was the first president to make a truly concerted effort to pass coverage for the older americans and for the poor but it was swiftly defeated as socialized medicine. he had to settle for a few amendments to the social security act. the mills act in 1960 covered poor people and older people but while it was meant for the rural poor, the dollars allocated with consumed by high population states like california, massachusetts, new york, leaving its sponsors quite disenchanted. from the time of president truman's first effort forward, medicaid and medicare was part of the platform. but it yielded nothing in terms of legislation. then chapter three, when president johnson was elected or appointed soon after the death of president kennedy he told mr. califano, we will fight for medicare for as long as we have breath in our bodies. using failure of the mills act and other issues surrounding the lack of coverage for americans, they were able to pass medicare and medicaid linked to welfare system.

under medicare part b, doctors were protected from socialized medicine. allowed them to be compensated for usual fees. they were represented by american medical association, still then and still opposes quote socialized medicine. president johnson traveled to independence, missouri, the birthplace of truman's wife bess to sign the law. bess and harry truman were given the first two medicare cards. medicare expansion protected pharmaceutical industry. some contend that aca protects health care industry skirting efficient approach to insure the nation or medicare or single-payer approach. finally we're now at chapter four, which raises the question, did the path we set for ourselves then result in a series of bonanzas? first bonanza for doctors and hospitals. secondly a bonanza for the pharmaceutical industry and third now for the insurance industry itself. or was it as others might argue,

just the american way? here we are traveled a long circuit does route to near universal access to health coverage, something enjoyed by citizens of over other developed country in the world. we now stand at crossroads with a pivotal supreme court decision anticipated on king versus burwell in late june and election on horizon in november, will we stay the course, if we doesn't e don't what are the implications? for that discussion we've turned first to two people who may arguably no more about the aca than most people on the planet. first i'd like to welcome secretary kathleen sebelius who served as the 21st u.s. secretary of health and human services from 2009 through 2013. she also served as governor of kansas from 2003 through 2009. secretary sebelius is staunch supporter of the aca. we're honored to have her with us tonight.

we're privileged to have with us former house majority leader eric cantor. he served the 7th congressional district of the state of virginia in the u.s. house of representatives from 2001 through 2014. congressman cantor has been a strong voice in opposition to the aca. on a sad note, congressman cantor's father, eddie cantor, passed away just over a week ago. congressman, all of us here convey our heartfelt condolences to you and your family. finally, it will take a strong moderator to guide this discussion. professor steve mcmahon is perfectly suited to this challenge. steve is an attorney and cofounder of purple strategies llc. he got his start in politics on the senate and political staff of edward m. kennedy and has worked on dozens of senate, gubernatorial and mayoral campaigns across the country. steve served in senior roles in

three presidential campaigns including including that of president obama. steve appears regularly as political commentator on msnbc hard ball with chris matthews and andrea mitchell reports. during the past three campaign seasons he was a frequent commentator on nbc evening news, "abc world news tonight," the "today" show and cnn and fox news. please join me in a warm nyu welcome for steve mcmahon secretary sebelius and congressman cantor. [applause] >> madam secretary, mr. leader, on behalf of nyu, i actually teach here, american public opinions. too bad those of you who are students aren't going to be here next semester because that's when i teach. thanks very much for coming. the course that i teach has a lot to do with politics and public opinion and moving and shaping of how public opinion flows. and there's nothing probably more controversial in politics over the past five or so years than the aca, beginning with the

path to passage and then of course the past five years of implementation. so i wanted to sort of start with a notion that president obama came into office with, which was, this notion that democrats and republicans could work together on matters of great importance to the country. and i think, early on in the administration, there was contentiousness around, there certainly was contentiousness around the stimulus bill. the next big thing on the agenda was the aca, which took quite a while to negotiate and pass. so i wanted to ask both of you, was that, was that dream or that vision of bipartisanship something that really wasn't possible in washington in the political environment today? either one of you can start. i would like both of you to address it. democrats were, sometimes frustrated that the president took so long trying to get republican support or some republican support. and, it seemed, it seemed, that it might be possible for a

period of time but then, it was passed on a very partisan party-line vote. so, mr. leader, if i could, start with you, was it possible or is it possible in washington today to get something like this put together and passed on a bipartisan basis? >> well, steve, first of all, i would say yes but, unfortunately that did not happen in the case of the aca. as you rightfully suggest we were in a context back in 2009 where the president had just got elected. obviously his historic election. nation's first black president. he came in after the country had just experienced a horrific jolt in the financial markets and as you suggest, we passed the stimulus bill which also was not a bipartisan affair. and, for a variety of reasons, if you want to get into that. there was, certainly, i think a commitment by all of us to want

to try and address and to improve the situation of health care in america. and you know, i would like to start any discussion with about health care in this country. and i know the secretary, you know, spent a lot of her time and years in trying to make sure that the system that we have here, despite what some of the international numbers say, oecd rankings and rest, i would still contend that no matter where you live in the world, if you can afford it, you will come to the united states for health care, if you're sick. and that's, the condition though is if you can afford it. so when the president first started his discussion with us on the hill back in '09, i remember, that he had convened a session, i know secretary was probably there at white house. we were there and the premise was, we needed to do something about the cost of health care.

and, the cost, because the government, being in the largest payor, of health care, couldn't afford it. the taxpayers couldn't afford it, and businesses where most people outside of government programs get their health care through employer plans, they were also saying, that it was becoming too expensive. and it was that premise that i think brought us all together. i think what happened later, as we got into the spring months that year and in june, you know, there was a divergence, if you will, and instead of that becoming priority lowering cost to increase access, it was almost in my opinion a sole focus how do we guaranty universal coverage no matter what the cost. i know that wouldn't necessarily the view shared by the white house. but from what the kind of input we wanted to have, it was just

unfortunately, not integrated into what happened which resulted in the aca passing the way it did. so. a little context. >> secretary? >> well, probably won't come as a great shock, i know it won't to the former leader that i was slightly different perspective on those early months, but i do want to start with a moment of personal privilege. we have two great health leaders here. one, sherry gleed who is now the dean of the public policy school at nyu but served with me as head of one of our great agencies, kind of a thinktank at hhs. and peggy hamburg, who just stepped down as fda commissioner, who i had the great privilege of working with for five and a half years. i just wanted to give them a shoutout. but i would go back a little bit further than where leader cantor started with, the president talked about universal health care on the campaign trail. it's one of the things that he

committed to from the moment he announced for office. he said the next president of the united states should be a president who is able to sign a universal health care bill in the first term. so this wasn't a surprise. he campaigned about it all over the country. and i would say that the aca really had three goals and they were talked about a lot. one was insurance for the portion of the marketplace -- it really was a slice of the marketplace who were either uninsured entirely, or, did not have affordable coverage in their work place. most americans who worked for government or for big jobs or were poor, or were old had health care. but a slice of the market did not. so access for those folks, and affordable access. secondly as leader cantor said, it was definitely a cost control because, and in the united states, and, i will compare us to other developed countries,

we spend two and a half times per capita what anybody spends and our health results are pretty lousy. we have great care for some of the people some of the time, as terms of great care for everybody all the time, we're not getting a very good bang for our buck. so that was, i think number two, not only better care but also lower costs. and i would say as a third was a real opportunity for the first time to focus on delivery system reform. and what is it that we could do for population health. how do we get people in the united states to change the pattern of living sicker and dying younger than most of our competitors. you know, the aca had five different committees writing bills, having hearings, three in the house, two in the senate. lots of hours of testimony. lots of amendments. i think the hope was that it

would by a piece of bipartisan legislation. amendment after amendment after amendment was adopted in hopes that this would bring people together and, i think, the president was frustrated. i know a lot of us who spent a lot of time on the hill testifying, working with individual members were frustrated that at the end of the day it became a very partisan issue and was passed with a partisan majority. and had a lot of near-death experiences, not least of which was when scott brown was elected to fill teddy kennedy's seat, the 60th vote in the senate was gone. at that point it really looked like nothing was going to pass. but i would add one other piece to that scenario, you know, the president said in 2009, you can't fix the economy without fixing health care. and in spite of a lot of internal pressures in the white house, a lot of senior advisers

who said do something else, do anything else, pass a bill that insures 20 of your favorite children. pick three older people who you really like, get them insurance. get out of this space because it is too, as we heard earlier, 70 years of contentious debate, tried and failed, over and over again. lots of people felt this was the wrong time and the wrong place. i think he was prescient. we now have, unlike the economy he was looking at in '09, the stock market has doubled. we have strongest month in month out job growth we've seen in decades. we have consumer confidence back. the american economy is thriving and, health inflation is the lowest it has been in 50 years. so, i would say, putting the bet

on even that very contentious process, was a good bet to make. >> so, here's a question. was it partisan because of partisanship, or was it partisan because of principled point of view that people had that they disagreed on? so, for instance, when you look at what the republicans have recently proposed, the hatch bill in the senate, many of the elements of the hatch bill include things that are in the aca. yet republicans seem to want yet republicans seem to want to repeal the aca and vote pretty routinely to do that but they embrace many of the elements of the aca. which of the elements of the aca, mr. leader is there broad agreement on? which of the elements of the aca do you feel and republican feel like need to be fixed or changed? to be sure you don't think i'm going easy on the secretary, there must be some things in the president's bill if you were going back and doing it over you would do differently or improve or change now.

if you could after the leader provides an answer, if you could address that, that would be great. >> you know, i mentioned in the beginning some of the, the substantive or the policies differences that began to diverge or to come about and it started with this notion of cost being the priority. and, i think that is derived from basic policy differences. you know, you never can divorce the policy all the way from the politics in this town. but i will say the basic policy difference, started with the notion that the government compels you to do something, and in order for that to be the case, the government needs to define what compliance with that mandate is. that's where the fundamental difference starts, with, republican position and the democratic position. and it is about the mandates. it is about the, the insistence that washington knew best.

what kind of health care, and what kind of minimum mandated benefits had to be present in people's plans. you know, this goes back to the proverbial situation where, you know, i remember i had a constituent, probably in his 60s, he was single. he had written in saying he had gotten one of the letters that his insurance coverage was being cancelled because of the aca. he found out what it would cost to get the new coverage with obamacare in place. and he said, wait a minute. why do i have to pay that? why do i need fertility coverage? at age 61, when he is single. and, again that just points out the case that, when you move towards defining what compliance was with the mandate, it was a real problem. i think fundamentally there is a real issue with where

republicans are and rejecting what the aca premise was and where the democrats are. now you say, what is in there that the republicans would support? i have always said i don't think anybody should tolerate the rejection of insurance coverage to someone who has a preexisting condition. we just had a different way of going about addressing that issue. and there were high-risk pools, reinsurance funds, set up at state levels, if they were adequately funded, could, play the part, if you will the reason why there was a mandate. the reason why i think, some of the reason why i think there is mandate in the obamacare bill, was that you didn't want people running named with no insurance and all of a sudden, coming in, swooping in and getting the insurance. so it would mess up the actuarial tables.

>> don't though two things go together. if you cover anybody without respect to preexisting condition, don't you have to require younger, healthier, people, running naked as you say to get into the system? >> i don't think you have to have the mandates. this is where king v. burrwell will be very, the decision that the supreme court comes down with, if the court overturns the subsidies, in states where there isn't a state-sponsored exchange then the two sides are going to have to work with one another if there's going to be some resolution here. and i think that it is fair to say, republicans are not going to accept a mandate. you know, as you can tell now, and secretary spoke about some of the attributes of health care costs and, you know, listen, it's early. health care costs some would attribute the fact they haven't gone up because we have not had the kind of economic growth we would like to have in this country. we still have projections of growth at 2.3% by cbo, historically since world war ii it has been 3.2% growth. so i'm not so sure right away

we can say it's aca that brought about all these savings. but i would say, if the two parties are going to come together, the one thing that the republicans are going to say, they're not going to be for a mandate. we don't even have the mandates in effect now. i mean honestly, you have a light enforcement of some of the employer mandates or some of the individual mandates. you have employer mandate for the mid-sized companies, if you will for 50 to 100 employees. that is put off last year. because of that the individual mandate is lightly enforced. these provisions are sort vegetables while the dessert was the coverage of kids who are 26 and under under your parents plan, preexisting coverage, the kinds of things that i think both sides will support. there will be, again, depending where the supreme court says, an opportunity for the sides to say okay, we're not getting everything we want but we've got to start over. >> so what about some of the vegetables he refers to?

do you just need to eat our vegetables or is there something we can do here? >> i think, again, vegetables came from the heritage foundation which is hardly a liberal group. the mandate issue was a long-time republican concept. it was in governor romney's bill in massachusetts. and it was there for a very specific reason. hay hate to sound too much like a geek but i spent eight years as an insurance commissioner, regulating an insurance market. what i know from watching state after state after state is, if you pass a bill like new jersey did, like washington state did, like a variety of states did which has community rating, no preexisting condition, no differentiation in price based on health conditions you don't have a balanced risk pool, rates are unaffordable. in fact in washington state, which is one of the first to do it, insurers left the market.

they said, fine. for two years they literally had no insurance coverage for small business owners and for individuals. so it really does tie together. if you want to get rid of preexisting condition coverage, which i would agree everyone says they're for. unless you want a single payor plan, if you want the private insurance industry to survive you have to tie that to a balanced risk pool. everybody in. some people will get sick. some people won't. i find that the story about the gentleman who didn't want maternity coverage or fertility coverage, my guess his drug plan still has viagra, i guess he didn't get out of it entirely. but if you don't want gender ratings, which was legal up until the affordable care act, which meant that women in this market, again we're talking about a small market now, if we were work in big employer, if

you work for government, we always had a situation where there is package of benefits, you take the package of benefits. you can pick and choose but nobody said, okay, i'm young and single, i don't want maternity coverage. you have it. that means that women are charged more than men. and, women in this market, up until the affordable care act was passed could be charged 50% more than men. and, many plans didn't cover maternity coverage at all. so women were literally not only paying more, but then paying out-of-pocket for coverage that they needed. insurance is again about benefits that some people will use and some people won't but if you again, don't believe that gender rating is something that insurance companies should be allowed to do, and many people say, we're against that, then you have to have a package of benefits that applies to everyone. this is hardly the perfect bill. i would be the first to admit it. as i say was drafted by five committees.

it was, we, had a snapshot of what the perfect bill could look like. >> not talking about romneycare, are you? >> i am not. that was a great template. done at the state level but once the house and senate passed bills, there was a period of negotiations between the house and the senate bill. that the president actually was at the table with the sleeves rolled up, leaders were there and went through every aspect of the bill, there were different approaches. when the massachusetts senate seat was lost you then had to retreat to reconciliation which is a procedure that only allows some things to be considered and others not and i think at the end of the day there are a lot of things that have to be fixed. the individual mandate did go into effect this year for taxes. it was fully in effect the way exactly, it was written. the employer mandate will kick

in, but frankly for employers, folks, who have 50 or less employees, are exempted from the law anyway. that is the way it was written. that is about 94% of the employers in this country. for those who have more than 50 employers, i mean employees, they are in but most of them offer health insurance anyway. so, things around the administrative burden, how to balance what the packages are, of benefits, right now, every state has the state mandates that they have passed that include that their benefit package. that probably doesn't make a lot of sense. we have the probably the biggest harm right now, there are lots of millions of people in america who are too poor to afford health insurance because they are in a state that didn't expand medicaid, and the way that the supreme court determined the medicaid decision, we have now millions

of people in the country who literally don't qualify for anything and are kind of in a "catch-22." so i think there are a lot of opportunities to work together. where there is a agreement of private employers insurers and payors and others that we need to have move away as fast as possible from fee for service into a value-based proposition. there is a lot of exciting work underway and a lot of agreement. i just hope at some point we stop and i would agree we've got one additional supreme court case, maybe once this is decided we can stop relitigating the past and move to the future. >> you mentioned the supreme court case and i want to get to in a minute the bending of the cost curve which seems to be

occurring already maybe as a result of obamacare and maybe things as the leader mentioned. could you give the add underhere, particularly the students what might happen if the supreme court comes in and says you can't have these exchanges funded the way they're funded. >> it's four words, established by the state. those are the keywords and the plaintiffs have put forward an argument that suggests only states that set up their own health exchanges are entitled to

subsidies for those constituents. and that would be 17 states. so in 34 states if the plaintiff prevails in this case, the subsidies, which make insurance affordable for now about 8 million people who have signed up for coverage would cease to exist. but that's just step one. the subsidies would go away. the affordable care act all ready has a provision that if you fall below a certain level, if insurance still is not affordable even with the subsidy there is no requirement that you purchase insurance. for instance, in a state that has an expanded medicaid who are at poverty level don't have to buy insurance in the private market. if you take away the subsidy you perhaps have an additional 68 first68% of the people who suddenly have insurance and they drop out of the market entirely. insurance companies meanwhile, have a signed risk pools based on new customers, projected rates based on the customers but they would have existing customers who stay in the

workplace, lots of people purchasing individual coverage who are not on the market and suddenly the their rates would skyrocket. you would have a domino effect of not only for the individuals losing coverage but everyone else who is in that individual market in that state would suddenly be jeopardized. and i would suggest some private insurance companies would see their portfolios in grave jeopardy pretty quickly. i would say having been there for not only all the debate all the testimony, all the hearing but led the implementation, there was never a conversation, suggestion, testimony amendment, discussion, either during the passage of the bill or certainly any regulation that we ever wrote any conversation that i had with my former colleagues governs around the country that said, oh, by the way if you don't set up your own exchange your citizens won't have coverage.

and i think it is a -- it's difficult to read what is a national framework, a national law, national mandates national coverage and say this is the intent but that's what the plaintiff suggest. >> so leader, 34 states don't have, they have not established their own exchanges or they don't operate their own exchanges. so if what the secretary is suggesting is correct, if the supreme court ruled that this funding mechanism was unconstitutional, doesn't that put extra pressure on the governors of the states, most of whom are republicans? what is it you think would be the reaction, and how would washington come together, or not, to solve this problem, how could it? >> that will be, i mean, as the secretary said maybe this will be the last court case or court challenge because if the court comes down the side against the proponents of the law, then we will see whether the administration will come together and work with

republicans on the hill, or if not, are they going to go around and try and work with the governors and the legislatures of the states because they will have to then i assume comply with a holding by the court which would say that they have to establish an exchange. and so it could very well put pressure there as well. but i think, take a step back. we had this medicaid decision as the secretary points out that was not consistent with what the president and the administration wanted that to happen as well. so you've seen a lot of state. i know mine in virginia's not expanded medicaid. and if you look at the numbers under the aca, at least i think if secretary i'm correct, half of the participants now, under the aca are medicaid participants. and i know in talking to a lot of the provider community, very difficult for providers to stay in business, for doctors to stay

in business at medicaid reimbursement rates. realization there that that's not a sustainable situation either. so look, if the court comes down and says, and i think what you will see is a real unraveling of this law the way the secretary said, that if there's no longer affordable insurance plan for a lot of people, millions, they will go without as well as insurance companies are going to be facing a very daunting situation in some instances. so that goes back to where it -- where can you head? i said earlier the republicans in my opinion are not going to support a mandate. the secretary talked about if you're going to have community ratings, if you're going to have the kinds of constructive law that obamacare is then, yes, that's why you need a mandate. but that's not where the republicans are coming from. they are not saying that you

need to go and establish these bands of ratings and speed if you get rid of preexisting conditions. >> but what i'm saying is, that construct of the law right now is there's a severe inflation in cost because of mandated benefits that washington has decided needs to be in these plans. secretary says now, well, the states on top of that have their mandated benefits. that's a problem. it increases costs, that's the problem. you can watch the mandated. we have to work on that. and there are -- i hope we can get to the kind of things that are trending now in the health care marketplace. cms just recently came out and said that we want quality-based payments. we want to have these bundled payments. those are the kinds of things i think everyone is for. the sgs patch or fix went in that direction. >> you took my next question which was a rare but hopeful example of a bipartisan deal,

the sga, the fix, that medicare reimbursement rates and it also changed the way health care is provided in a meaningful way in terms of incentives and reimbursement. correct? >> the sustainable growth rate, the sga is really about doctor pay, but there are features in the house passed bill as you know the senate has not tested. they will deal with it when they come back and we hope it will be a rare bipartisan triumph, but it does contain a lot of elements that repeat actually framework that comes directly out of the affordable care act around a delivery system reform, moving to a value-based payment, picking up accelerated issues that cms has put on the table. but this is again the framework that the law actually jump started in 2010. it's been very much under way. i always say, steve there's

lots of people -- allot of the attention, i would say 90% of the attention of the press and everybody else has been on the marketplace or medicaid expansion. that's a slice of the market. but it's like watching synchronized swimming and only paying attention to the bathing caps because there's a lot going on underneath the water. underneath the water affects all of us. it's what kind of care you get in the hospital. it's how providers are reimbursed. it's for the first time having electronic records that was a bill prior to the affordable care act part of the recovery act. but can you imagine a 3 trillion dollar industry which as recently as 2008 was exchanging most information on paper files. couldn't measure it, couldn't see it, couldn't tell what was going on. has dramatically changed. so there is an unlocking i would say of innovation and ingenuity and private sector technology

coming to jump start issues around efficiencies in health care and medicare and better patient care that we have never seen before. but the framework really was this administration has to jump the affordable care act which is set for the first time, gave cms, the centers for medicare and medicaid services who spend $1 trillion a year on health care. so a third of the spend is out of the public sector plans. finally, said we're going to use that public sector leverage to align outcomes with what's going on. and said to cms and this is in the law, if there are protocols found to lower costs and improve quality, you can take them to scale through administrative work. you don't have to run a demo project, evaluate it, come back

to congress to increase it. it is now in the law. that's a huge sea change, and private employers and others are thrilled because they've been trying to do this for a long time but medicare has a big stick in the marketplace and was stuck in fee-for-service as recently as 2007 zero percent of medicare payments which last year were $585 billion give or take a billion zero percent were in any kind of value-based payment. and cms is committed to having that 50% by 2018. it's now at 30. that is an enormous change in the way financial incentives can align with outcomes. and will make a huge difference to everybody. >> leader, you and the private sector around venture capital. using investments being made by businesses and health care space. what's the most exciting thing that your seeing out there when

you look to the future? what's happening with efficiencies and improved outcomes as a result of the things the secretary just mentioned? >> right now i'm vice chairman of the company, an investment bank. we have a fairly robust health care practice and what we are seeing is, there's a lot of increased focus of attention on a lot of providers. you're seeing a lot of private equity interest in coming to the space. you are also seeing big players looking at -- and there's a lot of press reports about big acquisitions and mergers and consolidations. and i think that's a direct result of what the secretary referred to about the move toward quality-based payment systems. in -- in other words, payment systems that are real outcome-based where the different providers surrounding a patient's care are now all assuming a piece of the risk and

it's not just a fee for service any more. and it is really making sense. i read this article in "the new york times," i think like last week, it was the company that has just started that basically is a primary care company and they get almost like a cap tated payment per patient. and that's all they get and they have to figure out how to best produce an outcome. and there is no coding. you don't have the providers or the back office sitting there try to figure out what it is, what procedure, et cetera. they give an example of one of these primary care providers and they have a lot of health coaches that help the they figured out that this woman who had diabetes was unable to take her pill. and that was the problem. and if that was not caught then she would have gone into a hospital and encured all the additional expenses. so it's just a little bit of a

common sense factor as well. so you are seeing capital flow in. you are seeing, in the pharma space i know peggy is here, the incredible piece of our health care system i think one of the most incredible, is the innovation. some would say that is also does contribute to the cost. and again if you look back at those rankings which always don't sit well with me because we are different in this country we're different on how we treat the start of life in neonatal care and what counts as live birth versus what doesn't versus other countries. in the same way we value life at the end of the spectrum as well which, you know, cost some contentiousness in the debate. but i believe that's a good thing that we value life like that. but we also are the leaders on innovation and the first to adapt the innovative measures are the first to pay.

and so when you look at the incredible amount of capital going in to biotech and all of this, all of the new type of medicines that are out there that are tailored to the disease and the person, just phenomenal. went i served was always very free focused on seeing that the government place a proper role in funding basic research. because there can be such leveraged, not only from saving lives, helping cure disease, it also does help your budget. if you cure a disease you are not going to have the kind of outlays that you did. so it just makes sense to me. so there's a lot of interest obviously in the private capital flowing into what some of what has been created because of the nih and the nsf. >> when you think about the innovation of medicine and the

defenses of medicine personalized medicine personalized for the individual and the disease, it sounds expensive and my question is how are the providers and payors reconciling that? it seems like the pharmaceutical industry which is inventing and bring a lot of these to market is siding with the insurance industry more and more. how is that going to sort itself out over time? >> welcome we have a different system in this country than anybody in terms of drug pricing. we, in the united states medicare is prohibited by law from negotiating for drug prices. medicaid can. governors could. i could negotiate and i could set a formulary and medicaid. that is not legal for medicare. the fda i think appropriately is not allowed to consider costs when they're approving a drug you never want to -- folks to say, well, this would be brilliant but we're not going to put it on the market because

it's going to cost too much money. but there's really no other countries have put krz caps on drug prices and ceilings. in a lot of places around the world you can buy drugs that are really invented here in the united states and discovered here in the united states and sold here in the united states for 30 to 40% more than they are sold to people around the world. i think eventually there's likely to be a conversation and will not solve this tonight, steve, of whether america should continue to basically fund the r & d for the entire pharma industry into the future and what kind of burden that puts on our health consumers that isn't there elsewhere. but there's no question that unlocking the human genome and mapping dna has lent itself to incredible possibilities. i think the latest data, and

peggy is here so if i get this wrong, just pretend you didn't hear this, beggy. i think the fda has about 60 or more drugs that they consider breakthrough drugs. and about 80% are in the targeted therapy region, and that's just starting to explode. so there is a cost factor but i think also there's a huge benefit factor. one issue that is not really in the drug area or in the innovation area that i think is a focus and is a growing focus is back to sort of part of the delivery system issues are finally paying doctors to keep people healthy in the first place. you think about fee-for-service, the way a lot of reimbursement occurred is through the acute care system. if your patient stayed out of the hospital, in fact you were

often not as lucratively rewarded as if your patient ended up in the hospital. and that such as a providers always did want to keep people healthy but how to shift financial incentives. and you heard leader cantor talk about risk sharing. if a provider has a patient, a diabetic and through earlier intervention, wrap around care, following up, did he or she take a medication, is the medication working? prevent the next hospital dags then they now will get a share of the savings. and i think that's an incentive that not only leads to better care but more appropriate intervention. people watching the pathway that particularly chronically ill patients have and how many times come how many emergency room visits there are.

some of them can't be avoided but a number of them can with follow up care and somebody look out for them. so i think that's all a part of the service. the other part of is looking at smoking and obesity. the two underlying causes of most chronic diseases and really doubling down on going after smoking again, helping people so here's a great factoid you can use in your next trivia context. medicare, five years ago, would pay for medicare beneficiary to get smoking cessation treatment once they were identified with lung cancer. but not before. okay? make a lot of sense? pay for a diabetic to have an amputation. all the follow up care, all the post-amputation treatment but not necessarily the -- all the benefits that it took to intervene more dramatically, more quickly wrap around care

that would, perhaps, have prevented that. so again some of the way that we pay really does create a different way to practice. and measuring and looking at what's happening across the system why ten times as many tests are being done in this case as opposed to this case, what the outcomes look like, how people can be kept healthier for longer periods of time i think is just beginning to happen. it's really an interface finally of technology and health care in a way that i think can lead to a lot better care. >> the incentives and that's what the secretary is talking about. the incentives are right when you are talk about preventive care and you're talking about healthy living and wellness. this is part of the aca that came out and had and allowed for some of these sort of incentives by private employers to put in

place for their beneficiaries to reap some of the reward for their healthy behavior. and it's also relative to the individual. the problem is you've got another arm of government now coming in and filing suit, the eeoc, against some of these plans because of what they claim is a violation of the ada. so we've got to be careful now. i mean, i am all for i think incentives make a huge different. it really does. it's risk allocation, is where is the incentive to share in some of the game if you taken the risk. so you know, we've got to be careful all the time when we say we can fix this from the government standpoint, let's do this and then you see once again the government comes back around and says, no this is where it needs to be. so i think this goes back to the larger picture. if the supreme court case comes down against obamacare, then

you're going to have real, both sides are going to have to step up and i think the sensitivity on the republican side is going to be about we've got to roll back this sense that we can fix all problems here. but instead why don't we create the platform or the environment for the private sector to do that which we believe could lead to healthier lives and to less costly health care. >> if the supreme court rules against the plaintiffs are you optimistic that the republican majorities will step up and look at ways that the act can move forward and fix what needs to be fixed and not vote for the 57th time to repeal? >> so what -- >> just curious. >> you know, as you know, and i said before, some of the really tough parts of that law haven't yet been implemented. there is a lot of discussion around the cadillac tax now, and

that's not just republican opposition. there's a lot of democratic and then the labor unions very much opposed to the cadillac tax. so you've got i think and was said earlier we have an election that's coming in november of '16, and these kinds of questions i think are going to be a real test for the next president and his or her administration. because are you going to subject all to the mandate? are you going to implement the cadillac tax that is coming? and these are questions not just for republicans, if the law is and stands as it is, it's a question for i think both parties. but i would say this, having been and served you know for six years in a republican leadership, one of the things i want to stress most again, risk and rewards, incentives they matter. and going back to the

prescription drug arena the pharma the bio tech arena there is nothing more valuable i believe, long term to guard that research, incentives for the private sector to continue to risk capital to create these life-saving drugs that we've become accustomed to in this country. and you're right. other countries are living off of us. i don't know what the answer is because if we say we're not going to do it unless you do it we're going to all be out of luck then. i do, that's why i've always oppose ed opposed, it ends up being price fixing. then, you are beginning to play with this risk and reward that the country was based on. and you're liable to snuff out of some of the innovation and life saving drugs we've seen. so that too and it was constantly part of the debate on the fiscal end as we dealt with the sequester, as we dealt with

what the tradeoffs were. and i believe we've got to be very mindful of that and hopefully we'll not get there where the government is ending up dictating what the prices are. >> we're calling time? >> that's it. >> we're calling time. i think, though we have a few minutes for some questions from the audience. if that's -- if i'm not mistaken. >> yes. >> and mr. mcintyre, five minutes. we've got microphones on either side. if anyone has a question, stand up, state your name and your affiliation. hopefully nyu affiliated individual, student. but if not, please, go ahead. >> from gaithersburg, maryland. i am a 27-year alum of nyu. >> perfect! >> and to all of you, you'll make it. just pay the tuition. trust me. pay the loans off, you'll make it. reward will come. one, we have an incredible

administrative burden in the health care system. i happen to work in the pharmaceutical industry and access to getting drugs by putting hurdles with prior authorization, gets in the way of patient care. one of the other administrative burdens or lack of harmonyization harmonization. we've got the veterans administration, active military and their beneficiaries medicare, medicaid how come we haven't gotten some harmonization there? why have we not kind of streamlined what the federal government is paying for all those beneficiaries so we can get some economies of scales that i'm sure representative cantor, in your business now, you can appreciate. >> anybody want to take the first shot? >> well, i think there was --

there is conversation, i would say. in my time there, and certainly a lot of dialogue. particularly with the v.a. system and hhs but medicaid is run mostly by the states. medicare is the big federal program. at least military as you know active military, have a different system than the v.a. has. so it's multiple systems as you say. i think there clearly could be some efficiencies of scale. there's talk about eventually getting to the point where once there are electronic records that can talk to each other, looking across those systems, and ways that there can be greater opportunities to leverage contracting ability.

but you're right. right now it is very separate and siloed systems. and, you know, the system that most americans are in, the private insurance system is a world unto itself with 50 plans in one, you know, company in one state. so i -- we still you know, one of the reasons that i think we are higher per capita than basically anyone else on the face of the earth is we do have a much higher administrative burden. some of that is private insurance. but government programs, i can't speak for the v.a. or defense department. but at least medicare runs on about a 2% to 3% overall administrative cost. which is pretty good for 53 1/2 million beneficiaries. i wish we could get private insurers to lower their costs, too, in that ballpark. >> and i would say this. first of all i like the suggestion. if the government's going to sit there and say you know, attempt to go and say this is good for everybody i need to do it for

itself. i do think you're right about all the different arms of the federal government should begin to think about at least making it easier for providers. so maybe there's an opportunity to come together on that. secretary, you talk about the low administrative costs. i think there needs to be more discussion on that. i don't believe there's a lot of folks here in this town who do believe that the government can actually function cheaper more effectively than the private sector. so that you threw that out there should probably be a point of discussion. because if it's true, because we had this big discussion when on the democratic side of the aisle during the aca discussion, there was a government option. remember, there was a lot of a lot of discussion, a lot of support on the democratic side of the aisle that was a majority in the house, obviously and in

the senate at the time that they wanted the government to be a competitor with the private sector and be the regulator. and the argument given at the time was we need the government in there somehow to keep the private sector honest because we can't have the profit that is being made in the private sector sector. again, my reaction, when we say somehow the government can operate at 2%, and why is it that the private sector is not doing so and what is the outcome? i think there needs to be a lot more discussion on that. >> well, just a snapshot, i know we're running out of time, and this is one question. medicare advantage started in the early '90s as a private sector competitor to medicare. the theory was that the private sector could run more efficiently benefits for seniors, coordinate the care. and they actually, in the statute, creating the possibility were to be targeted at 90% of fee for service.

we can do it at 90%. by the time this administration came in medicare advantage was at 113% of fee for service with no health benefits that were measurable. so part of what the aca did was bring that back down. but just that one snapshot where the private sector was competing, supposedly going to run. >> but it's apples to apples. it wasn't necessarily, right? >> no, it was medicare to medicare. >> but m.a. versus fee for service? >> correct. started at 90% and went to 113%. >> the advantage first is -- and that's why the discussion needs to be a lot longer. now you're introducing the concept of choice. right? >> another question. i think we're almost out of time. but go ahead, please. >> we'll keep your answers shorter. >> thank you. >> so i just had a question about sort of we're now just getting into implementation and

it seems like we have no patience with the way we're reacting to the aca. seems like it should be 10 or 20 years before we start to see real results. we're already starting to see some, but policy always takes a lot of time it seems like. so i was just curious, secretary, how long you think it should take for the aca to really show true results. i know the scores are always, you know, until 2025 or 2026 now, but what do you think? and the second question is about consolidation. i was just wondering how you feel about some of the things we're seeing now with a lot of hospitals and physician groups being consolidated with facility fees and things like that. and a problem for chronic care patients who have to go to the doctor a lot. i was wondering what you think about that and if you think that's sort of a reaction of the aca or was it just something that was sort of there before? and if you really think it's a problem for the patients.

>> i would just do a quick answer to the first. i clearly, this is a major framework assuming supreme court cases are survived that will evolve over time. we're looking, this year, at the 50th anniversary of medicare and medicaid which look very different now than they did 50 years ago. have evolved over time, different benefits have been updated. and i would hope this sets a new chapter and new framework that can do just the same. the early results are pretty impressive with millions of people with coverage but also delivery system reform and cost. five years into the aca, all of those issues are trending in a positive way. so we'll see. but i think this will evolve over time. >> i'm not sure i follow the question with the facility fees question. i would -- if you want to elaborate on that.

>> well i was just curious you know, about patients who are very much concerned, chronic care patients especially who go to the hospital and they get this tacked on fee and, you know, they haven't really received it before. and i was wondering if it was a cause of the aca. meaning not a cause, but something that hospitals need to do for -- to keep on running. >> that is aca. >> right i don't think it's the aca. again, i'm not familiar with what you're referring to. i will just say, the consolidation, i believe is a result of a movement towards the more bundled payment structure. and as we've said before, it's basically like all parties are in this together. you're going to have the patient, the insurance company, the hospital, the doctors specialists and whatever providers are involved. all vested in the outcome of the patient. and if the outcome can be achieved at a lower price, then

everyone gets to participate in some of that savings. so to me, that is -- it's a question of a different risk allocation with more parties undertaking the risk. you care if you're an insurance company about who a physician group may be. you care if you're a hospital who the physician group may be because they're pulling some of the weight. so i think that's what's driving some of the interest in consolidation. >> okay. so listen, thank you very much, madame secretary, mr. leader, thank you very much for coming thank you to all of you and thanks to nyu washington for hosting this. >> you bet. >> as i hope you know we have an exciting panel planned in ten minutes. we'll have a ten-minute break. thank you.

testifies about the agency's 2016 budget request. after that, president obama marks earth day at an event in florida. and later, a look at turkey's role uhamid the violence in syria, iraq and yemen. wednesday the senate agricultural hearing held a hearing. along with officials from the agriculture, treasury and commerce departments. topics include the opportunities and challenges of expanding trade with the island nation. this is 2 hours and 10 minutes.

>> okay. just quiet down. let it go. let it go. >> i was going to say that myself. sure got quiet. good morning the committee will come to order. i call this meeting of the senate committee on agriculture, nutrition and forestry to order. at the beginning of this congress, i was extremely hopeful that trade would be one area to work to find an agreement. i still maintain that hope. we certainly hope that's the case. we're working very hard in the finance committee to make that happen. tomorrow, will mark up the promotion bill. that allows our negotiators to

garner the best deal possible for american exporters. tpa is good for agriculture. and i look forward to getting it passed. international trade of american agriculture products is critical. absolutely critical to the nation. and to the nation's economy and our farmers and ranchers. i've long fought to eliminate barriers to trade, and i think we should continue to work to new opportunities for agriculture products. and that is what we're hearing or what we are here about to talk about here as of today. the united states and cuba certainly have a long history full of contention and instability. there is no shortage of opinion from members of congress about the relationship of our two countries. both present and future. some are concerned about human rights, rightfully so.

others about socioeconomic ideology. but those concerns are not what this committee will focus on this morning. today, we are here to discuss the role of agriculture. opportunities and challenges in cuba. for over 50 years, agriculture exports to the islands have seen many ups and downs, sometimes due to the politics and sometimes due to mother nature. and the tropical storms that she brings. this is not an issue we are going to be able to fix overnight. it will take effort, hard work in addition to bills in congress to truly normalize trade with cuba. the decisions are made regarding increased trade with cuba must be made very carefully. four months ago the president announced a major shift in u.s. policy towards cuba. it is my hope that in the future, the president will work with the congress to determine the best path forward. foreign policy does not happen in a vacuum. we have to take a realistic

approach and work out a step by step plan towards lifting the embargo. this is a goal that should include congress, will include congress. today, we will hear from an impressive panel of experts from the regulators responsible for writing our policies toward cuba to the producers who seek to grow the market for their products. i understand that like myself many of our witnesses here have traveled to cuba to see firsthand what challenges and opportunities do exist. i look forward to hearing about what we might be able to achieve with more trade with cuba but we also need to hear about the difficulties that lie ahead. if we want to be successful in creating a new system of engagement with cuba, we're going to have to really put in the work. agriculture has long been used as a tool not a weapon. a tool for peace and stability. it is my hope that cuba will embrace the practices of free

trade, enterprise and commerce so that both countries will gain from increased relations earlier this year, the coalition for cuba was launched. they have shared a statement and additional information in support of our work today and i ask it be entered into the record at this point in time without objection. i look forward to hearing from our witnesses. and with that, i recognize our distinguished chairwoman senator stabinaw for any of her remarks. >> thank you very much, mr. chairman. it's great to have an opportunity to talk about this topic. i appreciate the opportunity to work with you on trade opportunities between the united states and cuba and to work with all of the committee. we thank those who are with us the officials and industry representatives testifying today for your part in the process. we look forward to hearing from you. improving trade with cuba represents not only a great opportunity for american farmers and ranchers and manufacturers,

but a meaningful way to help rebuild trust between our two countries. after more than 50 years of stalemate, it's time for a new policy in cuba. when i visited cuba earlier this year with senator leahy who was really one of the senate's experts if not the expert i think, on various pieces of cuban culture and economy and so on for so many years. we visited days after the president eased trade restrictions, this is the second time i've had the opportunity to be in cuba with senator leahy and senator flake and others. and, it was very different the second time, being reserved and cautious. cubans were coming up to us and were very eager to develop a new relationship. it was a very different tenner.

but we can only do that with meaningful steps. and america's farmers and ranchers are uniquely positioned to lead the way. and i agree with senator roberts, the agriculture is in a very unique position. in 2014, the u.s. exported just over 290 million in agricultural goods to cuba, good start. but this is a country only 90 miles off our shore. we can do a lot better than that. cuba's own import agency estimates it will receive approximately $2.2 billion in u.s. worth of food and agriculture this year. and we can do even better than that. that type of economic potential deserves a chance to succeed. and is one reason why many of the largest producer groups trade associations, companies from within agriculture have come together to increase engagement. many on the committee as senator roberts indicated have taken the opportunity to go to cuba in

addition to senator leahy, again, who he and his staff have been real leaders in this effort in developing our relationship with cuba. but senator klobuchar boseman, i know working in a bipartisan way, as well and we appreciate your leadership and your efforts. the commitment to democratic ideas and human rights we share as americans are best realized through engagement. and i believe our bedrock principles accompany every single product that our farmers and ranchers send to cuba. last week, last week's actions by the president is a step forward in normalizing a relationship. and will test the commitment of the cubans to this process. but even while we're making significant progress in rebuilding our relationship, the policies governing trade between our countries are not yet designed to allow a steady flow of goods and services. so mr. chairman, i look forward to working with you and others

on the compete to find a path for u.s. financial institutions to be able to safely and securely work with cuban purchasers, including extending the lines of credit to look for a broader range of goods and services and supplies we can export to cuba. these measures are not only good for business but they will help cuba's agriculture capacity and make the island a better trading partner in the long unare. and i know that working together, we can write the next chapter in the u.s./cuban relationship. thank you. >> thank you, madame chairwoman. i now have the pleasure of introducing a friend and colleague of mine, senator leahy. the undeclared yet accurate king of the, of the dairy policy. and the dairy policy posse who comes in at 11th hour and 59th minute that helps us write a farm bill for a brief remark, sir. you may manage a bill on the

floor in your very snappy attire. >> thank you, mr. chairman. i like being with the chairman who knows how to comb his hair. >> i appreciate that so much. >> just let it go, okay? >> i can't do as well as you do on the tones on your phone, but i commend you for holding this. all seriousness. this is an important hearing. here's cuba 90 miles from our shores. we have the ability to help them gain control of their own lives but we can also expand american farmers. selling their product. there'll be some winners as part of normalizing trade with cuba. we have to temper our hopes and remember cuba's economy is in shambles as people are suffering. but i i would note what senator

stabinaw said she wouldn't spend time with agriculture community there on our last trip. i've been going to cuba numerous times in the last 20-something odd years. this last trip, you saw a huge difference. seeing american flags in the stores. american flags on the taxis, a lot of the taxis are mid-50s automobiles. and they have flags of different countries. never seen the american flags. now we saw them. we're not going to have an immediate commercial windfall for american agriculture, but cuba has used our embargo as a phony excuse for its own failed policies. now, we have a chance to create more efficient and less burdensome opportunities for cubans to buy u.s. products.

canada and the european union are there already. last summer, they were talking about things we produced that they were bringing in from new zealand. and we're 90 miles away. so i think that american agriculture's often been the bridge in normalizing with countries. this will allow us to do that. but also, let the cuban people see this. their own government not the united states is blamed for the poverty and dysfunction and repression of the country. and so mr. chairman, i say that is all really to applaud you for doing this, i think it's we can all learn by this. and i look forward to my next trip down there. >> well, thank you, sir. i thank you for your comments. and i know you have to manage a bill on the floor. that's something we're doing differently this year. we're actually managing bills. good luck in that respect.

>> it's nice to go back the old way. thank you. >> welcome to our first panel of witnesses before the committee this morning. the honorable michael skews as undersecretary for agriculture services. under the secretary, has previously served as the deputy undersecretary for farm and foreign agriculture services as well as secretary of agriculture for the state of delaware. welcome, mr. undersecretary, i look forward to your testimony. >> chairman roberts, ranking member, members of the committee. i'm pleased to come before you today to discuss agriculture trade with cuba. as you know, in december, president obama announced policy to chart a new course with cuba. the measures also seek to expand opportunities for america's farmers and ranchers to sell goods in cuba.

in january, the treasury department published regulatory changes, including a revised interpretation of the term cash and advance. and authorization for u.s. banks to establish correspondent accounts at cuban banks. these changes have been sought by members of the u.s. agricultural community. 15 years ago congress lifted the decade's old ban on products to cuba. but despite this opening, u.s. government agencies including usda remained prohibited from providing export assistance and credit guarantees for exports to cuba. he can't use a single dollar for trade promotion funding where a trade with cuba. these restrictions applied to usda's very successful market development programs like the market access program and the foreign market development program.

the policy changes announced by the president are significant. but legislative hurdles remain. bills have been introduced to further open trade with cuba including legislation sponsored and co-sponsored by members of this very committee. usda stands by ready to offer assistance to congress. if the embargo is removed, we could be poised to become a major agricultural trading partner with cuba. cuba depends on imports to feed it's 11 million citizens. and according to the world food program, cuba imports about 80% of its food. which means the potential for our producers here is significant. the united states has potentially huge advantages in exporting to cuba. chief among them is location. where less than 100 miles away. meaning lower shipping costs and transit times, especially

compared to our current top competitors, brazil and the members of the eu. and fiscal year 2008 u.s. agriculture exports to cuba reached $658 million. however, by the end of last fiscal year, they had fallen to 300 million. at the same time, the global exports to cuba have doubled over the past decade to approximately $2 billion. right now, the largest u.s. agricultural exports to cuba, poultry, soybean and corn. i'm confident that u.s. agriculture exporters can capture the market in cuba. but i don't want to minimalize the obstacles. cuba is a country with limited foreign exchange. we're also behind our foreign competitors in market development. another impediment is cuba's import policy requiring all u.s. imports to be channeled through

one state corporation, alanport. the policy changes toward cuba are one example of opportunities to help our farmers and ranchers build on their record agricultural exports. agricultural exports reached a record $152.5 billion and supported nearly 1 million american jobs. the potential for u.s. agricultural exports around the globe is, in fact, considerable. it's critically important that congress quickly consider and pass bipartisan trade promotion authority legislation introduced last week. tpa will help ensure that america's farmers, ranchers and food processors receive the greatest benefit from trade agreements currently being negotiated. in conclusion, there is potential for expanding agricultural exports to cuba over time.

agriculture is served as a bridge to foster cooperation, understanding, and the exchange of ideas among people. i have no doubt that agriculture will play an important role as we expand our relationship with the cuban people. thank you, mr. chairman, and members of the committee. >> we thank you, sir. mr. matthew boreman currently serves as the deputy assistant secretary of commerce for export administration. and this position, mr. boreman is responsible for implementing the bureau of industry and security controls. on the export of dual use items for national security foreign policy nonproliferation and short supply reasons. welcome, mr. boreman, and i look forward to your testimony. i thank undersecretary for being on time. just remind the witnesses that most senators can read all all

of their staff can read. feel free to summarize your statements. >> thank you mr. chairman, thank you, it's a pleasure to be here. of course i'll address the role the department of commerce with regard to agricultural trade with cuba. as you know in terms of the cuba embargo the commerce department is responsible for regulating the export of items to cuba. treasury department responsible for financial transactions, including travel. as you know on december 17th of 2014, the president announced the most significant changes in cuba policy in more than 50 years. as the president noted these changes are intended to create more opportunities for the american and cuban people by increasing commerce, travel and the free flow of information. to implement these changes, we at the department of commerce the bureau of industry and security amend our regulations on january 16th 2015, to expand the authorization for exports and reexports of certain categories of items to cuba.

principally, we expanded the license exceptions available for consumer communication devices, to facilitate the flow of information among cubans and between cubans and the outside world. we expanded the ability for u.s. exporters to send gift parcels and consolidated packages to cuba without a license, and then we created a new license exception of support for cuban people. so in our system, a license exception means as long as the exporter complies with the conditions of the license exception set out in the regulations, they don't have to come into commerce submit a license application and wait for the government to say yes or no and give them a license. so exporters always feel that license exceptions facileitate trade in whatever topic they cover. the principle focus of the license exception support for cuban people is getting items into the hands of the private sector in cuba. so under that license exception u.s. persons are now able to export building materials for

private sector building activity in cuba. they're able to export items going to the private agricultural sector in cuba the agricultural co-ops, again, without a license. and generally things that go to private sector entrepreneurs. so the focus of that is to make it much easier for the export of items from the united states to the private sector in cuba, including the private agricultural sector. the license exception also authorizes the export of items to the internet infrastructure in cuba to again, facilitate communication among the cuban people and between the cubans and the outside world. you'll notice in all of that i've mentioned, there's just a little bit of focus on agriculture, we did not change our primary regulatory process for agricultural exports to cuba. and the reason we didn't, that's pretty well governed by the trade sanctions reform act. so under that trade sanctions reform act, we have an expedited process in place where a u.s. company that wants to make it

agricultural export to cuba comes into commerce we refer it to the state department, we get a position from the state department and give them an answer typically in 12 days. so it's an expedited process but it still is a licensing process. and, again, that's largely governed by the requirements of the trade sanctions and reform act. under that process, exporters can get an online application. as i mentioned, we consult with the state department. we also screen the end users of the license of the agricultural exports to make sure they're not involved in terrorist or proliferation activities. and then the last requirement is that those exports that are licensed must be made within one year of the license, within the year of the license. last year, we processed 56 notifications under this expedited process, valued at about $2.4 billion, that's what we authorized.

as you heard, the actual dollar value of exports was far less than that and roughly $290 million. so you can see u.s. exporters see a tremendous market in kuby the authorizatione cuba even though they only export a small fraction of that. as you also heard those exports go through the cuban export agency. and the -- so there's really no changes in our regulations specifically on agricultural exports to cuba. because, again that's limited by the trade sanctions reform act. thank you, mr. chairman. >> thank you for your statement. our next witness johnny smith, acting director office of foreign assets control the department of treasury. mr. smith serves as the acting director of foreign assets. control or ofac that is mr. smith's acronym for which he

works. administering economic trade sanctions to advance u.s. national security and foreign policy goals. prior to joining ofac, mr. smith served as an expert to the united nations, al qaeda and taliban sanctions committee. as a trial attorney at the u.s. department of justice. welcome to your new job. thank you for joining us, mr. smith. i look forward to hearing from you, sir. please proceed. >> good morning, chairman roberts, ranking member, and distinguished members of the committee. thank you for the opportunity to appear before you today to discuss our recent amendments to the cuban assets control regulations. and the implications for agricultural trade with cuba. on december 17, the president announced a number of significant significant, treasury's office of assets control amended the

control regulations. on january 16th. these amendments ease sanctions related to cuba and a number of key areas. including trade financial services, travel, and remittences. these changes are intended to enhance commerce and communications between the united states and cuba. and to help the cuban people to freely determine their own future. ofac expects its recent rule changes will benefit american exporters in at least four key respects. expanded the financing provisions of the regulations to allow america's agricultural exporters to be more competitive in selling their wares to cuba. second, ofac broadened the ability of institutions to provide services and affecuate

payments. third, trade delegations and exporters satisfying the conditions of the regulations to travel to cuba without needing to come into ofac first to apply for and receive a license and expanded the ability of airlines and other u.s. travel services companies to offer more reliable and potentially cheaper travel, with far less paperwork to cuba. finally, ofac permitted certain humanitarian projects in cuba, including those related to agricultural and rural development that promote independent activity. with respect to the first change, ofac modified the interpretation of the term cash in advance, which describes a financing requirement for agricultural trade between the united states and cuba that is imposed by statute. previously, ofac determined the statutory term to mean that the u.s. exporters had to receive payment from the cuban importer prior to the goods leaving american shores.

an interpretation that u.s. exporters said made their products less competitive than those from other countries. ofac has now revised the interpretation of the term to mean that payment of the -- from the cuban purchaser is required now prior to transfer of title two and control of goods. this change should provide for a more efficient, less expensive means for cuban importers to purchase american produced agricultural, medical, and other authorized products. exporters continue to face barriers including that all u.s. u.s. agricultural goods. u.s. exporters continue to be prevented by statute from offering financing inducements such as loans for authorized agricultural exports. a limitation that may prevent them from being as attractive as third country competitors.

. with respect to the second key regulatory change to improve the speed, efficiency and oversight of authorized payments between the united states and cuba, ofac has authorized u.s. banks to establish correspondent accounts at financial institutions in cuba. this change is intended to ease the flow of authorized payments and eliminate the need for third country payment structures, which should benefit u.s. exporters to cuba. with respect to the third key regulatory change, it's important to note that ofac's cubans sanctions program is the only such program that restricts travel to a country. the recent amendments eased restrictions by licensing certain additional travel within the 12 existing categories of travel and ofac's regulations. without the need for a specific license from ofac. this means that exporters and other travelers who satisfy the criteria in our regulations may

travel to cuba and conduct travel-related transactions there without requesting or receiving individual authorization from ofac. with respect to the fourth key regulatory change and to help strengthen cuban civil society, ofac eased certain restrictions on remittences to cuba and authorized remittences to certain individuals in independent, nongovernmental organizations in cuba for humanitarian projects including those related to agricultural and rural development. increased remittences with increased financial resources to purchase american produced agricultural goods. thank you, and i look forward to answering any questions. >> to the entire panel thank you again for taking the time to share your professional experiences and perspectives about the opportunities and the challenges we face and opening up trade with cuba for the entire panel. what was the administration's process in preparing for this

major policy shift in the relationship between the united states and cuba. what was the involvement with the stake holders in determines what changes could be made? and how have you worked with industry during the regulatory amendment process? big question, hopefully a short answer, i apologize for that. undersecretary? >> mr. chairman, we've been working with the cooperators now for quite some time. not just at the national level, but also at the state level. it has been evident now for a number of years that our stake holders have wanted cuba opened up for the markets that -- for the products that our farmers and ranchers produced in this country, which are the best to be found anywhere in the world. and we've been at a very big disadvantage because of the restrictions that have been in place. but, i mean, our stake holders have made it known very clear

that this is a country that they want to do business in. and when you look at -- i'll give an example not because betsy ward's sitting behind me but rice, half of the rice consumed in that country is imported and it's coming from vietnam, not coming from the united states. and it should be. our stake holders, again this is something they've been wanting for a great deal of time. and we look forward to the opportunity to eventually get products in there on a level of playing field. >> mr. boreman? >> thank you, mr. chairman. >> as far as the process -- in the executive branch to identify ways that we could facilitate trade to the private sector in cuba within the bounds of the existing embargo. and that's how we came to go from license -- individual license requirements to license exceptions. and since the announcement of our regulations we've probably done several dozen outreach

events, both from washington and across the country where we explain the changes and answer questions. we estimate we've probably individually talked to, or part of these events well over 3,000 people. and so we continue to solicit feedback from those who want to understand what the regulations are. >> i appreciate that. mr. smith? >> the comments from my colleagues here. we work very closely within the executive branch to utilize some of the comments that we receive from industry and members of congress over the years about how we could better change our regulations. and we have worked with commerce and other agencies since that time to actively promote our regulatory changes so people know what the new rules are. >> this is for undersecretary, i've traveled to cuba as many others have done. some time back max baucus under max baucus the ambassador to china and i went down, we didn't tell anybody, we just went down.

and for 18 hours discovered the world according to fidel castro. and then also with an ag group trying to establish trade. i want to make sure we go about this in the right way after little history of little to no meaningful engagement with cuba. many of these folks came down met with people and then been informed, yes, you can trade and only find out you can trade with hospitals, schools and what was the other one? i'll think of it in a minute. three very limited situations. then all of a sudden you come up against the state-owned enterprise and that's where it ended. so all of the talk and everything happened and nothing really happened. so do you envision the reestablishment of diplomatic relations to be helpful to agriculture trade? are there any concerns you have regarding this renewed relationship? the process to establish these ties and the interaction with exports to and agricultural

development within cuba, sir? >> i think normalizing relations and opening up trade mr. chairman will have a tremendous impact on agriculture. the united states is the only country to my knowledge that has to go through the state-owned corporation to get its products in there. so hopefully with the normalization of relations and opening of trade, that restriction would, in fact, be lifted. number two there's been a study done by texas a & m, as well as the american farm bureau. which says once the relations are normalized and trade is opened up there'll be a significant increase in the purchase of products by cuba. and what the studies showed was u.s. sales of agricultural supplies to cuba could exceed $1 billion. so i think that's a tremendous

increase over the $300 million that we're selling today. >> this is for all of the panel and i apologize to my colleagues for going just a tad over time. all of you made reference to allenport. the state run monopoly through all u.s. imports are channeled. we hit a brick wall. what transactions if any have been made by the cuban government to provide the same ability that our competitors receive with other cuban organizations organizations. mr. smith, we'll try you first. >> that's a question i'd largely defer to the state department. something we'd expect as a normalization of relations that would be discussed as part of the talks and that would be something we would expect to

open up as part of that process. i don't know my commitments made but i'd have to defer to the state department. >> mr. smith would have to note we have an ongoing discussion going on with cuban officials and i expect this will be one of the topics that will come up in the sector-specific discussions. >> undersecretary? >> no, i defer to the answer to my colleagues. >> senator? >> well, thank you very much mr. chairman. when i was last in cuba, i had the same conversations with the secretary of agriculture about alanport and the process for them. they were indicating about 80% of the farmland is owned by the government, about 20% by the private sector. and i said well, can we sell to the 20%? can we sell farm equipment to the 20% or agricultural? no. it's got to all at this point go through the same process.

there's a lot of change that needs to occur. i do want to stress that we have tremendous opportunities when senator leahy was talking about products from new zealand. they're getting milk from new zealand in powdered milk form. i talked to the michigan milk producers who would be happy to oblige and others would, as well. we're a whole lot closer. and potatoes and beans and a whole range of things that are available. and apples seems to be a delicacy at christmas time. and i said we can give you christmas every day. so we have a lot of opportunities. let me ask undersecretary there's an expression that says, the first step to achieving success is showing up. and i think that's really true on trade, showing up and also our ability to market. and you mentioned the market access program and the other tools at department of agricultural. and i wondered if you might

speak more to what while they're not currently authorized in cuba, how would you envision the usda's programs going forward? and creating opportunities and tools for american agriculture? >> well again, if we were allowed to use our marketing programs such as our market access program, it's an area where we work with our cooperators to go in to do the trade missions to look at ways to develop markets and what the actual needs are through the market assistance program. help our producers, help the different commodity groups make end roads into establishing markets in that country the foreign market development program is where we actually work with the cooperators to do studies on what the demands are for different products. so if we were allowed to use

these products and as well as do it, a trade mission to cuba, i think it would go a long way in getting back much of the market that we have lost in the past. the lack of the ability to use these programs as well as our inability to extend credit is the main issue why we've lost our market share since 2008. the economist at the university of florida did a study and what their studies showed was that the biggest loss or the reason for the most loss in our market share there was our inability to extend credit. as our competitors, eu, brazil and others are doing. so the playing field right now is not level, senator. a level playing field they're going to buy the best products from the united states. >> we heard that over and over again, as well.

we heard over and over again, same thing with the foreign minister, foreign relations talking about the lack of credit. when we look at how we get through that and you've all spoken to it. i wonder if anyone wants to comment further on the specifics of what we need to do to make sure that process is open. the president has taken the first step taking out the intermediary, being allowed to make payment, not before the shipment leaves but at a later point when it is in process and arrives. but we all know that the issue of credit, whether it's using usda, credit opportunities, other credit opportunities is a serious issue for us. what do we need to do? to be able to make that happen? is this all about lifting the embargo completely? or are there other things that we should be doing? >> i could start out an answer is at least one provision that is at issue is the provision of

the statute that prohibits any financing of goods agricultural goods and others to go to cuba other than third country financing or payment by cash in advance. so we're not allowed to offer any kind of payment deals payment terms, other than going through a third country to receive that financing or to pay the cuban importer in advance of the goods being turned over. and i think that's what my colleague has indicated is necessary to be able to extend credit, we would need to be able to remove that statutory prohibition. >> i would also add that clarity on the provision that appears to require an individual license for any ag export to cuba to change that or make it clear that we could allow it by license exception would facilitate ag exports to cuba. that's what we've heard from exporters. >> right. and undersecretary, those two things specifically? or is there anything else from the usda standpoint that we need

to be changing to create opportunities for you to fully provide assistance? >> well, again, i think those are the biggest changes that we need to be -- have made so that we could use, again our marketing money as well as the commodity groups where their check all funds. they're not allowed to use them for promotions in cuba either. so those changes would allow us to do marketing in cuba as well as give us the ability to extend credit, again, to put us on a level playing field with our competitors. >> thank you. mr. chairman, as you know there's a hearing going on in finance. i'm going to step over there for a moment and come back. and so be on your best behavior while i'm gone. >> i will try to do that. and we'll urge you to do the same on behalf of a good trade bill. thank you. senator? >> thank you, mr. chairman.

thank you, all for holding this important hearing. i believe that the way that you change the world is through personal relationships. and if we're serious about really bringing real change to cuba, we need to expose the cuban people to america. we're not only trading our products, but we're trading our democratic ideals. cuba represents a remarkable opportunity for american farmers. but it's also an opportunity for cubans to gain access to safe, affordable and high-quality agricultural products from the united states. i'm encouraged by recent steps to reform the u.s./cuba relationship boosting our commercial ties would have significant benefits for both of our economies. in my state it's estimated that easing finance and travel restrictions with cuba will result in an increase in over $35 million in agricultural exports annually. let's talk, again, a little bit

about what percentage of the food that cuba consumes is actually grown in cuba? >> according to the world program or world food program, 80% of the food is imported. >> what -- and what countries you mentioned vietnam, i believe. >> vietnam is providing half the rice. if you look at corn corn's coming from brazil and argentina. if you look at wheat, wheat's coming from the european union kp canada. our sales from the united states to cuba, currently, 50% of our sales are poultry products 25% of our sales are made up of soybean meal and soybeans. that makes up 3/4 of the sales from the united states. >> what about the quality of like a vietnam rice compared to an american rice? >> well senator i'm real partial to u.s. products. >> you answered correctly. >> i said earlier you know, i

think our farmers and ranchers produced the very best products to be found anywhere in the world. and i'm going to stick to that. >> said very well. >> exactly. and, again i do think that is important in the sense that, you know, it's not only an opportunity, but it is an opportunity for the cuban people. mr. spieth you've talked about easing financing and things like that. out of the things we're doing what's the most important thing we need to be doing? >> well, i think when you started out you talked about travel between the american people and cubans. i think that is right that as the president said, and i think you've said is that the best ambassadors for america can be ordinary americans going to travel and embodying our ideals. i think we have generally licensed our authorized travel within the 12 categories that we

have. congress has prohibited any further opening for tourist travel under the statute. so that's a statutory prohibition and we also have a statutory prohibition with respect to not only private assistance to cuba for exports agricultural exports but also u.s. government exports. >> very good. do you agree with that? >> i certainly do. and one other thing. there's also a prohibition on u.s. government export promotion. that limits the commerce department's ability to carry out the kind of trade promotion market analysis work that it does in virtually every other country of the world. >> and, again, you guys can jump in. even with the changes we made is it fair to say that the majority of the restrictions regarding trade are still in place? >> it is correct that most trade, most imports, most exports, most other transactions remain prohibited.

>> so we've got a good step in the right direction. we've got a long way to go. you know, we've talked about financing, are you aware of any other countries that go through the financing scheme that americans have to go through? >> you mean to get products? no, i'm not aware of any other country that has those type of restrictions and, senator, we do trade in approximately 200 countries around the world. >> good. >> so, america is unique in that regard. so, very good. in dealing with the cubans how does cuba differ from other major export markets in terms of how normal commercial operations work?

>> as i pointed out earlier, we're restricted to dealing with one state-earned cooperation access to export of u.s. products. so that's unique and it does present its own problems. >> my understanding is for virtually all imports regardless of the product category into cuba they have to go through some cuban government import agency. >> correct. >> the other difference is the financing terms. as we've talked about and in most other contexts, the exporter could get financing of some kind either from the u.s. or from the importer that can occur here. >> thank you, mr. chairman. thank you all very much for being here. senator donnelly. >> thank you, mr. chairman. i'd like to thank all the witnesses. i'm a big supporter of increasing american exports to world markets and am intrigued by the possibility of opening the cuban market, not only for

hoosiers but for all of our country to export the things we build and produce. but the concern is i want to make sure that the cuban people actually benefit from it. and what can we do from a policy perspective to better ensure that the benefits of trade reach the cuban people? as opposed to all the products going into one agency and then they be divvied out? what do you see as keys to making sure the cuban people actually benefit from this? >> senator, i think that by normalizing relations, by breaking down the restrictions that we currently have for trade, the cuban people are going to benefit from this right away. if you look at just the cost in transportation, again, rice coming from vietnam. you look at the cost of that. corn coming from argentina. wheat coming from the european union. we have a tremendous advantage

in logistics and being able to supply them top quality products at what i would believe would be a more reasonable price than what they're currently paying for products shipping from those countries all over the world. so i think that there would be an immediate benefit. could there be additional benefits if in fact we are treated like other countries and don't have to go through one state-owned corporation for our products, which i believe and hope would happen, then i think there would be additional benefits. >> one of my concerns is just what you referred to which is having to go through allen port, the state agency there. we talk about the higher quality. i have been to my friend senator bozeman's home state, the extraordinary rice they produce there. the pork products produced in my home state and all of us. we talk about the benefits of lower price, easier transportation, all of those things. and the question is how do we

make sure that that lower price actually gets passed on so they're not paying -- the cuban people are not paying the same and that this group who will set it in effect, if you know what i mean. >> yeah. i understand the concerns. but again, hopefully once relations are normalized and trade is liberalized, again, i would hope that we would be treated like the other countries that are currently trading with cuba so they don't have to go through one state-owned corporation for those products. >> this would be for any of you. when canadian products are sent to cuba, how are they entered into the country? who are they distributed through? do you know? >> i don't know. >> do they have to go through allen port? >> to the best of my knowledge, no. it is the united states has to go through allen port. >> so that's one of the points

i'd like to make, is as you talk to state, as you move forward with this, one of my concerns -- i know a lot of my colleagues' concerns -- is that we be treated the same as everybody else. that's the way the cuban people benefit, is that our products are able to go directly to the cuban people, that we're treated the same. and i think that much of what we look at as we move forward will be dependent on that being incorporated into any agreement that comes through. thank you, mr. chairman. >> we thank you, senator. senator hoeven. >> thank you, mr. chairman. i actually want to pick up on a point that senator donnelly's making, and that is, i think there has to be a carrot and a stick to what we're doing here. we want to expand ag trade. that's good for our farmers,

hopefully that's good for the cuban people. but at the same time we want to put more pressure on the cuban government to change its policies on human rights. so what can we do as we work here on ag trade to make sure that we're doing that. how do we get these products down to the small businesses and the entrepreneurs that are actually trying to make something happen in terms of free enterprise in cuba, and how do we at the same time create some pressure on the -- on the cuban government on the castro regime to change and to particularly change in regard to human rights. i'd like to hear from each one of you on that. >> senators, you well know coming from the big ag states that you're from, agriculture throughout history has been a way to break down some of the barriers that we have faced. if we can open up trade with cuba and if -- because they're only supplying 20% of what they currently consume but the demand

is certainly there. there is a way to help build the agricultural sector in that country which would create jobs, which would create income, which would create more demand. and as that happens, i think you're going to see an awareness. just opening up the country and normalizing relations, there will be an awareness of the people that i don't believe that currently exist. so i think this is a really good first step in to helping the cuban people. our policies over the last 50 years have not been one that has provided that openness, that transparency and the education that -- about the united states

that i think normalizing relations and opening up trade will. >> mr. borman, you and i talked specifically before the meeting about how do we make sure these restaurants and other small businesses that people in cuba are trying to get going, how do we support that effort as we do this? >> several ways. one is of course the folks who make the exports from the united states know who they're intended for and they typically know those individuals because they're often relatives running the bed and breakfast or the auto repair shop. if the items don't get to them, they'll hear about that. we have a good working relationship with a lot of our exporters on the enforcement side to make sure our items going where they're supposed to go. >> that's right on the mark. now you're talking about helping people with entrepreneurship, business enterprise, hopefully things to incentivize these businesses to get going. do you have way to enforce it to make sure they're getting to the small businesses. and the other thing is payment. how are you sure people are paid

for products they ship into that market. >> right. so far we have not heard any complaints of u.s. exporters not getting paid. i'm sure we would -- >> that's because the policy was cash in advance. you're changing that. >> but remember it is still cash on delivery. >> cash when you change title. >> delivery of the products are delivered. which limits your ability to get it. doesn't it? >> if that happens, we'll find about that quickly. >> you can go back to getting it to those small businesses. how do you enforce that? >> again, first part is we make sure the folks want to make the exports understand what the small businesses are and what the limits are. then, two, remember the cuban people are very aware of these changes. if over time they don't see any significant changes that's going to create more pressure on the government internally. but that's something -- we have seen already exports made say to the private sector agricultural co-ops in cuba. we've seen that in the trade data. >> i think we can continue to focus on the cuban people as we make our changes. i think the recent round of

changes that we made were very much focused on the ability of the cuban people and to strengthen the cuban people. we increase their ability to communications, for internet, for other things so that they can better understand the changes that are being made. we also increased the limits that can be given on remittances, the financial amounts that u.s. citizens can give to cubans. we increased those amounts for support for the cuban people, humanitarian projects, and other things that would help agricultural development as well, including microfinancing activities so those are very much focused on the individual cubans, the small cuban development businesses that might want to grow. that's -- was the focus of our change. >> and i think it is very important that you are focused on that area, including putting information in to that market every way you can. because as we provide people with more information, i think

that also helps with their efforts to try to force change from the inside as we try to force change from the outside. final question for mr. -- where -- what food products, farm products do you particularly see as opportunity, areas you said three-fourths of our exports now are poultry and soybeans. what else do you see as good opportunities? >> i think we've got a great opportunity to export -- to increase our exports of corn. there's no reason why european union and canada have the wheat market. that market should also be ours. i think there's a great opportunity for us to have the rice business in cuba. and as i think i pointed out earlier in this meeting, there is a great opportunity for dairy and dairy products. >> thank you. >> i thank the senator for his most pertinent comments. thank the panel for responding. >> thank you, mr. chairman. thank you for holding this meeting. we've asked you probably three, four times now about al import. y'all said you hope that we will