duces higher health insurance rates and consequent opportunities for further fragmentation as more groups are able to do better on their own. The uninsurable remainder The residue of this fragmentation process are those who do not belong to any group which can obtain health insurance coverage at reasonable rates; predominantly the residue consists of those retired because of age. With markedly less disposable income than the actively employed, markedly greater health care requirements, and no means for spreading their health care costs over a cross section of all ages of the population, their health care needs are not insurable in any meaningful sense through existing voluntary prepayment programs, i.e., adequate prepaid benefits are not available from voluntary plans at premium rates which this segment of the population can realistically be expected to pay. Voluntary plans cannot reverse the fragmentation process The basic problem is the spreading of costs over a sufficiently broad base. Can't voluntary plans achieve this? Decidedly not. Voluntary plans deal with their own customers and potential customers-at most a small segment of the population for any one insurance company or service plan, and a segment of the population which is further subdivided into groups of many different sizes, with different motives, different objectives, and different resources. One employer cannot afford to maintain broad health coverage for his retired employees unless competing employers do likewise. The trustees of a health and welfare fund cannot broaden benefits for retired beneficiaries without curtailing benefits for active employees whose labor supports the fund. When consideration is given to the high and increasing expense of adequate prepaid health care coverage, how can a comparatively young group enjoying broad benefits at favorable rates be expected to surrender this advantage if other similar groups do not do likewise? Reason and experience combine to preclude the expectation that the fragmentation process, which has left the bulk of our retired population with no effective and realistic means for obtaining adequate insurance against health care costs, will be reversed through the process of voluntary negotiation and competitive bargaining in the prepaid health care market. The health plan's experience Even our own Kaiser Foundation health plan, which has been keenly aware of this unmet need and is devoted to the objective of meeting public needs in the health care field, has only a partial solution to this problem. Among voluntary prepayment plans our health plan is quite liberal in its policies on aged and retired persons; however, we have always had to maintain restrictions on initial enrollment of persons beyond the age of 60. (Once accepted for enrollment, either on a group or an individual basis, health plan members are entitled to continue under health plan coverage regardless of age.) The health plan also encourages groups to maintain their older and retired members as part of the active group, and in groups which are willing to do this, the aged receive the same health care coverage as the younger employees. This is in accordance with the health plan's general policy of advocating a broad base for the spreading of health care costs and resisting practices prevalent in the prepaid health care field which fragment the covered population into small segments tendencies which finally produce uninsurable segments—a major uninsurable segment being the aged who are no longer employed. However, comprehensive health care coverage is expensive at best, and the costs of more frequent and more extensive health care for the aged cannot be avoided. Roughly speaking, our health plan would need to triple its rates to cover, on a self-sustaining basis, a group consisting entirely of persons beyond retirement age. With rare exceptions, groups subscribing to health plan coverage are unable or unwilling to assume continuing responsibility for distributing the cost of covering their retired members. Furthermore, the high degree of mobility, among various groups and occupations, of our employed population, prevents group assumption of responsibility from being a general solution. SOCIAL SECURITY FINANCING IS SOUNDER THAN APPROPRIATIONS FROM GENERAL REVENUES Clearly the choice faced by this committee and this Congress is not between Government participation or no Government participation, or between tax-based financing and private, voluntary financing arrangements. Government is already 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 population, 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 institu tional 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 retire ment 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, Faithfully, an issue of primary 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 |