As what income level-what would be the break-even point on income at which you think people ought to be able to afford $150 a year in premiums on health insurance?

Mr. FOODY. Well, income, of course, in this age group is a tough test. I suppose as a general rule

Senator MUSKIE. If you are over 65 and you are earning a number of dollars, how many dollars would you think you ought to have as income from whatever source to be able to afford $150 a year in health premiums?

Mr. FOODY. Well, apparently, from what was said earlier, if I understand it all, and the aircraft has affected my ears so I did not hear everything that was said, some figure of $2,400 was given as a reasonable income for a family. Did I hear that correctly? For a couple? Senator MUSKIE. I am darn sure I didn't use it. [Laughter.]

Mr. FOODY. Well, I am sorry then. But, if you figure that the Department of Labor standards come in this area somewhere

Senator MUSKIE. Correct me, if I'm wrong. You said that a premium of $150 a year would provide reasonable coverage. I don't know whether it is reasonable or adequate or what it was, but a policy that you would recommend to people over 65.

Incidentally, if you could provide that policy, for the record, it would be very useful so we could see exactly what it would provide. For that policy, how much income should an individual have, in your judgment, to be able to afford that premium?

Senator MCNAMARA. Let me say, for the benefit of the Senator, that the staff has such a policy; it was submitted by the company. Senator MUSKIE. But you have no judgment as to what the income ought to be in order to afford that policy?

Mr. FOODY. No.

Senator MUSKIE. Whether it should be $10,000, $2,000, $3,000, or $1,000, you would not have any judgment on it?

Mr. FOODY. No.

Senator MUSKIE. Might I ask one question? Continental Casualty does participate in the Connecticut 65 program?

Mr. FOODY. Yes.

Senator MUSKIE. In the November 1963 edition of Business Week, Mr. Lee Farmer, a vice president of your company, said that Continental Casualty was basically negative about the State's 65 plan. Would you care to comment on that?

Mr. SINGER. I would like to.

Mr. FOODY. Go ahead, Paul.

Mr. SINGER. Perhaps I should because I am on the executive committee of Connecticut 65, Senator, and I know what Continental's position with regard to the State 65 plans is.

We did join Connecticut 65 and we have continued to be active in it and to participate in it. Our reasons for joining it at the time were that we felt that the Connecticut 65 program was making a definite contribution in an experimental area and we were anxious to participate in it and contribute to it.

Connecticut 65 was really offering the first major medical coverage to the aged on a mass enrollment basis.

At that time our company's program, for example, did not include such benefits, so, we were anxious to participate in it and do our share in it.

Subsequently, we and other individual companies have broadened our benefits so that this kind of coverage is now generally available outside the State 65 programs.

Consequently, we have not participated in other State 65 programs since that time.

Now, this position is not necessarily one that would be adopted by a company which was not active in the field of the aged and wished to participate by way of one of these plans.

Senator MUSKIE. In other words, if I understand your answer, you are not active in the State plans because you, as a company, are able to offer something comparable?

Mr. SINGER. Yes.

Senator MUSKIE. I want to say this in closing my questioning: I do not want to appear critical of the efforts of the private insurance industry to develop programs for the aged. I am interested in my questioning in trying to determine the extent to which you are able to meet the problems of the aged and the problems described by Dr. Merriam, those with low incomes and the rest.

It seems to me that this committee has a problem to try to identify that group, find out how big it is, who they are, where they live, what their health needs are.

Until we have done it, I do not think you people in private industry have been able to evaluate your capacity to meet their problem.

That is why I maybe hit a little hard in trying to get those facts if you have them.

Senator MCNAMARA. Thank you, Senator. We have the honor now of being joined by Senator Williams who has taken a great interest in

the work of the subcommittee.

I know he has gone over some of the statements that have come in from the various companies. Do you have any questions or comments at this point, Senator Williams?

Senator WILLIAMS. Not at this point, thank you.

Senator MCNAMARA. I want to thank you very much, Mr. Foody. Your testimony, as well as that of your associate, is very helpful for the record. We appreciate it very much.

The fourth witness this morning is Mr. Edward J. Kelly, first vice president of the Bankers Life & Casualty Co. Mr. Kelly.

Senator MCNAMARA. Mr. Kelly, I hope you will identify your associates for the record and then you may proceed in your own

manner.

STATEMENT OF EDWARD J. KELLY, FIRST VICE PRESIDENT, BANKERS LIFE & CASUALTY CO., CHICAGO; ACCOMPANIED BY MISS ZITA STONE, ASSOCIATE GENERAL COUNSEL; AND J. F. KELLEHER, PUBLIC RELATIONS DIRECTOR

Mr. KELLY. Thank you, Mr. Chairman. My name is Edward J. Kelly, I am first vice president of Bankers Life & Casualty Co. of Chicago. I have with me this morning Miss Zita Stone, our associate counsel, and Mr. James Kelleher, an executive on our public relations staff.

Since our answer prepared in response to the subcommittee's recent questionnaire completely summarizes our company's experience in voluntary health insurance programs for persons over 65, we have not availed ourselves of the subcommittee's invitation to submit a detailed statement prior to today's hearing. However, I will briefly review that experience here, if I may.

Prior to World War II, health insurance was virtually unknown to vast segments of our population. A depressed economy, coupled with increased costs naturally associated with more intensive and extensive medical techniques, left much of our hospital capacity unutilized. Blue Cross and similar group programs arose in sponse to these needs.

Group insurance, in turn, created an awareness of need and a demand for health protection among millions ineligible for group protection. Sporadic, abortive prewar efforts of various companies to fill this gap proved unsatisfactory.

Our company entered the field in 1945. There existed no body of experience upon which to predicate underwriting of individual health insurance, in contrast to more than a century of accurate mortality statistics in the life insurance field.

Early policies were obviously modest. They were limited in protection and cancelable. Their limitations stemmed from sound underwriting principles which relate premium cost to the insured risk. And 20 years ago we knew almost nothing of the risks involved.

Now we know a great deal more. We have accumulated considerable experience in just 20 years regarding the entire health insurance field including the elderly.

Our policies have evolved with our experience-from cancelable through renewable at company option, to the guaranteed renewable at certain ages, and, more recently, to guaranteed renewable for life. As applicable experience accumulates, we hope to continue to broaden coverage and expand benefits.

Parallel with the pattern of developing ever-increasing coverage to an ever-broadening segment of the population at an ever-higher age level has been our effort to keep in mind an appeal to those of limited means.

From the first we have offered the convenience and budgeting ease of monthly premium payments. As a result, our policies have appealed particularly to middle and lower income groups. We have developed a plan of mass marketing and advertising carefully designed to bring interested applicants to State-licensed local resident agents.

Certainly, persistency here is lower than among those able to pay annual premiums. But to many in a restricted budget situation, it puts some health insurance within reach.

Today, based on the best available statistics, we have 666,856 policyholders over 65 whom we insure under various hospital benefit plans. Another 433,488 policyholders are insured against illness under medical-surgical and hospital indemnity plans of various sorts.

As pointed out in our submission, we know that obviously some duplication exists among policyholders with both types of policies but we are unable to accurately estimate the degree of duplication.

Among the elderly, more than among younger persons, hospital indemnity policies and the like have a direct bearing on their health insurance. With fixed incomes from pensions, social security and so forth, the older policyholder is not as likely to have his regular income interrupted by a hospital stay as is the younger patient forced to leave his job.

Thus, an indemnity policy paying a flat rate per week to a hospitalized policyholder over 65 is much more likely to contribute directly to his hospital expenses.

And we are constantly improving our offerings, as indicated in our submission. We will continue to do so. But in this field, with a bare 20 years' experience behind us, an enormous number of variables still exist.

Medical costs rise steadily-at the rate of 6 percent or more per year-reflecting constantly improving services available to the ill. Hospital labor costs, technological breakthroughs, diagnostic techniques and rising building costs all have a bearing on health insurance and its future for our expanding aging population.

Administrative and sales costs play a role, too. We take some satisfaction in the low administrative cost level we maintain, and plan to continue that pattern of operation.

But the income level of the older potential policyholder in relation to the foregoing is also a factor-and one over which we exercise no control. So is the body of debilities inevitably associated with aging. We take considerable pride in our role in the evolution of the private, voluntary health insurance industry. But we are realistic and practical as well.

There simply does not exist sufficient information, in the face of shifting variables, to document a definitive conclusion regarding comprehensive health insurance for all persons over 65 for the indefinite future. But we do have sufficient information to reach some tentative conclusions.

We know costs-all costs are rising. We know our company and others have made enormous strides in this field in a relatively short span of years. And we know millions of the elderly have been relieved from at least a substantial part of the nagging worry growing from the uncertainty of their future health.

But while we also frankly acknowledge we do not have the answer for everyone, we believe we can continue to make real progress for many in line with sound business and underwriting principles as outlined in our earlier submission. Yet, at the same time, we face the fact that there are realistic limitations to our potential-as a companywhich will affect the individual's ability or opportunity to continue to obtain health insurance coverage when he reaches 65.

I cannot and will not pretend that I can precisely delineate those limitations. Perhaps after this subcommittee has an opportunity to study and analyze the data being made available to it, some further conclusions can be reached.

Thank you.

Senator MCNAMARA. Thank you very much. Mrs. Neuberger, do you have any questions or comments?

Senator NEUBERGER. Well, this does not give me very much information about this company. I know Mr. Kelly is in the insur

ance business and I know that you have some 665,000 policies which provide hospital coverage. What are the limitations?

Mr. KELLY. The limitations as to benefits, do you mean?

Senator NEUBERGER. How much hospital coverage do you pay for

those policyholders?

Mr. KELLY. That is the benefits you are referring to.

Senator NEUBERGER. Suppose the hospital bill is $57 a day, do you pay $57 a day?

Mr. KELLY. No ma'am.

Senator NEUBERGER. What is the limitation?

Mr. KELLY. The maximum daily room benefit would be $22 a day. Senator NEUBERGER. You will pay for $22 under these policies? Mr. KELLY. Under some of those policies, ma'am, not all of them. They vary.

Senator NEUBERGER. Do they vary because of the premium they pay or the deductible?

Mr. KELLY. The premium, the plan that is selected by the insured. Senator NEUBERGER. Well, that injects another thought. These 665,000, what are most of them? Do most of them carry the minimum, the $10 a day?

Mr. KELLY. Well, these policies, go back for many years and some of them had a range of anywhere from $4 a day up to, as I say the maximum is $22 a day. The older policies have been upgraded over the years, but I have no way of-I cannot tell you, give you a breakdown as to the benefits provided by these policies.

Senator NEUBERGER. But you would say, then, that many of them provide quite a lot less than $10 a day; is that it?

Mr. KELLY. No ma'am, I would not say that. I would say that most of them would probably be around $10 a day.

Senator NEUBERGER. But if they provided any less than that it would just be practically no coverage. It would be a deductible plan, would it not, because what is the average cost of a hospitalization, two-bed ward?

Mr. KELLY. It varies by area all over the country.

Senator NEUBERGER. I did not ask for the maximum and minimum, I just asked for the average.

Senator MCNAMARA. I think the staff has that figure.

Senator NEUBERGER. A $20 average, the staff tells me. So if your policy for that large group averaged $10 then they really have a deductible policy. It only pays 50 percent of it then.

So, do you give them the premium rates as if they had a deductible policy?

Mr. KELLY. No; our premium rates are in proportion to the benefits provided.

Senator NEUBERGER. I do not know anything about your company or what it provides. What is the cost per year for a policy that only pays $10 a day in hospital?

Mr. KELLY. One of the plans provides a $10 a day room rate with the cost, at age 65, of approximately $60 a year.

Senator NEUBERGER. $60 a year. But if the average cost of the hospital room is $20 then the beneficiary, so-called, would have to have quite a bit of money put aside to pay that difference. Does that $60 premium include anything else besides the hospital day?