Mr. EDDY. Yes; families, dependents, of servicemen, and that is divided, I believe, between the Blue Cross Association and a very fine company, the Mutual of Omaha which, I think, is one of the fine representative companies of your good State, sir.

Senator CURTIS. How long has that gone on? It has been several years, hasn't it?

Mr. EDDY. It has been several years. I think it is longer than 5 years.

Senator CURTIS. In general, what are they called on to do? They just administer benefits. They do not collect any premiums.

Mr. EDDY. They do not collect premiums. They administer benefits, and it is a very close parallel to what presumably an insurance company or a carrier would be expected to do under part B.

Senator CURTIS. They administer benefits and process claims.
Mr. EDDY. That is right, sir.

Senator CURTIS. And then pay benefits.

Mr. EDDY. That is right, sir.

Senator CURTIS. And then are reimbursed.

Mr. EDDY. They are reimbursed by the Department of Defense. Senator CURTIS. What has been the experience of private insurance in this field of servicemen's families?

Mr. EDDY. I think

Senator CURTIS. From the standpoint of costs to the system and efficiency, and so on, and how does it compare with the Blue Cross, Blue Shield part of the operation?

Mr. EDDY. Well, perhaps I could best answer your question by saying that the 1964 report of the dependents' medical care program showed that the administrative costs per claim of the two hospital contractors were $2.31 by the Blue Cross Association, and $1.26 by Mutual of Omaha.

Senator CURTIS. Did they both have a sufficient portion of it that it would be a fair comparison?

Mr. EDDY. Well, as I recall, the Mutual of Omaha's share is about, is only, 13 States, perhaps a third of the total, so I would answer, "Yes," to your question.

Senator CURTIS. As an insurance man do you have any reason as to why one costs less than the other?

Mr. EDDY. Well, I have always felt, sir, that the profitmaking system has a greater challenge to perform than the nonprofit system. Senator CURTIS. Will you give those figures again, a dollar what? Mr. EDDY. $1.26 per claim administrative costs by Mutual of Omaha, and $2.31 per claim by the Blue Cross Association. That is in the 1964 report of the dependents' medical care program.

Senator CURTIS. And while there is an assignment which is limited geographically, so far as you know, they were both administering the same benefit program?

Mr. EDDY. It is identical, the benefits are identical. It is just a different geographical area.

Senator CURTIS. Yes. Has service outside of the continental United States been a factor in making a difference in the costs?

Mr. EDDY. I am not aware of that, sir.

Senator CURTIS. Well, one other question. I am intereseted in your comments on the amendments to the Internal Revenue Code, and that will have to have some further attention, but may I ask you this: Are

those technical in nature or do you advocate some basic change in the tax structure?

Mr. EDDY. Perhaps one is technical and two might be considered philosophical. The technical one relates to the provision that premiums for medical care are deductible, provided that they are separately stated in the insurance contract. Because of our difficulty in amending contracts and the requirement of going through State supervisory officials for approval, which is a gargantuan task, we would like to see the language permit the statement of separate premiums to be, in what one might call a separate statement of fact rather than in the contract itself.

Another one, which I say may be philosophical, is that it is proposed that there be a special deduction for one-half of premiums for medical care insurance. We feel that the principle is right or wrong—and we feel it is right, and we say it should be all.

The last is a recommendation that the tax deduction for premiums, medical premiums, be extended to cover those for loss of income because so frequently the insurance premiums paid for loss of income are really important during a period of illness, and while they do not go directly toward the payment of a hospital or a medical bill, they could well be a major part in supplying the reimbursement of such

expenses.

Senator CURTIS. There was a witness here the other day who pointed out that by raising the wage base to $6,600, and lowering the rate, what the House bill really was doing was lowering the social security tax at a time for more than one-half of the workers-when substantial benefit increases were being voted. Your comment does not go into that problem.

Mr. EDDY. No, it does not go into that. Again, my comments, our comment, is more a philosophical one. We do not say that the wage base should not increase. It has increased in the past. We have not, I think, as a matter of principle, opposed it in a point of time. We do think it is wrong in principle for the Congress to legislate in advance of what a future wage base will be.

Senator CURTIS. That is all the time I will take, Mr. Chairman. Senator ANDERSON. You made some remarks about health insurance for the aged people. We have some figures, and I wish you would check them with your group, and if you find something different, we would like to have it. Ours show over 8 million aged have no health insurance at all, about half the aged with commercial insurance policies covering hospital care, have policies providing less than $10 a day for room costs, and very little coverage for other purposes; only about 1 in 20 have health insurance protection that covers about 40 percent of medical costs in their lifetime.

I am not as interested as the Senator from Nebraska about this question of the invasion by the Government into this new insurance company. I will worry about that when the time comes, but I am worried about its actuarial soundness, and one of the things I missed in the testimony of the Department of Health, Education and Welfare was some reason to show why there was the $6 a month premium. Do you have any information on that on the basis of what the hazards are which are covered? If so, I would like to have you submit

them because I do not think there is any testimony before us which shows the reasonableness or unreasonableness of $3 a month from the person, and $3 a month from the Government as a contribution toward this insurance.

If you had a million people who were policyholders or policy purchasers, rather, they ought to know something about the justice of the charge or the injustice of the charge. We got into disability insurance and we were getting along fine with the disability after 50, and then somebody came along and said to wipe it all out because we were not having any claims, and then the fund went into the red which, I think, is very bad for any insurance company, and I hope you will agree with it.

Mr. EDDY. It is not only bad, it is disastrous.

Senator ANDERSON. I think it can be. It has not acquired that situation as yet, but part of this increase in the wage base, I think, is for a portion, a partial coverage of some of these charges.

What I would appreciate from you or any other insurance firm is a study of what this $6 a month means against a million policyholders, and the hazards that are covered by it. As you and I know there is the temptation every 2 years to change the social security law a little bit-and someone might say why doesn't the whole $6 come from the Federal Government instead of the $3; if it is insufficient you would have to start charging again.

I would like to know the soundness of the program. I personally do not think we have very much data as to how it would be administered, because Senator Curtis got the same impression I didthis might be turned over to Blue Cross or Blue Shield or some other organization, and that might not be the best place to put it, I do not know.

Mr. EDDY. Senator, I would like to think that I know a lot of answers, but you have asked such a wide range of questions, would I be permitted to secure from the reporter what you have just said and then to file with this committee the evidence we have and the studies we can provide to give you our views on those costs?

Mr. ANDERSON. Mr. Eddy, that is why I asked the question, not for this morning but if you would do it sometime later

Mr. EDDY. Yes, sir.

Senator ANDERSON. Because one time I was working on a bill called the King-Anderson bill, I submitted the material in it to a very large life insurance company, and they took some time and made a study and pointed out a great many things to me that I had not considered at all, and those things were changed in subsequent versions of the bill.

Now, I feel it might be possible to find something in the House bill just possibly that might be wrong, and we ought to at least be able to look at it, and I would like to look at it. Anything you can file of that nature would be very much appreciated, and I extend the invitation to any other insurance group or firm, including Mutual of Omaha, which seems to have made a very good record in the administration of this Government program.

Mr. EDDY. Thank you, sir, I shall do my best to see that your query is extended widely throughout the insurance world. (The information referred to follows:)

Senator HARRY F. BYRD,

CONNECTICUT GENERAL LIFE INSURANCE CO.,
Hartford, Conn., May 17, 1965.

Chairman, Senate Finance Committee,
New Senate Office Building,

Washington, D.C.

DEAR SENATOR BYRD: During my appearance before the Senate Finance Committee on May 10, 1965, Senator Anderson asked me to provide information as to the actuarial soundness of the program called for by part B of H.R. 6675. As I indicated at the time, estimates of costs under such programs will vary depending upon the underlying assumptions upon which they are based.

As shown in the attached memorandum, under the assumptions believed appropriate by actuaries of the insurance associations which I represent, the initial cost of the benefits of part B are estimated to be $7 per person per month. It is expected that these costs will increase appreciably in future years and we be lieve will reach $18 per person per month by the 25th year of the program.

My comments were also requested with respect to certain statistics on health insurance coverage of people over 65. These comments follow.

The statistic of "over 8 million aged" with no health insurance is derived from a study conducted by the Social Security Administration. It was based upon a household interview survey of a sample of the population over age 65 and refers to coverage as of the end of 1962. While the results of such surveys contain much that is of interest, they are subject to a degree of variation due to sampling, respondent error, and the memory factor. That the latter can be significant among the aged may be observed from the results of a somewhat similar survey conducted by another agency of HEW. The National Center for Health Statistics has found, for example, as much as 17 percent underreporting of hospitalization episodes by the aged interviewed in such surveys. If almost one out of every five aged persons did not remember such a traumatic experience as a hospital episode, it is likely that they would have similar difficulty with respect to reporting the ownership of a health insurance policy. This would be particularly true where the policy, as is often the case, is purchased by a son or daughter.

It is of additional interest to note that the "over 8 million" uninsured aged in 1962 included, according to the SSA survey, the institutionalized aged (some three-quarters of a million) as well as the noninstitutionalized. The 8 million also includes about 2 million aged receiving old-age assistance (and as such are eligible for medical care under the vendor payments progam) as well as an unknown but substantial number eligible for assistance under the MAA program. The latest survey of the Health Insurance Association of America, based on actual records from insurance companies and other insurers, indicates that 10.6 million persons over age 65 were covered by some form of health insurance at the end of 1963 (61 percent of the noninstitutionalized aged). Inasmuch as there were about 17.4 million noninstitutionalized aged at that time, an estimated 6.8 million were uninsured. Among these would be included most of the 2.2 million then on old-age assistance as well as those under the MAA program.

The reference to "about half the aged with commercial insurance policies covering hospital care have policies providing less than $10 a day for room costs" is from a study conducted by the Health Insurance Association of America. This study measured such coverage as of July 1961-almost 4 years ago. Since that time, many thousands of people over 65 have become insured under various State 65 programs, and individual company programs, which offer broad coverage (including coverage for major medical expenses). There is no doubt, therefore, that the proportion of the aged covered by insurance companies for hospital expenses, with policies of $10 a day or less for room and board, has decreased considerably since 1961.

It is of additional interest to note that about 13 percent of the insured aged in 1961 had more than one policy. The extent to which such duplicate coverage was present among policyholders with $10-a-day coverage is not known. It is generaly acknowledged, however, that the tendency to acquire additional coverage is more prevalent among persons with policies containing less extensive benefits.

Documentation for the comment that the aged have "very little coverage for other purposes" could not be found by the insurance associations. The statement is not in agreement with data developed by the Health Insurance Association of America. Such data indicate that at least 1.3 million aged persons had major medical expense coverage at the end of 1963. The association also found at that time that 82 percent of the aged covered for hospital expenses had coverage for surgical expenses and that 42 percent had coverage for regular medical expenses.

We are unfamiliar with the basis for the statement that "only about 1 in 20 have health insurance protection that covers about 40 percent of medical costs in their lifetime." Although we can make no comment on this statement, it is of interest to note that the U.S. national health survey has indicated that 82 percent of the insured aged discharged from hospitals during 1958-60 had more than half the hospital bill paid by their insurance and that 59 percent had three-quarters or more of the bill covered.

May I again express our appreciation of the opportunity to appear before the Senate Finance Committee. If we can be of additional assistance in these matters, please let us know.

Sincerely yours,

C. MANTON EDDY, Senior Vice President.

ACTUARIAL ESTIMATES OF THE INITIAL AND LONG-RANGE COST OF BENEFITS UNDER PART B OF H.R. 6675, "SUPPLEMENTARY HEALTH INSURANCE BENEFITS FOR THE AGED"

It is the actuarial judgment of the insurance associations that the benefits of part B of H.R. 6675 will have an incurred cost of $7 per person per month in 1967 (the first full year of benefits under the program). It is the further considered judgment of the associations that these costs will inevitably rise during ensuing years. By 1990, (the 25th year of the program), the incurred cost will reach approximately $18 per person per month. The actuarial details of these estimates are presented on the following pages.

If 90 percent of the 19.4 million people over 65 in 1967 elect to enter the program, and under an assumption that each pays $3.50 (of the estimated cost of $7) per person per month with the Government matching this amount each month, the total cost to the Federal Treasury in that year, for this program will be $735 million.

By 1990, under the foregoing assumption as to equal cost sharing between the beneficiary and the Federal Government, and with 90 percent of the then 30.4 million people over 65 participating, the annual cost to the Federal Treasury will be $2,959 million.

Cost estimate for 1967

Based on data generally available from insurance companies, and employing the techniques used by actuaries in valuing the costs of major medical and other types of medical expense plans, the following was determined (before application of the deductible and coinsurance):

(1) The cost for surgical and anesthesiological services will be $35 per person per year. This estimate assumes that the level of charges will be equivalent to those experienced under policies with surgical schedule maximums of $500.

(2) The cost for in-hospital physician services will be $15 per person per year. This estimate assumes a hospital utilization rate of 3 days per person per year at a cost of $5 per physician visit.

(3) The cost for doctor visits at home and in doctors' offices will be about $50 per person per year. This estimate assumes that there will be an average of nine physician visits per person per year at a cost of $7 per home visit and $5 per office visit.

(4) The cost for the out-of-hospital services of radiologists, pathologists, and physiologists will be $5 per person per year. This estimate assumes that such costs will approximate 4 percent of the hospital per diem.

(5) The cost of home-care services, in 1967, will be $5 per person per year. (6) The cost for psychiatric services, diagnostic X-ray and laboratory services and applicances will be $5 per person per year for each of these benefits.