In the first place, out of 401,000 retired Federal civil service employees, you have 237,000 that have elected to participate in this program. The enrollment was slower than many people hoped that it would be.

And a second inquiry was sent out. It was the second inquiry, I understand, that prompted replies, because the original enrollment card, if you did not want it, did not prompt the reply. And a great many people came back and said, "No, we don't want this. We are taken care of by Veterans' Administration or by other private sources. We are a Government nurse, and we get free care as a professional courtesy, as a registered nurse," and so on down the line. Of the 237,000 people that are covered with the Government participating in this retired employees' program, there are 101,000 of them who elected to keep individual policies that they already own, because they liked the benefits that they had picked themselves better than the benefits provided on the group basis in the plan. I think this is highly significant as indicating the importance people attach to this freedom of choice of their own benefits.

Mr. MACHROWICZ. You referred to the Michigan study?

Mr. RIETZ. No; I referred to the recent experience with the retired employees.

Mr. MACHROWICZ. You previously referred to another study?

Mr. RIETZ. It does not relate only to the aged. This is a 1957 public opinion survey in Michigan, merely on the points of why people who were not covered did not have coverage. And it is I think well summarized at the bottom of page 10 of my testimony.

Mr. MACHROWICZ. By whom was that conducted?

Mr. RIETZ. I would have to find out for you. I do not know offhand.

Mr. MACHROWICZ. The Michigan Medical Society?

Mr. RIETZ. The Michigan Medical Society. It says so right in here, I see.

Mr. KING. Mr. Ullman?

Mr. ULLMAN. The difference between your cost estimates and those of the Department are largely in the assumptions that you make with respect to the policies, which in many cases are no more than educated guesses.

There are many of these assumptions, but I wonder, for instance, where you have estimated that one-third of the hospital dischargees would go into nursing homes, do you have any evidence to support this assumption?

Mr. RIETZ. I would have to refer that question to our actuarial people for an answer. I cannot answer it offhand.

Dave?

We would be glad to submit it in writing to you.

Mr. ULLMAN. I would appreciate that. I am sure that there is no such proportion now. Certainly, we do not even have the nursing homes to take care of such an assumption at the present time. (The information referred to is on p. 853.)

Mr. ULLMAN. Then you have one where you are assuming 10 percent of the cost, administrative cost, as 10 percent of the benefits, which now does not quite agree with your former testimony with respect to the Forand bill, on which you have estimated 10 percent also, but which was much more strict in its administrative responsibilities

than the present measure. Also, it compares with the Blue Cross plan, which has a 10-percent administrative cost. And yet this involves a whole separate organization keeping rolls which are already being kept by the Social Security Administration with respect to its retirees. So this, you would agree, is an assumption that might be debatable.

Mr. RIETZ. I would think it might be debatable, but I would think the range which the cost level could reach would be not very, very far from the 10 percent. If you broaden the benefits, you may not change the cost pattern very much because you still will handle substantially the same claims. When you add surgery, for instance, you do not increase radically the number of claims. You would still have that surgical case as a hospital claim.

Mr. ULLMAN. Of course, we could argue at great length over the assumptions that go into these various cost estimates.

You have said that 53 percent of those over 65 are presently covered by a private health insurance of some kind, in your statement. Now, I am rather curious to know what kind of policies you include. For instance, do you include a dread disease policy in that figure?

Mr. RIETZ. No; dread disease policies would not be included. These would be regular hospital and surgical major medical coverages on either an individual or a group basis. They would be coverages under Blue Shield and Blue Cross contracts. And they would be coverages provided under the prepaid service plan, group practice plans, in various parts of the country.

Mr. ULLMAN. Obviously, insurance policies come in certain broad categories. Can you tell me what the minimum coverage is that you have included in this percentage figure, with regard to hospitalization and the amount that is paid, the number of days, and so on?

Mr. RIETZ. Again, I would have to refer that to our actuarial committee, that prepared these figures and worked up these statistics. Mr. ULLMAN. I think it is very important, if we are going to accept the validity of the 53-percent figure, that we should know what we are talking about, whether this figure really represents overall adequate health coverage for our older citizens. So would you provide for me the minimum coverages that you have allowed?

Also, I assume that the figure covers many types of contracts of employed people over 65 that would be terminated at the end of their employment period. Would this not be true?

Mr. RIETZ. I am sure that there is some active employee group insurance in the 53-percent coverage figure.

Mr. ULLMAN. Do you have any figures as to what a comparable policy, comparable to the type of policy we have in this bill, would cost, in the private sector today, and also taking into account the increase in hospitalization costs during the coming year?

Mr. RIETZ. We have estimated the cost of the benefits provided under this bill at $134 a year. And this makes no allowance for any potential increased utilization that might take place because these people now have this as a matter of right and paid for as contrasted with not having had the coverage. And there may well be some extra factor that would add to the utilization, which in turn would end up in an increase in the costs.

Mr. ULLMAN. That $134 figure-is that a premium cost?
Mr. RIETZ. That would be a net claim cost figure.

Mr. ULLMAN. What would the premium cost be based upon?

Mr. RIETZ. This would depend upon whether or not the coverage was provided-whether this benefit pattern was provided on a group basis. On a group basis, the returns in recent years have run at the 90- to 91-percent level. This means that there is something in the neighborhood of 9 percent of the gross premium which is retained for company expenses, servicing of claims, marketing costs, and premium taxes. In this 9 percent, there are about 2.3 percent of State premium taxes always involved. So that the actual individual and marketing expenses in the group mechanism come down to be about 7 percent of your gross premiums.

On the individual policy side, a great deal would depend on the marketing mechanism. These are the people that you would have to seek out individually and sell this coverage to. Obviously, your sales and marketing costs would be higher, and your gross premium or the percentage of the premium charged by the individual company would depend in part on the market they were trying to reach in their sales techniques. It might be 25 percent, it might be 40 percent in total.

Mr. ULLMAN. Is it not true that most of the people that we are trying to reach in this type of legislation are those that would require individual treatment rather than group treatment?

Mr. RIETZ. Of the present aged? I think that the development of the mass enrollment plans that have been offered nationwide and are offered to individuals attaining 65 continuously-if you take the development of the Connecticut 65 plan, and as was indicated there has been quite a lot of interest expressed in the expansion of that plan in other States and even on up into Canada. The cheaper merchandising mechanism may be the effective means of reaching these people and may be the most popular means of reaching these people.

Mr. ULLMAN. Are there policies available today that give this broad coverage of hospitalization provided in this bill a comparable coverage? And if so, what are the premium costs on an individual basis? Mr. RIETZ. Well, I have some examples here of policies that are currently being offered which can be purchased by persons over age 65 at premium units of less than $10 a month. One company, and the largest company in the business from the life insurance standpoint, now offers a senior citizen's policy with an annual premium of $101.75. Mr. ULLMAN. Are you saying these are comparable benefit policies? Mr. RIETZ. There is no company that I know of that issues a policy that has the benefits that are comparable to the benefits contained in this bill.

Mr. ULLMAN. Well, we can talk about horses and about rabbits, but what we have got to do is talk about a similar type of coverage for our older people. And until these statistics are boiled down to something that makes sense in terms of taking care of the basic needs of our older citizens, in the way of hospitalization and nursing home care, I think that they are rather meaningless. So whatever you can do to give us some figures that are comparable and to clarify this 53-percent figure, so that we know exactly what we are talking about, certainly will be more than helpful to me.

I am sorry that our time has run out, but I will conclude my questioning with that remark.

Mr. CURTIS. You were asked for figures on certain policies, over 65. I wonder if you would also provide the increase, so that it

shows over a period of years, of the noncancelable policies, and then, also, those people who do have cancelable policies-I do not know whether you can get this figure-whether or not and how many could replace the cancelable with the noncancelable.

Mr. RIETZ. Certainly all of them could go into the mass enrollment program. And all of them in Connecticut could go into the Connecticut plan. A great many could buy guaranteed renewable senior citizen individual policies from other companies that issued this type of coverage.

(The following material was received by the committee:)

Hon. WILBUR D. MILLS,

WASHINGTON, D.C., August 11, 1961.

Chairman, Committee on Ways and Means,
House of Representatives, Washington, D.C.

DEAR MR. MILLS: During his testimony on behalf of the American Life Convention, the Health Insurance Association of America, and the Life Insurance Association of America in opposition to H.R. 4222, Mr. H. Lewis Rietz was requested to supply certain additional information for the record.

(1) Mr. Curtis requested that our statement "that about 80 percent of the population (in 1938) had some form of health insurance. Ten years later, 42 percent of the population had protection," be translated into numbers of persons. These figures are contained in the following table:

Number of people covered by some form of voluntary health insurance in the United States, 1938-60

(2) Mr. Curtis requested that the benefits paid to owners of voluntary health insurance from 1952 through 1960 be supplied in terms of dollars in addition to the percentages. The following table provides this information: Number of people covered and benefits paid for hospital expenses in the United States, 1952-60

(3) Mr. Curtis requested information on the benefits paid out by voluntary insurers "as a percentage of health costs in the society." There are several sources for this information. We are in the process of preparing a study of our own. Meanwhile, we cite a table prepared by the HEW (Social Security

Bulletin, December 1960). It relates total personal medical expenses of persons, including those without insurance, to health insurance benefits paid. It should be observed, furthermore, that the total expenditures include those for nonprescribed drugs and medicines such as vitamins and food supplements, aspirin tablets, etc. (estimated by the Health Information Foundation to be about 33 percent of the entire drug expenditure of the Nation); for appliances such as hearing aids and eyeglasses; for services of practical nurses and midwives; and for routine medical and dental examinations and care, most of which are not covered, and many of which could not economically be covered, by insurance programs.

Personal consumption expenditures for health care in the United States, 1948–59 [Dollar amounts in millions]

Source: U.S. Department of Health, Education, and Welfare and Health Insurance Council.

1

Other sources relate health insurance benefits to the medical expenses of persons with insurance. With the expenses of persons without insurance removed from the equation these studies indicate that from 75 to 96 percent of patients' hospital expenses are covered by various types of health insurance plans. In addition, some 62 to 84 percent of the surgical expenditures of insured persons are covered under insurance programs.

(4) Mr. Machrowicz inquired as to the administrative costs as a percentage of premium paid in by persons of age 65 or over for individual hospital and surgical medical insurance policies other than senior citizens' policies, indicating a belief that Mr. Faulkner had previously testified to these administrative costs. Later in the discussion, it became clear that reference to Mr. Faulkner related to his testimony before the Senate Finance Committee in June 1960 on H.R. 12580.

The figure given by Mr. Faulkner on that occasion related to the benefit premium ratio on individual policies for all ages. Based on comparable estimates for 1960, this figure would remain about 56 percent. However, under senior citizens' policies or programs, the figures are considerably higher as, for example, the case referred to by Mr. Rietz.

For the calendar year of 1960, based on data contained in company annual statements filed with State insurance departments, two of the major companies which presently write mass-enrollment policies for the aged, experienced loss ratios of 77 and 80.3 percent, respectively, on this business. These companies expect ultimate loss ratios, as this business matures, in excess of these figures and approaching the overall benefit-premium ratios for group insurance.

(5) Mr. Machrowicz also asked that the committee be furnished the figures indicating how many insured persons over age 65 do not have guaranteed renewable policies. (Mr. Curtis also evidenced interest in this question.)

The associations have estimated that 9 million persons at ages 65 and over have voluntary health insurance (53 percent of the noninstitutional aged population). Of this total, an estimated 42 million are covered by the Blue Cross

1 Anderson, Odin W., "Voluntary Health Insurance in Two Cities," Harvard University Press, 1957; Slavick, Fred, "Distribution of Medical Care Costs and Benefits Under Four Collectively Bargained Insurance Plans," Cornell University, 1956; pilot study by the research unit of the School of Public Health and Administrative Medicine of Columbia University, 1959; United Steelworkers of America, "Special Study on the Medical Care Program for Steelworkers and Their Families," September 1960; Somers, Herman and Anne, "Coverage, Costs, and Controls in Voluntary Health Insurance," Public Health reports, January 1961.