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Financing Of Medical Care For The Aged: A Comparative Evaluation Of Compulsory Versus Voluntary Health Insurance
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Financing Of Medical Care For The Aged: A Comparative Evaluation Of Compulsory Versus Voluntary Health Insurance
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This dissertation has been 64-5157
microfilmed exactly as received
HEZAREH, All, 1930-
FINANCING OF MEDICAL CARE FOR THE AGED:
A COMPARATIVE ^VALUATION OF COMPULSORY
VERSUS VOLUNTARY HEALTH INSURANCE.
University of Southern California, Ph. D ., 1963
Economics, general
University Microfilms, Inc., Ann Arbor, Michigan
FINANCING OF MEDICAL CARE FOR THE AGED: A COMPARATIVE
EVALUATION OF COMPULSORY VERSUS
VOLUNTARY HEALTH INSURANCE
by
All Hezareh
A Dissertation Presented to the
FACULTY OF THE GRADUATE SCHOOL
UNIVERSITY OF SOUTHERN CALIFORNIA
In Partial Fulfillment of the
Requirements for the Degree
DOCTOR OF PHILOSOPHY
(Economics)
August 1963
UNIVERSITY O F SO U TH ER N CALIFORNIA •
GRADUATE SCHOOL
UNIVERSITY PARK
LOS ANGELES 7. CALIFORNIA
This dissertation, written by
All Hezareh
under the direction of his....Dissertation C o m
mittee, and approved by all its members, has
been presented to and accepted by the Graduate
School, in partial fulfillment of requirements
for the degree of
D O C T O R O F P H I L O S O P H Y
Dean
D a t e . / 9 4 : 3 ; ..
DISSERTATION COMMITTEE
n-*
.......
ACKNOWLEDGMENTS
This acknowledgment is very brief and intends to
mention the contributions of only a few persons. It is
hoped that those whose ideas and insights have been a
source of inspiration and quite instrumental in the de
velopment of this Dissertation will accept the token
credits which are given in the writings.
The writer is grateful to Professor E. Bryant
Phillips of the University of Southern California not only
for his contributions, suggestions, and constructive criti
cisms for this Dissertation, but also for all the kindness
and consideration which he has shown the writer in the last
eight years. To Professor William H. Anderson of the Uni
versity of Southern California, whose Seminars in Taxation
and Fiscal Policy and his "four and five stars questions"
gave a sense of direction and objectivity to the writer,
must go a special thanks. The writer is further indebted
to Professor Anderson for giving him the opportunity to
learn Economics first hand by allowing him to teach an
ii
Introductory Economics course at the University of Southern
California in 1958.
The writer is grateful to Dr. Thomas E. Lasswell of
the University of Southern California who carefully read
this Dissertation and for many valuable suggestions and
constructive criticisms. To Dr. Ahmed Kooros of Rutgers
University must go a special thanks for being a source of
inspiration and financial aid, and above all a dear friend
in the last few years. To Mr. Ezzat Abtin, the vice**
president of the First State Bank of Lynwood, who gave
unselfishly in the health crisis of the writer in 1959-61
and reaffirmed his close friendship with the writer, must
go a very special thanks.
The writer is eternally indebted to his father,
Mohammad E. Hezareh, without whose endless sacrifices this
Dissertation would not have been possible. It is to him
that this Dissertation is respectfully dedicated.
ill
TABLE OF CONTENTS
PAGE
ACKNOWLEDGMENTS.................................... ii
CHAPTER
I. INTRODUCTION.................................. 1
The Problem................................ 9
Statement of the problem.................. 9
Purpose of the study...................... 19
Limits of the study...................... 22
Definition of Terms Used.......... 25
Review of the Literature.................... 30
Organization of the Remainder
of the Dissertation...................... 37
II. THE MEDICAL NEEDS AND THE HEALTH ATTITUDES
OF THE A G E D ................................ 41
Demographic Characteristics ................ 42
The number, the age distribution, and
the sex of the a g e d .................... 43
Marital status ............................ 47
CHAPTER PAGE
Social Characteristics ...................... 48
Living arrangements...................... 49
Place of residence .............. 53
Education................................ 54.
The Health Status of the A g e d .............. 56
The prevalence and specific acute
conditions among the a g e d .............. 58
The prevalence and specific chronic
conditions among the a g e d .............. 64
A clinical examination of chronic
conditions.............................. 70
The limitations of health surveys........ 73
The Health Attitudes of the Aged............ 76
Medical Needs and Medical-Care
Expenditures .............................. 81
III. MEDICAL-CARE EXPENDITURES OF THE A G E D ........ 86
Total Private Medical-Care Expenditures
of the A g e d .............................. 88
The over-all rise of medical-care
expenditures ............................ 89
The trend of hospital utilization ........ 94
v
CHAPTER PAGE
The trend of utilization of physicians*
services.............................. 97
The trend of utilization of drugs........ 100
Per Capita Private Medical Expenditures
of the Aged.............................. 103
The uneven distribution of medical-care
costs.................................. 107
The Rising Price of Medical C a r e .......... 110
The over-all rise of medical-care
prices................................ Ill
Varying rates of increase ................ 114
Total Public Expenditures on Medical Care
of the Aged.............................. 119
Summary.................................... 120
IV. THE FINANCIAL CAPACITY OF THE A G E D .......... 121
The Income Position of Older Persons .... 122
The money income of the a g e d ............ 122
The money income of aged beneficiaries of
Old-Age and Survivors Insurance ........ 128
Sources of Money Income.................... 130
The "nonmoney income" of the aged........ 133
vi
CHAPTER PAGE
The Asset Position of Older Persons .......... 135
Homeownership .............................. 136
Liquid assets .............................. 137
Life insurance policy ...................... 138
D e b t ...................................... 138
The assets of aged beneficiaries of
Old-Age and Survivors Insurance .......... 139
Tax Advantages of the Aged ......... 143
The Income Need of the Aged.................. 145
The Impact of Inflation on the Financial
Resources of the Aged...................... 146
Impact of inflation on expenditures
of the aged.............................. 152
Impact of inflation on the money income
of the aged.............................. 153
Impact of inflation on the nonmoney income
and assets of the a g e d .................. 160
Summary...................................... 164
V. FINANCING OF MEDICAL CARE FOR THE AGED THROUGH
VOLUNTARY HEALTH INSURANCE .................. 175
vii
#
CHAPTER PAGE
Alternative Methods of Financing Medical
C a r e ...................................... 177
Voluntary methods.......................... 178
Types of insurance coverage............ 179
Individual and group coverage ............ 181
Development of Insurance and Prepayment
P l a n .................................... 183
Early beginnings.......................... 184
Growth of health insurance............ 186
Present status .................... 191
Distribution of hospital, surgical, and
regular medical coverage by type of
insurance organization . .......... 193
The scope of coverage.................. 196
Health Insurance for the Aged................ 204
Current health insurance programs for
the a g e d ................................ 206
Continuation of insurance for the
employed aged under group insurance
p l a n .................................. 206
viii
CHAPTER PAGE
Continuation of group insurance for
retired pensioners .................... 207
Conversion from group to individual
coverage.............................. 209
Group insurance for special groups of
the a g e d .............................. 212
Continuation of individual insurance
after 6 5 .............................. 213
New individual insurance after 65 ... . 216
Insurance policies paid up at 65 .... 222
The Extent of Health Insurance for
the A g e d .................................. 223
The extent of health insurance among
the a g e d ................................ 224
The scope of coverage...................... 229
Summary...................................... 232
VI. PUBLIC FINANCING MEDICAL CARE FOR THE NEEDY
AND MEDICALLY NEEDY.......................... 239
Public Expenditures for Medical Care
for the A g e d .............................. 241
Source and distribution .................... 242
ix
CHAPTER PAGE
Medical Care tinder the Old-Age Assistance
Programs................................ 246
Early beginning ......... 249
Present status of medical care for the
needy and medically-needy persons .... 255
The scope of services under Old-Age
Assistance Program .................. 256
Selection of hospital, physician,
dentist, and the manner of payment . . 258
The administration of medical care for
the needy and the medically-needy . . . 261
The utilization and medical
expenditures ........................ 263
The Medical Assistance for the Aged
Program............................... 265
The amount and the scope of services
provided........................... 267
Standards of eligibility ................ 270
Administration....................... 272
Selection of hospital, physician, and
the method of payment............... 276
CHAPTER PAGE
The number of recipients and the expendi
tures under the program............. 277
An Evaluation of the Old-Age Assistance and
the Medical Assistance for the Aged
Programs............................. 282
Summary................................. 290
VII. FINANCING OF MEDICAL CARE FOR THE AGED THROUGH
THE SOCIAL SECURITY SYSTEM............. 293
A Brief Historical Development of Compulsory
Health Insurance in the United States . . . 295
First period, 1910-20 .................... 296
Second period, 1921-33 299
Third period, 1933-50 ... * ......... 301
Fourth period, 1951 - present......... 305
Medical Care for the Aged Through Social
Security System.................... . 309
The specifications of the Administration
Plan of Health Insurance for the Aged . . 311
Eligibility....................... 311
Scope of services and benefits .... 312
Payment to providers............. 318
xi
CHAPTER PAGE
The cost and financing of the plan . . 323
Administration of the p l a n.... 328
An Evaluation of Voluntary Versus Compulsory
Health Insurance.................. 334
Criticisms of compulsory health
insurance........................ 336
The "three-dimentional" expansion .... 337
Regimentation of the agents of the
medical-care industry and "mechaniza
tion of the patient-doctor relation
ship" ................................ 339
Misallocation of medical resources . . . 347
Interference with the freedom of the
doctors........................ 349
Criticisms of voluntary health
Insurance........................ 350
The general criticisms of voluntary
health system.................. 351
Arguments for financing of medical care
for the aged through Social Security . . 355
Summary.............................. 3 59
xii
CHAPTER PAGE
VIII. SUMMARY AND CONCLUSION....................... 364
BIBLIOGRAPHY........................................ 387
xiii
LIST OF TABLES
TABLE PAGE
I. The United States Population by Age and
Sex, 1930-1960 .......................... 45
II. Social Characteristics of the Population
Before and After Age 65, by Sex, United
States Census of April 1950 50
III. Annual Incidence of Acute Conditions, Days
of Restricted Activity, and Bed-Disability
Days by Condition Group, Sex, and Age:
United States, July 1958 - June 1959 ... 59
IV. The Prevalence of Selected Chronic Condi
tions by Age and Sex: United States,
July 1957 - June 1959 65
V. Number of Disability Days for Selected
Chronic Conditions by Age and Sex: United
States, July 1957 - June 1959 66
VI. Personal Consumption Expenditures in the
United States in Medical Care, 1940-61 . . 91
xiv
TABLE PAGE
VII. Percentage Distribution of Expenditures
for Medical Care in the United States,
1940-1961 93
VIII. Private Per Capita Expenditures for
Medical Care by Age and Sex, 1952-53 and
1957-58 105
IX. Total Family Expenditures for Medical Care
as a Percentage of Family Income,
by Income Group........................ 109
X. Consumer Price Indexes for All Items and
Commodity Groups; 1947-1961 112
XI. Index of Medical-Care Prices; 1940-60 . . . 115
XII. Percentage Distribution of the Aged by
Total Money Income, 1958 ............... . 124
XIII. The Per Capita Median Income of Families
Headed by Different Ages, 1958 ........... 126
XIV. The Public and Private Sources of Money
Income of the Aged, 1958 ................. 131
XV. The Sources of Money Income of the Old-Age
and Survivors Insurance Beneficiaries,
1957 .................................... 154
xv
TABLE PAGE
XVI. Number of People Protected for Hospital,
Surgical, and Regular Medical Expense,
1940-1961 188
XVII. Distribution of Hospital, Surgical, and
Regular Medical Expense Coverage by Type
of Insuring Organization, December 31,
1961.................................... 192
XVIII. The Extent of Voluntary Health Insurance
According to the Age, 1959 .............. 225
XIX. Per cent of Noninstitutional Population with
Health Insurance at Ages 65 and Over, by
Sex, According to Type of Coverage, Race,
Marital Status, and Labor Force Status,
United States, September 1956 226
XX. Public Expenditures for Medical Care for
the Aged: Estimated Amount by Type of
Program and Type of Care, 1960 .......... 243
XXI. Private and Public Expenditures for Medical
Care of Civilians of All Ages and the
Aged, United States, 1955-56 ............ 244
xv i
TABLE PAGE
XXII. Old-Age Assistance Programs: Summary of
Number of States Providing Major Types
of Medical Services by Method of Payments,
October 1, 1961 260
XXIII. Medical Assistance for the Aged: Summary of
Number of States Providing Major Types of
Services, October 1961.................... 268
XXIV. State Programs of Medical Assistance for
the Aged in Operation, May 1, 1961:
Major Eligibility and Service Provi-
■
sions.................................. 273
XXV. Medical Assistance for the Aged: Number of
States Reporting, Number of Recipients,
and Total Payments, Each Month, October
1960 to January 1962 ..................... 278
XXVI. Medical Assistance for the Aged: Recipients
and Payments for Recipients, by State,
January 1962 ............................ 279
XXVII. Vendor Payments under OAA and MAA Programs:
Comparison of Expenditures in States with
MAA Programs, January 1962 ............... 281
xv ii
TABLE PAGE
XXVIII. Health Services and Supplies that Could
be Paid for Under the Administration
Plan for Health Insurance for the
Aged...................................... 314
XXIX. Limitations on Health Insurance Payment
Under the Administration P l a n ............ 315
xviii
CHAPTER I
INTRODUCTION
There is a consensus that medical care of the
highest "quantitative" and "qualitative" standards should
be available to all. Disregarding the humanitarian con
siderations, this is a sound economic proposition. Medical
care of highest "quantity" and "quality" not only guards
labor against any unnecessary incapacitation and in
validity, but also eliminates the "psychosomatic" effects
of the fear of illness. All of these tend to improve the
quality of human resources and to increase the productivity
of labor which is the most valuable resource of any nation.
Great progress has been made in the science of medi
cine and the art of application of medical science. New
medical discoveries, spectacular surgical techniques, and
"miracle" drugs have solved many of the medical mysteries.
A parallel development in medical institutions has taken
place also. New and better medical schools have been
1
constructed to train medical personnel to cope with the
growing demand for medical services. Hospitals "have grown
from alms houses and custodial institutions into great
conmunity health and teaching centers."^
These great medical discoveries and achievements,
which have been the joint product of both private and pub
lic institutions, have made great contributions toward
preservation of health and life: by adding twenty-two years
*
to the life span of the average American in the past sixty
years; by reducing the rate of maternal and infant death
dramatically; by subduing infectious diseases, and by
reducing the average hospital stay from 34 days in 1900 to
7.5 days in 1961.2
While the advance in knowledge and technology of
medicine has solved many medical problems, it has created
many problems in the social organization and in the fi
nancing of medical care. In the first place, the rapidly-
changing science and technology of medicine have had
profound effects upon the volume and nature of demand for
^Samuel J. Tlbbitts, "U.S. Doctors, Hospitals Pro
vide Best Patient Care in the World," Los Angeles Times
(Supplement), October 22, 1961, p. 3.
2Ibid.
medical services. Increasing longevity has changed the
composition of the population In the United States. The
proportion of those 65 and over has Increased both in
absolute numbers and In relation to the total population.
This has meant an Increase In chronic disease and permanent
disability with a subsequent rise In demand for medical
services by the aged. The remarkable progress In control
of Infant mortality has been partially responsible for a
high proportion of young children In the population. The
aged, the children, and other persons--though whose lives
are saved by modern medicine, yet are left with a certain
degree of long-term disability— are heavy users of medical
services. The increasing need for medical care--whlch has
been partially created by the very progress in medicine—
together with rising incomes, industrialization and urban
ization, higher educational levels, and the fact that the
public is becoming more health-conscious than ever before,
have led to an increase in demand and in the rate of
3
utilization of medical services.
3
Herman M. Somers and Anne R. Somers, Doctors.
Patients, and Health Insurance (Washington, D.C.: The
Brookings Institution, 1961), pp. 4-9 and 496-499.
Secondly, the progress In the science and technology
of medicine has also had profound effects on the supply of
medical care and on the structure of medical practice.
The spectacular medical progress has resulted in "spe
cialization" which in turn has been partially responsible
for the development of "group practice," "paramedical per-
4
sonnel," elaborate hospitals, and other medical phenomena.
Although the medical care industry has not adjusted itself
to the new situation smoothly and completely and many mal
adjustments and dislocations remain, progress has been made
and the trend for the future is promising. In spite of the
beneficial results of medical specialization, the greater
complexity of medical services, the necessity of costly
medical facilities and services, and specialization have
brought with them substantial increase in the medical care
bill.
The end result of the changes in the demand and
supply of medical care, among other things, has been the
steady rise in the medical care bill. This increase
4
Paramedical personnel refers to technicians,
chemists, therapists, medical social workers, and other
people working with physicians. See ibid.. p. 495.
in the medical care expenditures reflects partly the
increase in the utilization of medical services and partly
the rise in price of medical care. While the private
expenditures on medical care has been an Increasing per
centage of the personal disposable income, of more sig
nificance has been the rise in the price of medical
services. While the general consumer price index rose by
20.2 per cent from 1947-49 to 1957, the price of medical
care has risen by 38 per cent for all medical items,
ranging from 87.3 per cent for hospital rates to 16.7 per
cent for drugs and prescriptions.'* It is also interesting
to note that the gap between medical care prices and the
general level of prices has been widening. For example,
between 1958 and 1960 medical prices rose more than three
times as fast as general prices.**
The growing need for medical care and its rising
costs coupled with the unpredictable and uneven costs
H. I. Greenfield and 0. W. Anderson, The Medical
Care Price Index (New York: Health Information Foundation,
1957), Series 7, pp. 46-55; Medical Care Prices: Long Run
Versus Short Run. Bureau of Medical Economic Research,
American Medical Association, September 1958, pp. 10-25.
6Somers and Somers, on. cit.. p. 49.
of illness have made It necessary to find some method of
spreading the risk and defraying the costs of Illness.
This Is quite fundamental and necessary In view of the
unpredictable nature of Illness which makes the concept of
budgeting for medical care a "myth/* and the fact that
. . the most expensive diseases do not, In this poorly
ordered world, descend upon those with the fattest
purses."^ Thus health Insurance and prepayment plans were
developed to defray the unpredletable and uneven costs of
Illness. The spectacular growth of voluntary health Insur
ance plans In the last twenty years together with other
public programs have eased the burden of medical costs.
Yet, there are some 50 million people who have no protec
tion of any kind. They are mostly composed of the aged,
the disabled, the low-income workers, and the unemployed—
those who need the protection most, and can afford the cost
of protection the least. Furthermore, even among those who
have health Insurance, "comprehensive" or even "adequate"
coverage Is lacking. For example, while 72 per cent of all
Americans have some health Insurance, these policies pay,
^Michael M. Davis, Paving Your Sickness Bill
(Chicago: The University of Chicago Press, 1931), p. 1.
on average, 25 per cent of the medical bills of insured
persons and only 20 per cent of the nation1s private
medical care bills. Thus While voluntary health insurance
has demonstrated that insurance against medical costs is
practical and great steps have been taken in that direc
tion, it has failed to achieve a coverage that meets the
needs. As it will be examined more fully later on, the
growing demand for medical services and the rising costs
of medical care have been the most important impedients
toward more comprehensive coverage--a paradox which has
been brought about by the very progress in the science and
technology of medicine.
In short, great advances in the science and tech
nology of medicine have resulted, on one hand, in increas
ing life expectancy, in prevention and control of child
mortality and infectious or communicable diseases, and in
an over-all improvement in the general health of the
population. On the other hand, medical progress has
brought with itself a growing medical care bill, partly
because of growing demand and partly because of specializa
tion, expensive diagnostic and therapeutic treatments, and
other related services. The increasing costs of medical
services have created many problems in the financing of
medical care and paying the medical care bill.
This medical-economic problem is of greater dimen
sion for the agedt because of their greater medical needs
and their lessened economic capacity to meet this need.
No wonder that so much attention has been recently focused
on the various methods of financing medical care for the
aged. It is realized, of course, that this "pinpoint
approach," or the "compartmentization" of medical care for
the aged is somewhat unsatisfactory, particularly since
". . . many of the health problems of old age have their
g
roots in middle age. ..." However, the special nature
of medical care for the aged and various "space-imposed"
considerations have made this study to focus its attention
primarily on the alternative methods of financing of medi
cal care for the senior citizens.
Official State Groups on Aging: Elements of Organ
ization and Programs. Report of the Conference of State
Commissions on Aging and Federal Agencies, September 8-10,
1952 (Washington, D.C.: Department of Health, Education,
and Welfare, April 1953), p. 37.
9
I. THE PROBLEM
Statement of the Problem
There is a general recognition that the medical
needs of the older people are greater than those of younger
persons. In spite of lack of comprehensive health surveys
and the numerous limitations involved in such health
studies, available information indicates that advancing
years bring increasingly serious and costly medical prob
lems. Disabling illnesses--both acute and chronic— occur
relatively more often among the aged than in the population
as a whole. Although the aged constitute 9 per cent of the
total population, they account for 40 per cent of the long
term or permanent disability. Acute conditions tend to
rise sharply at the age of 60 in frequency, prevalence,
and in average annual ntmtber of days of disability per
9
person.9
The aged also have a far higher rate of medical care
utilization than other age groups. They experience more
o
U.S. National Health Survey, Acute Conditions.
Incidence and Associated Disability. United States. July
1957 ~ June 1958 (Washington, D.C.: U.S. Public Health
Service, 1958), pp. 21-22; Health in California (Berkeley:
Department of Public Health, State of California, 1957),
pp. 85-87.
10
days of hospitalization and a greater need for other
medical services. Once the number of the aged In "long-
stay institutions1 ’ Is taken into consideration, an even
greater rate of hospitalization and other medical care
utilization emerges— a rate which has been increasing about
three times as fast as that of other age groups.
The greater use of medical services by the aged is
also partly reflected in their relatively greater medical-
care expenditures. While the average annual medical charge
for all persons in 1957-58 was $94, it came to $177 for
those 65 and over--with one-tenth of the aged bearing well
over one-half of total medical charges. Once these figures
are adjusted for the free medical care received by some of
the aged--both public and private--then it becomes evident
that the elderly persons receive a great deal more personal
health services than other age groups. Even more dis
turbing is the greater increase in the rate of increase of
medical care expenditures which has caused a growing
discrepancy between the average annual medical care
0. W. Anderson, Progress in Health Services
(New York: Health Information Foundation, 1960), Vol. 9,
pp. 7-14.
11
expenditures of all persons and the aged.^
Despite Increasing medical needs and medical care
expenditures, the aged have relatively less financial
resources to meet their medical needs. Various studies
show that three-fifths of "nonlnstitutloi.alized" persons
aged 65 and over--one-third of the men and three-fourths of
the women--had less than $1,000 in "money income" in 1958.
Only one-fifth— one-third of the men and one-tenth of the
12
women-'had annual income of more than $2,000.
Various studies indicate that a large number of the
older people have some assets. However, these holdings are
mainly composed of home ownership--a source of accumulated
income which might not be easily used to meet their medical
care expenditures without disturbing their "normal" or
"established" standards of living. It also appears that
those with lower current incomes have little or no assets.
^Selma Mushkln, "Age Differential in Medical Spend
ing," Public Health Reports. Vol. 72, February 1957,
p. 115.
12
Institutionalized aged are those who live in
mental hospitals, homes for the aged, hospitals for
chronically-diseased, and so forth. See L. A. Epstein,
"Money Income of Aged Persons: A Ten Year Review, 1948-58,"
Social Security Bulletin. No. 22, June 1959, pp. 3-5;
L. A. Epstein, "Money Income Sources of Aged Persons,
December 1959," Social Security Bulletin, July 1960, p. 14.
12
A more penetrating picture of the economic capacity
of the aged, however, should not only consider the amount
of the current and accumulated Income, but also the sources
of the current Income and the nature of the assets. Once
It Is realized that the substantial part of Income of the
aged Is fixed, then It appears that the consistent rise In
the level of prices--which has been eroding the purchasing
power of the dollar at the cumulative rate of 2 per cent
per year since 1949--has been cutting deeply into the "real
value" of incomes of the aged.
The heavy burden of the medical needs and expendi
tures is underscored by the fact that only a small portion
of the aged have health insurance of any kind--and most of
these have Insufficient coverage. According to a survey
of the "nonlnstltutional" population of the United States
conducted in 1956, health insurance in some form was held
by 36.5 per cent of the aged, compared with 63.6 per cent
for all ages, ranging from 50 per cent at ages 65-69
13
to 25 per cent at ages 75 and over. Even when health
13
Agnes N. Brewster, "Health Insurance in Population
65 and Over," Research and Statistics Notes. Division of
Program Research, Social Security Administration, No. 17,
June 11, 1958; Hospitalization Insurance for OASDI Bene
ficiaries. A Report Submitted to the Committee on Ways and
13
Insurance Is available to an older person* he often has to
pay a higher premium and take finer benefits than a younger
person. Most of the policies are one-year contracts sub
ject to company*s right to refuse renewal. Many individual
policies exclude certain illnesses to which the aged are
prone and do not cover "pre-existing conditions."
In view of the increasing medical care expenditures
and decreasing income, many of the aged meet their medical
needs with great difficulty; many ignore them, and still
others take refuge in state mental hospitals. For it is
customary that when old people are unable to look after
themselves and have no relative to look after them, they
are sent to state mental hospitals. In Oklahoma, one-third
of the admissions are such old people, a condition which
is probably true of other states. The costs of testing and
treating a patient during the first few months are over
$4,000. This is an expensive way to take care of the aged;
and what a humiliation it must be to those who are mentally
competent.' ^
m
Means of the House by the Secretary of the Department of
Health, Education, and Welfare (Washington, D.C.: Govern
ment Printing Office, April 3, 1959), p. 43.
14
Forrest E. Gilmore, "How To Retire," Petroleum
Refiner. Vol. 40, June 1961, p. 139.
V
14
Can an ''affluent society" like the United States
afford this state of affairs? There Is a general agreement
that certain measures should be taken to relieve the senior
citizens from the heavy burden of their medical care bill.
Disagreement, however, emerges on how to achieve this goal.
The multiplicity of proposals obscures the broad
groupings of types of solutions to the problem of financing
medical care for the aged. Two major proposals, however,
present themselves. The first plan proposes the financing
of medical care for the aged through voluntary health
Insurance and caring of the "medically-Indigent" aged under
a special arrangement. The second proposal advocates a
program of financing medical care for the aged through the
Social Security System.
The "pros" and "cons" of voluntary versus compulsory
Insurance for the aged are too numerous to state here and
will be examined In related sections. However, It is
worthwhile to state the gist of the arguments of both sides
very briefly.
The proponents of the voluntary health insurance
argue that with the marked growth of voluntary health
insurance in the United States in recent years, It will not
15
be long before most of the older people will have "adequate"
protection, and nothing more Is needed except public
assistance for the "medlcally-lndlgent" aged. It Is argued
that private health Insurance Is better able to meet older
people's medical problems, since It Is flexible and can be
adjusted to fit an Individual's needs and circumstances.
Compulsory medical care for the aged, It Is argued, Is a
stepping stone Into compulsory Insurance for everyone with
many political, bureaucratic, financial, economic, and
ethical "fallacies." Compulsory health Insurance, by arti
ficial cheapening of medical services, tends to create an
excessive consumer demand which the available resources
cannot satisfy. This artificial cheapening of medical
services tends to lower the quality of medical care by
mechanizing "doctor-patlent relationship," to lead to over-
utlllzatlon of medical facilities by creating more "psycho
logical Incentives" for Illness, to create a disequilibrium
In distribution of medical resources, and to Increase the
costs of the plan unless Its functions are profoundly
checked either by "contributions" and "deductibles," or
"physical controls" such as limiting prescription and so
forth.
16
The proponents of the medical care for the aged
through the Social Security System, on the other hand,
argue that the only feasible method of meeting the medical
problems of the aged Is by providing medical care as a
right and thereby preventing the "pauperization" of the
elderly In times of Illness. Although It Is recognized
that the volume of voluntary health Insurance has Increased
substantially In recent years, "comprehensive," or "ade
quate" coverage Is less prevalent. Since Insuring the
health of the aged Is obviously a more expensive under
taking than Insuring the health of other age groups,
"adequate" coverage for the aged Is very difficult to
achieve without a substantial increase in insurance
premiums.^ So far as the costs of the program are con
cerned, the proponents of the medical care for the aged
through Social Security System argue that public assistance
to the aged is already heavy--either directly by assuming
recent study by the Department of Health, Edu
cation, and Welfare showed that the cost of providing
benefits to the aged is about 2.5 times that of supplying
the same benefits to the members of other age groups.
Hospitalization Insurance for OASDI Beneficiaries, op. cit.
Also, see Harland Fox, "Medical Insurance and the Retired
Employee," Management Record, November 1956, p. 368.
17
a part of medical care given the aged In hospitals, mental
Institutions, and so forth, or indirectly by loss of
revenue from the special "medical expense waiver," and
others. A health insurance program under Social Security
System would provide a less painful way of defraying the
costs of Illness than to make appropriations from the
general treasury. It is further argued that public assist
ance Is not a satisfactory solution because of the "means
test," low budgets provided by the state, and the inter
state administrative difficulties.
The proponents of the Social Security health insur
ance contend that no effort will be made to interfere with
the internal administration of hospitals or with the
authority of the physicians in medical matters. The system
of "statistical checks" which the system proposes is to
guard against undue utilization of services and to control
the quality of care. Finally, it is argued that since this
program pays for a substantial part of "diagnostic ser
vices," it promotes and stimulates preventive medical
services which in the long run tend to reduce unnecessary
and expensive bed administration, for as Dr. Basil MacLean
has pointed out, "It's a lot cheaper to treat patients
13
on the hoof then between the sheets.
It seems clear from the preceding discussion that
the financing of medical care for the aged is a difficult
and controversial undertaking and it does not lend itself
to an easy solution. The final solution (or judgment if
you please) rests upon many complex and controversial
factors--some of which will be thoroughly examined in the
chapters to follow. To keep the issue clear and to put the
problem in its proper perspective, it is necessary to state
very briefly the points of agreement and disagreement.
There is general agreement that all should have
access to medical care of highest "qualitative" and "quan
titative" standards irrespective of their ability to pay
for it. Given this consensus, it is also agreed that the
costs of illness must be distributed among groups of people
and over periods of time. Beyond this agreement, however,
there is a sharp disagreement on how to finance this —
whether through insurance, taxation, or both; and if
through insurance, whether this should be voluntary or
compulsory.
^Roland H. Berg, "The Battle for Your Health
Dollar," Look. April 11, 1961, p. 29.
19
B
It Is the primary purpose of this study to probe
into the question of alternative methods of financing of
medical care for the aged and to explore the areas of
agreements and disagreements with greater emphasis on
points of disagreement.
Purpose of the Study
It is the primary purpose of this study to examine
some of the methods of financing medical care for the aged.
In order to do so, however, an attempt will be made to
examine the medical needs, the utilization of medical
services, and the medical care expenditures of the aged.
Then an attempt will be made to examine and analyze the
economic capacity and financial resources of the aged.
An examination of various methods of financing
medical care for the oldsters will be made. First, an
attempt will be made to examine very thoroughly the major
sources of voluntary or private health insurance for the
aged. By examining the past development of the major
voluntary health insurance plans and projecting their
future progress, an attempt will be made to see if this
source of financing can adequately provide medical-care
20
insurance for the older persons without unduly increasing
costs.
Secondly, the major government programs of financing
medical care for the aged will be examined. More specifi
cally, an attempt will be made to analyze and examine the
provisions of two government programs --one already enacted
and the other still pending— designed to provide medical
care for the aged. The first program— the so-called Kerr-
Mills Act which has already been enacted— calls for the
Federal grants-in-aid to states which have set up medical
care programs for the "medically-indigent" aged. It leaves
individuals having adequate financial resources free to
make their own provision for medical care, and each state
free to experiment with compulsory health insurance. The
second proposal— the King-Anderson bill which is still
pending--proposes a compulsory health insurance for the
aged under the Social Security System. By a thorough
examination of the various provisions of these two plans,
an attempt will be made to determine whether this method
of financing can take care of the medical care problems of
the aged.
Finally, by reviewing some of the "pros" and "cons"
of voluntary versus compulsory health insurance, by
21
examining some of the relevant characteristics of the
medlcal-care Industry with respect to the economics of pay-
lng for medical care, and by probing Into the experience of
several other countries with compulsory health Insurance
for the aged, It Is hoped to provide some guldeposts--lf
not solutions— In dealing with the financing of medical
care for the aged.
A dynamic approach Is employed In examining the
<
question of financing medical care for the aged. It Is by
examining the past and present development as well as
future prospect, that an understanding can be gained of the
pattern of development and long-run forces of which the
present Is a small segment.
This study Is devoted not only to verifiable facts
and relationships, but also In expression of well-founded
opinions. However, a great effort will be made to keep
the question of "principle” and "policy” clearly distinct.
This separation of "principle” and "policy” Is quite
necessary and essential In the field of medical care and
medical finance since the subject Involves both objective
and subjective elements. So long as an attempt Is made to
describe and explain the many facets of the medlcal-care
22
industry, then the discussion will be quite objective and
quantifiable. Yet, as soon as an attempt is made to
replace "what it is" with "what it ought to be," then that
delineates the end of objective and quantitative analysis
and the beginning of policy decision and value judgment-**
which do not easily lend themselves to measurement.
In view of the nature of medical care and medical
finance, therefore, a conscious effort will be made to
avoid discussion which creates "more heat than light," and
to keep the question of "principle" and "policy" clearly
apart, however difficult it may be to surrender our prefer
ences in face of the facts.
Limits of the Study
The aged are a very heterogeneous group with respect
to economic capacity, health conditions, and so forth.
Treating the aged as an undifferentiated group glosses over
the marked differences in financial resources and medical
needs and expenditures of those in their 60's and those
in their 70*s. Furthermore, the economic capacity and
medical needs of the aged may vary according to race, sex,
and the region in which they live. To keep this study
within a reasonable boundary, the aged are treated as an
23
undifferentiated aggregate glossing over the racial and
regional differences except for brief analysis and occa
sional references.
While a thorough examination of the medical needs
and medical-service utilization of the aged Is made, the
primary emphasis of this study Is on the actual medical
care expenditures of the aged. An examination of medical
needs Is necessary to distinguish between the "potential
demand" and "effective demand" for medical services and it
may point to the amount of unmet medical needs even if it
cannot measure it precisely. A presentation of medical-
service utilization is also desirable to show the extent of
the free medical care which is received by the aged. How
ever, as pointed out above, this study is primarily con
cerned with the medical care expenditures of the aged.
A variety of means and institutions are involved in
the field of medical finance. Although alternative methods
of financing cannot be easily classified, two categories
present themselves: voluntary methods and public methods.
Voluntary methods of financing include prepayment, insur
ance, postpayment, and charitable programs. The public
methods of financing medical care may vary from the direct
24
provision of medical services such as Veterans Administra
tion to reinsure, assist, or underwrite different private
financial programs.
So far as the private methods of financing medical
care for the aged is concerned, our major concern is with
the two principal voluntary methods of financing--insurance
and prepayment plans. Independent plans and other programs
are not included in this study except for occasional refer
ences. It should also be noted that the cost of insurance,
the extent and scope of benefits vary from one insurance or
prepayment plan to another. In examining the cost and the
extent of benefits, an average is used to refrain from
minute case studies.
Numerous public measures are either proposed or are
in existence to finance, assume, or subsidize the costs
of medical care for the aged. This study, however, is
primarily concerned with two public measures, namely,
financing medical care for the aged through the Social
Security System, and the Federal grants-in-aid to subsidize
the financing of medical care for the "medically-indigent"
aged.
Finally, the problems of medical finance and medi
cal organization are quite interrelated. Any study of
25
financing medical care without regard to the supply of
medical personnel and facilities is bound to be unsatis
factory, for additional funds for medical services, without
regard to conditions of supply, may only lead to a higher
price of medical services. Similarly, appraisal of medical
care institutions without regard to economics of paying for
medical care is apt to be equally unsatisfactory. The
complexity and the multidimensional nature of the medical
care, however, has forced this study to limit itself
reluctantly to the problems of financing medical care for
the aged. This "space-imposed" limitation is necessary to
keep this study within the bounds of simplicity and com
prehension.
IX. DEFINITION OF TERMS USED
For the most part, an attempt will be made to
clarify the meaning of terms as they specifically arise in
the course of discussion. There are certain fundamental
terms and concepts, however, which should be defined
clearly at the outset. It must be pointed out, however,
that a great number of these terms do not lend themselves
to easy definition, and they can be explained better
26
than defined. Nevertheless these concepts will be used in
this study as they are defined at this stage.
Aged. For the purpose of this study, the aged will
be considered as those at ages 65 and over. It is fully
recognized that no single chronological age can define the
"threshold of old age," yet convention is followed and the
age 65 is selected as the beginning of "old age."
Medical care. Medical care will be used in its
broadest sense and will include the personal services by
members of the various health professions and all the
clinics, hospitals, and related facilities necessary for
the treatment of accident, illness and disease, prevention
of disease, and reduction, if not prevention, of disability
associated with illness. It includes preventive, diag
nostic, therapeutic, and rehabilitative services.
Private medical expenditures. It denotes the con
sumers 1 expenditures on medical services including health
insurance premiums paid by the insured. It excludes that
portion of medical expenses paid by insurance companies,
miscellaneous expenses for routine physical and dental
examinations, nonprescription drugs, and free medical
27
services received from private philanthropy and charitable
organizations.
National medical expenditures. It refers to the
total private and public outlays for medical care. The
public medical expenditures include tax-saving subsidies,
public hospital and nursing home care, and other public
assistance programs.
Chronic illness. Although no agreement exists on
what constitutes a chronic illness, unless otherwise noted,
chronic conditions comprise,
. . . all impairments or deviations from normal
which have one or more of the following character
istics: versible pathological alteration; require
special training of the patient for rehabilitation;
may be expected to require a long period of super
vision, observation, or care.
Acute illness. It is very difficult to define an
acute condition and almost all health surveys define it
differently. For example, the California Health Survey
considers acute condition as ". . . any illness or injury
*7Commission on Chronic Illness, Prevent ion of
Chronic Illness (Cambridge: Harvard University Press,
1957), I, 4.
28
18
that 'bothered' a person during a four-week period.'1
The National Health Survey defines an acute illness as any
condition which requires a certain amount of medical
attendance and Involves a certain degree of restriction of
19
"activity." For the purpose of this study, however, an
acute condition is any illness or injury which is of short
duration and requires a certain amount of medical attend
ance.
Disability. It is generally defined in terms of the
impact of illness or injury upon a person's "usual"
activity. According to the National Health Survey, disa
bility refers to ". . . any temporary or long-term reduc-
20
tion of a person's activity." The Commission on Chronic
Illness defines disability as a condition which "...
91
keeps a person away from the usual daily activity."
^ Health in California, pp. 17 and 75, cited by
Mortimer Splegelman, Ensuring Medical Care for the Aged
(Homewood, Illinois: Richard D. Irwin, Inc., 1960), p. 49.
19
7U.S. National Health Survey, Concents and Defini
tions in the Household-Interview Survey (Washington, D.C.:
Public Health Service, September 1958), pp. 16 and 19.
20Ibid.
21
Commission on Chronic Illness, Prevention of
Chronic Illness, p. 4.
29
The concept of disability for the aged, however, is hard
to define since it is difficult to determine what consti
tutes the ''usual activity" of the aged, since they do not
customarily work for Income. However, for the purpose of
this study, disability refers to the restriction of "normal
activity" of a person, whether it involves inability of the
person to engage in any gainful occupation, or just the
restriction of one's daily activity.
Health insurance. It refers to any insurance plan
whose primary purpose is to provide "cash indemnification"
against the financial contingencies of illness and acci
dent. It should be noted that health insurance provides
financial protection against accident, illness, or disease.
Prepayment plan. It refers to a method of financing
medical care which actually renders medical services.
Although it may be considered as a form of insurance, a
prepayment plan is a system wherein a fixed payment is made
for specific medical services when needed.
Compulsory health insurance. It refers to a situ
ation wherein laws are enacted compelling the individual to
join or to contribute to the funds of a national health
insurance program.
30
Income. Income is defined as those earnings from
wages or salary, net income from self-’ employment in a busi
ness or professional practice, net income from pension
(private and government), rent, interests, and dividends.
To keep it within the possibility of exact measurement,
income, as used in this study, excludes income in kind.
Service benefits versus cash indemnity payments.
Service benefits refer to those situations in which a cer
tain number of units of medical services are available to
the insured in case of illness or accident. Cash indemnity
payments, on the other hand, refer to a situation wherein
a certain amount of cash is given to the insured for ill
ness or accident.
III. REVIEW OF THE LITERATURE
Much has been written on the subject of medical care
and medical finance. However, publications regarding the
subject of medical care for the aged are quite limited and
scanty. Although many studies have been made in the field
of medical care and medical finance for the aged, most of
31
these studies are dealing with a small segment of the sub
ject. Thus a brief presentation of literature on financing
medical care for the aged is a difficult task.
The following references constitute by no means an
exhaustive treatment of all the literature on the topic of
medical finance for the aged. What is attempted here is
to list major sources that were used and a few important
sources in which additional information may be found.
99
Spiegelman's Ensuring Medical Care for the Aged,
22
Mortimer Spiegelman, Ensuring Medical Care for
the Aged (Homewood, Illinois: Richard D. Irwin, Inc.,
1960). This book deserves brief explanation, for it is the
only book--so far as this writer has been able to ascer-
tain--which presents a rather full treatment of the medical
finance for the aged. Mr. Spiegelman treats the economic
resources and the medical needs, utilization, and expendi
tures of the aged. Then the author presents an extensive
treatment of the voluntary mechanism of financing medical
care for the aged. However, Mr. Spiegelman*s treatment of
the government proposals to finance medical care for the
aged is quite scanty. The author attempts no conclusion
and policy recommendation, except by hoping that the volun
tary health insurance programs and prepayment plans will
ultimately take care of financing medical care for the
aged. In spite of the similarity of approach of this
dissertation and Mr. Spiegelman's book, Spiegelman's scanty
treatment of public measures to finance medical care for
the aged and his failure to carry the medical problems of
the aged to the ultimate stage in either direction neces
sitate this study.
32
Reed’s Health Insurance: The Next Step in Social Security,
Davis's Medical Care for Tomorrow,^ Somers and Somers'
Doctors. Patients, and Health Insurance.2- * and Palyi's
26
Compulsory Medical Care and the Welfare State were found
to contain valuable Information on the subject of medical
care and medical finance In general.
The publications regarding medical needs, medical-
servlce utilization, and medical expenditures of the aged
27
are too voluminous to list here. Various Health Surveys
were extensively used in dealing with the medical needs and
23
Louis S. Reed. Health Insurance: The Next Step In
Social Security (New York: Harper and Brothers Publishers.
1937).
24
Michael M. Davis. Medical Care for Tomorrow (New
York: Harper and Brothers. 1955).
25
Somers and Somers, op. clt.
^Slelchlor Palyi, Compulsory Medical Care and the
Welfare State (Chicago: National Institute of Professional
Services. 1949).
27
U.S. National Health Survey. Concepts and Defini
tions in the Household■Interview Survey: U.S. National
Health Survey. Acute Condition. Incidence and Associated
Disability. United States. July 1957 ~ June 1958: Commis
sion on Chronic Illness. Chronic Illness in a Large City.
The Baltimore Study; Commission on Chronic Illness. Preven
tion of Chronic Illness: Health in California: and Ander
son, Progress In Health Services.
33
the health status of the aged. Also, a number of articles
regarding the medical need of the aged with special em
phasis on methodology of health survey have appeared In
various journals.
The publications regarding medical-care utilization
of the aged are too numerous to list here; however, most
studies with this respect are conducted by the Division of
Research and Statistics of the Social Security Administra-
28
tion.
A great deal of Information on medical-care expendi
tures appears In various Public Health Reports, different
studies conducted by the Health Information Foundation, and
29
other sources.
28
I. S. Falk and A. W. Brewster, "Hospitalization
and Insurance Among Aged Persons," Bureau Report No. 18,
Division of Research and Statistics, Social Security
Administration, Washington, D.C., April 1953; Hospitaliza
tion Insurance for OASDI Beneficiaries: J. Fisher, "Trends
in Institutional Care for the Aged," Social Security
Bulletin. October 1953; U.S. National Health Survey,
Hospitalization: Patients Discharged from Short-Stay Hos
pitals. United States. July 1957 - June 1958. Public Health
Service (Washington, D.C.: Government Printing Office,
December 1958); U.S. National Health Survey, Preliminary
Report on Volume of Physician Visits, united States. Julv-
September 1957. Public Health Service (Washington, D.C.:
Government Printing Office, 1958); and Health in California.
2^Mushkin, "Age Differential in Medical Spending";
S. Mushkin, "Characteristics of Large Medical Expenses,"
34
On the financial resources and capacity of the aged,
most of the studies are conducted by the Social Security
Administration, the Federal Reserve Board, Health Informa**
30
tion Foundation, and a few other independent studies.
t
Numerous references which deal with the voluntary
methods of financing medical care for the aged are availa
ble. A comprehensive review of literature on health insur
ance programs and prepayment plan is not feasible at this
stage. Campbell's Voluntary Health Insurance in the United
31
States, Goldman's Voluntary Medical Care Insurance in
Public Health Reports, Vol. 72, August 1957; Anderson,
Progress in Health Services; and 0. W. Anderson and J. J.
Feldman, Family Medical Costs and Voluntary Health Insur
ance: A Nationwide Survey (New York: McGraw-Hill Book
Company, Inc., 1956).
30
E. Shanas, Financial Resources of the Aging
(New York: Health Information Foundation, 1959), Research
Series 10; L. A. Epstein, "Money Income of Aged Persons:
A 10-Year Review, 1948-58"; P. 0. Steiner and R. Dorfman,
The Economic Status of the Aged (Berkeley and Los Angeles:
University of California Press, 1957); Bureau of the
Census, Current Population Reports. Consumer Income.
Series P-60, No. 12, June 1953; and M. Civic, Income and
Resources of Older People (New York: National Industrial
Conference Board, 1956).
31
Rita Campbell, Voluntary Health Insurance in the
United States (Washington, D.C.: The American Enterprise
Association, 1960).
35
32
the United States. Goldman's Prepayment Plans for Medical
Care. Reed * s Blue Cross and Medical Service Plans.
The Committee on Labor and Public Welfare, Health Insurance
35
Plans in the United States. Wolfenden's The Problems of
36
Medical Economics. and A Look at Modem Health Insur-
37
ance provide valuable information on health insurance and
prepayment plans in general. A great deal of information
on health insurance for senior citizens is available in
studies conducted by Insurance Department of State of New
York, Social Security Administration, Health Insurance
32
Franz Goldman, Voluntary Medical Insurance in the
United States (New York: Columbia University Press, 1948).
33
Franz Goldman, Prepayment Plans for Medical Care
(New York: Columbia University Press, 1955).
34
Louis S. Reed, Blue Cross and Medical Service
Plans. Division of Public Health Methods, Public Health
Service, Federal Security Agency (Washington, D.C.: Govern
ment Printing Office, 1947).
35
Health Insurance Plans in the United States.
Report of the Committee on Labor and Public Welfare (U.S.
Senate, 82d Congress, 1st Session, Report No. 359, Part 2,
May 28, 1951).
36
H. H. Wolfenden, The Problems of Medical Economics
(Toronto: Canadian Medical Association, 1941).
37
A Look at Modern Health Insurance (Washington,
D.C.: Chamber of Commerce of the United States, 1954).
36
Council, Congressional Hearings, and various reports
presented to the Congress by the Department of Health,
Education, and Welfare.
The publications regarding government programs for
financing medical care for the aged are too voluminous and
scattered to review briefly in here. Most of the informa
tion regarding public programs is available in various
journals, studies by the Department of Health, Education,
and Welfare, Social Security Administration, Hearings
before the Congress, and so forth. However, a few refer
ences appear in the footnote.^
38
Voluntary Health Insurance and the Senior Citizen:
A Report on the Problem of Continuation of Medical Benefits
for the Aged in New York State. Insurance Department,
State of New York, February 26, 1958; Hospitalization
Insurance for OASDI: A. W. Brewster and R. Bloodgood, "Blue
Cross Provisions for Persons Aged 65 and Over, Late 1958,"
Research and Statistics Note No. 5. Division of Program
Research, Social Security Administration, Washington, D.C.,
March 12, 1959; C. E. Artmeyer, "Blue Shield Provisions for
Retired Persons," Research and Statistics Note No. 25.
Division of Program Research, Social Security Administra
tion, Washington, D.C., July 30, 1957; A. W. Brewster,
"Health Insurance in the Population 65 and Over"; and I. S.
Falk and A. W. Brewster, Hospitalization and Insurance
Among Aged Persons. A Study Based on a Census Survey in
March 1952. Bureau Report No. 18, Division of Research and
Statistics, Social Security Administration (Washington,
D.C.: Government Printing Office, April 1953).
39
A. W. Brewster, Health Insurance and Related
Proposals for Financing Personal Health Services. Division
of Program Research, Social Security Administration,
37
Finally, a large number of articles treating certain
aspects of medical care and medical finance have appeared
in the American Journal of Public Health. Journal of the
American Medical Association, American Economic Review.
Gereatrics. Editorial Research. International Labor Review.
and others. Full citation will be given whenever they are
used as a source of reference.
IV. ORGANIZATION OF THE REMAINDER
OF THE DISSERTATION
Chapter II, which immediately follows, is devoted to
an analytical treatment of the health status and medical
Department of Health, Education, and Welfare (Washington,
D.C.: Government Printing Office, 1958); "Surveys of State
and Local Projects," Committee on Labor and Public Welfare,
U.S. Senate, Washington, D.C., 1956; S. Ossman, "Con
current Receipt of Public Assistance and Old-Age and Sur
vivors Insurance," Social Security Bulletin. September
1958; "Tax-Supported Personal Health Services for the
Needy," American Journal of Public Health. Vol. 45, Decem
ber 1955; The Aged and Aging in the United States:
A National Problem (Hearings before the Sub-committee on
Problems of the Aged and Aging, U.S. Senate, 86th Congress,
2d Session, 1960); M. G. Taylor, "Financing Health Insur
ance - What Lies Ahead?" Report of Proceedings of the
Eleventh Annual Tax Conference. Canadian Tax Foundation.
Toronto, March 1958; and The President's Commission on the
Health Needs of the Nation, Building America's Health
(Washington, D.C.: Government Printing Office, 1951).
38
needs of the aged. By examining various health surveys,
an attempt is made to throw some light on the extent and
nature of medical needs of the senior citizens. Although
no attempt is made to correlate the medical needs of the
aged with their medical care expenditures, ah analysis of
the health status of the aged is necessary to distinguish
between "potential demand" and "effective demand" for
medical services and to shed some light on the extent of
"unmet" medical needs.
Chapter III deals with the medical-care expenditures
of the aged. An attempt is made to examine the sources and
distribution of individual as well as national expenditures
on medical care of the aged. Moreover, a careful examina
tion of factors affecting both the individual and national
expenditures on medical care of the aged is made. This
chapter serves as a foundation for other chapters which
follow, for, as previously indicated, the aggregate medical
care expenditures are assumed to represent the actual or
"effective demand" for medical services, however inadequate
this assumption may be.
While Chapters II and III relate to the demand for
medical services, Chapter IV deals with the financial
39
resources and economic capacity of the aged. A careful
examination of the economic capacity of the aged is quite
essential in determining how much of the aged "potential
medical demand" can be turned into "effective demand" for
medical services.
Chapter V deals with the voluntary methods of
financing medical care for the aged. More specifically,
Chapter V deals with the private insurance companies and
the prepayment plans— the Blue Cross and Blue Shield— and
their role in financing medical care for the senior citi
zens. An attempt is made not only to examine the past
development of these voluntary methods of health insurance
for the aged, but also their future potentiality in meeting
the medical finance for the older persons. However, since
the present concern is with the aged, emphasis is on those
aspects of these plans which are directly related to the
financing of medical care for the aged.
The government programs and proposals to finance
medical care for the aged are discussed in Chapters VI
and VII. A critical evaluation of the Kerr-Mills Act— a
program of Federal grants-in-aid to those states which have
set ud a program of medical care for the "medically-
indigent" aged--is made in Chapter VI. An effort is made
to ascertain whether or not this program will take care o£
the medical care problems o£ the aged. Chapter VII pre
sents a thorough analysis of the King-Anderson Bill which
proposes a medical-care program for the aged under Social
Security System. After a critical evaluation of this
program is presented, an attempt is made to determine
whether this program can deal'with the real problem, or
whether it is concerned with the distribution of the
"medical dollar.”
The summary of previous chapters and the conclusions
of the study appear in Chapter VIII.
CHAPTER II
THE MEDICAL NEEDS AND THE HEALTH ATTITUDES
OF THE AGED
The success or the failure of the medical-care
Industry depends upon how much of the medical needs of the
population It can meet. Practically all of the studies of
the medical-care Industry or the mechanisms for financing
medical care are In terms of the actual medical-care
expenditures. A pluralistic approach of both medical needs
and medical-care expenditures Is necessary to distinguish
between the medical needs (the potential demand) and the
medlcal-care expenditures (the effective demand) of the
population In order to shed some light on the extent of the
unmet medical needs.
The medical needs of the population are greatly
Influenced by many related scientific, demographic, and
socioeconomic factors. In these respects, the aged have
many characteristics markedly different from the rest
41
42
of the population. Before examining the health status of
the aging population, therefore, a brief analysis of the
demographic and social characteristics of the aged is in
order, leaving the economic factors to a separate chapter.
A dynamic analysis of these factors is made to gain an
understanding of the present as well as the future trend.
It is the primary purpose of this chapter, there
fore, to analyze: (1) the demographic characteristics of
the aged; (2) the social characteristics of the older per
sons; and (3) the health status and the health attitude of
the aging population.
I. DEMOGRAPHIC CHARACTERISTICS
The size, the age distribution, and the sex of the
aged have significant bearing upon their medical needs.
The number of the aged determines the extent of their
aggregate medical needs and it serves as an indication of
the extent of their medical-care problem. The age dis
tribution of the aged also affects the amount and the
nature of their medical needs. Concentration at extreme
ages, for example, not only brings with itself a growing
need for medical services, but also a reduction in the
financial resources with which to meet the medical needs.
Finally, since women follow different mortality, morbidity,
and disability patterns than men, the sex of the aged has
profound effects upon the amount and the kind of medical
services required.
The Number, the Age Distribution, and the Sex
of the Aged
As of April of 1961, there were approximately
17 million persons over 65 years of age in the United
States. This number has increased five times since 1900
and will probably double again in the next forty years.
People are reaching the age of 65 at the rate of about
3,000 per day, or over a million per year, and this rate
is increasing at about 3 per cent per annum. In the next
ten years, some 12 million more persons will be 65 years of
age or older, out of which 6 million people are expected
to die. If major breakthroughs in the treatment of the
principal killers of the aged (cardiovascular-renal and
cancer) occur, then most of these 6 million persons may not
die. Thus, the number of the aged in this country could
easily explode to around 25 million or one-eighth of the
total population by 1970.
44
As Table I shows, the aging population has not only
Increased In absolute number, but also relative to the
total population. While those at ages 65 and over consti
tuted 5.4 per cent of the total population In 1930, and
about 9 per cent In 1960, It Is estimated that by 1970 more
than 11 per cent of the total population would be 65 years
of age and over. However, If major breakthroughs In the
treatment of the principal killers of the aged occur, then
a much higher rate will emerge.
The growing number of the aged, both In absolute
numbers and relative to the total population, means an
Increasing Incidence of both acute and chronic diseases
since the process of growing old Is Ma disease consisting
of deficiencies and Illnesses— a chronic and fatally
progressive disease."^ That Is to say that the growing
size of the aged, both absolutely and relatively, has been
accompanied by marked alterations In mortality, morbidity,
and disability patterns. While longevity has been con
tinually Increasing, the marked change In the nature of
^From the opening address of Dr* Enrico Greppl,
President of the fourth annual Congress of International
Association of Gerontology, Rome, July 15, 1957. Cited by
Helen B. Shaffer, "Health of the Aged," Editorial Research
Report. II (September, 1957), 649.
TABLE I
THE UNITED STATES POPULATION BY AGE AND SEX, 1930-1960
Year
Population,
Thousands
Per cent of Total
at Ages
Ratio: Females per 100
«i
t)
2
All
Ages
Ages
65 and
Over
65 and
Over
75 and
Over
All
Ages
Under
Age 65
Ages
65-74
Ages
75 and
Over
1930 122,775 6,634 5.4 1.6 96.1 96.0 93.9 110.9
1940* 131,820 8,969 6.8 2.0 99.1 98.7 101.3 113.2
1950 151,132 12,194 8.1 2.6 100.8 99.9 107.3 121.1
1960b 179,823 16,560 9.0 3.1 103.0 100.1 115.0 133.0
1965c 193,643 17,638 9.1 3.3 102.6 100.4 121.7 139.5
1970 208,199 19,549 9.4 3.5 102.9 100.3 125.3 146.5
1975 225,552 21,872 9.7 3.7 103.0 100.0 127.1 153.0
1980 245,409 24,526 10.0 3.8 102.9 99.5 128.9 157.4
*Data for 1940-1980 include armed forces overseas.
^Includes Alaska and Hawaii.
£
Projections are based on current estimates for 1957, and they do not take account of the 1960 Census
results. Series III is taken which assumes that the 1955-57 fertility rate declines to 1949-51
level by 1965-70, and then it remains at that level to 1975-80.
Source: 1930-1960: Department of Commerce, Bureau of Census, U.S. Census of Population: 1960
(Washington, D.C.: The United States Government Printing Office, 1962), Vol. 1; 1965-1980: Depart
ment of Comnerce, Bureau of Census, Current Population Reports, Series P-25, No. 187, pp. 16, 17-21.
■ P -
in
46
illness and disability has created a greater need and
demand for medical services by the aged.
A growing concentration of the aged at the extreme
ages is also discernible from Table I. While 1.6 per cent
of the total population were 75 years and over in 1930, it
is estimated that by 1980 approximately 4 per cent of the
population will be 75 years old and over. Furthermore,
while of the total at 65 and over, 30 per cent were at ages
75 and over in 1940 and 35 per cent in 1960, the trend may
continue to 40 per cent by 1980. The growing concentration
of the aged at the extreme ages has two significant effects
upon the health status of the aging population. First,
advancing years bring with themselves a greater rate of
complicated and costly illness and more days of restricted
activity. Secondly, the concentration of the aged at the
extreme ages profoundly affects their financial means of
paying for their medical needs. This is due to the fact
that the financial resources of those at ages 75 and over
are much more limited than those who have just entered the
threshold of old age. For those at ages 75 and over have
not only spent most of their productive years during a
period of relatively low earnings, including the depression
47
of the 1930*8, but also a great number of them had no
access to the private or public pension programs.
In the growing number of the aged, females are gain
ing more rapidly than males. At ages 65 to 74 years, women
have outnumbered men since 1940, ranging from 1 per cent in
1940 to 15 per cent In 1960 with an expected 29 per cent
by 1980. The gap is even greater at ages 75 and over,
where females are exceeding males by more than 30 per cent
in 1960, which is expected to continue to 57 per cent by
1980. The growing number of the aged females relative to
the aged males have two distinct effects on the health
status of the aging population. First, various health
studies confirm the fact that the aged females experience
a greater rate of chronic conditions than the aged males.
This means a greater need for medical services and a
greater degree of disability. Secondly, since the aged
females have lesser financial means with which to pay for
their medical care, a greater degree of unmet medical needs
for the aged emerges.
Marital Status
Various studies confirm that married persons have
lower death rates than the unmarried ones. Many factors
48
are responsible for this, among which "stability" and
better care associated with married life seem to be the
most Important ones. The disruption of family life by
death which occurs quite frequently In old age poses many
social and economic problems which In turn affect the
health status of the surviving spouse.
According to the 1960 census of population, about
one-fourth of the males at ages 65 to 69 are not married
and most of these are widowers. The proportion of the
unmarried males Increases to about one-third at ages 70
to 74 years, reaching one-half at ages 75 and over. A
greater unmarried proportion emerges for the females,
ranging from almost one-half at ages 65 to 74 to over four-
2
fifths at ages 75 and over.
II. SOCIAL CHARACTERISTICS
It is generally agreed that the state of health of
the population in general, and that of the aged In par
ticular, Is partly biologically and partly socially defined.
2
U.S. Department of Commerce, Bureau of the Census,
Statistical Abstract of the United States. 1961 (Washing.
ton, D.C.: Government Printing Office, 1961), p. 34.
Thus the health status and the health attitude of the
population toward medical care utilization are strongly
Influenced by many social characteristics, such as living
arrangements, place of residence, and the level of educa
tion. A brief examination of these social factors Is too
difficult to render because of the multiplicity of the
factors and the differences among social groups and within
them. Nonetheless, a brief analysis of some of these
factors and the manner In which they affect the health
status and the health attitude of the aged is In order.
Living Arrangements
The living arrangements of the aged will certainly
shed some light on the role that family and neighborly
relationships play in the care of the aged. It is agreed
that people
. . . living alone or without relatives in a house
hold are more likely to be sent to a hospital when
ill, or to receive more attention from the physicians,
than those who have the benefits of a family life.3
According to the 1950 census data in Table II, a great
Mortimer Spiegelman, Ensuring Medical Care for the
Aged (Homewood, Illinois: Richard D. Irwin, Inc., 1960),
pp. 8-9.
TABLE II
SOCIAL CHARACTERISTICS OF THE POPULATION BEFORE AND AFTER AGE 65,
BY SEX, UNITED STATES CENSUS OF APRIL 1950*
Males at Specified Ages Females at Specified Ages
Characteristics 20-64 65-74 75 and
Over
20-64 65-74 75 an<
Over
Living Arrangements
Total, per cent 100.0 100.0 100.0 100.0 100.0 100.0
Living in families 88.9 81.6 76.2 91.6 75.5 68.9
Head 72.4 71.6 54.2 6.0 13.6 14.5
Wife 70.5 39.3 15.0
Other relative 16.5 10.0 22.0 15.1 22.6 39.4
Living alone or with
no relative in household 9.6 16.2 19.0 7.7 22.6 25.3
Inmates of institutions 1.5 2.2 4.8 0.7 1.9 5.8
In mental hospitals 0.6 1.1 1.3 0.5 1.0 1.5
In homes for aged
and dependents 0.1 0.9 3.2 0.1 0.8 4.2
Others 0.8 0.2 0.3 0.1 0.1 0.1
Residence
Total, per cent 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Urban 66.4 61.8 59.8 57.7 68.9 67.4 67.3 66.8
Rural nonfarm 19.7 20.9 23.2 25.9 18.6 20.1 21.2 21.9
Rural farm 13.9 17.3 17.0 16.4 12.5 12.5 11.5 11.3
in
O
TABLE II (continued)
Males at Specified Ages Females at Specified Ages
Characteristics 20-64 65-74 75 and
Over
20-64 65-74 75 anc
Over
Total, per cent 100.0 100.0
Migration
100.0 100.0 100.0 100.0
Nonmover8 78.4 89.6 89.4 81.2 89.6 89.2
Movers within county 12.3 5.9 5.9 11.5 6.0 5.8
Others 9.3 4.5 4.7 7.3 4.4 5.0
Total, per cent 100.0
Education (School
100.0 100.0
Years Completed)
100.0 100.0 100.0
Under 5 9.2 24.0 26.3 7.5 19.5 20.1
5-11 52.0 56.5 54.7 50.1 58.4 57.9
12 or more 35.9 15.7 13.8 40.3 19.1 17.1
Not reported 2.9 3.8 5.2 2.1 3.0 4.9
Total, per cent 100.0 100.0 100.0
Nativity
100.0
(White)
100.0 100.0 100.0 100.0
Native-born 90.6 73.5 74.8 75.1 91.1 77.8 78.0 78.1
Foreign-born 9.4 26.5 25.2 24.9 8.9 22.2 22.0 21.9
s B a a c B M B a E B a a B B a a a a B M B S B a s s s a B s ^ B ^ ^ B a ^ B B s s a B ^ B B ^ ^ ^ ^ ^ x i ^ ^ ^ B C B E B B n B M i
aLack of complete data from the 1960 Census of population forced this table to be prepared on the
basis of data from the 1950 Census of population.
Source: The United States Department of Commerce, Bureau of Census, U.S. Census of Population: 1950.
Special Reports (Washington, D.C.: The U.S. Government Printing Office, 1953), Vol. IV. Reproduced
largely from Mortimer Spiegelman, Ensuring Medical Care for the Aged (Homewood, Illinois: Richard D.
Irwin, Inc., 1960), pp. 7-8.
52
majority of the aged live In families, ranging from four-
fifths for males at ages 65-74 to over three-fourths at
75 and over. Although the corresponding proportions are
lower for females, they are still appreciable, ranging from
three-fourths at ages 65-74 to over two-thirds at ages
75 and over. These figures seem to indicate that "the
great majority of old people are in regular contact with
their children, relatives, or friends."^ This situation
may not only reduce the need for care in facilities outside
the home, but it may also provide psychological comforts
lacking in an Institution.
Although many studies confirm that the aged live
near their married children or other relatives and receive
a certain amount of aid— both pecuniary and nonpecuniary—
the shift from rural to urban life has changed the ability
if not the attitude of families to meet their responsi
bilities to the aged.^ Thus the growing urbanization of
4
Sixth Report of the Expert Committee on Mental
Health, Mental Health Problems of the Aging and the Aged
(Geneva: World Health Organization, 1959), p. 7.
"*H. D. Sheldon, The Older Population (New York:
John Wiley and Sons, 1958), pp. 5-8 and 94-102; R. J.
Hauighurst, "A World View of Gerontology," Journal of
Gerontology. XIII, Supplement (April, 1958), 2.
53
the population may undermine the ability of the families
to meet their responsibilities to the aged.
Place of Residence
The place of residence of the aged has two distinct
effects upon their health status and medical care utiliza
tion. First, as Indicated above, the continuing urbaniza
tion of the population In general, and the aged In par
ticular, will undermine the role of family life and discount
the ability of the families to meet their responsibilities
to the aged In case of Illness. Secondly, the growing
concentration of the aged In urban areas suggests that the
elderly are becoming aware of and are moving closer to the
hospital and other medical-care facilities. The end
results of these two factors seem to be a greater pro
pensity of the aged to utilize medical-care facilities in
time of need,,and a greater reliance on their own resources
to meet their medical needs.
Furthermore, the growing urbanization of the popula
tion and the aged Indicated by Table II has significant
effects upon the health attitude of the population and the
aged toward utilization of medical-care services. On one
hand, the accessibility of hospital and other medical-care
54
facilities together with a general awareness of the impor
tance of good health suggest a greater utilization of
medical-care services. On the other hand, however, the
nature of city life may have a negative effect upon the
medical-care utilization. For example, a "peptic ulcer,"
while it may be viewed with a great deal of alarm in a
rural town, may be considered a comnon side-effect of
living in a teeming city such as New York or Los Angeles.
In short, the growing urbanization of the aged in
recent decades has intensified their medical-care problems
in two ways. First, the growing inability of families to
meet their responsibilities to the aged has forced the
elderly to rely more on their own resources to meet their
medical needs. Secondly, the accessibility of medical
facilities and a general awareness of the Importance of
good health have Induced the aged to utilize medical
services when needed. The increasing "potential demand"
for medical services hampered by inability to pay for them
may suggest an Increasing amount of unmet medical needs.
Education
The aged of today have less schooling than the
younger generation. According to Table II, only one-seventh
55
of the males at ages 65 and over had twelve or more years
of schooling, as compared with one“third for males under 65.
Although the aged females enjoy a greater degree of educa
tion, the gap between the aged females and those under 65
years of age Is still great. According to projections by
the Bureau of the Census, the proportion of the aged with
at least four years of high school will rise from 18 per
cent In 1950 to about 35 per cent In 1980.**
The continuing rise in educational attainment by the
aged may have significant effects upon the health status
and the medical-care problem of the aging population. On
the one hand the aged of tomorrow, with their advantage in
education, may not only have a better knowledge of the
available modern medicine and medical facilities, but may
also make a greater use of them. This In itself might
improve the health status of the elderly by arresting and
controlling various chronic conditions through early
detection and treatment. On the other hand, however, in
creasing educational attainment by the aged may increase
U.S. Department of Commerce, Bureau of the Census,
Current Population Reports. Population Characteristics.
Series P-20, No. 91, January 12, 1959, pp. 25-29.
\
56
their sense of "personal hygiene" with the ultimate result
of a greater demand for medical services. This increasing
demand for medical services will not only put a great deal
of pressure on the available medical facilities, but also
poses a problem of payment for medical care of the aged.
III. THE HEALTH STATUS OF THE AGED
During the last few decades there has been a marked
Increase in life expectancy and a significant improvement
*
in the over-all health status of the population of the
United States. This marked Increase in the chance of
survival has been the product of the advance in the medical
science, rising standard of living, increased health educa
tion, and many other related factors. However, the fact
that a much larger proportion of the population survives
to reach middle and old age means an Increased per capita
illness and disability. Increasing longevity also Involves
a significant change in the nature of illness and disa
bility, namely, a shift from acute to chronic conditions.
This shift from acute to chronic conditions has created a
growing need for long-term preventive, rehabilitative,
semi-custodial, and medical social services.
57
With these changes in morbidity and disability
patterns, the concepts of health, illness, and medical need
have become Increasingly difficult to define and measure.
However, with great improvements in the theory and applica
tion of "biostatistics," it has become possible to define
and measure the extent and the nature of potential demand
for medical care to some extent. Various health studies,
which consist mostly of the population-based household
interviews, have been undertaken to measure the extent of
Illness and disability among the population. These health
surveys either deal with sickness and disability as related
to age, sex, income, residence, or other objective factors,
or with the individual or group attitudes toward sickness,
medical-care utilization, and so forth.
It is the primary purpose of this section to examine
some of these health studies very briefly. While main
emphasis is on the aged, yet many tables contain data for
younger persons in order to provide a base line from which
the continuing effects of aging can be highlighted and
measured. It should be pointed out, however, that the
material presented is restricted to the health experience
of the civilian, noninstitutional population of the United
States.
58
Finally, a brief analysis of the health attitudes
of the aged— namely, the attitudes toward health and main
tenance of health, medlcal-care utilization, and so forth*-
will be made.
The Prevalence and Specific Acute Conditions
Among the Aged
The incidence and associated disability for specific
acute conditions in the general population of the United
States for the period of July 1958 to June 1959 is sum
marized In Table III.^ Data present those conditions which
had lasted less than three months and had involved either
"medical attention" or one or more days of "restricted
activities."®
This period is more representative than that of
July 1957 - June 1958, since the 1957-58 data were inflated
by high number of cases of Aslan Influenza which reached
epidemic proportions during the year.
g
"Restricted activity" refers to a condition where a
person is either unable to carry on his "usual" activity
or has some limitation in the kind or amount of activity.
It should be noted, however, that since an aged person is
not working, generally speaking, it is very difficult to
determine what his "usual" activity consists of. However,
according to the National Health Survey, "usual" activity
refers to "working," "keeping house," or "going to school."
See U.S. National Health Survey, Duration of Limitation
of Activity Due to Chronic Conditions. United States. July
1959 ~ June 1960. Department of Health, Education, and
Welfare, Public Health Service (Washington, D.C.: Govern
ment Printing Office, 1962), pp. 31-32.
TABLE III
ANNUAL INCIDENCE OF ACUTE CONDITIONS, DAYS OF RESTRICTED ACTIVITY, AND BED-DISABILITY DAYS
BY CONDITION GROUP, SEX, AND AGE: UNITED STATES, JULY 1958 - JUNE 1959
All Ages Ages 65 and Over
Condition Group
Both Sexes Males Females Both Sexes Males Femalei
Total conditions 214.8
Annual Incidence
204.6 224.4
per 100 Persons
133.9 105.2 157.8
Infections and parasitic diseases 25.8 26.9 24.8 7.5
(*) (*)
Upper respiratory conditions 83.1 75.6 90.2 54.9 46.0 62.2
Other respiratory conditions 42.6 39.3 45.7 26.7 23.4 29.5
Digestive system conditions 11.9 10.8 12.9 5.8
(*) <*)
Fractures, dislocations, sprains,
and strains 8.3 9.5 7.1 9.0
(*) (*)
Open wounds and lacerations 7.3 10.0 4.6 2.4
<*) (*)
Contusions and superficial
injuries 6.4 6.9 6.0 7.1
(*) <*)
Other current injuries 6.9 8.3 5.7 4.6
(*) (*)
All other active conditions 22.5 17.3 27.4 15.9
(*)
18.6
*
Annual Number of Days Restricted Activity per 100 Persons
Total conditions 844.3 746.8 936.7 1025.4 853.9 1168.2
Infections and parasitic diseases 118.9 125.0 113.1 53.9 46.6 60.0
Upper respiratory conditions 229.8 195.7 262.2 252.2 209.5 287.7
Other respiratory conditions 178.8 154.6 201.8 241.2 238.7 243.2
Digestive system conditions 37.7 30.5 44.5 34.0 32.6 35.2
Fractures, dislocations, sprains,
-and strains 83.3 88.0 78.8 164.7 111.6 208.9
Open wounds and lacerations 23.1 28.8 17.6 22.6
(*)
31.2
Contusions, superficial injuries 28.1 20.9 35.0 61.0 25.0 91.0
Other current injuries 23.5 24.3 22.7 32.4 38.2 27.6
All other active conditions 121.1 78.9 161.1 163.4 139.4 183.3
TABLE III (continued)
All Ages Ages 65 and Over
Condition Group
Both Sexes Hales Females Both Sexes Males Fesmles
Annual Number of Bed-Disabllity Days per 100 Persons
Total conditions 359.5 319.7 397.2 411.8 326.4 482.9
Infections and parasitic diseises 53.0 56.1 50.0 27.7 20.9 33.4
Upper respiratory conditions 91.1 78.9 102.7 90.7 57.8 118.1
Other respiratory conditions 99.2 86.7 111.0 135.7 139.2 132.8
Digestive system conditions
Fractures, dislocations, sprains,
16.8 12.2 21.2 11.0
(*)
12.5
and strains 26.8 30.3 23.5 67.0 39.4 89.9
Open wounds and lacerations
Contusions and superficial
6.0 7.7 4.3 8.4
(*) (*)
injuries 8.9 6.3 11.5 15.0
(*)
26.6
Other current Injuries 7.2 8.1 6.3 7.3
(*) (*)
All other active conditions 50.5 33.3 66.8 48.9 44.1 52.9
*Data not available.
Source: U.S. National Health Survey, Acute Conditions, Incidence, and Associated Disability, United
States. July 1958 - June 1959 (Washington, D.C.: Department of Health, Education, and Welfare,
U.S. Public Health Service, I960), pp. 11, 20, and 23.
61
According to the National Health Survey, the annual
Incidence o£ acute conditions for the general population of
the United States during the period July 1958 to June 1959
was 214 per 100 persons at ages under 65, varying from
204 per 100 persons for males to 224 per 100 persons for
females.
As shown In Table III, the Incidence of acute condi
tions among the aged during the year was about two-thirds
of that for younger persons. Hence, according to this
table, the number of acute conditions per person decreased
for older persons; the greatest decrease was in "infectious
and parasitic" diseases (which Include the common childhood
diseases), in the "digestive system" conditions, and in the
"upper respiratory" conditions, in that order.
The National Health Survey has used "restricted
activity," "bed-disability," "work loss," and "school loss"
as "severity criteria," since these factors serve as a
measure of the economic and social cost of acute condi-
9
' tions. However, since the emphasis of this study is
on the aged, data on "work loss" and "school loss" are not
q
Bed-disability refers to a condition whereby a per
son by reason of sickness is confined to bed.
presented in Table III for the obvious reason of age. It
should be noted, however, that all acute conditions are not
necessarily disabling. For example, of the total of 367.9
million acute conditions which met the "severity criteria,"
37.8 per cent caused restriction of activity, but did not
require medical attention; 24.3 per cent required medical
attention, but did not result in activity restriction; and
37.9 per cent required both medical attention and resulted
in activity restriction.
As seen in Table III, there were 8.4 days of
"restricted activity" associated with acute conditions dur
ing July 1958 to June 1959 for the population in general.
The number of days of "restricted activity" associated with
each specific acute condition is also shown in this table.
According to the National Health Survey, children under
15 years of age and the aged had the greatest number of
"restricted activity" associated with acute conditions.
While the general population had 8.4 days of "restricted
activity" as a result of acute conditions during July 1958
to June 1959, the aged had an annual average of 10 days
10
U.S. National Health Survey, Acute Conditions.
Incidence and Associated Disability, p. 3.
63
of "restricted activity" as a result of acute conditions,
ranging from 8.5 days for aged males to 11.7 days for the
aged females. Although respiratory conditions were the
most important cause of restriction of activity for per
sons of all ages and the aged, unlike the other age group,
injuries were an important cause of "restricted activity"
for the aged.
Of 278.6 million acute conditions which resulted in
restriction of activity, 61 per cent also involved one or
more days of bed-disability. According to the National
Health Survey, there were 3.6 days of bed-disability per
person associated with acute conditions during July 1958
to June 1959. As indicated in Table III, the aged had a
slightly higher rate of bed-disability than the general
population, ranging from 3.3 days of bed-disability for the
aged male to 4.8 days for the aged female.
In short, while the Incidence of acute conditions
among the aged during the year is less than that for
younger age groups, no attempt should be made to under
estimate the medical and economic problems which acute
conditions pose for the elderly persons.
64
The Prevalence and Specific Chronic Conditions
Among the Aged
The Incidence and associated disability per specific
chronic condition for the general population and the aged
for the period of July 1957 to June 1959 are summarized in
Tables IV and V.
According to the National Health Survey, of approxi
mately 14.7 million noninstitutionalized persons 65 years
of age and over in the population, about 23 per cent had no
chronic conditions; 26 per cent had one chronic condition;
20 per cent had two chronic conditions; and 31 per cent
had three or more chronic conditions. With the exception
of a few cases, the prevalence of the chronic conditions
increases with age. From data collected by household
interviews in the National Health Survey during the period
July 1957 to June 1959, it was estimated that while 75 per
cent of the aged males and 81 per cent of the aged females
reported the existence of one or more chronic conditions,
only 36 per cent of the males and 40 per cent of the
females in the lower age groups reported any chronic con
ditions.
There was a similar relationship with age in the
number of persons with "partial" or "major" limitation
TABLE IV
THE PREVALENCE OF SELECTED CHRONIC CONDITIONS BY AGE AND SEX:
UNITED STATES, JULY 1957 - JUNE 1959
Selected Conditions
All Ages Ages 65 and Over
Both Sexes Males Females Both Sexes Males Females
Rate per 1,000 Population
Heart conditions 81.9 86.7 77.4 148.8 149.7 148.7
High blood pressure 85.2 47.4 119.6 129.1 73.4 175.8
Diabetes 25.6 21.8 29.0 40.4 33.5 46.2
Peptic ulcer 26.0 37.9 15.2 22.3 33.0 13.3
Arthritis and rheumatism 180.5 133.7 223.0 265.8 200.8 320.2
Hernia 33.5 55.3 13.8 54.6 98.3 18.0
Asthma “ hay fever 58.3 59.9 56.8 53.6 63.4 45.4
Chronic bronchitis 15.8 15.5 16.0 18.9 20.2 17.8
Visual impairments 47.6 45.7 49.3 103.2 95.0 110.2
Deafness and other hearing
'
impairments 86.4 101.8 72.4 171.8 200.1 148.2
Paralysis of major extremities
and/or trunk 12.4 14.0 10.9 22.4 25.6 19.5
Source: U.S. Public Health Survey, Older Persons. Selected Health Characteristics. United Statea.
July 1957 - June 1959 (Washington, D.C.: Department of Health, Education, and Welfare, Public Health
Service, 1960), p. 35.
on
m
TABLE V
NUMBER OF DISABILITY DAYS FOR SELECTED CHRONIC CONDITIONS BY AGE AND SEX:
UNITED STATES, JULY 1957 - JUNE 1959
Selected Conditions
All Ages Ages 65 and Over
Both Sexes Males Females Both Sexes Males Femalei
Restricted-*activity Days per 1,000 Population
Heart conditions 52.3 49.1 55.5 56.2 53.7 58.3
High blood pressure 19.0 20.8 18.4 20.5 24.6 19.0
Diabetes 21.5 20.1 22.5 22.8 17.9 25.8
Peptic ulcer 24.0 25.5 20.5 31.5 36.2 21.5
Arthritis and rheumatism 17.7 14.9 27.9 29.6 30.4 29.1
Hernia 16.5 20.0 13.2 19.6 16.7 32.6
Asthma**-hay fever 20.1 23.3 17.3 24.4 28.8 19.2
Chronic bronchitis 18.8 18.2 19.3 21.8 24.3 19.4
Visual impairments 1.8 1.4 2.2 1.5 1.1 2.0
Deafness and other hearing
impainnents 23.8 23.6 23.9 21.8 20.7 22.6
Paralysis of major extremities
and/or trunk 74.2 80.0 67.2 86.0 86.6 85.8
Bed-dlsability Days per 1,000 Population
Heart conditions 18.5 16.0 21.0 21.5 19.8 23.0
High blood pressure 6.1 5.5 6.3 6.9 5.9 7.3
Diabetes 9.7 7.9 16.9 11.9 7.3 14.6
Peptic ulcer 6.8 7.1 6.2 9.8 9.9 9.6
Arthritis and rheumatism 5.9 5.8 6.0 7.4 7.4 7.4
Hernia 5.9 4.7 10.4 7.7 5.7 16.8
Asthma— hay fever 4.5 4.6 4.3 6.3 6.6 6.0
ON
ON
TABLE V (continued)
All Ages Ages 65 and Over
Selected Conditions
Both Sexes Males Fesmles Both Sexes Males Females
Chronic bronchitis 6.6 8.6 4.9 8.5 12.2
(*)
Visual impairments 4.1 4.4 3.8 4.4 4.4 4.4
Deafness and other hearing
impairments .05 0.6
(*) (*) <*) (*)
Paralysis of major extremities
and/or trunk 33.2 35.5 30.5 37.3 40.1 34.5
*Data are not available.
Source: U.S. Public Health Survey, Older Persona. Selected Health Characteristica. United States.
July 1957 ~ June 1959 (Washington, D.C.: Department of Health, Education, and Welfare, Public Health
Service, 1960), p. 41.
of activity due to chronic conditions. Approximately
13 per cent of persons in the age group 45*54 years were
unable to carry on their "usual activity" or had some
limitation in kind or amount of activity. This percentage
of disability Increased to 21 per cent for ages 55-65,
36 per cent for ages 65-74, and 55 per cent for those aged
75 and over.** In short, the rate of chronic limitation
increased with age until about 42 per cent of the aged had
some degree of chronic "activity limitation" and about
12
18 per cent had chronic "mobility limitation." It must
be noted, however, that a day of disability could be the
result of more than one condition, and since the day of
disability is ascribed in the statistics to each condition
which was reported to have caused the disability, then a
duplication of disability days is quite likely.
Health Statistics: Older Persons. Selected Health
Characteristics. United States. July 1957 ~ June 1959.
Department of Health, Education, and Welfare, Public Health
Service (Washington, D.C.: Government Printing Office,
September 1960), Series C, No. 4, p. 2.
12
Ibid. Activity limitation refers to Inability to
carry on all or part of one's "regular" activities; limita
tion of mobility refers to inability to move about freely
or complete confinement to the house.
%
69
t
According to the National Health Survey, while the
percentage of limitation of major activity was about the
same for different sexes in all ages, for the aged the
limitation rate was substantially greater for males than
females. However, for those unable to carry on their major
activity, a higher rate for males was discernible for all
ages.
The duration of limitation affecting major activity
was influenced slightly by age and to a greater extent by
sex. However, if the institutionalized population is taken
into account, the total duration of limitation of activity
among older persons in institutions is quite high.^
The prevalence of chronic limitation of activity and
mobility was inversely associated with the amount of family
income. Approximately 21 per cent of those persons in
families with income less than $2,000 per year had some
degree of chronic limitation of activity, decreasing to
7 per cent for those with Income of $7,000 or more per year.
13
U.S. National Health Survey, Duration of Limita
tion of Activity Due to Chronic Conditions. United States.
July 1959 “ June 1960. Department of Health, Education,
and Welfare, Public Health Service (Washington, D.C.:
Government Printing Office, 1962), p. 3.
70
Essentially the same pattern existed for mobility limita
tion. While about 8 per cent of those persons in families
with income less than $2,000 per year had some degree of
mobility limitation, this percentage decreased to about
1 per cent for those with the annual income of $7,000 or
more.^
According to the Baltimore Study, the prevalence of
chronic conditions and the rate of disability were highest
among individuals where the family income was under $2,000
annually, but decreased consistently with higher income.
On the other hand, the disability rate for the aged was
greater for the higher income group. This led the Balti
more Study to conclude that "disabling illness is more a
15
cause than an effect of low income."
A Clinical Examination of Chronic Conditions
It has been recognized that the usual health surveys
conducted by lay interviewers may understate the actual
14
U.S. National Health Survey, Limitation of
Activity and Mobility Due to Chronic Conditions. United
States. July 1957 - June 1958, Department of Health, Edu
cation, and Welfare, Public Health Service (Washington,
D.C.: Government Printing Office, 1959), p. 1.
^Commission on Chronic Illness, Chronic Illness in
a Large City. The Baltimore Study (Cambridge, Mass.:
Harvard University Press, 1957), IV, 291.
71
prevalence of chronic conditions by a considerable margin.
Therefore, a number of studies have devoted special atten
tion to the comparison of morbidity information produced by
household interviews with data derived from clinical exami
nation of examples of the interviewed population at some
time after the household interviews.
The Commission on Chronic Illness undertook two
surveys, one on a random sample of the noninstitutionalized
population of Baltimore and the other in Hunterdon County,
New Jersey, a rural area.^ In the Baltimore Study the
«
data obtained by lay interviewers were supplemented by a
review of records with physicians and hospitals and by a
complete diagnostic examination. Both studies showed that
only a small proportion of chronic conditions diagnosed by
. physicians on such clinical examinations had been reported
by the respondents on interview. For example, the Balti
more Study showed that while "95 per cent of the aged had
one or more chronic conditions according to clinical evalu
ation," in the household interview by lay interviewers,
16Ibid.. pp. 50-55, 195-200, 271, 281, and 527.
Also R. E. Trussel and J. Elinson, Chronic Illness in a
Rural Area— The Hunterdon Study (Cambridge, Mass.: Harvard
University Press, 1959).
72
"only 66 per cent of the aged were reported to have one or
\
more chronic conditions during the twelve months preceding
the interview.”17
Another study, undertaken by the Division of
Research and Statistics of the Health Insurance Plan of
Greater New York, showed that the proportion of conditions
reported by the respondents on interview in no case reached
18
half of those inferred from actual doctor reports. Thus,
examination of correspondence in Interview reporting of
specific disease categories "emphasized once again the
substantial number of possibly chronic'conditions which
remain unreported by respondents."19
The great divergence between the actual number of ,
* y
chronic conditions and those reported in the household
interviews has led the Commission on Chronic1Illness to
conclude that:
17Spiegelman, op. cit.. p. 57.
18
Health Statistics: Health Interview Responses
Compared with Medical Records. Department of Health, Edu
cation, and Welfare, Public Health Service (Washington,
D.C.: Government Printing Office, June 1961), Series D,
No. 5, p. 11.
19Ibid.. p. 17.
73
. . . translation of morbidity data into needs for
services . . . for prolonged illness . . . must be
based on medical judgment regarding diagnosis and the
type and potential of treatment and on assumptions
regar^ng the organization of personnel and facili-
In stannary, despite the many limitations of health
surveys, the aged have far higher rates of physical impair
ment, morbidity, and disability. This is more pronounced
in cases of chronic conditions and associated disability
which require extensive and lengthy medical services. In
fact, if a clinical approach is taken and institutionalized
population is considered, far higher rates of morbidity,
physical*impairments, and associated disability for the
• ■
aged emerge, as compared with ogher age groups.
-v
The Limitations of Health Surveys
Although the data from the various health studies
shed a good deal of light on the extent and nature of ill
ness and disability of the aged population, a number of
difficulties present themselves which limit their useful
ness and call for a note of caution in their application.
In the first place, a critical examination of the incidence
20
Coranission on Chronic Illness, Chronic Illness in
a Large Citv. The Baltimore Study, p. 21.
of illness is often complicated by the fact that illness
is not an entirely objective phenomenon, and recognized
illnesses are not always disabling and do not necessarily
result in loss of time or function. On one hand, persons
who claim an illness, whether or not accompanied by physi-
cal signs, are usually included among the sick. On the
other hand, unless clinical examinations by physicians are
made, the sickness surveys may miss those who are unaware
of their sickness. In short, a sickness survey may cover
"on one hand definitely recognized cases of serious ill
ness, and on the other hand not only those cases of minor
indisposition that do not interfere with usual activity,
* * 01
but also cases of persons unaware of their disease."
Secondly, data from various health studies reflect
the time of the year in which the survey was made, the
economic and social conditions prevailing at the time and
place of survey, the time period covered, and other related
factors. A change in any of these factors has a signifi
cant bearing upon the conclusion of the health survey.
Hence, an understanding of these data requires consider
ation of the circumstances under which they were gathered.
21
Spiegelman, op. cit.. pp. 45-46.
Thirdly, many statistical problems are present In
sickness studies. For example, since data are compiled
from the sample-of-population survey, the element of
"sampling variability" enters into most data presented.
Moreover, simplicity and brevity necessitate the use of
averages which call for a note of caution, since an average
22
can easily hide a wide range of individual variations.
Fourthly, subjective elements are present in sick
ness surveys. For example, an elderly worker may minimize
an illness for the fear of losing his job. On the other
hand, a worker may undermine his health status if it can
bring him an early retirement. How important these sub
jective elements are in the reporting of sickness depends
upon the personal characteristics of the respondent, the
training of the survey enumerator, and the effects of sick
ness on the economic and employment position of the
respondent.
Finally, the quality of the health survey is
affected if the respondent to the survey enumerator is
22
R. G. Trussell, J. Elinson, and M. L. Levin,
"Comparison of Various Methods of Estimating the Prevalence
of Chronic Disease in a Community— The Hunterdon County
Study," American Journal of Public Health. XLVI (February,
1956), 173.
76
answering for someone else in the family. For example,
a higher illness prevalence rate at ages 65 and over
emerged in the survey by the National Opinion Research
Center--where the aged were reporting for themselves—
compared with the California Health Survey of 1954-55 and
the New York City Survey of 1952, where the respondent
could have been either the aged himself or someone else in
the family.^
In short, while these health surveys cast light on
the health status of the population— or any segment of it--
these data must be used with care because of many limita
tions which are Involved in these sickness studies.
IV. THE HEALTH ATTITUDES OF THE AGED
To what extent the medical needs of the population
in general, and those of the aged in particular, receive
medical attention depends not only on the availability of
medical facilities and personnel and the financial re
sources of the population, but also on the attitudes of
the population toward utilization of medical services.
^^Spiegelman, on. cit.. pp. 46-47.
77
As one writer points out, "hypochondria and apathy,
ignorance and knowledge, irresponsibility and concern are
24
all aspects of consumer demand."
The attitudes toward health maintenance and medical
care are influenced by many economic, social, and cultural
factors. The subjective nature of the many influencing
factors together with wide individual variations make any
categorization of the population into different groups
quite unsatisfactory. Although a great deal of attention
has been devoted in recent years to the socil-cultural
factors in illness and in attitudes toward medical care,
much more research needs to be done; most of the conclu
sions are fragmentary and conjectural in nature.
With respect to the health attitudes, the aged are
quite different from the general population. First, the
attitude of the aged toward health maintenance is not as
favorable as that of younger people. For example, accord
ing to one survey, while 83 per cent of those at the main
productive ages agreed that a person should get physical
24
Herman M. Somers and Anne R. Somers, Doctors.
Patlents. and Health Insurance (Washington, D.C.: The
Brookings Institution, 1961), p. 157.
78
examinations regularly, only 58 per cent of the aged
thought ao. On the other hand, only 19 per cent of the
aged stated that they had a physical examination regularly,
25
compared with 31 per cent of the other age groups.
The lack of Interest in health maintenance by the
aged is due to many factors: (1) the aged do not seem to
have as much interest as younger people in learning about
health matters, partly due to their lower educational
attainment and partly because of loss of motivation by
those with severe illness; (2) lack of adequate financial
26
resources; and (3) other socio-cultural factors.
25
Spiegelman, op. clt.. p. 70. From the unpublished
data from the 1955 Health Information Foundation, National
Opinion Research Center Survey. It is interesting to note
that the physicians are not much different from the general
population with respect to physical check-ups. A survey of
9,000 practicing physicians by Parke, Davis, and Company
reported that less than one-half have had a physical exami
nation within the previous 18 months; another 20 per cent
had not had one for four years. H. A. Ruske, M.D., "Advice
for Physicians,” New York Times. January 25, 1959, pp. 4-5.
26
It must be pointed out that in the 1955 Health
Information Foundation, National Opinion Research Center
Survey, many of the aged stated that cost was a minor
factor in visiting a doctor or a hospital. However, it is
quite possible that many of the aged are reluctant to
reveal their economic capacity. Moreover, the fear of dis
covering a major medical defect and the fear of inability
to pay for it might play an important role in the attitudes
of the aged toward medical care.
Secondly, most of the aged are more pessimistic than
younger people with regard to their outlook for good health
and chances of preventing ill health. This is basically
due to the fact that many of the older persons associate
aging with poor health. This led to the speculation that
"some older or retired individuals resort to an assumption
of the 'sick role* . . . and that statements of poor health
27
are often rationalization of other issues." However, in
a survey of 500 persons over 60 years of age living in the
Kips Bay-Yorkville Health District of New York City, the
respondents' self-appraisal of their health status tended
28
to correspond to their actual state of health.
Finally, the aged seemed to show less appreciation
of the new diagnostic and therapeutic tools, objective
criteria for selection and evaluation of doctors and other
medical services, and preventive medicine. The Health
Information Foundation, National Opinion Research Center
27
J. S. Tyhurst, "The Neurologic and Psychiatric
Aspects of Disorders of Aging," Proceedings of the Associ
ation for Research in Nervous and Mental Disease. XXXV
(1956), 241.
28
B. Kutner and others, Five Hundred Over Sixty
(New York: Russell Sage Foundation, 1956), Tables 50, 54,
and 68.
80
Survey of 1955 Indicates that even the medical profession
does not seem to encourage preventive medicine suffl**
ciently. While 80 per cent of the family doctors stated
that people should have regular check-ups, only 45 per cent
of them made a point of recommending it to most of their
29
patients.
The attitudes of the population toward health main
tenance and utilization of medical services are tempered by
indifference, hypochondria, lack of response to new cure,
pursuit of quackery, and drug fetish. However, the shrink
ing economic barriers, the changing attitude toward the
role and the place of medical care, rising levels of income
and education, and more familiarity with good health
services will tend to reduce irresponsible health attitudes
in the future. So far as the aged are concerned, the
favorable social and economic environments experienced now
by those at the main productive ages--who would be the aged
of tomorrow— point to more responsible health attitudes in
the future. In fact, the Kips Bay-Yorkville survey showed
29
0. W. Anderson and George Rosen, An Examination of
the Concept of Preventive Medicine (New York: The Health
Information Foundation, 1960), Series 12, pp. 17-18.
81
that the aged of higher social and economic status utilize
medical services more frequently and take a greater inter-
30
est In their health maintenance. On the other hand, a
1955 survey of the aged living In a low socioeconomic dis
trict of Boston stated that most of the aged living In the
district showed little appreciation of modem medicine,
31
preventive medicine, and other related services.
The over-all effects of a more responsible health
»
attitude of the population in the future would be twofold.
First, through regular checkups, preventive medicine, and
the utilization of other medical services, the amount and
the degree of chronic conditions can be reduced. Secondly,
a more favorable attitude toward utilization of medical
services not only presses on the available medical facili
ties and personnel, but it also complicates further the
problems of paying for and financing medical care.
V. MEDICAL NEEDS AND MEDICAL-CARE EXPENDITURES
Almost all of the studies dealing with the medical-
care industry are based on the actual medical-care
30
Kutner and others, op. cit.. p. 76.
31
L. DiCicco and D. Apple, "Health Needs and
Opinions of Older Adults," Public Health Reports. LXXIII
(June, 1958), 460-479.
82
expenditures (the effective demand) rather than the money
costs of "adequate" medical care (the potential demand) for
the population. It is generally agreed, however, that any
%
objective assessment of the medical-care industry or the
financing of medical care must be based on the monetary
costs of an "adequate" medical care for the population.
A distinction between the potential demand and the effec
tive demand for medical care will throw light on the extent
of the unmet medical needs.
It is realized that the translation of morbidity
data into actual medical-care expenditures presents a
formidable task, and the many difficulties which are in
volved in this process place the whole matter beyond the
scope of this study. Nevertheless, one study which
attempted to estimate the money costs of "adequate" medical
care for the population of the United States deserves a
brief discussion.
In 1933, Lee and Jones attempted to give "quantita-
o n
tlve" and "qualitative" interpretations of medical care.
32
Roger I. Lee and Lewis W. Jones (assisted by
Barbara Jones), The Fundamentals of Good Medical Care
(Chicago: University of Chicago Press, 1933), Publication
NO. 22 of the Committee on the Costs of Medical Care.
83
Then an attempt was made to determine the medical services
necessary for "adequate" medical care for the population
of the United States. After reviewing all available sick
ness surveys, Lee and Jones estimated the medical services
in terms of "units of services" necessary to give "ade
quate" medical care to the population of the United States.
However, they did not attempt to deal with the financial
aspects of the estimates they had developed on services,
personnel, and facilities needed for "adequate" medical
care of the population of the United States.
In 1937, the Committee on the Costs of Medical Care
made an attempt to determine how much "adequate" medical
care (determined by the Lee and Jones study) would cost.
To translate the calculated number of "units of services"
necessary for an "adequate" medical care program into
estimated costs, the schedule of "minimum" fees printed in
the 1933-34 Blue Book of the Chicago Medical Society was
used. A number of other "minimum" fees for those services
which did not appear in the Blue Book of the Chicago
Medical Society were added.^
33
Samuel Bradbury, The Cost of Adequate Medical Care
(dhicago: University of Chicago Press, 1937), p. 8.
#
84
On the basis of the Lee-Jones study that an adequate
medical case of the population requires annually seventeen
"units of services" per person, it was estimated that the
services for the care of diseases and defects would cost
about $63.53 per person annually and the preventive
services would cost about $12.22 per person per year, or
$75.75 per person per year. In other words, according to
this study an "adequate" medical care for the American
people would cost about $9.5 billion a year (based on 1937
population. It should be pointed out, however, that
these estimates of services and costs do not Include public
health services, dentistry, medicines, and medical and
surgical supplies.
On the other hand, according to various studies con
ducted by the Comnlttee on the Costs of Medical Care, the
normal expenditures of the American people for medical
services and supplies were $2.4 billion a year, which
represents the actual annual medical-care expenditures in
Oe
the United States. Then, Bradbury stated:
34Ibid.. p. 52.
3 S
I. S. Falk, C. R. Rorem, and M. D. Ring, The Costs
of Medical Care (Chicago: University of Chicago Press,
1933), Publication No. 27, p. 648.
85
Adequate medical care of the kinds covered In present
study, If paid for on the basis of the selected mini
mum fees for all kinds of services, mould cost nearly
four times the amount normally spent for these
services. * *
It seems quite reasonable to conclude that the ex
penditures to provide "adequate" medical care for the
population of the United States, or any segment of It,
are ''somewhat'1 higher than the actual medical expendl-
37
tures. Howevei in view of the difficulties involved in
arriving at the real costs of the "adequate" medical care
for the aged, this study examines the economics of financ
ing medical care for the aged on the basis of their actual
expenditures on medical services.
■^Bradbury, op. cit.. p. 53.
37
Although it is realized that a part of the medical
needs of the population are not met, in view of the de
velopment of the "third party" (commercial insurance and
prepayments plans), public health services, private philan
thropy, shrinking economic barriers, and more familiarity
with health matters, the gap between the potential and
* effective demand for medical services is narrowing down.
CHAPTER III
MEDICAL CARE EXPENDITURES OF THE AGED
The expenditures for medical care consist of:
(1) direct expenditures for personal medical care by con
sumers, business, and government; (2) costs of medical
research, construction of medical facilities, and education
of medical personnel; and (3) other costs including loss of
Income due to illness and lack of complete effectiveness
while at work. If a broader concept of health is taken,
then additional costs such as provisions of adequate
housing, education, diet, and sanitation must be con
sidered. However, since this chapter is concerned with the
medical-care expenditures of the aged, only personal
medical-care expenditures by the aged and the public out
lays for the health care of the aged are considered.
*
The problem of medical-care costs is exceedingly
complex. Various estimates of the medlcal-care expendi
tures of the aged are available which are sometimes
86
87
incompatible with each other. These variations stem parti/
from the fact that there is no single, source of information
on the total value of medical care received by the aged,
and partly from the different methods of collecting data
and the different purposes for which the estimates are
made. However, each of the estimates could reasonably be
used in a particular frame of reference, so long as the
various alternative estimates are not used interchangeably.
An examination of medical-care costs must distin
guish between the aggregate medical-care expenditures, per
capita expenditures, and the unit costs or the price of
particular medical service or commodity. The change In
total costs may reflect the change in the size of popula
tion as well as the change in per capita expenditures; and
per capita costs may reflect both the change in unit costs
and the amount of utilization of medical services.
Thus this chapter examines the aged aggregate
medical-care expenditures, the per capita expenditures, and
the unit costs of medical services and commodities. Within
these categories a distinction is made between the private
and public outlays for the medical care of the aged.
88
X. TOTAL PRIVATE MEDICAL-CARE EXPENDITURES
OF THE AGED
An understanding of the utilization of medical
services and medical-care expenditures of the aged Is
essential to an understanding of both their potential and
effective demands for medical care. Although accurate
measurement of the use trends Is difficult and sometimes
unattainable, various studies point to certain trends and
developments.
To ascertain the true pattern of raedlcal-care utili
zation, medical-care expenditures data should be adjusted
for price and population changes. However, limitations of
price Index, difficulties in classification of medical
services,„and different methodology often result in differ
ent conclusions by different studies. Despite all these
limitations, available Information casts a great deal of
light on the pattern of medical-care utilization and the
changes which have taken place in the past. Lack of com
prehensive data, which are not often up to date and are
sometimes incompatible, however, calls for a cautious use
and interpretation of these data.
The Over-all Rise of Medical-Care Expenditures
89
The medical-care expenditures of the nation and the
aged have Increased markedly’ in the past few decades. A
*
larger part of the nation's income, consumption, and the
family budget Is devoted to health care. For example, the
nation's total medical bill— public and private— rose from
$3.6 billion in 1928-29 to over $30 billion In 1960-61,
almost a nine-fold increase. Private expenditures alone
have increased from $3.1 billion in 1928-29 to over $19
billion in 1960-61. The total medical care bill has been a
growing percentage of disposable personal income and total
private consumption. In 1929, the medical care bill was
3.5 per cent of disposable personal income. It increased
to 3.8 and 5.8 per cent by 1946 and 1961 respectively, an
increase of over 40 per cent between 1946 and 1961. A simi
lar picture emerges from comparison of personal medical-
care expenditures with total private consumption. In 1929
the proportion of total private consumption spent for medi
cal care was 3.7 per cent. It Increased to 5.8 per cent by
1961, an increase of over 40 per cent again.* Once the
^U. S. Department of Commerce, National Income. 1929-
1950 (Washington, D.C.: Government Printing Office, 1951),
pp. 194-195; U.S. Department of Conmerce, U.S. Income
90
growing public expenditures for health care are taken into
account, an even greater rise in the medical care bill
emerges.
Although Table VI presents no breakdown of medical-
' a*
care expenditures according to age, data relating to per
capita medical-care expenditures and medical-care utiliza
tion --which will be fully explained later— indicate even
higher medical-care expenditures by the aged. According to
the Health Information Foundation studies, while average
medical-care expenditure rose markedly for every age group,
the increase was much greater for those under age 6 and
those 65 and over, 71 and 74 per cent respectively, as com
pared with 42 per cent for the whole population between
2
1952-53 and 1957-58. The survey indicated that between
1953 and 1958, utilization of health services increased
47 per cent for the aged and 45 per cent for children
and Output (Washington, D.C.: Government Printing Office,
1959), pp. 150-151; U.S. Department of Commerce, Survey of
Current Business (Washington, D.C.: Government Printing
Office, July 1962), pp. 14-15.
2
Health Information Foundation, Progress in Health
Services (New York: Health Information Foundation, 1960),
pp. 2-10.
TABU VI
PERSONAL CONSUMPTION EXPENDITURES IN THE UNITED STATES
IN MEDICAL CARE, 1940-1961®
(Millions)
Total Physicians' Dentists' All Other
Year Medical Care Services Hospitals Drugs Services Medical Services
Per cent Per cent Per cent Per cent Per cent
1940 3,023 31.8 13.9 19.5 15.9 18.9
1945 7,533 26.1 17.9 22.7 12.6 20.7
1950 12,365 28.3 23.4 17.3 11.5 19.5
1956 13,050 26.9 27.0 22.0 12.5 11.6
1957 14,027 27.0 27.7 21.8 12.4 12.3
1958 15,669 26.8 27.3 21.1 11.8 12.6
1959 16,911 27.2 27.8 21.2 11.2 12.0
1960 18,220 26.6 28.4 21.4 10.9 11.6
1961 19,212 27.0 29.4 20.9 10.8 11.9
aExcluding Alaska and Hawaii,
Source: U.S. Departsient of Commerce, U.S. Income and Output (Washington, D.C.: Government Printing
Office, 1959), pp. 150-151; U.S. Department of Coonerce, Survey of Current Business (Washington, D.C.:
Government Printing Office, July 1962), pp. 14-15.
under 6, compared to 9 to 18 per cent for other age cate-
gorlea.
All of the major components of medical care have
been Increasing, but some far more rapidly than others.
Therefore, the allocation of the medical dollar among
various components of medical care has changed signifi
cantly. Due to methodological differences, principal
sources of Information differ on the proportion of the
medical dollar allocated to each component. Most of the
studies, however, agree on the general trends.
Table VII shows a percentage distribution of the
medical-care expenditures among the major components of
medical care In the United States. In 1930 physicians,
drugs, dentists, and hospitals followed each other In that
order, with the physicians' portion more than twice that
paid to hospitals. In recent years, however, a growing
share of the medical dollar has been going to hospitals,
while the physicians' share has been declining.
The changing distribution of the medical dollar,
however, does not necessarily show the changes In the
3Ibid., p. 7.
TABLE VII
PERCENTAGE DISTRIBUTION OF EXPENDITURES FOR MEDICAL CARE IN THE UNITED STATES,
1940-1961*
Total Physicians' Dentists' All Other
Year Medical Care Services Hospitals Drugs Services Medical Services
Per cent Per cent Per cent Per cent Per cent Per cent
1930 100.0 31.8 13.9 19.5 15.7 18.9
1940 100.0 29.7 17.1 20.8 13.6 18.8
1945 100.0 26.1 17.9 22.7 12.6 20.7
1950 100.0 28.3 23.4 17.3 11.5 19.5
1956 100.0 26.7 26.8 21.8 12.3 12.4
1960 100.0 26.6 28.4 21.3 10.5 12.2
1961 100.0 27.0 29.3 20.7 10.2 12.8
‘Excluding Alaska and Hawaii.
Source: U.S. Department of Coomerce, National Income. 1929-1950 (Washington, D.C.: Government
Printing Office, 1951), pp. 194-195; U.S. Department of Coomerce, Survey of Current Business
(Washington, D.C.: Government Printing Office, July 1962), pp. 14-15.
v£
u>
94
utilization of the various components of medical care
because the prices of different components have risen at
different rates. Thus an examination of the relative out
lays for each of the components of medical care, without
any consideration to price changes, may becloud the true
pattern of utilization of each component.^
The Trend of Hospital Utilization
Hospitals have become the center of the medical
world. The expenditure-derived data together with more
direct measures— admissions and total hospital-days per
year— show a significant increase in the utilization of
hospital by the population. Between 1931 and 1958, the
*
annual rate of admissions to general hospitals (except
mental and tuberculosis) increased nearly 2.5 times. As a
result of continuous decline in the average length of stay,
however, the total days per year per 1,000 population
4
It should be noted that a substantial absolute
increase in a particular component may show up as a de
clining proportion of the total. For example, while the
expenditures for the physicians' services have Increased
significantly in recent years, yet the physicians' share
of medical dollar has been declining.
95
increased only 48 per cent between 1931 and 1958.^
So far as the aged are concerned, various studies
indicate that hospital utilization by the aged has been
increasing at an even greater rate. According to the
National Health Survey, the hospital days per 1,000 popula
tion increased from 295 for those 15 years of age and under
to nearly 2,000 at age 75, an enormous increase of 550 per
cent. The average number of days per capita in short-stay
hospitals was twice as great for the aged compared with
persons of all ages, 1.8 and 0.9 days respectively.^
A study of the aged in the Health Insurance Plan of
Greater New York, where the economic barriers are somewhat
lowered, found an even greater rate of hospital utilization
by aged as compared to other age groups. The annual admis
sion rate increased from 77.4 per 1,000 persons for all
ages to 121.2 for those 65 and over. The hospital-days per
capita also increased from 0.6 to 1.6 days. Finally, the
^Herman M. Somers and Anne R. Somers, Doctors.
Patients, and Health Insurance (Washington, D.C.: The
Brookings Institution, 1961), p. 173.
^U.S. Public Health Service, Health Statistics from
the U.S. National Health Survey— Hospitalization: Patients
Discharged. Publication No. 584-B7 (Washington, D.C.:
Government Printing Office, 1959), pp. 4 and 7-8.
96
study showed that the aged on the average stay in hospitals
longer than any other age group.^
Thus, in recent years the population as a whole, and
the aged in particular, have been utilizing hospitals at
Increasing rate. The reasons for the movement to hospitals
are too numerous to enumerate here. However, the most
Important reasons are: (1) hospitals are becoming doctors'
favorite "workshops"; (2) availability of health and
Q
disability insurance; (3) changing of population composi
tion; (4) rising standard of living and increasing economic
capacity; and (5) increasing health consciousness of the
q
population.
Sam Shapiro and Marilyn Einhorn, "Experience with
Older Members in a Prepaid Medical Care Program," Public
Health Reports. No. 17, August 1958, pp. 695-696.
®While most of the studies have been able to cor
relate a greater hospital utilization with health insur
ance, no such correlation seems to emerge for the aged.
"The Healthy 'Sick'— Rising Insurance Fees Focus More
Attention on Unnecessary Claims," Wall Street Journal.
October 12, 1960, pp. 3-4; Agnes W. Brewster, "Hospital
Utilization by Persons Insured and Uninsured in September
1956," Research and Statistics Note 19. Department of
Health, Education, and Welfare, Social Security Adminis
tration (Washington, D.C.: Government Printing Office,
1958), pp. 4-5.
q
Somers and Somers, op. cit.. pp. 174-182.
The Trend of Utilization of Physicians' Services
97
Although the relative share of physicians' services
out of the aggregate medical care bill has been declining,
the absolute increase in the utilization of physicians'
services has been remarkable. According to the National
Health Survey, while in 1928-31 an annual average of 2.6
out-of-hospital doctor visits was reported for white per
sons, tt>e average for the entire population was 5.3 visits
by 1957, an increase of 100 per cent in less than thirty
10
years«
The utilization of physicians' services, of course,
varies with age, sex, income, education, and place of
residence. According to the National Health Survey, the
aged visit a physician more frequently than the general
population. In 1958, while the general population visited
doctors 5.3 times, the aged had 7.3 physician visits in
that year.
U.S. Public Health Service, Health Statistics from
the U.S. National Health Survey: Selected Survey Topics.
Publication No. 584-B5 (Washington, D.C.: Government Print
ing Office, 1958), p. 26.
11Ibid.. p. 28.
An important factor in the utilization of physi
cians' services is income. Most of the surveys had shown
more visits to the doctor for the families of higher income
than the lower Income groups. Recent studies* however*
seem to have de-emphasized the role of economic capacity
in health utilization. In other words, economic factors*
though still very important* are becoming less Important
as a determinant of health services utilization. This
might reflect the increasing availability of health insur
ance and public medical care programs* improving economic
12
capacity, and the changing attitude toward health care.
The general effect of education on the utilization
of health services has always been assumed to be favorable.
In fact some studies have shown that there is a direct cor
relation between educational attainment and the amount of
medical services used. A recent survey, however* casts
some doubts on the validity of this assumption* particu
larly with respect to the utilization of physicians'
services. According to the Health Information Foundation
survey* while persons with high school education visit
12
Health Information Foundation, Progress in Health
Services. pp. 6-7.
99
physicians 5.3 times a year, those with only eighth grade
education or less have 4.5 annual doctor visits. On the
other hand, those with some college education visit physi-
13
clans 4.5 tines a year. However, the nonhomogeneity of
Interviewees with respect to health status, Income, place
of residence, and sex might have accounted for this unusual
conclusion. It is, therefore, safe to assume that persons
with higher education tend to utilize health services more
frequently than those with lower educational attainment.
Since the aged of tomorrow are bound to have more education
than the aged of today, the aged of the future would have
a stronger propensity to utilize health services— a problem
which must be reckoned with in providing and financing of
medical care for the aged.
In short, while the physicians* share of the medical
dollar has been declining, the aggregate expenditures for
the physicians* services have been growing at an increasing
rate, which perhaps will grow further in the future. Com*
paratively, the aged utilize physicians* services more
frequently than the general population. This, together
13Ibid., p. 4.
100
with the utilization of other medical services, has sig
nificant effects upon the economic capacity of the aged
to meet their medical needs and upon the programs which are
designed to provide medical services for the aged under one
arrangement or another.
The Trend of Utilization of Drugs
Since there is no index of drug utilization com
parable to hospital or physician utilization, the discus
sion must rely solely on drug expenditures. Moreover, in
the absence of a reliable and complete price index, any
attempt to derive drug utilization from drug expenditures
would be rather unsatisfactory. In any case, drug utiliza
tion has been increasing drmatically. According to the
Health Information Survey, drug utilization has expanded
fourteen times as fast as the physicians* utilization.^
Like other medical services, there seems to be a
direct correlation between drug expenditure and age, sex,
income, and the place of residence. The aged, for example,
spend two and a half times as much for "prescribed" drugs
as other age groups. Furthermore, drug expenditures
^ Ibid.. p. 4.
101
15
generally rise as family income rises.
It is very difficult to predict the future trend of
drug use. For unlike other medical services, consisnptlon
of drugs is not subject to the limitations of supply since
drug manufacturers will produce as much as there is a
demand for it. Unless certain controls are introduced,
"drug fetish," excessive self-medication, and sometimes
irresponsible action of physicians who might be Influenced
unduly by advertising may result in a runaway utilization
of medicines. This, plus the rising price of medicine,
tends to pose certain problems for a program of compre
hensive health insurance.
There has been a marked increase in the aggregate
private expenditures for health care. Despite the allega
tions of "over-utilization," especially in connection with
insured persons, most experts agree that much of the in
crease in utilization of health care ha$ been a bona fide
reflection of growing demand and expectations. In fact,
many argue that in light of growing consumer demand and
150. W. Anderson, P. Collette, and J. J. Feldman,
Family Expenditure Patterns for Personal Health Services
(New York: Health Information Foundation, 1960), Publica
tion Series 14, pp. 33-34.
102
expectations, the present utilization of medical services
is hot high enough.
The growing utilization of medical services has led
some people to view, with a great deal of alarm, the medi
cal demand as "indefinitely elastic." However, consumer
demand is not totally "self-inspired," and like most other
things, medical demand is largely subject to seller con-
trol, and consumer attitudes toward medical services are in
large measure professionally determined. Although "over-
utilization" is always present as a menace to the medical
care industry, the present problem of health services is
"under-utilization" rather than "over-utilization."
Comparatively, the aged have a much higher rate of
utilization of health services. This is quite natural in
view of the greater medical needs of the aged— a problem
which was explained in the last chapter. It is argued,
however, that due to increasing medical needs and limited
t .
economic resource, there is a wide gap between the effec
tive demand and potential demand by the aged for medical
services. Any program which attempts to make it easier for
the aged to avail themselves of more health services should
consider the pressures on the available medical resources
and the price of health services.
II. PER CAPITA PRIVATE MEDICAL EXPENDITURES
OF THE AGED
103
The data on aggregate medical-care expenditures,
however useful they may be, are not satisfactory since they
do not take Into account the changes In population. There
fore, It Is necessary to examine the per capita medical
expenses.
There seems to be an over-all agreement that the
per capita expenditures for personal health services have
been rising at an Increasing rate. According to the Health
Information Foundation surveys, per capita expenditures
for personal health care rose from $66 In 1952-53 to $94
In 1957-58. On the family basis, the average medical bill
Increased from $207 in 1952-53 to $294 in 1957-58. Both
increases amounted to about 42 per cent.***
The Health Information Foundation study, further
more, emphasized that while per capita medical costs have
increased between 1952-53 and 1957-58, the rate of increase
has varied from one service to another. While per capita
^Health Information Foundation, Progress in Health
Services. pp. 2-3.
medical expenditures increased 42 per cent between 1952-53
and 1957-58, the Increased expenditures for hospitals,
physicians, drugs, and dentists were 70, 24, 90, and 40 per
cent respectively.*'7
While indicating an over-all increase in average
p
expenditures for medical care for every age group, the
Health Information Foundation study concluded that the
increase was much greater for those under 6 years of age
and the aged, 71 and 74 per cent respectively. The results
of this study are summarized in Table VIII.
Another study dealing exclusively with the medical
costs of the aged found that the medical-care expenditures
for the aged averaged $339 among beneficiary couples and
$209. for unmarried beneficiaries. Moreover, this study
showed that 14 per cent of the aged have received free
medical care for which either no bill was rendered or
public assistance payments were made directly to the prO-
18
viders of services. It should be pointed out, however,
17Ibid.. pp. 25-28.
18
Hospitalization Insurance for OASDI Beneficiaries.
A Report Submitted to the Committee on Ways and Means by
the Secretary of- Health, Education, and Welfare (Washing
ton, D.C.: Government Printing Office, April 1959),
pp. 30-31.
105
TABLE VIII
PRIVATE PER CAPITA EXPENDITURES FOR MEDICAL CARE
BY AGE AND SEX, 1952-53 AND 1957-58
Age
and Sex
Expenditures per Person
1952-53 1957-58
Per cent
Increase
All persons $ 66 $ 94 42.4
Under 6 28 48 71.4
6-17 38 49 28.9
18-34 70 98 40.0
35-54 80 108 35.0
55-64 96
129 34.4
65 and over 102 177 73.5
Males 51 77 51.0
Females 80 111 38.8
Source: Health Information Foundation, Progress in Health
Services (New York: Health
p. 3.
Information Foundation, 1960),
106
that the generally higher Incomes of Social Insurance
program beneficiaries as compared to other aged probably
account for the difference between these findings and those
of Health Information Foundation.
The experts agree that nearly all such surveys
understate the private medical costs. Practically all
surveys exclude the institutional population which com
prises 2.3 per cent of the aged. The medical expenses of
those who lived alone and did not survive to be interviewed
are not included in these statistics. The value of free
medical services often are not included. According to the
Department of Health, Education, and Welfare, adjustments
to include the institutional population and decedents would
increase the Health Information Foundation figure for 1958
from $177 to $187. Inclusion of private charity and public
expenditures (exclusive of care in mental and tuberculosis
hospitals) would increase the figure to $240. If all these
adjustments are made, the Department of Health, Education,
and Welfare estimates the 1960 per capita total medical
bill for the aged at about $265, of which $217 would repre
sent private expenditures and $48 public^outlays. It
should be realized, however, that within this average,
107
there exists a considerable variation according to age
groups. Those 75 years of age and over, for example, have
IQ
substantially higher medical bills than those aged 65-69.
The Uneven Distribution of Medical-Care Costs
The aggregate medical-care expenditures and the per
capita medical costs are all-important In assessing the
effective demand. However, of great Importance and concern
Is the uneven Incidence of Illness and medical costs. For
as one writer points out, "the predicament we are In Is
due not so much to the mere bulk of existing sickness as
20
to the manner In which It befalls.” Thus the use of
averages Is quite misleading because of unevenness of the
burden.
According to the Health Information Foundation
study, while the average American family spent $294 for
health care In 1957-58, 17 per cent spent $500 or more,
19
U.S. Social Security Administration, "Expenditures
for Medical Care for Persons Aged 65 and Over," Research
and Statistics Note NO. 15, Department of Health, Educa
tion, and Welfare (Washington, D.C.: Government Printing
Office, July 1960), pp. 4-9.
^°Mlchael M. Davis, Paving Your Sickness Bills
(Chicago: University of Chicago Press, 1931), p. 1.
and 5 per cent spent more than $1,000. On the other hand,
17 per cent of the families spent less than $50 for medical
care. It was also pointed out that 50 per cent of the
families with the highest costs accounted for 88 per cent
of all medical-care expenditures In 1957-58. Moreover, as
Table IX shows, medical outlays are rarely proportionate to
family Incomes and the heavier proportionate burden falls
on the lower Income families.^
The uneven Incidence of medical costs is more
noticeable among the aged. While 7 per cent of the popula
tion had an out-of-pocket expenditure of $200 or more, one-
tenth of the aged had annual medical bill of $200 or more,
and these bore well over half of the aged aggregate medical
expenditures. Moreover, the aged who are only 8.6 per cent
of the total population (excluding institutional popula
tion), accounted for 14.2 per cent of the persons in
families with a medical bill of $1,000 or more.
21
Anderson, Collette, and Feldman, op. clt.,
pp. 8-22.
22
S. Mushkin, ’ ’Age Differential in Medical Spend
ing," Public Health Reports, LXXII (February, 1957), 115;
S. Mushkin, "Characteristics of Large Medical Expenses,"
Public Health Reports. IXXVI (August, 1957), 697.
109
TABLE IX
TOTAL FAMILY EXPENDITURES FOR MEDICAL CARE
AS A PERCENTAGE OF FAMILY INCOME,
BY INCOME GROUP
Percentage of Family Income
Income 1952-53 1957-58
All groups 4.8 5.5
Under $2,000 11.8 13.0
$2,000 - 3,499 6.1 8.4
$3,500 - 4,999 5.4 6.4
$5,000 - 7,499 4.7 5.4
$7,500 and Over 3.0 3.9
Source: O. W. Anderson, P. Collette, and J. J. Feldman,
Family Expenditure Patterns for Personal Health Services
(New York: Health Information Foundation, 1960), Research
Series 14, p. 8.
110
Thus It Is the uneven and the unpredictable nature
of medical costs which presents a dilemma. Since no one
can really budget for a contingency that is largely un
predictable and uncontrollable both in timing and amount,
medical-care costs--which are not unduly high when an
average is used— cause a great deal of insecurity and
concern. In spite of many attempts to share the costs by
pooling risks, the uneven and unpredictable nature of
medical costs has been and perhaps remains to be a thorny
problem.
III. THE RISING PRICE OF MEDICAL CARE
As it was indicated before, to get a true utiliza
tion of medical services, expenditures on health care must
be adjusted for both population changes and the changes in
the price of medical care. The per capita medical-care
expenditures, presented above, take only the account of
population changes. In order to get a true picture of
medical-care utilization, the per capita medical-care
expenditures must be for any change in the price of medical
care.
Ill
Any attempt to deflate the medical-care expenditures
by the Consumer Price Index, however, is somewhat unsatis
factory for two reasons. First, there are many limitations
in the Consumer Price Index which need not be explored
here. Secondly, since medical-care prices have been rising
faster than the Consumer Price Index, medical-care expendi
tures should be deflated by the index of medical-care
prices.
The Over-all Rise of Medical-Care Prices
A review of the movement of consumer prices reveals
that rising prices have signified the American economy in
the last few decades, except for a few years following the
Great Depression of the 1930's. Medical-care prices have
been no exception to this movement. In fact, since the end
of World War II, medical-care prices have risen much faster
than the general consumer prices or any of the major cate
gories in the Consumer Price Index. During 1945 and 1959,
while all prices rose 62 per cent, medical-care prices
advanced 81 per cent. As Table X indicates, the differen
tial has been Increasing since 1950. Between 1945 and
1950, for example, general prices increased 34 per cent
and medical-care prices increased only 28 per cent.
112
TABLE X
CONSUMER PRICE INDEXES FOR ALL ITEMS
AND COMMODITY GROUPS: 1947-1961*
(1947-49 - 100)
Year All Items Food Housing Medical Care
1947 95.5 95.9 95.0 94.9
1948 102.8 104.1 101.7 100.9
1949
101.8 100.0 103.3 104.1
1950
102.8 101.2 106.1 106.0
1955 114.5 110.9 120.0 128.0
1956 116.2 111.7 121.7 132.0
1958 123.5 120.3 127.7 144.6
1959 124.6 118.3 129.2 150.8
1960 126.5 119.7 131.5 156.2
1961 127.5 121.2 132.5 159.6
aExcluding Alaska and Hawaii.
Source: U.S. Department of Commerce, Statistical Abstract
of the United States. 1961 (Washington, D.C.: Government
Printing Office, 1961), p. 334.
113
However, from 1950 to 1959 the medical-care prices rose
much faster than all prices, 42 per cent compared to 21 per
cent. Table X shows that medical-care prices advanced
3.5 times as fast as the general prices from June 1958 to
June 1961.
It is argued that since medical care is composed
primarily of services, its prices should be compared to the
prices of other services--which follow a different pattern
from the commodity prices. Even in this respect, medical-
care prices have risen faster than the prices of other
services. During 1945 and 1959, while medical-care prices
(exclusive of drugs) advanced 90 per cent, the prices of
other services (excluding rent) rose only 70 per cent.
And, this differential is increasing; for example, between
1955 and 1959 medical-care prices increased 19 per cent as
23
compared to 13 per cent for general services.
Thus it appears that medical prices have run ahead
of other prices in recent years— a problem which creates
many difficulties for the operation of medical institutions
and the buyers of medical services.
Somers and Somers, op. cit.. p. 194.
114
Varying Rates of Increase
The medical-care price index conceals wide vari
ations among the various components. As Table XI shows,
the various components have risen at varying rates— a point
which should be taken into account when considering the
relative rise in utilization of medical services. Since
1945, hospital rates have increased nearly four times as
fast as physicians' and dentists' fees, six times as fast
as the price of drugs, and more than three times as rapidly
as the index for all services.
The phenomenal rise in the costs of hospitals is
caused by many factors: (1) introduction of elaborate and
expensive equipment; (2) rising labor costs which to some
extent are a by-product of the new equipment and services,
since they require additional "paramedical" personnel with
a higher level of skill and training; (3) the sharp decline
in average length of stay which makes the average cost of
shorter stay much larger than the average cost of longer
stay; and (4) Increasing hospital education programs, such
as training nurses and other personnel.
Without getting into the "pros" and "cons," hospital
costs are expected to rise from 5 to 10 per cent annually.
TABLE XI
INDEX OF MEDICAL-CARE
(1947-49 -
PRICES: 1940-60*
■ 100)
Total Optimetric Hospital
Hedical Physicians' Dentists' Examination Room
Year Services Fees Fees and Eye-glasses Rates Drugs
19 AO 72.7 74.6 70.1 82.6 50.4 83.2
1945 83.1 86.7 83.0 90.8 64.4 87.9
1950 106.0 104.1 106.9 104.5 114.6 103.9
1955 128.0 123.3 122.0 109.5 164.4 111.2
1956 132.6 127.0 124.4 111.2 173.3 113.7
1957 138.6 132.5 127.4 115.5 187.3 116.7
1958 144.6 137.0 ' 131.4 116.7 198.0 120.7
1959 150.8 141.6 134.6 118.0 208.9 122.6
1960 156.2 145.2 137.3 121.0 223.3 122.8
Excluding Alaska and Hawaii.
Source: Department of Commerce, Statistical Abstract of the United States. 1961 (Washington, D.C.
Government Printing Office, 1961), p. 72.
116
In view of the growing importance of the role of hos
pitals In modern medicine, the rise in hospital costs is
a menacing prospect.
Although the price of physicians' services has more
or less advanced according to the general price increases,
the rise in the price of physicians' services has been
relatively moderate. In spite of a moderate rise in the
price of physicians' services, as compared with other
prices, their increased productivity has seemed to result
in larger Incomes than lower prices for the consumers.^
Although consumers have been getting a better quality of
physicians* services in recent years, no attempt has been
made to pass a part of productivity gains, increased
demand, and a sharp reduction in noncollectible bills to
consumers in lower prices— an organizational problem which
should receive serious consideration.
According to the Consumer Price Index, since 1945
drug prices have moved more slowly than the prices of other
medical components. This explains why the medical-care
index as a whole has increased more slowly than the index
24
U.S. Department of Commerce, Survey of Current
Business. December 1959, pp. 27 and 30.
117
of medical services which excludes drugs. In recent years,
however, drug prices— particularly prescription prices—
have been advancing sharply. In view of a phenomenal
Increase In drug utilization recently, the drug prices and
price policy of drug manufacturers have caused a great deal
of concern. In spite of allegations to the contrary, the
failure of doctors to consider the differences in prices—
which are often substantial— of two drugs with the same
therapeutic value, monopolistic policies of some drug manu
facturers and the relative price inelasticity of drugs have
caused lack of active price competition.^
Although drug manufacturers have used research and
"innovation" to justify the phenomenal mark-up on some
drugs, it is difficult to accept this allegation since,
according to Federal Trade Commission reports, the in
dustry's rate of return, after taxes, in 1957 was higher
25
For an interesting account of price agreement and
price rigidity in drug industry, see A. A. Rozental, "The
Strange Ethics of the Ethical Drug Industry," Harper's
Magazine. May 1960, pp. 74-75; Administered Prices in the
Drug Industry. Hearings before the Senate Committee on the
Judiciary, Subcommittee on Antitrust and Monopoly, 86th
Congress, First Session (Washington, D.C.: Government
Printing Office, 1959), Part I, p. 8290; and D. Perlman,
"Care and Feeding of Profits by America's Drug Makers,"
The American Federationist. April 1960, pp. 19“20.
118
than any other Industry. Furthermore the National Indus
trial Conference Board showed that the industry's per
centage profits on sales, after taxes, were higher than
any other industry except cement.^
In view of few developments in recent years, lack
of active price competition and exorbitant prices of some
drugs remain a fundamental problem. Unless price competi
tion is activated either through industry's self discipline
or public regulation, the drug industry could hinder a
27
program of "adequate" medical care.
In short the prices of medical services have been
increasing faster than the Consumer Price Index. The
inflationary pressure on the prices of medical services
has more profound effects on the aged because of their
relatively higher expenditures for medical care. This,
together with the rising level of prices which cuts deep
26
Somers and Somers, op. cit.. pp. 211-212.
27
Recently it was announced that a nonprofit chain
of drug stores would be sponsored in New York by 13 unions
which intend to provide union members and their families
with drugs at least 30 per cent below current prices, and
to serve as a pilot project for a contemplated drug insur
ance plan. Also, in recent years the number of drug dis
count houses and mail order concerns have been Increasing.
Ibid., p. 212.
into the aged people's incomes - -which are more or less
fixed— has created a dilemma for the aged.
IV. TOTAL PUBLIC EXPENDITURES ON MEDICAL CARE
OF THE AGED
The data on the public medical-care expenditures for
the aged are scanty. Although ample data are available on
the aggregate public expenditures for health and medical
care, no information is available of recent public medical**
care expenditures for the aged. In 1955-56, however, out
of $0.78 billion of public expenditures for the aged,
5 per cent was represented by Federal income tax subsidies
for medical care deductions in tax returns or by employers'
contributions to health plans. Nearly two-thirds of the
public medical-care expenditures was for hospital care—
30 per cent for Federal and 70 per cent for state and local
governments. Nursing-home care, public assistance, and
28
other benefits accounted for the rest.
28
F. R. Brown, "Government Expenditures and Other
Public Financial Support for Personal Medical Care of
Persons Aged 65 and Over, 1955-56," Research and Statistics
Note No. 3. Social Security Administration, Division of
Program Research (Washington, D.C.: Government Printing
Office, 1958), pp. 1-7.
V. SUMMARY
120
It seems apparent that the aged as a whole spend
relatively more on medical care than the general popula
tion. The Increasing medical-care expenditures together
with greater medical needs and limited financial resources—
a subject which Is explored fully In the next chapter--
emphaslze the enormous complexity of assuring adequate
medical care for the aged. The problem Involves not only
costs but also adequate medical facilities and personnel.
Then, too, it Is difficult to establish satisfactory insur-
ance for this "high-cost" group under present insurance
programs.
Increasing medical-care expenditures and the general
higher cost of health insurance for the aged, therefore,
necessitate that the aged should have more financial re
sources than the rest of the population. Thus it is
pertinent to examine the financial resources of the aged—
a subject which is explored in the next chapter.
*
CHAPTER IV
THE FINANCIAL CAPACITY OF THE AGED
«
The preceding two chapters dealt with the health
status and medical-care expenditures o£ the aged. To
assess the ability of the aged to meet their medical needs,
a brief discussion of the financial resources of the older
persons is in order.
It should be pointed out, however, that the non-
homogeneity of the aged with respect to their age distribu
tion, sex, marital status, and the place of residence
(whether in cities or rural districts) complicates any
accurate assessment of their financial resources. Thus
*
considering together all persons 65 yeSrs of age and over,
although necessary for statistical purposes, one might
gloss over many of the differences which exist among the
aged whose recognition is essential in assessing the
economic position of the aged. Therefore, while this chap
ter treats the aged as a group, a warning must be sounded
121
m
122
at the outset as to their nonhomogeneity Which affects
their financial capacity considerably.
I. THE INCOME POSITION OF OLDER PERSONS
^ The financial resources of the aged have been meas
ured by several public agencies including the Bureau of
Census, the Federal Reserve Board, and the Social Security
Administration.- Several supplementary private studies
including the 1957 Health Information Foundation Survey
have also been made. This chapter is based on the summary,
covering all available sources, prepared for the 1961 White
House Conference on Aging.*
The Money Income of the Aged
A number of measures of the income of the aged are
available. However, no one of the measures serves as a
suitable yardstick, because any measure of the money income
of the aged must be supplemented with information about
their preferential tax treatment, their financial assets,
and their debt position. Furthermore, some account should
white House Conference on Aging, Background Paper
on Income Maintenance (Washington, D.C.: Government Print
ing Office, June 1960), pp. 1-21.
123
be taken on how the aged fare in relation to their needs
and In relation to other age groups in population.
According to Table XII, three-fifths of "non
ins titutIona1" aged— one-third of the men and three-fourths
of the women— had less than $1,000 in money income in 1958.
Of all aged population, half had money income below $870
in 1958. The median income for the men was $1,440 and for
the women $560. To show the range of income variation, it
should be noted that 7 per cent of all men and 1.4 per cent
of all women had an income of over $5,000. It should be
0
pointed out, however, that this concentration at the lower
*
end of income scale results from grouping married women
who are entirely supported by their husbands with those
*
persons who had no income. In addition to wives supported
♦
entirely by .their husbands, widowed parents living with
their children, and those with significant "nonmoney"
Income (such as home-grown foods and shelter from mortgage-
free houses) have also been included with those persons
2
with no income.
On the family basis, of 6 million families headed by
the aged, one-fourth had less than $1,540 from all sources,
^Ibid., pp. 12-14.
124
TABLE XII
PERCENTAGE DISTRIBUTION OF THE AGED
BY TOTAL MONEY INCOME, 1958
Money Income Class The Aged Men Women
Total per cent 100.0 100.0 100.0
Zero 16.4 3.8 26.9
$1 - 999 40.6 28.6 50.6
$1,000 - 1,999 22.8 32.1 15.0
$2,000 - 2,999 7.9 13.4 3.3
$3,000 - 4,999 8.1 14.3 2.8
$5,000 and over 4.2 7.7 1.4
Source: Computed from U.S. Bureau of the Census, Current
Population Reports. Consumer Income. "Income of Families
and Persons in the United States: 1958," Series P-60,
No. 33, Department of Commerce (Washington, D.C.: Govern
ment Printing Office, 1960), Table 24.
one-fourth had between $1,540 and $2,670, one-fourth had
between $2,670 and $5,000, and one-fourth had $5,000 or
more In Income. Out of 3.5 million aged living alone or
with nonrelatives, one-fourth had less than $580, one-half
had between $580 and $1,500, and the remaining had over
$1,500 In income. When the head was a full-time worker
(the case with two-tenths of families and one-tenth of the
r
Individuals), the Income medians were much higher: $4,380
for families and $2,290 for individuals. Moreover, the
median income of urban families was higher than that of
rural families: $3,124 compared to $2,284 for rural nonfarm
and $1,919 for rural farm.
In using family income data, however, it is neces
sary to consider the number of persons supported by the
family income. This is particularly important in gaining
a comparative assessment of the family income with an aged
head since the lower income of the aged goes to support
fewer persons. Table XIII has attempted to provide a more
accurate picture of the money income position of families
headed by different age group by dividing median family
3Ibid.. p. 14
TABLE XIII
THE PER CAPITA MEDIAN INCOME OF FAMILIES
HEADED BY DIFFERENT AGES, 1958
Age of the Head
Median Income per Family
Total Per Capita Per Equlvalenta
Adult
25-34 $5,207 $1,270 $1,680
35-44 5,704 1,300 1,630
45-54 5,738 1,550 1,740
55-64 5,153 1,780 1,840
65 and over 2,666 1,030 1,070 -
4
Children under 13 years of age are assumed to be equiva
lent In need to only half of an adult.
Source: White House Conference on Aging, Background Paper
on Income Maintenance (Washington, D.C. : Government Print
ing Office, June I960), p. 14.
127
income by mean family size.
In spite of great Improvement in the money income
position of the aged in the last ten years, the aged have
a lower money income than the other age groups. Among aged
males with income in 1957. the median income was only
$1,421. compared with $3,684 for all males. Also in 1957.
a
the median income of families headed by the aged was
$2,490. compared with $4,900 for family heads of all ages.
The decisive fact in the low incomes of the persons aged 65
and over is full or partial withdrawal from the labor force
in old age. However, it should be noted that the aged need
less, particularly because dependent children have left the
home and the size of families is smaller. Furthermore, an
accurate assessment of the financial resources of the aged
must take into account a variety of other factors such as
contribution from other family members, the preferential
tax treatment of the aged, and their financial assets and
4
nonmoney income.
Dorothy S. Brady, "Individual Incomes and the
Structure of Consumer Units," American Economic Review.
XLVIII CMay, 1958), 260-269.
128
The Money Income of Aged Beneficiaries of Old-Age
and Survivors Insurance
Since a large fraction of the aged receive some
benefits under the Old-Age and Survivors Insurance program
of the Social Security system, a brief examination of their
financial resources Is In order. A national survey con
ducted by Old-Age and Survivors Insurance program In 1957
provides some information about the Income and resources of
the aged beneficiaries under the program. The survey was
limited to beneficiaries who had received at least one
benefit before October 1957, and it excluded data relating
to the aged in receipt of public assistance only, those
with annual earnings of more than $1,200 in covered employ
ment, and all other aged not in receipt of Old-Age and
Survivors Insurance benefits. In spite of the usual
qualification regarding understatement of income data
gathered by field surveys, a somewhat accurate picture of
the income and resources of the beneficiaries was given.^
For a critical evaluation of this survey, see
K. T. Schlotterbeck, U.S. House, Committee on Ways and
Means, Hospital, Nursing Home, and Surgical Benefits for
OASI Beneficiaries. Hearings before 86th Congress, First
Session (Washington, D.C.: Government Printing Office,
July 1959), p. 132.
129
According to the survey, the lowest fourth of the bene- * •
ficiaries had less than $1,500, $770, and $640 for bene-
ficlary couples, single retired workers, and aged widows
respectively. One-half had more and one-half had less than
$2,190, $1,140, and $880 for beneficiary couples, single
retired workers, and aged widows respectively. Finally
the survey pointed out that the top fourth of the bene
ficiaries had more than $3,250, $1,730, and $1,380 for
beneficiary couples, single retired workers, and aged
widows respectively.^
More specifically, the beneficiary couples reported
a median annual income of $2,249 from all sources, while
the single retired workers and aged widows had $1,120 and
^ $882 respectively. Over 90 per cent of the aged couples
and 75 per cent of the single retired workers and aged
widows had' some money income from sources other than their
Old-Age and Survivors Insurance benefits. The median
amount received from such sources was $1,237 for the
beneficiary couples and about $600 for the single retired
workers and aged widows. The outside income came mainly
^White House Conference on Aging, op. cit.,
pp. 14-15.
130
t
from earnings, employer or union pensions, public assist"
ance program, veterans' compensation and pensions, inter
est, dividends, and rents (although one-half of the aged
had income from assets in the form of interest, dividends,
and rents, the median amounts received were very small),
and contributions from other members of families (particu
larly for the single retired females and aged widows).^
II, SOURCES OF MONEY INCOME
Table XIV summarizes the distribution of money
income of the aged according to different sources. The
latest figures are those of 1938 and at most they are
apprvximates. However, as this table shows, public income-
maintenance programs— Old-Age and Survivors Insurance,
public assistance, the veterans' programs, and the retire
ment programs for public employees and railroad workers—
accounted for one-third to two-fifths of this aggregate.
Income from private sources accounted for more than half
the total income. Earnings from employment--although
^Social Security Administration, "Income of Old-Age
and Survivors Insurance Beneficiaries: Highlights from
Preliminary Data, 1957 Survey," Social Security Bulletin,
No. 17, August 1958, p. 17.
131
TABLE XIV ■
THE PUBLIC ANU PRIVATE SOURCES OF MONEY INCOME
OF THE AGED, 1958
Source
Amount
(Billions)
Public: $ 10.5 - 11.0
Social insurance and related programs 8.8 - 9.3
Old-Age and Survivors Insurance 6.7
Railroad retirement 0.6
Veterans' programs and government
employees' retirement 1.5 - 2.0
Public assistance 1.7
Private: $ 14.5 - 19.0
Private pension plans and industrial *
annuities 1.5
Employment 9.5 - 10.5
Other sources (interest, dividends,
rents, and others) 3.5 - 7.0
i
Total $ 25.0 - 30*0
Source: White House Conference on Aging, Background Paper
on Income Maintenance (Washington, D.C.: Government Print
ing Office, June 1960), p. 7.
a small fraction of the aged are employed— contributed
almost as much as public Income-maintenance programs to the
total Income. However, the public Income maintenance pro
grams play a more Important role In terms of the numbers
of persons for whom they provide a regular source of Income
than In terms of amount they contribute to the total amount
of Income. While a great majority of the aged are the
recipients of the public Income-maintenance programs, yet,
. . . nearly two out of every three dollars of
Income of the aged are the result of private action—
employment, Individual savings and investment pro
grams, pension plans . . . and annuities.
Many changes in the sources of money income of the
aged have taken place between 1945 and 1958. According to
a survey by the Social Security Administration, the propor
tion in receipt of money income from social insurance and
other public programs rose from 20 per cent to 68 per cent
during these ten years. However, the number of the aged in
receipt of public assistance decreased from 21 per cent to
17 per cent of the aged. Finally the extension of social
insurance coverage has not only reduced the number of those
White House Conference on Aging, op. cit.. p. 8.
133
without Income or Income from other sources from 29 per
cent to 10 per cent of the aged, but also It has reduced
the proportion receiving Income as earners or as wives of
o
earners from 33 per cent In 1948 to 26 per cent In 1958.
The "Nonmoney Income" of the Aged
Statistical Information on the nonmoney Income of
the aged Is very scanty. However, "Income In kind . . .
probably plays a much more important role in the well
being of elderly people than it does in the case of younger
adults."^ For example, shelter provided by owner-occupied
homes and food consumed on farms are far more Important for
the aged than any other age group because a higher propor
tion of the aged own their homes and live on farms.
*
Although real estate taxes and other expenses to maintain
their homes are quite burdensome, it is estimated that home
ownership is by and large profitable, especially since
their homes are about 87 per cent mortgage free.^
9
L. A. Epstein, "Money Income of Aged Persons:
A 10-Year Review, 1948-1958," Social Security Bulletin.
XXII (1959), 3.
10White House Conference on Aging, op. cit.. p. 15.
Moreover, many of the older people receive Income
In kind through support provided by relatives with whom
they share a home, free medical care, recreational activl-
%
ties, and transportation.
Although the Institute of Life Insurance has esti
mated that Income In kind (home-ownership, support from
relatives, free medical care, and home-produced food)
amounted to about $3 billion In 1958 for the elderly
people, It Is quite difficult to determine the exact money
12
value of the nonmoney Income of the aged.
According to a survey conducted by the Social
i
Security Administration In 1957 for the beneficiaries of
the Social Security Insurance program, on the assumption
that home-ownership Is always profitable, about four-fifths
of all beneficiary couples and three-fifths of unmarried
aged beneficiaries had some noitcash income in form of home-
ownership, food raised or received, free medical care, and
other help. About one-eighth of all couples and one-fourth
of other beneficiaries received nonmoney income which was
from sources other than home-ownership; one-fourth of
135
couples and one-tenth of other beneficiaries had some home**
produced foods; one-ninth of couples and one-sixth of other
13
beneficiaries received free medical care.
In conclusion, two points must be emphasized.
First, while there Is general agreement that most of the
aged have some Income In kind, no exact measurement of the
money value of these nonxnoney Incomes Is available.
Secondly, while all these nonmoney Incomes contribute to
a better living for the aged, they do not necessarily
release an equivalent number of dollars.
III. THE ASSET POSITION OF OLDER PERSONS
In addition to current Income, the accumulated
assets of the aged constitute an Important source to meet
their medical and nonmedical needs. Most of the aged have
13
Social Security Administration, "Income of Old-Age
and Survivors Insurance Beneficiaries: Highlights from
Preliminary Data, 1957 Survey,” p. 16. Also a survey of
National Opinion Research Center In 1957 Indicated that
24 per cent of the men and 39 per cent of the women had
some noncash assistance. This aid was for medical or
dental care only among 6 per cent of the men and 5 per cent
of the women; another 3 per cent of the men and 8 per cent
of the women received aid for medical or dental care in
conjunction with aid for food and/or clothing. See
E. Shanas, Financial Resources of the Aging (New York:
Health Information Foundation, 1959), Research Series 10,
p. 9.
some assets in the form of liquid assets, equity in their
homes or other real estate, or other forms of assets.
Generally speaking, the aged have more financial assets
and less debt than the general population. For many of
them, however, and especially those with small retirement
incomes, financial asset holdings are modest.
Homeownership
The most important asset of older people is a home.
According to the latest Survey of Consumer Finances of the
Federal Reserve Board, 66 per cent of all nonfarm families
with an aged head owned their homes early in 1959. ^ Fur
thermore, of these homes, 83 per cent were mortgage free.
The median equity in nonfarm homes exceeded $8,000 for
retired couples and aged widows and $6,000 for nonmarried
retired beneficiaries.
Although real estate taxes and upkeep expenses are
quite burdensome, the current housing costs of the owners
of mortgage-free homes can be expected to be less than
for nonowners. It should be pointed out, however, that
^Unpublished data from the 1959 Survey of Consumer
Finances of the Federal Reserve Board. See White House
Conference on Aging, op. cit.. p. 17.
137
homeownership was less common for the aged with lowest
/
incomes, especially those who had no Income other than
their Social Security benefits.
Although home equity is a source of financial assets
which could be used in case of need, the equity in a home
is not an immediate source of funds for many aged persons.
To realize this tied up equity, the aged "must incur
capital gain taxes, high current costs of rental housing,
and also emotional strain of moving from a home and neigh**
borhood where they have perhaps spent a lifetime."^
Liquid Assets
Almost one-half of spending units headed by the aged
have financial assets of less than $500 or none at all.
These financial assets include stocks and bonds as well as
liquid assets such as checking accounts, saving deposits,
savings and loan and credit union shares, and saving
bonds, excluding life insurance policies. Almost one-third
of spending units headed by the aged had $2,000 or more in
financial assets including 11 per cent with holdings of
as much as $10,000 in 1957. Although the aged had by and
15
Ibid.
large more liquid assets than other age groups, It should
be pointed out that they do not have the same opportunity
to replace their assets once they are exhausted.
Life Insurance Policy
According to a sample survey conducted in 1957,
56 per cent of the spending units at ages 65 and over owned
at least one life insurance policy. Some life insurance
was carried by seven of every ten beneficiary couples and
* ■
half of the single retired workers and aged widows. For
those with life insurance, the median face value was
$1,810, $930, and $740 for retired beneficiary couples,
single retired workers, and aged widows respectively.
However, 10 per cent of beneficiary couples, 2 per cent of
single retired workers, and 1 per cent of the aged widows
had life insurance with a face value of $5,000 or more.^
Debt
According to the Survey of Consumer Finances, spend
ing units headed by the aged are relatively free of short
^*\j. L. Miner, Life Insurance Ownership Among Ameri
can Families. Survey Research Center, Institute for Social
Research (Ann Arbor: University of Michigan, 1957); The
Life Insurance Public (New York: Institute of Life Insur
ance, February 1957).
or intermediate term debt. Early in 1959, 69 per cent of
spending units headed by the aged were entirely free of
debt, compared with 32 per cent of spending units of all
ages. Only 11 per cent of spending units aged 65 and over
had mortgage debts, compared with 31 per cent for all
families. So far as personal debt is concerned, only
26 per cent of the older persons had any personal debts—
three-fifths had debts of less than $200. On the other
hand, 60 per cent of all spending units had outstanding
personal debts--one-half of debts exceeding $500. The
decline of the demand for consumer durable goods and dif
ficulty of establishing credit account for the reduced
indebtedness of the aged.^
The Assets of Aged Beneficiaries of Old-Age
and Survivors Insurance
A more detailed picture of the asset position of
the aged is furnished by the 1957 Survey of Social Security
Administration. Before examining some of their pertinent
t
data, the survey showed that the asset holdings of the
White House Conference on Aging, op. cit.,
pp. 19-20.
140
• "
retired— In terms of net worth, liquid assets and home*
ownership— are greatest for married couples, smaller for
aged widows, still smaller for single females retired from
work, and least for single retired males.
According to this survey, the proportion of the
aged beneficiary with no assets varied from 8 per cent for
married couples to about 24 per cent for aged widows and
single retired females, and to nearly 33 per cent for
retired single males. Among those with assets, the median
net worth varied from $8,786 for married couples, $803 for
single retired males, $2,077 for single retired females,
and to over $4,300 for aged widows.*®
The proportion of the aged beneficiaries with no
liquid assets ranged from 27.6 per cent for married
couples, to about 39 per cent for aged widows and single
retired females, and to about 49 per cent for single
retired males. Three-fourths of the married couples,
three-fifths of the aged widows and retired single females,
and over one-half of the retired single males had some
18
Social Security Administration, "Assets and Net
Worth of Old-Age and Survivors Insurance Beneficiaries:
Highlights from Preliminary Data, 1957 Survey," Social
Security Bulletin. No. 19, January 1959, p. 3.
141
liquid assets. However, for most of the aged the amount of
t
liquid1 assets was quite modest. The median amount was
4
I
$1,271 for the married couples, $457 for the aged widows,
$371 for the single retired females, and $37 for the single
IQ
retired males. 7
Homeownership was relatively common among the mar
ried couples, about two-thirds owning their own homes. On
the other hand, less than 50 per cent of the aged widows
and about one-third of the retired single beneficiaries
owned their homes. The median amounts of equity varied
from $8,100 for the married couples, to $5,458 for the
single retired males,. $6,650 for the single retired females,
and about $8,000 for the aged widows. The survey also
indicated that over two-thirds of the married couples and
about one-half of the unmarried beneficiaries owned no life
insurance. The amounts of insurance held, however, were
generally small, ranging from $1,848 for the married
20
couples to $744 for the aged widows.
On the basis of the result of the preceding data,
it is safe to conclude that while most of the aged
20Ibid.
beneficiaries had some assets, except equity in their
homes, their amounts were quite modest. As pointed out
earlier, home equity is not an immediately available source
of funds to meet unusual contingencies. Furthermore,
liquidation of homeownership to meet unusual high expenses
involves many unfavorable economic, psychological, and
social consequences since homeownership has become a part
of the pattern of living of most of the aged.
It is also true that the financial status of the
aged has improved considerably in the last two decades and
is likely to improve further in the future. The fact that
the aged of tomorrow have spent most of their productive
lives in prosperous period together with growth of pension
funds, the expansion of life insurance and homeownership,
and the extension of the Social Security program, all seem
to indicate a financially better-off aged of tomorrow.
The extent of this improvement is a matter of conjecture
depending upon numerous factors and developments. More
over, most of the savings of the aged are to take care
of the usual expenses of daily life. Any unusual expense,
whether medical or nonmedical, could create great hardships
143
21
for the aged and upset their normal way of living.
IV. TAX ADVANTAGES OF THE AGED
The level of living achieved by the aged depends not
only on their income but also on other provisions that
affect their income position. For example, if the aged
receive preferential treatment for income tax purposes,
their income can purchase more goods and services.
It is estimated that no more than four million of
the older people have any federal tax liability. This is
due to the provision of double exemption, exclusion of
social security payments, railroad retirement benefits,
veterans1 pension and life insurance proceeds, a retirement
income credit which makes allowances for annuities, inter-*
est, dividends and rent, and full deductibility of medical
cost. More specifically, double exemption allowed the aged
Involves a revenue loss annually of $475 to $600 million;
the "retirement income credit" involves a loss of $100
million per year; and the special "medical expense waiver"
^*Tor an evaluation of the change in the financial
status of the aged, see M. Civic, Income and Resources of
Older People (New York: National Industrial Conference
Board, 1956), p. 28.
for the aged involves a loss of about $40-50 million
22
annually. Furthermore, social security, railroad retire
ment, and veterans' benefits--Which amounted to $8 billion
in 1958— are nontaxable. Employers' contributions to
private pension plans are not taxable when paid, but only
when they are received. In 1957, employers contributed
about $3.9 billion to various pension plans, an estimate
23
revenue loss of more than $500 million. In short, while
there is no precise monetary value of the several tax
i
advantages which the aged enjoy, these tax benefits must
be taken into consideration in assessing their financial
capacity.
Fragmentary information is available on the impact
of state and local taxes on the aged. Out of thirty-five
states that levy personal income taxes, eighteen states do
not allow any additional deduction for the oldei^ persons.
22
R. A. Musgrave, "Incidence of the Tax Structure
and Its Effects on Consumption," Federal Tax Policy for
Economic Growth and Stability. Hearings before 84th
Congress, First Session (Washington, D.C.: Government
Printing Office, November 9, 1955), pp. 869-879.
23
A. M. Skolnik and J. Zisman, "Growth in Employer
Benefit Plans, 1954-57," Social Security Bulletin, X
(1959), 54-57.
145
However, sales taxes and real estate taxes impose a heavy
burden on the aged.^
V. THE INCOME NEED OF THE AGED
The fact that the aged have lower money Incomes
than other age groups does not necessarily mean that these
Incomes are Inadequate. The aged generally have lesser
needs for food and clothing and work-related expenses, If
they are retired, such as transportation to and from the
m
work, meals away from home, social security taxes, and
union dues. In addition, the cost of raising and educating
children is sharply reduced or ended for many of the older
people. On the other hand, some expenditures, notably
25
medical care, are greater for the aged.
In spite of many attempts to devise a budget for
an elderly couple In different states, no satisfactory in
formation is available of their income need. This Is due
24
White House Conference on Aging, o p. cit., p. 21.
25
Z. Campbell, "Spending Patterns of Older Persons,"
Management Record, XXI (March, 1959), 85; S. Goldstein,
"Consumer Patterns of Aged Spending Units," Journal of
Gerontology. XIV (July, 1959), 328; and R. D. Millican,
"Two Factor Analyses of Expenditures of the Aged," Journal
of Gerontology, XIV (October, 1959), 465.
146
basically to the fact that need Is a relative concept and
defies any generally-accepted measure. The need of aged
persons depends upon their Income and the standard of
living they enjoyed before retirement, the size of com
munity in which they live, and other factors such as their
health status, whether children and relatives can be called
on to help out if necessary.
It should be pointed out that the Bureau of Labor
Statistics of the Department of Labor has made several
attempts to devise a budget for an elderly couple in
various states. It was concluded that:
... a sizeable proportion of our present aged
population has income below the level recognized by
public assistance agencies for the costs of basic
items--with no allowance for transportation, tele
phone and other items important to normal social
participation.26
VI. THE IMPACT OF INFLATION ON THE
FINANCIAL RESOURCES OF THE AGED
One of the most important characteristics of the
world in general, and the American economy in particular,
has been change--change in total output and productivity,
26
White House Conference on Aging, op. clt.. p. 24.
147
change In the standard of living, change In composition of
Gross National Product, change in the level of employment,
and change in level of prices.
Over the past few decades, the output of the Ameri
can economy has grown at an average of 3.75 per cent per
%
annum. The population, however, has increased at about
2 per cent a year--with the result that the real output
per capita has risen on an average slightly over 1.5 per
cent annually. The real hourly earnings have increased at
about the same rate as the rate of increase in product per
man-hour over the last few decades.
A continued Increase in productivity with more job
opportunities and higher Incomes results in a higher
standard of living. If productivity gains continue to be
associated more frequently with rising incomes than with
falling prices, then not everybody will share in the in
creased productivity. Thus those who are not gainfully
employed any longer and live more or less on fixed incomes
have little opportunity to share in the benefits of rising
productivity.
In spite of increasing productivity in the American
economy in the last few decades, most of these gains have
148
been distributed in the form of higher wages, fringe
benefits, and dividends or through a reduction in working
hours rather than reduction of prices. In fact, the retail
prices of goods and services today are about three times
higher than just before the Civil War. The price level,
however, has consistently, though relatively mildly, been
increasing since 1946. The continuing rise of prices in
the postwar period without any adjustment to the falling-
off of immediate postwar demand or to the two postwar
recessions, has given rise to many explanations. Econo
mists seem to disagree on the causes of this relatively
mild but practically*uninterrupted inflation of recent
i
years. Increasing supply of money, the upward push of
wages on prices, the rigidities of the price structure, the
pressure of "near full" employment, the influence of rising
population with increased needs, expansion of government
t
activities, growing business investment expenditures, or
even the pressure of needs artificially created and stimu
lated by advertising, are among many factors which have
been cited for the postwar "creeping inflation." Many
remedies and policies have also been suggested to cope with
rising prices depending upon one's opinion as to what kind
149
of Inflation the American economy has been experiencing in
recent years: "demand-pull," "cost-push" (qualified or
27
unqualified), or a combination of both. Irrespective of
the causes, the effects of inflation are the same for the
majority of people, rising prices, not inflation in its
technical sense, are crucial.
The "creeping inflation" presents many problems in
income maintenance. While the money incomes of the popula
tion as a whole and to a lesser degree those of the aged
*
have been* increasing? these money incomes are meaningful
only in terms of the amount of goods and services they
purchase. Thus a consideration of money income without
any regard to its real purchasing power (or changes in the
27
The unqualified "cost-push" inflation which argues
that increasing prices are caused by a successful demand by
labor unions for a higher money wage rate the subsequent
shift of this increase money wages to consumers in form of
goods and services and consequently a completely inelastic
demand for labor. Otherwise, rising prices will discourage
consumption and demand and unemployment ensues. However,
the qualified version of "cost-push" inflation argues that
successful demand by labor unions for high money wages and
the subsequent shift of this increase in money wages to
consumers in form of higher prices have been the main cause
of the "creeping Inflation" of recent years; and any un
employment effect of this process would be taken care
by the Federal government through the Employment Act of
1946 and government countercyclical fiscal policy.
150
value of money) may lead to what economists generally term
a ’ ’ money illusion.'1 This problem of "creeping inflation"--
or as sometimes called "creeping catastrophy"— has posed
more serious problems for the aged than the general popula
tion. In the first place, rising prices have constantly
increased the money value of the expenditures by the aged.
This rising trend in expenditures has been more profound
in the case of medical care whose prices have been rising
even faster than the general level of prices— a point which
was emphasized in Chapter III. Since the aged are gener-
^ *
ally heavier users of medical care, the rising price of
medical care--which is partly caused by the persistent
inflation of recent years— poses a problem of great concern
for the aged. To this extent, however, the effects of
inflation and rising price of medical care have been more
or less the same for the entire population .and older per
sons, except the fact that the aged have a higher rate of
utilization of medical services than the general popula
tion.
Secondly, the "creeping Inflation" has posed many
problems in income maintenance of the population in general
and for the aged in particular. In this respect, however,
t
151
' *
the problem of .rising prices is accentuated for the aged.
While adjustments to changes in the value of money have
been made quickly for large groups in the population
through increased current earnings, for retired persons who
can no longer count on earnings, the adjustment has too
often had to come in the reduction of purchasing power.
In short, the "creeping inflation" has slowly but crucially
been eroding the Income of the aged, whose life span has
been constantly growing, but without earning capacity to
permit them directly to share in increased productivity.
Therefore, there seems to be a general agreement
that the rising consumer prices are more burdensome to the
aged than to the population as a whole basically because
the aged live on a more or less fixed income and because
they, by reason of retirement, cannot augment their eroded
incomes. In order to make a more objective comparison,
however, a price index for aged consumers is needed, which
would give appropriate weights to those goods and services
that the aged purchase. This is necessary because of the
different pattern of consumption of the aged as compared
with the other age groups. No such price index is avail
able. One study, however, showed very little difference
152
between the Consumer Price Index for the aged and other
age groups. According to this study, during 1950-59, the
Consumer Price Index rose 21.2 per cent; the expenditures
for goods and services by the aged increased 21.7 per cent;
and by families whose head is 75 years of age and over,
28
21.5 per cent.
Impact of Inflation on Expenditures of the Aged
It is generally agreed that the expenditure pattern
$
of the aged-is somewhat different from that of younger
familie's. The aged spend less on food, clothing, work-
related expenses, support and education of children, and
other ^expenses. On the other hand, the medical needs of
*
the aged are greater than the medical needs of other age
groups, and since the aged have less protection against
sickness and.accidents, their medical-care expenditure is
a large figure. To know the exact impact of inflation on
the expenditures of the aged, as indicated previously, a
price index for aged consumers is needed. Since no such
28
University of Pennsylvania, Wharton School of
Finance and Commerce, Study of Consumer Expenditures.
Income, and Savings, Statistical Tables. Urban U.S.. 1950.
Vol. XVIII, 1957, pp. 2-4.
153
• •
Index is available and based on a study made by Wharton
School of Finance and Commerce of the University of Penn
sylvania (cited previously), It Is safe to conclude that
there Is "no evidence that the impact of rising prices
bears more heavily on their [the aged] dollars than on the
dollars of other families."^
Impact of Inflation on the Money Income of the Aged
An examination of the amount and sources of money
income of the aged has already been made in this chapter.
However, this money income is meaningful only in terms of
the amount of goods and services it purchases.
The impact of inflation on the money income of the
aged primarily depends on the sources of their income.
The result of a 1957 Survey of the Old-Age and Survivors
Insurance beneficiaries is summarized in Table XV. As
\
indicated previously, of the total money income which the
aged received from all sources in 1958, about three-fifths
came from sources other than public income-maintenance
programs. In fact, earnings of employed aged persons
29
White House Conference on Aging, Background Paper
on Impact of Inflation on Retired Persons (Washington,
D.C.: Government Printing Office, July 1960), p. 16.
TABLE XV
THE SOURCES OF MONEY INCOME OF THE OLD-AGE AND
SURVIVORS INSURANCE BENEFICIARIES, 1957
Beneficiary Couples Single Retired Aged Widows
Source of
Money Income
Per cent
Receiving
Median
for
Recipients
Per cent
Receiving
Median
for
Recipients
Per cent
Receiving
Median
for
Recipients
Income from assets
(dividends, interest, and
rent) 62 $200 45 $100 52 $150
Employer and union pensions 26 800 15 660 2 640
Veterans' compensation or
pensions 4 1,130 6 1,000 6 790 *
Earnings (employment) 37 1,030 32 590 14 410
Public assistance 6 730 14 490 12 460
Contributions from relatives 5 300 8 210 11 310
Source: White House Conference on Aging, Background Paper on Impact of Inflation on Retired Persons
(Washington, D.C.: Government Printing Office, 1960), p. 12.
154
contributed almost as much to this total as did all the
public income-maintenance programs. Employment, however,
while providing an important opportunity for some aged
persons "to share in rising productivity, is not broadly
spread among the aged, since at the end of 1959, only one-
fourth of the aged had incomes from employment, either as
earners or as the wives of earners. As Table XV shows, at
the end of 1957, only 37 per cent of the beneficiary
couples, 32 per cent of the single retired, and 14 per cent
of the aged .widows received income from employment. More
over, there is a limit to which an aged person can increase
his income through earnings without forfeiting his social
security benefits. Finally, there are many aged persons
who are unable to work even If the employment opportunity
existed. These include the aged who are 70 years of age
or over--whose number is presently 10 million--and the aged
widows who have never been gainfully employed.
♦
It is very difficult to know what protection the
aged have against rising consumer prices unless more
detailed information as to the sources of the additional
money income received is available. To the extent that
these other sources represent annuities, proceeds from
156
life Insurance, and other contractual arrangements to pro*
vide periodically a £lxed number of dollars, these dollars
have had a continually lower purchasing power.
Important sources of income for the aged are the
public income-maintenance programs which presently provide
support for 86 per cent of the total aged population and
for 93 per cent of the retired group— defined to exclude
those with earnings who are simultaneously receiving public
benefits. As was shown previously, these public income-
maintenance programs provide over one-third of the money
income of the aged. The benefit provisions of the Old-Age
and Survivors Insurance benefits--which is the most impor
tant source of the public income-maintenance programs--
were not changed until 1950. Since 1950, however, Congress
has periodically (1952, 1954, 1958) changed the method of
m
computing benefits and the amounts of benefits to take
account of rising prices and productivity. The adjustments
have been slightly larger than the Consumer Price Index to
reflect a part of increase in real per capita output.
Although the early beneficiaries of the social security
program have shared in Increasing prosperity, yet they have
not shared to the same extent as other age groups. For
example, a man who retired in 1940 and still draws benefits
in 1959 was receiving a benefit with purchasing power about
17 per cent greater than his first benefit. However, over
the same period, the real per capita disposable personal
income has increased slightly more than 50 per cent or
Since the war-time deterioration in the value of the
benefits was corrected in 1950, the periodic adjust
ments made by Congress have protected retirement bene
fits from most of the effects of price inflation and
have made it possible for those who retired 10 or 20
years ago to share in the increasing volume of goods
and services produced. For those currently retiring,
the relationship of benefits to previous earnings has
been maintained for persons with earnings at or below
the average for all workers; it has deteriorated for
persons with earnings well above average, much of
whose earnings are above the earnings and thus
not taxed or credited toward benefits.
Adjustments have also been made in most other public
benefit programs such as the Civil Service Retirement
system for Federal employees, most state and local retire
ment systems, and other programs. From time to time the
annuities of retired Federal employees have been raised
through legislative action. It is interesting to note that
the retirement systems of the Federal judiciary and the
uniformed services provide for automatic adjustment of
in
three times as much. v In short
30
Ibid., p. 19 31Ibid., p. 23
158
benefits to wage level changes.
Although most state and local retirement systems
have been periodically adjusted, yet many have encountered
special difficulties in increasing pensions for those on
the rolls. First, in many states the constitutionality of
"retroactive increases" has been challenged. Secondly,
the early retirement features of many state and local
retirement systems, and the inadequate financing of some,
19
have made it difficult to increase pension benefits.
There is little information as to the changes over
time in the amounts of income received by the.same indi-
^ *
vidual from different, sources of income thus far discussed,
except for the benefits of the public income-maintenance
programs. In view of this difficulty, it is very difficult
to generalize on the impact of inflation on the money
income of the aged. As indicated previously, earnings from
employment constitute a major source of money income for
the present aged. However, the future outlook for this
32
Some states notably Wisconsin have taken action to
eliminate the need for periodic adjustments of pension
benefits by incorporating the variable annuity principle
into their retirement systems for state employees and state
teachers. See White House Conference on Aging, Background
Paper on Impact of Inflation on Retired Persons, p. 24.
source of money income is not too optimistic because of:
(1) employment among the aged is not broadly spread;
(2) growing concentration of the aged over 70 who are
unable to work and the aged widows who have never been
gainfully employed; and (3) the tendency for shorter hours
and early retirement for the general population makes it
more difficult for the aged to engage in gainful employ
ment.
Although the public income-maintenance programs--
which are expected to become an increasingly important
source of money income for the aged— have been periodically
adjusted to compensate for rising prices, no great effort
has been made to allow the aged to share in increasing
productivity.
*
Finally, a part of the money'income of the aged con
sists .of annuities, proceeds from life insurance, private
33
(union or employer) pension plans, and other contractual
arrangements which provide periodically a fixed number
33
It must be pointed out that some private pension
plans provide for automatic adjustment of pensions to
changes in the Consumer Price Index. For example, the
Teacher Insurance and Annuity Association takes teachers'
and college contributions and puts part of this money in
fixed annuity and a part in a variable annuity fund.
160
of dollars--whose real values are constantly deteriorated
by rising level of prices.
Thus, It could be concluded that generally speaking,
the Impact of Inflation on the money Income of the aged
Is more pronounced than other age groups whose members can
easily adjust to changes In the value of money through
current earnings.
Impact of Inflation on the Nonmoney Income
and Assets of the Aged
Free shelter provided by homeownership has been con
sidered an Important source of nonmoney Income for the
aged. As Indicated previously, a relatively large number
of the’ aged own their own homes which are mostly mortgage
free. Although 80 per cent of the homeowners have reported
current housing expenses were less than rental value,
*
rising real estate taxes and upkeep costs--which are par
tially caused by persistent rising prices— have seriously
reduced the amount of nonmoney income derived from home
ownership, although the value of homes has been increas-
34
ing. In addition, the aged have some nonmoney income
^S/hite House Conference on Aging, Background Paper
on Impact of Inflation on Retired Persons, p. 12.
161 '
in forms of home-produced foods, free medical care, and
contributions from relatives. There is little evidence,
however, that the effect of inflation on these sources of
nonmoney income has been significantly different from the
other age groups.
Inflation also has a profound effect on the values
of assets. It should be noted, however, that assets are
subject to a greater change than income because there is
much greater time span between the acquiring and spending
of such funds.
The most important source of assets for the aged is
homeownership. Inflation, it is generally agreed, has had
a favorable impact on the value of real estate. Since the
aged1 * own their homes relatively more than any other age
group, it is logical to conclude that the aged enjoy a more
favorable position in this respect than any other age
group. Rising property values, however, are not neces
sarily a safeguard against the impact of inflation for the
aged. Quite aside from reason of sentiment and family ties
which make many older persons unwilling to sell their
homes, it is not quite clear whether it is economically
wise for the aged to sell their homes. As indicated
f
162
previously, the median value of the equity In homeowner-
ship for the retired couples is about $8,100. It would be
difficult to invest this amount, after paying taxes, in
such a way as to assure future real purchasing power suf-
ficient to guarantee adequate shelter for the remainder of
the individual's lifetime.33
Aside from homeownership, relatively few retired
persons have significant amount of assets that would not
depreciate in value. As was shown previously, the amount
of liquid assets is quite small. Moreover, a very small
segment of the aged'have sufficient amounts of savings
which can be Invested in marketable securities to provide
in some degree a long-run adjustment of their incomes to
price changes and to changes in productivity.
It is generally agreed that debt can be a form of
hedge against inflation. In this respect the aged are at
a decided disadvantage. As was shown, the aged have less
debt than other age groups— 31 per cent compared with
68 per cent in 1959* The relatively debt-free aged are not
necessarily financially better-off. Rather, lower and less
^5Ibid., pp. 12-13. 36Ibid.
163
dependable current Income,* together with a short life
37
expectancy, makes an elderly person a poor credit risk.
No facts or concrete conclusions can be drawn from
the Impact of Inflation on the financial status of the
aged. It Is clear, however, that the American economy,
among other changes, has recently been experiencing two
distinct changes, namely, a rising productivity and a mild,
yet uninterrupted, change in the level of prices. So far
as the rising real output is concerned, the aged are at
decided disadvantage and generally have not been pble to
share in.rising productivity simply because a great
majority of them are withdrawn from the labor force and
employment. Although many of the public income-maintenance
programs have adjusted their benefits so as to provide for
rising productivity, their achievements have been negli-
gible.
As far as rising prices are concerned, it phould be
pointed out that inflation has profound adverse effects on
the economic "well-being" of the population not only by
consistently increasing their costs of living but also by
37Ibid., p. 13.
164
continually eroding the real value of. their incomes and
some of their assets. Even in this respect, it is not too
difficult to see that the aged are at a decided disadvan
tage. As far as the money income is concerned, while the
population as a whole can easily compensate for rising
prices by increasing their earnings, the aged are more or
less unable to do so because they are withdrawn from earn
ings and employment. Moreover, the fixity element in the
income of the aged, in contrast to other age groups, pro
vides little protection against persistent increase in the
price level with consequent continual erosion of their
real income.
Aside from homeownership, the financial assets of
the aged are quite modest, the values of some of them being
taxed away by inflation. Although homeownership as a rule
provides a good hedge against inflation, the aged for many
reasons, which have already been discussed, cannot easily
dispose of the home to finance the rising costs of living
and augment relatively declining real incomes.
VII. SWWARY
Facile conclusions with respect to the financial
capacity of the aged cannot be drawn. Although ample data
165
are available on the financial resources of the aged, most
of these data are limited and consequently should be used
with a great deal of care.
This chapter examined the over-all economic capacity
of the aged. However, the main purpose of this section was
to determine whether the aged as a whole have sufficient
resources to buy adequate medical care. What determines
the amount a person can afford depends on: (1) one's
aggregate financial resources; (2) one's accustomed level
of living which depends on what constitutes It; and (3) how
expenditures are categorized, namely, the question of
necessities versus luxuries. In short, an examination of
the financial resources of the aged to obtain adequate
medical care must distinguish between "lack of resources"
^nd "lack of willingness to apply available resources to
the procurement of It . . . [or] the unwillingness to give
medical care a priority."'*®
The data on the money income of the aged seem to
indicate that older persons have lower money incomes than
38
George W. Backman and Lewis Meriam, The Issue of
Compulsory Health Insurance (Washington, D.C.: The Brook
ings Institution, 1948), p. 176.
166
most of the other age groups. However, these economic data
often do not give a complete picture of the financial
resources of the aged. For one thing, the role of both the
"immediate" and "extended family" is lost in these economic
data. Although the proportion of the aged living in
families has been constantly decreasing, many older per
sons live near their families who can be of some help in
time of need.
Secondly, economic data often show the amount of
money Income which is available to the aged, excluding
nonmoney income (income in kind), such as free shelter from
homeownership, home-produced foods, and free medical care.
Thirdly, a careful examination of the financial resources
*
of the aged should not only consider their current money
and nonmoney incomes, but also their financial assets such
as homeownership, liquid assets, and other types of
assets--where the aged are relatively better-off than the
other age groups. Fourthly, lessened family needs are
seldom brought into evidence in conjunction with data show
ing the lower average income of families headed by the
aged.
167
§
* ' * *
Finally, "treating the current aged as an undiffer-
entlated aggregate glosses over the marked variation In
economic status between those just past the threshold of
3Q
old age and those who survive Into the 80Ts." This Is an
Important point to bear In mind. Those at advanced ages
today have spent most of their working lifetime during a
period of relatively low productivity, Including the
depression of the 1930*6. Thus their opportunities for
savings were limited, and since a relatively small propor
tion of these aged are beneficiaries of the Social Security
programs, their current Income Is relatively low.
On the other hand, the Individuals who have recently
passed the age of 65 enjoy a higher average Income because
«
not 6nly have they spent most of their productlye years In
a period of prosperity, but also because a greater propor
tion of them are beneficiaries of Social Security programs
with higher benefits. In addition, the rapid postwar
growth of private pension plans has made it possible for
an increasing nimber of the aged to be pension recipients.
39
Mortimer Spiegelman, Ensuring Medical Care for the
Aged (Homewood, Illinois: Richard D. Irwin, Inc., 1960),
p. 39.
168
It can be concluded, therefore, that on the whole,
the economic position of the aged has improved signifi
cantly during the postwar period. A greater improvement
is also in sight for the future, "as those currently at
extreme ages leave the scene and the increasing numbers
benefiting from postwar prosperity enter old age."4^
All these points are well taken; however, such an
optimistic evaluation of the present economic position of
the aged population and its future should be taken with
a great degree of care for a number of reasons. First,
although an objective assessment of the financial capacity
of the aged should take into consideration the role of the
"immediate" and "extended" family, the financial contribu
tion of the family to the aged is relatively insignificant.
Moreover, with a greater trend toward urbanization, while
the willingness of the families to help their aged members
still remains strong, their ability to do so is on a
decline.
Secondly, an objective assessment of the financial
resources of the aged not only should consider their money
40Ibid., p. 40.
income, but also their Income In kind* Free shelter from
homeownership, free medical care, and home-produced food
are considered to be the most important sources of noranoney
Income for the aged. However, several aspects must be
taken into consideration with respect to each of the above*
mentioned sources of nonmoney income. So far as income in
kind from homeownership is concerned, it should be pointed
out that while this source of nonmoney income Is quite
Important, rising real estate taxes and upkeep costs
constitute a heavy burden for the aged. Free medical and
dental care from private sources--whose amount is inci-
dentally relatively limited— has been mentioned as an
* '
important source of income in kind for the aged. However,
a number of points should be clarified with respect to free
private medical care. First, free medical care is merely
a "palliative" rather than a "cure." Secondly, free medi
cal care Involves a number of other problems: (1) the
personal pride of many of the aged makes them refuse free
medical care and thus forego medical attention; (2) some
doctors are called upon for free medical care more often
than others; and (3) provision of free medical care by
doctors often results either in some people paying higher
170
. 41
fees and/or doctors must make less money. Finally, the
Principles of Medical Ethics of the American Medical
Association has already set forth the obligations of a
physician in caring for a sick man by stating that "the
poverty of a patient . . . should command the gratuitous
services of a physician.Yet, when medical services
have become as varied and specialized as they are today,
and when poverty has become relative, many doctors are
unable to determine who is able to pay.
Thirdly, it is generally agreed that many of the
aged have access to one or more types of assets to meet
larger medical expenses. However, as it has been pointed
out, the assets of the aged, aside from homeownership, are
«
quite modest. Furthermore, homeownership, for many eco-
nomic and noneconomic reasons, is not a readily-available
source of funds with which to meet unusual medical or
nonmedical expenses. Finally, the aged have little oppor
tunity as contrasted to other age groups to replace their
41
E. Bryant Phillips, Consumer Economic Problems
(New York: Henry Holt and Company, 1957), pp. 361-362.
42
American Medical Association, Principles of Medi
cal Ethics (Chicago: The American Medical Association,
1924), Chapter II, Article 6, Section 1.
171
assets once they are exhausted. After reviewing the eco**
nomic position of the aged, Steiner and Dorfman conclude
that:
Although the total amount of assets held by the
aged seem large relative to annual medical payments,
the large group without assets, the probable recur
rence of medical expenses, and the use of assets for
many purposes, including current living expenses,
caution against too optimistic an evaluation of the
adequacy of assets to meet medical expenses. ^
Fourthly, it is true that generally speaking the
aged have lesser income need than most of the other age
groups. However, longevity--which has partially been
brdught about by medical progress--requires a greater need
for medical care. The greater medical need and its rising
»
price constitutes a major and an increasing item on the
expenditure list of the aged. Lastly, as society pro
gresses toward a higher standard of living, the needs of
the aged become greater and any deviation from their
previous established pattern of living can upset their
normal way of living.
Finally, although the aged of tomorrow would be
financially better-off than those at the extreme ages,
43
P. 0. Steiner and R. Dorfman, The Economic Status
of the Aged (Berkeley and Los Angeles: University of Cali
fornia Press, 1957), p. 145.
172
It should be noted that as their Incomes rise, so will
their expenditures. As society progresses toward a higher
level, its populace, including the aged of tomorrow, will
become accustomed to a higher standard of living— from
which any extreme deviation could upset their normal
, $
pattern of living. Moreover, while the money income of
the aged has been increasing in the last decade, this does
not necessarily mean a higher real income because of the
hidden taxation of inflation--* point which was emphasized
in this chapter. Finally, with growing money income, the
future aged will become able to save more than those at
the extreme ages; however, as the life span constantly
increases, there arises a greater need for resources.
In establishing the White House Conference on Aging,
the United States Congress stated that:
. . . many older persons do not have adequate
financial resources to maintain themselves and their
families as independent and self-respecting members
of their communities, to obtain the medical and
rehabilitation services required to permit them to
function as healthy, useful members of society, and
to permit them to enjoy the normal, human social
contact.^
' “white House Conference on Aging, Background Paper
on Income Maintenance, p. 34.
173
After reviewing the financial resources of the aged,
the White House Conference on Aging concluded that:
. . . many of the aged have inadequate income is
generally agreed, even when allowance is made for
such factors as tax advantages, non-money Income, and
a different pattern of need. That there is every
reason to expect improvement in the income position
of the future generations of aged is also generally
recognized. There is far less agreement as to what
constitutes an adequate level of income and how much
improvement the future will bring. Nor is there
agreement on what role in attaining this level should
be played by governmental programs, voluntary group
action and individual effort.
Various suggestions have been made to improve the
income position of the aged. However, an engagement in
the ''pros'* and * ’ cons” of these suggestions will take this
i
dissertation beyond its intended scope. All this chapter
intended to do was to present a comparative analysis of
the financial capacity of older persons to show the diffi
culty with which the aged can pay their medical bills. The
purpose of this chapter was also to pave the way for a
discussion of those programs--either in existence or pro
posed --which aim to alleviate the burden of the uneven and
unpredictable cost of medical care.
45
Ibid.
174
It can be concluded, therefore, that many of the
aged--who8e needs grow constantly with aging— are either
unable and/or unwilling to pay for their medical care.
It is also generally agreed that the cost of medical care
should be spread by polling risk through one form of insur
ance or another. There is far less agreement as to whether
reliance should be made on the individual initiative--whose
effectiveness is based on the classical concept of "eco
nomic man"--to budget for medical care or initiate a pro
gram of compulsory health insurance--a subject whichawill
be examined thoroughly in the chapters yhich follow.
CHAPTER V
FINANCING OF MEDICAL CARE FOR THE AGED THROUGH
VOLUNTARY HEALTH INSURANCE
The growing need for medical care and its rising
costs coupled with the unpredictable and uneven costs of
illness have made it necessary to find some method of
spreading the risk and defraying the costs of illness.
This is quite essential and necessary in view of the un
predictable nature of illness which makes the concept of
budgeting for medical care a "myth." Thus health insur
ance, prepayment plans, independent plans, and other medi
cal service plans such as Kaiser's Permanente Foundation,
Ross-Loos Medical Group, and the Health Insurance Plan of
Greater New York have been developed to defray the un
predictable and uneven costs of illness.
The spectacular growth of voluntary health insurance
plans in the last twenty years together with other public
and private programs have eased the burden of medical costs.
175
176
For most of the young families, therefore, the uneven and
unpredictable burden of heavy medical costs is likely to be
offset at least partly by private health insurance. Tet,
there are some fifty million persons— mostly composed of
the aged, the disabled, the low-income workers, and the
unemployed--who need the health protection most, and can
afford the costs of protection least. Even among those who
have health Insurance under one plan or another, compre
hensive or "adequate" coverage is limited. While voluntary
health insurance has demonstrated that insurance against
medical costs is practical and great steps have been taken
in that direction, it has failed to provide "adequate"
protection against the burden of medical-care costs.
There is a greater need for protection against the
unpredictable and uneven burden of medical costs by the
aged because of their greater need for medical services and
their limited financial resources. Yet, relatively fewer
aged persons, particularly those in poor health and in the
older age groups, where the burden of medical costs is
greater, have such protection.
It is the purpose of this chapter, therefore, to
examine the extent of private health Insurance among the
177
aged and to determine whether the medical-care bills of
older persons can be easily and economically financed
through private health insurance programs. Since this
chapter is largely concerned with the aged, the history of
voluntary health Insurance will not be traced here, and
only those aspects of the mechanism will be discussed which
are directly related to the aged. Thus this chapter is
mainly concerned with: (1) a brief history of the develop
ment of voluntary health insurance in the United States;
(2) various types of private health insurance which are
available to the aged; (3) the extent of voluntary health
*
insurance among the aged; and (4) an evaluation of private
health insurance for the aged. ‘ .
I. ALTERNATIVE METHODS OF FINANCING
MEDICAL CARE
A variety of means and institutions are involved in
the field of medical finance. Basically two categories
present themselves: voluntary methods and public finance.
Voluntary methods of financing medical care include prepay
ment, insurance, postpayment, and charitable programs.
Public methods of financing medical care may vary from
178
the direct provision of medical services to Indirect means
of assisting, reinsuring or underwriting various private
financial programs. Since public finance of medical care
will be thoroughly examined In the chapters to follow, this
chapter will only consider the voluntary methods of fi
nancing medical care.
Voluntary Methods
As Indicated above, voluntary methods of financing
%
medical care Include prepayment, insurance, postpayment,
and charitable programs. Charitable programs generally are *
#
used to support and subsidize medical research and medical
■ %
facilities for the care of victims of "dread diseases" such
*
as polio, cancer, and tuberculosis. In spite of. some use
1 v * *
by some physicians, postpaymeVit has hot developed into a
significant alternative method of financing medical care.
i t
Hence voluntary health insurance and prepayment medical
service plans are predominant methods of financing medical
costs. Because of their respective importance, therefore,
further consideration of voluntary methods of financing
medical care will be restricted to insurance and prepayment
plans.
Types of insurance coverage. Since this chapter Is
concerned mainly with the aged who mostly, by reason of
age, are out of labor market, emphasis will be on those
health insurance policies or plans which have as their
primary purpose the indemnification against the costs of
accident, illness, or disease. Loss of income provision
of such policies or plans will not be considered in this
section.
Health insurance may be subdivided into the follow
ing categories: (1) hospital coverage; (2) surgical cover
age; (3) regular medical expense coverage; and (4) major or
comprehensive medical expense coverage.
(1) Hospital coverage refers to those health insur-
ance policies which are basically concerned with the
coverage of hospital daily room charge?. Moreover, hos-
*
pital policies generally cover a part, or all, of the other
miscellaneous expenses connected with hospitalization.
The maximum duration of hospital stay may vary from thirty
days to one year. However, a minimum of 90 or 120 days is
comnon. Moreover, the amount of daily benefit provided
varies from one plan to another depending upon a number
of factors.
Generally, Insurance companies pay a cash benefit
for dally hospital charges up to a maximum either to the
beneficiary or directly to the hospital. While Insurance
companies pay the miscellaneous expense benefit for charges
up to some specified limit with each hospital stay, Blue
Cross plans generally restrict the miscellaneous benefits
to a number of specified services.
(2) Surgical coverage refers to those health insur
ance policies which underwrite the costs of surgery.
Generally, a surgical insurance policy includes a schedule
of surgical fees which spells out the specific amount
allowable for each surgery.
V
Insurance companies commonly combine hospital and
surgical coverage into a single policy. Blue Shield plans,
i
which are basically concerned with surgical coverage, are
frequently co-ordinated with the local Blue Cross plans in
their activities.
(3) Regular medical expense coverage refers to that
feature of a health insurance policy which provides cash
payment for physicians* fees while the beneficiary is
confined to a hospital. While regular medical expense
coverage frequently covers only in-hospital treatment,
181
some plans also Indemnify the physicians' fees on office
visits or home calls plus provision of drugs on an out
patient basis. The regularity of such medical costs, which
have made them less readily insurable at reasonable premium
rates, has necessitated that the scope of regular medical
coverage be quite limited.
(4) Major medical expense coverage refers to those
Insurance policies which are designed to cover the costs of
large medical charges. Generally, a major medical expense
insurance policy (or a comprehensive Insurance policy)
excludes all medical and hospital expenses up to a specific
amount which is referred to as "deductible.” Then the
policy covers all or most of the medical and hospital
expenses in excess of the "deductible" amount up to a
t
stipulated maximum indemnity. They usually have a "co-
insurance" feature which limits the benefits paid to a
high percentage (75 or 80 per cent) of medical charges in
excess of the "deductible" amount.
Individual and group coverage. Insurance policies
are under-written on individual as well as group basis.
Individual health Insurance policies are those policies
which are written to cover individuals and families.
182
Group Insurance policies are master plans drawn between
the Insurer and the employer to cover all or at least a
majority of the employees or members concerned. Each bene*
ficiary, In turn, Is given an Insurance certificate that
describes the benefits to which he is entitled.
Most disability insurance is written on a group
basis. On the basis of membership, group insurance out
weighs individual "policy insurance by a great margin. For
example, in 1961 the proportions covered by group health
insurance were 71 per cent for hospital expense, 85 per
cent for surgical expense, 85 per cent for regular medical
expense, and 92 per cent for major medical expense.^ The
actual importance of group health Insurance becomes even
more evident when it is considered that it encompasses much
larger proportions of coverage provided by Blue Cross, Blue
Shield, medical society plans, and the Independent plans.
Finally, on the basis of gross premiums, group insurance
has achieved a greater edge over the individual-policy
2
insurance.
^The Health Insurance Council, The Extent of Volun
tary Health Insurance Coverage in the United States
(Chicago: The Health Insurance Council, 1962), pp. 12-21.
2Ibid.. p. 13.
183
Since a group-insurance policy usually Involves a
more representative sample and consequently a better selec
tion of risks and lower administrative and selling costs,
It can be written at lower premiums and broader coverage.
On the other hand, since Individual health policies, which
are mostly held with Insurance companies, require the
services of an agent, separate underwriting and adminis
trative attention are more costly than group Insurance.
II. DEVELOPMENT OF INSURANCE AND
PREPAYMENT PLAN
The development of voluntary health Insurance In the
United States has been quite phenomenal In the past few
decades. So phenomenal has been this development In fact,
that a brief history of voluntary health Insurance Is in
order. Since the emphasis is on the aged, however, the
analysis will be quite brief.
For a more detailed account of the development
of health insurance movement in the United States, see
F. Goldmann, Voluntary Medical Care Insurance in the United
States (New York: Columbia University Press, 1948), Ch. II;
E. G. Faulkner, Health Insurance (New York: McGraw-Hill
Book Company, Inc., 1960); L. S. Reed, Blue Cross and
Medical Service Plans. Division of Public Health Methods,
184
Early Beginnings
Insurance against the losses occasioned by sickness
is not a modem phenomenon. In ancient Rome and Greece and
in medieval Europe, it was customary for wealthy families
to retain physicians to look after the medical needs of
their families and servants. In case of wealthy landlords,
it became customary for the family physician to attend the
needs of tenant farmers.
There is some evidence that the Collegia (mutual aid
and fellowship associations) of ancient Rome insured their
members against disability; they had a system of burial
allowances. More probably, however, the beginnings of
sickness insurance date from the medieval guilds, under
which each member made an annual contribution and in case
of sickness or disability he would receive monthly bene-
4
fits. After the decline of the guilds, a variety of
Public Health Service, Federal Security Agency (Washington,
D.C.: Government Printing Office, 1947), Chps. II and XIV;
A Look at Modem Health Insurance (Washington, D.C.:
Chamber of Comnerce of the United States, 1954), Chps. IX,
X, and XI; P. Williams, The Purchase of Medical Care
Through Fixed Periodic Payment (New York; National Bureau
of Economic Research, Inc., 1932).
4
G. F. McCleary, National Health Insurance (London:
H. K. Lewis and Company, Ltd., 1932), p. 11.
185
organizations— employee welfare associations, trade union
welfare associations, et cetera-'became vehicles of mutual
Insurance.
The direct forerunners of our present plans did not
appear In the United States until late In the nineteenth
century, when lumber and mining companies operating In the
North Central and North West states provided "contractual
service" for company employees and sometimes their fami
lies. Some companies entered Into a contract with one or
a group of doctors to provide complete medical services for
the employees In turn for a monthly fee that varied accord
ing to the number of employees. In the Pacific Northwest
"medical service bureaus" were organized who made contracts
with employers. However, because of the undesirable
character of some of these "medical service bureaus,"
county medical societies organized their own "medical
service bureaus." Then came the Blue Cross and the Blue
Shield which sparked the voluntary health Insurance move
ment. ^
Robert M. Cunningham, Jr., "Meeting the Costs of
Medical Care," Public Affairs Pamphlet. No. 218 (New York:
Public Affairs Committee, 1955), pp. 5-6.
' 186
Growth of health insurance. Although private health
Insurance had its beginning prior to 1850, any extensive
coverage in this field came only at a considerably later
time.
In the latter part of the nineteenth century com
mercial insurance was written to provide weekly cash bene
fits to cover major illness and surgical benefits. The
first disability policies were written on an individual
basis until 1911, when the first group life insurance poli
cies were written. In 1914, temporary disability benefits
were provided on a group basis.®
Practically all of the health and accident insurance
policies written prior to 1915 were limited in coverage,
✓
cancellable at the option of insurer (upon return of un
earned premium), and provided coverage for periods of one
year at a time.
In the field of commercial health and accident
insurance, the scope of coverage, as well as the number of
Margaret C. Klem and Margaret F. MeKiever, Manage
ment and Union Health and Medical Programs. U.S. Department
of Health, Education, and Welfare, Public Health Service,
Division of Occupational Health (Washington, D.C.: Govern
ment Printing Office, June 1953), p. 17.
187
persons covered, did not expand materially before the
period following the Second World War. With the develop*
ment of medical service prepayment plans, Insurance com
panies, and other developments*-which will be discussed at
length In the latter part of this chapter*-there came a
dramatic and rapid growth in the number of persons with
hospital, surgical, and regular medical insurance.^
According to Table XVI, the population coverage of
the various types of insurance and prepayment plans has
grown dramatically and rapidly between 1940 and 1961. As
Table XVI shows, in 1961, there were eleven times as many
people protected against hospital expense as at the end
of 1940; over twenty-three times as many people protected
against surgical expense as in 1940; and thirty-one times
as many people protected against regular medical expense
as in 1940.8
It should be pointed out that insurance against
hospital, surgical, and regular medical expenses did not
come into being, to any significant extent, at the same
time. For example, while hospital and surgical coverage
was developed in late 1930's and early 1940's, regular
medical expense and major medical expense coverage are of
recent origin.
g
Health Insurance Council, o p . cit.. pp. 10-14.
188
TABLE XVI
NUMBER OF PEOPLE PROTECTED FOR HOSPITAL, SURGICAL
AND REGULAR MEDICAL EXPENSE, 1940-1961
(Thousands)
End
of
Year
Hospital
Expense
Surgical
Expense
Regular
Medical
Expense
1940 12,312 5,350 3,000
1945 32,068 12,890 4,713
1950 76,369 54,156
21,589
1955 107,662 91,927 55,506
1956 115,949 101,325 64,891
1957 121,432 108,931 71,813
1958 123,038
111,435 75,395
1959 127,896 116,944 82,615
1960 131,962 121,045 87,541
1961 135,042 125,297 92,633
Source: Health Insurance Council, The Extent of Voluntary
Health Insurance Coverage In the United States (Chicago:
The Health Insurance Council, 1962), p. 10.
189
Among all voluntary health insurance plans, major
medical expense insurance has shown the most rapid growth
since its introduction in 1951. More than thirty-four
million persons were under major medical insurance by the
end of 1961, a 24 per cent increase over 1960.^ As indi
cated previously, major medical plans are characterized by
the deductible amount, co-insurance, and high maximum
benefits. They are either on a "supplementary" or a "com
prehensive" basis. On a supplementary basis, protection
for catastrophic conditions is provided as a complement to
basic hospital, surgical, and regular medical expense
protection already in force* Often, an uninsured margin
of medical expense— called the "corridor" amount— exists
between the basic and supplementary major medical expense
plan. This "corridor" amount functions as the deductible.
On the other hand, a comprehensive major medical plan pro
vides both basic and catastrophic protection with an ini
tial low deductible item.
Q
Insurance companies as well as many of Blue Cross
and Blue Shield plans offer major medical expense insurance
through group plans and individual policies. Since the
statistical data of major medical insurance plans relate
only to insurance companies, Table XVI did not include such
data.
^Health Insurance Council, op. cit.. pp. 19-21.
Another major development In the field of private
health Insurance has been the spectacular growth of group
Insurance policies. Since the statistical data which
differentiate between the individual and group policies are
not available for the prepayment plans, our analysis must
necessarily relate to the insurance companies only.
According to the Health Insurance Council, the proportions
of persons with group hospital, surgical, regular medical,
and major medical coverage in 1961 were 70, 71, 85, and
92 per cent respectively.11 Except regular and major
medical expense coverage, however, the rate of growth of
individual and group policies has been more or less the
12
same between 1940 and 1961.
The dramatic growth in voluntary health insurance
since 1940 has been the result of a number of factors:
(1) the wage stabilization regulations of World War II
permitted employers to grant certain health and welfare
benefits which included insurance payment for such pur
poses; (2) the extension of "fringe benefits" in the post
war period in collective bargaining. The expansion of
11Ibid.. pp. 12 and 21.
191
these "fringe benefits" has been caused by the pressure of
the organized labor through collective bargaining and the
ability of the Industry either to absorb and/or pass on
these benefits In price Increases, greater postwar economic
productivity, liberal Income tax treatment of employers'
contributions toward such benefits, and the effect of
National Labor Relations Board and the United States
Supreme Court decisions In making such benefits a routine
matter for collective bargaining; (3) an over-all Improve
ment In the Income position of the population; and (4) a
13
greater health consciousness of the nation.
Present Status
More than 135 million persons were covered by some
form of health Insurance or prepayment by the end of 1961.
*
At present, however, probably more than 140 million persons
have some form of health Insurance or prepayment coverage.
Table XVII summarizes the population coverage of
the various types of Insurance and prepayment plans as of
13
A. Norman Somers and Louis Schwartz, "Pension and
Welfare Plans, Gratuities or Compensation?" Industrial
and Labor Relations Review. October 1950, pp. 77-88;
Herman M. Somers and Anne R. Somers, Doctors. Patients and
Health Insurance (Washington, D.C.: The Brookings Institu
tion, 1961), pp. 226-227.
TABLE XVII
DISTRIBUTION OF HOSPITAL, SURGICAL, AND REGULAR MEDICAL EXPENSE COVERAGE
BY TYPE OF INSURING ORGANIZATION, DECEMBER 31, 1961
a
Type of Insuring Organisation
Hospital
Expense
Number of People Covered
(Thousands)
Surgical Regular
Expense Medical Expense
Insurance Companies:
Group Insurance 57,013 57,373 38,003
Individual-Policy Insurance 33.874 30.402 10.117
Unadjusted total 90,887 87,775 48,120
Deduction for duplication in persons with
insurance coapany protection 9,518 8.914 3.721
Net total for Insurance Companies 81,369 78,861 44,399
Blue Cross, Blue Shield and Medical Society Plans 58,797 50,120 46,190
Independent Plans 5.675 6.803 7.007
Grand Total 145,841 135,784 97,596
Deduction for duplication of persons protected
by more than one type of insuring organisation 10,799 10,487 4,963
Net Total of Persons Protected 135,042 125,297 92,633
Source: Health Insurance Council, The Extent of Voluntary Health Insurance Coverage in the United
States (Chicago: Health Insurance Council, 1962), p. 12.
193
December 31, 1961. According to this table, more than
135 million persons in 1961 had hospital expense Insurance.
More than 125 million people, or 93 per cent of those with
hospital expense coverage, were also protected against
surgical expenses. And, 92.5 million people, or 69 per
cent of those with hospital expense insurance, had regular
medical insurance coverage. In 1956, however, while 87 per
.cent of the persons under hospital expense protection had
surgical expense insurance, only 56 per cent of those with
hospital expense insurance were protected against regular
medical expense.^
Distribution of hospital, surgical, and regular
medical coverage bv type of insurance organization. Health
insurance contracts provided by insurance companies, Blue
Cross, Blue Shield, and Medical Society-approved plans
in 1961, protected over 96 per cent of the persons insured
under hospital, surgical, and regular medical expense
programs. The remaining 4 per cent of those similarly
covered were protected by various types of independent
plans such as industrial community, private group clinic,
^Health Insurance Council, op. clt., p. 4.
4
9
194
and college health programs.1^
So far as hospital expense coverage Is concerned,
81 million persons— or 56 per cent of the total number
covered--were protected by insurance companies. Fifty*
nine million people— or 40 per cent of the total number
covered--were so protected by Blue Cross, Blue Shield, and
other Medical Society-approved plans. Over 5.5 million
persons— or 4 per cent of the total number covered--were
so protected by independent plans.
Seventy-nine million people were protected by insur
ance companies against surgical expense— 58 per cent of the
total number covered. Blue Cross, Blue Shield, and other
Medical Society-approved plans provided surgical protection
for more than 50 million persons— or 37 per cent of the
total number covered. Over 6.5 million persons were so
protected by independent plans--5 per cent of the total
17
number covered.
Forty-six million persons— or 47 per cent of the
total number covered--were protected by Blue Cross,
16Ibid., p. 14.
15
Ibid.. pp. 12-15.
17
Ibid.
195
Blue Shield plans against the cost of regular medical
expense. More than 44 million people— or 45 per cent of
the total number covered— were so protected by Insurance
companies. More than 7 million persons were so protected
by Independent plans— 7 per cent of the total number
covered.
As noted previously, a recent development in the
field of health Insurance has been the dramatic growth of
major medical expense Insurance. Many Insurance companies
as well as a number of Blue Cross and Blue Shield plans
provide this type of coverage through group plans and
Individual policies. According to the Health Insurance
Council, more than 34 million people were under major
medical expense protection by the end of 1961— a 24 per
cent increase over 1960. However, statistics in this
section relate only to insurance companies, since no data
are available with respect to Blue Cross-Blue Shield
plans.
Health insurance and prepayment plans— the most im
portant voluntary means of financing medical care--can be
18Ibid.. p. 15.
^ Ibld., pp. 12 and 21.
196
traced back to early beginnings more than a century ago.
But most of the phenomenal growth In the scope of coverage
and In number of persons covered has taken place In the
postwar periods. More than 70 per cent of the nation*8
population now have some form of health insurance or pre~
payment coverage of the costs of medical care. Current
trends point to a continued expansion in the numbers of
persons covered by health insurance and prepayment plans
as well as to a broadening in the scope of coverage. Yet,
an objective evaluation of voluntary health insurance and
prepayment plans should not only consider the numbers of
*
persons covered, but also the scope of coverage— a subject
which will be briefly examined here.
The scone of coverage. The preceding discussion
showed a spectacular growth in the number of persons
covered by voluntary health insurance. But the estimates
of ntanber of persons covered indicate the numbers "reached,"
but not necessarily covered by health insurance. The
extent of insurance and prepayment coverage of medical
charges may not be known simply from an examination of
the number of persons having some form of health
197
20
Insurance coverage.
Generally speaking, two measures of Insurance cover
age are utilized: (1) the percentage of the total medical
charges covered by insurance; and (2) the difference in
coverage of charges for particular services. Regardless of
which of these two measures is taken, there is a general
agreement that except in a few cases, present insurance
coverage is not broad enough to provide adequate protec
tion. No one advocates a 100 per cent coverage, for, how
ever attractive this may be, it is an impractical goal.
Health insurance plans must contain some restrictions;
otherwise, demand becomes excessive, doctors become over
burdened, the quality of care diminishes, and those who
need medical care are confronted with shortages and delays.
However, as one report indicates:
The objectives of a medical care insurance system
are to provide . . . ready access to essential
preventive and curative medical services [italics
not In original] for insured persons and their
families and to protect the Insured population
against the uneven and unpredictable costs of such
services.
2 Michael H. Davis, Medical Care for Tomorrow (New
York: Harper and Brothers, 1955), p. 252.
21The Bureau of Research and Statistics, Social
Security Board, Medical Care Insurance: A Social Insurance
Program for Personal Health Services (Washington, D.C.:
Government Printing Office, 1948), p. 3.
The number of persons covered by voluntary health
insurance has shown a spectacular growth in the last two
decades. The amount of hospital-surgical-medical benefits
has also increased substantially in the last two decades.
Between 1956-61/ for example, hospital-surgical-medical
benefits Increased 85*9 per cent for insurance companies
and the "Blues" and 94 per cent for independent plans, with
an average increase of 13 per cent between 1960-61. Yet,
in 1959, the health insurance policies paid only 24 per
cent of $18.3 billion of the nation's expenditures on
medical care. This is basically due to the fact that many
items in medical care— adding to about one-half of the
total bill— are not considered insurable by either the
insurance companies or the "Blues." Most of these health
insurance policies are primarily designed to cover the
costs of hospital services and the physicians' and surgeons'
fees. Statistics show that health insurance has paid only
22
34 per cent of even these charges.
The failure of health insurance policies to pay all
the costs of medical care that people suppose they cover
.^Roland H. Berg, "The Battle for Your Health
Dollar," Look. XXV (April 11, 1961), 24.
does not mean that companies are cheating. Each policy
spells out in great detail specific conditions for which
the coverage is provided or not. Every insurance company
designs its own health Insurance policy enumerating the
various limitations of its liabilities. This is also true
of seventy-eight Blue Cross plans which are quite separate
as far as coverage is concerned. Generally speaking, Blue
Cross plans exclude diagnostic in-patient admission, out
patient care, and exclude such conditions as alcoholism,
communicable diseases, tuberculosis, and so forth. In
1958, only seven of thirty-one Blue Cross plans with more
than 500,000 members provided for mental illness. As indi
cated, except for a few large group contracts, Blue Cross
excludes diagnostic care even if as Dr. MacLean points out,
"It’s a lot cheaper to treat patients on the hoof than
between the sheets."2^
Since there are seventy-eight separate Blue Cross
plans in the country each writing its own policies, vari
ations in coverage are almost limitless. Some plans pro
vide for 180 days of hospitalization, while others pay
23Ibid.. p. 29
200
for as little as 31 days. Ambulance services, diagnostic
X-rays, anesthesia, and blood transfusions are provided
under some plans and excluded under others. Some plans pay
for oxygen, while ethers exclude it. In some cities, Blue
Cross will pay full maternity costs, while in others, it
pays a maximum of only $60. These limitations, which are
only a few examples, are often confusing and stunning to
Blue Cross policy holders who mostly feel that Blue Cross
plan being a "service-benefit" arrangement provides for
everything.
The limitations are costly and confusing under Blue
Shield plans. Patients are often charged double, triple
or even quadruple the amount that the policy allows for a
particular operation. Stipulated fees are binding only if
the policy holder's income is below a certain limit which
varies from $2,400 up to $9,000 with most of the policies
having a $5,000 limit. Sir e more than one-hal¥ of policy
holders earn more than $5,000, they are not getting the
protection that they think they are getting.^
In short, while the extent of coverage varies from
service to service— about 60 per cent of hospital bills and
^Ibid., p. 26.
201
one-third of physicians' fees are paid through insurance—
"co-insurance," "deductible," "exclusion,” "experience
rating," and the costs of nongroup policies have limited
25
the effectiveness of their coverage. Moreover, as
Dr. Trussell and Professor Van Dyke have pointed out,
private insurance plans fail to assure the patients of
adequate medical care by paying insurance indemnities to
inadequately-trained doctors, particularly in the state
of New York. For example, only 61 per cent of operations
covered by Blue Shield in New York were done by qualified
surgeons compared with 84 per cent under the Health Insur-
ance Plan of Greater New York. Medical profession has
25
Experience rating is the practice of setting a
rate for a group based on the benefits paid to that group.
This shifts added social and economic costs to the
community-rated plans or the community as a whole which
must somehow pay for the costs of the illness of the needy.
Conmunity rating, on the other hand, is when an insurance
agency charges the same premiums for the same benefits to
all Individuals and groups regardless of the sex, age, and
the cost experience of the Insured. See Agnes W. Brewster,
"Voluntary Health Insurance and Private Medical Care
Expenditures," Social Security Bulletin. XXIII (December,
1960), 11; Frank Van Dyke and Ray E. Trussell, "Voluntary
Health Insurance as a Mechanism for Meeting Health Needs,"
The Annals of the American Academy of Political and Social
Science. Thorsteln Sellln, ed. (Philadelphia: The American
Academy of Political and Social Science, 1961), vol. 337,
pp. 70-80.
202
opposed an attempt by Blue Shield to limit its payments to
qualified specialists. It should be pointed out, how
ever, that the coverage of the portions covered is excel
lent, being close to 90 per cent of the total medical
charges by most of the plans.
In view of the limited scope of coverage of most of
health Insurance policies, many have pointed to the rapid
development of comprehensive health Insurance and compre
hensive prepayment plans such as the closed-panel plans of
the Health Insurance Plan of Greater New York and Group
Health Insurance, and other major medical insurance plans
such as Metropolitan-General Electric policy, New Jersey
Blue Cross-Blue Shield plan, Kaiser Foundation Health plan,
and several others. These prepaid comprehensive medical
insurance plans have grown from 100,000 enrollment in 1951
to 22 million In 1959. Yet, two basic difficulties remain
with these plans. First, they are limited to a few geo
graphical areas and cover relatively a small portion of
all health Insurance enrollees. Secondly, the most compre
hensive prepayment plans in existence "cover no more than
26
"Insurance for What?" Newsweek. IX (October 15,
1962), 74.
203
50 per cent of the costs of the whole range of personal
health services . . . except a few that have added dental
27
benefits." According to the Health Information Founda
tion, the Health Insurance Plan of Greater New York and
Group Health Insurance meet only about one-third of the
total medical-care expenditures of their members. Although
this Is far better than health Insurance as a whole Is
doing, It Is still a long way from comprehensive coverage.
The growth and the development of comprehensive pre
payment have been quite promising as a means of meeting the
health needs of the Americans. Yet, It has not kept pace
with the general Increase In health Insurance enrollment.
As a general mechanism for meeting health needs, comprehen
sive prepayment plans remain limited to a few geographical
areas, primarily along the eastern and western seaboards,
and cover no more than 2 to 3 per cent of all health Insur
ance enrollees. This slow rate of growth Is basically
27
0. W. Anderson and J. J. Feldman, Family Medical
Costs and Voluntary Health Insurance: A Nationwide Survey
(New York: Health Information Foundation, 1956), p. 24.
28
0. W. Anderson and P. B. Sheatsley, Comprehensive
Medical Insurance: A Study of Costs. Use, and Attitudes
Under Two Plans (New York: Health Information Foundation,
1959).
204
attributable to the opposition of organized medicine and
29
slow public acceptance.
In conclusion it should be pointed out that while
the total membership of voluntary health insurance is quite
Impressive, benefits and coverage are limited. Those who
proudly point to the spectacular increase in the number of
the Americans with health insurance of one form or another,
often fail to indicate that these health Insurance policies
on the average pay for relatively a small portion of the
total private medical-care expenditures. This is an im
portant point to bear in mind since the estimates of number
of persons covered only show the numbers "reached," but
not necessarily covered by health insurance.
III. HEALTH INSURANCE FOR THE AGED
Because of high medical-care costs of the aged,
voluntary health insurance has thus far failed to make
29
For an extensive treatment of comprehensive pre
payment plan, see Anne R. Somers, "Comprehensive Prepayment
Plans as a Mechanism for Meeting Health Needs," The Annals
of the American Academy of Political and Social Science.
Thorsten Sellin, ed. (Philadelphia: The American Academy of
Political and Social Science, 1961), vol. 337, pp. 81-92;
for a brief account of Kaiser Medical Plan, see "Prepaid
Medical Care: Nation's Biggest Private Plan," Time. LXXXI
(September 14, 1962), 64-65.
>
205
a major contribution toward meeting these costs. While for
a long time health insurance companies were reluctant to
enter the field of the aged, recently the Industry has made
an attempt to cope with this difficult problem. The cur*
rent Insurance programs for the aged could be classified
into the following forms: (1) continuation of insurance
on employed older workers under group insurance plans;
(2) continuation of group Insurance for retired pensioners;
(3) conversion from group to individual Insurance on
termination of employment or membership in the insured
group; (4) group insurance to special groups of the aged;
(5) continuation of insurance after 65 of individual insur-
ance policies purchased at younger ages; (6) issuance of
individual insurance policies for the aged; and (7) issu
ance of individual insurance policies to younger people
that become paid up at 65.
A precise evaluation of these various programs is
difficult because of lack of comparable data. However,
certain facts are available and certain conclusions can be
drawn.
30
Somers and Somers, op. cit.. p. 433.
206
Current Health Insurance Programs for the Aged
A brief examination of different health insurance
plans for the aged presently in existence is necessary to
shed some light on the role of voluntary health insurance
in meeting the medical-care costs of the older persons.
No attempt will be made to identify the sources of these
health insurance plans, namely, commercial insurance com
panies, the "Blues," or the independent plans— except for
random references. It is realized that an examination of
the sources of health insurance for the aged, particularly
with respect to the methods of financing, types of bene
fits, eligibility standards and other related factors, is
quite important. Yet, an examination of the sources of
health insurance for the aged will take this chapter beyond
its intended scope and will complicate the issue further.
Continuation of insurance for the employed aged
under group insurance plan. Generally speaking, all types
of carriers now allow this kind of arrangement. While at
the end of 1959 three million aged persons were employed,
For a comprehensive account of the source of
health insurance in general, see references given in foot
note 3 of this chapter.
207
not more then one-fifth of these were covered by employee
health Insurance. This is due to the fact that not only
40 to 50 per cent of these aged were self-employed, but also
one-third worked part time and generally could not qualify
for regular employee health Insurance.
The relative Importance of this source of health
Insurance for the aged depends upon the market demand for
labor, on Industrial retirement policies, and on the
ability of aged persons to continue at work. In spite of
the continuing liberalization of the OASDI retirement test
and long-run trend toward employment of older women, the
proportion of the employed aged has been steadily declining,
particularly when the increasing proportion of those 75 and
over is taken into consideration.^
Continuation of group Insurance for retired pen
sioners. A marked advance has been made In this area.
A 1959 survey of 300 major collectively bargained health
plans, each with at least a membership of one thousand
workers, shows that 40 per cent continued hospital coverage
32
Somers and Somers, op. cit.. p. 434.
208
for retired workers, and usually their dependents. The
advantages of this insurance program for the insured person
are the economies inherent in remaining under a group
policy, payment of a part or all of the cost of Insurance
by the employer, and more adequate coverage. ^
The main difficulties with this type of program,
however, are two. First', coverage is almost always tied
to the retired worker's ability to qualify for a pension.
The usual length-of-service or length-of-coverage require
ment of ten to fifteen years probably disqualifies 50 per
cent of those who are covered. Furthermore, only one-third
of all employees were covered by private pension or profit-
sharing plans at the end of 1958. Of the 1 1/4 million
aged receiving private pensions in 1958 less than one-
fourth had pension-related group medical care coverage.^
33
U.S. Bureau of Labor Statistics, Health Insurance
Plans under Collective Bargaining; Hospital Benefits Earlv
1959. Bulletin 1274 (Washington, D.C.: Government Printing
Office, 1960), pp. 25-28.
34
In one-third of the surveyed plans, the retired
workers paid the full costs of insurance. In two-fifths of
the plans, benefits were somewhat reduced.
35
A. H. Skolnlk, "Employee-Benefit Plans, 1954-58,”
Social Security Bulletin. March 1960, p. 4, cited by
Somers and Somers, op. cit.. pp. 434-435.
209
Secondly, the biggest problem of this type of plan Is the
formidable cost of financing the program to the industry,
particularly as the ratio of covered pensioners to active
employees increases. Two solutions to the problem of
costs have been suggested, none of which seems to be satis*
factory. One solution suggests a "level premium" for the
working life of the Insured and "advance funding" to pro*
vide adequate reserves to meet the costs on a "paid-up-
at-retirement" basis. This, however, is difficult to carry
out when employees change jobs frequently. The other solu
tion to the cost problem is to restrict benefits. With
already llfetljne limits, any further restriction of bene*
fits would make this type of insurance program completely
. 36
useless.
It appears, therefore, that "this type of coverage
. . . [has] its brightest future as a supplementary program
rather than as an attempt to provide adequate coverage by
37
itself."
Conversion from group to individual coverage. This
mechanism is primarily used by the "Blues" and by a number
36
Somers and Somers, op. cit., pp. 434*435.
37Ibld., p. 435.
of the independents. Group conversion is available only to
those who have participated in group for a specific length
of time. It is more expensive than group insurance. In
1959, for example, the group conversion plan of Blue Cross*
Blue Shield hospital-surgical-medical family coverage cost
$18.60 more than group contract on the average. In 1958,
the median additional premium cost of Blue Cross group
conversion contracts over group contracts for one person,
in plans not reducing benefits, was $9.60, ranging from
zero to $55.56.^
Although group conversion policies generally provide
the aged with more generous benefits than other available
health insurance programs, it Involves p high cost, par
ticularly since the aged loses the advantage of employer
contributions. The higher cost together with reduced
income have forced a great number of the aged not to con
vert their policies.^
38
U.S. Social Security Administration, Division of
Program Research, "Blue Cross Provisions for Persons Aged
65 and Over, Late 1958/' Research and Statistics Mote No. 5
(Washington, D.C.: Government Printing Office, 1959),
Table 5.
39
According to the experience of the Health Insur
ance Plan of Greater Hew York during 1952-54, only 37 per
cent of those aged who had the privilege converted. Even
211
Group conversion has worked well In the "Blues”
plans mostly because of their "coomunity-rating" system of
premiums. This, however, has created two problems, one for
the "Blues" and one for the younger policy holders. By
providing group conversion contracts to the aged, the
"Blues" have placed themselves at a disadvantage with
"experience“rating" competitors and thus are facing growing
financial difficulties. Moreover, by including the high
risk and high medical-care costs aged with younger people
under one commmity contract, e part of the medical-care
costs of the aged is being paid by the low risk and low
cost younger insured— a hidden taxation of the younger
Insured and a subsidization of the aged by the "Blues."
It is very doubtful that group conversion can work
satisfactorily without commmity rating. That is why most
of the experience-rated commercial insurance policies have
not made great strides In this direction. Whenever an
experience-rated commercial insurance company provides for
group conversion, it is often with substantial restriction
among those who converted the majority dropped their
insurance within three years. S. Shapiro and M. Einhom,
"Experience with Older Members in a Prepaid Medical Care
Plan," Public Health Reports. August 1958, p. 681.
212
40
of benefits and Increased premluns.
Although future developments could make the group
conversion plans as a major source of health Insurance for
the aged, presently, however, It appears as a supplementary
mechanism.
Group Insurance for social groups of the aged. This
is a very recent development. The benefits and rates are
generally more favorable than those available under ordi
nary individual policies, though less so than those under
pensioners' programs or group conversion.
One well-known example of this type of program is
the policy for "Emeriti," a national organization of
retired college teachers. The contract generally speaking
provides up to $15 a day for the first 31 days, $7.50
per day for the next 90 days, and ancillary services on
40
In 1960 the New York Insurance law was amended to
include mandatory conversion right, without evidence of
Insurability at a level premium rate set by the state.
However, the legislation failed to adopt the New York
Insurance Department recommendation of maintaining the same
benefits and premiums as under group policy. Although the
aged under this new law in New York have the guaranteed
right of buying some individual insurance with somewhat a
control of cost, the Initial cost Is so high that many aged
cannot afford it. New York Times (April 27, 1960), cited
by Somers and Somers, o p. cit.. pp. 436-437.
213
a 50*50 basis up to a maximum of $120. There Is a $200
maximum surgical schedule; in-hospltal medical visits are
reimbursed at the rate of $3 per call during the first
31 days In the hospital, with a $120 in emergency hospital
care. Pre-existing conditions are covered except during
the first year. The cost of this Insurance for one person
is $96 per year.***
Although this program provides certain amounts of
protection to some groups of the aged, It is not very
practical for reaching the poor risks or those who were
never eligible for group coverage. Moreover, coverage is
quite limited.
Continuation of Individual insurance after 65.
Although this method of Insurance is capable of reaching
some aged persons, the numerous eligibility requirements,
higher costs, and other limitations such as cancellation,
"waivers," "riders," tend to exclude those who are already
excluded from group coverage, namely, the chronically ill,
the casual worker, the unemployed, and the aged.
41
Somers and Somers, op. cit.. p. 438.
Blue Cross and Blue Shield plans are far better
source of this type of insurance than most of the com
mercial carriers. The "open enrollment" policy of forty-
seven Blue Cross plans together with periodic comnunity
campaigns by some others have lessened the Initial eligi
bility requirements for this type of coverage. In addition
to the eligibility requirements, the "Blue" plans provide
a greater assurance of continued coverage. Finally, the
nongroup benefits and subscription rates of the "Blue"
plans are about the same as those of group conversion
plans. In fact, "premiums for 1959 averaged about 9 per
cent higher than group rates."^
The superiority of the "Blues" to continue indi
vidual insurance after 65 with such a broad and favorable
terms is basically the result of community rating. It
should be pointed out, however, that under community-rating
system a part of high medical cost of the aged is defrayed
to and paid by the younger members of the community plan.
Although data are not available, it is doubtful that the
"Blue" plan could continue individual insurance to the aged
42Ibid., p. 439
215
with liberal eligibility requirements, broad benefits, and
relatively low costs without running Into financial diffi
culties, unless the community Is footing a part of the
bill.
This can be further seen by the experience of most
commercial underwriters where the
. . . loss of protection by the aged— as a result of
automatic policy termination due to age limits, or by
cancellation, nonrenewal, reclsion, or restriction
of previous benefits by superimposed rider or waiver—
is the rule than the exception. ^
According to the New York Insurance Department, 52 per cent
of the most popular policies sold by insurance companies
in 1956 terminated automatically at age 65. Moreover, only
1 per cent of 1.5 million people who had this type of
coverage had a lifetime, noncancellable or guaranteed
renewable policy. Based upon this study the Insurance Law
of New York was amended to prohibit any insurer to cancel
a policy after two years only for reasons of deterioration
of health. As the New York Department of Insurance, how
ever, pointed out the relatively high cost ($277 annually
for an aged couple) would seem to price this form of
43
Ibid.
216
coverage out of the market for low-income families and
many in the middle income brackets.^
It seems clear, therefore, that this type of cover
age cannot contribute much toward alleviating the high
medical costs of the aged, particularly when it is realized
that the benefit provisions of this type of policy would
probably meet less than one-fourth of total medical costs.
New individual insurance after 65. According to
a survey by the New York Insurance Department in 1956,
80 per cent of the most popular policies sold by insurance
companies had a maximum issue age of 65 or less. About
68 per cent could not be issued after 60. None of the
"Blue" plans in New York issued individual certificates
45
after 65.
As the public sentiment in favor of government
intervention for the medical care of the aged rose, great
efforts, particularly by the American Medical Association,
were made to remedy this situation. Attempts have been
^ Ibid., pp. 439~441.
45
Voluntary Health Insurance and the Senior Citizen
(Albany: New York Insurance Department, 1958), pp. 31-32.
217
made to liberalize the "Blue** plans enrollment regulations,
1
either by keeping regular nongroup enrollment open into the
later years or by setting up special "senior certificates."
According to Agnes Brewster, by 1959, thirty-eight Blue
Cross and thirty-two Blue Shield plans adopted one of the
above two proposals.^
\
Since the main purpose of the "senior certificates"
was to make coverage available at low cost, benefits are
generally lower too, except in some Blue Shield contracts,
where the reduction in premiums was made possible by the
use of lower fee schedules for participating doctors.
This, however, has received a great deal of opposition from
medical societies and an outright rejection in Oklahoma and
Texas. The combined Blue Cross-Blue Shield cost ranged,
in 1959, from $72 to $130 a year per person.
Recently, two insurance companies, Continental
Casualty and Mutual of Omaha, have developed the new
”65-plus" contracts through advertising campaigns. The
Continental Casualty contracts provide up to $10 a day
46
Agnes W. Brewster, "The New Look in Health Insur
ance for Senior Citizens," Address to American Public
Welfare Association, December 1959, p. 5. (Mimeographed.)
218
for 31 days of hospital care for each confinement separated
by six months, up to $100 for ancillary services, and a
47
$200 surgical fee schedule, at the cost of $78 a year.
The Mutual of Omaha policy provides up to $10 a day
for 60 days of hospitalization, $5 a day for nursing home
care if it follows five days of hospitalization for a total
of 60 days; 80 per cent of ancillary services after $100
deductible up to $1,000, and a $225 surgical schedule.
The cost is $102 annually.48
The two plans have applied group underwriting tech
niques to nongroup individuals and hence provide better
value than most other available policies. No health exami
nation is necessary and pre-existing conditions are covered
after six months. By the use of several economies, such
as direct advertising and elimination of salesmen and
billing the policyholders once a year, though he must pay
every month, they have been able to cut the costs.
Although these efforts represent progress, there is no
sign of general adoption of this type of policy throughout
47
Somers and Somers, op. cit.. p. 442.
48Ibid.. pp. 442-443.
219
the Industry. Although no enrollment data are available
from either company, as of late 1959 the total number of
"65-plus" policies sold by Continental Casualty was esti
mated at 100,000 to 150,000.
The slow public response to these policies was due
to a number of factors: (1) the scope of benefits of these
policies is quite limited particularly in view of high
incidence of illness of the aged; (2) although efforts have
been made to provide low cost health insurance for the
aged, even this cost prices a great number of low-lncome
aged out of the market; and (3) short periodic enrollment
campaigns which are intended* to reduce "adverse selection"
often does not give enough opportunity to the aged to
become aware of these policies and thus purchase one.
Recently in response to the medical care plan for
the aged through the Social Security, the American Medical
Association and other private medical groups began putting
together a two-part plan to provide low cost medical and
hospital insurance for the aged. Under the medical insur
ance, every aged person could get medical and surgical
insurance, regardless of his physical condition, from Blue
Shield. This insurance provides full payment of surgeons'
fees, and physicians' fees for visits to hospitals and
nursing homes, anesthesia, X-ray examination, laboratory
tests, and pathological services in a hospital or nursing
home. The monthly premium for the new insurance would be
$3 per person, with single persons with incomes above
$2,500 a year, and married couples with incomes over $4,000
having to pay their physicians something extra. The
doctors' plan would operate without Federal subsidy.^
The second part of the plan— hospital insurance—
is being worked out by the American Hospital Association
and Blue Cross. Although the details of the plan have not
been determined yet, the premium charges may range around
$10 to $12 a month per person. Under this plan, all hos
pital or nursing-home expenses would be covered by insur
ance without any deductible. The plan may call for Federal
payment of part of the actual hospital expenses for thoss
who need help.^
No exact evaluation of the "doctors' plan" for the
medical Insurance of the aged can be made, since the exact
49
"Care for the Aged— Doctors' Answer," U.S. News
and World Report. LII (January 29, 1962), 7.
50Ibid.
detail of the plan has not been worked out yet. Neverthe
less, a few interesting points can be made. In the first
place, there seems to be a number of inconsistencies and
conditions involved in the "doctors' plan." For example,
speaking of medical-care insurance plan, Dr. F. J. L.
Blaslngame, the vice-president of the American Medical
Association, states, "This contract will provide for the
payment in full [italics not in original] of physicians'
and surgeons* fees. . . ."■** Yet, he gofs on to say later
that "there will be some [italics not in original] limita-
52
tions (on the benefits)." Not only are these two state
ments contradictory, no one seems to know what Dr. Blasln
game means by some limitations on benefits, since some
could mean any amount. Secondly, the Doctors* Medical
Insurance plan depends, according to Dr. Blaslngame, on
doctors' co-operation. Experience with the "senior
certificates" and the opposition of most medical societies
and the outright rejection of some doctors do not seem
0
5 Fight Ahead Over Medical Care for the Aged: The
Doctors' Plan," U.S. News and World Report. LII (Febru
ary 5, 1962), 67.
52Ibid.
222
to share Dr. Blaslngame*s optimism. Finally, the hospital
plan of the "doctors* plan" seems to rely on Federal subsi
dies— a point which will be discussed fully in the latter
part of this chapter and the next one.
Insurance policies paid up at 65. This method of
insurance is underwritten by a few companies. The Imprac
ticability of this method of insurance discounts it as a
means of providing health Insurance for the aged. There
are two basic problems with this type of health insurance.
First, if this policy is bought
... at a young age, initial costs would be rela
tively high, and the proportion of medical expenses
that would be met in later years would depend on the
trend in medical costs, since there is a fixed scale
of monetary benefits. A policy written in terms of
1940 hospital prices, for example, would be almost
worthless now.53
Secondly, if such a policy is purchased only a few
years before retirement the cost is quite high. A typical
policy of this kind, for example, providing up to $10 a day
I
for 365 days to age 65 and 90 days of hospitalization
thereafter, up to $150 in ancillary services, and a $200
surgical schedule, costs $223 a year for males if purchased
53
Somers and Somers, op. cit., p. 443.
223
at age 59. With $20 a day hospitalization benefit, the
cost is $325."*^
Thus this method of insurance is by far less capable
of meeting the health needs of the aged.
IV. THE EXTENT OF HEALTH INSURANCE FOR THE AGED
As previously noted, over 70 per cent of the total
population of the United States have some form of voluntary
health insurance. The proportions insured vary with age,
sex, income, and geographical location. At no period of
life, however, the proportion Insured is as low as among
V
the aged. This together with the greater medical needs and
lessened economic capacity of the aged has posed one of the
greatest problems in the field of medical care and medical
economics.
Lack of comprehensive and up-to-date data prevent
a comprehensive examination of the extent of health insur
ance among the aged. A number of relevant facts, however,
could be brought out.
5^lbid., pp. 443-444.
224
The Extent of Health Insurance Among the Aged
Although great strides have been made to provide
health Insurance for the aged, they remain the most Inade
quately protected age group. According to Table XVIII the
proportion of the population with some Insurance falls-off
sharply at the age of 65 and over. As Table XIX shows,
there Is a further sharp fall-off as the aged progressed
In years ranging from 53 per cent for 65-74 to 32 per cent
for those 75 and over.
In 1959, 46 per cent of "nonlnstltutlonal" aged had
some hospital Insurance, 37 per cent surgical coverage,
with only 10 per cent having coverage for physicians'
services. It is estimated that only one-third of the aged
have group insurance; the others must rely on the far less
adequate and more expensive individual policies.^
A more complete picture of the extent of voluntary
health insurance according to age, race, sex, and employ
ment for 1956 appears in Table XIX. Although a number
of changes have taken place with respect to the extent
“ *^U.S. Public Health Service, Health Statistics from
the U.S. National Health Survey: Interim Report on Health
Insurance. Publication 584-826 (Washington, D.C.: Govern
ment Printing Office, 1960), Table 9, p. 10.
225
TABLE XVIII
THE EXTENT OF VOLUNTARY HEALTH INSURANCE
ACCORDING TO THE AGE, 1959
Age Percentage Covered
Under 6 67
6-17 67
18-24 57
25-34 70
35-44 73
45-54 70
55-64 63
65 and over 43
Source: Health Information Foundation, Progress In Health
Services (New York: Health Information Foundation, 1959).
TABLE XIX
PER CENT OF NON INSTITUTIONAL POPULATION WITH HEALTH INSURANCE AT AGES 65 AND OVER, BY SEX,
ACCORDING TO TYPE OF COVERAGE, RACE, MARITAL STATUS, AND LABOR FORCE STATUS,
UNITED STATES, SEPTEMBER, 1956
Characteristic
Males Females
65 and
Over 65-69 70-74
75 and
Over
65 and
Over 65-69 70-74
75 and
Over
Type of coverage, total 39.2 49.8 39.5 25.3 34.2 45.5 33.6 22.5
Hospital only 8.8 10.6 8.6 6.8 8.2 10.3 7.1 6.8
Hospital and surgical 27.1 34.7 27.4 17.1 23.4 31.6 24.5 13.7
Other* 3.3 4.5 3.5 1.4 2.6 3.6 2.0 2.0
Not insured 60.8 50.2 60.5 74.7 65.8 54.5 66.4 77.5
Race
White 40.8 52.1 41.5 25.9 35.5 46.8v 35. L 23.5
Nonwhite 18.1 19.2 17.5 17.3b 16.6 26.2b 14.2b 8.3
Marital status
Married 44.2 54.5 44.7 26.4 40.9 50.6 36.1 23.3
Not married 27.7 33.7 26.5 24.3 30.5 40.8 32.0 22.2
Labor force status
In labor force 50.8 58.3 46.9 33.0 48.3 54.1 41.7b 33.3b
Not in labor force 31.1 38.6 34.8 23.2 32.4 43.5 32.7 22.1
~Hospitalisation and surgical expense plus other insurance.
Per cent based on small sample*
Source: Agnes W. Brewster, "Health Insurance Coverage by Age and Sex, September 1956," Research and
Statistics Mote No. 13, Division of Program Research, Social Security Administration, May 21, 1958;
Agnes W. Brewster, "Health Insurance in the Population 65 and Over," Research and Statistics Note
No. 17. Division of Program Research, Social Security Administration, June 11, 1958; Agnes W. Brewster
and L. M. Kramer, "Health Insurance and Hospital Use Related to Marital Status," Public Health Report.
Vol. 74, August, 1959, p. 721. Reproduced from Mortimer Spiegelman, Ensuring Medical Care for the
Aged (Homewood, Illinois: Richard D. Irwin, Inc., 1960), p. 206.
226
227
of health insurance coverage for the aged, it is doubtful
that these changes have been so fundamental as to make
this table completely out of date.
Table XIX reveals a number of factors. First,
throughout the higher ages, larger proportions of the mar
ried aged than of the unmarried are insured. However, this
differential practically disappears at ages 75 and over.
Second, a greater proportion of the aged who remain in the
labor force have health insurance coverage. Thus, while
about half of the employed aged were insured, only one-
third of the unemployed or retired aged had any health
insurance coverage. Third, the proportion of the aged
covered by health insurance "... rises with the Income
of the families with which they live or with their own
income if living without relatives in the household."
According to one survey while only a little over one-sixth
of the aged in families with an annual income of less than
$1,000 had some health insurance, about one-half of those
with the annual income of $3,000 or more had health
Stortimer Splegelman, Ensuring Medical Care for the
Aged (Homewood, Illinois: Richard D. Irwin, Inc., 1960),
p. 208.
228
Insurance, coverage. ^ A 1957 survey of aged OASDI bene
ficiaries showed a similar variation of insurance coverage
with income. While the aged couples with an annual money
income of less than $1,200, only 20.5 per cent had hos
pitalization insurance and 15.7 per cent had surgical or
medical insurance, for those with an annual income of
$5,000 or more the respective proportions were 65 and
c/ ^ 58
54 per cent.
It should be concluded that while a number of sur
veys indicated a rising health insurance coverage trend for
the aged, this segment of the population who needs the
protection most are least adequately protected. An evalu
ation of the extent of health insurance for the aged must
not only consider the number "reached," but also the extent
of coverage.
A. W. Brewster, "Health Insurance in the Popula
tion 65 and Over," Research and Statistics Note No. 17
Division of Program Research, Social Security Administra
tion, June 11, 1958.
58
Hospitalization Insurance for OASDI Beneficiaries.
Report Submitted to the Committee on Ways and Means by the
Secretary of Health, Education, and Welfare (Washington,
D.C.: Government Printing Office, 1959), p. 46.
229
The Scope of Coverage
The extent of health Insurance coverage Is only
meaningful when related to the adequacy of benefits. There
Is no comprehensive data on the extent of benefit coverage.
The fragmentary data available suggest "that health insur
ance does not meet more than one-sixth of total medical
costs of the Insured or one-fourteenth of the total for all
59
the aged." This is basically due to the fact that "most
of the policies sold to the aged are severely circum
scribed compared to those held by younger people," "about
one-third of the aged have some protection for surgical
fees . . . only one out of ten has coverage for other
physicians1 services," and "the extraordinary drug costs—
2 1/2 times those of other age groups--are almost never
covered."^
No one advocates 100 per cent medical expense cover
age. To be meaningful according to one source, it should
meet 75 per cent of an aged person*s medical expenses, it
ought to cover at least 85 per cent of the aged population
Somers and Somers, op. cit.. p. 445.
60Ibid., p. 444.
230
with a premium within 12 per cent Income of an average
aged person. However, ''the probable average level-premium
required for 75 per cent protection, with 12 per cent of
Income, would exclude more than three-quarters of this age
„61
group."
Thus the coverage that an average aged person can
afford to buy offers very little protection. In fact, in
a 1957 survey by Health Information Foundation when a
sample of the aged was asked how "would you manage a medi
cal bill of $500 or more?" while 39 per cent were reported
to have some health insurance at the time, only 7.6 per
cent mentioned it as a source of funds to pay a large
bill.62
The health insurance industry cannot be blamed for
this dilemma, for the industry has offered almost any kind
of policy with different scope of benefits at different
costs. The trouble with most of the aged is that "the
coverage they can afford to buy offers very little
6^For a detailed explanation of this statement, see
ibid., p. 445.
62
Ethel Shanas, Financial Resources of the Aging.
Research Series No. 10 (New York: The Health Information
Foundation, 1959), Table 9, p. 10.
231
protection. The coverage they need, private Insurance
63
cannot offer at an actuarially sound price.”
Undoubtedly, effective health insurance for the aged
requires significant defraying of costs to other segments
of the population. While Blue Cross and most of inde
pendent plans are doing this by using a community-rating
system, yet this involves certain problems. First, the
competition from the experience-rating insurance companies
has put most of the Blue Cross and independent plans in
great financial difficulties which increasingly threaten
their capacity to continue community-rating system.
Secondly, the voluntary nature of private insurance ”pre
cludes the authority required to merge the costs of a
special high-cost low-lncome group with balancing sectors
64
of the population." Finally, some might question the
equity and justification of hidden taxation of younger mem
bers of a community to finance partially the medical care
of the aged. It is argued that if this is necessary, it
should be done in the open.
V
63
Somers and Somers, on. cit.. p. 446.
V. S1M1ARY
232
The spectacular growth of voluntary health Insurance
plans In the last few decades has eased the burden of the
uneven and unpredictable medical care. Yet, a larger
number of people— the aged, low-lncome families, and the
unemployed--who need the protection most have the least
protection.
Moreover, while great strides have taken place, much
improvement remains in achieving adequate coverage, for the
estimates of the number of persons covered show the number
"reached," but not necessarily covered. Comprehensive
prepayment plans are limited to a few geographical areas
and cover no more than 2 to 3 per cent of all health insur
ance enrollees. Even comprehensive prepayment plans cover
no more than 50 per cent of all personal health care costs.
A
The degree to which private health insurance can
itself meet the challenge of the modern medical care will
in large be determined by costs. The private health insur
ance Is already facing a cost crisis. For example, the
median price of the most prevalent Blue Cross group hos
pitalization certificates family rate in the United States
increased 112 per cent between 1950 and 1958. More or less
233
the same pattern emerges for comnercial insurance carriers.
These price rises constitute a formidable barrier to
the solution of the two great challenges facing private
health insurance, namely, increased enrollment and expanded
benefit coverage. The reasons for rising medical prices are
too numerous to enumerate here, yet some factors can be
mentioned. First, the medical-care industry is a "seller
qjarket" with a great and growing scarcity of supply.
Secondly, the seller often determines the need or the
demand for the service he is selling and the consumer is
less able and less disposed to active participation in
determination of the price. Thirdly, there exist lack of
administration, unity, and coordination among the medical-
care institutions. For example, most voluntary hospitals
are products of uncoordinated activities of autonomous and
often competing religious, philanthropic, or community
groups with the effect of inefficient use of hospital
equipment, needless admissions, duplication, and so forth.
Finally, the rising price of medical care is partly
affected by inflationary pressure, rising number of hos
pital personnel in relation to the number of patients, and
the increasing cost of labor partly due to the general
234
trend of wages and partly due to the competition between
medlcal-care industry and other industries to acquire
skilled human resources.
Some of these can be controlled by: (1) self-
regulation by the jproviders of medical care; (2) regula
tion by consumer groups; (3) regulation by carriers;
(4) public regulation; and (3) mixed form. Although some
attempts have been done to control the costs, they have
' •
not been so far very effective mostly because of the
opposition of the medical progression. Most of the pro-
ponents of the "free" medical-care market argue that any
cost control, regardless of its source, destroys the "free”
medical-care market and the economy and quality are neces
sarily "antithetical." However, in view of the cost crisis
faced by voluntary health insurance, economy, quality, and
free choice must be reconciled. For, how effectively the
problem of control is solved may determine to a large
degree the longevity of the voluntary system.
The organized medical profession has failed to
realize that a "private enterprise," as envisaged by the
orthodox economists, does not and has never existed in the
medical-care industry because of the nature of market,
235
the product, and the position of the buyers and sellers of
medical services. A more reasonable explanation of the
medical-care industry should be in line of Professor Gal
braith's system of "countervailing power" with each force—
the consumers, the carriers, the sellers of medical
services, and the government— trying to control the quan
tity, the quality,' and the cost of medical care. In short,
to insure the highest quantity and quality of medical care
at "reasonable" cost, reliance must not rest solely on
competition among the sellers of medical services, but also
65
on forces on the "opposite side of the market."
Much of the controversy in the field of medical
economics relates to the lag which exists between the
actual and new developments in the field of medical care—
such as the new concept of doctor-patient relationship, the
concept of choice and other structural developments such
as group medicine--and traditional thinking of organized
medical profession. Unfortunately, the private health
insurance industry has become the victim of this lag.
*^For a complete account of the concept of counter
vailing power, see John K. Galbraith, American Capitalism:
The Concent of Countervailing Power (Boston: Houghton
Mifflin Company, 1952).
236
Once this lag Is removed, then It will be realized that:
In our pluralistic economy health insurance will
probably never be expected to cover the full costs
of Illness. It will also probably be-necessary for
the predominant pattern of private insurance to be
supplemented by limited forms of public insurance
and public assistance. The degree to which private
insurance can itself meet the challenge will in
large be determined by costs.
At no period of life is the proportion insured as
low as among the aged. This together with greater medical
needs and lessened economic capacity has posed a great
problem. Most of the aged who have Insurance must rely on
Individual policies, with inadequate coverage and high
premiums. Although some efforts have been made by the
voluntary health insurance to meet this problem, yet much
remains to be done particularly with respect to the ade
quacy of benefits. Noninsurable items are numerous, and
a comprehensive insurance plan with adequate benefits would
cost so much as to price them outside of means of most of
the aged. The coverage that the aged can afford to buy
offers little protection.
The reason that voluntary health Insurance has thus
far failed to make a major contribution toward meeting the
^Somers and Somers, op. cit.. p. 402.
237
medical-care costs of the aged is the fact that they are
low-income-high-cost group. Although a number of ingenious
programs have been devised, no satisfactory method seemed
to have developed. Blue Cross plan, through community-
rating system, could have provided the aged adequate health
insurance coverage. But this method involves two basic
problems. First, it is a hidden taxation of the younger
members of community to finance a part of medical-care
costs of the aged. Secondly, by utilizing community-rating
system, the Blue Cross plans have put themselves at a dis
advantage with experience-rated commercial insurance
carriers which has led to a growing financial difficulty.
With the apparent defeat of the community-rating
system, there seems to be no other way than government
action in financing medical care of the aged. Dr. Basil C.
MacLean, recently retired President of the Blue Cross
Association, has stated:
*
A lifetime's experience has led me at last to
conclude that the costs of care of the aged cannot
be met, unaided, by the mechanisms of insurance or
prepayment as they exist today. The aged simply
cannot afford to buy from any of these the scope
of care that is required, nor do the stern competi
tive realities permit any carrier, whether nonprofit
238
or commercial, to provide benefits which are ade
quate at a price which is feasible for any but a
small proportion of the aged. 7
67
Dr. Basil C. MacLean, Group Health Association of
America, Health and Welfare Newsletter. April 1960, p. 2.
CHAPTER VI
PUBLIC FINANCING MEDICAL CARE FOR THE NEEDY
AND MEDICALLY NEEDY
The role of government In the provision'of medical
care in general does not lend itself to a precise outline.
Although the role of federal government in the provision
of medical care can be explained somewhat easily, the role
of state and local governments is difficult to outline
since there exist wide variations between different parts
of the country and between rural and urban communities.
The public provision of medical care has taken the
following forms: (1) medical care for some groups for whom
the government has assumed*complete responsibility;
(2) programs dealing with prevention or treatment of spe-
cific types of illness or disability; (3) programs affect
ing the health and medical care of the entire population;
and (4) programs of general medical care for the needy
239
240
and "medically needy.
An example of the first group is the direct provi
sion of medical care for the members of the armed forces,
veterans, members of merchant marine, Indians on reserva
tions, prisoners, and other groups. Federal government
programs dealing with venereal diseases, tuberculosis,
cancer, mental diseases, chronic diseases, vocational
rehabilitation and programs of promoting health of mothers,
infants, and young children represent the second group.
Establishment of health departments, protection against
epidemics, medical research, and hospital construction are
examples of the third category. Finally, Old Age Assist
ance and other related programs represent government
efforts to provide a certain amount of medical care for
the needy and medically-needy persons.
Since this chapter is concerned with the public pro
vision of medical care for the needy and the medically
^Medically needy or medically indigent refers to
those who are "economically solvent," yet are unable to
meet their medical needs. See Dean W. Roberts, "Public
Medical Care: The Over-all Picture," The Annals of the
American Academy of Political and Social Science. Thorsten
Sellln, ed. (Philadelphia: The American Academy of Politi
cal and Social Science, 1951), vol. 273, p. 69.
241
Indigent, other aspects of government role In the provision
of medical care will be omitted. Moreover, since the
accent of this chapter is on the aged, greater emphasis
will be placed on those public programs which are designed
to provide a certain amount of medical care for the needy
and medically-needy aged. It is the purpose of this chap
ter, therefore, to examine very briefly: (1) the historical
development of the Old Age Assistance programs with some
emphasis on their administration, scope of benefits and
services, and other related factors; (2) the Medical
Assistance for the Aged; and (3) a critical evaluation of
the public programs for the provision of medical care for
the needy and medically-needy aged.
I. PUBLIC EXPENDITURES FOR MEDICAL, CARE
FOR THE AGED
There is no direct source of information on total
public medical-care expenditures for the aged. Although
reasonably good estimates are available of the total public
expenditures for health and medical care, scanty data,
which are often inconsistent with one another, are avail
able on the proportion of the total public expenditures
242
for the health care of the aged. Based on public assist*
ance data and the proportion of the total hospital beds In
veterans' hospitals and In state and local hospitals occu
pied by the aged, a very rough estimate of public expendi
tures for hospital care, nursing home care and all other
medical services for the aged can be determined. Lack of
comprehensive data, therefore, has necessitated that the
analysis of public expenditures for the health care of aged
be very brief.
Source and Distribution
According to the Department of Health, Education,
and Welfare— the summary of which appears in Table XX, the
public expenditures for medical care for the aged amounted
to $1.3 billion in 1960--with two-thirds of these public
funds going for hospital care. The remaining one-third--
on which no detailed breakdown Is available--went for
nursing-home care, physicians' services, drugs, and den
tists' care.
A more detailed account of the public expenditures
for the medical care of the aged Is available for 1955-56.
According to Table XXI, the total private and public
expenditures for medical care of the aged in 1955-56
TABLE XX
PUBLIC EXPENDITURES FOR MEDICAL CARE FOR THE AGED:
ESTIMATED AMOUNT BY TYPE OF PROGRAM
AND TYPE OF CARE, 1960
(Millions)
Type of Medical Care Total
Public
Assistance
Veterans'
Administration Other
General Hospital Care $ 470 $ 100 $ 165 $ 205
Mental and Tuberculosis 425 70 355
' 1
Total Hospital Care 895 100 235 560
Other 435 355 30 50
Total Medical Care 1,330 455 265 610
Source: United States Department of Health, Education, and Welfare, Social Security Administration,
Division of Program Research, The Health Care of the Aged (Washington, D.C.: Government Printing
Office, 1962), p. 77.
243
TABLE XXI
PRIVATE AMD PUBLIC EXPENDITURES FOR tCDICAL CARE OF CIVILIANS OF ALL AGES AND THE AGED,
UNITED STATES, 1955-56
(Billions)
Source
All Ages Ages 65 and Over
Amount for the
Aged as Per cent
of All Ages Amount Per cent Amount Per cent
Total $14.95 100.0 $2.34 100.0 15.7
Private expend!turesa 10.50 70.2 1.44 61.6 13.7
Federal tax-saving subsidies
Individual income tax
1.10 7.4 .12 5.1 10.9
.60 4.0 .10 4.3 16.7
Corporate Income tax0 .50 3.4 .02 .8 4.0
Public medical care programs
Social insurance
3.35 22.4 .78 33.3 23.3
.36 2.5 .02 .6 4.1
General revenue
Hospital care 2.50 16.7 .50 21.4 20.0
Federale .75 5.0 .15 6.4 20.1
State and local 1.75 11.7 .35 15.0 19.9
Nursing home care .20 1.3 .16 7.0 84.6
Other public assistance
Others*
.17 1.1 .10 4.3 58.8
.12 .8
- -
-
^Excludes amounts subsidized through Federal tax savings.
HBased on medical care deductions in income tax returns.
°Based on employer contributions to health plans.
< *Medical care benefits under workmen's compensation and temporary disability insurance.
eIncluding about $90 million spent for in-patient care for the aged in medical institutions of the
Veterans Administration.
Includes physicians' services, drugs, dentists, appliances, and others.
^Maternal and child health programs, and medical rehabilitation.
Source: F. R. Brown, "Governmental Expenditures and Other Public Financial Support for Personal
Medical Care of Persons Aged 65 and Over, 1955-56," Research and Statistics Note No. 3. Division
of Program Research, Social Security Administration, February 4, 1958.
244
245
amounted to $2.34 billion, or about 16 per cent of the
total medical expenditures for all ages. Of the expendi
tures for the aged, private expenditures accounted for
$1.44 billion, or somewhat over three-fifths of the total.
Public expenditures for medical care of the aged amounted
to $.78 billion, or one-third of the total.
For persons of all ages, larger shares of the total
expenditures were made through public expenditures and
Federal tax-saving subsidies, and a smaller share through
public medical care programs. Therefore, approximately
one-fourth of the public medical-care outlays were for the
aged.
Nearly two-thirds of the public medical-care
expenditures were for hospital care— 30 per cent for
Federal and 70 per cent for state and local governments.
Nursing home care accounted for over one-fifth of this
total, other public assistance for over one-eighth of the
total expenditures, with various social insurance benefits
accounting for a very small proportion.
A comparative analysis of public medical-care
expenditures for the aged in 1955-56 and 1960 does not
reveal any significant change in the pattern of public
246
medical-care outlays. While the total public medical-care
expenditures for the aged have increased by approximately
30 per cent over 1955-60 (excluding Federal expenditures
for the medical care of the aged through Veterans Adminis
tration), the relative proportion of public outlays for
the medical care of the aged of the total expenditures for
all ages has remained about the same--approximately one-
2
fourth. However, with the passage of the Medical Assist
ance Program for the Aged (the Kerr-Mills Act) in 1960,
a growing public expenditure for the medical care of the
aged is expected.
II. MEDICAL CARE UNDER THE OLD-AGE
ASSISTANCE PROGRAMS3
The public assistance programs are the most impor
tant single source of public funds for medical care for
the aged outside of mental and tuberculosis hospitals.
Some 2.3 million persons— 13 per cent of all the aged —
2
United States Department of Health, Education, and
Welfare, Division of Program Research, Social Security
Administration. The Health Care of the Aged (Washington,
D.C.: Government Printing Office, 1962), p. 77.
3
Hereinafter referred to as OAA programs.
247
are receiving old-age assistance at the present time. The
proportion varies widely from state to state, being very
high in the rural southern states and low in the industrial
northern states.
As a result of the extension of the Old Age and
Survivors Insurance** program by way of both Increased
benefits and membership, however, the proportion of OAA
recipients among the aged has declined very rapidly in
recent years. For example, while the proportion of the
aged receiving OASI benefits rose from 17 per cent in 1950
to about 63 per cent in 1959, the proportion of OAA recipi
ents fell from 22.6 per cent to 15.6 per cent during the
same time span.^ It is estimated that in coming years the
proportion of OAA recipients relative to the aged popula
tion will continue to decline so that "old-age assistance
^Hereinafter referred to as OASI Program.
“ *U.S. Department of Health, Education, and Welfare,
Division of Program Research, Social Security Administra
tion, "Persons Receiving OASDI, OAA, or Both, June 30,
1959," Research and Statistics Note Wo. 4 (Washington,
D.C.: Government Printing Office, 1960), and U.S. Depart
ment of Health, Education, and Welfare, Division of Program
Research, Social Security Administration, "Projections to
1970 of the Number of Aged Persons Receiving OAA and
OASDI," Research and Statistics Note No. 24 (Washington,
D.C.: Government Printing Office, 1959).
248
will Increasingly be a program primarily for aged persons
. . . who have special needs that cannot be met from their
insurance benefits and whatever resources they may have.”6
However, the number of the aged receiving concurrent OASI
and OAA benefits has been rising since the recent extension
of coverage of OASI Program has necessitated the need for
some OAA benefit to supplement the small benefits under
OASI Program.
Although medical care need is recognized to be a
significant contributing factor to the concurrent receipt
of both OASI and OAA benefits, the medical care requirements
may not be greater for those who are receiving OASI and OAA
concurrently, than those who are only OAA recipients. In
fact, according to a study of public assistance recipients
in the state of New York, while 58 per cent of OAA recipi
ents were chronically ill or disabled but not hospitalized
and 5 per cent were actually ill or hospitalized, the
percentages of the recipients of both OAA and OASI were
S. Ossman, "Concurrent Receipt of Public Assist
ance and Old-Age and Survivors Insurance," Social Security
Bulletin. September 1958, p. 17.
249
55 and 7 respectively.7
In Bplte of the dwindling importance of Old-Age
Assistance Programs in recent years, they are still one
of the most important public sources of medical care for
the aged. With the passage of the Medical Assistance
Program for the Aged in I960, has come a revival of inter
est in an evaluation of public assistance programs for the
needy and medically-needy aged. Therefore, the remainder
of this chapter is devoted to a brief examination of these
programs.
Early Beginning
It has been traditional in the United States, fol
lowing the pattern of the Elizabethan Poor Law, that poor
relief of all sorts was considered to be the responsibility
of local community and government. The programs that have
developed were necessarily suited to local circumstances,
with the result that they vary greatly in dimension.
E. M. Snyder, Public Assistance Recipients in New
York State. January-February 1957, Interdepartmental Com
mittee on Low Incomes, State of New York, October 1958,
pp. 63 and 98, cited by Mortimer Splegelman, Ensuring
Medical Care for the Aged (Homewood, Illinois: Richard D.
Irwin, Inc., 1960), p. 224.
250
The present situation with respect to provision of
medical care for the needy and medically-needy is the
Q
result of several hundred years of development. Thus a
detailed account of the historical development of public
provision of medical care for the needy and medically-needy
is not feasible here. A brief account, however, should be
given.
The provision of medical care for the needy by local
communities and governments has taken several forms: first,
some cities have provided physicians' services by appoint
ing of city or county physicians on a part-time basis.
Secondly, public general hospitals have provided hospital
care for the needy and medically-needy. In recent years,
however, these public general hospitals have evolved in
many instances from the infirmary sections of county work
houses and alms-houses to the point where presently, public
hospitals provide two-fifths of the total general bed
capacity. Moreover, they account for 97 per cent of all
beds in mental institutions and 87 per cent of the beds
g
See Frans Goldman, Public Medical Care (New York:
Columbia University Press, 1945), pp. 69-150; and Bern-
hard G. Stern, Medical Services by Government (New York:
Commonwealth Fund, 1946).
251
Q
In tuberculosis hospitals. Third, the rapid development
of public health programs has provided an Increasing amount
of personal health services for the needy. The health
department, services are preventive In nature and are
designed for the entire community. Yet, health depart
ments have found It necessary to furnish treatment services
for control of communicable diseases. The Increasing num
ber and variety of personal health services provided by
health department have benefited the communities In general
and the needy in particular. Finally, a considerable
amount of medical care of the needy has been provided by
private hospitals and physicians either free or at less
than actual cost. Although free medical services particu
larly for the needy still exist, its relative Importance
has declined considerably in recent years. As the Bureau
of Medical Economics of the American Medical Association
points out:
The principle (of free medical services for the
needy) has been severely strained by the contemporary
evolution of the industrial system, as well as by
9
Milton Terris, "Medical Care for the Needy and
Medically Needy," The Annals of the American Academy of
Political and Social Science, Thorsten Sellin, ed.
(Philadelphia: The American Academy of Political and Social
Science, 1951), vol. 273, p. 85.
252
certain changes within the profession. The greatly
increased demands by the indigent sick during the
lowest phases of the industrial cycle, which has also
often reduced the income of the physician below any
reasonable standard of living, has now made this
burden unbearable. Moreover, the physician whose
practice is established among families with low in*
comes finds so large a proportion of his patients in
the indigent class that his paying patients are too
few to enable him to subsist.^
The entire system of medical care for the needy and
medically-needy--relying primarily on local government
resources and the charitable services of physicians,
private hospitals, and voluntary health and welfare agen
cies --was poorly organized and coordinated. The system,
deficient in so many respects, collapsed under the impact
of the Great Depression. The Federal Emergency Relief
Administration Medical Care Program was organized in July
1933 to fill the gap. The Program was based on the prin
ciple that the traditional patient-doctor relationship
should be preserved, thus giving the patients free choice
*
of doctors and other medical vendors. Federal funds were
paid according to state fee schedule adopted by agree
ment with the organized medical professions. Because of
limited funds, services were limited to physicians' care
10Ibid.. p. 86.
253
in home end office, emergency dental cere, bed-side nursing
service, drugs, end emergency appliances. However, hos
pital care was not included in the Program.
Although the Federal Bnergency Relief Administration
Medical Care Program lasted only two and a half years, it
influenced the subsequent development of the medical-care
program of public welfare departments. The Program initi
ated several trends: (1) the Increasing role of public
agencies as purchasers of medical services in contrast with
previous tendencies to rely heavily on the free services
of physicians and hospitals; (2) increasing participation
of government in provision of medical care for the needy;
and (3) the development of more thoroughly organized
12
medical-care programs.
As soon as the Federal Emergency Relief Administra
tion Medical Care Program was established, twenty-six
states adopted programs conforming to Federal regulation.
However, health care for the needy and medically-needy
was inadequate, with the average expenditure of ten cents
12Ibid.
254
13
monthly for the entire country.
The Social Security Act of 1935 established the
principle of social Insurance as a major step toward pre
vention of dependency. Moreover, state and local public
assistance programs were strengthened by the provision of
Federal matching funds for the aged, the blind, dependent
children, and the permanently and totally disabled— the
last being added In 1950 amendment to the Act.
An Important feature of the Social Security Act was
its requirement that in order to receive Federal matching
funds, payments for medical needs must be paid in money,
so as to provide the fullest possible independence for the
recipients and to presume the traditional patlent-doctor
relationship. This provision of the Social Security Act,
however, created a number of difficulties: (1) adminis
trative difficulties hindered the development of adequate
medical care payments; (2) money payments, being so small,
were generally spent on nonmedical needs and thus medical
personnel were not paid; and (3) large medical bills
13
G. P. Perrott, Medical Care under Federal
Emergency Relief. Public Health Service, Federal Security
Agency (Washington, D.C.: Government Printing Office,
1950), pp. 1-3.
255
presented a grave problem. As a result, some states
abandoned the Federal matching funds provision of the
Social Security Act of 1935, and established vendor pay*
ments system. However, the 1950 amendment to the Social
Security Act made it possible for vendor payments in all
four categories indicated above.^
Subsequent amendments of the Social Security Act of
1935 liberalized the Federal matching funds to some extent,
with the most recent amendment establishing the Medical
Assistance for the Aged— a subject which will be fully
explained in the latter part of this chapter.
Present Status of Medical Care for the Needy
and Medically-Needy Persons
Being a local matter, there are wide variations
among communities in the provision of public medical care
for the needy and medically-needy aged. These variations
are mostly with respect to the scope and the amount of
services, the criteria of eligibility, the manner of
^Pearl Blerman, "Meeting the Health Needs of Low-
Income Families," The Annals of the American Academy of
Political and Social Science, Thorsten Sellln, ed. (Phila
delphia: The American Academy of Political and Social
Science, 1961), vol. 337, pp. 106-107.
256
payments, and the financing and administration of the
programs.In view of great variations among states, our
*
" 1 £
discussion will be in general terms and very brief.
The scone of services under Old-Age Assistance
Program. There are wide variations in the scope and the
amount of medical services available under OAA, depending
upon the availability of resources provided by other pro*
grams, the supply of personnel and facilities, and the
financial resources of the state. In most states, however,
several limitations are placed upon the medical-care
services available. In West Virginia, for example, medical
care is specifically provided only in cases of acute or
emergency illness and is limited to doctor, hospital, and
drugs. Many restrictions, such as maximum number of days
in hospital and maximum number of physician visits are set
forth for chronic conditions. Dental care needs prior
"Tax-Supported Personal Health Services for the
Needy,” American Journal of Public Health. XLV (December,
1955), 1593.
^For a comprehensive account of the medical care
program for the needy in various states, see U.S. Depart
ment of Health, Education, and Welfare, The Health Care of
the Aged. Appendix B, Tables XIV, XV, and XVI.
257
authorization and drugs are limited to the United States
"Pharmacopoeia" and National Formulary listings. While in
some states such as Texas, Maine, South and North Carolina
the "theoretical scope" of medical services is wide,
i 7
serious restrictions are placed because of lack of funds.
In forty*six states the public assistance agency has
assumed some responsibility for the provision of hospital
care as of October 1, 1961. Twenty-five of these states
provide unlimited hospital care, while other states specify
the type of conditions which may be hospitalized, the num
ber of days of hospital care, and the maximum payments
per day.
Forty-two states provide some physicians1 services,
but there are some limitations on the number of calls or
visits. Some states pay for physicians1 services only
in acute or dangerous conditions. Dental services are
provided in thirty-six states with some limitations.
Drugs and nursing home services with some restrictions
^Terris, op. cit.. p. 88.
18
U.S. Department of Health, Education, and Welfare,
The Health Care of the Aged. Appendix B, Table XIV.
258
are provided in forty and forty-eight states respec
tively.
Selection of hospital, physician, dentist, and the
manner of payments. Generally speaking, the assistance
recipients have free choice of physician, dentist, and
drugist and payments are made on a fee-for-service basis,
* except in those localities where a city or a county phy
sician is maintained. However, the recipients have free
choice of doctors who are willing to serve assistance
recipients at the fees paid by the assistance agency.
Where money payments are made, the recipients have the free
20
choice of physicians and dentists.
Where the assistance agency pays for the physicians1
services in office or home, but not in hospitals, the
assistance recipients requiring hospitalization should go
to those hospitals whose medical staff has agreed to pro
vide free services to welfare patients.
Generally speaking, the assistance recipients have
their choice of drugist within a designated locality.
19Ibid.
2^Ibid.. p. 81.
20Ibid.. p. 80
259
However, if there is an agreement between the assistance
agency and a pharmacist to provide the assistance recipi
ents with drugs at less than market price, then the
recipients must go to that drugist. The same procedure is
22
true of nursing home care.
The manner of payments for medical services ranges
from cash payments to the recipients to payments to the
vendors of medical services, or both. As Table XXII shows,
some states provide vendor payments with certain limita
tions on the amount of medical care, and others use money
payments with some maximum, with some states using both
methods.
In those states and cities where medical care is
paid for through vendor payments, vendors of medical
services are paid on the basis of mutually-agreed rates.
In most states, the rates are negotiated on statewide basis
between the welfare department and State Hospital Associ
ation, State Medical Association, and other medical groups.
Although it is generally agreed that the vendors of medi
cal services, under vendor payments, charge the welfare
22
Ibid.
TABLE XXII
OLD-AGE ASSISTANCE PROGRAMS: SIM4ARY OF NUMBER OF STATES
PROVIDING MAJOR TYPES OF MEDICAL SERVICES
BY METHOD OF PAYMENTS, OCTOBER 1, 1961
Type of Service
Number of States
Total Money
Payments
Vendor
Payments
Hospital Care 46 3 43
Physicians' Services 42 7 35
Office Visits 39 7 32
Home Calls 42 7 35
Hospital In-patients 26 5 21
Hospital Out-patients 29 6 23
Dental Care 36 10 26
Fillings 32 7 25
Extractions 34 8 26
Dentures and Repairs 33 10 23
Prescribed Drugs 40 12a 31a
Nursing Home Care 48 28b 31b
aIncludes 3 states using both money and vendor payments.
bIncludes 11 states using both money and vendor payments.
Source: United States Department of Health, Education, and
Welfare, Social Security Administration, Division of Pro
gram Research, The Health Care of the Aged (Washington,
D.C.: Government Printing Office, 1962), p. 79.
261
department lower rates than they would normally charge the
general public, data are not available as to how rates or
fees compared with those paid by the general public.
The administration of medical care for the needy and
the medically-needy. Great diversity exists with respect
to the administration of medical care for lndlgents. To
receive Federal aid for Its Old-Age Assistance Program,
a state must submit a plan which should meet certain
requirements such as single supervision over the program,
operative In all parts of states and other provisions.
However, each state has considerable leeway In operating
«
Its program Including eligibility and need standards.
In some states the program is administered through
state district offices, while in other states, the local
government has the responsibility of administration, and
in some states the responsibility of administration is
divided between the state and local agencies. In most
states, the responsibility for medical care lies in public
assistance agency with some states allowing the health
23
department to share it to a limited extent.
23
For an interesting account, of he administration
of medical care by state and local welfare agencies, see
United States Department of Health, Education, and Welfare,
262
In thirty-one of fifty-four OAA programs, adminis
tration is by a state agency--state welfare or assistance
department--with local and district offices* In other
twenty-three states, they are administered by local welfare
departments under supervision of the state agency. In most
states, however, main policies and procedures (standard of
eligibility, standards of assistance, and the amount and
the scope of medical services) are set forth by state
agencies with a certain amount of leeway for local agen-
c ies.
In state-administered programs, states bear full
costs over and above Federal aid. In state supervision
cases, localities bear a proportion of costs. While in the
former, standards are uniform throughout states, in the
4
latter there are some local differences.
In a number of states, the state welfare department
has entered into arrangements with the state health depart
ment for the administration or assistance in administration
of the medical care services of the assistance programs.
Bureau of Public Assistance, Medical Care in Public Assist
ance, Report No. 16 (Washington, D.C.: Government Printing
Office, 1946).
263
In a number of states, contracts have been drawn between
state welfare department and the Blue Cross or state and
local association of physicians for various medical
services. In Puerto Rico, Virgin Islands, and the District
of Columbia, however, the health departments operate major
medical facilities and are reimbursed by welfare depart
ments for services rendered.^
The utilization and medical expenditures. There
is no comprehensive data for all states on the amount of
medical services received by the OAA recipients. It is
generally agreed, however, that on the average there is a
greater utilization of medical services by the OAA recipi
ents than the general aged. This is partly due to the
advanced age of the OAA recipients and partly because they
are more susceptible to ill health.
Expenditures for medical care for the old-age
assistance recipients in the form of vendor payments
amounted to $315 million in 1961. Expenditures for medical
care provided through money payments in 1960 were about
24
U.S. Department of Health, Education, and Welfare,
The Health Care of the Aged. Appendix B.
264
$149 million; however, it is estimated that this figure for
1961 is somewhat smaller partly because of transfer from
OAA to MAA and partly because of change in the method of
payment for medical care under the old-age assistance
25
program.
In 1962, vendor payments for medical care for the
OAA recipients averaged $13.26 monthly, ranging from
13 cents in Georgia to $61.29 in Connecticut. It should be
pointed out, however, that the proportion of OAA expendi
tures going for medical care through vendor payments is
large, ranging from 60 per cent in Wisconsin to 43 per cent
in New Jersey with four states making no vendor payments.^
Prior to 1960 amendment to the Social Security Act
of 1935, the Federal government matched state expenditures
for assistance in amount equal to: (1) 80 per cent of
expenditures up to $30 per month per recipients plus;
(2) 50 to 65 per cent— depending on the relative state per
capita income--of expenditures over $30 up to $65 per month
25Ibid., pp. 83-84
26Ibid.. p. 84.
265
27
per recipient Including vendor payments. However, under
the Kerr-Mills amendment of I960, if the average payments
exceed $66, the Federal government matches from 50 to 80
per cent— depending on relative state per capita income—
of the amount of vendor medical payments up to an average
of $15 a month per recipient, or the amount by which the
average exceeds $66, whichever is the least.
III. THE MEDICAL ASSISTANCE FOR THE AGED PROGRAM
The 1960 amendment to the Social Security Act--the
Kerr-Mills Act— provided effective October 1, 1960, not
only for additional matching of expenditures under OAA
in the vendor payments for medical care, but also
27
Under Social Security Act of 1935 and its subse
quent amendments, the Federal government matches by
formula which is related to state payments and state and
national per capita income figures.
P * 100 - 50 x s£ except that 50 P 65.
P = Federal grant percentage applicable to the
upper portion of the state average payments; S = state per
capita Income figure; and N = national per capita income.
See R. J. Myers, "1958 Amendments to the Social Security
Act," Transaction of Society of Actuaries, 1959, Vol. II,
cited by Spiegelman, op. cit., p. 221.
266
"for Federal aid to the states in providing medical assist"
ance to the aged not receiving old-age assistance whose
income and resources are insufficient to meet the cost of
needed medical care."2* *
In order to receive Federal aid, a state must submit
a plan which should meet certain requirements. In addition
to the conditions set forth for the OAA program, the plan
must provide: (1) some institutional and noninstitutional
services; (2) no premiums, enrollment fees or special
charges be imposed as a condition of eligibility; (3) ser
vices to individuals who are residents of the state but
absent from it; (4) reasonable standards for eligibility
and benefit payments; (5) no "durational residence"
requirement; and (6) no lien may be imposed against the
property of individual prior to his death on account of
medical services properly given and no recovery of his
20
estate until after the death of surviving spouse, if any.
Tinder the MAA program, the Federal government par
ticipates only in expenditures made in the form of vendor
28
U.S. Department of Health, Education, and Welfare,
The Health Care of the Aged. p. 87.
267
payments and not in amounts paid directly to recipients.
However, the Federal government will participate in state
expenditures in medical or any other type of remedial care
insurance premiums which are paid as medical assistance in
behalf of the eligible individuals.
By the end of March 1962, programs were in effect in
twenty-three states plus Puerto Rico, Virgin Islands, and
Guam. While some states were considering to initiate MAA,
five states have chosen to expand their OAA programs for
medical care to include needy persons who need only medi
cal care.
In view of great diversity with respect to services
provided, administration, standards of eligibility, and
other features of Medical Assistance for the Aged programs
in various states, the analysis will be very brief and in
general terms.
The Amount and the Scope of Services Provided
The services provided under the MAA programs vary
from one state to another. The number of states and the
type of services provided under the MAA programs are
summarized in Table XXIII. Limitations of services by
268
TABLE XXIII
MEDICAL ASSISTANCE FOR THE AGED: SUM4ARY OF NUMBER
OF STATES PROVIDING MAJOR TYPES OF SERVICES,
OCTOBER 1961
Type of Services Number of States
Hospital care 21
Nursing home care 14
Physicians* services 20
Office 16
Home or In nursing home 17
Hospital outpatient 16
Hospital Inpatient 12
Dental care 10
Drugs (outside the hospital) 12
Source: United States Department of Health, Education, and
Welfare, Health Care of the Aged (Washington, D.C.: Govern
ment Printing Office, 1962), p. 88.
269
in
different states are too numerous to enumerate here.
Twenty-one states, for which data are available,
provide some in-patient hospital care. However, eleven
states impose limitations on the maximum number of days
and/or the type of condition hospitalized. Some states
require the patient to pay a part of the cost.
As of October 1, 1961, only fourteen states allowed
nursing home care with some limitations on the number of
days covered or the maximum amount allowed. Some states
limit nursing home care only to hospital transfers.
Twenty states provide for physicians' services;
office visits, home calls, or out-patient department, how
ever, are generally limited in terms of visits or services
paid for in a given period of time.
Dental services are provided in ten states, but
mostly for emergencies, relief of pain, or for treatment of
acute infections. In most cases, however, dental services
are limited to extractions and fillings.
Drugs outside hospital are paid for in twelve
states. However, some states specify those conditions
30
For a comprehensive account of these limitations,
see ibid., Appendix B, Table XVI.
t
270
for which drugs may be prescribed. Drugs outside hospital
which are prescribed for those conditions which are not
specified by the MAA program are not paid for.
As far as the over-all coverage is concerned, only
three states (Hawaii, North Dakota, and Puerto Rico) pro
vide all types of medical services without significant
limitations. Fourteen states (Arkansas, Idaho, Kentucky,
Louisiana, Massachusetts, Maryland, Michigan, New York,
Oklahoma, Oregon, South Carolina, Virgin Islands, Washing
ton, and West Virginia) provide "intermediate coverage"
because of the limitations affecting one or more of the
services. Four states (Illinois, New Hampshire, Tennessee,
and Utah) provide minimum coverage.^
Standards of Eligibility
Each state has set forth standards of eligibility
for its MAA program. Some seventeen states have set maxi-
mums on income and assets a recipient may have. An aged
person with income or assets under these limits is eligible
to receive medical care under the MAA program. An income
or assets above these limits make one ineligible to receive
31Ibid., p. 89.
271
medical care regardless of one's medical needs or costs.
Four states have set a standard of subsistence, and any
thing above this is evaluated to medical needs to determine
eligibility.
The maximums on income and assets set by states for
a single recipient with no dependent range from $1,000 to
$3,000, with different allowances being set for dependents.
All states exempt the home in establishing eligibility,
though some states have set forth a maximum equity. Most
states exempt life insurance policies with small cash
surrender value. A number of states consider medical
* insurance' policies as part of assets, with some states,
however, excluding insurance premiums from income up to a
maximum. Small cash or "near money," ranging from $300
to $2,500 is permitted in most states.
Most states have specifically set forth the extent
to which relatives will be held responsible for medical
care of the aged. While thirteen states do not require
that relatives of the aged applicant for medical assist
ance should contribute anything, eight states consider
the ability of the relatives to support the aged "often
without regard to whether the relative fulfills this
272
obligation. "3^
Table XXIV is reproduced here to give a rough idea
on the scope and amount of services provided and the
standards of eligibility of the medical assistance program
in several states.
Adminis t r at ion
According to Federal law, a state program of medical
assistance for the aged must be administered by the same
state agency that administers OAA programs. Thus, the
administration of MAA program is similar to that of OAA
programs.
t
Practices in opening MAA cases vary from state to
state. In eight states, once eligibility is established,
the applicants remain eligible for all medical care for a
specified period, usually a year. After the lapse of
the specified period, continuing eligibility for medical
care assistance is re-determined for all open cases. On
the other hand, thirteen states determine eligibility each
time medical care is needed. West Virginia, up to Decem
ber 1, 1961, provided for "preauthorization" of financial
32Ibld., p. 90.
TABLE XXIV
STATE PROGRAMS OF MEDICAL ASSISTANCE FOR THE AGED IN OPERATION
MAY I, 1961: MAJOR ELIGIBILITY AND SERVICE PROVISIONS
State and 9
Effective Date Permissible Amounts of Income and Assets Scope of Medical Services
Kentucky
January 1960
Massachusetts
October 1960
Michigan
October 1960
Maximum annual gross income: single
person $1,000; couple $1,500. Home
stead exempt; other nonincome producing
real property not to exceed $5,000. Cash
surrender value of insurance $3,000; all
other personal property limited to $500
for single person and $750 for couple.
Income considered available for medical
costs when in excess of $1,800 for single
person or if married and applicant is
husband; $2,700 if applicant is wife.
Persons not needing place of residence
apart from a medical institution retain
$15 a month for personal needs.‘ Real
estate other than homestead disqualifies;
personal property, maximums $2,000 and
$3,000.
Maximum annual Income: single person $1,500;
couple $2,000. Homestead exempt; maximum
liquid or marketable assets: single person
$1,500; couple $2,000.
Physicians' services in home and
office limited to two visits per
month for treatment of acute,
emergency, and life-endangering
conditions. Hospital care for
similar conditions limited to
3 days.
Physicians' services in home, office,
clinic; hospital and skilled nursing
home care; diagnostic and preventive
services; dental care; drugs, appli
ances, nursing care and physical
therapy; all other medical or
remedial services recognised under
state law and in accordance with
Department's plan.
Services not to exceed those provided
by Michigan Blue Cross and Blue
Shield as of Sept. 1, 1960: standard
hospital in-patient coverage;
physicians' services in office or
clinic limited to emergency treatment
and specified tests.
273
TABLE XXIV (continued)
State and
Effective Date Permissible Amounts of Income and Assets
New York Annual income over $1,800 for single person
April 1961 and $2,600 for couple considered available
for medical expenses. Assets, maximum
$900 for single person and $1,300 for
couple* Persons confined to nursing care
institution retain $10 per month for per
sonal expenses.
Oklahoma Annual maximum income for single person
October 1960 occupying own home: $924; renting or staking
payments on home: $1,188. For couple,
$1,360 and $1,824. Equity in home $8,000;
other resources vary up to a maximum of
$2,500 equity in small business.
Puerto Rico Annual maximum income per individual:
October 1960 $1,500.
Scope of Medical Services
Physicians' services, hospital and
nursing home care, out-patient hos
pital or clinic services, drugs,
prosthetic appliances, physical
therapy, home nursing. Excluded:
services of dentists, optometrists,
podiatrists; dentures, eyeglasses,
and artificial eyes.
In-patient hospital care, including
physicians' services, for life-
endangering conditions, not to exceed
21 days for a single admission; re
admission after 10 days for defined
conditions. For patients approved
for home nursing care: 2 physicians'
visits per month; nursing care;
diagnostic services; out-patient
radiation therapy as follow-up on
hospital care.
In-patient hospital care and out
patient hospital and dispensary
service, including physicians'
services, drugs, and appliances;
physical therapy, dental care,
laboratory and X-ray, and preven
tive medical care services furnished
through the facilities of Department
of Health and hospitals under con
tract with the Department.
274
TABLE XXIV (continued)
State and
Effective Date Permissible Amounts of Income and Assets Scope of Hedical Services
Virgin Islands
January 1961
Washington
October 1960
West Virginia
October 1960
Maximum annual Income per individual:
$1,200. Homestead excluded; other assets
$1,200 maximum. t
Maximum income measured by public assist
ance standards. Homestead, automobile,
and $500 cash surrender value insurance
excluded; all other resources considered
available for medical costs.
For single individual, maximum annual
Income $1,500; for couple, $3,000.
Homestead and other real property
excluded; personal property or other
liquid assets: $5,000 maximum for
individual, $7,500 for couple.
In-patient hospital care, including
surgical and laboratory services, private
duty nursing (in Department of Health
facilities); home visits by private phy
sicians, drugs, and prosthetic appliances
excluding glasses.
In-patient hospital care and related
medical services; physicians' services in
home or office for acutely emergent con
ditions requiring life-saving procedure
or which if not immediately treated would
require extended hospitalization and/or
surgery; nursing home care; limited
dental care, drugs, and ambulance
service.
In-patient hospital care for acute ill
ness, immediate surgery, and diagnostic
services; limited to 30 days annually.
Nursing home care after or to prevent
need for hospital care. Physicians'
services and drugs for acute illness,
and drugs for specified chronic illness,
such as diabetes, heart disease, terminal
cancer. Limited dental and ambulance
service.
Source: Pearl Bierman, "Meeting the Health Needs of Low Income Families," Th» Annals of the American
Academy of Political and Social Science (Philadelphia: The American Academy of Political and Social
Science, 1961), vol. 337, pp. 111-112.
275
276
eligibility for all aged persons even for those who were
not immediately in need of medical care. However, it dis-
continued this policy as of December of 1961.
Selection of Hospital. Physician, and the
Method of Payment
In virtually all states the selection of the vendors
of medical services and the method of payment under the
medical assistance program are very similar to that of OAA
programs. With minor exceptions, therefore, the suppliers
of medical services are selected and paid for on the same
basis under both programs. Since the selection of vendors
of medical care and the method of payment under OAA pro
grams have already been discussed, there is no need to
repeat them in here.
It is interesting to note, however, that West
Virginia, which was among the first states to initiate its
program of MAA, followed a more liberalized schedule of
fees and amount of medical services for its medical assist
ance program recipients than that of its OAA program. How
ever, due to rapid rate of expenditures under MAA program,
it was forced to bring its MAA program in line with its
OAA program by a general modification of the procedures
Ill
of authorization, tightening financial eligibility require
ments, and by an over-all change in the amount of services,
fee schedule, and so forth.
The Number of Recipients and the Expenditures
under the Program
According to Table XXV, the number of recipients and
the amount of payments,under medical assistance program
gradually increased from October 1960 through December
1961. In January of 1962, however, there was a drop in
both the number of recipients and the amount of payment as
West Virginia deferred payments for January and Maryland
changed its method of reporting, causing a decrease of
11,400 in the number of recipients.
*
As of January 1962, 82 per cent of all recipients
were in Massachusetts, Michigan, and New York. A more
detailed account of number of recipients and payments for
recipients is given in Table XXVI. Of the total payments
for medical care for recipients, some 92 per cent were made
by these three states.
^ Ibid.. pp. 91-92.
278
TABLE XXV
MEDICAL ASSISTANCE FOR THE AGED: NUMBER OF STATES
REPORTING, NUMBER OF RECIPIENTS, AND TOTAL
PAYMENTS, EACH MONTH, OCTOBER 1960
TO JANUARY 1962
Year and Month
Number of
States
Reporting
Number of
Recipients Payments
1^60
October 0
November 3 12,791 $2,441,175
December 5 14,922 2,922,261
1961
January 5 16,734 3,437,412
February 5 18,678 3,852,628
March 5 21,492 4,033,741
April 7 27,998 5,890,726
May 8 41,388 8,295,631
June 9 46,247 9,311,027
July 10 52,030 10,943,079
August 14 59,093 11,959,747
September 15 60,928 12,654,268
October 16 66,396 13,681,550
November 16 71,655 13,015,298
December 18 72,159 13,919,808
1962
-
January 22 64,690 14,852,990
Source: United States Department of Health, Education, and
Welfare, The Health Care of the Aged (Washington, D.C.:
Government Printing Office, 1962), p. 92.
279
TABLE XXVI
MEDICAL ASSISTANCE FOR THE AGED: RECIPIENTS AND PAYMENTS
FOR RECIPIENTS, BY STATE
JANUARY 1962a
Number of Payments for Recipients
State Recipients Total Amount Average
Total 64,690 $14,852,990 $229.60
Arkansas 667 29,729 44.57
California 600 89,946 149.91
Hawaii 230 44,996 195.63
Idaho 1,060 165,112 155.77
Illinois 181 91,738 506.84
Kentucky 1,444 22,558 15.62
Louisiana 129 29,429 228.13
Maine 432 97,896 226.61
Maryland 3,510 124,492 35.47
Massachusetts 18,637 3,283,182b ^ 176.16
Michigan 4,741 1,463,361 308.66
New York 29,915 8,908,818 297.80
North Dakota 691 129,114b 186.85
Oklahoma 267 67,180 251.61
Oregon 65 15,647 240.72
Puerto Rico 224 3,672 16.39
South Carolina 781 121,759 155.90
Tennessee 210 12,897 61.41
Utah 457 66,324 145.13
Virgin Islands 85 2,222 26.14
Washington 312 78,200 250.64
West Virginia 52 4,718 90.73
aFigures in italic represent program under State plan not
yet approved by the Social Security Administration.
All data subject to revision.
I )
Excludes money payments not subject to Federal participa
tion as follows: $97,817 in Massachusetts and $2,226 in
North Dakota.
Source: United States Department of Health, Education, and
Welfare, The Health Care of the Aged (Washington, D.C.:
Government Printing Office, 1962), p. 93.
In some states, namely, Massachusetts, New York,
Idaho, and North Dakota, a great percentage of all MAA
cases opened through December 1961 were transfers from OAA
programs--63, 41, and 66 per cent respectively. By con-
trast, however, In the seventeen other states reporting on
openings, only about 5 per cent of the cases opened were
transfers from OAA. The reason for a high percentage of
transfer cases In both Massachusetts and New York was
because both states had a large number of cases on their
OAA programs who were In nursing homes. Because of the
existence of the maximum of $65 matchable by Federal
government and the high cost of nursing homes, these two
states received relatively little Federal aid for these
nursing home cases. At the inception of MAA program, both
states transferred all or most of their nursing home cases
from OAA to MAA where there is no maximum on the amount of
payments matchable by the Federal government.
In January 1962, payments under MAA were about one-
half of total vendor payments under OAA programs for the
country as a whole. The relation between the two programs,
however, varies widely from state to state. According to
Table XXVII, in some states, the MAA expenditures are
281
TABLE XXVII
VENDOR PAYMENTS UNDER OAA AND MAA PROGRAMS: COMPARISON
OF EXPENDITURES IN STATES WITH MAA PROGRAMS,
JANUARY 1962
State
Vendor
Payments
Under OAA
Payments
Under
MAA
All States $29,941,701 $14,852,990
States reporting MAA payments 14,774,903 14,852,990
Arkansas 394,626 29,729
California 3,228,464 89,946
Hawaii 15,185 44,996
Idaho 45,451 165,112
Illinois 2,463,206 91,738
Kentucky 167,388 22,558
Louisiana 1,219,760
29,429
Maine 240,134 97,896
Maryland 53,133 124,492
Massachusetts 911,655 1,283,182
Michigan 707,238 1,463,361
New York 972,116 8,908,818
North Dakota 138,485 129,114
Oklahoma 1,301,775 67,180
Oregon 546,714 15,647
Puerto Rico 17,207 3,672
South Carolina 160,771 121,759
Tennessee 244,673 12,897
Utah 195,002 66,324
Virgin Islands 1,683 2,222
Washington 1,625,343 78,200
West Virginia 124,894 4,718
Other States 15,166,798
Source: United States Department of Health, Education, and
Welfare, The Health Care of the Aged (Washington, D.C.:
Government Printing Office, 1962), p. 95.
282
larger than the vendor payments tinder OAA programs. Other
states, on the other hand, spend very little on MAA as
compared with vendor payments under OAA programs.
IV. AN EVALUATION OF THE OLD-AGE ASSISTANCE AND
THE MEDICAL ASSISTANCE FOR THE AGED PROGRAMS
An evaluation of public programs for the needy and
medically-needy aged must consider OAA and MAA jointly.
A thorough evaluation of these public programs, however,
is not very feasible here due to a great diversity which
exists among states in the provision of medical care for
the needy and medically-needy aged. A few generalizations,
however, can be made with respect to these programs.
The changed matching provisions for medical care
under OAA together with the MAA programs have resulted in
greater public expenditures for the needy and medically-
needy aged. While in September 1960, vendor payments tinder
OAA programs amounted to $25.3 million, in January 1962,
vendor payments under OAA and MAA programs amounted to
$44.8 million. However, it is generally agreed that
"in many states and localities assistance recipients were
283
not obtaining adequate [medical] care."
Four states do not assume any responsibility under
OAA for provision of medical care through vendor payments.
In twenty-nine other states, the average medical care
expenditures for January 1962 through vendor payments were
less than $13 a month per recipient. This is certainly
below what is required for the purchase of adequate medical
care. The American Hospital Association and the American
Medical Association have proposed Blue Cross and Blue
Shield policies for all aged persons. While these insur
ance contracts would cost about $15 a month, they would
meet only 50 per cent of the total medical needs of the
aged. The Old-Age Assistance recipients, being older than
most of the other aged and experiencing more illness and
disability, require more medical care than most of the
35
other aged.
Sfedical Resources Available to Meet the Needs of
Public Assistance Recipients. A Report by the Department
of Health, Education, and Welfare to the Committee on
Ways and Means, United States House of Representatives,
87th Congress, 1st Session (Washington, D.C.: Government
Printing Office, 1961).
35
U.S. Department of Health, Education, and Welfare,
The Health Care of the Aged, p. 85.
Thus, individuals and families with "low incomes" to
meet their medical needs cannot count necessarily in all
states and comnunities on public assistance medical-care
programs. A number of states have not taken full advantage
of Federal matching funds provisions in the Federal-state
public assistance programs for provision of medical care.
Although Congress hoped that states would offer broad pro
grams of medical services and low standards of eligibility
under the MAA programs, many states have not taken advan
tage of the situation.^
Moreover, the public medical-care programs for the
needy and medically-needy aged have been advantageous to
the high-income states. The low-income states where need
is likely to be greatest have the greatest difficulty in
financing even minimal services. For example, New York
alone accounts for almost two-fifths of the $13.4 million
increase in total monthly payments under both OAA and
36
Low income families are defined as "those with
incomes below the taxable limit under present federal
income tax laws." This is less than $1,325 for a mother
and a child, less than $2,675 for a married couple with
two children, and $4,000 for a family of six. See L. A.
Epstein, "Some Effects of Low Income on Children and
Their Families," Social Security Bulletin, XXIV (February,
1961), 12.
285
MAA programs, when expenditures of January 1962 are com
pared with those of September 1960. The additional Federal
share In these payments was about 80 per cent of the total
increase. Federal matching provisions are such that it
does not make too much difference to many low-income states
whether they provide medical care through OAA or MAA pro
grams. However, MAA programs offer increased opportunities
to high-income states for Federal matching of expenditures
for medical care of the needy and medic ally-needy aged.^
The position of the medically-needy aged is even
less favorable than that of the needy aged. Since the
medically-needy aged must apply for aid and undergo "means
tests," investigation often handicaps adequate and timely
medical care. In addition, many aged persons may delay or
forego the medical care either because they do not want to
accept charity or submit to the embarrassment of financial
investigation. Furthermore, many have stressed the in
dignity of "means test."
The provision of medical care for both the needy and
medically-needy aged is handicapped by lack of coordina
tion. As one writer points out:
37
U.S. Department of Health, Education, and Welfare,
The Health Care of the Aged, pp. 95-96.
286
Such a scattering of administrative responsibility
tends to result in confusion, inefficiency, and
waste; duplication, or more frequently gaps in
service; delay in the patient's securing necessary
care; and lack of continuity of the patient's care.
For example, a recent study of medical care for the needy
and medically-needy in New Haven showed that services
are available from a wide variety of public and private
sources:
. . . including the city welfare and health
departments, the County Commissioners, the State
Division of Public Assistance, the State Division
of Child Welfare, state tuberculosis sanatoria and
mental hospitals, the State Department of Health,
the State Department of Education, voluntary hos
pitals, private physicians and dentists, the Dental
Clinic Society, the local chapter of the National
Foundation for Infantile Paralysis, the New Haven
Visiting Nurses Association, and a number of other
agencies.
The study concluded, however, that in spite of all these
programs, many of the medical needs of all low-income or
indigent persons are not being met adequately
38
Gertrude Sturges, "Public Medical Services as it
is Today at State and Local Levels," Social Service Review.
XIV (September, 1940), 502.
. s
39
Milton I. Roemer and Dorothy R. Granoff, "Medical
Services for Needy Persons in New Haven," Health, New Haven
Department of Health, Vol. 76 (April, 1950), pp. 2 ff.,
cited by Terris, op. cit., p. 89.
287
It has been argued that since these programs, par*
ticularly the Medical Assistance Program for the Aged, are
based on medical needs, therefore, no tax money is used to
support r , aged millionaires." Yet, it must be pointed out
that under the political pressures of the moment, the
political parties in a state where they are competitive
will seek to enlarge the scope of medical benefits. Since
the state has the right to determine what a "means test"
will be and also determines the scope and the amount of
services, it might change them arbitrarily.^1
The Kerr-Mills program which West Virginia pioneered
in 1960 collapsed on January 8, 1962. State funds were
running out because few doctors have agreed to accept lower
fees, and only twenty-three of 108 hospitals originally
under the plan remained in the program when the maximum
daily service charges were cut from $35 to $25. Although
West Virginia aimed to enlarge the scope of services, lack
of funds and the unwillingness of the vendors of medical
services to cooperate with the plan necessitated drastic
41
"Help for the Aged--The Kennedy Plan, an Interview
with Abraham Rubicoff, Secretary of Health, Education, and
Welfare," U.S. News and World Report. LII (February 6,
1962), 62.
I
288
cutbacks which finally resulted in the collapse of the
plan. It is, therefore, agreed that an "average" state
42
cannot afford the full Kerr-Mills approach.
Another objection to the public medical care pro
grams for the needy and medically-needy aged is the lack
of uniformity of various programs in different states.
Because of different financial capacity of different
states, there is a great elversity in the scope and the
amount of services and standards of eligibility among the
states. Thus the high-income states with a more compre
hensive plan receive relatively more of the Federal funds
than those states with either a limited plan or no plan
at all. This involves an "inequitable" use of the Federal
funds.
A state system of medical care for the needy and
medically-needy aged involves two more problems. First,
in launching a comprehensive medical-care program, a state
f
42
"Medical Plan Nears Rocks," Los Angeles Herald-
Examiner. January 8, 1962, p. 2.
/ O
Agnes W. Brewster, "Meeting the Health Needs of
the Aged," The Annals of the American Academy of Political
and Social Science (Philadelphia: The American Academy of
Political and Social Science, 1961), vol. 337, p. 122.
289
may fear the competitive disadvantage which may result for
its businessmen as against those in other states that do
not take such action. Secondly, it enhances the interven-
tive power of the government, the state rather than Federal
government, not only with respect to the scope and the
amount of services but also with the determination of
financial ability and "means test." Although local and
state governments know their needs better than the Federal
government, the preceding difficulties may hinder the
establishment of an adequate program of medical care for
the aged.
Finally, the limited funds have forced almost all
of the public medical-care programs for the needy and
medically-needy aged to pay the vendors of medical services
less than their regular fees. This has often resulted in
low standards of quality of medical care. Even with
enlarged expenditures under MAA program, it is doubtful
that this problem could be entirely eliminated.
In short, the greatest problem in the field of medi
cal care for the aged is financing of medical care for the
middle income aged, for the needy aged are taken care of by
public assistance programs and the rich can take care
290
of themselves. Lack of uniformity, Incoordination, Insuf
ficient funds, and lack of professional supervision have
even handicapped an adequate medical-care program for the
needy and medically-needy aged. However, financing of
medical care for the middle-Income aged seems to be one of
the most controversial Issues of the day. While one group
argues that the ultimate growth of private health Insur
ance with public medical-care programs for the needy and
medically-needy aged will eventually solve the problem of
financing of medical care for the aged, the other group
considers this as a sort of "measured hope" and would
establish a national health Insurance for the aged under
the social security system— a subject which will be
examined in the next chapter.
V. SUMMARY
Traditionally, the medical care of the needy has
been left to local governments and private charity. With
the relative decline of private charity and the inadequacy
of local programs under the Impact of the Great Depression,
the Federal government voider Federal Smergency Relief
Administration entered the field of medical care for
291
the needy and medically-needy aged. Although the program
lasted for two years, it influenced the subsequent develop
ment in the field.
Since 1935 the Federal government has entered the
field of medical care for the needy and medically-needy
aged to an Increasing extent. State and local governments
have also increased their efforts to provide medical care
for the indigent and medically-indigent aged. All these
programs, however, have been somewhat ineffective in pro
viding adequate medical care for the needy and medically-
needy aged.
Although there is room for improvement in the public
medical-care programs for the needy and medically-needy
aged, the experience of these programs has led to a number
of conclusions by some authorities. First, the problems
of medical care for the indigent and medically-indigent
aged cannot be solved in isolation from the general problem
of medical care for all the aged. Secondly, the problems
of medical care for the needy or medically-needy aged or
the aged as a whole cannot be solved on a state and local
basis even with the Federal financial participation be
cause of lack of uniformity, coordination, and effective
administration. These problems together with the financial
status and the medical needs of the aged--which make them
somewhat of a poor risk for private insurance— have led
many to advocate a national health Insurance program under
the social security system.
CHAPTER VII
FINANCING OF MEDICAL CARE FOR THE AGED THROUGH
THE SOCIAL SECURITY SYSTEM
One of the most complex and controversial problems
facing the United States today is the determination of the
best structure for providing and financing medical care for
the population. At the present, however, public attention
is focused on the provision and financing of medical care
for the aged. This is mainly due to the peculiar and
complex nature of medical care for the aged in that aged
persons have a relatively greater need for and a higher
rate of utilization of medical-care services, which is
complicated by their lessened financial capacity, which is
underscored by a lack of adequate health protection.
The possible paths in providing medical care for
the aged population form a broad spectrum. On one hand,
there is the present program of developing private health
insurance with public and general assistance for the needy.
293
4
294
*
At the opposite side Is a national health Insurance, fully
taxed supported, providing complete medical care to all
the aged. Within these two extremes, there Is a great
variety of systems of voluntary and government programs.
The multiplicity of proposals with respect to the
provision and financing of medical care for the entire
population In general, and the aged in particular, makes
any concise grouping difficult. With respect to the medi
cal care for the aged, however, two proposals seem to be
predominant. One proposal suggests that the great advances
of voluntary health Insurance In the past will reach a
point where all persons aged 65 and over will be covered
by private health Insurance. Nothing more Is needed than
the public provision of medical care for the needy and the
medically-needy aged. The other proposal advocates that
the most logical plan to finance and administer a program
of medical-care insurance for the aged is through the
Social Security system for the same reasons that led to
adoption of a contributory plan instead of the assistance
approach for the retirement Income.
^Marion B. Folsom, "Goals of a National Health Pro
gram for Meeting Health Needs," The Annals of the American
Academy of Political and Social Science. Thorsten Sellin,
ed. (Philadelphia: The American Academy of Political and
Social Science, 1961), vol. 337, p. 16.
The preceding two chapters explored the first
proposal with the conclusions that did not totally sub
stantiate the claims of its proponents. This chapter aims
to examine the second proposal very briefly. More spe
cifically, this chapter aims to: (1) present a very brief
historical development of compulsory health insurance in
the United States; (2) examine the nature of the proposed
bills which aim to provide hospital and nursing home care
for the aged, financed through the Social Security system;
(3) present a brief account of "pros" and "cons" of volun
tary versus compulsory health insurance; and (4) an evalu
ation of the major elements of the controversy.
I. A BRIEF HISTORICAL DEVELOPMENT OF COMPULSORY
HEALTH INSURANCE IN THE UNITED STATES
The principle of compulsory health insurance was
first established in Prussia in 1854, when local authori
ties were empowered to require the existing guilds to form
insurance societies and to compel employees to make con
tributions. Other countries followed suit until today most
European and many other countries of the world have either
compulsory health insurance or free medical care as part
296
of a comprehensive social insurance.
Interest in national health insurance began shortly
before World War I and has been renewed over time. The
main events and developments of the compulsory medical-care
insurance can be divided into four broad periods.
First Period. 1910-202
During the first period, the American Association
for Labor Legislation was the main group exploring the
issue of compulsory national health insurance and making
concrete solution. This organizafion was organized in
1906 by a few well-known economists and by 1913 it had
more than three thousand members in different fields of
endeavor.
The main objective of the American Association for
Labor Legislation was to explore and improve some of the
basic social problems in a highly industrialized society.
The adoption of Workmen's Compensation was the prime objec
tive of this organization. With the passage of Workmen's
2
See Odin W. Anderson, "Compulsory Medical Care
Insurance, 1910-1950," The Annals of the American Academy
of Political and Social Science. Thorsten Sellin, ed.
(Philadelphia: The American Academy of Political and
Social Science, 1961), vol. 273, pp. 106-113.
297
Compensation laws in thirty states by 1915, the American
Association for Labor Legislation, commonly known as AALL,
took upon itself the task of promoting a national medical-
care insurance.
In 1912, the AALL established a Committee on Social
Insurance to study the medical care in the United States
and formulate appropriate policies. At the seventh annual
meeting of AALL in 1913, the organization proposed a com
pulsory medical-care insurance for the United States.
Subsequently, a subcommittee of the Committee on Social
Insurance was established to draft a bill in preparation
for an active campaign in the states and in Congress. By
the end of 1915 a model bill was drafted to be presented
to Congress. At the same time several organizations,
including the American Medical Association, appointed com
mittees to study and cooperate with AALL. The response was
so great and the prospect for a passage of a compulsory
medical-care insurance in the United States was so favor
able that the Secretary of AALL wrote:
The opportunity now appears good for a big edu
cational campaign for the conservation of health,
with fair prospects for legislative commissions
298
to Investigate in 1916 and for compulsory health
insurance legislation in this country in 1917.
No specific opposition seemed to be in sight as long
as the medical-care insurance was discussed without rela
tion to specific and concrete actions. However, as soon
as ten state commissions were established to study the
subject and make recommendations, and bills were introduced
in sixteen states, the opposition gathered strength and the
seemingly favorable attitude of the American Medical
Association turned into vigorous opposition. The vigorous
opposition and campaign by organized medicine, the pharma
ceutical companies, the health insurance companies, and
Samuel Gompers, president of the American Federation of
Labor, brought a quick halt to the AALL proposals and any
hope for the passage of a national compulsory health insur
ance program. Although bills to provide both cash disa
bility benefits and medical care were introduced in the
legislatures of three states in 1915, and twelve states in
1917, none of these bills reached the statute books.^
3Ibid.. p. 107.
Helen Hollingsworth and others, Health Pro^i-anm
Digest. United States Public Health Publications, Federal
Security Agencies (Washington, D.C.: Federal Security
Agency, 1952), p. 124.
299
Second Period. 1921-33
The second period, 1921*33, was a quiet one devoted
to study and examination of basic facts and problems
revealed in the first period. Numerous conferences were
called in the 1920's to formulate plans for a study of the
structure of medical services of the country, especially
its economic aspects. As a result, the Committee on the
Costs of Medical Care (CCMC) was established.
From 1928 to 1932 the CCMC released twenty-eight
reports dealing with the incidence of illness, the cost of
medical care and other aspects of medical care. Finally,
the CCMC published its final report dealing with recom
mendations on the basis of its findings. However, the
final report contained a majority and a minority report
which split the CCMC and its supporters into two factions.
The majority report was of the opinion that: . . .
medical service, both preventive and therapeutic,
should be furnished largely by organized groups of
physicians, dentists, nurses, pharmacists, and other
associated personnel and that the costs of medical
care be placed on a group payment basis, through the
use of insurance, taxation, or both.^
Committee on the Costs of Medical Care, The Final
Report of the Committee on the Costs of Medical Care.
Adopted October 31, 1932 (Chicago: University of Chicago
Press, 1932), Publication No. 28, pp. 109, 120, 179, 180.
Cited by Anderson, op. cit.. p. 109.
300
The minority group, while agreeing with the majority
report on many points, "objected to the proposal for group
practice and the adoption of insurance plans unless
sponsored and controlled [italics not in original] by
organized medicine."*’ The American Medical Association
responded to the final report of CCMC by stating:
The alignment is clear— on one side the forces
representing the great foundations, public health
officialdom, social theory— even socialism and
communism [italics not in original] inciting to
revolution; on the other side, the organized medical
profession of this country urging an orderly evolu-
tion guided by controlled experimentation which will
observe the principles that have been found through
the centuries to be necessary to the sound practice
of medicine.'
Thus this period was characterized by study of medi
cal care and its belated aspects. No attention, except an
academic one, was given to the issue of compulsory health
insurance for the United States. The only practical step
taken In this period was the passage of the Sheppard-Tower
bill, over the opposition of organized medicine, to provide
^Anderson, op. cit.. p. 109.
^Journal of the American Medical Association. No. 99
(December 3, 1932), p. 1952.
301
grant8'Inlaid to states for maternal and child health
8
programs.
Third Period. 1933-50
The recommendations of the Conmlttee on the Costs of
Medical Care and the Great Depression, which revived the
Interest and support for health Insurance on a national
level, formed the base of the third period of the com
pulsory medical-care Insurance. Unlike the first and the
second periods, however, during the third period, the
Federal and state governments have been the instrumental
force of the reopening of the issue of government-sponsored
medlcal-care insurance. This period is characterized by
an emerging of a consensus that medical care and its
financing pose an acute problem; yet there remained pro
found disagreement as to what should be the solution.
In 1934 the President appointed the Committee on
Economic Security to make recomnendations for a program
"against misfortunes which cannot be wholly eliminated in
Q
this man-made world of ours." The comnittee was supposed
g
Anderson, op. cit.. p. 108.
9Ibid.. p. 110.
302
to study many problem areas including medical care*
Medical-care insurance was given short shrift, however,
when the Coamittee on Economic Security reported that
"medical care insurance could not even reach the research
stage, not to mention its incorporation in the social
security program."^
Following the passage of the Social Security Act
in 1935, a number of compulsory health insurance bills were
introduced into Congress, all of which died in Committee.
Lack of space does not allow a comprehensive treatment of
all these bills Introduced into Congress. However, some
of these bills deserve brief attention.
The Wagner Bill, S. 1620, which was introduced into
Congress in 1939, was:
To provide for the general welfare by enabling
the several states to make adequate provisions for
public health, prevention and control of disease,
maternal and child health services, construction
and maintenance of needed hospitals and health cen
ters, care of sick, disability insurance, and train
ing of personnel; to amend the Social Security Act;
and for other purposes. 1
1QIbid.
^ United States Congressional Record. History of
Bills and Resolutions. Vol. 84, part 15, 76th Congress,
1st Session, Bill S. 1620 (Washington, D.C.: Government
Printing Office, 1939), p. 668.
303
The Eliott Bill was introduced in the House of
Representatives in 1942. In 1943, 1945, 1947, 1949, and
1951 a number of bills were introduced into the Congress
which were similar and have been called the Wagner'Hurray*
Dingell type bills.^
An important bill, S. 1606, was introduced in 1946,
called the "National Health Program." It was introduced
in the Senate by Senators Wagner and Murray; an identical
bill was introduced in the House of Representatives by
Congressman John D. Dingell. The bill was to provide:
Grant8 to states for health services, including
Public Health Services, Maternal and Child Health
Services, and Medical Care for Needy Persons; and
prepaid Personal Health Service Benefits, which in
clude the services of physicians, dentists, nurses,
laboratory and related services, and hospitaliza
tion.
Most employed and self-employed individuals were
eligible for benefits. Although not stated, the implica
tion was that the program was to be financed mainly by a
12
Hollingsworth and others, op. cit., p. 127.
13
United States Congress, Senate, National Health
Program, Hearings before the Committee on Education and
Labor, United States Senate, 79th Congress, 2nd Session,
on S. 1606, April 2, 1946 - July 10, 1946 (Washington,
D.C.: Government Printing Office, 1946), I, 9.
304
11/2 per cent tax on each employee's wages up to $3,600
per year with an equal amount to be paid by his employer,
with some funds appropriated from the general funds of the
Treasury.
The controversy over this health program lasted for
three months and the amount of testimony taken at the
Senate hearing was composed of 3086 pages of very small
type. The defense was effectively checkmated by confusion,
not logic, and the bill died in conmittee.
A similar bill, "The National Health Insurance and
Public Health Act," was introduced in the House of Repre
sentatives in 1949. The provisions of the bill were
similar to those of "National Health Program." Although
this bill did not provide for compulsory health insurance,
it aimed to establish a system of prepaid personal health
insurance financed by the Treasury through general funds,
and later through a payroll tax of 1 1/2 per cent of a
person's wages up to $4,800 matched by the employer, and a
3 per cent tax on the net income of the self-employed
up to $4,800.^
14
United States Congress, House of Representatives,
H.R. 4312, 81st Congress, 1st Session, April 23, 1949
(Washington, D.C.: Government Printing Office, 1949),
pp. 1, 7-8, 104, 109, 111-112, 118-119, 122-123, 143-147,
148, and 149.
305
After extensive hearings and testimony on the bill,
the subcommittee of the House of Representatives concluded
that it was necessary for them to tour Europe to investi
gate and study the health plans in effect there. Likewise
the Senate concluded its hearings by concluding that the
hearings were not helping to resolve the points at issue
and favored the idea of a study of the voluntary insurance
plans in the United States. This study was completed and
published in 1951.15
Since 1949, several bills have been introduced in
Congress, but none have received much attention and all
have died in Committee.
Fourth Period. 1951 ~ Present
In 1948, Oscar R. Ewing, the Federal Security
Administrator, recommended - a compulsory health insurance
system in a report to the President. This plan was dubbed
as socialized medicine and consequently 'received a great
United States Congress, Senate, Committee on
Labor and Public Welfare, Health Insurance Plans in the
United States, Senate Report 359, Part I, 82nd Congress,
1st Session (Washington, D.C.: Government Printing Office,
„ 1951), p. viii.
306
deal of opposition, particularly from organized medicine.^
Then in 1952 President Truman, with the backing of
the Magnuson Commission on the Health Needs of the Nation,
proposed a "middle-of-the road" plan which called for:
(1) further extension of voluntary Insurance programs;
(2) the Federal and state government subsidies to pay
premiums for the medically indigent; and (3) the construc
tion of numerous medical centers throughout the country for
1 7
doctors who would practice in groups.
Although this plan was basically to extend the
voluntary health insurance plans in the United States and
would have cost the Federal government a billion dollars
a year, the successful medical lobby opposition resulted in
its shelving in the Congress.
In 1953 President Eisenhower proposed a voluntary
health "reinsurance" plan. The "reinsurance" plan would
cover the Insured (who might carry his own medical prepay
ment plan or pay his own doctor- bills) against the most
^Oscar R. Ewing, The Nation's Health. A Ten Year
Program: A Report to the President (Washington, D.C.:
Federal Security Agency, 1948).
*^E. Bryant Phillips, Consumer Economic Problems
(New York: Henry Holt and Company, 1957), pp. 372-373.
307
costly of his medical, surgical, and hospitalization
expenses. The plan quieted the issue of compulsory health
insurance and, although the American Medical Association
finally endorsed its general objective, the bill did not
18
pas8 the Congress.
In spite of several attempts to introduce medical
plans of one kind or another in the 1950's, most of these
bills were essentially identical with the ones examined in
the preceding pages.
The latter part of the 1950's and the beginning of
the 1960's saw a revival of interest in medical care and
its financing. Most of the proposals and bills, however,
dealt with the medical care of the aged rather than the
entire population.
The bills introduced into Congress on medical care
of the aged have become so numerous that they are difficult
to follow. However, two bills have emerged as the focus
of the conflict over the provision and financing of medical
care for the aged. One bill which has already passed the
Congress in 1960--the Medical Assistance for the Aged or
18Ibid., p. 373
308
the Kerr-Mills Act--calls for the provision of medical
care for the medically-indigent aged. This program has
already been discussed in detail in Chapter VI.
The other program, the so-called King-Anderson Bill,
calls for the financing of medical care for the aged
through the Social Security System. Although this bill did
not pass the Congress in 1962, it would be presented to
Congress again. Therefore, an examination and evaluation
of this bill will be undertaken in this chapter.
The major developments in the medical-care contro
versy could be as follows: (1) in 1933 medical-care insur
ance, regardless of type of sponsorship, was an issue;
(2) by 1939 insurance as a means of defraying and spreading
of the costs of illness ceased to be an'issue. At this
time most hospitals supported hospital insurance plans and
the American Medical Association began to direct its atten
tion to similar medical insurance plans; (3) by 1939 an
insurance system covering the entire population regardless
of the type of sponsorship was an issue; (4) by 1946 both
the American Hospital Association and American Medical
Association sponsored a nationwide system of health insur
ance sponsored and operated by themselves; (5) the remaining
309
basic issue has become whether to have a national com
pulsory medical-care insurance or a national voluntary
system; and (6) at the present time, however, the issue of
compulsory health insurance versus voluntary insurance is
focused on the aged.
The question of medical care has been subject to so
much controversy and confusion that the basis of agreement
and disagreement should be briefly stated. It is agreed
by all factions that all should have access to "adequate"
medical care irrespective of income. It is also agreed
that the costs and risk of illness should be defrayed and
spread through insurance. There is disagreement, however,
as to sponsorship and control. The same general conclusion
I Q
applies to the medical care for the aged. 7
II. MEDICAL CARE FOR THE AGED THROUGH
SOCIAL SECURITY SYSTEM
Since 1952, a number of proposals have been made for
Federal legislation that would provide hospitalization and
sometimes additional medical-care benefits to beneficiaries
19
Anderson, op. cit., p. 112.
310
of the Old-Age, Survivors, and Disability Insurance pro
gram. Some fourteen bills which would use the old-age and
survivors insurance approach have been introduced in
Congress. A detailed account of all these bills is beyond
the Intended scope of this chapter. In spite of some dif
ferences with respect to the scope of benefits, standards
of eligibility, administration, manner of financing, and
other related provisions, all these bills would use the
old-age and survivors insurance approach in the provision
and financing of medical care for the aged. Therefore,
this chapter will only examine the King-Anderson Bill or
the "administration plan of health insurance for the
20
For a detailed account of all bills which would
use the old-age and survivors insurance approach to the
financing of medical care for the aged, see United States
Legislative Reference Service, Digest of Public General
Bills of the 86th Congress. 1st Session, Final Issue
(Washington, D.C.: Government Printing Office, 1959);
United States Reference Service, Digest of Public General
Bills of the 86th Congress. 2nd Session (Washington, D.C.:
Government Printing Office, 1960); and United States
Legislative Reference Service, Digest of Public General
Bills of the 87th Congress. Final Issue (Washington, D.C.:
Government Printing Office, 1961).
311
The Specifications of the Administration Plan
of Health Insurance for the Aged
On February 9, 1961, President Kennedy sent to the
Congress a "Special Message oh Health and Hospital Care"
which included a proposal to provide the aged with health
insurance protection through the Old-Age and Survivors
Disability Insurance (OASDI) program and the Railroad
Retirement System. Subsequently, two bills (H.R. 4222,
King, California, and S. 909, Anderson, New Mexico) were
introduced into the Congress to carry out the President's
reconmendation.
The President's "Message" or the King-Anderson Bill
(hereinafter referred to as the Administration Plan) pro
poses a hospitalization Insurance and nursing home care
program for the aged beneficiaries of the Social Security
and the Railroad Retirement System.
A detailed account of the Administration Plan is
not feasible here; but a brief account of the major provi
sions of this plan can be given.
Eligibility. Under the Administration Plan, health
Insurance protection would be provided tinder the OASDI
Program for all the aged who are either entitled to monthly
312
old-age or survivors insurance benefits or to an annuity
under the Railroad Retirement Act. Under the plan, a per
son would be eligible for health protection insurance at
age 65 even if his monthly cash benefits are being with
held because of income from work.
The plan would only cover those aged who are either
under the Social Security System or the Railroad Retirement
System, and thus would not cover persons wljo have not
worked in covered employment and self-employment long
enough to be insured. Thus of the 17 3/4 million aged in
1963, only 14 1/4 million--about 80 per cent of the aged--
would be eligible for benefits under this plan.
With the enlargement of the Social Security System
together with other health insurance programs such as
Federal employees insurance, old-age assistance, and the
Medical Assistance for the aged, it is estimated that
almost all aged persons will have some kind of health
Insurance protection.
Scope of services and benefits. The Administration
Plan would provide payments for inpatient hospital ser
vices, follow-up skilled nursing home services, certain
313
organized home health care services, and hospital out
patient diagnostic services. Tables XXVIII and XXIX indi
cate the specific kind of services for which payments could
be made together with various limitations on payment and
21
those services which would not be covered.
Under the plan, health Insurance payments would
generally cover any hospital services and supplies which
are ordinarily furnished by a hospital and which are neces
sary in the care and treatment of its patients. The bene
ficiary, after paying $90 for the first nine days in a
hospital himself, would receive up to 90 days of hospital
care in any one illness.
In addition, the plan provides for home health
services up to 240 home visits during a calendar year.
This home health service consists of home visits by a
visiting nurse and other home health services such as
physical therapy. However, payments for home health
21
For a detailed account of scope and limitation of
services under the Administration Plan, see U.S. Depart
ment of Health, Education, and Welfare, Health Insurance
for Aged Persons. A Report Submitted to the Committee on
Ways and Means, House of Representatives, by the Secretary
of Health, Education, and Welfare (Washington, D.C.:
Government Printing Office, 1961), pp. 50-65.
3 1 4
iabie m m
HEALTH SERVICES ADD SUPPLIES THAT COULD IE PAID FOR UNDER THE ADMINISTRATION PUN
FOR HEALTH INSURANCE FOR THE AGED
Inpatient hospital benefits Skilled nursing home benefits Outpatient hospital
diagnostic benefits
Hoae
health benefits
Room and board Coverage United to bed and board In a H bed roots
or In sort expensive accomodations where medically
required
Not applicable Not covered
General duty
nursing services
Covered (Benefits would not cover private duty nursing) Coverage limited to part-time
or intermittent nursing care
Phyelclani1 aervlcei Not covered except where furnished by an Intern or resldent'ln-trslnlng In the
course of an approved teaching program, or where the services are In the field
of pathology, radiology, anesthesiology, and physical medicine and ere rendered
through the hospital. Part or all of the services of physicians Included under
hospital services may be covered If generally furnished by nursing homes.
Not covered
Physical, occupational,
and speech therapy
Covered Not applicable Covered
Medical ioclal services
Covered Not applicable Covered
Drugs Coveted Not applicable Not covered
Other services and
supplies necessary to
the health of the
patient
Covered if the hospital
customarily furnishes them
to Its patients
Covered If generally
provided by skilled nursing
homes
Covered If customarily
furnished by the hospital
to outpatients for the
purpose of diagnostic
study
To the extent permitted by
regulations, part-time or
Intermittent homemaker
services and such other
services which are not
specifically excluded as
may be permitted by
regulation
Source United Stetei Depirtient of Health, Education, and Velfere, Health Ineurance for Aged Persona, A Report Subnltted to the Connlttee on Hays and Means, House of
Representatives, by the Secretary of Health, Education, and Helfare (Washington, D.C.: Government Printing Office, 1961), p. 61.
TABLE XXIX
LIMITATIONS ON HEALTH INSURANCE PAYMENT UNDER THE ADMINISTRATION PLAN
Inpatient hospital Skilled nursing home
servicesa services*
Outpatient hospital
diagnostic services
Home health
services
Deductible $10 per day for each None (but is covered
of the first 9 days only after hospitall-
of hospitalisation zation to which the
during a benefit deductible applies)
period, with a mini
mum deductible amount
of $20
$20 per diagnostic
study
None
Maximum
duration
of benefits
90 days per benefit 180 days per benefit
period period
None 240 home health
visits per
calendar year
Over-all
limitation
on duration
of benefits
150 units per benefit period: One "unit" is
equal to (a) one day of Inpatient hospital
services, or (b) two days of skilled nursing
home services
None None
xhe limitations on hospital and skilled nursing home payments are applied on a "benefit period" basis.
An Individual's benefit period would begin with the first day he receives covered inpatient hospital
services and would end with the last day of the first 90-day period during which he was neither an
inpatient in a hospital or a skilled nursing home. A new benefit period would begin when the indi
vidual next receives covered inpatient hospital services.
Source: United States Department of Health, Education, and Welfare, Health Insurance for Aged Persons.
A Report Submitted to the Committee on Ways and Means, House of Representatives, by the Secretary of
Health, Education, and Welfare (Washington, D.C.: Government Printing Office, 1961), p. 58.
316
services are covered only If these services are furnished
by a public or nonprofit organization In accordance with
a plan for the patient's care which Is to be established
and periodically reviewed by a physician.
Finally, the Administration Plan provides for out
patient hospital diagnostic services. These include tests
and other services which are ordinarily furnished by a
hospital to its outpatients for diagnostic study. The
Social Security System pays for these services except the
first twenty dollars which must be paid by the beneficiary
himself. The reason for including diagnostic services is
to promote the economical use of hospital inpatient
services and to encourage preventive medical care.
The cost of a physician's services would not be paid
for under the plan except for the services of hospital
interns and residents-in-training plus the costs of ser
vices rendered by physicians in four fields, namely,
anesthesiology, radiology, pathology, physiatry, where
the physician furnishes his services to an inpatient as
an employee of the hospital or where he furnishes them
under an arrangement with the hospital which "governs the
317
2 2
provision of the services.'
Under the plan, payment could be made for drugs
furnished to hospital and skilled nursing home patients for
their use while inpatients. The cost of medicine taken at
home, even under care of a visiting nurse, is not included
in the plan and must be paid by the patient. In line with
*
the practice of most Blue Cposs plans and other insurers,
the Administration Plan pays for drugs which are listed in
the United Pharmacopoeia, National Formulary, and New and
Nonofficial Drugs. This section of the plan has received
a great deal of criticism, particularly by the American
Medical Association. According to Dr. Blaslngame, vice-
president of the American Medical Association, "there are
many other drugs that are used by physicians and do not
appear in these compendia," and for the Secretary of
Health, Education, and Welfare "to have the authority to
control or limit the professional judgment in the use of
23
drugs would be a serious matter." J
22Ibid., pp. 53-55.
^"Fight Ahead over Medical Care for the Aged: The
Doctors' Plan," U.S. News and World Report. LII (Febru
ary 5, 1962), 68.
This allegation, however, seems to be somewhat
unjustified for two reasons. First, as noted previously,
the same procedure is followed by most Blue Cross plans
and other health insurance underwriters who have received
the full support of the organized medicine. Secondly,
certain disciplines, whether by the medical profession it
self or by other sources, are needed with respect to the
prescription of drugs*. As noted in. a previous chapter,
many doctors, either because of forceful advertising or
purely lack of information, often prescribe a very expen
sive drug just because of its brand name, whereas a similar
drug of the same therapeutic effects could have been
utilized at much 'less cost.
Payment to providers. Under the plan, payments to
providers of services would be made on the basis of
"reasonable costs" of services furnished. The Secretary
of Health, Education, and Welfare will develop a method or
methods of determining cost. In computing reimbursement
on a "reasonable cost" basis, "the program would be follow
ing practices already well established and accepted by
319
hospitals In their dealings with other Federal programs.
Reimbursement formulas would not be developed until the
Secretary of Health, Education, and Welfare consults with
the Health Insurance Benefits Advisory Council and other
professional organizations. Reimbursement formulas would
be established based on the experiences of hospital associ-
ation, Blue Cross and other prepayment plans, state agen
cies, and Federal agencies.
The beneficiary is responsible for the furnishing of
any "unreasonable" services and he would bear the addi
tional cost involved. No payment would be made to a
Federal hospital, except for emergency services. Also
no payment would be made to any provider for services it
is obligated to render at public expense under Federal law
or contract. Payments would be made to participating
hospital only, except for emergency hospital services if
the hospital agrees.
Reimbursement procedures and formulas will un
doubtedly present certain difficulties at the beginning and
may present an area of contention between the proponents
*
n y
U.S. Department of Health, Education, and Welfare,
Health Insurance for Aged Persons, p. 66.
320
and the opponents of the Administration Plan. However, if
the plan draws on the experiences of the American Hospital
Association, other medical organizations, Blue Cross, and
other prepayment plans, it should be able to establish
sound accounting standards and acceptable and reasonable
reimbursement formulas.
There is, however, one section of the proposed plan
that has become the subject of a great amount of contro
versy. Section 1602 of the plan states:
Any individual entitled to have payment made under
this title for services furnished him, may obtain
in-patient hospital services, or out-patient hos
pital diagnostic services from any provider of
services with which an agreement is in effect under
this title. ^ [Italics not in original.]
26
In short, any ’ ’ eligible" provider may participate
in the program if it agrees not to charge any beneficiary
for covered services. Of course, the provider could bill
a beneficiary for the amount of the "deductibles" or for
the services required by the patient which are not covered
25
U.S. News and World Report, o p. cit., p. 68.
26
Every hospital, nursing home, and home service
agency must meet certain qualifications set forth by the
Secretary of Health, Education, and Welfare to become
eligible for participation. See U.S. Department of Health,
Education, and Welfare, Health Insurance for Aged Persons.
pp. 59-65.
321
by the plan. The "agreement" may be terminated by either
the provider or by the Secretary of Health, Education, and
Welfare. The Secretary may terminate an agreement only if
the provider: (1) does not comply with the provisions of
law or the agreement; (2) is no longer "eligible" to par
ticipate; and (3) fails to provide data to determine
benefit eligibility and costs of services, or refuses
27
access to the record for verification.
The opponents of the plan, particularly the American
Medical Association, argue that this "agreement" require
ment limits the patient's free choice. This point is well
taken; however, a number of points must be made. First,
if all providers of medical services enter into an agree
ment with the Department of Health, Education, and Welfare,
then the question of limitation of free choice will be
eliminated. It is realized that a nationwide agreement
between the providers of medical services and the Secretary
of Health, Education, and Welfare requires full cooperation
of organized medicine. However, the "Doctors' Plan"--which
is sponsored by organized medicine--for the medical care
27rbid., pp. 67-68.
322
of the aged will also require doctors' cooperation in
giving a special treatment to the aged by charging them
lower fees.^
Secondly, some Blue Shield plans--which are highly
endorsed by organized medicine--will also require patients
to go to doctors with whom the plans have entered into a
contract. Moreover, the "free choice of doctor" is an
illusive concept, the meaning of which is quite misunder
stood and confused— a point which will be examined more
fully in this chapter.
Finally, the American Medical Association alleges
that this section of the program will give the Secretary of
Health, Education, and Welfare a great deal of authority
to impose regulations on hospitals. An examination of this
section of the proposed program reveals the fact that the
organized medicine allegation is exaggerated. Certain
procedures have to be followed— such as free access to
records for verification, establishing eligibility, et
cetera, but such procedures have been followed by the
"Blues" and other insurance carriers for a long time.
28
U.S. News and World Report, op. cit.. pp. 67-69.
323
Nobody seemed to have uttered a word on jeopardizing the
independence of organized medicine.
The cost and financing of the plan. It is agreed
by everyone that figures for costs are only estimates and
will change as medical practices will change in the future.
When the Administration Plan was originally introduced in
February of 1961, the long-term level premium cost had been
estimated at 0.60 per cent of taxable payroll. The cost
of the program--which was estimated to be a little over
one billion dollars— would have been met by an increase in
the tax rate of 1/4 of 1 per cent each for employers and
employees, and by 3/8 of 1 per cent for self-employed per
sons. It was also proposed that the taxable earning base
be increased from $4,800 to $5,200.
Out of this cost, it is estimated that 0.10 per cent
would be met by the net additional revenue to the entire
Social Security System resulting from the increase in the
earning base. The remaining cost of 0.50 per cent is to be
met by an increase of 0.5 per cent in the contribution
29
For a detailed account of the cost estimates of
the Administration Plan, see U.S. Department of Health,
Education, and Welfare, Health Insurance for Aged Persons.
pp. 69-71.
Two basic questions should be raised with respect
to the cost and the method of financing of the proposed
plan. The first question relates to the method of finane-
ing of the plan which calls for an increase in both the
Social Security tax rate and the tax base. In this respect
two basic questions should be raised: (1) is not this
one-half per cent just the starting tax— one that will
continue to rise as the tax rate has risen under the Social
Security System? and (2) how far can the "tax load” be
increased without running into the economic, psychological,
and political adverse effects upon "basic economic incen
tives,” namely, working, consuming, saving, and investing
and taking risk? or how far can the tax rate be increased
without reaching the tax limits of the taxable capacity?
No easy answer can be found for these questions,
particularly the first one. Whether further tax increases
are necessary to finance the Administration Plan depends
upon the attitude and the determination of Congress toward
and against any tax increases, the success or the failure
of the plan to keep itself within its original scope, the
propensity of the aged to utilize medical services, the
rate of the growth of the aged population and their state
of health, and many other related factors. None of these
variables can be ascertained with some degree of accuracy
at this time. The second question relates to the question
of taxable capacity— a very difficult, complicated, and
controversial issue. Although it is agreed that there is
a limit beyond which taxes can adversely affect the "basic
economic incentives" and the proper functioning of the
economy, no one can foretell where this limit is, for the
taxable capacity is dependent and determined by many
factors such as the size and distribution of national
income, the distribution of tax burden, the structure of
the tax system, the kind and the structure of government
expenditures, the public psychological and political atti
tudes toward taxation, the state of the economy, the inter-
30
national situation, and many other factors. It is in
teresting to note, however, that most of the economists who
have dealt with the question of taxable capacity often
exclude Social Security taxes from the total tax load
30
For a comprehensive account of taxable capacity,
see Ali Hezareh, "An Analysis of Taxable Capacity and Its
Determining Factors with Special Reference to the United
States" (unpublished Master's thesis, University of
Southern California, Los Angeles, 1960).
326
on the grounds that Social Security taxes are more like
forced saving than a tax. This method, however, has
received some criticisms.
Thus as indicated previously, no answer can be found
for the first question, for variables are too many whose
values cannot be accurately determined.
The second question relates to the accuracy of the
cost estimates of the proposed program. Experience seems
to substantiate the opponentscontention that estimates of
31
costs seem to fall below the actual costs. Experience in
some European countries seems to indicate that a compulsory
insurance program has a tendency to expand ' ’horizontally”
by including more people such as family members, new
occupational categories, higher income brackets with the
ultimate tendency to absorb the entire population. The
system tends to grow "vertically'' also by providing more
benefits and services for lengthy periods of time. This
"horizontal" and "vertical" expansion necessitates creation
31
B. Abel-Smith and R. M. Timuss, The Cost of the
National Health Service (Cambridge, England: Cambridge
University Press, 1956), p. 2; Melchior Palyi, Compulsory
Medical Care and the Welfare State (Chicago: National
Institute of Professional Services, 1949), pp. 40-48.
327
and expansion of bureaucracies to take care of the admlnis-
32
tration of the plan.
This "three-dimensional" expansion tends to increase
the cost of the plan, unless its functions are profoundly
checked and medical care personnel are regimented. The
regimentation of medical personnel not only allows party
politics in their appointments, promotions, and rate of
their remuneration, but also may deteriorate the quality
of services.
In spite of their strength, whether the above argu
ments are applicable to the Administration Plan depends
upon many considerations and variables. First, it depends
upon the determination and fortitude of the Administration
to keep the plan within its original scope. Secondly, it
depends on how well the private sector of medical care
industry is taking care of the rest of the population.
Thirdly, it depends upon the attitude of the public toward
the provision for and financing of medical care. Finally,
the sponsors of the Administration Plan have maintained
that no effort should be made to interfere with internal
32
Palyi, op. cit.. pp. 44-48.
328
administration of hospitals or with the authority of the
physicians in medical matters, except for a "system of
statistical checks" to guard against undue utilization of
services and as a control on the quality of medical care.
How far this supervisory regulation can be extended depends
on the administrator of the plan.
The fact that the above arguments present possi
bilities that the Administration Plan may follow cannot be
denied. Yet the experiences of other countries with com
pulsory health insurance, though presenting a possibility,
cannot be easily utilized as a criticism of compulsory
health insurance for the American aged. Of all areas of
contention between the proponents and the opponents of
compulsory health insurance, the question of the cost and
the financing of the plan remains without too much of
strong defense. However, an evaluation of compulsory
health insurance must examine its shortcomings as well as
its achievements— a point that the opponents of the com
pulsory health insurance have usually neglected.
Administration of the plan. The over-all responsi
bility for administration of the health plan is vested in
the Secretary of Health, Education, and Welfare. Similar
329
responsibility for railroad retirement annuitants rests
with the Railroad Retirement Board.
An Advisory Council would be established to advise
the Secretary on policy matters in connection with the
administration. The Secretary would also consult with
appropriate state agencies, national and state associations
of providers of services, and other appropriate agencies
in connection with the development of policies, operational
procedures, and administrative arrangements. J
The administrative responsibility over the health
insurance program, procedures, and the day-by-day execution
of policies relating to beneficiaries and providers of
services would be delegated to the Bureau of Old-Age and
Survivors Insurance (BOASI). The experience of BOASI and
its reservoir of trained manpower together with its facili
ties have made it the logical choice in administering the
program. Thus, in terms of trained personnel, experience,
33
The Advisory Council consists of chairman and
thirteen members appointed by the Secretary of Health, Edu
cation, and Welfare who are not employees of the Federal
government. To assure representation of the health pro
fessions, four or more members of the Council would be
persons in hospitals or other health activities. See U.S.
Department of Health, Education, and Welfare, Health
Insurance for Aged Persons, p. 67.
330
facilities available to public, automatic data processing
equipment, and the high-speed communications network, the
BOASI is well prepared to carry out the additional oper
ating responsibilities of the health insurance program.
Significant participating roles in the program are
provided in the bill for state agencies and private organ
izations. The Secretary is authorized to use state agen
cies to perform certain administrative functions such as
determining which providers of services are eligible for
participation in the program and to render consultative
services to the providers to assist them in becoming
eligible to participate. State agencies would be reim
bursed for the costs of services they have rendered under
the plan.
It is also expected that organizations of providers
will cooperate and assist the Secretary in the adminis
tration of health program. These private organizations
would serve as a liaison between the administration and the
providers of services in connection with consultation,
collection of data, et cetera.
The Administration Plan provides for a ’ ’lead period"
of at least one year, between enactment of the statute and
331
the first month for which benefits are payable. This one
year is necessary for:
. . . the development and implementation of poll*
cies and procedures for administering the program;
arranging for operational participation of state
agencies and private organizations; creation of and
discussion with advisory boards; orientation of state
and federal employees in present jobs to new duties
generated by the health Insurance program; and re*
cruitment, training, and housing of new personnel.
Additionally, this lead period would enable the
BOASI to identify and register all persons eligible
for benefits under the new program.^
Once the initial policy and procedure developments
are made, then state health agencies are utilized to deter-
mine and certify the eligibility of providers to partici
pate in the program. Under verification and certification
of the providers of services, the Secretary of Health,
Education, and Welfare would enter into agreements with
various providers of services.
Each person entitled to health insurance benefits
would be issued an identification card by BOASI. In addi
tion to establishing an initial record for each eligible
beneficiary, all data affecting status and utilization
would be maintained by BOASI on a current basis.
34Ibid.. p. 78.
332
Applicants for health benefit services would be entitled
to appeal unfavorable determinations In the same manner as
now provided under the Social Security Program.
Finally, the program has provided for admission
procedure, audit of provider records, and the development
of a "statistical check system" to safeguard against over-
utilization of services and the quality of services.
A great deal of criticism has been launched against
the Administration Plan on the grounds that it will create
another area of abuse and corruption which will produce
inefficiency and "malingerers." Although the experiences
*
of state welfare programs and the compulsory health insur
ance programs abroad are not too encouraging, a few points
should be made in defense of the proposed plan. First,
so far as the question of efficiency is concerned, very
little information is available on that subject. In 1959,
however, the Department of Health, Education, and Welfare
made a thorough study of various methods of financing
medical care for the aged, including the purchase of insur
ance from private companies and from Blue Cross, and the
payment of benefits through Social Security. The study
showed that:
333
... if the benefits were paid by Social Security
through an increased tax, the administrative costs
would be lower than through Blue Cross or commercial
companies. Through Social Security, 93 to 98 cents
of every dollar paid in would be returned as bene
fits.35
Secondly, any medical-care Insurance of this magni
tude, regardless of its sponsorship and control, entails
some degree of abuse. Yet, with the cooperation of the
medical profession, a strong check can be placed on
"malingerers." Under the Administration plan, every hos
pital in America would set up its own screening coomlttee
composed of doctors and the people in the community who
will look at the cases that come in to make sure the people
are deserving and should have continued hospital care.
Finally, many arguments have been hurled against
public agencies such as public welfare agencies in connec
tion with their administration. Inefficiency and abuse,
it is argued, characterize the administration of these
public programs and agencies. The same criticisms
35
Hospitalization Insurance for OASDI Beneficiaries.
Report Submitted to the Committee on Ways and Means by the
Secretary of Health, Education, and Welfare (Washington,
D.C.: Government Printing Office, 1959), cited by Roland H.
Berg, "The Battle for Your Health Dollar," Look, April 11,
1961, p. 29.
334
are being launched against a compulsory medical-care insur
ance for the aged.
Two points should be made clear here, however.
First, inefficiency and abuse in the administration of a
plan do not necessarily mean an inherent fault with the
plan. Secondly— and this applies more to the criticisms
against national health insurance programs--the medical-
care industry is a sellers' market, whereby the sellers,
rather than the buyers, determine the need, the amount,
and the kind of services necessary. It is within the
power of the seller, therefore, to control the demand for
medical services. If the medical part of the public wel
fare program'or any national health program is character
ized by corruption, abuse, waste, inefficiency, and over
utilization, it is not mainly due to the plan itself or its
administrators, but rather to the fact that some doctors
are too busy to make an effort to discharge their responsi
bility.
III. AN EVALUATION OF VOLUNTARY VERSUS
COMPULSORY HEALTH INSURANCE
As noted previously, the issue of voluntary versus
compulsory health insurance has been debated extensively
335
by all groups. About twenty years ago the issue was
resolved in favor of voluntary insurance and prepayment
plans. The issue has been revived recently with respect
to the financing of medical care for the aged whose medical
care has become a very controversial economic, political,
and social issue.
The arguments which have been presented for and
against compulsory health insurance for the aged are
generally those which have been presented for the entire
population even though some of the arguments are not
applicable.
Two points should be made at the outset. First,
since some of these arguments have been already touched
upon in this dissertation, the analysis will be very brief
here and at times repetitious. Secondly, all social poli
cies and proposals for action are based on "explicit or
implicit ideological assumptions" and some intangible
factors. As Odin Anderson points out:
It has become increasingly difficult to debate
issues of private and public action in terms of
clear-cut alternatives because the actual choices
336
are not simple, because no problem today can be solved
without tedious and patient attention to technical
details. ®
Thus, an attempt will be made In the following pages
to review briefly the basic arguments for and against com
pulsory health Insurance, particularly as related to the
financing of medical care for the aged. It Is hoped that
thereby the air will be cleared of confusion and misunder
standing, paving the way for some policies for action.
Criticisms of Compulsory Health Insurance
So much has been written on compulsory health insur
ance and its defects that no facile conclusions can be
drawn. One point deserves brief attention, however. The
critics of compulsory health insurance or government health
insurance talk about it as though it is synonymous with
"socialized medicine." Although the difference between the
two systems is a matter of degree, it is basic enough to
make them distinct systems. A compulsory health insurance
3 6
Odin W. Anderson, "Private and Public Action in
Meeting Health Needs," The Annals of the American Academy
of Political and Social Sciences. Thorsten Sellin, ed.
(Philadelphia: The American Academy of Political and Social
Sciences, 1961), vol. 337, p. 59.
337
program--even though it is operated by the government —
is a system whereby the members are compelled to make
periodic provision for their medical-care needs. They
could purchase this "forced health insurance" either from
the national government, state governments, or even private
organizations. This compulsory health Insurance program
can be put into effect without too much control, regimenta
tion, or ownership of the medical facilities or personnel.
"Socialized medicine," on the other hand, as the
term economically implies, means a system whereby all or
the major "agents" of medical-care industry are publicly
owned. This differentiation is essential, particularly
when dealing with the recent controversy on financing of
medical care for the aged in the United States.
The "three-dimensional" expansion. The opponents
of compulsory medical care argue that a compulsory health
insurance scheme is bound to expand in scope with the con
sequence of Increasing costs, unless its functions are
profoundly checked. This is due to the fact that unlike
other kinds of security schemes (such as old-age pensions,
unemployment insurance, and disability insurance) which
can and usually are limited in financial terms, medical
338
care is an elusive concept and does not cover definable and
calculable risks which can be predicated in costs and
consequences. Moreover, while other security schemes give
partial aid to furnish a necessary minimum amount of medi
cal care, medical care services must be sufficient to
restore health.
The experiences in some European countries seem to
indicate that a national health program tends to expand
"horizontally” by including more people such as family
members, new occupational categories, higher income
brackets, with the ultimate tendency to absorb the entire
population. The system tends to grow "vertically" also by
providing more services and cash benefits for longer
periods of time, and even indefinitely. This "horizontal"
and "vertical" expansion necessitates the creation and
07
expansion of bureaucracies to administer the plan.
Regardless of the manner of financing a compulsory
1
insurance plan, this "three-dimensional" expansion tends
to Increase costs of the plan. Unless its functions are
firmly controlled, the increasing costs of the plan create
37
Palyi, op. cit., pp. 44-48.
339
a situation of perpetual deficit which requires subsidiza
tion at the expense of national and local budgets in
addition to the employers* and employees* contributions.
These arguments are borne out by the experiences of
most of the countries which have adopted national health
or compulsory health insurance programs. Whether the
financing of medical care for the aged in the United States
will follow the course of the European national health
programs depends upon the determination of Congress and the
Administration to keep the plan within its original scope,
the propensity of the aged to utilize medical services, the
rate of growth and the age distribution of the population,
the general state of health of the population, particularly
that of aged persons, the degree of effectiveness of
voluntary health Insurance in financing medical care of
the other age groups, the cooperation of the medical pro
fession against undue utilization of services, and the
public attitude toward medical care and its financing.
Regimentation of the agents of the medical care
industry and "mechanization of the patient-doctor relation
ship.1 1 It is argued by the opponents of national health
programs that unless medical personnel are regimented,
340
the scheme'8 cost of operation cannot be controlled. The
regimentation of medical personnel, it is argued, not only
allows party politics in their appointments, promotions,
et cetera, it may also deteriorate the quality of medical
care by mechanizing the patient-doctor relations or by
"dehumanizing" the medical profession. The "attendance
system," whereby a doctor's income depends on the number
of patients who register with him, rather than his quality
of performance, tends to turn the "pecuniary motive that
provided a positive incentive for higher quality of per
formance ... in the negative direction of driving for
more patients and less work with each of them."3®
This "attendance system" which leads to the mechani
zation of the patient-doctor relations may increase the
"doctor-per-minute," "drugs-per-ounce," or "teeth-pulled
per person." It may deteriorate the quality of services if
the demand becomes excessive. Even this quantitative gain
could be illusionary, if submarginal patients and psycho
somatic illnesses become a great factor in the expansion
of demand by creating more psychological incentives for
38Ibid., p. 77.
341
illness In a world where the fear of death and hypo-
chondriacy of life has made the modem man
... a vitamin-taking, anti-acid-consuming,
barbiturate-sedated, aspirin-alleviated, weed-
habituated, benzedrine-stimulated, psychosomatically-
diseased, surgically-despoiled . . . peptic-ulcerated,
tense, headachy, nlcotinized. over-stimulated, neu
rotic, tonsilless c r e a t u r e .
The "attendance system," whereby a doctor's income
depends on the number of patients registered with him,
makes the doctor lose some of his independence against the
p
patient who might force him to "give way to the demands
for benefits and certificates ... or else he cuts off the
branch of the tree on which he sits."^®
The essence of this argument is that a compulsory
national health program, through its "attendance system"
and regimentation of medical personnel, tends to mechanize
the patlent-doctor relations which may lower the quality
of medical services. It appears that this criticism does
not fully apply to the Administration Plan which provides
30
Dr. Herbert A. Ratner of Loyola University School
of Medicine, cited by Palyi, op. cit.. p. 49.
40
Ibid., p. 150, citing A. Greeser, Die Reichsvar-
sicherung. August 1930.
342
only for a limited amount of hospital and nursing-home
care, excluding the physician's services. Even if this
criticism applied to the Administration Plan, however, a
number of points should be made clear.
First, organized medicine asserts that any signifi-
cant change in the "traditional” patient-doctor relation-
ship--where the patient personally chooaes and directly
pays the physician--will result in the deterioration of the
quality of medical care. It should be noted, however, that
the image of the "traditional” patient-doctor relationship
is out of harmony with the realities of the I960's. For
e
' one thing, the able, harried, and often overworked doctor
may not find it possible to squeeze Into the thousands of
ten-minute consultations every year, a combination of warm
understanding with the latest medical knowledge. For
another, his bills may humanly interfere with "the essen
tial feeling of mutual understanding and trust.” These
factors together with the attitude of organized medicine
toward many issues have deteriorated the public image of
41
the profession.
41
John R. Lindsay, "What's Blurring Medicine's
Image?" Medical Economics, August 1, 1960, p. 127; "The
Crisis in American Medicine," Harper's, October 1960.
Aside from the changed public image of the medical
profession, other basic changes have taken place which have
profoundly affected and changed the patient“doctor rela
tionship. For one thing, the "authoritarian" relationship
has changed to "educational" relationship, where the
patient is to be educated with respect to his condition
so that he can assume greater responsibility. The need for
this sense of responsibility is partially caused by the
significant change in the nature of illness, from acute and
epidemic to chronic conditions. For another, specializa
tion and the technological changes have necessitated and
brought about the growth of group practice, "paramedical"
professions, and other developments. The man with his
black bag, the Jack of all trades, was perhaps appropriate
for his day and the past medical practice, but he is out
of harmony with the realities of the 1960*s.
Secondly, traditionally quality and free choice were
thought to be corollaries. Since free choice and economy
were thought to be Inevitably in opposition, so were
quality and economy. The "free choice - equal quality"
argument is being abandoned by licensing, closed-staff
hospitals, and professional quality control. Specializa
tion, group practice, and increased use of "paramedical"
344
personnel and mechanical aids are likely to produce the
best care quality and economy.^
Free choice, however, Is important. Modem medicine
has changed the nature of free choice, from the free choice
of the individual physician and hospital to a free choice
of ' ‘ plans" or "systems of care," for free choice could also
include a free choice of "medical care systems." Thus,
not only the nature of free choice has changed, but also
free choice, quality, and economy have been compromised.
Third, even if the concept of free choice is empha
sized in spite of other considerations, it is difficult to
determine the exact meaning of free choice and its value.
The freedom of consumers was an essential part of the
classical economic system. If consumers are free or sover
eign, the classical economists argued, then allocation of
resources is optional since it is according to consumer
choice, and consumers have maximized their aggregate
utility by allocating their expenditures in different
directions in such a manner that the marginal utility of
42
Herman M. Somers and Anna R. Somers, Doctors.
Patients, and Health Insurance (Washington, D.C.: The
Brookings Institution, 1961), pp. 403-413.
each consumption is equal to that of another. The under
lying assumption of this argument, however, is an "economic
man" who is well informed and able to calculate precisely
the marginal utility of each unit of his consumption— an
assumption that even the great English "neoclassicist,"
Alfred Marshall, could not resist by assuming group
"rationality." There is enough evidence to challenge this
classical idea of man and his society. Because of the
ever-changing nature of the industrial system, product dif
ferentiation, technology, and the forceful power of adver
tising, consumers are often misinformed and fail to assess
the true value of different products and services.
This is more true of medical services, where the
service is highly technical, where the patient does not
know what kind of services he wants or ne^ds and he is
often unable to determine the quality or the value of it
even after he receives it, and when his only source of
information is the names of two doctors given to him by the
local American Medical Association, or friends and neigh
bors. Therefore, free choice has its limitations when con
sumers pick blindly, and with economic rewards present,
it is difficult to control the quality of care and prevent
346
doctors from undertaking tasks beyond their competence.
Fourthly, pecuniary rewards could assure performance
If the medical-care Industry were purely competitive, where
forces from within and without would assure the production
of the best services at the least cost. The nature of the
service and form of competition have made the medical
Industry resemble monopolistic competition or even perhaps
a group of monopolies.^ This is due to the fact that the
services offered are quite differentiated and so far as
this particular transaction is concerned, there is only one
seller. Thus the ’ ’invisible hand” of Adam Smith, which
incidentally many have doubted whether it ever existed,
can not be relied on to assure maximum performance at the
least cost in the medical-care industry. Although the
medical "code of ethics” states that "financial gains
43
The writer is of the opinion that price competi
tion in the sense of classical economists does not exist in
the medical-care industry. Although some price competition
exists, the industry is characterized highly by nonprice
competition. Even the nonprice competition in the medical-
care industry is quite different from that of other in
dustries because of the very intangible nature of the
service. It is also very difficult to classify the
medical-care industry under any of the known market struc
tures. This is due to particular relation of the buyer
vis-a vis the buyer and the substitutability of the ser
vice. Further research is needed in this respect.
347
should be a subordinate consideration" in a patient-doctor
relationship, economic conditions often set limits to his
44
humanit ar ianism.
Finally, although everybody speaks of quality, it is
extremely difficult to quantify quality because of its sub
jective nature. The quantification of quality is even more
difficult in medical-care services because of the distinct
nature of the service. The "proof of the pudding is in
eating it" is not altogether a safe assumption in medical-
care industry, for many have died who have had the best
care, while others have recovered with poor care.^
Misallocation of medical resources. The opponents
of compulsory health insurance argue that the excessive
consumer demand not only lowers the quality of medical
care, but it may also create a disequilibrium fn the dis
tribution of medical resources. Tor example, free medicine
in Great Britain has caused such an excessive demand for
dental care that the number of dentists available for the
^Louis S. Reed, Health Insurance: The Next Step in
Social Security (New York: Harper and Brothers, 1937),
p. 8.
45
Ibid., p. 9.
348
dental school programs has fallen from 3,000 to 700.^
It should be pointed out, however, that it would be
folly for any program to be undertaken either to remove or
lower the economic barriers to medical care, thereby influ
encing the demand for it, without maintaining an adequate
supply of medical facilities and personnel. The Adminis
tration Plan of medical care for the aged would undoubtedly
increase the demand for medical services which would press
further on the "inadequate" supply of medical personnel and
facilities.
The above argument would have some merit if the
increased demand were artificial and unnecessary. However,
if the shift in consumer demand is truly reflecting the
consumer need, then the fault is not with the compulsory
health insurance program, but rather with the supply which
has not kept up with the forces of demand.
Finally, private-enterprise medicine has created
some degree of what economists refer to as "underemploy
ment," particularly for young doctors who have few
patients, while other doctors are overutilized. This is
46
Dr. Harold Hillenbrand, "Britain Pays Through the
Teeth," Nation's Business, 1XVI (December, 1949).
349
definitely a misallocation of resources.
Interference with the freedom of the doctors. It is
argued that the shortcomings and abuses of the compulsory
health system result in skyrocketing costs and deteriora-
tion of medical care. To cope with these problems, "con
trols" are needed. First, "deductibles" are introduced to
restrain demand. These deductibles, however, do not
accomplish their objectives because: (1) to be politically
expedient, they have to be small; and (2) the technique of
partial charges violates the basic principle of medical
security, namely, to relieve the financially weak patient
who cannot pay his share.^ This leaves the physical con
trols, such as controlling the "special drugs," limiting
prescriptions, et cetera, which interfere with the basic
right and freedom of doctors and patients.
There is a consensus that certain limitations must
be placed on the scope of' benefits and services to keep the
demand for medical services within a reasonable boundary.
Although any limitation of this nature violates the basic
principle of maximum and complete security, the existence
^Palyi, op. cit., pp. 141-153.
350
of other considerations necessitates striking a balance
between no medical security and complete medical security.
As far as physical controls and interference with
the medical rights of physicians are concerned, this is a
very controversial issue and has been exaggerated by both
sides. No public compulsory health system should interfere
with the freedom of doctors on medical matters. Yet,
doctors must also use this medical freedom with a great
deal of care to produce the best results at the least cost.
In short, the opponents of compulsory health insur
ance argue that voluntary health insurance and caring of
the "medically-indigent" under special arrangement, not
only fulfill the desirable economic and humanitarian objec
tives, it would also avoid the political, bureaucratic,
financial, and ethical fallacies of a compulsory health
plan.
Criticisms of Voluntary Health Insurance
The critics of a voluntary health system, who pro
pose one kind of compulsory health insurance or another,
have two basic sets of criticisms against it. The first
set of criticism is of general nature and applies to
private or voluntary medical-care systems. The second set
351
applies to the voluntary medical care for the aged.
The basic criticisms of the first group were briefly
given in the analysis and evaluation of compulsory health
insurance which appeared in the preceding pages. There
fore, only a brief recapitulation is given here. The
second set of criticism of voluntary health system--which
is presented more as an argument for financing of medical
care for the aged through Social Security-system--will be
given more attention here.
The general criticisms of voluntary health system.
The proponents of a compulsory health system argue that
every effort must be made to provide adequate medical care
available for everyone and that every effort must be made
that "this care is provided at lowest cost consistent with
fair renumeration to those who provide it, and that it is
paid for in such a manner as not to cause unnecessary
hardship.
The proponents of compulsory health systems argue
that private-enterprise medicine has failed to achieve the
above principle on which most people agree. This failure,
48
Reed, op. cit.. p. 241.
it is argued, is due to two factors. The first factor
relates to the faulty organization of medical-care
industry. Under the argument of "faulty organization," a
number of observations have been made. First, the nature
of medicine is so as to mark it off private enterprise as
compared with other business enterprise. This difference
is mainly due to the peculiar nature of the service "in
that the patient often does not know what particular sort
of service he wants or needs, and is frequently unable to
determine the quality or value of it after it has been
49
received." Moreover, the price of medical service
"is set in a market where, as far as this particular
50
transaction is concerned, there is only one seller."
Second, commercialization of medicine, not only has
led to many unethical practices such as "fee splitting,"
and "excessive and unnecessary services," but it has also
led to the creation of "under employment," a great gulf
between "need" and "performance," particularly in rural
areas and in preventive medicine--the "Cinderella" of
medical care— and in concentration of physicians in the
^Ibid., p. 8. ^ Ibid., p. 9.
353
most prosperous communities. Although humanitarianism is
emphasized by the medical "code of ethics," economic condi
tions often rule and set limits to medical practice.
Third, competition in the classical economists'
sense does not exist in the medical-care industry. Even if
it existed, it could not work satisfactorily in the field
of medicine because many consumers lack the information and
are often unable to judge the quality of the service; it is
a seller's market, and free choice has its limitations when
consumers choose blindly. Free choice and competition,
even if they existed, it is argued, might be injurious to
the welfare of the consumers. The huge amount of money
spent by the drug industry on advertising, and the sub
stantial amount of money spent on "home remedies" and
"patent medicine" are manifestations of a faulty organiza
tion.
Fourth, the cost for private-enterprise medicine,
particularly voluntary health insurance, rests on the
traditional conception of man and society. The proponents
of compulsory health insurance argue that the assumption of
"economic man" and the rationality of man's behavior is an
exception rather th n the rule in modem society.
354
The second set of criticisms relates to the eco
nomics of financing or paying for medical care. It is
argued that the cost of medical care has become such a high
barrier between people and medical care--the needs of which
arise irregularly and unpredictably— that "people, whether ^
from sheer poverty or from unwillingness to make the neces
sary sacrifice, do not scale it."51 Although it is
realized that great steps have been taken in reducing or
removing this cost barrier, voluntary health insurance has
somewhat failed to achieve comprehensive health insurance
on a mass scale at reasonable cost, and more important than
that, it has failed to provide protection where it is
needed the most, namely, the unemployed, the low-Income
group, and the aged.
Some of the above arguments possess some merits to
be considered; others are somewhat unjustified. It is
folly to deny the great achievements which have taken place
in medical care and medical finance in the last thirty
years. The medical-care industry has gone through some
fundamental and desirable organizational changes such as
51Ibid., p. 134.
355
group practices, closed plans, and prepayment plans. Great
achievements have been made by health insurance and pre
payment plans in lowering the cost barrier of medical care.
The American people have become more health conscious and
health educated. Government has become more active in the
field of medical care. As the result of these develop
ments, the American people have become the beneficiaries of
a great medical-care industry. With a greater compromise
of ideological differences, and with greater cooperation
of the private and public sector of the economy, greater
achievements and benefits are to be expected within a
system of "mixed" or "pluralistic" medicine.
Arguments for Financing of Medical Care
for the Aged Through Social Security
In spite of all these developments and achievements
in medical care and medical finance, there exist some areas
that require a greater degree of social action. These are
the areas in which private-enterprise medicine and volun
tary health insurance have not achieved a great deal. One
of these areas is the financing of medical care for the
aged.
356
Greater medical needs and meager financial resources,
underscored by less health protection, characterize the
medical problems of the aged. Because of the special
nature of medical care of the aged, it is argued that
government should provide the basic protection for the
retirees--that part of the risk which is most difficult to
handle on a private basis. By removing this high-cost
group, the health insurance companies and the prepayment
plans could offer wider protection with more adequate bene
fits to lower age groups. In this sense, therefore, a com
pulsory health insurance plan for the aged, financed
through Social Security system, would complement rather
than compete with voluntary health insurance.
The proponents of the Administration Plan, while
admitting the desirability of each individual providing for
his old age medical needs on a voluntary basis when his
income is significantly*reduced, are ready to point out
that many persons do not make such systematic provision.
Therefore, they argud that a compulsory health insurance
program not only provides for a systematic savings for old
age medical needs, but it also prevents the aged needy and
sick from becoming the wards of either their children
357
or the state. The Administration Plan has a further advan
tage in a sense that contributions are made during the
productive years of the beneficiary and no premium or con
tribution is made after retirement, when the marginal
utility of money is probably at its height.
The advocates of compulsory health insurance for
the aged through Social Security dismiss the argument that
the introduction of such a plan will interfere with the
patient-doctor relationship, or of the freedom of doctors
with the resulting lower quality of medical care. It is
argued that the proposed plan deals only with the financing
of medical care. Furthermore, the arguments of the oppo
nents of the program deal with some subjective factors
whose meanings have undergone profound changes.
Although some steps have been taken by the voluntary
health insurance proponents to provide health protection
for the aged, statistical evidence does not seem to sub
stantiate the voluntary health insurance advocate's
"measured hope." Experience seems to confirm that volun
tary health plans could not offer adequate health protec
tion to the aged at reasonable cost without shifting a part
of the burden to their younger members as some Blue Cross
358
plans have been doing through their "community-rating"
system.
It is further argued that the fear of "socialized"
medicine is unfounded for two reasons. First, the Adminis
tration Plan does not resemble "socialized" medicine--a
term which is carelessly used, particularly, as Vice
President Johnson stated, when people do not or cannot
agree with an idea or a person. Second, the private sector
is the overwhelming source of funds for personal health
services. The proposed program aims only to establish
"freedom of action with law for the general welfare."
Finally, the proponents of the Administration Plan
argue that public assistance for the medically-needy aged
is not a satisfactory solution for "the same basic reasons
which led to the adoption of a contributory plan instead
of the assistance approach for retirement income.
Because of geographical mobility, the problem is of
national character.
"Means test," low budgets provided by most states,
uncoordinated administration, scattered administration
52
Folsom, op. cit., p. 16.
359
of funds, higher administration cost, and other dlffl~
cultles, which were fully explained In Chapter VI, dis-
count the advisability of the public assistance approach.
Finally, not only the Administration Plan Is self-financing
without any adverse effect on the Federal budget, but also
more fiscal controls could be exercised If taxes are put
Into a trust fund rather than the use of general revenue.
IV. SUMMARY
The primary purpose of this chapter was to exercise
the proposal of financing medical care for the aged through
the Social Security System. Some of the advantages and
shortcomings of such a program were briefly examined.
A great deal of attention was given to the issue of
compulsory versus voluntary health insurance for the aged.
It was pointed out that it has become Increasingly diffi
cult to debate the issue of public and private action in
terms of clear-cut alternatives because all social policies
are based on "explicit or implicit ideological assump
tions."
The issue of voluntary versus governmental insur
ance has been debated extensively. However, none of the
360
arguments present an easy case for either system, at least
on theoretical grounds. Some of the differences between
the proponents and the opponents of compulsory versus
voluntary health insurance are simply the product of an
honest difference of opinion; others are due to ideological
differences.
The medical profession is somewhat reluctant to part
with the existing arrangements since it honestly feels that
the medical science and art of its application has flour-
ished under the existing system. Although they are aware
of the mounting, and sometimes prohibitive, costs of modem
medical care, they contend that the past and future
developments of voluntary and prepayment insurance will
ultimately remove this cost barrier. However, the pro
ponents of compulsory health insurance, though acknowledg
ing the great achievements in voluntary health insurance,
consider the arguments of the proponents of voluntary
health insurance somewhat as a "measured hope" and state
that:
. . . the evils of today should by no means
be tolerated because they were worse yesterday.
361
In order to build its own future each generation
must learn both to utilize Its past and to escape
it.53
A great deal of the controversy relates to the con
ception of man and society. The proponents of voluntary
health system advance their case on the assumption of an
"economic man/' and rationality of man's behavior is an
exception rather than a rule in modem society.
A great deal of the medical profession's fear of
govemmentalized medicine relates to Professor Galbraith's
idea of "countervailing power." Organized medicine forms
an "original power" and the recipients of medical services
present no unified "countervailing power" to create a more
equal bargaining power. Once the government steps into the
field of medical finance, a great "countervailing power"
is created to check the power of the medical profession--
an "original power." Organized medicine disclaims any
interest in increasing its power or preserving its "vested
interest." It is clear, however, as Professor Galbraith
explains, that "power obviously presents awkward problems
for a community which abhors its existence, disavows
53
Michael Davis, Medical Care for Tomorrow (New
York: Harper and Brothers, 1955), p. 434.
362
its possession, but values its existence."^
Finally, the main fear of the organized medicine of
public compulsory health insurance for the aged is clearly
based on the "foot-in-the-door" theory. In one respect,
the critics are undoubtedly correct. The present Adminis
tration Plan, which includes limited hospitalization and
nursing-home care, cannot endure. A more comprehensive and
balanced program, including drug bills— the second largest
item in the medical budget of the-aged--and other services,
will ultimately emerge.
Beyond this, it is difficult to see the force of the
argument. In fact, by assuming the responsibility of medi
cal care for the aged, a very high risk group, the Federal
Government would liberate the industry to meet successfully
the challenge of those under 65. In this sense, the
government program of medical care for the aged comple
ments rather than competes with the private health insur
ance industry. How well the private health insurance
industry can meet the financing of medical care of the
54
John K. Galbraith, The American Capitalism: The
Concept of Countervailing Power (Boston: Houghton Mifflin
Company, 1952), p. 30.
363
population will ultimately determine the extent of govern
ment participation.
The United States medical-care economy is highly
pluralistic and the possible forms of public and private
relations in the medical-care field are multi-fold, and
no one pattern is right for all the needs, for the problems
vary and thus the answers must vary. It should be con
cluded, therefore, that:
In our pluralistic economy health insurance will
probably never be expected to cover the full costs
of illness. It will also probably be necessary for
the predominant pattern of private insurance to be
supplemented by limited forms of public insurance
and public assistance.-^
5 5
Somers and Somers, op. cit., p. 402.
CHAPTER VIII
SUMMARY AND CONCLUSION
Great progress has been made in the science of
medicine and the art of its application. New medical tech
niques and discoveries, revolutionized medical institutions,
and other technological developments— all have made great
contributions toward preservation of health and life.
While the advance in knowledge and technology of
medicine has solved many medical problems, it has created
many problems in the economic organization and financing of
medical care. These problems are basically the results of
the fundamental changes in the demand and supply of medical
care.
Among the factors influencing the demand for medical
care are: (1) demographic changes; (2) industrialization
and urbanization; (3) the rising standard of living and
income; (4) the use of ancillary medical personnel and the
nature of medlcal-care facilities; (5) changes in the
364
365
causes of morbidity and death; (6) the extension of prepaid
medical-care programs; and (7) the effectiveness of pre
ventive medicine and the public attitude toward health.
Some of these factors are objective, while others
are subjective. It is clear, however, that the recent
progress in medical knowledge and technology has affected
some of the above factors and consequently the nature and
volume of demand for medical care. The increasing
longevity, for example, by changing the composition of
population, has created a large and growing segment of
population with chronic conditions and permanent disability
with a subsequent rise in the demand for medical services.
Furthermore, the very progress in medicine has shifted the
causes of morbidity from acute to chronic conditions which
require continued medical attention and services; or, the
new medicine and medical practice, which have necessitated
the development of ancillary or paramedical personnel,
require greater and more elaborate medical services.
Finally, the very progress in medicine has made people more
health conscious, with a subsequent increase in demand for
medical services. In short, progress in medicine and
medical technology, by influencing some of the tinderlying
366
factors of demand, has created greater need for medical
care which has led to an Increase In demand and In the rate
of utilization of medical services.
The progress In the science and technology of medi
cine has also had profound effects on the supply of medical
care and structure of medical practice. The spectacular
medical progress has resulted In specialization which In
turn has been partially responsible for the development of
group practice or corporate medicine, paramedical person
nel, elaborate hospitals, and so forth. Although the
medical-care industry has not adjusted itself to the new
situation smoothly and completely and many maladjustments
and dislocations remain, progress has been made and the
trend for the future is promising. In spite of the bene
ficial results of medical specialization, the greater
complexity of medical services, the necessity of costly
medical facilities and services, and specialization have
brought with them substantial increase in the medical care
bill.
The end result of the changes in the demand and
supply of medical care, among other things, has been the
steady rise in the medical care bill. This increase
367
in the medical-care expenditures reflects partly the in
crease in the utilization of medical services and partly
the rise in price of medical care.
The growing need for medical care and its rising
price coupled with the unpredictable and uneven costs of
illness have made it necessary to find some method of
spreading the risk and for defraying the costs of illness.
Thus, health insurance and prepayment plans have been
developed to defray the unpredictable and uneven costs
of illness. The spectacular growth of voluntary health
insurance plans in the last twenty years together with
other public programs have eased the burden of medical
costs. Voluntary health insurance has demonstrated that
insurance against medical costs is practical and great
steps have been taken in that direction. Yet, there are
some 50 million people who have no protection of any kind.
They are mostly composed of the aged, the disabled, the
low-income workers, and the unemployed--those who need the
protection most, and can afford the cost of protection
the least. Even among those who have health insurance,
"comprehensive" or even "adequate" coverage is lacking.
For example, while 72 per cent of all Americans have
368
some health Insurance, these policies pay, on the average,
25 per cent of the medical bills of Insured persons and
only 20 per cent of the nation*s private medical care
bills. The growing demand for medical services and the
rising costs of medical care have been the most Important
Impediments toward more comprehensive coverage--a paradox
which has been brought about by the very progress in the
science and technology of medicine.
The growing demand for, and the increasing costs of,
medical service, which have been influenced largely by the
very progress of medical science and technology, have
created many problems in the financing of medical care and
the economics of paying the medical care bill. This
medical-economic problem is of greater dimension for the
aged, because of their greater medical needs and their
lessened economic capacity. That is why so much public
attention has been recently focused on the different
methods of financing medical care for the aged.
The primary purpose of this study was to examine
the alternative methods of financing of medical care for
the aged— particularly a comparative analysis of voluntary
versus compulsory health insurance. Before a comparative
369
analysis of the alternative methods of financing of medical
care for the aged was to be taken, however, it was neces
sary to examine the nature of demand and supply of medical
care for senior citizens. In the Keynesian fashion the
"supply function" was assumed to be constant, while the
"demand function" was analyzed.
Two aspects of the demand for the aged for medical
care were examined, namely, their health needs and their
medical-care expenditures. Although this study emphasized
the "effective demand" of the aged for medical care meas
ured by their medical-care expenditures--particularly in
evaluating the effectiveness of voluntary health insur
ance --an examination of their "potential demand," measured
by their health needs, was also made. This was necessary
to focus some attention, academic and otherwise, on the
extent of the unmet medical needs of older persons.
In analyzing the health needs of aged persons, it
became certain that the aged experience increasingly
serious and costly medical problems. Disabling illnesses,
both acute and chronic, occur relatively more often among
the aged than the population as a whole. While the aged
constitute 9 per cent of the total population, they account
370
for 40 per cent of the long-term or permanent disability.
They are twice as likely as younger persons to suffer a
chronic condition and six times as likely as younger per
sons to have one restricting or limiting activity. By
age 75 every fourth person is totally unable to carry on
"normal" activity. The average old person is incapacitated
five weeks of the year by illness or injury, with two of
these weeks spent in bed.
In short, despite the many limitations of health
surveys, the aged have far higher rates of physical impair
ment, morbidity, and disability. This is more pronounced
in cases of chronic conditions and associated disability
which require extensive and lengthy medical services. In
fact, if a "clinical" approach is taken and only the insti
tutionalized population is considered, far higher rates of
morbidity, physical impairments, and associated disability
for the aged emerge, as compared with other age groups.
An objective assessment of the medical-care industry
and the financing of medical care must be based on the
monetary costs of the medical needs of the population or
any segment of it. Therefore, an attempt was made to dis
tinguish between the "potential demand" (measured by
371
the health needs) and the "effective demand" (measured by
the medical-care expenditures) of the aged to throw some
light on the extent of the unmet medical needs. It was
realized, however, that the translation of morbidity data
into actual medical-care expenditures presents a formidable
task. For, to what extent the medical needs of the popula
tion in general, and those of the aged in particular,
receive medical attention depends not only on the availa
bility of medical facilities and personnel and the finan
cial resources of the population, but also on the attitudes
of the population toward utilization of medical services.
Although it was concluded that the monetary costs of the
"potential demand" for medical care are somewhat higher
than the actual medical-care expenditures, this study
examined the economics of financing of medical care for the
aged on the basis of their actual expenditures on medical
services.
The aged also have a far higher rate of medical care
utilization than other age groups. They experience more
days of hospitalization and other medical services. Once
the number of the aged in "long-stay institutions" is taken
into consideration, an even greater rate of hospitalization
372
and other medical-care utilization emerges--a rate which
has been increasing three times as fast as other age
groups.
The greater use of medical services by the aged is
also partly reflected in their relatively greater medical-
care expenditures. While the annual medical charge for all
persons in 1957-58 was $94, it came to $177 for those 65
>
and over. Once these figures are adjusted for free medical
care received by the aged, both public and private, then
it becomes evident that the elderly persons spend a great
deal more on personal health services than other age
groups. Even more disturbing is the greater increase in
the rate of medical-care expenditures which has caused a
growing discrepancy between the average annual medical-care
expenditures of all persons and the aged.
The greater medical-care expenditures of the aged
partly reflect greater health needs and medical-care
utilization and partly the rising price of medical care—
both of which have been partially caused by the very prog
ress of medical knowledge and technology. This has put
the aged in a special category--the financing of whose
medical care is more expensive than the rest of the
population.
373
In spite of the greater medical needs and medical-
care expenditures, the aged have relatively less financial
resources to meet their medical needs. Various studies
show that three-fifths of "noninstitutionalized" persons
aged 65 and over--one-third of the men and three-fourths of
the women— had less than $1,000 in "money income" in 1958.
Only one-fifth— one-third of the men and one-tenth of the
women--had annual incomes of more than $2,000.
Although the money income of the aged has been
rising in the last ten years, the aged, on the average,
have a lower money income than the other age groups. Among
the aged males with incomes in 1957, the median income was
only $1,421, compared with $3,684 for all males. Also in
1957, the median income of families headed by the aged
was $2,490, compared with $4,900 for family heads of all
ages. The decisive fact in the low incomes of the persons
aged 65 and over is full or partial withdrawal from the
labor force in old age.
A more accurate picture of the financial capacity of
the aged must consider the fact that the aged need less--
particularly because dependent children have left the home
and the size of the family is smaller--and that a large
number of the older people have some assets. However,
their accumulated Incomes consist mainly of home owner
ship— a source of accumulated income which might not be
easily used to meet their medical-care expenditures without
disturbing their "normal" or "established" standards of
living. It also appeared that those with lower current
incomes have no or very little assets. On the basis of
several attempts by the Bureau of Labor Statistics of the
Department of Labor, it was concluded that a sizeable
proportion of the aged has income below the level recog
nized by public assistance agencies for the costs of basic
needs.
A more penetrating picture of the economic capacity
of the aged should not only consider the amount of the
current and accumulated income, but also the sources of
current income and the nafure of the assets. Once it is
realized that the substantial part of incomes of the aged
is fixed, then it appears that the consistent rise in the
level of prices has been cutting deeply into the real value
of incomes of the older persons.
The "creeping inflation" of the last two decades has
posed more problems in income maintenance of the aged than
375
for the population in general. While adjustments to
changes in the value of money have been made quickly for
large groups in the population through higher current
earnings for retired persons who can no longer count on
earnings from employment, the adjustment has too often had
to come in the reduction of purchasing power.
"Creeping inflation" has also affected the level of
the expenditures of the aged, particularly their medical-
care expenditures whose price has been rising faster than
othex items on the Consumer Price Index. Lack of com
parable data made it difficult to compare the impact of
inflation on the expenditures of the aged as compared with
the rest of the population. It seems clear, however, that
the impact of inflation on the medical-care expenditures
of.the aged is greater than that of other age groups since
the aged are heavier users of medical services.
On the basis of many studies of the financial
resources of the aged, it was concluded that many older
persons do not have adequate financial resources to main
tain themselves and their families as independent and self-
respecting members of their communities, to obtain adequate
medical and rehabilitation services required to allow them
376
to function as healthy and useful members of society.
Although there is every reason to expect improvement in the
income position of the future generations of the aged, the
existence of many factors caution against too optimistic
an evaluation of their financial resources to meet their
medical expenses.
The growing need for medical care and its rising
costs coupled with the unpredictable and uneven costs of
illness have made it necessary to find some methods of
spreading the risk and defraying the costs of illness. The
means of spreading the risk and defraying the costs of ill
ness is agreed to be insurance. Thus medical-finance
institutions have been developed to offer health insurance.
A variety of means and institutions are involved in the
field of medical finance, however. Basically two cate
gories present themselves: voluntary methods and public
finance. Each category, whose basic difference is in the
ownership and control, could take several forms.
An examination of voluntary health insurance plans
in the United States revealed that its spectacular growth
in the last twenty years has eased the burden of medical
costs. Because of high medical-care costs of the aged,
377
voluntary health insurance has thus far failed to make a
major contribution toward meeting these costs. Although
great efforts have been made to provide health insurance
for the aged and ingenious devices have been tried, they
remain the most inadequately protected age group. While
over 70 per cent of the population of the United States
had some health insurance, only some 46 per cent of
"noninstitutional" aged had some hospital insurance, 37 per
cent had surgical coverage, with only 10 per cent having
coverage for physicians' services. There is a further
sharp fall-off as the aged progressed in years ranging from
53 per cent for ages 65 to 74 to 32 per cent for those
75 and over. It is also estimated that only one-third of
the aged have group insurance; the others must rely on the
far less adequate and more expensive individual policies.
It was concluded that while a number of surveys
indicated a rising health insurance coverage trend for the
aged, this segment of the population who need the protec
tion roost are least adequately protected, particularly as
to the extent of benefit coverage. The health insurance
industry cannot be blamed for this dilemma, for the
industry has offered almost any kind of policy with
378
different scope of benefits at different costs. The
trouble with most of the aged is that the coverage they can
afford to buy offers very little protection. The coverage
they need, private insurance cannot offer at an "actu-
arially sound price.'4
Undoubtedly, effective health insurance for the aged
requires significant defraying of costs to other segments
of the population. While Blue Cross and most of the inde-
pendent plans are doing this by using a conmunity-rating
system, yet this involves certain problems. First, the
competition from the experience-rating insurance companies
has put most of the Blue Cross and independent plans in
great financial difficulties which increasingly threaten
their capacity by continuing a conmunity-rating system.
Secondly, the voluntary nature of private insurance pre
cludes the authority required to merge the costs of a
special high-cost-low-income group with balancing sectors
of the population. Finally, some might question the equity
and justification of hidden taxation of younger members
of a conmunity to finance a part of the medical-care bill
of the aged. It is argued that if this is necessary, it
should be done in the open.
379
The reason that voluntary health Insurance has thus
far failed to make a major contribution toward meeting the
medical care of the aged is the fact that they are low-
income-high-cost group. That is why it was concluded that
the medical-care costs of the aged cannot be met, unaided,
by voluntary health insurance and prepayment plans as they
exist today. The aged simply cannot afford to buy from any
of these the scope of care that is required, nor can any
carrier, whether nonprofit or conmercial, provide benefits
which are adequate at a price which is feasible for any but
a small proportion of the aged.
An important and growing source of funds for medical
care for the needy and medically-needy aged has been the
public assistance programs. Traditionally, the medical
care of the needy has been left to local governments and
private charity. With the relative decline of private
charity and the inadequacy of local programs under the
impact of the Great Depression, the Federal government
under Federal Emergency Relief Administration entered the
field of medical care for the needy and medically-needy
aged. With the institution of old-age assistance program
and the Medical Assistance for the Aged, the role of the
380
Federal government In the provision of medical care for
the needy and medically-needy aged has been constantly
increasing.
An evaluation of these public programs is not very
feasible due to a great diversity which exists among states
in the provision of medical care for the needy and
medically-needy aged. A few generalizations, however, were
made with respect to these programs. First, a large number
of states have not taken full advantage of Federal matching
funds provisions in the Federal-State public assistance
programs for provision of medical care. Thus, individuals
and families with low incomes to meet their medical needs
cannot count on all states and communities to provide
public assistance medical-care programs.
Secondly, the public medical-care programs for the
needy and medically-needy aged have been advantageous to
the high-income states. The low-income states where need
is likely to be greatest, have the greatest difficulty in
financing even minimal services. For example, New York
alone accounts for almost two-fifths of the $13.4 million
increase in total monthly payments under both Old-Age
Assistance and Medical Assistance for the Aged programs,
381
when expenditures of January 1962 are compared with those
of September i960. Moreover, five-sixths of all expendi
tures under the MAA program are being made in two states.
Thirdly, the existence of "means tests" and investi
gation often handicaps adequate and timely medical care.
Fourthly, the provision of medical care for both the needy
and medically-needy aged is handicapped by lack of coordi
nation. Such a scattering of administrative services tends
to result in confusion, inefficiency, waste, duplication,
gaps in service, delay in the patient's securing necessary
care, and lack of continuity of the patient's care.
Fifthly, since the state has the right to determine
what a "means test" will be, and also determines the scope
and the amount of services, each state, where the political
parties are quite competitive, might change them arbi
trarily. This is what happened in West Virginia, where the
MAA program pioneered in 1960 finally collapsed on Janu
ary 8, 1962.
Sixthly, lack of uniformity of various programs in
different states presents many problems. Since the high-
income states have a more comprehensive plan, they receive
relatively more of the Federal funds than those states
382
with either a limited plan or no plan at all--a definite
"inequitable" use of the Federal funds.
In short, the problems of medical care for the indi
gent and medically-indigent aged cannot be solved in
isolation from the general problem of medical care for all
the aged. Since the problem is of national nature, it has
to be taken care of on a national basis.
The heavy burden of medical needs and expenditures
together with lessened economic capacity underscored by the
inadequacy of private health insurance and public assist
ance programs have posed a great economic problem for the
aged and the American economy. This dilemma has led many
to propose compulsory national health insurance for the
aged through the Social Security system.
This proposal which is before the United States
Congress has revived the controversy over the compulsory
versus voluntary health insurance. It was pointed out that
it has become increasingly difficult to debate the issue
of public and private action in terms of clear-cut alter
natives, for all social policies and proposals for action
are based on explicit or implicit ideological assump-
t ions.
383
The proposal for a program of compulsory health
Insurance for the aged through the Social Security system
represents a departure from the pattern of voluntary health
insurance which was widely accepted about twenty years ago.
Of the many issues raised by the proponents and opponents
of the proposals, few stand out. First is the question
whether the existing system of voluntary health insurance
can do the job. The second question relates to the cost,
administration, and operation of a compulsory system. The
last question relates to whether the adoption of compulsory
health insurance will pattern a compulsory health insurance
for the entire population. So far as the first question
is concerned, the conclusion reached in this study was a
"qualified" negative. In spite of great advances in volun
tary health insurance, it is very difficult for the pro
viders of health insurance to provide adequate health
protection for this "high-cost-low-income" group without
shifting some of the costs to their younger policy holders,
which creates several problems of its own. 1
The issue of administration, operation, and cost
is difficult to evaluate here. Although the experiences
of the compulsory health Insurance adopted in several other
384
countries are not too encouraging In these respects, there
Is no reason why a compulsory health Insurance for the
aged In the United States should follow the same pattern.
The last Issue--namely, the Implication of an eventual
national program of compulsory health insurance— can hardly
be resolved, for the answer depends on many variables,
namely, how well the voluntary health insurance can take
care of younger people, the economic and social philosophy
of government and its functions in the American economy.
The diversity of variables makes a conclusion difficult to
render, for we can evaluate the past, analyze the present,
and only philosophize about the future.
In spite of great numbers of arguments which have
*
been presented for and against a compulsory health insur
ance for the aged, neither side presents an easy case for
either system theoretically. On practical grounds, how
ever, an easier case can be made for compulsory health
insurance for the aged for a number of reasons. First,
a compulsory national health insurance program for the aged
will force them to make systematic provision for their
future medical needs. Secondly, by liberating the pro
viders of private health insurance from this high-cost-
low-income group, the voluntary health insurance system
385
can provide a more universal and adequate health protection
for the younger persons. Finally, in view of relatively
unsuccessful attempts by the private insurance carriers
and the inadequacy and shortcomings of the public assist
ance program, a national compulsory health insurance pro
gram for the aged through the Social Security system seems
to be the best possible alternative solution.
It is necessary, therefore, in the pattern of the
American economic policy, to strike a balance between the
private and public provision of medical care, for as one
writer concludes:
In our pluralistic economy health insurance will
probably never be expected to cover the full costs
of illness. It will also probably be necessary for
the predominant pattern of private insurance to be
supplemented by limited forms of public insurance
and public assistance.
The central issue of the controversy over compulsory
versus voluntary health Insurance is man’s struggle to re
arrange his social and economic organizations and institu
tions to keep pace with technology, changing needs, and
environment. Once the air is cleared of misunderstanding
^Herman M. Somers and Anne R. Somers, Doctors.
Patients, and Health Insurance (Washington, D.C.: The
Brookings Institution, 1961), p. 402.
and cliches, the only real opposition to a national com
pulsory health insurance for the aged comes from human
familiarity with familiar ways, habits, traditions, self-
interest, and relatively inflexibility of human institu
tions. In order to reap the fruits of technological
progress, the medical-care industry may have to understand
the great historical forces and seek to adapt itself to the
new imperatives.
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Chronic Conditions. United States. July 1957 ~ June
1958. Department of Health, Education, and Welfare,
Public Health Service. Washington, D.C.: Government
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_______. Preliminary Report on Volume of Physician Visits.
United States. July to September 1957. Public Health
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396
U.S. Public Health Survey. Older Persons. Selected Health
Characteristics. United States. July 1957 ~ June 1959.
Department of Health. Education, and Welfare. Public
Health Service. Washington. D.C.: Government Printing
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University of Pennsylvania, Wharton School of Finance and
Commerce. Study of Consumer Expenditures, Income, and
Savings, Statistical Tables, Urban U.S.. 1950.
Wharton, Pennsylvania: University of Pennsylvania,
1957.
Van Dyke, Frank, and Ray E. Trussell. "Voluntary Health
Insurance as a Mechanism for Meeting Health Needs,"
The Annals of the American Academy of Political and
Social Science. Thorsten Sellln, ed. Philadelphia:
The American Academy of Political and Social Science,
1961. Vol. 337, pp. 70-80.
Voluntary Health Insurance and the Senior Citizen.
A Report on the Problem of Continuation of Medical
Benefits for the Aged in New York State. New York:
Insurance Department, State of New York, February
1958.
White House Conference on Aging. Background Paper on
Impact of Inflation on Retired Persons. Washington,
D.C.: Government Printing Office, July 1960.
_______. Background Paper on Income Maintenance.
Washington, D.C.: Government Printing Office, June
1960.
Williams, P. The Purchase of Medical Care Through Fixed
Periodic Payment. New York: National Bureau of
Economic Research, Inc., 1932.
Wolfenden, H. H. The Problems of Medical Economics.
Toronto: Canadian Medical Association, 1941.
397
B. PARTS OF SERIES AND GOVERNMENT PUBLICATIONS
Administered Prices in the Drug Industry. Hearings before
the Senate Committee on the Judiciary, Subcommittee on
Antitrust and Monopoly, 86th Congress, First Session,
Part I. Washington, D.C.: Government Printing Office,
1959.
The Aged and Aging in the United States: A National
Problem. Hearings before the Subcommittee on Problems
of the Aged and Aging, U.S. Senate, 86th Congress,
2d Session. Washington, D.C.: Government Printing
Office, 1960.
Artmeyer, C. E. ’ ’ Blue Shield Provisions for Retired Per
sons,” Research and Statistics Note No. 25. Division
of Program Research, Social Security Administration.
Washington, D.C.: Government Printing Office, July 30,
1957.
Brewster, Agnes W. "Health Insurance by Age and Sex,
September 1956,” Research and Statistics Note No. 13.
Division of Program Research, Social Security Adminis
tration. Washington, D.C.: Government Printing Office,
September 1956.
_. "Health Insurance in the Population 65 and Over,"
Research and Statistics Note No. 17. Division of
Program Research, Social Security Administration.
Washington, D.C.: Government Printing Office, June 11,
1958.
«
_. "Hospital Utilization by Persons Insured and
Uninsured in September 1956," Research and Statistics
Note No. 19. Department of Health, Education, and
Welfare, Social Security Administration. Washington,
D.C.: Government Printing Office, 1958.
Brewster, A. W., and R. Bloodgood. "Blue Cross Provisions
for Persons Aged 65 and Over, Late 1958," Research and
Statistics Note No. 5. Division of Program Research,
Social Security Administration. Washington, D.C.:
Government Printing Office, March 12, 1959.
398
Brown, F. R. "Governmental Expenditures and Other Public
Financial Support for Personal Medical Care of Persons
Aged 65 and Over, 1955-56," Research and Statistics
Mote Mo. 3. Division of Program Research, Social
Security Administration. Washington, D.C.: Government
Printing Office, February 4, 1958.
Cunningham, Robert M., Jr. "Meeting the Costs of Medical
Care," Public Affairs Pamphlet No. 218. New York:
Public Affairs Committee, 1955.
Department of Comnerce. Survey of Current Business.
December 1959.
Department of Commerce, Bureau of Census. Current Popula
tion Reports. Series P-25, No. 18.
_______. Current Population Reports. Consumer Income.
Series P-60, Nos. 12 and 33, June 1953.
_______. Current Population Reports. Population Character
istics. Series P-20, No. 91, January 12, 1959.
Falk, I. S., and A. W. Brewster. Hospitalization and
Insurance Among Aged Persons. Bureau Report No. 18,
Division of Research and Statistics, Social Security
Administration. Washington, D.C.: Government Printing
Office, April 1953.
Health Insurance Plans in the United States. Report of
the Committee on Labor and Public Welfare, U.S. Senate,
82d Congress, 1st Session, Report No. 359, Part 2.
Washington, D.C.: Government Printing Office, May 28,
1951.
Lee, Roger 1., and Lewis W. Jones (assisted by Barbara
Jones). The Fundamentals of Good Medical Care.
Chicago: University of Chicago Press, 1933. Publica
tion No. 22 of the Committee on the Costs of Medical
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MacLean, Basil C. Health and Welfare Newsletter. Group
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399
Medical Resources Available to Meet the Needs of Public
Assistance Recipients. A Report by the Department of
Health, Education, and Welfare to the Committee on
Ways and Means, United States House of Representatives,
87th Congress, 1st Session. Washington, D.C.: Govern
ment Printing Office, 1961.
Musgrave, R. A. "Incidence of the Tax Structure and Its
Effects on Consumption," Federal Tax Policy for
Economic Growth and Stability, Hearings before 84th
Congress, 1st Session. Washington, D.C.: Government
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Schlotterbeck, K. T. Hospital. Nursing Home, and Surgical
Benefits for OASI Beneficiaries. U.S. House, Committee
on Ways and Means, Hearings before 86th Congress,
1st Session, July 1959.
Shanas, Ethel. Financial Resources of the Aging. Research
Series No. 10. New York: The Health Information
Foundation, 1959.
U.S. Bureau of Labor Statistics. Health Insurance Plans
under Collective Bargaining: Hospital Benefits Earlv
1959. Bulletin 1274. Washington, D.C.: Government
Printing Office, 1960.
U.S. Congress, House of Representatives. H.R. 4312.
81st Congress, 1st Session, April 25, 1949.
U.S. Congress, Senate, Committee on Labor and Public
Welfare. Health Insurance Plans in the United States.
„ Senate Report 359, Part I, 82nd Congress, 1st Session.
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U.S. Congress, Senate. National Health Program. Hearings
before the Committee on Education and Labor, 79th
Congress, 2nd Session, on S. 1606, April 2, 1946 -
July 10, 1946. Washington, D.C.: Government Printing
Office, 1946. Vol. I.
U.S. Congressional Record. History of Bills and Resolu
tions, Vol. 84, Part 15, 76th Congress, 1st Session,
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"Persons Receiving OASDI, OAA, or Both, June 30, 1959,"
Research and Statistics Note No. 4. Washington, D.C.:
Government Printing Office, 1960.
_______. "Projections to 1970 of the Number of Aged
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United States Legislative Reference Service, Digest of
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Session. Washington, D.C.: Government Printing Office,
1960.
United States Legislative Reference Service. Digest of
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U.S. Public Health Service. Health Statistics from the
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_______. Health Statistics from the U.S. National Health
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Government Printing Office, 1958. Publication
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401
U.S. Social Security Administration. "Expenditures for
Medical Care for Persons Aged 65 and Over/’ Research
and Statistics Note No. 15. Department of Health,
Education, and Welfare. Washington, D.C.: Government
Printing Office, July 21, 1960.
C. PERIODICAL ARTICLES
Berg, Roland H. "The Battle for Your Health Dollar,"
Look. XXV (April 11, 1961), 24-29.
Brady, Dorothy S. "Individual Incomes and the Structure
of Consumer Units," American Economic Review. XLVIII
(May, 1958), 260-269.
Brewster, Agnes W. "Voluntary Health Insurance and Private
Medical Care Expenditures," Social Security Bulletin.
XXIII (December, 1960), 11.
Brewster, Agnes W., and L. M. Kramer. "Health Insurance
and Hospital Use Related to Marital Status," Public
Health Reports. UCXIV (August, 1959), 721.
Campbell, Z. "Spending Patterns of Older Persons," Manage
ment Record. XXI (March, 1959), 85.
"Care for the Aged--Doc tor s' Answer," U.S. News and World
Report. LII (January 29, 1962), 7.
"The Crisis in American Medicine," Harper*s. October 1960.
DiCicco, L., and D. Apple. "Health Needs and Opinions of
Older Adults," Public Health Reports. LXXIII (June,
1958), 460-479.
Epstein, L. A. "Money Income of Aged Persons: A Ten Year
Review, 1948-58," Social Security Bulletin. IX (June,
1959), 3-5.
. "Money Income Sources of Aged Persons, December
1959," Social Security Bulletin. July 1960, p. 14.
*
402
Epstein, L. A. "Some Effects of Low Income on Children and
Their Families,” Social Security Bulletin. XXIV
(February, 1961), 12.
"Fight Ahead Over Hedical Care for the Aged: The Doctors'
Plan," U.S. News and World Report, LII (February 5,
1962), 67-68.
Fisher, J. "Trends in Institutional Care for the Aged,"
Social Security Bulletin. October 1953.
Fox, Harland. "Medical Insurance and the Retired
Employee," Management Record, November 1956, p. 368.
Gilmore, Forrest E. "How to Retire," Petroleum Refiner.
Vol. 40, June 1961, p. 139.
Goldstein, S. "Consumer Patterns of Aged Spending Units,"
Journal of Gerontology. XIV (July, 1959), 328.
Hauighurst, R. J. "A World View of Gerontology," Journal
of Gerontology, XIII, Supplement (April, 1958), 2.
"The Healthy 'Sick'--Rising Insurance Fees Focus More
Attention on Unnecessary Claims," Wall Street Journal.
October 12, 1960, pp. 3-4.
"Help for the Aged— The Kennedy Plan, an Interview with
Abraham Rubicoff, Secretary of Health, Education, and
Welfare," U.S. News and World Report, LII (February 6,
1962), 62.
Hillenbrand, Harold. "Britain Pays Through the Teeth,"
Nation's Business, December 1949, Vol. LXVI.
"Insurance for What?" Newsweek. LX (October 15, 1962), 74.
Journal of the American Medical Association. No. 99,
December 3, 1932, p. 1952.
Lindsay, John R. "What's Blurring Medicine's Image?"
Medical Economics. August 1, 1960, p. 127.
403
Millican, R D. "Two Factor Analyses of Expenditures of
the Aged," Journal of Gerontology, XIV (October, 1959),
465.
i
Mushkin, Selma. "Age Differential in Medical Spending,"
Public Health Reports, Vol. 72, February 1957, p. 115.
_______. "Characteristics of Large Medical Expenses,"
Public Health Reports. Vol. 72, August 1957.
Ossman, S. "Concurrent Receipt of Public Assistance and
Old-Age and Survivors Insurance," Social Security
Bulletin. September 1958, p. 17.
Perlman, D. "Care and Feeding of Profits by America's Drug
Makers," The American Federationist. April 1960,
pp. 19-20.
"Prepaid Medical Care: Nation's Biggest Private Plan,"
Time. LXXXI (September 14, 1962), 64-65.
Rozental, A. A. "The Strange Ethics of the Ethical Drug
Industry," Harper's. May 1960, pp. 74-75.
Shaffer, Helen B. "Health of the Aged," Editorial Research
Report. II (September, 1957), 649.
Shapiro, Sam, and Marilyn Einhorn. "Experience with Older
Members in a Prepaid Medical Care Program," Public
Health Reports. No. 17, August 1958, pp. 681, 695-696.
Skolnik, A. M., and J. Zisman. "Growth in Etaployer-
Benefit Plans, 1954-57," Social Security Bulletin.
X (1959), 54-57.
Social Security Administration. "Assets and Net Worth
of Old-Age and Survivors Insurance Beneficiaries:
Highlights from Preliminary Data, 1957 Survey,"
Social Security Bulletin. No. 19, January 1959, p. 3.
_______. "Income of Old-Age and Survivors Insurance
Beneficiaries: Highlights from Preliminary Data,
1957 Survey," Social Security Bulletin. No. 17,
August 1958, p. 17.
404
Somers, A. Norman, and Louis Schwartz. "Pension and
Welfare Plans, Gratuities or Compensation?" Industrial
and Labor Relations Review. October 1950, pp. 77-88.
Sturges, Gertrude. "Public Medical Services as it is
Today at State and Local Levels," Social Service
Review. XIV (September, 1940), 502.
"Tax-Supported Personal Health Services for the Needy,"
American Journal of Public Health. Vol. 45 (December,
1955), p. 1593.
r
Trussel, J. Elinson, and M. L. Levin. "Comparison of
Various Methods of Estimating the Prevalence of Chronic
Disease in a Community— The Hunterdon County Study,"
American Journal of Public Health. Vol. 46, February
1956, p. 173.
Tyhurst, J. S. "The Neurologic and Psychiatric Aspects
of Disorders of Aging," Proceedings of the Association
for Research in Nervous and Mental Disease. XXXV
(1956), 241.
D. NEWSPAPERS
"Medical Plan Nears Rocks," Los Angeles Herald-Examiner.
January 8, 1962, p. 2.
Ruske, H. A. "Advice for Physicians," New York Times.
January 25, 1959, pp. 4-5.
Tibbitts, Samuel J. "U.S. Doctors, Hospitals Provide Best
Patient Care in the World," Los Angeles Times (Supple
ment), October 22, 1961, p. 3.
E. UNPUBLISHED MATERIALS
Brewster, Agnes W. "The New Look in Health Insurance for
Senior Citizens." Address to American Public Welfare
Association, December 1959. (Mimeographed.)
Hezareh, All. "An Analysis of Taxable Capacity and Its
Determining Factors with Special Reference to the
United States." Unpublished Master's thesis, Univer
sity of Southern California, Los Angeles, 1960.
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Creator
Hezareh, Ali
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Core Title
Financing Of Medical Care For The Aged: A Comparative Evaluation Of Compulsory Versus Voluntary Health Insurance
Degree
Doctor of Philosophy
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Economics
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University of Southern California
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Economics, General,OAI-PMH Harvest
Language
English
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Phillips, E. Bryant (
committee chair
), Anderson, William H. (
committee member
), Lasswell, Thomas E. (
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