native be made the automatically operative one so that the alternatives with deductibles would apply only to the aged person who for good reason or strong desire specifically elected them.

For similar reasons we also recommend deleting the deductibles for diagnostic care.

Specific recommendations:

1. We consider undesirable the requirement that nursing home care will be available only if the patient is transferred from a hospital. In practice this requirement will prove ineffective as a restriction and will encourage unnecessary hospitalization to comply with this requirement. We, therefore, recommend that the proper hospitalization requirement be deleted.

2. The medical significance of the proposed program requires strong and diverse professional leadership on the 14-member Advisory Coun cil. We do not believe this is possible with the membership formula specified. We, therefore, recommend the following membership formula:

Not less than seven of the appointed members shall be persons who are outstanding in the fields pertaining to hospitals and health activities, of which not less than three shall be physicians.

3. State and local advisory councils could play an important role by giving the public and the professions an established method for suggesting desirable individualized approaches to local problems, for coordination of this program with other local health services, and for checking on the local effectiveness of the program. Although such decentralization is not typical of most Federal activities, it has been of considerable value-at times even a necessity-in Federal programs of health services. We, therefore, recommend that there be added a clause providing for the establishment of State and local advisory councils constituted similarly to the National Advisory Council.

4. Any medical care program concerned with maintaining and improving the quality of its services must devote effort and money to appropriate research and quality-raising activities. This bill directs the Secretary to study certain questions: the adequacy of facilities covered by the program, alternatives to inpatient hospital care, the feasibility of additional types of benefits, and the effects of deductibles.

Such studies are certainly needed, but the Secretary should also be directed to study or contract with others to study means for improving quality of care and the effectiveness of administration. In addition, the financial resources of the program could be utilized for improving quality in other ways; for example, professional audits, and rewarding high competence rating and high levels of performance.

Conclusion: We wish to express our deep embarrassment that our principal professional organization is engaged in a campaign to mislead both the public and the profession about this conservative bill. We are certain that many physicians are also disturbed by this campaign and disapprove of it.

We are confident that many physicians, perhaps the majority, would, if fully and fairly informed as to the facts about the problem and the proposed legislation, endorse the social security approach as the best way to assure their elderly patients the financial possibility for personal, comprehensive, and good quality medical care.

The CHAIRMAN. Thank you, Dr. Young, for bringing to us the views of the Physicians Forum. Mr. Ullman may inquire.

Mr. ULLMAN. Dr. Young, I just want to commend you on a rather well documented statement. I will forgo any further questions.

The CHAIRMAN. Are there any further comments or questions of Dr. Young? If not, again we thank you, sir.

Dr. YOUNG. Thank you, Mr. Chairman.

The CHAIRMAN. Mr. Rietz, we appreciate having you with us in the committee this morning. Please identify yourself for the record by giving your name, address, and capacity in which you appear. We are glad to recognize you.

STATEMENT OF H. LEWIS RIETZ, REPRESENTING AMERICAN LIFE CONVENTION, HEALTH INSURANCE ASSOCIATION OF AMERICA, LIFE INSURANCE ASSOCIATION OF AMERICA, AND LIFE INSURERS CONFERENCE; ACCOMPANIED BY DAVID ROBBINS, HEALTH INSURANCE ASSOCIATION OF AMERICA

Mr. RIETZ. Thank you, Mr. Chairman. My name is H. Lewis Rietz, executive vice president of the Great Southern Life Insurance Co. of Houston, Tex.

I have brought to the stand with me David Robbins, assistant director of statistical research, of the Health Insurance Association of America's New York office.

I appear today in behalf of the American Life Convention, the Health Insurance Association of America, the Life Insurance Ássociation of America, and the Life Insurers Conference. These associations include in their membership 525 insurance companies having in force approximately 90 percent of the voluntary health insurance underwritten by insurance companies.

My purpose today is to register our opposition to H.R. 3920 and all similar proposals. They are unnecessary and undesirable in the light of the existing magnitude and continuing rapid growth of voluntary health insurance for the majority of the aged, and the evolution of present governmental programs, particularly for old-age assistance (OAA) recipients and those who become beneficiaries under medical assistance for the aged (MAA). These facts, coupled with the heavy cost of the proposed compulsory program, continue to be compelling reasons for your committee to reject H.R. 3920.

THE CURRENT AND POTENTIAL ROLE OF PRIVATE HEALTH INSURANCE

In July 1961 we estimated that 53 percent of the noninstitutionalized aged population were covered by some form of voluntary health insurance. Continuing dynamic growth has resulted in a significantly increased proportion of the aged having coverage today. By December 1962, 60 percent of the aged had voluntary health insurance. When we appeared before your committee in July 1961, our prediction was that a minimum of at least 60 percent of those aged 65 and over would have coverage in 1969. With a 60-percent

1 "An Estimate of the Extent of Private Health Insurance Coverage of the Aged as of Dec. 31, 1962," Health Insurance Association of America, July 1963.

coverage level reached in 1962, it is apparent that the extent of coverage can be expected to reach or exceed our higher level predictions of 68 to 75 percent by 1969.

In July 1961, insurance companies covered 434 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.2

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. As late as 1952 the total number of aged with insurance was only a little over 3 million, or 26 percent. Notwithstanding the rapid growth in the aged population during this 10-year period, the proportion with health insurance has more than doubled, and in terms of numbers covered has more than tripled. This magnitude of coverage together with rapid continuing growth is clear evidence of the public confidence in voluntary health insurance and its ability to provide health care benefits for the vast majority of the aged nonwelfare recipients.

The Social Security Administration reported that at the end of 1962,3 14 percent of the population aged 65 and over were OAA recipients and hence entitled to medical care without cost. Since few OAA recipients have voluntary health insurance, about 74 percent of the aged have benefits under either voluntary health insurance or OAA. To these must be added those of the aged without voluntary health insurance who are or will be beneficiaries under MAA. Rapid growth in reported MAA recipients demonstrates that an unknown but substantial number of the aged not otherwise covered will have medical care costs paid under this program. There are still others of the aged population who feel no need for health insurance protection because of their financial circumstances or for reasons such as being entitled to benefits due to veterans' status, as retired members of the Armed Forces, as members of health care professions, or because of affiliations with unions, lodges, or religious groups providing such benefits.

With continued growth in voluntary insurance since December 1962 the implementation of the MAA program in additional States, and with consideration of the other groups who feel no need for voluntary health insurance protection, it is apparent that for over three-fourths of the present aged provision has been made for payment of some or all of their medical care costs. We are confident of the continued growth of voluntary health insurance conditioned upon the assumption that the health insurance business will continue to operate in`a free competitive economy unencumbered by a national compulsory

program.

EVOLUTION OF BENEFITS

Less than 30 years ago health insurance for medical costs was generally restricted to hospital benefits for limited periods in amounts of

2 "Blue Cross-Blue Shield Non-Group Coverage for Older People," HEW, Research Rept. No. 4, November 1963.

a Social Security Bulletin HEW, July 1963. According to the Bureau of Family Services, HEW, this proportion had decreased to 13 percent by November 1963.

$3 to $5 per day. Surgical coverage with a maximum of $75 to $100 followed, as did benefits for in-hospital doctor visits, diagnostic X-ray and laboratory expenses. As insurers gained experience and the public appreciation of the advantages of insurance for other than routine medical costs grew, dollar amounts and benefit periods increased rapidly. In recent years broad comprehensive hospital coverages and major medical benefits have been offered and have enjoyed wide acceptance among all age groups including those over age 65. Currently, nursing home benefits, particularly in coverages available to the aged, are gaining prominence. Thus, public demand and keen competition have resulted in dynamic growth and a rapid evolution in product, liberalized and flexible benefit patterns, and unique innovations in methods of distributing health insurance.

Today the aged have available coverage through:

(1) Individual company mass enrollment programs, first introduced about 5 years ago and affording coverage irrespective of condition of health, which have already enrolled over 2 million senior citizens.*

(2) Voluntary associations of insurance companies offering coverage on a statewide mass enrollment basis which have, since September 1961, enrolled over one-quarter million aged in four States. Other State programs are under devleopment.

(3) Group insurance plans for those who remain as active employees beyond age 65.

(4) Continuance of group coverage to retirees under private industry, Federal, State, and local government employee benefit plans. (5) Conversion of group coverages at retirement.

(6) Coverage under group contracts issued to associations of retired persons such as the American Association of Retired Persons. (7) Continuance of individual coverages, many of which are guar

anteed renewable for life.

(8) Purchase of individual or family policies after age 65. At least 170 companies now offer such policies.

The Department of Health, Education, and Welfare reports that 27 percent of the male lives over age 65 and 7 percent of the female lives over 65 are in full-time active employment. With the widespread existence of group insurance plans for active employees and their dependents and the rapid extension of retiree benefits under group plans, it is apparent that substantial numbers of the aged and their dependents covered under voluntary plans are insured under group plans where the employer frequently pays a part or all of the cost.

With so much of the development in long-term guaranteed renewable coverages, extension of group benefits to retirees, and other innovations coming during the last 10 years, many of the present aged had no opportunity during their active working careers to obtain coverage continuing into retirement. Hence, current coverage of

• Op. cit.

Op. cit. States which have implemented programs are: Connecticut, Massachussets, New York, and Texas. California has announced a program to commence in February 1965. • Current Population Reports, series P-50, No. 35, Bureau of Census, December 1961.

10.3 million is a real achievement. Persons moving into retirement now and in the future will have benefits of substantial magnitude from both individual policies and retiree group insurance.

I would refer at this point to my testimony of 1961 concerning the 65 to 74 group, emphasizing that current retirees have a much higher level of coverage. In 1952 there were 31 percent of that age group with coverage, in 1956 there was 44 percent, a 13-percent increase or more than a third; in 1959, 53 percent. This trend is continuing.

AVAILABILITY OF BENEFITS TO MEET INSURANCE NEEDS

Health insurance can and does offer a wide variety of benefit patterns and benefit amounts. It properly should enable individuals and families to purchase coverages which will provide benefits sufficient to prevent a substantial change in their living standards because they experience nonroutine medical expenses. Individual family financial circumstances and the geographical area in which they live influence the type and amount of benefits purchased. Both private and public health care programs recognize that coverage of 100 percent of all medical expenses is not generally feasible, either socially or economically.

The insurance objective is to provide for the major portion of the health care costs above the routine or budgetable items. Widely owned hospital and surgical coverages meet a large portion of this objective. With the use of deductibles and coinsurance to eliminate routine items and to provide a degree of control of overutilization, catastrophic hospital and major medical benefits are available which provide substantial protection against the unusually expensive illness.

Today, realistic benefits in relation to the actual utilization which occurs in the vast majority of hospitalization episodes experienced by the aged are available under individual and group policies and significantly are provided under mass enrollment programs. The July 1, 1963, edition of the Report on Guaranteed Lifetime Health Insurance, published by the Health Insurance Institute, documents this statement."

During its initial stages there was no mass demand for hospitalization insurance. Having its real inception during the depression years, it was of more interest to hospital administrators looking to a solution to the problem of collections after service had been rendered than it was to the public, its early growth was slow-it had to be sold laboriously and convincingly. Experience gradually convinced the public of its advantages. Rapidly rising medical costs in recent years added a feeling of greater need. Growth became explosive. Its broad extension to the aged followed a similar pattern, but at a later date, as indicated by growth from 3 million, or 26 percent, in 1952 to over 10 million, or 60 percent, in December 1962. Insurance company coverage alone increased by more than 14 million--28 percent in the short 18-month period from July 1961 to December 1962.

Report on Guaranteed Lifetime Health Insurance, Health Insurance Institute, July 8 Op. cit.

1963.