NATIONAL HEALTH PROGRAM OF 1949

WEDNESDAY, MAY 25, 1949

UNITED STATES SENATE,

SUBCOMMITTEE ON HEALTH OF THE

COMMITTEE ON LABOR AND PUBLIC WELFARE,

Washington, D. C. The subcommittee met, pursuant to adjournment, at 10:05 a. m., in the committee hearing room, Senator James E. Murray (chairman) presiding.

Present: Senators Murray, Taft, and Donnell.

Senator MURRAY. The hearing will come to order, please. The first witness scheduled for this morning was Senator Lodge, but he will not be here this morning and will probably take the stand this after

noon.

Let the record show that due to the death of Secretary Forrestal, whose funeral is being held this morning, several members of the subcommittee are unable to attend. They will receive, and, I know, will study with care the transcript of this hearing.

The next witness to be heard is Prof. Seymour E. Harris, of Harvard University.

STATEMENT OF SEYMOUR E. HARRIS, PROFESSOR OF ECONOMICS, HARVARD UNIVERSITY, ON BEHALF OF AMERICANS FOR DEMOCRATIC ACTION

Mr. HARRIS. Mr. Chairman and members of the subcommittee, my name is Seymour E. Harris and I am appearing this morning on behalf of Americans for Democratic Action, an organization of progressives dedicated to the achievement of freedom and economic security through education and democratic political action.

I have been on the faculties of Princeton and Harvard Universities since 1920 and am now professor of economics at Harvard. I am the author of 21 books, the latest, Saving American Capitalism. Related to the problems under discussion, I have written a book on the Economics of Social Security (1941-out of print); How Shall We Pay for Education? (1948); the Market for College Graduates (in press); and, in preparation, the Economics of Medical Care. These are all relevant to the problem. For many years I have been responsible for the teaching of social security at Harvard. I am the editor of the Review of Economics and Statistics, and in the years 1945-48 was a member of the executive committee of the American Economic Association. I was in charge of the ADA Domestic Platform at the National ADA Convention of 1949.

It is not my intention to deal with all aspects of medical economics. I propose to deal with those aspects on which, by virtue of interest and training I hope to throw some light. In particular, I shall discuss the reasons for increased interest in national health insurance, the costs, the relevance of restrictionism and pricing, and the capacity of the country inclusive of Government to bear the burden; and I shall comment briefly on some aspects of the pending bills.

I shall not deal with significant aspects of the problem on which I am not particularly qualified to speak, e. g., the effect of the program on incentives, on regimentation, on the relations of doctors and patients. Here is an aside, however. For 30 years as a teacher, I have been subject to a kind of regimentation, to which doctors are now being asked to submit. For in education, there is Government and university responsibility for pricing. It seems to me that the system has worked well, and even better than if our rewards were determined primarily by student interest and choice and purely market considerations.

The objectives of economic policies are to stabilize, to raise the standard of living, and achieve greater equality. It is in terms of these objectives that I discuss the relevant problems of health insurance.

I. THE PROBLEM

In recent years, the pressure for health insurance has greatly increased. There are various explanations. First, this is an age when the people look increasingly to the Government for security. Protection against illness is one manifestation of the desire for security. Second, the public is becoming increasingly aware of the application of the insurance principle; the costs of serious illness are reduced for the population as a whole if they can be apportioned over the whole population. ("An unlucky sixth of our people pays in 1 year half the total sickness bills paid by everybody.") In the thirties, one expert observed that 1 in 15 requires hospital care in any 1 year; and these expenditures account for one-half of all medical expenditures.

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Indeed, voluntary insurance makes an important contribution. Mr. Ewing in his the Nation's Health (pp. 80-88) evaluates the contribution of voluntary insurance. According to this report to the President, 25,000,000, or 17 percent of the population have insurance for actual service in the hospital; but only 3 percent, or 3,500,000 have comprehensive insurance. Again, according to the Nation's Health, the costs of a comprehensive-insurance program would be 130 to 200 dollars per family per year. In June 1947 the minimum medical cost for a family of 4 in 34 cities was $132 in Mobile; the maximum, $222 in Los Angeles (5 to 7 percent of consumption outlays is the usual amount). Should we allow for the rise in prices since then, the minimum and maximum figures for a modest budget would be at least 140 and 240 dollars. (BLS: The City Worker's Family Budget, pp. 26-28.) Clearly, these expenditures would be an intolerable burden on the 12.8 percent of the Nation's families with gross cash income of $1,000 or less, a severe burden on the 15.4 percent with incomes of $1,000 to $2,000, and a serious burden for those (19.5

percent) with incomes of $2,000 to $3,000. Yet these are the families that especially need medical care.

This leads to the third point, namely, as the Committee on the Cost of Medical Care observed, the quest for medical security stems from the uneven distribution of medical care. The poor experience more illness and receive less care. To cite examples: One survey revealed 282 illnesses per 1,000 persons for those on relief, and 233 per 1,000 for those in comfortable circumstances. Another survey revealed that families on relief receiving $1,000 income or less received the aid of a physician for disabling illness 78 percent of the time; those with incomes of $5,000 or over, 89 percent. Those over the age of 65 experience four times as many days of disabling illness as the population as a whole; but spend only twice as much per capita on medical care. An early report (Public Health Reports, vol. 33, 1918, pp. 204445) shows that those with half-monthly incomes of $6 experienced 70 disabling days of sicknesses per 1,000 whereas those with $10 or over only 18.5.

Senator MURRAY. Would you tell us how much of the population is represented as coming within those income figures you specified?

Mr. HARRIS. Yes, sir; Senator Murray. I have those figures a little later, if you do not mind waiting for a moment. I have them by percentages later on.

Senator MURRAY. Very well.

Mr. HARRIS. Fourth, the aging of the population is a relevant consideration. In 1900 this country had but 3,000,000 or 4 percent of the population aged 65 and over; in 1948, 11,000,000 or 7 to 8 percent; by 1975, 18,000,000 or 11 percent. I might say that by the year 2,000 the figure will be 21,000,000 or 18 percent. Medical expenditures are a substantial part of all outlays by the old. As the population ages, the need for medical services will rise greatly; and particularly for those with limited resources. It should be noted, however, that insofar as more adequate provision is made for health, the burden of other programs on behalf of the old will be reduced.

May I say that on the average people 65 years of age and over spend about four times as many days in disabling illness as the rest of the population. Therefore, it is quite conceivable that within a reasonable period of time you will need 50 percent of the health facilities to take care of the old.

Fifth, the inadequacy of medical service has put pressure on the Government to do something. This inadequacy arises in part from the high level of employment in recent years, in part from the diversions of manpower to the military, in part from the improved standard of living which is reflected in a desire for more and better medical standards, in part from the failure of medical facilities to expand adequately, and part from the uneconomical organization of medicine.

Sixth, the development of programs abroad, the British program, the beginning of a Canadian program, the publicity given to the medical deficiencies of draftees-all of these have aroused public interest.

Seventh, the new economics of the last 20 years has gradually percolated to those who mold policy. This theory puts emphasis on the importance of finding a "corrective" for the results of man's high productivity. More consumption or (and) more leisure are the manner of absorbing the gains of progress. In the last 150 years, we have

raised our standard of living by 8 to 10 times; and cut the hours of work from 60 to 70 to 40. More and more as we have learned to produce farm and factory products with less and less labor, we have turned to the tertiary industries (distribution, transportation, education, medicine, etc.) as the outlets for our released energies. Unless we find employment for our released workers through increased expenditures for services, the country will have to acquiesce to large amounts of unemployment (or corresponding rise in leisure), or to spending largely for war. Rising expenditures for recreation, religion, education, health, and so forth, are a happy way out.

In short, many reasons can be adduced for the increased interest in health insurance. The program, I would emphasize, is one for achieving a better distribution of expenditures for medicine and an increased outlay. The country may not be able to afford to allow private choice to determine total outlays on medicine any more than it does in education. Surely consumers need some guidance when they spend $7,400,000,000 for medical care and health expenses, as compared to $2,750,000,000 for tobacco, $2,300,000,000 for personal care largely beauty care-$15,500,000,000 for transportation, $9,400,000,000 for

recreation.

1. Importance

II. COSTS OF MEDICAL CARE

Even at the bottom of the depression, the Committee on the Cost of Medical Care for the American People estimated that outlays of 100 to 200 dollars would be required for a family of five. The average family of five earning $1,500 could not afford an outlay of 7 to 13 percent of their income even though the country could afford it. Hospitalized illness then cost $150 per case on the average, and was a serious burden on the less than 10 percent of the middle- and low-income group thus affected in any one year. (Final Report, pp. 35, 132.)

The prevailing methods of purchasing medical care have unsatisfactory consequences. They lead to unwise and undirected expenditures, to unequal and unpredictable financial burdens for the individual and the family, to neglect of health and of illness, to inadequate expenditures for medical care, and often to inequitable renumeration of practitioners. There needs to be some plan whereby the unequal and sometimes crushing burden of medical expenses can be distributed. (Final Report, p. 34.)

In 1947, private disbursements on medical care and death expenses were $7,400,000,000 or 32 percent of the national income, and 42 percent of all consumption expenditures. (Survey of Current Business, July 1947 and July 1948.) Outlays of Government were $2,000,000,000 additional. Government outlays were largely for hospitals ($1,400,000,000), community health protection ($360,000,000), medical care of the needy, noninstitutional, $150,000,000,000). (The Nation's Health, p. 28.)

The following observations should be made about the costs of medical

care:

2. Disappointing outlays for medical care

In 1933, the public disbursed $2,400,000,000 or 6 percent of the national income on medical care; in 1947, the respective expenditures were $7,400,000,000 or more than 3 percent. Surely if the country could pay 6 percent of its income for medical expenses in 1933 (412 percent in 1929), the country can afford more than 3 percent in 1947-48. In an