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provision would exempt all low-income persons as they are defined in dollar terms from any cost sharing under our bill.

And our bill simply has one cost-sharing system; it's simply copayments. There is no combination of deductibles, premiums, coinsurance and so forth.

The low-income are exempted completely from cost sharing. Not only that, they are also exempt from any out-of-pocket expenditures for health care services that are covered under our bill, but are durationally limited.

The individuals who are in categories or classes above the lowest class would be required to pay something related to their income, but certainly no more than $750 a year for a family. We think the cost sharing is very minimal and we think that to seize upon this test as a means test is a little bit unfair.

I think it is unwise at this point. If we come down to a choice, Senator, between getting comprehensive health care protection for the elderly while all these questions with respect to national health insurance, like delivery, and the extent of the benefit package, and so forth, are being resolved, or adhering to the principle that there should not be a means test in any social insurance program, we'd opt right now for comprehensive health care protection.

Senator MUSKIE. My only purpose in raising the issue is to get an explanation. You said that the cost of your original bill would have been $19 billion. What is the cost of this one?

Mr. BRICKFIELD. $17 billion.

Mr. LANE. I would add, Senator, on that $17 billion, I do have marked up here-we're speaking approximately of an induced cost with $2.5 billion, transferred from the private sector of approximately $11.5 billion, transfer between States and local government-current Medicaid costs transferred back to the Federal Government-approximately $3.1 billion.

So the total additional cost that we are speaking of, which would be your induced cost, and you transfer from the private sector, would come to approximately about $14 billion. That is in addition to current Medicare expenditures.

Senator MUSKIE. Which figure would you use to compare with your original $19 billion?

Mr. HACKING. Senator, I would like to point out that our original bill would have only covered the aged. There was no coverage there for the disabled because they weren't covered under Medicare at the time.

That $19 billion figure would have been substantially higher if our original bill had also covered the disabled. We would probably be talking about $22 billion, or more.

You have got to understand in comparing the costs of our two bills that the persons who would be covered under our bill now are two groups: the aged and the disabled, whereas, under the prior bill, there was just the aged.

Mr. BRICKFIELD. I would like to make this chart a part of the record, if I may, Senator.

Senator MUSKIE. Of course.

TABLE 1.-Estimate of added cost to Federal taxpayers of proposed national health bill dated February 25, 1974

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Senator MUSKIE. It seems to be the same price tag.
Mr. HACKING. But we expanded the coverage.

Senator MUSKIE. I understand. I am just trying to measure the shock effect that persuaded you to move to the income test.

Mr. LANE. Senator, on working on this, we did our best to try to get

the cost-to be as cost conscious as possible.

But, again, we do stick to this feeling that health should be a right. and cost should not be a deterrent. Therefore, that's what we ended up with.

Senator MUSKIE. I understand the problem. I was just trying to get a definition of the basic thrust of your bill.

You do have some small copayments. Would you comment on whether they would be such as to have a real impact on utilization?


Mr. HACKING. No, Senator, it is very unlikely that they are going to have an impact on utilization. As a matter of fact, as far as we're concerned, we don't think that the deductibles and coinsurance of the present law, really have an effect on utilization of services.

They may have an effect on utilization with respect to some of the less costly items like physician services, services of optometrists, and so forth, but when you are talking about hospitalization, we just don't think that deductible coinsurance, copayments, or anything like that, are really going to hold down utilization unless the cost sharing is so high as to preclude its serious consideration by the Congress.

If you charged enough by way of copayments, coinsurance, deductibles, or whatever, certainly you would have an effect on utilization. But you would have to charge substantial amounts.

Senator MUSKIE. How would you apply that principle to the administration's proposal for cost sharing?

Mr. HACKING. Well, the cost-sharing provisions under each of those basic programs under the employee health care insurance, assisted health care insurances, and so forth, all differ.

Certainly the cost sharing is more substantial under the employee health care insurance plans. We don't think that the cost-sharing features under the Federal health care insurance program would be completely able to restrain utilization, but it would affect short-term health care services.

We didn't consider the employee health insurance plan and the assisted health care insurance program in as much detail as we considered the Federal health care insurance program.

Senator MUSKIE. If you recall Mr. Cruikshank's testimony, the increased costs for short-term care for the elderly, from the President's proposal, was rather substantial-as much as 200 to 400 percent. You don't regard that as inhibiting utilization?

Mr. HACKING. Well, the higher the cost sharing, the more likely the restraint on utilization.

But it's really hard to say. If a doctor says you need hospitalization, for example, and it's either that or die, how many people sit down and figure out what it's going to cost?

Senator MUSKIE. Under that analysis, there is no inhibition at any level.

Mr. HACKING. I don't know what the level is, Senator, I'm just speculating.

Mr. LANE. You might add, Senator, the deterrent cost of the initial cost, if there is any administration bill, is quite substantial and it may be a deterrent to the individual to seek medical care, to seek hospital


But a decision to put an individual into the hospital is not the consumer's decision. It is the physician's. Therefore, when Jim was speaking of the effect on utilization, he was speaking in terms of cost-consciousness. One of the arguments that the administration has used is that the impact would be to lower utilization into lower costs.


In looking at it from the consumer's standpoint there definitely would be a great out-of-pocket cost, and there may be an effect-which this committee explored last year-that an individual would deter seeking medical care on preventive, or just on a regular basis, and instead would hold off until his situation was so acute that he would require a higher level of care.

Therefore, not only would the cost to him be greater but the cost to the providers, or Medicare, would be greater-because he would need. acute care at a greater degree.

But we really don't have the statistics to fully comment on where this level of marginal deterrents might be.

Senator MUSKIE. Well, in my statement I used an illustration, which you may recall: a 12-day stay would cost $344 under the President's proposal as opposed to the present charge of $84.

Is that kind of escalation likely to have an impact on utilization, in your judgment?

Mr. LANE. The statistics that were drawn up on the SMI program of Social Security would give you an indication that as it relates to current utilization, the cost level of seeking care would have been income related.

The impact has been that for those who are in the low-income class and had Medicaid, there has not been that great a difference in utilization.

For those with higher incomes there seems to be a higher use of utilization.

Those in the intermediate range-those just over the level of Medicaid into a moderate income level have appeared not to use the SMI supplemental medical insurance benefit.

So, obviously, there is some statistical information available to indicate that the deductible, or threshold cost such as imposed in the Nixon bill, would in fact have a deterrent effect.

But the analyses which we presented here last year before your committee also pointed out that when you were talking of hospital care, you are talking about a description of utilization that is not in the consumer's hand.

And this is where the figures on the out-of-pocket cost of $375, or so, might be a deterrent because the individual may not be able to afford to seek treatment.


Now we would agree that this is an extremely high level out-ofpocket payment and the fact that the administration's bill emphasizes short-term out-of-pocket costs to the individual, that we are in fact in a position here where this bill may put most elderly in a worse shape than they are now.

Senator Ribicoff has done work and has figured out that $1.2 billion in out-of-pocket costs to the elderly if you use the statistics that are available for utilization rates in the number of hospital stays.

Senator MUSKIE. You still seem to minimize the impact on utilization of increases in cost sharing.

Let me put the question this way: Are you saying that if we had no Medicare program that all the people who have been benefited by, and who have health care under the program, would have had it anyway?

I mean, that they would have made the decision to go to hospitals, or doctors, even without Medicare?

Mr. HACKING. Absolutely not, Senator, a person who can't pay for hospital services, probably would not receive those services.

If he can't pay for it then he can't obtain the service, even if it is recommended by a doctor. You are asking

Senator MUSKIE. So it is true that it does decrease utilization? Mr. HACKING. At some point, that's true. We think that the administration's cost sharing is substantial. It is more than the aged would have to pay under the present law. We think that is a step backward— and a major step backward.

We are interested in going the other way. We are interested in providing comprehensive protection and reducing out-of-pocket costs.

The administration is really going backward here. It is quite obvious we don't support the cost-sharing features of the administration's bill. We think the principle of catastrophic protection is a good one but that doesn't mean we are also supporting the cost-sharing features that were introduced in the administration's bill in order to determine when catastrophic protection takes hold.

Senator MUSKIE. I just wanted to make sure that the record was clear as to what your position was.

I appreciate your testimony and I appreciate your unveiling your plan before this subcommittee. I look forward to studying it with interest.

Thank you very much.

[Whereupon, the hearing was recessed at 1:10 p.m.]

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