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made for them throughout the United States, both in the State level and the county and local level, so that the need there does not extend or exist as strongly as it does for that great average in between the indigent and the wealthy.

Secretary HOBBY. Mr. Wolverton, in commenting on that, in one of the charts there were 17 million persons in families that spent from 5 to 20 percent of their income on medical expenses, and then there were another 4 million that spent from 20 to more than 100 percent. These are the families, and these are the millions of people, that I think would receive the most direct benefit from this bill.

It is well to bear in mind that, again, on that chart which shows family income, that 24 million persons are under $2,000. Twentyfive percent of those people had some health-insurance coverage. I simply would not have expected that and it was very interesting to me.

So, we know pretty well the great segment of the population that this bill could reach if the carriers use it, and if the risks are spread, and if people are willing to include a voluntary prepaid health insurance plan in their family budget.

Now, I might answer—and I do not know whether it is of particular interest to the committee, but, again, commenting on the points you raise, and the point Mr. Priest raised-that a bill which is before the Ways and Means Committee contains a new formula for public assistance. In effect, H. R. 7199 and H. R. 7200 are companion bills because one bill would extend the coverage under old-age and survivors insurance to some 10 million more people. The companion bill contains a new formula for public assistance, which is a very complicated one, and I would not impose on the attention of the committee to explain it.

Simply said, as more people are covered under old-age and survivors insurance, and get their benefits as a matter of right rather than on a needs test as now occurs in public assistance, and as the number of people in a State who receive old-age and survivors insurance checks increases, there is an automatic formula in the bill for the decrease of public assistance as the need in that State declines.

Coupled with that is an averaging provision which would allow the States to average out, and this is why it would be so important in medical care for public assistance recipients. As you know, the system of bookkeeping in each State is very troublesome on this because the Federal Government pays four-fifths of the first $25 in public assistance or $20 out of the first $25, and then beyond that up to a maximum of $55, 50 percent. This makes a total sharing of the Federal Government of $35.

Now, this has been and is now on a individual basis. The State welfare administrator is compelled under the law to keep books on each person in the State. I apologize for taking this much time, but under the new formula they could average, and now, Mr. Perkins, if you would explain how you take the number of public assistance recipients and multiply so that the State actually gets more money for its high cost medical care recipients.

Mr. PERKINS. The essence of it is that today the Federal Government does not share in any public-assistance payment made to an individual that exceeds $55, and under the proposal instead of being on an individual recipient basis, it would be placed on an average basis. So a State could make payments to individuals on public assistance in excess of $55 and still receive Federal sharing so long as the average payment in the State did not exceed $55.

In other words, there are many cases where States are forced to make high payments because of medical care to individuals on public assistance, and under the proposal a State would receive Federal sharing on that additional amount that a State has to pay for the medical care of its public-assistance recipients, so long as the average payment did not exceed $55, rather than an individual recipient basis.

Secretary HOBBY. I may say, Mr. Chairman, that the State welfare administrators and the executive group which we have had in several times have discussed this problem and the way it works, and they believe this would be a very important step in helping us meet medical-care payments for our public-assistance recipients.

Mr. O'HARA. If the gentleman will yield, my colleague brings up a question which is disturbing to those of us who come from rural areas, because in the problem which you have locally in the small township and the small village and so on, as shown on that chart E, under the law of the States the responsibility of taking care of those who are on public assistance and those who are the aged and chronically ill who are not in a position to afford medical care and hospital care and attention.

I do not know whether there is a breakdown in the green area, between those on public assistance of the nonearners. It is a realm in which the law places a compassionate responsibility and a legal responsibility upon the relatives and upon the local units of Government. At times, this is a tremendous burden, let me say to my colleague, of the local government and the local small unit of government.

Mrs. Hobby, it is my understanding, if I may ask this question, that the new social-security law which is proposed, and my knowledge of it is very superficial, is going to be of tremendous benefit to the categories of the nonearners, the aged and the chronically ill and on the public-assistance area to those small local units of government. Am

. I correct on that?

Secretary HOBBY. Yes. To all recipients of public assistance, Mr. O'Hara, that would be true.

Mr. PRIEST. I will not take time to go into a number of other questions, with one exception: I believe in response to a question asked by Mr. Dolliver, your reply was that there was not at present a private insurance firm engaged in the reinsurance business as far as health plans are concerned.

Mr. STUART. The extent of reinsurance of health plans is very limited.

Mr. PRIEST. I noticed in the provisions of the bill that there is one thing that must be found, and one determination that must be made by the Secretary in approving an application, and that is that there is no other comparable insurance available.

With that requirement, and with the current situation in which there are no private firms engaged, or scarcely any, in this reinsurance of private health plans, or prepaid health plans, the net result of it would be that any reinsurance or any appreciable amount would be through this proposed reinsurance fund by the Federal Government.

Secretary HOBBY. As of the present circumstances, that is true.

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Mr. PRIEST. If there is any reinsurance at all insofar as the practical situation is concerned, it would come from this reinsurance program.

Mr. Chairman, I will not take further time of the committee at this point.

The CHAIRMAN. I hope the membership will have regard for the fact that there are many members of the committee who probably wish to question the witness and so far as Mrs. Hobby is concerned we can readily realize that she is not available to us for as long a time as her associates will be, so that I would suggest we take advantage of her presence today as fully as possible.

Mr. BEAMER. Mrs. Hobby, I was interested in several remarks; I know there are many things that many of us would like to ask, but, because of limited time, I will confine this to just 1 or 2 thoughts.

I noticed on page 9 that you referred to this reinsurance plan that would meet only 75 percent of the abnormal losses. Do I understand, then, that the other 25 percent would be met by the insuring companies?

Secretary HOBBY. That is the coinsurance feature, Mr. Beamer. That is shown on the chart. The carrier would have to lose its contingencies and profits, and one-eighth of its anticipated administrative expense, before the Federal reinsurance would be obligated to then pay three-fourths or 75 percent.

Mr. BEAMER. The reason I asked that was whether eventually it was contemplated that the plan would pay the original loan. And do you conceive this fund would be large enough so that it could be repaid to the Federal Government?

Secretary HOBBY. The $25 million, you mean?
Mr. BEAMER. Yes.

Secretary HOBBY. Well, sir, my best answer to that is that it is like any other business venture; it depends on how much business we get and how sound our actuaries are.

Mr. BEAMER. The reason I asked that is this: I take it that it is the hope of the administration that the Government does not get into business too much or at all. If this fund can be repaid, it is still a type of cooperative venture; is that not the purpose of it!

Secretary HOBBY. That is the purpose and the intent.

Mr. BEAMER. Suppose it does not happen. I think we should face that eventuality.

Secretary HOBBY. I suppose all of us around this table have gone into business an one time or another when we could not guarantee that we were going to succeed.

Mr. BEAMER. Let me ask the other question in which I am interested. You had an advisory council, and I think that you must have had a very capable and a very loyal one. Will there be an advisory council to continue; is that provided for! ?

Secretary HOBBY. That is provided for in title 1. Let me go right back to that. I think that I can reach that.

Mr. PRIEST. It is on page 2 of the bill.

Secretary HOBBY. That provides for an advisory council of 12, who would advise the Secretary on policy matters.

The reason for that is, as you know, that this is a very complicated field.

Mr. BEAMER. I can conceive of that.

Secretary HOBBY. And, frankly, we feel that we have not the competence to go into a thing of this magnitude without having the very best advice that we could get. · Mr. BEAMER. Now I have one final question, and you need not answer this unless you wish; but you probably have many people who have spoken very kindly of the program, and I think all of us would like to see something done about it.

The chairman has aptly called it pioneering in a new field; and, whenever there is pioneering in a new field, there is going to be some opposition.

Have you had any group or groups, or individuals refer to this as an opening wedge for socialized medicine? You do not need to answer that unless you want to.

Secretary HOBBY. I do not believe anyone has referred to that. And I would ask any member of my staff if anyone has referred to that.

Mr. BEAMER. Do all of the medical associations give their hearty approval to it? I will leave out the word "hearty" and ask only about the approval.

Secretary HOBBY. I do not know what the opinion of the American Medical Association is on this bill. However, Dr. Keefer had two conferences with them.

Mr. BEAMER. I presume, Mrs. Hobby, they will be before the committee. But I wondered whether you


statement on that. Secretary HOBBY. I really do not know, sir, what their final determination will be.

Mr. BEAMER. I take it that the legislation has been approved or reported by other departments of the Government?

Secretary HOBBY. By the Bureau of the Budget, the normal channels.

Mr. BEAMER. There are other things that I would like to pursue, but in the interest of time I will yield the floor.

The CHAIRMAN. Mr. Harris.

Mr. HARRIS. Mrs. Hobby, I observed that your recommendation is for the appointment of 12 members of the advisory council to be appointed by the Secretary. It occurred to me, as precedents in other matters, such appointments I believe were by the President of the United States. Is there any particular significance why you prefer to have it within the agency

Secretary HOBBY. To tell you the truth, no. I don't believe it was ever even thought of the other way. As you know, I would have no objection to the President of the United States appointing them.

Mr. HARRIS. I can appreciate that.

The CHAIRMAN. I suppose you work on the theory that he has already made a good appointment as Secretary.

Secretary HOBBY. Mr. Harris, I do not believe that ever really came up for discussion.

Mr. Harris. May I then inquire as to what size of an organization within your Department would it take to administer this program.

Secretary HOBBY. I do not know, frankly; but the best guide I can give you, and whether it is a good one or not really only experience will tell,' is that we asked in the budget message that came up for $1,200,000 for administrative expenses for the first year.

I do not believe we can spend $1,200,000, but that is a wide estimate; frankly, I do not know what it is going to take.

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Mr. HARRIS. I realize the difficulty in making an estimate. But would it be fair to assume that it would require a number of additional personnel within the Department?

Secretary Hobby. Yes, sir, I think it would, without any doubt, sir. Mr. HARRIS. Thank you very much, Mr. Chairman.

Secretary HOBBY. And it would require the best qualified personnel we could find, Mr. Harris.

Mr. HARRIS. Undoubtedly.

Mr. HALE. I just wanted to ask a few questions about the basic philosophy of the act. There are many details that I do not understand, but I do not want to take time for them now.

Is it your belief that the enactment of this legislation will accelerate very greatly the coverage of these insurance plans over our population?

Secretary HOBBY. Yes, sir, I do believe that. And I would like Mr. Stuart, if he will, to comment on that and tell you about it from his experience.

Mr. HALE. I just want to know, and I am asking this question for information, I want to know why it would have that effect.

Mr. STUART. Well, it could have that effect, and I think it should have that effect, Mr. Hale. It might not. But we have certain problems in covering people in the voluntary prepayment plan not because of their unwillingness to provide the coverage for themselves, but because they are not in groups of employees that can be easily reached.

For example, the whole problem of covering the self-employed, and the small groups, or the people living on farms. Their enrollment is quite an expensive process.

We think that under this type of bill that the voluntary plans will be encouraged to do more than they are now doing to reach these people and to develop means to reach them that are not so expensive. Enrollment and acquisition now requires too large a percent of the total money paid in subscription fees or premiums.

For example, we think that, as has been done in a few Blue Cross plans, we might enroll a whole community as a group with an arrangement through the local bank to handle the billing and accounting. There are various methods of grouping that have not been very well worked out, and we have been somewhat afraid of going into these relatively new areas where the actuarial risks are not too well defined.

We think, also, that in the nonwage and low-income group for people who are self-supporting, except in case of illness, a minimum program can be worked out which will be more effective than anything we have been able to offer so far.

In other words, we believe, Mr. Hale, that the bill will encourage plans to cover population groups now inadequately covered, and to provide broader and more comprehensive coverage to those that are covered. Also, we believe that the bill will stimulate prepayment plans to eliminate the exclusions and preexisting conditions which heretofore have always been considered necessary in individual underwriting.

Mr. HALE. But this reinsurance fund, or whatever it is called, is never going to have any direct relation to any individual or any group, is that correct, and it only acts through insurance carriers?

Mr. STUART. But it should encourage us to do more than we are now doing and to do things that probably we should be doing today.

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