about a businessman who talks about the experience his father ran through and he outlines what he thinks he needs to happen and it is always somebody else paying the bill and that is the fundamental problem. what needs to happen so we do have the transparency that we need.

scene, the issue of the mandated benefit for modernity care. there is no way to have the private insurer intercede to make that determination that a child and a mother should be going home at such and such a time. that is a medical decision and should be left to the medical authority. if there is malfeasance in that, it is the medical profession that should be taking care of it, and we do but to assume that this is a marketplace issue, i think simply isn't going to fix the problem. that is how we have been dealing with it. it is not a free market and we don't have the-- the consumer does not have the information they need to make that analysis.

even that they have that information they don't have the understanding. i went to medical school-- >> we have a health savings accounts in our family, high deductible health savings account. i do what many of my colleagues do with the doctor on capitol hill. he says you know what? we can send you for a colonoscopy as well. i said i will think about it and decided our insurance does not cover it but also no 45, that the is the recommended time to get this so i could have depleted our account or i can just wait and we decided to wait so there was a situation where we made the decision as a family or might made the decision that we would just wait so i do think it can work but what i am interested in getting is, what we need to do so that we empower

the patients, the consumer and the family as much as we can and eliminate this bureaucracy, whether it is the government, whether it is the insurance companies that get between the patient and the caregiver. [inaudible] >> i thank my colleague from ohio. before introduced mr. cummings for questions i want to acknowledge the presence in the audience of some visitors who have come to capitol hill to indicate their concern about reimbursement policies with respect to prosthetics. so, i want to acknowledge your presence, the young man in the front row. we are glad you are here. maybe someday you will be on the other side of this day is here so thank you so much for being here and at this time we would like to recognize mr. cummings of maryland for five minutes of questioning.

>> first of all thank you all of you for your testimony. it has been very eye-opening and very helpful. dr. potter, one of the things that really bothers me is that when you talk about insurance companies, the media complain, the media seems to bend in the direction of saying that we are beating up on them. that really bothers me because when i listen to your testimony, and i can tell you as a lawyer the things that you have talked about to me are, if not fraudulent, are very, very close and our criminal. in other words, when you say that you are going to, when the insurance company then paying for 16 years and when it comes

time-- they are loyal in paying their-- but when it comes time for them to get what they are due and that is a simple concept of contract law. you bargained for something and you get it back, but when they come to get it what they are saying, and listening to the testimony here, you hear dr. stearns basically what he said is that he had to fight to get what he needs for his patients and not everybody is. 99 million great doctors that have to fight and doubled the number of employees in the fight. so i am trying to figure out comment you think it is an understatement ord you think is a fair statement to say they are beating up on the insurance companies? >> absolutely not. it is-- protest they are being demonized and that someone who

was in pr for the industry for 20 years it was part of what i did for 20 years. they wanted to see them as good faith partners and working with congress and behind-the-scenes doing all they can through a lot of ways of essentially laundering money through its pr firms then setting up groups that they don't want anyone to know they have any association with, with which they are funding to try to shape it in ways that will benefit them. one thing that has happened over the years and i saw this from my role and initially as a pr guy, our media has changed a lot. newsrooms are shrinking. reporters are so stressed for time that they would often take a statement that i would write and go with it and say, that is the insurance company's point of view here. the insurance companies and other industries and special interests have been changing the

way the media operates. >> dr. peeno, i am wondering, when i listen to testimony here and then i watched some of the town hall meetings where people were loudly protesting, and that is all well and good but i have wondered how many people lived they have really grab the legislation would understand that this probably would help them? i get the impression, i know there are many reasons that have been given for these protests but i get the impression part of it must be what i call, it won't happen to me syndrome. in other words people assume that happened over there in indiana, that happened in baltimore but it won't happen to my family, it won't happen to my friends. i won't have a similar experience as ms. ackley, so i mean so, i take it that the

things that you are talking about are pretty widespread. >> absolutely and i think you are right. people assume that this isn't going to happen to me until something tragic does but i can tell you as one of those doctors that that there and-- on pieces of paper that it did not make any difference what somebody's income level was, whether they were democrat or republican, black, white, yellow, green or whatever. the only thing that made a difference was what they were costing and how quickly we could avoid any caused her claim that was going to hurt prophets. i was told when i was first hired that i was to use my m.d. degree to give economic justification for the company's decisions. >> you were awarded for that? was that part of your evaluation

>> significs folate rewarded. i quit when company before i got my bonus but then when i went to another company my job evaluation depended upon the number of the neilsen and how much cost savings i generated and then the 150 cases i worked on as an expert witness. i had seen internal documents that would never see the light of day because they were sealed that showed the reward system in the conversation for the medical doctors the work for the insurance companies. >> one last question, is there anything you have seen since you have let the system. when did you leave the system? >> 1991. >> and is there anything you'd seen in your present work that would indicate that things are better in that regard that you just talked about? >> absolutely not. it is far worse. everything is more evolve, more

sophisticated, more technical. the difference between the method i used to deny care and the methods that are used now is the difference between surgery with a kitchen knife and a laser gamma knife knapik otis that much more expert. >> thank you mr. chairman. >> the chair recognizes mr. tierney. >> thank you very much. i can't think of any question for either of you that would do a better job than what your testimony did in langelle some of the issues so i do want to thank you for being here with us today. i know how difficult it must be. mr. potter i want to go back to you because someone has to get between the pace and then there medical provider one way or the other. not everybody in my district certainly not the majority can put afford to put money into an account of some sort and if they do they are still going to have an insurance company and fall so clearly that is not the answer

we are talking about here. we can regulate or try to regulate prohibiting a cap on the insurance and perhaps prohibiting exclusion for preexisting conditions but we would have to be pretty good that policing to make sure the companies don't do it anyway. it was seen that one way to do this to say a certain percentage of the premium dollar has to be spent on medical services of the medical loss ratio would go back to where it was in the 1990's. that would be one way of going about it. do you agree? the second one is competition was somebody or something that does not play by the rules that they play. right now they are happy with the competition. let's have competition as long as we are in on the game to make sure our prophets are high and we have these different ways of excluding coverage. i think, would you agree that

that is where the public option comes then and that if you don't have something like that we are never going to get at the crux of this? >> absolutely. there is competition but there is far less now than there was back in the 90's. that is one reason why the-- there is so much power in the hands of seven very large for-profit insurance companies that one out of every three of us is an rogan one benefit plan. they are accountable to wall street. they are not accountable to you and me and we can become victims of their striving to meet wall street's relentless profit expectations. there is no counter to that right now. they are all playing by the rules that they established in the marketplace. there is no government benchmark. they determine what kinds of policies we will be able to have, what kinds of policies your employer will offer to you. they run the show.

they have been enormously tight grip on the l4 system, far more than they did in '93 and '94 and they are richer and stronger and more influential than ever before. the public option is absolutely valuable. >> i would think that people on the streets would be ranting and raving about those practices engaged by the insurance companies. that would be a populist motion, people on the street saying weizert governor letting them get away with that? on the oversight committee we are used to following the money so we know the money is going. it is going to wall street and the people who invest in these companies. what role do you think those companies are playing in inciting people the going instead of ruling against bad insurance bureaucracy practices telling them how bad the government is. >> i was speaking at a town hall a few days ago and describing how the pr firm's the pundits

talking points. she said no one paid me to come here. i was thinking, they don't have to. the money goes into the big fear firms to have the influence to manipulate public opinion. i did ask her to congressman cummings point come are you absolutely certain your insurance is going to be there and your son and daughter is going to be enrolled in a benefit plan that provides protection? you did not have a good answer to that because there is no guarantee. you to not know if you are going to have your insurance company tomorrow. you do not know if you will be losing it if you lose your job or he will be forced into a plan that makes you pay so much out of your own pocket. we are forsten some saderis to buy insurance from insurance companies but your-- sending money in every month for almost nothing. >> one little anecdote from an

individual that came into my office ranting and raving about the public option and i tried to explain what that would do.@@@@÷

siege by all of these advertisements from the pharmaceutical companies but none of that is true with every district but they are spending a lot of money on advertising. i keep asking myself if you have a dr. why do you need all of those advertisements on the television and? it is very curious. about was not true 20 years ago it is true today i can see the profit they're making where they put some of those dollars i have people from my district, i boarder canada, northern ohio and i cannot tell you how many people from my district have to go to canada because they cannot afford medicine in the united states of america for ic these ads on television and think what does not fit? how our these dollars being used first is the need?

insurance companies are the ninth most possible -- profitable and mr. potter i think you talked about seven companies now have a one-third of the market? >> that is right. >> we heard that yesterday for -- from a former cigna head of the company that we will hear from. when we heard from our beloved skip as the became older and had infirmities he said here is all of my insurance. he was on medicare and he emptied his billfold and pulled out all of these policies are linklater and i said why you have these? you do not need these for you have a supplemental and you have your medicare and he said jesting case. i keep thinking to myself, why didn't you tell me about this before? you don't need to spend your money frankly with some of

the exclusions this would not give you anything but he did not know. he was not uninformed but he was afraid he did not have a college degree. how many other are out there in our country that by unnecessary policies that are duplicates and even with our offices on aging we cannot reach every citizen to help them make why is insurance choices. my question is the bill the president has proposed has language that only encourages the pharmaceutical companies price negotiation for the cost of a prescription drug. within the virginia or department of defense we actually negotiate. it is mandatory. i want to ask you to comment on the language that is in

the bill that encourages negotiation and what that might mean down the road and a #2 with the insurance companies the fact that they control so much can you give us a sense? miss it consolidating like and other segments of our industry that cause a huge implosion private companies that seem to be terribly irresponsible? can you give us a sense of what is happening? anybody that would respond to that. >> i think it's encouraging is not strong enough. you are right to other gentleman was talking about he got his care through the of the day and he needed medication that cost him a modest amount of money but he needed private insurance

he would pay $300 but he was able to pay through the the a a small fraction. it makes a difference the median household income is just 50,000 the average by price of a premium is 12,500 if you are shifting more of the financial burden for the drugs or care from the doctor, there's not much money left over to pay the rent or buy the groceries. to your point* of the seven large companies that control the industry, it has become so big through mergers and acquisitions and i have been a part of that or managing the communications around them. there are four fewer companies than they used to be there is not as much competition as they would like you to believe they will say there are 1300 insurance companies but there's nothing like that. if you look closer if you can count 287 and that

includes vendors. it is a fabrication. there has been so much consolidation that last year alone $250 billion flowed through just the seven companies with revenue. you have enormous concentration it is a cartel of large companies. and they are so big to establish a co-op there's no way the co-op could ever get the resources or have the clout in the marketplace to compete against these big companies. >> you are speaking about the insurance companies? what about pharmaceuticals? >> absolutely. the power of the pharmaceuticals has been there for a long time their gigantic better very, very profitable.

>> can ask any witnesses if you have any articles you can reference we can incorporate on the nature of the concentration i would appreciate it for anyone else want to comment on pharmaceutical profits or insurance company consolidation? >> my daughter's delay of treatment first was because the pharmaceuticals she required for the drug had one manufacture the produced its they have been the subject of senate hearings with their pricing scheme. hi went online to look up the drug and stumbled across investment journals where with the corporate officer was speaking freely to investors, i was not the intended audience part of his remarks were that the drug was an underutilized asset and because they were

the sole manufacturer, they could change their pricing strategy and significantly increase the company's portfolio than they could put to him to the other fda approval stood drug went from $1,000 a vial up at $23,000 a vital. my insurance company will not let me see the actual cost reports had at that point* when my daughter needed it to $23,000 per file. how ludicrous this is we had to order it from out of state and injecting it ourselves knightley we had a syringe explode how many thousands exploded? they have a delivery man making a dollars per hour deliver four bios and i said does he know what he has? he could sell it. clearly we have had our

brush. my solid opinion is they do they service because of the hit they would take part of that is a hmo the pharmaceutical company by the ordering it they have the leverage there was no competition it serves day minority people very few are affected their for their leveraged as the man was candidly speaking up as 23,000 other published reports that after that time point* we were on it for four months, the estimated cost 800,000 good drug went up over $40,000 per vyyo. absolutely exacerbating and unwarranted. thank you. >> if there are any witnesses that have any kind of steady or advertisements

paid for by pharmaceutical companies across this country in order of the biggest prize for which drug and then in rank order i love to have that for the record as the mecca like to say in response to the question that as we begin preparing for the continue work of this committee, that would be a proper subject for a separate hearing and i want to thank the gentlelady for making that suggestion you go to a second round of questioning before we go to our second panel. given the fact that we're going to be holding a hearing tomorrow with top insurance executives with this same subcommittee and the fact we have to distinguished individuals here who have had direct experience working inside the industry, we will hopefully be able to engage

more in the second round. i want to start with dr. dr. linda 59 the review position and 4q man of out of louisville kentucky. ms. peeno said evidence that people rely is public by peer review gent -- journal's but the standards of care used by private health insurance companies are proprietary. it is their business and not ours. if the coverage decisions are based on publicly available evidence why doesn't it follow the standards they use to determine care should be published? why aren't they? >> the main reason is their basic purpose is to deny care. this has been a part of the

evolution of managed care. 20 years ago of one of the real difficulties for an insurance company when i was functioning is having some sort of grounds to deny something. we want to deny a hysterectomy rebated criteria. that was very labor intensive for the company to develop. the company's demerged that would develop criteria that we heard dr. stern and robert stern refer to them about developing criteria specifically for health-care companies to have like a filter. and the tighter the filter the more you can match or deny care. >> the criteria is set up to deny care? >> right. just like i said in my testimony do not purchase craig terrie and not generate more care the reason they spend millions of dollars to buy the

criteria to set of the computer system is to enable as requests are made for the more costly and frequent services is for nurses up front but sometimes not even nurses to say this does not meet our criteria we cannot authorize. >> the standards are proprietary but are they based on evidence or just basically accounting devices to whittle away the claims? >> they are loosely based on evidence. there is material and evidence that comes out of academic centers that you take this information that is public and has been developed using public funds been huge week as the accounting denial tools. >> dr. stern? >> the criteria in one case

the standard criteria or standard practice that are publicly available has a slow criteria of cost-effective quality care. that it is it. millman and robert sen is focused on cost reduction. and everything that is generated is to support the cost reduction ; may ask dr. peeno and dr. stern i understand dr. peeno insurers pay subcontractors to do utilization review and handle specific appeals. do insurance companies carve out any specific disease for internal special review for outside contractors? >> yes. they carve out or outsource were that is increasing. >> why? under what circumstances? >> what of the earliest was

four mental-health management. you could carve out the amount of premium and subcontract to a for-profit mental-health company capitate them so youi,@ã

>> no. >> my time is expired ago to mr. jordon. >> let me ask the harassment u.s. through dealing with the insurance companies, are you in favor of a single para system, a government run system, public option that has received so much option or do you think that replaces instead of having the insurance companies have you now have the government you have many countries that there are waiting list, i difficulties, rationing of care? do you want us to fix your problem and make them do what they said they would do or are you favor of throwing

it all out and going to a single payer system? >> you obviously know where i am coming from i look at the most recent example of government starting a big program and talking to a car dealer the other day still waiting on seven 5% of the dollars "cash for clunkers" is to give to him you have bureaucracy and many examples that do not meet the customer's needs and demands in a reasonable and timely fashion. >> smack i am and support of a public system but from our experience things that would have been beneficial with the private industry would include federal oversight of that. the appeals process that we went through supposedly once my dad's appeals went to the

reviewing foundation we were supposed to get a decision within 48 hours. the first appeal. >> did that go through the state insurance commissioner? iraq that came from the insurance company itself that we would get a response. the first appeal process the hospital received the decision and six days later then my dad received the decision nine days later on the second appeal process process, the insurance commissioner's office received eight decision 10 days later than my parents received a 13 days later. but there was nothing to hold them accountable for that. some other things we

encountered, the foundation that is reviewing my dad's case is getting paid directly by the insurance company. that seems a little odd. >> the short answer is you think a single para government run system you would be for moving into that type of system? >> i think there is benefits but i don't see the private industry being eliminated. >> you don't think ways substitute was set of hassles or another if we go that direction? >> thank you for the chance. to refer to what you were speaking about the health savings accounts are not inadequate. i don't think putting things in the hands of the government is the solution a public auction is a necessity to provide a

baseline as a member of the republican party we talked out of both quarters of our mouth when we express government efficiency to not being able to get it done on the other hand, we say if the government ran the public option we would undercut four lowballed price and run the private sector out. which is it? one way or the other but not both of less we're not dealing direct threat of there's a desperate need for regulation and for the end consumer the end user has recourse. we have none now part of the way it is set up now our employers largely led negotiate with a limited pool of providers to figure out what choices we have then the employee gets to select from that menu then we get to some select a doctor for i did it backwards i eighth found a good doctor and went up the chain of command i am fortunate i work at a huge company and the employees back the contracts have i worked at a small mom and

pop that was nice enough to give us coverage, i would not have had that luxury. we have been audited repeatedly we have the most effective policy and the country thinks to the employees who negotiated. that centcom my doctor is handcuffed because they determine it to their best judgment what the proper care is a and it is costly meddled and interfered with by people who look at one thing, how can they do this less expensive? and do not believe in the united states of america a single para is what is best at this point* in history i do believe it is incumbent upon you to survey the world just like a business if i want to know how my competition is speaking we fight it with their doing take the best ideas and make it work. >> zamansky. let me ask you if that government is running it what is the recourse if we don't like what they decide?

you get hassled what is the recourse then? >> the services i do get from the government for my daughter, we have had almost no problem and when redo there is a clearly identified appeal process and time table with resolution nobody is happy all the time. that is not realistic i can tell you there are waiting lists that you speak about in the netherlands my relatives have offered to take in my daughter and i because we would not be facing the delays and denials that we are here as a proud husband when we travel to police, a third world central american country my daughter was sick on a flight over we were hospitalized for four days and the bill was $70. $70 in a country where children do not have shoes to go to school.

a beautiful country but clearly a poverty-stricken nation. four days of hospital care with medication $70. -- $70. >> what happens if you do not like this? it is government you have a go and do change it. we don't get that but with the insurance company and that is a problem we can rant and rave but the wages go to another company. >> i appreciate that we can change a lot and we do have a say in this way can make the system work better and not one that turns it all over to the government does well i agree. >> with strict regulation rican get there pretty soon as the mecca want to thank both of my colleagues for that exchange the great thing about this committee we like to hear what each other have to say.

mr. cummings? you are recognize. >> you are saying what i am feeling. i just want us to have an effective and efficient system that also has an element of empathy. the president used to talk about and he still does come at a society where we have paid deficit we can put all of the rules and regulations and but if we don't have people in those places if it is more than a statistic are not worrying about a bonus over the life of a person will not make a difference but i agree with you.

mr. potter, this puts you in a place in your old position and somebody walked into your office and centcom potter, we have a problem those folks on capitol hill have come up with this thing called a public auction auction -- publix option. what we do with that? i went to hear the insurance companies say they're not being able to compete on the other hand, saying this sort of thing is that they have to have and i am just trying to figure out what is the concern? that apply to hear from you also. >> are they legitimate? >> the industry has had this and has been preparing for this since before barack

obama was president and i was there during the meeting where we reviewed every candidate's platform for health-care reform and president obama and senator clinton and senator edward have the public option as a central component of their campaign platform. the industry had a long time to develop a strategy to oppose. now we are seeing it carried out. what we are hearing makes no sense that it will put them out of business because it will be run to efficiently or we should oppose it because it is a government run system. they want to deface it and make it seem as if this is a government takeover of the health-care system. that is part of the strategy developed a long time ago. has been a phrase that works every time there is an

attempt to reform the health-care system. having something that may take bell little bit of remedy if you have the individual mandate everybody has to buy their product. if a person cannot afford the product, then at you and i and other taxpayers have to pay the subsidy. $1 trillion the people will pay and the talks -- tax dollars the subsidize will flow right into the for-profit companies or all of them and that will be taken away to go into the shareholder pockets. they do not want to have another competitor they have been consolidating taking out the small players gaining control of the market share so of course, there will oppose anything that would compete but certainly that would make them operate more efficiently. >> what i hear the insurance companies say we're ready to come to the table we will get rid of the pre-existing

condition and the recision, it makes it sound as if they are admitting this is wrong. >> of some of a. they said exactly the same thing in 1993 and testimony before congress. they know it is wrong. after the clinton plan failed to do see them coming here asking to change the law? of course, not. they have some thrived and made billions of dollars. they are not sincere. it is rhetoric. they would agree they could thrive in a system if they are made illegal but they know how to make money. it is squeezing a blown -- pallone he would have pressure from wall street to figure out unique ways for them to do not care or shift more financial burden to consumers. >> without a public option is there any way we can control costs? cost of premiums?

>> no. >> of some of the no. >> of some of the? >> absolutely. >> please go ahead. >> in your general question about why they would oppose the public option is because mr. carter referred to them as a cartel and it works very secret hidden practices that would possibly be disclosed they had to compete with a real competitor so the secret hidden methods for profit maximization would become more public. they could come to the table and say we would give up pre-existing conditions or rescission but only because they have refined the other math since behind the scenes and i have seen this case

after case after case as the expert witness with all of the labor of finally getting documents@@@@@@

or the clothing industry? how would you compare and? from your analogy of the industry? >> the profit-margin higher, and i haven't compared of the other sectors of the economy. in fact i just heard this week the insurance industry was putting out propaganda saying

that only 3% of the premium dollar goes to profits or something like that. it varies widely from company to company and product to product. some of these products are extremely profitable and the one they want to move us into these high deductible plants, profit margins will expand greatly. they can make tons of money on this. so that is what they want to do in the future. it's why the trend is the way it is. but think of it this way. let's assume it is 3%, and let's assume the assumption, it is the truth, $250 billion of the money we spend on health care flowed through those seven companies last year alone in revenue, 3% of that is a ton of money. it's a lot of money in profit. so they will use sometimes small numbers to me to think it is inconsequential but it's a huge amount of money. >> let me go back to the

example, how do we get a handle how much money is being wasted in this system because consumers are innocently or fearfully buying numerous plans to cover themselves when they are not needed. how do we get it back? but as the mechanism to get to that? i know the standard plan that's one of the goals of the reform legislation to have a benefit plan people know they can depend upon but how does one get at least inside the system? >> there's a lot of waste. the company that has a lot of work for big insurance companies and other large corporations to the study of health care systems and compare our system with those abroad and i think the doctor noted 30% of the money we spend here is on administration, that is not spent in other countries. that isn't just because you have that much the paper that we have

now there's enormous that goes on in the company's but it requires doctors and hospitals to hire big staff to deal with them so that's 30% -- >> i understand the administrative point, but i am talking about citizens, millions of them out there in the country who are law-abiding policies they don't need because they are victims in the marketplace in essence. they are fearful of the future. they don't believe that what they have is secure. how do we deal with that? >> would be a good research project. i haven't seen my data because it isn't easily found but you need to look at the kind of policies the companies are selling. but benefits they have and whether or not they are really worth a dime and then you could also look at the policies that are being spent on fake insurance. these big companies are not getting into that.

and these are plans people -- it is unjust supplemental. it is what is being sold as the choice they have that's affordable. keep this in mind, don't be blinded by this talk about affordable premiums because they will sell you -- a market has the premiums being affordable, but the benefits will be sold out you might as well not be insured. >> if there are senior citizens listening today, if they have a medicare policy with a supplemental plan that is recognized by the department of health and human services, do they need extra catastrophic coverage? >> i don't think they would. the basic medicaid benefits are pretty good. if you get a reasonably good supplemental plan, then i can't imagine why you would need to spend a lot more of your scarce resources -- >> where the fault line is large numbers in the public don't understand that. >> exactly --

>> so there are people that play that portion of the market. there are firms that plea that portion of the market, and the force product on people that is really unnecessary, and i can't think of a place -- leyna we have a state insurance commissioner in the state of ohio. you can call that number. but this issue of consumer protection and insurance bolling is important, and money is being wasted all over the country by people who are so scared they are body what is on necessary. we need to look at that arena. its huge. >> and brings up a point i would like to make. in the inadequacy of state regulation they do review marketing materials

i have just talked to staff and that is something that we are interested in pursuing to the level of a hearing. we would work with the gentlelady and perhaps get on goals get to testify. >> thank you very much. >> you're welcome, and this is the ohio committee now. we have mr. jordan from ohio, myself and also ms. kaptur.

i want to thank this panel. each one of you has made a contribution for your testimony here today. some of it what heart wrenching and other testimony infuriating. we will continue with our investigation tomorrow. but i will say the testimony that came today is helpful in preparing us for tomorrow well as well as to remind the american people i think it is good to communicate with each other about our experience, not theoretical. mr. gendernalik has real experience with the system, and your family had a real experience. we need to hear those stories. not anecdotes, what really happens. and as dr. stern told his experience as well. it is very important because i think frankly whatever kind of system we end up with, the transformation is going to be driven by the power of the

narratives, which we hear from across the country. so, with fat, i want to thank each and every one of you and also to salute mr. potter and ms. peeno. i want to thank you personally and on behalf of the committee for dismissed. we will ask the second panel to come forward.

[inaudible conversations] >> as the staff is getting the the table ready, i just want to remind everyone this is the domestic policy. the topic is between you and your doctor, the private health insurance bureaucracy. i am joined by the ranking member, mr. jordan of ohio. we have ms. kaptur for malae you and other members that have been here throughout the hearing. we want to thank the first panel. we are now going to go to the second panel. we are fortunate to have an outstanding second panel of witnesses. i would like to first introduced ms. karen pollitz; is that correct? this pollitz is the director of the project institute at georgetown university here in washington where she is also an adjunct professor of

georgetown's graduate public policy school. professor pollitz directs research on health insurance reform issues as they affect consumers and patience, focusing on the regulation of private health insurance plans and markets, managed care, consumer protection and access to affordable health insurance. ms. pollitz is a member of the academy insurance and also a member of the advisor report of the california health benefits review program and served on board of directors of maryland health insurance plan as well as the national committee on quality assurance. previously professor pollitz served as deputy assistant secretary for health legislation at the u.s. department of health and human services. from 1993 to 1997, acting as the secretary's legislative liaison on federal health care issues including national health care reform, medicare, medicaid and u.s. public health service agencies and programs. mr. michael cannon, welcome mr. cannon.

mr. cannon as the cato institute director of health policies. previously served as domestic policy analyst for the u.s. senate republican policy committee under chairman larry craig, where he advised the senate leadership on health, education, labor, welfare and the second amendment. he co-authored a book on competition and health care. mr. cannon has had his work published in media publication and as also appeared as a commentator on television and radio. i want to thank you, mr. cannon and ms. pollitz. it is the policy on reform to swear in witnesses before they testify. i would ask that you rise and raise your right hand. do you solemnly swear to tell the truth, the whole truth and nothing but the truth? >> i do. >> thank you very much. let the record reflect the witness is have answered in the affirmative. i am going to come as we did with the first panel, asked each witness to give a summary of his or her testimony and keep the

summary under five minutes in duration, keeping in mind your complete written statement will be included in the hearing record. professor pollitz, you will be the first witness for this panel. you may proceed. we will get your testimony in no and maybe we will be able to hear from both of you before we run to votes. >> thank you mr. chairman and members of the subcommittee. i want to open by saying i am also from ohio. i krepp from the cleveland area when you were mayor so it is nice to be here. i want to thank you for holding this important hearing. i hope and expect health care reform when it is enacted will create rules to prohibit or at least limit a lot of the practices that you heard about this morning on the first panel, but rules will not be enough. there will always be a strong incentive in the competitive insurance market for companies to try to avoid risks, of way and rolling or keeping them

enrolled or paying their claims and so transparency and accountability and insurance is essential and it's very important that health reform try to accomplish that as well. transparency and insurance will involve a number of key changes and most important will be data reporting. when i was invited to testify at this evening i was asked to buy provide data on how often practices like these have been and the answer was i cannot, and neither can regulators or other policy makers, but the information is millable. regulators need to have on giving detailed information about marketing and settlement practices and how coverage is administered so that it will be possible to see when insurers are avoiding risk they are supposed to cover. we don't do that today. the federal government collects no data on health insurance protection even though the federal law requires certain protections already including guaranteed reliability of coverage. for the most part, states don't collect a lot of data on consumer protection and health

insurance either. instead most data collected on an ongoing basis by departments relates to financial solvency and regulators rely largely on consumer complaints as an@@@@@@d n

recisions' had been lodged over a five-year period. bye contrast when this committee asked just three insurance companies how many policies they had rescinded over the same period, the answer was almost 20,000. a new approach to health insurance regulation must require ongoing and detailed reporting by insurers of data that will enable regulators to evaluate how the market works, especially for the sickest consumers. that would include data on the settlement on rating practices that issue renewal. regulators must also track measures of effectiveness to see what medical bills are paid and how many are left for consumers to pay on their own. that means insurers also need to report data on provider picks patients, fees', reimbursement levels, health insurance policy,

loss ratios and data regarding claims payment and practices. if regulators have access to this kind of information patterns of problems that affect the sickest consumers will not be as easy to hide. finally, health insurance must also be held accountable for compliance with market rules and consumer protections. as ms. kaptur talked about her of lying additional policies, that's illegal. so it's not enough to have rules were. we have to enforce the rules and that requires resources for oversight and enforcement. in addition it's time for the federal government to take a more pro-active role in health insurance regulation. current federal capacity for private health insurance oversight and regulation is practically nonexistent. last year a witness from cms testified that that agency dedicated only for a part-time staff to the private health insurance matters for the entire nation. further despite press reports alleging abusive recission practices in violation of federal law the agency did not

investigate or make inquiries as to whether federal guarantee readability protections were being adequately enforced. this outcome is not surprising when you enacted in 1996 congress created important federal rates for consumers but limited federal enforcement authority and instead, chris opted to rely primarily on state enforcement by adopting a so-called federal fall back in force at structure. federline force that is triggered only as a last resort once a finding is made that states have adopted in substantial and first minimum standards. under the stricter it's all surprising that the federal government lacks oversight and enforcement capacity. it doesn't make sense to build and maintain capacity that you don't expect to use. so you rely on the states instead, but unfortunately limited regulatory capacity is a problem at the state level as well. insurance department staff have been cut and states are overworked. it's time for the federal government to assume any effective role in enforcement of

standards and to require transparency that so that we can see how coverage works. >> i thank the gentlelady. mr. cannon you may proceed. >> thank you for the opportunity to share my thoughts about providing secure health insurance to american consumers. how do we ensure insurance plans honor their commitment to care for the sick? it's a problem whether we are talking about private insurance plans for government plans. private plans, with a true indifference or competence, do sometimes sure, those commitments. sodas' government. in 2007 a 12-year-old maryland boy died because he couldn't access to care he was supposedly guaranteed under a government health plan. as former senate majority leader tom daschle acknowledges, even if we achieve universal coverage, some percentage of patients will fall through the cracks. health care is a human endeavor. that means perfection is not an option. our task is to find a set of rules that least often leads americans to the position of

this family. in my written testimony a study a body of literature that find slightly regulated insurance markets perform much better than critics suggest providing secure coverage to millions of americans with high-cost illnesses and i also express my concerns with reform measures the congress is considering for its simple legislation before the house would compel tens of millions of americans to purchase private insurance that would shower private insurance companies with billions of dollars of tax payer subsidies and what i would add because insurance companies are doing a fantastic job. another provision of the legislation would impose price controls on premiums. as president of, as economic adviser larry summers has said, quote price control inevitably create harmful economic distortions. an example of one of those distortions if you think insurers try to avoid the sick now wait until government price controls force them to sell a $50,000 policy for $10,000. it's worth noting the insurance lobby's support both proposal to

make health insurance compulsory and proposed price controls because they would subsidize and protect insurance companies from competition with your we support a new government health program or oppose we should be able to agree we don't need to further subsidize and protect private insurance companies from competition. thank you very much, mr. chairman. >> i want to thank mr. cannon and ms. pollitz for the test on it. we have votes right now and i would like to just invite you to do one of two things come and this is up to you. you can either respond to written questions from members of this subcommittee and they will be included in the record, or you can come back and probably in about 45 minutes at the conclusion of the votes and then we can go to a second round of questioning some at the panel. so what would you -- what would you prefer?heir employers are making those

decisions for them. >> so, let's go for years down the road let's say that a health care plan is enacted which requires that people have private insurance as it looks right now people, there will be tens of millions of americans faced with a decision to either purchase the private insurance or pay fine. would you like to comment on that? >> i did with that highlights is this proposal to mandate people to purchase health insurance and insurance compulsory in the united states amounts to a tax on a lot of middle class families if they purchase the health insurance, as president obama's economic advisor, larry

summers, advisers, when you force them to purchase something they don't value or pay more than the market would demand that is a tax. if they don't purchase the level of coverage and have to pay what we euphemistically fine a penalty that is a tax as well and in the house legislation there would be a tax on the individual equal to 2.5% of income of adjusted gross income, and if the individual's and player doesn't offer them coverage there would be a tax equal to 8% of payroll. now mr. summers and the congressional budget office and economists probably acknowledge that 8% payroll tax would be paid for by the worker because it would reduce their earnings. so when you're talking of there is a 10.5% tax -- >> is that axiomatic? >> it is. >> so you're saying that if the workers have a health care benefits they are in effect paying for it? >> absolutely. and i think in fact that is why

-- i think that's the great -- the biggest drawback or the biggest problem with the tax preference from the employer sponsored insurance. quote on quote employer contribution to the average family plan in this country amounts to $10,000. that's $10,000 of the worker's earnings the worker doesn't get to control. the government, by creating this employer sponsored insurance, essentially takes the $10,000 out of the workers' hands, gives it to the employer and puts the employer make the workers' health insurance decisions for the worker. so yes, i think that economists -- in fact there is a survey of of economists recently, and the broadest area of agreement was on the question of whether health benefits actually come out of wages or profits or something else. 90% of economists, health economists acknowledge -- agreed with a proposition that yes, workers pay for those health benefits through reduced wages and the same is true of any tax penalties congress might impose.

>> thank you, mr. cannon. professor pollitz, i want to speak to you about how government can help the public make better choices about health insurance. in your testimony you pointed out something that many people may not realize, and i quote, the primary purpose of health insurance data collected by state regulators today is to monitor the sovereignty of private health insurers and that, quote come in for some of consumer protections and health insurance today is largely triggered by complaints. i think the average person is or would be surprised to hear this. so, who does monitor things like accessibility, affordability or security of private health insurers or how accurately or fully do they pay on claims? >> it's not -- it is not will monitor or consistently monitor today.

i think state insurance regulators strive mightily to protect consumers as best they can. their resources are limited. >> would you describe the regulators -- to make a lot of it is reactive. a lot of times in response to a complaint, as little as one complaint a state regulator may initiate a broader investigation of a company or of a pattern of practices. so i don't mean to suggest state regulators are not out there giving their best effort. but de are very strapped in terms of resources. they are very broad in terms of the jurisdiction the need to keep an eye on, and with limited resources, i mean, if i were one and i have limited resources, i would probably start with solvency myself because of the r

i'm going to go to my colleague for five minutes and then we will go to one more final round of questions. >> thank you, mr. sherman. mr. cannon and miss pollitz, thank you for being here. mr. cannon, let me ask about

this idea of in her state broadening the field and increasing the market and competition. the first panel there were i believe dr. peeno and mr. potter talked about the cartel that excess in the insurance market right now. their solution was to have the government to pete. increase competition by having the so-called public auction, the approach that i would prefer is this interstate market. tell me your thoughts on that, what the research shows. it's getting -- this is now being debated a lot and talked about as a possible improvement. let me hear your thoughts. >> well, i think that the insurance markets in most states are not on like a cartel, and i think the reason is that is because each state sets up barriers to competition that protect their domestic insurers. what those are essentially state

licensing laws. there is nothing wrong with the state licensing law per say that what they do is say unless your insurance policy is licensed by this state, said the commonwealth of virginia, then you may not sell it to residents of this state, and so what that means is residents of virginia can of purchasing health insurance policy available in maryland or north carolina. that is particularly cruel to residents of let's say new jersey who face some of the highest health insurance premiums in the country. they cannot purchase health insurance from across the delaware river in pennsylvania where it is often less expensive. so, what happens -- so i do think there is insufficient competition in insurance market. the president and other supporters of a government program have said that and a competitor can keep insurance companies honest if that's the case and i think dozens of new competitors to do an even better job so if congress, using its power under the interstate

commerce clause of the constitution were to say states can license of insurance, but they cannot prohibit their residence from purchasing health insurance licensed by another state. but that would do is what bring new entrants into the markets in each state, give individuals and employers a lot more traces of health insurance plans, and increase competition. but it would also do is a would give individuals and employers the power to avoid unwanted cost the state regulations. a lot of state regulations are in fact consumer protection, solvency standards that ms. pollitz were talking about are i think a prime example. but when you start looking at how the states require people who purchase mandates they may not need or try to imposing taxes on the wealthy in order to subsidize -- >> [inaudible] >> boe azar increase -- those are regulations that increase the cost of insurance, and make it affordable for some people so you can't really call them consumer protection if they are

keeping people from purchasing health insurance and i think letting people purchase from across the state lines will allow people -- >> thank you. ms. pollitz? >> the proposals to allow sale across the state lines in the congress to date are a prescription for insurance fraud. there would be little practical ability of the licensing state to regulate insurance sold across the 50 states. imagine if the ohio commissioner had to keep track of policies sold in california and texas, they are not set up for that. it's the notion of peacekeeping mandated benefits as a total red herring. the reason that health insurance costs more and new jersey compared to maryland, where i live, which has been cited as the champion of mandated benefits, supposedly we have more in maryland than anywhere, is and new jersey everybody has to be offered health insurance. you can't be turned down because you have cancer and in maryland you can so it's cheaper and

insurance will also -- >> mr. cannon talked about that in the previous question. >> we have to come back to what is the basis in the competition in health insurance right now, and it is competition to avoid sick people and their cost and the more than you dilute oversight and regulation, the more easy that will be at the more it gets somebody at risk. >> a response from mr. cannon. >> karen raises a couple of important issues. one of them is how to enforce these rules written by an out-of-state legislature or insurance commissioner. and like there's a fairly straightforward way of doing that. you have those regulations, whatever they may become in the insurance contract which can then be enforced and the purchasers home state and in their courts. so, and then the domestic -- the purchase are's insurance commissioner could even play a role there. what's important is that the individual consumer or the employer be able to choose the

rules, and they could be enforced at home without having to rely on an out of state insurance commissioner. as for the cost of mandated benefits, the cost estimates vary but the commonwealth of massachusetts recently estimated that the benefits that are mandated in that state, at 12% to the cost of premium, so this is a substantial chunk of money. >> sure. >> mr. chairman, it looks like it is just you and me. i yield back to you. >> it's just you and me, this town is big enough for both sophos. -- both of us. i would like to go back to ms. pollitz and talk of standards of care and possible scenario. are you aware of any data on the inconsistent application of standards of care by private insurers? is it possible that within taking to different people with

the same illness insured by the same private health insurer that they will be treated different by the insurance company, is the possible? >> i'll i believe it is possible, yes. >> is there a guarantee of a person buys coverage will guarantee coverage? >> not an ironclad guarantee, mel. there is a contract, but it's very hard. >> there's no guarantee. >> that is correct. >> i would like to ask about private insurance as compared to medicare. congress and general public are able to examine the the date, the reasoning behind how medicare pays for medical care but the private health insurers keep their decision making process and guidelines have been beyond fake books of confusing terminology in other words medicare actions are transparent and private insurers are not. they provide the same service ostensibly to cover medical

expenses. is there any justification keeping insurance company definitions of medical necessities proprietary? >> i don't think so, no. >> why would the insurance companies want to keep that proprietary? >> i believe they argue so doctors and other providers don't try to gain the system and sort of code their billing so that it matches up with the guidelines would be. but i've you heard testimony on the earlier panel that there is also an effort to just kind of try to hide the ball and create options for the insurance company to deny claims if they feel like they want to do that. >> other data nationally about the frequency of wrongful denial of claims or i tried a couple of years ago to study the results of the external appeals programs and

the data are very sparse. what you can find is suggest that we need to be doing a better job and looking much more carefully and not relying on this sort of end result of a patient having to go through all of the steps and appeals before they can get to a system where the records will be kept. >> anything else you want to add about that then you haven't told the kennedy about the data collection? >> i do think, mr. chairman, we need to think carefully about the ways that insurance companies compete now to avoid paying the claims. certainly there are reasons we don't want to pay for care that's not medically necessary. we don't want to pay for fraud. there are reasons for vigilance for sure but i think we need to think from the patient perspective about what we need

to track so that we can make sure decisions are justified and making sure they are in the patient's best interest and build the data reporting requirements from that exercise. we need a proactive and patient approach and i hope i will be a central part of any health reform legislation that gets enacted. >> i would like to ask a question of mr. cannon, you are here representing the cato institute the constitution on this united states which comes from the cato institute including its introduction.

under our constitution the general welfare clause which has been a lot of discussion about it, there are some of us to believe both the preamble to the constitution and article 1 section 8 discarding the general welfare they evolves as a nation and specified health care is part of the general welfare that a logical extension of that would be to have health care for all tied by the principal of the constitution of article 1, section 8 and the preamble. tell me how you see that. >> the question is about the general welfare calls of the constitution. there is a difference of opinion among the legal scholars what that means. i'm not a constitutional scholar but let me give my best take

with that disagreement is. there's some that read that at an expansive grant of power that would say to give congress the power to the constitutional authority to enact single payer system or make health insurance compulsory for all americans. i think that the perspective of cato's constitutional scholars is that if that were true, if the framers of the constitution and for the general welfare calls to be such a sweeping broad comprehensive grant of power from the states to the federal government the rest of the constitution would be surprised superfluous. the general welfare clause would have taken care of everything so the structure of the constitution itself argues against the expansive interpretation of the general welfare calls you suggest. >> one of the things i've always been impressed with is the preamble which cadel provides to

the declaration and the constitution and one of the things they say, my colleague, is, which is the foundation of the political system. and some of the issues being brought to us about conditions related to health care in america are laden with moral consequences and more overtones and there is like an underlying reality of what their health care, if health care is a privilege based on ability to pay or is health care a fundamental right in the space society? there is like this are, where you go from economics which can be a moral to the imperatives of a democracy that relate to

morality, and that is a part of the backdrop of this national discussion that we are having right now. is it a right or is it a privilege? and this is part of our unfolding democracy trying to decipher what the meaning of this document is, and also doing it in the context with the present-day needs are and what the very human conditions we find ourselves in and the underlying morality of is it immoral for somebody to be denied care when they are paying for policy?@@@@@@@ @ rrarra

medicaid funds to fraud. so, your thoughts on we met with health care professionals. we get health care round tables in the district over the recess, and we had so many people tell us that the government is already 50% of the market right now and that providers don't get compensated for the care they provide when they treat folks in the medicare medicaid system there for the folks in the private insurance have to pay more. it's the way the system set up right now. i'd like both of your thoughts and start with mr. cannon.

this premise that underlies the entire hearing today on somehow the government can do it better because as you can gather i have reservations about that. >> i think, congressman, the state of america's health care sector right now is good evidence the government does not do a very good job of managing health care and i will give you a couple of examples. you brought up the medicare program that program has been estimated one-third of medicare spending does absolutely nothing to improve the health of patients or in proved patient satisfaction. it provides no value to them whatsoever. the -- it is often cited we have -- that is an enormous amount of waste even larger than estimates of fraud in the medicare program. it's been estimated as many as 100,000 americans die due to medical errors and hospitals. i submit medicare is probably the biggest reason because

medicare's payment system penalizes doctors and hospitals when they succeed reducing medical errors it makes it a losing business proposition rather than have competition between the different payment systems that bring different dimensions that would improve all of its dimensions of quality medicare gives good marks on some dimensions of quality that absolutely horrible marks of other dimensions. one of the biggest problems the president talks about is the problem of pre-existing conditions, people with high cost ... who lose their coverage and then cannot afford the premiums they are charged on the individual market. that is a problem that has been fueled by the government for 60 years and the reason is 60 years ago they created a preference for in supplier sponsored coverage that's given the basis we have right now that is so cruel to use the german's words immoral it takes insurance away from people at the moment they need the most when they lose their jobs and of those people are sick they have got a pre-existing condition.

if i may finish one of the studies i site in my written testimony finance it looks at the empirical data and find people who purchase insurance directly from an insurance company, people with high cost allowances or half as likely to end up on a short as people who purchase high-cost patients to purchase health insurance from a small employer. >> one of the things we should do in the legislation i co-sponsored for the family that has to buy it on their own they should get the same tax advantage we give employers that provide to their employees. >> that has been in place 60 years now. >> one of the key things we have to do, ms. pollitz, go ahead. >> no problem, i think the different -- the two differences, one is about accountability, and there is a different level of accountability for government than for the private sector. there just is. i think we should try to enhance and strengthen accountability in

the private sector with stronger oversight and regulation and enforcement regardless how you end up structuring health reform i think it is essential. but the government programs will always be accountable in a different way directly to the voters they will always be open in a different way compared to commercial plans. that's the way we have set up our government. >> what's get an argument from mr. cannon and others the marketplace are directed to the consumer. >> so that's my second point. >> we need to be added to a true market place. >> that is my second point, a marketplace of competing insurance company will always in health insurance compete to avoid sick people. that is the overpowering incentive. it beats everything and always will even in a more regulated marketplace and trends. place your always going to be trying to catch up with that. introducing a public component

to that, it's kind of a funny notion. it's not like the government is going to compete to make more profits than blue cross or wellpoint. it is the government will be there offering a choice that -- >> if there is a public option eventually the public option will dominate. even -- even congressman frank said a public auction will lead to a single payer system. that is this idea somehow it isn't going to do that. i don't think it flies. most americans have already figured that out. >> but mr. jordan of is on the board several years of a public program in the state i live and it was administered by a private insurance company and so, you know, and they know how to administer claims and that is definitely its own heart and skill and as the consumer rap on the board i would ask questions why do we have so many denials

of pre-authorization for example for mental health services? that turned out to be one of the biggest services any of our patients used even though that wasn't the major diagnosis it was stressful to be sick people need help. one of our leading sources of complaints had to do with denial for mental health services and so i said why is that? why are we doing this care? it turned out of this paperwork. people were supposed to jump through the soups and they had to do it within a certain number of days, and it was just a load of hoops they had to jump through and i said okay. once they go through these hoops how many were actually denied and we had thousands of denials and they said seven and i said really? then why are we doing this? why are we making them jump through these hoops? this is a thing you a lot of money. i said i don't want you to save a lot of money. we are here to pay for care. they are sick. no one else will take care of them this is our job with the

tax payers have given us dollars to do. we did that. i can't imagine that what happened in the company that dr. peeno used to work for. it is a different incentive and competes in a different way and i think we need to create a different standard for covering health care and if private insurance companies can't compete against that and survive, so what. we took care of patients who were sick and is and what this has to be about premier li? it seems to me that has to be where we start the discussion. >> week thank the gentlelady. i want to thank mr. jordan for his participation in this hearing. and thank both of the witnesses in the second panel for their participation as my friend is leaving the room, i just want to comment and the staff can really this to him, that there are some cases i suppose where a public

auction may lead to a single payer system at one point. it will create a single payer system and i would like to see a single payer system. we have 85 members who signed on to a bill h.r. 676. that bill in its fullness is not likely to have hearings, and while there might be a vote it needs a movement behind that needs a little more strength. while some public options may lead to single-payer i would like to offer the opinion it is unlikely the current status of the public option that is suggesting h.r. 3200 would lead to single-payer the cbo said in one of its studies 9 million people at most would be covered

by a public auction will read the first iteration of the plan is to have 129 million people covered by. so we have 9 million people that particular plan may not pose much of a risk or frankly competitive position vis-a-vis the private insurance. i just wanted to mention that since we were talking about public options. you are much appreciated for the time you spent and for your patience, and this committee stands adjourned. i want to remind people to mauro we will hear from executives with six of the major health insurance companies and answer to the task some of the questions raised today. we are appreciative of your presence. the committee stands adjourned.

the presiding officer: the senator has one minute. mr. wicker: very simply, this amendment would allow law abiding amtrak passengers to securely transports firearms in their checked baggage. under current practices, all of the american domestic airlines permit firearms in their checked luggage. other american passenger railroads also allow checked firearms. only the federally subsidized amtrak prohibits law-abiding american citizens from existing their second amendment rights in checked baggage. on april 2 of this year the

senate passed a similar amendment to the budget with 63 in favor of the wicker amendment and only 35 against. during the time since then, amtrak has made no effort to respond to this overwhelming bipartisan vote. it is my hope that we could get a similar overwhelming bipartisan vote today and result in amtrak ending this unfair practice. i urge a vote in favor of the amendment. the presiding officer: the senate will be in order. the senate will be in order. please take your conversations out of the well and out of the senate. mrs. murray: mr. president, i would ask all of our senators to please -- the presiding officer: the senator from washington. mrs. murray: to pay attention to ask what we're voting on. we did vote on a similar amendment during the budget the debate. these amendments are very different. the amendment to the budget resolution never put amtrak's funding at risk. that amendment would have prohibited an extra reserve fund from going 0 amtrak if it didn't allow firearms.

the amendment that we're now considering does something much more drastic, it will put at risk amtrak's appropriations. in order to receive any federal funding under this amendment, amtrak would have six months to build a process for checking and tracking firearms. it would have to find the manpower necessary to screen and guard firearms and it would have to purchase the equipment necessary. now there is nothing in the underlying appropriations to pay for any of that. so this amendment is going to put a severe burden on them and if they do not comply, amtrak will shut down. mr. president, i think it's very important that we be careful what we're voting on here and i ask my colleagues to oppose the cccccccccccccccc e chairman of the nasa

committee reviewing man's space flight plan. live coverage continues on c-span3. >> really seems to be the rush now to the whole idea of a clear retirement date for the shuttle. your committee seemed to arrive at a very different conclusion in terms of the actual amount of

financial wedge that would bring about. can you describe the difference, very different conclusion, how you reached that very different conclusion? >> yes. of course. first of all, our committee believes that we need to fund enough in 2011 to continue shuttle launches through the first six months so we don't have this compression of launches and pressure that tends to build's. sometimes called launch fever in the vernacular. the committee -- let's see. i lost my train of thought. the question? >> the idea -- how did -- explain the very different conclusion that you all reached versus the mindset of stopping the shuttle by a more or less date certain and then being able to shift that money to next generation? >> all right.

the -- the common thinking up until now has been that, stopping the shuttle would create a substantial sum of money. that, as you say, would let you do exploration in the future. but there's some offsets that one la to consider that i think probably haven't been considered adequately in the past. one of those offsets is that, if y you -- doctors really have to pay for the rides on the russian launch vehicle. and so there's an offsetting savings. in addition, as one looks at the the cost of operating nasa. much of the yoechber head is filled by the space shuttle program. just because the way the books are accounted for.

so the space shuttle program stops unless you make a major cut in nasa's overhead and by overhead in this -- i should say fixed costs rather than overhead. unless you make a measured cut in the fixed cost of nasa, then you have a situation where those costs have to be transferred somewhere. and the likely place for them to be trrd would be the consolation program. there's not really a saving, just a bookkeeping ship. when you go through the various nets and a few more minor things, it looks like the savings, by shutting down the shuttle fairly hard stop. and on the order of 2.5 billion a year, significantly less than some of the numbers quoted. >> okay. i think i understand your reasons for saying that as of now we shouldn't plan on mars as at way -- going to mars in the way that's been described.

we can't do it safely in that way, based on our knowledge now. my concern is that the way that grrrr'&" interpreted or the sort of overarching political action to it? >> we very much shared that exact same concern, and discussed it at some length. the -- the report, when it's released, i think you'll find makes a great -- puts a great

deal of emphasis on the fact that mars is to be the destination we're aiming at, and that there is some hokework that has to be done on the way to mars, and that includes such things as affects on humans that then go sbee a less than 1-g environment. the affects of class -- things one might need to do to go to mars, and so our message has been to to make very clear that mars is still a goal, but we're just not ready to go directly there today, but go intend to get there. >> well, i would really underscore that westeconcern, a again, i'm not arguing with either your analysis or what you tend to communicate. i'm arguing about how it may

come across 3 let me go at the same issue another way. what, short of mars, in this list of possibilities, is there that is new and different and that can really excite a lot of people that we haven't done before? >> to the point of your question, define a flexible path option. if you had to follow under our report, it's i think option 5, and a concern we had even iffy can set up for mars today, you add another 15, 20 year period, during which we don't get to mars, and how do you hold the public's interest when you say send money in in 20 years and we'll put a flag on mars? so we tried to define a program called this plexable pattern.

as you go along you could have things that not only engineers could point to, but the average citizen would look at and say it was significant. and we think those intermediate miles still would inclues, illustrate which is circumstance come vating the money. another is possibly landing on the moon, although we don't think that's mandatory. another would be to circumnavigate mars with humans, i'm talking about. another that is of interest would be to doc with an asteroid, not only for the scientific receipts but forgetting how you conduct operations like that and should some day we find a last asteroid, i will be glad to know what they're made of and so on. the role mum humans might play. and then the possibility of landing on a mars moon.

with the notion that not only would that be interesting place to land from a scientific standpoint, it's also interesting in -- exploration of mars. the presumption, our dmt has is, well before we go 0 to mars with humans we would send additional kplor explorers there, but there's -- it's relatively ram to and because of the transit time for communications, even the speed of light, you're talking about tens of minutes. they get a signal out, get a signal back, depending where you are in the orbit. that's have very hard to where

the transit time, surface of ours is very small. that the astronauts, moves, would offer explorers of the planet and learn a great deal before you committed as a human to landing on the planis marches. this is a much easier task, probably, because if you think of the science talk about space as having gravity wells in it, once you get in one of those wells it takes a lot of energy to get out of. you're probably familiar with this. and then the earth is a very deep gravity well. mars is a deep gravity well and the moons of marches are quite shallow. so it offers a nice, promising approach. other places of interest is, what are called the points in space when you have two large bodies and a small body, or three bodies where if you -- in

the relative position to the two large oobts, in this case, the moon and the earth, and some are stable in the sense you put a spacecraft there,s it had stay there. others it will slowly try to drift away. you have to push it back. those thing, interesting to put telexoebs. interesting for refuelling stations, filling stations in space, and we've got one of those. there are lots of exciting things one to do along the way. >> okay. thank you. mr. chairman i have several other question, but let me defer to someone else for now. >> mr. augustine, right out of the box the president is going to have to answer the question whether or not the cost of human space exploration is worth it. so i think as i said at your

opening hearing in washington months ago that the report of your committee is going to be very decisive in influencing the white house. w why don't you just state for the record what your committee feels about the cost of human exploration being worth it? >> it's a question that we obviously addressed, and one that i wish i could provide a our -- it's a question that says, where would you spend that money? there are other places you could spend it, and we don't have that background and health care. we don't have pa black i will

try to answer that question, caveat, prabs it's only the president and perhaps yourselves that it wake that judgment. we think that the argument about human space flight being worthwhile, because, for example, the science it gathers. it's been an unfortunate argument for me. we don't think we should base this on the cost of it, the cost based upon the benefits it gives to science. nor do we think you can justify it purely on the basis. the impact on technology. the impact of education. all of those thing are important and indeed has a positive impact, but we think we have, to put it bluntly, trapped ourselves by trying to justify human space flight because of the benefits to science or what have you. we think the justification has to be an intangible justification. a justification that says that

the purpose is to prepare a path. to put human beings into the solar system, which shows america america's. the leadership of our technology that provides inspiration to our students, to our young people, to, going to math and science. and have the kind of impax, that apollo 11 had during the time of some tra sflal our tunt country. these are intangibles but we think not non-important. we think they are important. we don't diminish the other benefits. they're there, they're real. they don't justify a human space flight program. the question -- and i'm stop in a moment here, mr. chairman -- the question here arises, of course, perhaps should you spend money on human space flight?

i would argue that's an unfair question. we live in a nation where we spend $7 billion gambling on the super bowl last year. we spent $32 billion on videos, and going to the movies. we spent i think $65,000 on imbree legal drug. it's clear this nation could afford -- i'm speaking for myself now, it's clear that this nation can afford a strong human space flight program. it's simp lay problem of priority. >> as your committee discussed these intangible benefits, no doubt you noted also some of the tangible benefits. what do you think they are as we continue to push forward? >> the -- let me take the international space station as an example, if i may.

we spent over two decades constructing the iss, and we now are talking about using it for only five years. during those five years we don't have muchen in available to pay for the science that would produce these tangible benefits. there at one point was a large number of scientists who wanted to kwuct science they've somewhat dwindled abate because of the lack of funds. given those funds, those scientifics could have a significant a work to be done. significant lab science work to be done. we've done some amaze things in terms of technical operations and i'm not going to used word, almost routine but certainly common. we don't have to do that.

we know how to dock. routinely. and there are benefits like that. then in addition, there are always the spin-offs that one gets, where you develop technologist for the space tags or for. >> senator hutchins? >> if i understand correctly, and correct me if i'm wrong, yesterday the house in the house you indicated that it's adequately funded, so the consolation program country lir under way is a good program and coupled with the shuttle, until a replacement, human rated capability is developed, either through commercial bender or sayres, space flight could be closed and the international space station support and

utilization insured. is that your view, and issance in your view, $3 billion with the cost of living, or 2.4% increases per year, would you adequate for that kind of approach. >> yes. let me try to be clear. it would not be argued that you could conduct that kind of program with the existing budget. could be ark gooed with the 33 billion these could conduct such a program. as you know, there are no funds to take the i scht scht and the current program beyond 2010. the iaa. excuse me, 2015. the shuttle, 2010. >> and is it also your view that the consolation program constellation program, together with an extension of the shuttle

flight program would be a good approach to closing the gap and utilizing the space station? >> we looked at a lot of options to try to close the gap. and it's hard, that the gap would be more like seven years inxed of the five people talk about. the only viable option we can have is to continue to operate the space shuttle. to to that, of course, one has to commit funds to the shuttle. otherwise it could be spent on the expiration, preparing for for the exploration program. and what would recertify the shuttle to be sure safety issues were taken care of. but the answer to the question is, not only is the shuttle closing gap, probably the only way to close the gap. >> so you think that option is an acceptable -- i know you didn't pick a recommendation, but that that would be an acceptable option? >> it's a viable option, yes.

>> and then on the safety issue, do you believe that the "columbia" accident investigation recertification standards are adequate, and those were, continue to be met, that that would -- you could never ense@@@@@@@@ @ ,grr that caveat, it is

our belief that nasa, those complete requalification steps that we continue with reasonable safety. we base that partly, of course, one of our members, dr. sally ryde, was a member of that, "columbia," also the "challenger" failure evaluations. but it is our belief that that could be done. >> okay. on the issue of the commercial development. i have been certainly a supporter of the commercial overdrive transportation system. i think that is a viable area for private investment and also for kind of a false acquisition

where we need it. but i do want to ask you if -- if we have that -- that private capability, but not the ryan or the aires ready to go and we still have the gap and our own nasa capabilities. do you think that exclusive reliance on the commercial development is justifiable in the face of the need to utilize the space station or does that concern you? >> the reason we offered options that depend heavily on commercial development are that we're trying to free nasa's money and talent to tackle the tough problems going beyond earth orbit, rather than running a trucking service earth to orbit. we think we're in a situation a little like the airlines were,

when the government stepped in and awarded contracts to carry the mail, that was the thing that made the airlines viable. and today nasa has and nasa pursuing this opportunity that you described. it certainly bears risk. many of the firm invoched have not built matsch are launch systems. in our evaluations we were particularly concerned a assessing capabilities. for example, some of them claim they can have vehicles ready with three years. we think it's more like six years. but certainly there's no reason that these companies can't produce a viable capability -- >> and would you be comfortable that they could provide that service if there is a gap and that that is reliable enough?

>> i think the answer is yes, but fortunately we don't have to answer that at this moment. but there are other alternatives available, including fresh launch vehicles opinion continue to use the russian launch vehicle. none of which are attractive to me as an american, or to i believe in international programs, and i believe that if you're going to have international programs, that are meaningful, we're go going to have to get used to having other nations on the critical path, at the same time, there's no more critical path i think, to be able to carry astronauts to a lower orbit. that might be the exception where i think we should have a capability. my answer is that there is risk. not trivial risk, but fin our mind, it's a risk worth taking. >> thank you. thank you, mr. chairman. >> following up senator

hutchison's question on the commercial, you're really looking at the cargo capability on commercial, because that next step of the question of safety for human capability, what did your committee come up with on that? >> it would be our recommendation that as nasa develops new launch vehicles, most new launch vehicles that it would make arrangements so they could be human rated at an appropriate time, and so we think it would be wise to those vehicles. >> and did you -- did your committee have a time at which you think that they might be ready for human-rated commercial vehicles? >> i think, mr. chairman, i better provide that for the record. we did evaluate that, and i can't remember the time. it's not within the next six years or so.

and i will provide that for the record. >> senator inviter. >> to directly follow up on that, is that to say that you would agree with asap in their '08 report that it's unlikely that c.o.t.s. would be done in time, human-rated to minimize the gap. >> that's our view. >> okay. going back to the back and extending the shuttle, if -- if you extend the shuttle at least slightly into 2011 as you have talked about, simply to ensure that there is no launch fever, but not beyond that, and you accept a gap, versus extending

the shuttle beyond that to close a gap, how much do you -- let me put it this way. how much do you sacrifice in extending the shuttle beyond that to close all of the gap in terms of pushing forward the next generation activity? >> i am doing this calculation mentally, but it would probably be about $18 billion over the close -- to close the gap. by using the shuttle. it would be the incremental cost. >> and what does that translate into time in terms of otherwise using it to pull next generation forward? >> well, i guess the way i would characterize that would be if it would let you go on the $3 billion additional profile for six years. these are not precise numbers, senator vitter, but which i think the most important thing

is not so much the time it pulls forward, but when you reach these big milestones of having new launch vehicles, you would have money to have -- develop things to put on top of them to go somewhere. >> wouldn't you also, presumably, develop the new launch vehicles at least somewhat sooner? >> if you use that money, you would probably be able to accelerate the launch vehicle some, but i don't think it would be -- you know, certainly, if you spent the money, for example, on the aries 5, you could clearly draw it forward, and i don't know the amount, but probably significantly. >> i'm not asking for a yes/no answer. how would you suggest we analyze that difference? in other words, extend the shuttle and close the gap versus accept a gap, try to minimize it, but be able to use that money toward where we're

ultimately going? >> we did do that analysis. and we'll provide it. it was our conclusion that continuing the shuttle to close the gap is a viable option, and one of the options we offered. and i'm trying very hard not to make a recommendation here. but it -- what runs into the problem, the more money you spend in the near term, the less you can do in the exploratory program. and so it -- to us, the cost of continuing to operate the shuttle is quite high. >> well, that's where i was going. so you certainly agree with my reaction to those figures, that that's a lot of money. >> indeed. >> to continue the shuttle. you know, i represent louisiana, which includes nishu, i'm all for the external fuel tanks. but my concern is, once you start putting off the next generation that much, you threaten ever getting there.

you threaten really building a consensus and a -- a reality that people think we're ever going to get there. and so we don't. do you have a reaction to that? >> yeah. i think you're coming back to the fundamental problem of nasa's, and that is with a budget constraints it's had on it, it doesn't have enough money to develop the next generation system while it continues to operate the current system. and so the consequence of that today is the gap, with which most of us are not particularly happy. and there we had another problem in that we complete the aries 1, there will be another gap, what are we going to do with the aries 1 and the or i don't know once we get them, and when we complete the aries 5, there will be no lunar excursion module, if you will, lunar lander, or a lunar surface system to land it.

so this baby is just the first of three or four gaps. >> and so just to be clear, this concern of mine, in terms of this tradeoff, isn't solved by the extra $3 billion. i mean, that mitigates it, but that tradeoff is still there, even at the higher funding levels you're talking about. >> the -- the programs we have that add on the $3 billion, one of them includes a shuttle, and it has the problems we've just discussed. the other ones did not include the extension of the shuttle beyond mid 2011. >> okay. that's all i have right now, mr. chairman. >> i want to ask a series of questions around the major themes of your report. the fact that if we're going to have a robust human space program, that it's going to -- we're going have to commit the

resources to it. you specifically talked about $3 billion a year. your architecture is various. and engineers such as yourself and nasa leadership are going to have to determine that architecture. but the goal that the committee has set is to get out beyond low earth orbit. that nasa ought to be exploring the heavens. with the human space program. and that in the meantime, we've got to worry about the work force. so i want to pick up on those three themes, which i think are going to be the major themes that the president is going to have to make his decision on. now, you came up with this idea of $3 billion a year.

if you had additional resources, what would you do? >> beyond the $3 billion? the primary things that we think need to be done in the near future are largely covered the in the $3 billion figure. if you had additional funds, you would be able to probably move forward somewhat. some of the work on some of the work on aries 1, but i think it would be a modest amount that you could accelerate that. you could clearly move aries 5 forward, or an alternative to aries 5, which would be very important. because that really is the long pole in our space exploration

tent. >> is the aries 5. >> is the heavy lift capability. >> heavy lift capability. >> aries 5 is a good example. >> so you have come up with the idea, a consensus, that you feel like the $3 billion is enough in order to support a robust human space flight program in the near-term, without having to short change other missions in science and aeronautics. >> we believe that's true. we, of course, assume good management that additional money, whichever reasonably we would have, and we've also proposed creating a firewall between the human space flight funding, and i emphasize funding, not technology or mutual support, and the science program. because as we all know, the human space flight program is so

large, when it has problems, it tends to cannibalize. >> do you feel that nasa, in order to maintain the most robust human space flight program,@@@@@@lá )) , perhaps good

decisions, i don't know. but i think that we're to a considerable degree stuck with a gap. >> did the committee look at taking the constellation program as it has been defined and see how much it would cost to execute the constellation program? >> we did. and this $3 billion profile that's added permits either the constellation or several other options to be carried out so the answer is we did, and it can be done. >> but according to one of your charts, which we can show up here, and what you call the -- the less constrained budget, the first one under the moon, first operations, right in the middle of the page, the less

constrained, or, in other words, the $3 billion additional each year, with aries 5 is the heavy launch, and with aries 1 and or wry on and crude alio, under that funding scenario, lo and behold, the space station is going to go in the drink in 2015. so your committee also said that's unacceptable. i happen to agree with you. i mean, why would we spend $100 billion building a space station and then put it in the pacific? but that's what the funding profile is for that $3 billion, and with an extension of constellation, is it not? >> yes. i think you're -- i can't see that chart, but i think you're referring to option 3? >> option 3. >> and option 3 was intended to take the baseline program of

record, apply a less constrained budget to it, just as we did in the other cases. and the program of record, as you say, splashes the assets in early 2016, completes the flights -- the use of it in 2015. >> well, how is it with what you call the constrained budget, which is the present, inadequate, i will say, omb budget -- i will not ascribe that to the president. >> nor me, i hope. >> but in the so-called constrained option, and, yes, what you just said, i think is very important. what you just said, "i hope." from your lips to the president's ears. option number 1. constrained. you could do that, no $3 billion

extra. you're still putting the iss in the ditch in 2015, and you've got aries 5 and aries 1. so what are you buying extra from option 1 to option 3? in option 3, you're getting an additional $3 billion. >> option 1 is the program of record, of course, with the current funding. and with that, you basically get launch vehicles with nothing to put on top of them. i'm oversimplifying here, mr. chairman. with option 3, you are able to develop the -- the aries 5 at an earlier time, you're able to carry the international space station for an additional five

years. we've also provided the full amount of money one needs to deorbit the international space station in that option, and what gets a technology report that's rather substantial to begin laying work for the exploration program. and one gets a funding to carry out science on board the science and technology on board the iss over that ten-year period. >> all right. and i think that's the answer. it is the additional designs and technology that you get under that. but let me just point out that the chart, and maybe the chart needs to be refined before your final report comes out. option 1 and 3 are a difference of $3 billion, and yet it looks like they present the same result, because in option 3, you are putting the space station in the pacific in 2015 under this.

the difference with option 4 is that you have replaced aries 1 and orion with a commercial vehicle to get to low earth orbit. >> your point is a very good one. this chart is somewhat misleading in that regard. and there's also the matter that the dates change of when things become available. for example, under option 1, you're probably the in 2030s when you can conduct human exploration missions. that's our view. it's not necessarily nasa's view. and whereas under option 3, you could do it considerably earlier. >> since we have a consensus of opinion that we need to get nasa out of leo, do you have a

preference on the architecture? i know you said you're not in the business of recommending a specific course. but do you have any personal feelings that you want to share with the committee? >> well, you know, mr. chairman, we have all tried very hard to not put you or the president in a position where we've come out and endorsed an option. and you then -- if you don't agree with it after, rebut that. so my answer is that option -- i think i can speak for the committee that options 1 and 2 we deem to be just not viable. the remaining three primary options, each has some advantages and some disadvantag disadvantages. the -- and our committee has never discussed what our personal preferences are. by intent, we have not done that. so i have no idea what my

colleagues believe. i would go so far as to say that these flexible path options are particularly interesting to me. because i'm concerned that if we commit to going to the moon, there's a reaction of -- as a primary objective, many people's reaction is, well, we did that years ago. why do that again? if we take down the iss -- iss, so you don't have things happening between 2015 and 2020, you have the problem you just described, mr. chairman. and if you say we'll go to mars right after the moon, there's such a long period of time that how do you excite young engineers to want to commit their career to that? how do you excite taxpayers to want to pay for that? and so to me, there's a great

merit to having some interim milestones along the way to mars. still going to mars, ultimately. but where you can point to significant technical engineering, scientific, if you will, advantages and accomplishments. but what i'm saying, to be more specific, is that currently option 5 carries that opportunity. now, you can marry that opportunity with some of the other options, as well. and, indeed, we've done that with option 5a, for example, which ties into the a version of the aries 5. >> at the end of october this year, nasa is well on the way to doing a full-up flight test of the aries 1, what they call x. and what it is is the four segments of existing solid

rocket boosters with a dummy seg on the top with a dummy orion on the top, and to fly it, see its dynamics, the avonics, et cetera. did your committee discuss any attitude about that particular test that's right down the pike, less than six weeks away? >> the committee did not discuss that. i did discuss it with -- myself with the administrator of nasa, and that is, of course, his call to make. and i have enormous respect for his ability and judgment. were it my call, i would fly it. and the reason is that i think we'll learn important technical -- we'll gain technical knowledge that we've paid a great deal to get, and we should get it. and if we continue with the aries 1 program, it's an important step. but if we don't continue with it, it's an important piece of information to have as it relates to the aries 5 and other

possible options. it's our committee's view that the aries 1, while it has technical problems, and some not insignificant, there's no reason to believe that good engineering and sufficient funds won't make the aries 1 a very good vehicle in time. >> let's talk about my third major category that i think that the president, in making his decision, is going to have to look to. and that is, how is he going to keep this extraordinarily talented work force operating? share with us what your committee deliberated about that. >> that's a very key part of this whole question. needless to say, this is a rather esoteric business, and it takes years, i've observed, to

begin to understand some of the subtleties and to gain the culture that goes with launching rockets. one of the reasons being that this is such an unforgiving business. we generally don't get recalls in this business. nasa has, without question, the largest talent base in the world today to conduct space activities. both human and robotic. that's a national treasure to us. the options we've offered beyond the two that i've suggested are probably not viable all have about the same -- well, they have the same overall budget, and unless one makes a major shift in how one conducts business, the overall nasa employment -- excuse me, should stay about the same.

however, the mix of that employment will certainly change. we'll need different talents. for example, if we terminate the shuttle to 2010 or early 2011, the people who have been focusing on launching shuttles are different people probably than some that would be needed to build an arrest res 1 or an arrest res 5 or whatever, shuttle vehicle. so there will be changes in skill. we looked at two kinds of asset when it comes to human talent. one is just the overall work force, namely jobs. none not an important subject at this time. on the other hand, it's our view it would be tragic to view nasa as a jobs program. nasa has so much more to offer than just creating jobs. the other we looked at are the critical skills that only people in nasa or the industry are likely to have. those, we think, it's very

important to preserve. and we need to consciously go out and do that. and an example -- pardon me. an example would be the large, solid segment in solid rocket motors. it's an art as well as a science to build those things safely. and if we lose that capability, it will very hard to get back. ability to work with liquid hydrogen, liquid oxygen. we would like the ability to do that in space, as well as on earth. so those special skills we have to find a way to preserve, for sure. and i guess, mr. chairman, if i could extend your question just a little bit, one last comment, that would be that nasa has, as i said before, very high fixed cost base. it makes it extremely hard to create new opportunities and options when you have that fixed cost base. and part of that fixed cost base is the centers, the work force, the facilities, and it would be our hope that the president and the congress would give the

administrator of nasa a great deal of latitude to manage the resources that he's responsible for. >> and i want to underscore that