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:

(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.

The CHAIRMAN. Any questions, gentlemen?

Mr. DOLLIVER. Mr. Chairman?

The CHAIRMAN. Mr. Dolliver.

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

ance.

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

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