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We have to be careful to differentiate, though, cost from price, and other parts of my testimony really get into how do we do cost control systemwide so that the, if you will, there is, in fact, that distinction.

Mrs. JOHNSON. Of course, if we could cost control sufficiently, the price would be low enough so that you would be willing to cover the 1742 hour person

Mr. KUSHNER. Absolutely.

Mrs. JOHNSON (continuing). As well as the other person. It is certainly true the problem is most severe with the two-, three-, and four-employee company. But it also can be very severe up to 25, and in some instances, up to 50. It does appear to me that most businesses between 25 and 50 do have access to insurance.

I personally think it is very important to allow whatever we do for the smaller group to be available to others so that companies that are really paying beyond their ability to support their health care system will have someplace to go rather than just developing benefits.

Mr. KUSHNER. I would agree and extend that argument into the big business sector and that would be part of the reason for a call for strengthening the ERISA preemption, that the advantages available to big business ought to be available to small businesses as well.

Mrs. JOHNSON. We effectively do that, both in my bill and in Senator Bentsen's bill.

Mr. KUSHNER. Correct.

Mrs. JOHNSON. That assures that there will be some portion of that health care market that will be competing on an equal basis outside of the mandate system.

Mr. KUSHNER. We thank you for that, yes.

Mrs. JOHNSON. In terms of cost control, I think it is very important to have that market out there so we can see what the difference is.

Mr. McGEADY. Mrs. Johnson, I would suggest that well constructed community rating would eliminate that question entirely. Meaning that.

Mrs. JOHNSON. How?

Mr. McGEADY. In the sense that everyone in a given area would have access to at least basic health care in a relatively narrow rate range.

Mrs. JOHNSON. I am concerned, though, as you narrow the rate range you increase the costs for the majority. The closer you move toward community rating, the larger number of people experience a premium increase as opposed to the number that would experience a premium decrease.

Mr. McGEADY. This is the winner-loser discussion.

Mrs. JOHNSON. But the losers are much greater than the winners at the community rated level.

Mr. McGEADY. The losers are, in all likelihood, very small incremental losers. I suggest that that could be an either zero level or so small that it doesn't make any difference. If we, in fact, attack the other side of the equation, costs are absolutely out of control.

Mrs. JOHNSON. So what you are really proposing is that we move to more—that perhaps we reduce the rate swings. For instance, in my bill and Bentsen's bill, there are constraints on rate variations. We could narrow those constraints over time, assuming that our costs control policies were going to have more and more effect. In other words, as we get a better handle on costs, we could legitimately reduce the rate swing.

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Mr. McGEADY. That is correct, because of the cost. Using my town Baltimore as an example, the cost in Baltimore of a CAB times four ought to be the same regardless of who is paying the bill, and there are currently 1,500 payers of that bill. It ought to be the same for all of them.

Mrs. JOHNSON. I am very concerned about our going too close, moving too rapidly toward community rating until we see that some of our cost control policies have an effect.

I think many of the cost control policies we are talking about, unless several of them are adopted simultaneously, for example, malpractice reform, I think, is critical to the effectiveness of a number of other policies, though alone it will not drop costs dramatically. But there are a number of factors that combined will so change the motivation within the system and the buying practices that they will have a profound impact on cost.

I do feel a responsibility not to constrain rates too soon, before we have got cost control in place and can see it is working.

Thank you, Mr. Chairman.

Chairman STARK. Thank you very much, and I want to thank the panel. You have been very helpful. I appreciate the witnesses' contribution today. The committee will recess.

[Whereupon, at 12:10 p.m., the hearing was adjourned.) Submissions for the record follow:)


of the


to the


"The Opportunity for Private Health Insurance Reform"

March 12, 1992

There is wide agreement that health insurance reform is necessary. A similar set of insurance reform measures is included in health reform proposals from across the political and philosophical spectrum, including the AMA's plan for a comprehensive restructuring of this nation's current health care system Health Access America. We urge the Subcommittee on Health, and Congress, to act on this consensus and pursue quickly reform of the private health insurance system. Insurance reform can provide immediate relief to many Americans now locked out of the health insurance system or locked into unproductive employment situations because the insurance system fails to guarantee that insurance will do what it is generally expected to do spread health risks among as wide a population of people as necessary to adequately fund health care coverage for a varied population. Instead, health insurance increasingly takes steps to limit its risk by refusing to cover those who need insurance the most. This practice must and can be ended.

AMA's Insurance Reform Proposals The AMA calls for all employees to be provided health coverage through their employers. To require this of employers, however, reforn of the health insurance market is necessary so that the availability of reasonably priced insurance that offers employees levels of protection they need is guaranteed. Significantly, the AMA's own plan for health insurance reform mirrors, to a large extent, some of the essential measures contained in the three bills under consideration by the Subcommittee -- Chairman Stark's "Health Insurance Reform Act of 1991" (HR 2121), the "Health Equity and Access Reform Today Act of 1991" (HR 1565) introduced by Representative Johnson, and Ways and Means Chairman Rostenkowski's "Health Insurance Reform and Cost Control Act of 1991" (HR 3626).

The AMA's plan calls for the following reform measures to be taken so that insurance will spread risk among as many individuals as possible:

prohibit pre-existing condition exclusions ;
eliminate waiting periods for employees changing jobs; and
limit health insurance premiums charged small businesses to a
small percentage more than the per capita average across all
group insurance sold in the same or actuarially equivalent
community for the same benefit package during the preceding three

Then, to help make insurance more affordable, the AMA believes that state mandated-benefit laws, which drive the cost of basic health insurance beyond the reach of many small companies and individuals, must be preempted to make minimum benefits packages affordable. And to provide fairness, the self-employed should be given the same permanent 100 percent deduction for the costs of health insurance that employer businesses are now given.

To the extent these measures are offered in the legislation being considered by the Subcommittee, the AMA supports them and urges their quick passage into law. Specific Legislative Proposals Each of the legislative proposals under consideration by the Subcommittee share our basic goal of improving access to the health insurance market. However, there are other measures in these bills that we do not believe would aid in improving access to affordable, quality health care. Expansion of Medicare payment methodologies -- We are greatly concerned with Chairman Rostenkowski's inclusion in HR 3626 of provisions that would allow any purchaser of health care services unilaterally and without negotiation to provide full payment for services at Medicare-like rates established by the Secretary of Health and Human Services using Medicare methodologies. It is one thing for the federal government to determine how it will reimburse providers accepting payment under federal programs. It is completely different and a dangerous leap for the federal government to dictate the price of a private contractual arrangement between a health care provider and an individual. Further, the Medicare payment program is in a delicate time of transition. The AMA has fully involved itself in working with Congress and the Administration to redevelop the Medicare reimbursement system through the use of a resource-based relative value scale (RBRVS). After only three months of experience with RBRVS, difficulties in its implementation still need to be worked out. We will not know the effects of this revolutionary change for some years. Chairman Stark and other members of this Subcommittee from both parties have been leaders in assuring that RBRVS is allowed to be implemented as envisioned, without changes. An attempt to allow any payor of health care services to use this reimbursement system would severely threaten the cooperative efforts of physicians, Congress, and the Administration that are still needed to bring reform to the program. Finally, it is well recognized that Medicare pays below market rates for many services. Often, decisions on increases in payment rates are made within the constraints of federal budget targets. The wide use of these arbitrarily administered rates in the private sector would only exacerbate the kinds of problems represented in the cost-shifting now found as a result of inequities in the Medicare program. Tax penalties to encourage managed care and low-cost plans -- We also are concerned with provisions in Representative Johnson's bill that inappropriately favor one kind of health care delivery system over others. If HR 1565 were enacted, an employer would be charged a tax penalty equaling 25% of the cost of any health benefit plan offered by the employer that is not a managed care plan or not a plan that limits an employee's cost of coverage to $160 a month and the employer's to $300 for each employee. Also, the self-employed would be allowed the same tax deduction benefit for health insurance preniums that employers receive only if the plans they purchase are for managed care. Obviously, the effect of these provisions would be to ensure that this nation's only health care delivery system would be managed care, at least for the vast majority of non-wealthy Americans who could not afford the extra 25% penalty that non-managed care providers would be forced to pass on to patients. The AMA is not opposed to managed care. In fact, we support managed care in a pluralistic system where individuals have the full range of information about the choices they make. Purchasers of insurance plans compare the cost of managed care and the quality they provide with other delivery systems. If managed care were effectively the only choice, from where would the competition come Without competition, what would provide the impetus for managed care systems to control their costs? The same questions can be asked quality. Without the firmly protected opportunity to choose bet health care delivery systems, individuals may have a abusive system, no ability to use competition to e

In a health care system offering choice, managed care has proven to be an attractive alternative. We do not know if managed care would be as attractive if it is the only choice health care consumers can make. Managed care/utilization review provisions The AMA believes that there is an appropriate role for both managed care and utilization review within our health care system. Appropriate safeguards are needed to assure that physicians practicing in managed care settings are able to act in the best interests of their patients and that patients are able to choose from plans that provide a sufficient choice of physicians, procedures, and alternatives so that their individual health care needs can be met. Enrollees must have prior knowledge of any restrictions on their freedom of choice. Therefore, we would oppose the enactment of provisions contained in Representative Johnson's bill that would preempt state laws regulating managed care programs. States have been dealing with managed care and utilization review issues for years and have established safeguards to deal with abuses that they have experienced. Under no condition should state laws be preempted unless and until adequate federal standards are in place and shown to be effective. Utilization review programs must be required to use physician peer reviewers in making negative determinations on coverage or payment. Clinical review criteria should be made available for independent review to allow determinations of scientific validity to be made. Patients need to be informed about incentives and other provisions in a plan that are designed to discourage utilization before they join a plan. Reasonable limits must be established to make out-of-plan utilization a true option when offered under a plan's terms. Practitioners need safeguards through due process protections and the right to negotiate as a group to enable them to be advocates for their patients and to deal on an equal footing with a managed care plan that dominates a given market. Health care cost commission -- The AMA does not support, at this time, the creation of a health care cost commission under Chairman Rostenkowski's bill. A number of forums and institutions are pursuing cost containment objectives. Various congressional committees, the Physician Payment Review Commission, the Prospective Payment Advisory Commission, HHS Secretary Sullivan, and numerous groups in the private sector are developing proposals to contain costs. The creation of another commission is not necessary and would duplicate many efforts already underway. Further Reforms Health insurance reform should not only help expand access to health insurance coverage, but also help guarantee that health care costs can be constrained. To help ensure that cost concerns are met, the AMA urges the Subcommittee to take under consideration further insurance reform measures not represented in the bills under consideration. We are concerned that health insurance, especially as it has evolved into a key benefit of employment, unnecessarily insulates those involved in the health care system from the costs of health care services. Without the pressure of price, little motivates those receiving or providing health care services to be concerned with the cost of services. As a result, natural controls to keep costs down are greatly diminished. There are ways, however, that health insurance can be offered to ensure that the price of health care services is more widely heeded. First, every insurer should be required to offer a required minimum benefits policy. The wide availability of such a policy would allow many employers now unable to provide their employees with health coverage to do so.

Further, we believe the minimum benefits policy should be offered in three different versions:

a traditional service benefit policy to give individuals the opportunity to insure fully their health care decision-making;

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