HEALTH INQUIRY (VOLUNTARY HEALTH INSURANCE)

THURSDAY, JANUARY 21, 1954

HOUSE OF REPRESENTATIVES,

COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE,

Washington, D. C.

The committee met, pursuant to recess, at 10 a. m., in room 1334, New House Office Building, Hon. Charles A. Wolverton (chairman) presiding.

The CHAIRMAN. The committee will be in order.

I thought that you might be interested in a telegram I sent to Mr. Stanley, now the Governor of Virginia and our former colleague. I addressed this communication to him.

As chairman of the House Committee on Interstate and Foreign Commerce, I wish on behalf of the entire membership of the committee to express our best wishes to you with the hope that your administration will be a most successful one. Our knowledge of the high purpose that has always characterized your service for the people insures that people of Virginia will have through you an administration that will prove highly beneficial to them. Again, best wishes, Charles A. Wolverton, chairman of the House Interstate and Foreign Commerce Committee.

We will now proceed to hear the witnesses before us this morning. This morning we are privileged to hear from Mr. Benjamin Lorber, director of insurance of Universal Pictures Co., Inc. He will bring to the attention of the committee the health plan that is now in effect in that company for the benefit of its employees.

It has been exceedingly gratifying to this committee to learn during the hearings conducted by it of the wide recognition that has been given by industrial organizations in providing plans and programs to indemnify and secure persons in their employ from the high cost of medical and hospitalization expenses.

Among such industrial organizations providing such helpful services to its employees is the Universal Pictures Co., Inc. The health program of this company is so worthwhile that we have invited its representative, Mr. Lorber, to be present today and place before the committee a plan that has proved highly satisfactory and which indicates what can be done by industrial organizations in providing assistance to employees in this all-important field of medical and hospital care.

We will now hear from Mr. Lorber, director of insurance of the Universal Pictures Co.

Mr. Lorber, you may proceed.

STATEMENT OF BENJAMIN LORBER, DIRECTOR OF INSURANCE, UNIVERSAL PICTURES CO., INC.

Mr. LORBER. Chairman Wolverton and gentlemen of the committee, I am immensely gratified at this opportunity to discuss with your committee one of the many aspects of the great problem with which you

are concerning yourselves, namely, the improvement of the national health, and the provision of adequate medical care and medical services to all segments of the American people, regardless of economic or income status.

I can think of no other question of national interest which transcends in importance the question of national health, for upon the attainment of the highest level of national health rests the attainment of the ultimate in national security and well-being.

Before proceeding with my statement, I would like to place upon the records that I am the director of insurance for Universal Pictures Co., Inc., and have occupied that position since 1938. During the past 15 years, I have organized and administered a comprehensive group-insurance program in which 3,500 of its employees throughout the country participate.

I might point out that these 3,500 employees and their families are spread in metropolitan areas throughout 30 States with large concentrations in the cities of Los Angeles and New York, and with incomelevels from a low of $2,500 annually to a high in excess of $50,000 annually. The type of people included in this group are both white collar and labor, skilled and unskilled, and made up of varying ages. This group, though not particularly large in numbers, seems to be a representative cross-section of the American people employed in industry in an income level to some degree higher than the national. average income level. This group is representative of that large part of the American people who are daily fearful of what a sudden, major illness or accident to a member of their family with its attendant major medical expense, will do to their financial solvency.

The annual survey issued by the Health Insurance Council entitled, "Accident and Health Coverage in the United States" as of December 31, 1952, shows that at the end of that year 91,667,000 people had some sort of hospital expense coverage; that 73,161,000 people had some sort of surgical-expense insurance; that 35,797,000 had some sort of medical-expense protection. These statistics have great significance in any discussion of the problem of national health.

The development and growth of hospitalization and surgical benefit plans during the past 20 years has been phenomenal, and in a large measure can be attributed to the tremendous support given to and public acceptance of Blue Cross and Blue Shield, but more importantly, came as a result of the inclusion of health and welfare matters in labor legislation as subjects of collective bargaining.

It is not the purpose of this statement to analyze the various forms of hospital and surgical-benefit coverages now being provided, for that will be done in a large measure and in great detail before this committee by other witnesses who are directly concerned with such services and their operation.

We believe that in a large measure all of the so-called hospitalization and surgical-benefit plans serve the purposes for which they were intended. It is, however, my purpose to discuss with you and to point out to your committee our views and experiences in the other areas of medical cost and the setting up of protection against such costs.

In 1939 Universal Pictures Co., Inc., set up a hospital and surgicalbenefit plan which provided for a room and board benefit in the small amount of $5 a day; additional hospital charges of $25 and surgical fees of $150. This coverage applied to the employees only.

In 1945 the daily room and board benefit was increased to $6 a day and the additional charge benefit increased to $60.

In 1946 we extended the plan to provide hospitalization coverage for the dependents of employees.

Later in 1946 the surgical schedule for employees was increased from $150 to $225.

In 1948 the hospital room and board benefit was increased from $6 to $8 and the additional charge benefit from $60 to $80.

In 1949 we provided surgical benefits for dependents to a maximum of $200 and increased the schedule for the employees from $225 to $300.

Later in 1949 diagnostic X-ray benefits were added to the plan for both employees and dependents.

In August 1952 with the introduction of our major medical plan the daily room and board benefit was increased from $8 to $12 per day; additional charges were increased from $80 to $1,000; the number of days covered in the hospital was changed from 31 days to 180 days; and the surgical schedule for both the employees and dependents was increased to $350.

A full schedule and chonological history of these changes are attached to this paper.

Early in 1952, after examining a large number of cases among our employees and their families, we came to the conclusion that while we had developed as complete and comprehensive a hospitalization and surgical plan as any that were offered in the market, that even though we were pioneers in the extension of coverage provided by and definitions within such plans, all too often we came face to face with a situation where an employee, because of sudden illness or accident within his family, would be on the verge of bankruptcy or at least ready to hock the future of his children to meet the emergency.

All too often we found that our wonderful hospitalization and surgical-benefit plan fell entirely short of the mark and offered no benefit at all under certain circumstances. There obviously was a great void. in the set up. We came to the conclusion that we were not providing a full measure of security to our employees against the financial ravages of illness and accident, and that our employees and their families were still open to the financial knock-out punch caused by such contingencies. We then examined all of the major items of medical cost and analyzed each in the light of 1, the effect of these costs on the financial stability and the ability to pay by the average income family, and, (2), what forms of insurance protection were already available and if such forms of protection were adequate to meet the needs of our employees in the light of modern medical practice.

We realized that in the areas of the costs for hospital room and board and other hospital charges and for surgical fees, subject to the limitations outlined and discussed in detail later in this statement, our existing plans were adequate and did in some measure meet the problems created by such costs.

However, in the areas of medical fees for nonsurgical services in and out of the hospital, neither our plan nor any existing insurance plan attempted to provide the needed protection so as to enable the average family to obtain whatever medical care was necessary without bankrupting that family unit and mortgaging its future. This same conclusion was true when applied to the cost of special nursing care and

the renting or purchasing of medical services and supplies outside of the hospital.

Much has been said and written during the past decade on the question of providing such protection on the cost of medical care. The growth of medical-expense protection in limited form during the past few years has more or less kept pace with the expansion in the field of hospitalization and surgical benefits insofar as the number of people covered was concerned.

The Health Insurance Council reports previously quoted shows that at the end of 1952 about 36 million people were covered by some sort of medical-expense plan, most of which were of the service type. From the available statistics 50 percent of those covered have protection under the insured-benefit plans which generally provide a fixed reimbursement, usually $3 or $4 for each office or hospital visit and $5 or $6 for each home visit, with most plans providing for the exclusion of either the first or second visit.

While the lower-income groups nationally have come within the scope of the service-type plans. Since most of these limited participation to low-income groups, usually $3,600 annually, the great majority of the American people were completely without any form of protection against the great raider of family security, the doctor's bill in a major illness, either at home or at the hospital.

In discussing the existing medical-expense plans, described above providing for limited reimbursement for a limited number of visits, I have frequently and publicly maintained that this type of coverage has no merit as a socially desirable form of insurance nor is of any real economic value to the people insured. Such plans are difficult and usually expensive to administer.

We have often characterized this form of insurance as being analogous to insuring the grease job or oil change on an automobile and leaving the entire automobile itself uninsured; or insuring the shoesole repair job and not insuring the contents of the entire home against disaster.

What was needed to round out our program was a plan that would provide protection against those large costs for medical care in and out of the hospital that were not covered under the existing forms of insurance, yet which could be set up on a sound financial basis at reasonable cost, so that all of our employees, at all income levels, even the lowest, could afford to avail themselves of its benefits. Keeping these basic principles in mind, we, together with our insurance carrier, John Hancock Mutual Life Insurance Co., proceeded with the development of such a plan of major medical expense insurance.

This type of plan has recently been referred to by many as "catastrophy medical insurance" or some such name to indicate that it was intended to provide coverage against unusual, sudden costs arising out of an accidental disaster.

We believe that the use of the term "catastrophy" is misleading, since the type of plan we were trying to develop was one that would provide protection against the cost of medical care, all types of medical care, where such costs were major within the definition of our plan and the nature and extent of which could create major financial burdens and possible distress upon even the lowest of the income groups.