[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]
SMALL BUSINESS ACCESS TO HEALTHCARE
=======================================================================
FIELD HEARING
before the
COMMITTEE ON SMALL BUSINESS
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
FIRST SESSION
__________
ARLINGTON HEIGHTS, IL, JULY 9, 2001
__________
Serial No. 107-16
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Printed for the use of the Committee on Small Business
__________
U.S. GOVERNMENT PRINTING OFFICE
74-642 WASHINGTON : 2001
COMMITTEE ON SMALL BUSINESS
DONALD MANZULLO, Illinois, Chairman
LARRY COMBEST, Texas NYDIA M. VELAZQUEZ, New York
JOEL HEFLEY, Colorado JUANITA MILLENDER-McDONALD,
ROSCOE G. BARTLETT, Maryland California
FRANK A. LoBIONDO, New Jersey DANNY K. DAVIS, Illinois
SUE W. KELLY, New York WILLIAM PASCRELL, New Jersey
STEVEN J. CHABOT, Ohio DONNA M. CHRISTIAN-CHRISTENSEN,
PATRICK J. TOOMEY, Pennsylvania Virgin Islands
JIM DeMINT, South Carolina ROBERT A. BRADY, Pennsylvania
JOHN THUNE, South Dakota TOM UDALL, New Mexico
MIKE PENCE, Indiana STEPHANIE TUBBS JONES, Ohio
MIKE FERGUSON, New Jersey CHARLES A. GONZALEZ, Texas
DARRELL E. ISSA, California DAVID D. PHELPS, Illinois
SAM GRAVES, Missouri GRACE F. NAPOLITANO, California
EDWARD L. SCHROCK, Virginia BRIAN BAIRD, Washington
FELIX J. GRUCCI, Jr., New York MARK UDALL, Colorado
TODD W. AKIN, Missouri JAMES R. LANGEVIN, Rhode Island
SHELLEY MOORE CAPITO, West Virginia MIKE ROSS, Arkansas
BILL SHUSTER, Pennsylvania BRAD CARSON, Oklahoma
ANIBAL ACEVEDO-VILA, Puerto Rico
Doug Thomas, Staff Director
Phil Eskeland, Deputy Staff Director
Michael Day, Minority Staff Director
C O N T E N T S
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Page
Hearing held on July 9, 2001..................................... 1
Witnesses
Kuhn, Michelle, President, Aeffect, Inc.......................... 5
Weber, Douglas, President and CEO United Way of Lake County,
Green Oaks, IL................................................. 7
Davis, Sammy, President and Owner, Handyman at Work, Mundelein,
IL............................................................. 10
Canary, Patrick H., Owner, PHC Enterprises, Inc., DBA
Alphagraphics, Vernon Hills, IL................................ 11
Berman, Erika, Senior Human Resources Manager, The Revere Group,
Limited, Deerfield, IL......................................... 13
Appendix
Opening statements:
Manzullo, Hon. Donald........................................ 30
Christensen, Hon. Donna...................................... 32
Biggert, Hon. Judy........................................... 38
Prepared statements:
Kuhn, Michelle............................................... 41
Weber, Douglas............................................... 44
Davis, Sammy................................................. 47
Canary, Patrick H............................................ 50
Berman, Erika................................................ 52
SMALL BUSINESS ACCESS TO HEALTH CARE
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MONDAY, JULY 9, 2001
House of Representatives,
Committee on Small Business,
Washington, DC.
The Committee met, pursuant to call, at 10 a.m., at the
Wheeling Township Offices, 1616 N. Arlington Heights Road,
Arlington Heights, Illinois, Hon. Donald A. Manzullo [chair of
the Committee] presiding.
Chairman Manzullo. Good morning. The United States House of
Representatives Small Business Committee will come to order on
the field hearing that we're having here in Congressman Kirk's
Congressional District. At the beginning of this year, I became
Chairman of the House of Representatives Committee on Small
Business. We're charged in the broad oversight to investigate
issues involving extremely important component of our economy,
the small business community, which represents 99.7 percent of
all employers and employs 53 percent of the private work force.
When my friend from the 10th District of Illinois asked me
to hold a health care access field hearing, I jumped at the
opportunity to investigate a such timely and significant issue.
More timely than I thought. The Patients Bill of Rights is
coming before the House of Representatives next week.
Unfortunately, small business people have great difficulty
providing health insurance for their families, employees, and
others. This dilemma is uncharacteristic and it's ironic.
Unlike larger corporations where CEO's are solely charged to
provide a bottom line profit before the company shareholders,
and rarely interact with employees, most small entrepreneurs
have the unique opportunity to maintain personal relationships
with their workers.
Small entrepreneurs are not just employers. They're friends
and neighbors. In fact, it's not uncommon that a small
entrepreneur with limited resources will choose to insure his
or her employees before providing for his or her own families.
A lot of that is because health--cost of health insurance
premiums is not a hundred percent deductible for the employer,
but it is for the employees. Figure that one out. Small
businesses are not simply offered the accessibility to the
quality health care coverage at afforded cost. I know this from
personal experience where a family that is involved in Italian
restaurant business for years, and has 13 tables and 13 bar
stools; my brother is the operator of it, and his cost of
health and accident insurance just for him and his wife is
seven hundred dollars a month. It's frightening. They don't
even offer health and accident insurance to their employees
because it would be cost prohibitive and they couldn't stay in
business. The best health care system for America is grounded
in the free enterprise system.
Congress can still work to eliminate areas in the tax and
regulatory code that punish small businesses from purchasing
affordable health care.
At this time, I would like to recognize Mrs. Biggert, a
fellow member of Congress from an adjoining Congressional
District for an opening statement, and then to Congressman
Kirk.
Mrs. Biggert. Good morning. I want to thank my colleagues,
Chairman Don Manzullo, for holding this field hearing and for
Representative Kirk in hosting this field hearing in this area.
I grew up in the 10th District, so I feel right at home. I
guess it's safe to say that today's hearing just proves the
theory that you can go home again. So, it's nice to be back in
the area.
As a member of the House Committee on Education and the
Workforce, I was very pleased when Congressman Manzullo asked
me to join in today's hearing, even though I'm not on the Small
Business Committee. And probably you're asking, then well, why
would a member of the Education and Workforce Committee want to
be included in a hearing about health care and small business?
Well, it's because the Education and Workforce Committee has
jurisdiction over ERISA and ERISA issues. And what is ERISA?
ERISA is the Employee Retirement and Income Security Act, and
is the law that applies to employers who are self-insured, so
that's why I'm here. And it's because the Patients' Bill of
Rights is a workforce issue.
And it's also an issue that has dramatic impact on whether
employers continue to offer health care coverage as an employee
benefit in the future.
For most employers in America, health care coverage is far
and away the largest employee benefit offered to workers. But
for so many small business owners, employee health care is a
benefit that they would very much like to offer, but they
cannot afford to do so under the system as it exists today.
And for many self-employed business owners and their
families, health insurance is treated as a luxury under our tax
code, which does not allow them full deductibility. So, health
care certainly has moved to the forefront of Congress's agenda,
and rightly so. Depending on which estimate one uses, there are
at least 43 to 44 million Americans that currently do not have
health coverage, and these are frightening numbers in
themselves, but it seems that they're getting lost in the
clamor to pass a Patients' Bill of Rights. So, what we need to
do, and our challenge really is to work with state officials
and health care providers, and employers to enact patients
protection for those who currently are covered, while at the
same time reduce the numbers of uninsured Americans. And this
last point is particularly challenging and relevant to today's
hearing, as the majority of uninsured Americans are in families
where at least one person is working full-time and usually in a
small business. So I think that we the Congress will be able to
address that problem, really in three ways. First would be the
long-term solution is to financially empower the health
consumer, and the second and short term answer lies with
employers, businesses, large and small, and I think we'll hear
probably from our witnesses that will testify today that
Congress has to do more.
And then the third is the most immediate solution, is for
Congress to do no harm. And by that I mean that we should not
pass any measures that will increase the number of uninsured
Americans by increasing health care costs, and to discourage
employers from offering health insurance as a result of
expanded liability and unnecessary red tape. Mr. Chairman, I
don't see how any of us can really justify increasing the
specter of litigation that we've heard a lot about in the
Senate Patients' Bill of Rights, and ratcheting up health care
costs in the name of protecting patients. So, I think sometimes
even the most well intentioned proposals that end up increasing
the number of uninsured are bad public policy and a step in the
wrong direction.
So, with that in mind, I think that we'll be able to hear
what the witnesses have to say, and I know that there is a bill
that's been proposed by Dr. Ernie Fletcher in the U.S. House--I
keep going back to my roots of the Illinois General Assembly--
But, that has put together a strong Patients' Bill of Rights,
so that I hope that the witnesses will address some of that.
And I think that we'll see floor action on that, as you said,
next week. But, I know that our witnesses todaywho own and
manage or work in a small business will have their own insider view of
Dr. Fletcher's bill and the Senate Patients' Bill of Rights.
So, I'm eager to hear from all of our witnesses today,
because they are the ones that are truly impacted by
Washington's actions, and we want to be able to match their
views with what our colleagues in the Senate and the House are
proposing. So again, Mr. Chairman, thank you for allowing me to
participate in today's hearing, and I look forward to hearing
from our witnesses, and to working with Congressman Kirk on the
efforts to ensure that Americans have access to quality,
affordable health care insurance.
Chairman Manzullo. Thanks very much.
[Mrs. Biggert's statement may be found in the appendix.]
Chairman Manzullo. Congressman Kirk.
Mr. Kirk. Thank you, Mr. Chairman, and welcome to Arlington
Heights, America's hometown. And I first want to thank the
Wheeling Township officials for helping establish this hearing.
This is a vital hearing for us. We have 41 million Americans
without health care insurance. I think that government policy
should close that gap so that more people have insurance rather
than less. Northwest Community Hospital, other hospitals that
we have here, their emergency room only collects 25 cents on
every dollar of care given because of so many uninsured
Americans getting care there, and it's done in the most
expensive way at latest stages. If they had health care, they
would come earlier to the doctor and be treated less
expensively.
Half of all Americans work for small business owners, like
the men and woman we have here today. Some of them are able to
offer health care insurance to their employees. I want to
particularly highlight what we're going to hear from Doug Weber
on the United Way of Lake County, one of our leading charities,
which are facing a 29 percent increase in health care insurance
premiums. But also, Sammy Davis Jr., running Handyman at Work,
who does not offer health care to his employees, and is not
able to. I think that we should make sure that health care is
affordable for you; that we get tax advantages to you, and we
make it at all possible through association, membership, or
Medical Savings Accounts to make you able to care for your
people and their families. We need to make sure that we expand
health care coverage. I am strongly in favor of a Patient's
Bill of Rights. We need to make sure that you have access to a
second opinion, that you have a right to designate your OB/GYN
as your primary care provider, or especially your pediatrician
for your kids. But as we implement a Patient's Bill of Rights,
and I think we will, we have to be careful. We have to make
sure that we emphasize care, not court. I don't see how
unleashing a liability wave and ending up in a lot of lawsuits
helps the health care system.
I think that what we want to do is create a system which
emphasizes that you get the care you need right away. The
legislation that Congresswoman Biggert mentioned, also authored
by Congresswoman Nancy Johnson of Connecticut, has another
approach, separate from the Senate approach. It would establish
an independent review panel of doctors appointed by the
Secretary of Health and Human Services, and in urgent cases,
within 24 hours they would be able to override a decision not
to provide care through your HMO. If the plan still insisted on
not providing care, then you go to court. Now, I don't know any
plan that would override expert opinions and launch a lawsuit
against itself. And I think this is a way that we emphasize
care over court. Because I don't see how ending up in years-
long litigation helps you. I think we need to reverse the
decisions made to emphasize that you get care for yourself and
for your family.
And I'm worried that the Senate bill has been estimated to
raise health care premiums by an extra 4.2 percent, according
to the Congressional Budget Office, and we want to make sure
that we realize as we increase health care premiums, we make
the pool of uninsured Americans larger. I think we should do
the opposite, and make--and everyone have access to health care
insurance, and that is particularly through the small business
community that we're going to hear from here. So, Mr. Chairman,
thank you. Thank you for coming.
Chairman Manzullo. Appreciate it very much.
Mr. Kirk. And I'm happy that you're here.
Chairman Manzullo. Glad to be here in your Congressional
District. Your district is very compact, mine--my district runs
from McHenry County all the way to the Mississippi River, and
with redistricting, we go even further. We go from Algonquin to
Fulton, Illinois; pick up three more counties, so nine
counties; a lot of challenges there.
The rules are your testimony should be limited to five
minutes, but I don't see a clock, Paul. Paul, do you?
Mr. Denham. We don't have a clock.
Chairman Manzullo. Well, what you're going to have to do,
is why don't you sit here behind me. When you get to four and-
a-half minutes, maybe tap me on the shoulder, or bang me on the
head or something, and then I'll sort of get a little fidgety
(knocking gavel) and that gives you about a minute to finish
up. I'm going to have to leave here at eleven o'clock. We've
been working on a Gulf War Syndrome Bill for four years now,
and that's coming up very quickly tomorrow and I have to be in
Washington later this afternoon, so I'll give you the gavel to
conduct the hearing then.
Mrs. Biggert. Mr. Chairman, could I have unanimous consent
to enter my statement?
Chairman Manzullo. Absolutely. All the statements of the
members of Congress, plus all the witnesses, can be entered
into testimony. In fact, if there are any spectators out here
that have any statements that they would want to be put into
the record, I will allow that also. Make sure it's two or three
or four pages and not a tome, because this is printed--the
printing cost could be pretty expensive.
Mr. Kirk. That's gotta be expensive.
Chairman Manzullo. That's correct. Okay.
First witness is Michelle--is it Kuhn?
Ms. Kuhn. Kuhn.
Chairman Manzullo. Kuhn.
Ms. Kuhn. Uh-huh.
Chairman Manzullo. And she is the president of----
Ms. Kuhn. Aeffect, Incorporated.
Chairman Manzullo. Aeffect, Incorporated, from Deerfield,
Illinois. And, Michelle, we look forward to your testimony.
STATEMENT OF MICHELLE KUHN, PRESIDENT, AEFFECT, INC.,
DEERFIELD, IL
Ms. Kuhn. Okay. Thank you. Good morning. My name is
Michelle Kuhn and I'm president of Aeffect, Incorporated, a
small, woman-owned business located in 10th District of
Illinois. Aeffect is a marketing and communications research
firm that consults with large corporations and federal
government organizations.
I would like to begin this morning by first stating what
we, as a group, may already recognize. That is, America needs
small business, not only to allow people within this country to
pursue theAmerican dream, but also to provide our country with
new products and services to facilitate economic growth and ensure
America's leadership worldwide. It is important for our Government to
nurture the growth of small businesses in order to allow them to
survive.
My company, Aeffect, Incorporated, has been in business now
for seven years, and many individuals conclude that we have
passed the critical three to five years mark where most small
companies fail. In fact, within the last few years, we made the
transition from micro-company with a handful of employees, to a
company that now employs approximately 20 full-time individuals
and other freelance or part-time and freelance employees. This
transition has allowed us a unique perspective on the impact of
health care costs for the emerging company.
When our company was first established in 1994, we
experienced considerable difficulty obtaining health care
coverage, given that we had but a few employees. Moreover, the
cost of this coverage per employee was relatively high, and in
total, represented five percent of our annual revenue. Our
health care costs were also quite unpredictable from year to
year and were unrealistically high by claims made by only one
or two employees.
Since our size and employee count has grown beyond 10
employees, however, our perspective on health care coverage has
changed dramatically. Once we exceeded 10 employees, our size
classification pushed us into underwriting scenarios with
different rate structures that made health care benefits
somewhat more affordable. Additionally, with more employees,
our health care plan cost per employee has been reduced
somewhat. From the company's perspective, the cost of providing
a fully sponsored PPO plan for our employees actually
represents now less than one percent of revenue on an annual
basis. Comparatively, the cost of our labor is our highest
expense, representing about 35 to 40 percent of revenue.
Over the past few years, however, we have seen the cost of
our health plan increase considerably, despite the fact that
we've generally remained loyal to our insurer, and have not
incurred major claims. Last year, the cost of our plan rose
about 18 percent, while our insurer simultaneously reduced
reimbursement proportions for in-plan expenses. Clearly,
reduced coverage takes a larger share out of the take-home pay
of our employees, and is specifically significant for single
parents who must pay the cost of adding several dependent
children onto the plan.
While I recognize that health care costs are rising
rapidly, so too is the level of care that our employees are
receiving. I do not support efforts on behalf of Congress to
trim health company margins, given that I believe doing so will
hamper research and development efforts that might some day
save your life or mine.
In fact, I think our world's HIV epidemic provides a very
good example of how alternative forms of government
intervention may lead to reduce costs in the long run for small
companies. As a small business that operates in an industry
that has seen many individuals affected by HIV--that is the
advertising and marketing industry--we believe that Government
needs to escalate its efforts to encourage people to routinely
practice safe sex and to engage in HIV testing. Small
businesses, especially in our industry, struggle with how to
balance compassion for the worker infected with HIV, and the
cost associated with their care. Strong investments in insuring
effective preventative communication can, over the long run,
reduce the burden of health care costs for small companies.
Similarly, the Government can help small companies, like
Aeffect, by helping us keep our people healthy. As a result of
their resources and influence in the managed care market,
larger companies provide and obtain special employee health
education programs to prevent high cholesterol, hypertension,
et cetera in employees and to prompt healthier behaviors such
as physical activity. Such preventative and health education
programs are nearly always absent from small company
environment. Help us keep our employees healthier, by investing
in health education and national prevention campaigns that over
the long run can reduce our health care costs.
Government can also help small businesses by ensuring they
are treated equitable and fairly when it comes to obtaining and
providing a health care insurance coverage for their employees.
Specifically, government can ensure that rates a small business
pays per covered life are not dramatically higher than rates
paid by larger companies. Because large companies pay lower
rates, they can afford to expand coverage to the employee and
his dependents. This makes it more difficult for small
companies to be competitive in hiring and retaining employees
in a market occupied by larger companies.
Similarly, government can help small businesses control
other costs of operation----
Chairman Manzullo. We are getting to a point, Michelle,
okay?
Ms. Kuhn. Okay. I'm just wrapping.
Chairman Manzullo. All right.
Ms. Kuhn. In order to offset rising health care costs.
Specifically, government can streamline processes for
government acquisitions, set aside contracts, SBA
certifications, and SBA loan guarantees. To put this in
perspective, my company's health care cost would have to
increase nearly a hundred percent each year to equal the labor
investment required to secure an SBA loan guarantee.
In summary, I would like to encourage the Committee on
Small Business to think creatively and outside-the-box when
comes to helping small companies bear the burden of rising
health care costs. The answer to the issues at hand may lie in
helping small business in ways that have nothing at all to do
with health.
Chairman Manzullo. Thank you very much. Appreciate that.
Ms. Kuhn. Uh-huh.
[Ms. Kuhn's statement may be found in the appendix.]
Chairman Manzullo. Our next witness is Doug Weber. He's the
president and the CEO of the United Way of Lake County in
Libertyville.
Mr. Weber, look forward to your testimony.
STATEMENT OF DOUGLAS E. WEBER, PRESIDENT AND CEO, UNITED WAY OF
LAKE COUNTY, GREEN OAKS, IL
Mr. Weber. Thank you very much. I'd like to welcome members
of Congress also to our community and thank you, Congressman
Kirk, for bringing this to Lake County and to the community.
I'm president and CEO of the United Way of Lake County, but
I'm not a for-profit business, so I don't own United Way; it's
owned by community and owned by the donors and cooperates with
individuals who contribute to our organization. The rising
costs of health care in America are having a negative and
severe impact on the ability of health and human service
organizations to help people in our community and our country.
According to the Internal Revenue Service, there are over
eight hundred thousand non-profit, 501(c)(3) health and human
service organizations in the United States. It estimate that at
least 90 percent of these non-profit organizations have 25 or
fewer employees. For most of these organizations, the largest
budgetary expenditure is the salary and benefits of people who
workfor these organizations, many of who are not able to afford
health care.
The staggering cost of increased health care insurance is
impacting many non-profit organizations because they're not
able to hire staff to perform needed services. Turnover rates
at many non-profit organizations are 50 percent, or more, per
year because of increased health care deductibles and out of
pocket costs. The effect--this affects productivity and the
ability of the organization to provide the services that they
are in business to deliver.
More and more employees and lower paying health and human
service sector jobs are paying a much higher percentage of
their pay for health care costs for themselves and their
dependents. The United Way of Lake County is a relatively small
employer, with 29 full-time paid staff. This year alone we
experienced an increase of 40-47 percent in our HMO health
insure costs. This is on top of increases in the past two years
of 36 percent and 22 percent respectively.
We've had to eliminate our prescription drug card this year
and increase our annual deductibles and out-of-pocket maximums
to lower the actual impact our health insurance premiums,
passing more of the cost on to our employees. Our primary
source of revenue is from donations from individuals and
corporations. During our last annual campaign, we raised over
11 million dollars last year in Lake County, thanks to the
generosity of many, and are the second largest United Way in
the State of Illinois, and 60th out of 1,400 in the nation. Our
donors would not tolerate annual administrative costs increases
in same proportions as our health care insurance costs
increases. We have left several positions unfilled and cut
other costs, in addition to our health plan changes, to
accommodate our huge health care cost increases. We pride
ourselves in only having a 12 percent administrative and fund-
raising costs; we are working hard to maintain that.
Our organization is not able to afford the cost of
dependent coverage, either, for our employees, and our
employees must bear a hundred percent of the cost to cover a
spouse, children or both. Yes, we offer a Cafeteria 125 Plan so
employees can pay these expenses with pre-tax dollars, but a
large portion of their pay is still going for health care
costs. For each employee, this translates to an actual cost of
$287.00 per month to cover the children, $416.00 to cover a
spouse, or $703.00 to cover the entire family for each
employee; and they pay a hundred percent of these dependent
costs.
Organizations still are able to provide coverage for the
individual employee at $319.00 per employee, but this is
becoming difficult. A number of our employees, who are single
parents, and are paid in the twenty-five thousand to twenty-
nine thousand dollar range, must pay 15 percent of their gross
income to provide their children with health care insurance.
This is in addition to the $500.00 annual deductible and two
thousand maximum out-of-pocket costs they must incur. One of
our employees, who earns thirty-two thousand dollars annually,
is paying $8,436.00 to provide health care insurance for his
spouse and children. That translates to 26 percent of this
individuals gross annual income. That does not include the
$3,000.00 in deductible and out-of-pocket costs that they must
incur.
That is outrageous.
Many other non-profit health and human services agencies in
Lake County do not have the ability to provide employees with
health care coverage at all. Something must done to control the
staggering increases that health care providers are passing on
to small business, both non-profit and for profit, and to
provide affordable access to health care for all.
United Way of Lake County's insurance premiums are based on
the health care costs for our small group of 29 employees.
While we're a relatively healthy bunch, we have experienced a
few major medical claims that pushed up our health care
experience costs.
We are told that our significant health care premium
increases are direct correlation to the medical and
prescription costs of our small group. Something must be done
to allow smaller employers to pool together and spread the
insurance costs among larger groups of employees and control
health care costs.
The United Way of Lake County is the umbrella organization
that supports 104 programs run by 48 separate non-profit health
and human services organizations in Lake County. While most of
these organizations are relatively small employers, ranging in
size from one to 200 employees, when combined together, their
total employment is over 2,800 individuals. If we could develop
a pool for health insurance among these smaller organizations,
we'd provide a much larger group to share health care costs.
Nationally there are 1,400 local autonomous United Way
organizations who are members of United Way of America, our
national association based in Alexandria, Virginia.
In the past we've look for ways to pool health care
insurance costs and programs, but have been challenged by
difficulties in offering some time of national health care
plan. There are potentially tens of thousands of non-profit
agency staff in local United Way organizations and the agencies
we support, that could pool resources and share health care
insurance costs. There needs to be some type of national HMO or
insurance plan to offer large groups of small employers.
Virtually all of the non-profit organizations in Lake
County and around the country are experiencing devastating
health care insurance cost increases. This is crippling their
ability to provide the much needed human care safety net for
people in need. Within increased health care costs like we are
experiencing, non-profit agencies have to make very difficult
choices. Do we cut staff; do we cut staff who are the lifeblood
of the organization; do we reduce or eliminate health care
coverage for our employees, resulting in lost staff and high
turnover; or do we eliminate needed services.
Non-profit organizations rely on the generosity of
individuals, corporations, foundations, and local state and
federal government sources for their financial support. These
contributors are investing in the good work that is done by
each of the hundreds of thousands of these organizations they
support. Something needs to be done to control the increasing
rate of health care costs so that these donors' government
investments in needed human services are going to help people
and not to paying skyrocketing health care expense.
I would like to thank you for the opportunity testify
before the U.S. House of Representatives Committee on Small
Business on this most important issues facing our nation and
it's small employers, and I urge you to consider solutions that
will impact that health care crisis in America. Thank you very
much.
Chairman Manzullo. Thank you, Mr. Weber. We appreciate your
testimony here.
[Mr. Weber's statement may be found in the appendix.]
Chairman Manzullo. Next witness, pretty famous name, Sammy
Davis, Jr.--now, I have met Sammy Davis, Jr., about an hour
ago--is with us today with a group called Handyman at Work,
testifies that an employer that cannot afford to offer health
and accident insurance. Is that correct?
Mr. Davis. That's correct.
Chairman Manzullo. Mr. Davis, come forward for your
testimony.
STATEMENT OF SAMMY DAVIS, JR., PRESIDENT AND OWNER, HANDYMAN AT
WORK, MUNDELEIN, IL
Mr. Davis. Thank you. Good morning Mr. Chairman and
congressional members. Handyman at Work is a small business, a
newly launched business and I am president/owner of Handyman at
Work, and in addition, another business called Breakaway
Advantage, so I've got a unique perspective, I think, with the
impact of health care on small businesses.
There's really three primary areas that we've have been hit
with, and that's access and affordability; there's also the
issue of the complicated procedures of the processes, and
lastly, there's an issue with protective health information to
the employers.
In terms of access and affordability, based on the high
cost of health care insurance, we actually did our business
plan and financial plan about a year ago, before we launched
this business, and we had allocated costs for health care
insurance. In going back and revisiting that plan about every
90 days, we found it was escalating right off the chart. And it
was beyond every projection that we had imagined, and at that
point we decided would were not going to offer health insurance
or health care to our employees. We have been fortunate and it
has kind of changed the graphics of employees that we have.
Every one of our employees are married. Their insurance
coverage is through their spouses, so they do have some form of
health care coverage. In revisiting this, though, the costs are
skyrocketing right off the charts for their affordability, too,
and they've asked for the company, as an employer, to help them
offset those costs.
We've looked at a number of different options at this
point. Some of the larger insurers, some insurance brokers, and
so forth, and that's where it goes into the second area, which
is complicated procedures and processes.
At this point, it seems one of the ways to lower the tier
for some of the insure costs are taking on additional
administrative responsibilities as a business owner. And at
this point, we don't feel we have that kind of expertise to do
this properly, and with the complicated procedures, and what
the employees are asking for at this time, we really don't have
the resources to do that. So, we've kind of pushed back from
there.
One of the other things that have happened is because we
are small, we have four dedicated full-time employees at this
point, and we've noticed that from the insurance quotes that
we've been getting for health care coverage, if we get to the
eight to 10 employee tier, there seems to be a significant
drop. Another drop at 20 employees and above. So, it seems to
be this is a severe penalty for start-up businesses and
businesses with small numbers of employees.
The last aspect that we run into has to do with--it's
linked to health care and the Patients' Bill of Rights. And
this is where the employees and self-employed individuals,
they're expecting informed consent on what's going to happen
with disclosure of personal health information. And there's a
number of restrictions with that and responsibilities.
What we do find, though, is that in a lot of cases, as an
employer, we aren't informed of what is going on with the
employee in terms of medications, sometimes with health care,
and we're open to a lot of risks that we're not aware of. And
in our case, in the Handyman business, we've got people on
medications that could expect dizziness and other things, and
they could be on a second floor of a roof, they're doing things
for individuals; there are a fleet of vans on the road. And we
really need to have access to a lot more medical information to
make some very informed decisions and to have a safe work
environment.
Chairman Manzullo. Appreciate that very much.
[Mr. Davis's statement may be found in the appendix.]
Chairman Manzullo. The next witness is Pat Canary. Is that
how you pronounce it?
Mr. Canary. Yes, that's right.
Chairman Manzullo. Or as an Irish, a cannery, is that----
Mr. Canary. It's Irish.
Chairman Manzullo. Okay. All right. Pat Canary is the owner
of PHC Enterprises, Inc., and d/b/a AlphaGraphics out of Vernon
Hills, Illinois. Welcome here to the Small Business Committee
and look forward to your testimony.
STATEMENT OF PATRICK H. CANARY, OWNER, PHC ENTERPRISES, INC.,
DBA ALPHAGRAPHICS, VERNON HILLS, IL
Mr. Canary. Thank you very much. It's a privilege to be
here this morning on this very important topic, and the chance
to present one man's view of health care issues facing small
businesses. I've owned a small quick printing business for the
past 11 years, and typically we have six to seven full-time
employees, so we're under that magic 10, where the health care,
their quantity discount. Our employees include two experienced
graphic designers, two experienced offset press operators, and
customer service and sales representatives.
We have a significant investment in state-of-the-art
equipment, technical equipment, including computers, digital
printing equipment, a new computer-to-plate technology.
Our business is service-oriented, fast-paced, and price-
competitive. Recruiting, training, and retaining key,
experienced employees has been a crucial factor in our success
of our business.
Before taking the plunge into small business ownership, I
worked in the corporate world for 25 years; spent 15 years with
Deloitte & Touche in management consulting, achieving
partnership, and then spent 10 years with a large international
transportation company as an operations executive. And as a
corporate executive, I can tell you that I always took health
care insurance for granted. It was always there, administered
by the personnel department. The benefits were good; the
company paid a significant share of the premium; and cost to me
was relatively insignificant.
When I became a small business owner, my view of the health
care insurance dramatically changed. When I started my business
11 years ago, a lot of similar small companies did not provide
any health care insurance for their employees. However, in a
few short years, I noticed that small companies like my own
were starting to do that. And because I wanted to recruit and
retain good people, I felt I needed to do so. I wanted to
provide group coverage wherein the company contributes to the
employees premium.
After researching the alternatives, and there were not
many, I opted to retain a reputable employee leasing company.
Employee leasing companies take on many small businesses to
provide payroll services and group health care insurance, and
other personnel related services. That idea--the idea that they
could provide that group with better rates for the health care,
this approach seemed to work for a while. But then suddenly my
rates for both payroll services and health care rose sharply. I
shopped around and went through the hassle of changing employee
leasing firms.
Again, this worked for a while, and then suddenly my rates
rose again. So, at that point, I decided employee leasing
companies wasn't the answer anymore, so I engaged a payroll
service to handle that, and I engaged an insurance agent to
help me look for a plan that we could come up with that could
fit, and we came up with an alternative where--an appropriate
PPO insurance plan for my employees, and that was reasonable,
again, for a short period of time. But then the increases
started coming.
One of my key employees found that he could get insurance
less expensively out of our group,on his own, but after a year
came back, because that didn't work for him after all. In the last two
years, my insurance rates have gone crazy. From 1999 to 2000, we had a
19.7 percent increase in our health insurance rate. And from 2000 to
2001, we had a 16.8 percent increase on top of that. With these rate
increases, I instructed my insurance agency to get--insurance agent, to
get rate quotes from a number of other insurance companies. After
analyzing the rates and benefits, we found there was no advantage in
shifting companies. It was the same.
In the meantime, another one of my key employees came to me
with a situation wherein he used some health care services, and
with his co-pay, and then invoices they sent following, he--he
was not getting covered very well. And he had an increase in
his premium. He, too, was able to opt out of our plan because,
fortunately, he had gotten married to a lady who is on a big
company's plan, and that, as you say, was another option. But
that isn't always the case.
As the rates go up, the small businessman, and particularly
the 10 and under, we are in a--between a rock and a hard place.
We have to watch our cash flow and maintain our costs to stay
in business and be healthy, and yet we still want--need to
retain good key employees.
So, you look for your alternatives, and there aren't many
for the small business company. You know, large corporations,
labor unions, large specialized industry association, have the
opportunity to put groups together for health care cost
efficiency. Small business has no such option.
My research has taken me to look at some other things that
are going. Some of the Chambers of Commerces are starting to
try to put groups together. Some associations, like the Tooling
Manufacturing Association located in Park Ridge, has put
together a plan for their industry group, and I would urge you
to call Bruce Baker, their president, to find out. They've been
doing it for 40 years, and they've learned a lot about putting
together groups of companies in they're association.
Unfortunately, it doesn't help me because I'm not in their
industry, but they are somebody to talk to, and I--their name
and phone number is in my written testimony, as well as the
Chamber in Libertyville is working on it; the Chamber in
Naperville have been working on it for six or seven years. I'm
hoping something can come out, but they're not ready yet and
they're all concerned about these spiraling costs and what we
are facing now.
So, in closing, let me just say that as an experienced
business executive, and now a small business owner, I am
extremely frustrated and concerned about the future of small
business and health care. Small businesses appear to have few
options at this point, but must find a way to stay in business.
And if the Patient Bill of Rights, which has--you all are
facing right now, if those implications aren't thought through,
and if rates continue to spiral upward, and if small businesses
can be sued, then speaking for small businesses, forget about
it.
Chairman Manzullo. Well, you do have opinions.
Mr. Canary. Thank you.
Chairman Manzullo. I told you I admire you, sir. And thank
you for your testimony.
Mr. Canary. Thank you for having me.
[Mr. Canary's statement may be found in the appendix.]
Chairman Manzullo. Our next witness will be Erika Berman.
Erika is a Senior Human Resources Manager at The Revere Group,
Limited, in Deerfield, Illinois. We welcome you to the Small
Business Committee and look forward to your testimony.
STATEMENT OF ERIKA BERMAN, SENIOR HUMAN RESOURCES MANAGER, THE
REVERE GROUP, LIMITED, DEERFIELD, IL
Ms. Berman. Thank you. Good morning, Mr. Chairman, Mr.
Kirk, Mrs. Biggert. My name is Erika Berman and I'm the Senior
Human Resources Manager of The Revere Group, located in
Deerfield, Illinois. I am pleased to be able to testify today
on behalf of the U.S. Chamber of Commerce at this field hearing
on the issue of small business and health coverage.
The Revere Group is an established business and technology
consultancy. We help companies adjust technology and business
challenges in areas such as Enterprise Application Development,
Supply Chain Management, Customer Relationship Management, and
Project Management. The Revere Group was founded in 1992. We
are headquartered in Deerfield, Illinois and have offices in
Milwaukee, Charlotte, Boston, Cleveland and Denver. We
currently employ approximately 400 employees. In 1999, we had
revenue of 58 million, and in 2000, revenues of 68 million. So
I realize I'm on big side of this panel today.
The topic of your hearing is both important and very
timely. For The Revere Group and for thousands of businesses in
Illinois and around the country, being able to provide quality
health coverage is essential to our ability to do business. But
finding and keeping affordable health coverage is not easy.
Once you have coverage you like with a doctor and hospital
network that you'd become accustomed to, huge premium increases
can force companies to change plans. That is exactly what we
were forced to do.
As highlighted in my previously submitted written
statement, with our health and dental plan expiring June 30th,
2001, The Revere Group began the renewal process in April. Our
provider at the time presented us with a 29.4 percent increase
in our health insurance premiums, and a 14.8 increase in our
dental premiums. This would be a combined increase of
approximately $450,000.00 that would be shared by The Revere
Group and our employees. Given the recent economic downturn,
and the softness in the business and technology consulting
arena, this increase was not something we could afford at this
time.
With the assistance of an insurance broker, The Revere
Group was presented to a number of potential providers. Our
goal during this process was to be able to offer our employees
comparable or better coverage than they currently had, and to
contain costs as much as possible for both the employees and
the company. This was coupled with the challenge of finding a
national provider who could support all our locations.
After reviewing proposals from three potential carriers, we
settled on one for our health insurance. The new provider
offered a 15.3 percent increase from our current premiums,
guaranteed our first year rates for the initial 12 months of
the contract, and also agreed to a second year rate cap
guarantee provision, depending on our incurred lost ratio.
While the coverage with our new plan is better in most
situations, we were no longer able to offer a managed care
option, only a PPO option. We chose to offer two PPO's, a high
coverage option and a lower cost, low coverage option. The high
option plan is most like our old point of service managed care
option. For those employees previously enrolled in the Point of
Service, they had over a 30 percent increase in their portion
of the premiums to receive comparable coverage. The one-third
of employees who were on the PPO plan with the old carrier
actually experienced a decline in their portion.
Additional efforts to control costs included increasing
doctor visit co-pays and introducing a three-tier formulary
drug program. For dental insurance, we chose to the stay with
our previous provider because we were unable to find comparable
coverage. This was a 14.8 increase to premiums, and included
some minor plan cases to the managed care option and
implementing aBlind PPO option.
What my written testimony did not include that I'd like to
take a moment to point out, was the time involved in actually
making this transition. Similar to other small businesses, we
have small corporate functions. The Revere Group's human
resources department is made up of a staff of two and-a-half
employees, a benefit administrator, a part-time manager, and
myself. During the months of May and June, approximately 60
percent of my time, and close to 80 percent of the
administrator's time was spent on this transition.
Like many small employers who offer health coverage, we do
so because it's good business practice, and helps us retain and
attract employees. The Revere Group competes for business and
talent with companies like Accenture, Ernst and Young Cap-Gemni
Sapiant, a number of other technology consulting firms and
other businesses that employ technical professionals. Not
offering high quality affordable health insurance is not an
option for us.
We hope Congress does not pass legislation like the
Kennedy-McCain Health Care Bill that passed the Senate last
month. Our business cannot afford to take on unlimited
lawsuits, nor can we afford to the pay the extra cost that
allows unlimited lawsuits against our health plan. The numerous
health plan mandates here in Illinois and in other states, and
the double digit increases to insurance premiums, has shown
that those liability costs that come with the Kennedy-McCain
Bill will not be absorbed only by the insurance industry.
Ultimately, employers have paid for every single one of these
well-intentioned but costly health plan benefits. We need some
health plan relief just like the tax relief passed earlier this
year. Unlike large businesses, The Revere Group doesn't have
the resources to self-insure under federal ERISA laws.
Furthermore, like us, more and more small businesses have
employees in two or more states. Under legislation like the
Small Business Health Care Fairness Act, sponsored by
Representatives Ernie Fletcher and Cal Dooley, small business
could purchase coverage through associations and other
organizations that meet federal requirements.
In addition to the Fletcher-Dooley legislation, permitting
Association Health Plans under ERISA, some other ways Congress
can help small businesses and working families with their
health plan costs include: Modifying the Medical Savings
Account program to allow both policyholders and employers to
make contributions; lower the deductible thresholds and permit
full MSA funding of the deductible; permitting individuals who
pay their health insurance premiums without employer assistant
to take a full tax deduction to those costs; and establishing a
refundable tax credit for low to moderate income individuals
and families for the purchase of private health coverage,
including premiums to participate in workplace coverage.
Small businesses are the backbone of our nation and we have
driven much of the economic boom of the 1990's. We are also
seeing our share of the economic bust. So when we get hit with
large health plan rate increases, we need to make adjustments
in our overall business plan to compensate. Our bottom line is
not growing at the same rates as our health plan increases.
Health coverage helps insure access to care when you need it,
and economic security for working families. Congress needs to
make access through affordable health coverage for small
business a priority for the health of our families and for the
health of our economy.
Chairman Manzullo. Thank you very much.
[Ms. Berman's statement may be found in appendix.]
Chairman Manzullo. I'm going to take a few minutes and ask
some questions, initially, then unfortunately, I have to get
back to Washington because of that huge Gulf War Bill. In fact,
we--a lady from Freeport, Illinois, Donna Steel, her husband is
probably the youngest Gulf War veteran to die of what we know
as Gulf War Syndrome. We've been working on that now for about
three years and we have been fighting the Veterans
Administration. Apparently, it doesn't make any difference
whether it's Democrat or Republican President, it's always the
veteran versus the VA, so I've got an appointment back in
Washington this afternoon.
I've got a couple jurisdictional questions, and I want to
start with you, Ms. Berman.
Ms. Berman. Okay.
Chairman Manzullo. You stated on page 8, ``Unlike large
businesses * * *''--now you've got four hundred employees, ``*
* * Revere Group does not have resources to self-insure under
federal ERISA laws.'' That means you're operating under state
laws in several states?
Ms. Berman. We can self-insure. We just don't have the
funds to do it. So self insurance was an option that we looked
at as we went through this renewal, but we were unable to do it
because of the costs.
Chairman Manzullo. But are you still under ERISA in terms
of being free of state mandates?
Ms. Berman. I'm not sure of the answer to that question. I
mean, I know that we are under ERISA guidelines and we are
still under state mandates in terms of having to offer certain
health provisions.
Chairman Manzullo. You're under state mandates because--
okay, so then you're not total a hundred percent ERISA.
Ms. Berman. I think so. I'm not sure.
Chairman Manzullo. Judy, would you know the answer to that?
Ms. Biggert. I think probably the preemption takes effect
if they have insured under----
Chairman Manzullo. If they self-insure----
Ms. Biggert. If they self-insure, but if they don't, then
under the state mandate.
Chairman Manzullo. Okay, thank you.
The other question I have, and I can't tell you how timely
this is. Mr. Weber.
Mr. Weber. Yes.
Chairman Manzullo. We have been looking at the Associated
Health Plan that is in the Fletcher--Dr. Fletcher Bill of
Rights--I'm sorry, Patients' Bill of Rights, and from what I
gather from your testimony is what you want is to be able to
get into the Association Health Plan.
Mr. Weber. We'd like to be able to pool small, non-profit
employers together.
Chairman Manzullo. Right. That would be an AHP, but the
problem that I see with the definition--Do you have language
there Congressman? Paul, do you have it? Where is it?
Mr. Denham. It's right here.
Chairman Manzullo. It's in the back of the book. It's under
Section 801. Association Health Plans does not appear to pick
up the definition of a not-for-profit.
Mr. Kirk. Right.
Chairman Manzullo. So, I'd be willing to work with you,
Congresswoman Biggert, and you, Congressman Kirk----
Mr. Kirk. I think we have an amendment form.
Chairman Manzullo [continuing]. For an amendment. And,
Doug, I would get a hold of your folks in Washington, and they
need to start waving some red flags on that immediately. I
mean, Red Cross can't get in, United Way can't get in.
The churches, they may have the many--may have similar
problems. And----
Mr. Weber. Well, there's hundreds of thousands of people
employed in the non-profit sector in the country and they're
mostly small employers, and so if there is a way to pool these
groups together----
Chairman Manzullo. Well, that's what the AHP would do; it
would allow you to do that. But I just think this is an error
in drafting.
There is no reason why you should not--not-for-profit
should not be included in that.
So, Paul, if you could get on the horn right away and draft
an amendment on that and put all three of our names on that; do
you want to do that? I'm sure you can be pulled into it.
Mr. Weber. Our national association will be called today
and let them know about this. I think that would be great. It
would provide assistance.
Chairman Manzullo. The other question I have is somebody
testified that insurance went up 47 percent.
Mr. Weber. Yeah, yes.
Chairman Manzullo. I mean, I just, you know.
Mr. Weber. That's a cost increase based on our experience
in the plan, and that was from our local insurance provider.
Chairman Manzullo. Because of the small number of
employees.
Mr. Weber. Because of the health--we had a catastrophic
health--a heart--heart issue, and we had--several people had
catastrophic health issues. They're fine now, they're back to
work, but the costs--they're trying to recoup their premium,
basically, is what they're doing.
Chairman Manzullo. Just from you?
Mr. Weber. Correct.
Chairman Manzullo. Why can't insurance companies, and they
can, take a hundred employers and all their employees and treat
them as one group?
Mr. Weber. I don't know. I can't answer that question.
Chairman Manzullo. They can.
Mr. Weber. They can.
Chairman Manzullo. They can under the present laws. The
question is, why aren't they doing that?
Mr. Weber. Our premiums are directly in relationship to the
cost experience of our group. It's experience rated group.
Chairman Manzullo. I noted, I think, Erika, when you
changed companies, did you keep one of the old companies of the
PPO?
Ms. Berman. We kept--no. We went to--for our health
insurance, we went to a completely new provider.
Chairman Manzullo. Right.
Ms. Berman. We had been offering a managed care option, and
then we went to offering two PPO options.
Chairman Manzullo. Right. But the PPO option that was
similar to the old plan, it was actually a decrease?
Ms. Berman. For those people that had been PPO plan with
our old--in our previous option, we had a Point of Service and
a PPO.
Chairman Manzullo. Right.
Ms. Berman. And those people that had been on the PPO with
the old plan and transferred over to the new PPO had a decrease
in their premiums.
Chairman Manzullo. Well, that's interesting. Was that the
same insurance company or different insurance company?
Ms. Berman. Different insurance company.
Chairman Manzullo. That rated that PPO?
Ms. Berman. Well, we think what had happened is that when
we started really getting deep in the cost is that our previous
provider had been passing along a flat rate increase to us all
along, and what should have happened is when--we're, again, an
experience rated, so they look at experience ratios. When you
looked at the experience ratio, we should have been increasing
our Point of Service employee's cost more than our PPO people.
Our PPO employees, which was about one-third of our employees,
their experience ratios were in the 50 percentile.
So, the insurance company was making a lot on those people,
and then on our experience ratio on the Point of Service,
employees was over a hundred percent, so they weren't making
anything on those people, they were losing money. And we had
been just passing off a flat rate increase, but when we
actually had to split it out, we were charging the PPO people a
lot more than we should have been, not understanding how the
costs were playing out. So, when we actually split it this
year, we were able to find that we had been overcharging them,
because we had thought it was the higher cost option, and we
brought their cost down to be in line with the new options.
Chairman Manzullo. Let me--This may not be a word of
comfort, members of Congress do not get a fancy--and I don't
care--we have Blue Cross-Blue Shield; do you have that?
Mr. Kirk. Standard option.
Chairman Manzullo. Standard option. No chiropractic
coverage, very little dental coverage, no orthodontic coverage.
And I've got three teenagers. Fortunately, two have straight
teeth and the other one was three thousand dollars and we had
to write the check ourselves on it. The only difference is in
the Federal Employee Health Benefit Program, you have your
choice of programs. But as it turns out, if you are a member of
Congress, there is only really one choice because you live in
two different cities, and that's Blue Cross-Blue Shield.
You know, I'm not criticizing Blue Cross-Blue Shield,
because they have worked, along with many companies, in trying
to keep down the cost of it. What we've been trying to do, and
it's been a subject of a hearing that we're going to have on
Wednesday, on the HCFA--the horror stories, is to show that a
lot of the costs of spikes in health and accident insurance
premiums, has to do with the manner in which the government,
the Health Care Financing Administration, also called ``Hell
Can't Find Anybody,'' the manner in which they are treating the
medical providers. As many times, as second class citizens,
dragging 'em into court, outrageous fines, unreasonable
guidelines, no guidelines, and, in fact, we're going to have a
local chiropractor who got a bill for two hundred fifty
thousand dollars from HCFA. By the time we were done with him,
it got down to zero because the people at HCFA don't know the
difference between X-rays and X Files. That the total
incompetent federal government organization that is running the
entire health care industry, and they're the ones that another
party wanted to be in charge of prescriptive drugs of the
entire country.
So, I appreciate you're being here. I've got to leave,
unfortunately. I'm going to turn over the gavel to Congressman
Kirk, and thank you, Congresswoman Biggert, for coming.
Appreciate it very much.
Mrs. Biggert. My pleasure.
Chairman Manzullo. Thank you.
Mr. Kirk. Well, the Chair recognizes Congresswoman Biggert.
Mrs. Biggert. Thank you.
Miss Kuhn, you mentioned in your testimony that with the
rising health care costs that are taking a larger share out of
the take-home pay of your employees, is the company passing on
more of the health care costs to the employee, or is it just--
--
Ms. Kuhn. No, we're not. We are bearing the burden of those
increases, but what's happening is that as our cost as a
company is going up, what the insurer is doing is reducing
coverage levels. For example, we had a plan, a PPO plan, that
covered employees for one hundred percent of their expenses if
they went to a preferred provider. Not only did we experience
the 18 percent increase, but the insurer took that level down
to 90 percent.
Mrs. Biggert. Are some of the employees not taking
coverage, then, because of costs? Is there any employee that's
saying, well, I can't afford to take the coverage?
Ms. Kuhn. I have some people who are insured by spouse's
plans in larger companies.
Mrs. Biggert. Right, but is there anybody that doesn't have
any coverage at all? Is that true of any of you?
Mr. Canary. Yes. I have one young fella looks at what--even
though the company would pay part of his premium, he has to pay
the remainder of it, and he looked at it and he said, ``Well,
I'm young and healthy. I ain't paying it. Nothing is going to
happen to me.'' And that may be true for ``x'' number of years,
but at some point he might need it.
Mrs. Biggert. Would that have any effect on his chances of
getting health insurance in the future? Is there any penalty
that they pay?
Mr. Canary. I'm not aware of any.
Mrs. Biggert. Mr. Davis.
Mr. Davis. I have had situations where individuals have
turned down the offer of employment because of the lack of
health care coverage, and in those cases they were either
young, single individuals that didn't have an option of getting
insurance other places, or they were single parents and needed
the additional coverage.
Mrs. Biggert. But they wanted to make sure they had a job
where they had the coverage?
Mr. Davis. That's correct.
Mr. Canary. Could I add just one thing to your question?
Mrs. Biggert. Yes.
Mr. Canary. And that is, I'm not sure what happens if this
young person decides later to join the insurance plan, he might
have to have a physical for the insurance company or something;
whereas, if he's hired on, he's got 30, 90 days, or whatever,
he doesn't need it.
Mrs. Biggert. But if he comes back and decides in the
second year of his employment or something, that he should take
it, there is nothing that bars him from coming into the plan,
other than maybe his physical----
Mr. Canary. That's my understanding.
Mrs. Biggert [continuing]. Abilities.
Mr. Weber. We do have several employees who receive
reimbursement through the Kid Care Insurance Program, which, I
think, is something available to all employers, small and
large, that I encourage Congress to continue supporting. That's
a federally funded program, and it does--one of the greatest
challenges of employers don't want to recognize that there
they're paying their employees at a lower wage, so they're
reluctant to bring the Kid Care Program to the employee's
awareness, and so we have been trying to get employers to
promote the Kid Care program. It is an insurance, direct
reimbursement of the portion of the premium, so that's an
excellent benefit for smaller employers.
Mrs. Biggert. And in Illinois that's been hard to get the
word out, I think, for----
Mr. Weber. Yes, it has been.
Mrs. Biggert [continuing]. For people to sign up for that.
I know I was in the Illinois legislature when it came through
Illinois from the federal government. It's been a problem that
we had so few; I think we started out with forty thousand or
something, and it was not up to speed.
Mr. Weber. But it's a good benefit for lower paid
employees.
Mrs. Biggert. So, would you think of some ways to advertise
that to employees?
Mr. Weber. There is a variety of individuals and
organizations who are enrollers. United Way of Lake County has
been an enroller of people, and we've gone out to companies to
offer seminars and work shops and spread the information
around, make it available. The Lake County Health Department,
many of the hospitals in Lake County, are all participating as
enrollers, and an employee has to sign up. Based on their
income, they can receive a portion back of what they're paying
their out-of-pocket insurance premium costs. So, it's a great
program.
Mrs. Biggert. In so many cases it seems like we have the
Bill of Rights, and there's concern about the HMO's denial of
care and the liability issue, and yet we're seeing HMO leave
Illinois and pull out of the insurance, which really concerns
me that we're not going to have even the health care providers
to be able to give the care, depending on how we enact
legislation or what we do. And that's why I am concerned about
doing no harm in some of these cases. Have you had companies
that have actually left Illinois; just give up and said, well,
it costs too much? I know we had to provide more reimbursement
to the HMO's, as well as hospitals, in our last appropriations
bill, in '98/'99, and now we are looking at this again. Have
you had--has anybody had any coverage that was lost?
Mr. Kirk. Yeah, we've lost all of our Medicare HMO's in
Lake County, yeah, under Medicare.
Mr. Weber. A number of non-profit organizations have closed
programs, or shut down programs, because of staffing costs.
Just this past week, Catholic Charities of the Archdiocese
of Chicago announced it was laying off 36 employees and not
filling another 32 vacancies, 68, approximately, employees,
because of an increase of only one-half of one percent in their
funding, primarily from the state, but that was direct
relationship to cost increases in the organization, much of
which is tied to employee benefits and health care.
Ms. Kuhn. We haven't experienced that exact scenario, but
when we had fewer than 10 employees, we actually had a
difficult time finding a plan that would provide coverage for
fewer than 10. In fact, we were never able to identify a dental
plan for fewer than 10 employees.
Mrs. Biggert. I know that I'm from the 13th Congressional
District and my predecessor Harris Fawell, who was head of the
Workforce Protection Subcommittee of the Education Committee,
and he had for many years sponsored the Patient Access Bill and
I know that it passed last year and it passed the year before
that in the House and it has passed the Senate, but somehow it
has never been signed into law. This is to ensure that those 43
million people will find insurance, or be able to be insured,
particularly through the associations. That would certainly
help the non-profit, but is there anything that you see as far
as what we should be doing with access to insurance that we
haven't talked about that we can do for those people that have
to have the spouse insurance, that we can be able to offer
through legislation, like the savings accounts? I know we've
talked about that; is there anything else that you can think
of?
Ms. Kuhn. I think one of the things that Sammy mentioned
and that I also heard it from Erika, was that putting a plan
together for small company takes a considerable amount of time
and effort. If Congress can put some effort toward prepackaged
plans, I think that would save us a lot of time, because when
you have just two or three employees, chances are you're not
goingto have a Human Resources, HR expert, on your staff, and
that puts a great burden on the other employees who don't have
specialties in those areas.
Mrs. Biggert. Well, somehow, I don't know if Congress can
be the medical provider in putting together a plan, but I think
that what we can do, really, is to remove the obstacles and the
barriers for those companies to be able to operate without the
rules and regulations, that we have. Having been in the
Illinois Legislature, I know that there are also bills that are
passed within the Illinois Legislature that are also mandates
for health insurance. Do you have any ideas on what is
happening in Illinois that causes a barrier for you to be able
to provide affordable insurance?
Ms. Berman.
Ms. Berman. Just some thoughts on that.
I think the mandates that have been passed are all good. I
mean, there are things like fertility and contraception, and I
think those things are all important, and I don't think that
those are the things that have added huge, huge costs, you
know, to our plan. But some of the--I remember just in recently
signing our contract with our new provider, we had to--there
are some thoughts on mental health, providing comparable mental
health that I think could be very costly. And then we also had
to sign something saying that we weren't going to offer trials
in cancer treatments. So, I mean, those types of things, if
they become mandated, I could definitely see more severe
increases, too, in our health premiums.
Mrs. Biggert. That is something that we find in balancing,
because we have all the different groups coming in and saying
if we don't have the funds for the research and development,
we're not going to be able to find the cures. Then all the
people that are in health plans want the money coming out of
the same pocket, but it still is something, you know, that we
are really looking at.
And I can remember what we used to call the drive-by
deliveries, or the drive-by mastectomies. You know, women
weren't allowed to stay in the hospital more than 24 hours
after having a baby, and I think that we in Congress thought
that was unreasonable, as did the State of Illinois. But those
things do all necessitate an added cost, too.
So, the balance there is difficult.
Ms. Berman. I think on those things, though, you know,
those are short hospital stays, so they don't have a big bottom
line impact to our experience ratios, so that might be ten
thousand, but a possible cancer case, or, you know, long-term
catastrophic illness, could be hundreds of thousands of
dollars.
That hits our bottom line experience ratio, and when those
numbers start to rise, that's what affects our bottom line
premiums.
Mrs. Biggert. There was talk, too, of the privacy issue,
and the costs that go up. Does that bring in something like
DNA, too? You know, we also have the bills, for when somebody
goes in for a test and their genetic background shows that they
are predisposed to a certain disease, or cancer or whatever.
And if the insurance company knows that, they might not insure
them, and that's been a big factor in not allowing that to be
known to insurance companies. Because people wouldn't be able
to get coverage. And who knows if they would ever get that even
if you have a predisposition, so that's another factor, too, of
knowing whether to insure somebody.
Mr. Weber. Just to get back to an earlier question about
the state. One of biggest issues in Illinois is the COLA
increases, cost of living allowance, that the very small
amounts that non-profits are getting in their contracting, and
they're still experiencing these high insurance premium rates,
health insurance rates, that they're having to eliminate staff
or cut staff positions, and in the non-profit sector, as you
know, there is no tax credits or tax incentive. They don't
affect the non-profit sector because we don't pay taxes like
the for-profit sector, so nothing that we pay in terms of
premiums or any kind of health care costs are deductible
because we are tax exempt organization. So, whatever is done
for relief needs to also be factored into the impact on the
non-profit tax exempt sector as well.
Mrs. Biggert. Well, I'll yield to the Chairman now.
Mr. Kirk. Thank you.
General question. None of you oppose a basic Patients' Bill
Of Rights that guarantees a second opinion or access to
specialty care, right? Because I think, you know, broad based
support for that.
Let me ask a bit tougher question. Except for Sammy that's
already out of the business, what increase would cause you to
drop coverage? I guess, Pat, this is directly for you. What
would you see would be untenable for AlphaGraphics?
Mr. Canary. Well, if we continue to have the same increases
as I mentioned we had the last two years, that would. You know,
I don't know how long we can keep covering it, because as you
raise the question, it's those increases have taken place, we
haven't passed those last two increases along to our employee's
portion of the premium. We have absorbed that as our company,
which affects our cash flow. And we have to manage that very
carefully. So, I would say, if that keeps going up like that,
at some point we'll just have to say, ``We'll give you some
money. Now go find it. We're not.'' That, coupled with the
chance of being sued. And you can tell me, you all better
than--I can read the newspaper. The Senate bill of Patient Bill
of Rights does or does not allow the employer to be sued?
Mr. Kirk. Well, my understanding of the legislation is, if
I allege in the Senate Bill that are you directly managing your
health care, and I will turn that word into anything that I
want it to mean, then you are now open up to a suit.
Mr. Canary. And that's what I meant my concerns are. The
spiraling cost and the chance--as a small businessman, we can't
afford the lawsuits that seem to prevail this whole area.
Larger companies can, but small businesses, if they get
involved in a lot of litigation, they're out of business. I've
seen it in my industry. I've seen it in other--with small
businesses, the litigation can be, hey, that's it. That's why I
said forget about it if that's gonna happen.
Mr. Kirk. Let me ask the rest of you. If you were directly
open to suit, would you recommend ending your health care, or
would you stick to it?
Mr. Canary. I would.
Mr. Weber. I don't know what impact that would have on the
non-profit sector. We do have liability insurance to cover
employee-types of suits. You asked about when will we drop the
insurance. We would be losing employees before we would drop
the insurance. I think that's the issue. We would have the
costs so cost prohibitive that somebody wouldn't work for us. I
think that would be biggest challenge, and we have people now
that are close to getting welfare if--with all the costs
they're paying for their insurance, they're better off not to
work and collect unemployment or collect other type of
government assistance, that----
Mr. Kirk. That's the last thing we need is less people
working for United Way----
Mr. Weber. Exactly.
Mr. Kirk [continuing]. Because it's sort of a safety net.
Mr. Weber. Exactly. I mean, the programs and services we
support are in business to help the people who have the
greatest needs, and they're the people that are getting hurt
the most by increased health care costs.
Mr. Kirk. Now, Michelle, in your testimony you emphasized
the HIV epidemic, and I'm, you know, coming from Deerfield
where we invented the AIDS test right here. It's
certainlysomething we've dealt with almost longer than anyone else.
Talk about how that experience of the exceptionally high health care
costs is affected.
Ms. Kuhn. Our industry?
Mr. Kirk. Yeah.
Ms. Kuhn. Well, I think that HIV has affected many people
in the advertising and the marketing community, and what we've
really seen across the board is really high escalations in
companies that provide those services, provide insurance
coverage. And I also think that we haven't been able, as small
companies, to provide the health education that's necessary in
order to stop the epidemic or to reverse it.
Mr. Kirk. Okay. For Doug. You talked about United Way is
facing a 36 percent increase in premiums in 1998; 22 percent
increase in 1999; and a 47 percent increase in 2000. And it
costs $703.00 a month to cover dependent care for a family.
Mr. Weber. Right, right. Right.
Mr. Kirk. Now, we have 29 people working for Lake County
United Way. How many people work, roughly, for United Way in
Illinois?
Mr. Weber. Well, each United Way, we're second largest,
there is approximately 125 people that work in Chicago for the
Crusade of Mercy, and then I would guess, probably 200, 250 or
so, in total, they're smaller. Many one-, two-person shops.
That's just the organization itself. Each of them have many
non-profits that they support.
Mr. Kirk. If we could pool, even with that 250, you would
be at the lower levels.
Mr. Weber. Sure, sure.
Mr. Kirk. Then, you've got 2,800 people working for
agencies you support?
Mr. Weber. In Lake County.
Mr. Kirk. In Lake County alone you would be one of the
larger employers if could you offer an Association Health Plan.
Mr. Weber. Right. When you add up the total non-profit
employment in any community, it generally is one of the
larger--for the private sector, non-profit organizations,
generally one of the larger employers, and we don't include
hospitals and other non-profits in that; strictly the agencies
we support.
That's a pretty large employment base.
Mr. Kirk. Right. See, I think this is one of the main
reasons why the Johnson-Fletcher-Peterson Bill is a good one,
because if we clarify this thing on non-profits, because we
have a huge opportunity and this is something that I want to
get to Pat. You know, AlphaGraphics is a franchise operation,
right?
Mr. Canary. Right.
Mr. Kirk. And when you went to the franchise convention or
group, was there ever a talk of an AlphaGraphic's health care
plan to the franchisees.
Mr. Canary. Yes, there have been over the years. There's
been a couple of attempts made. I think one of the things that
affects it is--franchise, each operation is individually owned;
like I own the Vernon Hills operation. And so, when you have
individual owners, it's a little harder to get them together as
a group, particularly when they are spread out all over the 50
states, and, ah, with the different states, ah, regulations,
and so on, it hasn't--we are still looking at it; we are still
trying to figure out a practical way that it can be managed.
Mr. Kirk. See, I think we can make your job easier with
federal uniform standards so that a national franchise can----
Mr. Canary. I think so. I think that would--I mean, because
we have like 300 AlphaGraphics individually owned operations in
the United States, and we have another 75 around the world
internationally. If we could somehow get them together, but
it's back to the statutes and rules and regulations, it hasn't
been practical up 'til now. That's the reason why in my written
testimony I mentioned I did do a little research and came up
with a couple of associations that I think are doing some good
things, including this Tooling Manufacturing Association. I'd
love to be a part of something like that, if we could pool ours
together, because they are doing some good things there.
Mr. Kirk. Mr. Davis, you're a lot of the reason why we are
here today.
Mr. Davis. Yes, sir.
Mr. Kirk. You are below every single price break in the
business at four. Have you heard anything here today that gives
you hope, or is it just we're going to have grow ``Handyman''
until we get to the larger----
Mr. Davis. Well, hopefully that will be the factor.
Mr. Kirk. It's Handyman at Work in Mundelein?
Mr. Davis. That's right. Thank you. I have heard some very
encouraging things and some other alternatives, particularly
the Kid Care Program and so forth. That's something we didn't
examine before. One thing that does kind of concern me, though,
is that right now we are kind of reallocating what I feel are
health care insurance responsibilities to our employees, to
other organizations; be it to spouses and so forth. And our
employees don't have the choices that they need to compare
which plan is better for them. There's other implications to
that, and when you asked earlier about taking on, you know,
litigation and things likes that. When I pull the plug on a
program, at this point I would say I would, because with the
costs that are involved in some cases, based on even the
numbers that Doug had here, 25 percent, 26 percent, we were
looking basically at same thing, between about 26 and closer to
about 29 percent for health care costs for the individual. It's
such an important benefit to them that they would be willing to
go after the employer for managing health care costs.
And I think that that would open us up to a lot of
litigation there, so, we would probably pull the plug on it. We
are looking at something that really can pool us together with
other similar businesses, say, businesses that have less than
10 employees, and be able to bring down that rate.
Mr. Kirk. But if we enabled you to have an Association
Health Plan, with, say, a small contractor community of
Northern Illinois, you'd avail yourself of that?
Mr. Davis. Definitely.
Mr. Kirk. I think that's important.
Now, Erika, your testimony was great. A lot--88 percent of
employers offer health care because it's right thing to do. You
said 30 percent of the employers of less than 10 firms are
uninsured. Here's one that really stuck out. According to your
testimony, it cost $400.00 more to insure someone in a small
business than a larger business, based on what you've got.
Twenty-eight hundred dollars for a small business, twenty-four
hundred dollars for the smaller one, just by virtue of your
size.
Ms. Berman. We're actually, Revere actually falls right in
the middle of that; twenty-six hundred per employee.
Mr. Kirk. And you've got here that ``increasing costs by 10
percent, surveyed employers, 14 percent of employers would drop
coverage.'' And if we increase by 25 percent, which is less
than United Way faced, 28 percent of employers would drop
coverage. So those are powerful--I think it's important to note
that people in America get health care coverage if they're
uninsured, but it is at the most expensive, inefficient way, in
the hospital emergency room at Cook County,or any other local
community hospitals.
Let me throw out--we have a big employer here in Illinois
called ADM. Let me throw out an ADM plan that could help
address some of these needs. ADM stands for Association Health
Plans; full deductibility for small business; and Medical
Savings Accounts for those who are on their own or want to be.
Give me your comments on that as a Congressional response
for what we can do to help you.
Mr. Weber. The ``D'' doesn't apply to the non-profit sector
in terms of deductible, but I think it really provides a
framework on around which to build a plan; accountability, or
the association with other smaller employers, I think, is
really a critical issue. Real critical issue.
Mr. Kirk. What else? Pat.
Mr. Canary. I didn't quite get--could you explain once more
exactly what that is?
Mr. Kirk. Well, I'm thinking of three things we could do to
help you. Association Health Plans, so that AlphaGraphics as a
franchise could offer health care, and United Way could. Full
deductibility for self-employed, especially for Mr. Davis here,
because you can't fully deduct your health care costs right now
as a self-employed person; and Medical Savings Accounts, so
that you save in a tax deferred way just like an IRA. Congress
has limited Medical Savings Account, I believe, to seven
hundred fifty thousand, just because the Senate didn't want
Medical Savings accounts to work.
Mr. Canary. But as I understood that, you tell me maybe,
the seven hundred fifty is how many they limit it to?
Mr. Kirk. Right.
Mr. Canary. But then I heard only twenty or thirty thousand
people signed up for it, which tells me there is something
wrong with the regulations surrounding the--there is something
wrong with it if nobody came to the tank to drink out of it.
Mr. Kirk. I'm not the greatest expert in the world, but I
think here's what is wrong.
When Congress limited it to only seven hundred thousand, we
prevented a market from even being created. And that was the
intent.
Mr. Canary. So only twenty thousand----
Mr. Kirk. Because market is so small, with only seven
hundred thousand people, and nobody--I think Medical Savings
Accounts are a great opportunity that you put, say, two
thousand dollars a year in your Medical Savings Account; it
builds up, and say you reach age 65, and there is a balance, we
then let you role that into your retirement plan, because now
you've joined Medicare. And so for the truly entrepreneurial,
you still get to use--have some backup for your health care
expenses.
Mr. Canary. So, what is the status of that now? They put
out the seven fifty, only twenty--you know, real small
percentage, so it's not going anywhere. What----
Mr. Kirk. My understanding is the Senate legislation says
nothing on this. Here we go.
I got Paul helping me out here. The Senate legislation says
nothing on this. House legislation will lift the limits and
make other changes that make these accounts much more real.
Mrs. Biggert. Lifts the caps as well as allowing the
rollover of the unused portion.
Mr. Kirk. Right. It becomes much more viable.
Mr. Canary. The deductibility on medical expenses on
personal income tax, the threshold keeps increasing for most
individuals that it becomes--you have to have a catastrophic
expense to deduct anything. That's an area that could be looked
at to reduce that threshold so that more individuals can deduct
from their income taxes their medical costs.
As employers are having to increase their cost passed on to
individuals, there needs to be more of deductibility of that
expense for the individual person's personal income tax. So
that--while non-profits doesn't have a business tax deduction,
the individuals from their income perspective could take more
of a deduction from their taxes if they could deduct more of
their out-of-pocket expense.
That's an issue that needs to be looked at.
Mr. Kirk. This legislation also would allow contributions
by employers in account owners and allow payments from the
Medical Saving Accounts for preventative care, which I think is
a important.
Well, I have no further questions.
Mrs. Biggert. I just want to come back to the liability
issue because I think that is an issue that we are really
struggling with in Congress. There were several bills that were
passed last year, and then this year, and the Senate versus the
House version. Having been involved even in the tort reform
when we passed that in Illinois, and then it was overturned by
the Supreme Court of Illinois, when we had the caps and tort
reform, we saw liability insurance drop dramatically in the 18
months that it was in existence, and the frivolous lawsuits
were also decreased enormously and then went back up after
this.
My concern is certainly with the liability, and even though
you say, well, employers are not going to be liable, doesn't
mean that they're not going to be liable. And even as tight as
you can draw it, there is still going to be the test in court
over that, and that's where employers get really worried that
they're going to be subject to the punitive damages, even those
that are capped. And to go back and relook at the health
insurance and say, well, it is voluntary, and I think we always
have to keep that in mind. That insurance by employers is
voluntary, and is usually done, and I think you have all
mentioned, because you want to attract the best employees that
you can, and you're competing with other companies for those
employees, and so it does help if can you provide that benefit,
then it attracts those employees. And we don't want to do
anything to change that. But we want to make sure that you're
not liable, because that causes a problem.
And so that's something that we'll be looking at very
closely and I think that the bill in the Senate does not
provide those safeguards, and once you get into the federal
court, without having to go through the external review process
and exhaust all remedies under that, it can go to the state
court, but that's exactly what is going to happen under that
bill.
Now, the House bill has more safeguards with having to
exhaust all those external review remedies, and yet is that
still going to protect employers from liability, and
particularly, obviously, the ones that are self-insured? It is
my understanding that even just picking a provider could have
you directly influencing your health plan. So, I think we have
to be very careful on that issue. And that's what I think we'll
be facing when we go back on that.
I don't know if any of you have any other words of wisdom
for us, and maybe you can submit something later.
Mr. Kirk. I have one last question. In the last year, how
much time have you spent on health care issues? How many days?
Rough estimate.
Ms. Berman. A solid, I'd say, you know, 30.
Mr. Kirk. Thirty days of this year.
Ms. Berman. And that's not just on this transition, but
it's the claim issues, you know, employees going to the doctor
and then the insurance company saying we're not going to pay
it, even though they went to the doctor through the network.
It's a lot of time.
Mr. Kirk. Pat.
Mr. Canary. Yeah. Each time, as I described, we changed
something or tried somethingnew, it took weeks deciding to
change, and what to change to, and then informing our employees. And it
all adds up.
I'd hate to say how many weeks, but it comes in spurts.
Each time you have to make a change, it's incredible how much
time you spend on it for while.
Mr. Kirk. Sammy, how long does it take you?
Mr. Davis. Collectively, probably about two to three weeks.
Mr. Kirk. Two to three weeks for a four-person operation.
Mr. Davis. Exactly.
Mr. Kirk. Just on health care.
Mr. Weber. Just revisiting, I spent a number of days
myself; we've also got three other staff in our finance
department that have part of the responsibility for insurance,
and they have spent weeks, literally, looking at different
options and it's terrible.
Mr. Kirk. Michelle.
Ms. Kuhn. Probably about a week, but I also have someone in
my company who has that responsibility, and I would say that
she spends probably 60 to 70 percent of her time in that area.
Mrs. Biggert. One of the estimates shows that in the Senate
bill, health costs will rise four to 10 percent if that's
passed.
We don't know about the House, but I think that's something
that we need to keep in mind also as we look at this, and if
you know of any increases in costs that you would have to go
through, we'd love to hear from you, so that we would have
documentation of that.
Mr. Kirk. Well, I want to thank Congressman Biggert for
coming down the road to be with us. This is, I think, a
critical issue. I want to make sure, when we meet again, I hope
you have coverage, and we've done the right thing, and we've
done it in the way that none of you have lost coverage, because
we want to make sure we have more Americans with health care
coverage rather than less.
I want to thank Chairman Manzullo and Paul Denham for
bringing this hearing to Arlington Heights, and my staff, Dodie
McCracken, David From, Ed Kelly and Carrie Garver, for helping
out with this, and also for the special support for Bill
Shugers of the Libertyville/Mundelein Chamber of Commerce for
helping out.
And this meeting is adjourned.
[Whereupon, at 11:35 a.m., the committee was adjourned.]
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