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amount to an attempt on the part of the Government to regulate, directly or indirectly, the practice of medicine or the charges by physicians for medical care.

The CHAIRMAN. Should any distinction be made between medical services rendered in a hospital and medical services rendered outside hospitals insofar as percentage of cost is concerned which the insurer must bear himself; that is, assuming that there would be a limitation of that kind?

Mr. PERKINS. I personally do not have the competency to answer that, whether or not a distinction should be made.

The CHAIRMAN. Do not answer if you do not feel right about it. I do not want to get any thought in the record that we have to come back and explain.

Mr. STUART. From the standpoint of the individual in need of care, there should be no distinction made in the bill.

Dr. KEEFER. I would agree with that.

The CHAIRMAN. Of course-well, I said I would not discuss the points that I had in mind.

Should a coinsurance, that is, an insured bearing a portion of the cost, be required with regard to all insurance policies which may be reinsured under the bill and should maximum and minimum of coinsurance percentage be provided for in the bill ?

Mr. PERKINS. I do not think so. Certainly not in the bill. The language of the question as you stated it, I think, included the words “in the bill,” which gets back to our basic point. Assuming we are not talking about “in the bill,” but are speaking about regulations, I should like, first, to invite attention to section 303 (a) (5) of the bill whick authorizes the Secretary, as a condition of reinsurance, to regulate the matter of coinsurance. As I believe I indicated earlier, there would be no purpose, from the point of view of the objectives of the reinsurance program, to require that policies or subscriber contracts provide for a minimum coinsurance percentage. This would narrow rather than extend health protection and work to the disadvantage of many plans which generally now do not have coinsurance provisions. On the other hand, regulations providing for maximum coinsurance percentages, in those cases in which a plan providing for coinsurance is considered eligible, would evidently be the kind of regulation which could be appropriate. Do you have comment, doctor?

Dr. KEETER. I agree with that statement.

The CHAIRMAN. Should policies have a deductible feature so that benefits are payable only after deductible has been paid by insurer himself?

Mr. PERKINS. I do not think so. Any reinsurance requirement to this effect would run counter to the objectives of a reinsurance program and discriminate against many sound plans. However, within proper limits, coinsurance, for example, in the major-medical-expense type of policy issued by some commercial carriers, may be wholly appropriate. Section 303 (a) (3) of the bill would authorize regulations as to deductible amounts. Under that authority, it would be appropriate to limit the size of deductible amounts, if any, which various kinds of plans may specify and still be eligible for reinsurance.

The CHAIRMAN. Should requirements be contained in the bill that individual applications for insurance must be granted; and if so, what limitations should be placed on this requirement ?

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Mr. PERKINS. If I understand, that would be a requirement in the bill that an individual's application must be granted by the carrier, you mean? Well, I do not think we should have any provision in the bill that would have the tendency of putting the Federal Government in the position of forcing any health carrier to contract against its will, and I am not sure whether that provision might not have that tendency. But this program, I think, would encourage

I carriers to make the coverage available to individuals—not in groups.

In other words, if you tell a carrier in this bill that it has got to insure an individual applicant, then I do think we would be putting the Federal Government in the position of saying to the carrier, “You have got to take this person on," and I think that that would be an undesirable position to get the Federal Government in, but we do hope that the carriers, under the stimulation provided by this bill, are going to want to take all comers.

My friend, Mr. Stuart, here, says he has got a man who is 102 on his rolls, which we think is encouraging.

The CHAIRMAN. Well, I realize that the questions I have asked do require some degree of reflection before you care probably to take a definite position, that would be accepted as a fixed viewpoint.

I am, therefore, going to suggest to you that in these questions that I have asked that I can realize how some of them are rather difficult and yet important enough not to be answered in too brief a manner, and that you shall have the privilege of revising and extending your remarks with reference to these questions and answers.

In other words, so that we will give you an opportunity of giving us as full an answer as you feel would be justified. That would include the reasons that justify you in arriving at your conclusions.

Mr. PERKINS. That is very generous, sir. We appreciate that.

I would like to just reemphasize for the record, since we have spent considerable time on standards, that the consultants were unanimous in recommending that there be no fixed standards for two reasons: (a) Because of the need for flexibility in experimentation, which is the essence of the bill and (b) because without an extended period of preparation and consultation, they thought nobody would be wise enough to determine what the standards really ought to be.

And I recognize the spirit in which you have asked the questions; that is, not only on the issue of whether or not they should be in the bill; but I think it might be well to have that stated for the record at this point.

The CHAIRMAN. Very well.

Well, I have here a statement that has been submitted by Dr. George Baehr, president and medical director, Health Insurance Plan of Greater New York, in which he supports H. R. 8356.

He raises some questions as to whether it will be practical in some particulars as in others. He seems to think, if I get his reasoning, that the proposal will be helpful in creating interest in organizations such as the Blue Cross and similar organizations, more so than it would in some other types of group insurance, but he also agrees with H. R. 8356, the present bill, and the advantages gained by the adoption of H. R. 7700.

It is his opinion, using his words:

It will aid the establishment and growth of the comprehensive service plans by guaranteeing mortgage loans from private lending institutions for the acquisition of needed facilities and equipment.

And it is for that reason that he couples his favorable opinion of H. R. 7700 with his favorable opinion of H. R. 8356.

His statement will be made a part of the record at this point, in full.

(The statement referred to is as follows:)

STATEMENT SUBMITTED BY GEORGE BAEHR, M. D., PRESIDENT AND MEDICAL

DIRECTOR, HEALTH INSURANCE PLAN OF GREATER NEW YORK I wish to be recorded in support of H. R. 8356, because it may aid commercial insurance companies and Blue Cross plans to eliminate existing gaps in hospital benefit coverage and provide more comprehensive protection against the costs of hospitalization. It may aid commercial insurance companies and Blue Shield plans to provide somewhat more adequate coverage against more of the costs of nonhospital personal health services than they provide at present, but for the following reasons it will not enable them to offer anything like complete protection against the costs of sickness.

The commercial insurance companies and the Blue Shield pians indemnify the insured for the fees charged by doctors for their services. They therefore assume dollar risks. The unpredictable number of services which physicians may choose to render when paid on a fee-for-service basis by insurance carriers for medical services rendered outside of a hospital, therefore, means unpredictability of benefit costs to the carriers. This is the real reason for the wide gaps in benefit coverage characteristic of the medical expense indemnity plans of all commercial and Blue Shield companies. Even with reinsurance, wide gaps in benefit coverage will continue to be characteristic of commercial insurance and Blue Shield plans, because unnecessary physicians' services cannot be controlled in a country of this size when physicians are entitled to payment by insurance carriers for each service they may choose to render. Although I am optimistic about the beneficial effect of reinsurance upon the scope of Blue Cross protection against hospital bills, I do not believe that it can achieve that substantial measure of comprehensive protection against the costs of medical care outside of hospitals which low-income families require. This opinion is supported by the unfortunate experiences of the California Physicians plan and the Michigan medical plan, both of which were obliged to discontinue comprehensive out-ofhospital benefits because of inability to control the mounting number of unnecessary services when physicians are paid a fee for each service by insurance carriers.

In order to control overuse of personal health services, the fee-for-service indemnity plans are also obliged to have deductible provisions, waiting periods, coinsurance by the beneficiaries, and other financial deterrents to utilization, in addition to gaps in benefit coverage. These features place excessive financial burdens upon people of low income at the time of sickness or medical need. Because of the deterrent features and benefit limitations, the fee-for-service indemnity plans also do not provide for preventive services or for the numerous services by physicians, specialists, diagnostic laboratories, and X-ray facilities which today play so important a role in early disease detection and control and in the prevention of chronic disabilities. I favor the enactment of H. R. 8356 primarily, because it will encourage Blue Cross plans to provide more comprehensive protection to people of low income against the costs of needed hospital

care.

At the same time, I should like to emphasize that reinsurance will not significantly help group practice medical service plans like HIP which already provide comprehensive personal health services to insured persons without any essential gaps in benefits. These comprehensive service plans do not use the feefor-service system of payment but remunerate groups of physicians on an annual per capita basis. For this reason they are not confronted with unpredictable or unanticipated benefit costs. Reinsurance will, therefore, have little or no influence in encouraging their growth or their extension to areas where they do not as yet exist.

This is apparently recognized in section 305 (b) of H. R. 8356 (p. 20), which authorizes the Secretary to prescribe special regulations for service plans like health-insurance plan in which personal health services are rendered for the carrier "by a provider of personal health services” (presumably a prepaid group practice organization of physicians) “which is an affiliate of the carrier.” The language of paragraph (b) of section 305 is vague, perhaps because the applicability of reinsurance to such plans is doubtful.

It is obvious that the group practice prepayment plans like health-insurance plan which already provide personal health services of comprehensive scope through prepaid medical groups and which, therefore, have no essential gaps in benefit coverage, require totally different legislative treatment for their promotion. In recognition of this fact, Congressman Wolverton and his committee have introduced a bill in the House (H. R. 7700) which in essence is complementary to H. R. 8356. It will aid the establishment and growth of the comprehensive service plans by guaranteeing mortgage loans from private lending institutions for the acquisition of needed facilities and equipment.

Together, H. R. 8356 and H. R. 7700 constitute a balanced health program for the Nation, a health service "package,” which is not costly and which may be exceedingly effective in extending modern medical care under several forms of voluntary insurance. The people of this country can then ultimately decide in the light of actual experience which method of prepaid medical care they prefer, medical expense indemnity or group practice medical service plans. If only H. R. 8346 is enacted, they will have no choice in most parts of the country.

The CHAIRMAN. If there are no other members that have any questions to ask we will adjourn until tomorrow morning at 10 o'clock, at which time we will expect to have present Mr. McNary, speaking on behalf of the American Hospital Association and the Blue Cross Commission and also Mr. Faulkner, vice president of the Woodsmen's Insurance Co., an expert and authority on health insurance.

(Thereupon, at 1:05 p. m., the committee adjourned until 10 a. m., the following morning, Friday, March 26, 1954.)

HEALTH REINSURANCE LEGISLATION

FRIDAY, MARCH 26, 1954

HOUSE OF REPRESENTATIVES,
COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE,

Washington, D.O. The committee met at 10 a. m. in the committee room of the House Committee on Interstate and Foreign Commerce, the Honorable Charles A. Wolverton (chairman) presiding.

The CHAIRMAN. The committee will come to order. I see we are favored in our audience this morning by our colleague, Mr. Curtis of Nebraska. We would be glad, Mr. Curtis, to have you come sit with us on the rostrum.

Mr. CURTIS. Thank you, Mr. Chairman, I cannot do that. I came over just for a moment to see my constituent, Edwin J. Faulkner, who will be testifying.

If I may be permitted to say so, Mr. Faulkner is one of our outstanding citizens who has a long record in matters of public interest and is one of our real public-spirited citizens. I am sure he is interested in assisting the Congress in doing the best job possible in this area.

The CHAIRMAN. We are very glad to have this reference as to the personal character of Dr. Faulkner. We have already heard expressed a high regard for him.

The hearing today is a continuation of the hearings we began on Wednesday, March 24, in regard to H. R. 8356, a bill to improve the public health by encouraging more extensive use of the voluntary prepayment method in the provision of personal health services.

I have brought with me today another batch of letters that have been received, through Labor, indicating the interest of these many, many, many people on the question that we are considering in these hearings. It just seems every day some new group presents letters which indicate the interest of their particular members in this legislation. This batch came from Labor. It was published here on Independence Avenue.

During the last 2 days, we heard testimony from Mrs. Oveta Culp Hobby, Secretary of the Department of Health, Education, and Welfare, and her staff, who testified and answered many questions on this bill.

Today we have with us two eminent witnesses who have previously given this committee valuable testimony in connection with our general health inquiry. They are Dr. Edwin J. Faulkner, president of the Woodmen Central Life, Woodmen Accident, and Woodmen Central Assurance Co., of Lincoln, Nebr., who is also the author of a book entitled "Health Plans," which is a very worthwhile publication; and Mr. William S. McNary, chairman, council on Government relations,

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