Chairman STARK. Thank you, Mr. Sommers. Let me and if this is information you feel is privileged, please don't hesitate to tell me so, but could-what I am curious to get at is if you know for the people who I am going to suggest you insure, if that is the proper terminology, if you have a ballpark average cost per year per person? Is that something you could do? Mr. SOMMERS. I don't have that off the top of my head. I would be glad to supply it for you. [The following was subsequently received:] February 22, 1994 MMA Mennonite Mutual Aid Toll-free 1-800-348-7468 The Honorable Pete Stark Dear Mr. Chairman: Thank you for inviting Mennonite Mutual Aid to provide testimony for your Health Subcommittee on February 4. I agreed to supply you with some additional information about the cost of MMA's health plans. Most of our health plans purchased by persons under age 65 would be classified as "Individual Health" by standards of the marketplace. For 1993, the average annual price our members paid per covered person was approximately $1,479. This figure covers a variety of comprehensive major medical plans. The average annual price per person covered at the end of 1993 in our most recently issued comprehensive plan with a $250 calendar year deductible, 80/20 coinsurance is $1,225. Our administrative costs have been lower than others in the past. Over the period of time from 1989 through 1993, total administrative and sales expenses as a percent of health revenues averaged 15.6% for this block of business. These costs also include expenses incurred to develop and implement new forms of managed care. I'm enclosing a graph showing administrative expense ratios from various types of organizations for calendar year 1992. This information has been reported to us from A. M. Best in the general insurance press, through our consulting firm Milliman & Robertson, and from the New England Journal of Medicine. The graph shows that expense ratios for individual and small group carriers are in excess of 30%, large group carriers slightly under 25%, HMO's at 15%, and hospitals at 25%. MMA's expense ratio of 15.1% for 1992 is noted with the red horizontal line. There are several factors which enable MMA to operate at lower overhead cost levels. Salaries for management positions are significantly lower than for commercial organizations. Members of our churches have a propensity to purchase their coverage from MMA, making our costs related to sales lower. MMA's staff and operations are located in a relatively low cost-of-living area. The MMA staff has a strong work ethic. Much of this grows out of our heritage as a people. But it also relates to MMA's mission. As an organization accountable to the Mennonite Church, MMA is involved with a purpose that is much larger than itself. Many of our staff are willing to "go the second mile" to help with projects because they believe in MMA's vision of serving the church. Service is a core value that we emphasize. We value serving one another and our customers with commitment, efficiency, and competence. Over the years we've developed efficient systems for running our business. In addition, we budget and evaluate expenses carefully before spending our members' money. This is an ongoing challenge -- to be good stewards in the midst of significant changes in the financing and delivery of health care. Mr. Chairman, if I can provide additional information to assist you in your committee process, please let me know. Thank you for your sensitivity to our values and beliefs. Sincerely, вал свтиния Karl C. Sommers Vice President, Corporate Planning CC: Walter Vinyard enclosure Chairman STARK. I am just curious. As I say, I am thinking of suggesting that you bid on the Medicare contract for the government and provide Medicare, if you would like to expand your operations a little. I like your philosophy. And the only other thing I would say is that I think this subcommittee certainly, and I suspect the Congress, will be sensitive to your concerns. And if not, I would introduce you to counselor Alexander here who is an expert on first amendment cases, which I rather suspect you would qualify for immediately if you were in fact restricted under the plan. So my guess is that we will try and work with you to see that you can continue to provide the fine service to your community that you do. Mr. SOMMERS. Thank you very much, Mr. Chairman. Chairman STARK. But in exchange, now, we ask for some advice on keeping overhead down and some of those other things. That is the quid pro quo. How is that? Fair exchange? Mr. SOMMERS. Fair. Chairman STARK. Thank you. I wanted to just kind of see-Mr. Barnes, are you an actuary? Mr. BARNES. Yes, sir. Chairman STARK. All right. Do you know, because Mr. Gustafson and I are going to have to discuss some of this. It is my understanding-I am not an actuary and I have the deepest respect for them. I can't understand what they do, but-or how they do it. I guess I know what they do. But I don't think that there exists and the head of your actuary society has said this several times in testimony, a method for risk adjustment prospectively. Retrospectively, we can risk adjust, but that is just cost reimbursement, basically. I know Mr. Gustafson has an outline which is attached to his testimony, but it has a couple of conditions that I am afraid don't let us get to what you want to do with it. I have no quarrel that we need it, Mr. Gustafson, but you do suggest there are some minor little pieces of this that need to be worked out. And, for example, definitions of risk classifications and relative factors for each risk category and a reference premium. And as far as I know, there is no-at this point, there is no plan of risk adjustment that we could put into operation that your principal or Mr. Barnes' company would sign on to and say we are willing to risk our stockholders' or our membership's money based on the fact that this is going to even out of a selection process against us. I mean, is that fair that what you are talking about in your risk adjustment is an approach that could work if we had all the pieces completed? Is that a fair assessment of what you were testifying to? Mr. GUSTAFSON. I think it absolutely is a fair assessment. I would like to say that, in my judgment, the real issue is not whether we have mandatory or voluntary alliances as it pertains to risk selection. Either way, as we see it, something has got to be done to take care of the potential problem where, even with mandatory alliances, some of the health providers are going to have different risks come to them for whatever reason, not through cherrypicking |