The real problem is and will continue to be the development of a satisfactory method of reaching the individuals who are not associated with others through employment in a group of sufficient size to be readily reached by voluntary prepayment. Here voluntary prepayment fails simply because of the cost of acquisition, and the fear of bad financial experience because of the degree of selection against the carrier.

In my opinion, the nonprofit Blue Cross plans can use the proposed reinsurance program effectively to reach such unassociated individuals and the very small employed groups by creating a special grouping of all unenrolled persons living within a city, a county, village or township.

Through periodic, intensive enrollment campaigns in which the press, radio, and television as well as civic associations, luncheon clubs and community organizations will be utilized to let everyone know of the opportunity to join during a limited period of time.

This communitywide type of enrollment already tested in many areas on a somewhat limited basis, would be a logical plan or program for reinsurance and would go far toward fulfilling the purposes of the

act.

In most areas, such unassociated individuals are now reached only through individual underwriting in which the expense factor is far too great, the benefits far too limited and continuation of protection at the carrier's option. Communitywide enrollment offered for a limited time each year provides an opportunity for such persons to join at little expense to themselves or the carrier and solves a real problem in providing adequate voluntary prepayment to all the people who want it.

Diseases now generally excluded in contracts individually underwritten can be covered, and protection without age limits and with waiver of preexisting conditions can be offered. Waiting periods can be eliminated, except for the usual 9 months for maternity benefits.

Most of the experimentation that has been done in this area of community enrollment has been done by Blue Cross. The plan which I represent has done considerable pioneer work and has proved conclusively, so far as we are concerned, that it is actuarially possible to provide adequate protection at reasonable rates to people who enroll through the community group method.

In 1942 we started enrolling towns and villages as community groups with the local bank or building and loan association accepting payment of subscription fees. Regular group benefits were provided. By 1949, we had in our own area 61 villages, towns and cities enrolled on this basis, the largest being the city of Middletown with a population of some 33,000 persons. Today, 82 communities are so enrolled. In 1949, we decided to have an annual, areawide open enrollment period in the 15 counties in which this Blue Cross plan operates. During a designated 2-week period, which was widely publicized with considerable free time and space given by the press, radio, and television in addition to paid advertising; and with maximum support. from community leaders, including the mayors of cities and towns, representatives of the various religious faiths and heads of community organizations, membership was offered to all the unenrolled people in our area regardless of place of employment, regardless of age, or any other condition.

In each of the following years we have conducted such an areawide open membership campaign, usually during the first 2 weeks of September. Each year, the number of members enrolled as a direct result of this campaign has increased, beginning with some 25,000 in 1949 to more than 70,000 in 1953.

During the past 2 years when more than half of the total population of the area was already Blue Cross members, as much as 10 percent of the unenrolled population made application for membership, at a total acquisition cost of little more than $1 per contract or about 40 cents per member enrolled. This cost is almost insignificant when compared with the usual cost of enrolling individuals without group affiliation.

We have found such unlimited areawide enrollment programs to be practical actuarially as well as promotionally. The actuarial key to such enrollment is that a new group of members must be added each year to prevent the deterioration of risk that takes place in any static group. For example, in 1952, hospital bills of all members who enrolled during all 4 previous open membership periods amounted to 79.1 percent of subscription fee income.

However, with those who enrolled during the September 1952 campaign excluded, the hospital utilization which the other 3 areas would have amounted to 99.44 percent of income.

Perhaps surprisingly for some is the age distribution of members enrolling during our areawide open membership periods. The following is an analysis of such subscribers by age for the last three campaigns:

Age distribution of applicant or contract holder

Few plans have put on such campaigns and only one, so far as I know, has opened up membership to all people in the community regardless of age or place of employment.

Legislation such as H. R. 8356 would encourage many Blue Cross plans, and possibly all, to make such communitywide enrollment available with regular benefits at reasonable rates. From the viewpoint of the Blue Cross plan which I represent, reinsurance might well be used for even further extension of the community enrollment idea.

For example, the preexisting condition clause now used only in the areawide open enrollment campaign, and waived after 1 year of membership, might be eliminated altogether. The number of days of coverage might be extended from the present 70 per year provided in this contract, and Blue Shield surgical and medical protection might be offered at the same time.

In addition to community enrollment of cities, villages, townships, and the areawide enrollment described above, if the proposed legislation is enacted some Blue Cross plans will present for reinsurance a

program of major medical expense to provide coverage in catastrophic types of illness requiring long-term care.

Such major medical expense coverage is now being offered to some extent by the insurance industry but so far as I know, the reinsurance of such a program, which might be offered by the nonprofit plans, is not now available.

In order for Blue Cross and Blue Shield to protect and maintain their present basic coverage on a service basis, it will probably be necessary for these plans to offer coverage for extended illness. The insurance company which offers the major medical expense coverage may well demand and secure the basic coverage also.

It is also possible that all Blue Cross plans acting through the Blue Cross Association, Inc., a nonprofit organization incorporated under the laws of Illinois, will present a plan of loss ratio reinsurance for the total Blue Cross movement in the United States and thus through reinsurance provide a guaranty fund to protect the solvency of any Blue Cross plan providing service benefits to its members.

The adaptability of the provisions of H. R. 8356 to provide assistance in the aforementioned areas as well as in other situations makes it a major step in the direction of eliminating existing gaps in personal health protection through the voluntary prepayment plans. The CHAIRMAN. Are there any questions, gentlemen?

Mr. HESELTON. Mr. Chairman.

The CHAIRMAN. Mr. Heselton.

I

Mr. HESELTON. First I would like to compliment you, Mr. Stuart, for the complete, concise statement with reference to this bill. share your optimism that if it is enacted it will afford real encouragement not only to the Blue Cross, but to other groups engaged in insurance in attacking this very important problem of national health.

I would like to ask you some questions by way of clarification.
You said:

It is also possible that all Blue Cross plans acting through the Blue Cross Association, Inc., will present a plan of loss ratio reinsurance for the total Blue Cross movement in the United States.

Will you explain what "loss ratio reinsurance" is?

Mr. STUART. I think that possibly has not been very largely explored, Mr. Heselton, but all of the Blue Cross plans set up the Blue Cross Association, Inc., under the laws of the State of Illinois, a nonprofit organization, are nonprofit corporations, through which we act in some areas nationally and we have been trying for about 6 or 7 years to set up what we have called a guaranty fund, national guaranty fund, for Blue Cross plans. We have had some instances where Blue Cross ran into some difficulties and other plans had to come in and help out, and we thought it might be well for all plans to shore such a guaranty, all that might be able and willing at the moment to do so, and it occurred to some of us that this reinsurance program might be used as such a guaranty fund for the plans in it and also for the Blue Shield plans if they wanted to reinsurance their program, to protect the solvency of the individual plan, its movement, and all plans, and by the payment of a small reinsurance premium any plan might be protected that got into trouble from the standpoint of unfavorable circumstances in any 1 year.

Such major medical expense coverage is now being offered to some extent by the insurance industry but so far as I know, the reinsurance of a program, which might be offered by the nonprofit plans, is not now available.

I think that is extremely important. For the record, I would like, by means of either comments or questions, to emphasize it, because we have testimony-and I think as recently as yesterday-which would leave the impression that there is now available to all people engaged in this particular type of insurance, an adequate reinsurance program, and as I understand it that does not extend to the nonprofit organization programs.

Mr. STUART. I would not know where to go to get a nonprofit service program such as my Blue Cross plan reinsured, because we write a contract that is open. It is open-ended entirely. It is on a service basis and our experience from year to year may vary quite widely and if we did get such reinsurance at the moment, I think it would be fairly expensive for our type of plan.

Mr. HESELTON. You have actually, at least to some extent, looked into the possibility of obtaining it?

Mr. STUART. I have not asked to have any program such as ours reinsured. It has never been available but once, so far as I know, and that was for a limited time for one Blue Cross plan.

Mr. HESELTON. I see. Now you further referred to coverage against catastrophic type of illnesses. You said:

Mr. HESELTON. In your capacity, undoubtedly if such insurance were available, it would have been brought to your attention at some time or in some fashion?

Mr. STUART. Well, I have heard the statement made by my friends in the industry such as the statement that you say that you have heard made, that reinsurance is available for almost any type of program, but I think for a service plan such as the Blue Cross, which agrees in its contracts to pay the bill, regardless of the amount or length of stay, or the amount of service that is rendered, without any control, money controls, limits, as to what that amount would be, I think our rates if offered by the private insurance carriers would be quite high and I am not at all sure where I would go. I would not know where I would go to get it.

Mr. HESELTON. Your statement with reference to your experience through the communities is certainly a very encouraging one.

I notice that the largest group apparently in all 3 years to take advantage of it were under 30. Is it your experience that younger people are becoming more conscious of the value of this type of insurance?

Mr. STUART. I think that is quite true. I think particularly the young married couple who feel a great need for having this type of insurance protection against this type of illness are.

I would like to say also we went into this in 1949, in this area wide operation without age limit with a great deal of fear and trembling, because it is understandable that the principles were new, but we would try it for 1 year. Each year since then we have put another campaign, and each year we have enrolled an increasing number of people. So now, we continue enrolling in each one of these campaigns from 10 to 12 percent of the enrolled population of the area.

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I do not know how long it will go on. Each year we think it can never happen again like this.

Mr. HESELTON. I am not too familiar with the municipal setup in Ohio, but I take it that the reference to the villages, towns, and communities covers the whole geographical area of the portion of Ohio that you represent?

Mr. STUART. Not quite. In 1943 we started with a single community enrollment with the individual town of Versailles, up in Darke County, a very small town, to gain experience, giving them regular group benefits at regular group rates, and we were so successful in that we moved on, but we were staying in the very small towns all of the time, usually with one bank, but after we had increased our enrollment in towns like Middletown, a town of 33,000 people, where we had approximately half of the people enrolled, then we opened it wide to all areas, all enrollment.

Then, in 1949, after we had quite a large amount of experience in this community enrollment, we said we would open it for the whole 15-county area one time each year when anybody can come in.

Mr. HESELTON. So the result is that anyone, even on a farm, a remote farm that is still within that community or area can join? Mr. STUART. That is right. Anybody in the 15-county area can enroll during our 2-week open-enrollment period in December. Mr. HESELTON. Thank you very much.

The CHAIRMAN. Are there any further questions?

Mr. STUART. I would like to add that it would be quite possible, of course, for any Blue Cross plan to do what we have done without reinsurance, but I think it would encourage them to do it if such reinsurance were available to them.

The CHAIRMAN. Mr. Stuart, we are grateful to you again for your attendance before this committee. You have already made a very great contribution to this committee in its consideration of this health legislation and your attendance today makes an additional contribution, for which we are very grateful.

It is very helpful to us to have the benefit of your large experience in this matter and it gives us great assurance, those of us who are interested in this type of activity, to realize that it does have the approval of one such as yourself who has a background and experience that enables you to pass upon it, in a manner that is entitled to great consideration and it gives us assurance as a result of your favorable attitude.

We thank you very much.

Mr. STUART. Thank you, Mr. Chairman.

The CHAIRMAN. The committee will stand adjourned until 10 o'clock tomorrow morning.

(Thereupon, at 10:55 a. m., the committee adjourned to meet at 10 a. m., the following morning, Friday, May 7, 1954.)