the traumatic brain injury. this is a man whostles -- who was shot in the head in iraq, had 18 service connected conditions, operates on a grade school level, has tubes in his head that fluid comes out of, has terrible scars on his face, lost the sense of taste and smell, and is, you know, has suffered tragic wounds. .. rooms. i got involved because they wanted to help this guy. my heart went out to him. even after we produce clear evidence that he should get it smc are to, the va did next. i was able to reach the component of the va that does the work.

i asked them why action had not been taken. they told me that they were looking for lots of owl and utter control. i said that isn't relevant. you don't mean it. he already qualified. the lady was able to hear me out. i took her through the regulations and statutes, which would take me a long time to go through. the veteran ended up getting the r2. it's on our website. we had a mix of the va that the band in animal house. it didn't have lots of use. the momentum of the auction. they were going to accept those words. kind of silly. secondly, the people doing the work didn't know below. the va needs to do more to train people to understand smc.

the legion, ammo ph does a lot of work on that issue. if you looked in our text book, we have a formula that service office there is an va can use to properly evaluate. it's complicated and you have to look at it each time. thank you. >> mr. gillums. >> in order of the affected adjudicated claim come you have to have the tuition for things that are pretty abstract. in one case, you have a veteran with als. because he or she is trace function or a leg or can barely stand, they will find the veteran has greater useful function of legs. a lot of it over time would be cultural. this new crop are being trained

to follow rules. i'll give you an example. if a veteran presents with a letter from exclamation, saying that he needs skilled care, that letter will trigger not some deliberation. it triggers the need for a cpa exam. the cnp examiner will see whether this skill carries needed or not. they will dictate whether the claimant accepted or denied. if you understood essence e., yet to complete a medical opinion senate should be resolved. increasingly, this contemplative aspect of waiting is being pushed out of the culture, pushed out of the process. there is no contemplation of evidence. it is either there or it's not. they've got three out of five

function where they can wear the 35 tried to stand and occurs subsequent injury. a lot of it has to do with the fact that induct the reasoning way of training it to people that made the adjudication of bit longer, that's the insight. >> i recognized ms. titus for questions. >> thank you very much. two questions. first, we've heard a lot about putting these complex cases in these planes come it easy, medium and hard. i understand the value of that. if that's not oversimplifying it for better understood nuance a little more.

are we really creating a system that's going to produce more errors on the road in attribute to the appeals backlog is my first set of question. something i mentioned earlier, the raid as you pay, complex cases. would it not hurt as the great aspects and veterans get paid for those until you get to the end. >> daylight be enable their specialists and not claim, posttraumatic stress disorder, military trauma. one of our severe disability cases. that can manage from regional office to regional office.

every regional offices to interrupting. the latter doing the right thing. the ones we hear about where it doesn't matter what process they have in place of the people are inadequately trained. the greatest process the world won't help them. to your question about the pay-as-you-go, for veteran who just need relief, they need some resources. it may be okay. my fear is when you pay a veteran. but the veteran gets 100% rating, the mentality would be scout 110. what more do you want? where you're coming back to us? or that is going to be a completed claim. how do you monitor the completion of that claim? for veteran's 100 getting a check, still a lot of work needs to be done in our cases. but you know, we've got to make sure there's no creeping standard where they get paid, that's it on the back earner.

>> this past year when we were going out and doing the strips for the ftc and we visited to include the one and we know, we did discover it did bring some order to the regional office by having segmented lan. one of the things we were not there, i would ask employees different questions. one was how much it. steve have? it was overwhelming and i would talk to coaches in middle management of seniors have two talk about the relative greatness i guess of the staff at the losses. i've heard senior leadership say on repeated occasions that while the effects of the case and the increase in claims affected the backlog and referred conversation about 9/11 and the increase in cases for mayor. the one thing nobody seems to discuss is you can't beat back

the hands of time and that we now hate inherent in this country where baby boomers are retiring in larger numbers. they didn't linda va at the time initiative. soon i got this knowledge vacuum in the regional office. there just isn't -- there are enough people, but there's not enough experience there. so it does help, but a lot of it to his he simply don't have that much asked earrings but the nonoffice. and to go to the raid as you say, i do think it would be beneficial. if you think about the effects you could have, let's say someone is trying to get service-connected for three or four conditions and you can get than 50% or 60%, now they've got access to health care through the va. it is a very good avenue for them. i also think that, also in the cases of preference for federal employment on when it comes to

issues dealing with va mortgages for not having to pay the funding fee. of course these are important. you get money into the veteran's pocket. i do see the benefits. i agree there are some things are the least of the data as to how va would monitor this and make sure the cases and claims are being set to the wayside while other things are occurring, but it is something worth considering i think. >> thank you. in fact it is the policy of the va that when it has enough evidence to pay partially, it pays. the problem is that the workers don't get anywhere credit and therefore, they are not encouraged to do it and we find many, many cases. it is not a matter of va policy, which says when you have enough evidence, pay them at this level and then when we get more, we will update.

they want to take the time to do it because they are measured by how many cases they do, which goes back to my point of the work measurement system in sherman's point that if you give somebody some income and maybe he will go away if the thought and there will anymore to do. so they really want to get rid of the case at that point. thank you. >> thank you. >> thank you very much, mr. chairman for having this important hearing. information that the va has provided a recently suggested simply breaking up the workload into what they call this segment of planes resulted in a 10% processing increased during the first 60 days. also, easy claims saw an increase in timeliness of 100 days faster than the special operations claims.

however, we know that va continues to do a poor job in handling them of our most challenging claims at va oig noted in their testimony in the first round of inspections. 31% of the tbi claims reviewed show that staff at errors. after informing staff of errors and va taking action, the va oig return to note that 29% at tbi claims reviewed were found to be in error. you look at 12 of the 20 offices reviewed were noncompliant with vba on it for two consecutive inspections. they also noted even after extremes amplification of ptsd claims, 5% of these claims are still incorrect. in my mind, the facts before themselves that we need to take the land further by creating a

few specific hospices that specialize and focus is on complex claims like tbi and the end nst. these officers and specialists aligned in cross functional teams focused and trained in extremely complex cases. i believe most of you at the table support h.r. 2088 that would create centers or adjudication excellence. my question, i'll start with mr. gill on. you articulate the problem with underqualified individuals handling complex claims. in your opinion, would we be better off if we specialize in his complex medical conditions? the other two panelists can answer that as well. >> a fuss about qualifications and some of the cases i've seen more about the rules that

constrain their ability to make judgments using the experience they might've accumulated over the years. the rules are just different. even in cases where you've got somebody qualified him of the rules are different. the rules say you have to do the steps. you can no longer exercise common sense. if it says hospice, common sense says that is probably skilled care. you have to ask for an exam at the raise the rating stands. it's an accurate rating. that's where you get an error. that's an error. you have to exercise reasonable doubt. that's an error of law. it really depends on the convergence of both an inexperienced corps of new readers who don't have the freedom to exercise their judgment when it's necessary. if you were to sort of compartmentalized in the

knowledge, it depends on how you run it. if they are allowed to exercise that qualitative deliberative thought process as we look at these claims in these compartmentalized thinners of excellence, then it would work. i don't think that's necessarily it. just give them the ability to make decisions in exercising good judgment and having rules dictated as a quality of review standard. >> thank you. first of all, i think the asset the fairness is time. if we set up lanes and their pressure to go real fast, it won't matter if they're the most knowledgeable people on the planet. secondly, you are taking the veterans claim away from his

local representative. the american legion or others of his organizations representative in boise, idaho, is not going to have access to the file or to you with the raiders if the case goes to denver. i make you mad at, but that's a problem in any case. until you fix how they count their work, these are fixes to sound good on paper, but aren't going to make a major impact. that is the first thing to do. if sounds great. i also worry that if people are trained to deal in smc and that is all they do, the rest of the va readers are not going to note since you must they're trained. they'll only have a small component of people to do it. there's a lot of roseanne

comments. it's worth a try if we can also implement some way to give them time to do it or to higher a lot more people. i keep saying that. a lot more oil. thank you. >> thank you. generally speaking, like bond said, the idea of local adjudication for claims. i think what you are saying the vc were essentially going to create a workforce of warrant officers, whether specialize in particular areas. this is the thing that i kind of question. if you're a high-performing regional office in your assigned special monthly conference edition and you are working in a different office and assign something easier, what is that going to do to the morale for people working?

i'm stuck with the tenebrous game. i don't think that it's necessarily the way you want to go about it. you have to have a comprehensive approach to training and evaluation. i was speaking earlier in our office about it. 10, 12 years ago when he passed no child left behind, be concerned in the education community west teachers are going to start teaching to the test. but for some of the evaluations do. congresswoman titus could attest to years in academia. you don't want to test knowledge of multiple-choice exams. that is comprehensive understanding and that is what our big concern is that the american legion. thank you. >> i thank the gentleman and i thank you call today for your testimony in the work you do on found [inaudible conversations]

[inaudible conversations] >> this'll be our final count today. we welcome mr. tom murphy, director compensation service the veterans benefit administration, all so this sub one of the regional office. we also welcome sondra mccauley, deputy assistant general for audit evaluations of the office of inspector general department of veterans affairs. ms. mccauley is accompanied that mr. brent arronte, director of san diego benefit inspections division. we appreciate your attendance today. complete amid statements will be in the hearing record.

mr. murphy, you're now recognized for five minutes. >> chairman runyan, ranking member tightness, thank you for providing me the opportunity to discuss va policies and procedures for adjudicating complex disability claims. the company today by ms. edna macdonald of the regional office. the vba continues to express an increasing number complexity number complexity of regional issues you between 2011 and 2013, the average number of issues and claims increased by 31% from 5.52 mike 72. in response, bba implement the new operating model. epa has noticed increase in complexity from the newer generations of veterans who participated in operations during iraqi freedom and udon. you can hear a greater chance of surviving are his injuries and often return home with multiple serious conditions. in addition, vba continues to receive credit for veterans of the vietnam era. many become complicated because they are subject to federal

court orders in the u.s. department of veterans affairs department of veterans affairs. organizational model incorporates cross functional teams working on one of three segmented lanes, express cooperations. things were created based on complexity and priority of claims. the express lane develops and writes claims with a limited number of issues and subject manner, which could be developed and rated more quickly. corley and includes claims that three or more medical issues that do not involve special populations of veterans. the special operations plane applies intense focus and case management on specific categories of things that require special processing or training. it's comprised a regional office most highly skilled personnel specialist experience and training. vba is simplifying ratings by building a decision support tools to make employees more action and decision are consistent and accurate. one of them is the evaluation builder essentially an interactive reading schedule. the reader uses check docs is

associated with the veterans events. dbq's are designed to simplify rating decisions. they replace exam reports and capshaw made the medical information up front and present the findings in a reader friendly format. grants or consider complex for a variety of reasons. here are three examples. due to complexities of reading tbi come the special operations and processes these claims. since march 2013, all of this site are required to complete specialist training. this web-based modules 22.5 hours and how to read a claim for residuals of tbi. due to the myriad of systems they may experience, it's unclear which symptoms are solely attributable to tbi. in october 2011, compensation service provided guidance that fighting should be related to the veteran's tbi condition unless such symptoms are clearly attributable to other process. in addition, vba has instituted safeguards to ensure can distance the attackers. all are required tbi claims

until the individual demonstrates 90% accuracy in reading such claims. as a result of these efforts cannot bba have a tbi increased to 21% of best-of-seven to 47% in 2013. further, accuracy of rating during fiscal your 13 with 92.37% from a slightly higher than national average for operating claims are in the same period. service connection for ptsd requires three things. medical evidence diagnosing the condition and in-service stressor in a nexus connect the two. in 2010, secretary should seki made it easier to establish and provide the statement alone can now establish the required service trust. via provided training on this regulation change to ensure can just inaccurate ratings. he raised ptsd claims are processed by this thing as well.

complications arise in situations where there is no collaborating evidence in the veteran's military records. in these cases come the va must notify the veteran the evidence from outside attorney records may be used to support the claim ms attempt to obtain any such evidence identified. in 2011, bba connect quality review of these claims, which found approximately 25% error rate based primarily on incomplete development. we developed and implemented an mst-based ptsd package and emphasize the recognition of the types of evidence. following the training, fst-based ptsd is a level level comparable to that of other level for ptsd. the va has been complexity of claims in recent years here to address the trend, va implemented in mono special operations focusing on complex disability claims. this concludes my statement,

mr. chairman. i'd be happy to entertain any questions you are the subcommittee may have. >> thank you, mr. murphy. without i recognize ms. ms. mccauley. >> mr. chairman is set to become a thank you for the opportunity to express work in the claims processing issues. with me today is mr. brent arronte, director of the san diego inspection division. in addition to a nationwide potted some of the oig reports on individual effect msm providing timely and accurate benefits and services to veterans. a major concern is continued noncompliance with vba policy despite recommendations for addressing issues we identify. specifically in response to may 2011 report, bba required second signature reviews of tbi claims until they rate 90% accuracy and claims processing.

however, in fy 2013 can we saw slight improvements. they remind for two consecutive inspections. half of the hours were due to staff using inadequate medical exams to great tbi claims. in january 2011, we projected vba and correctly process 15% of hundred% disability evaluations for about 181,000 veterans and paid 943 million without adequate supporting medical evidence. he va implemented training in internal controls to address this issue. however, bba continually cover repeatedly delayed completing its review of all hundred% disability evaluations to ensure each had a future examination date entered in the electronic record.

a second cycle of inspections continue to show a high error rate in processing these evaluations. in most cases, errors occurred when staff did not enter suspense diaries in vba's electronic system to request medical re-examinations as required. we continue to review the va's systematic analysis of operation and organized means every great veteran service under, dsp operations to identify problems and propose correct elections. we found six barrels remain noncompliant in this area are both cycles of our inspections. generally, bear management did not provide adequate oversight to ensure sales timelier complete. we correlation to sao noncompliance in bank into a temporary director or manager positions for advance or greater. currently, we are assessing

bba's initiatives to improve claims processing and eliminate the backlog. we are reviewing the initiative vba began on april 19, 2013 to process within 60 days i'll claims over two years old. i've know, we determined 10 of 11 provisional rating decisions at the los angeles burial were not compliant with vba guidance. we found the director's office had enough conflict think i'd just ask or require provisional ratings without supporting medical evidence. concerned that additional errors they exist, we recommended that bba review for accuracy all 170 provisional rating completed by the los angeles bureau after the conflict has issued. findings from our ongoing audit of the veterans benefit management system, vba suggests in progress. while vba has reduced its

inventory of average days to complete claims, we cannot determine another transformation initiatives. moreover, a behalf as has performed issues and uses legacy systems to process claims. we've initiated a review to determine the extent to which vbms helps va with the decisions. we hope to report finance and early 2014. in conclusion, vba has made progress, but continues to face challenges to improving processing accuracy and time limits. inefficiencies we not only added burden of delays veterans, but also improper payments that bba will not likely recover. we will continue to look for ways to promote improvement in vba delivery during our future audits and inspections. mr. chairman, this concludes my statement. we would freeze to answer any

questions you or members of the subcommittee may have. >> thank you. i'll begin with the round of questions for mr. murphy. we will both touch on it. it must have been given one word for accuracy. mr. murphy, the va uses the term accuracy this morning. we heard from veterans, representatives and office of inspector general who indicated claims are not being correctly decided at a very high to. development of the medical examinations are not adequate. they are not consistently returning to report to facilities is required due to pressure to meet production requirements. in a moment, or thank you to explain in detail how va calculates and represents a 91 claims based accuracy. i find the va's representations

of accuracy to be even more concerning to be over 92%. it specifically tasked to perform reviews of claims and reports over 30% of cases nationally employees are not compliant with policy if individual error rates as high as 51st and peers so here's the question. does accurate standards mean the veteran received the correct rating decision for the claim conditions on full and proper the claim in the factory indicates anything less than this, what does this mean? >> accuracy means exactly what you said, mr. chairman. to the veteran was he the proper benefit entitlement payment or decisions into my? best measure of accuracy and a vet quality analysis and reported out.

that's at the 91% means. that number is drawn from a true statistically valid nationwide sample, random sample applied to regional offices, elected in the national leachman evaluated, returned to the office and found that sun is rolling 12 month efforts. >> would describe it with the oig numbers? >> vig and dba don't measure what an error is back with the same way. did the benefit entitlement iran number one intends to look at it from the standpoint of did you follow the process? if you're very further process got the benefit and title decision right, i will not call that an error. however, the ig will. something more important you need to hear from the ig report that says resample claims we consider at higher risk of processing errors. best these results do not represent the overall accuracy of disability claims processing

and this va regional office. this is a page from the title of the ig report. there is one of these initial report. the ig by design targets a specific subset of knowing high errors. if you take that number and extrapolated out to see the entire regional offices this way, to .. or represent tatian the sum of work for the regional office here that i'm not disputing that is an accurate representation for the subset they look at. but not for the totality of work that comes out of the office. >> i'm having the discussion that we had also broken down to just tbi cases in your numbers conflict fair. >> yes, our numbers conflict fair. the ig report to look at her with a years of work. the numbers i give you are some of the last 90 days worth of work. my point is this. when you look at where we were

and where we are, and the ig report is much but reflect it up where we wear, not necessarily where we are sitting out today. >> ms. mccauley, caterers onto that? >> yes, the numbers we reported with the 31% accuracy -- error rate was based on a first round of inspections from 2009 to 2012. more recently we found a 29% rate with the 2013 inspections. we do look at specific high-risk types of claims. and so, we are not looking across all the different kind of claims to come up with an accuracy rate, but rather to focus and undoes tbi or temporary 100% disability evaluation better shown

repeatedly to have a high error rate. also, there is a big difference in terms of how we call errors and how vba calls errors. we don't focus just on the benefits and titles. when we look at the claims, we look at the processing of the claims human error, system error, processing error. did they follow regulations that goes into the accuracy of the claims? sometimes the benefits entitlement may be correct for a moment, but sometimes errors have potential impact on benefits down the road, future benefits for the veterans. so we look at the totality of the claims processing so we look at the totality of the claims processing exercise. >> one more question, talking about how you compile statistics. does the va keep track of accuracy in appeal of a number of years of experience by the

dro? >> from the standpoint of i can go back to my office and give your part that says no, i don't reported that we had a routine basis. however, in determining the training we do in the types of training, where we spend our affair, where the errors come at a high concentration of errors, i use that data every single day to determine exactly what training they need to be doing, where you need to be concentrating that come even done to the regional office level by tracking and looking at errors than an issue-based level, which were started doing more than a year ago at this point, i now have the ability to stay tbi is a high error rate in the regional office and target just the tbi as an example. so to go back to the office and say here it is, no i don't track it that way. in all of the training process we do, that information is good uttered on a regular basis.

>> where my head is on this, is it because of a lack of asked. that sum of all? they came back in the last panel that maybe we don't even have enough people with the experience to rate these things. is that trackable in your statistics? >> when i go back to your first question, mr. chairman. this is an excerpt from the waco report. the two met at brain injury review 30 cases in errors that affect veteran benefit, zero. potential to affect veteran benefits, the difference of rules between how the ig looks at it and how i'd look at it is eight out of 30. there was a 30% error rate you are talking about. the veteran received the right check? gas. with a process done differently but they got the right check? in error in the ig and the veteran focus was the right decision in the right compensation received by that

veteran. >> but i'm trying to ask, is it possible to find the analysis of some of that has more experience in phase certain regional office has more experienced personnel in it, are you getting a better outcome there? >> re: get a better output -- >> with the experience of the claim adjudicator? >> yes, no question. we track that. in fact, we call the consistent he studied the first week of office. we broke it on the it on the six questions to all people. this one has been to be on diabetes. what we did is broken down by lanes. we broke it down for the quality review teams. i lay out the segment population at a glance and by a meaning in the mid-90% french, the special operations plane got those questions right at a much higher

percentage. at the 93%, 94% where the average for the population was in the mid-80s. the point being the higher experience level, better education and more training with those individuals is yielding better results, market distant results. at the same time, we are concentrating those more trained, more experienced people on the most complex conditions we are dealing with. >> if at all possible, that you have staff be able to reach out at you and take a look at those numbers. >> yes, sir. happy to provide. >> recognize the ranking member, ms. titus. >> thank you, mr. chairman. i'd like to recognize those to if we can get them back into some order order to time. mr. murphy, i'd be happy to talk about a a rate as effective at the notion of the three different lanes and how to deal with complex cases. we know that the va has the authority to do pay as you

rates. i wonder if you would talk about that. talk about what the problems are why you don't use up more often and is that they probably can address that how you compensate the people who make these decisions based on a full claim decided or parkland decided to address these concerns brought up in the previous panel. being that the previous panel product comments about you didn't get credit for it, so it wasn't worth it. without saying yes that's right, no that's not right, let's take that as a base to talk about what we put in place actively right now, which is exactly what you're describing. received acclaim from permit better with 10 issues. break that down into 10 issues and have one great time for 10 readers with one each. break it down to 10 individual issues and make decisions on the 10 individual issues and compensate the veteran if they're entitled to it as the rating decisions become -- as

they're made aware before to do the other. the problem with madison assistant right now today, that is very difficult to do. there are some barriers in terms of its much less efficient in the amount of time it takes our overall process to rate 10 individual issues at one each. the fixes we put in place will allow that to go significantly faster and been our intent is to do exactly that, which is rate by issue. so we understand within your bill. they testified on that previously that we've agreed without the concept. at this point in time, there were complications due to her system limitations. >> when you anticipate those changes will be made? >> i can't put an exact day. what i can tell you is every 90 days be doing a release. i'm not sure which one of those releases that some of these changes are in. one of the changes that is going in and being piloted right now

is the vbms authorization mumble and when they been in place to help these individual issues as they are deciding to go through the system quicker. in other words, when i had the vbms authorization model in place come all process individual issues without impacting the total system time. >> will there be safeguards in place so you don't just pay a better and offer a few things and think it will go away as opposed to really do complete? >> we are looking to break in the stance that comes then as a single claim, but it is posted in our system and we track it as though they are 10 individual claims. this isn't just i'm going to receive a claim in break it up by issues. this is the true issue based quality, everything. >> i know that some of the cases in the reno office have been farmed out to other offices where they can emit vast and

stuff like that. if you start break in the claim done so some things are easy and a more complex and you end up into different lanes, you're not going to end up into different places to have your claim completely considered? >> well, depending on mr. or ms. those question a little bit ago about centers of excellence, we certainly need to consider whether those different issues into different lanes even need to be in the same regional office. why a figure with the concept of centers of excellence in the trade happens to be on issue number one in st. petersburg issue number two. why would we not send that claim quite i can move them around the country with a few keystrokes. we still don't have the final this is exactly how it is going to be, but weeks are the options from how i get it to her system right and fast. >> we just don't want to make it more difficult for a veteran to track where their claim is or

understand what is happening with it and when it is happening without scattering it around or making it more complicated. >> yes. you are seeing one of the information points you are interested in is from the reno office. >> we are waiting for some of those answers. >> just under 700 right now. you've heard what we are doing with the 2-year-old claim and 1-year-old claim and now to the 334 days. if the capacity of the regional offices in place to meet timelines we put into meet these different deliverables on the oldest claims, we ship them off to other regional offices. in other words, we make the oldest claim issue a national problem and not one type to a particular regional office. it just so happens in reno today they have a large number of the older claims. they sent those to other offices that have capacity to give veterans done in a timely manner. thank you. >> i think the gentlelady. >> thank you, mr. chairman. i want to thank the panel as

well for the testimony today. mr. murphy, vba currently adjudicate claims related to camp with june in louisville, kentucky. and claims related to radiation in mobile, alabama. can you explain to the committee why this is? >> those claims actually fall under the title of this hearing. they are complex claims. they are highly complex claims. but we don't want to do is have a veteran because they went to regional office ones get one decision an equivalent case in a different rating decision. in order to do that, in order to concentrate efforts in the way we do claims in a paper world, we concentrated them in single places. we provide special training for the processors and raters to work the claim at the same time we worked with dha and provided training to the individual cmp examiners that work these

conditioners and send a factory single jointly trained rating board so they get a consistent accurate output. >> so those two areas are specialized in this particular -- >> yeah. >> for the oig, ms. mccauley, your inspections on this difficult medical conditions, how often is training and a lack of knowledge regarding policies and procedures a problem? how often is that? >> it certainly has shown itself to be a problem as a result of our inspections. ..

and ptsd. similar to what we heard mr. murphy mention about radiation in mobile, alabama. >> we haven't done exam the issue of the specialized, but certainly additional training would be a help in term adjudicating the claims. >> so the better-trained but the better specialized the workers the work and the work you have done, the more accurate they can timeliness they can process those particular claims? >> we would expect that, yes. >> great, thank you. >> mr. murphy, to follow up on my previous questions about camp will june and mobil, alabama

where you specialize in the particular areas. one of the problems i have seen over time being on this committee is particularly in some regional offices where the error rate is over 50%. when you look at the turnover rate in those area they might not be an employer of choice. and constantly training individuals in particularly without veterans coming back from iraq and afghanistan with tbi and ptsd and mst, issues i think it's important that the the new system i like the idea when you look at the medical conditions. with the medical conditions you can move that anywhere around the country in the timely fashion so if there's a certain regional office that is specialized, such as camp will june, in louisville, kentucky to deal with the issues. they can get an accurate decision in a timely manner. as i understand some of the

concerns some of the vso have it's not done in a regional office. it's not done anyway when you look at the cases being broke toard other areas. they are not performing adequately. i would like to just, you know, see whether or not you would really consider looking at, you know, centers of excellence for those very complex cases since you can move it electronically once the system is up and completely running fully. >> we would consider the centers of excellence concept. in fact, my staff is going through now pulling numbers in terms of accuracy, rating capacity, et. cetera. on regional offices right now to identify are there some clear outliers that say this should be a ceo for ptsd, this should be for military sexual trauma. we are going through the process now. we're beginning the process. it's not quick. it's going to take some time to

do to make sure we get it right. it there are some centers of excellence tounge it right. there are some lessons. should i make them the center for all over the country. number two, if the answer is no, i should not. what are they doing different to get it right that i need to teach the other regional offices. either way it goes, the analysis we're doing is going yeeltd good things for us. back to the other part of your question the vso having some concern about the not being able to have that interaction and look at the file and review it. in the paper world, that was a problem. in the electronic world with the stakeholder entry we haven't placed and come up releases which allow them to see more of the claim file and the decision that is being made. they'll be able to perform that review from anywhere in the country regardless what regional office is working the file. >> i appreciate that answer. for me, i think the number one priority should be making that sures are veterans are taken care of. not whether or not the claim is processed in the regional office. particularly that regional

office is not performing the way it should be. so thank you very much. thank you, mr. chairman. >> i thank the gentleman. and i have a another question. i know, mr. oh -- your testimony highlights that they approved policy and procedures to ensure more timely and accurate decisions to veterans of complex claims. setting aside the discussion we just had, about strong concerns and how they calculate accuracy, va's work toward better policies and procedure is welcome, but what the committee is hearing from the ig is that the regional office repeatedly failing to comply with the policies in place to directors, auditors, managers, it with be a the receipt call exercise. but to the veteran who underrated or denied because of regional offices noncompliant. this is a complete failure. as i read the american legion

testimony. for those in the quote for those veterans va accuracy might as well be zero. the inspector general consistently reports that the need for policy guidance oversight training and supervisor review and 17 of 20 recently respected officer remain on noncompliant. most of which were found to be repeatedly out of compliance. how are you going enforce compliance or put in to put it another way, what will be the penalty for noncompliance? >> i can't answer directly your question whab the penalty for noncompliance. that falls under the office of field operation and deputy undersecretary. however, i can tell you what we're doing to ensure compliance is happening and the solution is not going out yelling at regional offices direct, directors and telling them you must follow the process. the solution to put a system in

place that takes them down the path. and camp how we're doing that today is number one i talked about how we changed rules around ptsd. we no longer had to make a determination about the stressor and get a buddy statement saying what happened. we changed the rules so saying the veteran came in and feared in my life. and assess for ptsd. that's the way we handle from the rule side. when i look from the sm putting in place to ensure at the grassroot level take us back to the temporary 100% and the example there is in the system we nut place with vbms, you can no longer hit a button and move through a screen. you are forced to stop and put a routine future exam date in place and place if under control before they are allowed to press the button and move through the screen. i forced the behavior without having to go out and push and discuss and come back and

re-examine. i know, that it's happening because i can track it and see it on my system. and i report every two weeks. that every two week report everlast year i was seeing 600 case. now 50 cases. the reason for that is today there's somewhere in the neighborhood of 74 or 75 percent of our cases are electronic through vbms. we are working through the lapse of the paper. as we move to the electronic environment, the compliance rate will go up and then i'll see the number drop over time. so the answer to your question is, is i fix it by putting procedures in place that drive the ro in the right direction and put system i think i think if -- fixes in place that force the behavior to ensure the veteran gets the right decision. >> before i yield, e i remind you and remind everybody how many times secretary sat there and talked about accountability. you do all the system call stuff

you want. if you are not motivating people to do it, i know they are highly motivated people who want to do right by the veteran. there's a lack of accountability there. and across the board, but with that i'll yield to mr. oh -- >> thank i apologize for missing the second half of the hearing. i'll get ab update how you responded to the specific issues raised by ms. price and the veteran service organizations that were here. so just briefly bring up two issues. one, is in el paso at fort bliss we have 1800 cases, 1100 are backlogged at the derail site in seattle. and so just a plea from cornel and william beau month from us

in our office representing those soldiers, you know, whatever you can do provide additional intention and focus on that so we can get the folks through there. we have some associated problems with our wounded warrior transition unit there, and part is having the folks who are in this backlog, the bureaucratic loop. the second one ms. price medicationed she filed a fully developed claim and took us through every part what she went through to do that. we been pushing for fully qopped claims filed online. we think that come out of the committee. we can cut the wait time. in el paso right now for atm veteran is 450 days out waco regional office down to something like 100 or less. i want to pick on what she said. i want do you address the

concern it raised with me and others there may be a problem with fully developed claims and our ability to process them in a timely fashion and do so accurately. >> let me start with aye does. with understanding what you're talking about and fort hood and the department of army. >> fort bliss. >> sorry. >> yeah. we put definitive actions in place you'll see the numbers at that regional office start going in the right direction. first of which is in april all of the employees at the seattle d -- broarking we shut down gives an immediate trained capacity to go and start working in the cases. two, is in a may of tbirt we hired an additional 36 raiders in that regional office.

in may of 2013, army reserve personnel were activated and deployed in seattle to help it in getting these cases through quicker. staff at the regional office has been working mandatory overnight and right after the holidays they will resume mandatory overtime through 2014 provided the funding is available us. one other item we have done is we had capacity in providence to take some of those cases. we're working faster so 250 cases per month are being brokered to providence in order to help take some of the pressure off the derail site in seattle. so i think in the coming months you'll see drastic changes in there. one other comment about the process in general. to look at the process and say it's merely a simple claim is to call complex merely a complex claim and call a complex claim a simple one.

as a result, a timely claim going through the process is measured at 295 days. not the 125 days like we see for the traditional bundle. the second part was about ms. price and the fdc and i guess i'm not sure what it is you're asking me there, congressman. >> i guess the concern was apologize again. i missed almost everything you've had to say in response to the stories we've heard earlier. you may have already answered many of the concerns -- raised. one of those was ms. price, i believe before transitioning out had already prepared and filed a fully developed claim. and yet he an incredibly arduous, lodge battle to get

that claim adjudicated in a satisfactory way. and so it causes concern for me and others when we're trying to direct veterans to file those fully-developed claims online and telling them they can get those claims resolved and in some cases close to 100 days versus the average el paso 4050 days. a story like this gives me pause. i want to know whether it is truly exceptional or whether there's more to that. she seemed to indicate from other veterans that she had met with and assisted she's seeing similar cases to hers. and so just wanted to get your quick feedback on that. again, if you've already answered it or would like to an it in more detail at the followup meeting i would be happy to meet thin. if you could talk about how exceptional a case like that is. >> i have to say discussing in individual veteran and veterans circumstance. what i can tell you is this based on the time frame that

ms. price submitted her claim in 2009, when we were receiving fully developed claims at less than 2% to the today where we're receiving 27% of the claims. they're going through with our highest priority and being tracked and monitored on a national basis and national level. so my point is this, the experience that she saw is by no means typical of the process usually in today when the claims are going through in 115, 120 days through the fully developed claim process. other things that happened in the early stages of it, we had a high rate of those claims that were entered in the to fully developed claim process and various reasons right, wrong, or otherwise were removed from the process and put through the normal channel. we track and monitor that routinely now to make sure a fully developed claim that comes in maintains its path through the fully developed claim process. there are specific rules that will pull that claim out that have process. but now we put the control measures in place, it's not being used or abused.

it's not being used to the rate it was when the fully-developed claim process was new. >> my time is expired. i yield back. >> thank you. members, are there any further questions? on behalf of the subcommittee, thank you all for your testimony. you are now excused. i thank everyone for being here with us today. ensuring our veterans receive timely and appropriate decisions regarding their service connected claim is a top priority for the committee and the department. it is unacceptable for the price that -- to be the accuracy of those decisions. will certainly be a seeking more information in the near future on areas discussed as a va continues to march toward the secretary's 2015 goals. i would like to once again thank our witnesses for being here today. i asked unanimous consent the members have five legislative days to revise and extend any remarks and include any extraneous material. hearing no objection, so

ordered. i thank the coming up on c-span2. the hearing on the effect of the health care law on small business. treasury secretary will give an update on thursday on implementing the dodd-frank financial regulations law. it's live at 8:45 a.m. eastern on c-span2. the senate judiciary committee chairman patrick leahy will deliver a speech on thursday on civil liberty, national security, and human rights. you can see the remarks live at 1:15 eastern on c-span2.

as you walk in, there are tables in front with a bunch of pamphlets. prior to entering the gun show. about how the government is trying to take away the guns and obama is doing this and obamacare is terrible. and so those are the guys i wanted to talk to. they were quites with the leaflet. the ideas. so i said to them, like, is this your stuff? and yeah, who are you? i'm academic. i'm a researcher and i'm doing a research on these organizations. these ideas trying to understand the guys. and i study men who believe this stuff. and they looked at me suspiciously and asked me question. and i said, look, here is what i am. i don't get it. so what here is my job. i want to understand how you see the world. i want to understand your world view. it is -- look, you will not convince me. ly not convince you. that's off the table.

what is on the table i want to understand why you think the way you do. "downward mobility." small business owners testified wednesday before the house small business committee on the effect of the health care law. this is an hour and 45 minutes. [inaudible conversations] [inaudible conversations]

>> good afternoon. i call this meeting to order. as we are all well aware, the health care law requires businesses that employ 50 or more full-time or full-time equivalent employees. to offer health insurance or pay an employer mandate penalty for tax. a critical issue is the definition of employee. but equally important is the issue of which and how many employees are attributed to the business. the answer may be simple for one business with a single owner. however, when an individual share ownership with multiple entity, or when a business has multiple owners, the answer is less clear. today we will exam the process of determining whether businesses are considered single or multiple entities under the health care law. which requires business owners to aggravate employees and could subject a business to the

bureaucracy employer mandate. according to the national federation of independent business, 39% of small businesses 20 or more employees own at least 10% of one or more other businesses. to determine if the threshold of 50 or more employees has been met in these situations, the health care law utilizes the internal revenue service code controlled group businessing a gracious rules. which are complex and confusing even for most experts. some experts have suggested that most small business owners could not interpret these rules without the guidance and related cost of a tax specialist. despite the administration's promises that the health care law would help mawses, each week seems to bring entrepreneurs more bad news, more costly regulations, more uncertainty, and less incentive to grow their business and create jobs.

a recent u.s. chamber of commerce international franchise association survey found that 35% of small business owners believe the law will have a negative impact on their business. in our challenging economy, many small business owners are simply not hiring or are reducing worker hours to avoid the employer mandate. thank you to this outstanding panel of witnesses who have taken time from their busy schedules to be here today. we do look forward to your full-time. i now yield to ranking member for her opening statement. thank you, mr. chairman. small businesses are the backbone of our economy. but in the past, health care costs and declining coverage have hinders small business owners. the factors have -- our nation's entrepreneurial problems and help out small businesses. in fact the chairman mentioned

nfib, the u.s. chamber of commerce, they have conducted a survey about small businesses asking them why is this the main issue they are concerned about? they talk about the cost of health insurance to be able to provide. in fact, 62 percent of small businesses in this country provide no health insurance to their employees, their family, or themselves. if anything, this law will enable small businesses to participate in the changes. so we have the largest -- in the process we will bring premium costs down because that will provide the kind of leverage that will enable them to -- [inaudible] a good premium.

and gave consumers control over their own health care. yet, with any law of this magnitude, some will need to be made along the way. it happens every day. that is what the legacy -- legislative process is all about. we pass law, we implement them, and we -- in way we understand makes -- [inaudible] to be fixed. that is what the mechanism of legislation is all about. that means listening to the those most affected and working together ensure small firms secure quality, affordable health care. today we will do just that. by hearing from witnesses about a complicated issue. the health care law includes an

employer mandate that requires businesses with more than 50 full-time employees to provide health insurance. it goal is to is discourage employers from dropping coverage and leaving employees on their own to find insurance. many -- this hear will focus on particular area of the law that many small firm may not be familiar with. the businessing a regracious rules. traditionally the rules have been used to treat separate business of a single employer for purposes of retirement planning. this is not new. we have used them. it's on the book. when it comes to benefit plans. this --

smawmer company with the purpose employer mandate. the intent behind this regulation is minimal but i remain concerned how the very complex rule will impact the small firms. what kind of outreach, what kind of resources will be there to assist small businesses? for them to understand the rule and abide the rules. i'm sure it came as surprise to many -- [inaudible] that these rules are being employed to determine business. unfortunately, for many family-owned business and franchise owners these rules are not common place. for that reason, we mu -- the businessing a gracious rules impact many entrepreneur business models. through some employers, some small employers have already been applying this rule to

comply with other firms have -- [inaudible] stiff learning curve ahead of them. i hope our hearing today provide more information on how many more small employer navigate this rule and how many more will be affect the. our witnesses today will help walk us through this complicated standards and how best to educate owner of their nuances. with careful planning and proper outreach, small employers may avoid many pitfalls when complying with new obligation under the affordable care act. i thank all the within for being here. i look forward to your insightful comment. thank you very much, mr. chairman. i yield back. >> our first witness is debra walker. ms. walker is a certified public accountant.

she advises small and large benefit on companiation, benefits, and employment tax matters. welcome. you have five minutes. >> good afternoon, chairman colin, ranking member, and members of the committee. thank you for hosting this important hearing on the effect of the business aggregation rules on small business in applying the health care provisions. i'm debra walker. a cpa with over 35 years of experience in the employee benefits area. to determine if the employer is subject to the shared responsibility rule of the affordable care act, business needs to determine who the employer is. the determination is made by looking at receipted entities related by common ownership, related by attribution, and also by services that the entities provide to each other. to make the determination, one teds to understand detaileds tt ownership and the services that are provided to each other.e by written submission describes

the rule in detail and i canided assure you that no one would apply the rules in a complexs situation without looking at thd regulations. the rules, as mentioned, are a used by the affordable care act relationsame rules used for determining whether qualified as ed brement plan benefits are provided on a nondiscriminate bay stories a fair cross sectioh rementloyees. those rules are retirement plans are voluntary not mandatory.cron in addition, because we're looking at right line tests. they offer the opportunity and evidence by the qualified plan tules of ways to plan around ath them. brin other words for people to avoid the rules in addition because they are tests. offethe they often happen in the pla application doesn't make as sense as in other words may.in in the health care context where we're looking at whether whethe we have 50 employee or not.may.

it's a complicated test for theg few taxpayers that are nearinges the 50 employee limit. one can expect those employers nearing the 50-employ limitlit. would in fact consider the increased health care costs ineg deciding whether to hire additional workers it will leadd to unefficient and unwarrantedeg economic behavior.r to many small employers as mentioned, offer a retirement plan, a 401(k) plan.be they don't need to apply these rules because they're not retent subject the discrimination due e to the safe harbor. thlesmall businesses could not do this without advise. and many of the advisers are no. familiar with the rules. do so; therefore, i offer an for sl alternative suggestion, and it'e a suggestion that would be a, facts and circumstances test. it would look to who is the individual that hires and fires and makes purchasing decisions, e rnativ prices. who operates that business on ae

day-to-day basis?hire in that case, we don't have to worry about who is merely a on passive investors anding a are e gages gait the entities. by focusing open control and data-to-day operations, the employer would be defined by th industry in which the employer c individual operates. empl wouldldn't affect the competitive position of the the stry iss. the on pportunity to avoid thed, bright line test planning wouldo the op available, and the unwanted effects of a brightlin test wouldn't exist.ot be now, this facts and circumstance idea is not new. a we use it and have in the tax law for years. 30 to 40 years in determining whether somebody is an employee or independent contractor.r year ands, people try in the '80s to have certainty with determining whether somebody was an employee or independent correct -- contra contractor. it was determined there too many varied situations betweenainty

someone providers and recipients.oo many v .. situations between .. draw a hard and fast bright line rule and bright line rules would be circumvented. so what we have is a 20-factor test. the 20-factor test, there is not specific weight to any factor. in fact, the weight of the factors changes depending on the industry. and any adviser and the irs reviews the 20 factors, reviews the particular situation and makes a judgment call. that's a facts and circumstances test subject to anybody's judgment, of course subject to audit. there is another place where we talk about separate lines of business. this is also in the qualified retirement plan area. a separate line of business is a portion of an employer identified by property and services that are provided to a customer. so the regulations define what

is a separate line of business, and it has to be organized individually, there has to be a distinct profit center, and there can be no more than moderate overlap between employees and management. a rule such as that, more of a facts and circumstances test may be more appropriate. of course, as i mentioned, the determination is always subject to audit by the irs. the rules could require a notice requirement. the rules could also have a procedure such as they do for a separate line of business and employee independent contractors where, in fact, the two businesses could apply to the irs for the irs to make a determination. to summarize, the mechanical tests used for qualified plan rules are overly complex and understood by only a limited number of tax professionals. a small business can't apply them without professional help. it's a small subset of

professionals that deal with these rules, and these rules are only going to apply for businesses for a few years in their life cycle when they're close to the 50-employee test. for that reason, facts and circumstances to me, based on who controls day-to-day businesses, is a much more logical rule. the statute or committee reports could list characteristics of management and control, and taxpayers would be able to make a judgment as to whether they are -- what constitutes the employer for purposes of these rules. thank you for your time and attention. >> thank you, miss walker. i'd like to yield to ranking member velasquez to introduce our next witness. >> thank you, mr. chairman. it is my pleasure to introduce miss bogardos. she is an attorney serving as a chief compliance officer for huff international insurance services. in this position, she provides compliance and consulting

services regarding health plans and other employee benefits. ms. bogardos was previously chosen as one of the 100 men and women by business insurance and was selected as one of the 25 most influential businesswomen by the women's business journal. welcome and thank you for being here. >> thank you, chairman collins, thank you, ranking member velasquez. i am honored and very happy to be here to be able to give some comments and testimony on this very important issue. i want to have an echo for what miss walker said regarding some possible compromises or concessions toward small businesses. i think control would be a great first step as opposed to a bright line standard. i want everyone to keep in mind as we go through these types of discussions that the importance

of the 50-employee rule and the control group rules, which can cause small businesses to be treated as one employer, has impacts not just on the basic issue of whether the employer will be subject to the law as a whole, it has huge implications also for the practical compliance under the rules. i want to address specifically today the issues of complexity, also the issues of awareness and then finally confusion. and i think the issue of complexity, as you read through the rules, very quickly you begin to learn, as you've seen from the written testimony and comments that these are very complex rules. it definitely requires a tax adviser or a corporate planner to assist an employer in determining whether they have a control group. as to the awareness, the level of awareness is low. if an employer has voluntarily decided to create a retirement plan, yes, they've generally addressed these issues.

but for employers that are made up of various small groups, they've likely not done this if they've not put in place a retirement plan. and while it is true that insurance carriers ask questions about the employer's size, they do so not so much to do an analysis. it is not an analysis. they're asking questions about size so that they can put into their programs how cobra should be admin sterd istered if it do apply, whether medicare rules apply, but it is not an analysis of the control group. they're also asking that question so they can determine if they will issue a small group or large group policy. we're already seeing confusion around that issue. for example, just this week i received an e-mail regarding a small employer in california, and they were unable to get a small employer policy because they were considered to be part of a larger control group by the insurance carrier. the insurance carrier in california said they would not issue that policy because it would be discriminatory.

however, that same control group had a small employer in arizona. that small employer in arizona was able to get the policy. for the employees in california, very low-paid employees. they're now put into a very expensive ppo and they cannot afford it. it's $1,300 a month. so we have seen quite a bit of low awareness around this issue, even among not just small employers but large employers. they say many times, i wasn't aware of this, and we do get comments that are very incredulous that this would even be the case. in terms of the additional confusion, there are myths around association plans. unless you have stickiness within a group, it is difficult to put unrelated or even fairly closely related employers together. some insurance carriers will not write them even though they technically would be a control group for u.s. tax purposes. so keep that in mind.

part of the problem is the practical access to the insurance coverage which the law, unfortunately, does not guarantee for the small employers. are there planning opportunities? yes. do we see smaller employers trying to use those to avoid compliance with the law? not yet. and i think part of the lack of awareness is also a little bit of a reaction to the delays that have occurred. the employers believe that there have been delays and that those delays will continue. for smaller businesses, there is a sentiment that the rules for the large employers were delayed, which they were until 2015. however, for the smaller businesses, they've already felt, many of them, the brunt of the very expensive renewals this year. of our clients that were offered an early renewal option to renew their policy this december and to delay the cost impacts of health reform, in vvariably the have taken that offer if the carrier has extended it.

they have basically kicked the issue down the road for another year, so to speak, and also the cost impacts. we'll hear more about that next fall, additional policy cancellations and increases. we are seeing some premium increases of 100% for smaller employers. so it's a matter of the law providing access to coverage with no preexisting conditions, but it is not by any means affordable, even for the small businesses. the small businesses are also different. if they're part of a control group, that does not mean there's actual control or authority or even cooperation among the various owners. there is no -- generally no central payroll system, no central hr person. they may handle that function at various location but not centrally. commonly there are situations where the employers simply don't have a common point person. of course, they could appoint someone, but creating common systems to determine whether the

employer is 50 employees or more and then also consistency across the group for payroll purposes is very difficult. i want to also touch quickly on participation requirements that insurance carriers have in the small group marketplace. the rules under the federal law do allow a participation requirement of 70%. the insurance carrier can require that percentage of the employees to elect the coverage. alternatively, many carriers require the employer to pay a significant percentage of the premium for employee only, sometimes 100% of the cost. so the concept the employer is only going to pay for the coverage based on the 9.5% rule is not the case. not for small employers and not for large employers. the employers are paying significantly more, especially because of the fact that they cannot know household income. the discrimination rules, which have yet to be issued, are a continuing concern. just for information, the senior council for the treasury department indicated to me that they cannot enforce those rules.

that's what we've experienced in actual practice. even when there is an audit, they ask to see the testing, check it off their list and they're done with the issue. they can't enforce the current rules for self-funding plans. it will be extremely difficult for them to do so for small insurance plans, and very difficult for the employers to be able to coordinate a non-discriminatory program across various companies in different industries in different states. automatic enrollment, if the group should happen to be above 200 will be another serious issue when that rule does eventually take effect. and finally miwa issues. commonly held control groups for federal tax purposes may not be sufficiently related for carrier issues, or the carrier may consider those groups to be illegally miwa under a state law, even though it's not trying to do anything to avoid state rules. it would require licensing as an insurance carrier for those

groups if they would try to sell fund and then also capitalization as a carrier and regulation as a carrier. so very onerous. just in summary, i think there are many issues that are affecting the smaller employers' awareness. complexity of the rules, certainly, but i think the issues around confusion and fear of the smaller employers as to what impacts they will feel from the law and what they should do now with the uncertainty without regulations. thank you. >> thank you, ms. bogardos. our next witness is ellis wynn stanley. ellis is the chief executive officer of chieflogic trade corporation in texas. mr. wynn-stanley owns several businesses including a catering company, a software company and a consumer products company. welcome. >> chairman collins, ranking member velasquez and members on

small business, thank you for allowing me to testify today on the health care law with small businesses such as ours. i'm ellis winstanley. i own a business with my parents and partners. i own a small collection of businesses, including restaurants. on behalf of the restaurant association and trade association for the restaurant industry. i am a successful businessman with a track record of starting and turning around businesses in the hospitality, construction, software, printing and apparrel businesses. my brother and i got started in business while we were attending the university of texas. currently we own eight restaurants with our partners which i oversee day to day on a day-to-day basis. we're also partnered with our parents in small businesses.

in addition we own software development companies, one of which is tradelogic corporation which also serves as our management company. the restaurant business provides challenges for all small businesses, but especially in the restaurant business. it's difficult for many restaurants, especially small businesses, to determine how the law impacts us and what we must do to comply. the operation rules supply a significant complication to our business. it may seem like a simple thing to do, but due to the obligation rules and the structure of many restaurant companies detering the employer is more difficult than they expect. most operators, we know, participate in multiple restaurant entities often with family members. though we consider each operation to be a small business, many of us are discovering that for the purpose of the health care law, all of the businesses must be considered one employer due to the aggregation rule.

this threatens to stunt businesses in our community. the obligation of these rules is already having an impact on small businesses, requiring time and authority, as they are required to report their effects on them. two are highly seasonal basis and may not be considered large depending on the calendar month and uncontrollable factors, such as whether or not our legisla r legislators and the performance of u.t. sports in texas and surt rounding universities. i believe we will be considered as one employer under the law. that's an applicable, large employer. the effect of this is that the cost of doing business for each of our companies will go up. restaurants operate on thin margins, already forcing operators to manage labor costs very closely to remain viable. austin, texas remains one of the

strongest economies in the country, but since the recession, we have regularly tightened our belts to manage rising costs, and we are still very much feeling the impact including double-digit health premium increases, even since the law was passed. this puts pressure on our team, our vendors, our pricing, and in the end, our customers. i see the cost in the way the health care law has been implemented to adding to that pressure. there are several sections of the law that impact restaurant operations and similar small businesses. while the increasing costs of offering coverage remains a major concern, i'm also concerned about the administrative plans this law will.i.am po will impose on our businesses. whether they're students between careers or just looking for a second job to make ends meet, there is significant movement in and out of the industry and between employers.

given the short-terminate of individual employment, the burden of educating and adding enrollments could prove almost as devastating as the coverage itself. restaurants cannot afford this past and ultimately the cost will go to the public as a whole. it also affects the safe haven of the flexible work environment for those who depend on it. thank you again for the opportunity to testify today regarding the health care laws and the effects of the business aggregation rules on small businesses like ours. i'm very proud and grateful for the opportunity to serve my community in austin, texas, creating jobs and serving our customers. we are committed to working with congress to find solutions that foster growth and truly benefit the communities we serve. >> thank you, mr. winstanley. our final witness is donna baker. miss baker is a certified public accountant in adrian, michigan. she holds a degree from adrian

university and cedar heights university. welcome. >> thank you, congress, and ranking member velasquez and members of the committee. it is an hon toor to be here to testify on this subject. i'm donna baker, a cpa. i've been a cpa for the last 25 years and i've owned my own accounting firm for 13 years. i own a practice in a rural county in michigan which is a very small area. on top of owning my own firm, i also own a small company. i have invested in a retail store, and my husband, ken, who is also here today, is a partner in a small dairy farm. as you've already heard, the business aggregation rules require companies under common control to operate as a single employer. in determining which companies should be combined is either direct or attributed ownership

or affiliated service but not operational control. these rules may cause unrelated businesses held by family members or trusts to be aggregated. companies within a control group do not need to have the same management or even be in the same industry. also, the business aggregation rules are very complicated, as you've heard, and are rarely applicable to small businesses. therefore, they're unfamiliar to both small businesses and small business advisers. i have had many training on the aca rules, and most of the materials will mention that the controlled group rules apply but do not cover the specifics of these rules, and, unfortunately, i think many business advisers that deal with just primarily small businesses assume that, you know, controlled groups means hands-on control instead of the actual emphasis of director-attributed ownership. i have two examples of combining

these control groups to two businesses. one is my own personal business. like i said, i own 100% of a very small cpa firm that i also manage along with a payroll company that i manage. and i have invested in a retail store. however, that is an investment. i do not manage that or operate that on a day-to-day basis. and then, of course, my husband's farm. he is a partner with his brother in the dairy farm. i have no management responsibilities, i do not make decisions for that company, but my name is on some of the land, and i do provide some bookkeeping services. so based on the business aggregation rules, we would have to combine all four of those entities. we're not quite close to 50 employees yet, but close, and the payroll company is very new and quickly growing. my second example is one of my clients. i have an elderly woman that owns 100% of two local

restaurants, and her son manages and controls all of the business decisions in those two restaurants. she recently provided the capital for a nephew to open a restaurant in florida in which the restaurant in florida the nephew manages and makes all the business decisions for that restaurant. under the current business aggregation rules, those three entities would be combined and they would exceed the 50 full-time equivalents and require them to provide the minimum essential health insurance benefits. so those two examples illustrate how the control group rules will aggregate businesses that are not directly owned by the same person. they do not have the same management, are not in the same industry and may not even be in the same state. therefore, the implications of requiring small businesses to use these aggregation rules could have negative effects, it

could hinder growth for employers and employees, it could minimize their employees and keep them within the 30 hours. it could discourage small business owners from investing in other businesses. and it could require them to provide health insurance benefits in industries where it's not typically the norm, and the additional costs could create and make it difficult for them to compete in those industries. lastly, i would like to mention the increased cost of my own plan. i do provide basic health insurance for my people in my accounting firm and my payroll company. this policy has been canceled, and the closest policy i've been quoted a 40 to 44% increase that would have reduced benefits. it would have higher co-pays and higher maximum out-of-pocket expenses. so these increased costs would be very difficult to absorb.

thank you. >> thank you very much, miss baker. we'll now enter kind of a questioning period, and i guess i'd like to start by just stating the obvious. hearings like this that we're having today give us all an opportunity to obtain testimony on the record that will highlight the consequences, intending and unintended, of various laws and regulations. it's very helpful, as ms. velasquez said, as we move down the road and look at potential changes that we need. again, to state the obvious, we all need and want more jobs in the economy. the economy is kind of languishing today, and more jobs is what everything is about, getting the unemployment down and increasing payroll across the country to drive the economy. >> you yield? >> certainly. >> so i will join you in legislation to pass the bill that we have for so long. what we need is to pass

legislation to create jobs, and we were just waiting for the leadership to do so. >> i can appreciate that. it is jobs. we may disagree, though, on what stimulates jobs. i know myself i believe in lower taxes, less regulation, less government interference and certainly we'll have other questions today to indicate the impact of the aca. what i heard today, though, and again, i'm a small business guy. we have the mantra grow or die. if you're not growing, you're not doing what you should do as an entrepreneur. but growth requires capital. accounts receivable inventory, et cetera, et cetera, and any and all dollars wasted on regulatory burdens such as the business ago gregation expert a hiring a business expert is a dollar that's not available for business growth. just to reconfirm, i think i heard it in your testimony, but would like to go down the line starting with miss walker and

just ask you if you think this business aggregation rule is, as it's currently written, would have a negative impact on jobs and the economy, hindering job creation and economic growth and, therefore, should be altered. >> i think any time you have a bright line test, it's going to hinder people that don't want to cross the bright line test. and that, in this case, is going to hinder hiring, hinder expansion and the grow or die, they're just going to choose to stop growth and perhaps move over to other forms of business -- other ownership, so yes. >> thank you. miss bogardos? >> yes, mr. chairman, the provisions definitely do hinder job growth and they hinder

strong job growth, and by that i mean the jobs that could be created in the future would instead be part-time jobs. of course, advisers on this topic have their own bag of tricks, and it is definitely possible to stay outside of compliance with respect to each individual employee if you can keep that individual in a part-time position. full-time jobs are absolutely necessary. you cannot serve two masters. it's hard to have coordination just on the part of the employee, much less between two separate employers. so strong job growth is necessary. and, of course, there are other issues involved as well, but i agree that the funds that are spent to analyze the issue and then also to comply are extremely high. and it's not just the initial cost, it's the participation every single year in the premium payment. >> thank you. mr. winstanley? >> yes, i think what we're

seeing now is less people have insurance than have had insurance. we're seeing the reverse effect of what we're hoping to achieve here, and i think we've also, in the restaurant industry specifically, hear a lot of talk about people getting pushed below 30 hours a week, and you see that being tried around the country, and i think that's extremely negative for the industry, i think that's negative for the employees. long-term, while some groups think and feel that's their only option, but i think in the long run that's not healthy for our economy. >> thank you. miss baker? >> yes, i do. as in the testimony, i think there is a lot of concerns with that. but i'm also concerned with those that have the true entrepreneurial spirit to be discouraged from investing in more small businesses and expanding in other areas. that would definitely hinder. >> one more quick question and then i'll yield to ms.

velasquez. kind of a yes-no. we're focused today on the complex business aggregation rules, but we're focused on other issues, and mr. winstanley has talked about employees getting cut their hours to get them under the 30-hour rule. as we look and try to message some changes that could be made, i would first like to ask each of you if you think, in your opinion, the 30-hour definition of full-time should be increased back to 40 hours. miss walker? >> yes, it will prevent workers from ratcheting down the hours and leave them at 40. >> yes, absolutely. >> very succinct. we talked a lot about the 50. there are a lot of companies in

that 40-plus, going to 50, wanting to go to 75, and under obama care, this arbitrary selection of 50 now defining a large corporation doesn't fit with the entrepreneurial spirit. so in the same, you know, what do you think, yes or no, do you think we should increase beyond 50 the number of ftes that would trigger the affordable care act? i don't know if it's 100 or 150, but do you believe that 50 is too low and stifles job creation, and, therefore, we as congress should increase it to a number higher than 50? >> i think the bright line test of a certain number of people is the wrong test. you need a facts and circumstances test on who has day-to-day control. if you increase it to 50, the same thing that happens beyond -- that happens at 50 will happen beyond 50, whether there's 75, 100, 150 or 500.

>> ms. bogardos? >> as for the 50-employee rule, i agree increasing it would alleviate a number of issues, but there would have to be a change to the statute itself. >> mr. winstanley? >> i think the challenge comes in that every industry can't be put in the same box. i think in the evaluation of, really, any organization that tries to encapsulate mobile industries, there are different criteria for different industries. i think looking at an industry with a somewhat mobile work force or, by general definition, a short-term work force, i think the costs are going to be significantly higher for the same number of employees, same number of ftes than it would be with a longer term work force. yes, i think it should be higher, but i don't think it can be the same number for every industry. >> thank you. ms. baker? >> yes, i think that would definitely help, but then i

support what has previously been said. a facts and circumstance would make a whole lot more sense when it comes to defining control. and when you do have something that crosses different industries, that is adding additional complications. >> thank you, all. i'll yield to ranking member velasquez. >> thank you, mr. chairman. i just would like to call the attention for members of the committee to the hearing we conducted here in this committee on october 9, the effect of the law and definition of full-time employee and small businesses. one of the expert witnesses was dean baker, the executive director for the center for economic and policy research who conducted analyzed data right after we passed the affordable care act. and where small businesses were expecting the employee mandate to go into effect.

and since then, he didn't find any data that showed that small businesses were not hiring employees or increasing the 30 hours because of this. when the affordable care act was in effect and when people were expecting the employer mandate to go into effect. so they figured out reserve from san francisco conducted -- the federal reserve from san francisco conducted another research and it has not had any effect. but like any law, we will continue to monitor and make the fixes that are necessary. my question to the panel of witnesses, the business aggregation rules are meant to prevent skirting the law. in your opinion, what is the correct balance between preventing abuses and protecting closely held businesses from

potential penalties? miss walker. >> i think any time that you have a bright line test, you're going to end up with abuses, because people walk right up to that bright line and not cross it. so what you have to do is come back and put it into a facts and circumstances test where you apply judgment, i apply judgment, the irs applies judgment, and we have each person decide, based on the facts and circumstances in that situation, whether there should be an aggregation, whether it truly operates as an employer. >> so do you concede that a number of corporations should cooperate on a facts and circumstances test? >> yes. >> i agree with miss walker that the facts and circumstances test is a much better standard.

again, requiring legislative change. >> and that would create more jobs? >> i think it would, and i think also serious consideration should be given to changing the threshold from 50 to perhaps 250 and look at it on an industry basis instead, or perhaps blend the two. there are some precedents for using 250, such as the w-2 payroll reporting rule. >> sure, i think when you look at the original context that the control provisions put together for the irs, it was put out there to stimulate the use of corporations and companies growing. i think the way it's being implemented now is having the alternate effect. i think what businesses need is clarity around what the rules are and they need some rules

that they can reasonably work with based on the industry they're in. then i think that job growth will ensue. >> miss baker, i just want to ask you another question. when it comes to contracting programs in the federal government, or maybe ms. bogardos, you might be willing to answer this question, a business must meet not only ownership by holding a majority of shares but also demonstrate control over a business operation, and you described that in your testimony. yet for purposes of the aca and business aggregation rules, only the common issue is considered. which standard, in your opinion, is a better indicator. miss baker? >> i'm not sure i really got that, but to me it would be control over the entity, the

day-to-day operations, the decision making. not just investment or -- you know. so the day-to-day operations which supports the facts and circumstance that they've been discussing here. >> ms. bogardos? >> i would agree, actual control in the facts and circumstances of the day-to-day operation, which is absolutely necessary for compliance. as i said before, the small businesses don't have centralized systems, payroll, hr. >> thank you. i wou . >> thank you. at this point i would like to yield five minutes to representative tipton. >> thank you, mr. chairman. i think i'd like to start out with mr. winstanley. when you're talking about the variety of businesses you have, do you file separate tax returns? >> yes, they all file separate

tax returns. >> are you allowed, if you have a loss on your logic tech business, your small business versus your restaurant, can you write off loss to your restaurant? >> no. >> what happened to business loss aggregation. >> there is an administrative burden that goes to running multiple entities. >> so what we're seeing is the administration being able to force you to be able to buy that health care. has that impacted your ability to be able to create jobs? >> yes. >> you're living in the real world. we just heard comment that there is no data -- i'll quote that again -- that there is no data that small businesses are not hiring as a result of the implementation of the president's affordable health care act, no effect on job hiring. is that your experience? >> experience? >> no, it's not. >> anyone else care to comment? >> no, it's not. i see it in small businesses and large businesses. >> so businesses aren't hiring

because of the affordable care act? >> i believe it's draining resources from the companies that would otherwise be going to use to grow the businesses. >> very interesting. because we are dealing with theoretical data. we're dealing with real life experience. i appreciate that testimony. i do -- i come from rural colorado. i'm a small business guy. do you have any experience, and perhaps the cpas on the panel can address this the best, are you seeing insurance cost differences between businesses in rural areas versus urban areas? and what i can speak to is, in the state of colorado, if you punch in a rural zip code for your health care insurance, you are paying a 65% premium compared to people that are living in urban colorado. are you seeing those same sorts of circumstances? >> i'm sorry. i'm going to have to pass that

to the insurance person. >> i can address that. that is happening. and it does happen. because there's less competition. there are fewer facilities in the rural areas. and they can charge what they want to charge because that's the only hospital, the only emergency room in some cases. >> since you have a little bit of experience with this, is it a little more typical in these rural areas to see a lower income than we do in urban america? >> yes, sir. >> it is. you know, we hear a lot of talk here in washington, coming out of this administration, about income inequality. but i'm just hearing testimony that the administration, through its policies, are forcing you to cut the incomes of people by reducing their hours. we're hearing that the people that live now in rural america who earn less are going to be paying more for what is now law that you must obey and buy

insurance. is that correct? >> the simple answer is yes. >> the simple answer is yes. so effectively what we're seeing is a system that is not affordable, and we can certainly get into the accessibility issues as well. but going back to the aggregation rules, we're specifically trying to be able to address on this, can anyone on the panel give me -- a small business guy, i yjust want to b able to produce my product to be able to sell, to be able to provide for my family. can you give me two sentences to be able to define the aggregation rule. >> a parent subsidiary group where you own 80%. a brother/sister -- in conjunction, 80%. and then the affiliated service group rules. those rules don't necessarily have ownership. if i provide management services to another business, that will

be aggregated. >> as a small business guy, that's about as clear as mud to be able to understand that. how much -- we've had abundant testimony on this committee. the rules and regulations -- and this is another one that we're talking about today, are killing jobs in america. killing job hiring prospects in america today when we need to be able to hire people. how much more is this going to cost small businesses like mr. winstanley's working on a narrow profit margin just to be able to comply with another government mandate? any idea? >> any time you look at these rules in a situation as complicated as his with different ownership, you're going to have to sit down a chart. when he transfers ownership to children, to other people, you're going to have to go through the chart. you're going to have to ask him who does the management for his different businesses. does the software company, in fact, do some payroll for the restaurants, those types of questions.

and then you're going to put it all together. once you reach 50 people, you'll have to know -- he'll have to comply with the rules, and then he knows which companies in that pot he has to provide minimum essential coverage to the workers for. >> a lot of money. thank you, mr. chairman. i yield back. >> thank you. at this point i'd like to yield five minutes to representative ming. >> thank you, mr. chair. thank you, ranking member velasquez. i had a question. i think it was mr. winstanley who testified that you believe fewer people have health insurance now. >> i believe fewer people are accepting health insurance now that is available to them. >> i'm just curious. i know there are a lot of good employers out there, like you, ms. baker, who have always provided health insurance to your employees. i represent a district in queens, new york city, where a lot of employers have not always

done the right thing like you, ms. baker, and have not provided health insurance to their employees and have taken advantage of many employees around the country who don't speak english and are not familiar with rules. statistics have shown that on sunday and monday alone, 29,000 people signed up for the new health care law just on the website in two days. and i was just wondering, you know, what advice could you have given or would you give to a lot of these employees or small business employers who have not provided insurance in the past? anyone can answer that. >> sure. i mean, so we like to consider ourself a good employer. and we have provided insurance in the past. the nature of it is that the cost of insurance has risen drastically in the last few years. and most of the young people who are healthy simply drop off the plan. which makes the cost go up even more.

so we've got a situation where people aren't willing to pay for the insurance despite the fact that we're continuing to increase our contribution. and it's become a situation where i've got to believe -- i only know from my own experiences what we're dealing with. but i've got to believe there's a lot of other small businesses around the country that have experienced the exact same thing. i think if you multiply all those, the net loss is significant. >> would the gentle lady yield? i just would like to relate the fact that in massachusetts, when they passed the law and implemented it, the target of the young people were not signing on. and then later on they did enroll into the health affordable care act. so we believe that type of trend that we saw in massachusetts will be seen throughout the country. >> can i answer yours? okay. you know, so for my