group practice if they prefer it to so-called free choice of individual physicians and specialists whose services they cannot afford on a feefor-service basis.

Families that receive all their medical services from a prepaid medical group can completely budget their costs of their total medical care throughout the year. If satisfied with the full scope and quality of the care provided for them by the medical group, the insured population has no need to purchase medical care from any other physician. Therein lies the cause of complaint and resistance by the opponents of prepaid group practice in every part of the country in which it has been established.

Local medical societies consist largely of solo practitioners who usually resent the economic and professional competition of group practice and will tolerate only a fee-for-service method of solo medical practice in insurance plans. Medical societies are therefore prevented by their membership from taking any part in modernizing the organization of medical care into group practice, even though it is required today by the high degree of specialization characteristic of the times in which we live. It is because of the local resistance to progress that programs of comprehensive medical care through prepaid medical group practices have grown very slowly and have as yet reached only 4 or 5 million people.

At the national level the American Medical Asssociation has accepted the principle that independent groups of physicians and community leaders should be permitted to experiment with newer patterns of prepaid medical care and group practice. State and county medical societies can not or will not initiate or operate such experimentsat least they have not done so up to this time on their own initiative— because of their medico-political composition. A widespread spirit of intolerance to change pervades the thinking and actions of their leaders, and in some States laws have been enacted at the instigation of medical societies which actually prohibit prepaid group practice in those States. Some local physicians are even now seeking to alter or reinterpret the code of professional ethics for the purpose of obstructing the development of the only form of voluntary health insurance which has thus far been able to provide comprehensive medical care at a cost which people of low and moderate income can afford on a prepaid basis.

An editorial in the Journal of the American Medical Association on July 16, 1949, warned the profession that obstructive behavior by physicians may itself be unethical.

This editorial in the Journal of the American Medical Association warned:

Instances have occurred in which physicians, for political, commercial, or emotional reasons, have endeavored to utilize the principles of medical ethics as a means of producing embarrassment, distress, or loss of reputation of other physicians whom they envy or whose open competition they fear. The principles of medical ethics were not designed for any such purpose, and the attempt to utilize the principles of ethics for such purposes may well be in itself unethical (editorial, Journal of the American Medical Association, July 16, 1949 (vol. 140, No. 11), p. 960).

In spite of these pronouncements, the conflict at the local level remains unchanged in most parts of the country and now calls for more positive action by national authorities within the profession itself or else intervention by Government in the public interest.

ORIGIN OF HIP

In 1947, after a 4-year study of the problems of medical care, the New York Academy of Medicine concluded that prepaid group practice is the logical and evolutionary development of "medicine in the changing order." In 1942 and 1944 the then mayor of the city of New York-Hon. Fiorello H. LaGuardia-announced that the city would pay half the premiums of nonprofit group health insurance for municipal employees and their families if insurance coverage could be made truly comprehensive and employees and their families would be protected against additional medical bills.

His reason was based on the experience of the municipal credit union which makes loans, as you know, to families, municipal families, and municipal workers, who are in financial distress. The experience of the credit union had revealed that the chief cause of financial disaster among families on low fixed incomes was medical bills. It was not the medical bills of the wage earner nearly as much as it was the medical bills for sickness of the employee's wife or children. The mayor therefore insisted that the entire family must be covered under a comprehensive prepayment plan if the city was to contribute toward its cost. Furthermore, it was found that many of the people in civil service were carrying some kind of medical expense and indemnity insurance, but in times of illness, it was totally inadequate and the additional unpredictable medical bills brought on financial distress. The city determined that it would not buy any prepayment plan for its employees or contribute half of the cost unless the coverage was comprehensive and extra medical bills were eliminated, and unless the entire family was protected.

In order to make it possible for the city to pay half the premium cost, permissive legislation was enacted by the State legislature in 1946. Following a prolonged study of nonprofit medical insurance plans in various parts of the country, the founders of the Health Insurance Plan of Greater New York were convinced that medical society-sponsored plans, because of the current medico-political structure of the societies, could not change the current pattern of medical practice so as to provide the public with an opportunity to purchase comprehensive medical care. HIP was therefore established and began to operate on March 1, 1947, as an independent nonprofit medical insurance plan under a board of directors composed of representative community leaders from labor, business, and industry, government, and the medical profession. It was designed to serve wage earners employed in private business and industry as well as governmental employees. The board of directors operates the plan as a community trusteeship. As in the case of voluntary hospitals, the entire responsibility for medical matters and the determination of all professional standards are delegated to a medical board and the medical aspects of the program are supervised by a medical director and his staff. At this time I happen to be the medical director of HIP.

Now, as to working capital. Comprehensive prepayment plans cannot be started or continue their orderly operation without some financial help at the outset. Working capital is required during the formative period and the first year of operation. Although there are many other plans like HIP in other parts of the country, small and large, this was the first experimental demonstration of compre

hensive medical care under a community-wide sponsorship. For that reason, several large philanthropic foundations supplied loans which totaled $855,000. They have now been largely repaid to the foundations out of premium income.

I call your attention to the necessity for loans for the initiation of similar plans, because it is in line with the thoughts of the chairman of this committee as expressed in the bills that he has introduced in the House, which would make such loans available, or would guarantee loans from private lending institutions.

The philanthropic foundations, having made this first demonstration with HIP, will not repeat the loans. From our experience it is evident that similar projects cannot be established without financial aid in the form of grants or loans. Such loans may come from industry, labor groups, consumer or farm cooperatives, or from lending institutions if there is Government guaranty of the loans to prepayment plans and prepaid medical groups which meet adequate standards.

The role of Government in the promotion of plans for comprehensive medical care through prepaid group practice was suggested in the 1947 Report on Medicine in the Changing Order of the New York Academy of Medicine. This committee consisted of distinguished lay as well as medical leaders in New York City. One of its recom

mendations was that

comprehensive medical services be exended by the use of voluntary, nonprofit insurance, using group practice units wherever feasible and Government subsidy wherever necessary.

In the light of our experience, I should say that Government subsidies are not necessary, if loans are made available either by Government or through private lending institutions which are encouraged by Government. Once established, such plans can become self-supporting, pay adequate remuneration to their participating physicians and repay the initial loans.

HIP has been in operation only 7 years. Today the Health Insurance Plan of Greater New York is providing comprehensive medical care to almost 400,000 insured persons, 5 percent of the population of New York. As a nonprofit agency established under the State's insurance law, it is operated "in the black" and has accumulated ample financial reserves as required by the State's superintendent of insurance. It has accumulated statutory reserves amounting to about $2 million.

The services are provided by 30 medical groups, 29 of which are located in various sections of the city and 1 in an adjacent county. These medical groups are autonomous and are independent contractors. They contract with the health-insurance plan to provide medical service of the scope and quality required in the contract and required by the Plan's medical control board. Each group includes an adequate number of family physicians proportionate to its enrollment size and a complete roster of qualified specialists representing the 12 basic specialties of medicine and surgery.

I shall be glad to provide for the committee a copy of the professional standards and the rules governing the medical groups, their composition and operation in accordance with their contractual arrangements with the insurance plan.

Altogether, these 30 groups comprise about 1,000 physicians, of whom about 450 are family doctors, and about 550 are qualified specialists. Forty-six percent of all HIP physicians are diplomates of the American specialty boards.

Although the staff of every group must include qualified specialists in the 12 basic specialties of medicine and surgery, it would be impossible to require each one to have a brain surgeon, or a surgeon capable of doing heart operations on blue babies, or the delicate operations for deafness or plastic surgery, or treatment with radium or radioactive isotopes. Yet the subscribers are entitled without cost to all these superspecialist services. This is accomplished by the fact that the 30 HIP medical groups contribute a fraction of their per capita income into a common pool called a special service fund. This fund engages some of the best superspecialists in New York to do the brain operations, the heart operations, and other highly specialized procedures, as the need may arise among the enrolled subscribers of any medical group.

This is a form of "reinsurance" for superspecialty services which enables the 30 groups to provide the entire gamut of coverage for almost everything in modern medicine.

The professional qualifications required for membership in a group are determined by an impartial medical control board of 15 representative physicians. The quality of medical care is supervised by the medical department of HIP.

Ninety-five percent of HIP's enrollment consists of families. Under the family type of contract, the cost for an individual subscriber, without dependents is $42.72 a year for comprehensive medical care. That does not include the hospital cost, which is, as a rule, covered through Blue Cross insurance in addition to the HIP premium. For a couple, HIP costs $85.44 a year, and for a family of any size $128.16.

a year.

A family with 12 children pays the same premium as a family with 1 child. The money for the medical care of children comes from the premiums of single persons, couples without children, and the 1-child families. Certainly, a family with 12 children cannot afford to pay additional premiums for medical care of each of its numerous children out of its limited income, which is usually no more than that of a wage earner with 1 child, or without children.

Allowing for large families, the average cost per enrolled individual is $36.36 a year. This is arrived at by dividing 400,000 people into the total premium income.

The plan requires employers to pay at least half the premium so as to enable wage earners in the lowest income bracket to subscribe. The weekly contributions of a single employee for his share of the cost is therefore 41 cents a week, of a couple 82 cents a week, and of a family of 3 or more, $1.23. On top of this must be added their half of Blue Cross or other hospital insurance coverage.

The reason why we require employers to pay half is that if the cost of comprehensive medical care of high quality is too high for people in the lowest economic level, they cannot afford the premium cost for such comprehensive medical care without some assistance from their employer or from their industry. We have about 450 employers contributing half the cost in this manner. We have also enrolled the

members of 24 labor unions which meet the entire cost of the plan out of health-and-welfare funds.

The city of New York, the largest employer of labor in the city, contributes half the cost for its employees and their families, as does the United Nations for its employees and their families.

We have made two exceptions to the requirement that the employer must pay half. One was for the residents in low-cost cooperative housing projects, which have been occupied largely by veterans and their families. They have solicited us to permit them to subscribe so as to protect themselves from the risk of losing their financial investment in the cooperative enterprise because of unpredictable medical bills in times of illness.

We have made an exception for them although at first we thought the full premium might be too high for people of such low income. They pay the entire monthly premium with the rent so that it costs HIP nothing for collections. As the managers of these cooperative buildings are employed by the tenant-owners, they have instructed them to add the monthly premium for medical care to the rent. The rent bill then includes the cost for the maintenance of their apartments, for light, heat, electricity, refrigeration, for their share in the interest and amortization of the mortgage, and for medical care. The medical care fraction is then transmitted each month to HIP, and the families are entitled to the comprehensive medical benefits provided by HIP medical groups of their own selection.

One other exception to the employer paying half has been made. We have made an exception for employed groups whose employers were unable, by law, to make any contributions. They are groups of employees of the Federal Government and State government who work in New York City. We have a number of such employee groups, working for the Federal or State government, who pay the complete premium each month to HIP.

HIP pays each medical group a capitation of $29.40 per annum for providing all the medical services which may be needed by all insured families which have chosen a group for such care.

It is probably unnecessary to explain the meaning of "capitation." It is the per capita amount of money derived from the premiums. Although HIP obtains its premium income on a per family basis, it distributes it each month to the groups on a per capita basis, after subtracting the operating costs of the insurance plan. Capitation is paid to the medical groups for all persons on their rolls. The capitation or "per capita" method of payment to the medical groups is used because if a family has 12 children the medical group chosen by that family for its medical care must provide 12 times as much pediatric service as if there were only 1 child in the family.

After deducting the cost of operating its medical group center and of retirement benefits, the remainder of its capitation income is available to each group for the payment of salaries of its participating physicians, most of whom are partners in the group. The medical groups are legally authorized partnerships. The New York State law permits medical partnerships, and they are registered as such with the county clerk.

When a medical group reaches an average enrollment (14,000), the remuneration of its physicians is at least as high as the average