7. Should distinction be made between medical services rendered in a hospital and medical services rendered outside hospitals insofar as percentage of cost which insurer must bear himself is concerned?

It is believed that any differential in the coinsurance clause would be unwise. Were the amount of the risk borne by the insured less for services rendered in the hospital than for services rendered outside the hospital, there would be a tendency to overutilization of hospital facilities.

8. Should coinsurance (i. e., insurer bearing portion of cost) be required with regard to all insurance policies which may be reinsured under bill and should maximum and minimum of coinsurance percentage be provided for in the bill?

We believe that a generalization on this score is dangerous. The purpose of coinsurance is to encourage the insured to guard against the costs of extravagant and unnecessary treatment. Insurers have found that blanket accident expense reimbursement insurance can be written successfully without coinsurance. With accidents the injury usually is fairly obvious, the treatment clearly indicated, and liability to recurrence small. In many sicknesses, however, these conditions do not exist and coinsurance is the most practical way of exerting a gently restraining influence on both the insured and the supplier of the health care service against unnecessary or extravagant health-care costs.

9. Should policies have a deductible feature so that benefits are payable only after "deductible" has been paid by insurer himself?

The deductible is a sound and effective way of reducing cost of insurance by eliminating from coverage those health-care costs which are recurrent, routine, and seemingly inevitable. These are the costs that are much better cared for as a part of the family budget. The deductible permits the insurer to quote a premium that is less than that which would be provided for full coverage because the insurer is relieved of liability for a multitude of small claims with their relatively high administrative expense. It is an interesting commentary on many insurance buyers that even though they recognize the sound economics of the deductible they still prefer to pay the higher premium for full coverage. It is questionable whether governmental authority should superimpose its judgment denying the insured the right to choose the coverage that he prefers.

10. Should requirement be contained in bill that individual applications for insurance must be granted; and if so, what limitations should be placed on this requirement?

A requirement that every individual applicant must be accepted for insurance, irrespective of his insurability would seriously inhibit the successful operation of any insurance or reinsurance scheme and if enforced would inevitably lead to substantial losses. The industry has been making substantial progress in the development of substandard reinsurance, constantly narrowing the number of people who are ineligible for insurance because of impaired health. As the history of life insurance substandard underwriting demonstrates, the underwriter's technique can best be developed under conditions that permit free experimentation and competition among insurers. Compulsion in the form of a requirement that every risk must be insured would have a tendency to discourage experimentation and would be a self-defeating specification.

As the answers to the foregoing questions bring out, it would be exceptionally difficult to establish specifications of coverage in any statute enacted establishing a Federal health reinsurance scheme. The alternative is to vest vast discretion in the administrator of the plan with all of the objections that accrue to such a delegation of authority. The expressed purposes of H. R. 8356 are commendable and in the public interest. It is unfortunate that the reinsurance scheme proposed to implement the objectives of the bill would fail this purpose, lead to disappointment, and result in a situation deleterious to the further growth and usefulness of voluntary insurance.

It is hoped that you will find our comments of interest and of value to you and the members of the committee. Again permit me to thank you for your courtesy in considering the point of view that has been expressed.

Respectfully yours,

E. J. FAULKNER, President.

The CHAIRMAN. I will come to a conclusion by calling to your attention these words in the closing paragraph of your statement: You

state:

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.

Having that thought in mind-where you say that the chamber is in complete accord with the basic purpose of extending private health insurance to as many people as possible, and in the broadest form consistent with sound underwriting-would the Chamber of Commerce favor this committee with a form of bill that it could recommend?

Mr. FAULKNER. The position, sir, of the chamber is that a bill is not needed because private industry is doing the job now; not perfectly, but making progressive advances, as the record shows, and which, in our opinion, will accomplish the insurance of the very substantial majority of the American people in a relatively short time.

The CHAIRMAN. So you are opposed to any principle that would extend the coverage wherein the Government would participate even to the extent of caring for losses that might happen if there was a mistake made in the actuarial experience; is that right?

Mr. FAULKNER. Well, sir, part of the risk-bearing function of insurance companies is to run the risk of making those mistakes. We have made them in the past, unfortunately, and will undoubtedly make them in the future.

The CHAIRMAN. But you do not do it if you can help it, do you? Mr. FAULKNER. No, sir.

The CHAIRMAN. And the easiest way to prevent the loss is to not write the insurance: is it not?

Mr. FAULKNER. That is certainly one way but it would be a great mistake, in my judgment, not to continue to experiment and develop better coverage.

The CHAIRMAN. Will you explain to me why the insurance companies have not written this extended coverage?

Mr. FAULKNER. Insurers have not written it in the past because they did not feel they had the knowledge on which to base rates. They now feel that they have the knowledge, and they are so proceeding aggressively to push that form of insurance.

The CHAIRMAN. Then the chamber is opposed, and has no constructive suggestions other than to stay out of it entirely; is that right?

Mr. FAULKNER. We have no suggestions for intervention of the Federal Government into the field; that is right.

The CHAIRMAN. I suppose for the same reason you speak of as a general policy, you opposed the RFC?

Mr. FAULKNER. I am not familiar with that history, sir.

The CHAIRMAN. There have been many things of a character that would be helpful to business and would be helpful to individuals over a period of years, and I thought maybe the basic policies to which you were referring applied to each of them the same as you applied them to this insurance matter. I am inclined to think that the chamber of commerce has been very willing to have legislation in other instances in which the Federal Government has participated, and it is only in an instance like this where it is not to the advantage probably of the rank and file of the American Chamber of Commerce that they are not willing to go along, even though they must recognize it cannot be otherwise but helpful. I do not see how they could have any

other conclusion but that it would be helpful to individuals, at least. I am terribly disappointed that a great organization such as the chamber of commerce would come in merely opposing and not suggesting.

You say in your statement, or you said in answer to a question that for commercial companies there is no need for Federal reinsurance. Do you feel there is likewise no real need for nonprofit plans like the Blue Cross!

Mr. FAULKNER. I do not profess, sir, to have an intimate enough knowledge of the operation of Blue Cross to speak for them.

The CHAIRMAN. If there should be a need for nonprofit plans would the chamber oppose this sort of insurance, if limited to nonprofit plans? Mr. FAULKNER. Yes, sir, I believe so; on the basis that private reinsurance facilities could be made available to nonprofit plans.

The CHAIRMAN. Specifically, which provisions in this bill call for Federal control over the medical profession and the rendering of medical services, which would be in line with your definition of socialized medicine in answer to the question that Mr. Harris asked? Mr. FAULKNER. The control would necessarily be indirect. The Secretary, according to the powers granted in section 303 (a) (6) on page 15 of the bill can issue regulations with respect to—

Plan provisions, in the case of plans within the scope of the proviso to section 101 (e) (2), as to costs or charges of providers of personal health services payable by the carrier, to the extent that, in the judgment of the Secretary, such regulations are necessary to protect the fund against abuses or arbitrary cost increases during a reinsurance term.

The CHAIRMAN. That is your answer, that that means control of medicine?

Mr. FAULKNER. Not immediately and not entirely, sir. I think it represents a first step in that direction.

The CHAIRMAN. Now, are you speaking for the medical profession, or are you speaking for insurance, or are you speaking for the chamber of commerce?

Mr. FAULKNER. I am speaking only for the chamber of commerce, sir.

The CHAIRMAN. There are questions I would like to ask, but I have already taken a great deal of time and there is the necessity to hear other witnesses. I think I will have to desist.

Mr. HARRIS. Mr. Chairman, I would like to ask a few questions.
The CHAIRMAN. Mr Harris.

Mr. HARRIS. I would be glad to proceed now or to come back later. It will take me just a few minutes.

The CHAIRMAN. Then we will take the time now.

Mr. HARRIS. I want to compliment you first, Dr. Faulkner, on the manner in which you have stated the position of the group you are representing here today. I must confess that it is rather amusing to me to have the opportunity of sitting here and listening to my very good friends, Republican members of the committee, conduct such a rigid cross-examination of your position on behalf of the United States Chamber of Commerce.

The chairman complimented you highly on the outstanding record you have made. I must say that you have withstood this examination this morning and maintained the position of your organization very well.

In the first place, is there any difference, that you know of, in the procedure by which you have been delegated the authority to come here on behalf of the United States Chamber of Commerce, compared to representatives of any other group or organization?

Mr. FAULKNER. I know of no such difference.

Mr. HARRIS. You appear here today only in the same manner, which is the usual custom of a representative appearing in behalf of the group he undertakes to speak for?

Mr. FAULKNER. That I believe to be the case.

Mr. HARRIS. As the chairman has indicated, I would like to ask you some questions with reference to your interpretation of some very important statements that have been made.

For instance, Mrs. Hobby says, in speaking for the administration, that this is not a program that will contribute to the socialization of medicine. She stated that it is not a program that could be considered in any way as a subsidy program. You have maintained the contrary opinion, as you have expressed it here today.

I think I could ask you this question, which I would like to have you comment upon: The President in his state of the Union message did say, paraphrasing, that he was for a program of reinsurance. Is that what you understood?

Mr. FAULKNER. I believe that was the health message, was it not, sir?

Mr. HARRIS. Yes, the health message; that is right.

Mr. FAULKNER. Yes.

Mr. HARRIS. What do you think the President meant when he said that he was for a program of reinsurance?

Mr. FAULKNER. I am sure I do not know, sir.

Mr. HARRIS. I must then ask you what you meant when you say, speaking for the chamber of commerce, that it is in agreement with the principal objectives set forth by President Eisenhower in his message to Congress on January 18.

Mr. FAULKNER. The objectives that seemed most prominent to us were the expansion of voluntary insurance and a position contrary to the socialization of medicine. Those, we thought, were the objectives. We did not consider, sir, that the creation of a reinsurance program was any particular objective.

Mr. HARRIS. In other words, his statement that first of all he was opposed to the socialization of medicine is what you had in mind? Mr. FAULKNER. That is right.

Mr. HARRIS. Or at least that is what struck you?

Mr. FAULKNER. That is right, sir; and the expansion of voluntary insurance.

Mr. HARRIS. You are in the insurance business, and I think you are competent to answer a question like this: How many people in America are insured?

Mr. HALE. Do you mean health insurance?

Mr. HARRIS. Yes. We are talking about health insurance. pose you refer in your statement to medical care in some form.

Mr. FAULKNER. Yes.

The number who are indigent at any one time, of course, will vary, but with the high general prosperity at the present time the number of the truly indigent is relatively small. I would say certainly it is not a stretch of the imagination to say even including the indigent among

the uninsurables that 9 out of 10, or more than 9 out of 10, are acceptable for insurance.

Mr. HARRIS. In other words, out of 160 million people of this country 90 percent of them are insurable?

Mr. FAULKNER. That, of course, must simply be an estimate.

Mr. HARRIS. It is an estimate, of course. That is what we are trying to get.

You testified, I believe, that 92 million people have some form of hospital insurance.

Mr. FAULKNER. Yes, sir.

Mr. HARRIS. Of course, a lesser number of people have other forms of insurance, as you have stated.

Mr. FAULKNER. Yes, sir.

Mr. HARRIS. As an estimate, how many of the indigent people of the country do we have, of whom you spoke?

Mr. FAULKNER. How many people in the country are indigent? Mr. HARRIS. Are considered to be in the indigent class, which you referred to here.

Mr. FAULKNER. Well, again, as an estimate I would judge something less than 10 percent, certainly. I am sorry that I am not prepared with income statistics and that sort of thing, that would provide the accurate answer to your question.

Mr. HARRIS. What I was trying to get at was the group of people you refer to in your statement on page 6, to see just how extensive that group is. That is, No. 1, the group that is beyond the reach of insurance; No. 2, the people not now insurable; and, No. 3, those who have not the means to pay the cost of insurance protection.

Mr. FAULKNER. It is my estimate at this time, sir, that overall they would not aggregate more than 1 out of 10.

Mr. HARRIS. In other words, that group, in your opinion, would be approximately-as an estimate, I repeat-10 percent?

Mr. FAULKNER. Yes, sir.

Mr. HARRIS. That is still somewhat confusing to me, when you consider the indigent. Of course, you said that was something less than 10 percent.

Mr. FAULKNER. Yes.

Mr. HARRIS. Yet 90 percent of the people in your estimate are insurable. What I am trying to get at is this group here that is more or less in the category, who are not reached either by the insurance program, as you have indicated it, or do not come within the category of public assistance. I was trying to reconcile your statement to the fact that the voluntary insurance program could ultimately reach that group. Yet you say here they cannot be reached.

It occurred to me that eventually this program might be designed not only as it has been stated by the administration witnesses, for stimulating this program, but to reach this group that you say cannot be reached.

Mr. FAULKNER. Well, we have the indigent; the unemployed and their dependents, we will say. Then there are the medically indigent, those who can take care of their ordinary living expenses and who if the would buy insurance would not become medically indigent but who prefer to spend their expendable income on things other than insurance, so they do not have insurance when illness or injury strikes.