INADEQUATE DATA ON CUSTOMARY CHARGES

Senator ANDERSON. The provision tightening up medicare patients to doctors, the provision in the House bill, uses calendar year 1969 prevailing charges as the base period. Our staff reported that many carriers had and some still have inadequate data on charges. Do you disagree with the findings of the staff on that point?

Mr. VENEMAN. Mr. Tom Tierney, Mr. Chairman.

Mr. TIERNEY. Senator, the House bill would establish as a base year calendar year 1969, as you stated. In the year 1968, referred to at the last hearings before the committee, it was substantially true that some carriers did not have adequate charge data on customary charges. With only one or two exceptions, we think there is adequate data on 1969 customary charges to use as a base period for future computations. I know of a couple of carriers who would not have full year data on all categories of charges, but we think that there is a sufficient mass of data in every one of the carriers now upon which to predicate future

increases.

Senator ANDERSON. Thank you.

In the event the committee wanted to consider agreeing to the House provision, would you be willing to certify in writing to the committee that for each carrier area, the medicare 1969 prevailing charge data are properly constructed and are based upon comprehensive data on charges to the total population in each carrier area?

Mr. VENEMAN. I will let Mr. Tierney respond there. I think the way the question is phrased would require probably a great deal of research, Senator.

Mr. TIERNEY. I think, as the Secretary implies, before we make such a certification, we would want to take a long look, Senator Anderson. Your question is whether there is a comprehensive assemblage of data on all charges to the entire population, and I am not sure we would be able to certify that there is in every case. We do know that there is a total compilation of charges that were accumulated in 1969 to medicare beneficiaries. But I would not say to you, sir, that we could provide an absolute guarantee of a total assemblage of all charge data for all people in the States. I agree with Mr. Veneman that we would have to study that.

Senator ANDERSON. Thank you, Mr. Chairman.

Senator BENNETT. Mr. Chairman, may I have a question or two? The CHAIRMAN. Senator Bennett.

POSSIBILITY OF LIBERALIZING ELIGIBILITY REQUIREMENTS FOR MEDICARE

Senator BENNETT. I understand that the House bill contains a provision permitting uninsured persons 65 years of age or over to buy into medicare at cost, presently estimated at $27 per month. Now, there are many medicare beneficiaries over age 65 whose spouses under 65 have great difficulty in securing health insurance. It would seem to me that if you are going to be willing to permit people over 65 to pay a fee and get the benefit of medicare, maybe the same option could be extended to the spouses of individuals who qualify for medicare. You would probably have to put a lower age limit on that-maybe 60. And it is my understanding that because they are obviously younger than those

people over 65 who might buy medicare, their actual cost of serving them would be less than the $27 a month that is proposed to be charged to permit people over 65 to apply. Would you consider an amendment that might produce that kind of result?

Mr. BALL. Senator, you have unquestionably put your finger on a very difficult situation in the present setup. Where in the past there frequently were policies that covered the man over 65 and his wife, the existence of medicare has very often

Senator BENNETT. Has destroyed this private insurance, that is right.

Mr. BALL (continuing). Has very often made it difficult or impossible now for the wife to get coverage. I am sure we would be very glad to consider the desirability of an amendment along the lines that you are suggesting. I am not prepared right today to see all the angles of it, but you certainly have identified a real problem and we would like to work with you on a possible solution.

Senator BENNETT. I would appreciate that. I assume that by the time the hearings end or before we meet to try to write the bill up, you can have a specific suggestion for us?

Mr. BALL. Yes. It would not necessarily follow that the rate would be less, but we will take that into account. The point you make is a valid one, but there are other factors that I think we have led our actuaries to think there might be some antiselection in the group between 65 and 60 who would take advantage of this. There would be some advantage

Senator BENNETT. There is antiselection in the group above 65. They are still free to select or not to select.

Mr. BALL. Yes, but almost all of them have no other opportunity to buy protection.

Senator BENNETT. Well, a man over 65, a male spouse over 65, and a large percentage of those are retired, is going to find it very difficult to get any kind of insurance (a) to find any kind at all, and (b) any kind that he can afford to pay for. So I would think the negative selection would be very low in that group.

Well, work on it and see what you can come up with.
Mr. BALL. I shall be glad to, sir.

PROSPECTIVE REIMBURSEMENT

Senator BENNETT. We understand that hospitals are in favor of prospective reimbursement, which you advocate. Is it your impression that they would receive more or less money under prospective reimbursement compared to the present method, or about the same?

Mr. BALL. Senator, I feel and the administration feels that over time, the prospective rate approach will encourage economy and efficiencies in the operation of hospitals so that it would be possible for them to get full reimbursement and yet have a lower total amount paid out than would be true under the present approach.

Now, I am sure that the hospitals, in looking at prospective rates, will be arguing for the inclusion in those initial prospective rates of everything possible, and we on the other hand, in the protection of the Government interest, will not be agreeing with some of the things that they will be pressing for.

But what is important about this proposal, I believe, is not so much the first year's rate but rather to move a system where the ingenuity of the managers of hospitals throughout the country is challenged to get under those rates that year and the next year, because their hos pitals will benefit from savings. The present approach of saying we will reimburse whatever costs you come up with, as long as they are reasonable, on a retroactive basis, does not seem to me to hold any hope for engaging their interest in economy and efficiency such as this prospective rate has. So I would say in total and over time, we would expect to pay out substantially less under a prospective rate approach than under the present retroactive cost reimbursement approach.

Senator BENNETT. It would also greatly simplify the bookkeeping and the control, the operation of the relations between the agency and the hospital, would it not?

Mr. BALL. It depends, Senator. I would hope it would have that effect significantly. It, of course, depends on the exact terms of arriving at these prospective rates. I do believe you are going to have to star from a basis of their past costs, so much of what is required today would continue to be required. But I think there are simplifications that can be worked out.

Mr. VENEMAN. I believe, Senator, that Mr. Ball has really put his finger on the motivation for recommending prospective reimburse ment. I do not think we can anticipate a major first year saving. Bu it certainly should have the effect of reducing the costs as the years g by, because the incentive is in the right place. The incentive is, once you determine payment in advance, to save costs. If a person can leav a hospital one day earlier, the motivation is to move him out. At the present time, you just pay him for it. I think the extra benefit of thi that perhaps we are not really looking at is-in addition to the po tential saving that we may have to public funds, because of putting the initiative and the incentive on the right side-the effect the proposa would have on the general public that is paying their own hospita bill. Because the more efficiently and effectively a hospital is operated to that extent, everybody benefits.

Mr. BALL. There is one aspect of this, Senator, that perhaps neithe of us has brought out. It is not only inventives to economy and effi ciency of operation as we have indicated, but a built-in resistanceas compared with the present approach-to the addition of service during the course of a year and to going along with pressures for in creases in wages and salaries during the course of the year. I do no know any other part of economic life where there are as few restraint as there are in the hospital area where the Government is paying abou half the cost on the basis of saying, after the fact, we will pick up those costs, rather than saying ahead of time, we want to know wha the situation is.

Senator BENNETT. Do you have a program for reviewing those rate periodically? You say there is an incentive for the hospital to get it costs down under your rates. Are you going to review them so that i they presumably make significant reductions in cost, they can be re flected in significant reductions in the prospective rates?

Mr. BALL. Absolutely, Senator. That is the idea.

Senator BENNETT. You are going to have a lot of fun developing type of arm's-length negotiation which will enable you to bargain with the hospitals. You are already having that problem now.

Mr. VENEMAN. We have the problem now, Senator. We just have to refine our ways of handling it.

TAXABLE EARNINGS BASE

Senator BENNETT. When we enacted medicare, we insisted on assuming that for purposes of hospital insurance, the taxable earning base would remain unchanged during the period of the estimate. The reason for this conservative assumption was to provide a margin of safety in the event of adverse financial experience with medicare. Now I see that this safeguard has been removed in the House report and after 5 straight years of unfavorable hospital insurance experience, is this a wise decision as a base for making future estimates?

Mr. BALL. Senator, the bill, of course, as it was amended on the floor of the House to include the President's recommendation, provides for actually writing into the law automatic increases in the earnings base. Consequently, under those circumstances, I would not think there would be any doubt but that you should take into account the actual provisions of the law.

Now, it is true that the trustees of the hospital insurance fund and the House Ways and Means Committee, as well as the Social Security Administration, feel that even without writing those provisions into the law, the performance of the Congress in keeping this wage base up to date since 1950, and the grave consequences to the cash benefit program that would exist if you had rising wages but did not raise that base, are sufficient reasons to assume that the maximum earnings base would continue to be kept roughly in line with what it was in the early 1950's as it has in the past.

Now, I think I would have the same sort of doubts that you are expressing if it were not for the fact that out of the experience with the hospital insurance program now in actual operation have come fundamental revisions in the cost estimates which, as you know, show much higher costs than originally estimated. And with those increased costs based on experience rather than the earlier speculation, I think we are in an entirely different position and can afford now to make this assumption.

Senator BENNETT. You will maintain the wage base, but change the tax rate?

Mr. BALL. No; the wage base is assumed under the estimates to rise as wages rise.

Senator BENNETT. I see.

Mr. VENEMAN. The tax rate proposed in the administration's proposal is to remain at 1 percent.

Senator BENNETT. The tax rate remains, but you would change the base?

Mr. BALL. As wages go up, the earnings base would go up automatically, under the President's proposal.

Senator BENNETT. Thank you.

No other questions, Mr. Chairman, at this time.

The CHAIRMAN. Thank you. I would like to ask a few questions here. that I have been withholding so others could have their turn.

HOSPITAL INSURANCE COST ESTIMATES

At the February hearing on the staff report, both the Department and the committee expressed at length their mutual concern over the validity of the hospital insurance cost estimates. You indicated that an actuarial task force had been appointed to review those estimates. Are the costs and financial assumptions in this bill based upon the estimates we both criticized in February, or are they based on the work of the task force?

Mr. VENEMAN. These are based, Mr. Chairman, upon the actuarial estimates that you had in January. As I indicated earlier, the task force is due to meet again in September. Whether or not they will have their report at that time, I cannot respond, but I have agreed to look into it.

Mr. BALL. Mr. Chairman

The CHAIRMAN. Then if I understand it, these estimates are of the same sort that we criticized very severely.

Mr. BALL. Mr. Chairman, I do not believe that is correct. The criticism that the committee had was of the rapid increase in the cost estimates the fact that they had been changing over time. I do not believe there was specific criticism of the new assumptions in the cost estimates that are involved in this February document. I should make clear, too. that this outside task force has not been charged with the job of making the estimates. They have been charged with the job of examining the reasonableness of the assumptions that the actuaries have made. That is what they are going into now very thoroughly.

In the meantime, these are the latest cost estimates. They have been greatly increased, as you know, over previous estimates, and I think you can have a lot of confidence that they are high enough.

The CHAIRMAN. Well, here is what we were told about this matter by Mr. Butler in February. He said that group will be reviewing the estimates of both the medicaid title XIX and medicare programs, and we will hope to report to the committee at a later date what develops from their deliberations. Now, it was my impression that we were to have better and more firm estimates upon which these large additional taxes were to be based. That makes me wonder whether we are justified in going ahead and imposing these new taxes unless we have the benefit of these new estimates and whatever additional advice they can give us on this subject. What's your thought about it?

Mr. BALL. My thought, Senator, is that I have a great deal of confidence in these new actuarial cost estimates that were discussed with the committee in February. I know nothing from preliminary discussions with any outside groups that give me concern on this matter. But to be absolutely safe and to be sure that they were not too high or too low, we have asked this outside group to examine these assumptions which our actuaries are explaining to them and they are going over them. We will have a report from them giving their views on these assumptions in September.

As the Secretary indicated earlier, he is willing to consider whether that could be speeded up a little.

Mr. VENEMAN. And I think that is a key point, Senator. I think that perhaps what Mr. Butler was alluding to is that we would have this group look into the assumptions upon which the benefit level was