Mr. FAULKNER. Not necessarily, sir.

The CHAIRMAN. I have in mind that usually in life-insurance policies there would be a period of probably 30 days, at least, in which the policy continues and during which the premium can be paid. Is that by law, or is that just by company agreement?

Mr. FAULKNER. For many years a grace period was inserted in most accident and health policies and hospital policies simply as company practice. A provision for a grace period is one of the working provisions that is included in the uniform accident and health policy provisions law. It is a 30-day grace period.

The CHAIRMAN. Do you think every citizen should have that, regardless of whether they have a uniform law adopted in his State or not? Mr. FAULKNER. I think it is an advantageous provision. Companies uniformly, whether they are required to or not, are coming to include it in their contracts.

The CHAIRMAN. How would you suggest that they could have that protection in those States which do not have the uniform law?

Mr. FAULKNER. I believe, sir, that the open and free competition among carriers will have a tendency even without a law to bring it into the contract. Then the insurers have a desire to make it easy for the insured to continue his insurance. We like to keep that business in force. So a grace period for the payment of renewal premiums is one of those good things that works to the advantage of all concerned.

The CHAIRMAN. Then you do not think that there is a need either of State law or National law to protect individuals in that respect? Mr. FAULKNER. That would be my judgment, sir.

The CHAIRMAN. I know you have made a great study of it. I was wondering how individuals such as I have described would be taken care of if it were not done by State law or Federal law.

Mr. FAULKNER. Well, sir, the whole picture of accident and sickness insurance, as I have seen it develop in the twenty-odd years I have been active in the business personally, and from my study of the period that went before, is that it has been a picture of a gradually developing, broadening, finer contribution on the part of the insurers. Today the average individual who knows anything about accident and health policies would hardly recognize the contract as it stands today compared to what it was even 20 years ago. You have had dramatically detailed for you how group insurance has developed, how it has broadened, how so much progress has been made. The same thing is true in individual policies.

From what were restricted and technical contracts when the business started-because the pioneers had no basis on which to base rates and knew nothing about the problems involved-we have today progressed to the point where the average accident and sickness policy issued on an individual basis is a liberal, broad, fine contract.

The CHAIRMAN. Well, there have been situations which have come to my attention which would indicate that in matters, sometimes of life insurance and sometimes of health and accident insurance, the situation is very similar to the experience which some individuals have had with fire insurance: They do not know whether they are insured until they have a fire and they start to read the small print in the policy.

Mr. FAULKNER. Well, sir, there is no small print in an accident and health contract. As a matter of fact, under the statutes which have prevailed since 1912, the exclusions and reductions have to be printed in bold-faced type and of a size larger than the benefit to which they would apply. I certainly would not attempt to leave the impression. that in every instance, every time a claim is filed, the policyholder is always happy. In many cases he may misunderstand his coverage. He may not have understood it at the beginning, or he may have forgotten what was told him.

But it does seem to me significant, sir, that surveys have been made by competent people-the Health and Accident Underwriters Conference, for instance-operating with the insurance superintendents of a half-dozen States, which reveal that there are fewer claim complaints filed in accident and health-insurance policies per claim incurred than any other line of insurance. The thing that is sometimes overlooked, I think, by people who say that accident and health insurance breeds claim difficulties is the tremendous incidence of claims in accident and sickness insurance. Whereas only on the order of 1 in 200 fire-insurance policies ever results in a claim for benefit, every year 1 in 3 or 4 accident and sickness insurance policies will provide a benefit for the insured.

The CHAIRMAN. I have in mind a situation like this: A policy of insurance was effective. The premium had been paid for a year. They were entitled to protection for a year. When the year ended the illness was still continuing and they renewed the policy, and then the year was figured on the basis of the previous year or the time that had elapsed of the illness in that previous year, which was 7 or 8 months, or whatever it was, so that on the payment of the second premium they were limited to 3 months or 2 months, or whatever it was that remained of the original year. That may have been one of the misunderstandings. Maybe that was explained to them and maybe it was not when the policy was taken out.

It is that sort of a situation, it seems to me, which lends itself to somebody supervising in the interest of the individual.

Mr. FAULKNER. Yes.

The CHAIRMAN. I am just trying to find out from you because I know you have had such wide experience that you ought to be able to tell us something about that kind of a situation.

Mr. FAULKNER. That supervision, sir, is given in every State by the insurance department thereof.

The CHAIRMAN. Mr. Heselton?

Mr. HESELTON. In connection with your testimony, I have volume 4 of the Report of the President's Commission on Health Needs of the Nation before me, with which I am quite sure you are familiar. With reference to prepayment plans, it is stated:

The enrollment in all types of prepayment plans has grown rapidly since 1939. Later on it says:

Surgical and medical insurance was held by fewer than six persons per thousand in 1939. All types of medical-insurance carriers have shown a fairly rapid and consistent rate of growth. At the end of 1951, 175 per thousand persons had surgical or limited medical insurance under insurance-company group policies, 109 per thousand were insured under individual company policies, and an additional 145 per thousand were insured by Blue Shield.

That is on the order of 400 per thousand. That leaves over 50 percent who do not have anything.

I realize that insurance companies have been doing a tremendous job in educating the public as to what is to be had, and that they can afford to have it. I just wondered whether you could comment on that other 50 plus percent who are not now insured; whether it is because they cannot afford it, and if they cannot afford it whether there is any solution.

Mr. FAULKNER. Sometimes I agree with Disraeli, who, you will recall, said that there are lies, damned lies, and statistics. I am constantly confused by statistics even in an area in which I am supposed to know a little.

I would comment, sir, that we should recognize, probably, that not every American needs insurance. That is a bad thing, I suppose, for an insurance man to say, but I think we must recognize it as a fact.

There are those who are affluent and can pay the costs of care out of their assets. There are the indigent-not only medically indigent but the truly indigent-for whom the public has always paid the way. And by handling it directly I believe that the public can defray the cost of care for the indigent more economically than if an attempt were made to insure the indigent and necessarily pay the overhead cost of such insurance.

Then I think we must recognize that there are those categories in which populations such as the veterans are entitled to care because of their status and do not for that reason require insurance.

I think we also ought to recognize that there are those of our citizens who prefer simply, shall be say, to carry their own risk. At least, they make the choice of not buying. They prefer to invest or to spend the disposable part of their income for something other than insurance. We are making inroads, I think, by continuing education and publicity and that sort of thing. We are reducing the number in that particular category.

I would say to you that in my opinion we will continue to reduce the percentage of the population which is not insured as we go along. As Mr. Beers, I believe it was, brought out yesterday, we have made tremendous strides, and he sees no reason to believe that the rate at which people are covered will diminish.

Mr. HESELTON. I can understand that is a reasonable statement of possibilities. Nevertheless I assume you heard me read the excerpt from Mrs. Hobby's address out at San Francisco. Excluding, as you have, certain people by reason of certain known factors there still is, I assume although I have not seen any actual statistics as to how many there are people in the category of that family, where she said because of the circumstances that family believed sincerely and vigorously in socialized medicine. That is the type of situation which confronts the Congress and confronts the American people. I do not know how large a part that is, but I would almost be willing to say that if there is one instance there is one too many. I think, as she said, the ingenuity of the American people and their institutions and free enterprise system must address themselves to that problem.

Mr. FAULKNER. The insurors, sir, are extremely conscious of it. The development of major medical expense insurance I regard as a most hopeful and most promising development in that direction. I would

contemplate that we will see major medical expense insurance expand very rapidly.

There are, of course, outside of the area of insurance proper, some means by which these extraordinary costs are met. We still have a sense of family responsibility, I think, in this country.

Incidentally, in connection with this problem of prolonged illness, it may be of interest to you gentlemen, if you have not been informed of it, that a very comprehensive study is being conducted by an organization called the Research Council for Economic Security. That group is analyzing 1 percent of the nonagriculturally employed population of the country, and expects by the end of next year to have a very splendid picture of the actual extent of prolonged illness.

Mr. HESELTON. Is that a private organization?

Mr. FAULKNER. They are a nonprofit organization supported by contributions from a very wide variety of interests; some charitable foundations, some labor unions, some insurance companies, and some industries. It is a purely fact-gathering group.

Mr. HESELTON. That is all, Mr. Chairman.

The CHAIRMAN. When I asked those previous questions indicating that distress frequently occurs, I had in mind the article which appeared not too long ago in the Reader's Digest. Do you have knowledge of the article to which I refer, which pointed out rather vividly illustrations in one case of an individual who thought he had insurance but when he became ill found that the only coverage of his policy was over bubonic plague or something of that sort?

Mr. FAULKNER. I am very familiar with that article, sir, and I would like to leave with the committee, or later make available to you for the record, a complete refutation of it. Unfortunately, that

article was a dramatic overemphasis and actual factual misstatement of the situation. The author said he was talking only about accident and health insurance, and yet of the 7 cases cited 3 of them had absolutely nothing to do with accident and health insurance but were cases involving the double-indemnity provisions of life-insurance contracts. He was ingenious in searching the ancient legal law in order to come up with some horrible examples to prove a preconceived point of view, in my judgment.

(The article and the refutation are as follows:)

[Reader's Digest, September 1953]

"The big print gives it to you and the little print takes it away"

HEALTH AND ACCIDENT INSURANCE POLICIES-HOW MUCH CAN YOU RELY ON THEM?

(By John Alan Appleman)

In her Texas home Lunnie Boney took a bath. It had fatal consequences-but it won Lunnie immortality in the lawbooks.

Lunnie had a gas hot-water heater in the bathroom. When she came out of the bathroom she complained of feeling ill, and blamed fumes from the heater. She died about an hour later.

Lunnie had thought she had accident insurance, but it turned out that her insurance didn't insure very well. Every policy of this kind contains clauses known as exclusions or exceptions, stating the conditions under which the company will not pay. Often the company won't pay where death or disability results from the inhalation of gas. Lunnie's policy didn't have that convenient exit, so the company found another.

"We aren't liable," the company said, "because the policy states that we don't pay when the trouble results from poison. The kind of gas used in this heater is poisonous. Therefore, Lunnie Boney died of poison, and we are in the clear." Lunnie's heirs brought suit but they departed with empty hands. The com pany's position, said the Texas appellate court, was right.

Thousands of people buy health and accident insurance, relying on it to see them through in time of calamity. The policy is their life jacket, their parachute. But there are unscrupulous companies in this field. All too often the parachutes are full of holes.

Amos and Andy described the operation neatly: "The big print gives it to you and the little print takes it away." The policy promises to pay except under certain circumstances. The exclusions usually sound eminently reasonable but, if the company is one of the untrustworthy minority and is trying to avoid payment, they can be stretched a country mile.

Any time an insurance company decides to resist a claim, the fight is grossly uneven. Litigation carried to the highest courts may take years and cost more than the customer would recover. The policyholder often is in neither physical nor financial condition to fight. He may have a case, but he is easily clubbed down with the threat of long litigation.

For those who buy this kind of insurance the first rule is always to deal with one of the well-known reputable companies, preferably through an experienced broker who is representing you. Then the following cautions should be observed: Caution No. 1: “Accident” doesn't necessarily mean what you suppose it means.

A New Yorker named John Kennedy ate a standard sort of lunch-cold ham, potato salad, beer. Something in that menu made him violently ill. He couldn't work for a time, and supposed his health and accident policy protected him. But a clause said the company wouldn't pay where "the taking of poison whether voluntary or otherwise" was involved. Kennedy thought he had been taken ill; the company preferred to say he had been poisoned by his food. And the company won in court.

Companies have fought paying where the policyholder unintentionally took an overdose of sleeping pills, where he reached into the medicine cabinet and got the wrong bottle, even where the poison was acquired in taking prescribed medicine. Those are all accidents in the ordinary understanding. But the interpretations that have been rendered by some companies surpass such understanding.

Caution No. 2: You may learn to your sorrow that you are insured only while on saintly behavior.

A Mississippian named Ross Bounds was riding in the rear seat of his automobile. A hotel bellboy was driving, at a modest 25 miles an hour. A car parked at the curb suddenly backed out into Bounds' car, throwing Bounds over the front seat and against the dash, injuring him fatally. Is that the kind of accident you would expect an accident policy to cover? Of course it is.

But in the car was half a pint of whisky. It is against the law, in dry Mississippi, to transport liquor. The insurance company, arguing that Bounds had been killed during a violation of law, lost the case but it fought the claim all the way to the State's topmost court.

In Delaware, Stanley Szymanska fell downstairs, and the injuries proved fatal. His insurance company wouldn't pay. For Stanley got caught in the wrong house with the wrong wife; in fleeing an irate husband, he tumbled down the stairs. Because he was there unlawfully the company had an out, which righteously it took. Delaware's Supreme Court approved.

Caution No. 3. Your injuries may have been accidental but you shouldn't play with fire.

Annabel Baker, an Ohioan, threw kerosene on a balky fire and was fatally burned. The insurance company said it couldn't pay, putting forward a familiar contention: "We promised to pay where death or injury was caused by 'accidental means.' Throwing kerosene on the fire was intentional. So we're not liable." Annabel Baker's heirs could not collect.

This draws a distinction which has crossed up countless holders of flimsy pollcies. You jump to the ground from a low stone fence; you have done it a hundred times, perhaps, but this time you break an ankle. "You jumped intentionally," says the insurance company. "You have our deepest sympathy, but no check."

Caution No. 4. If you hope to collect on your insurance, never do anything rash.