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 disappoint

ment.

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

of the United States; and consequently it becomes a full-scale subsi

dized 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.)

AFTER RECESS

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.

STATEMENT OF WILLIAM S. McNARY, CHAIRMAN, COUNCIL ON GOVERNMENT RELATIONS, AMERICAN HOSPITAL ASSOCIATION

Mr. McNARY. Thank you, Chairman Wolverton.

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

success.

This legislation has been introduced so recently that there has been no opportunity for full study by any of the official bodies of the association. Endorsement of the purposes is made with the concurrence of the policy committee of the board of trustees of the association, authorized to act for it on this issue, and by the executive committee of the Blue Cross Commission since there has not been an opportunity for the full Blue Cross Commission to meet since the bill was introduced.

As an observation, I would like to say that it is probable that there will not be unanimity within Blue Cross, or with the American Hospital Association, in this endorsement.

Both are democratic bodies and differences of opinion are not

uncommon.

Our association has previously testified before your committee. In general, you know that we believe that the best way for financing personal health services for the employed population and their dependents is voluntary prepayment insurance. Some 90 million Americans presently have some type of hospital prepayment coverage. Blue Cross alone in the United States has presently enrolled about 43 million persons. Coverage of the balance of the employed population and their dependents is urgently needed.

This is particularly true for the low-income groups and for those with special needs for hospital care. Much experimentation has been carried on by Blue Cross plans endeavoring to cover groups difficult of enrollment, such as the self-employed, farmworkers, the aged, certain dependents in household, et cetera. We do not believe that the total goal to be attained under voluntary prepayment will come easily. We do believe that it can be accomplished and that this proposed legislation may help to bring it nearer.

We have regularly testified before this and other committees of the Congress that additional funds will have to be provided to supplement the resources of that segment of the population whose individual incomes are inadequate to finance the purchase of prepaid protection. The Health Service Prepayment Plan Reinsurance Act does not propose any subsidy and it cannot be expected to answer this question. We believe that further study must be given to the development of methods for providing coverage for those groups which cannot pay in full for the cost of their own protection.

This Health Service Prepayment Plan Reinsurance Act has as one of its primary functions the reinsurance of prepayment offerings to groups with difficult enrollment and benefit problems, so that prepayment carriers may be encouraged to experiment further in extending coverage and benefits. We believe that as the act is structured, such experimentation will be encouraged, and that the act will help in the extension which we have stated is important if the people of this country are to have adequate protection. A second broad purpose of the act is to provide for the accumulation of information in regard to voluntary health prepayment countrywide. Provision is made for the collection of information, for the conduct of studies, and for the publication of this knowledge which presently is not supplied by any one agency and which would be difficult of attainment except through a Government program.

We have three points on which we would like to suggest amendments or the tightening of the language of the act.

1. In section 107A, we would suggest that the regulations promulgated by the Secretary be subject to approval of the council. This is the pattern used in the Hospital Survey and Construction Act which has been such a successful program. It is particularly important in this proposed legislation, H. R. 8356, because it is a new area for Federal operations and of necessity the terms of the act cannot be wholly explicit in delineating the powers of the Secretary and the area in which he is to operate. This being true, we feel that the necessary latitude allowed in administration which will be clarified through regulation, should be subject to the approval we suggest. First, in order that the Secretary be required to consult with people experienced in this field as is provided for within the membership of the council; and second, in order that the Secretary may utilize the council as protection against undue pressures for what might be unwise regulatory acts. We believe that this will not only insure wiser operation of the act, but will be a protection to the Secretary. 2. Section 201 provides for the collection of information and its publication. Elsewhere in the act there is provision for this collection of information from an individual prepayment carrier on which to judge whether a program suggested by that carrier is eligible for reinsurance. We believe that these two activities inevitably interweave, but there should be written into the act provision that confidential information secured from a carrier in order to judge whether a specific plan will be approved and so needed in the administration of the plan, shall be considered privileged information and will not be released without the approval of the individual carrier furnishing the information.

3. Section 404 delineates the use of publicity about the reinsurance of a plan. We are entirely in sympathy with the objective of the section in protecting the public against deceptive or misleading use of the designation. We know that such statements to the public must be carefully controlled. However, we also believe that proper use of the knowledge by the public that a contract has been reinsured could be in the public interest. We think that the wording of this section should not imply, as it seems to us it does, that any publicity at all is unwise. In our opinion, proper publicity might well be wise. This testimony, of necessity, has been brief in view of the short time available for its preparation, and the limited opportunity that our association has had for study of every detail. We do, in general, endorse the legislation and stand ready to assist in its development in anyway possible. We are gratified that the Federal Government, through this legislation, endorses the principle of working with voluntary agencies to meet health needs.

Thank you.

The CHAIRMAN. Mr. McNary, we appreciate the spirit with which you have approached the consideration of this legislation, as indicated in your statement.

What is particularly gratifying is the fact that where you have suggestion of criticism you have coupled with it suggestions that are of a constructive character, which undoubtedly will receive the attention of the committee.

It seems to me that, though you say you have not had the time you would have liked to have for full study before expressing yourself,

it does seem to me that there is merit in the suggestions that you have made.

With reference to your future willingness to be of help to this committee in formulating this legislation, we also appreciate that, and in that connection I would like you to feel that as the future discussion of this legislation takes place, in which there will undoubtedly be many differing viewpoints, you are free at any time that you wish to make known to the committee any further thought you may have with respect to the legislation. In other words, the fact that you have made a statement today-we don't want you to feel that it is so conclusive that any further thoughts you have to express would be out of order. They will be very much in order. Furthermore, we will look to the willingness that you have already expressed to get in touch with us, if and when the occasion arises, to the end that we may have the full benefit of your experience in the drawing of the legislation.

Any questions, gentlemen?

Mr. DOLLIVER. I note, Mr. McNary, on page 2, in the second full paragraph, you state that there has not been an opportunity for the full Blue Cross Commission to meet since the bill was introduced. I wish you would explain a little more in detail what you mean by "the full Blue Bross Commission."

Mr. McNARY. The Blue Cross Commission, Mr. Dolliver, is an organization of 15 men, 3 of whom are appointed by the president of the American Hospital Association, and the other 12 of whom are elected, 1 by each of 12 districts-11 districts in the United States and 1 district in Canada.

There are, therefore, 15 men, 12 of whom are elected by the plans to represent them in determining the national programs and endeavors of the Blue Cross movement. That body ordinarily meets about four times a year. It is scheduled for a meeting next week, and this matter will come before them at that meeting, but it wasn't feasible, with the other meeting so soon, to try to get them in. The executive committee of the commission, which consists of the three officers, has authority to act for the commission and exercises it in this instance.

Mr. DOLLIVER. Mr. Chairman, in view of what Mr. McNary has said, I assume that we will have the benefit of any deliberations that are taken at the time of your annual meeting of the Blue Cross Com

mission.

Mr. MCNARY. You will.

The CHAIRMAN. Certainly the committee has the desire to have that, and we would appreciate it if whatever action is taken would be brought to the attention of the committee; and if it requires another appearance for the giving of testimony, that will also be provided for. (The information referred to was later submitted and is as follows:)

Hon. CHARLES A. WOLVERTON,

AMERICAN HOSPITAL ASSOCIATION,
Washington 6, D. C., April 14, 1954.

Chairman, House Interstate and Foreign Commerce Committee,

House Office Building, Washington 25, D. C.

DEAR CONGRESSMAN WOLVERTON: In our recent testimony before your committee, on the subject of the Health Service Prepayment Plan Reinsurance Act, it was pointed out that the Blue Cross commission had not yet met and taken action on this proposal. Therefore, our testimony included only the endorsement of the executive committee of the Blue Cross commission.