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It is our intention to proceed tomorrow morning at 10 o'clock. I would like to inquire as to whether it would be possible for the witnesses who have accompanied you today, Mrs. Hobby, to be present tomorrow morning at 10 o'clock?

Secretary HOBBY. Mr. Stuart plans to return tonight, Mr. Chairman, and everyone else that is here can be present, with the possible exception of Mr. Rockefeller, for a short time. We are before the House Committee on Appropriations beginning at 9:30 in the morning, and that is where we were yesterday when we came to your committee in executive session. Everybody else will be here; and, if the Committee on Appropriations lets us off on short order, we will be right back.

The CHAIRMAN. That is very kind, and we appreciate it. We will proceed, then, tomorrow morning at 10 o'clock.

I think, as you have observed this morning, many members cut their questioning short in order that other members might have an opportunity; of course, there will be no disposition upon the part of the Chair or this committee to, in any way, limit the membership in the questions they may wish to ask, so that they will take advantage of the opportunity as it is afforded.

I realize that, with the program as we have set up for our hearings, there will be many diversified views that will be expressed before we have finished. And it may be at that time, Mrs. Hobby, that we would be pleased if we could look forward again to your appearance in case the committee should decide that that would be the course to pursue.

Secretary HOBBY. I am always available, Mr. Chairman.
The CHAIRMAN. Thank you.

The hearing will stand in recess until tomorrow morning at 10 o'clock.

(Thereupon at 12:30 p. m. a recess was taken to reconvene at 10 a. II., Thursday, March 25, 1954.)

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HEALTH REINSURANCE LEGISLATION

THURSDAY, MARCH 25, 1954

HOUSE OF REPRESENTATIVES,
COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE,

Washington, D.C. The committee met, pursuant to adjournment, at 10 a. m., in room 1334, New House Office Building, Hon. Charles A. Wolverton (chairman) presiding.

The CHAIRMAN. The committee will come to order.

STATEMENTS OF ROSWELL B. PERKINS, ASSISTANT SECRETARY

OF HEALTH, EDUCATION, AND WELFARE; DR. CHESTER S. KEEFER, SPECIAL ASSISTANT FOR HEALTH AND MEDICAL AFFAIRS, DEPARTMENT OF HEALTH, EDUCATION, AND WEL FARE; JAMES E. STUART, CHAIRMAN OF BLUE CROSS COMMISSION; ROBERT J. MYERS, CHIEF ACTUARY, SOCIAL SECURITY ADMINISTRATION; AND THEODORE ELLENBOGEN, OFFICE OF THE GENERAL COUNSEL, DEPARTMENT OF HEALTH, EDUCATION, AND WELFARE

We will start where we left off yesterday, and endeavor to be a bit brief in questions in order that everybody might have an opportunity. It would be my intention today to recognize first those who did not get an opportunity yesterday to question the officials from the Department of Health, Éducation, and Welfare.

We were informed yesterday that Mrs. Hobby has another engage ment with the Appropriations Committee and that she would return here as soon as she is able to complete her appearance before the other committee.

So that if any of you wish to examine Mrs. Hobby, have that in mind, that she will probably be here if she can get away from the Appropriations Committee.

Now, there are different members of the Department here, so that if the questioners will indicate to whom they would like to address their questions, we will have that person available so that you may

Are there any questions, gentlemen ?
Mr. BENNETT. Mr. Chairman.
The CHAIRMAN. Mr. Bennett.

Mr. BENNETT. I think this question should be directed to Mr. Perkins, but he can decide whether someone else should answer it.

My thinking on this bill is perhaps, like many others, confused up to this point and I assume that as we go along with the hearings perhaps some of the questions I have in my mind will be clarified.

do so.

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Now, with that in mind, I will tell you what is troubling me at the moment.

The Secretary testified-and I have no reason at all to doubt the accuracy of her statement—that there is no subsidy for insurance companies provided for in this legislation.

Now, assuming that is the case, then my question is, What, as a practical matter, do you hope to be able to do or accomplish, in the way of providing better health insurance under your proposal ?

Mr. PERKINS. The answer to that is that we do not think that you need to give the insurance companies an outright subsidy in order to encourage their expansion and improvement of their plans. If they are offered the opportunity to spread their risks we believe that they will be induced, or at least given the opportunity, to move into areas where they do not have experience. It would fill a gap which has not been filled so far, namely, to have going and active reinsurance in operation and offering itself to the carriers for the sharing of risks in new areas.

Mr. BENNETT. Well now
Mr. YOUNGER. Will the gentleman yield there for just one point?
Mr. BENNETT. I will be glad to.

Mr. YOUNGER. I think this is quite comparable to the FHA and I had the privilege of sitting in with FHA when it originally started, and if you will recall at that time, no individual lender would go beyond 15 years, and a 20-year-loan basis was established, and it was not any time until the regular lenders were lending on their own account uninsured for 20 and 25 years, on their own account, and that was stimulated by the fact of the FHA, and the experience that has grown out of the FHA and I think that this will prove much the same experience. That is all.

Mr. BENNETT. Well, I hope it will; but I am still not convinced, although my mind is open. I certainly believe that Congress ought to do it, if it is possible to do so, everything it can to make available better health insurance protection for the American people; but now under this proposal, could X, as you have it on your chart, could X take advantage of the provisions?

Now, let us assume that they start in a new field; that they have not previously been in and as a result of that new start they lose money, and the Government comes in and pays 75 percent of the loss, and the company absorbs the other 25 percent.

Now, the question is this, assuming that you get, you stimulate, a company to take advantage of this program and they start something new and immediately, or within a year or so, they have a loss.

Do you think that we can assume the company would continue a program like that and pay 25 percent of the losses just to get 75 percent under this reinsurance?

Mr. PERKINS. Well, I think two factors would enter into the company's thinking. First, it would probably readjust its premium rates and secondly, even after readjusting its premium rates it would probably want to take a long cold look at this plan it had set up and see whether with the readjustment it would be a plan that would operate on a break-even basis, at least over the long term. But, I do not think that the fact that a company should lose in the first year would necessitate a decision on its part that it abandon the plan.

Mr. BENNETT. It certainly would not want to continue on an unprofitable basis.

Mr. PERKINS. Certainly not for long.

Mr. BENNETT. Now, most of our insurance companies, particularly our large insurance companies, have been in business, some of them as long as the Government has been established, and they have had a lot of experience in this field.

Now, I assume the reason they have not gone into a particular program of this kind to date, is based primarily on the fact, or two facts: First, that the premiums they would have to charge would make it impossible to sell the policy or if they put the premium at a level to be salable, it would be unprofitable to them.

How much consideration has been given to a situation of that kind? Mr. PERKINS. Well, we do not think that the fact that insurance companies are not in certain fields means that they cannot and will not go into those fields. It is a question of time, to a large extent. They have not had the experience in those fields, and insurance companies are, by nature, conservative. They have to be. Their whole operation is based upon experience.

Now, until they develop the experience which takes many years of just inching further into new areas, until they develop that experience, they cannot launch a full-scale plan in a new area. Mr. BENNETT. Now, let me askMr. PERKINS. Will you excuse me, sir, until I finish this thought? Mr. BENNETT. Yes.

Mr. PERKINS. But, we think this will speed up the process by giving them something which is in some respects a substitute for experience, by giving them this reinsurance, so that they can take the risk and move faster than they otherwise would.

Mr. BENNETT. Let us take one particular feature of health or hospital insurance, or any other system that you wish to take. Give me an example of the kind of things, of the better insurance, and the wider coverage of insurance you expect will result if this legislation is adopted.

Mr. PERKINS. If I may, I would like to refer to the statement that was made by the Secretary on that score, because I do not think I can improve on it. She said on page 13 of her statement—this is at the very bottom of the page: For example, perhaps the number of exclusions from coverage under certain forms of health policies can be reduced.

Mr. BENNETT. Now, what does she mean by that?

Mr. PERKINS. Well, as you know, many policies today contain certain exclusions, that is, as to certain types of diseases, and illnesses, and it was hoped the number of those could be reduced.

Mr. BENNETT. Give me an example of some ?
Mr. PERKINS. Tuberculosis, mental diseases-

Mr. BENNETT. Do you feel that in cases where tuberculosis and similar types of chronic diseases are presently excluded, that the adoption of this bill will be an incentive for those companies to provide such?

Mr. PERKINS. Precisely; an incentive. We do not want to go any further than that. We do not want to say that the bill will of itself remove such exclusions. It depends on what the insurance companies do. But, we do think it will encourage them to do exactly that type of thing

Mr. BENNETT. Why is it that they are not doing it today? Is not the answer obvious ?

Mr. PERKINS. I would like to have Mr. Stuart answer that, because I am sure he can do it better than I can.

Mr. STUART. Many organizations now are covering tuberculosis and nervous and mental conditions for a limited period of time. Practically all of the Blue Cross plans do so; or if the treatment is carried on in general hospitals, many of the insurance companies do it also; but there are general limitations in that area of that type of condition or diseases. With tuberculosis, nervous diseases, and mental diseases, there are also other limitations as to conditions that now exist when you take the coverage. This is true in all, or practically all, individual contracts, and in some group contracts. It is the hope of the Secretary that in some group contracts some of those preexisting limitations might be removed.

Mr. BENNETT. I understand that is the hope, but I am just wondering about it as a practical matter. You are in the insurance business at the present time.

Mr. STUART. We have made tremendous progress in the last 10 years in removing those conditions. Now, most of the larger group companies do not have, for example, a preexisting condition clause in any group contract, and few of the Blue Cross contract plans have. Originally, we all had.

Mr. BENNETT. In your Blue Cross plans there is no fixed premium on those and you have raised the premiums from time to time and have raised-I am not saying that you should not have done so—but over the period of years your premiums for Blue Cross have been increased substantially.

Mr. STUART. That is correct, simply because we are paying the hospitals on the basis of their costs and their costs have increased. In other words, so far as the subscriber is concerned, his bill is still being paid in full under the Blue Cross program, because we pay the hospital in full.

Mr. BENNETT. Now, you can do that up to a certain point, that is, the Blue Cross or similar types of organizations can increase their premiums to meet the increasing liabilities they have; but you reach a saturation point sometime on that particular thing.

Mr. STUART. We have often thought that we had.
Mr. BENNETT. You have thought that you had.

Mr. STUART. I say that we have often thought that we had, but apparently we had not. The insurance companies do the same thing. Their rates are increased as their benefits must necessarily increase to meet the needs of their groups.

Mr. BENNETT. Most of them are not as flexible, so far as increases are concerned, as health insurance.

Mr. STUART. That is correct.
Mr. BENNETT. Or hospitalization.
Mr. STUART. That is correct.

Mr. BENNETT. Well, Mr. Perkins, can you give any other specific examples ?

Mr. PERKINS. Well, the Secretary's next comment was “Perhaps the benefits can be made far more comprehensive as to total limits,

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