what hampered in its early stages by the lack of capital for the construction of facilities which would have made it possible for the plan to meet more expeditiously its growing needs.

We are of the opinion that, if enacted, this bill would encourage private lending institutions to provide funds to voluntary associations, including cooperatives and labor unions, which undertake to offer hospitalization and medical care on a prepayment basis. The availability of such loans would certainly help stimulate further experimental developments of these voluntary plans set up by these organizations, as well as by community groups, groups of physicians and others. We trust, however, that this committee will also give further consideration to the possibility of a supplementary source of funds to be provided by direct Government loans to these groups, as proposed in the earlier bill introduced by Senator Humphrey, S. 1052, and in H. R. 6950, introduced by Chairman Wolverton last January.

We are aware that this committee is still giving most careful consideration to the reinsurance proposals contained in H. R. 8356, as well as to the various other proposals which have been presented to you. It is our view that, if the committee should see its way clear to report out the reinsurance proposal designed to underwrite the extension of even a limited type of voluntary health insurance by both commercial and nonprofit organizations and combine with that the proposals contained in the measure now before you which would enable and encourage voluntary consumer groups to develop comprehensive group practice prepayment service plans, the combination of the two measures would constitute a genuinely constructive approach to important elements of the total health problem. It is in line with this approach that we urge the adoption of H. R. 7700.

And now, Mr. Chairman, when Mr. Cruikshank and I appeared before your committee on April 1, we submitted several specific changes, mostly dealing with definitions, which we proposed be incorporated in this bill. At that time, you asked us to suggest language which would implement the changes that we recommended. We are just completing the drafting of that specific language, and will very shortly have it in the hands of your technical staff.

Again, we wish to thank you, Mr. Chairman, for the opportunity you have afforded us to present the views of the American Federation of Labor with respect to these proposals, and to again complement you on the introduction of such far-reaching and forward-looking

bills.

The CHAIRMAN. We thank you, Mr. Biemiller.

With reference to your previous appearance before this committee, particularly with your reference to the appearance on April 1, are important, because of the suggestions you made at that time, and which statement this morning indicates that you are engaged in working out and will give the committee the benefit of, as soon as they are finished.

Mr. BIEMILLER. You will have them the first of the week, Mr. Chairman.

The CHAIRMAN. In addition to that, if I remember correctly, you did make statements with respect to H. R. 7700. If you would care to examine those statements, it might be that they could be appropriately made a part of the hearings on this bill, as well as on the other bills.

Mr. BIEMILLER. We will be very happy to do that. We have a copy with us and we leave it with the reporter, Mr. Chairman.

The CHAIRMAN. Very well.

(The matter referred to is as follows:)

STATEMENT PRESENTED BY NELSON H. CRUIKSHANK, DIRECTOR OF SOCIAL INSURANCE ACTIVITIES, AMERICAN FEDERATION OF LABOR

Mr. Chairman and members of the Committee on Interstate and Foreign Commerce, my name is Nelson H. Cruikshank and I am director of social insurance activities for the American Federation of Labor. My office is located at the AFL Building, 901 Massachusetts Avenue NW, Washington, D. C. I am accompanied by my colleague Mr. Andrew J. Biemiller, a member of the legislative committee of the American Federation of Labor. Mr. Biemiller has been given the responsibility on the part of the A. F. of L. for legislation in the field of social insurance.

We deeply appreciate the opportunity of presenting to this committee our views on the two measures which you now have under consideration, both of which were introduced by the chairman of this committee.

On January 15 of this year, your committee afforded me the privilege of presenting the views of the American Federation of Labor in connection with this committee's survey of general health problems. At that time, I listed what appeared to us as a number of major needs in the health field. I will not take up the time of this committee by repeating the analysis which I presented at that time. For your convenience in reference, however, I should like to summarize the major needs as they appear to an organization which represents a very large number of the people who are recipients of medical care and services. These needs fall in two general groups. The first are the needs of working people, which we observe from our experience in this field. We believe they are not different from the needs of the general population.

1. Preventive care.-A constructive progressive medical-care program, is one which seeks to improve and to maintain the health of those who are served by it, rather than to merely patch up and repair their disabilities after they have reached an advanced stage. Every system or program of medical care should be tested by the attention which it pays to this vital aspect of the total national health problem.

2. Access to facilities and personnel. The principle of free choice should be realistic in its application. It should include the choice of the method or type of medical care to be selected and it should, if it is to be meaningful, include access to the best hospitals and health service centers.

3. Comprehensive protection.-Medical care without detriment to its quality cannot be fragmentized. Its component parts must be integrated into a comprehensive continuous whole. Diagnosis cannot be arbitrarily separated from treatment and surgery cannot be isolated from preoperative and postoperative care. Care inside of the hospital cannot be provided as a thing entirely apart from care in the home, office, or clinic. Anything short of a comprehensive, unified health program, is to that extent, an inadequate program.

4. Full family coverage.-This is likewise an essential criterion of adequacy. Many of the plans in existence today cover only the wage earner himself and exclude his wife and children. The contribution which such plans make toward the solution of his health problem is very small, even if these plans were adequate in all other respects-which they are not-for the medical expenses of the worker himself are but a small part of the total family medical bill.

5. Budgeting for full prepayment.-A satisfactory health program should, at the very least, provide a means of making possible the full prepayment of the costs of the services offered. The application of the social insurance principle also requires that the rate of payment bears some direct relationship to the income of the persons covered.

6. Improvement in quality of medical care.-The medical profession itself today is aware of the necessity of rooting out some of the evils that have been associated with particular types of practice. Fee-splitting, unnecessary surgical operations and the overcrowding of hospitals, are aggravated in some instances rather than alleviated by the prevailing type of commercial indemnity type insurance coverage. The need is for positive incentives to the great majority of ethically minded physicians and surgeons to provide through group practice and other means now available the highest type and quality of medical care and

service. The general public needs assistance in discovering and utilizing the better types of medical care.

There is a second group of needs which are of a community nature. Among the most urgent of these are the following:

1. Care for the chronically ill and the indigent aged.

2. Expansion of local public health units.

3. Aid to medical education.

4. Expansion of hospitals, health centers and other physical facilities. We are aware that this committee has made recommendations in some of these areas. For example, the adoption by the House of your recommendation with respect to the broadening of the Hill-Burton hospital survey and construction program, contained in H. R. 7341, will help meet the problem of plant facility, providing, of course, that additional appropriations are made to carry out the program on a scale commensurate with the need.

We are also aware that the major bill you now have under consideration, H. R. 8356, does not address itself to a number of these areas of need. However, since it is put forward as the major proposal of the administration in the field of health and has been publicized as having been developed in response to the promise made by the President that the health needs of the people of this country will be fully taken into account in the "progressive and dynamic program" which he is presenting to the Congress, it is only proper that this bill be evaluated in the light of these major needs.

As we study this measure, our hopes are raised by the worthy purposes expressed. We note the reference to "adequate service prepayment plans", to be made "generally accessible on reasonable terms *** to the maximum number of people". We further note the purpose as being "to stimulate the establishment and maintenance of adequate prepayment plans in areas and with respect to services and classes of persons for which they are needed". However, as we analyze the proposed implementation of these very worthy objectives, we are deeply disappointed. We find nothing in this measure which will effectively motivate private insurance carriers to extend their offered types of protection in a manner that is adequate to achieve these objectives. The principle of reinsurance may make it possible for commercial insurance companies to extend their limited type of protection to meet some of these needs, but we find nothing that effectively encourages them to do so.

It may be that for some of the nonprofit organizations such as Blue Cross, the removal of a portion of the risk involved in extending protection to new areas may result in some actual extension of such protection. If this should, in fact, prove to be the case, it should be recognized that it is because these nonprofit organizations, by definition, are motivated by different incentives than are the commercial carriers.

It is precisely, at this point, that what appears to us as one of the major fallacies on which this bill has been developed becomes apparent. It is a truism among businessmen that they "are not in business for their health". It should be equally apparent that insurance companies are not in business for other people's health. This is not offered as a criticism of private business enterprise. It appears to us that the proposals of this bill, so far as they relate to the insurance carriers, are predicated on the assumption, that these carriers are chafing at the bit awaiting the removal of the barriers to permit them to rush into the high risk areas in order that they may fulfill their mission of meeting the health needs of the country. This, we submit, is a false assumption. The commercial insurance companies are in business for profit, though they will incidentally meet part of the health needs of the country in the course of their profit making, so long as competitive conditions maintain. If a limited reinsurance provision were all that was required to release the assumed pent-up social purpose of insurance carriers, it seems likely that the insurance companies themselves would have developed such arrangements in this field, as indeed, they have done with respect to many other types of insurance. The fact seems quite clear that commercial insurance companies will continue to offer their useful but limited and generally inadequate type of protection in the areas of service where profits are readily attainable. Without some additional incentives and motivations, they will not move into the high risk areas, simply in order to meet a social need. It is at this point that this bill is mainly deficient. We can find nothing in it that provides a positive incentive for the commercial insurance companies to meet these major social objectives. That is why we have come to the conclusion that

47892-54-7

this bill is long on its asperations and goals but timorous and hesitating in its implementations.

For example, there is included in the statement of purpose of this bill the following language: "To stimulate the establishment and maintenance of adequate prepayment plans in areas, and with respect to services and classes of persons, for which they are needed." Contrast this with the following statement presented by the Assistant Secretary of the Department of Health, Education, and Welfare when he appeared before this committee on March 24:

"While we believe this program holds great promise for the American people, I want to mention three limitations.

"First, it can help only those who can and are willing to include health-insurance premiums as a necessary part of the family budget, and those who are covered by insurance plans maintained by their employers in whole or in part." The significant phrase to us here is "those who can and are willing to include health-insurance premiums as a necessary part of the family budget".

In presenting and explaining the background charts to your committee, the Special Assistant to the Secretary, Dr. Keefer, pointed out that "in more than 40 percent of the families, expenses incurred for medical care ranged from 5 to over 100 percent of family income in the given 12 months". How many of the people in this 40 percent are those who cannot budget for medical care? We submit that the very heart of the Nation's most critical health problem today is precisely for those who cannot, or even those who will not, include healthinsurance premiums as a necessary part of the family budget. Our concern, of course, is primarily with those who cannot. But, on the authority of the administration representatives, this program does not attempt to meet that problem. Consider this, if you will, in the light of the facts presented in another one of the charts explained by Dr. Keefer. This was chart F, entitled "Family income groups-distribution of hospitalization insurance". This chart showed that there were 6 million people in families with an income of under $2,000 having some type of hospitalization insurance. This represented 25 percent of the families in this income group. Leaving aside for the moment the very important question of adequacy for this limited protection, it seems to us that the significant fact here is that 75 percent of the families of this income group were without any such protection. Moving up into the next income bracket, we find that 49 percent of persons in families with an income between $2,000 and $4,000 were also without any hospitalization insurance. Certainly, among the 75 percent of families in the lowest income group and the 49 percent in the next lowest group having no hospitalization insurance, there is a large proportion, if not, indeed, all of them, who come into the category of those referred to by the Assistant Secretary as those who cannot include health-insurance programs as a necessary part of the family budget.

One of the most striking statistics was presented by Dr. Keefer in his chart C, which showed that, of the national annual total of personal medical expenditures of $9.4 billion, only $1.6 billion, or 17 percent, was covered by insurance. While the growth of the number of individual memberships and policies over the years 1939 to 1952 as presented in his chart A is impressive, the growth in actual protection as revealed on his chart C is meager indeed. In fact, chart A is misnamed. It shows the increase in insurance participation-not in insurance protection."

With reference to the factual data that was presented by Secretary Hobby and her assistants, we would like to express our appreciation and admiration for the graphic way in which the health needs of the country were portrayed. The needs as they were analyzed and set forth will provide a major contribution to public education in the field of health needs. However, they appear to us as presenting singular non sequitur in that they graphically portray real needs, but needs which cannot be met by the proposals contained in the bill they were designed to support. In fact, they constitute one of the most conclusive presentations of the need for national health insurance ever to come to our attention.

We look in vain in this bill for some general encouragement for preventive care. Where is there any improvement in the accessibility to facilities and personnel? What provision is there in this bill for comprehensive protection or for full family coverage? Where is there in the bill any protection for the patient against the practice of fee-splitting or unnecessary surgery, or to assure him that the insurance which he buys will indeed cover the full cost of his medical bills? What provision is there for the improvement of the quality of care through the encouragement of group practice?

This bill was introduced by your chairman on the 11th of this month. On the 3d of March, the social security committee of the American Federation of Labor, met and discussed the broad principles of this proposal. It was agreed by our committee that the principle of reinsurance in the general field of social insurance had a great deal to commend itself. It was also the opinion of our committee that the merits of the forthcoming proposal could in large part be measured by the standards which were to be included in the program with respect to the type of protection made available under the plans to be reinsured. When the bill was introduced on the 11th of the month, therefore, we were especially interested in section 303 which prescribes the terms and conditions governing the approval for reinsurance of health service prepayment plans. We find listed here, eight criteria which we agree are the standards by which a good health-insurance program should be measured. However, we find no specification for the application of these standards. This vital question is left unresolved as the bill simply proposes to give the Secretary of the Department of Health, Education, and Welfare, authority to apply these standards in such a way as she determines will promote the purposes of the bill.

In considering this section of H. R. 8356, we respectfully suggest this committee adopt the approach of H. R. 6949 which was also introduced by Chairman Wolverton. Section 5 of this measure incorporates specific standards applicable to plans eligible for reinsurance. Most of these, we feel, would contribute to the improvement of the adequacy of the protection afforded the insured individual.

It appears to us that H. R. 8356 contains a major inner contradiction in that it places two responsibilities on the Secretary: (1) to meet important social objectives and (2) to operate a sound reinsurance system. It seems to us that the reinsurance system can only be kept on a sound actuarial basis if the insurance is granted under conditions that make the social objectives unobtainable. Or if the social objectives are to be achieved, it can only be done by operating the reinsurance program at a consistent loss which would then convert the reinsurance program into a poorly disguised subsidy. Now we are not against a Government subsidy in this field, but we feel that if a program of subsidies to meet health needs is undertaken, it should be done directly and openly.

In fact, bills which, in our opinion, more realistically approach the needs as outlined in the Secretary's testimony have been introduced by a group of distinguished Senators and Congressmen, who are all incidentally of the majority party. In fact, this measure, when first introduced, had a cosponsor in the House, the present Vice President of the United States. I refer to Senate bill 1153 and H. R. 3582, H. R. 3586 and H. R. 4128, introduced by Senators Ives and Flanders and by Representatives Javits, Hale and Scott. The American Federation of Labor has never specifically endorsed this measure but it has by convention action noted the forward steps it represents in approaching the problem of providing adequate health insurance for the entire population.

This measure, in contrast to H. R. 8356, accepts the assumption that a public subsidy to voluntary insurance plans is the appropriate method for bringing most of the population under the coverage of such plans. The following specific constructive provisions of this measure commend themselves to all concerned with basic health needs.

1. It offers a nationwide scheme of insurance as a means of financing medical services.

2. The public charity principle involving a means test for lower income individuals and families is entirely excluded.

3. It provides that in order to qualify for Federal-State aid, the plans or a combination of plans, purchasable by a family, must offer comprehensive services, that is, at least hospitalization and the services of family physicians as well as specialists.

4. The membership charges in such plans cannot be flat rate, but must be based on a percentage of a subscriber's income (up to $5,000).

5. The majority of the governing board of every acceptable plan must represent those receiving medical care and services.

It appears to us that this bill represents a more realistic and straightforward approach to the needs than does H. R. 8356.

We note, however, that title II of H. R. 8356 contains provisions which authorize the Secretary to "conduct studies and collect information concerning the organizational, actuarial, operational and other problems of health service prepayment plans and their carriers." This title provides that the information