40.6 percent of the health care expenses of the aged were covered by the system. As recently as 1969, the figure was 46 percent.* While Medicare's protection has been declining on the one hand, health care costs, especially hospital costs, have been rising on the other. With Medicare's reimbursement procedure under part A of Medicare structured so as to provide full cost recovery, hospital charges, in the absence of any incentive to restrain costs, are likely to be above the minimum level necessary to provide services. Hospitals are neither profit-maximizing nor competitive. There is little or nothing in the economic system that would tend to keep hospital costs to the minimum necessary to provide services of a given quality except the inability of the patient to afford the price of services. To the extent that the Medicare system has removed this ultimate but crude restraint, it is logical that it has contributed to the increasing cost levels. Any system which reimburses all costs by a third party, whether it be the employee business expense account or hospital charges, must be closely monitored if costs are to be held to reasonable levels. The expansion of covered items and services under Medicare to provide the comprehensive health care protection needed by the aged and disabled must be coupled with the development of a system to monitor costs closely. We believe, Mr. Chairman, that our bill, the Medicare Amendments of 1974, would accomplish both of these objectives; namely, comprehensive care and cost restraint. BILL ADDS VARIOUS SERVICES As to comprehensiveness, our bill, in addition to preserving present benefits, would add additionally needed ones. It would, for example, abolish prior hospital stay requirements and abolish other limitations. It would add intermediate care facility services. Psychiatric care benefits would be greatly expanded. Dental services and other professional and supporting services (for example, optometrists and podiatrists) would also be added. The bill would extend the coverage of drugs (including biologicals) so as to include outpatient drugs." Moreover, the present coverage for devices, appliances, and equipment would be expanded to all others (including eyeglasses and hearing aids) listed by the Secretary. Present limitations on duration of inpatient hospital, skilled nursing, and home health care would be abolished." Over the same period, Medicare's share of doctor fees has declined from 61 percent to 55 percent. Refusing to accept an assignment and taking as full payment whatever Medicare deems reasonable, many physicians collect the amount of their fees (which in some cases may be whatever the traffic will bear) directly from the aged patient, leaving him, in turn, to collect Medicare's reasonable and sometimes inadequate payment. Finally, Medicare's coverage of hospital costs has fallen from 66 percent to 61 percent. 5 However, during the first 5 years, drugs dispensed in pharmacies will be covered only if listed on a list of maintenance drugs established by the Secretary and, thereafter, if listed as appropriate on the Secretary's general list designed to provide practitioners with an armamentarium necessary and sufficient for rational drug therapy. Drugs dispensed in a physician's office would be covered if listed on the general list just mentioned. The durational limit applicable to benefits under our bill are a limit of 150 days of care in a benefit period for psychiatric inpatient care, a 160-day limit on psychiatric (mental health) services furnished to a patient of a mental health day care service affiliated with a hospital or approved by the Secretary, and a 20-consultation-a-year limit on psychiatric (mental health) services furnished in a psychiatrist's office. Premiums, deductibles, and coinsurance under present law would be eliminated. Instead, the bill would substitute a system of minimum copayments with respect to the more expensive items of health care." However, these copayments and remaining limitations on benefits would be subject to a catastrophic protection feature. Low-income persons would pay nothing, and others would pay out-of-pocket amounts related to their income but in no case more than $750 per family per year. As to cost restraint under the bill, participating institutional providers (hospitals and so forth) would be required to submit annually a budget and schedule of proposed rates and charges, based on the cost of efficient delivery of services, for approval. Reimbursement would be based on predetermined, approved rates, thereby providing incentives for efficiency and economy.8 With respect to noninstitutional services of licensed professional practitioners (physicians and so forth), payment would be provided in accordance with annually predetermined fee schedules for local areas. Finally, a provider would be required to accept the Medicare payment (plus any copayment) as full charge for the service. EVALUATION OF ADMINISTRATION BILL Using our organizations' health bill as the standard, we shall now address ourselves to an evaluation of the administration's Comprehensive Health Insurance Act from the point of view of the aged. The administration's bill (pt. C of title I) would replace Medicare in certified States, but not in others, with a Federal health care benefits program (FHIP). Eligibility, under FHIP, would be limited to an aged individual who wishes to participate and who is entitled to the Social Security section 202 benefits or is a qualified railroad retirement beneficiary." In comparing FHIP with present Medicare, we wish to point out that there is no provision for voluntary enrollment in the absence of Social Security section 202 entitlement or qualified railroad retirement entitlement (except for transitional entitlement). The disabled are not covered at all. This latter group would have to be covered under the State-administered assisted health insurance program (AHIP), if resident in a certified State. While it may be argued that the FHIP program should not be evaluated out of context of the AHIP plans available in a certified State, we wish to point out that certification for FHIP is not contingent upon the availability of AHIP plans. In 7 Inpatient hospital services, skilled nursing services, home health services, physician and dentist services, mental health day care, diagnostic outpatient services, and independent laboratory or independent radiology services, devices, appliances, and equipment, certain drugs, and ambulance services. (See prepared statement, pt. 4, subpt. B, sec. 4, "Cost sharing," p. 39.) 8 Physician and other services generally available to institution patients, whether performed by employed staff or by arrangements made by the institution, would be treated as institutional services except for services by physicians, dentists, or podiatrists with respect to their private patients. Under the Comprehensive Health Insurance Act, employment with the Federal, State, or local governments in certified States would be covered employment for purposes of the health insurance taxes. A Government employee could be deemed entitled to Social Security section 202 benefits, on the basis of such services but solely for the purpose of entitlement to FHIP. Such employment is not covered directly under present law. This new provision may be subject to challenge by the States. other words, if a certified State is not induced by the Federal grant to establish an AHIP program, those who are disabled and covered for Medicare purposes, would be without adequate health care protection. With an added cost of $1 billion projected for the States under the Comprehensive Health Insurance Act, and faced with diminishing resources, we cannot be certain what the States will do. In comparison, our organizations' health bill would cover all the aged, and continue to cover the disabled. With respect to the services which would be covered under an FHIP plan, skilled nursing care would be limited to posthospital, and would be subject to a 100-day limit per year. Home health services would be limited to 100 visits per year. Inpatient hospital services for mental illness would be limited to 30 days per year. Such things as eyeglasses and hearing aids and dental care would not be available to aged persons. While coverage of outpatient drugs would be an improvement over current law, the entire FHIP benefit package when considered in the context of durational limitations, represents little if any expansion of benefits in comparison with those available under Medicare.10 We would hasten to add, that in the case of many persons presently entitled to Medicare, the benefit package available under FHIP would constitute a significant curtailment of services.11 Needless to say, in comparison with our organizations' bill, the benefit package of the FHIP plan is not comprehensive. An FHIP plan would require the payment of premiums,12 deductibles, and coinsurance, with the amount of the deductibles and coinsurance related to income. However, it would also provide a catastrophic protection feature that is income related and subject to a $750 annual maximum per person.13 PRESENT LAW LACKS CATASTROPHIC PROTECTION In comparison with present Medicare, FHIP is a commendable improvement-simply because present law lacks a catastrophic protection provision. However, for comparison purposes, since the cost-sharing amounts under our organization's bill are minimal, and since its income classes are more liberal, the aged and disabled would be afforded greater protection against out-of-pocket health care costs than under the FHIP program. With respect to payment procedures. FHIP plans would establish a charge account against which would be charged the cost of covered services without regard to deductibles and coinsurance. In general, payment for covered services would be made at the applicable reimbursement rates. Full and associate participating providers would receive payment without reduction on account of deductibles and coinsurance (unless the account is in default), and the individual would be billed by the carrier for portion chargeable to him. 10 It is difficult to compare the benefit packages of present law and FHIP because of the presence of the "spell of illness" limitation and other complex lifetime durational limitations of present law. 11 Prepared statement, pt. 5, subpart B, sec. 3, p. 85. 12 Except that, no premiums would be required for persons in income classes I and II. 13 See prepared statement, pt. 4, subpart B, sec. 8, p. 61, not 145. Full and associate participating providers would have to accept this payment as payment in full, except that this rule would not apply to associate participating providers in the case of outpatient drugs and biologicals. This exception troubles us. HEW has announced that Medicare will soon pay for covered drugs only at the lowest rate at which such drugs are available under generic names in the locality. This exception to the full payment rule for outpatient drugs and biologicals is designed to permit the pharmacy which furnishes a brand-name prescription drug to recover cost in excess of the generic drug cost. With respect to payment procedures, each certified State would have to prescribe reimbursement rates and standards applicable to payments by FHIP plans in accordance with criteria established by the Secretary of HEW. However, no specific standards are set forth in the bill. The matter is left wholly to the discretion of the Secretary and the individual certified States. While there are provisions in the bill with respect to PSRO's, institutional planning, and utilization review, these provisions are not likely to be effective in restraining health care costs. On the other hand, under present law, the statutes provide specific standards for the purpose of determining reasonable cost or reasonable charges. The lack of standards for the promulgation of regulations by the Secretary under the administration's bill seems to be an unwise abdication of accountability. Simply delegating the matter to the States is not the "cure-all" for rising costs. Moreover, since the FHIP program and the relevant provisions of the Comprehensive Health Insurance Act would be in effect only in States which are certified, an administrative problem of monumental dimensions could result, since we assume that present standards for Medicare would govern in noncertified States. RESTRAINING RISING HEALTH CARE COSTS It may be that the Comprehensive Health Care Insurance Act. (CHIP) contemplates the establishment by certified States of prospective budget review procedures for institutional providers and negotiated rates for noninstitutional providers on the basis of which payments would be made. Our organization's bill, however, specifically so provides and in substantial detail. We believe that such procedures will result in a more rational and efficient utilization of health care resources and aid substantially in restraining rising health care costs. In conclusion, Mr. Chairman, our organizations consider the Comprehensive Health Insurance Act of 1974 to be inadequate in its protection for the health care of the aged and disabled. It does, however, have some good features. The concept of catastrophic benefits is commendable. We think the charge account payment procedure has merit and we like the general revenue financing principle. But we are particularly concerned that there can be no FHIP program unless the State is certified. We are also concerned that the disabled will not be covered. The inadequate coverage of long-term care because of the 100-day and posthospital limitations on skilled nursing services and the absence of coverage of intermediate care services is unacceptable. Also the 100-visit limitation on home health visits dissatisfies us. Our organization's bill and CHIP address themselves to the same elements (except with respect to payment procedures). We ask serious consideration of our provisions as a substitute for FHIP. Such a revised provision could be easily incorporated into whichever total national health care plan is ultimately adopted by Congress. These are some of the items that are in our bill. Senator Muskie, Senator Fong-three of my associates would like to address themselves to specific issues. I would ask Mr. Hacking to address the committee on hospital charges under the Ribicoff bill and also what happens if the States fail to cooperate, or to participate in the programs under the administration's bill. Second, my colleague, Mr. Ellenbogen, has raised what we think are serious Constitutional questions in connection with the Nixon administration bill. Finally, my other colleague, Mr. Lane, will speak on the deletion of the disclosure of ownership provisions in the nursing home care part of the bill. With that introduction I would ask Mr. Hacking to address the committee. STATEMENT OF JAMES HACKING, NATIONAL RETIRED TEACHERS ASSOCIATION-AMERICAN ASSOCIATION OF RETIRED PERSONS Mr. HACKING. Sir, as Mr. Brickfield has indicated, our organizations are concerned primarily with two things: providing the elderly with comprehensive health care protection and doing something about restraining increasing health care costs. These are the goals of our bill. We have evaluated the administration's bill in terms of these same goals. As far as we are concerned Senator FONG. You are putting more emphasis on the elderly? Mr. HACKING. As far as we are concerned the statistics do not support the overworked contention that rising health care costs are due to overutilization. Because of its contention that rising health care costs are the result of overutilization, the administration's remedy is to introduce substantial cost-sharing requirements with respect to shortterm health care. As a matter of fact, I think that this subcommittee has assisted in exposing the overutilization myth. The problem is not on the demand side of the economic coin but rather on the supply side. We therefore think that the administration's entire approach to the rising health care cost problem is wrong. Specifically, the problem is the cost of supplying health services, but not all health services, rather primarily the cost of supplying hospital services. |