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1991 ADVISORY COUNCJLo_n /I SOCIAL ASECURITY Commitment to C hange: Foundations for Reform December 1991 Washington, DC TIMN 0023078

Commitment to Change: Foundation for Reform A Report of the Advisory Council on Social Security December 1991 washingcoo, DC TIMN 0023079

MEMBERSHIP OF THE 1991 ADVISORY COUNCIL ON SOCIAL SECURITY Chanr Deborah Steelman, Esq. Attomy-et-Law Members G. Lawrence Atkins, Ph.D. Director of Employee Benefit Policy Winthrop, Stimson, Putnam & Roberts The Honorable James R. Jones Chaimnan and Chief Executive Officer American Stock Exr.tange Robert M. Ball Former Commissioner of Social Security Philip Briggs Vice Cbairman of the Board Metropolitan Life Insurance Company Lonnie R. Bristow, M.D. AMA Board of Trustees Theodore Cooper, M.D. Chairmaa and Chief Executive Officer The UPjohn Company Professor John T. Dunlop Harvard University Karen Ignagni Director Department of Employee Benefits AFL-CIO John Meagher Parmer LeBoeuf, Lamb, Leiby & McRae Paul H. O'Neill' Chairman and Chief Executive , Officer Alcoa Arthur L Singletan Consultant on Govesnment John J. Sweeney Internationai President Service Employees Intc.rnational Union Donald C. Wegmiller President & Chief Executive Officer Health One Caporatian ' Resigned, replaced by John Meagher. u TIMN 0023080

ADVISORY COUNCIL ON SOCIAL SECURITY Ch- Diw.h fa..s Df.ww .1- (.ii.. D.DS C.d ~ ~«..e...m.~ w. u..+,.. so.,., t..... ao.A 4.rt .N. 4Y Fas"- - dSmYhv+. ft&.wv t'ae p-d tle Is.d .Nms'..o- t.f. l.s..m Ca^f (w.e L Yr... ALD. •1fAl~ dT- lLMw. C.np. M.D. a.- .,r o.a E- aF- r.V~ C.-. lAa- 1a. T. Di.f7 H.... u.,.a,.. ~c... a.,,. a..r.. ewt .nao Tl. M~..N.,.... L J.a 6-rrQr,f 01i +.rra ya~f F +u.~. rwH a... w.....r ck~ s-«. Cu .. .,~. ..Ls.- ... ca..,~.. ~.+. i s..e.. s.,.... ~.e ~....e.r c~ DerY C M'e~w4. he.k. a C7- Famane 01Fav ww. ow r ~ DEC 19 199 The Honorable Louis W. Sullivan Secretary of Health and Human Services Washington, D.C. 20201 Dear Mr. Secretary: As required by Section 706 of the Social Security Act, I herewith enclose for transmittal to the Congress and to the Boards of Trustees of the Federal old Age and Survivors Insurance, Disability Insurance, Hospital Insurance and Supplementary Medical Insurance Trust Funds the reports of the Advisory Council on Social Security which was appointed in July 1989. As directed by its Charter, the Council's major findings and recommendations concern a broad and thorough assessment of the factors that bear most importantly on the financial security of American families today and through the year 2020. when addressing the Council'at our first meeting, you urged us to address the current urgent questions of our health care system. You also urged us to assess the ability of current law to meet the challenges of the future and to pose and explore the larger questions the nation must face as it prepares for the largest generation of retirees our country has yet experienced, the Baby Boomers. On behalf of the entire Council, I would like to extend our thanks to you for the opportunity to address issues of this magnitude and importance to our families and to our children. Additionally, we extend our thanks to Messrs. Stan Ross and David Walker, the Public Trustees of the Federal Old Age and Survivors Insurance, Disability Insurance, Hospital Insurance and Supplementary Medical Insurance Trust Funds for their continuous and important support for our immense task. Sincerely, Deborah-Steelman Chair Hobert H. Hnw4h.ey 8.iid'ms. 2001edepeadeoc Are.. S.W.. Am 63i-G. Wa.hinge4 D.C 20201. (202) 24f-0217. Fm~(202) s7S-02S1 TIMN 0023081

THE SECRETARY OF NEALTMANp NIPMAN SERVICES wwf'..«GTOw. G.c. ieae~ DEC I 9 1991 The Honorable Dan Quayle President of the Senate Washington, D.C. 20510 Dear Mr. President: The provisions of Section 706 of the Social Security Act require the appointment of an Advisory Council on Social Security every four years. I appointed the members of the 1989 Advisory Council and charged them with the review of a broad and thorough assessment of the factors that bear most importantly on the financial security of American families today and through the year 2020. Specifically, the Council was asked to assess the ability of the current Social Security, Medicare and Medicaid programs to meet today's challenges and to pose and explore the larger questions the nation must face as it prepares for the largest generation of retirees our country has yet experienced. To fulfill this charge, the Council undertook a virtually unprecedented review of social security policy, health care policy, savings and investment issues „ pension policy, and numerous issues relating to the need to build our nation's economic capacity to provide for the social needs of an increasingly older and more diversified population. Chaired by Deborah Steelman, the members of the Advisory Council, all from the private sector, have worked diligently over the last two and one-half years in a sincere effort to address the issues presented in their reports. These reports address the full range of the Council's charter. Their recommendations are based on the finding that the best way to ease the burden of paying for future retirement benefits,is to increase the productive capacity of the economy. In July of 1990, the Council issued recommendations on Social Security, which were forwarded to you at that time. Their full and final reports were transmitted to me this morning, including their final recommendations on health. Here, the Council's recommendations address four fundamental concerns: the need to improve access to health care for millions of Americans; the need to significantly reduce the rate of growth in health care costs and increase the rate of growth in the general economyt the need TIMN 0023082

Page 2 - The Honorable Dan Quayle to significantly reform many of the basic institutions involved in the delivery and financing of health care; and the need to fully involve the American people in the development of the American health care system of the 21st Century, without whose support even the grandest plans come to naught. The Council found that health care is an issue of extreme and immediate importance to the financial security of all American families for two overwhelming reasons: the inequities in our current health care finance and delivery systems: and the unacceptable rate of growth in health care costs. Their review of these significant and unsustainable weaknesses, coupled with their review of long-range economic forecasts and months of public hearings and other outreach, lead the Council to conclude that the sustained financial security of American families rests in substantial degree upon the extent to which we reform our approach to the consumption, delivery, and financing of health care in the United States. These recommendations should be added to the many proposals already under discussion as we seek health care reform. No one feels more deeply than I the imperative for reform and I believe this report provides a common sense basis from which to debate and act. I look forward to working closely with you to this end. Sincerely, Louis W. Sullivan, M.D. TIMN 0023083

TNE SECRETARV Oi MEAITM ANO MuM1AN SER VICES ~a\yw~w.TpM,O.C. )CtE1 The Honorable Thomas S. Foley The Speaker of the House of Representatives washington, D.C. 20515 Dear Mr. Speaker: The provisions of Section 706 of the Social Security Act require the appointment of an Advisory Council on Social Security every four years. I appointed the members of the 1989 Advisory Council and charged them with the review of a broad and thorough assessment of the factors that bear most importantly on the financial security of American families today and through the year 2020. Specifically, the Council was asked to assess the ability of the current Social Security, Medicare and Medicaid programs to meet today's challenges and to pose and explore the larger questions the nation must face as it prepares for the largest generation of retirees our country has yet experienced. To fulfill this charge, the Council undertook a virtually unprecedented review of social security policy, health care policy, savings and investment issues, pension policy, and numerous issues relating to the need to build our nation's economic capacity to provide for the social needs of an increasingly older and more diversified population. Chaired by Deborah Steelman, the members of the Advisory Council, all from the private sector, have worked diligently over the last two and one-half years in a sincere effort to address the issues presented in their reports. These reports address the full range of the Council's charter. Their recommendations are based on the finding that the best way to ease the burden of paying for future retirement benefits is to increase the productive capacity of the economy. In July of 1990, the Council issued recommendations on Social Security, which were forwarded to you at that time. Their full and final reports were transmitted to me this morning, including their final recommendations on health. Here, the Council's recommendations address four fundamental concerns: the need to improve access to health care for millions of Americans; the need to significantly reduce the rate of growth in health care costs and increase the rate of growth in the general economy; the need TIMN 0023084

Page 2 - The Honorable Thomas S. Foley to significantly reform many of the basic institutions involved in the delivery and financing of health care; and the need to fully involve the American people in the development of the American health care system of the 21st Century, without whose support even the grandest plans come to naught. The Council found that health care is an issue of extreme and immediate importance to the financial security of all American families for two overwhelming reasons: the inequities in our current health care finance and delivery systems; and the unacceptable rate of growth in health care costs. Their review of these significant and unsustainable weaknesses, coupled with their review of long-range economic forecasts and months of public hearings and other outreach, lead the Council to conclude that the sustained financial security of American families rests in substantial degree upon the extent to which we reform our approach to the consumption, delivery, and financing of health care in the United States. These recommendations should be added to the many proposals already under discussion as we seek health care reform. No one feels more deeply than I the imperative for reform and I believe this report provides a common sense basis from which to debate and act. I look forward to working closely with you to this end. Sincerely, Louis W. Sullivan, M.D.

STAFF OF THE 1991 ADVISORY COUNCIL ON SOCIAL SECURITY Ann D. LaBelle, D.D.S. Execurive Director Barbara Cooper Adele Eley Robert Lagoyda Arta Mahboubi Susan V. McNally Brigitta M. Mullican Olga Nelson Mary Sue Olcou Teddi Pensi.nger Virginia Reno Nancy Row Michael D. J. Zambonato TIMN 0023086

PREFACE On behalf of the 1991 Advisory Council on Social Security, I would Ue to extend our profound gratitude for the hard work, long hours, and great talent of the Council staff. To Ann LaBelle, our Executive Director, Barbara Cooper, Adele IIey, Robert Lagoyda, Arta Mahboubi, Susan V. McNally, Brigitta M Mullican. Olga Nelson, Mary Sue Olcott, Teddi Pensinger, Virginia Reno, Nancy Row, and Michael D. J. Zambonato (who kept us laughing when we most needed it!), and to our miracle typists and assisrants, please accept our most heartfelt thanks. When we began this work two and one-half years ago, few of us realized the body of scholarly research, issue analysis, and public input that would come to form the basis of our work. 'ibe Council's staff assembled a team of economists and actuaries to help us umderstand the futuit; the staff produced 15 public hearings providing us with some of the most valuable insights we received and wrote draft after draft to reconcile our varied comments. Tbe American people art indeed fortunate to have in their service people of such intellect, dedication, and common sense. We would also like to thank four immensely capable volunteers, Patricia Knight, Mary Ross, David Cooper, and Elizabeth Hadley, who, in addition to their full-time work for their agencies, volunteered their time to the Council to make this work one of extraordinary value. In addition, we extend thanks to several individuals outside the government whose services added depth and weight to our reports: Louis P. Garrison and his staff, Donald I3itsch. David KeaneIl. Donald Muse, Jack Meyer, and Sean Sullivan. a TIMN 0023081

You did excellent work. For that, we are proud to have worked with you, and we are gateful. With the volumes of this report, we lay tbe foundation for a better understanding of the next century. Tbis work prepares us for the challenges the future will bring our Nation as we become an increasingly older society. This work has the potential to change the way people think about the future. This is a great gift to future retirees, workers, families, and children; indeed, all Americans will benefit now and in the future from the education provided within these pages. And as the Chair, I would like to extend my personal thanks to my fellow members of the Council. Your time, energy, spirit, and wisdom are evidenced in the many pages of our reports. It was indeed an honor to serve as the Chair, and I will always be grateful for all they taught me. I would also like to thank the Commissioner of Social Security, Gwendolyn King, for her steadfast support. Throughout the decade in which I have been fortunate enough to enjoy her friendship, she has been a constant source of guidance and inspiration. Finally, and most importantly, I would like to thank my husband, Gregg• Ward, and all of the spouses of the Council staff. Their constant support through weeks and months of 7-day-a week, 15-hour-a-day work made our work possible. Deborah Steelman Chair x TIMN 0023088

TABLE OF CONTENTS EXECU'fiVE SUMMARY ............................... 1 Social Security and Income Security .................... 3 Health Care ...................................... 4 Social Security Recommendations ..................... 21 THE WORK OF THE 1991 ADVISORY COUNCIL ON SOClAL SECURITY ...................................... 23 Technical and Expert Panel Reports .................... 25 Public Input Reports ............................... 27 Issue Analysis Reports ............................. 28 STRENGTHS AND WEAKNESSES OF THE INCOME SECURITY AND HEALTH CARE SYSTEMS ...................... 35 Strengths in Income Security ......................... 36 Strengths in Health Care ..... : ...................... 41 Weaknesses of the Income Security and Health Care Systems ............................... 44 FACTORS AFFECTING THE HEALTH CARE FfNANCING AND DEUVERY SYSTEMS .............................. 55 External Factors .................................. 57 Findings: Barriers to Care ........................... 84 TIMN 0023089

BARRIERS AND INCENTIVES FOR CHANGE .............. 93 Incentives ....................................... 93 Barriers ........................................ 100 RECOMMENDATIONS OF THE ADVISORY COUNCIL ON SOCIAL SECURITY .............................. 109 Social Security Recommendations .................... 109 Health Care Recommendations ...................... 111 Prototype Comprehensive Reforms .................... 132 Prototype Medicaid Reforms ........................ 140 Prototype Medicare Reforms ........................ 141 Revenue Options ................................. 148 Conclusion .............. .................... 150 ADDtT1ONAL VIEWS ................................ 1 53 APPENDIX A: HISTORICAL BACKGROUND APPENDIX B: RECOMMENDATION SPECIFlCATIONS APPENDIX C: COST ESTIMATES APPENDIX D: PROTOTYPE COMPREHENSIVE PLANS APPENDIX E: SUMMARIES OF REPORTS xu TIMr1 0023090

EXECUTIVE SUMMARY The challenge before this country-and every counpy-is how best to manage its resources for the benefit of its people. As residents of this country, it is our collective responsibility to use our resources wisely in the present and in such a way as to benefit future generations of Americans-our children and grandchildren. If we are sincere in trying to fulfill this responsibility, we must investigate the future without bias and approach the decisionmaking pracess unselfishly. We must balance the needs of today with the needs of tomonvw. Where resources are limited, we must thoughtfully develop and explore alternatives. While we cannot ignore the needs of today, it is crucial to prepare for the needs of the future. The image that comes easily to mind when we talk of resources is our natural resources. But this is about different resources: our economic and financial resources, our public and private nesources, and, of course, our human resources-the American people. This is about the urgency required to manage our resources to forestall the potential effects of a health care system which may soon dominate our national economy and our personal resources. This is about investing in our country to assure productive growth in a competitive world market. Continuing on our present course will only exacerbate today's problems for the future. Now is the time that we must make a commitment to change. Now is the time to lay a foundation for reform. This Report represents the deliberations of the 1991 Advisory Council on Social Security. At the request of the Secretary, this Council has taken on a task more broad and challenging than any preceding Council. By expanding its role beyond the important and traditional one of considering issues related 1 . TIMN 0023091

its role beyond the important and traditional one of considering issues related to Social Security to also considering our Nation's health care system, the Advisory Council examined issues that touch families and individuals from every walk of lifa--the elderiy, the chiid and the woridng-age adult, the business executive and the employee, the affiuent, the middle class and the poor, the sick and the healthy. The Council's Final Report is deliberately weighted toward the issues of health care. This reflects the Council's concem about the inequities in our cunEnt health care financing and delivery system and about the unacceptable rate of growth in health care costs. The Council by no means overiooks the issues of Social Security and its importance to income security. In fact, our systems of health cars and income security are inextricably related and fundamental in assuring the financial security of all Americans, a basic Council interest. Ironically, it is the very system of health cam, so essential to this fundamental interest, that threatens our ability to sustain 5nancial security for Americans in the future. ~ The Council's review of the significant weaknesses and unsustainable growth in expenditures of the health care system, combined with long-range economic forecasts, led the Councii to conclude that our ability to sustain the financial security of American families rests in substantial degree upon the extent to which we are able to reform our entire approach to using, delivering, and financing our Nation's health care. We can only stmagthen our foundation for the future by immediate and parallel commitments to change our health caie system and to make the investments necessary to increase our economy's productive capacity. 2 TIMN 0023092

Findings which informed the debate that brought ttle Council to this conclusion are contained in this and 12 other reports issued by the CounciL Representative findings azt interwoven throughout this summary. Social Security and Income Security Americans depend on our democratic political process to represent us in the developmeut and shaping of our social systems and to guide the management of our economic and financial resources for our benefit We can be rightly proud of our accomplishments for the elderly. Tbe Social Security and Medicare programs have contributed remarkably to raising the standard of living among the elderly. Over the past 30 years we have decreased the rate of poverty for the elderly by nearly two-thirds. Government programs are by no means solely responsible for this achievement. Employers expanded the private availability of pensions so that, now, over 40 percent of the elderly benefit from private pensions. The number of elderly eligible for private pensions in the future is expected to grow. In fact, projections into the future suggest that the elderly will continue to experience real gains in income, in large part because ttieir incomes from Social Security and pensions are projected to reflect real growth in earnings and because more elderly aie projected to receive pension benefits in addition to Social Security.l Despite this positive overall outlook for the elderly, analysis indicates that variances in elderly income will be significant and that some elderly, particularly the very old and single elderly women, will be particularly vulnerable to poverty. ' FAwe F'nancaf Resaxces of the Eiderly A 1rww of Peruions, Savuqs, Soaaf Seaxi'ry md Ez7WW n Ihe 21st Centuy. 3 TIMN 0023093

Americans can be confident about the futuie of Social Security. A Tcchnical Panel on Social Security= appointed by the Council reported that the Social Security Trust Funds are actuarially sound 50 yeass into the futuit. A survey' about Social Security conducted for the Council found that over three-quarters of those individuals surveyed do not mind paying taxes to support the program. The Council is pleased by its findings, which indicate both the fiscal solvency and public acceptance of the Social Security program. Tbe Council's specific recommendations on Social Security are at the end of this Summary. Health Care Our Present Condition . The image of the Nation's health cam system is not as comforting as that of its income security system. MedicarE, which has contributed to the improved financial status of the elderly, pays just 45 percent of the elderly's average total health care expenditures. A Technical Panel on Medicare' reported to the Couzxal that the Medicam Trust Funds are not sound into the futuie. Alarmingly, most = Sodal Secvriy Testrtical Panel reported 3s fax%p to the Cowxa1 in a report dated August 1990. ' A Message /ram tha Amariran Pubk A RepoA o/ A Nationaf &nrey on HeaM and Soda/ Seaady by tbe IIdvE=y Counal on Social Seartr ' Aepat on Medw= Pmjeetioru by tha Nesth Taclnicai Panei, March 1991. 4 TIMN 0023094

recent projecxionss indicate that tbe Medicare Hospital Insurance Trusc Funds may be exhausted by 2005. Medicaid, the joint Federal and State program for the most vulnerable of our country's citizens--both young and old-is now the fastest growing item in many State budgets. State health care expenditures for Medicaid recipients average 20 percent of a State's budget. Medicaid consumes up to 40 percent of some States' budgets.b State responsibilities for education, corrections, and other essential services are uncomfortably squeezed, and many Starrs am tightening eligibility requirements and limiting benefits for other programs. Long-term cam poses a special problem. A 65-year-old today has about a 20-percent chance of spending a year or more in a nursing home at an annual cost of roughly $30,0©0.' Most people pay long-term care costs on an out- of-pocket basis. As a result of extremely limited public and private coverage for long tenn care, many elderly and their families ace impoverished by the cost of their long-term care. Many then become eligible for Medicaid. Long-term care now consumes about 43 percent of a State's Medicaid budget. With our rapidly aging population, Iong-term care will present a financial challenge to our States. It also presents a challenge to families to plan for this expense and a challenge to our Nation to create incentives and programs to ensure effective catz for the elderly who need these services. ' 1991 AruxW Report of ft 8aard of Trusieas ddw Federal HcsOW ln%ranao Trust FunQ May 17, 1991. ` StO Govanmerqs and Medcae CcpirV with Arogram EWwan ir a Psriod of Fista/ Sress, ACSS,1991. '{n 1990 doUare, as reparted in The Froxig aed Defvery oJ Lcrg-Term Gaia SorNOPS, ACSS. 1991. 5 TIMN 0023095

Americans are expected to spend $738 billion this year for health care services and the system that provides them: yet the Council heard regularly of frustrations and difficulties that individuals must face when interacting with the system. Hearings` held across the country by the Advisory Council emphasized this as well as individuals' struggles to mainsain their insurance and to manage their resources to afford health care. The following highlights from testimony illustrate these issues: • A Florida businessman has experienced regular increases in premiums over the last 10 years averaging 25 percent per year for six employees, two of whom had dependents. Last year's increase jumped 100 percent-and dropped coverage for the dependents. Finally, the businessman's coverage was not renewed; • A small-business woman in New Hampshire cannot afford a recent premium increase to $500 per month per family for her 10 employees. . She desperately wished to maintain health insurance coverage for her employees and devoted extensive time to seeking competitive rates. 'Ibe best she can do is a slightly reduced premium, guaranteed for only 6 months. • In New Mexico, an elderly woman has high medical expenses not covered by Medicare and avoids having to siga up for Medicaid by scrimping on food. • The husband of an Indiana woman with Alzheimer's disease describes his extensive efforts to cate for his wife at home until he feels it is no ' A MsSage 6ae tha Americw Pu6& A tioriW ard Sda Yu+is Rsport of the AdviScxy Caexyi on Soaal Seaa#, 1991. 6 TIMN 0023096

longer humanly possibly. To pay for the nursing home cam she needs would be a nearly unbearable financial burden. • A woman in New Mexico tells of trying to schedule an appointment with a gynecologist; the fiist available appointment is 4 months away. A national survey9 conducted for the Council emphasizes the value individuals place on health insurance. The survey reported that nearly one-third of those who received employer-provided health insurance continued to work for their employers because they did not want to lose their health benefits. The survey also rmaffiimed for the Council that the large majority of those who feel that they have adequate health coverage do not want their health delivery or their benefits plan altered. The Council also heard testimony from a wide variety of professional and trade associations, Federal, State, and local agencies, consumer advocacy groups, and health system experts. Each reported thorough and thoughtful investigations into issues of what the health care system's problems are and how to improve it. Not unexpectedly, they all agreed on the problems. Seldom did they agree on the solutions. Two issues dominate any discussion on health care: the continuing escalation of costs despite public and private sector initiatives to slow the rate of growth and the concern over the number of people who face barriers to obtaining appropriate and needed services. The issues of cost and access are inextricably related: As costs increase, more people are unable to afford health cane insurance or the cost of care. Any substantial expansion of ' Nabonat HeaIm Cam sw,rey, Sixnmary of FndrIs, November 1991. 7 TIMN 0023097

coverage to uninsured or underinsured people will add additional costs to the health can system, both in the near term and in the fuuuz. The Council understands that 34.7 million people ane without health insurance.10 Many more individuals are inadequately insured. Insurance is not the answer for everyone, however, for it does not reduce sociocultural and geographical barriezs to care. Sadly, one of the largest groups affected by the inequities in our health caze system are our children. Over 8 million children were not covered by private health insurance and were either ineligible or did not receive publicly financed medical assistance in 1989. Evidence is limited linking health stams and insurance, although twice as many uninsured persons indicate that they are in poor health as do insured persons. Each year the Nation devotes more and more of its resources to health care. In 1990 health car+e expenditures represented 12.2 percent of our gross national product (GNP). Tbis repn4sented a 10S-perceat increase from the 11.6-percEnt share just the year before. Health care expenditures were only 5.3 percent of GNP in 1960. A Glimpse of Our FutUre Concern about our Nation's ability to sustain such growth into the future prompted the Council to appoint an Expert Panell' to consider what our economic future would be like in 2020 with respect to income security and health care financing. The Panel concludes that the Nation's productivity and ,• Fr°m tta OEfiCe d the Asssars Seaetary !or Plamig and Evabstion, DHMS. „ lncartw Secixily and HeaM Ca% Eoanomic /mp6moons 199?,W-y4a Epert Pane! Hepart to ffie Advisory Caxid Oeoember 1991. 8 TIMN 0023098

I'm Council does not believe that natural markzt forces will slow the rete of growth of health care to tolerable levels without substantial reform. Historically, health spending between 1976 and 1990 increased by more than twice the rate of growth of our economy.13 Each year, we cantinue to devote more and more of our resources to health care despite serious attempts by the public and private sector to contain cost growth. If continued growth in the health sector continues to outstrip increases in wages" as anticipated, a few highlights from the Expert Panel's reportu help us visualize what this could actually mean for our future in 2020: • For the elderly, the Medicare Part B premium16 would increase 200 to 300 percent. • For woriceis and businesses, payroll tazes" for Medicare and Social Security are projected to increase from 15 percent today to between 26 and 32 percent in 2020. Medicaro's portion alone may triple or quadruple. • Private insurers are expected to double or triple the amount they pay out for ctaims, in real terms.• Tbis has implications for individuals and businesses as they struggle to meet the expected pnmium increases. Benefit reductions or wage reductions could occur. "As repoited n Cr0Caf LsarJes in AmerirWHe®MCara Lb6MVry and F'aMg Pb*j, ACSS.1991. " Aeal urages an asswneid to 9ow at 1.1 petaent whie raw per eap4a rxra spenkg 4rows eithx 32 or 4.3 percent, dependng on which projeaioe is used. 16 The taMow+bg tunbers repmsarq arraiysas of ft two projrctions to 2M0 d=ussed 'n fis axea*a swnmary, haw iwo possble outaortws. "Ass+sm Part B pmrnium wil continua b fund 25 percent of tlw Part B program. " Pad B of Medicare is kanoed through premiums and general revenues, not by a payroC tax; however. azpremg the rewenw required as a peroentage of panol is usafW. 10 TIMN 0023099

real wages will grow but that any gains in income and wealth that we make as individuals and as a Nation will be significantly reduced by the growing resources requind to support the health care sector. Fewer and fewer resources wdl be available for the other critical needs of the Nation. As an illustration of why the Panel draws this conclusion, consider the following projections, which assume no change in the current system and a continuation of existing laws: One projectionu to 2020 indicates that health care could consume 31.5 percent of our GNP. If expenditures actually reach this level, they would place an unacceptable strain on us as individuals and our society. In essence it means that even though our income might grow, our present consumption patterns could not increase; rather, all increases in income would go to health care. Many think health expenditures will never reach 31.5 percent of GNP; however, it is , important to note that this projection represents a mere continuation-and not an acceleration-of trends experienced in the past 20 yeais. 'ibe Panel also reviewed a trend which assumed a significant reduction in the rate of growth of health care costs-of a magnitude we have never experienced-and still health care was projected to grow to 22.7 percent of GNP. The Expert Panel recognized that these were not true predictions because of the limitations of the assumptions. The Expert Panel concludes, however, that in the absence of major policy change, these projections are plausible. ,: Prepared for the E"rt Panei by the ot6ce ot aw Aauary. tieaM Care Fttaving ~. 9 TIMN 0023100

•'Ibe percentage of uninsured will increase because of incentives in the system and the disparity between wage growth and growth in health care costs. The aging demographics of our country will play a role in the redistribution of the share of health expenditures between the private and public sector. The share paid by the public sector will increase, reflecting the extra burden on the Medicare programs and Medicaid for long-term care services. The major factor underlying projected increases is not demography, however, as is often thought. The growth comes instead from the ongoing evolution in technology, from the way we use services, and from the structure of our health care delivery and financing system. The Council asked the Expert Panel to consider whether our economy could adequately expand to accommodate the continued growth in health care spending. The Panel concludes that it is unlikely that the United States will experience a growth in the economy that exceeds the projected increase in health care expenditures. Based on an exercise conducted by the Panel, and using the two projections above, the economy would have to grow at least two to three times as fast as projected growth rates per capita," or GNP would have to be 60 to 100 percent larger. Con9eAuently, unless we significantly reduce the growth in health care ezpendinuts, we cannot expect to "grow out" of the effects of rising heaith care expenditures. ,• Based on projedions used in the 1991 RepoR a the rrvsiees. 11 TIMN 0023101

Commitment to Reform The Council is sobered by these observations, as should be every citizen who hears them. The facx that the Nation faces serious health carz financing issues does not, however, make the answer any clearer. Through the processes the Council established to investigate the issues of health care and carry out its charge, the Council heard clearly tbe voice of the people that health care reform is essential, and the Council agrees. The Council also heard clearly and agrees that quality should not be sacrificed. The Council heard clearly that costs must be appropriately contained and that access to care must be improved. To these, too, the Council agrees. But the Council also heard clearly that the obvious right choice for reform for one person or group is abhorrent and unacceptable to another. The real implications of change are unclear. The real effects an Americans, our businesses, our economy are unknown. A majority of the Council concludes that, at this time, there is no one right choice. The national consensus so essential to the successful systemic reform the Council believes necessary has clearly not developed. This is, however, exactly the right time to prepare the country for reform' Now is the time to lay the foundation for change. We are at a critical stage. Tension for reform is high and we have a while-a short while---to contain the emerging crisis brought about by uncontrollable costs and barriers to access. Change can be gradual, but it must be deliberate, focused, and timely. We must tend to the immediate and urgent needs of our citizens, and at the same time we must move systematically forward to the system of our future. To avoid the potential economic consequences of continuing on the same course, so clearly illustrated by the look at 2020, a new and effective 12 TIMN 0023102

system must be fully operational by the beginning of the next century-less than a decade away. The Council articulated four urgent needs of the Nation's health care system and prepared detailed recommendations to meet these needs: • The need to improve access to health care for millions of Americans; • The need to significantly reduce the rate of growth in health care costs and increase the rate of growth in the general economy; • The need to fundamentally reform many of the basic institutions involved in the delivery and financing of health cate; and • The need to fully involve the American people in the eommitment to change by the beginning of the 21st Century. Two types of recommendations emerge: F'irst, the Council believes certain changes can and must be acted upon immediately. These are directed at the weakest part of our current system and will not conflict with, but will rather support and strengthen, the foundation for future broad-scale systemic change. Second, the Council recommends an activist Federal leadership role with a financial investment in our future by supporting and nurturing local and regional solutions for change. The process of developing and implementing change at community and State levels represents the will of the people. When consensus for reform is achieved, the reform will be perceived as more 13 TIMN 0023103

acceptable and compatible with American expectations for solutions than one that is imposed by the Federal Government. The Council expects local successes to be evaluated against national criteria that take into consideration not only the needs of today but also the effects on the future. Such an evaluation will yield information about the real implications of reform; it will point to real winners and losers in the system; but, most importantly, it will yield the information we most desperately need to know: What effect will reform have on slowing the rate of gtmwth that seems destined to cripple bur economy while at the same time reducing the barriers to access that now confront millions of Americans. Recommendations to Improve Access to Care are directed at our Nation's children and other underserved populations, and ate entitled: • Assist State Departments of Health to establish School Based Clinics for primary care services for ctiildren. • Assist Staes in offering School Based Maior Medical Insurance to complement and supplement care provided through school based clinics. • Expansion of the Community and Miarant Health Center Proaram directed at millions of Americans without primary care services. • Commitment to Reduce Infant Mortality through consolidated and concentrated efforts at all levels of government. • Correct Flaws in Private Health Insurance through four separate legislative proposals directed at the most egregious processes now 14 TIMN 0023104

in effect, such as un:easonable premium variations and cancellations due to claims experience or health status. - Improve the Portability of Private Health Insurance; - Federal legislation to establish new rules for insurance sold to small employers; - Disallowance of State-Mandated Benefits for Small Employer Core Benefit Plans; and - Preemption of State Laws Limiting the Use of Managed Care in Health Benefit Plans. • Increase access to Health Insurance for the Self Employed by changing tax laws to make tax ueatmeru of self-employed equivalent to that of employees. Recommendations to Reduce the Rate of Growth of Health Care through cost-reducing measures and Build a Stronger Economy through investing in our human resources and increasing growth in GNP are directed at providing a strong economic system so that we can maintain our standard of living, including a good, affordable health care system. • Reduce the Federal Deficit to Improve the Productive Capacity of the Economy strongly encourages investment in education, training, human resource development, and capital investment in plant and equipment. Commitment to deficit reduction is critical. 15 TMN 00231105

• Cabinet Level Task Force on Investment in Human Resourczs. to focus attention on and direct action toward altering counterproductive domestic trends. • Actions to accelerate promotion of Healthy Lifestyles are presented. • Establish a President's Council on Fitness for the Second 50 Years to promote health throughout life in an aging society. • Research to Foster Indecendent Livine directed toward facilitating impaired persons to independently perform daily activities. • A program to educate, prevent, and treat Preschool and IIementarv School Children about DruQ and Alcohol Abuse to be developed and implemented by the U.S. Surgeon Ceneral. • Conduct a massive public education campaign directed at Prevention of Disease. • A model secandary school course for Family Financial Management and Financial Planning would be developed to prepare young adults about managing resources for major expenses, including health care. • Information on Medical Tneatment Outcomes would be required on local and regional health care markets to facilitate assessment and correct weaknesses in manpower and facility resource allocation, use trends, and financing allocations. 16 TIMN 0023106

• Alternative Procedure to Adfudicate Mainractice Claims involves a proposal for national administrative tribunal for Federal claims, and a companion proposal applicable to States. • Medicare Selective Contracting would establish a process for identifying and certifying high-quality, cost-efficient providers for specific high-cost procedures. Only certified providers would be reimbursed. • Medicare Centers of Excellence, which meet rigorous criteria for quality and efficiency, would be established for major surgical procedures. Only designated facilities would be reimbursed. Reform of Health Care Institutions is directed at reform within the health care system to make it more efficient and effective. • Establish an Advisory Council ori Health Claim Standardization to develop a uniform claim with the intent of reducing paperwork and costs associated with health claims. • The Attomey General is dincted to revise existing rules limiting Hosvital Mergers and Joint Ventures for cases where increased efficiencies could be gained. • Merge Medicare Parts A and B, which now aro only artificial distinctions and contribute to inefficiencies within the Program. • Facilitate Technology Assessment and Data Pooling through an Advisory Group on Technology Assessment Data directed at better understanding and managing technology. 17 TIMN 0023107

• Effectiveness Research and Medical Practice Guidelines are to be given broader exposure through development of a medical school curriculum and programs to better inform physicians in their personal practice. • Basic Research to Improve Health Outcomes while reducing costs, proposed in the research agenda by the Institute of Medicine, is strongly advocated. • To assist individuaLs facing terminal illnesses, The Medical Directive and Proxy Act would foster reforms and establish a registry containing individual's insuuctions regarding specified life-prolonging medical procedures. Specific recommendations for a strategic evolution to reform our health cane system follow: Recommendations to Fully Involve the American People in the development of America's 21st century health care system. Community and regional efforts to address the problems of our health care system are proliferating across the country. 'I`hese recommendations would strategically support a number of these efforts and other prototype systems identified 8cthe Council. • Immediately designate a Federal Oversight Commission to identify and support appropriate comprehensive community or State initiatives which would serve as precursors to systemic reform at the nadonalleveL A broad range of prototype plans are suggested for consideration: t8 TIMN 0023108

Comprehensive prototype reforms insurance marfcet neform all payer model employer mandate consumer choice publiclprivate pasmership individual tax credit universal medical expense public health insurance model for acute care Medicare prototype reforms - combined acute and long-term care coverage - Medicare voucher plan Medicaid prototype reform - improved access to Medicaid services - improved Medicaid enrollment - improving Medicaid coverage of the uninsured • Appropriate and allocate sufficient Federal funds to test and evaluate the prototypes. • Evaluate prototypes against common criteria. Tbe Council endorsed criteria developed by the Expert Panel which identify five major objectives and include numerous specific criteria against which proposals for reform should be evaluated. The major evaluation categories are: 19 TIMN 0023109

- Effect on Opportunities for Underserved People to Receive Needed and Appropriate Health Services: - Distributional Effects of Who Pays in the Near Term and in the Future; - Effect on Short-Term and Long-Term Economic Growth for the Nauon; - Effects of Reform Implementation; and - Relationship between Reform and American Culture and Values. • Report the results of testing and evaluation of the prototypes to the Congress and the President in a timeftame to allow reform to be in place by the end of this century. Only through nationwide commitment to this process will we focus and gain the consensus on changes necessary for health care reform. Investment in exploring for the best alternatives is the only way to ensure that resources will be available for a future American health care system that can serve our residents. 20 TIMN 0023110

Social Security Recommendations • The Economy and Social Security - Deficit Reduction. The Council supports removing Social Security from the calculation of deficit reduction targets to focus attention on the rest of the budget. - Trust Fund Revenues. No action now. - Reserve Investment Policy. Continue current policy in U.S. securities. • Financial Status of the Trust Funds. The system is soundly financed through the next 50 years. • Scope of Coverage and Adequacy of Benefits - Coverage of State and local employees. Mandate coverage for all new hires. - Women and Minorities. Issues related to these groups warrant examination and oversight. The Commissioner of Social Security should convene a task force for each group. - Technical Panels. Periodic assessment of the soundness of long-range assumptions for Social Security and Medicare should be continued. 21 TIMN 0023111

THE WORK OF THE 1991 ADVISORY COUNCIL ON SOCIAL SECURITY Health and Human Services Secretary Louis Sullivan, M.D., appointed the Advisory Council on Social Security in 1989, directing that it undertake a wide and thorough assessment of the fundamental factors which bear on the financial security of American families through the year 2020. In addressing the Council's first meeting, Secretary Sullivan urged a broad examination, extending beyond the statutorily maadated review of curnent law to encompass not only the crucial issues of our current health care system today, but also the larger questions facing the United States as it prepares for the largest generation of retirees the world has ever laiown -the baby boomers. To fulfill its charge, the Council determined to undertake an unprecedented review of Social Security and health carc policy, savings and investment issues, pension law, and numerous issues related to our Nation's ability to build sufficient economic capacity tp provide for the social needs of an increasingly older and diversified population. To guide its work, the Council developed a statement of principles for the economy, Social Security, health care, and reform of health caae financing and delivery. 'Ibese principles were a fratnework for the Council's deliberations, and we believe they should be the foundation of today's debate on income security and health care policy. Our guiding principles foIlow. 0 TIMN 0023112

Principles for the Economy, Social Security, and Health Care • The productive capacity of the economy must be strengthened in order to increase real income, improve our positions in international market competitiveness, and lessen the burden of the costs of health care and social insurance programs in the future. • Changes in retirement income and health care policy should not impede economic growth in the short term or long term. • Changes in policy should be flexible enough to accommodate future demographic changes. • The costs of income security and health care should be disuibuted equitably. , • All Americans and their families should be able to have some protection against financial insecurity even when family earnings cease because of disability, death, retirement, or job loss or when they are faced with significant acute or long-term health care costs. Health Care Reform Principles • All Americans should be able to obtain necessary health care. • The rate of growth in health caie expenditures should be reduced. • Health care services should meet enhanced standards of cost- effectiveness without compromising quality. 24 0 TIMN 0023113

• All Americans should be encouraged to adopt healthier lifestyles. • A commitment should be made to address environmental and social factors affecting healtti. • Governments should adequately fund their health cam program commitments. For its comprehensive review, the Council assembled expert panels which studied specific, technical issues; it held 10 public hearings and 73 site visits across the Nauon, soliciting a wide range of public input at each stop; and it deliberated the more narrow issues contained in 18 analytical papers examining topics ranging from long-term care to school-based clinics. The product of this exhaustive examination is detailed in the final report and in 12 separate documents which represent substantive, scholarly investigations into the issues the Council identified as central to its debate. These reports may be grouped into three broad categories: technical and expert panel reports, public input, and issue analysis. While executive summaries of these reports are printed in appendix A, a brief outline of each follows. Technical and Expert Panel Reports The Council assembled three panels of independent consultants to study the future of the Social Security and Medicare programs and the combined long-term effect on the Nation's economy of impending demographic changes, pension trends, savings rates, and Social Security and health spending. Each study was carried out by economists and actuaries who 25 TIMN 0023114

assessed the adequacy of the assumptions and projections used for trust fund estimates. • The Social Security Technical Panel Report, published in July 1990, concluded that the OASDI Trust Fund is generally sound for the next 50 years. • The Report on Medicare Projections by Health Technical Panel, reviewing Medicare projections, found that the Hospital Insurance Trust Fund faces a huge long-range financial deficit and concluded that it cannot support current rates of spending: "To secure stable long-term financing will require balancing the burden that is to be borne by beneficiaries and by woticing•age taxpayers both now and in the future ... policy makers should consider options for improving the financial status of Medicare mt solely in terms of annual budget policy, but rather in terms of saructuring the best possible health care program for the aged and disabled given the amount of resources that society is willing to allocate to it" • Income Security and Health Care: Economic Implications, 1991-2020-An Expert Panel Repoct to the Advisory Council on Social Security focused on the year 2020 and the impact of baby boomers' retirements and of other demographic changes on income security and health spending. The report paid particular attention to the effect of the continuing rapid growth in health care costs, citing the fact that in 2020 the combined cost of the Social Security and Medicare programs ('mcluding Part B) will represent 32 percent of taxable payroll and health care expenditures will comvtne 22 to 32 percent of GNP. Analysis of several plausible scenarios shows GNP would have to be 60 to 100 percent larger in 2020 and 26 TIMN 0023115

real per capita GNP would have to grow at a rate 2.6 to 3.4 times greater than currently projected in order to accommodate the projected growth of health care expenditures and the projected consumption of other goods and services. The Panel urged immediate attention to reducing health care growth trends and increasing growth in the general economy, noting that the United States will not be able to accommodate the projected growth in health expenditures and still maintain the consumption patterns and living standards we enjoy today. Public Input Reports Two reports contain findings about public attitudes and opinions on a range of Social Security and health care issues. One report summarizes the Council's 10 hearings and 73 site visits, covering over 25 cities and towns across the United States. The other contains the results of a national survey the Council commissioned to assess the level of public knowledge on and opinions about Social Security, Medicare, the American health care delivery and financing systems, and a number of health care reform plans under discussion today. • A Message from the American Public: A Hearin$s and Site Visits Report of the Advisory Council on Social Security revealed that the majority of the public believes that Social Security should remain an important part of the retirement income system in the United States, although many suggested improvements in the program ranging from increased benefits to a drastic restructuring. The public expressed generally favorable opinions about Medicare and Medicaid, although they indicated problems with reimbursement rates, gaps in coverage, 27 TIMN 0023116

and eligibility requirements. Many baraers to health cam were descnbed, inc2nding language, culuual diffemnces and perceptions, lack of transportazioa and the uneven distribution of health care professionals. Tbe report highlights the many positive examples the Council heard of efforts that public hospitals, community health centers, and school-based clinics are taking to care for the uninsured, the elderly, and the poor. • A Message from the American Public: A Report of a National Survey on Health and Social Security by the Advisory Council on Social Security scrutinized the knowledge and opinions that over 2,400 Americans hold on Social Security and health care. Almost tr=-quarters had a favorable impression of Social Security, although a majority of those not currently receiving benefits believe the system will not have funds to pay benefits when they retire. A 58 percent majority favored continuing the program as presently constructed, and a ful178 percent say they do not mind paying taxes to support the program. Over three-quarters expressed satisfaction with their health insurance and the quality of their health care, with more tban 60 percent stating that the current system needs either no changes or only minor ones. Most indicated that health care is a right of all Americans and, when questioned on alternate reform proposals, responded similarly to each. Issue Analysis Reports The Council assessed a number of specific issues which in thcir totality provided an understanding necessary to make recommendations commensurate with the Secretary's broad charge. 28 TIMN 0023117

• The Interim Report on Social Security and the Federal Budget, published in July 1990, both emphasized the need to reduce the Federal deficit in order to increase the productive capacity of the Nation's economy and supported current rates and methods of financing the tiust funds. The Council concluded that "the best way to ease the burden of paying for futune retirement benefits is to increase the productive capacity of the economy." • Critical Issues in American Health Care Delivery and Financing Policy contains 19 analytical papers which served as background briefing documents for the Council's discussion and formulation of recommendations. Its papers, summarized below, span three broad areas: access to care, cost containment, and health care financing and delivery in other countries. Profile of the Uninsured and Underinsured studied the size and characteristics of the uniiisared and underinsured populations and examined the consequences of uninsurance in terms of access -to care and the costs of health carz; - Private Health In'surance analyzed the growth and structure of private health insurance in the United States, the major issues confronting it as a market, and the implications for coverage; - Public Health Insurance reviewed the Medicare and Medicaid programs, their limitations in providing health care coverage, and their role in health care reform; 29 TIMN 0023118

- The Role of Direct-FYnanced Services examined the major providers and sources of funding for direct services and the role of direci services in health care reform; - The Problem of Long Term Care studied such long-term care problems as catastrophic costs, the lack of risk pooling, access, and quality of care, the factors that contribute to each problem, and their cansequences; Health Insurance Reform for Small Employers and High-Risk Individuals surveyed the major categories of health insurance reform proposals and their implications for coverage; Medicaid Expansion described proposals for Medicaid expansions and their potential impact on cost and access; - The Role of Schools in Expanding Access to Care msearched the ioles schools can play in expanding access to care and how these efforts might be financed; - State Initiatives to Ea~p.and Access to Care reviewed the reform options that have been enacted or ane being considered at the State level; Options for Financing Long-Term Care developed a framework for assessing long-term care reform options and applied the framework to alternative proposals; Approaches for FSnancing Expansions in Access to Care addressed eight different sources of financing: payroll taxes, 30 TIMN 0023119

personal income taxes, taxing some employer-provided health insurance benefits as income; a value-added tax (VAI), "sin" taxes, such as excise taxes on alcohol and tobacco, national lotteries, user taxes, and estate and gift taxes; - The Problem of Rising Health Care Costs looked at health care costs and experiences with efforts to contain them; - Controlling the Costs of Administration examined the components of the administrative costs system and their impact on health care delivery; Containing Health Care Costs through Supply and Price Controls studied efforts to contain health cane costs in the United States through supply and price controls and examined their effectiveness; Managed Care as a Cost-Conta.inment Vehicle described the fundamental elements of managed care as a cost-containment vehicle by defining the concept of managed care, ouLiining principal managed care stiategies employed by health care purchasers, and describing and analyzing specific managed care pmSrams; Health Care Rationing discussed the many difficult and complex logistical, legal, and ethical problems associated with non-price rationing of health care; - Cost Containment and Quality of Care examined the evidence of the impact on cost and quality of care of two strategies: 31 TIMN 0023120

incentives to influence provider behaviors such as reimbursement incentives designed to influence them to use fewer resources, and incentives to influence consumers, such as increased patient cost- sharing; - Health Care Delivery in Other Countries evaluated the health care delivery systems of four countries and examined the nature and success of their approaches to reducing health caie costs while attempting to maintain access and quality; and School-Based Health Service Centers and School-Based Insurance studied the barriers to access to health care for c[lildren and young adults and formulated recommendations to reduce those barriers through direct care and insurance. • Future Financial Resources of the Elderly: A View of Pensions, Savings, Social Security, and Earnings in the 21st Century assessed the critical question for future generation retirement planning: "What will be the source of future retirees' income and how much income that be?" The report is based on a proprietary pension model which projects to the year 2020 the elements of the "three-Iegged stool" of retirement income security-pensions, private savings, and Social Security. The analysis indicated that variances in elderly income will be significant and took a particularly pessimistic view for unmarried women above age 85. However, it also showed that the elderly as a group will continue to improve their financial condition and, both in terms of real income and real assets, be better off than the elderly of today. The most serious questions were posed about inadequate personal savings rates and the validity of assumptions about employer pensions. 0 TIMN 0023121

• Social Security and the Future Financial Security of Women focused on the status of retired women based on data from multiple soum,es, including the pension model referenced above, public hearings, and information provided by the technical and expert panels. It ncommends further assessment of specific questions necessary to improve the financial status of older women. • The Influence of Current Judicial Doctrines on the Cost of Purchasing Health Care discusses both malpractice-related costs and the need to identify and measure the potential impacts on health care spending of a variety of unconnected legal decisions in such areas as antitrust, right-to-die, and experimental tre,atmetu. • State Governments: The Effects of Health Care Program Expansion in a Period of Fiscal Stress discusses the effects of the increase in health care costs from two different State-level perspectives: eight individuals involved in State budgetary decision- making processes provide first-hand views of social spending and the stmss that rising health cane costs have placed on their budgets, and a national analysis of State budget decisions and the ensuing tradeoffs in social spending is pnesented. • The Financing and Delivery of Long-Term Care Services: A Review of Current Problems and Potential Reform Options discusses the issues involved in financing and delivering home and long-term care based on data from several sources, including a dynamic microsimulation model of long-term caze. The report presents several options for reforming today's long-term care financing and delivery systems. 33 TIMN 0023122

The Council would like to thank Secretary Sullivan and Messrs. Stan Ross and David Walker, the Public Trustees of the Social Security and Medicare Trust Funds, for the opportunity to address issues of this magnitude and importance to our Notion's children and families. 34 1'IlVIN 0023123 ~ 3.:.i~f-

STRENGTHS AND WEAKNESSES OF THE INCOME SECURITY AND HEALTH CARE SYSTEMS The Council began its examination of this country's income security and health care systems by a careful evaluation of the strengths and weaknesses inherent in each. On the positive side, the Council found that the Social Security system, which enjoys a high measure of public support, is adequately financed for at least the next 50 years. The American health care system also enjoys a number of strengths, including superior medical institutions providing high quality care, and a general public satisfaction with the quality of services and insurance coverage provided. On the other hand, the Council identified several groups especially vulnerable to inadequate retirement income, found disturbing trends in the costs of old age, survivors, and disability insurance (OASDI) program, as the baby boom generation retires, and encouraged the use of trust fund reserves to promote economic growth. 'Ibe health caro evaluation revealed more alarming trends, including the dire effects on the economy if health costs continue to rise relentlessly, indications that the HI uust fund will be depleted by 2005, a near-crisis in the availability of State funds for Medicaid, the implications of health care spending on national productivity and competitiveness, and a large number of Americans who lack health insurance or who face other problems in receiving care. Details of the Council's observations follow: 35 TIMN 0023124

Strengths in Income Security Social Security Social Security, fundamentally a very strong system, is the most important income security program in the country and enjoys widespread public support. To provide a thorough review of the assumptions and mettwdology used to project the future financial status of the old age, survivors, and disability insurance (OASDI) programs, the Advisory Council appointed a Panel of Technical Experts on Social Security. The Panel concluded that the Social Security system is adequately financed for at least the next SO years. Moreover, the OASDI trust funds are projected to have increasing dollar reserves over the next 37 years. Tbe Technical Panel also concluded that the Office of the Actuary of the Social Security Administration is highly competent and that the methods and assumptions used for the official projections are reasonable and sound. The importance of these findings cannot be overemphasized. Social Security provides the primary source of income'for 92 perceat of elderly families and will continue to do so in the future.' Almost 62 percent of elderly famih~s currently rely on Social Security for at least half of their income; tbe "oldest old" (those elderly aged 85 and above) rely on Social Security more heavily. In the year 2018, a similar but slightly smaller percentage (58.2 percent) of ' The estimates of irwoms and wealtlh cortained in this dVor are taken irom est6netes provided by LewMCF based on the Pension and Retiremant Y=rtw SimutaQion Model (PAIS4. These figuros arro disaused 'e more detai in tha Advisory Cound's repoRs on Sodai Seaxhy and tha fulua Franaa! Searrl y of Women and Fudaa Farancial Resouraes of tha E1deAy: A Yww of Peesiom Sam~gs, Sodd Seaar# and Eamirgs n dw 21st Ceotuy. TIMN 0023125

elderly families will receive half or more of their total income from Social Security, and it will continue to be a particularly important source for the oldest old. Almost one-half (46.9 percent) of the elderly aged 85 and over will rely on Social Security for 80 percent or more of their total income.2 These estimates and projections confirm that the Social Security program has successfully established an income floor for the elderly population and constitutes the linchpin of the Nation's income security system. The program ensures a retirement income for the vast majority of Americans. Another important, though less tangible, strength of the Social Security program is the widespread public support that it enjoys. A substantial percentage of the American public has a favorable impression of the program in its current form. The Advisory Council's survey showed that a significant number of those surveyed (73 percent) had either a "very favorable" or "somewhat favorable" impression. Moreover, a majority of those surveyed (58 percent) think that the program should be maintained in approximately its current form. Although Social Security will remain the most important component of retirement income for most Americans in the coming 30 years, their economic security will be enhanced by several additional factors. Both the income and the wealth of the elderly are expected to increase in the period 1988 to 2018. PRISM simulations indicate that the family incomes of the elderly will increase by almost 50 percent in real terms (1988 dollars) and that median family income will increase nearly 60 percent over the next 30 years. 'Ihe median total income ('m constant 1988 doIIars) for all family = FuWra Fxwndal Resources of uie Eiderty: A Vpw of PensicnA savinys, soaa! seaxrty, Wd Eamings fn the 21st Ceriday. 37 TIMN 0023126

units aged 65 and over is projected to increase fmm $11,770 in the 1986-90 period to $18,760 in the 2016-2020 period. This change is due, in large part, to the fact that earnings-related benefits from Social Security and pensions are projected to keep pace with the assumed growth in real wages.' In fact, the projected 1.3 percent annual increase in the average income of elderly families during this period will exceed the assumed 1.1 percent annual increase in real wages.4 Pensions and Savings An analogy of the retirement income system has been made by envisioning a three-legged stool, in which Social Security, employer-provided pensions, and individual savings are the three legs of the retirement income stool. After Social Security, pensions are the second most important source of retirement income. As of 1988, 46 percent of all full-time private sector employees and 75 percent of all government employees participated in a pension plan. The proportion of all workers covered (including part-time workers) was 44 percent, with 29 percent holding a vested right to a pension in 1988! Both the number of employers offering pension plans and the number of workers covered by a pension plan,expanded dramatically during the late 1950s and early 1960s. Between 1950 and 1965, the number of plans increased eightfold and the number of covered workers increased 22 percent. As of December 1989, employer-sponsored pension plans had reached an ' Incaaie sm* and Naaffi Care: Eoonomic knpGcatiorra 1s9t-2fD2o--An Expat Pane! Report to the Advrsory CormaT an Soaa! Se=#. ` future Fhanaal Aesaxoes of tba EJdery: A Vww of PensioM Savirp, Soael Soaniy, and EaminW in tfw 21st Cerriur ' lncorna Secwr~ and HseM Can: Eoonomic lmpfieasm 1991-2'020--An E,tpsrt Paesl f~leport to the Adwory CotuW on Soaal Secudiy. TIMN 0023127

estimated $2.8 trilIion in value. Nearly 66 percent of these funds were from private employers. Of the private employer pension funds, more than a third (36 percent) was invested in corporate equity, another third was held in insured reserves, and the remaining third was held in bonds, cash, and other assets. Overall, pension funds hold about 9 percent of total financial assets held in the United St.ate.s.6 In 1988, nearly 40 percent of all elderly families received income from either a public employer or a private employer pension plan. Among those receiving a public or private pension, the average benefit amount was $8,000 per year. Overall, pension income represented about 17 percent of the aggregate income of the elderly.' Employer pensions will become a more important component of the income of the elderly in the future. The fact that more elderly families will receive pension income is the critical factor causing an annual increase in average income among the elderly that exceeds the growth in real wages over the next 30 years. Tbe percentage of elderly families receiving pension income is expected to increase dramatically and rise from the approximately 40 percent of elderly families who currently receive pension income to 76 percent by the year 2018 ` `lncome SecUnly and HeaM Care: Eoonomia lmpf+cations 1991-2Q2¢>-,4n EW Panel Report to the AdNSOry Coundl on Sopa! SecLrilr ' Fu1ure Finanaai Aesouroes of tlw Eiderty: A Yierv of Pensions, Soaal Seaxity, and EM&O in tho 21st Century. aW 39 . TIMN 0023128

An important factor that will increase pension coverage is the continuing expansion of women's participation in the labor force, coupled with their employment for longer periods in industries that offer pension coverage.9 Individual Savings Overall, about 24 percent of the aggregate income of the elderly is derived from individual efforts to save.10 Nearly 73 percent of ali elderly families have income from assets, but less than 2 percent have income from an IRA. For those having asset income, the average amount was about $5,900, while the median was much smaller, at $900. In 1988, the median net worth for the elderly was estimated to be $73,471. Approximately 40.4 percent of this was home equity and 22.4 percent was held in interest-earning assets at financial institutions. Nearly 75 percent of the elderly owned their own homes il In sum, the PRISM projections indicate that elderly families will have fairly substantial Increases in their income over the next 30 years. Tbe average and median income of elderly families will increase at a rate faster than the assumed rate of increase iii real wages. However, the roles of different income sources will not change significantly.'2 Although pensions an expected to assume increasing importance, Social Security will continue to constitute the primary source of income for most elderly families. Social ' Fuhsa Fimaa/ Resorueas o1 tha EJde* A View of FensioM Savings, Soca! Securdy, and Eam6hgs in Uw 21st Cantuy- NW t12A 12W 40 TIMN 0023129

Security will remain the most important component of retirement income, supplementing all of the other sources. Strengths in Health Care The Council found a number of strengths in the American health care system; its quality of care and level of medical technology available are second to none. American medical Institutions are among the world's best. For those who can pay and/or have adequate insurance, the U.S. health care system offers some of the finest care available in the world. Patients have access to the latest and best technology and do not endure long waiting periods before obtaining nonemergency treatment There are many hospitals and medical schools located throughout the country, and a number of them are the world's leaders for particailar specialties and treatments. The quality of medical education in this country is superb and ensures that American doctors am highly trained professionals. Other health professionals are also well educated, and all health professionals are carefully regulated to ensure that the pubjic receives treatment only from qualified practitioners. The United States is a leader in both medical and phatmacological reseam,h. The achievements of American universities and other institutions in biomedical research have made them preeminent in the world and have greatly contributed to the quality of care available in this country. The U.S. Govemment has provided significant financial support to biomedical research, in large part through generous funding of the National Institutes of Health, whose achievements are well-documented. 41 TIMN 0023130

Eighty-six percent of the population has at least some health insurance," and nearly all of the elderly in the United States are covered by Part A of Medicare. These figures indicate that the Medicare program has succeeded in providing insurance to a segment of the population likely to need health care, and that reliance on nongovernmental sources of insurance has provided coverage to a significant majority of Americans. Most Americans are satisfied with the quality of the health care services that they receive. Zhe results of the Advisory Council's survey indicate that 78 percent of those polled were either "very satisfied" or "somewhat satisfied" with the quality of their health care services. Moreover, the majority of Americans are satisfied with their own health insurance coverage. The same survey indicates that 78 percent of those polled were either "very satisfied" or "somewhat satisfied" with the quality of coverage provided by their health insurance. Tbe majority of those surveyed were also generally satisfied with such features of their insurance as the amount of required paperwoi9c (59 percent) and their own costs (55 percent)." Another strength of the American health care system is its ability to utilize all sectors of the economy-public, private, and nonprofit-to meet the needs of a large and diverse population. In the course of conducting hearings and making site visits throughout the country, the Advisory Council learned of many innovative programs run by public, nonprofit, and volunteer entities. Hospitals, community health centers, and other community-based programs provide significant amounts of care to uninsured and underserved populations. " Derivsd kom /ncbme Securily ad Haalth Care Fcanamic Impteadons f991•ZXO--M ExpW Panel Report Oo the Advsory Caxd on Social Searty. ,• A Message from the Amwiean PubGc A Repat of A Naboraf Survvy on Heath and 9oaa! Seairity by the Advisay Cound on Sodaf Sean~y. 42 TIMN 0023131

For example, a number of public hospitals have developed innovative programs to control costs and improve the care provided to their communities. At Cook County Hospital in Chicago, the Emergency Department is conducting clinical research to reduce emergency room admissions of asthma patients. Lincoln Hospital in the South Bronx has undertaken outreach activities to serve vulnerable populations in the community. And at Boston 6ty Hospital, a group of five doctors, assisted by social workers and public health nurses, makes traditional house calls in order to provide primary care in the community. The efforts of public hospitals to meet the health care needs of the poor and uninsured are particularly commendable in light of the significant fiscal constraints facing these institutions. Community health centers, many of them federaliy funded, also provide significant amounts of health care to underserved populations. In addition, certain community hospitaLs have established neighborhood clinics and support them without the assistance of Federai grants. Two such clinics exist in Boston. In other communities, groups of health care professionals volunteer their time to staff clinics that provide free care. Such clinics exist in St. Petersburg, Florida, and Chicago, IIlinois. Volunteers are also responsible for the existence of other invaluable health care organizations, including ambulance squads that provide emergency medical services, hospices, and shelters for the homeless and for abused children. Together, these entities and organizations play a significant role in meeting the diverse needs of different communities. 43 TIMN 0023132

Weaknesses of the Income Security and Health Care Systems Despite the scrength of the Social Secutity program, the projected improvement in the financial status of the elderly, and the numerous positive features of the American health care system, there are a number of negative facts and trends that jeopardize the long-term security of the population. Income Security Social Seawity. Not all Americans who receive Social Security are as well protected as they should be. In the year 2018, as today, several groups will remain especially vulnerable: widows and widowers, single people living alone, and people with low izicomes.u The elderly over age 85 and women living alone are especially at risk of having inadequate incomes. In addition, the Council recognizes that minorities as a group also lack adequate income. It is not just the Social Security income of these groups that places them at risk, it is also the relative size of their total income and assets. The elderly are not a homogeneous group in terms of their relative wealth. Age and marital status have an important influtnce on an individual's financial security. Unmarried women have a lower median income in 1988 than do unmarried men or married couples, and they are projected to have smaller growth in median income by 2018. The oldest old are most likely to be unmarried women, and their median income is below that of younger elderly. Specifically, the "young elderty"-those aged 65 to 74-have median income that is nearly double that of the oldest old in 1988. The difference between the young old and the oldest old is projected to widen by 2018. This 's Socsa! Sowriry and tha Futura Farad Secudty of Women. 44 TIMN 0023133

widening gap results in part from the fact that the younger elderly will include more women who have substantial work histories. Another important factor is that the young elderly will receive Social Security and pension benefits that are linked to more recent earnings leveLs.16 The cost of OASDI will rise beginning with the retirement of the baby boom generation and is not expected to decline as succeeding generations retire. The demographic shift that will occur when the baby boom generation retires will cause the cost of OASDI, as a percentage of taxable payroll, to rise in the next century.l' Between 2010 and 2030, the number of persons of retirement age will grow more rapidly than the number of persons of working age. This demographic shift is the result of high birth rates in the 1950s and 1960s, followed by low birth rates in the 1970s and 1980s. Projected increases in life expectancy will also contribute to a larger number of retirees in the next ceauury.'= An important consequence of this shifting age suucture of the U.S. population is the change in the ratio of covered workers to OASDI beneficiaries. This iatio is expected to decline from 3.4 workers per beneficiary in 1990 to 2.4 in 2020.19 The shift to a lower ratio of workers to retirees is not a one-time phenomenon of the baby boom generation's retirement. It is expected that birth rates will remain low and mortality rates will continue to improve; consequently, the ratio of workers to retirees is projected to remain relatively stable as the baby boom generation is succeeded by subsequent generations. : u 8ocrai Sewrity and tlw Fvture F'r~anaa/ Secsaiti of Women and Iroane Secu@y ad FIeeAA Cav Economic lmpficabdons 1991-2U20-M Fqat Panel Report to tha Advisay Couna7 on Soda/ Seax#. ° Tbe baerim Repori on Sowl Se~ aed tha Federa/ Budyet JWy 1990. ,•1991 Annrxal Report of ft Baard of Taatess of the Federal Old,4ge and Srrvival lrtscrance and Orsab+lty Tiust Funds 45 TIMN 0023134

Thus, the cost of Social Security as a percentage of taxable payroll is not expected to decline after the baby boom generation leaves the benefit rolls; there is no peak followed by a laur drop in cast.~° The accumulation of reserves In the OASDI trust funds will not reduce the burden or costs of Social Security in the future unless the reserves are used in ways that help promote economic growth. If the buildup in Social Security reserves is used simply as a substitute for other fiscal policy actions that are needed to reduce the Federal budget deficit, the growing reserves will not contribute to growth. Other fiscal policy actions, such as increasing government revenues or reducing government expenditures, aiz necessary; otherwise, the future pooi of goods and services will be no larger than if there had been no partial advance funding of Social Secauity.u Pensions and Savings. The trend toward increased pension coverage in the next 30 years is a positive finding, but various uncertainties about the future of pdvate pensions may diminish the impact of this tread. For example, the assumptions underlying the PRISM projections do not take into account the degree to which pensions are unfunded or underfunded.2 Economic changes may affect the value of pensions and thus the adequacy of pension income for the elderly. The value of pensions may be eroded in several ways. When a worker leaves a job with a vested right to a future pension, the ultimate pension amount does not keep pace with.changes in wage or price levels between the time the worker leaves the job and the time the pension is actually paid. Consequently, a worker who eam.s pensions on " The bxwim Report on Soaa/ Saaairy arid tha Fodwa/ BudQet J* 1990. I' Ibid. a bcanw Secwiry and HaaM Ca% Eaonomic fmpticaborts 1991 2Q20--An SW ft-d Aepcrt to the Advlscry Counai on Sa~a! Secwrdl. 46 TIMN 0023135

a series of different jobs over a lifetime will have significantly less income from pension benefits than a worker who has continuous service in one pension plan. The value of pension income for a worker who changes jobs periodically may also be affected by the lack of portability of most pensions. These workers may face the loss of nonvested benefits n Secondly, the value of pensions can be eroded by inflation that oc,cius after rerirement. Most pension plans do not provide regular adjustments to keep pace with post-reti=ment inflation. According to the Department of Labor, fewer than 30 percent of participants in private defined benefit plans and only 75 percent in State and local plans have cost-of-living adjustments (COLAs). These COLAs are valued, on average, at 60 percent of the consumer price index (CPI). Without full cost-of-living adjustments, pensions decline in real terms as the pensioner ages, and the decline has the greatest impact on the oldest old. For example, a 4-percent inflation rate would reduce the real value of a pension by one-half in approximately 18 years if the pension lacked a COLA provision. Such a reduction would dramatically reduce the resources of a retiree who lived to age 83 but began collecting the pension at 65. The issue of protection against inflation will grow in importance as the number of oldest old increases.2` A defined benefit plan, a retiree's pension income is not entirely secure. The Pension Benefit Guaranty Corporation (PBGC) had a significant deficit for FY 1990. Although premiums have been increased in an effort to eliminate this deficit, it could persist into the next century. Another cause for concern is the potential default of the assets funding the plan. For example, recent " bx;ame Secuniy and Headi C+arx Eaonomic GiptOcra 1991 2b1c--M FW Paoer Rsport to rhe Advisory Corxxa7 on SociaJ SeainTy r ibid. 47 TIlVIN 00231136

experience indicates that assets in the form of deposits in savings and loan institutions or investments in real estate, commercial mortgages, and junk bonds are now overvalued.'5 The same concern about the deterioration in the value and performance of assets applies to defined contribution plans. Such deterioration is serious for these plans because the individual participant bears the investment risk directly, unless the employer makes up any defaults.26 These uncertainties will affect the adequacy of the pensions paid to retirees in the year 2018 and temper the positive finding that many more elderly will be entitled to pensions 30 years from now than ane today. Assets. The value of asset holdings of the elderly is expected to increase over the next three decades, but the distribution of financial resources will remain highly concentrated. The median value of all financial assets (i.e., all assets other than home equity) is projected to increase from $2,210 in 1988 to $7,210 in 2018. Despite this increase, however, the overwhelming majority of the aggregate financial assets of the elderly (about 85 percent) will be held by those in the top fifth of the finaix.ial asset distributioaY Coverage of State and Local Govemment Employees 0 State and local government employees are covered under Social Security through voluntary agreements with the Secretary of HHS and each State. Many employees of State and local governments azz not covered by any °' Li=. Ss=* and Maalh Cara EconamaC lmpGca6ans 1991-2Q20-M Evw1 Panal Rapat to the Aftwry C,amaT on Socia! Sect*. sbw 48 TIMN 0023137

retirement plan and lack valuable Social Security coverage. This makes such workers particularly vulnerable for the following three reasons: • They may lose eligibility for disability or survivors benefits because of lack of portability of coverage; • The worker will have gaps in coverage for Social Security retirement benefits which could result in lower benefits or even ineligibility for such benefits; and • In the event they are not covered by any pension plan, they may reach retirement without a source of income. Health Care There will be significant adverse effects on the entire economy if the cost of health care continues to rise unabated. The increase in the cost of health care is critical because of the implications of such increases to both the American health care system and the American economy as a whole. The unrelenting rise in the cost of health care and the rate of increase are the most critical problems facing the Auierican health care system. From the perspective of both society and the individual, tbe benefits from future gains in income and wealth are significantly compromised by the growing resources required to support the health care sector. The Nation cannot continue its curtent consumption patterns and devote an ever- increasing share of GNP to health cara expenditures. The demand for resources will substantially exceed what our economy can produce. Moreover, a combination of factors makes it unlikely that the U.S. economy 49 TIMN 00231l38

will grow at a rate exceeding the projected increase in health care expenditures." The projecaons of the two technical panels appointed by the Advisory Council indicate that in 2020, the cost of Medicare and Social Security together will be roughly equivalent to 32 percent of taxable payroll under one projection and 26 percent of taxable payroll under another, compared with 15 percent today. This startling fact has sobering implications. It will significantly reduce individual savings and will lower the tax base. The increased expenditures for health care and support for social programs for the elderly will undoubtedly offset the income gains expected to be experienced by workers. Expenditures for health care could also seriously erode the income and assets of the elderly and offset the income gains that they are projected to experience. If out-of-pocket health care costs paid for by the elderly continue to rise at the same rate as other health care costs, the average Medicare beneficiary could spend nearly 48 percent of their Social . Security benefit and over 22 percent of their total retirement income on heath care. 'Ihese expenditures do not include payments for long-term care." In addition to the general problem of rising costs, at least three other factors jeopardize the financial swciiue of the Nation's health care system and threaten the entire economy. First, the 1491 Trustees Report indicates that the Medicare Trust Funds for Part A will be depleted by 2AOS" Second, the Medicaid program is approaching a crisis in many States. Medicaid is a means-tested entitlement program based on complex eligibility " lrtwme Secw# arrd Haat Carw. Eaarranfc krvfraticrrs 199120--M f.xpsrt Parrsr 19eport to ttw Ads~sory Cand on Soaa! Secviyc ~Psi '0 1991 AenuaJ Report of tha Board of Trustses of the federal Fkspbl Msurancs Trost Fund 50 TIMN 0023139

criteria that provides payment for a variety of health care services to the eligible needy. It is jointly funded by the Federal and State governments, but the States are the administrators of their own programs. States administer their individual programs within broad Federal guidelines. The fiscal problems experienced by the Federal Government and by many States have made it difficult to fund this program adequately. 'Ihe problem is complicated by the fact that Federal guidelines require the States to provide certain services. States generally cannot pay hospitals and providers adequate rates, with the result that there are insufficient providers to serve all those eligible for Medicaid and/or to provide them with all the services to which they are legally entitled. Third, the cost of long-term care may pose a substantial burden for many families in the next 30 years. Nearly half of all nursing home care expense is paid for directly out of pocket. Estimates indicate actual per capita out-of- pocket costs could double by 2020. Approximately two of every five persons surviving to the age of 65 are estimated to experience a stay in a nursing home. A 65-year-old today has about a 20-percent chance of spending a year or more in a nursing home at an annual cost of roughly $30,000" As a result of extremely limited public and private coverage for long-term care, many elderly and their families are impoverished by the cost of their long-term care. At this point, many become eligible for Medicaid. The aging population will likely place additional strains on the Medicaid budget. The financial problems facing the American health care system are not its only weaknesses. Fourteen percent of the American population are uninsured. This percentage represents approximately 34.7 miliion people-a " In 1990 dodars. as reported in Fnenang of long Term Caro Sarvicgs, ACSS, 1991. 51 TIMN 0023140

figure greater than the population of many countries, including Canada. 'Ibe large percentage of Americans who lack health insurance constitutes one of the two most serious weaknesses of the current health care system. The solution to this problem is complicated by the most serious weakness---the problem of rising costs. Access to the health can system is difficult or impossible, even for people who have insurance, because of a maldistribution of providers. The country does not have an adequate number of primary care physicians, especially in rural areas and inner cities. In addition, many small, rural communities have found it impossible to support a local hospitaL The lack of providers and hospitals in certain geographic areas prevents people from obtaining care even when they have insurance to pay for it. The access problem is exacerbated for Medicaid beneficiaries because physicians often limit the number of Medicaid patients that they will treat Physicians name several reasons for their reluctance to treat Medicaid patients. One significant factor is the low rate that States pay them to treat such patients. Low reimbursement rates, coupled with extensive paperwork and long delays in receiving payment, make it diff cult for physicians to maintain economically viable practices if they treat a high percentage of Medicaid patients. Another common complaint is that Medicaid patients are difficult to treat. 7bey do not consistently follow physicians' instructions, they do not keep appointments, and they may be high-risk patients because of factors such as substance abuse, inadequate diet and housing, and tobacco use. As a result, Medicaid patients have a high risk of adverse outcomes, especially pediatric and obstetrical patients. Physicians are unwilling to risk the potential legal liability inherent in treating such patients. 52 TIMN 0023141

These negative facts and trends are alarming, even when evaluated in the context of the overall strength of the American income security and health care systems. The following chapters contain a systematic analysis of both these systems. 53 TIMN 0023142

FACTORS AFFECTING THE HEALTH CARE FINANCING AND DELIVERY SYSTEMS The costs of health cam by any measure are high and growing at a rapid rate. In 1990, total health care spending reached $666 billion, or $2,566 per person, and consumed 12.2 percent of the gross national product (GNP). Over the last 20 years, personal spending for health care rose at an average annual rate of 11.6 percent. General inflation in the economy accounted for 52 percent of this growth, while another 11 percent resulted from increases in medical care prices above the general inflation rate. Greater utilization and "intensity" of health care services contributed another 28 percent to overall spending growth, and population increases accounted for the remaining 9 percent. Although intlation, utilization, and incensity are elements that have been identified with health care spending, the underlying factors that comprise these elements contribute heavily to health care expenditure growtiL Many of these factors ase external to the health care system itself Demographic, environmental, legal, cultural, and behavioral factors are all responsible in part for increased health cane spending. They are also equally troublesome in their negative effect on health status and access to health care. Other factors driving up spending are intrinsic to the health care financing and delivery systems: insurance coverage and third-party payments; the numbers, types and distribution of providers; Federal tax policies; and continual improvements in and ready availability of medical technology all 55 TIMN 0023143

Ch8tt 1 Components of Projected Health Spending (Percent Distribution) 1970 -1990 • AM other faa«s indk,aes incremm in utlrRanon ana ixens+ty af sarvicas, inauding increasea as to cnanges in u,e age ar,a sen =vwioon of tt,e pcputamon TIMN 0023144

contribute to higher spending. In order to solve the nation's health care problems, it is important first to understand the factors causing them. External Factors The External Environment Today's health policy debate focuses on reforming the health carz delivery and financing systems. It almost literally ignores the external environment in which these systems operate. This external environment includes the changing demographic composition of American society, individual genetic makeup, lifestyle and behavior choices, environments in which Americans live and work, and the interaction between the American health care and legal systems. The contribution of external factors to increased health care costs, declining health status, and reduced access to care has been recognized but has proven difficult to quantify. Principally because deficiencies in the health care financing and delivery systems are more readily quantifiable and more widely discussed, the health care reform debate has centered on reforming these systems and has almost ignored an examination of external factors and their intluence. Health care financing and delivery systems are often relied upon to overcome the effects of factors which these systems control either inefficiently or not at all. Most analyses do not acknowledge the limitations or costs of requiring financing and delivery reforms to address factors outside the health care system. These factors affect the health care system and together can impair health status, increase demand for services, raise costs, and create barriers to 57 TIMN 0023145

obtaining care. These factors should be examined in any serious discussion of health care costs and access. Demographic Trends The aging of populations in all advanced industrial nations affects their health care financing and delivery systems. In 1988, the remaining life expectancy for all races and sexes at 65 years was 16.9 years.' The baby boom generation in the U.S. will be moving into its retisement years between 2010 and 2030, and life expectancies are expected to continue to rise. Tbe number of people aged 65 and over is expected to increase from 32 million in 1990 to 53 million by 2020, or from 12 percent to 16 percent of the total population. By 2040, this group will number 72 million and comprise 20 percent of all Americans. Moreover, the number of "old-old"-those aged 85 and over-is expected to increase even more rapidly, from 3.2 million in 1990, to 6.2 million in 2020, to 11.8 million in 2040 A decline in overall health status is expected as a natural result of aging. The number of disabled elderly-those with limitations on their ability to perform such daily activities as eating, dressing, bathing, and going to the toilet will more than double over the next 50 years, exceeding 13.5 million by 2040 'U.S. Department ot Heallh and Human Servioes, Nationai Center ior tjeaM Stsisncs, NeaM tlnded States • 199d, March 1991. 'lncome Seady and Neath Care: Emomic laVAntiana 1981-2A20 - An ExW Panel AepAR b 1he Advisay Counai on Soa®J Ssauiry, Decmber 1991. 'ibid. 58 TIMN 0023146

It has been estimated that demographic changes will account for only about 10 percent of the overall projected rise in the shatt of the GNP attributed to health. The aging of the population will, however, significantly affect public and private spending under Medicare and for long-tezm cat+e. Per capita health care spending for the elderly is substantially higher than that for children or younger adults; in 1987, it was 3.5 times the level for woridttg- aged adults and about seven times that for childRn.` Furthermore, the growing number of disabled elderly will create greater demand for long-term care services both in nursing homes and in the community. The number of disabled elderly requiring nursing home carz is projected to increase from 1.5 million in 1990 to 2.6 million in 2020. And the number of elderly needing assistance to live at home or in community-based settings is projected to nearly double during that same period, from 5.6 million to 10.1 millions The growing disabled population living in the community will generate mon demand for both formal care from paid providers and informal cate from family caregivers. Genetics Each individual has a unique genetic makeup, and the total American population has a wide range of predispositions towards various ailments. Gender, for example, affects life expectancy: in 1988, the life expectancy for men was 71.8 years; for women, 78.5 years.s Family histories display common risk factors for a variety of diseases, including cancer and heart disease. 'I7v genetic makeup of individuals has a profound impact on the health care financing and delivery system. hbid. 'Ibid. hJ.S. Department of HeaAh and Mwnan Services, Wional ceNar tar Heahh Statistics, Nealth Uivted States • 1990. Marth 1991. 59 TIMN 0023147

Individual Lifestyle and Behavior Choices Many choices individuals make about their lifestyles-about physical fitness, nutrition and diet, smoking, abuse of alcohol and other drugs, and sexual behavior-put them at higher risk of serious illness. Resultant increases in serious illnesses often cause increased spending for health cane. . For example, most Americans have a sedentary lifestyle, despite the common knowledge that physical activity helps to prevent or at least to alleviate such conditions as heart disease, hypertension, diabetes, and osteoporosis. Cm-rently, only 22 percent of adults engage in at least 30 minutes of light or moderate physical exercise five or more times per week, while nearly 25 percent do not exercise at all.' Nutrition and diet also affect health status. Diets high in fat have been shown to be associated with coronary heart disease. Use of tobacco products has been shown to cause cancer and heart disease, with associated increases in health care costs. Tobacco use accounts for one out of every six deaths in 1988-or 434,000 deaths annually-and, in addition to cancer and heart disease, is a major risk factor for chronic bronchitis, emphysema, and respiratory infections.' Smokuig during pregnancy is responsible for an estimated 17 to 26 percent of low birth weight babies, 7 to 10 percent of premature deliveries, and about 5 to 'u.S. Oepartment o1 Hea4h and Human Servicas, Haellhy Pecpb 2'000, Septerrbar 1990. 'us. oapanment of t9eapb and tiuman services, cemrs for oisaasa contrd. Mortaify and Mor6idAy Weekfy R~ Febn,ary 1.1991. 60 TIMN 0023148

6 percent of infant deaths.' Recent Federal studies concluded that smoking costs the nation $52 billion annually or $221 per person per year.io Use of alcohol and other drugs is another personal behavior ct>Dice that impairs Americans' health and increases societal spending on health care. Alcohol is linked to approximately one-half of all homicides, suicides, and automobile accidents." Deaths from esophageal cancers and liver disease are other consequences of alcohol abuse.'2 Fetal alcohol syndrome is one of the leading causes of preventable birth defects and affects as many as three of every 1,000 live births.l' The total annual cost to the nation of alcohol abuse for 1990 was estimated ai $136.3 billion.l` Drug abuse has an increasingly serious impact on individuals' health status and results in increased demands for tmauaent. According to a 1990 survey conducted by the National Institute on Drug Abuse, 1.6 million Americans had used cocaine in the last 30 days, and 10.2 million had used marijuana in 'U.S. Department of HaaNh and Human Servics+t, Olfica on Smoidrg and Heaih. HeaM BerwRs of Smolcing Cessation • A Report of the Surqeon Gwmal Washington, D.C.,1990. "U.S. Department of Health and Hwnan Servicas, Offica on Smoidng ard Hwlh, Rupat To Congress, NaOiona/ Sta0s6CS - Se~,ror~ Mon, Secbon 2, Febtuaty,1990. "Pertirw, M.; Peck A.; and Fe1, J. Epidemiologrc Perspec6w on Drtmk DrinvV at tha Sttgaan General's Workshop on Dnmlc Dmmg, Badground Papsrs. Washiqton, D.C« U.S. Departrnent of Hedh and Human Seivices.1988. ':American Healttcare Systems, lnc., ChaDen9es fot Change • PaDents f'rst A ReW and Recommer+Qa6ons, December 1991. "U.S. DepartmeM of liealth and Human Savioos, National Instiduta on Aioobol Abuse and Alootmfian, Sisth Soeda/ Repori to the U.S. Congress on Alcohol and xea1N, Washinglon, D.C.,1987. "U.S. Department of Health and Human Servxes, Seventh Spedal Report, Aicohd and HaaMh. January.1990. 61 TIMN 0023149

the last 30 days.u At least 351,000 drug abusers were in treatment in 198916 at a cost of $888 million to the American taxpayer.l' Drug use increases the risk of violent behavior resulting in injuries, of contracting the AIDS virus, and of developmental problems in babies." Each year, 375,000 drug-exposed babies are bota costing an estimacated $6.5 billion each year. Infants of drug-addicted mothers may be botn with complications that affect their health for the rest of their lives. The costs of drug abuse to the Nation were estimated to be $44 billion in 1990." Violence Violent and abusive behaviors also injure individuals' health and increase health caie spending. Suicides and homicides are responsible for over 33 percent of the 145,000 deaths from injuries. In each year between 1979 and 1986, violent assaults caused mora than 2.2 million non-fatal injuries. One million of the injured received nnedical treatment, and 500,000 were treated in emergency medical facilities 20 Over 65,000 people are admitted annually for gunshot wounds alone Z' Gunshot wounds and other assault injuries cost $4.4 billion each year. Family violence, usually directed at 0 '~1.S. Depadmant of Heaith and Human Serviaes, lVa6orrf Hawhofd Swwvy of Gtiu;q Abuse, NadioW Instdute on Drug Abuse, Alc". Drug and Me" MseAh A&4istrshon, PubBc Heaph Service, Rodwvile, MD, 1991. „Main Fddags - Repat of IYa6ona! Avg and A/cdx6sm Ttsaumv tlni< 8crvey, NationaW hStidWe an Ong Abuse, Noonal InstihRe on Afoohof Abuse ad NedMfism.1989. „Nationai OfSce of Drug CaMrol Poicy, 1990 Dnq Ca*ol Stradegy, Budget Summary,1990. "Heathy Peopa 2000, cp. at "U.S. Departmwit ot Health and Human Services, NIDA Carrsus, September 90.1990. 'OFlealhl' PeaPle 2000. op. dt. i'Ihid. 62 TIMN 0023150

women and children, also results in injuiies. More than one million women seek medical care every year for injuries caused by domestic btatings.u • Sexual Behavior Almost 12 million Americans annually, 86 percent of whom are between the ages of 15 and 29,' are affected by sexually Uransmitied diseases-most conunoniy HIV, gonorrhea, syphilis, and genital herpes. The most serious complications of sexually-transmitted diseases include AIDS, pelvic inflammatory disease, sterility, blindness, infant deaths, mental retardation, and birth defects. The total cost (exclusive of AIDS) to society exceeds $3.5 billion annually.u AIDS, which is contracted through sexual activity and needle use, has substantially increased health care spending. As of September 30, 1990, 145,056 cases of AIDS had been reported by State health departments, with 90,914 deaths'5 An estimated one million people in the United States an estimated to be infected with the HIV visus.26 The cost of AIDS caie ranges from $25,000 to $30,000 per patient, and the annual costs are projected to be between $5 and $13 billion in 1992.r These figures range "Nabarw Famiy Vlolon= Swswy 1985, Nalional lnstilula of Ikrsai FleaUh, Alcohoi, Ong Abusa, and Mental Health Admmistradian. Pubric Health Service, U.S. Depattrnert of Health and Human Sorvioos, Rodcvale, M0. aU.S. Departmenl of Heaith and Human Servioea, CerAaa br Ois~ CaMrd. Liyision af STW/I/ Prsvsrgon Awua/ Repcrt,1989, Atlarqa, GA: U.S. Oeparhnerd of Health and Hurrran Services, Rodcv~7o, MD. xHealhy PeoPle 20f.>Q 2'Heal!h Unted StaAes -199R xHeathy People 2000. aMason, James 0., M.O., Putbc Heallh Consideradra= A Progress Repcrt, presensed at AIDSIFroatline Hea~llh Care Conlerenca, 1989. 0 TIMN 0023151

widely due to differences in numbers of infected individuals and the progress of the disease. Environmental Conditions Environmental conditions such as air and water pollutants and safety at home and in the workplace also contribute to a decline in health stams and increase in health care spending. Exposure to air polluuon, for example, contributes to lung diseases, asthma, eye irritation, cancer, and neural disordets.u In 1988, only about one-half of Americans lived in counties that met all Environmental Protection Agency standards for air quality during the preceding 12 months." Home. Three million children in the United States are at some risk from exposure to elevated lead levels, particularly children living in inner-city urban areas.30 Lead poisoning is estimated to cost the United States more than $28 billion over the next 26 years." ' Another environmental risk factor in the home is exposure to radon gas, which can damage lung tissue and lead to lung cancer. An estimated eight million homes may have levels of radon gas requiring correction, but only 5 percent of homes have been tested.'1,3 '11.5. Enwwmenal PMtedon Aqeoq. EmirormaitaJ Progress and ChaianW EPA's LOcIah, Washongoon, D.C„ August 1988. "U.S. Emriroenwatai Protedioo Agency, Na~xal Air Qmty and Frnlssiorn Tm+ds Report 1988 EPA - 450V4-9aO02. Wasivngton, D.C, At+gus! 1988. 70U.S. Department oi Hedh and Fhurnan Senices, Agerwy br Toouc Substarxaa and Diseau Registry. 7he Nadue and Exteru of Lsad Pa'son'rq in fha ihRed S7afez A Report to C*Vm, Washingion, D.C., July 1988. "U.S. Department of Headth a-d Fkuw Services, Centeis lor Disease Cantrot, A 3trVagk Pfan 1ix EGmarraibn of Ch*hood Lead Pa'son6g, Febrvary 1991. ''Ernirarunsrsa/ Prograss m7d Cha%W, ap* d. 33 HeaAhy Peqcle ZODQ op. dL 64 TIMN 0023152

Work Plact Injuries in the workplace, as we11 as exposure to substances that increase workers' risk of disease, also increase health cane spending. An estimated 10 million workplace injuries occur annually, 3 million of them severe. In 1987, 1.8 million workplace injuries resulted in total disability, and 70,000 resulted in permanent impairtAents." Health problems resulting from workplace exposures include occupational lung disease, skin disorders, and cancers'5 Service sector jobs, which are an increasingly large part of the American economy, also involve workplace hazards, including indoor air pollution, radiation from computers, and stress.'6 Motor VdWdes. Deaths and injuries from motor vehicle and other accidents are another cause of higher health care spending. The total cost to the United States from injuries, including lost productivity and medical care, has been estimated at $100 billion annually. One of every six hospital days and one of every 10 hospital discharges result from non-fatal motor vehicle injuries." Approximately 46,000 people die and 3,500,000 acE injured annually in motor vehicle accidents,'s yet only 42 percent of Americans report that they use seat belts.'9 In 1986, according to the National Highway Traffic Safety Adminisuation; failure to wear seat belts cost society about $900 million in medical care'0 "U.S. Departrnenl of Labor, 8ureau of labor St~, Annual 8unwy ot Ooa,pationa/ lnjuries and Ilhesses, Washington, D.C.,1988. ftid. "Tbe Futuro of Work and tleath: trnpGcations br IYationai HeatN StrategeeA Inskuta for Aternaiive Futwes, March 1987. FtteatnyPeopk 2oaa ft4 "tlea,ttiy POVa zooo 'Arterican HeaitNcare Systems Inc., CWknges 1Fx Charigo - PafienCs F'ust A Report and Reoammendaoons, December 1991. 65 TIMN 0023153

Foqaty. Poverty is an important environmental factor linked to decreased health status and increased health cace costs. Almost one of eight Americans lives in a family with an income below the Federal poverty line, and nearly a quarter of children under age six are members of such families.`1 Individuals who live in poverty have higher rates of heart disease, arthritis and rheumatism, hypertension, asthma, diabetes, emphysema, cancer, and injury and death from trauma than those whose income is above the Federal poverty line `4 The effects of poverty on health status am reflected in infant mortality rates. During the Council's regional hearings and site visits, witnesses in nearly every location testified that infant mortality, poor birth outcomes, and low birth-weight babies were problems associated with women in poverty. Significant costs an associated with low birth weight babies; one study estimated that every low weight birth prevented by early prenatal care saves between $14,000 and $30,000." Low-income Americans generally have had less access to delivery of preventive care such as neonatal care and immunizations, which have proven cost-effective. Measles vaccinations alone have provided a net savings of $5.1 billion over the first 20 years of their use. But with increasing poverty among U.S. children and declines in immunizadons, childhood illnesses are increasing." "Headhy People 2ooa op ct. *Heatny Peopk 2000. "Fahs. Marfarm, 'T!w Eoonomic consequenoes of Sarxxion,' in 6nminent Pert Pbbk Nsakb in a OpdWng Ecawmy, Twentielh Certury Fund Press. 1991. `9bid. 66 TIMN 0023154

1be Aa*ricaa Leg,al SYSUa The health caie financing and delivery system must operate within the larger context of a legal system that inct^eases health care costs in several ways. Mandates on insurers to cover parpedar services, medical malpractice judgments that raise premiums and increase the practice of "defensive medicine," and antitrust laws that impede elimination of duplicative health care facilities-all result in higher spending for health care. Health insurance policies generally agree to pay for treatments ordered by a physician that am "reasonable and necessary" in treating an iliness-i.e., in accord with generally accepted standards of medical practice. Almost all health insurance policies explicitly exclude coverage of experimental or investigational treatments. Despite such explicit exclusions, courts have ordered insurers to pay for such expensive treatments as bone marrow transplants for breast cancer patients, for which there is little clinical evidence of replicable success. Courts have also ordered insurers to pay for the treatment of cancer with vitamins and Laetrile, even though most physicians, as well as the Food and Drug Administration, do not consider these treatments effective. These judicial decisions increase costs by extending cov6rage to additional services, thereby adding to total expenditures. Because insurers cannot andcipate these decisions, they raise premiums to protect against unanticipated losses. Judicial decisions in medical malpractice cases have also raised health care costs. In the 1980s, rhe frequency of malpractice claims and the size of awards dramatically increased, driving up the cost of medical malpractice insurance. Since 1985, average professional liability premiums have increased at an average annual rate of 13.9 percent for all physicians. The average professional liability premium in 1989 was $15,500, but for 67 TIMN 0023155

obstetricians and gynecologists it was $37,000.`5 Pnofessional liability insurance costs represented 4.9 percent of total practice revenues for aU self- employed physicians in 1989 and was nearly twice that for general surgeons, obstetricians, and gynecologists." As another probable consequence of high malpractice verdicts, physicians increasingly practice "defensive medicine" by ordering tests or proceduns either to minimize the risk of being sued or to provide an appropriate defense if suit is brought. Surveys show a wide range of estimates of the costs attributable to defensive medicine-from 5 to 20 percent of total health care spending. The American Medical Association estimates that 14 percent of physician service expenditures in 1985 may be attributed to defensive medicine." Malpractice litigation has also encouraged physicians to avoid risky procedures or stop practicing in certain specialties. This is most evident in obstetrics and gynecology, where an increasing number of physicians limit their practice to gynecology and no longer perfotm obstetrics.4 Moreover, malpractice decisions add to health care costs by creating a legal climate in which the standard of appropriate care becomes the best available medical practice, rather than what is done in a particular community. 'tbis has resulted in greater use of high-cost technology. Obstetricians, for exampte, "AMA Canter fcr Health Poicy Reseacch, Sbra and Gaualez. 'Medical Professionai Liabft Cqains and Premiums,1985-1989' in Sodoecoaomx C1waderisics of A1ea6cal Pracdce 199Ch991. "Gal's and WiOcee, 'Practica Cost Shares ot Self-Employed Phymcws,' o Soaoea~nanic Charaderistics of Medical PradL-9 199(Yt991. AMA Centar ia Heapti Poicy Raseaneh, Tabk 2, p. 23. "AMA Center for Health Poicy Research, Staa and Gonzales, Aledcal ProlisssiVra/ Liab* Claims and PtemitA= 1991. "Meyer, Sui&van, and SdowZarrol, Criticaf Cbakas: Con/ron&g fhe Cast of American Heath Cara. A Report to the Nationai Cammrttee for Ouaity Heeb Care, Washngton, DC, 1990. 68 TIMN 0023156

have increased their use of electronic fetal monitoring, at least partially owing to a fear of liability." Product Lfability Product liability litigation also increases health care costs when patients who have been treated with a particular diug or medical device sue the manufacturer when an unforeseen medical consequence occurs, claiming that the drug or device is responsible. By one estimate, product liability contributes about 4 percent of the sale price of a medical device. In some cases, manufacturers have withdrawn products from the market altogether because of liability concerns. In addition, it is difficult to quantify the impact that such litigation has on the willingness of manufacturers to bring new products to marlcet Mtitrust Antitrust laws contribute to increpsed health care costs when providers are prevented from merging to reduce excess capacity or duplication of services. They must continue to maintain excess capacity, adding its capital and operating expenses to total health care costs. Sunmxry. Important external forces create the environment in which the health care financing and delivery systems operate. These forces include changing demographics, individual lifestyles and behavior choices, the environments in which people live and woric, and the American legal system. They are largely beyond the reach of financing and delivery system reforms, yet have serious impacts on health and on spending for health care. "a,dsrtsay covnaa o«, sodal se«aity. 7ba 1n&wr*of Lbirent Adcal obarirres on rhe Cur or Purchesng HeaM Cars,1991. 0 TIMN 0023157

Internal Forces FinanGng Faewm The health care financing system contains perverse incenrives that increase health caro spending. They are found throughout the system and affect everyone-providers, suppliers, consumers, insurers, businesses, and governmeru. Most Americans have either private or public health insurance. In 1990, about four-fifths of all medical services were paid for by private insurers or by the government (primarily Medicare and Medicaid).S0 Ibird-party coverage protects against catastrophic financial losses and helps to assure that people can afford health care services. Much of the current debate over health care centers around finding ways to extend insurance coverage to the 14 percent of Americans who are uninsured. The financial protection provided by insurance, however, also changes the economic incentives for consumers and providers, and the debate must also address the issues raised by these incentives. Health insurance, unlike most other forms of insurance, pays for services received rather than losses sustained by the insured. If individuals do not have to pay much of the cost of services, they have little incentive to economize on the use or cost of those services. It is generally believed that expansion in the extensiveness of drird-party reimbursement of health care costs, including private insurance, tends to reduce the incentive for patients and their physicians to be cost-conscious in making decisions about the use of medical services. The nature of our SOKatherine A. lsvi, F9elee C. lazebj. Cathy A. Carvan. & Suzanw W. Letsch. 'Na6onal Heaph Expenduues; 1990. HeaRh Cara Finanang Reviewc Vo1.13, No.1, FaiA 1991. 70 TIMN 0023158

governmental subsidies to promote tbe purchase of health insurance tends to exacerbate this tendency, particularly if these subsidies promote the use of a low level of copayment which, in turn, leads to increasing utilization. This results in a trade-off between higher insurance premiums and the cost of additional services of relatively low benefit. Federal Tax Policy. Private health insurance coverage has been stimulated by Federal tax policy. Employers can deduct the cost of health insurance as a business expense, and employees do not have to declare this contribution as personal income. The Department of Treasury calculates that this tax subsidy typically reduces the cost of health insurance by over 30 pem,eut The value of the subsidy increases as workers move into higher tax brackets. One estimate shows that families making over $100,000 receive goverament subsidies equal to about one-fifth of their acute care expe.nditures.sl A significant portion of this subsidy is a result of the tax policy. If the tax preference were reduced or limitea, individuals would become more concerned about the cost of their insurance and of medical services. In a life-threatening situation, they would elect to be treated regardless of the cost or whether they were covered. In other instances, however, individuals might avoid such high-cost, non-emergency, elective prvoedures as vein stripping and ligation to correct varicose veins, or select catastrophic-type insurance policies that exclude some health services or have high deductibles. Benefit Design. Benefit packages and cost-sharing requirements can also increase health care spending by not promoting the most cost-effective settings or medical procedures. If there is no patient cost-sharing connected with hospitalization but there are deductibles and coinsurazxx for outpatient 61uw,b+s+,ed eAiWes rran t ewttvlcF. 71 TIMN 0023159

care, for example, the patient has an incentive to be hospitalized even if outpatient cam is just as beneficial and less costly. Medicare covers most surgical procedures but not outpatient prescription drugs. Even if drug therapy is a viable and less costly altemative to surgery, the incentive is still to have surgery. Medicare also covers long-tenn intravenous therapy in a hospital or nursing home but usually not in the. patient's home. In Council hearings, a physician testified about a depressed patient who wished to be home, but was unable to afford intravenous therapy-which would have been less costly to society as well as more beneficial to the patient. Similarly, Medicaid covers nursing home care, but in many States does not cover home- or community-based services. These settings are less costly than nursing home cane in some instance.s, but the financial incentive encourages institutionalization. Rules intended to constrain costs sometimes have the opposite effecL Some insurers still require and pay for second-opinions prior to elective surgery despite studies indicating that second-opinion programs actually increase insurance costs by 5 to 8 penxnO Payment PofidleL Methods for paying providers and suppliers can also increase costs. Most insurers still pay providers on a fee-for-service basis: the more services they perform, the more they earn. A few physicians may perform more services than necessary to maximize reimbursement, but for the "Feldstein, Paui J., Thomas M. Wick¢er, and John R.C. Wtwakr. 'Prirate Cost catainment The E8ec3s of UhTization Review Programs on Health Cara Use and EVendtures.' New ftfand Joumal of Medidns, (19 May 1988). 72 TIMN 0023160

vast majority of physicians the desire to please patients and give them the highest quality trea®ent push them to do more, rather than to provide only necessary or effective care. 'Ibey have incentives to use every available medical remedy for the terminally ill, even when doing so does not improve functioning or the quality of life. Recently, third-party payers have been changing some of their payment methods in an attempt to alter financial incentives. Managed care arrangements in the private sector and prospective payment to hospitals under Medicare are good examples. Technology Explosion. The importance of technological change in the health sector is evident to the most casual observer, as each day we are bombarded in the media with information on new drugs, devices, and procedures. More subtle changes in the organizational structure and delivery of medical services (such as HMOs and increasing specialization) are no less important and certainly more pervasive. Measuririg with any precision the relative impact of either the hundreds of small technological changes or the more broad systemic changes is extremely difficult. Furthermore, attempts to distinguish among these types of changes have met with little success. The best estimates indicate that a major share, tiut not all, of the changes in intensity might be attributable to technological change. The range of beneficial diagnostic and therapeutic interventions has been expanding rapidly for several decades. Bypass surgery; heart, liver, and cornea transplants; and artificial knee and hip implants are but a few examples. Many interventions, however, do not have dramatic potential to cure or prevent a major category of disease. Instead, even though they may be technologically sophisticated and complex, they introduce only marginal improvements in the ability to treat disease, often at a very high cost {i.e., a 73 TIMN 0023161

newer generation of magnetic resonance technology may offer a limited additional benefit to the physician). A new medical technology does not usually reduce spending because, in addition to the capital cost involved, it also generates new costs for operation and maintenance. Diagnostic therapies such as MRI, for example, require not only the facility in which images are made, but also technicians trained in the proper use of the equipment and physicians who understand the new "output." The costs of operating new equipment ofrten exceed the amortized cost of the equipment itself. Rarely does a technological innovation decrease the number of services provided by physicians; new therapies often increase a physician's base of patients and supplement rather than replace the original. procedure. It is unclear what portion of the rise in hospital and physician spending is the result of growth in technological advances. One study estimated that about one-half of the increase in hospital costs can be attributed to the introduction of new medical technology.-3 Research Inceatives. Incentives for private investments in research on new drugs and devices encourage new generations of tec3inology with marginal benefits. If consumers bear little or no cost for added care and providers'art: paid for these services, new procedures will be prescribed whenever the incremental benefit exceeds the cost to the patient. A private company trying to decide whether to initiate research is assured that it will have a market for any product that is even somewhat beneficial. The current system generates 67W.8. Schrrartr, The tneviable Faire of Currerr Cost-Cootaxunent Strategies: Why They Can Provide Ordy Temporary Refief,' Joumal of fhe Amerirrn Assoaation, VoL 257, Jarwary 6,1987. 74 TIMN 0023162

a demand principally for cost-increasing technologies rather than cbst reducing technologies. Administtative Costs. Administrative costs also conafbute to rising health care spending. These costs are difficult to estimate, however, since they cannot easily be separated from the costs of delivering care. Federal, State, and private entities all participate in the financing, reimbursement, and provision of health care services. Over 600 companies offer health insurance in the U.S.,5` for example, and their separate administrative structures and practices contribute to high administrative costs for providers. Private insurers incur administrative costs selling and marketing policies, billing and collecting premiums, and evaluating risk. The rapid growth of managed care has also added new layers of administration for case management, utilization review programs, andprovider monitoring systems.ss The average insurer incurs administrative costs representing 15 to 20 percent of the premium. Administrative costs vary by group size, with smaller groups incurring significantly greater costs. Insurers' administrative charges range from 5 to 8 percent for very large groups, to 12 to 18 percent for medium size groups, to 25 to 40 percent for small groups.m 'Iiarty L Suttan. 'lssue Papar on AQministrativa Cosls.' Prepared br ttW Adv'say Ccund on Soaal Seautl'.1991. %yMuggins. Inc.. Congressional Research Senioo. Ccst of ExVrAg Fkaph lnstuancw Coverage. Lbrary ot Congress, 1988. 75 TIMN 0023163

Health care providers also incur administrative costs in performing various activities. Hospitals have expenses for billing, marketing, cost accounting, and institutional planning. Lack of uniform provider billing requirements by government and private insurers also adds significantly to administrative costs. Hospitals must respond to the different resiuests for cost and diagnostic data from each payer. Physicians also devote a substantial portion of their gross income to office administration. Different payers may negotiate or set separate fee levels as well as different information requirements, which complicate the physician's billing system. There has been a great deal of controversy surrounding the adminisuative costs of the United States' multiple-payer system. Some maintain that very large savings could be achieved by moving to a single-payer system.~' Others suggest that, although there may be waste in the U.S. system, it is not associated with its pluralistic nature and that the true costs associated with single-payer systems-such as foregone benefits due to tight budget caps, patient time costs for waiting, "free riding" on other countries' contributions to pharmaceutical R&D, and the costs of collecting taxes to finance the system--may be at least as gmat'as the observable overhead costs of the U.S. systetn ~` °'Steffie Wootwdw and Darid ftmelstein. 'T1w DeWara6np Administrative Et6=nq of the U.S. Hesih Care System. The New EngAnd Jdunal o/Ada~, May 2.1991. "Patriaa M. Darwon. '7he ifiddcn cosis of Sudget Corab*ed Healh hLSzave Systems,' prepared for the Ameriran Frtwprise hstitute on HeaAh Poky Rebtm, Ockobat 34. 1991. 76 TIlVIN 0023164

Health Care Delivery System Factors The health care delivery system in the U.S. is composed of a multiplicity of providers. Most Americans receive their health care finm private physicians and from private nonprofit or for-profit hospitals. 'Ibe Federal Govemment operates direct service programs including the Department of Defense system for military personnel and their dependents, the Department of Veterans' Affairs system for veterans, and the Indian Health Service for Native Americans. States and local governments also operate public hospitals and community clinics. Community health centers serve individuals who arz low-income, medically indigent, young, elderly, ruraL homeless, drug abusers, or persons with AIDS. The diversity of providers making up the total delivery system meets a wide range of need, and offers most Americans access to many levels of care and kinds of services. But it also contributes to higher costs. Maldi.stribution of Pbysidans by Specialty and Area Maldistribution of physicians, both by specialty and geographic location, results in higher total spending for health care. Patients who do not have access to primary care physicians in their communities delay f+eceiving care which, if it is preventive or a cost-saving early intervention, can result in an aggravated medical problem that is more expensive to treat later. In rurai and inner-city areas where medical services are limited, people seeking care at+e forced to depend more heavily on hospital outpatient service systems-clinics and emergency rooms. To the extent that the costs of hospital overhead exceed those of physician office overhead, total costs are increased. The Council heard at several public hospitals how expensive treatments could have been prevented if primary care physicians had been available to treat a 77 TVAN 0023165

patient at an earlier stage of a disease or an illness. Many patients who come to hospital emergency rooms have multiple medical problems that could have been prevented or managed with appropriate primary cate. The lack of physicians to provide prenatal care also increases total health care costs. When pregnant women do not receive prenatal care, their children often are bom with low birth weights and require expensive treatments in neonatal intensive care units. Tbe Office of Technology Assessment estimates that prevention of a low birth-weight baby by obtaining early and frequent prenatal care saves between $14.000 and $30,000 in total expenditures in the long term." Only 30 to 40 percent of physicians in the U.S. choose primary catz specialties (general practice, family practice, internal medicine, obstetrics and gynecology, and pediatrics).60 61 Several reasons are given for the tendency of American physicians to choose specialty care over primary practice. Medical school faculties aie increasingly composed of subspecialists, due to government support of specialized research and the growth of new technology. As medical school faculties grew more oriented toward subspecialties, the number of students choosing primary care specialties droppee ' Another factor contributing to choice of subspecialty practice is income. The average salary for a family practitioner is $96,000, while that of a surgeon "Fahs, Marianw, lmm'r-W Pea1: Putlic HealTh k a Dadmng Economy, Twanteth Cenaq FuW Pten, 1991. iOHealh UnkeO Sta>as -1990. "Chaknges n HeaMr Cara - A ChartbooJt PerWecEivg RobeA Wood ,foMson FoundaGon, Pmotan. w~ 1991. %erican Heaftare Sysiems Inc., chaGengea tr Chaege,1991. 78 TIMN 0023166

can exceed $200,000 a year." Many medical students graduate with large debts-sometimes between $40,000 and 580,004--and the financial obligation to repay these student loans often causes them to choose subspecialty practice over primary care. The geographic distribution of physicians in the United States remains very uneven. Although a quarter of the population resides in rural areas, only 12 percent of physicians practice theie, and even a smaller share of specialists." During the Council's regional hearings and site visits, providers in rnual areas described several reasons why it is more difficult to attract providers. Medicare and Medicaid reimbursement rates are generally lower for rural physicians, yet a larger proportion of the elderly live in rural areas. Rural hospitals and community health centers cannot afford to pay physicians as well as hospitals in urban and suburban areas. Some physicians are reluctant to locate in isolated areas because there is less likelihood of professional interaction with colleagues. In remote areas where there is only one physician for miles, there is no one to rely on for back-up, and the job becomes a 24-hour, seven-days-a-week responsibility. Inner-city communities also have difficulties attracting and retaining physicians due to high costs of living, scarcity of housing, inadequate transportation, and concerns for safety. And because of the low-income nature of many inner-city communities, a physician cannot make enough money to pay for overhead, salary and benefits, and medical school loans. 9bid. "tl.S. Congress, Physidan Payment Review Commission,1991. 79 TIMN 0023167

F.ueeas Ha*tal Gpsdty. Unused hospital capacity also contn'butes to higher health care costs. In 1988, there were just over one million hospital beds in the United States, with an average hospital occupancy rate of 65.9 percent. Low occupancy rates have negative effects on hospitals' operating margins, threatening their financial viability. One study reported 194,000 excess beds, mostly in small, rural, and non-teaching hospitals. The study estimated the capital costs associated with these excess beds at $3.1 billion:65 some of these costs are shifted to paying customers. When too many hospitals compete to serve the same population, total costs are increased because each hospital has a minimum level of fixed expenses to support. Arguably, some of these hospitals could be closed, merged, or converted to other uses without hurting access to acute cat in the community. Proliferation of Technology and Serv4oes Proliferation of new technology and services is an important contributor to higher spending. Hospitals add duplicative programs, equipment, and technology to atvact physicians and patients. According to one m,port, hospital spending on equipment increased an average of 16 percent in 1990 and is projected to rise another 10 percent in 1991'" ' , New technologies are often viewed as a profit source without evaluating the community need for them. Diagnostic imaging systems and laboratory capacity have sometimes been purchased primarily with an eye to generating revenues. When utilization review, payment systems, and market "American HeaMcare Systems. Ine-, CHadenges for Change. "Siu+wy Idecdl'ias Trends in Equpeerd Acquisrtion' Hoq~, SeQlembsr 20,1990. 80 TIMN 0023168

competition fail to discourage unnecessary use of such technology and services, the result is excess costs. Physician ownership of diagnostic facilities also contributes to more spending. A study by the Inspector General of the Department of Health and Human Services found that physicians who own or invest in laboratories order 45 percent more tests than those who do not. Physician Education and 'IYaining. American physicians are trained to provide the best medical care available in the local conditions under which they serve and acknowledge that their first responsibility is to fumish or obtain the services that are best for the patient. When neither the patient nor the physician is at financial risk, costs are very much a secondary consideration and therapeutic choices are made largely on grounds of physician preference and training. A general lack of empirical data comparing the efficacy of alternative treatments and of consensual practice norms also makes it likely that physicians will choose treatments based on preference and experience rather than cost. This orientation contributes to higher health care spending. Strudure of the System. The cuneni suuctuie of the delivery system also increases health care costs. Fee-for-service medicine provides incentives for physicians to increase services to patients. Most physicians are in solo or small-group practices and are compensated directly by payers. Rudimentary managed care techniques used by most payers, such as precertification and utilization review, have not controlled the incentive to see more patients and provide more services in the office. Discounted fees are not prevalent among physicians, as they are with hospitals and other providers. 81 TIMN 0023169

Theoretically, the laws of supply and demand should drive prices down where there is an excess of providers, and cause providers to locate in areas where services are needed. The opposite appears to have occurred in the health care delivery system, both for physicians and hospitals. 'Ibere do appear to be oversupplies of providers in some localities, yet even in these areas they furnish services of marginal value, tttmecessarily raising costs. Furthermore, as previously noted, competition has not resulted in a better distribution of physician manpower by specialty or location. Another aspect of this problem is rooted in the traditional division of fimctions between physicians and their assistants. Costs are increased where outmoded medical practice laws, regulations, and customs result in physicians ftmishing services that could be provided at lower cost by persons with less training. Examples of such lower-cost providers include registered nurses, physician assistants, and nurse practitioners. , How the Delivery System Compeasstes For Other Factors The delivery system compensates in a variety of ways for deficiencies in the financing system. Since many individuals lack access to insurance or public programs, both physicians and hospitals provide a great deal of uncompensated care to these individuals. The butdai of this uncompensated care is not shared equally by all providers-public hospitals provide a greater share of uncompensated care than do other hospitals. Some of the cost of this uncompensated care is shifted to other payment sources, and some results in deficits for the provider. The administrative complexity of eligibility determinations for public programs and the diversity of forms and procedures for reimbursement by public and private payers also create problems for the delivery system. AA public hospital the Council visited, Seattle's Harborview Medical Center, 82 TIMN 4023170

employs 16 full-time equivalent employees, at a cost of over $500,000 annually, to help eligible patients enroll in Medicaid. With over 600 private insurance companies as well as multiple public funding sources, both physicians and hospitals expend a great deal of time and money in efforts to get reimbursed. Physicians, clinics, and hospitals also engage in activities to bridge barrieis to care that exist outside the delivery system. To deal with transportation problems, community health centers operate vans to help patients keep their appointments and get to other providers such as specialists and hospitals. Some providers operate mobile clinics to take health care services directly to the homeless. To bridge language and cultural barriers, providers employ multilingual personnel and staff who live in the community they serve. To reduce incidences of epidemiological and lifestyle-related diseases and provide early treatment and prevention services, providers conduct outreach in the community and on the streets, using health educators to identify patients and encourage them to come in for treatment. Hospitals and clinics also employ nutritionists to educate patients about lifestyle choices. Providers employ social workers to enable patients to connect with social services outside the health care system and to help them deal with other problems that affect their lifestyle choices and consequent health status. Hospitals and medical schools conduct training and fellowship programs to provide medical students and residents with experience in primary care specialties and in medically underserved areas. These programs try to counteract the geograpluc and economic factors that influence physicians to choose specialties over primary care and desirable locations over those that need their services. 0 TIMN 0023171

Findings: Barriers to Care External Environmental Barriers As individuals attempt to gain access to the health care system, they face barriers external to the health care fmancing and delivery systems. Language, cultural differences and perceptions, lack of transportation, homeiessness, the special problems of migrant workers, and even judicial decisions can all present difficulties. , Transportation barriers are particularly acute in rural areas. Providers and consumers told the Council how rural residents often go without needed care until they can get transportation to a health care provider in a distant town. While they wait, their medical conditions sometimes worsen. In those rural areas where primary care is available, specialty care often is not Lack of transportation and long distances to the nearest city with appropriate specialists contribute to the health problems of rural residents. 'Ibe difficulty of integrating into American culture and the inability to communicate in English keep many immigrants from receiving the care they need. Patients providing medical histories or seeldng educational pamphlets in multilingual formats, for example, can encounter language hurdles. Many U.S. cities contain neighborhoods where people speak little or no English, but a variety of other languages, including Polish, Cambodian, Korean, and Spanish. The situation may be complicated by the existence of several dialects within each language. Homelessness is another barrier blocking access to the health care system. Without ties to a provider in the community, the homeless are often unable to seek appropriate primary care and, when they do seek care, it is often in 84 TIMrT 0023172

crowded emergency tooms. In addition, the homeless lack the resounxs to buy or store prescription drugs and common items like toothpaste, band-aids, Q-tips, or aspirin. Migrant workers often face multiple barriers to obtaining health care. They may be homeless or live temporarily in work camps, far from their families and communities. Many speak Iittie or no English. Financial 9arriers The factors that drive up health care costs create financial barriets to carE. As the cost of health care rises, it becomes increasingly difficult for those without insurance to purchase coverage or care. The external factors described earlier all contribute to making care less affordable to the uninsured. When people living in poverty are unable to pay for the care they receive, health care prices inctease for everyone else. Unhealthy lifestyles and behavior-factors that people can control, but the health care system cannot-add significant costs to the health care bi11. So do factors such as genetic disorders, which are beyond people's control. The judicial system-tthrough coverage a6d anti-tnust decisions, reimbursement requirements, and malpractice determinations-raises the overall price of care. 'ITx higher cost of transporting goods and services to remote areas raises the price to all. The health cane financing and delivery system itself has reacted to the high cost of health caie, and this has erected additional barriers. Government Laws and ReViatioaa on IaWa=ca A portion of the uninsured are employed by companies who cite high cost as the primary reason they do not offer insurance. A number of governmental rules 85 TIMN 0023173

regarding insurance have effectively raised the price of insurance and exacerbated financial barriers to care. "Anti-managed care" laws are one example of these rules. A number of States have instituted restrictions on the use of various managed care techniques such as utilization review, financial incentives to use networic providers, and closed panels of preferred providers. Studies have shown that these techniques can reduce health care costs.*' To the extent that States prevent insurers from implementing these techniques, they make insurance less affordable and thus less accessible. Another set of governmental rules relates to mandated benefits. The majority of States mandate that insurers include specific types of health services in any insurance plans they offer. While many of these services are indeed beneficial, they contribute to the cost of insurance. One study found that mandated benefits contribute 15 to 20 percent of the cost of health insurance premiums." • A third set of rules relates to some of the unintended effects of the Federal Employee Retirement Income Security Act (ERISA) of 1974. ERISA preempts State laws affecting employe'r-provided plans when the employer chooses to self-insure. Self-insured employers ara exempt from State- ' mandated benefit laws, State taxes on insurance ptemiums. State assessments to finance insurance risk pools, and other regulations that tead to increase the cost of group health insurance. These exemptions have encouraged self- insurance and increased the risks and costs for remaining employer-provided °WtAal.'3iealH care cosfs and cost Containm«*Cenu,g sped6c., MaPF-&onomic NapoR. ER-io9, Wasnington D.C, 198s. "lieaah Insurance Assoaation of America hlandatad Beneffs» HeaAh lnsuranc+e Poboes, Washington D.C., February 15,1991. 86 TIMN 0023174

plans. Further, the failure of the self-iatiured plans to contribute to insurance risk pools has dampened the pools' ability to reduce premiums to an affordable level. Risk Sdectioa In order to maximize predictability and minimize risk, insurance companies and employers have responded to sharply rising costs by excluding certain individuals from employers' group plans. Insurers have also denied coverage to some employer groups at greater risk of incurring high medical costs. This is especially prevalent among Small businesses where there am not enough employees to assure adequate spreading of risk. Risk selection may take three forms: (1) industry or occupational exclusions, (2) medical underwriting, and (3) preexisting conditions. A number of commercial insurers do not sell insurance to industry and occupational groups which they believe represent unacceptable (i.e., high or unpredictable) risks. Factors such as high worker turnover, exposure to highly toxic substances or hazardous conditions, unusually high utilization of health services among employees, and employee lifestyle characteristics are considered in placing industry groups on "exclusion" lists. For example, dry-cleaning businesses, farmers, hair dressers, and asbestos workers are commonly found on such • lists. Medical underwriting is another means of limiting an insurer's unexpected loss exposure. Although underwriting practices vary by ins=r, they typically involve detailed analyses of the health characteristics of small-group members to determine whether the group presents an acceptable risk. Based on the risks disclosed, relevant State laws, and its own policies, the insurer has a number of options to limit its risk: it can reject the entire applicant group as uninsurable; it can accept the group, provided that one or mote specific individuals is excluded from all coverage; it can accept the group 87 TIMN 0023175

and all individuals, but put specific limitations on benefits for specific individuals; or it can accept the group without special benefit limitations, but assess a higher premium than the normal group rate for covering specific individuals. Preexisting condition exclusions (PCE) am used to reduce an insurer's expected first-year medical claims expenses. Medical care required to treat a condition that was diagnosed or treated prior to the start of coverage is generally excluded from coverage for some specified period (often six to twelve months). With the use of PCE clauses, the employer group will have low to normal first year health care utilization. However, in the second year, utilization is often significantly higher because the individuals have met the PCE waiting period requirrement. This results in "chuming"-i.e., small businesses find the premium no longer affordable and secure coverage through another insurer, or an insurer drops the company once the PCE is met. The result of risk selection practices is that individuals or small groups with records of high costs and industries or members of occupations with high risks may be offered insurance at rates several times the community average or be denied coverage altogether. This can make health insurana unaffordable for many who may have the greatest need for such coverage. Inadequate Reimbursement. Another financial barrier to care is erected when a third-party payer sets payment levels so low that providers do not participate or go out of business. 88 TIMN 0023176

Medicaid reimbursement rates have been reported to average about 66 percent of Medicare prevailing charges.69 Evidence suggests that these low Medicaid reimbursement levels contribute to lower provider participation. If providers are not available to treat patients, insurance coverage is meaningless. In hearings and site visits across the country, consumers and providers expressed concern about the low reimbursement rates of the Medicare and Medicaid programs and the barriers these low rates create. One State hospital association testified, that over the last five years, Medicaid under- reimbursements totalled $1.4 billion. Medicaid patients remain hospitalized longer than necessary, in part because home health agencies lose money on every Medicaid patient served and it is hard to find agencies willing to care for them. Medicare payment levels are also cited as inadequate. The American Hospital Association indicated that nearly one-half of all hospitals will incur deficits of at least 10 percent by caring for Medicare patients. Some of these hospitals in rural areas may fail financially, leaving large areas with no hospital coverage. Eligibility Determinations. Whiie risk selection can create barriers to private insurance, the detailed Medicaid eligibility form, for those not receiving cash assistance, can create a public insurance barrier. "5dhwariz. D.C. Coby, and AL Reisinger, 'VarWion e Medcaid ft-4aan fea; laeath A/farM Spring,1991. 89 TIMN 0023177

One county executive testified in Council hearings that be tried to fill out a Medicaid eligibility form, and after 45 minutes gave up. Tbe application forms can be long and complez. (in some States ttu forms are over 20 pages in length, in part because they are consolidated applications for a wide range of programs.) Completing the forms can be time-consuming, and providing the required documentation of income, assets, and family status can be difficult. Administrative requirements--such as requiring those who have filed applications while hospitalized to come to social services offices to complete the process-can discourage completion of the enrollment process. All States impose some burden in terms of time, documentation, and process, and this is one factor that may deter persons from enrolling. Delivery System Barriers One barrier to care inherent in the health care delivery system is the declining public health infrastructure. Public hospitals bear a tremendous a burden in caring for those who have no other source of health care, and they do not have sufficient capacity for the task. Patients who visit emergency rooms or ambulatory screening clinics may spend up to 20 hours navigating their way through the system-including triage at the emergency room, waiting to be seen by a doctor or nurse, having lab tests done, and waiting for their prescriptions to be filled. Emergency room patients often lie on beds in crowded hallways because thera is either no doctor to see them or no hospital bed available. In the 1950s and 1960s, specialized public hospitals dealt with epidemic diseases such as tuberculosis and polio. As these diseases were eradicated, the beds used for their treatment were closed and health care manpower was redeployed. The elimination of facilities equipped to deal with public health epidemics such as AIDS has resulted in barriers to care for people with 90 TIMN 0023178

epidemic diseases as well as for others waiting to enter hospitals whose emergency rooms are crowded and whose beds are fiiied. A lack of facilities for the treatment of inental illness is also a barrier to care. The shift from inpatient to outpatient treatment of mental illness resulted in a decline in inpatient and residential treatment facilities of more than 50 percent between 1970 and 1982. State and county public faci7ities, which account for more than 44 percent of all such facilities, declined from 413,000 to 199,000 between 1970 and 1986. One unfortunate by-product of this is that one-third of all homeless people are now chronic, mentally ill patients-many of whom were cared for in hospitals such as these. Inadequate primary care capacity in the delivery system is also a barrier to care. Services for children ate one example. As school enrollments declined after the baby boomers passed through, school budget cuts forced the elimination of school nurses and school clinics. Neighborhood health centers and well-baby clinics, which flourished in the 1960s and 1970s, declined sharply in number during the late 1970s and 1980s. The result of these barriers has been a decline in health status. The percentage of young children fully immunized against childhood infectious diseases has been decreasing steadily; measles, thought to be eradicated in the early 1980s, has reappeared in epidemic form. Tuberculosis and sexually-transmitted diseases such as syphilis and hepatitis are also on the rise. Geographic and specialty maldistribution of physicians also create barriers to care, particularly primary and prenatal care. In many inner-city and rural communities, there are few if any physicians, and patients must travel to other areas to be seen by a physician or clinic. In other areas, there may be a sufficient supply of physicians and other providers but a lack of willingness to care for low-income patients. 91 TIMN 0023179

During a site visit to the Escondido Community Ciinic, the Council heard how physician oversupply can present a barrier to care. According to the clinic director, there are many physicians in the community, but few are willing to treat low-income patients. The clinic applied for a community health center grant to care for these patients but was unsuccessful because the community was not considered a medically underserved area due to the supply of physicians. Another barrier to care is the deciining financial condition of hospitals, which may force many institutiots-particularty those serving low-income communides-to close or limit services. For example, the week before the Council held its San Diego hearing, San Diego General Hospital, which served a low-income community, closed because of the inability of the community to financially support the hospital. Statistics illustrate the nature of the problem. In 1988, 65 percent of all hospitals experienced negative margins from patient revenues, and about one-third of all hospitals had negative total revenue margins. Many of these hospitals are teaching hospitals or small rural hospitals. 0 92 TIMN 0023180

BARRIERS AND INCENTIVES FOR CHANGE As explained in the preceding chapters, a lot is right about the health care delivery and income security systems in the United States. Nevertheless, there are some vulnerabilities created by both systems that need to be addressed. Today's health care reform debate contains two principal focal points: (1) the problem of access to health care for 14 percent of our population without health care coverage and (2) the sustained upward spiral of health care costs. On the income security side, the debate centers on those State employees who are not covered by either the social security system or another retirement system and the very old, women, and minorities who may not receive adequate protection from the Social Seourity system. All of these problems are readily acknowledged, and there is some agreement that they need to be addressed. The difficulty is that although there aiz incentives to address these problems and to make changes in both the health delivery system and the retirement income system, there are also barriers to such changes. Incentives In this chapter, we will first discuss the incentives for change, then the barriers that make it difficult. Incentives include the fact that escalating health care costs threaten to erode gains in productivity and real wages, that 14 percent of Americans are uninsured, that cost shifting adversely affects providers, consumers, and payers alike, that action is needed to keep the Medicare trust fund solvent, and that States are overburdened with Medicaid costs. The barriers that prevent the debate from moving forward include the following: the lack of consensus among the American public about what 93 TIMN 0023181

should be done; the desire among providers, payers, and consumers to maximize the benefits from change while minimizing adverse affects; and finally, the lack of research and data necessary to make informed c,hoices. Rising Costs Threaten Economic Gains The first incentive for change is that escalating health care cosis threaten to undermine economic gains from projected increases in both real wages and U.S. competitiveness. In current dollar terms, total health care expenditures are expected to incmase from neariy $700 billion in 1990 to $9.5 tiillion in 2020. The Council's Expert Panel noted that the incrEase in health care spending is dramatic. The Nation cannot continue its current consumption patterms and divert an ever-increasing share of GNP to health care expenditures. The Panel noted that the aging of the population, while not a major factor in escalating health . care costs could drive savings rates lower. Housing prices will remain relatively stable, and the accumulation of financial assets of the United States through direct investments by the foreign sector and the demographics of other developed nations may make it unlikely that the United States economy can outgrow the increase in health dare expenditures. In fact, it seems more likely that the United States will further decrease savings and other consumption items unless the growth in health care expenditturs is significantly reduced. Ibe bottom line is that increasing health care costs could serve to undermine United States productivity and thereby threaten America's standard of living. This in itself serves as incentive for change. 94 TIMN 0023182

The Uninsured Are Vulnerable Access to medical care for the uninsured is a matter of growing public concern. This concern for the uninsured is yet another incentive for change in the health care system. Over the past decade, the number of uninsured persons has increased, rising from 28.4 million persons under age 65 in 1979 to approximately 34.7 million in 1991.1 Research has shown that the uninsured are less likely to use health care services and more likely to be in poor health than the insured. The uninsured are more likely to receive free or charity care and are more likely to have higher out-of-pocket expenses when they do pay for services. In addition, the uninsured are more likely to be low income and unable to pay for health care, making them more likely to contribute to uncompensated care expenses and cost shifting on the part of providers. The uninsured population is a heterogenous group which includes (1) part-time workers, (2) those whose employers do not offer health insurance, (3) unemployed or poor persons who are not eligible for Medicaid, and (4) uninsurables or persons with high-risk conditions that insurance companies often refuse to cover. The uninsurid also include dependents of employed persons (some of whom have employer-sponsored coverage), single males and childless couples who are poor but not c,ategorically eligible for Medicaid, persons who are eligible for-but not enrolled in-Medicaid, the homeless, and the nonelderiy disabled who must wait two years before they receive Medicare. 1 Abyer, Gene, TabulaGons fran ft Marcfi 1991 cunsrd poptitationn stuver 95 TIMN 0023183

The uninsured are predominately low income; about 280 percent of the uninsured population reported family incomes below the Federal poverty standard. Almost 57 percent reported family incomes of less than 185 percent of the Federal poverty standard.Z The lack of health insurancx is not the only barrier to adequate health care access. An estimated 12 to 15 million Americans are inadequately insused. That is, their family incomes are insufficient to finance the care that their plans will not cover. The underinsured include people with coverage only for hospitalization, with strong preexisting condition exclusions, and those with no major medical benefits, which leaves them uninsured for other needed services and at risk for high out-of-pocket expenses. Uncompensated Care and Cost Shifting The use of services by a patient without adequate insurance coverage often results in uncompensated care. Tbis care seis in motion a chain of events that comprises another incentive for change. Uncampensated cane includes charity care, for which no payment is expected, and bad debt, for which payment is expected but not received. Areas where providess rely extensively on public program reimbursement or have high rates of uninsured patients are experiencing hospital closings and shortages of physicians, in particular, primary cate physicians. Historically, uncompensated care has been financed through public hospitals that receive money from State and local governments. Also, hospitals that received Hill-Burton funds from the Federal government were required to = Moyer, Gene. 7atwlations bom tlw Mawh 1991 evmssnt pcpvW= suivey. 96 TIMN 0023184

provide charity care for 20 years. Non-patient care revenues and charitable contributions also finance some uncompensated care, and an additional portion is subsidized by third-party payers. However, as uncompensated care has grown, these historical financing mechanisms have proven to be inadequate. In addition to the problems of uncompensated care, there are also problems with underpayment from governmental programs. The combination of uncompensated care and inadequate reimbursement has led to cost shifting. As a result, costs may be excessively high for certain payers who are paying more than their fair share. As providers try to recover lost revenues resulting froin uncompensated care and the actions of the government to reduce outlays, they shift these costs to charge-based payers and their customers. This process of cost shifting is an incentive for change, both for those who feel they bear more than their fair share of the costs and for the ptnviders who must resort to such practices to survive. In short, cost shifting serves as an incentive for change for providers, consumers, and nongovernment payers. The Medicare Program Faces a Financial Crisis Another incentive for change is the fact thaE action will be needed shortly to keep Medicare solvent. The Board of Trustees of the Federal Hospital Insurana Tnist Funds indicates in tlx 1991 Annual Report that this Fund will be solvent for the next 14 years under certain "intetmediate" assumptions. Any significant adverse deviation from these projections, however, could result in the inability of the Fund to meet its obligations much sooner than projected. The 1991 Annual Report states that, "Even though the HI Trust Fund is financially adequate based on the short range test, because of the magnitude of the projected actuarial deficit in the HI program and the high probability that the HI Trust Fund will be exhausted 97 TIMN 0023185

shortly after the turn of the century, the Board believes that corrective action will be needed very soon in order to avoid the need for potentially precipitous changes Iater," In the Report to this Council on Medicare projections, the Health Technical Panel noted that, "While we have suggested a number of improvements in projection methods, assumptions, and measures of the financial status of the Medicare program, our recommendations do not change the basic finding that Medicare faces serious financing problems, particularly eai3y in the next century. The retirement of the baby boomers-between about 2010 and 2030-and the subsequent movement of the baby boom into advanced old age will place a growing demand on the national resources needed to finance health care for the elderly." The Panel recommended that major policy decisions about the design and financing of Medicare should be developed, not solely on annual budget negotiations, but rather from a long-term perspective that aims to design the best possible health benefit program for the elderly and disabled given the resources that Americans are willing to devote to the purpose. As a whole, the American public favors the Medicare program. In the national survey of the Advisory Council, peopie were asked about their impressions of the program. Over 70 percent of the respondents expnssing an opinion indicated that they had a very favorable or somewhat favorable opinion of the program. However, most people under the age of 65 are not confident that Medicare will be there to provide health benefits when they retire. When asked this question, only 7 percent of those under age 65 said they were very confident that Medicare would be there for them. 98 TIIVIN 0023186

The high support for the program coupled with the lack of confidence in its long-tenn reliability indicates that the impending insolvency of Medicare Trust Fund will be an incentive for some type of change in the health carz system. In addition, providers and payers who depend on the Medicare program either for reimbuisement or to supplement other forms of payment also have an incentive to ensure that this source of funding continues. Medicaid Spending Is Growing Sharply The most important source of budgetary pressure for the States has come from the dramatic growth of the Medicaid program. States provide 43 percent of Medicaid funds. In 1979, State spending on Medicaid was only $9.7 billion. By 1981, this had grown to $13.3 billion, and by 1991, to $40 billion. This represents an increase of $26.7 billion over 10 years. This decade-long explosion in spending, averaging over 14 percent per year, has resulted from a variety of factors, including expansions of technology, increase in utilization. Federal mandates, and court decisions. Medicaid spending is expected to continue to grow substantially even without further Federally mandated expansions of coverage. This growth reflects expected accelerations in cost in many States that have surpassed increases in reimbursements to providers and increased utilization of Medicaid services by newly eligible populations. Medicaid burden on States has had a variety of impacts. In general, the Medicaid shane of the State budgets has increased at the expense of other spending. In many cases, Medicaid expense growth has been accompanied by lost cost-of-living adjustments for the Aid to Families with Dependent Children (AFDC) population. 99 TIMN 0023187

Even as States feel burdened by the rising costs of Medicaid, courts are directing them to provide more funding for the program. Hospitals in more than 12 States have filed suit against their State governments for failing to provide reasonable and adequate Medicaid reirnbutsaaent. In a test case, the Supreme Court upheld the right of hospitals to sue, ruling that Federal and State governments are potentially liable for inadequate funding of the cost of treating Medicaid patient& The rise in Medicaid costs and threatened court actions have produced an incentive for States to seek changes in Medicaid financing. Barriers Consensus Is Lacking Although there are incentives to make modifications to the present health care system, there are also obstacles or barriers to such changes. One major barrier is the fact that there is no consensus am~mg the American public as to what, if anything, should be changed and how such change should be effected. The National Survey indicated that 78 percent of Americans are either very satisfied or somewhat satisfied with the quality of health catt they receive. In addition, those with health iiisurance appear to be satisfied with the quality of their health insurance coverage; 78 percent indicated that ttSey are either very satisfied or somewhat satisfied. In the survey, Americans were asked whether changes should be made to the health care system to meet the needs of their family or whether the current system was meeting their needs. About 61 percent indicated that the current system needs either no changes or only minor changes. When asked about five specific proposals for change, each proposal received about the same 100 TIMN 0023188

level of support, none of it strong. No more than 14 percent of persons surveyed showed strong support for any single approach. The Interplay of Competing Interests Another obstacle to change is the role and responsibilities of the key parties involved in health care-government, empioyers, insurers, individuals, and providers. Each of these players has a unique role, and therefore a competing interest, in the financing and delivery of health services. Their roles have been established over several decades and significant reforms would require substantial changes in those roles. Some of the same fotm that are exerting pressure for changes in the system are also exerting pressure for the status quo. Each of the payors-Federal and State governments, businesses, and consumers-is struggling to meet current demands; yet each is also wary that changes to the system could mean a greater share from them. There exists today a kind of dynamic equilibrium in the share borne by each. Tensions among these vested interests are keeping the system from changing too far in any direction so that each sector tends to maintain its position relative to others. Evidence for this balance can be seen in the distribution of health care expenditures over time. For more than a decade, the proportion bome by each section has remained approximately constant, with none varying by more than a percentage point or two. This stability has been maintained in the face of an increase in total expenditures for supplies and services from about $238 billion in 1980 to $583 billion in 1989. 101 TIMN 0023189

It is not just the rapid growth in the expenditures and the potential change in relative shares that concern each of the payers. It is also the volatile nature of the expenditures and the inability to predict from year to year the amount that a payor will be expected to provide. For example, while the private business share has remained constant between 1985 and 1989, the annual percent change in spending was 9.3, 7.7, 12.0, and 12.3, respectively. Percent of Expenditures for Health Services and Supplies, By Payer: United States Selected Calendar Years 1965-89 70 ~ _-_--_- ---"=---===- ._.~......_.--._.__._._._. 0 ,.w ,.70 1117~ ,.0 1M YM 30uOCE: wNMCa.rsrsoAw.eMaMs41wAesr ar..waa.l+w..a.ea.~ Ta0/. 2 Pwunt ahtributbn a*3*«+aeatv !or A.NMs.nk+. ana sevaM.. br trnw a oaym LVWMd 9t+fts. rMebd e., .na.r y.rs 199549 Typ. d CNr 1M 1W 1//70 /g7s 190 1M 1s" 19Q 1m 19o pwwt O~O~lan T0r 100 1M 100 "D 100 /op 1m 10O tm 100 vmaU 7s 73 73 • ~t s 7o e~ 7o ei f1~wrCisrrs 17 ,• 72 2x 7~ ?J 3! 29 a 7D Ma.waa p*w~s.n $1 53 .. a r 37 s ]~ s7 37 2 2 2 2 3 3 a 3 3 3 ~de 21 V A !t 32 31 7D 31 30 31 P116" 40N"WM1! 9 16 ti tl 1t /7 1{ if 14 ,{ Sb~ W1tl IoCY qw~Iw~1R 12 12 ,Z 11 1a 1I 14 13 11 1t 9M11CE w.w Gn fv.e~ NwwM Oss af w Asrl- 0M fan n.Olka aWrvr1 Cas Ei~rl 102 TIMN 0023190

There is uncertainty over the effects proposed reforms would produce, causing apprehension among the participanLs because each is concerned that: (a) the equilibrium illustrated above will be shified, (b) the shift will occur at a pace or in a manner that it will be unable to politically or financially controi, and (c) it will be stuck bearing the disproportionate burden of the outcome of reform. Payera. Although government's share of spending has essentially not changed in nearly 20 years, health care makes up an ever-larger share of total government expenditures. For the Federal Govermment, it is now more than 15 percent of total spending, while it makes up more than 11 percent of State and local government expenditures. In effect, health care spending by all levels of govemment has increased at about the same rate as total health care spending, but much faster than other kinds of govemment spending. Thus, governments am under unrelenting fiscal pressure from rising health cam costs and are struggling to keep these costs form crippling their ability to meet other public needs. The States in particular feel burdened financially. The increasing costs of Medicaid provide an incentive for States to support changes in the health care system, but those costs can a7so create a barrier to change when State budgets are severely straitted. States with such problems are understandably leery of any changes which may possibly increase costs. The escalation of health care costs continues to be felt by both State and local governments in many different capacities. F'ust, these governments act as employers: They have about 13 million woricers covered by health insurance plans. The plans for family coverage tend to be on the comprehensive side and generally provide for employer payment of 75 to 100 percent of cost. Second, governments pay for the care received by their 103 TIMN 0023191

wards. Wards include inmates of prisons and youth offender facilities, mental health and mental retardation patients, and children in foster care and subsidized adoption programs. Third, health care costs appear in other programs such as schools, vocational rehabilitation, special programs to make welfare recipients ready for work, and as a part of the system provided for the homeless. Fourth, State and local governments absorb health care costs built into the prices of goods and services they buy. Fifth, governments are major health care providers themselves through: (1) public health programs, (2) community hospital services, and (3) State university hospitals, which receive substantial subsidies through education budgets. Sixth, and most importantly, State governments must pay for part of the rising costs of the Medicaid program. Health care spending is only one of many items in the budgets of State and local governments. While health care cost increases triggered by Federally mandated Medicaid spending are draining State coffezs, public pressure mounts to overhaul the Nation's educational system, and State spending on correction is also up significantly. Correctional system construction and operating costs are likely to continue squeezing State budgets for the foreseeable future. Spending on correctiong is the second fastest area of growth in State expenditures, surpassed only recently by State Medicaid costs. In its hearings the Council heard from various State officials. These officials acknowledged that they would like to see changes made in the health care delivery system. They would like to address problems such as growth in Medicaid cost and access to care for the uninsured. However, the fact that State budgets are so severely strained makes it unlikely that States will be able to initiate reforms on their own. 104 TIMN 0023192

Employera. Employer health costs continue to increase at rates of 20 to 30 percent a year, significantly affecting labor costs and inteinational competition. Concerned about the high cost of_health benefits for employees and their families, business leaders resist changes that could potentially increase their costs. Insurers. Iasurers have used experience rating to ensure that premiums collected cover the cost of providing insurance. In large businesses with many employees, it matters little if some employees have serious medical conditions, since the financial risk of such employees can be spread among the many healthy workers. However, for small businesses with few employees, insurance companies cannot collect enough in premiums to pay the claims of those who are sick. Therefore the rules for insuring workers in small businesses are more rigorous. Insuttrs arre wary of any changes that could inhibit their ability to cover costs with premiums. Emptoyees. Although employees now assume more6responsibility for health benefits coverage through copayments, deductibles, and coverage choices, they still do not pay the full cost of health benefit coverage. Subsidization is something they have come to expect. Americans want to see the high quality of health care they receive continue, but they ao not want to be faced with higher costs. Providers. As payers seek to restrain costs and insurers seek the better predict costs, health carz providers and suppliers seek to protect their incomes and practice styles. Health cane providers and suppliers are experiencing great difficulty in delivering quality services in a cost-constrained, regulated market environment and can be expected to resist any move that might exacerbate these problems. 105 TIMN 0023193

Hospitals face enormous cost pressures resulting from the efforts of both government and business to keep their own costs from continuing to rise. The imposition of DRGs in the Medicare program and negotiation of preferred provider rates by private payers requires hospitals to become more efficient in order to maintain their financial viability. At the same time, they must cover the costs of uncompensated care provided to the uninsured and make up for payments from Medicare and Medicaid that do not cover their full costs. In seeking to safeguard their vested interests, hospitals can be expected to resist reform proposals that would stimulate competition with hospitals, further erode in-patient days or in-patient or out-patient payment rates, limit the services hospitals could offer, encroach on tax advantages or profit- producing business arrangements, hamper cross-subsidy arrangements.without substituting what hospitals would consider adequate direct payments, or give additional strength to those seeking to second-guess medical necessity and deny payments. ~ Dramatic changes in the practice of medicine threaten physicians' incomes, their traditional doctor/patient relationships, and their ability to practice medicine as they desire. Physicians believe that inuusive actions by third- party payers and the government jeopardize quality because time is taked from patient care and crucial treatments are withheld due to cost constraints. The concerns of the medical profession over reforms that might erode what they see as appropriate scientific standards, autonomy of ciinical judgment, and practice income will produce profession-oriented resistance. Pharmaceutical and medical supply companies have a very large stake in the shape of health reform. An expanding health sector is vital to their profitability. Many of their products add system costs through the costs of 106 TIMN 0023194

the products themselves or the increasing numbers of well-trained health workers necessary to use them. Some enhance productivity of current providers. All will certainly wish to maximize their maricess, minimize restrictive (or market-narrowing) regulation, seek compesitive advacuage, and obtain protections against losses. Thus, reform proposals that would directly or indirectly limit utilization (through practice standards or utilization review, for example) or would broaden competition through such measures as favoring generic drugs would be resisted. All of the players have an interest in preserving certain facets of the health care delivery system. For example, consumers want to ensure that the coverage they receive is not eroded, and doctors would like to preserve their autonomy. Hospitals faced with deteriorating financial conditions would resist moves to cut reimbursement rates, as would physicians. More Information Is Needed Another barrier to health system change is the lack of research and data needed to make informed choices about policy decisions. There is clearly much to be learned about how the dynamics of social policy interact with the economy and what that means for future economic growth. Additional meaningful information about these interactions can only benefit our society through more informed decisionmaking. A fundamental requirement for policy decisions is data of good quality, scope, and relevance. In today's environment of instant policy analysis, good data must be coupled with tools that can provide the policymaker with reliable and understandable infonnation on the choices that arre available. The importance of investing in these foundations of good policy analysis cannot be overstated. Today's policymakers have benefited from past 107 TIMN 0023195

investments. I'he complex social policy alternatives facing decisionmakers have been substantially refined over time because of the investments made in data collection, socioeconomic research, and macro and micro simulation and forecasting techniques. Continued investment in the foundation of informed social policy decisionmaking becomes more critical as social programs continue to command more of society's resources. 108 T,Mr10023196

RECOMMENDATIONS OF THE ADVISORY COUNCIL ON SOCIAL SECURITY Social Security Recommendations The Council was pleased by its findings which indicate both the fiscal solvency and public acceptance of the Social Security program. Although the Council does make the following recommendations for further examination of specific Social Security-related issues, on balance, no large- scale changes are needed to the program at this time. For this reason, the Council has chosen to concentrate the majority of its recommendations on the health care delivery and financing systems, which merit neither that level of fiscal solvency nor public confidence. The Economy and Social Security The Council reaffirms its Interim Report finding that persistent large deficits in the Federal budget impede the Nation's ability to invest in the future productive capacity of the economy. T'he Council also reaffirms its recommendations on the relationship of the Social Security Tnist Funds to Federal budget policy. Those recommendations follow. Dehdt Reductioa It is important to move from large Federal deficits to achieve surpluses in the total Federal budget, providing for a strong economy when the baby-boom generation retires. To meet this goal, the Council supports removing Social Security from the calculation of deficit reduction targets to focus public attention on the importance of reducing the deficit in the rest of the budget 109 TIMN 0023197

The Council supports the continuation of partial reserve financing of OASDI and, at the same time, urges a major reduction in the deficit of the non-Social Security portion of the Federal budget 3yvst Fund Reveaues. The Council recommends that no action be taken now to reduce revenues to the OASDI Trust Funds. Reserve Investmmt Policy. The current policy of investing OASDI reserves in interest-bearing U.S. Treasury securities, with principal and interest guaranteed by the U.S. Government, should be continued. Financial Status of the Trust Funds The Council finds that the Social Security system is soundly financed over both the near term (the next decade) and over the next 50 years. Scope of Coverage and Adequacy of Benefits The Council makes the following Social Security recommendations: Coverage of S'tate and Local Eaployees Social Securiry coverage should be extended on a mandatory basis to all newly-hired State and local employees. Women and Miaorities. Suvctures should be created to examine a myriad of Social Security program issues related to women, minorities, and low- income individuals. Task forces on each of these population segments should be convened by the Commissioner of Social Security. 110 TIMN 0023198

Tedmipi Panels A mechanism should be established to ensure periodic reassessments by expert technical panels of the soundness of the long-range assumptions in the Social Security and Medicare programs and the continuation of the work begun by the Expert Panel on the Future of Income Security and Health Care Financing. Health Care Recommendations An exhaustive review of the significant and unsustainable weaknesses in health care delivery and financing, coupled with long-range economic forecasts and the benefit of months of public bearings and outreach, led the Council to conclude that the sustained futancial security of American families rests to a substantial degree upon the extent to which the country reforms its entire approach to the consumption, delivery, and financing of health care in the United States. Due to the inequities in our current health caazt financing and delivery systems and the unacceptable rate of growth in costs, the Council has chosen to concentrate the weight of its recommendations on health care. The Council was guided in these recommendations by a dedication to the proposition that health care is of extreme and immediate importance to the futancial security of citizens individually, families, and the country as a whole. The Council identified four urgent needs in health care, and has chosen to group its recommendations according to these fundamental concerns; these are interactive recommendations, and many will reduce costs are well as increase care and improve access to care. These needs are: • Improving access to health care for millions of Americans; 111 TIMN 0023199

~ Significantly reducing the rate of growth in health caie costs and increasing the rate of growth in the general economy; • Fundamentally reforming many of the basic institutions involved in the delivery and financing of health cate; and • Fully involving the American people, without whose support even the most rational plan cannot be enacted, in the development of America's 21st century health care system. In the budgetary and economic climate of the early 1990s, no reforms will be pursued without development of Federal cost estimates and identification of appropriate financing sources. Therefore, the Council had independent cost estimates proposed for the recommendations it makes and offers a suggested list of offsets which could be used to fund them. Detailed explanations of the proposals are found in Appendix B, their cost estimates can be found in Appendix C, and the offsets for the proposals are found in this section. Improving Access to Care The Council's recommendations to improve access and institutional efficiency are basic reforms that can serve as a foundation for future ~ financing reform. These recommendations make clear that the Council believes that access to care and health status should be the primary goal and that access to insurance, whether public or private, is not necessarily sufficient to achieve access to care. For example, the Council has found that in inner cities or rural areas, direct care approaches may be most appropriate for these vulnerable populations. Therefore, the Council's recommendations move to correct weaknesses in both care delivery as well as financing systems. 112 TIMN 0023200

Health Care for Clu'ldrm--ScLool-Ba9ed Qniim The Council believes that providing access to health care for our Nation's children is of immediate and critical importance and lies at the very foundation of any health care structural reform. Statistics more than bear this out. For example, in the State of California, even with the improvements gained through the Early and Periodic Screening, Diagnosis and Treatznent (EPSDT) expansion of Medicaid, only 33% of children ages newborn through four who were continuously enroIled in Medicaid since birth had seen a doctor. Accordingly, the Council recommends enactment of a "School-Based Health Services and Refenmal Act" which would establish a Federal grant program, , administered by the Secretary of Health and Human Services, to reimburse States for their administrative expenditures in establishing and operating health clinics in public elementary schools or in locations reasonably adjacent to public or private elementary schools and to share with States the cost of providing clinical services to children from low-income families. The clinics would offer all pre-school and elementary school children preventive and primary health care services and basic dental care. In addition to providing services to Medicaid eligibles, the clinics would offer care to other students on a sliding fee scale depending on the family ability to pay. A Federal grant program would assist States with 75 percent of their expenses in providing these services to families with incomes up to 185 percent of poverry. Schaol-Based MWor Medical Insurance. This complementary program is proposed to assist the States, through school districts, in offering a voluntary, supplemental, low-cost insurance product limited to paying the costs of major medical expenses to all prn-school and elementary school children registered at the schools of the State. The insurance would remain available until a participant attained age 22, regardless of whether the participant were still in 113 TIMN 0023201

school. The Federal Government would reimburse the States, within an annual aggregate Federal program cost of $500 million, for 75 percent of their expenses in providing subsidized insurance to students with family incomes up to 185 percent of poverty. The development of group health insurance coverage is cxsrrantly being tested in Volusia County, Florida, supported by the Office of Maternal and Child Health and the Robert Wood Johnson Foundation. Increasng Acecss to Prunaryr Care. While schools can be used to expand health care access for chiidreu, migrant and community health centers can be the vehicle to reach an estimated 12 million Americans who live in areas without primary care providers. The Council recommends that new Federal funding be provided to establish an additiona1250 community and migrant health centers, to be located in areas with high concentrations of underserved target populations such as high-risk pregnant women or the homeless. The Council also recommends that there be established 20 'R.E.A.C.H.° (Rural Emergency Access to Community Health) ceateis to provide emergency access to community health services in nual areas. In addition, the Council strongly recommends legislation to authorize the Secretary to revise the priorities of thd National Health Service Corps program to place more emphasis on ensuring that primary care personnel serve these target populations, through a restructuring of grants, loan forgiveness programs, and service rotations which provide incentives for efficient practice in underserved areas. The Council strongly recommends an increase of $100 million for the budget of the National Health Service Corps to fund these activities. 114 TIMN 0023202

Redndng Infaed Mortatity. Each year in the United States, nearly 40,000 infants die before their first birthdays. The U.S. infant mortality rate of 9.1 deaths per 1,000 is twicx as high for blacks as it is for whites and ranks an incredible 24th among industrialized Nations. Our most vulnerable babies will have a better chance in life if barriers to improved prenatal and perinatal care are eliminated; informational outreach is improved; better transportation and child care are provided to enable mothers to receive prenatal care; formidable eligibility and paperwork requirements for public progiams are simplified; and currently overworked and understaffed clinics are improved so as to make services more readily accessible. The Council recommends legislation to integrate the Women. Infants and Children (WIC) program with the Maternal and Child Health Block Grant program under the adminisuation of the Department of Health and Human Services. This consolidated program, emphasizing good nutrition accompanying good health care, would offer a simplified application focm, with presumptive eligibility. It would use publicly financed providers (such as community health centers) as a single location to determine eligibility for all programs pertinent to infant health, and would support outreach activities to publicize the availability of services, transportation, and child care. Promoting Empbyer-Based Health Insnranca Tbe Council recommends a four-pronged strategy to encourage the provision of health insurance in the workplace: Model Smte Lav. The Secretary of Health and Human Services would develop and publish a model State law applying to group health benefit plans covering employers of two to 50 employees. These plans would be required to meet a number of conditions governing the exclusion of employees for pre-existing conditions, renewability, the use of medical underwriting, 115 TIMN 0023203

availability, denial because of risk, waiting periods for coverage, premium variations among groups, and annual premium increases. To permit small employers to offer such plans at low cost, such a model would call for insurers to establish risk pools which could be funded by a number of options, including State-assessed contributions. In the case insurers chose not to establish such a pooling anangement, the State would establish a reinsurance pool in which all insurers within the State would participate. If a State does not adopt the model legislation within three years of the Secretary's promulgation, the standards for small employer policies would go into effect in that State as Federal standards. DisaAowanu of Stare-Maodated BexeJfts for SAsaII-l:mployer Core HGaltlk BeneJSt Mum Health insurers and other organizations offering health benefit plans to employers would be relieved from State requirements that small- employer policies limited to core benefits contain specified additional benefits and cover services by designated categories of health care providers. Preemption of State Laws IsWAna the Use of b[aMed Care iu HeaM BenejU Pla~rs. The proposal would free health care insurers from State limitations on the use of managed care, while safeguarding patient access through a mechanism requiring DHHS to establish alternative State-imposed limits. State laws would cease to apply that currently inhibit carriers from contracting with providers, that restrict the carriers' ability to negotiate with providers regarding reimbursement, and that restrict the inclusion of financial incentives to patients in managed care plans. Lnpmving the Portabffitry of Private Eeaft lastuiooce. Tax law changes would induce health insurers to extend employer-based health coverage to new employees with a history of recent prior health coverage without 116 TIMN 0023204

imposing restrictions on pre-existing health conditions, claims ezperience, receipt of health caie, medical history, or lack of evidence of insurability. Health Inavrmnce for the Sdf-Empbyed The Council recommends that the Tmasury Department review the deductibility of health insurance premiums paid by the self-employed with a view to proposing a tax law change that would place the self-employed on the same footing as employees with regard to the tax treatment of health insurance premiums. Reducing Health Care Costs and Increasing GNP Growth Health care is consuming 15 percent of the Federal budget, 20 percent of the States' budgets, and 25 percent of business profits. At the same time, the Medicare trust funds face insolvency and Medicaid costs are burgeoning. The Council believes the most urgent task in health care reform is to effect a real reduction in health care expenditures in both the public and private sectors. At the same time, maintenance of quality care, strong prevention efforts, and individual commitment to healthier lifestyles are aspects which must be incorporated into any reform proposal. Good medical care and strong preventioti efforts will make significant contributions to reducing costs, but the Council is equally convinced that the Nation must reform significantly many of its basic health can delivery and financing institutions if costs are to be reduced to the extent necessary. Equally important is the size of the economy; to the extent the productive capacity of the economy is increased, the nation can better afford its health care costs. Commitmeat to Rtduce the Federal Deficit to Improve the Productive Capacity of the Economy. A strong economy is the only solid basis upon 117 TIMN 0023205

which health care benefits can be financed, whether provided by the private or public sector. In order to sustain sufficient economic growth, we must increase the productive capacity of our economy and compete successfully in the global marketplace. This can be achieved only through a firm commitment to education, training. human resource development, and capital investment in plant and equipment. The Council has observed previously that the fiscal policies of the U.S. Govenunent am jeopardizing this Nation's ability to invest in the productive capacity of the economy. Accordingly, the Council underscores the importance of the U.S. Government is moving from large deficits to achieve the surpluses necessary for the economy to support a level of increased health expenditures during the next decades. The Council believes this action to be critical even if measures are implemented to reduce substantially the rate of growth in public and private health care expenditures. . Task Force on Investmeat in Human Resouroes. The Council recommends that the President establish a cabinet-level Interagency Task Force on Investment in Human Resources which would be charged with developing a comprehensive, interagency strategy to improve investment in American human resources and improve productivity and competitiveness. This task force would appraise the effects that current trends in educaiion, housing, nutrition, and alcohol and drug abuse have on the health status of the work force and its productivity. The task force would thea develop a five-year strategy with goals and objectives detailing how Federal agencies can respond to the problems identified. Medical Treatment Outcomes Intornoation. Good quality medical care is the basis upon which all cost reduction proposals must rest. The Council recommends that the Agency for Health Care Policy and Research focus its 118 TIMN 0023206

efforts on developing a system that would produce comprehensive reports on the performance of local and regional health care markets. These reports could be used to address flaws in three critical policy amas: information, finance, and manpower. Reports could include information on the location of local and regional market areas, the per capita allocation of hospital beds, physicians, and other manpower in each market, expenditure, reimbursement, and transfer payments between regional and local markets, utilization rates, and certain outcomes. Alternative Procedure to Adjudicate Malpracdice C1sims 'Ihis two-part proposal was developed to provide a more efficient alternative to the current malpractice system. The Federal BeaiJicfary Malpr+acdee A*udicadou Ad is proposed to establish a national administrative tribunal which would hear malpractice claims asserted by individuals entitled to receive or be reimbursed for health care from the Federal Government The tribunal would award a prevailing claimant compensation for economic losses resulting from physical harm caused by negligent treatment, reasonable attorney fees, and not-to-exceed- $200,000 per claimant in non-economic damages. 'Ibis would be the exclusive remedy available to Federal beneficiaries under State and Federal law. The proposal would also require the Agency for Health Care Policy and Research to develop practice parameters, i.e., formal guidance to physicians and other health professionals on the best contemporary health care practice. The parameters would be used by the tribunal in evaluating claims of malpractice under the program. TJu Model Slate MaWeedw Adjrrdioatioa Act is also proposed as a parallel to the Federal act. It would establish a State administrative adjudication mechanism to hear malpractice claims enabling claimants to seek this 119 TIMN 0023207

exclusive remedy as a prompt resolution of claims made under State jurisdiction. A prevailing claimant would be awarded compensation for economic losses resulting from physical harm caused by negligent treatment and reasonable attorney fees. The proposal would continue to allow the award of non-economic damages, with a limit of $200,000 per claimant, but would abolish derivative damages such as a wife's right to damages for loss of consortium. Guidelines for use in evaluating ciaims would be developed by a State Advisory Council on Standards of Health Care. If a State does not adopt the model act within five years of promulgation and Congress has enacted the Federal law, at the option of either part, the Federal act would be opened to all malpractice claims arising in the State. Containing Medicare Costs tt"ugh SelectiPe Contrading. One deficiency in the present health care delivery system is that incentives are not provided for patients to utilize facilities which are proven to provide specific services in a high-quality, cost-efficient manner. The Council proposes instituting a system whereby Medicare reimburses a provider for the costs of performing a designated medical or surgical procedure-a procedure typified by its high cost to the program-only if Medicare has first approved the provider for the performance of "the procedure. The Health Care Financing Administration, in cooperation with the Social Security Administiation, would design and implement administrative arrangements to inform patients of the existence of these approved providers and put patients in contact with provider networks from which information can be obtained as to avaiiabie services. Establis6ing Centers of Fxcelence. A companion to the selective contracting proposal is this recommendation that Medicare reimburse health care providers for the costs of performing major surgical procedures for life- 120 TIMN 0023208

threatening disabling conditions only if those procedures are performed in "Centers of Excellence," facilities which meet rigorous criteria for quality and efficiency. This recommendation would channel patients to facilities successful in performing certain procedures, discourage such procedures at less-efficient facilities, and improve the cost-efficiency of their delivery. Since one consequence of the proposal would be to reduce the number of facilities at which designated procedures would be performed, the Council also proposes to reimburse Medicare beneficiaries for the cost of travel to the facility. Promoting Healthy hfestyies. Despite eamest public and private efforts aimed at encouraging healthier lifestyles, it is clear to the Council that the United States could reduce immeasurably its health expenditures through a number of major strategies aimed at increasing the focus on health promotion and disability prevention. According to the Department of Health and Human Service's Healthy People 2000, "tobacco is the most important preventable cause of death in the United States, aceounting for one of every six deaths, or approximately 390,000 deaths annually." In addition, as the Department of Health and Human Services noted, tobacco use poses a major risk factor for a host of serious diseases, and in children is highly correlated with drug and alcohol abuse. ' The Council supports the objectives of the Secretary's Healtlry People 2000 report, but urges action to achieve faster progress toward its goals. The Council recommends prohibiting all forms of advertising for tobacco and tobacco products and banning the sale of cigarettes from vending machines. The Council also recommends the phase-out of all tobacco subsidies, under a program that would offer loans and other short-term assistance to farmers in order to facilitate conversion to other crops. A final component of this 121 TIMN 0023209

proposal would establish a statutory foundation to develop and implement programs to encourage healthy lifestyle choicxs. President's Councfi an Flitncss for the Sccond Fifty Yeam To accommodate the changing needs of an increasingly older society, it is clear to the Council that the government must promote health throughout life„ prevent the ill from becoming disabled, and help the disabled function in today's world. The Council proposes that the President establish a President's Council on Fitness for the Second Fifty Years modeled on the President's Council on Physical Fitness and Sports. This panel would promote activities intended to assist the elderly in maintaining their physical and mental fitness in the face of increasing age. Research to Fos#er Independent I3ving. The Council recommends that there be established within the National Institute on Aging a Center for Fostering Independent Living which would conduct and support applied d research into the means-social and scientific-of fostering independent living among persons suffering an impairment in ability to perform daily activities. The Center would work toward developing improved methods of assessing the ability of impaired individuals to function in a noninstitutional setting, would undertake ari evaluation of the effectiveness of existing rehabilitative therapies, and conduct research to treat or correct urinary incontinence. The Council envisions that the Center would also support ways to optimize living arrangements for the elderly and, in consultation with the Food and Drug Administration, aid in efforts to develop and make available drugs and devices having special relevance to the aged. Providing Drug and Alcohol Abuse Prevmtian, Educatioq and Treatment for Preschool and Elementary School Children. The Council believes that the Surgeon General of the United States should develop a 122 TIMN 0023210

program to provide prevention, education, and, where appropriate, tieatment, for alcohol abuse and drug abuse affecting pre-school and elementary school children. The program should include the developrnent of educational materials that parents and teachers can use to teach pre-school and elementary school children to avoid alcohol and drug abuse, efforts to encourage producers of children's television programming to include anti- alcohol and drug-abuse themes and messages in children's programs, and public service announcements and other public education efforts directed specifically at children. A Public Education Campaign on Prevention. The Council also suggests that the Surgeon General conduct a massive three-year campaign of public education on the prevention of disease through changes in personal behavior and the use of preventive care and screening. The campaign would involve a coordinated effort using the broadcast and print media including public service announcements, outreach to community groups, and cooperative ventures with businesses. The campaign would also involve schools through the design of curricula for use in health education classes and presentations on preventive health issues. Model Courses on Family FSnzncial Management and Long; Term Planning The Secretary of Health and Human Services, in conjunction with the Secretary of Education, should develop and disseminate to States model secondary school course units and materials for family financial management and long-term planning to meet major expenses. Such teaching materials would include information on health care, including major medical expenses, education, purchase of a home, child care, unemployment, and retirement. Course units would include elements on credit card and checking account management, the availability of pertinent Federal and State programs (e.g., 123 TIMN 0023211

Federal student loan guaranties, State unemployment insurance benefits), and tax planning (e.g.. IRA and Keogh plans). Reform of Health Care lnstitutions Reducing Health Claims Paperwork. The Council recommends that the Secretary convene an Advisory Council on Health Claim Standardization to consist of 15 individuals widely representative of the health care community., Within two years of its appointment, the Council would recommend to the Secretary a uniform health claim reimbursement form for hospital services that would include all charges arising from an individual's hospitalization, including program eligibility and insurance coverage infotmation. This would be the only form that HCFA or any private health cate insurer in the United States would use for hospital or physician claims reimbursement. The Health Claim Standardization Council would also report on the computerization of health claim billing, i.e., the use of electronic means to transmit billing information from hospitals and physicians to insurers and HCFA. Technology Assessmeat and Data Pooling. Ttx twin concerns that unnecessary care leads to rising health cam costs and that this country's outstanding record for quality care could still be improved fuel a growing interest in better information on what constitutes appropriate and cosi- - effective medical practice. The Council believes this movement can, and must, transform the institution of the practice of medicine. The Council recommends that the Secretary of Health and Human Services establish an Advisory Group on Technology Assessment Data, broadly representative of the public and private sectors, to promote assessment of technology through the use of a wider linkage of information. The advisory group would develop standards to be used in eolletxing and maintaining such 124 TIMN 0023212

information and would also establish uniform definitions of information to be collected and used in describing such components as a patient's clinical and functional status, common information reporting formats, and standards to ensure the secunty, accuracy, and appropriate maintenance of the system. The Council also recommends that the Attorney General and the Secretary of Health and Human Services jointly develop proposals for legislation to amend the antitrust laws to permit hospitals and insurance companies, in consultation with the medical profession, to compare and pool data for the purpose of developing improved methods of technology assessment and medical evaluation. The Medical Diredive and Proxy Ad. Terminal illness is a suffering few, if any, can truly understand, and is only exacerbated by our system's indifference to care and insistence on cure. The Council has drafted a series of recommendations to examine ways in which this situation can be reversed. The Council recommends that the President convene a statutory conference- drawing individuals from the communities of patients, clergy, ethicists, medical professionals, and government-to foster a public discussion of this sensitive issue and develop necessary reforms to encourage individuals facing terminal illness to self-direct their care. In addition, the Council proposes that legislation be developed to establish a registry within the Health Care F'mancing Administration to (1) provide to all participadng physicians a "Medical Directive and Proxy Designation form, (2) inform each Medicare eligible, at the physician's office, about the availability of that form, and (3) encourage the individual to seek the physician's interpretation of the form. By filing an executed form with the registry, any individual could designate the acceptability of specified life- prolonging medical procedures in the event of incapacitating medical 125 TIMN 0023213

situations or give a proxy for decisions on the cessation of life-sustaining treatments. As indicated above, the registry would be available for all citizeas who choose to file a Medical Direcsive and Proxy Designation form and pay the required fee. However, at the discretion of the Secretary of Health and Human Services, a State could enter into an arrangement with the regisuy under which the State would pay the registry fees for its citizens, reimburse the registry for special arrangements, e.g., notifying physicians and citizens of the State of the availability of the form, maldng a statewide distribution of the form to physicians, and providing the State with computer access to the registry data base (subject to appropriate safeguards of individual privacy). Hospital Mergers snd Joint Ventwzs. A recent study3 indicated that "the Justice Department market concentration standards are likely to exempt virtually no hospital mergers from scrutiny, although mounting evidence documents significant potential savings in increased efficiencies from hospital mergers." The Council recommends that the Attorney General develop legislation to amend the antitrust laws and permit certain mergers of two hospitals in the same community. The proposed legislation should include criteria relating to the length of time each hospital has served the community, the occupancy rates and relative financial condition of each hospital, and the willingness of each to engage in the merger. The Council also proposes that the Attorney General and the Secretary of Health and Human Services jointly develop legislative proposals to permit two hospitals in the same community, in limited cases, to enter into a joint ' Mccann, Roben W. and Wi1Gam G. Koo, The Gorammaws Haspta/ Mwper Pft Jarxiary 2, 1990. 126 TIMN 0023214

venture to provide hospital services at one facility and health-related services (such as long-tean or outpatient care) at the other. Facilitating the Dis~eminatioa and Use by Physicians of Ettecti.eaesa Resatrch and Medical Practice Guidetines The Council suggests that the Department of Health and Human Services develop a model curriculum and materials to train both fourth-year medical students and practicing physicians in subjects essential to the conduct and use of effectiveness research and the development of practice guidelines, e.g., epidemiology, biostatistics, research methodology, and technology. It is also recommended that a grant program be enacted to support the development of computer-assisted programs including model teaching units to help physicians determine the most efficient and effective methods of diagnosis, treatment, and case management while minimizing the use of unnecessary tests and traamnents. Merging Medicare ParLs A and B. The Council endorses this recommendation of its Health Technical Panel, which described the evolution of the hospital's role in health care since Medicare's enactment in 1965 and noted the outmoded distinction between parts A and B with recent emphasis on care outside the hospital setting. The Council envisions that the administration of the two parts of Medicare would be merged, with funding derived from the existing sources of payroll taxes, general revenues, and premiums. Eligibility and financing would not change. HCFA would develop the means of maintaining the integrity of the relative share of program costs in determining the part B premium. Achieving Support from the American People For well over a decade, the rate of health care growth has consistently outstripped that of average earnings. The Nation's health care costs have 127 TIMN 0023215

increased at triple the rate of growth of the general economy growth, an imbalance which cannot continue without threatening the very economy upon which the security of all Americans rests. While the Council's thoughts mirrored the Nation's lack of consensus on how to assure access to eare for all Americans while contmtiing costs and improving quality, this Panel unanimously agrees that immediate and dramatic steps toward reform are essentiaL We believe that the window of opportunity for reform is open now and that such reform must be completed by the end of the century. The Council's National Survey on Social Security and Health Care underscored the difficulty in the reform process, revealing that our citizeas hope to maximize personal preferences, to retain the broadest choice of providers, the most comprehensive menu of services available on demand, and the highest quality of care--all while minimizing out-of-pocket costs. The clamor for services, perhaps encouraged by an insurance system which insulates patients from the impact of costs, directly conflicts with preferences for low costs-a conflict at the heart of today's health care debate. Americans have come to expect the benefits of a health care financing and delivery system in which the unlimited development and spread of technology promise cures-or at least the fullest and most advanced possible treatments-for all ills. These expectations must be reconciled with the urgent need to slow the current fiscally and socially unsustainable rate of growth in health care expenditures. The Council fully recognizes that divisions over the best long-range policy course must be resolved through our democratic political process, which reflects the heterogeneity and independence of the American people. This 128 TIMN 0023216

process has already fostered across the Nation growing debate and such positive signs of initiative as Colorado Speaks Out on Health, California Health Decisions, Vermont Ethics Network, and town meetings held in Oregon. The Council recommends an aggressive, strategic Federal commitment to comprehensive health care reform wherever the political will to achieve it appears. To this end, the Council recommends that the Federal Government dedicate $3 billion and create an oversight commission to ensure immediate enactment of representative samples from the full range of structural reforms described in Appendix D, with at least one in each State. The political will to initiate comprehensive reform emerged in Hawaii in the early 1970s, and more recently in Oregon. Such actions may occur in determined States and communities throughout the Nation. It is important to set out the fact that not one of the variety of health care reforms, structural overhauls, and systemic reorganizations proposed by scholars. legislators, and members of this Council is based in real program experience in the interactive, mobile, and dynamic U.S. community, where the face of the nation changes daily, people and jobs migrate on demand, the transition to an information-based economy moves with fits, starts, and dislocations, and the problems of urban and rural access to health care could not possibly pose unsurpassably stark contrasts. Cost estimates for proposed reforms being discussed today are based on mathematical models using varying interpretations of diverse findings. A particular problem arises with respect to future orientation such as the long- term impact on the cost, access, and quality of services provided. Most policy proposals consistently defined the problems of health care financing 129 TIMN 0023217

and delivery in contemporary terms based on current statistics. This orientation can lead to both definition of solutions and evaluation of their adequacy in terms of today's environment. However, any substaniial reform is unlikely to be initiated and implemented immediately, is likely to be phased in over several years, and is likely to have a pervasive effect over an ensuing 20-year period. We must thus ground evaluation of the effectiveness of proposed solutions in economic and social circumstances likely to evolve during the coming 30 years. The criteria used in any such evaluation must address each troubled component of today's system as well as the need to defuse the economic threat that rising costs pose to the future of our economy. The stakes inherent in health care refonm-its impact on the lives, jobs, and futures of millions of Americans-make the costs of error unusually dire. The majority of this Council thus concludes that the responsible course is to allow the Nation to evaluate in a national context all individual reforms that achieve community or State support. The Council has identified a series of prototypes that it believes warrant demonstration, recognizing that the country may, ultimately, adopt a combination of mone than one prototype. Tbe prototypes would be implemented by individual States who wish to participate. They would apply for necessary waivers of legislation such as the Medicaid Act For prototypes that entail testing the impact of Federal tax codes changes, the States would receive fiuxing to support tax incentives or to modify State tax codes to simulate the program. The States have been fertile testing grounds for new ideas. Some have been implemented, while others are in the planning stage. A considerable body of Federal law was first demonstrated by the States. For example, the New 130 TIMN 0023218 _,~:

Jersey experience in the 1970s with paying hospitals on the basis of Diagnosis Related Groups (DRGs) was instrumental in Medicare's adopting this system. State demonstrations in other sectors such as welfare reform and low-income housing have ultimately become Federal policy. The following are other illusuations of the willingness and ability of the States to undertaice large-scale demonstrations: • Hawaii mandated in 1975 that employers provide health insvrance to full- time employees and provides subsidies for low-wage workers and persons not eligible for Medicaid. Of all the States, it has come the closest to achieving universal access to coverage. ERISA restrictions currently preclude other States from passing similar legislation. • Oregon has passed comprehensive legislation recognizing both the inequities in coverage and the unaffordable cost of meeting all demands for services under a universal scheme. The State has sought Medicaid waivers to allow it to cover everyone below the poverty line. It has also defined a minimum benefit package by prioritizing services and proposes not to pay for (nor to incorporate in any private sector mandate) services judged to be of low priority. The combination of tax incentives and penalties and a high-risk pool would achieve near-univer,al coverage. Oregon has also engaged in a process of both provider and citizen participation that, along with the prioritization process, has attracted national and international attention. • New York is considering a proposal that borrows some elements of the Canadian health system while retaining a mixed public and private system. Under the UNY*Care proposal, payment rates for hospital, physician. and other health services would be controlled to keep 131 TIMN 0023219

aggregate outlays within an acceptable range. To reduce administrative costs, the State would operate a single claims processing and payment system for all private and public programs. Private insurers would continue to provide coverage to individuals not eligible for public programs, but their role would change dramatically: they would foeus on efforts to prevent over-utilization. UNY*Care would also provide universal health coverage through an expansion of Medicaid and an employer mandate. • Maryland, faced with unexpected increases in costs in its "all-payer" hospital system, is exploring different methods of using the tax system-including a tax credit approach-to effect comprehensive reform. Prototype Comprehensive Reforms The specific prototypes that the Council proposes be tested, which are described only in very broad terms, follow. (Note: these proposals are not in any specific order.) Insurance Market Reform • Carriers selling to small groups, defined as having fewer than 50 employees, would face a series of regulations designed to assure the availability of coverage to these firms. The regulations would address such matters as limitations in pre-existing condition exclusions and in premium-setting practices. A reinsuranca mechanism would be established to cover high-risk groups and would be funded by an assessment on small group insurance policies. 132 TMN 0023220 x,; ~,.

• The self-employed would be able to deduct 100 percent of the cost of health insurance rather than 25 percent as at presecu, and small employers (fewer than 25 employees) would be provided a refundable tax credit for employee health benefit costs in excess of 5 percent of gross revenues. • State Medicaid programs would be expanded to cover all persons living below poverty regardless of categorical eligibility, and individuals between 100 and 150 percent of poverty could purchase coverage on an income-related scale. The Ail Payer Model • Employers would be required to cover all employees and dependents working 17.5 hours or more per week. • A public program would be established to cover nonworkers that would subsume Medicaid. The premium and cost sharing would be subsidized for persons below 200 percent of poverty. • Statewide expenditure targets would be established for all mandated expenditures. In order to facilitate the administration of the provision, only a limited number of carriers would be seLected competitively, and they would be the only ones allowed to offer mandated coverage in any given state. Employer Mandate • Employers would be required to cover all employees and dependents working 17.5 hours or more per week. Self-employed and small 133 TIMN 0023221

employers would receive increased tax benefits to ease any financial burden. • Medicaid would be expanded to cover all persons living below poverty regardless of categorical eligibility. • State risk pools would be created to offer coverage to those not insured through another source. Persons with incomes between 100 and 150 percent of poverty would receive premium subsidies on a sliding scale. Consumer Choice • Employers would be required to cover all full-time workers (25 or more hours) and pay 80 percent of the premiums and must pay a tax equal to 8 percent of wages for uncovered workers. Small employers may opt t,o pay an 8 percent tax in lieu of offering insurance to full-time workers. • The current exclusion from personal income taxes of employer-paid coverage would apply only to the costs of providing the mandared benefit package. • Nonworkers and their dependents would be covered under a public program: premiums and cost sharing would be subsidized for persons below 150 percent of poverty. Public/Private Partnership • Make all Americans eligible for a standard benefit without a means test through a combination of mandated employer plans on a play-or-pay basis and an extension of Medicare to all those age 60 or moie, making 134 TIMN 0023222

Medicare the first payer once again with all other plans supplementary to Medicare, covering under Medicare 80 percent of costs in excess of $25,000 a year for individuals covered by the mandated plan and covering employees with fewer than 25 employees. • Parts A and B of Medicare would be combined in a single compulsory program, and anyone not eligible under an employer mandate would be automatically eligible for the same standard benefit under the government plan regardless of past contributions or insured States requirements in present law. Employee contributions to employer plans would be limited to 20 percent of the cost, and participation would be required unless the employee bought equivalent protection from private insurance. • The standard benefit for both the employer mandate and the government plan would include the present Medicare benefit, a stop/loss provision of $2,000 a year per family and certain clinical preventive services. Medicare would include the beginning of a long-term care benefit and phased-in limited coverage of prescription drugs. • Low-wage, small employers would be subsidized. A system of regional budgeting covering both public and private expenses would be established. Medicaid would become entirely supplementary to the standard benefit as would private insurance and self-insurance plans. The government plans would pay their own way and end cost shiffing. • The cost of the additional Medicare benefit would be covered on a pay- as-you-go basis by earmarked taxes appropriate to a social insurance system, relying heavily on employer and employee contributions. Social Security and Medicare would be put on a pay-as-you-go basis, and the reduction in OASDI rates would be matched by increases in rates for the 135 TIMN 0023223

new Medicare program. Non-earners would pay a 3 percent tax on unearned income up to $125,000 a year minus any income subject to the Medicare payroll tax. The Part B premium would be cut in half. • Overall responsibility for policy and administration would be lodged in a quasi-government organization governed by representatives of those receiving services and those providing them. Individual Tax Credit • All persons under age 65 would be required to purchase coverage. Employer-based insurance is eliminated. Instead, employer contributions for health benefits are converted to income. • All private carriers would be required to adopt principles of open enrollment (medical screening or pre-eatisdng limitation exclusions are precluded) and to set premiums using adjusted community rating principles that would allow premium variations to be based only on the age, sex, and geographic location of enrollees. • Medicaid is eliminated to persons under age 65 for acute care (but retained for long-term care services) and replaced with a refundable tax credit for the purchase of private in.tiurancx. • Individuals may deduct the cost of the standard benefits package in determining personal income taxes, but may not deduct the cost of any supplemental coverage. 136 TIMN 0023224

Universal Medical Expense • The Federal Government would establish a universal plan to cover catastrophic illness; coinsurance and deductibles would be income- related. The plan would be secondary to all other coverage, public and private; i.e., only expenses that are not otherwise reimbursable through an other plan would count toward the income-related deductible. • Employer tax deductions would be available only for "qualified" plans. Individuals would be permitted to deduct 50 percent of annual health insurance premiums up to $250, and the individual tax deduction for unreimbursed medical expeases would be increased so that an individual could deduct such expenses above 2 percent of adjusted gross income instead of above the current 7.5 percent. Public Health Insurance Model for Acute Care • A public program would be established that would be fully Federally financed, largely through a payroll tax, and would provide comprehensive coverage to all Americans. • Medicare and Medicaid would be subsumed under the new program. • A system of global budgeting would be establishedd for all providers. The Federal Government, operating ttuough the management structure described above, would issue an initial RFP to the States within six months of enactment of the authority to demonstrate the various prototypes. States would be required to meet data requirements that would be established and otherwise assist in any federally funded evaluation. We recommend that 137 TIMN 0023225

$500,000,000 be appropriated to cover developmental, administrative, and evaluation costs and $3 billion to pay for the additioaal benefits or subsidies associated with broader coverage. Assuming enactment in 1992, the prototypes could be implemented as early as the beginning of 1993, and certainly by the end of 1994, and results available in time for the adoption of a national plan in the latter half of this decade. Research questions to be answered: Generally, each of the above prototype models fall in one of the following categories: (1) increased individual responsibility; (2) increased employer responsibility; and (3) increased government responsibility. For each of these approaches, there are significant research questions and concerns about the potential behavioral responses and impacts. Even though some of the effects can be estimated, some of the most important cannot. For example: • If individuals had more responsibility for their health insurance, such as in an approach where individuals rather than employers made insurance purchase decisions, would more or less insurance be purchased and what impact would this have on total costs? • How would the insurance market respond? Would there be different packages offered than today? Is it the use of tax-preferred dollars for insurance purchase or the current purchase arrangements that leads to today's problems? • Would an increase in individual responsibility for paying for health insurance reduce access to care? • What would be the impact on total employee compensation? 138 TIMN 0023226

• What would be the impact on individual net income? • If all employers were required to provide a basic insurance plan, would this lead to a significant loss of employment and/or wages? What would be the impact on total employee compensation/costs? What would be the effect on different income groups? • Would employers who currently offer insurance reduce their coverage to the basic plan? • Would individuals purchase this coverage from their employers if it were made available? • If the government increased its responsibility for the high-cost cases, what would be the impact on private insurance premiums? • Would more employers or individuals purchase insurance? • Would an increased government role lead to queueing? • What is the relationship between the amount of government coverage (catastrophic vs. full coverage) and total health care costs? • If employees and individuals were allowed to buy coverage from the Medicare program, what would be the effects on private health insurance premiums? How much would favorable selection and competition contribute to any change in premiums? 1fie complete proposals and estimates for national implemeatation are found in Appendix D. 139 TIMN 0023227

Prototype Medicaid Reforms Improving Access to Medicaid Services • Medicaid physician payment rates would be increased in rural underserved amas in order to attract physicians in nearly urban areas to establish part-time offices in the rural areas. • Medicaid physician payment rates to primary care physicians in urban areas would be increased in order to deflect inappropriate emergency room care to more appropriate services. Improving Medicaid Enrollment • Alternative outreach approaches will be implemented to reach persons eligible for Medicaid but not enrolled. Groups in need of services will be targeted. • Outreach approaches will include media-based campaigns, use of local non-profit organizations, personal canvassing, and othess. Improving Medicaid Coverage of the Uninsured • States will designate certain covered services as non-essential and invest those resources into providing coverage for currently uninsured, Medicaid-ineligible individuals. • Mechanisms will be established to monitor care and safeguard against deleterious effects on health status. 140 TIMN 0023228

The Federal Government, operating through the management and oversight structure mentioned above, would issue an initial RFP to the States for the initial six months of inacunent. States would be required to meet data requirements that would be established to otherwise assist in any Federally funded evaluation. We recommend that $9 miIlion be appropriated each year to cover developmental, administrative, and evaluation costs and $1 billion to pay for additional benefits or subsidies associated with broader coverage. Assuming enactment in 1992; the prototypes could be implemented as early as the beginning of 1993 and data avaiiable by the end of 1994. Research questions to be answered: • Will increased Medicaid payment rates induce urban physicians to set up part-time offices in adjacent rural areas? • Will increased Medicaid payment rates increase physicians participation in Medicaid? ~ • Which outreach strategies are most cost-effective in increasing Medicaid enrollment? • Will States increase numbers of persons covered by Medicaid if they can estimate coverage of specified non-essential services? Prototype Medicare Reforms With the exception of Medicare capitated plans, most applied research has focused on alternative approaches to payment of specific providers and not on comprehensive program reform. It is becoming clear that increasing the 141 TIMN 0023229

program revenues or decreasing benefits in light of the impending demographic changes and health can cost inflation is an inadequate strategy for the long term. The looming Trust Fund crisis may require fundamental reform, yet information on the impacts of alternative fundamental reform approaches is not available. One approach to reform that many of the Council members believe should be tested on a nation-wide basis involves offering beneficiaries a choice of programs. These programs should not be required to provide savings to Medicare, but can be budget neutral. Combined Acute and Long-Term Care Coverage • Beneficiaries would be given a choice between the current Medicare program and a new comprehensive benefit program which pays for all Medicare services plus prescription drugs, long-term care, vision, dental and other services. This new program would begin paying for care after the beneficiary had incurred annual expenses of about $35,000 or reached a 3-year or lifetime threshold amount. • Under the new plan, beneficiaries or their employers could purchase private health insurance to cover the up-frorn amount and could beginE paying toward this policy in advance of age 65. If purchased at age 50, the monthly premium is estimated to be $80. •'ihe government would subsidize the cost of the private insurance portion for low-income elderly. • Managed care techniques would be encouraged for both the private and government components. 142 TIMN 0023230

Medicare Voucher Plan • Medicare would become a prefunded program providing vouchers to beneficiaries for the purchase of enhanced insurance coverage in the private market Current Medicare benefits would be enhanced to include catastrophic coverage. • Income-related deductibles would be instituted. The Federal Governcnent, operating through the management structure described above, would issue an initial RFP to the States within six months of enactment of the authority to demonstrate the two approaches. Assuming enactment in 1992, the prototypes could be implemented as early as the beginning of 1995 and preliminary results available in time for adoption prior to the influx for baby-boomer retirement. Research questions to be answered: • What are the numbers and characteristics of the beneficiaries attracted to each approach? • How would insurers respond to the private insurance approaches? • What would be the out-of-pocket cost of each approach? • What are the favorable/adverse selearon impacts for each plan and the effects on costs? 143 T'MN 0023231

• If acute and long-term care were combined into a comprehensive package, what would be the impact on cost? Would there be substitutions of less expensivehnore appropriate services and settings? In order to provide a framework for evaluation of the comprehensive, Medicaid, and Medicare Prototypes, the Council reserved criteria for evaluating health care reform proposals developed by the Expert Panel The Council recommends to the oversight commission that they use these criteria in evaluating the prototype models and that the Secretary and Congress consider these criteria in evaluating national health care reform plans. The Council unanimously agreed to adopt the criteria developed by the Expert Panel and reprinted here. Effect on Opportunities for Underserved People to Receive Needed ai! Appropriate Health Services. It is important to acknowledge the distinction between barriers to health care and barriers to health insurance. Having insurance only removes some financial barriers. Insurance does not remove non-financial barriers such as transportation and sociocultural baniers. inadequate numbers of providers, and mgulatory barriers (e.g., excessive paperwork, low reimbursement). Conversely, one can have access to health care services in a direct service setting, for example, and still be uninsured. Factors to consider include: • financial barriers (e.g., through insurance or services free at point of delivery, role of deductibles and copayment); • geographic and manpower distribution barriers (such as providers within a normatively-defined distance available at time of need); 144 TIMN 0023232

• sociocultural access (language, customs, educational level); and • range of services available, e.g., economical preventive services. Distn'bndonal Effects of Who Pays ia the Near-Term and In the Futura The financing mechanisms being considered to support reform (business, payroll tax, income tax, tax crediss, dedicated value-added tax, out-of-pocket payments, etc.) each have different distributional effects with respect to populations affected and impacts on other public program financing (e•g., Social Security). Factors for consideration include both short-term effects and effects over the long term as a consequence of changes in demographics, distribution of wealth, utilization, etc. Examples include: • relative burden on works for health care of the elderly, . • progressivity of financing, • financial burden on the individual in poor health, and • relationship between individual pay-in to social insurance programs and expected benefits. Effect on Short-Term and Long-Term F.cononac Growth for the Nation. Real per capita GNP is predicted to grow at an annual rate of 1.08 percent between now and 2020. HHealth care expenditunes are expected to grow at a faster rate; thus the share of GNP associated with health care expenditures may increase to between 22.7 percent and 38.5 percent in 2020. 145 TIMN 0023233

Consider the extent to which a reform proposal imposes a moderating influence on the rate of growth of health care (with respect to the resources the Nation is willing and able to spend on health care) and its subsequent interactive effect on the overall economy. (It does not, however, consider the extent to which the economy might be stimulated to grow at a rate faster than predicted.) The precise relationship between health care costs and growth in the economy is not known. However, as health care consumes a growing proportion of the nation's resources, there are fewer resources for other needs. Factors to be considered include effects in the near- and long-term of a proposal's incentives on: • the continued research, development and diffusion of cost-reducins technology,` • the development and diffusion of cost-inducina technology of low utility; • medical technologies and services of low utility, • administrative efficiency; • the labor marfcet (e.&, employment opportunities, job mobility); • rate of savings or investments; ' As used in ft a9tlerion, technobgy takes on tha broedest meaning as defimd by OTA to ermrspm anY lechniques. dnp, equipmecp and poce&uas used by he& caro professionals in de6wricg meckal oaro to hkviduais, and itw system wft wNich wch caro is deGvwred.' 146 TIMN 0023234

• U.S. economic position relative to foreign competitiveness; and • entry by new businesses and performance by current businesses in the marketplace. Effects of Reform Implemeatatioa Implementation of health care reform must consider the following: • level of disruption, • indirect consequences of reform, • administrative complexity of reform plan compared to the existing system, and • availability of data to measure the effecx.of changes and permit new experimentation and innovation. Relationship Between Reform and Ame<ican Culture and Values. Acknowledging and understanding the different tolerance for specific values and principles embedded in a health care reform plan can help the consensus- building process. In practice, these beliefs and values can overshadow any technical merit a plan might otherwise achieve. The list below includes features and concepts that are often discussed as why one health care reform approach or another would not be acceptable: • degree of access achieved, • effect on pluralistic system, 147 TIMN 0023235

• scope of government control. • effect on freedom of choice, • effect on quality, • degree of burden placed on system participants, (e.g., insurers, providers, working aged consumers, poor), • effect on provider autonomy, and • regulatory or market-oriented incentives. The Council believes that the policy dialogue over both system reforms and the processes for implementing those reforms will be enhanced if each participant defines its own priorities, values, and preferences independent of any specific proposal. In addition to serving as a consistent and reliable filter through which a group may pass and evaluate reform ideas, the resulting body of criteria can illuminate points of consensus and identify opportunities for negotiation, further development, or compromise. 0 Revenue Options In light of today's necessary climate of fiscal restraint and the strictures imposed by the Budget Enforcement Act, the Council feels strongly that it would be irresponsible to propose any new Federal spending without suggesting sources of revenue which could be used to offset those expenditures. Accordingly, the Council oudines below revenue sources to fund the Council's recommendations. 148 TIMN 0023236

The Council wishes to suess, however, its preference for adopting "offsets" which are health-s+elated in nature, that is, which encourage changes in personal behavior or in the health care marketplace and lead to improved health outcomes in the United States. Prime examples atz increasing cigarette and alcohol excise taxes. Further, the Council recommends that budget policy makers adopt revenue sources which can serve to refocus the direction of canr.nt Federal spending to emphasize new initiatives which improve the health of our Nation's populace, especially children. Following are $19.5 billion in revenue-raising options for 1992-1994 which the Council suggests be considered as sources of funding for its health care initiatives outlined in this chapter. Increase Excise Tax on Alcoholic Beverages. The current excise tax on distilled spirits is $13.50 per proof gailon,*on beer is $18.00 per barrel, and on wine is between $1.07 and $3.30 per wine gallon. The Congressional Budget Office has estimated that increasing the tax to $16.00 per proof gallon, equivalent to 25 cents per ounce of alcohol, would rdise over $3.3 billion in one year. Doubling the increase in out years would yield 16.8 billion over three years. Revenue Generated: 1992: $3.3 billion, 1992-1994: $16.8 billion Increase Cigarette Excise Taxes. Excise taxes on cigarettes are currently 20 cents per pack, having risen from 16 cents per pack last year. Although the tax is slated to increase to 24 cents per pack in 1992, further increases could be warranted given the current low rate ('in terms of constant dollars) and the costs to society of tobacco-related illness and death. As the 149 TIMN 0023237

Congressional Budget Office has noted, the 8-cent-per-pack tax in 1951 would be 35 cents today if the figures were adjusted in terms of constant dollars. Increase the tax to 32 cents per pack the first year and double the increase in out years. Revenue Generated: 1992: $1.2 billion, 1992-1994: $5.7 billion Index Current Cigarette and Alcohol Taxes for Inflation. Notwithstanding provisions in the Omnibus Budget Reconciliation Act of 1990 which raised substantially excise taxes on cigarettes, beer, wine and other alcoholic beverages, if adjusted for inflation. Federal tax rates on alcoholic beverages and cigarettes still remain substantially lower than they have been at any time since 1951. Indexing these taxes for inflation would not only raise revenue but could also discourage the social costs of consumption such as lung disease, cancer, alcoholism, or drunk-driving fatalities. Revenue Generated: 1993: $0.3 billion, 1993-1994: $5.0 billion Conclusion Throughout its public hearings, the Council heard from witness after witness who poured out his or her vision of health care refotm, of health care security. The Council has great confidence that, utilizing this Report as a framework, the American people can begin to make great progress in realizing their hopes for cost reduction and meaningful stiuciurai reforms in communities throughout this land. 150 ,VWN 0023238

The next few years offer a window of opportunity for policy makers to consider how best to meet that challenge. None of the options is easy. None can reduce cost without running the risk of reducing beneficiary well-being. All require a balance of fairness in the share of the burden that is to be borne by working-age persons and by the elderly themselves. Tbe Council recommends that major policy decisions about the design and financing of health care should be developed, not solely in annual budget negotiants, but rather from a long-term perspective that aims to design the best possible health benefit program for all Americans, given the msounres that the Nation is willing to devote to the purpose. . 151 TIMN 0023239

ADDITIONAL VIEWS Arthur L. Stngleton This Advisory Council on Social Security has produced findings and recommendations which should expedite the development and enactment of a fair and effective health carz system for all Americans. TherZ is no consensus apparent today among the people or their political leaders on how to achieve that goal, but movement toward it should be accelerated rapidly by the substantive material in the Council's final report. Some Council members have expressed regret that agreement could not be reached on a single universal health care plaa I believe that such a conclusion would have been a great mistake at this time. No such scheme produced to date has met the tests of public acceptability and economic viability; more empirical information is needed for success, and this report should help in that regard. With respect to the Council's recommendations for immediate action, I believe they represent good ideas which, if implemented appropriately, wiU address some of the most critical and acute problems in current health care law and practice. As a believer in individual rights and firedom of choice, however, I want to express my general disagreement with parts of such proposals which call for governmental banning of products or sen+icxs. With respect to the Council's recommendations on the Old Age, Survivors and Disability Insurance (OASDI) programs, I want to register a lament that some serious DI problems were not addressed. One example is the extent to which the appeals process has become so complicated that many claimants 153 TIMN 0023240

believe they must hiiz attorneys or other professional helpers in order to be justly treated. This sort of procedure was not desired by the fiamers of the DI program, and I do not think current policy makers really want it, either. Karen Ignagni and John Sweeney When the Advisory Council issued its interim recommendations on Social Security, we stated our concerns about the prudence of continuing partial reserve financing and proposed, instead, a policy of moving to a pay-as-you- go system once an adequate contingency reserve was established in the Trust Fund. We iterate this position and offer comments on three other issues. Social Security Staffing Crisis We urge Congress to remove from overall budget calculations the administrative funds necessary for the Social Security Administration (SSA) adequately to carry out its responsibilities to working Americans and current as well as futurr-benefsciaries. The funds to administer the programs should come from the Social Security Trust Funds and should not be tied to the unified budget. We interpmted last year's legislation removing the Trust Funds' income and expenditures from deficit reduction calculations also to have included SSA's administrative accounts. Since this is a matter of some dispute, we urge Congress to clarify the intent of the legislation and to assure all Americans that the program is being Tim pmPerty. At this juncaure, concern is warranted. Since 1984, SSA staff has been cut by almost 25 percent. This has translated into a 45 percent reduction in 154 1'IMN 0023241

clerical staff, a 49 percent reduction in field staff, a 33 percent cut in service representatives, and a reduction of 89 percent for data review technicians. We believe that the Social Security Administration no longer has enoughh personnel to carry out its mission and that these dramatic cutbacks have compromised the flow of information about program procedures to beneficiaries. In addition, these reductions have contributed to concerns about whether the agency has the staff necessary to record workers' earnings accurately and to ensure that there are no gaps or incomplete, duplicaue, or erroneous postings. Two frequently cited examples provide evidence of what the staffing shortage has meant for the agency. The Social Security Administration operates a national toll-free telephone number, but its avetage busy signal rate is now 63 percent. Disability cases are at an all-tiune, high. The pending case load is estimated to be 800,000 nationwide. This translates into waits of several. , months to moro than a year. Clearly, such inadequacies should not continue. We hope that the Congress will act expeditiously to clarify the underlying budget issue and give the SSA the resources it needs to carry out its essential mission. Coverage of State and Local Government Employees We oppose the Council's recommendation mandating OASDI coverage for all newly-hired employees of States and localities, because further expansions in OASDI coverage at this time are unwarranted and inappropriate. In July 1991, mandatory OASDI coverage was extended to 3.8 million public employees not covered by their employer's pension plan. According to the 155 TIMN 0023242

Congressional Budget Office, this change alone will cost States and localities S2 billion annually. Greatly intensifying the impact of this very recent change is the fact that this burden is not spread evenly across the country but, rather, is concentrated in a handful of States and localities. In view of the continuing recession and the condition of most public budgets, further expansions of OASDI coverage cannot be recommended. Such a change would amount to nothing mote than another instance of the Federal Government shifting fiscal burdens onto other levels of government-a very poorly timed action. Further, in addition to the direct cost, this change would lead to creation of administratively unwieldy and inequitable two- tiered pension systems covering new hires. . lnvestment of Social Security Assets On the issue of investment of Social Security assets, we recommend that Congress request the General Accounting Officx to study the pros and cons of continuing the current policy of investing in Treasury bonds and to identify and evaluate alternative investment vehicles that could be pursued if this policy were to be changed. We note that the conclusions of the 1959 Advisory Council often are cited as the overriding operating statement on investment of assets in the Social Security trust funds. That Council ratified the practice of investing only in government obligations, raising concern about how other investment strategies would affect the private sector or the affairs of State and local government. Over the mone than 30 yeats since that report was issued, the sheer accumulation of capital in employment-based pension plans has required new thinking and, ultimately, the development of new policies for pension fund investment. 156 TIMN 0023243

We believe that now is the time for an in-depth examination of Social Security investment practices. Key issues concxming the impact of change in investment policy on the nation's fiscal policies, as well as the security of plan assets, should be addressed as part of such an examination. We also would urge that a study of whether Social Security ought to invest in private sector stocks and bonds include a discussion of what oveniding investment policies and guidelines would be needed to ensure beneficiaries that assets would be invested and managed effectively. In analyzing alternatives for State and local investment, we would encourage a discussion of the pros and cons of State and local bonds, as well as other vehicles that exist in the private sector, to encourage. investment in infrastructure. We also would urge that the study contain a discussion of how the responsibilities of the trustees would have to change if new investment policies were pursued and whether the current trustee structure would be adequate to guarantee productive and effective administration. G. Lawrence Atkins Along with our other responsibilitfed, this Advisory Council has been charged with responding to the anticipated insolvency of Medicare's Hospital insurance (HI) Trust Fund shortly after the end of the decade. Years of isolated Medicare reforms have done little more than briefly postpone its insolvency. As a result, this Council has chosen to place the resolution of Medicare's problems in the context of a broader restructuring of the financing of health care in America. It is ironic that a nation with the wodd's most advanced methods for delivering health care should have one of its most poorly developed systems 157 TIMN 0023244

for paying for it The haphazard approach we have evolved for financing health care has left one-in-six non-elderly Americans without heaith insurance, has distributed the costs of care inequitably, and has contributed to a growing financial crisis for both providers of care and payers. As this Advisory Council has rightly noted, our fundamental national concern in this area is to ensure a healthy population with adequate access to needed health care. Health insurance is only a vehicle for ensuring access to care, and care is often only a response to changes in health status. Yet a failure in that financing vehicle can reduce the availability and quality of health and can affect the underlying health status of the population. This nation cannot maintain the financing system we now have beyond the end of this decade, given our current rate of growth in health care costs. For one, the acceleration in health care spending is outpacing most other activities in our economy. With or without growth in other sectors, we are realigning our priorities by diverting an additional percent of Gross Domestic Product from some other use to health care every 30 months. Even if this trade-off of other consumption for health care were acceptable in a societal context, the burden on productivity resulting from rising labor costs and higher taxes threatens to reduce the competitiveness of our businesses and the economic well-being of our citizens. The future costs for Medicare in particular, and health care in general, are alanning. The Advisory Council's Expert Panel on the Future of Income Security and Health Care Financing, in its vision of the year 2020, suggests that the income gains of workers over the next 30 years may be offset by the rising costs of health and income support programs for the elderly. It suggests that Medicare will consume about 6 to 8 percent of GNP in 2020 compared to 2 percent today, and that the payroll tax for just the HI fund 158 TIMN O023245

(Medicare Part A) may rise to a combined rate of between 6.4 and 8.9 percent compared to 2.65 peicent today. At the same time, the Expert Panel anticipated that older persons' out-of-pocket payments for health care will rise dramatically from less than 9.5 percent of average retirement income today to over 22 percent in 2020 (without accounting for nursing home care.) Beyond Medicare, the Expert Panel estimates that under moderate assumptions about future costs (including a 5 percent reduction in the historical rate of growth), total health expenditures will account for as much as 31.5 percent of Gross National Product by 2020. What is remarkable about this growth in spending is that it is expected to occur before the baby-boom generation begins to retire. Less than 10 percent of the anticipated spending increase is attributable to demographic changes. In fact, the Expert Panel concludes that changes in the intensity of health services ". .. are the major factor underlying the real growth in health spending." The Panel goes on to say that ". . . it is clear that attempts to limit the projected increases in health spending will need to address the factors that underlie the growth in health spending, particularly the rate of technological change." To achieve a substantially slower rate of growth and thus a lower proportion of GNP allocated to health care than the 22.7 to 31.5 percent in 2020 foreseen by the Expert Panel would requiis ". ., immediate and drastic policy interveruioa" Despite the view of many on the Advisory Council that there is an urgent need for immediate comprehensive reform of our health care system, this Council has, regrettably, been unable to reach agreement on any one comprehensive reform approach. The Council has, nonetheless, agreed an a number of conclusions which I feel are significant. 159 TIMN 0023246

In my view, we have concluded that there is urgent need for a nationwide restructuring of our health care financing system to provide health insurance coverage and slow the rate of growth in health cane casts. It is important, in my opinion, that we seek a single national approach that will benefit equally employers and employees in small States and large States and those that operate in a number of States. While the Federal Government may encourage States to experiment with various designs while the Congress prepares to enact legislation, there is no benefit in the Iong run to maintaining 50 separate health case financing systems all woridng at cross purposes. The Advisory Council has also approved a number of sound ideas for providing direcx health services, improving the availability and affordability of health insurance, and lessening the rate of increase in spending. All of these can improve the financing and delivery of health care in the short run and may contribute significantly to the long-term goal of comprehensive refonn. In my judgement, the sum of the Advisory Council's recommendations are a call for immediate action by the Congress, not a justification for delay. While we have not agreed on an exact approach to comprehensive reform, we have shown through the variety of reform proposals presented in thit report a clear belief that there should be compn,hen.sive refomi. We have committed to a program to enable the States to work through many of the implementation detads of reform while Iegislative drafting proceeds at the nationalleveL We have also proposed a number of national institution- building measures that can prepare the foundations for reform. These include a single national electronic claims processing system, a national commission to monitor State innovations and report on national trends in health care 160 TIMN 0023247

utilization, and an enhanceQ and coordinated technology assessment capability. All of these recommendations provide additional momentum toward a nationwide restructuring of our health care financing system. We have not agreed to a means for averting the insolvency of Medicare's HI Trust, but we have made a significant contribution to the debate that, I believe, will bring this nation closer to a consensus on broad reform. Robert Ball, John Dunlop, Karen Ignagni, and John Sweeney We regret that we must disassociate ourselves from the main conclusion of the health care proposals incorporated in the final report of the Advisory Council on Social Security. The Council's majority position would unfortunately postpono-until at least the end of the decado-the day when all Americans can be assured access to adequate health care at a reasonable cost. When the Council was appointed in 1989, it was gi4en a broad mandate not only to assess the adequacy of our existing social insurance system-of which Social Security and Medicare are the principal pillars- but also to examine the crucial issues facing our health care system as a whole. Ttbe Council carried out part of its assignment, vigorously collecting data and contracting for many background reports. Much of this work has been useful. But that should not be allowed to obscure the fact that the Council has ducked the toughest issue. 161 TIMN 0023248

The single most important challenge facing the Council was to devise a coherent, comprehensive response to the urgent need to provide adequate health cam for all Americans at a cost that our society as a whole can afford. Indeed, this was both a challenge and an opportunity. Previous Social Securiry Advisory Councils have been able to transcend political differences for the common good--notably in 1983, when a bipartisan Council saved Social Security from a funding crisis. But this Council has avoided the challenge of reconciling differences and has missed an opporWnity to get the nation moving rapidly toward a resolution of the present health care crisis. Instead, the Council offers a variety of recommendations that could become elements of a comprehensive strategy but are not themselves a substitute for such a strategy. To offer them without a context --that is, without reference to how each of them could fit into the overall framework of a universal health protection program-makes the Council's report useful only as a shopping list. In essence, the Council urges us to buy some new furniture for a house that is on the verge of collapse. The more urgent tasic, we suggest, is to rebuild the house. The Council proposes, for instance, to offer health insurance on a voluntary basis to many school-age children of parents who diither lack coverage entirely or who have inadequate coverage. The political appeal of this proposal is obvious. The Council will be able to say-as will President Bush, if he embraces this approach in his State of the Union message-itiat "we have made a commitment to protect America's childron." Campaign rhetoric aside, however, the inescapable fact is that limited initiatives of this kind simply will not provide adequate protection for children or the population as a whole and will not control the nmaway costs that are at the core of America's health care crisis--costs which if not curtailed will be consuming 17 percent of GNP by the end of the decade. 162 TIMN 0023249

Our health care system is increasingly beyond the means of middle-class Americans, even those with insurance. Not so long ago, it was almost an article of faith that if you had a decent job, you could count on getting decent health benefits. No longer. Not so long ago, you could make career decisions on the merits of a job; now your fusi consideration is likely to be whether your health insurance will be affected. Not so long ago, wages were basic and benefits were called "fringes." Now it's the other way around: workers regularly forego wage increases (and diminish their buying power as consumers) in order to hold on to their health insurance. And a large part of the fear of unemployment is the fear of losing health insurance coverage. All this has happened because America's health care system has developed a dangerously split personality. The system provides first-class care•-arguably the best in the world-to many people, and grossly inadequate or even nonexistent care to many others. Access to adequate care has increasingly become less a right than a privilege. You have to be able to buy your way in-and for millions of Americans, the price of admission is impossibly steep and getting steeper. The cost of health care will not be brought under control until three things happen. First, as a society we must be wtlTing to say that access to health care should be at Ieast as basic a right as access to educaiion. Second, health protection must be extended to everyone, so that the insured and their employers are no longer carrying the burden of paying for the uninsured. Only when all are contributing-at least as equitably as individual circumstances allow-can the costs of insurance be fairly distributed. Third. the overall cost of providing health protection must be brought under control by imposing economic discipline-controlling the costs associated with the delivery of health care. That can only be done by adopting nationwide a reasonably uniform and consistent approach to the purchase of health care 163 TIMN 0023250

services. In the absence of such a system, we have insufficient leverage with which to control health care delivery costs: we are at the mercy of a maticet that cannot possibly control itself. Indeed, health care professionals are themselves at the mercy of this system. They, like the rest of us, are trapped in a haphazard, unplanned, uncoordinated system in which no global budgeting ever takes place. There are perverse incentives in the system to maximize duplication of expensive technologies and no ways to control uiumessary procedures. In addition to its other evils, this fragmented system provides few incentives for preventive care, and health care delivery innovations are themselves at risk of being overwhelmed by the rising cost of nearly all health-irlated services-everything from administrative paperwork to malpractice insurance. That these costs are now out of control is obvious to all involved in the delivery of health care-providers, consumers, and third-party payers alike. Rather than confront this problem head-on, however, the Council, after more than two years of deliberations on the entire range of health care problems, has opted to avoid dealing with the overriding policy issue by retreating behind the oldest of rationalizations for delay: a call for further investigation. The Council majority justifies this by maintaining that there is "no clear consensus" on how best to provide universal access to health care and that "the divisions within our Council over the best long-range policy cousse reflect divisions within the United States as a whole." Divisions there may be, but in fact the debate has long since reached the point where a solid majority of Americans say they want leadership to solve the health care crisis-and will vote for it, as recxxntly demonstrated in Pennsylvania. 164 TIMN 0023251

We believe that a basic consensus for universal health security exists. The challenge is not to create a consensus but to build on it-and work out the details. The Council, however, says we need more experience before we can act. This claim-coupled with the doubtful notion that demonstration projects are needed to help rally public opinion behind more fundamental reforms-becomes the rationale for calling for an assortment of experiments that might or might not be of value but that would assuredly postpone the day when the United States catches up to the rest of the industrialized world and provides universal health care protection. Indeed, the Council proposes having such a plan in place "by the beginning of the next century." We say there is no justification for that kind of delay. When the flood came, Noah did not build demonstration arks. It seems ludicrous for the,United States-still the wealthiest and arguably the most resourceful nation in the world-to take the position that further study is needed at a time when all other industrialized nations, with the exception of South Africa, have for many years provided universal health coverage programs and have moved ahead, refining and improving their programs on the basis of concrete operating experience, rather than endlessly debating whether to start. Events have overtaken the Council. The uninsured, the underinsured, the millions of Americans who fear losing their insurance on the job or who dare not change jobs for fear of losing coverage--they know that we cannot afford to delay implementing universal health protection until the end of the decade. Businesses that offer health care coverage to their employees are finding it increasingly difficult to compete internationally and at home-they know the importance of requiring all employers to do their fair share. Policy 165 TIMN 0023252

makers who must sooner or later find a way to bring the sharply accelerating curve of health-care costs into alignment with other societal costs--they know that the nation will pay an intolerably high price for delay. For that matter, the Council's own technical committee, in its executive summary, warns that the United States must move as rapidly as possible to a program of universal access coupled with cost controls. The problems of arriving at agreement on a national health care plan are no longer primarily ideological. They are problems of different interests among major participants. To resolve them, we do not need demonstration projects. What we need is a bipartisan demonstration of good faith. It would be the essence of national leadership to bring together representatives of the principais--health-care providers, purchasers, and consumers-and to instruct them to negotiate nonstop until they have agreed on the outlines of a national health plan. Negotiating such an agreement would not take them years. In fact, the Advisory Council could have been that vehicle. We do not have to start from scratch. Ibis is a key point, and one that is at odds'with the Council's notion that we need more experience. We can build on the vast experience that the United States has already acquired--not dniy in creating but also in nurturing (and modifying when necessary) social insurance progrdms that have been both hugely popular and hugely successfisl in contributing to the well-being of our society as a whole. By alleviating poverty among the elderly, for example, Social Security maintains the self-sufficiency and purchasing power of millions of people. By making access to health care universally available to the elderly and the 166 TIM,S 0023253

long-tenn disabled, Medicare creates a stable framework both for providers and for consumers of health-care services. Just as Social Security rationalized the otherwise brutally unfair and inequitable costs associated with the inevitable loss of one's earning power, and as Medicare rationalized the otherwise overwhelming costs of providing health care to the elderly, so can universal health protection rationalize the delivery of health caie as a whole, at a cost that our society can afford. Rather than argue over whether such a system can work flawlessly in a society as complex as ours, the nation needs to acknowledge what is now so cieai: the alternative is worse. More importantly, and more positively, we need to recognize that we have the expertise to do the job-thanks to decades of experience not only with Social Security and Medicare, but also with employment-based health care. How do we get there from here? Historically, the best characteristics of insurance programs, both public and private, have evolved through what amounts to an ongoing, open-ended process of negotiations. These have been complex affairs, often overshadowed by higher-profile political posturing, but in the many instances where they have been successful, the main reason has been that representatives of different interests have found ways-often under intease pressure-to accommodate each other for the common good. This is, after all, the essence of successful negotiating in any field. If we are to move away from the present state of disarray in health care, we must feel pressured to negotiate and we must be prepared to negotiate in good faith. We take as a starting point the following principles: 167 TIMN 0023254

Access to health care should be a universal right. All Americans should be eligible for a standard package of health security benefits regardless of income or assets. Paying for health care sfiould be a universal obligadon. All working Americans and their employers-and all other Americans who can-should contribute to paying the costs of a universal health security program through equitable and progressive 5nancing. Controlling the cost of bean care should be a universal mnceta. The administration of a nationwide health security plan should be under the activ guidance of a national commission in which the interests of all those involved in providing and purcbasing health care are represented. Through z process of continuing negotiations, the commission should be responsible for developing global health care budgets, uniform payment rates, quality of cart standards, guidelines for rational deployment of technological and other resources, and priorities for distribution of preventive care services and other cost-containment measures. The Council in its final report supports a set of principles essentially similar to these. But having gone that far, the Council fails to take the logical next step. Rather than admawledge that there is already broad popular support for these principles, the Council argues against acting on a comprehensive nationwide scale until popular support trickles up, in effect-a process that the Council sees as being stimulated by the proposed demonsaation projects We miterate, however, that broad support for a nationwide initiative already exists and that further delay is unwananted and costly. The overwhelming need now is for national leadership. 168 TIMN 0023255

In advocating negotiations toward enacunent of a health security plan based on these three fundamental principles, we cannot predict the results of the negotiations. Nor do we pretend that there are simple issues to be addressed. The basic point, however, is that we can resolve these issues only after making an unequivocal commitment to resolve them. Under the present fragmented system, our problem-solving oppommities are limited. No matter how worthwhile they may be, no collection of piecemeal approaches-from in-school clinics to living wills-will do much to control the overall costs of health care in the United States or to redress the inequities of access and quality of care. Only a coordi.nated approach can offer that kind of hope. We can have universal health security-and soon-if we commit ourselves to getting on with the job. To advocate anything Iess is to accxpt the inevitability of continued chaos in which the nation's resources continue to be misapplied and sucked into a black hole of uncontrollable costs. No amount of rhetoric about the virtues of demonstration programs can hide that fact. The Advisory Council on Social Security was given a rare opportunity to serve the interests of all Americans by setting in motion a process to protect us all against the economic consequences of illness while reconciling our differences about how best to pay for that protection. It is in sorrow rather than in anger that we say the Council has failed in its major mission. Because we believe the time for bold action is now, and because the majority of the Council has adopted an approach that we believe is entirely inadequate, we must and do object. 169 TIMN 0023256

John K. Meagher While I endorse fully the recommendations of the Council and believe that the cumulative work it, the staff and the outside experts have done will greatly enhance the public debate on the health policy issues facing our society, I also believe some additional comments on the economics of health cace are necessary. As our Expert Panel report, Income Securiry and Health Care: Economic Implications, 1991-2020, pointed out in exhaustive detai, if America continues on its present patkt of consuming health care, by the year 2020, 31.5 percent of our GNP could be devoted to health care expeadiwres. And importantly, that projection assumes that our economy grows by about 4 percent per year in each of the next 29 years. Given recent experience, the latter is totally unrealistic and our ability to absorb the former is unprecedented. Simply, these projections are staggering. If fuifilled, it would amount to tkte liquidation of America. The only reasonable conclusion of such a projection is that any notion af expandinQ health care services in a significant way now is not possible. To the contrary, if this society is to survive, we must find ways to n'ducee in re terais. our health care expenditures. It was for this naason, mainly, that the Council majority did not and, in fact, could not responsibly advocate the immediate implementation of a new broad-based, universal health care plan for America. Neither did the minority. Their failure to recommend a single plan apparently means that they were unable to agree on its substance. Wh this all says, I beiieve, is that imposing a new universal type plan on top of our existing system from an economic standpoint would be aldn to pouring gasoline on a file. 170 TIMN 0023257

In fact, the real dividing line in the Council and, probably, in the political debate which will follow our report, is over whether cost co *aninmen.* must precede universal coverage or follow it. The Council majority believes the former, the minority the latter, while I laiow those who advocate "any plan now" have the best of motives, there is little or no evidence to support their view. In fact, our experience with Medicare and Medicaid is the opposite. This is not to say, however, that universal coverage is considered an illusion or an unattainable goaL I believe every Council member supports not only this objective but also specific plans which would pmvide for it I advocate the individual mandate plan fiuided by tax credits because I am convinced that it, more than any other of the ideas put forth, contains an inherent and continuing cost containment feature-individual responsibility for health care decisions. This proposal has many advantages over the traditional employer- based universal coverage plans. It would insure that all Americans have basic coverage but it recognizes that different families have different health care needs. It also takes into account geographic difference in costs of health care services as well as differences in income levels. It has much to recommend it and I hope both the Administration and the Congress will consider it seriously. Yet, I do not believe it wise to move forward on this or any other plan now absent of an informed, national health care, priority-setting debate. In my view, that must come first and it must not only begin immediately, but involve all political, social and economic elements in our society. In this connection, the Council is recommending $3 billion for testing many of the various plans which have been promoted as ideas for a national system. The results of these demonstrations should greatly enhance the infonnarion available to policy makers on what works and what doesn't. 171 TIININ 0023258

Critical to this debate, however, is the President of the United States. He must, and I believe wi71 lead it. He must tell the American people the facts about the economics of health care and others in the debate, too, must play i straight rather than panning platitudes to the electorate as some have done recently. This is deadly serious stuff and the worst result for all of us, rich or poor, with or without insurance or access to care would be to deceive the American people by telling only half the story, or to make a mistake by enacting a plan without a full debate and additional information. The American people must be told in specific terms of the costs involved in My plan as well as those which will exist if no new plan is enacted. They must be informed of the trade-offs, of the winners and the losers and of the consequences any plan will have on other priorities of our society. As Council members, I believe we will have a continuing responsibility to do whatever we can to keep the debate honest, informed and realistic. If we dc that and if the debate is real. I have every confidence that the American people will make the correct, although difficult choices, not only for themselves but for the generations to follow. This is the reason I submitted these views and this is the reason I intend to continue to speak out for a responsible debate. Philip Briggs I would like to commend the Advisory Council on Social Security, and particularly its Chairperson. Deborah Steeiman, on its work in identifying tt urgent needs of our Nation's health cane system and for addressing these needs through recommendations that improve access to health care for Americans. significantly reduce the rate of growth in health care costs, 172 TIMN 0023259

fimdamentally reform many of the basic health care institutions, and fully involve the American public in a wmmitment to change. The Advisory Council on Social Security has done a conscientious job in deliberating the problems that surround the health system reform issue. The Advisory Council has thoroughly examined the present state of our health care system through testimony presented at field hearings and site visits, presentations of health policy experts on a variety of proposed solutions, and extensive discussions among members. As the Advisory Council continued its endeavors over the past two years, it became increasingiy apparent that it would be impossible to bring such a diverse group to a consensus around a comprehensive health reform proposal to overhaul the Nation's health care system. However, the Advisory Council has recommended a set of substantial incremental reforms that lay the groundwork to correct the weaknesses in both the health care deiivery system and its financing system. These reforms must be accomplished immediately to address the cuacnt problems of access to and high cost of health care as well as improving the quality of health care. Recommendations to improve access to health care for the uninsured include enabling small businesses to obtain health care coverage for their employees through reform of the small group insurance market and investing approximately $3 billion in (1) school area clinics, (2) establishing 250 new community health centers, and (3) doubling the size of the National Health Service Corps budget. The high cost of health care is addressed through recommendations that establish an Advisory Councill on Health Claims Standardization and promote the use of managed care through a Federal preemption of State antimanaged care laws. Quality-of-care concerns are addressed by providing increased funding for outcomes research and the development of medical practice guidelines. 173 TIMN 0023260

All of these incremental changes to the health system will go a long way toward increasing access to health care for millions of Americans, especially children. These changes will also begin to control the rate of growth of health care expenditures as well as improve the quality of health care for all Americans. For these reasons, I strongly support the Advisory Council's recommendations which represent a commitment for immediate change in oi health care sysoem. 174 TIMN 0023261

29~ia rdr.4sow.,ovve rmm, unnraaais. M.rwsoro 55asQ2a9i 612 STb7HpU HeatM One December 18. 1991 Oeborah Steelman Chatraon Advisory Council on Social Security Washington, D.C. Dear Debbie: - Unfortunately, I will not be able to attend the Dece:ter 19 press conference in which we release the final report of the Advisory Coaacii an Social Security. Nowever, I do want to express my complete support for the report and strong endoriletCtlt of its rec0arbandatiant. I believe the specific immediate action measures•promed by the council will do a great deal to improve access to health care. particularly for the targeted populations such as school-age children. The 'double-barreled• approach the Advisory Council took is, in my opinion, very creative and very reality based. The 'first barrel', a series of specific progra¢ recommendations that could and should be iaptea.nted tzmediately, would do a great deal to imptroving health care access for a broad seyssat of the currently uninsure Yhe 'second barrel' of the concept. a series of demonstration proJects for broad- based health system reform, reeognizes that we need a great deal'of real knowledge not theoretical planning, before we change the entire shape of the American health delivery system. To that end, the deionSLratien proj-3cts proposed are creative, represent some of the best current thinking on refsra measures, and will yield the kind of reality-base0 experience the country needs before a complete reform of the American health system. - - This "double-barreled' approach his my complete support and I believe w4il go a lc way toward dealing with the two major concerns in our health system-, access to health care and the cast of health care. I was pleased to be a part of this advisory council and believe we have put forth some exciting reality-based reco®eendations. Sin Donald C. iiegoiller President and Chief Mecutiv. Officer HEALTH ONE CORPORATION TIMN 0023262

Appendix A: Historical Background Income Maintenance, Health Care Delivery and Related Developments ,n TIMN 0023263

HISTORICAL BACKGROUND 1800 AND EARUER Income Maintenance Social Insuramx (Social Security and other nort4wedstest public benefits.) Public Assistance Public aid to poor under colonial and ear3y SYate laws modeled on Elizabethaa Poor Law; e.g., in V'uginia, care of needy aged, il1, widows, aad orphans administered by Anglican vestymea. Charity financed by tithe. 1730s - Most east coast towns had almshouses as one means of caring for poor. Private Sector 1759 - Pension Plan for widows and children of Presbyterian Mnisters-first such pian. 1794 - Galattin Glassworks' profit sbaBng plan. Health Care Delivery Social Insnrance (Medicaze and other non-needs-test public benefits) Private Sector 1790 - The Boston Marine Society appointed a committee to establish a marine hospital supported by a Mariness' pay tax- Other Related Deveiopments 1636 - Plymonfii Colony 9ettlers' military retirr,ment program. 1789 - Federal service-connected disability benefits for veterans. 179 TIMN 0023264

1790 - Pansiaos for disabled Revolutionary War officers (and suivivo:s). 1798 - Marine FIospiiai Service (forr.:unaer of the U.S. Public Health Service) estabIished by the Federal Government fbr care of American seamcn. 1799 - Congress estabiished Naval Home (Ptuladelphia) which opened in 1832. 180 TIMN 0023265

1801-1850 Income Maintenance Public Assistance 1827 - New Yoik law nequiued residence in local area for eligibility for local aid. 1836 - Pennsylvania law required prior residenc.y and property ownership for subsequental aid. 1836 - Many - States (including Pennsylvania) required relatives to support needy kin. Private Sector Early 1800s - Deve1opmeat and growth of private charity (as opposed to "almshouses" or "poor farms"); e.g., 1918 (Quaker) New York Society for Prevenuon of Paupexism founded. By 1837, the:e were 30 to 40 almsgiving organizations in New York C'aty. 1831 - First trade-union unemploymeat insurance plan adopud. 1843 - New York Associatioa for Impraving the Conditions of the Poor (AICP) formed to study and provide standards for charities. 1850s - Stazes begia to reguiaze insurance. Health Care Delivery Social InsurancelPublic Assistaace Almshcuses also housed sick or injured pe:sons--•"poor man's hospitaL" (Bellevue Hospital in New Yodc, General Hospital in Philadelphia, and others began as almshouses). Private Sector 1847 - AMA founded. 181 T1MN 0023266

Other Related Developments 1802 - Early health cam of Indians: Army Doctors gave smallpox vaccinations. 1811 - First Federal service benefit for veterans--domiciliary cxre for needy disaialed veterans. Homes provided incidental medical care and rehabilitation services. 1818 - First mn- Veterans' peasions. (Non-service- connected widows pensions provided zn 1836.) 1824 - Bureau of Indian Affairs created in War Dept. (Traasfe=d to Depanmeat of the Inteaor in 1849.) 1851-1900 Income Maintenance Social Insorance 1855 - Georgia passed State law modifying common law approach to compeasation for work injuries, malang railroads m.sponsible for injuries due to negligence. 1857 - First municipal pension fund established, providing disability and death benefits for New York Caty police. (Retiremeat benefits wete added in 1878.) 1885 - Alabama passed first State Employer Liability Law, similar to 1880 English Employer Liabiliry Act. 1894 - Fust statewide legisiation for teacheis' pensions enacted (New Jersey). Public Assistance General trend toward increased "ont dooi" relief (as opposed to reiiaoce on almshouses). Also significant corruption uncovered in some public programs, e.g., reiief suspended in New York City 1874-75; in Brooklyn 182 TIMN 0023267

1878. In some areas, public ielief fimds were chap+*+P3ed through private charities. (1869-79 California State-subsidized private relief organizations.) 1898 - First State law providing pensions for the blind enacted (Ohio). Private Sector 1875 - American Express Company (latar Railroad Express) established pension plan providing benefits for employees 60 or older, with 20 years with the company, who were incapacitated for further performaace of duty. Entirely employer financed. 1877 - First American C:harity Organization Society (COS) funded in Buffalo: by 1892, the:e w= over 90 COSs. The COS movemait involved organdzing private charity, use of friendly visitors, so that "out dooe relief could be mmimized. (COSs largely replaced AICPs [see 18431.) 1880 - First U.S. railroad plan supported by employer and employee contribution (Baltimoie and Ohio Railroad Company). Health Care Delivery Social Insurance 1870 - An Act to reorganize tbe U.S. Marine Hospital Service and to provide for the relief of sick and disabled seamen. Public Assistance • 1855 - California law malang counties responsible for care of indigent sick, cither in alms houses or through out door relieL Private Sector 1872 - American Public Health Association founded. Other Related Developments 1851 - New Hampshire formed first State insurance regulatory body. Three more States did so by 1860. In 1868. the Supreme 183 TWN 0023268

Court fonnd Cm Paul v. Virginia) that insurance is not "commerce" and tbus may be regulated by the States. 1851 - U.S. Soldiers' Home, Washington, DC, established. 1854 - President Pierce vetoed bilt to provide land grants to states to help 5nance meaial hospitals. Many State Institutions for mentally ill founded in late 1800s. 1855-1890 - Military peasions were established and expanded as foIIows: 1855s pensions provided for Naval offlcers no longer able to perfoim; 1861, provision for retirement of Regular Aimy officers; 1862. General Law provided pensions for all Crvil War veterans with disab~~'tties and for widows and orphans_ of such vetezans; 1870 & 1873. laws authorized retirement pay for military officers after 30 years, at President's discretion. (1882 law made non-disability retirement mandatory at age 64.); 1885, pmvided noxisain7itq retirement for enlisted personnel; and 1890, Disability Peasim Act provided pensions for all veterans who had served 90 days or more and were unable to perfoan maoual labor, regardless of whether disability was service- connected. 1869 -Fust State Board of Health established (Massachusetts). 1873 • Fnst hospital aaws listed 178 institutions. (In 1961, AHA listed 6,9?.3 hospitals). 1873 - Bellevue Hospital, NYG established first School of Nnrsing. 1878 -Foreign Quarantine Aci-to prevenx the introduction of contagious or mfecdous diseases into the U.S. An 1890 Act related to interstate u21ISMission of communicable diseases. 1883 - Germany (under Bisanatck) institutes National Medical Insuraacx Plan. 184 TIMN 0023269

1884 - Appropriations Act provided for medical care for military dependents; Federal expenditures for medical care for military and veterans dates from 1700s. 1887 - Dawes Act, nelaung to Indian lands, provided for some assistance in scuting on reservations. - Creation of 'The Hygienic Laboratory" (forc.runner to NIR). 1894 - 3choo1 haalth program inaugurated in Boston to connvl commuaicable diseases. 185 ,UMN 0023270

1901-1920 Income Maintenance Sociat Insurance 1902 - First State Workmen's Compensation Law enacted (Maryland); declared nncansriuuional in 1904. 1908 - Woiimen's Compensation systems for civilian Federal employees esmblished. (Law m-eaacied in 1916.) - Federal Employers Liability Act covered claims for work injuries in various mdustries, including railroads. 1911 - First Worrmen's Compensation law to be held constitutional was enacted. - First contri"bnrory pension system covering all State employees estaWished (1Vlassachnset~s). 1920 -Civil service rctiremeat and disability fund established for Federal employees. - Merchant Marine Act (Jones Act), governing seamen's claims for work injuries due to negli8eace. Public Assistance 1911 - First State laws for "mothers' aid" (;fomnmaer of Aid to Depmdeat (2u7drm) (Missouri, Illinois). 1914 - First State law pmvid'nzg old-age pensions (Arizona); abolished almshouses and provided pensions for aged persons, persons incapable of self-support because of physical infirmities, and certain mothers with childrea; the State Supreme Court declared the law unconstitutional in 1916. 1915 - First old-age pension Ieggislation (Terriwry of Alasica) not chalteaged on grounds of c~astiwuonality enacted. Private Sectoc Seulament bouse movement gained inSuence along with other reform efforts. 1910 - See Montgomery Ward Plan (Health Care Delivery). 186 TIMN 0023271

1918 - Cnation of Teachers Insurance and Annuiry Association (TIAA)--conuactual, contributory, and portable vested anmuities for university, college, and indepeadent school teachets. Health Care Delivery Sooal Insurance 1912 - Progressive Paazty (Theodoze Roosevelt) platform included National Health Insurance. - First Child Hygiene Division estabIished in a State Department of Health (Louisiana). insiuaace. 1916 - AMA endorsed compulsory State-nui health (Position later modified.) Private Sector 1910 - Montgomery Ward Company group health, life, and accident insurance program established. on 1918 - Fie=er Report led to establishment of Joint Committee Accreditation of Hospitals (JCAH). Other Related Developments 1902 - Biologics Control Act. 1906 - Pure Food and Drug Act. 1907 - First Federal employment service (foreranner of the U.S. Employment Service) created in the Bnnan of Immigration and Nanualizaaon. Department of Commerce and Labor. 1909 - Conference on the Care of Dependent Ctuldren held in Washington, DC, at the invitation of President Theodore Roosevelt. This is the first of the White House Conferences on Child Welfare, held at approxamately 10-year intervals. 1911 - British National Health Insurance program enacted (limiied, need-based program). 1912 - Public Health Service formally created (consisted largely of former Marine Hospital Service). 187 TIMN 0023272

- U.S. Cirildzza's Bureau established to invesrigate and report on all mameis pertaining to children's welfare. 1913 - Federal income tax begins. 1917 - First State Depattment of Welfare established (IIlinois). - War Risk Insurance Act provided for care of disabled soldiers (as well as sailors. marines, and seamen) at Marine hospitals. Law modified in 1919 to include all zewming veterans. 1916. 1920 legislation also modified military retirement programs, including selection out "age-in grade" feawres. 1918 - First Federal gram made to States for public health services for prevention and control of venereal diseases. 1920 - Act to provide graozs to States for vocational rehabilitauon of persons disabled ia industry or otherwise and to promote their reuua to civil employmeat A temporary measure made peimaneat by the Social Security Act of 1935. 188 TIMN 0023273

1921-1930 tncome Maintenance Social Insurann 1927 - Longsho:emen's and Harbor Workers' Compensation Act (Federal) enacted. By 1930, all but four States had Workers Compeasation programs. Public Assistaace Federal expendittues for assistance for FY 1929 were less than $30 mBlion (not counting some $571 million for veterans). Private Sector 1921 - Tax law provided exemption for employer contributions to nvsts, profit-sharing, or stoclc oQtion plaos. Similar provision for qualified pension trust under 1926 law. 1921 - First group annuity contract in the U.S. :issuerl by Metropolitan Life Insuraace Company. 1928 - Revenue Act required fimding for prior services credits to be allocared over at least a 10-year period. Heaith Care Delivery Social Insurance 1921 - Sheppard-Towner Federal Matenrity and Infancy Act provided Federal grants to States to promote matemal and infant welfare and hygiene. Expired June 1929. (Previously private grvups maintained baby-health stations in many major cities). Public Assistance For FY 1929, Federal outlays for health and hospital programs amounted to some $100 million, principally for veterans ($47 million) and Defense Department programs ($29 million), but also including other programs: • $1.3 million: Indian health •$1.2 mBlion: Maternal and ctrild health (under 1921 Act) • $0.2 million: Workers Comp (medical) • $0.1 million: Medical Vocational Rehabilitation 189 TIMN 0023274

Private Sector 1929 - Baylor University Hospital formalized its prepaid Group Hospitalization Plan (a precursor of Blue Cross). 1929 - First medical Cooperative Community Hospital Clinic (Ek City, Qklahoma). Other Related Developments 1921 - Snyder Act provided submntive law for numerous Bureau of Indian Affairs acnivities, including "relief of disu+ess and conservadve of heaith." 1922 - Veseraas Bureau (predecessor to Department of Veterans Affaiis) cteated. Bureau given 57 former PH.S/Maiine hospital and responsibility for cue of VetGrdns. 1926 - Beguming of renewed effosts of Bureau of Indian Affairs to meet Iadian heahh needs. • Tbroughout 1920s and early 1930s, there was further legislauon relating to military rerinement and veterans benefits. 190 TIMN 0023275

. 1931-1934 Income Maintenance Social Insurance 1932 - Reconstruction Fina= Corporation empowered to make loans to States to combat mounting unemployment. 1932 - First State Unemployment Insurance Law (WIsconsin). 1933 - Federal Emergency Relief Act MRA) provided direct Federal grants to States for unemployment izliet 1934 - June 27-Raihoad Retirement Act siped. Declared ~onal May 6, 1935. Public As,vstana 1932 - First Federal loaas/giants to pay for work relief and direct rrlie£ • By beginaing of 1935, 30 states had some form of old age pension law; 27 provided cash assistance to the blind: all had "mothers' aid" laws. Private Sector 1933-1934 - Securities Act of 1933 and Securities and Excbange Act of 1934 required pension trava funded in part by employee contributions which purchase stock of an employer company or affiliates to register and file annual finaacial ttpons. Health Care Delivery Social Insurance Following end of Sheppard-Towner Aa, States first incneased, then sharply reduced, funding for maternal and child health. Thirty-five sta tes spent less in 1934 than they had in 1928; nine states discontinued special fimding- Pnblic Assistance 191 TIMN 0023276

1933 - FERA provided for emergency medical care for needy persons and for distribnrion of surplus or price-supported agricaltnral commodities to the needy. Private Sector 1933 - Private hospital insurance endorsed by American Hospital Association (AHA) led to establishment of Blue Cross, which grew from 1 plan enrolling 1000 in 1933 to 90 plans earolling over 25 million in 1948. Other Related Developments 1932 - Report of (private) Commiitee on the Costs of Medical Care recammended broader access to bealth care, norganization of the syst=-- group practice for physicians, and private health insurance for patients. 1933 - Wagner-Peyser Act established new U.S. Employment Service and provided Federal grants to States who affiiated their employment services with the U.S. Employment Services. 1934 - indian Reorganization Act broadened existing programs for Native Americaas. 6/34 - Committee on Economic Security creatad by President . Roosevelt to study problems of and recommend legislation oii ecoXomic security. 192 T1.MN 00232~~

1935 Income Maintenance Sodai Insurance • Social Security (SS) (PL 74-271) Act provided: monthly old-age benefits at age 65 for insured wodcers in business and industry, starting 1942; certaia lump sum paymerits; payroll tax schedules. • SS Act also provided for Federal Unemployment Tax and grants to States for Unemployment Compeasation Adanimstration. • Railroad Re.dreman Act (see also 6/37) included old-age paosion and total and permarueat disability pensions based an 30 years of service or an age of 60. Public Assistance • PL 74-721 provided Federal matching for State Old Age Assistance (OAA), Aid to the Blind (AB), and Aid to Dependent Child= (ADC-') programs. Health Care Delivery Socisl Insurance • SS Act provided Federal fnnding for State Maternal & Child Health (MCH) programs and Crippled Cbildren (CC) services. All States pardcipating in MCH by end of 1936. Public Assistance • Federal aid to meet health care costs available only to the extent such costs were included in individual grants under ADC, OAA, or AB. Other Related Deveiopments 1/17 Committee on Economic Security Report uansmitted to Congress with recommendations for Federal old-age insuraace; Federal-State public assistancx and unemploymeat insurance programs: extension of public health, maternal & child health, services for crippled c,hildrefl, child welfare services, and vocational rehabilitation. 193 TIMN 0023278

April - Emergency Relief Appropriarion Act created the Works Progtess Adminisatauon (WPA) (laxer° Work Projects Adminis- t:ation), Resetlement Adminisuation, and the Nationai Youth Admimsttadon to administer emergency work relief programs for the unemployed. June - Committee am Economic Secuiiry Rfskr to Economic Securiry Arising ora of Illnus report submitted, not sent to Congress. President appointed In~deparmieatat Committee to Coordinate Health 8t Welfare Activities creazed. August - SS Act also estahiished child welfare se:vices program and =paaded and made pramaamt te vocational rebabiIitaiion programs enacted 6=. SS Act also enlarged Pnblic Health Service (PHS) role by providing grams in aid to help establish and mairltain Staae and local pubiic health agencies. 1935 - Agricutpual Act repiaces surplus commodity program under 1933 FE12A. 1935-1936 - First National Ekalth Survey. 194 TIMN 0023279

1936-1937 income Maintenance Social InsurancY 3/36 - Social Security Board certified first Federal grant to administer State Unemployment Insiuaacx law (New Hampshire). 8l36 - Unemployment benefits first paid under the Wisconsin law. 5/37 - U.S. Supreme Court upholds constitutionality of the old-age and uaempdoymem instuancx provisions of tbe SS Act. 6f37 - Railroad Retirement Act of 1937, amending portions of the 1935 AcsM which had beea challeaged in the lower courts. . Pnblic Assistance ?./36 - First public assistance payments under the SS Act in old-age assistance (17 States), aid to dependent cbldnen (10 States), and aid to the blind (9 States). Health Care Delivery Private Sector 1936-1940 - Deveiogmeat of commercial surgical and medical insurance contracts. 1937 - Formation of GHA of Wasmngroa, DC Other Related Developments 1937 - Increased PHS fuffiing for Staultocal public health with • emphases on both special programs (e.g., TB & pneumonia) and basic health needs. 195 TIMN 0023280

1938 Income Maintenance Soaai 7nsvrance Jan - Unemployment benefits first payable in 22 States. June - Railroad Unemployment Insurance Act approved. Public Assistance Dec - A1151 jurisdictions paying old-age assistance under approved State plans. Private Sector Revenue Act of 1938 established "tin-diversion nile" requiring pension tiusts to be irrevocable and used only for the benefit of employees. . Other Related Developments Dec - The Advisory Coimcil on Social Security issued its report and recommendations for increasing the eariy adequacy and effectiveness of the social seauity program largely reflected in 1939 amendanents. 1938 - Fair Labor Standards Act (PL 75-718) established Federal Standards for minimum wages, oveitime pay, and employment of cbildren. 1938 - Army Officer retirement legisiation provided for nondisability r~ent aifer 20 years commissioaed service. (Similar legislation for Navy and Matines in 1946.) 196 TIMN 0023281

1939 income Maintenance Social Insurance • SS Amendments (PL 76-379) revised SS Program to include monthly beaefits for depmdeats and survivors of male woricers; revised bruefiit computaaons; monthly test of retirremeat, effective 1940. Jaa - Unemployment benefits became payable in 26 additional States, bringing total mimber paying to 49; a1151 jurisdictions by July 1939. Juty - Unemploymenc benefits firsc payable under the Railroad Unemployment Insuraace Act. • Federal Unemployment Tax Act (Ft]TA) P]L 76-379 moved tax provisions to the Intemal Revenue Code. Public Assistance • SS Amendmeats increased ADC matciung fmm one-third to one-halt increased maximum child age from 16 to 18 years; and increased Federal matcbing in OAA and AB programs. Health Care Delivery Social Insnrana • SS Amendmeat expanded fimding for MCH and CC programs. All States participating in CC prngrdm. Other Related Developments 1934-1939 - "FirsC Food Stamp program, administered by the Department of 1939 Agriculttue. (See 1961 for "second" (current) Food StamP program.) Deparmnent of Agriculture also administered surplus commodities program, beginning 1936. 197 TIMN 0023282

E-- 1940-1942 lncome Maintenance Sociai Insurance Social security (SS)1egislation, 1940-1945, consisted of relatively small changes in SS coverage and ad}vstrtieats in tax schedules. 1140 ~ First momthly benefits payable uader old-age and survivors insutance to aged retired workers, their dependents. and sorvivors of deceased insured workers. 1942 - Rhode Island adopts fust State Temporary Disability Insurance (TDI) program, effeMive 1943, requiring employers to provide stmrt-tam coverage of wage loss from i'Ilnas or injury, fiaanced by employer and employee tax contributions. 1942 - Temporary (aviliaa War Benefits Program provided wage-loss beneflts for civilians for temporary total or permanent partial disability resulting ftam enemy action. Public Assisfance 1942 - Temporary Caviliaa War Assistaat program provided aid to civilians affected by euemy action. Emergency grants to StaYe: for day caie services. Private Sector 1942 - 1940s saw growth in private pension plaas, due to effects of wartime wage fneeu and excess profits tax. Revenue Act of 1942 revised tax pnfeRncx provisions so that: fimds must be irrevocably committed to betiefits: plans must not disciiminate in favor of higher-}aid woricers; and there are upper limits on dedttctions. Health Care Delivery Social7nsurance 1942 - (President Roosevelt proposed hospital (and disability) insutaace under social security.) 198 TIMN 0023283

Public Assistance 1942 - Emergency Maternity and Infant Care (B11'IIC) provided grants for health services to dependents of servicemen in the lower four pay grades• administered by C:hiidn~a's Bureau through local health agencies. Program terminated 6f3Q/49. Other Related Developments 1942 - Servicemen's Dependents AIIowance Act of 1942 enacted; provided family allowances for dependents of enlisted men in the four lowest pay grades of the Aimed Forces. 1942 - Revenue Act provided for individual deduction of un izimbused healtth cam costs above specified umt. 1942 - Pnblication, in Great Britain, of Beveridge Report "Social Insurance and Allied Servicrs" 199 TIMN 0023284

1943-1944 Income Maintenance Social lnsurance 1944 - SS Act amended to authorize appropriation of any additional amounts mquired to finance benefits and payments from general Treasury funds to the old-age and survivors insurance trust fimd. Repealed in 1950. Servicemen's Readjustment Act of 1944--popularly ]mown as the GI Bill of Rights--pnovided for expansion of hospital faciluies; education and uaining allowances; guaraaty of loans for aid in acquiring or cansaucang homes, faims, or business pr~peny; special placxment services duvugh the U.S. Employment Service; and readjustment allowances while veterans find employment. 10/44 - War Mobilizadoa and Reconversion Act established Federal unemployment account in the imemgloyment uvst fund whence States might borrow-ug to July 1947-when their own unemployment fimds fell to a certain level. Health Care Delivery Social Insurance 6/43 - Originai Wagner-Murray-Dingell Bill for comprr.tiensive health insarancx under Social Security introduced. Private Sector 1943 - IILS niled that employer contributions to group health insurance were not taxable to employee. Policy Stated in law since 1954. modified in 1986. Other Related Developments 7/43 - Program of grants in aid for Vocational Rehabilitation of the Handicapped expanded, removed fxom SS Act, medical service: included. 200 TWN 0023285

C 7/44 - Public Health Service (PHS) Act consolidates legisLation relavng to PHS. 201 TIMN 0023286

1945-1946 Income Maintenance Social Lisnrance 1946 - SS Act Amendmems of 1946 provided benefits for survivors of certain World War II veterans who die within three years of discharge from military servicx, covered private maritime employment under State Unemployment Insurance laws; provided a temporary Federal program for unemployment benefits to seamen whose wartime employment was technically Federal, and allowed States that had collected employee conributiona nnder State unemploymeot insurance laws to use tbe money to finaacx disability insurance benefits. - Califotuia adopted Temporary Disaba7iry Insarancx (TDI) plan, inciudia8 hospital benefits. - 1946 Amendments to the Railroad :Retirement and the Railroad Unemployment Insurance Acts provided for cash sic3mess and benefits (temporary Disability insurance), occaipational di4abality benefits, and the coordination of certain survivor benefits with SS survivor benefiLS. Also reduced service requirements and increased some pension amounts. Health Care Delivery Social Insurana 11/45 - President Truman sends Health Message; Revfsed Wagaer- Murray-ningell bill introaucxd.) 5/46 - Taft et aL propose grams to States for medical care for the poor.) Private Sector 1945 - AMA began promoting medical care plans ander aegLs of local medical societies, spurrin8 growth in Blue Shield plans. 202 TIMN 0023287

Other Related Developments 1946 - Crearion of Cemers for Disease Connrol (CDC) in Atlanta (from Woiid War II Malaria Contcnl Program). - H'ill-Burmn Hospital Survey and Construction Act provided Federal fimds for hospital consonicaon; required development of heaith planning agencies. 203 TIMN 0023288

1947-1949 Income Maintenance Sociai Insurance 4/48 - Worf;men's Compensation legisiation became nationwide with lChssissippi's enaconent of snch a law. 1948 - New Jersey TDI plan adop~ 1948 - Civil Service Retirement System amended to include survivor benefitL Private Sector 1948 - Labor Management Relations Act of 1947 (Taft Haitley) induded requirement that uaion•maxiagemeat pension agreements be writtea, their funds used only for benefits. and both sides equally represeated in their operation. 1949 - Supmne Court decision affirming National Labor Relation Board's 1947 interpretation of NLRA that employers must agree to include pensions in collective bargaining. 1949 - The Steel Indusary Fact-Fiffiing Board held that employers were obligated to provide woiiCers with pensions and other weifare benefs: Health Care Delivery Private Sector 1949 - NLRB decision, affumed by U.S. Court of Appeals, allowing inciusian of industry-Snaaad health insurance as a fringe benefit st*ect to collective bargaining. Other Related Developments 1948 - Advisory Council on Social Security preseuted its reports, with reco®mendations on public as,sistance. old-age and survivors insur~cx, disability insarance, and unemployment in.~*a=, tc the Senate Finance Commitsee. 204 TIMN 0023289

1949 - Catzer Compensarion Act provided military ratirement benefits after 20 years with pension based on fnal pay and length of service (maximum = 75 perr.ent of pay). Disability benefits available based on 30 percent or greater disab0ity. 205 TMN 0023290

1950-1951 Income Maintenance Social Insnrana 1950 - Major SS Amendments (PL 81-734) expanded SS coverage to farm and domestic employment: nonfaffi self-employed (except professional groups); provided World War II gratuitous military service, wage credits; provided benefits for dependents and survivors of women wodcers; increased benefits by more thaa 75 percent; provided new computation meshod; revised financing scbedule: and authorized advances of unemploymeat funds to States through 1951. 1951 - Railroad Reutrmeat benefits h=awd snbstantially; greater coordination with SS. Public Assistance PL 81-734 also: • Added Federal matching for Aid to Lbe Permanently and Totally Disabled (APTD). • Inc3uded child's caicsakerhe.larive in AFDC grants. • Provided $50 earnings disngard for blind. • Provided vendor payments for medical cam. Health Care Delivery SociallnsurancE 1950 - SS Amendmeau includsd major increases in fimding for MCH and CC programs. Public Assistana 1950 - SS Amendments also provided for vendor payments for medical care/supplies up to fixed aimits and for Federal participation in costs of payments to the Aged, Blind, or Disabled in public medical institutions other than for TB or mental disease. 206 TIMN 0023291

Private Sector 1950 - National Association of Insurance Commissioners adopts model "uniform policy provisions," to deal with conflicts and confnsion caused by variery of available health plans. Other Related Developments 1953 - Umfoimed Services Contingency Option Act provided survivor option for military and otiw Unifomied.Services. 8/54 - PL 83-568 traasfermd responsibility for Indiaa health from BIA (Iuterior Dept.) to PHS; subsequently (see 1976), Indiaa Health Service avated to provide comprehensive health services for American Indiams and Alasica Natives. 207 TIMN 0023292

1952-1955 Income Maintenance sociai Insuranoe • SS legisiation geaaaily inciuded fiuttxer extensions of coverage, including many pmfasional self-employed and State and local employees under a retirement age law (group elective); adjastmeats in beaefits computations and financing in light of wage and price inareases. 9/54 - First major extension of the coverage of the Federal Unemployment Tax Act appt+oved: employees of firms employing 4 or more in 20 weeks, after 1 January 1956. 1954 - SS Act ameaded by addition of new Title XV to provide unemployment insurance benefits for Federal civilian employees financed by Federal funds and paid by State ag®aes under their own benefit foimulae. 1955 - Railroad Retiremmt amendm eflts provided benefits for disablec chddna of deceased railroad workers. Subsequent railroad legisiacion through early 1960s updated benefit amounts and survivor provisions. Public Assistance 1953 - With approval of Nevada's plan for Aid to the Bli.nd, all 53 juasdictions administered such programs. 1955 - Nevada begaa Aid to Dependent Cbild= a1153 jurisdictions now adminisoer such programs. HeaitN Care Delivery Social Insurance 1954 - (Eisenhower proposes "ieimsurance" approach for meeting beaith insurance needs of high risk groups.) 208 TIMN 0023293

Private Sector 1954 - The Federal Trade Commission (FTC) cited numerous prominent companies for false & misleading adverdsing of health insurance policies, by its authority under the Insurance Regulation Acr. This led to State.s' rules governing such adverdsing and to the Supreme Court limiting FTC authority. Other Related Developments 7/52 - Ve2eraa's Readjustmeat AssistaaL Act temporarily provided for unemploymeat compensation for veterans under Federal formulae but subject to State availability and disqualificazion provis7ions. Permanent provision adopted in 1958. 1954 - Internal Revenue Code of 1954 re-included earlier pension- related provisions of the 1928, 1938, and 1942 Acts. Also, estabdished 3 percent of AGI threshold for deduction of umeimbmsed healtb eapeaditurrs; increased to 5 percent in 1982 TEFRA and 7.5 percent in 1986 Tax Reform. 1954 - Vocational Rehabilitation Act amended to call for cooperarion of vocattonal rehabilitation agencies with State public assistance agencies, the Bureau of Old-Age and Survivors Imuancx, and other public agencies providing services related to vocational rehabilitation services. 1954 - Major expansion of aill-Bunoa legislarion to include chronic disease hoslatals, nRUSing homes, rehabalitanon centers, and modernization of existing hospitals. 209 TjA4N 0023294

1956-1957 Income Maintenance Sodal Insurance 1956 - SS Aaneadmeats provided benefits for peimanently and totally disabled worloers aged 50+ and disabled adult children of retired or dccoased woricem Coverage extended to members of aimed services and remaining self-employed (other than 1tiIDs). Old-age beaefiis made available to women at age 62, with benefits for wives andd women workers actuaiially reduced if claimed before age 65. Public Assstanct 1956 - SS Amendments furtfer increased Federal mazchiag share; linked services with public assistance payments; Plirninatnd school requirr.anaat for ADC for children age 16 to 18 years, and otherwise eqxmded cligibility; and provided for gJ: %fj! naacts to swdy dependency issues. Health Care Delivery Socisl In=rance 8/57 -(Oiigiaal Forand bill for Health Insurance for Social Security beneficiaaes introduced.) Public Assistanx 1956 SS Ameadmmts eiiminaLe limitarion on vendor payment matching related to individnal paymem Provides $1 for $1 Federal mauding for vendor payments, subject to specified ma~dmum matd3in& 210 TIMN 0023295

Other Related Developments 1956 - SS Amendmeats streagtheaed and expanded Child Welfare Services under Title V of SS Act 6/56 - PL 84-569, Depeadent's Medical Care Act (°medicare") program enacted. Provided health benefts for dependents of members of Uniformed Services (later "Kivi7ian Hospital and Medical Program of the Uniformed Services"--CHA1b1PUS). 8/56 - PL 84-881, Servicemen's and Veterans' Survivor Benefits Act, pmovided for 6-month death payment, depeadency and indemnity compensati.on (DIC) for widows and children, and for full SS coverage of military personnel. 211 TIMN 0023296

1958-1959 Income Maintenance Sociai Insurana 1958 - SS Amendments provided benefits for dependents of disabled workeis. 6/58 - Temporary Unemployaaeot Compensation Act provided for advancing funds to States to pay extended unemployment compensation to worcers who have exhausted State benefits, through 3/59. (1961 legislation extended this measnre through 1962.) Private Sector 1958 - Welfare and Pension Plans Disclosure Act required annual disclosure to participants and beneficiaries of financial and other informarion relating to Plan operations. Health Care Delivery Social Insurance 1959 - Federal Employees Health Benefits Act. Other Related Developments 8/58 - Ex-Se:vicxmea Unemployment Compensation Act made pemnaaem prvvision for unemployment compensation, sinilar to arrangements for Federal civilian work force. 9/58 - PL 85-857 consolidated veterans legislation in title 38 U.S.C. (Furtha codific~on/redesgnations made in 1991, PL 102-83.) 1959 - Veterans Pension Act (PL 86-211) established pension raus based on broad income brackets. 212 TIMr10023297

1960-1961 Income Maintenance Social Insurance 1960-1961 - SS Amendments provided simplified computatRon; increased widow(er) benefitsr reduced available benefits for men at age 62; eiiminated age 50 requirement for disabled workers. 1960 - Unemployment insurance coverage extended to additional Federal and nonprofit employees; Puerto Rico included in system. 1961 - Legisiadon to provide temporary extended unempioyment benefits. Public Assistance 1961 - Provided temporary Federal matching for Aid to Children with an Unemployed Parent (UP). Also provided temporary program of Assistance to Repauiated Americans (Refugee Resetxiement). Health Care Delivery Soaal Insurauce 1961 - King-Anderson Bill iauodiued-Administration proposal for ~ hospital and medical insurance for the aged, financed through FICA taxes. Public Assistance 1960 - SS Amendments provided for Federal matching program of Medical Assistance for the Aged (MAA) (including the "medically indigent"); KemM'i1Ls legislation. (Optional alternative to Vendor-payment system.) 213 TIMN 0023298

Other Related Developments 1961 - Food Stamp program established on a "pilot basis." (Made permanew in 1964.) - White House Confcreacx on Aging endorsed health insurance tbrough SS ta= - Cammtmiiy Health Services and Facilities Act included provision for Federal gr= to State and local community agwcies for developing methods to provide out-of-hospital services, paaztiwlaiiy for the cbroaicaliy ill and the aging. 214 TIMN 0023299

1962-1963 Income Maintenance Public Assistance 7/62 - PL 87-543, Public Welfare Amendments of 1962-desigaed to improve services to reduce or prevent dependency; extended AFDC-UP for 5 years; provided for community work and training programs: increased funds for adult assistance categories; increased Chfld Welfare Services funds (including day care). Also provided opoional single adult assistance category (Title XYI) and for disregard of earnings-related expenses in all assistance categories; extended repatriation program for 2 years; and provided for waiver demonstration programs (Section 1115). Private Sector 1962 - Seif-Employed Individuals Tax Retirement Act providing tax incxnrives for self-employed persons, "Keogh" plans. 1962 - Welfaze and Pension Plans Disclosure Act Amendments su+eagiened authority of Secretary of Labor to ensure compliance. 1963-1964 - Securities and Fxchange Commission raied that tax-qualified group pension plans (inciuding variable annuities) were exempted from registration and prospectus requirements of the Securities Act. (See 1933-34.) 215 TIMN 0023300 -

Health Care Delivery Private Sector 1962 - American Hospital Association witbdrew opposition to compulsory hospital insurance under SS if Pivgram admimstered via private organiz~ (e.g., Blue Cross). Other Related Developments 1963-1965 - Ugislatom for meatal retardatiou and community mental health centers Cphased out beginming 1974). 216 ,MS 0023301 T,

1964-1965 Income Maintenance Social Insurance 7/65 - SS Amendments, PL 89-97 included general benefit increase, studeats' beaefits, benefits for divorced spouses, and minimum benefit increases (to accommodate SMI premium); liberalized disability program inciuding neqnirement that disability be expected to last at least 1 year or end in death (rather t6an be permanent). Also, coordinated SS and RR tax provisions. Public Assistance 7/65 - SS Amendments increased Federal matching if passed through in higher public assistance payments; permitted matc,bing for needy aged in mental or TB institutions (subject to State actions); eatended AFDC up to age 21 if child in school; liberalized eamings disregards. Heaith Care Delivery Social Insurance 7/65 - Eaacament of Medicare: (PL 89-97) Hospital Insurance (financed by payroll tax) and Supplemental Medical Insurance (financed by enrollee premiums and general revenues) for aged SS beneficiaries and certain noninsured persons. Public Assistance 7/65 - Enactment of Medicaid, providing Federal matching for State aid to all categorically needy persons (a major expansion of the Kerr-Mills program). Authorized Federal matching for medically needy persons. Private Sector Medicare administered througb private carriers and intermediaries. 217 TIMN 0023302

Other Related Developments 1964 - Food Stamp Act provided food stamps purchased by participants with price based on. household income. 1964 - Title VI of PL 88-352, the Civil Rights Act, barred racial discrimination in federally assisted programs. 1/65 - Report of 1963-1965 Advisory Council on Social Security rccammended hospital ms+,*a= for the aged under SS. 7/65 - SS Amendments also provided tax deduction for one-half of health insurance premiums (repealed in 1968) remainder of premiums, plus SMI premiums, includable in medical expenses. Repealed maximnm limits on medical expenses of disabled. 1965 - NeighboriTOod Health Center$ program ]aunched. - Established Regional Medical program (abolished in 1973-74). - Age Disaiminaaon in Employment Act permiued mandatory retiremeot at age 65. 1965 -Mie Pnsideat's Committee on Corporate Pension Funds and Other Private Rerirement and Welfare Programs Issued its report, "Public Policy and Private Pension Programs." This was the forerunner of ERISA (1974) 218 TIMN 0023303

1966-1971 Income Maintenance Social Insurana 1966 - First in a serie.s of "temporary" railroad retirement system provisions for supplementary benefits, leading to the 2-der suuctu:e czeated in 1974. 1967 - (Signed 1/68). SS Ameadments fnrther increased SS benefits, extended benefits to disabled surviving spouses. 1969 - Federal Coal Niine Health and Safety Act provided cash "Black Iung" bmefits for miners disabled with paeumocomosis and their widows and qualified dependents. Pre-1974 claims financed fiom general revenues. 1969-1971 - SS benefit increases enacted 1970 - FUTA coverage extended to small businesses, non-profits, higher education (PL 91-373). 1970-1972 - Railroad Retirement benefits substantially increased. 1971 - Begiuaing of another series of temporary extended unemploymeat benefits legistation. Public Ass>stance 1967 - IItS to cooperate in efforts; to locate abseru parents of AFDC • recipleau. - AFDC earnings disregard of $30 per month and one-third of remainder, established Woric Inceative Program (WIN). 1968 - Adminisuation proposed "Family Assistance Plaa" (FAP). 1969 - Supreme Court found State residency requirements uac~nsatational. 1971 - Legislation required AFDC recipients to register for manpower services. Optional AFDC-UP program modified and extended. 219 TIMN 0023304

7- 7 Health Care Delivery Public Assistance 1967 - Amendments provided for Medicaid buy-in for public assistance recipients age 65 and older (State may include medically needy only); ~Pe~emation with alternate I rsement methods; Medicaid coverage for Intermediate Care Facility (ICF) services. Private Sector Begiaaiag of "Medigap" insurance policies covering deductibles, aaiasutance, and services not covered by Medicare. Other Related Developments 1966 - Comprehensive Health Phning and "Parmeiship for Health" 1ro8ram 1/68 - SS and Medicare T= Fund transacrions first shown in Unified Budget. 12/68 - Report of stamtory Advisory Council on Health Insurance for the Disatled. Many proposals included ia 1972 amendments extending Medicare to disabled SS beneficiaries. 1970 - National Health Service Corps enacted. 1971 - Quadreaaial Advisory Coima'1 on SS ieport. 19721egisiauon reflecis many recommendarions, inciud'mg automatic COLAs, use of dynamic economic assumptions, and current cost financing 1971 - Food Stamp legislation dropped purcbase requirement in some cases, based aIlomm on cost of nutritionally adequate diet, added work requiremears. 220 TIlMN 0023305

1972 Income Maintenance Socia[ InstwancE • PL 92-336, inciuded 20-perr,ent SS benefit increase, as well as automatic adjustment of future benefits to prices and of the future tax base to wages. • PL 92-603, numerous liberalizations in SS beaefits and eligibility; exxnsions of coverage; revised financing schedules. • Black Lung Benefits Act of 1972 extended coverage and added benefits for surviving children; Departmeat of'.Labor given jurisdiction for post 1973 cues. Public Assistance • PL 92-603 established Federal SSI program (with State supplementadon) (effective 1/1r74) in place of Fedeial-State Assistance programs of OAA. AB, and APTD in the 50 States, with uniform Federal eligibility criteria and payment levels. Health Care Delivery Social Insurance • PL 92-603 extended Medicare coverage to disabled SS and RR beneficiaries and to certaia persons with end-stage renal disease (effecarve 7r73); established udIizarion review pmgram, Professional Standards Review Organization; and clarified F.zteuded Care Facility coverage, redesignated as SkilIed Nursing Facility. Administrarive limits on reasonable costs, physicians fees, and capital mimbursement Other Related Developments • Establishment of WIC Program-Supplemental Food for Women, Infants, and C1lildien. • During the period of wage/piice n~suaints early 1970s (late 1971-74), the Price Commission issued guidelines which limited health care 221 TIMN 0023306

piice incazases: e.g., physiciaa fee Wrea.~es were limited to 2.5 percent per year • Mlituy suuvivors benefit plan replaced che raaiily pzatecnon plaa; general revtaue subsiay proviaea: some integration with SS benefts. 222 TIMN 0023307

1973-i 974 Income Maintenance Social Insurance 1973 - Ameadmems provided ad hoc benefit increases prior to automatic COLA provisions. 10174 - PL 93-445, Railroad Retirement Act of 1974, provided new, two--tieer approactr--Tier I analogous to SS; Tier II based exclusively on railroad servico-- phased out concurrent receipt of SS and RR beaefiis. Public Assistance 1973 - Legislazion increased Federal SSI benefit rate, modified ttansioion provision. 1974 - SSI legisiation provided for automatic COLAs and reimbursement to States for interim assistance for eligible pelsoM Private Sector 1974 - Employee Retirement Income Security.Act of 1974 (ERISA) established minianum standards for participation, vesting, and funding of private plans (pre-exempting State insurance laws); suengthened fiduciary standards and reporting and disclosure pnavisi= established Pension Benefit Guarantee Corporation (PBGC) to, in effect, ieiasure defined benefit pians; provided tax deduction for Individual Retirement Accounts (IItAs) for noncavered workers. Also established rales for text trvatment of "Cafeteria Plans." (Modified in 1978 and 1986.) Health Care Depvery Social Insurance 1974 - MCH, CC, and administcative funds for State Public Health Agencies included in Block Grant Private Sector 223 TIMN 0023308

1974 - Many ERISA provisions (see above) also apply to employee health insurance plans, preemption is ambiguous with respect to insuztd health plans, which iemaia subject to some State ngulation-see 1985 Metropolitan l.ife case. Other Related Developments 1973 - Leg9slanon expaaded Food Stamp p:+ogram• broadened eligibqity, and phased out the Family Food Distribation Progiam. 1973 - Pi. 93-82, Veterans Health Can Expansion Acs, established; CHAMPVA (Civilian Hospital and Medical Program of the Veterans Admimsttation for civilian dependents and survivors of veterans). 1973 - Rehabilitatioa Act (Pi. 93-112) provided comnpxhensive vocational rehabilitation services, replaang Vocational Rehabilitation Act of 1954. 224 TIMN 0023309

1 s75-197s Income Maintenance Social insurance 1975 - The Supreme Court ruled, in Weinberger v. Wiesenfeld. that SS benefits must be provided for a widowed father on the same bases they were availabie to a similariy situated women. Subsequent decisions by Federal and district courts as well as Supteme Court studC. Other gender based disdncaons: e.g., 1977 decisions in California v. Goldiuck and California v. S related to husband's and widower's benefits. Staume modified 1977 and 1983. 10/16 - PL 94-566, Unemployment Compensation Amendments of 1976, ezteadsd coverage to State and local government workers and certain agricultural and domestic labor, Imposed 0.2 percent temporary surtax in addition to permanent 0.6 percent tax; and required States to offset compensation for receipc of public or private pensions (modified in 1980). Public Assistance 1975 - PL 93-647 created Child Support Enforcement program; provided Federal matching funds to enforce support obligations of noncustodial parent of child eligible for AFDC; escablished Federal parent locator service; authorized garnishment of Federal benefits (including SS) to enforce support or alimony oiderx required intersrate cooperation in enforcing support ordeis. Private Sector 1975-1979 - SSI legislarion included numerous minor liberali- zations, adjnstments in relationships to other programs, and technical modifications. 225 TIMN 0023310

Health Care Delivery SocaalInsurance • 1970s saw substantial growth in Medical and hospitalizarion payments made uader State workers compeasaaon plaas. Other Related Developments 3n5 - Quadrennial Advisory Counc1l on SS report included for izvised SS beaefii suucture similar to 1977 Amendmems. 1l15 - PL 93-641, Health Plafffing & Resour+ces Development Act-superseded Regional Mcdical Plaaning, Comprehensive Health Plammng, and HiII-Bmton programs--established area- wide healt3i piazmiag ageOcies to increase access to and quality of seivices, restrain costs, pmvmc duplication, etc. 305 - PL 9412, Tax Reduction Act of 1975, provided for Earned Income Tax Csedit (IITC) to offset SS tax for workers with chadi+en. EITC modified and made permanent in 1978. 1976 - PL 94-437, Indfan Health Care Improvement Act, st~engthened Indiaa health servicas. 226 TIMN 0023311

1977 Income Maintenance Social Insurance 12r17 - PL 95-216, SS Amendments modified COLA provisions, stabilized replacement rates through wage-indexed computation, revised tax schedule, and made numerous other changes. 1970s - Throughout the decade thm was substantial growth in State workers compensation payments in relation to covered payrolls (following 2 decades or relatively little growth). .Heaith Care Delivery Social Insurance • PL 95-142, Medicare/Medicaid Anti-Fraud and Abuse Amendments of 1977, required Study and Report which led to 1980 (PL 96-499) changes. Pubiic Assista~e • PL 95-142 provided for Medicaid agency to use CSE agency to enforce medical support rights. Other Related Developments 9/TT - PL 95-113, Food and Agriaaltuie Act of 1977, modified Food Stamp program by eliminatin g purchase reqnimmeats, staadardizing allowable deductions fiarrn income, setting eligibility at OMB poverty gnideiiues, and rzquiring SSI and AFDC recipients to meet asset, income, and work requirements. 227 TIMN 0023312

E-- 1 s78-1979 income Maintenance Social Insarana 1978 - PL 95-239, Black Lung Reform Act of 1977, and PL 95-227 made Part C(futnre claims) provisions permaneat and established a Black Lung Tnust F'aad, with claims to be paid thereby or by the responsible emplo;yer. Medical and rehabilitation beneft also availatale to workers under part C. 1978 - Revenue Act provided for incinding part of UC in taxable in=me (100 percent included uader 1986 Tax Refioffi Act). Private Sector 1978 - Revenue Act provided for quaiified cash or deferred income ~6"'"""•z~* "'1(a) !'L"s'w Also, modified lYlp relating to cafeteria plans. Health Care Delivery Social Insurance 1988 - PL 95-272 amended the End-Stage Renal Disease Program to lower costs, avoid disincentives to transplaatation, etc. Private Sector 1978 - Revenue Act included provision to tax health beneSts of high- income persons under self-honed health plans that did not meei nondiscriminstion standards. Other Related Developments 1978 - PL 95-256. Age Discnmmatiom ia Bmployment Act of 1978, raised from 65 to 70 tbe pe:missible mandatory retirement age. 11178 - PL 95-588, Veterans and Survivors' Pension Improvement Act of 1978, revised method of figuring pension (need-based) benefits; COLAs made to coincide with SS COLAs. 228 Tr4S 0023313

1978 - PL 95-600, Tax Revemie Act of 1978, modified E1TC provision and made it permaaent. Subsequent legislation has made further ci%aages. 1978 - PL 95-602, Rehabilitation, Comprehensive Services, and Developmental Disabilities Act. 1979 - Li'beralized Food Stamp eligibility itquiremeats for the aged and the disabled. 12179 - Quadrennial Advisory Council on SS report submitted; reviewed whole SS program, espeCiallq benefit equity, treatment of women under social security, and financing. (Recommended taxarion of one-balf SS benefits and use of general nveaues to fnoance Hosgital Insurance.) 229 TIMN 0023314

1980 Income Maintenance Social InsuraDW 6/80 - PL 96-265, Disabdlity ?,meadments, modified benefit computatian to preclude overinsurancx, enhanced administrative oversight ('incladiag contWaing disability reviews and pre- effecWatiQm reviews of State agency allowances), and added numerous work iacentives ('inciuding 15-month re-entitlement penod and eueaded Medicare protection). Public Assistance • PL 96-265, esmblished a 3-year demot>sttation program (Section 1619, later made pcimaowt) whereby blind or disabled SSI recipients who engaged in subs=tial gainful activity could nonetheless retain SSI status and Medicaid eiigibilitq. Health Care Delivery Socialinsurance • PL 96-499, OBRA 1980, tightened cost controls, permitted lower paymeat rates fur skilled nursing faaiities, and liberalized care coverage. Other Related Developments • Provided for bienaial (rather than affiual) updating of Food Stamp program and restricoed eiigi'bality of stndents. • Refugee Health Program established. 230 T~O 0023315

1981 Income Maintenance Social Insurance • 1981 OBRA (PL 97-35) PliminatPd SS minimum benefit for future, phased out "snideflt° benefits, and otherwise modified benefits. Also temporarily authorized borrowing among the OASI, DI, and HI trust f=ds to help meet OASI benefiR cosis. • 1981 OBRA limited payment of unemployment insurance to ex- servicemea; raised trigger for extended UC program. • 1981 Railroad Act incRased taxes, provided borrowing authority from general reveaocs, and modified Tier II benefits. Public Assistance 1981 OBRA modified AFDC earnings disregard, barred payments if combined unit income exceeds 150 percent of need, required retrospective monthly accounting (for both SSI and AFDC), created optional Community Work Experience Program (CWEP). Private Sector • 1981 Economic Recovery Tax Act extended IRA to virtually all workers. (Limited again in 1986.) • IRS issued preiiminary regulations for 401(k)-type plans, which have since expanded significantly. • 1981 Report of President's Commission on Pension Policy recommended Minimum Universal Peasion (MLTP) system. • Health Care Delivery Social Insurance • PL 97-35, OBRA 1981, increased hospital and medical deductibles, tightened hospital ieimbnrsements, tightened reimbursements for renal dialysis; Medicare 2nd payer for ESRD for first 12 months; prospective payment for ESRD. 231 TIMN 0023316 -

Other Related Developments • OBRA and Food Siamp and Commodity D°astti'bution Amendments of 1981 made mumeaaus modifications to limit costs and improve enft=xment of Food Stamp program- • Qosme of Marine Hospitals (program begxa in 1798). • 1981 OBRA provided for collection of past-due child support debts by wittholdiag income tax refunds. • Report of (Gwirttman) National Commission on Social Security (March 1981) nxamme4ded coverage eatensions; gradnal increase in retiremeflt age; general revmne fnnding for one-half of hospital insurance; ezper, eaqtion with physician fee schedules and prospective payment for hospitals; 25-perce= increase in SSI paymeats and expaosion of Medicaid. 232 TIMN 0023317

1982 income Maintenance Socal Insurance • PL 97455 provided for continued payment of Social Security disability payments pending appeal of cessation decision, a temporary provision made permanant in 1990. Private Sector • PL 97-248, TEFRA, eiiminated disparate n+eatment of pension plans based on whether company was incorporated. Health Care Delivery Soaal Insnraace • PL 97-248, TEFRA, Federal employees covered for hospitalizations, effective 1/83; Medicare secondary for woriceas and spouses age 65 to 69 years; new limirations on hospital reimbursemenfi modified reimbursemeat for provider-based physicians; offered choice of competing health plaas-FL4iO option; coverage of hospice care; revised peer review (PRO) and utilization provisions. Other Related Developments 1982-1983 • Food Stamp legislation adjusted benefits, eligiin7ity, and enforcement provisions. • PL 97-377 provides DoD-fimded benefits in place of certain SS "sdident" benefits available before 1981 SS amendments. 233 TIMN 0023318

1983 Income Maintenance Soc;al Insaraiyae 4/83 - PL 98-21, SS Amendmeats of 1983, made major changes in coverage, benefits, and financing to restore financial soundness: eccet4ed coverage for SS and Hospital Insurance to Federal employees and nonprofit organization employees; prexhided, termination of State/1oca1 coverage; improved benefits for disabled and divor+ced and suiviving spovses; foaaaliy eiiminated gender-based distinctionsr increased retirement age to 67 over the first quarter of the 21st cemary; delayed COLAs by 6mandis; revised tax schedule; prnvided for taxing SS and RR Tier I benefits of 2righer-income beneficiaries; liberalized earnings tm and increased delayed mttnemeat credh: provided for gradual removal of SS trust funds from unified budget. 8J83 - PL 98-76, Ralroad Retirement Solvency Act of 1983, included mmerous benefit limitations and revenue increases somewhat simi7ar to those in SS. Public Assistance 4/83 - PL 98-21 increased basic SSI payment level by $20 ($30 for coaples). Private Sa.tor 1983 - The U.S. Supreme Court decided that employee retirement beaefit4 based on contributions made after August 1, 1983, must be calculated without regard to the sex of the employee. Health Care DeUvery Sociai Insurana 7/83 - P'L 98-21 provided prospective payment system for inpatient hospital services based on DRG system; all inpatient physician: services paid as hospital services. 234 TIMN 0023319

1980s - Growth in State concern as to persons 1ac3dng health fnstuance coverage costs of uncompensated care. Eager by 1985 (prior to Federal maadate in CPBRA (4/86), 23 States required cootinnatioa of heaith insurance coverage for unemployed worYers/Families. Other Related Developments 1/83 - Report of National Commission on SS Reform ("Greenspan Commission") recommends measures to restore financial soundness of SS system. Recommendazions substantially reflected in PL 98-21, above. 235 TIMN 0023320

1984 Income Maintenance Sociai Insurance 10/84 - PL 98-460, Social Security Disability Refozm Amendments of 1984, provided for use of a "medical improvement standard" to determine if a person is no longer disabled and otherwise changed adjudicative processes. Public Assistance 1984 - Chfld Support Enforcement Amendment (PL 98-378) expanded CSE program to non AFDC families; added enforcement procedures (e.g., State liens, wage garmstment requirements); strengd- ned audit penalty piavisions; further encouraged automated State systems; added research and demonstration provisions. 10/84 - PL 98-460, Modifications in SSI Disability Provisions similar to Title II, and extension of Temporary (1619) provisions for SSI payments to disabled beneficiaiies who woric. Private Sector 8/84 - PL 98-397, Retirement Equity Act of 1984, amended IRC and ERISA to improve protection for women-Joint and Survivor options, treamnent of pension rights at divorcx, etc. Also reduced minimum participation age from 25 to 21 years. Health Care Delivery Social Insnrance • 1984 DEFRA provided for medical premium increase, physiciaa payment freeze; ostabiished concept of participating physicians. Public Assistance • PL 98-378 required States to petition for Medical support in certain child support cases. • 1984 DEFRA expanded Medicaid coverage of pregnant women and young children. 236 TIMN 0023321

Private Sector 1984 - FASB "Statement 81" required employers to disclose current cost of retiree health and life insurance benefits. Other Related Developments 1984 - DEFRA discouraged use of voluntary employee beneficiary associations (VEBAs) and 105(h) tnust to finance retiree health plans by lfmiting VEBA deductible contribuuons, applying nondiscnimination tules, and counting invesmient earnings as income. 1984 - DEFRA authorized use of offset Federal income tax returns to collect Federal debts (other thaa SS)-e.8., SSI, Food Stamps, etc.. (SS debts included in 19901egislation.) 1984 - PL 98-525 provides new ("Montgomery") GI Bi'II for 3-year test period; made permanent in 1987 (PL 100-48); provided educational and training assistance for veterans. 2/84 - Report of (Bowen) Quadrennial Advisory Council on Social Security. This council focused largely on health issues; recommended catasmphic health insiuance coverage. 0 237 TIMN 0023322

1985-1987 Income Maintenance Sociai Insurance 6/86 - PL 99-335 provided for new Federal Employee Retirement System (FERS) coordinated with SS coverage. Public Assistance 11/86 - PL 99=643, Employment OpQorumities for Disabled Americans Act. made permanent the provisions of Section 1619: SSI cash benefits and Medicaid coverage for persons who work despite severe impaumenL Private Sector 1986 - Tax Reform Act of 1986 streagtbeaed ERISA vesting provisions; provided penalties for pre-rerirement lnmp sum withdrawals; limited deduction for IRA to persons not covered by. an employer retirement plan; and revised other tax provisions. 1987 OBRA included provisions to reduce excessive under- or over-funding of defned beaefit plaos. 1986 - Legisiation (PL 99-272 and PL 100-203) included PBGC refoims; higher 1987 premiums and gmater employer liability. 1986 - LTV Corporation's Chapter 11 bankruptcy reorgaaization presented major issues for PBGC (and for uratmeat of health benefits). Health Care Delivery Social Insurance 1986 - PL 99-272, COBRA 1985 (signed 4/7/86) and 1986 OBRA (PI 99-509) provided Medicare coverage for State and local employees hired after 1985; made Medicare secondary payer for all aged workers and spouses and for wor3dng disabled covered by employer plans; limited SMI premium to 25 percer of costs through 1988; extended existing fresze on Medicare 238 TIMN 0023323

reimbursements; adjusted payments to hospitals to reflect "disproportionate s6ane" of low-income patieats; increased physician payment rates; improved prospective payment system to account for severity of illne.ss; added various cost contmis. Also, limited Medicare home health benefits, increased coverage for mental health and certain other services. 1987 - PL 100-119, Balanced Budget and Deficit Emergency Control Reaffiimation Act, provided cost and reimbursement controls, including delay of physician payment update and decneases in scheduled hospital prospective payment rates. Public Assistance 10/86 - PL 99-509 made Medicaid coverage of disabled SSI recipients who work (1619b) a permanent provision and provided additional categorically needy option for persons age 65 or older or disabled with incomes and resources up to poverty leveL 1987 - OBRA (PL 100-203) allowed expansion of pzngrams for pregnant women and infants, coverage of child to age 7 (later mandated). Private Sector 1985 - Supreme Court, in Metrovolitan Life v. Massachusetts, upheld right of States to mandate employer-provided health benefits through insurance regulation fimction; found that ERISA "does not regulate the substantive content of weifare-benefit plans." 1986 - COBRA also required that employer-provided group health plans (including self-insuied plans) to provide option for continuation of coverage for workers and dependents in case of layoff or for survivors if worker dies. 1986 - PL 99-591, a continuing appropriation btil, included (in response to the LTV bankruptcy) a temporary prohibition on curtailing retiree health benefits in such cases untii May 1987. (See PL 100-334, 1988.) 239 TIMN 0023324

E-- 1986 - Tax Reform Act: general exclusion of connibution to employer-provided accident or health plan applied to coverage of former and current employees and dependents; to the extent health benefits are pre-funded, tax-favored statu:s of asset earaings available (401(h)) where health benefits are incidental to retirement benefits. Increased threshold for individuals deducting uiueimbursed health expenses to 7.5 percent of AOL Other Related Developments PL 99-198, Food Security Act of 1985, hberalized benefit and eligibility provisions; modified "disability" to cover persons receiving SSI, Railroad, Veterans, or other governmental disability payments; AFDC and SSI households made categoricaIIy eligible. 1985 - PL 99-177, Balanced Budget and Emergency Deficit Control Act of 1985 ('includes original Giamm-Rudman Hollings Amendment), set a schedule of dediaiag Federal deficits and pmvided for enfoncement through se,quesnarion; excluded SS benefits from sequester but inciuded income and outgo in budget totals. Also excluded from sequesfler were benefits under SSI, AFDC, WIC, Medicaid, Food Stamps, Railroad Retirement Tier I, Unemployment and Veterans compensation and peasions. Special provisioas governed the application of sequester in the Medicare program. 1986 - Age Discrimination in Employment bars mandatory retirement age (previously age 70). 1986 - McIZinaey Homeless Assistance Act (PL 100-77) liberalized Food Stamps for homeless families and provided far outreach to homeless. 1986 - PL 99-576, Veterans Benefits Improvement and Health Care Authorization Act of 1986. 11/86 - PL 99-660, State Comprehensive Mental Health Services Plan Act 240 TIMN 0023325

1987 - Gramm-Rudmaa-Hollings (PL 99-177) amended (by P.L. 100- 119) to revise deficit targets and modify sequester provisions pr8viously found uaconstitutionaL As under PL 99-177 (1985), various benefit payments continued exempt from sequester. Railroad Tier II benefits were also exempted under 1986 OBRA. 241 TIMN 0023326

1988-1989 Income Maintenance Socaal Insurance 1985-1989 - SS legislation consisted of adjusaments in coverage and benefits and technical modifications. - RR ]egislauon in this period represented. further efforts to deal with solvency issue. Public Assistance 10/88 - PL 100-485, Family Support Act, provided major AFDC refomns; establisbed Job Opporamities and Basic Skills Program (replacing WIN and related programs); required States to have unemployed-parent program by 10/90. Health Care Deiivery Social Insurance 7/88 - PL 100-360, Medicare Catastrophic Coverage Act (MCCA) (to be effective 1/1/g0); repealed in 1989. 12/89 - PL 101-234, repealed Medicare Catastrophic Coverage Act of 1988. 1989 - PL 101-239, OBRA nvised physician payment system: Fee Schedule to phase in over 5 years beginning 1/1192; provided for effective Medicare coverage (based on current premiums) for persons no longer getting SS disability benefits because of cutreat work activity. Public Assistance 7/88 - PL 100-360, non-repealed provisions of MCCH mandated coverage of women and infams, tequined States to "buy in," i.e., pay Medicare premiums and cosc sharing amounts for Qualified Medicare Beneficiaries (Q1V>Bs). 242 TIMN 0023327

10/88 - PL 100-485 provided for Medicaid to continue during 1-year transitional pesiod when AFDC ends. Also, States required to cover AFDC-UP families. Private Sector 1988 - Retiree Benefit Baniauptcy Protection Act (PL 100-334) relates to treatment of retim.e health benefits in bankruptcy cases. Other Related Developments 1988 - A speaally mandated Quadreanial Advisory Counoil, the Disability Advisory Cwucil, submitted report which emphasized incentives and rehabilitation. - PL 100-435, Huager Prevention Act of 1988, raised ma~cimum Food Stamp allotments and based allotments on Tbrifly Food Plan. - PL 100-7131egislation further strengthened Indiaa Health Services. . 243 T'MN 0023328

1990-1991 Income Maintenance Social Insurana 11/90 - PL 101-508, OBRA, included exteasion of SS coverage to StatNlocal employees not under a retirement plan; provided for improvements in service to public; and added SS to the Federal programs that may recover debts by income tax refund offset. Also included Budget Eaforcemeat provisions; exciuded SS Trust Funds frvm unified budget and provided special points of order and financing requirements for social security kgislatioa Health Care Delivery Public Assistance 1990 - OBRA (PL 101-508) provided many changes in Medicaid including required Cost Sharing Buy-in for Aged Medicare Beneficiaries up to 120 percent of poverty by 1975 and required coverage to age 19 of childna bom after 9/83 up to 100 percent of poverty. Private Sector 1990 - Finaaciai Accounting Standards Board issued FAS-106 requiring that for fiscal years beginning after 1M companies' aimual reports must iefleci total accrued liabilities for retiree health benefit plans. Other Related Developments 7I'90 - PL 101-336, Americans with Disabilities Act. 1990 - PL 101-508 included new Budget Enforcement Act partially suspending GRH provisions by providing new budget targets mini-sequestets by sector (defense, domestic or international) and providing pay-as-you-go requirements for entitlement legisiation. 244 TIMN 0023329

1991 - Sratiuory Commis.tion on RR retirement xqorted to Congress regarding solutions to solvency problems. 245 TIMN 0023330

Appendix B: Recommendation Specifications Improving Access to Care 247 TIMN 0023331

A PROPOSAL TO ASSIST STATE DEPARTMENTS OF HEALTH TO ESTABLISH SCHOOL-BASED HEALTH CLINICS AND OFFER MAJOR-MEDICAL INSURANCE Background School-Based Ciinics School based clinics in elementary schools have proven to be successful in several sites across the couacry. New York has an extensive and successful system, with about 90 elementary school-based clinics currently in operation. Earollment is very high: 70 to 90 percent of saudeats, with higher enrollment between 90 and 100 percent in one rural program. California has one operational in San Jose, and another is scheduled to open shortly. Program activities include complete health histories, physical examinarions, tneamient for acute and episodic M~ness, counseliag, immunizations, laboratory tests, nutrition and psychosocial services, and health education and coiroseling. Tbe use of primary and pr+cventive health services in these programs has decreased inappropriate utilization of hospital emergency rooms and improved the health staws of school age children, leading to improved school atteadaace. In many pans of the Nation, the nnmber of pre-school immunizarions has declined, resulting in a substantial rise in the incidence of childhood infectious diseases. In Florida, for example, the number of measles cases increased,in 1990 by 290 percent. School-based clinics could be an instrument to combat this trend. 249 T'MN 0023332

Ma jor-Medicallnsurance Over 33 million Americans-15S perceat of the aonelderiy populatioa-are now without any form of health insuiaace for ail or part of each year. Of the 25 million vminsuned adults in this group, 70 to 75 percent are working or seeking work and ane employed at least part ume during the year many othea am dependents of those who woric. But the majority of these AmericaAs are in families with annnai incomes below 5I0,000 and theizfon caanot afford health insurance unless it is partly or wholly subsidized by their employers. Often, however. employers do not contribnte to employee health plans. Small companins particulady, especially those of marginal profitability, are usually unwilling or unable to offer health insurance as an employee benefit. The Health Insurance Association of America estimates that health insurance is offered by only one in thrx firms with fewer than 10 employees. In the absence of health insurance coverage offered by ltheir employers, low-income employees cannot readily pay major health can bills. This has a serious conseqixncx for the health care of childiea ia low-income families. Zhe school system is an ideal locus for assisting parents to meet the major health needs of cbildnn through the purchase of economical group policies of major medical in.tivrance negotiated by the sciml system. 250 TININ 0023333

The Proposal In General The Council recommends the establishmeat of a federally assisted, nationwide system of health clinics located primarily in or adjacent to elementary schools of the Statie. State departments of health would operate the clinics--directly or tbrotigh arrangements with health care pnoviders-so as to offer wider and more regular access to primary health and denml care, including rourine and preventive services, for all child= of elementary school age and for pR-schoolers.l Federal-State Program A"Scimol-Based Health Services and Referrat Aci" would be proposed as a Federal granL program, ad**+inistemd by the Secretary of Health and Human Services, to reimburse States, in the marmer described below, for their administra>7ve expenditures in establishing and operating health clinics in public elementary schools of the State or in locations reasonably near public or private elementary schools within the State, and to share with the States the cost of providing clinic services to children from low-income families. 'Apfxaounateiy 122 mHon dWen younger tMan 17 have neither WMe nor pub6c heaffh iesulanee at some point during the year. Na6onad Heaah Po6ry Fcnun Intergovemmental Health PoCwy Projecx, 'The States and the Unieured: Sbwly but Sureiy, W6ng the GaQs,' (Od.199o) p.1. Presumabiy, between 9 and 10 md6on are pre-schod and elementar)r schod ch8dren and wou1d be eGgibie for services under the pro9M• 251 TIMN 0023334

Services Provided A clinic established under the Act would be required to make available to cWnn of elementary school age and children of pre-school age the following sezvices: • preveaave health care services, including ixamuaizarions, periodic wnll-cbn7d visits, and heariag and vision tesang. This would irncl.ude in school mass immuaizanions and mass scrxaings; • primarp health Care: and • deatal pre, Eligibilifiy for Services Any child of pse-school or elemeataiy school age would be eligible to receive services at a clinic. Provision of Services Servicxs may be provided by health cam practitione:s employed by the state DeQazoment of Healffi or engaged ander =nraoi. Insofar as is practicable, considering the locatioa of the clinic and the patieat populatfon, the Depaztmeat would endeavor to provide a physician who would be on duty at the clinic for all or part of each school day or altemate day, depending upon the nnmber of cln7diea to be served. 252 TIMN 0023335

Sources of Financing Program services would be financed from multiple sources. Medeend digbks. Medicaid (including the Early Prevention, Scnening. Detearon, and Tnatmeat program) would pay for services to a child from a Medicaid-eligible fam3ly. (hiidren ftam lam6hCOme, non-Ytedicafd-dts'ble fimeTuea In the case of services to other cbddrea, from families with incomes up to 185 pement of the poverty line, payment would be on a sliding scale. But other sources of fimding could include dae Mammal and Cild Health Block Grant and the State general medical assistance program. ONur dnldrea. For clnldrzn from families not entitled to public or medical assistancx, payment for services will be made by their families or their insurers on such basis as the State ('m the case of a Staie-operated school) or school district may provide. As in the school lutxh program, a participant in the program would not be aware of the source of payment for other pardcipants.2 qo avoid the sfigma that may apadt to a c6roc pnaridug services edusiveiy or largely to patierqs ftom tamilieson pub6c aseilance, every eftort siauid be madeto promate these c6dcs as iufl sewice fadlifies--I0Ce physiaarW ottres--that exost to provide convenient heaAh care services for atl chidren. Tha Stato would be ancaraged to acaept aedit card paymerqs and pecsonai checies m payment for services in order to bster the cancept that these dnics are not sunply faaEities for the poor. 253 TIMN 0023336

Payment for Contract Services at Prevaiiing Rates Contract payment for health services would be at the prevailing rate in the community for services of the type that the clinic provides. Location of Clinic It is the objective of the program to encourage the establishment of a school- based clinic easily accessible to every child of elementary school age. Pabiic elumemWy s¢hooia Insofar as is practicable, the Depaimnent would .be required to esrablistt a clinic on-site in existiag public elementary school Spam- Other 1oc9tiama Where existing public elementary school space is inadequate and it is necessary to establish a clinic to make health care services readily accessible to snndeats at that school, the Department may establish the clinic in commercial or other space. Pri.ate sdwok Clinics must be established to provide services to children at=ding private elementary schools. Administration Mmagammk of crmie. Tle Departmeat of Health would operate each clinic directly or though aaangements with providers. 'The proposal would requim the Departmeat to make the fullest pracvcable use of local physicians and raources. Matchm; ralt The Federal Government would reimburse the States for their entire cost to administer the ciinics and would provide $300 million anwaily to subsidize a sliding scale of fee payments for health care in the clinics of non-Medicaid eligibles from families with incomes up to 254 TIMN 0023337

185 percent of the poverty line. The State would match the subsidy at a ratio of 25:75 (i.e., the State would pay 25 cents of each dollar). Funds would be allocated among the States on the basis of elementary school-age population in each State, as estimated in advance of each program year by the Bureau of the Census. Paymmt of fimda The State would administer the fiinds through the Depanmeat Use of program fimda 'Ihe Deparmnent could use program funds for the following activiries: Banoddbg and >enoradou. Withia specified limits, remodeiing or renovating existing public school facilities or other space so as to create a site suitable for the provision of health care services. Esmb~sbs-aat md kqwctioA. Deparmient adminisuative expenses requined co establish and ngdarly inspect the clinics. Eqaoeem Purchase or rental of medical equipment deemed reasonably necessary to provide the health care services described in the "Services Provided" section above. Pwmd=gL Necessary furnishings of the ciinic, exclusive of medical equipmeat. School-Based Major Medical Insurance A.aflab7idy_ The program would also assist the States, through their school disaicts, to offer a volnatary supplemental low-cost insurancx pioduct. limited to paying the costs of major medical expenses, to all pre-school children and all elementary and secondary school children registered at schools of the State. The insurance would remain available until a 255 TIMN 0023338

participaat attained age 22, regardless of whether the participant remained in schooL Fedrr9i participation in =bddy The Federal Government would reimburse the Stanes, within an anaual aggregate Federal program cost of $500 million, for 75 percent of their expenses in providing subsidized insnraace to students from families with family incomes up to 185 of poverry. A participating Staoe would be subject to Federal limitations on the coverage that such insurancx could offer. Paymeat of Stme sdudoisuative rqroses. A Sr,ate that parricipated ia the proposed school-based cliaics progiam would also be reimbursed, under both programs, for its annual progiam adminisorative expenses. Use of child support miorcemeft system. The (:hi1d support enforcemeni provisioas of the Social Security Act would be amended to clarify the authority of the courts to include, in a child support onder, a requirement for the payment of the premiums to enable a child to enroIl in the insurance MOM= Administrative Expenses In the case of a State that participated in both programs-sc.hool-based clinics and major-medical insurance-the Federal Government would pay the cost of State administrative expenses. 256 TIMN 0023339

INCREASING ACCESS TO PRIMARY CARE The Access of Underserved Population Groups to Health Care Five population groups in our society ars readily identified as sharing a high need for primary medical care coupled with relatively low access to it. Migrant Workers Because of their lifestyle, language, culture, and economic staans, most migrant and seasonal famnworkers and their families have exu+emeiy limited access to primary health cane. Some one-half mi7Tion of them do receive health care at migraat health centers, but the number of physicians at these ceniers does not meet the existing need. High-Risk, Low-inconre, Pregnant Women and Infants Infant mortality in the United State.s continues to be a problem. At 9.1 deaths per 1,000 births, the U.S. infant mortality rate is higher than that of 23 other indnsnialized countiies. The Health Resources and Services Adminisnation (HRSA) of the Public Health Service, in its FY 1991 budget justification, aaoouaced the need for increasing services at community and migrant health centers to provide case-managed services to 75,000 high risk pregnant women.; This need still ezdsrs. 'OeQautments of 1.abm Heaith and Human Services, Education, and Reiated Agencies Apprqxiatiam for 1991, HewtV before a Subcammittee of the Commdtee on ApprcpriaUons, House of Representatives, Patt 3, p. 258. 257 TIMN 0023340

C The Uninsured Poor Many people are wiihout access to adequate health care bec;ause they lack insurance, live ia communities without sufficieat health resources, have health concerns not met by uaditional medical care, or face other barriers to care. HRSA supports approAmately 550 community health centers, which serve over 5 million of these people. Nevertheiess, the number of physicians at these centers is generally rccognized to be inadeqnate. The Nomeless Physicians are needed to wosic in the apprvmmazely 92 "health care for the homeless" programs, which support a broad rmp of primary care, alcoho2 and substance abuse, and mental health services to 335,000 homeless individuals, inciuding runaway adolescents, homeless pieegoaat women and childrea, and individuals with chronic substance abuse and mental health problems. 258 TIMN 0023341

The Underserved, Low-Income, Rural Population From 1975 through 1988, the number of active physicians engaged in primary care has increased dramaticaIIy • Specialty 1975 1988 Percent Percent Number of Number Number of Number Itxxease in Suppy Increase in Raje Adve pet Active per Physiaans 100,000 Physicians 100,000 Pop.dation PopMM General Practice! 64,655 30.3 87,749 36.1 35.7 19.1 Famiy PtadeJDO Icrtarrat Meckine 48,012 22.5 68,584 282 42.8 25.3 Pediatrics 20,002 9.4 36,399 15.0 82.0 59.6 ObsDetrics and 20,307 9.5 30,986 12.7 52.6 33.7 Gyneccoqy Despite this increase, some 360,000 people live in the 221 counties that have no physicians whatsoever. and substantially la:ger numbers live in counties c,ontaming only one or two physicians. Typically, the per capita income in ihese counties is low. For example, in almost 90 percent of counties having no physicians, per capita income is below the national average. Between 1975 and 1988, the last year for which fiim data are available, thete was no increase in the number of counties (2,928) containing physicians (or DOs) in general or family pracarcx. In short, counties with no physicians 'Fgjes on the numbers and distrbAion of ptrysicians among U.S. coauqies have been obtained from the Bureau of Heaft Professiors of the Headh Resources and Servicas Admn'stration. United States PubGa Haakh Service. 259 TIMN 0023342

seem desdned, other things being equal, to remain counties with no physicians. In reporting the FY 1991 Labor-HIiS-Education and Related Agencies Appropriations Act, the House Appropriations Committee said: The Committee is concerned that a severe shortage of physicians and other health care providers exists in medically underserved nual and urban areas. More than 12 million Americans live in areas that lack primary health <az providers. H. Rept. 101-591, p. 28. . The problem is aggravaud by the fact that many of the counties that have fewer than three physicians are not e.speciaIIy hospitable to the establishment of a new medical pracrice. The following table illustrates this, suggesting that in many medically underserved areas, there is little prospect of establishing a self-supporting medical practice. Percentage of Counties, &ouped by Nuriber of Physidans, Having No 8usinesses of Selecaed Types Type of Business Counry Group N No P hysiaan 1 PttysiCian 1 2 Phystidans More Than 3 Physticzans . Food Store 10 7 0 0 Eating EsWsineent 14 12 0 0 GasoGne Stanon 16 12 5 0 Bank 20 2 1 0 Hardrrere Store 41 13 6 1 LaWW 49 22 11 2 Dnigstore 58 18 9 1 Variety Store 53 38 26 2 260 TIMN 0023343

The National Health Service Corps The National Health Service Corps (NHSC), which encourages the diffusion of primary care physicians as well as dentists and other health care professionals into medically underserved areas (known as "Health Professional Shortage Areas") has not effectively fulfilled this mission in recent years. In 1982, NHSC suspended the award of new scholarships for medical students who agreed to practice in these areas. In the years intervening prior to FY 1991, the administration and the Department of Health and Hnman Servicxs attempted to phase out NHSC activities. As a result, in order to caay out its stawtory mandate during these years, the Corps was forced to spread decreasing resources over a multitude of health caiz specialdes. Nevertheless, in 1990 the Corps had in place 1,751 health professionals to provide services to areas that cannot otherwise recruit or retain health pracxitioneis. Both Congress and the Department have now moved to reverse the NHSC phaseout. The loan and scholarship prograans, which received only $11.4 miIIion for FY 1990, were increased to $48.8 million for FY 1991 and $58.8 million for FY 1992; funds for field placement were raised from $39.3 million in FY 1990 to $42.3 million for FY 1991 and 1992. Advisory Council Recommendation The Council's proposal to assist State depariments of health to establish school-based health clinics will result in maldng primary health care services available to between 9 and 10 million elementary school children who aiz in families that are without health insurance for all or some part of the year. The Council recommends tbat funds be provided to serve a further 2.1 million unincn>rd pgrsonL 261 TIMN 0023344

Community and Migrant Health Centers Specifically, $250 million in new Federal funding should be made available to establish 250 new community and migrant health centers to be located in underserved areas or in areas with high r- c- n- - atrations of underserved target populations. An additional $290 million should thea be provided in annnal operatingfunds R.E.A.C.H. Demonstration The Secretary of Health and Human Services would be authorized to establisii, as a demonsttzion prmjecx, 20 centers to provide rural emergency access for community health (R.EAC.HL centers). These could be free- staadiag cemeis, could be consolidated with existing community or migrant health centers currently serving these areas, or could be incorporated in the design of new community or migrant health centers. National Health Service Corps Tbe Council strongly recommends legisiation be eoacted to permit the Secretary of Health and Human Services and the Assistant Secretary for Health to revise the priorities of the National Health Service Corps so as to focus more auencion on demonstrated unmet need. Specifically, NHSC sbould be authorized to increase the access of target populations to primary medical caaze, that is, the urban and ianer-city poor, especially i~s and childr= hi&-E& pmgnant, women: migrant workers and their families; drug and alcohol abusers; and the homeless. The NHSC should be authorized to encourage primary care physicians to serve in community and migrant health centers or in related health programs, or in underserved rural areas and offer them incentives for efficient private 262 TIMN 0023345

practice in the areas in which they locate. The Council recommends an increase of $100 million for the budget of the NHSC to fund these activities. The Secretary should be authorized to direct the Corps to take two measures that the Council believes will be especially productive in accomplishing these objectives: • In awarding National Health Service Corps scholarships, the Corps should, more actively than at present, seek to recruit individuals fram the medically underserved areas in which they will be asked to serve upon graduation. • To encourage NHSC graduates to remain in medically undesserved areas after they have discharged their service obligation to the Corps, the Corps should develop the means of eacouragiag them to join large medical groups, hospitals, and health care systems operating in, or witlrin a reasonable distance fromm those areas. To facilitate imglemearation, the Advisory Council also recommends that the Corps be required to prepare a writtea plan describing the actions that it will take so as to refocus its activities as described. The plan should contain measures by which its success can be measured objectively and, after approval by the Secretary, should be published in the Federal Register. 263 TIMN 0023346

A PROPOSAL TO REDUCE INFANT MORTALITY The Problem of Infant Mortality Each year in the United States nearly 40,000 infants die before their first birthday s The United States infant mortality rate is 9.1 deaths per 1,000 and ranks 24th among the rates of indvstrialized nations. Tiu infaat mortality rate among blaclcs remains more tbaa twice as high as that for whites: 17.6 deaths per 1,0001ive births compared with 8.6 deatbs.6 As the President's FY 1992 budget observed: Infant morrality is a crirical probiem, particularly in many large urban areas in the United States. Eariy and regular prenatal care reduces infant mortality, prematurity, and low birth weight. The major determinant of infant mortality is low birth weight The less a baby weighs at birtb, the greater the risk of infant death. For example, a baby who weighs under 51I4 pounds is 40 times more h1ce1y to die during the first month of life t3.an an infant at or over that weight Nationally, about °Tha bwest 10 oaaArias waaa Japan (5.2), Finlaod (5.8), Sweden (5.9), SMdtzedand (6.8), 7aiwan (6.9), the Natlmiands (7.7), Canada (7.9), Franca (8.0), Doertrark (8A), Ireland (8.7), Spain (9.0), a united Gormany (8.3 to 94 ta lkriisd K'rgdom (9.5), Belgium (9.7), and Austraiia (9.8). `71w Mnt doath ralo in t#a Un*ed Slatas faM b 9.7 in 1989. The dtop to 9.1 in 1990 vras a dedirw of 6 pacant irom the 1989 figuna, compared wih an annual dedine withn the United States during the last derade oi 2.5 penceN. Seo The Washingdon Post Sunday, Aprd 7. 1991, page A12, reportinq infonna4on that the Departreart dHaaith and Human Servioes was preparing to announce at a press conierenoe. 265 TIMN 0023347

7 percent of all live births are low-birth-weight babies, whereas 60 percent of infant deaths are low-birth-weigbt infants.' Nor do the mortality figures tell t6e whole story. Another 100,000 infants annnally suffer disabiIities, such as blindne.ss, deafiness, and mental defects, associated with low birth weighL Low-birth weightt infazus are three times more likely to have nrurodevelopmental handicaps. such as cerebral palsy and seizure disonders, and are more susceptible to respiratory conditions $ Low-birth weight infants often require lengthy hospitalization, and almost one-fifth of those hospitalized are re-hospitalized during the first year. To fight infam mortality and morbidity, the National Commission to Prevent Itd= Mortality recommended that the heaith and well-being of mothers and infaats be made a national priority, with universal access provided to eady materaity and pediatric care for all mothers and iafants.' It is pointed out that: Prenatal care costs as little as $500 per pregnant womaa. Neonatal intensive care costs for higli risk babies born to mothers who do not get pienatal care can reach as high as $500,000. 0 '*Od3 $WOilOYfC Ueflgdlef" NWwd EOtI81o IIimYe kftt F'1ed1,' Oft of the AwaW Seaamry d HenMh, Dap~ of HeaNh and Hwnae Services (Nov. 1840). 'Ttw Seaafary d iiealh aed FAman Savices, Dr. Louis Su6van, in an inlenriew an the Mfti/lehar raw, Frour of apd 8,1991. aftAed tha most mowrt rsducsion m kWt mortaRy largeiy to imprcved therapy ta raapraloy dsme synctr«me. `Oeath 8efae Liie: The Tragedy of hfiant Mortafdy.' The NatioW Commwon to Prevent Infant Martaliy (Aog.1988), p.12 To the sana dect: ?roubling Tmnds: The Heaith of America's Next Cenetation,' The Nagaial Cmnission to Prevent irtant Morta6ly (Feb. 90), p. 39. 266 TIMN 0023348

The Commission observes: The importance of early pienatal and pediatric care in reducing infant mortality and preventing disability is well substantiated. Comprehensive pienatai and pediatric care, received early and often, could potentially reduce this country's infant mortality rate by at least halLIo Despite this, a 1987 study by ft Alan Guttmacher Insrituu concluded that one of every th= pregnant women gets insufficient prenatal care.il F,ach day in America, 3,548 infanis are born to mothers who received less than adequate prenatal care; 719 infamts aie born with low birth weigh>; and 105 infant~ die. The National Ceaoer for Health Statistics reported that 70,327 pregnant women in the United States in 1986 received no prenatal cane whatever, a larger peccentage than in 1980.2 The Current Federal Effort The Federal Government currently devotes substantial resources to reducing infant mortality. Medicaid In FY 1990 Medicaid progiams assisted about 2.2 mdIaon pregnant women and cbi7dren. Federal aad State Medicaid expenditures for pregnant women and m~ts w= about $5.4 billion, inciuding a $3.1 billion Federal sham F.ffxrive April 1, 1990, States were required to extend eligibility to pregnant women and childmn up to age 6 in families with incomes at or below 133 percent of the Federal poverty level. Nineteen States have also exercised 1°Hane V'WAig: Openieg Ooas for Amerir,~s Pregnard Women and Ct*ren,• 7he National Commission to Prevent WW Mortafty (Juiy 1989). P. 6. „Alan Guqmacher Insarlute, '8lessed Events and the Bottom Line: Fioarxang Mazemdy Care in the Unked States' (1987). 'Natmnal Center fot HeeMh S1Mocs, 'Advance Aepat of Fina! MonQdy Sta2atis.1986' (1988). 267 TIMN 0023349

the option to extend eligibility for women and infants in families with incomes up to 185 percent of poverty." Under the Omnibus Budget Recanciliation Act of 1990, States must cantinue eligibility for prepant women until the end of the second fnll month after prapancy, and an infant born to a Medicaid-eligible woman remains eligible (so long as the motber remains eligible) untd its first birdiday.u Community and Migrant Health Centers As part of its support for 525 community and migraat health centers across the nation, the Health Resources and Services AAooinisaation of the Public Health Service expends an estimated $195 mmion in support of services to between 180,000 and 210,0001ow incrome pregnant women and to infants. OitLer Federal and State funds inclnde $31.6 mOlion, for enhanced prenatal care to especially vulnerable populations r.e:, the Comprehensive Perinatal Cate Program, which affects services for about 130,000 women, including about one-ihird of all pregnant women in the United States under the age of u).15 Maternal and Child Health (MCH) Block Grant The MCH program awarded some $587 nuMon to States in FY 1991 for preventive aad primary care services to motheis and chddren, health screenin8. immnmzations, and rehabilitation services for children with special needs. Moit than one-half million women azmually receive prenatal care partly subsidized by these fnads. "G>a. at nota 11 , p.13. "Section 4603 of the Oimbua 8udget Re=aiation Act of 1990, IMtddh amends §1902(e) of the Saaai Seautr Ad. 'sOp. cit, n.11, pp.11-15. 268 TIMN 0023350

The Special Supplemental Food Program foir Women, infants, and Children (WIC) The WIC program awards formula grants to States for no-cost seippiemenral foods and murition education for pregnant and post paraim womea, infants, and children identified as at risk of malautridon. In FY 1991, the program expended about $2.35 billion, assisting about 4y4 million people each month. Numerous smaller programs supplement these four major progrdms. They include: • Indiaa Health Service care provided to American Indians and Alasica Natives living on or near a reservation. • Assistance to the States by the Centers for Disease Control in surveillance and epidemiology nelated to infazu health. • Research conducted by the National Institute of Child Health and Human Deveiopnneat as weIl as other Instiwies of the National Institutes of Health. Services supported by the Alcohol, Drug Abuse, and Mental Health Adminisiration for women who abuse drugs or alcohoL • The Commodity Supplemental Food Progam, which provides food donations, ca®maditiess, and gzants to States for administiation of programs to improve the health and nutritional status of low-income piegnani, post parwm, and breast feedfng women, infants. and children. • The Food Stamp Program. • Selected activities of the ACTION agency and VISTA. 269 TIMN 0023351

Barriers to Reducing Infant Mortality and Morbidity Criteria for Effectiveness Both the number and cost of Federal activities intended, directly or indirectly, to reduce infant mortality and improve or sustain the health of pregnant women and of mothers and their infant children, am substanrial. The President's FY 1992 budget asks for more than $8 billion to support programs to reduce infant mortality, an increase of 9.2 percent ($676 million) over the preceding fiscal year.16 Nevertheiess, in order for any of these .programs to be effective, it must fnlfill three conditions: • It must ensure that a pregnant woman or the mother of an infant learns of the program's existence and value. • It must then offer her reasonable access to its services. • Having provided that access, it must deliver what it promises. Failure of Programs to Meet Criteria Many of the cited programs fan7. in some degree, on one or more of these counts. For example, a recent study by the Urban Institute estimated that only about 60 perc®t of pregnant women and infams eligible for Medicaid were aGually ®roIled in the progcam: 655,000 pregnant women and 717,000 infams.l7 Young, first-time mothers are oRea unaware of available programs. And social and cultural factors may leave women in ignorance of the vwalue of prenatal and we11-baby care. "Budget of the Unded Statas Govertmerri. Fssd Year 199Z, Part Two, p. 27. "Cked in the Oa1a SLVpiamard. aR dt n.11, p. 22. 270 TIMN 0023352

Improved infonnational outreach will not itself solve tqe problem of inadequate health carc for pregnant women and infants. As the President of the American Public Health Association observed in 1987: We have been plagued too ofbea by entttlement without availability, as illustrated by providers who refuse Medicaid patieats, and by availability without entitlemeat, as illustrated by hospitals that turn away the twinsured.l= The Problem of Access Two of the more significaat baaiers to access are the following: • Lack of transportation and child care to enable women to make and keep prenatal care appointmeuts. • Formidable paperwork requirements and the qua, 'fying process for public programs.19 The Problem of Availability More significant than these barriess to access is the unavailability of the care to which public programs purport to entitle these women. Although there are many publicly funded health c;eaters, they are generally understaffed. At most health clinics and centers, women must wait between 2 and 4 weeks for a fisst agpointionent: at one-fifth of them, the wait is longer than 4 weeks. Also, many of these clinics and centers are uaable to offer a full range of pregnancy-related care because of a lack of physicians. "RA Roemer, The F#t to Heaqh C,are-Gains and Gaps. ' Ameriran Jowna( of Pabic Hea/th, March 1988, Val. 78.. No. 3, p. 242 '•A 1988 study, dted in the Data SuppiemeM at p. 26, 'iound tlrat Mediraid appiiadions average 14 pages in length and often requine e9ensive documentarion, such as beth certifirates, pay atubs, and bank account nwnbecs.' 271 TIMN 0023353

The laclc of pnnatal and obsunical care providers is a serious problem in many parts of the country, especially in rural and irrner-c~ areas. In part, the sbortage is caused by tbe high cost of maipracrice insurance and the risk of liabdlity wbict has caused many private physicians to abandon olstenica .... In many States the problem is compounded by low Medicaid reimbursemmt =es.m '!2p. I n. 11, p. 23. 272 .,,MN 0023354

The Proposal An Approach to Reducing Infant Mortality The previous sections of this paper illustrate that, although many pnograms seek to reduce znfani mortality, its incidencx is bound up in societal problems not readiiy solved. The challenge to government is not to devise further programs, but to use more effectively those that exist Accordingly, the proposal that follows seeks to sharpen institutional weapons already deployed. A Proposal In ouUine As part of a renewed aitaclc on infant mortality, legislation should be proposed to: • Integrate the WIC program with the MCH Block Grant program. This would include a reassessment of all current MCH program efforts to reorient them to meet today's MCH needs. The restructured programs would be administered by the Department of Health and Human Services rather than the Department of Agriculture but would contmue to support activities now conducted under either program; • Require States to furnish locaaons at which an eligible woman could establisti her ®tiLleonent, or that of her infant, both to MCHIWIC benefits and to Medicaid; • Introduce a simplified application form for MCH/WIGMedicaid eligibility and offer the applicant presumptive eligibility for all progran1s; 273 TIMN 0023355

• Use publicly fina>ued providets for "one-stap shopping," i.e., a singie loCanoII both for dCtermining eligibility for all programs pertinent to infant mortality and for providing health saviccs:u • Support outreach activities to publicize the existence of the program to potential eligililes and make program fimds availahle for transportation and child caza to enable mothers to meet health care appointme,nts; • Establish a demonstration program of incentves to encourage women to obtain prenatal and well-baby cam and • Support an. extensive program of home visits to assess a family's health aad social needs, encourage its use of prenatal care and well- 21n 'CoGabora6w Stratagies to Imuow Steta & LacW Pub6c Health Systema,• Nationat Academy for State Meagh Pairy (IW,g.1s90), a repw pcapared under contract wilh the Healh Resaeces and services Aftaboae af the lJrotad Statos PifAc Health 8em, the auihom in discunng the eatabktment of irtegtatod haaih cate deirwy syaNma ievaiviq pabiciy finanoed pro+ridera, such aa the Camrtaa* and Mipent Neailh Ceims, bcal h.ab depadmenls, and pubia hosp~la, racaiueend as foAows: Commumty HsaAh CerMaa can srrya as the fmfipin in 'awstop shopping' projecb that MrownGne pmoodures a1 1 a~i for aa; ang sarioe axwas (a.g., oo-site Madicaid ekpbky detenniratioas) and coondvticg resoaes to awn apoaaa. In South Catoina, for exaRtpie, Beaufat,{aspor Cartqxehensive Hea1h Servicas sta~s the locai WIC proqram and, under cararaetual agreements wdh stade and locaW heaith deparUnents, serm ag tbe principai provider of perinatal, MCH, WIC, EPSDT, and immun¢etion seavices for ds br,a*. On a wider qeogMhic sple, the Prnnary Health Care Consoetum of Dade C=nty (Miami, Flaida) is an orgartized nelwalc hvoduing ag providera of pub4dy financed care. (At p. 15.1 274 ,rIMN 0023356

child checkups, and assist it in obtaining health, social, and related services available in the commumty n Additional Program Features Use of mocOwd biock gt'ant madmaism . The integtated MCH/WIC prograan, like the msting MCH program, would be structured as a block grant to the Statrs, conti+ollable by annual appropriarions action. It would, nevertheless, require participating States to meet program objectives described in the section "A Proposal in Outline." Avaftb7idy of pragnm bmedtL Food and services under the program would be available to ali pregaaat women and 'mfants, negardless of income, although the State would be allowed to charge for food or services provided to individuals other than low-income mothers or childmn. In such case, the State would be required to scale those charges in proportion to the income, resources, and family size of the (non4ow-income) individual assisted. Suppiemeeutai Vants ior bigft-rist popWations. The program would reserve a proportion of total grant funds for grants, by the Secretary, to States, coutmes, cities, and other political subdivisions of the States for innovative approaches to eNhancing the program for high-risk populations. The Secretary would be required to develop a system of prlorities for awarding such grants, with prefeience to be given to assisting children with % 'Home Yating: Oponing Ooas for America's Pregnant VYanen and Cfuldren; ap. at n. 14, tfw National Connmission to Ptevent Mant Mcttaiiy e>pli r Consater4ly, the main fuietfort of harw visiling 's to assess a famiiy's heaalthh and soael needs and to provide tte Grdc between a Wnay's ftor» door arid the assortment of heaAh, sodal, and'other' services ttfat mosl in a cmmmondy to meet ttaeir needs. fiome visitas have traditionalyr been seen by famifies as the 'anbudsman'-4e Exidge between the system and the family's front door. [At p. 41 The Cammission also +rukains ft home~risd'ug efforts can increase use of prenatal care, discourage unhealthy behaviots, inaease the use of weU-child dvdaups, improve parenting sia7ls, and reduce ft number of emergenc.y mom visits for routine health care problems. [At p. 71 275 TIMN 0023357

special health care needs, chronically underserved populations, populations within which infant mortality is significantly highe national average. Natiioeai Health Svvice aorps priority. The Public Health S; would be amended to establish a priority for the assignment of Health Sen+ice Corps primary care physicians to areas (whether "underserved") that are shown to suffer anmial rates of infant m excxding, by 50 percent or more, tlae average aaarual rate of in among t6e white female population of the United States. Maternal aad (7»7d Beait6 7afor=nfion PrThe prog:• geaerate maternal and child health infonmtion at two levels: • Written infoima~tioa W ithin the Federal administering a€ would be created an Office of Maternal and Child Health The Office would be responsible for developing and disse c written prenatal and c$lYd.-c3LL information to 3d women bearing age wittrin the United States. • Classes. As a condition of Fedeeral financial participation, would be required to develop classes in prenatal care, chil ehsld-nurtum and make them accessible to pregriant wome; farhess, and (within the limit of program resources) all oth of child-bearing age. The Office of Maternal and Child H Information would be authorized to cooperate with the Sta preparing written course matezia3s. PrmaW care moenbv.a In order to encourage women, pazticul. income women, to avad themselves of services intended to reduce mortality and improve the nutrition and health of mothers and chii program would undertake a demonsuation of the effect of offering 276 TIMN 0023358

in the form of additional subsidization of prenatal, obs~cal, and well-baby care charges. 277 TIlMN 0023359

A PROPOSAL TO PROMOTE EMPLOYER- BASED HEALTH INSURANCE This is a four-part proposal to encourage the provision of empioyer-based health insiuance. A Model State Law to Regulate Health Care Benefit Programs Offered to Small Employers Development by Secretary The Secretary of Health and Human Services would develop and promulgate a model law, for adoption by the States, to regutate health care benefit programs offered to small employers. Appiicabflity The law would apply to a group health benefit plan covering employees of small employers, f.e., employers of from 2 to 50 employees.'3 nReferences to 'inwanca canieP induda any other provider, reierences to 'artangemerrts' include muioe empioyer weifare artangemeets; and refetences to 'poGcy indude any health care artangement wfth a r,aRier or other pcovider. 279 TjWN 0023360

Requirements of Plans These plans would be required to meet the following conditions: • Pre-aisug CooditiouL No exclusion would be permitted for a gre-existing condition that had not manifested itself during the 6 months immediately preceding the date of coverage. No exciusim of a pre-existing condition (that had not so mamfested itself) could nm beyond 12 months following the date of coverage. - No exclusion of a pre-eaisting condition would be pemnitted because the employer changes carriers or the employee c3ianges employea (If the employee bad met the above-described time periods under the previous policy and coverage is contiauous). • Reaewabft. A policy would be nnewablLe at the option of the policy-hoider if the policy-holder had complied with all coverage requirements (payment of premiums, absenoe of fraud or etn.). • Exdusion of digibk enepioyee or depmdmt. A carrier would be permitted to use medical underwriting only to determiae the level of risk within a group, not for the purpose of excluding an individual from group coverage. An arrangement could not exclude any member of ttbe employment group (or the members' dependents). • Gaar9ntaed a.aU6My. A policy could not be denied to any small-employer group, regardiess of risk. 280 TIMN 0023361

• Waiting period A plan would be required to make coverage available to all eligible employees in an employment group without a service waiting period ('Le., a period during which a new employee is required to work for the employer before enrolling in the plan). •Prendums ibr simv7ar gr m a ps. A carrier would be required to limit variations in premiums for similar groups (groups in the same geographical location, with similar demographic composition and plan design) to no more than 35 percent from the carrier's midpoint rate. • Prmdmoa for Mere:,t hmhu&ies. A carrier would be required to limit variations in rates between industries to no more than 15 percent. • Annaa1 prmma inovaaes, A carrier would be required to limit annual premium in+creases to no more than 15 percent above the year- over-year increase in the lowest new business rdte for managed and nonmaaaged care plans (treated separately). Federal Standards Federal legislation would be enacted to provide that if a State does not adopt the model act within 3 years after the Secretary promulgates it, the act's standards for insurance policies shaA go into effect as Federal standards for all policies offered to small employers within the State. 281 TIMN 0023362

Assessment of Employers All insurers within the State would agree on iislc categories that would place employees of all or many small employexs within ttre Stane into one or more statewide risk groups The State could eaact legisiation to assess all employess within the State for contributions or take other steps to raise revenue to fund the risk pool. State Reinsurance If insurers within a State do not es[abIish a pooling an-mgemeat and the State deteanines that the absence of such an arrangement is a substantial impediment to the availability within the State of low-cost policies of health insurance for employees of smail employers. the State would be expected to establisb a ransnrancx pool.u AIi carriers and other organizations issuing health benefit plans would be members of ft program, including Blue Cross and Blue Shield. Nevertheless, Blue Cross and Blue Shield would be peffiitted to manage their own reinsurance risk if they (jointly) chose to do so. "Jnder tha McCertw-Ferguson Act, Fedaial antitrtest laws apply to the inst== busoness, exeept to ihe exmrd ft the business is regulated by State law. For various reasons, most State insurance iaws now exciude reinsurarxe uarsacoms. In ardat 1o inpiwnet the pooGtg arrangements praQosed in the tett, States wouid be expected to amend tNeir Wws to aWfor= tlW. 282 TIMN 0023363

Disallowance of State-Mandated Benefits for Small-Employer Core Health Benefit Plans Background It has been estimated that State-mandated benefits account for between 15 and 25 percent of the family premium for employer-provided group health plans. Mandated benefit laws fall into four categories, described by the Congmssional Research ServicxP5 as roughly equivalent to the questions "who, what, when, and where." The categories are: • Dependents: the Idnd of persons to be covered under a contract. • Benefits: the kiad of services to be covered under a contract. • C,ontinuarsonfConversion: the length of t<me thar. coverage must be in effect. • Providerr the numbers and types of providers eligible to perform and be reimbursed for covered services. The State mandate is intended to define what the State considers necessary care: what, at a minmium, an insurance plan must contain. Nevertheless, these mandaLes vary widely from State to State, from a few maadated benefits to several hundred, and often include beaefits--hair traasplants, in vitro fermlization, and the Chinese medicine option are ezamples--that uninsured or insured persons might willingly forego to obtain lower n^4rqssWonaI ResearoFt Service, Lbary of Conqress. tMOh Insurancs and the Unk=ed Badqound Data and Ana/ysis (MaY 1988), p. 73. 283 TIMN 0023364

'I7he average State-mandaLed beae8t provision, e.g.,, outpatient psychiatric benefits, adds about 2 to 5 percent to the costs of a typical medium or large employer's plan. This additional cost may be a factor in preventing businesses, particularly small businesses, fivm purchasing health care insurance for their employees. The Proposal in General Federal legislatioa would be pcvposed to relieve health care insurers, and other organizations that offer core beoefit health plans to employers, from State requirements tbat health insurance policies contain specified benefits and cover services by designated categories of health care providers. Plans Covered The proposal would cover any contract that offers, to an employer of between 2 and 50 employees, hospital or medical benefits, or both, whether offered by an insurance carrier, a hospital, a medical service corporation, a health maintenance organization, a multiple employer welfare arrangement, or provider. Override of State Law With respect to the employer plans covered, the legislarioa would override two types of State reqainmeats: those that compel an insurer to inciude specific benefits in its health policy (eacept requirements for major medical benefits) and those that compel an insurer to cover services provided by designated categories of health cue providers. 284 TIMN 0023365

Exemption from Override A State would be exempt from the override described in the preceding paragraph if it has both adopted the model law described under part I and established its own standards, approved by the Secretary of Health and Human Services, for the exemption of core health benefit insurance packages from State-mandated benefit Iaws. Deflnition of Care Benefits The Secretary of Health and Human Services, through a formal rulemaldng process to define ttw tem "core health benefits," would establish standards for health plans that would qualify for the exemption from State-mandared benefit laws and the State exemption from the override described the previous two paragraghs. Preemption of State Laws Limiting the Use of Managed Care in Health Benefit Plans State Impediments to Managed Care What is usually known as "managed care" incorporates mechanisms inm health coverage plans to coordinate all of the care required by a patient for a particular condition and provides incentives for a patient to obtain care from the more efficient providers. Managed care arrangements may include utilization review, quality assurance, physician practice pattern monitoring, case managemeat, wider use of primary care physicians, assurance of the use of efficient providers, and the use of economic incentives to induce providers to hold down the costs of care without compromising its quality. Many States have erected barriers to one or more of these devices, for example: 285 TIMN 0023366

• Laws requiring managed care networks to open their panel of preferred providers generally or at certain times for entry by a provider willing to meet the panel's terms and conditions. • Requirements that managed health care plans offer services of chiroprac:om • Restrictions on the financial incentives that may be used by managed care plans (e.g., prohibiting differential copayments and deductibles that encourage urilization. of managed care). • Pr0b1llLtoII3 on discounts and alternatives to the "reasonable, lls{lal, and customary" charges method of nimbarseemeat. • Restrictions on the use of ut7izauon reaview. Although some of these restrictions ane commoaly defeaded as a means of preventiag a deterioration of the quality of health care provided nnder employer-based plans, there seems to be no evidence to support the contention that in their absence (as, for example, inn self-insured employer plans exempt from these restrictions uader the Employee Retirement Income Security Act) there has been any such deterioradon, The Proposal In General Federal legislation would be proposed to relieve health care insurers, and other organizauons that offer health benefit plans, from State limitations on the use of managed cae. In order to safeguard the patieat from the erection of mnreasonable barrieis to adequate medical usatiment that this supersedure might invite, the Secsztary of Health and Human Services, ttrough a formal rulemaldng process to rede5ne the term "managed oare," would establish standards for alternative limitations that a Stata could impose. 286 TIMN 0023367

Plans Covered The legislation would cover any conaacx that offers hospital or medical benefits, or both, whether offened by an insurance carrier, a hospiial, a medical service corporation, a health maiatena= orgarnization, a multiple employer welfare anaagement, or provider. Override of State Law With respect to the employer plans covered, the following laws of a State would cease to apply: • laws diat inhibit carriers from connar.nng with providers; • laws ttiat szstricx carriers' ability to negotiate with providers regarding reimbu~semen~ and • laws that resnict the inclusion of financial incentives to patients in managed care PIanL The override would not otherwise impair a State's power to regulate insurance carriers. 287 ,r,Mr1 0023368

Managed Care Defined As explained earlier. the Secretary of Health and Human Services, through a formal rulemaldng process to redefine the teim "managed care," would establish standards for limitations on managed care that a State would be permitted to impose. Improving the Portability of Private Health Insurance Background An employee who changes jobs will often lose coverage under the health plan sponsored by the employee's former employer. This loss of coverage becomes a significant concern for the employee with a chronic health problem or with a dependent child in need of concinuing medical care if the new employer's health insurer excludes coverage of new employees based or their pre-exisaing health conditions, claims experience, receipt of health oaro, medical history, or lack of evidence of insurability. The Proposal In General The Councal would recommend legisiation intended to induce health insurers to extend employer-b®sed health plan coverage to new employees with a history of recent prior health coverage without imposing restricuons relating to pre-existing health canditioa4, claims experience, receipt of health care, medical history, or lack of evidence of insurability. 288 TIlVLIV 0023369

Elements of the Proposal Impositioa of tm The Intemal Revenue Code would be amended to impose a substantial tax on the carrier of a group health plan that does not meet the portabigity requiremeats described below.26 PorbWit7 reWhIMMOU IMUA&al hrsra+ed >.WUR tlw preeeding 3 sroMFs. The group health plan would be barred from excluding a new employee from covered services on the basis of a pre-eadsting health condition if the employee had been covered under the health plan of a previous employer within the 3 months preceding the new employmern. Odw lWhiduk The group health plan would be prohibited from imposing a waiting period of more than 6 months for an individual who has been diagnosed or tstated for a health condition within 3 months of the time that, as a new employee, he would otherwise have been covered under the employer's health plan. 2°fhe proposed'Beqet Axess to A1fmdable Health Care Act of 1991 ' S.1872, a boartisan proposai irdnoduced in the Senate on ocSober 24,1991, by Senator Lloyd Bentsen, would impose a tax of $100 a day for this piwpose. 289 TIMN 0023370

HEALTH INSURANCE FOR THE SELF-EMPLOYED .. The Problem - Under curnent tax law, a corporate employer may fu]ly deduct as a business expense the costs of providing health insurance coverage to its employees. Although that cost represents an economic gain for an employee, it is excluded from the calculation of the employee's gross income for income tax purposes. The employee may deduct his conttibntion to the cost of the coverage to the extent it exceeds T/4 percent of adjusted gross income. In contrast. under a provision of the 1986 Tax Reform Act, an individual who is self-employed is entitled to deduct only 25 percent of health insurance costs as a business expense. The balance is deductible, as in the case of an employee, to the extent it exceeds T/4 percent of the taxpayer's adjusted gross income. As a result of this disparity, one who is self-employed pays a larger after-tax amount for health insurance than the combined amount paid by a corporate employer and its employee for the same benefits. Moreover, the cost of health insurance for a self-employed individual will normally be far in excess of the total cost of a policy available to a large corporate employer. The canent provision is scheduled to expire for taxable years begitning after June 30. 1992. 291 TIMN 0023371

The Proposal The Couacil believes that the self-employed should receive more equitable treaimeat. It recommends that the Treasmy Departmeat review the deductibility of health insurance premiums paid by te self-employed with a view to pmoposing an amendmeta of the tax laws that would place the self- employed on the same footiag as employees in regard to t~e tax treanment of premiums for health insuraace coverage. 292 TIMN 0023372

Appendix B: Recommendation Specifications Reducing Health Care Costs and Increasing GNP Growth 293 TIMN 0023373

TASK FORCE ON INVESTMENT IN HUMAN RESOURCES The Problem Fnhancing the productivity of American workers is essential to keeping America competitive in the world economy and ptcn+iding the best support for the American people as we move toward the 21st cennuy. A healthy work force is a key component of eahancing productivity. Imprwemeat of health status is complicated and involves many aspects beyond the financing of health care services. Improvemeats in edncation, housing, murition, and alcohol and drug abuse prcvention and ur,anment must also be made if we are to ensure that Americans achieve their productivity PoteatiaL The problems addressed by programs in heauh, edncation, housing, nuaition, and alcohol and drug abuse titanment programs are separate and dispersed across many different Federal agencies. A mechanism is needed to facffitate commm. aon and coordination of Federal efforts in the pmVaation of a Gmrehensive saategy to maximize the ability of Americans to be com~titive and productive wodcets. 294 TIMN 0023374

The Proposal Establishment of interagency Task Force The Council recommends dat the President establish an Interageucy Task Force on Invesmneat in Human Resources. Composition The Task Force would comprise: • the Secretary of Health and Human Services, who would serve as Chair, • the Secretary of Agriculiure, • the Secretary of Education, • the Secretary of Housing and Urban Developmeot, • the Secretary of Labor, • the Secretary of Commerce, • Administrator, Eavunnmental Protection Agency, and ~ Cbairmaa, United Stales CommiceioII on Civil Rights. The Coimcd would be empowered to invite the participation of other Federal ageacies not listed as it may require for particuIat issues. . Mission . The Task Force would be charged with developing a compielneasive iater- agency strategy to improve investment in American human resources and 295 TIMN 0023375

society and tbenby improve productivity and compedtiveness. In each of the areas that it considers, the Task Force would: • develop a staument of national goals to be pursued, • assess the status of that area in relation to those goals, • identify the major impediments to achieving those goals, and • propose altemative means of removing those impediments. Areas of Conc:em The Task Force would appraise the effects of the caurent state of education, housing, nutrition, and alcohal and drug abuse on the health staws of the American workforce and the conseqoe:u effects of carreut health stazus on national productivity and cmpedtivewss. 5-Year Strategy The Task Forcx would develop a comprehensive 5-year strategy detailing bow Federal ageacies can address the problems identified. The strategy would include: • the deveiopmeat of a plan that includes a process so that Federal agencies can work togetber to minimize duplication in programs addressing tlim problems and mmdmize the use of existing resources: • a list of actions that can be taken by Federal agencies, without changes in law, to implemeat the saategy, • a timetable for implementation of the strategy and a plan for evaluating and ensuring that the timetable is met; and 296 T111dIr10023376

• t+ecomnnendations for changes in law that would be necessary to furtber the sorategy. Report The Task Force would prepare semianaual reports to the President conraining updates on the implementation of the snategy and rommendarions for legislation- Staiflng Staff for the Task Force would be dmwn from persotind of the agencaies represeated. 297 ~IMN Q023317

C A PROPOSAL TO DEVELOP INFORMATION ON MEDICAL TREATMENT OUTCOMES The Probiennr The cost of medical care is vastly incraased by what is termed the "welfare uncertainty principle."= The principle holds that it is not possible to conelate tbe health of a population -within a given hospital market area with the volume of health care services uulized within the area. In other words, population welfare may well be greater in a hospital market with less utilization than in one with more utWzation. The fundamental mason for this lack of correlation is thaz medical ueatment theory is uademvaluated. Tbe absence of exact information on the probable outcomes of various ueatment modalities opens the way to supplier-induced demand. Dr. John E. Wenaberg has put the matter this way: 'Thete is no "invisible haod" arising from the doctor/paaent relationship thai regulates the supply of resources. Rather, underevaluated medical theory and the supply of resources are in equilibrium: 'Phe treatment theories governing the use of hospital beds are sufficiently flexible to allow the use of hospital beds, no mauer what the per c,apita level of supply; the theozies ihat establi& the legitimacy of surgical tte=nt jusdfy surgical worfdoads, no mauer what the number of surgeons; and smdeievalnated medical trea=ent theory is a The coxapWal iotucWdon ot tttis recammadai<ion tsas been supQiied by a pW. 'Iowa Leadetship Consatium on Nedh Caro Strategies for Refam.' Prepared by John E. Wennber4, M.D., M.P.H. Dr. Wennbetg's recortanendations go far beyond thosa cantained in the instant proposaL "Wennbwg. op* at n.1, p.6. 298 TIMN 0023378

sufficiently rich to deploy internists and family practitioners virtually without regard to how many there may be per capita.,' But, designed on the misappmbension that capacity will be limited by medical efficacy and patieflt demand, the major Federal programs of health care financing, as well as many private insurance programs, make resources freely available at the point of utilization. ConEronted with the reality of supplier-induced demand fueled by alternative, undemvaluated, treatment modalities, the programs are therefore generating a crisis in the cost, access, and quality of medical ca+e. The Proposal The Department of Health and Human Senrices, through the Agency for Health Care Policy and Research (AHCPR), is supporang research on the appropriateness and.effecriveaess of altemarive strategies forthe prevention, diagnosis, ueatment, and management of a variety of acute and chronic conditions and along with other entities is developing medical practice guidelines for use by health care providers. Practice parameters, the development of which by the medical profession is strongly advocated by the American Medical Association, will encourage and enhaace the delivery of the most appropriate care to each patient They would supplement the physician's judgment in reducing unnecessary and inappropriate variation in the use of health care services and procedures. The Advisory Council recommends that AHCPR develop a system that would produce comprehensive reports on the performance of local and regional health cam marcers. The reports could be used to repair flaws in three critical policy areas: infoimation, finance, and manpower. As a Wennberg, op* at n.1, p.3. 299 TIMN 0023379

proposed by Dr. wetmberg, reports would include the following information.-3D • the location of local and regional marlcet areas; • the per capita allocadon of hospital beds, physician, and other maapower in each marcet; • expenditure and t+eimbursemeats and traasfer paymeats betweea regional and local markes- • procediue c~arg= • utilization rates; aad • certain outcames. Tbe reports would be iavahuabie for suppordng altemattve strategies for coztaming capacity. Informaaiort on outcomes of aitemaave toeauaeat modalities, staadiag alone, would make a serious contnbntioa to reducing supplier-induced demand. '°womimg, o% a nd. aA 300 TIMN 0023380

A PROPOSAL FOR AN ALTERNATIVE PROCEDURE TO ADJUDICATE MALPRACTICE CLAIMS The Problem Tbe increasing cost of malpracticx insurance inSaus the cost of Federal health care and heaidi care fiinauang ptvgrams and may reduce die availabiiity of some types of health care. In part, this increasing cost is auributable to the inefficiency of ffie civil judicial system, the high cost of accr,ss to that system, and the ineffectiveness of professional licensing and disciplinary bodies in policing the quality of medical care provided by their members and licensees. Further, the ezisting system fails to compeasate, or compensate adequately, many-possibly most viciims of medical malpractice, whi'le very gennrvusly compensating-perhaps overcompensatfng-a few such victims. 'I'be proposal described below adopts an admimstirauve alternative to the present system of ton liabffity. Administrative altematives, either as a supplement to, or replacement of, the existing system have beea proposed in the Health Care Provider Liability Refornn bill, based on the 1987 report of the Department of Health and Human Services' Task Force on Medical Liability and Malpractice, the Emvrfng Access Through Medical Liability Reform bill, introduoed in the last Congress by Senator Orrin Hatch (S. 2934, 101st Cong.), the Medicare Malpractice Dispute Resolution bill of 1990, introduced in the last Congress by Rep. Nancy Johnson of Connecricut Tbe American Medical Association's Medical Liability Project. in its January 1988 report entitled "A Fault-Based, Administrative System," also recommends adoption of an adminisorative modeL 301 TIMN 0023381

In developing the proposal, the following approaches to medical malpracuce litigation were considered. The Health Care Provider Uability Reform Act. Based on the 1987 report of the Deparmient of Health and Human Services' Task Force on Medical Liability and Malpractice, the Health Care Provider Liability Reform Act offers a comprehensive solution to malpractice claims abuses. Proposed as a model act, the bill continues to await action by the several States. Becaase widespread adoption of the act seems unlilceiy in the immediate futum, the act does not offer a reasonably prompt solution to the malpractice problem aad, in the best of foreseeable cincvmstances, will provide omly piaxmeal reform. The Ensuring Access Through Medical 1Uability Reform Act Inmoduced in the last Congress by Senator Hatch (S. 2934, 101st Cong.) the "Ensuring Access ThmuBb Medical Liability Refoim Act," as with the Task Forcx bill, atrempts a global approach to the fulll range of malpractice claims. Also like the Task Force bill, the Hatc3i bill depends, in large part, upon the creation of altemative dispute resolution systems by individual States. Beyond this, however. it seeks to impose national standards on the adjudication of all malpractice claims, even though many, perhaps most, of those ciaims arise from ttratmein unconnected to any Federal program. This degree of Federal iaousiveness, as it will surely be termed by its critics, seems certain to impede the bill's prospects for enactment. In addition, the bill would establish a variety of new grant programs that, given the recent amendments to the Gramm-Rudmaa Hollings law, Congress would have difficulty in ftmding. 302 TIMN 0023382

The Medicare Malpractice Dispute Resolution Act of 1990 Also introduced in the last Congress, the "Medicare Malpractice Dispute Resolution Act of 1990" (Rep. Johnson of Connecticut) covers only malpraotice claims by Medicare beneficiaries. As in the case of the previously described proposaLs, the bill would involve States in the establisbment of statewide Medical Services Dispute Resolution Organizauons, which would function within a malpractice arbiiration system guided by the Secretary of Health and Human Services. The instant proposal takes some of its dir=on from the Johnson bill. It diffeis, nevezthe3ess, in two fundamental ways. Fiist, it is based on the premise that better policy c;alls for one organizaaon to aQply unifomn national standards to resolving the ciaims of Federal beneficiaries as to their treatment under a Federal direct care or federaIly financed pr+ogcam. Second, it would apply to all Federal beneficiaries. The proposal is divided into two parts: a Federal Beneficiary Maipracrice Adjudication Act and a Model State Malpractice Adjudication Act. These are described below. The Federal Beneficiary Malpractice Adjudication Act In General Tbe Federal Beneficiary Adjudication Act would establish a national administrative tribunal to bear malpractice claims arising from the medical cate of Federal beneficiaries, i.e., individuals entitled to receive or be reimbursed for health care from the Federal Govemmeru. Using expeditious procedures, the tribunal would award a prevailing claimant compensation for economic losses resulting from physical harm caused by negligent treatment, 303 TIMN 0023383

and reasonable attorney fees. By enabling an individual to obtain prompt resolution of a medical malpractice claim against a health professional or other health cam provider, the Act may also be expected to encourage prompt and effective psz-hearing mediation and settlement. This remedy would be the exclusive remedy available to Federal beneficiaries tmder State and Federal law. The proposal would continue to allow the award of noneconomic damages for medical malpractice, but not to exceed 5200,t?00 per claimant. It would abolish derivative damages, such as a sponse's right to damages for loss of coasordum. The proposal would slso require the Agency for Health Care Policy and Research, a component of the Public Health Service, to survey medical literature in onder to develop practice parametersm i.e.. formal guidance to physicians and other health professionals as to the best contemporary health care practice. The parameters would be of use to the triinmal in evaluating ciaims of malpractice under the progiam. The Secretary would inform the perdnent State medical associations and licensure authorities of the tribunal's findings in each case. The Secretary would also be empowered to disallow a health professional or other health ewe provider ftvm providing health care services imder a Federal program and from being compensated for future services to Federal beneficiaries if repeated or extreme malpractice had characterized prior services. Administrative Structure O16ce of Malprsefioe At~judcaboo. The Act would esta6lish, within the Department of Health and Human Services, an Office of Malpracrice Adjudication (the "Office"). The Director of the Office would report to the Secretary or the Secretary's designee. 304 TIMN 0023384

Administratfve tr9mmal. Each malpractice claim would be heard by an administrative tribunal consisting of a presiding offcer, who would be an adminisuative law judge meeting the qualifications for hearing examiners established by the Administrative Procedure Aci, and two individuals determined by the Secretary to be expert in the field of health care or health cane management A decision of the tribunal would be by majority vote. Panels of the tribunal would be located in major population centers throughout the United States for the purpose of hearing malpractice c3aims against health professionals, and other health care providers, who provided health care wholly or partially paid for by a Federal program. Aiioistrative app=i. A party would be enptled to appeal a final determination of a tribunal to an administrative appeal council, a panel of which would be established witbin each region of the DepartmenL The panel would be required to accept the tdbunal's findings of fas,t, unless arbitrary, capricious, or unreasonable. The appeals council would be obligated to hear and decide the appeal within 4 months after the tribunal's decision. Appral to Unided Stato Courls ot AppeaL The judgment of the appeals council could be appealed, on mauers of law, to the United States court of appeal for the circuit within which the malpractice claim arose. The court would be without jurisdiction to reexamine findings of fact affirmed on administrative appeal, although it could remand the case to the agency with instructions to find additional faas. The court would be required to affirm the jadgmeat of the appeals councfi unless it were found to be arbiuaty, capricious, or unreasonable. Claims Adjudication Procedure In gmaal. Procedures for the adjudication of malpractice claims would be established by the Secretary's regulations, subject to these constraints: 305 TIMN 0023385

nns for apuffeadoa A claim would be heard, after allowing such cormnuances as the admimsaatn+e tcibunal may find proper, within 6 months of ffiing, and a decision rendered within 2 weeks after hearing. Dlsaorwy. Discovery would be freely granted, in conformity with the Federal Rules of Civil Procedure. SrrbPoawam Subpoenas would rtm within the United States, except that a party subpoenaed outside the State in which the hearing is held could apply to a United States district court for relief on the grounds of hardship. BJV {or~cd~eat of order. The violation of a prnper order of a tribunal under the Act would be pimishable as a contempt in ft United States district court for the district in which the hearing is scheduled to be held. Beeor* eddma. A tribunal would decide a claim on the record befon it but would receive such evidence as it finds credible and give that evidence such weight as it may find apQ, r, priate. Porie of decisioiL The decision of the tribunal would be in writing, would recite findings of fact and conclusions of law, and would be prepared after all parties have had the opporamiry to pieseflt their cases in the presence of each other. Eaf+oraa~t of JAdgwaxt. A judgment of the tribunal would be limited w an award of money and would be enforceable by a United States district court. The Judgment F.ooooeie loL A judgment for the ciaimant under the Act would be for the claimant's past, present, and future economic loss resulting from physical injury amibutable to malpiacuce. 306 ,rIMN 0023386

Callateral sDUrre reduction. Meouats J,ot dsrtrftjqnvui a Fedsrrtl prvg>ass. A judgment would be reduced by any insuraazux or other amount to which the claimant became entitled in compensation of illness or injury rEsalting from the claimed malpractice (except amounts deriving from a Federal program). Amounts da#ugftvse a Fedsral pnognmc. A judgment would be reduced by one-half of any amount deriving from a Federal program. In such case a supplementary judgment would be issued in favor of the United States for the balance of the payments. In the case of Medicare, this latter amount would, upon payment, be credited to the perdaent Medicare trast fund. In the case of a Federal direct care program, the amount would be deposited in the general fund of the treasury. In the case of a federally assisted State program, the money would be divided, as appropriate, between the general fund of the treasury and the State. Nonaaonom. c damagsa Noneconomic damages, such as pain and suffering, would be limited to $200,000. Derivative damages, such as a spouse's claim for pain and suffering, would be abolished. Atbwney's fees. A judgment for the claimant would include an amount for attorney's fees, in accordance with a schedule established by regulation within a ceiling set by the stamte. The proposed ceiling is 25 percent of the first $100,000, 15 percent of the next $200,000, and 10 percent of the remainder. Coats of prooee&q. The tribunal could, in its disczeaon, assess either or all parties an amount, established by regulation and payable to the general fimd of the Treasury, equivalent to all or part of the administrative costs of the proceeding. As appropriate, costs would be assessed so as to discourage frivolous proceedings. 307 TIMN 0023387

Comps~tive negiigraae. An award for the claimant would be reduced in pmportion to the degree to which the tribunal found that the claimant's negligence had contri'buted to the injury. Liabifity of p'rtia ddmdank If there are two or more pardes defendaat. they would not be jointly li.able. A judgmeat against a party defendant would be limited to that party's proportionate share of the injury caused. Award for fiubute eeooomic 1o.L An award for fntuit economic loss would not require the payment, within a calendar year, of an amount that exceeded the loss anticipated for that year. but snch award would not be subject to fimue adjustment. Daivative rigbtL No award could be made to any party based upon injury caused by malpractice in the medical treatnne:ot of some other person. Exclusions The Office would be without the power to adjudicate a malpractice claim aueSmw. • Wrongful death or ~ Wiilful injury. Exclusivity of Remedy Except as otherwise provided by tbis Act, no court of any State, or of the United States, would have Jurisdictian to adjudicate any claim arising from or alleging malpractice if that claim were cogaizable under this Act. In other words, the Act would be ttx exclusive avenue available to Federal beneficiaries for pressing malpractice claims. 308 ,rIMN 0023388

Notification Notificatian of State and local ageades and arg-oizstioos In every case of malpracuce, the Act would require the Secretary to aanstnit the final judgment of the tribunai to the pertinent State medical or health professional society and the State professional licensure or certification authority. Notificatiau of Heaith Care Fluancing The Office would tiansmit every decision of the tribunal and the administrative appeal council to the Health Care Finaacang Administration for its use in peer review or otherwise, as HtFA may deteimine. Debarment The Act would require the Secretary to review each case in which malpractice was found. In any case in which the Secretary determined there had been gross negligence, or a health professional or other healt3t care provider had been responsible for itipeated instances of malpracrice, the Secretary, after opportunity for hearing, could bar the health professional or other health care provider from treating Federal beneficia:ies or from receiving compensation for any cae rendered by that health professional or other health care provider to a Federal beneficiary and would notify the pertinent State medical or health professional society and the State professional licensure or certification authority. Practice Parameters The Act would direct the Agency for Health Care Policy and Research to develop health care practice parameters, Le., formal guidance to physicians and other health professionals, based on a comprehensive survey of medical literature, as to the best contemporary health care practice. The tribunal would use the parameters as a screening device in evaluating claims of malpractice, not as a means of differentiating good care from bad care. 309 TIMN 0023389

Model State Malpractice Adjudication Act In General This part outlines spxificarions for a model State statute, te State Ma412 ctice Adjudication Ad, to be prepared within the Deparmient of Health and Human Servicxs in cansultation with the States, intended to deal with those claims of medical malpractice not addressed by the Federal Beneficiary Malpractice Adjudication Atx. Like the proposed Federal acx, the modei State act would seek to restrain further growth in the cost of malpractice insurance, which has both inflated the cost of medical care and reduced the availability of health care in some medical specialties. The proposal follows the outlines of the Federal Beneficiary Malpractice Adjudication Act proposal. It would establish a State administrative adjudication manism to hear malpractice claims arising under State law. It would enable a claimant to obtain prompt resolution of a medical malp:acarce claim against a health professional or other health care provider over whom the State courts have jurisdiction. A prevailing claimant would be awarded compensation for economic losses resulting from physical harm caused by negligeat treatment, and reasonable attorney fees. This remedy would be the exclusive mmedy available to a claimant under State law for medical malpractice. The proposal would continue to allow the award of noneconomic damages, but not to exceed $200,000 per claimant. It would abolish derivative damages, such as a wife's right to damages for loss of consordum. Also, the proposal would e.srablish a State Advisory Council on Standards of Health Care to develop guide3ines for use in evaluating daims of malpractice under the program. 310 TIMN 0023390

The Secretary of Health and Human Services would develop a Model State Act on the Adjudication of Malpractice Claims. Major features of the Act follow. Administrative Structure Otbce of Medical Malpractice Adjndicatim . The Act would establish within the State an Office of Malpractice Adjudication (the "Office"). The Director of the Office would report to the Governor or such subondinate official as the Governor may designate. FmQioymeat of bearing ezminas. The Office would employ hearing examiners, located in major population centers within the State, to hear maipracxice c3aims against health professionals and other health care providers over whom the courts of the State would have jurisdiction. Adminisbratire appeal. The Office would contain an administrative appeilate rribuaal to hear and promptly resolve administrative appeals from the judgment of a hearing examiner. Claims Adjudication Procedure In generaL Procedures for the adjudication of malpracuce claims would be esmblished by regulations of the Office, subject to mese constraints: • T1ne f+or aWadleaptoa. A claim would be heard, after allowing such c r - intiances as the hearing examiner may find proper, within 6 months of filing, and a decision rendered within 2 weeks after bearing. • Discovery. Discovery would be freely granted. • Subpoenas. Subpoenas would run within the State. 311 TIMN 0023391

• BiVoreenmt of andsr. The violation of a pmoper order of a hearing examiaer under the Act would be puaisbable as a contempt in any court of the State. • Bnar* srUmc+e A hearing examiner would decide a claim on the record before him, but would receive such evidence as he finds credible, for such weight as may be appropxiau. , • Fwae of dedsim The deasion of the hearxng examiner would be in writing, would recite findings of fact and cxmciusions of law, and would be prepared after all paraes have had the opportunity to present their case in te presence of each othec • Enfa+enrat o/Judgnsma A judgmeat of the hearing examiner woulc be limited-to aa award of money and would be enforceable by the count Malpractice Defined Malpractice, for parposes of this Acx, would include injury or illaess associated with a given course of nreatmeat, even if not arising 5wm its negligent pmvision, if the injury or 11ln~s were a kaowa risk of the treatment provided and the health care professional or other health care paovider had failed fully to inform the claimant of such risk. The Judgment Econamic loas. A judgment for the claimaat under the Act would be for the claimaat's past, preseat, and future economic loss resulting from physical injury amibutable to medical malpractice. 312 TIMN 0023392

CaDate:al soiu'ae reduction. Anonwr xot derbtag)hvn Medlowa or biedfcafii A judgment would be reduced by any insurance or other amount to which the ciaimant became entitled in compensation of illness or injury resulting from the claimed malpractice (except amounts deriving from Medicare or Medicaid). Amoaw duiWies from Msdican or 1Kodeafd. A judgment would be reduced by one-half of any amount deriving from Medicare or Medicaid. In such case a supplemeantaty judgment would be issued in favor of the United States for the balance of the Medicare or Medicaid paymeats, which amount would, upon payment, be credited to the pertinent Medic:are uvst fund or the Medicaid appropriation, as applicable. The Department of Health and Human Services would thereafter pay over to a State so much of the payment attributable to Medicaid as represents the State's share of that payment. Nao~ao®o~c damages. Noneconomic damages, such as pain and suffering would be limited to $200,000. Derivative damages, such as a wife's claim for pain and suffering, would be abolished. Atbocney'a fees. A judgment for the claimant would include an amount for attomey's fees, in acxonlaacx with a schedule established by the Office within a ceiling set by the Act. The proposed ceiling is 25 percent of the first $100,000, 15 percent of the next $200,000, and 10 percent of the ~ rrmainder. Casts of proceeding The hearing eaaminer could, in his discretion, assess either or all pardes an amount, established by mgulation and payable to the Ssate, equivalent to a11 or part of the administrative costs of the proceeding. Comparative negiig+woe. An award for the claimant would be reduced in proportion to the degree to which the hearing examiner found that the claimant's negligence had conuibuted to the injury. 313 TIMN 0023393

Iiabirdy of parties ddrmdant If there are two or more parties defendaat, they would not be jointly liable. A judgment against a party defendant would be limited to that party's proporaonate share of the injury cansed. Award for !lniure eaooomic las. An award for future economic loss would not require the paymeat, within a calendar year, of an aiaount that exceeded the loss anticipated for that year, but such award would not be subject to future adjusrmeat. Derivatitve rights No award could be made to any party based upon iriJmY caused by malpracnce in the medical treauaent of some other person. Administrative Appeal A party would be eatiited to appeal a final dete~inan~oa of a hearing examiner to an appellate tribunal established by the Office. The tribunal would be required m heaz and decide the appeal within 4 months after that deteaaination. Appeal to State Appellate Court Tbe judgment of the appeals council could be appealed to the appropriate State court of appeals. • The court would not have jnri.sdiction to mexamine any administrarive finding of fact, altbaagh it could remand the case to the agency with instxuctions to find additional facts. • The court would be required to aff[rm the judgiaeat of the appeals council unless it were found to be arbitrary, capricious, or imreasonable. 314 TIl1'IN 0023394

Exclusions The Office would be without the power to adjudicate a malpractice ciaim alleging: • Wtongful death or • WMful injury. Exclusivity of Remedy Except as otherwise provided by this Act, no other court would have jurisdicrion to adjudicate any claim ansing fiom, or alleging, medical malpractice if that claim were cognizable under this Act. In other words, the Act would be the exclusive avenue available for pressing malpractice claims wittiin the state. Licensing and Reilcensing The appropriate State licensing body would be required to review each case in which malpractice were found. In any case in whiclx it deteimined there bad been gross negligence, or a health professional or other health care provider had been reqxxisible for repeated instances of malpractice, it would be authorized, after opportunity for hearing, to suspend or revoke the license of the professional or other health care provider to provide health care services within the State, or to direct {'m the case of a healih care professional) that the individual submit to a mlicensing examination. Advisory Council on Standards of Health Care The bill would establish an Advisory Council on Standards of Health Care to develop guidelines for use in evaluating claims of malpractice under the Pm9rim 315 TIMN 0023395

Fstabiis6ment of Ca®a1 awds; agpointmeat of inembmrso The Director of the Office would establish panels of the Council to advise on various aspects of health care, including medical and suigical practice, and nursing cane, and, in consultation with the appropiiate professional licensing bodies and professional associations concerned with the provision of health care within the State, would appoint to these panels distinguished members of the health caia professions. D~w- - of practice gauiddines. Each panel would develop for the Cotmcil, and the Council would recommend to the Dinccor, guideiines for use in evaluating the quality and appmpriateness of health care with respect to the various medical conditions. The Director would publish the guideiines, and they would be available as a resource to the Office in adjudicating maipracnce claims filed with it. Adoption of Model Act; Application of Federal Act to Non-Federai Beneficiaries If a State adopts the Malpraaice Adjudicarion Act before Congress enacts ttv Federal Beneficiary Malpractice Adjudication Acx, the State siauue would q*y to all Federal beneficiaries and health care professionals and other health cane providers over whom the State has jurisdiction, until enactmeat o the Fede:al act. If a Stwe does not adopt the Maipractice Adjudication Act within 5 yeazs after the Secatcary promulgates it, and Congress has enacxed the Federat Beaeficaary Malpracrice Adjudication Act, the Federal act would be opened to aII malpractice ciaims arising in the State, at the option of either party. 316 TIMS 0023396

A PROPOSAL TO CONTAIN MEDICARE COSTS THROUGH USE OF SELECTIVE CONTRACTING Purpose of the Proposal It is proposed to iasdtute a system, under Medicare, whereby the program will reimburse a provider for the costs of performing a desigaated medical or surgical procediue-a procedure typified by its high cost to the program, such as a coronary artery bypass operation-only if Medicatz has first approved the provider for the performance of that procedure. The proposal's objective is to channel patients for those procedures to facilities that provide cost-efficient, quality services. Elements of the Proposal Procedures Designated . The Secretary of Health and Human Services may desigaate a medical or surgical procedure the performance of which will be reimbursed by Medicare only if performed at an approved faciiity, if: • the Secretary determines that the procedure is one that imposes high costs on the Medicare program, and 317 TIMN 0023397

• the OSice of Health Technology Assessment of the Public Health Service has assessed the procedure and found it to be safe, effective, and necessary to alleviate a life-threatening or seriously disabling condition. Qualification of Facility Compedive biddinS The Secretary would be required to develop admimstratlve arrangements under which criteria would be published for the seiaxim of facilittes to perform each procedure designated under the program, and bids from such faca7ities would be soliated and evaluated. Fbed dbarge Al1 services delivered by a provider would be on the basis of a fixed chacge per procedure for aU hospital aud physiaaa services (includani postoperative caie) associated with the procedure, regardless of the actual cost of the procedure in a particailar case. Quality Assurance Standards To be approved as a facility for the performance of a procedure under this proposal, t6a facility must meet the following criteria: • Patieat seleCtion. It must have written patient selection criteria which it would follow in detetmining suitable caadidates for the procedure. Patient seiection aiteria must be based upon both a critical medical need for the procedure and a maximum ' of successful c3inical outcome. 318 TIMN 0023398

• Patient management. It must have adequate patient management plans and protocols that include the following: Therapeutic and evaluative procedures. Therapeutic and evaluative procedures for the acute and long-term management of a patient, including commonly encountered complications. Patient management and evaluarion. Patient management and evaluation during the waiting and immediate postdischarge period as well as in-hospital phases of the program for perfonning the procedure. Long-term managemenr and evaluation. Long-tenn management and evaluation, including education of the patient, liaison with the patient's attending physician, and the maintenance of active patient records for at least 5 yeazs. • Commitment. A facility must make a sufficient commitment of resources and plaaning to the program for performing the procedure to ca=ry through its application. Indications of this commitment should include the following: Commimnent at all levels. Commitment of the facility to the program at a111evels, inciuding, as necessary, other departmeat4 of the facility as well as the principal sponsoring departments. Adequate eVerrise. The facility is expert in :medical, surgical, and other relevant anas, including an ideatiflable and stable team for performing the procedure, the responsible members of which are board certified or otherwise approved by the Secretary. • Facility plans. The facility must have overall facility plans, commitments, and resources for a program that wiIl ensure a 319 TIMN 0023399

reasonable concentration of experience. The Secretary of Health and Human Services would establish the fiequency with which the facility must perform the procedure for the coaditions for which it is indicated. This level of activity must be shown feasible and likely on the basis of ptans, commitments, and resources. • Experience and survival rates. The facility must demonstrate experience and success with the procedure. Survival rates must meet criteria established by the Secretary. • Maintenance of data. T!z facility must agree to maintain and, when requested, periodically suimit data to the Secretary, in standard format, about patients selected (including patient identifiers), protocols used, and short- and long-term outcome on all patients who andergo the pivicedure, not only those for whom payment under Medicare is sougbt. • Laboratory services. The facility must make available, directly or under arraagemeats, laboratory services (including blood baniang) to meet the needs of patients. Laboratory services must be performed in a laboratory facility approved for participation in the Medicare PmB= Reimbursement of Beneficiary In addition to such other rzimbursement as ft Medicaaze statute may provide, a beneficiary may be nimbursed for travel to and from a designated facility if the beneficiary resides more than 50 miles from the facility. Patient information Health Care Financing Administtation, in consultation with the Social Security Adminisuation, would design and adopt procedures: 320 TIMN 0023400

• to inform individuals eligible for Medicare of the existence of facilities that provide cost-efficient, quality services; and • to assist those individuals to tap into existing provider networks, such as PPO plans, fmm which they can obtain informaaion as to the availability of services from such facilities. 321 TIMN 0023401

A PROPOSAL TO ESTABLISH CENTERS OF EXCELLENCE Purpose of the Proposal It is proposed to reimburse health care providers, under Medicare, for the costs of peiforming designated major surgical procedures, only if dwse procedures are performed in facilities-termed "Centess of Excellence"-meetfng rigorous criteria of quaiity. The procedures would be those that are not fmquently perfoimed by most institutions because of infiequent occurrences in terms of incidence and pn.rvalence. Such procedures normally require the use of highly specialized techniques employed by a skilled and highly trained team of physacians and nurses and aze necessary for life-threatening or seriously disabling canditions. Examples include heart, liver, or lung transplants. Becanse the number of procedures performed has a direct bearing on the success rate, the proposal's objective is twofoid: to encourage patients to seek procedures at facilities most successful in performing them and to discourage the performance of these procedures at facilities less successful in performing tbem. Because a consequence of the proposal would be to reduce the number of facilities at which the designated procedures could be performed, a major feature would be to reimbause the Medicare beneficiary for the cost of travel between the facility and the residence. 323 TIMN 0023402

Elements of the Proposal Procedures Designated In order to be designated as a procedure the performance of which will be reimbursed by Medicare only if performed at a Center of Excellence, a procedure must meet these criteria: • It is not frequeatly performed by most institutions. • It requires the use of highly specialized techniques employed, in most cases, by a sivlled and highly traimed team of physicians and nurses. • It is critically necessary for life-ttueatening or seriously disabling conditions. Procedure Designation Process The Secretary of Health and Human Services would establish an initial list of such procedures and would be audwrized to add procedures as appropriate. Each proceclure on the list must first be assessed by the Office of Health Technology Assessment of the Public Health Service and found to be safe, effective, and necessary to alleviate a life-thneatening or seriously disabling condition. Criteria for Designation as Center of Excellence To be designated as a Ceater of Excellence for a designated procedure, the faciiity must meet ttx following criteria: • Patient seledion. It must have written patient selection criteria that it would follow in detrrmmng suitable candidates for the procedure. 324 TIMN 0023403

Patient selection criteria must be based upon both a critical medical need for the procedure and a ma;dmum t;~Pa;hood of successful clinical outcome. • Patient management. It must have adequate patient management plans and protocols that include the following: Therapeutic and evaluative procedures. Therapeutic and evaluative procedures for the acsue and long-term management of a patieiu, including commonly encountered complications. Patient management and evaluariori. Patient management and evaluation during the waiting and immediate postdischarge period as well as in-hospital phases of the program for performing the procedum Long term management and evaluatiore. Long term management and evaluation, including education of the patient, liaison with the patient's attending physician, and the mainteaance of active patient records for at least 5 years. • Commitmeat. A facility must make a sufficient commitment of resources and planning to the program for performing the procedure to c.azry through its applicauon, including a significant referral pattern.' Indiptions of this commitment should inciude the following: 325 TIMN 0023404

Commitment at all levels. Commimzeot of the facility to the program at all levels, including, as necessary, other departments of the facility as well as the principal sponsoring departments in order to provide a full spectrum of supportive care. Adequate experdse. Tbe facility is expert in medical, surgical, and other relevant areas, including an identifiable and stable team for performing the procedure, the responsible members of which are board certified or otherwise approved lby the Secretary. • Integration of teams. Tbe component teams must be integrated =o acomprehewive team with c•ieady defined leadership and G~g responsibility. • Anesthesia. The anesthesia service must identify a team for ped'om4ance of the procedure that is avai7able at all times. • Infecarous disease. The infectious disease service must have both the professional skills and laboratory nsources needed to discover, identify, and manage the complications from a whole range of oiganisms, many of which are uncommonly encotmoered. • TTursing service. The musing service must identify a team or teams trained in the special problems of managing patients whc undergo the proce&uz. Pathology resources. Pathology resources must be available fo studying and repOrting prompdy any pathological responses to the proc•,edtue. • Social services. Adequate social services resources must be available. 326 jrrn1N 0023405

• Patient selection. Mechanisms must be in place to ensure that: patient selection criteria ane consistent with those set forth in the facility's written patient selection criteria, and the facility is responsible for the ethical and medical considerations involved in the patient selection process and appdication of patient selection criteria. • Plans for organ uaasplantadon. If the procedure involves organ traasplantation, that adequate plans ezist for organ procurement meeting legal and ethical criteria, as well as yielding viable tr;msplantable organs in reasonable numbers. • Facility plans. 7w facility must have overall facility plans, comminmeats, and resources for a program that will ensure a reasonable concentration of experience. The Secretary of Health and Human Services would establish the ftequency with which the facility must perform the procedure for the conditions for which it is indicated. This level of activity must be shown feasible and Mceiy on the basis of plans, commimaents, and sEsources. • Experience and survival rates. The facility must demonstrate experience and success with the procedure and be in the forefront of medicine for the specific specialty. Survival rates must meet criteria established by the Secretary. The facility should be evaluated periodically. • Maintenance of data. The facility must agree to maintain and, when requested, periodically submit data to the Secretary, in standard format, about patients selected (including patient identifiers), protocols used, and short- and long-term outcome on all patients who undergo 327 TIMN 0023406

the pocedure, not only those for whom payment uades medicare is sougbi. • Laboratory swvices. The facility must malo: available, directly or under arraageaneats, laboratory services ('including blood banking) to meet the needs of gatieats. Laboratory services must be performed in a laboratory facility aQQroved for garticipation in the Medicare Pi'o8ram- Reimbursement of Beneficiary In addition to such other mimbursemmt as the Medicane statune may prvvide, a beneficiary may be mimbuzsed for travel to aad from a Cemer of Excellencx if the benefiaary resides more than 50 miles from the Center. 328 TIMN 0023407

PROMOTING HEALTHY LIFESTYLES The Problem Astibstantial amount of ieseai+ch has been done tbat demonstrates the impacx of certain lifestyle behaviois, such as smoldng, alcohol and drug abuse, improper mwrition, lack of exercise and physical activity, and stmssful occupations, on longevity and quality of life. Substantial efforts have also been made by the government and public and private agencies to disseminate this information to the public in order to encourage changes in lifestyle behaviors that impact health stams. As a result of ttiese efforts, many Americans have made substantial changes in their lifestyle behaviors. For example, the national campaign agafnst cholesterol has resulted in many Americans changing their eating behaviors. Despite these successes, more needs to be done to increase the awareness of Americans as to the impact on health of making correct lifestyle choices. A grassroots level campaign is needed to educate Americans ttuaugh activities with schools, ciubs, community grvups, voluntary organizations, businesses, labor organizations, government, and societies of health professionals. The Proposal Measures to Discourage the Use of Tobacco Advafaing ban. 'The proposal would ban all forms of advertising tobacco and tobacco products. Veading machine bwn. The proposal would ban the sale of cigaiettes from vending machines. 329 7CIMN 0023408

Teruduation of tnbsoou sWMW. The proposal would phase out tobacco subsidies under a program that would offer farmers loans and other short- term assistance to facilitate conveision to other crops. Encouraging Heaithy Ufestyies The proposa131 would establish a stamtory foundation for the development and implemeatation of programs to encourage healthy lifestyle choices, such as: • avoiding illegal drugs; • avoiding accessive alcohol c~umpaion; • avoiding the use of tobacco products: • choosing proper foods as components of a lhe,althy, balanced diet; • developing effective ways to manage sue.ss; and • engagmg in regular exercise. " Orw aqxosch might be to rocmstAuta tha PresidenCs Cowx9 on Pfiysicai Fitness and SQorts as a statutory body and expand its ftuutions. 330 TIMN 0023409

Use of Current Programs and Activities The administering agency would promote this new concept of physical fimess by: • enlisting the active support of private citizens, civic groups, business enterprises, foundations, and other entities in efforts to promote healthy lifestyle choices by all Americans; • initiating activities to infoffi the general public of the impo=ace of healthy lifestyle choices and the link between appropriate lifestyle behaviors and good health and producaviLy; • encouraging State and local governments to emphasize to their citizens the importance of making healthy lifestyle choices; • advancing the concept of physical finness through healthy lifestyle choices by sysoematically encouraging the development of community programs; • developing cooperative programs with societies of health professionals to encoiuage. Ameacans to make healthy lifestyle choices; • assisting educational agencies at allleveLs to develop high-quality, • innovative health and physical education programs that emphasize the importance of making the right lifestyle choices for good health; and • helping business, industry, govemment, and labor organizations by eacouraging public/private ventures to establish pnograms to promote healthy lifestyle choices among their employees and to reduce the 331 TIMN 0023410

fiaancial and humau costs 2esuiting from inappropriate Iifestyle cboices." I Thw new program woaid astunM tlw zvrtent actmbes of the PresidenCs Cowd an Physicai F3ness and Sports an d'rected ody torw~d azerrim . ard spaAS, i.a, promoaon of resaand~ in spods medidna, physical knaes, aid spotb parionnanoo, and coadisalirg Fedetal agwwy acLvties reladng to Fhysicat fibress and spons. This wouid be acoanpiished by evan*g the mission of the Couna7 to ermbie d to admaristar ttw poaposai, tmesfarring the Counci to the agarx,y adminisiereng the proposat, or abo6shing Uw Cooncii aftgetlw. 332 TIMN 0023411

PRESiDENT'S COUNCIL ON FITNESS FOR THE SECOND FIFTY YEARS The Problem In its report, "The Second Fifty Years: Promoting Health and Preventing Disability," the Institute of Medicine wrote: Health research, education, and service policies are often written as though our older generations are beyond help. Although there is sufficient evidence of the benefits of health promotion and disability prevention among older individuals, many of them are not advised to stop smoldng, to begin exercising, to be screened for various forms of cancer, or to be immunized against infectious diseases. ... To accommodate the changing needs of an increasingly older society we must add several imperatives: we must promote health throughout life, and we must also prevent the ill from becoming disabled and help the disabled to prevent further disability. These observations gain an added significance when it is appreciated that the fust baby boomers will tum 50 in 1997. Yet, as the American Medical Association observes: ... most middle-aged adults do very little in the way of physical exercise. ... In part, this widespread inactivity stems from the mythology that surrounds the issues of exercise and aging. As people grow older, they tend to believe that their need for physical activity 333 TIMN 0023412

dimuushes and they tend to exaggerate the risks involved in vigorous exercise after middle age.'3 Predictably, most people enter their middle and senior years with a needlessly limited ability to cany out, with alertness and vigor, the critical tasks of daily living. Medical experts agree that many of the physical changes that people attribute to normal aging actually are a result of inactivity and could be diminished by a continuing program of physical exercise." Studies have found that people who exercise regulariy have a lower incidence of cardiovascular disease.31 Although the President's Council on Physical Fitness and Sports has not neglected this age group, that Council's excellent programs appeal primarily to the young. The Proposal In General It is proposed that therc be established, as a companion body to the President's Council on Physical Fitness and Sports, a President's Council on Fitness for the Middle and Senior Years, which shall be within the Deparunent of Health and Human Services. The Council shall focus on the n The Ameican Me&ai AewcWon, HeaRh and We!!-Being After 50,1984, p. 149. " OaRmouth 1rdtute for Beter Heakh, Medirdl and Hea/th Guide,1986, p. 51. 3' The Cdwnbia University Sdioot of PubGc Heath, Complete Guide to Haalth and M-Being After 50,1988, p. 154. 334 TI~N ~p23413

development of programs especially suited to an individual's middle and later years. Appointment The President shall appoint 20 members to the Council and shall designate a Chairman and Vice Chairman. National Program The Council shall: • enlist the active support and assistance of individual citizens, civic groups, private enterprise, voluntary organizations, and others in efforts to promote and improve the fitness of all Americans over age 50 through regular participation in suitable programs of physical fitness; • initiate programs to inform the general public of the importance of exercise and the link that exists between regular physical activity and good health and effective perfoffiance; • suengthen coordination of Federal services and programs relating to physical fitness of individuals over age 50, • encourage State and local governments to emphasize the importance of regular physical fitness for older citizens; encourage m.search in physical fitness for older individuals; and • assist business, industry, government, and labor organizations to establish sound physical fitness programs to reduce the financial and human costs of physical inactivity. 335 1TIMN 0023414

Coordination The Council shall seek to coordinaie its acrivities with those of the President's Council on Physical F'imess and Sports. Other Functions The Council shall advise the President and the Secretary of Health and Human Services as to its activities in devising and promoting programs to improve the fitness of older Americans and evaluate the effectiveness of those programs. Service of Members The members of the Council shall serve without compensation for their work on the Council but will be entitled to travel and subsistence expenses for meetings. Staff The Secretary of Health and Human Services shall provide the Council with a suitable staff and facilities. , 336 TIMN 0023415

RESEARCH TO FOSTER INDEPENDENT LIVING The Problem Many diseases or other conditions lead to chronic disability: dementia, arthritis, vascular diseases, hip and other fractures, hypertension, diabetes, cancer, and emphysema among them. Most of these diseases do not generally lead to high mortality.36 Instead, they leave in their wake individuals unable to perform many of the activities of daily living and therefore in need of long-term care. One generally needs long-term care, regardless of its setting, if one experiences limitations in one or more of five activities necessary for daily living: eating, continence, mobility, bathing, or dressing. Those not suffering severely from these limitations may nevertheless need help in performing instrumental tasks for daily living: shopping, cooking, and perfoiming chores" Much research is being done into the underiying causes of the diseases that lead to &-se disabilities, but insvfficient research has been done either to correct the disability and return the individual to normal functioning or to~ assist the afflicted individual in dealing with the disability. As a result, nursing home care remains the leading cause of uninsured catastrophic expenditures paid by the eidetiy': "Teotuural Work Group on Private Finana* of Long-Term Care for the Eldedy, 'Repoit to the Scretary on Private Finarxug of Long-Term Care for the Eldedy; Oeparteent of HHS, November 1986, p. vi. ~' lbid, p. 2-5 & 2-6. "Qp. c,t n.t, p.i. 337 TIMN 0023416

Although the majority of those unable to perform some the activities of daily living do not become institutionalized, for many a problem such as incontinence wiIl require nursing home placement. The elderly nursing home population-persons age 65 and older-is expected to grow to 2.1 million by the year 2000, and to 4.4 million by the year 2040" In part, this reflects increasing lifespan. "In [the decades] 1990 to 2010, the group age 85 and over will increase three to four times as fast as the general population.i°° Of those over the age of 85, almost one-quarter is institutionalized.41 More than 20 percent of elderly persons will stay in a nursing home at least 1 year, at an average annual cost in excess of $30,000 a year. Permanent institudonalization severs a person's ties to the community, contributing to the depression and demoralization that may afflict one's declining years. Although nursing home care is for most people the least desirable alternative to providing for themselves in old age, increasing numbers of the population will be compelled in the coming years to avail themselves of it. The Home- and Community-Based Option Today, most long-term care-71 percent-is provided in the home or community, much of it by family and friends at no cost to others.42 It is the least disruptive to patterns of living built up over a lifetime l In "Menton, K.G. and W, K.,'Ttw hstue growth of the long-term care papulation,' paper presented at FiMharen FovrWatioe's T}tinf National LeaderstdP Cdnference on Lorg-Term Care issues, Washington, DC, March 7-9,1984. agk •,Op.ata1.P.1-2 '=Op.atn.l,P.m. ° Hortie and oomunrtt-based long-tenn cana encw4m= the fofloyring services service-enrirfied sheAered housing; home-delivered professional nursfng and therapy servioes; nonprofessionat home healh aide and persoxal care servioes; homemabarldmre services; daycare for the eidaly or mentaNy iU; habifrabon secvices for the menla8y retarded or developneraaJiy dsabled; home•deGvered and mnqregate 338 TIMN 0023417

general, it is the option of choice. But it is an option denied to many whose disabilities or lack of family or fiiends prevent them from electing it. Because the Federal Government possesses a unique resource in the National Institute on Aging, it can contribute to State, local, and private efforts to reduce institutionalizing the elderly. At present, the Institute, organizationally part of the National Institutes of Health, primarily engages in basic research, and the support of basic research, into the aging mechanism and problems associated with aging. But unlike the other institutes, the NIA's mission has enabled it to perform research outside of the biomedical field. The Proposal Establishment of Center The proposal would expand the focus of the National Institute on Aging (NIA) by establishing within it a Center for Fostering Independent Living. The Director of the Center would report directly to the NIA director. Mission, In General The Centes would conduct and support applied research into means, social and scientific, to foster independent living among persons suffering an impairment in their ability to perform activities of daily living. Given its organizational placement, the Center would have ready access to the scientific findings of NIA as well as the other NIH institutes. Functional Assessment and Evaluation of Therapies meals; case manaqement, assessnent, and referral services; home adaptations; treansportatiar friendly visft and surveMance seevicas. 0p~ at, n.1, pp. 2-16 & 2-17. 339 TIMN 0023418

The Center would encourage the development of improved methods of assessing the ability of impaired individuals to function in aL:.:limdtutional setting and would undertake an evaluation of the effectiveness of existing rehabilitative therapies. Alleviation of Disabling Conditions Continuing technological advances provide a means for dealing with the disabilities often associated with aging and which frequently lead to the need for long-term care" Tbe Center, in cooperation and consultation with the Food and Drug Administration, would support the development and availability of drugs and devices such as those to: • eliminate falls or reduce their effect, • alleviate severe hearing or vision losses, • treat or correct urinary incontinence, • aid memory so as to combat wandering behavior and other severe consequences of memory deficits, and • compensate for losses in mobility. Living Arrangements The Center wouid: • survey various living arrangements that would permit an individual employing them to live independently, " Op. ck n.1 ' P. 2-58. 340 TIMN 00'23419

• develop or support ways to optimize those living arrangements, and • conduct, or support the conduct of, one or more demonstrations of various living arrangements (except that no such demonstration may subsidize the living anangements or care of any individual). Guide to Independent Living The Center would publish a Guide to Independent Living. The Guide would be widely distributed to the elderly and would provide them with information about medical and technological developments, home- and community-based services, and improved living arrangements, pertinent to aiding them, particularly the impaired elderly, to remain within the community. Technical Assistance The Center would be authorized to provide technical assistance to States, local communities, and nonprofit organizations in the development or implementation of improved arrangements to enable the elderly, particularly the impaired elderly, to live independently. Appropriations Authorization In order to ensure that the applied research and demonstrations conducted by the Center do not lose out to basic scientific research in the competition for limited funds, the Center would have its own appropriations authorization. Nevertheless, the Director of the National Institutes of Health would be authorized to supplement appropriations under this authorization from other NIH appropriations, subject to such limitations as annual appropriations acts may impose. 341 TIMN 0023420

PROPOSAL TO PROVIDE DRUG AND ALCOHOL ABUSE PREVENTION, EDUCATION, AND TREATMENT FOR PRESCHOOL AND ELEMENTARY SCHOOL CHILDREN The Problem Alcohol and drug abuse are serious problems in the United States today. Approximately 18 million Americans have problems resulting from alcohol abuse, and about 7 percent of drinkers experience dependence symptoms. Nzne of 10 high school seniors report having used alcohol at least once. Although the overall use of drugs has declined in recent years, the use of certain drugs-particularly crack cocaine-has increased. According to a 1988 survey conducted by the National Institute on Drug Abuse, 21 million Americans have used cocaine at least once, and 21 million also used marijuana during the preceding year. At least 263,000 drug abusers were treated in facilities in 1987. Alcohol and drug abuse are becoming increasingly prevalent among youth. According to the 1987 National Adolescent School Health Survey, 77 percent of eighth grade students have tried alcohol and of these, 55 percent report trying it by sixth grade. Fiiteen percent of eighth graders report having tried marljuana, and 44 percent of these report their first use was by sixth grade. Twenty-one percent of eighth grade students report having tried inhalants (glues, gases, and sprays), and, of these, 61 percent report their first use was by the sixth grade. Use of tobacco, which is a gateway drug to the use of alcohol and other drugs, is also a problem among youth. Fifty-one percent of 343 TIMN 0023421

ei de students rePo rt having tiied cigarettes, and 72 p<;r~.,ti C:'` u~ ~~` t~ ese report their first use by the siath grade or before. Peer pressure, as well as exposure to alcohol and drugs in the home, contribute to use of alcohol and drugs by youth. A survey by Weekly Reader found that 38 percent of the fourth graders surveyed report peer pressure to try wine coolers, 41 percent to smoke, and 24 percent to use crack or cocaine. To counteract these influences, early prevention, educarion, and treatment is needed, so that our youngest children learn not to abuse alcohol and/or use drugs. In the Advisory Council's national survey, 84 percent of respondents supported the provision by school-based health centers of education and counseling for elementary school children to prevent alcohol and drug abuse. The Proposal The Council recommends that the Surgeon General develop a program to provide prevention, education, and where appropriate, treatment, for alcohol abuse and drug abuse affecting preschool and elementary school children. The program should include the development of educational materials that parents and teachers can use to teach preschool and elementary school children to avoid alcohol and drug abuse, efforts to encourage producers of children's television programming to include antialcohol and drug abuse themes and messages in children programs, public service announcements, and other public education campaigns directed specifically at children. In addition, the Council recommends that school-based health centers inciude programs such as Ala Tot for preschool and elementary school children in the services offered at these centers and make referrals for alcohol and drug abuse treatment for parents of preschool and elementary school children. 344 TI1VIlv '0023422

A PROPOSAL FOR A PUBLIC EDUCATION CAMPAIGN ON PREVENTION The Problem Many choices individuals make about their lifestyles-including choices about physical fitness, nutrition and diet, smoking, abuse of alcohol, abuse of drugs, and sexual behaviors--cause or place individuals at higher risk for illness or disease. Because of demands for treamnent of these illnesses and diseases, health can costs increase, and there are burdens placed on the acute care delivery system. Many people make these choices without adequate knowledge of the consequences that these behaviors will have on their health. There are many examples of how these behavioral choices result in illness and disease that are preventable. Americans generally choose a sedentary lifestyle, despite the contribution that physical activity can make in preventing and managing many illnesses and conditions, such as heart disease, hypertension, diabetes, osteoporosis, and depression, and in assisting with weight loss. Improper diet, pardculariy diets high in fat, are linked with coronary heart disease and atherosclerosis. Americans' diets are high in fat-currently 36 percent of calories for the average person. Tobacco use is another behavior that results in preventable illnesses and diseases. It accounts for one out of every six deaths, or 390,000 deaths annually, and is a major risk factor for many diseases, including chronic bronchitis and emphysema, cancers of several organs, diseases of the heart and blood vessels, respiratory infections, and stomach ulcers. Cigarette smoking is responsible for an estimated 30 percent of all U.S. cancer deaths, 87 percent of lung cancer deaths, and 21 percent of all U.S. coronary health disease deaths. Smoking during pregnancy is estimated to cause 20 to 345 TIMN 0023423

30 percent of low birth weight babies, 14 percent of premanure deliveries, and about 10 percent of infant deaths. Use of alcohol and other drugs by Americans is another personal behavior choice that results.in preventable illness and disease. Alcohol is linked to approximately one-half of all homicides, suicides, and automobile accidents. Fetal alcohol syndrome is the leading cause of birth defects which can be prevented and affects as many as 3 of 1,0001ive births. The economic costs to the Nation resulting from alcohol abuse have been estimated to be $70 billion. Drug abuse is widespread in the United States and has an increasingly serious impact on health status, and demands for treatment are increasing health care costs. Drug abuse increases risk of several problems, including injuries resulting from violence, the spread of the AIDS virus, and crack addiction and developmental problems in babies. From 1985 to 1989, the number of cocaine-related emergency room episodes increased from 10,231 to 41,602, with a high of 42,510 episodes in 1988. The costs of drug abuse problems to the Nation were estimated to be $44 billion in 1990. Almost 12 million Americans are affected by sexually uansmitted diseases annually, and 86 percent of these American are between the ages of 15 and 29. The most common sexually transmitted diseases are HIV, gonorrhea, syphilis, and genital herpes. The most serious complications of sexually tran.smitted diseases include AIDS, pelvic inflammatory disease, sterility, blindness, infant deaths, mental retardation, and birth defects. The total cost of sexually ttransmiued diseasos to society exceeds $3.5 billion annually. In addition, many Americans are unaware of the availability and benefits of preventive care, such as immunization, vision and eye tests, mammograms, and Pap smeats, in reducing disease and saving lives. For example, there has been an increase in the number of cases of measles, a childhood disease that is preventable with a vaccine. 346 TIM.N O023424

Recent efforts, such as the campaign to educate the public about cholesterol, have been successful in raising the public's awareness of how changes in behavior and use of preventive care can reduce disease and illness. Increasing public awareness of the benefits of changing behavior and using this type of care can further reduce disease, and as a result, hold down health care costs. The Proposal It is proposed that the Surgeon General of the United States conduct a massive, 3-year public education campaign on the prevention of disease through changes in personal behaviors and use of preventive care and screening. The campaign would involve a coordinated effort using the broadcast and print media, including public service announcements, outreach to community groups, and cooperative ventures with businesses. The campaign would also involve schools through design of curricula for use in health education classes as well as presentations on preventive health issues. The Council suggests that the Advertising Council adopt this public education campaign on prevention as its entire effort during this 3-year period and that the Surgeon General work with other groups, such as the National Association of Broadcasters, to implement this campaign. 347 TIMN 0023425

PROPOSAL TO DEVELOP MODEL SECONDARY SCHOOL COURSE UNITS FOR THE TEACHING OF FAMILY FINANCIAL MANAGEMENT AND LONG-TERM PLANNING The Problem Many Americans are not aware of the importance of ear3ly financial planning for health care costs, retirement, and other economic needs likely to arise in tater life. There is a widespread misperception that when an individual reaches retirement age, the government, through Medicare and social security, will provide all necessary health cazE and income support. As a result, many Americans often do not learn about the limitations in the benefits provided by these two programs until retirement, at which point it is too late to undertake a program of savings and investment crucial to support during retirement years. In particalar, young people who graduate high school and enter college or employment tend to view their retirement years as a time so distant that they need not provide for iL Young people also see themselves as healthy, and, during their eatiy working years, often do not apQreciate the need to budget for, or insure against, predictable health care expenditures. For example, in hearings around the coimtry, the Council heard numerous State and local employees express their regret at having declined Federal social security coverage when, in their twenties, they were asked to plan their retirement pensions. Young people need to be taught the importance of budgeting and planning for these expenses if every American is to take responsibility to meet them adequately. 349 TIMN 0023426

The Proposal Model Secondary School Course Units and Materials The Secretary of Health and Human Services, in conjunction with the Secretary of Education, would develop and disseminate to States model secondary school course units and materials for teaching family financial management and long-tena planning to meet major expenses, such as those associated with: • health care, including major medical expenses; • education; • purchase of a home; • child care; • unemployment and • retirement. Coutse units would include elements on credit card and checidng account management, the availability of peranent Federal and state programs (e.g., Federal student loan: guaranties, State unemployment insurance benefits), and tax plaaoing (e.g., IRA and Keogh plans). The course units would also contrast the American social welfare system with those of other countries in order to provide the student with some historical perspective. Suggested Course Unit Content Zhe course units could be designed to cover the following topics: • Retirement pisnniag. A unit on retinement planning could cover these topics: 350 TIMN 0023427

Determination of income needs. How to determine the amount of income an individual would require to support his or her needs at retirement; how to plan savings or other investments to meet those needs; and how to plan for a retirement dependent upon multiple income sources, such as social security, pension plans, and savings. - Social security. The purpose of social security as a supplement to other retirement savings; the eligibility rules for social security; and the level of benefits an individual would expect to receive under social security based on the number of years worked and income leveis. - Pension plans. The types of pension plans offered by private employers; how to evaluate plans and compute benefits; and the impact of changing jobs during one's lifetime on the vesting of retirement plans. Savings. The types of ot4er private financial products, such as IRAs and annuities, available to individuals to enable them to meet their retirement income needs and how to evaluate and make decisions about these types of products. • Health care expense planning. A unit on planning for health cart expenses could cover these topics: Health eVense education. The types of health care expenditures that an individual may incur during his or her lifetime, including expenses for primary and preventive care, hospital care, physician care, long-term cam, prenatal and well-baby care, prescription drugs, and other types of care. 351 TIMN 0023428

Availability and role of health insurance. The types of health insurance available in the United States, including employer-based insurance, individually purchased coverage, and coverage from groups such as unions and professional associations; the types of costs that will be incurred by the individual, such as premiums, coinsurance, copaymenes, deductibles, and out-of-pocket costs for noncovered items; options for different types of plans, s,:ch as indemnity plans, HMOs, PPOs, and other types of managed care plans; long term care insurance and medigap plans; the importance of being covered by health insurance throughout one's lifetime, especially for unexpected catastrophic expenses; and how to choose the proper health insurance plan based on one's age, income, health staWs, and family status. - Medicare and Medicaid. The purpose of the Medicare and Medicaid programs; eligibility rules; types of services covered; and payment levels. • Disability insurance. A unit on the role and importance of disability insurance could cover. the types of events that may cause an individual to become disabled; the role of social security and employer-based insurance in providing income protection if an individual becomes totally or parday disabled; ways to determine the income that a wage eamer and his or her family will need if the wage earner becomes disabled; and - the appropriate type and levels of insurance that will be needed to provide disability income. 352 TIMN 0023429

• Life insurance. A unit on the roIe of life insurance in p?~~^ ung to meet the income needs of the family after the death of a -::.ne earner could include information on the types of life insurance pmdu~,•ts offered by employers and insurance companies and sIdlls needed to select the appropriate types of life insurance based on one's age, income, health status, and family status. • Budget planning. A unit on budget planning could teach students: - how to make choices about retirement planning, health expense planning, and life insura*+cp planning in the context of their overall budgets starting when they enter the work force, and - how to re-evaluate their choices periodically in light of changes in their income, health status, or family status. . 353 TIMN 0023430

Appendix B: Recommendation Specifications Reform of Health Care Institutions 354 TIMN 0023431

A PROPOSAL TO REDUCE THE PAPERWORK ASSOCIATED WITH HEALTH CLAIMS Background In order to simplify the process through which health care providers submit bills to intermediaries and to the Health Care Financing Administration, a series of meetings, ]mown as the "UB 82" exercise, was held among representatives of HCFA, health care instuers, and intermediaries that culminated in the adoption of a single billing form. Despite agreement on this form, the LJB 82 form has become merely one of a number of billing forms currently in use. Often, a payer will require the submission of the UB 82 fomn and a number of other forms in addition. Consequently, the savings anticipated from UB 82 have not materialized. Today, it is estimated that 20 percent of Medicare expenditures, and a significant amount for other health care expenditures, are for paperwork. Also, the information provided by the UB 82 form is insufficient for use by HCFA in evaluating the quality of care provided. HCFA has therefore directed peer review organizations to abstract clinical information on patients using a uniform clinical data set and provide it to HCFA for all patients for which UB 82 forms have been submittett. The Proposal The Objective Legislation can support a forthcoming UB 92 process in three ways 355 ~ TIMN 0023432

• providing a framework to facilitate discussions; • clearly defining their objective; and • establishing an alternative process if the discussions were unsuccessfuL Advisory Council The proposal would direct the Secretary to convene an Advisory Council on Health Claim Standardization to consist of 15 individuals, including .repn'semaatives of the American Hospital Association, the American Medical Association, the Health Insurance Association of America, Blue Cross and Blue Shield, consumer groups, individual hospitals and health care insurers, and the Health Care Financing Administration. At least five members of the Council would be required to be cunenrly employed as hospital administrators. Responsibility of the Council The proposal would direct the Council, to recommend to the Secretary, within 2 years of its appointment, a uniform health claim reimbursement form for hospital services that would include all cfiarges-hospital and physician's services, x rays, tests, etc.-arising from an individual's hospitalizaaon. The foim would also include information needed to determine a patient's health insurance coverage and eligibility to participate in State, Federal, or private health care programs. When promulgated by the Secretary's regulations, the form would be the sole form required by the Health Care Financing Administration or any private health care insurer in 356 TIMN 0023433

the United States as the sole basis for making payment on a claim for reimbursement for hospital inpatient services or physician's services.°S Contents of a Uniform Reimbursement Form The uniform reimbursement form, as recommended by the Council, shall include: • Uniform Clinical Data Set. A diagnosis of the patient is based on a uniform clinical data set." • Procedures Employed. A uniform coding of medical procedures is used to treat the patient • Billing Information. Reimbursement is requested for each procedure employed with respect to the patient, including hospital services, physician's services, x rays, tests, rehabilitative services, and so forth, as may be required to ensure that the form is comprehensive. 4'The Omedws Budget Reconciliation Act of 1990 (secbon 4112) aeated a Pradicang Physicians Advisory Council to look in0o what is usuaily referred to as the 'hassle factor° (.e., the problems with pttysiaan bffug urder Mad'iCare). In addition, the Standard Claim Form (OMB 1500), developed by HCFA in conjunction with the AMA, is now used by HCFA, Blue Shield, HIAA members, the Department of Defense, the DepaRmerd of Labor, and many other pubGc agencies and private payers as the basis for paywog for physidans' sorvioos. Given reaerd congressionai action in the area of physiaans' claims under Medicare and the virtualy uniersal acceptance of the Standard Claim Form, the proposal does not ffitempt to repbw this ground. "The hstitute of Medicne has receniJy recommended deveiopmerd of an eledrardc medical record, with all patient information going iMo the record. The proposal, under development as 'Quality 2000' in conjunction with congressional legislative staff, would mandate elearonic data colied'an for taspitals by the year 2000. 357 TIMN 0023434

Report on Computerization of Billing The Council would also report on the computerization of health claim billing, i.e., the use of electronic means to transmit billing information from hospitals and physicians to insurers and HCFA. The report would include: • a survey of the current state of electronic billing; • a discussion of the impediments to more extensive use of electronic billing; • an analysis of the probable costs of increasing the volume and standardization of such billing in relation to the savings to the health care system that could reasonably be anticipated; and • the Council's recommendations for action that would facilitate the further extension of electronic billing in a cost-effective manner. Administration The Council would meet at the call of the chair. Members would be entitled to receive reimbursement of expenses and per diem in lieu of subsistence in the same manner as other members of advisory councils appointed by the Secretary under Medicare. Development of Form by HCFA Upon Failure of the Council to Agree If, at the end of 2 years after the Seczztary has appointed the uitaubers or" the Council under the proposal, the Council fails to recommend a uniform reimbursement form, the Secretary shall direct the Health Care Financing Administration to develop and promulgate such a form for the purpose v: ir.hir. 6 months. 358 TIMN 0023435

TECHNOLOGY ASSESSMENT AND DATA POOLING The Problem There is need for an adequate data base from which to develop improved methods of technology assessment and medical evaluation. In addition, hospitals and insurance companies, in consultation with the medical profession, need to compare and pool data. Currently no institutional machinery exists to ensure that this data base will be assembled, and the current state of antitrust enforcement would deter private organizations from pooling such data. The Proposal Advisory Group on Technology Assessment Data The Council recommends that the Secretary of Health and Human Services establish an Advisory Group on Technology Assessment Data. M~sbip. The Group shall consist of representatives from the Agency for Health Care Policy and Research, the Health Care Financing Administration, the Public Health Service, the Deparanent of Defense, the Veterans' Adminisuation, the Institute of Medicine of the National Academy of Science, and private members representing consumer groups, medical device manufacturers, health care insurers, health care providers, employers, and recognized experts in health policy research. Mbion. In order to promote assessment of technology through the use of a wider base of information that can be linked together, the Group shall 359 TIMN 0023436

develop standards to be used in the collection and maintenance of such information. The Group shall also develop uniform. definitions of information to be collected and used in describing a patient's clinical and functional status, common reporting formats for such information, and standards to ensure the security, accuracy, and appropriate maintenance of such information. Report. Within 1 year after it is established, the Group shall report to the Secretary on the feasibility of linking such assessment-reiated information of the Department of Health and Human Services with such information collected or maintained by other Federal departments and agencies and by private organizations. Stat6ng. The Agency for Health Care Policy and Research shall provide the Group with necessary technical, administiative, and clerical staff and with other facilities. Amendment of the Antitrust Laws The Counal recommends that the Attorney General and the Secretary of Health and Human Services jointly develop proposals for legislation to amend ttu antitsust laws to permit hospitals and insurance companies, in consultation with the medical profession, to compare and pool data for the purpose of developing improved methods of technology assessment and medical evaluation. 360 TIMN 0023437

THE MEDICAL DIRECTIVE AND PROXY ACT The Problem Medical advances continue to heighten the quandary of society's response to life-prolonging procedures which do not maintain the patient's quality of life. Fifty years ago, the majority of Americans died at home, receiving comfort and care in their final hours; today, 80 percent die in institutions, often tied to a spider web of tubes and wires that marshal a sophisticated technology to prolong the process of dying. In general. individuals who retain mental competence may refuse unwanted medical care. But often persons in exrremfs are no longer competent. Then they may be subjected to medical procedures that they would have refused, that offer them no hope of recovery, and that waste their remaining resources. Forty-one States and the District of Columbia have responded by enacting statutes enabling individuals to execute, in advance of need, a document usuaily called a"living will." The living will directs the withholding of extcaondinary, life-prolonging care, generally after a patient has become . terminatly ill without prospect of real improvement or cure. But these statutes have failed to solve the problems that gave rise to them. Only 9 percent of Americans have made a living will, and even these documents do not always reach the providers of care. In some States the living will is ineffective to govern care in the case of irreversible coma ort persistent vegetative state not coupled with a terminal illness. In all cases, its language is vague ("no reasonable expectation of recovery from extreme physical or mental disability," "artificial means and heroic measures," and so forth) and open to differing interpretations as to the 361 TIMN 0023438

conditions covered and the interventions that the patient, if competent, would accept. The "durable" power of attorney, i.e., a power of attomey that comes into effect, or remains effective, when the individual who has executed it becomes incompetent, can serve as an alternative or supplement to the living will. However, although all States permit the use of the durable power, in many States it is unclear whether it may be used to designate a proxy to make health care decisions. Moreover, many individuals may be reluctant to vest such an unconstrained authority in the hands of another. Finally, even if an individual chooses to do so, the designated proxy may be uncertain as to how to exercise the power, particulariy one executed many years before the event. The Proposal, in General Legislation, to be cited as the "Medical Directive and Proxy Act," would be proposed to require that a Registry be established within the Department of Health and Human Services. 'i"be Registry would provide a "Medical Directive and Proxy Designation" form" to all physicians who treat Medicare patients, and to any other physician who requests the form. The Registry would also inform each individual eligible for Medicare of the availability of the form at the office of the individual's physician and would encourage the individual to ask the physician to interpret the form and explain how it is to be executed. No physician would be requirEd to assist an individual in interpreting or executing a form; however, if the physician accepts Medicare patients, the physician would be required to refer the individual to some other physician for the requested guidance. "The torm contempia2ed woidd be based on to form deveioped by Linda L Emanua(, M.D., Ph.D., and Ezeidei J. Finanual, M.D., Ph.D, and desaibed in their artlde, 'The Medical Diredive, A New Comprehensnre Advance Caro Dawmert; 261 JAMA 3288, June 9,1989. 362 T[MN 0023439

An individual who chooses to execute the form would f le with the Registry the form signed by the individual and the individual's designated proxy.°$ The form would accomplish two purposes: • It would allow an individual to designate the acceptability of specified life-prolonging medical procedures in the event of any of a small number of medical situations in which the patient has little or no competence to act for himselt • It would appoint a proxy with the authority to make decisions regarding the cessation of life-sustaining treatments upon the individual's incompetence. The proxy would be bound by the patient's choices evidenced in the medical directive portion of the form unless the patient specifies otherwise and would in any event be guided by that portion in making decisions not covered by it. At the request of the patient or the patient's proxy, the Registry would supply a copy of the executed form to any physician of the patient or an appropriate licensed health cars provider. The bill would contain provisions, described below, to ensure the effectiveness of the form and to enable the individual who has executed it to revise or revoke it (if competent). From time to time, as new life-sustaining ttEatments become available, the Registry would promulgate amended forms, provide them to physicians, and advise registrants of their availability. "1n the r,ase of minas eGgbe for Me*are by reason of disabi6ty, the parent or guardian woufd in any everd be requied to mafw the decition as to what care to authorize at the fime that care is required. However, tbe praposal would aBow the minor (through the minors parent or guardian) to execute a Meckaf DireaWe and Proxy Designadon form so as to take advantage of the provisions of the proposed law that ovenide State imrtations discassed eariw. 363 TIMN 0023440

The Proposal's Scope Federal Preemption of State Law With Respect to Medicare Beneficiaries Living will legislation has been the exclusive domain of the States. Proposals for Federal involvement have generally confined themselves to suggestions for model State living will statutes, or for Federal laws limited to requiring Medicare and Medicaid beneficiaries to be informed of their rights to execute advance medical directives under State 1aw 49 The instaru proposal would encroach on that dominance by overriding State law in a few marginal situations: most notably in allowing an individual, regardless of the law of the State in which health care is received, to direct the withdrawal of that care (including the withholding of artificial nutrition and hydration) in the event of irreversible coma or persistent vegetative state. The provisions of the instant proposal that override State law would apply only to Medicare beneficiaries. The health care of a Medicare beneficiary is largely paid for by the Federal Govemmetu. There is therefore a strong FederaL interest in the medical care of Medicare beneficiaries: what care is to be provided and when it is to be provided. Preemption of State law, even when quite limited, is most defensible on constitutional and policy grounds when necessary to accomplish a legitimate Federal objective: in this case, ensuring the economical use of Medicare trast funds in providing care to those beneficiaries. "This was the apQroach taken in 1982 by the Pnesident's Commission for the Study of Ethical Problems in Med'icine and Bioaaedical and Behavioral Research. See, also, the'Patient Self Determination Act of 1989,• S.1768,101st Cong. (Qanforth);'An Act To Provide for the Creation of a Durable Power of Attpmey for Heabh Care,* propased as a model State law by the American Medical Assoaiation in October 1986; and sections 4206 and 4751 of ahe Omnbus Budget Recwadw Aat of 1990, Pub6a Law 101-5013, which amended the Social Seaui4y Ad to require health care providers to inform Medicare and Mediceid benefia:arias of their rights under State law to axept or refuse medical Ca(Y. InClNding the right to make 'an adYan06 &eCttve' COnC6rnGi9 that care. 364 'TIMN 0023441

Application to Other Individuals The Medicare population, consisting of persons who are aged or seriously disabled, is the population group that appears to have the greatest need for an effective means of governing medical care in the event of mental incompetence. A proposal is most credible, generally speaking, when it evolves from a felt need. Nevertheless, although the proposal's State law override provisions would apply only to Medicare beneficiaries, any individual would be allowed to execute a Medical Directive and Proxy Designation and file it with the Registry. 365 TIMN 0023442

The Proposal, Major Features Establishment of Registry The Secretary of Health and Human Services would be directed to establish a Registry for the purpose of developing and disseminating a Medical Directive and Proxy Designation form, registering an official copy of e:u:i1 e:,zzuted form, and providing certified copies of the form to appropriate physicians and other licensed health can~ providers. Location in DHHS The Regiso•y would be located, organizationally, within an agency of the Deparnment of Health and Human Services designated by the Secretary. Devdapmeat of Form. The Registry would develop, within 4 months after its establishment and after consultation with interested individuals and organizations, a Medical Directive and Proxy Designation form that meets the requirements described below. Notificsutim of Phydcians and Medicare F.ligibles. Upon completion of the form, the Registry would take the necessary steps: • to inform primary care physicians of the availability of the form and who may execute it, • to inform all Medicare eligibles of the nature of the form and how it may be executed, and • to conduct outreach activities through public and private organizations, agencies, and institurions to inform the public about the form. 366 TIMN 0023443

Thereafter, the Registry would inform individuals of the form and i L a.t may be executed upon their first becoming eligible for Medicare. Maintrnance and Rekm of Records. The Registry would establish a procedure for recording the existence of, and retaining, all executed forms, revised forms, and revocations of executed forms. The procedure for revising or revoking an executed form is described below. Medical Directive and Proxy Designation Terms. The Medical Directive and Proxy Designation (the "MD&PD") would be in two parts: a medical directive and a designation of proxy.50 Medical Directive. The medical directive portion would specify the procedures covered, paradigmatic cases in which a physician might reasonably direct the use of one or more of such procedures, and the patient's wishes with respect to those procedures in the context of the paradigmatic cases. Prosrdrrns Cavrnd The Secretary's regulation would specify the procedures covered and would be amended from time to time (with appropriate notice to registrants) to reflect new procedures. Initially it would be expected that the procedures covered would include: • cardiopulmonary resuscitation, • mechanical breathing, • artificial nutrition and hydration, • major surgery, f0 The form descnbed is essent'raliy the form pmposed by the Drs. Emmanuai, op. r~tA note 51. 367 TIMN 0023444

• minor surgery, • kidney dialysis, • chemotherapy, • invasive diagnostic tests, • simple diagnostic tests, • transfusion of blood or blood products, • use of antibiotics, and • pain medication that may dull consciousness or indirectly shorten life. PanodigmoYlc Casm The form would contain a small number of cases with respect to wirich the individual would express his wishes (as described in the next paragraph) as to the procedures listed in the preceding paragraph. These cases would, at least, include the foIlowing. • A coma or pergstem vegetative state, where there is no known hope of regaining consciousness; • Brain damage or disease that cannot be reversed and which makes the individual unable to recogaize people or speak intelligibly, with little or no likelihood of regaining significant higher funcrions: • Brain damage, as previously described, coupled with a terminal iIlness. Expr+esdou of IndIrfdrral's Wislus. The form would contain a small number of multiple choices through which the individual would express his wishes, 368 TON O023445

e.g., "I want the procedure," "I do not want the procedure," "I will leave the judgment to my proxy," "I want a trial of the procedure, but suspension of treatment if no clear improvement." Proxy Designadon Who May Serve. The proxy decisionmaker may not be a person, or an employee of a person, who, at the time of making a health care decision under the designation, is responsible for providing health care to the individual executing the proxy or is an employee of a company that has issued to that individual a policy of life or health insurance. Witfrdnawal of Proxy. An individual may change the designation of a proxy in such manner as the Secretary's regulations may provide, except that any such change must be in writing unless it is determined that the individual, although competent, is physically unable to execute a written document. 369 TIMN 0023446

F.xplanation of Revfsion and Revowtion. The fonn wvu ... __._:~d clear explanation of: • the manner in which an individual may revise or revoke the form (as described below) and • the effect of an individual's choice to allow, or not allow, :he designated proxy to override the choices expressed in the Medical Directive portion of the MD&PD. Execution of Form. Skmatn of Indirfdnal The individual executing the form would sign it and provide his home and business addresses. Des%wared Proxy to Ca-Skm The designated proxy would co-sign the form and provide his home or business address. Effectiveness. Notwithstanding the law of any State to the contrary, a properly executed MD&PD would be effective at least with respect to the paradigmatic conditions described therein. Nevertheless, the MD&PD could not authorize the adminisuadon of any medication for the purpose of shortening the life of the subject or the refusal to provide normal feeding or hydration. Filing with the Registry Who May Fik Any person may file with the Registry a properly executed MD&PD. Copies. If the MD&PD is filed by any person other than the individual who has executed it, the person filing it would be instructed by the form to attest on it that a copy has been provided to such individual and to the co-signers. 370 TIMN 0023447

Notification. The Registry would make a permanent record of the receipt of a properiy executed MD&PD and would send a notice to the signer and co- signers concerning the Registry's receipt of it. The Registry would subsequently make the form available to a physician or other licensed health care provider upon receiving evidence that the physician or provider is engaged in providing care to the signer. Payment of Fee. The Registry may establish a fee to defray its adminisuative costs. The Registry would refuse to file an MD&PD unless accompanied by the prescribed fee. Revision and Revocation. An individual for whom an MD&PD is on file would be enabled to revise or revoke it in accordance with the Secretary's regulations, subject to the following restrictions: Writing Required. A revision or revocation would be required to be signed by the individual or accompanied by an attestation of two witnesses that the individual, although mentally competent, is physically unable to sign the document. Witnesses. If the individual is capable of signing the document, the sigaature must be attested to by a notary public. M®taI Incompetmca Notwithstanding the law of any State to the contrary, an MD&PD could not be revised or revoked on behalf of a mentally incompetent individual by a guardian appointed to act in his behalf or by any other person. Participation of Physician Payment of Fee. If -a physician agrees to interpret the MD&PD to a patient, or assist a patient to execute it, Medicare will reimburse the physician for an office visit. 371 TIMN 0023448

Referral of Patient. If a physician declines to interpret the MD&PD to a patient, or assist a patient to execute it, the physician, if he accepts Medicare patients, will be required to refer the patient to another physician who will provide the requested guidance. Imumonity of Physician and Other Licensed Health Care Providers. A physician or other licensed health care provider would be immune from any liability that might attach to advice given in connection with the form or the physician's failure to comply with any provision. Not a Condition for Providing Servias No physician or other licensed health care provider would be permitted to condition the provision of treatment on the existence or execution of an MD&PD. Effect on Policies of Ufe Insurance No policy of life insurance would be permitted to deem compliance with an MD&PD a suicide under the policy. The bill would declare any such provision invalid. State Participation As indicated above,.the Registry would be available for all cifizens who choose to file a Medical Directive and Proxy Designation form and pay the required fee. However, at the discretion of the Secretary, a State could enter into an arrangement with the Registry under which the State would pay the Registry fees for its citizens, reimburse the Registry for special arrangements, e.g., notifying physicians and citizens of the State of the availability of the fona, making a statewide distribution of the form to physicians, and providing the State with computer access to the Registry data base (subject to appropriate safeguards of individual privacy). 372 Trn'IN 0023449

HOSPITAL MERGERS AND JOINT VENTURES The Problem Since the adoption of DRGs in the early 1980s, hospital admissions and occupancy rates have declined, particularly in small communities. It has become very costly for communities with two or more hospitals, each with low occupancy rates, to ma;nrain multiple hospitals. However, communities develop a strong sense of identity with their local hospitals and are reluctant to see one facility close in favor of another. Many local communities have proposed mergers of two hospitals in order to maintain their sense of community identity while pooling services, personnel, and expensive equipment. However, current antitrust laws prevent such mergers because of the anticompetitive impact. Altemativeiy, other communities have proposed joint ventures using two hospital facilities for a hospital and a different purpose, such as a nursing home, but their proposals have been inhibited because of antitrust laws as well as Medicare fraud and abuse considerations. The Proposals Hospital Mergers - The Council would propose that the Attorney General develop proposals for legislation to amend the antitrust laws to pennit mergers of two hospitals in the same community in limited cases. The proposed legislation should include criteria relating to the length of time each hospital has served the community, the occupancy rates and relative financial condition of each hospital, and the willingness of each hospital to engage in the merger. 373 TIlVIN 0023450

Joint Ventures The Council would propose that the Attorney General and the Secretary of Health and Human Services jointly develop proposals for legislation to amend the antitrust laws to permit two hospitals in the same community, in a limited case, to enter into a joint venture for the provision of hospital services at one facility and health-related services (such as long-term care or outpatient can) at the other hospital facility. The proposed legislation should include criteria relating to the length of time each hospital has served the community, the occupancy rates and relative financial condition of each hospital, the types of services to be provided by the joint venture, and whether the new services to be provided meet an unmet need in the community. 374 ,rIMN 0023451

FACILITATING THE DISSEMINATION AND USE BY PHYSICIANS OF EFFECTIVENESS RESEARCH AND MEDICAL PRACTICE GUIDELINES The Problem The Depariment of Health and Human Services, through the Agency for Health Care Policy and Research, is supporting research on the appropriateness and effectiveness of alternative strategies for the prevention, diagnosis, treatment, and management of a variety of acute and chronic conditions and along with other entities is developing medical practice guidelines for use by health care providers. Practice parameters, the development of which by the medical profession is strongly advocated by the American Medical Association, will encourage and enhance the delivery of the most appropriate care to each patient. They would supplement the physician's judgment in reducing unnecessary and inappropriate variation in the use of health care services and procxdures. While there is a wealth of scientific information available to physicians to assist them in making professional judgments, mechanisms need to be developed to train physicians, during their undergraduate educations, to have the substantive background and siQll level to enable them to use, and be comfortable in using, effectiveness research results and medical practice guidelines as an integral and regular pan of their practice. Also, since there are, and will continue to be, more information and guidelines available to assist physicians in residency and practice, continuing medical education courses and new technologies need to be developed to enable residents and practicing physicians to use this information and apply it in the cases of specific patients. 375 TIMN 0023452

In the educational courses proposed below, emphasis would be placed on assisting the medical profession to reach consensus on different sets of guidelines and on methods of dissemination of the information. The Proposals Enhancement of Medical Education The Council recommends three proposals to facilitate the dissemination to, and use by, students, residents, and physicians of effectiveness research and medical practice guideIiaes. One proposal is directed at undergraduate medical education; the second is directed at continuing education for physicians; and the third is directed at new technologies to assist graduate medical education and physician practice. Undergradaate Medical Edncadon Course in Subjects Relating to Etfectiveness Researrh Modt1 Crrrricultrw The Secretary of HHS, through the Agency for Health Policy and Research, would develop a model curriculum and materials for a course to be given to focuth-year medical students. The course would include training in epidemiology, biostatistics, research methodology, and technology. The purpose of the course would be to give students a thorough grounding in subjects which are the foundation of effectiveness research and the development of practice guidelines in order that, as practicing physicians, they would have the skills to use the scientific information available to them and appreciate the value of guidelines as a tool for patient diagnosis, trr,atment, and management. CooperadoA with Acadeadc hrsnotdons mld Prvfessional Societles. The Secretary would work with medical schools, medical societies, and professionall associations in developing the model curriculum and to ensure 376 TMr1 0023453

that the curricula and materials are incorporated by medical schools around the country. Continuing Medical Education Asodal Cunt=hm The Secretary of HHS, through the Agency for Health Policy and Research, would develop a model curriculum and materials for a continuing medical education course for practicing physicians. The zourse would include training in epidemiology, biostarisdcs, research methodology, and technology. The.purpose of the course would be to give practicing physicians a thorough grounding in subjects which are the foundation of effectiveness research and the development of practice guidelines and to provide them with the skills needed to use the scientific information available to them and to appreciate the value of guidelines as a tool for patient diagnosis, treatmer.t, and management. CooperadoA with Acadeadc Insdrttions mrd Professioiral Sociedes. The Secretary would work with hospitals, medical schools, medical societies, and professional associations in developing the model continuing medical education course and to ensure that the curricula and materials are made widely available around the country. Tedmologies to 'h ain Resdmts and Assi.st Practicing Physicians Dewlopmext of Co.epWir-Assisted Models. The Council would recommend that a grant program be established at HHS to support the development of computer-assisted models to enable residents and practicing physicians to have access to the vast range of textbooks, literature, effectiveness research results, and practice guidelines developed by public and private research institutions, medical societies, and the public. The models would contain teaching units that would help physicians determine the most efficient and effective methods of diagnosis, treatment, and management of patients 377 TIMN 0023454

presenting different symptoms and would help to minimize ur::7dcessary tests, treatments, and associated costs. Use in ResJdurcy Prognams. DHHS would work with residency programs across the United States to encourage the incorporation of computer-assisted models in residency training. The purpose of this would be twofold: to expand the information and practice guideline base available tc :eEidunts during their training in addition to that provided by residency progr?m faculty and to encourage graduates of residency programs to use these computer-assisted models when they enter practice. . Study and Evaluation The Secretary of Health and Human Services would commission a broad- ranging, long-term study of medical education in order to: • develop and recommend additional means of enhancing medical education so as to improve the ability of physicians to incorporate information on the outcome of medical procedures into their own treamnent modalities and • undertake longitudinal studies to evaluate the effectiveness of the naining proposed above in improving the quality of medical care provided by physicians who have received it. 378 TIMN 0023455

MERGING MEDICARE PARTS A AND B The Issue When Medicare was established in 1965, the hospital played the critical role in the provision of health care services. Most procedures and tests were performed in the hospital, and patients recuperated there until they were ready to be sent home. Because of the central role of the hospital in 1965, Medicare Part A was established as a hospital insurance program. Part B was estabtished as a voluntary supplemental insurance program, and each part had its own funding sources. Several factors have occurred since 1965 which reduce the need for the separation of the two parts of the program. Many types of procedures once provided in the hospital are now provided in outpatient settings, and many services incident to a hospital stay (such as preadmission testing) are now performed on an outgazient basis. Furthermore, the percentage of Medicare expenses for Part A has been steadily decreasing, while expenses for Part B have been increasing. The separation between the Part A trust fund and the premiums and general revenues for Part B inhibits evaluation of total program expenditures and ~ goals. The distinction between Parts A and B is becoming less important to consumers of seri+ices. Also, HCFA is increasing its capacity for integrating Part A and B files so that it can study overall use of health care services. It is time to consider whether adminisnarive efficiencies, both for the program and consumers, can be achieved by the merging of Parts A and B. 379 TIMN 0023456

The Proposal The Advisory Council recommends that the Medicare law be amended to combine the administration of Parts A and B into one program. Eligibility and financing would not change. The three separate funding sources- payroll taxes, general revenues, and premiums for Part B would remain, and a method would be developed by HCFA to maintain the integrity of the relative share of program costs for purposes of detennining the part B premium. Combining Parts A and B has several advantages. The Medicare program would be viewed as a single unified program withh common administrative and management goals. The impact of program expenditures could be evaluated and analyzed in terms of their total impact on the economy, and a unified portrayal of the long-range obligations of the program could be accomplished. Adminisuxtive efficiencies would :result in savings for the program and easier interaction with the program for beneficiaries. 380 TIMN 0023457

Appendix C: Cost Estimates TIMN 0023458

Estimates of Savings and Costs To the Federal Government of Selected Health Care System Reform Proposals and Demonstration Proj ects December 17, 1991 Prepared By: Donald N. Muse, Ph.D. President Policy Research Group 1317 F Street, NW, Suite 400 Washington, DC 20005 202-737-0100 TIMN 0023459

Preface This paper contains estimates of twenty six proposals for reform of the health care system and demonstrations made by the Advisory Council on Social Security. The estimates are organized into: • A statement of the proposal, • The basis of the estimate and key assumptions, and • The estimate itself. Unless otherwise noted, the estimates are calibrated to the Congressional Budget Office (CBO) August 1991 baseline. It i i rtant to note that theRonosais have been estimated as a pac ge. Removal or modification of at)ronosal can cause the cost or savinEs from other prgt>osais to increase or decrease For examQe eliminating the infant mortality Droposal would increase the cost of the school-based clinic 2roposal. Coordination of Estimates and Council Prooosals The descriptions of the Advisory Council's proposals are not precisely the same as those contained in the final report of the Council printed elsewhere. The press of printing and other deadlines prevented precise coordination of detailed proposal descriptions between this report and the main Council report. However, the estimates contained in this report are, to the best information available to the authdr, essentially the same from a cost estimator's point of view, to those contained in the Council's final report. Aclmowledgements The author is indebted to the numerous persons who provided information used in the preparation of the estimates and the assistance of Advisory Council staff. Without their assistance and the editorial and secretarial support of Ms. Elizabeth Salomon, this report would not have been possible. TIMN 0023460

Table of Contents PREFACE Page SUMMARY TABLE OF COSTS AND SAVINGS ASSOCTATED WITH REFORM AND DEMONSTRATION PROPOSALS ................... 1 A. PROPOSALS TO INCREASE THE ROLE OF SC3OOLS IN THE HEALTH CARE SYSTEM 1. A PROPOSAL TO ASSIST STATE DEPARTMENTS OF HEALTH TO ESTABLISH SCHOOL-BASED HEALTH CLINICS TO PROVIDE PRIMARY HEALTH (:ARE ............ 4 2. A PROPOSAL TO ASSIST THE STATES TO PROVIDE SCHOOL-BASED MAJOR MEDICAL INSURANCE ............ 11 3. A PROPOSAL TO DEVELOP MODEL SECONDARY SCHOOL COURSE UNITS FOR THE TEACHING OF FAMILY FINANCIAL MANAGEMENT AND LONG-TERM PLANNING .......................... 13 4. A PROPOSAL TO PROVIDE DRUG AND ALCOHOL ABUSE, PREVENTION, AND TREATMENT FOR PRESCHOOL CHILDREN ............ 16 B. GENERAL REFORMS TO THE HEALTH CARE SYSTEM 5. THE MEDICAL DIRECTIVE AND PROXY ACT .............. 17 6. RESEARCH TO FOSTER INDEPENDENT LIVING ............. 19 7. FACILITATING THE DISSEMINATION AND USE BY PHYSICIANS OF EFFECTIVENESS RESEARCH AND MEDICAL PRACTICE GUIDELINES ............................. 22 8. ALTERNATIVE PROCEDURE TO ADJUDICATE MALPRACTICE CLAIMS ........................................25 9. INCREASING ACCESS TO PRIMARY CARE ................. 31 10. A PROPOSAL TO REDUCE INFANT D:ORTALITY ............ 33 11. A PROPOSAL TO PROMOTE EMPLOYER-BASED HEALTH INSURANCE ......................................38 TIMN 0023461

12. A PROPOSAL TO REGARDING HEALTH INSURANCE FOR THE SELF-EMPLOYED .................................. 40 C. REFORMS TO INCREASE 1BE EFFICIENCY OF MEDICARE 13. A PROPOSAL TO REDUCE THE PAPERWORK ASSOCIATED WITH HEALTH CLAIMS ............................. 41 14. HOSPITAL MERGERS AND JOINT VENTURES ............... 43 15. A PROPOSAL TO ESTABLISH CENTERS OF EXCELLENCE ...... 46 16. A PROPOSAL TO CONTAIN MEDICARE COSTS THROUGH USE OF SELECTIVE CONTRACTING ........................... 51 17. MERGING MEDICARE PARTS A AND B ................... 55 D. TASK FORCE AND OTHk.R INITIATIVES 18. TASK FORCE ON INVFSTMENT IN HUMAN RESOURCES ....... 56 19. PROMOTING HEALTHY LIFESTYLES .................... 58 20. POOLING OF DATA AND TECHNOLOGY ASSESSMENT ....... 61 21. ESTABLISH PRESIDENTIAL COUNCIL ON FITNESS FOR THE THE SECOND FIFTY YEARS ........................... 62 22. A PROPOSAL TO DEVELOP INFORMATION ON THE MEDICAL TREATMENT OUTCOMES ..................... 64 23. A PROPOSAL FOR A PUBLIC EDUCATION CAMPAIGN ON PREV EPPI ION .. ............................... 6E E. MEDICAID DEMONSTRATION PROPOSALS 1. WROVING ACCESS TO MEDICAID SERVICES ................ 6 7 2. OUTREACH DEMONSTRATIONS ........................... 7] 3. INCREASING MEDICAID COVERAGE OF UNINSURED POPULATIONS 7: TMr1 0023462

SUMMARY TABLE OF COSTS AND SAVINGS ASSC)CIATEI WITH REFORM AND DEMONSTRATION PROPOSALS Numbers in millions of Dollars By Fscal Year 1993 1994 1995 TOTAL A. PROPOSALS TO INCREASE THE ROLE OF SCHOOLS IN THE HEALTH CARE SYSTEM 1. A PROPOSAL TO ASSIST STATE DEPARTMENT OF HEALTH TO ESTABLISH SCHOOL-BASED HEALTH CLINICS TO PROVIDE PRIMARY HEALTH CARE 81 423 453 557 2. A PROPOSAL TO ASSIST THE STATES TO PROVIDE SCHOOL-BASED MAJOR MEDICAL INSURANCE 50 500 500 1050 3. A PROPOSAL TO DEVELOP MODEL SECONDARY-SCHOOL COURSE UNITS FOR THE TEACHING OF FAMILY FINANCIAL MANAGEMENT AND LONG-TERM PLANNING .5 .5 5 .5 4. A PROPOSAL TO PROVIDE DRUG AND ALCOHOL ABUSE PREVENTION, EDUCATION, AND TREATMENT FOR PRESCHOOL CHII.DREN 0 0 0 0 B. PROPOSALS TO REFORM THE HEALTH CARE SYSTEM 5. THE MEDICAL DIRECTIVE AND PROXY ACT 0 0 0 0 6. RESEARCH TO FOSTER INDEPENDENT LIVING 5 109 110 224 7. FACILITATING THE DISSEMINATION AND USE BY PHYSICIANS OF EFFECTIVENESS RESEARCH AND MEDICAL PRACTICE GUIDgt,IN0 5 3 2 10 1 TIMN 0023463

1993 1994 1995_ TOTA 8. ALTERNATIVE PROCEDURE TO ADJUDICATE MALPRACTICE CLAIMS 10 35 -330 -285 9. INCREASING ACCESS TO PRIMARY CARE 210 400 390 1000 10. A PROPOSAL TO REDUCE INFANT MORTAi.ITY 124 370 470 964 11. A PROPOSAL TO PROMOTE EMPLOYER-BASED HEALTH INSURANCE 0 0 0 0 12. HEALTH INSURANCE FOR THE SELF-EMPLOYED 0 0 0 0 C. PROPOSALS TO INCREASE THE EFFICIENCY OF MEDICARE 13. A PROPOSAL TO REDUCE THE PAPERWORK ASSOCIATED WITH HEALTH CLAIMS 1 1 50 52 14. HOSPITAL MERGERS AND JOINT VENTURES 0 0 0 0 15. A PROPOSAL TO ESTABLISH CENTERS OF EXCELLENCE 0 -5 -10 -15 16. A PROPOSAL TO CONTAIN MEDICARE COSTS TFHtOUGH USE OF SELECTIVE CONTRACTING' 0 -60 -170 -230 17. MERGING MEDICARE PARTS A AND B 0 0 0 0 D. TASK FORCE AND 0 1 ~R JNTfIATIVFS 18. TASK FORCE ON INVESTMENT IN HUMAN RESOURCES 0 0 0 0 19. PROMOTING HEALTHY LIFESTYLES THROUGH THE PRESIDENT'S COUNCIL ON PHYSICAL FITNESS .2 .2 .3 .7 I This is a conservative estimate. Depending on Secretari actions, this proposal could save $640 million over the thr years. See write up for detail. 2 TIMN 0023464

1993 1~94 1995 TOTAL 20. POOLING OF DATA AND TECHNOLOGY ASSESSMENT 21. ESTABLISH PRESIDENTS COUNCIL ON FITNESS FOR THE SECOND FIFTY YEARS 22. DEVELOP INFORMATION ON MEDICAL TREATMENT OUTCOMES 23. PUBLIC EDUCATION CAMPAIGN ON PREVENTION 0 2 0 10 0 5 0 20 0 5 0 20 0 12 0 50 SUBTOTAL REFORMS2 1100 2803 2491 6393 E. MEDICAID DEMONSTRATIONS IMPROVING ACCESS TO MEDICAID SERVICES 203 403 403 1009 OUTREACH DEMONSTRATIONS 203 403 403 1009 INCREASING MEDICAID COVERAGE OF UNINSURED 103 203 203 509 SUBTOTAL MEDICAID DEMONSTRATIONS 509 1009 1009 2527 F. PROTOTYPE COMPREHEIVSIVE REFORM DEMONSTRATIONS' PROTOTYPE COMPREHENSIVE DEMONSTRATIONS 500 3000 3000 6500 SUBTOTAL COMPREHENSIVE DEMONSTRATIONS 500 3000 3000 6500 GRAND TOTAL 2109 6812 6500 15421 2 Totals may not add due to rounding. 3 descriptions of these demonstrations can be found in the Council's main report. The cost of these demonstrations was determined by the Council and is included here for convenience only. 3 TIMN 0023465

PROPOSAL 1 A PROPOSAL TO ASSIST STATE DEP9RTMEiVTS OF HEALTH TO ESTABLISH SCHOOL-BASED HEALTH CLINICS TO PROVIDE PRIMARY HEALTH CARE The PrQ,pgsal It is proposed to support the establishment of a nationwide system of aeaiti, u;inics located primarily in or adjacent to elementary schools of the state. State departments of health would operate the ciinics-directiy or through arrangements with health care providers- -so as to offer wider and more regular access to primary health and dental care, including routine and preventive services, for all children of elementary-school age, and for pre- schoolers. The programs will n_ot, themselves, provide for health care services. These would be paid for from multiple sources: services provided to children from Medicaid-eligible families would be paid for by Medicaid (including the Early and Periodic, Screening, Diagnosis, and Treatment (EPSDT) Program); services provided to children eligible for such services from other programs, for example the Maternal. and Child Health Block Grant or the State General Medical Assistance Program, would be paid for by those programs; and services to children from families not entitled to public or medical assistance would be paid for by those families or their insurers except for the subsidy program. Like the school lunch program, the source of payment for any child will not be evident to other participants in the program. The program would incorporate features of managed care. A health care provider, selected under competitive bidding procedures, would deliver services to federal beneficiaries on a per capita basis, and would, at a minimum, pay for a substantial portion of a child's hospital costs. Elements of the Pro,ooaj A. Federal-State Program. A"School-Based Clinic Act" would be proposed as a federal formula grant program: (1) administered by the Secretary of Health and Human Services, to reimburse states, in the manner described below, for a portion of their administrative expenditures in establishing and operating health clinics in public elementary schools of the state, or in locations reasonably adjacent to public or private elementary schools within the state. B. Services Provided. A clinic established under the Act would be required to make available to children of elementary school age, and children of pre-school age, the following services: 4 TIMN 0023466

1. Preventive health care services, including immunizations, periodic well- chiJd visits, and hearing and vision testing. 2. Primary health care. 3. Dental care. C. Eligibility for Services. Any child of pre-school or elementary school age would be eligible to receive services at a clinic. D. Provision of Services. Services may be provided by health care practitioners employed by the state Department of Health (the "Deparunent"), or engaged under contract (but see G, below). Insofar as practicable, considering the location of the clinic and the patient population, the Department would endeavor to provide a physician who would be on duty at the clinic for all or part of each school day or alternate day, depending upon the number of children to be serviced. E. Payment for Services. 1. Medicaid Eliimbles. In the case of services to a child from a Medicaid-eligible family, Medicaid (including EPSDT) would pay for the services. 2. Qthers . In the case of services to other children, payment may be on such basis as the state (in the case of a state-operated school) or local educational agency may provide. A participant in the program would not be aware of the source of payment for other participants. F. Location of Clinic. It is the objective of the program to encourage the establishment of a school-based clinic easily accessible to every child of elementary school age. 1. Public IIementarv SchooIs. Insofar as practicable, the Department would be required to establish a clinic on-site in existing public elementary school space. 2. Other Locations. Where existing public elementary school space is inadequate, and it is necessary to establish a clinic to make health care services readily accessible to students at that school, the Department may establish the clinic in commercial or other space. 3. Private School. Clinics must be established to provide services to children attending private elementary schools. G. Managgment of Clinic. The Department would operate each clinic directly or through arrangements with providers. However, where considerations of economy and efficiency dictate, the Department could contract for outside management services. In such case the Department would be required to follow these procedures: TIlVIN 0023467

1. Ouality Assurance. Each provider would be required, as a condition of the contract with the Department, to undertake to perform services for contract beneficiaries of the same quantity and quality provided to the provider's other patients. A failure to perform would be a breach of contract that would make the provider liable for appropriate liquidated damages established under the contract (subject to the Secretary's regulations), and termination of the contract. H. Administration 1. Matching Rate. The federal matching rate under the program would be 75 percent and 25 percent state. Funds would be allocated among the states on the basis of elementary- school aged population in each state, as estimated in advance of each program year by the Bureau of the Census. In addition, the federal government would provide a$600 million annual subsidy for health care in the clinics extended to non-medicaid eligibles subject to sliding scale fee payments. Funds would be allocated among the states on the basis of elementary-school-age population in each state, as estimated in advance of each program year by the Bureau of the Census. 2. Payment of Funds. The state would administer the funds through the Department. 3. Use of Proeram Funds. The Department could use program funds for the following activities: a. Remodeling and Renovation. Remodeling or renovating existing public schools' facilities or other space so as to create,a site suitable for the provision of health care services. b. State Administrative E:c,penses. Department administrative expenses required to establish and inspect regularly the clinics. c. EQWnment. Purchase or rental of medical equipment reasonably necessary to provide the health care services described in III.B, above. d. Fymjshing . Necessary furnishings of the clinic, exclusive of medical equipment. I. Use of Child Sunoort Enforcxment System. The child support enforcement provisions of the Social Security Act would be amended to clarify the authority of the courts to include, in a child support order, a requirement for the payment of the premiums to enable a child to enroll in the insurance program offered under the praxding paragraph. 6 TIMN 0023468

Basis of Estimate and Key Assumptions From a cost estimator's viewpoint, this proposal has two dimensions. First, there are certain overall and timing assumptions that must be made in order to price all compcnents of the proposal. And secondly, the proposal requires several separate but interrelated estimates. It should be noted that this proposal has been estimated as part of the Advisory Council's overall package. If this proposal is implemented without the rest of the package it is more z ns'v than is estimated below. Overall Assumption First, this proposal has been priced as part of a package of proposals. Should certain other proposals be modified or deleted the costs of this proposal migh*t increase or decrease. A second key assumption of this estimate is that the programs would be seif-funding as specified in the proposal. Specifically, this estimate assumes that once a program is established in a particular school district, the rates charged to "clients" would approximate the costs of running the program. Obviously, some school districu will "lose" money on the program and some will "make" money on the clinics. Timing Assumptions This estimate assumes that the Secretary of Health and Human Services(HIiS) will design and implement the program in FY 1993. This is obviously an optimistic assumption. This assumption is being made so that readers may have some estimate of the costs of implementing this proposal. In reality, should this proposal become law, it would be several years before the costs and savings from such a proposal would be realized. Individual Estimates From a cost estimators viewpoint this proposal is five separate but interrelated estimates. Each estimate is discussed below. Start-Un Costs The program will require elementary schools to have (1) a room in which health services can be delivered and (2) sufficient equipment and furnishings in that: room to deliver the services. However, the proposal also allows school systems to make arrangements to deliver the services in an area adjacent to the school. Extensive discussion with school system personnel, representatives of national educational and health organizations indicated that almost all elementary schools currently have a space, usually a room, dedicated to health. This is primarily due to state and federal accreditation 7 TIMN 0023469

requirements. In some instances, this spacelroom is currently being used for other purposes. As one respondent indicated, 'The program might make allot of schools have to ~ind another place to put the xerox machine. In the small number of schools who do no: i;av, ,:u~uate space, some of the school systems in which they arc Iocated will have existing full time school maintenance personnel that can remodel the will be capable of altering existing space to make it suitable for the program. Hence, the estimate assumes that less than five percent of all elementary schools will require remodeling or renovation for this new program. Based on discussions with school system personnel in charge of such projects, this should average approximately $10,000 per school. Discussions with a wide spectrum of school health personnel yielded a finding for the equipment and furaishings sirttilar to that for remodeling. The vast majority of schools already have simple medical equipment necessary to deliver the care. However, most respondents indicated that the number of schools needing new equipment or to add to existing equipment would be higher than the number of school that would require remodeling. Hence, the estimate assarnea that 10 percent of schools will require a complete new package of medical equipment and an additional 15 percent of school will be required to purchase at least some new equipment. Based on conversations with member companies of the Health Industry Dealers Association (EDA), it appears that the average cost of a new equipment package is approximately $1500. It was assumed that a school in need of a partial package would spend $500. It should ne noted that since the remodeling and equipment purchase will be borne by the federal government, it can be expected that school systems and states will be somewhat aggressive in claiming these funds. This estimate assumes that the federal 4overnment will secede in identifying schools that really need such remodeling and supplies. State Administrative Bxnenses State activities will include oversight and certification of the program. Based on similar activities now being conducted by state educational agencies, it would appear that approximately one million dollars per year will be adequate for an average state (plus the District of Columbia). An additional $2 million per year will be needed the federal level for program oversight. This means that the program will require $53 million per year for program administration. Incre_ased Services to Medicaid Beneficiaries The school clinic program will have two effects on the Medicaid program. More Services to ExistiIIg Beneficiaries First, it will increase services to existing Medicaid eligibles. Specifically, the clinics will identify and refer for treatment children who are currently on Medicmd .'„r ==iTMf .,f 8 TIMN 0023470

conditions that would have previously gone untreated. It will also increase the proportion of children who actually receive EPSDT services. It is clear that data on the magnitude of these effects is not available. However, conversations with staff of the existing Florida, New York and California school based clinic programs yielded relatively uniform opinions that approximately 15 percent of Medicaid children seen by the clinics would need at least one additional service and that the clinics would increase the current EPSDT completion rate by a 20 percent. Using current per capita's as reported to HCFA by the states this result in $510 million in additional new services to existing Medicaid beneficiaries by 1995. Costs of Services to New Medicaid Beneficiaries The second effect that the school based clinic program will have on Medicaid is that it will increase the number of children with Medicaid coverage. Specifically, children and their families who are Medicaid eligible will be identities through the clinics attempt to assist families in gaining access to needed health care services. Staff in ezisting school based clinic programs reported this ass a significant consequence of the programs activities. Based on conversations with these staff and the limited data available on the number of persons eligible but not currently enrolled on Medicaid program, it would appear that approximately 420,000 new children and adults will be enrolled on the Medicaid program as a consequence of this proposal• Subsidy of Nearly Poor Children The proposal calls for a $600 million per year appropriation to subsidize the cost of the school based program for nearly poor children not eligible for Medicaid. This amount is assumed to be 100 percent expended within the fiscal year as Medicaid is an appropriated entitlement. 9 TIMN 0023471

Estimate Table 1 COSTS OF A PROPOSAL TO ASSIST STATE DEPARTMENTS OF HEALTH TO ESTABLISH SCHOOL-BASED HEALTH CLINICS TO PROVIDE PRIMARY HEALTH CARE Numbers in bTiilions of DoUars by Fiscal Year JM 1~94 JM Total A. Start-U2 Costs Remodeling and Renovation 75 30 0 105 Equipment and Furnisiiings 60 30 0 90 B. Ongoing Administration State Administrativs Expenses 26 53 53 132 C. Incrrase in Services to Medicaid Beneficiaries Costs of Providing More Services For Existing Medicaid Beneficiaries 290 460 510 1260 Costs of Providing Services to Previously Unserved Medicaid Eligibles 130 250 290 670 D. SubsidYof Nearly Poor Children 100 600 600 1300 Total 681 1423 1453 3557 10 TIMN q323412

PROPOSAL 2 A PROPOSAL TO ASSIST THE STATES TO PROVIDE SCHOOL-BASED MAJOR 14tEDICAL INSURANCE THE PROPOSAL The school system is an ideal locus for assisting parents to mxt the major health needs of children through the purchase of economical group policies of major medical insurance negotiated by the school system. A program is proposed to assist the states, through their school districts, to offer a voluntary supplemental low-cost insurance product, limited to paying the costs of major medical expenses, to all pre-school and elementary school children registered at schools of the state. The insurance would remain available until a participant attained age 22, regardless of whether the participant remained in school. The federal government would reimburse the states, within an annual a;gregate federal program cost of $500 million, for 75 percent of their expenses in providing subsidized insurance to students from families with family incomes up to 185 of poverty. A state that participated in the proposed school-based clinics program would also be reimbursed, under both programs, for its annually program administrative expenses. Basis of Fcti_m_ate and Key AssumFtions The proposal calls for a$500 million per year appropriation to subsidize the insurance of nearly poor children through age 22 who are not eligible for Medicaid. The estimate assumes that it would be 100 percent expended within the fiscal year. 11 TIMN 0023473

Estimate Table 2 ESTIMATE OF THE COST OF A PROPOSAL TO ASSIST THE STATES TO PROVIDE SCHOOI,BASED MAJOR MEDICAL INSURANCE Millions of Dollars by Fiscal Year 1993 1994 195 Total ApQropriated Amounts 50 500 500 1050 12 TIMN 0023474

PROPOSAL 3 A PROPOSAL TO DEVELOP MODEL SECONDARY-SCHOOL COURSE UNITS FOR THE TEACHING OF FA11IlLY FINANCIAL MANAGEMENT AND LONG-TERM PLANNING The Proposal Model Curricula and Materials The Secretary of Health and Human Services, in conjunction with the Secretary of Education, would develop and disseminate to states model secondary-school course units and materials for teaching family financial management and long-term planning to meet major expenses, such as those associated with: 1. health care, including major medical expenses; 2. education; 3. purchase of a home; 4. child care; 5. vacations; 6. unemployment; and 7. retirement. Course units would include elements on credit card management, checlQng account management, the availability of pertinent federal and state programs (e.g., federal student loan guaranties, state unemployment insurance benefits), and tax planning (e.g., IRA and Keogh plans). The course units would also contrast the American social welfare system with- those of other countries, in order to provide the student with some historical perspective. B. S~u ;ested Course Unit Content. The course units could be designed to cover the following topics: 1. Retirement Planning. A unit on retirement planning could cover these topics: - a. Determination of Income Needs. How to determine the amount of income an individual would need to support the individual's needs at retirement; how to plan savings or other investments to meet those needs and how to plan for a retirement dependent upon multiple income sources, such as social security, pension plans, and savings. 13 TIMN 0023475

b. Social Security. The purpose of social security as a supplement to retirement savings; the eligibility rules for social security and the level of benefits an individual would expect to receive under social security based on the number of years worked and income levels. c. Pension Plans. The types of pension plans offered by private employers; how to evaluate plans and compute benefits and the impact of changing jobs during ones lifetime on the vesting of retirement plans. d. Savings. The types of other private financial products, such as IRAs and annuities, available to individuals to enable them to meet their retirement income needs and how to evaluate and make decisions about these types of products. 2. Health Care Exmnse Plannin¢. A unit on planning for health care expenses could cover these topics: a. Health Care Exaense Educadon. The types of health care expenditures that an individual may incur during his or her lifetime, including expenses for primary and preventive care, hospital care, physician care, long-term care, prenatal and well-baby care, prescription drugs, and other types of care. b. AvaiiabiIitv and Roles of Health Insurance. The rypes of health insurance available in the U.S., including employer-based insurance, individually purchased coverage and coverage from groups such as teachers. Basis of Estimate and K4X Assumntions Staff in the Office of Management and Budget within the Department of Educafion indicated that their Department has implemented numerous similar mandates over the last ten years. They indicated that it would cost approximately $3 million for the development over a two- year period and then approximately $500,000 per year for continued dissemination and npdatirtg of the materials. 14 TIMN 0023476

mt Table 3 ES irvIATE OF THE COST OF A PROPOSAL TO DEVELOP MODEL SECONDARY SCHOOL COURSE UNTTS FOR THE TEACH.iNG OF FAMILY FINANCIAL MANAGEMENT AND LONG-TERM PLAIrNING Millions of Dollars by Fiscal Year 1993 ,1994 1994 otal Appropriated Amounts 1.5 1.5 .5 3.5 15 TIMN 0023477

PROPOSAL 4 A PROPOSAL TO PROVIDE DRUG AND ALCOHOL ABUSE PREVENTION, EDUCATION, AND TREATMENT FOR PRESCHOOL CHII.DREN 'n_e$Rpsal The Council recommends that the Surgeon General develop a program to provide prevention, education, and where appropriate, treatment, for alcohol abuse and drug abuse affecting preschool children. The program should include the development of educational materials that parents and teachers can use to teach preschool children to avoid alcohol and drug abuse, efforts to encourage producers of children's television programming to include anti-alcohol and drug abuse themes and messages in children programs, public service announcements and other public education campaigns directed tipecifically at children. In addition, the Council recommends that school based health centers include programs such as Ala-Tot for preschool children in the services offered at these centers, and make referrals for alcohol and drug abuse treatment for parents of preschool and school-aged children. Estimate and K4Y Assumptions The staff necessary for these activities would be drawn from the agency staff. It would not increase federal expenditures. Estimate Table 4 DRUG AND ALCOHOL PREVF.NTION FOR PRESCHOOL CHILDREN: Numbers in Millioas of Dollars by Fiscal Year Outlays 2 1994 195 Tota 199 0 0 0 0 16 TIMN 0023478

PROPOSAL 5 THE MIEDICAL DIRECTIVE AND PROXY ACT The Propc~sa_ 1sa_1 The Council recommends; A. Establishment of ReEi=: The Secretary of Health and Human Services (HHS) would be directed to establish 2 Registry for the purpose of developing and disseminating a Medical Directive and Proxy Designation form, registering an official copy of each executed form, and providing certified copies of the form to appropriate physicians and other licensed health care providers. B. Location in HCFA Form: The Registry would be located, organizationally, within HHS. 1. Development of Form: The Registry would develop, within four months after its establishment, and after consultation with interested individuals and organizations, a Medical Directive and Proxy Designation form that meets the requirements outlined elsewhere. 2. Notification of Physicians and Medicare Eliei jles: Upon completion of the form, the Registry would take the necessary steps- a. to inform primary care physicians of the availability of the form, who may execute it, and of the responsibility of the physicians toward a patient who elects to execute it; and b. to inform all Medicare eligibles of the nature of the form, and how it may be executed. HCFA would maintain the registry and a toll free telephone line for hospital and beneficiary access to the data. 3. ftvment of Fee: HCFA may establish a fee to defray its administrative costs in opetating the Registry. The Registry would refuse to fiie an MD&PD unless accompanied by the prescribed fee. Physicians who assist the elderly would be paid some fee for assisting them to be determined by the Secretary. 4. Notification of Phy,sicians and Me ±icare IIiribles• Upon completion of the form, the Registry would take the necessary steps- 17 TIMN 0023479

a. to inform primary care physicians of the availability of the form, and who may execute it, b. to inform all Medicare eligibles of the nature of the form, and how it may be executed, and c. to conduct outreach activities through public and private organizations, agencies, and institutions, to inform the public about the form. Thereafter, the Registry would inform individuals of the form, and how it may be executed, upon their first becoming eligible for medicare. Basis of Estimate and Key Assunmtions This proposal would increase administrative costs of the program by (1) the development and information requirements of the bill and (2) increased ongoing operating cost for maintaining the Registry and toll free telephone line. Based on the costs of similar registries and tines operated by HHS and the Department, it would appear that the Registry would cost approximately S2 million per year. However, since the Secretary and/or the states may recover these costs by a user fee, this provision would have no budget impact even if states expand it to cover non-Medicare citizens by charging them a user fee. It was not possible to estimate tyhe cost of the physician fee for assisting the elderly in completion of the form since Secretartial discrection is indicated in ther proposal. This proposal would also save Medicare money through reduced lengths of stays. A shorter stay results in reduced costs for physician visits under Part B. This estimator was unable to locate any data on the number of life-sustaining situations encountered by the elderly. Hence, no estimate of savings to Part B was possible. However, the fact that this proposal would save Medicare, and to some extent other federal programs, is not questionable in the opinion of this estimator. Estim Table 5 ESTIIVIATE OF COSTS OF MEDICAL DIRECTIVE AND PROXY ACT: Numbers in Millions of Dollars by Fiscal Year Costs of Development and Administration of Registry 18 1993 1994 1995 Total 0 0 0 0 TIMN 0023480

PROPOSAL 6 RESEARCH TO FOSTER INDEPENDENT LIVING The ProMs,1 The Advisory Council recommends the establishment of a Center for Fostering Independent Living, and the funding of research oriented toward increasing andependent living in America's elderly population. Specifically, the Council propose: A. Establishment of a Center. The proposal would expand the focus of the National Institute on Aging by establishing within it a Center for Fostering Independent Living. The Director of the Center would report directly to the NIA director,. B. Mission in General. The Center would conduct and support applied research into means, social and scientific, to foster independent living among persons suffering an impairment in their ability to perform activities of daily living. Given its organizational placement, the Center would have ready access to the scientific findings of NIA as well as the other NIH institutes. C. Functional Assessment and Evaluation of Theranies. The Center would encourage the development of improved methods of assessing the ability of impaired individuals to function irr a non-institutional setting, and would undertake an evaluation of the effectiveness of existing rehabilitative therapies. D. Alleviation of Disabiing_Conditions. Continuing technological advances provide a means for dealing with the disabilities often associated with aging and which frequently lead to the need for long-term care. The Center, in cooperation and consultation with the Food and Drug Administration, would support the development and availability of drugs and devices such as those to: 1. eliminate falls or reduce their effect; 2. alleviate severe hearing or vision losses; 3. treat or correct urinary incontinence; 4. aid memory so as to combat wandering behavior and other severe consequences of memory deficits, and 5. compensate for losses in mobility. 19 TIMN 0023481

E. Living Arraneement,s. The Center would: 1. survey various living arrangements that would permit an individual employing them to live independently, 2. develop or support ways to optimize those living arrangements, and 3. conduct, or support the conduct of, one or more demonstrations of various living arrangements (except that no such demonstration may subsidize the living arrangements or care of any individual). F. Guide to Indenendent Living. The Center would publish a Guide to Independent Living. The Guide would be widely distributed to the elderly, and would provide them with information of medical and technological developments, home- and community-based services, and improved living arrangements, pertinent to aiding them, particularly the impaired elderly, to remain within the community. G. Technical Assistance. The Center would be authorized to provide technical assistance to states and local communities, and nonprofit organizations, in the development or implementation of improved arrangements to enable the elderly, particularly the impaired elderly, to live independently. Basis of the Estimate and Key Assumpgons The costs of this proposal to the federal government would accrue in two ways: first, the costs of administering the program and maintaining the staff and overhead of the Center for Fostering Independent Research, and secondly, the costs of the research grants themselves. The costs of administering the program were developed by examination of the costs of operation of the current centers within the National Institute on Aging. Based on the size of existing NIA staffs relative to their grant and other responsibilities, it would appear that the new Center would need approximately 10 staff members to plan for, award, and monitor the research grants. An additional four staff members and a director would appear necessary to administer the center and carry out other functions. Based on current and projected NIA staff and administrative costs this would result in 39 miIlion in costs for the Center in the first full year of operation, FY 1994. The research grants could be as large or as small as available funds. The $100 million per year level estimated below represents this estimator's opinion of the minimum level of funding suggested by the Center's mandate. Technical Notes Concetning. the Estimate The estimate assumes that grants would be awarded in the second year of the Center's operation. Some experience of other new federal grant programs suggests that it takes several years to develop a specific research agenda and implement a new program. 20 TIMN 0023482

mat Table 6 FSTIMATE OF COSTS OF RESEARCH TO FOSTER INDEPENDEIVT LIYING: Numbers in 11M*oas of Dollats by Fiscal Year Appropriated Amounts 1993 1994 1y5 Total 1. Costs of Center for Fostering Independent Care Administration 5 9 10 24 2. Research Grants 0 100 100 200 Total 5 109 110 224 21 TIMN 0023483

PROPOSAL 7 FACILITATING THE DISSEMINATION AND USE BY PHYSICIANS OF EFFECTIVENESS RESEARCH AND MEDICAL PRACTICE GUIDELINES The Prooosals The Council would recommend three proposals to facilitate the dissemination to, and use by, medical students, residents, and physicians of effectiveness reseazch and medical practice guidelines. One proposal is directed at undergraduate medical education; the second is directed at continuing education for physicians, and the third is directed at new technologies to assist graduate medical education and physician practice. jjnderQraduate Medical Education Course in Subjects Reiating to Effectiveness Research Model Curricula The Secretary of HHS, through the Agency for Health Policy and Research, would develop a model curricula and materials for a course to be given to fourth- year medical students. The course would include training in epidemiology, biostatistics, research methodology, and technology. The purpose of the course would be to give students a thorough grounding in.subjects which are the foundation of effectiveness research and the development of practice guidelines, in order to give them the sit-ills as practicing physicians to use the scientific information available to them and to appreciate the value of guidelines as a tool for patient diagnosis, treatment, and management. C2gyeration with Academic Institutions and Professional Societies The Secretary would work with medical schools, medical sociesies, and professional associations in developing the model curricula and to ensure that the curricula and materials are incorporated by medical schools around the country. Continuing_Medical Education Model Curricula The Secretary of HHS, through the Agency for Health Policy and Research, would develop model curricula and materials for a continuing medical education course for practicing physicians. The course would include training in epidemiology, biostatistics, research methodology, and technology. The purpose of the course would be to give practicing physicians a thorough grounding in subjects which are the foundation of effectiveness research and the development of practice guidelines, providing them with the skills needed to use the scientific information available to them and to appreciate the value of guidelines as a tool for patient diagnosis, treatment, and management. Cggpmtion with Academic Institutions and Professional Socieaes The Secretary would work with hospitals, medical schools, medical societies, and professional associations in 22 TIMN 0023484

developing the model continuing medical education course and to ensure that the curricula and materials are made widely available around the country. Technoloeies to Train Residents and Assist Practicing_Physicians Develooment of Computer-Assisted Models The Council would recommend that a grartt program be established at HHS to support the development of computer-assisted models, enabling residents and practicing physicians to have access to the vast range of textbooks. literature, effectiveness research results, and practice guidelines developed by public and private research institutions, medical societies, and the public. The models would contain teaching units to help physicians: determine the most efficient and effective methods of diagnosis, treatment, and management of patients presenting different symptoms, and minimize unnecessary tests, treatments, and associated costs. Use in Residency Progrims HHS would work with residency programs across the United States to encourage the incorporation of computer-assisted models in residency training. The purpose of this would be twofold: to expand the information and practice guideline base available to residents during their training, in addition to that provided by residency program faculty, and to encourage graduates of residency programs to use these computer- assisted models when they enter practice. Basis of Estimate and Key Assumptions The American Association of Medical Colleges (AAMC) staff and members were a major source of information for this estimate. Based on their experience, the development and dissemination of model curricula would be approximately $2 million dollars in the first two years and approximately $1 million per year thereafter to update and disseminate. The computer model was very difficult for them to estimate given that very few of this type of model have been developed. Contracts with two firms that develop such models in the general education area, indicated the amount of effort and dollars to produce such a model could be anywhere from "a little to a lot". Based on these conversations, this estimator selected $3 million in the first year and $1 million thereafter. Such models could cost more or less. 23 TEWN 0023485

Table 7 COSTS OF FACITITATING THE DISSEMINATION AND USE BY PHYSICIANS OF EFFECTIVFNE.SS RESEARCH AND MDICAL PRACTICE GLTIDELIlNFS Numbers in Millions of Dollars by Fiscal Year jM 1~94 1~995 Total Appropriated Amounts 1. Model Curricula Development 2 2 1 5 2. Computer Models 3 1 1 5 Total 5 3 2 10 24 TIMN 0023486

PROPOSAL 8 ALTERNATIVE PROCEDURE TO ADJU.DICATE INIALPRACTICE CLAIMS The Proposal The Advisory Council proposes a significant reform of malpractice procedures for Medicare beneficiaries. In general, the proposal remov,!s the malpractice award process from the judiciary system into a new executive branch administrative structure. The proposal also limits the amount of the awards and attorney fees. A. Administrative Structure. The administrative structure would be as follows: 1. Office of Malpractice Adjudication. The Act would establish, within the Department of Health and Human Services, an Office of Malpractice Adjudication (the "Office"). The Director of the Office would report to the Secretary or the Secretary's appointee. 2. Administrative Tribunal. Each malpractice claim would be heard by an administrative tribunal consisting of a presiding officer, who would be an administrative law judge meeting the qualifications for hearing examiners established by the Administrative Procedure Act, and two individuals determined by the Secretary to be expert in the field of health care or health care management. A decision of the tribunal would be by majority vote. Panels of the tribunal would be located in major population centers throughout the United States for the purpose of hearing malpractice claims against health professionals, and other health care providers, who provide health care wholly or partially paid for by a federal program. 3. Administrative Appml A party would be entitled to appeal a final determination of a tribunal to an administrative appeal council, a panel of which would be established within each region of the Department. The panel would be required to accept the tribunal's findings of fact, unless arbitrary, capricious, or unreasonable. The appeals council would be obligated to hear and decide the appeal within four months after the tribunal's decision. 4. Appeal to United States Court of Atroeal. The judgment of the appeals council could be appealed, on matters of law, to the United States Court of Appeal for the circuit within which the malpractice claim arose. The court would be without jurisdiction to reexamine findings of fact affirmed on administrative appeal, although it could remand the case to the agency with instructions to find additional facts. The court would be required to affirm the judgment of the appeals council unless it were found to be arbitrary, capricious, or unreasonable. B. ents. Judgements rendered by the system would be structured in the following ways: 25 TIMN 0023487

1. Economic Loss. A judgment for the claimant under the Act would be for the claimant's past, present, and future economic loss resulting from physical damage attributable to malpractice. 2. Collateral Source Reduction. a. Amounts Not Deriving from a Federal Program. A judgment would be reduced by any insurance or other amount to which the claimant became entitled in compensation of illness or injury resulting from the claimed malpractice (except amounts deriving from a federal program). b. Amounts Deriving from a Federal Prog=. A judgment would be reduced by one-half of any amount deriving from a federal program. In such case a supplementary judgment would be issued in favor of the United States for the balance of the payments. In the case of Medicare, this latter amount would, upon payment, be credited to the pertinent Medicare trust fund. In the case of a federal direct care program, the amount would be deposited in the general fund of the treasury. In the case of a federally assisted state program, the money would be divided, as appropriate, between the general fund of the treasury and the state. 3. Noneconomic Damages. Noneconomic damages, such as pain and suffering, would be limited to $2 million. Derivative damages, such as a wife's claim for pain and suffering, would be abolished. 4. AaQ='s Fets. A judgement for the claimant would include an amount for attorney's fees, in accordance with a schedule established by regulator within a ceiling set by the statute. The proposed ceiling is 25 percent of the first $1 million, 15 percent of the next $200,000, and 10 percent of the remainder. 5. Costs of Proceedin~. The tribunal could, in its discretion, assess either or all parties an amount, established by regulation and payable to the general fund of the Treasury, equivalent to all or part of the administrative costs of the proceeding. 6. Comvaradve NeQligence. An award for the claimant would be reduced in proportion to the degree to which the tribunal found that the claimant's negligence had contributed to the injury. 7. Liabili of Parties Defendant. If there are two or more parties defendant, they would not be jointly liable. A judgment against a party defendant would be limited to that party's•proportionate share of the injury caused. 26 TIMN 0023488

8. Award for Future Economic Loss. An award for future economic loss would not require the payment within a calendar year of an amount that exceeded the loss anticipated for that year, but such award would not be subject to future adjustment. 9. Derivative Ri;hts. No award could be made to any party based upon injury caused by malpractice in the medical treatment of some other person. C. Exclusions. The Office would be without the power to adjudicate a malpractice claim alleging: 1. wrongful death, or 2. willful injury. D. Exclusivity of Remedy. Except as otherwise provided by this Act, no court of any state, or of the United States, would have jurisdiction to adjudicate any claim arising from, or alleging, malpractice, if that claim were cognizable under this Act. In other words, the Act would be the exclusive avenue available to federal benefic:aries for pressing malpractice claims. Model State Malpractice Act Like the proposed federal act, the model state act would seek to restrain further growth in the cost of malpractice insurance, which has both inflated the cost of medical care and reduced the availability of health care in some medical specialties. The proposal adopts an administrative alternative to the present system of tort liability. Administrative alternatives, either as a supplement to, or replacement of, the existing system have been proposed by the Health Care Provider Liability Reform bill, based on the 1987 report of the Department of Health and Human Services' Task Force on Medical Liability and Malpractice, the Ensuring Access Through Medical Liability Reform bill, introduced in the last Congress by Senator Hatch (S. 2934, 101st Cong.), the Medicare Malpractice Dispute Resolution bill of 1990, introduced in the last Congress by Mrs. Johnson of Cotmecticut. The American Medical Association's Medical lriability Project, in its January 1988 report entitled A" Fault-Based, Administrative System" also recommends adoption of an administrative model. If a state adopts the Malpractice Adjudication Act before Congress enacts the Federal Beneficiary Malpractice Adjudication Act, the state statute would apply to all federal beneficiaries and health care professionals and other health care providers over whom the state has jurisdiction, until enactment of the federal act. If a state does not adopt the Malpractice Adjudication Act within five years after the Secretary promulgates it, and Congress has enacted the Federal Beneficiary Malpractice Adjudication Act, the federal act would be opened to all malpractice claims arising in the state, at the option of either parry. 27 'TIMN 0023489

Basis of Estimate and Key Assumations From a cost estimator's viewpoint, this proposal has two components: first, the additional costs associated with the administrative procedures put in place by the Act, and secondly, the savings that would accrue directly to Medicare, and indirectly to Medicaid and other federal programs from a reduction in malpractice awards caused by the Act. The additional administrative costs were estimated from data on the costs of the administrative procedures currently in place for the disabilities determination process in the Social Security Administration. Based on that data and conversation with SSA budget staff, it would appear that approximately 800 additional federal staff would be required to administer the system. This would result in an additional cost of $50 million in FY 1995. The savings from this proposal result from two sources. First, there would be a reduction in increases of Part A costs of due to a decrease in the DRG update factor. The DRG update factor is estimated annually by the Office of the Actuary in the Health Care Financing Administration (HCFA). As part of the calculation of the update factor, the estimated future cost of malpractice is estimated. Future Medicare Part A DRG update costs are therefore reduced by the degree to which future malpractice costs are reduced. It is absolutely clear that this proposal would decrease malpractice costs. Unfortunately, after an extensive effort to locate data on the distribution of malpractice claims by award amount, this estimator was unable to locate a reliable distribution upon which to base this estimate. Extensive anecdotal, local, and sporadic data exist to document that many malpractice awards exceed the limit contained in the proposal. However, reliable data on the dollar value of these awards could not be located. Given the fact that savings would occur but the unknown magnitude was, this estimator made the assumption that the HCFA actuaries would reduce their estimate of malpractice costs by 10 percent. This leads to savings of approximately $30 million in FY 1995. The second source of savings from this proposal would be reductions in the "defensive medicine' behavior of physicians. A extensive literature exists on the costs to the health care system of defensive medicine. There is little doubt that this behavior exists and that it adds to the costs of federal health programs, such as Medicare. Unfortunately, estimates of the quantitative impact of the behavior are a small subset of the literature. This author reviewed over twenty such studies and contacted several of the authors. In spite of the wide range of estimates of savings found in the literature (from 5 percent to 25 percent of program costs), most experts and the literature agreed that the savings to the Medicare program would principally occur in two ways: First, savings from an effective reduction in defensive medicine behavior by physicians would result in reduced laboratory tests under Part B. Interestingly, most experts said that these savings would be on the order of 5 percent to 15 percent, a much narrower range than 28 TIIVIN 0023490

that found in the literature. Based on all available evidence, this estimate assumes that laboratory tests ultimately would be reduced by 10 percent. It should be noted that these savings occur in both direct billings for laboratory procedures and indirect billings for office and clinic-based procedures under Part B. Second, although the literature and the experts agreed that a considerable number of unnecessary tests and procedures are performed on Medicare beneficiaries in hospitals, savings to the federal government would primarily occur as a result of reduced admissions since Part A primarily reimburses on a per admission basis. Almost all experts agreed that hospitals would benefit extensively from a reduction in unnecessary admissions. How many unnecessary admissions would be avoided by an effective malpractice adjudication program? The literature and experts were in relative agreement that this would be less than 2 percent of all admissions. This estimate assumes that by the end of year three, approximately one-half of 1 percent of all admissions would be avoided. A combination of the foregoing two factors results in a reduction of $330 million dollars in Medicare spending by FY 1995. This estimate can be criticized from several viewpoinu. On the one hand, literature and expert opinion exists that could substantiate a much larger estimate of the effect of an effective malpractice reform package. On the other hand, this estimate can be criticized as optimistic over the ability of the federal government to implement a pr ogram successfully within three years and for physicians to alter their behavior in so short a period. Clearly, the estimate could be wrong on both counts. However, this estimator believes that on net, these two assumptions are reasonable. 29 TIMN 0023491

Estim ta~r Table 8 ESTIMATE OF COSTS ALTERNATIVE PROCEDURE TO ADJUDICATE MALPRACTICE CLAIMS: Numbers in Millions of Dollars by Fisrai Year 1993 3994 1995 Total Outlays 1. Costs of Administering program' 10 40 50 100 2. Program Savings 0 5 -380 -375 Total 10 35 -330 -285 ' Appropriatcd Amounts 30 TIMN 0023492

PROPOSAL 9 INCREASING ACCESS TO PRh'vIARY CARE The Pronosal In order to improve access to primary care, the Council recommends that S250 million in new federal funding should be made available to establish 250 new community health centers, to be located in underserved areas or in areas with high concentrations of underserved target populations. The Secretary shall see that 20 of these new centers are targeted toward providing emergency care in areas without such services. An additional $290 million should then be provided in annual operating funds. In other respects, the Council has concluded that the existing authorities of the Department of Health and Human Services, if properly employed and financed, are sufficient to address the problems described. It strongly recommends that the Secretary of Health and Human Services and the Assistant Secretary for Health instruct the National Health Service Corps to revise its priorities focusing more attention on demonstrated unmet need. Specifically, NHSC should work within its authorities to increase the access of target populations to primary medical care, ig,, the urban and inner-city poor, especially infants and children; high-risk pregnant women; migrant workers and their families; drug and alcohol abusers, and the homeless. A$100 million grant for this purpose is proposed by the council. The NHSC should encourage primary care physicians to serve in community and migrant health centers, or in related health programs, or in underserved rural areas, and offer them incentives for efficient private practice in the areas in which they locate. To facilitate implementation of the proposed instructions, the Advisory Council also recommends that the Corps prepare a written plan describing the actions that it will take so as to refocus its activities as described. The plan should contain measures by which its success can be measured objectively, and, after approval by the Secretary, should be published in the Federal Register. Basis of the Estimate and Key Assumptions This proposal does not require an estimate since the appropriated amount is specified in the proposal. However, it should be noted that approximately 2.1 million new persons annually would be served by the new funds based on current per capitas for community health centers. The new centers themselves also would serve other clients funded by Medicaid and other payors. If the new centers' client mix were approximately the same as that of existing centers, these new centers would provide service to approximately 4 million persons. 31 TIMN 0023493

Technical Notes Concerning„the Estimate Considerable variation exists between migrant and community centers across the country in terms of per capita expenditures. This estimate assumes that the new centers approximate the average centers now in existence. To the degree to which the new centers differ in ciient population from the old cEnters, the estimate of the number of new people served would be in error. Allocation between years is based on current CBO spendout rates. B:idmate Table 9 ESTIMATE OF COSTS OF INCREASING ACCESS TO 1'RIMARY CAREc Numbers in Millions of Dollars by Fiscal Year 199_4 1995 Total 1. Costs of Establishing Centers 160 90 0 250 2. Operating Hxpenses 0 210 290 500 3. Grant to NHSC 50 100 100 250 Total 210 400 390 1000 32 T1AS 0o23494

PROPOSAL 10 A PROPOSAL TO REDUCE WFANT MORTALITY The Pronosal The Council proposes a major initiative to reduce infant mortality: A. General ARproach to Reducing Infant Mortalitv. Although many programs seek to reduce infant mortality, its incidence is bound up in societal problems not readily solved. The challenge to government is not to devise further prograzrs, but to ase more effectively those tttat exist. Accordingly, the following proposal seeks to sharpen institutional weapons already deployed. B. A. Provosal in Outline. As part of a renewed attack on infant mortality, legislation should be proposed to: 1. Integrate the WIC program with the MCH Block Grant program. The restructured programs would be administered by the Department: of Health and Human Services rather than the Department of Agriculture, but would continue to support activities now conducted under either program. 2. Require states to furnish locations at which an eligible woman could establish her entitlement, or that of her infant, both to MCH/W1C benefits and to Medicaid. 3. Introduce a simplified application form for MCH/WICIMedicaid eligibility. 4. Use publicly financed providers for "one-stop shopping": i,g„ a single locxtion both for determining eligibility for all programs pertinent to infant mortality and for providing health services. 5. Support outreach activities to publicize the program's existence of the program to potential eligibles, and to make program funds available for transportation and child care to enable mothers to meet health care appointments. 6. Establish demonstration of incentives to encourage women to obtain prenatal and well-baby care. 7. Support a demonstration program of home visits. 8. Institute economies, such as managed care, in, the provision of health services, and arrangements to ensure the quality of those services. C. Additional Proe.rnm Features. 33 TIMN 0023495

1. Use of Modified Block Grant Mechanism. The int.egraV..u r.,~r~ wZC program, like the existing MCH program, would be structured as a block grant to the states, controllable by annual appropriations action. It would, nevertheless, require participating states to meet program objectives described in paragraph IV.B. 2. Availabilitti_of Prqgram Benefits. Food and services under the program would be available to all pregnant women and infants, regardless of income, although the state would be allowed to charge for food or services provided to individuals other than low-income mothers or children. In such case, the state would be required to scale those charges in proportion to the income, resources, and family size of the (non-low-income) individual assisted. 3. Smolemental Grants for High Risk Popuiations. The program would reserve a proportion of total grant funds for grants, by the Secretary, to states, and counties, for innovative approaches to enhancing the program for high-risk populations. The Secretary would be required to develop a system of priorities for awarding such grants, with preference to be given to assisting children with special health care needs, chronically underserved populations, and other populations within which infant mortality is significantly higher than the national average. 4. National Health Service Coros Prioritv. The Public Health Service Act would be amended to establish a priority for the assignmeat of National Health Service Corps primary care physicians to areas (whether or not "underserved') that are shown to suffer annual rates of infant mortality exceeding, by 50 percent or more, the average annual rate of infant mortality among the white female population of the United States. 5. Maternal and Child Health Information Pr==. The program would generate maternal and child health information at two levels: a. Written Information. Within the federal administering agency, there would be created an Office of Maternal and Child Health Information. The Office would be responsible for developing and disseminating written information to women of child-bearing age within the United States. b. Classes. As a condition of federal financial participation, a state would be required to develop classes in prenatal care, child-care, and child-nurture, maldng them accessible to pregnant women, mothers, fathers, and (within the limit of program resources) all other women of child-bearing age. The Office of Maternal and Child Health 34 TINiS 0023496

Information would be authorized to cooperate with the states in preparing written course materials. 6. Prenatal Care Incentives Demonstration. In order to encourage women, particularly low-income women, to avail themselves of services intended to reduce infant mortality and improve the nutrition and health of mothers and children, the demonstration program would offer incentives, in the form of additional subsidization of prenatal, obstetrical, and well-baby care. 7. Ouality Assurance. Each provider would be required, as a condition of the contract with the state, to undertake to perform services for contract beneficiaries of the same quantity and quality provided to the provider's other patients or clients. A failure to perform would be a breach of contract that would make the provider liable for appropriate liquidated damages established under the contract (subject to the Secretary's regulations), and termination of the contract. Basis of Estimate and Key„Assum 'ons This is a complex estimate with a number of components. It should be noted that this proposal would be more expensive is other proposals, such as the school based clinics, were removed from the package of proposals. Intesrate wIC/MCH Block Grants Integration of the WIC program with the MCH Block Grant program would have no budget impact. The few department staff freed by the administration most likely would be reassigned to the other activities required by this proposal. Hence, this portion of the proposal would have no costs or savings. Sinpiification of Appiication Process The proposal requires states to: (1) increase the number of intake sites, (2) simplify the application form, and (3) institute "one-stop shopping". Based on the experience of six states currently being analyzed by HCFA, such efforts increase Medicaid costs due to increased coverage during the verification phase of the application process. The estimate of these costs assumes that approximately 10 percent of applicants would benefit for an average of 60 days from the simplification process. Outreach Activities The proposal requires states to publicize the program's existence to potential eligibles, and to make program funds available for transportation and child care to enable mothers to meet health care appointments. Outreach activities for this group are assumed to cost S20 million per year. These outreach activities will yield an increased number of Medicaid eligibles. 35 TIlVIN 0023497

Using the limited experience of California in such activities for this particular group, it would appear that an additiona1200,000 persons would be ennflled and services to an additiona1500,000 children would increase. Per capita's for these groups were taken from Medicaid statistical dara. Demonstrations of Incentives The proposal requires the Secretary to establish demonstrations of incentives to encourage women to obtain prenatal and well-baby care. The demonstrations are to be appropriated at $10 million per year and therefore do not require estimation. Demonstrations of Home Visits The proposal requires the Secretary to establish demonstration programs of home visits. The demonstrations are to be appropriated at $10 million per year and therefore do not require estimation. 36 TIMN 0023498

E tima Table 10 COSTS OF A PROPOSAL TO REDUCE INFANT MORTALITY Numbers in Millions of Dollars by Fiscal Year 1993 4 199 1995 Tota: _ Integrate WIC/MCH Block Grants 0 0 0 0 Simplification of Application Process 70 100 120 290 Outreach Activities 50 250 330 630 Demonstrations of Incentives 2 10 10 22 Demonsttations of Home Visits 2 10 10 22 Total 124 370 470 964 37 TIMN 0023499

PROPOSAL 11 PROMOTING EMPLOYER-BASED HEALTH INSURANCE THE PROPOSAL Model State Law. The Secretary of Health and Human Services would develop and promulgate a model law, for adoption by the several states, that would apply to a group health benefit plan covering employers of from 2 to 50 employees. Plans for small employ- ers would be required to meet a number of conditions governing the exclusion of employees for pre-existing conditions, renewability, the use of medical underwriting, availability, denial berause of risk, waiting periods for coverage, premium variations among groups, and annual premium increases. All insurers within the state would agree on risk categories that would place employ- ees of all or many small employers within the state into one or more statewide risk groups. Among possible sources of revenue to fund the risk poo1, the state could enact legislation to assess all employers within the state for contributions. If insurers within a state do not establish a pooling arrangement, the state would establish a reinsurance pool in which all insurers within the state would participate, and which would reinsure such policies so as to reduce their cost. All carriers and other organizations issuing health benefit plans would be members of the program, including Blue Cross and Blue Shield. Nevertheless, Blue Cross and Blue Shield would be permitted to manage their own reinsurance risk if they (jointly) choose to do so. If a state does not adopt the model legislation within three years after the Secretary promulgates it, the standards for insurance policies under the model act shall go into effect as federal standards for all policies offered to small employers within the state. Disallowance of State-Mandated Benefits for Small-Empioyer Core Health Benefit E=. The proposal would relieve health care insurers, and other organizations that offer health benefit plans to employers, from state requirements that health insurance policies for small employers limited to core benefits contain specified additional benefits, and cover services by designated categories of health care providers. Preemotion of State Laws Limitine the Use of Managgd Care in Health Benefit Plans. The proposal would relieve health care insurers from state limitations on the use of managed care. In order to safeguard the patient from the erection of unreasonable barriers to adequate medical treatment that this supersedure might invite, the Secretary of Health and Human Services, through a formal rulemaking process to redefine the term "managed care,' would establish standards for alternative limitations that a state could impose. State laws would cease to apply that currently inhibit carriers from contracting with providers, restrict carriers' 38 TIMN 0023500

ability to negotiate with providers regarding reimbursement, and restrict the inclusion of financial incentives to patients in managed care Plans. Improving the Portabilijy of Private Health Insurance. The proposal, through an amendment to the tax law, would induce health insurers to extend employer-based health plan coverage to new employees with a history of recent prior health coverage, without imposing restrictions relating to pre-existing health conditions, claims experience, receipt of health care, medical history, or lack of evidence of insurability. Basis of Estimate and Key Assumptions This estimate has two parts from a cost estimator's viewpoint: first, the administrative costs associated with developing the new legislation, and secondly, the costs of operating the program. Developing the legislation is well within the resources available to the Secretary in the Assistant Secretary for Legislation's staff. Hence, development of the legislation and model law would not increase federal expenditures. Similarly, the proposal indicates that the costs of the program and its administration would be funded by the premiums. Again, there would be no cost to the federal government. Estimate Table 11 COSTS OF A PROPOSAL PROMOTE EMPLOYER-BASED HEALTH INSURANCE: Numbers in Millions of Dollars by Fiscal Year 1993 1994 1995 Total Appropriated Amounts 1. Costs of Development of Legislation 0 0 0 0 2. Program Operation 0 0 0 0 Total 0 0 0 0 39 TIMN 0023501

PROPOSAL 1a HEALTH INSiJRANCE FOR THE SELF-EMPLOYED The Council recommends that the Treasury Department review the deductibility of health insurance premiums paid by the self-employed, with a view to proposing an amend- ment of the tax laws that would place the self-employed on the same footing, in regard to the tax treatment of premiums for health insurance coverage, as employees. Estimate and Kex Assumntions The staff necessary for these activities would be drawn from the agency staff. It would not inczrdse federal expenditures. Estimate Table 12 HEALTH INSURANCE FOR THE SELF E,'~II'LOYED: Numbers in Millions of Dollars by Fi5ca1 Year Outlays 1993 1994 jL95 Total 0 0 0 0 40 TIMN 0023502

PROPOSAL 13 A PROPOSAL TO REDUCE THE PAPERWORK ASSOCIATED WITH HEALTH CLAIMS The Proposal The Health Care Financing Administration will review its major hospital billing form in 1992. The council recommends that legislation be developed to give guidance to that process. A. The Obiective. Legislation guides the process in three ways: 1. By providing a framework to facilitate discussions. 2. By clearly defining its objective. 3. By establishing an alternative process if the discussions are unsuccessful. B. Advisory Council. The proposal would direct the Secretary to convene the Advisory Council on Hospital Reimbursement Procedures, to consist of 15 individuals, including representatives of the American Hospital Association, the American Medical Association, the Health Insurance Association of America, individual hospitals and health care insurers, and the Health Care Financing Administration. At least five members of the Council would be required to be currently employed as hospital administrators. C. R_=onsibility of the Council. The proposal would direct the Council, within three years of its appointment, to recommend to the Secretary, a uniform hospital reimbursement form, which, when promulgated by the Secretary's regulations, would be the sole form required by the Health Care Financing Administration or any private health care insurer in the United States as the sole basis for making payment on a claim for reimbursement for hospital in-patient services. D. Contents of a Uniform Reimbursement Form. The uniform reimbursement form, as recommended by the Council, shall include: 1. TTniform Clinical Data Set. A diagnosis of the patient based on a uniform clinical data set.2 2 The Institute of Medicine has recently recommended development of electronic medical records, with all patient information going into the record. The proposal, under development 41 TIMN 0023503

2. Procedures Employed. A uniform coding of medical procedures used to treat the patient. 3. Billing Information. Reimbursement requested for each procedure employed with respect to the patient, including hospital services, physician's services, X-rays, tests, rehabilitative services, and so forth, as may be required to ensure that the form is comprehensive. E. Report on Comguterizadon of BillinE. The Council would also report on the computerization of health claim billing, i.g,,, the use of electronic means to transmit billing information from hospitals and physicians to insurers and HCFA. The report would include: 1. a survey of the current state of electronic billing; 2. a discussion of the impediments to more extensive use of electronic billing; 3. an analysis of the probable costs of increasing the volume and standardization of such billing in relation to the savings to the health care system 'that could reasonably be anticipated, and 4. the Council's recommendations for action that would facilitate the further extension of electronic billing in a cost-effective manner. F. Development of Form B~HCFA if the Council Fails to Agree. If, at the end of two years after the Secretary has appointed the members of the Council under the proposal, the Council fails to recommend a uniform hospital reimbursement form, as required under paragraph ILC, the Secretary shall direct the Health Care Financing Administration to develop and promulgate such a form for the purpose within six months. Basis of Estimate and Kev Assumptions This estimate has two parts from a cost estimator's viewpoint: first, the administrative costs associated with developing and changing the new uniform bill, and secondly, the potential savings from increased efficiencies. The costs of the Advisory Council were estimated from data supplied by the Department's management staff who indicated that several similar advisory groups cost approximately $1 million per year. The major cost of changing the uniform bill would be the cost of reprogramming in the fiscal intermediaries and HCFA computers. Based on extensive conversations with current and as "Quaiity 2000" in conjunction with congressional legislative staff, would mandate electronic data collection for hospitals by the year 2000. 42 TIMN 0023504

former HCFA staff involved in the last major reform of the hospital billing form, it will cost approximately $50 million for HCFA and the intermediaries to :revise the forms. Savings from changing the form could not occur until after the form was implemented. Assuming the form was available at the end of 1994, based on the last revision of the bill, it would be at least two more years before HCFA, fiscal intermediaries, and hospitals were able to implement the form and realize savings. Although that is beyond the period being estimated, this estimator believes that some savings to the Medicare program would be realized by a streamlined billing process. Estimate Table 13 A PROPOSAL TO REDUCE PAPERWORK ASSOCIATED WTTH HEALTH CLABIS Numbers in Millions of Dollars by Fiscal Year 1993 1994 1995 Total Appropriated Amounts 1. Costs of Computer Conversion 1 1 50 52 2. Costs of Advisory Council 0 0 0 0 Total 1 1 50 52 43 TIMN 0023505

PROPOSAL 14 HOSPITAL MERGERS AND JOINT VENTURES The Prooosj The Advisory Council recommends that certain antitrust and Medicare fraud and abuse laws and regulations be amended to permit certain types of hospital mergers and joint ventures. Specifically: A. HoWital Mu= The Council would propose that the Attorney General develop proposals for legislation amending the antitrust laws to permit mergers of rra I.-,ospitals in the same community in limited cases. The proposed legislation should include criteria relating to the length of time each hospital has served the community, the occupancy rate and relative financial condition of each hospital, and the willingness of each hospital to engage in the merger. B. Joint Ventures The Council would propose that the Attorney General and the Secretary of Health and Human Services jointly develop proposals for legislation amending the antitrust laws to permit two hospitals in the same community, in limited cases to enter into a joint venture for the provision of hospital services at one facility and health-related services (such as long-term care or outpatient care) at the other hospital facility. The proposed legislation should include criteria relating to the length of time each hospital has served the community, the occupancy rate and relative ftnancial condition of each hospital, the types of services to be provided by the joint venture, and whether the new services to be provided meet an unmet need in the community. Basis of the Estimate and Kev Assumptions This proposal has two components from a cost estimator's point of view: first, possible costs associated with developing the legislative proposal, and secondly, potential secondary costs and savings associated with inereased efficiencies when services are delivered in a coordinated manner in a particular community. The development of the legislative proposals called for by the Council appears well within the resources allocated by the Departments to existing Offices charged with developing legislative proposals. Hence, the estimate for this portion of the Council's proposal is zero. The second potential effect on federal outlays of this proposal would be increases and/or decreases in Medicare, Medicaid, and other program costs as a consequence of the new provider arrangements fostered by the eventual implementation of the legislation. For example, it can be argued that savings will occur due to the better coordination within communities of outpatient services between the existing hospitals. , ~,Cr !;--' :. ,-ar 44 TIMS 0023506

be argued that program outlays will increase due to unmet needs within the communities. Data directly relevant to estimate either the costs or savings is nonexistent. Even if such data did exist, a considerable number of assumptions concerning the behavior and timing of hospitals would be required to develop an estimate. Finally, such savings and costs would appear well outside the time frame being estimated, fiscal years 1993 to 1995, since development and passage of the legislation would take at least that long. For these and other reasons, costs and savings of this proposal are not estimable and a zero has been assigned. It should be noted that this position on estimates of this type is also the position taken by CBO and the HCFA Office of the Actuary on a number of similar proposals. Estimate Table 14 ESTIMATE OF COSTS OF HOSPITAL-MERGERS AND JOINT VENTURES: Numbers in Millions of Dollars by Fismil Year Outlays' 1993 1994 1995 Total 1. Costs of Developing Legislation 0 0 0 2. Savings from Increased Efficiencies ' 0 0 0 0 ' The costs of developing the proposals would be appropriated amounts. However, costs and savings to Medicare, Medicaid, and other federal programs would be outlays from the federal Treasury if they could be estimated. 45 TIMN 0023507

PROPOSAL 15 A PROPOSAL TO ESTABLISH CENTERS OF EXCELLENCE The pr iposal It is proposed to reimburse health care providers, under Medicare, for the costs of performing designated major medical or surgical procedures -;procedures employed for certain life-threatening or seriously disabling conditions and typified by their high cost and low volume - only if those procedures are performed in facilities meeting rigorous criteria of quality- The proposal would channel patients for those procedures to facilities most successful in performing them and discourage their performance at less successful facilities. Because a consequence of the proposal would be to reduce the number of facilities at which the designated procedures could be performed, it is also proposed to reimburse a Medicare beneficiary for the cost of travel between the facility and the beneficiary's place of residence. A. Procedures Desienated. In order to be designated, by the Secretary of Health and Human Services, as a procedure the performance of which will be reimbursed by Medicare only if performed at a designated facility, the procedure must first be assessed by the Office of Health Technology Assessment of the Public Health Service and found to be: 1. safe, 2. effective, 3. necessary to alleviate a life-threatening or seriously disabling condition, and 4. a relatively low-volume procedure requiring a major case management effort. B. Criteria to be Met by a Seiected Facilitv. To be selected as a facility for the performance of a procedure designated under this proposal, the Secretary must find that the facility meets the following criteria: 1. Patient Selection. It must have written patient selection criteria which it would follow in determining suitable candidates for the procedure. Patient selection criteria must be based upon both a critical medical need for the procedure and a maximum likelihood of successful clinical outcome. 2. Patient Mana`ement. It must have adequate patient management plans and protocols that include the following: a. Therapeutic and Valuative Procedures. 46 ,rIMN 0023508

Therapeutic and vaiuative procedures for the acur ,m: ,ni term management of a patient, including commonlv complications. b. Patient Management and Evaluation. Patient management and evaluation during the waiting :,nd immediate post-discharge period, as well as in-itaspi~pu .iha•, the program for performing the procedure. c. Long-term Management and Evaluapign_. f Long-term management and evaluation, including et!ucation the patient, liaison with the patient's attending phvsician. .7! d the maintenance of active patient records for at least i'ive yca r s. 3. Commitment. A facility must make a sufficient commitment of resources and planning to the program for performing the procedure to carry through its application. Indications of this commitment should include the following: a. Commitment at All Levels. Commitment of the facility to the program at all leveis. including, as necessary, other departments of the faci::ry as well as the principal sponsoring departments. b. Adeguate Ezpertise. The facility must be expert in medical, surgical, and otheT relevant areas, including an identifiable and stable team for performing the procedure, the responsible members of which are board certified or otherwise approved by the Secretary. (1) Integration of Teams. The component teams must be integrated into a comprehensive team with clearly defined leadership and corresponding responsibility. (2) Anesthesia. The anesthesia service must identify a team for performance of the procedure that is available at all times. (3) Infectious Disease. The infectious disease service must have both the professional sidlls and laboratory resources needed to discover, identify, and manage the 47 TIMN 0023509

complications from a whole range of organisms, many of which are uncommonly encountered. (4) Nursing Service. The nursing service must identify a team or teams trained in the special problems of managing patients who undergo the procedure. (5) Patholog,y Resources. Pathology resources must be available for studying and reporting promptly any pathological responses to the procedure. (6) Social Services. Adequate social services resources must be available. (7) Patient Selection. Mechanisms must be in place to ensure that: (a) patient selection criteria are consistent with those set forth in the facility's written patient selection criteria, and (b) the faciiity is responsible for the ethical and medical considerations involved in the patient selection process and application of patient selection criteria. (8) Plans for Orean Transplantation. If the procedure involves organ transplantation, that adequate plans exist for organ procurement meeting legal and ethical criteria, as well as yielding viable transplantable organs in reasonable numbers. 4. Facili Pians. The facility must have overall facility plans, commitments, and resources for a program that will ensure a reasonable concentration of experience. The Secretary of Health and Human Services would establish the fiequency with which the facility must perform the procedure. This level of activity must be shown feasible and likely on the basis of plans, commitments, and resources. 48 TIMN 0023510

5. Exnerience and Survival Rates. The facility must demonstrate experience and success with the procedure. Survival rates must meet criteria established by the Secretary. 6. Maintenance of Data. The facility must agree to maintain and, when requested, periodically submit data to the Secretary, in standard format, about patients selected (including patient identifiers), protocols used, and short- and !on; term cutcome on all patients who undergo the procedure, not only those for whom payment under Medicare is sought. 7. Laboratorv Services. The facility must make available, directly or under arrangements, laboratory services (including blood banking) to meet the needs of patients. Laboratory services must be performed in a laboratory facility approved for participation in the Medicare program. C. Reimbursement of Beneficiarv. In addition to such other reimbursement as the Medicare statute may provide. a beneficiary may be reimbursed for travel to and from a selected facility if the beneficiary resides more than 50 miles from the facility. Basis of the Estimate and Key Assumptions This estimate is based on information from two sources: first, data and conversations with individuals familiar with Medicare's heart transplant centers, and secondly, with State Medicaid agencies that have had experience with hospital contracting. The Medicare heart transplant centers use very similar types of approaches to those suggested by this proposal, with the exception that cost effectiveness was not an explicit goal in the selection of these centers. The State Medicaid agency staff were a primary source of information concerning what, realistically, one might consider obtaining through a contracting approach. The data and conversations with persons Irnowledgeable with the heart transplant centers yielded a relative consensus that transportation of patients, which is often necessary, rarely exceeds 5 percent of the total cost of the hospitalization, with the rare exception being a very large air ambulance bill. In contrast, there was wide variation among these and Medicaid respondents on the level of savings that could be expected from a contracting approach. Of the eight persons interviewed, the low estimate was 5 percent and the high estimate was 25 percent. Given the wide variation and lack of hard data in this area, this estimate assumes that Medicare would save 15 percent per admission through a contracting approach, and that it would add 5 percent per admission for beneficiary travel, for a net savings of 10 percent per admission. The most difficult part of this estimate is to make assumptions on how quickly the Secretary would move, and on how many procedures involving how many admissions. Clearly, the first year, FY 1993, would be required to develop the guidelines and begin the contracting process. Aside from that, what the Secretary might do is difficult to project. Given the 49 TIMN 0023511

intent of the proposal, liver and other high-cost procedures clearly would be immediate candidates for this selective contracting. By 1993, Medicare Part A and B expenditures for these patients would appear to be on the order of $80 million. Experts estimated that approximately 75 percent of all cases were of a non-emergency nature and would be amenable to a center of excellence approach. Hence, assuming that the Secretary was able to get 20 percent of the admissions under contract in 1994 and 40 percent in 1995, Medicare would save $10 million in FY 1995. The above assumptions are conservative and could be characterized as a low estimate. If the Secretary were to include three other procedures and get 50 percent of the admissions under contract in 1994 and 70 percent in 1995, assumptions not outside the realm of possibility, the savings would rise to $30 million in 1995. Estimate Table 15 A PROPOSAL TO ESTABLISH CENTERS OF EXCELLENCE Numbers in Millions of Dollars by Fiscal Year ~ 1994 1995 Total Outlays Low Estimate 0 -5 -10 -15 High Estimate 0 -10 -30+ -40 50 TIMN 0023512

PROPOSAL 16 A PROPOSAL TO CONTAIN MEDICARE COSTS THROUGH USE OF SELECTED CONTRACTING The Propsal The Council proposes to institute a system, under Medicare, whereby the program will reimburse a provider for the costs of performing a designated medical or surgical procedure - a procedure typified by its high cost to the program - only if Medicare has first approved the provider for the performance of that procedure. The proposal's objective is to channel patients for those procedures to facilities that have qualified as cost-efficient. ELEMENTS OF THE PROPOSAL A. Procedures Desisnated. The Secretary of Health and Human Services may designate a medical or surgical procedure as reimbursable by Medicare, only if performed at an approved facility, and if: 1. the Secretary determines that the procedure is one that imposes high costs on the Medicare program, and 2. the Office of Health Technology Assessment of the Public Health Service has assessed the procedure and found it to be safe, effective, and necessary to alleviate a life- threatening or seriously disabling condition. B. Ouaiification of Faciiity. 1. Competitive Bidding. The Secretary would be required to develop administrative arrangements under which criteria would be published for the selection of facilities to perform each procedure designated under the program, and bids from such facilities would be solicited and evaluated. 2. Fixed Charge. All services delivered by a provider would be on the basis of a fixed charge per procedure for all hospital and physician services (including post-operative care) associated with the procedure, regardless of the actual cost of the procedure in a particular case. C. Ouality Assurance Standar_ds. To be approved as a facility for the performance of a procedure under this proposal, the facility must meet the following criteria: 51 TIMN 0023513

1. Patient Selection. It must have written patient selection criteria which it would follow in determining suitable candidates for the procedure. Patient selection criteria must be based upon both a critical medical need for the procedure and a maximum likelihood of successful clinical outcome. 2. Patient Manggement. It must have adequate patient management plans and protocols that include the following: a. The=utic and Valuative Procedures. Therapeutic and valuative procedures for the acute and long-term management of a patient, including commonly encountered complications. b. Patient Manaeement and Evaluation. Patient management and evaluation during the waiting and immediate post-discharge period, as well as in-hospital phases of the program for performing the procedure. c. LonE-Term Management and Evaluation. Long-term management and evaluation, including education of the patient, liaison with the patient's attending physician, and the maintenance of active patient records for at least five years. 3. Commitment. A facility must make a sufficient commitment of resources and planning to the program for performing the procedure to carry through its application. Indications of this commitment should include the following: a. Commitment at All Levels. Commitment of the facility to the program at all levels, including, as nece.ssary, other departments of the facility as well as the principal sponsoring departments. . b. Aftuate Encrfise The facility must be expert in medical, surgical, and other relevant areas, including an identifiable and stable team for performing the procedure, the responsible members of which are board-ceitified or otherwise approved by the Secretary. 4. FaciliEy Plans. The facility must have overall facility plans, commitments, and resources for a program that will ensure a reasonable concetttration of experience. The Secretary of Health and Human Services would establish the frequency with which the facility must perform the procedure for the conditions for which the facility must perfom the procedure. This level of activity must be shown feasible and likely on the basis of plans, commitments, and resources. 52 TjMN 0023514

5. Experience and Survival Rates. The facility must demonstrate experience and success with the procedure. Survival rates must meet criteria established by the Secretary. 6. Maintenance of Data. The facility must agree to maintain and, when requested, periodically submit data to the Secretary, in standard format, about patients selected (including patient identifiers), protocols used, and short- and long-term outcome on all patients who undergo the procedure, not only those for whom payment under Medicare is sought. Basis of the Estimate and Key Assumptions This estimate is based on information from two sources: First, data from the Medicare Part A and Part B bill files, and secondly, conversations with State Medicaid agencies that have had experience with hospital contracting. The Medicare bill file provided estimates of the costs of the procedure in question. The State Medicaid agency staff were a primary source of information concerning what, realistically, one might consider obtaining through a contracting approach. The first part of this estimate involves assumptions on how many procedures involving how many admissions the Secretary would move to place under contracting, and how quickly t',-.e Secretary would move. Clearly, the first year, FY 1993, would be required to develop the guidelines and begin the contracting process. It appears reasonable to assume that the Secretary might also initially select a major cost procedure for contracting. Based on conversations with senior health policy and advisory council staff, the leading candidate for early inclusion would be cataract surgery. This procedure is undergoing a contracting demonstration currently and, despite congressional reimbursement reductions, is still viewed as a prime candidate for further reductions. By FY 1993, Medicare Part A and B expenditures for these patients would appear to be more than $3.6 billion. Hence, assuming that the Secretary was able to get 20 percent of the admissions under contract in FY 1994 and 40 percent in FY 1995, combined with the proposal's other assumptions, a contracting approach would save $170 million in FY 1995. The above assumptions are conservative and could be characterized as a low estimate. If the Secretary were to include three other procedures and get 50 percent of the admissions under contract in FY 1994 and 70 percent in FY 1995, assumptions not outside the realm of possibility, the savings would rise to S530 million in FY 1995. 53 TIMN 0023515

EstimatP Table 16 A PROPOSAL TO CONTAIN MEDICARE COSTS TIHtOUGH THE USE OF SELECTID CONTRACTING Numbers in Millions of Dollars by Fiscal Year 1993 1994 ___ 1"S Total Outlays LOw Estimau 0 -60 -170 -230 High Estimate 0 -110 -530 -640 54 TIMN 0023516

PROPOSAL 17 MERGING MEDICARE PARTS A AND B The Propsal The Advisory Council would recommend that the Medicare law be amended to combine Parts A and B into one program. The three separate funding sources - payroll taxes, general revenues, and premiums for Part B - would remain, and a method would be developed by HCFA to maintain the integrity of the relative share of program costs for purposes of determining the Part B premium. Combining Parts A and B has several advantages. The Medicare program would be viewed as a single unified program, with common administrative and management goals. The impact of program expenditures could be evaluated and analyzed in terms of their total impact on the economy, and a unified portrayal of the long-range obligations of the program could be accomplished. Estimate and Key Assumptions Combining Parts A and B of Medicare has been proposed by members of Congress on several occasions in the last several years. The Congressional Budget Office (CBO) has estimated that there would be no savings or costs from such legislation. They have rejected the argument that administrative efficiencies would occur on the grounds that the nature of such efficiencies is unclear, and in any event it would take years before the Health Care Financing Administration (HCFA) would implement such programs' economies. This estimator concurs with CBO's estimate. . Estimate Table 17 MERGPIG MEDICARE PARTS A AND B: Numbers in Millions of Dollars by Fiscal Year Outlays 1993 1994 1995 Total 0 0 0 0 55 TIMN 0023517

PROPOSAL 18 TASK FORCE ON INVES'T1IENT IN HUMAN RESOURCES Theropgsal The Council would recommend that the President establish an Interagency Task Force on Investment in Human Resources. Cpmaosition. The Task Force would be chaired by the Secretary of ??. rt'!: °^~ u„man Services and would include: (1) the Secretary of Agriculture; (2) the Secretary of Education; (3) the Secretary of Housing and Urban Development; (4) the Secretary of Labor, and (5) the heads of such other Federal agencies as the President considers appropriate. Mission. The Task Force would be charged with developing a comprehensive interagency strategy to improve investment in American human resources and society, and thereby improve productivity and competitiveness. Areas to be considered by the Task Force would include: (1) the identification of problems in education, housing, nutrition, and alcohol and drug abuse which have an effect on heaith status, as well as the resulting effects on productivity and competitiveness; (2) the development of a comprehensive five-year strategy detailing how Federal agencies can address the problems identified, including: (A) the development of a plan that includes a process so that Federal agencies can work together to minimize duplication in programs addressing these problems and maximize the use of existing resources; (B) a list of actions that can be taken by Federal agencies, without changes in law, to implement the strategy, and (C) a timetable for implementation of the strategy and a plan for evaluating and ensuring that the timetable is met. (3) recommendations for changes in law that would be necessary to further the strategy• 56 TI~ZN 002351g

Re~ort. The Task Force would prepare semiannual reports to the President contL:_in- updates on the implementation of the strategy and recommendations for legislation. Staffine. Staff for the Task Force would be drawn from personnel of the agencies represented. Estimate and Ke,ssumptions This proposal specifies that the staff of the Task Force would be drawn from the agencies represented, hence, no estimate of this proposal is necessary. It would not increase federal expenditures. mate Table 18 TASK FORCE ON INYFSTMENT IN HITMAN RESOURCES: Numbers in Miliions of Dollars by Fscal Year Outlays 1993 1994 195 otal 0 0 0 0 57 TIMN 0023519

PROPOSAL 19 PROMOTING HEALTHY LffFSTYLES The Pronosal The Council recommends that the President's Council on Physical Fitness undertake a program to: A. Develoo Measures to DiscouraFe The Use of Tobacco. 1. Advertising Ban. The proposal would ban all forms of advertising tobacco and tobacco products. 2. Vending Machine Ban. The proposal would ban the sale of cigarettes from vending machines. 3. Termination of Tobacco Subsidy. The proposal would phase out tobacco subsidies, under a program that would offer loans and other short-term assistance to fazmers in order to facilitate conversion to other crops. B. EncouraQe Healthy Lifestyles. The proposal` would establish a statutory foundation for the development and implementation of programs to encourage healthy lifestyle choices, such as: • avoiding illegal drugs; • avoiding excessive alcohol consumption; • avoiding the use of tobacco products; • choosing proper foods as components of a healthy, balanced diet; • developing effective ways to manage stress; and • engaging in regular exercise. C. Use Current Proerams and Activities. The administering agency would promote this new concept of physical fitness by: `. One approach might be to reconstitute the President's Council on PhysicrI Fitness and Sports as a statutory body and expand its functions. 58 TIMN 0023520

• enlisting the active support of private citizens, civic groups, business enterprises, foundations, and other entities in efforts to promote healthy lifestyle choices by all Americans; • initiating activities to inform the general public: of the importance of healthy lifestyle choices, and of the link between appropriate lifestyle behaviors and good health and productivity; • encouraging state and local governments to emphasize to their citizens the importance of making healthy lifestyle choices; • advancing the concept of physical fitness through healthy lifestyle choices, systematically encouraging the development of community programs; • developing cooperative programs with societies of health professionals to encourage Americans to make healthy lifestyle choices; • assisting educational agencies at all levels to develop high quality, innovative health and physical education programs that emphasize the importance of making the right lifestyle choices for good health, and • helping business, industry, government, and labor organizations, encouraging public/private ventures which establish programs to promote healthy lifestyle choices by their employees and to reduce the financial and human costs resulting from inappropriate lifestyle choices.s Basis of the Estimate and Kgy Assu tions The estimate assumes that existing Council on Physical Fitness and Sports staff would redirect part of their efforts to include the themes recommended by the Advisory Council in ezisting publication and activities. For example, the proposal does not mandate an overall increase in the presidential Council's publication budget. The estimate assumes small additional costs to modify the publications based on examination of the Presidential Council's budget and conversations with the Council's staff on publication costs. 5. The new program would assume only those current activities of the President's Council on Physical Fitness and Sports directed towards exercise and sports; i.e:, promotion of research in sports medicine, physical fitness, and sports performance, and coordinating Federal agency activities related to physical fitness and sports. This would be accomplished either by expanding the mission of the Council to enable it to administer the proposal, by transferring the Council to the agency administering the proposal, or by abolishing the Council altogether. 59 TIMN 0023521

ma Table 19 ESTIMATE OF COSTS OF PROMOTING HEALTHY LIFFSTYLES _ THROUGH THE PRESIDENT'S COUNCIL ON PHYSICAL FITNESS: Numbess in Millions of Dollars by Fiscal Year 1993 1994 JM Total Appropriated Amounts .2 .2 .3 .7 60 TIlVIr10023522

PROPOSAL 20 POOLING OF DATA FOR TECHNOLOGY ASSESSIIENT The Prot)osal The Council would recommend that the Attoraey General and the Secret3ry of He:zlth and Human Services jointly develop proposals for legislation to amend the antitrust laws, permitting hospitals and insurance companies to compare and pool data for the purpose of developing improved methods of technology assessment and medical evaluation. Basis of the Estimate and Kev Assumptions Both the Attorney General and the Secretary of Health and Human Services have existing staffs charged with development of legislation. Hence, this proposal has no cost implications. Estimate Table 20 POOLING OF DATA FOR TECHNOLOGY ASSESSMENT: Numbers in Millioa5 of Dollars by Fiscal Year Outlays 1993 194 1995 Total 0 0 0 0 61 TUMN 0023523

PROPOSAL 21 PRFSIDENT'S COUNCIL ON FITNFSS FOR THE MIDllLE AND SENIOR YEARS THE PROPOSAL In General. It is proposed that there be estabiished, as a companion body to the President's Council on Physical Fitness and Sports, a President's Council on Senior Fitness, which shall be within the Department of Health and Human Services. The Council shall focus on the development of programs especially suited to an individual's middle and later years. ApIointment. The President shall appoint 20 members to the Council, and shall designate a Chairman and Vice Chairman. National ProEram. The Council shall 1. enlist the active support and assistance of individual citizens, civic groups, private enterprise, voluntary organizations, and others in efforts to promote and improve the fitness of all Americans over the age of 50 through regular participation in suitable programs of physical fitness; 2. initiate programs to inform the general public of the importance of exercise and the link that exists between regular physical activity and good health and effective performance; 3. strengthen coordination of federal services and programs relating to physical fitness of individuals over age 50; 4. encourage State and local governments to emphasize the importance of regular physical fitness for older citizens, 5. encourage research in physical fitness for older individuals; 6. assist business, industry, government, and labor organizations to establish sound physical fitness programs to reduce the financial and human costs of physical inactivity. Coordination. The Council shall seek to coordinate its activities with those of the President's Council on Physical Fitness and Sports. Other Functions. The Council shall advise the President and the Secretary of Health and Human Services as to its activities in devising and promoting programs to improve the fitness of older Americans. 62 TIMN 0023524

Service of Members. The members of the Council shall serve without compensation for their work on the Council, but will be entitled to travel and subsistence expenses for meetings. 5_qf_f. The Secretary of Health and Human Services shall provide the Council with a suitable staff and facilities. Estimate and Key Assumptions The estimate for the cost of the council was based on costs of similar councils. Obviously, the scope of the councils activities would depend on the funding level. Estimate Table 21 PRFSIDENT'S COUNCIL FPTNESS FOR THE MMDLF. AND SENIOR YEARS: Numbers in Millions of Dollars by Fiscal Year Appropriated Amounts 1993 1994 1995 Total 2 5 5 12 63 TIMN 0023525

PROPOSAL 22 A PROPOSAL TO DEVELOP INFORMATION ON tvir 1)ICAL TREATMENT OUTCOMES ne J~cFrssal The Department of Health and Human Services, through the Agency for Health Care Policy and Research (AHCPR), is supporting research on the appropri:.t: ness and effectiveness of alternative strategies for the prevention, diagnosis, treatment, and management of a variety of acute and chronic conditions, and along with other entities is developing medical practice guidelines for use by health care providers. Practice parameters, the development of which by the medical profession is strongly advocated by the American Medical Association, will encourage and enhance the delivery of the most appropriate care to each patient. they would supplement the physician's judgment in reducing unnecessary and inappropriate variation in the use of health care services and procedures. The Advisory Council recommends that AHCPR focus its efforts on developing a system that would produce comprehensive reports on the performance of local and regional health care markets. The reports could be used to repair flaws in three critical policy areas: information, finance, and manpower. As proposed by Dr. Weinberg, reports would include the following information: • the location of local and regional market areas, • the per capita allocation of hospital beds, physician, and o-ther :.n.anr.+ower in each market; • Utilization rates; and • certain outcomes. The reports would be invaluable for supporting alternative strategies for containing capacity. Information on outcomes of alternative treatment modalities_ qtanding alone, would make a serious contribution to reducing supplier-induced demand. Estimate and Key Assumntions The staff necessary for these activities would be drawn from the agency staff. It would not increase federal expenditures. 64 T][MN 0023526

Estima Table 22 DEVELOP INFORMATION ON MEDICAL TREA7.-IVIENT OUTCOMES: Numbers in IMillious 3f Dollars by Fiscal Year Outlays 1_M 1994 1995 Total 0 0 0 0 65 TIMN 0023527

PROPOSAL 23 A PROPOSAL FOR A PUBLIC EDUCATION CAMPAIGIN ON rKE'vEit1TON The Pronosal It is proposed that the Surgeon General of the United States conduct a massive three year public education campaign on the prevention of disease through changes in personal behaviors and use of preventive care and screening. The campaign would involve a coordinated effort using the broadcast and print media, including public service announce- ments, outreach to community groups, and cooperative ventures with businesses. The campaign would also involve schools through design of curricula for use in health education classes as well as presentations on preventive health issues. The Council suggests that the Advertising Council adopt this public education campaign on prevention as its entire effon during this three year period, and that the Surgeon General work with other groups, such as the National Association of Broadcasters, to implement this campaign. Estimate and Key Assumptions The staff necessary for these activities would be drawn from the agency staff. It would not increase federal expenditures. The public education activities would be funded by both the government and the organizations involved in the campaigns. The $20 million contained in this estimate for the federal portion was supplied by Advisory Council staff. Estimate Table 23 PUBLIC EDUCATION CAMPAIGN ON PREVENTION Numbers in Millions of Dollars by Fiscal Year Outlays IM 12% 1"S TqW 10 20 20 50 66 TIMN 0023528

Appendix D: Prototype CornpreheTisa.-ve Plans TIlMN 0023529