WEDNESDAY, JANUARY 18, 1956. VETERANS' ADMINISTRATION SERVICE-DISABLED VETERANS' INSURANCE FUND F. W. KELSEY, CONTROLLER WITNESSES J. D. BAKER, BUDGET OFFICER AND ASSISTANT CONTROLLER Mr. THOMAS. The committee will come to order, please. We have with us this morning representatives of the Veterans' Administration which is ably represented by our distinguished friends, Mr. F. W. Kelsey, Controller; Mr. J. D. Baker, Budget Officer and Assistant Controller; and Mr. W. A. Poissant, Chief Actuary, Department of Insurance. The Veterans' Administration is here this morning seeking $750,000 to increase the capital of the fund established to serve the national service life-insurance fund. The request is contained in House Document 291. Do you have a statement for us, Mr. Kelsey? GENERAL STATEMENT Mr. KELSEY. Mr. Chairman and gentlemen of the committee, an appropriation of $750,000 is required by the Veterans' Administration's service-disabled veterans' insurance fund to meet obligational requirements for the remainder of fiscal year 1956. The service-disabled veterans' insurance fund is a revolving fund established pursuant to section 620 of the National Service Life Insurance Act of 1940, as amended. It provides the financing mechanism for receipt of premium and payment of claims on insurance policies issued to veterans with a service-connected disability which makes them ineligible for commercial insurance. Obligational requirements accrue pursuant to contracts of insurance between the veteran policyholder and the United States Government and as such are not subject to administrative control. At the time of submission of the 1956 budget, the available cash balance of the fund appeared to be sufficient to sustain expected net requirements through the budget year, and an appropriation was not requested. However, an unusually high number of insured deaths during the first 6 months of the year has depleted this balance to an extent that additional funds are needed immediately. The December 31 balance of approximately $125,000 is only slightly in excess of net requirements for December. However, disbursements in December were more than 50 percent higher than November and it appears probable that expenditures in subsequent months will be higher. In this connection it is pointed out that obligational requirements of the fund are determined by such unmeasurable factors as the number of insured deaths, and the number of beneficiaries selecting lump-sum payment of claims, making it extremely difficult to estimate accurately future appropriation requirements. However, in light of experience thus far in the current year, a supplemental amount of $750,000 will be required. STATEMENT OF COLLECTIONS, DISBURSEMENTS, AND CASH BALANCE OF FUND Mr. THOMAS. Mr. Reporter, at this point in the record, will you insert pages 7 and 8 of the justifications? Page 7 contains the table which sets forth the collections, disbursements, and cash balance starting with the 1st of July 1955, and including December of the same year. I understand that the figures for December are based on preliminary reports. (The pages referred to are as follows:) SERVICE-DISABLED VETERANS INSURANCE FUND, $750,000 This revolving fund, established pursuant to section 621 of the National Service Life Insurance Act of 1940, as amended (38 U. S. C. 821), receives premiums and pays claims on nonparticipating insurance policies issued to veterans with a service-connected disability which makes them ineligible for commercial insurance. Administrative expenses of this program, which was initiated in 1951, are paid from the VA appropriation for general operating expenses. Obligational requirements accrue pursuant to contracts of insurance between the veteran policyholder and the Unted States Government and as such are completely uncontrollable administratively. Due to the fact that the program financed through the fund insures medically substandard lives, and inasmuch as a large percentage (approximately 40 percent) of the policyholders have exercised premium waiver rights authorized by statute, death claims and refunds have exceeded premium receipts each year. The extent of this difference between collections and disbursements, and the resultant depletion of available cash balances during the first 6 months of fiscal year 1956, has considerably exceeded expectations at the time the 1956 budget was submitted. At the beginning of the current fiscal year a $449,147 cash balance was available in the fund; this has been reduced to approximately $125,000 as of December 31, 1955. This balance is only slightly higher than net requirements for the month of December (approximately $110,000). Collections, disbursements, and changes in cash balances of the fund thus far in the current fiscal year are outlined in the following tabular statement. Inasmuch as requirements of the fund for the remainder of 1956 will be determined by unmeasurable factors such as, number of insureds deaths, and number of beneficiaries selecting lump-sum payments of death claims, it is not possible to accurately estimate supplemental fund requirements. However, on the basis of trends experienced thus far in the year (as outlined above) it is estimated that a minimum supplemental amount of $750,000 will be required. BASIS FOR REVOLVING FUND This fund was set up for the specific purpose of paying the difference in the commercial rate or, I should say, applying for carrying the insurance of only the disabled veterans who are not able to buy insurance on the commercial market. Mr. KELSEY. That is right, Mr. Chairman. 71943-56-2 Mr. THOMAS. How many of these policies do we have and what is the amount of them? Mr. POISSANT. We have at the present time a little over 15,000 policies for about $125 million insurance. Mr. THOMAS. What is the maximum amount for each one of the policies? Mr. POISSANT. The maximum you can get is $10,000 but they average about $8,000. Mr. THOMAS. When these boys were disabled, what happened to the regular policies that the Government was carrying for them? Mr. POISSANT. The indemnity insurance that they had in service? Mr. THOMAS. Yes. Mr. POISSANT. 120 days after discharge the indemnity type insurance lapses and then they have one year within the time they establish service connection of their service disability to purchase this so-called service disabled insurance. Mr. THOMAS. Why is it necessary to make this appropriation and similar appropriations for this fund? Mr. POISSANT. Because the premiums that we collect that are stipulated in the law are quite inadequate. These are highly substandard lives and they are exhibiting a mortality of about 3 or 4 times that shown in the table from which premiums are computed. ESTIMATE COST TO THE GOVERNMENT Mr. THOMAS. That is well put and that is what we wanted in the record. Can you be a little more specific, say, on the premium? What is the premium on an $8,000 policy and what does it cost the Government? Mr. POISSANT. Well, the premium, of course, they can select any number of plans. They have available ordinary life, 20-payment life and so on. There are about six plans. Mr. THOMAS. Can you give just an average figure? Mr. POISSANT. Oh, at their age, which will probably run Mr. THOMAS. What do they pay and what does the Government pay, that gets it. Mr. POISSANT. Let us put it this way: It is going to cost the Government, over and above administrative expenses, I estimate, between $75 and $100 a policy each year. Mr. THOMAS. And there are 15,000 policies? Mr. POISSANT. That is roughly the estimate according to current experience over and above what they pay and over and above the administrative expenses. Mr. THOMAS. About $125 per policy and 15,000 policies? Mr. POISSANT. Not quite that much. Between $75 and $100 a policy, based on current experience. Mr. THOMAS. Exclusive of administrative costs? Mr. POISSANT. And exclusive of the premiums they are paying. Over and above what they are paying. Mr. PHILLIPS. A million dollars a year. Mr. POISSANT. At the present time. Now, we are writing around 700 policies a month. Mr. THOMAS. How much are they paying, each one of the veterans, if it costs the Government between $75 and $100 a month, over and above what the veterans are paying? Mr. POISSANT. On the average they are paying about $11 a thousand or roughly $90 a policy. In other words, and speaking broadly, the cost of this insurance is just about divided evenly between the insured veteran and the Government. Mr. THOMAS. Over all, what will this cost the taxpayers on an annual basis? Mr. POISSANT. At the present time, with 15,000 policies, $100 a year we will say, that would be a million and a half dollars; wouldn't it? A million and a half at the present time. Of course, it is increasing. Mr. THOMAS. Will it increase as times goes on? Mr. POISSANT. It will because we are writing more policies. More policies are coming on the books. Every time you put a policy on the book, it adds $100 a year, roughly, to the Government cost. Mr. THOMAS. Why should it increase like that? I don't understand. Mr. POISSANT. New people are coming on the rolls every month. We have 15,000 policies now. We had 9,000 policies a year ago, We have increased our in-force about 6,000 policies. Mr. THOMAS. As long as the chap is in service and regardless of whether it is peacetime or wartime service, he is entitled to this service? Mr. POISSANT. That's right. Mr. THOMAS. As long as we have a large number of men in service, naturally this amount will increase. What is the amount of the revolving fund? Mr. POISSANT. At the present time, we have a balance now of only about $125,000, I think, as of the end of December. Mr. THOMAS. There is no certain amount attempted to be maintained, like $1 million or a million and a half in the revolving fund; is there? Mr. POISSANT. No. We don't attempt to do that. Mr. THOMAS. You ask for appropriations when you need them? Mr. POISSANT. That's right. ELIGIBILITY REQUIREMENTS Mr. EVINS. Just one question, Mr. Chairman. As to eligibility for this insurance, the disabled who are honorably discharged, are those the ones, not those in the service, of course? Mr. POISSANT. After the discharge, if they can establish a disability with a service connection, then they are eligible to purchase any amount. Mr. EVINS. Did you not state earlier that within 1 year they would have to qualify? Mr. POISSANT. Within 1 year after they apply to the Veterans' Administration to have their disability established as service connected. Mr. EVINS. If they wait 25 years to have the disability established and then 1 year after that, I take it, they can apply for the insurance? Are they eligible at this time? Mr. POISSANT. That is my understanding; yes. There is no limit. The law just says 1 year. Mr. EVINS. In other words, theoretically a man who has a life expectancy of 70, could apply for insurance under the program at 69? Mr. POISSANT. That is my understanding; yes. Mr. THOMAS. But that rate would be pretty high to him at that; would it not? INSURANCE FUNDS OF VA Mr. PHILLIPS. Let me for the record ask you a couple of questions. We have insurance which applies to the veterans of World War, soldiers of World War I now; is that right? Mr. POISSANT. Yes, sir. Mr. PHILLIPS. Then we have insurance that applies to the soldiers of World War II and then we have this which applies to disabled veterans; is that right? Mr. POISSANT. That's right. Mr. PHILLIPS. Those are the only three categories? Mr. POISSANT. No; we have another fund which applies to the veterans of the Korean war, where they can buy term insurance. They don't have to be disabled. Mr. PHILLIPS. Three of those do not apply exclusively to disabled and one applies to disabled? Mr. POISSANT. They may be disabled, but they don't have to be; like the boys who came out of World War II, they might conceivably be disabled and still get the insurance. They did not have to pass a medical examination. Mr. PHILLIPS. What I am trying to find out, speaking from an acturial standpoint, we operate four separate funds? Mr. POISSANT. That's right. Mr. PHILLIPS. And keep them completely separate. There is no relationship between them? Mr. POISSANT. That's right. Mr. PHILLIPS. Would there be any advantage to considering one insurance fund and operate it as one insurance fund? Mr. POISSANT. Well, it would create inequities. For example, if you brought this group of substandard lives into the standard group, it would cut their dividends measurably. Mr. PHILLIPS. Suppose you omit the disabled. Would there be an advantage or disadvantage from the management standpoint, the administrative standpoint to operate the other three funds? Mr. POISSANT. You destroy the homogeneity of the group. The World War group is now age 60. World War II boys are probably averaging between 30 and 35. You get a different experience all the way. The benefits of World War I insurance are different from those of World War II. Mr. PHILLIPS. It really would not be any economy in the long run? Mr. POISSANT. No economy. Mr. PHILLIPS. The inequity would offset any advantage? Mr. POISSANT. There would be inequity established as among the different policyholders in each group. Mr. THOMAS. Thank you very much, gentlemen. Good luck to you. |