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The inception of the medicare program in 1966 was the culmination of a great deal of work begun many legislative sessions prior to actual enactment. Indeed, the idea of providing some form of health care to all U.S. citizens—or a portion thereof—is by no means new. It dates from the early 19th century. It was during the medicare debate, however, that the issue was raised as to who or what within the established system was best qualified to provide and/or administer the program.

The congressional decision to include the private sector in the medicare program was both a practical and a political concession that strongly influenced passage. However, consider the alternatives. The Social Security Administration in 1966 had a wealth of experience dealing with social welfare programs with relatively few variablesunemployment security, old age and disability benefits, et cetera. These programs did in no way begin to approach the complexity of any type of medical assistance, however narrowly conceived. Imagine replacing a system of private insurers already on line and doing the same kind of things needed by the medicare program with a super SSA bureaucracy headquartered in every State. The numbers of employees necessary, plus the costs of wiping out one system to replace it with another are staggering.

It is amusing to note that one of the strongest arguments against utilizing private carriers for medicare, was in reality the one that is probably the best reason for utilizing the system in place. Unlike the defense industry, where the subcontractor is asked to produce hardware or tangible commodities, a subcontractor providing human services is asked to provide something intangible and indeed something which has to be subject to the strictest delicacy and sophistication in the way it is provided. Since this type of service subcontracting had never been tried, many people were legitimately concerned that these considerations would be overlooked, should the Government not retain direct control.

Turning this argument in on itself, the insurers, Blue Cross-Blue Shield and commercial companies had been dealing with human health issues since their inception; providing good and timely service to their publics in every area from collecting premiums, paying benefits, answering questions and providing consumer education. Those talents represented a known health care asset which was in even greater need when the time for the implementation of medicare arrived and such is the case today.

From an administrative standpoint, medicare represents a very interesting marriage of the private sector already in place with the regulatory and financial functions of Government. This is not to say that problems don't exist, because they do. Considering the population to be served and the sources of the funds, this marriage seems to come closest to satisfying most of the obvious needs. The Government retains a regulatory function while at the same time providing benefits to the public through existing organizations.

As the debate over National Health Insurance continues, this committee will at some point have to determine whether the private sector possesses those management and organizational characteristics required to make the system function on a basis responsive to public

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need. That system will represent approximately 10 percent of this country's gross national product with an administrative cost alone that could reach $8 billion annually, and an administrative force of up to 700,000 employees. Some excellent insights into that choice can be found in two significant studies of the private-government relationship within medicare today.

The first report was by the National Academy of Public Administration and the second was from the Advisory Committee to the Secretary of Health, Education, and Welfare, otherwise known as the so-called Perkins report. Both of these documents while pointing out inadequacies in the medicare system, point out that private sector participation has worked. More attention to goals and standards by the Government, while at the same time allowing their contractors to actually manage their commitments would produce additional efficiency in the system, both reports noted.

Clearly, there is a role for the private insurers within any health care system. And that they will have a role should be a foregone conclusion. The medicare experience is very persuasive on the issue of private sector management and I would urge the members of the committee to review personally each of the mentioned reports. Obviously, the debate over private sector involvement will continue, but I believe it to be imperative for the committee to see that debate not in the perspective of the Government's desire to continually expand in numbers and services but rather as to which entity can provide services to the public on the most cost-efficient basis.

One aspect of this debate deserves special mention and that is the allegation that the current system generates an exorbitant marketing cost which provides little or no actual benefit to the public. Based on our experience in Massachusetts, it is apparent that there exists substantial misunderstanding as to what is a marketing cost. Our marketing area is not only a sales area per se, it also provides all the direct service functions associated with health insurance. On an employee basis; of a total of 392,318 or 81 percent are directly engaged in service, 56 or 14 percent are categorized as sales and 18 individuals or 5 percent are performing management functions.

In addition, let us define further the 56 who are involved in sales. Fully 80 percent of their time is spent in activities characterized as service; including contract renewal and consulting with established accounts. This consulting is in the areas of upgrading health benefits to maintain or improve the level of protection and to assure the most adequate means of financing the plan.

In terms of dollars expended by us in Massachusetts, the marketing effort cost approximately $5.3 million per year, of which only $251,000 or 0.4 percent would be identified as acquisition cost while the remainder is customer or public service cost which will continue regardless of National Health Insurance.

The same is true of advertising expenditures where the overwhelming percentage of cost is devoted to subscriber education typical of which is the exhibit attached to my statement, which portravs an education program recently run in the media throughout the State.

The exhibit follows:]

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Rising health care costs, whether we like to admit it or not, are everybody's problem.

Doctors, patients, hospitals.
We're concerned.

And at Blue Cross and Blue Shield of Massachusetts, we're trying to do something about it.

The advertising campaign you're about to see unfold in the next few pages is just one small thing we're doing.

Hundreds of thousands of people, including doctors, patients, and hospital administrators, will see it.

Our intent is simply to dramatize a very real problem.

We're all part of the solution.

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