man.

Mr. Pickle. The Chair recognizes the chairman of the Health
Subcommittee, Mr. Stark of California.

Mr. Stark?

Mr. Stark. Thank you, Mr. Chairman. I just wanted to comment
briefly on the chart that is still up there and note that Medicaid,
which is a State-run program, may be somewhat less precise in its



58

administration, but that in the Medicare program about a 5 per-
cent variance in budgeting isn't bad for government or private
work. Indeed many of the decisions that we make from time to
time do have imprecise consequences and it is something I think
CBO could explain, but we should certainly not abandon trying to
continue to save on costs. So it is not as alarming as the aggregate
figures may show.

Mr. Secretary, the President's reform plan designates many of
the responsibilities that we currently have known here at the gov-
ernment level to a variety of administrative entities, most of it
going to health alliances over which the Federal Grovernment really
would have no control.

Those responsibilities include collecting and dispersing premium
payments, pooling premiums and making income determinations to
calculate the income-related subsidies. I point out to you that those
subsidies to small business amount to some $400 or $500 billion
over 5 years, and that as I read the 1,300 pages, it sounds to me
like the people who might want to be receiving these subsidies are
going to be filling out something that sounds strangely like an in-
come tax return. What I am really suggesting is that these new al-
liances will cost up to $10 billion a year in new administrative
costs, this is 2.5 percent of the premiums, and most of these activi-
ties are already being done or could be done through your depart-
ment and through the Internal Revenue Service.

Now, technically, not necessarily politically or philosophically,
my question is why many or all of these functions relating to the
collection and disbursement of premiums could not be nandled
through the IRS and, in fact, the second part of the question is
doesn t the IRS already have most of the information necessary to
determine the income-related subsidies envisioned under the Presi-
dent's plan?

Secretary Bentsen. Well, I would say, that while it is feasible to
decouple premium collection and delivery of care, what the Presi-
dent really wanted to do was to build on the present health care
svstem, and felt that that was the least disruptive way to go, and
then to rely on the States to help run the system. The Governors
were very insistent in urging that that be done.

Mr. Stark. Mr. Secretary, I have no quarrel with allowing States
to run the system, but I read that bill pretty carefully and basically
the structure that is envisioned is to have the individual worker fill
out a form and, believe me, as I read that, that form sounds very
much like the 1040, and then the form would be turned over to the
alliance. That is where we get this $10 billion a year, and you real-
ly have kind of a parallel. They will be collecting money and/or al-
locating Federal subsidies, and it just appears to me that as the
Secretary well knows as well as the members of this committee,
this is something we do very efficiently, and we might get the pub-
lic very upset with us thinking that they are filling out two income
tax forms. All I am suggesting is that in the ascertainment of
whether or not we will pay Federal subsidies and in helping the
States collect this revenue, is it a technical possibility that we
could add that function to the current IRS function?

That is the question, could we consider that as an alternative in
its technical application? I don't know whether or not we could do



59

it politically, but is that something that is within the realm of pos-
sibility?

Secretary Bentsen. Well, obviously, Congressman, you can con-
sider it from a technical standpoint but I would also state to you
what you are talking about is putting hundreds of billions of dol-
lars in premiums on the Federal Government's books, while we are
trying to decentralize the process.

You have the regional administration of the health plans, so I
think that the collection and the distribution of the premiums
should correlate to the region.

Mr. Stark. I thank the Secretary and appreciate his comments.

Mr. Pickle. Mr. Secretary, mav I add that we need, I need a
model of how these alliances will work on a State basis, a good
model to follow because that is potentially one of the biggest quag-
mires we have in this whole program, and at some time I hope we
can get that as a committee.

Now, the Chair recognizes Mr. Sundquist.

Mr. Sundquist. Thank you, Mr. Chairman. Mr, Secretary, I ap-
preciate your being here. Recently President Clinton said that he
didn't want to raise any money from anybody to do anything other
than to pay for health care reform. However, he stated, "I think
that higher tobacco taxes discourage use, and that is a good thing,
but that wasn't behind the tax increase."

Now, the smokeless tobacco manufacturers have, I think, been
exemplary in informing the public that their products are for
adults only. Through strict industry marketing code, public out-
rage, support for age purchase laws, outreach to retailers, public
service announcements, national letter writing campaigns, et
cetera, they have mounted a successful campaign to keep their
products out of the hands of children. That is one of the reasons
why the Healthy People 2000 goals are likely to be met for rates
of consumption of smokeless tobacco by those under the age of 18.

Now, when you look at the increases between the different to-
bacco taxes that you outlined earlier, you find that the increase on
a percentage basis of chewing tobacco is over 10,000 percent. Now,
that seems to me to be a gross inconsistency between the taxing
within the tobacco industry. I would like to know: Are you raising
revenues or are you trying to kill an industry?

What is the economic rationale for a 10,000 percentage increase
on excise tax?

Secretary Bentsen. Well, let me say. Congressman, in the first
place, as related to the cigarette tax, the tax on chewing tobacco
was far, far less, and what we have done is to try to restore some
balance into the rate structure. Looking at chewing tobacco, we
propose a tax of $2.37 per pouch. I look at what the inspector gen-
eral at HHS has stated in June 1993 where he recommended rais-
ing the Federal excise tax on smokeless tobacco because it is cur-
rently relatively low and increasing the tax would discourage the
Nation's youth fi-om using these addictive and carcinogenic prod-
ucts.

Mr. Sundquist. Well, Mr. Secretary, I don't think the numbers
bear out the fact that one is undertaxed when you have a 10,000
percentage increase.



76-304 -94 -3



60

Secretary Bentsen. I am talking about the fact that they are
very low today.

Mr. SUNDQUIST. Seventy-five cents is what the increased tax is
on cigarettes, if I am not mistaken.

Secretary Bentsen. That is correct.

Mr. Sltndquist. What is the increase on moist snuff and chewing
tobacco?

Secretary Bentsen. On a pouch it is $2.37 on chewing tobacco.

Mr. Sundquist. From what? What is the present tax?

Secretary Bentsen. Two cents per pouch.

Mr. Sundquist. No, no, what is it?

Secretary Bentsen. Only 2 cents per pouch, that is all it is now.
It is far lower than it is on cigarettes.

Mr. Sundquist. It is a $2.37 increase, right?

Secretary Bentsen. That is correct. Virtually so, $2.35.

Mr. Sundquist. Increase versus 75 cents per pack on cigarettes?

Secretary Bentsen. That is correct.

Mr. Sundquist. That is incredible. Would you consider a change
so there is a consistency in the tax increases? I mean, I think it
is confiscatory, and a 10,000 percent increase is not justifiable on
any product in this country. It is not that much money for the
health package, and the President said he is trying to pay for
health care insurance, not discourage it.

Secretary Bentsen. Congressman, this plan calls for an increase
on all tobacco of $12.50 per pound regardless of the product.

Mr. Sundquist. You are talking about finished product, though.
When you ultimately end up with $2 a pack, isn't it true there was
a tax increase in 1990 on smokeless tobacco?

Secretary Bentsen. Yes, I think that is correct.

Mr. Sundquist. So you are trying to end the product, not tax it?

Secretary Bentsen. Frankly, we are trying to discourage young
people from using it. I am answering you just as straight as I can
say it to you. It is a serious health problem.

Mr. Sundquist. I disagree. I agree it is a health problem; I dis-
agree with your means. Thank you.

Mr. Pickle. The Chair recognizes Mr. Jacobs.

Mr. Jacobs. Mr. Secretary, one of your colleagues when you were
a freshman in the House of Representatives began smoking a pipe
when he was 12 years old.

Secretary Bentsen. Are you talking about your father?

Mr. Jacobs. It was my father. He died last Christmas of lung
cancer because he smoked. When he began smoking at the age of
12 nobody had any idea at all what the consequences might be.
Now this is 1993 and everybody knows what the consequences
probably will be for the use of tobacco products.

I remember as a kid hearing a man named Arthur Godfrey ad-
vertise for a cigarette company saying time and time again "We
don't want teenagers to smoke." And yet I remember an artist
named Tom Lehrer who did a song saying "They give the kids free
samples because they know so well that today's young innocent vic-
tims are tomorrow's clientele." Of course the tobacco companies
want teenagers to smoke, if they want to stay in business for an-
other generation.



61

Nobody else these days will smoke, nobody else is insecure
enough to think it is important to smoke and will start smoking.
So whatever the protestations are and whatever the forensics are
in technical advertisements or whatever the campaign, Mr. Sund-
quist, might be, the advertisements are all virile athletes and
handsome men and handsome women with cigarettes in their
hands, "I like the taste." And my nephew is a cartoonist and he did
one recently where the attractive person said, "I smoke them be-
cause I like them," and a sort of consumptive little figure looked
up at him and said, "I smoke them because he does."

The whole purpose of the advertising campaign is to keep the
needle threaded so that the industry stays in business. When Dr.
Bowen advocated the same kind of thing when he was Secretary
of Health and Human Services, he pointed out that not even ad-
justing for inflation the tax was 8 cents on a pack of cigarettes in
1952, and today I believe it is 24 cents.

In real copper pennies it still isn't as high as it was in 1952
when nobody knew for sure the connection with bad health, but Dr.
Bowen provided a statistic that showed when the tax was increased
from 8 to 16 cents, teenage smoking was off by 17 percent, so I
commend the administration, particularly for not accepting a deal
I read about in the paper the other day on NAFTA with regard to
the proposed cigarette tax. I commend the administration for that,
and point out that if you didn't get 5 cents from it, if Mr. Pickle's
tobacco people went out of business, you would already accomplish
something, it seems to me, by way of human life and human health
in this country, so your old joke about the taxidermist and the vet-
erinarian, either way you get your dog back, which I enjoyed hear-
ing you tell some years ago, works with this tax.

Either way you get better health. You either get the money to
deal with the health care plan or you get people to stop smoking
and you win either way. I think you may agree with that.

Secretary Bentsen. Well, I certainly think that what we have
proposed is an approach that helps improve health in our country,
and I do not consider it out of line at all. I think it is

Mr. Jacobs. Well, what if cocaine were legal in this country and
what if the tax were zero and you made the tax 75 cents, what per-
cent increase would that be? Infinite.

Secretary BE^^^SEN. That is right.

Mr. Jacobs. So when you say that there is a — with all due re-
spect to my good friend who introduced me Lo okra and grits, and
I love them both, and him a 10,000 percent increase of dam near
nothing, it might not be much of an increase at all in terms of what
is needed.

Secretary Bentsen. We were talking about 2 cents which is what
it is now, that is on chewing tobacco.

Mr. Jacobs. Figures never lie.

Mr. Pickle. The Chair thanks Mr. Jacobs for his contribution.

The Chair recognizes Mr. Cardin now.

Mr. Cardin. Thank you, Mr. Chairman.

Mr. Secretary, it is a pleasure to have you before our committee.
I share the President's desire for us to pass legislation that will
guarantee universal insurance coverage regardless of their health
status or economic status or their employment status, and I also



62

am pleased to see that the administration has chosen an employ-
ment-based model in order to achieve that universal coverage.

I would like to raise the issue of the problems encountered by
small companies. The approach the President has taken makes a
good deal of sense for larger companies. They currently provide
health care benefits for their employees and it is a win situation
for them in getting health care costs under control. They no longer
will be subsidizing those people who do not provide health care for
their employees. But with small companies you run into many
problems.

First, some small companies provide health benefits, others do
not. The administration has made the point that it is unfair for a
small company to pay not only for the cost of their own employees,
but to be subsidizing the costs of those employers who do not pro-
vide health care benefits. Their employees get health care, they
don't pay for their health care, and they end up not only paying
them for their own employees, they pay for their competitor's em-
ployees. But there are many companies today, small companies
today who have made a point to me that their employees are cov-
ered through other employment opportunities, and that the Presi-
dent's proposal would require these companies to contribute toward
the cost of their employees even though they currently have cov-
erage through other employment.

I understand the administration has chosen to deal with the
lower caps on the maximum premiums that small companies would
have to pay, which could be as low as 3.5 percent, but I would like
to get your comments on a different way to deal with the problems
of small companies, and that is to have them contribute only to-
ward the cost of those employees that do not have coverage through
their spouse's employment or other employment.

I particularly want to call your attention to self-employed indi-
viduals. Some cases have been brought to my attention where a
self-employed individual's spouse has insurance coverage through
another job, and the self-employed under the Clinton proposal
would be required to also now contribute toward health care costs,
even though they have full coverage through their spouse's pro-
gram.

I understand the philosophy of trying to treat dual employment
fairly, but I ask you to focus on this area to provide some help for
small companies consistent with the rationale of why it is unfair
for some companies to pay for health care benefits and others not.
I would appreciate your comments.

Secretary Bentsen. Well, I think you have made the point, that
the reason is, you don't want some companies to get a free ride,
whereas, other companies are picking up the cost of the benefits.
I think universal coverage is key, that you have to have each of
these companies carrying their equitable and fair share of the cost.
That is my concern, and I think that is the concern of the adminis-
tration on this issue, but we will be happy to take a look at your
proposal.

Mr. Cardin. I appreciate that. We already have made a decision
that small companies are going to be given certain breaks by reduc-
ing the 7.9 percent gap down to potentially 3.5 percent, so I think
we have already crossed the bridge that there is a need to pay spe-



63

cial attention to small business. I just think there are some other
alternatives that may work better to alleviate the hardships that
could be imposed by requiring all companies to contribute to the
cost of their employees.

Secretary Bentsen. Congressman, we will be happy to take a
look at it, but I have stated my concern for you.

Mr. Cardin. Thank you, Mr. Secretary.

Mr. Pickle. The Chair recognizes Mr. Bunning.

Mr. Bunning. Thank you, Mr. Chairman. Welcome, Secretary
Bentsen.

Secretary Bentsen. Thank you.

Mr. Bunning. When Secretary Shalala appeared before this com-
mittee in October she told us that we would be able to examine the
models that the administration used to come up with its financing
figures. Specifically she promised me that I would be able to look
at assumptions behind the tobacco tax revenues that are in the
President's plan.

It has been 2 months since the President announced and ad-
dressed Congress on health care, and over a month since Secretary
Shalala came before the Ways and Means Committee. Still we
haven't seen the models and the assumptions behind the adminis-
tration's numbers.

Can you tell us, Mr. Secretary, when will we be able to look at
the process the administration used in coming up with the financ-
ing structure of this health care plan?

Secretary Bentsen. Well, I tell you, we would be happy to meet
with your staff and to provide the assumptions on which tnese esti-
mates were based.

Mr. Bunning. What about the models and the things that you
actually used?

Secretary Bentsen. Frankly, I don't know the status of the mod-
els. I will be happv to look into that.

Mr. Bunning. All right. You just mentioned that you wanted to
make sure that employers paid their fair share. You just made that
statement to the last person that questioned you. I am particularly
interested in the excise tax increase on products measured in the
Consumer Price Index and how the CPI increases translate into in-
creased Federal spending on certain indexed programs.

As you are aware, many Federal programs are indexed to the
CPI. In short, excise tax increases raise the CPI and in turn, in-
crease Federal spending on indexed programs. For instance, a re-
cent Wall Street Journal article stated tnat a 75 percent increase
in cigarette prices would lead to a $65 increase in Social Security
benefits.

According to the Bureau of Labor Statistics, a 75 percent in-
crease on cigarettes would increase the CPI by "7x0 of 1 percent,
thus raising the amount of Federal spending on indexed programs
and taking away from money needed to finance the President's
health care program.

Can you tell me if the administration has accounted for this reve-
nue shortfall in its predictions and projections? If not, can you tell
me why not?

Secretary Bentsen. Well, obviously, the CPI impact has been ef-
fectively put into the estimates. It has been a part of the assump-



64

tions. Now, let me understand the followup on your question
though. Let me further understand it. Will you restate that?

Mr. Running. The Bureau of Labor Statistics portion of it or
what other portion of it? Do you mean raising the amount of Fed-
eral spending on indexed programs?

Secretary Bentsen. Yes.

Mr. BuNNE^fG. Well, your own Bureau of Labor Statistics, not
mine, has said a 75 percent increase on the tax on cigarettes will
raise the CPI by seven-tenths of 1 percent.

Secretary Bentsen. OK

Mr. BUNNING. It would raise the amount of Federal spending on
indexed programs. Obviously, if the CPI goes up seven-tenths of 1
percent, all Federal spending would be increased when you put
them on indexed programs.

Secretary Bentsen. Well, let me ask you which one of the in-
dexes do you prefer?

Mr. BUNNING. Take your choice.

Secretary Bentsen. Take your choice, and you will find either
one of them is imperfect, either one of them.

Mr. BuNNiNG. The significant point, Mr. Secretary, is that if you
are increasing taxes on certain products, they have a direct effect
on the CPI and all of the cost of living adjustments that we have
in Federal programs.

Secretary Bentsen. Mr. Congressman, no one argues that: Of
course, it does.

Mr. BUNNING. Well, I ask you if that has been taken into consid-
eration?

Secretary Bentsen. It is taken into consideration.

Mr. BUNNING. Thank you, Mr. Secretary.

Mr. Pickle. Thank you. Now the Chair recognizes Mr. Hoagland.

Mr. Hoagland. Well, let me welcome you to the committee if I
might, Mr. Secretary. It is a pleasure to have you here.

Secretary Bentsen. Good to be here.

Mr. Hoagland. I wanted to follow up on the questions Mr. Ja-
cobs was asking in relation to tobacco and apply it to other major
problems we are having in our communities right now, particularly
crime and alcohol abuse.

Secretary Bentsen. Particularly what?

Mr. Hoagland. Crime and alcohol abuse.

Secretary BENTSEN. OK.

Mr. Hoagland. In Omaha lately, and I know many similar
medium-sized communities around the country have had a wave of
drive-by shootings. We have had senseless random acts of violence
that have resulted in death or severe wounding. Major costs are
imposed on the hospitals, on the emergency rooms as a result of
this, and I am wondering what sort of incentives might be built
into the health care plan that would discourage crime and that
would fairly — other sources of taxes — Senator Moynihan has talked
about taxes on bullets. Congressman Reynolds has been an advo-
cate for a long time of taxes on handguns to try and help hospitals
defray the cost, if the administration has any ideas as to how vye
might use this vehicle as another means of discouraging crime in
our communities.



65

Secretary Bentsen. Well, obviously, the administration has very
much supported the Brady bill. In all candor, speaking personally,
I don't think that it goes far enough. I think we have to do more
than that.

Chairman Moynihan has talked about a tax on a particular type
of bullet, and that obviously should be given consideration. Also to
be given consideration is the banning of that type of bullet. I think
those are the things that the administration has to give some at-
tention to.

Mr. HOAGLAND. Now, as in the case of tobacco, the long-term
costs associated with alcohol abuse are really extraordinary. As in
the case of a tax on tobacco, a tax on alcohol could be viewed as
a down payment for medical costs to be incurred by people years
later as the consequences of alcohol abuse come home to roost.

I wonder if we are looking broadly enough for additional reve-
nues that would, as in the case of smoking, would discourage be-
havior that is unhealthy.

Secretary Bentsen. Congressman, obviously excess consumption
of alcohol is something that hurts health without a question, but
the association between alcohol and poor health, is less closelv cor-
related than it is with tobacco. That is why it was not included in
the package.

Mr. HoAGLAND. Well, let me just conclude by commending, once
again, the administration's efforts in this the tobacco area, because
clearly it will be of enormous benefit to society if we can further
curtail smoking. Thank vou, Mr. Secretary.

Secretary BENTSEN. Thank you.

Mr. Pickle. The Chair recognizes Mrs. Kennelly to inquire.

Mrs. Kennelly. Thank you, Mr. Chairman, and Mr. Secretary,
it is an honor always to see you and listen to you.

When Mr. Clinton, our President, proposed a health care plan, I
was somewhat concerned as I studied it. I come from a high income
per capita State, the State of Connecticut, and the maintenance of
effort pricing came up as a situation where we would be asked to
maintain the same efforts that we had in the past concerning
health care costs.

Connecticut, Mr. Secretary, has had some wonderful years. That
is why we happen to be right now the highest per capita State still,
but the past 4 years have oeen very difficult. We have a downsizing
in our defense industry, problems in the banking industry, com-
mercial real estate problems, insurance companies are laying off.

Last week Southern New England Telephone Co. — ^you went
there to work, you stayed there all your life, and you just had a
wonderful pension plan — laid off 1,500. In the past we were able
to be very, very generous when you talked about such things as
Medicaid adding on, and as a result of that because of our per cap-