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Washington, D.C. The committee met at 10:10 a. m., pursuant to notice, in room 1334 of the House Office Building, Hon. Charles A. Wolverton, chairman of the committee, presiding.

The CHAIRMAN. The committee will come to order.

Among the diversified legislative function assigned to this committee, none appear to me more important than the committee's legislative jurisdiction with regard to health. None of the many other subjects with which this committee deals affects every family and individual in these United States more directly than the subject of health. A part, however, from the human factors involved, I have become convinced from my study of health problems that the subject of health has more important economic implications for our Nation than many of the economic activities which are subject to Federal regulatory legislation. The following figures are evidence of the economic importance of ill health.

Four major diseases alone-heart, cancer, tuberculosis and rheumatism and arthritis—have resulted in an annual loss of 370 million mandays. This accounts for over one-third of the total man-days annually on account of chronic diseases.

During the course of our hearings, we received the startling testimony that the annual costs to the Nation from illnesses is roughly equivalent to the total Federal income-tax revenues, or $30 billion annually.

By contrast, the United States is spending only $181 million annually for public and private research into the dreaded diseases. At the same time, there is, as yet, no adequate private program for helping the aged and ill to bear the expenses of hospital and medical bills over long periods of time.

The magnitude of the human suffering caused by these diseases and the enormous economic losses suffered both by the Nation as a whole and by individuals and family units, raises two important questions for which the committee is seeking answers :

1. How can some of the suffering and some of the economic losses be prevented or mitigated; and

2. How can groups, individuals, and family units protect themselves against the unavoidable economic losses flowing from these diseases ?

The first aspect of our inquiry was, therefore, directed primarily towards the public and private efforts that are being made into the causes, treatment, and control of some of these major diseases.

During the second series of our hearings which began October 13, we are seeking from insurance companies, Blue Cross, Blue Shield, cooperatives, employers, and unions information with regard to some of the plans now in operation designed to protect individuals and members of groups and family units against the economic hazards of ill health.

During the recess, your chairman and two members of the committee, Representative Hoffman and Springer, made a trip to Europe and other parts of the world for the purpose of getting the benefit of experience of the European and other governments—and private agencies and groups in establishing programs for widespread alleviation of the costs of both preventive and curative measures.

Probably the outstanding nations in the respect we found to be England with its wide system, Sweden, France, Australia, and New Zealand.

Some of the material and data obtained on this trip will be made a part of the record. If there is no objection, it is so ordered.

President Eisenhower, in his message on the state of the Union, expressed his concern for the health of the people of the United States and stated "I am flatly opposed to the socialization of medicine. The great need for hospital and medical services can best be met by the initiative of private plans, but it is unfortunately a fact that medical costs are rising and already impose severe hardships on many families. The Federal Government can do many helpful things and still avoid the socialization of medicine."

The President endorsed the participation by the Federal Government in medical research programs into the various diseases, the assistance given to States in their health and rehabilitation programs, and endorsed the hospital survey and construction program. He specifically endorsed private and nonprofit hospital and medical insurance plans. He stated that "a limited Government reinsurance service would permit the private and nonprofit insurance companies to offer broader protection to more of the many families which want and should have it." He stated that on January 18 he would forward to Congress a special message presenting this administration's health program in detail.

I wish to state here that I, personally, am highly pleased that the President included within his program such a broad statement of health objectives. I wish to assure him of my most hearty cooperation and support in the attainment of these objectives. I am encouraged in the thought the the committee agrees with me in this respect. I am sure that all of us look forward to the receipt of his message on January 18 and assistance it is certain to afford.

At the hearings on October 13 and 14 the committee received testimony regarding the many insurance plans that are available to the public. Volume 5 of the committee hearings contains the testimony and material received at that time.

Today, the committee resumes its hearings by continuing the inquiry into what protection is available to the people by prepayment medical plans.

I am pleased to announce that the first witness will be Mr. Henry J. Kaiser, president of the Kaiser Foundation.

I would like to say in connection with the distinguished witness, which we have before us this morning, that it has been stated that no industrialist and builder in history has founded and operated so many and such varied enterprises in industry, business, construction, the national defense, and in the field of health as Henry Kaiser. Today, this committee has not called upon Mr. Kaiser in relation to his activities in a score of different types of industries and enterprises, including the production of steel, aluminum, cement, gypsum, automobiles, chemicals, building products, metal products, coal, power, and a whole list of basic materials, adding up to 99 factories and facilities producing more than 200 products.

Fully as remarkable as these industrial achievements has been Mr. Kaiser's work in the field of the people's health and the economics of medical care. I am informed that when Henry Kaiser was a boy of 16, his mother died in his arms because of the lack of medical care. Numerous times in the early days of his family life, Mr. Kaiser found himself and members of his family in the same dilemma that confronts millions of Americans unable to meet the high costs and tragic hazards of illness.

It is understandable that Mr. Kaiser vowed that if it ever was in his power, he would help other people to surmount the lack of medical care that befell his mother and other members of his family. And he has been able to do something.

Mr. Kaiser has built up a system of nonprofit medical centers and a health plan supplying comprehensive low-cost prepaid medical, surgical and hospital care, to more than 400,000 persons. It is interesting to note that the Kaiser Foundation health organization is going far beyond merely supply services to Kaiser employees, since out of the 400,000 health-plan members, only 22,700, or 5 percent, are Kaiser companies employees and their family dependents. Ninety-five percent of the Kaiser Foundation health plan members are a cross section of American people; so it will be of particular interest to us to learn what plan Mr. Kaiser, and his associates, have developed that has met with such widespread demand on the part of the public.

We now call upon Mr. Kaiser as president of the Kaiser Foundation to testify to the committee.

Mr. Kaiser, perhaps you would be good enough to introduce to the committee the individuals who have accompanied you this morning. STATEMENT OF HENRY J. KAISER, PRESIDENT OF THE KAISER


Mr. KAISER. I have Dr. Garfield with me, the medical director, and Mr. Weissman, the director of information.

The CHAIRMAN. You may proceed, Mr. Kaiser.

Mr. KAISER. First of all, we consider it important to express wholehearted agreement with your chairman's statement in originally opening this series of hearings that no subject dealt with by your committee affects every family and individual in these United States more directly than the subject of health, with its important economic implications for our Nation.

When you invited me and my associates of the Kaiser Foundation health plan to testify, I felt deeply that we should stand ready to give your committee any and every possible assistance.

It is our conviction that a new economics of medical care can be and will be developed throughout the United States. It will place high quality, comprehensive medical, surgical, and hospital care within people's reach. It is important to emphasize comprehensive coverage, in order to point up that it can protect millions of Americans against far more than a mere fraction of the hardships and high costs of illness and disease.

This new economics of medical care that we envision as coming rapidly and nationwide, is a free-enterprise solution that can be accomplished by groups of doctors throughout the United States. It will make Government socialized medicine absolutely unnecessary.

In every section of the country, groups of doctors can carry out their own independent adaptations of the pattern of voluntary medical service prepayment plan that has been developed on the Pacific coast over a period of 20 years.

The Kaiser Foundation health plan as it operates today, did not start out with preconceived ideas and a full-grown plan, but instead developed by evolution over a spread of 20 years. It evolved out of great human needs: First, the health needs of workers on remote construction projects; next, the needs of warworkers; and then, the demands of the general public.

In 1933, workers went into a 400-square-mile expanse of southern California desert to build an aqueduct from the Colorado River to Los Angeles. Medical and hospital service had to be created for them because doctors and hospitals were not available in the farflung, sunbaked desert. Dr. Sidney R. Garfield gathered together a group of fellow physicians, borrowed funds, built a small hospital in the construction area, and began taking care of the workers' illnesses and accidental injuries. But the doctors ran into financial troubles. Fees from industrial accident insurance companies proved very disappointing. For nonindustrial accidents and illnesses occurring off the job, the doctors charged on the prevalent fee-for-service basis, but it soon became obvious that the workers were not paying well enough to meet their medical costs. After 8 months of struggling the doctors and the little hospital were in a precarious financial situation.

The solution came about when a prepayment medical care program was pioneered by Dr. Garfield and the group. The insurance companies agreed to pay the doctors and hospital 15 cents out of every premium

dollar to do the entire industrial medical care job on the desert. Workers voluntarily signed up for a prepayment health plan to cover their nonindustrial health care. The workers no longer had any concern about paying for their medical care. The doctors were able to build and pay for two more hospitals, get better equipment, and bring in additional physicians and nurses. Everybody concerned benefited from the prepayment plan, the patients, doctors, insurance carriers, and contractors. The lessons learned have been the basis of our health operations ever since.

The same successful pattern was used at the scene of construction of the Grand Coulee Dam in Washington, where 5,000 workers and their families needed doctors and a hospital. Workers asked why their wives and children could not also be included in the prepayment plan. So without any statistical experience at all to go on, a family plan was started and it worked just as well.

During World War II, when upward of 180,000 people worked in our shipyards in the San Francisco Bay and Portland, Oreg. areas and other workers produced steel for the first time at Fontana, Calif., the medical service plan—then known as permanent health plan-was provided to meet the serious dearth of medical services and facilities. At the end of the war, demand arose from former shipyard workers and others who had learned of the plan for continuation of the plan and for opening it up to the general population. In 1946, there were 40,000 health plan members. Since then the membership has increased tenfold to nearly half a million, and growth has been limited only by ability to provide facilities and the services of groups of doctors fast enough to keep up with public demand.

The conviction that groups of doctors can apply this type of plan elsewhere throughout the country has been demonstrated by the fact that the plan has been tested under all sorts of conditions, in wartime and peacetime; through depression, recession, and prosperity; in all sorts of locations—in deserts, in remote rural areas, in suburbs and in large cities; in areas with only a small number of members and in other areas with tens of thousands of members; with scattered groups and concentrated groups.

The plan works because of four basic principles :

1. Prepayment: Prepayment is generally accepted as the only way that people of moderate means can pay for

increasing costs of modern medical care. This is the old principle of the well helping pay for the sick; the houses that do not burn down paying for those that do. It is the principle of small monthly dues paying a patient's doctor and hospital biĩls in advance, so that major illness or disease does not bankrupt a family.

2. Group practice: General practitioners and specialists in the various branches of medicine, surgery, X-ray, and laboratory sciences work together as a group. Group practice is not new; it is carried out notably at the great university hospitals and the Mayo, Crile, and Lahey Clinics, and, in fact, there are about 600 teams of doctors engaged in group practice in the country. Medical knowledge has become so vast that no one doctor can cover the entire field, and specialists must be used. When a group of general physicians and specialists provide services to health plan members and work together in modern medical centers, they are able, because of sound economies involved, to provide more care at substantially lower costs to the people than by other methods.

3. Well-planned, integrated facilities: Doctors and their patients need to have a central medical center with the finest, newest hospital design and equipment and with outpatient clinic and, as needed, outlying doctors' offices and smaller outlying hospitals. A group of doctors having such adequate facilities can serve the patients more effecively. The doctor has right at hand his office, laboratory, X-ray, and hospital, which obviously results in saving of transportation, saving in duplication of equipment and facilities, saving of personnel. Chief advantage is the great accessibility between the doctor and his scientific equipment and his sickest patients.

4. Preventive medical care: The comprehensive service type health plan reverses the usual economics of medicine, whereby doctors and hospitals obtain their income from persons who are ill. Under the

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