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Mr. HALE. Do you think, for example, that a man in a low-income group would be more ready to select health-insurance programs if he knew that this reinsurance fund existed ?

Mr. STUART. No, but we would be more ready, I think, to try to work out programs to cover him if we felt we were not taking the total risk of the experimentation. Mr. HALE. When you say “we,” whom do you mean?

Mr. STUART. The prepayment plans. I am speaking of the voluntary prepayment plans.

Mr. HALE. You say that the insurance carriers who carry these prepayment plans would be more ready to extend their coverage if this Government agency existed ?

Mr. STUART. We hope so, and we think it is possible that they will.

Mr. Hale. At any rate, you think it is an experiment that is worth making!

Mr. STUART. Quite so.
Mr. HALE. It is an experiment, of course, nobody questions that.
Secretary HOBBY. It is.

Mr. Hale. Is there any legislation in any other country at all like this? Is there any precedent for it?

Mr. STUART. I think if you would ask that question of Mr. McNary, who is scheduled to appear before you on Friday, he can give you the answer. There may be some precedent in Australia, and he has studied that program,

Mr. HALE. Thank you very much.
The CHAIRMAN. Mr. Rogers.

Mr. ROGERS. Mr. Chairman, before I ask Mrs. Hobby this question, I want to state that I attended the program of Youth Wants to Know last Sunday afternoon, or the Sunday before, on which Mrs. Hobby was on the program. She did a most excellent job of answering the youths who were propounding questions to her.

Now, I want to ask you this question, do you interpret this at all as being subsidizing the insurance companies?

Secretary Hobby. No, sir; I do not think so by the remotest stretch of the imagination, Mr. Rogers. I think the principle of reinsurance is very well established. All that it does is to broaden the base of the risk. No, sir; I do not think it subsidizes insurance companies, Mr. Rogers.

Mr. ROGERS. Could you consider it as a subsidy to the insurance companies that, if they had a loss, they would be paid back for whatever loss they had to pay?

Secretary HOBBY. I do not believe it is a subsidy. I would like to have Mr. Stuart speak to it, and perhaps Mr. Perkins would, then, like to comment.

Mr. STUART. The special consultants did not think that there was any subsidy in the bilì.

Mr. ROGERS. Suppose your company had a loss? Mr. STUART. Of course, but the fund would write more than one reinsurance plan. You might lose on one, but you should gain on others. This would not be in any way a subsidy.

Mr. ROGERS. The loss would be taken out of the taxpayers' money is that not right?

Mr. STUART. But there would be gains in other plans to the fund which would offset the losses.

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Secretary HOBBY. They pay for the reinsurance fund. Mr. PERKINS. Perhaps I passed over too fast on these last two points of the chart. No. 6 here is the Federal liability. It is limited to the fund to the $25 million authorization of borrowing power, plus the amount paid in as reinsurance premiums. In our opinion, it is entirely on a nonsubsidized basis and self-supporting.

The important thing to recognize is that the fund receives income from reinsurance premiums. These reinsurance premiums would be calculated by the actuaries, with a view of making it self-supporting, just as though it were a reinsurance enterprise.

If the actuaries are right and the reinsurance premiums are adequate to cover the reinsurance risk, it should be a self-supporting enterprise.

Mr. ROGER. Suppose it is not self-supporting, then, what would you call it

Mr. PERKINS. If the actuaries turn out to be wrong and the whole thing fails, then we have not run the business right; and I suppose it is up to Congress to decide it goes any further.

The CHAIRMAN. I suppose all insurance is in the nature of a subsidy; it subsidizes the individual against his cost. What does an insurance company do when they take an insurance on the life of an individual with the thought that he is going to live to 90 and he dies at 40! There you have a great loss.

So the whole subject, it seems to me, is one that is more or less of a question of subsidizing.

Mr. HESELTON. Mrs. Hobby I had to appear before another committee and I did not have the privilege of hearing your full statement. I will, however, read you statement carefully. But my attention was called to a rather unusual provision in section 406 as to the effective date.

*** nothing in this Act shall require the Secretary to receive or consider applications under title III before such date as the Secretary may determine. I assume there was some reason for that.

Secretary HOBBY. There is and it is a very simple reason: We do not know how soon we could be ready to do it. That is the reason we wrote it just the way we did, because we have had enough experience in trying to write this bill to realize how complicated and technical it is to set it up on a right and sound basis. And that is in there because we want to do it at such time as we thought we were ready to proceed.

Mr. HESELTON. Thank you.

Mr. THORNBERRY. In your statement, Mrs. Hobby, which begins at the bottom of page 13, you point out some of the purposes which you hope will be accomplished under the reinsurance bill. Now, as a matter of fact, if we do not accomplish a large part of those objectives, then there is no use for this program, is there? We are not contemplating reinsuring programs as they exist now.

Secretary HOBBY. Mr. Stuart answered that, but I will answer the general intent of it.

If it promoted the purpose of the program and broadened and improved coverage, a carrier could really revise an existing plan. He might pay for more days in a hospital. He might give more sick benefits, and he might extend it into these expensive areas that Mr. Stuart was talking about.

And at that point, I wish someone would put that chart up. Mr. O'Hara has gone, and I wanted him to see that. But I think all of you will be interested in that chart.

That chart shows the percentages of the population in those States having coverage. You can see in some of the sparsely settled areas we have the lowest coverage because it is expensive to the insurance carriers to sell there; it is expensive to enroll groups.

As Mr. Stuart said, unless you could get a township in a group, which we would hope to do under this plan, it would be difficult. Could you answer the technical aspects of that, Mr. Stuart. I think you can do it better than I.

Mr. STUART. Well, if it served no other purpose and reinsured no programs at all, Mr. Thornberry, I think it would have the effect of encouraging us to do the job in the voluntary field ourselves.

The suggestion was made a while ago and I said there was very little reinsurance available. I think this bill might stimulate insurance companies to go into the reinsurance business in a much larger scale. But I can think of no prepayment plan, that cannot, if it wishes, use this program to the advantage of the people.

For example, in Cincinnati, in that area we have about 85 percent of the population enrolled in some type of health insurance for hospitalization and 63 percent have Blue Cross. But we have not extended coverage in the hospital beyond a certain number of days. We have not taken care of long-term catastrophic illness. And we would like to think in terms of using this reinsurance program to go further in providing protection for catastrophic illness and major medical expense.

Mr. THORNBERRY. I think you have partly answered my question, but my point is that the purpose of this program is not to be furnishing reinsurance to carriers who are furnishing the services we have today, but the purpose of it is to extend the coverage and make it more comprehensive. I do not suppose, if someone came to you with a program which is being carried on now, there would be much interest in furnishing reinsurance to the carrier who does not intend to improve his program. Is that what is contemplated ?

Secretary HOBBY. Mr. Thornberry, I think there is another reason why he would not be coming to us. If he is making money out of it and it is a sound plan, there is no reason in the world why we would pay a reinsurance premium and share his profits.

Mr. THORNBERRY. That is right as to existing carriers, but you are going to have some carriers who will say: "We would like to go into the business and furnish certain programs. We haven't done it before, and we would like to have the reinsurance and we would be willing to pay the premiums.”

But, if these people are not able to improve on what we have now, there would not be any reason for reinsurance as to them; would there be ?

Secretary HOBBY. The whole purpose is to broaden and improve prepaid voluntary health insurance.

Mr. THORNBERRY. Now, we have gone over the original chart on people who do not carry hospitalization now, and I am not going back to those on the left-hand side of the circle.

But I want to talk about the low-income group who for some reason or other now do not carry hospitalization insurance. I would suppose from the chart it is indicated, because of their low income, they are not able to afford it.

Is it contemplated that under the reinsurance program of this bill, or under this bill, that there will be a coverage for which the premiums would be less and would encourage the folks in the blue section to carry hospitalization ?

Mr. STUART. It might have that effect, Mr. Thornberry. Actually we ought to be taking care of those now regardless of any Federal reinsurance program that might be coming up.

But we have not been quite flexible enough in our programs. Without too much expense we have not found a method of getting to them unless they were employed in groups.

I think this will encourage us to find ways of covering these people. Actually, of people earning less than $3,000 per year, 41 percent have some kind of health insurance.

Mr. THORNBERRY. I am very much interested in the chart, and you say there that even under $2,000, a fourth of them are carrying insurance. But still you have a chart showing that 63 million people of the United States today are not carrying it, and half of those are not going to be affected by this program.

And now you have somewhere in the neighborhood of 30 million people who because of low income are not having medical care available to them.

What I am interested in is whether under this program we are going to be able to extend coverage to where it will be available to that group?

Mr. STUART. We hope we will be encouraged to do so, but I call your attention to the fact that this whole program is very young and it has only been a score of years since we have had health insurance of the type we are talking about here today. It has grown very rapidly in the last 12 years from a few million to many millions. At the same time, it has extended benefits and coverage.

We are making rapid progress. I think this bill will encourage us to go even faster, particularly in the areas where we have not ventured very far.

Mr. THORNBERRY. I was going to say that is exactly what a doctor in talking against this bill told me in a letter. He said we have just started and made rapid progress in the last 12 years and therefore there is no need for this bill. But when you urge that this bill will encourage us to go faster, that is an answer.

Thank you, Mr. Chairman.
The CHAIRMAN. Are there any further questions, gentlemen ?

Mr. YOUNGER. I want to express my appreciation, Mrs. Hobby, for this statement. I think of all of the good statements that have come from your department, I think this is the finest explanation of a very technical subject that I have seen in my brief experience.

Secretary HOBBY. Thank you.

Mr. YOUNGER. I want to also compliment you on being a little uncertain about the effective date. Too many of our governmental projects have started out with a definite effective date without any concern as to whether or not the Government is going to be prepared to do the job on the effective date; they have been crowded into a position and made too many mistakes at the original inception of a good program. I certainly want to compliment you for that caution that you have exercised here in this bill.

In regard to the subsidy, further than what has been said, I doubt if you could

say that there is any program that could be called subsidizing if there is a premium charge for the risk.

Secretary HOBBY. You say it much better than I do.

Mr. YOUNGER. That to me is the test of whether or not it is a subsidy. If you are charging a premium and taking a risk, then that is not a subsidy; and this is not a sudsidized program in any sense of the word. I think that that is one thing that ought to be emphasized.

I am only sorry that our State of California is not in that group of 60 to 80 percent, and I do not understand why, because we have been in our State, as you know, in the forefront of the prepaid plans. I am a little surprised and disappointed at that. But I am certainly delighted with your presentation.

Secretary HOBBY. Thank you very much.

Mr. PELLY. Mr. Chairman, I realize the bells have rung, and I will not have the opportunity to ask questions, but I thought possibly a better illustration than the one used of a life-insurance policy, of reinsurance, might be fire insurance where no one single company wants to take a risk in any block or any community or any area that is greater than it can afford to take.

That is exactly to me what this legislation will provide, the dividing of the risk and spreading the risk in the health field.

Secretary HOBBY. I really think that your suggestion is better than ours.

Mr. PELLY. As Mr. Younger has pointed out, you have made a fine presentation on a very technical bill in a very concise and clear way, and I think we are all indebted to you for this help.

Secretary HOBBY. Thank you very much.

Mr. Bush. I just wanted to ask one question here. That is in reference to the actuaries. Were they representatives from the large insurance companies or from the Blue Cross or White Cross, or what? Secretary

HOBBY. There were two from Blue Cross, and they are not actuaries. They are Blue Cross executives.

All of the others were actuaries, except Dr. Hayden, who is a physician and Blue Shield executive.

I am very glad you asked me that question, Mr. Bush, because it will give me an opportunity to put something into the record for these men who were so generous in coming down here and helping us. They did not come as representatives of their companies. They came as individual citizens and actuaries—and I would like the record to show that these gentlemen were not here representing their companies. They helped us prepare this bill.

Úr. Bush. But they did this work entirely at your request ?
Secretary HOBBY. I invited them and they came down; Yes, sir.
Mr. Bush. That is all.

The CHAIRMAN. The work on the floor this afternoon is of such a character that I doubt the possibility of holding a session this afternoon. I am fearful that the time that would be available to us would be so short that it would not warrant the inconvenience that it would be to bring the witnesses back this afternoon.

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