Following is a table indicating approximate income levels for Medicaid eligibility for the aged as of July 1972, the latest month for which data is available:

1 Federal SSI payment is given unless the State has opted to go back to a previous standard.

2 Data on the levels States will be supplementing to is limited; the information given shows the approximate levels the States supplement to, but is not a comprehensive listing.

*States which have indicated that they are going back to a previous standard as provided under sec. 209(b).

Statement. "He gave one example which I think is particularly interesting and that is that the short term hospitalization example of ten days, since twelve days is the average for the elderly and for the group at $3,000, it shows an outof-pocket expense of $270. Now, what we are talking about is an out-of-pocket expense of these two sisters; they are the kind of people who would have to pay that $270 which, incidentally, would be $50 more than under Medicare."

Response-As we indicated in our response to a previous statement, if each sister had an annual income of $1,800, each would have a maximum annual

liability of $162. This is almost $100 below the $270 which Mr. Seidman gives, and it is $60 less than a current Medicare beneficiary would have to pay, not $50 more than Medicare as Mr. Seidman has stated. The mistakes in arithmetic here are probably due to Mr. Seidman's treating the two sisters as a couple rather than as two individuals, as they would be under CHIP.

Statement. "There is the whole question of whether or not the people under Medicare and Medicaid or the replacement program for Medicaid would or would not get second class services."

Response.-We do not believe this will be the case for the following reasons: (1) The floor on reimbursement for physicians participating in all three programs will be substantially the same as reasonable-cost reimbursement. This will induce many physicians to participate in AHIP and Medicare who have not participated in Medicaid because of the very low reimbursement levels set by some States.

(2) The mix of population in AHIP and Medicare will be much more diverse than that in the Medicaid program, which serves only low-income persons. Because of the diversity of this population and its size and disassociation from the welfare program image, it is anticipated that physicians will want to participate in the two programs as fully as in EHIP.

(3) The use of the Healthcard to finance covered health care under all three programs is expected to provide strong incentives for physicians to become full participating providers, which would result in their charging the same rates for enrollees of all three programs, even though they are permitted to charge an additional amount to EHIP enrollees. We believe the assumption of billing and collection functions by carriers will provide a strong incentive for physicians and others to become full participating providers. Our decision to require assignment under AHIP and Medicare and to leave it voluntary under EHIP was based on the following considerations:

(1) Allowing voluntary assignment under all three programs would have unnecessarily aggravated inflation of medical costs, and could have prevented many low-income persons from obtaining needed medical care.

(2) Requiring mandatory assignment under all three programs would in effect substitute national fee screens. We did not believe such a level of government intrusion into the practice of medicine to be desirable.

Statement.... "We looked at the income levels under the Medicare replacement program and we found that the average social security beneficiary couple is now getting $296 a month.

"1. When the benefits rise by four percent in April, they will get an increase of $140 per year. Under the Administration's plan, those people, because they will go into a different income group, will have an increase in their premiums of $102 and an increase in their deductibles of $100, an increase in the drug deductible of $50.

"That means a $330 potential increase in their health costs as compared with $140 increase in social security; before any benefits are obtained from this program and once they do begin to get services under the program, plus an increase in their co-insurance, from 15 to 20 percent and an increase in their maximum liability, the drain on their payments from 9 percent of their income to 12 percent of their income so that if they are subject to any illness, to any appreciable extent, their entire social security increase will be washed out."

Response-The average social security beneficiary couple was receiving $277 in March of 1973. not $296. The $277 payment increased to an average of $296 in April, and to $305 in June of 1974. Even if the 2 sisters had a total payment of $296 in March, this would have increased by $248.64 per year in April with the 7 percent increase (not $140. as Mr. Seidman has indicated) and another $152.04 in June with the 4% increase then, for a new total annual income of $3,952.68. (Again, we are assuming that each sister is receiving half of the total yearly income, or $1,976,33, which is a $200.33 increase over the previous income of each.) It should be noted that the two sisters are not "the average couple” but rather two individuals, as far as social security benefits are concerned.

We fail to understand how Mr. Seidman has come up with his estimates of Increases in the cost-sharing liabilities of both sisters, unless he is considering them as a couple and not as individuals, as CHIP does. Contrary to Mr. Seidman's statement that each sister "will go into a different income group, will have an increase in their premiums of $102 and an increase in their deductibles of $100, (and) an increase in the drug deductible of $50," none of this is true. The sisters

would remain in the same Income Class II category (as their income increases from $1,776 to $1,976.33, which is well below the $3,499 cut-off for Income Class II), their premiums will remain the same as will their deductibles. Thus, the $330 potential increase in cost-sharing liability which Mr. Seidman suggests is a sizeable error.

Mr. Seidman's other references to the increase in coinsurance and maximum liability are also inaccurate; these remain the same. The only change in the sisters' status with respect to cost-sharing is that their maximum liability would be increased from $159.84 to $177.87, an increase of $18.03. Their $200.33 increase in social security benefits will not, as Mr. Seidman states, be "washed out" by the $18.03 in increased cost-sharing liabilities.

Statement. "In the approach to hospital insurance, he said it was not important, really, in effect, he said to cover the most frequently recurring item because this was budgetable and they were going to be for the trade-off and provided in catastrophic protection, the protection against the catastrophic, down at the end of the very, very long stay in the hospital."

(Senator Muskie) "He used the word 'routine.' Can you distinguish between 'routine' and 'chronic' ?"

(Mr. Cruikshank) "That is a distinction completely new to me. I do not know what he means by 'routine.'"

Response.-"Routine" health services are those provided without relationship to treatment or diagnosis for a specific illness, symptom, complaint, or injury. For example, periodic physical examinations, chest x-rays, diabetes screening tests, high blood pressure detection screenings, would be considered routine services. The term "routine" is also applied to eye examinations for the purpose of prescribing fitting or changing eyeglasses and to services in connection with the care, treatment, filling, removal, or replacement of teeth. Routine foot care includes the cutting or removal of corns, warts, or calluses, trimming of nails and other hygienic and preventive maintenance care. In general, "routine health needs" can be classified as predictable services which are generally budgetable and are, accordingly, not covered under CHIP, except preventive care for children under 13.

We consider "routine" health care needs for adults as inappropriate for coverage under an insurance program which is designed to provide protection against unexpected medical costs.

A "chronic" illness is one which is expected to be of long duration and which may be subject to flareups requiring specific medical attention. Usually, such an illness is not totally curable but can be controlled with medication and periodic medical care. Examples would be high blood pressure, arthritis, diabetes and certain heart condtions. Glaucoma could be an example of a chronic eye disease.

For most people, eyeglasses are used to correct refractive errors which are not the result of acute eye disease. Glasses, other than those associated with treatment following cataract surgery, would generally be classified as a "routine” health need for the purposes of a health insurance program.

Statement.-"Under the present Medicare program, the physician has all of the advantages resulting from accepting assignment that he has under the proposal and if it is true that if it is in few-fewer cases accepting assignment, there must be something to Senator Mondale's argument, that there is an economic interest."

Response.-It is incorrect to imply that the physician has the same inducements to accept assignment under the present Medicare program that he has under CHIP. Mr. Cruikshank completely ignores the Healthcard system which would perform the billing and collecting functions of physicians, and guarantee reimbursement to physicians at the State-established rates, thus eliminating the bad debt losses of physicians. We believe these advantages, which do not exist under the present Medicare program, will persuade most physicians to become full participating providers (i.e., assignment-accepting physicians).

APPENDIX A

IMPACT OF CHIP ON THE STATES

The Administration's Comprehensive Health Insurance Plan (CHIP) has three parts: The Employee Health Insurance Plan, the Assisted Health Insurance

Plan (AHIP), and Medicare. AHIP would replace current State expenditures for virtually all services covered under Medicaid other than long-term care. It would also reimburse for selected health services that are now funded entirely by State and local governments. A residual Medicaid program would be retained for longterm care services-skilled nursing facilities, intermediate care facilities, home health services, and mental health services. The residual Medicaid program is intended as an interim measure pending further Departmental study and recommendations later this year regarding the Federal role in financing long-term care. Under AHIP, the States would play a major role in cost containment through comprehensive health planning, rate setting, and other regulatory measures. Indeed, the pressures of rising State health budgets have compelled many States to undertake new and innovative health cost and utilization control activities. For the most part, the Federal Government has adopted the better State practices. Furthermore, there are many decisions-such as the assessment of the need for specific medical facilities-that, realistically, can be made only at State or local levels. The Administration does not wish to weaken the incentives for States to contain health care costs. Thus, we believe it imperative that the States continue to participate in the public financing of health care.

State financial participation would amount to 25% of the public costs of AHIP. The aggregate State contribution (at 1975 prices) is estimated at $4.2 billion. In addition, the States may choose to continue to provide services that neither AHIP nor the residual Medicaid program for long-term care would cover, e.g., adult dental services. These are referred to as "State-only services." If States continue to finance all of these services, but without Federal assistance, the estimated FY 1975 costs would be $419 million, of which the Federal Government now contributes $230 million.

State and local governments would, however, achieve budgetary savings from the following programs:

1. States would in 1975 spend an estimated $3.2 billion under Medicaid for services covered by AHIP.

2. More than half of the States have "General Assistance" programs, under which they pay for services for low-income persons who do not qualify for Medicaid because they are not categorically related. FY 1975 expenditures under General Assistance are estimated at $693 million, of which $465 million would be for services covered by AHIP.

3. Many States and local governments provide services through their own clinics and hospitals. An estimated $2.0 billion in hospital services (excluding care in mental institutions) provided directly by State and local governments. would be reimbursable. While the States may not be able to translate all of their reimbursable direct services into actual savings, they would be able to offset a major portion (probably on the order of $1-2 billion) of the $2.0 billion. States could also offset a portion of current expenditures for outpatient clinic services and inpatient mental illness. Unfortunately, available data do not permit us to estimate the resulting savings to the States although in some communities (e.g., New York City), the savings are known to be considerable.

In addition to the above changes, we assume that the States will maintain their current expenditures for long-term care under both the Medicaid ($1,957 million) and General Assistance ($228 million) programs, since these programs would not be changed.

Some States may choose to fill in cost sharing or, alternatively, increase welfare payments for Medicaid eligibles who do not now face cost sharing. We have not estimated the resulting fiscal effect because we believe that, on balance, most current Medicaid eligibles will be better off under AHIP, largely because they will face less physician discrimination than at present, and stringent limitations on inpatient hospital services will be removed. For example, fewer than 10% of private physicians in New York City saw any Medicaid patients last year. In contrast, CHIP would both establish reasonable reimbursement rates under all plans and forbid providers from discriminating against AHIP enrollees. Moreover, many States limit hospital benefits to fewer than 20 days per admission or per year. It should also be borne in mind that most of the $5.9 billion in new Federal spending as a result of CHIP is for low income persons.

In summary, the aggregate fiscal impact of AHIP on the States is:

The first year of participation in CHIP, the State contribution would be the sum of:

1. State expenditures in FY 1975 under Medicaid except for long-term care services-i.e., skilled nursing facilities, intermediate care facilities, home health services, and care in mental institutions-and dental services, and

2. Ten percent of the product of (a) the ratio of State per capita income to U.S. per capita income and (b) the difference between total expenditures in the State under AHIP and total (State and Federal) FY 1975 Medicaid expenditures for services covered by CHIP.

The first component would raise $3.2 billion in State revenues, and the second component $1.0 billion.

In the second and subsequent years, the State share would be:

1. The amount it paid in its first year of participation, plus

2. Twenty-five percent of the product of (a) the ratio of State per capita income to U.S. per capita income and (b) the difference between total public AHIP expenditures in that year and total public AHIP expenditures in the first year of participation in the program.

The formula is designed to:

Avoid massive sudden budgetary shifts among States;

Reflect relative ability to pay among States through the per capita income adjustment; and

Encourage the States to control medical costs by having them contribute 25% of the increase in public expenditures (adjusted for relative per capita income) over the first year of the program.

Table 1 displays the fiscal effect of CHIP on each State relative to the existing Medicaid and General Assistance programs. The fiscal relief from savings in direct services programs is discussed subsequently. The first four columns show, respectively, total State fiscal effort for:

1. AHIP.

2. The residual Medicaid program for long-term care services.

3. State financing of services not covered by AHIP or residual Medicaid (Stateonly services).

4. The residual General Assistance program (primarily for long-term care services).

Total expenditures would amount to $6.8 billion (column #5). The offset from Medicaid and General Assistance for services covered by AHIP would be $5.8 billion (column #6). This yields a net increase of $1.0 billion (column #7), but does not reflect savings from directly provided services.

Table 2 provides estimates of State and local expenditures for hospital (excluding mental hospital) services that would be reimbursable under CHIP. These data are displayed separately from those in Table 1 because the uncertainties in the estimates are much larger. The aggregate estimates are understated, reflecting the use of conservative estimating procedures, the exclusion of acute care in penal and long-term care institutions and, for some States, data not being available.