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requirement on employers does not provide the proper framework for ultimate systemic reform and takes us further away from where we will ultimately need to be.

Other Needed Reforms

While there are many pieces to support in the incremental reform bills--and a few which should be avoided--there are also some pieces that should be included which have not been, primarily in the cost control area. The small group insurance reforms being proposed will further raise the already disproportionately high premiums being paid by small employers. So, it is necessary to explore all options which may help to bring these costs under control. By definition, sweeping cost containment is not possible in an incremental approach, but we think there are more things which could be done to help cut some costs--until Washington is prepared to deal with systemic reform.

First, mandatory disclosure rules could be imposed upon providers which would force them to disclose the full costs of care up-front, where possible. Such disclosure would improve the ability of health care consumers to make economical choices and even to shop around for care. The other piece which would easily fit into an incremental framework is a universal insurance claim form, along with standardized billing procedures. This standardization could help make a real start in reducing the high administrative costs in our current system. We should also begin now to move toward a computerized system where all individuals will have a card which allows them access to the system and gives providers all necessary information about medical history and third-party coverage. In the other house, Senator Bond has proposed a bill and is considering amendments which would address this move towards more sophisticated administration.

I want to thank you again for holding these hearings to solicit our input on this very difficult and complex issue. I hope that any incremental reform bill that passes will be a reasonable and well thought out approach. We can then move forward to discuss systemic reform which removes the distortions in our current system, reduces costs, spreads risk, maintains our high levels of quality, and provides access for all to a vibrant and competitive health care marketplace. National Small Business United stands ready to do whatever is necessary to move us in the direction of such reform. Thank you very much.

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Chairman STARK. Thank you both.

Mr. McGeady, you represent an interesting anecdote in your company. You have pieces of a variety of systems. For example, half or part of your hospital side of your costs, which you selfinsure, are controlled under what, in my opinion, is one of the best in the country, the Maryland hospital system, an all-payer system. In other words, you pay the same rates for your employees when they go to the hospital as the largest insurance group or the poorest person in Maryland because at that hospital, those rates have been set through negotiation.

If we can do that for the doctors and for pharmaceuticals, you would have a complete cost containment system, but you are kind of "one-shoe-off and one-shoe-on."

The one thing you do not-and I guess I would ask how you feel about this-is that-and I don't have any idea whether your employees are old, young, or average. Let us just say for a minute, as I illustrated earlier, that they are all very young, all in their twenties. It is conceivable self-insurance could be far less expensive for you until you have been in business 20 more years and these 20year-olds are 40 and 50 and arguably their costs go up very much. At which point you might say, I guess I will have to give this up and have them go on the public system, if there is one by then.

Does it make sense to you if you have a self-insured plan, there should be some minimum contribution to a trust fund, be it public or private, that would allow that portability? So if somebody leaves your employ, and they happen to be quite elderly, they might not be able to get insurance in another plan, but had there been some contribution to a trust fund, it would even it out. In other words, the portability will cost you something. I am going to ask you if you would be willing to pay that?

Mr. McGEADY. Mr. Chairman, two things: The short answer to your question is, yes, we would be willing to accept an incremental increase in our costs for very selfish reasons. A lot of our competitors don't provide any insurance at all, and that puts us at a competitive disadvantage.

Second, in Maryland, even though we have the uniform hospital costs, there is still substantial cost transfer occurring. Even though the costs are level, or the bills are ostensibly level, third-party payers are paying a disproportionate share of those costs because the cost is zero for a lot of payers.

Chairman STARK. They have no money so they are in the system free. So you are picking up that cost; right?

Mr. McGEADY. That is correct. The cost transfer aspect is still very much alive.

With respect to portability and/or a trust fund, private or public, I think it would work. It is working in a lot of other areas. The workmen's compensation area comes to mind, where there is a pool, if you will, for either the uninsured or bad risks. On the Federal harbor worker and longshore side, there is an assignment pool. Both of those kinds of activities would work. So the answer is yes.

Chairman STARK. Next question is to help us out of a dilemma. Mr. Kushner suggested that basically we have to get everybody in the system or the cost shifting will continue. And there is enough money being spent in this country to take everybody into the

system. But if you believe that is correct, as I do, $800 billion ought to be enough.

There will still be winners and losers, as we have heard described earlier. We have heard it described in these insurance banding plans, some premiums will go up, some will go down. Mr. Kushner might have to pay something into a trust fund, or Mr. McGeady might, or we might save some money, if there was some kind of a national plan available, or if the uncompensated care in Maryland was passed on to all employers rateably.

Those who have to pay a little more-here is my problem-the NFIB probably is a political force, particularly in the South, second only to the Elvis Presley Fan Club in its pressure that can be brought to bear on Members of Congress. Among those people who had to get into a system, and let us say in our wildest dreams we could provide a barebones minimum plan for a thousand bucks a year, maybe. It is 50 cents an hour on a 2,000 hour workyear.

But to the guy, your member, who runs a drycleaning establishment or a service station, who is not now paying, he is not going to be happy. I am going to get that ballot back from your members, or perhaps your members, and they are not going to be happy because I know because I just fought against the increase in minimum wage. How do we get you all when the time comes for us all to say there will be some increases in cost and there are goingprices will save a lot of money, but we cannot get that back from them, how do we get you guys on board to help us sell the plan?

Mr. McGEADY. In a couple of ways. Number one, over 70 percent of NFIB members, currently provide medical insurance to their employees at one level or another. Therefore, I would expect that there would possibly be a mild backlash, but not much of one. That is speculation on my part, not an official position. One.

Two: If you couple increased access with strong efforts to control costs and control some of the more egregious practices that we are all aware of in the health care industry, I think you will have a preponderance, I know you will have a preponderance of NFIB members signing on. I think there is absolutely no doubt, if they can be shown, as business people, that they are going to get a better bang for their buck, that in almost every instance, I would have to say, that small business persons want to offer health insurance to their employees. It would literally put them out of busi

ness.

In our company health insurance, even with our cost containment measures, is the single highest line item other than direct wages. Higher than liability insurance, higher than Workmen's Compensation insurance, higher than any other expenditure, except for direct wages.

Chairman STARK. Mr. Kushner, we are having a problem in your State with the United Auto Workers, as somebody indicated. My constituents at home. They get their insurance free now. So I am going to tell them, fellas, you have to pay a thousand bucks a year more, and they are going to say, Stark, you are nuts, we already got that free. I say, don't worry, Lee Iacoccoa will save 500 bucks at Chrysler and he is going to raise your wages. And they will say, now, we know you are crazy, Stark, we will never vote for you again.

How do you help us get this problem solved?

Mr. KUSHNER. I believe if you had a comprehensive systemic reform of health care, will there be winners and losers? Absolutely. But, in fact, since we are all players in one regard or another, many of us can offer in a comprehensive approach tradeoffs.

For example, within the medical community we have, there is a human cry for medical malpractice reform and tort reform. In exchange for that, perhaps there can be practical protocols implemented, and, thereby, you have an example of a tradeoff within the system. So, in fact, there may not be necessarily winners and losers overall.

I would argue from a small business perspective. Over 80 percent of our members also offer health insurance to all of their workers and dependents, but because we are, if you will, at the bottom of the cost shift waterfall, from a financial standpoint, the biggest loser financially in this would be the Federal and State Governments because they are currently paying the least amount of money for health care through their medicare and medicaid programs.

From a small business perspective, we are shackled, to begin with, with these higher costs, and then shackled again with, for instance, not allowing the ERISA preemption to extend to us to avoid many of the State mandates that some of which may be very costeffective, others, we heard earlier today we know are very noncost effective.

I would argue that cost control needs to be key here. I would agree with your assumption that $80 billion, that is a pretty big number these days.

Chairman STARK. $800 billion.

Mr. KUSHNER. Excuse me, I left a zero out, but it is only a zero. That $800 billion in spending on health care, almost 13 percent of GNP, that there are probably enough dollars in the system already to be able to offer universal access to all of our citizens, with some basic level of coverage. Some catastrophic, perhaps, but some level of coverage.

Chairman STARK. Think of another name for it, will you?

Mr. McGEADY. Mr. Chairman, following up on what Mr. Kushner said, by using the buzz words consumer choice versus play-or-pay, the consumer choice would work. Most of the consumers would choose to band together through their employer's group. Few might not for good and sufficient reason, however they would be free to go to the individual or open enrollment area.

Chairman STARK. There is no problem with that, as long as we don't allow cherry picking.

Mr. McGEADY. Correct.

Chairman STARK. Even for those of you who self-insure. You would have to play by the rules because in your self-insurance plan, we could not allow you to take your diabetics and your hypertension employees and say, OK, you guys go out into this other public or other private plan.

Mr. McGEADY. But, Mr. Chairman, interestingly enough, the law forces us to do that now, particularly with an employee over 65.

Mr. KUSHNER. Actually, on all of their employees, they are going to be forced under Tax Code section 1058 when they self-insure.

If I could also address one of the previous questions on portability. The Congress has assisted us in that regard as well, because through the enactment of the COBRA health care continuation, businesses do, in fact, subsidize dramatically those others who leave a job and, either through their next employment or through no further employment, cannot receive health care coverage.

There is an extremely high subsidization by us, so maybe we are not paying dollars into a trust fund but are just paying it directly into the system.

Mr. McGEADY. That is a good point. It is being done now within certain limits.

Chairman STARK. I would like to recognize Mrs. Johnson, who has joined us, and I am sure she has had a chance to review your testimony, and you may wish to make a comment or inquiry at this point.

Mrs. JOHNSON. Thank you, Mr. Chairman.

I am sorry that I missed your oral testimony, but I did review your testimony, and I appreciate the Chairman holding this hearing today, though it has happened to fall on a day when another committee on which I serve is coming to the floor with an important report and, therefore, I have not been present as much as I had planned to and would have liked to.

Let me ask you a fairly technical question, Mr. Kushner. In your testimony, you mention the various definitions of small employer based on group size and hours worked. In H.R. 1556, we use 3 to 25 employees working 30 hours. In H.R. 3626, they use 2 to 50 employees working 17.5 hours. Would you elaborate on the significance of these factors relative to the cost of reform for employers, and, you know, possibly how you would see addressing these issues perhaps over a period of time?

Mr. KUSHNER. Well, I think we have to look more at the low end of the scale than necessarily at the higher end. As we heard earlier this morning, there are a number of businesses, even down to as few as 10 employees, that are being able to enact their own solutions through partial self-funding and exempt themselves from State mandates and premium taxes and so on.

If you look at the smaller end, the one, two, three on up groups of employers, they are the ones who are hurting the most and they are hurting in two ways. One is through, if you will, the experience rating and the tremendous percentage impact that any one individual employee with dependents' health claims in a given year would impact upon the group. And there are many small businesses that we do consulting with who have faced a terrible Hobson's choice of either having to tell an employee or their dependent they cannot have coverage, in order to maintain coverage for the rest of the group or dropping coverage for the group in its entirety. And no business, no person, should have to make that kind of a decision.

The concern I would have between the hour requirement, the definition of a full-time employee, I am not sure there are many small businesses or any businesses that would define full time as 171⁄2 hours. I think the rest of the Nation, most people think of full time as probably 30 or more hours. From a cost standpoint, clearly, limiting in that regard would be much more beneficial overall.

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