We find that we are paying double for anesthesia services; we are paying for the services of nurse anesthetists, and anesthesiologists who supervise them.

Also durable medical equipment we find is another area where we are experiencing excessive costs. So what our budget proposes is not reduction in benefits to the elderly, but more prudent purchasing practices that give us more return for the dollars that we spend.

Of course, we develop our budget under the rubric of the Gramm-Rudman-Hollings law where we are trying to bring our deficit under control.

So while we are trying to restrain the growth in costs, we certainly are not cutting back on any benefits to our citizens.

Mr. RINALDO. Let me just follow up with that. You mentioned costs, and I understand what you are saying, obviously. Well, then, would it naturally follow that you believe that mandating health insurance through the employer, perhaps, would be the best way to begin providing health care to the majority of Americans?

Secretary SULLIVAN. We are very concerned about the whole issue of mandates, Mr. Rinaldo. First of all, the goal of providing insurance for those 31 million of our citizens who are uninsured, is a goal that we fully share.

At the same time, we need to be sure that our strategy to address that problem doesn't cause other unintended consequences. One of the concerns about mandated programs is the effect that this would have on small businesses. This may not only impair their competitiveness, but actually could be a sufficient burden to cause some of those businesses to go under, with loss of jobs and a much greater impact.

So again, the whole issue of mandated benefits is one I think has to be looked at very carefully. And while we have not yet gotten to the place of specific recommendations, I do know that we are looking for a flexible program that would have a variety of approaches, including not only Federal participation, but that of the private sector and State and local governments, as well.

Mr. RINALDO. Okay. Thank you, Mr. Chairman.
The CHAIRMAN. Mr. Bilbray.

Mr. BILBRAY. Mr. Secretary, I would like to commend you for your recent strong statements on the smoking campaigns that were targeted at minorities and teenagers; and I think that is certainly carrying on a strong tradition of trying to rid, or at least targeting young people and these minority groups against not only the drug habit, but certainly tobacco, which is certainly another addictive substance that they should be earmarked against. And I would like to commend you for that.

There are a couple of things I would like to make comments on. First, I appreciate your statements to the committee. I, too, am concerned that we really need to see, as soon as possible, some specific recommendations to reach out, not only to the seniors-and this is the Aging Committee-but in going around my district and speaking to people, I find that it's not just a problem for seniors. It's also a problem for the young and for the middle Americans. All Americans are suffering under rising hospital costs.

I have also found, like you have stated, that in the Catastrophic Act debacle, one of the problems we had was that the seniors, when catastrophic was passed, cheered; however, when they found out they were having to pay for it, the moans and groans began to come back to us.

When I talked to Claude Pepper after the bill was first passed, he stated to me that he was worried that the funding mechanism was never in place before we went forward with it, just as the Pepper Commission's recommendations does not put a funding recommendation in effect.

I would like, if your department would, as they propose to us what they want to do in the future, would look at the broad based health program not just based for seniors, but for all Americans. And one of the areas that maybe you could look at is one that Claude Pepper proposed when he was a Member of this Congress and before he passed away, which was to raise the cap on the Social Security; not the percentage that a person pays, but where it stops.

In other words, if a person is making $750,000 a year, he only pays Social Security on a very small portion of that $750,000, less than 10 percent.

There is a great amount of money that would be available by raising the cap on the Social Security payroll tax that could be earmarked for health care for the American citizens.

Second possibility you could look at is allowing the uninsured in this country to buy into Medicare through their employers, setting up actuarial tables like the insurance industry does, allowing them to figure out what a person at 28 years old with a family of three, what their potential for health problems are and so forth and letting them buy in and allowing, as proposed in the Pepper report, some sort of credit to the employer for paying a portion of this.

If the people are under a certain poverty level, we could have them pay very little for that percentage of insurance because we know there are people working out there in the industries and companies that are not below the official poverty line but still are not provided health insurance by their employers. Some of these people that I know are making $30-40,000 a year have no health insurance through their employers, and they have to go out to private industry to buy plans. If it's an individual plan, it's so costly and so expensive that many of them cannot buy the insurance.

That is what I would like to see the department propose, and work on with us on because I think Congress is very interested in the overall health insurance problem.

Now you have heard my philosophy. I would like to ask you a question. Basically in these areas right now you are beginning to study the different reports that are coming out. Do you, at this point, have an active committee within your department that is looking overall at these different programs, or different proposals, one that this committee or an individual Member of Congress could inquire of and get information from and talk to so that we don't reinvent the wheel?

I have my staff constantly trying to figure out what this will or will not cost and so forth. Do you have such a committee?

Secretary SULLIVAN. Yes. That task force is headed by Constance Horner, our Under Secretary. She serves as chairman, and then Dr. Gail Wilensky is the vice chairman. So they would be points of contact there.

We would be happy to talk with you or members of your staff about some of the things that we are examining. Our plan is to have broad consultation, both with Members of the Congress, as well as with the private sector because I am committed to the idea that for us to have a plan that will make sense, we need to get the best information and as much information as we can.

And second, we have a job of education to do-educating the public, the business community, Members of the Congress, and other interested parties about the plans and what we get for what we invest. That has to be an essential part of it, so that we don't have a program that we go forward with that doesn't have broad understanding and support. So we would be happy to communicate with you on the things we are looking at.

Mr. BILBRAY. Thank you.

Chairman ROYBAL. Mr. James.

Mr. JAMES. Thank you so much for your testimony. It has been very enlightening in many of its aspects and thank you for commenting on the Pepper Commission report.

Along those same lines, I would like to ask you if you have an impression as to whether or not the $66.2 billion in this commission report includes the cost directly to business.

Secretary SULLIVAN. No, Mr. James, it is my understanding that that $66 billion is cost in Federal dollars and that the business costs are an additional $20 billion. Also. I have been advised that the $66 billion is a figure that some feel is really low. So while that is the published figure, we want to get more information on that as well as the cost to the private sector.

Mr. JAMES. I would think $20 billion was exceptionally low because by the 7th-this $66 billion is the Federal costs for the first year. But by the 7th year it is virtually business that is carrying the whole package for the medical insurance provision of it. Do you see any difference between-what bothers me, if we are costing business $20 to $50 billion, we know that will be passed on.

We know that it will also affect negatively incomes of employees to some extent. In other words, the compromise package will be that fewer people will be hired if business can't afford it, especially in the low income level, because in the moderate to low income level the proportion of the health care costs at $2 or $300 a month for their share of the group policy, is disproportionate to their income, wherein the higher income people won't be so negatively impacted.

A $15,000-$25,000 income person would be the area that business would look at to constrict, or to restrict from employment, because there is no difference in health care costs except based on one's age as to what their salary is. Whether they work for $1 or $5 a year, or $3 million a year, the health cost is the same. So it would appear that the lower income group would be most affected if it was a direct cost to business, understanding how business work.

Further, if you mandate this type of insurance, it will be passed on to the consumer and there again, the low income person is the

most directly affected in that they spend a much higher percentage of their income and have very low disposable income.

It may be a problem with some. They call it a regressive form of tax. Do you see any difference in this and a tax and the Federal Government doing it-that is a straight line tax. In the final analysis is there a difference?

Secretary SULLIVAN. Mr. James, certainly you have cited one of our real concerns, that indeed if the costs to the business community are too great that it could have very adverse effect on those businesses as well as on employment and on our national competitiveness-the cost of goods and services that are produced in comparison with the costs of those same goods and services from other countries. So clearly we are concerned about the impact of any recommendations on the business community. Again, that is one of the reasons that we want to wait until we can have a comprehensive overview, because in the health care system, everything is connected to everything else.

One of the things that I am concerned about is the disproportionately bad health status of our low income populations, and that is related to a number of specific things:

For example, one of the reasons I have been so active in my efforts to point out the adverse consequences of cigarette smoking is the fact that this is a number one cause of preventable death in our society. Cigarette smoking among blue collar workers and low income workers is much higher than among college graduates. I think among college graduates 15 percent smoke, while individuals who haven't finished high school, around 36 or 37 percent smoke. Mr. JAMES. Regardless of whether or not one dies at a premature age at some time or other and if you are in perfect health, even if you live to your early '90s, not only do you receive Social Security but someday you may need help, because of a medical problem unless you live to old age and die.

Regardless of preventive health measures, you are still going to need concern about health care. We have 33 million uninsured people now is what I heard estimated. Considering that group insurance policies per employee run probably in the neighborhood at least $2,000 per year, if through whatever resources that are available, based on our present health care costs and our health insurance premiums, it doesn't take a rocket scientist to compute that 33 million times $2,000 a year is $66 billion alone, just in health costs, no matter who pays for it. Two thousand dollars times 33 million is what, $66 billion, you add three zeros on to it.

In the business I had before coming to Congress, with 16 employees, I think at one point health insurance premiums for employees and their families were $33,000. They went up 50 percent, and we were constantly faced with the problem of shopping for health care costs for the firm and it became not just 17 percent a year, but it became a task, a task that even the healthiest business has problems with.

So considering that Canada and maybe Norway, have about 8.5 percent of their GNP spent on health costs and we, in spite of the fact that we have 33 million insured, have 13 percent of our GNP spent on health care costs, I am surprised that there are not other

recommendations in the Pepper Commission addressing that disparity, what is the answer as far as that is concerned.

So I hope the administration would look at all aspects of the spectrum because we cannot continue, in my mind, to tolerate this kind of uninsured numbers, and with the increase of 17 percent a year, I see businesses dropping their insurance more and more and more, and whether you mandate it or tax the people to pay for insurance, I see it as a tremendous problem unless we address the entire system. Not just for the elderly either, we have got to address it for the uninsured. So I don't see it as simple as a mandate that may only offer a short term solution, we have to investigate all possible avenues.

Secretary SULLIVAN. I fully agree with that, Congressman James. Indeed, we have to take a comprehensive view with the goal of providing access but also restraining costs.

I maintain that one of the factors in our high costs is the way we spend our dollars. The fact that a number of other countries spend less than we do and yet the health status of their citizens is equal to or superior to that of our citizens means that simply spending dollars alone without evaluating how and for what we are spending them is not a good answer by itself.

Mr. JAMES. But in fairness to our system, we have to look at the problems created by access and rationing of health care. I see it as a very perplexing problem that we must address, and I hope we find some of the answers as soon as possible.

Thank you so much for your testimony. I think I have used up my time and I yield back whatever time is left.

Chairman ROYBAL. Mr. Blaz?

Mr. BLAZ. Thank you, Mr. Chairman. Dr. Sullivan, first let me start by saying that I was particularly intrigued by your statement on page 8 of your testimony. Let me quote a part of it because it has to do with my question. To give an idea of your deep commitment to improving service delivery to the vulnerable elderly, I want to mention a measure, the SSA initiative or SSI outreach program. You go on to explain what a major effort there is to reach, through an extensive outreach program, those who are especially deserving.

One of my most serious laments in this Congress is that SSI is not extended to my people in the Territory of Guam. It is a very befuddling decision on the part of someone not to do that, for just north of us by about a hundred miles, the people of the Northern Marinas who became citizens of the United States 30 years after we did, are eligible for SSI benefits.

I am given all sorts of reasons as to why Guam is excluded, but perhaps it would help those who work for you to first understand the plight of my people.

In my community, the elderly are venerated-everywhere, but I think much more so in the community on the fringes of Asia. It is a very serious and a very traditional cultural aspect of life there, so that when the elderly are in the home they usually mean the family home, not a home away from home.

So consequently I think that our expenditures with respect to Federal funding is probably much lower because we don't have the same kinds of requirements as others have. So we consider then