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economic nature. Extended hospitalization and medical attention prove exceedingly costly. While society has made provision for the very poor to be taken care of if they require extended hospitalization and medical treatment, and while the very rich are able to take care of themselves in that regard, the large majority of our people do not appear to be protected sufficiently from the high cost resulting from extended serious illness.
Many plans are in existence which seek to give protection against medical and hospital expenses. It is our purpose in this second series of our hearings to go into the question of how extensive this coverage is. The committee is concerned with the cost of such protection and whether it extends to major or catastrophic medical and hospital expenses. We are also interested in learning of the arrangements under different plans now in existence which have been made with hosptials and physicians. The committee likes to learn about the experience gained with existing plans, including the difficulties that have been encountered in the administration of such plans. Growing out of the experience with existing plans, the committee hopes to learn of ways and means by which voluntary protection can be improved and broadened.
This morning the committee will have an opportunity to inform itself with regard to the protection made available by commercial insurance companies on the basis of group insurance plans. It is my understanding that our first witness this morning, Mr. Henry S. Beers, vice president of the Aetna Life Insurance Co., will devote his statement to a discussion of group health insurance in general. Mr. Beers will be followed by Mr. Edmund B. Whittaker, vice president of the Prudential Insurance Co. of America, who will discuss particularly major medical insurance which is designed to give protection against catastrophic medical and hospital expenses.
These two gentlemen, in turn, will be followed by two witnesses who will talk about the experience of their respective insurance companies with group health insurance-Mr. A. M. Wilson, of the Liberty Mutual Insurance Co., and Mr. Charles G. Hill, of the Massachusetts Mutual Life Insurance Co.
Before proceeding with the first witness I would like to take the liberty of placing in the record a very brief excerpt from a recent speech delivered by Mrs. Oveta Culp Hobby, Secretary of the Department of Health, Education, and Welfare, before the national meeting of the American Hospital Association, San Francisco, August 31, 1953. I do so because I hope in these few days of hearings the major points she has made in this excerpt will be a matter of interest to the witnesses who will testify here, and so they will be in a position, perhaps, to comment specifically on the points she makes. She says:
I realize that a hospital administrator is like a man standing in the center of a seesaw ; he has to throw his weight first on one side and then on the other to maintain a delicate equilibrium between the two ends.
He is a man caught between the pressures of economics and the pressures of medical advances; between the upsurging idealism of what a hospital aspires to offer human beings in medical care, and the downpressing realism of what the hospital can afford to do if it is to remain in existence at all.
That you do so well at all times is a great achievement. But the hospital administrator must be constantly on the alert never to let his cash register problems so absorb him that he becomes a hotel keeper. Let him always keep a clear definition in his mind of the differences between the professional services of his hospital and its hotel function.
Unfortunately, you must also grapple with another, and a very important, problem of hospital economicsthe individual's ability to pay. By way of illustration, here are three case histories-types which are, I am sure, all too familiar to you.
I know three couples, each of whom had a little girl.
The daughter of the first couple was born prematurely. She weighed 2 pounds, but thanks to the best medical care, 3 months in the hospital incubator, and highly trained nurses at home, she is today a strapping 10-year-old and the joy of her parents-their only child.
Her father said that she cost him $4,000 in her first year of life with the result that they had to delay building their permanent home for several years.
The second couple's little girl was born defective, the fifth of their closely spaced children. The father was a journalist making $100 a week. The child lived a year, and most of that year was spent in a hospital. When she died, her parents felt sorrow, but their friends considered it a blessing.
Now the father is paying off what seems to him a monumental debt, and the mother sees her other four children doing without many essentials to pay for the baby who died.
The third couple's little girl was adopted. Both parents worked, and when the child developed a cyst in the eyelid, they took her to a private pediatrician. Running the routine blood test before the operation, the doctor discovered that she had leukemia. Thanks to the resources of the community, he was able to transfer her from his private patient list to a part-pay clinic list in the hospital. He knew that the parents could have afforded the originally planned operation, but could not possibly afford the long-term illness ahead.
These three cases make a story. The first family was taxed by the costly first year of their little girl, but was sufficiently well-to-do not to be crippled by it. They were glad to pay their bills.
The second family, people who would normally expect to pay their own way and who neither by education nor background could expect charity, were severely hurt.
The third family are the kind who pay their own bills when they can, but are able to accept partial or total charity when they need it.
The first and third of these families feel only gratitude to the private enterprise system which made possible the superb medical care which helped them keep their beloved children alive.
The second family is today frankly and ardently in favor of socialized medicine.
Now I shall be completely candid. Speaking as a layman, I believe that an overwhelming majority of the American people have no desire whatsoerer for socialized medicine in any form.
The professional services are so geared and so priced that the middle-income American-if still under 65—can pay the bills for an appendectomy, obstetrics, tonsillectomy, or any other average medical problem.
But we have not yet found a way to save any average American family from destruction by the catastrophic illness. And we have not found a sure way to see our retired senior citizens through the increased illnesses of age.
Some private foundations have helped. The National Foundation for Infantile Paralysis, for instance, has been the salvation of thousands of families which have suffered a severe case of poliomyelitis.
But tuberculosis, strokes, congenital defects, cancer, arthritis, and many other diseases by their very duration can still wreck many a family's economy.
The prepayment plan launched at Baylor University Hospital in Dallas has provided a start on one answer-a wonderful and inspiring start. Hospital leadership promoted and led in the development of that plan into the Blue Cross which today has almost 45 million members.
Millions of families now have a measure of assurance that they will receive hospital care when they need it, and hospitals have gained a financial stability that they never had before. But is this enough? I think we will all agree that it is not. More is needed, and we must find the way to achieve that more within our private enterprise system.
The Federal Government would, I know, be going against the wishes of the American people were it to enter this field. President Eisenhower has said: "* * * We are opposed to Federal compulsory health insurance with its crushing cost, wasteful inefficiency, bureaucratic deadweight, and debased standards of medical care. We shall support those health activities by Government which stimulate the development of adequate hospital service without Federal interference in local administration. We favor support of scientific research. We pledge our continuous encouragement of improved methods of assuring health protection."
Thus the final answer must come, as it has always come, through the ingenuity and knowledge, the efficiency, and industry of the American people; through the voluntary application of our free enterprise principles to a major national problem.
Now, it will be a pleasure to hear our first witness, Mr. Henry R. Beers, vice president of the Aetna Life Insurance Co. At this point in the record we will insert a biography of Mr. Henry S. Beers.
(The biography referred to is as follows:)
BIOGRAPHY OF HENRY S. BEERS
Henry S. Beers is vice president of the Aetna Life Insurance Co.
Born in New Haven, Conn., he graduated from Trinity College with a bachelor of arts degree. After serving in the actuarial department of Travelers Insurance Co. and the Home Life Insurance Co., he went with the Aetna Life Insurance Co. in 1923. After serving as assistant actuary and associate actuary, he became vice president in 1937; chairman, Governor's Commission on Unemployment Compensation, 1936; member, Connecticut State Employees' Retirement Commission since 1939; chairman, Advisory Council under Connecticut Unemployment Compensation Law since 1937. He is a fellow of the Society of Actuaries.
STATEMENT OF HENRY S. BEERS, VICE PRESIDENT OF THE
AETNA LIFE INSURANCE CO.
Mr. BEERS. My name is Henry S. Beers of Glastonbury, Conn. I am vice president of the Aetna Life Insurance Co. of Hartford, Conn. Glastonbury is right near Hartford.
The Aetna has been writing group insurance for 40 years. During this period it has been one of the principal group-insurance writing companies, ranking among the top five. I have been with the company for 30 years, spending most of my time on group insurance. I will direct my testimony toward the subject of how group insurance protects people against medical and hospital expenses.
As you know, insurance companies offer health insurance in two basically different forms: group insurance and individual policies. Group insurance is a wholesale method of furnishing protection, so to speak, while individual policies reflect essentially a retail approach. I understand that another witness is planning to discuss the important field of individual health policies, so my remarks will be restricted to group health insurance.
To give you a very general indication of the quantitative importance of my particular field
of discussion, I might say that almost 40 million persons are covered for health benefits under group insurance policies, and that the insurance companies are paying almost $1 billion per year in benefits under group health insurance policies. These benefit payments have been growing rapidly, perhaps doubling every 3 or 4 years on the average.
I had the good fortune to get into group-insurance work before group insurance was more than 10 or 15 years old. Between 1918 and 1922 I had passed the examinations of the Actuarial Society of America to become a life-insurance actuary, but soon after that I moved to the Aetna Life Insurance Co. and undertook to apply my actuarial training to group-insurance problems, as so many other members of the Actuarial Society have done before and since.
When I entered the group-insurance business, it was mostly group life insurance. My company's group insurance was then about 95 percent group life, and only about 5 percent in the health-insurance field. Nowadays our group business is one-third life insurance and two-thirds health insurance, basing the comparison on benefits paid. When I entered the business 30 years ago, the group health insurance protection was all of the kind that pays a weekly benefit on proof of disability, regardless of whether the medical and hospital expenses are great or smalí.
This original kind of health insurance does not bear so directly on your problems here as some of the newer kinds of health insurance; but insurance-benefit payments while a person is disabled are part of the financial resources that must somehow be stretched to cover food, shelter, hospital bills, medical expense, and other immediate necessities of life; and this is equally true whether the direct cause of the benefit payment is that the recipient is too ill to work or that he receives a particular kind of treatment for his illness.
It may help at this point to give a working definition of group insurance which I have found useful. For our present purposes we can think of group health insurance as an employee health and welfare plan administered by an insurance company.
This means that when I use the term "group policy," I normally mean a policy covering a group of employees. Usually_the group policy is issued in the name of the employing company. Frequently, nowadays, a plan of group insurance is the result of negotiations between a number of employers in some industry and the union or unions representing their employees; in such a case a single group policy is often issued in the name of trustees, to cover the employees of these several employers under the same policy.
The group policy states what employees are to be eligible for corerage, such as all employees of such-and-such an employer who have been in his employ for some period, such as 1 month. Note that new employees become eligible as they meet the qualifications. Correspondingly, insurance ceases when employees terminate their employment. The policy can cover any reasonable class, such as employees at a particular plant, if the employer has several plants; or it might exclude a class, such as clerical or salaried employees.
The group policy states the benefits for which each employee is to be insured. If the benefits are not the same for all employees, they must be based on rules precluding individual selection. Those rules are set forth in the group policy.
For example, a group policy might provide $30 per week during total disability from nonoccupational accident or disease.
I might say group insurance is directed primarily against the class referred to by the chairman in the opening remarks of his that were read, where he said:
Society has made provision for the very poor and the rich take care of them.
Under group insurance there are not too many of the rich covered, and in general the very poor are not covered, but it is the intermediate group that group insurance is primarily directed at.
Alternatively, the emplovees might be divided into three earnings classes in which the weekly benefits might be $26, $38, and $50, respectively. In either of these cases, the schedule of benefits would be carefully constructed so as not to insure anybody for more than about 65 or 70 percent of gross pay. One of the oldest and best-proved principles of health insurance is that, if people are insured for too high a percentage of take-home pay, it is hard making some of them stop drawing benefits when they are really well enough to go back to work.
You might be interested to know something about the usual limits on the period for which loss-of-income benefits
are payable. The most popular arrangement used to be to limit total payments to 13 weeks for any one disability, and to make no payment for the first week of disability. The two most popular variations were either to cut the waiting period from 1 week to 3 days, so as to begin payments with the fourth day of disability; or to extend the limit to 26 weeks. These two variations cost about the same amount.
We found that employees seemed to react more favorably to the cut in the waiting period than to the extended limit; i. e., they seemed to prefer the increased likelihood of collecting a claim to the increased protection against the much more serious, although less likely, possibility of being disabled for a longer time than 13 weeks. During recent years, the 26-week limit has tended to increase in popularity somewhat. This may indicate an increased popular appreciation of the value of insurance against the less frequent but more serious catastrophes.
Coming back to group insurance in general, I have stated that normally a group policy covers a defined group of employees for a stated schedule of benefits. Another generality concerns the payment of the premiums. Sometimes the employer or employers of the insured employees pay the whole premium. A number of large unions have arranged through collective bargaining for substantial group insurance plans to be paid for entirely by the employers, and these plans have received more publicity than the great number of small and medium-size plans that are in force. Among the latter, the great majority are on what is called a contributory basis, the employees paying a stated amount per month toward the premium and the employer paying the remainder. In some instances, group policies have been issued on an employee-pay-all basis, but these have been successful only to a limited extent, and they are becoming less common all the time.
I feel that I must apologize for talking to you in such an elementary way, but it seemed best to take these few minutes to get the main characteristics of group insurance before us, since it differs considerably from individual insurance in many important respects. Thus, I have said nothing about refusing to cover individuals who are not good risks. One of the great advantages of the group scheme is that when insurance is offered to a group of employees, it can be offered to all on the active payroll even though some of them may have heart impairments or anything else the matter with them. Of course, the employees out sick at the time, not being on the active payroll, will have to wait until they come back to work before becoming insured. We even make exceptions to this sometimes.