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may deem necessary or proper for the administration of this Act and, in tbe course of any such hearing, investigation, or other proceeding, may administer oaths and affirmations, examine witnesses, and receive evidence, whether or not such evidence is admissible under rules of evidence applicable to court procedure.

(c) The Secretary is authorized to determine the character and necessity of expenditures from the fund and the manner in which such penditures are incurred, allowed, and paid, subject to provisions of law specifically applicable to wholly owned Government corporations.

(d) In any action or claim against the United States arising under this title. the district courts of the United States shall have jurisdiction, without regard to the amounts involved, as in suits against the United States under section 1346 (a) (2) of title 28, United States Code, and in accordance with thn procedures applicable to such suits.

ACCOUNTING AND AUDITS

SEC. 402. The Secretary shall, with respect to the financial operations arising by reason of title III

(a) prepare annually and submit a budget program as provided for wholly owned Government corporations by the Government Corporation Control Act; and

(b) maintain an integral set of accounts, which shall be audited annually by the General Accounting Office in accordance with principles and procedures applicable to commercial corporate transactions, as provided by section 105 of the Government Corporation Control Act.

ANNUAL REPORTS

SEC. 403. The Secretary shall include in the annual report for the Department of Health, Education, and Welfare a complete statement with respect to operations under this Act and with respect to the status of the fund.

CRIMINAL PROVISIONS AND INJUNCTIONS

SEC. 404. (a) The Congress hereby finds and declares that any representation to members of the public, made in connection with the promotion of the business of a carrier or broker, or as a part of any policy or subscriber contract issued under a health service prepayment plan, that such plan or policies or subscriber contracts are reinsured under this Act or that such reinsurance has been applied for, even if such representation is in accordance with fact, would tend to mislead potential policyholders or subscribers into believing that such reinsurance is a guaranty of the standing and solvency of the carrier and of its faithful compliance with the policy or subscriber contract or that such policy or subscriber contract is superior to those issued under plans not so reinsured, and thereby to cause unfair competition with carriers which make no such representation or whose plans are not reinsured under this Act. The Congress, therefore, finds and declares that, in order to protect the public interest, safeguard the integrity of the purposes of this Act, and prevent the use of such representations for improper purposes, it is necessary to prohibit such representations except as authorized by and in conformity with regulations prescribed pursuant to this section.

(b) (1) The Secretary shall by regulation prescribe the substance, forms, manner of display, manner of making, and manner of use of any sign, advertisement, or other representation, if any, which shall be authorized concerning reinsurance granted or applied for under this title.

(2) Any carrier or broker, and any person acting or purporting to act for or on behalf of a carrier or broker, who, in or as a part of any policy or subscriber contract issued or offered by such carrier, or in connection with the promotion of such carrier's or broker's business, represents by any means or device whatever, except as specifically authorized by regulations prescribed pursuant to paragraph (1) of this subsection, that such carrier, or any of its subscriber policies or contracts, or the carrier's health service prepayment plan or plans under which such contracts or policies are issued or offered by it, are reinsured under this Act or that application for such reinsurance has been made, shall, for each such offense, be punished as follows: A corporation, partnership, association, or other business entity, by a fine of not more than $1,000; an officer or member thereof participating or knowingly acquiescing in such violation or any individual violating this subsection by a fine of not more than $1,000 or imprisonment for not more than one year, or both.

(c) A violation of subsection (b) of this section may be enjoined at the suit of the United States Attorney, upon complaint by the Secretary or any person duly authorized by the Secretary.

(d) Section 709 of title 18 of the United States Code (relating to false advertising and misuse of names to indicate Federal agency) is amended by inserting after the third paragraph thereof the following new paragraph:

“Whoever falsely advertises or otherwise falsely represents by any means or device whatsoever, expressly or impliedly, that any insurance policies, subscriber contracts, or undertakings for the furnishing of, or payment for, personal health services, or the health service prepayment plan or plans under which such policies, contracts, or undertakings, are issued, offered, or assumed, are reinsured under the Health Service Prepayment Plan Reinsurance Act or that application for such reinsurance has been made; or”.

APPOINTMENTS ABOVE GRADE GS-15 SEC. 405. The Secretary, to the extent he deems it necessary and appropriate in order to carry out the provisions of this Act, is authorized to place not to exceed ten positions in grades above GS-15 without regard to the numerical limitations contained in section 505 of the Classification Act of 1949, as amended, but otherwise subject to the requirements of such section.

EFFECTIVE DATE

SEC. 406. This Act shall become effective on July 1, 1954, but nothing in this Act shall require the Secretary to receive or consider applications under title III before such date as the Secretary may determine.

SHORT TITLE

SEC. 407. This Act may be cited as the "Health Service Prepayment Plan Reinsurance Act".

DEPARTMENT OF HEATH, EDUCATION, AND WELFARE,

Washington, March 24, 1954. Hon. CHARLES A. WOLVERTON, Chairman, Committee on Interstate and Foreign Commerce,

House of Representatives, Washington 25, D. C. DEAR MR. CHAIRMAN: This is in response to your request of March 15, 1954, for a report on H. R. 8356, a bill to improve the public health by encouraging more extensive use of the voluntary prepayment method in the provision of personal health service.

The bill would make available to the carriers of voluntary health insurance two forms of assistance, each separately financed: (1) Technical advisory, and informational services, without charge, to health service prepayment plans; and (2) reinsurance for health service prepayment plans for both commercial and nonprofit plans. Both programs would be administered by the Department of Health, Education, and Welfare. The bill would provide for a 12-member National Advisory Council on Health Service Prepayment Plans to advise, consult with and make policy recommendations to the Secretary. It also calls for optimum utilization of State insurance departments and other appropriate agencies.

Title II would authorize a program of studies and advisory and informational services on organizational, actuarial, and other problems of prepayment plans. The study results and other material would be made generally available through publication and other appropriate means. On request by carriers and sponsors of prepayment plans, technical advice and information, including information on morbidity and on organizational methods, could be furnished to them. The actuarial data collected would also provide a firmer base for the determination of premium rates for the various risks and kinds of prepayment plans.

Title III would establish a health service prepayment plan reinsurance fund, designed to be self-sustaining. The fund would be built up of reinsurance premiums and of earnings from investment of the fund. To provide a line of credit for working capital to the fund, the bill would authorize a $25 million appropriation to a capital-advance account to be established in the Treasury. From this

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account advances would be made to the fund when and as needed, and such advances would be repaid as the condition of the fund permitted but would remain available for future avances if needed. Interest would be payable to the Treasury on such advances until repayment.

Any responsible, financially sound carrier operating in accordance with State law could apply for reinsurance of its plan. Prepayment plans would be accepted for reinsurance, and premium charges would be fixed, on an individual basis in accordance with criteria established by regulation. The conditions and terms of reinsurance would be fixed with the objective of encouraging experimentation with new types of policies, and extended benefits and coverage where they are needed. Reinsurance for any type or kind of prepayment plan could be provided only if in the Secretary's judgment reinsurance from private sources was not available on comparable terms and at comparable premium rates, to an extent adequate to promote the purposes of the act. Applying the principle of coinsurance, the fund's liability would be limited to 75 percent of a carrier's losses on a reinsured plan, after making a reasonable allowance for administrative costs according to a statutory formula. Federal liabilities arising under the reinsurance contracts would be limited to and paid from the fund. Appropria. tions for administrative costs from the general funds of the Treasury would be authorized for a transitional 5-year period.

Criminal penalties would be imposed for falsely advertising or representing that a carrier is reinsured, and also, regardless of its truth or falsity, if the representation is not authorized by or fails to conform to regulations prescribed by the Secretary.

A more detailed analysis of the major features of the bill, introduced in connection with the companion bill in the Senate (S. 3114), appears in the Congressional Record for March 11, at page 2877.

This bill, if enacted, would carry out the recommendations of the President made in his state of the Union address on January 7, 1954, and repeated in his special message on health of January 18, 1954, for the establishment of a limited self-sustaining Federal reinsurance service to encourage private and nonprofit health insurance organizations to offer broader health protection to more families by reinsuring the special additional risks involved in such broader protection.

For the reasons set forth in the President's message of January 18, this Department endorses H. R. 8356 and recommends its enactment by the Congress. Inasmuch as representatives of this Department have been invited to testify on this proposal before your committee on March 24, we will defer detailed comment on it until that time.

We are advised by the Bureau of the Budget that enactment of this bill would be in accord with the program of the President. Sincerely yours,

OVETA CULP HOBBY, Secretary.

FEDERAL TRADE COMMISSION,

Washington, March 24, 1954. Hon. CHARLES A. WOLVERTON, Chairman, Committee on Interstate and Foreign Commerce,

House of Representatives, Washington 25, D. C. MY DEAR MR. CHAIRMAN: This is in response to the request contained in your letter of March 15, 1954, inviting the Commission's comments concerning H. R. 8356, 83d Congress, 2d session, a bill to improve the public health by encouraging more extensive use of the voluntary prepayment method in the provision of personal health services.

The jurisdiction of the Federal Trade Commission in insurance matters is limited by Public Law 15 (79th Cong., 1st sess., 38 Stat. 717; 15 U. S. C. A., sec. 45), to the enforcement of the Clayton Act and the Federal Trade Commissjon Act to the extent that such business is not regulated by State law. In this connection section 304 provides that the Secretary shall, prior to issuance of a reinsurance certificate, find that the applicant, among other things, “is operating and proposes to operate according to law” and the “manner of operation or proposed operation entitle it to public confidence.” Such findings may affect the ability of this agency to carry out its enforcement duties under the acts mentioned. (See, for example, James S. Kirk & Co. et al. v. Federal Trade Commission, 59 F. (2d) 179, cert. denied 287 U. S. 663.) The same may be true as to other agencies having law-enforcement duties in this field. This suggests the desirability of amending section 304, by proviso or otherwise, in a manner which would prevent the required findings from providing a defense in a law enforcement proceeding. With respect to the basic provisions of the proposed legislation, however, the Commission does not have information which would afford a basis for useful comment.

The Commission is now conducting an investigation of the advertising practices engaged in by accident and health insurers throughout the United States in the promotion and sale of disability coverage, which coverage embraces health service prepayment plans. This is for the purpose of determining whether or not the statements appearing in advertising material are, in fact, misrepresentative of the actual benefits payable thereunder and thus a violation of section 5 of the Federal Trade Commission Act, as amended. In connection with this investigation the Commission has received hundreds of complaints from the public concerning the inadequacy of the prepayment plans with respect to the payment of sickness expenses incurred by policyholders, which fact strongly indicates, from the viewpoint of public interest, the necessity of encouraging and stimulating "private initiative in making good and comprehensive health services generally accessible on reasonable terms, through health service prepayment plans to the maximum number of people.”

It is believed that the enactment of legislation that would accomplish this purpose would assist in dispelling the confusion now existing as to the various factors of coverage inadequacy, such as cancellability, nonrenewability, preexisting conditions, payments based on aggregate clauses, and termination based on the payment of any one benefit. By direction of the Commission. Sincerely yours,

EDWARD F. HOWREY, Chairman.

DEPARTMENT OF AGRICULTURE,

Washington, D. C., March 21, 1954. Hon. CHARLES A. WOLVERTON, Chairman, Committee on Interstate and Foreign Commerce,

House of Representatives. DEAR MR. WOLVERTON: This is in reply to your request of March 15, 1954, for a report on H. R. 8356, a bill to improve the public health by encouraging more extensive use of the voluntary prepayment method in the provision of personal health services.

We believe such legislation would contribute to the improvement of the health of rural families by encouraging participation in prepayment plans. The fact that the income of farmers is subject to more year-to-year variation than that of most wage and salary workers makes it especially desirable to encourage the participation of farm people in voluntary health insurance plans.

The bill does not provide any direct subsidy to the operation of private voluntary prepayment plan for health service. It does seek to broaden their use through provision of free technical advisory and informational services to health service prepayment plans and through Federal Government reinsurance for plans operated by commercial or nonprofit carriers. To the extent that these measures achieve their objective, the broadening of the coverage of prepayment plans would be especially beneficial to rural people in areas of low income.

The Department of Agriculture therefore favors the enactment of such legislation.

The Bureau of the Budget advises that the enactment of this proposed legislation would be in accord with the program of the President. Sincerely yours,

TRUE D. MORSE, Acting Secretary.

DEPARTMENT OF LABOR,
OFFICE OF THE SECRETARY,

Washington, March 24, 1954.
Hon. CHARLES A. WOLVERTON,
Chairman, Committee on Interstate and Foreign Commerce,

House of Representatives, Washington, D. O. DEAR CONGRESSMAN WOLVERTON: This is in reply to your letters of March 15 and 16, 1954, requesting a report on H. R. 8356, a bill to improve the public health by encouraging more extensive use of the voluntary prepayment method in the provision of personal health services.

The bill is designed to encourage and stimulate private initiative in making comprehensive health services generally accessible on reasonable terms, through adequate health service prepayment plans, to the maximum number of people in the United States. To attain this objective, the Secretary of Health, Education, and Welfare would be authorized, first, to conduct studies and collect information respecting the organizational, actuarial, and other problems of health service prepayment plans and to furnish technical advice and information without charge to sponsors of such plans; and second, to provide reinsurance for health service prepayment plans when reinsurance is not available from private sources and is needed, to secure broader distribution and coverage of benefits, in areas where the prepayment method is not yet fully effective and for classes of persons not yet adequately protected. A National Advisory Council on Health Service Prepayment Plans would be established in the Department of Health, Education and Welfare to advise with and make recommendations to the Secretary on matters of policy.

Annual appropriations would be made to enable the Secretary of Health, Education, and Welfare to conduct the studies and render the technical and advisory services contemplated by the educational program. An appropriation of $25 million would be made to supply initial working capital for the reinsurance program. The latter would, however, become self-sustaining in a 5-year period through reinsurance premiums and income from investments which the Secretary would be authorized to make.

The bill would permit the Secretary to reinsure 75 percent of the carrier's reinsured costs, the latter being the excess, if any, of the aggregate annual benefit liabilities incurred under the plan over the difference between the gross annual earned premium income and a portion thereof called the administrative. expense allowance. The Secretary would by regulation, prescribe other formulae to achieve comparable reinsurance protection for inherently different types of plans, such as those whereby personal health services are furnished, directly or indirectly, by the carrier and those which operate on the basis of payments by the carrier to an affiliate which furnishes such services.

I am heartily in favor of the objectives of the bill. The furnishing of technical advisory services to sponsors of health service prepayment plans should be of material assistance to such sponsors; and the establishing of a limited Federal reinsurance service along the lines prescribed in the bill is designed to effectuate the President's recent recommendation. I believe that the measure, if enacted, would be of real value in the broad program of improving the general health of. the American people.

The Bureau of the Budget advises that it has no objection to the submission of this report. Yours very truly,

JAMES P. MITCHELL,

Secretary of Labor.

EXECUTIVE OFFICE OF THE PRESIDENT,

BUREAU OF THE BUDGET,

Washington, D. C., March 24, 1954. Hon. CHARLES A. WOLVERTON, Chairman, Committee on Interstate and Foreign Commerce,

House of Representatives, Washington, D. C. MY DEAR MR. CHAIRMAN: This will acknowledge your letter of March 15, 1954, requesting the views of the Bureau of the Budget on H. R. 8356, a bill to improve the public health by encouraging more extensive use of the voluntary prepayment method in the provision of personal health services.

The President in his special health message to the Congress of January 18, 1954 said, "I recommend the establishment of a limited Federal reinsurance seryice to encourage private and nonprofit health insurance organizations to offer broader health protection to more families.” This measure, if enacted, should go far to accomplish the President's objective. The bill is designed to provide reinsurance to cover the special additional risks involved in such broader protection.

I am suthorized, therefore, to advise you that enactment of H. R. 8356 is in accord with the program of the President. Sincerely yours,

DONALD R. BELCHER,

Assistant Director.

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