Senator METCALF. Thank you very much.

STATEMENT BY SENATOR GEORGE R. METCALF, CHAIRMAN, NEW YORK STATE JOINT LEGISLATIVE COMMITTEE ON HEALTH INSURANCE PLANS

On behalf of the New York State Joint Legislative Committee on Health Insurance Plans, I am deeply honored at your invitation to present my views to you on this occasion.

In some ways, we face an embarrassment of riches, in this country, with regard to information about the extent to which the American people are covered by health insurance. A publication issued annually by the Health Insurance Institute, at 488 Madison Avenue, New York City, for example, provides abundant data as to the generally favorable extent, distribution and nature of the coverage in force and its growth in recent years.

However, the latest, 1963, issue of this publication devotes only 1 of its 88 pages to the extent to which this coverage is in force for persons aged 65 and According to this source:

over.

"At the end of 1952, the earliest year for which data are available, only 26 percent of the aged population were covered by some form of health insurance. This compares to 60 percent of the senior citizens with some form of health insurance protection at the close of 1962."

The HII pamphlet also contends that "the rate of growth of persons over 65 with some form of health insurance has increased much faster than those under 65.

"During the past 5 years alone, the proportion of those 65 and over with health insurance increased from 39 to 50 percent. The proportion of the population protected under 65 grew from 74 to 78 percent over the same 5-year span.”

On the fact of it, these figures seem reassuring. However, when we come to examine what is meant by the phrase, "some form of health insurance," the figures provide little cause for self-congratulation.

We do not know, for example, from the HII figures, how many oldsters in their totals are covered by a type of policy, for example, which pays $10 per day toward the cost of a hospital room for a maximum of 10 days-and nothing else. The Health Insurance Institute claims such policies are on their way out, which is probably true. But they had no information as to how many such policies were still in effect. We must therefore wonder what happens to an elderly person with such a policy who falls ill and requires hospitalization for, say, 30 days in an institution where the daily rate is about $35, which is not at all unusual. Such an individual may very well find his illness costing him a whopping $950 to be paid out of his own pocket for hospital room and board alone. Yet, an indeterminate number of such oldsters are included in the rosy statistical presentation of the Health Insurance Institute.

Ever since its establishment in 1955, our committee has been fighting an uphill battle in our State to do something about improving the availability and quality of health insurance coverage for the aged. Although we have made progress, it was achieved only in the face of stubborn opposition and after more compromises than were socially defensible. But we came to recognize that we had to make compromises if we expected to pass any legislation at all.

We had originally hoped to provide, through legislation, that as soon as an individual was covered by health insurance, he would be entitled to such coverage on a noncancelable, guaranteed renewable basis for as long as he lived. We wanted him to have his conversion privilege guaranteed in the event he left his job for any reason, or to retire. And we wanted to provide that the benefit structure of the coverage after retirement would be at least as broad as before, at a cost of no more than 20 percent additional in premiums to allow for administrative expenses. Such requirements, if enacted into law, would compel the insurance companies, we thought, to fund their programs so that the additional costs of carrying the elderly policyholders would be covered by slightly increased premiums charged the active members of the groups.

Unfortunately, the insurance companies vigorously resisted this kind of legislation, contending it would require premiums so high as to make their policies unsalable. The best we were able to do, after wearying months of meetings and negotiations, was to enlist their reluctant support for a series of bills that fell short of these objectives.

The bills which were eventually enacted into law now require insurance companies doing business in New York State not to cancel individual health insurance policies after they have been in effect for 90 days and not to refuse

to renew them after they have been in effect for 2 years solely because of the physical or mental condition of the policyholder. They also provide that workers covered for 3 months or more by a group policy on their jobs are entitled immediately to convert to an individual policy from the same company when they leave their job to retire, or for any other reason. The individual policy must provide at least $10 per day for hospital room and board, up to 21 days; at least $100 of hospital expense benefits; and at least $200 of surgical expenses benefits. In case of the worker's death, the law also extends this conversion privilege to the worker's wife and child.

Our committee is proud of the part we were able to play in bringing about this kind of reform but we are all too conscious, at the same time, of how inadequate a step it really is. For example, many policies now covering today's elderly people were taken out before July 1, 1959, the effective date of our legislation. For constitutional reasons having to do with the inviolability of contracts that legislation necessarily covers only policies taken out since then. Other inadequacies of the legislation were part of the price we had to pay, in the face of stubborn resistance on the part of commercial insurors in our State, to allowing any legislation to circumscribe the freedom with which they operated.

Until recently, we felt that our major concern would have to be those aged citizens either with no health insurance at all or those with inadequate policies issued by the commercial health insurance companies. We felt that people covered by Blue Cross policies, at least, had relatively little to worry about because of the traditionally enlightened social outlook of Blue Cross plans generally their dedication to service benefits, liberal conversion privileges and, above all, community rating. But recent events have forced us to revise our attitudes toward Blue Cross.

We have been aware for some time, of course, that Blue Cross plans are having difficulties in continuing to function as the enlightened social mechanisms they were when they first came into existence back in the thirties, when service benefits, easy conversion, and community rating were all closely identified with their program. We knew that skyrocketing costs of hospital care were imposing more and more serious drains upon the resources of Blue Cross plans which were committed to providing the care but unable to raise their premium rates except with the permission of duly constituted authority-in New York State, the superintendent of our insurance department. But the seriousness of the situation was brought home to us with particular impact in recent weeks with the announcement that Associated Hospital Service, Inc., the Blue Cross plan serving 7,400,000 subscribers in the New York City area, was applying not only for a substantial premium increase but that it also intended virtually to abandon community rating in favor of a form of experience rating.

There seemed to be no question but that Blue Cross in New York City needs more money if it is to continue to function. In 1963, the plan paid out $17 million more in benefits than it took in. It is now paying out $1.25 for every $1 it receives in premiums. So the plan requested a 35-percent average increase, for next year and another 11 percent next year.

As I said at the insurance department's hearing:

"We feel that the present move by AHS to abandon the community rating principle in favor of experience rating-albeit with a 5 percent deduction on group contracts for the aid of individuals likely to be adversely affected-is a step so serious in its potential and implications as to call for the most careful study before it is approved. *** We therefore urge that the request by AHS to abandon community rating in favor of experience rating be denied at this time." Ever since the plan announced that it would have to raise its rates-and particularly when it announced that the new experience type of rating would probably mean that persons in the upper age brackets would have to bear the brunt of the rate increases-our office has been deluged with pleading letters from elderly people.

These letters obviously come from people in a wide variety of circumstances. Some are written in the trembling handwriting typical of advanced age; others are carefully typed but no less moving. Some are eloquent; others are rambling and confused. But all have one important characteristic in common. They reflect a pitiful helplessness and a sense of desertion; all represent a cry for help. To read them and to realize how difficult it is to promise any sort of tangible help brings on feelings of frustration. Let me quote from just a few of these letters and these quotations are selected at random:

"My wife and I are living on social security as our only income and, believe me, it is hard for us to pay the premiums. We are both under doctors' care.

We have to meet payments also, besides medications. This is not covered by Blue Cross. We cannot afford to drop it; still, we cannot afford to pay for it. We do need help."

"We are both past 70 and it makes it hard to meet our needs, when Blue Cross raises rates. We hear Mutual of Omaha is going to raise again, too. The old folks are being pushed out, it seems."

"We have never had to use the plan, but now that we are in the upper age bracket, they want to increase us out."

On the one hand, then, we have all these elderly people-worried and desperate about their need for health insurance. Their number is increasing every year, as the triumphs of medical science give more of us a longer and longer lifespan. On the other hand, there is Blue Cross beset by rising hospital costs and driven-as in the case of Associated Hospital Service of Greater New Yorkto embarking upon a course which puts them into almost the same kind of operation as that of commercial insurance companies-charging groups and individuals whatever the actuaries tell them must be charged if the enterprise is to function successfully-regardless of whether the subscribers or policyholders can afford to pay the premiums.

Obviously, many marginal health insurance subscribers in the upper age levels are just not going to be able to pay the new, increased Blue Cross premiums predicated on experience rating. This has for some time been the situation of elderly people trying to purchase policies from the commercial health insurance companies, the premiums for which are all too often prohibitively expensive. Inevitably, if we are not to turn our backs on these unfortunate people, we have a clear and inescapable obligation-to provide through some form of governmental subsidy or other action-for these men and women to continue to be protected against the onslaught of sudden need for medical care. In so acting, we shall simply be following a course which has long been recognized as a governmental responsibility by virtually every other civilized country in the world. I would therefore hope that if we do ultimately employ the social security structure as the means by which we subsidize or pay completely for the cost of health insurance protection for our senior citizens, we must find some way of spreading its cost more equitably over all the economic groupings of those who pay for it.

With regard to the benefit structure of any federally subsidized health insurance program. I would hope that we could profit by our experience with the Kerr-Mills program. Our committee has had occasion to hold several hearings to determine the effectiveness of that program. One of the most striking de ficiencies we uncovered was that 98 cents of every dollar being expended in our State and a comparable proportion elsewhere, too, I believe is being spent on hospital and nursing-home care. Such care is necessary, of course, but much of it could be avoided if diagnostic and preventive programs could be brought into being. I would therefore hope that any federally subsidized program would give considerable emphasis to diagnosis and prevention in its benefit structure. More specifically, it will be wise for us to see to it that we provide benefits primarily for medical and surgical treatment and drugs and only secondarily for hospital and nursing-home care. Otherwise we shall be repeating the mistake we are making with Kerr-Mills, which in effect says to the elderly person: "You must be in a hospital or nursing-home bed before you are entitled to benefits."

Only through such an approach shall we encourage our older folks to remain out of bed and ambulatory as long as possible-an objective which is desirable medically, as well as economically and socially. We must avoid setting up inducements to these folks to surrender to the all-too-tempting alternative of taking to their beds before it is absolutely necessary.

A further important consideration is that we must avoid, through socially motivated legislation, establishing an incentive to profit-minded investors in such facilities as proprietary nursing homes-which is all too real a risk if we make large sums of money available exclusively for the providers of this kind of care. I am told, for example, that when it seemed likely, at one point in the recent past, that medicare would be enacted into law with its present emphasis, there was an alarming increase in the number of operators rushing to invest in the construction of proprietary nursing homes. I would urge that we do everything we can to avoid this kind of pitfall.

The only other suggestion I have with regard to the specific topics you recommended to my attention has to do with what carrier would be given the responsibility for health insurance coverage of the aged. Here I happen to feel strongly that it would be much wiser to have existing Blue Cross and Blue Shield plans

and the commercial carriers undertake this responsibility, with Federal support, than for the Federal Government to enter the field itself. The carriers have the experience, the manpower and the skills which are essential to the conduct of any such program. To attempt to duplicate them and compete with them would be, to my mind, inefficient and wasteful, as well as likely to arouse unnecessary opposition from those quarters which resent the invasion of Government into any areas now functioning under private or voluntary auspices.

Once more, let me express my sincere appreciation for the privilege of coming here today. I shall be delighted to expand upon any of the points made, in response to any specific questions which you would care to put to me.

Senator MCNAMARA. The second witness this morning is Mutual of Omaha, Mr. A. M. Hansen, vice president.

Mr. Hansen, will you introduce your colleagues for the record? STATMENT OF A. M. HANSEN, VICE PRESIDENT, MUTUAL OF OMAHA; ACCOMPANIED BY JAMES E. BARRETT, VICE PRESIDENT, AND DONALD SCHONBERG, VICE PRESIDENT

Mr. HANSEN. Senator, I am Mr. A. M. Hansen, vice president of Mutual of Omaha, and on my right I have Mr. Schonberg, who is also a vice president, and on my left Mr. James Barrett, also a vice president of Mutual of Omaha.

Senator MCNAMARA. Thank you.

Mr. HANSEN. Mr. Chairman, members of the subcommittee, we are real pleased to be able to present our views and be of whatever assistance in your discussions that we may be. We feel that our statement, which has been filed with you and will be made a part of the record, fairly and thoroughly presents our situation. We do hesitate to take up too much time of the subcommittee with repetition and we are going to summarize in the following manner.

Mutual of Omaha has just announced a new enrollment-type health insurance plan which is available regardless of past or present health history and which cannot be canceled because of changes in health or because of the amount or number of times that benefits are paid.

This plan can pay up to $20 a day in hospital-room benefits, and can be tailored to provide a most comprehensive series of ancillary benefits ranging from X-ray to major medical, radiotherapy, and nursing home coverage. This is in addition to the many other forms of health insurance coverage that we offer to people age 65 and over.

As to retention, our records show that in a survey of a substantial block of our senior business, our lapse ratio is barely above the death rate of the age group studied and the persistency is higher than on our regular business.

Most all of our policies for folks aged 65 and over are not subject to individual cancellation.

The premiums on this business we feel to be reasonable and just and we have been able to maintain the same premiums on our senior security policies since they were introduced in 1959. Premiums will, I believe, always be held in line by the competitive nature of private

insurance.

As to the number, we know that we have 1,280,000 policies in force on persons over age 65. We further know of dependent coverages that raise this total to about 1,341,000. Duplication is possible, but the percentage of duplication or the exact numbers we cannot determine.

In conclusion, we do feel that Mutual of Omaha is doing a good job in this area and we feel very much that the problem is a diminishing one.

The people in this age bracket today grew up in an era before pensions and lifetime guaranteed policies, before paid-up coverages at age 65, and many of them do not even have OASDI benefits. We feel that in a few years the extension of the modern trends plus the development in group insurance areas will nearly eliminate the problems. Thank you.

Senator MCNAMARA. Thank you, sir. You use the figure 1,280,000 policies. We seem to be unable to obtain any figure of the number of persons covered by your company in this field of hospital insurance. Based on the available information our subcommittee staff has been able to gather, it seems that you have about 500,000 different-aged people covered by basic hospital expense policies. Do you have any reason to dispute this estimate on the part of the subcommittee staff? Mr. HANSEN. Senator, I would like to refer that question to Mr. Schonberg.

Senator MCNAMARA. All right, we will be glad to have his viewpoint.

Mr. SCHONBERG. Mr. Chairman, I think we get into a matter of semantics here. The instructions, as they came out, determined by your committee, asked a question of policyholders over age 65. We have included here in the policies in force those policies which are over age 65.

To the extent that some of these perhaps might be classified as reimbursement of expense by loss of time, the question, of course, comes in, this money is available to pay hospital.

Senator MCNAMARA. All right, sir. I note in the Wall Street Journal of April 6, your company has seriously considered the possibility of premium increases on your senior security policies.

Was that statement accurate? What do you think of it?

Mr. HANSEN. I would say that statement is inaccurate. We are not considering a rate increase.

Senator MCNAMARA. Senator Carlson, do you have any questions or comment?

Mr. CARLSON. Mr. Chairman, I just want to make one comment, coming from the neighboring State of Kansas I am proud to have Mr. Hansen represent this great insurance corporation in Omaha. We are all proud of it and wish it were in Kansas. I do appreciate the fine work they are doing not only in the Midwest but all over this Nation.

I think the Nation is indebted to Mutual of Omaha and other insurance corporations for trying to work out a program that will be helpful with insurance plans for those over 65. I appreciate very much your appearance here this morning.

Mr. HANSEN. Thank you, sir.

Senator MCNAMARA. Thank you. Senator Neuberger?

Senator NEUBERGER. What is a mutual company that is different from some other kind of company?

Mr. HANSEN. A mutual company is a company that is owned by its policy owners as distinguished from a stock company where people invest money in the company and therefore become part owners thereof.