Secretary HOBBY. And, frankly, we feel that we have not the competence to go into a thing of this magnitude without having the very best advice that we could get.

Mr. BEAMER. Now I have one final question, and you need not answer this unless you wish; but you probably have many people who have spoken very kindly of the program, and I think all of us would like to see something done about it.

The chairman has aptly called it pioneering in a new field; and, whenever there is pioneering in a new field, there is going to be some opposition.

Have you had any group or groups, or individuals refer to this as an opening wedge for socialized medicine? You do not need to answer that unless you want to.

Secretary HOBBY. I do not believe anyone has referred to that. And I would ask any member of my staff if anyone has referred to that. Mr. BEAMER. Do all of the medical associations give their hearty approval to it? I will leave out the word "hearty" and ask only about the approval.

Secretary HOBBY. I do not know what the opinion of the American Medical Association is on this bill. However, Dr. Keefer had two conferences with them.

Mr. BEAMER. I presume, Mrs. Hobby, they will be before the committee. But I wondered whether you had any statement on that.

Secretary HOBBY. I really do not know, sir, what their final determination will be.

Mr. BEAMER. I take it that the legislation has been approved or reported by other departments of the Government?

Secretary HOBBY. By the Bureau of the Budget, the normal channels.

Mr. BEAMER. There are other things that I would like to pursue, but in the interest of time I will yield the floor.

The CHAIRMAN. Mr. Harris.

Mr. HARRIS. Mrs. Hobby, I observed that your recommendation is for the appointment of 12 members of the advisory council to be appointed by the Secretary. It occurred to me, as precedents in other matters, such appointments I believe were by the President of the United States. Is there any particular significance why you prefer to have it within the agency?

Secretary HOBBY. To tell you the truth, no. I don't believe it was ever even thought of the other way. As you know, I would have no objection to the President of the United States appointing them. Mr. HARRIS. I can appreciate that.

The CHAIRMAN. I suppose you work on the theory that he has already made a good appointment as Secretary.

Secretary HOBBY. Mr. Harris, I do not believe that ever really came up for discussion.

Mr. HARRIS. May I then inquire as to what size of an organization within your Department would it take to administer this program.

Secretary HOBBY. I do not know, frankly; but the best guide I can give you, and whether it is a good one or not really only experience will tell, is that we asked in the budget message that came up for $1,200,000 for administrative expenses for the first year.

I do not believe we can spend $1,200,000, but that is a wide estimate; frankly, I do not know what it is going to take.

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Mr. HARRIS. I realize the difficulty in making an estimate. But would it be fair to assume that it would require a number of additional personnel within the Department?

Secretary HOBBY. Yes, sir, I think it would, without any doubt, sir. Mr. HARRIS. Thank you very much, Mr. Chairman.

Secretary HOBBY. And it would require the best qualified personnel we could find, Mr. Harris.

Mr. HARRIS. Undoubtedly.

Mr. HALE. I just wanted to ask a few questions about the basic philosophy of the act. There are many details that I do not understand, but I do not want to take time for them now.

Is it your belief that the enactment of this legislation will accelerate very greatly the coverage of these insurance plans over our population? Secretary HOBBY. Yes, sir, I do believe that. And I would like Mr. Stuart, if he will, to comment on that and tell you about it from his experience.

Mr. HALE. I just want to know, and I am asking this question for information, I want to know why it would have that effect.

Mr. STUART. Well, it could have that effect, and I think it should have that effect, Mr. Hale. It might not. But we have certain problems in covering people in the voluntary prepayment plan not because of their unwillingness to provide the coverage for themselves, but because they are not in groups of employees that can be easily reached. For example, the whole problem of covering the self-employed, and the small groups, or the people living on farms. Their enrollment is -quite an expensive process.

We think that under this type of bill that the voluntary plans will be encouraged to do more than they are now doing to reach these people and to develop means to reach them that are not so expensive. Enrollment and acquisition now requires too large a percent of the total money paid in subscription fees or premiums.

For example, we think that, as has been done in a few Blue Cross plans, we might enroll a whole community as a group with an arrangement through the local bank to handle the billing and accounting. There are various methods of grouping that have not been very well worked out, and we have been somewhat afraid of going into these relatively new areas where the actuarial risks are not too well defined. We think, also, that in the nonwage and low-income group for people who are self-supporting, except in case of illness, a minimum program can be worked out which will be more effective than anything we have been able to offer so far.

In other words, we believe, Mr. Hale, that the bill will encourage plans to cover population groups now inadequately covered, and to provide broader and more comprehensive coverage to those that are covered. Also, we believe that the bill will stimulate prepayment plans to eliminate the exclusions and preexisting conditions which heretofore have always been considered necessary in individual underwriting.

Mr. HALE. But this reinsurance fund, or whatever it is called, is never going to have any direct relation to any individual or any group, is that correct, and it only acts through insurance carriers?

Mr. STUART. But it should encourage us to do more than we are now doing and to do things that probably we should be doing today.

Mr. HALE. Do you think, for example, that a man in a low-income group would be more ready to select health-insurance programs if he knew that this reinsurance fund existed?

Mr. STUART. No, but we would be more ready, I think, to try to work out programs to cover him if we felt we were not taking the total risk of the experimentation.

Mr. HALE. When you say "we," whom do you mean?

Mr. STUART. The prepayment plans. I am speaking of the voluntary prepayment plans.

Mr. HALE. You say that the insurance carriers who carry these prepayment plans would be more ready to extend their coverage if this Government agency existed?

Mr. STUART. We hope so, and we think it is possible that they will. Mr. HALE. At any rate, you think it is an experiment that is worth making?

Mr. STUART. Quite so.

Mr. HALE. It is an experiment, of course, nobody questions that. Secretary HOBBY. It is.

Mr. HALE. Is there any legislation in any other country at all like this? Is there any precedent for it?

Mr. STUART. I think if you would ask that question of Mr. McNary, who is scheduled to appear before you on Friday, he can give you the answer. There may be some precedent in Australia, and he has studied that program.

Mr. HALE. Thank you very much.

The CHAIRMAN. Mr. Rogers.

Mr. ROGERS. Mr. Chairman, before I ask Mrs. Hobby this question, I want to state that I attended the program of Youth Wants to Know last Sunday afternoon, or the Sunday before, on which Mrs. Hobby was on the program. She did a most excellent job of answering the youths who were propounding questions to her.

Now, I want to ask you this question, do you interpret this at all as being subsidizing the insurance companies?

Secretary HOBBY. No, sir; I do not think so by the remotest stretch of the imagination, Mr. Rogers. I think the principle of reinsurance is very well established. All that it does is to broaden the base of the risk. No, sir; I do not think it subsidizes insurance companies, Mr. Rogers.

Mr. ROGERS. Could you consider it as a subsidy to the insurance companies that, if they had a loss, they would be paid back for whatever loss they had to pay?

Secretary HOBBY. I do not believe it is a subsidy. I would like to have Mr. Stuart speak to it, and perhaps Mr. Perkins would, then, like to comment.

Mr. STUART. The special consultants did not think that there was any subsidy in the bill.

Mr. ROGERS. Suppose your company had a loss?

Mr. STUART. Of course, but the fund would write more than one reinsurance plan. You might lose on one, but you should gain on others. This would not be in any way a subsidy.

Mr. ROGERS. The loss would be taken out of the taxpayers' money is that not right?

Mr. STUART. But there would be gains in other plans to the fund which would offset the losses.

Secretary HOBBY. They pay for the reinsurance fund.

Mr. PERKINS. Perhaps I passed over too fast on these last two points of the chart. No. 6 here is the Federal liability. It is limited to the fund to the $25 million authorization of borrowing power, plus the amount paid in as reinsurance premiums. In our opinion, it is entirely on a nonsubsidized basis and self-supporting.

The important thing to recognize is that the fund receives income from reinsurance premiums. These reinsurance premiums would be calculated by the actuaries, with a view of making it self-supporting, just as though it were a reinsurance enterprise.

If the actuaries are right and the reinsurance premiums are adequate to cover the reinsurance risk, it should be a self-supporting enterprise.

Mr. ROGER. Suppose it is not self-supporting, then, what would you call it

Mr. PERKINS. If the actuaries turn out to be wrong and the whole thing fails, then we have not run the business right; and I suppose it is up to Congress to decide it goes any further.

The CHAIRMAN. I suppose all insurance is in the nature of a subsidy; it subsidizes the individual against his cost. What does an insurance company do when they take an insurance on the life of an individual with the thought that he is going to live to 90 and he dies at 40? There you have a great loss.

So the whole subject, it seems to me, is one that is more or less of a question of subsidizing.

Mr. HESELTON. Mrs. Hobby I had to appear before another committee and I did not have the privilege of hearing your full statement. I will, however, read you statement carefully. But my attention was called to a rather unusual provision in section 406 as to the effective date.

* * * nothing in this Act shall require the Secretary to receive or consider applications under title III before such date as the Secretary may determine. I assume there was some reason for that.

Secretary HOBBY. There is and it is a very simple reason: We do not know how soon we could be ready to do it. That is the reason we wrote it just the way we did, because we have had enough experience in trying to write this bill to realize how complicated and technical it is to set it up on a right and sound basis. And that is in there because we want to do it at such time as we thought we were ready to proceed.

Mr. HESELTON. Thank you.

Mr. THORNBERRY. In your statement, Mrs. Hobby, which begins at the bottom of page 13, you point out some of the purposes which you hope will be accomplished under the reinsurance bill. Now, as a matter of fact, if we do not accomplish a large part of those objectives, then there is no use for this program, is there? We are not contemplating reinsuring programs as they exist now.

Secretary HOBBY. Mr. Stuart answered that, but I will answer the general intent of it.

If it promoted the purpose of the program and broadened and improved coverage, a carrier could really revise an existing plan. He might pay for more days in a hospital. He might give more sick benefits, and he might extend it into these expensive areas that Mr. Stuart was talking about.

And at that point, I wish someone would put that chart up. Mr. O'Hara has gone, and I wanted him to see that. But I think all of you I will be interested in that chart.

That chart shows the percentages of the population in those States having coverage. You can see in some of the sparsely settled areas we have the lowest coverage because it is expensive to the insurance carriers to sell there; it is expensive to enroll groups.

As Mr. Stuart said, unless you could get a township in a group, which we would hope to do under this plan, it would be difficult. Could you answer the technical aspects of that, Mr. Stuart. I think you can do it better than I.

Mr. STUART. Well, if it served no other purpose and reinsured no programs at all, Mr. Thornberry, I think it would have the effect of encouraging us to do the job in the voluntary field ourselves.

The suggestion was made a while ago and I said there was very little reinsurance available. I think this bill might stimulate insurance companies to go into the reinsurance business in a much larger scale. But I can think of no prepayment plan, that cannot, if it wishes, use this program to the advantage of the people.

For example, in Cincinnati, in that area we have about 85 percent of the population enrolled in some type of health insurance for hospitalization and 63 percent have Blue Cross. But we have not extended coverage in the hospital beyond a certain number of days. We have not taken care of long-term catastrophic illness. And we would like to think in terms of using this reinsurance program to go further in providing protection for catastrophic illness and major medical expense.

Mr. THORNBERRY. I think you have partly answered my question, but my point is that the purpose of this program is not to be furnishing reinsurance to carriers who are furnishing the services we have today, but the purpose of it is to extend the coverage and make it more comprehensive. I do not suppose, if someone came to you with a program which is being carried on now, there would be much interest in furnishing reinsurance to the carrier who does not intend to improve his program. Is that what is contemplated?

Secretary HOBBY. Mr. Thornberry, I think there is another reason why he would not be coming to us. If he is making money out of it and it is a sound plan, there is no reason in the world why we would pay a reinsurance premium and share his profits.

Mr. THORNBERRY. That is right as to existing carriers, but you are going to have some carriers who will say: "We would like to go into the business and furnish certain programs. We haven't done it before, and we would like to have the reinsurance and we would be willing to pay the premiums."

But, if these people are not able to improve on what we have now, there would not be any reason for reinsurance as to them; would there be?

Secretary HOBBY. The whole purpose is to broaden and improve prepaid voluntary health insurance.

Mr. THORNBERRY. Now, we have gone over the original chart on people who do not carry hospitalization now, and I am not going back to those on the left-hand side of the circle.

But I want to talk about the low-income group who for some reason or other now do not carry hospitalization insurance. I would