September 20, 1966
Medicaid: Facts and Fictions
Speech by David Langer

Mr. Speaker, under leave to extend my remarks in the RECORD, I include the following statement by David Langer, AS.A., presented at the annual educational conference of the National Foundation of Health, Welfare & Pension Plans, Inc., on August 30, 1966, at the Queen Elizabeth Hotel, Montreal, Canada: Medicaid: Facts and Fictions

By David Langer, A.S.A., presented at the annual educational conference of the National Foundation of Health, Welfare & Pension Plans, Inc., Aug. 30, 1966, at the Queen Elizabeth Hotel, Montreal, Canada

New York State's Medicaid program under Title 19 has stirred up a lot of controversy both within New York and nationally.

All of us here in this room are affected to a great extent by just how the controversy will be resolved.

The economic and political impact of Medicaid can be enormous. However, the public's knowledge is fairly limited at the present time and, if N.Y. hadn't passed the liberal Title 19 program that it did, we still might know little about Title 19 except that it was just another public assistance program for the poor.

It's important, therefore, to review the background of Title 19 and its highlights, to take a look at New York's program, and to examine the major elements of the Medicaid controversy. I think that only in this way can we participate intelligently in the national and state discussions.

On July 30, 1985, the 89th Congress enacted the "Social Security Amendments of 1985."

The amendments added two new titles to the Social Security Act.

The first: Title XVIII--Health Insurance for the Aged--now known as Medicare--provides health benefits for persons 65 and older and is the United States' first national health insurance program. The program is contributory and benefits are available as a matter of right without a means test.

The second: Title XIX--Grants to States for Medical Assistance Programs--or now known as Medicaid--is intended to provide adequate health care for all children and adults who need it but cannot afford to pay for it themselves. The cost of the program is to be met from general tax revenues and benefits will be available only on the basis of a means test.

By the end of this year, 29 states, the District of Columbia, Puerto Rico, Guam, and the Virgin Islands may have programs in operation. To date, 12 states and Puerto Rico have had their programs approved by the Department of Health, Education & Welfare. I'll take a moment to read the roster so you'll know the status of your own state. The 12 states are: California, Hawaii, Idaho, Illinois, Louisiana, Minnesota, North Dakota, Ohio, Oklahoma, Pennsylvania, Utah and Washington.

Three states that are awaiting approval are: Nebraska, New Mexico, and New York.

Twelve other states, Guam, and the Virgin Islands are expected to have plans in operation later this year. Those twelve states are: Colorado, Connecticut, Kentucky, Maine, Maryland, Massachusetts, Michigan, Rhode Island, South Dakota, Vermont, West Virginia, and Wisconsin.

Three other possibilities are Delaware, New Jersey, and the District of Columbia.

Here is some brief background on Title 19 to give you some perspective: Since 1950, the Federal Government has shared in the costs of State welfare payments for medical care for the aged, the blind, disabled adults, and for families with children receiving public assistance.

With the Kerr-Mills law of 1960, the Federal Government began to share with the states the cost of medical care for persons over 65 who could not afford such care but were otherwise able to manage without public assistance.

The passage of Medicare in 1965 largely supplanted Kerr-Mills with respect to the over 65 group but Medicaid extended the principal of aid to the medically indigent to the entire population, including both those over and under age 65.

What are the key features of Title 19? First, it ia a Federally and State financed program designed to make available adequate health care for all adults and children who can't afford it.

Second, the states have full latitude to set the income and assets levels to be used in determining eligibility.

Third, the states are free to determine the medical services which they will provide, but at least five basic services must be available by July 1, 1967: these are inpatient and outpatient hospital care, laboratory and x-ray services, skilled nursing home services, and physician's services regardless of where performed. By July 1, 1975, fully comprehensive medical care and services must be available to all eligible persons.

Finally, no deductible or coinsurance feature can app1y to inpatient hospital services but such features may be used in connection with any other medical care.

Thus far, there has been wide variation in the eligibility standards throughout the country. For a family of four, Oklahoma's net income limit is $2,448. For Minnesota it is $2,800, for Illinois $3,600, and for Pennsylvania $4,000. New York has the highest net income limit: $6,000.

I think it will be easier now to turn to New York's Medicaid program and try to understand how it came to be drawn up the way it was and what it is about.

For those of you who want to go into greater detail than time permits here, the August edition of Pension & Welfare News is carrying an article than I wrote on New York's Medicaid program that provides a more extended description and analysis.

Briefly, New York State already had a program for the medically indigent of all ages--not just those on public assistance--even before Title 19 was passed. I believe that New York was the only state in the country to have such a program.

Under this prior plan, a family of four was eligible for all medical services if its net income was under $4,700 and only hospitalization care if its net income was greater than $4,700 but less than $5,300. The $5,300 was in the process of being raised in steps to the $5,700 level.

With the passage of Title 19, here is the situation that New York found itself in:
It was now going to receive more money from the Federal Government for all the Federal-State public assistance programs, because of the new cost-sharing formula under Title 19.

It was now going to receive a share of the cost of its program for the medically indigent not on public assistance, whereas before New York had completely carried this cost together with the local governments.

Therefore, the alternatives were either to maintain all of the States programs exactly as they were but at a lower cost to the state and local governments, because of increased Federal aid, or, to maintain the same total cost to State and local government and broaden the eligibility standards and benefits.

Governor Rockefeller, the Republican State senate, by a vote of 64 to 1, and the Democratic State assembly, by a vote of 136 to 15, all decided to maintain costs as they were and to enlarge the medical care programs. Thus the decision was both bipartisan and decisive.

Legislation was passed effective last April 30th providing that a family of four, with one wage earner, a net income of up to $6,000, and assets within certain limits, could qualify for the entire range of medical care including hospital, physician, nursing, drugs, appliances, and any other health services required.

All those who qualify will receive a renewable identification card from the Welfare Department.

The state will deduct out of its payments, all sums received under any group or individual insurance coverage.

After an uproar from a number of upstate residents and editors claiming that benefits were too liberal, the State legislature met again and passed an amendment adding a deductible feature, effective June 30th.

The deductible, which is on a calendar year basis, applies when gross income exceeds $4,500 and is 1% or less of gross income. It isn't applicable to inpatient hospital services, ss is required by Title 19. Expenses of the entire family unit are to be counted toward satisfying it, including any health insurance premiums.

In the days ahead much of the public debate on Medicaid will center around what constitutes a suitable net income limit for a family of four. Should it be as low as Oklahoma's $2,448, as high as New York's $6,000. or closer to Pennsylvania's $4,000?

Other arguments will concern themselves with estimates of the cost of Medicaid to the Federal government, the states, and the local governments.

To reduce the cost, which some say will be considerable, it is urged that features such as deductibles and coinsurance should be included.

Let's take a closer look at these controversial items.

Life Magazine recently stated in a lead editorial that Oklahoma's income limit of $2,448 for a family of four was realistic while New York's limit of $7,500 would bankrupt us all. The editorial apparently was comparing net income for a family of 4 in Oklahoma to what the editor regards as the gross income in New York that will yield a net income of $6000 after taxes. Actually, using standard deductions, $6,500 is correct rather than $7500.

I have a copy of the budget figures which the New York State Department of Social Welfare Home Economists produced and on which the State based its eligible net income level of $6000 for a family of four.

You can judge for yourselves the reasonableness of the allowances of some of the items included:
The daily food allowance is $1.25 per person. This is based on October, 1965 prices before the current wave of Increases in the cost of bread, milk, eggs, and other staples.

The monthly allowance for both rent and fuel is $87.17. This is supposed to provide five unfurnished rooms.

Under personal care, our family of four--incidentally, this consists of a man and wife between the ages of 35 and 54, a boy of 11 and a girl of 8--is allowed $3.00 a week for all four members, at $75 per member. Included in this $75 is one haircut and two shampoos and waves each year for the mother for special occasions.

I asked my wile, my secretary, and a librarian what they thought of this allowance and they uniformly replied that it is ridiculous.

Union dues come to 85 cents a week.
An average of $9.73 per week is to provide the whole family with the following: newspapers. magazines, books, movies, the theatre, toys, baseball and football games, sports equipment, education, school expenses, cigarettes, stationery, and postage.

Medical and dental care aren't included in the $6,000 budget but it does include Social Security and State disability insurance taxes, which now total $292 a year for this income.

The Bureau of Labor Statistics of the United States Department of Labor says that the above budget provides a "modest but adequate level of living." It offers "neither a minimum maintensace nor a luxury level." The Bureau adds that the budget is "above the minimum in the usual narrow sense of that term. On the other hand, it is below the average level enjoyed by American families, as an examination of items and quantities represented in the budget will disclose."

I think we can all agree with the Bureau that the $6,000 budget for a family of four is barely adequate for living. It also leaves iittle room for recreation and has no margin at all for medical or dental care, or college for the kids if they have the ability to go.

This leads us into the next major area of very heated public debate: the cost of Medicaid. In fact, the House Ways and Means Committee in Washington has been meeting behind closed doors of late trying to figure this one out. What the Committee decides may well determine whether Title 19 will continue as is or be sharply curtailed.

To give you some idea of how hot a political issue Medicaid has become, Senator Jacob Javits of New York has already proposed three amendments to cut benefits under Title 19. He would permit a deductible to be applied to inhospital costs as well as out; and he would permit variation in income eligibility as between counties as, for example, a higher limit for New York City as opposed to a rural area.

Congressman Samuel Stratton of New York has suggested a percentage limit on the number of a state's citizens that could qualify, such as 30% or 40%.

I think it's important that all of us here understand what has transpired up till now so that we can understand the meaning of future statements on the cost of Medicaid.

The first estimate, made in 1965, predicted that the first full year of operation of Title 19 would result in an increase in cost of about $238 million for the entire country. However, it became known this year that the increase in aid for New York alone would be $138 million, and closer investigation reveals that the estimate of $238 million was made by the Welfare Department of the Department of Health, Education and Welfare without any knowledge that New York already had a program for medically indigent persons not on the welfare rolls.

Next, on May 24. 1966, Governor Rockefellers statement in Albany to the Joint Legislative Committee on Problems of Public Health and Medicare:
The total cost for the year beginning in 1963, said the Governor, would be $532 million versus $449 million in 1965. The Federal share would increase from $79 million to $217 million; the State share would remain about the same at $171 million: and the cost to the localities would decrease from $198 million to $144 million.

The total of $532 million for the year starting in 1966 was based on actual 1965 costs of $449 million with an increase for new eligibles under the more liberal income requirements.

There was a great hue and cry raised upstate after the Buffalo and Syracuse press began to report on the implications of Medicaid. There were many angry letters to editors, scathing editorials, and sharp phone calls to legislators who soon got the impression that the angry citizens outnumbered the pleased ones. The result, as you can guess, was the June 30th amendment adding the deductible feature.

To quiet the fears of upstaters that the share of the cost for localities could become astronomical and lead to bankruptcy--for example, the Welfare Commissioner of Erie County created quite a stir in Buffalo when he predicted that Medicaid would cause property taxes to rise $16.50 for each $1,000 of assessed valuation--Governor Rockefeller had a special provision placed in the budget for the coming year. This simply stated that no locality's cost for Medicaid could be greater that year than it was in 1965.

Further, in accordance with a little known provision of Title 19, New Yorks Medicaid program will permit the phasing out of the localities from any cost at all by June 30, 1970. In other words, it is distinctly possible that only the State and Federal governments will be paying for Medicaid after that time.

The next entry into the estimate derby was that of the insurance industry. This group very much feared that Medicaid could cause the loss to it of substantial amounts of individual and group health insurance.

The industry's analysis was prepared by the American Life Convention, the Health Insurance Association of America, and the Life Insurance Association of America, and was delivered on May 27th to the Special Committee on Public Health and Medicare in Albany.

The analysis criticized the State's figure as being "considerably understated" and offered a total cost figure of $1,800 million, which is 3.4 times higher.

Simply stated, $1,800 million was arrived at first by determining the number of eligible persons under the income requirement. This came to 8 million people out of New York's total population of 18 million. Next a per capita cost of $235 per year for health services and supplies was worked up. Multiply the two to get $1,900 million dollars, deduct out a credit of $250 million to be paid under Medicare, adjust upward by 10% for administrative costs and you get to $1,800 million.

I believe that this figure represents an outside maximum estimate for the following reasons:
It assumes that all 8 million persons will apply for Medicaid contrary to past welfare experience. In 1965. for example, only 27% of the potential eligibles applied.

It assumes that all 8 million persons will also qualify although an unknown number will not be able to meet the assets test.

It assumes that all group and individual health insurance will be dropped by or for Medicaid eligibles, but there are many factors which will cause people to hold on to such coverage.

Whether 27% of eligibles or 50%, or 100% apply for benefits will probably depend on how the program is presented. If it is offered under the auspices of the welfare department as another relief program, it will elicit the usual small response. If it ispresented in a favorable setting away from welfare agencies and as a matter of rig~it granted by the State, similar to free public education, it will elicit a more positive response.

Thus it is really very difficult, if not impossible, to work up a good estimate of Medicaid's cost at the present time.

On August 13th, the New York Times published a new estimate said to have been presented behind closed doors to the House Ways and Means Committee by the Department of Health, Education, and Welfare, This gave $1,400 million as the projected cost of New Yorks program in the year 1970.

We can be sure, however, when the actuarial assumptions become public, that it will be found that the new figure is highly qualified.

One factor, for example, has been appearing with greater and greater frequency in the news and could make all cost estimates ridiculous. You've probably guessed correctly that it is the rapidly rising cost of medical care.

Let me read you a few recent headlines:
"Doctors' Fees Up as much as 300% Under Medicare"; curiously, lhis story was preceded by another article headline: "A.M.A. Head Warns Doctors Against Fee Rise." Here are a couple of others that have appeared: "Hospital Raises Daily Rate $8"; "Radiologists Close Placement Bureau to Hospitals Rejecting Policy of Direct Patient Fees: Medicare Aides Fear Move May Result in Inflated Charges to Public."

On the other side of the fence, the drug companies offered reductions after Senator LONG promised an Investigation of drug prices. Also, last Tuesday. President Johnson directed the Secretary of Health, Education and Welfare to begin a "major study" of rising medical costs, It will be interesting to see what the outcome of the study will be.

I'd like to make a few concluding remarks now.

I think that the citizens of New York and the country are going to have to ask some searching questions during the great debate on Medicaid.

If it's true as it appears to be that a $6,000 net income for a family of four is not enough to provide medical care, then the issue should be faced squarely: do we or don't we want these people to have adequate medical care.

Since we are a humanitarian people and have long accepted the principle that even the poor should have medical care, it then becomes a matter of finances and of working out a satisfactory approach.

One discussion that will arise with increasing intensity is whether Medicare should be extended to cover the entire working population rather than just the over 65 group. Two of the forces that will spur this debate are the current existence of Medicare and Medicaid, already covering a substantial portion of the population, and the rapidly spiraling cost of comprehensive quality health services which will soon put such care out of the reach of many of us even in this room.

In any event, with all the public and private funds now available for medical care we are sure to see a period of enormous growth in the construction of hospitals and nursing homes; in the development of doctors, nurses, and other skilled personnel; and in the production of drugs, medicines, and equipment.

I think it can be safely said at this date that the coming year could easily prove to be the most significant our country has ever known in the field of medical care.

The decisions and patterns that emerge may be with us, for better or worse, well into the distant future.