actual cost of providing insurance protection against medical care expenses (as defined in new section 213 (3) (1)).

A problem arises with respect to the requirement that the charge for medical care insurance must be "separately stated in the contract." There are many hundreds of thousands of existing contracts which do not contain a separate charge for medical care expenses. In order to comply with the requirement of section 213(e) (2), it will be necessary for insurance companies to amend these numerous existing policies. This type of amendment will usually require a change in the policy form which, in turn, requires the approval of the various State insurance departments. The processing of these policy changes can be both time consuming and costly to the insurance companies.

The obvious purpose of the requirement that the medical care expense charge be stated in the contract is to furnish the policyholder with the information as to the amount of his deductible item. This same information could be provided just as well in a statement furnished the policyholder by the company. In many instances, it would be more convenient and cheaper for the insurance company to furnish the information in a separate statement.

Accordingly, it is requested that section 213 (e) (2) be amended to provide an alternative method of furnishing the medical care expense charge to the policyholder. This might be accomplished by amending section 213 (e) (2) in the following manner:

“(2) In the case of an insurance contract under which amounts are payable for other than medical care referred to in subparagraphs (A) and (B) of paragraph (1)—

"(A) no amount shall be treated as paid for insurance to which paragraph (1) (C) applies unless the charge for such insurance is either separately stated in the contract, or furnished to the policyholder by the insurance company in a separate statement,

"(B) the amount taken into account as the amount paid for such insurance shall not exceed such charge, and

"(C) no amount shall be treated as paid for such insurance if the amount specified in the contract (or furnished to the policyholder by the insurance company in a separate statement) as the charge for such insurance is unreasonably large in relation to the total charges under the contract." Italic supplied.

SECTION 106 (C) OF H.R. 6675-DENIAL OF DEDUCTION FOR LOSS OF INCOME

INSURANCE

H.R. 6675 should be amended to allow a deduction for the cost of insurance allocable to indemnity for loss of income. The social policy underlying the deduction for the cost of insurance allocable to medical care expenses applies with equal force in the case of cost of insurance allocable to income continuation payments, which not only provide protection (though in most cases only partial replacement of income) for the insured and his dependents during a period of disability, but enable the insured to meet those extraordinary expenses of illness which are not precisely characterized as medical expenses. Family providers should be encouraged to obtain this type of insurance.

Senator ANDERSON. Thank you, Mr. Eddy. This is a very interesting paper. You have done it in a good, short fashion which we all appreciate.

Under section 303, you speak of this change as undesirable, and it may be. But the present provision says "an event which can be expected to result in death." Isn't that a strict burden to put on a doctor to say that it is to result in death?

Mr. EDDY. I thought, Mr. Chairman, it was long and unpredictable. Senator ANDERSON. I was coming to that, in terms of which can be expected to result in death or to be of long, continued, indefinite duration.

Would it help any-I am not trying to suggest this as your language but would it help any if we confine it to a provision that would not permit anybody to receive more than 80 percent of what his aver

age wage had been, to keep from having the double benefits which you are mentioning, and others have talked about?

Mr. EDDY. The prevention of double benefits is most important. But there is another point of principle, Senator Anderson, on which we are making our case, and that is hopefully not to have the Government intrude further into our insurance business.

The definition of "permanent" is a very strict one, but on the basis on which the legislation was first passed, I think the record shows that the intent of the Congress was to make provision as an extension of the old-age benefits program, an extension of a provision for those who were faced with, one might say, early retirement because of a future continuing disability. Originally, there was even the age of 50 as a limitation placed upon it.

We do feel that we in insurance have made available to the public a fine product at fair prices and that we are able to supply to public needs.

I am conscious of the fact that there are many cases where individuals do not qualify under the definition of permanent disability that result in strong letters of protest to Members of Congress.

But I would also submit to you, sir, that the disability field is one in which, whenever an individual is turned down, there is a protest. We in private insurance find that in our claim processes, and I do not think it is possible to write a disability program that will not result in complaints. Perhaps, in shortening the term you might be encouraging, not intentionally encouraging, but end in finding that there would be more complaints than Congress is receiving now.

Senator ANDERSON. On your part B comments, you mention the fact that this puts the Government into the insurance business. I do not know how many people would take the plan, but apparently the House felt that a great many would. I do not know how many workers would, but supposing 50 million workers would take the plan, which is certainly a large number. At $72 a year, that would be a premium income, as I figure, of $3,600 million a year. How many existing American insurance companies have that much premium income?

Mr. EDDY. Trusting my memory, I would doubt that any have. But you rather frighten me, Senator Anderson. You have projected 50 million people. Either you are far in the future or you are dropping the age limit of 65, because I think we have only, as I understand it, 19 million eligible who are now 65 or over.

Senator ANDERSON. I realize that, but take 20 million, that is $1 billion a year income. There are very few companies which have that large an income; isn't that right?

Mr. EDDY. Very few companies have that; very few companies

have that much income.

Senator ANDERSON. I think probably the Metropolitan and maybe the Prudential.

Mr. EDDY. My own company has approximately, in all forms of personal insurance, life and pension as well as health, we have approximately half a billion, and I believe on the basis of premium income we are considered to be in the first 10 in size. We do not consider ourselves a large company, but we are in that first 10.

Senator ANDERSON. Well, I am only trying to get you to say whether or not you feel it is a pretty substantial insurance undertaking for the Government to be in.

Mr. EDDY. Senator, I heartily agree with you, it is a serious and tremendous undertaking.

Senator ANDERSON. I say it only because I do feel it is going to take some hearings certainly on this one phase of it, and some very expert testimony by some, what I would regard as, very expert insurance people as to the problem of launching an insurance company with a $1 billion a year income, premium income, without a great deal of preliminary planning.

Do you regard that there is enough time in the bill for that sort of plan, or would you extend the period of it?

Mr. EDDY. I would certainly extend the period for hearings. I would trust that we are speaking of not enacting the legislation with a delayed effect. We are discussing a postponement of the legislation so that all the factors can be considered in these hearings.

Senator ANDERSON. The other day we had testimony by Blue Shield and Blue Cross, and the impression was left with me-I do not know about any others that they might be a logical person to handle or insure this, and I thought at the time that it was a pretty fair-sized hunk of premium income to just hand a company without preliminary negotiation. I do not know how much the Secretary would negotiate, but there is a provision in here about a private plan. I do not know whether it would involve private companies in the ordinary sense or whether it was just to be done by Blue Shield, something of that

nature.

As an insurance man, would you recommend a very searching inquiry into a question as to who would carry that load?

Mr. EDDY. I certainly would.

Senator ANDERSON. It strikes me that would be the thing to do. It looks like an awfully large company to start out afresh. I did not mean to get into a lot of questions of you, but it did strike me as a prety large program. Your company started with a small premium income; did it not?

Mr. ÉDDY. It certainly did. We are celebrating our 100th birthday this year. The premium we started with was hard to find in 1865. But I will say, Senator, when I joined the staff-it wasn't called staff in those days-when I became the so-called office boy in 1922, our total accumulated assets were $42 million, and we were quite proud of that at that time. But our premium income was only a few million dollars. And that was after

Senator ANDERSON. $2 million?

Mr. EDDY. A few million. My memory isn't that good, but I know it was not too much, and that was after over 50 years of existence. Senator ANDERSON. Senator Bennett.

Senator BENNETT. I have no questions. I want to join the chairman in thanking Mr. Eddy for bringing us this very well reasoned presentation of the problems from the point of view of the insurance agency, whose field is being invaded. I am glad it is a reasoned presentation rather than an emotional one.

Mr. EDDY. Thank you.

Senator ANDERSON. Senator Curtis.

Senator CURTIS. Mr. Eddy, while part A puts the Government into the insurance business, it is an extension of the OASDI into a more or less new field, is that right?

Mr. EDDY. Yes, sir.

Senator CURTIS. Part B clearly starts a new Government insurance program, does it not?

Mr. EDDY. Yes, sir.

Senator CURTIS. And according to the way you read the bill, who will run this insurance?

Mr. EDDY. Well, I really do not know, sir. There might be some speculation, but I would think in the last analysis it is going to be HEW.

Senator CURTIS. I would think so, plus the Congress. It will be a political insurance company, and we start right out with the Federal Government paying half of the premium for everybody, for every enrollee regardless of his financial circumstances, isn't that correct? Mr. EDDY. Yes, sir.

Senator CURTIS. I do not want to take too much time on that, but it will have a considerable impact upon private insurance relating to people over 65, will it not?

Mr. EDDY. I might even call it a devastating impact.

Senator CURTIS. Yes.

Mr. EDDY. It practically moves us out of the over-65 market with respect to any of our private insurance companies.

Senator CURTIS. We have heard a great deal of talk in this country about the Government competition with private enterprise. Well here, with one stroke, the vast Government insurance ventures undertaken at a premium rate that is probably drawn out of the air, I don't know where they got it, and the Government is going to subsidize half of everybody's premium.

Mr. EDDY. Yes, sir.

Senator CURTIS. And you think that the individual who wants to turn to private enterprise to purchase his insurance if he is past 65, if this is enacted, and once it gets in motion for a while, his opportunities to buy are going to be very much reduced, is that right?

Mr. EDDY. Very much reduced. After all, sir, if one can buy a product at 50 cents on the dollar, he usually does.

Senator CURTIS. Well now, without asking you for too much detail, just what progress has been made by private insurance companies in improving hospital and medical insurance for people over 65? What progress has been made in the last 2 years?

Mr. EDDY. If I may refer to a note I have

Senator CURTIS. Surely.

Mr. EDDY. Actually, sir, it is testimony from an insurance witness last August before this committee. May I read it because it says better than I could ad lib it:

We have estimated that 60 percent of the noninstitutionalized aged population were covered by some form of voluntary health insurance at the end of 1962. Then another sentence:

These studies, when related to earlier studies, reveal that the number of people aged 65 and over with health insurance protection has about tripled during the decade 1952 to 1962.

That, sir, is the number of people if we speak of a portion of the aged population.

The proportion of the older population covered has doubled during the same period.

Senator CURTIS. Has that been because of added efforts on the part of the insurance companies to meet this need that has come to the forefront?

Mr. EDDY. Very definitely so. The insurance business has felt a challenge and a responsibility. It is a field that is admittedly difficult to do good work in, but the private companies have expanded their offerings, State 65 programs have come into being, and all in all I think the net result has been to provide an attractive line of products for people with the ability to pay. We must say with the ability to pay. There is no possibility for private insurance to provide benefits to people without the ability to pay because we would have to draw on resources of others, and that is not possible within our business.

Senator CURTIS. And in line with that, it is also impossible for either the Government or the private insurance industry to determine what the costs of medical care are going to be; isn't that right?

Mr. EDDY. I think it is very difficult; one of the greatest problems, sir, is that the costs are not static costs. We all know that the costs of health care, particularly of hospital care, have shown an annual increase. I believe the record is 7 percent per year over the past decade. Many actuaries in protecting the immediate future, provide for a 5-percent per year increase. Chairman Mills, of the Ways and Means Committee, I think, was very careful in putting in the proviso that the $6 cost, shared equally by Government and individual, would be reevaluated every 2 years, so that it would be certain that the Government would not be paying more than half the costs.

With any sensible projection into the future, it is obvious that $3 will not stay in being for very long. The Congress will have to legislate or it will have to be determined that a higher dollar figure will have to be used.

Senator CURTIS. In reference to hospital costs, Senator Saltonstall read into our record here the other day a study made in New York under some group under the direction of the Governor that indicated the time may be fast approaching when the cost of a hospital bed would be $100 a day, in that area.

But what I am trying to point out is: that is a different problem than who provides the protection for it, isn't it?

Mr. EDDY. Yes, sir.

Senator CURTIS. Now this bill would indicate, it is not too clear in many respects, that outside carriers or Blue Cross, Blue Shield, or someone, would be contracted with to administer it. That is particularly true of part B; is it not?

Mr. EDDY. Yes, sir.

Senator CURTIS. Has private insurance had any experience in that? Mr. EDDY. One of our companies, the Aetna Life, is the lead company for insuring the indemnity program under the Federal employees health benefits and has, I think, perhaps a quarter of that coverage. That is on an insurance risk-sharing basis

Senator CURTIS. Yes.

Mr. EDDY. But, on the basis of being an administrative operation, not sharing risk, but merely being a pipeline through which the Government money flows out to the beneficiaries, the military medicare program is a case in point.

Senator CURTIS. You are speaking now of the families of service

men?