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coverage to an ever-increasing number of persons. Insurance on risks with some physical or medical impairment has long been offered subject to the exclusion of a particular disease or risk to which the individual may be unusually susceptible.

In more recent years, increasing experimentation has been carried on by several companies in insuring the impaired risks without these special restrictions, but subject to appropriate extra premiums-following the practice now well established in the life-insurance business.

As the pattern of medical care has changed in the past decade, voluntary insurers have developed benefits to meet changing needs. The recent experimentation with and development of major medical expense insurance holds great significance. In its short history more than a million persons already enjoy protection under this new type of coverage, and the present rate of growth is remarkable.

How will the reinsurance proposal affect this type of experimentation and development? The principles of reinsurance, as it has been known and employed, are the same as the principles of insurance. The difference is that reinsurance provides a broader base by pooling the resources of two or more companies. Reinsurance as a financial device is most commonly employed when the amount of potential loss on any one risk is very large.

Reinsurance, therefore, does not provide a means of making insurable what would otherwise be an uninsurable risk. It does not add to the aggregate resources of the insurers. It does not help to sell insurance nor does it reduce the cost of insurance. If our citizens are not to labor under a misunderstanding, it is essential for them to realize that reinsurance is not a panacea, and that it does not provide additional funds to finance the cost of medical care.

As has been made clear in the presentation of the program, voluntary insurance cannot relieve the community of the burden of providing medical care to the indigent nor is it helpful to those who presently cannot qualify for it, and reinsurance does not enhance the power of insurance in these areas.

The reinsurance facilities have been proposed with the purpose of extending the frontiers of insurance effectiveness. The rapid development of accident and sickness insurance has, however, been accomplished with little use of the already extensive reinsurance facilities available to the insurers, and we see no evidence that progress would have been augmented had reinsurance been used to a greater extent. The underwriting, or risk bearing, capacity of the companies in this business is very large.

It should be explained that the technique of developing new benefits or new methods of distribution requires not only working capital which, in this business, is adequate, but also time for testing. The advances which I have noted have been made by offering a benefit experimentally and then observing the results and making necessary corrections in rates or underwriting methods.

Obviously, the operation of a new plan must be observed for a reasonable period of time before conclusions can be drawn and another step taken. For these reasons, the companies which have contributed most to this evolutionary process in the development of accident and sickness insurance have generally made little or no use of those reinsurance facilities which have been and are available.

These consideraitons raise the question as to the extent to which this new type of reinsurance would be employed by the insurance com

panies. From discussions with a number of company officers, it appears that some have not been able to envisage their use of a reinsurance facility of this type, while others find it difficult to appraise the bill without a more definite idea as to the precise conditions to be prescribed by regulation, the level of reinsurance premiums and the many other details that are not spelled out in the bill.

As mentioned, we are very much in favor of the overall objectives of the proposed health program. We do feel constrained, however, to present to you this summary of our analysis of the reinsurance bill, which is a part of the total program, and to raise these questions which we feel should be carefully considered by this committee. Among the principles expressed or implied in the bill are:

1. Participation in its operation is to be on a voluntary basis; 2. Reinsurance is to be offered only when not obtainable from private sources;

3. The recognition and use of State insurance supervision in the administration of the reinsurance.

While these principles appear to be implicit in the bill, it is not entirely clear that the provisions are so drawn as to assure their use. With respect to the third principle mentioned, we wish to point out that the insurance companies have in the past supported supervision by the several States and we wish to reaffirm the belief that the business should be supervised in this manner.

The reinsurance proposal presents a new concept of far-reaching importance. In the 19 days since its introduction, insurance people have been able only to consider its general objectives, and to speculate on its possible use and effectiveness.

A number of them have expressed concern on matters such as the subsidy inherent in paying expenses over the early years, the granting of extremely broad discretionary power to the Administrator, the seemingly complex problems of administration and what is regarded as putting the Government into business despite the principle freqently expressed by administration spokesmen of taking the Government out of business.

There has not been an opportunity for the public to become informed concerning this measure which, of course, is intended for its benefit and welfare, nor for the public to give any expression of its opinion. We, therefore, urge that these considerations warrant the most careful study of the measure with adequate time for evaluation of its many implications and of alternative means of accomplishing the worthy objectives.

Gentlemen, I appreciate your attention and this opportunity. I will be very glad to answer any questions, and in that connection I would like to mention that present in the room are Mr. Joseph P. Murphy, the counsel of the Association of Casualty Insurance Companies; Mr. Joseph F. Follmann, Jr., general manager of the Bureau of Accident and Health Underwriters; and Mr. John P. Hanna, the managing director of the Health and Accident Underwriters Conference. If there are any questions respecting the organization or membership of these groups, these gentlemen will be able to help me answer them. Thank you.

Mr. HALE. Thank you very much, Mr. Miller. Are there any questions, gentlemen?

Mr. DOLLIVER. Mr. Chairman.

Mr. HALE. Mr. Dolliver.

Mr. DOLLIVER. I understand, Mr. Miller, that you represent in effect all three of these organizations, the Bureau of Accident and Health Underwriters, the Health and Accident Underwriters Conference, and the Association of Casualty and Surety Companies?

Mr. MILLER. Yes, sir.

Mr. DOLLIVER. You are their spokesman?

Mr. MILLER. That is correct; yes.

Mr. DOLLIVER. Do you have any official connection with these three organizations?

Mr. MILLER. The company by which I am employed, the Monarch Life, is a member of the Health and Accident Underwriters Conference, and I am a member of one of its committees.

Mr. DOLLIVER. I seem to have detected the reluctance on your part and on the part of those who you represent to accept this program in its entirety. You sort of gingerly approve it. Is that about a correct statement of your attitude toward it?

Mr. MILLER. We like the program overall and are very much in accord with the purposes and objectives.

This reinsurance proposal is a very new thing. Reinsurance itself is not new, but this particular application is something new, without any exact parallel. We saw the bill-the bill was released, I believe, 19 days ago as mentioned, and there has not been time to give it the thorough study and have the discussions within the industry that would be necessary to make a complete and proper appraisal.

So that we are here, coming here, with some questions that have come to us and some observations, but are in no position either to directly favor or disfavor the proposal.

Mr. HALE. Mr. Miller, we will suspend for just a moment.

The Chair wishes to call attention to the fact that there has been brought into the committee room a group of students from Smith College, located in the district represented by our colleague, Mr. Heselton.

Mr. HESELTON. I am sorry, but it is not.

Mr. HALE. I am sorry to hear that.

And, the Chairman is informed that these students are foreign students, observing the operation of the Congress.

The Chair is very happy to welcome these young ladies here and hopes that from their visit they will derive both pleasure and profit. You may proceed, Mr. Dolliver.

Mr. DOLLIVER. Mr. Miller, these companies which are associated with these three organizations, are all of them profit-seeking companies; that is, they are not mutual or cooperative organizations, are they?

Mr. MILLER. I believe, among the three associations we will find every type of insurance company in the country. There are mutual fire, casualty, and life companies. There are stock companies, life companies. There are fraternal associations, interinsurance organizations, and reciprocals. So there is some representation of just about every type of company. The accident and sickness business is unique in that it is the only business which is issued by all types of companies.

Mr. DOLLIVER. Do you represent such organizations as the Blue Cross and the Blue Shield?

Mr. MILLER. No. Just companies that are licensed as insurance companies, or fraternal or assessment societies.

Mr. DOLLIVER. Of course, the benefits which you pay or all these companies pay is indemnity or money benefits, rather than surgical benefits, is it not?

Mr. MILLER. That is correct.

Mr. DOLLIVER. And in that respect you are different from a Blue Cross or Blue Shield organization?

Mr. MILLER. Not with respect to all of those organizations. A large proportion of the Blue Shield organizations provide indemnity benefits. I think most of them provide indemnity benefits above a specified income limitation and in the Blue Cross the indemnity benefits are also found in certain situations, although to a lesser degree than in the Blue Shield.

Mr. DOLLIVER. You refer to the fact that there are reinsurance facilities available for the various companies that you represent. Do those reinsurance companies also belong to these organizations?

Mr. MILLER. Yes, sir. There is a considerable number belonging to the conference, and I think that is true of the other two organizations.

Mr. DOLLIVER. Well now, you also said, as I recall it, that these companies have availed themselves very little of the facilities of reinsur

ance.

Are we to adduce that they see no need for this type of reinsurance legislation?

Mr. MILLER. The health and accident insurance, by its nature, is different from other lines of insurance in that it does not involve the large single risks to the same extent.

For example, there are many companies which will write life insurance into the millions of dollars and even the very large ones feel that that is too much of a concentration of risk and must be spread out, so they reinsure parts of those very large risks. The same thing occurs with liability and fire insurance, and such lines, but in health and accident insurance the problem has not been the large size of the risk, but rather the control of the risk. The difficulty of measuring what is adequate and necessary medical care is very different from figuring the replacement value of a wrecked automobile or a burned down building. So that the problem has not been so much spreading the risk as it has been defining the risk.

Mr. DOLLIVER. Since this legislation is designed to enable companies such as those whom you represent to carry the risk of catastrophic illness in a family or an association unit, what other answer is there to that kind of a risk than some form of reinsurance?

Mr. MILLER. The companies are developing the so-called catastrophic or major medical expense policy at a very rapid rate and a number of them are now offering it with limits of $7,500 or even $10,000 and are doing that without reinsurance. There is a lot of growth and development in that direction. It is a fairly new concept and like all new things it is taking a little time to develop, but right now, it seems to be gaining a great deal of acceleration and we hear of more and more

companies entering the field almost daily, and providing the coverage and sale of more and more of this type of business.

Mr. DOLLIVER. It is fair to say, to sum up your statement, that your industry would need some more time to study this before taking an affirmative position either for or against it?

Mr. MILLER. Yes, sir; that is correct.

Mr. DOLLIVER. Thank you. Mr. Chairman, I think that is all.
Mr. PRIEST. Mr. Chairman.

Mr. HALE. Mr. Priest.

Mr. PRIEST. Let me ask you this question.

Mr. HALE. Just a minute, before you proceed.

The Chair desires at this time to recognize another group of students who have come into the committee room to observe the operations of the committee. This group is from the Hyattsville Junior High School and is in charge of Miss Love.

The committee is glad to welcome these young people.

The committee is now engaged in the consideration of legislation for the purpose of promoting health, particularly reinsurance, health reinsurance, covering people who are already insured by existing corporations or corporations which may come into the field.

We are very happy to have these groups of people with us.

Mr. Priest.

Mr. HARRIS. Mr. Chairman, will the gentleman yield?

Mr. PRIEST. I will yield to the gentleman.

Mr. HARRIS. I think that our distinguished guests will be interested in knowing also that this committee is being presided over this morning by our distinguished colleague from the great State of Maine (Mr. Hale) who is himself a great scholar and, in fact, a Rhodes scholar, and, therefore, we have the privilege of seeing one of the highly educated and outstanding Members of the Congress presiding over this committee.

Mr. HALE. Mr. Priest.

Mr. PRIEST. Mr. Miller, in your concluding remarks, you stated in substance that after 19 days following the introduction of the bill, insurance companies had, of course, had opportunity to study only the broad objectives of the bill. You followed that statement by saying that there had been some speculation as to its possible use and effectiveness.

I believe that is the language you used.

Mr. MILLER. Yes.

Mr. PRIEST. I wonder if after that speculation there has at any time been any general conclusions as to the possible use and effectiveness of this legislation.

Mr. MILLER. No, I think it would be premature to say so. I know there are individuals who have reached negative conclusions, and others who have fairly positive conclusions, but I do not think that we can say that there is any consensus in the matter.

Mr. PRIEST. One further question. I believe this is on page 2, of your statement, Mr. Miller, where you have touched on a point that is of great concern to me and I think to the entire committee and that is with reference to the recognition that some other means than insurance must be used if any given community is to help bear the cost of those who are not insurable.

Mr. MILLER. Yes, sir.

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