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Mr. JAMES. Excuse me just a minute.

It appears to me that perhaps, we are paying it and may not know it, the private sector, the form of our premiums already in some respects, in some respects, we are paying it by larger premiums that we might otherwise avoid some of the effect if everyone were insured.

Do you follow what I am saying? To some extent, are we not paying it some way or another?

Secretary SULLIVAN. Well, I am sure that much of the care that is provided is more expensive than it should be because what happens with the individuals without insurance is that they do delay going to a hospital or a physician's office until the condition has indeed worsened, and therefore, they crowd our emergency rooms, and the costs of providing that care is much more expensive.

We also have another problem in our system, and that is the cost of liability insurance-not only the direct costs of premiums, but also the costs of defensive medicine that our hospitals and our physicians undertake in ordering tests that really are not necessary and don't contribute to the care of a patient, but rather are provided to protect themselves if there should be a suit.

So that is one example of the kinds of things that we have to look at in trying to fashion a comprehensive solution. That clearly has to be part of it as well.

We are concerned that we ensure that we undertake actions that don't shift costs from one part of the system to the next, but really get costs under control. We already spend more money than any other nation, yet our health status is not as good.

That means that we, whether it's the public dollar or private dollar, are not getting our money's worth. And that is really what we are interested in correcting.

The CHAIRMAN. Thank you.

Dr. Sullivan, you said in your opening statement that you look forward to a continued dialogue with this committee.

May I state that we look forward to that dialogue. We sincerely hope that we can work with you to pass the proper legislation. You and I know that it is going to cost money. It's not going to be free, but it is going to be in the best interests of our entire community.

I thank you for your presence and for your testimony.
Secretary SULLIVAN. Thank you.
The CHAIRMAN. The hearing is adjourned.
[Whereupon, at 12:15 p.m., the hearing was adjourned.]

APPENDIX I

The story portrayed in the attached House Committee on Aging study is one of people -- lower and middle income older Americans -- and the pressures they face from a society-wide problem -- rapidly rising health and long term care costs. While virtually all lower and middle income Americans feel some pressure from these costs, the problem is acute for people whose incomes rise no faster than overall inflation. It is acute for those who have high out-of-pocket health costs or who are at high risk of facing high costs. When these two factors come together as they do for older and lower/middle income elderly, the problem can become unbearable. The elderly's pocketbooks are quickly being emptied as the elderly face spending twenty percent of their income on health care.

The study's result dramatically points out the great need for change. Change in how the nation contains its health and long term care costs is long overdue. Federal, state and employer actions have been relative failures in their primary objective, containing their own costs. Their actions have been too narrow in their application, failing to protect elderly and non-elderly consumers from costs uncovered by public or private third party payers.

As the final chapter of the study suggests, a comprehensive system of cost containment is essential if costs are to be kept affordable for all Americans, including the uninsured and underinsured of all ages. The failure to do comprehensive cost containment will fall most heavily on younger Americans with little or no insurance and on older Americans with lower, relatively fixed incomes.

A nation's respect for all its elders comes from what they did, their contribution to a free and strong America, and from who they are, proud people delicately balancing their own needs with those of their grandchildren and children. Our elders ask no undue attention, only that attention necessary to survive the special trials of later years. They ask only to be treated fairly. They ask only to retain their dignity and independence. They ask only for society to recognize the extra pressure on the elderly facing high health care costs with only limited incomes.

EDWARD R. ROYBAL Chairman, House Select Committee on Aging

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EXECUTIVE SUMMARY

The elderly today, on average, are somewhat better off in terms of income than previous generations of elderly. However, the same data suggest large numbers of elderly, including older women and racial and ethnic minorities are still in deep trouble. The data also suggest that the retirees of the 21st century, on average, will not be better off. Any advantage that the elderly may have by entering retirement with higher incomes than a decade ago will quickly be lost as health and long term care costs absorb ever larger proportions of that income.

Measured against a number of indicators of income, health and long term care costs are, on average, absorbing ever larger percentages of elderly income. For elderly persons entering retirement in any given year, they face a continual erosion of their income as health care costs rise more than one and one-half times faster than their income. Elderly out-of-pocket costs have risen from 12.3 percent of elderly income in 1977 to 18.2 percent of income in 1988. (See Figure E.1) All indications are that this trend of costs outpacing income will continue into the foreseeable future and that health costs are likely to reach 20 percent of elderly income by the early 1990s.

For the average senior citizen receiving Social Security, it is taking more and more of their Social Security checks to cover health and long term care costs. In 1977, the average senior citizen used just under three months worth of checks to cover his or her out-of-pocket health care costs. (See Figure E.2) By 1988, it took the average senior citizen four and one-half months worth of checks to cover those health costs.

As for other health cost indicators, the Medicare Part A hospital deductible jumped from $124 to $540 -over four times the level in 1977 and twice the one-half month Social Security payment for 1988. Medical price increases for the past seven years are also much higher than increases in several indicators of elderly income. Between 1983 and 1989, medical prices increases rose twice as fast as did the average monthly Social Security payment and the Consumer Price Index for Urban Wage Earners (CPI-W), the basis for setting Social Security COLAs.

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