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Washington, D.C. The committee met, pursuant to recess, at 10 a.m. in room 5110, Dirksen Olice Building, Hon. Edmund S. Muskie, chairman, presiding

Present: Senators Muskie, Stafford, Mondale, and Percy.

Also present: William E. Oriol, staff director; Elizabeth Heidbreder, professional staff member; Reid Feldman, legislative assistant to Senator Muskie; John Guy Miller, minority staif director; Margaret Fayé, minority professional staff member; Patricia Oriol, chief clerk; Gerald Strickler, printing assistant; Yvonne McCoy, assistant chief clerk; and Dorothy McCamman and Herman Brotman, consultants.



Senator MUSKIE. The committee will be in order. I have a brief opening statement, designed to summarize somewhat, yesterday's hearing as a prelude to today's hearing.

Yesterday, this subcommittee began 2 days of hearings specifically to examine the effect that the administration's proposed new comprehensive health insurance plan would have upon health care for older Americans. To fashion the comprehensive health insurance plan most Americans now agree is needed will require a process of careful scrutiny and cooperation by all parties. I believe that the administration's proposal is a step forward in this cooperative process.

The testimony in yesterday's hearings, however, raised serious questions about the adequacy of the administration's proposal in meeting the health needs of the elderly.

The administration plan does offer some improvements over earlier proposals. But the evidence we have heard so far indicates that it would create an unwieldy and perhaps unworkable apparatus which would impose increased health care costs on most elderly Americans while failing to guarantee needed improvements in kinds of health care they can receive.

This subcommittee's hearings, of course, are not focusing on all the provisions of the administration's plan--other congressional units will take on that task in the months ahead.

To the Committee on Aging, however, the administration's planCHIP—is of immediate concern because it would considerably alter the Medicare system, and—in the opinion of the witnesses yesterdayit would alter Medicare for the worse.

They were concerned, as am I, about the "cost-sharing” provisions in CHIP. They testified that the administration proposal could add hundreds of dollars to an average hospital bill, and significantly more to a doctor's bill.

Later on, in questioning, I'll give examples showing that the CHIP bill would clearly result in much higher out-of-pocket expenses for older patients.

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For now I will say only that Secretary Weinberger and I had a conversation in hearings before this subcommittee about 1 year ago about the pros and cons of "cost-sharing.” He maintained that higher costs to the Medicare enrollees would prevent what he called "overutilization" of medical facilities. But the evidence we heard showed that "cost-sharing" would not change utilization patterns except when it put needed care beyond the patient's financial reach. I invite whatever new evidence he may have on this crucial issue.

The Secretary may also argue, as he did last year, that the elderly patient with a long-term hospital stay will benefit from the administration plan. Most Medicare patients, however, come nowhere near the length of stay required to receive such advantages.

The Secretary should also know that yesterday's hearing produced other testimony questioning the usefulness of CHIP to the elderly:

Nelson Cruikshank said that CHIP seems to "take a lot from a great many in order to give a few people very little.” He pointed out that it violates the social insurance principles on which Medicare is based, and that “the biggest beneficiaries would not be the sick, but the health insurance industry."

Melvin Glasser said that CHIP nowhere assures that access to decent health services is a right for all Americans. “Rather," he said, “it continues to be a privilege for those who can meet the requirements of out-of-pocket payments, State legislation, and Federal strictures."

One point emphatically made by two witnesses is that Medicare benefits under CHIP could vary widely from State to State—a concept resisted by Medicare supporters and the Congress in the early 1960's. Surely there is no good rationale for retrogression now.

The American Association of Retired Persons also questioned the usefulness of the "cost-sharing” provisions for controlling health costs. They questioned whether the States could be expected to take upon themselves the responsibilities which the overal] CHIP plan would require. And they said that if benefits were to vary sharply among the States, CHIP could even be challenged on constitutional grounds.

Such questions, to my mind, warrant careful consideration by the administration, just as the CHIP proposal warrants careful attention by the Congress.

Mr. Secretary, it is a pleasure to welcome you here this morning. I know that your schedule is busy and yet I suspect it may be useful to you, as it is to us, to unveil this portion of the administration's proposal before this subcommittee and we welcome that.



Secretary WEINBERGER. Thank you very much, Mr. Chairman. I am delighted to be here, and, as you say, it will be an unveiling of only a portion of what is a national plan for everyone in the country, regardless of age, but I am delighted to have the chance to discuss the portions you are particularly interested in.

I am accompanied by my colleagues: James B. Cardwell, Commissioner, Social Security Administration, DHEW; Arthur S. Flemming, Commissioner, Administration on Aging, DHEW; Stephen Kurzman, Assistant Secretary for Legislation, DHEW; William A. Morrill, Assistant Secretary for Planning and Evaluation, DHEW; Howard N. Newman, Commissioner, Medical Services Administration, DHEW; Henry E. Simmons, M.D., Deputy Assistant Secretary for Health, DHEW.

Between all of us, maybe one of us can answer some of your questions.

Mr. Chairman and members of the committee. I am pleased to be here in response to your request to testify before this committee today regarding the modifications which would occur in the Medicare and Medicaid programs under this administration's proposed Comprehensive Health Insurance Act, S. 2970.

This subject is of crucial significance for the 23 million Medicare and 4.5 million aged Medicaid beneficiaries as well as for all of us who are involved in planning, legislating, and administering health financing programs for this population. It was the undisputed health needs of the elderly which prompted Congress to enact Medicare in 1965—the Nation's first major health financing program which was not an income-related program.

We find ourselves now at a similar historic junction. However, the issue extends beyond the question of the health care of every American, regardless of age, health status, employment status, marital status, or income. And it is significant that in this debate we can benefit from the experience of administering Medicare and Medicaid, particularly with respect to the need for cost controls. In the nearly 8 years of these programs' operations, we have gained a wealth of experience in the many areas which bear on health care financing-provider participation, utilization and medical review, cost-sharing, use of intermediaries and carriers in administration of the programs, the economic effects of health care financing, cost-control measures, regulation of insurors and providers, standard-setting, and so forth.

diost of the national health insurance proposals currently pending before Congress, including the administration's proposal, seek to establish health care financing or care for all Americans. The Medicare and Medicaid programs as they exist today will under many of these proposals be altered to conform to the larger health care or health financing systems established by these proposals. This is true of the administration's proposal.

The proposed modifications in Medicare and Merlicaid which would oceur under the administration's proposal have already received extensive press coverage. Unfortunately, much of this coverage has given the impression that the Medicaid and Medicare programs will be cut back and that current beneficiaries will be worse of than they are now. I hope that our discussions today will make clear that, contrary to such reports and even to your opening statement yesterday, Mr. Chairman, health insurance coverage for the aged under our proposal will be far superior to that which is presently available under Medicare and Medicaid because it expands benefits and provides improved protection. We will he spending $1.8 billion more under CİLTP for the aged than we are enrrently spending under Medicare.

Before turning to a discussion of the specific changes which our proposal will make in the Medicare and Medicaid programs. I would like briefly to discuss with you the broad outlines of the administration's comprehensive health insurance proposal to provide the overall picture in which any changes for present Medicare and Medicaid beneficiaries must be viewed.


Inder our proposal for comprehensive health insurance, every U.S. citizen could be covered under one of three programs: The Employme IIealth Insurance Plan [EHIP], the Assisted Health Insurance Plan TAHIP), or Medicare.

Medicare will cover virtually all persons 65 and over. EHIP will cover most fi:ll-time workers and their families under 65, and AHIP will cover all those of any age who are either ineligible for Verlicare or who find it economically advantageous to enroll in AHIP. Persons with low incomes, early retirees, high-risk persons and some self-emploved are among the groups which could be covered under AHIP.

All three programs will cover the same services, including: unlimited inpatient hospital care, unlimited physicians' services. unlimited outpatient prescription drugs, mental health services, special and preventive services for children and mothers, home health services, posthospital extended care services in skilled nursing facilities, blood and blood products, and other medical services currently covered under Medicare, including prosthetic devices, dialysis equipment and supplies, X-rays, laboratory tests, and ambulance services.

In designing this comprehensive benefit package we made a conscious decision to cover basically the same broad range of services under all three programs. This decision was based on the conviction that one of the principal goals of an insurance program should be protection against major medical expenses. The services that would not be covered largely represent the more routine medical services which can be budgeted for-or left to State and local general assistance--and should not be covered under a health insurance program which primarily seeks to provide financial protection. The cost-sharing schedules established for CHIP

vary according to plan, but are based on ability to pay, so that the full-time employee group pays more than the low-income group or the aged. We recognize that some may disagree with the actual cost-sharing rates in our proposal; however, we believe the concept of cost-sharing is an important and essential feature of any national health insurance program. Through cost-sharing we are able to reduce total premium costs, expand the beneficiary group and relate an individual's contributions to his or her utilization of health services. Cost-sharing also instills cost-consciousness on the part of the enrollee and thus reduces unnecessary or inappropriate utilization of health services. This is essential to prevent the health system from being overwhelmed by persons who do not need services while persons who do need services are unable to obtain them.

In terms of total benefits, the vast majority of aged persons are going to be better off under CHIP than they are under the current Medicare program. Under CHIP the value of the benefit package for the aged will rise from $565 to $620-or put another way, the Federal Government will he spending $55 more for every aged person under CHIP than is now being spent under Medicare. The total increase in Federal spending for the aged will be approximately $1.8 billion.

All enrollees under the three programs will be able to charge the cost of covered medical care on a healthcard account. They may then pay the charges not covered by insurance on an installment basis if need be. The deferred payment approach will enable all enrollees to obtain needed medical care even if they do not have the cash on hand currently to pay for their deductible and cost-sharing charges. Maximum limits will be established on interest charges for unpaid balances on healthcard accounts.

Requirements for professional review of medical care will be provided under CHIP to assure that care provided is of high quality and medically necessary. There will also be provisions for strong regulation by the States of insurance carriers participating under the plan.

MEDICARE UNDER CHIP A major objective of Medicare has been to remove those financial barriers that prevent the elderly from obtaining necessary medical services of high quality. This it has done to a considerable degree. Our proposed changes in the Medicare program will build on the existing program to make it more responsive to the health needs of the aged. Our proposed changes are in four basic areas: Eligibility, benefits, cost-sharing and physician reimbursement,

(A) Eligibility. Although Medicare currently covers most of the elderly population, it does not cover all persons 65 and over. Those who are ineligible for part A benefits are largely Federal, State, and

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