tion. And the record shows that only people of this sort were consulted when the Federal Employees' Health Benefits Program was set up.

We need to get sound economics into the picture. On June 28, 1967, before the National Conference on Medical Costs, the then H.E.W. Secretary John Gardner called for a "radical shift of emphasis" from the "financing mechanism" to the examination of "the efficiency, the productivity, and the logic of the system by which health care is delivered." This approach was resisted by the Social Security Administration. Before the same conference, Commissioner Robert M. Ball, in his address, showed no interest in cost reduction, as conceived by the economist, but only, as he put it, and his is the concept now in the Civil Service Law, "correctly to reflect the cost." This is an accounting problem for the past and an actuarial problem for the future, but not a "how to do it" problem which must be solved to make Medicare, Medicaid, the Federal Employees' Health Benefits Program, and other competing and complementary programs work with reasonable success with limited resources. Now in spite of, and perhaps slowed down by, Social Security Administration resistance, the law has been amended to at least get them started in the right direction. This has not yet been done for the Civil Service Commission.

A proposal to get the Government to pay a larger amount on behalf of its employees and annuitants, in health benefit plans under Civil Service supervision, I understand, is before you. This may be desirable, but it does not get to the heart of the problem. Thinking must begin on the problem of better economy in the spending of funds and economic resources in this area. True economy means spending less money for the same goods, but it also means getting more for the same money, or if more money is spent, getting a proportionately greater value for additional dollars spent. In the case of service benefits, as distinguished from indemnity benefits, the Government is spending not only a part. specified in dollar amounts, but the whole amount. For example, I am a Civil Service annuitant and I belong to the Group Health Association. The whole amount taken out of my check going to the Group Health Association, which gives me service benefits, is money spent by the Government in my behalf. In fact, I am the beneficiary, but the Government is the purchaser. (This is true of service benefits but not of indemnity benefits. In the latter case, the beneticiary is also the purchaser, and from the Government there is but a transfer payment to him.)

The Group Health Association has been raising its rates periodically, and I am unable to judge from information provided to me, whether these increases are justified. Since I am an economist, I would be in a position to have, not necessarily the only true answer (there is no such thing), but an intelligent opinion. I am unable to get assistance here from the Civil Service Commission, which is spending my money but can't tell me how well it is doing the job. I have a letter from a Civil Service Commission official (dated August 11, 1966) stating that they "are not responsible for how the Plan's managers justify rate increases to its members."

This is a caveat emptor approach, which has no place in a Government program. The result is passing the buck, and frustration for me. The "Plan's Managers" justify rate increases to its members by pointing to pressures from the Civil Service Commission as a reason for increasing rates and for their abrupt way of doing it which prevents informed discussion of the matter.

I wrote the Civil Service Commission for material to satisfy me that they do not neglect the interest of the "final consumers,” i.e. the needs of employees and annuitants for whom it "buys" health programs. All I got was the report for the fiscal year, and this does not fill the bill.

I have no specific proposal to make at this time, but I ask that this letter be put into the record of your Hearings on the Federal Employees' Health Benefits program. Judging by the effect, which I can document, of material by me in the records of various Congressional Committees, this will be helpful in prodding Government officials to engage in economic analysis of programs under their care. Also, it will contribute to public discussion of these questions.

Yours sincerely,

SIDNEY KORETZ.

STATEMENT OF JOHN W. EMEIGH, DIRECTOR OF HEALTH INSURANCE, NATIONAL RURAL LETTER CARRIERS' ASSOCIATION

Mr. Chairman and members of the subcommittee, my name is John W. Emeigh and I serve as director of health insurance for the National Rural Letter Carriers' Association, an organization representing approximately 62,000 rural, retired, and substitute rural letter carriers. The association sponsors the Rural Carrier Benefit Plan of Health Insurance which, as an employee-organization plan approved under the Federal Employees Health Benefits Act of 1959, provides health insurance coverage for more than half of the rural carriers of this country and almost 5,000 anuitants.

Mr. Chairman, we would like to join with the many others who have submitted testimony to this committee and express our appreciation to you for the introduction of H.R. 6351 and the scheduling of hearings to gather the views and compile data relative to the problem of spiraling health costs and the funding of Federal health plans approved under the 1959 act.

We would also like to express our appreciation to the many other Members of the House of Representatives, including the five members of the House Post Office and Civil Service Committee, who have sponsored legislation similar to H.R. 6351.

This association endorses and gives our full support to the legislative goal set forth in H.R. 6351 introduced by Chairman Dominick Daniels, which would provide that the Government pay the full cost of health benefits for Federal employees. When legislation was enacted in 1959 to provide the important fringe benefit of health insurance for Federal and Postal workers, the funding formula assessed approximately 50 percent of the cost to the Government. Specifically the legislation provided that the Government share of the cost would be set at 50 percent of the cost for the lowest rate in the low options of the two Governmentwide plans. This formula established in 1960, set the U.S. Government contribution at a maximum of $3.12 per pay period for its employees. Public Law 89–504 enacted in 1966, provided some improvement in the contribution formula by increasing the Government's share to a maximum of $4.10.

Over the period of the past 8 years however, medical care costs have soared, coverage provided under the Federal health plans has been liberalized and, evidently, due to a greater awareness of health care, utilization of benefits provided in the Federal plans has also grown. These factors have all played a part in a rather alarming increase in the dollar output to provide health benefits.

The liberalization of benefits has for the most part been borne entirely by the employees and annuitants. The Federal Government, through the U.S. Civil Service Commission which administers the health program, has from time to time recommended and requested liberalization of benefits in order to provide a greater health care coverage in those areas where experience has shown a particular need. This has resulted in a liberalization of benefits within the plans. In addition, the law has extended coverage by including persons for whom coverage was initially denied and this also has contributed to an increased cost. These areas include expanding coverage to include foster children, setting the coverage for unmarried dependents up to age 22, liberalizing benefits for mental illness, and providing of other general liberalizations of benefits for those insured in the Federal program. The National Rural Letter Carriers' Association has consistently sought to meet the health care needs of its members by expanding benefits in those cases where experience has shown a need of greater coverage in order to provide the maximum possible assistance to our insureds in meeting the costs of health care. Thus, the benefits have also been liberalized considerably. The impact of the growth in benefits, and in the cost of providing those benefits, is illustrated by the increase in premium rates over the 8-year period the Rural Carrier Benefit Plan has been in existence. In July 1960, when the plan was established, the total cost for self and family coverage under the high option, on a biweekly pay period basis, was $9. The Government's contribution was $3.12 and the employee contributed $5.88.

The present biweekly cost is $12.64 for self and family coverage under the high option of the Rural Carrier Benefit Plan. The Government's contribution is now $4.10 and the employee bears the far greater burden by paying the remaining cost of $8.54 per biweekly pay period.

You will note that the Government's share of the cost has increased only 31 percent, while the cost to the employees has risen 45 percent.

It is vital that consideration be given to a new funding formula in order to permit the Government to match the participation of industry in this important

fringe benefit area and to relieve the insureds-Federal employees and annuitants of the unfair burden of continuing to assume the lion's share of the increasing costs of providing these important benefits.

Action should not be delayed on this important matter because the cost situation, serious as it is, will certainly grow worse with the passing of time. Numerous witnesses before this committee have already cited statistics to document the problem of spiraling health care costs in this country. Many national magazines have carried articles to document this very serious problem. For example, articles have recently appeared in Forbes, Changing Times, U.S. News & World Report, and have also been carried by thousands of newspapers across this country.

The Government is, of course, aware of this problem and the President has acted by appointing a Commission to look into the problem to determine what, if anything, can be done to moderate the rapidly increasing cost of health care for our citizens. Unfortunately, no study, in our opinion, is going to reverse the trend which has become so painfully clear-a trend which clearly indicates that health care costs are going to continue to rise approximately 12 percent per year. Because we do recognize this serious problem, we are pleased to appear before this committee and testify on this important legislation introduced by Chairman Daniels. Industry wide fringe benefit programs clearly demonstrate that the ultimate goal, if the U.S. Government is to fulfill its role as a model employer, is to have the full costs of health insurance paid by the Government. As a practical matter, however, we recognize that this is a goal which cannot be immediately achieved. The fact that we cannot immediately achieve the desired goal, however, should not deter this committee from developing an improved costing formula that would more fairly assess the cost of health insurance to the Government.

We would like to suggest a new formula for consideration by this committee. When the initial formula was enacted, it provided a contribution by the Government in an amount not to exceed 50 percent of the cost of the lowest premium in the low option of one of the two Government-wide plans. Experience has clearly demonstrated, however, that the low options do not, generally, provide adequate coverage. For this reason, the vast majority of Federal employees have elected to enroll in the high option. Thus, although the intent was to have the Government contribution at least an approximate 50 percent when the health plans were established, the formula has failed to keep pace with the expanded coverage provided and with the liberalizations in the benefit structures which were necessary to provide an adequate type of protection in line with increased costs of medical care.

We would recommend that the funding formula be changed to tie the Government contribution to the high option in the manner in which it was initially established by being tied to the low option. This suggested formula would set the maximum Government contribution in an amount equal to 50 percent of the cost of the self and family enrollment in the high option of the Government-wide plan with the lowest premium. This formula would provide a contribution equal to 50 percent of the costs for those persons who have elected coverage in low options. This is the contribution currently in effect for almost all persons enrolled in low options.

The importance in the change of the formula, however, would be to first recognize that adequate health care, and the protection against the cost of such care, is tied much more closely to the benefit structures of the high option than to those in the low option. Secondly, it would put meaning into the costing formula by updating it in a manner to assure that the U.S. Government was striving to match the experience which has been demonstrated industrywide in providing this important fringe benefit for employees. This would be a very important step forward in improving the present funding formula. The lowest premium, for self and family, in a Government-wide plan is presently the biweekly premium of $13.40 which is presently in effect for the Government-wide indemnity plan. If our recommendation were adopted, it would see a Government contribution in an amount of $6.70 per biweekly pay period. This maximum contribution should be paid to those insured under self and family enrollments in the high options of all plans but would be limited to an amount not to exceed 50 percent of the total costs in any option of any plan.

If this formula were adopted, it would, using the example of the Rural Carrier Benefit Plan, increase the Government's contribution from $4.10 to $6.32-an amount which would be equal to 50 percent of the present cost of enrollment for self and family under the high option and which, as you will note, would be

within the maximum contribution of $6.70 under our suggested formula based on existing rates.

We would then suggest further that the committee draft legislation to provide that the Government contribution would be increased in an amount which would cover an additional 10 percent of the costs each subsequent year until the goal set forth in the Daniels' bill would be reached. Under this formula, the Government contribution would never reach a complete 100 percent of the costs in all plans but it would closely reach this goal. We believe that the goal of a complete 100 percent payment by the Government is impractical because it would destroy the privilege of each plan exercising its own judgment in determining the benefits which should be offered to the persons enrolled. Under this formula, however, each plan would be privileged to retain the right of determining the benefit structures, and the total costs of the plan, but it would grant all employees the right of selecting the plan which they believed best for themselves and their families. And, under this selection process, they would be assured of the right to select the plan under which they would enjoy the maximum contribution provided by the Government which, under our suggested formula, would be at least 50 percent if such bill were adopted and eventually up this to 100 percent of the total costs.

Mr. Chairman, we would like to express our appreciation for the privilege of submitting this testimony to your committee and we trust that a bill may be reported which will provide financial relief to our employees and annuitants in connection with the funding of their health insurance benefits.

Thank you for this opportunity to submit our views, comments, and recommendations.