BLUE CROSS AND OTHER PRIVATE HEALTH

INSURANCE FOR THE ELDERLY

TUESDAY, APRIL 28, 1964

U.S. SENATE,

SUBCOMMITTEE ON HEALTH OF THE ELDERLY

OF THE SPECIAL COMMITTEE ON AGING,

Washington, D.C.

The subcommittee met at 10:15 a.m., in room 4232, New Senate Office Building, Senator Pat McNamara (chairman of the subcommittee) presiding.

Present: Senators McNamara, Neuberger, Dirksen, Carlson, and Fong.

Also present: Senator Douglas.

Staff members present: Jay B. Constantine, and Frank C. Frantz, professional staff members; Patricia Slinkard, chief clerk; Toby Berkman, research assistant; and John Guy Miller, minority staff director.

Senator MCNAMARA. The hearing will be in order.

The first witness this morning is State Senator George R. Metcalf, the chairman of the Committee on Public Health of the New York State Senate.

Will you come forward, Senator?

We are glad to have you here this morning.

Senator METCALF. It is nice to be here this morning.

Senator MCNAMARA. You may proceed in your own manner.

STATEMENT OF GEORGE R. METCALF, NEW YORK, CHAIRMAN, COMMITTEE ON PUBLIC HEALTH OF THE NEW YORK STATE SENATE, AND CHAIRMAN, JOINT LEGISLATIVE COMMITTEE ON HEALTH INSURANCE PLANS OF THE NEW YORK STATE LEGISLATURE

Senator METCALF. On behalf of the New York State Joint Legislative Committee on Health Insurance Plans, I am greatly honored at your invitation to present my views to you on this occasion.

Sixty percent of our senior citizens had some form of health insurance protection at the close of 1962, according to the Health Insurance Institute. This figure seems reassuring to the private carriers, but, in addition to the fact that 40 percent are unprotected, these figures tell us nothing of how much of the coverage in force for the favored 60 percent is totally inadequate in relation to today's astronomically high costs of medical care. How many policies, for instance, pay $10 a day for hospitalization when last year's average

charge was $39.33? Then there is the question of noncancelable, guaranteed renewable coverage for the elderly.

Because of legislation our committee sponsored a few years ago, insurance companies in New York State may not now cancel individual health insurance policies after they have been in effect for 90 days and may not refuse to renew them after they have been in effect 2 years, solely because of the physical or mental condition of the policyholder. The legislation also provides that workers covered by a group policy are entitled immediately to convert to an individual policy from the same company when they leave their job to retire, or for any other reason. This legislation, unfortunately, was a compromise, in the face of opposition from the commercial insurers, between what we hoped to achieve and what it was realistically possible to have enacted into law.

Until recently, the 65-plus group covered by Blue Cross had relatively little to worry about because of Blue Cross dedication to service benefits, liberal conversion privileges, and community rating. But now Blue Cross plans are having difficulties in continuing to function as the enlightened social mechanisms they were when they first came into existence, because of the overweening desire of commercial carriers to experience rate their policies.

Skyrocketing costs of hospital care are imposing serious drains upon Blue Cross resources. In recent weeks, the Blue Cross plan serving 7,400,000 subscribers in the New York City area applied not only for a substantial premium increase but announced its intention to abandon community rating.

Blue Cross needs more money, unquestionably, but I urged the New York State Insurance Department to deny, for the time being, its request to abandon community rating in favor of experience rating. Elderly people are worried and desperate about their need for health insurance protection. Many marginal health insurance subscribers in the upper age levels are just not going to be able to pay the new, increased Blue Cross premiums predicated on experience rating. There is, therefore, a clear and inescapable obligation under the circumstances to protect, through some form of governmental subsidy, these men and women against the onslaught of sudden need for medical care.

It may be politically necessary to start with the social security structure, but reliance exclusively on a payroll tax would impose an unfair burden upon lower income groups. If the social security structure is employed, however, some way must be found of spreading its cost more equitably. Those with higher incomes, it seems to me, should be required to pay a higher share of the cost of the program. I hope we can profit by our experience with the Kerr-Mills program. Much hospital and nursing home care could be avoided if diagnostic and preventive programs were encouraged.

Benefits should be provided primarily for medical-surgical treatment, only secondarily for hospital and nursing home care. Such an approach would stimulate ambulatory rather than bedside therapy, which is more desirable medically, economically, and socially. We should also beware of providing benefits with which to encourage profit-minded investors in proprietary nursing homes.

Finally, in my view, it would be wiser to have existing Blue CrossBlue Shield and commercial carriers undertake the responsibility of

a Federal program, with Federal support, than for the Government to enter the field as the insurance agent. The carriers have the essential experience, the manpower, and the skills. For the Government to compete with them would be unnecessarily wasteful and likely to arouse opposition unrelated to the merits of the program.

I shall be delighted to expand upon these points in response to any specific questions you care to put to me.

Senator MCNAMARA. Thank you, Senator.

I notice you stress the unfair burden that this hospitalization program under social security would place upon the people who are least able to pay. I think you said the lower paid workers. You do recognize that it would amount to about 25 cents a week under the present King-Anderson bill. Do you think this is an unfair burden considering the fact that it would fill a great need for people in their retirement years?

Senator METCALF. Well, Senator, in reply to your question, I would have to say that as you phrase it, of course, it would not be a heavy burden, but I can only assume that a program such as King-Anderson would enlarge itself into a much more substantial program with larger benefits and at that time I think it would undoubtedly be a very heavy and severe burden on the people in the low-income groups.

In this connection I would like to say to you that when I was in England several years ago, I asked people who were in charge of the social program in England how much of that was supported by payroll tax and the answer was 12 percent.

It seems to me that while the social security program has a great deal of appeal as we know from a great many people in this country, I think unless it is coupled with some other tax mechanism in order to share the burden with people who are making more than $5,200 a year, that it would be unfair to those in the low-income groups.

Senator MCNAMARA. Of course, the same argument was used at the inception of the social security plan, and after well over 25 years, this did not develop into this great

Senator METCALF. Yes; I appreciate that, but ordinarily in the social security pension plan you receive back what you put into it presumed on the amount of your contribution, where in this particular instance, this is a completely social program in which everybody should bear the burden.

Senator MCNAMARA. Senator Carlson, do you have any comment or questions?

Senator CARLSON. Senator, having served in the Kansas State legislature and been Governor of a State, I was interested in this committee of yours the New York State Joint Legislative Committee on Health Insurance Plans.

How many years has this committee been in existence?

Senator METCALF. We started in 1955. It has been in existence almost 10 years.

Senator CARLSON. I would say, having had some experience in State government, that this should be a very important committee because it is a problem that concerns citizens of individual States. Of course, we have also a national problem on this.

I was interested in your statement that you thought probably it would be wiser to have existing Blue Cross-Blue Shield and commer

cial carriers undertake the responsibility of a Federal program with Federal support.

That intrigued me a little.

Do you have, after many years of study, some suggestions on Federal support on this type of program?

Senator METCALF. Well, I think as far as the Federal support is concerned it would be-that is a very good question.

Senator CARLSON. It is a question that confronts me and confronts the Members of the Congress, I can assure you. I am interested in your suggestion on your program.

Senator METCALF. I was thinking of private carriers using Federal tax moneys to pay benefits under a Federal health insurance program. If you get away from the insurance concept then you accept the means test upon which Kerr-Mills is based, and I think that a Federal health insurance program which you are discussing cannot be based on a

means test.

Senator CARLSON. I want to say, Senator, I happen to be a member of the Senate Finance Committee and helped write the Kerr-Mills bill and I sincerely hope it can be implemented so it will be a program that will be of real benefit to the aged in need of medical care.

Senator METCALF. If I may say something in that connection, regardless of what you do on King-Anderson, there will be ample need for Kerr-Mills for many, many years, because even with a health insurance program, a person will exhaust the benefits of the program and, therefore, must have some way, some mechanism of taking care of his medical care needs. For this reason I cannot see, in the foreseeable future, how Kerr-Mills can be eliminated.

Senator CARLSON. Well, I sincerely hope that it is not eliminated. I hope it is improved and extended. I was opposed to the King-Anderson bill on the theory that a burden was placed on a group of people— young people particularly-who are establishing homes, raising families, educating children, for the care of those who are in need of medical attention past 65, and I think those of us who are over 65 ought to carry the burden; I think it ought to be nationwide in scope instead of just placing it on persons paying social security taxes. I have consistently taken that position and I am hoping we can work out something that will take care of those who need medical care after the age of 65. I hope you will study it further. I think we need some help on it. I appreciate it. That is all, Mr. Chairman.

Senator MCNAMARA. Thank you, Senator.

I would like to ask you, in your opinion, why is Blue Cross in New York trying to drop the community rating principle in favor of the experience rating program?

Senator METCALF. Why they are?

Senator MCNAMARA. Yes.

Senator METCALF. Well, I think basically the reason why they are forced into that position is because of the attitude and the practices of the commercial carriers who have stimulated this kind of insurance writing for a number of years. As a matter of fact, one of the main reasons they have gone into experience rating is to protect a great many of the contracts they now have where members insist upon experience rating as the price of remaining in the Blue Cross fold.

So, I think this is primarily a step in the direction of protecting themselves against competition.

Now, of course, those people who are in the direct pay groups, and who cannot realize the advantages of experience rating, are going to have a higher rate to pay. As a matter of fact, it was brought out during the testimony in New York City that those rates could increase by as much as 100 percent within a period of 3 years.

Now, if anything like that should happen, which I doubt—but it could happen-those people on reduced incomes would almost certainly risk the possibility of having their insurance taken from them. Senator MCNAMARA. In your enlarged statement-and we appreciate that you abbreviated it and summarized it-you seem to suggest that we should avoid establishing incentives to the expansion of proprietary nursing home facilities.

What is your reason for that?

Senator METCALF. Well, I fear that unless you are very careful about the kind of benefit structure you construct under the KingAnderson program, you will have succeeded in enlarging the number of proprietary nursing homes in this country.

I know that a few years ago when it seemed the Federal health insurance plan was going to be enacted, there was a noticeable increase in New York State in the number of requests to build nursing homes, and I feel that this would be unfortunate if something like this were to happen.

We find, for instance-and this would be interesting to Senator Carlson-that in New York State, 90 cents of every dollar that is spent on the Kerr-Mills program goes into hospital or nursing home care. I think this is investing our dollars in the wrong way. We should keep people out of hospitals and nursing homes by emphasizing ambulatory and medical-surgical care. If private operators see a chance of earning a profit as a result of the legislation you pass, nursing homes will spring up regardless of their need.

Senator MCNAMARA. On the basis of your experience, do you think that the health needs of the aged can be met by existing commercial insurance, Blue Cross, plus the Kerr-Mills bill?

Senator METCALF. No; I certainly do not.

Senator MCNAMARA. You feel that additional legislation is needed at the Federal level; is that correct?

Senator METCALF. Oh, yes.

Senator MCNAMARA. I think your committee, in the New York Legislature, has performed a great service in putting on the public record a great deal of information that was not otherwise available to people who were trying to bring some light into this programI mean students and other groups.

It seems to me that the work of your committee has performed a great public service by bringing about the registration of insurance companies. Are there about 800 companies operating in New York? Senator METCALF. I think that is about right; yes, sir.

Senator MCNAMARA. And this does bring some information? Senator METCALF. I am sure the insurance men here could tell you about that.

Senator MCNAMARA. I think this has been a great service and I do not think you get enough credit for it.

We appreciate your help, and you can be sure we will study your testimony in great detail.