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that a severe illness might result in heavy medical costs that would drain his small savings he wants to leave to his wife. Now suppose he asks your advice as to how to get insurance against such heavy medical costs, what would you tell him?

Secretary FLEMMING. Well, Congressman, I think that I would like to have the opportunity of considering that question and getting some advice, myself, before I decide what advice to give him.

Mr. FORAND. You can give me the answer for the record.
Secretary FLEMMING. All right, I shall be happy to do so.

(The Department of Health, Education, and Welfare supplied the following answer:)

The case that Congress Forand has presented is illustrative of the problem which does exist and to which the Secretary referred at the beginning of his testimony.

We assume that the $5 a month that the couple is spending is for routine medical expenses. The Rhode Island Blue Cross and Rhode Island Physicians' Service plans do not enroll persons past age 65. If the couple had been enrolled in these plans before he retired and had continued their membership, they would be paying a monthly premium of about $10. This would give them each benefits of up to $14 a day for up to 75 days of hospital care in a year as well as coverage of practically all miscellaneous hospital expenses and of surgical bills up to a maximum of $225 for the most complicated operation. If the couple had not been enrolled in these plans before reaching age 65, they would have no alternative other than to purchase one of the newer insurance company policies for retired persons. The couple could probably buy a policy costing $6.50 a month for each of them, or $13 for the couple, and providing $10 a day for up to 31 days in an illness, 50 percent of miscellaneous hospital expenses up to $125, and surgical expenses up to a $200 maximum. The average daily charges in voluntary general hospitals in Rhode Island were about $29 in 1957, so that in the event either of them was hospitalized, they might still have to pay a considerable part of the hospital bill out of pocket.

The monthly benefit income of the couple would be $112.50 per month, if the man received $75 as in Congressman Forand's illustration and his wife was at least 65 and drawing a full benefit. According to data from the 1957 survey of OASI beneficiaries, there is about one chance in five that a couple with such benefits would have no income other than their benefits-and one chance in five that they would have at least $175 per month from other sources. The average couple had a total money income per month of about $180.

Their monthly medical costs, including $5 for routine medical bills and hospital insurance premiums, would total $15 if they had Blue Cross and Physicians' Service coverage and $18 for the more limited protection of the insurance company policy. These costs would represent 13 or 16 percent, respectively, of their income if they had only their old-age and survivors insurance benefits, 8 or 10 percent if they had $180 per month, the average for all couples.

The insurance policies described would still not provide protection against heavy and prolonged costs of a severe or terminal illness. (Nor would such costs be covered by H.R. 4700.) If this couple were able to purchase major medical expense insurance, which they might find difficult, it would cost them at a minimum $8 or $9 a month. If their savings are small, they may have to depend on help from friends or relatives or on public assistance, which in Rhode Island does provide fairly comprehensive medical services.

Mr. FORAND. Now, is it not common for a person to have more than one form of voluntary insurance with one form supplementing another? Why could not private insurance be used to supplement a Government program in a similar way?

Secretary FLEMMING. Congressman Forand, I endeavored to deal with that particular issue in my report to the committee to which I have already referred. I also dealt with it in my direct testimony in

addition.

It seems to me that the minute you move over into the area of providing service as against cash benefits that you certainly lessen, if

you do not entirely eliminate, the possibility of supplementation. As I indicated in my testimony, if I may just refer to that, I indicated there that I recognize that if we moved into a program such as this some older person might purchase insurance to cover some services not covered by the Government program such as, let us say, private room accommodations as contrasted with semiprivate room or other matters of that kind. But certainly there would be no incentive for persons to purchase private insurance covering the cost of services already paid for by compulsory contributions to the Government

program.

I think all of us recognize that the provision for services incorporated in H.R. 4700 is such as to provide reasonably adequate services. The individual having been compelled to contribute to a Government program in order to make provision for those services is certainly not going to take out a policy which would have the effect of making provision for duplicate services.

But I think the other thing that we have to recognize along that line is, as I indicated in my testimony, that taking this initial step is sure to result in strong pressures to extend the scope of benefits to additional types of services and even to improve the type of service provided for in H.R. 4700. Under those circumstances it seems to me that this initial step would be almost sure to spell the end of voluntary insurance in the health field.

For example, just take one comment that we made in our report. You will recall in the report that we submitted to the committee in the introduction we outlined arguments both for and against governmental action in this area. One of the arguments that we identified as being an argument against this action was stated in this way. "Pressures would also develop for extending insurance against the cost of hospital and other medical care to the working population and their dependents. Workers who were paying social security taxes to cover the cost of health benefits in old age might object to waiting until they reached retirement age to get such protection and would be willing to pay additional contributions in order to have such insurance for themselves and their dependents immediately.

"A decision to provide hospital insurance for the aged might thus lead to more far-reaching governmental action."

In other words, we believe that once you start down this particular road you are eliminating most of the incentives for voluntary health insurance either in the hospital area or other areas and either for the aged or for other age groups in the population and you are substituting for those incentives pressures to constantly improve the benefits and widen the scope of the action called for by H.R. 4700.

Mr. FORAND. Experience has shown that up until now neither the private insurance companies nor even the Blue Cross systems have been able to adequately meet the problem. The Blue Cross has been increasing its cost from time to time to the point where last week the Rhode Island Blue Cross announced that they would again have to raise their rates because they are digging into their surpluses to the tune of approximately $100,000 a month.

Now if the private systems cannot take care of this aged group do you not think that it is the responsibility of the Government to step in and devise some way to take care of this problem?

Secretary FLEMMING. Congressman Forand, it seems to me that the evidence that has accumulated over the period of the last few years, as I have indicated earlier, all points in the direction of substantial progress on the part of the private groups, whether they are nonprofit or commercial groups, in the direction of extending coverage and in the direction of dealing with this problem.

Now, I would be the last to maintain that we have reached Utopia in connection with their efforts. As I have indicated earlier there is considerable room for progress, but the thing that we cannot ignore, at least that I cannot ignore as an individual, is that there has been a sharp upward curve, and it seems to me that just at the point that we are experiencing this sharp upward curve it would be very unfortunate for us to slam the door in the face of activities of this kind and just cut them off, because I believe that that would be the result.

Mr. FORAND. Mr. Secretary, I have said repeatedly, and I want to reiterate that statement right now, I am not wedded to the plan in H.R. 4700. I introduced that bill so that we would have a basis to work from. It has stirred up a lot of interest. I have asked the cooperation and the help of all interested groups. Up until now I have received very little. It seems to me that I get a lot of talk, I get a lot of promises, but nobody has yet come up with anything that looks like a solution to this problem.

Therefore, we do not have alternatives that really would meet the problem. I say let us work with 4700.

Secretary FLEMMING. Mr. Congressman, as I have indicated I feel that there has been substantial progress over the past few years along the lines that I have described. As I have also indicated in my previous testimony, I do not feel that this is an area where the Government can just sit back and wait and see whether or not this constitutes a total solution to the problem.

In fact, Government has not done that. The inclusion of the medical service amendments in public assistance programs under the Social Security Act in 1956 and 1958 was a clear indication on the part of the Government that there was a segment of the population for which the Federal Government, working with the States, would have to step in and be of help and assistance. Then, as I have indicated to you in my testimony, I recognize that over here you have the group, let us say the 70 percent of OASDI beneficiaries that I talked about, that would be covered by private plans or by commercial insurance company plans, then over on the other extreme you have those who are the beneficiaries under the public assistance medical service amendments to the Social Security Act in 1956 and 1958. I fully recognize that in between there may be another group who would be willing to get into a voluntary program but who can get into it only if the rates are reasonable.

For example, as I have indicated to you, I feel that probably some of the most attractive plans are the group plans, but there are persons who have no opportunity of participating in a group plan as such. So it seems to me that we have an obligation to explore the possibility of the individual relating his voluntary contributions to the Government in such a way that the Government would, in effect, make it possible for him to become the beneficiary of a group plan as contrasted with just trying to handle this as an individual. So I am

certainly not sitting here saying that the Government should just sit back and do nothing. I feel that the Government has done something at the Federal and State level and I feel that it should continue to do that under the public assistance program. Then I feel this other area, to which I referred in my testimony, should be explored and explored very carefully.

Now I am not going to be dogmatic and say that we can come up with a solution for that particular group. Personally, I believe that something can be done. That is just a personal conviction on my part. But I will give you the results of the study and my conclusions after I have had the opportunity of going into it.

Mr. FORAND. Now, the question I meant to ask you at the very beginning and I interrupt my questions to ask it now: Are we to understand that your appearance this morning reflects not just the position of your Department, but is the position of the administration?

Secretary FLEMMING. Congressman, you will note that at the conclusion of the letter I addressed to the committee I stated that the Bureau of the Budget advises that it sees no objection to the submission of this report to your committee. As you know, of course, that represents clearance as far as the administration position is concerned.

Mr. FORAND. In other words, this is the administration's position you are presenting?

Secretary FLEMMING. That is correct.

Mr. FORAND. Now, can you give us estimates of the first year cost of the operation under H.R. 4700 as well as the percent of payroll in the long run?

Secretary FLEMMING. Congressman Forand, I have here a memorandum which is headed "Estimated Cost of Benefits and Administration Under Forand Bill, H.R. 4700." It states that costs under the Forand bill have been estimated, using the same assumptions as those in the report on hospital insurance for OASDI beneficiaries applied to the Forand bill specifications. The benefit costs were estimated on the basis of data from the 1957 OASDI beneficiary survey and are somewhat higher than preliminary Social Security Administration estimates made in January 1958.

Under the heading "Estimated 1960 Costs of H.R. 4700" the total cost is estimated at $1,120 million. The percent of the taxable payroll, 0.53 percent.

Then that is broken down under hospital benefits, nursing home benefits, surgical benefits, and cost of administration. I shall be very glad to give this to the reporter so that it can be included in the record.

Then the memorandum also gives the estimated level premium cost, on an intermediate cost basis, and the total there is 0.79 percent of taxable payroll. That likewise is broken down by hospital benefits, nursing home benefits, surgical benefits, and cost of administration. (The memorandum follows:)

ESTIMATED COST OF BENEFITS AND ADMINISTRATION UNDER FOBAND BILL, H.R. 4700

Costs under the Forand bill have been estimated using the same assumptions as those in the report on hospitalization insurance for OASDI beneficiaries, applied to Forand bill specifications. Surgical benefit costs were estimated on the

basis of data from the 1957 OASDI beneficiary survey and are somewhat higher than preliminary SSA estimates made in January 1958.

Estimated 1960 cost of H.R. 4700, total_----.

Hospital benefits___

Nursing home benefits

Surgical benefits____

Cost of administration__

Estimated level premium cost-intermediate cost basis, total_

Hospital benefits___

Nursing home benefits_

Surgical benefits___

Cost of administration_

Mr. FORAND. That is projected how far forward?
Secretary FLEMMING. To the year 2050.

Percent

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Congressman, on the cost figure, I think it is clear from the figures that I have given that if the tax rate remained as it is in H.R. 4700 that this plan would start out underfinanced. If you were going to start out with a fully financed rate from the start I would assume that you would have to add about 0.40 on each side, that is as far as both the employer and employee are concerned.

Mr. FORAND. The percentage cost of payroll which you have just given us, could you translate that into dollars and also give us the estimated population by then, by 2050?

Secretary FLEMMING. May I ask Mrs. Merriam to comment on that because she can tell you just what can be done?

Mr. FORAND. Yes.

Mrs. MERRIAM. We have given a dollar figure for 1960 which was $1,120 million. The level premium cost figure we state as a percent of payroll because we assume there will be changes in the general level of wages and dollar values in the future as in the past and that any dollar value you try to give now for the year 2050 would be relatively meaningless.

Furthermore, this level premium cost is the average of the amount that would have to be charged over the entire period between now and 2050. The year by year costs would begin at about 0.53 percent. They would go up rather gradually. We do show in the report the year by year cost for hospital benefits alone. That would not include the entire cost of your bill but in any event it would be rather meaningless to try to put any dollar figure on the average payrolls over all these

years.

Mr. FORAND. I thought it might be a very difficult thing. The reason I ask that question is that some figures have been bandied around trying to show that it would cost so many billions of dollars and so forth and nobody has been able to substantiate them. It is just a wild claim.

Now, Mr. Secretary, do the actuaries' estimates give any justification for claims that the cost would be $2 billion to the program the first year?

Secertary FLEMMING. The answer to that is "No". Our actuary's estimates, as far as the first year costs are concerned, were reflected in the figure that I have you a few minutes ago. Namely, $1,120 million.

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