Reports & Studies

March 7, 1935

Preliminary Draft (Revised after meeting of the Executive Committee of the Technical Board and the Sub-Committee on Health Studies.)

REPORT TO THE PRESIDENT OF THE COMMITTEE ON ECONOMIC SECURITY

FINAL REPORT ON RISKS TO ECONOMIC SECURITY ARISING OUT OF ILL HEALTH

SUMMARY

1. A national program of economic security would be inadequate unless it made adequate provision against insecurity arising out of illness.

2. The risks which arise out of illness are:

(a) Loss of efficiency and health, and thus loss of the capacity to be employed

(b) Loss of earning when the wage-earner is disabled

(c) Costs of medical care for wage-earners and their families

3. The proposals involve four kinds of measures:

(a) Prevention of illness and promotion of health through public health procedures of proven merit

(b) Provision of certain medical facilities and services financed from tax funds

(c) Insurance against wage-loss due to sickness. This is Temporary-Disability Insurance

(d) Insurance against the costs of medical care. This is Health Insurance

4. Public health measures. The specific recommendations are already covered in Title VIII of the economic security bill now before the Congress providing for increased appropriations to Federal public health agencies and financial and technical assistance to States and localities.

5. Tax-supported medical facilities and services: The specific recommendations include:

(a) The medical needs of the population for which the Federal government accepts other responsibilities. This embraces Federal expenditures for a share of the cost of medical care for such persons and-for their dependents, for a share of the cost of hospital care, and for temporary provision for the unemployables and their families. The total cost during the next twelve months would be about $60,000,000.

(b) The development of small hospitals and medical center buildings in about 600 rural areas under a public works program. This would cost about $60,000,000 over a period of 4 to 6 years.

(c) Federal grants-in-aid for the maintenance of some of these new buildings in their first 3 years, and aid to States in furnishing physicians to certain rural areas now unsupplied.

(d) Development of mental and tuberculosis hospitals under a public works program

6. Temporary-Disability Insurance:

(a) Linked to unemployment compensation

(b) 1 per cent tax on payrolls with an offset up to 0.7 per cent for employers who make contributions to approved State systems

(c) 0.3 per cent to be held in a Federal pool to safeguard the solvency of State systems and for other measures to reduce the occurrence or severity of illness

(d) Benefits in State systems left to the States (but may be 50 per cent of wages for as much as 26 weeks, and maternity benefits without higher taxation)

7. Health Insurance:

(a) Federal subsidies to assist States which choose to establish State systems meeting Federal safeguards

(b) Federal safeguards including especially protection of the professions, the quality of medical services, the independence of the private practitioner in his role of an insurance practitioner, adequate remuneration to physician, dentist, hospital, nurse, etc.

c) Definition of population, scope of benefits, costs, etc. in the State systems to be left to the States

(d) Federal subsidy divided between "flat-rate" and "need" subsidies, so defined as to set upper limits and so that the total cost to the Federal government will not exceed $60,000,000 a year

(e) Subsidy may apply in respect to persons on relief and for whom the public accepts other responsibilities if these are given medical care through the facilities of the health insurance system, so that a single system of care will cover contributing and non-contributing groups, and the Federal government have a well-established channel to discharge its responsibilities toward the dependent classes.

FINAL REPORT OF THE COMMITTEE ON ECONOMIC SECURITY ON RISKS TO ECONOMIC SECURITY ARISING OUT OF ILL HEALTH

A. NATURE AND MAGNITUDE OF THE RISKS

No national program of economic security can be regarded in any sense as complete or effective without adequate provision for meeting the risks to security which arise out of ill health. Sickness, the loss of earnings because of the disability of the wage earner, the costs of medical care -- these are spectres which haunt the lives of the great majority of the American people. Economic insecurity from illness is not the consequence of a depression; it threatens people of small means even in good times. The problem is not created -- it is only exaggerated and made more severe -- in bad times.

Every careful study of the economic experience of wage-earning families has revealed the inadequacy of individual savings to afford full protection against the costs of ill health. This explains why tens of millions of families live in dread of sickness, why millions of families -who are independent and self-sustaining in respect to the ordinary, routine needs of life - sacrifice other essentials of decent living in order to pay for medical service, go without needed medical care, carry the burden of medical debts, rely upon the charity of doctors and hospitals, or receive their services from tax-supported and philanthropic agencies.

The money loss caused by sickness in families with small and moderate incomes -- less than $2500 a year -- in the United States is estimated as nearly two and one-half billion dollars. Of this huge sum about

a billion and a half represents the expenses of these families for medical care and about $900,000,000 their loss in wages due to sickness. The cost of care in sickness thus exceeds wage loss due to temporary disability. Either figure, however, represents a serious burden upon the large group of families with incomes less than $2,500 a year. These figures are direct costs. They ignore the much larger costs of sickness represented by the losses in capital values of human life.

These enormous losses are not distributed equally among the people. Some individuals have much more sickness than others in any given year. Actuarial experience shows that among an average million persons there will occur annually between 900,000 and 900,000 cases of illness. This might seem to mean nearly one case of sickness to each person. Actually, however, the economic burden will fall more heavily on some than on others. For although 470,000 among an average million persons will not be sick during a normal year, 460,000 will be sick once or twice, and 70,000 will suffer three or more illnesses. Of those who become ill, one-fourth will be disabled for periods varying from one week to the entire year. The situation may be visualized from the actual experience in normal times of 1,000 typical families in large cities, with annual incomes ranging from $1,200 to $2,000 as follows: 218 had medical bills in a single year in excess of $100, and 90 in excess of $200; of these 90 families, 16 had medical costs ranging from $400 to $700, or about one-third of the year's income, and 4 families had sickness bill amounting to more than one-half of their incomes. All of these costs were additional to wage losses. The situation in families with less than $1,200 annual income is far worse even in normal times.

The fact must be faced that even if a minimum annual income of $2,000 could be maintained through various ways for American families, this amount would still be insufficient to enable them to budget against the costs of sickness.

Unemployment compensation and old age pensions and annuities will be insufficient to meet the unexpected loss of income due to illness. A substantial proportion of families in cities, towns, and rural areas actually see-are no medical care, or receive insufficient care during sickness. The proportion of families receiving inadequate care has been shown to be largest among those with small incomes, and to diminish step by step as family income increases. In normal times, about one-third to one-half of all the families who have to seek public or private charity are compelled to do so because of the economic effects of accident and illness.

Thus the risks to economic security arising out of ill health are of three kinds, namely:

1. Loss of efficiency and health itself, and thereby loss of the capacity to be employed

2. Loss of earnings caused by disabling illness among gainfully employed persons

3- Costs of medical care to gainfully employed persons and their families.

The financial difficulties of the people who need medical service are necessarily reflected in insufficient and unstable incomes among the physicians, dentists, nurses, and others who furnish care, and in the precarious financial conditions of many hospitals. As President Roosevelt, in his address to the Conference on Economic Security, declared, the present situation brings "an unfair burden upon the medical profession" through the charitable services which its members give with willingness and sacrifice. There is a financial problem, to be solved for those who furnish medical care as well as for those who receive it. And, finally, there is a problem of fundamental importance which must also be satisfactorily met -- the promotion of the quality of medical care, of high standards in hospitals and allied institutions, of the professional independence of those who render medical service, and of the personal relationship between the physician and his patient. Adequate remuneration to practitioners in medicine and the allied professions and to medical institutions must be assured, and provision must be made for the responsible participation of the professions in planning and administering plans for medical services if high standards of care and continued incentives to its improvement are to be maintained.

In considering practicable means for reducing these risks and meeting these problems, the Committee, assisted by a technical staff and with the counsel of advisory groups in the fields of medicine, public health, hospital management, nursing, and dentistry, and with the technical collaboration of the Bureau of Medical Economics of the American Medical Association and other agencies, has studied various direct measures that have been developed in the experience of this and other countries. These measures vary widely in content and effectiveness, but they may be grouped under four general heads, namely:

I. The reduction of sickness and the promotion of mental and bodily vigor through community or organized preventive methods of proven effectiveness. These are essential public health services.

II. The provision through government funds of certain kinds of public medical facilities and services, to the entire population, and of general medical services to indigent and dependent individuals and families.

III. Insurance against wage-loss due to illness.

IV. Insurance against the costs of medical care.

The two latter measures are based upon the principle of distributing costs over periods of time and among groups of individuals of that fraction of the population which is financially unable to budget individually against such costs. This procedure is ordinarily termed "health insurance" or "sickness insurance".

In this report we discuss briefly the principal aspects of the problem of economic insecurity arising out of ill health. On certain phases, our studies enable us only to call attention to the importance of not neglecting these aspects of the problem and to give endorsement to measures and policies which have been or should be worked out in detail by other agencies of the Government. On other phases we have specific recommendations to make. In general, however, we wish to present a program which not only is a part of a broad plan for dealing with the problem of economic security, but which is also, in itself, a program for the maintenance and promotion of the public health.

B. PUBLIC HEALTH SERVICES

As stated by the medical advisory board of this committee, in a brief progress report recently filed with our staff:

"A logical step in dealing with the risks and losses of sickness is to begin by preventing sickness so far as is possible."

Much progress has been made in this respect, yet the fact remains that despite great advances in medicine and public-health protection, millions of our people are suffering from diseases and thousands die annually from causes that are preventable. The mortality of adults of middle and older ages has not been appreciably diminished. With the changing age composition of our population the task of health conservation must be broadened to include adults as well as children. Even minimum public-health facilities and services do not now exist in many large areas. Of 3,000 counties, only 528 have full-time health supervision and only 21 per cent of the local health departments were rated in 1933 as having developed a personnel and service providing a satisfactory minimum for the population and the existing problems.

Evidence is accumulating that the health of a large proportion of the population is being affected unfavorably by the depression. The rate of disabling sickness in 1933 among families which had suffered the most severe decline in income during the period 1929 to 1932 was 50 per cent higher than the rate in families whose incomes were not reduced. For the first time in many decades the annual death rate in our large cities has increased, the rate in 1934 being higher than in 1933 despite the absence of any serious epidemics. In the face of these evidences of increased need local appropriations for public health have been decreased on the average by 20 per cent since 1930. The average per capita expenditures from tax funds for public health in 77 cities in 1934 were 58 cents as contrasted with 71 cents in 1931. It is not too much to say that in many parts of the country the men and women in public-health work are very discouraged* In this situation there is great need for a Nation-wide program for the extension of preventive public-health services. As was well stated by the medical advisory board:

"At the present time appropriations for public-health work are insufficient in many communities, whereas a fuller application of modern preventive medicine, made possible by larger public appropriations, would not only relieve such suffering but would also prove an actual financial economy. Federal funds, expended through the several States, in association with their own State and local public-health expenditures, are, in our opinion, necessary to accomplish these purposes and we recommend that substantial grants be made." In accord with these principles and following the specific suggestions of the Advisory Committee on Public Health. we recommend: (1) Grants-in-aid to local areas unable to finance public-health programs with State and local resources, to be allocated through State departments of health; (2) direct aid to States in the development of State health services and the training of personnel for State and local health work; (3) additional personnel within the United States Public Health Service for the investigation of disease and sanitary problems which are of interstate or national interest and the detailing of personnel to other Federal bureaus and to States and localities, The Advisory Committee on Public Health suggested that in order to carry out these policies the total appropriation to the Public Health Service be increased by $10,000,000 per year, in contrast with $5,000,000 -- 4 cents per capita -- now spent by the Federal government in all its departments for human health services. The advisory committee also reported that the needs of the country are considerably in excess of the additional expenditures suggested but expressed the view that a larger amount cannot be efficiently spent until necessary additional personnel has been trained and further tests of practical procedures have been made through which certain diseases can be more effectively controlled. It is not within our province to say whether the precise amount suggested should be appropriated, but we strongly endorse the recommendation for increased Federal participation in the prevention of ill health.

It has long been recognized that the Federal, State and local Governments all have responsibilities for the protection of all of the population against disease. The Federal Government has recognized its responsibility in this respect in the public-health activities of several of its departments. There also are well-established precedents for Federal aid for State health administration and for local public facilities, and for the loan of technical personnel to States and localities. What we recommend involves no departure from previous practices, but an extension of policies that have long been followed and are of proven worth. What is contemplated is a Nation-wide public-health program, financially and technically aided by the Federal Government, but supported and administered by the State and local health departments.

The foregoing recommendations were made by the Committee in its report of January 15, and the President proposed in his message to the Congress on January 17, 1935, that "additional Federal aid to State and local public health agencies and the strengthening of the Federal public health service" be provided for. The specific recommendations of the Committee are included in the economic security bill now before the Congress.

C. TAX SUPPORTED MEDICAL FACILITIES AM SERVICES*

* In general and except where otherwise specified or obviously intended, the phrases "medical care" and "medical services" include not only the physician but also the hospital, dentist, nurse, pharmacist and others.

It has long been recognized that local, State and Federal governments have a responsibility in furnishing certain kinds of public medical services for individuals, as distinguished from preventive services for entire communities. To the extent that these services are provided, the risks to economic security are lessened. Before the depression, about $600,000,000 was spent annually from tax funds for these services, or about one-sixth of all expenditures for medical care. In 1929 about $1 for every $6 spent for medical care came from tax funds, while at the present time the proportion is somewhat larger. For persons who are without incomes and for whose maintenance the city, county, State, or Federal government has assumed responsibility, medical care is furnished mainly from public funds with the cooperation of physicians who often give their services without remuneration.

One hundred and sixty thousand beds for general hospital care, or nearly half of all the general hospital beds in the United States, are provided by counties, cities, or larger units of government. These beds serve not only those who are without incomes, but other persons who are self-supporting while in health, but who cannot, because of limited incomes, meet hospital expenses at the time of illness.

Nearly 500,000 hospital beds for mental disease exist in the United States, of which nearly five-sixths are supported by State governments, and only 3 ½ per cent are under non-government auspices. Tuberculosis is another disease for which our governments have generally assumed responsibility for institutional care. Most of the 70,000 beds in tuberculosis hospitals and sanatoria are maintained under government auspices, particularly by counties. Many of these government hospitals also maintain out-patient departments for the diagnosis and treatment of persons who are not sick enough to be confined to bed, but who cannot afford to pay in a private physician's office for the care that they need. Tax-supported medical services also include care for certain diseases of public health interest, among not only dependent persons but others of small incomes, e.g., for syphilis, for some other communicable diseases, and for certain diseases and defects among children.

Various preliminary studies have been made by the Committee's staff in order to determine whether these public medical services are adequate. It was evident from these preliminary studies that these public medical services are extremely uneven in distribution in different parts of this country. Many localities are without hospitals. Many communities are without clinics, hospitals, or laboratories for the diagnosis and treatment of diseases of public health interest. Some rural areas have an insufficient number of physicians or no physicians. Many persons with little or no income receive no medical or dental care except in emergencies. The depression has greatly increased in some communities the demands upon the out-patient departments of these hospitals as well as upon clinics maintained by non-government hospitals and by health departments. The present extent of public medical service varies among the states and localities rather in proportion to their resources than in ratio to their needs. To remedy this condition is essential to the health of the people and is a responsibility which the Federal Government should share by assisting and stimulating localities and States in providing these needed facilities and services.

We recommend that the appropriate Federal agencies consider the following proposals (as set forth in I, II and III below) which have been submitted by the Committee's staff and by one or more of the advisory boards, and which we approve in principle:

I. The Medical Needs of Persons for Whom the Government Assumes Some Responsibility

The present necessity must be faced of providing medical care, curative and preventive, for the twenty million or more persons who are dependent or almost dependent -upon public funds for their existence. Where cash is given or work is provided to the extent of a minimum or subsistence wage only, it is impossible for such persons individually to budget against the cost of any serious illness, and it is obviously unfair, even if it were practicable, for physicians, dentists, nurses, and hospitals, to furnish as charity the amounts of care now required.

Since 1933 the Federal government has assumed a share of the responsibility for the medical care of the unemployed and their families under the Federal Emergency Relief Administration system. The exclusion of any share of responsibility for hospital service to these persons has given rise to widespread difficulty and complaint. Although the policy of the Federal government is to regard the care of unemployables as the responsibility of local communities, it must be realized that some time must elapse before local communities can assume the entire burden.

On this subject three proposals have been made:

1. That out of Federal funds payments to be made as long as may be necessary through the States for a share of the cost of medical care of persons for whom the Federal government assumes some share of responsibility, and their dependents, in accordance with the general principles already developed by the system of medical care under the Federal Emergency Relief Administration.

2. That for the purpose of effectuating adequate hospital care for these persons, Federal funds pay through the states the sum of $1.00 per day for care furnished these persons in approved hospitals, provided funds from other sources pay the remainder of the cost.

3. That some temporary provision be made out of Federal funds to assist in providing medical care for unemployables in various States and communities according to need until the case of these unemployables becomes the responsibility of the local communities.

It is estimated that the cost to Federal funds during the next twelve-month period would be about $60,000,000, of which the hospital provision would constitute about $15,000,000.

II. The Extensive and Serious Needs--of Many Rural Areas

The distribution of physicians is very uneven. There is about one physician to every five hundred persons in many large cities, whereas there is only one physician to every fifteen hundred or more in many rural sections. The distribution of hospitals is even more uneven. Of the 3,073 counties in the United States, 1,200 have no hospitals. While some of these counties are too sparsely settled to require one, and others are within reach of hospitals in neighboring counties, it is estimated that fully six hundred areas need a hospital or at least a building providing diagnostic facilities for the physicians and the people of the locality. Other areas need extension or qualitative improvement of their present limited facilities. Experience in sparsely settled rural areas in some of our states and in some Canadian provinces indicates that salaried or subsidized physicians associated with local public health work are the only way through which adequate medical care can be brought to many such localities. On this subject three proposals have been made:

1. That out of funds which may be available, needed hospitals and medical center buildings in rural areas be provided as part-of a public works program; that this program be undertaken at a rate so as to permit careful study of suitable areas and sites; that such studies be made by existing Federal agencies and be associated with the program of the United States Public Health Service for extending public health work in rural sections.

It is probable that expenditures at the rate of ton to twenty million dollars a year would be desirable. The total program would cost about sixty million dollars over a period of four to six years.

These new hospitals will be maintained by counties or other governmental units. In view of the fact that it would be difficult for some communities to maintain them completely, at their outset, it has been proposed that:

2. Grants-in-aid for the maintenance of the new rural hospitals be made from Federal funds, meeting only a portion of the cost of maintenance during the first year of operation, and on a diminishing scale thereafter for not more than two succeeding years.

The cost to Federal funds would not exceed $10,000,000 over the whole period of four to six years, and under probable limitations in practice would be about half this sum.

3. at some Federal subsidy be provided through the public health program for the assistance of State and local communities in developing plans for salaried or subsidized physicians in sparsely settled rural areas in which medical services are not available or are insufficient.

III. The Insufficient Support in Many Localities of Certain Medical Services Important to the Public Health.

Tuberculosis, syphilis, crippling diseases of children, and cancer (especially as regards its diagnosis) are examples of conditions which are the concern of the whole community as well as the individual sufferer because of the expensiveness of treatment, their communicability, or other reasons. Medical service for these and similar conditions (such as trachoma or hook-worm in certain localities) are recognized public responsibilities in some States and communities but are not so recognized or are inadequately supported in many others.

Physicians have traditionally given their service without any direct financial compensation in clinics maintained by health departments and hospitals. The recently increased requirements of clinic service and the reductions in medical income have created a widespread and justifiable demand for the payment of physicians for their work in clinics, Not the least of the reasons for so doing is the need for placing these important medical services upon a basis of effectiveness which often cannot be maintained with an unpaid staff, however full of good will its members may be.

Two suggestions have been urged by one or more of our advisory boards, as follows:

1. That in the expenditure of Federal funds for health and medical services by the United States Public Health Service and other Federal bodies, it be the policy to expect and urge that physicians be paid in any clinics maintained by health departments and other agencies which are financially assisted by Federal funds; and the allocations to States and localities by these Federal agencies should be adjusted accordingly.

2. That public attention should be called by the Appropriate agencies in the Federal government to the need of more adequate local tax appropriations and arrangements with physicians medical societies, hospitals, or clinics to supply effective medical care to persons who are legally dependent, but who do not come within the scope of the relief system, and to other persons who, while self-sustaining during health, are not able to pay professional or hospital fees during sickness and who would not be able to contribute to a health insurance plan should such plan be enacted into law.

While institutional care of persons afflicted with mental diseases or tuberculosis is almost everywhere accepted as a public responsibility, the provision of hospital beds for patients with these conditions is insufficient in many localities. It has been proposed by one or more of our advisory boards:

3. That Federal aid be extended to States or local governments as part of a public works program for the building of new mental or tuberculosis hospitals, or of additions to existing public institutions for such cases, where the need is shown to exist.

It is estimated that $450,000,000 is annually spent on palliative dentistry by only a small part of the population, and that about three-fourths of the people secure little or no dental care except in emergencies. Although systematic dental care should be available to all in any adequate system of medical service, the importance and ultimate economy of preventive dentistry are strongly emphasized by our Dental Advisory Committee. It was proposed:

4. That the appropriate Federal agency undertake, in cooperation with the dental profession, a well-organized community experiment and research project in order to obtain information necessary to guide the future of preventive dentistry as a public health measure.

D. INSURANCE AGAINST TEMPORARY DISABILITY

In our report transmitted to the President on January 15, 1935, we called attention to the fact that the economic risks arising out of illness fall into two broad classes: (1) the loss of income when disabling illness strikes the wage-earner, and (2) the costs of medical care for the wage-earner and his dependents. We propose to consider these two classes of risk separately because the practical measures which may be proposed to deal with them are different in certain fundamental respects.

We have already pointed out that:

"On the average, 2.25 percent of all industrial workers are at all times incapacitated from work by reason of illness. Each year above one-eighth of all workers suffer one or more illnesses which disable them for a week, and the percentage of the families in which some member is seriously ill is much greater. . . . A relatively small but not insignificant number of workers are each year prematurely invalided, and 8 percent of all workers are physically handicapped.

"When earnings cease, dependency is not far off for a large percentage of our people.

"The one almost all-embracing measure of security is an assured income. A program of economic security, as we vision it, must have as its primary aim the assurance of an adequate income to each human being in childhood, youth, middle age, or old age -- in sickness or in health. It must provide safeguards against all of the hazards leading to destitution and dependency."

The money loss caused by sickness in families with less than $2,500 of income per year is estimated at a total of $900,000,000 per annum even when this cost is restricted to lost wages and is considered exclusive of any costs for medical care. If the loss of wages on account of disabling sickness occurred regularly or evenly among employed persons, the costs would not be very serious or burdensome for the individual or the family. It is characteristic of these losses, however, that they are not spread evenly; they are determined by the occurrence, severity and duration of sickness.

While it is true that the total or average occurrence of disabling sickness can ordinarily be predicted for a million wage-earners, its occurrence cannot be predicted for any particular wage-earner. In the individual case, disabling sickness may last only a day or may be permanent. The individual worker and his family face an uncertain risk. Wages lost on account of sickness may, at the one extreme, be negligible or within the family's means or may, at the other extreme, be so serious as to wipe out the family's resources or render its members dependent upon public welfare or private charitable agencies. For the family with small income individual budgeting or savings can furnish only very limited protection against the risk of disabling sickness.

Security against loss of income caused by disability requires insurance against this risk. Under an insurance plan the uneven and uncertain losses of individuals are replaced by the regular and predictable average costs for the large group.

It is obviously desirable that, so far as may be practical, an insurance plan should be comprehensive and should afford protection against wage-loss resulting from all classes of disability which may occur among wage-earners. There are two important circumstances which compel us to limit the scope of our proposals:

(1) In respect to disability due to industrial accidents, safeguards have been developed through safety laws and orders, voluntary efforts of employers to reduce accidents, and workmen's accident compensation laws. All but four States now have accident compensation laws. These safeguards have, on the whole, worked beneficially. A good start has been made to furnish protection to wage-earners against industrial accidents and progress may be expected through further legislation in the States. We reaffirm the views and recommendations recorded in our previous report. Accordingly, we have omitted disability arising out of the accidents and injuries of employment from our proposals for insurance against disability.

(2) Practical considerations require us to divide disability into two classes, one dealing with temporary disability and the other with permanent disability or invalidity. The administrative procedures required by insurance plans for the two classes are different in some important respects, temporary disability involving regular, periodic certification of disability and permanent disability requiring final certification of the permanence of the disability. These procedures can be devised and operated, as witness the fact that both temporary disability insurance and permanent disability or invalidity insurance are practiced successfully in many countries. The difficulty we have not been able to overcome in the brief period of our studies is of another kind. There is a substantial volume of data on the occurrence of temporary disability in the United States; but there is no such equivalent information on permanent disability or invalidity. We therefore confine our present proposals to insurance against the losses caused only by temporary disabilities. We also recommend, however, that provision should be made for the further study of the occurrence of permanent disability and of measures to furnish protection against this risk.

Insurance against temporary disability is primarily a system of pooling contributions so that the pooled funds may furnish partial replacement of wages lost by the individual worker on account of disabling illness. The general pattern of the system may be designed along several different lines and its administration may be linked with that of old-age annuities, unemployment compensation, or health insurance. The experience of European countries shows clearly that linkage with health insurance is undesirable, unless a physician's responsibility to certify disability is separated from a physician's responsibility to furnish medical care. Our studies lead to the conclusions that it is simplest and most convenient to regard insurance against temporary disability as a form of unemployment compensation in which the unemployment is caused by disabling sickness and to design the general pattern along the same lines as have been proposed for unemployment compensation. On this basis, our plan for disability insurance conforms to the general characteristics of State-wide rather than of Federal systems of social insurance. European experience shows that disability insurance often bears the first weight of impending widespread unemployment. It is therefore important that the benefits furnished by disability insurance and by unemployment compensation systems should be equitably related and their administration correlated.

In certain important respects disability insurance is more like a system of old-age annuities than like a system of unemployment compensation. The risk of disability is predictable with substantial accuracy for a large group of people and for a specific period of time; and the cash benefits which may be furnished to those who become disabled bear a direct relation to the contributions paid into the general pool of funds.

In our previous report we presented at some length the arguments which led us to the particular proposals submitted in respect to a system of unemployment compensation. It is unnecessary in this report to repeat the arguments for a similar system of disability insurance. Specifically, we recommend legislation which will (1) impose a uniform Federal tax on payrolls, beginning with January, 1936, with an offset permitted to any employer who contributes to a disability insurance fund under a compulsory State law, and (2) create federal machinery for participation in the administration of disability insurance. This we believe will encourage the speedy enactment of State laws which meet minimum standards of security and fairness.

The tax should be 1 percent of the payroll. Against this tax imposed in the Federal law, a credit, up to 70 percent of the tax, should be allowed for the money the employer has paid to the proper State authority as contributions for disability insurance purposes pursuant to State law. Approval of the State law should require, however, that such law shall not permit employers to deduct more than one-half of the contributions from the wages of employees.

The funds which will accumulate in the Federal Treasury from that portion of the payroll tax which is not offset against contributions under State laws should provide for the accumulation of Federal funds from which States may be assisted when epidemics or other emergencies endanger the financial soundness of State disability insurance systems otherwise properly designed, and for other measures which may operate in any State to reduce the incidence or severity of illness or to mitigate its effects.

Suggestions for State Legislation

As in respect to unemployment compensation, this Committee plans the preparation of a model State disability-insurance bill, with alternate clauses at many points. In this report it seems unnecessary to discuss all of the details of this model bill, since the legislature will determine the policy in each State. On some major points, however, comment seems appropriate.

Insured Population

It seems eminently desirable that a State law for disability insurance should apply to the same population groups as are covered in a State law for unemployment compensation. In the absence of a State system of insurance against permanent disability or of old-age assistance or if either or both of such systems furnish benefits materially less than those which are furnished under disability insurance, it may be desirable to limit disability benefits to persons who are less than 65 years of age. Otherwise there may be serious administrative difficulties in distinguishing disability caused by specific accident or illness from general debility arising out of old age. Serious financial difficulties may follow for the disability insurance unless the contributions required under State law are adjusted appropriately to meet these contingencies. Contributions. - The States should make all contributions compulsory and may require them from employers alone, or from employers and employees, with or without contributions by the State. Contributions should be measured by a fixed percentage of wages and the percentage should be the same for all payrolls subject to State contributions, at least until experience accumulates to justify non-uniform rates. Benefits. - The States should determine their own waiting periods, benefit rates, maximum benefit periods, etc. We suggest caution, especially in the first few years, lest they insert in their laws benefit provisions whose costs will be in excess of collections. To arouse hopes of benefits which cannot be fulfilled is invariably bad social and governmental policy. It is our recommendation that the benefits should not become payable for at least three months after contributions are first made and should be defined along the following lines:

(1) Eligibility for benefits to require an adequate qualifying period of insured employment;

(2) Medical certification of disability to be made by a salaried physician;

(3) A waiting period of one calendar week of certified disability to precede the period of compensable disability; benefits to be paid for wages lost after the seventh day of disability;

(4) Benefit to be 50 percent of the average daily wage upon which contributions were paid in the calendar year preceding the onset of certified disability, but not to exceed $15 a week, and not to be paid in respect to disability due to compensable injury or illness arising out of employment, and not to be paid concurrently with the payment of benefits under a State unemployment compensation law;

(5) The duration of the benefit period not to exceed 26 weeks in any 52 consecutive weeks; resumption of eligibility to further benefit upon completion of a benefit period to require a qualifying period of insured employment. When first established, the law might provide for a benefit period not to exceed 13 weeks;

(6) Eligibility to be defined for those who may receive "extended" benefit because they have lost their insured status by reason of change of residence or of occupation;

(7) Maternity benefit, equal to ordinary disability benefit for a maximum period of 12 weeks (6 weeks before and 6 weeks after childbirth), to be available to gainfully occupied women who abstain from gainful employment and receive prenatal care for at least four months prior to childbirth; a lump-sum maternity benefit of $15 might in addition be furnished to each insured woman who is gainfully occupied, to the dependent wife of an insured person, and to the widow of an insured person, who receives prenatal care for at least four months prior to childbirth,

It is anticipated that, under a system of disability insurance designed along the indicated lines, from one person in each eight to one in each fourteen will become eligible to receive benefits of longer or shorter duration each year. It may therefore be expected that an active interest will soon develop among insured persons in the provisions of the system, in its administration, in the regular payment of contributions, and in the technique of collecting benefits. Because the benefits furnished by disability insurance are in their nature comparatively frequent and inevitable, it will be highly desirable that there shall be integration of the local administrative facilities which may be developed for disability insurance, unemployment compensation and other measures designed to give economic security.

E. HEALTH INSURANCE

We have submitted proposals for the development of more adequate public health services and of more extensive facilities for public medical services, and have recommended a system of insurance against wages lost on account of disabling illness. There remains the problem of enabling self-supporting families of small and moderate means to budget against the costs of medical care needed by their members.

When reporting to the President on January 15, 1935, we expressed the view that this major problem also required application of the insurance principle. We added:

"We are not prepared at this time to make recommendations for a system of health insurance. We have enlisted the cooperation of the advisory groups representing the medical and dental professions and hospital management in the development of a plan for health insurance which will be beneficial alike to the public and the professions concerned. We have asked these groups to complete their work by March 1, 1935, and expect to make a further report on this subject at that time or shortly thereafter. Elsewhere in our report we state principles on which our study of health insurance is proceeding, which indicate clearly that we contemplate no action that will not be quite as much In the interests of the members of the professions concerned as of the families with low Incomes."

Our research staff prepared a series of proposals which were submitted to our professional advisory boards in November. These proposals were then revised and again submitted, In January and February, to these advisory boards and to the Nursing Advisory Committee which we had created in the interim. In the interim also the staff and its associate members conferred with the officers of the Bureau of Medical Economics of The American Medical Association. It is very gratifying to us that the distinguished members of these boards gave generously of their time to examine critically the plans developed by our staff and aided us greatly by their counsel.

During the course of these conferences every substantial technical question raised by any member of these boards was met by appropriate revision of the tentative proposals or by the addition of new proposals. It is significant that the changes made as a result of these conferences did not require any important alteration in the general pattern of our proposed system of health insurance. We are therefore confident that the general pattern is sound.

We pointed out in our first report that insurance against the costs of medical care is neither new nor novel. In the United States we have had a long experience with sickness insurance, both on a non-profit and on a commercial basis. Commercial sickness insurance has been too expensive for people of small means.

Some plans recently started to deal with medical costs, some -under commercial and some under professional auspices, have not been insurance plans at all, but merely plans for paying sickness bills by installments. Installment payment or credit bureaus, whether operated by commercial or non-profit agencies, by professional or lay groups, do not offer a sound solution of the public need for security. Nor can the voluntary organization and administration of a credit bureau by parties interested in its finances be accepted as a proper substitute for the broad responsibilities of public authority.

In the past few years there have been developed in many communities, under responsible auspices, both lay and professional, commendable plans for non-profit insurance for hospital care. Many of these are sound and useful and are accumulating valuable administrative experience and actuarial data. The American Hospital Association has officially endorsed voluntary hospital insurance and has established guiding principles for the organization and management of plans. Upwards of forty cities now have such plans established, most of them developed within the past two years, and with over 100,000 subscribers. Originally some of the plans were unnecessarily expensive. Recent developments point towards lower premiums for the subscribers and the organization of the plans under community auspices instead of hospitals alone. The growth of analogous plans in England during the last fifteen years indicates that, if developed in conjunction with other sickness insurance on a compulsory basis and with other social measures, voluntary hospital insurance may aid in serving large numbers of persons. Obviously insurance against hospital bills alone, without inclusion of professional services and other sickness costs, is an incomplete and unsatisfactory provision against the risks and losses of illness.

In certain industries, chiefly railroads, mining. and lumbering, there are numerous sickness insurance plane, providing general medical care and often hospital care also. Some of these have been in operation for many years. But altogether these plans do not reach over 1,500,000 persons. During recent years insurance plans have also been started in a number of communities, often under the auspices of professional associations or agencies, for the periodic prepayment of the costs of professional services and sometimes of hospital costs also. None of these plans has reached more than a very small part of the local population in need of security against the costs of sickness. The test of these and other voluntary plans is not their intentions but their actual accomplishment in achieving adequate coverage. It is noteworthy that in the State where voluntary health insurance plans of all these kinds have developed most extensively, there exists a spontaneous and active demand for State legislation to extend and systematize health insurance on a compulsory basis under public authority and to eliminate abuses which have developed under voluntary practices. The value of local experimentation, of adapting local plans to local conditions, and of strong professional participation in local administration -- all of which are evident in many voluntary plans -are not open to question. Our decision to retain these values will shortly become clear when our proposals are considered and their flexibility is evident.

Voluntary sickness insurance without subsidy or other encouragement by governments has nowhere shown the possibility of reaching more than a fraction of those who need it, and has everywhere tended to be replaced by a system under which the law requires participation in sickness insurance by at least certain occupational or income groups.

Our only form of compulsory sickness insurance in the United States has been that which is provided against industrial accidents and occupational diseases under the workmen's accident compensation laws. In contrast, other countries of the world have had experience with compulsory health or sickness insurance applied to over a hundred million persons and running over a period of more than 50 years. Nearly every large and industrial country of the world except the United States bas applied the principle of insurance to the costs of medical service.

The Committee's staff has made an extensive review of insurance against the risks of illness, including the experience which has accumulated in the United States and in other countries of the world. Based upon these studies the staff has prepared a tentative plan of insurance believed adequate for the needs of American citizens with small and moderate means and appropriate to existing conditions in the United States. From the very outset, however, our Committee and its staff have recognized that the successful operation of any such plan will depend in large measure upon the provision of sound relations between the insured population and the professional practitioners or institutions furnishing medical services under the insurance plan. Great pains have been taken to assure that the plan is realistic, not only in its financial and administrative, but particularly in its professional implications. While it takes advantage of foreign experience with health or sickness insurance, the plan differs in a number of fundamental particulars from the European systems.

General Outline of the Plan

It is proposed that the risks and costs incurred through the need for medical services shall be provided for on the insurance principle by requiring contributions into a common fund from people of small and moderate means. These contributions are to be designed on the basis of a percentage of earnings, supplemented as ii4y be desirable or necessary by additional contributions from employers or public funds.

The fundamental goals of the plan are:

(1) The provision of adequate health and medical services to the insured persons and their families;

(2) The development of a system whereby people with small and moderate incomes are enabled to budget the costs of medical care for themselves and their dependents;

(3) The assurance of adequate remuneration to practitioners in medicine and the allied professions and to hospitals and other medical institutions;

(4) The maintenance of high standards of care and the development of new incentives for its continued improvement through responsible participation of the medical professions in administration.

All experience the world over testifies that a sound plan of health insurance (as distinguished from a plan of disability insurance) must undertake to furnish for the insured persons and their dependents not cash with which to purchase medical services but the services themselves. It is therefore inherent in any such program that there must be contractual provisions whereby the contributions paid into a central pool are used to remunerate those who furnish service to the beneficiaries. Accordingly, the plan mast be adapted to the available resources of a community measured in professional practitioners and agencies. Viewed in this light, it is at once evident that the design of a system of health insurance has limitations which are not inherent in the design pf other systems of social insurance in which the benefits are all paid in cash. Not only must health insurance be concerned with regard to the provisi6n of service, it must also be designed with regard to differences in the availability of the means of furnishing services in different States and in the different areas within States. A Federal plan must therefore be flexible and adaptable to the diverse conditions under which it must operate.

With these and other factors in mind, we conclude that health insurance should for the present be planned on a State-wide and not on a Federal basis, under a Federal law which leaves to the several States the initiative and option of establishing systems of health insurance. In our opinion, the role of the Federal Government is principally to establish minimum standards and safeguards for health insurance practice and to provide subsidies, grants, or other financial aids or incentives to States which undertake to develop and operate health insurance systems which meet the Federal requirements,

We recognize the need for careful experimentation and for the accumulation of experience before the country is committed to any far-reaching or irrevocable program, We therefore propose that the financial aid offered to States should be sufficient to encourage the early establishment of health insurance systems in some States and to assist those which are in need of Federal aid by reason of limited resources. Federal aid should not be so large as in effect to harry States into adopting health insurance merely to qualify for Federal aid. The use of a uniform payroll tax which we have recommended for Federal-State plans of unemployment compensation and of disability insurance is not suitable for health insurance where a more flexible financial implement is needed. Instead, we recommend that Federal aid shall be granted to the States through subsidies which we shall define more specifically on a later page.

The basic Federal standards should be essential parts of the Federal law.

Considerable latitude should be left to the States to determine the populations to be insured and the benefits to be furnished. A State may require contributions from employed persons or from employed persons and their employers and may specify that persons in certain occupations or employed in establishments having less than a specified number of employees are exempted from the scope of the law. A State may admit these excluded and other persons to voluntary participation in the health insurance plan. A State may specify a lower limit of earnings below which employed persons shall not be required to make contributions. Employed persons whose earnings are below this limit and their dependents, together with persons who have no incomes, may be brought into the health insurance system by payment of appropriate amounts in their behalf from public funds of the locality or of the State. In this way medical care for partially and totally dependent persons may be unified with medical care for self-sustaining groups under a single administrative and professional machinery, if such unification is desired by the State. The standards in the Federal law should merely specify an upper income limit for the insured population and the maximum costs per capita (for a State as a whole) of specified medical benefits toward which Federal financial assistance will be offered. Our studies lead to the conclusions that the income limit up to which Federal aid is offered should be $250 per month, that the medical benefits should include at least physicians' services and hospital care, and that the total cost (exclusive of the expenses of administration) of these and other medical benefits would probably not exceed $20 per capita.

It is recognized that the Federal Government also has responsibility substantially like that of a State for its own employees, its wards and perhaps for other special groups in the population.

The general design of health insurance in a State should be such that medical benefits furnished through health insurance are financed for substantially the same aggregate sums of money as are customarily spent without insurance by the employed population with earnings up to $250 per month.

In a State which adopts both health insurance and disability insurance, certain cooperative arrangements will be desirable between the practitioners who undertake to furnish medical service and the salaried physicians charged with the responsibility of certifying as to the existence of disability. Individual physicians should not be permitted to exercise both functions.

The purpose of our proposals should be attained while sustaining the private practice of medicine and the intimate personal relationship between physician and patient.

Nothing in the Federal law should impair the power of a State to license and determine the qualifications of practitioners of medicine and of the allied professions.

Nothing in the Federal law should impair the power of a State to provide that employed persons, who for religious or conscientious reasons declare themselves opposed to receiving the services of practitioners of medicine licensed under State law, may thus exclude themselves from required contributions to the health insurance law and from its benefits.

Financial Basis. - From a financial point of view, social insurance against the costs of medical care is quite different from insurance against unemployment or old age. Unemployment and old-age insurance, on the one hand, require the accumulation over a period of years of large reserves which will be drawn upon as the occurrence of unemployment or old age requires. The risks in these forms of social insurance must be capitalized. In health insurance, on the other hand, the finances are substantially on a pay-as-you-go basis, no reserve being required except a reasonable working capital.

Medical Benefits. - It has frequently been proposed that the medical benefits furnished through health insurance should be restricted to those which are required in serious or financially "catastrophic" sickness and that the insured persons should pay some portion of the cost of the service at the time it is rendered or should pay the costs up to some specified maximum sum. These proposals were given careful consideration by our staff, were submitted for the consideration of all our professional advisory groups, and - with the exception of one member of the Medical Advisory Committee - were unanimously disapproved. Such proposals are not unsound in principle, but we find that they are impractical and unwise from administrative, professional and financial points of view. They would require: the creation of unnecessarily complicated and expensive administrative machinery; the adoption of arbitrary criteria to distinguish serious from trivial sickness; and the establishment of undesirable delays and unnecessary financial barriers in bringing the patient under the care of his physician. A plan patterned after these proposals would expose both insured persons and insurance practitioners to -undesirable practices which may become associated with the certification of private expenditures.

We recommend that a sound system of health insurance should furnish medical benefits to insured persons and their dependents, in health and in sickness, without waiting period and without payment except through their previous contributions.

Professional Relations. - The Federal law should provide that an approved State system of health insurance shall safeguard professional relations and the quality of medical services furnished to insured persons and their dependents. Specifically, in the administration of the services the medical professions should be accorded responsibility for the control of professional personnel and procedures and for the maintenance and improvement of the quality of service, legally qualified practitioners should have broad freedom to engage in insurance practice, to accept or reject patients, and to choose the procedure of remuneration for their services; insured persons should have freedom to choose their physicians and institutions; and the insurance plan shall recognize the continuance of the private practice of medicine and of the allied professions.

State Administration. The Federal law should further specify that an approved State system shall provide for the efficient use of funds towards which Federal aid is given through: (1) the creation of a single State authority responsible for the administration of the law throughout the State and of necessary authorities within subdivisions of the State for the local administration of the law; (2) the proper care and safeguarding by the State of health insurance funds and full and complete periodic reports to the Social Insurance Board in accordance with rules and regulations which may be prescribed by the Board; (3) such representation of the professions and professional agencies in the State administration as will conduce to the maintenance of high standards of service and to the advancement of the sciences and arts concerned with the study. care and prevention of disease; (4) the correlation or integration of the health insurance system with the State and local public health administration; and (5) the exclusion of agencies organized for profit from the administration of the system, either in States as a whole or in local areas, and the exclusion of other intermediary agencies between the insured population and the professional practitioners and institutions which serve them. If a State system combines or correlates health insurance with disability insurance, the State should make separate accounting of sums paid in and paid out for medical and for cash benefits.

Federal Administration. - The Federal law should provide that:

(1) The Social Insurance Board shall be charged with the responsibility of administering the Federal health insurance law;

(2) A Federal professional agency (an existing agency such as the United States Public Health Service or an agency to be created) shall be made responsible to certify that a State system meets the requirements expressed in the professional standards of the Federal health insurance law;

(3) A Federal professional advisory board or boards shall be created, representing the medical professions of the United States concerned with furnishing medical services, to serve in an advisory capacity to the Social Insurance Board and its professional certifying agency.

Federal Costs. - We recommend that Federal aid shall be given to States which choose to create State-wide health insurance systems which meet the requirements of the proposed Federal law. We estimate that the purposes of the law could be effectively carried out at a cost to the Federal Government of $60,000,000 a year. In this total we include not more than $500,000 a year for the purposes of Federal administration and the remainder for Federal aid to the States. The method of allocating these funds may be indicated more explicitly as follows:

(1) An annual appropriation of not more than $500,000 for the Federal administration of the law;

(2) One-half of each annual appropriation to be allotted to the States, having approved health insurance systems on the basis of not more than $3-00 per person eligible to receive benefits furnished by approved State health insurance laws; but not over 15 percent of the total costs of the State health insurance system, exclusive of the expenses of administration; provided that when the sum of such allotments exceeds one-half the annual appropriation each allotment shall be reduced pro rata, unless the Congress makes a supplementary appropriation for this purpose;

(3) One-half of each annual appropriation, less the Federal administrative expenses, to be allotted among States having health insurance systems meeting Federal standards, in such manner as will assist States which by reason of limited resources or severe economic distress are unable otherwise to meet the requirements of the Federal law, provided that the Federal grant under this clause shall not exceed 30 percent of the total expenses of the health insurance system, exclusive of the expenses of administration, in any State.

In the first fiscal year after enactment of the proposed Federal law, a total appropriation of $10,000,000 or $15,000,000 would probably be sufficient. An annual appropriation of $60,000,000 in each year thereafter would probably be in excess of the needs during the next few succeeding years and would be adequate for each succeeding year for some years to come. We recommend that unexpended fractions of such annual appropriations shall remain available for allotments in succeeding years. The cumulating unexpended money should be divided equally between items (2) and (3) above, one-half being used to increase the total sum available for allotment before pro rata reductions are invoked and the other half to increase the total sum available for allotment on the basis of relative State needs.

On this basis, the Federal aid would be larger for the first States which adopted health insurance than for those which followed suit later. This is sound practice, both to encourage the early establishment of State systems and to give relatively larger aid to the experimental areas. The Federal aid would become proportionately smaller as an increasing number of States adopt health insurance and as practices develop and become increasingly prevalent and standardized.

The provision in paragraph (2) above is designed to limit the flat-rate Federal aid to a maximum of $3.00 per person to whom medical benefits are furnished but not to exceed 15 percent of the total costs exclusive of the expenses of Administration. These provisions are based upon our studies which show that an adequate system of insurance medical benefits can be furnished for a total cost (exclusive of the costs of administration) of less than $20 per person in a State as a whole. This figure of $20 per person has been computed with due regard to the expected need for medical services among insured persons and their dependents and with ample allowance for the fair remuneration of practitioners, hospitals, and other medical agencies.

On the basis of paragraphs (2) and (3) above, even without accumulations F from the unexpended balances of annual appropriations, the first 10,000,000 people covered by approved State systems of health insurance could be assisted by the Federal Government to the extent of $3.00 per person or 15 percent of their costs, and up to an additional 30 percent of their costs according to their need for Federal aid. The States in greatest need could receive up to a maximum of 45 percent of the cost of benefits.

We are of the opinion that the Federal aid recommended above, although specifically limited in terms of the annual maximum cost, meets the needs of a sound program of economic security against this risk arising out of illness.

Summary of Conditions Which May Be Required of Approved State Systems of Health Insurance by the Proposed Federal Law

1. The State shall establish a health insurance law which accepts the provisions of the Federal law and which will require contributions from employed persons or from employed persons and their employers, such contributions to be a fixed percent of earnings.

2. Federal grants shall be made in respect to persons having wages not exceeding $250 per month.

3. The State law may specify persons in certain occupations or employed in establishments having less than a specified number of persons as excluded from the group from whom such contributions are required.

4. Federal aid shall be available for other persons who fall within similar income limits and are admitted 'under necessary administrative regulations to voluntary participation in the health insurance law.

5. The State may specify a lower limit of earnings below which persons shall not be required to contribute to a health insurance system, provided that appropriate payments in their behalf are made by their employers or from State and local public funds.

6. The State law shall entitle insured persons and their dependents to physicians' services and hospital care, and may also entitle them to such services in dentistry and nursing and to such medicines and appliances as the State law may specify.

7. The State shall set up a single State authority responsible for the administration of the law throughout the State, and necessary authorities within subdivisions of the State for the local administration of the law.

8. The State shall grant such representation in the administration of the law to the professions and agencies concerned with furnishing medical services as will be conducive to the maintenance of high standards of service and the advancement of the sciences and arts concerned with the care, study, and prevention of disease; and in particular shall provide:

a. for a State board or medical authority, responsible to the general State authority administering the law, and having immediate jurisdiction over the medical features of the law;

b. for such additional professional boards or authorities as may be deemed necessary by the State, affecting respectively hospitals, dentistry, and other professions or agencies which may be concerned with furnishing services;

c. for freedom on the part of all licensed practitioners of medicine and dentistry to furnish or to decline to furnish services under the law;

d. for freedom of choice, under rules of procedure necessary to maintain standards of service and economy of administration, on the part of the patient from among all local practitioners and agencies entitled to furnish services under the law;

e. for determination, at the initiation of the professional authority, of specialist services to be furnished under the law and for the designation of those entitled to furnish such services;

f. for participation on the part of the professions and agencies concerned in furnishing service in the determination of standards and procedures of remuneration and in the adjudication of differences or disputes affecting professional matters.

9. The State law shall exclude agencies organized for profit from the administration of the act in the State and its subdivisions.

10. The State shall provide for the proper care and safeguarding of health insurance funds and shall make full and complete reports to the Social Insurance Board in accordance with the rules and regulations to be prescribed by the Board.

11. The public health authorities of the State and its localities shall be closely correlated with the administration of the law.

Suggestions for State Legislation

Health Insurance operated through state-wide systems cannot be uniform throughout the States or even within a State which has widely different conditions of occupation, density of population or available facilities for medical care. It is expected that as certain economic problems of medical care are solved through insurance some of the inadequacies in the supply of professional personnel will be rectified through better distribution and in the supply of hospitals and other Institutional facilities through their construction in areas where they are needed and can be supported. Such adjustments will come especially as between urban and rural areas. There will still remain, however, differences in conditions which will require differences in the plan and administration of health insurance practice.

It is not practicable to outline a single pattern for health insurance in the States. It is possible, however, to outline suggestions for State legislation which will -utilize the results of our studies and meet the goals of our proposals.

Population Coverage and Contributions. - A State law should require that employed persons, themselves or jointly with their employers, within certain limits of income (for example, up to $250 per month) would pay into a State fund a specified percentage of earnings, and would be entitled to receive medical services, in health and in sickness, for themselves and their dependents. The population which a State law required to be covered would, for practical purposes, have to be defined in terms of employed persons, although the social purpose of the plan involves medical service also to their families. A State law may fix the upper income limit lower or higher than $250 per month, but it would receive no Federal aid toward the cost of benefits furnished to persons with incomes in excess of this figure. Earnings named in money figures may here be interpreted as applying to urban populations, and may require adjustment with respect to rural population and perhaps with respect to differences in cost of living between different sections.

Certain groups of persons, such as those who are employed in small businesses, also farmers and farm laborers, domestic servants, employees of small establishments, cannot be brought into a contributory health insurance scheme as readily as industrial employees. Such persons may not be required to be insured by law, but should be admissible to insurance on a voluntary basis if within the income limits specified.

As has already been pointed out, a minimum limit of earnings may be specified by State law below which contributions to health insurance funds are not required. Employed persons whose earnings are below this limit and their dependents, together with persons who have no incomes, may be brought into health insurance by payment of appropriate amounts in their behalf from public funds of the locality or of the State, or both. In this way the scheme of medical care for persons in need of public assistance and their families might be unified, if desired, with medical care under the contributory health insurance system.

The families of farmers and of farm laborers and the population of predominantly rural areas should be brought into health insurance on a basis appropriate to the conditions in such areas. In the more sparsely settled communities the use of physicians, salaried or subsidized from tax funds or from contributed health insurance funds, may be a proper method.

So far as may be practical, an upper income limit for those who are required by legislation to be insured should agree with similar limits for unemployment compensation and disability insurance.

A payment of about 4 percent of earnings from the population groups of small and moderate incomes would be sufficient to provide most of the medical services required. The law might, however, as described below, provide for only certain forms of medical service with a correspondingly diminished rate of contribution, and might provide that a certain share of the contribution shall be paid by the employer, particularly for persons with smaller incomes. In addition, the contributions of employed persons or of employed persons and their employers might be supplemented by contributions from the State.

Medical Benefits. - Insured persons and their dependents should be guaranteed care, in health and in sickness, without waiting period and without payment except through their previous contributions. Such care may include any or all of the following six classes of service (exclusive of care for Injuries and diseases caused by or arising out of employment) and should so far as is possible, include at least the first three:

(1) Care in health and in sickness by a general practitioner of medicine in the home, office, clinic or hospital;

(2) Specialist services, when needed, in the home, office, clinic, or hospital;

(3) Hospital, clinic, and laboratory services;

(4) Specified dental services;

(5) Specified nursing services in the home;

(6) Expensive medicines and appliances (not ordinary drugs and medicines).

Since public medical services, through health departments, welfare departments, or other governmental agencies, now provide certain special services for practically the whole population (for example, care of mental disease and certain communicable diseases), these should not be covered by health insurance.

Professional Relations, Responsibility and Remuneration. - A State law should place primary responsibility upon the medical and allied professions for the quality and standards of medical care, and should grant such representation in the administration of the law to the professions and agencies concerned with furnishing medical care as will conduce to the maintenance of high standards of service and to the advancement of the sciences and arts concerned with the study, care, and prevention of disease.

Such matters as the control of professional personnel, the supervision of medical service, the maintenance of high standards of practice and the control of undesirable practices should be the primary responsibility of local and State professional boards which are made parts of the administration. All patients should be free to choose their physician or dentist from among the local practitioners who engage in insurance practice. All legally qualified practitioners who subscribe to necessary rules of procedure should be free to engage in insurance practice and to accept or to reject insured persons who choose them. The practitioner should likewise be free to engage in private non-insurance practice to whatever extent he desires, provided that this does not interfere with obligations which he has already accepted toward insured patients.

Much medical service is now highly specialized. The law must therefore provide that the State medical authority will prepare lists of services which are regarded as specialties, and that local professional authorities, with the approval of the State authority, shall draw up lists of those practitioners who are capable of rendering these various types of specialist services. Flexibility within a State is necessary, since in small communities the same standards cannot be applied for admitting physicians to a list qualified for rendering certain specialist services as would be applied in a large city.

Payment for professional service must be flexible, providing for payment on either a fee basis, salary basis, or on a basis of capitation, i.e., a certain amount to the physician per year for each person who regularly selects him as his family practitioner. Specialist service, because of its nature, can rarely be remunerated under a capitation basis. The medical, dental, and other professional groups should play a responsible part in determining with the State and local administrative authorities the standards and methods of remuneration which they prefer in various localities.

Hospitals, with their associated clinics and laboratories, necessarily play an important part in rendering care in sickness, and the administrative authorities under the law should enter into arrangements with these institutions to furnish the needed services and to pay for them.

Since the cost of ordinary medicines is small, and since careful studies have shown that these costs are distributed comparatively evenly among families, it is not considered necessary to include ordinary drugs and medicines within the scope of a health insurance law. A list of especially expensive medicines and likewise expensive surgical and other appliances should be drawn up by the proper authorities, and articles on this list should be included within the scope of the benefits available under the law.

These matters of professional relations are of fundamental importance to the proper design of a State system. To indicate more explicitly the results of our studies on these features of the general subject we list in an appendix to this report more detailed suggestions. Many of them should be incorporated in the State law; others are more properly matters to be covered by administrative rules of procedure.

State Administration. - It is essential that the administration of the State law shall be centered within a State upon a single responsible authority for the handling of finances and supervision of administration in subdivisions of the State and in local communities; and that the medical services themselves should be under the immediate supervision of responsible professional bodies. The details of administration will, of course, vary within States, but in general health insurance should be administered within a State by a State board with an administrative officer or by a State officer with an advisory board, having general authority over the system.

Subject to this central authority, the primary control of the professional aspects of medical care should be in a medical board appointed by the Governor or by other appropriate State authority from nominations submitted by the organized medical profession of the State. Similar responsibility for their respective fields, should be vested in analogous boards for hospitals, dentistry, and nursing, depending upon the scope of the benefits.

Agencies organized for profit should be excluded from the administration of the health insurance system either in States as a whole or in local areas. The State and local administration of health insurance should be closely associated with preventive measures through correlation with the State and local departments of public health.

In addition, the State law should provide for the creation of local boards to hear and determine disputes and grievances and of a State board to which appeals may be taken and determined from the local boards.

F. CONCLUSION

In our first report to the President we dealt with general and specific measures for economic security. In respect to risks which arise out of illness, we proposed certain particular measures, for child-care services, for child and maternal health services, and for a Nation-wide preventive public-health program to lessen the occurrence of sickness. We made only a progress report on other measures to protect wage-earners and their families against the costs of illness. These subjects were still being studied by our staff and our professional advisory committees.

In the present report we present our proposals on general measures to furnish economic security against sickness, dealing specifically with the development of public medical services and facilities, with insurance against wages lost through temporary disability, and with health insurance for wage-earners and their dependents. These proposals are:

1. With respect to Federal aid to State and local public medical facilities and services, we make the general recommendation that appropriate administrative action be taken and sufficient funds be made available when necessary, to provide this aid. The surveys necessary to determine when and where Federal aid should be given are already under way in order that, if aid be deemed advisable, the required information will be at hand.

2. With respect to insurance against wage loss due to sickness (in the form of cash benefits), we recommend that this form of insurance should be provided in the same general manner as unemployment compensation. The members of our advisory committees and of our staff are unanimously in favor of the separate administration of insurance against wage loss and of insurance against the costs of medical care, and we are in agreement with this view.

3. We recommend that provision should be made for the further study of the occurrence of permanent disability and of measures to furnish protection against this risk.

4. With respect to insurance against the costs of medical care (medical benefits and so-called health insurance), we recommend a Federal-State permissive system in which any State will receive a specified Federal subsidy, provided it meets certain basic Federal safeguards.

In submitting these recommendations we wish to make some general observations that appear to us to be pertinent.

Our plan for disability insurance would give assurance of some income to wage-earners who become disabled and would reduce the burdens which communities bear in the care of the disabled sick and the dependent.

Our design for health insurance leaves to the States the initiative in creating systems of insurance. The Federal Government would undertake to lay down general safeguards and to give financial aid to the States. The costs to the Federal Government would be small, especially in the light of the large benefits which would accrue to the national welfare.

On the subject of health insurance, our recommendations are especially conservative; but we believe that they offer a proper basis for the sound beginning of practices which will give to millions of men and women security against serious economic effects of sickness, Combined with the advantages of disability insurance, health insurance would free millions of families from the spectre of sickness costs,

Our plan for health insurance would give to those who need care easier access than they now have to those who are prepared to furnish it. At the same time this plan would vastly reduce the burdens of medical costs to individual families and would increase and stabilize the incomes of practitioners and hospitals serving people of small and moderate means.

The system of health insurance which we recommend rests upon the basic principle that the private practice of medicine and of the allied professions should be continued and strengthened. We have been especially careful to encourage high standards of professional service and to provide new incentives for their continued improvement. No single existing pattern, American or European, has been followed. Our proposals take account of experience at home and abroad and are designed to meet the needs of the American people under the conditions which exist in our States and local communities. In making this recommendation, we have carefully considered the interests not only of the public but also of the medical professions. We believe that these interests have been properly safeguarded and that our proposals are in accord with the views expressed by President Roosevelt in his address to the Conference on Economic Security, November 14, 1934, and will lead to "a system which will advance and not hinder the remarkable progress which has been made and is being made in the practice of the professions of medicine and surgery in the United States." We contemplate only those actions which will be quite as much in the interests of the members of the professions concerned with health and sickness as of the families with low incomes.

There still are broad gaps in our proposals; the measures we recommend will not give complete security against all the risks of illness nor will they meet the needs of all the people who need protection. There remains the need for more extended study of deficiencies in many communities in the supply of hospitals, institutions for the chronic sick and of other necessary facilities, for a careful Investigation of insurance to provide against permanent disability, and for study and experimentation on ways and means of giving protection to particular groups of people who cannot easily be served by the measures which have been proposed. We are confident, however, that we have devised proposals which will enhance the economic security of a large proportion of the population through the conservation of health and the mitigation of the economic burden laid upon families with low incomes by sickness and ill health.

We recommend that legislation be enacted to make a prompt beginning to give security against wages lost on account of illness and against the costs of medical care.

APPENDIX A

Some Further Suggestions for a State Health Insurance Law Professional Relations, Responsibility and Remuneration

(1) Adequate recognition and responsibility should be given to the medical professions in respect to the control of professional personnel and practices, the supervision of professional service, the maintenance of high standards of practice, the solution of professional problems, and disciplinary actions for practitioners guilty of the infraction of professional agreements or of ethical standards;

(2) Freedom should be given to all legally qualified practitioners who subscribe to necessary rules of procedure to engage in insurance practice; freedom to all persons to choose their physician from among all local practitioners who engage in insurance practice; and freedom to each insurance practitioner to accept or reject insured persons who choose him;

(3) Freedom should be given the insurance practitioner to engage in private non-insurance practice to the extent that it does not interfere with his obligations to insurance patients;

(4) Adequate provisions should be made for opportunities or requirements for periodic post-graduate study by insurance practitioners or for other procedures designed constantly to maintain and elevate the quality of medical practice among insured persons;

(5) The system of payment for professional services should be sufficiently flexible to provide for payment on a fee, salary, or capitation basis as may be required: (a) by the conditions of a given locality or (2) by the characteristics of various types of medical services;

(6) The system of remuneration should provide incentives for: (a) the maintenance of high standards of quality) (b) the provision of prompt and efficient care, (c) the encouragement of coordinated interrelations among practitioners and institutions; and (d) the prevention of disease;

(7) The state medical authority in collaboration with the state administrative authority should draw up schedules for fees, salaries and capitation, as a basis for the remuneration of general practitioners, and may include different rates applying to different sized communities; or maximum or minimum rates;

(8) The general practitioners of a district who have accepted insurance practice should have the right to select that form of remuneration which they prefer, subject to the approval by the state medical and the state administrative authority;

(9) The state authorities should prescribe maximum limits to the numbers cf potential patients which any insurance practitioner may accept. Such limits may be so specified as to differ according to the conditions in different sections or types of communities within a state; since in some areas a limit as low as 500 or 600 might be appropriate, whereas a limit as high as 2,000 might be necessary in other areas;

(10) The state medical authority should prepare a list of services which are regarded as specialist services. The local medical authorities should prepare lists of physicians regarded as capable of rendering these various types of services from among those physicians who express desire to render such. These lists should be approved by the state medical authority. Flexibility is necessary since in small communities the same standards cannot be applied for admitting a physician to a list qualified to render certain specialist services, as would be applied in a large city. In the adoption of standards by a State, recognition should be given to standards established by approved national professional associations;

(11) In general; the plan of payment for the specialist should be on the basis of fees for services rendered or on a salary basis for a given amount of time;

(12) In determining the method of payment adopted for specialists the administrative authority should be responsible for selecting that method which (a) will yield a quality of service satisfactory to the medical authority, and (b) will be most economical in cost. The medical authority (primarily local with appeal when necessary to state medical authority) should be responsible for passing on quality of service rendered, not on method of payment. A given method of payment, if claimed by a medical group to involve or lead to unsatisfactory service, should be reconsidered by the final administrative authority;

(13) (Salary Basis). A schedule for the full or part-time employment of physicians on a salary basis for rendering specialist services should be drawn un by the state medical authority and may include different rates) applying to different sized communities: or maximum and minimum rates. Local medical authorities should present proposals for the rates which may be applicable to their areas, which are to be approved for these particular localities by the state medical authority and by the state administrative authority before becoming effective;

(14) (Fee Basis). A schedule of fees for various specialist services should be prepared by the state medical authority, and my include different rates, applicable to different sized communities, or maximum and minimum rates. Local medical authorities should present proposals for the rates to be applicable to their areas, which are to be approved by the state medical authority and by the state administrative authority before becoming effective.

(15) Fees to specialists may be paid to individual physicians for services rendered under the local schedule, or may be paid under a group plan. Under the latter plan, a total sum should be agreed upon by the local administrative and the local medical authority, to be applied to the payment for specialist services to be rendered by a designated body of physicians; and this lump sum should be paid to the physicians concerned to the amount and nature of the services rendered according to the locally applicable schedule.

(16) The administrative authorities should be empowered to enter into contractual arrangements with hospitals, clinics, laboratories, individuals or organizations furnishing medicines, appliances or supplies, for the appropriate services or commodities;

(17) A schedule of rates for various hospital services should be prepared by the state hospital board or other appropriate state authority, dealing with hospitals in connection with the health insurance act, and this schedule may include different rates applicable to different sized communities, or maximum and minimum rates. The local board or other authority dealing with hospitals under the health insurance act should present proposals for state rates to be applicable to their areas which are to be approved by the state hospital authority and by the state administrative authority before becoming effective;

(18) Systems of remuneration for dental services should permit flexibility in respect to different procedures to be used in paying for: (a) minimal essential dental services which are to be available to all persons eligible to receive the services) and (b) additional dental services whose costs may be divided between the insurance funds and the individuals served;

(19) The state medical board should prepare a list of especially expensive medicines, commodities) and appliances which, when approved by the state administrative authority, should be the approved list. The determination of business arrangements, prices, etc. should be by the administrative authority. The administrative authority may specify a maximum sum which shall be allocated during a year or a quarterly period in the State as a whole or in its several districts for the provision of these commodities;

(20) Schedules of professional remuneration established within states should be subject to periodic readjustment with due regard to the general financial status of the insurance system;

(21) So far as public medical services or public health agencies provide certain special services for practically the entire population (e.g., care of mental and of certain communicable diseases), these should not be covered by health insurance contributions;

(22) In so far as public medical services provide general medical care for certain groups of the population, public funds should pay into the health insurance system an agreed amount figured on a per capita basis (or other suitable method) so that the medical service to these groups of the population shall be administered through the health insurance system. This would cover the general medical services, for instance, to relief and work-relief cases;

(23) When general hospital services are provided to insured persons through governmental hospitals (city) county, state), financial adjustment should be made between the public authorities administering these hospitals and the health insurance authorities for the hospital care of insured persons. The administrative authorities of governmental hospitals should have an appropriate place among the authorities or in the councils of the health insurance system;

(24) State and local health officers should be closely associated with the state and local administration of health insurance;

(25) The State law should provide for the proper handling by the State of health insurance funds with due reports to the Federal government, for which Federal subsidies or grants are to be made. In any State which creates insurance to provide both cash and medical benefits there shall be separate accounting of sums paid in and paid out for each class of benefits;

(26) Agencies organized for profit should be excluded from the administration of the system, either in States as a whole or in local areas;

(27) The State law should provide for responsibility and representation in the State administration of the professions and professional agencies concerned with furnishing medical services) as indicated at various points above;

(28) Differences or disputes which arise between physicians cr dentists or which involve only professional questions should be arbitrated or decided by wholly professional boards. Differences or disputes between physicians or dentists and insured persons should be arbitrated or decided by mixed boards representing the profession concerned, the insured persons and the administrative authorities.