viding medical care to the indigent, nor is it helpful to those who presently cannot qualify for it, and reinsurance does not enhance the power of insurance in these areas.

The reinsurance facilities have been proposed with the purpose of extending the frontiers of insurance effectiveness.

The rapid development of accident and sickness insurance has, however, been accomplished with little use of the already extensive reinsurance facilities available to the insurers, and we see no evidence that progress would have been augmented had reinsurance been used to a greater extent. The underwriting, or risk-bearing, capacity of the companies in this business is very large.

It should be explained that the technique of developing new benefits or new methods of distribution requires not only working capital which in this business is adequate, but also time for testing.

The advances which I have noted have been made by offering a benefit experimentally and then observing the results and making necessary corrections in rates or underwriting methods. Obviously, the operation of a new plan must be observed for a reasonable period of time before conclusions can be drawn and another step taken.

The companies which have contributed most to this evolutionary process in the development of accident and sickness insurance have generally made little or no use of those reinsurance facilities which have been and are available.

Senator PURTELL. Can you give us some idea as to how many companies are engaged in reinsuring in this field?

Mr. MILLER. There are quite a number. I made a survey just recently, following my appearance before the House Interstate and Foreign Commerce Committee, and in the short time I couldn't make a thorough survey, but I got replies from 12 companies which stated they were reinsuring, and I think there are at least a half dozen more which are, according to published information, reinsuring, and I have no doubt there are others, of which I have no information.

Senator PURTELL. Have you any idea as to the extent of this reinsurance in volume?

Mr. MILLER. I have that information with me, Senator Purtell, based on the responses from the 12 companies, which, of course, is not a complete

Senator PURTELL. This is entirely in the health field now, isn't it? Mr. MILLER. Yes; health and accident.

Senator PURTELL, Health and accident.

Mr. MILLER. Of course, it would include benefits for other than medical care. It would include loss of income and accidental death,

and so on.

Senator PURTELL. Have you got those broken down, too, so in the one case you differentiate between your strictly accident coverage and then your health coverage?

Mr. MILLER. NO; I was not able to get any segregation.

The 12 companies which furnished information received premiums in 1953 in excess of $11 million.

Senator PURTELL. But what percentage of that, what portion of that, applied to health insurance you don't know?

Mr. MILLER. No.

Senator PURTELL. Would you hazard a guess-and in this instance we will accept a guess-as to how that might be broken down, from your experience?

Mr. MILLER. I think the portion attributable to health insurance would be less than half.

Senator PURTELL. Would you think it would be substantially less than half?

Mr. MILLER. Probably, but I don't know.
Senator PURTELL. Thank you.

Mr. MILLER. The study indicated, however, there was a great deal of reinsurance capacity available, if people wanted to use it; but it hadn't been called upon.

I might also add that the 12 companies who furnished me with this information had capital and surplus funds aggregating more than $300 million. So, they are substantial insurers.

Senator PURTELL. Čould one of the reasons be there was no need of reinsurance I don't know this is so; I am asking you because you probably do know-is because the areas covered are so well known and the risks so positive and as a matter of fact from actuarial experience that there is little need for that-in other words, where the risk, tha is, the risk of excessive loss, is extremely low, where if you were exploring new fields-and I go back again to that theme-that perhaps you would increase the risk a bit and if you had some coverage there against some excessive loss in the form of reinsurance, such as this bill provides, you might then go into it more extensively?

Let me say that again.

Mr. MILLER. Yes.

Senator PURTELL. If one of the reasons insurance companies do not take advantage of reinsurance is the fact their experience has already established there isn't any need for it, that is, because the fields they are presently exploring, selling, they have determined what the risk is and there is no need for reinsurance against excessive loss: if we could encourage more rapid exploration of other areas of insur ance, there might then be a need for reinsuring against excessive loss. This bill, we hope, will encourage that, that is, seeking out new fields for coverage.

Now, if it were doing that and doing it more rapidly than we are doing it or have been doing it in the past, would not more reinsurance be needed?

Mr. MILLER. Senator, I think on that the record shows a continus' experimentation over the past decade or more, really over a period of 15 years. For example, the major medical expense policy is an entirely new development, as has been mentioned. There was no basis avail able for the determination of rates. The first company that went into it just went in pretty much on the basis of an intelligent guess, sup ported on what scant pertinent statistics there were. Subsequently, one of the largest insurance companies made a very careful and very scientific study, by getting from their own employees, number something over 30,000, I think, a record of their medical expenses dur ing a period of a year, so that they, then, had a basis, drawn from tha experience, for assessing the cost of this benefit. That is the general method. Either you extend some information you have or you seek information from population figures or a special study of this type,

Another example of that type of growth is in the hospital insurance. Originally most policies and plans covered only 30 days of hospital care. Now you can get it almost without limit. I have seen limits of 2 years. I think it can be bought almost to any one specification, and that has been a gradual development. After the cost of 30 days was established, it was possible to extend to 60 days, 70 days, and then 180.

That is the usual procedure followed, and most of that experimentation has been made by companies operating on their own, with their own resources, even though reinsurance could have been obtained in many cases, if sought.

Senator PURTELL. I was interested in your telling how one company went into the determination of whether or not they should go in and how extensive they should go into major medical expense, or catastrophic insurance as it is commonly called. You indicate after some limited experience on the part of one company, or upon its part, they took a survey of the impact of medical expenses on 30,000 of their employees; is that correct?

Mr. MILLER. Yes, sir.

I was speaking of two different companies.

Senator PURTELL. Yes.

Mr. MILLER. The one company started off without that survey. A different company made this study.

Senator PURTELL. I wondered what decided the company to go into it-this company that made the survey of its 30,00 employees-to determine the advisability or, rather, the tables that might be used in covering that type of insurance.

What I am getting at again is that there is a need; isn't that right? Mr. MILLER. Yes.

Senator PURTELL. It existed before it went into it. It existed in different degrees, of course, for many, many years. There was a field that certainly some experimental work might have been done before it was done; isn't that corect?

Mr. MILLER. Well, that is

Senator PURTELL. One of the reasons we don't do it is the fear of excessive loss, until we determine from rather long experience that will not be suffered; is that correct, or if it is we can adjsut our rates to meet it?

Now, if we were insured against excessive loss in that particular field, would it not encourage us to go into it quicker?

What we are up against is this, as I see it: This health problem is a major one, and there are many answers that are offered to it, from socialized medicine all the way down the field.

It is my belief we should find, as quickly as we can, the answers to it so we can avoid the pressures that are at times exerted to try to take the thing at one fell swoop and go into socialized medicine, and then you have got the answer which, in my opinion, isn't the answer at all.

If we can increase or accelerate the activity of the companies presently covering this-nonprofit and profit companies-so that we will reduce and, I hope, ultimately eliminate the health problem, then you won't be faced with this demand for socialized medicine, which will be the answer, they feel, to the whole health problem.

Mr. MILLER. Yes.

Well, I agree entirely that is the approach that should be followed. Now, as to the best way of bringing that about, that seems to me where the problem lies.

It is my feeling companies are not deterred from experimentation so much because of the fear of tremendous losses as from the lack of knowledge.

Now, they have to have some basis of proceeding. That is why this one company I mentioned made this very extensive survey among its own personnel.

So far as the problem of abnoraml loss, that can be controlled to a considerable extent, and perhaps as effectively as through a reinsurance by limiting the size of the experiment. In other words, a company can so merchandise an experimental program that they get some experience from a limited volume of business before attempting to sell it to the greatest number of people; and that type of self-imposed limitation is often employed in this experimental area.

Then, by doing it that way, through a self-imposed limitation, the company is freer to develop its program along its own ideas, whereas the reinsurance plan would mean another step in the process of ex perimentation, since the company would have to present its program for reinsurance and go through the administrative problems of getting acceptance.

Senator PURTELL. Of course, this is a voluntary plan now.
Mr. MILLER. Yes.

Senator PURTELL. And knowing it is a voluntary plan, can you conceive in any way where the enactment of this bill would deter or hinder present efforts on the part of companies to expand coverage! I don't see where it would interfere, hinder, or retard in any way the activities of companies presently engaged in expanding their

coverage.

It is voluntary. One doesn't have to do it. One doesn't have to subscribe to it. One doesn't have to be reinsured under it.

Can you see where it would hinder what you are presently doing?
Mr. MILLER. No; it couldn't cause any hindrance there.
Senator PURTELL. Thank you.

I am sorry for these interruptions. I do think, though, they ought to go on the record at the time we are discussing it.

Mr. MILLER. Yes.

Senator PURTELL. It is better that way. It is easier to study when we study the records later.

Mr. MILLER. Yes. I am glad to have your questions.

These considerations raise the question as to the extent to which this new type of reinsurance would be employed by the insurance companies. From discussions with a number of company officers, it appears that some have not been able to envisage their use of a reinsurance facility of this type, while others find it difficult to appraise the bill without a more definite idea as to the precise conditions to be prescribed by regulation, and the level of reinsurance premiums and the many other details that are not spelled out in the bill.

Among the principles expressed or implied in the bill are: 1. Participation is its operation to be on a voluntary basis. 2. Reinsurance to be offered only when not obtainable from private

sources.

3. The recognition and use of State insurance supervision in the administration of the reinsurance.

While these principles appear to be implicit in the bill, it is not entirely clear that the provisions are so drawn as to assure their observance in practice.

With respect to the third principle mentioned, we wish to point out that the insurance companies have in the past supported supervisions by the several States and we wish to reaffirm the belief that the business should be supervised in this manner.

As mentioned, we are very much in favor of the overall objectives of the proposed health program. We do feel constrained, however, to present to you this summary of our analysis of the reinsurance bill, which is a part of the total program, and to raise questions which have occurred to us and which we feel should be carefully considered by this committee.

The reinsurance proposal presents a new concept of far-reaching importance. Since its introduction, most insurance people have been able only to consider its general objectives, and to speculate on its possible use and effectiveness. A number of them have expressed concern on matters such as the subsidy inherent in paying expenses over the early years, the granting of extremely broad discretionary powers to the Administrator, the seemingly complex problems of administration and what is regarded as putting the Government into business despite the principle frequently expressed by administration spokesmen of taking the Government out of business.

There has not been an opportunity for the public to become informed concerning this measure which, of course, is intended for its benefit and welfare, nor for the public to give any expression of its opinion. We urge that these considerations warrant the most careful study of the measure with adequate time for evaluation of its many impli cations and of alternative methods of accomplishing the worthy objectives.

Thank you.

Senator PURTELL. I want to thank you.

Do you have any fear that this might result in subsidy to insurance companies on the part of the Government establishing that as a precedent?

Mr. MILLER. Well, there does seem to be a measure of subsidy.
Senator PURTELL. In the initial stages; in the first 5 years.
Mr. MILLER. Yes.

Senator PURTELL. This is purely experimental. We haven't anything to go on, and that is only for the first 5 years.

Mr. MILLER. Then there is also the problem of the Government's position if this initial $25 million were consumed through losses or inadequacies of reinsurance premiums, where the Government, despite the provisions of the bill, might not feel obliged to restore that fund and continue the reinsurance. That situation would be particularly true if noncancelable business were reinsured, where there were continuing losses that couldn't be relieved by

Senator PURTELL. Of course, there could be no commitment on the part of the Government beyond the $25 million. You know that? Mr. MILLER. Yes; I understand that.

Senator PURTELL. That is the maximum in the bill.