PREPARED STATEMENT BY EDWIN F. DAILY, M.D., FOR GROUP HEALTH ASSOCIATION OF AMERICA, INC., AND HEALTH INSURANCE PLAN OF GREATER NEW YORK Mr. Chairman and members of the committee, I am Dr. Edwin F. Daily, board and executive committee member of Group Health Association of America, Inc., and vice president of the Health Insurance Plan of Greater New York. I am a physician and a diplomate of both the American Board of Obstetrics and Gynecology and the American Board of Preventive Medicine and Public Health. GHAA and HIP are dedicated to prepaid comprehensive medical care through group practice. Group Health Association of America is a nonprofit organization representing over 4 million people, many of them over age 65, receiving group practice medical and hospital care from its 25 member plans. These medical care plans are sponsored by labor, by cooperatives, and, in the case of HIP and several others, by the community. In addition, GHAA is supported by other organizations representing the consumer interest, such as the National Farmers Union, the Cooperative League of the U.S.A., the International Association of Machinists, and the United Auto Workers.

Both President Johnson and the late President Kennedy have, in health messages, recommended encouragement of group practice.

Mr. Johnson, in his health message on February 10, 1964, said:

"To meet the needs of their communities, group physicians-general practitioners and specialists-more and more are pooling their skills and using the same building, equipment, and personnel to care for their patients.

"This is a sound and practical approach to medical service.

"It provides better medical care, yet it yields economies which can be passed on to the consumer.

"It makes better use of scarce professional personnel.

"It offers benefits to physicians, patients, and the community.

"The specialized facilities and equipment needed for group practice are often not available, especially in smaller communities.

"Therefore: I recommend legislation to authorize a 5-year program of Federal mortgage insurance and loans to help build and equip group practice medical and dental facilities.

"Priority should be given to facilities in smaller communities, and to those sponsored by nonprofit or cooperative organizations."

At its November 3, 1963, convention in New York City, the AFL-CIO adopted a resolution listing the following advantages of group practice health programs over the traditional patterns of health insurance available through Blue Shield and commercial insurance:

"(1) They (group practice plans) assure that the medical care provided is of high quality.

"(2) They provide diagnostic and preventive as well as curative health services.

"(3) They guarantee a service benefit.

"(4) Total family expenditures for health services are less than under conventional insurance programs."

Hospital utilization under the Federal employees' health benefits program shows one great difference between the prepaid group practice plans and other types of health insurance. The prepaid group practice plans in 1962 had 45.4 hospital days per 100 enrollees, as compared with 82.6 under Blue Cross-Blue Shield fee-for-service medical care.

This difference of more than 40 percent in hospital days, resulting from fewer admissions, certainly requires careful study to determine whether or not hospital admission rates, and expenditures for hospital care, can be generally reduced below their current levels. A remarkable difference in the hospital admission rates of group practice plans has been demonstrated in other studies as well. It would appear that group physicians who have modern diagnostic equipment in their medical centers, who have ready access to consultation with group specialists, and who are paid on a salary basis (without the incentives of the fee-for-service system) hospitalize their patients less frequently.

This 40 percent difference, if it could have applied to all of the Federal employees in 1962, would have achieved a saving of over 1,800,000 hospital days which, at a conservative figure of $30 per hospital day, would mean an overall saving of $54 million in 1962 for the employees and the Government.

It was the Congress that made certain Government employees and their families could have the benefit of prepaid group practice plans wherever available. The Civil Service Commission has encouraged the participation of prepaid

group practice plans, even though they are currently available to the public in only a few geographic areas of the country.

You are all familiar with the Group Health Association serving the District of Columbia; and many of you know of the Ross Loos Plan in Los Angeles; the San Diego Health Association; the Kaiser Health Plans in California, Oregon, and Hawaii; and the Group Health Cooperative of Puget Sound in Seattle, Wash. There are others, such as the new Community Health Association in Detroit, the Cleveland Health Foundation which is just starting, and the East Point Medical Center now being built in Baltimore.

The planning and financing of a new prepaid group practice plan is a formidable undertaking. The Congress is actively engaged in developing programs to provide financial aid and other assistance to expand the availability of hospital and medical care skills and facilities. The economic advantages of group practice merit the adoption of measures to finance and encourage the development and expansion of group practice prepayment programs.

Senator Hubert H. Humphrey introduced in the Senate, S. 1426, a bill to assist voluntary nonprofit associations offering prepaid health service programs to obtain necessary facilities and equipment through long-term interest-bearing loans.

One of the prepaid group practice plans mentioned above is the Health Insurance Plan of Greater New York.

Med

HIP provides medical care, through 32 affiliated groups of physicians, to some 685,000 men, women, and children residing in and around New York City. ical services include diagnostic, preventive, and therapeutic care at home, office, or in the hospital. Also provided are most injectable drugs, all immunizations including biologicals, home visiting nursing, and ambulance services, and a few appliances, without any charge above the premium.

Forty-five thousand HIP enrollees are over age 65. About 16,200 of these enrollees pay premiums directly to HIP for their medical service benefits and, for the most part, also pay Blue Cross premiums for hospital coverage. Another 13,500 have their premiums paid by the welfare department and the remainder are under group enrollment through employers or union-management trust funds. Elderly people, we find, need more medical attention than other age groups; i.e., they have to see or be seen by a physician more frequently for preventive care and observation of chronic conditions. Their medical attention usually requires more physician time, more laboratory and X-ray procedures, more services from nonphysician personnel, including visiting nurses.

For example: Our over-65 enrollees see physicians at the medical group centers about twice as often and in hospitals approximately three and a half times as often as do those between the ages of 25 and 45. When an enrollee is in a nursing home, about 20 medical visits per year are needed.

HIP, its participating medical groups, and the Department of Welfare of the City of New York are coping with the special problems involved in providing office and home medical care to approximately 13,500 elderly people. This is a pilot program to determine whether better medical care can be provided for these people under prepaid group practice and to compare its costs and results with fee-for-service systems.

In addition to the greater number of physician services required, the special problems of many of these elderly people increase the costs of providing medical care in other ways. Physical limitations and difficulty in traveling often require special arrangements for transportation to medical facilities for X-ray and other procedures that are best performed at a group center. Elderly people who move more slowly than others and frequently have faulty memory require 20-30 percent more physician time for history taking and physicals as well as more technicians' time for X-ray, laboratory and other diagnostic procedures. Difficulties in hearing and reading, and approaching senility frequently further complicate the provision of health services.

The present premium for office and at-home care for these welfare patients living at home is $72 per year, and the premium cost for caring for patients in nursing homes is $96 per year. If we were to cover medical care in hospitals as well as in the homes and doctors' offices for those welfare recipients who live at home, we estimate the annual premium would be at least $130.

Under this welfare program, utilization and costs are reviewed every 6 months to permit adjustments which may be indicated. It is believed that studies now underway will show much lower welfare department administrative cost for medical care financed by annual capitation payments to medical groups than under fee-for-service solo practice.

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A recent study by the welfare department revealed that its cost of prescription drugs was 50 percent less in nursing homes under HIP than in all other nursing homes in welfare programs.

Let us look at hospital costs-how the continuing acceleration of hospital costs makes it impossible for a person of moderate means to cope with the expense of an illness requiring long-term hospitalization.

The recent hearings on the rate increase request of the New York Blue Cross plan revealed that Blue Cross payments to hospitals in the New York area increased from $31.94 a day in 1959 to about $44 a day in 1963, an overall increase of about 38 percent. The New Jersey State Banking and Insurance Commissioner, Charles E. Howell, as reported in the April 15, 1964, issue of the New York Herald Tribune, faced with a request for a 32.5 percent boost, approved an 18.5 percent increase in New Jersey Blue Cross rates, effective August 1, 1964. He stated that "even under the present Blue Cross rates, the costs were already beyond the reach of a very large number of persons with low or limited income." Under the current New York Blue Cross rates, an individual who had been enrolled prior to age 65, pays $55.80 per year for the 21 full and 180 half-day plan.

The present HIP premium rate for its medical care program for an individual enrolled prior to age 65 is $57.80. Thus, a single person insured before age 65, in order to continue coverage on a direct-payment basis for both HIP and Blue Cross, has to pay an annual premium of $113.60 ($57.80 for HIP and $55.80 for Blue Cross). These are community rates and reflect the average costs of young, middle-aged, and older people. The present Blue Cross rate for people entering the plan after age 65 is $129.60 per year for an individual found medically acceptable. I am certain that if HIP should decide to open enrollment to such persons over age 65, the cost of medical care would be as high or higher than the cost of hospital care.

The cost of assuring adequate physician and hospital coverage is now beyond the means of elderly people with limited incomes and will soon be beyond the means of even those with moderate incomes. In HIP we have many enrollees who, upon attaining age 65, lose their group enrollment. They are all urged to retain their insurance at practically the same rate for the same medical benefits as before. Yet at this time when they need it most and when their incomes are sharply reduced, two out of three drop their insurance because they cannot afford to take on the full cost formerly shared with or totally paid for by an employer or union. The sensible way would be to pay the hospital costs for the aged by regular contributions during their earlier working years. Hospital coverage, if financed through social security as proposed by the administration, would enable many elderly people who now drop their medical care insurance to continue it during retirement.

I have been reading a new book, "Episode," by Mr. Eric Hodgen, who describes his own serious illness. If the committee permits, I will read a short excerpt, very pertinent to the subject of this hearing. Mr. Hodgen itemizes the expenses of a single illness which totaled $21,911, of which about one-third, $7,891, was covered by insurance. He states:

"If while still semispeechless half an hour after the CVA (cardiovascular accident) struck me, I had had to shake my head no to the only open room in the hospital across the street because it cost $48 a day, I don't know where I would have been that night and I don't know where I would be today. I do know that something in addition to medical skill and dedication saved me and I know what that something was. It was cash, ' A CVA somewhat predisposes to a recurring CVA. And I might well survive a second or a third CVA, medically. What is now inevitable and foreordained is that I could not survive another, financially. The $14,000 that was the cost of the first one and its sequels was too big a chunk of my assets: these, like nerve fibers, do not regenerate if the damage is heavy enough."

Senator MCNAMARA. The next witness is Walter J. McBee, executive director of the the Blue Cross-Blue Shield, Dallas, Tex.

STATEMENT OF WALTER R. McBEE, EXECUTIVE DIRECTOR OF BLUE CROSS-BLUE SHIELD, DALLAS, TEX.; ACCOMPANIED BY WALTER F. HACHMEISTER, ASSISTANT CONTROLLER, AND E. W. AUNE, ASSISTANT DIRECTOR OF ADMINISTRATION

Mr. McBEE. I am Walter R. McBee, Senator. May I introduce my associates?

Senator MCNAMARA. Please.

Mr. McBEE. This is Walter Hachmeister, our assistant controller, I am Walter R. McBee, this is Eugene Aune, assistant director of administration and head of our claims department.

Senator MCNAMARA. Thank you, and be seated.

Mr. McBEE. I have a prepared statement here, Senator, which is pretty condensed and I will present it if it is agreeable. Senator MCNARAMA. You go right ahead.

Mr. McBEE. I am Walter McBee, executive director of Blue Cross and Blue Shield of Texas.

The Blue Cross plan serving the State of Texas provides hospitalization protection for 1,771,494 persons, about 17 percent of the State's population; 97.5 percent of these also hold Blue Shield medical-surgical coverage. The figure includes 228,780 who are enrolled through the Kerr-Mills old-age assistance program of the State of Texas.

Our enrollment of the aged has been a steady, accumulative process through the years, as the result of deliberate planning and concerted effort. The sources of enrollment and present extent of coverage of the elderly, 65 and over, in the various categories are given below: No person in any category is ever terminated, deprived of membership, or required to change form of coverage because of attaining the age of 65, or any other age.

There were 745,391 persons in our State who had attained the age of 65 years, according to the 1960 census. The figure has increased now to an estimated 845,000, according to our sources of information; 324,787 or 38 percent of the 845,000 are enrolled today in Blue Cross; and if the OAA enrollment and population are removed from consideration, the number enrolled would be 96,007, which is 16 percent of the estimate of the remaining aged population. This is about equal to our present share of the total population.

THE EMPLOYED GROUP ENROLLMENT

There is no age limit on employed group enrollment; and currently there are 17,561 actively employed persons 65 and over enrolled in Blue Cross and Blue Shield groups.

GROUP RETIREES

Industry often arranges for a continuation of coverage for retiring employees, and 12,438 who are 65 and over are enrolled through that source. (This figure includes only those that we are able to identify as retirees. Others are included in the group enrollment category above.) Usually, the employer pays the entire cost, and in almost all cases some of the cost.

ASSOCIATED GROUPS

Associated farm and other groups without a common employer have been encouraged to enroll, and through such sources we have accumulated and now have participating 13,699 members 65 and over.

GROUP CONVERSION

Members leaving a group as individuals for retirement or any other reason, and regardless of their age or health condition, are permitted and urged to retain their Blue Cross and Blue Shield coverage. There are 29,637 who are 65 and over that are participating through this

source.

INDIVIDUAL ENROLLMENT

Individual enrollment is open to the public at all times and 11,935, who have attained the age of 65 since enrollment, are participating through this source.

SPECIAL 65 AND OVER ENROLLMENT

Nongroup enrollments for those 65 and over were initiated through special campaigns as early as October 1959. Now particpating are 5,339 through this source.

SENIOR TEXAS SERVICE

The "Senior Texan" was a program developed and initiated specifically for those 65 and over, effective April 1, 1962. There are now 5,398 persons participating through this source.

KERR-MILLS-OAA

The State of Texas adopted the OAA phase of the Kerr-Mills Act effective January 1, 1962. This vendor payment program in Texas is handled by the State department of public welfare, and through a contract with that department Blue Cross is providing, on an insured basis, coverage for 228,780 Texas people who are recipients of old-age assistance.

Because of the evolution in offerings which has taken place over the period of years during which these enrollments have occurred, and because of the different sources of enrollment-employed group, nongroup, Senior Texan, and so forth-and available options, the benefit levels of our coverages held by aged Texans vary widely; and this is reflected both in the adequacy and cost figures appearing below. Summarizing, our enrollments of those 65 and over are tabulated as