HEALTH REFORM IN THE 21ST CENTURY: INSURANCE MARKET REFORMS HEARING BEFORE THE COMMITTEE ON WAYS AND MEANS U.S. HOUSE OF REPRESENTATIVES ONE HUNDRED ELEVENTH CONGRESS FIRST SESSION APRIL 22, 2009 Serial 111–14 Printed for the use of the Committee on Ways and Means ( U.S. GOVERNMENT PRINTING OFFICE 52–258 WASHINGTON : 2009 For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800 Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001 VerDate Nov 24 2008 04:02 Oct 21, 2009 Jkt 052258 PO 00000 Frm 00001 Fmt 5011 Sfmt 5011 E:\HR\OC\X258A.XXX X258A bajohnson on DSK2BSOYB1PROD with HEARING COMMITTEE ON WAYS AND MEANS CHARLES B. RANGEL, New York, Chairman FORTNEY PETE STARK, California DAVE CAMP, Michigan SANDER M. LEVIN, Michigan WALLY HERGER, California JIM MCDERMOTT, Washington SAM JOHNSON, Texas JOHN LEWIS, Georgia KEVIN BRADY, Texas RICHARD E. NEAL, Massachusetts PAUL RYAN, Wisconsin JOHN S. TANNER, Tennessee ERIC CANTOR, Virginia XAVIER BECERRA, California JOHN LINDER, Georgia LLOYD DOGGETT, Texas DEVIN NUNES, California EARL POMEROY, North Dakota PATRICK J. TIBERI, Ohio MIKE THOMPSON, California GINNY BROWN-WAITE, Florida JOHN B. LARSON, Connecticut GEOFF DAVIS, Kentucky EARL BLUMENAUER, Oregon DAVID G. REICHERT, Washington RON KIND, Wisconsin CHARLES W. BOUSTANY, JR., Louisiana BILL PASCRELL, JR., New Jersey DEAN HELLER, Nevada SHELLEY BERKLEY, Nevada PETER J. ROSKAM, Illinois JOSEPH CROWLEY, New York CHRIS VAN HOLLEN, Maryland KENDRICK B. MEEK, Florida ALLYSON Y. SCHWARTZ, Pennsylvania ARTUR DAVIS, Alabama DANNY K. DAVIS, Illinois BOB ETHERIDGE, North Carolina LINDA T. SA´ NCHEZ, California BRIAN HIGGINS, New York JOHN A. YARMUTH, Kentucky JANICE MAYS, Chief Counsel and Staff Director JON TRAUB, Minority Staff Director Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public hearing records of the Committee on Ways and Means are also published in electronic form. The printed hearing record remains the official version. Because electronic submissions are used to prepare both printed and electronic versions of the hearing record, the process of converting between various electronic formats may introduce unintentional errors or omissions. Such occur- rences are inherent in the current publication process and should diminish as the process is further refined. ii VerDate Nov 24 2008 04:02 Oct 21, 2009 Jkt 052258 PO 00000 Frm 00002 Fmt 0486 Sfmt 0486 E:\HR\OC\X258A.XXX X258A bajohnson on DSK2BSOYB1PROD with HEARING C O N T E N T S Page Advisory as of April 15, 2009 announcing the hearing ........................................ 2 WITNESSES Uwe E. Reinhardt, Ph.D., James Madison Professor of Political Economy and Professor of Economics and Public Affairs, Princeton University, Princeton, New Jersey ......................................................................................... 7 Bill Vaughan, Senior Policy Analyst, Consumers Union ...................................... 19 William D. Hobson, Jr., MS, President and CEO, Watts Healthcare Corpora- tion, Los Angeles, California ............................................................................... 29 David Borris, Owner, Hel’s Kitchen Catering, Northbrook, Illinois .................... 34 Kenneth L. Sperling, Global Health Management Leader, Hewitt Associates, on behalf of National Coalition on Benefits ....................................................... 38 Linda Blumberg, Ph.D., Principal Research Associate, The Urban Institute .... 49 SUBMISSIONS FOR THE RECORD America’s Health Insurance Plans, Statement ..................................................... 110 David C. Goering, M.D., Letter .............................................................................. 114 Petaluma Health Center, Letter ............................................................................. 115 Phil Caper, M.D. and Joe Lendvai, Letter 2 ......................................................... 116 Phil Caper, M.D. and Joe Lendvai, Letter ............................................................. 117 The American Academy of Actuaries, Statement ................................................. 118 The American Medical Association, Statement ..................................................... 120 The National Association of Health Underwriters, Statement ............................ 123 iii VerDate Nov 24 2008 04:02 Oct 21, 2009 Jkt 052258 PO 00000 Frm 00003 Fmt 0486 Sfmt 0486 E:\HR\OC\X258A.XXX X258A bajohnson on DSK2BSOYB1PROD with HEARING VerDate Nov 24 2008 04:02 Oct 21, 2009 Jkt 052258 PO 00000 Frm 00004 Fmt 0486 Sfmt 0486 E:\HR\OC\X258A.XXX X258A bajohnson on DSK2BSOYB1PROD with HEARING HEALTH REFORM IN THE 21ST CENTURY: INSURANCE MARKET REFORMS WEDNESDAY, APRIL 22, 2009 U.S. HOUSE OF REPRESENTATIVES, COMMITTEE ON WAYS AND MEANS, Washington, DC. The Committee met, pursuant to notice, at 10:09 a.m., in room 1100, Longworth House Office Building, Hon. Charles B. Rangel [Chairman of the Committee] presiding. [The advisory announcing the hearing follows:] (1) VerDate Nov 24 2008 04:02 Oct 21, 2009 Jkt 052258 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 E:\HR\OC\X258A.XXX X258A bajohnson on DSK2BSOYB1PROD with HEARING 2 ADVISORY FROM THE COMMITTEE ON WAYS AND MEANS FOR IMMEDIATE RELEASE CONTACT: (202) 225–3625 April 15, 2009 FC–7 Health Reform in the 21st Century: Insurance Market Reforms House Ways and Means Chairman Charles B. Rangel (D–NY) announced today that the Committee will hold another hearing in the series on reforming the health insurance market. The hearing will take place at 10:00 a.m. on Wednesday, April 22, 2009, in the main committee hearing room, 1100 Longworth House Office Building. In view of the limited time available to hear witnesses, oral testimony at this hearing will be from invited witnesses only. However, any individual or organization not scheduled for an oral appearance may submit a written statement for consider- ation by the Committee and for inclusion in the printed record of the hearing. BACKGROUND: While more than 253 million Americans have insurance coverage through their employer, Medicare, Medicaid and other programs,i the U.S. health insurance mar- ket fails to provide affordable, quality health insurance for everyone. Growth in health plan premiums far outpaces increases in family incomes,ii and in the past year, roughly one-quarter of American households postponed getting needed health care because of cost concerns.iii Almost 46 million people were uninsured at some point in 2007, many from working families.iv Those individuals who do not have coverage through an employer are able to seek insurance in the individual market. However, many policies in this market are char- acterized by high administrative costs and poor benefits. Furthermore, it is nearly impossible for consumers to gauge the quality of these plans or choose the plan that best meets their needs. Insurance companies have every financial incentive to avoid sick enrollees, and use benefit designs and pricing strategies to attract the young and healthy, and/or refuse to cover people with pre-existing conditions. Bringing re- forms to the U.S. health insurance market that will guarantee affordable health care for everyone is a vital step toward restoring the economic health of the country and ensuring a stable future. Making the health insurance market work for con- sumers will require major reforms, such as requiring insurance companies to offer coverage to everyone, regardless of health status, and limiting rating strategies that can dramatically increase prices for consumers. Other important changes include making health insurance portable, increasing transparency, and giving consumers the ability to make informed decisions about health insurance options. Creating a health insurance ‘‘exchange’’ that offers consumers high quality, affordable public and private health insurance options may begin to solve some of the serious prob- lems with the current insurance marketplace. In announcing the hearing, Chairman Rangel said, ‘‘America’s health insurance market is dysfunctional. This is evident by the 87 million people who went without health insurance during the past two years and the millions more who have insurance that is increasingly unaffordable i U.S. Census Bureau. ‘‘Health Insurance Coverage: 2007.’’ August 2008. Accessed at http:// www.census.gov/prod/2008pubs/p60-235.pdf. ii Kaiser Family Foundation. ‘‘Employer Health Benefits 2008 Annual Survey.’’ September 2008. Accessed at http://ehbs.kff.org/. iii Kaiser Family Foundation. ‘‘Kaiser Health Tracking Poll.’’ February 2009. Accessed at http:// www.kff.org/kaiserpolls/upload/7866.pdf. iv U.S. Census Bureau. ‘‘Health Insurance Coverage: 2007.’’ August 2008. Accessed at http:// www.census.gov/prod/2008pubs/p60-235.pdf. VerDate Nov 24 2008 04:02 Oct 21, 2009 Jkt 052258 PO 00000 Frm 00006 Fmt 6633 Sfmt 6621 E:\HR\OC\X258A.XXX X258A bajohnson on DSK2BSOYB1PROD with HEARING 3 or inadequate. I am pleased to hold this hearing to examine the problems in our health insurance market and explore long-term solutions for reform.’’ FOCUS OF THE HEARING: The hearing will focus on strategies to reform the health insurance market to en- sure greater accessibility and affordability. DETAILS FOR SUBMISSION OF WRITTEN COMMENTS: Please Note: Any person(s) and/or organization(s) wishing to submit for the hear- ing record must follow the appropriate link on the hearing page of the Committee website and complete