How is "hospital insurance" defined? Basically, a hospital insurance policy is one which includes benefits for specified servicesfor example, a separate benefit for hospital room and board charges, and a separate benefit for hospital "extras." Hospital "extras" include items such as laboratory and X-ray services, drugs, use of the operating room, etc.

Both the National Health Survey and the Social Security Administration define "hospital insurance" as we have outlined. The Health Insurance Association of America similarly defined "hospital insurance" in its July 1961 report on the number of aged insured. In his testimony before this subcommittee on April 28, 1964, the research director of HIAA, Mr. Joseph F. Follmann, Jr., referred to hospital insurance in terms of specific allowances for hospital room and board charges and specific allowances for hospital "extras."

We stress the definition of hospital insurance coverage because of an important fact: The Health Insurance Association of America in its last published survey of the aged which stated that "10,300,000 elderly held health insurance on December 31, 1962," altered the definition (without mentioning the alteration) from that used in its previous survey of July 1, 1961. The effect of changing the definition of hospital insurance was to present an inaccurate and misleading picture of the growth of private health insurance coverage for the aged between July 1, 1961, and December 31, 1962.

The Health Insurance Association of America told the Ways and Means Committee on November 22, 1963:

In July 1961, insurance companies covered 4 million persons aged 65 and over. Eighteen months later, in December 1962, the number of aged covered by insurance companies had increased by 28 percent to more than 6 million. In addition, Blue Cross reported that, as of the end of 1962, 5.3 million aged were covered under their plans.

Allowing for those persons covered under more than one policy, the number of aged with voluntary health insurance in December 1962 was 10.3 million or 60 percent of the noninstitutionalized aged population.

The technique employed by HIAA in December 31, 1962, to inflate the number of aged policyholders of commercial insurance was simply to debase the generally accepted definition of "hospital insurance" to include the so-called weekly or monthly indemnity policies. They no longer required that a hospital insurance policy provide a benefit toward room and board charges and a benefit toward the cost of hospital extras. This altered definition allowed them to count hundreds of thousands of policies which pay a minimal flat dollar allowance completely unrelated to hospital charges or servicesfor each day that the older person is hospitalized.

These weekly indemnity policies are nothing more than a supplemental type of coverage to be added by someone already holding hospital insurance. In this regard, it resembles surgical and medical insurance. One such policy offered by Mutual of Omaha provides the older person with the handsome sum of $1.67 a day-or $50 per month. Other Mutual of Omaha policies pay $3.33 or $7 a day.

Acknowledgment of the supplemental nature of such policies came from the Bankers Life & Casualty Co., in their statement to this Subcommittee, when they referred to "supplementary coverage such as

weekly indemnity during hospitalization." The function of the weekly indemnity policy is to provide the older individual with some additional cash in order to help him meet expenses arising out of his illness which are not covered or only partially covered by his hospital insurance policy. It is a distortion of the facts to count weekly indemnity policies as bona fide hospital insurance coverage.

There are several additional factors which make the findings of the Health Insurance Association of America subject to question. First, the reports of their member companies on aged people covered often include dependents under age 65. For example, a group certificate holder of age 70 may have a wife who is only 60 but they would be counted as two older policyholders in the HIAA survey. (Parenthetically, it is interesting to note that the Bureau of the Census found that among all aged couples-defined as "one or both spouses age 65 or over"-40 percent included one spouse under age 65.) A careful reading of HIAA's methodology (see app. C-1) indicates that no reduction was made in their totals to adjust for spouses under 65. The second flaw in the Health Insurance Association of America's methodology concerns their estimates of older people insured by nonmembers of the association. They assumed that the proportion of aged enrollment to the total is roughly the same as the proportion of accident and health insurance premiums written to total premiums. This is in error. For example in December 1962, the 123 member companies reported a total of 4.8 million aged policyholders (not necessarily different people as many hundreds of thousands of aged hold more than one policy). The HIAA projected, with some modifications, the number of aged policyholders insured by nonmembers by a rather imprecise method. HIAA said:

Since the health insurance premium volume of these companies (the 123 members) is about 70 percent of the total health insurance premium volume written by insurance companies in the United States, it is estimated that, among all insurance companies in the United States, there were slightly over 6 million senior citizens covered as of the end of 1962. The fallacy of this method is very simply demonstrated. The Pru dential and Metropolitan Life Insurance Companies, for example, were among the 123 reporting members. Those two companies accounted for 15 percent of the total accident and health insurance premiums written in 1962, yet their aged enrollment represents less than 9 percent of HIAA's 6.1 million total.

NUMBER OF AGED COVERED BY BLUE CROSS

The HIAA's claim of 10,300,000 aged covered is further upset by the fact that they attributed a total of 5,300,000 aged subscribers to Blue Cross as of December 31, 1962. Actually, this figure overstates Blue Cross coverage by 355,000.

The Blue Cross Association reported to the subcommittee a total of 5,219,000 elderly covered as of January 1, 1963 (see app. D-1), including 275,000 aged persons on public assistance, whose premium costs are paid by State welfare departments. Obviously, these 275,000 people on relief are not Blue Cross subscribers in the normal sense of the term. Most of them have special policies providing substan

33-918-64- -2

tially less coverage than that available to regular Blue Cross subscribers. It is clearly apparent that these 275,000 people on public assistance cannot be used to inflate a total to indicate that private health insurance is "doing the job" and that Government action is not needed when government already is paying the full cost of their insurance.

The fact that Blue Cross had 80,000 subscribers less than the total used by HIAA, plus the fact that an additional 275,000 elderly included in the Blue Cross figure are there only because of being on relief rolls, requires a downward adjustment of 355,000.

THREE LARGEST COMPANIES INSURING OLDER PEOPLE

One of the most confusing aspects of seeking to determine the numbers of aged persons covered by private health insurance was the fact that most companies don't know how many different older people they insure. Claims are made in terms of so many policyholders insured. But, as we found out, there is a substantial difference between a total of policyholders and the number of different people covered. In this context, it should be understood that most people would interpret a claim of "1,450,000 policyholders over age 65" as meaning 1,450,000 different aged persons covered. But this is not the case. Many hold more than one policy with the same company. A person with three policies for example, would be counted as three policyholders.

To illustrate, Continental Casualty gave widespread publicity to the claim that the company had "1,450,000 aged policyholders." In fact, however, the company, under questioning by the subcommittee, admitted that it has no more than 900,000 different people 65 and over insured. The 900,000 total may also be high for it includes in part, dependents under age 65 and enrollment in special group plans where persons under age 65 may participate. Furthermore, not all of the 900,000 different people are covered for hospital insurance.

Continental Casualty's "Golden 65" program has three separate component plans. An older person may apply to participate in one or all three plans. A separate policy is issued for each plan in which he is enrolled. Thus, as of December 31, 1963, the "Golden 65" program had 396,000 policies issued to 256,000 different people.

The subcommittee appreciates the fact that the Continental Casualty Co. cooperated by investing a substantial amount of effort in developing the information required. In developing information for the subcommittee Continental Casualty officials also discovered that they had overstated the total hospital policies on aged persons in their report to the Health Insurance Association of America, by some 370,000 policies.

The Bankers Life & Casualty Co. (a nonmember of the Health Insurance Association of America) also cooperated fully with the subcommittee. Bankers Life had not, prior to our inquiry, surveyed the number of aged to whom it provided hospital insurance.

The initial response of Bankers Life did not reveal the number of different persons insured but only the number of policies issued. Bankers Life advised the subcommittee that they had 665,000 hospital insurance policies issued to people 65 and over plus an additional 98,000 supplemental "weekly indemnity" policies outstanding.

As Bankers Life & Casualty has written a substantial number of policies offering relatively limited protection, the subcommittee assumed that a large percentage of the company's policyholders hold more than one policy with Bankers Life. Confirmation of this assumption came subsequent to the close of the hearings.

The best policy offered to the elderly by Bankers Life is its "P-27" contract. The company has more than 143,000 of the "P-27" policies issued to the aged. At the request of the chairman of this subcommittee, Senator McNamara, Bankers Life undertook to determine just how many of its "P-27" policyholders held other hospital insurance policies with Bankers Life. As the following letter indicates, a statistically valid sample revealed that 37 percent held more than one hospital insurance policy (not including weekly indemnity policies) with Bankers Life.

Based upon this finding by the company, it is reasonable to assume that Bankers Life has approximately 500,000 different aged persons covered under 665,000 hospital insurance policies. Of course, many of the 500,000 undoubtedly hold hospital insurance policies with other insurance companies as well, so a further decrease in the total would be necessary to allow for duplication when those covered by Bankers Life are added to the overall total of all aged with hospital insurance. BANKERS LIFE & CASUALTY CO., Chicago, Ill., June 8, 1964.

Hon. PAT MCNAMARA,

Chairman, Subcommittee on Health of the Elderly,
U.S. Senate, Washington, D.C.

DEAR SENATOR MCNAMARA: In accordance with your request we made a special study to determine the number of our policyholders 65 and over who have other hospital policies with us.

To determine this we took a sample of 6 percent of our total in force for our senior citizens hospital-surgical policy (P-27) and checked each policy for other hospital policies in force. We found that 36.95 percent of the P-27 policyholders had another hospital policy with us. We hope this information will be helpful.

Yours very truly,

EDWARD J. KELLY, First Vice President. Mutual of Omaha reported a total of 1,281,000 policies of all types held by people age 65 and over. A substantial percentage of these would be surgical-medical, accident, and other nonhospital insurance policies. (In this connection note Bankers Life & Casualty's 337,000 surgical-medical only policies.) The company says it does not know how many different older people it insures.

Some 220,000 of the 839,000 policies reported by Mutual of Omaha as issued to people at age 65 or over-or more than 25 percent—are of the "weekly indemnity" variety-not hospital insurance as generally defined. Another 17,000 of their policies offered coverage for "dread diseases" only-again, not hospital insurance as generally defined. Subtraction of the nonhospital insurance policies leaves a total of 600,000 policies offering hospital coverage.

On the basis of the data supplied by companies writing health insurance comparable to that offered by Mutual of Omaha-such as Bankers Life & Casualty and Continental Casualty-as well as information supplied by the company itself, we believe that (1) Mutual of

Omaha has approximately 500,000 different older people covered under hospital insurance policies; and (2) of these 500,000 different people, not more than 300,000 are covered for hospital insurance under the company's "Senior Security" program.

The findings detailed in the preceding paragraph are particularly interesting in view of a claim made by Mutual of Omaha in its 1963 "Annual Report and Financial Statement." Referring to a 111-yearold policyholder, the company said: "He is symbolic of the more than 1,300,000 persons age 65 and over who rely on Mutual of Omaha and its famous Senior Security policy."

DUPLICATION OF POLICIES

As we have indicated, a substantial percentage of the elderly with hospital insurance hold more than one policy. This multiple policy holding takes two forms: (1) more than one policy with the same company and (2) one policy with one company and additional policies with other companies. For these reasons it is necessary to subtract from the total of all policies held by older people, a specified percentage in order to arrive at the number of different people covered. This percentage adjusts for multiple policy holding by the older person within the same company and between companies.

The Health Insurance Association has taken the total of all commercial, Blue Cross and independent plan health insurance and reduced them by 13 percent to arrive at their estimate of the number of different aged people insured. Based upon the data presented in the preceding pages on the high percentage of multiple policy holding just within the same company, alone, (for example Continental Casualty and Bankers Life) the HIAA 13-percent factor appears much too low. It is readily conceivable that the overall percentage reduction should be as much as 20 percent.

The U.S. Public Health Service, in its study of the aged noted that 131⁄2 percent of the aged surveyed indicated that they held other hospital insurance policies. HIAA has used this fact to justify its own low 13-percent factor. But, during the course of questioning on this point by Senator McNamara, Dr. Forrest E. Linder, Director of the Public Health Service's National Center for Health Statistics stated: "We feel that the under-reporting of this item is very substantial." The National Health Survey, of course, at the time its report was prepared, did not have the benefit of the information on multiple policy holding developed for this subcommittee.

The data on multiple policy holding provided to this subcommittee by Continental Casualty and Bankers Life are based upon samples far more extensive than those used by the Health Insurance Association of America to justify its 13-percent factor. Indeed, the HIAA sample is far less reliable because it was based upon a sample of policyholders of all ages, rather than on a specific survey of older policyholders.

Continental Casualty, for example, reported that some 43 percent of 100,000 applications for individual health insurance received from older people during 1961-63 noted that the applicant held other health insurance policies. All of these, of course, were not hospital policies, but the high percentage indicating other coverage does provide an indication of the extent of multiple policy holding. (See app. A-2.)