� Melvin R. Laird, Moderator �

CENTER for HEAL TH POLICY RESEARCH THE AMERICAN ENTERPRISE IN­ EXECUTIVE STITUTE FOR PUBLIC POLICY RE­ COMMITTEE SEARCH, established in 1943, is a Herman J. Schmidt publicly supported, nonpartisan re­ Chairman of the Board search and educational organization. Its purpose is to assist policy makers, William J. Baroody scholars, businessmen, the press and President the public by providing objective William G. McClintock analysis of national and international Treasurer issues. Views expressed in the insti­ Richard Farrell tute's publications are those of the Dean P. Fite auth ors and do not necessarily reflect Richard B. Madden the views of the staff, advisory panels, officers or trustees of AEI. SENIOR STAFF ADVISORY BOARD Anne Brunsdale Paul W. McCracken, Chairman, Ed­ Director of Publications mund Ezra Day University Professor Joseph G. Butts of Business Administration, Univer­ Director of Legislative sity of Michigan Analysis R. H. Coase, Professor of Economics, Robert B. Helms University of Chicago Director of Health Policy Studies Milton Friedman, Paul S. Russell Dis­ tinguished Service Professor of Eco­ Thomas F. Johnson nomics, University of Chicago Director of Research Gottfried Haberler, Resident Scholar, Gary L. Jones American Enterprise Institute for Assistant to the President Public Policy Research for Administation Richard M. Lee C. Lowell Harriss, Professor of Eco­ Director of Planning nomics, Columbia University and Development George Lenczowski, Pofessor of Po­ Edward J. Mitchell litical Science, University of Califor­ Director, National nia, Berkeley Energy Project Robert A. Nisbet, Albert Schweitzer W. S. Moore Professor of the Humanities, Colum­ Director of Legal Policy bia University Studies James A. Robinson, President, Uni­ Robert J. Pranger versity of West Florida Director of Foreign and Defense Policy Studies Louis M. Thompson, Jr. Assistant to the President for Communication HEALTH INSUPANCE= WI-IATSH OULD DE THE FEDEJWROLE? @ Melvin R. Laird, Moderator @

Bill Brock James C. Corman Al Ullman Caspar Weinberger

A Round Table held on January 22, 1975 at the American Enterprise Institute for Public Policy Research in Washington, D.C. and sponsored by AEl's Center for Health Policy Research THIS PAMPHLET CONTAINS THE PROCEEDINGS OF ONE OF A SERIES OF AEI ROUND TABLE DISCUSSIONS. THE ROUND TABLE OFFERS A MEDIUM FOR INFORMAL EXCHANGES OF IDEAS ON CURRENT POLICY PROBLEMS OF NATIONAL AND INTERNATIONAL IMPORT. AS PART OF AEI'S PROGRAM OF PROVIDING OPPORTUNITIES FOR THE PRESENTATION OF COMPETING VIEWS, IT SERVES TO ENHANCE THE PROSPECT THAT DECISIONS WITHIN OUR DEMOCRACY WILL BE BASED ON A MORE INFORMED PUBLIC OPINION. AEI ROUND TABLES ARE ALSO AVAILABLE ON AUDIO AND COLOR-VIDEO CASSETTES.

© 1975 BY AMERICAN ENTERPRISE INSTITUTE FOR PUBLIC POLICY RESEARCH, WASHINGTON, D.C. PERMISSION TO QUOTE FROM OR REPRODUCE MATERIALS IN THIS PUBLICATION IS GRANTED WHEN DUE ACKNOWLEDGMENT IS MADE.

ISBN 0-84.4.7-2065-8 LIBRARY OF CONGRESS CATALOG CARD NUMBER 75-16068

PRINTED IN UNITED STATES OF AMERICA ELVIN R. LAIRD, Reader's Digest and the M AEI National Energy Project, and Round Table moderator: Tonight the American Enterprise Institute presents another of its public affairs forums dealing with an important question facing the United States, "Health Insurance: What Should Be the Federal Role?" To discuss this matter with us we have four outstand­ ing experts. I am going to call on each of them for a brief statement of his position on the question, and then we will have a general discussion. First, Secretary of Health, Education and Welfare Caspar Weinberger, who has formerly served as legislator from California, director of finance for the State of Cali­ fornia, chairman of the Federal Trade Commission, and then director of the Office of Management and Budget. Mr. Secretary, in view of the statements by the Presi­ dent of the United States regarding new programs, what can you say about what the federal role should be this year?

CASPAR WEINBERGER, Department of Health, Education and Welfare: Thank you, Mel. I'm delighted to be here. There is no question that the American people need a program of national health insurance and no question that one will come into being. Some 60 million people in this country have little or no protection against the costs and the perils of poor health. I think the American people want national health insurance, and I think it is a necessary program.

1 But I also think no one should want it this year be­ cause no one should want to start any new spending pro­ grams at this time. We have heard from the President and from others about how large the deficit will be in fiscal years 1975 and 1976. We know the heavy impact that a sizeable deficit can have on the economy. And while ad­ mittedly spending begins earlier for some types of new programs than for others, it still is essential, I think, to have a moratorium on all new spending programs, as the President has proposed. If we start making some excep­ tions here and some there, the issue becomes fuzzy and pretty soon more and more new programs are adopted. So, I think a moratorium on all new spending pro­ grams is justified and should be understood and appre­ ciated by the American people-particularly after decades of turning to spending as the way to solve all problems. Yes, national health insurance is essential and when we do get it, it is also essential that it be a plan that pre­ serves and builds on the great strengths of the existing system of health care that we have. That system just happens to be about the best in the world. But it is not perfect. It has lots of room for improve­ ment and lots of problems. Some of those problems are that too many Americans have no health insurance at all, and others have spotty or unbalanced coverage that puts too much emphasis on hospitalization and too little on home health care, physician visits, prescription drugs, and things of that kind. We need to plug those gaps in health cover­ age. But that can be done very effectively without throwing out the whole system. Our system has given us the best doctors, the finest research, and the finest health institu­ tions in the world. It has kept the government from inter­ fering with the relationship between the patient and his doctor. And it has achieved a great deal. To mention just a few of those achievements: In the past twenty-five years, we've added five years on average to the lifespan of Americans. We've drastically reduced in­ fant mortality. Our scientists have developed many life­ saving cures. And we have made and are making very real progress in the battle against major diseases.

2 There are some, of course, who advocate that we adopt a whole new system-a system that would be ad­ ministered, run, and financed by the federal government, paid for by federal taxation. They would wipe out the whole private health insurance industry and have the gov­ ernment take over. I think this approach is fundamentally wrong for America because it would not bring us better health care. It would bring us more government and an extravagant health bill for the nation. It would satisfy only the doc­ trine of those who think that everything should be turned over to government. The scheme would be sold, or at­ tempted to be sold, on the basis that it would bring better health to the nation, whereas it would simply bring larger bureaucracies, larger problems, more delays, and a system in which all of the providers of health care draw all of their income from the government. That, of course, means com­ plete government control. Our present system has served us well. What we need to do now is unite on five basic principles-the principles that are embodied in the health insurance bill that the ad­ ministration proposed last year and that the President will propose in January 1976, after his moratorium on new spending programs expires. Those principles are: First, as I said, we must build on the strength of the existing system. Second, we must have a truly national program that offers full coverage to every American based on his ability to pay. Third, the benefits must be comprehensive and bal­ anced, so that the care people get is related to their med­ ical needs and not to the kind of insurance that they have. As it is now, frequently people are hospitalized not because they need to be but because their insurance covers hospi­ talization and not outpatient or home care. Fourth, patients must share, to some degree, in the costs, because the so-called "free care" that is a feature of the Scandinavian countries and some of the other Euro­ pean countries invites expensive and unnecessary over­ usage. That has been the experience there.

3 Finally, we need a true partnership, a program in which doctors, patients, government, and insurance com­ panies all have a stake, because nothing works unless the people involved want it to work. These five principles, I think, can bring us better health care. And now, if you will give me one more minute, then I'll yield. The fundamental point that I want to make is that while we should have a moratorium on new spending programs this year, and while any health insurance pro­ gram cannot actually start for three years, that morato­ rium will not interfere with the ultimate benefits that will come. The program the administration seeks is one that would serve the people well by building on the strengths of the existing system. It would not cause the tremendous increase in taxation necessary to finance the huge cost, roughly $90 billion, that would be entailed in some of the other proposals to be discussed here tonight. And it would enable us to provide that health care without adding near­ ly 50,000 new federal employees.

MR. LAIRD: Thank you, Cap. Now we will hear from James Corman, a member of Congress from California and the author of the Kennedy­ Corman bill on national health insurance (S. 3, H.R. 21 ). Congressman Corman was elected to Congress in 1960, and I had the privilege of serving with him in the House of Representatives. He's a very important member of the House Ways and Means Committee and has been an outstanding leader from the state of California in the Congress of the United States. I think there is no one that can better represent the viewpoint of the Kennedy-Corman bill than this member of the Ways and Means Committee from California, James Corman.

JAMES C. CORMAN, United States House of Representa­ tives (Democrat, California) : Mel, thank you very much. I'm pleased to participate. I think we1l probably find out tonight that there are some issues on which the four of us agree. Perhaps it

4 In my own district, the Kaiser plan had to close its mem­ bership because the large number of applicants overloaded the plan's facilities. Kennedy-Corman would build on the present system. Our primary objectives are to remove financial and resi­ dential barriers to health care. At the same time, we hope to improve existing methods of delivering health care. MR. LAIRD: Thank you very much, Jim. We have heard from the majority party, from a mem­ ber of the Ways and Means Committee representing the Democratic party. Now I'd like to shift to Senator Bill Brock. He first came to Congress in 1962 as a representa­ tive from Tennessee and then was elected to the United States Senate in 1970. To me he'll always be my friend and colleague in the House of Representatives where he served with great distinction for four terms before moving to that other body. Senator Brock, who is very active in the health insur­ ance field, has a proposal on health insurance which will soon be introduced in the United States Senate. He is also an expert in the field of banking and currency and gave distinguished service in that area when in the House and now has great responsibilities in the same area in the Senate. Senator Brock, tell us about your approach to health insurance and your view of what the federal role in that program should be.

BILL BROCK, United States Senate (Republican, Tennes­ see) : I'd be delighted. Let me start off with a bit of a warning-both to the people here tonight and to those who will watch this program. Maybe the best way to put it is to paraphrase an old statement and say, "Beware of politicians bearing gifts." The fact is that you never get anything free from government that doesn't come from the people of this country in the form of taxes or high prices or controls and loss of freedom. That, to me, is the funda­ mental question we ought to ask every time a new federal program is presented, whether it's for medical care or any­ thing else.

7 What is the role of government? It should be to ex­ tend the freedom of the individual, to expand upon the greatness of our free enterprise system, to offer an oppor­ tunity for every individual to live a life of worth and dignity that he earns. Now, looking at the question of national health insur­ ance, it seems to me that there are some basic criteria that ought to be applied to any of the proposals, whether it is mine or Al Ullman's or Jim Corman's: Is it simple? The people are going to have to live with it, and therefore they need to understand it. Is it efficient? Will it really work? Is it cost effective? Will it get the benefits to the people that need the help? Is it rational? Can it be administered with a minimum of additional bureaucracy? You know, one of the things that bothers me about this figure of another $100 billion program, Jim, is that the first year I was elected to Congress-and I haven't been in Congress that long-the new federal budget was $100 billion. It scared me to death. Now we are talking about one federal program, just one, that would take 11 percent of our total gross national product and add $110 or $120 billion to our federal budget. I don't know how big this government ought to be, but I think it's getting close to the maximum. It seems to me that we can do things in a better fash­ ion. My proposal is simple. What it does, essentially, is to recognize that some people in this country have problems and deserve some backup. For the family with income that suffers a medical catastrophe, my bill [S. 600] says that when medical ex­ penses exceed 15 percent of your income-not some dollar figure, but 15 percent of personal family income-then the government will coinsure the excess to the extent of 85 percent. For a nonworking or aged person or poor family with no taxable income as I have defined it, that 85 percent coinsurance takes effect immediately. So we have a comprehensive program. But you see the difference between this and your program, Jim, is that there is no new bureaucracy, no new federal employees at

8 would be well if I began by identifying some of these areas. First, I think we generally agree that the present way in which we pay our doctor bills has some serious deficiencies. If we didn't believe that, we wouldn't have proposals in the hamper to change the system. Second, we seem to agree that the federal government ought to do something to correct the situation. We part company on the question of what specifically ought to be done. Let me say that I think we ought to look carefully at allegations as to what the different national health pro­ posals will cost. The nation's total health bill this year is going to be something over $100 billion. That's assuming that we do nothing. About 40 percent of that $100 billion plus will be paid by government, most by the federal gov­ ernment and some by state and local governments. The point is that 40 percent of the nation's doctor bill is al­ ready paid by government. Of the balance, about half is paid out-of-pocket when one is ill and about half is paid through private insurance premiums. According to an estimate by HEW, the different pro­ posals before Congress would increase that total expendi­ ture for health care by various amounts ranging from $6 to $13 billion. Admittedly, the Kennedy-Corman bill is the most expensive of the lot. Those of us who support the bill, however, contend that the small additional increment in expenditure will provide a lot more care for a lot more people. Also, the bill provides for some realistic cost con­ trols and it would do away with the bureaucracy required to look at the income of each individual. To finance the total of $110 or $112 billion, each person would pay into the system a special tax based on his income and some additional amount of general federal income tax. Then when he was sick, he'd be assured access to a doctor or to whatever kind of health care service he needed. I am sure that whatever we do, it will be implemented incrementally. Congress will probably legislate this year, and the President will probably not veto it because, by the time we send him a health bill, he'll be discouraged about vetoing bills. Be that as it may, whatever we do, it won't involve a very big expenditure this year because it's going

5 to take a while to tool up and then implement a program after enactment. In formulating a national health insurance program, I would hope that we would keep a few facts and princi­ ples in mind. First, let's acknowledge the fact that the nation's total health expenditures will be the same whether doctor and hospital bills are paid by the government through taxes or by private insurance companies through premiums. And, the nation's health bill is big: around 8 percent of our GNP. Second, we should recognize and acknowledge that compulsory private health insurance will place a manda­ tory expenditure on employers and probably employees. It doesn't matter whether the employer and employee pay a mandated payroll tax to the government or a mandated premium to a private insurance company, both are man­ dated additional costs. Administration spokesmen are not being candid with us when they contend that their program of mandated private insurance is inexpensive. The program may be inexpensive in terms of what is paid to the government in taxes, but it is not inexpensive when you add to that the billions of dollars that employers and employees will pay in insurance premiums and out-of-pocket at time of illness. Third, I hope we can get away from the philosophy that this should be a welfare program. All of the proposed bills, with the possible exception of Senator Brock's, are based on that principle, and would require some agency to monitor about half of this nation to find out who is poor and who isn't, and how much each individual or family has paid in medical bills each year. I hope that whatever we do, we can avoid that kind of a mind boggling and expensive administrative procedure. Finally, I hope we can preserve what is good in the American medical system. And that is precisely what the Kennedy-Corman program of national health insurance would do. We would build on the present system. We say that doctors should be permitted to practice on a fee-for­ service basis. Or, if they want to, they should have the opportunity and encouragement to go into group practice.

6 all. We use the existing tax system-and it's efficient. We use the individual to select his own doctor, his own hospi­ tal, his own method of treatment. We maintain, I hope, a maximum degree of freedom. We maintain the cheapest possible system. And we keep the government in its proper role, one of supporting and building upon the strengths of our system, not substituting its will for the total and very good health system that we have now.

MR. LAIRD: Thanks very much, Senator Brock. Now we come to the chairman of the House Ways and Means Committee. This committee wields unusual power in the Congress, power derived directly from the provision of the Constitution of the United States that limits the initiation of revenue bills to the House of Rep­ resentatives. The chairman of this important committee is Al Ullman from the state of Oregon, who has been the ranking majority member these past few terms in the Congress. He is a twenty-year member of the House of Representatives, an outstanding advocate for the Ways and Means Committee, for the House of Representatives, for his state, and for the country.

AL ULLMAN, United States House of Representatives (Democrat, Oregon) : Let me say first that, in my judg­ ment, the 94th Congress will be the health insurance Congress. There isn't any question about it. I sponsored H.R. 1 in the 93rd Congress and again in this Congress, which indicates my priorities on this matter. There is a great deal of confusion about the whole concept of health insurance, and this confusion is well illustrated by the different approaches we have here to­ night. But I think that there are certain basic funda­ mentals that must be taken care of in any health insur­ ance program. What must be done, in my judgment-and in H.R. 1 we essentially try to do this-is to bring existing federal programs together into a more meaningful framework. Up until now, our medical care effort has been going down several different roads, but it's no longer tolerable to do

9 that. We need to establish a national benefit package, one that is available to and understandable by every American. We also need to mandate coverage in the private sector. Here is where I part company, of course, with my friend, Jim Corman, who is a very able member of the Ways and Means Committee and one of the most knowl­ edgeable people in this field. I believe we must build on the existing structure but not be content with the way it operates. We should mandate the kind of coverage pro­ vided through the employer-employee relationship. And this includes some subsidy. And it includes some tax benefits and other features to make it work. But the thing that H.R. 1 does that none of the other bills do is to provide for a restructuring of the delivery system at the local level by establishing geographically based public boards of directors on which would sit repre­ sentatives of the health industry, the delivery system, and the consumer. Through this kind of a local mechanism, we can better handle the problem-by restructuring the local delivery system, by building on the existing system, and by providing a mechanism for implementing our na­ tional program. I think it is absolutely essential that we take this additional step that none of the other proposals encompasses if we're going to have a truly effective na­ tional health insurance program. Now, insofar as Mr. Corman's program is concerned, I think that we have a crucially important decision to make: Do we want to move some $70 billion from the private sector into the public sector? This can only be done through increased taxation. There is no other way. I understand that Mr. Corman would raise half the needed revenues through the payroll tax and half through general revenues. As to payroll taxes, it's my political judgment that we've gone as far down that road as we can go. I just think there's no way that we can increase payroll taxes. As far as general revenues are concerned, all of us know how critical the budgetary problem is today. We're going to have to face up to a $30 to $40 billion deficit in this current fiscal year and much more in the fiscal year

10 1976. In addition, we have a very difficult problem with inflation. So, in my view, we must do this job without in­ curring a great movement of funds from the private to the public sector. On top of that, it's my judgment that the whole pro­ gram cannot be run from Washington. My program would mandate from Washington a tough set of federal guide­ lines, to be administered through new beefed-up state commissions and through a local mechanism that would reconstruct the delivery system through a system of health care corporations. In my judgment those are the necessary, basic in­ gredients for a health care program and I hope the ones that we will adopt in the Ways and Means Committee.

MR. LAIRD: Thank you very much, Chairman Ullman. Now we ought to hear from you, Congressman Cor­ man. I noticed that recently the labor members, as well as the public members, of the Social Security Advisory Coun­ cil recommended that the financing of even the Medicare program should be shifted from payroll taxes to general revenues. I found that quite significant because I remem­ ber back a few years ago there was strong labor support for using the payroll tax to finance health care and par­ ticularly Medicare. Now I see that labor's position is shifting. Has this had any effect upon the support for your bill?

CONGRESSMAN CORMAN: Well, I think there's a sub­ stantial differencebetwee n financingsocia l security through the payroll tax and financing medical care through the payroll tax. But first let me say to my very good friend, Senator Brock, that it's always the opponents of Kennedy­ Corman who claim we say our proposal would provide free health care.. We do not say it would be free. We say it could cost even more money than we're presently spend­ ing. What we do say is that it would be additional money well spent. And we do point out that health care is not free now. It is costing over $100 billion a year right now, without national health insurance.

11 But back to whether or not the American people would accept a payroll tax to help finance national health insurance. The payroll tax for social security is imposed on everybody the day he starts to work and it runs until he retires or becomes disabled. But it's for a benefit that he does not receive until he becomes sixty-five, is dis­ abled, or dies. A payroll tax for national health insurance, on the other hand, would replace an expense most indi­ viduals have right now, either in terms of insurance premiums or medical bills. Now, most of the proposals, except for Senator Brock's, would impose mandatory private health insurance pre­ miums. That means dollars that would be paid by workers and by employers. I think it makes little difference whether those dollars go through an insurance company or go directly into a national trust fund. Either way, they would be taken out of a person's pocket. But the point is that they are already being taken out of a person's pocket, many of them at the time he's ill and least able to pay.

SECRETARY WEINBERGER: Mr. Chairman, nothing is free. We've got to start with that. Now I wonder if I could point out a little distinction here: The administration's plan provides for mandated coverage on the part of the employer. The employer would have to offer it to his employees, and each of them could decide whether he wanted it or not. But a person cannot decide whether to pay a social security tax or not. You say that payroll taxes levied for social security benefits that you get when you retire would be viewed differently from payroll taxes levied for a health benefit that you would presumably get immediately, or whenever you needed it. The problem is that the social security pay­ roll tax is almost 12 percent now. If another 4 or 5 percent were added for health care, we'd have a payroll tax that would look to the worker and the employer simply like one very large sum of money-because that's what it would be. It would mean about a 15, 16, or 17 percent tax on employment. We have enough difficulty now finding jobs

12 for people at low salary levels. It's the unskilled portion of the labor force that is the hardest to place. This extra tax would constitute a further deterrent on that kind of em­ ployment and would add to our unemployment problems. There's a real difference between a premium that an employee decides he wants to pay on his own initiative, for his own health, and a tax that is levied in a uniform amount on everybody whether he has health needs or not and is supplemented by another huge drain on the general revenues. In this connection, let's remember that we're already heavily in a deficit situation, with a budget that's 75 percent uncontrollable and about which little can be done until we stop some existing programs and free some of that money for a better purpose, such as health in­ surance.

MR. LAIRD: What about the possibility of shifting the cost of the present Medicare program to general revenue entirely?

CONGRESSMAN ULLMAN: Well, I think that could cer­ tainly be justified. I estimate that we could get a good national health insurance program with about $10 to $15 billion of new spending and that it should come out of general revenues, which should keep the payroll tax about where it is. And it seems to me that Medicaid now is a frag­ mented, state-oriented program that varies from state to state. We must enact some national standards and make this a national benefit package available to the poor peo­ ple of the country under a federal program.

MR. LAIRD: Are our poor and aged people really better off now with Medicare and Medicaid than they were at the time fr passed? It looks to me as if the cost has gone up so tremendously that they are still about where they were back then.

CONGRESSMAN ULLMAN: I think there's no question that they are better off. What you have to ask is: Are they

13 better off than they would have been had there not been a program? It would have been pure disaster, in my judg­ ment, if Congress had not passed the Medicare and Medicaid programs. They have some shortcomings that we must correct. We can correct them in a national health insurance program. That is why I say we need to combine the federal programs for the poor, for the elderly, and for the children, and establish a national benefit package for these groups that would be funded at the federal level. I think this is our obligation. And the program should include the work­ ing poor, with benefits declining as people get up the salary ladder where they can begin to pay for themselves through the employer-employee relationship. Every work­ ing person and self-employed person in America then would be covered. In my view, that is the kind of package that America wants-one that is built on the foundation of the existing structure, that gives the individual a sense of personal relationship with the system, the doctor and the hospital but assures him · that he will have the insurance package when his problem arises.

MR. LAIRD: Senator Brock.

SENATOR BROCK: I just do not know who is kidding whom. I do not understand this talk about the federal government's paying for something. The federal govern­ ment has nothing that it does not take from the people. If you want to talk general taxation, okay; if you want to talk payroll tax, okay. But it is people that work to earn the dollars that the government takes from them in taxes, without any say on their part whatsoever. Fifteen years ago the average person in this country paid a social security tax of $144. This year the maximum tax-and this is on the average worker-is going to run close to $800. To repeat-$800! If we should enact the Corman tax for the Kennedy bill, that payroll tax would go to about $1,800 per family. Now, good land, let's be honest with the people of

14 this country. If they want the program and they want to pay for it, it's their privilege to say, "Okay, we want it." But let's not say to them, "We're going to finance it over here in the general revenue account because it won't cost you anything over there." That money has to come from the people of this country. Let's present them with the alternative, and let them decide what they can afford to pay. Because they make the payment, we don't. It isn't our money. And when they make that decision I think they're going to choose a system that is, at most, one that defends them against a total wipeout of their earnings-or their house or their savings-because of a medical disaster and one that deals specifically with the problem of those who simply cannot afford any care today. The American peo­ ple, I think, are willing to pay the limited expense of such a program. But they are not willing to pay through taxes the very large costs of comprehensive coverage of all medical bills. I'm not trying to take on the whole world. I know these gentlemen have very sophisticated and good bills, but I just wonder where in the world the money is coming from.

CONGRESSMAN ULLMAN: Might I say that I have to disagree with you, Senator Brock, in that you are attempt­ ing to solve the problem with just a payment mechanism. We must restructure the delivery system in order to make it work, in order to produce a package. For that reason, in my judgment, your program does not qualify as a national health insurance program. I've already indicated my differences with Mr. Cor­ man. And I would say to Secretary Weinberger that I'd like to take a little credit in turning the administration around and moving it down the right road. You've come part of the way. Now what we want is to lead you by the hand down the full route until we get a full package.

SECRETARY WEINBERGER: I was about to compliment you. I have to withdraw it now. Of course, some of the

15 provisions of your bill were those that we proposed a year ago. But let me bring this right down, if I might, to terms which everybody can understand. We've had a lot of rather theoretical language. At the present time a very large number of people­ not enough, but a very large number-have health insur­ ance coverage because their employer pays partially for it and they pay partially for it. That is the system we want to extend. Under the administration's bill, we would have a sys­ tem where the employer would go out and buy, at the best rates he could get, the kind of comprehensive policy that would be mandated in tqe bill. And he would pay 75 per­ cent of the premium and the employee would pay 25 per­ cent. On the average, for people throughout this country, that would mean that the employee would pay a little less than most employees are paying now and would receive far better, more comprehensive coverage. It would mean the employer would be able to provide that far better, more comprehensive coverage for just about exactly what he is paying now. It would mean the government would be involved only to subsidize those with very low incomes who could not afford these rates and those whose jobs in­ volved very high health risks. It would also mean that we would maintain the strengths of the private system. And so for about the same payments-and obviously nothing is free-but for about the same payments, the nation would get far better care because everybody would be covered by a comprehensive policy. Furthermore, and this is a very important point, state taxpayers would be saved about $1 billion a year because the new services that would be covered by the insurance policies would pick up and make unnecessary a lot of existing expenditure. And that's what we're looking for. We're looking for ways to give better service at the least possible cost and to eliminate some of the unnecessary things we're doing now. The total cost of the administra­ tion's health insurance bill, which will be proposed in January 1976, will only moderately increase the amount

16 the nation is now paying for health care, but it will bring far better care for all.

MR. LAIRD: I want to get back to next January in a minute, but first let's hear from Congressman Corman.

CONGRESSMAN CORMAN: I'd like to rise to a point of personal privilege. I respect Senator Brock's concern for Senator Kennedy, but couldn't we make that the Kennedy tax for the Corman bill? [Laughter.] I might say to my former colleague, Senator Brock, I think it can be argued that, in the long run, his bill would be the most expensive of all. First, let's understand that a tax credit really amounts to a federal expenditure, albeit a hidden one, in that it represents a subsidy in the form of forgiven and uncollected federal taxes. If we are going to finance the federal government, we have to get federal revenues from some place. Tax credits reduce fed­ eral revenues just as much as directly appropriated ex­ penditures. As I understand the senator's proposal, the federal government would pay 85 percent of a person's medical expenses in excess of an amount determined by his in­ come. Admittedly that portion of the proposal would in­ volve very little red tape. It would also do very little in the way of reducing financial and residential barriers to needed health care, improving the health delivery system, or maintaining medical prices. It would leave us with the same inequitable and inefficient system that permits the doctor to charge whatever the traffic will bear, except that under his program individuals would bear 15 percent and the federal government would pay the other 85 percent. As for my other colleagues in this discussion tonight, I share your concern and compassion for the elderly and the poor. Under your proposals, however, there would have to be a bureaucracy to find out who they are, how poor they are, and the extent to which they are eligible for assis­ tance. That makes your proposals, and all others requiring a needs test or which provide one program for the poor and another for the nonpoor, unnecessarily inefficient.

17 They would require us to spend $2 to $3 billion a year just to determine who is and who isn't eligible for assistance.

SENATOR BROCK: Jim, if I may respond. I think I must have said something wrong to leave you with that im­ pression. I don't have any classification in my bill. The payment schedule under my proposal is totally predicated on income. There would be no bureaucracy-

MR. LAIRD: It's really one of the first negative income tax proposals to be offered by the senator.

SENATOR BROCK: You bet your life it is, and it may be the last. But what my bill does is to recognize, first, that catastrophe or medical disaster can strike a family re­ gardless of income and, second, that a family with more income is more capable of dealing with it. So we slide the scale based upon the income. What I am saying is that there would be no need for any new bureaucracy. There would be no need for social workers wandering around meddling in everybody's lives, as they are doing now in some cases. To the contrary, we would all simply fill out the tax form-and we had best do it honestly. (Americans do not take the risk of tax cheating lightly, especially after seeing a few like Al Capone and others go to jail.) Now with regard to Al Ullman's statement about imposing a new federal bureaucracy and the need for a new structure, that statement presumes that the Congress with 435 members in the House and 100 in the Senate is the source of some ultimate wisdom that the American people do not have. In this country, there are four-and-a­ half million people who work in health delivery, five hun­ dred thousand in the insurance field alone, plus doctors, nurses, administrators, technicians. and people of all types. They have developed, through competition, a re­ markably good system. For us to presume that we can impose some entirely new structure that will change the

18 world and all of a sudden make night into day is, I think, modestly arrogant.

CONGRESSMAN ULLMAN: Might I respond? The mech­ anism that I have suggested is merely a local umbrella, run by local people. What better mechanism is there for bringing it all together, for making it possible to look at the delivery system and say, Whoa, we have too many hospitals, or the wrong kind, so we must close some down, but we do not have enough outpatient clinics so we invite the system to put them in? Now, secondly-

SENATOR BROCK: It is called free enterprise.

CONGRESSMAN ULLMAN: -the incentives are the im­ portant thing. I think my proposal is the only one that really attempts to turn the incentives around. So far, the incentives have all favored high-cost medicine, because they've emphasized paying the bills. The doctors have had incentives to put people into the most expensive kind of care in order to get payment. We have to turn that around. My program would do it, for it concentrates, leans heavily, on preventive medi­ cine. Somehow we have to learn in this country to keep people well rather than just pay their bills when they go to the hospital, That's what my program would do. That's what the health care corporation does. Finally, my proposal would mandate, over a four-year period, per capita group programs. Thus the delivery sys­ tem itself would be structured so that the suppliers would have to bear the risk of inefficient operation. It would be to the advantage of the group to develop an efficient pro­ gram for keeping people well because if the group over­ spent, as it would if a large number of its members got sick, then it would have to bear the cost. The group's doctors are the ones who would lose. This is the only meaningful kind of a program, it seems to me, for facing up to the tough problem of skyrocketing costs that have crucified the whole system.

19 MR. LAIRD: Chairman Ullman, let me ask this question: The other morning on the "Today Show," Speaker Carl Albert went on at some great length about how this would be the health insurance Congress-just as you did in your opening statement. Health insurance would be acted upon, he said, regardless of whether the President vetoed the legislation, because the bill would be made veto-proof, because the Congress could override a veto. Now, it seems that, given the various views being expressed here to­ night, there would have to be a compromise worked out in order to have a veto-proof bill in this session of Con­ gress. Is that possible?

CONGRESSMAN ULLMAN: I certainly think it is. But I would add that my bill was developed after two very lengthy sets of hearings on the part of the Ways and Means Committee. When I started developing the pro­ gram some four years ago, I said that the mid-70s would be the time when we would be able to bring it all together. You just can't move out and do it overnight. It takes time to understand the basic issues and to consolidate all of the various opinions in order to come up with a good program. This is the year. In the Ways and Means Committee, we now have a health subcommittee with Congressman Rostenkowski as the chairman. We're going to go to work on this subject right away, and we expect to have a sound program ready to go to the floor of the House of Repre­ sentatives early this fall. Hopefully it will be passed in the House so that it can go to the other body, the Senate, and be acted upon. I cannot see the President of the United States, in the closing hours of the Congress, vetoing a program that has been sought for so long and that really would not have its impact on the budget until next year and the following year. My program calls for a four-year implementation period, because it will be a big turnaround for this country and will take time to implement. My judgment is, again, that this is the Congress. But

20 if we don't do it late this year, we will certainly do it early next year.

MR. LAIRD: What is your follow-up on that, Mr. Sec­ retary?

SECRETARY WEINBERGER: I think that we have to be careful what kind of health insurance it is. We have to be very certain that we don't pass a bill that would make the health care of the country worse by making it all subject to complete government domination. A great deal will depend on what the program that is finally adopted by the Congress looks like. The one that the President supports, the one that the administration has supported, is a pro­ gram that builds on the strengths of the private system and has the least possible governmental involvement and the least new governmental cost.

MR. LAIRD: In other words, if it is a good bill it will be signed.

SECRETARY WEINBERGER: Oh, I never predict what any President is going to do. The papers always refer to you, Mel, as a source close to the President, so I am sure you know his thinking as well as I do. But the simple fact of the matter is that I think-

MR. LAIRD: I try to stay out of town most of the time. [Laughter.]

SECRETARY WEINBERGER: I had noticed that. If a health insurance bill comes out of Congress that will build on the strength of this system, give us better health care, not involve the government and not require more taxation, then we certainly would want to look at that pretty carefully because those are some of the princi­ ples the President has been talking about ever since he's been in office.

21 R. LAIRD: As you can see, our panelists M represent a wide spectrum of views on what the federal role in health insurance should be. To probe the question more fully, we will now take questions from our invited guests.

STEVEN LANE, Hoffmann-La Roche, Inc.: Secretary Wein­ berger, don't you in fact feel that the increasing unem­ ployment and the escalating costs of health care are argu­ ments for enacting a national health insurance program as soon as possible?

SECRET ARY WEINBERGER: I think it's important to look at the whole picture, and the whole picture today is that if we add governmental expenditures of a size and nature that will produce even higher deficits than we have right now, the government will be fueling the fires of inflation with its own policies. We also have to recognize that national health insurance, as Chairman Ullman has said, will not be able to be put into effect until at least two years after it's adopted. The main thing that the administration is concerned about is the psychology of submitting and adopting a lot of new, big spending programs without recognizing the fact that there has to be a halt called somewhere. We give national health insurance a high priority. We also believe that it's necessary to cut out some of the unnecessary things we're doing now, so that when we get health in­ surance we will not have added to total governmental expenditures. That way the government will not be causing any more inflation than there is now.

MARTI GRIFFIN, National Public Radio: I'd like to ad­ dress this question to each of the panelists. What kinds of mechanisms have each of you built into your bills to

22 ensure against higher charges by hospitals and higher fees by doctors?

MR. LAIRD: We'll start with you, Bill.

SENATOR BROCK: To me the most effective cost control factor ever devised is the American housewife-or the American consumer. She has a choice; she is obligated to select where she's going to place her dollars, so her actions will force, through competition, a more effective delivery system. My plan makes use of that competitive force. It says to the health care consumer, in effect, that until you have spent 15 percent of your own income on health insurance the federal government doesn't have a role because you don't have that much of a problem. The average family can afford medical bills of that size without losing its home or its savings. What I am trying to protect against is the wipe-out of a particular family in a particular circum­ stance. And I think that by having the family pay first­ dollar coverage, by using the so-called deductible approach, we would have the best possible mechanism for cost efficiency. I know my colleagues here disagree, and I have great respect for them. However, I think their approach of im­ posed cost controls has been proven to be self-defeating.

MR. LAIRD: Chairman Ullman.

CONGRESSMAN ULLMAN: The health care corporation concept that I have in my bill is, in my judgment, the only device contained in any of the bills for really getting at the problem of cost. First, there would be tight require­ ments imposed by a state health commission, which would provide some fee regulation and would be able to restruc­ ture our system so as to eliminate the expensive duplica­ tions we currently have. Moreover, as I've said, there would ultimately be a per capita program so that the de­ livery system would be on risk-which, in fact, is the only way you can put real discipline into the system to guaran-

23 tee efficient, effective care without all of the excesses. In my judgment, unless we have that kind of national health insurance program, we will not be really facing up to the issue of cost control.

MR. LAIRD: Secretary Weinberger.

SECRET ARY WEINBERGER: First of all, the administra­ tion's plan, like Senator Brock's, relies on the pressures of competition. There are 600 insurance companies in this country and they would all be competing with each other to write the standard, very comprehensive policy that the government would require. That competition would pro­ duce some cost benefits. Second, we would recognize that the infusion of this additional kind of demand for health services would un­ doubtedly have a stimulative effect on prices. That was not recognized when Medicare went into effect in 1965. As a result, health-care costs are higher now than other ele­ ments of the consumer price index. Our approach would be to rely on the state governments acting under broad federal guidelines to ensure that health-care costs were held down and did not rise more rapidly than the CPI or other elements of the consumer's outlay. I think there have to be some kinds of controls if the federal government is going to be involved-and it is now paying about 40 percent of the costs of health care serv­ ices. Whether it should be involved to that extent is aca­ demic. It already is. With that kind of involvement and with national health care insurance coming, some mech­ anism is necessary to hold down the cost. Third, we also would apply to national· health insur­ ance our experience in attempting to contain the costs of Medicare. One example is better utilization regulations. Another is the maximum allowable cost program, under which we plan to reimburse only for the lowest cost of the equivalent drug, not for the high-priced brand-name drug.

MR. LAIRD: Congressman Corman.

24 CONGRESSMAN CORMAN: Before I respond to the ques­ tion, may I correct one statement I made a while ago. I said the nation's "doctor bill" was a little over $100 billion, and I meant, of course, the nation's total health expendi­ tures, the whole ball of wax-doctors, hospitals, drugs, and everything else. It was a layman's mistake. The patient looks at what he paid for miracle drugs, a couple of days in the hospital, and the physician's services and he tends to refer to it all as "doctor bills," when only about 18 percent of it actually goes to the physician. Now, to the question. Under the Health Security Pro­ gram, there would be about 200 local offices that would administer the program. These 200 administrative areas were established by the health planning bill the President signed at the end of the last Congress. They're called Health Service Areas. In each of these areas, there would be a governmental entity that would represent the trust fund, and they would negotiate at arm's length medical prices and fees to be followed by the health deliverers in that area. These entities would have to negotiate reason­ able fees for the doctors in order to get the doctors to deliver the service, and the doctors would have to accept reasonable fees in that bargaining process in order to get paid. I think it's a realistic way to control costs. There is just no way to control cost of medical care unless you have some mechanism for curbing what doctors and hos­ pitals can charge. The free enterprise system does not work in the health-care delivery system. Have you ever heard of somebody getting three competitive bids for an appendectomy? The same forces do not work in health care that work in other areas of consumer spending. Some kind of effective cost regulation is needed by the federal government, the state governments, or the insurance companies. If there is no regulation, the patient will be charged what the traffic will bear. Infusion of new money to finance medical costs, from new taxes or man­ dated private insurance premiums, will make it possible for them to bear more. Health costs will soar under any

25 national health insurance program that does not con­ tain effective price regulation mechanisms.

FRED ROSENBLATT, National Features Syndicate: Sec­ retary Weinberger, my question is similar to the one I asked you at your press conference in California a couple of weeks ago. In line with what Mr. Corman has just said, how are you in your plan going to differentiate between the bad doctor whose income may be a couple of hundred thousand dollars a year-you know, there are many who get that much-and the very good doctor and perhaps the very bad doctor who make more like $20,000 a year? How would you plan to set and control doctor fees?

SECRETARY WEINBERGER: I didn't know you were tracking me from coast to coast. [Laughter.] I'll give the same basic answer I gave in California. Under our bill, the patient would choose hi:s doctor and his choice would be based on the same considerations that motivate people now when they choose doctors. Incidentally, I don't think that a good doctor is neces­ sarily one that makes $20,000 and a bad doctor one that makes $300,000, or vice versa. I like to think. that there are other factors that would be used to determine the quality of health care. Under our plan, individuals would select the pro­ viders of their own choice, just as they do now. Those providers would be reimbursed by insurance companies. If the doctor was not adhering to the standards of quality that are necessary in his area, then I would think the local professional standards review organization [PSRO] would certainly make that fact known. And if the situa­ tion warranted action, the people who do the licensing of the doctors, the state governments, would certainly inter­ vene. It is the reimbursement mechanism that our plan would change. Instead of a person's paying his medical bill out of his own pocket, that bill would be paid under an insurance policy for which the person would have paid a portion of the premium.

26 JENNIFER RYAN, Health Manpower Report: Congress­ man Ullman, would you explain how you expect your bill to fit into the recently enacted National Health Planning Act? Specifically, how would your health care corporations correspond to or work with the health service agencies set up in that new law?

CONGRESSMAN ULLMAN: That bill did not come out of our committee; it came out of the Interstate and Foreign Commerce Committee. The health care corporation concept is somewhat dif­ ferent in that it has more flexibility and can allow for overlapping in order to take care of certain metropolitan situations. But by and large, I think the effort would be to coordinate the two. I'm a great believer in putting things together and totally opposed to going in different direc­ tions. So I think the two would fit very well and that we could build on that geographic system with our health care corporations.

WILLIAM HINES, Chicago Sun Times: Senator Brock, I'm curious about your 15 percent cut-off feature, because it seems to me that there are plenty of people, middle-income people, in the United States who could not absorb a 15 percent hospital bill in any given year. Would you allow for private health insurance policies that people could carry, or how would this be handled?

SENATOR BROCK: I think one of the strengths of my proposal is that it would incorporate the private system. So, yes, we would continue the present private insurance and we would continue both Medicare and Medicaid. The problem is with the people who fall between the cracks left by those three programs, the people who therefore are getting no help today. Let's take the example of the average family of four with $9,000 in gross income and taxable income of $6,000. If that family had medical expenses of, say, $2,000, you would take 15 percent of its taxable income [$900], sub­ tract it from the total medical bill [$2,000], and the pro-

27 gram would pay 85 percent of the balance, which in this case is $935 [.85 x $1,100]. In effect, the program would pay about half of that total medical bill of $2,000. So you see we are not talking about the family spending 15 percent of its gross of $9,000 but rather 15 percent of a much smaller figure. And I think that if this program were set alongside the private health insurance that most Americans have today, we would have a system that would protect almost every family against wipe-out or disaster. That, to me, is the limit to which we ought to go, except for providing direct programs for those who have no income at all.

REGINALD RYAN, Medical World News: My question is for Secretary Weinberger. How will the Ford administra­ tion attempt to influence next year's legislation if it doesn't introduce a bill of its own this year?

SECRETARY WEINBERGER: Well, if there are congres­ sional hearings on health insurance-and that would not be new because there have been for the last ten years-we would present the points that we presented last year. The President supported that bill in his very first talk after he took office. And we would ask for an enactment of the bill embodying those principles next January.

WILLIAM COOPER, M.D., Medical Society of Washington, D.C., and American. Medical Political Action Committee ( AMPAC) : Most of all I like to think of myself as a little old private practitioner. My question is for Chairman Ull­ man and Congressman Corman. Both of you gentlemen mentioned regulating physicians' fees or costs. What would you do about the malpractice insurance problem? As you know, malpractice insurance premiums are going out of sight. Would you control them also?

CONGRESSMAN ULLMAN: That certainly is a problem we are concerned with. But it seems to me, again, that the health care corporation and particularly the per capita program to which all of the practitioners would belong-

28 or rather most of the practitioners (it's a voluntary pro­ gram, but let's assume that 90 or 95 percent of them joined up )-would be exercising a self-discipline. In the instances where we have per capita programs-for ex­ ample, in Clackamas County, Oregon, where the county medical association has established a voluntary per capita system that is available to everyone in the county and 95 percent of the doctors participate-we find that peer re­ view works tremendously well because every doctor has a stake in it. If some doctor is doing the wrong things, it's everybody's business. So it really works. I think that is part of the answer. It's not the whole answer. There isn't, in my judgment, any quick, easy answer to your problem; it's a tough one.

MR. LAIRD: Cap, would you like to comment?

SECRETARY WEINBERGER: Yes, I would. We are very worried about the malpractice insurance problem. In fact, we consider it a major crisis because, as you say, malprac­ tice premiums are tripling and quadrupling and many companies are refusing to write this kind of insurance at all. And no doctor can be expected to practice unless he has the protection afforded by malpractice insurance. We've had one meeting in our department-I guess it was the first time all the carriers, medical associations, doctors, and consumer groups were brought together-and we'll have another one next month. We were assured that the companies would stop cancelling out people while we tried to work out solutions. We made the point that the federal government should not become involved if that could possibly be avoided. We don't want to get into the business of reinsuring or anything of that kind. But we stressed that we cannot stand by idly and see the nation's health providers unable to practice because of total lack of protection. This crisis is occurring in a number of states, and I think it is a real challenge for the private sector-the doc­ tors, insurance carriers, and so on. I'm satisfied on the basis of the response at our first meeting that they realize

29 it and are working very hard to try to solve the problem. And I think what I would like to see ultimately is an ar­ rangement whereby the doctor who conformed to the standards of the PSRO-which, in effect, would be set by physicians in his own area-would have an absolute de­ fense to a malpractice suit. This might help some. It's a major problem and it's one that the private sector-providers, insurers, and consumers-has to ad­ dress. We are simply providing the good offices of the gov­ ernment to assist that process. If worse comes to worst, the government won't hesitate to move, but I would cer­ tainly hope the problem could be solved and that protection could be extended long before we get to that point. But the situation is pretty serious now.

CONGRESSMAN CORMAN: Doctor Cooper, I think that worse has come to worst already. In my view, we need legislation in this field now, and I suspect eventually we might move to something along the lines of workmen's compensation or no-fault coverage for several reasons. First, the patient who is in fact injured by a negligent doctor should be compensated for the actual damages. Second, every doctor in the land should not have to pay astronomical insurance premiums for reasonable protec­ tion. The doctors can now see what happens to people who are left to the competitive insurance system: the premiums being charged are astronomical. I think something must be done. Under any national health insurance program, the government would possibly get involved in malpractice coverage for those physicians who practice within the system.

MR. LAIRD: Bill, do you want to comment?

SENATOR BROCK: That's like saying, "Now that you have the flu, we're going to give you a little shot of polio vaccine," or something like that. I'm not sure that your remedy fits the problem. You talk about regulating doctors' fees, hospital fees,

30 the prices of health delivery, and so on, and you say, "Well, we need a little bit of regulation." It's like saying, 'Tm a little bit pregnant." The regulations grow and all of a sud­ den you have created the very inequities that this problem brings to the fore. What is a doctor going to do? So now we are going to pay for the doctor's malpractice insurance, which means we have to judge his competence and which means we have to set his salary based upon his competence-be­ cause we don't want to pay somebody who is very skilled the same as somebody who is unskilled in a particular field. Where in the world does it stop? Wouldn't it be far better to take a look at the specific problem of the need for some limited insurance and then deal with a no-fault program for this sort of thing? Maybe we ought to start talking honestly to the Ameri­ can people. It has become much too easy for juries to vote out-of-sight judgments, not on the facts of the case, but simply because they know that there is a big rich doctor or, more to the point, a big rich insurance company that will pay that bill. And then the doctors come to Jim Corman, Al Ullman, and Bill Brock and say, "Hey we don't like our insurance rates; they're going out of sight." Somewhere there's got to be some balance in this thing. TOM SHERLOCK, Blue Cross of Maryland: I'd like to ad­ dress a question to Secretary Weinberger. Mr. Secretary, most of the national health insurance proposals that have been presented to the Congress over the past few years have seemed to envision a rather sub­ stantive role for the private health insurance industry, either in the administration or the underwriting of these programs. This, in turn, would seem to assume an ex­ panded federal role in the regulation of such health in­ surance companies. Would you give us your views as to whether that might be in the offing? And if so, how might that regulation compare with present state regulation of such companies?

31 SECRETARY WEINBERGER: Well, the administration's bill doesn't presuppose a standard role for the federal gov­ ernment. We believe that the regulation of insurance com­ panies should continue to be done by state governments. In our opinion, they know more about it, they have ex­ perience in the field, and they basically are doing a good job. Some are not doing as well as others, but the federal government doesn't always do things very well either. So, I don't see any reason to expand the federal role in this area at all. Insurance companies are under state regulation at present, and I think that this regulation should continue. Under our bill the only thing new for insurance companies would be, perhaps, a broader base of coverage for many people. The federal government's role should be limited, I think, to stating the guidelines for the kind of policy that meets federal standards and to ensuring that the people who purchase that policy would have a solvent company to deal with-and things of that kind. That type of regulation is being done by the states. I think it should continue.

WILLIAM GOLDBECK, Washington Business Group on Health: A question for Secretary Weinberger. Sir, in this year, which you have described as being one of moratorium on new programs, do you anticipate taking a lead, once again, in attempting to bring about some form of con­ sensus among the many private-sector elements-the AMA, Blue Cross and Blue Shield, the hospitals, the chambers of commerce-that have, at this point, rather differing views on national health insurance?

SECRET ARY WEINBERGER: I certainly think we would want to try to get a consensus for a sound health insurance bill and, based on the experience of last year, it may well take another year to do that.

MR. GOLDBECK: Are you trying to take the lead, then?

SECRET ARY WEINBERGER: I certainly plan to be active in that endeavor, yes.

32 CRAIG PALMER, United Press International: My question is addressed to the panel, with an emphasis on Secretary Weinberger, and it relates back to the first question asked tonight. What will happen to health costs without any health insurance plan? What would happen under your particular plan? And, if we have inflation and escalating health-care costs, which would be worse-continuing as we are now or imposing a national health insurance plan?

SECRETARY WEINBERGER: Does the emphasis on me mean I'm to answer?

MR. LAIRD: I think that would be nice.

SECRETARY WEINBERGER: We've been very concerned about health-care costs, because we're responsible for the nation's health programs, and because the costs have been something that could cause anybody worry. Slightly be­ fore controls went off in April 1974, and continuing for several months thereafter, health-care costs outraced the consumer price index (CPI)-which was already much too high by several points. Finally, in late October, Novem­ ber and December, they settled down a bit and matched the CPI rate, which was also coming down a bit from its previous levels of expansion. I would certainly agree that the imposition of national health insurance would bring about a need for some kind of control of health-care costs. We so stated over a year ago. We also stated that the discussion of national health insurance might lead some providers to increase their charges in anticipation of the passage of a bill that might have controls in it. That is why we urged that the health­ care cost controls not be allowed to expire last April. But the Congress didn't see it that way and allowed them to expire. At present, health-care costs are increasing at about the same general rate as the CPI. If that pattern continues and given the efforts that are being made to bring the CPI down, I think it will be possible to have a satisfactory enough result until national health insurance is enacted.

33 MR. LAIRD: Jim, you and your subcommittee of the Ways and Means Committee are going to be working with this almost on a regular basis. What is your comment?

CONGRESSMAN CORMAN: Well, first of all, as you know, H.R. 21, the Kennedy-Corman plan, actually would regu­ late through a bargaining system what doctors and hos­ pitals and all other providers would be paid. Prices would be negotiated at the local level between the trust-fund ad­ ministrator and the health deliverer. I think that's a reason­ able system. It has worked well for us in the field of wage negotiations. One reason I'm so opposed to the President's pro­ posal is that I cannot see how it would provide effective price regulation or effective federal regulation of the in­ surance companies. The federal government's only role with respect to the insurance companies would be to make it against the law for employers not to offer to buy health insurance for their employees. Now, that's quite a role. But then the program would let the insurance company decide what premiums will be charged. It would not limit what doctors can charge. And doctors would get some of their fees from the insurance company and the rest from the patient. That, I suggest, would blow medical costs right off the road.

CONGRESSMAN ULLMAN: Might I respond, because I think it's a very important question. My judgment is that any program that does not contain a system of local health­ care corporations or the equivalent-they don't have to be called that, but some local mechanism for putting it all together is needed-would be tremendously inflationary. It would put too much pressure on the delivery system and would be bound to result in increased costs. But the mech­ anism we have in H.R. 1 for handling the administration through a beefed-up state health commission would in­ volve not only fee regulation, the restructuring of the system, the elimination of duplications and other kinds of things, but it would also tum the incentives around. That,

34 I must insist, has to be the only way we can really face up to the cost issue. Also H.R. 1 would establish a basically sound peer review system, working ultimately through the per capita program. These are the mechanisms that we will finally have to use, if we are going to get a handle on costs.

SENATOR BROCK: May I just add this thought-that it seems to me you first have to recognize that health costs are probably going to continue to parallel costs in the rest of the economy, because doctors and hospitals and nursing homes are under the same pressure that the rest of us are. Electricity bills are going up, taxes are going up, and these are cost ingredients that have to be passed on. Rising costs will continue until we can get the total economy back in hand, and that's something that must be done. But it can't be done if we explode the budget with a new federal spending program every six weeks. Point number two is that every study I've seen, and I have tried to read them all, shows that if we start pro­ viding first-dollar coverage from the federal level, then costs would absolutely skyrocket. According to the Rand Corporation study on national health insurance, 1 the de­ mand for doctors would go up 75 percent, the demand for outpatient services 40 percent, and the demand for pre­ scription drugs 100 percent. Now, you know, demand af­ fects supply, and supply and demand together affect price. That's just a law of nature. If we then, in turn, impose federal limits on those prices, the cost is going to be paid in some other fashion. It'll be paid in the form of longer waiting time before you can get an appointment. That's what happened in Canada, where national health insurance exactly doubled the wait­ ing time. When you get to a doctor's office, you'll sit there. Instead of waiting one or two hours, which I think is al­ ready excessive with too many doctors, it'll be more like five or six. That's a cost. It may not be paid by the federal

1 Editor's note: Joseph P. Newhouse, Charles E. Phelps, William B. Schwartz, Policy Options and the Impact of National Health Insurance (Santa Monica: The Ra,:,d Corporation, June 1974).

35 government, but it's paid by the person who is sitting there and so cannot go to work that day. These are costs and somebody's got to recognize that they're going to be paid by the people of this country. Enormous federal growth and expansion has always led to an expansion in cost that must always be paid.

MAX FINE, Committee for National Health Insurance: I'd like to ask a hostile and penetrating question. I'm from Tennessee, Senator Brock, so I'll ask this of Mr. Wein­ berger. Mr. Weinberger, your predecessor at HEW, Elliot Richardson, testified before the Congress that the Social Security Administration could administer the national health insurance program at a lower rate than the private insurance industry. But, he asked, do we want to wipe out an entire industry? Now, you've testified that 50,000 new employees would be required at Social Security to ad­ minister national health insurance. Senator Brock says that the private insurance indus­ try employs 500,000 employees. The insurance companies say they're losing money on health insurance. To what extent would the fact that the Ford adminis­ tration's bill would provide $7 million in administrative costs in the first year to the insurance industry, according to data you gave the Ways and Means Committee-to what extent would that bail out the insurance companies which are now losing money in the health business?

SECRETARY WEINBERGER: As you say, that is a hostile question. It's not very penetrating, though, because it's based on a great many false assumptions. First of all, there isn't anything remotely resembling a $7 million figure for administrative costs in our plan. The only costs to the federal government would be the costs that would be required to help people with low in­ comes or high health risks pay the premiums for the policies that the employers or the state governments were able to secure to provide the needed coverage for these people. And the premiums would be based on competitive prices charged by 600 insurance companies all seeking

36 the business. So, there's nothing whatever in our bill for any money to pay administrative costs to insurance com­ panies, or to bail anybody out, and any statements of that kind I can only construe as being so hostile as to be inaccurate. Basically, the problem is that the Social Security Ad­ ministration administers Medicare now because it is part of the statutory requirement that it do so. I don't think that. it does the job better than private insurance com­ panies could. I think it does it because it is required to. There are all kinds of accounting problems which the government can avoid but that private companies cannot avoid. A meaningful comparison of the costs is very diffi­ cult when the government agency can simply draw on the Treasury to take care of any deficits or any other problems that might occur. As far as employment is concerned, I'm basically con­ servative, and so when I say 50,000 employees, it's a very conservative estimate. I think that you would probably find that there would be quite a few more. But I would personally much rather rely on the strengths of the exist­ ing system, the doctors, the nurses, the hospitals, the health insurance companies, and others, rather than junk it all, throw it all out and turn to the government. Al­ though I have served in government for a long time, I don't have faith in its ability to do things better than the private sector.

SENATOR BROCK: I might add, Mr. Fine, that if the national health corporation you propose is as effective as the Post Office, you'll have to schedule pregnancy de­ liveries ten months in advance and pay about five times what you are paying for the service now.

CONGRESSMAN ULLMAN: Are you then supporting the local health-care corporation? [Laughter.]

MICHAEL HALBERSTAM, M.D.: I think Mr. Corman and Mr. Ullman both referred in their statements to the fact that the present system, to a certain extent, encourages

37 hospitalization rather than outpatient care. I'm sure that some of this is due to the fact that many private insurance programs pay for hospitalization but not for outpatient care. So the subscribers, the patients, ask for hospitaliza­ tion because they say it's free. They know, of course, that they've paid for it in their premium, and they know that, if they overutilize and if other people overutilize, their premiums will go up. But, in their particular instance, they'll say to a physician: let's do it in the hospital, be­ cause it's free, it's covered. Now you both-and Mr. Corman, particularly-say the system you propose is not free, that everybody agrees it's not free. But how do you prevent the consumer from seeing it as free and, therefore, contributing to overutiliza­ tion?

CONGRESSMAN CORMAN: Doctor, I assume that the physician himself plays some role in preventing overutiliza­ tion. I hope that's true. And, especially, it would be true if his income weren't dependent on utilization. As far as patients are concerned, they want to get the maximum care at the minimum cost to themselves. If the doctor and the patient, because of insurance cover­ age or whatever, have financial incentives to use the most expensive care, that tends to increase medical costs and expenditures. But if the doctor and the patient had no financial stake in it, then the doctor would use his best medical judgment as to the minimum level of care needed to give his patient the maximum benefit. Neither the doctor nor the patient would have a pecuniary interest in using more expensive care than is medically necessary. There would be no incentive for this kind of corruption, which, as you point out, exists today and which would be much worse under any kind of compulsory private health insurance program that does not have effective counteracting pro­ visions.

CONGRESSMAN ULLMAN: Might I say that, again, mine is the only program that reaches out into the-delivery sys-

38 tern. Mine is the only one that places a great emphasis on outpatient care. That has to be the answer. We have to solve these problems in the least expensive way. We have to try to solve them before they get severe, and so that people don't have to go to the hospital, the most high-cost segment of the industry, in order to qualify for reimbursement. I see no excuse for insurance policies that only pay if you go to high-cost hospitalization. That simply is not right, and it's one of the things we have to turn around.

CONGRESSMAN CORMAN: Chairman Ullman, would you yield for a comment? You have made that statement so many times that I'm almost compelled to conclude you haven't yet received H.R. 21. All the mechanisms in your bill that put limits on costs, that encourage low-cost care, are included in H.R. 21. The only fundamental difference between our bills is that yours sets up separate programs for different kinds of people. When it comes to the delivery system itself, and the provisions for encouraging improve­ ments in the system and curbing the costs, the bills are almost identical.

CONGRESSMAN ULLMAN: I must respond, though, that there is a vast difference between the federal bureaucracy moving into a local area and setting standards, on the one hand, and the structuring of a local delivery system so that the system itself is mandated to establish certain disciplines, on the other. There's all the difference in the world. I maintain that mine will work, that yours has all of the evils of a vast bureaucracy, and that it has been demonstrated time and again that that can't work.

SENATOR BROCK: If I may put a pox on both of your houses, I think the choice between a massive federal bu­ reaucracy and 40,000 new community bureaucracies is one that I don't want to face. Why don't you handle it instead by the tax credit route, as the doctors have pro­ posed and as I propose it in my bill, and let the people miike their own choice?

39 Because you see, Dr. Halberstam, to get back to your question, as long as the federal government controls sal­ aries, there is no motivation for the doctor to use the most efficient facility. That's what's wrong, I think, with the Kennedy-Cor­ man bill, and I don't see how the Ullman bill changes that. The fact of the matter is, that if a doctor doesn't provide every necessary service that is physically within his ca­ pacity to provide, and if all these services are "free" (that is, paid for by somebody else), then he'd be subject to a malpractice suit. And you think he's going to take that risk? You bet your life he's not. He's going to use every method at his disposal to protect himself, and it's going to cost us more money than you can say grace over.

SAMUEL MITCHELL, Smith Barney & Co.: Congressman Ullman, your bill pays particular attention to incentive structures for physicians-to the incentives required to make physicians provide the most cost-effective care pos­ sible. As I understand it, your plan would work around a capitation arrangement whereby doctors would be paid on a per-patient basis. However, in the United Kingdom that's caused severe problems in that doctors are running people through their offices too fast. On the other hand, a program relying on the free market might lead to what some say is the situation in the United States today, where­ in supply in too many cases creates its own demand. Yet, there's been no evidence that extensive regulation works.

CONGRESSMAN ULLMAN: Let me refer, again, to the program that's operating in certain parts of Oregon where, .for the first time, there is meaningful peer review. That has to be one of the key ingredients to this program. If the doctors themselves bear the risk, then they are concerned. They have a personal stake in the excesses on the part of other doctors and in excesses in the form of high-cost care in hospitals for patients who shouldn't be there, or shouldn't be there that long. It's a meaningful operation. And that has to be, one

40 of the key ingredients in cutting costs, and also in giving patients adequate care.

MR. LAIRD: We'll have time for one more question.

MAL SCHECHTER, Hospital Practice magazine: I'm a medical writer. As I've listened to some of the things being said. tonight, I've wondered if what we are talking about really is an insurance system. Are we not talking, perhaps, about a system that de­ livers services and in which the entire population pays for the entire population's needs? If that is indeed the case, then it would be a misnomer to call it national health insurance. What we should call it, I can't say. But it seems to me that perhaps we're not really talking about in­ surance. When we have a fire department, we pay for the cost of the fire department. When we have education, we pay for the cost of education. When we need medical care, perhaps, what we're all talking about is paying for that medical care. And insurance may very well be beside the point. I wonder if the panel would like to respond to that?

MR. LAIRD: I would like the chairman of the House Ways and Means Committee to respond to that first.

CONGRESSMAN ULLMAN: I fully agree. We probably should be referring to a national health system, because the insurance concept relates just to paying the bills and that is only one of our problems. We've got to do more than pay bills. We've got to turn the incentives towards getting care early, in outpatient clinics, before the patient's situation becomes critical. "'\ What we're really talking about is more than health ""' insurance, I fully agree, so maybe the name should be \Changed. \, '· MR. LAIRD: Mr. Secretary.

41 SECRETARY WEINBERGER: I think the question points up all the worrisome problems inherent in a program that is not limited to health insurance-that is, the problems of the government delivering health care, paying the pro­ viders, and running the system. The Ford administration wants an insurance system under which employers and employees buy insurance through the private sector to cover all of the illnesses and ailments they may have. We don't want a government-run, government-provided service.

MR. LAIRD: Ladies and gentlemen, this has been one of a series of programs sponsored by the American Enterprise Institute for the discussion of major current issues. On behalf of Senator Brock, Congressman Ullman, Secretary Weinberger, Congressman Corman, and myself, I bid you good night. [Applause.]

42 /.' I ./ Design: Pat Taylor ? / ROUND TABLES The Economy and Phase IV ($2.00) · John T. Dunlop, Charls E. Walker, Yale Brozen, and Gary L. Seevers

Foreign Trade Policy ($2.00) William R. Pearce, Al Ullman, Barber B. Conable, Jr., and Hendrik S. Houthakker

The Energy Crisis ($2.00) Part One: Clifford P. Hansen, Morris K. Udall, Mike Mc­ Cormack, and Charles E. Spahr. Part Two: Jennings Ran­ dolph, Mark 0. Hatfield, Dixy Lee Ray, and Philip H. Trezise. Part Three: J. William Fulbright, John N. Nas­ sikas, George W. Ball, and Charles J. DiBona

Watergate, Politics, and the Legal Process ($2.00) Part One: Charles S. Hyneman, Richard M. Scammon, Aaron Wildavsky, James Q. Wilson, and Ralph K. Winter, Jr. Part Two: Richard M. Scammon, Harry H. Wellington, James Q. Wilson, and Ralph K. Winter, Jr.

Indexing and Inflation ($2.00) Milton Friedman, Charls E. Walker, Robert J. Gordon, and William Fellner

Is the Energy Crisis Contrived? ($2.00) Walter F. Mondale, Charles H. Murphy, Jr., Stanley H. Ruttenberg, and James W. McKie

Japanese-American Relations ($1.50) Hubert H. Humphrey, Ted Stevens, Robert S. Ingersoll, and Philip Caldwell

Health Insurance: What Should Be the Federal Role? ($2.00) Bill Brock, James C. Corman, Al Ullman, and Caspar Weinberger

Round Tables are also available in audio cassettes ($3 each, ten for $20) and in video cassettes (rental-$45 each, purchase-$125). Health Insurance: What Should Be the Federal Role? en­ gages leading spokesmen of different approaches to na­ tional health insurance in a timely review of this complex policy issue. Secretary of HEW Caspar W. Weinberger pre­ sents the Ford administration's plan, while three members of Congress-Senator Bill Brock (Republican, Tennessee), Representative Al Ullman (Democrat, Oregon) and Repre­ sentative James C. Corman (Democrat, California)-out­ line their particular proposals. A wide range of views emerges on such matters as the probable costs. of the dif­ ferent programs and their impact on the federal budget, alternative methods of financing, ways of controlling health-care prices, and federal versus local regulation of health-care supply and delivery. $2([)

American Enterprise Institute for Public Policy. Research 1150 Seventeenth Street, N.W., Washington, D.C. 20036