and employees are projected to be jointly spending at a rate of $25.8 billion dollars a year on group health insurance for services of the types covered by the proposal, reflecting a continued rapid rise in group health coverage. Of this, $6.6 billion would be paid through employees' contributions, leaving an employer net cost of $19.2 billion. If the Chamber of Commerce proposal were fully effective at that time, spending for group health insurance would be higher by $2.7 billion divided equally between employers and employees. The additiona coverage reflects the extension of group insurance to many employers who do not now offer group insurance coverage, especially among very small employers. Federally financed health insurance for the poor would be replaced by a federal program which purchased special policies for persons whose income is below "low income levels" established by the proposal. Persons whose income ranged up to 25% above these levels would be eligible for a fedral subsidy toward the cost of the policies. The persons who would be eligible under this program as of January 1, 1975, are summarized in Table 3, by the number of persons in the family unit. Over 17 million persons would be eligible for free policies and around 4 million more would be eligible for a federal subsidy toward the purchase of such policies. An additional 4 million persons with comparable incomes would be eligible for coverage through their employers. The total federal outlays to purchase coverage for low income level individuals and to subsidize coverage for those whose income is up to 25% higher than the low income level would be $10.3 billion in fiscal 1975. Premiums paid by those with subsidized policies would reduce this cost by $100 million to a new cost of $10.2 billion. The cost to the federal government would be offset by the repeal of the Medicaid program and a reduction in spending under other federal programs (e.g., the Veterans Administration), so that the net new outlays by the federal government would be $3.6 billion. State and local governments would have to increase spending for Medicaid programs to replace the federal matching withdrawn to maintain the same level of benefits as now provided, despite coverage under the subsidized policies of most of the cost of these services. Long term care, especially nursing home care and intermediate care, would form the bulk of this expenditure. There would be a reduction, however, in state and local outlays to cover operating deficits of state and local hospitals. This increase would be eliminated if persons over age 65 were eligible for subsidized policies. However, the federal cost would be increased by a similar amount. A list of specific policy assumptions assumed in these estimates and a list of principal actuarial assumptions used is attached to this report. The cost of the proposal could vary substantially from that estimated if the policy followed in implementing the bill varied from these assumptions. TABLE 1.-COMPONENTS OF AVERAGE PREMIUM RATES FOR STANDARD BENEFITS IN HEALTH PLANS REQUIRED FOR EMPLOYERS (FISCAL 1975)1 1 Incurred premiums for policy years beginning in 1974. * Average premium per full-time employee (see text for explanation). 2 Average premium per employee electing participation (see text for explanation). At average rates currently paid, i.e., not paid by Blue Cross, Blue Shield, Group Practice Plans, or self-insured arrangements. TABLE 2.-EFFECT OF CHAMBER OF COMMERCE PROPOSAL ON EMPLOYERS TABLE 3-INDIVIDUALS AND FAMILIES ELIGIBLE FOR LOW-INCOME HEALTH PROGRAM TABLE 4.-EFFECT OF CHAMBER OF COMMERCE PROPOSAL ON GOVERNMENT OUTLAYS FOR PROVIDING HEALTH 1 Assume no reduction in the level of benefits under State and local medicaid programs. 2 Includes $1,000,000,000 of premiums collected from low income individuals. APPENDIX POLICY ASSUMPTIONS 1. Enactment of the bill is the only major change in legislation taking place during the period of projection. The program is assumed to have been in operation for at least a year-as are Professional Standards Review Organizations (including their new responsibility for physicians' services), hospital budget review committees, etc. 2. Families are defined to consist of heads and spouses under age 65, any children under age 21, and any dependent children in school under age 23. This definition of family is used in both employer policies and government subsidized policies. 3. Family income for purposes of eligibility for government subsidized policies and determination of the maximum cost sharing per family in those policies is defined and administered to be equivalent to "adjusted gross income" (as defined by IRS) plus any transfer payments received. 4. The "low income levels" specified in the bill to determine eligibility for subsidized policies are applicable in fiscal year 1975. The substantial inflation that has occurred since the year in which these were the official "low income level" thresholds (1971) would suggest that higher levels would be adopted, substantially increasing the cost of the government subsidized policies. 5. Administration of regulations implementing the definition of full time employees for whom health coverage is required is strictly enforced to include all employees who work 20 or more hours for the same employer in 26 out of the last 52 weeks. 6. All insurers issuing policies either to employers or to low income individuals are required to base reimbursement to hospitals on prospective budgets established by a committee of payers, which would include both public and business representatives as well as members of the medical professions. Hospitals wishing to exceed these budgets could do so; however, any additional expenditure would not be included in the charges recognized by insurers, so that patients would pay these costs. 7. Fiscal 1975 budgets for hospitals are set at a level similar to that currently allowed, and reimbursements are based on cost plus bad debts plus an allowance of 22% for growth, development, and working capital. 8. Physicians' charges are subject to some restraint, imposed through the professional organizations specified in the bill. If physicians raised fees in anticipation of further controls, spending both with and without the proposal effective would be increased. The relative impact of the proposal would be similar, however. 9. Federal matching for Medicaid programs is assumed to be discontinued entirely. State and local governments are assumed to provide benefits to all persons receiving medical assistance before the termination of Federal participation by increasing spending if necessary. Savings in general hospital and medical expenditures (e.g. operating deficits of state and local hospitals) are assumed to reduce spending. 10. The provision for allowing actuarial equivalent benefits instead of the standard benefit package is assumed to require: (a) Benefits for inpatient hospital and physician care, surgical care, x-ray, and laboratory services must exceed the benefits provided in the standard plan. (b) Benefits for all services must exceed the benefits provided in the standard plan. 11. Regulations pertaining to skilled nursing facilities and outpatient physical therapists are the same as currently in Medicare. 12. Pre-existing exclusion clauses are permitted. 13. The maximum payment for maternity services is $250 (50% of a maximum of $500 of charges). ACTUARIAL ASSUMPTIONS 1. Estimates are at the level of fiscal 1975 spending assuming all flows have reached an ongoing level. 2. Physician fees are projected according to present trends. 3. The actuarial value of a second family policy for the standard benefits is approximately 50% of the premiums for such policies. For employees who have spouses who are also mandated, the second policy is thus worth the actuarial value of the maximum contribution. Under these conditions, it is assumed that one-fourth of families with two eligible employees would sign up for family policies for each. 4. An unemployment rate of 6% is assumed for fiscal 1975. A higher unemployment rate would increase the cost of government subsidies for lower income persons. 5. The following participation rates were assumed among employees eligible for coverage: Single employees Families [In percent] 95 98 6. Existing insurance for employers with less than 25 employees is assumed to be at roughly 50% of the level required by the bill. Coverage is assumed to be actuarially equivalent to standard benefits or higher for most groups with more than 25 employees. 7. The required pools for small employers and self employed are assumed to result to substantial price competition. Since insurers could not charge more for single or very small policies, commission rates would be uniform as a percentage of premium. 8. The savings accruing from the prohibition of duplicate payment with automobile liability insurance policies, etc. are assumed to reduce the cost of such other coverage. Current practice is assumed to be followed with respect to workmen's compensation. [Whereupon, at 12:55 p.m., the hearing was recessed to reconvene at 10 a.m. on Thursday, May 23, 1974.] NATIONAL HEALTH INSURANCE THURSDAY, MAY 23, 1974 U.S. SENATE, Washington, D.C. The committee met, pursuant to recess, at 10:10 a.m., in _room 2221, Dirksen Senate Office Building, Senator Russell B. Long, (chairman) presiding. Present: Senators Long and Bennett. The CHAIRMAN. This hearing will come to order. We are pleased to have with us this morning the Senator from Illinois, Hon. Charles H. Percy. Senator Percy, you have made some very useful suggestions in the health area, and also in the area of welfare and social security. We are very pleased to have your views before the committee this morning. STATEMENT OF HON. CHARLES H. PERCY, A U.S. SENATOR FROM THE STATE OF ILLINOIS Senator PERCY. Thank you very much, Mr. Chairman. I am delighted to be with you and our distinguished colleague, Senator Bennett, this morning. Testifying before the Senate Finance Committee almost has become a habit or a way of life with me. This is now the 20th year that I have appeared before you. My frequent appearances have been prompted by the great importance of the measures that you take up, like trade legislation and now national health insurance, certainly one of the most important subjects on the minds of the American people today. Today I come before this committee both as a cosponsor of what we call in Pennsylvania the Scott-Percy Health Rights Act, and in Illinois, understandably, the Percy-Scott Health Rights Act. But I also am appearing as a cosponsor of the Long-Ribicoff Catastrophic Health Insurance Medical Assistance Reform Act. Normally, Mr. Chairman, I do not cosponsor more than one bill on the same subject. However, in the case of the Long-Ribicoff proposal, I made an exception recognizing the tremendous importance of this bill, its timeliness and its great worth. In the last 3 years innumerable national health insurance proposals, including our own, were introduced before Congress, re |