Example 3: An employee whose annual earnings are $5,000 incurs total medical expense of $4,536 over a period of less than 12 months in connection with serious injuries suffered by himself, his wife and two children in an automobile accident, as follows: Balance to be paid by major medical expense plan and employee__ 2, 796 Summary: Total expense Total paid by basic and major medical expense plans--. 2, 097 699 4, 536 3, 712 824 1 Only 1 deductible since all 4 were injured in the same accident. Example 4: An employee's wife develops a condition that requires regular treatment, but does not go to the hospital. The employee's annual earnings are $7,000. The following illustrates the benefits payable during the first 2 benefit years, but there is no limit to the number of benefit years for which benefits may be payable, subject, of course, to the overall maximum of $10,000. Because hospitalization or surgery isn't required, no benefits are payable for this dependent under our basic plan. QUESTIONS AND ANSWERS 1. Q. Why should a girl be interested in the major medical-expense plan?A. Because a single major sickness or an accident such as shown in example 1 might wipe out her savings or put a financial burden on her family. If she had one such sickness or accident, she would receive in major medical-expense benefits the equivalent of many years of contributions. 2. Q. Why should a young man with wife and children be interested in the major medical-expense plan?-A. Because he can't afford to be without this extended protection. As head of a family, he realizes what happens to the budget and to the plans for the future when heavy unexpected bills are incurred. He will realize that this plan is designed to give him real protection when most needed. 3. Q. Why should an older married employee whose children are no longer dependent upon him be interested in the major medical-expense plan?-A. Statistics show that the frequency and duration of disabilities, particularly chronic disabilities, increase with age for both males and females. 4. Q. May I carry major medical-expense insurance even though I am not insured under the basic plan?-A. No. 5. Q. May I enroll for coverage for myself only, even though I have eligible dependents?—A. No. 6. Q. May I enroll my mother or father as a dependent?-A. No. See page 12 of this booklet for the definition of dependents. 7. Q. The booklet states: "If a dependent, other than a newborn child, has a disabling injury or sickness when the major medical-expense insurance for that dependent would otherwise become effective, the effective date for that particular dependent will be delayed until the dependent is no longer so disabled." What is meant by a "disabling injury or sickness"?—A. For this purpose, a disabling injury or sickness of a wife is one which prevents her from performing her regular or customary work or duties (including work or duties of the household or for a nonprofit organization, club, or other social organization). In the case of a child who is either employed or enrolled in a school, a disabling injury or sickness is one which prevents the child from performing his regular or customary work or duties or from attending his school regularly. For this purpose, a child otherwise eligible will not be considered ineligible solely because he is on vacation from school. In the case of a child who is not employed for wage or profit, who is not enrolled in a school, or who is on vacation from school, a disabling injury or sickness is one which results in the child being confined to the house or in a hospital or other institution, or prevents the child from engaging in the usual activities of a child his age. 8. Q. My wife has a heart condition but does all the housework except such things as moving heavy furniture. Is she eligible for coverage?-A. Yes. 9. Q. My 6-year-old son has rheumatic fever at the present time and isn't allowed to attend school or have any strenuous exercise. However, he doesn't have to stay in bed all day. Is he eligible for coverage?-A. Not at present, but he will become eligible when he is able to attend school regularly. Or, if during a school vacation period he improves to a point where he is allowed to engage in the usual activities of an average child his age, he will become eligible. 10. Q. Suppose I have no eligible dependents when I am first covered under the major medical-expense plan, and later acquire an eligible dependent, what should I do?-A. You should enroll the new dependent immediately. The proper form may be obtained from your manager. If enrollment is delayed more than 60 days after the dependent is first eligible, satisfactory evidence of insurability will be required. In any event, coverage of the dependent will be subject to the provision referred to in questoin 7. 11. Q. Suppose I have one or more covered dependents and later acquire an additional dependent, what should I do?-A. You should report the additional dependent without delay on a form which you may obtain from your manager. No evidence of insurability will be required, but coverage of the dependent will be subject to the provision referred to in question 7. 12. Q. Suppose one of my covered dependents becomes ineligible, what should I do? A. Whenever a dependent becomes ineligible for any reason, report the facts on a form which you may obtain from your manager. The insurance for a child will automatically terminate on the 19th birthday, unless the child is still wholly dependent upon you for support and maintenance. If the child is still wholly dependent upon you for support and maintenance, report the facts to your manager, since coverage may be continued while the child remains unmarried and wholly dependent upon you, up to the 23d birthday. 13. Q. Are preexisting illnesses excluded?-A. There is no exclusion for a preexisting illness of an employee or a dependent (except in the case of pregnancy, as explained in item 6 on p. 6). However, it should be understood that you must be actively at work on a full-time basis in order for the insurance for you and your dependents to become effective; furthermore, the effective date of insurance for a dependent who has a "disabling injury or sickness" (as defined in the answer to question 7) will be delayed until the dependent is no longer so disabled. 14. Q. Does a covered employee or dependent have to be totally disabled in order to be eligible for benefits?-A. No (except under certain circumstances referred to in the section "Extension of coverage if insurance terminates" on p. 15). 15. Q. If I have a private room or other accommodations which are more expensive than the hospital's daily rate for a standard semiprivate room, how is the eligible expense for hospital regular daily services determined?-A. If the hospital's daily rate for a standard semiprivate room exceeds $15, the eligible expense for more expensive accommodations is the hospital's rate for a standard semiprivate room reduced by any room and board benefit paid by the basic plan, Example: Private-room rate__ Standard semiprivate-room rate--- $21 per day. $16 per day. $10 per day. Eligible expense under major medical-expense plan__ $6 per day ($16 minus $10). (After the benefits are exhausted under the basic plan, the eligible expense under the major medical-expense plan will be $16 a day.) If the hospital's daily rate for a standard semiprivate room does not exceed $15, the eligible expense for more expensive accommodations is the hospital's charge for the more expensive accommodations, not exceeding $15 a day, reduced by any room and board benefit paid by the basic plan. Example: Private-room rate_. Standard semiprivate-room rate.. $19 per day. $14 per day. $10 per day. Eligible expense under major medical-expense plan-- $5 per day ($15 minus $10). (After the benefits are exhausted under the basic plan, the eligible expense under the major medical-expense plan will be $15 a day.) All expenses for hospital regular daily services which are included in the computation of polio expense benefits will serve to reduce the eligible expenses for hospital regular daily services under the major medical-expense plan. 16. Q. Do the benefits apply only to expenses incurred during a hospital confinement?-A. No. The insurance covers a wide range of expenses incurred outside the hospital-doctors' services, nursing care by a registered nurse (R. N.), anesthesia, X-rays, laboratory tests, physiotherapy, medical supplies. For further details, see the explanation of eligible expenses beginning on page 4. 17. Q. If I am treated by my doctor on October 10, but do not receive his bill until November 3, on what date is the charge considered to have been incurred for major medical-expense plan purposes?-A. October 10. 18. Q. Will the expenses paid under our basic plan affect the benefits payable under the major medical-expense plan?-A. Yes. The major medical-expense plan does not pay any portion of the expenses paid by the group hospital, surgical, and medical-expense insurance, and expenses included in the computation of group polio expense benefits, nor may such amounts be included in the deductible. 19. Q. When should I make claim for benefits?-A. You should make claim for benefits when the eligible expenses for a sickness or accident exceed the deduct· ible within a period of less than 12 months. Mr. HESELTON. We have two witnesses from Massachusetts. Mr. Wilson. STATEMENT OF ALPHONSE M. WILSON, ASSISTANT MANAGER, ACCIDENT AND HEALTH DEPARTMENT, LIBERTY MUTUAL INSURANCE CO. OF BOSTON Mr. WILSON. My name is Alphonse M. Wilson. I live in Cohasset. I am assistant manager of the accident and health department, Liberty Mutual Insurance Co. of Boston. This department handles all forms of accident and health insurance, both group and personal, embracing weekly indemnity for accident and sickness, hospitalization, surgical and medical coverages. My present duties are primarily concerned with underwriting. My major work consists of finding ways and means of providing coverage within the framework of sound insurance principles for needs which have developed, either through collective bargaining, or as a result of ever-changing industrial relations policies. Much of what we offer to the insurance-buying public has to be in the form of what the public demands. We have spent much time and effort in trying to analyze personal needs in the field of medical insurance in the hope of making a contribution to a better future. As Mr. Whittaker has stated, Liberty Mutual was afforded an opportunity some 5 years ago to begin an experiment aimed at finding ways and means to protect people against the personal financial loss that can result from serious illness. Early in the summer of 1948 we were approached by a committee of men from the Elfun Society, which is a management group of General Electric Co., with the proposal that a system of insurance be developed to cover the costs of more serious illness. Frankly, there was little statistical material available to guide our judgments. It was, however, agreed that all persons involved would understand that the plan of coverage was experimental; that there was as much chance for failure as there was for success; and that developments of the plan would have to be based entirely upon actual experience. It was understood that the plan was being undertaken as a joint venture, and if it proved successful, it would make a major contribution in solving the problem of cost in serious illness. After many days of discussion the principles that should govern the plan were agreed upon. First, there should be a deductible sufficiently high to eliminate the usual and ordinary expense of medical care that can be anticipated in the family budget. Discussion concerned such questions as duplication of coverage by reasons of insurance carried by the individual member, either personally or through his place of employment; what amount of expense a person could afford to carry without insurance as a normal function of the family budget, just as he carries such items as clothing in his budget which are normally anticipated in each year but the timing of which is uncertain. While it was recognized that the amount each person might be willing to carry himself would vary primarily on the basis of the family's net income, and that there might be some duplication of coverage because of insurance carried by the individual, it was agreed that an amount of $300 as a deductible would, on the average, be sufficiently large on this particular group to avoid any high degree of duplication that might result from the basic group insurance coverage. It would at the same time represent an amount which, if the individual so desired, could be carried without insurance as a reasonable amount in the family budget. The flat 39087-53-pt. 5———5 amount of the deductible also was selected because the resulting experience would have greater credibility in evaluating the plan for future developments. The second principle adopted was that the individual should have a personal financial stake in the medical expense over and beyond the deductible. Since the cost of medical care is affected substantially by the evaluation of the physician as to the ability of the individual to pay, and since human nature dominated by the strong urge for survival is inclined to sacrifice almost everything in an attempt to survive, it seemed necessary to introduce the element of coinsurance into the plan. Thus, the plan was designed to pay 75 percent of the expense in excess of the deductible. In introducing the coinsurance element it was recognized that, as happens in some other forms of insurance, bills might be padded to offset the coinsurance element. It was recognized too that some people would seek to purchase additional insurance in order to meet the loss sustained through coinsurance. It was possible, however, to discount these two potential sources of misuse of the plan again on the basis of human nature; namely, that serious illness brings with it the potential that medical care will not be able to effect survival. The awareness of this failure of survival in serious illness brings with it a sobriety of personal thought that actively militates against fraud on the part of the person whose survival is in question. The effect of the deduction provisions in the income-tax laws were also considered. There was, however, a general feeling of apathy within the committee that any reliance upon those provisions would be of no consequential value to the group. The third principle was that the coverage should be comprehensive. Discussions were held with respect to such things as diseases to be covered; when the disease should be considered to have been contracted, and when the disease is to be considered cured. It was soon recognized that this form of coverage would be concerned with the serious diseases, many of which could be in existence for years without the person actually knowing that he had incurred the disease. It became increasingly obvious that this new form of insurance should concern itself with expense. Hence, it was specified that protection should be afforded against the expense when incurred, rather than be related to the disease. That raised the question whether expense incurred by a person because of disease, in which the person was not rendered unable to perform the duties of his occupation, should be considered a covered expense. Further investigation of this question indicated that some men were regularly incurring major medical expense in order to enable them to continue their daily work. The cases discussed were so convincing in their nature that it was agreed to include expense regardless of whether the individual was disabled from performing the duties of his occupation or not. Hence, a very broad concept of protection was developed, which simply stated that the plan will reimburse the individual, in accordance with the formula, for medical expense incurred during the time he is insured, provided the expense is reasonable and necessary. This broad definition brought with it many problems of interpretation. For example, the cost of transportation, special therapeutic devices, problems resulting from psychiatric treatments, treatments of mental diseases in State hospitals, and many similar problems arising from the art of healing. It was recognized that many of these problems would have to be set |