I appreciate the opportunity to meet with you today in such distinguished company to discuss the administration of a potential program of national health insurance in the United States.

As we plan for the future, it is useful to put our present health system in perspective. Essentially, it is a vital system with notable underlying strengths and also some significant weaknesses. The strengths have often been overlooked as we become preoccupied with problems.

However, the weaknesses-although not dominating-must be the focus of our concern. They include the facts that low income citizens have significantly poorer health records than the population as a whole; health care costs have risen well beyond the increase in wages and earnings in recent years; and production data indicate soft spots in efficiency and effectiveness. Obviously the country's deficiencies in health services have heavy impact on the poor to an important extent, but they are felt universally.

Our principal challenges are to improve access and productivity within the health system while strengthening its fundamental vitality. Access and productivity are related. To the extent that greater productivity will generate more funds for alternate uses, additional purchasing power and services are, at least possible.

The Blue Cross organization supports fully the need to improve the financing of health care as part of an over-all national strategy on health. The current formulation of government and private programs leaves too many citizens without adequate protection-despite the good intentions expressed in 1966 when Medicare and Medicaid were first implemented.

In contemplating this policy, we need to remind ourselves that financing will solve some of our problems, but not all. Health expenditures have doubled in the last decade. Ironically, more money has been accompanied by more public frustration and attacks on the system.

If new financing programs are to be successful, we must develop a basic strategy dealing with changing the delivery system, of which financing is a part, rather than attempting to develop a financing program of which change in the delivery system is a part. Regarding the current health system, our toughest challenge is to change the behavior of 325,000 doctors, 7,000 hospitals, and 210 million consumers. Of late there is increased appreciation of the role that the individual must play in assuming responsibility for his own health, a subject I will elaborate on later in these remarks.

There are no easy solutions to the problems we have defined. From an economic point of view, health is a unique market. If there was any doubt about it, we proved it in 1966. Medicare and Medicaid made it clear that we cannot solve our problems by merely accelerating expenditures. Increased demand in the private and public markets can and did produce marked inflation. It is true that the health field, with its large labor component, is peculiarly vulnerable to the forces of inflation. We are all service industries. But complicating this vulnerability is the fact that the basic supply and demand forces of the classic markets are weak or apply unevenly. Thus quality. efficiency, and effectiveness do not materialize in the ordinary course of events between purchasers and providers of service. They must be built in.

The nation has handled other cases in which market forces do not work in the public interest with a variety of strategies-e.g., public utilities, COMSAT, port authorities, and performance contracting-each designed to exploit public and private effort, neither alone. Ideally, in each instance, the form is designed to deal with the substance. There are important differences as well as similarities among these aberrant markets. The challenge faced under national health insurance is to find the right fit without imitating any given pattern.

A second complexity is that health is caught up in the revolution of rising expectations. Being able to do more, we expect more. Thus, new social policy may improve problems, but at the same time may change and expand the perceived problem. It has been pointed out that Sweden with a more moderate range of social problems than the United States, has a tax budget which takes more than 40 percent of the GNP. New items are already emerging on the agenda that will raise the percentage even higher. For example, the demand for federal assistance for all levels of education is increasing, and housing is still in short supply. The point is made not to discourage government spending but to point out that even under higher taxes, social demands will continue to press on public resources, particularly in the presence of a growing pressure

for economic as well as political equality. This realization brings us sharply against the fact of limited resources and the need for priorities.

As we have debated the issues involved in National Health Insurance, some general guidelines have emerged on which there is substantial agreement. For example:

No individual should be deprived of or delayed in receiving needed care because of inability to pay. Related to this, he should be able to seek care with dignity.

The program should prevent financial hardship for individuals and families. It is now accepted that no family should suffer substantial financial hardship because of the expenses of unpredicable illness or accident.

The financing system must be responsive to changing public preferences and the burgeoning of medical science. It should neither freeze expenditures at current levels nor lead to excessive future investment in health services. Excessive detail in law or regulation or excessive bureaucracy can lock in current delivery patterns and make rational change difficult.

Whenever possible, financing should be employed to further programs designed to make the delivery system more efficient and effective.

For example, payment of depreciation and interest on debts should be related to area wide planning support. Benefits should be comprehensive enough to avoid undue focus on expensive acute-care institutions and to promote primary care. Pre-existing conditions and other similar exclusions should be ruled out. Programs involved under national health insurance should be easy to administer and not bound by complex procedures and regulations which are costly and demoralizing. Implied is decentralized decision making regarding provision of care and payment of providers where feasible.

New financing programs should be acceptable to providers, professionals and consumers. The consumer must view the system as equitable and just. But also, the provider institutions and professionals must be inspired not only to effect needed economic changes but to derive satisfaction from their roles. Acceptability is a two-way street.

A reasonable degree of pluralism should be involved in both financing and delivery of health services. We have too much fragmentation of both at present. However, it does not follow that a unitary system is better. In fact, a unitary financing system courts two dangers: (1) underfinancing and (2) resistance to change.

This point deserves an added word of explanation. If funds are largely governmental, channeled through one point subject to political evaluation, one can expect other pressing needs, such as international trade, inflation, etc., to assume higher priority-resulting at first in a shortage of capital (a major agent of change and progress). Large bureaucracies, particularly in fields that are complex and service-oriented, tend to become overly structured, preoccupied with internal problems and with justifying and minimizing local differences. A better alternative is strong federal leadership and well-regulated participation by the private sector, providers and carriers alike. Consumers can then opt among meaningful alternatives and, in opting, participate meaningfully in the process of change and innovation, as well as satisfy highly individual needs.

Why not capitalize on all the resources, skills, and money we can to get the job done? Rather than attempt to replace nearly $70 billion in private expenditures for health care, can we build on it rather than duplicate carrier and other private sector skills, can we strengthen them?

Whatever national health insurance program is arrived at by the Congress, it should be implemented with due regard to the availability of supporting institutions and services and the time for tooling up. A reorganization of HEW and an enunciation of health goals with key programs such as comprehensive health planning and manpower spelled out should accompany, not follow, changes in financing.

This last principle, which we espoused at the beginning of the debate concerning national health insurance, has been substantially recognized and implemented with the impetus provided by this Committee.

These guidelines-broad enough to consider all desired requirements of a program of health services financing in this country-although useful as check points are overlapping and perhaps even contradictory and thus can lead legitimately to a variety of interpretations and accents.

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DESIGN OF NATIONAL HEALTH INSURANCE

For many reasons we believe strongly that both private and public sector financing mechanisms will be needed to cover the total population of the country. Benefits should be provided with equity but not total uniformity. We have supported a “building block” approach to a national program that depends on the strengths of the current system. It would combine effectively the assets of both the public and private sectors, capitalize on what each one does well. It tends to focus on results more than on methods. It provides options to the public through controlled alternatives. It avoids adding unnecessarily to the tax burden of government, and it minimizes inflationary pressures. The basic elements of this approach are (1) an improved Medicare program for the elderly and other social security beneficiaries, (2) a federalized Medicaid program for low income groups and (3) mandated or certified private programs for the general population.

Medicare

On the basis of considerable experience as an intermediary working with the Social Security Administration, we support the continuation and strengthening of Medicare as a federally administered program. It is a sound mechanism for the aged and social security beneficiaries who qualify as disabled. In a constructive vein, greater experimentation with program methods encouraged under P.L. 92-603 is still needed. Greater reliance must be placed on standards and results rather than detailed regulations. For this reason and because dissatisfaction has been expressed regarding the performance of some private carriers, we feel that appropriate indices should be published covering the performance of intermediaries and SSA in regard to costs and work standards. The Blue Cross system would welcome such publication.

General Population

We feel that most persons, who are self-supporting, can be included in national health insurance by assuring that there is a place for them using private mechanisms-including their reimbursement, incentive and control programs rather than raise the cost of such protection by creating new bureaucratic agencies. Various proposals have held promise and might be refined as part of the ultimate design-e.g., mandated coverage or federally certified programs. Either concept, or others like them, would strongly motivate employers and carriers to respond with effective benefit packages. Participation by employers in premium costs should be stipulated.

A key element in employer participation is "benefit value equivalency", which allows free consumer choice of benefits within the constraints of a specified total premium contribution or its benefit value equivalent. These approaches if added to Medicare and an improved Medicaid would: make universal coverage possible; give government a suitable vehicle through which to achieve goals and set standards; use considerable existing expertise; encourage innovation and decentralized deciison making; and provide a point of comparison to federalized programs in terms of performance.

Catastrophic Illness

We recognize the real and psychological benefit that persons gain from knowing that their lives and property will not be forfeited to the financial demands of a chronic or otherwise catastrophically expensive illness or accident. For this reason, the Blue Cross organization is making such coverage available in every state in the country. Blue Cross enrollment for this benefit on a voluntary basis has increased by 91 percent in the last few years, from 16.5 million in 1970 to 31.5 million in 1974. Further, last year we began to offer a $250.000 catastrophic major medical program. To date, more than 12.5 million Blue Cross subscribers have enrolled.

We are not suggesting that everyone can be afforded this protection on a voluntary basis, although that can be worked out for those covered by private programs. It is our experience, however, that catastrophic coverage should be supplemental to sound basic coverage and integrated with it. Any point at which a program might commence catastrophic benefits will be too high for some. The preference of most people, in our experience, is to have the security of basic coverage and a cap on out-of-pocket costs. The benefit of having some room for option, distinguishing the programs for the general population and

for those who need assistance, is that deductibles and copayments, which some employed groups might choose to keep the costs of their program in line with other priorities, can be lower or non-existent in the case of the poor and working poor.

Catastrophic should be combined with Medicare, be part of Medicaid, and part of either a mandated program or one imposing standards of performance on private carriers. It should not stand alone. Standing alone, "major medical" insurance with high deductibles cannot only demand excessive out-of-pocket payments but, when activated after a period of deferred medical attention, it invites excessive care at inflationary rates. Obviously, significant administrative costs and subscriber confusion might result in a situation which brings multiple carriers or carriers and government together for the same episode of illness; if these programs cannot be completely integrated, the same carrier should administer both basic and catastrophic coverage.

Federalized Medicaid

In my opinion, the first priority in righting the wrongs of the system of health delivery and financing in this country should be an overhaul of the Medicaid program with federal intervention.

A Medicaid program based on strong federal leadership and support must be tied to individual or family and related to income, or those needing the most won't get enough. It is not possible for this country to continue to excuse the uneven patterns of available services and even more uneven levels of program effectiveness and efficiency. The minimum that should be forthcoming are more cohesive guidelines including insistence on a better conceived and administered State Plan and a more adequate level of benefits-again, at least as comprehensive and if not more so than those available through employment. Private carriers with strong capabilities, given goals and measures of performance, can play useful roles. Currently, Blue Cross Plans under Medicaid serve nineteen states with very competitive performance. We are prepared to do more. KEY FEATURES IN ANY DESIGN

HEW Leadership

We feel that there is need for continued improvement within the HEW organization. The Secretary's office can be further strengthened with planning, evaluation, budget, etc. The health manpower and systems resource arm can be strengthened; and stronger coordination has to be worked out among the financing programs and their resource counterparts.

To give social security and health more status and visibility within HEW, serious consideration should be given to the creation of two additional Under Secretaries, each supported by a strong management team and each strengthened by a public advisory committee that reports periodically to the Congress and the public. Because states will have roles to play in a proposed extension of health services finance, there needs to be an effective staff that works with states under well spelled-out plans.

An idea that occurs periodically associated with various proposals is to radically separate administration of the financing of health care from the substantive issues such as establishment of goals and determination of policyeven to establish a separate Commission for this purpose. We feel this suggestion has severe limitations; as mentioned earlier, the strategies of financing and delivery are inextricably related. One legislative proposal would join the health service financing mechanism with the giant establishments of Old Age and Survivors insurance and related programs, all primarily payment systems; this concept could lead to health services assuming the pattern of a payment system-mechanically expert, but divorced from the complexities of the product. Not only is it dangerous to divorce financing from delivery, but also to divorce both from the larger considerations of health which will be mentioned later. Regulation

Carriers that participate under certified or mandated programs, or under such government programs as Medicare or Medicaid. must be held to high degrees of public accountability. There is need for carefully developed regulation of carriers by states within guidelines set by the federal government. Those protected should be assured at least reasonable ratios of benefits to premiums received, and problems like skimming of good risks, excessive exclusions and restrictions, cancellations and so forth should be minimized or

eliminated. These measures would reduce the number of carriers able or interested in participating, but public confidence and performance would be greatly enhanced.

There has been discussion at these and other hearings on competition and its place in providing protection against illness. We believe that unbridled competition does not work in the health field. Nor does unbridled regulation. Certifying or franchising hospitals has its place, but exclusionary licensing would lead to a bureaucratic nightmare. Letting every benefit package persist to the detriment of unsuspecting consumers would be indefensible, but options among reasonable alternatives meeting reasonable standards would encourage needed change and maintain highly useful flexibility.

The key is to strengthen accountability of the institutional participants and to improve equity for consumers without at the same time losing the equally desirable benefits of provider innovation and consumer option.

Submitted with this testimony is a summary of recommendations concerning minimum standards for private health insurers. The absence of such a program, even as an interim step in improving the return on the investment this country makes in health care, is hard to defend. We would welcome the imposition of standards of performance on all carriers for group and individual coverage. Cost controls

The experience of government and private programs have shown that the infusion of dollars into the delivery system-without the application of sound measures to guide provider and carrier performance-results in an inflationary cost spiral which can, if uncontrolled, defeat the purpose of a financing program. Hence, the success of any health care strategy depends in part on the careful design of a cohesive incentive and control system whose components complement and reinforce each other. In total, they should produce: Effective utilization of health care services by shifting demand away from high cost treatment methods to high quality but lower cost methods; and, efficient production of services through improved use of available capital and non-capital

resources.

This Committee has shown great leadership in its contribution to the Health Planning and Resources Development Act, the HMO Act, and now its attempt to solve health manpower insufficiencies. In addition to supporting these legislative remedies, the Blue Cross system has implemented a cost containment strategy that has brought good results and will bring even greater dramatic results as it is more evenly applied throughout the country. Some examples of what we are doing are attached in Appendix A. Briefly, we have placed strong emphasis on utilization review, reimbursement techniques, area wide planning, public accountability, hospital management programs, benefit expansion, the development of alternate delivery systems, and improved health education for all persons.

We should be glad to share our experiences in greater detail at the pleasure of this Committee and would be willing to offer the benefit of our experience to your expert staff. We feel that the key to these types of interventions is their interaction. Reimbursement can strengthen planning by paying less or nothing to unapproved facilities. Utilization review-by focusing on quality as well as use can protect the patient against over-zealous cost containment as well as against the rationalization that no interventions are needed. A prime reason to stress a multiplicity of control interventions is that none alone can stand the weight of political or economic pressure. Inevitably a single intervention is bent to the side of provider interest.

Some legislative proposals contain liberal reference to incentives and controls. Let's keep in mind that intent is not accomplishment. This is particularly important to remember when actuarial projections are made. Public programs around the world have fallen for short of the mark. In today's climate accountability and credibility are particularly important.

Consumer Interest

Sometimes in an effort to put together the pieces of a complex program or programs, the purpose can be, for the moment, lost. Our intent in seeking to improve the health financing system in this country, should be to improve the health status of the individual, and he is unquestionably, the best guardian of that status.