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(1) The bill provides only the bare framework of a program, with implementation left to the discretion of the Secretary of Health, Education, and Welfare. This would seem to be too broad a delegation of the legislative function.
(2) H. R. 8356 contemplates entry of the Federal Government into a business area served by private enterprise with the tendency always present to weaken the foundations of a free economy. The bill contains provisions purporting to prevent competition with private enterprise but these are inadequate.
To implement the Federal reinsurance service it is only necessary for the Secretary of Health, Education, and Welfare to find that private reinsurance facilities are not available on terms and conditions comparable to those to be offered by the Federal service. Such a test is inadequate, particularly when the comparison of private facilities with the proposed Federal service does not recognize that it would be federally capitalized-free of taxation—and federally subsidized, at least to the extent of all administrative expenses on what seems to be a very liberal basis for at least 5 years.
(3) It has long been a national policy, and one that has served the public well, that regulation of the insurance business shall be vested exclusively in State governments. Such a portion of the health insurance business as may become reinsured under the provisions of H. R. 8356 will become subject to comprehensive Federal regulation.
(4) Insurers availing themselves of the facilities proposed by this bill would become subject for the first time to governmental regulation of premium rates. The public interest is best served by preserving the competitive features of the health insurance business which has made such great progress in the last 10 years.
(5) The bill seems designed to promote the extension of prepayment of health care costs to uninsurable risks. The insurance of such risks would inevitably result in excessive losses ultimately requiring substantial Federal subsidization of the plan.
The needs for health insurance are rapidly being met by private insurance. There is no crisis in this field and proposed Government reinsurance would add nothing to the present rapidly expanding and successful system. There are those who are not insurable due to physical infirmities or inability to pay insurance premiums. They present a problem entirely apart from insurance. Theirs is a problem requiring direct assistance. This assistance should be provided by direct methods.
The establishment of a Federal reinsurance service would create in the minds of the general public a belief that it offers an adequate solution to health problems. This would be a delusion and, therefore, wrong:
To the extent that it proves ineffective or disappointing, it would generate strong pressures for subsidization. The limits to which such subsidization and concomitant Federal control may be carried are not foreseeable but the ultimate could well be socialized medicine under a compulsory health insurance plan.
Although in complete accord with the basic purpose of extending private health insurance protection to as many people as possible, and in the broadest form consistent with sound underwriting, the national chamber fails to find in this legislation a contribution to this effort.
In fact, the probable eventual effect of passage of this bill would be to defeat the President's desire to see voluntary insurance expand and
to maintain a free medical profession. The national chamber believes that it is contrary to the public interest for Government to enter a business field which is being served by private enterprise. For all of the foregoing reasons, Mr. Chairman and gentlemen, the national chamber strongly opposes the passage of this legislation.
Thank you very much.
Mr. DOLLIVER. I am particularly interested, Mr. Faulkner, in that portion of your statement which refers to major medical expense insurance.
Mr. FAULKNER. Yes, sir.
Mr. DOLLIVER. I think that is sometimes referred to as insurance for catastrophic illness in the family.
Mr. FAULKNER. That is right, sir.
Mr. DOLLIVER. I think your statement reveals that there has been considerable activity in this field during the past 5 years.
Mr. FAULKNER. Yes, sir.
Mr. DOLLIVER. About how many are insured under that major medical expense insurance?
Mr. FAULKNER. At the end of last year the best estimates were that over 1 million people were insured under major medical expense coverage. It is thought now that the number may be as high as 11/2 million or more. The coverage is growing.
Mr. DOLLIVER. Approximately how many insurance companies are writing this type of insurance?
Mr. FAULKNER. At the present time, sir, at least 25 companies.
Mr. DOLLIVER. Could any of them be characterized as major companies?
Mr. FAULKNER. Yes, sir. Some of the largest companies in the country are writing major medical insurance coverage.
Mr. DOLLIVER. What can you say as to the premium expense for that type of insurance as compared with the limited or usual type of medical insurance ?
Mr. FAULKNER. By reason of the incorporation of the deductible feature, sir, to which I adverted in my prepared statement, plus coinsurance, the cost of major medical coverage is not substantially in excess of that type of coverage which you have characterized as "usual.”
Mr. DOLLIVER. You say there is not only a deductible provision but also a provision that the policyholder carries part of this major medical expense himself. What proportion is carried by the policyholder?
Mr. FAULKNER. It will vary according to the contract, sir. A usual provision is that after the deductible, three-fourths of the loss up to the limit of the policy will be carried by the insurer, with one-fourth by the insured. In some instances the ratio is 80 percent and 20 percent.
Mr. DOLLIVER. Does that type of policy include not only hospital and surgical but also medical expense?
Mr. FAULKNER. Yes, it does.
Mr. DOLLIVER. Do you anticipate that there will be an increase in this type of coverage, or is that expanding rapidly at the present time?
Mr. FAULKNER. It is expanding at the present time, sir, and I anticipate that it will continue to grow not only in volume under
written by the companies already offering this coverage, but through the press of competition and through a desire of the insurers generally to do a good job companies not now providing this coverage will soon be offering it.
Mr. DOLLIVER. Is there a similar type of coverage offered by the Blue Cross and Blue Shield plans?
Mr. FAULKNER. I am sorry, sir; I am not familiar with their coverage or any developments that may be occurring in that particular area. Mr. McNary, who will testify later, is undoubtedly well advised on that and might answer your question.
Mr. DOLLIVER. In other words, you are speaking here for the concerns who are in this business not as a moneymaking proposition?
Mr. FAULKNER. I am speaking, sir, for the private insurers. The private insurers, of course, are both stock and mutual in character. Very many of the private insurers are of a mutual character.
My own principal company, Woodmen Accident, is a mutual company. Of course, in a mutual company you are working for the policyholders. It is a participating or mutual proposition.
I am speaking in behalf of the chamber of commerce and from the point of view of the private insurance companies primarily.
Mr. DOLLIVER. Now, I wish to direct your attention to another feature of your statement. This bill which is before us is in essence a reinsurance bill. Of course, the principle of reinsurance is very familiar in other insurance fields, is it not?
Mr. FAULKNER. Yes, sir.
Mr. DOLLIVER. It is used in the life-insurance field, the fire-insurance field, the casualty-insurance field, and all down the line. Reinsurance is a very familiar form and type of policy that is written.
In this health-insurance field is there any private company engaged in the business of reinsuring these risks?
Mr. FAULKNER. Yes, sir; there are a number of carriers that offer reinsurance facilities in the private industry. Reinsurance in accident and health insurance is not as significant as it is in some other fields.
Mr. DOLLIVER. What is the background for that statement ?
Mr. FAULKNER. The reason for that, sir, is clear. First, take the life insurance. Since the purpose of reinsurance is to distribute risk so that the direct-writing company will be able to get an average and will not have too much exposed on one life, over and above its average, part of the insurance that may be written on the one life is reinsured, and that large, single concentration of risk is spread over more than one carrier.
In the property-insurance field large concentrations of risk—the accumulation, we will say, of a vast amount of property in one place under conditions of hazard, or the possibility of large potential liabilities in one situation—is a risk which is distributed through reinsur
But in the health-care services the possibility of a very large concentration of risk, you might say, on one life is rather small, because even with the largest coverage that is written, the largest coverage that might be called for, it is not a concentration. Take, for instance, the major medical expense insurance providing up to $10,000 for any one illness.
That does not constitute such a huge concentration of risk. It is not so much above the average but that the direct writing
company prefers to retain the whole coverage of the risk. So it is true in accident and health insurance, even though adequate and rather extensive facilities for reinsurance are available, they are not greatly used.
Mr. DOLLIVER. May I turn your attention to one other matter? There has been, as was indicated by this chart, a vast increase in medical, surgical, and hospital insurance over the past period of 10 years. I think your graph starts in 1940, so it has covered 13 years, let us say.
Mr. FAULKNER. Yes, sir.
Mr. LOLLIVER. What has been the trend with respect to the premium cost to the individual policyholder during that period ?
Mr. FAULKNER. In hospital insurance we must recognize that the industry is up against an increasingly expensive hazard. I would say that there has been some upward trend due in part to increasing costs of health care and perhaps quite as much to a broadening and expansion of coverage, liberalization of the type of insurance provided.
Mr. DOLLIVER. So there has not been any noticeable decrease, but rather an increase in the cost to the individual policyholders, generally speaking
Mr. FAULKNER. I could not characterize it as a major trend, but there has been, I believe, a gradual upward adjustment necessitated by the increasing cost of health-care services.
Mr. DOLLIVER. Of course, most of your policies are written on the basis of indemnity in money rather than the hospital care; are they not?
Mr. FAULKNER. That is true, sir. But when you anticipate in the construction of a premium rate that not every case will represent a pay-out of the entire miscellaneous benefit or unallocated expense benefit, and in nearly every case your claim does absorb that entire limit—not the number of days of hospitalization, but the benefit provided for miscellaneous expenses—then you are faced with the proposition necessarily of a gradual upward adjustment of premium as health-care costs continue to rise.
Mr. DOLLIVER. In the life-insurance field each individual company has to be licensed to do business in the various States and has to comply with the laws of those States. Generally speaking, if they comply with the New York life-insurance law they are admissible in nearly every State. Is there any comparable standard in the health-insurance field?
Mr. FAULKNER. I believe there is a great similarity to that situation, sir. A company is required to be licensed in each State in which it maintains an agency organization, which is a situation comparable to the life insurance situation.
Mr. DOLLIVER. Is there any standard law which is recognized universally as being acceptable in a majority of the 48 States?
Mr. FAULKNER. The licensing laws will vary slightly. They will vary; I should not say “slightly.” They will vary from State to State, just as do the requirements for incorporation or admission of lifeinsurance companies.
Mr. DOLLIVER. Are there any companies in this field who are licensed in all the States?
Mr. FAULKNER. Yes, sir. Many.
Mr. DOLLIVER. Do they write à uniform policy, then, in all the States?
Mr. FAULKNER. It is customary for nearly all companies to offer the same policy forms in every State in which they operate. There are minor exceptions, but the practice of the industry is to offer the same coverage everywhere the company operates.
Mr. DOLLIVER. I take it from the latter part of your statement and from what you have said as to the present availability of reinsurance that even if this bill were passed and became a law there would be little demand for the utilization of the service?
Mr. FAULKNER. That is my judgment, sir. It is based solely, of course, on the reading of the bill and a study of the situation, and conversations with insurers.
Mr. DOLLIVER. Thank you, Mr. Chairman; that is all.
In your introductory statement you stated the office you hold with the Woodmen Accident Co. Are you here for this company, or are you here for the United States Chamber of Commerce?
Mr. FAULKNER. I am here, sir, representing the United States Chamber of Commerce, a member of whose insurance committee I happen to be.
Mr. THORNBERRY. What I want to make clear is that you are not here representing a committee of the chamber of commerce, but you are here representing the United States Chamber of Commerce ?
Mr. FAULKNER. Yes, sir.
Mr. THORNBERRY. I was interested in the summary of the reasons why the chamber of commerce is opposed to this bill, and I direct your attention to (5).
The bill seems designed to promote the extension of prepayment of health-care costs to uninsurable risks. Why do you make that statement ?
Mr. FAULKNER. That statement, sir, reflects the fact that insurable risks have today available the benefits of insurance. The insurance industry is exceedingly anxious to write every possible insurable risk. They have the facilities for doing so. If the expansion of health insurance is to be promoted into any area which is not now available to the insurers it could only be the area of the uninsurable risk. · Mr. THORNBERRY. In that connection let me ask you this: Is it fair to say that the position which you take, and the chamber of commerce takes, is that if this bill does not provide an opportunity to extend prepayment of health care cost to uninsurable risks then there is no reason for the bill.
Mr. FAULKNER. Yes, sir. We take the position, Congressman, that this bill will be disappointing in the results that it will accomplish and that unless some of the principles or major conditions on which the bill is based-conditions that we certainly endorse—are abandoned, that it will contribute nothing to the expansion of voluntary health insurance.
Mr. THORNBERRY. Let me ask you a question in connection with what Mr. Dolliver asked you. You said that there was in the field of health insurance certain private reinsurance available. To me that is rather surprising because I was under the impression, from the prior testimony we had here, that at one time Lloyds of London provided rein