necessarily a black or white matter. And I think that that may be one of the basic reasons for the distinction between having a board of directors as in H. R. 6949 and having the powers established under the Secretary with the Advisory Council as in H. R. 8356.

The CHAIRMAN. In the original bill reinsurance premiums were established by statute at 2 percent of premium income. In the present bill reinsurance premiums are to be established by the Secretary through regulation.

Mr. PERKINS. This is quite a significant or important difference. The administration bill, because it is designed to be completely selfsustaining, is based on actual yearly premiums throughout, and it was believed by the consultants to be impossible to set a statutory rate for all types of plans. We would anticipate that there would be many different types of plans submitted for reinsurance and that the only way to handle it on a basis, self-sustaining basis, would be for the actuaries to scrutinize each particular plan for the actuarial risk involved and fix the reinsurance premium rates accordingly, and we do not feel that we could operate under this bill with a statutory fixed premium rate, a fixed reinsurance premium rate, and make it achieve its purpose.

The CHAIRMAN. Now, in the original bill reinsurance benefits were established by statute, namely two-thirds of each claim in excess of $1,000 during any 12 months' period, whereas, under the present bill, H. R. 8356, reinsurance benefits are established by statutory formula (three-fourths of insured cost which is calculated by taking into consideration the premium income, benefit payments, and administrative expenses). Reinsurance benefits for policies providing for services rather than cash benefits are to be established by the Secretary through regulation.

Mr. PERKINS. Here again, sir, there was the belief of the Secretary and of the consultants that optimum operation would be achieved by reinsuring the plan in the aggregate. The thing that we are seeking to accomplish is the improving of voluntary health prepayment plans and extension of coverage into new areas.

Now, since we focus attention on the plan itself, as opposed to an individual claim, I think it is readly observable why we believe that the reinsurance payment should be based upon losses of the carrier under the plan as a whole, rather than have the Federal Government step in and pay, or make a reinsurance payment merely because one individual under the plan required a payment in excess of $1,000 during the 12 months' period.

It was felt that the Federal Government should give a carrier assurance that if its experiences in the aggregate under the plan during the year were very bad, then the Federal Government would share in the loss. In other words, the philosophy of the bill is to look not to individual losses but losses of a carrier under a plan as an aggregate and to hope that carriers will improve the plan in the aggregate. The CHAIRMAN. Now, with reference to standards, I would like to ask a few questions.

In the bill originally introduced by me, subscription charge must be fixed as percentage of income. There is no such provision in the present bill. Has consideration been given to that?

Mr. PERKINS. Yes, sir. Well, I think, sir, that that is perhaps a part of the same question that was referred to earlier on standards in gen

eral. And, as I think I indicated in my answer, we felt that in general it would be unwise to insert in the bill detailed standards of types of insurance policies.

Now, of course, this one is a somewhat special type of standard you are referring to. It is special in the sense that it relates to the very basic question of whether or not the Federal Government should insist that subscribers' charges be fixed as a percentage of income, and we think that this is more appropriate in a subsidy type of plan, and that H. R. 6949 was based more on that approach, whereas in this self-sustaining operation which is proposed in H. R. 8356, with no Federal subsidy involved, that the Federal Government should not be in a position of telling the carrier in terms of standards just what kind of a scale of premium rate is charged.

Naturally we would be pleased and will welcome it if a carrier should be able to work out a schedule such that it could charge less for low-income groups. We did not feel that that should be a standard in the bill itself.

The CHAIRMAN. Now, subscribers, under the bill that I introduced originally, subscribers from outside State of domicile of health plan were limited to 25 percent of total subscribers.

What would be your reaction to that kind of a standard?

Mr. PERKINS. Well, although we have no comparable provision, as with other regulations, or other standards the Secretary under H. R. 8356 would be empowered to create such a standard.

I personally would not be able to comment on the desirability or necessity of a comparable standard, whether it be in the bill or in regulations; but I would say that we would not feel that it should be set up in the bill. If you would like comments on the desirability, per se, an answer as to whether or not it should be something that the Federal Government should stand by, as a regulation, I would welcome the comment of Mr. Stuart and Dr. Keefer.

The CHAIRMAN. Well, I would not want by my asking the question to infer that you would necessarily be in a position to answer a question like that, for a second, and it would be a question that undoubtedly, as some of these others are that I may ask, would require a great deal of study before it could be answered.

I want any of you to feel perfectly free in expressing yourselves in that way, if you feel advisable to do so. I would not want the fact that you attempted to answer my questions to be taken as a hard and fast rule that that would apply to the Secretary in the making up of standards under the bill, as you have prepared it, which provides for discretion in the matter.

So that I want you to feel perfectly free to either answer or not answer and no matter what your answer may be, I want you to realize that that is not binding, so far as the Secretary is concerned, if we should pass the bill in its discretionary form.

Mr. PERKINS. Would you like to comment on the merits of that, Mr. Stuart?

Mr. STUART. Under this bill, which encompasses the private insurance carrier as well as the nonprofit plans, this type of regulation would seem not to be appropriate to me. If it encompases only the prepayment plans which are all locally operated, then I think it would be a very proper provision.

The CHAIRMAN. I think that you are referring to a very important factor.

Now, what do you think about a standard which has been set up in that original bill that the policy must provide for 6 months' hospitalization during any year?

Now, I am asking this question with this thought in mind, that as you have had a discussion of the whole subject matter and the assistance of individuals who were well qualified to express opinions from the standpoint of experiences that they had gained, I am hoping that if such did take place that you could give us that particular thought. Again, I emphasize that I do not want the answer to be taken as a positive assurance or as a statement as to what would happen if the discretionary form of the bill were adopted.

Mr. PERKINS. I think I would like to ask again Dr. Keefer or Mr. Stuart as to whether or not they would feel that a regulation concerning a fixed period of hospitalization would be desirable or whether that, too, would be something that even in regulations we would want to leave flexible.

The CHAIRMAN. Should the policy provide for 6 months' hospitalization during any year?

Dr. KEEFER. In my opinion, sir, the standards should allow for the greatest possible flexibility. In some instances you may want to have a policy that would continue hospital benefits for a year. In other plans it might very well be quite acceptable for the plan to include 120 days. That could be based mainly on experience in various plans and in different areas.

Mr. PERKINS. Without knowing much about it, I will just amplify Dr. Keefer's statement. I would guess that I as an individual policyholder might want to buy a policy that said I could be hospitalized for a year, or two, consecutively, rather than having 6 months out of any one year kind of a proposition, and I would suppose we would not be prepared to say which type would be better, at least at this time.

Mr. STUART. I think that we are really, Mr. Chairman, speaking as individuals who are interested in the problem that the basic period of coverage be adequate to cover all ordinary types of hospital admission, and we are tending toward either a 70 or 120 day basic period.

Then, in addition to that, we think that we would urge that some arrangement be made for long term, longer term than 6 months, longer than a year if necessary in individual cases with some conditions or deductible provisions.

The CHAIRMAN. What would you think of a provision that would require a subscriber to pay a dollar per day, or 5 percent, whichever is less, of any hospital bill. You see the purpose of the standard that I refer to.

Mr. STUART. In the voluntary nonprofit prepayment field we are coming to recognize the need in some areas for some conditions and some deductibles, but on the basic coverage, or days of coverage, we hope not to have to have conditions or deductibles, but we may be forced to have them.

Mr. PERKINS. The objective of the reinsurance program, we think, should be to stimulate broader and better coverage and benefits. To require that the carrier insert coinsurance or deductible provisions of this type in the plan would seem to me to go counter to this objective.

If any standard on this matter should be established-there should, I think, be no statutory standard-it should point in the opposite direction, that is, it should probably place limits on the kind of deductible or coinsurance provisions that could be inserted in a plan eligible for reinsurance. This could be done under section 303 (a) (1) and (5) of H. R. 8356.

The CHAIRMAN. What do you think of a standard that a policy must provide for payment of 75 percent of cost of 12 doctor visits at home or office during any year excluding the first visit?

Shall I read the question again?

What do you think of a provision that a policy must provide for payment of 75 percent of cost of 12 doctor visits at home or office during any year excluding first visit?

Mr. STUART. I think, Mr. Chairman, we have to in this field of voluntary prepayment plans, arrange for payment of such visits with some deduction of the first or maybe the first 2 or possibly the first 3 visits. I think it might go beyond the number which you mentioned. Mr. PERKINS. The standard you are asking about has two aspects: First, it would require 25 percent coinsurance with respect to the first 12 doctor visits, plus an exclusion of the first visit: and second, it would place a limitation on the number of doctor visits for which any payment could be made.

With respect to the coinsurance aspects, again, I certainly do not think we would want to fix any standards insisting upon a specified coinsurance percentage or the exclusion of a particular number of visits. On the second point, we would also not want to create a standard which limited the number of visits for which protection could be provided.

These kinds of limitations might well be necessary, in a bill such as H. R. 6949, which is a bill providing for matching of reinsurance premiums out of general revenues of the Federal Government and which reinsures individual claims. These limitations, in that type of bill, afford a certain measure of protection to the Federal Government as the reinsurer.

On the other hand, under a bill such as H. R. 8356, such limitations seem wholly inappropriate. Under the program we propose reinsurance premium rates would be actuarially determined. They would probably be higher for very liberal plans. In any event, an actuarially determined reinsurance premium would reflect these matters and, therefore, there would be no necessity of establishing statutory maxima and other restrictions on the benefits which a reinsured plan could provide.

The CHAIRMAN. Do you think that the policy should provide for payment of 95 percent of the cost of medical services in hospitals? Mr. STUART. I am not sure who would pay the 5 percent. The CHAIRMAN. I say, do you think that the policy should provide for payment of 95 percent of the cost of medical service in hospitals? Mr. STUART. I think there are better ways of covering it than on a portion of the cost basis. I think that the initial cost should be borne by the carrier and if it is a long time illness, that then there would have to be some cognizance either on a percentage or an additional basis.

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The CHAIRMAN. Now, getting away from the comparison of the two bills, and the questions I am asking now are of a more general character.

Do you think that there should be a provision as to cancelability at the discretion of the carrier?

Mr. PERKINS. We are still, sir, I assume, talking in general terms, not talking specifically, and just generally as to policy?

The CHAIRMAN. That is right.

Mr. PERKINS. Well, I think that every effort

The CHAIRMAN. I am trying to ask questions that I think the average person is interested in and will want to know our thinking in the matter. It might be that in connection with some of them that we would feel that it should be made a part of the bill. So that these questions I judge are questions that are likely to be asked by individuals, judging by the correspondence that I have had, any number of questions can be asked.

Mr. PERKINS. Well, we think that every effort should be made to encourage carriers to provide noncancelable contracts and certainly no contract should be cancelable simply because somebody becomes ill. You will note that section 303 (a) (7) of H. R. 8356 specifically mentions cancelability as one of the items as to which the Secretary might fix standards.

However, I do not think we are prepared at this time to say positively that no plan with cancelable policies should be eligible for

reinsurance.

The CHAIRMAN. I would like to call to your attention a very worthwhile editorial that appeared in the News, Washington News, March 17, entitled "The Right Idea" on health insurance, and the feature that they particularly referred to and emphasized is that "we advocate that one ironbound condition be written into the bill now pending before Congress:

"No health insurance policy should be reinsured unless it is noncancelable."

I could read further from the editorial, but that expresses in a few words their views and in respect to that, I think that those are the views of the multitude of letters that have been received as a result of the article written by Colonel Grove.

What exclusions or limitations with regard to preexisting conditions on the part of the insured should be tolerated in policies which are reinsurable?

Mr. PERKINS. Well, generally, as I understand it, Mr. Chairman, group contracts, very few of them have any exclusion or limitations as preexisting conditions.

I also understand that individually written contracts normally do. Certainly, generally, all carriers should be encouraged to waive preexisting conditions after a reasonable period of time.

H. R. 8356 would, in section 303 (a) (2), expressly authorize the Secretary to prescribe, as a condition of reinsurance, safeguards against undue exclusions of health services or health conditions or other undue exclusions or limitations. Here, again, we would have a general indication of congressional policy without an attempt to set rigid standards by law. Obviously, the implementation of this authority, especially for individual types of policies, may be difficult