NATIONAL HEALTH INSURANCE

(Private Sector Role in American Health)

THURSDAY, JULY 17, 1975

U.S. HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON HEALTH, COMMITTEE ON WAYS AND MEANS, Washington, D.C.

The subcommittee met at 10:05 a.m., pursuant to notice, in the committee hearing room, Longworth House Office Building, Hon. Dan Rostenkowski, chairman of the subcommittee, presiding.

Mr. ROSTENKOWSKI. The Subcommittee on Health will come to order.

The Chair would like to make several announcements before we proceed to the panel discussion.

It is the intention of the Chair to work through lunch and adjourn the committee at 2 o'clock because we have to surrender the committee room to the full committee. And if the panelists will bear with us, we will undoubtedly be interrupted on one or two occasions with rollcalls or quorum calls. However, this should not discourage the conversation to continue principally because of the fact that your contributions are for the record so we can use it in our judgment at a future time with respect to writing national health insurance legislation.

I would like to welcome the panelists. I might say that to date our meetings with the panels have led to very informative discussions. We usually allow panelists to make an opening statement, but would like it as concise as possible.

After the concluding panelist makes his contribution, we will have a discussion among the panelists if there are any diverse views that someone would like to make. Then we would go to a discussion with the members of the subcommittee asking questions.

If the panelists would introduce themselves as they make their statements, we would appreciate it very much.

Mr. Herman Somers, you begin the discussion.

(181)

A PANEL CONSISTING OF HERMAN M. SOMERS, PROFESSOR OF POLITICS AND PUBLIC AFFAIRS, WOODROW WILSON SCHOOL OF PUBLIC AND INTERNATIONAL AFFAIRS; NATHAN J. STARK, PRESIDENT, UNIVERSITY HEALTH CENTER OF PITTSBURGH; ROBERT G. ENGLAND, M.D., CARLINVILLE, ILL.; LAWRENCE M. CATHLES, JR., RETIRED SENIOR VICE PRESIDENT, AETNA LIFE & CASUALTY; AND JOHN LARKIN THOMPSON, PRESIDENT, BLUE SHIELD OF MASSACHUSETTS

Mr. SOMERS. Thank you, Mr. Chairman.

I am Herman Somers. I have been working in the health field for some 25 years. I am a former member of the Health Insurance Benefits Advisory Committee and of the Advisory Council on Social Security. I was on President Kennedy's Task Force on Health and Social Security, and I have been a consultant to HEW for many years. I am on the board of trustees of the College of Medicine and Dentistry of New Jersey, and of Blue Cross of New Jersey, and the author of four books in the health field.

I have been asked to discuss briefly the role of the private sector. I will in these introductory remarks, for the sake of brevity, confine myself to generalizations and if anybody asks, I will be glad to develop them later.

Mr. ROSTENKOWSKI. Professor Somers, I might make the observation that your full testimony which you submitted will be entered into the record.

Mr. SOMERS. Thank you.

The boundaries between private and public sectors have become pretty murky. The distinctions present difficult definitional problems. The statistical data usually are not illuminating on the real relationships and can be quite misleading.

For example, of the $104 billion reported as the Nation's health expenditures for fiscal 1974, about 40 percent is shown as coming from public funds.

Such expenditure figures do tell us the source of funds, but they are not descriptive of the relative roles of the public and private sectors. Government, of course, typically purchases directly or indirectly from private providers the health care it finances.

The great bulk of Government payments is made to privately owned and operated institutions and privately practicing professionals. Even the Government payments themselves are in large measure funneled through private insurance instrumentalities.

Further, the private institutions, particularly hospitals, receive a variety of Government subsidies for construction, research, and other purposes. Thus, there is considerable ambiguity in the data.

When Government merely pays for services rendered by and controlled by private providers, should the figures present that phenomenon as public or private sector activity, or both? And how much should be attributed to each? In practice, the figures are often inconsistent.

Should we wish to complicate the matter further, we could note that a large portion of the private sector is represented by not-forprofit institutions of a quasi-public character. One could argue that

the nonprofit sectors should be classified as part of the private sector, or the public sector, depending on the emphasis given to the concepts of profit or nonprofit. Some have argued that we should really think and classify in three separate categories-Government, private profit, and private nonprofit.

In short, our health system is now a marble cake mix of a pluralistic multitude of enterprises; the private and public enterprise activity overlaps are great and clear distinctions usually are difficult, if not impossible, to make. This seems to trouble some people who believe in tidy packaging. I am not one of them.

The health care industry has been the subject of an increasing volume and range of criticism in recent years, due, I believe, primarily to the rapid inflation of costs and the uncertain access to adequate care by large segments of the population.

The growing discontent is not due to the things having become generally worse, however. On the contrary, I believe any objective appraisal would show there has been substantial improvement over the years. To a large extent the discontents reflect the higher standards of expectation.

For example, the problems of the poor are not new and certainly are smaller in relative volume than ever before, but unnecessary discriminations are now no longer morally acceptable. Or, of course sickness has long been a menacing hazard for the middle-income family, but it is now seen as an avoidable financial hazard given proper social organization.

The private sector has contributed substantially to these dissatisfactions, but paradoxically, I believe, it has not been primarily its errors and omissions that have done so, but rather its successes that have helped generate rising expectations.

By making more people acquainted with the wonders of modern medicine, by opening wider the door of access to care, and by making the public aware of what is potentially available through improved financial and organization mechanisms, it has greatly increased impatience with remaining barriers and inadequacies.

That is one of the reasons there is widespread agreement on the need for better and universal protection.

Since the private sector has been the most dominant and visible factor in the health field, it is natural that it would be the focal point of criticism. The inadequacies of private health insurance are many and real. But, if we examine the specific criticisms, we generally find that the faults are at least equally attributable to Government in an interactive process.

Mr. ROSTENKOWSKI. Professor Somers, on that note we will have to suspend 5 or 6 minutes to answer this quorum call.

We shall return.

Mr. SOMERS. All right. Thank you.

[Recess.]

Mr. COTTER [presiding]. I think we can resume now, Mr. Somers, if you would continue.

Mr. SOMERS. Thank you.

I was at that point saying that if we examine the specic criticisms of the private health insurance sector, we find that the faults are at least equally attributable to Government and it is an interactive.

process.

Some examples. First, until recent years the health insurance industry showed little interest in developing effective controls over costs of care or pressing for more effective professional control of quality.

They used to say that their charters were merely to act as fiduciary institutions and that their role was simply to apply the magic of averages to spread risks and to ease the burdens of payment. Thus the industry was providing increasing resources to underpin a system that was progressively less satisfactory.

But exactly the same condemnation could be made of Government and probably more sharply. Government also did little about quality control or containing costs. For example, when in 1965 the National Government undertook to finance medical care for millions of additional persons through medicare and medicaid, the same omissions. characterized those programs. Both private and public sectors were victims of knowledge lags which with the advantages of hindsight both now recognize.

Second, the fragmentation of insurance has contributed to the fragmentation of health services. Some of this was historical accident, some resulted from the obdurateness of the medical profession. The separation, for example, of Blue Cross, the hospital plan, from Blue Shield, the physicians' service, has obviously not contributed towards better integration of delivery of health services.

However, as late as 1965 when the insurance industry was beginning to move away from this pattern, Government adopted the same error in its major health insurance program, medicare, and set up two distinct financing and payment systems for the two types of services.

I have a list here of other examples which I will omit in the interest of time. The point of these simple examples is to suggest there are no automatic solutions to be found in doctrinaire formulas regarding preferability of public versus private operations.

Observers of the current debate on National Health Insurance can, however, readily perceive that the symbolism of old ideologies remain a potent force and may interfere with what ought to be a pragmatic search for answers in terms of workability and practicality.

On the one hand, we have proposals that would completely preclude any form of private participation in financing or administration. On the other hand, we have proposals such as the old administrationNixon-plan which, in order to avoid Government financing, abandons the major objectives of National Health Insurance. Years of intensive effort by some very bright young men at HEW demonstrates that it is not possible to achieve universal coverage and to avoid means tests under a mandating program.

Both approaches seem to me to pay more obeisance to so-called principles than to realities of finance and administration. The fact is that for the vast task at hand we need the resources and special strengths of both Government and the private sector and they need each other. Our best protection against inadequate public accountability-of which we have seen a great deal recently-lies in diversity, a spreading of functions and power centers.

Historically, Government has been most effective at picking up and advancing ideas and programs that have started elsewhere and won support, or that need assistance against sluggish responses in the pri

vate sector.