HMO's differ from traditional health insurance programs through responsibility for providing medical care to their enrollees, while an insurance plan merely pays for specific covered purposes. The HMO must provide care to each enrollee, even if it operates at a loss, which gives the HMO every incentive to be cost conscious and cost effective. Generally speaking, the business community has recognized the potential savings that can be achieved through efficient HMO's.

During the last 16 months, the medical care components of the Consumer Price Index have been rising at an annual rate of 13.1 percent with about 45 percent of personal health care expenditures going for hospital care. Recent studies show that on a nationwide basis, HMO's use only half as many beds per capita as the national average of Blue Cross-Blue Shield subscribers.

It is interesting, also, to note recent cost increases of Federal employee's health benefits plans. Blue Cross-Blue Shield subscribers and those covered by Aetna insurance will experience a 35-percent rate increase. Last year, the increase was 10 percent. The Blue CrossBlue Shield increase could run as high as 48 percent if Congress fails to repeal or modify a change in the Social Security Act that on January 1 will transfer medicare responsibility for Federal retirees from the Social Security Administration to the Civil Service Commission.

In sharp contrast are the rate increases among the Nation's prepaid, HMO plans. Enrollees in Kaiser plans in California will pay only 10 to 20 percent more due to their avoidance of costly hospital care. The University Affiliated Health Plans in the Washington, D.C., area will increase employee contributions only 3 to 8 percent. However, the similar Group Health Association expects increases of between 24 and 38 percent.

Most Americans still appreciate the advantages of a plurality of choice of health care. Some may prefer group practice, fee-forservice, or some modified plan depending on their personal feelings, economic status, or geographic location. HMO's are not a panacea, or even suitable for everyone, but they need to be developed as one way of injecting more competition into the health industry.

SUMMARY

And finally, Mr. Chairman, we believe increased Federal subsidizing of health-care costs, without substantial improvement in the effectiveness of the health-care system, will only accelerate the current, alarming rise in medical costs. In other words, we believe without first investigating and solving the problems of inefficiencies in delivery of the present system is putting the cart before the horse.

There is little evidence that many people are being denied medical care because of their inability to pay.

In the meantime, as Congress addresses itself to the urgent problems facing the economy, we support this committee in its effort to reexamine all aspects of the national health insurance debate.

Because national health insurance is so potentially inflationary, and because insurance is not an acute problem for the great majority, a national health insurance plan should be modest or postponed until a really effective cost control strategy is agreed on.

Thank you, sir.

Mr. ROSTENKOWSKI. Thank you, Mr. Sonnemann.

In your testimony, you suggest that more responsibility is needed on the part of the community hospitals, and that they should be required to publish detailed financial statements including their reimbursement arrangements, for radiologists and pathologists. Would you recommend that we should require this under medicare as well? Mr. SONNEMANN. Yes, I would say so. I think that one of the greatest controls of abuse is the public view and I think that we need to have more and better information made public in respect of these hospital charges. Yes, sir.

Mr. ROSTENKOWSKI. Thank you.

Mr. Duncan?

Mr. DUNCAN. Thank you.

I would like to welcome both of you to the committee.

Mr. Sonnemann, do you think that the Federal Government should concern itself with the problem of malpractice insurance? You mentioned that as being one of the problems.

Mr. SONNEMANN. We just finished a very extensive debate on all aspects of this within the chamber of commerce and our conclusion is that this is best handled at the State level, because of the varying tort laws in the various States and, therefore, we recommend that this be solved by the States and, I think, as of now, some 26 of the States have done so.

So, our recommendation is not a federally imposed blanket, but rather the encouragement that each State within its own framework of laws and problems should handle this problem.

Mr. DUNCAN. You also mentioned that HMO's are-well, we had testimony a few days ago that out of 173 HMO's that operate only about 30 are close to breaking even. Are you aware of that?

Mr. SONNEMANN. Well, I was aware that there is a considerable problem in the HMO area, but I am also aware that in this concept of the total coverage including the annual checkups and the whole problem being handled by group medical practice, has within it the seeds of cost containment and competition which I think are healthy for the health industry in this country.

We, at the chamber, were delighted with the HMO bill that was passed. We support the concept. And we think that they should be given a chance to operate.

Now, undoubtedly, there are imperfections, undoubtedly changes will be required. But the concept has, I think, a great value to the

country.

Mr. DUNCAN. How can we improve it, if they are not breaking even, what would you suggest?

Mr. SONNEMANN. I think the cost increases are there are going to be some cost increases, undoubtedly, required in terms of the group involved.

I think that it is too early to say exactly what we can do, but we should pick the most successful ones, particularly the Kaiser plan and others, that have had a fine record of cost containment and service provided and seek to emulate those strong points which they have.

Mr. DUNCAN. I understand Kaiser is having some difficulty now.

Mr. SONNEMANN. Yes, they are, of recent times, having some difficulty.

Mr. DUNCAN. I understand Kaiser is having some difficulty now. Mr. SONNEMANN. Yes; they are, of recent times, having some years, of successful operation and I think that they will again be able to handle their problems.

One thing that I think is for sure, the recent cost increases in insurance rates in Blue Cross-Blue Shield and so forth which reflect the soaring 16 percent per year compounding cost rise in the total health care of this country, are finding some expression in the group practice and, I think, this cost increase has to be recognized, but it will be in my judgment a great deal more modest than is the case elsewhere.

Mr. DUNCAN. What suggestions or plan would you recommend that we might have better distribution of health care personnel? You mentioned the urban poor in your statement, page 7. What would you suggest?

Mr. SONNEMANN. This is a very difficult problem because peopleand I know from personal experience in my hometown in Illinoisthe difficulty we had in getting a doctor to come in even after a clinic was built by publicly subsidized funds, and the thing was set up next to the local hospital.

I think that incentives of the kind I have described by smaller communities in rural areas and by the ghetto-facilities in the ghetto area can and will attract doctors. I think that the problem has been that they do not want to spend money to set up their own clinics in these smaller areas, and as a consequence there has been less than satisfactory distribution of doctors. It is easier to set up on Park Avenue than it is to set up in some rural county where maybe there is only one doctor for, perhaps, 100,000 square miles.

Mr. DUNCAN. One other question, and then my time is up. What are your thoughts on rural areas, what are your thoughts on nurse practitioners for the rural areas and paramedical help in general?

Mr. SONNEMANN. I think that because of the problems of educating a doctor and the long time required, first of all, to get your M.D. and your internship in, I think that the use of paramedical services has to be expanded in this country. I think there have to be some imaginative means of transportation, perhaps, more frequent use of helicopters in order to get the patient requiring the service into a hospital area. I think that there are many things that can be done, the use of paramedics, the use of improved transportation, perhaps a mobile clinical unit that goes around giving chest X-rays and this sort of thing, all of these have to be tried in order to provide a better level of care in the rural areas where doctors and hospitals are few and far between.

Mr. DUNCAN. Thank you very much. Thank you both.

Mr. ROSTENKOWSKI. Mr. Corman will inquire.

Mr. CORMAN. Thank you, Mr. Chairman, I have no questions.
Mr. BURLESON. No questions, Mr. Chairman.

Mr. MARTIN. No questions.

Mr. ROSTENKOWSKI. Mr. Cotter?

Mr. COTTER. Thank you very much, Mr. Chairman.

62-090 - 76-34

Mr. Sonnemann, on page 6 of your testimony you state that nearly 9 out of 10 persons today have some form of protection against medical loss.

Mr. SONNEMANN. I am sorry, sir, I didn't hear you.

Mr. COTTER. On page 6, you say nearly 9 out of 10 persons have some sort of protection against medical loss.

Mr. SONNEMANN. Yes.

Mr. COTTER. We have estimates that it varies from 75 percent for those under 65 have some type of coverage up to the figure which you have submitted, so there is disagreement in this area.

Now, my question is this: You recommend a catastrophic type of program; am I correct?

Mr. SONNEMANN. Inclusion of a catastrophic provision in the structure of national health insurance, yes.

Mr. COTTER. How would you provide for these estimated 10 to 25 percent of the people under 65 who are not covered by any insurance? Mr. SONNEMANN. Our view is expressed in the national health care standards bill, the Fannin bill. First of all, you build the basic structure whereby a specified benefit structure would be provided. This would include all of those who have the employer-employee relationship. There would be pools available for the self-employed under which they could subscribe. Those who are excluded, the unemployed, poor and near poor, working poor would be provided out of a Government, a Federal fund. This would provide a basic benefit structure for everyone.

Mr. COTTER. Supported by tax dollars?

Mr. SONNEMANN. Yes.

Now, as regards the insurance for which no provision can be made by employer-employee relationships, yes, sir, that is correct.

But you build on top of that a catastrophic provision which the Fannin bill does provide that at a certain point the catastrophic provision kicks in and it prevents the bankrupting of families.

The opposition that we have publicly stated to a catastrophic bill standing by itself is that it doesn't take into account the approximately 15 to 20 percent who currently have no basic coverage and it is like trying to build a house by starting at the second story.

Mr. COTTER. Do you have any estimates of what the cost would be to provide this primary care for this 10 to 15 to 25 percent?

Mr. SONNEMANN. I think I would like to verify this and submit the evidence at a later time. My recollection is that the last time that we had it costed out and we did have our bill costed out, it was something on the order of incremental $4 billion. But I would like

to

Mr. COTTER. This is for the primary coverage?

Mr. SONNEMANN. Yes.

Mr. COTTER. How about the catastrophic?

Mr. SONNEMANN. This is the total.

Mr. COTTER. The total to provide the primary coverage for 10 to 25 percent who have no basic coverage and this is all estimated at $4 billion?

Mr. SONNEMANN. This is my recollection subject to confirmation. I have to go back and look at a book.

Mr. COTTER. Thank you.

You make a strong point for the case that improvements are needed for the way in which we deliver health care. Yet you still recommend that we build a national health insurance program on existing hospital and medical care delivery systems which are in existence now. How do you reconcile that?

Mr. SONNEMANN. Well, if you will remember the thrust of what I have said this morning, sir, it is that before we proceed on that national health insurance, and passing a bill on it, we need to readdress ourselves to the problems of improvement in delivery and cost efficiency of the present system however imperfect it might be.

If we go to a national bill and do it quickly without first getting at these inefficiencies, we may very well lock in a number of these inefficiencies in the national bill and this would be to the detriment of the country. So, I think that the risk-at the risk of incurring the wrath of some people, that we have studied this to death and we don't need to study any further.

I urge that we do study the inefficiencies and the problems further before proceeding to legislation.

Mr. COTTER. I see. Thank you very much. My time is expired.
Mr. ROSTENKOWSKI. Mrs. Keys?

Mrs. KEYS. No questions.

Mr. ROSTENKOWSKI. Thank you, Mr. Sonnemann.

Mr. SONNEMANN. Thank you, sir.

Mr. ROSTENKOWSKI. Dr. Parrott, Dr. Palmer, and Mr. Peterson? Welcome to the committee, gentlemen. If you would identify yourself and proceed with your testiminy the committee is ready to receive it.

STATEMENT OF MAX H. PARROTT, M.D., PRESIDENT, AMERICAN MEDICAL ASSOCIATION, ACCOMPANIED BY RICHARD E. PALMER, M.D., PRESIDENT-ELECT; AND HARRY N. PETERSON, DIRECTOR, DEPARTMENT OF LEGISLATION

Dr. PARROTT. Thank you, Mr. Chairman. I am Max H. Parrott, president of the American Medical Association. I am a practicing physician from Portland, Oreg., and with me today in presenting association testimony on this important subject of national health insurance is Richard E. Palmer, M.D., president-elect of the American Medical Association from Alexandria, Va.

Incidentally, we are both practicing physicians, I in the field of obstetrics and gynecology, Dr. Palmer in pathology. Also with us is Harry N. Peterson, director of our department of legislation at the American Medical Association.

Mr. Chairman, we are pleased to have this opportunity to appear again before you to express our views on national health insurance. The subject of this legislation has been raised many times during the past three Congresses. Once again national health insurance is under close scrutiny by interested Congressmen, committees, administration. officials, and the public. I will take the liberty of not reading the whole text which is before you because of time constraints.