MEDICAL care for older people will be a lively legislative issue again this year. Actually, there is little or no opposition to assisting older people with their heavy medical expenses. The point of contention is how that assistance should be given.
A dramatic situation, such as the Depression of the thirties, which brought about the Social Security Act, is not needed to highlight the growing urgency of some kind of plan for helping older people to pay their medical bills. About 9 percent of all Americans — some seventeen million individuals — are over sixty-five years of age. Both the percentage and the number are increasing. Their need is pressing because of these factors:
1. The rate of long and serious illness is higher among older people than among those under sixty-five.
2. The cost of medical care is going up. Between 1948 and 1962, the increase was 65 percent. During this same period, hospital daily service charges went up 155 percent.
3. Upon retirement, the individual usually suffers a substantial reduction in income.
Thus, more and more people are experiencing increased medical costs at the very time when they are least prepared to meet added expenses.
It is true, of course, that people in retirement have more security now than in the past. Social Security benefits, growing payments from private pension plans, and greater personal savings generally enable the retired person to take care of himself in reasonable comfort — as long as he retains good health. But when serious illness strikes him or his wife, the high cost of medical care may quickly exhaust his savings and use up income needed to meet normal living expenses.
Medical expenses are not such a hazard to employed people. Most employers today pay benefits for absence due to sickness and provide group plans for insuring the wage earner and his dependents against hospital, surgical, and, in a growing number of cases, major medical expenses. Altogether, 130 million Americans now participate in hospital-insurance plans and almost as many in surgical-insurance plans. So complete is this coverage by voluntary plans that there has been little agitation for government health insurance to cover the entire population.
But the situation of retired people is far less favorable than that of the employed. Few group plans continue to cover a man after he retires, and often the higher premium rate under an individual policy is more than he can afford. A recent study by the Department of Health, Education, and Welfare stated that “those with relatively low incomes are likely to have most difficulty in paying large bills and are least likely to have health insurance.”
Some employers now provide medical insurance for their retired people, with the company paying part or all of the cost. But such plans are expensive and can be afforded only by wellestablished companies. So it may be many years before an appreciable number of retired employees will have such protection.
As Secretary of Health, Education, and Welfare. in 1955 I urged employers to include healthinsurance benefits in their pension plans, with all or some part of the cost being paid by the employer. At the same time I also proposed to insurance companies that they establish a pool or underwriting group on a nationwide basis to experiment with lower-cost plans for covering the aged, but nothing came of the suggestion.
Last year in New York state several insurance companies did join in an underwriting arrangement to provide medical insurance for people over sixty-five. Premiums were reduced, but the cost is well above Blue Cross and Blue Shield rates.
The insurance companies naturally have to charge higher premiums for older people because of the higher incidence of long illness in this group. For the same reason, the growing number of older people covered at normal rates by Blue Cross has contributed to the rapid increase in Blue Cross rates. The Michigan Blue Cross lost $18 million during 1962 in its program of caring for 255,000 people over 65. Had it not been for this older group, the organization would have shown a profit of $12.5 million. It is now asking for a substantial increase in premiums from all subscribers.
The need, then, for some kind of nationwide action is generally acknowledged. The question is what kind of action?
THE choice is between the Kerr-Mills plan, a relief system enacted in 1960, or a federal contributory social-insurance plan. This is the same choice we had back in the thirties when the Social Security Administration was established. Those of us who were active in developing a federal system for providing financial assistance to the retired agreed that Old Age Assistance, a relief plan, was necessary to meet the temporary situation. But we also agreed that over the long run a social-insurance system, financed by contributions of the employee and employer and providing stated benefits as a matter of right, would be far better, for there are basic objections to Old Age Assistance.
To begin with, widespread dependence upon relief does not fit well into our American way of life. Furthermore, these relief benefits have not declined as expected. There are still more than two million people receiving assistance grants. This has been due in part to the exclusion of certain groups from the contributory system, but even more to the growing leniency of local welfare officials in determining need — especially as the federal government has paid a rising percentage of the relief grants. The federal share, originally set at 50 percent, now exceeds 75 percent in some states. For the country as a whole, the federal share averages 63 percent and amounts to $1.2 billion a year. Once the formula is set, the federal government has no control.
Were it not for the benefits paid under Social Security, a great many more people would be receiving Old Age Assistance grants. In that case, an annual cost of perhaps $5 billion would now be charged to general revenue, which is raised mainly by income taxes.
The Kerr-Mills Act set up a joint federal-state plan under Old Age Assistance. According to its terms, people who become indigent as a result of illness are eligible for medical relief payments. The qualification tests for the “medically indigent” are more liberal as to income, property ownership, and responsibility of relatives than the tests for those who now qualify for Old Age Assistance. Federal grants to the states cover from 50 to 80 percent of these payments, the poorer states receiving a higher percentage. The federal government, it will be observed, has no control over the total amount of these grants. In effect, it simply honors the welfare bills submitted by the states, paying them out of general revenue.
If complete reliance for medical care of the aged were placed upon the Kerr-Mills plan, we would probably have the same experience we have had with Old Age Assistance, as is already evident in states that have adopted the Kerr-Mills plan. The qualification tests would be liberalized, and the percentage of older people to qualify would rise steadily — especially in low-income states, which pay only 20 percent of the cost. On the other hand, wealthier states, which pay 50 percent, might tighten too much, leaving many people without the care they need.
As with Old Age Assistance, the federal share of the cost comes from general revenue. Before long, the result will be an extra burden of several billion dollars on federal income taxes.
Another factor to be considered, especially by the medical profession, is that as the cost of the states’ share increases, especially in the states paying 50 percent of the cost, the difficulty of obtaining revenue will probably cause these states to exercise close control over doctors’ fees and hospital-room rates.
But of all the reasons why we should not depend exclusively upon the relief system, I believe the most compelling was eloquently expressed by the Right Reverend Monsignor John O’Grady, secretary of the National Conference of Catholic Charities, when he wrote:
As a responsible, independent, self-respecting individual in intention, if not in fact, the ordinary citizen hopes government help, when necessary, will be available to him as a “right” for at least the more likely hazards he faces, without humiliating or demoralizing conditions such as the periodic investigation of his resources in order to balance them against his needs. . . . Our ordinary citizen also feels that where he contributes to the cost of his protection, or even if his employer contributes on his behalf, he has in some sense earned a “right” to the benefit. He wants to become a “partner” in the plan and not just its beneficiary.
SEVERAL plans have been proposed to finance medical care for the aged through the Social Security system. The compromise bipartisan proposal, the Anderson-Javits bill, received the support of almost half of the senators last year and is coming up for consideration again this year. Under its terms, any person receiving Social Security benefits would be entitled to certain payments covering hospital and nursing-home care. He would be entitled to ninety days of inpatient hospital care after having himself paid $10 a day for the first nine days. Outpatient hospital diagnostic services would be paid after a deductible amount of $20. The insurance would also cover skilled nursing-home services for 180 days following hospitalization, and would pay for 240 home visits by visiting nurses.
This plan would be financed by an additional Social Security tax on both the employer and employee of one quarter of one percent on the first $5200 of annual income. The Social Security Administration, with its 612 offices and low cost of administration (2 percent of benefits), could handle the plan at a low cost.
The collections would be placed in a separate trust fund for the payment of benefits, with no adverse effect on the federal budget. The same committees in the U.S. Senate and House of Representatives would determine both the level of benefits and the tax rates. As has been the case in the Old Age Insurance plan, the committees would keep close check on the program.
Under the compromise proposal, however, groups or individuals would have the option to continue their coverage under Blue Cross or insurance company plans after retirement, with the government paying the cost of the basic protection. Company group-hospitalization plans could be continued with only minor changes, and either the company or the insurance agency would be reimbursed by Social Security for the cost of the basic services. Thus, full advantage would be taken of private agencies.
The bill also provides for those over sixty-five who are not Social Security beneficiaries at present about three and a half million people — with the cost to be borne by general revenue. However, over 92 percent of people now reaching retirement age are covered under Social Security or other governmental retirement systems, physicians being the only large group not under these systems. Thus, the uncovered group in the future would be very small.
In addition to its other advantages, the Social Security approach is the only proposal that would provide equal treatment for the increasing number of people who move from stale to state, especially upon retirement. The relief approach would place a heavy burden on Florida, California. and other states which attract the retired. Also, most newcomers to a state are ineligible for welfare until after a certain period of residence.
There are few objections raised nowadays against Social Security. Yet there are numerous objections raised against financing a limited hospital-care program under the Social Security program. Let us examine these criticisms:
1. “It is socialized medicine and will affect the quality of medical care.” There is little basis for this charge, as the only doctors affected will be the hospital resident staff — a very small percentage of the nation’s physicians. The individual would have free choice of hospitals, and all accredited hospitals would be eligible. The program would not interfere with the quality of medical care any more than Blue Cross insurance has.
2. “It is a foot in the door to socialized medicine.” There is no reason why active workers and their dependents cannot be adequately covered by private agencies. The proposal at hand would be limited to those over sixty-five — a group which will not exceed 10 percent of the population for many years. And even for this group, the provisions for hospitalization would cover only about 40 percent of their medical costs. Private agencies would be given full opportunity to cover the other services for the aged.
3. “It should cover all medical costs for the aged.” The concept is to provide only what most persons consider basic coverage, as evidenced by the widespread sale of hospital insurance. It would be up to the individual or his previous employer to provide supplementary protection. Basic coverage under a governmental plan would undoubtedly stimulate supplementary plans, just as Social Security has stimulated growth in private supplementary pension plans.
4. “Benefits should not be paid to individuals who can well afford to pay for their own medical care.” This criticism would apply only to those now retired or soon to retire. It is the basic principle of social insurance that everyone should contribute and everyone should benefit.
5. “The program will result in overutilization of hospitals, and many new ones will have to be constructed.”There is already overutilization of general acute hospitals, due in part to widespread sale of hospital insurance. The deductible feature in the proposed plan (which is not contained in Blue Cross plans) would serve as a check on unnecessary use. But if the situation should be aggravated by the governmental plan, our communities might then face up to the growing need for better nursing homes, for extended-care facilities, for rehabilitation units, and for more organized home-care plans — all to relieve the expensive general hospitals and to provide suitable care at a lower cost.
6. “I object to a compulsory plan.” First, a payroll tax is no more compulsory than an income tax, which is necessary for the relief system. Second, a voluntary system would not solve the problem, because many people in the low-income group would probably not join the plan, and a disproportionate number of those who would join probably would be those in the poorest health. Insurance people call this “adverse selection.”
7. “It will interfere with the private enterprise system — both profit and nonprofit insurance agencies.” I firmly believe that, far from interfering, the proposed plan would prove a real boon to these agencies. I do not see how insurance companies can profitably cover older people for medical expense at normal rates. Blue Gross coverage of the aged at the usual rates tends to raise the cost for all other people. The Anderson-Javits proposal, by paying for the basic protection, would relieve these agencies of the most burdensome part of covering older people. The agencies could then offer attractive supplementary plans.
The financial soundness of the Social Security system has been questioned by its critics on many occasions. It is only natural that similar doubts should be expressed about the financing of a hospital-care plan for the aged to be tied in with Social Security. I think it is most important that misunderstandings on this point be removed.
As Secretary of Health, Education, and Welfare, I appointed an Advisory Council on Social Security Financing to study all financial aspects of the system. Included were the chief actuary of a large insurance company, a bank president, a former bank superintendent of New York state, and other experts. In their unanimous report to Congress in 1958, they said, “The Council finds that the present method of financing the old age, survivors, and disability insurance program is sound, practical, and appropriate for this program.”
Of other fears expressed in the thirties — that the Old Age Insurance plan could not be administered efficiently, that the benefits would get out of hand, that the system would interfere with the initiative to save, that insurance companies would be adversely affected — none of these has been borne out.
The system has proved to be a sound plan for providing basic protection for people in their retirement years upon which they and their employers can build. Benefits have been kept reasonable relative to wages; the cost of administration is at the low expense ratio of 2 percent; a contingent reserve fund of close to $20 billion has been accumulated; the system has stimulated the widespread adoption of supplementary employer pension plans; per capita insurance and savings of all types have increased substantially.
Behind every criticism of social insurance, I am sure there is a sincere conviction that the government is intruding in an area that can be best handled by the individual. It is a good sign when people show concern over any development which seems to them inappropriate within a democratic society. But in the case of hospital care for older people, it is clear that some plan of assistance must be provided; by one method or another, we are going to continue helping older people who cannot pay their medical bills. How can we do this in the fairest possible way?
If we do it by welfare or assistance payments, we must use a means test and we must inevitably discriminate against those judged capable of paying their own way, even though this may mean exhausting their life savings and placing a heavy drain upon their children. The indigent will be helped in every case; the provident unfairly bypassed in many cases.
A plan of social insurance, on the other hand, requires contributions and pays benefits on the same basis in every case. Because of the contributory feature, the individual feels his active participation and is entitled to benefits as a matter of right. What could be more equitable, or more democratic?
In my opinion, the only logical solution to the hardship faced by people over sixty-five because of rising hospital expenses is a contributory socialinsurance plan following the basic principles of the bipartisan Anderson-Javits bill.