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 ant union 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

had no protection at all. Thus the desirable goal of early diagnosis with preventive care is frustrated.

Blue Cross and Blue Shield

The voluntary nonprofit prepayment plans, especially Blue Cross and Blue Shield, have enabled part of the population to obtain a certain amount of insurance for the costs of medical care. Our unions have frequently cooperated in securing the services of these plans to carry out the gains obtained from collective bargaining.

Blue Cross and Blue Shield have proved very useful to many people. Some of the plans offer broad protection, and some have made great efforts to cover aged workers.

However, an outstanding feature of Blue Cross and Blue Shield plans is that they cannot, under the State laws which guide their functioning, let people pay during their working years for care during their old age. Premiums must be collected currently. They cannot be related to income.

The Blue Cross groups have generally attempted to maintain community rates, identical for all groups in the community regardless of their actual experience with medical costs. Since the aged require perhaps 2 or 21⁄2 times as much hospitalization as other people, coverage of the aged adds disproportionately to costs. Unless special rates or reduced benefits are arranged for the aged, the younger groups covered must help bear the extra expense.

The commercial insurance companies operate on the basis of experience rating, offering lower premiums for groups with lower costs. This permits the profitmaking companies to underbid Blue Cross and Blue Shield when the latter maintain a community rate. Some Blue Cross plans are turning to experience rating in self-defense, even though they do not like it.

If present trends continue, the voluntary nonprofit plans will be left with a high-risk membership, including the aged, with the aged being compelled to bear most of the full cost of their own high-risk experience.

A useful analysis entitled "Blue Cross Provisions for Persons Aged 65 and Over, Late 1958," was published on March 12, 1959, by the Division of Program Research of the Social Security Administration. This analysis shows that in 1958 alone 29 of the 78 Blue Cross plans increased their premiums. Under group contracts, the median annual premium was $30 per person, with a range from $16.20 to $70.80. For persons who had left employment or who entered into a nongroup contract the median charge was $42; and the highest charge was $87 or $88 per person. Thus even limited hospitalization protection alone is not easy to buy out of a low income.

Some of the plans offered very limited protection. Only 11 of the 78 had no age limit for nongroup enrollment. Only 5 permitted nongroup enrollment after age 65.

We have already referred to the effort of the American Medical Association to increase the use of Blue Shield plans by asking doctors to cut their fees. The AMA has also asked doctors to accept Blue Shield payments as full payment without billing the patients in addition. These efforts, so far as we have been able to ascertain, have not resulted in a great increase in coverage of the aged under Blue Shield. As the article in Medical Economics by an Iowa doctor indicates, doctors do not like to treat people at fees below cost, especially when these reduced fees might establish a precedent for welfare payments or Federal fee schedules. ("Doctors Can't Beat the Forand Bill" by Harold J. Peggs, M.D., in Medical Economics, April 27, 1959, p. 199).

The private insurance plans, whether nonprofit or commercial, have the inherent disadvantage of relying upon current payments by the aged themselves to give them coverage. Even where some departure from this approach is attempted, as through policies paid up at age 65, the resultant costs are so high that protection is too limited and most aged persons are left under the ever-present risk of heavy medical bills which will sap their modest resources.

INHERENT ADVANTAGES OF THE FEDERAL OASDI SYSTEM

For the aged and other groups covered by old-age, survivors and disability insurance, the addition of health benefits to that program would have clearcut advantages.

1. After retirement (or, for mothers, after the husbands' death), there would be no charge whatever. Contributions during years of earnings would establish the right to the new benefits as well as to those already incorporated in the pro

gram. This is an essential difference from private insurance, a difference that cannot be overcome by the latter.

2. The bill would provide lasting protection which could not be canceled or lost because of nonpayment of premiums or the application of lifetime ceilings. A woman at age 62 or a man at age 65 would receive paid-up protection for life. Not all medical costs would be covered, but even maximum use of the benefits during 1 year would not be counted against the benefit rights in later years. 3. The Federal OASDI program can provide almost universal coverage, including persons already retired as well as 9 out of 10 persons now employed. It can give the greatest protection for the lowest cost because of its alreadyestablished and efficient machinery. While some persons like to contrast what they call "voluntary" with alleged compulsory protection under OASDI, much so-called voluntary coverage is in fact what in other circumstances they would term compulsory. The essential characteristic is that of group action based on a group decision. Only the Federal program embraces a broad enough group to provide the widespread and continuing protection that results from its automatic application to nearly all kinds of work.

4. Unlike public assistance, the Federal program pays benefits as a matter of right without a means test. The medical care that is covered would be paid for before persons have used up their savings or other resources and without searching questions which might damage their self-respect at a time of great anxiety.

Important social effects would flow from the enactment of such a bill as H.R. 4700.

1. It would ease the financial problems of hospitals by providing payment for much of the care that now they must give to charity cases without charge or at rates far below cost. Even though public-welfare payments to hospitals have been increased in many areas, they often do not cover actual expanses. Insofar as a hospital now transfers the cost of free care or partly paid care to paying patients, its rates could correspondingly be reduced.

2. Blue Cross plans would be relieved of a high-cost load and therefore could hold down their rates and compete more effectively with commercial insurance plans. Far from damaging Blue Cross and Blue Shield, enactment of the Forand bill might prove their lifesaver.

3. Insofar as the proposal would make it unnecessary for individuals to turn to public assistance and private charity, it would relieve private welfare organizations and Government agencies of a welfare load now financed by taxpayers or donations. Through substituting social insurance for public assistance, it would work in the direction preferred by the Congress.

4. The bill would accelerate action to increase the supply of medical personnel and facilities required to make good care available to everybody. With an assured market for skilled nursing care, for example, the supply of nursing homes would quickly increase.

5. The measure would force greater attention by the medical professions and the community to present lags in quality and kind of care. Commercial insurance plans are not concerned with quality. Today many people are victims of inadequate care which the insurance companies will pay for but which does not restore health or independence.

MAJOR FEATURES OF THE PROPOSAL

H.R. 4700 as introduced by Congressman Forand this year is virtually identical with the health benefits provisions of the bill he sponsored in 1957. The AFL-CIO endorsed the approach of that bill at its 1957 convention, and our executive council supported H.R. 4700 in a statement adopted February 19, 1959. We would like to have the convention resolution, the executive council statement, and a summary of H.R. 4700 inserted in the record at the conclusion of this statement.

Your committee will undoubtedly wish to consider various alternatives that may be proposed to you, including some that are analyzed in the DHEW report. Alternative arrangements are possible for meeting important medical costs of the aged and other beneficiaries and at the same time encouraging high-quality care directed to a speedy return to health-and customary patterns of living.

Hospital care is already provided under many existing Government and pri vate insurance programs. It forms a substantial portion of all medical cost

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although drugs, diagnostic care, skilled nursing care, and home nursing are also important.

The method by which the Forand bill would cover hospital costs will illustrate how the old-age and survivors insurance system might be utilized for additional forms of benefits, either skilled nursing home care and surgical services, as in the Forand bill, or other benefits which the committee might want to include. Eligibility would depend upon earnings in employments covered under old-age, survivors, and disability insurance. Present records of OASDI earnings would be used for this purpose. Upon entering a hospital, an aged patient would presumably show an OASDI card and would therefore not have to make any payments or prove his financial responsibility.

Persons once eligible would not lose coverage rights if they moved to a different State or if they severed all connection with their former employers, as under many private plans.

Up to 60 days of hospital care would be paid for in each 12-month period. Such hospital care would include a semiprivate room and all the hospital services, medical care, drugs and appliances which the hospital customarily furnishes its bed patients. A person would be admitted to the hospital only on his physician's referral, as under individual or group plans. The patient would be covered for care rendered by any qualified institution participating in the program.

Each hospital would decide whether it wished to enter into the program and accordingly negotiate an agreement to receive payment for services rendered. Under the bill as written, the hospital could not charge the patient additional amounts for the services paid for by the insurance program. The amount of payment per day of care would be worked out with each hospital according to patterns already developed under existing private and governmental programs or according to improved methods that might be agreed upon. All hospital expenses connected with the care of the OASDI patients would be met in full, unlike common practices under public assistance programs.

The Government would not itself run the hospitals nor dictate the details of their administration. It might well require that certain standards be met, as suggested in the bill and outlined further below.

Costs and financing

The funds to meet approved costs would be provided through additional contributions to the old-age and survivors insurance trust fund. The bill provides for additional contributions on taxable payrolls (one-fourth percent additional each for employers and employees and three-eighths percent for the selfemployed) following established patterns. For a person with earnings up to the taxable maximum of $4,800, one-fourth percent additional would equal $12 a year. Persons with low earnings would pay proportionately less. The selfemployed would pay at most $18 a year. This is not much to contribute toward important medical care insurance for oneself, aged relatives, or potential survivors.

With total taxable payrolls equaling above $200 billion a year, the proposed increase in contributions would yield upward of $1 billion a year. The DHEW report estimates that health benefits of 60 days for the aged and survivors would cost about $900 million in 1960. Skilled nursing benefits would partly offset the cost of hospital care so that their net cost is estimated as negligible at the outset. The DHEW report does not estimate the cost of benefits that would pay for other types of care. An earlier report by DHEW, which we introduced in the 1958 hearings, estimated that surgical benefits would cost less than $100 million a year for the aged and survivors. Even if such benefits now might be estimated at double that amount, the total coverage proposed by H.R. 4700 would cost not much above $1 billion for each of the next few years.

For the long run the DHEW report estimates a somewhat higher cost as related to taxable payrolls, namely about two-thirds of 1 percent. The probable cost of health benefits is thus well within the range of other benefits your committee has recommended and Congress has approved. Even the estimating problems, difficult though they are, are not immeasurably greater. A Federal program, with the great advantages of size and flexibility, can undertake without undue risks to give with few exceptions to all the American people an assurance that health benefits for the aged will be paid for in the future.