to cause unfair competition with carriers which make no such representation or whose plans are not reinsured under this Act. The Congress, therefore, finds and declares that, in order to protect the public interest, safeguard the integrity of the purposes of this Act, and prevent the use of such representations for improper purposes, it is necessary to prohibit such representations except as authorized by and in conformity with regulations prescribed pursuant to this section.

(b) (1) The Secretary shall by regulation prescribe the substance, forms, manner of display, manner of making, and manner of use of any sign, advertisement, or other representation, if any, which shall be authorized concerning reinsurance granted or applied for under this title.

(2) Any carrier or broker, and any person acting or purporting to act for or on behalf of a carrier or broker, who, in or as a part of any policy or subscriber contract issued or offered by such carrier, or in connection with the promotion of such carrier's or broker's business, represents by any means or device whatever, except as specifically authorized by regulations prescribed pursuant to paragraph (1) of this subsection, that such carrier, or any of its subscriber policies or contracts, or the carrier's health service prepayment plan or plans under which such contracts or policies are issued or offered by it, are reinsured under this Act or that application for such reinsurance has been made, shall, for each such offense, be punished as follows: A corporation, partnership, association, or other business entity, by a fine of not more than $1,000; an officer or member thereof participating or knowingly acquiescing in such violation or any individual violating this subsection by a fine of not more than $1,000 or imprisonment for not more than one year, or both.

(e) A violation of subsection (b) of this section may be enjoined at the suit of the United States Attorney, upon complaint by the Secretary or any person duly authorized by the Secretary.

(d) Section 709 of title 18 of the United States Code (relating to false advertising and misuse of names to indicate Federal agency) is amended by inserting after the third paragraph thereof the following new paragraph:

"Whoever falsely advertises or otherwise falsely represents by any means or device whatsoever, expressly or impliedly, that any insurance policies, subscriber contacts, or undertakings for the furnishing of, or payment for, personal health services, or the health service prepayment plan or plans under which such policies, contracts, or undertakings, are issued, offered, or assumed, are reinsured under the Health Service Prepayment Plan Reinsurance Act or that application for such reinsurance has been made; or".

APPOINTMENTS ABOVE GRADE GS-15

SEC. 405. The Secretary, to the extent he deems it necessary and appropriate in order to carry out the provisions of this Act, is authorized to place not to exceed ten positions in grades above GS-15 without regard to the numerical limitations containded in section 505 of the Classification Act of 1949, as amended, but otherwise subject to the requirements of such action.

EFFECTIVE DATE

SEC. 406. This Act shall become effective on July 1, 1954, but nothing in this Act shall require the Secretary to receive or consider applications under title III before such date as the Secretary may determine.

SHORT TITLE

SEC. 407. This Act may be cited as the "Health Service Prepayment Plan Reinsurance Act".

EXECUTIVE OFFICE OF THE PRESIDENT,

BUREAU OF THE BUDGET, Washington, D. C., March 24, 1954.

Hon. H. ALEXANDER SMITH,

Chairman, Committee on Labor and Public Welfare,

United States Senate, Washington, D. C.

MY DEAR MR. CHAIRMAN: This will acknowledge your letter of March 16, 1954, requesting the views of the Bureau of the Budget on S. 3114, a bill to improve the public health by encouraging more extensive use of the voluntary prepayment method in the provision of personal health services.

The President in his special health message to the Congress on January 18, 1954, said, "I recommend the establishment of a limited Federal reinsurance service to encourage private and nonprofit health insurance organizations to offer broader health protection to more families." This measure, if enacted, should go far to accomplish the President's objective. The bill is designed to provide reinsurance to cover the special additional risks involved in such broader protection.

I am authorized, therefore, to advise you that enactment of S. 3114 is in accord with the program of the President.

Sincerely yours,

DONALD R. BELCHER,
Assistant Director.

Senator PURTELL. Mrs. Hobby, we are happy to have you back with us today, and we would like to have your testimony. STATEMENT OF HON. OVETA CULP HOBBY, SECRETARY OF HEALTH, EDUCATION, AND WELFARE, ACCOMPANIED BY NELSON A. ROCKEFELLER, UNDER SECRETARY OF HEALTH, EDUCATION, AND WELFARE; ROSWELL B. PERKINS, ASSISTANT SECRETARY OF HEALTH, EDUCATION, AND WELFARE; DR. CHESTER S. KEEFER, SPECIAL ASSISTANT TO THE SECRETARY FOR HEALTH AND MEDICAL AFFAIRS; THEODORE ELLENBOGEN, OFFICE OF THE GENERAL COUNSEL, DEPARTMENT OF HEALTH, EDUCATION, AND WELFARE; AND ROBERT J. MYERS, CHIEF ACTUARY, SOCIAL SECURITY ADMINISTRATION, DEPARTMENT OF HEALTH, EDUCATION, AND WELFARE

Secretary HOBBY. Thank you, sir.

Mr. Chairman, before proceeding with my prepared statement, I should like to indicate for the record that Mr. Roswell B. Perkins, Ássistant Secretary, and Dr. Chester S. Keefer, Special Assistant for Health and Medical Affairs, will participate in the presentation of our testimony.

Senator PURTELL. We are very happy to have them.

Secretary HOBBY. And present to answer technical questions are Mr. Nelson Rockefeller, Under Secretary, Mr. Robert J. Myers, Chief Actuary of the Social Security Administration, and Mr. Theodore Ellenbogen, of the General Counsel's office.

Mr. Chairman and members of the committee, it is a pleasure once again to appear before you in support of a bill introduced by the distinguished chairmen of the Committee on Labor and Public Welfare.

S. 3114 implements one of the President's proposals for improving the health of the American people. This bill has as its objective the stimulation of voluntary health insurance plans to do a more effective job in providing protection for our people against the mounting costs of medical and hospital care. The device proposed to achieve this objective is that of reinsurance.

The President has repeatedly specified the general lines of attack his administration would take toward the problem of paying for health and medical care. He has rejected any step toward socialization of medicine or even of the means of paying for medical care. The course which he has proposed is to build on our existing system of private health insurance plans.

In line with this policy, the President's state of the Union address and his special message of January 18 on the health needs of the Nation recommended establishing a limited Federal reinsurance service to foster the growth of voluntary health prepayment plans.

Tremendous strides have been taken in the development of a voluntary system for the prepayment of medical expenses. Although these voluntary plans have developed at an amazing rate, they still pay a minor portion of our annual national medical bill. There is a wide area for expansion and improvement, as recent surveys have shown.

It would be well to review some of these facts briefly at this time in order that we may have before us the proper background for discussing this bill this morning.

With your permission, Mr. Chairman, I would like to ask Dr. Keefer to show you some statistical charts.

Senator PURTELL. We would like to have Dr. Keefer do so.
Good morning, Doctor.

Dr. KEEFER. Mrs. Hobby, Mr. Chairman, gentlemen of the committee, as the Secretary has stated, the purpose of this proposal is to stimulate and encourage the health service organizations and the private insurance carriers to achieve the two major goals of prepayment voluntary insurance; that is, first to cover as many people as possible who can afford to purchase insurance on a voluntary basis, and, secondly, to provide sufficient benefits so that when sickness strikes it will prevent medical expenses from becoming a financial hardship and a burden to the family.

It is generally acknowledged that much has been accomplished in the way of meeting the soaring medical costs in the past 10 or 15 years through voluntary insurance, but if the goals are to be achieved much remains to be done in the future.

I propose showing some charts that will illustrate three major points:

First, the growth of insurance protection;

Second, what is being accomplished at present; and
Third, an outline of areas for improvement.

This first chart (A) shows the increase in insurance protection in three areas.

Senator PURTELL. Doctor, could you move that chart a little more at an angle there?

That is fine. Thank you very much.

Dr. KEEFER. To repeat, this first chart shows the increase of insurance protection during the past 15 years, and it is divided into 3 parts:

Insurance against some type of hospitalization;

Insurance against some expenses of surgical treatment; and
Insurance against some expenses of medical care.

There has been growth since 1939 in the hospitalization field from 8 million covered to 92 million persons; surgical insurance from 3 million to 75 million; medical coverage-that is, nonsurgical coverage, usually in hospital-from practically none to 35 million people covered.

In summary, then, you will note 92 million have some type of hospital insurance; 63 million have no insurance.

For surgical coverage, 75 million people have some surgical coverage; but 80 million people have no surgical coverage.

In the field of medical care, 35 million have coverage but 120 million people have no coverage.

Now, the reasons for this rapid growth are many, but there are three major ones:

First, dependents are now covered whereas in 1939 most of those covered were individuals—it should be noted that dependent children over 18 are not covered in group policies and other dependents, other than the spouse, are not covered in group policies.

Then also there has been an increase in growth because the employer has contributed more and more towards the payment of the premiums. In some instances he pays the entire premium; in other instances he contributes a part of the premium.

Third, people have become more health conscious and are interested in purchasing insurance protection against unpredictable medical care costs that may occur in any 1 year.

To illustrate this point, I propose showing the second chart.

This chart (B) is based on a survey by the Health Information Foundation, a survey of 2,809 families or 8,846 persons, and it is an estimate of the percent of family income spent on medical care in fiscal 1953.

You will note that this is an estimate that is based on a study of 2,809 families.

The median amount spent in any one year was 4 percent of the family income.

Twenty-nine million families spent under 5 percent of their income; 17 million spent between 5 and 20 percent, and 4 million incurred costs between 20 and over a hundred percent of the family income in any 1 year.

This wide spread between under 5 percent and between 20 and over a hundred percent illustrates one of the reasons that many people are

anxious to purchase prepayment health insurance in order to protect themselves and their families against the unpredictable costs of medical care.

The next chart (C) illustrates the private expenditure for medical care in the United States in 1952. This represents 9.4 billion dollars of private expenditures in 1952, divided into the following items:

C