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HOSPITAL, NURSING HOME, AND SURGICAL BENEFITS

FOR OASI BENEFICIARIES

TUESDAY, JULY 14, 1959

HOUSE OF REPRESENTATIVES,
COMMITTEE ON WAYS AND MEANS,

Washington, D.C.

The committee met at 10 a.m., pursuant to recess, in the committee hearing room, New House Office Building, Hon. Wilbur D. Mills, chairman of the committee, presiding.

The CHAIRMAN. The committee will please be in order.

Our first witness this morning is Mr. Nelson H. Cruikshank.

Mr. Cruikshank, although we know you quite well, for purposes of this record will you please identify yourself and also introduce to the committee Mrs. Ellickson.

STATEMENT OF NELSON H. CRUIKSHANK, DIRECTOR, DEPARTMENT OF SOCIAL SECURITY, AFL-CIO, ACCOMPANIED BY MRS. KATHERINE ELLICKSON, ASSISTANT DIRECTOR

Mr. CRUIKSHANK. Mr. Chairman and members of the committee, I am very glad to appear here again on this occasion before your distinguished committee.

My name is Nelson H. Cruikshank and I am director of the Department of Social Security of the American Federation of Labor and Congress of Industrial Organizations.

With me is my associate, the assistant director of the department, Mrs. Katherine Ellickson. Her office and mine are both at the AFLCIO headquarters at 815 16th Street NW., Washington, D.C.

The CHAIRMAN. Mr. Cruikshank, will you consume the time, or will you and Mrs. Ellickson divided the time?

Mr. CRUIKSHANKS. She and I will divide the time. I think I will take the major part of it probably.

The CHAIRMAN. Would you like to be notified after you have consumed so many minutes?

Mr. CRUIKSHANK. I would appreciate that; yes, sir.
The CHAIRMAN. How many minutes do you want?
Mr. CRUIKSHANK. Oh, give me 10 minutes' warning.
The CHAIRMAN. Ten minutes and then notify?

Mr. CRUIKSHANK. No, 10 minutes' warning. I am down for 45 minutes I believe on the schedule.

The CHAIRMAN. You will consume 35 minutes before we will warn you then.

Mr. CRUIKSHANK. All right, sir.

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The CHAIRMAN. All right. You are recognized for 45 minutes. Mr. CRUIKSHANK. Mr. Chairman and members of the committee, I and my associates are very glad to have the opportunity to present our views in support of this bill, H.R. 4700, introduced by Congressman Forand, because it is one of the proposals that is of the greatest interest to our members.

I have here a full statement which, if I may, I would like to have inserted in toto in the record, but I would like to summarize it in my oral statement, and possibly bring in some other points that are not outlined here.

The CHAIRMAN. Without objection, your whole statement will appear in the record.

(Prepared statement of Mr. Cruikshank follows:)

STATEMENT OF NELSON H. CRUIKSHANK, DIRECTOR, ACCOMPANIED BY MRS. KATHERINE ELLICKSON, ASSISTANT DIRECTOR, Department OF SOCIAL SECURITY, AFLCIO, IN SUPPORT OF THE FORAND BILL, H.R. 4700

My name is Nelson H. Cruikshank, and I am director of the Department of Social Security of the American Federation of Labor and Congress of Industrial Organizations. I am here with my associates representing the AFL-CIO in support of the addition of health benefits for beneficiaries of the old-age, survivors and disability insurance program along the lines proposed by a distinguished member of this committee, Congressman Forand, in H.R. 4700.

This proposal is of great interest and importance to our members. We appreciate the opportunity to present our viewpoint to your committee at this time although we regret that in the time now available for hearings before Congress adjourns it will not be possible to explore fully the problems of health care for older people and other social security beneficiaries.

RECENT TRENDS EMPHASIZE NEED FOR H.R. 4700

Developments since we discussed this matter before your committee a year ago have further demonstrated the need for Federal legislation to assure good health care to the aging on a basis they can afford.

The recession of 1958 reduced incomes and resources of many older workers and of younger adults supporting retired parents. In spite of the recent increases in benefits proposed last year by your committee and wisely enacted by Congress, most persons over 65 still have too little money to meet the rising costs of medical care. The proportion of Americans covered by voluntary health insurance declined slightly in 1958, and presumably the aged were similarly affected. Adequate alternatives to Federal action have not been developed. New types of insurance policies have been initiated but they have not met the need. example, one highly advertised type charges $6.50 per person a month for very limited protection.

For

The American Medical Association proposes that doctors cut their fees for the aged so that private insurance will cost less. But the AMA has no way of enforcing its plea for lower charges, and hospital care is a far greater expense for the aged than doctors' services.

Hospitals continue to be squeezed by rising costs. The American Hospital Association stands by its position that some form of Federal action is needed even though the AHA leaders are under great pressure from the AMA to change its stand.

The Forand bill is receiving ever-wider support. Our members continue to be very enthusiastic about it.

We have received many comments on specific phases of the proposal from doctors and others. These have helped to guide our thinking and our testimony before your committee today.

The report of the Secretary of Health, Education, and Welfare has provided us and others with much information and useful analysis. You will note there is nothing in the report that indicates that the Federal Government could not administer the proposed benefits.

Thus developments of the last year have emphasized the failure of other approaches and the feasibility of adding health benefits to the old-age, survivors and disability insurance program.

THE IMPORTANCE OF HEALTH INSURANCE FOR THE AGED

Your committee has wisely participated in far-reaching improvements in the Federal program and has thus provided a floor of security for most older persons. It must be a gratification to you to know that 11 million persons age 62 and over are now receiving benefits as a matter of right each month, and that the average primary benefit is now $72, or $6 more than a year ago. This is in addition to the protection extended to young survivors and seriously disabled workers and their dependents. In talking of further improvements in social security, we should bear in mind the amazing accomplishments that have been achieved in spite of dire predictions of socialism and of obstacles too great to be surmounted. Private pension plans have likewise grown tremendously larger under the impetus of union bargaining. However, only a little over 1 million out of the 11 million aged persons who are not working receive such private benefits. The Federal program covers a far larger number.

The absence of protection against heavy medical costs is today the greatest gap in the security of older citizens. A couple who have saved some money and are now entitled to a modest income through governmental and private protection can plan for a reasonably comfortable and dignified old age. But if one or both become sick, charges for doctors, hospitals, drugs, and appliances can mount in a short time to thousands of dollars. The whole underpinning of retirement is swept away. For fear of such loss, many couples postpone securing medical attention until too late, with resultant tragedy.

Your committee can now solidify social security by adding a reasonable degree of protection against health costs.

The role of public assistance

The public assistance titles of the Social Security Act have done much to provide minimum subsistence to certain groups of the needy.

But as spokesmen for organized labor we cannot state too strongly that the public assistance approach is not a satisfactory solution to the medical needs of our members-and they constitute a very large part of the wage earners of this Nation.

Public assistance by its very nature is based on the means test. The States develop budgets which are considered enough to live on. These budgets often are very low, many are out of date, and in many places available funds do not permit maintenance of even the minimum standard. The level of living to which people must descend to receive public assistance is far below what most American workers consider acceptable.

Our older members are proud that through decades of hard work, they have acquired some life insurance, savings, and often a modest home. But they would largely have to forfeit or mortgage these fruits of a lifetime of labor before they could receive public help in most localities in paying for their medical bills.

Even if they were not barred, they would be subjected to an intensive inquiry into all their resources and sometimes into the ability of relatives to support them. Under the better programs, such inquiries are made sympathetically by well-trained workers. Not all agencies, however, carry out in practice the high standards set by leaders of the welfare professions.

Leaders of the AMA talk glibly of the opportunities for free care open to the "medically indigent." But people should not be forced by high medical bills to use up their savings and thus become "medically indigent." Nor should they be forced to undergo the means test which may be applied by public clinics or hospitals where care is theoretically available to them. Such care, moreover, is not always of a high quality.

The AFL-CIO favors extensive improvements in public assistance and in public medical care for persons who have no other way of obtaining it, but we do not consider these programs a substitute for social insurance. Our members want to obtain social insurance for the cost of medical care as a matter of right just as they are now receiving old-age and survivors benefits as a matter of right without application of the means test.

We know that in many communities leaders of the medical profession have become involved in attempting to improve medical care under public assistance or for other low-income people. We hope that in every community they will take responsibility for assuring that every one does have access to high-quality care no matter what his financial resources. But we realize that many shocking situations still continue.

We hope the doctors will also join with us in seeking to improve public assistance. To quote a spokesman for the Social Security Administration, "The provisions for meeting medical care costs for the needy are very uneven and in most States inadequate." (Jules H. Berman, Chief, Division of Program Standards and Development, Bureau of Public Assistance, at the first national conference on the health needs of the aged.)

Some States do not even attempt to pay for all types of medical care. Many exclude persons who are not residents. But even with substantial improvements, public assistance will still fail to provide payments as a matter of right.

SHORTCOMINGS OF PRIVATE INSURANCE

Private insurance has certain characteristics which inevitably will keep it from being an adequate form of protection against the health costs of the aged. This is true of all major forms, including the nonprofit varieties, such as Blue Cross and Blue Shield, and the commercial insurance policies based on individual or group membership.

Such nongovernmental policies can supplement insurance provided by the Federal Government just as private pension plans can supplement the Government-operated old-age and survivors insurance. But they cannot be expected to reach all aged persons who are entitled to live comfortably above the public assistance level nor can they provide enough protection to be an adequate cushion even to those covered.

The commercial insurance companies will doubtless give you a list of many different types of policies now available. They have yet to produce evidence that these policies are in fact being bought to an extent that results in widespread and comprehensive protection. Forecasts of growth by the Health Insurance Association ignore the vital issue of whether a few days of hospital care will be paid for or whether something substantial will be provided.

The percent of coverage used in the insurance industry forecasts results from disregarding important parts of the population. For example, it is assumed that the substantial proportion of the older people now receiving old-age assistance are not interested in private health insurance and therefore can be ignored. Not more than two out of five aged persons today have any form of health insurance protection, as the report of the Department of Health, Education, and Welfare shows. Much of that insurance is inadequate. Indeed, most of the aged who are counted as having health insurance have protection against only a fraction of the heavy medical costs they are likely to incur.

A relevant study of the experience of old-age beneficiaries in 1957 was made by the Social Security Administration. Of all those who incurred medical costs during the year, only 14 percent of the couples and 9 percent of the nonmarried persons had any of their medical expenses covered by insurance.

If a person has some income, that does not mean he has enough to live comfortably. Similarly, to report that he has some insurance protection does not mean that he has anything like enough to pay for extensive health care. Inadequacy of commercial insurance

Individual policies are inevitably expensive, partly because they must be handled individually. Each firm has its own sales force, its own records and staff, its own reserves, all of which must be paid for before profits can result. Total benefits paid in 1957 and in 1958 under individual accident and health insurance policies averaged less than one-half of premiums.

Commercial premiums are not related to earnings but are fixed regardless of income. Because they use more medical care, older persons are charged more than younger ones although their incomes are less. The resultant rates very frequently prove prohibitive. In addition many older persons are denied individual policies on the basis of medical examinations; existing conditions may be excluded temporarily or permanently and cancellations are still too

common.

During the past year, certain new types of policies have been widely advertised but they provide very restricted coverage at high cost. These plans may be as good as any that the private, commercial insurance carriers can evolve. But their best is not nearly good enough.

The

Continental Casualty flooded the airwaves and newspapers with advertising of a 65-plus policy. But the benefits offered are grossly limited. vast bulk of health expenditure is not covered at all by this insurance. The $10 maximum allowance per hospital day is about half the average hospital

room and board charged. A maximum of 31 days of hospital care is covered, although about 3 out of 10 hospitalizations in this age group are for more than 31 days. The maximum payment for "hospital extras" is $100, although such charges have become as expensive as room and board. There is no coverage for skilled nursing home care, home nursing or nonsurgical medical care.

Yet the charge currently is $6.50 per person per month for this scanty coverage. Each policyholder is expected to send in his monthly premium without benefit of a bill or any other sort of a reminder. If the monthly premium is not received by the end of the 10-day grace period, the policy automatically lapses and cannot be reinstated. Such a provision may save money for the company but creates much anxiety as well as actual lapses.

Although permiums cannot be raised individually under this 65-plus contract, subscribers have no protection against an annual statewide increase of premiums. Nor is there any guarantee against statewide cancellation of the plan.

A bare minimum of protection is accompanied by high premiums because the aged must bear all costs themselves.

Another much advertised scheme is that of Mutual of Omaha. It charges $8.50 a month for aged persons for slightly greater coverage, including some nursing benefits. But it suffers from the same inevitable defects.

Group insurance is the form of commercial policy most likely to be available to wage earners. But group insurance has reached only a small part of the aged. Only one-third of the 40 percent of the aged with some protection have this particular form; the remaining two-thirds have individual policies.

Group insurance is typically based upon place of employment, and employment ends upon retirement. True, some better-established unions have succeeded in extending health benefits to their retired members under group plans. Sometimes the employer continues to contribute toward the cost, sometimes the retired person has to pay it all himself, but benefits may be less extensive in either case. The insurance companies themselves reduce health protection for their own retired employees.

Even under the best union-bargained plans, health benefits are typically available to the retirees only if they have a record of continuous employment up to retirement age with the same employer or organization of employers. The person who has not been fortunate enough to have a regular employer, or who becomes disabled before age 65, or who loses his job for some reason or other, often finds himself without earnings, without group health insurance, and without any private pension rights.

In a period of rapid industrial change such as the present, even apparently well-established protection under private plans may disappear as plants and departments close down or smaller companies are bought by larger ones.

Wage earners in many unorganized establishments have no private pension rights or health benefits on retirement. Many such people would like to become union members and achieve greater security. We are eager to assist them. However, current antiunion propaganda and antilabor laws block their efforts and seriously impede the spread of group insurance. But even under the most favorable conditions, group insurance could not provide continuing protection for a large proportion of workers because it is based on place of employment. Anther inherent limitation is the fear of employers that they will be committing themselves to unforeseeable cost increases if they agree to reasonably comprehensive care into the indefinite future. Nearly all group insurance policies, even if they are extended to retired persons, have lifetime ceilings on total benefits payable. These ceilings are so low that all protection may be lost after one serious illness, and in the years thereafter the aged persons are left without any protection.

The major medical plan of the General Electric Co. has been praised by some people as a model. But even though the ceiling on lifetime benefits under this plan has been raised substantially, it is still $1,000 for a couple when a retired employee has 10 to 15 years of employment with the company. No couple can receive more than $1,500 in health benefits even after a lifetime of work for GE. In both cases, $500 worth of life insurance protection is lost if the full amount of health benefits is drawn. A person employed less than 10 years has no health protection when he retires from GE.

Knowing that his health insurance is so limited under this or any other plan, a retired employee naturally tries to husband the protection. If he has a symptom he thinks is minor, he will often stay away from the doctor just as if he

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