This is ordinarily impossible, of course, but the policyholder is neither a CPA nor an insurance actuary. Hence he cannot evaluate the quality of the package, although he can add up the dollar cost. The chaos that finally results is a contemporary adaptation of Gresham's Law: Poor policies drive out good. And poorer companies sell larger volumes than better companies.

Nowhere is this rush by second-rate insurance companies to proliferate inferior policies more prevalent than in the area of health insurance for the aged. Not a single one of the Nation's 10 largest insurance companies offers any guaranteed-renewable major medical or comprehensive policy to persons beyond the age of 65 (table II). Thus the elderly are forced to seek protection from less substantial underwriters which pay out small percentages of their premium income in benefits and which frequently take advantage of the policyholder in the settlement of claims.

TABLE II.-Senior citizen guaranteed-renewable major medical plans
[10 largest life insurance companies in the United States]

If the insurance industry could write an adequate policy, 57 million policies would be more than enough to cover old and young alike, because there are only about 56 million households in this country. However, under present circumstances the insurance industry knows that it cannot offer an adequate policy and the buyer knows that he cannot buy one.

The tragic result is that both from the side of demand and the side of supply, a proliferation of partial, inadequate enrollments is encouraged.

Although 454 million policies are presently in force-an average of 8 policies for every household-we have arrived at a situation where no conceivable number of policies could be sold that would give adequate, comprehensive coverage. This is because the gaps, the holes, that exist in the policies of one company are matched by gaps and holes in the policies of others.

This problem is one that is too big for the insurance industry and it is too big for the nonprofit corporations. The only redeeming possibility rests with Government.

In dealing with the stubborn problems posed by providing hospital care for the aged, the Federal Government would be favored over the private insurance industry by four distinct advantages:

1. It could obtain an insurance group without adverse initial selection; 2. It could maintain the continuity of a group, once enrolled;

3. It could avoid the parasitic, competitive destruction in the quality of coverage that is inherent in the structure of the private insurance industry; and

4. It alone has the financial power to supplement the contributions of needy persons so as to make an adequate insurance policy possible. The private insurance industry has not been deficient in energy, determination, or good will. But these are not the problem. Once the Federal Government provides a suitable program for the most pressing needs of the aged, then the private insurance industry may be enabled to put its good intentions to work in devising adequate policies for those who are not beyond the age of 65. Senator ANDERSON. We will meet again tomorrow morning at 10 o'clock.

(Whereupon, the committee recessed at 12:30 p.m., to reconvene Tuesday, May 11, 1965, at 10 a.m.)

The committee met, pursuant to recess, at 10 a.m., in room 2221, New Senate Office Building, Senator Clinton P. Anderson presiding. Present: Senators Anderson, Smathers, Douglas, Gore, Hartke, Ribicoff, Williams, Carlson, Bennett, Curtis, Morton, and Dirksen. Also present: Senators Hickenlooper and Sparkman; Elizabeth B. Springer, chief clerk.

Senator ANDERSON. The committee will be in order.

Senator Hickenlooper, we are very happy to have you introduce Dr. Ward to the committee, please.

Senator HICKENLOOPER. Mr. Chairman, I want to express my thanks for your courtesy in permitting me to introduce an old friend of mine from my home State, Dr. Donovan F. Ward, of Dubuque.

We have a great many fine physicians in Iowa, so I couldn't say that he is necessarily the leading one, but there is none better in the State of Iowa and he is a leading physician in the United States, president of the American Medical Association, and he has held various offices in our State association and the national association. I have known him for a good many years. He is devoted to medicine and to better health, and has had a wide experience. He is head of surgery in several hospitals, and with this broad experience and his position as president of the American Medical Association, I think it eminently qualifies him to speak for that association and for the viewpoint of the physicians and surgeons in connection with this legislation.

I again thank you for permitting me to present this old friend of mine of long standing and to listen to his testimony.

Senator ANDERSON. Dr. Ward, may I say I read your full statement last night and it took me nearly 2 hours of hard reading to go through it. I am very happy you have a shorter version today and without objection your full statement will appear in the record, and if members of the committee don't object we will let you go through your statement even though it will run beyond the 15 minutes allotted to you and then have questions on it.

I hope the other witnesses won't worry about that because you represent mainly State medical societies, and I think that speaking for the American Medical Association he should have a little more time. So, Dr. Ward, you go right ahead and we will let you finish your statement and we will have questions on it.

601

STATEMENT OF DR. DONOVAN F. WARD, PRESIDENT, AMERICAN MEDICAL ASSOCIATION; ACCOMPANIED BY DR. PERCY E. HOPKINS, CHAIRMAN, AMA BOARD OF TRUSTEES; AND DR. SAMUEL R. SHERMAN, CHAIRMAN, AMA COUNCIL ON LEGISLATIVE ACTIVITIES

Dr. WARD. Thank you, sir.

Mr. Chairman and members of the committee, I am Dr. Donovan F. Ward, of Dubuque, Iowa, president of the American Medical Association. With me on my immediate left is Dr. Percy E. Hopkins, of Chicago, Ill., the chairman of the American Medical Association board of trustees; and on my right is Dr. Samuel R. Sherman of San Francisco, Calif., the chairman of the association's council on legislative activities.

We appreciate the opportunity to appear before you today to state our views on H.R. 6675.

We have prepared a longer statement which covers in detail points that cannot be presented fully in this presentation. Because of the limited time allotted to us, my purpose here is to outline as briefly as possible the AMA's basic position on this matter as set forth in our more extensive material. We ask that the longer version of our statement be accepted for the record, and we urge the committee members to spend the extra minutes that may be required to review it. May this be done?

Senator ANDERSON. I previously said without objection the full statement will appear in the record.

Dr. WARD. Thank you, sir.

Through the years, Mr. Chairman, the physicians of the United States have been guided by concepts of medical care which have been developed through study, experience, and personal conviction. We believe, and have consistently held, that all Americans should have available to them the best medical care, when they need it, regardless of their ability to pay for it.

This care is primarily a personal responsibility, but where the individual requires financial assistance, we believe that such aid should come from his family, his community, and where necessary, from all levels of government.

These concepts come in conflict with parts 1-A and 1-B of H.R. 6675. With at least two basic fundamentals do we find serious fault: H.R. 6675 would provide health care, regardless of financial need, for all persons who have reached the age of 65 years, financed by a payroll tax on younger workers which will increase steadily in the years ahead. We oppose the taxing of these younger workers to pay for the care of those who can meet their own expenses.

Parts 1-A and 1-B of H.R. 6675 would be federally administered and managed programs. We believe, instead that a program which would provide for local administration will best meet the needs of all parties concerned and will permit medical science to continue to flourish.

Accordingly, the AMA urges this committee to reject parts A and B of part 1 of title I of this bill and to substitute S. 820, a bill to enact the eldercare program.

At the same time, we support the adoption of part 2 of title I with certain amendments which we are recommending today.

In your consideration of this bill, you may wish to review our testimony before this committee less than a year ago on H.R. 11865, 88th Congress, the predecessor of H.R. 6675. Included in our statement was a detailed analysis of the progress of Kerr-Mills implementation by the States, the encouraging health and economic status of our aging population, and the magnitude of the unfair tax burden which would be imposed on the Nation's work force to support a federalized hospital program for an entire segment of the population.

This material is as valid today as it was then, and we will not burden this record with a repetition of the same voluminous facts and figures. Instead, we will ask you to look ahead with us and consider other equally fundamental questions. But first we would like to comment on specific provisions of the measure before you.

Beyond our overall objection to part 1-A, or the hospitalization portion of the bill, we note that section 1814(a) (2) (p. 15) provides that payment for services furnished an individual may be made only to providers of services if a physician certifies that the services are or were required. This section applies only to request for payment by providers of service-hospitals, extended care facilities, and home health agencies. It does not include physicians. We note also that section 1835 (pp. 37-38) in part 1-B of the bill carries the same proviso. Our objection to both is the same: It should not be necessary to require the physician to certify the provider's request for payment. Since it is the facility which seeks payment, it should make the certification that the services were furnished to the patient and that he was admitted and cared for upon the advice of the physician.

In part 1-B, as in part 1-A, health benefits are provided across the board for all persons over age 65, regardless of financial need. Here, too, the program would be administered by the Central Government from Washington.

We believe there should be a sliding scale of income eligibility, and there should be State and local administration. We further urge that the program offer the individual a variety of coverage similar to the choices in the successful Federal employees health insurance program.

As it stands, part 1-B offers a single type of standardized protection which is certain to be unsuitable for many. Health care needs are individual problems and must be handled on that basis.

Finally, we believe the insurance carriers should be designated the underwriters of any such program. This would utilize to the fullest the experience of the carriers over a great many years in meeting the Nation's health care needs.

Each of these changes is a fundamental principle of S. 820, the eldercare program, which aroused enthusiastic public support when it was proposed a few months ago by the medical profession. Eldercare was the culmination of long and thoughtful study by the Nation's physicians stemming from their years of experience in caring for the aged. This program remains to this day the only one before Congress that was drafted in consultation with the medical profession.

Also in part 1-B, section 1842 (a) (3) (B) (p. 55), there is the provision that the carrier will assure that any charge for services will be

47-140-65-pt. 2-6

"reasonable." In part 1-C, section 1861 (p. 84), the Secretary is authorized to establish-by regulations-methods to be used, and items to be included, in determining "reasonable" costs. This language could easily be the nub of control in the future, enabling the Secretary to set the range and type of medical services for which payment would be made.

To limit the means by which unnecessary controls could be interjected, the bill should provide in part 1-B that the customary charges by physicians will be recognized by the carriers. In part 1-C the word "reasonable" should be deleted altogether as a further safeguard. In this or any other legislation you may approve, we strongly urge retention of the provisions of part 1-C, section 1861 (b) (p. 63) which eliminate medical specialties from the definition of hospital benefits. The services of pathologists, radiologists, anesthesiologists, and physiatrists are professional medical services which do not belong in a program solely designed to offer hospital benefits.

We recommend that in your deliberations you explore certain facts. Testimony by the American Hospital Association suggests that it seeks for its members ever-widening control over medical care, that it looks toward the inclusion of virtually all specialties within the administrative jurisdiction of hospitals. This would be a highly undesirable development in patient care. Medical care is the responsibility of physicians, not hospitals.

We suggest you inquire whether the separation of specialities from hospital services would not make it more difficult for hospitals to justify excessive charges to patients resulting from operation of laboratory and X-ray departments.

And we also point out that the inclusion of specialists in hospital services would unnecessarily impose an estimated $300 million a year additional payroll tax burden on the program, most of which would be borne by the lower income wage earners.

Section 1861 (j) (p. 72) defines an extended care facility. We suggest that the definition be modified to include any nursing home which has been accredited by the National Council for the Accreditation of Nursing Homes as a skilled or intensive care nursing home, or has met the requirements for approval of special health care facilities as established by the American Hospital Association.

Section 1861 (k) (p. 74) establishes a plan for utilization review committees to attempt to deal with the anticipated excessive demands for benefits under the program. These should be significant changes in the language of these provisions as set forth in detail in the longer version of our testimony.

Beyond this, we must state categorically that it is unrealistic for Congress to depend on this mechanism to prevent the dangerous overburdening of our health facilities. There is no totally effective method which will keep the cost of the program under control.

The AMA favors part 2 or title I which would establish a new title XIX in the Social Security Act. The new title would encourage States to establish a medical assistance program which aims at equal treatment for all the categorical public assistance recipients. We believe this concept has merit and should result in a more efficient administration of the program. However, we believe certain requirements for a State plan need modification.