Good morning. I would like to thank the Chair, Senator Olympia Snowe, for calling this hearing on the important topic of the small business health care crisis. We know that at least 41 million people are currently uninsured, an increase of 1.4 million since 2001. The consequences of being uninsured are now well documented: people without insurance are less likely to receive preventive and screening services on a timely basis; are less likely to receive appropriate care to manage chronic conditions; and are more likely to receive substandard care if hospitalized. As a result, they are in poorer health and at greater risk of dying prematurely.



Eighty percent of the uninsured are in households with at least one employed worker, and half of these individuals are either self-employed or working for small businesses employing 50 or fewer workers. But less than half of these businesses now offer insurance, compared with almost 100 percent of large employers. These numbers tell us that if we can help small businesses to provide health insurance to their workers, we will do a great deal to help Americans find a path to affordable and reliable health care. It will be a difficult task because the number of uninsured, the cost of healthcare, and the cost of health insurance are all rising, but it is clear that a small business strategy is essential to decreasing the number of uninsured and keeping our workforce healthy.



Madame Chair, I commend you for trying to bring to the Committee’s attention a range of possible solutions to the small business health care crisis. As you know, some of us have serious concerns about the approach that the Administration has promoted under the banner of “association health plans.” We’re pleased that the Committee has been able to assemble a broad spectrum of witnesses, and I would like to thank all of you for appearing today. Your experience and expertise range from small business owners struggling to provide insurance for your employees to a state insurance commissioner who knows firsthand the hazards of inadequate or fraudulent health plans. The perspectives of a number of small business associations and of consumers will be presented as well. We’re also very pleased that Dr. Len Nichols from the non-partisan Center for Studying Health System Change is here to share current health services research findings that can inform our deliberations. All of these perspectives will be helpful to this Committee as we wrestle with the difficult challenge of increasing access to quality health insurance for small businesses and their employees.



What are the characteristics of quality health insurance for small businesses owners, their employees, and families? The insurance must be comprehensive, affordable, and stable. It must also be responsible and not reduce costs only for the few small businesses that employ relatively young and healthy workers in low-risk industries while increasing costs for all others in the small group health insurance market.



I’m concerned that the Administration’s Association Health Plan proposal won’t meet those goals. AHPs, as the Bush Administration would authorize them, have two major disadvantages: (1) they will place consumers at risk because AHPs would be exempt from state patient protections, solvency requirements, and oversight; and (2) they will fragment and destabilize the small group health insurance market, resulting in higher premiums for the majority of small businesses and their employees.



What do I mean by increased consumer risk? As proposed by the Administration:



· AHPs would not be subject to state consumer protections, including access to emergency care, direct access to OB/GYNs, access to specialists, provision of mental health services, mandatory grievance procedures, or required internal and external appeals timelines and rights. These are consumer protections the states have spent more than a decade putting into place.



· AHPs would be allowed to self-insure and accept insurance risk, but would not be subject to state solvency requirements that ensure that insurance companies have sufficient resources to avoid financial failure. AHPs are a variant on Multiple Employer Welfare Arrangements (MEWAs) created in the mid-1970s that have a long history of insolvency and disastrous failures. A 1992 GAO report, for example, documented that MEWA failures from 1988 to 1991 left almost 400,000 consumers with more than $123 million in unpaid claims.



· AHPs have great potential for fraud and abuse from unscrupulous, unlicensed health plans that collect premiums from employers and employees but then abscond with the funds rather than paying claims for health services provided. In the past 18 months, state insurance departments have experienced sharp increases in group health insurers who are operating without required state licenses, and state regulators are issuing cease-and-desist orders to protect employers and their employees. The Department of Labor, which would have oversight over AHPs, has much less capacity to provide this oversight.



Turning to the issue of destabilizing the small group health insurance market:



· AHPs are expected to focus on industries with younger, healthier employees and would offer them lower premium rates because they would not be subject to state regulations that require a minimum benefit package and that limit rate discrimination based upon age or health status. By removing these low-cost beneficiaries from the small group pool, leaving those who are sicker, use more health care, and, are therefore more costly to insure, AHPs will drive up insurance premiums for all other small employers.



· CBO in its January, 2000 report estimated that nearly two-thirds of the cost savings AHPs could offer would result from attracting healthier members from the pool of existing workers. In CBO’s analysis, 80 percent of workers would remain in traditional insurance and potentially be worse off if AHPs were created. That means 20 million employees and dependents of small employers could experience a rate increase that could actually drive some people who currently have insurance out of the market.



As the National Governors Association concluded in its June 15, 2001 letter to the Majority and Minority Leaders of the Senate and House commenting on the AHP legislation submitted in the 107th Congress: “While the promise of lower rates and greater access to insurance sounds good, the facts are that AHP legislation, as currently drafted, would result in less access for higher-risk companies that cannot join AHPs and less protections for the employees of those companies that can.”



Finally, I’d like to pose a question to Secretary Chao that I hope can be answered for the record. Why is the Bush Administration proposing to give the States more flexibility in the Medicaid and S-CHIP programs while at the same time promoting AHPs that would federalize much of the small group insurance market? Proposing to place more control at the State level for Medicaid and S-CHIP presumably is intended to recognize the considerable differences in populations, health care needs, and health care delivery systems found across the states. The small group insurance market confronts these same conditions. By what logic then, is it desirable to increase State control for Medicaid and S-CHIP while decreasing it for small business health insurance?



What other options might be available? It is important to recognize that in 2003 small businesses will at last be able to deduct the full cost of providing health insurance for all employees, including the small business owner and his/her family, as a cost of doing business. Large employers have long enjoyed this economic advantage, and this Committee with bipartisan support has advocated this change in tax policy for years.



The challenge now is to develop more effective pooling mechanisms that can give small businesses more leverage in the health insurance market while still preserving essential consumer protections. I believe a number of our witnesses will have suggestions on how this might be accomplished, and I look forward to their testimony.



I have received comment letters from a number of groups and individuals with expertise in the health care crisis faced by small businesses and their employees. I ask Unanimous Consent to include them in our record. I would like to thank everyone for participating in today’s Committee hearing. I look forward to reviewing the comments made today and to continuing our work on developing solutions to the small business health care crisis.