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American Hospital Association. They will testify on H. R. 8356, and will be available to the committee for consultation later on in connection with this legislation, if it is desired.

Mr. Faulkner was born and educated in Lincoln, Nebr. He began Wharton School of Finance, University of Pennsylvania, and began working with the Woodmen Central Health Co. as claim auditor in 1931. He became treasurer in 1932, assistant to the president of Woodmen Accident Co. in 1934, vice president of the Woodmen Central Life in 1936. He was elected president of the three companies in August 1938. He was president of the Health and Accident Underwriters Conference in 1950-51. He is a member of the Commission on the Financing of Hospital Care. He is the author of the standard reference book in this field entitled "Accident and Health Insurance, published by McGraw-Hill Book Co., in 1940.

Our second witness will be Mr. William S. McNary, chairman, Council on Government Relations, American Hospital Association.

Mr. McNary has had many years of experience in the hospital and prepayment field. At one time he was the administrator of the Colorado General Hospital in Denver. In 1937 and 1938 he helped to organize and became the first executive director of the Colorado Hospital Service, the Blue Cross plan, serving the State of Colorado.

In 1946 Mr. McNary left Colorado to become executive head of the Michigan Hospital Service, the Blue Cross plan serving Michigan.

Mr. McNary speaks today for the American Hospital Association which has represented most of the hospitals of this country since 1899, and the Blue Cross Commission of the American Hospital Association. The membership of the association includes more than 90 percent of all the general hospital beds as well as most of the taxsupported hospitals, including hospitals operated by cities, counties, State and Federal Governments. The association has sponsored many study commissions, such as the recent Commission on Financing of Hospital Care.

Mr. McNary has served as chairman of the Blue Cross Commission, the central organization of the Blue Cross plans. He is also the executive vice president, Michigan Hospital Service, and the chairman of the Council on Government Relations of the American Hospital Association.

The committee, of course, will be glad to hear from both of these witnesses. The first witness will be Mr. Faulkner.



Mr. FAULKNER. Mr. Chairman and gentlemen of the committee, my name is Edwin J. Faulkner. As your chairman in his very gracious reference indicated, I am president of Woodmen Accident Co. and two associated companies located in Lincoln, Nebr. I have served as president of the Health and Accident Underwriters Conference, a trade association of insurers writing health and accident insurance, and I am immediate past chairman of the accident and health insurance committee of the Life Insurance Agency Management Association. I am a member of the accident and health committee of the


American Life Convention and I am a member of the insurance committee of the Chamber of Commerce of the United States.

I appear today to represent and speak for the Chamber of Commerce of the United States, a federation of more than 3,100 business organizations with an underlying membership of more than 1,600.000

The national chamber has long supported activities in the interest of the good health of the American people. It is in agreement with the principal objective set forth by President Eisenhower in his message to the Congress on January 18, that the means for achieving good health should be accessible to all. It is particularly gratifying that the President took a straightforward position against the socialization of medicine and in favor of individual participation in voluntary health insurance and prepayment plans as the best way for people to provide themselves with resources to obtain good medical

The President carefully pointed out in his message that it is not necessary for the Government to go into the insurance business to furnish protection not now provided by private organizations.

To consider H. R. 8356 it is first necessary to examine various methods of financing health-care costs. The problem of financing health care is divisible into two major parts.

First, insurance can provide for the financing of health-care costs for the great portion of the American people who are insurable but it is fallacious to advocate or even suggest that the insurance approach is adaptable to the needs of all the people.

The second part of the problem has to do with those people who cannot be reached by insurance,

Most of the American people are insurable and have access to the many forms of health insurance now so generally offered. Most people enjoy such a state of health as to be acceptable for insurance. Most of them are financially capable of paying the premium necessary to secure an adequate measure of protection. Within this group there are those who, though they can afford it, have not chosen to buy available insurance protection. In this group there are those who have consciously elected to carry their own risk, those who have preferred to devote their expendable income to the purchase of things other than insurance and those who eschew insurance because of religious conviction.

The private insurance industry has made an outstanding record of growth and service in the public interest. In 1939, only 6 million Americans were insuring themselves against the costs of hospitalization. The total skyrocketed to 92 million people as of the end of 1952, some 61/2 million of which increase was accomplished in the year 1952 alone. Insurance protection for the costs of surgery covered 7 million persons in 1941 but 73 million were covered by the close of 1952. This was a 12-percent increase over the preceding year.

Insurance against the costs of medical care, other than surgery, had a later origin than hospital and surgical insurance, but by the end of 1952 it was protecting 36 million persons. This was an increase of 8 million, or 29 percent, during the year 1952. In the accompanying graph, there has been charted the progress of these health-insurance coverages. Certainly, it can be seen that as voluntary insurance continues to grow it will be but a short time until substantially all of the population enjoys this protection.

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Mr. FAULKNER. I wish also to mention the newest of the health insurance coverages. It is called major medical expense insurance and provides protection against very large health care expenses. Depending on the amount the insured wishes to buy, the major medical expense policy will pay benefits up to $5,000, $7,500, or $10,000 for any 1 illness or injury.

It is customary in major medical expense insurance to incorporate a deductible feature, the effect of which is to exclude from coverage the expense of small losses up to $300 or $500. The deductible provision recognizes that many health-care costs are routine, recurrent, seemingly inevitable, and better provided for as a part of the family budget than through'insurance. The inclusion of the deductible clause holds down the cost of the insurance, thus bringing it within the reach of more people.

Another feature of major medical expense insurance is that it usually requires the policyholder to pay a portion of the loss himself, thus providing a strong incentive against extravagance and unnecessary health-care costs.

This type of insurance coverage was developed some 5 years ago and like other coverages, even though still in its developmental stage, has been expanding rapidly. Sufficient experience with major medical insurance has not yet accrued, to project this coverage on the graph. It is significant, however, that in a very short time major medical expense insurance has been extended to more than a million people. It is now being offered by at least 25 insurance companies.

The record shows that private insurance organizations are fulfilling their responsibility to make adequate insurance coverage available on a sound basis. This record demonstrates the ability and willingness of insurers to improve coverage and develop new types of coverage in response to new needs. In no small measure the rapid expansion of voluntary insurance and its continuing improvement results directly from the open, free, and keen competition among 800 insurers now active in accident and health insurance, plus the wholesome and vigorous competition between private insurance companies and voluntary prepayment plans such as Blue Cross and Blue Shield.

Now let us consider the second major part of the problem of financing health-care costs. We should recognize that there are needs for assistance to meet such costs that are beyond the reach of insurance. Because of impaired health some people are not now insurable. There are some who, though satisfactory insurance risks otherwise, have not the means to pay the costs of insurance protection. Their needs are real and must be met by appropriate methods other than insurance.

The risks of those who suffer from impaired health are not necessarily beyond the competence of the insurance industry. As a matter of fact, many people who suffer from some impairment are today insured. They may be insured at a higher-than-standard premium or by appropriate adjustment in the insurance policy provisions or, I might add, they are automatically covered by groups. As the insurance business further develops substandard underwriting, the numbers of impaired risks ineligible for insurance will continue to be reduced.

The problem of the indigent is of a distinctly different kind. The indigent do not have the funds with which to purchase insurance. The needs of these people must, of course, be met. Their needs should be met in the future, as they have in the past, by voluntary assistance and from public funds. Direct assistance is the most economic and efficient way to meet the needs of this group. Assistance agencies exist for this purpose at every level of Government. To attempt to insure the indigent would place a heavier burden on the public, and would impair, if not eventually destroy, voluntary insurance.

Some people who require public assistance at the time of illness have failed to appreciate their need for protection. As more and more individuals become convinced that protection against health care costs is an essential element in their economic security they will buy it.

The Chamber of Commerce of the United States feels it most important to present the facts of health insurance and health care costs to the American public. To this end, the chamber is publishing a book entitled, "A Look at Modern Health Insurance," which shows the developments in all types of insurance coverages now available and the various health services now in operation.

The public has a very important role to play in the financing of health-care costs. It is essential that adequate public funds be available supplementing voluntary aid to provide assistance for the indigent. Congress should also supply tax incentives for the purchase of voluntary insurance.

A review of the amazing progress already made in meeting the need for financing of health-care costs establishes that the whole problem has been greatly narrowed within the past two decades with the greatest progress made within the last 5 years. Private insurance services now available and still expanding at a rapid rate will provide some degree of protection within a short time to nearly the entire population.

As has been stated, more and more impaired risks are being insured. Even today insurance of the overaged is very largely a question of the willingness or ability of the older person to pay the premium for the insurance.

Government reinsurance of health insurance plans would introduce no magic into the field of financing health-care costs.. Reinsurance can distribute risks among insurers just as insurance distributes them among policyholders, but no matter how far this distribution is carried, it must be sound to succeed. Reinsurance does not increase the ability of the insurer to sell protection to the unwilling buyer. Reinsurance does not reduce the cost of insurance. Reinsurance does not make insurance available to any class of risk or geographic area not now within the capabilities of voluntary insurance to reach.

The national chamber believes that were H. R. 8356 enacted, the proponents of this legislation would be disappointed by its failure to achieve its expressed purposes. These purposes could only be achieved if certain major conditions were abandoned. These are: That the reinsurance fund be self-sustaining; that the Government be reimbursed for capital outlay, and that socialization of medicine be avoided.

H. R. 8356 would be an extremely broad delegation of authority to the Secretary of Health, Education, and Welfare. It presents several features which must be studied independently of the question of adaptability to the needs. Some of these considerations are:

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