earlier, how can we compromise? i mean, in that era, and post colonial era into the affairs of african politics. like you said, politics is a very extensive stories. if economic is social, everything, how can you really, how can we ever negotiate or discuss african politics and african land ownership without respect to colonialism, post colonialism? and the role western politics is playing? take for example zimbabwe, nigeria. i came from a very area in the east, i know how the western powers interfere with land ownership.

host: we have to leave it there, sir. thank you. guest: it's a difficult question. this gets back to the calls that we've had about the legacy of colonialism and how unrecognized it often is and how problematic it can be. and there's simply no good or easy answer to how to deal with it. and it's not something that can be dealt with and then you move on. this is something that is going to continue to have consequences for generations in africa but is also something that at this point can't be changed. you know, it's always interesting to think about, as indents sort of swept across the african continents and nations were faced with a choice about how to consider themselves nations to sort of try and do some kind of return to what looked familiar before the berlin conference of 1885 whn europeans powers who had never been to africa started drawing lines on a map or to recognize the borders, keep

them and find a way to move forward in that context. and that's what was decided, was ok keep the borders we recognize the borders, let's move on. in part of of a secure concern for security predominantly. but the conses to that decision and of course that decision wulled not be a decision had there not been colonialism. i think the most responsible thing that can be done both by outsibers who are working in africa and within0africa itself is to say what are the right choices moving forward base ond what we understand about what's going on now, the data that we have, what we understand about workable solutions, solutions we have seen work either in africa or elsewhere. .

>> that will be tomorrow at 7:45. also want to remind you if you

missed the white house summit or couldn't catch all of it, do so sunday, 10:30 in the morning right here on c-span and give you the complete white house health care summit from start to finish. thanks for watching today. we'll see you tomorrow. [captions copyright national cable satellite corp. 2010] [captioning performed by national captioning institute] >> next, a house hearing on insurance rate increases by

anthem blue cross and secretary of state hillary clinton on her department's budget. after that, the nation's governors discuss future economic conditions for their states. >> now, executives from wellpoint, incorporated discuss recent rate increases by anthem blue cross. the rate increases reportedly as high as 39%. this portion of the hearing is one hour and 35 minutes. >> let's resume this hearing. when i left, i think ms. schakowsky, you are up for questions. and thanks to the panel for staying.

>> it occurred this cao only take place in the industrialized america. they made the threshold decision that health care would be provided in some fashion, maybe through the public sector, often entirely through the private sector. but, still, to all of their people. the other thing that occurred to me when we look at all three of you, and i guess i would have to add your son, we're talking about essentially healthy, high functioning individuals, not a bunch of sick people, which underscores that, you know, it's hard to reach hardly any age at all without having some sort of a pre-existing condition. i had -- and i don't know where

they just disappeared to, this is from blue shield of california. it's a little old. 2006, a threep -- three-page, four-column list. it says applicants who have any of these conditions listed below may be declined without medical record review. things like adoption in progress, how about that? breast microcalcification, diabetes with hypertension, pregnancy of spouse and significant other. vericose, a pre-existing condition that would deprive

people of -- no, you just can't have this insurance. i want to see if we could put up on the screen, the committee recently learned that these recent premium increases may only be the tip of the iceberg. is staff here to put up the internal -- there we go. wellpoint analysis of what potential rate increases would do for them. these are various scenarios. the first scenario calculates -- they call them s.a.f.'s. those are really rate caps. if they left it unchanged, that is the rates unchanged. the second scenario actually proposes to lower the rate caps to 37%, which is 2 percentage points lower than the rates than anthem filed with the department

of insurance. and the third proposes, and i quote, to remove these rate caps completely. this scenario would result, they say, in a maximum of 228.4% for certain plans. and had this scenario been implemented, over 27,000 customers would have received a 228% increase. ??? the fact they would do this scenario is incredibly shocking, but i guess my conclusion is that we cannot just leave the insurance companies in the driver's seat deciding how they will regulate themselves, according to rates. what our bill did and what the

president's bill does is establish rate review that could actually prohibit some of these rate increases. feelings about that. let's start with ms. meister. >> that's what i said before. we need to have a maximum percentage put on of how much insurance companies can raise their rates each year, just like some cities vice president rent stablization. there needs to be stablization of insurance rates. >> some states do that. i'm a state that does not, one of the 25 states that doesn't do any rate regulation whatsoever right now. >> i am for a national committee that would review rates. i feel california has been neglectful in that sense. i know based on where you livu

and that kind of thing, but i believe a national rate regulation would be very beneficial. >> national health insurance rate commission, i think, is what we're talking about. >> yeah. i agree with that, too. and i would add that i think if there were rate regulation on insurance companies, that that would also put pressure on medical providers, hospitals and doctors, who we keep hearing are raising their rates. so irresponsibly. if that's true, that would force them to change their ways as well. and just very quickly, what you said about unregulated insurance premiums keep rising, it's true, my rates went up 26% last year, 38% now, why should i have any reason to believe they won't try to raise them 40% next year. it's logical to think that they would.

>> thank you. member of the full committee, ms. eshoo. >> thank you, mr. chairman, for having this hearing. i appreciate the opportunity to participate and i'm very glad that we have the rules that allow members from other subcommittees to be able to join you. this is a very important hearing. i want to thank the witnesses. so many members have said, you really put the human face on this. and while my questions are not directly for you, but rather the executive, i just thought that i would enter for the record, i did write to ms. braley, the president and c.e.o. and president of wellpoint after the news came out0of the rate hikes up to 39%. but i think it's a telling thing that anthem blue cross, in an

email message urged their employees to oppose health care reform. and that email is reported to have said that reform proposals would, quote, would have tens of millions of americans losing insurance. this is right on the edge, given what the rate increase is. you have helped to separate the political rhetoric that has gone across the country and really what the factsr because this is your life. you're speaking of real life experiences. i can't think of a better panel to have come in and testified. this case is not over. i think that there are -- i know that there are many of us that our last breath, we'll fight for the kinds of reforms that need

to take place in the health insurance industry and health care as well, because this simply cannot be sustained, not individuals, not families, not local governments, state governments, not the federal government and not businesses either. so thank you for traveling across the country to testify. i admire your spirit. and i like the way you just keep following up with members and saying it the way it is. it is not often the case with witnesses. so we thank you. thank you, mr. chairman. i have to leave for my intel meeting. >> that concludes questions of members of the committee. so i want to thank this panel for coming. let me say one thing, mr. arnold in a question that was put to you, clarification, i don't want to get into the health care debate, because it's important

we hear from you. we have had enough health care debates and need to move the legislation along, but there was questions about your premium, what you would pay and what you would pay under the house bill as was passed. mr. burgess asked you some questions along that. the numbers he was quoting was from the congressional budget office and that would take place in 2016 and wouldn't be what your current premium would be. uvend the house bill, you would have services that you wouldn't be denied because of pre existing injury or illness. there are a number of benefits in the house bill that is probably not covered in your current one. that number he is throwing out would be in 2016 and we don't know what your policy would be in 2016 from anthem at the rate we're going. let me thank this panel. with all due respect, i'm going to let you go for a minute.

>> based on 2009 figures if the bill passed last year. none of the benefits go into effect from four years from the passage of the bill. taxes would go into effect on day one. and a point of clarification, you made the comment just a moment ago that providers were raising rates irresponsibly. do you have an example of a provider that you have encountered that has raised rates irresponsibly? >> i don't, but i think your next witness will say over and over again how they are raising their rates. >> and i'm ready for that. i needed to know if you had some information that i needed to be aware of. >> no. i don't personally have specific examples of that. >> most doctors in my state, our prices are set by the insurance companies, which are set by congress with medicare rates and private insurance pays a percentage of what medicare's

maximum allowable fee schedule is, even for those procedures that aren't covered under medicare, like child birth. i wondered if you had direct experience because i intend to question ms. braly. >> medicare sets rates for the whole country and turns out that medicare could be less than what the private insurance pays in any particular area. but the private insurance companies negotiate the rates presumably with the doctors and other health care providers. they and medicare are faced with ever increasing costs in health care. that is a fact. it doesn't mean that anybody is doing anything wrong, but the system is costing more and more money. and one of the things we try to do in health reform is not only reform the insurance system so we don't have people fighting on an individual basis to get any opportunity to buy insurance at a fair amount, but we try to hold down health care costs

overall and that's important. and i join with the chairman in thanking these witnesses. >> thanks for your testimony. >> we have angela braly, cynthia miller. welcome. it's the policy of this committee -- signs down, please. before we get going, we aren't going to allow signs while we are trying to conduct this

hearing. no. no. no. just put them away. just put them away. very good. thank you. it's the policy of this subcommittee to take all testimony under oath. you have the right under the rules of the house to be represented by counsel. i'm going to ask you to please rise, raise your right hand and take the oath. >> ms. bfer braly. >> thank you, mr. chairman and members of the subcommittee for this opportunity to discuss

rising health care costs and the need for sustainable health care reform. this is a very important week for all americans. and i'm sure you join me in hoping that tomorrow's health summit will be the beginning of a truly constructive, positive process in which every american can have confidence. i'm especially pleased to have been invited to speak with you because i understand the burden that rising health care costs put on families. because of our role in health care, it is often insurers who have to deliver the bad news regarding expirealing health care costs. there is nothing i would like to do better than be able to report to our members that the medical cost trend is going down. that is why i appreciate the opportunity to explain why health care costs are rising not only in california, but across the country. the increases we're seeing in california are due to factors that we have been sounding the

alarm about for years, the rise in health care costs and healthy people opting out of the system when other issues arise, such as the tough economic times we are experiencing today. these led to the rate increases you are seeing from our company and others in california. rising health care costs are driven by many factors, including hospitals and other health care providers charging higher rates, new medical technology, underpayment by government programs, the growth in chronic diseases and conditions like obesity and an aging population. these increases are generally compounded when younger healthier members drop their insurance leaving those who most need health care to foot the bill. these issues are particularly acute in california, where our experience has been that medical inflation is in the double digits.

also in california, we're required to offer coverage through two new guaranteed issued programs which lost almost 70 million in 2009. those are important programs that serve an important purpose, but their costs are ultimately borne by other members in california. unless a ledgetive proposal addresses the fundamental issues, it cannot be considered sustainable health care reform. unfortunately, the leading proposals being discussed in washington don't do enough to control costs and don't do enough to get everyone into the system. we've put forward substantive proposals on both these fronts. my testimony submitted to the committee includes our specific suggestions on reform, but let me highlight just three. first, congress could address defensive medicine in inappropriate care by including meaningful medical malpractice reform in the legislation.

second, congress could also require that the principles of evidence-based medicine be used to guide how payments are made. while this may seem like a technical issue, it's these kinds of reform that could have a lasting impact on quality and costs. third, in reforming the health insurance market, congress must enact policies that ensure a broad and stable risk pool as they impose other requirements on the marketplace. we know that every facet of the health care system, hospitals, clinicians, manufacturers, drug companies, payers and we as americans contributes to the growth in health care costs and all need to be called upon to reduce these costs. out of every dollar the nation spends on health care, less than one penny goes to health care profits. isn't it time to ask, what are we going to do about the other 99 cents? unfortunately, the deals made with the drug companies,

hospitals, physician groups and labor unions left the legislative proposals considered thus far without the most important part, the core solution for lower costs, higher quality health care. rising health care costs frustrate all of us. it's a serious problem facing the country that deserves not only a serious discussion but meaningful action. wellpoint is eager to continue to participate in both. while it may be tempting to shift the blame to insurers for rising health care costs, to do so would be the triumph of sound bites over substance. insurers are among the least profitable part of the health care system and the part that helps the most in making it meaningful reduction in health care costs. insurance industry margins are dwarfed by the margins in health care. we need to focus on the areas where savings can be realized. the elephant in the room is the

growth of health care spending. despite the attention we have garnered, we are the tail on the elephant and we need to address the elephant. thank you for the opportunity to be here today. this is a critical time for our country and for the health care date. and i look forward to discussing with you ways in which we can work together to control rising health care costs. >> thank you. ms. miller. >> i have not a prepared statement. >> let me ask about wellpoint's motivations in increasing premiums. i have mentioned it and others have mentioned it. wellpoint's executives asserted that profits were not a motivating factor in raising premiums in california. in written testimony you indicated that you were disappointed that the critics cited profits as the primary reason that companies were increasing premiums. right there is a document book,

on tab 13. could you look at tab 13. it's an email that was sent on october 7 in response to a voice mail -- in fact, i think ms. miller, you left the message, senior corporate person wrote. the average increase is 23% and intended to return california to a target profit of 7%, versus 5% this year. so my question is, were you attempting to raise profits to 7% in california by increasing the premiums? was that the purpose behind this email? >> cindy miller was going to respond to that because it was to her. >> it's important to understand that email was during the process of setting the rates and it only refers to part of our california individual business. i think it makes reference to the fact that we had a 5% profit in that block. >> in the previous year? >> in 2009.

that did not turn out to be the case. we lost money in the individual market in 2009 on our california business. and the profit that we have targeted in the rate increases that we have asked to implement for 2010 is less than 2%. >> but the email said we have to get to 7%. we have to increase our premiums 7% so we can increase our profits. >> the rates weren't filed until november 7 and experience on that block created -- the medical claims continued to escalate. >> let me ask you about november 22, go to tab 22, on it, it's an email of november 2 and then you said you filed on november 7, from brian, regional vice president wrote, note, we are asking premiums that would put

us at $40 million earlier. he informed the president of consumer business that if we get the increases on time, we will see an op gain of 30 million after downgrades and rate cap. i guess my concern is, you say publicly we aren't increasing rates to increase our profits, but yet these emails indicate that you have to have a minimum increase in order to maintain profit. >> again, it's important to remember what i said, we lost money in the individual market in california in 2009. and that's not a sustainable business market. certainly, we are talking about profit increases in absolute dollars. but again, when you look at the profit margin that is built into the rates for 2010, it's less than a 2% profit margin. >> we have seen your interm

corporate documents that you use ed a variety of accounting mechanisms. we have seen at least five different accounting measures used to describe profits. the methods include pre-tax income, post-tax revenue, operating gains, underwriting margins and profits. if i remember correctly, wellpoint, at the end of 2009, last quarter, the last 90 days, their profit was 2.7 billion, something like that? >> let me speak to that because the fourth quarter of 2009 was the quarter in which we sold our pharmacy benefit management company and that's a company we had invested in for years. our belief was by selling that company and partnering with a pharmacy benefit management company, we could do the important thing that many of these panelists described, which is getting lower cost drugs for our members. and those earnings now are no

longer part of our company, because we have sold that. when you look at our total earnings for 2009 and look at our net margin, which is an appropriate measure to look at other elements, we were at 4.8%. that was our margin. >> was that in real dollars? 2009? >> that was about $2.83 billion. >> that was your profit in 2009, which is a year that everyone would consider was a horrible year economically in this country and hopefully 2010 will be better. but what i'm concerned about is hard-working americans are asking to increase your premiums to the wealth of wellpoint's investors. yesterday, you had the hearing yesterday in california on the rate increase and anthem president margollin defended the

profit margin during a hearing and he said it should be 2.5% to 5% figure is acceptable. he said we have no interest in profit beyond the range i described to you. 2.5% to 5% is reasonable in their appropriate profits. but when you your policy holders are taking a hit, people are self-employed, individuals, that group, basically self-employed people, they are taking a 30%, 40%, 50% hit and every year you are expecting profits. you have to have -- it would be great if we could guarantee every business a 2.5% to 5% market. >> over the five-year period, our profit margin continues to get decline. we continue to get more efficient and we are working

hard to reduce health care costs and improve access to high quality affordable health care. so it is important to be a business that sustains that we have an appropriate profit and we think 4.8% margin on a relative basis is very efficient. and when you look at that compared to others in the health care system, biotech companies are 23% profits, pharmaceuticals are in the 20% profits. we have a chart in our written testimony indicating that community-based hospital have profit margins. we are driving to get to more affordable health care for all our members. >> only way to get more affordable is to knock off these profits that are being paid for by the average american. i don't mind you making a profit, but at the end of the year, 2009, you made 2 point

something billion dollars. >> we feel it is appropriate for our business to be sustained so we can be there for those members when they incur the health care costs. we want to be solvent as an organization and to be able to continue to invest in ways in which we can get to a more affordable, higher quality health care equation. >> i don't mean to inject the health care debate in this whole deal, that's why we believe in the public option. you're killing the average consumer that can't afford anymore. we have to put an option up there. my time is way over. mr. burgess, you are up for questions. >> it's a shame we don't have the state actuary and you could prepare notes because you presented findings to the state board of insurance, is that correct? >> yes, my team is required to

do rate filings in which we certify that the rates meet the law and are reasonable. in addition, we had an independent outside firm, probably the most respected firm in the country verified that they thought our rates were appropriate. >> and those went to state regulators? >> yes. >> when was that? >> on november 7. the regulators -- the independent actuary reviewed the filing in mid-november and issued a letter on december 15 that they believed our rates were appropriate. >> is it possible to provide this committee with a copy of that letter? do we have that in our evidence binder somewhere? >> i believe so. >> we could get a copy of that? >> we may already have it. it's not in the evidence binder. >> what was the response of the state regulators to the information they were provided? this is outrageous, how dare

you? >> by law, the state is supposed to respond within 30 days to the filing. we heard nothing from the state until actually christmas eve. and on christmas eve, we got several questions from the actuary about one of the products, smart sense product. we responded to those questions and then we heard nothing else from the department of insurance until the news broke of the rate increases in the "l.a. times"." >> you know, you had to know this was going to be trouble, 39% rate increase. you know what we have been doing up here the last year? you know what is happening at the white house tomorrow? you knew this was going to be trouble. you did the report on christmas eve. you know what else happened on christmas eve? they passed the bill in the senate. you knew the landscape, correct? >> correct. >> did you make a judgment as to whether or not this was the best time to do this?

>> it is always a challenging issue to raise rates. and to address the issue that many have brought up, our desire is to have more members. our goal is to continue to serve members and have more members. it's not easy. it's difficult to continue to have to raise rates. the process was under way. clearly, the rates had been filed. we had had this certification -- >> i'm going to run out of time. you see how mean he is? when we talk about the rate increases, we talked about a curbon to allow for negotiation margin expansion. we ask for twice for what we need, hoping they'll give us half. did you file this with a cushion, this 39%? >> i think it's important to note that when you look at the individual products in california, because of our participation in the hipaa and what's called the high-risk pool

option, we did have in 2009 a 68.9 million loss. when combined with the individuals who buy the product in the open market, our loss was about $10 million. so when we priced this product for the rates for 2010 that were filed with the department, they assumed we would have a margin of about 2.4% or after-tax margin of 1.4%. >> and you felt that even though you knew you were going to get significant negative publicity because of those facts, you would be able to justify what the rates were? >> the rates -- >> you knew you would get bad publicity? >> it's a difficult situation and even to break even, the rates would have been in the 20's in terms of overall average. and we were concerned, which is why we also capped the rates at

the top end of 39%, because we did not want rates for individuals to go in excess of that cap. >> i'm going to run out of time, do you have doctors who are uncon shonbly raising their rates in your network? my experience is we took what you gave us, we didn't negotiate with all due respect to the chairman, medicare sets the rates and you guys say we will pay a percentage of medicare, take it or leave it and that is the so-called negotiation that we went through. is california different from texas? >> we can talk about the physician trend versus the hospital trend, a much more significant driver. and pharmaceutical trend -- >> if you took all physician reimbursement off the table, you would have a one-time savings, from what i read, anywhere between 5% and 18%. it's not the biggest driver in your book of business, i

suspect. >> the physician trend is around 6% in california. and so the hospital trend is 10% and the pharmacy trend is 13%. >> all of the expenditures do flow through the prescription. the patient doesn't get the treatment or the prescription. so although there are small parts of the cash outlays, they tend to be a driver or constrictor of costs. i have wondered why we try to ratchet down physician payment. doctors are normal people in say we're go go to ratchet this down. we try to catch up. therefore, we see more patients order more tests and write more prescriptions in order to pay our overhead. have you looked at a corporate level of maybe if we paid doctors differently, we could get control of this cost curve? >> absolutely.

the partnership with doctors is the key to changing the reimbursement system, so we are paying for outcomes. >> pete stark won't allow that interaction to occur, right, that partnership between doctors, insurers and hospitals? >> that is an important part of the future of the reimbursement system, to partner with doctors, to look at different ways to reimburse. >> we can't. we'd all go to jail. that's off the table. is there any other way? >> already elements around medical malpractice reform. if they follow evidence-based medicine, the question you raised, the most expensive thing is the pen in the doctor's hands, if we could protect the doctors and be able to focus on evidence-based medicine, then i think we'll get at those procedures or those tests or tools that may be used

successfully. >> in tomorrow's discussion, we aren't going to talk about tort reform, i don't think, we'll say caps and they'll say no way and that will be the end of the discussion. >> thank you, mr. burgess. mr. chairman, mr. waxman. >> thank you very much. california has a tort reform law. we have the law that the american medical association would like to have for the rest of the country. are you saying that's held down costs in california? >> clearly, the cost in california continue to rise and we have a number of issues that relate to health care costs in california. for example -- >> i don't want to know all the issues, you said if we had a medical malpractice system that would be one way to hold down costs. california has one and hasn't been sufficient to hold down costs to keep you from raising premiums. you asked for a 25% increase. you said, raising our premium was not something we wanted to do, so your senior executives at

wellpoint determined that a rate increase averaging approximately 25% was necessary, is that right? >> that's correct. >> now, i would like to ask you about a document produced from your internal files at wellpoint. on october 24, 2009, mr. shane, senior wellpoint ack you area, e mailed the head of wellpoint's individual market division and let me put that up. wellpoint executive must reach agreement on a filing strategy quickly, specifically in the area of do we file with a cushion aloug for negotiations or file at a lower level that does not allow for negotiations. this email says that you were considering filing a rate increase that was padded because you expected california to reduce your proposed increase. is that an accurate conclusion to reach? >> i don't believe so.

cindy described these emails earlier in the process. there was a question of what the medical trend would be. what we filed did have a margin of 2.4% or 1.4%. and it reflected the trend that we were experiencing in california. so it was not a cushion in the rate that was filed. >> it's hard to understand these words differently, because the words say, a cushion allowed for negotiation. you decided you needed 25%, but it sounds like you were willing to go to 20%. there was a presentation prepared for your board of directors. the presentation outlined wellpoint's strategic plan for individual line of business for 2010. let me put that slide up on the board. this slide is titled key assumption individual pricing. it is between the rate asked and the actual rate increase you are

assuming for 2010. according to this slide, 2010 rate asked is listed as 25% to 26%, but the assumed 2010 rate increase is just 20%. this seems to say that you were asking for a 25% increase, but expected to see that lowered to 20% through negotiations. that sounds like padding. how do you respond? >> i'll respond to that since my team is responsible for the rate filings. it's important to note this was prepared before the rate filing before the rates were finalized. and it recognized the fact the particular reality that departments of insurance have political pressures and often will change rates in response to those pressures. what turned out to happen is that medical costs continue to escalate through the latter part, the last three months of 2009, and the 25% rate increase became necessary to achieve, as angela said, a profit margin of

less than 2% on an after-tax basis. >> what you're saying, you were prepared to ask for a rate higher than what you needed as a negotiating tool. you could have anticipated that rates were going to go up but you had to make a decision that you wanted an average increase of 25% but you were looking at an average increase of 20%. the document says assume two-month approval delay. this says exactly the same thing as the presentation to your board. it says you are asking for more than you need because you built in a large cushion. here's what i think is going on. you are raising your rates far above what's necessary. you are trying to squeeze every dollar of profit out of policy holders in california and across the nation. and at a time when families across the nation are struggling to pay their bills, you are trying to charge them inflated rates to support salaries and the trips and retreats and

everything else. >> mr. chairman, we have described that in 2009 in the individual business in california, our prices were not adequate to cover the losses, for example, in the guaranteed shoe part of the products that are required to be covered and we had a loss. our pricing that was filed and reviewed and evaluated by other ack you areas -- >> the state actuaries? >> they came in -- >> you indicated you are trying to be more efficient to hold down the costs. is the biggest thing trying to shift people on to plans so they have to come up with more money? >> we could be making less money when members shift to products that have less benefits. our goal is to make sure that we have prourkt offerings -- >> we heard three witnesses this

morning, all three of them seem reasonably healthy but were told they were going to get a 39% increase, not the average of 25%. 39% increase. but they could get a plan that would cost less but pay more out of pocket for their drugs because you wouldn't cover the brand name drugs. is that efficient? >> what we do is we try to make sure that the customer can get access to a product that they want and afford and provides them the benefits they need. >> they would like to have what they have been paying for. and there are increases every year. >> as reflected, as the pool of insured changes because sometimes healthy, younger individuals leave and we have people that stay in the pool that are more expensive. the costs overall of the pool continues to go up. >> you would argue that we need a pool that includes everybody,

is that correct? >> correct. >> therefore, if you are pooling people together, then you don't need these individual risk analysis, because you are spreading the costs? >> we are an advocate for reform that would include the elimination of pre existing conditions, providing there is a mechanism to keep everyone in the pool. >> that's what the bill does that passed the house and the senate and that's what the president has been calling for. let's get everybody insured and let's pur them in a pool and then you spread the risk. what the individual insurance markets seem to be doing is, if you've got an illness, you aren't going to be considered for consideration. if you are in the plan and you've got some illnesses, we're not going to drop you but shift you to another plan where you pay more money out of pocket. and your individualizing insurance so that the individual has no leverage to pay what you

you ask or drop down to something else. >> it's not based on an individual's health status but based who is in the pool. i think it is important, the concept and the goal was to eliminate pre-existing and get everyone in the pool. but what happened in both of the bills that we've seen is that the effectiveness of keeping someone in the pool really fell apart towards -- as the legislation was moving forward and the great concern was you wouldn't keep everyone in the pool because you don't have the right neck nisms in place. >> what would you -- mechanisms in place. >> what would you do? >> a continuing coverage requirement. >> somebody says, i don't want uáu do? what would you do when they say i can't afford it. >> there should be an effective penaltyy of some sort that catches all individuals and a requirement to have continuous coverage because people jump in

and out of coverage. and in massachusetts where there is a mandate, jump in, consume health care, and the costs continue to escalate because they dealt with coverage and not costs. >> we tried in that house bill to cover everybody and require that everybody get coverage, spread the costs out and we didn't get a lot of support from the insurance industry for the house bill, let alone the senate bill. i have gone way beyond my time, thank you, mr. chairman. >> ms. schakowsky. >> i would like to add to the record a letter that she wrote february 11 to ms. and gela br aly. i ask unanimous consent. in the letter that representative eshoo wrote, she

quotes from your anthem blue cross unit in an email message urging your employees to oppose health care reform. and it's reported to have said that reform proposals would, quote, cause tens of millions of americans to lose their private coverage. and she makes the point that the 39% rate increase flies in the face of this concern for those who would supposedly lose coverage. could you respond. >> i would be happy to. we are concerned with the legislation that was being proposed, because we didn't feel like it addressed that concept of addressing, getting everyone in the pool, combined with other changes proposed, including changing the age rating that our analysis, our ackturel installs.

>> what is the age rating you used? >> it various by state and cindy could give details for california. we found that individuals, young individuals in california would see in excess of 106% rate increase, and that was before trend. so that would be an addition to the rising health care costs that we saw as well. >> i would like to -- you began by talking about how happy you would be to be here to talk about rate increases. i want you to remind you the name of this hearing, premium increases by anthem blue cross in the individual health insurance market. what i expected you was not to come and lecture us, but actually to explain to us, and a good start would have been to answer some of the concerns -- i don't know if you were here for

the testimony of year emmy arnold, who talked about a whopping 74% increase that he has experienced or julie henriksen who i calculated pays $3400 a year. if i heard you correctly, you said you never even met the deductible. you paid this amount but didn't get any benefit from the health insurance, because you didn't meet the deductible or respond -- and it would be nice if you would, because she wrote you letters, talking about how she realized that for months she had been paying for a costly, unnecessary benefit, switched plans and finally did get a letter that her premiums were going to be raised 38%, although

she could change to a lesser coverage and pay only 16%. isn't that fabulous? i do have a couple of questions, but i want to tell you something, that i think that a 39% rate increase at a time when people, americans are losing their jobs, losing their health care is so incredibly awe dasheous, so irresponsible. we see these lavish retreat places, i would be interested to know what your salary is as the c.e.o., incredible c.e.o. salaries. some make over $1 million a year at your company -- how much money do you make? >> my salary is $1.1 million.

i receive stock compensation with a value of $8.5 million and last year an annual incentive payment of $73,000. >> it makes sense then that you would need a big rate increase now that you've told us that. i want to know -- i know that -- you said in your written testimony that anthem blue cross profit margin is in line and below that of many of your competitors. can you name any california competitors who have raised their rates up to 39%. >> we believe that a number of our competitors have raised rates. in fact, in the individual market, there are products are available. our products are competitively priced and lower priced in profit and not-for-profit.

>> they got approved by the commission for more than 39%. >> we are a very efficient company on a relative basis and our administrative costs continue to go down. so we do have very competitive rates in the marketplace. many times, they are less expensive than other products that are currently available. there are a number of competitors in california and our rates are quite competitive in the marketplace. if i could address your earlier question -- >> no. i have another question. has your company met the legal requirement to use 70% of premiums collected in the individual market for the payment of medical claims? >> yes. we have submitted those filings and believe they are compliant with the requirement. you have to keep in mind that product is the product sold in the commercial market, that the losses that are incurred in the hipaa and the graduate program, are borne in that marketplace as well. so in the end, the individual

marketplace loss in 2009 and would produce 1.4%. >> when you figure your profits, you don't figure it across the company, you look at the profits made or loss in the individual market? >> there is a very important reason to make sure you price the products for the costs that are being incurred in those products. and you might talk about the potential -- >> i don't want to hear about that, because it seems to me that when you have a company that's providing not widgeets and not some luxury item, but health care, it might make sense to look across the whole company to see what kind of profits because people in the individual market are often least able to come up with these very high rates. what would you think about an 80% medical loss ratio? >> it is 82.6% for 2009. one thing that's important about

the individual market, we, in some states, where there has been regulation that really tries to restrict the ability to raise rates, all the competition has left. we are blue cross/blue shield, in maine, there were 11 carriers in maine, offering products in the individual market. now there is us and another that is not a national competitor, because we are blue cross and we have geography license you are and don't want to leave the market. we want to make sure it is viable to continue their costs so as they incur health care costs, we are there to provide for those health care costs. >> i yield. >> mr. welch from vermont for questions. >> thank you, mr. chairman. ms. braly, we did hear from policy holders who had high rate

increases. they were being raised 38%. third had a rate notification increase of 30%. all of those were markedly higher than the average increase at wellpoint that you have reported publicly. and the current rate increases put the policy holder in a tough position. they could drop insurance all together or try to get a much less comprehensive policy. and i would like to show you and ms. miller, a document that suggests these rate increases would be much higher in the future. find this chart at tab 7 of the document binder. and this is, as you know, wellpoint internal analysis of the potential rate increases, which was included as part of the individual leadership pricing memo. document providing recommendations and analyses about the individual market in california. and i would like to put this document on the screen. do we have that document up?

thank you. ms. miller, as wellpoint's chief actuary. i want to make certain i understand the three scenarios proposed. scenario one -- and i don't think this is on the screen -- appears to propose that wellpoint make no change in s.a.f.'s or rate increase caps, right? >> that's correct. >> and scenario appears to propose a rate reduction after accounting for age. am i reading that correctly? .

i could be receiving a 228% increase in my premium costs. right? >> yes. i would like to point out these are listed scenarios. you start by looking at the rate increases. this would have been the starting point and it's meant to illustrate that if we didn't cap these would be the increases. we did in fact cap the rates. this was in order to illustrate

how dramatic some of the increases would be. >> and i get that. you're saying if you had caps off by your analysis you might actually in order to maintain using ms. brailleie's language a viable marketplace would require you to raise my premium to -- by 228%. that's the problem. that's where we're headed. do you consider ms. bralie that it's a viable marketplace if a machine tool industry who has got 15 machine tool company of 15 workers that they've been loyal to and the workers have been loyal to them and they're trying to hang on the jobs and health bin fits they get a notice in the mail saying they're going to get a 228 premium increase sustainable? >> absolutely not. which is why we need to focus on the rising health care costs and we think we're an important part of that mechanism and health care.

there's a business model working for you as an insurer so that you can pay your salaries, maintain your bottom line but it's coming out of the great expense to other people. >> our administrative expense really does focus on disease management. we have 2500 nurses who work with our customers to make sure they're getting if benefits. >> i don't mean to interrupt. we've got a situation here that your own internal analysis suggest it is conclusion it's not sustainable. if left to strict market place interpretation of what is quote market viability, market viability in orer that being as i understand it what you would have to charge in order to

maintain the financial solvesy of your business, if that requires charging that machine tool company 228%, that's not a market that is viable to anybody who is on the receiving end of that premium rate increase. so it's suggested the market model we have is fundamentally broken. >> we agree we need a sustainable solution, particularly in the individual market where we see these issues extremely in terms of the rate increases, which is why we're an advocate. >> so you are in agreement with the proposition that i made that the current insurance model is fundamentally broken where the premiums are going up potentially 228%. >> we need to continue to create an opportunity for consumers to be better purchasers of health care and

understand the dynamics which we're doing as well as continue to innovate around how we fundamentally change the reimbursement of >> you think the consumer can be a better purchaser. when you send out your premium notice, potentially 228%, and someone calls do you negotiate the rate with them? >> we have a mechanism where we do work with our customers to make sure that they can get oods product potentially that they can afford or that has benefits that they want or need. or, not the benefits that they don't want or need. >> literally, again, i'm not -- >> go ahead and finish it up. >> well, i think the point's been made here. thank you, mr. chairman. >> thank you. ms. capps for questions, please. thanks for being here today, too. >> thank you, mr. chairman. it's an honor to be with your subcommittee. and i see a couple of the members of the previous panel before i address the current

panel. i just want to say thank you for being such wonderful witnesses. you spoke for a lot of my constituents. i represent a district on the central coast of california and their stories are so similar to yours. and you are very eloquent. i had to leave and so i wasn't able to say that to you and allow you to expound even more. but to this panel. listening to a couple of my colleagues and your responses to them, just makes the case for me as one member of congress that we really do need a lot more competition within the insurance, health insurance market. here's a story from one of my constituents. in a quote. we as many others, she writes, have received notice from anthem that our health insurance premium will increase by 30% starting march 1. my husband and i are both self-employed. we currently afford a ppo with a deductable and now antsdzen is offering a 7500 deductible.

if anything serious happens to our health we lose everything to pay our medical bills even though we technically have insurance. here's another constituent. i'm 61-year-old male with an individual health insurance from anthem blue cross. i just received a notice of a rate increase from $6 16 a month to $7881 a month. another -- $881. another says the premium is going up from $545 per month to $712 as of march 1. i want you to be aware of this 30% hike in insurance rates. ms. braly, these are hard working people, i know, who have no choice but to purchase health insurance on the individual market. yet, it doesn't seem like they get much for it. you claim you must raise prices in order to make up for healthy people who drop out of the system. but isn't it true that you've long engaged in the practice of recission? i know that you have.

i'm we will aware that antsm has been fined for doing that in year's past. and knowing that it may well drop me as a consumer, who in the event that i would become sick is certainly not an attrackive enticement for me to as a healthy customer to join force soss that you can help to keep your costs down. you don't market yourself very well. at a time when yur company is bringing in record profits but when the rest of our economy is suffering, i want to know what steps you're going to take now to make quality health insurance products affordable to the people like my constituents who want to be responsible and want to purchase health insurance but just can't do that? do you want to respond quickly? >> thank you for the opportunity to talk about what we are doing to try to make health care premiums more affordable. for example, when we negotiate with hospitals in california, our goal is to have zero increases. often those hospitals come to

us requesting a 40% increase and if there's not competition among hospitals the regulators have said that it is inappropriate for us to terminate those hospitals from our network because then we would have an access problem. so as a result, we don't have the ability to not agree to those very high rate increases from the hospitals. so we are going to continue to fight on behalf of our customers to make sure that the health care that they are receiving is affordable and high quality. and it's a difficult fight. it's one that we keep doing. it's why we sold our benefit management company so we could get access to lower costs because those costs are driving the overall increase. >> so you're shifting the blame to the hospitals. >> we are working together to make sure there's -- >> there's nodsing in your own system that you can find flaws with? >> if you look at our

efficiency ratio, we continue to improve our efficiency as an organization while we provide more services in terms of getting to that underlying health care cost. >> well. >> so we will continue to do that. >> i'm going to again address the topic that has come up when i saw slides shown of the places where you hold your retreats. this is a sticking point. it's not the whole story but it's one that because it's so visible that it's pretty galing for people who have had to sacrifice their vacations now for the past two or three years because of the economy and what it's doing to their personal lives. and yet, now, i'm going to finish and then i want to give you the rest of the time to respond. you have continued to make these retreats a part of your working relationship and offering these to your employees. consumers are making sacrifices in order to hold on to their health insurance as the premiums go up. and as they face being denied. these retreats hold more way

with your company than the health and welcome backing -- well being of your subscribers. >> those meet vgs been characterized for our retreats for our associates. and that is incorrect. those meetings that were described are meetings that we have with our customers, meetings -- >> which customers? >> often i meet quarterly with representatives for our customers, our customer advisory group. and we -- who are those people? >> they are representatives from our customers. so business people who buy the ben depits on behalf of group customers. >> so you're selling your benefits at those lavish resorts. >> we are meeting with brokers and agents. you heard one of the panelists say she was going to work with her agent. >> i asked who her agent was when she was trying to get ahold of her. >> we make sure that our agents and brokers consultants and customers know what our benefits are, know what plans and services we can provide to them. we just --

>> and you justify that cost as you are raising the premium. >> no. we continue to focus on making sure we are more efficient. we do need to meet with people that are agets, brokesirs and customers and we find that they provide input to us in terms of how we can provide the services and improve. >> do you ever meet with your premium hold sners do you ever talk with them? >> doy. and i'm delighted to and appreciate the opportunity the when i get to. and, yes, -- >> you hear their stories in? >> it is a challenge. believe me, we are on their side. we want to -- >> they don't feel lite i can. >> and we want them to understand there's so much more information about what is driving these premium increases. and i think it's important for people to understand the margins that are available to pharmaceutical companies and in hospitals and where we stand on a relative basis, because we're fighting every day to make sure we can make their health benefits more affordable.

>> thank you, mr. chairman. >> thank you. there was a request earlier that a letter dated february 11, 2010 from ana eshoe member of this committee and member of congress to ms. bralie be entered into the record. without objection. the second round of question pls waxman. >> thank you, mr. chairman. you said a couple of times you want to make health care services for your ben fish riss -- beneficiaries, you want to provide more services for them. you want to provide more efficient services, good services for them. is that what you've been saying? >> yes. >> you see that as rain shower role? >> we see that -- as your role. >> we see access affordable quality health care. and by providing those service that is we do, we think that creates real value for the customer. >> some of these paint a different picture. there's a document that's titled wellpoint individual

2010 plan opportunities not reflected in the forecast. so you have, it's a business plan. and under this business plan, there is a section called risk management. and it says our medical loss ratios should improve as we eliminate subsidies and other risk management initiatives. and then you have a number. one is to take preexisting waiting periods and adjust them to be either 12 months or the league maximum if less. you want to make sure that they have to wait if they have a preexisting condition to wait as long as the maximum will allow. secondly, reinstatements will only be allowed for a period of 06 days after 60 days and will require payment of back premiums. that will make it difficult for people to get access to this good quality care.

does wellpoint have initiatives to reduce the amount of premium dollars that are used to pay for medical claims? >> we have a number of initiatives to try to reduce medical costs, period. >> how about to reduce not just medical costs but medical services? >> we want to make sure that our members get access to the quality care they need in the right setting at the right time. so if we're avoiding a fraudulent expense or an unnecessary expense, yes, we want to -- >> you're saying people have preexisting conditions. you're going to make them wait as long as possible before they get care. and there's another document that let me put it up on the screen, it's tab 14. and this document wellpoint executives identify key issues confronting the individual market and they stated lack of attention to risk management decreased ability to use preexisting claim deniles, and rescind policies, and maternity

policies have led to our first year loss ratios climbing from less than 50% five years ago to over 65%. so these seem to indicate that senior scutejives are actively considering steps to reduce the amount of premium benefits that are used to pay for medical claims. if you're going to reduce payment for claims, you are reducing payment for claims for legitimate medical services. >> we're trying to make sure that the pool of members that we have is not disvadged in the marketplace. one of the reasons that our rates are going up so much in 2010 is that healthy people are making the choice when faced with the hardship of the premium increases they're seeing, we recognize -- >> what does a medical loss ratio mean? >> what's a medical loss ratio? >> what does that mean? >> it's the claims paid, the medical claims paid divided by

the premium. >> so you're trying to reduce the amount of claims that you will pay for people in order to make sure that you are still within the medical loss ratio but you can reduce the claims for people. isn't that right? >> no. you can't reduce claims without changing your medical loss ratio. that's not possible. >> well, if you're looking for ways as a business strategy to manage the risks, these all sound very nice. managing the risk. and then the ways you do that is to deny people access to care so you don't have to pay for that care for a longer period of time, that sounds like you want to make sure that you've got less money going into paying for care. >> specifically in the individual market in california there is a minimum loss ratio requirement that we comply with. in fact, in the hipa and guarantee issue products that

we described the medical loss ratios or medical cost ratios exceed by far the premium increases that we can provide. >> the reason you have a medical loss ratio is we want to guarantee that insurance companies are using premium dollars to pay for medical care for the disgust mers and not for overhead corporate expenses and profits. >> which is why our >> it sounds like your people are looking at business strategies to reduce the amount of payment of the premium dollars for medical care for the customers. >> actually, if we take some of the those risk management ideas, we can potentially reduce the cost for the overall pool and therefore not have the -- >> but for the individual involved, that individual is not going to have access to more efficient care. they're not going to have access to good services. they're not going to have access at all because you're going to hold down the cost for the overall pool. that individual is going to have to go without or pay for

the services that you wouldn't otherwise pay for. >> that's one of the critical elements about reform. if an individual doesn't buy his or her policy when they're well, and there is an underwritten market that if we allow them like we do in some markets where we have guarantee issue like new york and maine to wait until they're sick to buy the policy, then they won't buy the policy. >> nobody wants to do that. but you've got people covered and your business -- and you can't drop them because the law won't let you drop them. and you've got people covered and then you want to shift more costs on to them and use more of the premiums for overhead instead of for services. what i think we need is meaningful health reform to guarantee that the insurance companies are using premium dollars to pay for medical care for the customers. and not for the overhead corporate expenses and profits. what is the -- in the bill what do we have, 80% requirement

that the money collected by premiums by f be used to pay for health insurance claims. >> correct. >> you're 85%. you don't do that now. do you? >> we're at 82.6%. i want to address that question. when every administrative dollar that we spend, we want to produce a lower cost of care as a result of that. so we make investment in things like -- are you you don't. you produce a certain amount to meet the ratio and certain amount to make sure that you're meeting your expenses and your profits. but people are being denied care. and that's why i think health insurance reform is so necessary and i dispute your statement although i don't have time to go into it that this bill does not bring more people into the pool. an individual has no power to deal with you but if they're pooled together with others, then those people have the opportunity under health care

legislation to say we want to make sure that 85% of the money that you collect from us pays our health care claims, not more money going to retreats and expenses andñr salaries. we want it for that purpose. and then you can spread the costs out. thank you, mr. chairman. >> mr. burgess for questions, please. >> thank you. let me just clarify. under ama's site last night, of course they're not your biggest ally or fan, but they reported a medical loss ratio for well point at 84.8%, which is right at that 85% figure that was mandated in the bill. why is that for the whole company and it's different in california? >> they may be looking at statutory financial statements versus gap, the gap statements show per year end we were at 82.6, which is an enterprise wide. so i'm not sure exactly where they're 84.8.

>> they tweeted it so i know it's right. let me ask you a question. i thought blue cross was a nonprofit. we have all this discussion of profits today. i always thought that blue cross was a nonprofit. >> there are many companies who have blue cross livesances. we are a for profit company. but sometimes in excess of ours. because we come together as former blue cross intnt states we've created a lot of efficiency and scale at well point so we're a more efficient blue cross plan. but we're a for profit. >> one of the areas, i'm sorry mr. waxman is gone but one of the areas where i disagree with mr. waxman but you agree with him is that we need a mandate, an enforceable mandate, a rigid mandate in this health care bill. mandates are an anats ma in a free society. my position is they do not work.

we have a tremendous mant date right now with the i.r.s. everybody knows you vi to pay your tax but you know it's bad and you don't want to find out the penalties. and our compliance with the i.r.s. is about 85%. well, we have 15% of people uninsured in a voluntary system in this country so i don't know how much more compliance we get by going to a mandate and yet we ask honest people to give up significant freedoms when we did the medicare part d program several years ago and part of my job as a member of congress was to go out and talk to people about the changes coming to medicare. and i can't tell you the number of people who tell me you can't make me take that prescription drug benefit. no, ma'am, i'm not here to make you take it. it's there for you if you want it. well, you can't make me take it. that's right, you can do what you're doing right now and that'sñrçó ofpblgt you can't ma me take it. what are you doing right now? i don't have drug coverage.

you can keep it. you can keep that noncoverage as long as you want. now, there was a penalty involved and we got a lot of criticism for that that if you didn't sign up in the open enrollment period which was six months after the nishyakes, that people would pay a 10% premium for coming not the system after they got sick because we were trying to make it look more like insurance and less like entitlement. and medicare part d has provided a benefit now to 92 or 93% of seniors have a credible prescription drug coverage of some sort and 92 or 93% are satisfied or very satisfied. so that's a pretty good track record. now, we did that without a mandate. and the model that we follow in my opinion is that model which is to create programs people want. if you get a mandate, which is a program you want, but if you get a mandate then there's no reason for you to try to compete for that, for any of these subscribers' business.

and yet, how much better would it be if you said but we're going to create programs that people want and will want to stay with us over time? i wish i could have a long tudenal relationship with my health insurance company. i have with my car insurance since i was 18. but health insurance you shop around every year to get the best deal when you're in small business or your employer does. and as a consequence you don't get to keep your insurer over time. one of the reasons i went with a high deductible company, so i could. we're far better off if we construct programs that people want rather than telling them what they have to have. now, you've got and i think it's come up that increases in the california individual market could be as much as 106% under the confines of the the house passed bill. and that's a signature fig significant figure. mr. stupak is correct. at some point, the cost of

those benefits is going to go up and the trutes is noçó one really knows because we do these budget scores but noñi on really knows. look how far off the mark we were when we passed 1965 with what it costs us today. and mr. waxman talks about your medical loss ratio. look at our unfunded liabilityñ inñr medicare and med maid? that's what's staring people in the face. we have a lot of problems to fix. we've got a much bigger problem staring us in the face which is the unfunded obligation that we have with our existing public options that those bills are going to come due before any of us had planned and we've got that's really where we need to be focusing right now. we're not doing our part very well right now with medicare and medicaid before 50% of the market that we pay for right now. we're asking to go to 75% of the federal level. that's a big ask for the american people. that's why we're getting so much pushback on this bill.

they don't think we're doing a good job now and they don't want to give us another 25% of that market. thank you, mr. chairman. >> thank you, mr. burgess. let me just as a wrapup a couple questions. ms. braly, you indicated that the drivers for this increase, the 39% increase you're seeking, doctors were 6%, hospital was 4%, and pharmaceutical 13%. >> hospital trend is about 10%. the physician trend is 6, and the pharmaceutical is 13 for california for the 2010 rates. >> that's about 29%. so that leave 10% for administrative costs? >> no. cindy can take you through the different elements that went into the price increases. >> i'm trying to keep this simple so people like me can understand how you come up with 39 if you're projected, and these are all projected right? doctors 67%, hospital 103r9s. what's the over driver? >> the trend i'm describing the

trend in each of those elements. >> so you're 39% and you're looking for a guest mation of what you're going to need? >> no. cindy can give you more detail in terms of how we got to the 39% because you have rising health care costs, you also have what we call adverse collection due to the fact that a lot of the -- >> submit it for the record. but what is the driver then? doctors? pharmaceutical, hospital. what else? >> correct. we also having adverse selection meaning the healthy people, their premium is going away. >> how many healthy people did you have last year in your individual policies? >> you know, we look at -- >> how many people. just how many people did you have? >> we had -- >> how many people do you have in your individual? >> we're expecting 25,000 on the aggregate basis between the two companies left. >> so -- but the individual policies, how many left are you going to have?

>> about 25,000 less we think. what happens in the -- >> no. i understand. >> a lot of people come in and out because they go into group policies. >> and because they can't afford it. a lot of people in this country every year go bare because they just can't afford it. >> which is a -- >> they get unemployed or whatever. >> we want that customer and we want that custmore to have coverage. >> ok. you indicated for 2009 your corporate profits were almost $2 bt 4 billion because you sold a management company. right? >> well, we sold a pbm and we have operating earnings as well. >> what was your company profit then in 2008? >> our profit margin was 4.8% on a relatively similar base. so actually the margin was -- 4.6 in 2008, 4.8 isñi our overa margin inb >> so that's about the same as

2009. >> yes. >> so what would that be in dollar science in 2008? >> we probably had 62 billion worth of revenue total. so not a dissimilar number.ñimy >> so 2.4. >> we can get you the exact. >> so 2010 then would youçó anticipate giin aroundñi $15çóç billion? >>ñiñr 15 billion? >> isn't that what you said? >> no. >> go ahead. 2.10. >> we're going to have lower operating earnings in 2010 as a reflection of the economy and the loss of our membership. >> but your profit will probably be what 4.8%? >> we expect it to be in the same range potentially. yes. >> so you're always expecting at least for the lastñr three years your profitçó will be the same? >> it's been pretty steady in that range. 4.6, 4.8. which on a relative basis to other parts of health care and

many other industries it's very modest. >> well, you may think it's modest. but if you're looking at a 39% increase, or in michigan where they propose 56 increase, that's not modest. that's not me're not blue cross michigan. >> i know you're not. michigan blue cross blue shield is a nonprofit, you're a nonprofit. >> we're a for profit. >> i'm sorry. you're in maine though. right you said? and they've had double digit increases. you've mentioned earlier about maine. >> maine is one of t ñ places where we're one of the few players left in the individual market because others have left the market. >> and less players in the market, the easier to manipulate that market. >> in fact. >> because of your sheer size. >> what has happened is because the regulatory environment in maine and particularly in the individual market was regulated in the way it was, everyone left except for us. we're blue cross. we're not going to leave.

we're going to stay in our geography and continue to serve our members. >> well, maine expects to be 23% this year. right? >> we filed for a rate increase in maine. the maine regulator has denied that and we are in litigation with theñiñi maine regulators a the ability as provided in the statute to have an appropriate margin. >> how about in maine then? is your doctor cost there 6% or less? >> in maine the doctor costs are high and compared it's one of the most highly -- >> is it 6% like california? i'm looking for your driver in maine. you have your drivers in california, which is doctors, hospital. >> but i can take that question, mr. chairman. the drivers in -- >> in maine what sit there? >> off the top of my head i don't know the exact trends. the driver in maine is thathes it's a guaranteed issue and there's no requirement for people -- >> well, guaranteed issue. >> so people wait until they're

sick to purchase coverage and drive up the cost of care. >> guarantee issue is you're guaranteed to present the policy and then it's up to the consumer whether or not they can afford it. we call it purging in the business world. >> only people who know they're going to incur health care costs more than the premium buy the policy. and that's not a sustainable business model. and that's why all the others left the state because they were forced to lose money in that business. >> that's not what the last panel said. they don't take insurance because they expect to gain more than what they pay. in fact, our last panel, they never really access it because you have such high deductibles and co-pays and everything else. >> well, overwrussically there are people who are using the coverage because we jords wise our medical loss ratio would be zero. that's insurance. you buy it when you don't need it so that it will be there when you do need it. and if everybody waits until they need to it buy it we result in the situation that we have today in the individual marketplace where we have a

sclating insurance costs. which is again why we've talked about the fact that we needñiñi sustainable health care reform. we need to address not the insurance market reforms which we agree need to occur bu(ñ you also have toñi address the underlying cost of care. we're only charging what the costs that come through to us. >> well, i still don't see how you justify 39%. got up to 29% in your drivers and your -- >> 39% was the high. the average was 25. >> right. >> and cindy talk about each element. >> it's amazing we had three witnesses, they're all at 39%. >> but. >> but you're saying the average. >> i don't know how the panelists were selected. again, we don't like raising our rates that much. we know it's a hardship on these people. but at the end of the day -- >> do you believe that you can actually raise your rates where no one is going to want to take your policy any more? >> pardon? >> do you think you're going to finally get to the point where basically you're killing the

goose that laid the golden egg, no one is going to afford you? >> it is really an issue that we have got to get to the underlying cost of care, because we want access to health care. it is, there are wonderful advances, wonderful technologies and we want to make sure that we continue to have access and our customers continue to have acss. and it needs to be affordable. and so we have to think about how -- >> do you believe there's going to be a point where we can no longer appoint it? >> wing we as human beings greatly access our health care. which is why we continue -- >> i agree. and every family has to make a value judgment, can i afford it. so when my rates go up 39%, we look at it and pretty soon it's going to be can i afford it any more or do i just drop it and hope i don't get sick. >> which is why we're in the market saying we have to get to reducing health care costs, making sure that people aren't getting unnecessary procedures or redundant procedures. we play that important role in health care. to eliminate us from the

process eliminates the opportunity to get to that value equation without us -- >> i don't disagree. but for the average family sitting there and saying my rates went up 39% or the average in your case 25%, and man i can't afford it any more, it's as much as my house payment, and then i look at tend of the year and darn it you made $2.358 billion and the salaries are in millions of dollars for the executives. how can i sustain that? because i'm the one who paid it. and you're getting to the point where no one can afford it. >> and we are serving 34 million americans across the country. and our goal and desire is to try to get to afford them affordable health benefits that they can continue to access, the quality care, the drugs that they need and want. >> and it's not working. when i came to congress, like our first panel, small business people, 64% of people had health insurance.

now we're down to about 34%. that's why we have to do something on health care in this country, because the cost is killing us. >> and that's why >> and we're going way over and arguing and probably getting outside the scope of this hearing. >> be may i ask ask one last question? we have a vote on repealing. do you have an opinion as to whether or not that's groing to bring down health care cost sns >> it's my belief, it's not going to affect health care cost one way or another. >> is there any reason not to do it? >> the unintended consequence that we worry about from the repeal is that there are initiatives to share data with the evolution of health it in particular, if we can address some of the quality opportunities through the sharing of data, we hate for those to be eliminated as part 06 this process. >> but that would be true in anything. infection control, ideas, identifying and aggregating data is going to be critical. >> exactly.

as health i.t. continues, we want to make sure we can use that for meaningful information. we would hate for that to be eliminated as an unintended consequences. >> what about professional baseball? >> no consequence to us. >> with that, let me conclude this panel and thank you both for being here and thank you for your testimony today. >> that concludes our questioning. ink all witnesses for coming. the committee rules provide that members have ten days to submit additional question force the record. i ask unanimous consent that the content of our document be entered in the record provide it had committee staff may redact any information that is business proprietaryry, or is law enforcement sensitive. without objection our document binder will be entered in the record. also, i ask unanimous consent the letter from mr. dingell to the national association of insurance commissioners and they're re sponse be submitted

as part of the record. without objection, documents will be entered into the record for mr. dingell. that concludes our hearing. this meeting is adjourned. thank you all again.

>> i come from latin america. i'm accustomed to see poverty. i was not expecting to see this poverty in the capitol of the u.s. >> on a different side of the nation's capital, in the shadow of power. sunday on c-span's q and a. >> now, a senate hearing with secretary of state hillary clinton. he talks about the budget request for fq 2011. john kerry chairs. this is about 1 hour, 55 minutes starting with secretary clinton's opening statement.

>> it's a real pleasure to be back here in the senate to be with all of you and participate in this important hearing. when i was last here to discuss our budget, i emphasized my commitment to elevating diplomacy and development as core pillars of american power. since then i have been heartened by the bipartisan support of this committee and the rest of congress. i want to thank the chairman and the ranking member and all of the members for your bipartisan support in moving state department nominees. 114 were confirmed in 2009, we are now looking to get up and get nominated for your considering, the leadership team at aide and we are very grateful for the expeditious support and we hope they can move quickly when they hit the floor. but i thank you very much, mr. chairman. and let me also take this opportunity to express appreciation on behalf of the

men and women who work every day at the state department at u.s. aid here in our country and around the world to put our foreign policy in action. the budget we are presenting today is designed to protect america and americans and to advance our interests and values. our fiscal year 2011 request for the state department and usaid totals 52.8 billion. that is a 4.9 billion increase over 2010. but as the chairman has pointed out, of that increase, $3.6 billion will support efforts in frontline states, afghanistan, pakistan, and iraq. other funding will grow by a 2.7% increase that will help strengthen partnerships and ensure that the state department are equipped with the right people and resources. over the past six weeks in haiti we have been reminded yet again of the importance of american leadership. i'm very proud of what our

country has done. and we will continue to work with our haitian and international partners to address ongoing suffering and transition from relief to recovery. but i'm also acutely aware that this is a time of great economic strain for many of our fellow americans. as a former senator i know what this means for the people you represent every single day. so for every dollar we spend as senator lugar said we have to show results. that's why this budget must support programs vital to our national security, our national interests and our leadership in the world while guarding against waste, duplication, irrelevancey. and i believe we have achieved those objectives in this budget. now, these figures are more than numbers on a page. they tell the story of challenges we face and the resources needed to overcome them. we are fighting two wars that call on the skill and sacrifice of our civilians as well as our

troops. we have pursued a dual track to iran that exposes the refusal to live up to its responsibility. iran has left the international community with little choice but to impose greater costs for its provocative steps. and we are now working actively with our partners to prepare and implement new measures to pressure iran to change its course. we have also achieved unprecedented unity in our response to north cree provocktiff actions. even as we leave the door open for a restart of the six party talks, and moving closer by the day with a new agreement with russia, one that advances security while advancing president obama's vision of a world without nuclear weapons wfplt china we stantted firm where we differ. we are making concrete our new beginning with the muslim world, strengthening partnerships with allies asia and with countries around the

world. and we are working under the leadership of former senator george mitchell to end the im passñ2h!etween israelis and palestinians. at the same time, we're developingñi a new architecture of cooperation to meet transnational global challenges like climate change and the use of our planet's oceans. with regard to the latter, i want to reiterate my support for u.s. acsession to the convention of the law of the sea. our country stands to gain immensely from this treaty. everything we know from what we are picking up with respect to other countries' use of the tools under the law of the sea demonstrates that we will lose out in economic and resource rights in terms of environmental interests and national security. in so many interests, we converge. we are promoting human rights

from africa to asia, the rule of law, internet freedom. we're fighting poverty, hunger and disease and working to ensure that economic growth is broadly shared principally by addressing the role of girls and women. i want to applaud the chairman and subcommittee chairwoman barbara boxer for putting this issue on the map of the foreign relations committee. our agenda is amdishes because our times demand it. america is called to lead. i think we all believe that. and, therefore, we need the tools and resources in the 21st century to exercise that wisely and effectively. we can bury our heads in the sand and pay the consequences later, or make hard nosed investments now. let me high light three areas where we are making significant investments. first, the security of frontline states. in afghanistan we have tripled the number of silions on the ground. civilians are embedd with our troops in margea, in the combat

operations going on. as soon as an area is cleared they are part of the american team and along with our international allies who go in to hold and build. our diplomats and development efforts are helping to develop institutions, and provide meaningful alternativestor in surge nlts really to join fellow afghans in the pursuit of peace. in pakistan, we include combat extreme yim, strengthen institutions and build a long term relationship with the pakistani people. that is the vision of the kerry-lugor-bermen initiative and this inclt&qj funding for that. i want to thank you again, mr. chairman, and senator lugar for your leadership. i request also a 59% increase in funding for yemen to help counter the extremist threat and build institutions and economic opportunities. in iraq, we are winding down

our military presence and establishing a more normal civilian mission. our civilian efforts will not and cannot mirror the scale of our military presence but rather they must provide assistance consistent with the priorities of the iraqi government. so our request includes for iraq. these are resources that will allow us to support the democratic process and ensure a smooth transition to civilian-led security training and operational support. as these funds allow civilians to take full responsibility for programs, the defense budget for iraq will be decreasing by about 16 billion. that is a powerful illustration of the return on civilian investment and illustrates the point that the chairman was making that this is really part of the security budget for the united states. and should be seen as part of that whole. >> we're blessed with the best troops in the world as we have seen time and time again. but we also need to give our civilian experts the resources to do the civilian jobs.

and this budget takes a step in that direction. it inludes $100 million for a state department complex crisis fund, replacing the 1207 fund through which the defense department directed money toward crisis response. and it includes support for the pakistan counter insurgency capability fund which previously fell under the defense department as well. secretary gates andry working literally hand in hand and are committed to having a seamless relationship between the defense department and the state department and usaid to further american security. the second major area is investing in development. and this budget makes targeted investments in fragile societies which in our world bear heavily on our own security and prosperity. these are a key part of our effort to get ahead of crisis rather than just responding to it, positioning us to deal effectively with threats and challenges that lie ahead. the first of these is in

health. building on our success in treating hiv, malaria and tuberculosis, our global health initiative will invest $63 billion over six years to help our partners address specific diseases and equally importantly build strong sustainable health systems as they do. this administration has also pledged to invest at least $3.5 billion in food security over three years. and this year's request includes $1.6 billion of which 1.2 billion is funded through the state department. and i greatly appreciate the work that senator lugar and senator casey have done to help target the united states effort when it comes to global hunger and food security. so this funding will focus on countries that have developed effective comprehensive strategies where agriculture is central to prosperity and hunger remains widespread. on climate change, we could not

agree with the chairman more. therefore, we have requested $646 million to promote the united states as a leader in green technology and to leverage other leaders' cooperation including through the copenhagen accord, which for the first time to underscore the chairman's point brings developing and developed countries together. this is such an important initiative. we need leadership from the rest of the world. this is an opportunity for us to push this initiative and to ensure that we have support to give to core climate change activities and to spread the burden among other countries so that they share part of the responsibility in meeting this global challenge. the budget also includes $4.2 billion for humanitarian assistance programs, our efforts in haiti have made clear that state and usaid must be able to respond quickly and effectively.

all of these initiatives are designed to enhance american security, help people in need, and give the american people a strong return on their investments. our aim is not to create dependency. we don't want to just pass out fish, we want to teach people to fish. and we want to help our partners devise solutions they can sustain over the long term. and essential to this is a focus on advancing equality and opportunity for women and girls. they are the key drivers for economic and social progress. and that bring mess to the third area that i want to high light. none of this can happen if we do not recruit, train, and empower the right people for the job. the state department and usaid are full of talented, committed public servants but unfortunately we have too often failed to give them the tools they need to carry out their missions on the ground. rather than building their expertise, we have too often relied on contractors. sometimes with little oversight

and often with greater cost to the american taxpayer. this budget will allow us to expand the foreign service by over 600 positions including an additional 410 position force the state department and 102200 for usaid. it will also allow us to staff the stand by element of the civilian core, a critical tool for responding to crises. now, while deploying these personnel generates expenses in some, it does reduce expenses in others by changing the way we do business. we are eend ending an overreliance on contractors and saving money by bringing these functions into government and improving oversight. so, mr. chairman, one thing should be very clear from this budget. the state department and usaid are taking a lead in carrying out the united states foreign policy and national security agenda. as we finish the first quadrennial diplomacy and development review and as the

white house finishes the coordination of the presidential directive we have a unique opportunity to define the capabilities we need and to match resources with priorities. this will help ensure that we are more effective and accountable. i want to thank all of you for your individual contributions on so many of these issues that are important not only to your constituents but to our country and the world. and i look forward to continuing to work closely with this committee and i would be pleased to take your questions. >> thank you very much. we'll do seven-minute rounds. recently, i just came back from pakistan and one of the things that they repeatedly brought to my attention, sort of the frajilt of the economy but also the sort of balancing act that

they have to perform which you're well aware of in terms of their public opinion, the relationship of the united states, and what they're being called on to do. they pointed out that they're about to undergo another around of imf negotiations. and the pressures already of the imf restraints have been significant in terms of price increases and other things that their citizens are feeling. i wonder if you would sort of comment on what other steps we might contemplate -- we have a very significant amount of money going in. we have additional assistance that we've talked about. but it strikes me that there is a broader economic challenge and sort of provisions of services challenge to their people that is going to have a profound impact on the outcome of what is happening in western pakistan and ultimately afghanistan. and you're no stranger to our

thinking that what happens in pakistan is going to be almost as important in afghanistan and what happens on the ground in afghanistan. therefore, should we be thinking about a free trade agreement or a broader trade agreement or something that's going to send a stronger signal from us about the economic possibilities? or should we work with the imf to make sure that the next round doesn't result in unpalateable, unacceptable pressures on their citizens so that we sort of undo the good that we're trying to do in all of these other efforts? >> well, chairman kerry, you have asked one of the most important questions that we have to figure out how to answer. to the credit of the pakistani government and the president, they have complied with the imf

conditions. they raised the price of wheat, they've raised the price of electricity. they have demonstrated a political will which has resulted in some positive economic outcomes for them. but they have a very difficult road to negotiate ahead of them for several reasons. and i will tell this committee what i told a group of pakistani business leaders with whom i met when i was there, it was a very large prestigious group representing a broad cross-section of the pakistan economy. and i told them that we did need to do more to promote trade and i think the rozes, the reconstruction opportunity zones, that legislation has been pending in the senate. that would send a very strong

signal to pakistan. it would use trade instead of aid to promote economic growth. we have committed to some large signature energy projects because part of their economic challenge is keeping the power on and keeping those factories humming. and so i've ordered a redirection of our aid so that we produce results that are in line with the needs and aspirations of the pakistani people. i think we should explore additional opportunities that might increase more trade, remove more barriers. we could try it for a limited period of time, see what the results are. but i think is the pakistanis have to do more as well. and i told the business group after we had finished talking about the aid and support we're giving and the initiative. pakistan has one of the lowest tax rates in the world. they don't tax income, they

don't tax land. and a lot of the wealth is held in these huge feudal estates. some of you might have seen a program on television last night, showing the failure to build schools to staff schools, to equip schools. they have no public education system to speak of. and it's because the very well off of whom there is a considerable number, do not pay their fair share for the services that are needed in health and education primarily. so i think there's more we could do and more the international community can do. but increasingly, senator kerry, i am looking for ways that the imf, the world bank, united states as a donor, other donors can say to countries that want our help, you have a lot of rich people and those rich people make a lot of money out of their country. and yet, the people of their country are mired in poverty and you're going to have to raise your tax gdp percentage

rate from 7% to 9%. you know, the united states, we fluctwut between 16 and 22%. they don't have the resources or the opportunity to do that. but we can't continue to allow these countries a's elite not to do their fair share for the people of their country. >> to their credit, i will say they're in the midst now of significant legislative initiative and government initiative to do exactly that. and i know some of it is at your urging and other people's urging. . .

>> i would like to know if you find as you talk to people -- maybe share with this committee, to what degree is our domestic, financial situation, our lack of cohesion with respect to responses affecting our status, leverage, and position as we pursue our interests on a global basis? >> you travel also. you encounter the same questions and anxiety as i do when i travel. the world wants the united states to leave, even if that is

not what they tell you or what they say to their own press. they want us to leave thd. they look to us as the world's oldest democracy. they want us to solve problems. i do think we have to do a better job in demonstrating what we know is our core strength, this extraordinary country that we love and have the privilege of serving that is capable of doing anything once we put our minds to it. this is not a partisan issue. it is not an executive verses' legislative issue. it is really an american issue. you mentioned climate change at the beginning of your remarks. i cannot say how important it would be, i cannot overstate it, that we do what we can to show we are a leader in this area.

i would say that for political reasons, some of you may have read accounts of the president and i cashed -- crashing a meeting that the brazilians and indians were having without us try to figure out how they could avoid some of the hard questions week were asking. at the end of a tough negotiating session, they agreed to this copenhagen accord. this accord is the first time probably since world war ii that there has been any international agreement. it is the first time the developing and developed countries have assumed equal responsibility to report and verify what they are going to do. the political imperative for the united states to lead and manage this complex world is absolutely paramount.

on the facts of climate change, i know that some of you have been leading on this. this clean energy economy is going to be captured by other countries. the idea that we, the internet -- intellectual capital of the world that has invented so many of the parts and processes could be outflanked and out-produced and out-generated in terms of income by other countries led by china is deeply disturbing to me. this is an industry of the future. we have jobs that are going to go by the wayside if we're not prepared to get in there. domestic progress made in 2009 with passing a house bill gives us a foundation.

but this is a political and economic issue. people also know it is an environmental and moral issue. i focus on the strategic interests of the united states. we have to continue to show leadership on a global issue. we have to get our economy moving in the direction where we will reap the benefits. >> thank you. senator lugar? >> i appreciate very much your commendation of the efforts of your apartment and our efforts on security. the staff worked between your staff and the staff of this committee. i hope that will continue intensively in the weeks ahead. perhaps the chairman will entertain another hearing on suggestions you have made combined with hours to move this

along. it has passed out of our committee. i think it has broad support in congress as a whole. secondly, i would note that in the budget it calls for 10 american centers of diplomacy. it is not clear where those would be located. the chinese have now established 60 centers here in the united states. they are permitting only four of our centers to be built in china. i would call this to your attention for potential negotiations with chinese friends as we try to extend the idea of diplomacy centers. i think it is important. i appreciate your mention of a lot of the sea treaty -- your mention of the law of the sea

treaty. with the melting of the arctic huge oil resources have been uncovered. the russians immediately sent a ship out and planted a flag. this was a grandiose gesture. it does not establish that they will be drilling shortly. the fact is that this is going to be an area of future contention. there has to be some structure where american interests can come forth. the issue has always been sovereignty with regard to that. we've got to pin down our sovereignty. that is very important. we have already discussed a new embassy in london.

in the last 48 hours, the thought is that it could be $1 billion. the value added tax of britain is 17% refusing to pay. the thought is that the sale of the grocer's sq industry would net a us $1 billion to offset. how is the financing billing? what, can you make -- what, it can you make over the need of the building in the value added tax? >> our staff looks forward to continuing to working with yours and that of the committee. we want to deepen our partnership on global hunger and food security. on the confucius centers, a chinese government provides each center with $1 million to launch. plus, they cover operating expenses that exceed $200,000

per year. we cannot have that kind of money in the budget. we're limited in the numbers that we can do. we are also raising the issue of reciprocity with chinese officials. we're very aware of the concerns that you have pointed out. thank you for what you said about a law -- the law of the sea. it provides commercial rights for the mining of what is in the seabed of the territories that can be claimed under sovereignty provisions in the treaty. i believe we're going to be so sorry if we do not get the setup and going. i know you and the chairman are committed to doing so. if there is more or need to do from the administration side, i will get it done. you give me the date and we will have the people here to testify. i want everybody on the committee and in the congress to know what is at stake care. on the london embassy,

construction is estimated at up to $700 million. it is self-financed. we're selling may be 11 sites that we currently own. we're consolidating everything in one place. we have sold the old grovener square embassy, although we will inhabited until we move to the new one. we have sold the navy to amex. we will realize a significant return on these sales. -- we have sold the navy annex. we will realize a significant return on these sales. when you add it all up because of the expense of doing business in london among other reasons, it will be around $1 billion. we're going to work hard to get to that exception. we're not coming in for any appropriations.

this is consolidating sites and becoming more efficient. it will also be a green building. we value that. we think it is a great signal to send. >> let me ask a final question on the budget for pakistan. there is submission for considerable expenditures this year. i want to inquire about how expenditures are going from the 2010 budget. it appears that they are going slowly. their arguments about how much should go through ngo's as opposed to pakistan ti official. what is your general comment? how are we coming? >> we are making progress. we are trying to be very

thoughtful about how we distribute the money. it is a significant investment in pakistan. we've spent money already on some of the energy projects that we think are paying off in terms of what they are doing for the people of pakistan and because we are connected to them. it is challenging. we want to go through pakistani institutions and ngo's ever weekend. they have to be vetted. we have to feel that they're going to perform in keeping with our efforts. we can give you a thorough readout of where the money is in the pipeline. we have been spending a lot of time in making sure that we are spending it right, or as right as we can make it. >> i hope you will keep us up to

date. it is critical in terms of the confidence of the american people with appropriations of the size for pakistan and afghanistan. thank you very much. >> senator feingold? >> thank you for holding the hearing. madam secretary, and like to note that your identification of the national security budget is on the mark. a stronger state department is vital to our security in expanding our work. by ensuring these programs are well funded, we can help our foreign partners that al qaeda while strengthening and protecting our nation at home. i appreciate that very much. i have noted it enhancing our diplomatic capacity is vital to our nation's security.

with skyrocketing deficits, we have to eliminate wasteful and inefficient spending. one glaring example is a program that has been found to be mismanaged and ineffective. given the multiple reports highlighting the many problems that plague the office of cuban broadcasting and the urgent national security and human rights priorities we face in the world, please tell me why the administration wants to continue funding radio and tv martine at previous levels? does the allocation of resources match our priorities? >> we are taking a hard look at all of our eight programs for cuba. my goal is to be effective in what we spend so that it assists those cubans fighting for freedom, standing up against the abuses of the cuban

government. we are looking at everything. i cannot come before you and said that any program is sacrosanct. i want to be sure the we're getting our money's worth. with new forms of communication and new ways of getting information into cuba to help support the efforts of the people on the ground, i think we have to look at this expenditure like every other one. >> i appreciate the answer. i have a different topic on africa. our policy towards the rebel group in uganda that is now operating across three countries that continues to kill at an alarming rate. i have authored a bill that has 63 sponsors that would require more strategic attention and resources to address the violence. without getting into the weeds of this, how does responding to

and seeking to end the lra's reign of terror it into your budget? does the administration have a plan and dedicated resources to address the issue? >> we are deeply concerned. we share your views about protecting civilians live in suffering at the hands of the lord's resistance army for years in southern sudan and the central african republic. we have provided support to improve the effectiveness of mid rigid military responses to the lra. it helped to support and supply some militaries in the area. -- we have helped to support and supply some militaries in the area. additional funds will be notified to congress soon. resources of come from reimbursements from the u.n. for u.s. support for peacekeeping operations. we believe our support of these operations has helped to degrade

the capacity of the lra. we've encouraged the military forces seeking to defeat them and the u.n. peacekeeping missions in the region to put a high priority on civilian protection. there needs to be better coordination, information, and intelligence-sharing. we tried that once. unfortunately, we did not get a result we were seeking. we will continue to work with existing militaries and u.n. peacekeeping. i want to be specific. we have also provided assistance for civilian victims in the drc, car, and southern sudan. $1.1 million for relocation efforts in southern sudan. $1 million to the world food program in the central african

republic. there also been contributions to the u.n. hcr. i have been following the lord's resistance army for more than 15 years. i do not understand why we cannot in that discourage -- in end that scourge. we will provide support to do that. >> i have concerns about subliminal spending bills. the fall out of the normal budget process. i would like to ask about the funds for pakistan and the supplemental. the majority will go towards training and other support for pakistani police to better confront extremism. given the documented police abuse in pakistan from your own state department reports and continuing impunity for such crimes, what efforts are being

taken to ensure that our assistance to the police forces does not inadvertently end up fueling the spread of extremism resident addressing the problems? >> this is something we're very focused on. we have both legal and moral requirements as to how the money that we provide to anyone is expended and what is done under the rubric of that kind of aid program. we provide training and support to the pakistanis so that they understand what we expect and are looking to see. we have worked with the pakistani military to better create more accountability. we announced that they respond whenever any issue is raised with us.

-- we have asked that they respond whenever any issues raised with us. i cannot say that we know everything going on. but we're making a concerted effort to provide more oversight and expect more accountability in these funds. >> thank you so much. >> senator? >> i appreciate your professionalism in representing our country and around the world. the more i delve into foreign policy, the more i believe you probably have the hardest job in the administration. i want to thank you for your leadership in honduras. that was a situation that appeared to be moving out of control. you and your department have got it on a good track trying to restore relationships in and around honduras.

i get very good reports from the state department -- from there are about what the state department is doing. let me mention iran. that is a big issue. my concern is timing. you have taken in international leadership role in raising the pressure levels and iran. the people in israel have concerns -- my concern is that we may only be a few months away from some type of action that could destabilize the region. i do not sense in the congress the urgency of timing of what we need to do and how quickly. again, i appreciate you taking the sanction idea a step further. i would like to hear a comment there. i would ask you to comment in a few other areas.

you and others have mentioned human rights. i have long been a supporter of engagement with countries like china for trade. it seems increasingly over the last year or two that human- rights, religious freedom in china, egypt, but now, and other countries that there is less religious tolerance. there are more problems. perhaps it is a matter of what gets to the news. ñiçói am hearing from a lot of people directly in my office that are suggesting a deteriorated situation. meeting with people from georgia, a lot of representatives have concern that our emphasis is more on russia. it is even to the point of them not getting equipment they need for basic protection such as parts for their rifles.

there are some pretty important concerns specifically on georgia. i would ask you to comment on the urgency and timing of iran, possible scenarios there, and maybe your perception of human rights as well as a comment on georgia. >> on iran's sanctions, we are intensely engaged with countries around the world. in the last month, i attended the london conferences on afghanistan and yemen. i held numerous bilateral meetings with countries to lay out evidence about iran, to urge that they join with us on the pressure of sanctions track. i have just come back from saudi arabia. i also met last week with the prime minister of turkey. i will be going next week to let america, including brazil. -- i will be going next week to

latin america, including brazil. the top levels of the state department are engaged directly in working with the need for sanctions. we're beginning the process with the security council in new york. language is being hammered out based on the work that has been done. the treasury department and the state department are in coordination. we are targeting a lot of these proposed sanctions against the revolutionary guard. we believe that is playing an increasingly important role in the politics and economy of iran. we are working at it as hard as we can. we have been heartened by the positive response from russia. in their response, they proved the wisdom of the president's policy of engagement. we have made it clear from

president obama's inauguration that we will reach out our hand of the other side unconscious -- unclinches its fist. it has created space for these countries to consider supporting sanctions that they might not have otherwise. we've demonstrated the strategic patients to exhaust the international efforts of convincing iran to do the right thing without sanctions. we are very focused on this. we hope the next 30 to 60 days will see a sanctions resolution emerged in new york -- emerge in new york. we made it clear to our allies and partners the whatever comes out of new york, we may pursue bilateral work multi-lateral sanctions on top of the result of the security council

deliberations. this is the highest priority for the obama administration. on human rights, i share your concern. it is kind of a big news/bad news story. we see breakthroughs and positive action. then we get evidence of backsliding, discrimination, oppression, violence that is religiously based. we're working with a number of muslim majority countries to devise an alternative to their proposal of definition of religion. we reject that because we think that in a robust society, free expression should be protected. we also recognize the sensitivity of criticizing or undermining the religious feelings and attitudes of people. we're looking to see if there's a way to come up with a resolution that will suit our

constitutional concerns. we are working hard with a number of countries to do that. we speak out vigorously against human-rights abuses and religious freedom and discrimination complaints. we will continue to do so. with respect to georgia, georgia range of high priority to this a demonstration. -- georgia remains a high priority to this administration. we have made a number of visits there. we have had a clear message that we are supporting the government of georgia. we are requesting $90.1 million in a. that is an increase of 8% from the 2010 level. the bulk of that will be trying to help the georgians sustain

their work in democracy to enhance public confidence in their country in their direction. we're also continuing to provide funding for non-proliferation, anti-terrorism, and related programs. we're heavily supporting their military deployment to afghanistan with new equipment and training. i think what we're doing is a very positive story. we stand up for georgia in many international settings against the very strong attitudes expressed by their russian neighbors. >> thank you very much. >> secretary clinton, i want to say that i think all of america is very proud of the job you are doing. you are being so effective. i was very glad to hear that

expressed in a bipartisan way today. i want to talk to you about women in afghanistan. just yesterday, we held a hearing that our chairman sanctioned, to examine the status of females in afghanistan. we discussed this with the ambassador. it was not good. it was alarming. today the wife expectancy of an afghan woman is 44 years. can you imagine? afghanistan has the second- highest maternal mortality rate in the world. one out of every five children born in afghanistan dies before the age of five. over half of all marriages in afghanistan are forced or involve girls under the age of 16.

yesterday we talked about the forced marriage of an 11-year- old girl to a man 20 years her senior. this child set herself on fire to get out of the situation. it just touches your heart. she is now back with her own family. here is what i wanted to discuss with you. we all know how hard our military is working right now. we pray that this is a success. we all know that reconciliation is what we're trying to achieve. to get the taliban to give up their way is. what worries some of us is that women could be used as a bargaining chip in the reconciliation process unless there at the table. these a the same taliban the required the windows of afghan homes to be painted over to

conceal the fact that there was a woman inside. -- this is the same taliban that required the windows of afghan homes to be painted over to conceal the fact that there was a woman inside. we know you are a tireless champion for women around the world. we know you have worked hard to raise the issue of women being at the table in the reconciliation process. i thought i would take today as an opportunity to get you to commit to us and to the afghan women that you will work to ensure that these women are given a clear, transparent, and meaningful role at every level of the reconciliation process to protect their rights to education, health care. they are not allowed to see a male doctor. that is why so many of them die in childbirth. they are shunned if they see a male doctor. there are no female doctors anymore.

there are some, but there are not as many as there once were. many of them are dying in childbirth. they need to have freedom of movement and to be free of violence. will you make that commitment to fight to get them into a key decision making role in the reconciliation process? will you personally reach out to president karzai? i know you have a close relationship with him. will you reach out to him to make sure that this happens? >> the answer is yes to both. it is a deep, longstanding concern of mine which i share with you. in our regional stabilization strategy for afghanistan and pakistan, we lay out how we wish to advance the rights of afghan women and girls with key initiatives we are pursuing. i would hope this could become part of the record, the entire

report. >> without objection. >> on the specifics with respect to women, i will not sugarcoat how hard this is. this is a very difficult challenge that we are making common cause with the women and girls of afghanistan. i am very proud of the work that the ambassador is doing. i have personally spoken several times about this to president karzai. i will continue to advocate, as i did at the london conference, to make sure that women are included in the political process. any reconciliation effort has to take into account the rights of women. we will do everything we can to try to protect an offense that. >> thank you. thank you so much. my second question touches on

senator demint's on iran. the report found extensive evidence by the iranian military related to the development of a nuclear payload missile. this is chilling to all of us. the behavior of iran poses a security threat to israel and the greater middle east. i am very pleased that the administration is focused like a laser beam on this. i know you recently traveled to the region to discuss the threat from iran. james jones, mike mullen, vice president biden also travelled there. the u.s. government announced a new set of sanctions on iran is military guard. anderson and you are seeking a new set of resolutions -- i understand you are seeking a new set of resolutions.

you were recently in saudi arabia. it is now exporting more oil to china than ever. reports suggested that saudi arabia may be able to provide china the stable supply of oil it needs. that would reduce china's reliance on iranian oil. this could make china more willing to support sanctions against iran. do you feel better about the situation with china? do you feel that the diplomacy could yield the right outcome? >> we are working at it every single day. the iaea report gave us one more piece of evidence to present to dodging countries -- doubting countries about iran's nuclear ambitions. we are making the argument in public that china's dependence on oil from the gulf should

cause it to make a strategic calculation to support sanctions. in the absence of pressure that changes the iran and efforts to obtain a nuclear weapon, there will be an arms race in the gulf. that will further destabilize the gulf. it could lead to conflict which could dramatically undermine the delivery of oil from the gulf. our argument, joined by other countries, to china is that if you are concerned about your market access to the arabian gulf for oil, then you should join the rest of the world in sanctions. we were very successful when nobody thought we could get time on board for the north korean

sanctions. even today, the south africans stopped the ship bound for chicagthe congo because we got e international community behind us. a lot of people are joining us to convince china to join with the rest of the world. >> thank you so much. >> that you, senator boxer. senator menendez? >> a political prisoner who was incarcerated during the crackdown on dissidents in cuba died falling under strike protesting the castro regime's brutal abuses. amnesty international recognized

him as a prisoner of conscience. it is in his memory and for the sacrifice of him and others that i want to ask you about some concerns i have with reference to how we are pursuing our cuban democracy programs. i sent a letter in january to the administrator. i have not got an answer. i asked the intent of an e-mail that they sent to the contractors for programs in cuba. email suggested, as the department has suggested, that groups cannot travel to cuba to connect the democracy programs there. that is a real concern. some people have suggested that the united states only provides support to the cuban people when every single program is

specifically sanctioned by the castro regime. it is naive to think that independent groups would be allowed permission from the castro regime. even members of this committee who have sought visas to visit dissidents have been denied them by the regime. it is a clear attempt to stop anyone who wants to visit those individuals inside cuba. i would not expect the regime to welcome anyone. i would not expect them to welcome anyone to engage with human rights activists and dissidents in trying to promote civil society in sight of cuba. we have a long history in the united states of supporting groups around the world, groups that have lived under the iron fist or behind what was the iron curtain. we have done that in eastern

europe. we have done that with so many others. we did not seek permission from those countries. for some reason it seems to me that when it comes to cuba, the recent actions by the regime to arrest an american citizen and totally frozen our actions. i have even noticed that in the 2011 budget request for democracy programs, a critical statement that existed in the previous one was eliminated. are we going to have a permanent freeze on having a entities trying to create peaceful change for civil society in sight of cuba? is that the policy of the state department? >> no, let me first express our

sympathies to the family, friends, and supporters demayo. we were concerned about his welfare. we raised this with the cuban delegation during the migration talks. we urge to be given medical attention and care. -- we urged that he be given medical attention and care. we were deeply distressed at his thunderstrike to send a signal about the repression in cuba. we think there are in excess of 200 other prisoners of conscience. we're very supportive of the work we believe should be done to support those people of conscience inside cuba. we are trying to figure out the best way to be effective in doing that. we are currently reviewing the risks in the wake of the

baseless arrest inside cuba. people who are traveling in furtherance of the mission advocating for freedom, providing services, providing supplies and materials to cubans will take the necessary precautions when traveling. this is an issue of great importance to us. we want to do everything we can to try to assist cubans struggling against the continuing regime of oppression. we are not in any way taking a position against travel or against the kind of actions we think will produce positive results. we are engaged in an intense review. we think what we do will have greater chances of being

successful. >> i appreciate your answer. let me say that the e-mail that came out and the statements subsequently and basically chilled the democracy programs. at the end of the day, if the regime -- if a regime in china or any of the country in the world can deter the united states from its engagement of human rights activists and political dissidents, then -- >> that is not what we're doing. >> i would like to see what we're doing. right now, we're not doing very much. i will follow-up with that. i hope we get a response from the administrator. i like to ask you to the other questions. we have written legislation with reference to reforming our

foreign assistance institutions. you mentioned the diplomacy and defense review. i would like to know where we're at and when we can expect to see tangible changes and what changes might look like. my second question is that as you know, there are more than 40,000 turkish troops occupying cyprus. no one in the world except the proposition that they're there to protect cypriots. yet the american ambassador to turkey recently said in a newspaper interview that turkey has "security concerns on cyprus. that certainly cannot be supporting this rationale for keeping turkish troops in cyprus. >> the qddr will be finished

this summer. we look to it to help us coordinate with this committee and congress on the foreign assistance reforms we believe should be undertaken. our goal is to enhance the capacity and effectiveness of american foreign assistance, to better coordinate among the various aspects of the american government that provide assistance. we have everything from usda to treasury with its funding of the international financial institutions, to usaid and other entities as well. we want to more clearly state the mission. we want to more clearly resource commission. the white house is currently simultaneously conducting its own review of development, bringing in all of the of the stakeholders. we're only look at state -- we're only looking at state and

usaid. i think many of our findings will be in line with the aspirations of this committee in the legislation. with respect to cyprus, we strongly support the continuing negotiations under the wind for a resolution on cyprus. we have been heartened by some of the intense consultations going on between the separate out -- cypriot and turkish leadership. there is a long way to go. i cannot speak for the ambassador. i assume he was stating the opinion of the turkish government. that is something we do not ascribe to it. we want to see the entire cyprus situation resolved. we certainly understand that is the stated position of the turkish government, not the american government. >> what the record reflect --

let the record reflect that the committee has taken no formal -- i have spoken about our a chance to review democracy programs. we all agree that the goals are laudable. we want to help the cuban people. we also want to make sure we're doing the most effective things and that the programs are working. we're looking at that. we will work with the administration. it is important to look at it and evaluate it. we will continue our review. we will work with you and the secretary to measure this. >> i appreciate that. what i am concerned about is turning a page that we've never permitted in our history. that is having a repressive regime anywhere in the world tell us how we're going to ultimately engage in our democracy programs. we all want to see the most

effective democracy programs. for anyone to expect that we will get a stamp of approval from a regime -- >> no one expects that. you are postulating a subjective criteria that does not exist here. this is no stamp of approval necessary. we will do what is in our best interests. i am confident the administration will do that and will want us to do that. it is simply a question of measuring the effectiveness of what we're doing it against all outcomes. i think we need to do that. we will work with you. we will have a good dialogue. >> i would be happy to as long as we do it worldwide. >> i think that is important. >> senator casey? >> madam secretary, thank you for your testimony today and your work. as we were preparing for the hearing, and was thinking that one area of our discussion that

does not get enough attention is the budget itself. it is the management of a huge enterprise at the state department. by voice believed that whatever level of government we're talking about, that the strength -- i have always believed that whatever level of government we're talking about, the strength of the government can only be maintained by the strength or integrity of its agencies and the management of those agencies. i know it is difficult enough to deal with the issues you are confronted with. you also have to run a big agency. we're grateful for the way you manage that and the team have put in place to help you do that. i was also struck by something you might sooset in your testime section of development. you highlighted the areas of development that the state department is focused on.

the last section of that, i thought that we cannot say this enough. i am quoting. "these initiatives are designed to enhance american security, to help people in need, and to give the american people a strong return on their investment." you know this from traveling and your work in the senate. when people are confronted with the question of how to save money, they often point to cutting foreign aid as a place to save all kinds of money. we know the reality is otherwise. the international affairs budget is about one. forces -- is about 1.4% of the

total budget of united states. there is a misperception that somehow there is a lot of areas to eliminate. i think you are demonstrating that we cannot do that at this point in our history and in light of security concerns. there is the domestic economy and the -- recession. pennsylvania has a lower and employment rate, but 560,000 people out of work. -- pennsylvania has a lower unemployment rate, but there are 560,000 people out of work. sometimes the connection between the international affairs budget and the investments we make around the world may not seem to translate into the domestic economy. since 2005, the u.s. export

/import bank through the international affairs budget has financed $3.6 billion in exports from pennsylvania. there are other examples as well. i would like to have you talk about that. it is not something we talk about enough. i think there is a story to tell that the american people do not often hear. >> i cannot thank you enough for asking the question. i think you are 100% right. i believe that what we're doing is part of our security. i think the case is more understandable for people today since 9/11th in ahmad bin beforehand. i also think it is essential to our economy. you illustrate one example of that with the import/export bank.

we believe we can do more through the bank. i am going to encourage that approach. i would like to put that bank on steroids. i think it does such good work for american companies. i want american businesses to know that. we're working on a more extensive export driven strategy that the president has announced and spoken about with business leaders. i have ousasked a secretary to d our efforts in that. we can do more on that. we can do more with the commerce department. we intend to reach up to small and medium-sized businesses about how they can export more. they can work with more chambers of commerce in partnership on the issue. we want to do more to highlight american business.

we are in an economic competition. american business needs to have a partner in the united states government. other businesses from other countries have a strong partnership with the government. it may be state-owned enterprises from china or private companies from europe. they often have much more support from their governments and we have recently given to our businesses. in many ways, we can do more to impress upon the american public the importance of what happens at the state department and opening doors and working with other government agencies to promote jobs in america. >> thank you very much. i have about a minute left. this is on nonproliferation. i was giving a speech and that generally yesterday. i appreciate approach you have

taken from a position of strength that our number one objective and obligation is the security of the american people. one of the fundamental goals of the nonproliferation strategy is to of a safe, secure, and effective nuclear arsenal. i wanted to have you talk about that in the context of not just the funding and investments we have to make for that, but also in the context of a broader security agenda. >> i appreciate your recognition that this budget and president obama are committed to our safe and secure the nuclear arsenal. at the same time, the president's vision of a world without nuclear weapons. some ask me how they can

coexist. i say that they can only coexist. realistically, the goal of a nuclear weapons-free world is often the distance. there are steps we need to take to move toward that. in his speech outlining his vision as well as in the state of the union, the president made it clear that as long as nuclear weapons is best -- exist, united states will maintain a nuclear deterrent. infrastructure is critical to sustain our nuclear security enterprise. the budget request support programs that are important to implementing all of the president's nuclear security agenda. what can we do to fund the stockpiled support activities and enhance our deterrence that make deeper reductions through negotiations? how do we make the case to the senate surrounding the comprehensive test ban treaty?

how do we fund the non- proliferation program? every piece of this fits together. it is an issue that senator lugar has been a champion of for a long time. i think you are right to be raising this issue in audiences that you speak to. it is one of the most important issues confronting humanity. we are trying to walk a line of being committed to a goal of zero, but being smart about how we protect and maintain in our deterrence now. we think it is the realistic way forward. >> thank you. we appreciate your leadership. i want to underscore how important your statements about american foreign policy priorities on human rights has been received internationally. we were recently at an international meeting of the

osce. your statements about the importance of human rights and evaluating our own performance was well-received. i would encourage you to continue with your strong commitment in that area. i want to talk about the direction of our foreign aid program. i strongly support what you are trying to do, including providing more resources and a more aggressive use of our involvement internationally. i am concerned about our government partners when there is a significant leakage of funds because of corruption. corruption is a problem in so many places in the world. when we try to provide our partners with money and the money gets used for other than the intended purposes, we're not only denying the taxpayers of our own country the accountability demanded, but we are denying the purpose for which the foreign assistance was

being made available. i want to mention the transparency initiative that we are encouraging. the oil wealth and mineral wealth from many countries is occurs. it fuels corruption rather than development within the country. i would encourage you to make sure that we have strong accountability built into the program and an expectation that there must be progress when dealing with the corruption issues among our partner countries. >> i could not agree more. thank you for your continuing work with the osce. we view that as an important form. we are trying to become more engaged and involved. we have a new ambassador keyed

up to go. we are very focused on what we need to do to support a broad initiative and agenda of a beatosce. -- of the ethnicosce. corruption of the osce. corruption is a big problem. corruption can be so endemic that people are just discouraged and turned off by their own country's efforts. it is so distressing. think of what could be done if properly managed. we're doing several things. . .

so to speak. how do we get more accountability? and i think we have to have more conditions-based aid. i know that a lot of people see aid that something america should do and in certain instances like in the aftermath of haiti, i agree with that. but it's always a choice. you know, there are many priorities in the world that we could spend the hard earned

taxpayer dollars on. so when we're looking at aid, i think we have to have more of an approach that says what are you going to do in return for that aid? and how do we prevent the diversion? what are the techniques that we use? some of the diversion is straight out crufplgts it goes into people's pockets. it goes into, you know, swiss bank accounts. but some of it is diversion so that if we're putting money into a health program, then the government takes their money out of the health program. so we're not getting additive and you wonder why we're never getting ahead because we keep putting money in, other partners keep butting -- putting money in. a simple example is when we used to give away malaria nets, they weren't effective as when we make them pay. and the more we can enhance

transparency of all kinds, i can go on but i'm going to end. we're trying to use technology as an anti-corruption tool. so when we help to fund cell phones going into the hands of people, they then can do mobile banking. so for example, in a country like the democratic republic of congo where there are no banking surgeries where there are very few roads, in order to pay the military a bag of money, by the time it gets to the troops in goma, there's nothing left. if we can set up a mobile banking system, we cut out the middle people and one of the biggest differences we can make with our aid investments is helping to build transparent anti-corrupt e-government systems and some countries are very open to that and we're working with them and we're also sending this sort of little swat team we have of high-tech young

people around the world working to enhance these programs. but we're taking this anti-corruption campaign very seriously. >> well, i appreciate that response. there's nothing wrong with conditioning aid. because americans expect there's accountability in the use of our taxpayer dollars. so we have a right to expect that the countries are fighting corruption. i would also add to that list the gender issues that they are integrating women into the programs. you've been a leader on that and gives us a chance to advance that issue. let me in a minute i have left, i want to just continue to raise the concern or the ref -- of the refugees from iraq that are in syria and jordan. there was a student in baltimore university who was an iraqi refugee living in syria who was forge enough to to -- fortunate enough to be able to make it to the united states.

we have a responsibility in regards to the people who are still refugees from the iraq scombisk i would just urge you to continue our attention to get iraq the reege and the -- region and the united states focused on how we can help the lives of those people. >> we agree with that. >> thank you. >> thank you. let me thank you as chairman, i want to thank you for your terrific diligence in pursuing the helsinki commission efforts. you've been a real leader of that and we appreciate that enormously. >> thank you, mr. chairman and welcome, secretary clinton. we're delighted to have you here and very much thank you and appreciate the leadership that you're providing to the

department of state and to our diplomacy diplomatic efforts all around the world. thank you. it was remarkable to see the progress that has been made there. but as you know, that region still is the missing piece as we seek to see a europe that is whole and free and at peace. and bosnia in particular, i think remains a concern. i was pleased to see your recent speech about the future of nato and the commitment to leave the door open for perspective nato members. i hope -- prospective nato

members. i hope and appreciate the leadership that you're providing to say to those countries in the balkans that if they can achieve the alliances criteria, they will be welcomed as members of nato. and i wonder if you could speak to that. >> first, thank you for going to southern europe and the balkans. we can be proud of the role the united states played, but we can't rest on any laurels because there are still some volatile situations that have to be addressed. with respect to nato membership, i believe strongly leaving the door open. i also believe it needs to be left opener european union although we have no direct role in that. and it's particularly important for bosnia.

now we have been trying to persuade bosnia to do the necessary constitutional reform that will enhance the prospects for unity and not division within that country. and some people have argued well, that should be the carrot that is held out to them so if they do the constitutional reform, then they can get into the map process for nato. others have said no, let them in and then don't let them become members until they do it. how ever you look at it, i think that we want bosnia to be looking toward europe. we want bosnia to stay united. we want bosnia to be integrated into the euro-atlantic alliance. so we're constantly trying to figure out what's the best way achieve that? and the door remains open. when they began the walk through it, that's something we're still trying to work out. >> well, we heard some real

concern on the part not just of bosnia, but some of the other countries in the region about enlargement fatigue, particularly when it comes to the e.u., but also, i think with respect to nato, concern that perhaps there are other reasons why they -- their map process was not viewed favorably at this point. so i hope that the administration will continue to remain engaged with the e.u. to keep an open process and an open effort to encourage the countries of the balkans to consider future membership. and maybe you could talk about what we're doing to try and encourage that to continue. >> senator, we are encouraging

the european union to do more to demonstrate the benefits to bosnia of european integration and to work with the -- to work with the government of bosnia to try to understand what it must do to be eligible for e.u. membership. there are other countries who are also seeking that kind of path, serbia, which i think is very important to be, you know, focused on europe and the west. so it has been one of my highest priorities in terms of our european policy. i'm not satisfied with where we are because i think that there's been changes going on in europe with post-lisbon. there was a desire on the part

of the europeans to kind of take care of their own business first, but we are keeping them focused on the balkans. we have a lot of work to do, and we don't want to see any moves to break up bosnia. and we worry about that a love. so this is a long list of concerns, but the nato piece of it, i am watching very closely because i share your concerns that we want bosnia to feel like they're welcome and they may not be there yet, but with a little bit more effort, they could be. >> thank you, i appreciate that. and let me just be clear when i was referring to concern over enlargement fatigue in the e.u. it wasn't just in bosnia that we heard that. it was in serbia and the other parts of the balkans. so i think that's a very real concern and one that we should

continue to pursue with our friends in the e.u. with respect to nato, as i said, i want very much appreciated the speech that you gave recently on nato. as the strategic concept draft is being developed, what are your main priorities for that new concept? >> well, as i spoke about in my speech and as secretary gates reiterated the following day, we believe that nato must continue to be a strong effective alliance of the 21st century just like it was in the 20th. and we have a take a hard look at how we are defining our roles and responsibilities within nato. we have to reform nato so that it is more streamlined, more

manageable than many people believe it is now. we have to look at what the sort of out of area challenges are from piracy to cyber terrorism and figure out what response we are going to have. we have to determine the way forward on missile defense which we think is critical to nato's future. there's just a long list of what our new responsibilities for nato to assume. but madeleine albright is sharing this strategic concept committee and doing an excellent job. so i think we'll get a good result out of that work and it will be up to member countries to hammer out the actual content of it. >> thank you. >> thank you, senator shaheen. >> thank you, mr. chairman. thank you madam secretary. i frankly don't know how you do this. really. i watched sometimes trying to run the state department at the

same time. it is an incredible challenge and i really appreciate your service in doing this. these are really tough times for us economically but i am very pleased to see that the administration's decided to have a sizable increase in the department of state funding. i mean, i've traveled to afghanistan, iraq several times and our troops are magnificent. but when you're there, you have to kind of be not thinking to say you know, how do we stop this from happening before it happens? and anyone that thinks about that for having a strong smart big department of state can act as an incredible prevention so we don't have to put our troops out in harm's way. and i know that you have no better supporter in this and it's really a great time and that's secretary of defense gates. i mean, he really is articulate about it. so i notice that in this bill,

you mentioned in your statement that you're the complex crisis in the pakistan counter insurgent capability fans being photographered. can you tell us why that -- transferred and can you tell us why that makes sense? >> secretary gates before i ever were secretary of state understood from his many decades in government service and particularly over at the defense department now that our national security was out of balance at the end of the first decade of the 21st century. we had come to rely so heavily on our military. and it wasn't just for their being warriors on behalf of our secretary, but they were doing

development reconstruction, humanitarian projects, just so much. and they're so good at it and they have, you know, more than what 12 times the resources that the state department and usaid do. it's to the the balanced national security policy that's in the long term interest of the united states. so secretary gates started sounding this alarm two years ago. and i'm very grateful for his support. so what we're trying to do is to rebalance by moving back and maybe for the first time into the state department and usaid what we're known as 1206 funds. you know, the kind of pre and post-conflict work that should be led by civilians. there is -- there's a lot of room for partnership with the military. but we've got to train up a civilian capacity to be able to

do this work. and look at what's happening in iraq. it's a perfect example. we have a deadline to withdraw our troops. it's a deadline negotiated with the iraqi government. so we are expected to leave. but the iraqi government has certain requests that it has made of us. one of them is to do advanced level police and law enforcement training. they have all the resources. they have the helicopters. they have the hardened facilities. we don't have any of that. so if we're going to have a chance of getting in and doing what is expected of us, we have to have the resources to plan for and then execute and deliver on what that mission is. so i think that this is not easy to do and we're asking for some additional resources to be able to do it. but even with our just -- our

civilian sponsor corps this the infancy but we sent people to haiti, to afghanistan. we are beginning to have more expeditionary personnel and the resources to match. there will always be a role for the military in humanitarian assistance as we seen in haiti. but we've got to be better positioned to do our part on the civilian side and that's what we're attempting to achieve. >> that's great. can you talk a little bit about public diplomacy and how you see the future in your budget and what you're doing in terms of new ideas and things we can do in terms of public policy? >> i would -- i would strongly encourage the committee members who are interested in public diplomacy to get a briefing from our new undersecretary for public diplomacy. you know, this is not faulting anyone because when we merge

usia and other public diplomacy, elements out of our government during the cold war so the state department, they were still independent agencies. the mission was not clear to give the bush administration their due. they try to figure out the best they do. it's really hard. it's not a p.r. job. it's not a propaganda job. it is a management job. we have enormous resources spread around the world. we need a clear line of communication and a message that is repeated over and over again. and let the just give you two quick examples. when we went into haiti, it was a joint military civilian operation but obviously the military had a much bigger footprint. there were some media outlets around the world who immediately put a negative picture out there

of the united states. and the attitude previously was what can you expect from these countries? we said no. we're going to go right at them and we did. we called them up and we said that's wrong. that story is unfair. we'll give you people who you can talk to. so we are actively engaging with even outlets in countries that are not always considered friendly to our interest. we can't leave these stories just out there on, you know, to become conventional wisdom. and pakistan, there were a number of stories and our embassy personnel had historically been told not to respond. you know? if there's a story, don't respond to it. well, that is not the way modern communications work. so we are every single day, we monitor, you know, what is said on the public media, you know? that's -- we need to know what's being said to people in countries where we're operating. and then if we think they're

saying something that's not true about the united states, we try to get in there with an alternative point of view. so our undersecretary came from discovery. so she was a media executive, not an advertising person or a p.r. person. so she knows how to look at this systemically and that's what we're trying to do, to change the message, to change the urgency. when i was in qatar, i med with the board of al-jazeera. this is one of the most powerful media presence in the world that we are engaged with. so, you know, we're not saying what can you expect? we're saying no, you can do better. we'll give you people to talk. we'll give you somebody get on that television show and put out the american point of view. we're not going to change their perspective overnight but we're not going to let it go unanswered either. >> march 10, they are coming from lieberman used in glassman.

so i think, you know, this is absolutely incredibly important as we look at the world. it is a much more complex world and how we handle public diplomacy is key. >> thank you very much, senator kaufman. i think what secretary said is terrific and i'm delighted to hear it as i'm sure we all are. just a few quick wrap-ups before we close off, can you share with us quickly what the status of the plan to assess and assist on the haiti rebuild? >> yes. first, there will be a done no, sir conference on march -- do donors conference on march 31 at the u.n. in new york. we have been engaged with the e.u., with lead countries like france and brazil and others to who have put forward, in canada,

significant contributions. but every country in our hemisphere has contributed something. so we are working to enhance those contributions. there is an effort to coordinate with the u.s. and bordon norse through a development authority -- and the bordon norse -- other donors. mr. chairman, we had a plan, a well developed plan that we had worked on with our haitian partners prior to the earthquake and we are working to i want policemen that as part of the -- implement that as part of the recovery with certain changes. focusing on agriculture is one of the big issues we're trying to further.

>> who is heading this upñi for vheñr state department? >> well, rod shaw is the lead person named by the president and my chief of staff cheryl mills is our state department. >> is it going to be one single person coordinating all of it? >> well, right now, rod shaw is the designated director. yeah. >> and the timing of the supplemental request? any sense of that? >> we hope within the next few weeks. >> ok. and on the q.d.e.r. and the coordination of the presidential study, i assume, i mean, are we going to have two different concepts here? what's going to happen? >> well, that is certainly not our intention. we are working very hard to coordinate those and to have one voice coming from the administration. now there will be other elements

in the p.s.d. because of the iffies and the x.m. and all the rest of it. but we want the general concept to be adopted nationwide. >> ok. and finally just on the pccf which is going come to you guys directly this time. the last year when it came to you, you forehand it directly to the defense department again. and as we try to redo this, i guess that doesn't make sense. is that going to happen this year? or are you up and ready to -- >> we are up and ready. we are going to be administering it this year. >> terrific. that's great to hear. senator, do you mind? >> very briefly, thank you, mr. chairman. secretary clinton, as you know, the people that were held recently in haiti as a result of their travel there to attempt to assist some children in haiti, most of them were from idaho. and as a result of that, they were held for some period of

time. their familiesçó were very stressed over the situation that they were being held at and i want to thank you on behalf of them. your team both you assigned in washington, d.c. and the team that was on the ground in haiti, and particularly ted coley from your operation and katherine ferrell who was on the ground there in haiti were very, very help to feel the people in idaho and were very responsive. when some of us from congressional delegation jumped in, as you know, many americans are unaware of the difficulties they face when they get and snared in a criminal system in other countries and it can be very befuddleling. they don't understand why they don't have the same constitutional rights. they don't understand the facilities aren't up to the same

type of facilities here in the united states. i say secretary clinton runs a tight ship. so i want to pass that on to you. we have also received communication from some of the families thanking us and thanking your organization. so i wanted to pass that on to you. thank you so much for what you did without any reference to what the facts of the situation were there or what actually happened as far as the special situation. just as far as what the state department was able to do, you did and we're appreciative of that. thank you. >> thank you very much and i'll pass on those kind words, senator. >> thank you. senator luger. >> secretary clirnings i have three quick item i'll mention and ask for your comments.

on the statement that you gave in a speech on internet security and cyber security, take a look at it, but just tremendously important. i'm curious as to whether there are any budget that would rebutt that position that you took. and we've worked actively in this committee on the h.i.v./aids program and i think it's been a recognition by mark and eric and others that we cannot treat our way out of these problems. prevention is terribly important. it would appear that the prevention earths might be in for reduction in the budget so. if you would take a look at that and at least the rationale for the program as you see it. it does continue on a very broad scale and a very humane way. and finally, i'm justçó curious.

given the outcome of the election in ukraine, what new initiatives you might be pursuing there. many of the things you've attempted to do have been frustrated by the administration of the government. clearly, the affairs and crime are very important. so this is a sidebar. i wanted to raise a thought about that. >> thank you, senator. we are very serious about implementing a robust comprehensive internet security cyber security policy. it's got many aspects to it. we're reorganizing within the state department that we can be more effective in the whole arena of cyber security and better interact with our community and who are similarly focused with respect to our efforts to open up the internet

and keep it open to protect the freedom of expression and the virtual freedom of assembly in countries like iran. we are going after this with intense focus. we are working with private partners that often have the intellectual property and the access that is needed. it would be perhaps of some interest to you and other members of the committee to give you a classified briefing at some point in the future. and on our prevention and treatment efforts, we are attempting to maintain and certainly fulfill our obligations on the treatment side, even increasing, but we are moving more aggressively in the prevention side. in building systems.

-- in building systems. so i will give you an answer in detail about that because eric goose byhas given a lot of thought as to best how we can do that and partnering some countries that were not our partners to any great extent before like south africa where we are very deeply engaged helping them. and finally on ukraine, joan jim jones will lead our dell ghigse inauguration tomorrow. and we are going to begin exploring what we can do. we want to be responsive and supportive of this free, fair, and credible election process which has led to a new president. it is difficult. we have to wait to see how the government is formed and what their attitudes might be. but we want ukraine to know united states stands ready to be a positive partner with them in the future. >> certainly the idea that the new president is going to europe first and russia second was a

significant statement. maybe offer something to promise. >> i agree. >> thank you. >> madam secretary, as we wrap up, i want to give you a chance to perhaps say a word if you want to about one issue before the congress, before us and you right now, and that's the conference committee, the conference on the iran sanctions bill. deputy secretary steinbeck wrote -- expressing concerns that the legislation would "weaken rather than strengthen international unity and support for our efforts." i know you spitted a number of proposed changes at this point. so do you want to sort of just share what you might hope would come out of the congress and why at this moment? >> i appreciate this opportunity, mr. chairman. we very much support congressional action. we want a very broad global

sanction regime that isolates iran, encourages it to change its strategic calculus. and we think that there can be a very good partnership between the congress and the obama administration in order to achieve that, our goal is to support the purpose and principles of the congressional bills that have been passed and that are now in conference. but to work closely with you with some suggestions about how they would better fit into our agenda in the skk -- south carolina -- security council so that we can come out of the legislative process with a really strong tool and not just a statement of concern that won't, you know, that won't really dovetail with what we're trying to achieve. so we have a team led by

assistant secretary rich verma ready and willing to work with the congress, the conference committee in order to explore how we can come out with the best result. >> good. well, i appreciate your comments on it. we've been -- we try it within the senate before the passage to get some of that done. it wasn't possible. but hopefully, we can get there. i appreciate what you are trying to do. thank you so much. i think you've covered an incredible amount of ground and done so with clarity and we are enormously appreciative of that comprehensive. the afternoon has basketball. thank you very much. >> thank you so much, senator. >> we stand adjourned. >> secretary:, -- secretary, what about the $3 billion? >> the committee is not in order for those questions at that point. i ask you to respect the rules of the committee and the senate. thank you.

>> the record will be left open. the record will be left open. [captions copyright national cable satellite corp. 2010] >> secretary of state hillary rodham clinton will visit five nations next week. --

>> this week, there was a white house ceremony honoring loom mayors in the arts and academics. the national medal of the arts and the national humanities medals were awarded to 20 recipients.

>> as "washington post" international correspondent t.r. reid has traveled the world. his books are about his global views on contemporary issues including the united states of europe, the healing of america, and confucius lives next door. join our three-hour conversation with t.r. reid and your phone calls live sunday at noon eastern on book tv's in-depth on espn2. >> well, governors and friends, we've had a great winter meeting. i want to thank everyone for

being a part of it. we've had good participation by governors. we've had great presentations. we've had strong discussions at committee meetings. we had a great meeting this morning with the president, vice president, and a number of his cabinet officials. so this has been a very successful winter meeting for the n.g.a. and we all look forward to getting back to work in our state capitals tomorrow and joining as a group again this summer in boston. some boston. we have focused on health care principally during the time we have been together. it is an important part of the economic stress we are experiencing as state governments and in the business community as well. over the past decade, the new century has brought us periods of unprecedented economic growth as well as times of great hardship. the benefits and risks of globalization has been center stage, and it has become clear that all economies of

inter2009ed. we are making the -- inter2009ed. we are making the slow climb out of the recession. the way we do business in the public and private sectors will be different. because the economic head winds remain strong, the private sector and government are being it wased on our abilities to reinvent ourselves to succeed in this new environment. the private sector is being challenged to innovate and committee in the global marketplace. in the public sector, the state government is being asked to do much with little. for the private sector, wholesale changes to traditional business models are occurring throughout the country. we will hear about this shortly from someone at the forefront of these changes. for the public sector, as a governor i can tell you that the structure responsibilities and operation of today's government will undergo profound changes. over the next few years,

governors will be at the vanguard of major efforts to downsides and streamline state government saito it dirbletly differs services. these efforts will challenge citizens expectations about what government can do and how much they are willing to pay for those services. these issues, the challenges of the post recession economy, the reengineering of state government and the creation of new business models are the subject of this afternoon's meeting. i want to first introduce someone who is uniquely skilled at the help us understand the economic challenges. he is chief economist and do founder of moody's economy.com. it provides economic research and consulting services to businesses, governments and other institutions. mark's expertise includes macro, financial and regional economics. he conducts regular briefings on the economy, testify's

frequently before congress and featured in the media. he received his p.h.d. at the university of pennsylvania, where he did his research with gerrard ads and lawrence klein. he received his undergraduate degree from the horton school of the university of pennsylvania. let's welcome did mark zaydi. >> thank you, governor. thanks n.g.a. for the opportunity to be here today. i am going to speak for three hours -- no. [laughter] 20 minutes sound ok? i'm going to make four points. point number one, the recession is over. recovery has begun. the best evidence of that is real g. -- g.d.p. grew at ançó

analyzed -- analyzed rate of 4.9. a year ago when we were meeting, we were losing 750,000 jobs every month. those job losses have nearly abated. i think we have one more month of job loss to go in part because of bad weather, and after that we will start to get positive job numbers. housing market is up 50%. we are in a measureably better place today than we were a year ago when you were meeting here. in my view, a lot of this is related to or is due to the policy response, the very aggressive and unprecedented response by the federal reserve, the treasury, the fdic. through their efforts, and

there were many, including the zero percent interest rate, the stress test and so on. it has normalized. parts of the credit market are still dysfunctional. but broadly speaking, the financial system is stable, than is a necessary condition for an economic recovery. that is very positive. in my view, the fiscal stimulus was very helpful in turning the economy around. i don't think it is any coincidence that the recession ended at the same time that the stimulus was providing it's maximum benefit to the economy. that is unemployment insurance benefits, tax cuts. business investment was up strongly in the fourth quarter. aid to small businesses in the form of aid.

the cash for klunkers helped to clear out inventory and laid the foundation for an improvement in the manufacturing sector, which is what we are seeing today. manufacturers added to pay rolls in january for the first time in three years. that is in large part because of the turn in the vehicle manufacturing sector, in part due to the cash for klunkers and the auto bailout. now the recovery is uneven across the country. it is not everywhere yet. this map shows where i think each state is in its business cycle. one state, nevada, is in deep recession, obviously related to the housing bust and the problems in trade and tourism. a large number of other states are still in recession, but the rate of deadline is moderating. i suspect they will be in recovery shortly. we will see a lot more blue on the map. in fact, the blue states are

states that are in recovery. money in the farm belt, energy andry source-based economies. indiana and north carolina, k$w @ @ @ @ $@ @ @ @ @ @ $@ @ hr it's going to be fragile in @ hr 2010. the coast is not clear. at least not yet. and let me give you a few reasons for that concern. first is the job market itself. it's improved. layoffs have abated. you can see that here. the green line right hand scale represents the number of claims, initial claims. a very good proxy for leadoffs

and you can see we've made a lot of progress a year ago this time. we've had claims of $ -- 650,000 per week. 0,000 claims per week is consistent with a stable market. 350,000 per week is enough for job growth. and 300,000 per week is enough to create a boat load of jobs to start bringing unemployment down in a meaningful way. continuing claims, and this includes regular state benefits, extended and emergency benefits as part of the stimulus, continuing claims are the left-hand scale, and they are running around 10 million. that is a lot of people getting continuing claims, and that has not come down. until it does, we can't be sure that hiring is starting to kick in. there are a couple of reasons i can proffer for this lack of

hiring. one is credit, particularly for small business people. they can't get credit. big business, no problem. they can go to the bond and commercial paper market. small business rely on small banks. small banks are under tremendous pressure. many of them rely on credit cards. back in the summer of 2008 there were 42 million bank credit cards outstanding. some people are clipping those cards saying i am not going to borrow, but a fair amount of that is credit to small business. they can't get it. they rely on those cards and as a result they are not hiring. another result is a lack of confidence. many businesses suffered, and you don't forget that quickly. we need things like health care policy, financial regulatory reform, the bush tax cuts,

these things need to be nailed down. the uncertainty created by that is stopping big business from hiring. very important policy efforts. we need to address them. second reason, the ongoing mortgage foreclosure crisis. that is not abating. this is the number of first mortgage loans that are in foreclosure or clearly headed in that direction. they are 90 days and over delinquent. as of december, 4.2 million first mortgage in that preéi >> as states stand ready to assist in recovery efforts, we have resources should the

chilean government asks for help. i've reached out to the president to let her know that we will be there for her should the chilean people need assistance and our hearts go out to the families who may have lost loved ones. we're also preparing for a tsunami that could reach american shore today. a tsunami warning is in someplace and people have been alerted to evacuate coastal areas. i urge citizens to listen closely to the instructions of local officials who will have full support of the official and recover for many damage that may be cost. the citizens on the west coast be prepared as there may will dangerous waves. the most important thing that you can do is to carefully heed the instructions of your state and local officials. once again, we've been reminded

of the devastation that can come at a moment's notice. we can't control nature but we can and must be prepared for disaster when it strikes. in the hours ahead, we will don't take every step possible to protect our since and we will stand with the people of chile. >> should charlie rangel be in charge of the ways and means committee? >> president obama making a statement about the earthquake in chile and we will return you now to the national governor's association discussion of states and the post-recession economy. >> to the broader economy and to payrolls up until now because of the help in the stimulus providing but influence they get more help, the budget gaps will result in cuts. lots of lost jobs. added

to pay rolls, and state and local governments cut 42,000 in january. point number two is that the economic recovery is going to be fragile and tentative. that gets to point number three. that is i think it is important for policy makers, federal reserve and fiscal policy makers to remain aggressive to ensure the recovery evolves into a self-sustain thing. i think we will make it through. the odds are we won't experience what we are calling a double dip. but the risks are all to the down side as you can gleen from my comments. more importantly than that, if we go back into recession, it is going to be very difficult to get out. we have a zero fund rate target. last year's deficit was $1.4 trillion. we don't have the policy resources to respond, so it is important that we remain aggressive to ensure the

economy moves forse. i think it means more help for unemployed workers, more help for state and local governments. jobs tax credit i think is a reasonably good idea, worth a shot, to try to get the job market moving, get that hiring that we need to evolve into a self-sustaining economic expansion. i think by 2011 and 2012 we should be off and running with god policy support. point number four, even on the other side of all of this when the economy is expanding again, things will look better for you, but they won't look great. there are a number of broader economic forces that are going to weigh on tax revenue growth. tax revenues are going to grow. they are just not going to grow at the rate they have historically. let me give you three reasons for this view. first is the job market itself. even under the best of circumstances, it's going to be

years before we regain all the jobs that we have lost in this recession and bring unemployment back down to what we would deem to be fun employment. can you see that here. the orange line on the left-hand scale shows the number of jobs in millions. you can see where history ends and the forecast begins. you will note that in the recession we lost 8.4 million jobs from peak to bottom. to give you context, in the last recession in the wake of the tech bust, we lost 2 million jobs. so in this one, four times as many lost jobs. we don't get back to the previous peak until 2013. and i am on the optimistic side for job growth. this i would view as an optimistic assumption or forecast. the jobless rate, you i will note that i don't expect any improvement there until this time next year and it really won't be until 2014 when the

unemployment gets back to around 5% or 6%. the message here is personal income tax growth will be slower than what you are accustomed to. hire upemployment, slower growth in personal income tax receipts. that is going to be the case at least through the mid part of this decade. the second revenue source under pressure is sales taxes. the most important source of revenue for states in aggregate. states have had a significant tail wind at their back for the last -- as you can see here, at least 20 years. the rising share of the nation's economy that is accounted for by consumer spending. i could have taken this graph all the way back to 190, and consumer spending has been rising for 30 years. given what we are now going through, that was unsustainable, but it did

provide a lot of juice to sales tax. consumer spent beyond their means and powered growth not only here in the united states, and globally. that was an important sort of growth. obviously we are at an inflection point. you can see my forecast. at the very best, consumers hold their own, more likely we will start to see savings rates rice. that doesn't mean tax rates won't grow, but they will grow at a much slower rate than what you have experienced historically. finally, and this is obviously more important to local government than states, but their problem is your problem as well. i think it is fair to argue that housing values and commercial real estate values are going to remain depressed for quite some time. this is a good measure of national house prices. it is an index. it is equal to 100 in 2000 q 1, the beginning of the last

decade. can you see the boom and the bubble. house prices nearly doubled in the bubble. you can see the crash. and when it is all said and down, house prices will fall about 34% peak to trough. an terrell, 2012, 2013 and 2014, growth, but slow growth. it is going to take years to work through all of that. it will slow the rate of growth in house prices, and that will be a constraint on local tax revenues. my final point is that even when we are on the other side of this great recession and financial panic when the economy is growing again, your troubles will not go away. you will have to continue to struggle with revenue growth that is measureably less than what you have become accustomed to. being a good economist, i'm

sorry, i can't end on a positive note. but i am going to turn it back to you. it depends on how you question me. we could end on a positive note. it is up to you. [laughter] >> i hate to tell you, but you're wrong for about 2/3 limiting us, wur troubles will go away. >> that was your optimistic note? good point. questions? >> you indicated right near the end that you thought the personal rates -- personal savings rate is going to continue to move up. is that individual and business or just individual? and is there any strategy at the state level we can do -- ultimately you have to believe that is a good thing for the country. but give me some flavor as to what you think that means economically? >> the personal savings rate, just to give you context, was

1% at its low before the recession. that was an all-time low. it is currently about 5%. the high was 1980. it was about 10% then. i don't think we go all the way back to 10%, but we are going up from 5% to somewhere closer to 10%. and it is for two broad reasons. one is many middle upper middle income households have seen their nest eggs diminish quite a bit. they are worth a lot less, and they know it is going to be very difficult to get the kinds of returns on their assets that will replenish that nest egg without more saving. they are not ready for retirement or their kids' college education. they have to save more. and the bulk of the saving

curse in the upper income ground. they are going to be more cautious. the second thing is i think everyone understands that no matter how you look at it, our long-term fiscal situation is really quite disconcerting and at the end of the day means higher tax rates. it means growth and spending cuts, but higher tax rates. i think people understand that, and that means they are going to have to save in preparation for that eventuality, and fewer benefits and entitlement programs. so i think savings rates will go higher, and i think it is important that it goes higher to prepare for these kinds of things. i don't think there is anything states can or should do to stop that. i think they should understand this as a force and prepare for it, and that means if you rely very heavily on sales tax revenue, you might want to start thinking of ways of broadening your tax base