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ployees, their age, or health condition are not eligible for group health insurance.
These small business people have no protection against the potentially catastrophic costs associated even with a relatively short hospital stay.
The average 7.7-day stay in an American hospital cost $1,330, in 1976. (Source: Source Book of Health Insurance Data 1977–78, Health Insurance Institute.)
This does not include any charges for the services of a physician or surgeon.
Senator NELSON. Are group premiums based on the factors such as the age of the work force?
Mr. Irish. Federally they play a role in the initial establishment of a group health premium rate, and then depending on the size of the group, and the amount that roughly reflects what it costs the insurance company, plus administrative factors, and perhaps profit to a company.
Senator Nelson. Some groups are individually rated, is that right?
Mr. Irish. Yes; particularly the larger groups, the rates I quoted this morning are all standard community rates.
In Massachusetts, for example, those rates would be paid by any firm employing fewer than 50 persons, regardless of their experience, because statistically their actuaries do not feel the experience of a group that small is really credible enough for that group to have its own experience rate.
A company the size of the Ford Motor Co., however, would have its own rates as a result of its own experience.
Health care costs are, in summary, increasingly burdensome to most small businesses.
They are catastrophic to some. The concern over rising health care costs which our survey revealed is understandable when considered in the light of some of the illustrative data which I discussed today.
Health care costs, viewed in the perspective of group health insurance premiums are increasing at an almost Malthusian rate.
Even well run companies see them as an ever increasing proportion of their cost of doing business.
Hospital services accounted for 42 percent of the dollars spent on health care in calendar 1976, the last full year for which data is available. They are the largest component of total expenditures with physician services a distant second at 25 percent.
In addition, hospital service charges are increasing at a faster rate than professional services or drugs and prescriptions, the other main elements in the medical care component of the Consumer Price Index.
If the rate of increase in health care costs is to be slowed down then, rising hospital costs must be controlled.
Hospital costs control legislation is necessary to arrest escalating hospital costs.
In our opinion normal marketplace controls do not operate in the health care field; consumers have little to say about the quantity of health care services they are to receive.
Voluntary efforts to restrain hospital costs have not enjoyed any any substantial degree of success.
1 Source: U.S. Department of Commerce.
The three States where prospective hospital budget review and rate approval legislation has been enacted and is operating, however, have been able to reduce the rate of escalation in hospital costs.
Your amendments to the proposed hospital cost control legislation now under consideration in the Congress, represent a significant improvement in that legislation.
Typing the ceiling on hospital cost increases to the overall rate of inflation, permitting a passthrough for wage increases and the exemption of hospitals where voluntary programs are effectively operating as well as those in States such as Massachusetts, Connecticut, and Maryland, where cost-control legislation has already been enacted are all reasonable changes which do not decrease the overall effectiveness of the legislation.
On behalf of the membership of Small Business Service Bureau and other small businesses I wish to endorse your amendments and urge the speedy enactment of hospital cost control legislation.
That is the conclusion of my written testimony, Mr. Chairman. If you have any questions, I would be pleased to answer them.
Senator Nelson. Did you state in the beginning how many members you represent?
Mr. IRISH. Approximately 30,000 small businesses in the Northeast and the Midwest, Mr. Chairman.
Senator Nelson. They are all small businesses?
The Small Business Administration defines small business in one way, as fewer than 500.
As far as we are concerned, we define it as fewer than 50 persons. Senator Nelson. And none of your members exceed that number?
Mr. IRISH. There may be some, but in general, we are talking about that size firm.
Senator Nelson. I want to thank both of you gentlemen for taking the time to come here this morning, and present your very thoughtful testimony on this issue.
DENNIS L. IRISH
UNITED STATES SENATE
AUGUST 21. 1978
MR. CHAIRMAN. I AM DENNIS L. IRISH, VICE PRESIDENT OF THE SMALL BUSINESS SERVICE BUREAU. I SERVE AS DIRECTOR OF HEALTH SERVICES OF THAT ORGANIZATION.
I APPEAR BEFORE YOU TODAY TO OFFER COMMENT ON THE DEVASTATING EFFECT WHICH THE HIGH COST OF HEALTH CARE HAS ON AMERICA'S SMALL BUSINESS COMMUNITY AND TO ENDORSE THE AMENDMENTS TO THE HOSPITAL COST CONTAINMENT ACT OF 1977 OFFERED BY SENATOR NELSON.
HOPEFULLY THESE AMENDMENTS WILL FACILLITATE THE ENACTMENT OF THIS MOST NECESSARY LEGISLATION, CAPPING HOSPITAL
COSTS IS A POSITIVE STEP TOWARD CONTAINMENT OF THE MOST
SIGNIFICANT SEGMENT OF HEALTH CARE COSTS AND AN ESSENTIAL
PREREQUISITE TO THE ENACTMENT OF ANY FORM OF NATIONAL HEALTH
THE COST OF HEALTH CARE IS OF MAJOR CONCERN TO SMALL BUSINESS PEOPLE. THEY CONTRIBUTE AN EVER INCREASING PROPORTION
OF THEIR INCOMES TO HEALTH INSURANCE FOR THEMSELVES AND THEIR
SERVICES. A RECENT SURVEY OF SMALL BUSINESS PERSONS CONDUCTED
THAT THE GOVERNMENT SHOULD CONTROL HOSPITAL FINANCES IN
ORDER TO REDUCE THE RATE OF INCREASE IN HEALTH CARE COSTS.
A COPY OF THE SMALL BUSINESS BALLOI RESULTS ON THIS SUBJECT
IS ATTACHED TO MY WRITTEN COMMENTS.
ADMITTEDLY, THE RISING COST OF HEALTH CARE IS ONLY ONE OF SEVERAL PROBLEMS CONFRONTING THE AMERICAN HEALTH CARE DELIVERY SYSTEM. IT IS HOWEVER THE OVERRIDING ONE AS FAR AS SMALL BUSINESS PEOPLE ARE CONCERNED. TOTAL EXPENDITURES ON HEALTH CARE WILL EXCEED $160 BILLION IN FISCAL 1977.
THIS AMOUNTS TO $727 PER PERSON OR $2.908 FOR THE AVERAGE FAMILY OF FOUR. THE RATE OF INCREASE IS STAGGERING. IN FISCAL 1960. $25.9 BILLION WAS SPENT ON HEALTH CARE: WE HAVE EXPERIENCED A SIXFOLD INCREASE IN SEVENTEEN YEARS, OF EVEN GREATER
CONCERN HOWEVER IS THE FACT THAT HEALTH CARE IS GOBBLING UP
AN EVER INCREASING PORTION OF OUR GROSS NATIONAL PRODUCT.
FROM 5.9% to 8.6% IN ONLY A DECADE.
THE MOST DIRECT MANIFESTATION OF THIS SITUATION FOR MANY
SMALL BUSINESS PERSONS IS THE RAPIDLY RISING COST OF GROUP