requests for material as soon as possible. I have asked Mr. Jay Constantine of the subcommittee staff to cooperate fully with you in the event that you desire further clarification of the information requested. Thank you for your cooperation. PAT MCNAMARA, Chairman, Subcommittee on Health of the Elderly. NEW YORK "65" PROGRAM 1. All literature describing benefits and rates, including scripts and "tearsheets" used in promotion. 2. Total number of different persons enrolled in program from inception to March 1, 1964; total aged persons insured as of March 1, 1964; total number of persons accepted for coverage during initial enrollment period and total number of persons insured immediately prior to commencement of second "open" enrollment period. (Please provide subtotals indicating persons covered for basic only, major medical only, and basic and major medical.) 3. How many of those persons accepted for insurance during your initial "open" enrollment period (November 1963) were still insured under the program as of March 1, 1964? 4. What was the average age of the New York "65" policyholders as of the end of your initial "open" enrollment period? What was the average age of your policyholders as of March 1, 1964? 5. Please provide all data available relating to premiums earned, claims incurred, utilization, etc. for each of the various segments of the New York "65" program (provide separate data for the "regular basic" and "major medical" portions). 6. Based upon all available information, advise whether any premium_and/or benefit changes are anticipated or will be required during the next 2 years. Explain fully. NOTE.-To extent possible, provide all data for persons age 65 and over, excluding spouses who are under age 65. 4. TEXAS "65" Hon. PAT MCNAMARA, TEXAS 65 HEALTH INSURANCE ASSOCIATION, Chairman, Special Committee on Aging, Dallas, Tex., April 17, 1964. Dear Senator MCNAMARA: In compliance with your request, we are sending you under separate cover copies of our health insurance certificates, master policy, and all literature describing the benefits and premiums, including both radio and TV scripts and "tear-sheets" used in the promotion of our initial enrollment last October by the Texas 65 Health Insurance Association. This is in line with question 1 of your questionnaire. In question 2 you asked for the total number of persons enrolled during the initial "open enrollment." Also, total number of different persons insured as of March 1, 1964. For this and subsequent questions, you asked that we provide you data distinguishing between persons age 65 and over and those persons under age 65. I explained to Mr. Jay Constantine that we did not carry a breakdown between persons age 65 and over and those persons unher age 65; consequently, we were unable to provide this data for the initial enrollment. The number of certificates issued during the initial enrollment broken down by plan is as follows: Plan I 12, 031 26, 425 7,710 Total.. 46, 166 We are in a position to give you the two age groups, that is, persons age 65 and over and those persons under age 65 insured as of March 1, 1964, by plan which is as follows: You will observe a large decrease in the number of persons covered under plan 2 with a slight increase under both plan 1 and plan 3. This is due to the fact that on February 14, 1964, we wrote all of the persons insured under plan 2, which is our major medical plan, giving them the opportunity to change to plan 1, our basic hospital plan, or change to plan 3, the combination basic hospital and major medical plan, providing they had no other basic coverage and the request for change was received in our office on or before March 2, 1964. This change was made effective March 1, 1964. We took this action in order that these people fully understood the type of health insurance protection they had with the opportunity to make this change if it better fitted their needs. In answer to your third question, we wish to advise that the initial enrollment was from October 1-31, 1963, with the coverage going into effect on November 1, 1963. The number of persons still insured as of March 1, 1964, is as follows: In answer to question 4, the average age of the Texas 65 certificate holder as of the end of our initial enrollment period was 73. In establishing the premium rates for Texas 65, we anticipated costs in our calculations from a period of 2 years from the initial enrollment. We are enclosing copy of letter from Mr. Harvey Galloway, Jr., of our actuarial subcommittee, to Mr. H. Lewis Rietz, president of the Texas 65 Health Insurance Association, to substantiate our rate calculation that is self-explanatory. In question 6 you have asked whether or not any premium and/or benefit changes are anticipated or will be required within the next 2 years. You can readily appreciate the fact that the Texas 65 Health Insurance Association has been in existence less than 6 months. Our experience is too young at the present time, but it is not unfavorable. We do not, however, anticipate making any changes during the next 2 years. Sincerely, CHARLES M. BARRY, Administrator. The purpose of this report is not to give an exact basis for the rate computations for the Texas 65 plans but in general terms to indicate some of the considerations and data used. BACKGROUND From the offset it was apparent that our task would not be a particularly easy one due to the small amount of data compiled on senior citizens, particularly in the major medical area. It then became apparent that some of the information available for base type benefits was not particularly applicable due to the time and locality of exposure. Fortunately three other States had met this situation and at least one of them had provided some experience results prior to our arriving at our final rates. Although the Connecticut results were not conclusive, it was somewhat informative to discuss the Connecticut experience situation with some of the responsible people in Connecticut and to determine how the experience had deviated from the underlying experience which was used for the rate computation. Mr. Pettengill of the Aetna advised that the basic data used in the Connecticut plan was from the retired Federal employees group plan and that the Connecticut experience was considerably higher than that derived under the retired Federal employees plan. In fact, at one time he indicated that the cost was 50 percent higher than would be anticipated from reviewing the retired Federal employees group experience. Apparently the Connecticut people must have anticipated some additional losses because the final Connecticut results did not appear this far out of line. The State which offered the most information concerning rates was New York. Fortunately we had access to a very complete written report to the New York insurance department regarding the rate mechanism for the New York 65 Plan. This memo served as a starting point for our deliberations. One of our earlier problems was generated when we started to compare the utilization differences by area since most of the experience available was on exposure in the Northeast or in the Nation as a whole. The annual reports for the Transaction of the Society of Actuaries indicated a higher claim cost in Texas than for the Nation as a whole in both hospital and surgical benefits. The latest group major medical paper written by Pettengill & Burton indicates this higher claim cost extends into the major medical area as well as base type benefits. Mr. Pettengill offered to have some of his people make a special study comparing Texas with Connecticut under the retired Federal employees plan. There were some obvious biases and the size of the data indicated that the results could not be too meaningful for rate purposes. However, the relationships derived in the study indicated that the higher claim utilization for Texas under normal group operations also carried over into the senior citizen area. Mr. John Winters of the Texas Department of Public Welfare gave us quite a bit of data which had been derived from the old-age assistance program in Texas during the year 1962. Since this program covered approximately 225,000 people 65 and over in Texas, the results should have been meaningful. However, we tended to distrust the results for several reasons: (1) The old-age assistance benefits were payable to low-income people in Texas who were receiving State monev for subsistence. It could be argued that the health needs of these people would not be the same as the health needs for people who would buy our product. (2) The old-age assistance plan is constructed to discourage normal lengths of hospital confinement. The benefits are cut in half at the end of 15 days and at the end of each 15-day period, the doctor must give written certification that the continued confinement is necessary for the health and well-being of the patient. We collected data on about 6,400 claims which had been settled in November 1962 concerning the length of hospital confinement. This data indicated that the above-mentioned biases were operating to a very great extent to reduce the average length of confinement. The average length of confinement generated under the old-age assistance plan was about 60 percent of the average length of confinement shown for age 74 in a report on the problem of continuation of medical care benefits for the aged in New York State, voluntary health insurance and the senior citizen. The annual rate of hospitalization under the old-age assistance plan was almost double the rate indicated in the New York report. Age 74 for the New York study data was used for comparative purposes as the average age for the old-age assistance plan is approximately 74. METHOD AND ANTICIPATED RESULTS Using our best estimate of the area variations and all the data mentioned above, the latest articles on the group hospitalization from the Transaction of the Society of Actuaries, plus the anticipated selection against the plans, the actuarial subcommittee derived rates which we anticipated would produce an 83 percent loss ratio. However, subsequent changes have modified this position to the point where a first-year loss ratio in the neighborhood of 85 percent is expected. This loss ratio is somewhat lower than we feel we need for a going plan, however, we feel that some margin for fluctuation is necessary as well as some allowance for the amortization of acquisition expenses. We also need some allowance for the increase in claim cost due to the force of inflation which should be at an annual rate of 3 to 5 percent. The actuarial subcommittee does not feel that the proposed rates are inadequate but it does feel they are close enough that we will have to anticipate a rate increase at least by the end of the second year of plan operation and presumably about every second or third year thereafter. Due to the nebulous nature of the data in this experimental area, it should be obvious that the actuarial subcommittee cannot make any guarantee as to the adequacy of the proposed rates. We can simply say that this is our best estimate of the rate situation. DEAR SIR: As you may know, the Subcommittee on Health of the Elderly has announced that it will hold public hearings on the subject of Blue Cross and other private health insurance coverage for older Americans. In connection with the preparations for those hearings, it would be very much appreciated if you would foward your responses to the attached questions and requests for material as soon as possible. I have asked Mr. Jay Constantine of the subcommittee staff, to cooperate fully with you in the event that you desire further clarification of the information requested. Thank you for your cooperation. Sincerely yours, PAT MCNAMARA, Chairman, Subcommittee on Health of the Elderly. "TEXAS 65" 1. Copies of policies, and all literature describing benefits and premiums, including scripts and "tear-sheets" used in promotion. 2. Total number of different persons enrolled during initial "open enrollment" period. Total number of different persons insured as of March 1, 1964. (Please breakdown these data to show subtotals indicating number of different persons in each of your various coverage options.) Note. For this and subsequent questions, provide data distinguishing between persons age 65 and over and those persons under age 65. 3. How many of those persons accepted for coverage during your initial "open enrollment" period were still insured as of March 1, 1964? 4. What was the average age of the "Texas 65" policyholder as of the end of your initial enrollment period? 5. In establishing premiums for "Texas 65" were anticipated costs rather than then-current costs used in your calculations? If so, how far ahead were costs projected and anticipated? 6. Advise whether any premium and/or benefit changes are anticipated or will be required during the next 2 years. Explain fully. APPENDIX C RESPONSE TO QUESTIONNAIRE AND SUPPLEMENTAL MATERIALS SUPPLIED TO SUBCOMMITTEE BY HEALTH INSURANCE ASSOCIATION OF AMERICA: 1. EXPLANATION OF METHODOLOGY. (Provided to Subcommittee in May 1964.) 2. ESTIMATE OF EXTENT OF PRIVATE HEALTH INSURANCE COVERAGE OF THE AGED AS OF DECEMBER 31, 1962. 3. THE EXTENT OF INSURANCE COMPANY COVERAGE FOR THE MEDICAL EXPENSES OF THE SENIOR CITIZEN AS OF JULY 1961. HEALTH INSURANCE ASSOCIATION OF AMERICA, MARCH 6, 1964. GENTLEMEN: As you know, the Subcommittee on Health of the Elderly has announced that it will hold public hearings on the subject of Blue Cross and other private health insurance coverage for older Americans. In connection with the preparations for those hearings, Mr. Constantine, of the subcommittee staff, at my direction, called on you some 2 weeks ago to discuss certain questions on an informal basis. The attached list of questions includes some modifications developed as a result of your meeting with Mr. Constantine as well as notations indicating which of the items requested were turned over to him at the meeting. It would be very much appreciated if you would forward your responses to the attached questions and requests for material as soon as possible. I have asked Mr. Constantine to cooperate fully with you in the event that you desire further clarification of the information requested. At such time as specific dates for the hearings are decided upon it is our intention to ask you to testify on the efforts of the health insurance industry to meet the health insurance needs of our older population. Thank you for your cooperation. Sincerely, PAT MCNAMARA, U.S. Senator. HEALTH INSURANCE ASSOCIATION OF AMERICA Specific items requested: 1. Copy of memorandum (and attached study) dated October 15, 1962, from Mr. Robbins to Mr. Follman on the subject of "Health Insurance Benefits Paid to Persons 65 and Over." 2. "The Extent of Insurance Company Coverage for the Medical Expenses of the Senior Citizen as of July 1961" (and any similar studies for subsequent dates).1 3. "Report of the Special Committee on Continuance of Coverage, June 1960" (and any similar studies for subsequent dates).2 4. List of the 90 insurance companies providing data for the study requested in item 2 above. List of the other 130 companies surveyed which could not provide "data of the type requested." 5. List of the 308 member companies of the HIAA surveyed for the study "The Extent of Insurance Company Coverage for the Medical Expenses of the Senior Citizen as of December 31, 1962," noting which of those companies comprised the 123 able to "provide the kinds of data called for by the survey." 6. Copies of the several questionnaires used in conducting the above surveys. Questions: 1. In calculating the number of aged persons covered by private health insurance as of December 31, 1962, you project a figure on the basis of replies received from 123 insurers who, according to HIAA, "write over 70 percent of the health insurance premiums in the United States." (a) Does the 70-percent figure include disability income premiums? 1 Given to Mr. Constantine on Feb. 19, 1964, along with "The Extent of Insurance Company Coverage for the Medical Expenses of the Senior Citizen, as of Dec. 31, 1962," and "An Estimate of the Extent of Private Health Insurance Coverage of the Aged, as of Dec. 31, 1962." 2 Given to Mr. Constantine on Feb. 19, 1964. |