"Well you can't borrow if you can't pay it back,” her sister interrupted. "Well, I'll tell you. It's a hard thing."

Of the two sisters Mrs. Smith is commanding, determined to exercise her responsibilities to the last. Her sister wants to make a trip to Richmond-"my mother and brother and everyone is buried there. She wants to go home so bad it's pathetic and by hook or crook I'm going to see she does it."

The inability to meet familial standards of respectability is a source of understated shame to the sisters. Mrs. Smith calls her derelict shoes "perfectly awful, embarrassing" and says she ceased going to church when she could no longer dress properly for the Methodist pews.

In the view of another social worker, Lillian Teitelbaum, indignities await those aged who seek help from District and federal agencies: "Sometimes they are treated miserably. Wherever they go there are roadblocks and if they are uneducated they passively retire."

David Brooks, supervisor of information for the District's services to the aged, agrees there is a problem. "When they reach me, most old people are very, very frustrated. They've been calling and not finding any agency which can help them."

The aged service is limited in function-it finances certain programs undertaken by voluntary organizations and makes referrals to other agencies. "Sometimes our agency can't help," says Brooks. "Either we don't have the clout or there is simply no mechanism."

The plight of the two sisters and unknown thousands of their 60-plus peers leaves social workers angrily helpless.

"In this day and age $300 a month for two people is obviously inadequate. They and others are being deprived of essential living needs.”—Mrs. Teitelbaum. "I see them as having come to the ends of their lives and having to struggle. It's damn hard when you come this far and life doesn't offer any opportunity for enjoyment."-Mrs. Brittain.

With her ailing sister in the other room, the obvious question could be asked of Mrs. Smith. She stood still and delivered a bravely honest answer: "We've talked about it a lot. I just don't know what would happen to the one who was left."

ITEM 2. NEWSPAPER ARTICLE SUBMITTED BY NELSON CRUIKSHANK, ENTITLED "THE NIXON Rx FOR HEALTH CARE: COMPLEXITY, CONFUSION, INEFFICIENCY, INEQUITY," FROM THE WASHINGTON POST, MARCH 10, 1974

[From the Washington Post, Mar. 10, 1974]

THE NIXON R, FOR HEALTH CARE: COMPLEXITY, CONFUSION, INEFFICIENCY,

INEQUITY

(By Rashi Fein 1)

President Nixon has sent Congress his blueprint for a national health insurance program that, if written into law, would represent a significant improvement in meeting the medical bills of many Americans. But that says more about the size of the problem than about the wisdom of the proposed solution. For the administration's system would be one of complexity, confusion, inefficiency and inequity.

Under the administration's plan, millions of Americans would remain without protection. And even for those covered, medical care would continue to be rationed on the basis of income.

This is so because of a series of policy decisions made for ideological reasons. Faced with public concern over rapidly rising health costs, the President chose to stress voluntary enrollment, largely private financing (with funds flowing from employers and employees to private insurance companies), a minimal impact on the federal budget, and supervision by state rather than federal officials.

The administration's plan has three major components:

First, under the Employee Health Insurance Plan, employers would be required to offer their employees a health insurance plan with a federally defined

1 The writer is professor of the economics of medicine at the Harvard Medical School and a faculty member at the Kennedy School of Government.

set of covered services (the basic plan), coinsurance, deductibles and maximum liability provisions. If the employee elects to be covered, 75 per cent of the premium costs would be paid by the employer.

Second, under the Assisted Health Insurance Plan, states would contract with carriers to offer the basic plan of covered services to persons who are not working, who fall below defined income levels, or who are high medical risks (for instance, the disabled now covered by Medicare). Individual premium payments, out-of-pocket expenditures for medical care and annual maximum liability would vary with income. Program costs would be met by contributions from employers (where applicable), those insured, and state and federal funds. This plan would replace most of the exisitng Medicaid program.

Third, the Federal Health Care Benefits program would replace Medicare. The services covered would be identical to those provided in the basic employee plan. Premiums, out-of-pocket costs and maximum liability, again, would vary with income.

Americans would sort themselves (or be sorted) into one of the three programs and move between them as their socio-economic and demographic characteristics changed. In recognition of "voluntarism," each of the plans would provide "the opportunity... to obtain coverage" rather than the coverage itself. In recognition of "pluralism," each of us might face a different insurer as we changed employers or moved from one state to another.

EMPLOYERS AND EMPLOYEES

First, consider the Employee Health Insurance Plan. This part of the program would require that employers offer those employees who qualify, based on hours and weeks of work, a defined health insurance plan, and that, usually beginning about two months after the onset of employment, the employer contributing 75 per cent (65 per cent in the first three years of the program) of the premium expense for the covered employees. The employee would pay the rest. The administration estimates that the benefit package defined in the plan would require a total premium of approximately $600 for a family and $240 for an individual. Recognizing that the $450 employer contribution to the premium might significantly increase payroll expenses, the plan provides for a federal subsidy (declining over a five-year period) to employers for a portion of the premium costs in excess of 3 per cent of total cash wages.

What might all this mean to the employer, to the employee, to the labor market? Some general answers are clear. Small, marginal and low-wage employers would find that, if the employee has a family and elects to be covered, the mandated premium expense would lead to a significant increase in costs. Even with the maximum subsidy, an employer whose employees elected coverage for themselves and their families and who had average annual wages $7,500 would find the wage bill increased by over 3.5 per cent in the first year. By the sixth year, with the decline in federal assistance and the increase in employer's contribution rate, premium costs would add a full 6 per cent to payroll expenses. While these percentages are reduced if the average annual wage is higher, there surely can be little doubt what kinds of workers employers would prefer: employees who elect to do without coverage, ineligible part-time rather than full-time workers, single individuals rather than heads of families, and temporary rather than permanent help.

Whether any of these factors would have a significant impact on, say the Ford Motor Co.'s hiring policy is not the point. The program the President offers is not really addressed to UAW members (whose coverage, in a number of respects, is already better) but to employees not now protected by an adequate health insurance program-people who are now and, in many cases would remain, in difficulty. It would make it more difficult for low-income heads of families to obtain regular, full-time employment.

Of course, it can be argued-and with considerable merit-that the impacts on employees are in part illusory; that premium would be shifted from employer to employee through the wage determination process (and to the consumer through inflation). But if that be the argument, we can question whether premiums of $600 permit us to say, as the President does, that the program "will cost no American more than he can afford to pay." This is surely not the case for those with low income.

Regrettably, too, the program has regressive characteristics: A premium that is a fixed dollar amount is a higher percentage of low incomes than of high.

Thus, married employees with annual income of $7,500 would face a 2 per cent "tax" to meet their share of premium costs. For those with incomes $75,000 the "tax" would be 0.2 per cent.

The adverse labor market and regressive tax impacts would be mitigatedthough at a price-as some employers induce their employees to reject coverage. Though the bill prohibits such actions, there are subtle (and not so subtle) ways of accomplishing that objective. Again, those affected would be the economically most valuable, those who need coverage the most. Presumably, however, we who have coverage would feel better by having erected a fiction that the failure to obtain coverage was a matter of free choice.

The difficulties were known but not correctable. The decision was in favor of voluntary enrollment, employer-employee cost-sharing and minimal federal contribution. These are incompatible with progressivity and universal coverage.

COSTS AND BENEFITS

The basic benefit package that the program mandates includes a long list of "covered" services: inpatient hospital service, physicians' services (though not including routine checkups), home health services, outpatient drugs, dental and vision care for persons under age 13, and more. Close examination of the nature of the program suggests, however, that the President's advisers use the term "covered services" loosely.

First, we would face deductibles, the dollars we must spend for covered services before insurance provides any assistance. In the Employee Health Insurance Plan these deductibles would equal $150 per person for covered medical services (but with no additional deductibles after three members of the family have each reached the $150 level) plus an additional per-person deductible (without a family limit) of $50 for outpatient drugs. A family of five-in circumstances where only two members have satisfied the deductible-could face expenditures of almost $1,000 on covered (and additional amounts on uncovered) services over and above the premium contribution before any insurance benefits were paid. A family of two would need to spend only $400 before receiving cash benefits.

After the deductibles have been satisfied, coinsurance would enter the picture: The plan would pay 75 per cent of the approved charges; the insured person would pay the remaining 25 per cent (and any charges in excess of those approved). There is, however, a limit to these "cost-sharing" expenditures by the insured: a "maximum annual liability" provision. For a family under the employee plan, this maximum liability (not including premium costs, payment for noncovered services, and of unapproved charges for covered services) would be $1,500 ($1,050 for an individual). The maximum expenditure for medical care would, of course, be greater since some services are not covered at all or have limits placed upon them (for instance, routine physical examinations including well-baby care, dental care, services to the mentally ill).

Certainly many Americans would benefit from such protection. Though the deductibles and cost-sharing rates would be quite high, many of us lack even those protections today. Millions more lack the plan's maximum liability protection. While few persons or familes would reach the maximum-an individual would have to receive at least $3,600 worth of covered medical services before reaching the $1,500 liability limit-the presence of such a maximum would offer a measure of security that has real value. The more then the pity that the basic structure of the plan the choice not to have a system that could relate benefits or premiums to income-creates a ridiculous situation: A working family with income of $7,500 would have a maximum liability of 20 per cent of income, while one with income of $15,000 would have a 10 per cent ceiling, and one with income of $75,000 would have a 2 per cent ceiling. Nor are the ceilings adjusted in any way to take account of family size and thus of other demands on income.

PAYING IS GOOD FOR YOU

That the administration has proposed a system with high deductibles and cost-sharing is no accident. Given the desire to utilize employer-employee funding and on a voluntary basis, premium charges cannot be tied to income in a progressive (or, for that matter, even in a proportional) manner. Lowering deductibles and cost-sharing rates would significantly increase premiums since more Americans would receive cash benefits. In the absence of progressive funding, such premium increases would quickly price many employers and

employees out of the market and would make the regressive impact of medical costs so explicit as to call the entire approach into question.

The administration, however, does not view the consequences of the deductible and cost-sharing as undesirable. In the past, the President's advisers have often argued that the introduction of deductibles and cost-sharing would: 1. reduce the utilization of medical care (though, in some unexplained way, not interfering with necessary care); 2. increase price consciousness on the part of consumers who would have to pay for care out of their own pockets. Both of these effects would help contain inflation.

In his message to Congress, the President stated: "By sharing costs, consumers would have a direct economic stake in choosing and using their community's health resources wisely and prudently." Furthermore, such sharing-a “sharing" in which the consumer pays 100 per cent of a significant deductible-clearly fits the ideological thrust of the administration: the need to stand on one's own two feet, not to be pampered.

These are interesting arguments even if based on erroneous facts and faulty theory. The chief difficulty relates to the belief that deductibles and cost-sharing, as constructed, can serve the same purpose for families with different incomes, tastes and medical needs. Clearly a family of six with income of $7,500 facing a premium of $150 and, say, $600 expenses which it must meet out of pocket without any insurance assistance is likely to behave differently in deciding whether to seek medical care than would a family of three with income of $27,500 facing the same premium and deductible. If costs to the consumer do make a difference-and the administration believes they do-then surely they don't make the same difference to all. Could deductibles have varied with income to help mitigate the problem? Not within the game plan chosen.

The consequences of the administration's decision are apparent: Medical care would continue to be better for those with higher incomes. Cost-sharing would discourage many from using preventive and early detection care. This is a necessary consequence of the administration's desire to have the payment system stay outside the federal budget and remain voluntary and private. It is a consequence of the desire to erect a system that reflects the administration's assessment that the issue is financial protection against high expenditures rather than a system that reflects the need to remove economic barriers to care at all levels.

WHO'S ELIGIBLE FOR WHAT?

In recognition of the fact that many Americans would not have an opportunity to enroll in the employee plan, a second program, Assisted Health Insurance, with the same set of covered benefits, is proposed. This insurance would be developed through state contracts with insurance carriers. Thus we have a series of state programs meeting federal standards and guidelines rather than a federal program.

In general, the plan would enroll families with incomes of less than $5,000 ($3,500 for individuals); nonworking and very high-risk working families with incomes between $5,000 and $7,500; nonworking families with unusually high medical risks-such as the disabled-regardless of income; and unusually highrisk employer groups. Premiums, deductibles, cost-sharing rates and maximum liability provisions would all be income-related. Carriers would derive their income in part from employers (where applicable), in part from those enrolled (where income is sufficiently high to require payment), in part from state contributions with significant federal assistance to the states.

And thus the sorting and sifting begins. Persons would not be eligible for the program but for a particular program, and their eligibility would change with changes in employment status, income, health risk and state of residence. In a mobile society, this program structure would provide benefits not only to sick people but to the data processing industry as well. Yet unnecessary costs are not all that is at stake. The greater difficulty is that in systems of such complexity some individuals—again, those least educated and most vulnerable-are the ones most likely to fall between the cracks, to find themselves without coverage. The Assisted Health Insurance Plan would replace the present Medicaid program (except for certain services not covered). No one can differ with the conclusion that the state Medicaid programs, with varying benefits and eligibility standards, need replacement. Uniformity is desirable. But the lesson of the need for uniform benefits and eligibility was not the only lesson that the administration should have learned from the Medicaid experience. Some of us

have been impressed by the inability or unwillingness of many states to provide for efficient administration and review-problems that remain with the heavy emphasis on state rather than federal program development and control.

We have also come to recognize the need to reduce economic barriers to care. Yet the Assisted Health Insurance Plan offers some Medicaid recipients fewer benefits than they now have and sets significant economic barriers for manybarriers that would reduce the utilization. While a family with income of $4,000, for example, would not have to spend more than 9 per cent of income for covered services, the problem in meeting the initial deductibles and cost-sharing payments, the first $360, cannot be overlooked. Clearly, these out-of-pocket expenditures would represent important economic barriers to care for those who, above all others, need assistance: those with few cash resources.

INSTEAD OF MEDICARE

The President also proposes that the Medicare system (though not including the disabled) be integrated into the new plan. The list of Medicare-covered services would be altered to conform to the mandated health insurance plan. As a result, certain services not covered at the present time would be covered-for instance, outpatient drugs, subject to cost-sharing-and all beneficiaries would be protected by a maximum annual liability (ranging up to $750, depending on income). These benefits are real, and they help address some of the inadequacies of Medicare.

It is unfortunate, however, that the administration's proposals would require additional payments for medical care on the part of many elderly. Deductibles, cost-sharing rates and maximum liability limits would vary with income, with a maximum $100 deductible and 20 per cent share of the costs above $100. This deductible would be greater than the $60 deductible for physician services that now applies, and the cost-sharing rate would be extended to cover hospital care where it is found only to a limited extent today.

Thus, the changes would provide greater benefits to some elderly, particularly that very small number with unusually high medical expenses, while reducing cash benefits to the many whose medical expenses are more limited. These proposed changes surely need to be seriously debated.

So, also does the departure from the Medicare social insurance principles. Medicare would be transformed into an income-related program as it is replaced by a plan that would introduce income tests and vary the cash value of benefits with income. This, too, is the result of policy makers' preferences. Can we believe that the introduction of income tests into the social insurance system represents the preferences of the people?

In both these programs, with premium costs and benefits that are incomerelated, attention must be paid to the creation of "notch effects": situations in which small increases in income result in large increases in costs to the covered person. These difficulties are illustrated by a simple example: In the Assisted Health Insurance Plan, an increase in family income of $500 (from $4,500 to $5,000) would lead to an increase of $300 in premium costs, of $50 in per-person medical deductibles, of $25 in drug deductibles, and of almost $200 in maximum liability. Though the dollar amounts differ, a similar situation is found in the Medicare-replacement program. It is even possible to find that a $1 increase in income could lead to an increase in premium and other medical care costs of over $400. At low incomes, and only at low incomes, the plan would severely penalize persons whose income increases enough to move them from one income class into another.

These deficiencies could not be eliminated. Once the package for the employees' health plan was determined, other parts of the program fell into place.

FACTS AND FICTIONS

In his message to Congress, the President stated: "My proposed plan differs sharply with several of the other health insurance plans which have been prominently discussed. The primary difference is that my proposal would rely extensively on private insurers." Indeed, the President would provide for major participation by private carriers, though without the federal regulation he had called for in the 1971 version of his plan and without addressing the issues of privacy and confidentiality of income data made available to the carriers under this program.