country as a whole. I think there are examples of similar arrangements among private insurance companies, life-insurance companies. But up to date, nothing has developed on that. I think it is entirely possible that this device could be used to implement that, and that would fill a real need.

Mr. MACK. That is exactly the point I was making. Just where does this fit into your picture? In other words, even in this case it doesn't fit in as yet. That is one of the possibilities it might have. Is that true?

Mr. McNARY. I think that is what we have to say about this program in its entirety. There will not be any specific examples of how it is going to be used until it is available, and then it will take a year or so before it can go into operation. It isn't something that is going to revolutionize the health picture overnight, and it would be a great mistake if it were thought it would.

Mr. MACK. We are trying to justify this legislation. That is the reason I asked the question. I am very much interested in knowing at what point this legislation will enter into the overall health program. I realize that it is necessary for approved concerns to determine when they want the assistance. That was pointed out first. It is not going to be used for any present operation, any present group plans, that might find they are paying out more money than they are taking in; is that correct?

Mr. McNARY. It could not be used for that purpose, because the Secretary would not permit the reinsurance of a plan that was known to be unsound at the time reinsurance was asked for.

Mr. MACK. Therefore, the feeling is now that plans operating at a loss would not be benefited by this reinsurance program.

Mr. McNARY. I do not know of any plans that are failing now, but if there are, they wouldn't be.

Mr. MACK. Unless I am mistaken, they canceled out, a group plan that they had among the office workers here on the Hill, because they were paying out more money than they were taking in. Is anyone familiar with that?

I have a secretary that was participating in that, and I assumed that it was a plan that was on the Hill. I know that many girls up here on the Hill were being included in the plan.

There is nothing in this program that would include these people or, that would encourage the insurance companies or the group of companies to expand to include additional people?

Mr. McNARY. In my judgement it is possible that it might, but I cannot cite a specific example, because until the bill is passed, and the company has an opportunity to apply for reinsurance, there is no way of knowing exactly how it would be used.

Mr. MACK. I am wholeheartedly in favor of the principle. I might say I am participating in your program myself.

Mr. MONARY. That is good.

Mr. MACK. I have had sufficient encouragement to do so. But it does concern me considerably, and I have it brought up to me quite often, the fact that the people who need the insurance the most are not getting it. I was hoping that the new administration would have some program for expanding and including the people that are a

burden on society today. I also hope that that can be done without having a socialistic program in nature.

That is all, Mr. Chairman.

Mr. PELLY. Mr. Chairman?

The CHAIRMAN. Mr. Pelly.

Mr. PELLY. Mr. McNary, I, like yourself, am in somewhat of a dual position, being a member of the Blue Cross, one of the 44 million, and it just so happens that I am a director of a life, health, and accident insurance company, so much so that I may have to vote "present" when this thing comes to a head.

I am interested in certain parts of your testimony here. Did I understand that the 8 members that assisted the Department of Health, Education, and Welfare in technical details endorsed the purpose of this legislation?

Mr. MCNARY. I don't think that that would be a true statement, because the committee was not asked to endorse the statement.

Mr. PELLY. Following the statement, you said you had the opportunity to be with that group. You say, "I am authorized, in appearing before you, to endorse the purpose." But I didn't know who you were authorized by. By your statement, I thought it should be clarified.

Mr. MCNARY. Excuse me. That is the Council on Government Relations.

I have no authority to speak for the consultant committee to HEW. Mr. PELLY. Well, I thought it should be clarified.

Mr. McNARY. I am just an individual, sir, in that respect.

Mr. PELLY. The witness this morning seemed to have some community of interest with you. His Chamber of Commerce of the United States was for the objective. You are authorized to state that you are in favor of the objective. But then you seem to go apart, and you are in favor of it and the chamber of commerce is against it. Is that a correct statement?

Mr. MONARY. I think that is a fair statement. I had no opportunity to consult with the chamber.

Mr. PELLY. Well, you were here his morning. They opposed the bill although being for the objectives of it, and you support the legislation and at the same time are in favor of the objective. I am concerned because, from the manager of our Washington State Blue Cross I have received word that he is very doubtful as to whether he could use this program. Have you had any opportunity in the limited time that this has been available to hear from the local hospital associations in the various States and from the Blue Cross organizations in the various States?

Mr. McNARY. No, I have not, and I don't think that local hospital associations or Blue Cross plans, by and large, have yet had an opportunity to decide whether it would be possible to use it or not. I don't think there will be any general determination on that for some time. Mr. PELLY. I thought you said there was going to be a meeting of the one group next week.

Mr. McNARY. I mean as to their individual plans, as to exactly whether they will use it. As far as the Blue Cross Commission is concerned, I rather look for an official endorsement of the stand we have taken on their behalf, or a denial of it, very shortly. I think it will be endorsement. I hope so, naturally.

But the Commission is an authoritative body that will speak for itself.

Mr. PELLY. I think that clarifies the position in my mind. I appreciate your testimony, Mr. McNary.

Mr. YOUNGER. I want to thank you very much, Mr. McNary, for your statement. I think it is fair, and where you have some objections you have pointed out where the correction lies. I wanted to just clear up this one point, which seems to be somewhat in confusion by the questions that were asked.

The CHAIRMAN. Mr. Younger, will you yield for just a moment? Mr. YOUNGER. Surely.

The CHAIRMAN. I find it is necessary for me to leave. I have to take a train. I have already made arrangements and cannot change things very well now.

I would like to ask if the witness would be willing, if I submit some questions to him, to answer them for the record.

Mr. McNARY. I will be happy to, Mr. Chairman.

The CHAIRMAN. Thank you. I will ask Mr. Hale to take the Chair. Mr. HALE (presiding). Mr. Younger, you may proceed.

Mr. YOUNGER. In the operation of this plan as proposed by the Department, the application specifies the plan which is to be reinsured; is that true?

Mr. McNARY. The application is specified or is hung on a plan?
Mr. YOUNGER. That is right.

Mr. McNARY. That is right. And a plan is a set of words that a carrier proposes.

Mr. YOUNGER. And that would really have to be a new plan, because nobody is looking for reinsurance of existing plans that they are carrying. Is that not generally true?

Mr. McNARY. I would agree with your premise; yes. It is not likely that an existing plan would be reinsured.

Mr. YOUNGER. So that the purpose of it is to stimulate the carriers to go into the new fields, and to assist them to go into the new fields, without the impairment of their own capital structure?

Mr. McNARY. I think that is a fair statement.

Mr. YOUNGER. That is all, Mr. Chairman.

Mr. HALE. Any further questions?

Mr. PELLY. Could I ask one more question, Mr. Chairman?
Mr. HALE. Mr. Pelly.

Mr. PELLY. As I think you know, Mr. McNary, the Blue Cross in New Jersey, when it was started, was fearful that its experience was not such that it could set a rate which might not cause it to lose money. It just could not afford to take the risk. So it took out a policy with Lloyd's which was carried for the first year, in case it lost money. Have you thought at all as to whether or not that type of reinsurance might not be cheaper in the long run than such a plan as this?

Mr. McNARY. I think that type of reinsurance would be possible under this arrangement. If it could be done cheaper under this law than it could with Lloyd's for example, then it might be done that way. But it was that kind of thing that I was suggesting when I was talking to the gentlemen on the other side in connection with the possi

bility of Blue Cross plans establishing a guaranty fund. I am not personally familiar with the details of the New Jersey reinsurance. Mr. PELLY. You made one statement that I do not know that I quite understood. You said that you did not believe that some health plans might care to reinsure with private concerns that were competitive. I took that to mean that the Blue Cross plan might be competitive with a private insurance company, and therefore, you would have a feeling that if you did take out insurance with the private insurance company that it might come out with something better that would undersell you or what was that?

Mr. McNARY. Not necessarily better, but it is a matter of whether or not a plan wants to do an insurance business with somebody that is in active competition with them. I do not say they wouldn't, because we do. For example, we have a group life insurance plan with one of the big companies that we are in competition with for groups who are in the hospital-surgical business, I mean for our own employees. But I simply say that I think probably Blue Cross might prefer to use this device than to use the reinsurance devices which Mr. Faulkner described this morning and with which I personally am not familiar. I have never known that they were available although I am quite sure if he says they are, they are.

Mr. PELLY. Had you ever thought of insuring on a deductible basis anything in the catastrophic classification?

Mr. MCNARY. Yes.

Mr. PELLY. That would be with a private carrier?

Mr. McNARY. No, not if we did it we wouldn't do it with a private carrier.

Mr. PELLY. In other words, you would not reinsure those higher risks? You would just extend the risk over your whole group?

Mr. McNARY. It is entirely feasible for a given Blue Cross plan to develop a medical expense program which includes the deductible idea. There is no great merit or originality in the deductible idea. It is just a method for holding costs down and for controlling, to some extent, controlling use to some extent, in that it discourages unnecessary use.

Mr. PELLY. I think I expressed myself in an unfortunate way. What I really meant was that you take as your risk what would be the deductible amount. You pay up to a thousand dollars, as you say, every 30 minutes or so, in Michigan.

Mr. McNARY. We pay over a thousand dollars.

Mr. PELLY. Over a thousand?

Mr. MCNARY. Yes.

Mr. PELLY. But I wondered whether, in Michigan, for example, any thought had been given to insuring for everything over a thousand, up to $20,000 or $10,000 with a private carrier at a very low rate, I should imagine.

Mr. McNARY. No. I think I can say that we have not given any consideration to doing what you suggest, but if we contemplated the extension of very high limits of coverage to our subscribers, then we might be interested in reinsurance on that amount in such manner as is outlined in this bill.

Mr. PELLY. Well, I gather that you are a little opposed to the idea of trying to work with a private carrier, and would rather go ahead with the Federal plan in relating it to an abnormal risk?

Mr. McNARY. It is very difficult for me to speak on behalf of 79 Blue Cross plans that do not understand this thing yet. Most of them have not even read it yet. About all we can say, those of us who have seen it, is that we think it has definite possibilities to do the things that are stated in the objective of the bill. We cannot be sure that it will do them.

Mr. PELLY. That is all.

Mr. YOUNGER. I have one other question, to clear the record, on a question that he asked.

Mr. HALE. Mr. Younger.

Mr. YOUNGER. So that the record may be clear, so far as you know, there is no reinsurance carrier today who is not itself an insurer. Is that not true? I mean the ones who were mentioned this morning, they are also insurers of the same similar character, or competitors with you?

Mr. McNARY. That is right. They may not be competitors at all, but they are insurance companies.

Mr. YOUNGER. They are insurers, just the same as you are. They are not solely reinsurers, exclusively?

Mr. McNARY. We are not, in the case of my own company, even an insurance company. We are a nonprofit agency.

Mr. YOUNGER. I know, but you take a risk.

Mr. McNARY. We do an insurance business, if you want to put it that way.

Mr. PELLY. Will the gentleman yield?

Mr. YOUNGER. Yes.

Mr. PELLY. I know that one of the companies mentioned by the witness this morning was named as being a reinsurance company, which implied to me that its business was limited to reinsurance. I may be wrong, but certainly Lloyd's would not be in competition in the direct insurance field anyway.

Mr. YOUNGER. I think you can get individual coverage through Lloyd's if you want it, and an individual can get coverage.

Mr. PELLY. It would not be in competition with the Blue Cross. Mr. McNARY. Lloyd's I don't understand at all, but I know they are a different kettle of fish, if you will, from most insurance companies.

Mr. YOUNGER. It is also a foreign company; is it not?

Mr. McNARY. I guess they have a lot of money.

Mr. HALE. Mr. Heselton is recognized and has the floor.

Mr. HESELTON. In your rate in Michigan for the family, it is $5.85 a month or $70.20 a year. That works out to 19.10 cents a day. As I understand it, you work on the group principle, do you not, in the Blue Cross?

Mr. McNARY. Yes. The great bulk of our business is enrolled in groups.

Mr. HESELTON. Of those who are not associated with a group to make them eligible, and I suppose that has a sound reason in terms of the lack of experience as to the results and what the risks are, isn't it fair to assume that a very large portion of those people would voluntarily join some organization like the Blue Cross or obtain comparable individual coverage, if that is available, if they were given the opportunity to do so? That is, it isn't just a question of sheer lack