Senator MCNAMARA. Doctor's fees as well as hospitalization? Mr. FOODY. No. Senator MCNAMARA. You were talking about King-Anderson and I was talking about Kerr-Mills. This would be hospitalization. Thank you. This figure would make sense if you could provide it for us. (The information to be furnished follows:) CONTINENTAL CASUALTY Co., Hon. HIRAM L. FONG, Washington, D.C. SIR: In accordance with your request during my testimony before the Subcommittee on Health of the Elderly, Special Committee on Aging, this letter will provide you with a cost estimate for the King-Anderson proposal. This estimate has been prepared by the Actuarial Department of Continental Casualty Co. The approach used was to estimate the cost of a policy which offered the same benefits as the King-Anderson proposal and which would be sold by a private insurance company using the mass enrollment technique of marketing. The estimate reflects the experience Continental Casualty Co. has had with its golden 65 program. Probably the most significant characteristic of such an insured population versus the general population is that the former has a much higher incidence of hospital confinement, however, at the same time a shorter duration of hospital stay is observed. The age distributions for the two populations are very similar. The estimate was adjusted so that it would specifically reflect the cost levels peculiar to the District of Columbia. Furthermore, the estimate was projected to 1966 cost levels. The estimated costs of these benefits, taking into consideration all of the aforementioned factors, is $198 per person per year. This figure does not include any expense loadings for the cost of administering such a program or paying premium tax. It should be pointed out that this estimate is somewhat higher than that which the Health Insurance Association of America presented to the Ways and Means Committee of the House of Representatives on November 22, 1963. The main point of disagreement between the two estimates is the expected cost of the nursing home benefit. This is not surprising since this benefit was considered to be one of the most difficult to evaluate. Our estimate of the cost of this benefit was approximately three times HIAA's estimate. In making our estimate it was assumed that adequate skilled nursing home facilities would be available to the residents of the District of Columbia. I also want to reiterate that this estimate was adjusted to the District of Columbia cost levels, while HIAA's estimate was countrywide. Senate bill 880 provided three specific options which an insured covered under the program may elect. The option that was used for the estimate provided above was 90 days of hospital confinement coupled with a $10 daily deductible for the first 9 days subject to a $20 minimum per hospital confinement. It is estimated that the cost of the other two available options would exceed the one presented by approximately 21⁄2 percent. Due to inflationary effects it is anticipated that if such a program were offered at the rate suggested above a rate revision would be required by 1968. I hope that this letter provides the information which you requested. If you have any questions on any of the data contained herein, please feel free to call on me. Very truly yours, WALTER M. FOODY, Jr. Senator FONG. What would be the rule of thumb as to what percentage of a person's income should be used for health insurance? Mr. FOODY. I could not answer that. I think that some of the people in the Department of Labor or some of the economists could do a better job than I. I do not know that. This depends so much on what other assets the individual has. It is not simply a question related to income, I do not believe, particularly with older people. I would prefer not to answer that. Senator FONG. You stated that your health insurance can only take care of those who can afford it. You cannot provide anything for those who cannot afford it, is that correct? Mr. FOODY. That is right. Senator FONG. To those who can afford it, what would you say would be the premium that you are talking about? Mr. FooDY. I am sorry, Senator. Senator FONG. I mean how much premium are you asking from these people who can afford it? Mr. FOODY. Again, the policy I would recommend most highly costs about $150 a year. Senator FONG. This is the type of policyholder you are referring to? Mr. FOODY. That is right. Senator FONG. Approximately how many people can afford $150 a year for insurance that is the group within age 65 and over, these 17 million people that we are talking about? Mr. FOODY. I don't know how many can afford it. We know more than half from the things that were said earlier today, do have insurance, so that we are getting at least half the population covered. Now, I do not say they are all paying $150, but I would say that the average is probably over $100. Senator FONG. Now, of the 50 percent you said that are covered, what is the minimum premium? Mr. FOODY. I imagine policies are available, more limited policies, down to about $5, $6 a month, I suppose. It is possible, you see, with individual policies, to grade these down all the way. Now, I think an individual who did not have any other coverage probably would be ill advised or poorly advised if they purchased a policy for $5 a day today anywhere in the country, because the coverage would be too small. Senator FONG. Of the 51 percent that are being covered, would you say that a majority of them are covered pretty reasonably? Mr. FOODY. I believe so. Senator FONG. You are not talking about those who would pay for a premium of $5 a day? Mr. FOODY. Pay a benefit of $5 a day Senator FONG. I see. What would that cost? Mr. FOODY. Depending on the other benefits included, ancillary benefits or surgical benefits, I would say that you would buy $5 a day for-let me make sure before I state it. I don't know, $15 or $20 a year, depending on what your markup costs go to. Now, that is just for room and board. Senator FONG. In your company's experience, how many persons of your 51 percent are being covered by that type of policy? Mr. FOODY. Well, I wish we had 51 percent of the population; we do not. You mean within the industry? Senator FONG. Yes, within the industry. Mr. FOODY. That would be very, very small, I think. We have no indications. I do not believe that we have many policies, if any, that go back that far. Now, you have a peculiar circumstance here where some people have had policies for years and they purchased them back in the early 1940's, let us say, and they are good luck charms and you cannot get people to give them up. They still have them and they think this is what has kept them out of the hospital. These are frequently people who would have a second policy, though. Senator FONG. Let us go back to the question of cancellability. You are advertising that you now sell a policy to anyone who can afford it, is that correct? Mr. FOODY. That is right. Senator FONG. Is this a relatively new type of coverage? Mr. FOODY. Well, we introduced this policy on a mass enrollment basis to the general public in 1957, starting in the State of Iowa, on a one-State experiment. We were nationwide by 1959. Senator FONG. So, you have only had about 7 years of experience? Mr. FOODY. That is correct. Senator FONG. I see. Would 7 years of experience be a long period of time in the industry? Mr. FOODY. Well, it is a long period of time in a sense on the basic coverages that we have offered. But, in terms of the job that still has to be done, I do not know that it was a long period of time. Senator FONG. From time to time you will still be modifying your policies, and your premiums will change, is that correct? Mr. FOODY. I would hope we are constantly modifying the benefit structures as well as the type of policies that we have, and I suppose the premiums are going to change. Senator FONG. Would you say the premiums will go up or down relative to cost paid? Mr. FOODY. În the whole medical area, and particularly hospital, I certainly think for the next few years we are going to see continued increases in hospital prices. Was that your question? Senator FONG. I am saying, if you paid a patient, for example, $300, would that premium go up or go down? I am not talking about whether this is in relation to the cost of a hospital. I am talking in relation to the cost or amount. Mr. FOODY. In relation to premium dollars? Senator FONG. Yes. Mr. FOODY. I think that it is constantly going up. I think the cost of benefits to the dollars taken in is constantly going up. Senator FONG. For example, if you offered to pay $1,000 for a sickness? Mr. FOODY. Yes. Senator FONG. Would the premium go up or would it go down, that $1,000 being constant? Mr. FooDY. Oh, I think it would go down, if I understand you properly, sir. In other words, the way I am interpreting your question is, Will the administrative expenses go down for handling hospital insurance? Senator FONG. Well, I do not know whether the administrative expenses would be a big item in this program, or not. What I am saying is if you were to have a policy which today says, "Well, we will give you so much for every day you are in the hospital," and say that it would amount to $100. Mr. FOODY. Yes. Senator FONG. In the future, when you give him $100, will he be required to pay more premium or pay less? Mr. FOODY. If we are talking about a blanket policy, Senator, one that is open, let us say that there is available to the claimant $5,000 for any hospitalization, I would expect that cost to go up in the for a while yet, yes. I would expect it to go up. Senator FONG. You anticipate there would be a time when it would be on a plateau? Mr. FOODY. I think it has to reach a plateau sometime because if we continue at the rate of increase in hospital coverage that we are today, in hospital rates, the charges would reach an impossible situation. Nobody could pay that. Senator FONG. I am not talking about your payment in relation to the cost of hospitalization. I am talking in relation to the amount of money paid out by you. Mr. SINGER. Do I understand your question, Senator, to be what do we think is going to happen to the premium for a fixed set of benefits? Senator FONG. Yes. Mr. SINGER. We believe that the premium for a fixed set of benefits probably will increase for a time in the future primarily because older people are showing more disposition to accept this kind of care than they did in the past. They are more interested in hospitalization where previously they were afraid of hospitals. So, that they are making more use of the facilities and consequently a specified set of benefits will be made use of more often by them and the premium will have to be a little higher. Senator FONG. Are these policies cancelable by you? Mr. FOODY. No. Senator FONG. That is, if I had a policy and I were confined in a hospital say, for 3 or 4 years, and you paid me some every year and I paid you my premium, you will continue it forever. Is that correct? Mr. FOODY. We will continue it so long as we continue all of the policies of your kind in your State. Senator FONG. If I bought a policy from you and I continued to pay my premiums and you continued to issue that type of policy to the general public, you will not cancel my policy? Mr. FOODY. That is correct. Senator FONG. Are the insurance companies making any profit on these types of policies? We Mr. FOODY. Well, I do not know. I can only speak for my own. are in the black at all times on this form of coverage, and it is our belief that these policies should stand on their own. Senator FONG. How many companies are selling health insurance policies? Mr. FooDY. I guess of all the companies, there are probably 800 or 1,000 companies selling hospitalization policies. Senator FONG. So, this is a very competitive business, is it not? Senator FONG. So, if you charge too much premium, you are going to lose policies? Mr. FOODY. That is true. Senator FONG. So, in time, you will work out to a point where the company can expect a certain profit and still be able to get the number of people coming to them? Mr. FOODY. We hope and believe this is true. Senator FONG. Thank you. Senator MCNAMARA. Šenator Neuberger, do you have any further questions? Senator NEUBERGER. I would like to clarify one thing. I made a hypothetical case about somebody in a rural community. What I was thinking of was that the Government makes a contribution to a good many rural hospitals through the Hill-Burton program, and usually because of the really more limited care in some of these community hospitals the rates are cheaper. That was particularly why I selected the rural area, but if the patient going there finds he needs some treatment not offered, he has to move somewhere else. The Senator from Hawaii brought out a point that I was thinking about, and your reply that people are using the facilities more makes me think of one of the great advantages of the King-Anderson bill, where the coverage is provided through social security. King-Anderson provides for quite a long stay in nursing homes. Sometimes people might not need to be hospitalized if they could have nursing home privileges, but when they have hospitalization coverage only, they will go to the hospital. I think that is a definite advantage over the other. Mr. FOODY. Well, we include nursing home benefits in our policies. I will grant that we are still very much in the development stage of this, but with the policies that we have underwritten for retired groups, the National Retired Teacher's Association, for example, and the American Association of Retired Persons, we have had nursing home benefits for some years now, and these benefits are constantly being broadened in terms of what we offer. Originally, if I recall the policies, our first attempt at this was nursing home benefits which were available after a period of hospital stay. For example, 5 days, if I recall correctly, you could go into a nursing home. Subsequently, in our 10,000 reserve policy, we have a benefit available to go in a nursing home directly without hospitalization. Now, the benefit is not $10,000, it is $1,000, but we are experimenting with this to see what can be done in this area and we are taking the first steps, really, to get into this field. Senator NEUBERGER. Thank you. Senator MCNAMARA. You mentioned group plans and you specifically mentioned a couple of groups. Do you have individual plans as well as group plans under this golden 65 program? Mr. FooDY. Technically speaking, the golden 65 policies are individual policies because there is no master policyholder, as such. Senator MCNAMARA. And you treat the whole group over 65 on a sort of group plan? Mr. FOODY. Yes, and that is the essence of this program. Senator MCNAMARA. Do you have a minimum number for these select groups that you mentioned, such as retired teachers? Mr. FooDY. No. They were on a voluntary basis, that is, people had an option to buy. When we started out talking to the association, we did discuss some minimum number that we would want before we thought the plan would be feasible, but it was a very low number. Senator MCNAMARA. A very low number? |