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Scott P.

President and
Chief Executive Officer

1310 G Street, N.W.

Washington, D.C. 20005
November 3, 2009 202.626.4780
Fax 202.626.4833

The Honorable Nancy Pelosi The Honorable John A. Boehner

Speaker of the House House Minority Leader
U.S. House of Representatives U.S. House of Representatives
Washington, D. C. 20515 Washington, D. C. 20515

Dear Madame Speaker Pelosi and Minority Leader Boehner:

As the House begins debate on the “Affordable Health Care for America Act,” the Blue Cross
and Blue Shield Association (BCBSA) is writing to express our opposition to the bill in its
current form. Our concerns are that this bill would: 1) create a new government-run health
plan that would cause millions of people to lose their current private coverage; 2) make health
care coverage more expensive; and 3) represent a federal takeover of many key state
regulatory functions.

The nation’s 39 independent, community-based and locally operated Blue Cross and Blue
Shield companies nationwide provide coverage to 100 million Americans. We have long
supported comprehensive health care reform – including major changes to our own industry –
to expand coverage to all Americans, rein in costs and improve quality. We agree insurers
should be required to guarantee issue coverage to everyone regardless of preexisting
conditions and not be allowed to use health status or gender as a factor in setting premiums
so long as there is an effective personal responsibility requirement to prevent skyrocketing

We are pleased the House bill recognizes the principle of bringing everyone into the system,
with subsidies to help many people purchase coverage. However, many provisions in the bill
will undermine the goals of reform.

Government-Run Health Plan

We strongly oppose the bill’s provision to create a new government-run health plan to compete
with private insurers through the exchange. The government-run plan would be run by HHS
and would closely resemble Medicare. While HHS is charged with negotiating rates with
providers, the law caps provider payment rates at the average of private plan rates. Moreover,
Medicare’s own history demonstrates that the government would very quickly resort to price-
setting, underpaying providers which would create major access issues.

Right from the start, the government-run plan would have major advantages over private plans
-- built into the law. It would be exempt from billions of dollars in federal and state taxes,
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The Honorable John A. Boehner
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individuals would not be able to sue the government-run plan in state court, and the
government plan would have help in building provider networks since any provider
participating in Medicare would be deemed to participate unless they opt out.

A government-run plan in any form is unnecessary to achieve the goals of reform. It would
cause many people to lose their existing private coverage and would undermine delivery
system reforms critical to improving quality and controlling costs. In its most recent cost
estimate of the House bill, the Congressional Budget Office (CBO) recognizes the
government-run plan would do nothing to bring down costs. In fact, CBO estimates the
government-run plan would have higher premiums, in part, because it would not be as
effective as private plans in managing utilization of services.

BCBSA Recommendation: We urge the House to reject a government-run plan, in any form.

Making Health Coverage More Expensive

Affordability is the most critical factor in extending coverage to everyone. While much focus
has been on assuring health care reform is affordable to the federal government, it is equally
important that it is affordable to the American people. There are many provisions in the bill
that would make coverage much more expensive, particularly for individuals and small
employers. These include:

• Increasing Minimum Coverage Requirements: The House bill sets the lowest minimum
benefit level for new purchasers at a 70 percent actuarial value, which is much higher than
the average policy purchased by individuals and small businesses today. In fact,
individuals in many states today purchase products with actuarial values lower than 60
percent. This benefit requirement alone will increase average costs by 17 percent for
individuals and almost 10 percent for small employers.

Moreover, the bill contains a host of federal benefit requirements that will further increase
the cost of coverage, including an expansive list of required benefits, limits on cost-sharing
and new payment standards of “clinical appropriateness.” The bill would also establish an
advisory committee to review and update federal benefit requirements on an ongoing
basis, which is likely to substantially expand benefits over time as every health care
interest group in Washington advocates to have their service, procedure, drug or device

BCBSA Recommendation: Lower the actuarial value for the lowest cost plan to 60 percent
and allow flexibility in designing benefits.

• Limiting Age Discounts: The bill would limit use of age discounts to a range of 2:1.
Appropriate age discounts are essential to ensuring young people – who are critical to
providing cross-subsidies to keep premiums affordable for everyone – purchase coverage.
Oliver Wyman, Inc. estimates that in almost all states, premiums for the youngest 30
percent of the population will increase by 69 percent under the 2:1 age band
included in the House bill.
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The Honorable John A. Boehner
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A premium increase of this magnitude would be a huge disincentive for younger people to
obtain coverage, even under the individual responsibility requirements included in the
House bill. The subsidies provided in the bill will not offset the premium increases for
many younger and healthier individuals in their twenties and thirties. As younger people
forego coverage, premiums will increase even more for everyone else.

BCBSA Recommendation: Allow 5:1 age bands to assure young people obtain coverage.

• Personal Responsibility Requirement: While the House bill generally requires individuals
to maintain insurance or face financial penalties, the amount of the penalties are generally
far lower than the cost of insurance. In addition, many people are likely to be exempt from
the penalties altogether under an unspecified process to be developed later by the
Administration. While this appears to be stronger than the Senate bills, we are concerned
that many people could be exempt under the regulatory process. This would lead to a
system that allows people to wait until they are sick to purchase coverage, raising costs for

BCBSA Recommendation: Strengthen the personal responsibility requirement and ensure

it is appropriately implemented.

• Incentivizing Healthy Groups to Self-Fund, Driving Up Costs for Individuals and Small
Employers: The House bill would require insurers to rate individuals, small and large
employers together in determining premiums. This runs counter to the current practice in
all 50 states that allow the different market segments (individual, small group, and large
group) to be rated separately. This would incentivize healthier groups to self-fund, making
premiums substantially more expensive for individuals and small employers.

BCBSA Recommendation: Allow states to continue traditional market structures --

individual, small group (2-50), and large group (51+) -- for rating purposes.

• Minimum Loss Ratios (MLRs): The House bill sets a federal minimum loss ratio of 85
percent and requires payments back to policyholders if these MLRs are not met. No state
currently imposes an 85 percent MLR. Because initiatives to improve quality, rein in costs
and manage chronic illness are considered administrative expenses, an MLR will be
counterproductive, driving up costs and reducing value for consumers.

BCBSA Recommendation: Require disclosure of MLRs as an alternative.

• Delivery System Reforms: The House bill does not include the significant reforms needed
to bend the cost curve. Much more must be done to ensure Medicare pays for quality
outcomes. We are also concerned that several provisions could undermine private plans’
ability to rein in costs and improve quality by taking away tools commonly used to
encourage consumers and providers to use the most appropriate, evidence-based
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The Honorable John A. Boehner
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BCBSA Recommendation: Expand pay-for-outcomes programs to all Medicare providers

– starting with primary care next year and drop provisions that restrict health plans’ ability
to promote evidence-based care.

Federal Takeover of Most State Insurance Functions

The House bill shifts a massive amount of authority that is currently under state control to the
federal government. States are currently the primary regulator of health insurance. They have
a long, successful history regulating health insurance and protecting consumers – a role that
could not be easily replicated at the federal level.

BCBSA believes the appropriate role for the federal government is to set minimum standards
for all states and that all entities offering coverage in a state should be required to follow the
same rules.

BCBSA is extremely concerned with several new federal functions established in the House

• Federal Exchanges: While BCBSA agrees that exchanges could help individuals and
small businesses shop, compare and enroll in coverage, we are concerned with the new
federal agency established under the House bill to administer a national exchange. This
federal exchange would assume more than two dozen functions – from handling consumer
complaints to assuring consumer protections – currently performed by the states. This
would result in a massive shift of authority to the federal government that would undermine
existing state authority. Since the bill allows similar state processes to continue,
consumers will be confused as to which regulator to approach to resolve their problems –
the federal government or their local state regulator. Also, such duplicative federal-state
regulatory structures will create significant regulatory complexity, resulting in conflicting
rules and unnecessary increases in overall administrative expenses.

BCBSA Recommendation: Use a state-based exchange approach under minimum federal


• Federal Health Choices Commissioner: The bill establishes a new federal Health Choices
Administration that would be responsible for federal regulation of benefits. The
Commissioner of this agency would assume many regulatory functions now performed by
the states, including regulating benefits, overseeing rules for health plans (including
auditing and sanctioning plans), collecting health plan data, handling consumer complaints,
and monitoring states. This would shift regulatory authority from the states to a new
federal bureaucracy that would make most major decisions over benefits. States would be
left with little flexibility to adopt marketplace standards tailored to their local environments
and would be left with the diminished role as enforcers of federal standards.

BCBSA Recommendation: Establish an Advisory Board on benefits as an alternative.

• Review of Premium Increases The bill includes an annual "file and approve" rate review
process conducted by HHS beginning in 2010. Any review of rate sufficiency must be tied
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The Honorable John A. Boehner
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to state solvency regulation, and therefore, should only be performed by the states. HHS
does not have the staffing, experience, or state-level knowledge of health insurance
regulation necessary to perform this function.. Separating rate review from solvency
review is a recipe for future insurance insolvencies and possible federal bailouts.

BCBSA Recommendation: Drop this provision from the bill.

Finally, BCBSA is extremely concerned with the level of cuts being made to the Medicare
Advantage (MA) program by the House bill – more than $237 billion over the next decade.
Cuts of this magnitude will cause millions of Medicare Advantage enrollees to lose their
coverage while others would face significant reductions in benefits and increases in premiums.
A recent analysis by the CMS Office of the Actuary concluded that the proposed MA
reductions would cause more than 6 million enrollees to lose their MA coverage with only 4.7
million left in 2014. We do not believe this is in keeping with the Administration’s goal that all
Americans can keep the insurance they currently have.

BCBSA is committed to working with you to address these concerns and enact a health care
reform bill that works for all Americans and is sustainable over the long term.

Yours in good health,

Scott P. Serota
President and CEO

cc: All House Members