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Senator Hill. I will be frank with you. The question I had in mind—and I will throw it out because I will be asking it of other witnesses—is this: If the doctors do own and manage the Blue Shield plans and, say, have certain fees fixed for certain services--we will say a hundred dollars for an appendectomy, whatever it might be and then if they determine afterwards their fees are too low, which they may very well be-my father was a doctor and he said they would say, "God bless you, Doctor,” that he was always welcome, but it didn't pay the grocery bill and they decided to increase these fees, and feel it was only proper and right they get compensation, and that should cause a deficit in the plan, and that is where your reinsurance would operate, then the question would come whether or not the Secretary would seek to limit those fees or in some way control those fees, and how much control that would be and how much that would mean in the way of control.

Mr. McNary. Senator, as I understand the purposes of the bill and as I understand the operation of Blue Cross and Blue Shield plans, reinsurance would not be affected one way or the other by the situation you mention. Since a given plan in order to be reinsured would have a stated set of benefit payments to an individual or to the doctor for the services performed, and if the scale of fees to the doctors were to be changed, that would mean an amendment in the terms of the plan and either the premium rates would have to be changed or the reinsurance fee changed, or both, and I, therefore, believe that an adjustment in the fees to the doctor wouldn't necessarily affect the basis of reinsurance under this plan, or any other reinsurance that might be taken. Senator Hill. The thought I had was that, of course, if you read

I justed your fees upward, that would cost more money, take more money, and that would get you more into the reinsurance phase, would it not?

Mr. McNARY. I don't think that would result from a loss to the reinsurance fund if it were done in accordance with accepted business principles, as it would have to be done if an adjustment in fees to the doctor were made, because then there would also have to be an adjustment in the premium cost to the individual.

Senator Hill. In other words, the premiums would be raised? Mr. McNary. They would, unless the plan were operating with a substantial surplus already and there was money in there to do it with. Senator Hill (presiding). Do you have any questions, Senator Senator LEHMAN. No questions. Senator Hill. Senator Ives, would you come around and join us?

Senator Ives. I am here to be heard, not to listen. Thanks. I appreciate the thought.

Senator Hill. Mr. McNary, we certainly want to thank you for
your testimony.
Mr. McNary. Thank you,

Senator Hill. Thank you very, very much.
Senator Ives, we will be happy to hear from you at this time.


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Senator Ives. I am just coming in to appear in connection with
the bill which has been introduced by Senator Flanders and muelf. auility for the
with which I think some of you may be acquainted, S. 11.53. "This l'are Plans,
bill or a similar one was introduced during the 81st Congress. It is Blue Shieli
was not introduced in the 82d Congress. We introduced it again la44

atas first esta year--as a matter of fact, on March 2, 1933.

California Physi
We feel that the approach contained in this bill is the approach California.
which we should aim for in the whole matter of health insurance.
It is entirely voluntary under the terms of the bill, utilizing fully the

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.. wganizations, voluntary agencies, the local agencies, like the Blue Cross and the

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pr Blue Shield and others, and operating from the standpoint of the Federal Government through the States and the States in turn through the localities.

The provisions in it would be carried out in such a way that subscribers would contribute in accordance with their capacity to pay

...and serves as li

me that rolunta Ilowever, we realize anything of this nature is going to cost a con

terprise, will ul siderable amount of money. I have attempted to get from the budget some information, but I haven't yet been able to find out what the

Wing medicali
cost would be.
The administration feels as a beginning we should undertake the

efforts of
program which they have recommended and which I assume is the
legislation immediately before you.

Personally, I think I can speak for Senator Flanders in this-he
may appear himself--we feel that under the circumstances we should
get behind the administration bill because we feel it is, to use an old,
trite phrase, a definite step in the right direction, the direction in

core than 10 which we desire to go, and for that reason I am here this morning to tell you we are not asking for our bill, S. 1153, but we are recotimeniling the administration program.

Senator Him. Thank you, Senator. Thank you very, very much, sir.

Senator Ives. I thank you very much.

Senator Hill. Would you like to have your bill for informatie
purposes put in the record or not?
Senator Ives. I don't think it is necessary.
Senator Ill. You would not?

Senator Ives. I don't think we need to waste the paper on it this
Senator Hill. We certainly appreciate your coming, Senator.
Senator Ives. Thank you very much.

Senator Bul. Mr. Frank E. Smith, director of the Blue Ske!
Medical Care Plans.

If you have a prepared statement, Mr. Smith, you may read your
statement or summarize it, or just proceed in your own way.

Mr. Smith. I would like to read it, if you don't mind. It is quite brief

Senator M. Ul right.

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Mr. Smith. My name is Frank E. Smith. I am the director, with full executive responsibility for the administration of the affairs, of Blue Shield Medical Care Plans, an Illinois nonprofit association whose members are 78 Blue Shield plans. I have held this position since the association was first established in 1946, having previously

been employed by California Physicians' Service, the Blue Shield plan the verring the State of California.

The 78 Blue Shield plans which I represent are locally incorpoLIR rated, autonomous organizations, each one of which is sponsored in

its own area by the medical profession, through a State medical de society, a county medical society, or a combination of such medical als organizations.

Each Blue Shield plan is operated in the public interest on a notatt for-profit basis, and serves as living testimony to the belief of the engine medical profession that voluntary methods, developed in an atmosiphere of free enterprise, will ultimately produce the best answer to at the problem of meeting medical care costs through prepayment.

Blue Shield Medical Care Plans serves as an association through

which the collective efforts of 78 member plans are coordinated in the pietre best interest of all concerned, the physician as well as the subscribing į member.

The affairs of the association are governed by the Blue Shield Commit mission, an elective body created by the plans themselves,

More than 29 million persons have been enrolled as members of Blue Shield in a little more than 10 years, a record in which we have considerable pride.

New members are being added at the rate of nearly 20,000 each working day, and the rate of growth has not yet shown any appreciable tendency toward slowing down.

It would be entirely safe to predict that many millions of new members will be added to Blue Shield during the next few years, whether or not any changes in present benefits or modes of operation were made; but one of the characteristics of any new enterprise, and certainly it is true of Blue Shield, is its flexibility and constant change in response to public needs.

Within the last year 10 Blue Shield plans have introduced new forms of coverage, generally known or described as benefits providing profection against the costs of prolonged illness. Many additional plans have such forms of coverage under consideration and will no doubt offer new certificates, or riders to existing certificates, to their subscribers during the current year.

Additional experimentation is being made in the direction of individual coverage for the nongroup subscriber on a more liberal basis, removal of age limitations for both group and nongroup subscribers, elimination of certain types of exclusions, and the extension of benefits into previously uncovered areas of medical and surgical care.

I believe you will agree that Blue Shield has made remarkable progress in meeting a public need in a very few years.

We have been invited to testify on previous occasions before committees of both the United States Senate and the United States House

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Secretary Hobby. No, sir.

Senator PurTELL. I think you have covered it most adequately in I. Nemo your testimony here, you and your associates, but I think you might Jus want to talk a bit more, if you will, on this question of the idea in the minds of a few that this might be the entering wedge to compulsory - dierent i health insurance or socialized medicine. I think perhaps you have worract some strong ideas about that, Mrs. Secretary, and want to express beter them.

Secretary HOBBY. Well, sir, we do have some strong ideas about it, and the whole purpose of the bill is to negate that, if I may express it

Tien that way.

noul. Thai This bill is not compulsory in any sense, and if a carrier, either a commercial or nonprofit carrier, were to apply and have a plan r. insured under the Federal reinsurance fund, the person purchasing the conditions insurance would be purchasing it in the same way that he had purchased it before.

There is no relationship disturbed between the buyer, the individual who buys the insurance, or the person who uses the insurance, and the traditional doctor-patient relationship. Neither is there anything compulsory as far as the Federal Government is concerned.

Mr. Rockefeller, would you like to add to that?

Secretary ROCKEFELLER. I think, Mr. Chairman, supplementing what the Secretary has just said, that in view of the facts that 93 mil. lion people have some health insurance, and 63 million have note: that the total bill per year for medical care, is running around 3.4 billion and that only $1.4 billion of that is covered through insurane protection; I think this shows that there is room and need for better protection.

There has been in previous times a great deal of support for various forms of compulsory health insurance, or so-called socialized medicine, The Secretary and the Administration have felt that the propril embodied in S. 3114 was a way of approaching that problem in the traditional American way of encouraging private groups to assume responsibility and, therefore, it was the greatest possible bulwark against socialized medicine or compulsory health insurance that could be developed, and that it gave great promise for that very reason.

Senator PORTELL. Does it in any way put the Government in the insurance field in competition with private insurance companies!

Secretary Hobry. So, sir; it doesn't The bill specifically provides that where comparable reinsurance is available from private out the Secretary is not authorized to reinsure.

senator P RIELL. Is the purpose, Mrs. Secretary, likely to result in Federal control of the insurance business?

Secretary Llorey. Oh, no, sir. We tried to spell that out very care fully, Mr. Chairman, becanse, as you know, now usually the State die. partments of insurance or the State commissioners of insurance regina inte carriers doing business in their States.

There is no provision for any kind of control by the Federal Giorernment over these carriers, and the Secretary is directed to use the State departments of insurance to the best possible extent,

Senator PURTELL. So, there is no intention, Mrs. Secretary, then. to change that traditional regulation of insurance companies by the States?

Secretary HOBBY. No, sir.

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May Mr. Perkins comment on that, Mr. Chairman? Senator PURTELL. We would like to have him do that. Secretary PERKINS. Just one amplification and that is the provisions which authorize the Secretary to establish standards for eligibility are very different from regulation of the industry. It is the same as offering a contract on certain terms; and if an insurance company doesn't like the terms, it doesn't accept the contract and there is absolutely no compulsion on any insurance company to enter into the program at all. It is very much the same relationship as would exist between a private reinsurer and an insurance company.

Senator PURTELL. Thank you.

I had some other questions here, Mrs. Secretary, but you have answered them all in your testimony, with this exception: I wondered if you wanted to elaborate a bit on the matter of so few regulations in the bill. I think you did touch upon it before, but it would leave so much to the administrative judgment of the Secretary, would it not?

Do you want to develop that? Secretary Hobby. Well, really, Mr. Chairman, we didn't think we know enough to write it any differently, and actually we hope there will be many types of plans that carriers will ask to have reinsured, and we could not envision enough to do that.

Now, that is one place where we think the advisory committee will be so useful, in this respect, because they will be people who have had practical experience in this field; and I should think if this plan works well, Mr. Chairman, it will be changing almost from plan to plan. Mr. Perkins, would you like to comment further on that? Secretary Perkins. I think that last point is a very important one, and that is the changing and developing nature of health insurance coverage. As we move forward in areas of major medical expense, and elimination of exclusions and that type of thing, the standards of eligibility would have to be changed in order to assure that the program is one to promote continuing development rather than to preserve the status quo. In order that we do not simply make the bill rigid, but enable it to be flexible, so as to provide for continuing improvement, it seemed essential, and the consultants were unanimous on this point, that authority ought to be given to the Secretary to modify the standards of eligibility from time to time. This would be extremely difficult if they were written into the act itself.

Senator PURTELL. Mrs. Secretary, this is really experimental and you want to feel your way along: is that correct? Secretary Hobby. That is correct. Dr. Keefer, would you like to comment on that point?

Dr. KEEFER. I think it would be unwise to have any rigid regula tions at this time because we want to have plans as flexible as possible

This was a matter that was discussed very freely by our consultants, and it was their considered opinion that it would be unwise at the present time to write in rigid regulations, that it would tend to freeze the various plans, and that this was no time for the freezing of any plan for health-insurance protection. Senator PURTELL. Thank you, Doctor.

Secretary ROCKEFELLER. Nr. Chairman, might I add one thought to those that have been expressed. As you know, there are 48 ditferent State laws governing insurance. Each one has its own pattern. And

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