deeply involved in financing medical care for aged persons, and there is no reason to doubt that the degree of governmental involvement will increase. In this context the real question is: will our Nation work toward a reasonably simple, uniform, and financially responsible governmental cost-spreading means which can gradually come to cover basic health services for the bulk of our retired popriation, or, on the other hand, will we continue to place primary reliance on the patch-work quilt of Federal, State, and local assistance programs based on varying concepts of indigency? Not a States rights or partisan problem Although I respect and support the right and responsibility of State and local governments to deal in their own fashions with State and local problems, I am satisfied that the problem of fairly distributing aged health care costs is a national problem on which Federal action is appropriate. Incidentally, local autonomy arguments are hardly persuasive in view of Federal influence through fund-matching programs under present indigent health care financing, and in view of the fact that our State Governors, at the 52d Annual Governors' Conference in 1960, voted more than 2 to 1 in favor of a social security financing approach. I am also impressed that this is not a partisan issue, because support for social security financing has come from leading Republicans and Democrats alike. My preference for the social security financing approach is based on two key reasons—one economic and one social. Responsible financing Substantial amounts of tax funds are being and will continue to be used for aged medical care. A specific payroll tax spreading this cost over practically all employers and practically the entire working force of our Nation is a simple. sound and fiscally responsible financing method. Periodic appropriations from general revenues at all governmental levels-with revenues derived mainly from property, sales, and income taxes, and appropriation requests competing directly with fiscal demands for all other governmental purposes-involve a chaotic and irresponsible financing approach whose deficiencies will become increasingly glaring as our Nation's retired population increases and as health care costs continue to rise. Recognizing that a long transition must occur before social security financing can reduce, to minor proportions, the current aged health care programs financed from general revenues, I urge this committee to approve the King-Anderson bill which I believe represents a sound course for the future. Dignity through recognition of right This committee has heard the social argument many times in many forms, and I will not belabor it. Its premises are the dignity of our senior citizens, and their entitlement to share, as a matter of right and not as an act of charity, in the progress of our Nation's economy and technology which has risen from the base which they established during their productive years. The evident conclusion is broad-based financing, with eligibility for services entirely separated from concepts of indigency. SOCIAL SECURITY FINANCING IS A BASE, NOT A SOLUTION Both opponents and supporters of the King-Anderson bill are well aware that the benefits provided under this measure-primarily institutional care supplemented by limited outpatient services-do not meet the full need. Indeed there is no pretense that the King-Anderson bill provides a complete solution to the problem of financing health care services for our retired citizens. However, enactment of this program, by covering the core of expensive institutional services, will provide a foundation on which adequate health care coverage through voluntary financing means can be developed-an opportunity for sound and constructive cooperation between the Government and private organizations. Let me again draw an analogy with the retirement income feature of the basic social security program. For most retired families in most parts of the country, social security benefits, in themselves, provide only a minimum level of retirement income which could hardly be regarded as adequate at today's living costs. However, the retirement incomes provided under social security are the base upon which increasingly widespread retirement plans in business and in industry are built. The common pattern is the development of retirement plans which are integrated with social security to supplement the basic minimum social security benefit and provide an adequate level of retirement income through the combination of social security and voluntary supplementation. Similarly, if expensive institutional health care costs are covered to a large degree through enactment of the King-Anderson program, it then will become feasible for voluntary health insurance and service carriers to arrange supplemental coverage on a voluntary basis to cover the gaps and inadequacies in the basic program. It will also become feasible for group purchasers of health care coverage, such as health and welfare funds, to develop arrangements under which retired beneficiaries of such funds may continue to benefit from broader prepaid coverages which are now generally available only to members of the active groups. Suggested amendment to King-Anderson bill Recognizing that the benefits provided under H.R. 4222 are far from complete, and that in many respects this bill will make its most valuable contribution by providing the core on which much more adequate prepaid health benefits can be provided, we wish to suggest that this committee consider an amendment along the lines attached to this statement. An amendment of this nature will be of great value to social security beneficiaries who may have health care coverage under plans such as the Kaiser Foundation health plan which do not pay claims in money but which arrange for direct hospital and medical care services. The significant point here is that most voluntary prepayment plans operate by paying claims in money, with payments being based on bills from the actual providers of service at the usual fees for the services rendered-for example, so many dollars for a certain X-ray or laboratory procedure, etc. Plans of this type can adjust benefit schedules readily to supplement the benefit schedules of the King-Anderson program. There are, however, a considerable number of health care plans, such as the Kaiser Foundation health plan, often described as "comprehensive plans," "group practice prepayment plans," or "direct service plans," which function on a per capita or other nonfee basis and do not pay claims in money. The suggested amendment will make it possible for plans of this type to supplement the benefits of the King-Anderson bill in an effective manner; and it will permit social security beneficiaries who have chosen to enroll in such plans to have their social security health care benefits effectively applied toward meeting the costs of expensive services, with comprehensive coverage tending to minimize institutional care. CONCLUSION Morally the United States cannot, and I am convinced politically will not, ignore the increasing medical problem of our retired citizens. From my position in industrial management it is obvious that the economic costs of medical care for the aged will be born somewhere in the economy. Increasingly through taxation, partially through charity, and partially through aid from younger employed family members and consequent diversion of purchasing power from our workers and their families, health care costs beyond the means of our senior citizens will be met; the ultimate impact of these costs will be on the productive portions of the economy-primarily industry, business, and the employed or self-employed. From my experience in the management of a comprehensive prepaid health care program, and with the problems of spreading health care costs, I am satisfied that voluntary cost spreading organizations cannot, alone, meet the health care needs of retired persons adequately and realistically. I am convinced that governmental aid in cost distribution, through the simple and proven social security system, coupled with provision of services through private and voluntary organizations, constitutes the most practical and desirable solution yet proposed to this major national problem. Thus, I urge this committee's support of H.R. 4222, the King-Anderson bill. SUGGESTED AMENDMENTS SUBMITTED BY KAISER FOUNDATION HEALTH PLAN, INC. We respectfully suggest the following amendments to H.R. 4222 as introduced February 13, 1961: FIRST AMENDMENT In the first sentence of section 1609 (a) on line 4, page 21, delete "subsection (f)," and substitute in lieu thereof "subsections (f) and (g),”. SECOND AMENDMENT The insertion of a new subsection designated "subsection (g)" following the end of section 1609 at line 18, page 26, as follows: "(g) The Secretary is authorized to make payments to approved voluntary nonprofit health care plans which provide or arrange for services described in section 1603 on a non-fee-for-service basis, if such plan is selected by an individual entitled to benefits under section 1605. Said payments will be in lieu of all other payments for health care benefits provided under this Act. "The Secretary shall formulate standards for the qualification and approval of such voluntary nonprofit health care plans, and shall establish procedures for the selection of such plans by eligible individuals. The Secretary shall determine and make such payments in advance on the basis of estimated average per capita expenditures on account of generally comparable persons residing in the same State or general geographic area who are entitled to receive services under other provisions of this Act. Subsequent adjustments in such payments may be made on account of overestimates or underestimates." HAVERFORD COLLEGE, Haverford, Pa., July 29, 1961. Hon. WILBUR D. MILLS, Chairman, Committee on Ways and Means, DEAR CONGRESSMAN MILLS: In accordance with the communication of July 24, from Mr. Leo H. Irwin, Anne R. Somers and I are herewith submitting three copies of a joint statement to be included in the record of hearings on H.R. 4222. I regret that I could not appear in person. If I can be of any assistance to you or members of the committee after I return to the country on August 17, I would be happy to have you call me. I congratulate you upon holding these hearings on importance to our national welfare. With all good wishes, an issue of primary Faithfully, HERMAN M. SOMERS. STATEMENT OF HERMAN M. SOMERS AND ANNE R. SOMERS For purpose of identification, we have been individually or jointly teachers, writers, and consultants on medical care, social insurance, administration, and related fields for many years. We are the authors of the recent volume. "Doctors. Patients, and Health Insurance," published by the Brookings Institution, Washington, D.C., and of numerous articles on the organization and financing of medical care published in professional journals. We regret that our absence from the United States has prevented a personal appearance so that we might be available to answer questions. We appreciate your kind invitation to present this statement instead. Two decisive facts distinguish the medical care problems of the aged and determine the necessity for a different means of financing such care: (1) A large majority are no longer in, or married to a member of, the labor force a fact which has great influence on incomes and the capacity to obtain health insurance; (2) the incidence of illness and disability falls upon them far more heavily than on the rest of the population-about 21⁄2 times as much. These facts explain why the problem of providing care for the aged has attracted more public attention and concern than any other current issue in financing of health services. The medical needs of older people and their utilization of health services are much greater than the rest of the population, but their financial resources for meeting such needs are smaller, and they have less access to health insurance, particularly to the financial and other advantages of group coverage. The great majority of Americans who are insured have such insurance in connection with their employment status, under employeebenefit plans. (Most of the spectacular growth of health insurance is attributable to the increase of such plans.) The aged have little or no access to such advantageous coverage. Thus it is not surprising that health insurance enrollment for the aged is far below the national average their benefits are much more limited, and their premiums more expensive. The aged are relatively poor risks without the money to balance this handicap. The difficulties are likely to increase because the aged are rapidly growing more numerous. Moreover, as life expectancy is prolonged, even at advanced ages, a greater proportion of those 65 and over live on to more advanced years when the extent of illness and disability and the expense of health insurance are even greater. In recent years, various pressures have combined to activate the health insurance industry into new attempts and methods to cope with the extraordinary difficulties of providing insurance for the aged, a field it was understandably reluctant to enter for a long time. Considering, however, that medical costs for the aged appear to average around a third of their average incomes, it is hardly surprising that private health insurance has thus far failed to make a decisive contribution toward meeting these costs, and the prospects are not encouraging. CURRENT METHODS OF HEALTH INSURANCE FOR THE AGED The insurance has classified its current programs for the aged in seven general categories. In our recent book ("Doctors, Patients, and Health Insurance," Washington, D.C., 1961), which contains detailed documentation and data supporting all the generalizations in this statement, we have analyzed the effectiveness and prospects of each of these methods. Here we can only summarize briefly. 1. Continuation of insurance on employed older workers under group insurance plans.-As already indicated, only a small proportion of those 65 and over are employed and the proportion is growing smaller. Moreover, it is doubtful if more than one-fifth of those still employed are covered by employee health insurance because most are self-employed, or in agriculture, household work, casual labor, or in small service establishments where coverage is notoriously lacking. Probably no more than 800,000 aged persons had insurance by this means in 1959, and we can expect no better proportionately for the future. 2. Continuation of group insurance for retired pensioners.-The increase of this type of coverage is indicative of the drive that industry, labor, and many carriers are making to meet the problem. About 40 percent of the larger, collectively bargained, health plans continue coverage of retired workers for hospital benefits. But such coverage is almost always tied to the retired worker's ability to qualify for a pension. Only about one-third of American employees were even potentially covered by a private pension plan at the end of 1958. Half of these will probably be disqualified by insufficient length of service. Of the 14 million workers who received private retirement pensions at that time, probably less than one-fourth had pension-related group medical coverage. As financing is based on current annual costs, increasing with age, the burden to industry is likely to become prohibitive after such a program has been in effect for some years and as the ratio of covered pensioners to active employees increases. In some long-established plans, pensioners already represent as much as 25 percent of all enrollees. Such a plan may also add another barrier to employment of men over 40. This type of coverage appears to have most promise as a supplementary program rather than as a means for providing adequate coverage by itself. 3. Conversion from group to individual coverage.—This technique, developed primarily by Blue Cross/Blue Shield, is one of the most important methods of covering the aged and accounts for most of Blue Cross enrollment in this age group. Such conversion is available only to those who have participated in group insurance and is, of course, more expensive than group insurance. In most cases, moreover, the individual loses the advantage of employer contributions, which makes the additional cost much greater. On the other hand, group conversion policies generally provide the aged with more generous benefits and better value than other types of health insurance available to them, due primarily to the community-rating principle of the Blue plans. But the financial difficulties of Blue Cross, in relation to its experiencerating competitors, are causing a rapid diminution in community rating. The evidence indicates that group conversion cannot work satisfactorily without community rating; the aged cannot pay the full costs of their coverage. It appears that group conversion, like pension-related coverage, can play an im portant supplementary role, but cannot meet the basic health insurance needs of the aged. 4. New issuance of group insurance to special groups of older people.-This is a limited technique for reaching special categories of retired persons. Membership has usually been restricted to categories considered to be better than aver age risks, such as retired teachers or civil servants. Benefits and rates are generally less favorable than those under pensioners' programs or Blue Cross-Blue Shield group conversion. To the extent that the relatively good risks, for whom this method was originally designed, obtain pension-related medical care programs, the rather special market for new group coverage will decline. On the other hand, this de vice is generally impractical for reaching poor risk groups or those who were never eligible for group coverage. 5. Continuation of individual insurance after 65.-The utility of this method depends, in the first instance, on the general effectiveness of individual insurance in reaching that portion of the population which cannot qualify for group coverage. The limitations of most individual insurance as a means of reaching the typical health insurance have nots are readily apparent. The numerous eligibility requirements and much higher costs tend to exclude precisely those who are excluded from group coverage-the small storekeeper, the chronically ill, the casual worker, etc. Individual insurance is a minority pattern and, in many cases, represents only supplementation of a group policy. Continuity of coverage is by no means assured under these policies. Most policies are cancellable and are, in practice, canceled by the carriers at advancing ages and as the need for protection increases. Moreover, the policies generally become more expensive with advancing age and as the insured's means of paying for them declines. Very few of the aged can look for adequate protection to this device. 6. New individual insurance after 65.-This is the newest and most radical departure from traditional insurance practice. While Blue Cross-Blue Shield plans took the lead in offering new senior certificates-making a lower bene fit plan available at lower cost-the most publicized of all recent efforts to cover the aged have been the 65 plus contracts developed by Continental Casualty and Mutual of Omaha. Within the last few months Metropolitan Life also introduced a plan. These plans have attracted widespread interest as efforts to apply group underwriting techniques to nongroup individuals and thus provide better value. Adverse selection is presumed to be reduced by limited-period enrollment cam paigns. Acquisition costs are sharply cut by use of direct newspaper selling and virtual elimination of salesmen. As a result of such economies, guaranteed renewable policies are offered to those over 65 at no higher cost than most individual underwriters charge for the typical cancelable policy issued at a younger age. 1 Although benefits are very limited in such plans, the effort represents progress. No enrollment data have been made available by the carriers, but indications are that the number of policies in force is small. Most aged cannot afford the costs even when they represent a comparatively good buy. The lapse rate is reported to be high. 7. Insurance policies paid up at 65.-This last technique, used only by a few companies, is wholly impracticable for the vast majority of Americans for a long list of reasons. For example, if bought at a young age, initial costs of such a policy are not only high but the proportion of medical expenses that would be met in later years would depend on the trend in medical costs, since there is a fixed scale of monetary benefits. prices, for example, would be almost worthless today. If such a policy is ac A policy written in terms of 1940 hospital quired only a few years before retirement the cost is prohibitive. It is not surprising that the sale of this type of policy has not been impressive. AN INESCAPABLE IMPASSE These pessimistic observations do not reflect on the efforts or inventiveness of the insurance industry. They result from a fundamentally intractable situation beyond its control. well. The most recent field survey showed that 46 percent of the aged had Given the circumstances, the industry has done remarkably some form of health insurance in 1959, although the proportion fell to 32 percent for those 75 and over. |