ITEM 4.-COMMENTS ON STATEMENTS OF MR. BERT SEIDMAN, DIRECTOR OF SOCIAL SECURITY, AFL-CIO, AND MR. NELSON CRUIKSHANK, PRESIDENT, NATIONAL COUNCIL OF SENIOR CITIZENS, MARCH 13, 1974, BEFORE THE SUBCOMMITTEE ON HEALTH OF THE ELDERLY, SENATE SPECIAL COMMITTEE ON AGING; SUBMITTED BY FRANK E. SAMUEL, JR., DEPUTY ASSISTANT SECRETARY FOR LEGISLATION (HEALTH), DEPARTMENT OF HEALTH, EDUCATION, AND WELFARE

Statement. "Mr. Chairman, the Secretary said that the program that he was proposing was far superior to that which is presently available under Medicare and Medicaid. Well, I think that you and others, both witnesses and Senators, have shown that there is a very serious question as to whether the program is superior. It may be superior in certain aspects. It is certainly clear that for most of the people who are now being covered by Medicare and Medicaid, it will be worse.

Response.-Objective analysis of the proposed legislation reveals that, overall, Medicare coverage is significantly improved. It cannot be denied, for example, that an expansion of the Medicare benefit package to include outpatient prescription drugs, comprehensive medical health services, and unlimited hospitalization represents a substantial improvement over existing Medicare coverage. Taking all changes into account, including modifications in cost-sharing arrangements, the actuarial value of the protection offered increases from $565 to $620 per year. Moreover, the structure of the insurance plan provides much better protection against what would otherwise be catastrophic medical bills, a feature absent from current Medicare.

CHIP would eliminate the need for millions of aged persons to purchase insurance supplementary to Medicare. Currently more than half of all Medicare beneficiaries secure some form of private coverage to supplement their Medicare protection. This figure is significant because it underlines the gaps in the current Medicare benefit package. The importance of being insured against such risks is illustrated by the fact that more than 11 million aged insured pay a gross average premium of $120/year for such supplemental protection.

Under CHIP, aged beneficiaries who are low-income would be eligible for reduced cost-sharing. This would particularly help those low-income aged who are currently above the present State-established income standards for Medicaid eligibility.

Overall, Federal expenditures for health insurance on behalf of the aged would increase by $1.8 billion.

Although the current Medicaid program in many States covers some services not provided under CHIP, we strongly believe that implementation of the CHIP plan would represent a basic advance in the provision of medical services to most low-income families and individuals.

Because CHIP is designed to provide all enrollees with the same benefits, current Medicaid beneficiaries will experience gains of benefits in some areas and losses in others. Optional services which are not now available in every State under Medicaid but which will be covered under CHIP include clinical services, prescribed drugs, prosthetic devices, physical therapy and related services, other diagnostic, screening, preventive and rehabilitative services, and emergency hospital services. In addition, many services previously subject to limitations in some States would be provided without limitations under CHIP. For example, at least 21 States limit the number of days of inpatient hospital care under their Medicaid programs from 10 days per admission to 90 days per spell of illness. Under CHIP there would be unlimited inpatient hospital care in all States.

Another example is physicians' services: 14 States limit the number of visits, ranging from two visits per calendar year to one visit per day. Such services, when medically necessary, would be unlimited under CHIP in all States.

Statement. "The article states that the two sisters, aged 82 and aged 79, have a social security income of $296.36, and the reporter goes on to say, and in a pinch-penny budget, that allows them, both of them-not each of them-both of them. two dollars a day for food and then he goes on to say--describe what that food is. It is oatmeal, it is a can of beans, it is never any meat. They cannot remember when they last had any meat, and when the Secretary talks about

whether people at the level of income and at much lower levels of income, can afford that ten percent co-insurance, that deductible he says we have decided." Response.-While one can argue with the specific cost-sharing structure that we have instituted, we believe it is reasonable. The CHIP Medicare plan, it should be noted, imposes an absolute limit on cost-sharing beyond which expenses are fully reimbursed, never more than $750 for those 65 and over with incomes of more than $5,249, and down to 6 percent of income for those with under $1,750 a year. In addition, the Healthcard allows an individual to spread the costs over time rather than having to make a lump-sum payment. We believe the advantages to those 65 and over who must obtain health care on credit outweigh the minor disadvantages of incurring debts and carrying charges. Although it is true that the normal cost-sharing under CHIP would be greater than under current Medicaid, under which States are permitted to impose costsharing as a result of the 1972 Amendments to the Social Security Act, the optional reduced CHIP cost-sharing feature would be based on the ability to pay. CHIP's cost-sharing requirements at either the full or reduced level are meant to instill cost-consciousness on the part of the enrollee and reduce the tendency for unnecessary or inappropriate utilization of health services. In addition, through cost-sharing it is possible to reduce total premium costs, expand the beneficiary group, provide a larger range of services than might otherwise be offered, and relate an individual's contributions to his or her utilization of health services. Finally, where cost-sharing broadens the benefit package, there occurs a reduction in financial incentives to use hospitalization rather than outpatient care.

Statement. (Question from Senator Muskie) "Under the Administration's proposal, the two people, under what level would they come, if they had a joint income of $3,600?"

Response.-Under CHIP each sister's income would be counted separately. Assuming that each sister had an income of $1,800, each would be responsible for the following annual cost-sharing liabilities:

Drug deductible (if applicable) –

Other services deductible__

Coinsurance on all services above the $50 deductible up to a maximum annual liability of $162 (9 percent of income) (percent).

$25

50

15

Statement.-(Mr. Cruikshank) "And we are not sure what they would mean to include by income. There is no indication whether food stamps would be included or there is no definition of what is income."

Response.-We purposely did not include in the bill a definition of income because we were awaiting developments of a parallel definition for welfare reform. However, the Department has a preliminary definition of income which can be utilized in regulations or in amendments to CHIP for the income-related optional reduced cost-sharing feature under CHIP.

Statement. "I wonder whether these two elderly sisters can afford to pay for eye glasses that they may need or a hearing aid they may need; I doubt it very much, but if they were covered by Medicaid, in most states, it is true that Medicare does not and should cover those items but in most states, Medicaid does cover those items so the poorest of the elderly, those who are now receiving, let's say supplementary security income, SSI, would have available to them, at no cost, eye glasses, hearing aids, dental care, and even preventive care.

"That you all be taken away by this program and the Secretary says that somehow or other, the states would pay for this but if you look at the fine print, the cost for the states, under this program, is already greater for the covered items than they are now paying for Medicaid and I wonder in how many states they are going to cover eye glasses and hearing aids and dental care in addition for the people who are now getting them."

Response.-The fact that most eye, ear, and dental care are controllable expenditures (as opposed to medical services for acute conditions) means that most people can generally budget for this type of care. Because of this characteristic, and because of the lower cost of such services, these services are considered as inappropriate for coverage under an insurance program which is designed to provide protection against unexpected and high medical costs. We believe that, given the choice, most persons prefer to insure against unexpected illness.

We agree that it is unfortunate that eye, ear, dental and preventive care are not universally available to the elderly poor under Medicaid today, as the following table demonstrates:

But a more serious problem, which is not mentioned, is that Medicaid excludes many millions of poor aged persons whose income is just above the income standard set by the State for Medicaid. In States without spend-down programs, these people are "locked out" of the Medicaid system, regardless of the amount of money spent for medical care. For those in States with "spenddowns," the potential recipient must often spend a sizeable portion of his income before reaching the income standard set by the State. For example, in a State which had an income standard of $2208 for a single person, a person with an income of $3,000 would have to incur almost $800 before establishing eligibility for Medicaid.

Furthermore, Medicaid no longer can assure that these optional services will be provided "at no cost" as is alleged. Section 208 of P.L. 92–603 authorized States to impose cost-sharing charges on all optional services for the cash recipients and to impose income-related premiums on the medically needy (noncash recipients). Finally, preventive care is generally unavailable under State Medicaid programs to persons over age 21.

Mr. Seidman's statement on the costs of CHIP to the States is in error. The States as a whole will save an estimated $1 billion under CHIP. For an analysis of the impact of CHIP on the States, see Appendix A., p. 969.

Statement. (Mr. Seidman) "That is certainly correct but he does make a great deal of this catastrophic element and I would just like to point out that, as he states, in 33 states, we have in effect the catastrophic program for the elderly because in the so-called spend-down provisions for the medically needy, they can be taken care of. "This elderly couple, living entirely on social security, had this hospital bill for two weeks, one of them had to go to the hospital for a heart attack and she had her bill paid for by Medicaid, undoubtedly on this spend-down provision, as it works in the District of Columbia, where they happen to live, so this is not giving the elderly very much that they do not have now." Response.-As discussed in our response to the previous question, the spenddown provision of many State Medicaid programs does not provide the same kind of catastrophic coverage as would CHIP. To begin with, there is no maximum liability. An aged person with a $5,000 income might have to spend 60 percent of his income before establishing Medicaid eligibility. Secondly, because many States have limits on both the scope and amounts of Medicaid benefits, a person is not assured of complete coverage of the expenses of comprehensive medical care once he spends down. We would therefore have to disagree with the statement that CHIP is "not giving the elderly very much that they do not have now."

Mr. Seidman also ignores the fact that only 33 States have incorporated spenddown provisions in their Medicaid programs. CHIP would extend catastrophic protection to low-income persons in the 19 States currently without such provisions.

Statement. "I think it is awfully important to note, while his secretary made a great deal out of the catastrophic protection that was under his bill, as opposed to Medicare, he left out the fact that that only applies to Part A. He was talking about these limitations all the time. There is no limitation under Medicare under Part B."

"Nowhere does the catastrophic thing come in under their proposal. It comes in down at the 60, 70, 80, 90 plus days and when does that happen? Only after per-review (sic) has failed, only after utilization review has failed, only after every precaution presently in the program has failed. This tiny, small fraction of one percent is to get this so-called great additional protection. It already

exists under Part B, no limit under Medicare, so it is really just talking about the very, very long term hospital stay. That is where the catastrophic protection comes in."

Response.-In stressing that "only" Part A coverage was limited under the present Medicare program, Mr. Cruikshank apparently believes that catastrophic protection against inpatient hospital costs is not a high priority item. We believe that the importance of such coverage to the aged is demonstrated by the fact that, of the 11 million Medicare beneficiaries who purchase insurance to complement their Medicare coverage, most insure against the high cost of unexpected hospital stays, in lieu of the lower-cost (Part B) ambulatory care.

He also implies that persons who are hospitalized for more than 60 days are the victims of inadequate peer and utilization review systems. This has simply not been demonstrated by any convincing evidence of which we are aware. Finally, while it is true that only a small percentage of persons ever accumulate catastrophic medical expenses, the need for protection against such catastrophic expenses is universal.

Statement. "The Secretary says that the program would be even more responsive to the health needs of the aged than Medicare because it removes the financial barriers that prevent the elderly from obtaining these necessary medical services of high quality.

"Frankly, I do not understand this statement. It seems to me the reverse is true. It builds in new additional barriers to necessary medical services and it is less responsive to the health needs of the aged, particularly if you combine the Medicaid and Medicare and particularly, the kinds of features that I indicated before, the eye glasses, the hearing aids, the dental care, and so on."

Response.-As we have tried to demonstrate in some of our previous responses, CHIP would be more responsive to the health needs of the aged than Medicare because of the following reasons:

(1) The imbalanced cost-sharing under the present Medicare program would be eliminated.

(2) The benefit package would be improved to include unlimited inpatient hospital coverage, outpatient prescription drugs, and more comprehensive mental health benefits.

(3) Physicians would be required to accept as full reimbursement for services rendered the State-established reimbursement rates. This should mean substantial savings in out-of-pocket costs for Medicare beneficiaries inasmuch as currently over half of all Medicare claims are unassigned.

(4) Medicare beneficiaries who are low-income would be eligible for reduced cost-sharing. This will particularly help low-income aged persons who are barely above the present income standards for Medicaid eligibility.

(5) Overall, Federal expenditures on behalf of the aged would increase by $1.8 billion under CHIP. Medicare enrollees would have a benefit package having an actuarial value of $620 per year, compared to $565 under the current program. (6) We believe our proposal offers the aged better financial protection. For the first time, every beneficiary would be protected through the maximum annual liability feature of CHIP which would eliminate the open-ended liability currently facing Medicare (and many Medicaid) beneficiaries.

We have already discussed in our response our reasons for believing that CHIP is a great improvement over Medicaid.

Statement.-(Senator Muskie) "Do all states provide that?

(Mr. Seidman) "Almost all states provide eye glasses, hearing aids, dental care, and preventive care. I am told that 75 to 80 percent of the people now covered by Medicaid would be robbed of some of those services and this applies, of course, with these items, particularly to the elderly.

"And while it is true that Medicare ought to and does not cover drugs, there are only four states under Medicaid that do not cover drugs so that drugs are available without cost-sharing under the Medicaid program to many of the elderly."

Response.-The answer to Senator Muskie's question is in our response to Statement 7. Mr. Seidman's statement about drug coverage is true; however, he fails to realize that such services are not necessarily free, as was pointed out in our response to his statement.

Statement. (Senator Muskie) "What are the income levels in the Medicaid program?"

(Mr. Seidman) "In Medicaid, of course, they are set at different levels in different states.

(Senator Muskie) "What is the range? Is it designed to be the poverty level, by and large?"

(Mr. Seidman) "Now it is the SSI program, all of the people on SSI are covered, plus in some states, those that are receiving supplemental SSI, so that those figures are now, for a couple $210 a month, I believe, under SSI, and they will be going up July 1st."

Response.-Mr. Seidman is incorrect in stating that "all of the people on SSI are covered." There are 17 States which have opted to use the Section 209 (b) (of P.L. 92-603) provision which enables them to set the income standards for Medicaid eligibility at levels below the SSI level ($1,680). These levels in 1972 ranged as low as $900 to $3,000 for an aged person. The current SSI income standard is $140/month ($1,680/year) for an individual, and $210/month ($2,520/ year) for a couple. These figures will go up to $146/month ($1,752/year) and $219/month ($2,628/year) for individuals and couples, respectively, in July. Following is a State-by-State list of States' Medicaid income eligibility standards for the aged, blind, and disabled. Specific dollar amounts are unavailable at this time:

MEDICAID INCOME ELIGIBILITY STANDARDS FOR THE AGED, BLIND, AND DISABLED—JUNE 1974