House Hearing, 110TH Congress - Full Committee Hearing On Expanding Small Business Health Insurance Coverage Using The Private Reinsurance Market

FULL COMMITTEE HEARING ON EXPANDING
SMALL BUSINESS HEALTH INSURANCE COVERAGE

USING THE PRIVATE REINSURANCE MARKET
COMMITTEE ON SMALL BUSINESS

UNITED STATES HOUSE OF
REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
MAY 24, 2007
Serial Number 110-25

Printed for the use of the Committee on Small Business
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HOUSE COMMITTEE ON SMALL BUSINESS

ZQUEZ, New York, Chairwoman
NYDIA M. VELA
WILLIAM JEFFERSON, Louisiana
HEATH SHULER, North Carolina
LEZ, Texas
CHARLIE GONZA
RICK LARSEN, Washington
RAUL GRIJALVA, Arizona
MICHAEL MICHAUD, Maine
MELISSA BEAN, Illinois
HENRY CUELLAR, Texas
DAN LIPINSKI, Illinois
GWEN MOORE, Wisconsin
JASON ALTMIRE, Pennsylvania
BRUCE BRALEY, Iowa
YVETTE CLARKE, New York
BRAD ELLSWORTH, Indiana
HANK JOHNSON, Georgia
JOE SESTAK, Pennsylvania
STEVE CHABOT, Ohio, Ranking Member

ROSCOE BARTLETT, Maryland
SAM GRAVES, Missouri
TODD AKIN, Missouri
BILL SHUSTER, Pennsylvania
MARILYN MUSGRAVE, Colorado
STEVE KING, Iowa
JEFF FORTENBERRY, Nebraska
LYNN WESTMORELAND, Georgia
LOUIE GOHMERT, Texas
DEAN HELLER, Nevada
DAVID DAVIS, Tennessee
MARY FALLIN, Oklahoma
VERN BUCHANAN, Florida
JIM JORDAN, Ohio
MICHAEL DAY, Majority Staff Director

ADAM MINEHARDT, Deputy Staff Director
TIM SLATTERY, Chief Counsel
KEVIN FITZPATRICK, Minority Staff Director
STANDING SUBCOMMITTEES
Subcommittee on Finance and Tax
MELISSA BEAN, Illinois, Chairwoman
DEAN HELLER, Nevada, Ranking

STEVE KING, Iowa
JIM JORDAN, Ohio
Subcommittee on Contracting and Technology

BRUCE BRALEY, IOWA, Chairman

HENRY CUELLAR, Texas
DAVID DAVIS, Tennessee, Ranking

SAM GRAVES, Missouri
TODD AKIN, Missouri
(II)
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Subcommittee on Regulations, Health Care and Trade

LEZ, Texas, Chairman
CHARLES GONZA
DAN LIPINSKI, Illinois
MELISSA BEAN, Illinois
JASON ALTMIRE, Pennsylvania
LYNN WESTMORELAND, Georgia, Ranking

STEVE KING, Iowa
JIM JORDAN, Ohio
Subcommittee on Urban and Rural Entrepreneurship

HEATH SHULER, North Carolina, Chairman
JEFF FORTENBERRY, Nebraska, Ranking

DEAN HELLER, Nevada
DAVID DAVIS, Tennessee
Subcommittee on Investigations and Oversight

JASON ALTMIRE, PENNSYLVANIA, Chairman
LEZ, Texas
CHARLIE GONZA
LOUIE GOHMERT, Texas, Ranking

LYNN WESTMORELAND, Georgia
(III)
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CONTENTS
OPENING STATEMENTS
Page
Velazquez, Hon. Nydia M. .......................................................................................

Chabot, Hon. Steve ..................................................................................................
1
2
WITNESSES
Crouse, Dr. Leonard D., Vermont Department of Banking, Insurance, Securities & Health Care Administration ....................................................................
Collins, Patrick L. American Academy of Actuaries .............................................
Harter, Steven J., National Association of Professional Insurance Agents ........
Trautwein, Janet, National Association ofHealth Underwriters .........................
Haislmaier, Edmund, The Heritage Foundation ...................................................
3
5
7
9
11
APPENDIX
Prepared Statements:
Velazquez, Hon. Nydia M. .......................................................................................

Chabot, Hon. Steve ..................................................................................................
Altmire, Hon. Jason .................................................................................................
Crouse, Dr. Leonard D., Vermont Department of Banking, Insurance, Securities & Health Care Administration ....................................................................
Collins, Patrick L. American Academy of Actuaries .............................................
Harter, Steven J., National Association of Professional Insurance Agents ........
Trautwein, Janet, National Association ofHealth Underwriters .........................
Haislmaier, Edmund, The Heritage Foundation ...................................................
32
34
35
36
40
47
50
56
(V)
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FULL COMITTEE HEARING ON EXPANDING

SMALL BUSINESS HEALTH INSURANCE
COVERAGE USING THE PRIVATE
REINSURANCE MARKET
THURSDAY, MAY 24, 2007
U.S. HOUSE OF REPRESENTATIVES,

COMMITTEE ON SMALL BUSINESS,
Washington, DC.
The Committee met, pursuant to call, at 10:00 a.m., in Room
2360 Rayburn House Office Building, Hon. Nydia Velazquez
[Chairwoman of the Committee] presiding.
Present: Representatives Velazquez, Jefferson, Cuellar, Clarke,
Ellsworth, Johnson, Sestak and Chabot.
ZQUEZ
OPENING STATEMENT OF CHAIRWOMAN VELA
ChairwomanVELA ZQUEZ. Good morning. This hearing on expanding small business health insurance coverage using reinsurance in
the private market is now called to order.
It is no secret that small employers are finding it difficult to purchase health insurance. However, what is less well known is that
fewer carriers are offering coverage in the small group market.
In 2006, the Government Accountability Office reported that in
a typical state the largest insurer controlled 43 percent of the market, up from 33 percent in 2002. In nine states, the largest carrier
held more than 50 percent of the market. Consolidation in the insurance industry has made it difficult for smaller insurers to compete, and a number have dropped out altogether.
The lack of insurers helps explain why small employers can pay
as much as 20 percent more than their corporate counterparts for
the same health plan. Without competitive forces, insurance companies can dictate prices.
Todays hearing is the second in a series held by the Committee
to address the issue of providing affordable health insurance for
small businesses. This morning we will look at the state of the reinsurance market and whether there are ways to expand the use
of reinsurance to provide more health insurance options for small
employers.
Second, the Committee will consider whether it is feasible for
small businesses to purchase reinsurance directly from a reinsurer.
Typically, only insurance companies and large employers buy these
policies to cover catastrophic claims. Small employers simply do not
have the resources to purchase this type of policy on their own.
(1)
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The issue is: what changes to our laws, if any, will make it possible for an entrepreneur to purchase such reinsurance coverage?
I would like for witnesses to comment on whether collective arrangements would allow small employers to buy reinsurance.
Too often, we hear the excuse from insurance companies that
they cannot offer small employers coverage or have to charge exorbitant prices due to the risk factor. If we can eliminate this argument, small businesses can start negotiating rather than simply accepting health insurance prices.
While this may seem like a unique approach, the depth of the
problem requires us to look at all our options. If we fail to do anything, costs will continue to rise, more individuals will find themselves uninsured, and the growth of Americas economy and small
businesses will come to a halt.
We have with us a distinguished group of witnesses well
equipped to help us understand the reinsurance market and whether it holds the key to expanding small business health insurance
coverage. This Committees goal is to ensure that health care reform does not occur without meaningful consideration of impact on
this countrys small businesses and the workers.
I am pleased that witnesses are here today to share their insights, and I look forward to todays testimony. I now recognize
Ranking Member Chabot for his opening remarks.
OPENING STATEMENT OF MR. CHABOT
Mr.CHABOT. Thank you, Madam Chairwoman, and thank you for

holding this hearing on expanding small business health insurance
coverage.
At the center of our examination are the issues of cost and access. As we all know, purchasing health insurance is one of small
business most costly expenses. According to the National Federation of Independent Business, the NFIB, health care is the most
severe problem for small business ownersgreater than taxes,
cash flow, or government regulations.
Small groups, including small businesses, usually pay more for
similar or less coverage than large businesses. As a result, small
businesses are less likely to offer health insurance than large
firms. Not surprisingly, the principal reason given is that the small
business could not afford the coverage.
Access to health insurance is also a challenge for small businesses. According to the Small Business Administration, employees
with small firms are far less likely to have health insurance than
those at larger ones. Ensuring that health care is affordable for
small businesses is one of the most important issues Congress can
address.
Our nations small businesses drive the economy, and we need to
do all that we can to help them stay competitive and encourage
their growth. Association health plans, pool purchasing, and reinsurance have been mentioned as ways to help reduce the costs and
increase access to health insurance for small businesses.
I am pleased that we will consider reinsurance during this hearing. Although I have reservations about the implications of a federal mandatory reinsurance program, I think reinsurance deserves
further examination. I also believe that tax relief is not only an im-
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portant way to reduce the overall tax burden, but to make health
care more affordable for small businesses.
In previous Congresses, I have introduced the Health Care Affordability Act, which would allow every American to deduct 100
percent of the cost of their health insurance. I plan to introduce
this bill or a similar bill in the near future.
Madam Chairwoman, I appreciate your holding this hearing. I
look forward to hearing from our witnesses and to working with
you on finding ways to make health care more affordable for small
businesses and their employees, and I yield back the balance of my
time.
ChairwomanVELA ZQUEZ. Thank you. I welcome all the witnesses.
You will have five minutes to make your remarks.
Our first witness is Mr. Leonard Crouse. He is the Deputy Commissioner of Captive Insurance at the Vermont Department of
Banking, Insurance, Securities & Health Care Administration. He
has worked in the insurance regulation field for 35 years. Mr.
Crouse has been the head of the Vermont Captive Insurance area
for 16 years.
Welcome, sir.
STATEMENT OF MR. LEONARD D. CROUSE, CFE, DEPUTY COMMISSIONER, CAPTIVE INSURANCE DIVISION, VERMONT DEPARTMENT OF BANKING, INSURANCE, SECURITIES &
HEALTH CARE ADMINISTRATION
Mr.CROUSE. Thank you, Madam Chair, and members of the Committee. I have been in insurance regulation for 35 years, the last
16, as the Chairman said, in Vermont. When I came to Vermont,
we had 200 captive insurance companies. We just licensed our
800th captive insurance company last week.
It has been an industry that is referred to as the alternative insurance market. It has been around for a number of years. We
passed our legislation in 1981. Many states have adopted regulations to form these type of insurance entities.
There are basically three types of captives when we talk about
captives. We have a pure captive that insures only the corporation
that owns it or that of its affiliates. And then, we have association
captives made up of smaller groups that get together, pool their
risks, whatever, and form. And then, we have what we call the risk
retention groups. Those are the smaller groups that get together
again, usually have similar business, similar type of exposure.
They get together to form a risk retention group. We have 79 of
those in Vermont currently.
If I could just refer back to the, oh, maybe four or five years ago,
the medical malpractice crisis that was going on in this country
and how the alternative market helped that market get over a
major hump. Pennsylvania was a main state with major problems
in medical malpractice. I believe we formed something like 39 captives that year, risk retention groups, put together by doctors, doctor groups, hospitals, universities with medical centers, and it really alleviated a serious problem. It was an alternative for many of
these companies to go to.
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Again, the reason was that costs were becoming too high in the
traditional markets. Insurance was, in some cases, unavailable. So,
again, it has been a great success in that industry.
Companies that do form captives, they generally realize lower
costs, stable pricing, and the ability to receive a policy that meets
its needs. Commercial premiums are based on the cost of claims,
administrative costs, profit, and market competition. Companies
forming captives feel that they can better estimate their own claim
costs, lower administrative costs, and adjust the required profit to
suit their needs.
Captives should not be subject to market conditions. Basically, a
lot of people will form a captive, and what we call the hard market
and the soft market occurs, a soft market being where insurance
is readily available and a hard market when insurance costs go up
and insurance is not readily available.
But when you form a captive, you stay in it for the long run, so
you get over those humps that come and go, usually in the course
of seven years, hard market/soft market, although recently those
hard markets and soft markets have come a little bit more frequently.
We are a regulator in Vermont. I am a regulator, number one.
It is important to regulate these entities. And anything that is
done by your Committee or by the Federal Government that would
be able to assist the small markets should be done in a regulated
environment. Insurance is a regulated industry. It always has
been; it always will be. And what we need in the smaller markets,
we are having problems right now with risk retention groups.
It is a federal act. The Federal Risk Retention Act has been in
effect since the early 80s when we passed our law. There is just
not enough meat in the regulation and the requirements that are
in that law. So if there is something that is passed, you have got
to put a little more meat and a little more stiffness in there about
the regulation and oversight of any type of program that is done.
We are working closely now with the NAIC, trying to bring the
states together. There is about 15 active states in the risk retention
group business. We are trying to bring them together and get some
uniformity. There has to be uniformity in the oversight and regulation of any type of alternative program.
Basically, the GAO did a study, and it was completed two years
ago. I believe it was the House Financial Services asked the GAO
to do a report. It was a very successful report, and it would behoove you folks I believe to take a look at that and read it. It is
excellent. There was a lot of good suggestions there on what they
could do to improve the Risk Retention Act, and I think it would
fit right into what you folks here are possibly thinking of doing.
I think the alternative market properly done for the small businesses and health care, something could be structured. I think a
State like Vermont would be ready and willing to work with you
folks to set something up, and I believe we are positioned to do so.
I will say this: Vermont has 28 people just in our alternative
market division, which is the largest by far of any other state. We
are the only state that has a dedicated department just for alternative markets and for risk retention groups, and what not.
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So I just want to let you all know that we are readily available
to answer any questions and work with you folks.
[The prepared statement of Mr. Crouse may be found on page 36
of the Appendix.]
ChairwomanVELA ZQUEZ. Thank you, Mr. Crouse.
Our next witness is Mr. Patrick Collins. He is the Vice President
and Reinsurance Underwriter at Munich Re America HealthCare
and is appearing on behalf of the American Academy of Actuaries.
He is the Chairman of the Medical Reinsurance Workgroup and
Vice Chairman of the Federal Health Committee. The American
Academy of Actuaries represents over 15,000 members from all
practice areas.
Welcome, sir.
STATEMENT OF MR. PATRICK L. COLLINS, MAAA, FSA, VICE
PRESIDENT AND REINSURANCE UNDERWRITER, MUNICH RE
AMERICA HEALTHCARE, PRINCETON, NEW JERSEY, ON BEHALF OF THE AMERICAN ACADEMY OF ACTUARIES
Mr.COLLINS. Thank you. Good morning, Madam Chairwoman

Velazquez, Ranking Member Chabot, and members of the Committee. On behalf of the Academy of Actuaries, I thank you for the
invitation to sit down with you today and discuss private reinsurance in the small business context. The Academy is a non-partisan
public policy organization representing actuaries of all specialties
in the United States.
We applaud your efforts to take on the difficult and complex
health care cost problem. We are on an inevitable path to a collapse in the commercial medical insurance market. There is nothing that we can see on the horizon that will be able to stop it, and
it is not a matter of if this will take place, but more of a matter
of when and what form the market will look afterwards.
Small employers are on the front lines, bearing the brunt of
these high health care costs, and it hurts, not just on a financial
level but on a personal one. As you are aware, 80 percent of small
employers have 10 or fewer employees, and the business owner
tends to know each employee. In many cases, their relatives are
family members.
The choices used to be which plan of benefits to buy or from
which carrier, and now increasingly it is whether or not they can
afford to buy anything at all. The burden imposed by these health
costs on small business also hurts the very innovation and entrepreneurial activity that has been fueling the economic growth of
this country, and for these reasons your efforts to address these
items are to be commended.
The issue of how to address the high cost of health care benefits
is indeed a complicated one, and solutions will most likely need
multiple interlinking components that cant be solved with simple
or quick fixes or sound bytes. And I understand you are considering
reinsurance as part of the solution, and I hope that you found my
written statement useful.
In addition to providing some background information on reinsurance, the statement is intended to provide you with a list of
items to consider when designing a program. I would like to em-
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phasize and highlight just a few of these points. I think it is important to understand the role that reinsurance plays.
In the private market, medical reinsurance reduces risk by providing financial protection. And by taking that risk, it reduces the
required capital and increases the capacity by allowing the company to write larger programs. And it also provides the company
with a source of intellectual capital and value added services.
What reinsurance does not do, however, is it does not reduce
overall medical costs. It simply shifts costs from one entity to another. Nor does it render an uninsurable risk insurable. By simply
shifting risk around does not change its underlying nature. While
the commercial medical reinsurance market today is vibrant and
fills a valuable market need, it is relatively small. It is used by
small to mid-sized health insurers, and it is also used by small to
mid-sized employers who self-fund their medical benefits.
Large health plans and large employers generally do not buy
much reinsurance. For those who do buy reinsurance today, reinsurance tends to be very customized and tailored to the needs and
goals of the organization. A standardized reinsurance program will
tend to work well for some and not for others. And while it may
work on average, it may not work very well for any one health plan
or employer.
And of the issues outlined in my statement, I think the ones
worth highlighting the most are, first, defining the objectives clearly. Understanding exactly what the program is trying to accomplish
is important. Some objectives may tend to work against each other.
For example, providing coverage to sicker people with higher
health costs may work against an objective of lowering costs and
premiums.
The second is: beware of unintended consequences. People in organizations, I think it will come to no surprise, will tend to act in
their own best interest. One way that we use to flesh out these consequences is to look at the incentives. We first ask, what is the program incenting each party to do? And then, we ask if we are comfortable with those incentives.
Often programs are put into place with an assumption that everything else will remain the same. And often everything does not
remain the same.
Before I close, I will leave you with one final thought. I was
studying a condition recently called hormesis, and that is a condition where something in controlled doses is beneficial and good for
you, but it is lethal in high doses. And the two most oft cited examples are water and oxygen.
And I suggest thinking about reinsurance in the same way.
Using it wisely and judiciously and it will serve you well. Relying
on it too heavily and it may cause more problems than it is worth.
Thank you for your time. I and the Academy are available to you
as a resource to assist you in any way that we can. And I wish you
all the best in your endeavors.
[The prepared statement of Mr. Collins may be found on page 40
of the Appendix.]
ChairwomanVELA ZQUEZ. Thank you. Thank you.
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Our next witness is Mr. Steven Harter, owns and operates Select
Risk Management Inc., and is the Past President of the National
Association of Professional Insurance Agents. The National Association of Professional Insurance Agents represents member insurance agents and their employees who sell and service all various
insurance products.
Welcome, sir.
STATEMENT OF MR. STEVEN J. HARTER, PAST PRESIDENT
NAPIA, SELECT RISK MANAGEMENT INC., ON BEHALF OF
THE NATIONAL ASSOCIATION OF PROFESSIONAL INSURANCE AGENTS (NAPIA)
Mr.HARTER. Thank you. Thank you, Madam Chairwoman, and

members of the Committee. In 2002, I had the honor of serving as
President of the National Association of Professional Insurance
Agents. I continue to be involved with PIA and am the current
President of the PIA trust, which is involved in health insurance
products.
On behalf of PIA and its members, I would like to thank you for
this opportunity to testify before the Committee.
PIA members are owner principals of their own independent
agencies. We specialize in selling all sorts of insurance products,
primarily to small and mid-sized businesses. Those products include automobile, home, business, including health insurance products. We are main street agents serving main street America.
PIAs experience and perspective in this area is both as purchasers as well as insurance experts. We also have to buy health
insurance for our employees.
As I stated before, I do own and operate an insurance agency. In
addition, until September of 2006, I owned another business. It was
a social service agency providing supports to individuals with developmental disabilities. I employed approximately 120 people that
we tried to provide health care for. In 2006, we merged with a
large organization, largely because of the incredible cost of health
insurance for my employees.
For many years, I did provide full health insurance. I paid 100
percent of the premium. As the costs continue to rise, I raised
deductibles, much like other small businesses do. At that point, the
costs became too much, and I started having my employees contribute toward the cost of their insurance.
In the health care/social service industry, people are low paid. A
lot of my people only make like $10 an hour. So an increase in cost
to them was disastrous, and many of them dropped their coverage.
On the last renewal, the cost for each employee was quoted at over
$500 per month. I didnt have the money to do that.
I determined the amount that I could pay, searched the market
to find some sort of product that would be better than nothing
and I think a lot of small business people do this every dayand
what I wound up with was what is called a mini-med product that
basically is a band-aid. It is not the answer to the problem. And
I think you have other small businesses that are probably doing
those same sorts of things. We are trying to work within thein
the system, but it is not being very successful.
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Allowing cost considerations to limit access to care in this manner by employees of small businesses is not a solution. It is another
indication that there is a broader problem. I feel the overwhelming
driver of insurance costs is the high demand for medical services
coupled with the skyrocketing costs of health care, including prescriptions. I am not telling you anything new.
Today, as a nation, we are healthier than we have ever been before. Part of the reason is the advance in medical treatment, which
of course adds to the cost. I dont see that reinsurance will necessarily help curb costs. I see reinsurance as more of a vehicle for
availability. I have always been able to find group insurance. I just
cant afford it. I dont get the impression from my clients that they
cant find the coverage. Most of the time there is a market somewhere, but people cant afford to pay the premium.
I think there are only three broad answerseither have the government pay for part of the cost, somehow limit the cost of services,
or pass more of the costs to individuals. And more than likely, it
is going to be some combination of all of the above.
All reinsurance does is redistribute the exposure to loss by the
insurance company. It does not lower the total cost. Conceptually,
the ability of insurance carriers to lower their overall exposure to
loss through reinsurance could cause more carriers to compete in
the marketplace. With more competition, costs could be lower. It is
a concept that needs to be explored more, just as your Committee
is doing.
As Congress moves forward in developing effective legislation, we
would like to make the following recommendations. First of all, we
need to consider affordability as a key to availability. Number two,
we need to clearly outline administration of the program, preserving state regulation. We strongly believe that state coverage,
mandates must remain. Establishing financial soundness standards, including a structure of operative principles, is critical. It is
not merely enough to have funding.
We must learn from past mistakes. ERISA is an example. ERISA
needs to be fixed before anything else is piled on top of it. We need
to operate outside of that.
PIA strongly advises that legislation moving through Committee
be available for public vetting, and that before the concepts are implemented they are subjected to economic and operative modeling.
In closing, let me emphasize that what we are really discussing
here today is how we go about delivering more high-quality health
care to people who cannot afford to bear the full brunt of the cost.
People who choose to work for Americas small businesses should
not be less able to have quality health care than people who work
for large concerns.
Aside from the issue of basic fairness, such a situation places
small businesses at a competitive disadvantage in the marketplace.
Reinsurance should be a part, but only one part, of a number of
potential solutions that need to be accomplished to make health insurance available and affordable to small businesses.
Thank you.
[The prepared statement of Mr. Harter may be found on page 47
of the Appendix.]
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ChairwomanVELA ZQUEZ. Thank you, Mr. Harter.
Our next witness is Ms. Janet Trautwein. She is the Executive
Vice President and CEO of the National Association of Health Underwriters. The National Association of Health Underwriters is a
trade association for health insurance agents and brokers, representing more than 20,000 health insurance producers nationally.
Welcome.
STATEMENT OF MS. JANET TRAUTWEIN, EXECUTIVE VICE
PRESIDENT & CEO, NATIONAL ASSOCIATION OF HEALTH UNDERWRITERS
Ms.TRAUTWEIN. Thank you, Madam Chairwoman. I think I just

want to go ahead and move right intonot talk about the things
that others have spoken about today.
I want to talk a little bit about reinsurance and why we are talking about reinsurance. You know, what is reinsurance for at the
most basic level. One of the major cost drivers in health insurance
today are the expenses by a few people who either have chronic or
serious medical conditions. In fact, 20 percent of the people who
have these conditions actually produce 80 percent of the expense in
any plan, regardless of the size of the case.
And that is why reinsurance is used. Spreading the risk in plans,
particularly small employer plans, is difficult for insurers to do
that, and that is why many insurers do buy reinsurance. I find that
people are surprised when insurance companies reinsure themselves. That seems, you know, at odds with what an insurance company would do. But this allows them to be more competitive.
And what do we mean by being more competitive? That means
they are offering a lower cost. And if they can reinsure part of that
risk, it helps them to offer a lower cost to more employers. That
is what being competitive is all about.
And I want to emphasize one thing about reinsurance. When a
company reinsures or even an employer, large or small, reinsures,
they dont reinsure for losses that they expectthey price for those.
They insure for losses that they dont expect, that would be out of
the range of things that would normally happen.
There are two basic types of reinsurance. There are actually
many types, so I am going to oversimplify this discussion for those
of my fellow panelists that would say, Well, it is really more complicated than that. It is, but I am going tofor purposes of our
discussion today, I want to break it down into two types.
Reinsurance can be bought on individual losses, against losses by
an individual within a group, and then it can also be purchased for
the losses of a pool of individuals as a whole. And there are a lot
of calculations that go into how much reinsurance you buy. One
thing I want to point out is that the amount of coverage purchased
is never an arbitrary amount today, and it never should be, because the ability to absorb risk is very, very different from one
group to another.
And when I talk about a group, I dont mean one small employer.
I mean for an insurer, their group of small employers, or their
group of a particular market, and that is who they reinsure. If they
were to buy too much reinsurance because it had to be purchased
at an arbitrary amount, that would be a huge waste of money and
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would cause prices to go up, not down. So you dont want to throw
dollars away there.
I do want to point out that there is a cost for reinsurance. We
have mentioned this before. It is factored back into the premiums
that people pay. There is a premium that insurers or employers
pay for reinsurance, and it does help them be more competitive, but
it is not free. And that is just an important component to keep in
mind, that it is a rearranging of things, and it can lower costs, but
sometimes it is just spreading it out differently.
I want to point out that some states have tried to assist small
employers already by developing small employer reinsurance pools.
There are about 19 of these pools in existence so far today. They
have been marginally successful, primarily for two reasons. One is
that they are very small, and most of the large carriers do not participate.
The reason why they dont participate is because the pools are
set up with an arbitrarily low attachment point for the reinsurance, which isthey feel is silly to reinsure at that level and would
be a waste of the dollars that could go towards paying claims for
their customers. And so the pools have almost today been set up
to fail. That old NAIC model needs to be changed, so that they
could work more effectively.
There have been some ideas circulated about federal subsidies for
the reinsurance market, all different waysfederal subsidies, state
subsidies, any sort of assistance. The reason why these have been
kind of popular concepts is that they actuallya subsidy would actually take away part of the cost, as opposed to rearranging it, like
I was talking about a few minutes ago.
So, for example, a subsidy could be constructed so that it would
actually reduce the amount of a reinsurance cost or reduce the
amount of a claims cost that normally would have been calculated
into figuring how much to charge people for their coverage. So it
should force costs down in the market, if it were done correctly.
In closing, I have just a couple of key principles that I would say
that you should adhere to on any reinsurance proposal, no matter
what it looks like. If you were going to set up a subsidy, or even
a program, you need to make sure that you set it up across a market, and that you dont segment a market. And so what do I mean?
If you are going to set up a reinsurance program, then it is for
the individual market or it is for the small employer market, but
not a part of that market. Now, it can be broader than that, but
you dont want it to be only for people who buy in this pool or only
for people to do that. If it is for the small employer market, it is
for the whole market. Otherwise, you are going to eliminate coverage that is already available to people. So no market segmentation, very important.
The other thing, as I mentioned before, this issue about not using
arbitrary amounts, make it flexible, so that people buy coverage
that would be in excess of claims that they already expect, and
then they are not insuringbeing forced to insure too low.
And those are my primary issues. I think there are a lot of creative things that could be done. It just needs to be done correctly,
so that you are doing something good instead of doing something
that backfires on you.
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[The prepared statement of Ms. Trautwein may be found on page
50 of the Appendix.]
ChairwomanVELA ZQUEZ. Thank you.
Our last witness, but not least, is Mr. Edmund Haislmaier. He
is a Senior Research Fellow at the Center for Health Policy Studies, which is part of The Heritage Foundation. Before coming to
The Heritage Foundation, Mr. Haislmaier was the Director of
Health Care Policy in the Corporate Strategic Planning and Policy
Division of Pfizer.
Welcome.
STATEMENT OF MR. EDMUND HAISLMAIER, SENIOR
RESEARCH FELLOW, THE HERITAGE FOUNDATION
Mr.HAISLMAIER. Thank you very much. The Committee has copies of my testimony. I wont go into that in great detail. I would
like, Madam Chairman, to just echo a couple of comments that
were made by the other witnesses, because I think they are very
important ones, and they are comments that I made in my testimony.
First off is the observation by several of my fellow panelists here
that what we are discussing is transferring costs or rearranging
costs or shifting who bears some of the costs. We are not talking
about reducing the underlying costs. It is possible in theory in
some designs to marginally reduce the costs through better case
management. But by and large, we are not here to talkthis sort
of mechanism does not reduce cost. What it does is it more equitably distributes the cost.
Now, there is a value to more equitably distributing the cost, and
so that is something worth pursuing. But let us make sure that we
are not under any illusions that we are going to have reductions
in the cost of health care as a result of this alone. That is a topic
for another hearing, I am sure.
The other point that I would like to make here is that while, as
my fellow panelists have explained, there is reinsurance in the current market, and particularly for smaller carriers and employers,
and those are the ones who feel the need to get it, because they
are the ones for whom one or two incidences might tip the balance.
It takes a lot for a large insurer in any line of insurance to have
a situation where there is a sort of perfect storm of bad events that
results in the inability to cover all the claims. The smaller you get,
the more likely that is. And so the more likely they are to purchase
reinsurance in any particular line.
Now, that does get to a related issue, which I wont get into now,
but I find it extremely questionable whether we should continue to
operate on the premise that employers in the small business sector
should be the principal organizers of health care. This is a model
that may work, and still in some respects does work quite well for
large employers.
But I think it is quite clear that there are enormous problems
when we try to pretend that a business of 10 is really sort of similar to General Motors or General Electric. It is not in this area, and
I think we are putting too much of a burden on them, and I think
we need to devise alternative methods for their workers to get cov-
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erage. That is, again, a separate subject. I would be happy to talk
about it if you would like.
The other point that I would like to make here is we very quickly
get into something that is a related concept, but I think a more relevant concept and a slightly different concept, and that is whether
or not government should organize risk transfer pools. That is not
pure reinsurance, as it is commonly understood, and I address that
in the testimony.
Rather, it is a way of dealing with selection issues to ensure that
the distribution of the costs associated with a small portion of the
population that has higher than average expenses, that it is evenly
distributed. Again, there is value in doing that.
Right now, we have a situation in which it is almost hot potato.
People are trying to avoid certain costs. Whether they are employers or insurers, everyoneI like to say it iswe see this in pharmaceutical pricing. It is sort of the reverse Lake Woebegone effect.
As you recall, in Lake Woebegone all the kids were above average.
Well, everybody wants to pay below average. The problem is that
is not only economically impossible; it is mathematically impossible.
So what would a fairer system look like? It would be one in
which I think everyone would pay an average appropriate cost
based on the general population. And if there were disparities, they
would be evened out through a risk transfer mechanism. So, for example, if on average say 10 percent of the population is diabetic,
and one insurer gets15 percent of its business is diabetics, and
another gets 5, there would be a redistribution through some sort
of pooling mechanism.
Now, states, as Ms. Trautwein pointed out, have done some of
this in the small group market. They have done more in the individual marketand her organization has written extensively on
thatin high-risk pools. Again, the cost does not go away. It is
simply spread out evenly. It is simply transferred.
So what that leads to is another point that Ms. Trautwein made,
which is that if you have any kind of mechanism like this, you
want it to be as broad as possible to encompass as much as possible
of the market to be as fair as possible, and also to be asto minimize any kind of disruption.
Now, I happen to think that given the states role in regulating
insurance, in general, and some of the work that they have done
there, that this is principally an activity that the states ought to
pursue and experiment. Also, because markets are localized, both
for health care services and for health insurance, the Federal Government may be able to help.
When the state tries to do this, it does run up against an obstacle that depending on the state, you know, upwards of a half of its
population is beyond the reach of the state, because they are in
self-insured ERISA plans. And so it is in that context that states
look to use mechanisms other than passing back to carriers the
cost, such as provider taxes or general revenues, to, again, make
sure that the costs are being spread not just only on half the population but on all of the population.
That is an area that Congress ought to look at. Should ERISA
be amended, for example, to allow states with a qualified risk
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spreading mechanism to require ERISA plans to participate in it?
I am sure that will be controversial. But if you look at the logic of
trying to spread all the coststo spread those costs across all of
the participants, there is reason to consider that.
I will stop there. I would be happy to answer the Committees
questions, and thank you for the opportunity to testify.
[The prepared statement of Mr. Haislmaier may be found on
page 56 of the Appendix.]
ChairwomanVELA ZQUEZ. Thank you very much, Mr. Haislmaier.
Mr. Crouse, I would like to address my first question to you. As
you know, large employers plans are sometimes underwritten by
captive insurance companies formed, owned, and managed by the
employer. And these arrangements allow for the employer to collect
premiums, pay claims, while still managing the risk of running a
plan. Can you give us a little more detail as to the nature of a captive insurance arrangement and why an employer will use such a
structure?
Mr.CROUSE. Basically, we are talking about a pure now, somethinga captive that is owned by a corporation that is writing
business for themselves or their affiliated companies. The simplest
answer to that would be insurance costs. You take workers comp,
you take general liability, some of the property casualty lines, a
large corporation will be paying premium based on a national average. In other words, those rates are set by, you know, whomever.
That corporation may feel that their experience in workers comp,
their experience for general liability, is much better than that of
the national average. So they will form a captive insurance company. They will pay them to set it up. It is capitalized, it is the
actuarial work-up, the wholeeverything involved. And what that
does, it basically lowers the cost of the premium that they are
being charged for, because their experience is better than the average.
And what they can do, then, is they get that money, they invest
that money, you know, they collect their own premiums. Basically,
it is their company, and they have got the investment income from
that, the admin costs are less. There is just a lot of reasons why
it makes sense for a large corporation.
And in the health care, most of our large corporations that are
writing their post-retirement medical benefits, these large, large
corporations are doing that. That is mostly on the pure side. But
those are some of the reasons why corporations do form captive insurance companies. It is a better way to have their insurance programs directly in front of them. They are basing their insurance experience on themselves, as opposed to a national average.
ChairwomanVELA ZQUEZ. So do you believe that captives or some
alternative options or version could successfully be used in the
small group market to achieve the success experienced by large corporations?
Mr.CROUSE. Well, that is a difficultMadam Chairman, that is
a difficult question. We have had experience with small groups. We
have small groups in transportation. We have small groupsyou
name it. I mean, medical groups, dental groups, small railroads. I
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mean, there is a lot of small groups that have been successful in
doing this business.
In regards to health care, it is going to be a little bit more complicated. Basically, what we have seen, what we have done with
the small groups that have donetried to accomplish some of these
benefits in the health care field, a lot of these companies, they are
small companies. And the other panelists here are talking about
the large pool and everybody in the country. Well, I really cant sit
here and tell you that is what our concept does.
Our concept would help individual small companies pool and get
together and basically, you know, accomplish what they have to accomplish. But it is safetyit is a health program. A lot of these
companies that come in, they must have a program that is designed to work with their employees, safety programs, health maintenance programs. And, basically, as you know, it is discriminatory
to charge a certain group less than the average.
So what they do after the experience is all over and done with,
those insurers get money back, and that is how our programs work.
And they have to be put together by somebody. They just cant say,
I am going to do this. As someone talked about the agencies here,
there has to be a large agent company, a large life agent or somebody, get together, get out there and try to bring these people together with the concept that this will work.
And then, the actuaries have to come into it. The most important
part of any program is the feasibility study done by the actuarial
community. It has to make sense. It has to be sound. So, yes, it
works. But the captive business would not be in existence today if
it wasnt for reinsurance markets. There is not a captive out there
that doesnt utilize the reinsurance markets.
Mr.CROUSE. Whether it be pure, small groups, whatever, associations.
Mr. Collins, if a small business wants to reinsure its own catastrophic health risk, it can either purchase coverage to provide protection against individual claims or aggregate claims. Can you tell
me at what point reinsurance coverage generally kicks in, or, rather, what is the average attachment point for the health reinsurance
policy?
Mr.COLLINS. The average attachment point for the individual
claim level starts out at a low point, relatively speaking, if the employer is very small. And as the employer gets larger, the attachment point rises. And the decision about whether the level that the
employer decides to purchase is generally up to the employer based
upon their risk tolerance and how much risk they feel like taking.
Generally speaking, I would say that they do not self-fund their
plan and buy specific and aggregate stop loss, which is what you
are referring to, if they have less than 50 employees. So it is generally not much of an issue for very small employers.
Ms. Trautwein, one way to make reinsurance more available to
small businesses will be to encourage formation of pool purchasing
arrangements. In order for this to work, this task will likely fall
on established business groups, such as trade associations rather
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than individual business owners. Are there any dangers associated
with this option? And what, if any, precautions should be taken?
Ms.TRAUTWEIN. Well, I think you would have to be very careful
about on the trade association side making sure it is bona fide
trade associations that were not what we would call shelf associations, that they really have been in existence for some other purpose for a period of time. And then, you have to be careful when
you are putting together a pool as to how you do it.
There are lots of different ways that you could use these ideas,
and you could create a pool to do it, or you could do it without a
pool, but you could do it with a pool, and it may not even be reinsurance in the way that any of us are thinking about it as the
table.
It might just be super catastrophic coverage with a very, very
high deductible, and then a company perhaps could purchase more
of a mini-med type policy, like Mr. Harter was referring to, and
then the super catastrophic coverage would pick up after that. That
is kind of athat is a sort of reinsurance coverage, too, but certainly associations and other groupsa lot of different kinds of
groups could facilitate that type of thing, but we would want to be
very careful so that the public was not misled.
The worst thing is for some small employer to think they are covered, and then when it comes time for their large claim it is not.
So I would just say some very careful consideration of that language.
Mr. Chabot.
Mr.CHABOT. Thank you, Madam Chair.
Let us see, Mr. Haislmaier, if I could begin with you. You mentioned I think in your comments that what we are really talking
about here is not necessarily reducing the overall cost of the health
insurance itself. It is sort of shifting who pays for it and
Mr.HAISLMAIER. Yes, as did some of the other panelists, yes.
Mr.CHABOT. Right, right. Now, if you are looking at something
that really does reduce the actual cost of the health care itself,
would an example of that be something like if you are looking at
maybe the high cost of medical malpractice insurance, and proliferation of lawsuits against doctors and things, and the resulting
practice of defensive medicine, where a lot of expensive tests are
ordered in order to protect somebody from being sued, perhaps
more tests than are really warranted. Is that an example of where
you actually could bring the cost down itself?
Mr.HAISLMAIER. In some cases, that might be. I mean, some
states have had those problems more so than other states. Some
states have done liability reform in that area. It is a piece of the
issue. There are a lot of pieces that go into the cost of health care.
There are enormous variations in practice patterns that are documented that have nothing to do with, really, you know, lawyers or
anything like that.
There are regulatory costs and the insuranceyou know, sometimes the benefit mandates. Again, those are usually small pieces,
but you add these things up together, there isin a number of
states you have very uncompetitive provider markets in some
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areas. You know, for example, in Massachusetts health reform, one
of the things I always point out to people, you know, when they
say, Well, could we do that in another state? and I say, Well, we
dont have thiswe have got this problem that Massachusetts
doesnt have.
And I said, Yes, but you dont have their problem. And they
said, Well, what was that? And I said, Well, they have got the
least competitive hospital system in the country. You know, so a
large part of what they were doing in reforming their system was
to focus on trying to create competition at the hospital level, which
is not an issue, say, in California or Washington State.
So, yes, it is a piece of it. There are a number of different pieces.
And I think, frankly, that would probably be another whole hearing.
Mr.CHABOT. Okay. Actually, we did have a hearing somewhat related to that, but let me ask a couple of the questions. And there
are a number of people that addressed this, and I would like to
hear you maybe elaborate a little bit on it. You talked about one
possibilityI think you, Mr. Harter, especially mentioned this, and
I think you did, Ms. Trautwein, as well, the possibility of a federal
subsidy is part of the solution.
Now, as kind of a conservative member of Congress, there is a
lot of us that think that when the Federal Government gets real
involved, especially if it isI mean, the money isnt ours to begin
with. It is being taken from your employees and taxpayers,
etcetera. So if we would fund something like that, it is not free
money, obviously. It is something to be considered, that these are
tax dollars and we would have to take them to give them out.
So what is your idea relative to that? And our concern that if we
are using federal dollars, in essence we are just taking it from one
group and then subsidizing this. And I think probably, Mr. Harter
and Ms. Trautwein, and then Mr. Haislmaier, I would like to have
your comment on that, too.
Mr.HARTER. My personal opinion is there is going to bethere
is a lot of pain to be passed around in the health insurance issue.
As I have said before, there are many, many components that go
into the issue. I think federal subsidies is one solution to it. I think
it is a very painful solution.
I think we have to really get down to the nuts and bolts of working the system. As people like at the table here, it is not the presidents of companies doing this. It is people who are in the working
trenches with these products and with what can pull this together,
I think is where the solution is going to come. A lot of agendas
have to be set aside I think to have a successful outcome for this
very, very complicated problem.
Mr.CHABOT. Ms. Trautwein?
Ms.TRAUTWEIN. Yes. And I have to tell you that I share some of
your concern about even mentioning the words federal subsidy.
And the reason I do mention it, though, is I dont believe that it
has to be complicated with lots of strings attached. We have
watched the subsidies for the high-risk pools that came through,
not huge amounts of money for the federal high-risk pool program.
And you know what they have done? It is a simple grant program. There is one person at CMS that administers that. One per-
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son. And they look at these grants once per year. The grants go out
to the state high-risk pools. They have not changed any of the way
that they do business, other than the fact that the rates that they
offer people are lower.
They are dealing with the sickest of the sick, and reinsurance
also deals with the sickest of the sick, and that is why I have modified my own ideas about it a little bit, because when we look at
what is an appropriate role of government, you know, my personal
belief is that it is for people that need help the most. And I believe
it isreally, really sick people do fall into that category, and they
do impact the costs for everyone.
And so that is the reason why I have modified my own viewpoints about that more than I would have a few years ago, because
I have seen that it actually has been beneficial in this other program, and I wonder if maybe it couldnt help this market, too.
Mr.CHABOT. Thank you.
Mr. Haislmaier?
Mr.HAISLMAIER. Yes. I come back to my comment that we are
transferring these costs, we are not reducing them, and that is true
if you have either a state or a federal taxpayer subsidy going into
them. And, again, it is just a transfer to somebody.
Now, given that, does it make sense on occasion to do that? Well,
let us walk through the scenario. Let us say a given state decides
to have a system that says, Look, we are going10 percent of our
state is, as Ms. Trautwein pointed out, the sickest group. We want
to spread their excess costs evenly among the other 90 percent.
All right. At that point, you can say, Well, we will pass it all
back through the insurers, in which case it gets added to their premium. But what if we cant reach all of them that way? Well,
then, maybe a tax mechanism, a taxpayer funding mechanism
might be a way to do it.
At a national level, what Ms. Trautwein pointed out was really
a demonstration project, a block grant, of a limited amount of
money to help states set this up. At a national level, one could, in
theory, say, Well, all right. That is fine and good for each state
to do it. But what if one state has a population that is sicker than
the national average? Then, we are going to sort of rebalance.
We do that in Medicaid, in effect, when we say, Well, some
states have a much higher poor population than other states, and
then so they get more money in Medicaid than other states. In theory, that would work.
The caveat that I have on all of this, whether you are doing it
at the federal or state level, is if you do put public money in, make
itdo not make it any kind of entitlement, do not make it attached
to any kind of revenue source, it should be a very clear, very specified and capped amount going into that, because you do not want
to create a situation where you then have a new game, which is
let us tag the Federal Government or the state government, if it
is the state, with these costs and let us shift more and more and
more onto the taxpayer.
So you just have to beI mean, it is possible to do it. A number
of states fund their high-risk pools partly out of public money.
Some states do not fund them out of public money at all. It is all
passed back to the insurance carriers. So it is possible to do it, but
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you have to be careful that you dont get a game of tag going where
the taxpayer gets tagged as it for more and more and more.
Mr.CHABOT. Okay. Thank you.
Madam Chair, if I could just ask one quick final question.
ChairwomanVELA ZQUEZ. Sure.
Mr.CHABOT. Mr. Harter, you had mentioned when you had your
insurance agency that the costs were getting very expensive. I
think you said they were about $500 a month per employee at one
point, and you got a mini-med plan. Could you just give us, very
briefly, what sort of coverage your employees would get under
mini-med, and about what it would cost a small business owner?
Mr.HARTER. We are speaking in Missouri. That is going to be
probably less there than it might be in New Jersey or somewhere
like that anyway. A mini-med basically provides specified coverage.
It does pay some for doctors visits. It will pay up toI think mine
is $90. There is a $30 co-pay, and then it will pay up to $90 for
a certain number of visits per year.
It is very, very weak in the hospital side of it. Ms. Trautwein was
mentioning I think the mini-med might be a good vehicle for some
of the fundamental coverage, but somewhere you still need that
major medical. I think this program pays $1,500 for a hospital
visit. Well, a hospital
Mr.CHABOT. But not over? There is not like a catastrophic?
Mr.HARTER. It is not.
Mr.CHABOT. Okay.
Mr.HARTER. It is not. You would have to somehow be able to put
a catastrophic on top of one of these mini-med programs. The minimedwe have a couple of versions of it that people can buy, but
it is basically $150, $175 a month. So it is pretty affordable.
Mr.CHABOT. Now, that is for thethat is the total cost, including
the employee and the employer?
Mr.HARTER. That is correct.
Mr.CHABOT. Yes. Okay. Versus, say, $500 or
Mr.HARTER. Absolutely.
Mr.CHABOT. Okay. All right. Thank you very much, and I yield
back, Madam Chair.
ChairwomanVELA ZQUEZ. Mr. Jefferson.
Mr.JEFFERSON. Thank you, Madam Chairlady.
I want to see if we can get back to what I think the Chairlady
had in mind when she put this hearing together. That is this: that
one of the reasons for high costs among small businessfor small
business employers and employees is a lack of competitive.
And the notion is that if competition is introduced into the small
business market, costs will go down for insurance. This is borne out
by the notion that in larger enterprises costs are lower, because
there are larger pools and there is more competition and more people who want the business.
So it is not a matter of whether the cost is shifted around or not.
It is a matter of whether the idea of reinsurance will mean there
will be more people willing to come into a marketplace and compete
for business.
Now, the notion here is not so much whetheras I saw it in the
Hurricane Katrina context, it was this. The question was: who,
amongst insurance companies, had to pay? And that was a big
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question of risk, and not the questions underlining risk for the
folks getting sick and all of that. It was a risk the insurance company had to pay, and whether somebody else would have to pay.
And we saw it in the case where those who didntwho had help
in thatfor instance, call names, State Farm had most of its outfit
reinsured. Therefore, it paid claims quickly and rapidly because it
wasnt paying the whole thing. Whereas, I feel like Allstate that is
invested in the market, playing the stock market, and had investment insurance, found itself in terrible trouble having to pay everything, and ended up threatening to go bankrupt, and all of that.
So the question I have is: do you think there is anything to the
notion that reinsurance may help to introduce competition in the
small business marketplace, and, by that fact, lead to some cost reductions on the part of those who compete? Because the notion is
and the American economy is the best competition, there is likely
to be cost reduction. Does that make any sense to anybody out
there?
Mr.CROUSE. Mr. Jefferson, it does make sense to me. There is
usually a little bit of savings when you have large numbers, there
is no question. And, again, getting back to what this Committee
has addressed here is small business and small business owners as
opposed to the national health problem, health care problem.
I do believe that reinsurance can help. I believe also that it is
very, very important. There is a lot of costs involved when you
have a small business and you pay that premium to the health insurer. The cost that they use to administer that, the admin cost,
it gets quite expensive.
There are savings that small businesses can make. If they structure something put together with a group, a fairly large group,
they can cut the costs of administration, they can cut some of these
costs that areyou know, that go along with these normal policies
with large life companies.
And as far as reinsurance goes, what you point out, Mr. Jefferson, is true. I mean, most companies do retrocede some of their
risk. In the case that you said of Katrina, they spread their risk
as well as the first risk. The second person spreads, the third person spreads. I mean, retrocessions are done all the time, and most
reinsurance companies do that.
So I do believe that the numbers to meif you get a pool big
enough, and you can show that you can save some costs by doing
something yourselfagain, put together by someone that knows
what they are doing. This takes a little bit of talent out there from
various industries to put these together. It can be accomplished. It
can be accomplished.
And then, you have a bargaining chip to go to these reinsurers
these insurers for your health care. They may look at your program
and say, That is a well-run program. There are some cost savings
there. Maybe my rates wont be as bad. I have seen that.
Mr.HAISLMAIER. Yes, sir, if I could make a couple of comments.
First off, the example you cited with your state being hit by two
hurricanes actually back to back is a classic example of why a commercial and property insurer will buy reinsurance. It is for exactly
that unlikely eventuality. And as you pointed out, State Farm, you
know, came out okay because of that.
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I want to make a couple of points here as we think about this.
One of the big issues that folks focus on with small business is the
size and the idea of aggregating them. I mean, association health
plans, this is another aspect. And it is just very important to understand that in any risk pooling arrangement in health care or
anything else, size is only part of the equation. The other two factors are randomness and stability.
And when you consider saying the difference between 1,000
small businesses of 10 employees each and one employer of 10,000,
the difference is not in the size, it is in the randomness and the
stability of those two pools. So when we look at why larger employers maybe come out with better rates than smaller businesses, a
lot of that has to do with the uncertainties surrounding not the size
but the randomness and stability, which gets me back to my point
of risk transfer.
Now, to address your question, Congressman, about does this
is there ways to maketo increase competition, yes, there are.
There has been limited success, as Ms. Trautwein pointed outand
she can speak to thatin trying to do precisely that in the small
group reforms. A number of statesas she pointed out, 19 of
themsaid, Well, we will set up a voluntary reinsurance mechanism in the small group market as part of our small group reforms.
And that was designed to encourage smaller carriers to come in
and compete against the dominant incumbent carriers, by saying,
well, you know, you dont have to have the same capitalization to
go up against them, because you can offload some of the risk. Because of the voluntary nature of that, I think it has had limited
success.
Now, the next question then becomes: well, do we move to an all
market risk transfer mechanism? That was what I was getting at
in my testimony. Do we say that, fine, anybody coming in here, we
are going to level the playing field in a given state for any insurer
coming in. And as part of that leveling, we are also going to have
a risk transfer mechanism, so that any insurer, big or small, can
pass claims into that.
Those claims get pooled together and then re-spread based on
how many lives everybody is covering. And that way, if there is any
disparities where one carrier, big or small, gets a larger than average share of sick people, that can be made up out of the carriers
that dont. Those are the kinds of risk transfer mechanisms that
we are looking at.
But, really, for that to work you have to have as much of the
market as you possibly can. At a minimum, as Ms. Trautwein said,
you dont want to subdivide an existing market. Ideally, you want
to aggregate together marketsindividual, small group, larger
group, etcetera.
ChairwomanVELA ZQUEZ. Ms. Clarke.
Ms.CLARKE. Thank you very much, Madam Chairman.
And to our panelists, your testimony has been quite interesting
and quite informative. You know, it is quite evident that fewer insurers are offering health insurance coverage to small businesses
because of their unusually high health care expenses. This fact
compels us to examine whether or not the expansion of the private
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insurance market may be an approach that will lower health insurance costs and reduce health care premiums for small businesses,
thereby making medical coverage more affordable.
I am intrigued by the notion that by developing small business
coalitionsexcuse me, small purchasing coalitions known as reinsurance poolsamong health insurers, or small business employers, it will spread the insurance costs among everyone in the purchasing pool. More importantly, it will spread the risks more fairly,
so that one catastrophically ill, sick employee out of work for an extended period of time will not cause a small business health insurance rates to propel so high that it bankrupts them.
My question to the panelists is that I am trying to understand
whether, in fact, there is a way that we can establish fairness and
stability in the health reinsurance market that is private for small
businesses when it is very probable that at any given time premiums can rise due to market volatility.
And, you know, whether small businesses in the long term greatly needwe know that small businesses in the long term greatly
need insurance rates to be stable. What measures can be placed
can be put in place to ensure that these rates will be stable over
time? If folks on the panel could sort of address those two issues.
You know, I am trying to get to solutions here. We have come up
with so many variables, I am just trying to find the common denominator. Maybe we can start with Mr. Crouse.
Mr.CROUSE. Well, you are answering a direct question. How can
we reach a point where small businesses costs are going to go
down? Again, the only solution that I talked about, or that I
thought, was that if small businesses get together and form cooperatives in a sense that there may be some more purchasing
power. In other words, again, there may be better buying circumstances for these corporationssmall businesses, rather.
Other than that, maam, I dontit is a tough, tough call. I just
dont know.
Ms.CLARKE. Do you think that will ensure these rates will be stable over time?
Mr.CROUSE. Again, they should be stable over time. If you look
at happened in med mal right nowand med mal is tied into
health care in a way. To go back to what people said about, you
know, the tort reform, it is working in some states, it has helped
states do that, if you look at the med malpracticeI mean, the industry right now, the rates are down. It is softening up in the med
mal area. That all should go back into the costs of health care.
So I just feel that possiblyagain, possibly, that if you do form
cooperatives, but there has to be, you know, again, small businesses. We are not talking about the whole universe here in the
country. I am talking about small businesses that want to get together and do it right and set it up and have the health program
you know, things that must be providedthat there can be benefits. It can be well structured within small businesses.
And I say small businessesI say possibly even in associations,
associations that we have that have up to 5,000 members. And
they formed a small captive insurance company to do just that. It
is put together by an insurance agency, a large TPA firm in the life
business. It is being handled by them. It has worked. We have had
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feasibility studies. We have had legal opinions on it. It is structured, and it is working fine.
So there is reinsurance involved at the high end. They fund it
with trusts up to I think it is 125 percent ofyou know, of the premium or what not. But it works. It works. There are ways to do
this.
Ms.CLARKE. Thank you, Mr. Crouse. Let me try to getI see Mr.
Harter there chomping at the bit, and I am running out of time.
But I appreciate your comments, Mr. Crouse. Thank you.
Mr.HARTER. I think we are talking about one aspect of it. I think
the other end of it is the cost of the medical services is driving that.
We have to respond to that, and I think that is a factor in that
in the unpredictability of the premium cost. It is all of it together.
It is not just one factor.
Ms.CLARKE. Thank you.
Thank you, Madam Chair.
ChairwomanVELA ZQUEZ. Mr. Sestak.
Mr.SESTAK. Thank you.
Sir, may I follow up on a statement you made about ERISA?
Mr.HAISLMAIER. Certainly.
Mr.SESTAK. You also made the comment that the importance of
any approach, if you want to distribute the risk, is the larger the
market, the better it is. My understanding is ERISA, I mean, probably impacts, if I am wrongand I am not sure of this fact, but
over 50 percent of our employers in the state. Is that correct? Or
65 percent?
Mr.HAISLMAIER. It would depend on the state, but roughly.
Mr.SESTAK. So if you didnt want to go about this reinsurance
and redistribution, you are not going to be able to do it unless you
potentially change ERISAdo it as well until you change
Mr.HAISLMAIER. You wont be able to do it as well. That is true.
There are some work-arounds you can do, but they are not perfect.
Mr.SESTAK. I guess Maryland has, you know, had its effort at
risk of fail.
Mr.HAISLMAIER. At the state, yes.
Mr.SESTAK. At the state. To pursue this reinsurance, I mean, you
also made a statement thatto a comment about tort reform,
something about it is a piece of it. Are we doing good by just focusing on the reinsurance? I mean, everybody has already asked a lot
of questions in that area, so I wont. That pieceor do we really
have to approach it more holistically to doto really do it well?
And I ask that because somebody, as I walked inI think it was
you, Mr. Collins, is, you know, you canby doing some good, you
may impact something else that is not asgoes beyond here. Must
we capture ERISA this?
Mr.HAISLMAIER. I dont think it is absolutely essential that you
capture ERISA in this. I am simply pointing out that if you want
to go beyond what states are capable of doing, this is an area that
you would have to get into federal law. I can give you an example
of, in states that I have worked in, where we have designed some
of these proposals. And they havent passed yet but, you know,
there are various proposals on thissetting up a statean all carrier risk transfer pool.
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And you say, Well, all carriers are members. They have to participate. By virtue of being a participant, they have a right to see,
and they set their own rules as to what the attachment points and
the risk corridors are. Now, at that point you are getting about
half the market. And then, you say, Well, can we do anything with
this ERISA piece of it?
Well, one of the creative things we did is we said, Well, look,
we cant as a stateas state cant require those employers to come
in and play in that system. But what it could do is it could offer
it could say, Look, you can voluntarily come in. Of course, you
dont want them to come in, dump their risk, and leave.
So we set up what we call Lloyds rules, which says that if you
voluntarily come in, you have to stay and make payments on the
assessments for three years after you voluntarily leave. That is
how Lloyds of London works with their syndicates. You cant just
leave when the losses come.
So that is kind of a work-around on that. I think if you went that
far, you would make huge progress.
Now, is thereto get to your second question, is there value in
doing just this piece? And the answer I think is yes, and let me
explain why. To the extent that you have some sort of a mechanism
whereby the unpredictable disparities in where these high risks
pop up and who gets, you know, a disproportionate share, to the
extent that you have a mechanism that evens that out for everyone, what does that do? Well, it takes off the table that issue.
Okay?
So it says that we can now focus on other things, like the underlying cost of care, and we have taken away the ability for people
to, you know, do the easy route, which is, well, I will, you know,
bring premiums down by not having sick people. So if you take that
off the table, then you have improved the market, in my view, to
the point where people now have to concentrate more
Mr.SESTAK. But is there a transfer, then, between those who are
bound by ERISA and those that arent still? Since the state can
only impact the insurers, cant impact the employers under ERISA.
Mr.HAISLMAIER. That is right, and that is why states have looked
at several mechanisms
Mr.SESTAK. In other words
Mr.HAISLMAIER. to subsidize that pool out of
Mr.SESTAK. If you dont mind, just to make sure I have it
Mr.HAISLMAIER. Sure.
Mr.SESTAK. to do what you just said, which I agree with, you
would have to have a mechanism such as you describedwhich
state did you do that for?
Mr.HAISLMAIER. Well, we originally drafted it for D.C., and this
will come back and probably be considered by the Council again
this year, as part of
Mr.SESTAK. You would also have to have that mechanism taking
place.
Mr.HAISLMAIER. We have done that in Maryland, too.
Mr.SESTAK. You would also have to have thata similar mechanism to what you described put into place in order to make sure
that the distribution is fair throughout everyone. Is that correct?
Mr.HAISLMAIER. It helps to do that, yes. Now
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Mr.SESTAK. So you would need to do the reinsurance and this
mechanism.
Mr.HAISLMAIER. Well, what I am saying is that this is different
from classic reinsurance. Classic reinsurance is a carrier saying,
Look, under normal circumstances, I am going to have losses, and
I can cover them. What happens if there is an abnormal loss?
What if I am writing commercial and property insurance in the
State of Louisiana and we get hit with two hurricanes back to
back? I am not set up to deal with that.
So in classic reinsurance, that is what you are doing is you are
buying against the very unlikely event. That is why, in the life and
health area, you dont see a lot of it unless it is a small company.
I mean, you know, a New York Life doesnt need to buy reinsurance against the unlikely event that half its policyholders die in a
year and claimand their life insurance is claimed against. That
is just, you know, theI mean, you never say never in insurance,
but the likelihood of that happening is near zero.
So thatdoes that help?
Mr.SESTAK. Yes, that does. Thank you.
Thank you, Madam Chair.
ChairwomanVELA ZQUEZ. Mr. Ellsworth.
Mr.ELLSWORTH. Madam Chair, if it pleases the Chairlady, I
would like toMr. Jefferson brought up a point during one of the
questions. I would like to yield to him if that is agreeable.
ChairwomanVELA ZQUEZ. Sure.
Mr.JEFFERSON. Thank you for yielding. I thank the gentleman
for yielding. I thank the Chair for indulging me.
First, I didnt know whether everyone had a chance to react to
the question that I asked earlier. And I dont know whether there
was someone left to react to it; my time had run considerably. If
there wasnt, I have another thing I want to ask, but I want to
make sure that everyone responded to it first of all.
[No response.]
I guess so. Let me get to the other one. There are two issues
here. One is the issue of cost, and which we have talked about. The
other is the issue of access, which is basic choice for people in the
business. And so the second question is whether this idea of reinsurance, which we hope would bring folks to the marketplace,
would give a greater panoply of choices for small business folks as
opposed to the panoply of choices that only folks have in larger enterprises.
That is the second question, which I will justand I will ask
the one that follows up, which I intend only for Mr. Haislmaier, I
believe it is, the last one, which is, you talk about the different
ways to set up the mechanisms forthat risk transfer mechanism
set up, exclusionary, inclusionary, and so on.
And you prefer, at the end of the dayI think you dothe
inclusionary design. And you say, but you must ensure there are
sufficient incentives in that design to make it work across the
board and be fair to everybody. So I want you, at the end of the
day, to comment on the examples of what you mean by these incentives, to make an inclusionary plan work that at the end of the day
might lower cost.
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But the first issue is about the access issue, and the effect of reinsurance on that, because our notion here is that with reinsurance
we bring more folks to the marketplace, and, therefore, create better access for a panoply of options for small business folks who may
not have them now.
Ms.TRAUTWEIN. Can I start?
Mr.COLLINS. Before you do, what I was going to mention regarding cost and access is that those two things tend to compete with
each other. And the one parallel that comes to mind is when they
enacted rate reform for small business insurance plans throughout
the states in various ways back in the 90s, prior to that health insurance companies could, if they chose to, raise rates on a particular group.
When rate reform was installed, it limited the ability, depending
on the state, on the level of rate increases, and, therefore, promoted
more rate stability at an employer level, and it increased access
through guaranteed issue and in many cases a maximum rate that
you could give to a particular group.
What it did, though, as the offsetting cost of putting into that
type of benefit for the market is it raised the overall level of health
insurance costs for the entire small employer market. So the ability
to increase access may be a noble goal, but the experience is that
increased access will generally result in higher costs. And as a policy decision, you will have to be able to balance those two.
Ms.TRAUTWEIN. That is exactly the point that I was going to
make as well, that you have to be careful in access. Even if you
are talking about just adding additional types of policy choices,
human nature is that people gravitate toward the one they are
going to use the most. And you know what happens if yourthe
one thing that you are going to use the most, that means that it
willthe cost will be abnormally higher on a particular type of
plan.
And we have seen this in purchasing pools across the country in
the pools that are already there. Some certain plans end up dropping out because they are selected against. So I just wanted to
Mr.JEFFERSON. Thank you.
Before my time goes, Mr. Haislmaier, could you
Mr.HAISLMAIER. Yes. By inclusionary and exclusionary, as I said
in the testimony, it refers to these risk transfer mechanisms. Essentially, an exclusionary mechanism is one where we say, Well,
we have identified somebody who is high risk. We are going to turn
them down. We are not going to cover them. They can only go over
there and get coverage, and we are going to subsidize the coverage
over there. That is how the individual high-risk pool works.
Obviously, they lack choice when you do that. The inclusionary
mechanism says, Well, no, the insurers have to take all these
folks. But if they have high claims
Mr.JEFFERSON. Where in the standards did you
Mr.HAISLMAIER. The incentives I was referring to in the
inclusionary model are this. In the exclusionary model, there is the
ability of that pool, on the plus side, to manage those costs, because
they got everybody together, and they are the only plan. In the
inclusionary model, each of these people stays with their primary
insurer. So the incentiveand this is what the carriers will be wor-
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ried aboutis to say, Well, those primary insurers each have to
have a continuing incent to manage those claims costs.
That is why when insurers look at doing this inclusionary model,
they want to see things like risk corridors. In other words, you are
still paying 20 cents of every dollar, so you still have toyou are
only ceding 80 cents of the dollars about X. So you still have an
incentive to manage, to just not say, Well, okay, I am not paying
anything anymore. I have given it to the pool. And the costyou
know, I dont care about the cost. That is the incentives I am referring to in the inclusionary model.
ChairwomanVELA ZQUEZ. Mr. Johnson.
Mr.JOHNSON. Thank you. And I apologize for coming in late. But
I am having a problem just understanding how reinsurance will
lower the cost of insurance for small businesses, or any business
for that matter, other than to the insurance company that might
purchase the reinsurance. It might add to their bottom line to
havelike State Farm, but if a business or a person purchases reinsurance, how does that lower their cost of insurance?
Mr.COLLINS. If a plan is in place to, say, have a federal entity
take all claims greater than a certain level, what will likely happen
in a reasonably competitive market is that the premium rates will
go down accordingly.
Mr.JOHNSON. If you have a federal entity
Mr.COLLINS. That simply takes on all medical costs over a certain level, if there is competition of some kind in the market, what
will happen to the premium rates is they will go down by roughly
the same percentage. However, the point that was made before
was
Mr.JOHNSON. In other words, that is assuming that the Federal
Government would become the reinsurer.
Mr.COLLINS. Correct. That is correct. And then, the same would
apply if it transferred to some other entity, whether a private insurer orso if somebodythe point that we were making earlier
is the total costs arent going down. And if that is what you are
thinking of, I think you are exactly right. The responsibility for the
total cost is still going to need to be borne by somebody, and it is
simply being shifted.
Mr.JOHNSON. So reinsurance is really notis there anyone who
disagrees with that premise that reinsurance does not lower the
cost of insurance for small businesses?
Ms.TRAUTWEIN. I just think I should add something there. To the
extent that reinsurance allows more players in a market, so that
you have the ability to spread risk more broadly, then for any given
employer, you mightit might result in a lower cost. That doesnt
mean that if you added all the people up together that you are
really getting rid of the cost, but any certain employers might experience a lower cost if it results in an injection of more competition,
and, thus, more ability to spread risk across a whole market. Then,
it could help. I dont know if people disagree.
Mr.HAISLMAIER. I mean, again, this isI mean, Ms. Trautweins
point is you bring more people in, you spread it across-again, you
are justyou are transferring. And this is a good thing, and it can
be beneficial in the market, and it can create a more competitive
market, induce new entrants into the market in terms of players,
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which then might later, through other mechanisms, bring down
costs. But in and of itself, it is not going to bringI would agree,
it is not going to bring down costs of the underlying health system.
Mr.JOHNSON. So, basically, you are saying if there are more reinsurers that could potentially make morecreate more competition,
if you will, or create more opportunities for various insurers to get
in the business, that would then insure the people and cause costs
to go down as far as policies.
Mr.HAISLMAIER. The valueand I was trying to explain this to
and, unfortunately, the other Congressman has left. The value that
I see in this is, to the extent that you theoretically have a system
that fairly distributes the excess cost of the small number of people
that are sick.
Then, you have a market in which it is not a winning strategy
to base your business on avoiding sick people and only insuring
healthy people. To win in that market, you have to come up with
a different strategy. What is the different strategy? Do a better job
of making sure that people get better quality care at a better price.
That starts to maybe lower cost.
So what you have done is you have taken away something that
might be an obstacle, but you havent affirmatively lowered cost.
That has to come later.
Mr.JOHNSON. It seems that there might be someit might be a
good thing for the Federal Government to step in and subsidize
health care for high cost, individuals with medical needs of a high
cost in other words, to kind of bridge the gap, take some of the
strain off of the health insurance industry. Is thatwould any disagree with that?
Mr.CROUSE. Catastrophic losses, large losses, on the high end,
the Federal Government come in at the high end. Those lines that
youyou know, those losses you cant basically afford.
The business I am in here, the alternative market, the small
company, small company market, you have a company, a group of
small businesses that get together and form a captive or a group.
They will fund up to a certain level. They will put in X amount of
dollars, the expected level. The actuarial will do a study. They will
have expected losses are such, and they will fund to that.
And then, they go out and they buy reinsurance on top of that.
Now, to me, if that reinsurer looks at that company, and it is well
run, and the expected losses in the actuarials workup, you know,
it looks good, then the reinsurance costs will be less. But, again,
it has be a well run captive company, a small group, that keeps
their costs down, all actuarially determined on their loss experience.
So, you know, in that sense, I would sayand I dont know if the
panel agreesbut wouldnt reinsurance be less at the higher end
if you retain some risks yourselves and doing a good job with it?
That is the alternative market that I am talking about, that
Vermontwe are in here. And that is why, as I say, you get a
group of companies together, similar business, similar exposure,
and they want to form a large group. And if somebody can run this
for them, including themselves, and make it work, there is savings
there.
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But, again, as someone else mentioned, you have to have a plan
where you are going to have these people health plans. I mean, in
other words, programs where they are going to stay healthy, they
are going to follow certain criteria. That is why this wouldnt
workthis concept did not work for the universe out there, but it
does work for possibly some good small businesses that want to
lower the cost of their health care.
Mr.HAISLMAIER. I would simply observe, Congressman, that what
you are suggesting has been proposed, and, again, it is not reducing costs, it is simply shifting it to the federal taxpayer. So the cost
reduction comes, as Mr. Crouse points out, if somebody somewhere
in the system does a better job of providing quality care at a lower
cost.
Now, one can make the argument that pooling people together
who are sicker than average and managing them better, you know,
is one way to go. So, for example, you know, specializing and treating cancer patients and getting a better result at a better price.
Yes, that will bring down cost. But to simply transfer those costs
to, say, a federal program or a state program is not in and of itself
going to do that. Again, it is just transferring it to somebody elses
pockets to pay for. So
Mr.JOHNSON. Well, I am trying to find some way of mitigating
the tension between insurers and health care providers. Insurers
put pressure on the health care providers to cut as muchcut as
many corners as possible to makeor to decrease the number of
claims. In other words, you have a claim, so, therefore, let us make
sure that the doctors do notand health care providers do not embellish upon the claims. Let us cut those health care costs in that
way, and I think insurance companies are in that kind of posture,
a natural tension between the health care provider and the insurance company.
But then, the sick individual or the individual who needs the
care perhaps may not get the kind ofor the extent of care that
they may need, particularly when they are in bad shape. So the
Federal Government may be stepping in to take over in that kind
of a situation. I think it is something that we should definitely consider, and I know that there are those who are opposed to Federal
Government becoming more involved in paying for health care. And
there are some valid reasons for that.
Mr.CROUSE. Representative, you are correct. You take doctors
that are adding all these tests on. Medical malpractice premiums
for doctors are astronomical.
Mr.JOHNSON. And, certainly, there has been not one shred of evidence that when you go into a tort reform kind of posture and limit
the amount of non-economic losses that can be recovered, that it actually translates into lowering of premiums for doctors.
Mr.CROUSE. Well, I guess my point was, most doctors now, they
are going to send you for every possible test imaginable, just to protect themselves.
Mr.JOHNSON. Well, isnt, though, it a good idea for doctors to
and this gets into the tension with the insurance industry. Isnt it
a good idea for the doctor to be able to, as aas a scientist or a
professional to be able to test as far as he or she thinks is prudent
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for a particular individual without regard to whether or not they
are going to be adequately reimbursed?
ChairwomanVELA ZQUEZ. Mr. Johnson, time has expired, but I
will allow for the witness to answer your question.
Mr.JOHNSON. Thank you.
Mr.CROUSE. There is no question what is prudent. I guess what
I am saying is I feel, and what I have read, and what not, and
seen, that I just think there are too many of these, you know, additional tests being ordered by doctors. What is prudent is fine, and
that is what a doctor should do to a certain point. But I think they
get a little paranoid. I mean, the lawsuits that are out there, Representative, in this country, they are astronomical.
Mr.JOHNSON. I think that the more doctors could do to be careful
about patient options, and to be careful about the kind of care that
they give, the better off they are and the patients. And it is
Mr.CROUSE. But that adds to that cost of health care, Representative.
Mr.JOHNSON. I understand. I understand. We have got to trust
who do we trust, though, the doctors, the insurance companies?
Who should be in control of that? That is the real question.
Mr.CROUSE. You are exactly right.
Mr.JOHNSON. Thank you.
Mr.HAISLMAIER. I have an answer.
ChairwomanVELA ZQUEZ. Maybe you will answer now.
Mr.HAISLMAIER. Sorry. That is why I would favor a more consumer-driven system where instead of the business picking the
plan, the individual is picking the plan, and the plan then works
for the individual, because there is a lot of ways to raise costs and
cut costs that have nothing to do, as you pointed out, with the
quality and the benefit to the patient.
And it is only when the insurance plan works for the patient that
it has the right incentives to balance these factors when dealing
with the providers. That would be a much bigger reform in health
care, and this would just simply be an ancillary piece to help make
it work.
Mr.HAISLMAIER. Thank you for indulging me.
ChairwomanVELA ZQUEZ. Mr. Collins, I would like to ask you, you
know, sometimes lawmakers call for the Federal Government to intervene if an industry is encountering financial problems or regulatory issues. If there is any indication that the reinsurance industry is facing problems, or has a history of defaulting on its claims?
Mr.COLLINS. I dont think I would be prepared to comment on the
reinsurance industry as a whole. I would say that in the medical
reinsurance component there is none of that history that I have
seen or experienced. It has been a fairly vibrant and active reinsurance marketplace.
ChairwomanVELA ZQUEZ. Any other of the witnesses? Ms.
Trautwein?
Ms.TRAUTWEIN. I agree. Exactly. It is a pretty healthy market.
ChairwomanVELA ZQUEZ. Okay. Mr. Chabot.
Mr.CHABOT. Thank you, Madam Chair. I will be brief.
Just in the response to the gentleman from Georgias comment
about the not a shred of evidence that medical malpractice reform
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has resulted in any doctors premiums coming down. I think California is an example of a situation where the premiums on the doctors were skyrocketing, and they passed medical malpractice reform, pretty comprehensive out there, and I believe the premiums
on the doctors came down substantially and
ChairwomanVELA ZQUEZ. If the gentleman would yield?
Mr.CHABOT. I would be happy to yield.
ChairwomanVELA ZQUEZ. And I also know, if I am not mistaken,
that the contrary is true in Texas where they passed liability reform. So in order to bring premiums down, it has to be coupled, liability plus insurance reform.
Mr.CHABOT. But anyway, so maybe there are shreds of evidence
on both sides, depending on the particular state and how they dealt
with it. But anyway, I justI didnt want to let that go
unresponded.
[Laughter.]
So I also, then, just wanted to concludeand justI said this in
my opening statement and some of my questions. I have to say, I
am very leery of federal subsidization for virtually anything, and
not that it is never warranted, but I am always going to be very
leery of it and hesitant to do it. And so, anyway, I just wanted to
mention that in this case, although I certainly appreciate that
point of view and would be willing to look into it.
But, finally, I just want to, once again, comment the Chairwoman for meeting herwhat she said she was going to do. You
know, she said at the beginning when she took over as Chair of
this Committee that she was going to leave no stone unturned
when it came to doing whatever we could to reduce health care
costs to the small business community, and this is yet one again
hearing where I think we are looking maybe to some degree at the
minutia, but reinsurance is probably not a term that every American is familiar with.
But I believe those of us on the Committee that were here today
are more familiar with ityou know, what it actually means and
how it affects insurance and the ability to provide the health care
to small businesses, and, most importantly, to their employees.
So I want to, again, compliment the Chairwoman for calling this
hearing, and I want to thank the very informative panel here this
morning for their testimony.
And I yield back.
ChairwomanVELA ZQUEZ. Thank you, Ranking Member.
And the truth of the matter is that this Committee has played
an important role in addressing the issue of health care crisis in
this country, especially when we know that a large number of the
people that are uninsured in this country are either small businesses, their employees, and their relatives, and to look at solutions. This is a very complex issue. We will continue to hold hearings, to listen to everyone, to see if we can come up with maybe
not the solution, but look at ways where we can bring premium
costs down.
So I ask unanimousI want to take the opportunity to thank the
witnesses. This has been a very insightful hearing. I ask unanimous consent that members have five days to enter statements and
supporting materials into the record. Without objection, so ordered.
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This hearing is adjourned.
[Whereupon, at 11:44 a.m., the Committee was adjourned.]
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House Hearing, 110TH Congress - Full Committee Hearing On Expanding Small Business Health Insurance Coverage Using The Private Reinsurance Market

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House Hearing, 110TH Congress - Full Committee Hearing On Expanding Small Business Health Insurance Coverage Using The Private Reinsurance Market

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FULL COMMITTEE HEARING ON EXPANDING

SMALL BUSINESS HEALTH INSURANCE COVERAGE

COMMITTEE ON SMALL BUSINESS

Serial Number 110-25

U.S. GOVERNMENT PRINTING OFFICE

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

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HOUSE COMMITTEE ON SMALL BUSINESS

STEVE CHABOT, Ohio, Ranking Member

MICHAEL DAY, Majority Staff Director

DEAN HELLER, Nevada, Ranking

Subcommittee on Contracting and Technology

WILLIAM JEFFERSON, Louisiana

DAVID DAVIS, Tennessee, Ranking

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Subcommittee on Regulations, Health Care and Trade

LYNN WESTMORELAND, Georgia, Ranking

Subcommittee on Urban and Rural Entrepreneurship

JEFF FORTENBERRY, Nebraska, Ranking

Subcommittee on Investigations and Oversight

LOUIE GOHMERT, Texas, Ranking

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Velazquez, Hon. Nydia M. .......................................................................................

Velazquez, Hon. Nydia M. .......................................................................................

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FULL COMITTEE HEARING ON EXPANDING

U.S. HOUSE OF REPRESENTATIVES,

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Mr.CHABOT. Thank you, Madam Chairwoman, and thank you for

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Mr.COLLINS. Thank you. Good morning, Madam Chairwoman

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Mr.HARTER. Thank you. Thank you, Madam Chairwoman, and

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Ms.TRAUTWEIN. Thank you, Madam Chairwoman. I think I just

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