparation and for
great testimony today.
Mr. Streitberger, did I pronounce your name correctly?
Mr. STREITBERGER. Yes, sir.
Mr. ANDREWS. Welcome.
I am very sympathetic with your discussion of trying to find
ways to reduce the cost growth that you have experienced so you
can open more stores and hire more people. I think that is something we all have in common.
I want to ask you some questions about the problem in the
broader context, though, thatyou have 24,000 employees. About
how many of them are eligible to enroll in your health plan?
Mr. STREITBERGER. According to thebeing at full time about
8,000. We hire a great deal of students, part-time workers.
Mr. ANDREWS. Of the 8,000 that are eligible to enroll do you
know how many choose to enroll?
Mr. STREITBERGER. Around 6,000.
Mr. ANDREWS. And if I were makingand tell me if this number
is off, but if I were making $25,000 or $30,000 a year is that the
typical wage of someone who is eligible to enroll in your plan?
Mr. STREITBERGER. Yes.
Mr. ANDREWS. Okay. If I was trying to enroll my family, not just
myself but my family, what would my monthly premium be?
Mr. STREITBERGER. Well, we have several plans, and depending
on how you chose
Mr. ANDREWS. Lets say I chose the least expensive one. I know
you have a high and a low.
Mr. STREITBERGER. The least expensive would be around $350 a
month.
Mr. ANDREWS. Okay. So for a person making $30,000 a year
gross it would be $350 a monththeir shareto enroll in the plan?
27
Mr. ANDREWS. Okay. That is a difficult thing to do, I am sure
you are aware
Mr. STREITBERGER. Correct.
Mr. ANDREWS. I want to ask you whatlets talk about your
part-timers for a minute, that one of your part-timersI am sure
some of your part-timers are older workers, too, that
Mr. STREITBERGER. Some are, correct.
Mr. ANDREWS. I have gone to restaurants like yours and do see
people in their late 50s, early 60s, sometimes older. I am sure some
are there because they like the work experience; others really have
to work and that is why
Mr. STREITBERGER. Sure.
Mr. ANDREWS. Lets take a case of a 61-year-old woman who feels
a pain in her side, she is one of your part-time employees, so she
is not eligible to be in your plan, right?
Mr. STREITBERGER. Well, they need to average the 30 hours or
more, correct.
Mr. ANDREWS. Okay. So she is 25 hours a week, lets say. She
is not
Mr. ANDREWS [continuing]. Eligible to be in your plan. Or she is
over 30 and just cant afford it because of the cost that we just
talked about.
She gets a pain in her side, she goes to the emergency room
today and they find out she has had appendicitis attack. She needs
to have her appendix removed.
She has no health insurance. What should we do? As a country,
what should our policy be about what happens to her and who pays
for it?
Mr. STREITBERGER. Well, I believe that the country already has
a safety net for folks that are in positions like that.
Mr. ANDREWS. What is the safety net?
Mr. STREITBERGER. Well, a lot of these folks use Medicaid and
Medicare.
Mr. ANDREWS. Lets assume she is not eligible for Medicaid,
which is, frankly, typical of a lot of people. Medicaid enrollment,
before the new law, of course, was usually 100 percent at poverty,
which in my state meant about $18,000 a year for a family of four.
Now, we changed that in the new law but she is probably not eligible for Medicaid under present law. So what should we do?
Mr. STREITBERGER. Again, that is something that we try and
offer to all of our folks. They can, you know, in a case like this
Mr. ANDREWS. No, I am not saying what you should do. Dont
misunderstand me. I am not presupposing you should pay for it. I
am saying, what should we as a country do to solve that problem?
As I see it there are really a couple of options. We could say,
Well, sorry, you cant get the appendectomy because you dont
have insurance. I dont think you would want to see that happen,
would you?
Mr. STREITBERGER. No.
Mr. ANDREWS. Okay. The second thing that we could do is expand a public program like Medicaid to include her in it. For in-
28
stance, we could include families making up to $30,000 or $35,000
a year under Medicaid. Would you think that is a good idea?
Mr. STREITBERGER. Well, I think one of the ways to help this, as
you mentioned in your statement, was to look at ways of driving
the costs of health care down
Mr. ANDREWS. No, but I understand that and I am all for that,
but I am talking about this woman in this circumstance who needs
this appendix taken out today. You think we should enroll her in
Medicaid and increase the Medicaid eligibility limit?
Mr. STREITBERGER. If that gets some folks the coverage, sure.
Mr. ANDREWS. Which is what we did in the Affordable Care Act.
Do you think that she should be required to have health insurance for herself or not?
Mr. ANDREWS. If she is not required, whoand lets say we dont
get the Medicaid increase that we talked aboutwho should pay
her hospital bill?
Mr. STREITBERGER. Well again, I am not a tax person or a politician, but
Mr. ANDREWS. No, but you are a citizen and a taxpayer
Mr. STREITBERGER [continuing]. You know, people need to take
personal responsibility for their actions and it is a matter of
choices.
Mr. ANDREWS. Okay. But if she makes
Mr. STREITBERGER. People spend money on houses
Mr. ANDREWS [continuing]. If she makes the choice not to buy
the health insurance for whatever reason, she is not covered Medicaid under this example, who should pay the bill?
Mr. STREITBERGER. Again, that is not something I can help you
with.
Mr. ANDREWS. Well, I am notit is not really an expert question.
I mean, all of us as citizens, I think, have a stake in that answer.
There are two choices, right? We could have some publicly taxed
and funded program that pays for her health care or we should
or we couldthree choiceswe could require her to do it and subsidize her purchase, or we could require you to do it, as her employer. Which of those three would you like to see us do?
Mr. STREITBERGER. That is something that we are taking a hard
look at to see what we as a business can afford.
Mr. ANDREWS. I understand. Thank you very much.
Mr. STREITBERGER. Thank you.
Chairman ROE. Thank you, Mr. Andrews.
Dr. DesJarlais?
Mr. DESJARLAIS. Thank you, Mr. Chairman.
And as I sit and listen to that conversation I noticed the ranking
member when we started out saying that the ObamaCare was not
a government health care planit was not a government takeover
of health carebut in that dialogue that I just heard it sounds like
he is saying exactly that, the government needs to take more responsibility and make sure that these people are taken care of. So
in other words, I think that is exactly what the ranking member
is insinuating with that last line of questioning is that personal responsibility is not really the answer, it is more government respon-
29
sibility, if I understood it correctly. And certainly he could chime
in if he would like.
Mr. ANDREWS. Would the gentleman yield?
Mr. DESJARLAIS. Yes, I would.
Mr. ANDREWS. Yes. I didnt want to interrupt his time.
I actually think it is a combination of people with very low incomes being in Medicaid and having some personal responsibility,
people with somewhat higher incomes being in a private plan,
which is what the law requires.
Mr. DESJARLAIS. Okay. And again, we can look at the track
record right now of our government health care, Medicaid, Medicare, and even the V.A., and I think that there is not anyone sitting up here that cant agree that it is an abysmal failure in terms
of economics. The Medicare program, whether you are Democrat,
Republican, the CBO, AARP, is going broke in 10 years.
And we are suggesting somehow that the federal government can
step in, take over our health care services in this country and
somehow run them efficiently without rising costs and while maintaining a quality of care that is acceptable to patients and their
doctors. And I just dont see, personally, how this is going to work,
considering there has been no model set forth to this point that has
done that. And I have been a family practice physician for 20 years
and I can say that in my experience, talking with businesses
around Tennessees poor district that they are very afraid of this
health care law and what it is going to do to their ability to provide
the services.
Ms. Hall, you had stated that, you know, you like to treat your
employees well and they will treat customers well, and I think that
is very true. But we have a couple of examples in businesses that
I visitedValmont Industries is a large business. They have got
5,000 or 6,000 employees. They pay up to $12,000 a year per employee, which is a lot of money for a health care plan.
But under the new ObamaCare they could pay a $3,000 penalty
and not have to provide that health care, and these employers
would probably get a lesser plan and be put into the public health
care exchanges. They dont want to have to do that and it concerns
them greatly, but you can do the math. That is $9,000 per employee difference over 6,000 employees. There is going to be some
bean-counters in that company that are going to do the math and
see that it just doesnt make sense to provide those employees with
health care.
We have a smaller company that is in the same boat. They have
got a little less than 500 employees, and they would pay the $2,000
penalty if they dropped their employees health care coverage and
their company would save a couple of million dollars. It is hard to
look at that and see where it doesnt make sense to do that.
So I do think that this health care law does create a situation
where employees are going to lose the coverage that they had. And
we had a little discussion earlierI think Dr. Roe mentioned
health savings accounts, and I think Mr. Fensholt was talking
aboutor maybe it was Mr. Ramthun was talking about health
savings accounts. And really, that is kind of what we need to be
getting to is personal responsibility, and when people have health
savings accounts and have skin in the game and they have to help
30
make their own decisions then that is the kind of responsibility, I
think, that we need from the American citizens and not the federal
government, who is burdening all your companies with increased
regulation.
Mr. Fensholt, you talked about whatyou know, they are piling
on regulationswhat you have to do just to provide your health
carefor your employees with the new regulations, and it is these
increased regulations that are driving up health care costs. And
frankly, the health care in this country is driving our national debt,
so the solutions that we need moving forward do not come from
ObamaCare; it is going to come from repealing ObamaCare and
taking stepwise fashions and personal responsibility.
And, Ms. Hall, you said that you provide 75 percent of the health
care coverage to your employees but the cost was only $67,000?
Ms. HALL. We have 45 FTEs and they are all, you knowour average age is probably 23, and some of them are obviously covered
under other plans or opt out even though we highly encourage
them to be involved.
Mr. DESJARLAIS. Okay. Well
Ms. HALL. And obviously our costs are lower because we have a
younger workforce.
Mr. DESJARLAIS. Okay. So your example doesnt fit with some of
the other companies examples, but I am out of time already and
I think we might get to two rounds so I will ask more questions
next time.
Mr. Kildee?
Mr. KILDEE. Thank you, Mr. Chairman.
Ms. Hall, I agree with you that instead of repealing the health
care reform law we should instead work together to make it better.
Specifically, you mentioned the small business tax credit. How
would you change this tax credit to make it more accessible for
small businesses like your own? Are there other aspects of the law
that you would like to see changed that might make it easier for
businesses like you by providing
Ms. HALL. Yes. I mean, I think that there isthe 25 FTE requirement has a salary cap ofis it $50,000 per employee, and 25
islike for us folks, I mean, to run one Red Robin needs more than
25 employees, yet we might havelets say your revenues are $5
million and your profits are 3 percent of that. That is a lot of burden to ask forand to look at expanding that, especially for restaurant and hospitality, where we employ 7 days a week, you
know, 16, sometimes 24 hours a day. I think a lot more businesses
will participate.
And over 360,000 businesses did participate. That is more than
all the members in NFIB combined. So it is still a decent level of
participation, but we could expand that and really look at solutions.
We are problem solvers up here. I started my own business, and
we are all thinkers around how to make things better. Lets figure
out a way to address that and make it a more powerful incentive
and opportunity to give a littleget a little money back for doing
the right thing by providing health care.
31
Mr. KILDEE. Do you belong to any small business association
back in Seattle, or
Ms. HALL. Right.
Mr. KILDEE. In that group do you find some small businesses
who do feel that this bill, which passed by this Congress, can be
helpful both to themselves, to their employees, and to the public in
general? Some people picture this as something that small business
looks upon as not in any way with redeeming factors. What do you
find amongst the small business people you associate with?
Ms. HALL. Right. The Main Street Alliance was formed after
health care policy was being written and we were findingand it
spans across several states. I think it might be 15 to 20 states. I
am not quite sure. But in Washington there are over 2,000-plus
small business owners, and the reason that this alliance was started was because we were misrepresented as small business owners.
And what I said earlier around health care costs, I was at
Starbucks. I cant remember exactly what I paid. It was a similar
situation. The company paid 75 percent and I paid 25, and I got
dental, vision, and amazing health care.
And when I went to start my own business, obviously I paid almost twice that just for the health care coverage. So it is astonishing that the engine of our economy, which is small business, has
to have thiswe have to pretty much throw our health care out the
window. We have to walk away from affordable, quality health care
to be able to start our own business.
And that is why thisthe Main Street Alliance was formed, because we were being completely misrepresented. We want quality,
affordable health care for all, and we dont have access to that. So
the public option, I thought, was a greatand something I fought
hard for.
But the exchanges, I think, will also provide a great opportunity
for bargaining power. And we are very excited in Washington State
to participate in that and actually shop and say no to the one, two,
or three insurance providers that get to just kind of set rates at
will and increase rates without any accountability. So we finally
will have some clout, and that is exciting.
And I would say that I speak for every business in the Main
Street Alliance. We are all aligned around this issue. It is one of
the galvanizing forces of creating this alliance.
Mr. KILDEE. You mentioned also that this past year your rate increase was less than in previous years. Can you expand on this?
Do you attribute this in any way to the health care reform law?
Ms. HALL. I think part of that has to do with the 80/20 rule. And
our health insurance went up only 6.8 percent, which is phenomenal. I mean, I think the lowest it has gone up is 15 percent,
and it usually is more like 20 to 30 percent. So it is amazing. Like,
I was actually relieved at only 6.8 percent.
And yes, I do think some accountability around spending 80 percent of that money on actual health care, versus marketing, and
admin, and things like that, is helping to keep those rates at the
at an appropriate level, and also accountability and where those
rate increases are coming from.
Mr. KILDEE. Thank you very much.
Ms. HALL. That the ACA brought. Thanks.
32
Mr. KILDEE. Thank you.
Dr. Heck?
Mr. HECK. Thank you, Mr. Chairman.
And likewise, I thank all the committee members and the panel
members for being here today. You know, we heard Dr. DesJarlais
talk about the impact on large employers and potentially not providing insurance because it would become more cost effective for
them to actually pay the fine than to provide the insurance.
And I also have a smallI have a small employer in my district,
iMAGiNE Communications, that has 11 employees who historically
has paid 100 percent of their employees health care, and recently
they have had to bring it down to 50 percent because of increasing
costs, and they are uncertain as to how much longer they might
even be able to do that. And I would agree with the opening comments of the ranking member and some of the other folks that
have talked about the small business tax credit, that the requirements to qualify for the credit are too stringent and that they
phase out too quickly for a lot of small companies to benefit.
But regardless, at full implementation the Affordable Care Act is
going to require increased coverages from businesses, whether it is
the mandated services, whether it is the number and types of people who must be covered, or how much the employer must contribute to that coverage. And what I find even more shocking is
that even if you do all that as an employer, if one of your employees opts out and gets insurance on and exchange and receives a
subsidy you can still be fined even for doing all the right things.
So I would ask, you know, Mr. Streitbergerwhich, by the way,
didnt know you were going to be here today, but I actually ate
Sunday at one of your restaurants
Mr. STREITBERGER. Thank you very much.
Mr. HECK [continuing]. In my district. The burger was delicious.
Love the bottomless fries, although my cholesterol doesnt.
What would you say is the biggest impediment in providing lowcost health coverage for your employees? And in a perfect world,
which laws or regulations would you change to make coverage
more affordable for you and your employees?
Mr. STREITBERGER. Well, I think what would be a big helpand
it was mentioned by Mr. Andrewsis that if we had more competition in the marketplacewe, as a public company, we have a great
deal of competition every day. We are used to it; we deal with it
and it puts us in a place to do a better job and offer better services.
I think that would be a great help.
I also manage the other side of our insurance business on workers comp, and in dealing with those two sides of the business one
thing that hasnt been mentioned and hasand in business we are
very concerned about, and that would be tort reform. I mean, everything that we deal with usually has a lawyer attached to it,
which does drive up costs. I am sure physicians do more testing to
make sure that they are making the best decision possible, and we
see that it really can ratchet up the business.
So I think, again, the competition helping to drive the cost down
so that we can offer more care, more affordable care to our team
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members. And then also, you know, the outside impact of any business, and that would be on that side, the tort reform.
Mr. HECK. Thank you.
Thank you, Mr. Chair. I yield back.
Ms. HALL. If I could add to that, actually, I think one of the biggest impediments to health care costs is the fact that not everybody
has to have health care. And I think that if we were all involved
with some kind of level of personal responsibility as well as shared
responsibility from the employer side we are going to get preventative care and we are not going to go to the E.R. when we need help.
And if there is a safety net for those that need it I think that would
actually, from what I understand, bring health care costs in check
and down.
Chairman ROE. Would the gentleman yield some of your time?
Just to clear the record up, there were 309,000 small businesses
that the Treasury Department said that is incorrect; the number
counted individual partners at firms, not actually employees. The
real number that GAO found was 100 andI have got it here
somewhere70-something-thousand. So it was 170,300.
Ms. HALL. Oh, I have from the White House fact sheet that it
was, in 2011, 360,000.
Chairman ROE. Dr. Holt?
Mr. HOLT. Thank you. Thank you, Mr. Chairman.
I am not sure whom to ask this question of, but let me start with
Mr. Fensholt. What evidence to do you have that the Affordable
Care Act is responsible for the increase in premiums that employers areand employees are finding?
Mr. FENSHOLT. Well, part of the business of insurance is you
have very smart peopleactuaries and underwriterswho look at
various laws like the Affordable Care Act and the coverage mandates and they ask themselves, If we have got to begin to cover,
for example, adult children to age 26 even if living apart from the
employee, even if married, even if gainfully employed themselves,
what additional cost is that going to impose on our plans? They
do the same thing for the abolition of lifetime and annual dollar
limits on essential benefits. And they come up with an estimate.
What we have seen, in talking to health insurance underwriters
and our own actuaries, is thatand about half of our bulk of business are self-insured plans, so there we are dealing with our own
actuaries and their claims history. And now we have a little track
record under these provisions, as well. So now you are actually
tracking claims incurred by the additional enrollees, claims incurred that are required to be paid where they wouldnt have been
paid before. And you can assess a cost to that, and that is where
those numbers come from.
Mr. HOLT. Yes. And there is a cost, but there is additional revenue because you will have more people brought into the coverage.
Isnt that true?
Mr. FENSHOLT. Well, the way this tends to work is thatlets
take, for example, the case of the adult children who gain coverage.
The adult children who get enrolled under this provision tend to be
the ones who need the coverage. That is why their parents enroll
them.
34
The adult children ofwho are healthy, the parents tend not to
do that. So that mandate tends to attract some of the worst risks
in that age category.
Mr. HOLT. Yes, and isnt that the point, that expanding coverage,
bringing more people into the pool, will address that very concern?
Mr. FENSHOLT. If you get significantly more healthy people into
the pool than sick people into the pool. That is the goal. That is
not happening in this context.
Mr. HOLT. Oh, that is very much what is under this law. That
is very much
Mr. FENSHOLT. Oh, that is the intent of the law.
Mr. HOLT [continuing]. What is under consideration right now.
I would yield to the ranking member.
Mr. ANDREWS. Thanks for yielding 1 second.
Mr. Fensholt, do you favor the individual mandate, then?
Mr. FENSHOLT. I cant speak for my company.
Mr. ANDREWS. Understood. What is your personal opinion about
it?
Mr. FENSHOLT. My personal feeling is that the individual mandate makes some sense.
Mr. ANDREWS. Thank you.
Mr. FENSHOLT. Thank you.
Mr. HOLT. Mr. Streitberger
Mr. STREITBERGER. Yes, sir?
Mr. HOLT [continuing]. I would like to pursue Mr. Andrews example of your employee earning $25,000 a year and ask you what
you mean by personal responsibility. You said you would like to
bring personal responsibility into this.
Mr. HOLT. Let me pursue this for a moment. Lets look at the executives in your countryin your company. Are there any of the
executives in the company who dont carry health care insurance?
Mr. STREITBERGER. There are some that dont carry it through
Red Robin.
Mr. HOLT. But do you know any that dont carry health care
Mr. HOLT [continuing]. Insurance?
No.
Is there any reason to think that this $25,000-a-year employee
would be less interested in having health care coverage than the
executives?
Mr. STREITBERGER. First, many of those $25,000 to $30,000 income team members do carry the insurance, and that is where I
was going with
Mr. HOLT. But my question is, is there any reason why they
would be less interested in carrying
Mr. STREITBERGER. Sure. Many of them make personal
choices
Mr. HOLT. Not to be insured?
Mr. STREITBERGER [continuing]. Not to be insured because the
money is spent on brand new cars, trips, tattoos. I mean, they have
other choices. And having raised three children of my own I know
at that agethe average age of our team members they feel they
35
are a little invincible and they make other decisions with their
money.
Mr. HOLT. So the personal responsibility that you are talking
about, does that apply to this woman getting appendicitis? Is
that
Mr. STREITBERGER. Again, we are in a hypothetical situation
Mr. HOLT. Did she fail to take responsibility for her appendix?
Mr. STREITBERGER. With our team members they have the ability
to request schedules that could get them to that. In his situation
why someone would request to be part time all the time and then
have a health situation, again, we offer choices to our team members, full time and part time. And if she chose, for reasons I cant
explain, to stay part time then that is, again, a personal choice.
Mr. HOLT. And it is your choice not to make it more affordable
to her than you already do so that you can hire more employees
who will not have this coverage.
Mr. STREITBERGER. No, sir. We pay between 60 and 70 percent
of the premiums currently, and as the gentleman from Lockton
mentioned, we are one of those self-insured companies, but we
Mr. HOLT. Yes, but you want to grow.
Mr. STREITBERGER. We want to grow and create more jobs, yes,
sir.
Mr. HOLT. More jobs that have that inadequate coverage.
Mr. STREITBERGER. More jobs that have the opportunity to take
out health care, yes, sir.
Chairman ROE. Mr. Wilson?
Mr. WILSON. Thank you, Mr. Chairman. Mr. Chairman, I have
been joined, too, by a foster person. Very proud Jasmine Thompson
is here as part of the shadowing program. [Applause.]
And we are looking forward to a big day, spending the day with
you.
Additionally, Mr. Streitberger, I have a high regard for Dr.
Hecks judgment regarding burgers, and so I just want to invite
you that the Southeast
Mr. ANDREWS. Would the gentleman yield?
I am just wondering how this bottomless fry thing fits into the
wellness discussion, as someone who is addicted to the french fries
and would love the bottomless fries?
Mr. WILSON. The ranking member is actually correct on this.
This is good. [Laughter.]
But you are welcome to the Southeast, so please expand.
Mr. WILSON. In fact, with 460 locations we welcome you.
What are some of the programs that your company has been promoting to keep health care costs low for your employees?
Mr. STREITBERGER. Every year we look at plan design, based on
the wants and needs of our team members, what are their usage.
This past year we went to what we call a high-low planhigh premium, low deductible, and vice-versa, which the low plan offering
lower premiums, again, to our team members and giving them that
choice on how to manage their health care.
And as I mentioned previously, we are self-insured, so we, as a
company, take the risk. Our stop-loss is at $250,000, meaning for
each covered individual we write a check for the first $250,000
36
every year, and then in a plan if it should go catastrophic. And that
helps us, by taking that risk, to keep our premiums low.
And what has helped that also is last year when we did this,
knock on wood, we had very goodwe didnt have a lot of high-risk
claims come our way. As Ms. Hall, we have a younger workforce,
in general, and dont see a lot of issues that way. So that helps.
But these are all the things that we do.
Also, our wellness program. We try and promote better living,
health care in the sense of wellness programs, exercising, diet,
other activities, you know, for mental wellnessanything that we
can think of to try and help them live a healthier, better life, which
would drive down our costs.
Mr. WILSON. Thank you very much.
Mr. WILSON. Mr. Ramthun, why do you believe more employees
are now selecting the consumer-directed health care plans? And
how do you feel that we should be encouraging health savings accounts?
Mr. RAMTHUN. I think more and more employees are choosing
them one, for the premium cost. It is much lower than a traditional
plan.
Secondly, they get to keep some of the money. Some of the money
that used to go to the insurance now goes into their own pocket.
If they dont spend it they get to keep it; that money accumulates
from 1 year to the next.
So we need to make sure that those plans continue to be available for workers going forward, and there are ways to make that
opportunity even better. Several bills have been introduced in Congress to do that that would actually expand HSAs.
Mr. WILSON. And you are explaining this fully to employees so
they know how to participate in the program and have a deduction
on their pay stub?
Mr. RAMTHUN. When my clients ask me to come in I absolutely
explain all of these things to them. They tend to not understand
that it is their money in the first place. This would otherwise be
wages that they would be getting and, you know, they could go out
and buy insurance on their own.
To Mr. Andrews question earlier about what could we do to help
people with that responsibility, well, number one is the tax treatment of insurance that is not acquired through the employer. People who buy insurance on their own get absolutely no tax benefit
except when they deduct their medical expenses, and the Affordable Care Act has made that harder.
The threshold for deducting any medical expenses is going up to
10 percent of income where it has been at 7.5 percent. And there
you can only deduct the amount that is above that threshold.
So there is a huge incentive to get their coverage through the
employer; many of them still dont take it. One way we could help
them if they chose not to purchase that coverage through their employer is to give them the equal tax benefit if they buy the insurance on their own.
Mr. WILSON. And that really leads to Mr. Fensholt, In regard to
companies dropping health insurance, what do you see as, with the
health care takeover, what the consequence will be?
37
Mr. FENSHOLT. Well, we are going to see, we think, a substantial
erosion over time in the employer group market, and that will start
primarily on the smaller end of the spectrum. We have many clients tell us substantially this: They say, I am not going to be the
first to go but I am not going to be third.
And so if you look at how easy it is for employers to drop coverage and reap substantial savingsout of our bulk of business on
average a client would save about 44 percent off their current
health insurance spend by dropping coverage. The only thing keeping them in the game is that they feel they need to attract and retain employees. The moment one of their strong competitors goes
out of this market they are not going to hang around and incur
that expense.
So we think that when the Budget Office in Congress estimated
that by decades end maybe 4 million or 5 million Americans net
will lose their coverage, we think they have grossly underestimated
that.
Mr. WILSON. Thank you very much, Mr. Chairman.
Chairman ROE. I thank the gentleman for yielding.
Mr. Hinojosa?
Mr. HINOJOSA. Thank you, Chairman Roe.
I have a statement and some questions I want to ask but I want
to yield 1 minute to our Ranking Member Andrews.
Mr. ANDREWS. Thank you, my friend. I just want to ask Mr.
Ramthun to follow up on something he said about tax deductibility
for uninsured people.
Do you know what the median income is for an uninsured person
in the country?
Mr. RAMTHUN. I do not.
Mr. ANDREWS. Median family income is in the 30s. It is somewhere between $32,000 and $38,000 a year. Lets say you take a
person with $35,000-a-year income and they go out toin my district family health insurance would cost them $12,000 to $15,000
to buy a family policy. If that were fully deductible the in-pocket
benefit of that for them would be at a maximum about 15 to 20
percent of that. In other words, if it was fully deductible, given
what their tax liability is.
So how do you buy ahow do we help a family with a $35,000
income by giving them a $5,000 or $6,000it wouldnt be that
much, excuse me. It would be 20 percentit would be $2,500 off
of that. It would still cost them $10,000. How does that help them?
Mr. RAMTHUN. Well, you could also get them a tax credit.
Mr. ANDREWS. Well, that is what the Affordable Care Act does.
Thank you.
Mr. HINOJOSA. Thank you.
I am very pleased that the chairman and Ranking Member Andrews called this hearing. I was part of a family business and I
was president of the company and always the one to negotiate the
insurance policies for our employees, and there were 300.
So I came here before this health care reform took place and I
saw how we had to stop paying 100 percent of the insurance for
our employees and went to 50 percent by the employees and 50
percent by the company because the premiums had been escalating. And I saw that some of the things that are being said by
38
the other side are predictions about the negative impact of the Affordable Care Act, and what I see is that the health care sector has
led the way with more than 579,000 new jobs because of the increase in people getting insured.
The premiums for employer-sponsored coverage increased by only
9 percent in 2011, but if we look at the previous decade we saw
that the premiums increased by 113 percent between the period of
2001 and 2011. The health care came in in 2010. So that means
that during the 8 or 9 years without the reform on health care we
already had close to 100 percent increase. So lets not blame this
health care reform bill on what happened previously and continued
to happen, because I was the one that negotiated those insurance
policy premiums with the insurance companies and I know that it
wasnt working.
So I am going to address my first question to Ms. Hall.
In your testimony, you stated that your business insurance was
twice as expensive and included no dental or vision. In your testimony, I saw that you stated Republicans have offered an alternative to offer insurance across the state lines. The problem is
or with that, in my opinion, is that any time an insured has a problem with a claim they would need to go to the insurance commissioner of that state in which it is issued. Companies would simply
all set up shop in the state where the consumer protection laws are
the weakest, and so that wouldnt allow this program to work.
So my question to you is, if you were offered a cheap plan from
an insurance company based on the Mariana Islands how pleased
would your employees be when they have a problem with their
claim?
Ms. HALL. I dont think they would be pleased at all. I think that
you dont know what you are buying if you are going across state
lines and you dont have an insurance commissioner you could go
to to
Mr. HINOJOSA. Being a businessman, I have a lot of friends who
had their self-insurance but they were always offshore and there
were lots of things about their insurance policies that were not
good for the employees. So that is why I am concerned as to our
not letting this health care go ahead and be implemented over
until 2014 and that we can see a bigger pool, as was said by Congressman Holt and others. Once we get the pool much bigger and
sharing in the cost it is going to be much better.
And I will say this, that in my own experience in my congressional district where we have a very high national poverty level of
folks who are uninsured40 percent, one of the highest in the
whole country, compared to 16 percent for our nations uninsured,
it is beginning to work. A lot more people are insured.
So I thank you all for coming and giving us an opportunity to listen to your point of view.
I yield back.
Chairman ROE. Thank the gentleman for yielding.
Dr. Bucshon?
Mr. BUCSHON. Thank you, Mr. Chairman. I was a practicing
cardiothoracic surgeon for 15 years prior to coming here, just for
background, so everyone on the panel knows where I am coming
from.
39
I want to clear up a couple of assumptions that are always made,
one recently made by Mr. Holt that someone with appendicitis, if
they didnt have insurance, wouldnt get surgery. And I just want
to let everybody know, including everybody in the country, that is
absolutely, totally false, that people that have severe medical problems come to the emergency room and get taken care of regardless
of their ability to pay. Hospitals are required to do that. Physicians
ethically, because of our oath to our patients, do that.
Myself, personally, have operated on many, many patients that
had no insurance or had the best insurance money can provide, and
physicians treat all of those patients the same. So I wanted to clear
that up.
The other thing is this assumption that because you have health
insurance coverage all of a sudden you have miraculously developed personal responsibility for your actions. I have had patients
with the best insurance that money can buy and they take no care
of themselves at all. They dont take their medicine, they smoke,
and they dont follow advice of physicians.
I have had people that have no health insurance that are diligent
about taking care of themselves. They get their medications because there are ways for people who dont have insurance to do
that and they do the best job they possibly can to take care of
themselves.
That is not a direct connection, that if we suddenly provide people with health insurance we will change peoples moral character
or their behavior. That is not true, in my view.
The other question is Ifirst question, just briefly, for Ms. Hall,
do you think the uninsured or the Medicaid population overutilize
the E.R. the most? Which group?
Ms. HALL. The underinsured or
Mr. BUCSHON. Uninsured.
Ms. HALL. Uninsured or
Mr. BUCSHON. Or Medicaid?
Ms. HALL. I wouldnt know.
Mr. BUCSHON. It is the Medicaid population. And the reason is
because the uninsured come to the emergency room when they
truly have an emergency, and if you provide services for free with
no skin in the game people take it willy-nilly, they just show up
whenever they want because guess what, it is free. That data has
been proven out many, many times.
So this assumption that providingexpanding the Medicaid system is suddenly going to save us money in the health care system
is actually, in my view, going to have the complete opposite effect.
You are going to see a flood of patients coming to the emergency
room because it is free. So I wanted to clear that up.
So, Ms. Hall, has your business discussed dropping their private
health insurance plan?
Ms. HALL. Have we discussed that?
Mr. BUCSHON. Yes. Have you looked at the options of financially
what will happen if you drop you plan or versus you dont if
PPACA is fully implemented?
Ms. HALL. We havent looked at the options of dropping our
health care coverage, but we have had to make adjustments with
these rate increases tousually
40
Mr. BUCSHON. You have never even discussedyou never even
had on one piece of paper the cost without covering it and the cost
if you do? Because I would say as a business person that would be
something that is on everybodyeverybody that I talk to, that is
on their list. They look at that. You have never done that?
Ms. HALL. Absolutely not. I think the most important thing that
we can doand this is something I learned from Howard Schultz,
CEO of Starbucks, directly, is if we take care of our people they
take care of our customers
Mr. BUCSHON. Fair enough.
Ms. HALL [continuing]. They take care of your shareholders.
Mr. BUCSHON. Fair enough.
Mr. Streitberger, first of all, my son loves your hamburgers. I
know people have said that, but it is true.
Mr. BUCSHON. Evansville, Indiana, he wants to go there every
time.
Mr. BUCSHON. And you may or may not be willing to step out on
a limb on thishas your company, that you are aware of, looked
at your options under PPACA as far as what type of health insurance coverage versus none that your company provides?
Mr. STREITBERGER. All options we are currently investigating,
yes, sir
Mr. BUCSHON. So the answer is, which is consistent with every
business person I have talked to, is that an astute business person
that runs a business has looked at all of these options and will
make their decision partially based on their competition, as was
pointed out by Mr. Fensholt, and based on a number of factors. But
if the financial advantage is so massive that they cant compete
they will have no choice.
The other thing is, finally, just to finish up, I wouldas a physician I would recommend that anyone, including members of Congress, that can avail themselves to a city emergency room to visit
and to get inreally get in the trenches on health care and see exactly what actually is happening andbecause a lot of people want
to talk about this issue in the abstract. I have been there. A lot
of other members have been there. And you really cant get a good
assessment for some of these things without being there. If you can
avail yourself to that opportunity it would be a good thing.
I yield back.
Mr. Ross?
Mr. ROSS. Thank you, Mr. Chairman.
Mr. STREITBERGER
Mr. ROSS [continuing]. We dont have any of your restaurants in
Florida, and I am apparently missing out, but
Mr. STREITBERGER. We are coming there. We are coming there.
Mr. ROSS. I obviously havent missed too many hamburgers, so
I am pretty good there.
Profit per employeeare you familiar with that concept?
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Mr. ROSS. And that essentially would be an alternative to 50 or
more employees in order for the Patient Protection and Affordable
Care Act to apply. And I came in latehas anybody asked you
about that?
Mr. STREITBERGER. No, sir.
Mr. ROSS. Would you explain why that is a good idea?
Mr. STREITBERGER. Well, if I understand the question, we have
as a public company, and probably a lot of private companies, we
look at our profitability in many different ways, and profit for employee, or in the case of health insurance, the cost per employee,
and we try and keep that within a manageable rate for the organization as well as an affordable one for our team members, as well.
And to Mr. Andrews point, some, you know, may find it difficult
to pay the premiums based on their annual salary
Mr. ROSS. Well, that affects your margins. I mean, if you are on
a
Mr. STREITBERGER. Well, at 3 percent
Mr. ROSS [continuing]. If you are a tech company and your profit
per employee is, you know, several hundred thousand dollars, and
in the food industry, you know, it is
Mr. STREITBERGER. Yes. Our business isnt in the clouds. I mean,
it is in our restaurants and we cant take our work, if you will, offshore. I mean, it stays here in the United States.
Mr. ROSS. Would you support a profit per employee, as opposed
to a threshold of 50 or more employees?
Mr. ROSS. Mr. Fensholt, you talked about the grandfather provision and being able to keep your doctor. Is there anything in this
act that would allow or require a doctor to keep a patient?
Mr. FENSHOLT. Not to my knowledge, sir.
Mr. ROSS. So it is somewhat unilateral, I guess. In other words,
if the doctor is not going to get the reimbursement, if the doctor
is not going to get the equitable fee for his services then he may
not keep the patient regardless of how much the patient wants to
keep the doctor.
Mr. FENSHOLT. I think that is a fair statement.
Mr. ROSS. And, Mr. Ramthun, I want to talk to you a little bit
about the HSAs, and wellness, and portability. And I think there
are a lot of factors that come into play because I think we as a
country missed something when we decided to continue employeeprovided health benefits, because we dont provide employer-provided auto insurance, property insurance, and most other insurances.
For some reason, since the end of World War II we have provided
this as a benefit, and done so to the detriment of the employee and
to the employer, and to the doctors. And it seems to me that a
change in health policy would be to allow for wellness, as Ms. Hall
spoke about being very important, and wellness being managed
with HSAs that allow the employees to have some sense of responsibility
In other words, when I buy property insurance I get a discount
if I have a smoke alarm, a fire alarm. I have some risk in it. I am
paying the premium but I also have the discount because of my
risk management.
42
It would seem to me that a policy in place that would allow for
the interstate sale of health insurance programsbecause we have
interstate sale of a lot of investment products out there that are
done, I think, very effectively through consumer advocacy enforcement, as well. But across state lines, health savings accounts, tax
policy that incentivizes somebody to buy it, and incentives for
wellness, and I think that we have got not only somebody who will
manage their care better and bring down costs but also allow for
portability so that the employer doesnt have to burden that cost
and that the employee can take the advantage of not only the deduction but also the choice of policy they want. Would you agree
with that?
Mr. FENSHOLT. That would be a winning combination. And as far
as not being able to reach across state lines to talk to an insurance
commissioner, it works in the drivers license system. If I am
speeding in California and my license is back in Maryland they can
pull up all the tickets that I have ever had in a matter of a few
instances, so
Mr. ROSS. Thank you
Mr. FENSHOLT [continuing]. I think those insurance commissioners could work together to
Mr. ROSS. Oh, no question about it.
Ms. Hall, you know, you talk about junk insurance companies
selling across state lines. You know, I have got some concern. You
mentioned that you would prefer a public option but a public option
is essentially putting the federal government in the business of insurance competing against private industry.
Ms. HALL. Yes.
Mr. ROSS. And you think that is a good idea. And as I understand it, insurance is basically an actuarial assessment of risks
of lifetime risk that is backed by capitalcapital in the form of
cash, securities, or reinsurance. And yet, if you put the government
into the business there is no cash, there is no securities, there is
no capital. All there is is the obligation of the taxpayers, and you
could have a subsidized market.
It would seem to me that a public option would be one of the
worst things we could ever do for this country, and if that is the
course you want to take then if the price of milk is too high why
not put the federal government in the milk business?
Ms. HALL. I mean, the public option is off the table so that is no
longer an issue. And I guess I disagree, that I think the government actually could create a really amazing insurance
Mr. ROSS. A central government function, then?
Ms. HALL. I mean, I think that you take 50-plus years of learning of where we have come and create a system, I think, that can
be more powerful across all states.
Mr. ROSS. I see my time is up, but I tend to disagree with you.
I yield back. Thank you.
Mr. Rokita?
Mr. ROKITA. Thank you, Mr. Chairman. I thank the chair, and
the members, and the witnesses for your time today. It is very educational. Not only do I learn about health care but I learn about
43
milk prices in a centralized economy. And by the way, I completely
associate with Mr. Ross.
I had some follow-up questions based on earlier testimony and I
want to focus first on Mr. Fensholt.
Sir, did you recall the discussionexcuse medo you recall the
discussion about the consumer protection all moving to one state
maybe the one state that has the lease, quote-unquote, consumer
protection if we went to selling insurance across state lines? Do you
recall that discussion just a little while ago?
Mr. FENSHOLT. Yes, sir.
Mr. ROKITA. Okay. I used to be in the consumer protection business. I was a state securities regulator, so I am very interested in
that line of thinking from Ms. Halls testimony. Do you agree with
that?
Mr. FENSHOLT. I dont think so, sir. And certainly in ourin my
business, what Lockton does, the bulk of our clients provide selfinsurance. They are not subject to state regulation in any event.
So we look at health reform from the standpoint of these midsize
to large employers that provide their own insurance, and they are
subject only to the whims of the federal authorities. And our view
and the view of our clients is those regulations are simply becoming too burdensome and too expensive.
Mr. ROKITA. Right.
Mr. Ramthun, do you have anything to add to that?
Mr. RAMTHUN. No, I dont. Sorry.
Mr. ROKITA. All right. Thank you.
And, Mr. Streitberger, do you have anything to add to that?
Mr. STREITBERGER. No, sir.
Mr. ROKITA. Okay.
Ms. Hall, do you have anything?
Ms. HALL. I think that letting insurance companies throw quality
and value out of the window it seems likethe across state lines
is just kind of a code for insurance companies to not comply with
quality, affordable health care coverage.
Mr. ROKITA. So you dont believe that competition would occur inside the state?
Ms. HALL. It just seems like if I live in Washington I can go to
my insurance commissioner to talk about what is going now. You
know, insurance is a lot different than a drivers license. How
many times do you call the Department of Licensing about your license? Once every 4 years.
Mr. ROKITA. Well, it is very different. I know that
Ms. HALL. And you go to the doctor six times a year
Mr. ROKITA [continuing]. But that is not my question, so I just
wanted to see if you had anything to add to your testimony in light
of what was said.
Again, to Mr. Fensholt, to offset the health reform law the Democrats included a host of new taxes and fees in the medical device
industry and in the insurance industry.
Mr. FENSHOLT. Yes, sir.
Mr. ROKITA. I am a cosponsor of the Medical Device Repeal Act,
for example. Many others in Congress are, as well. It is going to
be heard next week for an up or down vote, so I am interested to
know you and your members opinions on the effect of these taxes
44
and fees. We have heard from the Congressional Budget Office that
these new taxes will be passed through to consumers in the form
of higher premiums.
Mr. FENSHOLT. No question about it.
Mr. ROKITA. And so consumers are going to be paying for these
higher taxes, or we are going to have less devices, I would imagine.
Mr. FENSHOLT. Sir, with all due respect, I think this is one of the
most disingenuous aspects of the Affordable Care Act. You cant
levy billions of dollars in excise taxespenalty taxesagainst entire industry segments and expect those business people not to pass
that cost on through in the price of their products.
In the case of the taxes and fees on insurance companies and
third party claim payers, the insurance companies we deal with
and our own actuaries, as I said in my testimony, expect both taxes
and fees alone to amount to $10 to $15 per employee per month
increase beginning in 2014.
Mr. ROKITA. Thank you, sir.
And then to Mr. Ramthun: Researchers from RAND recently
wrote in Health Affairs that an increase in consumer-directed
health plans could reduce annual health spending by about $57 billion. Are you concerned that the implementation approach by this
administrationthe approach they are taking with respect to consumer-directed health plans may actually discourage employers
from offering these plans?
Mr. RAMTHUN. Absolutely. I am very concerned and outlined in
my testimony several areas where the regulatory issues could
cause those effects.
Mr. ROKITA. Okay. Thank you.
I yield back, Chairman.
Mr. Scott?
Mr. SCOTT. Thank you, Mr. Chairman. Could any of the panelists
respond to the effect on individuals and small businesses of getting
what is essentially the large group rate under exchanges rather
than what they have to go through now?
Mr. FENSHOLT. I couldnt hear the question. I am sorry.
Ms. HALL. Yes. I missed
Mr. SCOTT. The effect of the exchanges on the rates that would
be paid by individuals and small businesses. Right now the large
businesses get the smaller rates. By going under the exchanges
wouldnt the individuals and small businesses behave access to
lower rates?
Ms. HALL. I mean, I am a small business owner, and yes, we
would have access to lower rates, which is why we support this.
Mr. SCOTT. If we have an exchange, what is the expectation of
the number of companiesinsurance companies that would actually sign up with a reasonable panel of doctors? Does anybody
Mr. STREITBERGER. I dont know.
Mr. SCOTT. If the insurance companies have access to the exchange, what would that do to their expenses? Would their expenses be lower, having access to an exchange, everybody going to
an exchange rather than having the higher sales force to go out
and try to sell insurance?
Ms. HALL. I imagine it would be much lower.
45
Mr. SCOTT. Thank you, Mr. Chairman. I yield back.
I will now take my 5 minutes. First of all, I just want to start
by saying the problem has been clearly laid out. The number one
problem of the American health care system is it is too expensive.
That is number one.
Number two, it has been brought out we have a group of people
who work who dont have access to affordable health care. And
number three, we have a liability crisis. Those are the three big
problems.
Let me just give you some down-to-earth examples of what is
going on out in the real world. Our local hospital system has 9,000
employees. We have a medical school in our community. They just
laid off 168 people and did not fill 90 jobs250 good jobs went
away.
A small, rural hospital, in anticipation of this, had to go borrow
$800,000 from the county commission to pay operating expenses
not to buy a new CT scanner but to keep their hospital doors open.
Why is this happening?
Well, the payer mix is changing in hospitals. You have the government-run plans, Medicare and Medicaid, which dont pay the
cost of the care. And there are less private insurers not because of
everything getting better, because the economy has been bad. That
is why. People have lost their insurance and people are not going
to theso the payer mix is changed.
And I think it is great. I have supported the 26-year-olds on
health insurance. That was one of the things I support to begin
with. They dont use hospitals. They figured it out. They are not
the ones that go. You provide the benefit but they dont spend the
money in the hospital.
So I talked to our CEO at the local hospital, and that is going
on all over the country, and you are going to see more and more
of that. That is from the real world.
Secondly, the expansion of Medicaid in our state, the hospitals
now tax themselves 2.5 percent of their gross revenue to make up
the state part of the Medicaid plan because the state doesnt have
the revenue to make its match. Well, if you expand that I dont
know how we are going to pay for it in the state of Tennessee, so
that expansion is causing great grief among our governors who
have looked at this, and the expansion is 16-to 20-something million.
I agree, it is not government-controlled health care; it is government-regulated health careincredibly regulated because I put up
with it for over 30 years trying to jump through those hoops that
they put out there. I think thiswhat we ought to be looking at
is cost, and Mr. Ramthun had a greathis testimony showed that
the one thing that has been bringing cost down for people are consumer-driven plans.
This is mine; I have a health savings account. That is a wonderful way to provide health care for my family because if I need
something I dont have to call up the insurance company and say,
Can I get this done? And if I take care of myself in wellness and
so forth I keep the money, the insurance money doesnt keep the
money.
46
Where have we seen this done in public policy? And I wantI
know Mr. Rokita is gone, but the state of Indiana has done this.
We have done this for about 400 employees in our practice, and
they dont go back to conventional insurance. People like this.
And I would like to have Mr. Ramthun speak to that. When you
look at the data it is overwhelmingat the money. It is a different
concept. You have to think about, Now I am in charge of this debit
card. I dont have to call anybody or do anything.
Could you comment on that?
Mr. RAMTHUN. Well, it is very easy to blame the insurance for
the rising costs of health care in this country, but the fact is that
most of the employees get their coverage through self-funded employers, where the employer is the insurance company. So they are
not layering on all these other costs that everybody thinks are excessive for insurance.
What they have seen is that the utilization of the health care
services is what is driving this total spending growth. And so it is
strategies of personal responsibility, wellness, prevention that are
making a difference and why the consumer-driven plans are so successful. There is a financial reward at the end of the day for doing
so because you get to keep some of the money that used to go to
pay for your insurance.
I think we have lost the notion of what real insurance is, and so
we insure ourselves for all kinds of routine, very low-cost things
where there is absolutely no risk involved. That has got to change.
Consumer-driven health care is doing that and why it is so promising as a strategy to bend the cost curve.
Chairman ROE. Yes. When the rule-makers looked at this, why
would they treat HSAs differently when it has been shown that
that is the one thing out there that is lower cost for people? Why
would that be treated differently?
Mr. RAMTHUN. I dont think they fully understand exactly how
these policies work, and they are used to dealing with traditional
insurance, which I understand what they are trying to achieve
through their regulations. These policies are different because they
dont pay from the very first dollar and so there have to be some
special considerations made, which I have yet to see in the regulations.
Chairman ROE. And the state employees in Indiana savedthe
state of Indiana saved 10 percent, which is a huge amount of
money.
Mr. RAMTHUN. Yes. And that has been documented by Mercer.
Chairman ROE. Yes. Huge amount. And only 2 percent of the employees chose to go back to traditional insurance. They stayed.
When they found out and learned how to use it it is very, very
good.
I see my time is expired.
Mr. Walberg?
Mr. WALBERG. Thank you, Mr. Chairman.
Appreciate reading the testimonies. Sorry I wasnt here to hear
them.
But let me ask Mr. Fensholt, first, at this time 2 years ago in
our state of Michigan, which led the nation into high unemployment and is still working its way out of it. Thankfully, in the last
47
2 years we have had new leadership in Lansingnew governor,
new legislaturethat have been doing, I think, things the right direction in reducing the heavy burden upon businessessmall businesses, especially, in the state.
So we have gone from a statewide average 2 years ago of 13 percent, last year 10.6 percent. My district was at almost 15 percent
and has now dropped to a state average. We are at 8.3 percent
now. Things are starting to turn.
But in your testimony you discuss how the additional complexities of the presidents health care law will undermine the private
sectors attempt to grow. Could you be somewhat specific in how
many of your clients are concerned with how this health care law
will affect their businesses? And secondly, have they discussed the
option of laying off employees or dropping health care coverage all
together?
Mr. FENSHOLT. Yes, sir. We surveyed our clients about this time
last year regarding thetheir concern about the bill, its additional
costs, its additional administrative burdens, and the cost attendant
to that. A full 80 percent of our clients responded, and about half
of our clients responded to the survey, which was remarkablesaid
they were either concerned or very concerned about the additional
costs, administrative burdens imposed upon them by the health
care reform law.
The bottom line is this: There is a tension created by the law between the finance offices in these companies who are looking at
what they are currently spending on health insurance$6,000,
$8,000, $10,000, $11,000 per employee per yearand the human
resource managers who feel they need to offer benefits to attract
and retain talent. Ultimately, in challenging economic times the
CFO wins that argument and if the business survival depends on
jettisoning health insurance they will do it.
And what this construct does, by offering extraordinarily generous federal subsidies to individuals to buy insurance in these insurance exchanges if they cannot get it from an employer, and it
invites employers, in these challenging times, to exit that marketplace and allow their employees to migrate into the health insurance exchanges. Our fearand I think our clients, many of them
viewis that that will simply have to happen. They simply cannot
continue to sustain these costs and without relief in that regard
they would love to do it, but without relief in that regard ultimately they will send their employees into the health insurance exchanges where they will draw federal money to buy coverage.
Mr. WALBERG. Yes, okay. Thank you.
Mr. Streitberger, maybe I am drawn to ask you questions because it is getting near lunch time and Red Robin is an interest
at this point. But you mentioned that over the last 3 years, in your
testimony, health care costs per employee have risen over 6 percent.
Mr. WALBERG. And that it isthat is before the full implementation of PPAC. If the presidents health care mandate continues to
force your prices to rise rapidly how will you limit the number of
jobs Red Robin can create, and might you be forced to shift to a
48
model where some of your workers hours would be reduced, minimized, your companys exposure to the employer penalties?
Mr. STREITBERGER. Well, those are all things that we are going
tothat we are currently considering in how to deal with 2014.
And yes, we would have to look at limiting hours that team members work, you know, to keep them below that because the cost is
awill spiral upwards when this kicks in.
We do the best that we can, as I mentioned earlier. We are selfinsured. We pay the bills for our team members, which helps keep
all our premiums as well as their premiums down. And with the
lack of competition out there this is going to continue.
Now, ours increased 6 percent over the last 3 years, and a lot of
that was in plan design and a lot of it with the fortune of having
low claims history of our current population. So that 6 percent includes last year, which we were at zero. We kept our premiums
flat.
Mr. WALBERG. So it could have been worse.
Mr. STREITBERGER. This was not health care legislation; this was
just plan design and a little luck with low claims. But we cant
count on that every year. Again, we want to keep affordable and
robust health insurance, health coverage for our team members so
that we can continue to grow andbut with these small margins
the more we invest in things such as this, the slower we would be
forced to grow, and then having to also entertain looking at limited
hours.
Mr. WALBERG. Thank you.
And, Mr. Chairman, I think the old saw that said the best way
to have health insurance is to have a job. This is going directly opposite in promoting health care at the expense of jobs, which ultimately does away with health care, as well.
Thank you.
I would now like to take this opportunity to thank our witnesses
for taking your valuable time, and preparing your testimony, and
coming to Washington and testifying. It has been very enlightening.
I will now recognize the ranking member for closing comments.
Mr. ANDREWS. Thank you.
I also would like to thank each of you for the time and preparation, and the inconvenience you suffered. I know one of our witnesses is going to go open another store in the state of Washington.
I wish her well.
And I hopeMr. Streitberger, you are opening a lot of stores.
New Jersey is open to you.
I do want to express to the chairman my extreme disappointment
that in scheduling this hearing and having a premier hamburger
restaurant, premier cupcake vendor, that neither were asked to
bring samples, evidently, for the members of the committee, and I
want to express and register my extreme disappointment in that
that disappointment.
Mr. FENSHOLT. I will second that, Mr
[Laughter.]
Mr. ANDREWS. The premise of much of the argument against the
Affordable Care Act is that it is a job-killing health care law. Since
49
the president signed the law private sector employers in this country have added over 4 million new jobs.
I think that there is a political dispute about the law; I think it
is one we ought to have in the election. But I think the facts are
clear that the argument that this is a job-destroying health care
law is not borne out by the evidence. Matter of fact, the opposite
is borne out by the evidence.
But I look at this through the prism of personal experiences that
some of you help us to edify this morningall of you really have.
On Tuesday morningyou want to talk about controlling costa
woman went to a doctor to see how her diabetes was being managed. She had a stroke in 2005, mildly has been managing her
blood sugar through exercise and diet, and as just great news about
her blood sugar, and about her blood pressure, and about her blood
tests, which all came back looking like she is doing very well.
She is a Medicare recipient, and I will tell you, I am especially
glad that the prospect she will have another stroke or heart attack
are lower because she is my wifes mom. And she swims every day,
and she counts every carb that she eats, and she takes care of herself.
And we didnt pass a law that said she had to do that. Believe
me, I cant pass any laws in my household that would affect anyone, as far as I can tell. But she made a really good personal
choice, and she has got a higher quality of life, and she is costing
the federal Treasury less. We have got to figure out a way to increase that behavior in any way we can.
On Sunday I encountered a constituent. She and her husband
were music directors for a local Catholic church and the church has
suffered a downturn in the collection plate because a lot of the parishioners are out of work, so the church had to cut back and make
the two music directors part time instead of full time.
They both lost their health insurance because they were part
time; the diocese couldnt afford to cover them anymore. And the
husband, who is six-five and 250 pounds, his pulse was down to,
like, 41, and my physician friends would understand that there
was something going on there. So he goes to a local emergency
room, they look at him, and they say, You have got a serious problem. You probably need some heart surgery. And they were uninsured.
Now, happily, there is an institution in our area called the Deborah Heart and Lung Center that is like the Shriners concept, that
they will see anyone and take care of them whether or not they can
pay their bill. And they were lucky enough to live near a facility
like that.
The man had a pacemaker put in a few months ago and he is
alive today. I dont think he would be alive today were it not for
the fortuitous event that that hospital was accessible to him.
That should not happen. These are hardworking, taxpaying,
mortgage-paying citizens who, through no fault of their own, found
themselves in a position where they were facing financial ruin, and
worse than that, loss of life because of lack of health insurance.
That should not happen in this country. And I think that this
law should stay in effect because it will prevent that from happening in this country.
50
And then the final thing that I saw this weekend that is a very
good thing is that on Monday morning I was at Memorial Day
breakfast at one of my American Legion posts and a friend of mine
there is an electrical contractor. And last year when I saw him he
was worried because he had one job left after the one he was working on.
He now has a 4-month backlog of electrical contracting jobs waiting for him throughout the rest of the summer and into the fall.
Now, he is not indicative of every employer in America. He is certainly not, you know, a statistically significant sample. It is one
guy.
But we have talked about the health insurance bill. He has about
four or five employees. You know what he has to do under the bill?
Nothing. Nothing. Because for the truly small businesses in the
country there are no obligations imposed on them because of the
understanding of what that costs.
I would like Mr. Streitbergers company to open 5,000 more
stores. And I understand we have got to do something to control
health care costs to make that a realistic and affordable goal. And
for everyone here I would like to see them grow and be more successful and more prosperous.
I understand the intensity of the political argument about this.
Boy, do I understand it. We all lived through it the last couple
years.
But these are not issues that should be decided by ideological
jihad; they should be decided by careful reasoning of people that
want to solve these problems. I think we can do that together. I
think we should build on this lawfix its deficiencies, build on its
successes, and put our country in a different and better place. And
I am confident that we can work together and do that.
I thank you for participating in a meaningful discussion that
helps us do that, each of you. Thank you.
And I will finish by saying after 31 years of the practice of medicine I never saw a Republican or a Democrat heart attack in my
life. I never delivered a Republican or a Democrat baby in my life,
and I have delivered lots of them. And I never operated on a Republican or Democrat cancer. It is a people problem, and unfortunately, this health care law was passed on a partisan basis.
And I agree with the ranking member that we should work together in a bipartisan way to solve this, because if not it will never
be accepted by the American people. Cost is a big issue because if
you cant afford to buy it then you cant have it. I mean, it is that
simple.
The only way I see that you can do this is to either go to a consumer-driven system or to a single-payer system where care is rationed. I mean, otherwise we are notnobody is going to be able
to afford health insurance, even the wealthiest is not, among us.
And the second thing that the ranking member brought upMr.
Andrews brought upwhich is coverage. There is no question there
is a gap in coverage. I saw it every day in my practice, where there
were people who worked hard every day and couldnt get affordable
health care coverage. We have to address that in this country.
51
To clear the record up, there is a law called EMTALA that was
passed, I think, in 1986, where if you show up in an emergency
room, whether you are legally here in this country, illegally, whether you can pay or not pay, we give you care in this country. And
I am not saying that is the best way to do it but it is done.
And I feel an obligation when someoneI am required and would
do it. When a patient shows up without a doctor if I am on call I
am going to take care of that patient in the emergency room.
Physicians, and nurses, and health care people do it every single
day across this country and dont ask anything for it. The problem
is it leaves the burden on the hospital to figure out how to pay for
the billshow to pay the bills, I should say.
I held a hearing in Evansville, Indiana about a year agoa subcommittee hearing, and a small business person who was an IHOP
owner was theresomething you would, Mr. Streitberger, you
would be familiar with. He had 800 employees in his 12 stores and
he made about $3,000 per employeenetted about that per employee, which he said was, in that business, pretty good, and he
thought was very good.
Since he had over 50 employees, if he provided what the government said he had to provide, the essential benefits package, which
we dont know what it is yet and how much it is going to cost, then
it would cost himhe would be upside-down about $7,000 per employee. He calculatedhis H.R. people did. If he paid the penalty
he made no profit, made no money at all. So what is he supposed
to do?
Can he raise prices, as you pointed up? He cant do that. We
have to work through this.
Another issue that we did heara small issue, but very much a
big issue for me as a practitioneris having someone with a flexible spending account, which should be getting you out of the most
expensive part of health care, away from the doctor, away from the
system, lets you make those health care decisions yourself and then
purchase it with your own money, now you are requiring someone
to see me to get a prescription for Nyquil. I mean, it is crazy when
you see that. It makes no sense whatsoever.
You are forcing that person into a higher cost or you are forcing
that person to make a phone call that day to the doctor, wait until
it is called in, and add more bureaucracy and mandates to me with
no payment for it at all, just more work to do.
There is a much simpler way to do it. One of the simplest transactions on this planet is a patient coming to see me as a physician,
me providing a service, and them going out with whatever I do that
day. And that is where consumer-driven care gets the insurance
companies out of it, and you insure yourself for catastrophic problemsnot for a headache or not for a cold but for catastrophic
things. And it is the only way I can see we can actually get the
health care costs under control.
And I think you can do it for our Medicaid population. I think
they respond exactlythere are folks and some of the best shoppers in the world are people who are at lower income. They have
to be. So they make, probably, better decisions than people that
have more disposable income.
52
I think this has been a great hearing. I certainly appreciate all
of your testimony, appreciate your being here.
With no further comments, this meeting is adjourned.
[Additional submission of Chairman Roe follows:]
[Whereupon, at 11:51 am., the subcommittee was adjourned.]

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BARRIERS TO LOWER HEALTH CARE

COSTS FOR WORKERS AND EMPLOYERS

ONE HUNDRED TWELFTH CONGRESS

HEARING HELD IN WASHINGTON, DC, MAY 31, 2012

Serial No. 11262

For sale by the Superintendent of Documents, U.S. Government Printing Office

COMMITTEE ON EDUCATION AND THE WORKFORCE

George Miller, California,

Barrett Karr, Staff Director

SUBCOMMITTEE ON HEALTH, EMPLOYMENT, LABOR AND PENSIONS

Robert E. Andrews, New Jersey

Hearing held on May 31, 2012 ...............................................................................

BARRIERS TO LOWER HEALTH CARE COSTS

The subcommittee met, pursuant to call, at 10:02 a.m., in room

Mr. ANDREWS. Thank you, Mr. Chairman. The term senior is

Mr. FENSHOLT. Chairman Roe, Ranking Member Andrews, and

Chairman ROE. Thank you.

Mr. RAMTHUN. Chairman Roe, Ranking Member Andrews, and

Contrast that to the experience of employers who have account-based health

Chairman ROE. Thank you.

Ms. HALL. Thank you.

Chairman ROE. Thank you, Ms. Hall.

Chairman ROE. Well, thank the panel for their testimony.

[Whereupon, at 11:51 am., the subcommittee was adjourned.]

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