Gross medical care includes hospital, physician, medical and appliances, dental and other medical services.

Now, you will note that of the insured families who had bills in any one year 59 percent had between 80 and 100 percent of their hospital

622

accordance with one of the President's recommendations, this tit authorizes the Secretary to

conduct studies and collect information concerning the organizational, actuaria operational, and other problems of health service prepayment plans and tie: carriers.

These studies would include the collection of much needed data o the incidence of sickness and its effects on the use of medical care facil ties and services.

The information collected would be made available to the pub and to sponsors of health service prepayment plans. Upon request. health insurance carriers would be given specific technical advice or organizational methods and other matters.

The purpose of these provisions of title II is to achieve a better understanding of the Nation's medical care problem, of the technique for meeting it through voluntary means, and of the actuarial risks in

volved.

In support of these provisions, let me say that we are frequently reminded that the great gaps in our basic data are among the major obstacles to improvement and expansion of prepayment coverage.

Reliable and reasonably current information is needed on the in dence of disease, on utilization rates for the various health services and on prepayment plan enrollment and organizational methods and problems.

It is especially important to gather information which will provide a firmer basis for the determination of premium rates in the areas in which carriers have had little or no experience.

We believe that the service authorized under title II can help to fulfill these vital needs.

In summary, the provisions of titles I and II relating to the Advisory Council, the use of State agencies, and the conduct of techn cal studies are essential in developing a coordinated attack on the problems inherent in extending or improving voluntary health insurance. They will provide the tools for cooperative effort by Federal, State, and local agencies, public and private, and will assure that the broadest possible approach will be made to the problem.

Title III--Reinsurance of health service prepayment plans: I now turn to title III, the major part of the bill. In its simplest terms. Mr Chairman, this title would establish a reinsurance fund designed to encourage and stimulate insurance carriers to broaden benefits and areas of service.

Types of carriers eligible: Under the bill, a carrier may be an insurance company, a voluntary nonprofit association, such as Blue Cross or Blue Shield, or a cooperative or a partnership engaged in providing protection under a health service prepayment plan.

I want to make clear our belief that all groups in the voluntary health insurance field can contribute to the development of broader and better benefits for more people.

It should be noted that direct-service carriers would be eligible for reinsurance; that is, reinsurance would be available to prepayment plans which furnish medical or dental care or treatment through a salaried staff of physicians, surgeons, or dentists. However, in these cases we would first have to be satisfied that the carrier has an organi zational structure which vests control over the manner in which medi

cine and dentistry are practiced solely in duly licensed members of these professions.

Approval of plans: The reinsurance program would be wholly voluntary, and plans could be reinsured only on application by the carrier. Moreover, the bill is designed to assure that the Federal Government would not be competing with the insurance industry in the reinsurance feld. No individual plan could be reinsured by the Federal reinsurce fund if it were already reinsured privately. Moreover, as a contion of reinsuring any type of plan, the Secretary of Health, Education, and Welfare would be required to conclude that for plans of that particular type or kind, reinsurance was not available from private sources at comparable terms and rates to an extent adequate to promote the purposes of the reinsurance program. Thus, the Federal program would not be competing with private enterprise.

The terms and conditions governing approval of the plans submitted for reinsurance, and the types and kinds of plans which will be reinsured, would, in general, be determined by regulation.

The bill directs that we take into consideration, in determining the types and kinds of plans eligible for reinsurance, the general purposes of the program, and that we give special emphasis to certain objectives. Here I wish to quote the provisions of the bill itself, beginning on e 24 of page 13 and ending on line 15 of page 14. The bill would rect the Secretary to place

special emphasis upon the objective of encouraging experimentation · designed to extend to or adapt the prepayment method to substantive problem areas or geographic areas for which that method is in any significant respect new, antried, or not yet fully effective or widely available on reasonable terms,

such as

(A) covering of classes of individuals for which protection through such health service prepayment plans appears to be feasible but is not adequate; or (B) the offering of protection in communities or areas in which such protection (in the respects in which it is offered) is not adequately available on a prepayment basis; or

(C) a coverage of benefits or services which, either as to type, range, amount, or duration of such benefits or services, is not otherwise (generally or in a given area) widely available through such plans on an adequate basis * * *

These words in the bill, perhaps better than the purpose clauses, themselves, indicate the direction in which we think the program should move.

The specifications concerning the eligibility of plans for reinsurance might include requirements or limitations on such matters as: The ranges of health conditions to be covered by the plan;

The kind, quantity, and duration of health services to be provided under the plan;

Undue exclusions or limitations;

Deductible amounts and maximum liability amounts;

Waiting periods; and

The duration, cancellability, and renewability of policies or subscriber contracts issued pursuant to the plan.

These requirements, we must remember, would apply only to a carrier which voluntarily agrees to them as a part of the reinsurance contract involving a particular plan or plans of that carrier. Furthermore, although a plan would not be accepted for reinsurance if its rates were arbitrary or unreasonable, or such as to cause the plan to be financially unsound, the Secretary would not otherwise have

bill covered by insurance; 20 percent had between 60 and 79 percent of their hospital bills covered by insurance.

As far as surgical fees were concerned, 47 percent of families with surgical bills had between 80 and a hundred percent of the surgeon's free paid by insurance.

For gross medical care that is comprehensive care-you will see that only approximately 8 percent had between 80 and a hundred per cent of their bills paid for by insurance.

At the present time hospitalization insurance is covering more of the hospital bill, percentagewise, than is surgical insurance or general medical care insurance.

In summary, there has been considerable growth in prepayment voluntary health plans in the last 15 years; much has been accomplished, but much needs to be done, and more people need to be covered. and the scope of the benefits needs to be broadened.

Thank you.

Senator PURTELL. Thank you, Doctor.

Mrs. Hobby.

Secretary HOBBY. From what Dr. Keefer has described to you, it is clear that much remains to be done in the voluntary health insurance field. A large segment of our population has no insurance protection, and for many of those with some insurance the scope of the protection is not adequate.

The expansion of the present coverage of prepayment plans must be vigorously pressed forward. To achieve the full potential of private plans, pioneering efforts must continue. Sponsors of health insurance plans must be encouraged to move forward in a spirit of practical experimentation, with a readiness to undertake new risks.

We believe that the enactment of this bill, by providing an opportunity for broader sharing of these risks, would hasten the expansion and improvement of voluntary health insurance plans.

THE MAJOR PROVISIONS OF S. 3114

I shall now describe the major features of the bill before you. Before proceeding to the heart of the bill, which is title III, I should like to invite attention to certain significant provisions of titles I and II.

Title I, general: Title I contains not only essential definitions but also several broad administrative provisions. There are three sections which we regard as very important.

First, section 102 of the bill would establish a Nationary Advisory Council on Health Service Prepayment Plans, with 12 appointed members, one of whom would be designated as Chairman by the Secre tary of Health, Education, and Welfare.

The council would be charged with the general duties of advice, consultation and recommendation to the Secretary on matters of policy in connection with the administration of the act.

Because of the highly technical nature of the program and the limited number of qualified persons upon whom we may call for technical advice, a limited waiver of certain conflicts-of-interest statutes is provided in the bill for members of the Advisory Council, as well as for special consultants.

Second, in determining the qualifications of carriers for reinsurance, the Secretary is directed by section 104 of the bill to utilize to

the optimum extent the services and facilities of the State agencies that are responsible for supervising health insurance carriers.

Recognizing that many companies conduct business in several States, the bill calls for the Secretary to endeavor to make arrangements for use of the appropriate agency in the carrier's home State or principal place of business.

Third, section 107 (b) of the bill forbids the exercise of any supervisory or regulatory control over any carrier, hospital, or any other facility or provider of services, except as specifically provided in the

act.

In connection with this provision I want to make it abundantly clear that we strongly believe that regulation of the insurance industry is and should remain a responsibility of the States.

Senator PURTELL. Mrs. Secretary, the bill would give the Secretary broad powers with respect to the issuance of the regulations to carry out the purpose of the act, would it not?

Secretary HOBBY. That is true, sir.

Senator PURTELL. Some people might think there might be some inherent danger in that.

Secretary HOBBY. We considered that very carefully, Mr. Chairman, in trying to develop recommendations that would meet the purposes of this bill, that would not necessarily hamper or restrict the insurance company.

Senator PURTELL. That, I think, has been, Mrs. Secretary, the fear that is expressed, although not by too many. I haven't heard it, as a matter of fact, strongly expressed, but some people felt it might perhaps be the entering wedge to Federal control of the insurance business in these provisions; and I am glad you have remarked about it, Mrs. Secretary.

Secretary HOBBY. May I just continue on that, because I do think it is such an important question, Mr. Chairman.

Senator PURTELL. If you will.

Secretary HOBBY. The discretionary authority with respect to the regulations contained in the bill is related to the rapidly changing character of health insurance.

It would be exceedingly difficult, if not impossible, to write detailed standards into the legislation. Furthermore, the standards are likely to need revision very frequently, and it is important to note that the bill contains abundant policy guides as to benefit standards, and I would refer you to section 303 (a).

To assure you we had this in mind in writing the bill and were aware of the questions that might be raised, may the Under Secretary continue on that, Mr. Chairman?

Senator PURTELL. We will be very glad to have him do so.

Secretary ROCKEFELLER. Mr. Chairman, I think there have been some who have misunderstood the fact that the powers, the broad powers, are not over the insurance company. They are over the Secretary's management of the reinsurance program, which is a voluntary proposition. Therefore, she only has broad power to manage her own activities and not control any of the companies.

Senator PURTELL. Thank you very much.

Secretary HOBBY. Title II of the bill contains certain provisions which are an important supplement to the reinsurance plan itself. In