They could not keep up these premiums, but last summer, I think, the Continental Casualty Co. sold a good many policies, to 105,000 people or so, but these policyholders, have very limited coverage during the first 6 months of their policy; is that true?

Mr. FOODY. No. During the first 6 months, Senator, they have full coverage. The limitation that I believe you would be referring to is with respect to preexisting diseases. They have full coverage for everything except those diseases which were preexistent during the first 6 months. After 6 months, they are covered for even the preexisting conditions.

Senator NEUBERGER. Then, are they given a complete physical examination at the time they take out their policy?

Mr. FOODY. No. They are not.

Senator NEUBERGER. Who determines that it is a preexisting?

Mr. FOODY. The definition in the policy is one for which they have had previous medical treatment or advice. In other words, that they have been to a doctor or been in a hospital.

Senator NEUBERGER. But it is possible they could have had a condition which they did not know about and this would not void their policy if they had not had any treatment?

Mr. FOODY. That is correct.

Senator NEUBERGER. Then, as soon as that 6 months' waiting period is over is there any change in the premium rate?

Mr. FOODY. No.

Senator NEUBERGER. There has been no increase?

Mr. FOODY. We have had an increase now, Senator, in this year, but regularly speaking, no. This was an unusual

Senator NEUBERGER. It was about 30 percent, was it not?

Mr. FOODY. Yes. But now let me differentiate; this was a general increase, not for the people who just had the policy for 6 months; this was for all the people, some of whom have had it for 6 or 7 years for one of the policies or others who have had them for 18 months.

Senator NEUBERGER. Did these people who came in on the 6-month waiting period receive any notice that they might have an increase? Mr. FOODY. At the beginning, no. They did not, Senator, because we did not know that there was going to be one.

Senator NEUBERGER. You obviously found you could not supply the coverage at what you had hoped to do it for, is that correct?

Mr. FOODY. That is the case.

Senator NEUBERGER. What was the rate, then, for the complete golden 65 package for older persons?

Mr. FOODY. It would be

Senator NEUBERGER. What is their rate per year?

Mr. FOODY. Well, it would be roughly around $300.

Senator NEUBERGER. For a couple, it would be $600 a year?

Mr. FOODY. Yes.

Senator NEUBERGER. This would include basic hospital insurance and what about major medical expenses?

Mr. FOODY. Well our $10,000 reserve policy would pay three-quarters of the hospital bills in excess of $500. It comes in over the basic program.

Senator NEUBERGER. And is there a maximum amount that you will pay per day for hospital?

Mr. FOODY. Yes.

Senator NEUBERGER. $10?

Mr. FOODY. No. That is $25 in the $10,000 reserve policy. Senator NEUBERGER. The one that costs $612 a year for a couple? Mr. FOODY. Yes, $25. Now, when you get the $600-the price that you are talking about where you have the complete package, the limit would be $25 a day.

Senator NEUBERGER. Well, in view of the fact that 50 percent of the people in the United States who are over 65 have an annual income of less than $3,000 per year, does not the cost of this limit their participation then?

Six hundred dollars a year out of an average of $3,000, leaves $2,400 for rent, food, clothing, all other expenses. So, it would seem that we could say that this protection would cost about 20 percent of the annual income of half of the population 65 and over.

And what about the cancellation? Suppose this couple is in the hospital and begin to use up quite a lot of their coverage. Is there an indefinite continuation of the golden 65?

Mr. FOODY. Yes. Our program with the 65, the golden 65 program, is about the same as group insurance everywhere. We look on all the people within a State as being members of a group and the individual has as much protection with this policy as he would if he were working for an employer.

The concept of group insurance is carried over into these policies. There is no individual cancellation involved.

Senator NEUBERGER. It seems like a wonderful idea if these people could be trained to participate in insurance, know the value of insurance, but suppose the day comes that they cannot meet the premium and we have not provided anything else to care for them, the day they do not meet a premium then the insurance policy is canceled; is it not?

Mr. FOODY. That is right.

Senator NEUBERGER. So, the only way to assure that these people would have coverage is some sort of a plan based on their social security or Kerr-Mills because the minute they fail on a premium then it is as if they never carried any insurance.

Mr. FOODY. Well, that is true, but we do not find that the people lapse these policies very fast, Senator. Our experience has been, I think, very good, considering the aspect of death, and there is a high rate of mortality in this age group, I would say the lapsation of these polices is less than we get with individuals insured under age 65, so that the maintenance of the coverage has been quite good.

Senator NEUBERGER. Well, I know, of course, they probably feel that that is the security they need, they must be scared to death of what happens if they do not have any.

How much a month is that for a couple?

Mr. FOODY. About $50.

Senator NEUBERGER. $50 a month a couple has to pay, and if they only have $3,000 a year income?

Mr. FOODY. Well, Senator, you use the maximum program. I wonder if people are very well advised in most instances to buy the entire program-depending on what else they have, depending on their own financial resources. I do not think we get too many people who buy the entire package.

33-420-64-pt. 1——4

Senator NEUBERGER. I am glad you brought that up because I know in your remarks you said that the maximum was not always the best. What alternative would you suggest for people of this low income then?

Mr. FOODY. I think basically anybody is better off buying a deductible policy simply because the possibility of budgeting the first part or of borrowing or of taking it out of liquid assets is much greater. I think, generally speaking, all of us should protect ourselves against the catastrophe of a major claim.

This is my advice to my friends who ask me what I think their parents should do.

Senator NEUBERGER. I am very eager to have you outline what you would consider a good plan, then, because your golden 65 is advertised nationally so much.

Mr. FOODY. Well, I think that here we have a question of some people supplementing their programs. Now, you have to recognize in various areas of the country the price levels are quite different. Although there are some comments all the time about what good is a $10 room and board policy, there are many areas of the country where you can get a semiprivate room today for $12, so that everybody does not live in the areas where you need coverages up to $25, as the golden 65 plan.

So, that in some areas a person is well advised to buy a simple, basic, little form. In other areas, I think they are well advised to buy something that gives them fuller coverage.

Since we are going nationwide with these programs, we have to try and present each of them, and, of course, our feeling, then, is that the individual with whatever help he needs from advisers, whether they be family or professional insurance people, should select what fits their program the best.

Senator NEUBERGER. Can you quickly give us the cost per year of a deductible plan that would be suitable for a rural couple living where hospital costs are not as great? I mean just roughly indicate how much would they save over this $600 a year?

Mr. FOODY. I think for most rural couples, talking about a lowcost area, I think our little 65-plus policy does a very, very good jobit costs them $96 a year, say $100 a year.

Senator NEUBERGER. For a couple?

Mr. FOODY. Oh, $200 a year for a couple. I am sorry.

Senator NEUBERGER. Thank you.

Senator MCNAMARA. You were discussing your golden 65 policy. According to your statement, you have around 400,000 individuals covered by these policies. Is that a figure we got from your statement or not?

Mr. SINGER. No, Senator, there are about 400,000 policies issued in this program to about 250,000 persons.

Senator MCNAMARA. 250,000 persons. That is because some people have more than one policy?

Mr. SINGER. That is correct, sir.

Senator MCNAMARA. Do some policies cover more than one person? Can a policy cover a couple?

Mr. SINGER. These are individual policies, a couple buys two policies. Senator MCNAMARA. What is that figure you gave-400,000?

Mr. SINGER. At the end of 1963, we had approximately 395,000 policies in this program on a little over 256,000 individual persons. Senator MCNAMARA. Thank you very much.

Senator Fong?

Senator FONG. Yes.

Why is it when a man has a multiple policy he only gets paid under one policy? Actually he is paying for another policy which he never gets much protection from?

Mr. FOODY. I wish that were always true, Senator. It is one of the great problems in the insurance industry today, what we call duplication of coverage, that we are trying very hard to solve.

We would prefer that people do not make a profit on their insurance because this induces or we are afraid it induces malingering in the hospital or extra stays and hence does increase the overall cost of care.

But a determination of what is overinsurance is quite difficult to get at. When a person goes in the hospital there are frequently other expenses entailed with the illness other than those which are reimbursed under the hospital forms.

Also, among young people you will find that if mother goes in the hospital, they have somebody in to take care of the children, or child, so that these people may have double coverage.

Under certain policies, certain combinations of policies, we attempt to limit the double coverage if we can avoid it, but a clear, sharp, definition is very difficult to get at, as to what is duplicate coverage and what is not.

Senator FONG. The industry is working on that trying to give the full premium benefit? Many times I find that my costs are only taken care of partly by one policy and the other policy does not pay for the balance of the cost.

Mr. FOODY. I do not understand, Senator.

Senator FONG. Well, I do not recover 100 percent of the cost of medical sickness even though I have two policies?

my

Mr. FOODY. Well, we probably prefer in a sense that you do not recover 100 percent of your cost and I think that could well be a situation where you would be overinsured.

Senator FONG. At least, I think, a big percentage of the cost should be covered if you are going to be covered by two insurance companies. I do not think the company should be allowed to get away with a windfall.

Mr. FOODY. Excuse me, you are talking about where you would have two policies that would overlap?

Senator FONG. Yes.

Mr. FooDY. I am not aware of circumstances like that. The clauses that we are working on to solve this problem in the industry would pay up to the limit of your eligible expenses. That is the two companies would get together and you would be reimbursed up to the limit of your eligible expenses, under the various parts that were insured. This is what we are working on to get to.

Senator FONG. In your answer to the question propounded by Senator Neuberger, you stated that a reasonable policy could be purchased for about $100 a year per person, is that correct?

Mr. FOODY. The Senator's question had to do with the rural area as I understand it, sir.

Senator FONG. Now, $100 can buy you a pretty good policy?

Mr. FOODY. Well, what I was describing was our 65-plus program, which costs about $100, and I would say that the people in the rural areas generally have found this very satisfactory. Now, it does not cover their complete costs.

Senator FoNG. I understand that.

How does that compare with the King-Anderson bill's coverage?

Mr. FooDY. Well, as I understand the King-Anderson bill-and I am sure others around here know it better than I do they have three options.

Basically, it is a service-type program in the hospital, depending on the option selected no deductible

Senator FONG. The option which is closest to your 65 paying $100 a year?

Mr. FOODY. Well, the policies cannot be compared very easily.
Senator FONG. I understand.

Mr. FooDy. In the rural area I imagine that the value of the KingAnderson approach would not be too dissimilar from that. In the metropolitan area it would be quite different.

Senator FONG. Would your $100 a year policy give more coverage than the King-Anderson?

Mr. FOODY. No, sir.

Senator FONG. How much less would it give?

Mr. FOODY. I would say on the basis of nationwide averages, and I do not have an exact number to come up with, but I would say the King-Anderson would be about two and a half times.

Senator FONG. Two and a half times coverage?

Mr. FOODY. Yes.

Senator FONG. Then, it would cost $250 a year?
Mr. FooDY. I do not know if I can-

Senator FONG. I want to tell you that I received a figure from the Blue Cross of Hawaii, stating that they could give the King-Anderson package in Honolulu for the price of approximately $85.20 a year. Would you say that was reasonable?

Mr. FOODY. I do not know what the hospital costs per day are in Hawaii, Senator.

Senator FONG. Approximately the costs here.

Mr. FOODY. What does a semiprivate room run in the islands?
Senator FONG. I do not know.

Mr. FooDy. This is the difference. For example, in California, where the prices are much higher than they are, say, in Mississippi, or rural Wisconsin, the price varies quite a bit.

Senator FONG. Could you work out from your company's actuarial figures as to what the King-Anderson full benefits policy would cost? Mr. FooDY. In Hawaii?

Senator FONG. Say, in the District of Columbia. Are you able to work on that?

Mr. SINGER. I believe we could prepare such an estimate, Senator. Senator FONG. Would you prepare for this committee what that package would cost?

Mr. SINGER. I would be glad to.

Senator MCNAMARA. Senator, are you including everything in this? Senator FONG. Whatever it would be.