of the Secretary on that point appears on page 6, the second paragraph on page 6, and I will read it:

It should be noted that direct-service carriers would be eligible for reinsurance. That is, reinsurance would be available to prepayment plans which furnish medical or dental care or treatment through a salaried staff of physicians, surgeons, or dentists. However, in these cases we would first have to be satisfied that the carrier has an organizational structure which vests control over the manner in which medicine and dentistry are practiced solely in duly licensed members of these professions.

Is that the point?

Mr. DOLLIVER. That is the point. Could we reasonably anticipate if this reinsurance program becomes a law, there would be a tendency to throw these Blue Shield and Blue Cross plans into the indemnity rather than the service group?

Mr. STUART. I think the tendency might be in the opposite.
Mr. DOLLIVER. Why do you say that?

Mr. STUART. Because the purpose of the bill is to provide more comprehensive benefits and cover more people more adequately. The service plans that provide services to people give rather comprehensive care. The indemnity plans may or may not; in many cases they do provide comprehensive care, but they may not. In the indemnity approach to the problem, a fixed number of dollars is provided for a specified type of service. In the service plans there is no fixed amount of dollars to be provided. They pay for the services needed and given, regardless of the cost.

Mr. DOLLIVER. By that statement, do I take it that this proposed legislation would tend to increase the character and the quality and the length of care that would be given to people covered by any insurance program that came under it?

Mr. STUART. Of course, Mr. Dolliver, carriers in this field have been increasing their benefits rapidly in the last few years, but this bill, in my opinion, would have a tendency to accelerate that increase in benefits toward more comprehensive coverage.

Mr. DOLLIVER. Mr. Chairman, that is all. Thank you.

The CHAIRMAN. Mr. Priest?

Mr. PRIEST. Mr. Chairman, I have a question or two at this point and there are many questions that will undoubtedly arise as we consider this legislation which you have aptly described as pioneering in somewhat of a new field.

Mrs. Hobby, I think the committee shares with you the feeling that the cost of medical care constitutes one of our top economic problems today. The availability and ability to provide for payment for adequate medical care unquestionably is a problem with which we must come to grips and find a better solution than we now have. This proposal before the committee is an effort to take at least one step in that direction. There are a great many questions about the specific proposals in the bill that I shall not go into at this point.

I was interested particularly in one chart shown by Mr. Perkins, and I want to ask one or two questions on that particular chart. It was the chart showing the large percentage of nonearners. The group that I am thinking about particularly at this point is the very light green in the nonearner group, of the aged and chronically ill, and also the lower section showing the percentage on public assistance.

Now, as I understand it, the average payment to individuals under OASI in the States is about $42 per month. I think that is about. the national average. It seems to me that the greatest bar to health insurance on the part of that fairly large group is the question of their ability to pay for any insurance at all. However well the plan might be reinsured, there is a large segment of the population that still faces a situation in which they do not have enough money to pay for any type of prepaid health insurance. The aged and chronically ill and those who are already on public assistance constitute that

group.

The question that I am asking Mrs. Hobby is, under the provisions of the bill before us, what might be expected, insofar as that group is concerned, and how would this legislation, if enacted, help that particular group?

Secretary HOBBY. Mr. Priest, not that it is significant, but I think about the average of the OASI payment is about $50. Now, that may or may not be the group that we would be concerned with, because, as you know, many of those people are retired and they have been workers and they have had some kind of insurance. This smaller green sector on the chart, frankly, is the one that worries me the most. Those are the public-assistance cases. As you know, there are 48 different measures of need, because you are familiar with the way that the Federal plan operates in each State. Each State has its own standard of need. It determines need. What the Federal Government does is to match what the State determines.

Now, often those are very low-income people. That segment, I would think, would just be a segment that you might have a very great difficulty in covering under this bill. That was one of the reasons that I mentioned the limitations. I do not think on the OASI group that we have as definite information as that. I do not think this bill, Mr. Priest, is the solution to all of these problems. I do think that it is important as a first step. I believe we would begin to identify the problems that we cannot solve in any other way. I agree with you that the public-assistance group will not be helped by this bill, because they cannot include the costs of insurance in their family budget.

The CHAIRMAN. If the gentlewoman will yield, I have in mind that there are three distinct classes: First, the indigent poor which may come within that classification that appears on the chart as having public assistance, and the other group are the nonearners, which include the aged and the chronically ill. I think, generally speaking, in the poorer classes, as we might term them, their needs have been recognized in the localities by the providing of the services, both medical and hospitalization, that is necessary in their cases; so that it is not so much, in my opinion, a question of insurance for those that are in that very unfortunate condition.

On the other hand, at the other extreme we have the very wealthy who are well able to carry their expenses for medical care and hospitalization. In between is the vast area of the average person, as we might term him, who cannot and would not qualify as an indigent person, nor as a wealthy person, but who needs this insurance.

While we have considerable concern for those who are in the indigent class, I think that we must recognize that there is a different provision

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 cate gories 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.

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.