There are no references including or excluding false teeth and hearing aids. It would appear that the reinsurance benefits may exceed the benefits provided in the contract issued to the individual. If this be the case, then the direct writers would never know the amount of premiums necessary to provide the benefits under his contract.

Section 304 (p. 17, line 10) provides that the renewal of the reinsurance contracts will be optional with the Secretary. A carrier may underwrite a hazardous risk because of reinsurance under this bill and find later that it may have to increase premiums or reduce benefits because of the nonrenewal of the reinsurance.

Section 305 (d) (p. 21, line 23, to p. 22, line 7) prescribes a preferred status to obligations arising under the plan to the exclusion of other creditors.

Under the general provisions of the bill, it may be possible that encouragement will be offered to companies to go beyond the actuarial and other statistical limitations in the writing of hazardous classes of business thereby resulting in chaos, confusion, and ultimate insolvency of certain carriers unless further provisions are made for unlimited Federal aid to those who would follow this trend.

Finally, we agree wholeheartedly with the avowed and declared objective of improving public health in the Nation, but fail to see any likelihood that the purposes can be achieved by the provisions of the bill. The failure of this bill to accomplish its purposes is likely to foster a clamor for further subsidization and socialization of health services.

Apart from our forebodings concerning the effectiveness of this bill in achieving its purposes, we believe that the bill contains many objectionable provisions. The major portion of the Nation's uninsure l health bill results from lack of insurance on aged, uninsurable, and indigent persons; the unwillingness on the part of many to buy health insurance; and the impracticability of applying the prepayment principle to certain health expenses. It is these very areas of greatest need that will be served least by this legislation.

We, therefore, Mr. Chairman, urge this committee to give this bill an unfavorable report.

The CHAIRMAN. Any questions, gentlemen?

Mr. DOLLIVER. Mr. Chairman.

The CHAIRMAN. Mr. Dolliver.

Mr. DOLLIVER. As I understand you represent the Insurance Commissioners Association?

Mr. MURPHY. Yes, sir.

The CHAIRMAN. Does that include commissioners in all 48 States! Mr. MURPHY. I am here representing, Mr. Congressman, the executive committee of the National Association of Insurance Commissioners.

Mr. DOLLIVER. That is the interim body in your organization?

Mr. MURPHY. Yes, sir. Under our constitution that is the only body in our organization that has authority to act on any specific question during the interim.

Mr. DOLLIVER. Yes. Now, may I inquire who was on this interim committee, or the executive committee?

Mr. MURPHY. There are 14 commissioners on that committee.
Mr. DOLLIVER. You did have a meeting on this subject?

Mr. MURPHY. Yes, sir; we had a meeting in Chicago which lasted 2 days, of that committee.

Mr. DOLLIVER. For the specific purpose of considering this legislation?

Mr. MURPHY. Yes, sir; that is the purpose of the called meeting. Mr. DOLLIVER. How many were present at that meeting?

Mr. MURPHY. There were 22 commissioners present.

Mr. DOLLIVER. Twenty-two?

Mr. MURPHY. I think there was only one member of the executive committee who was not present.

Mr. DOLLIVER. And there were extra members there?

Mr. MURPHY. Yes, sir; nine extra commissioners there for this meeting.

Mr. DOLLIVER. While this is not specifically expressed in the statement, I wonder if it is not implicit that heretofore the control and direction of the insurance business, both health, life, and accident, and other forms, has been in the States rather than the Federal Government, and the State commissioners want to keep it that way?

Mr. MURPHY. Well, I would not say that is the only purpose, Mr. Congressman. Each of the insurance commissioners is definitely interested in continuing the regulation of the insurance at the State level. Mr. DOLLIVER. That is the pattern we have now; is it not? Mr. MURPHY. Yes, sir.

Mr. DOLLIVER. And the commissioners, undoubtedly-while perhaps they did not express it in your statement, in the resolution, in so many words, that was in the background of the thinking, without any question?

Mr. MURPHY. Yes, sir; without a doubt it was.

Mr. DOLLIVER. I suppose the commissioners are aware of the fact that the United States Supreme Court has said, in a relatively recent decision, that the insurance business is interstate commerce and could be controlled by the Federal Government if it should choose to do so? Mr. MURPHY. Oh, yes.

Mr. DOLLIVER. But that the Congress has renounced that undertaking.

Mr. MURPHY. Yes.

Mr. DOLLIVER. Now, there are a number of things about this insurance system which I wonder if the commissioners have considered, which this bill at least in its objectives is designed to correct. In the first place is the canceling of policies, if there is some situation which becomes quite acute-and quite disgraceful-where a company will get into a situation and when it finds it is in a difficult situation it will cancel out.

Now, what have the State commissioners done or what are the State commissioners doing about that situation?

Mr. MURPHY. Every day, it is a routine matter for the insurance department to answer complaints such as you describe there.

I think I can safely say that each department gives full consideration to all of the facts in considering those cases, and if it is not a case which warrants it, or there is not something that has happened prior to the issuance of the policy, then the commissioner takes steps to correct that immediately and to see that the person is paid, and taken care of, by the insurance company.

Mr. DOLLIVER. What weapons do the commissioners or insurance department have to enforce their rulings in that respect? Do you have to go to court to do it, or how do you do it?

Mr. MURPHY. No, sir. We have plenty of statutes; plenty of law. We have plenty of law to correct those abuses, and that is a routine matter, in most insurance departments, Mr. Congressman.

Mr. DOLLIVER. Is it the experience of the various insurance departments that that kind of abuse is usual, or rather unusual?

Mr. MURPHY. No, sir; I do not think that that would be the fact. I think that those abuses when you compare the overall picture of health insurance and consider the number of claims that are paid by insurance companies, are only a minor part of the overall picture.

I may say this, that in my department each year I require the companies operating there to give me, the manager of those companies, to give me statistics on the number of claims handled the year before; the number of policies; the number of complaints; the number of lawsuits, and those things. We analyze that. And, of course, with the number of claims being handled, it is impossible to eliminate all of these abuses.

Mr. DOLLIVER. Do you consider it a major problem, as far as health insurance is concerned in your State?

Mr. MURPHY. No, sir; I do not; I would not think so.

Mr. DOLLIVER. Now, of course, another complaint which is related to that is the complaint that some of these policies are altogether too limited in their coverage; that is, they make wild claims in their advertising and then the fine print of the policy is contradictory or at least limited in its scope, as to benefits received.

What steps have the commissioner taken in that respect, if any? Mr. MURPHY. Well, the first step, on the part of the department, is the approval of the policy contract.

Mr. DOLLIVER. Is that true in every case?

Mr. MURPHY. I would suppose it is true in a majority of the cases. Some of them have to be filed. And, that filing has to be recorded. It is a form of approval, I would say. But, in most States I think that these policies must be approved.

Mr. DOLLIVER. By whom?

Mr. MURPHY. By the insurance department, before they can be issued.

Mr. DOLLIVER. Well, what safeguards are set up for example, in your own department with respect to that type of policy?

Mr. MURPHY. Well, we have some statutory provisions. We have special policies. In our State we have what is known as the Accident and Health Act, which sets out certain provisions in the policy. It even goes so far as to provide the size type to be used in the policy

contracts.

And then our staff members analyze those policies before they are approved, and if we feel that they are not in the public interest, they are disapproved.

Mr. DOLLIVER. So that any insurance company writing a policy in your State would have to pass the muster of your department? Mr. MURPHY. Yes, sir; in any licensed company.

Mr. DOLLIVER. Suppose this company sells policies by mail?
Mr. MURPHY. We have no jurisdiction over that.

Mr. DOLLIVER. You cannot do anything about it?

Mr. MURPHY. No, sir. The only thing we can do, is, we have a program advising our citizens not to buy that type of insurance. Mr. DOLLIVER. Does the State where the company is operating, or where the advertising emanates, have any control over that?

Mr. MURPHY. Yes, sir; they have control over the company.

Mr. DOLLIVER. Do your commissioners take any action or take any steps with respect to that kind of thing?

Mr. MURPHY. Yes, sir; they do.

Well, some of them prohibit a company doing business in any States that is not licensed to it.

Mr. DOLLIVER. You say that they prohibit it?

Mr. MURPHY. Yes, sir.

Mr. DOLLIVER. They cannot prohibit the advertising, can they? Mr. MURPHY. Yes, sir; in some instances they do.

Mr. DOLLIVER. You mean that a company in Baltimore, Md., could be prohibited by the Commissioner of Maryland from advertising in periodicals or magazines that have interstate circulation?

Mr. MURPHY. The license issued-let me say it this way, sir. The license issued to a company to do business is considered a privilege and not a license which gives them the right to do anything they

want to.

Now, I do not know what the Maryland law is on that particular question, but in South Carolina, if one of my companies were to decide to go out and do business in a State in which it is not licensed, then we would issue a show cause order as to why their license should not be revoked for doing unauthorized business or unlawful business. We have that discretionary power under the law in South Carolina. I do not know just what the law is in Maryland on that, sir.

Mr. DOLLIVER. The point I am leading up to is this: It is a historical fact that about 50 years ago there was a great scandal in the lifeinsurance business in the State of New York. One Charles Evans Hughes was put in charge of the investigation and revealed some appalling conditions in the life-insurance business. Thereupon the State of New York, through its general assembly passed some very stringent laws regulating the life-insurance business, which have been generally followed across the country, and any life-insurance company that can do business in the State of New York, ordinarily speaking, can get a license to operate any place else, because their laws have sort of become a model for the life-insurance business.

Now, is there any counterpart to that in the health-insurance business?

Mr. MURPHY. Yes, sir; I think that that would hold generally throughout the country.

Mr. DOLLIVER. Well, where has the model law been developed, so to speak?

Mr. MURPHY. So far as the qualifications of a company is concerned, there is no model law. Each State has it own requirements, and the company must meet those requirements.

You mentioned New York. New York requirements are higher than a number of States. Therefore, it would be a very safe thing to say if a company qualifies in New York, they could qualify in the State of South Carolina.

Mr. DOLLIVER. The same thing about advertising applies to the radio and television. These companies advertise by those media as well as newspapers; do they not?

Mr. MURPHY. Yes, sir.

Mr. DOLLIVER. Is there any restriction or restraint upon them in that respect?

Mr. MURPHY. May I say it in this way to you sir, that if a company in the State of Maryland, for instance, advertised in the State of South Carolina without being licensed, it would be my opinion that the only people that could do anything about that would be the insurance commissioner of the State of Maryland; not the insurance commissioner of South Carolina. We have no jurisdiction.

Mr. DOLLIVER. Could you make representations to the commissioner in the State of Maryland?

Mr. MURPHY. Many times I have done that, sir.

Mr. DOLLIVER. You have?

Mr. MURPHY. Yes, sir: many times; many times our citizens have been paid claims which otherwise would not have been paid.

Mr. DOLLIVER. And that has been an effective procedure on your part?

Mr. MURPHY. Yes, sir: been very effective.

Mr. DOLLIVER. Well, of course, the thing that is so disturbing to some of us is the fact that while the insurance commissioners are we recognize they are a very sincere group of people and, of course, are considering the welfare of the people, there is a sort of a blank spot there where it involves interstate commerce where their effective control is limited. Would you say that that is a correct statement?

Mr. MURPHY. I would go along with you to the extent of it may be ineffective, so far as the statute is concerned, although—but as far as the cooperative spirit among the insurance commissioners is concerned; no, sir. I think we have done a very good job, even on mailorder companies, as we refer to them, in seeing that the citizens are protected.

Mr. DOLLIVER. Now, to change the subject just for a moment, getting away from that: Another very important feature; another important objective, I should say, behind this legislation is to enable or to encourage the coverage of catastrophic illnesses, or so-called major medical coverage.

Do you have any comments to make on that in connection with this legislation?

Mr. MURPHY. In the analyzation of the bill, Mr. Congressman, we could not find where this expansion would take place. There is no provision for the expansion of the health insurance beyond its present stage, in this bill, unless the intent of the appropriation of $25 million is to be used to supplement excess claims, which would be paid by insurance companies.

Now, I do not think that there has been any thinking on the part of anyone that their rates, charged by insurance companies for the type of limited coverage today is exorbitant and excessive. The claims ratio is known. Therefore, I do not see how you can expand that to a field of uninsurables, for instance, unless you do 1 of 2 things: First, you must subsidize that or place at the disposal of these companies an amount of money to pay the excess of losses, or else you must increase the rates.