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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. 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


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


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

I supthe 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. 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.

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Then there is the progressively smaller group of the impaired. We are learning more and more about providing insurance for the impaired. They constitute the segment which is presently beyond the reach of the insurance mechanism, and to attempt to apply the insurance mechanism to them would be a mistake, in our judgment.

Mr. HARRIS. I have just two more questions.

It has been brought to the attention of this committee during the course of the hearings, conducted over a period of time, that there is a very important question of the cancellation clause. I wonder if there has been any discussion with your group, your committee of the United States Chamber of Commerce, as to how that problem might be met?

Mr. FAULKNER. Yes, sir. The problem has been discussed in a general way in the chamber insurance committee. It has been discussed extensively in insurance trade associations and among the company people.

I think it is important to size the problem first of all. Probably not in excess of four-tenths of 1 percent of all insurance is ever the subject of what we call unfavorable underwriting action on renewal; either a refusal of the insurer to renew the coverage or the attachment of some restrictive endorsement.

With my own company it so happens that the figure is just half of that; two-tenths of 1 percent of all business exposed.

Then we must realize that the cancellation provision is not a problem in the group area.

The individual cannot be taken out of the group at the volition of the insurer. You have to recognize that more and more people are being covered under group coverage. Group is growing at a faster rate than individual coverage. Group today contributes the majority of the premium volume in disability insurance.

Then there is the increasingly rapid growth of the guaranteed renewable individual coverage.

So all of those areas or approaches are bearing fruit. We expect to see the cancellation problem, if you want to call it that, become less important as time goes on.

Mr. HARRIS. Well, I was under the impression that a good many witnesses—at least some witnesses-operating medical and hospital facilities brought to the attention of this committee this question-a serious one. In fact, though I might be wrong, I had the impression that it was much more extensive than you have explained to us today.

This final question: You consider that this program as designed would be practically ineffectual, do you not?

Mr. FAULKNER. Yes, sir. I believe it would result in disappointment.

Mr. HARRIS. You think as the basis of your opposition that it would lead to greater and greater control and regulation of the insurance business by the Federal Government?

Mr. FAULKNER. I believe that, since as originally set up the likelihood is that the results accruing from this legislation would be disappointing, and that there would be increasing pressures exerted on Congress to abandon some of the present major conditions and to get into an extensive subsidization.

Mr. HARRIS. And that it would be necessary to increase the capital risk at the expense of the taxpayers of the country or the Treasury

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of the United States; and consequently it becomes a full-scale subsidized program?

Mr. FAULKNER. Yes, sir.

Mr. HARRIS. It is more of the fear of what it will lead to, that you base your opposition on, than as to what this particular proposal would do?

Mr. FAULKNER. Yes, sir.
Mr. HARRIS. That is all, Mr. Chairman.
The CHAIRMAN. Any further questions, gentlemen?
The committee is adjourned until 2 o'clock.

(Thereupon, at 1:17 p. m., Friday, March 26, 1954, a recess was taken until 2 p. m., of the same day.)


The hearing was resumed at 2:30 p. m.
The CHAIRMAN. The committee will come to order.

Our witness this afternoon will be Mr. William S. McNary, chairman, council on Government relations, of the American Hospital Association.



Members of the committee, I am honored to have an opportunity to appear before you again on behalf of the American Hospital Association.

My name is William S. McNary, I am chairman of the council on Government relations of the American Hospital Association. I am also a former chairman of the Blue Cross Commission of the American Hospital Association, and I appear before you as official spokesman for both the Blue Cross Commission and the American Hospital Association Council on Government Relations. I am the executive vice president of the Michigan Hospital Service, one of the country's largest Blue Cross plans, which has enrolled almost one-half of the people of Michigan, a total of more than 3 million men, women, and children. I have been in that position since 1947. Prior to that time, I was for 10 years director of the Blue Cross plan for the State of Colorado, and prior to that time was for 10 years business manager of the University of Colorado school of medicine and hospitals. I give you this background as I believe that in addition to stating briefly for the committee the attitude of the American Hospital Association and its Blue Cross Commission on H. R. 8358, I may best be of assistance by answering questions which the committee may wish to raise.

I personally had opportunity, with a group of individuals experienced in the field of health-insurance prepayment, to consult with the Department of Health, Education, and Welfare as to the technical details of this legislation. I am authorized, in appearing before you, to endorse the purposes of the Health Service Prepayment Plan Reinsurance Act. The Council on Government Relations, in discussing the legislation, asked that I officially express its desire to cooperate in the development and administration of this program to insure its


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