Health Inquiry

On the basis of some of the complaints we have received I wrote to one of the leading underwriters of individual health insurance asking for a statement of their views and practices in the matter. In reply received, with a very brief covering letter, a printed explanation of what the company calls the problem of renewal.

I would be very happy to furnish this committee with a photostatic

copy.

The CHAIRMAN. If you will do so it will be made a part of the record at this point.

(The material referred to follows:)

THE PROBLEM OF RENEWAL

As yet no one knows what it costs to provide hospital, medical, and surgical care limited only by the needs of the patient.

In two of the provinces of Canada, in England, and in France, hospital and medical care is being provided free to all who need it and the cost is being paid by a tax imposed on everyone whether they like it or not. The cost has been found to exceed all estimates, and may continue to increase.

In Soviet Russia, health care, such as it is, is also available to all who need it, and it will probably continue to be one of the services provided by the masters in the Kremlin, in the quality and to the extent they deem necessary to keep the Russian people on the job.

Of course the Russian people are hardly in a position to make any objections to this health care. If they do they will probably find themselves provided also with board and room, in a labor camp. Even in the Western democracies it will require more than 50 percent of the voters to make any effective objection to either the health care, or to its cost.

An insurance company is different. Be it stock, mutual, or nonprofit, it is still a voluntary association of free people to distribute the cost of health care over the whole group in the form of premium payments rather than to have it borne entirely by the victims of illness or accident. If any individual in the group feels that the cost is unreasonable he is free to withdraw. If costs are allowed to become too high, some individuals will withdraw, and because our people are free people, motivated by an enlightened self-interest, the individuals who withdraw will be those who do not expect immediate benefits from their membership. Those who expect immediate benefits will continue, thereby again increasing the cost. This process will continue until those members who remain are all in the hospital attempting to pay hospital and medical bills each for the other.

So the costs must not be allowed to become too high. Premiums must be kept within the budgets of large numbers of people. Normally those who can afford it can buy a better product and pay a higher price. But in insurance you are paying your money for services to be delivered far in the future. As demonstrated above it is entirely possible that the more you pay the poorer is your insurance. Because it won't be there when you need it.

For health insurance you must be associated with healthy people, not sick ones. If your health is below par, or becomes below par you cannot expect to continue indefinitely in the group. Furthermore, when the time arrives that you meet with an accident or that your health fails, you must be prepared to accept benefits, not based entirely upon your needs, but based upon your needs and limited by an amount which bears a reasonable relation to the amount of your current contributions, bearing always in mind that your contributions in previous years have been consumed in payment of claims, taxes, expenses, and the accumulation of reserves for contingencies.

In an insured group then the members have a right to expect certain things from the management.

1. They expect the management to design a plan, the cost of which large numbers of healthy people are able and willing to pay.

2. They expect the management to see to it that new members are healthy people.

3. They expect the management to see that members unfortunate enough to become claimants are paid, promptly and fairly.

4. They expect also that the management, having paid fair and reasonable benefits out of the funds of the group, will see that the member who has benefits

will, if his health is impaired and he continues in the group, thereafter make extra contributions to the funds of the group consistent with the extra benefits he may thereafter expect to derive from the funds of the group.

To fulfill this last expectation your company has provided in its policies that the company may decline to renew any policy at any renewal date. This right to decline to renew is only exercised under two circumstances:

(a) When it develops that the insured was actually not in good health when the policy was issued and was never actually qualified for membership. (b) After benefits have been paid in such amount that the plan may be said to have fulfilled its function.

Furthermore, the company has always been willing to rescind a decision to decline to renew in those circumstances under which it is possible to modify the policy by excluding benefits for loss due to a particular cause, provided, of course, that the policyholder is willing to accept such modification.

Now after some years of preparation the company can also offer in many cases to continue policies without modification of coverage if the policyholder agrees to make an extra contribution designed to pay his share of the extra benefits to be derived from the funds of the group by those members having similar health history.

In a different future it is possible that, without dictatorial or taxing powers, people may be persuaded to contribute much more than at present while they are healthy in order to derive greater benefits when they become ill. At present the rates necessary to enlist the membership of larger numbers of healthy people must necessarily put a limit on benefits both as to amount and as to duration. BANKERS LIFE & CASUALTY Co.

CHICAGO, ILL.

Mr. HAYES. Because the explanation reveals so completely the total inadequacy of the individually issued type of health insurance, and because it demonstrates so well the type of propagandistic prattle which clouds the fact in this field of inquiry, I would like to read it in its entirety, and I am quoting now from this document, The Problem of Renewal:

As yet no one knows what it costs to provide hospital, medical, and surgical care limited only by the needs of the patient.

Of course, the Russian people are hardly in a position to make any objections to this health care. If they do they will probably find themselves provided also with board and room, in a labor camp. Even in the Western democracies it will require more than 50 percent of the voters to make any effective objection to either the health care or to its cost.

strated above, it is entirely possible that the more you pay the poorer is your insurance. Because it won't be there when you need it.

In an insured group then the members have a right to expect certain things from the management.

1. They expect the management to design a plan, the cost of which large numbers of healthy people are able and willing to pay.

2. They expect the management to see to it that new members are healthy people.

3. They expect the management to see that members unfortunate enough to become claimants are paid, promptly and fairly.

4. They expect also that the management, having paid fair and reasonable benefits out of the funds of the group, will see that the member who has benefits will, if his health is impaired and he continues in the group, thereafter make extra contributions to the funds of the group consistent with the extra benefits he may thereafter expect to derive from the funds of the group.

(a) When it develops that the insured was actually not in good health when the policy was issued and was never actually qualified for membership.

(b) After benefits have been paid in such amount that the plan may be said to have fulfilled its function.

Furthermore, the company has always been willing to rescind a decision to decline to renew in those circumstances under which it is possible to modify the policy by excluding benefits for loss due to a particular cause, provided of course that the policyholder is willing to accept such modification.

CHICAGO 30, ILL.

The tragic side of this story lies in the vast difference between the glowing one-page advertisements and glib sales patter which is used to sell such policies, and then the stark realities of their shortcomings in time of medical need.

It must be great comfort indeed for a person on the threshold of possible serious illness to receive a statement like the one I just read, informing him of his freedom to be without protection at a time of need, and telling him how fortunate he is not to live in a country where such protection is provided on a national basis. I doubt that the reading of such a statement would do anything to improve the mental outlook or the physical well-being of a sick reader.

The only type of prepaid health costs in our existing setup that comes anywhere near meeting the needs of the American people is the comprehensive-service, group-practice type of plan like Permanente, HIP of New York, Group Health of Washington and St. Louis, and a number of others I have mentioned earlier.

Such plans provide opportunities for prevention through early diag nosis and early treatment which nips illness in the bud. Experience under such plans shows that in this way they reduce the incidence of serious illness and hold down medical costs. It is this feature which is so sadly lacking in other plans.

Incidentally, as a result of the effect of preventive medicine and early treatment, the costs of such plans are not so high as one might believe. Dr. Baehr of the HIP of Greater New York has testified that the latest figures showed that medical care is being rendered by him at an annual cost of $36.36 per enrolled member. Even adding in some $20 a year for hospitalization insurance, we reach a total cost of only about $56 a year. This is comparable to the figures reported for 1950 by the Labor Health Institute of St. Louis, which showed that costs per enrolled member in that year were $38.26 for medical and $12.73 for hospital care, or a total of $50.99 per year per person. The sad fact is that, with the exception of the extremely few comprehensive group practice plans, our attempts to meet the problem of financing personal health services, impressive though they may appear in statistical tables, are woefully deficient in providing the American people with the kind of medical care they want and need. The sincere desire of the American people for a method of prepaying medical care costs is evidenced by the phenomenal rise in the sale of health insurance and the rapid spread of union-negotiated health and welfare plans. The need is apparent in the fact, reported in a recent survey made for the Federal Reserve Board by the Michigan Survey Center, that 1 out of every 4 families of factory workers has medical costs.

Many of these debts are relatively small in size. But some of them are fantastically large. I am submitting as a part of the record as an example of the crushing burden of medical costs, statements recently received from several members of the machinists' union which indicate the high cost of medical care, in some cases, over and above insurance benefits.

The CHAIRMAN. Those may be made a part of the record at this point.

(The material referred to follows:)

5416 33D AVENUE SOUTH, Minneapolis 17, Minn.

DEAR DR. I welcome the opportunity of writing to you and hope it will be possible for you to answer a layman's questions in his language. Am married, have 4 children 12 to 23 years of age, and have experienced a great share of the ailments, from a parent's viewpoint, a child usually has. We have been very lucky in that we, so far, have not had to experience a real emergency as far as medical treatment is concerned. My wife has had 2 cesarean sections, hysterectomy, 2 breast operations, tonsillectomy, etc. I have had two tonsillectomys and recently a ventriculogram. I have had an as yet undiag nosed spinal injury of 7 years' duration, which entailed hospitalization on 6 different occasions.

We have spent about $10,000 in our married life and at present have about $1,000 in outstanding medical bills.

I am a member of local 1833, an employee of Northwest Airlines for almost 10 years. Our average wage is about $4,000, which brings us to the questions in mind.

Can you justify the medical profession charging $3.50 to $5 for an 8-cent shot of penicillin, $9.50 for laboratory tests that cost less than 50 cents, $25 or $50 operations being billed at $200 or more, routine X-ray that cost $1.25 billed at

$10, and then the film is kept by the profession, blood transfusion that costs under $2 billed at $15 to $35?

A 2-cubic centimeter ampule of histamine costs about 40 cents; out of that bottle I have been given 5 shots at $3 each.

I have had supposed definite appointments to be in doctors' offices at 8:30 a. m. and not called until 6 p. m. In order to make the appointments I have had to take full working days off on about 100 occasions. Several times the doctor was not in. On 1 occasion I traveled 400 miles to keep a previous appointment only to learn the doctor was on vacation.

These figures are from an article in the local daily paper. I have had similar experiences myself. To be specific I have paid $3 to $5 for one-half cubic centimeter of histamine, $10 for penicillin. We are one of millions of families faced with the same problem of giving our children what we believe adequate medical care at a price we can pay. We hear the medical profession must charge high prices because so many do not pay their bills. The true figures show they collect an exceptionally high percentage of bills presented. If bills are not paid by the individual the county in many cases pays even larger fees.

The provision for paying bills while under country care is for some reason or other not taken full use of in some cases. Specifically as some hospitals will not accept Blue Cross and Blue Shield, etc., policies. They would rather take the payment from the taxpayer than the insurance company who has already received payment for a service he has contracted to supply.

The fees Blue Cross and Blue Shield are supposedly the average for certain procedure. How do you justify a surgeon charging three times the average? Specifically, we were charged $116 for a ventriculogram, the Blue Cross, Shield paid $35.

I believe you are in a very unique position and sincerely hope it will be possible to present the workingman's position to the AMA through the IAM.

Yours,

HOWARD W. MICHAELSON.

STATEMENT OF ANTHONY BALLERINI, BUSINESS REPRESENTATIVE, LOCAL LODGE No. 1327, INTERNATIONAL ASSOCIATION OF MACHINISTS

This is an account of my actual experience with health insurance and the cost of taking care of health needs over and above what they allow.

Since 1947 I have been covered by 2 health insurance policies: 1 underwritten on the health and welfare plan of members of my local lodge, and the other underwritten on the office employees of our local lodge.

In February 1948, I began to have trouble which was finally diagnosed as a gall bladder crystallization with complications of the pancreas and liver. Meanwhile, I was treated on the basis of other diagnosed troubles.

Over 51⁄2 years I had the services of 9 different doctors, and I underwent 3 operations.

Despite my "double protection," over that period of time I paid out $8,300 over and above the expenses taken care of by my health insurance.

I have paid fees to a surgeon over and above the indemnity provided by both insurance policies. Since I could not be paid for hospitalization by both policies, I have been forced to pay excess charges for hospital room over and above the amount allowed in a single policy. Neither policy provided for medicine used outside of the operating room, whether administered in the hospital or at home; and this constituted a considerable additional charge. And neither, of course, took care of charges made by physicians outside of surgical expenses.

On the basis of my personal experience, I cannot see how it is possible for 1 of our average members who makes about $2.08 an hour, to bear the cost of medical care, especially outside of hospital and surgical charges.

WASHINGTON, D. C., January 5, 1954.

Dr. WILLIAM A. SAWYER,
IAM Consultant,

206 Machinist Building, Washington, D. C.

DEAR SIR: I have been a member of Lodge 174 IAM for over 26 years. I think I need some advice.

In 1948 while I was recuperating from one of my peptic ulcer spells (hemorrhage), it was discovered that I had a little infection in my bladder, so they

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