years without changing the kind of contract. That contract developed in so-called normal times, in times of average business, a loss ratio of 53 or 54 percent, but during the depression years the loss ratio on that contract was well above 80 percent.

The impact of the business cycle on voluntary health insurance is very great because of the subjective nature of much illness.

So you have a different loss ratio on various kinds of contracts, depending on the economic climate.

Overall, however, I would say that in this recent past period of relatively good business, the loss ratio on individual policies has varied 50, 51, 54, and 55 percent.

Some individual insurers regularly on their individual contracts, and some of the very largest ones, have paid in this period of good business, when losses are not nearly as high as they are in periods of bad business, I mean business generally, a loss ratio of 66, 67, and 68 percent.

Mr. FORAND. I can understand what you are just referring to regarding the building up of the fund over the earlier years of operation because it was only a couple of days ago that I was told that one of the large companies putting out one of these new 65-year contracts, a contract for those 65 years old, had been issuing this type of contract probably since last August and up until now had not paid a claim.

But the thing that disturbed me most, and I would like to have your comment on this, if you care to, is the fact that in figuring out most of these contracts I am told there is a markup of 50 per

cent.

In other words, you could cut down the rates being charged by 50 percent and still do pretty business.

Now, is that correct?

Mr. FAULKNER. Before I can answer that, Mr. Forand, I would have to know a markup of 50 percent of what?

Mr. FORAND. The rate. The rate is double what it should be as an insurance against loss.

Mr. FAULKNER. I would categorically deny that that could be the case. There is keen competition for business, for patronage in the voluntary health insurance business. We do not see fine, soundly managed insurers going out to get business and charging rates that they feel are above the level of adequacy because, after all, as managers of insurers we want our organizations to grow; we want our organizations to provide a worthwhile product whose purveyance is in the public interest, and because I know that in the health insurance business there is no action in concert among insurers on the establishment of rates and because I know that competitors are eager to grow and to write business, that the rates that their actuaries figure, primarily on their own experience, are rates that are no more than adequate because each one of us is out to get all the business that

we can.

Competitively I would love to put my salesman up against a competitor who was charging a rate 50 percent higher than it should be. Mr. FORAND. Would you tell the committee what a reasonable cushion is in those rates?

Mr. FAULKNER. What is a reasonable continguency overall, sir? Mr. FORAND. The amount over and above that which is necessary to carry the load?

Mr. FAULKNER. Frankly, inasmuch as each insurer figures his own rates I cannot speak for other companies. I do know that the actuaries for our company in figuring rates on all of our contracts, not necessarily or specifically those designed for the aged, feel very good indeed if they can pack a 2 percent margin for contingencies into the rate.

We would like to have a larger margin, but we know that if our contingency margin is very much more than that, our salesmen will then experience enormous difficulty in meeting the price competition of other good insurance.

Mr. FORAND. Now, if you were to write policies to cover all persons over 65, what percentage of benefits could you return to them?

Mr. FAULKNER. Here, again, sir, it depends on whether the contract is written on a group basis or whether it is written on an individual basis. It is obvious, I think-well, you, as an insurance man, know that if you go out and sell one person at a time as you do when you sell individual insurance, obviously your costs are greater than if you can insure them by the dozen.

So I would suggest to you that probably the experience of the business itself is our best source of reference.

Last year, overall, in group operation, the business returned 89 cents out of the dollar in benefits. On individual operation depending on the kind of contract, the kind of benefit, various other variables of that kind, the range of return was some place between 50 and 70 percent.

Mr. FORAND. Thank you very much. You have been very helpful. The CHAIRMAN. Are there any further questions of Mr. Faulkner? Mr. Mason.

Mr. MASON. I just have one question, Mr. Faulkner.

Mr. FAULKNER. Yes, sir.

Mr. MASON. Would you agree with me that anyone, no matter who he is, who states emphatically and dogmatically that millions of elderly citizens of America are deprived of proper medical care because of financial conditions, would you say that that is quite an exaggeration? Mr. FAULKNER. Yes, sir; I would, and I would say it to you not only because the nature of my work requires me to be a student of these matters, but because it has been my privilege to serve as the trustee of a general hospital, the Bryan Memorial Hospital of the Methodist Church, in Lincoln, Nebr., and I know from that experience, I know from intimate friendship with many physicians over the country, that people who need care when they come to the hospital, when they come to the physician, are provided the care.

The matter of compensation is secondary and comes later.

Mr. MASON. All I can say is this: I do not know how you would feel, but I personally feel that anyone who will make an exaggerated statement like that in my book it at least reduces the value of his whole testimony.

That is all, Mr. Chairman.

The CHAIRMAN. Mr. Baker.

Mr. BAKER. I have one question:

I did not catch what you meant when you said you returned 50 to 70 percent. What did you mean by that, sir?

Mr. FAULKNER. I was referring, Mr. Baker, to loss ratio. I hope you will excuse me if I lapse into the technical jargon of our business. In individual insurance, that is a contract issued just to one person as distinguished from the group contract which is issued covering many people. In the individual contract, depending on the kind of contract, depending on the age of contract, at the present time, of 100 cents in the premium dollar some place between 50 and 70 cents will be returned in the payment of benefits.

Mr. BAKER. The question I have about health and accident insurance is the fact that much of it is cancelable. It is still the practice, is it not? If so, what percentage, if you know, can be canceled on a premium paying date by the company?

Mr. FAULKNER. I am very glad to have an opportunity to respond to that point, Mr. Baker, because I think the business can take real pride in the progress that has been made.

First of all, if I may repeat myself, let us realize again that 7 out of 10 insureds are covered under group and the so-called problem of cancellation is not a problem for them. You cannot cancel an individual out of a group.

Then take the remaining 3 out of 10. The growth of guaranteed renewable or noncancelable coverage has been very rapid in recent years.

When we have testified before, I think we testified to the effect that of the total individual volume in force, something like 15 percent of it was noncancelable. It more nearly approximates 30 percent today.

Now, then, as to the specific problem of cancellation as it relates to the aged, the forms that have been especially designed and are being marketed aggressively for the aged, are of the guaranteed renewable variety.

The insurer cannot divest itself of the risk.

Then we should also, sir, take a look at some of the statistics, and some of the facts concerning nonrenewal. Though I am certain this comment does not apply to any particular cases you have in mind, our business is sensitive to the fact that we have been the victim of a lot of loosely put together and violently flung around statistics on this subject.

Mr. BAKER. You do not have the experience?

Mr. FAULKNER. The experience on which we base rates on health and health insurance of course, is of a different kind or character.

The life risk has become more conservative as the life span has lengthened. In health insurance, the risk of disability has increased as the life span has lengthened. We do have sound rates and we are pushing and there is available noncancelable insurance.

It is simply a matter of convincing the buyer that he would rather pay the somewhat higher premium for noncancelable insurance than for the kind that can be terminated.

Mr. BAKER. Is it a question of rate?

Mr. FAULKNER. It is almost entirely a question of rate.

Mr. BAKER. The other question is in regard to life insurance which is still very germane to Mr. Forand's bill. Most life insurance, at least the part I have, incidentally with mutual companies, provides on the disability feature, as I remember it, it must occur before age 60 or age 62, or something, the permanent total disability feature of it. Is that still common practice?

Mr. FAULKNER. That practice which was common is still relatively common and it is based on the mistaken notion, I think, that age is chronological rather than physiological.

That was the practice for many years and is probably still the predominant practice among life insurers providing a total permanent disability benefit.

It stems in part from the notion that we have adopted in this country that a man who is 65 is all through.

I would like to suggest to the committee philosophically that that is one of the worst things we can do to our old people. I am sure that there are men in this room who are 65 who do not think they are all through.

The CHAIRMAN. Are there any further questions of Mr. Faulkner? Mr. Alger.

Mr. ALGER. Mr. Faulkner, I want to thank you for attaching in addition to your statement the cost estimate because we have had differences of opinion by witnesses, men of good will on both sides, who are not sure of the cost. I appreciate your taking the trouble of appending these estimates.

We have had a report which we have come to think something of, prepared by the Health, Education, and Welfare. I direct your attention to the chart on page 44. I simply ask: Is that chart accurate to the best of your knowledge, Mr. Faulkner?

Mr. FAULKNER. We are familiar with the chart, Mr. Alger. The chart is not accurate.

I think the chart was drawn by someone who suffered from the same misapprehension of fact as Mr. Cruickshank. The line does not bend down for the year ending December 31, 1958; the line being the line illustrating the expansion of voluntary health insurance.

In the early part of 1958 a preliminary forecast was put out which indicated that perhaps we would not continue to expand. But those preliminary forecasts estimates were wrong.

At the end of the year the actual survey showed that the ongoing progress in the expansion of voluntary health insurance had been maintained.

Mr. ALGER. Would you tell us how that chart should go? I am going to draw it in right now for my own information.

Mr. FAULKNER. It should go almost straight up because by the end of that year there were 123 million people insured.

We believe that as of June 30 of this year there were 124 million Americans insured.

Mr. ALGER. Would that make the line continue, according to this graph-of course, I realize we have 20 years in this one narrow groupin other words, is it going to continue up the same rate as it was prior to the dip?

Mr. FAULKNER. It will continue up, we think, on a curve that eventually, of course, is going to flatten out, but we are still in the going up phase of the curve.

The CHAIRMAN. Would it not be helpful at this point if you could prepare for the committee a chart which would reflect your feeling as to what will happen over this comparable period of time.

Mr. FAULKNER. Mr. Chairman, we will be delighted to prepare a chart which will show what the fact was as of December 31, 1958, and projected according to our figures.

The CHAIRMAN. You would have to make some projections, of course, according to your best judgment?

Mr. FAULKNER. Yes, sir.

The CHAIRMAN. That will be included in the record, without objection.

(The information referred to is on pp. 461-462.)

The CHAIRMAN. Are there any further questions?

If not, we thank you, Mr. Faulkner.

Mr. FAULKNER. The courtesy of the committee is greatly appreciated, sir.

The CHAIRMAN. The information you have given us is very helpful. Mr. FORAND. Mr. Chairman, I ask unanimous consent to include in the record at this time a telegram that was sent to the committee by Jacob S. Potofsky, president of the Amalgamated Clothing Workers of America, AFL-CIO. It reads:

Medical directors of four amalgamated sponsored health centers in New York, Philadelphia, and Chicago, are preparing statement in support of H.R. 4700. Since statement may not reach you in mail prior to end of current committee hearings, I respectfully request that statement be incorporated into hearing record when received.

Thank you in advance for your courtesy.

The CHAIRMAN. Without objection, the statement will be incorporated in the hearing at this point.

(The statement referred to follows:)

The CHAIRMAN. Our next witness is Dr. Furstenberg.

Doctor, will you identify yourself by giving us your full name, address and capacity in which you appear?

STATEMENT OF FRANK F. FURSTENBERG, M.D., ON BEHALF OF AMERICANS FOR DEMOCRATIC ACTION

Dr. FURSTENBERG. Mr. Chairman, I am Frank F. Furstenberg of Baltimore, Md. I am engaged in the private practice of medicine specializing in treatment of allergic diseases and have been in practice for more than 25 years. In addition, I have had the opportunity to be intimately associated with public medical programs and have been concerned with developing high quality medical services for the community.

Twenty-five years ago, I was medical director of the Maryland Transient Bureau, a Federal program designed to stabilize the migratory unemployed by giving necessary care, including medical care under the Federal Emergency Relief Administration. Later, I was State medical director for the National Youth Administration. During the war, I spent nearly 4 years in the U.S. Public Health Service where I was first assigned to practice medicine in a rural community in west Florida for the civilian employees of Eglin Field as well as the local population. Later, I became health officer for