wish I had more time. We have a heavy schedule and I think that this has been a fine presentation. (The following statements were submitted for the record of the hearings after the close of the oral testimony.) EXTENSION OF THE REMARKS OF DR. ERNEST B. HOWARD, ASSISTANT On July 24, 1961, at the opening of hearings on H.R. 4222, the Honorable Abraham Ribicoff, Secretary of the Department of Health, Education, and Welfare, testified in behalf of the proposed legislation. He incorporated in the record a pamphlet entitled "Actuarial Cost and Estimates for Health Insurance Benefits Bill," actuarial study No. 52, dated July 1961. This study was prepared by the Department of Health, Education, and Welfare. I requested members of my staff trained in this field, to examine with me this document. As a result of this examination, I find that certain comments must necessarily be made for the record. These are as follows: (1) The actuarial study is sketchy and incomplete in provision of data. It notably fails to provide the basic number of eligible beneficiaries and arrives at figures for three of the four benefits which cannot be duplicated through the data provided in the study or in any reference cited in the study. (2) The hospitalization benefit cost can be approximated very closely on the basis of the data provided in the actuarial study and in the HEW background paper submitted by Mr. Ribicoff. (Health Insurance for Aged Persons, July 24, 1961.) However, our approximation, a figure within $4 million of the HEW figure, establishes that the HEW figure is an absolute minimum. (3) The per diem hospital charge (at about $32) and the estimated number of beneficiaries (14.25 million) are low figures and indeed too low. Revising them has the effect of raising the hospitalization benefit cost approximately 19 percent and other benefit costs 6 percent. (4) The table of the revised cost estimates on page 16 does not include the costs for administration which are another 5 percent or $53 million. (5) Most important of all is the great attention given to the apparently precise figures in this text table on the lower part of page 16. It is highly regrettable that equivalent or greater attention is not given to the disclaimers provided on pages 11 to 14 and 20 to 22. In effect these disclaimers acknowledge a range of variation between high and low estimates in the vicinity of 60 perrent for the benefit likely to constitute the major cost-the hospitalization benefit-and even greater ranges of error for the other benefits. As a result of this condition the costs of H.R. 4222 even according to the administration's figures may be 24 times as great as the rock bottom estimate of $1.06 billion plus administrative costs. (6) We emphasize that the figures cited are not ours, but our computations of HEW's. We call attention to the variation to which the HEW estimate is subject and to some of the shortcomings of HEW's arithmetic and methods. We believe that the insurance people, represented by the American Life Convention, Health Insurance Association of America, and Life Insurance Association of America are in a much better position to make an estimate than we, and have presented a more reasonable figure than HEW's minimum. (7) There is good reason to believe that the tax burden of H.R. 4222 even in its earliest years may well be almost three times as great as that estimated by the administration. In estimating the costs of home health service benefits, the report states that on the basis of available data "over the long range for the country as a whole," an annual per capita cost of about $6 is a good estimate. But it takes as the 1963 figure $1 per capita stating: "it is likely that this is the cost ($1 per capita per annum) that will develop in the early years of operation of the program” (p. 13). The reason given is the "limited general availability of such services at present." This comes rather close to pulling numbers out of a hat. But let us accept the assumption that the home health service benefit will cost $1 per eligible beneficiary annually in the early years of operation of the program. With a population of 14.25 million, used by Mr. Ribicoff in his state. ment and in the HEW background paper, this would mean an annual cost of $14.25 million, 40 percent higher than the figure of $10 million given on page 16 by HEW. Similarly in estimating the cost of the outpatient-diagnostic-service benefit, a cost of $1.50 per enrollee is estimated (20 percent of $7.50) (p. 14). With the same total population this gives an annual cost of $21,375,000, more than 100 percent higher than the HEW figure of $10 million. Sufficient information is not available to enable us to try to compute a duplicate figure for the skilled-nursing-home benefit. The HEW figure in this case is $25 million. The original estimate was $10 million. But there are no data provided in this study to explain how the estimate was revised upward from $10 million to $25 million. Perhaps $10 million is too low, but why $25 million? The Wall Street Journal report of May 24, 1961, stated not a single figure but a range from $25 million to $255 million. We note that only the lower figure is used in actuarial study No. 52. HEW's estimate of the hospitalization benefit cost can be roughly duplicated, using data and references in the report and in the HEW background paper. It is possible that HEW used somewhat more detailed information and consequently obtained slightly different results. Or it is possible that here as with other components their arithmetic was wrong. Using what we believe to be HEW data, we computed on the basis of their low utilization experience an estimate of $1,029,237,536 (table 1) which we designate the low estimate. The acturial study, moreover, notes that the hospitalization benefit cost should be reduced $6 million because of the skilled-nursing-home-benefit provision and $4 million because of the home-health-service-benefit provision. Thus, our own arithmetic provides a low estimate for the hospitalization benefit cost to be $1,018,987,536. This exceeds the HEW estimate of $1,015 million by only $4 million. HEW estimates administrative costs at 5 percent but neglects to add this cost into the overall cost estimates (p. 16) which would increase them another $53 million. However, other elements beyond these arithmetic differences are of great, and we think even greater, importance. Some basic figures in HEW's calculations ar unrealistically low. Thus, HEW cites a figure of $32 for per diem hospital charge in 1962 and apparently uses this figure in its cost estimate of the first 12 months' provision of this benefit. In 1959 the average per diem charge in short-term non-Federal hospitals was $30.19. Thus, Mr. Myer's per diem allows for an average increase of less than 2 percent per year in the cost of hospitalization. This is extremely low. From 1954 through 1959 these costs increased at about 6 percent yearly. If we use $35 as a per diem charge, allowing an average increase of 3.9 percent per year, this is still a conservative estimate since the evidence suggests continuing increases in the cost of hospitalization; for example, the wages in industry are relatively low. Although Mr. Myers stressed the difficulty of making this estimate, his figure of $32 is much lower than the experience warrants. Use of a $35 per diem rather than the $32 raises the low utilization cost $114,630,000. A The question of the population is also important. Before the 1960 decennial census returns came in, it was thought that the eligible population would be 14.25 million. But the census returns showed this to be an underestimate. figure over 15 million is far more likely to be the correct one. In our opinion a population of 15.112 million, based on information from the 1960 census. should be used. Making solely this change in HEW computations increases the costs by $68,569,000 (table 2). But this difference is a minor matter in comparison with some others. With respect to the hospitalization benefit costs, actuarial study No. 52 states on page 11, "The spread from the intermediate cost estimate to the high cost estimate (or to the low cost estimate) is approximately 15 percent due to the hospitalization element alone and perhaps another 15 percent due to the range of variation inherent in the basic OASDI cost estimates." We infer from this that between the low estimate ($1,015 million) and the high estimate, the variation may be as great as 60 percent. Thus, if our estimate of $1,195 million for hospitalization costs-with allowance for a more realistic per diem hospital charge and a more up-to-date population estimate is raised 60 percent to allow for the variation that may exist between the low cost estimate and the high cost estimate, the high cost estimate becomes $1,912,446,000. Although the study indicates some measure of the margin of error to which estimates of hospitalization costs are subject, it makes no specific provision for the margins of error in cost estimates of the skilled-nursing-home, homehealth-service, and outpatient-diagnostic-service benefits. In view of this omission and the general statements regarding the difficulty of making estimates in these areas, as pointed out on pages 11 to 14 and 20 to 22, we can only infer that the margins of error are substantially greater in these areas than in the case of hospitalization benefit costs. If we adjust the hospital benefit cost for more realistic per diem charges and more recent population information and raise it 60 percent; if we accept the high figure reported in the Wall Street Journal for nursing home costs-$255 million-then make the population adjustments to the figures for home-health services and outpatient-hospital diagnostic services and then double those figures to alow for a 100 percent range of error, we come up with an overall cost estimate of approximately $2.4 billion (table 3). This figure is extremely close to the figure arrived at by the American Life Convention, Health Insurance Association of America, and Life Insurance Association of America in their testimony. They estimate that this bill's "level premium" costs will require a tax rate of 1.73 percent on a $5,000 taxable earnings base, 2.6 times the 0.66 percent estimated by the administration. In other words, the tax on employer and employee combined can be expected to be not an additional 0.5 percent but 13 percent, which in view of already scheduled increases in the social security tax would easily carry the tax rate over 10 percent to approximately 10% percent. It must be emphasized that the figures which we have presented do not constitute our estimate of the cost of H.R. 4222. They represent an estimate of the cost of H.R. 4222 which, except for the higher per diem hospital charge and the population factor, can be derived from the data provided in the actuarial study No. 52 and the supplementary background paper which Mr. Ribicoff distributed at the time he presented his testimony. TABLE 1.—Computation of inpatient hospital benefits 1. Patient days of utilization per eligible aged person per year-2. Average cost per patient day-- 3. Days of hospital care per aged person_. 4. Total days of hospital care (2.46) (14,250,000). 5. Average length of stay, days.... 6. Total number of stays-- 7. Proportion of hospital stays 9 days or less--- 8. Proportion of days of hospital care accounted for by long stays (1-0.182) __ 9. Number of stays over 9 days (0.537) (2,352,685). 10. Total days of stays less than or equal to 9 days in length (0.182) (35,055,000). 11. Total days of stay over 9 days (0.818) (35,055,000). Total days of stay over 9 days_. Total deductible days of stays over 9 days (9) (1,263,392) – 12. Total days to which deductible does not apply13. Total days when deductible does apply 11,370,528). (6,380,010+ 14. Costs of inpatient care, 60-day benefit (32) (17,304,462)+ (32-10) (17,750,538). 15. For 90-day benefit low (1.09) (944,254,620) – TABLE 2.-Adjustment for population factor [Dollars in thousands] 2.46 $32 2.46 35, 055, 000 14.9 2,352, 685 0.483 0.818 1, 263, 392 6, 380, 010 28, 674, 999 28, 674, 990 11, 370, 528 17, 304, 462 17,750, 538 $944, 254, 620 $1,029, 237, 536 ADDITIONAL STATEMENT BY DR. LEONARD W. LARSON, PRESIDENT, AMERICAN MEDICAL ASSOCIATION Mr. Chairman, I would like to reemphasize the fact that the American Medical Association believes that every person in this country, regardless of age, should receive medical care when he needs it, without regard to his ability to pay. If any member of this committee, or anyone else, knows now, or receives information in the future, about any instance in which anyone has failed to receive adequate medical care because he can't pay for it, we want to know about it. One final word, Mr. Chairman. The American people have been called upon to sacrifice to build up the strength of the Nation so that we can meet the rising peril of communism. But we don't believe that America can be strengthened by sacrificing the best system of medical care in the world. We don't believe America can be strengthened by copying medical systems under which one foreign country after another has lost leadership in the science and arts of medicine. We don't believe the strength of this Nation lies in the direction of substituting medical success for medical failure. EXTENSION OF THE REMARKS OF LEONARD W. LARSON, M.D., PRESIDENT, AMERICAN MEDICAL ASSOCIATION On August 4, 1961, subsequent to my statement before this committee, Mr. Joe Swire, director, Pension, Health and Welfare Department, International Union of Electrical Workers, presented testimony on H.R. 4222. During the course of his testimony, Mr. Swire made numerous misstatements and false charges concerning the American Medical Association. In the interest of making the record complete, I would like to add the following comments regarding Mr. Swire's testimony: Mr. Swire stated: "The AMA is no longer a professional organization of physicians. It has become a high-powered, well-heeled lobbying group." Comment In reply to this reckless allegation, let me summarize some of the scientific activities which the AMA conducts. Since 1883, the AMA has been publishing the weekly Journal of the American Medical Association, the most widely circulated medical journal in the world. In addition, to meet the needs of the medical specialties, the AMA publishes 10 monthly specialty journals: Archives of General Psychiatry, Archives of Dermatology, Archives of Otolaryngology, Archives of Environmental Health, Archives of Pathology, Archives of Ophthalmology, Archives of Internal Medicine, Archives of Surgery, Archives of Neurology, and American Journal of Diseases of Children. Periodically, the AMA publishes the American Medical Directory, giving biographical and educational information about all licensed physicians in the United States. Annually, AMA publishes the cumulated Index Medicus, an index to medical books and periodical literature published throughout the world. "New and Nonofficial Drugs," a book published annually, contains a compilation of available information on drugs, including their therapeutic, prophylactic, and diagnostic status, as evaluated by AMA's Council on Drugs. AMA's annual and clinical meetings, held each June and December, are the most important postgraduate medical sessions in the world. The meetings encompass some 400 scientific lectures; between 350 and 400 scientific exhibits; 300 to 400 industrial exhibits illustrating new drugs, equipment and books; outstanding scientific films; and special closed circuit television presentations on the latest developments in medicine. In addition, AMA sponsors many seminars, symposia, and other meetings of a postgraduate nature on specific topics. AMA makes one of its greatest contributions to medicine by gathering data on new products, new findings, and new methods-correlating, evaluating, and summarizing it-and channeling it to members. A number of scientific councils and committees, each composed of leading physicians serving without remuneration, carry on this work, with the aid of headquarters staff. More than 700 physicians, representing every section of the country and every specialty, serve on these councils and committees. AMA's medical library is composed of an international collection of some 1,600 periodicals on basic medical science and clinical medicine, and nearly 200,000 pamphlets and reprints. It offers free to members a periodical lending service and package library service. The association also maintains a medical film library of more than 250 subjects and has the largest source file of medical films in the United States-more than 2,500 indexed references. Since 1847, the AMA has worked to improve the Nation's medical schools. Its activities led to the housecleaning between 1905 and 1920 of the medical "diploma mills." Since then, the AMA and the Association of American Medical Colleges have periodically inspected all medical schools to make certain high standards are maintained. As for the alleged lobbying activities, the Congressional Quarterly reported on April 29 that the Veterans of World War I of the U.S.A. topped the list of lobby spending in 1960, followed by the AFL-CIO. The veterans' group reported it spent $200,623 for lobbying purposes, while the labor organizations spent $129,157. Organizations following these two groups were the American Farm Bureau Federation, $101,412; American Legion, $99,200; National Education Association, $96,914; and the International Brotherhood of Teamsters, $95,765. The Congressional Quarterly article, which the press carried, did not even mention AMA among the organizations which were the leaders in lobby spending. For the record, in 1960, the AMA spent only $72,634 out of a total budget of $16 million in presenting its opinions and constructive criticism on proposed legislation affecting the practice of medicine. The remainder was used for administration and for scientific and professional purposes. Mr. Swire stated: "Our point is that only 60 percent of the doctors in this country belong to the AMA despite the tremendous social and professional pressures exerted on them." Comment As of July 31, 1961, there were 257,474 physicians in the United States. Of this total, 180,150 physicians-70 percent were members of the AMA. In addition, it should be pointed out that there are about 199,000 physicians who are in active practice. Of these 168,402-84.6 percent-are AMA members. The AMA does not exert pressure on physicians to become members. Any physician who is a member in good standing with his State medical society may become a member of the AMA. Mr. Swire stated: "In rural areas and in smaller communities, 90 percent of the doctors are members, but in the larger metropolitan communities, the percentage is closer to 50 percent." |