Congress. I would have a full congressional review by this committee over what happened in that year before any gigantic new hospital, or physicians' benefits went into effect. You ought to take another look at the situation after you enacted the law within 1 year to see if you made any mistakes. I can tell you right now you are going to make mistakes. It is not possible in this whole health field to design ahead of time a program that takes into account every kind of way that a physician, or hospital, or nursing home, or any patient, or provider can abuse it. The ingenuity of the American public is such that they are able to circumvent any kind of law passed by the House Ways and Means Committee.

Therefore, I would say review it after a year or 18 months. See if you are on the right track. See where you need to modify anything in the way the Board and its staff have handled the three or four big things that have been undertaken. Then, when you have done that, extend the coverage of physician's service for the entire population by whatever program you are going to have. But I would say this, Mr. Chairman, for maternity and children, do not have any coinsurance or deductible. If you are going to have a deductible or coinsurance for adults, it is an arguable point and some of my friends are against it and some of my friends are for it, and as you gentlemen on this committee know you always stay with your friends. But as far as maternity and children are concerned, I see no reason why the argument about overutiliaztion or abuse need to apply. I would think that every kind of service that can reasonably be given to a mother or to a child could hardly be classed as overutilization or abuse.

Therefore, I would urge you to have physician's services apply with no coinsurance, no deductibles for maternity insurance and possibly to be conservative for children up to 6. Concentrate on what you can do best, what will be a success, what people won't be criticizing Congressmen for.

Then, after that, maybe 6 months or a year later and only at that time would I extend the coverage to hospital services because no matter how much preparation you are going to have, as these other gentlemen said, hospital costs are going to continue to rise. Utilization will continue to rise. Costs will continue to rise in the system. There is no earthly way you ladies and gentlemen of the Congress can keep those costs from rising except to some modest proportion, simply because the pressure of demand against the supply in the short run and for the labor-intensive elements in the system will constantly push prices up at least to the regular cost-of-living increase and possibly 25 to 30 percent more.

So, I would be very careful about the hospital service extension. I would only put that into effect after I had had a sufficient period of preparation for it. No matter when you put it into effect, some people are going to wait for elective surgery to utilize their insurance. You cannot avoid that unless you mysteriously are going to declare the effective date 5 minutes before it happens so nobody knows when it will go into effect. Once you tell any physician, any consumer 6 months from now hospital services are going to go into effect without any payment of a ory costs, elective surgery during that period is going to be postponed for nearly everybody who does not have complete insurance coverage.

As I said before, Mr. Chairman, put that into effect around July 1st when all the doctors are going to go on vacation, and your amount of elective surgery will not be as high immediately as it otherwise would. Then I would go on and put provisions for experimental arrangements for long-term care including skilled nursing home care, intermediate care and home care into effect.

My review of the literature on long term care is that nobody has yet produced a viable, workable system for long-term care. Certainly, the abuses that have been shown in New York and other States in the nursing home area would lead me to believe you should be very, very careful about what you do about long-term care. I believe long-term care is vitally necessary in a comprehensive program. I think it is of great importance. I think it will grow. I think that there are twice as many people in nursing homes that ought to be in nursing homes because of the failure to have other kinds of adequate at-home facilities, but I see no solution to that problem as long as we don't have the home health services and other housing arrangements that make it feasible.

So, if you start a long term care program into national health insurance, you will put more people into nursing homes at a cost that will be phenomenal. Be careful; be cautious; work out some experimental conditions along the line that Mr. Conable proposed in his version of the bill and see whether that can be workable.

Then, in my sequence of events I would have a second annual review by the Congress of whether the physicians and hospital services had worked. I would study that and I would see if any changes would be necessary. After that, I would then convert the medicaid program into a federally administered low income program. I would take the States completely out of the financing of medicaid, turn it over to a low income determined program, somewhat along the lines of what was in the Long-Ribicoff-Waggonner bill, but also somewhat along the lines of Mr. Schneebeli's bill of a couple of years ago-an income determined program fused directly into the total program, the Federal Government paying the costs and getting that cost off the back of the States.

Then I would go and start on dental care for children, starting with children under the age of 6. Three years after the initial law is passed I would extend the prescription of maintenance drugs to the entire population. Then I would revise the long term care programs with the adoption of any approaches that had been brought about by the experimental provisions, have a third year-review and then continue improvement of the dental care.

As you can see, members of the committee, it seems to me to have a comprehensive program you must go anywhere from 24 to 48 months of step-by-step implementation of any benefits.

On the basis of my own experience as the administrator of the medicare and medicaid program, I urge you very strongly to consider some method of sequential development of the benefit structure rather than putting these into effect entirely.

I have tried to outline some of these considerations much more substantially in my full statement which will go in the record and I would be pleased to expound on any of those points in the discussion.

[The statement follows:]

CRITICAL POLICY ISSUES IN PLANNING FOR NATIONAL HEALTH INSURANCE

(By Wilbur J. Cohen)

INTRODUCTION

Although public discussion of health insurance on a state-by-state basis began to develop in the United States during the period 1910-1920, it was not until. about the early 1940s that the first significant national health insurance billwas introduced into the Congress (the Wagner-Murray-Dingell Bill, 1943).

From 1945-65, with the stimulation rising from the political threat of federal legislative action on health insurance in the prior period, 1935-45, and the economic impact of wage and salary controls in World War II and the Korean War (1950-1), private and commercial health insurance plans (Blue Cross, Blue Shield, and commercial) began to expand their coverage.

The Quantum Leap. The first presidential message on health was issued in November 1945 by President Harry S Truman. During the post-war period which followed, government action occurred at the national level in various health and medical areas (Hill-Burton hospital construction, 1946; public welfare medical assistance, 1950-65, especially the Kerr-Mills medical assistance bill for the aged, 1960; and disability insurance, 1956. These diverse developments culminated in the enactment by Congress of Medicare and Medicaid and the coverage of physicians under social security in 1965; the Professional Standards Review Organization legislation in 1971, and the National Health Planning and Resources Development Act in 1975.

The Medicare legislation of 1965 altered the entire nature of the public policy discussion with respect to the financing, organization, delivery, and reimbursement of medical services. An ideological "Rubicon" was crossed in a quantum leap which precipitated nationwide acceptance not only of the general idea of national health insurance but also of proposals for the reorganization of the health delivery system and changes in the methods of insurance reimbursement for physicians and hospitals.

Discarding the Extremes. Although the detailed outlines of the health insurance plan that is likely to develop in the future still remains shrouded in mystery as this analysis is written, it is very probable that public policy in the immediate years ahead will discard two specific approaches. The first is exclusive reliance on the private voluntary insurance mechanism for an adequate handling of all responsibilities related to costs, controls, and the availability and effective delivery of care. The other is complete reliance on a public medical service approach-such as Great Britain, the Soviet Union, and several other countries employ-in which the costs are financed wholly or largely out of general revenues and reimbursement of physicials is not on a fee-for-service basis.

A Mixed System. The provisions of the various health insurance proposals introduced in Congress in recent years not only tend to support this "dual discard" contention but also indicate that in the United States some kind of a "mixed system" will very likely evolve, at least initially, utilizing both the public and private sectors. Probably the evolution will proceed on some kind of disjointed incremental basis, with due regard for pragmatic considerations because of the diversity of the economic, political and social forces at work in connection with the American medical care system. Thus, while the experience of other countries is of interest, it is most likely that the United States will diverge from the patterns of other countries.

The allocation of public and private responsibilities in any new and broader national health insurance legislation could take the form incorporated in the Medicare program: public financing through payroll contributions and general revenues, but with use of private agencies as "payment" agencies, not as financial "insuring" mechanisms. In other words, the federal government would perform the "insuring" function; the private agencies would perform the payment function under the conditions specified by Congress in the federal law. This would be the most efficient and effective approach utilizing a tried-and-tested model. Incremental Coverage. The incremental evolution of future American health and medical care coverage seems less clear in view of the many possible ways of handling key policy and management problems. One incremental step which has been suggested is the initial coverage of catastrophic medical care costs along the

lines of major medical insurance coverage (such as the Long-Ribicoff bill); another is the comprehensive coverage of all maternity costs, and the coverage of all children (up to age 6, 12, or 18). These two elements could be joined into various combinations of coverage and costs, including reduction of the age for Medicare from 65 to 62 or 60. The major point, however, is that there are various means of arriving at comprehensive coverage over a period of time.

Sources of Financing. The financing of medical costs will continue to be an issue on which there will also be considerable difference of opinion, although there appears to be widespread acceptance that the employer should pay for his employees a major portion of the cost as a wage supplement. The acceptance of this principle represents a significant change in both employer and public opinion over the past 30 years. Employers were originally of the opinion that they should finance only a small portion of the total cost of health protection for their employees and families, but as a result of collective bargaining this attitude has changed. It is now widely accepted that employers should contribute two-thirds to three-fourths of the cost of comprehensive medical care coverage since among other factors they can deduct all such costs as a business expense while an individual cannot do so. The AFL-CIO endorses the principle that employees should contribute a small portion of the cost of national health insurance to assure their earned right to benefits without a test of need. Nearly all the major proposals introduced in Congress indicate that substantial general revenues will be needed to assure coverage for low-income persons; it is thus possible and even probably-that the eventual plan will utilize multiple sources of financing but in what combination remains an open question.

Every major national health insurance so far proposed assumes that the financing of the plan would come from four sources: employer and employee contributions, federal general revenues, and some state (and possibly local) revenues. This financial design raises two major policy questions:

1. How much of the total costs should be assessed on each of the these four sources of funds? for what purpose? and on what rationale?

2. To what extent, if any, would the employer and employee contributions be collected by nongovernmental agencies and by state and/or federal public agencies? What implications would result from the various alternatives?

Costs and Expenditures of National Health Insurance. Most people recognize that any national health insurance plan will involve some additional expenditures and costs. But there is substantial difference of opinion among them on both the short-run and long-run cost-expenditure effects of various proposals. Experience with Blue Cross, Blue Shield, Medicare, Medicaid, and other voluntary or governmental health insurance plans especially during a period of rising prices, has made legislators and others wary of the validity of estimates of future medical care costs, irrespective of the source of the estimates. Many employers and taxpayers fear that costs will rise far more than estimates indicate. I share this belief. Many physicians, however, believe that any national health insurance plan will tend to hold down expenditures through effective control of physicians' fees and hospital reimbursements. I doubt that this will happen. Some health professionals say that a much better distribution of services could be achieved within the totals and monies presently being expended if there were changes in the health delivery system. There is some evidence for all these views. But my guess is that medical expenditures will rise from the present 7.5 percent of the gross national product to beyond 8 percent by the 1980s and 9 percent by the 1990s.

One of the key issues to be decided by Congress is whether the reimbursementcontrol features of the plan which will be enacted will be handled by (a) federal legislation and policy directly with providers, as in Medicare (with or without intermediaries acting as fiscal agents of the federal government); or (b) the federal legislation will allot funds to the states so that the states will have the responsibility of keeping reimbursements and control of costs within bounds; or (c) private insurance carriers. Each approach or variation thereof will produce substantially different results. It is not clear at this time which of the three approaches to reimbursement control will be favored by consumers, federal, state, or local agencies, professional associations, and Congressional policy makers. It would be possible to include all three variations in the plan subject to choices by consumers, states, and providers.

The additional cost of various national health insurance proposals was estimated in 1974 by the Social Security Administration (SSA). Utilizing 1975 as a base year, the SSA estimated that the existing health care system resulted in

a total personal health expenditure of $103 billion. The additional cost ranged from $4 billion for the proposal introduced by Senator Fannin to $13 billion for the Kennedy proposal; the increase was 3.9 percent for the former and 12.6 percent for the latter. The bill then supported by the American Medical Association (AMA) was estimated to involve an increase of $9.8 billion, and the UllmanAmerican Hospital Association (AHA) sponsored bill was estimated to increase costs by $11 billion. Table 1 shows the estimates of both increased and transfer costs of the Ullman-AHA bill.)

The differences of opinion over the cost of any national health insurance plan focus largely on the impact of the particular provisions of the plan on the elasticity of demand for medical services and the methods for reimbursing providers. Any plan which provides medical services to persons not now receiving them is reasonably certain to increase costs. Critics of the public-sector approach usually claim that any plan which relies solely or substantially on governmental responsibility will weaken personal responsibility for conservative financial administration.

TABLE 1.-TRANSFER AND INCREASE OF COSTS UNDER THE 1974 NATIONAL HEALTH INSURANCE PROPOSAL SPONSORED BY REPRESENTATIVE ULLMAN

Source: "National Health Insurance," hearings before the House Committee on Ways and Means, 1974, vol. 2, p. 673. Data submitted by Department of Health, Education, and Welfare, 1974, pp. 631-707, "Estimated Health Expenditures Under Selected National Health Insurance Bills."

There are thus substantial reasons to believe that any national health insurance plan will increase costs-the question is the amount of the increase. There are those, on the other hand, however, who believe that a national health insurance plan with the appropriate provisions could serve to constrain cost increases. These people argue for limitations on fees, restraints on hospital utilization, budgeting of institutional costs, salary payments instead of fees, group-practice plans instead of solo practice, and other changes in the delivery of services.

But irrespective of what various groups think should be done to change the health delivery system, we would be prudent to plan for some increase in expenditures under any national health insurance plan that may be enacted. By phasing-in the scope and coverage of services offered, it might be possible and desirable to keep the net increase to about $5 billion a year (at 1975 prices) for each of three years to total about $15 billion-for a very comprehensive plan. A less compehensive plan might involve a smaller increase.

Different Approaches Summarized. The formulation and administration of a national health insurance plan raises a host of complex issues. Some are so personal or diffuse that it is not possible to isolate all the forces and factors involved. We must realize, however, that health care is a service and not a commodity; it is not only a sensitive service but the most important rendered by an individual to or for another individual. It cannot be compared in importance with any other service, but its evaluation by the health professional, patient, economist, taxpayer, or legislator may vary, depending on the weight given the different factors involved-which is why physicians and others have divergent views on innumerable aspects of the health insurance issue and find it difficult to comprehend the logic or conclusions of those who differ strongly on key matters of policy.