i quoted a constituent of mine who had written and about her increases. ..

>> no, he was in switzerland. i'll send you the chapter. >> okay. >> he was in switzerland, and he found the care pretty good there. he found -- so -- >> in switzerland, i read the book, and he interviewed -- they had a battle there several years ago, and to regulate the insurance companies, and the conservatives fought it, but now they are very happy with it, and they interviewed a conservative, and said since this reform, has any swiss citizen gone bankrupt because of the health care issue, and as you know in this country, about 50% of bankruptcies or more are in some part caused by health care challenges, and he said, has anyone in switzerland since the

reforms gone bankrupt? he said, no, that would be a shame. that would be a disgrace. [laughter] and, you know, they made these reforms in switzerland. >> senator feinstein, thank you very much. i know you have other obligations. thank you very much for being here, appreciate it. now we'll welcome our panel. steve larson, john -- oh, no, we have two panels; right? just steve larson on the first panel. insurance oversight with the centers of medicare and medicaid services, comes with a distinguished service background, held a number of positions with amerigroup. we last saw him here in march

where he shared expir tease -- expertise on health insurance exchanges. we welcome you back, the testimony will be made part of the record in its entirety, and if you can sum it up in five, seven is fine, but five to seven minutes, we'd appreciate it. >> thank you very much, thank you for the opportunity today to discuss the positive impact of the affordable care act on the -- of the affordable care act on the affordability of health insurance. the affordable care act reforms the health insurance market for the benefit of health care consumers, both individuals and businesses. one important goal of the reforms in the affordable care act is to make sure that people and businesses receive value for their health insurance premium dollars. the need for this focus is clear. over the last ten years, health

insurance premiums rose dramatically, and it outpaced the rise in medical cost and rise in wages during the same period. #we know this is not only a burden on individuals who often have seen their rates increase 20% a year or more, but on small businesses as well. the rate at which small businesses offer coverage to their employees dropped in the last decade. it helps make insurance more affordable in three key ways. first, provides states with unprecedented resources to strengthen the existing processes in place today to review proposed rate increases by insurance companies. i know in my experience how important the process of bringing an independent review of proposed rate increases can be for consumers, but although the rate review process is important, we also know that the resources in expertise varies

significantly across the states. the affordable care act provides $250 million in grants to assist the states and territories in enhancing their health insurance rate review processes. since enactment of the bill, $48 million was awarded to 42 states, the district of columbia, and the territories. in february, the availability of approximately $200 more million dollars in a2keugsal grant funding was announced to support the continuation of the efforts. the grants are having a major impact on processes. as of june 2011, 18 states proposed legislation to increase their ability to review rates, 25 states hired additional staff to review rates, 37 engaged in rate review contract activity, 33 states were enhancing their i.t. capabilities, and 35 states were working to enhance their consumer transparency and provide education to consumers on the rate review process.

the second important tool that the aca provides to ensure that consumers receive value for their premium dollars are the rate review provisions, which you heard about. senator feinstein indicated and you did, mr. chairman, the rate increases of 10% or more for most plans are required to publicly disclose the proposed increases and provide basic information to consumers for the reasons of the increase. these increases will be reviewed by states with an effective rate review process or by cms as a backstop to determine whether the rates are unreasonable. we recently concluded an evaluation of state review processes and found that almost all states will have an effective rate review process and will be reviews rate increases beginning september 1st. many states, as i said, enhanced their existing processes in order to meet the standards for an effective rate review and drew on grant funds as part of

that process. we know effective rate review works. rhode island's commissioner used the authority to view a proposed rate increase and today there was a blurb he had a proposed increase by united health care. nearly 30,000 consumers in south dakota faced a proposed increase of 23% on their premiums that were reduced to 14%, and i think we'll hear about some of the great review@that the state of oregon has done. finally to ensure consumers receive value for their dollars, the aca established minimum standards of spending by health insurance issuers on clinical services, medical costs, quality improvement activities for their members known as the medical loss rash your or the mlr provisions. effective this year, requires ensurers spend at least 80% or

85%, depending on the market, of premium dollars on actual health care services, and improvement efforts rather than on administrative expenses. insurance companies that don't meet the standards will be required to provide rebates to their customers. recognizing state flexibility, the law allows for a temporary adjustment in the individual market, mlr standard, if a state requests it and demonstrated to hhs that the 80% mlr standard may stabilize the health insurance market. we are already seeing indications that the mlr and rate review provisions are benefiting consumers. we know from the states that insurance companies are pricing to the 80% standard for benefit of consumers and announced they will moderate future increases in order to meet the 80% standard. states play a critical role in the implementation of the affordable care act, and we worked with governors, insurance commissioners, directors, and stake holders to implement the

programs. it's our priority to work with the state partners as the provisions of the affordable care act go into effect. in conclusion, the affordable care act includes a variety of provisions to promote availability, and accessibility for all americans and make sure the market is more consumer friendly, transparent, and responsive. thank you for the opportunity to testify today, and i look forward to answering questions you might have. >> mr. larsen, thank you very much for summing that up. your statement will be made part of the record in its entirety. we'll start a round of five minute questions. i mentioned several insurance companies noted their second quarter earnings. all indications show they are doing very well. after the earnings report this spring, when the medical loss

ratio was first in effect, united health groups shot up 10% to a three year high, and humana jumped 7%. this indicates the growth trend. humana made close to $1.8 billion in profits last year, up $700 million the year before. from $1.1 to $1.8 billion in a year. etna grew to $1.8 billion also in profits. as i yiewngsed, united health care is growing at a huge rate. they were $4.6 billion, and just last week, they announced quarterly profits of 2.7 billion, up 13% from the same period last year. shares are up 44 #% this year,

44%. the standard and poors index climbed as a 40% rate, one year. it's no mystery what's leading this. if you look at the thing, you look at the growth and the profits, now you look -- that's on the left side. on the right side, is family premiums. those two lines just about parallel each other. premiums go up, profits go up. given these numbers, mr. larsen, what's your prediction of companies saying viable? we heard the numbers have gone up. certainly premiums have gone up. some people say, well, if we had not passed the affordable care act, that wouldn't be going up. i don't know whether that is because of senator feinstein eluded to it. are they trying to get in before the exchange is going to effect in 2014, get their prices up as

high as possible, or is this just market forces saying, hey, if we can make more profit, make more profit without anybody regulating it or guiding it. how does the affordable care act, supervisions like the medical loss ratio and the review of insurance rate begin to change the insurance market so more premium dollars are returned to consumers rather than company profits. elaborate on that, please. >> thank you. i think both provisions help between now and 2014 certainly i i know with respect to major companies that have reported, in some cases record profits, and in some cases, their stock is trading at an all-time high. some analysts indicated trends have been moderating somewhat, but the premiums have not lowered at the same rate as the trend. some of the companies are benefiting from the spread of the premiums and moderating medical trends. in the mlr standard,

particularly helps that because it forces the companies to look down the road and if they don't want to pay rebates to consumers, they have to moderate the rate increases. we seen and heard both from the states and public reports, that companies are now pricing to 80%, and that means they have to moderate the rate at which premiums are and medical cost trends are. >> uh-huh, uh-huh. i think if i'm not mistaken, is your office preparing for a second round of rate review grants? if so, how do you see these building on the first ones? can you tell us maybe some of the criteria for that. >> we are. there was a first round of grants that was a million dollars per state. it laid the foundation for the states. i think it was mentioned earlier

in senator feinstein's testimony. i think it's in the gao report. >> uh-huh. >> huge variation among the states and particularly the resources states have to perform the review. the second round of grants will enhance the work that's been done so far. again, i view the first round as the building blocks, helped get a lot of states to a basic level, but i think the next round improves the capability of the states between now and 2014. >> i have one more question i'd like to ask, but i see my time is basically up. i'll ask it maybe in the next round. >> thank you, mr. chairman. some folks in the administration are still having problems understanding the cbo scoring that the new health care law would increase insurance premiums. cbo said the average premium, 27% higher because americans are forced to obtain a greater amount of coverage mainly because of more mandated benefits, but they also said it

would be 7% lower because of greater administrative efficiencies and it would be 7% lower because of healthier people getting coverage. if i subtract 27 minus 7 my news 7, i get a 13% increase. would you agree that cbo said the new health care law increases premiums by about 13%? >> well, as you point out, there's a number of moving parts in the cbo analysis, and they did analysis for the individual small group and large group markets. with respect to the large group market, there were factors that could lead to increases in factors that lead to decreases. for example, in the small group market, i think it was a wash or to the good for the small group market, particularly because of the efficiencies that small

businesses are going to get. again, i think it was similar for the large group market as well. with respect to the individual market, i don't recall exactly, again, as you point out, there's moving parts, certain aspects of it by improving the risk pool and getting more healthy people into the risk pool to improve the overall experience of the individual market, and then there were some additional benefits that would move in the other direction, so i don't recall the exact pluses and minuses that were in the cbo report, but i think, you know, we certainly took the view putting out some of our regulations that the impact was going to be potentially signal -- small numbers, but when you add in the preventative care and other benefits that you get that it was going to be a benefit for health care consumers. >> well, the congressional research service confirmed that number by cbo and based on all new plans forced to have a

essential health benefit packages dictated by the secretary. it's also interesting to me that secretary used to be an insurance commissioner, and she didn't use her authority to change the rates. she kept a merger from happening wops, but never -- once, but never changed the rates. another question. apparently hhs prohibited the medicine institute to consider cost implications mandating women's clinical preventative services that ensurers must provide for free to the extent the federal government is mandating plans, if it increases costs, won't that increase the federal deficit, and why did hhs prohibit institute of medicine from considering the cost of these new mandates? >> well, want iom recommendations with respect to women's preventative services, those apply only in the private insurance market, so i'm not sure what you mean by the

federal government's subsidizing it, but with respect to your second question, the stay stay chute -- statute are not applied to cost benefit seasonal sis. we didn't prohibit iom. it was not part of the legislative charge. they had a panel of experts that looked at the ethics of the various services and found they were effective and that's where they recommended them to the secretary. >> i have questions too about the way that children-only policies, but i have somebody that's really worked on this and i'll let her handle those questions and any others she's interested in. the department of health and human services writes a $250

million check for the grants of the rate reviews you mentioned. 46 states already got funding. how many of the state recipients claimed more rate review policies lead to decreased overall health care spending in their state? does merely reviewing a rate increase result in lower health care costs? >> we absolutely think that there is huge value in reviewing rates and bringing transparency and sunshine to the rate review processes. some of the examples cited earlier, you know, not every state has prior approval authority, but simply reviewing and bringing to light the underlying issues associated with a rate increase can have the effect of having insurance companies go back, sharpen their pencil, and visit the rate increases. we think review 1 a very powerful tool. obviously, many states have a

prior approval authority providing even more protection to consumers, but we think the baseline of review is a good place to start. >> thank you. my time has expired. >> thank you, senator enzi. senator franken? >> thank you issue mr. chairman, thank you, mr. larsen for your terrorism. rising health care costs in this country are unsustainable for the federal government, for states, and for consumers. during the health reform debate, i looked to minnesota for ideas to bend -- to implement the cost curve and instructed me ensurer were offering high value products in minnesota where most of the dollars were going directly to health care services, but it wasn't that way everywhere.

in some states, the so-called medical looses ratio for individuals and small group policies were 50% or 40% meaning insurers spent 40% of their dollars from premiums on health care services based on minnesota's experience. i introduced a bill that was ultimately included in the health reform requiring ensurers to spend at least 80 on small group and individual markets and 85% of insurance premiums on actual health care services in the large group market. during a hearing before this committee in march, you testified you already saw premiums go down due to mlr. can you walk us through some examples how you saw the mlr provision help to moderate premium increases? >> well, the couple ones i can

cite off the top of my head is first in the process of reviewing requests from the states to adjust the mlr standard between now and 2014 -- there's a process, you know, if some states start at 50, and it's a heavy lift to get there to 80% a year, and so states can submit a request to adjust those, and we have quite a bit back and forth with the process. what we learned is many states who were at much lower than 80% are now pricing to 80. what that means when i say "pricing to 80%" is they have to make sure they are not charging so much to their consumers that they continue to generate that lower lost ratio. what that results in practically speaking is a moderation of the rate increases that they otherwise would have gotten. that's one thing we've seen. also, a number of publicly traded companies have announced

that rather than paying rebates, they will moderate their pricing, and then i think covent ri is doing that and others are shaving administrative expenses to be more efficient. across the markets, we are seeing that happen. >> in connecticut, i understand? >> yep, that was a perfect example. >> lowering premiums on average of 10%. >> right. >> okay. mr. larsen, ccio already granted waivers, five states phase in requirements for insurers in the individual market. i'm extremely concerned the waivers are being granted without sufficient evidence that these states would truly see a disruption of the insurance market with a waiver. in a recent waiver granted in nevada, it was clear that the

state did not make its case. in fact, it appeared that cecio relied on information that was not even included in the application to make its decision, and out of the six waiver applications, only one has been rejected. i wrote a letter to secretary sebelius two months ago expressing concern about the number of waiverrings approved. i have not received a response, and two more waivers have been approved. first of all, can i expect a response to the letter, and when? second, can you address the concern that cecio is willing to give waivers to nearly any state that applies even if they do not provide necessary data? approximately how much money will consumers lose in states where insurance has waivers and don't have 80% of premiums spent

on health care services? >> thank you, and let me apologize to you for not getting a prompt response back. i'll make sure you get that as soon as i get back to the office. >> thank you. >> with respect to the six requests for adjustments that we've gotten, we take that review process very seriously, and it's a very in-depth process. if your staff had a opportunity to look at the letters sent back and forth, there's an extensive record developed. we have denied one, and of the others that we have approved, i can tell you we modified every request that's come in. we have not granted the request as it came in the door. ultimately, it's a balancing act; right? we want the consumers to be sure they have the benefit of the 80% provision. some states have a number of smaller companies that are on the edge of making money. these are the ones we're concerned about leaving the

market. if there's not other options available to individuals in the market, we don't want them -- if the company were to leave and some of them said they would leave. they don't always threaten they will leave, but sometimes they tell the commissioner if we have to hit 80% in one year, we have to leave the market. we try to reach a balance in doing it. the decisions we've rendered not granting what the insurance commissioner requested, try to get as close as we can to 80% as quickly as we can is reflected in our decisions. we support the mlr provision, it's important, and we'll continue to look at these closely. >> thank you. i look forward to your response to my letter. thank you, mr. chairman. >> thank you, mr. chairman. senator enzi, you mentioned the child-only policies and that as an issue. i thank you for your leadership on this aspect of health care

and the study that you have conducted along with your staff i'll ask as one of the 17 states impacted in really a very, very harsh way. we currently have no child-only policies since the affordable care act went into effect. it's not only harmful to my state, but as i look around the group here, minnesota now does not have one. connecticut does not have one. wyoming does not have a -- these no-child policies, and i think it's fair to say this is harmful to these states where we don't have any coverage. we've got to deal with this. i've been working on legislation to allow parents and grandmothers in my state -- grandparents in my state to purchase child-only policies across state lines not to leave any of the children behind. the legislation would also

require the department of health and human services to issue a uniform annual enrollment period of at least 45 days. mr. larsen, i appreciate your testimony here today. couple questions for you. these relate to the news stories that describe the burden that this provision has on these 17 states, the main concerns of the child-only policies do not have uniform open enrollment policies so parents can sign children up for insurance on the way to the emergency room, and this adverse selection prompts carriers to exit the child-only market. i think it goes without saying that as a direct result of this policy, what we're seeing is our nation's children that are put in a very difficult position. now, we can talk about who is at

fault here, whether or not we -- whether it's the ensurers or whatnot. i'm not here to defend the ensurers, but the question to you this morning would be what other options are out there to these chirp in the 17 states currently, maybe there will be more, what other options exist when there's only one ensurer that's writing child only policies left in the market, and what's the add min strags doing to -- administration doing to help get children access to insurance? >> right. well, thank you, and we certainly share your concern about what has happened, and it's been disaappointmenting, frankly, to see the reaction of the insurers who we've given them a number of tools that they can use to manage the risk. they can charge higher rates. they can have their own open enrollment periods. we given them almost every option to ensure both the sick and the healthy kids, and i

think it's cheer that they ultimately didn't want to ensure the sick kids so they've decided not to participate in some of the markets. i want to make clear that this doesn't affect kids currently covered. they stopped issuing new policies. we have provided a number of -- and i think there's a number of options available in the states. first of all, as you pointed out, states employee different tools. some say if in the individual market, you have to cover child-only policies. we know in the aca, and this is new, kids now have coverage with their parent's policies up to the age 26. to the extent there's parental coverage, you have access to that under the new provision of the aca. we've also made changes to the preexisting insurance program that operate across the states to one, lower premiums so that they are more affordable, and two, make it easier for kids to

get into the preexisting program. we've allowed insurers to screen kids for availability in other programs like p-sip, like the chip program. when you put all these provisions together, we think there's many avenues for access for kids, and then there are tools available for the states and the issuers like open enrollment periods. >> well, is the administration planning on issuing guidance that defines a uniform open enrollment period? >> we haven't yet in part because we have seen -- >> do you think, though, it makes sense to do so? >> we can. i mean, our preference frankly is for the states to design a state-based solution, and that's why many states have active open enrollment periods. >> right. in a state like alaska, we don't have anybody there. 18 others don't have anybody there. we really are caught in a bind, and, of course, alaska's

population is low enough we are not very attractive to too many insurers in the market in the first place so when we lose those writing child-only policies, we're stuck. my proposal for allowing to purchase across state lines is one avenue, but i think we recognize that even with the expansion of medicaid and the f-chip, the fact of the matter is you're going to have a lot of children whose parents won't qualify for either of those programs, so we've got a real gap here. >> right. >> and i appreciate the fact that the administration recognizes that, but you got to be working with us so that we can find these solutions so we don't leave the kids hanging as i believe we are. >> we can look harder at that as an option. again, our initial preamps is because states were taking action not to override what states were doing, but if we're at the point states have done what they can, we can look at

the backstop open enrollment in other states for whatever reason there's an issue with the kids. >> mr. chairman, my time expired. i have another question, but maybe that'll be in the seconds round. thank you. >> thank you very much. >> thank you, mr. chairman, and i want to thank the chairman for having this hearing on a very important topic, and thank you, mr. larsen, for your continuing work on this very complex and profoundly important issue. i know a little about it from the standpoint of a state official served as a state in connecticut and participated in a number of hearings on rate review issues, hearings that were not required under connecticut law, one of the weaknesses of connecticut law is hearings are not required. rates can in into effect without prior approval, and despite your

citings and example in connecticut and i agree a very encouraging example of one insurance proposal being cut as a result of in effect public notice and attention being focused on that proposed increase of 20%, there are still more examples of rates going up than rate proposals being cut, and i venture to say that's true across the country, so let me begin with a question based on my experience. would you agree that prior approval or disapproval is a very important feature of rate review? >> well, if i can answer it this way -- we define effective rate review in the cop text of the provisions in the aca, truly a review process.

if the question is in the spectrum of activities that protect consumers, we got states that rates could go into effect without review, and there's a review process and public disclosure and input and then prior approval, certainly the prior approval methods and protections as senator feinstein indicated indicate the maximum level that the commissioner can modify or deny a rate increase. >> many my personal -- in my personal view without being excessively critical of my own state, i believe that our rate review system should absolutely be strengthened by providing more transparency and accountability incoming the opportunity -- including the opportunity for citizens to participate and for prior approval. >> uh-huh. >> by the insurance commissioner after that kind of process and i

right of appeal that states lack as well. would you agree that right is also important? >> i believe those are all important features of a full and fair rate process, public input and the right to appeal. >> aside from the grants that you can provide, and thank you for benefiting connecticut with a grant among the other states that you've done, what more can the administration do you think to encourage more accountable and effective review systems across the country given its present authority? >> well, we're certainly in the process of granding, making and add minister -- ad ministering the grants. hopefully we can play a role and cross-pollinate ideas from different states. we get asked that question a lot, and so we can certainly

provide, you know, more technical expertise like states knowing what the activities are in other states. we're working with the neic as well. in terms as we evaluate the process that states are making and executing on their grand plan, we want to hold them to standard and make sure they are doing what they said they would do with the grant. that's important in maintaining a grant review process. >> would you say the industry could do more in perhaps encouraging that kind of review? especially, companies in the industry and questionably there are some who want a responsible and accountable system. >> well, it's been my experience that the industry is usually kind of weary of the review process. >> weary -- >> not weary, but wary, maybe both.

>> they can be encouraged to play a more -- >> i think if they felt it was a fair process, which i think it could be, should be, and is, but i think they have to feel it's a fair process to engage in as well. >> would they feel, do you think, and would you feel -- two separate questions i suppose -- that a fairer process would be one administered at the federal level that might be applied more uniformly nationwide? >> you know, i don't know how to answer that. i think that most -- my experience was most companies want, and we want for the reviews to be conducted at a local level by the local state insurance commissioner who is more familiar with the market in where people are situated are covered by the policies. it's not our objective to have a large federal involvement in the federal rate review process, but have that performed at the state level. we're performing the backstop function where states can't be an effective rate reviewpoint

will we with -- be.cc the reviews. >> thank you. my time expired, but i welcome a continuing dialogue or conversation on this issue. thank you very much. >> thank you. >> senator hatch. >> thank you, mr. chairman. i thank you for having this hearing to discuss the rising costs of health care in this country and how the health laws so far fail to deliver promises to lower premiums for individuals, families, and businesses. cms published their annual national health expenditures report that shows as a result of the health law, premiums will increase by 9.4% in 2014. now, i would like to ask for unanimous concept my opening statement is in the record as well as the article written by the actuary on national health care. >> [inaudible] >> thank you, sir. welcome, mr. larsen, i appreciate the work you are doing and trying to do at cms. they recently published a

national expenditures report for 2010 and found that the health insurance premiums will increase by 9.4% in 2014 as a result of the president's health law. you discussed two tools as i view it in your testimony that the administration is using to decrease the rate of premium increases, however, the central promise of the law was that it would reduce premiums, not reduce the rate of growth in premiums. now, in the light of the new report issued by your agency, how can the law keep its central promise of reducing premiums by $2500? >> well, first, my understanding of the report was it showed the rate of health care spending for last year was at the lowest that it had been in many, many years. in fact, the rate was moderating, and i think that's a significant point. i apologize i'm not able to

speak, i guess, to the estimates by the cms actuary. i know that -- i guess it's the difference between what rates would have been with or without the aca, but we continue to believe the affordable care act moderates significantly premiums. how did does that in the different markets depends certainly with respect to health insurance exchanges. i know for the small businesses, they are going to have opportunities that they don't have today. they are going to get efficiencies through the exchanges that they don't have today. we continue to believe that the tools that are available in the aca will help moderate. >> cms national health expenditures report found that prescription drug spending increases by 10.7% in 2014, 5.1% higher than without the health law, physician and clinical services increase by 8.9% in 2014, 3.1% higher than without the health law, and hospital

spending increases by 7.2% in 2014 which is 1% higher than without the health law. now, this report shows that the president's health law did not reduce the cost of health care in the long run and instead will bend the cost curve in the wrong direction. do you agree with your own chief actuary that the cost of health care continues to rise and that the tools under the president's health law will not bend the cost curve downward in the long run? >> well, i don't agree, but i have to admit i have not reviewed the cms actuary's estimates. >> all right. >> i do know that -- >> that's fair. in your written testimony you said states are the principle regulators for the insurance market. how does the rate review program established under the president's health law respect the principle rule if the law requires the federal government to conduct rate review in states without a federally approved

process for reviewing rates? >> that's an important question, and i think we touched on it in the prior exchange. our objective, and i think we have largely reached that is for the states to be the primary reviewer so we just completed an evaluation of all the states and the level of effectiveness they have, and i think we found that only seven states so far were not effective meaning that the vast majority of states are effective, and even those ones that are not, at any point they can say, look, we have some authority to review rates, but that's the biggest barrier. some states don't have an existing law, and a lot of states passed legislation this year, but the mast majority are effective reviewers, and we'll do everything we can to support the small number of states left to get them there. >> okay. there's an entire section in the

testimony focusing on transparency and accountability, however, there are a number of variants where the administration has fallen short on both. for example, the preventative benefits for august 1 of next year do not receive a public comment period. i sent a letter to the secretary to consider the impact of the benefit mandates, and urged her to provide a comment period, however, none was provided. why is the administration seeningly transparent in the implementation process for some programs, but not all? >> well, when we issued the initial interim final rule on preventative services last year, we did get comments on various aspects of preventative services and what should be in included in the costs and things like that. we took those comments into account when we just issued the latest decision with regard to

women's preventative services. we feel we took comment, responded to the comment, and nonetheless i think in the amended interim final rule we just put out, there's an additional comment merde, and if there's comment to revisit the policies we just announced, then we will do that. >> mr. chairman, i have to leave, but i have one other question. that is, do you believe that a majority of the employers will be insent vised to stop providing health insurance as a result of the employer mandate and penalties under the law? >> we think that employees will continue to offer and, in fact, the rate of officers by small businesses will increase now and certainly when the exchanges are online in 2014. >> okay. >> i think there's a number of studies from rand and the urban institute that also make that projection. >> okay. if you could submit those to the

committee, i'd like to read those. thank you. >> thank you, senator hatch. >> thank you, mr. chairman, and thank you, mr. larsen, for your testimony. i appreciate the work your office is doing, and i do hear from my constituents about how frustrated and concerned they are that their insurance premiums obviously continue to rise. in your experience, can you tell me what are the top three reasons that health insurance continues to have such large increases in rates? >> well, there's a number of different reasons. the insurance companies would indicate they are simply passing along health care costs that they see, and health care costs are driven by a unit cost, how much they pay per doctor visit or hospital stay, and then how many of these services they are delivering, so there are a number of different reasons why cost increase, and i think one of the things that this rate review provision gets at is

bringing transparency to exactly why rates are going up. i think it's -- there's not always a good answer to your question, and i think there's a lot of confusion, and that's, i think, i may not be answering the question, but that's the real benefit of the provision is for the first time there's a uniform disclosure form about what it is what's driving the rate increases, and then we can have a discussion about why they are going up. >> you mentioned in your testimony a good benchmark for increases we should inspect to see in the future or see further reductions in premium increases, and in other words when states set their own specific thresholds starting in 2012, do you expect that the threshold will be greater or less than 10%? >> that's going to vary by state, and i think, you know, that raises a good point. the 10% was a starting point. we looked at a number of medical trend i understand sighs and

landed on 10%. we thought that was the best to start with. it's a national number, but insurance markets are very local and the rate of increase in one state could be different in other, cost factors are different, and the 10% could turn into a 12% in one state and 9% in another state depending on local factors. >> certainly. i hear from constituents all the time particularly small businesses in north carolina, and they, too, are frustrated because their premiums obviously continue to increase, and under these new regulations, will there be an opportunity for consumers to file requests for reviews of premium increases either with you in your office or their state insurance commissioner? >> well, the way it's structured now, the consumers don't, you know, have the ability i guess to ask for a review formally. we added into the final rule a

provision requiring states to have public input in some way because many states had no public input into the process. the reviews are triggered by simply a rate filed that's over the 10%, so the reviews don't depend on whether they are asked for. they are automatic based on the trigger. we added the provision for explicit public input into the process. >> thank you, mr. chairman. >> [inaudible] >> i thought about your question why these increases go up, and i talked about letters i received from my own constituents on this. i don't know what it's like in north carolina, but in iowa when two carriers have 80% of the market, and only one carrier, this is a monopoly practice, and why are the rates going up? because they can. i use that chart there to show the increase in the profits

these companies are making, and then look at the increase in the premiums. they just about match. that's why rate review is so important, and both rate review and medical loss ratio are so important to try to get on top of this, and as mr. larsen said, the transparency of at least getting the information out there of what's happening because a lot of times we just don't know. it's a cloud out there, we don't know what's driving the costs. we do know from 1999 to about the middle of this last decade, insurance costs went up about 131%, but the medical inflation was only 31%, so 100% more than the medical rate of inflation. some of these companies are doing quite well. mr. murphy, did you have any questions for mr. larsen? >> thank you, mr. chair, i'll

pass. >> mr. larsen, thank you for being here. oh, i'm sorry -- >> can i request -- ask a quick question about the flexibility to the states? can states -- ten states were told they have insufficient rate review authority. you mentioned that as well, and that they might be taking them over, hhs is taking them over in september if they don't get it fixed. you also mentioned the fact that several of these states lack that authority to fix it, and unfortunately, as my understanding, many of these states don't have legislators that are currently in session. in alaska, we passed a law this year to address this, the rate review structure. it goes into effect january -- >> right.

>> of 2012, but what is going to happen is my understanding is that hhs is still going to step in for this period between september and the date that it goes into enactment, and i really have to question how this promotes state's flexibility. you got a state that lack the authority. we passed a law to gain it. it doesn't quite mesh with the requirements under the law, and so we've got a three-month period where you all step in. does this promolt flexibility we're hoping for? >> you put it well when it doesn't mesh. we are caught in the switches between the september 1 date in the regulation and the date that your law takes effect. i can certainly go back and talk to our staff. the one thing we wanted to make sure is that somehow or another consumers in the state of alaska were going to get the benefit of a law, and my understanding was

that until the law took effect for the markets involved in alaska that the insurance department there didn't have the authority to get all the information to do the reviews. the challenge for us, like i said, we prefer for the states to do it. >> and we would as well. we want to work with you on this to see if there's a way. it seems highly infiesht. >> yeah. >> and goes against the goals. >> our challenge would be if you couldn't do it, and we didn't step in, and then there's companies who are raising rates typically for january so this is the period of the year when they are looking for increases and the rates are not reviewed, and then, yo know, probably you and hhs and others are asked host comes rates are not reviewed. we thought we should get that. if we have the same goal, and there's a way to get there -- >> alaska's situation is probably unique -- >> yeah. >> but it brings up the issue

for the other states that, again, lacks the short, their legislators not in session to do it, and you are just kind of hung in there. >> uh-huh. >> i'd like to know that we could be working with you to provide for the information we are hoping for without some really serious inefficiencies within the system. >> yep. >> thank you, mr. chairman. >> thank you mr. larsen for being here. >> thank you. >> we'll call our next panel. our next panel will be mr.-- huh? oh, that's right, that's right. which one? this one here? yeah. we have three witnesses, mr. john dicken, director for health care issues at the u.s. accountability office where he directs gao's evaluations of private health insurance, long term health insurance, and prescription drug pricing issues. with the daniel withrow,

president of the css distribution group, an international packages company head quartered in kentucky, and his testimony covers the u.s. chamber of commerce, at least that's what i read anyway. yeah, that's right. i'll yield to senator murphy for purposes of an introduction. >> i thank you, mr. chair. it's my pleasure to introduce terry is a mill -- teresa miller, department of business services, ?urnses division joining the division in 2008 bringing a background in legislative and policy issues, previously worked as legislative director for former oregon governor. as insurance administer, oversees a staff of 1,000 and works in small groups and individual markets, a division that protects consumers and agents making sure insurers are

sound, reviewing policies for consumer protections. she has done a great job of bringing diverse parties to the table and taking oregon forward baseed on a strong rate review. delighted you are here to share your insights. welcome. >> thank you, senator murphy, and welcome, ms. miller. we'll start with mr. dicken and go across. your statements will be part of the record in their entirety. sum up five to seven minutes, we'd appreciate that. mr. dicken, welcome, and please proceed. >> thank you. members of the committee, i'm pleased to be here today to discuss the state oversight of health insurance premiums. as the cost of health insurance coverage continues to rise, policymakers raised questions about the extent of which the

increases are justified and could adversely affect consumers. while oversight of private health insurance including premium rates is a state's responsibility, the 2010 patient act established a role for hhs. it requires the secretary to work with states to establish a process for the annual review of unreasonable premium increases. in addition, the act requires the secretary towards grants to states and review practices. my statement highlights key findings in a report that gao is releasing today. this report describes state oversight premium rates in 2010 and changes that states that received hhs rate review grants have begun making to enhappens their oversights. for this report, we sur surveyed

officials from the insurance department of 50 states and the district of columbia and conducted reviews of experts and reviewed the grant applications summited to hhs. we found that premiums varied among states in 2010. while 48 of the 50 state officials responded to our survey, they reported the rate review filings in 2010, the practices reported by state insurance officials varied in three key areas. first, variation in terms of the timing of rate filing reviews specifically responses said they were reviewed before the rates took effect while other spots record reviewing after rate filings after being in effect. there's variation in the types of information of reviewing.

while nearly all survey response reviewed information like trindz of medical costs and services, half of the spots reviewed carrier capital levels. some survey respondents had corporate rate e reviews and others had little information of cursory reviews. a third area of variation was opportunities for consumer involvement in rate reviews. four teen respondents gave opportunity to be involved with participation and rate review hearings or public comment periods, however, most reported their state did not provide opportunities for consumer involvement. not only state's practices, but also the outcomes of states reviews of rate filings varied among states in 2010.

.. to oversee health insurance premium rates. for example, about half of the respondents reported taking steps to either review the existing process these were developed new processes. some states also reported that they were changing information that the carriers were required to submit with rate filings incorporating additional data or analyses and the rate findings

were taking steps to involve consumers in the rate review process. in addition, over two-thirds reportedly have begun to increase their capacity to oversee premium rates. these capacity enhancements included hiring staff or outside actuaries and improving information technology systems used to collect and analyze recycling data. finally, more than one-third reported that states have taken steps such as introducing or passing legislation in order to obtain additional legislative authority for overseeing health insurance premium rates. mr. chairman, this concludes my statement. i look forward to answering any questions you or other members of the committee may have. >> thank you very much, mr. dicken for getting the report out in a timely manner. ms. miller, please proceed. >> good morning, chairman harkin, shrinking member north carolina and distinguished members, for the record my name is theresa miller and i am the administrator of the oregon insurance division of the

department of consumer business services and i am honored to be here today and appreciate the opportunity to talk about how federal grants available for the affordable care act are improving the health insurance rate review process and oregon. oregon has worked very hard over the last four years to strengthen the state rate review law and open our process. because of these efforts, or in's great review process was one of the most transparent and supported by a strong statute. as we continue to improve our process, the federal rate review grants allowed us to hire the staff necessary to conduct more indirectly the reviews of filings and provide the funds necessary to solicit meaningful public comments. in my written testimony, it included more detail about the key features of the rate review process but just briefly, those include of posting all documents contained in the rate filing in their entirety upon submission on the web site, e-mail and policyholders who signed up to be notified of the rate filings, opening a 30 day public comment

period, and issuing a plain language summary of the decision and then e-mail in policyholders with a link to the decision. i want to focus my remarks this morning on the improvements we have made to the process with federal grand dollars. first, the funding we have received as a professor michael one for each review grant allowed us to solicit more detailed and meaningful comments. i mentioned we get a 30 day public comment pogo. initially the public comment period attracted few comments and those who did, and generally simply said they couldn't afford the rising premiums. but they didn't address the statutory factors we reviewed as we review rate filings so this is why we used on hundred thousand dollars of the cycle one grant to contract with the consumer advocacy group to weigh in on behalf of consumers. this group used the funding we provided to hire an actuary and has been providing very detailed analyses focused on the factors contained in the statute. unlike many states, oregon has a competitive health insurance

market. we have seven oregon based in shivers to actively compete in the individual markets we regulate. because of our competitive process, we reviewed approximately 40 rate requests a year in the markets. the first round of the federal grants enabled us to add an extra three to the staff and we are proposing to add another actuary in the next grand cycle. this will allow us to dig even deeper in the rate filings to address issues brought up by the consumer advocacy group and hold public hearings so those who want to watch or participate in the process can see the scrutiny first hand that we provide with regard to the requests. federal grand dollars also allowed us to communicate better with consumers about the rate filings. we've created a new web page devoted to health insurance rates with the search engine that allows consumers to more easily find a rate filing as well as information about how we review health insurance filings. we use grant dollars to create a seven minute animated story about health insurance costs

that breaks down the premium dollars and describe how we review health insurance rates. we also use federal dollars to conduct a public hearing on a recent filing. so how have consumers benefit from the improvements we have made? aside from the transparency efforts to help educate consumers about what is driving health insurance costs and giving them opportunities to weigh in on requests, the changes we've made have saved consumers money. in the year that followed the strengthening of the state rate review law milward insurance company requests 50% of the time, saving the consumers more than $25 million or just under $10 per person on a monthly insurance premium. of course that doesn't solve the affordability of health insurance, but every percentage point of the request matters to us because it matters to consumers. at the same time, we'll understand we must control health care costs to stabilize insurance rates. that brings me to the study that we are conducting with the grant funds. ultimately the key to stabilizing health insurance

costs is controlling medical costs. in oregon, considering all the insurance market's an average of 89 cents of every premium dollar goes to pay health care costs. to try to tackle health care costs, we used $150,000 to contract with an actuarial firm for a study. the study, which will wrap up in the fall, is exploring whether there are opportunities within our current rate review process to deliver -- to control the growth of health care costs or improve the health care delivery system. as i mentioned earlier, we are applying for a second count of grant money to hire another health actuary and to allow us to conduct public hearings for most of the rate requests. conducting a public hearing on the recent filing it became clear that even with one of the most open process in the country, consumers are unaware of the scrutiny we apply to the filings. i am proud of the work we do and i want them to see the rigor of our reviews. the federal grant funding available through the affordable care act is helping states improve the review of health

insurance rates. it is giving states like oregon the resources needed to solicit detailed and meaningful consumer input, conduct more in-depth reviews of the filings to prevent excessive increases and improved rate filing information available to consumers. in oregon, the next frontier in the review is finding ways to help lower medical costs so we can make insurance more affordable for consumers. thank you for the opportunity to share oregon's experience and for the funding that enables us to strive for continued improvement. i'd be happy to answer any questions. >> thank you very much, ms. miller. mr. withrow, please proceed. >> chairman harkin, ranking member enzi and senator frank and, senator merkley, thank you for inviting me today to testify on health care, the efforts to hire the states. my name is dan withrow, president of css group headquartered in louisville kentucky. behind me since my beautiful daughter, and i apologize, i might be a bit nervous because

i'm testifying in front of my biggest fan. [laughter] i am honored to be here. thank you for your service to the united states. in 2006 after working with the distribution industry for decades to my wife and i borrowed nearly a million dollars from friends, banks, credit card companies to open css distribution group. the company we approach everything with a challenge of building trust and partnerships by doing the right things right. we've worked hard to grow our company, but to date css has not made a net profit. although we projected this year in the breakout year, it's now hard to see how the new regulations will impact our business. we did reduce the workforce from 16 to ten full-time employees in order to retain as much flexibility as possible, and we are paying or full-time employees overtime instead of hiring new employees. we are trying to hedge our bets. one element of our business that continues to be unpredictable is the cost of health care

coverage. we've offered our employees' health care coverage of persons we opened our doors. as a small business, our employees are like family to us. so for the past five years, we offer -- to offer all employees a chance to become a choice between bto and hsa health savings accounts. this time have and we used to get the offering, three participate in our hd h-p, two are enrolled in the tdo. of the employees that do not purchase of the country are covered murder spells's plan, one is elected to purchase a less expensive and basic plan and that leaves one more, and that's my wife. while i am committed to offer coverage to all of my employees the premium increase we have seen and those we continue to seek are beyond what we can afford and even more worrisome, it's beyond what my employees can afford. each year we have seen at least 30% premium increases except the summer after health reform law was passed. last summer, after the enactment of the patient protection affordable care act, we were quoted increasing over 42%.

i've tried everything that i know to do to mitigate the increase, and the only way i've been able to moderately curtail the increases is by restructuring the plans. increasing deductibles, revising co-payments and drug tiering formulas. the changes have helped reduce the premiums, but they really do nothing to impact the out-of-pocket cost we all have to pay for. these year-over-year increases in my opinion cannot be blamed on my plan or the insurance industry at large. i believe health care costs are what drives us, not the insurance companies. each year i spent between 30 to 45 days researching other plans and insurance options. i'm in the middle of that research right now. despite my repeated efforts i've not been able to find any of your options that can offer to my employees at a lower premium and unfortunately, i am optimist at heart. i don't think this will change. the reason premiums are increasing is because cost of coverage is increasing. it's pretty simple economics of

additionally, plans are required to cover a laundry list of services many at no cost to the enrollee worth a participant. the thing is merely requiring the review to the premium increases in my opinion will not stop that from happening. restructuring the insurance market loss of mandating plans covered exhausted benefits will also not reduce the cost of coverage. it's really simple. if you want more, it's going to cost more. product cannot be sold for less than the cost to create or offer. the business principle applies to the pellets that i sell with the coverage for health care services my plan provides. in conclusion, i know this may not be what you want to hear, but the new health care law has made it more difficult for small business to compete than you may realize. i hope i shared today is helpful, and i urge you to repeal the cost of the law. on behalf of thousands of businessmen and women in america, please listen to our concerns. thank you for allowing me to testify, and i look forward to taking your questions. >> thank you very much, mr. withrow. we will start a series of five

minute questions. ms. miller, i will start with you. i was reading your testimony last night, and you're talking about what you did. you use $100,000 to make a contract with a consumer advocacy group to weigh in on behalf of the consumers, the oregon state public interest research group that keeps us on our toes or reminds us of the questions to consumers want answered. you also made a contract with an actuarial firm. quite frankly i don't know of any other insurance commissioner in the entire country to do something like that. i applaud you for that. not many insurance commissioners want to contract with a consumer advocacy group liked the of pergs are usually a form in your side but i compliment you for that because i think as you

mentioned, that gives you input from consumers in what they want. so i think you have shown some grief leadership there. one of the things you mentioned you were looking at different ideas on how you can affect health care costs, and you mentioned in your testimony one i.t. we are exporting is to be nine rate requests. if the insurer reimburses providers for specified medical errors that should never happen i find that very intriguing. can you flush the little bit for me? >> mr. chairman, thank you for the question. it really gets down to the contracts that the insurers enter into with providers and when i reach out and talk to the insurers and oregon, one of the things i heard for for years was the ticket difficult time negotiating with providers particularly hospitals and getting all of the provisions in

the contract that they would like to see in the contract and they raise this as a specific issue and said we would really like to include a provision in the contract with hospitals that essentially says an event happens, if you and take the wrong form, if something happens we can all agree should never happen, who should bear the brunt of that expense? should policyholders pay it? should it come out of the provider? what i heard from the carriers is the had a difficult time getting the providers to agree to the sort of provisions. i and a stand that today it is more common for those to be included in the contracts, but that is one of the ways again we are studying this because i don't know exactly how we get at these underlying costs, but i think as the state regulators, we may have an interesting opportunity to get at these costs, so trying to look at can we influence that insurer provider contracting process that might be an interesting place to look, so i hope that is helpful. >> that's very helpful. also, are you looking at things

like free admission rates for example in hospitals? we know there are some hospitals in this country that are doing a great job in keeping the readmission rates extremely low. hospitals don't. but then when you have all of these readmission rates time and time again, who bears that? should the policy holders bear that one of? so i hope you are also looking at the readmission rates since you are looking at the "never should happen" defense. >> the actuary looking at this and performing the studies, let's forget everything. i don't want anything to be off the table because if there's a way to address health care costs and make a dent in those costs, i think we want to do it, so i think everything is on the table for that study. >> i compliment you for what you've done. i think you've said a very high standard for insurance commissioners around the country. >> thank you. >> mr. withrow, welcome again.

is that haleigh or haley? welcome. are you enjoying washington? [laughter] one thing i can tell, you are having a great summer. it looks like you've been swimming, right? [laughter] thanks for coming. mr. withrow, you said something in your testimony about the health insurance exchange which will be up in 2014. since i come from a state that has a lot of small businesses and i've met with them on this issue many, many times when a 2014 when the insurance exchange has come up, because of your -- the number of employees you have you go to an exchange and you will have more competition and more people competing for covering you and will be open and transparent.

one that helps you in terms of both your premium and the quality in coverage? >> is this on? i really don't know, senator harkin. thank you for the question because there is no definitive information about exchanges at this point that i can read about i can't really comment on what the exchanges will do for me. i've done my best to try to research that, and even working for the consumer commerce it is difficult to find that information. >> states are sitting at the exchange is now. i don't know where kentucky is right now on that, but states are in the process of setting up those exchanges right now. but i think the law basically sets out how those exchanges are to operate. again, i don't know kentucky. i can only tell you that in a worse state where we have two insurance carriers have 80% of the market there is not much competition, and there is not much transparency. so that when the exchange comes

up, a lot of small businesses that have few employees will be able to go on that. let me also ask you right now small businesses can get a tax credit for the purchases of what they put in for their employees, right? up to 50 employees, and you don't have 50 employees. >> no, sir. >> are you taking advantage of the tax credit? >> we pay our employees, so we don't qualify for the tax credit. >> you're over the $50,000 -- >> that's correct. >> so you don't get tax credit, but you will be able to shop on the exchange? >> according to the wall, yes. we try to plan business in a one and two-year and kermit and not having the information is very difficult to plan for. >> i see my time has run out.

thank you. senator enzi. >> i think we are still short about five rules on the exchange for the states to even begin working on this. so, i don't think that there is much out there any of us can, and on exchanges yet. but, mr. dicken, i want to thank you for the work that the gao does. it's sherman does help and i appreciate the reports that have come out. in looking at the state authority to review rates, did any of the states provide evidence that because the rate review process burden or the review results that any of the companies that pull out of the market in that state was there any evidence to suggest that the policies for the states will decrease the number of policies available to consumers or of leased decrease the types of policies available for consumers? >> thank you, senator enzi. we did not specifically ask as a part of our survey as to whether

there were any changes in the market share more carriers in the market. certainly the point is fair. we have looked in the past at the market shares of carriers in the small group market and many states only have one carrier that may represent half of the market or more. many states i think 23 states had five or fewer carriers that were representing 9% of the market. as we did not examine to extend the carriers may have increased or decreased their role in the market as a part of these rate reviews. >> i still think the small business health plans but has increased the number of companies that are out there participating. and i am hoping this health care reform does come to back. ms. miller, congratulations on hiring the actuarial firm. only thing better is an accounting firm. [laughter] but, so, i assume that the

actuary was used to determine the rate that you and i owe their regions to pursue. >> senator enzi, just to be clear, we have factories on stuff that do the review of the rate filings. the study that i mentioned we hired a firm to conduct the study which is a separate study from the review process just to clarify swedish factories on stuff and added an additional at jury to deal with workload issues with federal grant funds in addition to hiring the actuarial. >> concentrating a little bit here on the region's company, if they are selling a product for less than what the people pay, that wouldn't be a sustainable business model, so if the costs are higher here than the actuarial charts apparently say, how long do you think the regions will be able to take in less premiums than they the

providers of medical claims? to you have an adjustment for that? >> senator enzi, when we consider the surplus and its insurers overall profitability as a part of the rate filing process, we do so very carefully, and we'll understand that long-term products need to be priced appropriately. so with that said in the region's case we reduce the request which was a 22.1% request to a toll-free 8% increase and additional concerns caused us to have them did in potentially to their surplus. the companies and will meet in the individual plan has been concerned for us and was a concern pointed to by the consumer advocacy group. the plants dropped from enrollment of about 100,000 members in 2007 to less than 60,000 members today. so, the key concern here was that if approved a 22.1% increase the would result in further enrollment losses typically the healthiest people

are leaving and the what chyba claims resulting in future even higher increases on the road is a part of what we are trying to do in the case buy potentially having them did into surplus was to try to stem those enrollment losses. >> mr. withrow, thank you for bringing your daughter on this experience to washington. i did that when my kids were young and they have a lot of memories from that, but getting back to the insurance, did you know that in 2014 the small businesses will not be able to buy health insurance plans that have deductibles that are more than $2,000 for individual plants or $4,000 for family plans? teaching this will increase your premiums? >> senator, thanks for the question. no, i did not know, but i can tell you from the work i've done the last 30 days the only way we can stem the increasing cost is by raising the deductible, so we have a cap of two to $4,000 in

the monthly premium should rise. >> my time is expired. senator frank and? >> thank you. first i can assure the ranking member that minnesota is hard work and setting up its exchange even though the final rule now i know many states are as well. my former l.a. is now deputy commissioner of health in minnesota i keep in touch with her and she's very hard at work setting up the exchange, so the final rules haven't been. >> is an informational to the business as though in the exchange? >> i think it's available certainly, i can't speak to that, but what you said was you don't know if they are working on it and i just want to show

you what they are. mr. withrow come in your testimony first of all you have a beautiful daughter. you don't have to stand up again. [laughter] at one point in your testimony you said there was a laundry list of, and i can't remember what you said, new medical procedures or care that are required? >> right. the lifetime maximum the children 26-years-old, the insurance companies have on the cover for anyone that does not get insurance because of a pre-existing condition. those benefits are but i was referring to adding cost to the system we have cost to the system they're going to rise. >> okay. and that's -- anyone that has a pre-existing condition, any adult?

>> i don't think that as part of the law now we think that kicks in in 2014. >> right. i'm not sure i understand the question that you're asking. >> welcome you enumerated what you said were the requirements that increase the cost, and you stated one that i don't think exists now. and you are representing the chamber of commerce. >> yes. >> okay. >> i think it's important that when we testify in front of the senate that we be accurate, not we, you, and i think that's very important. are you aware of the medical loss ratio is? >> no, not to read by sell pellets, so i'm not an insurance person. >> medical loss ratio is part of the law. in oregon for example ms. miller

medical loss ratio is about 89%; is that it? okay. and the medical loss ratio is the percentage of premiums that are paid into the health insurance company that must go -- that must be actual healthcare's of its 85% for the large group in the wall that was no law before. it's 80% for individual and small groups, and small groups have typically been much smaller and when you are on the exchange will be on a much larger group, and medical loss ratio will be 85 and above, which means 85% of all premiums will have to be spent on actual health care and not an administrative cost, and

not on advertising or marketing or the ceo's salary etc., and that's why in certain markets already we are seeing in connecticut, aetna, cutting premiums by 10% on an average. is that right, ms. miller? you think the medical loss ratio was coming to bring down health care costs or the cost of premiums? >> senator cardin, just speaking for oregon, since we have such high medical loss ratios, i don't think that medical loss ratio will make a difference, but i am not as familiar with other states and what is happening in terms of medical loss ratio. it certainly could have an impact in other states. >> and other states that are not -- minnesota has over 90% medical loss ratio. that's because oregon and minnesota are high value states, and part of sexually -- one

thing i believe is going to bring down the bend in the cost curve is we are going to increase the value of health care and we are going to reward and incentivize the height all you care. my time is up, but i did want to point out that earlier senator hatch said that the purpose of the health care reform was not to reduce the rate of the growth of premiums but reduce premiums, and i don't think that's the case. i don't think anybody ever said the purpose of health care reform that we were saying would reduce premiums, and sometimes hear that from opponents of health reform who say premiums

went up, and we were told they would go down. well, no. we didn't say that premiums would go down. we said the rate of growth of premiums would go down. that at least was the goal and whether that has been achieved everywhere we have to see if that is the case i just want to clarify the goal and i also want to clarify because senator for murkowski from atlanta was talking about no children only plan because children now are -- to have pre-existing conditions. if you have preexisting you are allowed to get care, and in minnesota, while we don't have it the children's only plan that has been taken care of by state

plans, and that is the reason for an individual mandate that everyone will have to get care. that is the whole purpose of the individual mandate is so that we cover people with pre-existing conditions. i just want to clarify a couple things and i apologize for going over my time, mr. chairman. >> excuse me, senator merkley. >> thank you mr. share. and it is a pleasure to have you will testify today. it was a in 2007 that the legislature passed a bill that made the filing process public and then in 2009 the expand on that for particles for the introduction of the public and then was just this spring were a couple months ago in june, ms. miller, that you hosted this public testimony on the rate increase, and i believe that was the first public testimony of the rate increase in 20 years. were you required to do that by

law that this would be an interesting experiment? >> cementer merkley, this was the first time in 20 years we conducted a public hearing on the rate filing. we have had the public comment per koza people could comment for a couple of years this was the first hearing and we were not required by law to do that. >> if i recall you were skeptical about how that blood on fold. how did it on full? >> senator merkley, i have to say it was -- i didn't know what to expect going into the hearing. i didn't know if consumers would find the experience helpful or valuable, and i didn't know how the company would react to it. and i have to say i found it to be -- and i think everyone who attended found it to be a very valuable experience. i refer from consumers his face so appreciated the opportunity to be heard and to testify and make their views known and have somebody listen to them. we also had a lot of comments about the way we structured the hearing we had the company if

present the filing and we had the consumer advocacy group present their thoughts on the filing and then we took the comments from the public and we got comments from key west were leaving the left the cards and what not that said things like i have a lot more confidence in the work the insurance division does having witnessed this hearing. that meant a lot to me because i know behind closed doors that we are doing an excellent job of scrutinizing rate filings but if people don't have the opportunity to see that, they don't necessarily know that and they don't have the confidence in the process that i certainly do and have for years. so i think it was a very valuable experience and the company i think also found it to be a valuable experience. >> i think it's absolutely terrific in part of this process was to create a plain language strategies of the public could understand the documents before them. can you share a little bit about that? >> senator merkley i will tell

you over the last three years i've been at the department, i think our single greatest challenge has been to try to find a way to take what otherwise is a very technical process that historic plea has been speaking to act greece, the department at jury speaking to the company actor weary to try to take that process and turn it into something you and i can understand and the public can understand has been one of our biggest challenges, and it's why we did take some of our brand funding as i mentioned and created the animated story of the health insurance premium. we've tried -- we've tried to do everything we can to make this more easily understandable. we spend a lot of time and staff time to look in our plan language summaries because that is our way of holding ourselves accountable, but we want people to understand why the rates are going and why we approve the rate we approve. >> could you bring that expertise to bear on our legislative language? [laughter] >> i want to switch to the

health insurance exchange. you set up a public corporation the health insurance exchange corporation, and they are hard at work designing the elements of that and how is that going? >> in terms of developing the exchange, i will tell you rocky kaine is, i think the title is administrator or interim exit of director, whatever it is, and i will tell you they are just starting to do things like try to find office locations. some of the things they are doing our theory basic in terms of setting a big corporation. so i would say that it's a little bit slow only because there are things we don't necessarily think of that they have had to focus on like finding buildings, figuring out where the office is going to be located, getting the workers' comp coverage for their employees. as a mexican general, the design of the exchange, to have all of the policies and kind of one computer site where a consumer can compare them to see what features best fit their family and so forth, is that resonating is there a lot of interest in

that and support for it or do people see that as on necessary? >> welcome center merkley, in a market like oregon, if you go to health care.gov and look at all of your options, the last time i did for an individual like myself i think there were 77 options that came out and sometimes i think to many options is difficult for consumers and figuring out what is the best plan for them it's easy for people to compare plans. we have so many options today but they are not necessarily plans that are easy to compare. >> i just have one last request. my colleague from minnesota likes to point out that oregon has a medical loss ratio of only 89% while minnesota is at 90%. can you do something about that so i don't have to continue this? >> we will work on that. [laughter] >> thank you mr. chairman. >> it is 91% in minnesota. [laughter]

>> [inaudible conversations] >> i will submit this to you in writing. >> may i just thank mr. withrow for coming and bringing your family and for having us a small business and i love pallets. [laughter] i do. paletizing things, that's great. i've been on a tour where they have everything on the back of the plane and palates, it's a good business. >> a friend of mine and a former colleague of mine who was in minnesota by the name of richard mahlon, former congressman went into the business. >> well you got to put stuff on pallets.

food color all food goes on pallets. >> would you mind if i clarify something i said earlier? >> yeah. [laughter] >> and i will never forget again. pherae as i mentioned, the additional cost is what is concerning me. but also, the preventative costs and also the addition that is added for the health and human secretary sebelius that added additional costs on women's lactose -- lactation -- excuse me, breast-feeding and birth control costs is what i was referencing my senators additional costs that's going to hurt us from the business perspective on the exchanges. so i appreciate you correcting what i've said before. >> i don't think also the preventive kicks in until 2014 either; and my -- so, i think

that when you attribute, and i don't know what's going on in kentucky, but when you attribute the cost going up because provisions that are in the affordable care act that have not kicked in, i just think that, you know, as you say, you are a small businessman who pays attention to his business and you obviously care about your employees and you are obviously doing what we need americans to be doing, which is working to build businesses and working to create economic opportunity for people come and you pay your employees to much to qualify for the tax credit, so why credit you on that. but, so you're not i think, you know, you are not expected to know every detail of the wall which is over 2,000 pages long.

so -- >> thank you. >> senator ensign? >> some of those provisions have already gone into effect, so some -- >> some have, but i'm saying some that were mentioned as having gone into effect haven't and i just wanted to make that clear. >> thank you very much. the record will stay open for ten days for further submissions or questions. senator merkley? >> can i insert one last question? >> i want to follow-up on the lactation point mr. withrow, because that is something i was very much involved in an oregon and i championed the companies providing these basic work and the flexibility for women to express milk and here in the senate, dr. colburn from oklahoma partnered with the site because it was basically no cost. in fact actually it turned out from the experiment in oregon that they have much less absenteeism and much higher

score among the women returning to worker for child bearing because of the stress over whether they are doing the right thing with their child or not, and so, you mentioned the cost associated with lactation and i'm not sure what cost you were referring to. >> i am talking specifically about the coaches from the breast pump rentals and having had four kids, i certainly know the cost that we had to pay in order to either buy or rent breast pumps and also birth control. those costs are what concerns me because we seem to be adding more and more to the ticket of benefits and as we as benefits typically in business you have benefits and the more that you add, the more it is going to cost so it consumes me from the small business perspective that we keep schip to keep adding more and more to the party. >> am i understanding come i could be wrong, but my belief is those features you refer to

actually are not a mandate in the law. those are not required. many companies are putting them in because they have a very strong appeal to the custom, but that is a market decision, not a mandate decision. i will check on that and close the loop with you. >> would it be to everyone? is it something that has to be part of the entire mandate that everyone has to have that available? >> that's my point, mike understanding is those services are not mandated that is an insurance company decision but let me close on that. >> okay. >> actually everyone has to pay for all of those for free. >> as long as everyone is waiting and i guess the chairman will weigh in on this. [laughter] >> being the basic author of the prevention section of the health care will, i would just say it

again we keep paying and paying to fix, to patch. we spend precious little on prevention. the one big failure of the health care system in america that we have not put enough into the prevention, less than 4 cents of every dollar even goes into the prevention and your mother was right the prevention is worth a pound of cure so as we are making the shift, we are putting more out there for the preventive services, and in some cases they do cost more. they are added on. but, every single study that i have ever seen indicates the amount that you have put into proven preventable services approved by the united states prevention health task force of the center for disease control and prevention pay off huge

amounts in the future in terms of cutting health care expenditures to package and mend later on. so, we want to do more in the preventive health care. a lot of companies coming of companies are stepping up to the bar, some have preceded this with prevention. we were just talking about saved wait that did a great job in this in the past, and it was one of those companies we looked at and how you divide it is preventative health services and interventions, and also as the share, former chair of the national breast feeding coalition to change the societal attitudes on breast feeding it should be available easily. we all know from pediatricians that the first months of a child's life is enhanced

immeasurably by mother's milk. there's no substitute for it anywhere. some people can't, i understand there have to be replacements in infant formula and stuff, but we should make it as easy as possible for every mother to be able to nurse her child, as easily as possible. in the workplace, traveling, no matter where, it ought to be the norm, not the exception that we do this. i don't know your business from anything, mr. withrow, or any other business here, but i have seen a small businesses that really go out of their way to provide time, to provide whatever modicum of support they can give to women and young women who are in their childbearing years to be able to nurse their children.

to those on say god bless you, keep doing more, and i hope all businesses will do that. and i hope we do that on the government level both federal, state and local governments and this is one of the best things we can do for the health of this country. mr. merkley? >> thank you mr. sure. i was interested in oregon that we have an exemption from any company that applied and said it's just not feasible to provide privacy and flexibility in the great time in the setting, and so we assume a number of companies would to get vantage of that situation, and what actually transpired was not a single organ company has asked for that exemption. some have exported and basically tried to understand what is required of them and how can they make it fit and they've gotten advice on how other companies have tackled it, and i think it really is a testament to the fact that when people pause, they realize what

profound value it is for the women to be able to express milk. there is no substitute for it, for the child, and it is not only good for the child's health, it's tremendous for the mother's health. we had testimony in this very committee from dr. colburn, who said when i first introduced the amendment, senator merkley hadn't begun to say ought i's and adjust to it. so i think it was tremendous. >> i think we better clothes before we are accused of practicing pediatric medicine without a license. [laughter] thank you very much. the committee will stand adjourned. >> thank you. [inaudible conversations]

amol conversations [inaudible conversations]

and the senate banking committee held a hearing on whether there should be national standards for mortgage loan servicers. mortgage servicers increasingly have come under fire from federal and state officials who accused them of cutting corners and questionable practices when processing foreclosure paperwork. witnesses include a community bank ceo, home loan or advocacy group director and former economic advisers for the obama and bush administrations. this is just under an hour.

>> good morning. i call this hearing to order. thanks to all of our witnesses for joining us this morning. i would also like to recognize for the first time we have a witness joining us by skype, professor peter swire is an oregon but was kind enough to start his day early for the hearing. today we will continue the committee's oversight in the mortgage servicing industry to explore the need for the services standard. the housing recovery appears widespread uncertainty in the mortgage servicing. servicers are accurate confident that the borrowers documents

were submitted and they're concerned about how all of these factors increase litigation risk or servicers on such should move through the foreclosure process are held up because servicers are concerned the paperwork has not been completed properly. we need the rules of the road so that the borrowers and the addresses and servicers are having a clear understanding of the process to follow the point on the pants and also the unfortunate event that a borrower becomes delinquent. the first surfacing hearing in november of last year the federal banking regulators have found significant problems and issued consent orders to 14 large servicers. the federal housing finance

agency has guidance to align fannie mae and freddie mac standards for servicing and improve the bar contact and the treasury department program began issuing the servicer cards which did not show improvement. even though where does the epa released the investigative reports to the ongoing problems in the mortgage servicing? i would like to place those reports into the record. given the variety of standards we continue problems that are mentioned it is important we explore a national mortgage servicing standard. several members of this committee i've already introduced legislation through a standard to mitigate the foreclosure crisis.

senator reid is a consistent leader on this issue introducing legislation was converse and again in this congress senator merkley and senator brown of the legislative efforts. senator menendez has also helped in the committee's oversight issue with the hearing on the housing subcommittee. this is an important issue and the committee will continue to exercise its oversight responsibility before i turn to senator corker, i would like to thank him and his staff for working with me and my staff in the housing finance reform hearings. housing finance reform is a large topic that requires attention and all aspects in the hearings will help us better understand the need for reform.

senator corker? >> thank you and thanks for having this hearing. i certainly welcome all the witnesses both here and i appreciate your testimony and i know we are going to be talking a lot about the servicing today and of what i would like to fourth is if we do that without paying attention to the mortgage investors that were going down the wrong track. i mean we've got to have private capital back in the mortgages or the rates certainly will not continue to be low and obviously we are not going to get the private market involved unless we take into account. i know we know they are to fundamentally different ways of going about servicing right now. one is the large, large banks, and the other is the community banks around the country, and as we look at the regulations or potentially the new laws, we need to take into account. so i welcome you to hear today. i look forward to your testimony, and again, i hope

whatever we do we continue to remember that urning, getting the private capital back into the mortgage market ultimately has to be a big part of what it is we're focused on. thank you. i look forward to the testimony. >> before we begin, i would like to briefly introduce the witnesses who are here with us today. our first witness is mr. jack hopkins, a longtime friend and a personal resource for me and many south dakota community banks. jack is the president and ceo of the community think that serves both south dakota and minnesota. ms. schwartz is an executive director of the hope now alliance. mr. robert couch as a counsel at the law firm of bradley arant

boult cummpings, llp and finally we have professor peter swire who is appearing before the committee via teleconference. professor swire is a professor of law ohio state university and also the senior fellow at the center for american progress. welcome all of you here today and thank you for your time. mr. hopkins, you may proceed. >> thank you. chairman johnson, cementer corker, members of the committee, and jack speed, president and ceo of a successor to $60 million asset bank headquartered in mitchell south dakota. as a third generation community banker, i'm pleased to represent icba 5,000 members of this hearing. as this committee considers the development of the national mortgage servicing standards, i have an important point to make. community banks are successfully servicing portfolios and don't have the widespread servicing

problems reported in the press. i would urge you to ensure any effort to the national standards doesn't have the regulatory burden of the community banks and was to preserve the world community banks in the servicing where you will see further consolidation that will harm borrowers especially those in rural and underserved housing markets. the bank was founded in 1930 at the outset of the great depression and was built tested and proven under the historical economic conditions. we survived the great depression in the numerous recisions' practicing the conservative common sense lending. we have emerged from the recent crisis capitalized and ready to lend support to the recovery. cortrust serves communities and 16 south dakota cities from sioux falls to the rural communities with populations of less than 150. residential mortgage lending has been an important component of the business since its founding in has grown over more important over the years. today we have a $552 million servicing portfolio consisting

of approximately 5,000 mortgage loans. over the years we discovered mortgage lending is a great way to submit long-term relations with customers and to win the opportunity to serve their traditional banking needs. to further bolster the customer relationships, we need to service the loans with a are subsequently sold in the secondary market or held in the portfolio. customers to care about who services the loans. they've all of you and even seek out local servicing. much of our recent business has come from refinancing mortgages away from the large lenders whose borders are frustrated with servicing. even though at its best it's a break-even business for us and loan for loan it would be more profitable to service, we choose to service in the house because it is essential to the community and business model. the success of community bank servicing is based on the close ties to customers and communities because the cortrust servicing team consists of life for people come customers always know who was on the other end of the telephone or across the

desk. a customer dials our 1-800-number will generally be of one of two people on the line, a customer can walk into one of the 24 locations and deal with a staff person face-to-face. smaller servicing portfolios and credit controls mortgage documents also provide an advantage over the large servicers. for these reasons, community banks have generally been able to identify the repayment problems the first signs of distress. our staff will contact the customer on the 16th day the first deal of delinquency and find out what their circumstances are and discuss solutions. ..

. we are also concerned about the new compensation

>> thank you for holding this hearing and for the opportunity to present the story. i'll be happy to take your questions. >> thank you, mr. hopkins. ms. schwartz, you may proceed. >> thank you for the opportunity to speak here today. i'm faith schwartz. in 2007, i joined the hope now alliance as the executive director. the foreclosure issues we faced in 2007 reviewed as sub prime issues, and most people thought it was a year or two at most to work through. i'm approaching my fifth year at hope now. the crisis has not abated

homeowners. at times we were discouraged by the scale of the problems faced on the foreclosure front, but through continued efforts of the alliance members including services, counselors, federal and state offices, we are seeing more and more helped. we measure successes by the 4.6 million permanent modifications completed. other efforts have been more difficult to measure. sadly, there's cases where homeowners fall through the cracks and the industry is persevering through the worst housing crisis since the great depression. we are still here ding -- doing what it takes through many channels to help homeowners find resolutions. the comments today are my own and not necessarily shared by all hope members. many efforts are underway towards this goal, but to achieve it requires extraordinary cooperation and communication among industry, government, and other concerned

parties. we almost improved the customer experience for homeowners at risk of foreclosure. uniform clear standards would be a strong step in that direction. current economic conditions and underemployment conditions are challenging for customers trying to maintain their homes. many are frustrated by the inconsistent messages by sub loan servicers when they ask for help. real improvements are here, but more needs to be done. let me be clear -- national servicing standards may not change the final outcomes for many at risk. all mortgage customers need consistent mortgaging processes with timely responses, information on their options when they experience difficulty of staying current on their mortgage. i'll address two prominent issues in sub loan servicing and the single point of contact in the dual track processing loans going to foreclosure versus the

mod dpi cation process. the single point of contact is one way to lessen the confusion and explain what steps are required by servicers, investors, and state law. it's important to emphasis the servicing system is facing different challenges in today's environment than it was designed to manage. over the years, mortgage servicing developed uniformity in part because the standards for loans were set by the goc's and hfe's guidelines. freddie mac is the biggest influence. for years, that worked well, but it was a simple task of processing loan payments on performing loans. late loans and troubled borrowers were handled by repayment plans and sale of the property at a profit. this shifted demands on mortgaging and services manage millions of late loans and work with more complex solutions with more modifications and rewriting

loans. since 2008, hope now hosted over 112 events tracking participating homeowner satisfaction to gauge our success in the outreach model accordingly. in the past two years, hope now and the u.s. treasury making homes affordable worked together on outreach. over half the borrowers, rate fees were rated as excellent. we continue to find 45% of the participating homeowners are first time contacts of their loan servicers who saw a change in the circumstances of at-risk borrowers up to 30% of those who will unemployed. unemployment impacts the aide available and highlights challenges we face in this crisis. this offers insight to the importance of the customer experience regardless of the outcome and reenforces the need to communicate with borrowers who need assistance. there's efforts underway to approve standards, particularly

for helping at-risk homeowners. a standard is needed, but current initiatives should be evaluated, coordinated, and ultimately combined to set national standards. there's many standards in place by various agencies. we have the recent occ consent orders for the top 14 banks and unique fha servicer guidelines. we have risk retention under dodd-frank including servicing standards. we have fhaa setting a new compensation servicing model that performing loans and non-performancing loans. the treasury makes homes affordable with directives on single point of contact and a one year fore barns plans. state attorney's general are under confidential discussions with top banks to discuss practices and processes that will lead to standards.

the soon to be efforts and inner agency guidelines are looked at to effect standards. all of these efforts must be evaluated before any decisions are made on any single niewn form standard. i did visit a shop recently, and i wanted to see what they implemented on the single point of contact. hundreds of people were being trained to handle the single point of contact rule. training lasted for six weeks. once the training was complete, employees had several messages to deliver, but what the options were for the borrower. the training objective for new hires was to bring consistency, empathy for the customers, and accuracy regarding the description of options available to borrowers and access of information of options available over the course of the eligibility review.

the training task seemed daunting, but it was indeed impressive. some license single point of contact on the origination process if subject to the safe agent under several state laws. it was enlightening to see how they were implemented in the real world. all changes have to be adapted into systems and workloads to interpret and are needed interimly and externally. as a reminder, the single point of contact does not perform underwriting or modifications or sale processes if there's a short sale in place. we believe the efforts underway are moving in a positive direction to elevate servicing standards and improve the customer experience, increase coordination by all entities in order to make things happen in a timely fashion. in summary, we recommend the administration gather all involved parties together to review the servicing standard

initiatives to ensure definitions and policies agreed to by regulators and up vesters line with one another. that is the time to ensure a uniform set of standards can be identified and established. reducing confusion and friction from the system a important. senator corker noted bringing private capital back to the market is most important. looking at standards must be done thoroughly and cashesly. the -- cautiously. it's essential we get it right, and the communication to the consumer of the processing that comes to the investment. the non-profit partners and non-service members are committed to working to improve the services to the customers. thank you. >> mr. couch, you may proceed. >> good morning, chairman johnson, senator corker, and other members of the committee, thank you very much for letting

me appear today to let me talk about this important issue. i'm not going to spend a lot of time on my background, but to establish my bona fides, president of fannie mae, chairman of the mortgage bankers association and chairman of the bankers association of alabama as well. first and foremost, i'm not here to defend the industry or be an apology for the industry. mistakes have been made and there's been some abuses of particular processes, but i am here to speak about three issues -- certainty, fairness, and state law, and i'd like to cover all three in the limited amount of time i have. i'd like to start by telling you a story about the last time i refinanced my own morning ten years ago, and the agent handed me a 15-page long document, a

mortgage. he said, do you know what it means? i said, well, i think i do, but tell me what you think. it's simple -- if you pay, you stay, if you don't, you won't. this may seem harsh to a lot of people, but that, in fact, the essence of the transaction and the essence of the hearing in many ways. it's constructive to talk about how the process works. someonements to borrow money, goes to a lender, establishes what their likelihood of repaying that mortgage is or that loan is, and offers the home that they are about to buy or refinance as collateral as security for the mortgage. at closing, they get the money. in return, they sign a note that says i promise to pay this money back, and in security, to secure that promise, i give you the right to take my home if i don't pay the money back.

that allows it to be sold in the secondary market, many times to pension plans that you or i have been beneficiaries of and the money is recirculated into the market place. that's the way the process is supposed to work, but unfortunately, a lot of uncertainty, as you mentioned chairman johnson, crept into the process, and that uncertainty has been in the form of stretching out the period of time that it takes so fore close on a loan. today, it takes on average 400 days from when a person quits paying a mortgage until when the foreclosure process is completed. in some states, new jersey, new york, florida, it's a much long process, and that uncertainty that crept into the process made the functioning of the market much more treacherous. if you look today, well over 90% of all mortgages in order to be done have to be guaranteed -- a

direct guarantee by the federal government for the mortgage process to take place. by way of illustration, if you look over the past three years, there's two private label securities in the country, about $500 million worth of mortgages. by comparison, back in 2006, there's hundreds of securities totallying $723 billion done in that year alone, a thousand-fold decrease for a three year period. the process has been affected by this uncertainty, and you need to be aware of that. fairness is important part of the issue. a lot of the efforts we've seen are designed to be compassionate to those who cannot or will not pay mortgages on time. i certainly understand that, but that overlooks the need to be fair to the folks that have been

very dill gent in paying mortgages which is the vast majority of people in the country who have mortgages. the effect of stretching out of the process and uncertainty i mentioned before is to dampen railings values across the board and across the country for those folks that have been dill gent in paying mortgages, and i hope you take those into consideration in your deliberations, and finally, state law. i'm not here to advocate for or against a uniform national standard, but i remind the committee there's 50 states out there with procedures set up to protect both borrowers and lenders in the process and be sure the process runs smoothly. i hope you are mindful of all of those 50 -- really 51 states and the case of dc, the district laws designed to do just that. in sum, in conclusion, please be mindful of certainty. please be mindful of fairness,

and please be mindful of state law and deliberative about the process. thank you for the opportunity to talk to you today and happy to answer any questions. >> thank you, mr. couch. president swire, you may proceed. >> thank you for inviting me to participate in the hearing on national mortgage servicing standards. as you're aware, i previously committed to speak in oregon today, and i thank the committee and staff for the great flex the of having me testify online today. i believe using online technology can open up congress and the political process to participation of the american people. my testimony drawing on two previously published items i provided to the committee. it's a report to mortgage servicing i authored in january this year, and second is an article from the "los angeles times". as you said it, mr. chairman, i'm a law professor at ohio

state university and senior fell lore for american progress. i was special assistant to the president serving under larry summers. at the nec, my task was to coordinate the process for housing and housing finance issues. i worked on mortgage issues and fannie and freddie and the fha. my january report was called "what the fair credit reporting act should teach us about mortgage servicing ," and it makes a simple point. in 1970, it exists today for mortgage servicers. the single most important fact is that the consumers, the homeowners, are not the clients. the climates to the credit reporting agencies are the companies who pay for the credit reports, the lenders and reporters. they pay the services, and those are the investors in mortgages.

mortgage servicers owe their legal duties to the investors, not the homeowners. now in saying this, i'm talking about when rights are sold, and appears not to be the model that's followed where they keep the services in house close to the market, but the large majority of mortgage servicing rights today are sold out into the market to new buyers and servicing, often the biggest banks. the structure of the market that we have today leads to problems. consumers have no market or legal checks on the servicer. the homeowner doesn't choose the servicer. that is made by the company who originate the loan. if the homeowner has a bad experience with the servicer as so many people have, the homeowner can't quit. even if the homeowner refinancing a loan to get away from the servicer, the servicing market is so concentrated, that the owner gets the same service the next time. they not only lack choice, but lack legal rem --

remedies. that's why this is important. with no market forces to protect consumers, something else should fill the gap. consumer rights could be embodied in the standards, and i hope that will happen. now turning to washington in 2006 and 2007. to prepare for the testimony i brought along and provided to the committee files from my 21-month dispute with washington mutual in 2006 and 2007 about flood insurance that they improperly placed on my home. we were a target of forced place insurance policy and this committee heard about that before. in early 2006, the flood insurance coverage, my state farm agent immediately faxed me the information. turns out that there was a cute trick i discovered after several phone calls. they didn't process it unless there was a servicing the

number. they received the certification, ignored it, and didn't tell us. that is how they could bill my family for flood insurance. the next trick was late fees on the monthly mortgage payment. we had automatic payment first week of every month, and we never missed a payment. the practice was to charge for the flood insurance with each monthly payment. that meant they considered our payment too small each month by the amount of that insurance premium. i declared our payment late and charged a late fee of over $170 a month. i provided the committee staff with detailed documentation of these and numerous other problems with our servicer. at 21 months and 50 calls to customer service, they agreed in late 2007 to sexual the flood insurance and cancel the fees. in conclusion, during this, i am fortunate that i was able to cancel over $4,000 in erroneous

fees they wanted to charge me. most homeowners, however, are not banking law professors. all of those hours sitting on hold waiting for customer service gave me time to think about the flaws in the mortgage servicing system. my experience many government taught me there's numerous hard working and talent individuals in the mortgage servicing industry. i admire the work. the incentives, however, do not work for consumers. in response to senator corker's opening statement about private capital back into markets while i've shared, fixing servicing which is getting money early from the homeowner to the investor -- so i agree working on national mortgage standards should be seen as getting the investor part to work as well. in short, in the absence of market discipline and servicer and national set of mortgage standards is essential. there's no other way to have consumers protected. i thank the committee for its attention to these matters, and

i welcome any questions you may have. >> thank you, professor swire. mr. hop kips, small -- mr. hopkins, small servicers like your bank haven't been caught up in the problems that large servicers have. is that just due to your size, or do you believe that there are other factors? >> i think that it starts up front. i think we had strict underwriting standards and always held the standards. we were not offering the exotic products that are creating the problems with the foreclosures now. we didn't believe in the products, therefore we didn't offer the products, so because servicing is a very low margin business, we felt it was important to have a good quality portfolio, so we were always conscious about gorped writing and -- underwriting our own up front. i think it starts with the

underwriting. we keep our loans in house and therefore concerned about what we put in our portfolio. >> mr. hop kin, mortgage origin nation, there has been significant consolidation in the mortgage servicing industry and the largest banks now service the majority of the loans in the country. have borrowers and communities benefits from this consolidation? >> absolutely not. i think that is part of the problems that professor swire was dealing with a little earlier. you know, an article i saw in 2010 showed that the four largest servicer control 70% of the market so they don't have the customer contact that we do. i think that if it was a more diverse market in the servicing side that the customers would have a better experience. >> professor swire, in your testimony, you recommend a fair

credit reporting act equivalent for mortgage servicers. can you expand on what that should include and how it could prevent some of the problems we are currently seeing? >> thank you, senator. there's many people working on the details of what the standard should look like. i think the point was if there's a mistake made about the customer, we can fix it these days, and when there's mistakes with the servicers, we didn't have the same legal rights, and that's part of what i'm pointing outment i think single -- [inaudible] it's a step in the right direction. there's issues of dual tracks when people get something fixed, they don't have the -- [inaudible] yanked out of them. that's part of it. we have to make sure the servicers are doing what's right forever investor and customers and not the portfolio. those are the main categories of

what you'd like to see in the standards. >> with the standards put forth, would a national mortgage servicing standard help provide clarify for servicers, homeowners, and investors? >> senator, yes, we do believe there is a strong need for coordination alignment on what's going on today with the regulatory efforts and others on servicing standards. i would caution the senator to let this fall out to find out what time hi is happening with the standards through the ag discussions and the occ consent orders as we see how it works through the system before there's another effort to make new standards without testing how these are coming through. >> mr. couch, in your testimony,

you argued that homeowners have not been harmed by the problems in mortgage servicing. do you disagree with the assessments and subsequent required changes imposed by the financial banking regulators and the faha? >> senator, in my testimony, i said that in the event that there a borrower has been damaged, he or she should be entitled to be made hole for those damages. in terms of harm, it's important to keep in mind that in the case of foreclosures in this foreclosure process as i mentioned before, the length of time during that 400-plus days, depending what state you're in, while the process is working, that borrower is not mop tearily -- monetarily damaged. in fact, that borrower is living rent free so to speak in that

period of time. there are in place in all 50 states mechanisms for making, if there are damages, making the borrowers whole. in every case i'm sunlighting that should -- suggesting that should take place. it's important to look at who is actually being damaged in this process. >> my time has expired. >> go ahead. >> [inaudible] [laughter] >> i'll proceed to the second round if need be. senator corker. >> thank you. more than glad for you to take all the time you need from my perspective. to the witnesses, again, thanks for your testimony. one of the folks in our office as we were getting ready for this hearing was talking about the fact that, you know, a year or so ago they had a decision to

make who they would borrow money from because they obviously being a staffer had had experience with what happens with mortgage servicing, looked at, you know, borrowing money from a community bank where they know the person, and on the other hand, looked at some of the larger institutions where the rates were cheaper, but could be put in a meat grippedder if something happened. i use that example to say that the customers do have a choice. i mean, they can choose to go to a smaller institution and maybe pay a higher fee, but have that permized service -- personalized service or go to a larger institution where your file might be in a warehouse in kansas someplace. there's a difference there, and i know it's a difference when i borrowed money for commercial lopes, i paid attention to it. what's your response to that? i mean, people do have a

choice. >> sure, senator corker, they do have a choice, and i would say an evolution of a $3 trillion market, there was a lot of buying and selling of mortgages, small lenders, and large ones. today, most of the market is court reporting controlled through fha which many lenders participate, and those guidelines really govern how they are serviced, but to your point, there's choices with your community banker and see how your payment was employed versus online or 800-numbers to find out how it's processed with larger organizations. there's always a choice. they have a right to buy and sell those loans today, and some do. >> that's a good point. a lot of things we do around here, we look at the regulatory practices put in place with dodd-frank. there was concern that that just creates greater consolidation over time. any concern by any of the

witnesses that if we had, you know, if we had put in place uniform standards by law there will be consolidation and maybe it gets even more difficult than it is? >> if i could follow-up on that, i believe you can have standards and have appropriate protections in place for smaller servicers or banks that have too much cost and burden with that, but you can have standards that are fair to customers and protect them. >> how would that work exactly? >> we just went through that with interchange, and none of the community bankers didn't feel it worked that well. they are protected, but they know the market will migrate away from them if they have a higher fee. it's a nice thing to say, but how would that work? >> i have an idea about that. >> go ahead. >> okay. i didn't want to step on faith's --

so, one of the basic distinctions for mortgage servicing rights is if whether they keep them at the bank. you can write rules it's retained by that bank, you can have a dollar limit if you want to applied up to some amount so the smaller banks that retain servicing are likely to have a customer relation, but once it's in the national market, that's where the standards apply. >> if i could -- oh, go ahead. >> first, if i may step in. one, i think you defined in here what a small or a large investor is, and fannie mae guidelines, it defines 65,000 loans as being a small market investor or small servicer. as far as for the cost, what we're looking at, we do servicing for some other banks

prior marely for the -- primarily for the housing loans. there's six servicers in the state. we do buy some servicing, but the vast majority, probably 98%, is our own originated product. i argue if we do our own product, we look not to increase the standards of our sole prescriptive. it's things that force us to have a call center implemented in order to do that, in order to track all our contacts with the customers. to your point earlier talking about the cost of a mortgage of a community bank, i don't think with the markets the way they operate today there is a difference in cost particularly with the new up sentive rule -- incentive rules. i think the pricing is identical between a large and small servicer. we advertise we service locally. that's one of our key advertising points, and we're

proud of that, and that brings us in business. >> you still don't want national standards that are the same for you as they might be for jp morgan or something like that? >> no, we don't. we do not want the prescriptive standards. we've been successful. our late rates show that. i'm cautious that we have standards that are requiring us to contact people on nights and weekends when we don't have those types of issues. our issue is whether they pick up the phone. we've gone to the point of using cell phones so they don't identify the numbers when they are collecting, and we change the number monthly. >> thank you, i'm over my time. >> as a -- has a comment to make. >> i would just say there are ways to create standards where the regulatory oversight body can work with the smaller community banks or others can

say are you satisfied, single point of contact, do you have a customer servicer, a rate that's low, and you are taking care of customers, and, of course, they testified they do. larger companies may have different processes in place because they are higher volume shop, and therefore, they need structural concepts. in all cases there's ways to be flexible with standards to accommodate customer protections as well as the banks and up vesters -- investors needs. >> senator? >> thank you. i ask unanimous consent my statement be included in the record in the beginning. >> it will be. >> thank you. mr. chairman, thank you for the hearing and i appreciate the testimony i read of the witnesses. i have a few questions, and i'm hoping you can all help me here. let me start off with, i know some of you talkedded about single point of contact and dual tract, but if you had to name a few specific national mortgaging

service standards that you would believe would be helpful, what would those be and how would they be helpful? for anyone on the panel. >> i'm happy to. clearly, the single point of contact has become a no , ma'am -- dominant discussion in the environment because customers are not happy, and to turn that into something where they understand what's happening around them and to them and through the options that they are made available, a single point of contact is something that helps them get through the process in an easier way. i testified earlier it doesn't mean the outcome will differ if they can't make an affordable payment or they are unemployed and there's few tools to help them get through a loan process so single point of contact, dual track processing is the very

other significant issue out there. it is confusing to homeowners to get help on the left side of the house, to get a modification of which i spent four years working with the industry and non-profits to do. at the same time, the laws create process and standards for foreclosure to occur, and so to explain that very complicated process, it has to be done in a better way for the consumer. >> uh-huh. now, mr. hopkins you suggested in your testimony community banks shouldn't be subject to national servicing standards. i realize your arguments and concern, but to what extent does that depend op what servicing standards are we talking about? >> well, we're already subject to some standards, and i think we've been able to follow the standards very carefully. you know, we deal with fannie mae and freddy mac or south dakota housing in our case. we have standards of when they make contact, ect..

we are concerned about the cost they are looking at to document that we're doing what we're doing, that we are having the contact with the customer, but i think again our results show we are there. what we're looking for is that anything you're.cc doesn't add cost and burden to us and we have a carve out if we are -- if we're meeting certain standards. our late -- >> so if you -- go ahead, finish that. >> our delinquency rate proves at 1.7%, one-third of the national average, that we're doing the job we need to be doing. we just had a handful of foreclosures over the last few years. by handful, i'm talking 23 last year. i mean, that is not out of 5,000 loans, it's not an excessive number of foreclosures. those are life event things, divorce, lost a job, ect., that are causing those issues. >> all right. let me ask some of the council

here. does the panel acknowledge that it is a conflict of interest for mortgage servicers to have an ownership interest in a company that performs services associated with that home mortgage services foreclosures? property maintenance, inspections, doesn't that give the servicers an incentive to force homeowners to use expensive add-on services for their own property even when that's more likely to drive the homeowners into foreclosure? >> [inaudible] >> senator, i think that certainly you raise a good point that there are all sorts of different interests in place that have to be balanced. i would maintain there's not necessarily a conflict of interest for -- in fact, it may

be easier for the consumer to have services that are provided in-house versus going outside the house. now, i think that most of the standards proposed would require the services to be offered at fair market rates and not be marked up, and we've had extensive debate throughout about respa and what's required in that regard so, i mean, you raid a very -- raise a very good point, but it's a case-by-case. >> what about force place insurance, the effect on borrowers? >> well, keep in mind what force place insurance is intended to do. if you lend me money, and you give me a security interest in my house to secure that money, part of the deal is i keep insurance in place so that your security interest in my house is

protected, and if i don't go out and get property and casualty insurance to keep your security interests secured, i think you as an investor would like a provision that allows that coverage to be put in place so your security interest is secure. >> but we have found in many cases in which that force placed insurance has been well overpriced, and so, again, how do you map tan this balance? same issue, and i see, professor, you want in here. after i ask the next question, i'll have you answer both of them. mr. chairman, thank you for your patience. second, lien conflict of interest of mortgage insurers. suppose it's a conflict of interest to also own the second lien, and that industry alone is not willing to stop the

conflicts because it could be in the financial self-interest of some private sector parties of that conflict to continue. isn't that the kind of situation where there's a legitimate role of the government to step in? >> are you directing that to me, senator? >> yes. >> well, again, keep in mind in most of the cases we're talking about, i mean, we can go back and talk about where the piggy back loan which many times this came about, why those evolved the way they did. keep in mind the relationship between the first and the second is established by a state law -- well, it's established by the investors that bought the first -- or the lender that has the first and the lender who has the second in any competing interests there are governed by state law and also by the contacts that -- >> i understand the privilege rights of whatever the first lender is and what the second lender is in terms of their

status, and, you know, how they'll be compensated if there's foreclosure. my concern is the second, you know, the second lien being also the servicing entity, and then in that context, are they working in a way to satisfy their interests as a second lien home, or are they working in the interest of the home opener and resolution of the process in a way that investments ensures that they can keep the person in their home? >> well, the primary party affected by that is the owner of the first lien, and the first lien holder if he has concern about the way the second -- the second lien is going to be serviced would have to raise that concern at the point that he purchased the loan because that -- those are the rights that are most directly affected. now, i recognize there have been suggestions that that second --

that the servicer of the second lien may put the interests of the second lien in front of the first particularly in there's a loan modification that's been proposed, and i can easily envision the conflict that could arise, but it's the beef, if you will, is the investor in that first mortgage. >> professor swire, and i'll stop there. >> first on forced placed insurance, the logic of protecting the investor is strong, but my experience found out that a national servicer had a practice of ignoring proof of insurance that came in from my agent and other agents like that and buying insurance like that. just because there's a reason, doesn't mean it's implemented correctly. the first step is foreclosure of the concept so people can see it. with fees and disclosures about that are one way to start to address the problem. the last point is on second

liens, i know from my time in the administration, there was very great concern that the second -- decisions about seconds by major banks drove how firsts were handled and seconds become first. there was a lot of conflict of interests making it harder to make modification that work for the homeowners and first lien holders, and that was a huge problem. >> thank you, appreciate it. >> thank you, mr. chairman, and thank you, all, for being here today and on skype. when i'm in north carolina, i've traveled across the state, and i hold conversations with kay, and it's an opportunity for constituents throughout north carolina to come to these events and actually bring their -- we talk about the issues of the day, but also to bring their concerns to me, and we have constituent staffers there to help immediately start working on issues. without a doubt, there are always concerns about foreclosures, always concerns about mortgages that are -- that

have questions, and in just about every situation, there's -- they discuss how documents have been requested, they send them in, they are lost. think send them in again, they get lost. it's a repetitive comment i hear each and every time. my question is, and ms. schwartz, i think you mentioned this in your opening talk, how a single point of contact could help solve problems like this. any of you can comment. >> yes, senator, good morning. you know, earlier, i also referenced we created a web portal called home web ports for that reason so there's no longer that back and forth, but a rigorous way to track documentation and process and time and date stamps, every

communication so there's no longer an issue. that exists today, and we created a neutral non-profit entity for just that reason. secondly, that's a fair concern. it is nothing more frustrating than losing documents and having 20 phone calls with someone who says -- and then the receiving end says they don't have it because of a fax or fedex. there is not complex. there's ways to address it through documents and making sure there's a safe and secure way of communicating. we need as an industry in government keep works towards those solutions. >> thank you. >> senator, perhaps from my experience, this problem -- first of all, the portal that faith schwartz described is something i supported, and i think it's getting better, but what i saw in my own experience because i kept date and time stamps with a lot of documents was that at that point they

received the documents, and then it didn't fit their system, have their loan number on it, but they ignored the document. they are proof of insurance. they ignored it because it didn't check a box in their system, and they bought the insurance policy in a forced place way. it was a practice by a major servicer in this country in 2007. >> thank you. some have suggested that one way to improve servicing is to create performance thresholds that servicers must meet at the nbf level and servicers who fail to serve delinquency servicers, the servicing rights would be served and servicer replaced. mr. couch, can you discuss whether you think such approach would be effective, and then mr. hopkins, could performance thresholds get servicers to perform better on behalf of

investors and borrowers and at the same time replace regulatory burden on community banks from servicing loans? >> sure. there are already in a sense preference thresholds. fannie mae and freddie mac have time lines required, measure them against state law and how long it takes to fore close on a loan, and there's incentives in place for servicers to perform under their guidelines. certainly, there are really great things done by the small and special services out there, many who are members of hope now, who all they do is high, touch, and feel and help those in disstress, and that's their main business. the larger shops have performing and non-performing aspects and a focused effort. thresholds of ability to move

servicing by investors is something to be considered because we have been locked up with the system with the inability to move loans in and out of pools and budgets, and it has caused some stress in the system. >> [inaudible] >> i guess from our stand point, you know, we particularly when talking about performance standards, we in the south dakota housing market, do have some penalties if we don't hit certain delinquency rates. the fees are reduced as the rate goes up. there's early contact with the customer, and it works. you know, under the new proposals we're looking at is taking and cutting the servicing fees for your performing lopes because they said you don't need to deal with them. that will drive me out of business. they are looking at, in my opinion, rewarding the bad

players by paying them more to service and to modify those loans. well, i think that's a perverse relationship and it will drive that behavior. in my opinion, you shouldn't be rewarded for making bad loans and paying people to service bad loans. we would be in favor of servicing standards that would drive that. >> thank you. thank you, mr. chairman. >> mr. hopkins and ms. schwartz, as we heard in the testimony, resolving mistakes takes time and diligence. can borrowers access their servicing records and mortgage files to ensure that payments and fees are being applied appropriately? mr. hopkins? >> yes.

they call into our servicing department. we will happily supply them with their payment record and any other records they would like on their mortgage. we will e-mail it, fax it, whatever they would like, or if they come in and talk to us. if they find a discrepancy, we'll work to resolve it. we are a high-touch, high-feel type bank, and we rely on our servicing, and our expertise in servicing, and our reputation as a high-touch servicer. >> schwartz? >> yes, sir. there's systems where they can go and look and have a read-only review in a private secure setting to see where they are, and i think the industry has made great strides in that area. i am not familiar enough to know across the industry the consistency of that opportunity.

>> mr. swire, what do you have to say to that? >> two observations. one is washington mutual provided me records on that. they showed me fees i didn't think i owed and showed them accurately. this was an issue in the area i used to work in where there's no right of access in general in the right of access now to your medical records, and that's something i think in practice usually the banks comply with, but there's not the same legal right to our legal records as there are to our medical records. >> thank you. thanks again to all our witnesses for being here with us today. as more developments within the servicing industry continue to surface. s community --

the committee will continue to service oversight of the issue. the hearing record will remain open for seven days for additional questions and statements. this hearing is adjourned. [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations]

>> the senate today approved the debt ceiling agreement by a vote of 74-26 following its passage in the house yesterday. president obama signed the bill into law shortly thereafter. the legislation not only raises the federal debt ceiling, but cuts nearly $1 trillion in ten years creating a congressional committee to recommend another $1.5 trillion in debt reduction and requires congress to vote on a balanced budget amendment to theist constitution. next, some date from the senate floor leading up to today's final vote. this is just under two and a half hours. >> madam president, finally, washington is taking some speedometer for spending money that we don't have. at a time when the federal government is borrowing 40 cents of every dollar it spends, this is a welcome change in believer, and i gladly support it.

make no mistake -- this is a change in behavior from spend, spend, spend to cut, cut, cut. let me give you one example. on christmas eve in 2010, congress raise the the debt ceiling and taxed to a $2 trillion in new spending over ten years in the new health care law. this time for every dollar we raise the debt ceiling, we're reducing spending by a dollar, not adding to it. this reduction in spending over 10 years is about $2.4 trillion. here's another example -- according to senator portman who used to be the nation's budget director, the congressional budget office would say that if congress did this kind of dollar-for-dollar reduction for spending every time a president asked us to raise the debt ceiling, we'd balance the budget in ten years, and here's another one -- the "wall street journal" reported yesterday that because of the spending cuts, the

discretionary part of the budget which is about 39% of the entire federal budget will grow over the next ten years at a little less than the rate of inflation. if we could control the rest of the budget so that it would grow at anything close to the rate of inflation, we would balance the budget in no time, and balancing the budget is exactly what our goal ought to be. i did it every year as governor of tennessee. families in america do it every day. it's time to balance the government's books and live. our means. these spending reductions are an important step, but they are just one step, and no one should underestimate how difficult the next steps will be. these spending cutses do almost nothing to restructure medicare and social security so that seniors can count on them and taxpayers can afford them. the president's budget projections still double and

triple the federal debtment under the president's budgets according to the congressional budget office, in ten years, we'll be spending more on interest on the debt than we spend on national defense. in january 2013, the very first thing the next president will have to do is to ask the congress to increase the debt ceiling. this problem wasn't created overnight, and it won't be solved overnight, but if i were sitting at union station trying to catch a train to new york and someone offered me a ticket to philadelphia or baltimore, i'd take it, and then i'd find a way to get to new york from there, so today's vote is an opportunity to take an important step in the right direction, towards stopping washington from spending money it doesn't have. we should take it, and then get ready to find ways to take the next step and the next step and the next. a