Thank you, sir; and thank you, gentlemen, very much for your helpful testimony.

PREPARED STATEMENT OF J. F. FOLLMANN, JR., HEALTH INSURANCE ASSOCIATION OF AMERICA

Mr. Chairman, my name is J. F. Follmann, Jr. I am director of information and research of the Health Insurance Association of America whose 312 member companies write over 80 percent of all health insurance underwritten by insurance companies in the United States. With me is David Robbins, assistant directcr of statistical research, who is responsible for our statistical surveys and analyses. We appear today in response to the invitation contained in Chairman McNamara's letter of April 6, 1964. We were asked to testify upon five topics:

1. The availability of health insurance for the aged;

2. The cost of such insurance;

3. The number of older people covered by health insurance;

4. The adequacy of such coverage; and

5. The ability of older persons to retain health insurance, once secured. First, as to the availability of health insurance for the aged.

Today the aged have available insurance company coverage through:

(a) Individual company mass enrollment programs, first introduced about 7 years ago, affording coverage irrespective of condition of health.

(b) Voluntary associations of insurance companies offering coverage regardless of condition of health on a statewide mass enrollment basis. These are the programs which began in Connecticut in 1961; in Massachusetts and New York in 1962; in Texas in 1963; and this year in California, North Carolina, and Virginia. A similar program has recently been announced, but not yet in operation, in Ohio. Other State programs are under consideration.

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

(d) Continuance of group insurance coverage to retirees under private industry, Federal, State, and local government employee benefit plans.

(e) Conversion of group coverages at retirement.

(f) Coverage under group contracts issued to associations of retired persons such as the American Association of Retired Persons and retired civil servants, including retired Federal employees.

(g) Continuance of individual coverages, many of which are guaranteed renewable for life. At least 175 insurance companies make available such coverages, and of these at least 126 will renew the coverage for life; at least 72 being guaranteed renewable for life.1

(h) Purchase of individual or family policies after age 65. At least 170 companies now offer such policies.1

First. Individual policies which become paid up at age 65: In addition, of course, there are the coverages available through Blue Cross-Blue Shield plans and other types of private insurance mechanisms.

It is evident from the foregoing that private health insurance is generally available for the present or future aged who desire such protection. The several approaches taken demonstrate the flexibility of private insurance and the variety of choices available.

Second. As to the cost of health insurance for the aged, the Health Insurance Association of America has neither conducted studies of, nor collected data pertaining to, the premiums charged by insurance companies for their coverages of any type or for any age group. Such information is generally available through trade publications, sales literature, and advertising material.

Although our association cannot provide data on the cost of health insurance, I wish to invite the subcommittee's attention to certain factors concerning health insurance premiums:

(a) Almost half of the aged covered by insurance companies are covered under group insurance policies either as active employees or as retirees. For such aged persons, it is not infrequent that the employer pays some or all of the premium charge.

(b) The cost of health insurance is and must remain a reflection of the costs of and expenditures for hospital and medical care. As the cost of care rises,

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, and earlier studies.

largely in response to the remarkable growth of medical technology, as well as general inflation in the economy, the cost of providing health insurance must necessarily rise. As public demand, and consequently expenditures, for modern medical care continues to increase-a consequence of many interrelated factors including a rising standard of living, changes in our socioeconomic existence, increased levels of education, and more astute health consciousness-this must be reflected in the cost of any insurance program. This is true with respect to any type of program for financing or providing medical care, be it a voluntary private program, a public welfare program, or a compulsory governmental program.

(c) Vigorous competition, among insurance companies and with Blue CrossBlue Shield plans, under the supervision of State insurance departments, assures the public of a reasonable relationship between the premiums and benefits.

(d) The premium charges for the multicompany statewide programs for the aged are subject to the review and approval of the insurance commissioner in those States where such plans are operative, as well as to the influences of competition.

Third, as to the number of older people covered by health insurance. We estimate that 60 percent of the noninstitutionalized aged population were covered by some form of private health insurance at the end of 1962. This proportion is more than twice the 26 percent covered at the end of 1952. The slightly over 10 million aged persons with private health insurance at the end of 1962 is 3 times the number with such insurance 10 years previously. There is reason to expect that this growth in private health insurance will continue. Two developments have caused us to reevaluate our estimate with respect to the insured aged population. First, one of our member companies which reports to us in our various surveys concerning the aged population recently indicated that they had revised their statistics with respect to the number of aged persons which they have insured. This revision would, in turn, have caused us to revise our estimate were it not for another matter which has been brought to our attention more recently. We have found that one of the companies which does not report to us in our various surveys insures far more aged persons than we estimated under our conservative methodology. As a result, there has been an understatement for nonreporting companies. In developing our estimate for companies which do not report to us in our surveys, we have always been most careful to avoid the possibility of overstatement.

The net effect of these adjustments is to reaffirm the validity of the 60 percent estimate furnished the House Committee on Ways and Means in November. With 60 percent of the aged population covered by private health insurance at the end of 1962, with an additional 14 percent recipients of old-age assistance and hence entitled to medical care without cost, and with others eligible for benefits under the medical assistance for the aged program, as veterans of the Armed Forces, as members of health care professions, or because of affiliations with unions, lodges, or religious groups, it is apparent that for over three-fourths of the aged, provision has been made for payment of some or all of their hospital and medical costs.

Fourth, as to the adequacy of health insurance coverage for the aged. Adequacy can be measured only in terms of need in relation to all available resources or means, including current income; assets and other holdings; benefits deriving from such entitlements as veterans status or membership in religious, social, philanthropic, or labor organizations; assistance from relatives; and insurance. Since the relationship of these elements differs in individual cases. it is extremely difficult to evaluate the adequacy of available health insurance coverages. Furthermore, health care costs vary extensively among communities and geographic areas. In some instances (we estimate about 13 percent), an older individual has more than one form of health insurance or more than one policy.

The function of the system of private health insurance is to make available to the public a wide spectrum of coverages distributed in a variety of ways, so that the needs of different individuals can be met in the most efficacious manner possible. It is our conviction that in the main, and recognizing that experimentation continues, this has been accomplished, and that the growing public acceptance of the coverages made available testify to the public confidence in what has been done.

Health insurance 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 health care expenses. Both private and public health care programs recognize that coverage of 100 percent of all health care 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.

The coverages made available by insurance companies on an individual policy basis offer a wide range of benefits. Hospitals per diem benefits are available from $5 a day for 21 days to $30 a day for 400 days. Coverages for miscellaneous hospital expenses are available in amounts from $30 to $1,000. Surgical expense maximum amounts run from $100 to $600. Amounts for skilled nursing home care range from $5 to $20 or more a day, and cover from 31 to 200 days of care. Major medical expense coverages, usually with no per diem, per item, or duration limit, and covering practically all forms of care in and out of hospital, are available with maximum amounts which range from $1,000 to $10,000 or higher. Group insurance benefits patterns are varied, subject to the demands of the purchaser.

The adequacy of these coverages, in general terms, can be equated in relation to the customary utilization of health care services by older people and the usual cost of such services. According to insured lives experience, 82 percent of the aged who are hospitalized in a general hospital have a length of stay of 30 days or less in a year. Only 6 percent stay as long as 2 months. The average length of stay in hospitals for all persons age 65 and over is 18 days.3 Based ou a sampling obtained from insurance companies as of July 1961, among aged persons covered by insurance companies, 29 percent had room and board hospital benefits of $15 a day or more; 18 percent had such benefits ranging from $11 to $14 a day; 53 percent had such benefits in the amount of $10 a day or less. We were not able, from the information available to us, to relate these amounts to the geographic areas where the respective benefits were in effect.

It should be noted that in 1961, according to data of the American Hospital Association, the average daily room and board charge in non-Federal, shortterm, general hospitals was $17 a day. Also, insurance coverages always provide. in addition to a room and board benefit, benefits for ancillary hospital services such as operating room, X-ray and diagnosis, and other charges; for surgery; and in some instances for physician's visits and skilled nursing home

care.

In mid-1961, about a fifth of the older people insured by insurance companies were covered by major medical or comprehensive policies. By the end of 1962, this proportion had increased to a fourth. Major medical policies are especially designed to help offset the more serious medical expenses, whether occasioned in or out of the hospital, resulting from severe or prolonged illness or injury. Included in the coverage is protection up to 75 or 80 percent of expenditures for hospital care, surgery, physician services, nursing care, drugs, and frequently skilled nursing home care; with an aggregate benefit as high as $10,000. Since the conduct of these surveys, there have been extensions of the State 65 plans mentioned earlier and other major medical plans offered to the aged by individual companies. It is reasonable to assume, therefore, that the extent to which senior citizens have major medical benefits has undoubtedly increased since the end of 1962.

3 Annual Statistics 1960-Cases Discharged From British Columbia Hospitals, prepared by British Columbia Hospital Insurance Services.

The Extent of Insurance Company Coverage for the Medical Expenses of Senior Citizens as of July 1961, Health Insurance Association of America, 1962.

5 Hospitals, August 1962, American Hospital Association.

• Ibid.

Another manner of evaluating these coverages would be to determine the degree to which they cover the actual expenditures of the insured aged for items of health care against which they are insured. Unfortunately, industrywide statistics for both the numerator and the denominator of this relationship are not available. At times a comparison is made, based on estimates resulting from household interview surveys, which purports to relate the benefits received by the aged from health insurance to their health care expenditures. Such a comparison for the purposes of evaluating the effectiveness of health insurance is not valid because: (1) the numerator consists of the estimated voluntary health insurance benefits received by the insured aged and the denominator includes the estimated health care expenditures of all the aged, both insured and uninsured; and (2) the denominator includes estimated expenditures by the aged for nonprescribed drugs and medicines such as tonics and vitamins, and similar health care items which are not properly a function of insurance.

The most recent published set of data on this subject has been gathered through the U.S. National Health Survey. These indicate that in the period July 1958 to 1960, of those older persons discharged from short-stay hospitals and who were insured, 82 percent had more than half the hospital bill covered by insurance, and 59 percent had three-quarters or more of the bill covered.* Therefore, while evaluation of available coverages for the aged is difficult at best, it is readily apparent that a wide choice of benefit patterns is available to the members of the public and that they, in the last analysis, must choose in relation to their respective needs.

Fifth, as to the ability of older persons to retain health insurance once secured.

The most recent study conducted by our association concerning renewal provisions contained in policies covering aged persons was in mid-1961. At that time, slightly over half of the aged persons covered by health insurance were protected by Blue Cross plans.

As to the half of the aged insured with insurance companies in mid-1961, about 90 percent were covered under group policies, had individual guaranteed renewable policies, or had other individual policies not subject to individual nonrenewal as a result of health deterioration of the individual. Although the remaining 10 percent were covered under policies subject to such nonrenewal, there is ample evidence available, including studies furnished to your subcommittee, which indicates the limited extent to which insurance companies exercise their right to nonrenew policies.

Since the mid-1961 study, there have been extensive developments of the State 65 marketing technique under which many thousands of aged persons have acquired health insurance. Again, such coverages are not subject to individual nonrenewal. It is very likely, therefore, that the current proportion of the aged with health insurance coverage including the right to retain this coverage, has increased considerably.

In conclusion, Mr. Chairman, I should like to add that the Health Insurance Association of America recognizes the social responsibility and the economic necessity of providing adequate health insurance to all of the people of the United States who can be reached through established insurance institutions operating in a free and competitive environment.

A great variety of health insurance plans and policies are available to the present and future aged. New approaches and coverages have been developed and undoubtedly will be expanded in the future. Better methods of administration and distribution are being developed. The number of aged persons covered is an accomplishment unforeseen a decade ago. Finally, real progress can be seen in the trend upward in the purchase of broader benefits which can be and are being obtained and kept in force by the aged. Mr. Chairman, I had the pleasure of appearing before your Subcommittee on Problems of the Aged and Aging almost 5 years ago (June 18, 1959). At that time, I reported that the most recent estimate of the number of aged with some form of health insurance was 39 percent as of March 1957. Five years later this proportion had increased to 60 percent. We have every reason to believe this growth will continue.

7 "Proportion of the Hospital Bill Paid by Health Insurance," U.S. National Health Survey, July 1958-June 1960, series B, No. 30.

8 Ibid.

Senator MCNAMARA. Our next witness this morning is Mr. James R. Williams, vice president and general manager of the Health Insurance Institute.

How do you do, sir.

Mr. WILLIAMS. Good morning, Senator.

Senator MCNAMARA. Will you be seated and proceed in your own manner?

STATEMENT OF JAMES R. WILLIAMS, VICE PRESIDENT AND GENERAL MANAGER, HEALTH INSURANCE INSTITUTE

Mr. WILLIAMS. Thank you. Senator, my statement that I presented to this subcommittee is fairly short, so if I may briefly review that for you.

My name is James R. Williams, I am vice president and general manager of the Health Insurance Institute, a central source of information about health insurance provided by insurance companies. Our function is to transmit information to the public to aid people in understanding more fully the uses of their health insurance policies offered by insurance companies.

We review and utilize information originated by many sources, both private and public. We are financially supported by the more than 300 member companies of the Health Insurance Association of America, but we have a separate staff and budget from that of the association.

As an information agency for the health insurance business, the institute endeavors to create a greater public awareness of health insurance. We try, also, to stimulate broader public knowledge of health care services and their relationship to the cost of health insurance.

In the field of inquiry outlined by your subcommittee, the institute reports on the types of insurance policies available including the kinds of plans, the levels of benefits, and the range of premium charges.

No special emphasis has been placed on any particular form of health insurance but rather on the variety of insurance arrangements which are available for people planning a retirement program, or those already retired.

The public which the institute provides information for includes educators, students, business and professional associations, labor groups, civic organizations, women's organizations, government information specialists, and the press.

Materials published by the institute are based on facts and figures gathered by research personnel in organizations both within and outside the insurance business. One of our principal publications is the "Source Book of Health Insurance Data." This annual publication highlights statistics on the number of people who have some form of health insurance, the types of private insuring organizations, and the amount of health insurance premiums received and benefits paid by insurers in the United States.

The source book also includes data on both the cost of medical care in the United States and the frequency of illness and injury among the American people. This information is compiled from surveys