cost", any cost in excess of that actually incurred and incurred costs found to be unnecessary in the efficient delivery of health care services will be excluded. Also, provisions to promote planning activities for health care and services and to avoid the use of federal funds to support unjustified capital expenditures were added. A third provision requires hospitals and other institutional providers to maintain an annual operating budget and a three-year capital expenditure plan. These provisions, however, are not likely to be enough. Methods must be found to analyze hospital spending plans and insure that proposed outlays will be cost effective. 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.

Indeed, this need for an effective monitoring system becomes all the more critical when considered in the light of the substantial growth of third party payments over the last 20 years. While inflation and other factors have tripled per capita expenditures from 1950 to 1973, the proportion of total health care bills paid directly by patients has been reduced by approximately 50 10

per cent. In 1973, third party payments were covering an estimated 75 per cent of the individual's health care bill (38 per

cent being paid by the government and 26 per cent being paid by private health insurance).11

15

Not only has the impact of third party payments been substantial when considered overall, but when considered in relation to hospital care, the need for an effective monitoring system comes sharply into focus. From 1950 through 1973, the proportion of hospital bills being paid directly by patients has been reduced from one12

third to one-tenth. With respect to physician services, third party payments have increased from 15 per cent of the physician's 13 bill in 1950 to 50 per cent by 1970. For other types of care, however, (including dentist, dental care and other professional services, drugs, eyeglasses and appliances), third party payments have increased from only 11 per cent in 1950 to 34 per cent at the present time. Obviously, then, the expansion of covered items and services under Medicare and other public and private health insurance, will necessitate even more the development of a system to monitor closely the cost of health care. if such cost is to be held to a reasonable level.

14

121d. at 13-14. 131d. at 14.

PART FOUR

DESCRIPTION OF THE MEDICARE AMENDMENTS OF 1974

and a

DETAILED COMPARISON OF THOSE AMENDMENTS WITH CURRENT LAW

A. DESCRIPTION OF THE MEDICARE AMENDMENTS OF 1974

Medicare, known officially as Health Insurance for the Aged

15,

and Disabled, has major deficiencies. It is divided into two dis

tinct programs

-

Hospital Insurance Benefits for the Aged and

Disabled 16 and Supplementary Medical Insurance Benefits for the Aged and Disabled! The basis for this division is historical rather than rational; the result is an uneven distribution among the intended beneficiaries of the intended degree of health care

protection.

Eligibility for benefits under the Hospital Insurance program is based on insured status under the social security and railroad retirement cash benefit programs, while eligibility under the voluntary Supplemental Medical Insurance program is based on residence or, alternatively, entitlement to Hospital Insurance. The deductibles (inpatient hospital deductible per spell of illness, the annual deductible, and the blood deductibles), coinsurance (with respect to inpatient hospital care and skilled nursing care under Hospital Insurance, and 20% coinsurance under Supplementary Medical Insurance), and premiums (for voluntary enrollees under both programs) reflect rising health care costs and now constitute 15 Soc. Sec. Act §§1801-1879.

a substantial burden on low and relatively fixed income aged and disabled persons. The limitations on inpatient hospital and skilled nursing facility care, on home health services, and on the amounts of inpatient and outpatient psychiatric care, and the limitation of skilled nursing facility care and home health services to post-hospital care under the Hospital Insurance program severely restrict the degree of health care protection. Moreover,

the exclusion of intermediate facility care, the exclusion of dental care and dentures, of eyeglasses and examinations for prescribing them, of hearing aids and examinations therefore, and certain other professional services, and of orthopedic shoes and certain other walking aids, and outpatient drugs (except injectibles when administered to an outpatient in a physician's office or hospital) further limit the protection available under the programs. Certainly Medicaid, known officially as Grants to States for Medical Assistance Programs is not a suitable means of compensating for the indefinite future for the deficiencies of the Medicare

programs.

18

First, Medicaid imposes, as a condition for eligibility, a means test which should not be imposed for health care of the aged. Also, being a federally-aided rather than a federal program, it is not in effect in every state. Furthermore, many states have not extended the Medicare program to those whose income is above the cash public assistance level but who are medically indigent. Many states, even among those that do not cover the medically indigent, have had great difficulty in meeting their share of costs

and have cut back on eligibility and services. Finally, Medicaid varies widely among the states in its benefit coverage and in its eligibility requirements, thus aggravating inequitable distribution of national health care resources among those in need of its benefits. The Medicare Amendments of 1974 would revise and expand the Medicare program and would build upon the Medicare cost experience by, among other things, integrating the Hospital and Supplementary Medical Insurance programs into a single benefit structure, with a single trust fund. The program would be financed in full through health insurance taxes on wages and payroll, self-employment income, and unearned income, through government contributions from general revenues, and through earnings from investment of proceeds of these taxes and government contributions.

With respect to eligibility and coverage, these Amendments would extend the benefits of the program to all aged United States citizens, and to most aged non-citizens living in the United States, without requiring that they be entitled to social security cash benefits and would keep under the program the disabled persons under 19. age 65 added by the 1972 Social Security Amendments but with the benefit of all the new and enlarged services added by these amendments to the same extent as in the case of the aged.

With respect to benefits, these amendments would preserve the types of benefits presently available under Medicare but would abolish the requirement of prior hospital stay with respect to skilled nursing care and home health services.

19 Soc. Sec. Amendments of 1972, Pub. L. 92-603.

These amendments