HNANCING PROVISIONS OF im ADMINISTOA-
TION'S HEALTH SECURITY AQ AND OTHER
HEALTH REFORM PROP OSALS
Y 4, W 36: 103-61
Financing Provisions of the Adninis...
HEARINGS
BEFORE THE
COMMITTEE ON WAYS AND MEANS
HOUSE OP REPRESENTATIVES
ONE HUNDRED THIRD CONGRESS
FIRST SESSION
NOVEMBER 16. 18 AND 19. 1993
Serial 103-61
Printed for the use of the Committee on Ways and Means
JUt 1 9 fiW
HNANCING PROVISIONS OF THE ADMINISTOA-
TION'S HEALTH SECURITY ACT AND OTHER
HEALTH REFORM PROPOSALS
HEARINGS
BEFORE THE
COMMITTEE ON WAYS AND MEANS
HOUSE OP REPRESENTATIVES
ONE HUNDRED THIRD CONGRESS
FIRST SESSION
NOVEMBER 16, 18 AND 19, 1993
Serial 103-61
Printed for the use of the Committee on Ways and Means
U.S. GOVERNMENT PRINTING OFFICE
WASfflNGTON : 1994
For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
ISBN 0-16-044301-6
COMMITTEE ON WAYS AND MEANS
DAN ROSTENKOWSKI, Illinois, Chairman
SAM M. GIBBONS, Florida
J J. PICKLE, Texas
CHARLES B. RANGEL, New York
FORTNEY PETE STARK, California
ANDY JACOBS, Jr., Indiana
HAROLD E. FORD, Tennessee
ROBERT T. MATSUI, California
BARBARA B. KENNELLY, Connecticut
WILLIAM J. COYNE, Pennsylvania
MICHAEL A. ANDREWS, Texas
SANDER M. LEVIN, Michigan
BENJAMIN L. CARDIN, Maryland
JIM MCDERMOTT, Washington
GERALD D. KLECZKA, Wisconsin
JOHN LEWIS, Georgia
L.F. PAYNE, Virginia
RICHARD E. NEAL, Massachusetts
PETER HOAGLAND, Nebraska
MICHAEL R. MCNULTY, New York
MIKE KOPETSKI, Oregon
WILLIAM J. JEFFERSON, Louisiana
BILL K. BREWSTER, Oklahoma
MEL REYNOLDS, Illinois
BILL ARCHER, Texas
PHILIP M. CRANE, Illinois
BILL THOMAS, California
E. CLAY SHAW, JR., Florida
DON SUNDQUIST, Tennessee
NANCY L. JOHNSON, Connecticut
JIM BUNNING, Kentucky
FRED GRANDY, Iowa
AMO HOUGHTON, New York
WALLY HERGER, California
JIM MCCRERY, Louisiana
MEL HANCOCK, Missouri
RICK SANTORUM, Pennsylvania
DAVE CAMP, Michigan
Janice Mays, Chief Counsel and Staff Director
Charles M. Brain, Assistant Staff Director
Phillip D. Moseley, Minority Chief of Staff
ai)
CONTENTS
Page
Press releases announcing the hearing 2
WITNESSES
U.S. Department of the Treasury, Hon. Lloyd M. Bentsen, Secretary 38
Office of Technology Assessment, Clyde Behney, Assistant Director, Health,
Life Sciences ancTthe Environment Division 272
Action on Smoking and Health, John F. Banzhaf HI, as presented by Kath-
leen Scheg 656
American Academy of Otolaryngology — Head and Neck Surgery, Jerome C.
Goldstein, M.D 599
American Association of Occupational Health Nurses, Geraldine Williamson .. 465
American Dental Association, Gregory N. Connolly 294
American Hospital Association, Dick Davidson 490
American Lung Association, Frank J. Chaloupka 286
American Payroll Association, Carolyn KeUev, and Mary B. Hevener 379
American Psychological Association, Robert M. Kaplan 305
American Public Health Association, Gregory N. Connolly 294
American Society for Payroll Management, Robert D. Williamson 369
Anderson, Don, Virginia Tobacco Growers Association 619
Anderson, Hon. F. Seward, Jr., Mayor, City of Danville, Va 330
Andrews, Hon. Michael A., a Representative in Congress from the State
of Texas 150
Ashworth, Wayne, Virginia Farm Bureau Federation 352
Associated General Contractors of America, Robert J. Desjardins 433
Association of Private Pension and Welfare Plans, Richard I. Smith 411
Augusta Hypertension, P.C, Wayne H. Kaesemeyer, M.D 574
Baesler, Hon. Scotty, a Representative in Congress from the State of Ken-
tucky 250
Bakery, Confectionery and Tobacco Workers International Union, Robert T.
Curtis 629
Barlow, Hon. Thomas J., HI, a Representative in Congress from the State
of Kentucky 259
Black Clergy of Philadelphia and Vicinity, Rev. Jesse W. Brown, Jr 665
Bond, FreaTTobacco Growers' Information Committee, Inc 348
Bromberg, Michael D., Federation of American Health Systems 457
Brown, Rev. Jesse W., Jr., National Association of African Americans for
Positive Imagery; Uptown Coalition for Tobacco Control and Public Health;
and Black Clergy of Philadephia and Vicinity 665
Chaloupka, Frank J., American Lung Association 286
Cianbro Corp., Robert J. Desjardins 433
Cigar Association of America, Inc., Theo W. Folz 533
Citizen Action, Michael Podhorzer 85
Clark, Will, Western Dark Fired Tobacco Growers' Association 614
Clavton, Hon. Eva M., a Representative in Congress from the State of North
Carolina 165
Clement, Hon. Bob, a Representative in Congress from the State of Ten-
nessee 244
Clybum, Hon. James E., a Representative in Congress from the State of
South Carolina 192
Coalition on Smoking OR Health, Lynne D. Richardson, M.D 648
(in)
IV
Page
Coble, Hon. Howard, a Representative in Congress from the State of North
Carolina 241
Connolly, Gregory N., American Public Health Association, and American
Dental Association; and Massachusetts Department of Public Health 294
Consolidated Cigar Corp., Theo W. Folz 533
Curtis, Robert T., Kentucky American Federation of Labor and Congress
of Industrial Organizations, and Bakery, Confectionery and Tobacco Work-
ers International Union 629
Danville, Va., City of, Hon. F. Seward Anderson, Jr., Mayor 330
Davidson, Dick, American Hospital Association 490
Delgado, Jane L., National Coalition of Hispanic Health and Human Services
Organizations 640
Desjardins, Robert J., Associated General Contractors of America, and
Cianbro Corp 433
Douglas, Bruce L., University of Illinois, and Chicago Medical School 554
DuUe, Paul, United Cerebral Palsy Associations 440
Durbin, Hon. Richard J., a Representative in Congress from the State of
Illinois 179
Economic Policy Institute, M. Edith Rasell, M.D 92
Federation of American Health Systems, Michael D. Bromberg 457
Federation of Southern Cooperatives, Mattie Mack 344
Folz, Theo W., Cigar Association of America, Inc., and Consolidated Cigar
Corp 533
Gap, Inc., Lauri M. Shanahan 384
Goldstein, Jerome C, M.D., American Academy of Otolaryngology — Head and
Neck Surgery 599
Harman, Hon. Jane, a Representative in Congress from the State of Califor-
nia 271
Harris, Jeffrey E., Massachusetts Institute of Technology 313
Harvey, Jane HuU, Interreligious Coalition on Smoking or Health, and Gen-
eral Board of Church and Society, United Methodist Church 567
Hevener, Maiy B., American Payroll Association 379
Huffington, Hon. Michael, a Representative in Congress from the State of
California 233
Hutter, Lindalyn L., National Association of Convenience Stores 621
International Mass Retail Association, Charles B. Weed 421
Interreligious Coalition on Smoking or Health, Jane Hull Harvey 567
Jenkins, Jordan M., Virginia Farm Bureau Federation 499
Kaesemeyer, Wayne H., M.D., Augusta Hypertension, P.C 574
Kaplan, Robert M., American Psychological Association 305
Kelley, Carolyn, American Payroll Association 379
Kelly, Jim, Western Dark Fired Tobacco Growers' Association 614
Kentucky American Federation of Labor and Congress of Industrial Organiza-
tions, Robert T. Curtis 629
Lancaster, Hon. H. Martin, a Representative in Congress from the State
of North Carolina 190
Lee, Dwight R., Tobacco Institute 335
Mack, Mattie, Federation of Southern Cooperatives 344
Markey, Hon. Edward J., a Representative in Congress from the State of
Massachusetts 176
Massachusetts Department of Public Health, Gregory N. Connolly 294
Middleton, Herbert H., Jr., Pipe Tobacco Council, Inc 525
National Association for the Self-Employed, James W, Morrison 473
National Association of African Americans for Positive Imagery, Rev. Jesse
W. Brown, Jr 665
National Association of Convenience Stores, Lindalyn L. Hutter 621
National Coalition of Hispanic Health and Human Services Organizations,
Jane L. Delgado 640
Neal, Hon. Stephen L., a Representative in Congress from the State of North
Carolina 171
Northup, Hon. Anne Meagher, Commonwealth of Kentucky House of Rep-
resentatives 562
Payne, Hon. L.F., a Representative in Congress from the State of Virginia 160
Pipe Tobacco Council, Inc., Herbert H. Middleton, Jr., and Norman F. Sharp .. 525
Podhorzer, Michael, Citizen Action 85
Raboy, David G., Smokeless Tobacco Council, Inc 501
Rasell, M. Edith, M.D., Economic Policy Institute 92
Page
Reed, Hon. Jack, a Representative in Congress from the State of Rhode
Island 230
Richardson, Ljoine D., M.D., Coalition on Smoking OR Health, Harlem Hos-
pital Center, and Columbia University College ofPhysicians and Surgeons . 648
Rogers, Hon. Harold, a Representative in Congress from the State of Ken-
tucky 196
Scheg, Kathleen E., presenting the statement of John F. Banzhaf HI, Action
on Smoking and Health 656
Schottenstein Stores Corp., Charles B. Weed 421
Scott, Hon. Robert C, a Representative in Congress from the State of Vir-
ginia 262
Shanahan, Lauri M., Gap, Inc 384
Sharp, Norman F., Pipe Tobacco Council, Inc 525
Smitn, Richard I., Association of Private Pension and Welfare Plans 411
Smokeless Tobacco Council, Inc., David G. Raboy 501
Spratt, Hon. John M., Jr., a Representative in Congress from the State
of South Carolina 222
Stark, Hon. Fortney Pete, a Representative in Congress from the State of
California 125
Tobacco Growers' Information Committee, Inc., Fred Bond 348
Tobacco Institute, Dwight R. Lee 335
Uni.-ed Cerebral Palsy Associations, Paul Dulle 440
United Methodist Church, General Board of Church and Society, Jane Hull
Harvey 567
Uptown Coalition for Tobacco Control and Public Health, Rev. Jesse W.
Brown, Jr 665
Virginia Farm Bureau Federation:
Wayne Ashworth 352
Jordan M. Jenkins 499
Virginia Tobacco Growers Association, Don Anderson 619
Visclosky, Hon. Peter J., a Representative in Congress from the State of
Indiana 225
Weed, Charles B., International Mass Retail Association, and Schottenstein
Stores Corp 421
Western Daii Fired Tobacco Growers' Association, Jim Kelly and Will Clark . 614
Williamson, Geraldine, American Association of Occupational Health Nurses . 465
Williamson, Robert D., Americsm Society for Payroll Management 369
SUBMISSIONS FOR THE RECORD
A. Philip Randolph Institute, Washington, D.C., Norman Hill, statement 679
American Agriculture Movement, David McCarty, statement 680
American Bar Association, Section of Taxation, M. Carr Ferguson, statement . 681
American College of Chest Physicians, Ronald B. George, MTD., statement 689
Association of ^nerican Universities, Cornelius J. Pings, statement 693
Coalition of Labor Union Women, New York, N.Y., Gloria Johnson, statement 696
Collins, Hon. Cardiss, a Representative in Congress from the State of Illinois,
statement 698
Distilled Spirits Council of the United States, Inc., Fred A. Meister, state-
ment 699
Dressier, Don, Western Growers Association, Irvine, Calif., statement 723
Ferguson, M. Carr, American Bar Association, Section of Taxation, statement 681
Finn, Joseph T., National United Affiliated Beverage Association, statement .. 721
George, Ronald B., M.D., American College of Chest Physicians; and Louisi-
ana State University Medical Center, Department of Medicine, statement ... 689
Glover, Eugene, National Council of Senior Citizens, statement 715
Hansen, Hon. James V., a Representative in Congress from the State of
Utah, statement 701
Hill, Norman, A. Philip Randolph Institute, Washington, D.C., statement 679
Jamison, JefFR., National United Affiliated Beverage Association, statement . 721
Jimenez, Ralph, Labor Council for Latin American Advancement, statement .. 703
Johnson, Gloria, Coalition of Labor Union Women, New York, N.Y., state-
ment 696
Labor Council for Latin American Advancement, Ralph Jimenez, statement ... 703
Marsolais, Harold R., National Retail Hardware Association, statement 719
Mazzoli, Hon. Romano L., a Representative in Congress from the State of
Kentucky, statement 705
McCarty, David, American Agriculture Movement, statement 680
VI
Page
Meehan, Hon. Martin T., a Representative in Congress from the State of
Massachusetts, statement 707
Meister, Fred A., Distilled Spirits Council of the United States, Inc., state-
ment 699
Melton Food Mart, Louisville, Ky., Joe Melton, III, letter and attachments
(forwarded by Hon. Romano L. Mazzoli, a Representative in Congress from
the State of Kentucky) 708
Mexican American Grocers Association, Steven A. Soto, statement 712
National Council of Senior Citizens, Eugene Glover, statement 715
National Retail Hardware Association, Harold R. Marsolais, statement 719
National United Affiliated Beverage Association, Jeff R. Jamison and Joseph
T. Finn, statement 721
Pings, Cornelius J., Association of American Universities, statement 693
Soto, Steven A., Mexican American Grocers Association, statement 712
Western Growers Association, Irvine, Calif., Don Dressier, statement 723
FINANCING PROVISIONS OF THE ADMINIS-
TRATION'S HEALTH SECURITY ACT AND
OTHER HEALTH REFORM PROPOSALS
TUESDAY, NOVEMBER 16, 1993
House of Representatives,
Committee on Ways and Means,
Washington, D.C.
The committee met, pursuant to call, at 10 a.m., in room 1100,
Longworth House Office Building, Hon, Dan Rostenkowski (chair-
man of the committee) presiding.
[The press releases announcing the hearings follow:]
(1)
FOR IMMEDIATE RELEASE PRESS RELEASE #14
FRIDAY, OCTOBER 29, 1993 COMMITTEE ON WAYS AND MEANS
U.S. HOUSE OF REPRESENTATIVES
1102 LONGWORTH HOUSE OFFICE BLDG.
WASHINGTON, D.C. 20515
(202) 225-1721
THE HONORABLE DAN ROSTENKOWSKI (D., ILL.), CHAIRMAN.
COMMITTEE ON WAYS AND MEANS, U.S. HOUSE OF REPRESENTATIVES,
ANNOUNCES PUBLIC HEARINGS ON THE FINANCING PROVISIONS
OF THE ADMINISTRATION'S HEALTH SECURITY ACT
AND OTHER HEALTH REFORM PROPOSALS
The Honorable Dan Rostenkowski (D., 111.), Chairman,
Committee on Ways and Means, U.S. House of Representatives, today-
announced public hearings on the financing provisions of the
Administration's Health Security Act and other health care reform
proposals. The hearings will be held on Tuesday, November 16,
Thursday, November 18, and Friday, November 19, 1993, beginning
at 10:00 a.m. each day in the Committee's main hearing room, 1100
Longworth House Office Building.
In announcing these hearings. Chairman Rostenkowski stated:
"It is important that the Committee understand how the
Administration proposes to finance the ambitious health reform
plan it has submitted to us. We must not only examine the impact
of the proposal on the Federal budget deficit, but we must also
understand the effects it will have on our economy - on our
businesses, the jobs they generate, and the workers employed in
those jobs."
Chairman Rostenkowski further stated: "In our examination of
the financing of this and other health reform proposals, we must
always keep in mind the underlying goals of health reform:
universal coverage, restraint in the rate of growth of health
care expenditures, and the maintenance of high-quality care and
individual choice . "
On Tuesday, November 16, 1993, the Committee's first witness
will be the Honorable Lloyd Bentsen, Secretary of the Treasury.
BACKGROUND
A. THE ADMINISTRATION'S HEALTH SECURITY ACT
The Administration is proposing to finance its health reform
proposal largely through a requirement that employers and
individuals pay the Federally-mandated premiums for the
guaranteed package of benefits. The employer's liability would
be capped at 7.9 percent (not indexed) of payroll. The
individual's liability would be capped at 3 . 9 percent (indexed)
of income. Small, low-wage employers and low-income individuals
would receive discounts for a portion of the premiums for which
they are liable.
The premium would include a number of additional assessments
to cover the costs of certain Federally- financed programs, such
as grants to academic health centers, graduate medical education,
development of rare technology, alliance administrative costs,
and technical assistance. States could add further to the
premium for uncollectible premiums (or bad debts) and for
payments to essential community providers. States would also
operate State guaranty funds, to be funded by a two-percent
assessment on health plans within that State.
In nonparticipating States, a 15 -percent surcharge would be
imposed on premiums charged by the regional alliance within that
State.
(MORE)
In addition, the Administration proposes to charge
corporations with more than 5,000 employees one percent of
payroll if those corporations do not elect to participate in the
regional alliances, effective January 1, 1996.
A temporary assessment would also be imposed on employers
whose retiree health benefit costs would be reduced by the
Health Security Act.
The Administration also proposes to cap the current income
and employment tax exclusion for employer-provided health
benefits at the value of the guaranteed benefits package.
Under the Health Security Act, the Medicare hospital
insurance tax would be extended to all State and local government
employees .
Finally, the Federal excise tax on cigarettes would be
increased by 75 cents per pack, and on other tobacco products by
a proportionate amount based generally on tobacco content.
Cost savings in other Federal programs provide the remainder
of the financing. The Committee is not seeking testimony on
these savings at this time.
B. OTHER HEALTH REFORM PROPOSALS
A number of other health reform bills adopting approaches
aifferent from the Administration's have been introduced by
Members of Congress including H.R. 1200, the American Health
Security Act of 1993, introduced by Mr. McDermott and others;
H.R. 2610, the Mediplan Health Care Act of 1993, introduced by
Mr. Stark and others,- H.R. 3080, the Affordable Health Care Now
Act of 1993, introduced by Mr. Michel and others; and H.R. 3222,
a bill to contain health care costs and improve access to health
care through accountable health plans and managed competition,
introduced by Mr. Cooper and others. The Committee welcomes
testimony on the financing provisions of these and other health
reform bills introduced during this Congress.
ISSUES TO BE ADDRESSED
The Committee encourages witnesses who wish to testify at
these hearings to focus on one or more of the following four
issue areas :
A. EMPLOYER/INDIVIDUAL PREMIUM PAYMENT
1. What kind of collection mechanism would be most efficient
in collecting premiums from employers and individuals? Should
special mechanisms exist for multistate employers? What should
the Federal Government's role be in this process? How should the
various special assessments be collected and distributed?
2 . Are caps on the employer and employee contributions
appropriate? If so, what should the levels of the caps be?
Should they be indexed? Who should pay for the amounts in excess
of the caps? What economic effects will the caps have?
3. How could a percent-of -payroll cap on employer premium
payments affect the way a business sets up its operations?
4. Since the guaranteed benefits package will be available
to all citizens whether they are employed or not, has the status
of health insurance as a benefit of employment been changed
entirely?
5. How would an employer/individual premium payment
requirement affect job creation in the short- and long-term?
6. How should the guaranteed benefits package be financed in
States that fail to implement the reforms envisioned in the
Administration's proposal?
7. How should the baseline be established for premium
levels? What would be the consequences if the National Board's
assumptions in establishing the premium baseline prove
inaccurate?
8. If the alliances or States were to incur debt to fulfill
their responsibilities under the Health Security Act, would the
"full faith and credit" of the Federal Government guarantee that
debt?
9. How would the discounts to low-income individuals be most
effectively administered?
10. How could the small business discounts proposed by the
Administration influence the composition of an entity's
workforce? What kind of anti-abuse rules would be necessary to
ensure that only small businesses qualify for the subsidies?
11. How would a requirement that all employers and
individuals pay a portion of the premium for the guaranteed
benefits package affect employer-employee wage negotiations?
How would wages be affected in the short- and long-term?
B. CORPORATE ASSESSMENT
1. What is the rationale for such an assessment?
2. Upon what size entity should it be imposed?
3. What is an appropriate rate for such an assessment?
4. How should the corporate assessment be collected?
5. What should the revenues raised from the assessment fund?
6. Why would a corporation want to remain outside the system
proposed by the Administration?
7. What is the justification for imposing such an assessment
before the system of regional alliances is in place?
C. CAP ON CURRENT INCOME AND EMPLOYMENT TAX EXCLUSION
1. Since the premiums to insure the guaranteed benefits
package will vary regionally, should the value of the cap on the
employee exclusion vary regionally also? What tax policy issues
does this raise?
2. What difficulties would there be in valuing a guaranteed
benefits package?
3. How should the cap be enforced? Is use of the W-2 form
adequate enforcement?
4 . Should the employer deduction be similarly limited?
D. TOBACCO TAXES
1. Do smokers inflict significant external costs on the rest
of society? If so, should the tobacco tax be raised to deal with
this?
2. Can we measure how much health care costs would be
reduced by increasing the tobacco tax to the level suggested by
the Administration?
(MORE)
3 . What would be the effects of the tax increase proposed by
the Administration on tobacco production?
4 . Should the tax on cigars and pipe and smokeless tobacco
be increased in the same proportion as the tax on cigarettes?
E. OTHER SOURCES OF FINANCING
1. What other sources of financing are there for these
proposals?
DETAILS FOR SUBMISSION OF REQUESTS TO BE HEARD;
Individuals and organizations interested in presenting oral
testimony before the Committee on any of the proposals
specifically described herein must submit their requests to be
heard by telephone to Harriett Lawler, Diane Kirkland, or
Karen Ponzurick [(202) 225-1721] no later than close of business
Monday, November 8, 1993, to be followed by a formal written
request to Janice Mays, Chief Counsel and Staff Director,
Committee on Ways and Means, U.S. House of Representatives,
1102 Longworth House Office Building, Washington, D.C. 20515.
The Committee staff will notify by telephone those scheduled to
appear as soon as possible after the filing deadline. Any
questions concerning a scheduled appearance should be directed to
the Committee [(202 225-1721)]. Please note that requests to
testify must be made specifically for these hearings. Requests
made to testify at the health reform hearings conducted by the
Subcommittee on Health do not constitute requests made to testify
at these hearings.
Persons and organizations having a common position are urged
to make every effort to designate one spokesperson to represent
them in order for the Committee to hear as many points of view as
possible. Time for oral presentations will be strictly limited
with the understanding that a more detailed statement may be
included in the printed record of the hearing (see formatting
requirements below) . This process will afford more time for
Members to question witnesses. In addition, witnesses may be
grouped as panelists with strict time limitations for each
panelist .
In order to assure the most productive use of the limited
amount of time available to question hearing witnesses, all
witnesses scheduled to appear before the Committee are required
to submit 200 copies of their prepared statements to the
Committee office, room 1102 Longworth House Office Building, at
least 24 hours in advance of their scheduled appearance. Failure
to comply with this requirement may result in the witness being
denied the opportunity to testify in person.
WRITTEN STATEMENTS IN LIEU OF PERSONAL APPEARANCE;
Persons submitting written statements for the printed record
of the hearing should submit at least six (6) copies by the close
of business on Tuesday, November 30, 1993, to Janice Mays, Chief
Counsel and Staff Director, Committee on Ways and Means, U.S.
House of Representatives, 1102 Longworth House Office Building,