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thereby providing better protection against major medical expenses. Now there, she was thinking, as you know, that policies often contain protection for a specified number of days in a hospital. The hope would be a gradual increase in that limit on the number of days.
Mr. BENNETT. Do you think this legislation would help to, or would cause insurance companies to, provide on a wider scale the so-called policies that cover unusual or catastrophic medical expenses?
Mr. PERKINS. Very definitely; yes, sir.
Mr. PERKINS. Well, I understand that type of risk is something that the insurance companies have been reluctant to undertake and that if they were given the assurance that 75 percent of their abnormal losses in any given year would be taken up by another party in return for the payment of a reasonable premium, it might influence them then to undertake that risk.
Mr. BENNETT. I have some other questions, Mr. Chairman, but I will defer them until later.
Mr. PRIEST. Will the gentleman yield?
Mr. PRIEST. Mr. Perkins, has there been up to this time any preliminary studies as to the possible range of reinsurance fees?
Mr. PERKINS. Yes, sir; there has been.
Mr. Priest. Fees that should be paid by the carriers into the reinsurance fund ?
Mr. PERKINS. Yes, sir; there has been. The Chief Actuary of the Social Security Administration, Mr. Robert J. Myers, who is here with me, has done some preliminary studies looking into that line.
We have ascertained through his preliminary studies, made on the basis of certain assumptions, that the range of reinsurance premiums might go
all of the way from something on the extreme low side of a quarter of 1 percent to, on the extreme high side of 4 or 5 percent. Mr. PRIEST. Well, now, Mr. Perkins
Mr. PERKINS. Excuse me. That is of the total premium income of carrier for the reinsured plan.
Mr. PRIEST. The total premium income?
Mr. PRIEST. Now, let me ask this question: Suppose an application for reinsurance is filed by a carrier. Of course, before there is an approval, the Secretary must make a number of findings and there will be promulgated certain regulations and criteria of standards which will have to be met in a general sense. So all reinsurance fees will vary, according to the application. It might be one percentage for one carrier and a different percentage for another carrier.
Mr. PERKINS. Very definitely.
This bill does not specify a statutory premium rate. Rather, reinsurance premiums would be fixed at different rates for the different health service prepayment plans to be reinsured, so as to reflect, in accordance with actuarial principles, the respective hazards involved.
Mr. PRIEST. On the type of coverage and the number of other elements that might enter into the situation.
Mr. PERKINS. Exactly.
Mr. PRIEST. Mr. Chairman, I will not ask other questions at this point, but, Mr. Chairman, may I make this suggestion? I hope at some point during the hearings, while Mr. Perkins or some of the members of the Department staff are with us, we can get a statement as to the point by point procedure in the development of this program, at one particular point in the hearings. I will not ask for it at this time, but I hope we can get a detailed brief and concise point by point statement of procedure, assuming that the bill is enacted; that it becomes a law, then what will follow, point by point, step by step.
The CHAIRMAN. To make it effective.
Mr. PRIEST. To make it effective. I will not ask for that at this time, Mr. Chairman,
The CHAIRMAN. Yes. Mr. Perkins referred to the chief actuarial officer of the Department, Mr. Robert J. Myers. I am glad to say for the benefit of the members of the committee that in my opinion, and this is based on an observation of Mr. Myers over a long period of years, there is no one that I have greater confidence in than I have in him. That does not necessarily apply to the point that you would be agreeable to everything, because whether you can agree to a thing sometimes depends on the amount of knowledge you have, but as I have found Mr. Myers over a period of years, I have found him one of the most careful, most conscientious, and most dependable officers in our Government in the particular field in which he has been active, and I thought I would like for the committee to know what my experience with Mr. Myers has been over the period of years, and I am very much pleased to learn of his interest in this particular bill.
Mr. MYERS. Thank you, Mr. Chairman.
Mr. PERKINS. The Department is highly honored by your statement, Mr. Chairman.
Mr. PRIEST. I will yield the floor, Mr. Chairman.
Mr. PELLY. I would like to ask if there has been any enthusiasm on behalf of the carriers since this idea was developed.
Mr. PERKINS. I do not think we ought to try to speak on behalf of the carriers, Mr. Pelly. We have had various informal comments from the people, but no official communications from any carrier, and I think that it would really be inadvisable for me to try to represent their opinion.
Mr. PELLY. You will let them speak for themselves.
Mr. PERKINS. I hope they will come before you, and I know some of them are scheduled to come before you.
The CHAIRMAN. Mr. Pelly, if you will yield for a moment, I will call to your attention, and also that of the committee, that tomorrow we will expect to have representatives from the American Hospital Association, and the Blue Cross Commission, and on Tuesday we will have the representatives of the Life Insurance Association of America. We will have representatives of the Health and Accident Underwriting Conference, and on Thursday the American Federation of Labor, and on Monday, April 5, the American Medical Association, and I might say that we are arranging further schedules for others
who wish to be heard; but that is all I can indicate today. I think that that will indicate to you that before we have finished these hearings we will have every segment we are able to contact who have any interest in the legislation of this kind to be present, the desire being that we shall know all we can in favor of and any objections that may be made to the legislation, or what modifications if any might be suggested, to the end that we will have as nearly perfect a bill, in the event the committee reports a bill.
Mr. DOLLIVER. May I make an inquiry at this point? The CHAIRMAN. Yes, Mr. Dolliver. Mr. DOLLIVER. Do I understand that no representatives of any individual insurance companies or representatives of group insurance companies are appearing?
The CHAIRMAN. Those that I have mentioned represent groups of insurance companies. Mr. DOLLIVER. But not individuals.
The CHAIRMAN. Yes, I am inclined to think from the correspondence that we are having some individuals will be here. As I said we have not yet completed the list, so I cannot answer that until later, after our list has been completed. Mr. PELLY. Mr. Chairman. The CHAIRMAN. Mr. Pelly. Mr. PELLY. I will proceed because I only have one more question.
I think it is fair to say that probably the reason that there is some doubt, or lack of enthusiasm about the program is because nobody knows very
much about it. I know I have heard from my own Blue Cross, which I have a very high regard for, and they have indicated that they do not think that they would need it, and I am just assuming that comes from the fact that they really do not know very much about it yet.
Mr. PERKINS. I think that that is a very fair statement. Mr. PELLY. I think it will be very interesting to have the testimony of these areas as this hearing progresses, because it is certainly a pioneering program and interests me a great deal.
I have wondered sometimes whether it would not be a little cheaper to take a Lloyds' policy, as we had an example of in previous testimony, paying $3,000 for a million dollars worth of coverage in the New Jersey Blue Cross; but it may be this would be a cheaper program and be enthusiastically received.
Thank you, sir.
The CHAIRMAN. As an indication of interest, Mr. Pelly, this pile of mail that I have before me there is just what came in yesterday. So you can see from that the very great interest there is in this subject and that has pretty good reference to one feature of the bill in which people are asking for legislation to be helpful to them.
Mr. PELLY. That is quite interesting, because not very many people know much about it.
The CHAIRMAN. You would be surprised. If you will come into my office and help answer the mail, I think you will find that there is a tremendous number of people who are interested in it.
As I said yesterday, I know of no subject in all of the years I have been a Member of Congress that has created so much interest as this particular legislation has.
Mr. HALE. Mr. Chairman, you are talking about health legislation generally, or this particular reinsurance?
The CHAIRMAN. I am talking about both. Maybe my remarks do not stress the point you would like, in connection with this bill.
Mr. PRIEST. Mr. Chairman, may I ask a question there with reference to the mail situation!
The CHAIRMAN. Mr. Priest.
Mr. PRIEST. I have a feeling that perhaps a great many people generally believe that this reinsurance program, if enacted and put into effect, will provide some individual benefits that a private citizen may receive, some benefits directly through this program, which, of course, as I understand it, is not true.
The relationship is entirely between the insurance fund and the carrier of insurance. The individual as such does not come into the particular picture.
I think that phase of it should be cleared in the public mind, because I believe that some of the mail probably reflects the feeling that Jack Johnson at 1006 19th Street can directly receive some benefits through this particular fund, just as Jack Johnson of the same address would apply to the RFC for a loan for his business, and I believe we should, in the very beginning, clear that in the public mind, that that is not that sort of a proposition, if I am correct, and I believe I am.
Mr. PERKINS. Yes, sir; you are correct, and I think you are doing the Administration a favor to clarify that in the public mind.
The plan's success and its benefits to the individual depend upon what the carriers do under it.
The CHAIRMAN. Well, of course, I do not know what kind of communications are received by other members of the committee. I can say very definitely that I do not have in mind one single letter, of all the hundreds I guess thousands—that I have received—and I take occasion to look at each of them every day as they come in, and there has not been one that I can recall that spoke of the bill in terms of individual benefits, except indirectly, to the end that the policies that they would have would be a better protection than the policies that they now have, and that would relate in most cases—or a great many-I will put it that way-relates to this cancelability that exists in most of the policies that are in operation at the present time; that is, as soon as there is some illness of a certain kind develops, then the first opportunity that the company has, or the group can have, the insurance is canceled, and that stands out prominently in all of the mail that I have received. I venture to say that anybody that looks at this mail will be impressed with that fact.
Here is one that covers a more general character, and a noncancelable policy:
That is the burden of all letters, or most of the letters that I have received.
Mr. ROGERS. Mr. Chairman.
Mr. ROGERS. Mr. Perkins, I would like to have you comment on why this reinsurance should be restricted to abnormal losses.
Mr. PERKINS. Well, perhaps the term "abnormal losses" is an unhappy choice of words. We could perhaps use, or call it "losses.”
Mr. ROGERS. What?
Mr. PERKINS. We could perhaps use the term or call it "losses." We used the term "abnormal losses” simply to indicate that there is a provision in the formula for the absorption by the carrier of oneeighth of what it has set aside for administrative expenses before there would be reimbursement under the reinsurance formula.
Mr. ROGERS. But it appears to me from the language used that you are not going toMr. PERKINS. I beg your pardon.
Mr. ROGERS. You are going to let the Government just participate in the losses. In other words, they can only insure against losses. Is that the purpose of it? Insure against losses, abnormal losses.
Mr. PERKINS. You say, is that the purpose of it?
Mr. ROGERS. Yes, to insure against abnormal losses; get reinsurance against abnormal losses.
Mr. PERKINS. Well, I think that really all the carriers would want is reinsurance against losses. Of course, the Government would share in favorable experience as well.
Mr. ROGERS. Why do you not say that that is so? You do not say that.
Mr. PERKINS. Well, the reinsurance premium paid into the Federal reinsurance fund would accrue to the fund, and in the event that there should be no abnormal losses by the carriers under this plan, in that particular year, so that, just the way that we pay our insurance premium on a house that does not burn down, so also the Federal reinsurance fund would benefit from the reinsurance premiums paid in that particular year.
So that the Federal fund would be sharing in the favorable experience, as well as the unfavorable experience of the carriers.
Mr. ROGERS. It looks to me like the odds would be very much against the Federal reinsurance fund under the abnormal losses; reinsurance of abnormal losses.
Mr. PERKINS. No; on the contrary, the fact that we reinsure only abnormal losses and have this cushion of one-eighth in the formula means that the Federal Government is sharing in fewer losses. It is only when the losses exceed the amount that the carriers anticipated allocating to contingencies and profits, plus a little bit for administrative expenses, that the Federal Government steps in. Of course the Government stepping in where there are fewer losses is the same as under the $50 deductible provision in an automobile policy. It is going to result in a more favorable experience for the reinsurance fund and, the premium, the reinsurance premium, would be actuarially determined so as to take into account all of these factors.
Mr. HESELTON. Will the gentleman yield?
Mr. HESELTON. You use the expression where comparable reinsurance is not available. What is the element that enters into that?
Mr. PERKINS. For reinsurance?
Mr. PERKINS. Well, testimony was received yesterday to the effect that the availability of reinsurance in the health area is extremely limited today.
Now, under those circumstances there would probably be a relatively few cases in which the Federal reinsurance fund would say