Consumers must play an important role in control mechanisms, whether in hospitals, the Blue Cross system, or other institutions. At certain critical times only a consumer or his representative can challenge the traditions and professional aspirations that can easily dominate any system. For this, the consumer should be educated as a policy maker as well as an individual watching over his own health. This point should be emphasized in ultimate legislation. The ideal consumer participation for sake of satisfaction or effectiveness is through his exercise of choice. To choose, to participate at the grass roots, he must have options in both financing and delivery of care.

Supply and Demand

This Committee has heard many hours of testimony urging that the mistakes of past financing programs not be repeated: the infusion of more money into the health system in recent years has led to more, not less, frustration and some loss of public confidence in the health system.

In designing national health insurance, Congress must keep the relationship of demand and supply in sharp focus. Failure to do so could result in serious inflation and, ironically, too little change in the system-both more injurious to low-income groups than others.

Perhaps the most cogent and humanistic reason for soberly considering what we can supply and what we can deliver-and the means we might have available for doing so-is that we should avoid causing distortions in the system and unfilled promises.

Whatever the sense of pace, two additional points should be considered: The need to avoid excessive detail, and the desirability of sufficient lead time for smooth implementation.

On the first score, there is danger in spelling out in legislation a myriad of strategic and logistical considerations. Inevitably, these considerations will be supplemented by extensive regulations and instructions. In health matters, down to the neighborhoods in which we all live, there are innumerable instances in which subjective judgments have to be made or changes need to be made to reflect new advances or better ways of doing things. Should we limit our ability to react and respond to need by the slow processes of legislation? While standards are needed and wanted, a preoccupation with forms and rules is inevitably expensive. Secondly, effective dates beginning eighteen months or more beyond enactment for increments of a program design would help all to do a better job.

Fiscal Accountability

When new health financing an delivery programs have been instituted here and abroad, costs inevitably have gone up. In 1947 in Britain the early costs exceeded actuarial estimates by 235 percent when the National Health Service was started. In the United States the experiences under Medicaid and Medicare exceeded estimates in the first year by 50 percent and 25 percent respectively. In the first five years of the program, the Federal outlay for Medicaid ran four times the originial estimates-Medicare expenditures ran twice as much as the original estimate. The extended care facilities benefit in Medicare within the first years cost ten times the original estimate.

Our caution here is this: proponents of one scheme or another in promoting a program are inclined to believe unreal figures. Given the present budgetary situation confronting this country and the Congress, it is important to insist on realistic projections so practical decisions can be made.

ISSUES

Critics of the private sector assert that its role must be severely curtailed or eliminated under national health insurance. It is alleged, for example, that any employment based approach will inhibit achievement of the goal of universal access. Some critics contend that private sector administration is necessarily more expensive than direct governmental administration: they cite a welter of statistics drawing on experience in both the United States and Canada. Others give teitsmony suggesting a callous disregard by the private sector for the need to contain the rising costs of health care.

These critics too often fail to note that substantial agreement exists as to the basic task of national health insurance legislation to improve access to

needed care, to improve the productivity of the health sector, to contain the costs of care, and to create a mechanism for the much needed development and articulation of national health goals and priorities. Significantly, then, the debate should center not around ends to be achieved but around means.

Access

Consider for a moment the assertion that a building-block approach such as the one outlined above will result in less than universal access. In previous congressional testimony we have discussed in detail the ability of this buildingblock approach to address responsibly the goal of universal access, and we again would be pleased to work with this Committee in that regard. We have demonstrated, for example, that continuity of coverage can be assured during periods of transition from one employment situation to another-likewise, a surviving spouse and dependents continue to be covered for a reasonable period following the death of a breadwinner. In fact, some accounts with Blue Cross Plans already provide for such a continuation of benefits through the employment group. Coordination of benefits provisions, already in place today, can assure that any duplication of coverage does not result in payment of more than 100 per cent of the costs of covered benefits. Further, carefully drawn legislation can assure that neither carriers nor employers discriminate in hiring on the basis of health status. In sum, the building-block approach is not de facto inimical to the achievement of universal access (See Appendix B.)

Several charges have been aimed at the private sector concerning its alleged lack of cost effectiveness, especially in comparison with the public sector. A number of studies fail to support these allegations. In fact, recent comparisons with the public sector indicate strongly that expansion of public implementation instead of broad involvement of private carriers would ignore significant cost and subscriber service considerations.

These studies highlighted below support the proposition that in contracting with the private sector, the government should rely more on setting standards and evaluating performance by results and less on detailed regulations. It has also been proposed that the private sector have a greater role in setting policy and determining administrative procedures. While these studies show the need for making maximum use of the assets of the private sector in a national health program, their main focus is on an administrative role. However, a thoughtful reading of these reports will provide support for the utilization of the private sector in such areas as coverage for the working population under an NHI program, that is, in its traditional. risk-taking role.

At the request of the House Ways and Means Committee, the General Accounting Office undertook a study of the performance under Medicare by the Division of Direct Reimbursement (DDR) of the Social Security Administration and private intermediaries and the results are highly favorable to Blue Cross. We are aware that the figures have been disputed, and we are waiting to see the results of newly audited comparisons of more recent figures. The general message of the GAO report is clear: there is no reason to believe that for a comparable task, the private sector is by definition, less efficient and more costly than government administration.

This proposition is also supported by the work of both Krizay and Hsiao, Kirzay, an economist in the State Department and former research director of the Twentieth Century Fund, found that the operating cost performance of Medicare was much higher than that of the Blue Cross and Blue Shield administered portion of the Federal Employees Health Benefit Program (FEHBP). He states in an article in Best's Review. "It is clear that one cannot make a persuasive care for a public-sector operated universal health insurance program on the theory that its operating costs would be lower 1."

Hsiao, a professor of economics at Harvard and a former actuary for the Social Security Administration. recently completed a study commissioned by the Blue Cross Association. Like Kirzay, Hsiao compared administrative performance under Medicare, as an example of a program administered by the government. with administrative performance under the Federal Employees Health Benefit Program, as an example of a large privately insured program with

1 Krizav. John. "Health Insurance: Can The Government Do It Cheaper?" Best's Review (Life and Health Edition), January 1973, pp. 14-18.

many characteristics similar to Medicare. Hsiao's findings suggest that private administration is less costly than public administration. When similar functions were compared, public administration was found to be 35 per cent and 18 per cent more costly in fiscal years 1971 and 1972, respectively. While recent figures offered by SSA would suggest a closing of the gap between public and private administration of comparable programs, the general conclusion remains the same the available evidence does not support an intuitive proposition that the public sector is necessarily more efficient and less costly.

Similarly, one should examine closely allegations that private insurers would reap "windfall profits" under a national health insurance program which is built on their capacities. The Blue Cross organization and most comprehensive group plans like Kaiser and HIP make no profits. Excess income, if any, is translated into benefits or a longer rate period. Large retentions by some private insurance companies can be ruled out by a number of devices. In short, one does not have to turn the system upside down.

From time to time allegations are made which suggest that marketing costs represent an unnecessary administrative expense under private health insurance and prepayment. These allegations obscure both the magnitude of the issue and the various tasks performed under the heading of "marketing". In general, only about one-fifth of administrative expenses are associated with marketing. Of these, marketing costs over one-half, are spent on account relations, i.e., counseling and servicing an account, not acquiring it. Thus, our actual selling expense is less than one-half of one per cent-that is, less than 50 cents per $100 in premium income. Although some savings could be made under national health insurance, many marketing costs involving account service would have to be continued no matter what they were called. Other marketing expensesalthough at a reduced rate-would be maintained, if carrier choice is maintained. The issue is not clear cut, but rather involves a trade-off-consumer choice among a variety of options, versus slight additional administrative expense. The example of the Federal Employees Health Benefit Program offers one approach to the matter.

Administrative Mechanisms

In the debate over national health insurance, there are many who have concluded that the only solution rests in the use of uniform programs and systems under one central administration. The Medicare program in the United States and the Canadian national health insurance program are frequently cited as specific models which could be used. These citations, however, usually refer to the ability of these programs to meet one of the major goals of national health insurance: to achieve universal access to care. And there are many references to seemingly low costs of program administration. However, there are not enough references to the success of these programs in containing the costs of health care, improving the productivity of the health sector in general, and in fostering the development and implementation of national health goals and priorities to lead us to espouse either as a worthy ideal. We can do better.

Comparisons with the Canadian experience, while illuminating, should be used with a caution based on a full understanding of important underlying differences. For example, a comparison of the administrative cost experience of the Canadian federal and provincial governments with that of private health insurers in the United States is fraught with a number of complications. First of all, the tasks performed are not identical; for example, in Canada there are no hospital claims for subscribers nor are premiums collected-except in three provinces. Rather, hospitals are paid against an annual budget every two weeks. Second, the elements of administrative cost are not uniform: for example, the often cited figures for the Canadian administrative cost ratio do not generally include such items as rent, or interdepartmental services such as data processing. Importantly, such administrative cost comparisons ignore the effectiveness of the program in containing costs. In Canada, for example, in 1970, the average length of stay was 12.2 days, compared with 8.2 days in the United States. Further, the admission rate was 166 admissions per 1,000 population, compared with 145 in the United States.

The message here should be clear. References to administrative costs without references to fundamental program goals can be severely misleading. Effec

Hsiao, William, "Who Is More Effected-Public or Private?" Unpublished study. 1975,

tive programs to improve productivity and contain the costs of health care do have a bearing on overall costs of administration. Conversely, beyond a certain point, low administrative costs can mean ineffectiveness rather than efficiency. For example, effective utilization review leads to administrative expense while cutting overall cost.

Importantly, one must recognize also that serious proposals are now being entertained in Canada which would put on upper limit on the annual percent increase to be permitted in the contribution of the federal government toward the mosts of medical care. In addition, the federal government has given notice of its intention to replace existing agreements under the hospital insurance plan. Finally, one must recognize that the United States is well ahead of Canada in such areas as the stimulation of HMO growth and development. The lesson here is that there are hazards in sanctifying the status quo through national health insurance legislation. Clearly, the Canadian experience is instructive and relevant to the debate over national health insurance in the United States. However, just as Canada seeks to adjust her program to suit her societal needs, we are challenged to find a pattern at home that weds our sense of social justice with efficiency.

Overall, the need is to strengthen both the public and private sector's capitalizing on what each does best. The advent of national health insurance will require the attributes uniquely available in the private sector working under the policy direction of government. The private sector has been innovative in administration, flexible in the use of talent and human resources, effective in providing services more cheaply than the government and responsive to new and immediate requirements.

Several programs have sought to blend the public and private sector talents: Medicare, Medicaid, CHAMPUS and the Federal Employee Health Benefits Program (FEHBP). Medicare has used the services of the private sector under administrative contracts. Following study of the Medicare contract relationship, the National Academy of Public Administration Panel on Medicare warned that further efforts by government to manage the contract functions would eliminate the advantages available from the private sector under contract. Medicaid has also made some use of the private sector in program administration but has lacked a cohesive set of understandings, given the wide latitude in program and administrative arrangements at the state level.

FEHBP has achieved the best of this relationship. At present, nine million federal employees, retirees, and their dependents are covered in this unique health insurance program that combines a remarkably broad set of benefits with employees' choice among 42 different carriers, private sector underwriting and administration, and federal policy direction and oversight. (The FEHBP approach is discussed in greater detail in Appendix C.)

HEALTH STATUS

Even if we manage to improve access to care and to implement a variety of controls such as area wide planning and utilization review, we will continue to face an exponential increase in health care costs and a diminishing return in longevity, unless our focus on health changes markedly.

We must accept the fact that health status is critically related to environmental, cultural (e.g., income, housing, and education), and life style issues beyond the current scope of most doctors and hospitals. In fact, of the total, health services are a minority influence.

Reference to non-medical determinants have been made since the turn of the century. Sporadic references have now become a chorus. In England, Dr. A. L. Cochrane asserts flatly that the NHS has little to do with improving morbidity and mortality rates. His colleague, Dr. T. McKeown, states that in developed countries the individual's health is now largely in his own hands. He can do more to preserve his health and extend his life than can be achieved by specific preventive or therapeutic medicine. In the U.S., Dr. Haggerty concludes that in well developed countries illness care when well organized can

Cochrane, A. L.. Effectiveness and Efficiency: Random Reflections on Health Services. London Nuffield Provincial Hospitals Trust, 1971. McKeown, Thomas, "The Determinants of Human Health: Behavior Environment and Therapy", Unpublished paper, 1975. Haggerty, R. J., "The Boundaries of Health Care." The Pharos, July, 1972, pp. 106

reduce use of expensive services but without any measurable difference in health status.

In the light of these and other responsible statements, we cannot remain preoccupied with diagnosis and therapy of disease while evidence literally cries for a broader attack. Given the number of unmet needs outside the health field and our scarce resources, it is frustrating enough to have to spend $130 million on health services, but it is foolish to accept such small gains at the margins. In the United States, we could double our health investment and make little further impact on health status.

Thus, while we are improving our financing and delivery systems, we must broaden our perspective. For example:

We need research and preventive programs geared to the school, home, and occupational environments. Regarding the working environment, it is estimated that we have 390,000 new cases of occupational disease annually and as many as 100,000 deaths as a result of occupational disease. The cost in lost wages, medical expenses, etc. exceeds $15 billion. Some 2.4 million are seriously injured annually at a computed cost of $11.5 billion. Excluding cars, consumer products kill 30,000 persons a year and permanently disable 110,000. It is estimated that 80 percent of human cancers are environmentally induced, a significant percentage is occupationally related, and yet in 1974-75 the entire budget of the NIOSH was $1.8 million.

We need to address the need for a minimum income program. All the medical technology conceivable cannot in any given locality overcome the results of a sub-marginal income and the resulting maladaptations, dispair, and inevitably poor health. Although the gap is narrowing, low income is still disproportionately associated with disease.

We need greater emphasis on health education. People need to know the consequences of diet, exercise, rest, etc. They need to be taught and motivated to deal more confidently with their own conditions. They need to understand more about how to use the health system and about its ultimate limitations. A broadening of focus, although long overdue and literally the only way to turn, will not be easy. Improvement in the environment costs money and endangers the life of some products. Motivating people to change their life styles is at best difficult. But we have seen enough success at both to know that the effort is essential.

CONCLUSION

Whereas the current financing and delivery systems have great strengths, we are still facing access and cost problems. The country is concerned about both.

In regard to costs, it is clear that other systems including national systems, are experiencing high cost increases and there is parallel concern over the fiscal soundness of social programs. It is also becoming clear that more or less of the same health measures in the same mold is not enough. While longevity among developed countries varies less than 10 percent, the percentage of GNP spent on health continues to vary almost 100 percent.

It is illusory to think of capturing the current health system in a unified financial framework and making it cost less. The administrative machinery is not there, nor the precedent. In fact, a large unitary administrative framework will tend to: 1) sanctify our present technocratic orientation to health (and once instituted it will be hard to change) and 2) slow innovation.

Instead, we must broaden our health policy framework, taking into account all major influences on health status and then pursue objectively what programs produce the best results. In this vein, it must be admitted how limited (although important) traditional health services are toward the end of better health status and how critically important are: environment, life style, adequate income and education.

Unless this happens, no amount of tinkering will help, and costs will continue to rise. Unless we finally think in policy terms and in terms of such results, the days lost from work as well as national mortality rates, NHI will be a sham. In this vein, government should step un its leadership role by stressing health goals, objectives, and minimum standards and encouraging, through private as well as government participation, flexibility in means, thus avoiding rigidity. To accomplish this. some way must be found in the Congress, as well as the Administration, to have the relevant issues brought together in one forum instead of now fragmented among categorical areas and special interests.