I am talking about this guarantee issue where you can do it, but you have to do it among the insurance industry. That includes taking those people that are not-I am not sure where the rates will come out. At least we end up with open enrollment, guarantee issue, community rating, no medical underwriting.

Mr. HELMS. Mr. Chairman, no, I do not believe that that is doable in a voluntary marketplace. Just to take community rating, for example, the employer has alternatives. There is the individual insurance marketplace, not just group. There is self-insurance, as we have heard discussed. In a voluntary marketplace, you simply cannot force large groups of people to heavily subsidize other groups of people.

Ms. LEHNHARD. It is the same reason Medicare part B has a waiting period. Medicare part B is not mandatory. If you allow people to opt in and out without a waiting period, everybody will wait until they get sick to take the coverage.

Chairman STARK. You are splitting a hair with me. Part B is not mandatory. But, first of all, I am not sure many people know that; and, secondly, it is mandatory only in that there is no alternative. It is a do or die, either you are in part B or have no insurance.

Mr. HELMS. I am not an expert on Medicare. I believe even Medicare part B, although it is not mandatory and the insured pays part of the costs, it is heavily subsidized.

Chairman STARK. No question. I am not suggesting for a minute-see, I did not put a limit on your rates. I am saying at some point if you agree every resident of this country ought to have access to the payment system, and going into the emergency room and your compensated care is too expensive for your industry or the local taxpayers, somehow we agree we should have everybody in the system.

I will stipulate you will do it through private insurance. That is OK with me. How much time? Five years, let us say, to transition from here to there. How do we do it? You cannot do it—we cannot take the high risks-we will have long waiting periods. Because you want to exclude AIDS, diabetes, hypertension. I understand that. But you cannot. Otherwise, what we just agreed to, to get everybody in the system, doesn't work. How would you do it?

Mr. HELMS. The proposals that have guarantee issue in them would solve that problem. Any employer that cannot obtain coverage today would be able to obtain coverage in the guarantee issue environment. There are risk-sharing mechanisms for the carriers to spread the risks of those.

Chairman STARK. You all allow individuals to come in as well? Mr. HELMS. Pardon?

Chairman STARK. Individuals could buy in?

Mr. HELMS. That problem needs to have more attention paid to it. I don't think that has been addressed sufficiently. I think it might be possible to develop.

Chairman STARK. I am sure this committee is waiting with baited breath, but I mean somehow we do not have to do it all at once. We are not going to. Mr. Gradison illustrated very, very well the political climate in this country. It will not happen overnight. It seems silly to start out on a journey where we do not know where we are going.

I am really challenging the insurance industry: show us the plan at some predetermined time where we will have everybody in it. We will try to move toward that with legislation and do it incrementally. But it is sort of silly to do a little bit of incremental now, at least in my opinion, when that may take us off in the wrong direction. I kind of would like to get you all to give me that plan, to complete your plan you are working on, but let us bring in those high-risk folks. Then go from there. That is what we have been trying to figure out. You could start with a plan. That still does not help us. We still have to figure out how to pay for it. Remember, I said we would still pay, but I didn't say we would cap it. We have to figure out cost containment, arguably.

You tell us what you would do first, when you would get there. We will try to figure out how to get there.

Ms. LEHNHARD. Mr. Chairman, we have a proposal that pays for itself. It provides universal coverage through the private insurance system, but we have said if you are going to base it on private insurance, and we think that is the right way to go, you have to clean up the insurance market. We say start doing that now.

We do have a strategy of steps to clean up the market, go to universal coverage, control costs; but we are saying do not wait to clean up what is perhaps the most unstable part of the market, do it right now.

Mr. HELMS. I would agree with that. HIAA also has a plan that is multifaceted and deals with the cost containment issues as well. Chairman STARK. Your plans happen to differ on the issue of reinsurance; but other than

Ms. LEHNHARD. Well

Chairman STARK. You guys have some fighting among yourselves to do. The issue of cost containment

Ms. LEHNHARD. Ours is mandatory coverage, universal coverage. Chairman STARK. That is a tough fight. I happen to share that view. You have mandatory cost containment. My theory is that voluntary cost containment is ineffective that expects more of human nature than I am willing to ascribe to it. Even in the insurance industry, I think there is disagreement.

Mr. Gradison.

Mr. GRADISON. Thank you, Mr. Chairman.

In the prepared statements by both of you, you folks focused quite properly on the bills that have been introduced over here. I wonder if you are in a position now or would be perhaps in writing soon after this hearing is finished to give us your specific comments on the Bentsen proposal that is in the tax package on the other side?

It has attracted a lot of interest. I really would be very grateful for some assessment as to what you-how you change it, what you like, what you do not like about it, and if you are in a position to comment now, that is fine; but if it would be more convenient for you to do it in writing, that is OK for me, too.

Mr. HELMS. I would be glad to comment further in writing, but I can comment on a couple of aspects at the moment.

The Bentsen bill does include rate restrictions that are more along the lines of the NAIC; they are a little bit tighter than

NAIC, but they do not try to compress demographic rating which I think is an important point.

The bill also, as does H.R. 1565, includes proposals for reinsurance or risk adjustment mechanisms which, as I have indicated, is an important part of the market reform.

Mr. GRADISON. Thank you.

Ms. LEHNHARD. Mr. Gradison, overall we think it is a good first step. There are things in there we would like to change. On balance, we think it is a reasonable first step.

Mr. GRADISON. I guess I should follow up with this question to each of you. If you had a choice between the two bills over here you commented on and the Bentsen bill, would you prefer the Bentsen bill? If you had to take it unanalyzed?

Ms. LEHNHARD. We do not think it is a good idea to move to pure community rating because of the rate swings you get in at least half of the small employers. We prefer the Bentsen rating provisions.

Mr. GRADISON. Any comment from your point of view, Mr. Helms?

Mr. HELMS. Which bill are you contrasting it with?

Mr. GRADISON. Well, you were talking here, at least Mary Nell was, about the Rostenkowski bill and the Stark bill. You do not have to have a preference. I wondered if you did, between the Bentsen bill and the two we were talking about earlier?

Mr. HELMS. Between those bills I prefer the Bentsen bill, certainly on the rating requirements and the reinsurance mechanism. I am not prepared to comment on the other aspects at the moment. Mr. GRADISON. I understand that. If you are in a position to do so within the next couple of weeks, it would be helpful and timely. Thank you.

Chairman STARK. Mr. McGrath.

Mr. McGRATH. Prior to the 1986 Tax Act, some Blues who had open enrollment were given a tax break as opposed to other private insurers to provide that open enrollment with a series of tests that they had to adhere to in order to be considered for the tax break. I am wondering whether or not at this point that that concept could or should be resurrected in order to satisfy our access problem?

Ms. LEHNHARD. Would you like me to comment on that? We obviously have been

Mr. McGRATH. Take your best shot. Some of you have.

Mr. HELMS. I think the fact that the Blues that have had open enrollment have had tax breaks is illustrative of the fact that open enrollment, community rating doesn't work in a voluntary marketplace without some form of subsidy.

Mr. McGRATH. We have heard that in small group market reform that community rating certainly sounds great; but could you explain to us why it might have perverse effects in the insurance markets regarding distribution of risk and marketing practices?

Ms. LEHNHARD. I think the clearest example of that is of the Blue Cross & Blue Shield plans that we sampled. If you moved to a pure community rating system right away and you account for all the other costs that are a result from the reform provisions plus

general inflation, you could end up with significant rate increases in the neighborhood of 70 to 100 percent.

We have said if you proceed along the lines of the Bentsen bill, those cost increases are manageable, they will hopefully be transparent as you even them out, blend them in with general inflation; and you do have a phasein period. So it is not as though you are doing it overnight.

Mr. McGRATH. Mr. Helms, you suggest in your testimony that the focus of market reform should remain at the State level; and we had testimony here last week from a State senator from Maryland in terms of the-when we were talking about the need for a new health system reform, that some of the experimentation that is going on at the State level, imposition of State plans. I am wondering if you could update us as to the status of State reforms in the insurance area?

Mr. HELMS. I am not in a position to be specific and go State by State, but, as an example, the NAIC produced its model rating law a year ago in December. In one legislative session, something close to the model or the model itself was passed in about 16 or 17 States. That is pretty good for a year.

There are access laws already on the books in Vermont, Connecticut, North Carolina, Oregon. There are a number of States considering such laws this year and I believe several more that will pass such laws this year. I believe this activity too, will be enhanced by the NAIC models that have been adopted. So I do think States are acting in this area.

Mr. McGRATH. Do you think they are better prepared to enact this kind of reform, both on the-in the health system and any insurance area, better than we are?

Do you think they know their clientele better than we do? That they might be better served if we left it to them?

Mr. HELMS. I think there are two reasons that it is better to do it at the State level.

One, yes, I do think there are differences State by State. So the answer to the access questions might be different in one State compared to another.

I also believe that, as I indicated in the written testimony, we simply do not know what the right answer to these access questions and reform questions are today. There are several possibilities. I think the States will experiment and have differences. That experimentation, in order to find the best solutions, is healthy at this point in time.

Mr. McGRATH. Thank you, Mr. Chairman.

Chairman STARK. I would just like to comment because coincidentally-I don't have an automatic transcript but this as tossed over, that in the Connecticut plan you referred to, that only-there have been almost 2,200 inquiries for people who needed to get into the plan and less than 8 percent of them could afford it. So basically out of the 2,100 who applied, only 7 percent could get in. Even Connecticut's plan for those people most at risk is not working. They are going to get medical care at the emergency room, but the cost is going to get shifted around not in the Connecticut plan but through the age-old plan of higher costs loaded onto the hospital or the community taxes. So while Connecticut has a great idea, it ap

parently is not working. I would be glad to share these figures with you all later. It is indicative of some of the problems that we face. Mr. HELMS. If I may comment, I would agree the reforms that have been discussed here, primarily the access and insurance reforms, are not going to make health care more affordable for large numbers of groups; and it is also true that the vast majority of the current uninsureds are in that category because of costs, not because of access problems; and so it is critical that we address cost containment, cost reform at the same time that we are addressing these other items.

I believe that it is important that we address things like malpractice reform, practice protocols, technology assessment, and so forth.

Chairman STARK. I want to thank the panel very much for their participation today.

We ask the next panel to come forward, Eamonn McGeady and Gary Kushner.

Mr. McGeady is a constituent of our distinguished colleague, Mr. Cardin, who is off worrying about whether Mr. Gradison and I bounced checks. He is not able to be here. He apologizes to Mr. McGeady. We would also like to welcome from the National Small Business United, Gary Kushner, chairman of the legislative committee. He is president of Kushner & Co. of Kalamazoo, MI. Mr. McGeady, I forgot to mention, is president of Martin G. Imbach, Inc., of Baltimore, MD.

Gentlemen, welcome. We look forward to hearing about this problem from a different and very important point of view.

STATEMENT OF EAMONN McGEADY, PRESIDENT, MARTIN G.
IMBACH, INC., BALTIMORE, MD, ON BEHALF OF THE NATIONAL
FEDERATION OF INDEPENDENT BUSINESS

Mr. McGEADY. I am Eamonn McGeady.
Chairman STARK. I apologize.

Mr. McGEADY. There was no way to know how to pronounce it. Mr. McGrath would have noticed. This close to St. Patrick's Day, it is the scene.

I am president of Martin G. Imbach, Inc., a marine and heavy construction firm in Baltimore that employs about 55 to 60 people. I would request the Chair accept the written testimony that has been provided.

Chairman STARK. It will be done, sir.

Mr. McGEADY. Our firm has been in business since 1944 and since 1962 we have provided health insurance for our employees. Since 1972, for the employees and their families.

Up to now, at least, we have been able to pay for the entire cost. There is an old Yogi Berra'ism that says "if it ain't broke, don't fix it". I am here to tell you with respect to small businesses, the health insurance industry is broke.

We support a number of efforts of the Congress. I will get to the specifics of that toward the end of my testimony.

I would like to tell you what has happened to us over the last years in, "the real world." Our insurance premiums for health have gone up at least 25 to 28 percent per year, and usually in the